Friday, February 15, 2008

Income Inequality and Statistical Lies

The NY Times (of all publications) is making the case this week that income inequality ain't so bad, and the Economist has latched on in its free exchange blog. (Some of my readers might be shocked that a pinko-liberal-hippie-commie rag would say such a thing. Personally, I like the NY Times, and I think it's a heckuva lot more objective than some of the alternatives out there, while still actually saying something.) The basic case is that household income statistics don't tell the whole story, and that's true enough. Their answer: consumption statistics, an equally silly figure. They note that among the bottom 1/5 of incomes, consumption (on average) is about twice their taxable income. So what? If retirees, students, recipients of government transfers, and the disabled are consuming more than what they report as taxable, isn't that kind of the point? Should we just tear down programs so the statistics will better conform with the "true" extent of income inequality? Hmm. In addition, most of the disparity in the consumption averages versus the income averages comes from change in net wealth. All it really takes is a handful of really wealthy retirees who earn nothing and spend a million dollars to throw that part of the statistical accounting totally out of whack.

Basically, what I'm saying here is that you can't just look at income, and while consumption may be a better measure of welfare for "most" families, you can't focus on that either. Statistically, the means don't justify the ends (of the distribution). In this case, you have to treat zero-income households differently (in statistics we call it "censored" data), which means you have to actually do some dirty work with the data.


Wednesday, February 13, 2008

Counting at the New York Times

Does anyone find it a coincidence that the NY Times is pretty much the only major news source that has a way of "counting" delegates earned by each democratic candidate so that Hillary ends up ahead of Obama thus far? CNN, NBC, and the AP all have Obama in the lead in some fashion, but the Times seems to think that some of the caucus results don't "count" yet.

Obama Defeats Clinton!

It's over! The votes are all in! Obama defeated Clinton this week. Obama defeated Clinton with his Audacity of Hope – Bill Clinton… in the Grammy's I waited a bit too long on that one, but it's all in good fun.

Monday, February 11, 2008

The Incentive of the Stickk

I've got plenty bugging me this morning, as I learn of new bits of stupidity surrounding the credit crunch and bond market. I want to, instead, focus on a lighter bit from the economist this week on incentives to keep yourself to your own everyday commitments. Then-MIT Economists John Romalis and Dean Karlan (each has moved on - to Chicago and Yale, respectively) wanted to lose weight. So each set a goal, and if one made the goal and the other didn't he had to pay a hefty $10,000 fine; if neither made it the one farthest from their goal had to pony up $5,000.

So they brought the idea to the masses: lets people put their money (or simply their pride) where their mouth is. All monies go to charity (if you really want to make it an incentive, choose a charity you don't particularly like such as an opposing political party). The catch is that you have to have a credible monitor who will report you when you fail and you should make sure what ever "stickk" you choose, it is sufficient to motivate you. We should remember the example from Steven Levitt's Freakonomics where daycare companies charged a fee for late pickups... and tardiness increased, proving that pecuniary incentives can sometimes be weaker than our own consciences.