McArdle on Poverty II

She is on a roll...! Seriously. Go read it. This should be required reading.

More on Poverty

Following up on yesterday's post...

One of the most pernicious aspects of poverty is touched on by a post over at Sullivan, relating to what the deterrent effect (if any) of the death penalty (news flash: There doesn't seem to be one).

The issue relates to what's called locus of control: Basically, do you see what happens to you as the result of choices you make that are under your control, or the result of events outside your control.

As Megan McArdle pointed out in the post I linked yesterday, there's no margin for error when you're poor. A careless, frivolous expense early in the month may mean you live on PBJ (or just skip a few meals) by the end of the month. Yes, you can save for something--but an unexpected car repair can wreck your plans completely. (And of course, since a beater was all you could afford, it's more likely to break down in the first place.) There was an NPR interview I heard a while back of someone trying an experiment of living on food stamps for a few months, and then writing about it. What she described was interesting--she said she expected money to be tight, but she wasn't ready for how exhausting it was. You couldn't just decide "that looks good, and it's on sale, I'll get it." You still had to think through how much you had left, what else you needed to get, what other expenses you had this month...on and on. Day after day.

Or, as my mom once said, "There's no shame in being poor, but it's damned inconvenient."

And eventually, the grind wears you down. And you stop considering possibilities. You saved up for the class at the community college but then your car broke down the 4th week of classes and by the time you got it fixed you'd missed two weeks of classes and couldn't catch up. You tried to get into that training program but your job changed your schedule and you couldn't go. The kids got sick and you couldn't get anyone to care for them so you had to stay home, and that got you fired.

And eventually, it really does seem as if life is happening to you rather than being under your control. Your locus of control has been externalized; and once that's happened, changing that way of thinking is very difficult. The narrowing of possibilities, the not even considering certain options because "that isn't for people like me" or "that wouldn't work anyway" or "I'd never be able to afford it," the lowering of ambitions and goals until it's "Just make it through to the weekend." Keep your head down, don't make waves.

Unfortunately, the "ground down and kicked around until ready to just give up" state can also be interpreted as "some people just prefer poverty to getting off their butts and doing something about it." Because, of course, when an unexpected $500 car repair bill is inconvenient but not catastrophic, when a day's work doesn't involve backbreaking labor--in short, when you're comfortably middle class and have convinced yourself it's all entirely because of your own achievements--it's plainly self-evident that anyone else could do it too. And as Heinlein pointed out, "Anytime 'everyone knows' thus-and-such, it ain't so, by at least a thousand to one."

McArdle on Poverty

A few weeks back I mentioned in passing that the Atlantic's Megan McArdle has an occasional habit of falling back into glibertarian hand-waving. Fairness demands I point out that when she avoids it--as this post on the intractability of poverty certainly does--she's first rate.

She points out that there are environmental constraints, but also bad choices, and (what too many writers on this subject don't get, but if you've ever lived in poverty you learn real quick):

It isn't that people can't get out of this: they do it quite frequently. But in order to do so, you need the will and the skill--and the luck--to execute perfectly. There is no margin for error in the lives of the working poor.

And that many decisions made out of fatigue, hopelessless, lack of information, or simply different priorities, lead to perpetuation of the problem.

It's a hard problem. Really hard. I don't have an easy answer any more than she does. But it's nice to see someone on the internet recognizing both sides of the problem, at least.

As adults they are the products of everything that has happened to them, and everything that they have done, but they are also now exercising free will. If you assume you know the choice they should make, and that there is some reliable way to entice them to make it, you're imagining away their humanity, and replacing it with an automaton.

Public policy can modestly improve the incentives and choice sets that poor people face--and it should do those things. But it cannot remake people into something more to the liking of bourgeois taxpayers. And it would actually be pretty creepy if it could.

Quote of the Day

From the inimitable PZ Myers....

When you say you favor increasing individual freedom, you actually mean increasing the individual freedom of healthy white male heterosexuals who have skills that corporate interests find profitable, which, I'm sorry to say, is an extremely narrow slice of our culture, and not necessarily the best element of our society.

And this is what's always left out of the discussion... "more freedom" is usually a code phrase for "more convenience for people like me, particularly if it means I won't have to deal as much with THOSE people...."

Renting Vs Buying

Megan McArdle on ownership vs renting a house:

For a long time, I didn't care so much about this. I liked the freedom renting gave me. But once you're committed to a city, and another person, that freedom starts looking overrated.

Most of her column is spot-on, and matches with my own experience.. For years I said that owning a house may be part of the American Dream, but isn't part of my dream, and happily rented. And then at some point, something changed. I can't point to a specific incident that pushed me over the edge, though the loud upstairs neighbors certainly helped. Likewise the hassles to get minor stuff fixed that was more important to me than to the landlord, and the inability to make serious modifications, no matter how heartily sick I was of white walls and beige carpet.

And of course I have no idea what Ms. McArdle's thought processes are, or were. But in my case, it wasn't that the freedom to pick up and move at the end of my lease was suddenly overrated; it was that it was no longer as salient. It had been an important factor in my renting for quite a while, but my situation changed; and with those changes, other factors came to the fore as higher priorities. I hadn't been mistaken in valuing that freedom before; but it was no longer as important as it had been.

I resisted the urge to jump in during the boom--running out to buy something because the price has been skyrocketing lately doesn't strike me as too smart--and besides, it took a while to get my finances in order for the down payment and so forth. And I didn't see it as an investment; if it turns into that, great, but mostly it's for a place to live. (Taxes & insurance push the cost up, but the payment on just my note is lower than I was paying in monthly rent.)

And another advantage of owning: my apartment had electric heat, because electric furnaces are cheap to buy & maintain. Which is what the landlord is looking for, since the electric bill is my problem. My utility costs have dropped.

I'm thinking about the home-ownership thing a lot lately, as I just paid my first round of property taxes and ordered some things online for the house. Are there hidden costs? Of course. There are also hidden benefits--I understand the economic argument against the mortgage interest deduction, and broadly agree with it, but as long as it's on the books I'm going to take it all the same.

[and reading back through, this post is particularly living up to the "random musings" title... oh well, i'm on semester break, I'm taking the morning off before going in & working on next semester's coursework.]

Really not sure what to think about this...

On the one hand, several of George Will's points are well-taken. Trying to prop up failing carmakers may well just be prolonging the pain. (Mr Will seems more concerned with the harmful effects of propping up companies that provide working class jobs than the evils of propping up investment banks, but oh well....)

I'm just not sure how seriously I can take an argument that relies on Calvin Coolidge as its model of prudent leadership.

GM Chief Resigning in Deal with U.S.

Okay. Fair enough.

I'm just curious, though.

How many executives at AIG, Goldman, or Citigroup, or Bank of America had to resign as a condition of receiving any assistance?


*crickets*


And they got a straight bailout, if I recall correctly, didn't they? It wasn't just access to loans? And wasn't it an order of magnitude more money?

Why, yes. I believe it was.

Can someone explain how this is anything other than rank classism, with financial companies given billions while manufacturing companies are forced to jump through hoops to receive much less assistance?

Anyone?

...Bueller?

Late edit: It was only 1 order of magnitude more money, not 2. My mistake.

Oh, Snap!

There's an outraged op-ed in the Times today from an offended trader at AIG financial products, angry at getting tarred with the same brush as the people who brought down the company.

And then there's Andrew Leonard's point:

DeSantis received a bonus payment on March 16 of $742,006.40. But he's going to donate all the after-tax proceeds to charity, and he can do that because "I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust."

If you are in a position to donate more than half a million to charity and your family finances are still secure enough during one of the worst recessions in American history that you can blithely quit your job, then you are sitting squarely within the most privileged sector of U.S. society. You are still living a life that is out of reach to the vast majority of Americans.

And I just don't think most people will care how betrayed you feel.

Exactly.

One more thing I was wrong about

Last summer, I opined to anyone who'd listen that while the $4/gallon prices were temporary, gas was settling into a new higher range, a "new normal," and we'd never see $2/gallon again.

Yesterday I filled up for $1.999/gal at my local convenience store.

I dismissed certain blogospheric rants about manipulation and price-fixing as so much conspiracy theory, but a 50% drop in 5 months? Demand hasn't dropped *that* much, and perhaps wasn't *that* high last summer.

Just another something that makes you go, "Hmmmmm....."

Quote of the Day

Franklin Delano Roosevelt was born to wealth, but that didn’t stop him from doing more for working Americans than any president before or since. Conversely, Joseph Biden’s hardscrabble life story, though inspiring, didn’t stop him from supporting the odious 2005 bankruptcy bill.

But in the world we actually live in, pro-corporate, inequality-increasing Republicans argue that you should vote for them because they’re regular guys you’d like to have a beer with, while Democrats who want to raise taxes on top earners, expand health care and raise the minimum wage are snooty elitists.

--Paul Krugman, today's NYT

Worse odds than you thought

Not only is a state-run lottery a tax on people who don't understand math... the state's cut is even better when there's literally no chance of winning.

Let's see, we have to have the state running the lottery because the private sector will run corrupt, crooked games that prey on the foolish and poorly-educated... While, of course, state-run lotteries are always above board and scrupulously fair.

Riiiight. Tell me another one.

Missing the point

Newsweek tries to be cutting-edge by suggesting the Internet is the new sweatshop.

They may be teenagers posting videos of themselves dancing like Soulja Boy, programmers messing around with Twitter's tools to create cool new applications or aspiring game developers who want to create the next big thing. But what they all have in common is a somewhat surprising willingness to work for little more than peer recognition and a long shot at 15 seconds of fame.

Because, of course, money is the only possible motivation to do anything. If you're not doing it for money, you're being a rube. The enjoyment of doing it? Of making a contribution? Oh pish tush.

Whether these 21st-century worker bees can be said to be having fun (is it really entertaining to update a Wikipedia entry?), there's no question that their moonlighting has value even if they're not being compensated.

I don't know if "entertaining" is the right word. "Sorry, gang, I won't be tagging along to the party, I'm going to stay home and update Wikipedia" sounds a little unlikely. But it can be rewarding. Making a contribution, even if "just" for peer recognition (and why is that a bad thing?), has its rewards.

It's also possible N'Gai Croal, the author of the piece, is, like most journalists, innumerate. (I don't know, one way or the other.) Consider that the entire Internet-connected population is currently about one billion. What happens if everyone connected to the internet contributes a half-hour per month of their time doing something (making vids, music mixes, game programming, artwork, Wikipedia edits, whatever) of something that ends up on the internet?

That's five hundred million hours--roughly five Wikipedias--every month.

Someone please send Newsweek a copy of Clay Shirky's article on social surplus, and why we're on the verge of another boom.

But as long as so many of you are willing to work for free, the proprietors of these virtual sweatshops will happily accept.

But again, this isn't the point. A half-hour a month, volunteered, is hardly a "sweatshop," no matter how (melo)dramatic an article headline that makes. Yes, there are some who obsessively devote every hour to contribute, just as in the pre-internet age some people obsessed over their bottle-cap collections.

Peer recognition, satisfaction from making a positive contribution, and the pleasures of creating are sufficient motivation. Scaled up, across the internet, enough small contributions add up. And again, Croal fundamentally misunderstands.

Yes, the vast majority of uploaded videos are well below professional quality. Most blogs are barely worth reading. (No comment on whether this one falls within that category.) Sturgeon's Law applies on the internet as well as it does everywhere else. But again, the simple scale of the phenomenon means that the top few percent will be very good.

Newsweek answered its own question as true. In fact, the way they phrased the question shows they don't understand the subject in the first place.

[h/t: Andrew Sullivan]

Now it's their ox that's being gored

China has a history of taking a, well, somewhat casual approach to intellectual-property law, particularly when it comes to counterfeit foreign goods. Sometimes they're so obviously fake as to be laughable (you'll occasionally see a hilariously-mangled brand turn up on Engrish.com), sometimes they're actually rather good.

There's nothing new in this, of course. The United States didn't recognize any foreign copyrights or patents while it was a developing economy. It wasn't until we had more to gain by enforcing our own than by ignoring everyone else's that "intellectual property" became a serious concern. The Chinese are developing their economy, and copyrights, an artificial, government-imposed monopoly, are economically inefficient.

Until, of course, there's more profit to be made by enforcing it than ignoring it.

For years, China has been known as the leading exporter of fake goods, from Louis Vuitton handbags and Patek Philippe watches to auto and jet engine parts. The underground economy, which according to U.S. trade officials costs American companies $3 billion to $4 billion annually, has been allowed to flourish by a Chinese government that seldom prosecutes intellectual property violations.

But the Olympics have mobilized China's piracy police like never before. Beijing, the host city, stands to receive up to 15 percent of all revenue from Olympic merchandise, a figure expected to easily top the $62 million raised in Athens four years ago. Aside from the mascots, China is also reportedly collecting up to $120 million each from Coca-Cola, McDonald's, Adidas and other companies that have qualified as the highest-level Olympic sponsors.

With the world's gaze on China in the run-up to the Aug. 8-24 Games, officials have moved to make sure counterfeit goods don't reflect poorly on the festivities. Fake Adidas clothing that was widely available at popular Beijing markets a year ago is now hard to find.

Officially, of course, it's about protecting China's image and putting their best foot forward for the Games. Unofficially?

"They have moved some of the market more underground than they have before, but that hasn't stopped the activity," said Marc S. Ganis, chief executive of Chicago-based Sportscorp Ltd., a sports marketing firm. "It proves that China can do something about the problem when its own interests are aligned with the crackdown. . . . The reality is, just like in the U.S., people are going to do what they're going to do, which is make money."

And with the government getting its cut of royalty payments, it's suddenly in the government's interest to enforce the laws.

It's also nice to see that in some ways, the Chinese government isn't that different from our own:

"The Chinese government usually only manages during a crisis," [an import-export trader] said. "When things reach a peak and they have to deal with it, they will."

If you ignore the bad news, everything's fine.

Washington Post:

The inflation rate shot up in May at the fastest pace in six months, pushed higher by soaring costs for gasoline and other types of energy.

But don't worry, it's not that bad! Really!

Core inflation, however, which excludes energy and food, edged up a more moderate 0.2 percent in May. That increase was right in line with expectations and should help relieve worries that the big increases in food and energy could be breaking through to more widespread inflation.

See? Once you exclude unnecessary luxury items like food and gasoline, it looks much better! And it's not like those are things regular people ever buy... And really, if you can't cut a few unnecessary luxuries out of your household budget during a nonrecession, you're just not trying.

I understand excluding the volatile components if there's been a one-time event... When Katrina shut down Gulf Coast refining, there was a spike in gas prices but everything else was pretty much unaffected. Likewise, it helps to look at the less-volatile components if we're swerving back and forth between "OH NOES THE SKY IS FALLING" and "Nothing to worry about, things are great, in fact some more inflation wouldn't hurt."

But to pretend that we can just exclude things that are rising consistently, repeatedly, and pervasively, for reasons having much more to do with market fundamentals than random fluctuations, is disingenuous at best and useless otherwise.

And businesses are getting squeezed by fuel costs, meaning anything that has to be shipped by truck is going to go up. Airline tickets are already going up (same story), and the Wall Street Journal reports that some businesses are no longer outsourcing, but returning production to the US because of transportation costs. The only reason they haven't raised prices is that the market won't bear it yet. The grocery business runs on razor-thin profit margins, so higher costs had to be passed along almost immediately. Higher-margin businesses have a little more breathing room, but not much, and they're running out of space. But hey, that's only if you actually, you know, need to eat.

Dismal science, indeed.

Of Gin, Gilligan's Island, and Wikipedia

Clay Shirky has an excellent essay up about the social capital of surplus time, and how we're just now figuring out what to do with it. I've had it bookmarked for a couple of days and have been meaning to comment, but events have conspired against that... In the meantime, go read it.

Leaping to (probably wrong) conclusions

CNN has already decided that there's going to be a jobless recovery, "again." You remember, just like that last jobless recovery? The one that turned out to add lots and lots of new jobs?

Yes, it did. It wasn't really jobless at all. The employment statistics are mostly estimated based on what's happening at large companies. Smaller companies and new companies tend not to get sampled sufficiently; that's why the early numbers are always subject to revision, sometimes as much as a year later. And the later revisions showed that the "jobless" recovery wasn't jobless at all; it's just that most of the new jobs were added by smaller businesses, those with 50 or fewer employees, so didn't show up in the early statisitcs; it wasn't until the numbers were revised with more complete information, much after the fact, that the truth became known. By which time, of course, it was (literally) last year's news, so was ignored by the media.

I see no reason to expect any current "jobless" recovery to be any different. I'm willing to be proven wrong, but in this case using the latest statistics is actually one of the weakest arguments.

Oh, by the way, welcome to post #200.

Out of control?

I suppose, in good blogosphere fashion, I should congratulate Greg Mankiw for saying what I did already. On the other hand, he has actual data to back him up, and so has some claim to actually know what he's talking about. So instead I'll just make the standard "Yeah, what he said!" post:

A rise in expected inflation is not consistent with the conventional wisdom that the economy is on the verge of a serious slump driven by inadequate aggregate demand. It is, however, consistent with the hypothesis that policymakers are overreacting to some bad economic news with excessive monetary and fiscal stimulus.

If the problem with the economy is that we're coming off an asset bubble caused by too much easy money (i.e., too low interest rates) for too long, lowering interest rates isn't going to fix it. We can have a mild recession now, or a much worse recession later, possibly combined with inflation. Yes, recessions are uncomfortable. Runaway inflation is worse. (Recessions make it difficult to accumulate more capital, due to sluggish economic activity; inflation takes away capital you've already accumulated, via erosion of purchasing power.) Of course, the inflation won't hit until after the election. Could that be it? Naw, I'm just being cynical.... not.

Memo to new president: do what you have to, to get the economy under control early in your term. If you have the recession early, the voters will forgive you by the time you're up for re-election.

[h/t: Andrew Sullivan]

Wrong Action, Wrong Time

So the government is ready to step in, after already cutting interest rates in the biggest drop in 20 years.

Because, you see, the problem was caused by too much easy credit and free spending, so we're going to fix it by easing credit and giving people money to spend. We'll borrow the money from foreign governments--it's okay, they've got lots.

We can go through a relatively mild recession now, or a much worse one later. The housing bubble cushioned us from the effects of the dotcom crash. Now they're looking for something to cushion us from the housing crash.

I'd rather get it over with, take our medicine now, and get back on track. Trying to put it off only makes it worse.

More Shenanigans at Bank of America

Just when you thought the lies couldn't get any more brazen....

Bank of America is buying out Countrywide Financial at a hefty discount, as Countrywide is reeling from all the bad loans it made. So get this:

"I think it's positive for the borrowers," Bruce Marks, chief executive of Neighborhood Assistance Corporation of America said. "There are millions of home owners with unaffordable mortgages. The deal will allow Bank of America to restructure loans to what homeowners can afford."

Marks suggested that Bank of America will be able to help current Countrywide customers where Countrywide can't, because it doesn't give risky subprime mortgages, so it plans to convert them into prime loans.

News flash... whether or not it's subprime is NOT a question of whether it's fixed-rate or adjustable-rate. It's a function of the borrower's prospective ability to repay. So apparently BoA is going to have its High Priests of Accountancy wave their magic fingers over the balance sheet, and >poof!<>Either this is incredibly sloppy reporting, even by CNN's standards, or someone's blowing a particularly cheap grade of smoke. Fortunately, they did talk to someone who injected a note of reality:

"[This deal] doesn't make any difference to the home owner," said Hanzimanolis. "The only difference will be where you pay your bill to. Just because Bank of America is buying your Countrywide subprime loan, it doesn't change [into a prime loan] when they buy it."

But the story then goes back to cheerleading for good ol' BoA, friend of the working family & all that.

Taylor noted that restructuring loans also makes financial sense for the bank. "Bank of America may very well intend on having loans restructured to ones that are closer to prime loans and performing assets, because they would rather have the homeowners stay in their homes and pay their mortgages than face the alternatives."

In doing so, Bank of America may be able to recoup some of the losses it incurred from purchase of Countrywide, said Marks. Since the bank has already written off the value of many of those loans, it plans on getting strong returns by restructuring customers' loans.

Okay, let's take this one at a time. They've written off the loans... so they're not going to foreclose, but instead if they can get anything, even below market, they can get strong returns, stronger than expected at least. Ah, the joys of tax law. Speaking of which, how about having the taxpayers subsidize the entire deal? Which they're going to do... But that's another story.

"restructuring to avoid foreclosure," short version: Rewarding someone who took out more mortgage than they could afford, in order to avoid the painful consequences of dealing with a loan that should never have been written in the first place. Thus avoiding market discipline for irresponsible lender and irresponsible borrower.

Meanwhile, if you've been struggling to keep up on your payments? Sucker.... see how many current mortgages (versus, say, those delinquent 3+ months) get restructured. Holding off until you had a down payment saved up? Stooopid. Enjoy the higher rates and tighter credit check. Meanwhile, the guy next door, with the lower credit rating, no down payment, and more house than he can afford? He's going to get below-market interest for years, possibly the rest of his mortgage, so he doesn't get foreclosed. You, on the other hand, by showing some responsibility, demonstrated you're more than capable of making higher payments.

Responsibility is punished, and recklessness is rewarded.

Feh.

Hell of a job you're doing, Bushie.

What a legacy.