Saturday, November 21, 2015

Income by Ethnicity

Following up on my post about Denmark, I took a closer look at NORC survey data on income and ethnicity.  My calculations from their data are below, and I thought some of the results were interesting. 

Asians in the U.S. report very high incomes, as do Russians, Greeks, and Arabs.  French Canadian incomes are surprisingly higher than other Canadians.  Perhaps talented French Canadians leave the relatively poor eastern provinces of Canada, while other talented Canadians stay in Canada. Japanese-American incomes are surprisingly low.

I also thought it was interesting that some of the lowest white incomes were for people who did not report an ethnicity.  Those answering "American" or "Other European," those who did not answer or whose answers were uncodeable reported incomes substantially below the white average.  Perhaps knowledge of family history is an indicator of higher economic status, or perhaps a higher than average tendency to marry outside of one's ethnic group is associated with lower economic status.

Mexican, Puerto Rican, and American Indian incomes are very low.  Members of these groups reporting themselves to be white have higher incomes than those reporting themselves as belonging to other races.

I also found it interesting that Belgians reported low incomes.  In a previous post I found that Belgian-Americans are outliers in their tendency to vote for Democrats, given the length of time Belgians have lived in the U.S.

Here are the results:

 White   Black   Other 
 Average          75,604         46,679         59,466
 China        175,000       138,294
 Russia        109,955
 Greece        106,245
 Rumania        103,942
 Other Asian        100,450         82,500         94,451
 French Canada          96,139         45,000
 Arabic          92,125         32,500         13,187
 Switzerland          90,255
 Austria          89,611         21,250
 Italy          88,143           1,600
 Netherlands          88,049
 Sweden          88,045         27,500
 Portugal          87,598           3,533         80,250
 Denmark          84,181
 Germany          82,919       120,000         88,750
 Czechoslovakia          81,317
 Poland          80,724              800
 England, Wales          80,347         71,875         82,500
 Hungary          80,161
 Lithuania          79,087
 Other          77,783         52,187         36,523
 Philippines          76,666         11,250         79,434
 Scotland          76,637       120,000
 Ireland          75,675         41,000
 Africa          74,250         50,225         82,500
 Finland          74,227
 France          74,043         66,843
 Japan          72,875         82,500         81,500
 Spain          72,200         41,250         50,291
 Yugoslavia          72,100
 Uncodeable         71,717         39,613         34,954
 Other European          70,406         55,000
 No answer          70,125         27,843         11,025
 Other Canada          68,083       134,375
 Belgium          67,287
 Norway          66,563
 Puerto Rico          59,012         33,183         41,172
 American Indian          53,290         39,124         36,095
 Other Spanish          51,317         44,777         44,905
 Indian          49,166         39,444         95,396
 Mexico          44,784         18,750         42,975
 American only          43,912         40,446         69,600
 NonspanWIndies          40,000         55,253         82,678
 West Indies          73,750       120,000

Saturday, November 14, 2015


Yesterday's events in Paris have the feel of a historical turning point. My guess is that many of the issues and causes that appeared to be important before the attacks will be swept aside, while issues relating to immigration and geopolitical strategy will ascend in importance.

Immigration was already a prominent issue in Europe and the U.S., but now it will dominate political debate.  The recent controversial influx of Syrian refugees followed by attacks by Syrian refugees on a sporting event and a rock concert will surely increase support for anti-immigration candidates like Marine Le Pen in France and Donald Trump in the U.S.  Panic in establishment candidates will push them to adopt anti-immigrant policies.

Vladimir Putin will be able to play into terror fears in western countries by portraying his intervention in Syria as practical and anti-terrorist.  Stability in countries like Syria is the best way to prevent terrorism and refugee flows, and attempting to overthrow the Syrian president, as the U.S. has been doing, is not a good way to create stability in the short term. 

My guess is that as soon as she has crushed Bernie Sanders in early primaries, Hillary Clinton will talk up border security, downplay immigration reform, and tone down her rhetoric against Putin.  Republicans, if they manage to nominate an electable candidate, will run ad after ad that portrays Clinton as soft on immigration and terrorism.

Western leaders should take the opportunity to close their borders, give Syria to Putin, and in return take control in Ukraine. 

Tuesday, November 10, 2015

Minimum Wage

Johnson County, Iowa recently passed an ordinance to gradually increase the minimum wage to $10.10 per hour, and our local newspaper today tried to show why the rest of the state should do the same thing.

The article profiled a woman earning the current minimum wage, $7.25 per hour, in Sioux City, Iowa:
She's single and 39. Her weekly balance sheet: She brings home $250, pays $30 for transportation to her job through an employment agency, $25 to settle a debt, and roughly $84 a week for the rent-subsidized apartment she just moved into. That will leave $111 for food and, someday she hopes, a car.

With this profile, she would probably not be eligible for food stamps, but she would be eligible for Medicaid.  The cost of food in nearby Sioux Falls is 8.5% cheaper than in the rest of the U.S., plus Sioux City has a food bank, a Sara Lee outlet, and a Bend n Dent store.  Figuring $40 per week for non-food miscellaneous expenses, she would still have $10.14 available for food per day.  It would not be terribly difficult for a single person to eat on this budget in Sioux City.

I wrote about my attempt to live on the minimum wage a few years ago, concluding that a family of four could live reasonably well on a single earner's pay of $5.15 per hour, which was the minimum wage at the time. 

If we have a moral imperative to help the poor, how much help must we give?  Does a "living wage" really mean a wage a person can live on, or does it mean the average wage?  My view is that the cost of helping is huge - taxes distort incentives, causing massive misallocation of resources.  In other words, forcing all pie slices to be equal always shrinks the pie.  I don't think that the current push for higher minimum wages and other redistribution schemes have been subjected to serious cost-benefit analysis.

Friday, November 6, 2015


The left is resurrecting the monopoly boogieman, this time to explain income inequality.  My view (here and here) is that monopoly power in the U.S. does not appear to be increasing in most industries, efforts to enforce antitrust rules have had little effect on monopoly power, and industrial concentration has not created significant pricing power.

A recent New York Times editorial outlines the new thinking.  The two sources they cite are here and here.  The basic idea is that lax enforcement of antitrust law has allowed more mergers, giving market power to bigger companies, so they can take money from the poor through higher prices and pay dividends to the rich, exacerbating income inequality.

The papers cited show an increase in the share of business controlled by the largest 50 companies in several industries from 1997-2007.  No evidence is given that this increase has led to additional pricing power.

I had a look at the latest data from the 2012 Economic Census, just released in August of this year.  Concentration data were only available for manufacturing, but the story is consistent with what has been happening in other industries - hollowing out of the middle, and growth at the top and the bottom.  In other words, the share of business controlled by the biggest companies is growing, but the share of the smallest companies is also growing.  Whether this is a good thing is an interesting question.

I'm not sure that the Herfindahl index of is always a good indicator of concentration when middle sized firms shrink.  Think of a market with five firms.  The biggest controls 40% of the market, two middle sized firms control 25% each, and two small firms control 5% each.  Now suppose that the middle sized firms go out of business, and four firms, each with 1/8 of the market, are left along with the large firm.  The Herfindahl index increases from 29% to 31.25%, but has market power really increased?  It is easy to imagine that the large firm grew because of economies of scale, and that the four small firms find other advantages and provide enough market discipline to keep prices low, perhaps lower than in a market with three firms controlling 90% of the market.

The time period that the authors looked at, 1997-2007 was a time of enormous change in the relative advantages of different firms because of the growth of the Internet.  Small firms that only had access to local markets now sell nationally, and provide competition that never existed before.  Large firms such as Amazon are finding different economies of scale than existed before the Internet, but they do not have much pricing power because of their smaller rivals.

Overall it is hard for me to believe that market power resulting from industrial concentration is an important contributor to income inequality.  There are a few special cases where government regulation has artificially increased concentration.  One is the finance industry, where the complexity of regulation and the cost of compliance is driving small banks out of business.  Another is licensed occupations.  But I can't think of a good example of a reasonably free market in which big firms have driven out small firms, raised prices, and kept those prices high.

Friday, October 30, 2015

Iowa City Council

Iowa City is gradually changing from a sleepy college town into a minor center of financial, retail and entrepreneurial activity.  We are way behind places like Austin, Texas and Madison, Wisconsin, which made similar transitions years ago, but Iowa City is definitely on the move.  Its population is estimated to have grown by more than 8% in just the last four years.

As a small town completely dominated by a large university since 1857, Iowa City became a haven for the politically liberal.  I ranked all U.S. counties by the Democratic Party share of the vote in three clear conservative vs. liberal presidential elections; 1972, 1984, and 2004, and averaged the ranks.  Eliminating counties with very small populations and large black populations, I found only one area of the country more liberal than Johnson County, Iowa, and that was made up of the two main counties of the Duluth metro area.

Duluth is not growing - its population is estimated to have shrunk slightly over the past four years.  So Iowa City is a unique laboratory for studying a clash of traditional liberalism and economic development.  Madison, Wisconsin is similar in many ways, but the development process there is much further along.

After years of anti-growth liberal domination of city government, development took off beginning around the 1990s in surrounding suburbs such as Coralville, North Liberty, and even Tiffin and Solon.  Concern grew over the eroding tax base of Iowa City as shopping malls declined and emptied due to businesses relocating to the suburbs.  Crime increased as the growing suburbs attracted workers and Iowa City's generous social programs attracted their less industrious cousins.  These problems were a factor in the election of a pro-development majority on the city council.  An election next week might bring anti-development liberals back into power.

The outgoing (in both meanings of the word) mayor, Matt Hayek, recently wrote that the council had achieved a balance between progressive values and development, and that a liberal group of candidates "threatens that balance."  Liberals reacted to his op-ed piece with horror, calling it "shameful," a "deviance from civility," and "fear-mongering."

In an interesting reaction to Hayek, former city council member and Socialist Party USA member Karen Kubby claimed that by "balance," Hayek really meant "status quo."  She wrote:
Progressive policy makers should always be threatening the status quo, even ones they built.  As is said, “Change or die”.
I thought the sentence was unsettling and threatening - perhaps that is what she intended.  My impression had been that it was the pro-development people who wanted to change Iowa City, and the "progressives" wanted to keep it the same.  But I might have been wrong.  Perhaps a better way to think about the situation is that the pro-development side wants stable rules and city characteristics so that businesspeople feel confident enough to invest, while anti-development people want to create risk and uncertainty so that developers stay away. 

If the city council will "always be threatening the status quo" with the new environmental, tax, and building code rules that the liberal candidates favor, and encourage growth of the lower income population through, as Kubby puts it, "mandatory inclusionary zoning," then developers might leave Iowa City alone, at least until the political pendulum swings back again.

Saturday, October 24, 2015

Eurasian Deal Update

I worried that my post a few days ago about the U.S. and Russia trading Ukraine for Syria and Iraq might have been a little far-fetched, but I keep seeing bits and pieces in the papers that support the idea.  Here are some examples:

One:  "By changing the subject from the Ukraine crisis and playing peacemaker in Syria, many say, he [Putin] aims to break out of the Western sanctions imposed over Ukraine."

Two:  "Russia said to redeploy special-ops forces from Ukraine to Syria"

Three:  "As Russia enters war in Syria, conflict in Ukraine begins to wind down"

Four:    "Nothing in what he said on that UN podium suggested that he was about to bomb Syria, or that he was about to pull his guns back from the frontlines in eastern Ukraine. But that’s what he did. Two days later. Both on the same day. For good measure, he confiscated another year of his citizens’ pension savings, too."

Five:  "U.S. to Iraq: If Russia helps you fight ISIS, we can't"

Six:  "Iraq authorizes Russian airstrikes against Daesh"

Seven:  "Russia might be losing the ability to recruit fighters in its battle for Ukraine"

In the long run, it is a great deal for the West.  New energy supplies and technologies make the Middle East irrelevant in high geopolitical calculations, but Ukraine will eventually be a high income European country. It might be humiliating for the U.S. to give up influence in Iraq after fighting so hard to obtain it and in Syria after years of threats and chest-pounding, but these countries just aren't worth the trouble any more.  Russia might enjoy the prestige of being the new big boy in the Middle East, but Europe is what really matters.

Thursday, October 22, 2015

Hottest Year Ever?

Yesterday's newspapers reported that 2015 will be the hottest year on record.  This is apparently based on a combination of land and sea temperature time series that is available here, but not in a format that makes downloading and analysis easy.  The NOAA website says that the land portion is based on the GHCN-v3 dataset that is easiest to download here.

The land time series shows that 2010 was hotter than the past 12 months, and January-September 2010 was hotter than the same period in 2015.  I am not saying that this is a definitive finding, but shouldn't news reports claiming a new temperature record at least mention that 2015 isn't the hottest year using land measurements, which are more reliable and accurate than sea measurements?

Going further, I did my usual analysis of the land data, and again I found no statistically significant warming over the 21st century.  Multiple-regression of temperatures on CO2, sunspot activity and a measure of the El Nino effect shows no effect of changes in CO2 on changes in temperature. 

The best, most accurate measurements always seem to be the ones that show the least warming.  For example, an 11 year old time series of the best weather monitoring stations all across the U.S., the U.S. Climate Reference Network (USCRN), produces the most accurate weather information in the world.  Here is the temperature trend it shows, from a graph made on the NOAA website:
 This is not a statistically significant warming trend. 

I am not saying that global warming is bunk, just that I don't think it is crazy for laypeople to be skeptical.  In order to be sure that we should spend massive amounts of money to combat warming, we need to be sure of five things:

1. That the earth is warming.
2. That warming is due to human activity.
3. That warming would be bad.
4. That there is a realistic chance policies could successfully reduce greenhouse gas emissions.
5. That warming mitigation/adaptation policies will be impractical in the future.

We are reasonably confident that #1 is true over the past century, but I think the temperature record of the past 15 years creates reasonable doubt.  #2 seems reasonable from a theoretical perspective, but I think statistical causality tests create significant doubt, particularly since we saw warming early in the 20th century when greenhouse gas emissions were much smaller, and we may be seeing slower warming now when emissions are greater.  The evidence on #3 seems mixed - warming could be good for cold places, bad for low-lying cities.  I don't think it is obvious which effect would be larger, and a richer future world might be better equipped to deal with the consequences that today's poorer world is to prevent them. 

#4 is difficult for me to believe.  The oil in the ground will be pumped up and burned sooner or later, because economic demand is a stronger force in the world than environmental concern.  If the oil will be burned eventually, all policymakers can do is delay the inevitable by a few decades.

#5 is also difficult to believe.  Climate scientists apparently take seriously the idea that man-made particulate emissions can slow warming, so why couldn't our descendants emit more if they find that warming is a problem? 

Before adopting expensive anti-warming policies, we should be sure that a problem exists that can and needs to be solved.  I just can't see that we have that level of certainty.