Voters Sure Are Pissed Off This Year

Voters are angry this year. Bernie Sanders proved it on the Democratic side and Donald Trump on the Republican side. People are sick and tired of the old guard that talks and talks but never gets anything done. The establishment has turned politics into a corrupt charnelhouse catering to the rich and powerful instead of regular Americans, and voters are finally fed up. The tea party was a start, Occupy Wall Street was next, and now there's a volcanic, bipartisan fury erupting all over the country.

So, um, that means incumbents should be in big trouble on both sides of the aisle. It's probably been a bloodbath in the primaries this year—though of course the lamestream media will never tell you about it. Let's take a look.

Hah! There's your evidence right there. In 2014 four incumbents lost their primary contests. This year five have lost. Behold the fury of the American electorate. Truly this year represents the long-awaited revolt of the voters against the entrenched interests that bailed out Wall Street and sent all our jobs overseas.

Wall Street Is Whining Yet Again

File this one under "Yes, we almost destroyed the world, but how long are you going to hold that against us?"

Bank trade groups and industry advisers are debating the possibility of legally challenging the Federal Reserve in an attempt to force changes to annual “stress tests” of the biggest U.S. lenders, people familiar with the talks said....The discussions are at an early stage and...have centered on legal strategies that would allow a challenge to the stress tests, with much of the focus on their opacity and how the Fed changes certain aspects of the exams each year.

....The exams arguably have made banks safer by forcing them to better measure risks they face. They also dictate the amount of capital banks can return to shareholders, in turn influencing returns on equity and share-price valuations....Fed officials have disclosed more in recent years about how the tests work. They have described in more detail the mathematical models used to determine how much money banks would lose under the tests, pointing out changes from year to year.

But the central bank still unilaterally designs the doomsday scenarios that are simulated during the tests. It also doesn’t disclose all the details of the models, which keeps banks guessing about their results. The central bank says that if it gave banks more information about the models, bankers might be able to game the tests.

First off, are banks allowed to chat with each other about strategies for suing the Fed? It seems like the kind of thing that competitors aren't supposed to do. But maybe banks are different.

That aside, what a bunch of whiners. Big banks have a pretty good idea of what the Fed expects, and history demonstrates pretty clearly that if you make the requirements too explicit banks will indeed bend their every synapse toward figuring out how to game the rules. That's largely what banks around the world did during the aughts, and it's a big reason they weren't prepared for the housing crash.

An alternative, of course, is to simply put in place crude leverage and capital requirements and make them very explicit indeed. But banks don't like that. Why? Because it's hard to game.

So buck up, Wall Street. Millions of high school students every year take the SAT even though their test prep courses only prepare them for approximately what it will be like. They make do with that, and so can you.

Here's a Must-Read Tale of Quiet Suburbia

My quiet little hometown of Irvine has been the site of a truly bizarre little scandal for the past few years. I've followed it off and on the entire time, and it's an object lesson in how a seemingly ordinary couple can go completely off the rails and try to frame a neighbor over a slight so small most people would have forgotten it by the next day.

Anyway, now that it's basically over, Christopher Goffard of the LA Times has written the definitive series about it. I was going to wait until it was done to recommend it to you, but the damn thing is six parts long. We're up to part 4 today, so you might as well go ahead and start reading it now. There's no political lesson here, but it's one of those riveting tales that's so creepy and outlandish you don't want to miss it. It turns out that fictional suburbia is nowhere near as interesting as the real thing.

I have no special reason for posting this except that a few folks were discussing it in my Twitter feed. The proximate stimulus was an old piece by Gallup's CEO claiming that the standard unemployment rate is a "lie" because it doesn't count people who aren't looking for work, or who are forced to work part time, etc. So here's the U6 unemployment rate, which includes all those things:

Since 1994, when the series begins, the average U6 rate has been 10.7 percent. Today it's 9.7 percent. But even at that, it's about a point higher than the average during the last two expansions and two points higher than its best during the Bush era. In other words, it could still stand to drop another point or two, but it's really in pretty good shape. Jobs are out there for most people who want them. Keep this in mind the next time you hear someone burbling about how unemployment is really way worse than the government is telling you.

Here is Politico today:

Bill Clinton aides used tax dollars to subsidize foundation, private email support

Taxpayer cash was used to buy IT equipment — including servers — housed at the Clinton Foundation, and also to supplement the pay and benefits of several aides now at the center of the email and cash-for-access scandals dogging Hillary Clinton’s presidential campaign.

This investigation, which is based on records obtained from the General Services Administration through the Freedom of Information Act, does not reveal anything illegal. But it does offer fresh evidence of how the Clintons blurred the line between their nonprofit foundation, Hillary Clinton’s State Department, and the business dealings of Bill Clinton and the couple’s aides.

Sounds shady! Let's count the paragraphs until we get to an actual concrete description of what this is all about. Here we go: 1... 2... 3... 4... 5... 6... 7... 8... 9... 10... 11... 12... 13... 14... 15... 16... 17... 18... 19... 20... 21... 22... 23... 24... Bingo:

According to several people familiar with the former president’s operation, the rationale behind the interwoven payrolls is that they allow for a small team to assist Clinton in a variety of settings without having to do logistically complicated hockey-like line changes. In a given day, Clinton might deliver a paid private speech (during which time his employees’ salaries could be paid by the executive services corporation) and a public speech in his capacity as a former president (during which his staff could be paid by the GSA funds). And he could attend events for the foundation (where staff time would be paid by the foundation) as well as his wife’s presidential campaign (staff time would be paid by the campaign).

....A GSA spokesperson declined to comment on specific employees, but said ex-presidents have broad discretion over how they choose to divvy up the $96,600 they are provided each year for staffing. They can give the entire sum to a single employee or divide it among multiple employees.

So Clinton gets the princely sum of $96,600 each year for staff, and tracks the work these staffers do in his capacity as ex-president. He bills the GSA for that work, and bills other organizations when the staff does work for them. This is bog standard stuff. Staff time is tracked, and then charged out. This is not just "not illegal," it's the way pretty much any similar kind of operation works. Even me. Mother Jones pays me an annual salary, but if I write an op-ed or something, I bill that time to whoever I wrote the op-ed for.

Go ahead and read the whole thing. There's really nothing even remotely blurry or scandalous or shady or anything else. It's just the standard way anyone operates who has multiple interests, multiple funding sources, and staffers who do work for multiple organizations. There's no hint that any of the charges were incorrect, or that any of the purchases were misallocated. As near as I can tell, it was all entirely above board, and the GSA was actively involved in scrutinizing everything.

Basically, the reason for headlines like this is because Bill Clinton decided after his presidency to set up a large and active foundation that raised a ton of money for exceptionally worthy causes around the world. If he had decided to just lounge around instead, none of this would ever have come up. It's a little hard to believe that he's getting so much grief for this.

Charts of the Day: Thatcher vs. Blair

Here's a fascinating little chart courtesy of Thomas Forth. It shows income inequality in the UK (on the vertical axis) vs. growth in disposable income (horizontal axis). Here it is for the poor:

In the go-go 80s under Thatcher, the poor made no progress at all. Under Blair, their disposable income increased from about £9,000 to £12,000. But what about the well-off? They probably did great under Thatcher and then got the shaft under Blair. Let's look:

Under Thatcher, the well-off did indeed prosper. Incomes of the 95th percentile went up from £23,000 to £37,000. Under Blair they went up from £42,000 to £58,000.

So under Thatcher the poor got nothing and the well-off saw their incomes rise by about 60 percent. Under Blair, the poor did pretty well and the well-off saw their incomes rise by about 40 percent. Choose which country you'd rather live in.

Donald Trump's big immigration speech contained few surprises. He spent a lot of time on illegal immigrants who are criminals, but his solution was pretty simple: Get rid of them. Period. End of story. And not just over the border, either. Way over the border so they can't come back. And if their home countries don't want them back, tough. Apparently planes full of murderous illegal immigrants are going to be landing all over the world whether anyone likes it or not.

But how about everyone else? Are we going to deport all 11 million illegal immigrants in the country, even the "good" ones? Here's what he said:

Importantly, in several years when we have accomplished all of our enforcement and deportation goals and truly ended illegal immigration for good, including the construction of a great wall...and the establishment of our new lawful immigration system, then and only then will we be in a position to consider the appropriate disposition of those individuals who remain.

That discussion can take place only in an atmosphere in which illegal immigration is a memory of the past, no longer with us, allowing us to weigh the different options available based on the new circumstances at the time.

But no amnesty! So no amnesty and no legal status, but we'll weigh all the other options someday in the far future. I'm not sure what other options there are, but I guess that's an issue for our grandkids. Aside from this, the waffling Trump was gone, replaced by the hardline Trump we've all come to love over the past year.

Anyway, if you're curious, here's the nickel version of Trump's 10-point immigration plan:

  1. Build a wall. Mexico will pay for it. It will be a physical wall, with drones and sensors as supplements.
  2. No more catch and release. If you cross the border, we'll send you back. Way, way back.
  3. Triple the ICE deportation force. Deport all criminals instantly. The police know who they are. We'll round them up and deport them on Day 1.
  4. Defund sanctuary cities.
  5. Cancel all of Obama's executive orders.
  6. Suspend visas for visitors from undesirable countries. Send 'em to safe zones in their own countries instead and make the Gulf states pay for it.
  7. Force other countries to take back deported immigrants whether they like it or not.
  8. Complete the biometric entry-exit visa tracking system.
  9. Strengthen E-Verify and end all welfare benefits. "Those who abuse our welfare system will be priorities for immediate removal."
  10. Reform legal immigration.

About That New Lead Study....

A new study was released recently about the effect of childhood lead poisoning on future academic performance. After reading it, I decided not to post about it, but since it's getting some attention I should probably explain why. This will take a while, so be patient.

First things first: The basic idea here is uncontroversial. We've known for decades that childhood lead exposure reduces IQ, stunts academic development, and leads to lower test scores. But most of the original studies in this area were done a long time ago, when childhood lead levels were much higher than they are now. Blood lead levels are measured in micrograms per deciliter, and kids in the 70s and 80s frequently had levels as high as 20 or 30. Today that's rare, so this paper focuses on something different: small changes in children who already had fairly low lead levels. For example, what would be the effect of a drop from 4 to 3?

To measure this, they rounded up records for nearly every third-grader in Rhode Island. These records included both blood lead levels in infancy and academic performance later in childhood, which is just what you need. The problem is that you can't just compare those two things. It's common knowledge that kids with high lead levels also tend to be poor, have less educated mothers, belong to minority groups, etc. Since all of these things are correlated with poor academic performance, you have to control for them somehow. It's very difficult to do properly since you can never be entirely sure there isn't something you haven't overlooked.

So the authors looked at another variable unique to Rhode Island. Starting in 1997, Rhode Island required landlords to certify their rentals as lead-free. Kids who live in certified housing are likely to have lower lead levels, which means you can compare that to academic performance instead. Unfortunately, you run into the same problem: people who live in certified housing are unlikely to be a random subset. You have to control for different stuff, but you still have to run a lot of controls.

To address this, the authors used an instrumental variables approach. They constructed a remarkably complex variable that models "the probability that a child’s home was certified at the time of birth as a function of the number of certificates that had been issued in their census tract as of their year of birth, as well as family characteristics, and tract, year, and month of birth fixed effects." After all that, though, they found only small effects:

The estimated effects of lead in these models are strongly statistically significant but relatively small: The column (4) estimates suggest that a one point increase in mean BLLs is estimated to reduce reading scores by .306, and math scores by .193.

So going from a lead level of 4 to 3 raises test scores by less than a third of a point on an 80-point scale. A 3-point reduction—which is fairly large these days—would raise test scores by about a point in reading and half a point in math.

But that's not the end. There are two ways of measuring lead levels: venous (a standard blood draw) and finger pricks. Venous is more accurate, but finger pricks are more common. The venous measures show a stronger effect from lead exposure, so the authors constructed yet another instrumental variable to take this into account, and that produced a bigger estimate of lead on test scores: about half a point for reading and a third of a point for math.

But we're not done yet. The authors then generate another instrumental variable, along with all the usual controls, and this produces an even bigger estimate: about one point for reading and 0.4 points for math. In both cases, however, the standard errors are quite large and the correlation coefficients are minuscule. In the case of math, the results are not statistically significant even at the 10 percent level.

This is the point at which I emphasize that I'm no expert in the design of studies like this. Controls are perfectly legit. Instrumental variables are perfectly legit—though you have to be careful not to get over-clever about them. Trying to correct for measurement problems is perfectly legit. And yet, when you put this all together it leaves a bad taste in my mouth. There are lots of controls. The main instrumental variable might be appropriate, but I couldn't quite convince myself of that. It's also a very complex instrument, which makes it hard to evaluate. The measurement stuff looks suspiciously like a post-hoc way of generating a bigger effect. It all feels very fragile. And even after all this, the statistical value of the results is weak.

I may be wrong about every aspect of this. It will take a real expert to go through the paper and make an informed judgment. In the meantime, though, I'd take it with a grain of salt. There's no question that childhood lead exposure reduces academic performance, but for now I'd say I'm skeptical that the effect is as large at low levels as the authors suggest.

I can't reveal my sources, but I have gotten hold of a transcript of Donald Trump's meeting today with Enrique Peña Nieto. Here it is:

EPN: Mr. Trump, Mexico will never pay for a border wall. The idea is insulting and demeaning to the Mexican people and we resent it. You must stop telling the American people this ridiculous fantasy.

DJT: That's a nice tie you're wearing. Is it silk? I've always loved silk. Melania does too, and she always makes sure that all our sheets are 100 percent silk. Even Barron's. You can't start too young when it comes to quality, you know. When I get to the White House, I'm going to change out all the sheets in the guest rooms. You should come for a visit. It'll be great. They probably have cotton sheets now because Obama doesn't know quality the way I do. I mean, the guy is obviously in way over his head, don't you agree? He just doesn't understand how to negotiate with a head of state. But you and I are going to get along. We'll be friends. I just know it. Many of my best friends are Hispanic, you know. It's something people don't give me credit for. But that's the press for you. Is it the same here? How does the press treat you? When you do something great, like inviting me for this meeting, do they give you any credit or do they just publish the most horrible lies about you? When I'm president that's going to stop. They shouldn't be able to publish lies and get away with it. They said I wanted to use nuclear weapons on Syria! I mean nuclear, that's where....

[2,385 words omitted]

So I told him that was impossible, and he said "Not for you, Trump-san!" The Japanese are great kidders. But he was right. We got it done on time and under budget. It was....

Aide: Sir, the press is waiting. We need to make our way out to the portico.

DJT: And I've got a plane to catch. It's been great talking with you, Enrique. I can call you Enrique, can't I?

So you see, both sides have told the truth about this meeting. Peña Nieto did tell Trump that Mexico wouldn't pay for the wall, and Trump didn't discuss it with him.

Trump Goes to Mexico and Everyone Is Bored

I'm back from lunch and it's time to catch up on Donald Trump's visit to Mexico. How did it go?

Apparently the answer is "meh." After all his big talk about Mexico paying for his wall, Trump didn't bring it up once he got face to face with Enrique Peña Nieto. I gather he didn't bring up much of anything else either. Even Twitter seemed bored by the whole thing.

On the bright side, Trump didn't say anything too barbarous, which is being hailed by Republicans as Trump acting "presidential." The soft bigotry of low expectations comes to the rescue once again.