Philip Greenspun’s Weblog

A lecture within “Modern Economic Issues”, a course by Robert Whaples, concerns the productivity of United States public schools. The overall statistic is fairly familiar. Over the thirty years between 1970 and 1999, spending on public schools roughly doubled in inflation-adjusted dollars. The number of students and their ability, as measured by standardized tests, remain constant. Since productivity is simply output divided by cost, this means that productivity fell by 50 percent. (There are plenty of excuses made by teachers’ unions for this drop, e.g., that immigrants and non-white students are harder to educate, but economists have found that these factors should be canceled out by the fact that today’s parents are better educated than the parents of children in 1970.)

It occurred to me that actually productivity for public employees such as teachers is impossible to measure. Unless we get a letter from God saying how long each teacher will live after retirement, there is no way to know how long retired teachers will live and therefore there is no way to estimate the pension and health care costs. Here in Cambridge, Massachusetts, we know that out of $26,305 spent per student in 2011, $7004 went to pay teachers while $5051 funded “insurance, retirement”. The total budget, however, is understated for the obvious reason that it does not include the capital cost of the schools themselves (“capital expenditures and debt service payments are excluded from this calculation”) and the non-obvious reason that, to the extent that pension costs are included, they are based on the hope that investments in stocks will yield an 8 percent return as well as a prediction on how long today’s 35-year-olds will live.

Then I realized that U.S. productivity statistics are probably inflated artificially over those of countries such as Holland, Singapore, Australia, etc. that have funded pension systems and government-budgeted health care costs. Private sector U.S. workers today participate in Social Security and Medicare, whose future costs are unknown but almost surely vastly higher than the amount being collected in tax from current workers. So the U.S., despite its bountiful resources and fully developed infrastructure, may be a lot less productive than current statistics show.

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I’m listening to some of the lectures within “Modern Economic Issues”, a course by Robert Whaples (to demonstrate my economic skills, I borrowed this from the library rather than paying $270). Lecture 19 talks about poverty statistics and much was new to me. It answers to some extent the question “Why is the poverty rate still so high 50 years after Lyndon Johnson started the War on Poverty?”

It turns out that poverty statistics don’t take into account spending power or consumption. A household is classified as “poor” based on earnings in the labor market. If that household were to receive $10 million in cash from the government every year, e.g., from a turbocharged Earned Income Tax Credit, the millionaires would still be considered “poor”.

How many American households suffer in poverty? It might be twice as many as you think. If a man and a woman live in the same crummy apartment with their two biological children, a layperson would walk by and count one poor household. The expert economists at the Census Bureau, however, upon finding that the man and woman are not married, count two households. The father is one household. The mother and the children are a second household. Both are “living in poverty”. What if the man and woman each had a low-wage job and they were to get married? Now the two “poor” households would become one “not in poverty” household. And although the government would say that these individuals are now much better off, having escaped from official “poverty”, they would in fact have much less spending power because they would suffer at least a 16 percent drop in total income (earned plus government assistance) plus a catastrophic drop in economic welfare if they were to lose eligibility for Medicaid (since private health insurance for a family costs more than an average American’s after-tax wage).

Measured by spending power and consumption, very few of America’s “poor” are poor by European standards. Our poor families enjoy more square feet per person of indoor space than the average for all families in France and Germany. Similarly, car and air conditioner ownership rates among the poor are much higher than among all Americans in the 1970s and oftentimes are above present-day Europeans.

Basically the government agencies responsible for alleviating poverty have set up a statistic that ensures that poverty can never be eliminated.

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Lean In, the bestselling book by Nell Scovell and Facebook’s Sheryl Sandberg, has a chapter advising women on how to pick a husband if they want to succeed in Corporate America. The chapter is titled “Make Your Partner a Real Partner.” It turns out that marriage is correlated with success: “Of the twenty-eight women who have served as CEOs of Fortune 500 companies, twenty-six were married, one was divorced, and only one had never married.”

Sandberg and Scovell decry the findings of surveys that, on average, men don’t do as much in the home as women. The book says “We all need to encourage men to lean in to their families.” I.e., men should be changed. The authors are not wide-eyed optimists when it comes to the prospects of scrubbing up a Neanderthal into a sensitive vegan so they recommend careful selection prior to the marriage: “do not marry [an attractive-to-you man]. The things that make the bad boys sexy do not make them good husbands. When it comes time to settle down, find someone who wants an equal partner.”

How easy is this? “Wonderful, sensitive men of all ages are out there. And the more women value kindness and support in their boyfriends, the more men will demonstrate it.” The chapter concludes “We need more men to sit at the table… the kitchen table.”

[To the woman who hasn’t been successful in finding a plausible mate, Sandberg’s message is basically “Look how incompetent you are compared to me. Not only do you make less than $50 million per year but you didn’t realize that there are millions of single guys out there who would rather change diapers and talk about feelings than watch NASCAR and football.”]

The couples with which Sandberg is familiar seem to be ones in which nannies and cleaners do most of the household and child-related work. Really the marital squabble seems to come down to which parent decides how to spend the near-infinite river of family income on local, organic, vegan, and gluten-free items at Whole Foods. The authors cite a couple in Massachusetts that I actually know. The mom is a bigshot at a non-profit organization. The dad is a child psychiatrist who, according to Sandberg, “leaned in” to do far more than the traditional male share of child rearing. Perhaps he did, but this couple has twins that are about the same age as Greta, my 3.5-year-old, so I see the kids a lot. Of the 50 or so times that I’ve seen the twins, were they with mom or dad? Once they were with mom. Once they were with both parents. 48 times they were with a Brazilian nanny.

What about the woman who does not expect to command Sandberg-style financial resources and the associated team of domestic laborers? Or the woman who is skeptical of her ability to hold a man to promises of extraordinary child-rearing efforts that he made before he had any idea of what marriage and child-rearing entailed? Let me suggest what I think is far more practical advice than Sandberg and Scovell’s: Marry the only child of immigrant parents. The couples that I know of where there is the least amount of conflict regarding household- and child-related tasks are those in which the immigrant grandparents live nearby (or in the same house) and cheerfully and skillfully contribute a huge amount of effort toward making the family successful. With Grandpa and Grandma around nearly 24×7 it is no longer critical whether or not the husband can be persuaded to give up his career ambitions, his television and video game addiction, etc.

 

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I’m taking some recurrent helicopter training in Torrance, California at the Robinson Factory (some photos of the R66 assembly line). I ran into one of my old instructors, who has graduated to flying fancy turbine-powered helicopters in Dubai. How has life worked out for him over there? Despite having grown up in one of the world’s most beautiful countries, at the center of Europe, he doesn’t mind the Dubai climate and sandy landscape. The continuous sunshine makes him happy. He found another expatriate there to marry and they live in a comfortable downtown apartment. Rents are about the same as in the more expensive U.S. cities, i.e., $2000-4000 per month for the nicest 2-3 bedroom places downtown. Incomes for pilots are at least double what American companies pay. “I earn about $180,000 per year,” my friend noted, “but you have to remember that it goes a lot farther than in the U.S. or Europe because there are no taxes.”

Is the party for expatriate pilots going to end once the locals get their ratings? “My operation does not have any Emirati pilots,” he explained, “though various airlines down here have 5-year programs where a local person will get paid a salary while learning to fly from 0 hours through ATP [about 1500 hours]. Somehow they end up not wanting to pursue aviation as a career. So there is always a need for a foreign pilot.”

More: Heritage Foundation’s report on the U.A.E. (a bit surprising because I thought that it was mostly the government spending oil money but these guys claim that government is only about 22 percent of GDP, a much lower percentage than in the U.S.; I wonder if they are accurately accounting for government-affiliated companies)

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A friend of mine who lives across the river recently upgraded his gun permit, notoriously hard to get from the Boston Police Department, to be almost completely unrestricted. He can’t buy and carry a machine gun but otherwise he can walk around with a high-capacity pistol any time and more or less any place except some college campuses that ban guns.

How did he do it? “It turns out the legislators didn’t want their laws against gun ownership to apply to them. Nearly all of them are lawyers so they set it up so that if you have  bar association card you can get an unrestricted permit. They thought it would look bad if they exempted only legislators.”

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A friend of mine told me the other day how he’d hired H&R Block to do his 2012 tax returns. He is a regular W2 employee, married, and owns a house. No Schedule C, no rental property, no kids, and nothing else that would seem complicated.

“Every previous year I’ve done my own taxes, but the regulations and laws have gotten so complex that it is now finally beyond my comprehension so I’m paying about $600 to H&R Block. There is no way that I could conceivably keep up with all of the changes that Congress and the IRS make from year to year.”

What’s my friend’s job? He’s an attorney working for the federal government.

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Back in January I took my three-year-old to shop for a party at the Costco in Waltham, Massachusetts.

Reggie LeBlanc checked my receipt as I left the store and made a little magic marker drawing on it for my daughter. He has a genial grandfatherly appearance. As I arranged the child and receipt in the cart for the trip to the car, I overheard two women chatting.

Woman #1: “Do you know who that was? He won $11 million last month in the lottery and he is still coming to work. I would be out of there in a second.”

Woman #2: “He’ll be married to a gold digger within a year.”

Woman #1: “One of the cashiers told me that she’s already trying to get him to marry her.”

I’ve been back to the story a couple of times but I haven’t seen Reggie there again. Next time I will ask what he is up to.

Background: story about the $50 million jackpot split by two Costco workers

 

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I finally saw the movie “Lincoln” this evening. A companion asked me “Suppose that the Civil War had never been fought or the South had won. How much longer could they have continued with slavery given that it had been abolished in most of the rest of the world?” I didn’t have a good answer.

http://en.wikipedia.org/wiki/Abolition_of_slavery_timeline shows that legal slavery persisted in Arab and North African countries until as late as 2007 though the last country that was reasonably comparable to the American South, Brazil, seems to have completely abolished slavery in 1888.

What do readers think? How long would slavery have lasted in the South if the confederate states had been successful in seceding?

[Separately, I was shocked to learn from the movie that two Connecticut Representatives had voted against the 13th Amendment. But then I asked “the Google” (as George W. Bush referred to it) and the consensus seems to be that in fact Connecticut’s delegation was solidly in favor of the amendment. The screenwriters were apparently too lazy to use the Internet to check this seemingly ridiculous fact. If they got that wrong it is hard to know how much of the rest of the movie to believe…]

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DxO has published a test of three very costly Leica digital rangefinder cameras, heirs to the legendary M-series of film cameras.  The results of the objective test are not pretty: “these cameras offer the worst image quality DxOMark have tested on a full frame sensor, with the exception of the 10-year-old Canon EOS 1Ds.”

The CCD sensors in these Leicas turn in numbers that are more like those of a point-and-shoot Sony RX100 and far behind the disposably-priced-by-comparison Sony NEX cameras.

Either the objective tests are missing a lot of what is important to the human eye or humans who praise the results from these Leicas in non-blind tests are highly suggestible.

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The stock market is up in nominal dollars (“mini dollars”). How are U.S. investors doing compared to 2007? The S&P 500 peaked at 1565 in October 2007. According to the Bureau of Labor Statistics, it would need to be 1738 today, about 12 percent higher, to yield the same spending power.

If we measure spending power in bars of gold, the S&P 500 has a lot farther to go to recover the losses since 2007. Gold was $800 per ounce in October 2007, so the S&P 500 was worth 1.9 ounces. With gold at $1600 per ounce today you’d need the S&P 500 to be over 3000 to have the same buying power.

If wealth is to be measured in spending power another consideration is tax rates. The only way for an investor to get a return is via capital gains or dividends. Taxes on that kind of income have gone up by roughly 11 percent of the total received since 2007 (federal income tax adds 5 percent; state income tax perhaps another 2 percent; ObamaCare surtax tacks on another 4 percent for people in households making $250k/year or more). Consumption taxes, e.g., sales tax and hotel and restaurant taxes, have gone up 2-3 percent. So it seems reasonable to conclude that the S&P 500 would have to go at least 15 percent higher in order to compensate for these new taxes.

My back-of-the-envelope calculation is therefore that the S&P 500 would have to rise at least another 33 percent, i.e., to about 2000, in order to yield the same spending power that it had in October 2007.

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