15 October 2021

A Tentative Theory About Why 30 Year Old Children from the Richest Families Are Less Likely to Work

Curiously, poverty and wealth alike seem to lower employment rate for the children of the poor and wealthy.

This first graph shows that as parental income rises, so does the probability that the children are in jobs. Until you reach about the 94th percentile, after which further increases in income actually lower the odds that your children have jobs at 30.


[from https://fivethirtyeight.com/features/rich-kids-stay-rich-poor-kids-stay-poor/ ]

I'd be curious to better understand this. One of my tentative explanations is based on the fact that the median wage in the US is just under $35,000. Kids raised in the top 5% of households would probably recoil at such paltry wages and thus are less likely to accept half the jobs out there - which might make it tough to get started.
Social security wages just includes income from a job. It doesn't include rental income, money from dividends or business income.

In 2020, the number of people with social security wages over $50 million rose 61% from 2019 - ten times the rate of increase of the number of people making more than $100k. The number of people making a million dollars or more rose 14%. (And yes. There was a pandemic underway and still wages rose this much.)



[social security data from https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2020 ]


13 October 2021

Beware of This Neighborhood Scam

The doorbell rings this morning and I open it to an 8-year-old in costume. “Trick or treat!” he hollers at me.
“What is this,” I ask. “It’s 13 October. What are you doing trick or treating?”
“I’m going as a dyslexic,” he says. “13 October. 31 October. It’s all the same to me.”

I look him over, admiring his costume and his scam. And then I say, “Ha! If you were dyslexic, you’d have said, ‘Treat or trick!’” And then I close the door, pleased with myself that I wasn’t outsmarted by a kid.

About 30 minutes later, he comes back with a taller kid in a suit.
“Now what,” I ask.
“This is my older brother. He’s going as my lawyer and he plans to sue you for insensitivity and discrimination.”

So that’s how I ended up driving two kids to Costco this morning, buying them each a huge bag of candy. How was your morning?

12 October 2021

Interest Rates are at Their Lowest Rate in 5,000 Years (Or Why Biden's Investment and Infrastructure Plan is Too Timid)

The Dutch have interest rate records that go back 500 years. Interest rates never once went negative in that entire period ... until just a few years ago.

It gets better. Adam Tooze recently shared a graph showing that interest rates are their lowest in 5,000 years. [Adam Tooze's tweet and graph are here: https://twitter.com/adam_tooze/status/1446437719283060753/photo/1 ] That's a long time.

Biden wants to invest $350 billion a year in infrastructure and other public sector investments. That works out to about 1% to 2% of GDP during the next 8 years. Democrats are defending it and Republicans are attacking it. It is indefensible. With interest rates this low, we should be investing 2 or 3 times as much. Imagine someone making $100,000 a year saving and investing only $2,000 out of their salary. That would be irresponsible and yet that is Biden's bold plan. 1.8% of this year's GDP and probably about 1% of what GDP will be in 8 years. Now imagine that for every $100 you invested, you had to pay back less than $99 in 30 years. (And that is, indeed, the price of 30-year bonds now.) Why would you not invest to at least match past generations, imitate the great Lincoln and FDR?

Lincoln made massive investments during the Civil War: a transcontinental railroad, and Agricultural and Machinery Colleges all over the country, among other things. After the Civil War, the economy boomed. FDR made massive investments during WWII: huge infusion of capital investments and R&D that first went into the war effort and then into peacetime production. Additionally, the country plowed huge sums into universities, research and highways right after the war. The result? The decades just after WWII broke the record for productivity gains that were set by Lincoln. Investments drive productivity and wage growth. And that was before capital was free.

I keep banging on this drum but rather than invest in creating a great future, both parties seen intent instead on fretting about the future. Don't be sucked in by Democrats' timid plans for the future or Republicans' showing such a lack of faith in the future that they refuse to invest in it. Tell everyone you know, "But interest rates are the lowest they've been in 5,000 years! We'd have to be fools not to invest truckloads of money right now." Even if you don't believe in the future, talk and invest as if you did. It'll make you look like a better person. Pessimism and fear just makes you look small.

11 October 2021

Columbus Day and How Our Descendants Might Look At Us

We've gone from making Columbus out to be a brave hero who sailed over the horizon to discover our home to making Columbus an amoral opportunist who brutalized Americans and unleashed forces that devastated first nations. Is a hero or a villain? 

At the time of the dinosaur, our ancestor was essentially a rodent. "We" have evolved greatly since then but it raises an interesting question: how are we to judge that ancestor's morality?

And while that's a dramatic example, I think the same general complications apply in any attempt to judge generations from centuries earlier. If climate change does irreparable harm to coastlines and their cities, makes species of plants and animals extinct and forces political turmoil and violence with climate refugees, do you really think that your descendants aren't going to be horrified that you took joy rides driving up the coast or that you flew to other continents just to play tourist?

It's the rare individual who constructs their own morality separate from what they see around them. We tend to share language and worldview with the people we consider us.

If we're making progress, we will be aghast at the technology - and worldview and morality and behavior - of our ancestors. It doesn't mean we can't acknowledge when they did things that changed the world - and call out the the things they did that were so casually brutal.

And then rather than decry the treatment of others from that period, champion policies that narrow the gaps between "others" and average Americans. We can't judge a rodent's behavior from the time of the dinosaurs but we also don't have to accept the consequences of that behavior as if we're helpless to change history. We're no longer the rats in the maze; we're the ones in the lab coat who can now change the maze.

08 October 2021

What September 2021 Job Numbers Suggest About the Recovery to Follow

Last month (Sep-2021) the economy created less than 200k jobs, which is far short of what's needed. The good news is that monthly variation is high and with adjustments to prior months, the American economy is still averaging 561k jobs per month this year. This one month dip is less likely a sign of things to come than normal variation within this very weird year.


Unemployment is down sharply for the month, dropping from 5.2% to 4.8%. 




We are still down 5 million jobs from pre-pandemic peak. The breakdown of those jobs raises some questions.

Leisure and hospitality jobs are down 1.6 million. This is for obvious reasons and one can hope that as COVID cases subside so will this number. Meanwhile, tip your server generously.

Health care employment is down 524,00 . About 400,000 of those jobs are in nursing and residential care facilities. My question? How much of this reflects the population drop in these places due to COVID? Between hesitancy to live in such places and the drop in elderly population (official count is 700,000 dead in the US and the Economist estimates this misses about 30% of COVID related fatalities, which would put the total at about 900,000), there is less demand for these services. Given 24 hour, 7-days a week care in these facilities, there is about one job for every 3 residents. The COVID death toll alone could account for 300,000 of those 400,000 jobs lost in nursing and residential care facilities. 

Those nursing home jobs may not be coming back for some time.

Another big source of job loss is in education. Here, jobs are down 676,000 from their pre-pandemic peak. Given the Delta variant is so contagious and that kids are both unvaccinated and coming back into the classroom in large numbers, there is a COVID outbreak among school-age children right now. Some parents seem to be choosing to simply keep their kids at home. It's not obvious what is happening with those kids (private education employment is down about as much as public education). If elderly are not going into nursing homes they may be staying with their children who have school-age children; I'm sure a number of kids are being kept out of school to protect grandparents. Studies suggest about 3 million kids have "disenrolled" from school. Presumably the kids will come back at some point and these jobs in education will be restored. Timing seems like a huge question.

The only sector with higher employment than the pre-pandemic peak is transportation and warehousing, where there are 72,000 more jobs than there were last February. This sounds negligible. And as a portion of the workforce it is. But those supplies that they are shipping and storing flow into factories and retail stores, representing downstream jobs in manufacturing (which is now down 353,000) and retail (now down 202,000). The growth in transportation could be prelude for more general growth in employment. Every one of my clients of late complains about how delays in supply chains is impacting their ability to make product they can then sell; as that problem is addressed, it could mean great things for downstream sectors and employment. It makes sense that transportation and warehousing would lead a recovery.

Meanwhile, it looks like we won't hit something akin to full recovery until next year. The unemployment rate, though, is rapidly dropping as befits an economy creating an average of half a million jobs per month.
 



Finally, the unemployment rate is so much higher for those with less education. Market forces are less likely to address this than is legislation to fund infrastructure projects and subsidize sectors like childcare, for instance. Funding jobs for less educated people is better in dozens of ways than either ignoring their plight or giving them welfare rather than work.