What kind of inequality should we be concerned about?

There has been some discussion on the blogosphere on an NYT op-ed by Cox and Alm on consumption versus income inequality. Good points were made by Lane Kenworthy with some discussion by Andrew Gelman and Mark Thoma.

Consumption is constrained by income so if consumption inequality is lower than income inequality seems to imply that the constraint at the lower end is as binding as we would like to believe. If we were to transfer all of the top quntile income to the bottom quintile, the bottom quintile might consume only just as much as the top quintile leading to an equalization in consumption inequality. The article would like us to believe that this difference in consumption inequality is not all that much.

But what about the income less consumption i.e. savings? The rich are able to save more and hence would probably be able to consume more in the future than the poor when both are no longer working.

Perhaps the answer to the question in the post is that we should be concerned with neither income nor consumption but the present value of lifetime income and consumption (including bequests).

Stand up and say something

There was an interesting segment on ABC's Primetime on what we would do if confronted with an incident of racism. The set up was that of a Muslim woman at a convenience store whose store clerk would not serve her and proceeded to berate her with all kinds of racist comments. (Both the woman and clerk were actors.) Roughly an equal number of people stood up for and against the clerk's actions and some of those who stood up for the woman were quite emotional. Unfortunately, roughly three times as many people did nothing.

Why is this? Is this cultural, the way we are brought up (to avoid any kind of confrontation), or is this apathy or fear? I'm ashamed to say that I'd probably be in the group who did nothing.

Are there too many citations for Perry Preschool and Abecedarian?

The case for universal preschool usually hinges on the effects found in the Perry Preschool and Abecedarian project. (See for instance, Heckman and Masterov "The Productivity Argument for Investing in Young Children".) Both find positive impacts at levels of spending per child that are higher than those seen in Head Start, for instance. Both these projects seem a little dated although I think it is important to continue tracking the adults -- the sample for Perry Preschool was drawn in the 60's and the Abecedarian sample was drawn in the 70's. In order to bolster the case for positive impacts of high quality childcare there should be funding for newer and bigger longitudinal studies. In addition, there should be a sample drawn perhaps every decade to continue to monitor the effects of quality child care.

It is also unfortunate that after almost 40 years none of the data have been made public (at least not on the websites cited above).

The motivation for this post was from Lane Kenworthy's excellent synthesis on findings of economic mobility.

Overlaying/superimposing NBER recession dates on time series

I don't really know what you'd call it but I've always been curious how Econbrowser produces nice charts like this one on recession probabilities. I'm a SAS geek and this is how I coded it although I think that SAS should have an easier way of doing this without having to use an ANNOTATE data set which despite having used it quite a lot on project work is still a little bit of a mystery to me. Unfortunately, I don't know enough about HTML to render the code correctly so the input statement looks wrong.

data NBERdates;
   length PeakQ $ 20 TroughQ $ 20;
   informat Peak Trough ddmmyy10.;
   format Peak Trough date9.;
   input PeakQ 1-20 TroughQ 21-40 Peak Trough;
datalines;
February 1945(I)    October 1945 (IV)   1/2/1945        1/10/1945
November 1948(IV)   October 1949 (IV)   1/11/1948       1/10/1949
July 1953(II)       May 1954 (II)       1/7/1953        1/5/1954
August 1957(III)    April 1958 (II)     1/8/1957        1/4/1958
April 1960(II)      February 1961 (I)   1/4/1960        1/2/1961
December 1969(IV)   November 1970 (IV)  1/12/1969       1/11/1970
November 1973(IV)   March 1975 (I)      1/11/1973       1/3/1975
January 1980(I)     July 1980 (III)     1/1/1980        1/7/1980
July 1981(III)      November 1982 (IV)  1/7/1981        1/11/1982
July 1990(III)      March 1991(I)       1/7/1990        1/3/1991
March 2001(I)       November 2001 (IV)  1/3/2001        1/11/2001
;
run;

data NBERdates;
    set NBERdates;
    where Peak > '01Jan1947'd and Peak < '31Dec2000'd;
    PeakS = "'"put(Peak, date9.)"'d";
    TroughS = "'"put(Trough, date9.)"'d";
run;

filename gdp 'GDPC1.txt'; /* File downloaded from FRED St. Louis */
data GDP;
   infile gdp firstobs = 14;
   /* Read two variables: date and GDP */
   input date value;
   informat date yymmdd10.;
   format date yymmdd10.;
   lngdp = log(value);
   /* We will refer to Y instead of LNGDP for consistent notation */
   y=lngdp;
   /* Calculate the first difference of y */
   diffy = dif(y);
run;

%annomac;

data NBERDate1;
    set NBERdates;
    date = Peak; output;
    date = Trough; output;
run;

data anno;
    merge GDP(rename = (y=y1)) NBERdate1; by date;
    RETAIN YSYS XSYS '2';
    %bar(Peak,7.3,Trough,9.2,ligr,0,S);
run;

goptions ftext = swiss fontres = presentation htext = 0.9;
axis1 label = (angle=90);
axis2 order = ('1Jan1945'd to '30Jun2000'd by year5) minor = none;
symbol1 color = red interpol = j;
symbol2 color = black interpol = j;

proc gplot data = GDP;
plot lngdp * date /legend vaxis = axis1 haxis = axis2 annotate = anno chref=blue;
format date yyq6.;
run;
quit;

Perspiration versus Inspiration?

Jonathan Coulton went from being just another "code monkey" to the Godfather of "Geek Rock." Here’s how he did it. From Yahoo People.

When he was packing up his office cubicle to begin his new adventure, a colleague suggested that Coulton try to write one song every week for an entire year. ... "There were a lot of times when I would have an idea that I thought was really bad, or stupid, but sometimes that would be the only idea that I would have, and so I didn't have any choice but to do it," Coulton says. "That's definitely how a lot of those songs ended up being about such weird things, or news items."

He became a master of observation of the things that surrounded him. A Shopvac inspired a tune by the same name about a life of suburban angst and regret. When he saw a photo online of a giant squid, he wrote a song called "I Crush Everything," in which a lonely giant squid wants to play with the ships he sees sailing above, but fears he'll destroy them with his innocent but deadly embrace. Coulton also found a rich source of material from his former life. A song titled, "RE: Your Brains," tells the story of an office worker being besieged by a co-worker-turned-zombie, who of course wants to eat his brains. But Coulton is perhaps best known for the tune "Code Monkey," about a software engineer who dreams of a better life. The song has become an anthem for downtrodden office workers and has helped propel his fame.

His web site: http://www.jonathancoulton.com.nyud.net/

Metaphors in economics

Here's one thanks to Marginal Revolution:

Should the IMF behave like a Sovereign Wealth Fund?
"Retrenching now is tantamount to downsizing a fire department when there is a low incidence of fire," he said ...

Here's another one of my own:
1. What if building codes have now been upgraded so that the probability of fire is now lower?
2. Or what if building codes have not been upgraded, but the material used for houses is so poorly regulated that a simple spark can cause such a large fire that swamps any ability of any fire department to control the fire? That all the fire department can do is just to make sure the flames don't burn down the fire department?
3. Or what if Mrs. O'Leary has let too many cows run amok?

I was glad to read this

And to learn that I'm not the only one full of angst:

A few days ago I was in a London taxicab when I noticed a possibly expensive purse in the seat next to me. I climbed out of the cab and without much thought (shame on me) gave it to the driver. I explained someone had left it there. Of course I was intent on treating the driver like a decent human being. But wait, I know I am honest and maybe he isn't. But wait, maybe I couldn't have gotten the purse to the woman very easily. But wait, I could have posted notice on this blog and had you help me track her down. But wait, isn't it my obligation to simply leave the woman no worse off than she was in the first place? But wait, what is the default point for defining "in the first place"? But wait, what would the driver have thought if he saw me taking the purse out of his cab? But wait, isn't a purse really really important? But wait, what if the purse belonged to the driver?