Great catch from Jared Bernstein -- four years of your life for a lousy, stinking 0.1% a year

Bernstein has been doing exceptional work lately. Here he points out a genuinely shocking statistic:

Second point: again, Steve’s not at all alone in advocating for a more highly educated workforce, but he blows by an amazingly sobering statistic:

Achieving higher wages also requires a greater commitment to education; wages for those with college degrees rose 1.4 percent between 2000 and 2010, after inflation.

That’s not 1.4% per year—it’s 1.4% over 10 years! 0.1% per year…OMG—that’s the big freakin’ payoff!!

Now, there’s no question that college grads did better than high school grads, whose real wages fell by 2% over these years (see the data table below). And no question that we’re better off with a more skilled workforce. But a 1.4% median wage gain over 10 years for college grads is not part of the solution…it’s part of the problem.

I'd actually take this further. That 3.4% difference came with four years of lost wages and job advancement and, in many (most?) cases, serious debt. There seems to be a consensus that the country needs educated, tech-literate workers, but if we are serious about this, we need to do something about a system where getting a degree may actually be a losing proposition.

I'd start by scrapping the idea that we should make education accessible through subsidized and (God help us) nondischargeable loans. The current system of easy credit distorts the market in any number of truly ugly ways and takes undue advantage of the vulnerable and inexperienced. If we really want to we can find a better way to make college affordable.

Occasionally I feel a little down...

Some mornings I don't feel like getting out of bed.

There are times when I don't feel like being around people.

Sometimes I feel sad.

For years I simply thought I was displaying a normal range of emotions. I certainly never thought that this required medication. Until recently I assumed anti-depressants were for the moderately to severely depressed, people who suffered from conditions that profoundly affected the quality of their lives and their ability to function, conditions that could even be life threatening.

But I've been watching some short educational programming from the drug companies (it's amazing how much information they can pack into thirty seconds) and apparently feeling down is real warning sign, serious enough to consider taking powerful and expensive psycho-active drugs with some potentially nasty side-effects including loss of sex drive and (this is the one that always makes me chuckle) thoughts of suicide. I've even seen short educational programs that recommend supplementing your antidepressant with yet another pill.

If you scroll way down, you'll see that Joseph has questioned whether one out of ten Americans really need to be taking these drugs, but you know those epidemiologists -- just a bunch of professional worriers.

Possibly the best graph of the year

I think Jared Bernstein is trying to tell us something.


In terms of column inches, this can really help a blogger's productivity.

Antidepressants

It seems like this drug class is getting more popular, with 10% of Americans taking these medications. So I go to Pub Med and notice:

I take a look at the number needed to harm (see: Arroll B, Elley CR, Fishman T, Goodyear-Smith FA, Kenealy T, Blashki G, Kerse N, Macgillivray S. Antidepressants versus placebo for depression in primary care. Cochrane Database Syst Rev. 2009 Jul 8;(3):CD007954.) and quickly conclude that either 10% of Americans are depressed (which is a silent and important epidemic) or else there are a lot people having unexpected adverse drug effects due to overtreatment.

I do know that my work in population cohorts suggests that 10% of people having clinically significant levels of depressive symptoms is a very high estimate.

Ms Goldstein on Tenure

I think that Dana Goldstein has a really good view on tenure:

Indeed, the Green Dot model calls for teams of teachers to be actively involved in hiring their peers; this is a highly-vetted workforce operating in an environment that emphasizes collegiality and professionalism. Without such healthy school envirnments, unions and teachers will have a hard time giving up the tenure protections they've won because of a very real history of adminstrative overreach.

I see this issue as being very similar to online education. My department has a very strong online graduate program. Contrary to all predictions, moving education to an online environment takes a lot of work and isn't as effective at improving productivity as one might imagine. It's possible to do a high quality online program, but it sure isn't inexpensive or easy.

In the same sense, the idea of removing tenure and leaving effective (albeit different) schools has a lot of the same properties. By increasing teacher empowerment, involving teachers in decisions, and increasing compensation you can develop a workable model. After all, tenure is a job perk and it can be replaced by other job perks like employee autonomy and empowerment.

But what the removal of tenure isn't is a cheap way to reduce teacher salaries while holding quality constant. I am agnostic as to the existence of tenure in a workplace. It is a nice perk but it brings downsides as well. What I find more alarming is the effort to remove tenure and replace it with . . . nothing. Or, even worse, replacing nuanced teacher review with test scores (and then removing tenure).

I admit to being very sympathetic to empowered workplaces. My natural work environment is likely the Left Coast and reading about the corporate culture of Silicon Valley convinced me that I'd do better there than in Boston. But these environments are not a cheap and easy substitution for conventional models. They are hard to develop and really require that the employees be either mobile or empowered.

Is that a goal reformers really want to work towards?

"Don't like my tax plan? Dial 1-800-EAT-USED-FOOD"

It was an unfortunate juxtaposition but one the Cain campaign really should have seen coming. In case you haven't heard, Herman Cain's tax plan includes a sales tax on everything but used goods. During a report I heard today, an economist pointed out how regressive the plan was, in part, he said, because poor people spend a disproportionate part of their income on food (which is taxed under the plan). The report then had Cain challenging the complaints about his plan hitting the poor the hardest by saying they could change their behavior and buy more used things.

Insert Godfather's Pizza joke here.

Some more thoughts on MeTV

This time posted at MippyvilleTV and focused on the venerable Svengoolie.

Unemployment

Mark Thoma is strident:

The use of the term "slackers" is telling. You see, there's plenty of work for the industrious, our unemployment problem is due to laziness. There are plenty of jobs -- pay no attention to the fact that the number of unemployed is far, far greater than the number of jobs -- people don't really want to work. It has nothing to do with the crash of Wall Street destroying the economy, and the bounce back and present good fortune on Wall Street has nothing to do with the government bailing them out -- it was their hard work that fixed the problems.

I think that it is worth keeping in mind how dynamic the world is. There was a time, during the Clinton administration, where the willingness to work was enough to ensure employment in much of America. But the current unemployment rate suggests that many people who would like to work can't.

I really don't understand the disconnect here. Large enterprises need to be helped out by the government? Isn't that industrial policy?

From a health care point of view, unemployment is associated with all sorts of medical ills in the United States. Medical services are so expensive that unemployed people may neglect basic preventative care and end up in the (much more expensive) emergency room. Plus, it is likely that unemployment itself (a source of chronic stress and deprivation) may also have negative health impacts.

I really wonder when we will face up to this as a joint problem!

More banking thoughts

Reading Mark's last post brought to mind this New York Times article on how sticky bank accounts have become:

What they haven’t mentioned are marketing studies like the one commissioned by Fiserv, which develops online bill paying systems, showing that using the Internet to pay bills, do automatic deductions and send electronic checks reduced customer turnover for banks by up to 95 percent in some cases.

With 44 million households having used the Internet to pay a bill in the past 30 days — up from 32 million five years ago and projected to reach 55 million by 2016 — it’s a shift that has major ramifications for competition.

There’s even evidence that fewer consumers are switching banks, with 7 percent of them estimated to be moving their primary account to a different institution in 2011, down from 12 percent last year, according to surveys by Javelin Strategy and Research.

Emmett Higdon, a consultant who managed Citibank’s online bill payment product from 2004 to 2007, said that “for the consumer, it’s a double-edged sword.” While customers value the convenience, inside the industry “it was known that it would be a powerful retention tool. That’s why online bill paying went free in the first place. Inertia is powerful in the banking industry.”

Ironically, I actually see that these services are a point in favor of the banking industry. If these services are entered into voluntarily and make banking much more pleasant (which I can definitely confirm) then it is not a surprise that it is hard to move banks. Heck, I think it might have been harder back in the old days when you had to show up at a teller during banking hours.

Instead, we are seeing the banks seek out the point at which cost and convenience meet. Honestly, given the costs of handling cash, I think that they are nuts not to try and encourage electronic payments. After all, one option that Bank of America customers have is to start using cash for purchases and stop using debit cards.

My major barrier to the use of cash is the silly idea that we have to add sales tax to the posted price, making it impossible to calculate the amount due at the register (as the sales tax may vary by product, especially in a grocery store). If posted prices were the actual amount spent, I would be the master of exact change!

Bad banks and (you guessed it) free TV

I was listening to NPR a few days ago and I heard a financial reporter say that other banks would probably follow BoA's lead and start charging a fee for debit cards because "that's how markets work." That is, in fact, pretty much the exact opposite of how markets are supposed to work.

Even with the new regulation, merchants' fees are still many times what the transactions cost the banks. When markets are doing their job, businesses shouldn't be able to use a competitor's price increase as cover to raise their own. Competition is supposed to prevent this kind of de facto price fixing. In a well-functioning market, BoA's move should provide an ideal opportunity for a smaller bank to come in and grab a bigger slice of what is still a multibillion dollar market.

Of course, we don't have anything like a well-functioning market in banking. The considerable inconvenience of changing banks (particularly in an age of direct deposit) means that price increases and cuts in service will only cause minimal loss in market share. Poor transparency means that even if you get fed up enough to change banks, you probably won't be able to get the information you need to make an informed choice (at least not in a form that even a financial advisor can understand). Finally, and most importantly, the market is dominated by a handful of huge players, implicitly backed by the federal government thanks to their too-big-to-fail status.

Which brings me to my main point, and yes, the connection to free TV. We seem, as a society, to have become indifferent, if not openly hostile, to the idea of competition. I'm not talking about intrusive government anti-trust policies (those we can debate at another time); I'm talking about intrusive government policies that actively discourage competition. Implicitly guaranteeing the biggest banks, mangling patent and copyright laws to favor major established players, and, in the case of over-the-air television, proposing to shut down the only part of the television industry that's diversified and not dominated by large corporations (you could look at this as roughly analogous to proposing that we shut down credit unions).

The go-to guy on this story is, of course, Joe Nocera, but both Salmon and Baseline Scenario are also doing some great work here.

Financial security and the decision to start a family

I mentioned earlier that there was reason to suspect that being financially secure might influence the decision to adopt. This interview with demographer Carl Haub explores the similar relationship between economic downturns and birthrate (via the good people at NPR).

Best economic metric based on a Seinfeld routine

The joke about men keeping underwear until it broke down into individual underwear molecules came to mind while I was listening to an entertaining piece on alternative economic indicators (via the good people at Marketplce). The list included Marine retention and abandoned pets and, of course, this:

Ryssdal: I'm just looking at the list of things we were going to talk about and I see next -- and I hesitate to mention this -- the men's underwear index.

Brancaccio: The theory is during bad times we're less likely to replace our boxers and our briefs. I wouldn't have brought the tone of this conversation down this far if the source had not been so exalted.

Ryssdal: Give it up. Who is it?

Brancaccio: Well, back in the '70s before he was Fed Chairman, Alan Greenspan ran his consulting firm. One way he kept track of the economy was by looking at offbeat economic indicators like the men's underwear indicator -- MUI for those of you in the know. Here's the theory: When you're feeling strapped for cash, your less likely to replace your undergarments even though most people see under see underwear as a necessity not a luxury.

Ryssdal: So one is obliged to ask David, how are sales now?

Brancaccio: Well, we did check. And according to an analyst who tracks these things -- underwear sales for the NPD Group -- sales, currently, are up 5.2 percent.

Testing Theory

Matt Yglesias:

Last week I was outside my office and I saw a $5 bill on the ground. Famously, economists say you never see a $5 bill on the ground because someone would pick it up. But instead of picking it up, I stood around watching to see if anyone else would. A bunch of people walked by not noticing it. Then one guy saw it, saw me, and asked if it was mine. I said no it wasn’t, I was just curious what would happen. He laughed and made a joke about economists. Then a second guy came by, picked it up, and said I’d dropped five dollars. I said no, actually it was there before me. He looked around, noticed a homeless guy across the street, said “I think he needs it more than me,” walked over and gave it to him.

While a single test is not proof of anything (expect the strongest of the possible theories), I have certainly had people tell me that I have dropped money. That seems to go against the assumption that rational people will always act to increase their wealth (after all, they could just pick up the bill).

I think that it is worth keeping in mind that the assumptions of economic models are just that. Models can be useful but are rarely ever completely correct.

And Matt's stuff in the same post on the Night Watchman state is simply not to be missed.

Update on BoA severance

In a recent post, I referenced the decision of Bank of America to give a very large settlement package to two departing executives. Given how tone deaf the settlement seemed, many people assumed that it was part of an employment contract. Mark, my co-blogger, has many times talked about the importance of upholding contracts (see comments on this post).

It turns out that the decision to pay $11 million dollars in severance was voluntary and not required at all by any contract.

Social Justice

Tyler Cowen points out a great interview with the head of a major Slovakian political party on why Slovakia isn't necessarily thrilled about the plans in Europe:

SPIEGEL ONLINE: Nevertheless, banks could run into significant problems should they be forced to write down billions in sovereign bond holdings.

Sulik: So what? They took on too much risk. That one might go broke as a consequence of bad decisions is just part of the market economy. Of course, states have to protect the savings of their populations. But that's much cheaper than bailing banks out. And that, in turn, is much cheaper than bailing entire states out.

SPIEGEL ONLINE: Does one of your reasons for not wanting to help Greece have to do with the fact that Slovakia itself is one of the poorest countries in the EU?

Sulík: A few years back, we survived an economic crisis. With great effort and tough reforms, we put it behind us. Today, Slovakia has the lowest average salaries in the euro zone. How am I supposed to explain to people that they are going to have to pay a higher value-added tax (VAT) so that Greeks can get pensions three times as high as the ones in Slovakia

I think that this is becoming one of the real flashpoints in our economic discourse. I am a huge supporter of pensions. But I can see the potential moral hazard in the Eurozone where making reckless promises can result in being bailed out (and working through your problems can result in being billed for others failure to do so). That sort of "tragedy of the commons" is a much bigger threat to economic stability than I had previously suspected.

We will have some of the same issues between generation here in the United States. There have been proposals to limit Medicare to people who are currently 55 plus. That will mean my generation (which began their careers with a terrible job market) will be playing taxes so that the generation ahead of it (which did comparatively well) can retire at a higher standard of living. These sorts of approaches can be toxic to any social contract.

But I can see Slovakia's position now, even if I am not necessarily in favor of it.