Gender Differences in Income

"I'm not gonna spend the rest of my life working my ass off and getting nowhere just because I followed rules that I had nothing to do with setting up, OK?"
--Tess McGill (Working Girl)

The Obama administration has trotted out a 'War on Women' campaign seeking to divert attention from key issues (e.g., economic performance) and to rile its base in an election year.

A common argument of 'women's rights advocates' is that women earn less than men in the US. Indeed, when total income earned by females/# of labor force females is compared to total income earned by males/# of labor force males, then income per woman is about 75% of income per man. This is 'proof,' claim women's rights advocates, of unfair, discriminatory practices in the workplace.

This claim must overcome many counters. From a pure reasoning perspective, discriminatory practices against women cannot persist in markets where factors of production trade freely. If it were true that women were being underpaid for their production by certain bigoted employers, then other employers more interested in improving their profits would offer greater pay and hire these productive workers for the benefit of their operations.

Bigotry of any kind (gender, race, nationality, etc) is penalized by the profit motive which necessarily is blind to any difference beyond productivity and performance.

Claimants of discriminatory pay practices must explain how such discrimination is able to persist under existing market conditions.

A more empirical counterargument posits that lower pay/woman is the result of various choices that women make regarding their income-producing capacity. For example, and as observed here, women generally select different educational choices than men and make career decisions more in the context of primary child raising responsibility than men. Studies that control for these various factors show little difference in earnings between women and men.

Claimants of discriminatory pay practices must explain why such empirical studies are not valid.

Intellectuals & Society

Ellsworth Toohey: Mr Roark, we're alone here. Why don't you tell me what you think of me in any words you wish.
Howard Roark: But I don't think of you.
--The Fountainhead

Recently finished Intellectuals and Society by Thomas Sowell. Intellect is different from intelligence. Intellect is the ability to grasp and manipulate complex ideas while intelligence (wisdom) is the ability to combine intellect, knowledge, experience, and judgment to produce coherent understanding.

Intellectuals refers to an occupational category--people who deal primarily with ideas. Writers and academics would be examples. Intellectuals are dealers of ideas, not users of ideas. Unlike some people who apply complex ideas (e.g., engineers), an intellectual's work begins and ends with ideas.

Sowell distinguishes between intellectuals and intelligentsia. Intellectuals produce ideas; intelligentsia distribute ideas. Thus, the intelligentsia (e.g., media) are channels for distributing the products generated by intellectuals. I like to think of them as part of the same supply chain. One upstream; the other downstream.

I found the first half of Sowell's book particularly interesting. He discusses the lack of verifiability and accountability of the intellectual's typical output, and the lack of reasoning typically applied by the intelligentsia as they disseminate intellectual ideas. Marx's work is a classic example.

He then works thru the impact of intellectuals in various domains such as economics, social welfare, academia, and law.

Where Sowell lost me a bit was in his discussions of intellectuals and war. His primary claim is that intellectuals have typically been anti-war (with notable exceptions including the prosecution of wars such as WWI and WWII under Democratic regimes). The distribution of antiwar sentiment thru the intelligentsia has generally produced a naive public that permits bad guys like Hitler and Saddam to get head starts on military campaigns.

However, Sowell fails to argue convincingly why any 20th century war actually required US involvement--an implied assertion throughout. Nor why hawkish policies such as trade embargoes did not exacerbate propensity for war.

Also, Sowell does not touch much on why intellectuals as a class think the way they do (anti-freedom, pro-socialism, anti-business, pro-government). More thoughtful treatment can be found elsewhere.

That said, Sowell's book is a worthy read. The cites alone are worth the price of admission, and present a compelling body of evidence generally damning to the intellectual class. I hope to draw from this work as my thought processes continue to develop.

Reference

Sowell, T. 2009. Intellectuals and society. New York: Basic Books.

Dividend Blues

Every time that I look at you
I can't see the future
'Cause you know I know baby
That I don't wanna go
--Genesis

I've been feeling more constructive about cash generating blue chip stocks that pay dividends. Have done some valuation work on various candidates finds three buckets:

signif overvalued: XOM
about fairly valued: INTC, JNJ, MRK, PG
seemingly undervalued: AMAT, CSCO, MSFT

These valuations are based on using performance over the past few yrs for forecasting free cash flow growth in the future. The danger in doing this, as frequently observed by John Hussman, is that the past few yrs have been abnormally generous for corporations. By historical measures, corporate profits currently stand at rich extremes.

As such, my forecasts may not be as conservative as I think.

My bigger concern is the macro picture. In a debt swamped world, periods of deleveraging are likely. When deleveraging occurs, securities are sold across the board regardless of valuation. That little voice inside my head is whispering 'patience' when it comes to taking on equity risk here, as better price points seem probable.

Policymakers have suppressed interest rates around the globe, largely in hopes of pushing people into risk in search of return. Count me among those considering the prospect of owning stocks here despite considerable big picture concerns.

positions in CSCO, JNJ

In the Tank

"These walls are funny. First you hate 'em. Then you get used to 'em. Enough time passes, you get so you depend on them. That's institutionalized."
Ellis Boyd 'Red' Redding (The Shawshank Redemption)

Insightful missive from an Old Conservative type proposing that even libertarian-oriented think tanks like the Cato Institute are unable to shrink the government Leviathan. Why? Think tanks operate in the Iron Cage of big government. Limited government principles are likely to give way to compromise in response to institutional pressure.

Stated differently, small government think tanks are unable to reverse big government policy because they become 'institutionalized.'

He offers some thought provoking prescriptions for the government train wreck that he believes inevitable. First, learn as much as possible about the philosophies of limited government and economics (think: Mises). Second, stay plugged into the news as a reminder that government is as stupid and treacherous as theory suggests. Next, identify a non special interest resistance group (non SIG) to support in a grassroots manner. Finally, get involved in local politics under the constitutional-era belief that the most effective political action is taken locally.

P.S. Note that he cites Howard Buffett as the previous generation's Ron Paul in Washington. Like father, unlike son...

Austerity Absurdity

Joe Scheffer: That hurts!
Chuck Scarett: I know it hurts!
--Joe Somebody

There is an absurd thread woven thru some of the commentary that I frequent. It goes something like this. Following the credit collapse we tried programs of 'austerity.' But when we cut spending, saved, and started to pay down debt, economic activity didn't improve. In fact it got worse. Thus, austerity doesn't work. It's like kicking ourselves when we're down. The better approach is to resume borrowing and spending.

It's tempting to label this twisted logic, but there is nothing remotely logical about this stream of thought. Yet, it is being uttered by 'smart' people who should know better.

Prolonged periods of borrow-and-spend (read: consuming more than income permits) elevate standards of living beyond levels attainable to people who live within their means. Elevated standards of living can only persist if people somehow become more productive in the future, enabling them to pay back their borrowings AND maintain high living standards.

Such productivity improvements are unlikely, however, due to the fact that, by definition, periods of borrowing for consumption deplete savings. And savings provide the capital necessary for productivity improvement projects.

It is more likely, therefore, that periods of 'austerity' will follow prolonged periods of borrow-and-spend. People will need to consume less as they work to replace resources borrowed from lenders in past periods. Lower consumption during the 'payback period' lowers demand, which curtails economic output.

This is the bust that follows the boom.

Concluding that austerity is an unacceptable response to over-consumption is among the most juvenile of propositions. That it is central to Keynesian theory speaks volumes about the intellectual capacity, or honesty, its proponents.

No Protest Law

I must have dreamed a thousand dreams
Been haunted by a million screams
But I can hear the marching feet
They're moving out into the street
--Genesis

Earlier this year the president signed H.R. 347, known as the Federal Restricted Buildings and Grounds Improvement Act of 2011, into law. Provisions of this law make it illegal to protest near the president or other government official as determined by the Secret Service.

As noted by Judge Nap, this is clearly a violation of the First Amendment, which states that "Congress shall make no law...abridging the freedom of speech...or of the right of the people to peaceably assemble."

Only the latest episode from an administration that wants to silence its detractors.

Institutional Control

"What you know you can't explain, but you feel it. You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there. Like a splinter in your mind, driving you mad."
--Morpheus (The Matrix)

This video makes you think about the extent to which current events are random vs planned. I am reminded of institution theory (e.g., DiMaggio & Powell, 1983), which posits that actors are prone to bend to external pressures emanating from their 'institutional fields.' Rather than a single conspiratorial-type plan being executed, the impetus may be collective rationality acting to produce isomorphism--i.e., like responses among many, seemingly independent individuals.

It appears planned; in reality, it is merely people acting alike in response to external pressures.

Consider the case of the Tea Party inductees into Congress as a result of the 2010 election. Most if not all of them intended to behave in a manner consistent with Tea Party values of limited government, free markets, and fiscal responsibility. However, some have since taken up behavior consistent with the Big Government types that they campaigned against. Plausibly, pressures exerted by the institutional field of the federal government drove some Tea Partiers to modify their behavior, perhaps even unknowingly or under some self-justification. These people became 'typical politicians' once positioned in an institutional field that exudes politics.

An institutional perspective provides one explanation of why individual freedom remains rare in the course of human history despite the fact that liberty is a self-evident inalienable right. Axiomatic urges to get something for nothing encourage isomorphic behavior that crowds out liberty and voluntary cooperation in favor of coercion and control of others.

It is not a conspiracy against freedom. It is people employing a similar strategy to satisfy their needs. That strategy is to enslave others.

Reference

DiMaggio, P. & Powell, W. 1983. The iron cage revisited: Institutional isomorphism and collective rationality in institutional fields. American Sociological Review, 48: 147-160.

Cover Me Crazy

But the thrill we'll never know
Is the thrill that'll getcha
When you get your picture
On the cover of the Rolling Stone
--Dr Hook

Given the historical track record of the infamous magazine cover indicator, Barron's cover this week, which states "Mostly Sunny," should give bulls cause for pause.

The cover story, entitled Reason to Cheer, presents some interesting data in Barron's quarterly Big Money poll of porfolio managers. Some of the highlights:

55% bullish / 14% bearish overall
favorite stock: Apple (AAPL)
81% bearish US Treasuries
14% bullish corporate bonds
43% bullish USD / 14% bearish
17% bearish Europe
10% bearish real estate
30% bullish gold/ 39% bearish

Have actually thinking about dipping a toe into some low-med duration fixed income exposure for my 401k via Pimco Total Return Fund--one of the few alternatives offered by TIAA-CREF that looks even remotely compelling. The Barron's poll numbers suggest that may not be a crazy thing to do here...

Inflation is a Fiscal Phenomenon

"I hate having to go along with everything my friends say."
--Claire Standish (The Breakfast Club)

Dr J makes a number of salient points, as usual. For whatever reason, this one jumped out at me:

"significant inflation is not a monetary phenomenon as much as it is a fiscal one."

Nice point. You'll hear many 'experts' call inflation 'always and everywhere' a monetary phenomenon. As John observes, this simply is not so. Fiscal mischief generally drives money printing.

Inflation in Everything

Joe Scheffer: I got a promotion today: Director of Internal Communications.
Meg Harper: Really?
--Joe Somebody

Interesting missive that observes devaluation in things other than money, including clothes sizes, hotel rooms, grades, job titles. Suggests inflation as a socionomic phenomenon that is perhaps best viewed as a strategy for avoiding reality.