Poverty in America

An always touchy topic that comes to come up every now and then (usually a fierce debate on the blogopshere after some new study followed by months of not talking about the issue at all).

As of 2005, 12.7% of the US population was below the poverty line. The official poverty line, I believe, is calculated as three times the cost of the "economy food plan" defined by Department of Agriculture (this is because households spend 1/3 of their income on food. If they cannot even afford cheap food, then they are probably impoverished). 

That's a sizable number, but it gets even worse if you look at certain minority groups (African-Americans and Lations) and Americans under the age of 18(14.8%, or so Wikipedia tells me).

This statistic is a bit misleading, however. Most people that are "poor" at any given time will not stay there for very long; much like unemployment, poverty tends to be a temporary set-back. Of households that tend to be poor for extended periods of time, roughly half are households headed by a single mother with very little education (IE, high school or below). And a big cause of poverty in individuals is untreated mental instability. It's a bit tough to land a job when the voices in your head are telling you to go kill birds, after all.

So, it's reasonably safe to conclude that being poor and STAYING poor in America is a very, very unusual occurrence for people who have otherwise planned their lives well. 

But, there are other questions about poverty that are relevant. For instance, is poverty a cycle? Some liberals and conservatives think so, but disagree on the exact causes. Liberals look at economics: children that are poor have poor life prospects as they are less likely to get a good education and have few connections through their parents. 

Conservatives look at psychological and social factors. Children model their parent's unproductive behaviors, making them lazy and unproductive. They also learn how to live a life without working very hard by exploiting welfare, stealing, etc. Hence, children will remain poor.

If anything, I tend to fall more on the conservative spectrum when it comes to the question about the cycle of poverty. Finances are indeed a major issue for many families (college is really goddam expensive these days). However, most of the basic life needs are met by the government for every family. Basic healthcare and immunizations are free or close-to-free, public schools in the US are relatively decent (relative to the rest of the world...not so much compared to the rest of the Western world, perhaps), and the government provides a myriad of various services for the poor, ranging from Headstart to Federal Work Study to student lunches. Considering how tough it is to remain poor in America, financial stress when young should not be a serious issue.

Psychological and social issues? Much more relevant. It's hard to be emotionally stable when you are abused at home. It's hard to know how to act in society when your mother is work at all day and your father bailed out when you were a child. And it's tough to study when your neighborhood is full of drug dealers shooting each other. 

So, if I were to launch a new "War on Poverty," I'd be focused on social and psychological issues, and perhaps to get rid of abstinence-only education.

That's my view-point.

NAFTA and Global Trade

From Today's New York Times

"No matter how hard economists look for trade’s fingerprints on these inequities, they find it plays only a bit part. Josh Bivens of the Economic Policy Institute estimated that rising trade with poor countries increased wage inequality between college and high school graduates by about 7 percent over the past quarter-century — but the wage gap has widened by more than six times that amount over that period. And many economists think Mr. Bivens overstates trade’s impact. Robert Lawrence of Harvard, who was an adviser to President Bill Clinton, concluded that the increase in wage inequality since the 1990s had little to do with trade."

Is trade really associated with rising inequality? One might think so, because trade brings "gains" and "gains" are supposedly being allocated to the rich. 

This might not be the case. Out of MarginalRevolution:

"Looking at trade data between 1994 and 2005, Broda and Romalis construct inflation rates for different income groups and find that rates for the richest outpaced rates for the poorest by about 4 percent over the period. Since income inequality between the top and bottom 10 percent of earners grew by about 6 percent, the different inflation rates among income groups wipes out about two-thirds of the rise in inequality."

In other words, the inflation rate on consumer goods for rich people has been raising much faster than the inflation rate on goods for everyone else. And where do the low-end consumer goods come from?

That's right, a large portion seem to be arriving from China and other developing nations. So, trade's effect on inequality is somewhat mitigated (or perhaps might even be an equalizer in incomes).

Furthermore, the income of the very wealthy has been increasing rapidly since the early 1970s, and through the 1980s. The 80s happened to be a period where growth in international trade was relatively small relative to the 70s and the 90s...so it's very tough to conclude that trade has historically been a factor in increasing inequality. If anything, trade has only been increasing inequality fairly recently (which is the subject of Krugman's latest paper).

Rather, the income inequality can probably be described as arriving from more...structural issues. Rising CEO pay, entertainment salaries, etc. And those probably aren't influenced much by trade at all.

Musings on Communism

There are a number of communists that interact with on a daily basis. For better or worse, they are mostly restricted to online interaction. College just doesn't seem to be that bastion of extreme liberal thought that it has the reputation for (or maybe I just don't see most of them, given that I am a business student).

However, I never really understood the fascination with "communism," IE, the great utopian anarchy.

The biggest flaw I see, first and foremost, is the total utter lack of government. Let's consider defense. National Defense is the best example of a public good. It is non-exclusive, meaning that if someone doesn't pay, we can hardly NOT protect their homes. It also requires massive public investment over many decades. Military bases are not constructed over night, and top generals are developed over decades of training. All that requires a lot of planning and a lot of money, and, historically, it is very tough to get large numbers of people to voluntarily commit to such ventures. Hence, the reason why taxation was invented in the first place. Hell, it's one of the primary reasons that we wrote the Constitution to replace the Articles of Confederation.

So, I don't see a small communist society as ever being capable of defending itself adequately. 

Another issue with government is the very concept of laws. Without an actual legal system enforced by a police service, there is no means to permanently settle disputes. That's not to say that government is perfect or that private law has no place at all in society. Arbitration, after all, plays a large role in the American legal system today.

However, without a means to actually enforce its decision, the law of society is completely up to voluntary enforcement by individuals (or perhaps a private police service). This is theoretically possible. It is, however, not a likely outcome. Laws tend to require enforcement by a very large, very powerful force. A force with guns that is capable of imposing its will on people that will not agree.

It is hardly an ideal system, but it is a system preferable to one with no laws and only abstract "social conventions."

Finally, I have a complete lack of faith in communism's ability to adequately provide even basic goods. The system of trade, as explained here, sounds a lot like a barter system. As any econ major is aware of, barter systems are highly inefficient. Transaction costs are extremely high, preventing a lot of potentially profitable trades. It also requires "double coincidence." Double coincidence means that you have something I want, and I have something you want. Two coincidences at once...it is highly unlikely to occur very frequently, hence the name. Currency, though, ensures that someone ALWAYS has something valuable on hand. 

So, a communist society, as it appears to me, would lack a very strong trade sector. Without it, I don't see much welfare gain at all.

This says nothing about communist complaints about our society (most of which I feel are inaccurate). This is only about a possible communist society.

Webcasting Court Cases?

From Freakonomics:

"In 2006, a Rhode Island jury found three major paint makers liable for the toxic effects of lead paint on children...Now the paint manufacturers are appealing...due to the extraordinary level of interest in the case, oral arguments will be Webcast live."


Can I just say that this is beyond awesome? Probably the best thing since I was able to catch Book TV on the web after my cable company stopped providing C-SPAN2.

Then again, I may be a bit over-enthusiastic. I liked reading legal briefs in my law and management class. I've never watched an ACTUAL proceeding. I'd probably be nodding off after the first 20 minutes while the lawyers moan about subject matter jurisdiction or some crap like that.

Problems in Education

Our compensation management teacher likes to spend the first several weeks of class going over some basic microeconomic theory (cost curves, total production, etc. Never even really get into isoquants, for those of you that are indeed econ majors). The reason he does this, he explains, is to educate us on basic business strategy. I really don’t see the point of it: it can be summarized in the equation:

Marginal Revenue=Marginal Cost

Meaning that you don’t hire someone unless you are sure that employee is actually doing something productive and making you money instead of engaging in competitive thumb-twirling with his employees (talk about a demotivator).

Our professor then goes on to explain that HR professionals, in general, are NOT in tune with the rest of the corporation on strategic issues, and this means an inefficient workforce. Mr. CEO apparently can’t send his directions correctly through the memos. Or perhaps his secretary couldn’t understand his drunken ramblings after a night of expensive champagne and $5000 an hour hookers.

Anyways, the point is that we absolutely cannot make a compensation strategy unless we know what the overall business strategy is. Once again, that should make perfect sense, and that’s why I increasingly think college is really just education for lazy smart people.

So, what kind of homework assignment do we get on Tuesday?

Develop an executive compensation bonus package.

What are the objectives?

Damned if I know. I just gotta design an executive compensation bonus package. Not even the whole package, just the bonuses.

I would laugh at the irony, but tuition is $7,000 per semester.

An excellent comment from Marginal Revolution

"What I don't understand is why Europeans care that Americans think that their country is great.

I think my wife is the best woman in the world.

That is why I married her.

That doesn't mean that you can't think your wife is great too.

I think my country is great. That is why I live here.

I expect that Europeans think that their countries are great too. Good for them. I don't spend two seconds worrying about what other people think about their own country or trying to point out shortcomings. Heck I don't know enough first hand about any European country to even make valid comparisons (and most Europeans don't know enough about the US either).

Why so much haterism from Europeans? I'm with Tyler, seems like some insecurity about something to me."

Credit goes to a man named eccdogg

Are there too many Women Doctors?

BusinessWeek asks the question:

The facts:

1/3 of doctors are presently women

1/2 of med school students are women

Women doctors work 47 hours, compared to 53 for men

Women see 10% fewer patients

Women take off more time early in their careers

Women DO take lower-paying specialties, like Primary Care

Sounds to me like an issue of supply restriction: wouldn't the better response be to increase supply by, say, making it easier to get into/afford Medical School?

Restricting the number of doctors in this nation is not healthy for anyone other than doctors. It restricts output and raises costs, just like every other monopoly action. 

Trash-talking on Call of Duty

"I had sex with your couch!"

"Well, I had sex with your dad!"

And you guys say I make an ass out of myself

Tomorrow: Management Banquet

Date:  Wednesday, April 23, 2008
Time:  6:00pm - 8:00pm
Location:  Cardinal Room in SCE
Street:  720 S Halsted Street
City/Town:  Chicago, IL

Looks like a bunch of professors and speakers and maybe even some corporate reps are gonna come. I better be on my A-Game.

Remember, kids, the key is networking. In American Society, it's how information gets transferred. Even with all our technology, we still rely primarily on social networks to move rumors around.

Now, I need a few cool stories to share about myself...

Economics

Probably the only course you can take where sleeping through every class does not preclude you from getting a 96 on a test with a mean score of 68.

Unless it's econometrics. Goddam I hate that class.

A Brief Thought on Profit

One of the important things a business student has to learn early on in his career is that profit margins are NOT of extreme importance...at least not all the time.

I was reminded of that this morning when reviewing a presentation my friend was preparing for some executives from a major corporation (no need to say which one). He said that the company's stores should switch from selling a low-margin product to a high-margin product, simply because of the margin.

But, intuitively, we all see something wrong with that. Namely, that low-margin products might sell faster, giving us more money in the long-run.

That's why we shouldn't look just at profit margins when we're determining how valuable a firm is. Otherwise, restaurants and supermarkets would be considered bad investments.

A much better measure is return on equity or return on assets, which shows how much money a company makes for every dollar of investment it has.

That's my thought on "profit" for today

That guy called me a nerd

The guy who called Microsoft to find porn websites.

You meet the craziest people on IRC, I've come to realize. They remind me that I'm not that screwed up.

Don't believe me?

http://bash.org/?random

Not all safe for work. Definitely safe for your funny bone, though.

Don't say I didn't warn you.

Group Work

From my Businessweek:

80% of American Corporations now actively encourage working in groups. This should be no surprise to anyone, as groups are supposedly more effective at increasing employee retention, making a better final product, etc, etc. We've all heard the mantra in our idealistic, ritualistic, pro-friendship schools and televisions.

And it seems that we MIGHT be internalizing the message! Most employees don't seem to oppose working with a few peers. Only 10% prefer working alone. A majority(54%) prefer working in groups of three, and 27% prefer working in groups of four or more (I suppose everyone likes orgies at the office?).

I fall in the "three's a good size" category. With two people, a lot of workloads can feel unbearable...not to mention it can create some awkward situations. With four people, you start getting into the "shirking" zone...but if you stick with three,  and one person starts slacking off, it's pretty simple to have the other two smack him/her in the head. With four people, there's a good chance you get two lazy folks: at that point, it's easier to just ignore them than try to get anything done.

The real story, though, is in WHY people like working in groups:

When asked if they like to work in groups in order to make something, we get the following stats:

36% of men said yes

25% of women

36% of the 65+ crowd

27% of the 25-64 crowd

13% of the 18-24 crowd

But, WAIT, you say, those damn whipper-snappers love getting into groups to do everything!

Well, that's true, but we're also a cynical bunch, which you will know if you read any of the literature on Generation Y. We fully expect other people to be lazy. We're also pretty narrow-minded and self-confident. We don't entirely appreciate that other people's perspectives are valuable, and it doesn't matter anyways: We are God's Gift to the world and we can do it better.

But the age and gender gaps REVERSE if you ask a different question...say...if you like working in groups to learn from someone else. 51% of women said "yes" to that, and a whopping 60% of the Generation Y cohort agreed that they want to learn from their counterparts.

So, workers, take note: My generation hungry to learn. But they don't entirely accept the usefulness of groups to actually make a superior product. Dr. Nardini from my BA 200 class would be sorely disappointed.

My Question about Compensation Management Today

Who the hell came up with the idea to pay bonuses to professional workers?

For those of you that have been sleeping underneath a rock for the past two decades, bonus pay is pay for performance: meet a certain benchmark, and you will earn extra cash at the end of the quarter or year. It can also take the form of a general commission (IE, you get paid 10% of each sale).

Such pay is considered to be a highly effective form of motivation for a lot of different kinds of people: you can give bonuses to executives so they actually work instead of lounging on a beach in the Bahamas, you can pay line-workers for every extra widget they produce, and you can let salespeople keep a portion of every sale they make. That all makes sense.

My question is, why would you pay financial analysts or accountants bonuses on anything other than how quickly they get work done?

Does that make sense to anyone?

Me thinks that someone in charge of compensation isn't thinking correctly...but you know what they say. Once you give a kid a hammer, everything looks a nail. I'm just used to seeing that kind of mindset on internet forums or in an Econ 101 class.

Oddest Thing I Have Read Today

"Samsung today accounts for 18% of Korea's Gross Domestic Product and 21% of its exports"

Heh...centralized production...am I right?

Where I've Been, What I've been up to

This is my new group of good buddies, the Eta Rho Chapter of Alpha Kappa Psi. Alpha Kappa Psi is a business fraternity that focuses on the professional development of its members, building brotherhood, plus a whole lot of other fun stuff.

I joined at the beginning of the fall semester, back in September. After 5 weeks of pledging, I became a full Brother in the fraternity. It's been a lot of fun and I wouldn't trade my time with these fine people for anything in the world.

We were a little low on members at the beginning of the Spring Semester, so I became a Pledge Educator. Basically, that made me responsible for all of the Spring pledges, such as making sure they are prepared for all the fraternity events and knowing the basic facts. That picture above is them. I'm very proud of all of them: they passed their exam with flying colors, showed up to all the pledge classes, did well in the interviews, and put on some awesome events for the full Brothers.

Welcome to the club!

I've been up to other things as well. School stuff...this semester has been dramatically tougher than my previous ones, and it may lower my GPA somewhat. Right now, I'm guessing that I will be getting a 3.4 (in contrast to my historic 3.83), though I could still pull off a 3.83 if I do well on the remaining tests.

Something usually happens to give me good grades...call it luck. Let's see if it holds. ;)

I've also done some switching around in Cybernations. Since my last post, I became a full nuclear power, rose to Secretary of Defense in the Fifth Column Confederation, and recently left the Confederation and become a member in the Viridian Entente. It's been a lot of fun, and I'm presently involved in my first alliance war against Inertia. I feel a bit bad about doing so much damage to my opponent (22o infra, plus god knows how much tech and land damage), especially since it ain't even a fair fight, but war is war.

Anyways, that's where I've been.

So, I'll start posting again

And I'll change around the posting format a bit. It's going to be less like an attempt at Marginal Revolution, and more like a picture of a college student's musings.

A bit ironic to start it at the end of the semester...but it is what it is. 

If I have any readers around...great ;)