Philip Greenspun’s Weblog

The New York Times editorial board (photos; note that all are white except for a token Asian woman, a token black guy, and a token Indian) has written “Forcing Black Men Out of Society” in which they complain that low-skill low-income black men have been excluded from work and traditional family life. There is no reflection, however, on the fact that the policies for which the New York Times has tirelessly advocated are to some extent responsible.

First, it isn’t clear that skin color has much to do with this. A white man with poor skills, little education, and a criminal record is not first on anyone’s list to be hired or as a mate. Let’s chalk the emphasis on race to the fact that white people at the New York Times enjoy writing about skin color. There aren’t too many unemployed black doctors or lawyers and most of them presumably are sought after as mates and/or as child support payors. So really this is an article about the low-income portion of the distribution of American workers.

What policies has the Times advocated for?

• high minimum wages
• regulations on employers that push up the cost of labor
• comfortable welfare benefits
• profitable child support

As Milton Friedman noted 42 years ago,

A minimum-wage law is, in reality, a law that makes it illegal for an employer to hire a person with limited skills. Playboy: Isn’t it, rather, a law that requires employers to pay a fair and livable wage? Friedman: How is a person better off unemployed at a dollar sixty an hour than employed at a dollar fifty? … the effect of a minimum-wage law is to produce unemployment among people with low skills. And who are the people with low skills? In the main, they tend to be teenagers and blacks, and women who have no special skills or have been out of the labor force and are coming back. This is why there are abnormally high unemployment rates among these groups. … Blacks get less schooling and are less skilled than whites. Therefore, the minimum-wage rate hits them particularly hard. I’ve often said the minimum-wage rate is the most anti-Negro law on the books. Playboy: Couldn’t those who are hurt by minimum-wage legislation be trained for more skilled jobs at better wages? Friedman: The minimum wage destroys the best kind of training programs we’ve ever had: on-the-job training. …

The Times has advocated for regulations that require employers to provide various benefits, that allow employees to sue for various kinds of discrimination, etc., all of which drive up an employer’s costs to the point that isn’t worth having a low-skill worker around (see “unemployed = 21st century draft horse?”). A lot of people do seem to like the idea of a world in which everyone who has a job is paid well and consequently not everyone can have a job. But if that is what you want, why then express surprise at the fact that a subsection of people are not in the work force?

What about in the domestic sphere? If a woman can have a child out of wedlock and use the child (poor single mother status!) to get a house, food stamps, TANF cash, Medicaid, cell phone, heating oil assistance, etc., what use would she have for a low-income man in the house, especially if she can tap into what income he may have through the child support system. And if having three children with three different men yields twice the revenue of having three children with one man, what would be the rational economic basis of a low-income woman for settling down with one man?

Why do blacks come in for special criticism? In interviewing attorneys for Real World Divorce most of the people they told us about who were behaving contrary to conventional 1950s morality were white. White people were eager to tap into the income of two partners instead of one. White people were eager to profit from children, whether conceived via a one-night encounter or a short-term marriage. White people were eager to collect court-ordered financial transfers (e.g., alimony, child support, property division of premarital assets (traditional gold-digging), etc.) rather than work (see the Massachusetts chapter for a University of Pennsylvania graduate’s 3.2X earnings from a 4-year marriage and a 2-year-old child compared to the average working Penn grad’s income). White people were presumably more likely to tap into a private defendant than the government, but this is an example of differential opportunity not morality. (When the (white) Times reporter Liza Ghorbani was seeking $3 million in tax-free child support revenue she targeted a white married (to someone else) guy; their respective behaviors were not portrayed as behavior defects for white people overall.)

The subtext of this editorial is perhaps “Yes we created all of these incentives for low-income Americans to behave in certain ways but we are certain that they can’t be intelligent enough to follow the incentives. Thus we are going to attribute their following of the incentives to prejudice by white people other than ourselves.”

If the Times is so sure that low-income criminally convicted black men are not getting a fair deal from prejudiced white employers, why doesn’t this multi-billion dollar profit-seeking corporation hire them and thereby boost profits? And if settling down behind a white (black?) picket fence with a low-income black guy is something black women should be enthusiastic about doing, why are Times reporters instead choosing to have profit-yielding out-of-wedlock children with high-income white guys?

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This is a pretty old idea (see the French movie The Closet from 2001, for example), but with more states adding protections for workers who are gay or transgender I am wondering if it wouldn’t be rational for employees who fear that they are losing the rat race to come out to their bosses prior to their next performance review. A white male worker can thus transform himself from a non-protected worker into a difficult-to-fire member of a protected class (depending on the state).

Employers aren’t supposed to be asking a lot of questions about who was sharing an employee’s bed the previous night or what activities took place in that bed. Nor is there any business situation in which an employee’s identification with a different gender and potential for medical procedures could be discussed. If an employer crosses the line and asks “But aren’t you married with two kids?” an employee can always answer “My wife is very understanding.”

What’s wrong with this idea in practice?

[How much is a meritless employment discrimination case worth in California? Kleiner Perkins offered Ellen Pao $964,502 (Mercury News), too much of a discount from her $10 million demand, apparently, and about the same as she would have received by having sex with a $250,000/year earner in Massachusetts and harvesting guideline child support for 23 years (though the child support would be tax-free whereas the settlement money might have been taxable as a substitute for lost wages).]

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The media seems to be gearing up to get excited about the 2016 U.S. presidential election. Pew Research, however, shows that 48 percent of Americans are Democrats and just 39 percent Republican. If we assume that those who aren’t affiliated are roughly equally likely to vote for either party, we should be able to predict the result of the 2016 election: 54 percent Democrat; 45 percent Republican; 1 percent Other. (For comparison, the 2012 election was 51/47/2.)

Learning about Republican candidates would seem to be completely pointless. If there were some serious primary challenger to Hillary Clinton perhaps that would be worth studying, but after the primaries the election should be essentially over.

If the above analysis is correct why do people bother watching TV or reading news articles on this subject?

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Back in February 2014 I asked “Why does it make sense for Comcast and Time Warner to merge?” Now it seems that they won’t. What’s next for our monopoly Internet provider (Comcast) here in Cambridge? Will they retrain some of their lawyers as network engineers?

Is it a victory for advocates of market economics that now each company will have a monopoly only in most of the towns where each operates?

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Happy Tax Freedom Day to all of my American readers who’ve been working since January 1 to keep our local, state, and federal governments running! (Here in Massachusetts our tax burden is slightly higher than the national average so our tax freedom day will come perhaps a week later (2013 map), but to Massachusetts readers I can wish a “Happy Snow Freedom Day” as it would seem that the snow piles in shaded areas are finally gone.)

Background: Tax Foundation’s Tax Freedom Day page (note that I think the Tax Foundation gets this wrong. Tax Freedom Day does not say anything about the cost of government, only about the cost of taxes. The cost of government includes explicit borrowing through bonds and deficit spending. It also includes pension commitments whose cost is unknown and/or not accounted for. We would presumably have to keep working much later if we paid for government on a current basis rather than pushing much of the cost into the future.)

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Here’s a conundrum for USB experts… I have a Fujitsu ScanSnap S1500. This is a truly awesome device for slimming down one’s file cabinet. However, for the past year or so it wreaks havoc on the rest of my USB life. I thought it might be my feeble 4.5-year-old desktop but the behavior is even worse with the latest custom-built PC. With the old PC, powering up the scanner (connected via USB 2.0) would disable any USB devices connected via a hub. I replaced the hub with a (powered) plugable 3.0 hub. Same issues. Unplugging the scanner restored normal USB behavior for both hub-connected and directly connected devices.

With the new PC the scanner can coexist happily with the direct-to-the-motherboard ports, as before. But connecting the powered scanner actually seems to have destroyed the plugable hub. Even with the scanner unpowered and unplugged, there is no way to use a USB device connected through the hub and the LED lights on the front of the hub to show connectivity will not illuminate.

I haven’t tried the scanner with a different USB cable so I am not sure if this is simply a cable issue. Could the scanner be establishing its own ground for the USB and draining crazy amounts of power out of the hub back into the PC and from there up into the scanner?

[If the answer is “throw out your 5-year-old scanner” then that leaves the question of whether to buy the WiFi replacement (ScanSnap iX500) or the Fujitsu Fi-7160, which comes with “PaperStream” software that is allegedly optimized for my kind of business use. I was never very happy with the ScanSnap software, which can’t, for example, remember the last folder that was a target for scanned files. Has anyone used Paperstream?]

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Force Majeure is streaming on Netflix currently. The Swedish movie set and filmed in the French Alps turns out to be related to the Walter Scott murder. Nobody gets killed in the movie (Europeans are somehow able to make compelling movies without people getting killed, paralyzed, etc.). However, there is an event with potentially serious consequences. The person who acts disgracefully has his own version but he is unable to maintain it in the face of mobile phone video footage.

[Separately the movie is yet more evidence that the best photographers are cinematographers. About half of the movie is essentially a series of beautifully composed photographs.]

Readers: Please stream this and let us know what you think!

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Google has launched Project Fi. I’m trying to figure out how this is different from T-Mobile.

• Google: $40/month per line for talking, texting, and consuming 2 GB of mobile data from the T-Mobile or Sprint network. If you’re traveling to most countries you pay 20 cents/minute to make or receive a phone call. Wi-Fi calling when mobile coverage is weak.
• T-Mobile family plan with four lines: $25/month per line for talking, texting, and consuming 2.5 GB of mobile data from the T-Mobile network. If you’re traveling to most countries you pay 20 cents/minute to make or receive a phone call. Wi-Fi calling when mobile coverage is weak. Unlimited music streaming in addition to your data allowance.

Why isn’t doing business directly with T-Mobile a better deal, assuming that you need a few lines and/or can get a few friends together?

For those who are photographically-inclined, e.g., parents of children aged 0-12, another potentially huge advantage of T-Mobile is that one can use an iPhone 6+ with its awesome-in-practice camera system (good hardware; great software). DxOMark gives the Nexus 6 poor marks for autofocus performance, implying that this is a good camera when glued to a tripod in the studio but very likely near-worthless for real-world photography of moving children. (iPhone 6+, by contrast, gets a good review for autofocus)

Anyone out there with a Nexus 6 care to comment on the camera’s real-world capabilities?

If the Nexus 6 is as crummy a camera in practice as DxOMark’s test implies and Fi costs more per line than T-Mobile, what practical case can be made for the Project Fi service? For a consumer with at least three friends or family members and a little interest in taking pictures wouldn’t it nearly always make more sense to get an iPhone 6 or 6+ and T-Mobile service?

Related:

• my video of trying to use the Samsung version of Android to search for and then call a contact (the Note 3 has a camera that tests well in objective reviews, but is worthless in practice due to lag, inability to autofocus, etc.)

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I’m listening to Elsewhere, the autobiography of Richard Russo. (If you’re unfamiliar with his work and are in academia I would strongly recommend starting with Straight Man.) The book will give most adults a new appreciation for their parents. Russo’s mother followed him from Upstate New York to Arizona when he started college and then tagged along with him to every new town so that he and his wife could settle her into apartments, drive her on errands, etc.

The book is also relevant to today’s debates regarding a $15/hour minimum wage. Russo is a self-described liberal Democrat who unfavorably compares Arizona in the 1970s to his hometown in Upstate New York. Arizona was growing fast and everyone who wanted one could have a job but at wages that Russo considered “crappy.” Russo’s hometown of Gloversville, New York, on the other hand provided jobs for only about half of those who wanted one but at union wages that Russo considered fair. Russo describes the abandoned houses and boarded-up shops of downtown Gloversville and generally moribund economy of the surrounding area but still preferred that to an economy in which everyone worked at a market-clearing wage.

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Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again is by Peter Wallison, a Washington insider who served on a federal committee investigating the Collapse of 2008 and has now written a 200-page book (inflated to 432 pages by poor editing and redundancies) about why the other committee members were stupid.

Wallison opens by noting that Americans have a rich history of being stupid regarding economics: “During the Depression era, it was widely believed that the extreme level of unemployment was caused by excessive competition. This, it was thought, drove down prices and wages and forced companies out of business, causing the loss of jobs.”

Wallison explains the entire Collapse of 2008 with a few simple facts:

• starting in the early 1990s the federal government pushed banks and Fannie/Freddie to lend more money to poorer-than-average Americans so that they could buy houses
• the flood of money on easy terms (0% down, etc.) drove up the price of houses to the point where poorer-than-average Americans could never hope to pay off loans
• by 2008 half of all mortgages in the U.S. were essentially subprime
• Fannie/Freddie told everyone that less than 1% of their portfolio was subprime (a lie)
• when people discovered that the U.S. mortgage market was primarily subprime they panicked
• mark-to-market accounting rules made banks look great on the way up but exacerbated the panic on the way down

There are some inconsistencies. Wallison blames everything on government meddling with the mortgage market but then he blames part of the collapse on the government refusing to step in and rescue Lehman. Wallison says that Fannie/Freddie were forced to do financially irrational stuff by HUD mandates but doesn’t explain why private sector banks loaded up on ridiculous mortgages too beyond “competition forced them.” Would it actually have been impossible for a mid-size bank to say “We are going to be left behind by Countrywide, Merrill, and Bank of America but that’s okay because the businesses that we understand are profitable.”?

Here are some excerpts:

as housing legislation was moving through Congress in 1992, the House and Senate acted, directing the GSEs [Government-Sponsored Entities (Fannie/Freddie)] to meet a quota of loans to low- and moderate-income borrowers when they acquired mortgages. At first, the low- and moderate-income (LMI) quota was 30 percent: in any year, at least 30 percent of the loans Fannie and Freddie acquired must have been made to LMI borrowers—defined as borrowers at or below the median income in their communities. … In succeeding years, HUD raised the LMI goal in steps to 42 percent in 1997, 50 percent in 2001, and 56 percent in 2008. Congress also required additional “base goals” that encompassed low- and very-low-income borrowers and residents of minority areas described as “underserved.” HUD increased these base goals between 1996 and 2008, and at a faster rate than the LMI goals. Finally, in 2004, HUD added subgoals that provided affordable-housing goals credit only when the loans were used to purchase a home (known as a home purchase mortgage), as distinguished from a refinancing.

As early as 1995, the GSEs were buying mortgages with 3-percent down payments, and by 2000 Fannie and Freddie were accepting loans with zero down payments. At the same time, they were compromising other underwriting standards, such as borrower credit standing and debt-to-income ratios (DTIs), in order to find the NTMs [Non-Traditional Mortgages] they needed to meet the affordable-housing goals.

Because of the gradual deterioration in loan quality after 1992, by 2008 half of all mortgages in the United States—31 million loans—were subprime or Alt-A. Of these 31 million, 76 percent were on the books of government agencies or institutions like the GSEs that were controlled by government policies.

New York Mayor Michael Bloomberg, responding to a question about Occupy Wall Street, stunned observers by exonerating Wall Street: ‘It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp.”

Wasn’t it the cheap Chinese money that inflated the bubble? Wallison says no, noting that the 1997-2007 bubble was inflating long before interest rates fell: “By the year 2000, before any monetary easing and when the ten-year note was in the 6 percent range, the housing bubble was already larger than any previous bubble. It had grown to that size, in other words, before any Federal Reserve effort to lower interest rates and when flows of funds from abroad were not having a noticeable effect on interest rates. By the year 2003, according to Shiller’s data, the bubble had grown to nearly three times the size of any previous bubble—again, before the Federal Reserve’s policies had pushed short term interest rates into negative territory.”

One of my personal favorite culprits that Wallison minimizes is the repeal of Glass-Steagall: “The repeal of the affiliation provisions, however, had no role in the financial crisis. There is no evidence that any bank or bank holding company (that is, a firm that owns a bank) got into trouble because of an affiliation with a securities firm. The losses that banks and bank holding companies suffered in the financial crisis were the result of what had always been standard banking activity. Even under Glass-Steagall, banks and bank holding companies were permitted to invest in—and thus to buy and sell—mortgages and mortgage-backed securities (MBS), which were regarded by regulators as simply another way for banks to hold loans, a traditional banking asset.”

Wallison notes that an explanation that people want to hear will outlive any debunking:

After the onset of the financial crisis, a widely cited 2008 article in the New York Times by reporter Stephen Labaton incorrectly reported that in 2004 the SEC had loosened the capital requirements for the major investment banks, allowing them to take on much more leverage than had previously been permitted. In reality, what the SEC had done in 2004 was to change the way the net capital of the broker-dealers—the subsidiaries of the investment banks—would be calculated. This had no effect on the capital of the parent companies and no major effect on the required capitalization of the broker-dealers. Nevertheless, the Labaton mistake was then cited in numerous press and other reports as a reason that the large investment banks had increased their leverage before the financial crisis, suffering severe losses as a result. … Later investigations by the Government Accountability Office (GAO) showed that the five major investment banks cited above had not appreciably increased their leverage over its level in 1998, before they had signed up for SEC regulation. … Labaton’s error achieved widespread currency because, as scholar Andrew Lo [MIT professor] has pointed out, it was accepted as true and repeated by many well-known scholars who should have been more skeptical.

How did the ratings agencies fail so spectacularly? Wallison notes that this is a mystery but he says it was not due to the conflict of interest of being paid by issuers: “Why is it that the rating agencies became incompetent or venal when they rated pools of CDOs but not the debt of individual corporate issuers or pools of credit cards or car loans?” He conjectures that the ratings agencies may have failed due to a lack of information: “If it had been known at the time that more than half of all mortgages in the United States were NTMs, that fact alone might have suggested to the rating agencies that the market was far riskier than even the most overheated markets of the past.”

Wasn’t it obvious how bad things were? Not at the time:

Most emblematic of this problem is Ben Bernanke’s statement to Congress in March 2007 that the subprime mortgage problem was “contained” and the lack of alarm about subprime loans that showed so clearly in the transcript of the Federal Reserve’s Open Market Committee only two days before BNP Paribas suspended redemptions in three of its funds. The BNP event, more than any other, seemed to bring to the sudden attention of the financial community the fact that there was a serious problem in the mortgage market. It is certainly unlikely that Bernanke and the Open Market Committee would have been so complacent if they had known—as we know now—that more than half of all mortgages in the U.S. financial system were NTMs, with a high propensity to default when the great housing bubble stopped growing. But market participants were unprepared for the destructiveness of this bubble’s collapse because of a chronic lack of information about the composition of the market. The deficiency of the Federal Reserve’s data was particularly influential.

Accordingly, when the Federal Reserve staff counted up the subprime loans outstanding and provided this data to Bernanke and other members of the Board of Governors or the Open Market Committee, the data grossly understated the number of loans in the financial system that actually met the definition that the Federal Reserve economists had assumed. Instead of 6.7 million, the actual number was probably closer to 18 million, and, including Alt-A loans and loans backing PMBS, at least 31 million. Most of the missing subprime loans were on the balance sheets of Fannie and Freddie, which were hiding the numbers of subprime loans they had acquired to meet the affordable-housing goals.

The mortgage market is studied constantly by thousands of analysts, academics, regulators, traders, and investors. How could all these experts have missed something as important as the actual number of NTMs outstanding? One of the reasons could have been sheer bone-headed ignorance. Nobel Laureate Paul Krugman, for example, informed his New York Times readers on July 14, 2008, that Fannie and Freddie “didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.”

How close to right was Krugman? “By 2006, according to a study by the National Association of Realtors, 45 percent of first-time homebuyers and 19 percent of repeat buyers provided no down payment. The median first-time buyer provided a down payment of 2 percent.” Wallison notes that low down payments drive a bubble. A person with $10,000 in savings in the old days could buy a $50,000 home. With a 2 percent down payment, however, the $10,000 would enable signing up for a $500,000 home.

How is it that Fannie and Freddie managed to drag down the rest of the economy? “The competitive effect of what the GSEs were doing should be clear. Imagine how difficult it would be for a lender to require a 20 percent down payment when others were offering no-down-payment loans that were still eligible for the favorable interest rates that the GSEs were offering. As a consequence, the loosening of the GSEs’ underwriting standards spread to the wider market.”

Politics is a big part of the book. Wallison explains how Fannie/Freddie made friends in Congress by promising to assist with affordable housing goals. Regulation of banks and mortgages also enabled the federal government to transfer money from richer Americans to poorer Americans without the transfers showing up in the budget. How? Wallison explains that the Community Reinvestment Act forces banks, if they want to continue to operate, to write mortgages to people from whom they don’t expect repayment. They make up these losses by charging higher mortgage rates to everyone else. How big is this transfer? “The exact size of that contribution is a bit conjectural, however, because the CRA—unlike almost any other government program outside of national security—is kept hidden from scholars, taxpayers, Congress, and even the government agency that is supposed to keep tabs on it. … banks are not even required to disclose the number of their CRA loans to the Federal Reserve, which keeps the records on CRA lending.”

What can one take away from

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