Voting with Your Feet

A fact from Michael Barone:

[Population] growth tends to be stronger where taxes are lower. Seven of the nine states that do not levy an income tax grew faster than the national average [over the past 10 years]. The other two, South Dakota and New Hampshire, had the fastest growth in their regions, the Midwest and New England.  Altogether, 35 percent of the nation's total population growth occurred in these nine non-taxing states, which accounted for just 19 percent of total population at the beginning of the decade.

Is the Mortgage Interest Deduction a "Middle-class" benefit?

Yesterday, I was on the Larry Mantle program on KPCC debating Lawrence Yun about the merits of the mortgage interest deduction.  Lawrence is the chief economist of NAR, and is, as such, not disinterested about the issue, but he is an honest advocate (full disclosure: when I was a graduate student, I worked for Wisconsin Realtors, and I consulted on benchmarking the Existing Home Sales series in the late 90s and around 2002 or so ).

He said a couple of things, however, that bothered me.  He sort of dissed renters, by saying they pay only five percent of federal income taxes, ignoring the fact that they pay FICA, state and local taxes.  One would think Realtors would like renters, since they do, after all, pay rent to property owners.  But he also characterized the mortgage interest deduction as being a "middle-class" deduction.  This all depends on the defintion of "middle-class."

Let me turn to Eric Toder and colleagues:

The percentage reduction in after-tax income from eliminating the deduction would be largest for taxpayers in the 80th to 99th percentiles of the distribution. These upper-middle-income households would be affected more than tax units in the bottom four quintiles because they are more likely to own homes and itemize deductions and because the higher marginal tax rates they face make deductions worth more to them than to lower-income taxpayers. The very highest income taxpayers, however, will experience a relatively small drop in income (about 0.4 percent on average) because, at the very highest income levels, mortgage interest payments decline sharply as a share of income.

So it is probably correct to characterize the mortgage interest deduction as an "upper-middle-class" deduction.  The very rich don't benefit that much from it, because they don't really need mortgages.  The bottom 80 percent don't benefit much, because their marginal tax rates are low, they are more likely to be renters and perhaps don't itemize their tax deductions.  My guess is that people between the 80th and 99th percentile don't need a lot of encouragement to become homeowners.

The amazing truth about PISA scores: USA beats Western Europe, ties with Asia.

What I have learned recently and want to share with you is that once we correct (even crudely) for demography in the 2009 PISA scores, American students outperform Western Europe by significant margins and tie with Asian students. Jump to the graphs if you don't want to read my boring set-up and methodology.

The main theme in my blog is that we shouldn’t confuse policy with culture, and with demographic factors.

For instance, education scholars have known for decades that the home environment of the kids and the education levels of the parents are very important for student outcomes. We also know that immigrant kids have a more difficult time at school, in part because they don’t know the language.

Take me as an example. The school me and my brother attended was in a basement in Tehran, had no modern resources, and largely focused on religious indoctrination. But we had a good home background. Our father attended a college in the west a few years (our mother didn’t, despite stratospheric scores test scores, because at the time you didn’t send a good Kurdish girl to another city to study). So we did well in school. Conversely, the first few years in Sweden I had bad grades, in part because I didn’t master the language.

The point I am trying to make is that the school in Sweden was objectively superior to the school in Iran. But I scored lower in Sweden, because of factors outside the control of the education system. If you want to compare the effect of the school, you have to isolate those external factors and make an apples-to-apples comparison.

However, this is not at all how the media is presenting the recent PISA scores. For example there is a lot of attention of the score of the kids in Shanghai, the according to the NYT is supposed to “stun” us or something.

It's dumb to compare one of the most elite cities in a country with entire nations, and to draw policy-inference from such a comparison. Shanghai has 3 times the average income of China! It is also naive to trust the Chinese government when they tell us the data is representative of the entire nation. Either you compare Shanghai to New York City, or you compare the entire country of China, including the rural part, with other large nations. Most of the news and policy conclusions we read about PISA-scores in the New York Times is thus pure nonsense.

1. Correcting for the demography:

In almost all European countries, immigrants from third world countries score lower than native born kids.

Why? No one know exactly why. Language, culture, home environment, income of parents, the education level of the parents and social problems in the neighborhood and peer groups norms are among likely explanations. But it is generally not true that the schools themselves are worse for immigrants than natives. In welfare states, immigrants often (thought not always) go to the same or similar schools and have as much or likely more resources per student.

So the fact that immigrant students in mixed schools do worse than Swedish kids used to a few decades ago in homogeneous schools does not it out of itself prove that Swedish public schools have become worse.

Of course, the biggest myth that the media reporting of PISA scores propagates is that the American public school system is horrible.

The liberal left in U.S and in Europe loves this myth, because they get to demand more government spending, and at the same time get to gloat about how much smarter Europeans are than Americans. The right also kind of likes the myth, because they get to blame social problems on the government, and scare the public about Chinese competitiveness.

We all know that Asian students beat Americans students, which "proves" that they must have a better education system. This inference is considered common sense among public intellectuals. Well, expect for the fact that Asian kids in the American school system actually score slightly better than Asian kids in North-East-Asia!

So maybe it’s not that there is something magical about Asian schools, and has more to do with the extraordinary focus on education in Asian culture, with their self-discipline and with their favorable home environment.

There are 3 parts to the PISA test, Reading, Math, and Science. I will just make it simple and use the average score of the 3 tests. This is not strictly correct, but in practice it doesn’t influence the results, while making it much easier for the reader. (the reason it doesn't influence the results is that countries that are good at one part tend to be good at other parts of the test.)

The simplest thing to do in order to get an apples-to-apples comparison is to at least correct for demography and cultural background. For instance, Finland scores the best of any European country. However first and second generation immigrant students in Finland do not outperform native Swedish, and score 50 points below native Finns (more on this later).

On PISA, 50 points is a lot. To give you a comparison, 50 points is larger than the difference between Sweden and Turkey. A crude rule of thumb here is that 50 points is 0.5 standard deviations.

The problem is that different countries have different share of immigrants. Sweden in 2009 PISA data had 17%, and Finland 4%. It’s just not fair to the Swedish public school system to demand that they must produce the same outcome, when Sweden has many more disadvantaged students. Similarly schools with African-American students who are plagued by racism, discrimination, crime, broken homes, poverty and other social problems are not necessarily worse just because their students don’t achieve the same results as affluent suburbs of Chicago. In fact, the most reliable data I have seen suggests that American minority schools on average have slightly more money than white schools. It’s just that the social problems they face are too much to overcome for the schools. It is illogical to blame the public school system for things out of its hands.

So let’s start by removing those with foreign background immigrants from the sample when comparing European countries with each other. I define immigrants here as those with a parent born outside the country, so it includes second generation immigrants. This is fairly easy for Europe.

In the case of America, 99% of the population originates from other countries, be they England, Italy, Sweden, India, Africa, Hong-Kong or Mexico. If we want to isolate the effect of the United States public school system, we should compare the immigrant groups with their home country. For those majority of Americans whose ancestors originate from Europe, we obviously want to compare them with Europe. For some groups, such as Indians, this is inappropriate. The reason is that mainly the most gifted Indians get to migrate to America to work or study.

However, as I have argued previously, there is strong reason to believe that this problem of so called biased selection does not apply to historic European migration to the United States at the aggregate level. The people who left Europe were not better educated than those who stayed. Immigrants were perhaps more motivated, but often poorer than average.

So similar to my comparison of GDP levels, let us compare Americans with European ancestry (about 65% of the U.S population, and not some sort of elite) with Europeans in Europe. We remove Asians, Mexicans, African-Americans and other countries that are best compared to their home nations. In Europe, we remove immigrants.

The results are astonishing at least to me. Rather than being at the bottom of the class, United States students are 7th best out of 28, and far better than the average of Western European nations where they largely originate from.



The mean score of Americans with European ancestry is 524, compared to 506 in Europe, when first and second generation immigrants are excluded. So much for the bigoted notions that Americans are dumb and Europeans are smart. This is also opposed to everything I have been taught about the American public school system.

For Asian-American students (remember this includes Vietnam, Thailand and other less developed countries outside Northeast Asia), the mean PISA score is 534, same as 533 for the average of Japan, South Korea, Singapore and Hong Kong. Here we have two biases going in opposite directions: Asians in the U.S are selected. On the other hand we are comparing the richest and best scoring Asian countries with all Americans with origin in South and East Asia.


2. Policy-Implications

Libertarians in the United States have often claimed that the public school system (which has more than 90% of the students) is a disaster. They blame this on government control and on teachers unions. However, it is completely unfair to demand that a public school in southern California where most of the students are recent immigrants from Mexico whose parents have no experience in higher education (only 4% of all Mexican immigrates have a college degree, compared to over 50% of Indian immigrants) should perform as well as a private school in Silicon Valley.

The libertarians have no answer why European and Asian countries that also have public school systems score higher than the United States (unadjusted for demography). Top scoring Finland has strong teacher unions, just as California.

Similarly, the left claims that the American education system is horrible, because Americans don’t invest enough in education. The left has no answer when you point out that the United States spends insanely more than Europe and East Asia on education. According to the OECD, the United States spends about 50% more per pupil than the average for Western Europe, and 40% more than Japan.



Another policy implication is that Europe can learn from American public schools, which appear to be better than most European countries. I can only compare Sweden with the U.S, but I can tell you that from my experience, the American system is superior. I always thought this was just anecdotal evidence, but I am beginning to realize that American schools are indeed better.

For example, we don’t have any real equivalent to Advanced Placements classes. We have cheaper and worse textbooks. The teachers on average have far less education. I could go on.

Nor is it any longer a mystery to me why Americans spend so much more on education and (falsely appear) to get out less in output.

But of course the biggest implication is that most Europeans and all American liberals have lost the bragging right about their side being smarter than Americans.

3. Immigrant PISA scores compared to natives

This is again the mean difference of the 3 parts of PISA.


Australia is the only country with a negative gap, which means Australian immigrants actually score better than natives. Canada is similar. The Australian-Canadian skill based migration system is at work here, generating less inequality (even short term).

The other pattern appears to be that the gap is almost constant in the remaining Western European countries. This may be important to keep in mind, whenever people claim that uniquely Swedish policies are causing poor immigrant educational outcomes.

The new 2012 electoral map after 2010 reapportionment

A Constitutional principe is that the Census determines the number of electoral votes for each state. The 2010 census numbers are now out.

The net result is that Republicans gain about 6 electoral seats, or one Nevada sized state.

Let us analyze the 2012 electoral map that I drew with the new electoral votes:


If the election is not close, such as in 2008, these details will not matter. But what if the election is close again?

I start with the Bush-Kerry 2004 map. It’s anyone’s guess what the swing states will be in 2012, and the colors in this map reflects mine.

Since Obama only managed to carry Ohio and Florida with small margins in a very Democratic year, and given his approval rating in those two states, I assume Ohio and Florida will be lost to him if the election is close (he will of course take them again if he wins with a large national margin again).

Republicans have targeted Pennsylvania, Wisconsin, Michigan and Washington State in the last elections. Since they failed every time, let’s assign those to Obama. I added New Hampshire to possible Republican pickups, because Bush is not on the ballot anymore.

The Red and Red-leaning States, plus the 6 new electoral votes after reapportionment, leave the Republicans with 253 electoral votes.

Since Republicans are likely to control the house in 2012, they need 269 electoral votes to win. So they need to get 16 electoral votes from the states in light purple (or from Pennsylvania, Wisconsin, Michigan or Washington) to defeat Obama.

Assuming they keep the red states, plus Virginia, the Republicans need to win only one of the following swing states:

Colorado (Cook Partisan index 0), or
Nevada (D+1), or
Iowa (D+1), or
New Hampshire (D+2), or
New Mexico (D+2)

For the first half of 2010, Gallup has calculated Obama's approval rating by state. I will just compare each state with the national average:

New Hampshire (-8).
Colorado (0)
Iowa (-1)
Nevada (-1)
New Mexico (+2)

Without reapportionment, the GOP would have to win two of the mid-sized ones, but now only one is enough. It seems New Hampshire and Colorado are the most likely swing states. If Obama carries all of those states; he also need to hold Pennsylvania and Michigan and Wisconsin and Washington. If he does this, he is re-elected.

Let me also give you the Cook partisan index and current approval rating for the less likely but still possible pickups mentioned above:

Wisconsin: Obama Approval (-1). Cook index (D+2)
Pennsylvania: Obama Approval (-1). Cook index (D+2)
Michigan: Obama Approval (+2). Cook index (D+4)
Washington: Obama Approval (+2). Cook index (D+5)

If the Republicans keep the core states plus Virginia (Cook R+2, Obama approval -1), and miss all of purple CO,NH,IO,NV and NM, they will still win by just carrying one of the four blue states above.

Here is a another way of understanding the effect of the 2010 reapportionment:

Before this, if Republicans would have won all the States with a Cook Partisan Index that leans Republican and the Democrats all the states that lean Dem, the Republicans would get 260 electoral votes, Dems 269, and 9 neutral. With must-have Colorado (which is the only state currently with a completely neutral partisan leaning), the Republicans would get 269 and win the presidency *if* they control the house.

Thus the Republicans had a slight structural disadvantage, the combined red and red-leaning states had 9 fewer electoral votes than the blue and blue-leaning states.

After reapportionment, winning the Cook republicans leaning states would give the Republicans 266, and the dems 263. If the Republicans also win neutral Colorado, they would have 275. The Republicans now enjoy a slight structural advantage over Democrats.

First of all, the Republicans no longer need to control the house in order to win with just the red states. Second, reapportionment gives them the strategic possibility to “trade” Colorado with one of the smaller light blue states such as New Hampshire, Nevada, New Mexico or Iowa. With reapportionment Colorado is no longer a must-have.

Lastly this is the list of States losing and winning, plus the Cook measure of how they lean (for example Texas got 4 more electoral votes, and has been +10 points more Republican than the national average in the two last presidential elections). The second number reflects the change in the number of house seat for the State, which naturally also leads to the same change in the number of electoral votes.


Republican Leaning states:
Utah (20R) +1
Texas (10R) +4
South Carolina (8R) +1
Georgia (7R) +1
Arizona (6R) +1
Florida (2R) +2
Louisiana (10R) -1
Ohio (1R) -2
Missouri (3R) -1

Democrat leaning States:
Washington (5D) +1
Massachusetts (12D) -1
New York (10D) -2
Illinois (8D) -1
Michigan (4D) -1
New Jersey (4D) -1
Pennsylvania. (2D) -1

Swing States
Iowa, (1D) -1
Nevada (1D) +1

Oregon's Exports and Trade Weighted Exchange Rates

In the wake of my little post on Oregon's trade weighted dollar index, Josh Lehner at the Oregon Office of Economic Analysis' Blog discusses it in depth and points us to the index that his office keeps. Here is an excerpt:

Given Oregon’s industrial makeup (the state’s manufacturing location quotient for 2009 was 1.143, with durable goods registering a 1.309) and geographic location, the state has long been a major exporter and international trade is a pillar of the state’s economy. According to research, Oregon is the fifth most trade-dependent state in the U.S. and a recent Brookings Institute report (see page 15) shows that the Portland-Vancouver MSA is the second most trade-dependent metro in the country behind only Wichita, KS. (Wichita is the “Air Capital of the World” and has long been a major player in the aircraft industry with operations by Boeing, Airbus, Leerjet and Cessna, among others.) Seeing that exports play a major role in Oregon’s economy and international trade is influenced by exchange rates, tracking the international competitiveness of Oregon’s exports is important to determine the economic health of the state and also to help gauge future trends. It also stands to reason that for a trade-dependent state, such as Oregon, a dollar index is a leading indicator for local employment. As the dollar becomes more competitive, it will boost Oregon exports, which in turn will lead to increased employment as the exporting firms need to hire additional workers to fill orders and the ports will hire additional workers to load/unload the products onto ships, barges and airplanes.

Generally speaking, what the Dallas Fed is now undertaking follows the methodology of our office’s Oregon dollar index, however there are a few differences that lead to slightly different outcomes. First, the graph below illustrates our office’s Oregon dollar index and the Major Currency dollar index from the Federal Reserve over the past 15 years.

***

The fact that the Dallas Fed uses the Top 25 trading partner countries and our office uses just the Top 15 countries may seem like a potentially large difference, however, based on data over the past 15 years, it is not. On average, the Dallas Fed notes that their indexes cover 89 percent of all exports for each state. That means, the Top 25 trading partners account for 89 percent of each states’ exports. In Oregon, the Top 15 trading partners account for an average of 84 percent of all exports and depending upon the year, the exact percentage falls within the 82-88 percent range. With such a small difference between using the Top 15 compared to the Top 25, the overall dollar index for the state would not be changed significantly.

Overall, the continued depreciation of the U.S. dollar and also the Oregon Dollar Index, is good news for exports (and manufacturers of export goods), which should continue to increase as the global expansion continues.

Go read the rest of the post there.

Straight From the Horse's Mouth

ok I was wrong - there are THREE of them today ...
Democrats - the gift that keeps on giving!
... heirs who now inherit - they haven't done this on their own, they haven't worked hard - that's a pure gift to someone who was lucky enough to be related to some one or very friendly with some one who's left you the money - so by your own justification that would not apply to the estate tax
Barney Frank
Representative, Massachusetts - Democrat
I don't understand him - he is from a working class family ... his father ran a truck stop or something.  Barney Frank had to drop out of Harvard to help the family when his father passed .... ooooooohhhhhhh.

But I would think that this would put him on the side of the common folk .... or at least those who figured out a way to save for their kids and grandkids so that they will have an easier time at life.

Of course this is the same man that said:

"These two entities...are not facing any kind of financial crisis.... The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing"

He was talking in 2009 about Fannie Mae & Freddy Mac - you know those two mortgage companies who are blamed for the crash of the housing market??  And it was about Bush trying to set up a department within the Treasury department to keep a closer eye on them and find out what the heck was going on.

of course you have to remember that his lover/boyfriend/partner/SO (don't know what term he was using) at the time, was working for Fannie Mae during the 90's!

hmmm. No conflict of interest there.

oh ...

he doesn't have any kids either ... no one to leave his $900,000 estate too (at least that's the estimate) ... except for his current partner - who I've only ever referred to as a 'surfing ethusiest' ... in my part of the country we call those 'beach bum boy toys'.

Straight From the Horse's Mouth

He's ba-a-a-a-a-ck!!

We are starting this process just like we did in Iraq, we're starting it in July of 2011 and we are going to be totally out of there - come hell or high water - by 2014

Joe Biden, Vice-President

Meet The Press, 19DEC2010

about pulling troops from Afghanistan

This was such a bad blunder that Robert Gibbs (WH Press Secetary) was tripping all over his tongue trying to spin it ... trying to say that Biden meant from 'combat' (security issues) to 'instructional' ...

You have to remember though that Biden is also the one who stated during the campaign that:

• $150,000 would be considered "upper income"
• there was no such thing as clean-burning coal plants
• there would be no new coal plants
• tax were going to have to go up
• oh - really there are too many to list, you'll have to check past posts

At least now we know why they call him "Hidin' Biden" or is that "Hide-'Im Biden"?Of course - he must have forgotten that NATO just had a conference where it was decided by all concerned (including Afghanistan) that it would be in the countries best interest to KEEP troops there until it has a sense of 'autonomy' ... while this might mean military missions might begin withdrawl in 2011, the military precence will be there a lot longer than 2014 ...