Philip Greenspun’s Weblog

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)

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

A friend of a friend is involved in the Longfellow Bridge repairs here in Boston (see previous posting about how the repairs, if done within budget, will cost 4X the original construction cost, adjusted for inflation). There hasn’t been a public announcement yet but apparently the project is already roughly a year behind the 3.5-year schedule (which would have enabled a reopening of Boston-to-Cambridge traffic in late 2016).

Barack Obama wants to make community college free (politico). This announcement comes right after the American Economics Association meeting in which solid evidence was presented that the returns to attending non-selective colleges, at least for a lot of majors, is zero or negative (previous posting). Coincidentally, a friend came over for dinner this evening. Her sister has a master’s degree and teaches remedial skills in a Midwestern community college. “She pours her heart into the job, which can be tough because people come out of high school functionally illiterate. But she loves math and statistics,” said my friend, “so she did a study and found that students who’d been through her remedial program did not earn higher grades in their subsequent classes compared to a control group of students who did not get the remedial program.” What happened when the administrators saw the results? “Nothing. They’re still doing it even though it is expensive, time-consuming for students, and has been proven unhelpful.”

What do readers think? Will this make Americans more desirable to employers? Or just keep Americans age 18-20 out of the workforce and therefore out of the unemployment statistics?

Update: found a 1960 quote from Kingsley Amis: “The delusion that there are thousands of young people about who are capable of benefiting from university training, but have somehow failed to find their way there, is…a necessary component of the expansionist case…More will mean worse.”

The Son Also Riseslooks at social mobility, of which income and wealth correlation from generation to generation is a component, across a range of societies including the U.S., England, Sweden, India, China, Japan, and Korea. It turns out that there is no correlation between the ethnic homogeneity of a society and the amount of social mobility, contrary to what one would expect if racism were a factor in keeping sub-sections of a society either in a high-status or low-status condition.

I’m going to be writing about this important book in the days to come so I recommend grabbing the Kindle version to everyone who is interested in the questions “Why are some people more successful than others?”, “Whom should I have children with?”, “How many children should I have?”, and “What should I do with those children?”

If you’re passionate about helicopter instruction you might enjoy this interview with me on the Rotary Wing Show (interviewer: Australian instructor Mick Cullen, who is too modest to mention his own background flying military helicopters such as the Huey and Blackhawk).

I attended a session run by the Union for Radical Political Economics (URPE), a 50-year group that can be lumped roughly into the larger “heterodox” camp of economics that had a small but continuous presence at the American Economics Association 2015 conference.

Why is there any reason to doubt that the mainstream “neoliberal” economists are correct? If they were, why would they waste their time working as economists? Paul Krugman, for example, writes New York Times articles that are based on the assumption that he knows the optimum way to run an economy. But if he actually did possess this knowledge he could survey the world’s countries with tradeable currencies and then, using the crazy leverage that is available for currency trading, bet on the sure winners and against the sure losers. He could thus accumulate infinite wealth within a few years. Why scribble away for the New York Times when he can join the Forbes 400 at the #1 spot?

A founder of the URPE group, Howard Wachtel, was the first speaker. He is an example of a friend’s rule that the most capable people in any field tend to be the pioneers (see Vermeer, for example, in the early years of modern oil painting). Wachtel said that what motivated his early research was the observation that labor markets were not functioning as predicted by classical economics. People with similar levels of education, and therefore presumably marginal productivity, were being paid different amounts. He looked especially at those with just a high-school degree or a maximum of two years of college. If they found employment in the Detroit automobile industry, for example, they could earn much higher wages than in a different occupation or in a similar occupation elsewhere in the U.S. [Note: I’m not sure that this falsifies classical economics; the auto makers were at the time an oligopoly extracting above-normal profits from American consumers and a powerful labor union was able to intercept some of those profits before they reached the shareholders; the free competitive market with perfect information postulated for much of Econ 101 is very far from the reality of the Detroit automakers circa 1970.]

Wachtel said that the structure of the labor market has a greater effect on wages than human capital and that proof of this is the “vast investments in education and student loans” that have been made for the preceding decades without much effect on wages (see previous posting). Wachtel gave a compelling example of why we need of why we need a massive wealth tax to address complaints about income inequality: “What if I am playing monopoly with my grandchildren and I win the first game then say ‘Let’s play again but each person will start with however much money he or she had at the end of the last game.’ Very quickly they figure out that this isn’t a fair way to play.” (It is a great story but Gregory Clark spoils the ending with his 800 years of data; it turns out that when an English family had 15 children those kids did not turn out dramatically poorer than when a prominent English family had just a handful of children. See The Son Also Rises.)

The next speaker was Julie Matthaei, a professor at Wellesley College. Her talk was titled “Workers, Women, and Revolution: A Marxist-Feminist Perspective on URPE.” She talked about how Marxist-Feminists like herself are committed to ending both patriarchy (male domination) and capitalism (class domination), pointing out that the answer to “Can women be liberated in capitalism?” is “No because they would still be dominated by class.” Her group was forced to adapt in the 1980s when they came under criticism from black and lesbian academics. They also decided to broaden their horizons internationally by adding a program to object to the Jewish occupation of Palestine (Matthaei did not mention looking into criticizing any of the other 195 countries in the world; I’m wondering if this is an illustration of this recent Atlantic magazine story where the journalist says that supporting the Palestinian cause is popular among journalists in Israel because “You can claim to be speaking truth to power, having selected the only ‘power’ in the area that poses no threat to your safety.”) Matthaei criticized Sheryl Sandberg’s book Lean In (my review) as “an example of liberating only white privileged women”: “Sandberg talks about breaking the glass ceiling but for poor women the basement is flooding.” (After the talk I asked her about her abstract that cited the problem of “women’s unpaid reproductive work”. Didn’t the child support guidelines that we have had in place for 20+ years now put a price on reproductive work? If a woman can get paid for having a baby or selling her abortion, what kind of unpaid reproductive work is left? Matthaei cited the work that women do within an intact marriage.)

Michael Zweig talked about how the labor market must be viewed as employers and workers meeting as classes, rather than as individuals, and that the market is segregated by race and gender (note that this was seemingly contradicted by the fake resume study presented at the conference by a group of Harvard researchers). Zweig said that Gary Becker predicted that the market would eliminate racism, e.g., if black workers of the same quality were available at a lower price than white workers, a company such as Target would hire all black workers and put Walmart out of business. Zweig asserted that the fact that blacks and women still are paid less than white men shows that “capitalism embodies racism and patriarchy. It is not enough that we have a black president. We now know that. Class matters.”

Marlene Kim of U. Mass Boston was the “discussant.” She suggested that everyone needed to incorporate more feminism in their papers and also bring in “cutting edge theories on race” from Psychology. In her view the answer to income inequality was unionization. (I didn’t mention that I had been a member of a union that negotiated a 30:1 hourly wage ratio between senior and junior workers; see “Unions and Airlines”) For an example of why capitalism needs to be torn down she cited USDA inspectors coming out every week to farms to make sure that fruit being packed was up to standards but ignoring obvious child labor law violations. (I’m wondering if the issue is simply that there are separate government offices for performing these inspections, as noted in my posting about FAA oversight of my single-pilot helicopter operation.) But if capitalism is to be torn down, what other enterprise is big enough to take it on other than the U.S. government?

Barbara Bergmann, an influential feminist economist who is too old to travel to a conference like this one, recently published What to Do About Single Parenthood” (Huffington Post). She proposes more government support of children, regardless of the parents’ marital and living status and income, so that children would become essentially cost-free or perhaps even profitable even for married couples. I called her up (she’s a family friend) and asked whether she meant this to be a supplement to the existing litigated system of child support or a replacement for it. For example, could one still collect $4 million after a night of passion with a dermatologist (oxymoron?) and then pocket 100% of the money because the Feds were now paying all direct child expenses? Professor Bergmann said that this system would be a supplement and “I wouldn’t favor weakening any of the existing systems.”

[Note that cost-free (for married couples) or pure-profit (for child support plaintiffs) children might help address the “sustainability of the welfare state” problem identified by some of the demographically-minded economists at the conference. With the exception of the Netherlands and Singapore, most modern rich countries run Social Security-style pensions as a Ponzi scheme in which yet-to-be-born workers will pay for the pensions of current adults. Alicia Adsera and Ana Ferrer brought a paper titled “Do Migrants Adapt to Fertility Patterns in Destination Countries? Evidence from OECD Countries” and noted that college-educated Canadians have a lower-than-average and lower-than-replacement rate of fertility. In other words, they are doing A Farewell to Alms in reverse (in Farewell we learn that economic growth was driven by highly educated people having larger families than the illiterate)). Even without that, apparently almost every developed country is in trouble because so many systems were built under the assumption of an infinitely expanding population. (Assumptions made with the advice of mainstream economists, I might add!)]

An issue with this group is that they don’t seem to have any criteria for disbanding. If total compensation for all working Americans fell within a 3:1 range, would that be sufficient to call the economy “fair”? Would it require a 2:1 range? Would the group disband with a “mission accomplished” if all nations worldwide had only the income disparity of Sweden? URPE doesn’t seem seem to have a concrete numerical goal. Another issue is that data are used selectively. In the 1980s it wasn’t generally possible for an American to earn more from child support than from going to college and working. Then a sociologist published Divorce Revolution asserting that women were becoming 73 percent poorer (out of a maximum impoverishment level of 100 percent) after filing divorce lawsuits. Aside from some simple data coding errors identified 11 years later in an academic paper, the main reason for this counterintuitive result (why were women hiring lawyers and going down to the courthouse asking judges to make them poor? Then, as now, the majority of people suing are women) was that the author didn’t consider earned household income. A women who sued her VHS video cassette rental store clerk to marry a plastic surgeon was counted as impoverished because the author looked only at what the woman was collecting from the clerk and the total number of people in the household. So the marriage to the plastic surgeon made her poorer, not richer (since the surgeon’s income was not counted, only his postulated consumption of food and living space). The modern folks who earn a living by saying that women are getting a raw deal from the U.S. system flip this technique around. They look only at what women earn from wages. If the women is married, the woman’s ability to spend a share of the husband’s paycheck is ignored. If the woman is divorced, the child support, alimony, and tax-free property she may have received is ignored. One of the plaintiffs that we use as an example in our book is Jessica Kosow of Kosow v. Shuman (see previous posting). After a four-year marriage she obtained a spending power 3.2:1 larger than her University of Pennsylvania classmates. But her case would be evidence that the U.S. system is rigged against women because she has no W-2 job (based on an interview with the defendant in the case, two years after the trial before Judge Maureen Monks in Middlesex County).

It it tough to remain unbiased in this heterodox versus mainstream economics debate because all of us are bombarded on a regular basis with pronouncements from the mainstreamers. However, based on the presentations that I saw at the conference, the heterodox folks are begging the question (in the logical fallacy sense). Instead of having fancy graphs and lots of data like in the mainstream papers, which are designed to persuade and defend against criticism, the heterodox folks simply assume that everyone in the room already agrees with them. Thus the discussion in a heterodox session is how to achieve what are characterized as “reforms” rather than about, for example, whether data support the proposition that Americans employers are more interested in indulging their racism and sexism than in profits (the kind of project that Professor Wachtel was doing circa 1970). Thus it is a group primarily engaged in preaching

As a Christmas present to Americans, the New York Times ran a story titled “Affordable Care Act’s Tax Effects Now Loom for Filers” about how “millions of [American taxpayers] will have to grapple with new tax forms and calculations [related to Obamacare subsidies and penalties] that may generate unexpected results.” Apparently if your income in 2014 was not the same as it was in 2012 there is going to be some additional paperwork.

Is this the time for the U.S. to move to a system already in place in some other countries? The government gets all kinds of reports on what Americans are paid by employers, banks, and mutual funds. Why can’t the government figure the correct taxes for most people and just send us the bill?

Health insurers are essentially government agencies at this point. Citizens are required by law to buy their products. No health insurer can operate without (state) government approval. A central planning government committee decides what the product is going to be. Other than paying higher-than-civil service salaries, how is that different from any other government agency? Thus if insurers are government agencies and the IRS is a government agency, why isn’t it the insurer’s job to tell the IRS who were the customers in the preceding tax year? Why do we have to get paper certificates and submit proof to one government agency (the IRS) that we bought something from another government agency (the insurer)?

Why can’t we have an IRS web site where we see what we owe, tell them about any new children or other household changes, type in any extra deductions, e.g., for charitable donations or business expenses (and if it is a capital asset, let the IRS figure depreciation too!), and be done with it?

I’m aware that this is an old idea and that various people have lobbied against it (example story). But this is the first year of Obamacare and the tax system taking on this bizarre new angle of subsidy clawbacks So perhaps this is the time when everyone can finally agree that government should take our money but leave us our sanity.

[The headline argument against the concept seems to be that the government might send out an erroneous bill and people would just pay it, so we’re all going to be better off if we laboriously gather up our paperwork and pay bookkeepers, accountants, and Intuit (for TurboTax). And then, in those cases where the government does actually calculate a different number, pay whatever bill they send us and exchange letters back and forth. It would be a good argument if time were free and accountants were free. But if we have to spend days of our time and hundreds or thousands of our dollars each year to guard against the possibility of an IRS arithmetic error, we can’t come out ahead unless the IRS would be making some truly spectacular mistakes.]