Negative yields on government bonds! That's the hot topic in investor circles these days, especially now that Switzerland has issued a 50-year bond with a negative yield. But it's worth keeping in mind that the inflation rate is Switzerland is currently about -1 percent, and expected to stay negative for some time. Given deflation of that magnitude, it's not that surprising that bond yields are negative.

Here in the US, inflation is low but still positive, so nominal yields of US Treasury bonds remain positive for the time being. However, as in Switzerland, the real yield of US treasuries is negative until you get into the 20-30 year range. Real yields are higher than in Switzerland, but the difference has little to do with the safety of the bonds and everything to with investor sentiments about the likelihood of continuing low inflation in both countries. In Switzerland, with an aging population and a fierce dedication to tight money, it's likely that inflation rates will stay low or negative for a long time. That's less likely in the United States.

Nonetheless, low yields present plenty of risks. Here is the Wall Street Journal:

Even as yields fall in emerging-market debt, for instance, the credit quality of some of these countries is falling, analysts say.

....Changes in monetary policy could also trigger potential losses across the sovereign-bond world. Even a small increase in interest rates could inflict hefty losses on investors....Low yields, analysts say, are also distorting the signals for which bond markets are typically relied upon.

The recent collapse in the 10-year Treasury yield to record lows has produced signals usually associated with a slowing economy, for instance. That is despite little sign the U.S. is heading for a recession.

A big part of the housing bubble of the aughts was caused by investors chasing yield in a market that presented few opportunities. That could happen again, as investors become ever more desperate to find something—anything—that will provide an allegedly safe yield of more than a percent or two.

The real question, though, is why there's so little opportunity for profitable investment in real-world business development and expansion. Is it truly because we're entering an era of "secular stagnation"—that is, permanent low growth rates? That's possible, given the aging of the population in most of the developed world. In any case, it's probably the most important question in economics today.

Expand Social Security? Sure, For Low Earners.

Here is Steven Hill in the Los Angeles Times today:

The real problem with Social Security is not a shortfall but that its payout is so meager. Social Security is designed to replace only about 35% of wages at retirement, yet most Americans need twice that amount to live decently. With the other components of the retirement system looking wobbly, and with incomes low, Social Security is too skimpy to be the nation’s single pillar retirement system.

The obvious solution is to expand it. There are numerous revenue streams that would allow the nation to greatly increase the monthly payout for the 43 million Americans who receive retirement benefits....First, we should eliminate the Social Security payroll cap....stop exempting investment income....scrap income tax shelters for wealthy households and businesses....end or reduce tax breaks for private retirement accounts, including 401(k)s and IRAs....Just these four revenue streams would come close to raising the $662 billion necessary to double Social Security’s monthly benefit.

This kind of thing pisses me off. It may be true that Social Security is "designed" to replace only 35 percent of wages at retirement, but that statement is wildly misleading. Here are the latest replacement rates for future retirees according to the Congressional Budget office:

  • Low earners: 82 percent
  • Median earners: 44 percent
  • High earners: 22 percent

There are two things to note here. First, replacement rates have steadily gone up for low earners and will keep going up in the future. Scheduled replacement rates for low earners are about 63 percent for those born in the 1960s; 79 percent for those born in the 1980s; and 82 percent for those born in the 2000s.

Second, and more important, replacement rates are far higher for low earners than for higher earners. This is exactly how it should be. Low earners typically have very few sources of other retirement income and rely almost entirely on Social Security. If I had my druthers, Social Security would replace 100 percent of working-age income for low earners.

But higher earners don't need those high replacement rates because they have other sources of retirement income: savings, 401(k) accounts, IRAs, pensions, etc. Obviously this differs from person to person, but the Social Security Administration estimates that, on average, the total replacement rate for median earners and above—which includes all sources of retirement income—is 80 percent or higher (Table 11 here).

Expanding Social Security to double its monthly benefit is dumb. It would be a massively expensive solution to a problem that doesn't exist. We should instead focus on increasing benefits for the low earners who need it. That would cost far less and solve a problem that really needs solving.

In a new paper using an interesting approach, Roland Fryer finds that police officers treat blacks and Hispanics more roughly than whites, but they don't shoot them any more frequently:

The results obtained using these data are informative and, in some cases, startling. Using data on NYC's Stop and Frisk program, we demonstrate that on non-lethal uses of force—putting hands on civilians (which includes slapping or grabbing) or pushing individuals into a wall or onto the ground, there are large racial differences. In the raw data, blacks and Hispanics are more than fifty percent more likely to have an interaction with police which involves any use of force.

In stark contrast to non-lethal uses of force, we find no racial differences in officer-involved shootings on either the extensive or intensive margins. Using data from Houston, Texas—where we have both officer-involved shootings and a randomly chosen set of potential interactions with police where lethal force may have been justified—we find, in the raw data, that blacks are 23.8 percent less likely to be shot at by police relative to whites. Hispanics are 8.5 percent less likely.

Analyzing data from cities in California, Texas, and Florida, Fryer found that lethal force was used more often against whites than blacks.1 This is from the New York Times:

In officer-involved shootings in these cities, officers were more likely to fire their weapons without having first been attacked when the suspects were white. Black and white civilians involved in police shootings were equally likely to have been carrying a weapon. Both of these results undercut the idea that the police wield lethal force with racial bias.

…A more fundamental question still remained: In the tense moments when a shooting may occur, are police officers more likely to fire if the suspect is black?

To answer this question, Mr. Fryer focused on one city, Houston. The Police Department there allowed the researchers to look at reports not only for shootings but also for arrests when lethal force might have been justified. Mr. Fryer defined this group to include suspects the police charged with serious offenses like attempting to murder an officer, or evading or resisting arrest. He also considered suspects shocked with Tasers.

And in the arena of "shoot" or "don’t shoot," Mr. Fryer found that, in tense situations, officers in Houston were about 20 percent less likely to shoot a suspect if the suspect was black. This estimate was not very precise, and firmer conclusions would require more data. But, in a variety of models that controlled for different factors and used different definitions of tense situations, Mr. Fryer found that blacks were either less likely to be shot or there was no difference between blacks and whites.

Fryer calls this "the most surprising result of my career." Needless to say, it's based on limited data (the city of Houston) and a new way of looking at police shootings, so Fryer's results should be considered tentative. And it's worth keeping in mind that lesser uses of force are far more common in encounters with blacks than whites:

"Who the hell wants to have a police officer put their hand on them or yell and scream at them? It’s an awful experience," he said. "I've had it multiple, multiple times. Every black man I know has had this experience. Every one of them. It is hard to believe that the world is your oyster if the police can rough you up without punishment. And when I talked to minority youth, almost every single one of them mentions lower level uses of force as the reason why they believe the world is corrupt."

Food for thought. Fryer is a careful and highly respected researcher, and he was motivated to conduct this study by the events in Ferguson a couple of years ago. Both of his conclusions are worth taking seriously and warrant further study.

1The results weren't statistically significant, so technically Fryer's conclusion is that there's no difference between the shooting rate of whites and blacks.

Friday Cat Blogging - 8 July 2016

I really don't think I can face another few hours of reading the news, so I'm calling it a day. There's plenty of good coverage of the day's events over at the mothership and at every other news organization on the planet. I'll be back on Monday, and in the meantime stay calm, stop obsessing over finding someone to blame, and do something nice for someone.

Also: Hilbert is not happy with us humans. He wants us to get our act together.

Today's Big Campaign News

Is it really big news that Donald Trump released a non-idiotic statement responding to the shootings in Dallas? Judging from the headlines today, I guess it is. What a world. We sure do set the bar low for reporting on Trump's every move.

For what it's worth, here's how Pollster's head-to-head matchups between Hillary Clinton and Donald Trump have evolved since the beginning of the year. Hillary's support has been pretty stable, while Trump's has declined steadily. He doesn't have much time left to turn that trend around.

Chart of the Day: Net New Jobs in June

The American economy added 287,000 new jobs last month, 90,000 of which were needed to keep up with population growth. This means that net job growth clocked in at a very robust 197,000 jobs. This makes up for May's miserable jobs report, and suggests that economic growth is still chugging along at decent rate. The labor force expanded considerably in June and the number of unemployed also went up, producing a rise in the unemployment rate to 4.9 percent. This may be an artifact of graduating college students who haven't yet found work.

Hourly earnings of production and nonsupervisory employees were up at an annual rate of about 2.3 percent compared to last month, a bit higher than the inflation rate. That's not great, but at least it's progress.

Overall, this jobs report was a relief. Employment growth over the past six months hasn't been great, but at least it hasn't been driven into a ditch.

Weekly Flint Water Report: June 24-30

Here is this week's Flint water report. As usual, I've eliminated outlier readings above 2,000 parts per billion, since there are very few of them and they can affect the averages in misleading ways. During the week, DEQ took 148 samples. The average for the past week was 9.97.

Pew has another of its surveys out, this time a fairly generic presidential poll. They do this in June every four years, and they have a pretty good track record. Without further ado, here are the topline results:

Hillary Clinton is 9 points ahead of Donald Trump regardless of whether Gary Johnson is in the race. A subsequent question makes clear there's very little wiggle room here: among voters who support a candidate, nearly all of them say their choice is firm. Bottom line: there are very few undecided voters—who will probably break pretty evenly anyway—and everyone else says their minds are solidly made up.

So does Trump have a chance? Sure—though it's slipping away. Voters are pretty non-thrilled with their choices this year, which means that turnout could make an even bigger difference than usual. But running a ground game requires lots of money and great organization, both of which Trump lacks. At this point, then, it looks like Trump's only real chance is some kind of dramatic external event that suddenly turns voters his way. But I'm no longer sure what that could be. Serious economic problems are unlikely over the next 17 weeks, and terrorist attacks don't seem to help him in the polls. So what is there?

I'm not sure. But if you're wondering why Trump hasn't broken through against a candidate who obviously has plenty of weak spots, I think Pew provides the answer. Trump's campaign is fundamentally based on appealing to people who think they're getting a raw deal from a lousy economy. But views on the economy are actually pretty positive:

Overall economic optimism is back to where it was in 2008, before the Great Recession. That's not very fertile soil for Trump's campaign. Add to that his apparently inability to hold a coherent thought for more than a few minutes at a time, and it's really hard to see a way for him to make up his current polling deficit.

POSTSCRIPT: Even Trump will probably get a post-convention bounce, but don't let that fool you. Wait a couple of weeks and it will almost certainly go away.