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Monday, June 29, 2015

Lies, Damn Lies, and Government Statistics: Part III

The concept that a single inflation rate can describe how everybody feels the effects of price changes over decades in basically absurd. The economist Arnold Kling has an interesting example:
In 1965, the St. Louis Cardinals played their home games in Sportsman’s Park (aka Busch Stadium I). The most expensive seat in the ballpark, a box seat, cost $3.50. A blue-collar worker, who earned about $2 an hour at the time, could treat a family of four to a game in these most expensive seats for less than one day’s pay.
These days, the Cards play at the new stadium, Busch Stadium III. A typical blue-collar worker makes something like $20 an hour The cheapest seat in the stadium still costs less than an hour’s pay. But the most expensive seats cost somewhere north of $800. It would take a month for a blue collar worker to earn enough to treat a family of four to the best seats in the ballpark.
In 1965, my family would've thought nothing of buying the most expensive seats. Now, there's no way I could afford them.

What's really gotten expensive, and is too heavily weighted in the Consumer Price Index when considering how the middle and lower classes are faring, is the cost of exclusion: things like caviar, high-end wines, and exclusive seats at the stadium. Imitation crab, Two-buck Chuck (Charles Shaw wines), and general admission at the ballpark, have had a far, far lower inflation rate than exclusive items.

To me, wine inflation is the most interesting. The cheapest bottle of wine in the mid-1970s was made by Boone's Farm. It was $1.79 a bottle. It was really terrible, but hey, it got you drunk if you could choke it down. The Two-buck Chuck Chardonnay is $2.99 a bottle, 40 years later. We California wine snobs disparage it, but really, it compares quite favorably with the very best wines I had during the 1970s, and once in a great while, I happily drink it. According to CPI inflation calculators, $1.79 in 1975 is equivalent to $7.81 in 2015, so the quality is up and the relative price for good low end wines is down.

I'm not sure what the most expensive bottle of exclusive wine in 1975 was. But it doesn't matter, because we can be sure it was orders of magnitude less than the £122,380 (about $180,000) a bottle folks paid for Chateau Margaux 2009. And there's quite a number of wines that push $10,000 a bottle.

It's become really expensive to live the high life.

Friday, June 26, 2015

No more silly denials please!

Dan Hannan on the Socialism-Fascism Sisterhood

- by their own admission

- by placing the collective far above the individual

- even by iconography


Only by wearing blinders can this be denied.

Tuesday, June 16, 2015

Just like other radicalisms

Contrary to conventional notions...
Though the left continually points to lack of resources and education as the central cause of the rise of Islamic terrorism in the Middle East, Ullah said after living in Pakistan he found those two rationales to be demonstrably false. In Pakistan, he explains, he found "something much different than I expected. Poverty had little to do with who became an extremist; lack of education even less."
He found, instead, that many terrorists come from middle class families and have college educations. The draw to radicalism was not one of economic desperation or susceptibility due to a lack of education, it was a longing "for meaning and for order," a desire for "change" in "the old corrupt order," and a sense of "victimhood"

 Ullah argues that if the West really wants to address the true underlying problems fostering radicalism, we must ditch the "false narrative" about poverty and ignorance, expose the reality of the suffering promoted by radical ideology, stop portraying radicals as "freedom fighters," and stop blaming the West. Most importantly, he argues, Islamic religious leaders must stop looking the other way and glorifying the radical "martyrs."

 As in other radicalisms, the desire to make the world anew, only leads to destruction and dystopia.  Alternative approaches to improvement just aren't as intoxicating.  It's understandable that some groups are united in hate, in an unholy alliance.

Wednesday, June 10, 2015

Quote of the Day

"Well the fact that you are anti-Semitic, or racist, doesn’t preclude you from being interested in survival. It doesn’t preclude you from being rational about the need to keep your economy afloat;"

President Barack Obama, as reported in The Atlantic, May 21, 2015, defending interactions with Iran.

Tuesday, June 09, 2015

Education and Wealth

One of the mantras that I hear fairly frequently goes something like this: "if only we could provide better education for the children, it would lift them out of poverty and provide great economic benefits for the the whole country."

There's not a shred of evidence that this is true. In fact, there are some shreds against. One is the paper Human capital and long run economic growth: Evidence from the stock of human capital in England, 1300-1900 which has the following abstract:
Did human capital contribute to economic growth in England? In this paper the stock of total years of schooling present in the population between 1300 and 1900 is quantified. The stock incorporates extensive source material on literacy rates, the number of primary and secondary schools and enrolment figures. The trends in the data suggest that, whilst human capital facilitated pre-industrial economic development, it had no role to play during the Industrial Revolution itself: there was a strong decline in educational attainment between ca. 1750 and 1830. A time series analysis has been carried out that confirms this conclusion.
Education has "no role to play."

In more modern times, there's this:
But does that [education] really drive economic growth? 
In fact, the push for better education is an experiment that has already been carried out globally. And, as my Harvard colleague Lant Pritchett has pointed out, the long-term payoff has been surprisingly disappointing.
In the 50 years from 1960 to 2010, the global labor force’s average time in school essentially tripled, from 2.8 years to 8.3 years. This means that the average worker in a median country went from less than half a primary education to more than half a high school education. 
How much richer should these countries have expected to become? In 1965, France had a labor force that averaged less than five years of schooling and a per capita income of $14,000 (at 2005 prices). In 2010, countries with a similar level of education had a per capita income of less than $1,000.
In 1960, countries with an education level of 8.3 years of schooling were 5.5 times richer than those with 2.8 year of schooling. By contrast, countries that had increased their education from 2.8 years of schooling in 1960 to 8.3 years of schooling in 2010 were only 167% richer. Moreover, much of this increase cannot possibly be attributed to education, as workers in 2010 had the advantage of technologies that were 50 years more advanced than those in 1960. Clearly, something other than education is needed to generate prosperity.
As is often the case, the experience of individual countries is more revealing than the averages. China started with less education than Tunisia, Mexico, Kenya, or Iran in 1960, and had made less progress than them by 2010. And yet, in terms of economic growth, China blew all of them out of the water. The same can be said of Thailand and Indonesia vis-à-vis the Philippines, Cameroon, Ghana, or Panama. Again, the fast growers must be doing something in addition to providing education.
The experience within countries is also revealing. In Mexico, the average income of men aged 25-30 with a full primary education differs by more than a factor of three between poorer municipalities and richer ones. The difference cannot possibly be related to educational quality, because those who moved from poor municipalities to richer ones also earned more.
As far as education, jobs, and wealth creation is concerned, I think the key paragraph is this:
And there is more bad news for the “education, education, education” crowd: Most of the skills that a labor force possesses were acquired on the job. What a society knows how to do is known mainly in its firms, not in its schools. At most modern firms, fewer than 15% of the positions are open for entry-level workers, meaning that employers demand something that the education system cannot – and is not expected – to provide.
This is exactly what I've found. Several years ago, I started offering good summer interns a full-time permanent position toward the end of summer because I've found that there's almost nothing they're going to learn in the next 2-6 years that will be useful to me as an employer. Maybe some more statistics, maybe more matrix algebra, and maybe a few other things, but all of those things can be learned on the job and I'm happy to teach them. They'll have to learn the vast majority of the knowledge they'll need to be long-term productive employees on the job so it's pointless, from an economic and employment point-of-view, to bother finishing college (and even high-school) and waste all that time and money. The entrepreneur Peter Thiel agrees with me and has called college a "waste of time."

Humans can't help but learn. Schools only slow them down in my experience and very little of that school learning is economically useful.