Half Changed World

Last weekend, I took the boys to the big Air and Space Museum annex, out by Dulles.  Like all the Smithsonian museums, admission is free, but they charge $12 for parking.  After some agonizing, I signed up for an annual parking permit.  I’m something of a sucker for unlimited admission passes — we also got season passes for Six Flags.  I’m not sure they always make economic sense, but I’m a more relaxed and happier parent when I know that we can leave as soon as the boys start to fade, without having to endure the "death march of fun" in order to wring out the most value from our admission.  Economic logic says that once you’ve paid the admission it’s a sunk cost, and thus the price of admission shouldn’t affect how long you choose to stay, but I don’t know anyone who actually behaves that way.  (I’m also pretty sure that we’re still not mentally accounting for the price of gas when when we decide to go to the museum because it’s "free.")

The Six Flags passes are an interesting case, because they cost barely more than a single admission.  As far as I can tell, they’re a loss leader to get you to buy food and rent lockers at the park.

When I worked at HHS, I occasionally found myself in the odd position of defending this administration to my friends.  Some of it (as my husband pointed out) was cognitive dissonance — if I had believed that they were as evil as some of my friends said, I couldn’t have survived working there as long as I did.  But it’s also true that, after listening to the political appointees, I often found myself in a position where I disagreed with them, but was convinced that they genuinely believed that their policies (stricter work requirements, marriage promotion activities) were the best ways to help poor children and families.

This spring, OMB issued a directive that said that agencies wouldn’t be allowed to rush through regs at the last minute.  I said at the time that I assumed this only applied to regulations they didn’t want to issue, not to ones they did.  Sure enough, the Post reported today that DOL is trying to sneak through a regulation that would make it harder to regulate workplace toxins.  So I thought I was maybe getting cynical enough.

Nope.  Apparently the Bush Administration doesn’t really believe that companies are supposed to pay their employees for the work they do.

I nearly choked this morning on my way to work when I heard on Marketplace radio Cato’s Will Wilkenson arguing that we should allow more visas for skilled workers in order to reduce wage inequality. His claim is that wage inequality is largely driven by the increased demand for skilled workers relative to unskilled workers, and so by increasing the supply of skilled workers, we’d reduce inequality.  Let me count the things that are wrong with this:

1. Since when does Cato care about inequality?
2. I believe that relative wealth and relative poverty matter, but even I’m not brutal enough to suggest that the appropriate solution is to push the wages of middle-class workers down.  I’d be happy to impose higher marginal tax rates at the top, but that’s not what this proposal would do.
3. The biggest driver of the growth of inequality in recent years is not the gap between the average college graduate and the average high school graduate — it’s the gap between the highest paid college grads and the average college graduates.  Only the top 10 percent of the income distribution has experienced gains that have kept up with productivity. 
4. Even if increasing the number of H1B [corrected — I wrote HB2 before] visas reduced wage inequality, it would probably increase overall inequality in the US, by shifting money from skilled labor to capital.

This week’s book is (Not) Keeping Up with Our Parents: The Decline of the Professional Middle Class, by Nan Mooney.  In many ways, it covers the same ground as The Trap, Strapped, and  The Two-Income Trap— how families today are squeezed by the high costs of housing, child care, health care, and college loans. 

The only problem is that — as we’ve gone over here before — there’s not actually a lot of evidence that this generation is overall worse off than their parents were, and if their parents weren’t college graduates, they’re probably earning a lot more.  Mooney deals with this by narrowing her subjects down to what she calls "the professional middle class" — those with college degrees, but excluding doctors, lawyers, businesspeople, and anyone else who is actually making decent money.  She focuses on teachers, social workers, journalists, artists, workers for non-profit organizations, etc.   

I wanted to like this book, but I found myself muttering that the subjects seemed to believe in Marjorie Williams‘ "no fault fairy."  I’m not sure who they think promised them that there would be no tradeoffs between interesting work, living in expensive vibrant urban areas, and living a middle class life with homeownership and a secure retirement.  Easy credit may make it possible to postpone these tradeoffs (and may even make things worse by thus increasing the supply of people who are willing to take interesting jobs at non-sustainable wages), but the existence of these tradeoffs isn’t something new. 

We’ve been in this house for a bit more than a year now, so now we’re able to do same month year-to-year comparisons of our energy use.  We’ve been steadily working on making the house more energy efficient, so I’ve been curious to see what the impacts are.  We’ve replaced the windows, one of the toilets, clothes washer, dryer, boiler, fridge, dishwasher, and stove.  Basically, the only things left to do are the hot water heater and the air conditioner…

So, the envelope please…

• Electricity — Dominion Virginia Power has a handy-dandy button on its site that generates various comparisons for you once you’ve logged in.  It shows how much you paid in a given month compared to the previous month and the same month the year before, and divides the change out among different temperatures, different number of days in the billing cycle, change in prices, and "customer-controlled use."  So, we paid $71.20 in May 2008, down from $95.02 a year previously.  And the rates went up in that period, so they claim that customer-controlled use saved us $27.28.  So, a decent percentage savings, but not that impressive in absolute dollar amounts.  Even with the forthcoming 18% rate hike, it’s going to take us a long time before the improvements pay for themselves.  (Obviously, the energy savings were not the primary reasons we made these changes, so we’re not upset by this.)

• Gas — Washington Gas doesn’t offer this kind of comparison, so I have to sort of eyeball things.  We used 13.2 therms last month, versus 63 therms a year ago.  That’s because it took us a while last year to figure out how much energy our old boiler was using keeping water hot even when it wasn’t sending any into the baseboard heaters.  Once we figured out that we needed to shut the boiler off in the summer, it dropped down to 32 therms. (The remainder is for the clothes dryer and water heater, both of which are gas-powered.  Our new stove is also gas powered, but you’d have to work really hard to spend more than a few dollars that way…)  The more impressive comparison is February to March, when our use dropped from 258 therms to 151 when we installed the new boiler.  That improvement clearly is cost-effective, since our February bill was close to $400.*

• Water — We get billed quarterly for water, and haven’t paid more than $100 per quarter.  While the washer and dishwasher use less water than the old ones, I don’t expect it to make a noticeable difference on our bills.  We put in a low-flow showerhead but I’m guessing that it impacts the gas bill more than the water bill.

Dominion is making a big deal out of their new conservation plan, but I’m pretty skeptical.  Based on my results, my guess is that just showing people how much their energy use costs won’t significantly affect usage unless they also adopt variable rate pricing, where electricity costs a lot more during peak usage times. (Dominion does not appear to be doing that, since their demo says you’d be entering the rates from your bill.)  I think this is mostly an attempt to convince politicians to give them approval for the transmission lines and coal-burning plant they want to build.

* When I see stories like this one about people with $400 monthly electric bills, I have to assume that they have electric heat, and very poor insulation.  I’m not sure I could run up a $400 electric bill in this house even if I ran the air conditioning with the windows open.

Cross-posted to my home blog.  Also, note the new "Environment" category — I’ll go back when I get a chance and add the tag to some of my older posts. 

Steven Greenhouse covers the labor beat for the New York Times, and The Big Squeeze: Tough Times for the American Worker is his summary of the state of working America.  It’s not a pretty picture.  He describes a world of layoffs, unionbusting, sexual harassment, workplace injuries, and broken promises.  These issues are what I work on professionally, so little of it was news to me, but Greenhouse brings the abstract issues to life with individual stories.  And even I was surprised at the ubiquity with which Greenhouse found that store managers forged timekeeping records and forced workers to work off the clock in order to cheat them of overtime and keep labor costs down.

Unfortunately, while the topic is important, I have trouble imagining anyone reading it all the way through but those who are already convinced.  The unremitting grimness of the book is only slightly broken by a chapter on model employers, such as Costco, Patagonia, and Cooperative Home Care Associates.  The last chapter of the book offers some possible solutions, all of which would be positive steps, but which either don’t seem up to the magnitude of the challenge (enforcing wage and hour laws more strongly) or are far easily said than done (expand health coverage to all while bringing costs under control).

The average price of regular gas in the US has officially passed $4 a gallon.  Here in DC, I haven’t paid that yet, but may the next time I have to fill up.

Gallop polled people about the cost of gas last month, and a majority said they thought gas would hit $6 a gallon within the next 5 years, but only 19 percent thought it would hit $10 a gallon within that time period.  My personal guess is that it’s likely to hit $6 or $7 in the next year or so, as part of a speculative bubble, but then fall back to the $3-$4 range.  But that’s just a guess.  I’m pretty confident that gas-powered cars will still be around when my boys hit driving age, unlike the author of an essay I read recently.

My car needed some not-insignificant repairs to pass its inspection this month, so I spent some time crunching the numbers to see if it made sense to replace it with a hybrid.  The answer is no, at least not for economic reasons — I drive less than 8,000 miles a year, and even if I doubled the fuel economy, I just wouldn’t save that much money.  At the very minimum, it makes sense to hold out a couple of years so I can get a next-generation hybrid, which are supposed to have much higher fuel economy.

(I also read an article that suggested that a plug-in hybrid could be used as a backup power source.  Given the unreliability of power in our neighborhood, that would be a killer app for me.)

Via Kathy G at the G Spot, I found this debate between Gary Becker and Richard Posner on the NYC experiments about providing cash incentives to parents and older teens to reward school attendance, parent-teacher conferences, and good grades.  This is part of Bloomberg’s broader anti-poverty strategy, something that I had been meaning to discuss for a while, so I’ll jump on in.

Becker has what is probably the classic economist’s take:  "boys and girls as well as adults respond to incentives."  While recognizing that there may be challenges with targeting the program correctly, he thinks that it’s worth trying the experiment to see if it work.  I basically agree with this — I think it’s funny that people get horrified about "bribing" kids to do well in school, but aren’t upset when workers get bonuses for good performance.

Posner comes up with a number of nitpicks of the program, but his fundamental concern is that poor attendance is a symptom, not the disease: "Paying children to attend school will reduce truancy rates some but
without improving school quality, and perhaps without improving the
education of the children receiving the payments."  (He thinks that school vouchers are the solution, but that’s another story.)

Interestingly, this has a lot in common with Margy Waller at Inclusionist’s concern that the Bloomberg anti-poverty initiative assigns the blame for poverty to poor people’s bad choices.  If the schools are fundamentally falling down at their job of educating kids, giving the kids money for passing tests is like giving me money to make a jump shot.  Similarly, low-wage workers have high job turnover in large part because that’s how the jobs are designed.  But, that said, MDRC has been studying programs designed to improve job retention and advancement.  And so far, one of the most effective programs has been one in Texas, which provided financial incentives to former welfare recipients who were employed full-time.

I agree that I worry about the framing of these payments as all about overcoming poor people’s bad values.  You can also tell a convincing story about how the financial incentives make it possible for a worker who is paid by the hour to take off from work to go to a parent teacher conference, or wait in a crowded medical clinic to get the kid immunized, or let the parent keep their job by hiring a more reliable babysitter, but that’s not how these payments are being covered in the media.

Kathy notes that behavioral economics also raises the issue that there are some times when cash incentives can have perverse effects. In Ariely’s language, a financial incentive can shift things from a social setting to a market setting.  So people were less likely to help someone load a car when offered an insultingly low wage than when asked to do it out of altruism, and were more likely to pick up their kids late from child care when the center instituted a late fee.  That’s one of the reasons I won’t tie my kids’ allowances to their picking up their rooms or helping out around the house — it would implicitly allow them to choose to forgo the allowance and not pitch in.  But I’m not convinced that this analogy applies to the incentives in the experiment.

The recent discussion of budgeting and how we’re dealing with rising prices inspired me to revisit my experiment of trying to stick to the thrifty food plan for a month.  This gives us a budget of $501 a month.  (Note that this is different from the Food Stamp Challenge which asked politicians to live for a month on the average monthly benefit of about $90 a person a month.  The average benefit is significantly lower than the maximum benefit, because most Food Stamp recipients have earnings, and their benefits are reduced as a result — they’re not really expected to feed themselves with only their Food Stamps.)

As before, I’m only looking at actual expenditures, not trying to allocate a cost to the food that’s in our pantries and fridge as we begin.  That said, we were totally out of milk this morning.

T stopped at Trader Joe’s this afternoon, and our first grocery bill for the month comes in at $21.53, including two gallons of milk at $3.69 each, pizza dough and sausage for pizza later in the week, "Sir Strawberry Juice" and a couple of odds and ends.  By contrast, 3 years ago when we did this before, on the first day we paid $2.45 and $3.05 for two gallons of milk (at Costco, but still…).

update: for another view of inflation, check out this NY Times graphic (via Visualizing Economics).  Shows you both where the average consumer spends the most money, and what’s getting more expensive (and what isn’t).

With energy and food prices both climbing, one of my regular readers suggested that I ask all of you all what adjustments you’re making.  Are you reducing your driving?  Cutting coupons?  Reducing meals out?  Saving less?  And how much are these adjustments hurting?  Do you feel like it’s a big sacrifice, or something you hardly notice?

In our household, I’d say we’re making relatively minor adjustments:

• Trying to consolidate errands, do fewer grocery runs.
• Doing more shopping at the less expensive grocery stores, and buying less convenience foods
• Really paying attention to turning out lights, unplugging appliances when not in use.
• Taking the bus to NYC instead of driving (the parking costs in NYC were killing us)
• Generally asking "do we really need this" before buying stuff — especially in the $20 to $50 range, which doesn’t feel like big spending, but adds up fast.

I can’t say we’ve really cut back on our day to day driving — I was already driving to the metro, rather than downtown, and the bus is really more of a hassle than the additional savings justify.  (It’s a bit slower than driving, but real problem is that the low frequency makes missing the bus a disaster, so you have to build in huge margins for error.)  I’m actually sort of dubious about these stories about how so many people are shifting from cars to buses.  I’m not disputing the fact that public transit systems are seeing big percentage increases in ridership — but we’re starting from such a low base that if only a few percent of drivers shift to buses, that can be a 30 or 40 percent increase in bus ridership.

I just put in a low-flow showerhead, but that was really an environmental choice rather than a frugal one.  Overall, we’ve done a lot to improve the efficiency of our house — new windows, new boiler (we have baseboard heating), high efficiency washer and dryer, high
efficiency kitchen appliances.  Over the long run, these will save money, but for now, we’ve been writing a lot of big checks for them.

In the short run, things will be better for the next few months, as we won’t have to pay for N’s preschool, and have already paid for camp for the boys.  But then he’s going 5 days a week instead of 3 next year, so that will cost about an extra $200 a month.   But then
after next year we’ll be done with preschool and will feel rich.

Several years ago, I read an article on Money.com called the "60 percent solution" in which they argue that you should keep your fixed expenses down to 60 percent of your take-home income.  (I see I wrote about Warren and Tyagi’s version of this plan two years ago).  If you were doing that before the recent run-up in prices, you’re probably giving up some of your extras, but you don’t have to do anything drastic.  If 80 or 90 percent of your paycheck was already allocated to fixed expenses, there’s not a lot of room to adjust.

The reason I thought the 60 percent solution article was interesting was that it recognized that it’s really hard to save significant amount of money by shaving your grocery bill.  Some of us never spent $5 a day on fancy coffees in the first place, and so can’t find savings by giving them up. Instead of squeezing at the margin, it may be better to bite the bullet and look for big changes to make — a smaller house or apartment, taking in a roommate, finding a second job.