Category Archives: Poverty & income gap

How Many Millions Have Died from This Failed Scientific Orthodoxy?

fat_hypothesis_chart

Graphic credit: Washington Post

One of the most rigorous scientific experiments on the effects of fatty foods in the diet took some 40 years to complete, but the results are now in. Reports the Washington Post:

Collectively, the fuller results undermine the conventional wisdom regarding dietary fat that has persisted for decades and is currently enshrined in influential publications such as the U.S. government’s Dietary Guidelines for Americans. And the long-belated story of the Minnesota Coronary Experiment suggests just how difficult it can be for new evidence to see the light of day when it contradicts widely held theories.

The special diet given to mental patients in Minnesota did succeed in its intent to reduce cholesterol levels. What no one anticipated was that participants were more likely than patients on a conventional diet to die earlier.

Bacon’s bottom line. First question: By regulating and brow-beating food processors to reformulate their packaged foods and by pushing Americans into embracing the new nutritional guidelines, social engineers succeeded in altering the American diet. How many millions of Americans have died as a result?

As an aside, given the obsession with race and class today, one is tempted to ask also if minorities and the poor were disproportionately impacted. Did the nutritional social engineering of the 1970s lead to more obesity, more hypertension, more coronary blockage, and more diabetes than would have occurred otherwise? How many millions suffered death and disability as a result?

Second question: Will the social engineers ever own up to this calamitous public health failure and their complicity, however well intended, in the premature death of millions of Americans? Will Black Lives Matter point an accusing finger at the nutritional policies that arguably have snuffed out a thousand times more African-Americans lives than unjustified police killings?

Third question: What can we learn about what happens when science, politics and scientific funding intersect? As the WaPo summarizes why early results of the study were buried when they conflicted with orthodoxy:

The Minnesota investigators had a theory that they believed in — that reducing blood cholesterol would make people healthier. Indeed, the idea was widespread and would soon be adopted by the federal government in the first dietary recommendations. So when the data they collected from the mental patients conflicted with this theory, the scientists may have been reluctant to believe what their experiment had turned up.

Could the same thing be happening in some other sphere of public policy? Could contradictory scientific evidence be ignored or suppressed? Just asking.

— JAB

Debt Bondage Update

debt_bondageby James A. Bacon

As student loan debt passed the $1.3 trillion mark, 43% of the roughly 22 million Americans with student loans were not making their loan payments, according to new numbers published by the U.S. Department of Education. About 3.6 million borrowers were in default on $56 billion in student debt as of Jan. 1, meaning they had gone at least a year without making a payment. Meanwhile, another three million owing $110 billion were in “forbearance,” meaning they had received permission to temporarily halt payments, reports the Wall Street Journal.

Advocacy groups fault loan service companies for not doing enough to reach troubled borrowers. But Navient Corp., which services student loans and offers payment plans tied to income, says it attempts to reach each borrower on average 230 to 300 times through letters, emails, calls and text messages in the year leading up to default. Ninety percent of those borrowers never respond. A large percentage of borrowers have fallen off the radar screen — they are untrackable.

Meanwhile, worried about the federal government’s astronomical bad debt exposure — borrowers are behind on more than $200 billion overall — the government is garnishing wages and tax refunds. Needless to say, falling behind on loans also hurts credit ratings, making it more difficult or more expensive to take on other forms of debt.

The WSJ quotes Carlo Salerno, an economist who studies higher education and consults for the private student-lending industry:

The government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work. “On what planet does a financing vehicle with those kinds of terms and performance metrics make sense,” he said.

Bacon’s bottom line: All told some $200 billion in student loans are at risk of not being repaid. Much, if not most, of that sum has accumulated in recent years as the result of liberalized federal lending policies, creating a massive potential liability for taxpayers. The country now faces a hideous choice — either hound millions of Americans for repayment of their loans, driving many of them out of the workforce or into the underground economy, and ruining their credit ratings in the bargain, or institute a debt-forgiveness jubilee that rewards irresponsible behavior and punishes taxpayers.

The reckless expansion of student lending over the past several years is one of the most disastrous social policies in U.S. history, harming many of the lower-income Americans the program was designed to help. There has been nothing to compare to this creation of a new class of indebted servitude… well, nothing since the home-ownership mania of the 1990s and 2000s that lured lower-income Americans into houses they could not afford and obliterated their net worth in the real estate crash.

Americans think Wall Street is stealing them blind. While the big financial institutions did benefit enormously from the federal bailout during the last recession — a bailout thousands of Main Street businesses never got — at least they repaid their loans! The biggest blight on lower-income Americans over the past 10 to 20 years hasn’t been the Chinese, or the Mexicans, or Wall Street, or greedy millionaires and billionaires, it has been calamitous social policy that has immiserated those it intended to help.

When will we ever learn?

Update: Probably never. Headline from today’s Washington Post… “Obama administration pushes banks to make home loans to people with weaker credit.” The federal government doesn’t just tax us to advance its social-justice goals, it commandeers the credit system of the entire country, creating a new form of systemic risk.

Demographic Mystery Almost Solved

free_blacks

by James A. Bacon

And now for an answer to the fascinating question posed by Hamilton Lombard on the StatChat blog: why African-Americans living in Virginia, Maryland and Delaware have the highest median incomes anywhere in the United States (see “A Demographic Mystery“)…. Ultimately, he says, the answer can be traced to the history of slavery in the Chesapeake region that gave rise to a large population of free blacks.

At the risk of oversimplifying (I urge you to read his full blog post), Lombard’s argument goes like this: With the introduction of tobacco to Virginia in the early 1600s, Virginia was the first state on the North American mainland to develop a plantation economy. Most slaves at that time originated from Angola. Because that region of Africa had been under Portuguese influence since the 1400s, many of the slaves were Christian, which may have entitled them to different consideration than pagans. Moreover, English common law prohibited slavery. Therefore, the first Africans in Virginia, like whites, were engaged as indentured servants and gained their freedom after working for a set time.

(Lombard doesn’t mention this but it fits with his theme: Many followers of Nathaniel Bacon during Bacon’s Rebellion in 1676 were freed African servants and slaves, who made common cause with freed white servants and small farmers.)

The institution of slavery did not cohere into the chattel form with which we are familiar until 1705 when the Virginia House of Burgesses codified a system of forced labor for non-Europeans and non-Christians. By that point, the slave trade had shifted to West Africa where Africans were far less likely to be Christianized.

I would expand upon Lombard’s argument as follows. Chesapeake slavery was built largely around tobacco plantations. By the late 1700s, tobacco cultivation had exhausted the soils, and the industry went into sharp decline, leaving farmers and plantation owners with a large surplus of slaves. At the same time that slaves were losing value as a means of production, many slave owners were feeling the contradiction between their ownership of other human beings and their belief in egalitarian, revolutionary ideas. Manumission became a fairly common practice, peaking around 1800. (I have a Bacon ancestor living in Sussex County, Del., who, according to family lore, granted his slaves their freedom after his death.)

Everything changed around 1800. Eli Whitney invented the cotton gin in 1794, making possible the profitable cultivation of cotton — but not in the Chesapeake states, which were too far north to grow the plant. And then the United States banned the Atlantic slave trade in 1808. The institution of slavery in the Chesapeake region gained a new lease on life as slave owners sold their slaves to markets in the deep south. The end result was a demographic pattern by 1860 in which 10% to 25% or more of the black population in Virginia, Maryland and Delaware counties were free but, outside a few counties in North Carolina, free blacks were almost unknown elsewhere.

That freedom, argues Lombard, gave Chesapeake blacks a head start in the accumulation of property and wealth. A glance at the maps he produces shows that across most of Virginia, the black farm ownership rate in 1920 was over 50% across the state and over 75% for big chunks of it — far higher than anywhere else in the country, even the North. Another map shows that the black home ownership rate in 1940 exceeded 60% in much of Virginia — again, far higher than anywhere else in the country. Lombard suggests that the lack of a sharecropping economy in Virginia may explain the difference.

The analysis at this point gets a little fuzzy because, based upon an eyeballing of Lombard’s maps, the rate of farm- and home-ownership in Virginia were considerably higher than in Maryland and Delaware, so there may have been other factors at work than the percentage of free blacks and/or the lack of sharecropping institutions. Lombard doesn’t address this issue. Could Virginia’s Jim Crow laws been less restrictive than those of Maryland or Delaware? Were Virginia blacks more highly educated? Whatever, the reason, it can hardly be coincidental that Richmond, where many blacks proudly trace their ancestry back to the free black population of the ante-bellum era, became known as the “Harlem of the South.”

Any analysis also need to consider the massive early 20th-century migration of Southern blacks to cities in the Northeast and Midwest, and then the subsequent migration of blacks back to the South, both of which created a large mixing effect. While some Virginia blacks trace their roots back to free blacks living in the state in 1860, how many do?

In sum, Lombard’s argument is incomplete. Not wrong, just incomplete. His hypothesis — positing a link between the percentage of free blacks in the population in 1860 and the economic well being of Virginia blacks today — is fascinating and inherently plausible. It would make a great PhD thesis.

A Demographic Mystery

Black poverty rate by county. Source StatChat

Black poverty rate by county. Source: StatChat

The highest median income for African-Americans is highest in Maryland, second highest in Delaware and third highest in Virginia. The flip side of the coin is that the counties with the lowest African-American poverty rates are overwhelmingly clustered in the Mid-Atlantic, as can be seen in the map above. What’s going on? What’s so special about the Mid-Atlantic?

One obvious explanation is that the high median African-American incomes are centered on the Washington metropolitan area. That may be a factor but there’s more. African-American prosperity extends southward well past the Richmond metropolitan area and north into Delaware.

The data comes from Hamilton Lombard with the Demographics Research Group at the University of Virginia, who published on the StatChat blog. In a future post, he says, he will examine how that came to be. I eagerly await his analysis.

(Hat tip: Frank Muraca, Nutshell.)

— JAB

Fed Theft Update: $749 Billion from Bank Depositors

silent_theftFederal Reserve Bank suppression of interest rates has cost bank depositors $749 billion in interest income on savings accounts, CDs, and money market accounts over the past six years, according to Richard Barrington with MoneyRates.com.

Quantitative Easing has made possible one of the greatest redistributions of wealth in United States history. Unlike with taxes, which tend to be highly visible, most people don’t understand how interest rate suppression affects them. Low interest rates have devastated not only bank account savings but public and private pension funds and savings vehicles such as insurance policies. Beneficiaries are borrowers, including house buyers, car owners, college students, credit card owners, corporations leveraging their balance sheets, and, of course, the U.S. government. Every percentage point in interest rate suppression across the yield curve benefits Uncle Sam to the tune of $180 billion a year.

So, how did Barrington calculate the cost to bank depositors?

MoneyRates.com starts with the total amount on deposit at U.S. banks as of March 31, per the FDIC. That total is then increased by average money market rates over the subsequent year … and then adjusted for the inflation rate over the same period. The difference between the resulting figure and the original amount on deposit at U.S. banks represents the hidden cost of the Federal Reserve’s low-rate policy.

The little guy knows the system is stacked against him. He just doesn’t know how. Pass this blog post around.

— JAB

The Decimation of Coal Production and Alienation of the Working Class

coal_production

In rejecting the extension of coal tax credits Friday, Governor Terry McAuliffe noted that the number of coal miners employed in Virginia has tumbled from 11,100 in 1988 to less than 3,000 in 2015.

At one time — the late 70s and early 80s, as I recall — coal mining employed more than 20,000. Since then, many jobs have been lost to automation, and more to declining production. Coal has been mined in Virginia for more than 100 years, and all the thick, easily accessible seams have been tapped out; it’s not easy extracting coal profitably from three-foot-thick coal seams. In the past decade came the fracking boom, which allowed natural gas to displace coal in the utility market, as well as the Environmental Protection Agency crackdown on mercury and other toxic byproducts of coal combustion. The Clean Air Act, assuming it moves forward, likely will be the death knell of steam coal in Virginia, leaving only a handful of mines producing metallurgical coal for steel making.

From 1988 until 2015, McAuliffe said, coal mine operators, electricity generators and other coal-related companies claimed more than $610 million in tax credits. “It would be unwise to spend additional taxpayer dollars on a tax credit that has fallen so short of its intended effectiveness,” stated McAuliffe in a press release.

It seems cruel to kick the coal mining industry when it’s down, but McAuliffe has a point. A 2012 report by the Joint Legislative Audit and Review Commission (JLARC) found that while the credits had slowed the decline of coal production and employment, both declined at the same or even faster rates than were predicted before the credits were created.

If we want to help the economy of far southwestern Virginia, there are probably better ways to do it. If there are only 3,000 coal mining jobs left, there’s nothing much to save anyway!

Not surprisingly, inhabitants of Southwest Virginia are among the most disaffected and alienated in the state, as can be seen by these two maps from the Stat Chat blog showing the percentage of votes that went for Donald Trump in the Republican primary, and, less lopsidedly, to Bernie Bernie Sanders in the Democratic primary.

trump_voters

sanders_voters

Buchanan County, in the heart of Virginia’s coalfields gave 70% its votes to Trump in the Republican primary.

Clearly, alienation is not limited to coal miners — it permeates the southern tier of counties across Virginia where local economies traditionally were built around tobacco, textiles, apparel and light manufacturing. Trump voters have been the losers in the world of globalization and the knowledge economy.

I wish I had an answer for what it takes to salvage Southwest Virginia, but I don’t. The Tobacco Indemnification and Community Revitalization Commission has been throwing money at the problem — workforce development and incentives for light manufacturing, mostly — but doesn’t have much to show for it. The region is just too rugged, too isolated, too hard to get around, and too bereft of workers with skills valued in the knowledge economy to attract much investment.

Sadly, the only long-term solution may be the emigration of young people in search of job opportunities elsewhere.

— JAB

Sorry, College Kids, Living off Beer and Pizza Does Not Make You Poor

Source: Demographics Work Group, UVa

Source: Demographics Work Group, UVa

As readers know, I am a data junkie, and I post a lot of maps and charts highlighting, among other things, the variations of wealth and poverty in Virginia. The data is useful in helping us understand social, economic and political dynamics of the state, but they usually come with an asterisk. Poverty rates tend to be abnormally high in college towns. Judging by the statistics, one would expect places like Blacksburg, Charlottesville, Harrisonburg, Radford and Lexington to be havens for housing projects and trailer parks. Yet to all outward appearances, they seem to be fairly prosperous places.

Clearly, the presence of large numbers of college students who are studying (and partying)  rather than working full-time to earn a living are skewing the figures. As a new census brief from the Demographics Working Group at the University of Virginia observes:

Most college students report very low incomes, putting them below their respective poverty thresholds and—especially in cases of large off-campus student populations—raising the rate of poverty in the towns where they live. Yet, intuitively, we recognize that college or graduate student “poverty” means something different than poverty among the unemployed, families with children, or the persistently needy.

In calculating the official poverty rate, number crunchers make some adjustments to minimize the student amplification of poverty by excluding people living in group quarters such as college students in dormitories, older adults in nursing homes, prisoners and inmates, and military personnel in barracks. Even so college students living off-campus inflate the poverty numbers.

By removing all students involved in undergraduate or graduate education, the Demographics Work Group provides a clearer picture of what most of us would think of as “real” poverty. In the aforementioned college towns, making this adjustment cuts poverty rates in half. Even in most populous jurisdictions, such as Richmond, the adjustment creates a noticeable drop.

— JAB