Reflections on Turning Sixty

As I begin by seventh decade on Earth I would like to share some of what I have learned over the years.

1. If you want an attractive girlfriend play hockey for the University of Minnesota.
2. If you don't play hockey and want an attractive girlfriend move to Aarhus Denmark.
3. Danish is the sexiest accent.
4. There are few simple pleasures more rewarding than making a child or a woman laugh.
5. Death comes to us all.
6. Sheep die, cattle die, you yourself will die.  One thing never dies, the pursuit of economic rents by vested interests.
7. People who believe humans are basically good don't have a Twitter account.
8. If you are fifty years old and still talking about where you went to college be assured, your education was wasted.
9. Love is patient, kind and endures all things, it is not always tolerant, ask any parent.
10. Vegetables are not food, they are what food eats.
11.  An single Italian with a pencil and a piece of paper will design a more attractive car than a committee of Americans with the best Computer Assisted Design software.
12. Conversely, the easiest job in the world is designing the next Porsche 911.
13. Economists should be kind to environmental activists, they make the predictions of economists look incredibly accurate.
14. Cemeteries are full of irreplaceable men.  In other words you're not that special, that's okay.  
15. Dave Schweikhardt was an irreplaceable man. 
16. People don't understand the agri-food system, that doesn't stop them from having strong opinions
17. After I die and everyone who knows me dies, I will be utterly forgotten, as in point 14, that's okay too.
18.  People who review music on NPR have terrible taste.
19.  Pirate Metal is a real thing and it is awesome.
20. If you have a $500 cell phone, a subscription to HBO, and don't pay off the full balance of your credit card every month, it's not a failure of capitalism.  You are just bad with money.
21.  The Good Place taught me that rap musical about Kierkegaard is a terrible idea.
22. People in the Midwest and South take college football way too seriously.
23. The grass withers, the flower fades, but the word of the Lord endures forever.

Testing the Meatless Whopper

As part of my job I occasionally have to do something I would never choose to do.  Today I ate an Impossible Whopper to assess the difference between meat and  meat substitutes.  Meat substitutes are a major product development in the food industry and there is a lot of capital being raised by meat substitute companies.  The primary rationales for meat substitutes are that they are healthier, they are better for the environment and they prevent animal abuse. The good news from a vegetarian perspective is that it wasn't terrible; it was kind of dry and bland, but it almost tasted like meat.  In the final analysis, it was inoffensive.

However, there were still several drawbacks.  First it was a $1 more than a regular Whopper. Secondly, it wasn't particularly more healthy than a regular Whopper.  The Impossible Whopper is 630 calories compared to 660 for a regular Whopper; 34 grams of fat compared to 40 grams for a regular Whopper; 10 mg. of cholesterol compared to 90 mg. for the regular Whopper.  On the other hand the Impossible Whopper has 1,080 mg. of sodium compared to 980 mg. in a regular Whopper; and 58 grams of carbohydrates compared to 49 for a regular Whopper.

So on net the Impossible Whopper is slightly healthier - or more accurately - slightly less unhealthy than a regular Whopper.  It is not price competitive given the marginal improvement in health. 

The fact that the Impossible Whopper is about 20 to 25 percent more expensive than a regular Whopper should question whether or not a meatless patty is better for the environment than a beef patty.  It may be the case that more resources are needed to produce a plant based burger.  The efficiency of meat production systems tends to be understated.  While it is true that it takes 7 lbs. of feed to produce 1 lb. of beef, it is also true that much of this feed is in the form of grass and that pasture based systems do not stress the environment.  Another way to put it, is that in the U.S. beef replaced bison in much of the country, with little net impact on the environment.  Bison are better suited to life on the plains than cattle, but they aren't as tasty, and they are much harder to domesticate.  Intensive cattle feeding (higher grain and corn rations) do occur in the last 6 months or so of a steers life, as the animal is fattened up.  While it could be argued that there is some environmental degradation due to intensive feeding, it is pretty minimal.  Also, there is a fair amount of research being carried out on 100 percent pasture based systems.  Cattle do drink a lot but they also pee a lot which recharges aquifers, as a result the impact of livestock production on water supplies is also overstated.

In terms of animal welfare it should be noted that abused animals have a lower productivity than animals that are not abused.  Their feed conversion ratios are lower, and their vet bills tend to be higher.  Also, there is also a higher chance that the carcass will receive a lower grade. As is the case with environmental impacts, animal welfare advocates tend to overstate their case. There is very little abuse in the industry. For the most part, while cattle don't live that long, while they are around they have a pretty good life.

So go ahead and eat real meat for the time being.

 

How to Fix Social Security and Medicare

The following post does not contain any magical thinking and as such may leave you depressed.  This is your trigger warning.

The best way to think about social security and medicare is to imagine a family that is spending more than they earn and has done so for several years.  Eventually, they run out of savings and have to cut back on their spending.  Currently, it is estimated that Medicare Part A trust fund will be exhausted by 2026, and  Social Security fund will be exhausted by 2034.  This does not mean that there will be no funds available, because in some respects theses are pay as you go programs.  For example starting in 2026, if nothing else changes, Medicare Part A still pay 91 percent of costs, although this will decline to 78 percent by 2042.  

Benefits to social security recipients will begin to decline starting in 2035 if nothing is changed, but again, the initial decline will be small and accelerate over time. 

To Fix the Problem Embrace the Bleakness

The above facts are well known to policymakers, but their inability to make even marginal changes only mean that when the bills come due the pain will be even greater.  It's a bit like a toothache that you hope will get better by itself, it won't and putting off a visit to the dentist will only make it worse.  The following are prescriptions that will address this problem in ascending order of quality.  These are not earth shattering ideas, but reflect reality.

4) Cut benefits:  This is do nothing option.  The problem with this option is that Americans are poor savers and are overly dependent on social security for their retirement.  This policy will lead to a reduction in living standards for seniors and a lower quality of health care.  Also, hospitals in areas with a disproportionate number of elderly will face lower revenues, and will either cut back on services or close altogether.

3) Increase Taxes:  Currently the medicare payroll tax is 1.45 percent paid by employers and employees.  If this were raised to 1.9 percent, the problem would be solved.  Higher social security payroll taxes would also make social security financially viable.  The problem with this policy is that payroll taxes are a tax on employment.  The more people hired the greater the taxes paid by the employer.  This policy will further accelerate the substitution of labor with machinery and technology.  It could lead to higher unemployment, especially among those with a limited skill set. While other taxes could be raised to pay for these programs, the benefit of using payroll taxes is that is taxes a broad base and is used for a specific purpose.

2) Raise the ages for enrollment in Social Security and Medicare:  Contrary to popular belief, the U.S was comparatively late in offering social security.  The first country to enact a modern social security system was Germany in the late 19th Century.  Initially the age for benefits was set at 70, but was reduced to 65 during WW I.  When the U.S. enacted social security in 1935, it kept the age at 65.  It's important to note that in 1935 the average lifespan in the U.S. was 61.  In other words most Americans would not have expected to see any social security benefits.

One of the greatest success stories of the 20th Century has been the consistent rise in expected lifespans.  Today the expected lifespan is almost 79 which means that the typical person can expect to receive social security benefits for approximately 14 years.  It should also be noted that for most of us the nature of work has gotten easier.  Office jobs have replaced farm and factory work, meaning that most of us can work longer.  This should be considered good news and as a result, the age limit should be adjusted.

Time for an Update

1) Allow more immigration:  The fundamental issue facing Medicare and social security is demographic.  There are not enough workers to support the retired.  Currently there are 62 million people collecting social security, and there are only 128.6 million people working full-time with other 27.2 million working part-time.  In other words there are about 2.3 people supporting one social security beneficiary.  This number is only going to get worse over time, and will begin to get much worse after 2050.  The birthrate in 2015 was 12.4, half of what it was in 1959, and lower than during the Great Depression. Conversely, people from around the world still want to come to the U.S. These people tend to be young, and often have skills employers need.  There is even a strong demand for workers with what some consider limited skills.  Increasing immigration would pay a demographic dividend that would last decades.

There is some concern about an impending economic slowdown.  Part of this concern is due to the lack of workers.  Housing construction would be up if there was more immigration and the demand for goods and services would be higher if immigration was easier.  In fact if enough immigrants came none of the other policies outlined above would be necessary.

A Note About Medicare for All

There is a great deal of support among the democrats running for President for a single payer health care system along the lines of "Medicare for All".  Given the fact that few of these candidates have explicitly stated how they are going to pay for the current Medicare system makes Medicare for all a slogan and not a serious policy.   If you are unable to fully pay for Medicare for 60 million people, how are you going to cover 300 million?

With Apologies to The Disposable Heroes of Hiphoprisy

Is Self Esteem the Drug of the Nation?

We live in a society where self esteem is considered a self evident good, and this belief appears to be a global phenomenon.   However, the evidence of the usefulness of having a high self esteem is mixed.  For example, while has a general rule people with high self esteem tend to preform better in school, there are interesting exceptions. For example girls tend to have slightly lower self esteem than boys despite the fact that girls consistently out preform boys in school, and the difference in performance appears to widen in high school and college.  It will eventually manifest itself in earnings, and marriage.  Why would a successful woman settle for a loser? 

The reply to this tends to be "girls should have more self esteem".  I tend to disagree, perhaps male self esteem is too high, and as a result they tend to be for the lack of a better phrase goof offs.  Ask most university professors who their honor students are and who are their alcoholics.  You know the answer.  How open to instruction and discipline is someone who thinks he is fine the way he is?  Is unrealistic self esteem one of the underlying reason why white male life spans are actually declining?

While there is somewhat less data across societies, an article written by David Schmitt, in the Journal of Personality and Social Psychology in the mid 2000s assessed self esteem in 53 nations representing 28 languages.  The nation whose residents had the highest level of self esteem was Serbia, followed by Chile, and Israel.  The U.S.  ranked sixth but the all of these nations scored very close to one another.  Conversely, Switzerland and Japan were in the bottom ten with Japan scoring lowest of all.  It goes without saying if given the choice most people would choose to live in Switzerland than Serbia. Some of the best run societies in the world are populated with people with comparatively low self esteem.

Perhaps most disturbingly, as Crispin Sartwell noted in his commentary in the July 1 issue of the Wall Street Journal, hatred enhances your self esteem when he asserted that "the compensatory pleasures of hatred - in particular it enhancement of self-esteem - are underrated.  Hatred is self-congratulatory.  It involved expressing superiority to its objects, and patting yourself on the back for not being them."  This is true at both the individual level as well as the international level.  An easy way to enhance a person's self esteem is by deignigrating others, as far as I can tell this is the primary use of Twitter. 

We also live in a society where pride has become a virtue and humility is for suckers.  Perhaps most destructively we preach to young people "you  can be anything you want".  This is patently false, most of us no matter how hard we try will never be pro athletes, rock stars, or cast members of Saturday Night Live.  However, with realistic expectations and an honest assessment of our talents, we can be accountants, dentists, agronomists, plumbers and truck drivers.  These professions while not the first on any one's list (what 8 year old wants to be an agronomist?) have the advantage of being more socially useful than being a pro athlete or a comedian.

To Fight Self Esteem Embrace the Bleakness

The bitter reality for the vast majority of us is to accept the fact that once we die and the people who knew us die we will be forgotten.  The world will go on without us.  As a thought experiment consider Ingrid Bergman, Joe Louis, Millard Fillmore, Joe DiMaggio, and James Polk.  At one time they were all famous and were considered important; but when was the last time you thought of any of them?  Do you even know who they were?


If people saw themselves honestly, the level of neuroticism would likely decline, we would live in a kinder society, and tolerance would mean something besides protecting the self-esteem of special interest groups.

How to Lie with One Number

On the Trump Tax Cut

Yesterday I read a meme on Facebook (so it must be true), that stated "253,020 Michigan Families Paid More in Taxes Last Year Due to Trump's Tax Scam".  The organization that put out that meme made the mistake of stating referencing the source:  the Institute on Taxation and Economic Policy.  Thanks to the help of a friend I was able to track down the figures and to say the least the meme was misleading.

It is true that 253,020 taxpayers paid more in 2018 that in the year before.  It is also true that 4.026 million taxpayers in Michigan paid less; an additional 536,500 paid the same amount.  Also, despite arguments to the contrary it appears that the Trump tax cut did not adversely impact working class families.  People in the 80 to 95 percent income bracket - roughly $111,000 to $218,000 -  were most likely to see a tax increase.  Thirty percent of the top one percent - incomes above about $517,000 -  received a tax cut, but 36 percent saw a tax increase.  In the state of Michigan, the re-distributive aspects of the tax cut appear to be overstated.

How to Interpret Data Correctly

The first question to ask yourself when you are given one number is to ask "compared to what".  In the example above the question is how many is 253,020 compared to the total number of taxpayers in the state.  In this case, its about 5 percent, conversely more than 86 percent received a tax cut.  A single number never gives you the whole story.  Percentages and per capita data usually give a more accurate picture than a single raw number.  While disappointing, it is also helpful to determine whether or not the source of the number has an agenda.  In the above case it was a partisan organization.

To finish I would like to plug a book, written by Hans Rosling, a Swedish biostatistician. The title is Factfulness:  Ten Reasons We're Wrong About the World - and Why Things are Better Than You Think.  It covers how to interpret data and why most of our underlying assumptions, especially about the developing world, are wrong.  It's actually a pretty easy read and will change the way you gather and interpret information.  It also shows that we tend to be dumber than chimpanzees.




 

Fake News is real and what you can do about it

The Issue

A couple of weeks ago my Facebook feed was filled with two stories that were at best dishonest.  The The first dealt with a Dutch teenager with severe depression who wanted to die.  The story was that Dutch authorities approved her euthanasia.  The second dealt with allegations of animal cruelty at a large dairy farm in Indiana.  The initial reaction of those posting these stories was outrage, which as become the default response in this country.

In the case of the Dutch teenager, it is true that she wanted to die and did apply for euthanasia.  However, her application was denied.  The Dutch authorities did not help her die.  A good source of accurate information can be found here.  https://www.usatoday.com/story/news/nation/2019/06/05/noa-pothoven-media-got-dutch-teens-euthanasia-death-wrong-rape-right-to-die/1355269001/

It did not help that many "reliable" sources got this story wrong.

The Indiana dairy story outlines cases of animal abuse.  What is lost in this story is the fact that the employees were fired as soon as the these cases were brought to the attention of management, and that the organization who collected the film had an agenda that would insure that the farm would be shown in the worst possible light.  In fact the organization did not inform management that the abuse was taking place, other employees informed management and those committing the abuse were terminated.  Abusing animals is not the policy of the dairy, and in fact animal abuse reduces farm profitability because it increases costs and reduces productivity of the animals.

What You Can Do

First think before you post or share.  If a story seems to be too extreme to be true it probably is.  Second, look for additional collaboration.  This is getting increasingly difficult as news sources increasingly reference each other without doing their own investigation.  Nonetheless, there are websites that engage in fact checking and are good resources for debunking fake news.  Third, an emotional response to a story is seldom helpful.  Social media does not give a person license to act as judge and jury on each an every story.

Finally, give people the benefit of the doubt.  If a person, institution, or firm is accused of something it deserves the opportunity to explain its side of the story.

One of the finest theological exposition of the Ten Commandments can be found in Luther's small catechism.  His question and response to the commandment on lying is well worth remembering.  

Thou shalt not bear false witness against thy neighbor.

What does this mean?--Answer.
We should fear and love God that we may not deceitfully belie, betray, slander, or defame our neighbor, but defend him, [think and] speak well of him, and put the best construction on everything.

Isn't that what we would want if we were accused of anything?

Why a 5 Percent Tariff on Mexican Products Doesn't Matter

This is the last of a series of posts on Trade.  Warning:  Contains Math.

Recently there has been a great deal of discussion about a 5 percent tariff on Mexican goods.  This blog will explain why this would not have made any difference in the U.S. and would have only made a minor difference in Mexico.  However, a 25 percent tariff, which has been considered could have a major impact on the Mexican economy, and encourage the thing the administration is trying to stop, illegal immigration.

A Numerical Example

Let's say you are in the market for a VW Jetta that is assembled in Mexico.  Furthermore let's say the price of the Jetta is 380,000 pesos and the exchange rate is 19 pesos to the dollar.  The price of the Jetta is 380,000/19 or $20,000.  If the exchange rate does not change, a 5 percent tariff would raise the price to $21,000 (20,000+(20,000*.05)) if VW passed on the entire cost of the tariff to the consumer.  Since this is unlikely, let's say VW eats 25 percent of the tariff so the price to the U.S. consumer is $20,750.  This appears to be the mindset of those who supported and opposed the tariff.  This analysis is simplistic and wrong.

Changes in exchange rates blunt the impact of tariffs.  There are few countries that have the power to completely manage the value of their currencies and conduct independent monetary policy and Mexico is not one of them.  The day the possible tariff was announced the value of the peso fell by about 3.5 percent.  When the President announced the tariffs would not go into effect, the value of the peso rose by 2.0 percent.

It is well within the realm of possibility the value of the peso would have declined by the full 5 percent if the tariff was instituted.  If that had happened, the value of the dollar would have increased to 19.95 pesos to the dollar.  The price of the Jetta in U.S. dollars would then decline to 380,000/19.95 or $19,048 and the price with the tariff would be (19,048+(19,048*.05) or $20,000, which is the same price as the price without the tariff at the original exchange rate.  Since the price to U.S. consumers is unchanged, VW would have a strong incentive to pass the full impact of the tariff on to U.S. consumers.

To summarize, a small tariff would have no impact on U.S. consumers.  Mexican consumers would be slightly less wealthy compared to U.S. consumers and as a result might slightly cut back on their consumption of U.S. goods even without enacting a counter tariff.  In a floating exchange rate system a tariff could have the impact of actually reducing exports without having any impact on imports.

The Impact of a Large Tariff

It has been proposed that unless Mexico controls emigration a 25 percent tariff should be imposed.  This would have a much bigger impact on Mexico.  A major tariff could lead to a run on the peso, which could dramatically reduce wealth and consumption in Mexico perhaps leading to a recession.  A recession would increase the unemployment rate in Mexico which could lead to increased emigration to the U.S.

In short, a small tariff has no impact on the U.S. economy and a large tariff could lead to the one thing the administration is trying to stop, increased illegal immigration.