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Bogus Statistics, Courtesy of the L.A. Times Editorial Board?

Late last month, an L.A. Times editorial reported that "In our America, 60 million people survive on $7 a day" — which is to say that 20% of the population survives on $2555 or less a year.

That's obviously way wrong: As of 2006, according to the Census, 12.3% of the population lived at or below the poverty level, which was $10,294 for a single person and $24,382 for the average family of five ($23,691 if one assumes only one adult and four children). Thus, even if all the poor people in the country were in families of one adult and four children (which I suspect substantially overestimates the average family size), that would mean 12.3% of the population surviving on $4600 or less, not 20% on $2555 or less. Naturally, I wouldn't want to live even on $10,294 per year, but the Times made a specific assertion about a particular number. It's pretty clearly a false assertion.

Annie Jacobsen (Pajamas Media) tries to track down the source of the error, in considerable detail; I encourage you to read Jacobsen's piece, which among other things suggests the Times is too ready to rely on advocacy sites rather than tracking down the facts itself. Among other things, Jacobsen reports that she questioned the Editorial Page Editor about this, in enough detail, I think, to put him on notice that there might be a problem there; my quick search, though, suggests that the Times hasn't published a correction.

Jacobsen's story also shows how careless or insufficiently skeptical editors can fall prey to a journalistic broken telephone: Once one tracks down the source of the $7 a day statistic, one finds it in this N.Y. Times story, which says -- with various sensible qualifiers -- that, according to IRS data, "the poorest 60 million Americans reported [to the IRS] average incomes of less than $7 a day each" (emphasis and bracketed material mine). "The I.R.S. data does not include the value of government benefits like food stamps, the earned-income tax credit for working families and subsidized medical care. It also excludes unreported income, which the Treasury Department and the I.R.S. have said is a major and growing problem among the highest-income Americans, especially those who own businesses, invest in stocks and have overseas financial interests." There's a lively debate in the comments to Jacobson's post about the N.Y. Times story, and the debate includes posts from the author to the story. But it's pretty clear that even if the N.Y. Times story is right, the L.A. Times' indirect echo of that story is way wrong.

Thanks to OpinionJournal's Best of the Web for the pointer.

Lonely Capitalist (mail):
HA! I love it!

How long does the MSM think they can get away with this kind of fraud? It's all over. The Internet ended the left-wing warping of facts and distortion of reality. From now on it's facts with evidence or your name is dragged through the mud, and like Dan Rather, you may become history.

Someday people will get Ph.D.s for analyzing the history of fraudulent news reporting.
1.14.2008 7:11pm
Brooks Lyman (mail):
This is nothing compared to what some of the gun-control proponents (such as Sarah Brady, Violence Policy Center, etc.) come up with for facts. Unfortunately, in their case, most of it's deliberate, and since the major (read: liberal) media supports them, it's hard to fight the lies and half-truths.
1.14.2008 7:24pm
autolykos:
Did the article contain any statistics on the number of liberals who can't do simple arithmetic?
1.14.2008 7:30pm
Ben P (mail):
Sure! Blame it on the liberal media, that's always the problem


which among other things suggests the Times is too ready to rely on advocacy sites rather than tracking down the facts itself.


I think this is not a liberal problem, this is a sensationalism problem and a bad journalism problem.

All too often today any media coverage consists of a quote from one person on one side and then an opposing quote on the other side. Somehow people of each political persuasion seem to find that the article is biased against them.

The "motive" of this story might be liberal, but I'm much more likely to believe that this is motivated on the grounds that it makes a big story. It's not quite something bleeding, but it's close, and if it makes you money? why bother checking facts?

That's the problem with the media today.
1.14.2008 7:37pm
Brett Bellmore:
I'm with Brooks. My experience trying to extract corrections out of the editor of the Detroit Free Press, over many years of their egregious errors concerning firearms, eventually persuaded me that what I faced was not error, but simply how the press lie: By finding somebody else telling the lie they want told, and pretending to believe them.

That's why they're not embarrassed when you point out the mistake. They knew it was wrong to begin with, or suspected so and didn't care.
1.14.2008 7:37pm
Houston Lawyer:
The problem with the media is perception bias. If a given set of facts confirm their world view, they won't check up on them. If the media were run by conservatives, this might be a conservative problem. But that's not the current state of the facts.
1.14.2008 7:59pm
Steve P. (mail):
How long does the MSM think they can get away with this kind of fraud?

You're aware that both the LA Times and the NY Times fall somewhere under the umbrella of "MSM"?
1.14.2008 8:02pm
Big Bill (mail):
Just this morning before work I read that Cass Sunstein is very concerned we are getting our news from blogs and other internet sources instead of trusting the mainstream media the way we used to.

According to Cass, we are beginning to think divergently. We need to go back to reading from the same prayerbook. We need to stop reading about different ideas and beliefs. We need to stop listening to bad people and getting bad thoughts. We need to politically compromise like we used to do in the good old days.

Perhaps when you next speak to him you would provide with this as an example of why we are going our separate ways.

Thanks to the Internet, we now know his MSM friends lie to us — lie like a rug.
1.14.2008 8:24pm
Apep (mail):
DCJ's analysis says more about who falls into the lowest IRS quintile (for AGI) than it does about the poor. This is the reason tax academics talk about lifetime income and why consumption taxes are favored in some circles.
1.14.2008 8:38pm
wm13:
Forget in-kind government benefits like food stamps, IRS data doesn't include cash welfare benefits!
1.14.2008 9:17pm
randal (mail):
Eugene, I would say that the bigger error was the LA Times' dropping the word "average".

"20% of people live on $7 a day" is extremely different than "the bottom 20% of people have an average income of less than $7 a day" - self-reported or not.
1.14.2008 9:23pm
TonyRyan (mail):
There are days when the retraction section in the L.A. Times has 20 entries. Some are typos or minor inaccuracies but many are major corrections that make you wonder if there are any fact checkers or editors left on staff.
1.14.2008 9:25pm
Bumprorrurl (mail) (www):
Make peace, not war!
1.14.2008 9:29pm
Paul B:
Economists do not use the IRS data because they are based on each tax return filed rather than representing households. One of those adults making "$7/day" last year was my 18 year old daughter who filed a tax return in order to get her withheld income taxes refunded from her summer job.
1.14.2008 9:39pm
Edward A. Hoffman (mail):
I reported an error to the L.A. Times recently and they ran the correction about a week later. The error was a simple factual point with no political significance, which may explain the paper's leisurely approach to correcting it. I'd like to think more important errors would get more prompt attention.
1.14.2008 9:54pm
PersonFromPorlock:
You're asking a pig to whistle. The purpose of journalism is to provide cheap, entertaining filler to pad out the ads. Fact checking increases the cost of producing filler and may even render some filler, already produced, unusable. Clearly, fact checking is not economically justifiable.
1.14.2008 9:59pm
JBL:
There's three causes of media bias: reporters that understand math, and those that don't.
1.14.2008 10:35pm
SlimAndSlam:
My favorite "broken telephone" example came in the wake of Hurricane Charley, in 2004, when several sources stated that two-thirds of the residents of Charlotte County, Florida, were over the age of 65. (One example came from NBC News correspondent Don Teague here, but that's not the one I remember.)

Charlotte County has the highest concentration of over-65s of any county in America (or at least did as of 2004), but it was more like 35 percent. 35 percent is, of course, a long way from two-thirds. So why the big screwup?

Probably, Teague (or someone, somewhere along the line) heard that more than one-third of Charlotte County residents were over 65.
What's the smallest number greater than one? Two. (Fractions? What's a fraction?)
So, what's more than one-third? Two-thirds.
Done.
1.14.2008 11:01pm
Steve2:
Huh. You know, when I saw "In our America, 60 million people survive on $7 a day" up at the top of the post, my reaction was, "Dang, they got their unit of time wrong." I just figured they'd meant to say "$7 an hour" and that was the end of it.
1.15.2008 12:06am
Brian K (mail):
I trust you guys are equally appalled at bogus numbers in generally conservative newspapers, media outlets and blogs? Because it sure doesn't seem like it.
1.15.2008 12:09am
JohnAnnArbor:
? Brian, any examples? Or just pouting?
1.15.2008 12:25am
Elliot123 (mail):
Brian K: "I trust you guys are equally appalled at bogus numbers in generally conservative newspapers, media outlets and blogs? Because it sure doesn't seem like it."

Feel free to provide an example, so we have something to be appalled at. Prof. Volokh has kindly provided one here from the LA Times for our amusement, which is why you hear the snickering. Perhaps your example can come from an outlet of equal size and circulation as the LAT?
1.15.2008 12:32am
A. Zarkov (mail):
One of the biggest distortions from the MSM is the prevalence of AIDS in sub-Saharan Africa. They usually quote the UN. But where does the UN get its data? Answer: they have little direct data. This bulletin from the World Health Organization provides some eye opening facts that you will rarely read in the MSM. It reveals the tremendous weaknesses in the current methodology.


Unfortunately, population-based epidemiological data for sub-Saharan Africa are extremely limited. Incidence data are rare because direct measurement is difficult …

Snip

Al though population-based prevalence surveys would be the most useful, they have been undertaken in only a small number of locations (2--12).





The prevalence estimates come from a model, specifically something called epimodel, which the bulletin also reviews. This model uses a number of dubious assumptions, and it's a deterministic model so you don't get confidence ranges. One can hardly believe that the UN would use such a crude method, but they get the right answer: send us money.
1.15.2008 12:35am
Truth Seeker:
Now that the left-wing control of our information is ending we need to find a way to end their control of the educational establishment. Maybe web networks where students can get the other side of BS spread by their professors.
1.15.2008 12:49am
Curt Fischer:

One of the biggest distortions from the MSM is the prevalence of AIDS in sub-Saharan Africa. They usually quote the UN. [...] This bulletin from the World Health Organization provides some eye opening facts that you will rarely read in the MSM. It reveals the tremendous weaknesses in the current methodology.
[...]
This model uses a number of dubious assumptions, and it's a deterministic model so you don't get confidence ranges. One can hardly believe that the UN would use such a crude method, but they get the right answer: send us money.


Very interesting, thanks for the post. The WHO bulletin certainly makes a compelling case that better data on HIV in Africa is needed. The model in the bulletin you linked to though, does provide confidence ranges in every one of its graphs. I'm not sure I buy the assumptions that went into the model in the first place, but confidence ranges were included. Of course, if this data and analysis is the best the WHO can do, I guess I agree with you that the right answer is "send us money".

Anyway, bringing up HIV in Africa is also interesting in the context of Bjorn Lomborg's book
1.15.2008 1:07am
Curt Fischer:
...oops. I meant to say

In Bjorn Lomborg's book Cool It, he argues that dollar for dollar, mankind would reap far greater rewards by investing in the African HIV epidemic instead of global warming. I wonder how improved HIV data would alter such a conclusion. (Probably, since the discrepancy for the good done for each dollar invested was so huge, not much.)
1.15.2008 1:15am
BGates:
There's three causes of media bias: reporters that understand math, and those that don't.

I don't think that first 'cause' really leads to bias; it's the other five you listed that we have to worry about.

My favorite pseudo-statistic came several years ago when UC Davis was playing basketball on national tv for some reason (D-2 championship, maybe), and a commenter tried to make use of the stat that 40% of the viticulture degrees in the nation are awarded at Davis. At least I think that's what he was trying to say. What he said was that 40% of all students at Davis major in viticulture. (Brian K - that was on ABC, which has 'American' in its full name; is that close enough to a generally conservative media outlet for you?)
1.15.2008 1:17am
Kazinski:
Just because the facts don't fit the narrative doesn't mean we aren't in the worst recession in human history.
1.15.2008 1:36am
Brian K (mail):
Yes i do. The many links to WSJ editorial pages as a reputable source of information that can be found in the comments section. this usually are accepted at face value by conservative commentators even after errors are pointed out.

if anyone knows how to search this site for information within a hyperlink you can find them...but I don't know how.
1.15.2008 1:43am
Brian K (mail):
that was on ABC, which has 'American' in its full name; is that close enough to a generally conservative media outlet for you?

there's a difference between an honest mistake in numbers and deliberate lying on the part of the journalist. i'm sorry you can't tell the difference between the two.
1.15.2008 1:46am
JohnAnnArbor:
type in google:
((word)) site:volokh.com

Knock yourself out.
1.15.2008 1:46am
Brian K (mail):
oh, and you can look at many of the posts on global warming and a few of the posts on homosexuality. The recent series of posts on woman in the military was full of dubious statistics.
1.15.2008 1:51am
Brian K (mail):
john,

that doesn't search inside of hyperlinks. and searching WSJ brings up hundreds of links.
1.15.2008 1:52am
neurodoc:
It also excludes unreported income, which the Treasury Department and the I.R.S. have said is a major and growing problem among the highest-income Americans, especially those who own businesses, invest in stocks and have overseas financial interests. (emphasis added)
So the underreporting of income is responsible for more unreliable numbers at the top end of the income scale than at the bottom end, and hence not very relevant here.
1.15.2008 2:36am
tarheel:
Well, the Washington Times prints corrections every day. Does that count? Or maybe it's just the liberal reporters there who makes mistakes, not the conservative ones? And of course Bill Kristol's very first column in the Times had to be corrected, but that was probably some liberal editor who inserted the mistake into the column, right?

Gimme a break. Newspapers put out the equivalent of a 100-page book every day. Mistakes are going to be made. 99.9% of them having nothing to do with bias. And the right is obsessed by the other .1%.
1.15.2008 5:58am
A. Zarkov (mail):
"The model in the bulletin you linked to though, does provide confidence ranges in every one of its graphs."

That's right, but note they don't use epimodel; they generalize it to get a new model that can yield the uncertainty of the estimates.


For this study, some of the basic assumptions used in Epimodel were preserved, but the deterministic structure imposed on the curve-fitting procedure has been relaxed.



This bulletin does reveal just how unreliable the estimates of AIDS prevelance in Africa are. Look at how much money goes into fighting African AIDS when we really don't know how serious the problem actually is. How many people realize that AIDS in Africa might not be a big problem after all.
1.15.2008 6:12am
tarheel:
Correction: The percentages cited by tarheel in his 5:58 post were completely made up due to his liberal bias. We regret the error.
1.15.2008 6:18am
Mike G in Corvallis (mail):
Once one tracks down the source of the $7 a day statistic, one finds it in this N.Y. Times story, which says -- with various sensible qualifiers -- that, according to IRS data, "the poorest 60 million Americans reported [to the IRS] average incomes of less than $7 a day each ..."

Why would the poorest 60 million Americans report anything to the IRS? Who are these people, and why are they bothering to tell the IRS how much they're making? If their income is that low, they have no reason to file tax returns.

And why are the editors of the LA Times relying on www.globalresearch.ca as an accurate and unbiased source of information? (Extra credit: What does the unquestioning reliance on this particular website tell us about the editors and standards of the LA Times?)
1.15.2008 6:19am
arbitraryaardvark (mail) (www):
There's quite likely 60 million Americans who spend less than $2555/yr. It's the "survive on" part that is misleading, since most of these people have someone else paying their room and board. Kids, some housewives, some people in nursing homes, most prisoners, other institutionalized persons. Some kids have more cash than that, but a lot don't. Not everybody denominates their economic activities in dollars.
1.15.2008 7:45am
Temp Guest (mail):
Brian K. We're still waiting....
1.15.2008 8:05am
Mike S.:
If you want an example from a conservative paper, although not on a political issue, a few years ago the WSJ reported, apparently seriously, that the average person sent twice as many valentines as he or she received. There was no indication that the post office was eating the valentines, so I trust the story should have been about people's incorrect perception of what they get relative to what they give, but it wasn't.
1.15.2008 8:53am
Wayne Jarvis:

If you want an example from a conservative paper, although not on a political issue, a few years ago the WSJ reported, apparently seriously, that the average person sent twice as many valentines as he or she received. There was no indication that the post office was eating the valentines, so I trust the story should have been about people's incorrect perception of what they get relative to what they give, but it wasn't.


But thats entirely possible.

Albert sends 1 V to Bill and 1 V to Christine
Bill sends 1 V to Darrell and 1 V to Christine
Darrell sends 1 V to Eddie and 1 V to Christine
Eddie sends 1 V to Francis and 1 V to Christine
Francis sends 1 V to Gerry and 1 V to Christine
Gerry sends 1 V to Harold and 1 V to Christine
Harold sends 1 V to Ivan and 1 V to Christine
Ivan sends 1 V to Jenny and 1 V to Christine

The average person sends 2 Vs and only receives 1 V in return.
1.15.2008 9:39am
J. F. Thomas (mail):
Well gee, Even this site repeated the lie that the "fair tax" proposed by Mike Huckabee is 23% (admittedly, it is constantly repeated by the MSM), when in fact it is 28.7%. Only people who don't know how to figure percentages, or are being deliberately dishonest, would say that a $23 tax on a $77 purchase is 23%.
1.15.2008 10:26am
J. F. Thomas (mail):
The average person sends 2 Vs and only receives 1 V in return.

You're assuming Christine is a slut. Is there a back story here?
1.15.2008 10:30am
Dan Weber (www):
Well gee, Even this site repeated the lie that the "fair tax" proposed by Mike Huckabee is 23% (admittedly, it is constantly repeated by the MSM), when in fact it is 28.7%. Only people who don't know how to figure percentages, or are being deliberately dishonest, would say that a $23 tax on a $77 purchase is 23%.


In terms of an income tax, when you have $100 but only keep $70 of it, it's a 30% tax.

In terms of a sales tax, when you buy something at $70 but have to pay $100 to buy it, that a 42% tax.

It's the same numbers with the same result ($100 goes in, you get $70 out), but due to historical reason and custom we get one number for the first and another number for the second.

Since the FairTax is intended to replace the income tax, I can see a claim to why they'd use the first method. It's a bit sketchy for me, but it's not entirely invalid, especially because people are going to be comparing their former income tax to the new sales tax.

(And we could definitely calculate sales tax in the income tax method, or income tax in the sales tax method.)
1.15.2008 11:09am
J. F. Thomas (mail):
Since the FairTax is intended to replace the income tax, I can see a claim to why they'd use the first method. It's a bit sketchy for me, but it's not entirely invalid, especially because people are going to be comparing their former income tax to the new sales tax.

Although marginal tax rates may be referred to in the way you assert, I doubt many people in this country care or know what their marginal tax rate or what bracket they are in (nor does it really matter). When they fill out their 1040 at the end of the year they look at the amount of Federal income tax they paid and divide it by their annual income--that tells them what percentage they have paid in tax. I doubt many people could even tell you what the current marginal brackets are. Heck most people in the higher brackets think their entire income is subject to the higher marginal rate. If people are stupid enough to figure their "fair tax" the way "fair tax" advocates want them to (and unfortunately many people will be), they will be underestimating it by 5.7%.
1.15.2008 11:23am
Dan Weber (www):
I'm not sure most people even divide their total tax by their earnings; they just look at "do I get a refund?"

I would indeed prefer it if the FairTax proponents would say "you can trade a 30% income tax for a 42% sales tax and come out exactly even" instead of breaking with the custom of calculating sales taxes. But that may be unacceptable sticker shock that causes people not notice it's the exact same scenario.
1.15.2008 12:14pm
Brad Ford (mail):
Mr. Lyman's comment about the Brady bill is right on point. During the Democratic convention a few years ago, Sarah Brady was interviewed during a morning newscast. According to Ms. Brady, the Brady Bill had prevented 50,000 felons from purchasing handguns. Apparently, it was a very good for the Brady Bill. When interviewed during the evening news, the Brady Bill had prevent 80,000 felons from obtaining handguns.
1.15.2008 12:15pm
A. Zarkov (mail):
"I doubt many people in this country care or know what their marginal tax rate or what bracket they are in (nor does it really matter)."

Are you kidding? It certainly does matter. There are many personal finance decisions that rely on your marginal tax rate. Should you buy a tax-free bond fund, or a taxable one? The former will have a smaller pre-tax yield, but the after-tax could be greater depending on your bracket. Suppose your mortgage is paid off, which includes everyone who bought before 1978 and didn't foolishly use his house as an ATM machine. If you sell this house and buy another, should you pay cash or take out another mortgage? The answer depends on your tax bracket.

Getting a little more esoteric, should you buy gold or gold mining stocks? Gold even when bought through an exchange-traded fund like GLD, gets taxed as a "collectable," meaning you will pay at your tax bracket, and not at the long-term capital gains rate of 15%.

You don't have to be super-rich to worry about this kind of stuff. Anyone with a self-directed IRA or 401(k) retirement account needs to be aware of his marginal tax rate, and that includes a lot of people.
1.15.2008 12:17pm
Mike S.:
Wayne:

No, the median person sends two and receives one. The average is 2 and 2. And the average number sent and received must be the same unless not all valentines sent are received.
1.15.2008 1:28pm
whit:
buy gold in Gold futures, then. get taxed at the preferable futures tax rate 60/40 Longterm/shortterm cap gains no matter if you hold them for a 10 second scalp, or however long you want.
1.15.2008 1:29pm
Truth Seeker:
Gold even when bought through an exchange-traded fund like GLD, gets taxed as a "collectable," meaning you will pay at your tax bracket, and not at the long-term capital gains rate of 15%.

Funny. When I buy gold coins from a coin dealer or at a coin show for cash and then years later go back and sell them for cash there's no sales tax and they never ask for a social security number or a name even.
1.15.2008 1:55pm
Wayne Jarvis:
Mike:

I disagree. The average number of valentines per captita sent and receieved is 2 and 2... but the average person sends 2 and receives 1.
1.15.2008 2:00pm
J. F. Thomas (mail):
If you sell this house and buy another, should you pay cash or take out another mortgage? The answer depends on your tax bracket.

How could this possibly matter. If you can afford to pay cash, you should. It makes no sense to pay the bank $1000 in interest to save $170, $250, or $330 (or whatever the marginal rates are now) on your taxes. You are still out $670. Maybe you feel better paying a bank $1000 in interest rather than paying the Federal Government $330 in income taxes (and having an extra $670 in your pocket), but don't tell me it makes any economic sense.
1.15.2008 2:08pm
A. Zarkov (mail):
J.F. Thomas:

How could this possibly matter.


If my after-tax mortgage rate is 5%, and I can earn 6% tax free (say with a municipal bond), then I should finance the purchase and invest the money. Of course it's a little more complicated than this because a part of my mortgage payments go towards principal. It depends on how long you plan to hold the house.
1.15.2008 2:20pm
A. Zarkov (mail):
"Funny. When I buy gold coins from a coin dealer or at a coin show for cash and then years later go back and sell them for cash there's no sales tax and they never ask for a social security number or a name even."

That does not mean you don't owe tax on your gain. It simply means you have been given a good opportunity to cheat.
1.15.2008 2:22pm
Clayton E. Cramer (mail) (www):
J.F. Thomas writes:

How could this possibly matter. If you can afford to pay cash, you should. It makes no sense to pay the bank $1000 in interest to save $170, $250, or $330 (or whatever the marginal rates are now) on your taxes. You are still out $670. Maybe you feel better paying a bank $1000 in interest rather than paying the Federal Government $330 in income taxes (and having an extra $670 in your pocket), but don't tell me it makes any economic sense.
Everytime I look at paying off the house mortgage, I find myself doing two equations:

1. Write a $240,000 check to pay off the mortgage. Then I have no interest deduction on my taxes, and no house payment.

2. If I pay off the mortgage, I don't get to collect interest on that $240,000.

It turns out that after factoring in the reduction in my marginal tax rate (which I think is about 33%) and the loss of interest income, paying off the mortgage usually only turns into a net gain of $500-$1000 a year (depending on what I am earning from the medium term bonds that I usually buy).

So, yes, marginal tax rates and the mortgage deduction do significantly influence the behavior of ordinary Americans. If my marginal tax rate fell to 25%, the incentive to pay off the mortgage would increase quite a bit, because I would get less of a deduction on my income taxes from making a mortgage payment.
1.15.2008 2:28pm
A. Zarkov (mail):
Whit:

"buy gold in Gold futures, then. get taxed at the preferable futures tax rate 60/40 Longterm/shortterm cap gains no matter if you hold them for a 10 second scalp, or however long you want."

You bring up a good point. While the GLD Prospectus says gains must be taxed as "collectables," I think this matter deserves further research. If I understand the Prospectus correctly, you cannot redeem your GLD shares for gold metal, even though one share is supposed to represent 1/10 once of gold. A purchase of GLD is really a bet on the future price of gold bullion. As such it looks more like a derivative to me than a collectable.
1.15.2008 2:29pm
Clayton E. Cramer (mail) (www):

If my after-tax mortgage rate is 5%, and I can earn 6% tax free (say with a municipal bond), then I should finance the purchase and invest the money. Of course it's a little more complicated than this because a part of my mortgage payments go towards principal. It depends on how long you plan to hold the house.
The equation is actually a bit more complex than that.

I currently have a 4% mortgage (obviously, I'm still in the first three years of a 3/1 ARM). The payment is $1141.99 a month. At least at the beginning, this is about 95% interest. Within a few years, the percentage of it that is interest falls, you are starting to pay significant principal instead.

When I took out that mortgage, I was buying A-rated corporate bonds with about 6% return--or about $1200 a month in interest. Unlike that mortgage, which is front-loaded with interest, but turns increasingly to principal, those bonds continue to pay 6% every year. The net result is that in year 5 of my mortgage, even assuming that interest rates rise as it adjusts, I am likely to be paying only about $800 a month in interest to the bank. But I will be still earning $1200 a month in bond interest.

Now, the bond interest is taxable; the mortgage interest is deductible, so equal amounts of both are a wash. But the amount of interest that I am paying on the mortgage is declining each year, while the interest I earn from the bonds stays the same. Over time, I will be pushed into a higher marginal tax bracket by this, but it still makes sense (or at least doesn't hurt me much) to take out a mortgage and buy bonds.

Of course, this may all change later this year, when I sell the spare house in Boise. Interest rates will be lower, and it might make sense to pay off the ARM on my current home with the proceeds of that sale. Or it might make sense to buy short-term bonds, and wait for interest rates to rise before investing in longer-term bonds.
1.15.2008 2:43pm
whit:
i've been using gold (and corn ) futures in my IRA for ages.

they work great

i honestly haven;t looked at whether the GLD etf is taxed like a stock, or a collectible.

what they mean is that a purchase (long position) in GLD is a bet that gold will go up, not that it is a derivative, just a speculative bet, like ANY long position.


GLD is arbitraged along with spot gold, gold futes, etc. which you can see in the tape if you chart GLD, Gold futes, and spot gold. they have to move in sync due to arbitrage.

buying GLD vs. gold futes is like buying DIA (DJIA etf). vs. futures (YM)
1.15.2008 2:44pm
GMS:
Maybe someone will explain the difference between mean, median, and mode, rather than using the imprecise term "average." Most people think of average as meaning "mean," unless otherwise stated.

And what's the deal with those hussies Christine and Jenny, who each received Valentines but apparently didn't send any? It seems Wayne excluded them from his calculations when figuring what the "average" person gave. Similarly, he excluded Albert (who received nothing) from his calculations when figuring out what the "average" person received. So basically, he's using one group as his population when figuring the average giver, and a different group when figuring the average receiver. Misleading.

There are ten people listed in his sample (including the two hussies and poor Albert), and 16 Valentines given and received. So, out of this population, the average (read "mean") person gave 1.6 Valentines, and received 1.6 Valentines. If you want to talk median or mode, that's fine, but don't fool people into thinking you're talking about the mean.
1.15.2008 2:49pm
whit:
oh, one more thing. depending on whether the futures are in contango or backwardation, the gains in GLD can be affected by that such that it will lag (or lead) the current month.

that;s what happened in USO (oil fund) which lagged the front month futures during the run up due to that factor. still a nice gain, but something (imo) you need to consider when using commodities ETF's vs. the spot or futures
1.15.2008 2:54pm
Smokey:
Poor?? People don't know the meaning of 'poor' any more.

Only a hundred years ago, almost no one had a car. Nobody had A/C. Starvation was a real possibility. Today, being poor simply means that you don't have as many big-screen TV's as the neighbors. It's class envy, not starvation.

Think I'm kidding? See here. Click on the interesting graphs - they tell the real story.
1.15.2008 2:54pm
Clayton E. Cramer (mail) (www):

Poor?? People don't know the meaning of 'poor' any more.
The Heritage Foundation study makes a very good point--that while there is indeed severe, grinding poverty in America, it is a tiny fraction of the tens of millions who the government categorizes as poor. My daughter is working on her MSW degree right now, and as part of internships, she has had a chance to work with some of those suffering from severe, grinding poverty.* It does seem as though the government's definition of "poor" and efforts to improve the status of this vast number of not terribly poor people has had the effect of diminishing resources for the perhaps 5-10% of the definitionally poor who don't have shelter, enough food, or medical care.

*When my daughter was in high school, she thought we were poor, because we lived in a crummy little house: 2800 square feet on 1/4 acre with a heated, in-ground pool in a California suburb. But compared to many of her peers, yes, we were poor people.
1.15.2008 3:32pm
rarango (mail):
GMS: you are asking journalism majors to understand the differences between measures of central tendency and which measures are most useful for which types of data? Come on, man. These are journalism majors! Get a grip.
1.15.2008 3:37pm
cathyf:
what they mean is that a purchase (long position) in GLD is a bet that gold will go up, not that it is a derivative, just a speculative bet, like ANY long position.
I'm not sure what distinction you are making here. A long position in a derivative is indeed a speculative bet, just like any long position, but it's still a long position in a derivative.
1.15.2008 3:51pm
Adeez (mail):
Great post! It reminds me of those enlightened arguments over the number of innocent Iraqi dead since the start of our invasion. Is it 50,000? 100,000? 1 million? Who knows! Who cares! The poor and the Iraqis really need to stop their whining!
1.15.2008 4:11pm
cathyf:
The Heritage Foundation study makes a very good point--that while there is indeed severe, grinding poverty in America, it is a tiny fraction of the tens of millions who the government categorizes as poor.
Some of this seems to be just another example of embarassing math skills. When you define "poverty" as the bottom quintile, then, by definition, twenty percent of all Americans are poor. Like 50% are below average.

But seriously, there is a big danger of the various and sundry "bait and switch" schemes which the poverty lobby inflicts upon us. They show us desperate poverty in order to build political support for government anti-poverty programs. They give us examples of the tax code disproportionately harming poor people in certain situations in order to build political support for particular tax cuts and credits. And then they don't count the value of the program benefits when calculating the situations of poor people. And they use the tax cuts and credits that put more money in poor people's pockets to make them look poorer.

The danger is that doing this sends the message to people that nothing ever gets better, and that the programs that people spent so much effort and political capital to muster support for don't ever do any good. And then people of good will simply give up and stop trying to do anything about poverty...
1.15.2008 4:25pm
Clayton E. Cramer (mail) (www):

Great post! It reminds me of those enlightened arguments over the number of innocent Iraqi dead since the start of our invasion. Is it 50,000? 100,000? 1 million? Who knows! Who cares! The poor and the Iraqis really need to stop their whining!
Except that it isn't the poor or the Iraqis doing the whining in either case. And in both cases, the left is lying up a storm to justify policies that aren't in the best interests of either the poor or the Iraqis.

Let's face it: the left whines about poverty as a method of justifying redistribution of wealth from the middle class to the millionaires. (They are just looking out for their own interests, of course.) That's why the net effect of the Bush tax cuts offends them so much--it actually increased the percentage of income tax being paid by the wealthy, and the left just HATES it when they don't have enough money to fuel up their Gulfstream V.
1.15.2008 4:26pm
whit:
my point is that GLD is meant to track spot (unlike futures which are going to take into account carrying costs, contango, backwardation, etc.etc.)

while they may use various instruments to compose their holdings, they are not a derivative in the way futures or options are.

also, all derivatives markets are zero sum markets. equity markets aren't. GLD, the etf, fits in the latter, not the former
1.15.2008 4:37pm
David M. Nieporent (www):
Well gee, Even this site repeated the lie that the "fair tax" proposed by Mike Huckabee is 23% (admittedly, it is constantly repeated by the MSM), when in fact it is 28.7%. Only people who don't know how to figure percentages, or are being deliberately dishonest, would say that a $23 tax on a $77 purchase is 23%.
Not only did "this site" not "repeat" that lie, but it linked to an article by Bruce Bartlett that extensively criticized the FairTax people for claiming that.

That having been said, not only did you do math incorrectly the last time you criticized this site for that, but you made the same mistake again. $23 on a $77 purchase is simply not 28.7%, no matter how many times you say it.
1.15.2008 7:29pm
J. F. Thomas (mail):
$23 on a $77 purchase is simply not 28.7%, no matter how many times you say it.

This site did repeat the lie (granted they did point out that the tax could be figured out a different way and yield a higher rate)

I'm sorry, my bad eyes are failing me, I should have looked at my onscreen calculator more carefully: 23/77= 29.87%. That makes the FairTax seem so much more honest.

Let's face it: the left whines about poverty as a method of justifying redistribution of wealth from the middle class to the millionaires. (They are just looking out for their own interests, of course.) That's why the net effect of the Bush tax cuts offends them so much--it actually increased the percentage of income tax being paid by the wealthy

I have no idea what this means or how it makes any sense. Just because a higher percentage of the income tax is being paid by the rich does not mean they are paying a higher percentage of their income in taxes.

You can ponder that apparent paradox, but it is really quite obvious.
1.16.2008 1:31pm
Clayton E. Cramer (mail) (www):


Let's face it: the left whines about poverty as a method of justifying redistribution of wealth from the middle class to the millionaires. (They are just looking out for their own interests, of course.) That's why the net effect of the Bush tax cuts offends them so much--it actually increased the percentage of income tax being paid by the wealthy



I have no idea what this means or how it makes any sense. Just because a higher percentage of the income tax is being paid by the rich does not mean they are paying a higher percentage of their income in taxes.
Why is it so important to you to have the wealthy (by which leftists usually mean people making $80,000 to $200,000 a year) paying a higher percentage of their income in taxes? If the left actually believed in their redistribution of wealth stuff, they would be pushing for a tax on assets, not income. A tax on income is a tax on those who are trying to BECOME wealthy, not the obscenely rich people like Laurie David and the Kerrys, who can be counted on to do leftist bidding with their money. A person with ten million dollars (the average leftist, based on those that I know) buys municipal bonds, earns about $500,000 a year--and owes no federal or state income tax.
1.16.2008 1:58pm