Don’t know exactly why, but American periodicals love to run stories about the economic struggles of the American middle class. It’s hardly Dickensian stuff, as people who are middle class are by definition not poor, and even America’s poor live in relative luxury compared to most of the world. Most people in the world would love to rise to the standard of living enjoyed by the American middle class. But here comes the Washington Post to relate the economic struggles of the Johnson family of Culpeper, Virginia.
At Christmastime, Robin unexpectedly needed prescription eyeglasses, so gifts came from a discount store. The couple spent the day before Thanksgiving price-checking turkeys at three stores.
But reliable transportation was not a luxury, so in late February the couple bought a used 2012 Dodge Caliber. As a result, they’ve fallen behind in the electric bills for March and April.
The Johnsons both work, earning $90,000 between them, not a princely sum but one that places the couple squarely in the middle of household incomes for the Washington region. But for the Johnsons and many other American families, being middle class means living paycheck to paycheck.
Meanwhile, some two billion people in the world live without electricity. Our cousin a few years ago visited a rural village in Guatemala. A whole family lives in one room with cinder block walls and a dirt floor. In contrast, here is the poor Johnson’s 4-bedroom split-level with attached garage.
It’s not Al Gore’s 9-fireplace mansion in California, but still better than how most people in the world, even in the First World, live. And how much is the mortgage payment on this home? Only about $700 per month. Scott Johnson purchased the home back in 1997, prior to the housing bubble, and then he refinanced. The rule-of-thumb used by the mortgage industry for affordability is 31 percent of income. The Johnsons’ mortgage payment, however, amounts to less than half that percentage of their income. But despite the modest mortgage payment, the family somehow struggles to make ends meet.
“I don’t know how the working class, anyone below the middle class, how they can survive,” says Scott, 48, who works as an IT engineer at a hospital. “Once some bills are paid and we’ve gone grocery shopping, we don’t have enough to pay the other bills.’’
The air conditioner stopped working four years ago. The dishwasher is busted, too. The roof is missing a few shingles and leaks in a heavy storm. Last month, Scott installed a hand-me-down cooktop given them by a friend who remodeled her kitchen.
Frankly, none of this seems to add up. This family has gross income of $90,000, far above the median income of a U.S. household, which is about $51,000. Yet somehow they can’t scrape together $300 to pay for a new dishwasher? If the roof leaks, why doesn’t Scott just go up there and fix it? As we were reading the story we kept expecting to find out that the family must face some extraordinary expenses, like astronomical medical bills because maybe one of the children is afflicted with a rare disease. But no. They make $90K, pay a modest mortgage, and just somehow struggle. We suspect that they are just not very good at managing money. Here is how they live.
While they struggle to meet basic expenses, the Johnsons’ home is filled with the electronics that have become a standard part of middle-class life in the 21st century. For $90 a month, a satellite dish provides basic television service for their three flat-screen sets and for the WiFi connections Scott needs when he works from home. They have one laptop and three iPads, and each girl has a computer in her bedroom. The bill for four cellphones runs about $300 a month.
Three flat-screens and three iPads. Hey, one less iPad and they could have had that new dishwasher. Oh and Scott, at least sometimes, gets to work from home? Nice.
The point of the article, if there is one, is that it’s not possible to live comfortably on $90,000 per year. So how much income would be required?
“$150,000 a year,” she said, with no hesitation. “If we had an extra $60,000 a year, we’d have some breathing room. I’d like to have some extra things. Not just look at them and drool.”
Extra things? Like what? A fourth iPad? A fifth cellphone? Look, we’d all like to have a little bit more, but the idea that people can’t live comfortably on less than $150,000 per year is absurd. Maybe Obama should raise the minimum wage to $75 per hour.
But wait! It gets better (worse). This same Washington Post about two weeks ago ran a story about high real estate prices in the Georgetown district of DC. In the comments section, reader “joelp77440” whined about how tough things are for him and his wife. His grammar, especially for an educated professional, was also impressive.
What’s sad is that me and my wife and I are 30 somethings (Lawyer and Doctor) who make in excess of $400,000 combine a year. That is in now way chump change yet, we barely were able to afford our 3br, 1 bath house in Bethesda. We looked at Glover Park close to Georgetown (She went their for Med school) but couldn’t make the numbers work. Georgetown is like a far away dream to us. Maybe in 20 years we may have enough capital saved but how do all these 30 year olds move in there? Family money that’s how. Me and my wife are very different people but we have on thing in common, we had no money growing up. Heck we had to pay for all levels of our colleges tuitions and wedding ourself. Yes, I guess I am a little jealous or maybe it is frustrated or maybe both.
Maybe somebody could make a movie and call it “Down and Out in Bethesda on $400,000.”
So far in 2014, the United States has experienced fewer tornadoes than in any year since record-keeping began in 1953, or even before. Greg Carbin, a meteorologist with the Storm Prediction Center of the National Oceanic and Atmospheric Administration, has called this “likely the slowest start to tornado activity in any year in modern record, and possibly nearly a century.” But just because tornado activity has declined doesn’t mean that we can let down our guard, as potentially large impacts are always a threat.
Overall, however, the good news for residents of the Midwest’s “Tornado Alley” and elsewhere is that over the past six decades America has witnessed a long-term decrease in both property damage and loss of life. That’s the finding that I and Kevin Simmons and Daniel Sutter, two of the nation’s leading tornado experts, have gleaned from studying the data on almost 58,000 tornadoes observed since 1950.
You can search for baseball loyalty by zip code here. The results are compiled using information from millions of Facebook pages. In Queens, the home of the Mets, their fans are outnumbered by Yankees die-hards. New Haven is safely to the West of the “Munson-Nixon line” dividing Yankees fans from the Red Sox Nation. Dayton, of course, is nicely tucked within Reds country.
I came across the 1933 chess game below played at Princeton between Albert Einstein and J. Robert Oppenheimer. Watching it shouldn’t take long especially if you skip the blowhard “analysis” between 1:15 and 5:30. Nice game by Einstein!
As the time of year for graduations approaches, a number of websites are posting what our friend Mark Perry calls possibly “the shortest graduation speech ever.” Delivered by Nobel prizewinning economist Thomas Sargent at UC Berkeley in 2007, the speech runs to only about 300 words and lasts about 2 minutes, about the same length as another famous speech. Sargent’s speech takes the form of 12 economic lessons.
I remember how happy I felt when I graduated from Berkeley many years ago. But I thought the graduation speeches were long. I will economize on words.
Economics is organized common sense. Here is a short list of valuable lessons that our beautiful subject teaches.
1. Many things that are desirable are not feasible.
2. Individuals and communities face trade-offs.
3. Other people have more information about their abilities, their efforts, and their preferences than you do.
4. Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always end up working as intended.
5. There are tradeoffs between equality and efficiency.
6. In an equilibrium of a game or an economy, people are satisfied with their choices. That is why it is difficult for well-meaning outsiders to change things for better or worse.
7. In the future, you too will respond to incentives. That is why there are some promises that you’d like to make but can’t. No one will believe those promises because they know that later it will not be in your interest to deliver. The lesson here is this: before you make a promise, think about whether you will want to keep it if and when your circumstances change. This is how you earn a reputation.
8. Governments and voters respond to incentives too. That is why governments sometimes default on loans and other promises that they have made.
9. It is feasible for one generation to shift costs to subsequent ones. That is what national government debts and the U.S. social security system do (but not the social security system of Singapore).
10. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation.
11. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).
12. Because market prices aggregate traders’ information, it is difficult to forecast stock prices and interest rates and exchange rates.
Liberal blogger Ezra Klein also recently posted Sargent’s lessons, calling them “everything you need to know about economics.” We wouldn’t go that far, but it is true that most of the popular economic fallacies involve failure to heed one of more of these 12 rules. For instance, one of the speakers at the recent RISE conference, as well as one of our colleagues, succumbed to error by forgetting number 12.
Klein’s posting of Sargent’s list is curious, because most of the lessons contradict Klein’s statist views. Perhaps Klein is simply not bright enough to understand the full import of the lessons and to trace out their implications. For instance, Klein and his twitter followers thought they found an omission from Sargent’s list.
Settle down, pajama boys. Market failure is covered by number 11.
By the way, this wasn’t the only time that Thomas Sargent demonstrated extreme pithiness.
This recent story made us reflect on the fundamental unreasoning stupidity and meanness of government.
An on-site construction worker at a South Carolina hospital was slapped with a $525 federal fine and banned from ever working there again after he refilled his soda without paying.
Christopher Lewis was working at the VA Medical Center in downtown Charleston on Wednesday when he was stopped by a Federal Police Force officer for refilling a $0.89 soda, a local NBC affiliate reported.
“As I was filling my cup up, I turned to walk off and a fella grabbed me by the arm and asked me was I going to pay for that, and I told him I wasn’t aware that I had to pay for that,” Mr. Lewis told the station, admitting that he had taken free refills in the past.
The man said he was willing to pay the $0.89 right there, but the officer didn’t let him.
“I never had an option to make right what I had done wrong,” he said. “I’m done there, at the VA hospital. I’m not allowed to go on the premises anymore. I asked him can I still work on the job site and just bring my lunch and not go to the cafeteria and he said he wanted me off the premises.”
“Every time I look at the ticket, it’s unbelievable to me,” he said. “I can’t fathom the fact that I made a $0.89 mistake that cost me $525.”
A hospital spokeswoman called it a “theft of government property,” and said it was her understanding that Mr. Lewis was aggressive when confronted by the officer, the station reported.
“Today a Federal citation was issued for shoplifting in the VA cafeteria… to an individual who stated to VA police he had not paid for refills of beverages on multiple occasions, even though signs are posted in the cafeteria informing patrons refills are not free,” the hospital said in a statement. “Shoplifting is a crime. The dollar amount of the ticket is not determined by VA as it is a Federal citation. The citation may be paid or the recipient may choose to appear in Federal court to contest it.”
Every time the government gets bad publicity from committing some outrage, they always trot out the spokesperson to point out that it’s all good because the government followed all the rules–shoplifting is a crime…the perp admitted the crime…fine is not determined by the VA…Federal court…blah, blah. But it’s not all good because a $525 fine for refilling a soda is totally heavy-handed and unreasonable. Not to mention the fact that, since the man was banned from returning to the premises, he could not longer work at his job.
In a private-sector establishment, in contrast, the manager or other employee would have politely asked the gentleman to pay the $0.89 or refrain from refilling. That’s just decent and normal human behavior. But in a federal facility, it’s ‘theft of federal property,’ and out comes the citation book, a ban from the premises, and dismissal from his job.
The lack of proportion is also put into sharp relief when one considers that this same federal government cannot account for literally trillions of dollars of taxpayer funds. Over the years, the Pentagon alone admits to having lost track of more than $1 trillion. Goodness only knows how many billions of dollars have been bilked from taxpayers by shady defense contractors exploiting the Pentagon’s opaque and dysfunctional accounting practices. But this poor schmuck who filched an $0.89 soda refill? Nail him.
The stark contrast between how the private and public sectors would handle this situation perhaps reveals some deeper philosophical issues. Maybe it’s no accident that the private sector would undoubtedly have handled the matter with a greater sense of proportion and reason. The great 20th century economist Joseph Schumpeter believed that the use of reason that governs civilized behavior was a consequence of the development of the capitalist system. Similarly, the 18th century French philosopher Montesquieu wrote “partout ou il y a du commerce, il y a des moeurs douces”— wherever there is trade, or free markets, there are gentle customs; that is, civilized and reasonable behavior. The idea is that the very norms of civilized behavior, which we come to regard as common sense, evolved from, and are inextricably tied to, the practice of free-market capitalism.
But government is the antithesis of voluntary exchange in the marketplace; the essence of government being coercion and force. No need therefore for moeurs douces, or even for reason. Hence the government schools adopt unreasoning ‘zero tolerance’ policies under which a boy gets suspended from school for eating his pop-tart into the shape of a gun. And then, as usual, they send out the ‘spokesperson’ to defend the lack of reason and proportion by saying, in so many words…rules are rules…we are just doing our jobs by enforcing the rules…so…shut up and take your punishment.
As government grows, decency and common sense will retreat, and society will become increasingly stupid and cruel. Don’t say we didn’t warn you.
In filing one’s taxes, it may be necessary to distinguish between breast implants that are merely “large,” and breast implants that are “extraordinarily large.”
The relevant ruling on this subject came in 1994 in a case known as Hess v. Commissioner. The plaintiff, a self-employed exotic dancer, had implants that expanded her bust size to the size 56FF. For tax purposes, she treated these as a deductible business expense on her schedule C. The IRS contested her deduction.
The purpose of deductions for business expenses is to avoid multiple levels of taxation on goods that are put together cooperatively by several businesses. This is good tax policy.
However, a substantial difficulty in this is determining the difference between consumption goods and legitimate business expenses. A carpenter should be able to deduct the cost of wood he uses to create furniture to sell – tax is paid on the income used to purchase it, and no further tax is necessary. But deductions are not a free excuse to make all of one’s income tax exempt by listing a bunch of personal purchases, and the IRS is right to be skeptical of abuse of this provision.
The relevant issue in Hess was whether breast implants – traditionally thought of as a luxury good bought for personal benefit – could be considered a legitimate business expense. Given that the plaintiff was an exotic dancer, she had a fair argument. But in general, taxpayers aren’t allowed to treat personal appearance expenditures as business expenses unless they aren’t suitable for personal use. Hess, arguing pro se, convincingly established that her implants were inconvenient in everyday life due to the sheer enormity of her breasts. The courts ruled in her favor:
Because petitioner’s implants were so extraordinarily large, we find that they were useful only in her business. Accordingly, we hold that the cost of petitioner’s implant surgery is depreciable.
That seems to make sense. We could add that gravity will do a pretty good job of depreciating those assets too.
Paul Krugman commented recently on a piece by Ezra Klein, who in turn was writing about the work of Yale’s Dan Kahan. Kahan’s Cultural Cognition Project studies how culture and ideology can cause people to process information in ways that support their biases and prejudices. Rather than reasoning dispassionately to reach the truth, people choose the conclusion they prefer, and then form a rationalization for that conclusion. Klein’s summary of Kahan’s work pointed out that such cognitive biases can affect people on the political left as well as the right.
Krugman objected to this symmetry, and argued that cognitive bias must affect primarily the political right, not the left. His argument was basically that left-liberals like him are obviously smart, while conservatives are stupid and obviously wrong. Hence it must be only conservatives, not liberals, who do not properly process information.
But here’s the thing: the lived experience is that this effect is not, in fact, symmetric between liberals and conservatives. Yes, liberals are sometimes subject to bouts of wishful thinking. But can anyone point to a liberal equivalent of conservative denial of climate change, or the “unskewing” mania late in the 2012 campaign, or the frantic efforts to deny that Obamacare is in fact covering a lot of previously uninsured Americans? I don’t mean liberals taking positions you personally disagree with — I mean examples of overwhelming rejection of something that shouldn’t even be in dispute.
Well, Krugman’s argument got back to Dan Kahan, and apparently it gave him a good laugh.
After “laughing [himself] into a state of hyperventilation,” Kahan penned a more serious response, pointing out how Krugman’s essay was itself evidence of how “ideologically motivated reasoning is in fact perfectly symmetric with respect to right-left ideology.” Explains Kahan:
The test for motivated cognition is not whether someone gets the “right” answer but how someone assesses evidence.
A person displays ideologically motivated cognition when, instead of weighing evidence based on criteria related to its connection to the truth, he or she credits or dismisses it based on its conformity to his or her ideological predispositions.
Thus, if we want to use public opinion on some issue — say, climate change — to assess the symmetry of ideologically motivated reasoning, we can’t just say, “hey, liberals are right, so they must be better reasoners.”
Rather we must determine whether “liberals” who “believe” in climate change differ from “conservatives” who “don’t believe” in how impartially they weigh evidence supportive of & contrary to their respective positions. . . .
That Krugman is too thick to see that one can’t infer anything about the quality of partisans’ reasoning from the truth or falsity of their beliefs is … another element of Krugman’s proof that ideological reasoning is symmetric across right and left!
For in fact, that “the other side” is closed-minded is one of the positions that partisans are unreasoningly committed to.
Thus Krugman, by demonstrating his own bias and lack of self-awareness, ended up validating the hypothesis he set out to disprove. Good to see that, after such a long dry spell, Krugman was finally able this week to make a small contribution to science.
Worth quoting in full is the comment at Volokh by WuzYoungOnceToo.
Is this the same Paul Krugman who, literally within hours of the breaking of the news of the massacre by Jared Loughner in Tuscon…before the blood in the parking lot had even dried…penned a hysterical op-ed piece for the NYT (which they foolishly published) blaming all of the usual boogeymen on the right (including Sarah Palin, somehow) for creating the shooter, even though he knew next to NOTHING about Loughner at the time? The same rational, unbiased, principled processor of facts who…after it was discovered that Loughner was a psychopath with no discernible left-right ideological bias, and who was influenced by stuff from all over the map (from Mein Kampf to The Communist Manifesto)…later, in a follow-up op-ed, not only did not acknowledge and retract his knee-jerk partisan stupidity, but actually doubled-down on it? That Paul Krugman?
If Krugman is not a laughingstock, he should be. “Boy, if life were only like this” more often.