Tag Archives: economics

Black folks have no savings (poor whites too)

The wealth of the mean American household has dropped significantly since 2007, a result of the general de-industrialization of America. It’s not that America has gotten poorer, but in the last 8 years we’ve increased the economic divide, enriching the richest few percent while leaving behind the working and bourgeoise classes. We are beginning to come back, but a particularly nasty legacy remains, especially among black families. Some 47% of black families have no liquid savings  — a far greater fraction than in 2007. The lack of savings also appears in white families (19%), and Hispanics (41%), but it’s most desperate among blacks.

College graduation rates have increased among black students, and along with the increase there has been an increase in salaries, but savings have declined. As of 2015, 22.5% of black students and 15.5% of Hispanic students had completed four years of college. This compares to 36.2% of white students, an inequality, but not a horrible one. By 2013, the average salary of a black college grad was somewhat over $1000/week, somewhat less than the average for whites, but enviable compared to the world as whole. The problem is that black workers manage to save very little compared to other ethnic groups, and compared to previous savings rates as shown by the graphic below. By 2013, the net worth of the median black family (savings, plus paid-off part of home and car) was a mere $11,000 (Pew Research Data, below), down from $19,200 six years earlier, and much lower than the net worth of white families (also down since 2007). Liquid savings among blacks are much lower — near zero — and this is just the mean. Half of all black families are doing worse.

Net worth disparity 2007 - 2011. Black folks are doing poorly and it's getting worse.

Net worth disparity 2007 – 2011. Black folks are doing poorly and it’s getting worse.

The combination of low savings and low net worth puts black folks at a distinct disadvantage to their condition six years earlier. Without savings, it is near-impossible to weather the loss of a job, or even to fix a car or pay a ticket, Surviving through a disease is basically a one-way ticket to the welfare office. Six years ago, when people saved more and prices were lower, problems like these were major annoyances. Now, a job loss or a major repair is a family disaster.

The growth of check-cashing services in black neighborhoods is a symptom, I suspect, of the lack of liquidity. A person without savings will not have a checking account. As such, he or she will not have a credit card or check cashing privileges.  The only way to cash a check will be via a for-fee service, and these tend to come at a steep cost (2-5%). People with savings accounts can cash checks essentially for free, and can usually borrow money by way of a credit card. People without savings can’t get approved. Black people and poor whites tend to use debit cards instead. They look and work like credit cards, but they incur fees upon use, and do not provide instant loans. When black folks and poor whites need quick cash, their options are the loan-shark or the pawn shop: high-cost options that take a giant toll on the family.

As mentioned above, black individuals and families have lower incomes than whites at all education levels. While racism, no-doubt plays a role, as best I can tell, the largest single cause seems to be family stability. Employed, college-educated blacks earn, on average, 95% as much as employed, college-educated whites — not great, but not bad. The real problem with black income is that black unemployment rates are higher, black education rates are lower, and single-parent families are significantly more common among blacks than among whites and Orientals. Roughly 40% of black families are single-mother, or mother+grandparent households compared to “only” 26% in the population generally. In both populations, the number of single parent households have increased dramatically in the last few years, a result I suspect of the government’s desire to help. The government gives more aid to a split-up couple than to one that stays together, but the aid brings with it long-term damage to net worth. A family with one parent will naturally have a lower-income and savings rate than a family with two. The lack of stability and savings that comes from having a single parent family, I suspect, has contributed to crime, births out-of-wedlock, and the tendency of blacks to drop out of college.

Black families don't benefit as much from college --in part a result of the choice of courses.

Black families don’t benefit much from college –in part a result of course choices, in part the result of borrowing. (Forbes, 2015).

One finds that do-gooders in the white communities want to eliminate check cashing businesses and pawn shops in a misguided desire to help the low-income neighborhoods, but the success of these companies tell me that they are needed. Though check services and pawn brokers take a nasty bite, urban life would be much worse without them, I suspect.

Another so-called solution of the do-gooders, is to tax savings and transfer the wealth to the poor. This form of wealth redistribution has been a cornerstone of the Democratic party for the last century. The idea of the tax is that it will transfer “idle wealth” from rich savers to poor folks who will spend it immediately. The problem is that great swathes of the nation don’t save at all currently; net worth is down all across the US — among white and black families both. Taxing savings will almost-certainly reduce the savings rate even further. Besides, savings are the stuff of self-determination and dreams — far more than spending, it is savings that allows a person to start a new business. One does not provide for the dreams of one group by taking them from another — particularly another group chosen to be immediate spenders. That is a route to community disaster, is seen by looking at Detroit.

As it is, many poor, inner city children do not see a path out via education. Detroit school attendance hovers around 50%, and business startups are lacking. As best inner city people can tell, the only ways out are sports, music, prostitution, crime, and the church. With higher savings rates and higher family stability, folks could start businesses, and/or take advantage of job opportunities that come along. People seem to think that wealth redistribution should help, but it just seems to reduce savings and family stability. Every effort to increase wealth redistribution only seems to make things worse in Detroit.  It sometimes seems that the only businesses in Detroit are check cashing, pawn brokers, churches, hair-salons, fast food, and medical marijuana — businesses that require little investment, but provide little community return too. Detroit has lost its manufacturing center, and now has more medical marijuana providers than groceries — a sad state of affairs.

The Check cashing services of south-eastern MI are concentrated in poor black and white neighborhoods.

The Check cashing services of south-eastern MI are concentrated in poor black and white neighborhoods.

In 2016, both presidential candidates touted major infrastructure projects, highways and the like, to help the inner city poor. In principle this can help, but I have my doubts. One basis of doubt: inner city youth do not have the training to build roads and bridges — they have barely the training to work at McDonald’s. For another thing, if the project itself isn’t needed, it becomes another form of income redistribution. There tends to be a lack of pride in doing it well, and the benefits are basically nothing. A major war could provide jobs, of course, but most sane people prefer peace. Trump has made the case for tariffs (closing off free trade) as a way to rebuild the industrial center of cities like Detroit. It’s an approach that I think has merit. He’s also suggested closing the border to low-wage, Mexican workers, and recently signed a bill that raised the minimum wage for foreign workers. This is expected to raise the price of California lettuce and NY hotel stays, but is likely to increase employment among low-skill Americans — blacks and poor whites. Small steps, I think, to solving a serious national problem.

Robert E. Buxbaum, April 21, 2017. I ran for water commissioner 2016 (Republican). I lost. I also have some infrastructure suggestions, including daylighting some rivers and adding weirs to improve water quality and stop flooding. If you like my ideas (or don’t) please provide comments.

The game is rigged and you can always win.

A few months ago, I wrote a rather depressing essay based on Nobel Laureate, Kenneth Arrow’s work, and the paradox of de Condorcet. It is mathematically shown that you can not make a fair election, even if you wanted to, and no one in power wants to. The game is rigged.

To make up for that insight, I’d like to show from the work of John Forbes Nash (A Beautiful Mind) that you, personally, can win, basically all the time, if you can get someone, anyone to coöperate by trade. Let’s begin with an example in Nash’s first major paper, “The Bargaining Problem,” the one Nash is working on in the movie— read the whole paper here.  Consider two people, each with a few durable good items. Person A has a bat, a ball, a book, a whip, and a box. Person B has a pen, a toy, a knife, and a hat. Since each item is worth a different amount (has a different utility) to the owner and to the other person, there are almost always sets of trades that benefit both. In our world, where there are many people and everyone has many durable items, it is inconceivable that there are not many trades a person can make to benefit him/her while benefiting the trade partner.

Figure 3, from Nash’s, “The bargaining problem.” U1 and U2 are the utilities of the items to the two people, and O is the current state. You can improve by barter so long as your current state is not on the boundary. The parallel lines are places one could reach if money trades as well.

Good trades are even more likely when money is involved or non-durables. A person may trade his or her time for money, that is work, and any half-normal person will have enough skill to be of some value to someone. If one trades some money for durables, particularly tools, one can become rich (slowly). If one trades this work for items to make them happy (food, entertainment) they can become happier. There are just two key skills: knowing what something is worth to you, and being willing to trade. It’s not that easy for most folks to figure out what their old sofa means to them, but it’s gotten easier with garage sales and eBay.

Let us now move to the problem of elections, e.g. in this year 2016. There are few people who find the person of their dreams running for president this year. The system has fundamental flaws, and has delivered two thoroughly disliked individuals. But you can vote for a generally positive result by splitting your ticket. American society generally elects a mix of Democrats and Republicans. This mix either delivers the outcome we want, or we vote out some of the bums. Americans are generally happy with the result.

A Stamp act stamp. The British used these to tax every transaction, making it impossible for the ordinary person to benefit by small trade.

A Stamp act stamp,. Used to tax every transaction, the British made it impossible for ordinary people to benefit by small trades.

The mix does not have to involve different people, it can involve different periods of time. One can elect a Democrat president this year, and an Republican four years later. Or take the problem of time management for college students. If a student had to make a one time choice, they’d discover that you can’t have good grades, good friends, and sleep. Instead, most college students figure out you can have everything if you do one or two of these now, and switch when you get bored. And this may be the most important thing they learn.

This is my solution to Israel’s classic identity dilemma. David Ben-Gurion famously noted that Israel had the following three choices: they could be a nation of Jews living in the land of Israel, but not democratic. They could be a democratic nation in the land of Israel, but not Jewish; or they could be Jewish and democratic, but not (for the most part) in Israel. This sounds horrible until you realize that Israel can elect politicians to deliver different pairs of the options, and can have different cities that cater to thee options too. Because Jerusalem does not have to look like Tel Aviv, Israel can achieve a balance that’s better than any pure solution.

Robert E. Buxbaum, July 17-22, 2016. Balance is all, and pure solutions are a doom. I’m running for water commissioner.

Advanced windmills + 20 years = field of junk

Everything wears out. This can be a comforting or a depressing thought, but it’s a truth. No old mistake, however egregious, lasts forever, and no bold advance avoids decay. At best, last year’s advance will pay for itself with interest, will wear out gracefully, and will be recalled fondly by aficionados after it’s replaced by something better. Water wheels, and early steamships are examples of this type of bold advance. Unfortunately, it is often the case that last years innovation turns out to be no advance at all: a technological dead end that never pays for itself, and becomes a dangerous, rotting eyesore or worse, a laughing-stock blot or a blot on the ecology. Our first two generations of advanced windmill farms seem to match this description; perhaps the next generation will be better, but here are some thoughts on lessons learned from the existing fields of rotting windmills.

The ancient design windmills of Don Quixote’s Spain (1300?) were boons. Farmers used them to grind grain or cut wood, and to to pump drinking water. Holland used similar early windmills to drain their land. So several American presidents came to believe advanced design windmills would be similar boons if used for continuous electric power generation. It didn’t work, and many of the problems could have been seen at the start. While the farmer didn’t care when his water was pumped, or when his wood is cut. When you’re generating electricity, there is a need to match the power demand exactly. Whenever the customer turns on the switch, electricity is expected to flow at the appropriate amount of Wattage; at other times any power generated is a waste or a nuisance. But electric generator-windmills do not produce power on demand, they produce power when the wind blows. The mismatch of wind and electric demand has bedeviled windmill reliability and economic return. It will likely continue to do so until we find a good way to store electric power cheaply. Until then windmills will not be able to produce electricity at competitive prices to compete with cheap coal and nuclear power.

There is also the problem of repair. The old windmills of Holland still turn a century later because they were relatively robust, and relatively easy to maintain. The modern windmills of the US stand much taller and move much faster. They are often hit, and damaged by lightning strikes, and their fast-turning gears tend to wear out fast, Once damaged, modern windmills are not readily fix, They are made of advanced fiberglass materials spun on special molds. Worse yet, they are constructed in mountainous, remote locations. Such blades can not be replaces by amateurs, and even the gears are not readily accessed to repair. More than half of the great power-windmills built in the last 35 years have worn out and are unlikely to ever get repair. Driving past, you see fields of them sitting idle; the ones still turning look like they will wear out soon. The companies that made and installed these behemoth are mostly out of the business, so there is no-one there to take them down even if there were an economic incentive to do so. Even where a company is found to fix the old windmills, no one would as there is not sufficient economic return — the electricity is worth less than the repair.

Komoa Wind Farm in Kona, Hawaii June 2010; Friends of Grand Ronde Valley.

Komoa Wind Farm in Kona, Hawaii, June 2010; A field of modern design wind-turbines already ruined by wear, wind, and lightning. — Friends of Grand Ronde Valley.

A single rusting windmill would be bad enough, but modern wind turbines were put up as wind farms with nominal power production targeted to match the output of small coal-fired generators. These wind farms require a lot of area,  covering many square miles along some of the most beautiful mountain ranges and ridges — places chosen because the wind was strong

Putting up these massive farms of windmills lead to a situation where the government had pay for construction of the project, and often where the government provided the land. This, generous spending gives the taxpayer the risk, and often a political gain — generally to a contributor. But there is very little political gain in paying for the repair or removal of the windmills. And since the electricity value is less than the repair cost, the owners (friends of the politician) generally leave the broken hulks to sit and rot. Politicians don’t like to pay to fix their past mistakes as it undermines their next boondoggle, suggesting it will someday rust apart without ever paying for itself.

So what can be done. I wish I could suggest less arrogance and political corruption, but I see no way to achieve that, as the poet wrote about Ozymandias (Ramses II) and his disastrous building projects, the leader inevitably believes: “I am Ozymandias, king of kings; look on my works ye mighty and despair.” So I’ll propose some other, less ambitious ideas. For one, smaller demonstration projects closer to the customer. First see if a single windmill pays for itself, and only then build a second. Also, electricity storage is absolutely key. I think it is worthwhile to store excess wind power as hydrogen (hydrogen storage is far cheaper than batteries), and the thermodynamics are not bad

Robert E. Buxbaum, January 3, 2016. These comments are not entirely altruistic. I own a company that makes hydrogen generators and hydrogen purifiers. If the government were to take my suggestions I would benefit.

Flat tax countries: Russia, Mongolia, Hungary

For no obvious reason, many Republicans and some (few) Democrats are fans of the flat tax. That is a fixed percentage tax on every dollar earned with no deductions, or very few. They see the flat tax as better, or more fair, than the progressive, graduated tax found in the US and most industrial countries. While most Republicans don’t like high taxes, as in Sweden, France, or in the UK, the flat-taxers want a single tax rate: a constant percentage for all. A common version is what Ben Carson described earlier this month, “if you earn ten million dollars your tax will be one million; if you earn ten dollars, your tax will be one dollar.” Herman Caine (R) proposed something similar eight years ago, and (surprisingly) so did Jerry Brown (D).

Ben Carson proposes a 10% flat tax. I'm guessing his source is the Bible.

Ben Carson proposes a 10% flat tax.

As it happens, of the 230 nations on the planet, several already have a flat income tax, and none of them are industrial juggernauts. I will list the larger of these countries in order their tax rate: Mongolia and Kazakhstan, 10% flat tax and hardly any services; Russia and Bolivia, 13% flat tax: moribund, raw-material-based, police-states; Romania and Hungary 16%; Lithuania and Georgia 20%; Zambia 22%; Switzerland, 35% when you include the Cantonal and municipal flat rates, and (topping the list) Greenland at 45%. Not one of these is a productive, industrial powerhouse, like the US, and there is no indication that this will change any time soon.

I suspect that the flat tax enters the minds of conservatives from the Bible, from the 10% of grain that was given to the Levites (Numb. 18:24), and the second 10% eaten of pilgrimage festivals or given to the poor (Deut. 14:22-24). If that’s the source, let me suggest a better modern version is to give out cans of food, or to support ones church. But as a model for government finance, I’d suggest it’s best to leave more in the pockets of the poor, and tax more from the rich. Even in Biblical times, the government (king) levied a substantial tax above the 10%s described above.

A measure of tax rate is the percentage of the total GDP that goes to taxes. As things go, our tax rate isn't particularly high.

A measure of tax rate is the percentage of the total GDP that goes to taxes. As things go, our tax rate isn’t particularly high.

A flat tax does not necessarily imply a low tax, either. Greenland’s flat 45% rate is among the highest in the world, and Israel had a 50% flat tax until fairly recently. It’s also worth noting that personal income isn’t the only thing one can tax. Several countries combine moderate personal income rates with high corporate rates (Venezuela, Zambia, Argentina), or add on a high sales tax, or a transaction tax. Herman Caine’s 9-9-9 tax plan included a 9% transaction tax and a 9% federal sales tax that would have gone on top of whatever the state tax would have been. The revenue collected by the 9-9-9 plan would have been no less than we had, but would be, he claimed, simpler. Cain’s flat tax wasn’t even really flat either, as there was an exclusion, an income level below which you were taxed 0%. That is, he was really proposing a two tier system, with a 0% rate at the first tier. Rand Paul seems to favor something similar today.

The two advantages of a flat tax are simplicity, and that it reins in the tendency to tax the rich too much, a tendency found with many liberal alternatives. The maximum tax rate was 95% in England under Attlee. Their 95% tax-rate appears in the Beetles’s song, Mr Taxman: “…There’s one for you, nineteen for me; ‘Cause I’m the Taxman.” High rates like this caused the destruction of many UK businesses, and caused The Beetles’s to leave and reincorporate in the Cayman Islands. Bernie Sanders recently proposed a top rate that was nearly as high, 90%, and praised Denmark (60% maximum rate) for its high social services. Sorry to say, Denmark seems to have concluded that their 60% maximum was excessive, and earlier this year reduced their maximum to 47.794%. This is below the maximum US rate if you include New York state and city income taxes. History suggests that if you tax the rich at rates like this, they leave or do other socially unacceptable things, like go black-market. On the other hand, if you tax too little, there is no money for education or basic social services, e.g. for the desperately poor. At one point, I proposed the following version of graduated to negative scheme that manages to provide a floor, a non-excessive top rate, and manages to encourage work at every income level (I’m rather proud of it). And there are other key issues necessary for success, like respect for law, and not having excessive minimum wages or other excess regulations.

Bernie Sanders: tax the rich at 90% of income.

Bernie Sanders: tax the rich at 90%; I doubt this is a good idea.

Whatever the tax structure is, there is probably an optimal average rate and an optimal size for the government sector. I suspect ours is near optimal, but have no real reason to think so (probably just nativism). I’ve found that comparing the US tax rates to other countries’ is very difficult, too. Most countries have a substantial Value Added Tax (VAT), that is a tax applied to all purchases including labor, but we do not. Some countries have import taxes (Tariffs, I’m in favor of them), while we have hardly any. And many countries tax corporate profits (and sales) at rates above 60% (France taxes them at 66.6%). To make any sort-of comparison, I’ve divided the total tax income of several countries by the country’s GDP (I got my data here). This percent is shown in the chart above. The US looks pretty average, though a little on the low side for an industrial nation: just where I like to see it.

Robert E. Buxbaum, November 29, 2015. I imagine myself to be a centrist, since all of my opinions make sense to me. When I change my mind on something, I stay at the center, but the center moves. If this subject interests you,  seems to have dedicated his life to following the flat tax.

Is cannibal tourism good for Michigan?

Governor Snyder has no appetite for it, but ex-governor Jennifer Granholm did, and some of her Democratic colleagues still do. Not cannibal tourism, as such, but movie subsidies paid for by a tax on business property independent of profits. Some seven years ago, in 2008, then-governor Granholm and a majority of our legislature instituted a $132 million/year subsidy program that provided up to 42% of movie production costs. The hope was that films would bring Hollywood-type wealth and glamor, and that they would spark tourism. As it happened, the jobs went to Hollywood transients to such an extent that the total number of MI film employees was reduced. It is now 100 lower than at the start, and virtually all of the money spent went to out-of state employees (quite often the high-priced star) who left as soon as the filming was done. The report concluded that the program returned 11¢ for every tax dollar spent. One of Governor Snyder’s first acts was to diminish the subsidies, and the legislature has just put an end to them: revenge of the nerd.

Offspring, filmed in Michigan. It does not seem to have promoted Michigan tourism.

Offspring: no jobs created, and perhaps no tourism … but think of the cool factor.

The amount spent in the early years, $132 million/year, was about 1/3 of the state’s deficit, a major misuse of funds. Reason magazine claimed it was “stone-crazy” to support movies when the state had, at the time, 14% unemployment, the highest rate in the nation. They argued that the money could be better spent on roads, or schools, or left in folks’ pockets (I agree).

The effect on tourism isn’t quite what was hoped. Movie makers tend to see Michigan as a setting for dystopian films, for example, “Offspring,” a film about cannibal tourism. This film got one of the largest state subsidies. A plot summary is:  “Survivors of a feral flesh-eating clan are chowing their way through the locals.” If this encouraged tourism, it’s not necessarily the tourists you wanted. You can tell it’s Michigan by the Michigan symbol on the police cars. Michigan funds also brought two Batman movies to Detroit, along with Michael Moor’s “Capitalism, a love story“, a  movie billed as showing how capitalism makes life in America a nightmare. The current head of the film board has noted that “realistic cannibalism; the gruesome and graphically violent depiction …. is unlikely to promote tourism in Michigan or to present or reflect Michigan in a positive light.” I can agree.

Batman and Superman in Detroit.

“Batman vs Superman.” They battle in Downtown Detroit, as do “Red Dawn” and “Transformers.”

Opposition to dropping the program came mostly from the Democratic side of the aisle. Rep. Jeremy Moss, D-Southfield, said the film incentives were creating good jobs. Rep. Kristy Pagan, D-Canton, pointed to “… the cool factor. Who doesn’t want to see Ben Affleck or Amy Adams walk down our streets?” (I don’t). In the end, three Democrats and virtually every Republican voted to end the program. Among the Republicans for keeping the program were Kathy Crawford R-Novi, and Mike McCready, R-Birmingham.

You should not feel too bad for the makers of gore films. Subsides are still available in Massachusetts, Oregon, Washington, California, Minnesota, Nevada, and several other states. Massachusetts welcomed Part 2 of The Offspring, a Massachusetts headline proclaimed the victory: “Come to Massachusetts, We Love Cannibals!” Massachusetts folks have been full of themselves for years. As for the money we saved, our Michigan legislature has finally begun balancing the budget and decreasing the destructive personal property tax that helped fund these schemes.

Robert E. Buxbaum, November 5, 2015. I should also commend the legislature for making “talk like a pirate day” a state holiday, and for passing, on November 3, a necessary roads bill. It was signed by most Republicans and two Democrats. Bipartisan-ish. With good management, Michigan might be coming back – lets hope it continues.

Say no to the dress

A popular reality TV show follows the struggles of young brides-to-be shopping for a wedding dress at a famous store, Kleinfeld’s. They’ve come to believe that this charming adornment will make their dream-wedding really perfect. There is some sort of idea that the perfect wedding is necessary (or desirable) to get you started on a perfect life. This is stated in various ways throughout the show with phrases like: “you deserve to be the princess,” or “you deserve your special day.”

Each woman brings a retinue to help her pick the gown, and to help advise her about what dress has the most pop, or looks best on her, or makes her look the most special. Often it’s someone in this retinue that will pay for the dress too, a father, uncle, or a close family member. The store caters to the retinue at lest at the beginning to get a commitment to the price, generally $5,000 to $10,000, but sometimes to “no limit on the price.” It then provides a dazzling variety of dresses and an old hand or two to guide the young lady to the right one. At first, the retinue chimes in, but eventually the retinue is detached, and the bride is made to embrace that it’s her special day, alone. Then, when the perfect dress is finally chosen (often at the high-end of the budget), the bride is asked: “are you ready to say yes to the dress?” She does, with tears, and everyone claps, especially the retinue. Often, there is a final shot of the beautiful bride at the beautiful wedding. It’s touching, but perhaps unnecessary. So here’s an alternate  thought: just say “no”. No to the expensive dress; no to the expensive cake (sorry, cake boss) and no to the fancy, big diamond. instead, throw a big fun wedding on the cheap, perhaps at a park in a rented gown; friends will get you through life, the big dress and big cake will not.

An expensive wedding didn’t keep John Kennedy faithful, nor did it help cement Elizabeth Taylors 7 husbands (two to Richard Burton). Just the opposite: a recent study on marriage stability showed that the higher priced the wedding, the more likely it is to end in divorce.

Marriage stability goes down as the wedding costs go up.

Marriage stability goes down as the wedding costs go up. If you dress costs $5,000, your wedding is unlikely to come in at less than $10k. From Francis and Mialon, “A diamond is forever and other Fairy Tales,” 2014. The average cost of a US wedding: $30,000.

The point of the wedding is to have a long, happy marriage, not a one day party, and expensive weddings appear to be counter-productive to stability. Things are worse for those who enter poor, backing up the observation that money stresses are among the main causes of marriage failure. This is not to say that you should not have a wedding party, but that spending should be watched especially if the couple isn’t that extraordinarily rich. The average, employed US 20-something earns about $26,000/year before taxes. That’s not bad money until you realize that the average US wedding costs over $30,000 not including dress, ring and honeymoon. There is a far lower chance of divorce for the couple with the $5-$10k wedding, and even lower if the couple can keep expenses in the 0-$5k range.

Give her a diamond ring, but the ideal cost is between $100 and $2000 (unless you're super rich)

Give her a ring, but the ideal cost is between $200 and $2000 unless you’re super rich.

Statistics suggest that spending on the diamond doesn’t help either, unless it’s a very expensive stone — and that, perhaps, is because the very expensive stone is only bought by the very rich groom. Still, even for the 1% who can afford it, the dress or stone should be considered a sunk cost, not an investment. You’ll never be able to resell that dress at all, and though you can resell a diamond it is virtually impossible to get even half your money back. This isn’t to say that you should not give a ring — without a ring the bride will feel cheated, but most grooms will be better served giving one in the $100-$2000 range.

It seems that having lots of people at the wedding is perhaps the single best thing you can do for marriage stability. On the other hand, this graph might show that the sort of person who has 200 good friends is the sort of person to remain happily married.

Having lots of people at the wedding is perhaps the single best thing you can do for marriage stability. On the other hand, this graph might show that the sort of person who has 200 good friends is the sort of person to remain happily married. ibid.

While your wedding should be cheap, or at least affordable, it should not be small. It turns out that having lots of friends and family in attendance correlates strongly with having a long, stable marriage. I’m not sure if this is entirely cause and effect: perhaps those with lots of friends and family are giving and stable than those without. Still, it strikes me that friendships are good for every couple, and very worth maintaining. These are people who will be there for advice, or just be there when things get rocky. Give them a good party, and don’t drive them away by sending a message that a large gift is expected. If you get married on the cheap, it’s likely your guests will feel more comfortable showing up in business clothes with simple affordable gifts. Most bridesmaids are happier if they don’t have to buy a big expensive dress.

Honeymoons help malaise stability too.

Honeymoons help marriage stability too. ibid.

Robert E. Buxbaum, July 12, 2015. My 3 children are all entering marriageable age — and PhD age (I wrote a post comparing a wedding to a PhD.) The above are my thoughts before being hornswoggled into buying $5,000 worth of taffeta. They are also suggestive of the sort of work to get a PhD. Another good spending investment, I think, is to go on a honeymoon. I didn’t, and though we didn’t get divorced, in retrospect it seems like a good idea. I plan to finally go on a honeymoon for our 25th anniversary. Let’s toast (with Geritol) to finding the right mate. Good luck.

Of Scrooge and rising wheat production

The Christmas Carol tells a tale that, for all the magic and fantasy, presents as true an economic picture of a man and his times as any in real-life history. Scrooge is a miserable character at the beginning of the tale, he lives alone in a dark house, without a wife or children, disliked by those around him. Scrooge has an office with a single employee (Bob Cratchit) in a tank-like office heated by a single lump of coal. He doesn’t associate much with friends or family, and one senses that he has few customers. He is poor by any life measure, and is likely poor relative to other bankers. At the end, through giving, he finds he enjoys life, is liked more, and (one has the sense) he may even get more business, and more money.

Scrooge (as best I can read him) believes in Malthus’s economic error of zero-sum wealth: That there is a limited amount of food, clothing, jobs, etc. and therefore Scrooge uses only the minimum, employs only the minimum, and spends only the minimum. Having more people would only mean more mouths to feed. As Scrooge says, “I can’t afford to make idle people merry. I help to support the establishments I have mentioned [the workhouses]. They cost enough, and … If they [the poor] would rather die,” said Scrooge, “they had better do it, and decrease the surplus population.”

Scrooge, the poor rich man.

Scrooge, the poor rich man with a tiny carbon footprint.

The teaching of the spirits is the opposite, and neither that of the Democrats or Republicans. Neither that a big government is needed to redistribute the wealth, nor that the free market will do everything. But, as I read it, the spirits bring a spiritual message of personal charity and happiness. That one enriches ones-self when one give of and by ones-self — just from the desire to be good and do good. The spirit of Christmas Present assures Scrooge that no famine will result from the excess population, but tells him of his 1800 brothers and shows him the unending cornucopia of food in the marketplace: spanish onions, oranges, fat chestnuts, grapes, and squab. Christmas future then shows him his funeral, and Tim’s: the dismal end of all men, rich and not:  “Will you decide what men shall live, what men shall die? It may be, that in the sight of Heaven, you are more worthless and less fit to live.” And Scrooge reforms, learns: gives a smile and a laugh, and employs a young runner to get Cratchit a fat goose. He visits his nephew Fred, a cheerful businessman for dinner, and laughs while watching Tom Topper court Fred’s plump sister-in-law.

The spirits do not redistribute Scrooge’s wealth for him, and certainly don’t present a formula for how much to give whom. Instead they present a picture of the value of joy and societal fellowship (as I read it). The spirits help Scrooge out of his mental rut so he’s sees worthy endeavors everywhere. Both hoarding and redistribution are Malthusian-Scroogian messages, as I read them. Both are based on the idea that there is only so much that the world can provide.

World wheet production

World wheat production tripled from 1960 to 2012 (faostat.fao.org), but acreage remained constant. More and more wheat from the same number of acres.

The history of food production suggests the spirits are right. The population is now three times what it was in Dickens’s day and mass starvation is not here. Instead we live among an “apoplectic opulence” of food. In a sense these are the product of new fertilizers, new tractors, and GMOs (Genetically modified organisms), but I would say it’s more the influence of better people. Plus, perhaps some extra CO2 in the air. Britons now complain about being too fat — and blame free markets for making them so. Over the last 50 years, wheat production has tripled, while the world population doubled, and the production of delicacies, like meat has expanded even faster. Unexpectedly, one sees that the opulence does not come from bringing new fields on-line — a process that would have to stop — but instead from increased production by the same tilled acres.

The opulence is not uniformly distributed, I should note. Countries that believe in Malthus and resort to hoarding or redistribution have been rewarded to see their grim prophesies fulfilled, as was Scrooge. Under Stalin, The Soviet Union redistributed grain from the unworthy farmer to the worth factory worker. The result was famine and Stalin felt vindicated by it. Even after Stalin, production never really grew under Soviet oversight, but remained at 75 Mtons/year from 1960 until the soviet collapse in 1990. Tellingly, nearly half of Soviet production was from the 3% of land under private cultivation. An unintended benefit: it appears the lack of Soviet grain was a major motivation for détente.  England had famine problems too when they enacted Malthusian “corn acts” and when they prevented worker migration Irish ownership during the potato famine. They saw starvation again under Attlee’s managed redistribution. In the US, it’s possible that behaviors like FDR scattering the bonus army may have helped prolong the depression. My sense is that the modern-day Scrooges are those against immigration “the foreigners will take our jobs,” and those who oppose paying folks on time, or nuclear and coal for fear that we will warm the planet. Their vision of America-yet-to-be matches Scrooge’s: a one-man work-force in a tank office heated by a single piece of coal.

Now I must admit that I have no simple formula for the correct charity standard. How does a nation provide enough, but not so much that it removes motivation– and the joy of success. Perhaps all I can say is that there is a best path between hoarding and false generosity. Those pushing the extremes are not helping, but creating a Dickensian world of sadness and gloom. Rejoice with me then, and with the reformed Scrooge. God bless us all, each and every one.

Robert Buxbaum, January 7, 2015. Some ideas here from Jerry Bowyer in last year’s Forbes.

High minimum wages hurt the poor; try a negative tax

It is generally thought (correctly I suspect) that welfare is a poor way to help the poor as it robs them of the dignity of work. Something like welfare is needed to keep the poor from starving, and the something that’s generally chosen in a living wage — a minimum wage set high enough that even a minimally skilled worker should be able to support a family of 4. This may be better than welfare, but I’d like to propose something better still — and a way to pay for it — a negative tax.

I suspect that a high minimum wage hurts the poor and middle class in a few ways. For one, by flattening the wage structure, it hurts the ego of higher skilled workers and reduces their incentive to improve. A senior worker should make more than an unskilled beginner, but a high minimum wage dampens this. What’s more, a high minimum wage cuts the lower rungs off of the employment ladder, making it harder for young folks, and unskilled folks to be productively employed. There may be some worthwhile minimum, but not everyone lives independently (or should) and not every job deserves to support a family of four, if only because not every unskilled worker is supporting a family of four. Many minimum wage earners are living at home or are heads of double-income couples, and only a few have the skills to justify the wage on a value added basis. A high minimum wage is thus needlessly costly for many workers. People accept the cost because it’s borne by the company (and companies are seen as evil). But passing the burden has limits, and a high minimum wage creates high unemployment in low skill areas, as employees are reluctant to pay a lot for low skill work. In Detroit before bankruptcy, the living wage was set so high that companies could not compete. Many went bankrupt and the others hired so selectively that the unskilled were basically unemployable. Even the city couldn’t pay the wage and its bills.

Even with the highest minimum wage, there is always a need for welfare, as some workers will be unemployable — because of disability, because of lack of skill, or from an ingrained desire to not work. The punishments a community can mete out are limited, and sooner or later some communities stop working and stop learning as they see no advantage.

The difficulties of taking care of the genuinely needy and disabled while the lazy and unskilled has gotten even some communist to reconsider wealth as a motivator. The Chinese have come to realize that workers work better at all levels if there is a financial reward to experience and skill at all levels. But that still leaves the question of who should pay to help those in need and how.  Currently the welfare system only helps the disabled and the “looking” unemployed, but I suspect they should do more replacing some of the burden that our minimum wage laws places on the employers of unskilled labor. But I suspect the payment formula should be such that the worker ends up richer for every additional hour of work. That is, each dollar earned by a welfare recipient should result in less than one dollar reduction in welfare payment. Welfare would thus be set up as a negative tax that would continue to all levels of salary and need so that there is no sudden jump when the worker suddenly starts having to pay taxes. The current and proposed tax / welfare structure is shown below:

Currently someone's welfare check decreases by $1 for each dollar earned. I propose a system of negative tax (less than 100%) so each dollar earned puts a good fraction in his/her pocket.

Currently (black) someone’s welfare check decreases by $1 for each dollar earned, then he enters a stage of no tax — one keeps all he earns, and then a graduated tax. I propose a system of negative tax (red) so each dollar earned adds real income.

The system I propose (red line) would treat identically someone who is  incapacitated as someone who decided not to work, or to work at a job that paid $0/hr (e.g. working for a church). In the current system treats them differently, but there seems to be so much law and case-work and phony doctor reports involved in getting around it all that it hardly seems worth it. I’d use money as the sole motivator (all theoretical, and it may not work, but hang with me for now).

In the proposed system, a person who does not work would get some minimal income based on family need (there is still some need for case workers). If they are employed the employer would not have to pay minimum wage (or there would be a low minimum wage — $3/hr) but the employer would have to report the income and deduct, for every dollar earned some fraction in tax — 40¢ say. The net result would be that the amount of government subsidy received by the worker (disabled or not) would decrease by, for 40¢ for every dollar earned. At some salary the worker would discover that he/she was paying net tax and no longer receiving anything from the state. With this system, there is always an incentive to work more hours or develop more skills. If the minimum wage were removed too, there would be no penalty to hiring a completely unskilled worker.

At this point you may ask where the extra money will come from. In the long run, I hope the benefit comes from the reduced welfare rolls, but in the short-term, let me suggest tariffs. Tariffs can raise income and promote on-shore production. Up until 1900 or so, they were the main source of revenue for the USA. As an experiment, to see if this system works, it could be applied to enterprise zones, e.g. in Detroit.

R. E. Buxbaum, June 27, 2014. I worked out the math for this while daydreaming in an economics lecture. It strikes me as bizarre, by the way, that can contract with someone for barter, e.g. to help you move for a pizza, but you can’t contract for less than the minimum wage $7.45/hr. If you hire the worker for less you can go to jail. In Canada they have something even more bizarre, equal wages for equal skills — a cook and a manager must earn the same, independent of how well the cook cooks. No wonder violent crime is higher in Canada.


In praise of tariffs

In a previous post I noted that we could reduce global air pollution if we used import taxes (tariffs) to move manufacture to the US from China and other highly polluting countries. It strikes me that import tariffs can have other benefits too, they can keep US jobs in the US, provide needed taxes, and they’re a tool of foreign policy. We buy far more from China and Russia than they buy from us, and we get a fair amount of grief — especially from Russia. An appropriate-sized tariff should reduce US unemployment, help balance the US, and help clean the air while pushing Russia in an alternative to war-talk.

There is certainly such a thing as too high a tariff, but it seems to me we’re nowhere near that. Too high a tariff is only when it severely limits the value of our purchasing dollar. We can’t eat dollars, and want to be able to buy foreign products with them. Currently foreign stuff is so cheap thought, that what we import is most stuff we used to make at home — often stuff we still make to a small extent, like shoes, ties, and steel. An import tax can be bad when it causes other countries to stop buying from us, but that’s already happened. Except for a very few industries, Americans buy far more abroad than we sell. As a result, we have roughly 50% of Americans out of well-paying work, and on some form government assistance. Our government spends far more to care for us, and to police and feed the world than it could possibly take in, in taxes. It’s a financial imbalance that could be largely corrected if we bought more from US manufacturers who employ US workers who’d pay taxes and not draw unemployment. Work also benefits folks by developing, in them, skills and self-confidence.

Cartoon by Daryl Cagle. Now why is Russia a most favorable trade partner?

Cartoon by Daryl Cagle. Trade as foreign policy. Why is Russia a most favorable trade partner?

In a world without taxes or unemployment, and free of self-confidence issues, free trade might be ideal, but taxes and unemployment are a big part of US life. US taxes pay for US roads and provide for education and police. Taxes pay for the US army, and for the (free?) US healthcare. With all these tax burdens, it seems reasonable to me that foreign companies should pay at least 5-10% — the amount an American company would if the products were made here. Tariff rates could be adjusted for political reasons (cartoon), or environmental — to reduce air pollution. Regarding Russia, I find it bizarre that our president just repealed the Jackson Vanik tariff, thus giving Russia most favored trade status. We should (I’d think) reinstate the tax and ramp it up or down if Russia invades again or if they help us with Syria or Iran.

A history of US tariff rates. There is room to put higher tariffs on some products or some countries.

A history of US tariff rates. Higher rates on some products and some countries did not harm the US for most of our history.

For most of US history, the US had much higher tariffs than now, see chart. In 1900 it averaged 27.4% and rose to 50% on dutiable items. Our economy did OK in 1900. By 1960, tariffs had decreased to 7.3% on average (12% on duty-able) and the economy was still doing well. Now our average tariff is 1.3%, and essentially zero for most-favored nations, like Russia. Compare this to the 10% that New York applies to in-state sales, or the 6% Michigan applies, or the 5.5% that Russia applies to goods imported from the US. Why shouldn’t we collect at least as high a tax on products bought from the non-free, polluting world as we collect from US manufacturers.

Some say tariffs caused the Great Depression. Countries with lower tariffs saw the same depression. Besides the Smoot-Hawley was 60%, and I’s suggesting 5-10% like in 1960. Many countries today do fine today with higher tariffs than that.

Robert E. Buxbaum, March 25, 2014. Previous historical posts discussed the poor reviews of Lincoln’s Gettysburg address, and analyzed world war two in terms of mustaches. I’ve also compared military intervention to intervening in a divorce dispute. My previous economic post suggested that Detroit’s very high, living wage hurt the city by fostering unemployment.

Stoner’s prison and the crack mayor

With the release of a video of Rob Ford, the Mayor of Toronto, smoking crack while in office, and the admission that at least two US presidents smoked pot, as did the Beatles, Stones, and most of Hollywood, it seems worthwhile to consider the costs and benefits of our war on drugs, especially pot. Drugs are typically bad for productivity and usually bad for health. Thus, it seems worthwhile to regulate it, but most countries do not punish drug sale or use nearly as harshly as we do in the US.

The Freak Brothers by Gilbert Shelton. Clearly these boys were not improved by drugs, but perhaps we could do better than incarcerating them, and their fans, for years, or life.

The Freak Brothers by Gilbert Shelton. Clearly these boys were not improved by drugs, but perhaps we could do better than incarcerating them, and their fans, for years, or life.

While US penalties vary state by state, most states have high minimum penalties that a judge can not go below. In Michigan, where I live, medical marijuana is legalized, but all supply is still illegal. Marijuana cultivation, even for personal medical use, is a felony carrying a minimum punishment of 4 years in state prison and a $20,000 fine. For cultivation of more than 20 plants the minimum sentence is 7 years in prison and $500,000; and cultivating 200 or more plants results in 15 years plus a $10,000,000 fine. These are first-time, minimum sentences where the judge can not consider mitigating circumstances, like a prescription, for a drug that was accepted for use in the US in the 70s, is legal in Holland, legalized in Colorado, and is near-legal in Belgium. While many pot smokers were not served by the herb, many went on to be productive, e.g. our current president and the Beatles.

In Michigan, the mandatory minimums get worse if you are a repeat offender, especially a 3 time offender. Possession of hard drugs; and sales or cultivation of marijuana makes you a felon; a gun found on a felon adds 2 years and another felony. With three felonies you go to prison for life, effectively, so there is little difference between the sentence of a repeat violent mugger and a kid selling $10 rocks of crack in Detroit. America has more people in prison than Russia, China, or almost every industrialized nation, per capita, and the main cause is long minimum sentences.

In 2011, Michigan spent an average of $2,343 per month per prisoner, or $28,116/year: somewhat over 1.3 billion dollars per year in total. To this add the destruction of the criminal’s family, and the loss of whatever value he/she might have added to society. Reducing sentences by 10 or 20% would go a long way towards paying off Detroit’s bankruptcy, and would put a lot of useful people back into the work-force where they might do some good for themselves and the state. 60.8% of drug arrestees were employed before they were arrested for drugs, with an average income of $1050/month. That’s a lot of roofers, electricians, carpenters, and musicians — useful people. As best we can tell, the long sentences don’t help, but lead to higher rates of recidivism and increased violent behavior. If you spend years in jail, you are likely to become more violent, rather than less. Some 75% of drug convicts have no prior record of violent crime, so why does a first-time offense have to be a felony. If we need minimums, couldn’t it be 6 months and a $1000 fine, or only apply if there is violence.

Couldn’t we allow judges more leeway in sentencing, especially for drugs? Recall that Michiganders thought they’d legalized marijuana for medical use, and that even hard-drugs were legal not that long ago. There was a time when Coca-Cola contained cocaine and when Pope Leo was a regular drinker of cocaine laced wine. If the two presidents smoked pot, and the Mayor of Toronto could do a decent job after cocaine, why should we incarcerate them for life? Let’s balance strict justice with mercy; so the fabric of society is not strained to breaking.

Robert Buxbaum, Jan 16, 2014. Here are some other thoughts on Detroit and crime.