Additional text

Recommended browser for this blog: Chrome

Follow Economystified on facebook

All posts by Dan Whalen (LinkedIn, Github)

Monday, June 9, 2014

Median vs Mean

The Average

Most of us learned our way around a mean early on in life.  When we were kids, a decent chunk of our lives were governed by a mean.  I'm referring, of course - to your averages at school.

Traditionally, we use the mean to calculate a students overall mark for a class.  Back when you were a kid, your mean grade (colloquially, your "average") on tests, quizzes, and homeworks, determined what you'd be doing with your summer, the timbre of your relationship with your parents, and how much time you'd be spending around your friends at school.  Your world revolved around a mean!

Later on, maybe not even until college, you learned about another type of average: "the median."  You memorized how to calculate it, maybe had to answer a question about it on a Stats 101 exam - and then promptly forgot all about it.

What you probably never got from your teacher was an analysis of what the two numbers signify.  Why have multiple types of "averages" anyhow?  When should I use the median, and when should I use the mean?  And when I see means and medians in print, in the news - in "the wild" - how should I interpret them?

In short, you probably know how to find a mean and a median, but don't really know how to make use of them.

Aw, but don't worry, man.  It's not your fault.  Unfortunately, this is a common problem in our math curriculums - we teach kids calculation tricks, but rarely manage to teach the thinking behind them.

So here's my little crash course on the median and the mean.  Read to this post's end, and you'll not only know the difference between the two, but you'll know enough to distinguish when and where to use 'em!

The mean

I'll start off with the mean, since that's the one you're more familiar with.

Look at this data series:

3, 4, 5, 1, 3, 18, 2, 6

Let's say you want to "simplify" this set, to distill it down to its summarize it with a single number.

To do that, we can calculate its mean.  We add up all the numbers, then divide the sum by how many there are.

3+4+5+1+3+18+2+6 = 42
42 / 8 = 5.25

So the mean of this series is 5.25.

The median

Ok, starting with the same series:

3, 4, 5, 1, 3, 18, 2, 6

To get the median, arrange the data in value order (ascending or descending, it doesn't really matter).  The median will be the number dead center.

1, 2, 3, 3, 4, 5, 6, 18

Now, since our data series has an even number of values (and therefore there are two values at the middle), the median will be whatever number would be dead center.

Because 3 and 4 are our central values, we split the difference, and go right in between the two.  Our median is 3.5.

What's the difference?

A mean of 5.25, and a median of 3.5.  Why is the mean so much higher?

The problem is that pesky 18.  Three times bigger than the next largest value (the 6).  That 18 is kind of an outlier, and it sways the results of the mean.

Since calculating the mean requires giving exactly equal weight, equal significance, to every number in the series, the 18 skews our average high.  It's the point where the upper half of the data, and the lower half, are "in balance."

On the other hand, the median gives 100% of the significance to whatever number happens to be sitting in the middle seat.  Therefore, the extremeness of the tail ends of the series has no effect on the median.

The lowest number in our example series could have been .0001, and 1000 the highest, and the median would still be 3.5.

And that's really the point of having a mean, AND a median.  The mean reflects all values in the series, and so its influenced by the degree of inequality, the degree of skew, in the data series.  It's for telling the story of the whole set.  

The median tells a story of the typical, usual, normal, middle-of-the-road guy. 

Both the mean and the median are measures of "central tendency," a measure of the approximate "center of mass" of the series.  The numbers can swing high and low, but always around that central anchor.

Use the median if you just want to talk about where the anchor is.  Use the mean if you want to talk about the entire range through which the numbers swing.

My personal rule of thumb

So I kinda lied.  There's no "rule," per se.

It all depends on the situation.  There's not really a hard and fast answer to when and where using the median is "correct," and where the mean is the "correct" answer.  It all depends on finding the right way to tell the story you want to tell.

But I will give you my opinion.  My shortcut, my heuristic.  Don't put this as an answer on your test.  It's not the official, "right" way of thinking about the subject.  This is just between you and me.

My rule of thumb is:

Use the mean when comparing group A to group B.

Use the mean when comparing the individual members of group A to each other.

To illustrate

Want to know how much shorter the Kindergarten class is than the First Graders?  Compare the mean height of the Kindergarteners to the mean of the First Graders.  

But is it the case you want to know if Jimmy is particularly short for a Kindergartener?  Then compare his height to the median height of the Kindergarten class.

Want to know if homes in Buffalo are pricier than homes in Boston?  Compare mean home prices.

But if you're just curious how your house stacks up against your neighbors', I'd use the median for the mark of comparison.

Take a moment to logic it out, and you'll see where I'm coming from.

My reasoning

First, the median is a good tool for pitting members of a group against each other because it tempers the effects of abnormal extremes.

One weirdly tall Kindergartener, one ridiculously expensive home on the block is all it takes to skew a mean.  Sammy is hitting a growth spurt, which doesn't mean the rest of his class to physically shrinking!!

This is why economists pretty much always talk about incomes and house prices in terms of medians.  If they used the mean instead, growth in inequality would look like growth for all, for example.  One guy's extreme fortune would make it look like everyone is doing better.

Economists stick to medians to keep the typical, common income or home - the kind that most people actually have - at the center of the story.

Second, if you compare your income to the mean income of your peer group, you'd be sorta "double-counting" yourself.

Here's what I mean: Say you weren't making much.  Your low income is already bringing the mean income of your peer group down.

Now you compare your income to that mean.  Because your income is skewing the mean down, your income won't look as low as it actually is.  Your income is pulling the mean down closer to itself, making the group "typical" salary look a lot more like your own.

Compare it to the median instead, and you'll be looking at where you actually fall in the income distribution.  Like, if this were a competition, what place you'd be in.  If we ranked everyone by income, the median would be the guy right in the middle.  How many spaces do you have to move up to meet him?

Ultimately, my reasoning comes down to this: the mean is the story of the total value in the set.  The median is the story of the ranking of those values.  The mean is about the group, the median is about the individuals in it.  So use them accordingly.

But in the end, it's on you

Either way, that's just my two cents.  The big take-away here should be that though they are both "averages," the mean and the median are different.  Be cognizant of that.

And when you see someone throwing these values around, just stop and think about how they were calculated.  I promise, that is the easiest way to verify to yourself what the figures actually are telling you.

A side note on Statistics...

The odd thing about stats is that there doesn't seem to be many hard and fast rules to it.  

The rules can be a little murky.  There's a reason for this though: statistics aren't exactly "real" numbers that fit just right in the "real" world.

To understand why, keep in mind the fact that all "statistics" are a man-made numbers.  Statistics do not occur in nature.  

There's no mountain range that limits its own peaks to an "average" elevation, no dog population that designates every 10th pup exactly to be the runt.  Mankind uses statistics to describe what's already out there in nature.  Nature doesn't bend itself specific ways in order to conform to their stats.

Statistics is just our way of making real data artificially easy to work with.

Think of it this way:  Imagine in the distant future, humans evolve these giant, veiny, Megamindy heads, with super powered brains inside of them.  

Let's say that hominid is able to look at a messy table of numbers - columns and rows of gobbeldy-gook forever - and immediately see/pick out trends.  This guy read streams of raw data the way you and I read books.

They would see what's going up, what's coming down.  They'd understand immediately if variable A is more volatile than variable B.  It would be obvious to them the range values are moving within, and with what speed and degree they fluctuate.

BUT WE ARE NOT THIS GUY.  Our minds aren't evolved to a point where we can look at a list of numbers, and glean some relevant information from them.

We simply do not digest huge quantities of numbers this way.  We need summaries.  We need the over-arching trends.  We need "just the gist."  We need to transform our data into simpler forms before we can swallow it.

We need statistics.

"Statistics" is the art of summarizing numbers.  It's how we can turn a series of data into a single, easy to digest factoid.  

Statistics are tools humans invented to make working with figures easier.  

As such, we should be careful how we think about them.  The average height of a Kindergartener is not the actual height of your Kindergartener.  The median income of a citizen of your city is not your actual income.

It's something of its own class entirely...

Monday, June 2, 2014

Contemporary economists you should know: Larry Summers

Contemporary economists you should know

They direct powerful institutions.  They have the ear of national leaders.  Their ideas influence world events on the daily, in very tangible ways.  And still, many economists are just not major public figures - at least not in the way that the journalists, politicians, activists and pundits who depend on them are.

In the next few posts, I want to introduce you to some of the most important people in economics today.  

By seeing there are actually faces behind these ideas, I think economic debates become a bit more fun to follow.  

I think it also will illustrate to you one of economics dirty little secrets - economists' personal world views can shape their policy views just as much as their technical insight, research, and calculation!

Larry Summers

Ok, so I admit he's not as personable or accessible as Goolsbee, but I'd certainly argue Larry Summers has been the more influential economic policy maker in our lifetimes.  

In fact, I'd be hard pressed to name a greater mover and shaker than Summers - the man has serious pull in the world you inhabit.

The Bio

I don't know what to lead with here.  It's like a multi-way tie for most impressive credential.

Full professor of economics at Harvard by age 29.  

Former Chief Economist at the World Bank.  

Former Secretary of the US Treasury.  

Former President of Harvard University.  

Hugely successful career in finance and banking (particularly with a hedge fund called D. E. Shaw & Co.).

A top adviser to President Obama, and one of the head architects of the Great Recession response.  And columnist for Bloomberg, the NYT, the Financial Times, and I'm sure oodles of other's I don't know about.

As an academic, he's studied, researched, and published in just about every field relevant to public policy/economics - from labor economics, economic development, macroeconomics, and monetary policy.

If you're more a fan of the quantitative, consider this:  I found his CV on his webpage.  It's 9 pages long


There are plenty.  A guy who has led so many of the world's institutions is not going to manage to keep his hands clean.  

Anything even a little bit sketchy happening in one of his organizations, of course, will tie back to him, and reflect on him personally.  When you want to be the boss, sure you get all the credit - but you get all the mess too.

That's not to say he hasn't invited some of the trouble he's been in.  His departure from the Presidency of Harvard was not entirely his idea.

During his time at the World Bank, he was a big proponent of the kind of deregulation that created the environment necessary for the Financial Crisis to occur (though to be fair, so was pretty much everyone else back then - this is when all the cool kids were "Neoliberals").

BUT...whether you love him or hate him is irrelevant.  The man is a giant.  He's probably the biggest economic mind alive.  His opinion is greatly valued by the people you vote for, bank with, and buy from.  

He is, after all...just the man behind much of today's private and public economic policy...

In his own words...

Summers is a technocrat.  He's not the public-facing, fun fella Goolsbee is.  Summer's is more of a behind the scenes, backroom, in the shadows type guy.  Basically, he's a nerd.

I think that's why it was so hard for me to find a really compelling interview with the guy.  But here's what I got:

"The Worldview of Lawrence Summers"

A digestible chat with Summers, centering about his life, personal attitude, and experiences.  Here's where you can get to know him as a person.

"Davos 2013 - An Insight, An Idea with Lawrence Summers"

A technical, dry, and kinda-weird interview, despite the interviewer trying desperately to steer the conversation back to something human.  

However, the talk is excellent.  It gives Summers the venue to really wax poetic about his field, and really get into the nitty-gritty of how he sees the world.  If you can sweat through it, it's worth it.

(Also, for some weird reasons, he's wearing a suit and Timberlands).

Tuesday, May 27, 2014

The economics of a honeycomb

"Bees. . . by virtue of a certain geometrical forethought . . . know that the hexagon is greater than the square and the triangle and will hold more honey for the same expenditure of material in constructing each."                                                     ~Pappus of Alexandria (290-350 AD)

I came across this quote recently, and to be honest, it kind of shocked me for two reasons.  

First...why had I never heard this!!  I've seen honeycombs plenty of times before, I buy honey frequently, but I don't remember anyone every relating to me this quasi-mystical observation about bees' almost human-level of reasoning.  

Second, I found Pappus' observation frustratingly difficult to get my head around!  It's not intuitively obvious what he means.  Minutes after reading that quote, I found myself angrily scribbling shapes and figures on scrap paper, trying desperately to understand the concept.

Took me a beat, but...I finally got it.  And it kinda flabbergasted me.  If you want to understand it too, do read on...

Bees are excellent factory managers

The honeybee's penchant for hexagonal patterns is actually a very clever solution of a common problem in manufacturing economics:  how to produce the highest quantity of goods, while spending as little as possible?

Turns out bees can solve that exact problem:

By structuring honeycombs in sheets and sheets of tiled hexagons, the bees are actually maximizing their honey producing real estate, while minimizing the amount of wax material needed to build!

The production of honey is subject to a constraint - wax isn't free.  The bees need time, energy, and resources to create the wax hives are made of.  Its a limited resource.

But given that constraint, the bees have worked out the mathematically optimal method of producing as much honey as possible!

Area and perimeter

Imagine a square that is 2 cm by 2 cm.  

It's area, which represents the total amount of material the square can contain, is 4 cm squared.  

But the perimeter - the distance around the outside of the shape - is 8 cm.  

Meaning that if the bees shaped their honeycombs in cells in squares, they would need 8 cm of wax to cordon off 4 square cms of honey.

Why don't bees built honeycomb cells like this?  Row after row of squares, like a big checker board?

Because its an economically inefficient use of material!  By avoiding squares the bees can store the same amount of honey, but use less wax!

A bit of geometry...

By adding more sides to any polygon, you can increase its area, while decreasing the perimeter.  In essence, you can fence in more space with less fence.

Don't believe me?  Try it out!  

Remember, a square measuring 8 around closed off an area of 4.

But with an eight-sided octagons, that same 4 cm squared of area can be roped off with just 7.3 cms of material.  Same amount of honey, but nearly a full unit less wax needed to contain it!

Keep adding sides, and you'll see the same pattern.  You can hold the area constant, while shrinking the perimeter.  

Take it right up the a circle - the polygon with infinite sides!  A circle with an area of 4 has an circumference of 7.08! 

So adding sides to the honeycomb cell clearly has an advantage here.  The more sides added, the more efficient the hive's construction - its using less resources and enabling the same amount of honey-making space.  

And yet the cells of a honeycomb are just six-sided hexagons.  Why stop at six?  Considering the advantages of more sides, why not a nine-, twelve- or twenty-sided cell?  Why not circles?

At this point, you may be losing some faith in this insect's geometric capacity.  But not so fast!  The bee's design choices are actually highly sensible, once you consider...tessellation!


Of course, the many cells of a honeycomb are not free-standing, individual little containers.  They're jammed into a larger grid.  Every cell is surrounded by other cells.  The cells are a bunch of containers that have to fit inside of another container - the hive.

Tessellation is a fancy mathy word for tiling.  Its the repetition of a shape, or group of shapes, over and over in a 2D pattern.

Tessellation examples

Notice how the tessellation in the top right leaves little gaps between the cells? 

The other patterns fit together perfectly, however.  The tessellation leaves no empty spaces.

And did you see the pattern in the top left?  The red, blue and yellow hexagons?  Yeah, hexagons...the bee's preferred shape?  No gaps between the cells, right?

This is the key to the bee's design genius.  Its the thing that impressed Pappus so.

It turns out that a hexagon is the most-sided polygon that can be laid in perfect tessellation.

As soon as you go past six sides, you start creating gaps, or irregular courses in your tessellations.  You can see that for yourself by playing with this Tessellation Creator.

If the bees built cells with more than six sides, they would be wasting space in their hives.  Yes, each honeycomb cell would hold the same amount of honey, while using less material...but it would also waste space inside the hive by leaving gaps between the cells.

The hexagonal system is the best possible solution, given the fact that the bees real-estate is limited to the inside of the hive!

Optimization given constraint

The hexagon is the perfect shape, given the circumstances.  Any fewer sides than 5 (so a square, rectangle or triangle), and the bee wastes wax.  Any more than 5, and they waste hive space.

The honeybee's have solved two tricky math problem at once!  In economics jargon, we'd say they are "maximizing a production function given a constraint."  Mathematicians would say the have solved a "discrete optimization" problem.

But think about animal with a TINY brain, no, tools, no ability to plan or reason has found the perfect balance between production cost and production benefit.  This is something many human businessmen and economists struggle to do!!

And its not just a subjectively awesome solution.  Its the best solution conceivable.  Its a mathematical, intrinsic, objectively correct solution!  The bees got the right answer...there's no way to improve on their technique!

To us humans, wild animals often seem be leading a haphazard existence.  Turns out that's not always true!  

Who'da thunk it...inside that honeybee hive is a team of production administrators with a perfect understanding of the a priori nature of geometry.  If only human economists were always that good...

Monday, May 19, 2014

Contemporary economists you should know: Austan Goolsbee

Contemporary economists you should know

They direct powerful institutions.  They have the ear of national leaders.  Their ideas influence world events on the daily, in very tangible ways.  And still, many economists are just not major public figures - at least not in the way that the journalists, politicians, activists and pundits who depend on them are.

In the next few posts, I want to introduce you to some of the most important people in economics today.  

By seeing there are actually faces behind these ideas, I think economic debates become a bit more fun to follow.  

I think it also will illustrate to you one of economics dirty little secrets - economists' personal world views can shape their policy views just as much as their technical insight, research, and calculation!

Why you should know Austan Goolsbee

You probably don't recognize the name.  But chances are, in the past few years, you've been exposed to his research.  In fact, you've heard talking heads on TV pick apart his research.  

Heck, you've probably posted snippets of his work on facebook, or discussed them among you're friends, without even being aware of it.

That's because, Austan Goolsbee has been - in so many words - Obama's economist.

Goolsbee, an economics professor at the University of Chicago, hooked up with Obama more than a decade ago, when Obama was running for Senate.  

He was Obama's chief economic adviser from the Senate campaign, right up until the start of Obama's second term as president (when Goolsbee decided he had had enough of Washington and wanted to go back to academia). 

Goolsbee saw the president through two of the most significant economic shake up of this era - the Great Recession (and subsequent recovery maneuvers), and the formulation/implementation of Obamacare.

Goolsbee was also researched the Obama's economic talking points.  

Whenever you heard Obama or Jay Carney say: "my opponents tax cuts would cost the govt X amount," or "this stimulus could create X jobs," or "regulating financial institutions would have such-and-such affect on the economy,"...these were facts and figures worked out by Mr. Goolsbee.

Get to know Goolsbee

You should have no fear about getting acquainted with this guy and his way of thinking.  Goolsbee is funny, speaks 'jargonlessly', and - most importantly - a wildly influential dude.  If you live in America, whoever you may be, the ideas of Austan Goolsbee have effected you personally.  Might as well meet the guy, right?

"Austan Goolsbee: Jobs, Politics, and America's Future"

A public interview with Goolsbee at the University of Chicago, right after his return from Washington.

This interview focuses on the Great Recession, and Obama's recovery strategies.

Highlight's include:
  • 1:15 - 7:23 The story of how Obama and Goolsbee got together
  • 17:07 - 24:55 Obama's stimulus package
  • 38:20 - 43:17 General Motors and how Obama handled 'differences of opinion' within his Cabinet
  • 1:10:01 - End General reflections on working in the Capitol

"Austan Goolsbee - Health Care and the Economy"

A short, but kind of technical lecture on Obamacare, given a year after Goolsbee left politics.

Sunday, May 11, 2014

Economics podcasts: my recommendations

Over the last few years or so, I've found myself getting a large share of my news from podcasts.

It wasn't a purposeful, conscious choice.  I feel like I just sort of followed the path of least resistance, and ended up at podcasts.  They have lots going for them!

First and foremost, they're free.

But lets not forget the fact that most come out regularly.  And because its just an audio file, podcasts can be listened to while you drive, work, do the dishes, or go to the gym.  Pretty convenient, pretty accessible, pretty fun.

Some of the podcasts out there are kind of technical and dry.  But there's quite a few targeted at a popular audience, that are also incredibly informative and useful.

In today's post, I'm recommending a few nontechical podcasts for you, the economically curious.  Please subscribe, and get these on your iPod!!  I promise, you will be a more informed (and entertained) person for it.

'Freakonomics Radio'

Every few weeks, Steven Levitt and Stephen J. Dubner, the authors of the Freakonomics book series publish an episode of their podcast, Freakonomics Radio.  Episodes range in length from 10 minutes to an hour.

Those familiar with the books will recognize the style and subject matter here.  The Freakonomics franchise is all about applying economic methodologies, and the study of human rationality to the weirdest stuff.

Recent episodes have probed traffic laws, avocado cultivation's connection to organized crime, and the measurable dangers (or lack thereof) of marijuana.

Each episode is hosted primarily by Dubner, and involves a lot of interviews with famous contemporary economists and behavioral researchers.

AND...I will also mention that, hands down, it has the best production values of any podcast I know of, independent of subject matter.  They spend some money on this.

Anywho, be sure to check it out.  I'm going to say "heck, just put it on as background noise while you're doing something else," but I know if you hear this podcast once, you won't be able to stop yourself from becoming an obsessive fan.

To listen, visit

'Planet Money'

This is NPR's economic's podcast.  Just about weekly, the Planet Money team puts out a new 15 - 20 minute episode.

The episodes are fairly consistent in style: the journalists pick a major economic trend or news story, and try to find an individual who has been personally affected by it.

Housing crisis?  Planet Money will do an episode on some regular Schmoe with an underwater mortgage.  Utility subsidy cut?  Planet Money will find you someone whose pissed about their bill increasing.

This is the truly remarkable thing about this podcast.  Planet Money knows how to make economics real.  Salient.  Tangible.  They can find away to turn arcane policy and technical planning into a human story.

Planet Money is the best reporting on the affects of economic policy and phenomenon.  I wish more economists would list to it, since it does such a good job of bringing home the real-world consequences of what they do.

Any way, you can listen to this one here.

'More or Less'

More or Less is produced by the BBC, and presented by Tim Harford - a Brit who went from being an economist, to an economic journalist, to an author, and now is just an all around darling of the econ world.  

He's one of those rare gems that understands economics very well, and also knows how to communicate his knowledge.

The show runs sporadically.  Every few months or so, another couple episodes are released.  Episodes are between 10 or 30 mins.

More or Less is not a purely economic podcast, per se, but rather a podcast about public statistics.  In each episode, Tim picks apart newsworthy stats to see if they are being misused, misunderstood or miscalculated.  It's a lot of fact-checking and a lot of smart-ass English quipping.

Think of it as Mythbusters for the numbers, percents, figures and rates you hear on the news, in parliament, or on in conversations/debates with your political friends.

Very entertaining, and very informative.  But don't take my word for it!  Go here, and discover it for yourself.

'Listen to Lucy'

Ok, so this podcast is just plain FUN.

Lucy Kellaway has been writing for the Financial Times of London since 1985.  Her columns have always been about managing businesses, but in the last few years, they have been decreasingly less technical, and more and more op-ed.

Just about every week, Lucy produces a 5 minute podcast, that is always an incredibly acerbic, and always sharp critique of office life.  "Your business wouldn't be so ridiculous if only you'd do this one thing..."  

Its like a fab-bitchy Mary Poppins, from Dilbert's universe.

Anyway, she always makes me laugh, and always gives me something to think about.  Good advice for the working world, and excellent, quick bits of entertainment.  Be sure to listen and subscribe.


For all these podcasts, you can just listen online at the links I've provided.  If you want to subscribe to them, and get them automatically loaded on your iPod/iPad/Phone/device, check out this guide, or just google your questions.

I use an app called RSSRadio for my iPod touch.  It subscribes to my podcasts, downloads automatically any new releases, and cues them up in an easy to manage playlist for me to listen to on my own time.  I recommend it!

Tuesday, May 6, 2014

Are Welfare debates unresolvable?

If I know you're opposed to gay marriage, it'd be safe to infer you're not a fan of amnesty for illegal immigrants.  And if you tell me you're very concerned about global warming, I can divine with some accuracy your attitude toward Obamacare.

This, of course, makes no damn sense.

Is there a refugee crisis on Fire Island?  Does your insurer index your co-pays to worldwide carbon emissions?  These issues are not related in real life, yet our attitudes on the subjects are.  Why?

The world of politics is frustratingly irrational.  We like to imagine our political positions to be the result of careful and calculated reasoning.  That we examined all the facts, objectively and impartially, and came to the inescapable conclusions.  At least that's our story.

But let's be honest...that's total nonsense!  If our politics and values were governed by pure reason, we'd have as many political parties as we have people!

No two people have the same goals, experiences or endowments.  So why can we predict things like voting patterns (on a national scale, no less), with decent accuracy, based on characteristics as broad as race and geography

Its so obvious, I think its axiomatic.  Our morals - our core beliefs about right and wrong - come from the heart, not from the head.  C'mon, be real!  You've observed this phenomenon in your own life and social circle.  You've observed it yourself.  Why is it so hard for us to admit it?

"The Righteous Mind"

When I see a review claim a new book to be "a landmark contribution to humanity’s understanding of itself," I my eyes roll just as hard as your would.  However, in the case of Jonathan Haidt's "The Righteous Mind," the accolade is deserved.  Seriously.

I just got finished reading this book, and was absolutely floored by it.  Haidt is a psychologist who studies the psychology of values.  From the time we were children, we perpetually are registering certain human actions as right or wrong, fair or cruel, good or bad.  Haidt wants to know how our brain arrives at to its judgement.

In this new book of his, he walks the reader through the last 15 years of his research and experiments, in a way that's extremely easy to read and comprehend.  His ideas are nuanced and intricate, but the writing is very clear, very engaging.

Every few pages of this book, I came across an observation that made me say: "Jeez that's so obvious!  Why did I never notice that before!"  I think that's what made the book so exciting.

I haven't found any negative reviews of the book yet...and I think its just because it's so hard to argue with Haidt's observations, that a negative review would be impossible to write!

I'm not going to get into the book's contentions in this post - the ideas aren't soundbiteable (and if you really want to know, you can just read the book yourselve).  But if you want to get a quick taste of his work, check out Haidt's TED talks.

The basics

Economics is barely mentioned at all in the book, however there's a few points Haidt's make about human thinking itself that I thought could have fresh - and worrying - implications for economists.

First, a little context: Haidt talks about our values/political leaning (e.g. "liberal," "conservative," "libertarian") kind of like they were personality types.

I'm on board with that.  Whatever way we lean politically, we lean that way all the time.  I don't wake up some days a Republican, other days a Dem.  If your friend was a conservative five years ago, you would assume they are one now.  Our politics is part of our personal identity.

We even acknowledge this in our speech.  "We are liberal," "he is a conservative," "I am an independent."  Heck, you can even hard-set your politics on your facebook page, right along with other personal data like your gender, school, and date of birth!

Haidt suggests that political labels/identities are a social construct we use to organize certain personality types, not the other way around.  As we created the idea of "liberal," to categorize a type of person that has always existed (i.e. excited about novelty, higher capacity for sympathy, etc.), for example.

He points out that some people just have stronger senses of empathy than others.  In his experiments, Haidt found that subjects who show abnormal high level of worry for others also tended to identify themselves as 'liberals.'

Haidt doesn't think that these people "became" liberal through some accident (what ever that would mean), and then decided to just stay 'liberal' without actually being liberal (what ever that would mean), and inadvertently learned empathy - on account of that narrative making absolutely no sense.

Instead, he points out it has to work the other way - an individual develops that empathy on their own, and when they operationalize/express it, society just deems that "being a liberal."

I'm 100% on board with this whole heuristic, and here's my simple argument supporting it: human nature existed before the advent of the Democratic and Republican parties, will still be around even after they have ceased exist.


With these concepts in mind, check out the following passage from "The Righteous Mind" (pg 159-160):

"On the left, concerns about equality and social justice are based in part on the Fairness foundation—wealthy and powerful groups are accused of gaining by exploiting those at the bottom while not paying their “fair share” of the tax burden. This is a major theme of the Occupy Wall Street movement...  

On the right, the Tea Party movement is also very concerned about fairness. They see Democrats as “socialists” who take money from hardworking Americans and give it to lazy people (including those who receive welfare or unemployment benefits) and to illegal immigrants (in the form of free health care and education).

Everyone cares about fairness, but there are two major kinds. On the left, fairness often implies equality, but on the right it means proportionality—people should be rewarded in proportion to what they contribute, even if that guarantees unequal outcomes."  
(Emphasis added)

WOW!  In just a few clean sentences, Haidt puts together a very satisfying explanation of something I've been trying to get my head around since high school.

Some people feel "fairness" means every one is on the same level - an equal playing field.  Others see "fairness" as proportionality - everyone getting out what they put in.  

We just so happen to call the people of former persuasion "liberal," and the latter "conservatives," but the psychology predates the politics.

The important thing to note is that the ideas exist independent of the labels.  The differing attitudes are first and foremost results people's personalities, the designation of these as two fundamentally, intrinsically different camps, is a post-hoc social construct.

Honestly, Haidt's assertions don't sound much like a "hypothesis" to me at all.   It sounds like a rather a good description of observable human behavior.

Who doesn't associate the left with a 'concern for the have nots'?  Or with a automatic revulsion for the well off?  And who doesn't consider the fascination with the 'lazy' people who leech off the hard work of others, and the reverence of the 'self made man' a 'conservative' trait?

What's all this have to do with "Welfare debates"?

If Haidt is correct (and it really feels like he's on to something here), then those Welfare debates I  recently wrote about are essentially unresolvable.  The only way one side of the political spectrum can win is for the other side to lose - both sides can see nothing but injustice in the other's approach! 

Think about it: "Welfare" type programs (the kinds that actually exist, like food stamps, public housing, Medicaid, etc.) involves transferring wealth from those who have it to those who don't.

For the 'liberal,' this is "fair," since it puts all citizens on an equal footing, and gets rid of the undue advantages the hegemon enjoys.

For the 'conservative,' this type of program is intrinsically unfair...for the exact same reason the liberal sees it "fair"!!  The conservative correctly sees "The Welfare State" as extracting money earned by workers and corporations, and handing it to those who do not earn.

The converse is true if the Welfare programs were to be removed - the conservatives would see this as fair, since everyone gets to keep what they've earned, but the liberals see this as unfair since it leaves poorer folks high and dry.

With the two interpretations of "fairness" so diametrically opposed, there really is no room for consensus.  No matter who gets there way, the other side will see it as a great wrong that must be undone. 

This is probably why these debates get so heated, and are rarely productive - both camps sees the other guy's positions as "lets do something bad."

And if these positions are rooted in your personality, in the very fiber of your being, and NOT in your rational/reasoning mind (as Haidt suggests), then how the hell can we ever hope for people to accept compromise?  These attitudes are hard wired.

Ugh.  Scary, right?

Tuesday, April 29, 2014

"Welfare" myths

Welfare.  There are few America public institutions with such passionate advocates, and such passionate detractors.

Liberals see Welfare as a tool for balancing the playing field, a mechanism for giving the poorest among us the resources necessary to just to get by. 

Conservatives see Welfare as a device that unfairly redirects earning from the paychecks of the hardworking, straight into the wallets of the lazy and unmotivated.

Diametrically opposed interpretations, right?  Both camps look at the same institution, the same program, but see two very different things.

But what if I was to tell you that BOTH of these narratives  INTRINSICALLY incorrect?  That neither of these viewpoints can be true based on their own merits?

Both liberals and conservatives miss the mark when it comes to the Welfare debate.  Why?  Simple:

"Welfare" as people talk about it – the indefinite doling out of cash directly into the hands of the poor – DOES NOT EVEN EXIST.  It's an urban legend, a fairy tale...and yet, that doesn't seem to stop the political among us from developing strong opinions of it, does it? 

The Myth

Whether it be on TV, in the classroom, or around the dinner table, debates about Welfare are a common occurrence throughout the US.

But whether or not the debaters support the program, their starting assumptions about what Welfare actually is always the same.  Typically, something along the lines of:

"If they're broke, anyone in the US can just go down to the county office, and collect themselves some Welfare money.  Welfare recipients can collect that money as long as they want, with no strings attached... in fact, some people are on Welfare their whole lives!"

So this premise (or something very similar), gets thrown out there... 

...and invariably, the liberal in the room defends the program, siting the virtue of sacrifice for the sake of other's well-being...

...and the conservative in the room leaps to the defense of the the taxpayer, pointing out that the whole thing is just a scheme to take money from those who are willing to work, and give it to the Welfare Queens who aren't.

The thing is, both arguments are mute!  There just is no govt program in existence that exactly matches the one I described above.  

The Reality: TANF

If you look though the US Federal budget, you won't find a spending item for "Welfare".  But you will find something called "TANF".

Since TANF is the closest thing out there to this mythological "Welfare," I'm going to assume when people say "Welfare," they really mean TANF.

(Note: There's a handful of other programs - food stamps, section 8, SSI, disability, etc. - that I think also get grouped together as "Welfare" in people's minds. 

These programs are each administered separately, by different govt departments, and have their own budgets.  I guess they're kinds of 'welfare programs,' however they provide specific benefits and services, not spend-as-you-please money.  For the purpose of this post, I'm ignoring these other programs, and only focusing on the cash-in-hand concept of "Welfare.")

What is TANF?

So TANF provides a monthly allowance to those with low incomes.

  • TANF is only available to families - applicant's must have children and/or spouses.  Single people without kids can't collect TANF (the "F" is for "Families," remember?).
  • There are time limits.  People can only collect TANF 24 months at a time, and can collect no more than 60 months total over their lifetime.  (You can request an extension based on "hardship."  However, Federal law stipulates that no more than 1/5 of a state's Welfare recipients can go over the 60 month limit, making extensions relatively rare.)
  • Anyone receiving TANF money is required to spend 30 hrs a week doing "work activities" (20 if they have young children).  The definition of "work activities," varies state-to-state, but things like job hunting, technical training, babysitting, volunteering, taking a GED prep course, or interning typically counts.
TANF's overarching guidelines and goals are set by the Fed.  However, its up to the individual states to implement them.  As a result, there is a lot of variation among states in terms of benefits, eligibility, and how the money can be spent.  What I've listed above are all Federal guidelines - additional restrictions my apply in your area.  (For more details, check out the CBPP's "Policy Basics: An Introduction to TANF.")

BUT...REGARDLESS OF YOUR STATE...Are you single, without kids?  You CANNOT receive TANF.  Been on the dole for 5 years total over the course of your life?  You CANNOT receive TANF.  Not currently looking for a job, or honing your skills?  You CANNOT receive TANF.

You see now why I say that the "Welfare Queen" doesn't really exist?  The idea that there's a class of people out there just living off of govt gravy train, passing decades loafing at home, is untrue.  The program is temporary, reserved for families, and designed to wean people away from itself.

How TANF is administered

Because eligibility requirements vary so much by state, there is no one form you fill out, or one website you visit to apply for TANF.

Applicants instead must go down to the local county seat, and ask for an interview with a caseworker.  The caseworker will review the applicant's present income, work history, savings, assets and family situation, and make a judgement as to whether or not the applicant meets the state standards.

Once a person has been deemed eligible for TANF, they get a pre-paid "EBT card."  Their TANF allowance is loaded to the card monthly (as is their 'food stamps' credits, if they are receiving that as well).

Like a lot social safety net type programs, the states and Federal govt fund TANF, at pretty much
a 50/50 split. 

This means that taxes taken out of an employed person's paycheck (by both the state and the Fed) are used to fund TANF.

For the last few years, the Fed has spent somewhere to the tune of $17 billion annually, the 50 states have been kicking in a total of $15 billion annually on TANF.

How many people are on TANF?

1.8 million families, constituting 3.2 million children, and 1 million parents.  (Source)

How much TANF pay?

The states have a lot of latitude when it comes to setting pay-out rates.  The state's cost of living is factored in, as is the size of the family.

However, each state does set monthly maximums, and boy to they vary.  A family of 3 in Alaska can collect as much as $923 a month.  But in Mississippi, they'd be capped at $170.  Click here (and check out Pg 108, Table II.A.4) for a more detailed breakdown of the max's.

Of course, the maximum pay-out and the typical pay-out aren't the same.  I can't find a state by state list of average TANF pay-outs (which is has to be out there...if you find it, please share in the comments below).

However...according to the Dept of Health and Human Services (the Federal dept that administers TANF):

"The average monthly amount of assistance for TANF recipient families was $392 in FY 2010.  Monthly cash payments to TANF families averaged $327 for one child, $412 for two children, $497 for three children, and $594 for four or more children."  (Source)

How does the money get spent?

It is illegal to spend TANF money on stuff like gambling, cigarettes and alcohol (enforcing that rule is kind of tricky, though).

Now, 82% of TANF recipients also receive food stamps.  97% receive Medicare, Medicaid and/or Veterans medical benefits.  Many can get section 8.

Despite this, a lot of TANF money winds up paying for people's living expenses (the type of stuff food stamps and Medicaid are supposed to cover).  EBT cards are swiped most often at grocery stores, bus/train stations, and medical facilities.

Also, don't forget that TANF is only available to families.  People with kids have the additional expenses of cell phone bills, utilities, clothes and school supplies, all of which soak up even more TANF dollars.

The origin of the "Welfare Queen" myth 

"Welfare" (or more accurately "TANF") is not big money.  It cannot be collected indefinitely, it's only available to families, and isn't open to those uninvolved with the working world.

So where did this idea of "Welfare-livin' for the lazy at heart" come from?

When Reagan was campaigning for president in the late 70s, he promised to eradicate America's "Welfare Queens" if elected.  These were theoretical individuals whose primary source of income was Welfare money.  And they were living the highlife, on your dime - so the story went.

Ok, so to be fair to Reagan, AT THE TIME, yes - many of the these Welfare restrictions were NOT in place.  It was possible for people to collect Welfare for long periods of time, etc.  There was a period of time (several decades ago) that the Welfare you're thinking exists actually did.

Reagan didn't change that, but in 1997, Congress passed the Personal Responsibility and Work Opportunity Act".  The act replaced the old Welfare system, which had remained relatively the same since its inception in 1935.  The PRWOA created the restrictions I've covered in today's post.

The goal of these restrictions was to "end Welfare as [they knew] it," changing it from an easily exploited program that fostered dependence, to the temporary, work-placement initiative that it is today.

So the Welfare that people tend to argue over today is a Welfare that already ended 18 years ago.  But Regan's "Welfare Queen" narrative was so powerful, and so polarizing, that his characterization of Welfare just sort of stuck, even long after changes were made.

The result: when people today say the word "Welfare", they are often referring (unwittingly) to the Welfare of a bygone era.  They mistakenly think that the paradigm they're familiar with is the one still salient today.

It isn't.