Go East, Young Man

James Bailey1 Comment

Americans have moved westward in every decade of our history. But after over 200 years, that trend may finally be ending.

A new report from Bank of America notes that the share of Americans who live in the West has been falling since 2020:

The absolute population of the West is still growing slightly, but the Southeast is growing so quickly that it makes every other region of the country a smaller share by comparison:

I think this has a lot to do with the decline in housing affordability that Jeremy discussed yesterday. Americans always went West for free land, or cheap land, or cheap housing. Or in more recent decades on the Pacific coast, they went for nice weather and good jobs with non-insane housing prices. But now all that is gone, and if anything housing prices are pushing people East.

I see some green shoots of zoning reform with the potential to lower housing costs in the West. But I worry that this is too little too late, and that 2030 will confirm that our long national trek Westward has finally been defeated by our own poor housing policy.

The US Housing Market Is Very Quickly Becoming Unaffordable

Jeremy Horpedahl15 Comments

In a post from July 2021, I discussed housing affordability and “zoning taxes” — in other words, how land use restrictions such as zoning were driving up the cost of housing in some US cities. San Francisco, Los Angeles, Seattle, and New York stood out as the clear outliers, with “zoning taxes” adding several multiples of median household income to housing costs.

The paper I was summarizing used data from 2013-2018, and it’s a very well done paper. But so much has changed in the US housing market since that time. In my post, I pointed to a map from 2017 showing that a large swatch of the interior country still had affordable housing — loosely defined as median home prices being no more than 3 times median income.

To see how much has changed so quickly, consider these two maps for 2017 and 2022 generated from this interactive tool from the Joint Center for Housing Studies.

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Is “Rich Dad  Poor Dad” a Fraud?

Scott Buchanan9 Comments

With my interest in personal finance, the headline

Robert Kiyosaki, ‘Rich Dad Poor Dad’ Author, Says, ‘I Am a Billionaire in Debt’ — And Calls Dave Ramsey An Idiot For Encouraging People To Live Debt-Free

got my attention. I happen to know many people who have been helped by Dave Ramsey‘s sensible courses and books on managing personal finances. But I don’t know a single person who has gotten rich by following Kiyosaki’s advice. So, I decided to do a little fact checking here.

Richard Kiyosaki published his financial self-help book Rich Dad Poor Dad in 1997. The book purports to be non-fiction, and dispenses financial advice through a supposed autobiographical narrative which contrasts his well-educated, hard-working but not-rich father (“poor dad”) with the father of his next-door neighbor Mike. Mike’s father (“rich dad”) was an eight-grade dropout who owned “convenient stores, restaurants, and a construction company. “

According to the narrative, Kiyosaki learned financial business secrets from this rich dad, which Kiyosaki applied to quickly build a vast real estate empire, using the magic of borrowed money.
Rich Dad Poor Dad became a runaway success, selling over 32 million copies, and remaining on the New York Times best seller list for over six years. Kiyosaki has parlayed its success into a series of further books and related products. Kiyosaki’s narrative has fired the imaginations of millions, and made him rich through the sales of his books and other products.

I read his book back around 2000, and came away with mixed impressions. On the one hand, there was sensible advice to put your resources into money-generating assets rather than frittering it away on consumer goods. The narrative of how easy it is to make big money in rental real estate was alluring, and motivated me to delve further into the subject. On the other hand, the book was pretty short on specifics of how to actually do this, beyond recommending expensive courses offered by Mr. Kiyosaki. It seemed too good to be true, but hey, how could I argue with such apparent success?

It turns out that that skeptical intuition of mine was justified: the promises offered in Rich Dad Poor Dad are too good to be true, and in fact the whole narrative of the book appears to have been made up in order to appeal to gullible readers.

Various people have probed into the Kiyosaki story. The most extensive treatment I know of is “John T. Reed’s analysis of Robert T. Kiyosaki’s book Rich Dad, Poor Dad”, but see also “ Shocking Revelation: Kiyosaki’s “Rich Dad” Is Not Real, but a Myth Like Harry Potter “, by KSCHANG at Tough Nickel, and others.

As best anybody can tell, there never was this “rich dad” character as described by Kiyosaki. Also, there’s no evidence that Kiyosaki actually made significant money by real estate dealings, prior to making millions of dollars with his book sales (and presumably putting some of that into real estate.)

As a person who values personal integrity, I tend to be peeved when authors or screenwriters present a book or a movie as fact, when key parts of it are actually fictional.  The usual “Based on a true story“ disclaimer doesn’t cut it, since readers/viewers can’t help coming away with the impression that this is what happened, when really it didn’t (Think: Roots, A Beautiful Mind, etc., etc.).

So the dishonesty at the core of Rich Dad Poor Dad annoys me. What is more significant is that much of the advice is actually counterproductive, harmful, or even illegal. For instance, Kiyosaki recommends trading stocks based on private tips from friends in corporations; this is called “insider trading”, and people like Martha Stewart have gone to jail in connection with it. He also tells of how he can back out of contracts by inserting a clause “subject to the approval of my partner”, where said partner was actually his cat. That is called “fraud”.

Richard Emert at The Motley Fool opines, “Kiyosaki’s material is almost completely devoid of specific financial advice. Further, his material on making money in real estate appears to be little more than repackaged hype from the “no money down” real estate hucksters of the late ’80s.”
In deference to his exhaustive investigation, I’ll give John Reed the last words here (tell us how you really feel, John):

Rich Dad, Poor Dad is one of the dumbest financial advice books I have ever read. It contains many factual errors and numerous extremely unlikely accounts of events that supposedly occurred.

Kiyosaki is a salesman and a motivational speaker. He has no financial expertise and won’t disclose his supposed real estate or other investment success.

Rich Dad, Poor Dad contains much wrong advice, much bad advice, some dangerous advice, and virtually no good advice.

[emphases in the original]

…the book goes on to deliver a pack of lies that make getting rich seem much easier than it really is and make education sound much less valuable than it really is. Basically, people want to get rich quick without effort or risk. Kiyosaki is just the latest in a long line of con men who pander to that fantasy.

… [But] to members of Kiyosaki’s cult, it matters not how many false or probably-false statements I find in Kiyosaki’s writings. They just like the guy. Personality is an appropriate criterion for selecting someone to hang around with. But it is a highly inappropriate criterion for evaluating Kiyosaki’s advice, because he’s not going to let you hang around with him and your family’s finances are serious business.

What happens when NCAA athletes unionize?

mdmakowskyLeave a comment

Darthmouth men’s basketball took the next step in forming the first union of NCAA athletes. What does that mean? First, some background. The NCAA is divided into Division 1, 2, and 3 schools. Division 1 schools earns roughly $16 billion per year, the lion share of the revenue. The organizing institution, the NCAA earns about a $1 billion per year, and while their website reports that they return 75% of that to member schools, $250 million dollars per year is nothing to sneeze at for doing little more than managing and enforcing a cartel. Until 2 years ago, the NCAA prohibited any compensation for athletes beyond scholarships, room, and board. Now they can earn incomes from their image rights. In the Ivy League, athletes aren’t even allowed to receive scholarships (though I’ve been told by many personal friends that financial aid packages are unusually large for athletic recruits).

Cards on the table, I’ve long felt this was the most egregious abuse of labor currently active in our country. We scream at each other over whether the minimum wage should be higher while ignoring a group of workers upon whom a cartel is enforcing a maximum pecuniary wage of zero? Is there a side of the political spectrum currently arguing for ceilings on wages for anyone? How bans on athlete compensation survived this long is beyond me, though when left to speculate upon it my mind inevitably wanders to our worst cultural sins.

Let’s assume that the union eventually comes to be. Let’s further assume that the unions of teams and sports federate, eventually forming an umbrella union of all NCAA athletes across all divisions and sports. What will happen? When economists talk about unions, they typically focus on two channels through which they can have positive effects for their members. The first is they can close shop, restricting the supply of labor, driving up wages. This is Econ 101, not a lot of controversy. The second is that they can solve a collective action problem, enabling cooperation amoung members when bargaining for wages against employers. The size of this benefit depends largely on how organized employers are. The more cartelized employers, the more effectively they can collude, the larger the expected gain from collective action on behalf of labor. As such, we can expect the largest positive effect for labor when the union is negotiating against a monopsonistic employer (i.e. the employer constitutes the entire labor market) or a perfectly organized cartel of employers.

As such, when economists argue about (private sector) unions, any disagreement typically comes down to an empirical question: how concentrated is the labor market? How much power does the employer have in the labor market? With long-standing unions, political economy and bigger picture policy cost come into play, but we let’s put that aside for now (NB: we won’t even touch public sector unions. Those are a completely different bag).

What makes the NCAA context interesting is that there is no debate as to whether the NCAA is a cartel or sufficiently well-organized to impose significant costs on labor. It’s a >$16 billion dollar industry and the mission-critical employees haven’t been getting paid any pecuniary income at all. My suspicion is that even amongst the most union critical economists you could fine, most would agree that, conditional on the continuing existence of the NCAA, athletes would benefit from unionizing.

Ok, great, but what’s going to happen?

  1. Athletes will incrementally unionize.
  2. Compensation will increase, even beyond Name, Image, and Licensing (NIL) compensation.
  3. Scholarships will appear, in some form, at Ivy League schools.
  4. Sports will remain nearly everywhere, but I expect some schools will find that costs now exceed benefits, exiting Division 1 and 2.
  5. The model of compensating with “exposure” to professional scouts will continue to dissipate. You don’t need to be on national television anymore to have a scouting profile. Data and YouTube have changed the value-add of playing for a top 10 versus top 200 school, which means that compensation will become an even more critical deciding factor in recruitment.
  6. Athletes will frequently exit college with savings but also having already peaked in terms of lifetime yearly earnings. Which is fine – there is no shame in never making $200k/year again.
  7. The competive advantage of the the top schools in “big roster” sports i.e. football will grow. This will make already lopsided football matchups less tenable and, quite frankly, too dangerous. The formation of a collegiate football “super conference” is inevitable. It will make big money and so will the athletes. The NFL will have a true minor league, albeit one with a rabid fan base. It’s the rare win-win-win.
  8. Alumni donations will create “upstart schools” in sports overnight. A single $5 million dollar donation can make you the best gymnastics program in the country overnight. University hospitals have long been funded by saving the lives of very grateful, very rich people. Don’t be surprised when a walk-on who wrestled at 149 pounds and invented the next killer app writes a check that creates a dynasty.
  9. Coaches salaries will decline, often enormously. Head coach salaries will recover to some degree, assistant coach salaries will not. Coaches will become the labor class being most paid in “exposure” and “opportunity”.
  10. My guess is the only losers in this entire story will be a) Division 1 football and basketball coaches and b) officials at the NCAA. I will shed no tears for them.
  11. Enterprising athletes will start making money on Twitch playing the video game version of their sports, possibly themselves, against fans on their nights off. It will be awesome until 19 year olds start getting canceled for saying bad things in the heat of competitive video game competition.
  12. Athletes will negotiate more favorable practice and travel schedules. Graduation rates will go up.
  13. Schools won’t want to pay salaries for unused players. Red shirt rates will go down.
  14. Athlete influencers. There’s going to be so many college athlete influencers.

Please, no selfies and livestreams in my class. Please. I’m just trying to get through my day.

Tyler Supporting Women in the GOAT book

Joy Buchanan1 Comment

Ladies, Tyler Cowen has done us a solid. He included John Stuart Mill as a contender for the greatest economist of all time in large part because of his insights on gender equality.

I’m short on time at the moment. I’d like to do a better job than this, with more nuance about Hayek, but here’s the most I can do this week:

More here: “John Stuart Mill on women, as explained by TC“

Or read the (free) GOAT book. I might say you should just jump to the Mill chapter, but it makes more sense in context if you read the whole thing.

Taylor Swift to the Super Bowl with AdamSmithWorks

Joy Buchanan1 Comment

I had some fun with my favorite editor Christy Horpedahl.

WOULD ADAM SMITH TELL TAYLOR SWIFT TO ATTEND THE SUPER BOWL?

Have you been told that economists only care about money? If anyone would tell Taylor Swift to focus on her own career, you might think it would be the most famous economist of all, Adam Smith. But AdamSmithWorks fans already know that Adam Smith was concerned with the whole person. So, would Adam Smith advise Taylor Swift to rush back to America after an exhausting concert just to cheer on a man in a football game? 

Click the link and find out!

Arbitrary Framing & Economic Reality

Zachary BartschLeave a comment

Subjectivism is popular at many universities. I am not talking about the economics kind in which people have a diversity of preferences. I’m talking about the subjectivism that permits different and conflicting assertions of truth to be simultaneously correct. This is where the ‘my truth’ language enters. Having a diversity of feelings is one thing – and unavoidable. Having different practical claims about the material world is another. Many universities have embraced Descartes’s unreliability of the senses writ large. The result is that people of seeming plentiful intellectual capacity dogmatize themselves into speaking such that nothing is considered a default. Nothing “is normal”, there is only “normal for someone”.

It’s a perfectly defensible model of the world. And, as we know, models are applicable only insofar as they’re useful. The subjectivist model is great at describing the diversity of preferences and priorities. The model is bad for math and achieving material ends. Further, it can serve to hinder our understanding of worldly or social phenomena.

Here’s an example.

Consider people who don’t speak the same language. They may or may not have some other compensatory skill. For Mandarin speakers, we can rightfully say that they can’t speak or communicate as effectively with the English-speaking majority of people in the US. We can also say the converse: The English-speaking majority can’t speak Mandarin or communicate as effectively with the Mandarin-speaking minority. There’s a certain symmetrical beauty to being able to interpret reality both ways. It exercises our cerebral cortex.

However, modeling the descriptive statements as intrinsically equivalent harms our ability to sensibly understand and analyze the circumstances. Specifically, we need to talk about opportunity costs.

Consider an urban storeowner in America who speaks only Mandarin. Consider also an only-English-speaking customer who has a question about an item for sale. We can perform the same symmetrical analysis as above saying that they both speak different languages. Importantly, however, they face substantially different opportunity costs in two ways.

First, the English-speaking customer has low-cost alternatives. The language barrier need not be insurmountable. If the transaction cost of more difficult communication is adequate, then the English-speaking customer can go elsewhere relatively easily and purchase from the English-speaking storeowner down the block. They have plenty of low-cost opportunities for gains from trade. Clearly, there is nothing intrinsically advantageous about speaking English. What’s advantageous is speaking the more popular language.

By having access to the larger market, the English speaker has access to greater specialization and to more buyers and sellers. If the language difference is the only difference between two people, then the one who speaks the majority language has an economic advantage. I mean ‘economic’ in both the pecuniary and non-pecuniary sense. Speaking the majority language has the consequence of greater income. But that comes from the very real differences in costs and benefits associated with trade. If the exact same person spoke only a minority language, then their income would be lower along with their lesser access to trading partners. Therefore, while it is symmetrically true that the English speaker can’t speak Mandarin and that the Mandarin speaker can’t speak English, it is not true that they face the same opportunity costs.

Second, and probably more trivially, it may be that most English speakers never have occasion to interact with any Mandarin-only speakers. Whereas Mandarin speakers in the US have constant potential interactions with English speakers. It would therefore belie the costs and benefits to simply say that they symmetrically can’t speak the same language. Indeed, many English-speakers have no motivation nor awareness of potential Mandarin-speaking trade partners. At the same time, in the US, Mandarin speakers would very much have an awareness and occasion to interact with English speakers. While it is true that they don’t speak the same language, they differ by their access to potential trade partners who speak a different language. It wouldn’t reflect the incentives to say that the English speaker is less able to communicate with Mandarin speakers when they largely lack even the awareness of the minority language.

Conclusion

An analysis of English and Mandarin speakers in the US is not a symmetrical analysis. It doesn’t matter whether we frame English speakers has having a lower opportunity cost to trading with Mandarin speakers, or whether we frame Mandarin-speakers as having a higher opportunity cost to trading with English speakers. The economic truth is that the opportunity costs differ, no matter how we might try to equivocate about what normal is. Obviously, the above analysis isn’t specific to Mandarin and English, nor to language necessarily. While framing a circumstance with a default is an arbitrary modelling decision, asserting that two alternatives means or practices have the same opportunity cost or the same productive capacity is indefensible and often doesn’t reflect the underlying economic reality.

Medicaid Cuts Mean Credit Card Debt

James BaileyLeave a comment

My paper “Missouri’s Medicaid Contraction and Consumer Financial Outcomes” is now out at the American Journal of Health Economics. It is coauthored by Nate Blascak and Slava Mikhed, researchers at the Federal Reserve Bank of Philadelphia. They noticed that Missouri had done a cut in 2005 that removed about 100,000 people from Medicaid and reduced covered services for the remaining enrollees. Economists have mostly studied Medicaid expansions, which have been more common than cuts; those studying Medicaid cuts have focused on Tennessee’s 2005 dis-enrollments, so we were interested to see if things went differently in Missouri.

In short, we find that after Medicaid is cut, people do more out-of-pocket spending on health care, leading to increases in both credit card borrowing and debt in third-party collections. Our back-of-the-envelope calculations suggest that debt in collections increased by $494 per Medicaid-eligible Missourian, which is actually smaller than has been estimated for the Tennessee cut, and smaller than most estimates of the debt reduction following Medicaid expansions.

We bring some great data to bear on this; I used the restricted version of the Medical Expenditure Panel Survey to estimate what happened to health spending in Missouri compared to neighboring states, and my coauthors used Equifax data on credit outcomes that lets them compare even finer geographies:

The paper is a clear case of modern econometrics at work, in that it is almost painfully thorough. Counting the appendix, the version currently up at AJHE shows 130 pages with 29 tables and 11 figures (many of which are actually made up of 6 sub-figures each). We put a lot of thought into questioning the assumptions behind our difference-in-difference estimation, and into figuring out how best to bootstrap our standard errors given the small number of clusters. Sometimes this feels like overkill but hopefully it means the final results are really solid.

For those who want to read more and can’t access the journal version, an earlier ungated version is here.

Disclaimer: The results and conclusions in this paper are those of the authors and do not indicate concurrence by the Agency for Healthcare Research and Quality or the US Department of Health and Human Services. The views expressed in this paper are solely those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Younger Generations Have Higher Incomes Too (and it’s probably not explained by the rise of dual-income families)

Jeremy Horpedahl3 Comments

Regular readers know that I’ve written numerous times about the wealth levels of younger generations, such as this post from last month. Judged by average (and usually median too) wealth, younger generations are doing as well and often better than past generations. This is not too surprising, if you generally think that subsequent generations are better off than their parents, but many people today seem to think that progress has stopped. The data suggest it hasn’t stopped!

Now there’s a great new paper by Kevin Corinth and Jeff Larrimore which looks at not wealth but income levels by generation. The look at income in a variety of different ways, including both market income and post-tax/transfer income. But the result is pretty consistent: each generation has higher incomes (inflation adjusted) than the previous generation. Here’s a typical chart from the paper:

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Bride Who Called Off Wedding Donates $15,000 Reception to Special Needs Families; and Other Good News.

Scott BuchananLeave a comment

My eye was caught my a recent random headline, “Bride Donates $15,000 Reception to Special Needs Families After Calling off Her Wedding”:

In the true definition of a worst-case scenario, an unnamed California bride-to-be is reported to have called off her entire non-refundable wedding reception worth $15,000, after learning something about her fiance.

But…she took the disaster and turned it on its head, donating the reception party complete with dinner, dessert, drinks, DJ, dancing, and photo booth to a non-profit called Parents Helping Parents which provides community support to parents with children who have special needs.

…Organizers at PHP sent out invitations for the “Ball for All” and had all the seats reserved 48 hours before the event. … “Nearly everyone [there] was a young adult with special needs, their parent or a member of the care team,” Daane said. “Their joy and delight really told the story about how special and unique this event was—the moment the ballroom was opened, and we all filed into a beautiful candlelit room with tables draped in white linen.”

Yay!

This cheering item is on the “Good News Network”, which I had never heard of before. Other headlines on this site include:

Irishman Whips Out Fiddle to Entertain Passengers in Flight–and People Dance a Jig in the Aisle (WATCH)

Singing or Playing Music Throughout Life is Linked with Better Brain Health While You Age

and

She’s a Pet Detective Who’s Tracked Down and Reunited 330 Lost Dogs with Owners for Free–Using Thermal Imaging.

 I think it is great to publicize such civic acts. Let’s make this the new normal.