Month: January 2015

If Chris Christie is truly one of the better candidates the Republicans can put forward I am going to predict a Democrat wins the 2016 Presidential election (nytimes story on a speech). New Jersey is the second most expensively governed state in the U.S., collecting 12.27 percent of residents’ income compared to a national average of 9.8 percent (Tax Foundation). As New Jersey is a very wealthy state and they spend far more than they collect (e.g., by running up massive pension fund deficits) this means that they spend a crazy high number of dollars per capita. What do taxpayers get for their dollars? Based on my visits to a cousin’s house over the years, I don’t think that they get more than we residents of Massachusetts, with our 10.28 percent tax burden (Tax Foundation). Are the streets of Newark paved with hidden gold?

New Jersey has had some economic success, of course, but this seems to be due to its proximity to New York City and Philadelphia, not due to political or management magic worked by Governor Christie. His claim for consideration as President based on the continued prosperity of a state right next to the cash fountains of Wall Street reminds me of Mitt Romney claiming to be a business genius because he bought companies using leverage during one of the biggest stock market booms in U.S. history. (previous posting)

What do New Jersey-based readers says? Is there something special about Christie that national voters should know?

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Mercedes USA is moving from New Jersey to Georgia (nytimes). I’m wondering if this means some of the 1,000 employees affected by the move will sue or be sued for divorce. A plaintiff might find it far more profitable to sue for divorce under New Jersey law than under Georgia law and might prefer the sole custody arrangements that are more typical in New Jersey compared to Atlanta. Here are some of the differences:

• child support in New Jersey can be collected until a child turns 22 (until “emancipation” which our interviewee said was “usually just a four-year college education”); in Georgia child support is cut off at age 18
• a judge in New Jersey can order the defendant to pay for college; a judge in Georgia does not have that power
• child support in New Jersey is governed by guidelines up to $187,200 per year of a defendant’s after-tax income [resulting in a cash flow of $29,692 per year for a single child; compare to about $50,000 per year in Massachusetts or $55,250 per year in Manhattan] and above that is limited only by a judge’s generosity; child support in Georgia is capped at $26,832 per year (tax-free), based on $360,000 per year in parental income
• our interviewees estimated that, for a given length of marriage, alimony was likely to last longer in New Jersey compared to Georgia, though in both cases might be roughly one third the difference in pre-tax income
• a custody lawsuit in New Jersey is likely to end with the mother obtaining sole custody of any children (every-other-weekend visitation with the father); a custody lawsuit in Metro Atlanta is likely to end, especially if both parents work, with a 50/50 parenting time schedule (though our interviewee said that rural Georgia was more traditional and therefore more like New Jersey)
• a plaintiff in New Jersey with a lower income than the defendant can get the defendant ordered to pay the legal fees on both sides of the case (our interviewee estimated a minimum of $300,000 in total fees, including psychologist expert witnesses, for a custody lawsuit); in Georgia generally each litigant has to pay for his or her own lawyer

This seems like an interesting sociology research project. At a minimum these seem like good questions:

1. do employees and spouses research these differences in law prior to the move?
2. are lawsuits more prevalent shortly before a move or immediately after?
3. (to make sure that the answer to 2 is about the differences in law instead of the move) to what extent is there an increased number of lawsuits around the time of a corporate move when divorce laws are nearly the same in the two jurisdictions?

[Separately, why would Mercedes want to move? Tax Foundation says New Jersey has the 49th worst business environment in the nation. To run state and local government the state collects 12.27 percent of residents’ income, the second highest percentage in the U.S. (after New York). Georgia, on the other hand, manages to run state and local government with 8.84 percent of residents’ income, slightly below the national average, though its business environment ranks #32 out of 50. And the New York Times article shows the benefits of being a big rich company in the U.S., with both New Jersey and Georgia offering Mercedes-Benz massive hand-outs that an employer of 10 workers could not obtain, even scaled proportionately.]

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Sheryl Sandberg, co-author of the bestseller Lean In, co-wrote an article for the New York Times called “Speaking While Female”. She says that women get interrupted more at meetings than do men and proposes to add Band-Aids to the process such as hiring quotas for women in management, “no-interruption” policies, or “Obama-style meetings” in which no men were permitted to speak. This reminds me of General Motors taking feeble little steps toward solving their ignition key problems rather than putting keyless ignition systems in all of their cars.

Contrast to Jeff Bezos, founder of Amazon. As noted in my review of The Everything Store, Bezos reengineered meetings at Amazon so that, for the most critical part, neither men nor women would be speaking. People were required to bring their ideas to meetings in written prose form and people would spend the first 15 minutes reading. (Perhaps after that there would be a chance for the interruptions of which Sandberg complains to occur, but by that point ideas were all out there on the table and tied to an author.)

If there are corporate processes where women aren’t being treated equally maybe the first question to ask is “Should we even be engaging in this process?”

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It is January in Boston, which means that it is a great time to try to learn SQL while Mindy the Crippler tries to bite your toes off. Our hands-on intensive all-day-every-day course this year will be January 26-28. If you have any programming background at all but want to know how to use the relational database management system (RDBMS), this is your big chance. See the course page for more details on how to apply for admission (spaces are limited). Note that this is a for-credit course for Department of Electrical Engineering and Computer Science undergraduates but it can be audited at no charge and without being registered as a student (January at MIT is a flexible month).

Separately, if you are an experienced SQL developer and would like to volunteer as a teacher, please contact us! It has been a rewarding experience in the past and it is only three days of pain and suffering.

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Folks:

The Federal government is seeking public comments on some tweaks to the “Title IV-D” child support regulations. (Click on “submit a formal comment” at top right.)

Background: U.S. regulations regarding child support are a hybrid of federal and state law. In theory everything is up to the individual states. In practice, federal regulations tell states that they have to develop “child support guidelines” based on “economic data on the cost of raising children.” As explained in this video from Joe Sorge, producer of the Divorce Corp. movie, the Feds give states financial incentives to designate one parent as “primary” and one as “secondary” and to maximize the amount of child support ordered and then collected. (So if two parents earn the same $100k/year, a state would lose money by awarding a 50/50 schedule to the children (since, in most states, no child support would be paid from one of these equal earners to the other).) In some ways the strangest part is that each of the 50 states plus D.C. is instructed to develop its own guidelines. So every four years consultants get hired 51 times and government workers get paid to meet in 51 separate places to discuss the same federal Census/USDA “economic data on the cost of raising children.” Unsurprisingly they then come to such wildly different conclusions that a child’s cash value can double or triple with a one-mile trip across a state line. It gets further complicated by the fact that some states cap child support while others offer unlimited cash if you can sue a co-parent with a high enough income. Under a strict guideline calculation, for example, a child conceived and living in Connecticut would have roughly 2.7X the cash value if conceived and living 200′ over the border into Massachusetts (what if the parents had sex in Massachusetts but one lives in Connecticut? Then there is litigation over where to have litigation.)

This isn’t up for discussion but as citizens we might want to ask ourselves why we don’t have a system like in most other countries where the cash profit potential for being a parent is determined on a nationwide basis. Why are states having to pay consultants and employees every four years to do something that the USDA is already doing? (note that UCLA professor William Comanor says they’re doing it wrong, though of course Comanor and the USDA economists are much closer to agreeing than a lot of the state committees) Why are states trying to work with federal data that they don’t understand as well as the federal employees who gathered the data?

As an example of what happens when a state hires its own economists, Kansas is instructive. From our book:

Child support guidelines in Kansas are unusually precise. The state hired a pair of economists to develop a formula based on the USDA analysis of expenditures by Americans on children (see the Methodology chapter for a discussion of UCLA Professor of Economics Bill Comanor’s alternative approach). From this starting point, the economists built a formula that that uses 10 digits of precision. E.g., support for a single child if combined gross monthly income is over $15,500 is 2.795182393 times income raised to the 0.689838232 power. This is a declining exponential function that results in a lower percentage of income being ordered for child support as the total amount of income increases. I.e., unlike California, Kansas recognizes that if a person earning $1 million spends 10 percent of his or her income on a child, it does not follow that a person earning $1 billion would spend the same 10 percent ($100 million per year on one child!).

… one has to wonder about the rationale for establishing a formula with 10 digits of precision. That means that a person entitled to, for example, $2,795,182,393 ($2.8 billion) in child support over 18 years would be entitled to this exact number, not $2,795,182,392 or $2,795,182,394. For a person who was going to collect roughly $27,951 in annual child support, the formula would be precise to roughly 1/1,000th of a penny (and thus necessarily the last three digits would be rounded off). The economists who put forward this 10-digit constant note in their report that it is based on estimates from the USDA. And that the USDA estimates themselves are based on a Census Bureau survey of 21,000 households (out of about 125 million households total). As Kansas contains less than 10 percent of the U.S. population, presumably the survey in Kansas was only about 2,000 households. From this data set the state put forward a child support formula with more digits of precision than the world’s physicists, after more than 100 years of experimentation, have been able to assign to the gravitational constant. The Census Bureau itself says that, in the best case of everyone surveyed giving them perfect and precise answers to questions such as “How much did you spend on food last week?”, their numbers contain errors of at least 1 part in 100. Their statisticians note further than they have no way of estimating “nonsampling error” that is due to people giving them incorrect information. [emphasis added]

It is tough to think of a better illustration of a way to shrink an economy through government regulation than to have bureaucrats in 51 jurisdictions doing stuff like this in parallel.

So… if you have an opinion on the laws that affect 17 million children in the U.S., visit Joe Sorge’s site and then click through to the Federal Register to comment.

My own comment, for reference

I am part of a team of five authors that has researched divorce laws and customs in the 51 jurisdictions nationwide. For our forthcoming book we have interviewed roughly 100 divorce litigations nationwide as well as in nearly 10 foreign jurisdictions. We have also interviewed research psychologists, retired judges, and legislators.

We found that the U.S. was unique worldwide. We seem to be the only country where simultaneously (1) obtaining custody of a child can produce more cash than going to college and working at the average college graduate wage and (2) custody of a child is up for grabs and therefore open to litigation. In other countries either the maximum child support obtainable will cover only basic expenses, e.g., $2,000 to $8,000 per year in Scandinavia, or there are strong presumptions regarding how a custody dispute will be resolved, e.g., “mom always wins” or “children’s time split 50/50.” The result is that, as a society, we expose our children to far more custody litigation than any other country in the world. In addition to the psychic toll, this costs us close to $50 billion in cash every year and consumes additional public resources for investigating litigation-motivated claims that a custody defendant is a molester, prosecuting and imprisoning parents who don’t pay child support ordered, etc.

Consider two doctors in Chicago with two children and each having an after-tax income of just over $200,000 per year. Illinois generally favors the selection of a “primary parent” but, with two working parents, a time split of 60/40 or 55/45. Both parents will have to dedicate rooms for these children so the difference in actual cost at 55-percent time versus 45-percent time will be minimal. But the Illinois child support guidelines will result in the loser parent being ordered to pay the winner parent roughly $1 million. The difference between being the winner and loser is therefore roughly $2 million in after-tax wealth over an 18-year period. Illinois thus turns children who are fortunate (each parent has enough income to support both children comfortably) into children who are unfortunate (the parents accept the state’s invitation to wage a scorched-earth custody battle, each trying to be the winner with slightly more parenting time and $2 million in extra cash).

Based on our interviews, the more profitable child support is, above the roughly $4300 per year that UCLA economist William Comanor has found to what middle class parents actually spend on a real world child or the roughly $9,000 per year that the USDA says should cover the costs in a theoretical world, the more litigation occurs. Attorneys report that, compared to in jurisdictions where child support is capped at a modest sum, parents are much more likely to engage in aggressive litigation to obtain the $40,000 per year (tax-free) at the top of the Massachusetts guidelines for a single child, the $72,000 per year at the top of the Utah guidelines, or the potentially millions of dollars in annual child support available in California. (Note that “top of the guidelines” is not a limit; depending on the state, it may be merely a starting point when a high-income defendant is sued.) Attorneys in all of the states where children are profitable told us about parental savings being completely drained for litigation regarding the extent to which one parent would own a cash-producing asset (i.e., a child).

The attorneys’ perspective is backed up by research, e.g., Maya Rossin-Slater and Miriam Wust’s “Parental Responses to Child Support Obligations: Causal Evidence from Administrative Data.” Here’s how we summarized their work:

[the authors] found that what a mother might have gained financially from child support, the child lost in terms of reduced contact with and effort from the father: “mothers, who have substantial say in custody decisions [in Denmark], have the opposite incentive to refuse to share custody and instead receive the higher payment [for child support, compared to shared custody]. … fathers may treat financial transfers as substitutes for other forms of non-pecuniary investments and contact with children, which would also lead to a negative relationship between child support obligations and father-child co-residence.” The economists found that “an increase in the father’s obligation may lead to less attachment to his existing children and more time available to invest in new offspring.” (See the “Divorce Litigation” chapter for our interviewees’ perspective on how the main opposed interests in a divorce lawsuit are the plaintiff parent and the children, not the plaintiff and adult defendant.) The researchers also found that fathers who were ordered to pay more child support were more likely to have new children, thus diluting the time and energy available to prior children, and that fathers who were ordered to pay more child support reduced their working hours due to “market distortions generated by the ‘tax-like’ nature of child support mandates.” Mothers who received more child support cash for existing children were motivated to have additional children, either with or without a live-in partner: “mothers receiving higher child support payments for current children may expect higher transfers for future children if they separate again.” Note that this research was done with data from Denmark, where child support is tax-deductible and capped at $8,000 per year. The effects that they observed would presumably be larger in the U.S. where child support payments are not tax-deductible and can be $25-100,000 per year.

The incentives are simplest to understand in a state such as Wisconsin, where custody of one child entitles the winner to 17 percent of the loser parent’s pre-tax income (about 33 percent of after-tax income). This means that the person who has a one-night sexual encounter with a surgeon will have one third of a surgeon’s spending power. If that person has a second child with a different surgeon, as predicted by the Danish study above, he or she will now have two thirds of a surgeon’s spending power. If the child support recipient then has a third child with a third surgeon, he or she will have the same spending power as a surgeon. Politicians tell Americans to study STEM subjects and work hard in college, but a thoughtful child support plaintiff can enjoy a comparable spending power without ever attending college, working, or paying income tax.

Similarly, while politicians tell Americans to settle down and form stable families, the child support system provides financial incentives to do the opposite. Having three

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Sometimes people wonder how believing Christians can be scientists. The Big Bang Wikipedia page is a little different from Genesis, for example. But maybe the contradictions are even larger for Christian mainstream economists. How to reconcile the teachings of Jesus with a world in which nearly everything is for sale and we’re told that’s as it should be (for efficiency)?

I stopped into a session on “The Economy of Ancient Israel” at the American Economics Association 2015 meeting to see how it works. “Rational Peasant Strategy in Biblical Israel: Reconciling Theory with Archaeological Evidence” by Albino Barrera was an exploration of what it was like to be an Iron Age peasant in Israel from 1200 B.C. to the Babylonian Exile (about 600 B.C.). Barrera explained that standard economics theory posits that peasants should have been impoverished and unable to hold onto any surplus that they generated because an elite would have confiscated surpluses through taxation. He said that the Biblical texts support this point of view. Archaeological evidence, however, is that a typical family lived in a 3-4 room house of 130 square meters in size (1400 square feet) and that these houses had storage areas. Evidence is that peasants had private land and held surpluses but then they lost it all after the Babylonians came in.

Some other speakers talked about reciprocity in ancient Israel. If you got a lot of wealth you would try to distribute it among your clan so that, if you were ever in need, those neighbors would come to your aid. Apparently the system worked out better than it did for Timon of Athens.

Certainly it doesn’t seem as though microeconomics has changed much in 2500+ years.

Related: I’m still listening to Cleopatra: A Life (Stacy Schiff) as a book on tape. It is filled with detailed evocations of daily life in Ancient Rome, Greece, and Egypt and even includes some economics. Think that Piketty’s wealth tax idea is new? Octavian, Mark Antony, and Lepidus did the same thing back in 43 B.C. (they killed a lot of rich people and took their property, but the “proscriptions” brought in less cash than planned/hoped says Schiff).

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What’s not to love about these photos of New York City taken from a helicopter at 7500′ at night?

[Europeans can take some pride in these photos because they were taken from a Eurocopter A-Star (or the twin-engine version of the same?). Japanese can take some pride because of the use of Canon and Mamiya camera gear.]

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New York was a pioneer in allowing public employees to unionize (September 2009 posting). I’m wondering if the recent work slowdown by the New York Police points the way to the future of public employee labor negotiations.

Had the police gone on strike they would have lost a few weeks of pay. By simply stopping work but not going on strike they kept getting paychecks while putting pressure on politicians and citizens. That raises the question of why, going forward, public employees would ever strike. If there are no performance standards for unionized public workers and/or they can’t be fired, why strike? And why were there strikes by public employee unions in the past? Why wasn’t this tactic obvious back in the 1960s, for example?

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In listening to self-described “radical” and “feminist” economists at the American Economic Association conference (example) and also in reading popular articles such as “Pay Gap Is Because of Gender, Not Jobs” (nytimes), the fact that men and women in the U.S. earn different amounts via W-2 wages is accepted as ipso facto evidence that our society is unfair and needs “reform.”

Perhaps we do need reform, and perhaps there is discrimination by employers, but I’m wondering if this is the most important analysis for figuring out if society overall is unfair. Does it matter to Citizen Ruth what she earns, and therefore what she can write down on her 1040 tax return, or what she can spend, and therefore the kind of lifestyle she can enjoy? If spending power is relevant then we may not have any idea how equitable our society is.

Simplest corrections: Do women typically give men more gifts or vice versa? Spending power should be corrected for that. What about paying for vacations and entertainment? If there is a disparity in who pays for these, including among the unmarried, that should go into the accounting. Cash income? Are men or women tending to earn more in the cash or underground economy? Cost of living adjustments? Are there more men versus women who live in high-cost states such as Hawaii, California, New York, or Massachusetts? Are there more men than women who live in high-cost cities versus low-cost rural areas?

For the bigger corrections we need to consider once class at a time.

Let’s consider poor Americans first. A poor woman, like a rich woman, is overwhelmingly likely to be the winner of any kind of custody dispute in the U.S. courts. Thus she is more likely to have possession of a child than would be a poor man. If we assume, as do the child support guidelines, that the child has no value to the parent and is a pure cost, the mother may be better off than the father even if the father is also poor and pays her minimal cash. A poor single parent is entitled to a lot more welfare benefits than a poor childless adult. The single mother may get a free apartment, cash payments, additional food stamps, etc., that are unavailable to the single father. Those should be entered on the female side of the ledger. (“The Work Versus Welfare Trade-Off: 2013” report from Cato Institute runs the numbers for a single mother with two children, roughly equivalent to a pre-tax wage of $50,540 per year in Massachusetts.)

What about married people? A married person, especially if he or she left the workforce for a number of years, may have a lower W-2 wage compared to an equivalently educated spouse. Yet the lower-income spouse may be able to spend some of the higher-income spouse’s wages in addition to his or her own, possibly enjoying a higher ability to consume than does the nominally higher-earning spouse. If it is primarily women who are the lower-earning spouses in marriages then this correction would result in a boost to total female spending power. [Anecdotally when our married friends talk about a financial decision, e.g., whether to do a kitchen renovation desired by the wife or to spend money on a hobby or trip as desired by the husband, it is generally the wife whose preference prevailed.]

How about divorced Americans? Our interviews with divorce litigators nationwide reveal that in many jurisdictions the spouse with a lower earning capacity would be entitled to a larger-than-50-percent share of any marital assets. These money flows can be significant but are not present in any statistics on earnings or wages. (See, for example, the $1 billion that Harold Hamm was ordered to pay the wife who sued him.) In most states the lower-earning spouse can also get alimony, which would appear in household income data (assuming that she voluntarily and accurately reports it to a surveyor) but not in any data on wages (the primary source for complaints that the U.S. is gender-biased). A divorced adult may also collect child support (see below). Again, if the lower-earning spouse tends to be a woman correcting for these effects will boost total female spending power.

Divorce itself can be a significant expense (estimated at roughly $50 billion per year paid to lawyers, psychologists, etc.) and divorce litigators nationwide told us that often men were ordered to pay women’s legal fees. So it would make sense to look at who filed the divorce lawsuit (mostly women) and assume that the person did so for personal benefit, then look at who was ordered to paid the costs (ultimately the children, actually, say the litigators), and treat that spending as a gift from one gender to the other.

What about never-married Americans? Never-married women who live in cities may actually earn higher wages than men (punditfact). The Wall Street Journal says that never-married women nationwide earn 96 percent of what men earned, according to the BLS. Based on our interviews with attorneys and consumers, however, the official stats leave out some spending power. Some single women who became pregnant in states with unlimited child support managed to sell their abortions ($250,000 was a typical number and no W-2s were issued for this “labor”). If a child is produced, a never-married woman could supplement her income by having a child and collecting child support.

How does the child support system affect this analysis? Suppose that an adult American has three children with three dermatologists. If the sexual acts that produced these children occurred in Wisconsin, the parent who wins custody can get 17 percent of each doctor’s pre-tax income, pretty close to 33.3 percent of post-tax income and thus his or her net spending power is the same as any one of the dermatologists. As women have the power to decide whether or not to carry a baby to term, it would most likely be a woman in this situation. If she got bored and decided to take a $20,000/year job at a non-profit organization her W-2 earnings and the doctors’ would go into the comparison cited by political advocates to show that women in the workforce were not being treated fairly.

The adult who gets custody of a child also has a lower tax rate for his or her earnings. Regardless of the amount of child support revenue or how much, if any, is spent on the child, the child is a “dependent” from the IRS’s point of view and the custodial parent gets a tax deduction for that child. If the custodial parent receives gifts or buys things for the child and then gives those things to charity, the adult can take a tax deduction for the value of the items. Once again, this lifts spending power without changing W-2 earnings. (See “The High Price of Being Single in America” (Atlantic) for how small tax advantages can add up.) To the extent that it is primarily women who can choose whether or not to continue a pregnancy and who can obtain custody of a child, this correction would result in an increase in spending power for women.

Readers: What else would be required to create an accurate accounting of the difference in spending power between America’s men and America’s women? And is it more important to focus on spending power or on W-2 wages?

Related:

• “Solved: Why Poor States Are Red and Rich States Are Blue” (consumption inequality in the context of Democrat versus Republican states)

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The sad events last week in France were not surprising to me except the fact that the French knew that at least one of the brothers involved in the Charlie Hebdo attack had trained in Yemen with Al-Qaeda (2011) while the other was actually imprisoned from 2005 to 2006 for trying to join the jihad in Iraq (and then imprisoned again in 2008). As Al-Qaeda is a military opponent of France, why were these guys allowed to roam free around France? An American who joins a foreign military that is engaged in hostilities against the U.S. loses his or her citizenship (State Department site) and therefore the right to roam free with the U.S. (though perhaps under our new immigration policies he or she would be welcomed back anyway?). In addition to the periodic prosecutions and imprisonments, the French put in the time and effort to track these guys for years, though surveillance had recently been dropped. Why wouldn’t they simply have put that time and effort instead into moving them out of France?

Related:

• British government’s attempts to terminate citizenship for terrorism suspects: Independent; Daily Mail
• Wikipedia article on statelessness, a possible consequence for people who lose citizenship (perhaps international laws need to be updated given that now there are “stateless” organizations waging wars?)
• United Nations web site on the subject of statelessness and the UN’s efforts to eliminate it

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