Archive for the ‘Inequality’ Category

Complexity

So I was discussing the idea of complexity with my Eco 1 students, this morning. I got onto the idea proper of Complexity in Economics via this paper by Chantale Lessard, a PhD student at the University of Montreal (I think).

By taking for granted assumptions about actors’ interests and interactions, economists leave out a very important part of social reality. Social reality is complex, contextual and constructed. Because of their socially constructed nature, understanding preferences and behaviors requires serious attention to social reality (Bourdieu, 2005; Leander, 2001; Small & Mannion, 2005).

Complexity thinking contributes to develop awareness of issues including uncertainty, contextual issues, multiple perspectives, broader societal involvement, and transdisciplinarity (Albrecht et al., 1998; Healy, 1997; Van de Vijver et al., 2003). The ability of complexity science to detail the various perspectives and highlight their ramifications makes possible a more explicit description of the priorities and interests that are taking part in their realisation (Van de Vijver et al., 2003). Broader conceptions, and related representations, of uncertainty can enable the elaboration of fundamental value distinctions embedded in different types of knowledge. This will be particularly relevant for contextual knowledge (Gatrell, 2005; Healy, 1997).

Complexity theory suggests that many types of knowledge are valid and useful for economic evaluation, and not just knowledge produced by traditional science (Munday et al., 2003; Øvretveit, 2002). For the field of economic evaluation, the use of complexity theory will involve the acknowledgement of complex, interdependent relationships with broader contextual, economic, social, cultural, political, and other non-technical factors (Healy, 1997).

I broke up the paragraphs (and you can find the references here). As you can see, it is not much as Economics; social policy, maybe. It’s a hard bloody paper to get through, it really is.

Complexity, then, is basically this: Economic analysis employs Economics. However we’re just a part of the provision of information – the decision-maker has to consider the more complex ‘real’ world. Lessard’s argument is that we ought to consider this in our analysis, because the reality/practicality of our conclusions and recommendations should be a factor in the recommendations we make. Which seems fair enough (to a degree).

What brought this about was this article in the Sydney Morning Herald, yesterday:

Private school lobby groups are divided over whether the Federal Government should continue its controversial funding arrangements for half the nation’s Catholic and independent schools.

A secret review by the federal Department of Education, obtained by the Herald, shows Anglican schools are opposed to continued funding of schools above their entitlements under the formula. However, the powerful Catholic system – in which one in five students in Australia are taught – wants to retain the “funding-maintained” category, which entrenches higher payments to its schools.

The federal funding system measures each school’s need according to the socio-economic status (SES) of the regions where its students’ families live.

According to the department review, half of all private schools are in the funding-maintained category and are funded above their entitlements under the SES formula. The overpayments will cost up to $2.7 billion over the next four years. The funding-maintained category “entrenches purely historical inequities”, the review says. “It is not consistent with the Government’s objective of funding all schools on a consistent needs basis.”

How does this work? In Australia, we have public schools and private schools (our hospitals are similarly laid-out). Public education is an extra-welfarist good, and funded from general taxation (meaning you pay income tax, and this is just one of the things the government provides). Private schools are exclusive, usually religious/denominational and, in general, wealthier. From the report upon which the SMH managed to get their hands [PDF]:

ses report

Yes, non-Government schools currently receive, on average, 57% of the Average Government School Recurrent Costs (AGSRC).

Ah. This was our starting point for discussion. What do we think of this?

Is it fair for non-Government schools to get this much public funding?

Now I focus, in the first class of semester, on there being no such thing as “fair” or “unfair”, in a positive sense. So my students know this. Given that we all pay taxes, and given that those taxes are for specific ‘things’, including public education. If wealthier parents decide to opt-out of the public school system, should they still receive public money?

This is like giving them a refund on some of their taxes – should they be allowed to, in effect, opt-out of those taxes, or should that just be a part of the opportunity cost of buying a more exclusive, more highly-regarded education for one’s child?

Most students raised their hand for the “not fair” – either because they believed that or because they thought I believe that (it’s often hard to tell).

By this time, of course, they were on the hook.

Is it fair for parents, however wealthy, to contribute to a service that they will not need?

Actuarially, “equity” is defined as getting from something the same share as your contribution. If one pays loads of the tax money into the government, one gets the same share of their goods and services in return. Therefore, should families with children in private education not receive some of the resources from the government after all? Most of my students responded that they should.

The paradox is that this is a normative issue – when equity is simply redefined, the problem appears quite different to the same people (this is why the issue never goes away).

Is it more efficient for the government to underwrite non-government schools?

Education delivers a positive externality to society – we are better off, the more educated our people are. As a result, government subsidisation is important – our governments enter the market to add the social external benefit of education to the private (monetary) benefit of education. This boosts demand, and results in the efficient outcome. Should the government care about the distributional effects of this subsidisation? If the criteria is efficiency, no.

Following this, what might happen if, say, the money was removed? Suppose it results in more students moving from the private sector to the public sector. Now the government must pay 100%, not 57%, of the AGSRC for the pupil. Which is less efficient. Better, perhaps, to leave them in the private schools with less government resources (albeit more resources overall); public schools in fact may benefit from this system, even while we decry its distributional consequences.

At the end of the day, whether this system is equitable or inequitable is a function of normative perspective; whether it is efficient or inefficient is a function of positive, but entirely too difficult, analysis. So we wander around in the grey area, always arguing.

Complexity! A student asked what about just lowering the contribution? The perfect response! What would happen is that the schools would still pitch a fit. And wealthy parents denied their sense of entitlement won’t like the party in government, and will raise money for other people.

This is complexity: the politicians, the decision-makers, are only somewhat interested in the economics of the decision and its consequences. They also have to operate as politicians, and the political consequences are, for them, far more serious. What price a less efficient allocation of education resources, or a less equitable allocation of education resources, when it means they remain in government?

For the rest of us, what if, by making this concession, and therefore retaining government, a given group of decision-makers manages to do more good across more areas of our society/economy? Is it not also worth the cost for us?

By the end of the conversation, my students were wishing they’d joined the majority of their classmates and just stayed in bed (quite heavy snow, this morning).

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Fewer than 1 percent of Americans are millionaires, but almost one in three believe they’ll end up among that group at some point

I love those statistics, although I always cock them up. This is from an article on Alternet, driven by new research from the Brookings Institution.

… new research suggests the United States’ much-ballyhooed upward mobility is a myth, and one that’s slipping further from reality with each new generation. On average, younger Americans are not doing better than their parents did, it’s harder to move up the economic ladder in the United States than it is in a number of other wealthy countries, and a person in today’s work force is as likely to experience downward mobility as he or she is to move up.

Moreover, the single greatest predictor of how much an American will earn is how much their parents make. In short, the United States, contrary to popular belief, is not a true meritocracy, and the American worker is getting a bum deal, the worst of both worlds. Not only is a significant portion of the middle class hanging on by the narrowest of threads, not only do fewer working people have secure retirements to look forward to, not only are nearly one in seven Americans uninsured, but working people also enjoy less opportunity to pull themselves up by their bootstraps than those in a number of other advanced economies.

Several studies released in recent years suggest that, contrary to popular opinion, Americans enjoy significantly less upward mobility than citizens of a number of other industrialized nations (some of the studies can be accessed here, here and here). German workers have 1.5 times the mobility of Americans, Canada is nearly 2.5 times more mobile and Denmark is 3 times more mobile. Norway, Finland, Sweden and France (France!) are all more mobile societies than the United States. Of the countries included in the studies, the United States ranked near the bottom; only the United Kingdom came in lower.

Why France earns that reaction, I don’t know. Not being from here, I am only surprised that the UK was lower, and even then not by much, having lived there. Of course upward income mobility is poor, here – everyone not from here knows that.

Anyway, it’s an interesting article.

The gender distribution of bad home-loans

Although it has taken me long enough to get to it:

There was a time when purchasing a home was something only married couples did. However, increasingly, single, widowed, and divorced women with and without children are making the choice to purchase a home on their own. Yet, the economic and social consequences of subprime lending practices on them are subjects few are discussing.

Women have become a key component in the real estate market. Last year in Massachusetts, over one-third of first-time home buyers were single women and nearly one-quarter of all home buyers were single women.

Women borrowers are overrepresented in the subprime lending market according to studies done by both the Consumer Federation of America and the National Community Reinvestment Coalition. Across the economic spectrum, women receive less favorable terms than similarly situated men on home purchase, refinance, and home improvement loans. The studies also show that the gap between women and men receiving subprime loans actually increases as women’s income increases.

Elderly women are prime targets of refinance and home improvement subprime lenders. Women on average live longer than men and have a greater chance of living alone. Rising property taxes and medical expenses make older women on fixed incomes particularly susceptible to lenders who promise money for necessary repairs, but instead exact huge fees and charge inflated interest rates.

African-American women, who represent half of African-American home purchase borrowers, are particularly vulnerable. In fact, there is evidence that subprime lenders charge black women and Latinas higher rates and fees than same-race men and white men, again, regardless of income and across all loan types.

For women, the impact of problems in the lending industry crosses age, class, and racial lines as well as neighborhoods.

The primer from the Consumer Federation of America <a href=”National Community Reinvestment Coalition“>can be found here.

African American and Latino women had the highest incidences of subprime lending – and the gap between women of color and white men increased as incomes rose. African American women earning double the area median income were nearly five times more likely to receive subprime home purchase mortgages than white men with similar incomes and Latino women earning twice the area median income were about four times more likely to receive subprime purchase mortgages than white men with similar earnings.

African American women make up half the African American purchase mortgage borrowers and Latino women make up nearly a third of Latino home purchase mortgage borrowers.

I didn’t find the same from the National Community Reinvestment Coalition. The first one is also listed as released December 2006: I wonder if either the problem has declined, or if everyone else has basically caught up in the catching-shit-stakes.

Eugenic influences on American economic reform during the Progressive era

I’m reading a paper due to be presented in a seminar tomorrow, bearing this title. The author is Tim Leonard, of Princeton University. Etiquette forbids, of course, more than cursory quotation of this paper, but this sort of thing is clearly his bag. In fact I believe that what I have is a companion (or follow-on) piece to this paper, in the Journal of Economic Perspectives.

I treat you (from the latest publication):

… a crude eugenic sorting of groups into deserving and undeserving classes crucially informed the labor and immigration reform that is the hallmark of the Progressive Era (Leonard, 2003). Reform-minded economists of the Progressive Era defended exclusionary labor and immigration legislation on grounds that the labor force should be rid of unfit workers, whom they labeled “parasites,” “the unemployable,” “low-wage races” and the “industrial residuum.” Removing the unfit, went the argument, would uplift superior, deserving workers.

He has also taught me a thing or two about the likes of John Gibson (besides, obviously, that they’re racist twats):

It was a scholarly fashion, circa 1890, to declare the U.S. frontier “closed” and to sound a Malthusian alarm about excess American population growth. But the professional economists who wrote on immigration increasingly emphasized not
the quantity of immigrants, but their quality. “If we could leave out of account the question of race and eugenics,” Irving Fisher (1921, pp. 226 –227) said in his presidential address to the Eugenics Research Association, “I should, as an econo-
mist, be inclined to the view that unrestricted immigration . . . is economically advantageous to the country as a whole . . . .” But, cautioned Fisher, “the core of the problem of immigration is . . . one of race and eugenics,” the problem of the
Anglo-Saxon racial stock being overwhelmed by racially inferior “defectives, delinquents and dependents.”

Fear and dislike of immigrants certainly were not new in the Progressive Era. But leading professional economists were among the first to provide scientific respectability for immigration restriction on racial grounds. They justified race-based immigration restriction as a remedy for “race suicide,” a Progressive Era term for the process by which racially superior stock (“natives”) is outbred by a more prolific, but racially inferior stock (immigrants). The term “race suicide” is often attributed to Edward A. Ross (1901a, p. 88), who believed that “the higher race quietly and unmurmuringly eliminates itself rather than endure individually the bitter competition it has failed to ward off by collective action.” Ross was no outlier. He was a founding member of the American Economic Association, a pioneering sociologist and a leading public intellectual who boasted that his books sold in the hundreds of thousands.

Ross’s coinage gained enough currency to be used by Theodore Roosevelt (1907, p. 550), who called race suicide the “greatest problem of civilization,” and regularly returned to the theme of “the elimination instead of the survival of the fittest.” In that same year, more than 40 years after the American Civil War, Ross (1907, p. 715) wrote: “The theory that races are virtually equal in capacity leads to such monumental follies as lining the valleys of the South with the bones of half a million picked whites in order to improve the conditions of four million unpicked blacks.”

What a wonderful concept – something that I can clearly see having as much currency as ever, even while the ordinary Malthusianism of population control has just wandered off to the Sierra Club types.

The seminar ought to be very enjoyable. I’m a big fan of picking through the effects of standard Graham Greene characters (the harm one can do with good intentions always impresses me). Grab some of his papers that are available and read them over your breakfast, or lunch, or whatever. Beats talking about baseball, or football, or whatever elses masquerades as a sport, ’round here.

From the New England Journal of Medicine: the Shattuck Lecture on improving the health of the American people

While we wander through the mire of politicised health care reform (do not overlook the excellent clarity and critique offered by the Rolling Stone).

A young fresh fellow by the name of Steven Schroeder, MD has delivered the latest Shattuck Lecture:

We Can Do Better — Improving the Health of the American People

The United States spends more on health care than any other nation in the world, yet it ranks poorly on nearly every measure of health status. How can this be? What explains this apparent paradox?

The two-part answer is deceptively simple — first, the pathways to better health do not generally depend on better health care, and second, even in those instances in which health care is important, too many Americans do not receive it, receive it too late, or receive poor-quality care. In this lecture, I first summarize where the United States stands in international rankings of health status. Next, using the concept of determinants of premature death as a key measure of health status, I discuss pathways to improvement, emphasizing lessons learned from tobacco control and acknowledging the reality that better health (lower mortality and a higher level of functioning) cannot be achieved without paying greater attention to poor Americans. I conclude with speculations on why we have not focused on improving health in the United States and what it would take to make that happen.

It is very good – much like a lot of the criticisms of the US ‘system’, it begins from a common perspective (way more money paid, way less health received in return).

He asks a few highly relevant questions, not the least being, Why Don’t Americans Focus on Factors That Can Improve Health?

I recommend it. Give it a read.

Is hairdressing less skilled than motor mechanics? It doesn’t matter, actually

Today’s Guardian disapoints.

More than 90% of hairdressing apprentices are female; 99% in the motor trade are male. The gender imbalance has always existed, but there is growing concern about the how trainees are treated by their employers. The Equal Opportunities Commission says that, on average, male apprentices earn £40 a week more than their female counterparts.

A study carried out in 2005 for the Department for Education and Skills showed hairdressing apprentices earned an average of £86 a week, while those in the motor industry earned £116 per week, and those in engineering and construction around £140. The statistics revealed a general rule: the more female trainees an industry had, the less they were paid.

For a start that last sentence is just wrong, on so many levels. I’m not disputing the correlation, but I am disputing the fact that it means anything, at all. That is not a rule, that is a half-assed observation. The article is about wage differentials in college apprenticeships (in this case, mechancs, engineering, hairdressing):

Hollie, who has been working for more than a year, earns the £80 a week minimum, while Melanie earns £116. Yet Ashley Smith, who works in a commercial bodyshop in Ipswich and is downstairs today in the college’s motor vehicle body-repair workshop, takes home more than £200 in a good week.

The hairdressers put as many hours on their two-year level 2 NVQ courses as the motor-industry apprentices, and they will leave with equivalent qualifications. So is it fair that some of the boys are earning twice what they are?

Melanie thinks not. “I definitely think our skills are equivalent to theirs, but we don’t get paid as much. We do three hours of practical work in here each week, then we spend four or five hours on theory. People say hairdressers are dumb, but the key skills we have to learn are quite detailed.”

Sadly, this fundamentally mis-understands basic economic principles.

Economic discrimination proceeds thus: two individuals are paid different wages for the same job, when they differ according to a dimension not relevant to their marginal product of labour – i.e. gender, when gender is not important (teaching, for example). This is the bad discrimination. Anything else is discrimination of the job, not the worker.

This is an important difference. The part that the Guardian is getting fundamentally wrong is this: it doesn’t matter how much training each sectored-worker (mechanic or hairdresser) gets, or how many skills they build. As long as a hairdresser’s skills cannot be used immediately to fix cars, there will be no equalisation between the two sectors.

Here’s why. Well, first, skills and training just don’t count. That does not determine your wage. It determines wage differences in the same sector for any given job, but only if it increases your productivity – not just because you went to the effort.

Each worker, that a firm hires, contributes more to total ouput (we will assume not to have maximised that part of the equation). We call this the Marginal Product of Labour. Hire one extra person, and total output Y changes by a given amount. The firm then sells that extra amount, along with everything else, so

  • One extra hairdresser means X1 extra hair-cuts
  • One extra mechanic means X2 extra cars repaired

Notice that the time and effort they put into learning their craft is not relevant. So, question: what is the value to the firm (i.e. in the marketplace) of hairdressers and mechanics?

It is the Marginal Product of Labour multiplied by the Price – the Marginal Revenue Product of Labour. The Marginal Revenue Product of Labour is the marginal contribution each extra worker makes to the revenue of the firm. In a market in which firms are competing for labour that will equal their wage (Price equals Marginal Cost, as usual).

So what determines the Price of hairdressers and the Price of mechanics? The marginal value in the marketplace of hairdressers and mechanics (so P1X1, compared to P2X2 – it is differences in the Pis and in the Xis that matter); it is not determined by the hours they spent in college, or the technicality of their skills. Hence if the skills of hairdressers could be used to fix cars, their wages would calibrate: if hairdressers were paid less than mechanics, they’d leave hairdressing to become a mechanic; the influx of hairdressers would also shift the supply of mechanics out, lowering their price in the market for Mechanic Labour. That, however, isn’t the case.

Following this: perhaps the low wages will lead to a decline in hairdresser-numbers. This will shrink their supply, leading to an increase in Price (i.e. wages). All of this means the market for these different types of labour are doing exactly what they’re supposed to be doing, according to economic principles.

I do realise that this is Education Guardian, not Economics Guardian, but it is still the Guardian. They do still have economics writers in the building.

‘Fair’ and ‘Unfair’

There are two other issues, here. The first is to do with welfare. If the UK government is trying somehow to get school-leavers into higher social classes (sorry: Social Class is a labour-related definition, capturing skills and education. I’m not being an asshole), then perhaps it needs to kick in for hairdresser apprenticeships, to make them more remunerative. Then there will still be a disparity in their wages (which more hairdressing apprentices, following higher rewards, will probably worsen), when working, compared to mechanics but, as we’ve just determined, that is not an issue.

If there is an imbalance in supply of the two, why are there not more girls apprenticed as mechanics? Ah, that is a relevant question. As we saw in the first quote, more than 90% of hairdressing apprentices are female; 99% in the motor trade are male.

The Confederation of British Industry is also concerned that young women may be discouraged from applying for better-paid jobs because of poor careers advice. Its policy adviser for education and skills, Louise Morgan, cites research by the Engineering Employers’ Federation, showing just 17% of young people were given information at school about apprenticeships.

With this I am deeply sympathetic, having suffered a truly shit careers advisor when I was in high school. However, and again, that statistic 17% is meaningless. Maybe only 17% need information about apprenticeships. What makes information about apprenticeships so great (at my school our advisor talked about nothing else – of little use to those of us who did go to University and had to work it all out for ourselves)?

Again, from the Guardian:

“Often girls are being forced down the route of traditional subjects by advisers who don’t know about the opportunities out there,” Morgan says. “Employers have a role, too, to invest in skills and to make sure people feel valued financially. We need to transform how society thinks about these things.”

And again, not relevant. For a start, an editor should have removed the word “forced”. I managed not to be forced to go to TAFE, even though that’s all I was told about in high school. In any event that is not industrial relations policy, that is education policy (to be fair this is Education Guardian – but they’re dealing with industrial relations, and I think my point is that they should avoid doing so).

Second, no: Employers do not have a responsibility to make sure people feel valued financially. Employers have a responsibility to pay wages up to Marginal Revenue Product of Labour. Now, suppose they don’t: then other employers will, meaning they will get better labour, because labour will compete for their (higher paying) jobs. Eventually the discriminating firm will decline. If we’re too impatient for that, that again is industrial relations policy, but of a different sort. Moreover it still does not have economic implications for the wage disparity between sectors.

Stephen Gardner, director of apprenticeships at the Learning and Skills Council, agrees. “There are two issues here. One is that females are being paid less within the same sectors, and that is something we need to challenge with employers. That isn’t on at all. But I think there’s also a fundamental problem, which is that young people aren’t always told what they’re likely to earn in each different sector. So they don’t have the information they need.”

See, now his first point is relevant. However it was not addressed anywhere, here, and he does not provide any numbers, nor does he specify whether he’s talking about workers or apprentices (my guess is the former). We’ve just yet to see a comparison of anything but different types of apples and oranges.

The problem appears, at worst, to be that too few advisors are carefully explaining to these kids, from day one, how the labour market works. That some jobs will earn more, that some jobs will earn less, what those jobs are what those jobs entail. At worst it seems there is asymmetric information that is happening to benefit males disproportionately – but this is a coincidence.

Personally I’d love to see hairdressers paid more than mechanics. I have no hair but I hate cars. Give me a few million fewer cars and many thousands fewer people required to keep them poisoning my air and running over my fellow pedestrians. We can all walk peacefully together to the local hair salon.

This is my final fit, my final bellyache:

…the government’s attempts to expand the scheme will bring little comfort to Anna (not her real name) from Oxford. She discovered, after starting her apprenticeship in hairdressing, that her boyfriend, an apprentice plumber, was earning twice as much as she was. Just before the £80 minimum was introduced, she was taking home £75 a week and her boyfriend £150. Now that both are qualified, the pay gap between them has narrowed, with Anna earning around £250 a week and her boyfriend getting a little over £300.

“We worked the same hours, and we were both doing a valid trade qualification, so why shouldn’t we be paid the same?” she asks. “I’m happy working in hairdressing, but why shouldn’t women be paid what men are paid? I don’t think it’s fair.”

My advice to the government: squeeze a Principles of Economics class into your college courses. Especially the journalism ones.

Almost 1.55 Million New Yorkers Live in Poverty; NYC’s Income Gap Between Rich and Poor is Huge

Another wife-sourced article! And another New York article.

Yesterday, the U.S. Census released data showing that the number of New Yorkers living in poverty increased, though the national number dropped. With more than 1.54 million New Yorkers in poverty, that makes it a 2% increase from last year, a change the city attributes to how the data was collected. Still, Mayor Bloomberg said, “Whether the numbers are overstated or understated, there is no question that they are much too high and you have to keep working on finding ways to reduce the poverty level.”

The Census data also shows that the income gap between the New York’s richest fifth and poorest fifth is the biggest in the country. And in Manhattan, the numbers break down to the richest 20% making $351,333 annually versus $8,855 of the poorest 20%.

Gothamist table

I’m not convinced this is even newsworthy, frankly. In that it should not come as a surprise. That very rich people live in New York City is not surprising. Given the size of the city, and the lack of decent rail transport almost anywhere in this country (apropos commuting by rail from even Allentown, Pa. to New York City, a distance many Sydneysiders cover in their commute) it is also not surprising that the servicepeople also live here and, also given the nature of this country, they earn very little. Put them together and you get income inequality.

Apropos homeless and poverty statistics, also: there is an ethnic gradient to income and industry type, meaning that New York’s working poor most likely migrated in – as will many of the homeless have, either as homeless or inexorably on their way to it. Poor and homeless people, like some/many working poor, may have ‘happened’ to New York, rather than the other way around.

There are two phenomena, here, also, which should not be overlooked: inequality is one thing, but poverty/homelessness is another, and they have different explanations and appropriate policy responses.

This does not mean I don’t think there’s a problem. The welfare state as it exists here is a crime. I would just rather see some more informative description of the problem. The phenomenon, as it is presented here, is belied by its own statistics. There are quite a few non-welfarist explanations for the heterogeneity of workers and incomes in New York City, and the wage disparity does not, in fact, need to be ‘unfair’. While poverty and homelessness is always a failure of society, it too has broader causes – and, potentially, cures – that we tend to overlook.

HowTo: Reporting bias. Or, why do little kids prefer apples from McDonald’s?

The story:

“McFood” Better Than Food, Kids Say

Robinson and colleagues studied 63 low-income children enrolled in Head Start centers in California. The kids ranged in age from 3 years to 5 years.

Told they were playing a food-tasting game, the kids sat at a table with a screen across the middle. A researcher reached around either side of the screen to put out two identical food samples: slices of a hamburger, french fries, chicken nuggets, milk, or baby carrots.

The only difference between the pairs of food samples was that one came in a plain wrapper, cup, or bag, and the other came in a clean, unused McDonald’s wrapper, cup, or bag. The kids were asked whether they liked one of the foods best, or whether they tasted the same.

I love the idea of some brainless reporter going ‘newspaper’ with the heading, yet still using the word “kids”, rather than, say, “children”.

The results of the study!

  • 77 percent of the kids said the same french fries, from McDonald’s, were better in a McDonald’s bag than in a plain bag (13 percent liked the ones in the plain bag; 10 percent could tell they were the same).
  • 61 percent of the kids said milk tasted better in a McDonald’s cup (21 percent liked milk in a plain cup; 18 percent could tell it was the same).
  • 59 percent of the kids said chicken nuggets tasted better in a McDonald’s bag (18 percent liked them in a plain bag; 23 percent could tell they were the same).
  • 54 percent of the kids said carrots tasted better in a McDonald’s bag (23 percent liked them in a plain bag; another 23 percent could tell they were the same).
  • 48 percent of the kids liked hamburgers better in a McDonald’s wrapper (37 percent liked them in a plain wrapper; 15 percent could tell they were the same).

Now, I’m vegan, so my familiarity with old whatshisarches is a little rusty – but aren’t hamburgers their business? To add context:

Kids who preferred “McFood” tended to live in homes with a greater number of television sets and tended to eat at McDonald’s more often than kids not influenced by the McDonald’s brand name.

I’m not surprised the study got that the right way around, but I am pleasantly surprised that the reporter kept it so. The rest of the article goes on about marketing. Apparently McDonald’s provides parents with the “safest food” – whatever that is supposed to mean.

Now, here’s the problem. The results of this study are potentially two things, and probably a mixture of both. The first thing, the phenomen being measured and presumed to have been found, is revealed preference. For all that economists draw demand curves and insist our neo-classical models explain the world, one cannot actually measure demand, only consumption. Thus we need to measure revealed preferences, rather than preferences directly. Hence, little children are revealing a preference for foods in McDonald’s wrappers.

Here’s the thing, though. The children are tasting the food, then saying which they thought tasted nicer, as opposed to selecting one (in which case the preference for McDonald’s brands would be revealed). If the food is the same, this is irrational, but there’s a slight difference in what’s being measured and what we are concluding:

Children do not necessarily like milk better given that it is in a McDonald’s container, they just say they like it better given that they have seen it in a McDonald’s container.

That is, we aren’t measuring what the children like, but what they say they like. This exposes their responses to reporting bias. I’m a health economist, so I find this in that context. I give you reporting bias in Self-Assessed Health.

Self-Assessed Health (or SAH) is how health is often measured. It’s too damned expensive to have every respondent in the Medical Expenditure Panel Survey see a doctor. So our surveys ask something like, “how would you rate your own health?”, and give you, as options, “Very Good”, “Good”, “Fair”, “Poor” and “Very Poor”.

Now. Suppose the question did not specify that you consider only people your own age, income bracket, choice of sport (NFL players?), etc.”

  • My grandparents are in their mid-80s. My grandmother has had, I think, everything replaced one can have, without having had plastic surgery. Compared to their friends, however, my grandparents both rate their health as very good. If you or I (assuming you aren’t 80, while reading this) had their health, we’d think otherwise.
  • Poor people will rate the same level of health as better for them than a rich person – because their expectations are different.
  • A diabetic might rate their health relative to their disease state. So they will say their health is Good, while we think, “Dude – you’ve lost a leg!” Again, different health-expectations.

This is reporting bias. Two excellent papers on this (full disclosure: both include as co-authors attractive former colleagues, and one my PhD supervisor): Reporting Bias and Heterogeneity in Self-Assessed Health. Evidence from the British Household Panel Survey; and Does Reporting Heterogeneity bias The Measurement of Health Disparities?. I remember the latter very well because using “bias” as an active verb always struck me as a little wobbly. But like I said, the colleague is very attractive. There are different standards for pretty girls (I’m incredibly superficial).

When is reporting bias a problem? If one is modelling health care demand, health insurance purchasing, etc., it is not that much of a problem. People consume according to their perception of their needs. If their perception is wrong, that’s their misfortune; only that the link between what they think they need and what they purchase is properly measured. If, on the other hand, one is modelling inequalities in health, then it is that much of a problem. As above, if a poor person rates a given level of (relatively low?) health higher than a rich person, measuring income-related inequalities in health becomes very tricky indeed. Same for international comparisons.

The latter of the two papers to which I linked is a good starting point, if you’re interested. It explores the use of anchoring vignettes to get some standard comparators in terms of health, and see how different ages, genders, incomes, nationalities affect the rating of that given health state (identified descriptively in terms of mobility, pain, etc.), and then use those as ‘handicaps’, to correct for bias in individual responses. It works fairly well.

Back to the story of the children and the clown! How sophisticated are little children, anyway? How much of a game might they be playing? Are they honestly saying, “I like this better because of the brand, and because I’m wilfully irrational”? I say this because, absent the surrounds of a McDonald’s restaurant, I don’t see how a wrapper in isolation can increase utility (in which case it might not be irrational, although it still does not affect the taste).

Might they also be saying, though, that they like the food wrapped in McDonald’s paper because they remember McDonald’s food as tasting better than other meals, including home-cooked? Following that, might they also be saying they liked it better in the hopes that their rating will get them more McDonald’s food in the future?

I submit that both are very possible. Children are certainly sophisticated enough to play their own games in a study like this one. Remember also the socio-economic gradients tentatively identified amongst the children. Split them up poor/wealthy, and imagine the food that their households consume from a supermarket, the other places they might eat, etc.:

  • Odds are, the wealthier families are having better ingredients (even down to, say, frozen food) end up on their plate, so that the disparity between home-cooked and McDonald’s cooked food is greater.
  • There is also potentially an exposure effect – wealthier children being exposed to a greater range of non-home eating, including proper restaurants. This would devalue the association with McDonald’s.
  • In terms of the memory of a preference for McDonald’s, even the environment in which they eat is a potential factor. For a relatively poorer child, McDonald’s is nicer than his home, perhaps. Not so for a wealthier child, who may even have McDonald’s brought home, more than in a restaurant.

See? Reporting bias. Ultimately I’m saying this study is information that should be considered in a wider context. It doesn’t simply mean that McDonald’s is winning some war against parents, or that McDonald’s will be worse than ever, now that it thinks it can market milk and carrots successfully. Alternatively it is, and we should be thinking about socio-economic gradients in consumer behaviour of this type (it’s not really my area of health economics).

For me, McDonald’s will always be the back-up public bathroom if I can’t find a Starbucks. I heart New York.

Hey, poor? CNN says to stop whining: life is good

Losing your house? Food-insecure? Buried in credit-card debt? Student debt? Negative home equity? The double-income trap? CNN says you’re blessed.

Losing the American dream

The Dow is soaring, and the economy is growing. So why are so many Americans bearish? Fortune’s Nina Easton looks at an economy where money is plentiful, but security scarce.

I don’t know if I’d call the Dow ‘soaring’, given that it is up one day and down the next – while the newspapers treat each day as though the previous one never happened. Overall it is up, surely:

dow

(I had intended to stop being lazy and hotlinking, but I doubt MSN will notice my pageviews in their bandwidth)

We probably said it was soaring back there in February of this year – and look what happened. The S&P 500, the preferred index in many circles, is not so up – although it, too, is up. ‘Soaring’ is still not the word I would choose. Easton makes an interesting point a little later, when she’s done talking about how rolling in it we all are:

Lake hit on it, I believe, with this comment: “There have been times in our history when the American dream was rooted in opportunity, and there have been times in our history where the dream was rooted in security. This is a time, and has been for a couple for years now, where the dream is rooted in security.”

There’s not a lot of security in a fast-paced global economy where workers get ahead by chasing opportunities (not obediently following office rules), by constantly reinventing their careers (not relying on seniority), by self-investing their savings (not counting on company pensions).

In other words, in the new economy, we all have to be entrepreneurs with our own lives – with all the rewards and risks and, yes, anxieties that entails. According to Third Way, middle-aged men are staying at the same job nearly half as long as they were just 20 years ago, and more than 60 percent of workers report they’ve actually had to switch the type of work they are doing.

Add to all that a war in Iraq that America can’t seem to win, and the always looming threat of another terrorist attack here at home, and it goes a long way toward explaining public unease.

Easton’s prescription, then is to be entrepreneurs with our own lives. Has she not heard that thousands of American did that – and ended up with sub-prime and/or Adjusted-Rate Mortgages they can no longer afford? Default rates are at their worst since the depression, and the real ARMs haven’t even hit, yet.

I have a few other things Easton may not have considered (besides housing, job or pension insecurity):

First, from the City Mayors Society:

The survey of 23 cities found civic and government groups received, on average, seven per cent more requests for food aid in 2006 than in 2005, following a 12 per cent jump in 2005. Requests for shelter rose by an average of nine per cent in 2006, with requests from families with children rising by five per cent. More than half the cities said family members often had to split up to stay in different shelters.

With the rising number of urban Americans in poverty, cities, including Los Angeles and Boston, said they could not meet all requests for food and shelter. Instead they had to ration food and other help. The report estimates that 23 per cent of requests for emergency food assistance remained unmet.

This was using official homelessness statistics that economists believe actually under-estimate the true numbers (“woefully outdated”, was one of the terms used).

Second, a report found idly googling the matter, called Two Steps Back: City and Suburban Poverty Trends 1999-2005, from the Brookings Institution:

An analysis of poverty in cities and suburbs of the nation’s 100 largest metropolitan areas, based on data from the 2005 American Community Survey and Census 2000, indicates that:

  • In 1999 large cities and their suburbs had nearly equal numbers of poor individuals, but by 2005 the suburban poor outnumbered their city counterparts by at least 1 million.
  • Poverty rates rose significantly in Midwestern and Southern metropolitan areas, but remained steady in the West and Northeast.
  • Nearly half of large cities nationwide saw a significant rise in their poverty rates, versus about one-third of their suburbs.
  • In cities and suburbs where overall poverty rates rose from 1999 to 2005, child poverty rates rose faster.

If Easton would only look up a Gini coefficient every now and then, she might know that ‘plenty of money’ is meaningless to the increasing numbers of families with less and less of it.

Mapping deprivation in England, and how it strengthens Democracy

From the Guardian, today:

Poor and wealthy households in Britain are becoming more and more segregated from the rest of society as the UK faces the highest inequality levels for 40 years, according to a study published today.

A report by the Joseph Rowntree Foundation provides a groundbreaking geographical analysis of changes in the distribution of wealth over time, and reveals an increasingly divided nation.

What I particularly liked about this story was not the ratification of that which anybody could have told you – that inequality is increasing in Britain, that the Noth/South divide is growing stronger and that urban clustering of poverty is increasing – but the use of so-called cartogram maps in presenting the results:

Guardian Core Poor

Guardian Exclusively Wealthy

These are from the Guardian’s article, rather than the original report (whose images are not so easily-read). Although funded by the Joseph Rowntree Foundation, the work itself was by the Social and Spatial Inequalities Research Group at Sheffield University. I found the insanely delightful worldmapper via them, a while back. With these one can compare, for example, carbon emissions:

carbon emissions

with population:

population

with, I don’t know, loss of forests:

forest loss

Neat, no? So far the greatest visual display of information I have seen is Napoleon’s March by Charles Joseph Minard, a man whose position relative to his time blows my mind. The advances in Geographical Information Systems, which I have still to learn, are rapidly overtaking, though. A colleague of mine at the Centre for Health Economics uses it in his research, the bastard.

Empowering voters through statistics

Back to the deprivation report (the Social and Spatial Inequalities Research Group have their own maps page, also). The importance of this is with regard to the dissemination of information, of findings of research. With apologies to all those so philosophically mis-aligned as to believe, still, in Fukuyama (except the psychos and dicks from the Project for the New American Century, to whom no apology is warranted, for anything, ever), the US is not an application of the theory of democracy (big or little ‘D’), it is the embarrassment of the stagnation of representative democracy.

What this form of presentation of analytical results achieves, then, is the democratisation of statistics, demographics, etc. Knowledge, if you prefer, about the social, demographic, socioeconomic, etc. landscape in which we live. And by so doing, enable/empower ‘the public’ to enter, generate or influence the debate about the welfare of their society. I’m not suggesting people are stupid (although I believe Tommy Lee Jones was correct), but there’s a big difference between reading through a vaguely-made-prose set of statistics, and seeing the same information laid out, visually, legibly and accessibly, on a map.

The counter-argument, I would expect, is that it ‘dumbs down’ information, etc. I’m as sensitive to that as anybody else (I see I’m not alone disliking Harry Potter, by the way), but I don’t see this as the same. Some people, many people (most of my bloody students!) just do not respond to numbers. We take most of our information in visually – why not take advantage of that? In this instance, socioeconomic maps inform readers that what they they may thought was peculiar to their town, their class, their times, may (or may not) in fact be systematic, nation-wide: a matter for public policy to address. Consider this quote from the same story:

The employment minister, Caroline Flint, said: “Our commitment to ensuring everyone shares the nation’s increasing wealth has resulted in the rising trend of inequality recently stabilising. Since 1997, 600,000 children and over 1 million pensioners have been lifted out of poverty.”

Standard fare from politicians: have a statistic that supports our argument that we’re doing well, and so are you – even if you, the reader, personally, are not. The context of the quote is missing, though, entirely. For a start, so many children have been born since 1997, and so many people have retired, that those numbers might have turned out purely from demographics, not public policy. Moreover, what we want, why we vote, is for our government of the day to acknowledge, understand and address issues of the day. We won’t manage that by letting government and newspapers tell us what those issues are, while we aren’t able – or do not have the time – to sort through the information to find our own priorities. American readers, for example, may wonder why the New York Times, Washington Post, Fox News, etc. do not carrying stories such as this (mostly it’s because they are shit, while the Guardian is very good).

It’s just a thought. In the meantime, I encourage you to go and play with the worldmapper.