Vox’s misleading gun death graph

In the wake of the mass shooting tragedy in Los Vegas, Vox posted an analysis showing that more guns lead to more gun deaths:

I was immediately suspicious because I’m living in Guatemala and I am constantly being reminded that Latin America has very high homicide rates, and although I see guards with massive guns all over the place, it has fairly low gun ownership rates. Whereas I agree that a lot of data supports the thesis that too many guns contributes to more gun deaths, gun availability isn’t the only thing that leads to gun deaths. Other factors are often more important. Otherwise the US would have the highest homicide rate in the world because the US has by far the most guns per capita.  I can’t figure out any simple rule that explains how they picked the nations they included in the above graph. It isn’t the list of OECD nations. It is pretty close to a graph that excludes all poor nations, but if so, then it should really include Panama and Uruguay which are richer than Argentina (which is included). But that wouldn’t fit the thesis that guns cause more deaths as nicely. The graph came from Tewksbury Lab, but they have taken down all reference to it, so I can’t see where they got their data, but it looks like they used data from the 2011 “Estimating Civilian Owned Firearms” by the Small Arms Survey. Nationmaster seems to have taken the Small Arms Survey data and added some estimates for other countries to come up with a more comprehensive data set of gun ownership which I combined with World Bank homicide data to produce this graph:

In fact, it appears that gun availability is actually somewhat correlated with fewer gun deaths. I tried excluding all nations poorer than Spain, but it still doesn’t give much support to the thesis that more guns cause more homicides because there is little correlation again:

Basically, there are two outliers, the US and Qatar, and they are so different from all other rich nations, that they should both probably be excluded. When you do that, again there is almost zero correlation between guns and homicides. That doesn’t mean that guns don’t contribute to the high homicide rate in the US, but it just isn’t a simple matter. Lots of other factors are also important such as environmental lead, criminal justice, inequality, etc.

Below is another graph using data from Wikipedia’s entry about firearm-related deaths which looks more reliable than NationMaster because Wikipedia cites where all their data comes from, and it is more up to date.  It tells a very similar story.

Guns don’t make that much difference because there are wide differences in the number of homicides per gun:

That is using the Nationmaster & World Bank data again. Each gun kills over 2,000 times more people in Tunisia than in Switzerland. Here is a close up of the left tail of the above graph to show the nations that have low levels of homicides per 1,000 guns like in the USA.  Only about 1 in 20,000 guns is used to kill people in America on average.  That is just a few bad apples.

UPDATE: I found the original graph on the Wayback Machine and the author’s methodology looks sound.  Also, this chart from Mother Jones is pretty convincing since US states are all relatively similar so the effects of differences in gun ownership can pop out more clearly:

Gun ownership tightly correlates with gun violence.

Posted in Health, Violence & Peace

US median income finally rises above record set in 1999. Yea!

Kevin Drum reports that the official census bureau measure of:

household income is now at an all-time high:

And now for the buzzkill portion of this post: this means household income has increased a whopping 0.6 percent since 1999. That’s $22 per year.

Posted in MELI & Econ Stats

Jaywalking in Guatemala

As a visitor to Guatemala, I’ve often heard cautions from Guatemalans to be extra careful crossing the road because cars have the right of way and might run me over.  Although cars give very little regard to pedestrian safety, there doesn’t seem to be any laws against jaywalking.  Pedestrians jaywalk across any street or highway anywhere (at their own risk).  In the US, it is illegal to jaywalk, but it is also illegal for cars to run over pedestrians, so whenever a pedestrian does get in a street, cars tend to give them the right of way.

On my first visit to Guatemala in the early 1990s, I was waiting for a bus along a two-lane highway in a small town that lined the highway with small businesses on both sides and was bustling with pedestrians.  At one point I heard a semi-truck blaring on its air-horn and I looked up to see an old indigenous man slowly walking across the highway.  The semi was barreling down the highway towards the old man who seemed oblivious to the traffic at that moment.  The truck kept blaring its horn as it barrelled straight towards the man without slowing.  It didn’t swerve an inch and ran right into the man, tossing him into the air like a limp rag doll.

As his body flopped down on the gravel along the side of the road, the truck stopped blaring its horn, but it otherwise kept driving down the road like nothing had happened. Nobody chased after the truck and no police ever showed up.  It was the only time I’ve seen someone die right in front of my eyes.

A small group of bystanders immediately gathered around the dead man on the side of the road and a short time later someone came with a pickup truck and they loaded up his body and drove him away.  Someone told me that rural people died frequently in accidents like that because they weren’t used to seeing much traffic and the traffic that they did encounter in their rural areas couldn’t drive much faster than walking speed anyway because the dirt roads are so badly potholed.

When they encounter the new highways where cars drive at ungodly speeds, they are as unprepared for how to react as a deer caught in headlights and some drivers don’t give them any more respect than deer. That has caused collisions between modern urban Guatemalans and the traditional rural world.


Posted in Development, Public Finance

Trickle-up economics

Supply-side economics is often derided as trickle-down economics. It is the idea that we should reduce taxes on the wealthy who will then use their increased disposable income to grow the economy so fast that it will benefit everyone. That isn’t what Thomas Piketty, Emmanuel Saez and Gabriel Zucman have found. The actual pattern is pretty much the reverse. The middle class (and the median) has had higher income growth when the income of the poor was growing faster than the income of the rich as you can see in this graph from NYT writer David Leonhardt.

When the poor had high income growth, everyone had high income growth. Even most of the rich had higher income growth than the average income growth in 2014, so the rising tide really did lift all boats.

More recently, the poor have actually been getting poorer and the rich have been getting a lot richer as the leave the rest of the population in the dust. The economy for most Americans has been fairly stagnant. This is a more crucial issue than another round of tax cuts for the wealthy.

Posted in Medianism

Why the long-run value of Bitcoin is near zero.

Economics textbooks say that the three main functions of money are 1) a unit of account (a measurement of value); 2) a medium of exchange; and 3) a store of value.

As I wrote earlier, only the first two functions are really unique to money. Lots and lots of things serve as a store of value and are better stores of value than money, so although it is a function of money, it is a distant third place function. There is an inherent tension between this function and the second function because whenever something gets used as a store of value, it stops being used as a medium of exchange. Just like you can’t have your cake and eat it too, you can’t store your money and exchange it too. Bitcoin is more like gold than money because both are primarily bought as a store of value rather than as a medium of exchange and this is one reason why Gold and bitcoin both have very volatile value. If the value of gold and bitcoin didn’t change, speculators would have no interest in holding them as a store of value except if they expected that an economic disaster would cause everything else to drop in value. Speculators capriciously speculate about future values and that drives the price volatility of goods that are primarily used as a store of value. In fact, the more that something comes to be seen as primarily a store of value rather than as something that is valued for its intrinsic usefulness, the more volatile its price becomes. For example, housing bubbles are not caused by people who just want an economical place to live long run, but by speculators who see housing as a growing store of value and are hoping to resell at a profit in the near future.  Although bitcoin proponents like to tout its rising value as a success, that appreciation causes a major problem for bitcoin as a medium of exchange.

In contrast, a modern fiat money almost never goes up in value, so the main reason people hold it is as a medium of exchange. Central banks actively manage the value of every successful modern money to keep it reliably predictable and one way they try to prevent money from being used as a store of value is by engineering a little inflation which steadily reduces the long-run value of money. Inflation gives speculators an incentive to buy other things (like stocks, bonds, money-market shares, gold or bitcoin) as stores of value rather than money. It is the “animal spirits” of speculators that cause most price volatility in financial markets and by making money a bad long-run bet for speculators, central banks make their job easier to reduce the volatility of the value of money. Because money is held as a medium of exchange, there is little speculation about how much it should be worth and so its value does not change unpredictably which makes it more useful as both a unit of account and a medium of exchange.

Nobody uses bitcoin (nor gold) as a unit of account (for measuring value) because the units jump around much more capriciously than the value of money. According to Mark Williams, as of 2014, bitcoin had volatility seven times greater than gold, eight times greater than the S&P 500, and 18 times greater than the U.S. dollar.  Even the Bitcoin Foundation sets its employee’s salaries in dollars rather than in bitcoins.  Because bitcoin (and gold) are bad units of account, they are rarely used as a medium of exchange except by criminals. Bitcoin has a major advantage for criminal exchanges because it is untraceable by any police, but for everyone else, the transactions costs due to high price volatility outweighs any other advantage of bitcoin.

The block chain technology that bitcoin is built on could offer a more efficient way of making payments, but prices will always be quoted in dollars (the unit of account) because dollars have more stable value. And as long as dollars are used as the unit of account, they will also be used as the de-facto medium of exchange too. For this reason bitcoin will never replace money as a unit of account nor as a medium of exchange, but the technology does have some advantages for reducing transactions costs. That could be the real legacy of bitcoin. Some of the technologies of bitcoin could be adopted by the banking system or a payment provider like PayPal to reduce transactions costs and replace our antiquated money
transfer system, but the new system will still exchange dollars rather than bitcoins.

Once everyone realizes this, the value of bitcoin will collapse. The main reason people are excited about bitcoin is on the theory that it could eventually become our standard money, but it cannot beat central-bank money as a medium of exchange, and at some point this fact will inevitably enter the consciousness of the speculators that determine the price of bitcoin which will then collapse to near zero. Speculators base their hopes for bitcoin on the theory that its technology is more efficient at reducing transactions costs, but eventually the banking system will adopt those technologies and then bitcoin will cease to even have a theoretical advantage. At that point the only advantage bitcoin will still have is its usefulness for avoiding detection by those who are evading taxes, profiting from crime, and funding terrorism, so the long-run future value of bitcoin will depend upon the heath of the only arena where it is already being used as a preferred medium of exchange, the black-market economy.

Once the speculators abandon bitcoin and it becomes just a reserve of terrorists and criminals, the police will shut down the companies that exchange bitcoin for money which will make bitcoin virtually worthless for criminals too because they mainly rely upon money for most transactions and only use bitcoin for illegal transactions.

Bitcoin’s value will fall to zero once people realize its failure as a medium of exchange because it has absolutely no other source of value. All stores of value must have some underlying value. Fiat money (like the dollar) is truly useful because it really does minimize transactions costs as a medium of exchange which give it its underlying value. If there were something else that was better at facilitating exchange transactions (like bitcoin), we would use it instead of dollars and the dollar would become worthless because it has no other fundamental source of value. Commodity monies like gold and silver can rise and fall in value, but they cannot fall to zero (and did not fall to zero when fiat money replaced them for transactions) because they are inherently useful for other things besides facilitating transactions. They are used for industrial production and for making beautiful things like the shiny gold plating that Donald Trump likes to surround himself with. Neither bitcoin nor fiat money have any other value if they aren’t the cheapest medium of exchange in some market.  However, fiat money cannot fall completely to zero value as long as the government requires that everyone pay taxes using government-issued fiat money.  Almost a quarter of US income is paid in taxes each year, so that requires a lot of dollars and prevents the value of dollars from falling to zero even if they weren’t the best kind of money for every other transaction.

A fiat money like the US dollar is cheaper to use than bitcoin as a medium of exchange because 1) its value is more stable because it is actively managed by the central bank which makes it a better unit of account; 2) it is cheaper to use for paying taxes because the government requires it for paying taxes so Americans have to have the ability to pay in dollars; 3) the fact that everyone uses dollars creates a kind of economy of scale called a network effect which makes dollars more convenient to use simply because all other Americans are already using them; 4) bitcoin is structurally prone to deflation which would contribute to recessions if it were adopted for an entire economy.  That fact will prevent any large economy from adopting it.  Bitcoin has some other technological advantages, but they are small and don’t outweigh the advantages of the dollar.  Plus, the dollar system could copy the technological advances if they were truly important.

So far bitcoin speculators have been hoping that bitcoin’s technological advantages will eventually prove to be so much better than the dollar as a medium of exchange that everyone will someday want bitcoins for conducting all their daily business (except paying taxes presumably). But it is more likely is that the dollar system will eventually adopt some of bitcoin’s technologies and wipe out what little advantages bitcoin currently has for exchanges.  Plus, because bitcoin’s main advantage for exchange has been its ability to fund illegal activities, it will probably eventually be used to fund a major terrorist act and that will motivate large governments to clamp down on the exchanges that connect the bitcoin network to the global financial network.  That could be the sudden end of bitcoin except as a historical curiosity.

I hope that doesn’t happen because bitcoin is that it provides a backstop alternative for the fiat monies of the world.  Every fiat money is always in peril of being managed badly and that has dire consequences for the people who depend upon it such as in the Zimbabwe hyperinflation.  But if a fiat money ever becomes a worse option than bitcoin, then people can switch.  Bitcoin provides competition for the world’s fiat currencies.  So far that hasn’t panned out except in a few niche areas, but it is nice to have it as a possibility.  For example, in Zimbabwe’s case, people have been mostly using the fiat currencies of other nations, most commonly, the US dollar rather than bitcoin. There is simply no major economy where bitcoin has replaced fiat currencies as the main medium of exchange except in some networks in the criminal underworld.

Posted in Macro

Median vs. mean life expectancy

Life expectancy is the mean number of years someone is expected to live if conditions would remain the same in the future as they are in the current year. But because life expectancy is slightly skewed to the left, David Spiegelhalter calculated that median life expectancy is about three years longer than the mean. That means that most people should expect to live longer than their life expectancy as it is usually calculated.

It’s well-known how misleading it can be to use average (mean) as a summary measure of income: …a few very rich people can hopelessly distort the mean. So median (the value halfway along the distribution) income is generally used, and this might fairly be described as the income of an average person, rather than the average income.

But, like everyone else dealing with actuarial statistics, I use life expectancy (the mean number of future years) to communicate someone’s survival prospects. And yet, just as for income, it is also a poor measure due to the skewness of the distribution of survival.

This can be clearly shown by looking at the life tables published by the Office for National Statistics (ONS)  …[with] the expected number of deaths at each age out of 100,000 births, assuming the current mortality rates continue. The density plots for women and men are shown below, using the life tables for 2010-2012. The distributions have a small peak for babies dying in the first year of life, and then a long left-tail for early deaths, and then a sharp peak and a rapid fall up to age 100. The ‘compression’ of mortality is clear.

Numbers of women expected to die at each age, out of 100,000 born, assuming mortality rates stay the same as 2010-2012. The expectation is 83, median 86, the most likely value (mode) is 90.

Numbers of men expected to die at each age, out of 100,000 born, assuming mortality rates stay the same as 2010-2012. The expectation is 79, median 82, the most likely value (mode) is 86.

Left-skewed distributions are rather unusual, but have similar issues as any skew distribution – the mean, median and mode can be very different. For these survival distributions it is perhaps remarkable how far the mode is from the mean: for girls born now, even assuming there are no more increases in survival, their most likely age to die is 90, seven years more than the mean on 83. For little baby boys the mode is 86, again seven years more than the mean of 79. And even the median is 3 years more than the mean. That’s why I now believe that ‘life expectancy’ is misleading.

In the comments, Nick Ergodos* opines that:

I think the median beats the mean at every level and for all practical purposes, not only for estimating life expectancy or income. For large sample sizes (or if you repeat the experiment many times) the median approaches the mean anyway so nothing is lost by replacing the mean by the median everywhere. We use the average routinely for historical reasons only, not really for any rational reasons.

I don’t agree with Nick that the median always beats the mean, but it certainly does for income. The best statistic depends upon how it is used and there is no use where mean income is better (unless you are using the mean of log income which produces results that are a rough approximation of the median anyhow). For life expectancy, both measures have different advantages. The median is more realistic for most people (obviously) who have already survived past youthful mortality and gives a better picture of how many years of life they have left. But as a measure of social wellbeing, I’m fine with using mean life expectancy because it gives more weight to the tragedy of youth mortality than median life expectancy does. Most of the increase in (mean) life expectancy over the past two centuries has been due to a reduction in youth mortality and median life expectancy wouldn’t reflect that incredible gain in human wellbeing.

The difference between why mean life expectancy is OK and mean income isn’t OK for measuring welfare (utility) is that a mean assumes constant marginal utility. It is more reasonable to assume that each year of life gives about the same amount of utility than to assume that every dollar of income gives exactly the same amount of utility. That is the philosophical reason why I use standard (mean) life expectancy for calculating MELI rather than median life expectancy. The other reason is practical. As I discovered at the IARIW conference in Korea, it is hard enough to get economists interested in using median income and it would be a harder sell to get them to also switch to median life expectancy. Fortunately, the ordinary way of calculating life expectancy is just fine as a measure of wellbeing even though it probably isn’t as good for estimating how long you have left to live.


*For the wonkish, Nick Ergodos further explains his theory in a published paper that makes a more limited claim about the virtues of the median.  It focuses on expected value and argues that the median probability of a gain (or loss) should be used (and is used my most people) for deciding whether or not to make a series of bets rather than the probability-weighted mean (which is the expected value).  It is an intriguing theory, but I don’t think it is completely specified for the domain where it works versus where it doesn’t.

Posted in Health, Medianism

The ethics behind Trump’s main money man

Jane Mayer at the New Yorker has a profile of Robert Mercer, the reclusive Billionaire who probably invested more money in getting Trump elected than any other American (and we don’t know how much Putin spent). He not only directly funded Trump, but he established Breitbart and other alt-right institutions which provided Trump with fanatical early support as well as a data analytics firm called Cambridge Analytica which worked on behalf of Trump and groups like Citizens United and the Council for National Policy. Mercer and his daughter even got Trump to shake up his campaign and hire Mercer’s associates from organizations that Mercer had been funding including Steve Bannon as CEO, Kellyanne Conway as manager, and David Bossie as deputy manager. One of Mercer’s former colleagues, Nick Patterson, said, “In my view, Trump wouldn’t be President if not for Bob [Mercer].”

David Magerman, a senior employee of Mercer at Renaissance told the Wall Street Journal that

Mercer wants the U.S. government to be “shrunk down to the size of a pinhead.” …Magerman told me, “Bob believes that human beings have no inherent value other than how much money they make. A cat has value, he’s said, because it provides pleasure to humans. But if someone is on welfare they have negative value. If he earns a thousand times more than a schoolteacher, then he’s a thousand times more valuable.” Magerman added, “He thinks society is upside down—that government helps the weak people get strong, and makes the strong people weak by taking their money away, through taxes.” …Another former high-level Renaissance employee said, “Bob thinks the less government the better. He’s happy if people don’t trust the government. And if the President’s a bozo? He’s fine with that. He wants it to all fall down.”

This quote demonstrates that Mercer is a believer in mmutilitarianism. This is also the ethical system that economists (and many in business) typically use, but they usually don’t take it to its logical conclusions like Mercer does in the above quote does because that is so abhorrent to the rest of society. It is the ethical system that underlies cost-benefit analysis and the use of GDP as a measure of welfare which are very useful despite their flaws. And most economists don’t apply their mmutilitarian ethical logic to such an extreme as Mercer does and argue that the elderly and the poor should simply die rather than receive Medicaid and Social Security because they aren’t worth the cost of the programs.

Mmutilitarian ethics aren’t always this abhorrent.  Most economists use a more judicious form of mmutilitarianism to argue in favor of environmental protections that Mercer opposes based on the logic of cost-benefit analysis too, but I don’t have time to write about why there is an apparent contradiction in the ethics of mmutilitarian cost-benefit analysis tonight.


Posted in Medianism, Public Finance

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