Income Distribution

Matt Yglesias blogged a graph that has been making the rounds across the economics blogosphere today.

I note, however, that these graphs can appear wildly different, depending on the rules one applies to the data in question.

Consider, for example, what would appear in the graph if I a person migrated from one income percentile to another during the nearly 40-year study period (not implausible). Such growth wouldn't show up in the graph. It is merely a comparison of income growth between the same percentile in two different periods. It is *not* (at least, not as far as I understand it) a comparison of the income growth experienced by the same individuals in both periods.

There are four different time periods expressed in that graph:
  1. The 1979-1997 Study Period.
  2. The 1998-2008 Study Period.
  3. The *INDEX PERIOD* for the 79-97 Study Period. This is the time period during which I was determined to be in any particular income percentile. Was this index period Dec. 31st 1979? Dec 31st 1997? The midpoint of those two?
  4. The *INDEX PERIOD* for the 1998-2008 Study Period. The same observations/questions apply here.
As you can (hopefully) see, the graph will appear quite different, depending on how the Index Periods are determined. If my income as of 1979 determines what percentile I am in for the rest of the study, then the graph will look much different than if my percentile is determined both in 1979 and 2008 - or if it is determined by the sum of my income for each individual study period - or if it is determined by the sum of my income for all years from '79 to '08 - or if it is determined only in '08 and applied retrospectively - etc. etc. etc...

These sorts of issues are at the heart of any graph. With income comparisons like these, you can make the story look very different depending on what your aggregation rules are, as applied to the data.

HT: Too many to note...

Addition Note for Today:

I am adding a "Scientific Method" tag. As I continue to explore the economic blogosphere, I am encountering questions that pertain not merely to economics, but to the method by which rules for analysis were established. Today's blog post is a great example. I can think of a few blog posts from the past that dealt with similar issues. It is a pet interest of mine, so I look forward to the new tag.

In general, I continue to refine the labels I have used. I see that I have separate tags for "joy" and "happiness," for example. Clearly, this was an unintentional redundancy. I will endeavor to clean that up a little bit, going forward.

Questions of Equality

Coilhouse.net reports on a transgendered male enrolled in school as a female. This year, the students voted for him as Homecoming King. He won by a landslide, but was disqualified because he is enrolled in school as a female. The students are scandalized, and we can all surely understand their frustration.

But what's the right thing to do here? Would he have been disqualified were he elected Homecoming Queen? Is holding him to his professed gender as per his school enrollment forms an act of discrimination?

The ACLU wants to get involved - and typically I agree with the ACLU - but in this case it seems a little different to me. Which outcome would yield the fairest results for transgendered individuals: official acknowledgement that they are whichever gender they claim to be, or official acknowledgement that they may be either gender, depending on the situation they are in? Which outcome sends the clearest signal to others regarding how the transgendered should be treated?

More importantly, is election of Homecoming Royalty something the ACLU should be chiming in on? Seems a little trivial. It is a voluntary popularity contest, after all...

IMPORTANT UPDATE -- My sister pointed out to me that I have it backwards. The student is enrolled as a female because he has not yet gone through a surgical gender-change. Despite considering himself a male, he is forced to go school as a female.

This basically explains everything. I should read more carefully next time.


Kinsella Falls Short on Anti-IP

Over at the Ludwig von Mises Institute blog, Stephen Kinsella writes:
And once we see that this third category does not exist, we see that the creationist case for IP evaporates.

However, Kinsella's own case against IP appears to evaporate as soon as we call into question his insistence that people do not own their own labor. Here, I do just that. Kinsella says:

This is manifest in the argument that one homesteads unowned property with which one mixes one’s labor because one “owns” one’s labor. However, as Palmer correctly points out, “occupancy, not labor, is the act by which external things become property.”
However, I counter that it is impossible to "occupy" an acorn or an apple. How might one occupy an apple? There is a deliberate reason Locke noted that labor was necessary to take possession of the apple in the first place.

Furthermore, the word "occupy" itself means "to take possession of," so Kinsella is essentially arguing a tautology, i.e. that possession is the fundamental requirement for possession. Well, of course it is!

The idea that one cannot own one's actions is completely untenable. Someone employed in a service industry (law) ought to know this full well. When hiring Kinsella's services, one is purchasing an action - it is by definition an agreement for Kinsella to act on behalf of the purchaser. Suggesting that nothing owned is exchanged in this transaction is, again, untenable. The mere fact that economics under the Misesian framework is founded upon human action - that action is the fundamental atom of economics itself virtually demands that actions are property.

If actions are not property in the above respect, then I suggest we clearly define what property is. I can guess, however, that Kinsella's definition of property will be such as to exclude action, and mine will be such as to include it.

The debate continues... However, I don't think Kinsella has punched a hole in IP with this line of reasoning, simply because he have not yet dealt with the fact that action is ownable. He will first need to establish once and for all that it is not in order for the above argument to work.


This Might Be Extremely Important


A 35-year-old man wrote a 1900+ page treatise on nihilism, conceived as the pinnacle of rational Western thought. Then he shot himself in front of a tour group at Harvard University.

I read the introduction to his treatise, and it seems that it is a work worth reading, despite being an argument for the exact opposite view that I espouse. I think Ayn Rand would have found much significance in this man’s work and death. Recall Jim Taggart’s wife when she realizes that if she does not believe in a philosophy of life, she must necessarily believe in a philosophy of death.

It appears that in 1900 pages, this man finally proved it. This might very well be the apex of polylogistic thought, the final proof that if one accepts the tenets of modern philosophy, one can only conclude in nihilism and ultimately death. The only way to conclude otherwise is to reject the if.

Hat tip to Lubos Motl at The Reference Frame.


Apt Quote

“There are 10^11 stars in the galaxy. That used to be a huge number. But it’s only a hundred billion. It’s less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.”

-- Richard Feynman
Hat tip: Damn, Gina


Cheap Asian Dry Goods - Is the Party Over?

Image courtesy www.rondomusic.net

Agile Guitars is a brand of guitars made it Korea that are priced in some cases up to 10% of what an American company would price a comparable instrument. I own two Agile guitars: one is a black "Valkyrie" model, that is something like a cross between a Gibson "SG" model, and a Guild S-100; the other is a Valkyrie double-neck guitar with a 12-string neck on top and a 6-string on the bottom.

These instruments are gorgeous, sound great, and have been - up to now - priced much cheaper than the competition. They have developed a strong reputation. Everyone loves them.

The image that appears at the top of this post is an Agile Pendulum Pro 7-string guitar, and it is currently selling for $1,295. This is at least double what 7-strings were selling for last year. Granted, this particular instrument comes with a lot of features, however the sea change is undeniable.

Now, as economists we may disagree as to whether this price point increase stems from excess demand, or whether the market price for guitars has been set artificially high (like diamonds) for the last few decades. My experience with the guitar market leads me to conclude the latter, but your mind may vary.



Read this and learn.

Hat tip to Russ Roberts at Cafe Hayek.

Stark Data reported by the WSJ Economic Blog

Real Time Economics (WSJ) reports today:
In a presentation as part of its wider report on income, poverty and health insure, the Census Bureau noted a big jump in the number of individuals and families doubling up. ( See slide 18) The number of multifamily households jumped 11.6% from 2008 to 2010 compared to an increase of just 0.6% in the number of households.

“If the poverty status of related subfamilies were determined by only their own income, their poverty rate would be 44.2%,” David Johnson chief of the Housing and Household Economic Statistics Division at the U.S. Census Bureau said. “When their poverty status is determined based on the resources of all related household members, it is about 17%.”
This strikes me as a horrendous statement about the current economic condition - that poverty is not just high, but largely hidden deep in the data. The WSJ goes on to suggest:
Fewer households means fewer consumers for businesses desperate for demand. At the same time, it continues to drag on a housing market that needs to burn off excess supply.
So they obviously interpret these data in the common New Keynesian framework of demand and credit availability. My take is a little different.
  • First, from an Austrian perspective, we have evidence of some pretty serious wealth descruction. Likely, the bulk of this is still coming from the Fed-enabled real estate malinvestment bubble. But as time goes on, if this continues, then we will also be seeing the destruction of that wealth which would have been created, had these "subfamilies" not been encouraged to avail themselves of the social welfare system.
  • Second, from a philosophical perspective, what does it say about our society that people are moving back home, or never moving out. This has been common in Europe and Asia, for cultural reasons. North American culture, by contrast, has always valued the independent spirit, the man who would never move his family in with the parents, because that would compromise his independence.
Of these, I think the second is most important (although it may be a product of the first). What becomes of a society that no longer values social independence?

Off-Label Promotion

Pharmatimes reports the following story, which is largely uninteresting from an industry perspective because such things are rather commonplace:
Forest Laboratories is the latest drugmaker to plead guilty to accusations of illegal marketing of its products in the USA.
Let me sum up the gist of this for industry outsiders: Forest Laboratories must pay a penalty for suggesting to doctors that their antidepressant products can treat more illnesses than just depression. That's it.

To be sure, doctors are not idiots. You can't just walk up to a doctor and say, "Hey, doc, guess what - you can cure cancer with aspirin, so please start diagnosing aspirin to cancer patients" and expect to sell more aspirin pills. Doctors, like most experts, require clinical evidence and logical, persuasive reasoning in order to become convinced that Drug X is a viable therapeutic option for Disease Y. Even then, there is no guarantee that a doctor will prescribe Drug X. The goal of a pharmaceutical rep is simply to make doctors aware of therapeutic options. If Drug X is an option, it's an option, period. The great crime here is that Forest Laboratories decided to do this in advance of an indication submission to the FDA.

Do you think this is a crime? Really? Then consider this...

When was the last time you shopped at a farmers' market? Are you aware of the fact that when you buy local produce from small farmers, those carrots and peas and bell peppers haven't been through the FDA-mandated inspection process? Are you worried that it will kill you? You're not, right? Why not? Because it's not FDA approval that determines the efficacy of products. It's biochemistry.

Before you suggest that drugs are "a big deal" and therefore "require" FDA approval, ask yourself when was the last time you used a Netti pot, ear candles, chicken soup, saline solution, echinacea, ginseng, zinc tablets, or any other home remedy to make yourself feel better. These things have no "FDA-approved indication" to treat your ailments, and yet you do not at all feel bad for consuming these products.

Furthermore, Forest Laboratories probably has good evidence for its products' efficacy in off-label applications.

People often demonize "Big Pharma" for supposedly not bringing life-saving treatments to market because they can supposedly make more money selling lesser treatments. But whose fault is it, really? Forest has safe products with proven efficacy, that they wish to apply to a new disease class, and this legitimate desire cost them over $300 million.

I don't want to be a shill, but it's important to keep in mind that it's pharmaceutical companies who produce medicine, not the FDA.


Bangla Word of the Day - Phrase Edition!

Shobkichhui shawmbhob - [SHAWB kee chhoo ee SHAWM bhohb] expression of optimism Anything is possible!


Learning Styles

I wasn't going to blog this, but it's interesting enough.


I love reasearch like this because it demonstrates how completely unscientific it is to place people into boxes and say "You're good at this, I'm good at that." Psychologists reviewed the scientific evidence and concluded that there basically is no such thing as "right-brained versus left-brained," "visual thinker versus auditory thinker," and so forth.

What this means is that you can learn in whatever way is available to you. You can think in a variety of different ways. You can do anything you want to, all you have to do is try.

Stuff like this is important to me because for years I told myself I was bad at math and logic problems; then I forced myself to take math classes and try really hard, and it turns out that I'm actually good at it. For years people told me that I'm a nice guy who needs a more technical background, and then one day I became the local "technical expert."

Eventually I concluded that I behave all kinds of different ways, I'm better with practice than without, the more I do something, the better I understand it, etc. It's not about any natural predisposition to one type of thinking or another, it just comes down to what I actually try to do.

And if it's true for me, then it's true for everyone! :)

What is Obamanomics?

There are too many people out there using the term "Obamanomics" for me to point you to any particular reference. The point is that the term has caught on. My question is: Fine, it's caught on, but what is it?
  • The first example of Obamanomics would probably be the TARP bailout and other stimulus programs. So, fiscal stimulu policy is arguably one aspect of Obamanomics.
  • Next, we have ObamaCare and a host of other new government, uh... infrastruture initiatives. In the traditional Keynesian framework, this, too, is fiscal stimulus spending. I'm not sure this is really an economic policy so much as it is a political move on Obama's part, but perhaps we can modify point one above to suggest that Obamanomics is heavily weighted toward infrastructural stimulus spending and lender-of-last-resort policy initiatives.
  • Tax increases appear to be a pivotal aspect of Obamanomics.
  • Finally, we've heard Obama speak a lot about "spreading the wealth around," so we can assume policy initiatives aimed at wealth redistribution are also a key component of Obamanomics.
So uh... how exactly does any of this differ from any president, Republican or Democrat, from the last 100 years or so? If, as the conservatives say, we are supposed to oppose Obamanomics, then what are they offering that presents us with any real difference? If, as the liberals say, electing more Republicans would mean throwing the poor to the wolves and so forth, why? Won't the Republicans just do more of the same kind of stuff?

More and more, I'm starting to feel that Republicans are the "tax cuts for the rich" party, while Democrats are the "tax hikes for the rich" party. Isn't there a better option? Say, tax cuts for everyone, including the rich? Tax hikes for no one?



A Brief Post on A=A

The recent Ayn Rand entry at the Mises Institute Blog got me thinking about A=A. One commenter asks, "What if I say A=B?" This, of course, was part of a broader point that if one perceives A to be B, then for that person A=B even though it might be A=A for you. I'm going to side-step the polylogism argument for now so that I can focus on what A=A actually means.

A=A means that A is something that we know, that it exists outside of our perception, that it is what it is. Simple, right?

A=B is nonsense. The statement A=B used in the capacity to describe an alternate scenario to A=A means that one is aware of two things: A, and B, and that upon closer inspection they are in fact the same thing.

In the context of a philosophical debate, the assertion A=B doesn't mean that A could be something else other than A, it means that what you mistook for two things is actually one.

To put it the way Rand might have, in order to assert that A=B, you'd have to first know that A and B are two separate things, and choose to pretend otherwise. This is very definitely nonsense. When people make assertions like these, they don't just misunderstand Rand - they misunderstand logic and philosophy themselves.

That's all I have to say for now. I told you this one would be brief. ;)


Ethics and Landsburg's Runaway Train

I recently had the pleasure of reading a book called The Big Questions, by Steven Landsburg. Landsburg is an economist of some note, who teaches at the University of Rochester. (You can follow his blog - largely along the same lines as his most recent book - here.) Landsburg has the delightful distinction of being well-versed in economics, philosophy, mathematics, and physics. If that sounds like a diverse range of expertise to you, you may want to brush up on whichever of those subjects is your particular weak point. :) They are remarkably complimentary.

Landsburg's most recent book is fully of gems to get you thinking, but I want to be clear that I object outright to many of his affirmations. His book is so darn good, though, that I'm recommending it even though I disagree with much of it. 

In particular, Landsburg summarizes a common ethics problem that goes something like this:
Five total strangers are kidnapped by a mad philosopher and tied to a railroad track. A speeding train is en route to run them over. You can divert the train by throwing a switch, but if you do, the train will take an alternate route that will run over one other person tied to the other set of tracks. What should you do?
Landsburg considers this an easy problem. Before I tell you how he answered, please take a moment to consider how you would answer. 

Landsburg's answer is as follows: Saving five people is better than saving one, therefore the moral thing to do is to divert the train by throwing the switch. Landsburg's view seems to be based on a "greatest good" principle. Because throwing the switch means maximizing total human happiness in the system, the "right answer" is to throw it.

Now here's my answer: Before the mad philosopher came along, no one was tied to any railroad tracks. Obviously, the mad philosopher is the bad guy here. Now the choice you face is to murder one person to save five, murder five people to save one, or murder no one by saving no one.

Landsburg is quite critical of deontological ethics, but let's take a deeper look at his greatest good principle. If any one of the five people tied to the first tracks is a serial killer, the greatest good principle is shot to hell. If the one person tied to the alternate route is, for example, a heart surgeon, he saves lives virtually every time he goes to work (or she), so running him (or her) over also thwarts the greatest good. Landsburg would likely respond with an exercise in expected value; in other words, what are the odds that one or more of the five people are extremely bad people, and what are the odds that the one person tied to the alternate route is a an extremely good person? After weighing the "expected payoff" of this, one could arrive at the most likely scenario supporting the greatest good, and that would be that. (Of mathematical note, I believe the five people would still win out, since there are "more chances for good." On the other hand, there are also "more chances for evil," so maybe it really comes down to whether there are more good people or evil people in the world.)

I have a couple of objections to all of this. First, the train is speeding, and there is likely no time to calculate expected values to determine the correct answer. Second, and more importantly, there is no such thing as probability for goodness. In other words, a person is either good or not, and there is no "probability" attached to it. It is a personal choice, it is a matter of integrity. It is a question of free will, if you believe in it, or years of environmental stimulus, if you don't believe in free will. 

In short, human action cannot be calculated. It is impossible to know in advance if the person you condemn to death would have saved dozens of others (or even five others). On the other hand, killing someone always ends in the termination of a life. And that - assuming you respect human life - is an unequivocal tragedy. (Side note: I do not believe in capital punishment, but I'll save that for another day.)

The bottom line is that it is extremely presumptuous, and perhaps even megalomaniacal - to assume that you know better than six other potential murder victims which of them is more "worth saving" than the other(s). The absolute most moral course of action in this case, then, would be to avoid the switch entirely and try some other means of either saving the people or stopping the train. Anything else would be murder.

Landsburg's book criticizes deontological ethics, and I admit that I don't know enough about ethics to defend them. But if rejecting them means making the choice to murder even one person, as opposed to zero, then I can't say much for their value when it comes to ethical outcomes. 

What's your opinion?