Retrospective Protocols

People love eye witness testimony.  The problem is that it is not very reliable and the older it gets the less reliable it becomes.  Here is a summary:

[T]he criminal justice system treats such testimony as being among the most fragile and even unreliable available. Consider the following quote from Levin and Cramer’s “Problems and Materials on Trial Advocacy:”

Eyewitness testimony is, at best, evidence of what the witness believes to have occurred. It may or may not tell what actually happened. The familiar problems of perception, of gauging time, speed, height, weight, of accurate identification of persons accused of crime all contribute to making honest testimony something less than completely credible. (emphasis added)

It is why we often disagree with the Lady de Gloves on our common history.  In research we always want concurrent protocols rather than retrospective one.  Ask Amy falls into that trap today.  Mom (the writer) is trying to figure out what to do with preteen lesbians in her daughter’s circle of friends.  At the end Amy recommends a book of letters from adult LGBTQ to their younger selves.  We don’t support Amy’s recommendation.  People have trouble identifying the perp from a few days or weeks ago.  Relying on the recall of memories from years or even decades ago is a bad idea for decision making.

Sidebar: No we are not referencing the book because we don’t think it is worth reading unless you treat it as fiction.  We have left bread crumbs if you really want to find it.  End Sidebar

Our knowledge of human information processing should make us extremely wary of relying on old memories.  We don’t have better advice for the mom other than don’t bother with the book.

Income Inequality Part ???

Income inequality is a bogus issue.  If you want to help the poor then you need to look at serious issues including how to keep families intact, how to get folks to move to economic opportunities like the fracking boom in North Dakota, and reduce barriers like regulations on jobs or minimum wage increases.  The other thing you want to do is pay homage to the growth fairy.  The growth fairy has made us all rich.  Whether you call it Jonah’s Miracle or Deirdre’s Great Enrichment, growth is the key element to why we are all better off.

Robert Verbruggen at NRO has a nice article on how folks are trying to repackage income inequality to gin up the politics of envy.  He is reacting to a NYT article touting The Triumph Of Injustice by Emmanuel Saez and Gabriel Zucman.  Robert starts out with the book’s claims:

Per Saez and Zucman, while the rich have been pulling in more and more of the nation’s income — grabbing about a fifth of it now, double what they got a few decades back — they’re paying lower and lower tax rates. Indeed, in 2018, the richest 400 Americans paid the lowest overall tax rate (including state, local, and federal taxes) of any income group. While the very richest Americans in 1950 paid two-thirds of their income in taxes, in 2018 it was down below a quarter; even the full top 0.1 percent barely pay more than the bottom 90 percent these days. It’s not that much of an exaggeration to say we have a flat tax system, not a progressive one.

These claims seem silly when compared to the data on federal tax returns from the Tax Foundation:

The share of reported income earned by the top 1 percent of taxpayers fell slightly to 19.7 percent in 2016. Their share of federal individual income taxes fell slightly, to 37.3 percent.

The rich are making less than 20 percent of taxable income but paying over 37 percent of federal income taxes.  What the book is doing is making an invalid comparison between taxes computed on one basis and income computed on another basis.

Robert tell us measuring income is complicated:

As the JEC report details, this is only the first of many technical decisions researchers must make that affect the results. Should we worry about income inequality before or after taxes are taken out? Should we include governmental transfers as income? Should we analyze married couples together or separately, bearing in mind the decline of marriage in recent decades, especially among the poor? How to handle corporate profits that are retained rather than given out to shareholders? How to handle stocks that have grown in value but have not been sold?  [Emphasis added]

Yup, computing income is complicated.  We would like to give an example of the last item that we have made bold.  Income, as accountants and especially PhD students know, can be measured in a variety of ways.  Taxable income would be one and financial accounting income (GAAP) would be another but there are others.  When measuring the income, what accountants call unrealized holding gains (UHG) become a big issue especially for individuals. An UHR happens when an asset owned by an entity or individual goes up in value.  Taxes are not paid on the UHG until the asset is sold or in the case of your house not paid at all.  This is one of the reasons that the individuals in top one percent of taxable income varies so much from year to year.  Individuals (generally) only pay taxes on your cash income as your start up company prospers but when the individual sells it to a bigger company, depending on how it is structure, it might cause a big income year.

Let’s take a plausible example to help you understand.  Bill Gates is estimated currently to own over 400 million shares of Microsoft.  He doesn’t pay taxes on the UHG unless he sell the stock.  So let’s say (this is total guess) Bill has cash income of $100 million.  Microsoft is up almost $40 per share this year.  It is a bit of an over estimate but it keeps the math simple.  Bill has an UHG of $16 billion versus taxable income of $100 million and taxes of less than $37 million.  Of course in 2000 when Microsoft decreased in value by over $30 per share and Bill owned many more shares then his tax rate would be astronomical.

Sidebar: It makes good policy sense to tax on a mostly tax basis because taxes must be paid in cash.  End Sidebar.

The argument is all about timing.  When you measure income one way by including UHG and taxable income another way then trying to make a ratio is …  [we pause here as we try to find a word other than crazy or insane] … bad methodology [as we retreat to jargon].

Don’t listen to the envy lobby.  Income inequality isn’t important even if we could agree on how to measure it.  Regulations (generally anti-incentives) and incentives are important.  Let’s worry about those.


Bad Evidence Leads To Wrong Conclusion

We have some longer or deeper things we are trying to work on but folks keep writing foolish things that need to be dealt with.  In this case it is Jeff Spross at The Week.  The Week appears to be a serious publication with, one would think, editors. How, then, did Jeff’s “How The Democrats Can Raise Taxes Without Technically Raising Taxes” end up on The Week?  We don’t know.

Jeff sets up the article by discussing that the The Donald’s administration decided not to index capital gains for inflation.  Then he says:

But Democrats — or anyone, really — should take a hint from Trump’s decision. It’s not just that capital gains shouldn’t be indexed to inflation; income taxes shouldn’t be either.

Doing away with that indexing would raise plenty of new revenue for the government. But more fundamentally, it would fix a basic misunderstanding about good macroeconomic policy.  [Emphasis added]

Jeff is serious.  And he is seriously wrong.

Sidebar One: Jeff has no comment on the standard deduction which is also currently adjusted for inflation.  End Sidebar One.

It doesn’t seem to us that “You are paying more taxes but we didn’t really raise your taxes” is much of a rallying cry for any party.  The more serious problem is Jeff’s understanding inflation.  Here is Milton Friedman explaining that inflation is a monetary phenomenon.  In the United States, Milton tells us, inflation is made in Washington DC.

Sidebar Two: If you want you can now discuss the extent to which the Federal Reserve, which controls the money supply and hence inflation is independent within the government.  You can come back to that discussion later as it might take a really long time.  End Sidebar Two.

Jeff doesn’t agree with Milton. Jeff thinks inflation is caused by supply-demand problems.   Jeff says that we need higher taxes as a brake on an overheated economy:

Here’s the problem with that logic: If your economy is experiencing high inflation, like what we went through in 1980, then it needs to slow down. Mainstream macroeconomics assumes that high inflation is evidence of an overheating economy: too much demand chasing too little supply. In which case, to cool inflation off, money needs to be taken out of the economy. And taxes are one tool for doing just that.  [Emphasis added]

There is a big problem with Jeff’s example.  We checked the economic data for 1980 at The where they have unemployment at year end, GDP growth, and inflation by year on one page.   It was really easy to find and somebody at The Week should have checked.   At the end of 1980 the unemployment rate was 7.2 percent, GDP growth was negative signaling a recession, and inflation was 12.5 percent.  So Jeff’s example contradicts his theory.  Rather than the economy being overheated it was in recession.  How about Venezuela?  Nope.  Zimbabwe?  Nope and you can even use the same cite for that and more.

Few people have been more exactly wrong than Jeff when he says that indexing income tax brackets is pro-inflation:

By contrast, brackets that are indexed to rise with the price level are essentially pro-inflation. As the inflation rate increases, the rate at which the bracket thresholds rise increases as well. That’s a fiscal stimulus added to the economy right when it’s already running too hot. In fact, Russel Long, a Democratic senator from Louisiana at the time, made this exact point, arguing indexing would “make inflation worse by pumping more money into circulation at a time inflation is at its worst.” [Emphasis added}

Inflation is at best independent of real economic growth.  What makes Jeff so wrong is that the government (see Sidebar Two above) controls inflation.  To have the government benefit from inflation by increasing receipts from bracket creep is a really bad incentive for folks who want to avoid inflation.  Hint: that should be almost everyone.  Indexing brackets is strongly anti-inflation because the folks that control inflation, the government, have fewer incentives to inflate.  It is really important that inflation indexing for brackets and standard deductions stay.  It is also really important to check the data that you rely on.



Comments On Kamala

We still think Kamala will be the next president but we are more concerned about our prediction than we were a few months ago.  It seems more likely that the year will be 2024 rather than 2020 but time will tell.   Instapundit cited a Jim Geraghty post in NRO’s Corner that caught our attention.  Jim says and quotes:

The other day Wonkette offered an article with a headline that declares — cleaning it up for your sensitive eyes — “Kamala Harris Doesn’t Have To Explain Herself To Your Dumb [Tushes].”

Infuriated by headlines about a Harris speech declaring that she is defending her record as a prosecutor, Stephen Robinson writes:

Is Harris on trial here? Why is she “defending her record”? Did she lose all her cases like the prosecutor who faced off against Perry Mason each week? That guy needed to explain himself. Harris put [bad words] in prison. She imprisoned [bad words] so well she was the first woman elected district attorney of San Francisco and the first black woman to become attorney general of California. She’s the Serena Williams of law and order.

While she’s undoubtedly better than Hamilton Berger, Harris’s record is a little more complicated than that. [Emphasis added]

Jim concludes that candidates always need to defend their records.  We agree but we have concerns.  First, Stephen can’t be bothered to look up Hamilton Berger like Jim did.  Really, this is not a tweet but Stephen’s article and he can’t be bothered to type in Perry Mason prosecutor.  Go and try it.  We will wait as it won’t take long.  You won’t even need to finish typing prosecutor and you will find that Hamilton Burger has his own Wikipedia site!

Second, what is a good record for a prosecutor?  We are not convinced that Jim is right that Kamala is better than Hamilton.  Hamilton, on our small sample, never convicts the innocent or frees the guilty.  Obviously, life is more complicated than a TV drama but convictions, as Scooter Libby could tell you, might not be the best measure of a prosecutor. Evaluating teachers and prosecutors involves problems because the goals, learning and justice, are hard to measure.

Third, Jim is worried about the need to serve a strong leader demonstrated in the tone of Stephen’s article.  Instead, given the circumstances at Oberlin College, we find Jim’s parenthetical comment is more important:

(Whatever else you think of [Stephen]’s argument, he’s absolutely right when he declares, “it’s insulting to claim that black people can only have an adversarial relationship with the criminal justice system or that a black woman can’t prosecute crimes without betraying her community.”)

Kamala has a mixed heritage but we are not getting into the swamps of what is black in the quote.  The important point is that protecting communities from bad actors is a good idea even if Oberlin disagrees.

Sidebar: We have already said that convictions are not necessarily justice and we would add that police do not always act properly.  Protecting communities without harming them is a challenge and we agree with Jim that Kamala should explain how she did that.  Perhaps she has examples of convicting cops.  We just think that Stephen’s law and order message is the important one rather than the she doesn’t need to explain one.  End Sidebar.

This is the first good news we have seen about a Democrat presidential candidate.  Perhaps more is forthcoming but we are not holding our breath.

Two Harsh Views Of The University

We still owe you the consolidation piece on university systems but these two comments are interesting and related.  Both take an important issue and overstate the significance of it.

Barton Swaim is reviewing The Adjunct Underclass: How America’s Colleges Betrayed Their Faculty, Their Students, and Their Mission by Herb Childress in the WSJ.  Barton, and many of the folks in Herb’s book have had a tough time in academia.  Barton says:

Unless your child attends an elite liberal-arts institution, during his first two years—and maybe even in his third and fourth years—he will almost certainly be taught mainly by graduate students or contract workers with no permanent connection to the institution.  [Emphasis added]

Over at the Corner in NRO, George Leef is worried about faculty in the North Carolina System being evaluated by students for teaching awards.  We called it Student Evaluation of Instruction (SEI):

For one thing, each of the  system’s constituent institutions selects one faculty member as its best teacher and that individual receives a cash prize of $12,500. But as Hennen notes, exactly how the selection committees make their selections is unknown. Do they just rely on student evaluations, which are of very dubious value since many students give high scores to faculty who are entertaining and give high grades for little effort and low scores for demanding ones. If the way to get yourself in the running for an award is being popular, that would tend to be counter-productive.

In our 40 years in academia we have had exposure to lots of different schools: two year, comprehensive, private, and flagships.  As department chair and associate dean we have looked at data on many more.  We have significant experience with hiring and SEI scores.  Wisconsin has useful terminology of faculty, meaning tenure track, and instructional academic staff (IAS) for those not on the tenure track.  Full-time IAS almost always have a connection to the university.  For business schools and others it is a way to bring in practitioners.

The one place we haven’t taught at is an elite liberal-arts institution so we don’t know if Barton is right about that.  We don’t know if he thinks our undergrad school was one of them but we weren’t keeping track of the contracts of the instructors.  In retrospect, we especially wonder how the contracts with the clergy were constructed.  What is true, if you go to a flagship school with PhD programs you will get many grad students as instructors.  It is also true there are some schools that use a higher percentage of part-time adjuncts.  Quality comprehensive schools don’t.   Accreditation standards ensure that certain ratios of IAS to faculty are met.  Accredited business schools have much more detailed standards.  See here to download.

Sidebar One: We spent time deciding on the adjective “quality” and are not entirely happy with it.  We don’t have the data to say most.  End Sidebar One.

At quality comprehensive schools you will have full-time folks with a connection to the university.  It doesn’t take away from the problem of the treatment of grad students and IAS by some schools but good consumers can avoid it.

One way to avoid these problems are SEI scores.  Students are in the classroom every day and should have a voice in evaluating instructors.  Students aren’t perfect at it but neither is anyone else.  There is little evidence of what George suggests that students are enticed by high grades or little effort.  Our research has found no relationship between grades and SEI scores.

Sidebar Two: Sometimes there are bad SEI questions.  At one school they asked for an numerical response and a written response to “The instructor is enthusiastic about the discipline.”  The written responses showed that the students misunderstood the question.  They thought is was about enforcing discipline rather that the discipline being taught.  End Sidebar Two.

George and Barton point out two serious problems: It is hard to evaluate instructors and some schools treat instructors and/or grad students very poorly.  We think both George and Barton are too harsh.  George needs to recognize that SEI scores need to be part of evaluating instructors. Barton needs to recognize that part-time IAS are going to be part of the instructional portfolio for most departments and grad students will be part for some.  Consumers, accreditation bodies, and oversight bodies (like the Board of Regents or the legislature) need to see that departments don’t abuse them.

Universities have many areas to clean up.  George and Barton have identified two of them but we don’t want to ignore other problems by going overboard on these.

Data And Implications

Zoe Chevalier at US News has an article on per capita drinking by state.  New Hampshire wins with a score of 4.76 gallons per capita.  The next highest are Delaware with 3.72 and Nevada with 3.46.  Tenth place is South Dakota with 2.87 so NH is a runaway winner in alcohol consumption right?

Here is the problem: Zoe tells us that the NIAAA report that her data comes from uses alcoholic beverage sales compared to census population.  Zoe is measuring state sales per capita rather than consumption.  You have probably already noticed one problem state: Nevada.  What happens in Vegas stays in Vegas is another way to say that out-of-state folks go to Nevada to drink.  Folks from Nevada are not consuming all the alcohol sold in Nevada.  Thus, the ratio is not a good measure of per capita alcohol consumption in Nevada.

New Hampshire has state liquor stores with low prices and a small population. It ranks 41 of 50 at 1.3 million.   Residents from neighboring states go to buy alcohol in NH.  Here is an example:

The “No Taxation on our Libations!” promotion is the first time that New Hampshire has offered a specific discount to lure out-of-state shoppers. Residents of Maine, Massachusetts and Vermont can receive a discount equal to double their home state’s sales tax. For Mainers, that means 11 percent off a purchase of up to $149.99. New Hampshire shoppers, and those from outside the three-state region, will get a flat 13 percent off.

So NH sells lots of alcohol per capita but we don’t know anything about consumption from Zoe’s data.  We don’t know if there is a reason for Delaware’s rank.

We can’t always measure what we want.  We have to use proxies like sales to estimate consumption.  But you need find really good proxies or control for the problems.  Nevada and New Hampshire are big problems for Zoe.