I was puzzled by a chart reproduced from a report from McKinsey Global Institute in Mish Shedlock’s recent post on debt and deleveraging. The chart is in the section “US Household Debt Ratios”. It’s Exhibit 7 late in the MGI report. Here’s what puzzled me. Why is the trend line they draw the correct one? Why pick 2000 as the end point? What about the dot-com bubble?

The line drawn is, essentially, from trough (in 1955) to peak (in 1998). It seems to me there are other trend lines that could be drawn, for example, trough to trough using the 1955, 1975, and 1984 troughs or peak to peak using the 1965, 1980, and 1986 peaks. Either one of those would suggest a return to trend much closer to Mish’s “overshoot” than to MGI’s suggested point.

I urge you to read Charles Murray’s very interesting and, at least to me, troubling op-ed in the Wall Street Journal on how America has become divided into tracks. I think that’s a more appropriate word that classes or castes. I’ve posted one set of observations stimulated by it already today but I’ve got more to say and I’ll say it here.

I think that Dr. Murray is right about this:

For explaining the formation of the new lower class, the easy explanations from the left don’t withstand scrutiny. It’s not that white working class males can no longer make a “family wage” that enables them to marry. The average male employed in a working-class occupation earned as much in 2010 as he did in 1960. It’s not that a bad job market led discouraged men to drop out of the labor force. Labor-force dropout increased just as fast during the boom years of the 1980s, 1990s and 2000s as it did during bad years.

but I think he’s wrong about this:

As I’ve argued in much of my previous work, I think that the reforms of the 1960s jump-started the deterioration. Changes in social policy during the 1960s made it economically more feasible to have a child without having a husband if you were a woman or to get along without a job if you were a man; safer to commit crimes without suffering consequences; and easier to let the government deal with problems in your community that you and your neighbors formerly had to take care of.

Quite to the contrary I think that almost all of what Dr. Murray talks about can be explained by technological and social changes. I would point to the following as examples of interacting technological and social changes:

• The automobile made it possible for those with means to live separately from those who worked for them, either in their homes or in their places of business.
• The typewriter opened up positions for a significant number of women in the workplace.
• “The Pill” gave women more control over their own reproduction. It rendered unwanted pregnancies less likely. The legalizing and subsequent acceptability of abortion was one of the factors that meant that when a man impregnated a woman marriage was not the inevitable outcome.
• Increasing opportunities for women rendered marriage less of an economic necessity.

I’m skeptical that the federal government is the main engine of social change, as Dr. Murray is suggesting. I would be more open to the suggestion that government policy follows social change already in progress and frequently has unforeseen and unintended consequences.

I would also point to the improved economic and social standing of Catholics and Jews which I will acknowledge is partially a consequence of government policy but I believe is a pretty good example of government policy merely following social change that’s already under way. I’ll focus on Catholics, the group about which I know more. Catholics are more predisposed to marry other Catholics than American, generally, are to marrying within their own religious denominations. They are more likely to marry than Americans, generally, and less likely to divorce. For substantiation of these claims see here. That’s provided Catholics with a significant economic advantage. As Catholic acculturate (as the article notes is taking place) that will be less of an advantage going forward.

Our educational system is geographically based. When you combine geographical isolation of people with differing backgrounds (something that has not always been the case), the increasing importance of formal education as agriculture and then manufacturing became less important, assortative mating is at least as good an explanation for what we’ve seen over the last couple of decades as Dr. Murray’s federal government policy social policy is.

Perhaps the short version of what I’m suggesting is that rich men don’t marry chorus girls as frequently as they used to not because there are fewer rich men but because a) movies and television have meant that there are fewer chorus girls; b) rich men can gain sexual access to pretty girls outside their own social circles without marrying them more easily than they used to; and c) they aren’t expected to marry them even if the girls become pregnant.
Quite to the contrary I think that almost all of what Dr. Murray talks about can be explained by technological and social changes. I would point to the following as examples of interacting technological and social changes:

I was interested enough in the inset on the top ten “SuperZIPs” in the U. S. in Charles Murray’s troubling op-ed in the Wall Street Journal on how divided America has become to do a little further probing. “SuperZIP” is Dr. Murray’s characterization of ZIP Codes where residents score in the 95th through the 99th percentile in both income and education. As it turns out the #1 and #2 SuperZIPs are on the North Shore of Chicago: Glencoe and Kenilworth.

Let’s look at both of these Chicago suburbs a little more closely. Both are nearly completely residential, i.e. the people who live there work somewhere else. But it is their demographics that is most interesting. Both are overwhelmingly white (90% or more—Kenilworth is 96% white), overwhelmingly native born (Glencoe is 90% or more native born, mostly born in Illinois), more religious than the U. S. as a whole, and those who are affiliated with a religious organization are overwhelmingly Christian and preponderantly Roman Catholic.

In both town the majority work either in finance or insurance or are lawyers. The overwhelming majority have graduated from high school, most have college degrees, nearly half have masters degrees or professional degrees. They are overwhelmingly heterosexual (to the extent that these things can be determined) and married.

The crime rates in both towns are extremely low.

Demographic information for Glencoe: here and here.

Demographic information for Kenilworth: here and here.

The message would appear to be that, if you aspire to live in either Glencoe or Kenilworth, be born a white Catholic lawyer in Illinois.

I may well get another post from Murray’s op-ed.

Scott Sumner writes:

Most people distinguish between “real jobs,” and ways of scrounging up some money when unemployed.

I don’t make that distinction. Never have. I think I’m more like Dr. Sumner’s dad in that respect than most people are. If there’s a distinction between a “real job” and just scrounging up money then I’ve been gainfully unemployed for the last 30 years.

My reaction to Greg Mankiw’s analysis of SOPA (the Stop Online Privacy Act) is “Pfui”. The things that SOPA is trying to protect aren’t like cars or oil paintings or dollar bills. They are naturally non-rivalrous and non-excludable and it is only the power of law that renders them excludable and that only to the extent of the law. It makes sense to distinguish between these two different kinds of property. It is not inconsistent to recognize that different classes of things are, in fact, different.

I see the present copyright law completely differently. If the law as it is now had prevailed in 1930, Disney, a primary beneficiary and major sponsor of the 1999 copyright reform legislation, wouldn’t exist at all. Snow White and The Bremen Town Musicians would have been violations of Jakob and Wilhelm Grimm’s copyrights. Pinocchio did violate Collodi’s copyright and, if something analogous to SOPA had prevailed, Collodi’s estate could have shut Disney down entirely.

Our present copyright law is already excessive. Extending it further as SOPA would is abhorrent.

Shoemaker, stick to thy last.

Felix Salmon appears to be upset that the members of the FOMC laughed more in meetings after February 2006 than they did before:

It turns out that if you’re on the FOMC, then being in a credit bubble is really funny!

I don’t interpret it that way. I think that it documents that Ben Bernanke is a funny guy or at least his presence in meetings produces a lighter atmosphere than prevailed under Alan Greenspan.

Here’s an example of the unnecessary costs of regulation: a low cost funeral home that’s required to add a $30,000 embalming room to each of its locations even though it out-sources its embalming. Who benefits? Funeral homes that don’t out-source their embalming (and charge significantly—as in an order of magnitude—more).

Hat tip: Bryan Caplan

My wife is a native Californian. Born and raised in the Golden State as were her parents before her and her whole family going back to the turn of the last century and before. I, on the other hand, grew up in Missouri. When we married lo! those many years ago one of the many differences we found between us was in gardening and lawn care.

As best as I can tell in California if you plant it and water it, it grows. If you don’t plant it or you don’t water it, it won’t grow. Missouri is different. If you plant it, tend it lovingly, water it faithfully, fertilize it, keep the bugs and animals and weeds and weather from destroying it, if you’re very lucky it might grow. That’s just the way it is in Missouri’s rocky, clay-y soil. And a whole lot of stuff you don’t particularly want will definitely grow. If you leave a patch of soil bare, before you know it, it will be covered with dandelions or creeping Nussman. In California gardening is a pleasant and rewarding pastime. In Missouri it’s a thankless obsession. Only the most devoted and driven pursue it.

I think that a difference in experience and views something like that lies behind the difference in policy positions we’re seeing these days. I think that President Obama believes that jobs are cultivars whereas I believe that they’re volunteers. The distinction is that cultivars are things that are deliberately planted and tended while volunteers will grow unless you prevent them from growing.

I think that Washington, generally, not specific to political party, is doing its damnedest to prevent jobs from taking root while I’m pretty sure that President Obama sincerely believes that he’s planting jobs and tending them lovingly but that the harvest is pretty disappointing.

Increasingly, Fareed Zakaria has turned his attention from foreign policy to economics where his distinctive lack of insight into or understanding of American politics, policy, or, frankly, what’s actually going on in the world serves him in good stead. Today he turns to export trade as a beacon for future job growth in the U. S., praising the president’s leadership in that area:

Exports are growing at an annualized rate of 16 percent, which means that U.S. exports should double earlier than 2014, the goal President Obama set in 2009. Labor productivity in the United States is now the highest among Group of 20 countries, and this boost means that unit labor costs in the United States have dropped more than in any G-20 country except Taiwan.

The graph above from the invaluable FRED site of the St. Louis Federal Reserve depicts real U. S. exports of goods and services. Do you see a 16% annualized rate of growth? Me, neither. 16% would mean roughly $250 billion more. It’s just not there. The kindest interpretation I can come up with is that if you only look at growth from the trough of the recession and if you only consider dollar growth rather than real growth there might have been 16% growth from 2009 to 2010. That this has anything to do with any individual president’s policies is fatuous. What I see is a return to trend.

I am skeptical that inflation-driven nominal export growth is likely to be a major producer of new jobs.

I’m completely in favor of the U. S. exporting more, especially more finished goods. We should mine more, pump more, drill more, make more, grow more, provide more services, and sell more of what we mine, pump, drill, make, grow, and provide to overseas customers. But the numbers are against our doubling our real exports for the foreseeable future. For that to take place either a) there would need to be an unimaginable increase in world income or b) we would need to secure a much larger market share than we currently hold. We already export a lot. Doubling that will be a tall order and I seriously doubt that the other major export-driven economies will sit idly by while we increase market share.

Virtually every other economy (including China’s) is slowing. Can we expect 16% real annualized growth in a slowing global economy?

Mr. Zakaria goes on to single out Germany as a model to emulate:

The German system gives incentives to train workers and keep them employed; in contrast, the U.S. system emphasizes flexibility, the ability to hire and fire, and keeping wages low. Jacobs points out that, in a world filled with cheap labor, rich countries are better off with highly skilled workers, making premium products, with a focus on long-term growth and social stability. The German system, in other words, might be a better fit for the globalized world.

I don’t know what German labor laws are now but I’m very familiar with what they used to be. It used to be the case that it was practically impossible for a German company to fire a German national. Imagine academic tenure spread over an entire country and it might give you the picture.

German companies responded to this as you might expect: they were more likely to hire foreign workers than German nationals. There have been a lot of developments since then, namely the EU and the euro. Germany has pursued a mercantilist, beggar-they-neighbor policy to the point where its neighbors, in particular Greece, have become beggars. The euro ship is headed aground with Germany at the helm. Vada a bordo, cazzo! Get back on board, dammit!

I do think that there are some things Germany is doing that we might want to emulate. For example, in Germany there’s far less emphasis of the importance of college education and more on skilled trades. Germany has apprenticeship programs. However, I think we might want to reserve judgment on the German model for a few years.