2019 was the best year for median income on record in America. Too bad the pandemic has probably knocked it back down for 2020.

This is great news from the Census Bureau in a time when there isn’t a lot of other great news. The different saturation of the lines in the 2000s represent changes in the methodology for calculating median income, which makes it a bit harder to compare the amount today with the data for 1967-2012 because the new methodology inflates the growth in median income more than the old methodology did. So we don’t really know if we just had the fastest growth in median income since 1967 because we used to calculate median income growth in a different way.

Posted in Medianism

Why did the stock market rise to record highs during the Covid-19 pandemic? Is it a bubble?

The timing of stock market gyrations are often hard to explain, and although the stock market crash at the beginning of the Covid pandemic is easy to understand, the dramatic rise later in the pandemic is harder to understand. Why would the stock market have risen much higher in September than it was a few months ago just before the pandemic started?


Most of the recovery in stock prices is a rational realization that the pandemic isn’t likely to be nearly as bad as the 1918 pandemic, but our current situation is still very bad and the market now seems to think the are no worries at all.  Why are investors ignoring the current economic fundamentals and uncertainty about the future?

One reason may be the dramatic rise in retail trading. Retail traders are individuals who are trading their own savings as a hobby. Many of them are ‘day traders’ who make such short-term trades that they often buy and then sell the same stock within a few hours the same day. Several news outlets have reported on this surge. One report suggested that retail trading has more than doubled compared with a year ago and basement speculators are pouring money into risky stock options like never before.

Why has retail trading surged? Because of the pandemic, most Americans suddenly found themselves with a lot more time as their entertainment options were curtailed and work was furloughed and they are turning to online entertainment like online gambling which has surged.  Surprisingly, the data also shows that Americans had a lot more savings than usual.  Here is the historic spike in the savings rate:

That is the highest the savings rate ever was since the government began collecting statistics in the 1950s. And why did the savings rate spike in the middle of the biggest 6-month contraction of GDP in recorded history? Because of the biggest 6-month monetary stimulus and fiscal stimulus in recorded history, much of which was funneled to households, some of which probably felt like it was ‘free money’ that people could gamble with and with Las Vegas essentially shut down by the virus, they put it in to retail brokerages instead.

Here is the size of the monetary stimulus:

That was more than double and close to triple the size of the monetary expansion during the financial crisis in 2008 depending on how you measure it. The Fed created new money out of thin air and lent it to the banks and to businesses and to the federal government.  The government then used the newly printed money to send out checks to all Americans, many of whom used the money to open retail brokerage accounts. Here is the size of the fiscal stimulus. It is absolutely enormous compared with the relatively minuscule stimulus bills that George W. Bush and Obama initiated during the Great Recession.

(Note that the vertical axis doesn’t start at zero, but it is still a dramatic increase in federal spending, nearly doubling the usual amount.)

A huge increase in the money supply should create inflation in theory if it is not hoarded. In this recession, there has been enough hoarding of the monetary expansion that there is no general inflation, but there has been some asset price inflation because some of the new money has poured into  stocks and bonds and bid up stock prices.

Most American households haven’t had the luxury to massively increase savings, so you might not know anyone who is doing this, but our high-income households are saving/hoarding a lot more than usual.  It is the well-off who are causing the spike in savings according to data gathered by a Harvard team and they are the most likely to also put money into stocks. High-income workers are also the most likely to have been working from home where the distractions of day trading are easier to succumb to than in the office.

Furthermore a lot of them are extremely optimistic about the economy.  Polls show that 67-70% of Republicans think that the economy is excellent now and indeed that it is better than it was four years ago. Republicans say they are extremely optimistic about the future, and if they are putting their money where their polls are at, perhaps that optimism helps explain why the stock market is also extremely optimistic about the economy.

There has been a growing partisan divide in how members of both political parties view reality and that includes how optimistic Americans are about the economy depending on which party controls the White House. Generally speaking, Democrats tend to be irrationally pessimistic about the economy when a Republican is president as is currently the case and Republicans tend to be irrationally optimistic. When a Democrat is in the White House, we see the reverse.

So both parties are guilty of irrationality about the economy, and whoever has their guy in the White House are more likely to irrationally say they are bullish.  That happens to be Republicans right now, but politics shouldn’t cloud our economic judgements. 

Personally, I’m guessing that stocks are in a bubble and I’m reducing my financial risks right now by pulling money out of stocks for a while because of the tremendous uncertainties I see in the next six months. I hope I am wrong and I miss out on a tremendous stock rally because that will mean that the economy is doing great, but if the economy staggers, at least I won’t lose a lot of money in the stock market. I think of selling off stocks as a way of buying a little bit of insurance against potential economic problems in the coming months.

I doubt there will be a repeat of the dramatic fiscal and monetary stimulus that surged into the stock market a few months ago and some of those retail investors might need to take some of that money back out of stocks to pay for living expenses at some point. That’s why I’m not optimistic about stocks in the next six months. 

Posted in Macro

When the police union fundraisers call, politely ask them what they think they should do about bad apples among the police. They will hang up as if you called them the N-word. Defund the police UNIONS.

I got two calls from police unions this week around supper time. Both times, the guy jabbered along on his script without listening as I asked repeatedly if I could say something. When I got to interrupt his pitch, I asked what he thought about bad apples in the police force and the first guy immediately hung up.

The same thing happened with the second caller, but instead of immediately hanging up, he replied that he couldn’t talk about that. So I asked why not and persisted in asking if he thought it was a problem. Instead of answering, he asked if he could send me a pledge form in the mail to commit to contributing money to the police. I told him that is fine if he also sent me the organization’s policy statement about addressing systemic racism among the police. He hung up without saying another word.

As a matter of household policy, we never give any money to telemarketers like the police unions even if we support the cause because we don’t want to support any telemarketing ever. I’ve repeatedly asked the police unions to take us off their calling lists, but they never do and we keep getting called every year. Although I highly value the important roles of police in society, I find the fundraising tactics of the police unions to be a bit corrupt. And some of their political actions, like defending really bad cops, are downright harmful.

One of their corrupt tactics is to give window stickers to donors for display on their car windshields. This amounts to a shakedown because the clear insinuation is that if you donate ahead of time, you won’t get a big ticket when the police pull you over and see the union sticker on your car. That is why corrupt police sell PBA Shields on Ebay for mounting in your car for between about $90 and $300. It is like a get out of jail free card. A Google search shows that there is a brisk economy in these things and lots of people have stories about how they work.

This is kind of corruption is probably worst in bad-apple jurisdictions like Ferguson Missouri where ticketing practices also amount to a corrupt shakedown rather than having any public safety justification. Truckers know about these perverse police districts.

I’m skeptical of some of the “defund the police” voices because we need better police, not necessarily less police. What we really need is more people calling to “defund the police unions”. Don’t give these corrupt organizations any of your money. End for-profit policing.

Posted in Public Finance

Argument from authority is necessary for scientific progress.

Sir Isaac Newton said, “If I have seen further it is by standing on the shoulders of Giants.” Every scientific advance is based on the work of others and so we need to know what scientific work is accurate so we can stand on a solid foundation rather than on a pack of lies and errors. The usual way to judge the work of others is to judge how much authority they have.

But awarding absolute trust to any authority is a logical fallacy called an appeal to authority and the line between the fallacy and good judgement of authority can be confusing.   Some amount of deference to authority is necessary for science because everyone cannot double-check every fact and experiment that others have done previously.  We are forced to appeal to authority most of the time in deciding what facts are accurate because of our very limited resources.

Wikipedia illustrates the appeal-to-authority fallacy with the example of Theophilus Painter who thought he determined that humans had 24 pairs of chromosomes.  There are actually 23 chromosomes, but for 36 years scientists said there were 24 and numerous scientists miscounted the number because they gave too much authority to Painter.  But we cannot all independently verify how many chromosomes exist in human cells because we don’t all have the equipment the time. Everyone has to decide when to trust the authority of others to be able to gain from the specialization and exchange that makes scientific progress possible.

The only way to make scientific exchange possible is to appeal to authority in deciding who is most likely to be honest and accurate and who is not. The real problem with the so-called “logical fallacy” of appeals to authority are when authorities are deemed to be infallible or when someone’s claim is given too much weight (such as Painter’s claim).

It is a crucial skill in science to learn how to evaluate authority using Bayesian thinking. Evidence from authorities with stronger reputations for accuracy must be given more weight than contradictory evidence from authorities with weaker accuracy, but no authority can ever be so strong that it permanently outweighs all possible counter evidence. People who complain about the so-called “logical fallacy of appeals to authority” are really complaining about excessive Bayesian weights for the accuracy of authorities who should be doubted more.

Evaluating Authorities

To be good thinkers we need good judgement about the authorities we will choose to stand upon. Here are some ways to judge sources and determine how authoritative they are:

  1. Is it peer-reviewed?
  2. Is it published by an institution with a reputation for accuracy?

    A) The websites of democratic governments (.gov) are generally accurate.
    B) Official university publications are usually accurate, but sometimes university websites also host work by students that lacks quality, so look for other signs of quality too.
    C) Books published by university presses or professional associations (e.g. National Academies Press) are more credible than books published by popular presses (Random House) which are generally more credible than books that are self-published, but not always.

  3. Does the author have credentials in the subject? (Such as a PhD in the area or a body of authoritative publications.)
  4. Does the paper cite solid sources?

If in doubt, you can get help from experts like college librarians who are good at finding reputable sources. Textbooks and peer-reviewed articles cite quality sources so you can find more sources by looking up who they cite.  Wikipedia often cites quality sources, but it is very uneven and you will have to use your own judgement.

As for non-scholarly sources, it is harder to judge quality, but again look for how much depth the author has in the topic by how many sources (and the quality of the sources) the author has cited and how much the author has written on the topic.  The publisher is also an important source of quality control.  News organizations vary in their reputations, but generally speaking news organizations with broader audiences (particularly if they have international readership) that write long, in-depth, investigative reporting are more credible than smaller organizations that write short pieces for people with short attention spans.

You also have to pay attention to the difference between news articles which are fact-checked by editors and editorial or opinion articles which typically have much lower standards of accuracy. For example, The Wall Street Journal publishes internationally-respected news pages with high accuracy and that also in the same publication includes a highly-partisan opinion page with low standards of accuracy. As the opinion page itself says about their different missions: “While our news pages are committed to informing our readers, our editorial pages are dedicated to advocating a consistent [political] philosophy…” The errors in the opinion page got so bad that hundreds of journalists on the news side of the paper have signed letters complaining about factual inaccuracies in the opinion pages including errors that callously endangered the life of one of their journalists.

Other popular publications with international reputations for accuracy include The Economist, The Atlantic, The BBC, The Financial Times, Foreign Affairs, wire services (The Associated Press, Reuters, & Bloomberg News which provide articles for other news organizations), The New York Times, and The Washington Post, although as with the Wall Street Journal, the opinion pages of the latter are more biased than their straight news articles. Some publications like the Economist (on the center right) and The Atlantic (on the center left) tend to mix editorial and news without labeling which is which, so readers have to separate the two. Fox News also mixes editorial and news, but unlike Fox News, the Economist and the Atlantic fact check everything for accuracy. TV news tends to be worse at fact-checking than printed news because video productions simply tend to be more rushed and sloppier than written work. In particular, the live broadcasts interviews that FOX and CNN specialize in are impossible to factcheck before publication and are particularly prone to misinformation.

This photo shows windows from Chartres Cathedral where the four New Testament authors of the gospels are sitting on the shoulders of the four major prophets of the Old Testament who are depicted as giants. The sentiment was to show that even if the apostles had been smaller, they would have seen more than their giant forebears because of relying upon them.

Posted in Culture, Philosophy and ethics

Racial progress: compare the riots of 1967 with the riots today. We’ve come a long way baby.

Read this classic Esquire essay from 1968. Police brutality was way worse back then. They just massacred people in some cases. White supremacist militias were more dangerous and shot more people. Entire neighborhoods burned for days. It was close to a civil war in American cities. This year has actually been relatively peaceful and much less scary by comparison.

Posted in Discrimination, Violence & Peace

I sold my stocks. I’m an economist who usually doesn’t believe in market timing, but the market looks irrationally exuberant right now.

First let’s look at the economic fundamentals right now:

  • GDP has crashed by more than it has since the Great Depression due to a pandemic with no end in sight.
  • Unemployment is higher than it has ever been since the Great Depression.
  • Both measures have crashed despite the biggest fiscal peacetime stimulus ever in the world. The US stimulus already spent this year makes all of Obama’s efforts to fight the Great Recession look like chump change and most countries spent much bigger stimuluses as a percent of GDP.
  • The Fed almost immediately dropped the federal funds rate to zero and that is all that it can do with conventional monetary policy. The Fed couldn’t drop interest rates much because rates were already very low before the pandemic started, so the Fed’s abilities are weaker than usual.
  • Inflation is low and all signs are that inflation will continue to be low. If inflation were to rise, that could be a reason to buy stocks, but there is so sign of it yet.
  • The bond market was already warning of a weak economy last fall well before the pandemic hit so even without a pandemic we would likely still be in a recession now for unrelated reasons.
  • Unlike the last recession which almost exclusively just hit developed nations, this recession is truly global and probably no nation will escape. Last time China and most developing nations still had robust demand for exports, but they won’t help us out so much this time.
  • There have been riots and looting in major cities across the US unlike anything since the riots of the 1960s.
  • The US government is mired in dysfunction. The president was just impeached for using taxpayer dollars to pressure a foreign power to dig up dirt on his political opponent. The Senate gave up on even trying to deal with the end of unemployment benefits that ran out at the end of July and disbanded for their August vacation. The Executive Branch is so incompetent that it faulty leadership caused the US to have the worst pandemic experience of any rich nation.  It is worse than most poor nations too. The House can’t come to any agreement with the other branches.
  • There is a rancorous election coming up and prominent leaders on both sides are saying that it could be the end of our Democracy if the other side wins. Although the President has the most responsibility for the smooth execution of our elections, rather than working diligently to make our election great (again–like every other election), he is regularly saying that he is expecting massive voter fraud for the first time in American history and signaling that he won’t accept the results if the vote doesn’t go his way. He is likely to lose and cause a constitutional crisis because he has never had the approval of the majority of Americans in polls.  Ever.

Normally the stock market hates uncertainly. Normally you would expect the stock market to price in some of the fundamental problems we see and although many foreign nations are in better shape than the US right now, almost all foreign stock markets are down for the year, as you would expect. But we are living in a time when a significant percentage of Americans are irrationally optimistic and so the S&P 500 is UP for the year even though the US is having bigger problems than most nations. The only other stock markets that are up are Venezuela, Korea, and Shanghai. Venezuela is even more bizarre and mismanaged than the US so I won’t try to understand why their market is up, but it is easy to see why Korea and Shanghai have booming stock markets. Both nations stopped the Covid-19 pandemic more successfully than most of the world, so it isn’t so surprising that their markets are doing well. But there is nothing about the US situation that should give our stock market more optimism than Germany, France, Britain, Australia, Japan, etc…

So the question I asked myself is whether I thought that there is a bigger chance that the stock market would rise 10% in the next six months or fall 10% in the next six months. The fundamentals listed above give a lot of reasons why the market could fall 10% whereas I definitely think it is highly unlikely that it will rise 10%. That’s why I recently sold off most of my domestic stocks and bought bonds. I mostly kept my international stocks because they haven’t bounced back as irrationally as my US stocks and that seems more reasonable.

This is the first time in my life that I have attempted market timing to beat the market like this. I usually think that it is foolish to try to beat the market because the market usually seems extremely efficient at pricing in all available information about global risks, but this time seems completely different.

And the crazy thing is that I really, really hope I am wrong. I hope I lose out on a huge stock market boom in the next six months. That is because a 10% rise in the stock market will mean that the pandemic will already be under control and my job will be secure. It will mean that my students will have an easy time finding jobs when they graduate next spring because unemployment will already be low again and life will return to stability and prosperity. It will mean that we will have successfully run a peaceful election again. But if I’m unfortunately right and something does go wrong, I have bought myself a little bit of financial insurance by selling stocks and buying the safety of bonds at least for a while.

What have you got to lose?

Posted in Macro

Black lives matter more in countries with fewer guns. Even most police don’t need guns.

As I’ve written before, I’m not a gun-control advocate because there are lots of other factors that can reduce violence that are more politically feasible. For example, Franklin Zimring has numerous suggestions for how to change the rules of engagement to reduce the number of Americans police kill every year.  He says that New York and Philadelphia dramatically reduced police killings by changing the rules of engagement and they did it without increasing any risk to police officers.

He also argues that victims of police should be able to sue police departments for having unhealthy, (lethal) rules of engagement and that the financial pressure of lawsuits will work better for reducing police killings than enhanced criminal penalties against officers.  He says it is that simple: let victims sue for financial penalties to pressure police departments to change their rules of engagement.

The Black Lives Matter movement has recently risen up with remarkable mass mobilization and energy to correct police abuse problems, and I’m not convinced that the movement has clear ideas for how to achieve less violence against Blacks. For example one of the biggest police abuses against Blacks is the fact that very few murders of Blacks are ever solved. This helps explain why so many Blacks get murdered because there is simply less deterrent against murdering Blacks when the police neglect to solve those crimes. Many BLM activists want to defund the police, but that will only exacerbate this abuse.

One focus of the BLM movement is the high number of Blacks who are killed in police confrontations and this is something that all racial groups should support not only for racial justice, but because all races face a higher probability of getting killed by American police than people in most other developed nations. In fact, more whites are killed by police than Blacks simply because there are a lot more whites in America.

Defunding the police could help reduce police killings of civilians, but there is a potent tradeoff: fewer police will likely mean more violence from criminals. This is why defunding the police isn’t popular. Most people logically fear an upsurge in crime. But Franklin Zimring says the main reason that American police kill so many Americans is that there are so many guns in America. American police are always scared of getting shot, so they are always on a hair-trigger alert about it and that isn’t true in other rich nations.

In most developed nations, the police don’t expect to ever draw their guns. In the Netherlands, gun use by police is so rare that every use is publically investigated. In Japan, the police get more training in hand-to-hand martial arts than in gun use because they are not expected to use guns. In several nations including the United Kingdom, most police never carry a gun at all and that might seem unfeasible in the US where we have more guns per capita than any other nation in the world, but a couple of conservative thinkers have proposed just that.

The reason is, as Tate Fegley points out, that most of what police do is related to monitoring cars on roads where guns aren’t needed. Only a relatively small minority of policing time is spent dealing with actual felony crimes. Policing cars is primarily a matter of mild infractions and misdemeanors.

According to the US Department of Justice’s most recent report on contacts between the police and the public, over half are traffic stops, and an additional 14.6 percent are in relation to traffic accidents… officers spend around 74 percent of their time engaged in patrol, typically in a car. Over 9 percent of arrests recorded in the 2018 FBI Uniform Crime Reporting (UCR) Program data are for driving under the influence… In addition, revenue from traffic citations can constitute an important source of municipal funding. One example (though definitely an outlier) is the town of Randolph, Missouri (pop. 47), which issued 3,132 traffic fines, collecting an estimated $148,000 of their $270,043 total revenue in 2009…

That’s right, some towns, such as Randolph, MI get most of the revenues for their town not from taxing local people but from issuing fines on drivers which are probably aimed at nonresidents or else the city government would have been voted out of office because if the fines were only levied on residents, they would total over $3,000 per person! This is a remarkably common strategy for small towns located on busy highways. They set up speed traps and leech as many fines out of as many outsiders passing by as possible. There is absolutely no reason those people should be toting guns all the time which sometimes end up hurting innocent people. Because these traffic stops rarely involve dangerous motorists, Alex Tabarrok suggested that traffic enforcement should be the “unbundled” from police:

The responsibility for handing out speeding tickets and citations should be handled by a[n] unarmed agency. Put the safety patrol in bright yellow cars and have them carry a bit of extra gasoline and jumper cables to help stranded motorists as part of their job – make road safety nice.

This would undoubtedly reduce police violence, but the main thing that would reduce violence is the absence of guns. There really isn’t much reason to create a completely separate bureaucracy, and there is already a tradition of traffic police in the US who do not carry weapons. And America doesn’t need our police to tote as many guns as in the past because violent crime has declined by more than 70 percent since 1993 and fewer Americans have guns (see below for details).

An additional benefit of having traffic police that don’t carry weapons is that they would be less likely to essentially rob people of their property. This is called “civil forfeiture” and it is another lucrative way for corrupt municipalities and police departments to raise money for themselves. Tate Fegley points out one Texas town called Tenha with a population of 1,100 which “seized millions of dollars in forfeitures from traffic stops before being sued in 2009.”

As Derek Thomson pointed out, the role of guns in the police reform debate is oddly absent even though it really should be central.

the United States has more armed police than similarly rich countries, more panicky officers, more adversarial police encounters, more officer shootings, and more civilian killings.

The morbid exceptionalism of American police violence cannot be explained by the amount of money the U.S. spends on police, or by the number of cops it employs. The U.S. spends less on police than the European Union does, as a share of GDP. Italy has more officers per capita than any state in the U.S., according to a comparison of FBI and Eurostat databases. Greece has more officers per person than Newark, New Jersey; Baltimore; and Chicago.

But none of those places shares our epidemic of police violence. American police kill about 1,000 people every year. Adjusted for population, that body count is five times higher than that in Sweden, 30 times higher than that in Germany, and 100 times higher than that in the United Kingdom…

Gun prevalence… is a danger for cops, too.  As the Vox reporter German Lopez writes, police officers are especially likely to be shot dead in states with more guns. A 2015 study published in the American Journal of Public Health examined the relationship between state firearm-ownership rates and police killings, controlling for factors that relate with homicide rates, such as income, poverty, property crime, and alcohol consumption. The researchers concluded that “a 10% increase in firearm ownership correlated to ten additional officer homicides” from 1996 to 2010.

Where guns are abundant, civilians are more likely to kill civilians and cops, and cops are, in turn, more likely to kill civilians. A 2018 study from Northeastern University and the Harvard Injury Control Research Center found that “rates of police shooting deaths are significantly and positively correlated with levels of household gun ownership,” even after accounting for other variables, such as poverty.

Instead of BLM protesting gun violence, the nation has focused upon racism which is a serious problem, but racism cannot just be legislated away. Guns can be. And there isn’t any evidence that anti-racism trainings have done anything to stem police violence, and putting more Blacks in police uniform hasn’t helped, and the racial composition of neighborhoods doesn’t explain police shootings, whereas in countries where there is less gun violence, there seems to also be less police violence although international policing statistics are difficult to compare. But a stronger focus on guns might work better to reduce the violence of racist police than anything else we could do. Blacks also have much less to lose in the gun control debate because more than double the proportion of white households own guns compared with Black households.

Finally, the politics of gun control will eventually shift due to the tides of history which are steadily moving away from guns as can be seen in the changing patterns of gun ownership. The percent of Americans who hunts has dropped in half since 1977 (to only 15%) and the percent of Americans that owns a gun has also been steadily dropping (to about 22%). Most people are aware that the number of guns in America has been steadily rising, but that is because the shrinking number of households (now about 31%) that has guns is steadily buying larger and larger gun collections. So the percent of Americans that owns a gun has been steadily shrinking, but that shrinking minority has become increasingly enthusiastic about guns and buying more and more. It is only a matter of time until the majority of Americans that has nothing to do with guns decides that they aren’t comfortable with some of the gun fanatics in their neighborhood.

Gun control may seem politically impossible but it is way more popular than defunding the police and look what happened with that issue this year.  Some common-sense forms of gun control already have the popular support of the majority of Americans and even many police support various forms of gun control including the Virginia-based  International Association of Chiefs of Police.

Separating the violent crimes and felony’s policing from nonviolent traffic safety policing would be a great way to reduce police violence.  A similar story happened when paramedic services were unbundled from policing. In the 1950s, the police generally transported injured people to hospitals in modified police cruisers like this one:

In the 1970s in Pittsburgh, an all-Black ambulance corps pioneered what became the paramedic system that America has today. The police still perform some paramedic services, but the primary responsibility has been unbundled to EMS specialists who have more training and (generally) don’t get paid as much. And, of course, like traffic safety police, they don’t need guns.

Posted in Discrimination, Violence & Peace

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 68 other followers

Blog Archive