You Will Know Too Much About Debt Collections: Jake Halperin's "Bad Paper"

I picked this off the shelf at my library after passing over it a couple of times. I was familiar with it because the New York Times ran a substantial excerpt from it in their Sunday Magazine. I didn’t pick it up the first time because I thought that the article was pretty in depth and that reading the book might not add that much.

I may have been right. In the book, Jake Halpern tells the story of debt collections from the bottom up, where the people who buy debt collect on it. They buy debt for pennies on the dollar and make their profits by collecting two pennies on the dollar and selling the rest of the debt onto another collection agency. This is not a well-regulated industry. The bulk of the book focuses on Buffalo New York, and the main enforcement body in Buffalo (apparently a collections hotspot) only has two full time staff.

The story is interesting, but where the story fails is that the author tries to take the overall idea of debt and turn it into a personalized narrative focused on a couple of interesting characters, and I was never sure if he was fully sure if he was writing about debt or those guys. He was trying to do the Michael Lewis Moneyball thing where the particular stands in for the general, but it is not 100% effective. However, it is an interesting fast read, and unless you worked at collections yourself, you will learn something. The main thing I learned is that I don’t want to be in the position where my debt is sold.

Dataclysm: Pop Science as it's Meant to be Done

I liked this book so much I stayed up until almost three o’clock reading it on the Friday after Thanksgiving.

When I was done, the next morning, I eagerly told my wife about all the cool things that were within the pages. I first showed her the graphs the author compiled from the OK Cupid dataset showing that women, in terms of what men say they find attractive, are pretty much over the hill when they’re 22.

 What I liked even better is a chapter called “Tall for an Asian,” where the author looks at the words that people use to describe themselves. They also look at the words that people don’t use to describe themselves, and then compare those to make a composite of the most [fill in the blank] words a certain ethnicity will use. For example, one of the most Asian things to say is that you are tall for an Asian. One of the least Asian things to say is “My name is Ashley”.

This book is full of cool little tidbits like that. It is also clearly written and the data is well visualized – the printers used more than black and white to visualize the charts. On top of all of that, how many books that are categorized as “Social Science – Statistics” will have blurbs from both Dan Ariely and Aziz Ansari? You have to read this book.

Three Cheers for the Minimum Wage

I’m taking an econ class for my MBA program right now, and we covered minimum wage. The intro econ view is that the labor market is like all efficient markets. There is a labor supply curve, and a labor demand curve, and there is an equilibrium price. 

There is also a wage floor, the minimum wage. I’m pretty left wing, and I know that some of my own peers are too, and they seem to have drunk the Kool Aide on the problem with the wage floor – that being it created structural unemployment.  This has distressed me.

So I was thinking about the problem with intro econ stuff, namely that it is a vast simplification and has a lot of normative biases towards conservative leanings. There’s a saying in econ circles to counter Colbert, that “Facts have a conservative bias.” That is true, but only at the level of simplification.

What econ as taught, at least in the intro econ classes I’ve had, doesn’t talk about enough is the simplifications that have taken place to illustrate the concept. The example here is the labor market.  The labor market supply and demand curve intersection graph assumes four big things that are not true. First is that all workers are the same. Second is that all jobs are the same. Third that there is no such thing as search and the markets clear.  Finally, they assume that there is no government to act as an agent of redistribution. 

That’s just not true.  There are many labor markets, and for most the equilibrium price is above the wage floor, so the wage floor only sets a standard. Those where the wage floor is above the clearing price, the jobs and the pay are horrible. A government should step in, as ours does to a limited extent, to make better the lives of those workers who work and those who are locked out of the labor market through structural unemployment. The problem is that a certain party has demonized those at the bottom of the wage scale, calling them takers are welfare queens. That means people want to work; there is a cultural and monetary advantage to working where there is not to just relying on benefits.

The other option is to look at the labor markets that do clear. Here I’m thinking of migrant farm workers. They are paid less than the minimum and have no guarantee of employment. When Alabama cracked down on undocumented workers, farmers couldn’t get people to harvest their fields because the national market price of farm labor was too low for people used to some labor protection. The jobs are that bad. That’s why I think a minimum wage is good, because it helps pull those shadow wages up, and there is less poverty overall with transfers even with structural employment.

Overall, the question should be about the appropriate level of the minimum wager, and stricter enforcement of wage and labor laws, not less.


Addendum, 12/7/2014

Another problem popped up in Facebook reply to a former student of mine: The other problem. The econ 101 view is also a market with perfect information. The employer has an information asymmetry in that area, in that it knows more about the labor market than the potential employee -- this is helped in some form by sites like Glassdoor, but it is imperfect. There is also the power gradient in that the employer can take someone down to the clearing price, but in some labor markets it is not possible to live at the clearing price for labor. Thus the government-mandated wage floor.

Data in Economics

Economic indicators are useful and reliable for predicting the future state of the economy as long as they have been collected long enough with the same methodology. At that point, it is possible for economists to look at the overall trend of the indicator and then to look at the pattern in the past. For example, Figure 4 is the four-week moving average for jobless claims.

Figure 4

There is a lot of useful information to be gleaned from figure four. Looking at the current state of the jobless claims, it looks as if the state of the economy is strong. People are not losing their jobs at a rate that existed in recent memory. The problem is that the past does not necessarily reflect the future. The current trend is down, which in isolation is good. However, looking at the graph shows that the current level is also near the lowest jobless claims have come since the early seventies. The question then is if the localized trend is the prevailing trend, and the jobless claims will keep going down, or is the larger cyclical trend the stronger part of the equation, where the current economy is at its localized peak. If the short-term trend prevails, then businesses can use that information and invest because the economy is only getting stronger. If the long-term trend prevails and the economy is at a natural low, then it is time to retrench because jobless claims will go up, then unemployment will increase, and then GDP will shrink.

            The jobless claims are just one indicator. By having more information, and having more indicators, then an economist can look at all of the information and discern the larger patterns and even fit the current information to which past economic situations were more like the current one. Total information awareness can only help professionals use this data and harness the predictive force of the economic indicators. Of course, even with all the information and all the historical examples, even the best-trained scientist can be wrong but overall tracking this various data has been smart for the country and has helped the government and the central bank make good decisions by moderating the business cycle. Modern macroeconomics was born of the great depression, and so far has prevented another one from happening. It would not have been possible without good data.

More, Not Less Government

           The federal government’s largest expenditures are on insurance and defense. Through Social Security, Medicare, and Medicaid, the federal government takes care of the sick and poor old. Through the Departments of Defense, State, and Homeland security the people of the United States are protected from outside threats. So much of what people would like to remove for their own ideological ends are rather incidental when it comes to the overall budget. Some on the right are not fans of the Federal Reserve or the Departments of Education and Energy. Some on the left would see the Defense Department or the various law enforcement agencies shelved.

            One problem is that politically, none of the agencies will be closed even if a large number of people wanted them to be. There are so many incumbents who will rise to protect their own turf and justify their position’s existence, even if there are duplications over what they do and another person does – and they both draw paychecks from the federal government. The other problem is that some point along the line there were debates on certain expenditures that were justified at the time and the expenditures were voted on through our democratic process, no matter how messy it is. So we have the government in the citizen’s lives in so many ways that the government is just part of the air to be breathe instead of an intrusion – see the worries about the government involvement in health care and the old woman wanting the government to take their hands off their Medicare.

            This is important, because even though looking at the budget and wanting to strike through different line items, it illustrates an important point. The government is not some separate foreign body, but the government at the federal level is the agent of the people as a whole. The government is the collective will of the people. By banding together, government leverages the money and the abilities of the collective to build roads and to defeat Hitler. That is not to say that sometimes the leaders of the government forget that they are serving at the will of the people and not at their own will. Fewer bullets should be bought for the soldiers and fewer soldiers should draw paychecks, but the people need protection and to say otherwise would be utopian dreaming.

            The debate is what levels of spending should there be and where to prioritize that spending. Could the federal government spend less on defense and keep us safe? Most likely it could be. The real question is where the government is failing to provide goods where it could be the most efficient provider. The most obvious is in education. Most schools for primary and secondary levels are funded at the local level. Tertiary education had been funded largely at the state level with assistance from the federal government in terms of subsidized loans and direct grants. The issue is that the federal government uses these loans not as a cost center, but receives income from them when their rates are greater than what the government can borrow for.  The current state is that the cost of education is born by the individual. The problem is that it lowers spending on goods and services and prevents household formation. If the federal government would instead fund education directly, youth would have a better start to their lives instead of worrying about an overhang of debt. By investing in human capital, the government could make the country better down the line by making it more productive and more capable. This could come from all new spending or it could come from cost shifting in a shifting of some priorities.

Overall, there is no one place the federal government needs cut. Government is good, and there is not enough of it.