Annualized interest rates of two hundred percent a year?
I read someone, somewhere arguing that Elizabeth Warren was the nominee to shut them down. I am curious about the modern liberal take on autonomy and credit. Let’s say that two gay men, of unknown health status, want to have informed, consensual, unprotected sex. Should the law prohibit this? I believe the answer is no. Furthermore it is not just a matter of enforcement difficulty, it is a question of autonomy. If you don’t think so, modify the example so that two heterosexual people want to have consensual but unprotected sex. And so on.
The unprotected sex is riskier and less prudent than borrowing money at an annualized rate of two hundred percent. Why prohibit one and not the other? Many of the borrowers are being fooled, but others have legitimate reasons to seek the money, such as wanting to buy a birthday present for a visit to one’s child, living with a separated spouse.
Is it that sex is sacred but borrowing money is not? What if you’re borrowing money to catch a plane to go have sex? Isn’t sex a big reason why people might borrow money at high annualized rates? Aren’t “sex decisions” some of the least rational we make and the most prone to error?
When I use the ATM, often I am outside the network and thus I am paying annualized interest rates of over two hundred percent a year. Should someone (other than Natasha) stop me? Should they only stop me when I am younger and poorer than is the current Tyler? What about equality before the law?
How many of you would support this same woman — with enthusiasm — if she wanted to ban risky but consensual sex?
The progressives seem to have made Elizabeth Warren their cause-du-jour. I have a long and complicated history with Elizabeth Warren, so allow me a moment to offer my long and complicated thoughts on her. Really long. So long that I had to break it into two parts–scholarship and public life–in order to prevent the nausea, daytime sleepyness, and intracranial bleeding that might otherwise result. Consider yourselves warned.
I first encountered Elizabeth Warren in the early part of the decade, when I read her book, The Two Income Trap. The thesis is innovative and, I think, at least partly correct: that in many ways, two income families have made households less financially stable, not more so. Among higher income families, much of the extra income has simply been poured into a bidding war with other higher income families for homes in good school districts. Among lower income families, much of the extra income has gone to replacing home production with market production: convenience meals, work clothes, second cars, child care, and so forth.
Because the extra income is being fully consumed, the result is that if one partner loses their job, the family is not more insulated from economic shock, but less so. In the 1950s, if Dad lost his job, Mom could pick up extra work to make up at least some of the loss. In the Mean Teens, Mom’s already got a full time job.
But while I found the thesis compelling, there were some problems with the book. The first is that Warren simply fails to grapple with what her thesis suggests about the net benefits of the two-earner family. Admittedly, I don’t quite know what to say either, but at least I can acknowledge that it’s a pretty powerful problem for the current family model; Warren kind of waves her hands and mumbles about social programs and more supportive work environments. There is no possible solution outside of a more left-wing government.
But the deeper problem is that some of her evidence doesn’t really support her thesis, and can be made to appear to support her thesis only by making some very weird choices about what metrics to use.
Does this persistent tendency to choose odd metrics that inflate the case for some left wing cause matter? If Warren worked at a think tank, you’d say, “Ah, well, that’s the genre.” On the other hand, you’d also tend to regard her stuff with a rather beady eye. It’s unlikely to have been splashed across the headline of every newspaper in the United States. Her work gets so much attention because it comes from a Harvard professor. And this isn’t Harvard caliber material–not even Harvard undergraduate.
So I think it matters on two levels. One, it matters how we evaluate the work–and I’ve been disappointed at how uncritically some people I really respect have been willing to accept the 2001 and 2007 findings. Not because I don’t think that there are medical bankruptcies in the United States; I do! I think medical bills are certainly the primary cause of some of those filings, though I don’t know how many, and I’ve also been writing about bankruptcy long enough to know that assigning any one cause to the ultimate financial meltdown is, in many cases, impossible. (If you have nice consumer goods and no health insurance, does a car accident count as a “medical bankruptcy” or a budgeting deficiency? If you lived right up to the edge of your income, was a job loss, or your spending pattern, to blame? How you answer these questions depends on a large number of prior value judgments that are hotly contested in our society.)
It matters that we get this stuff right. I am among the majority who would like to see bankruptcies reduced in this country, and we’re not going to be very effective at that if we run around thinking we can cure 2/3 of them by putting a national health care system in place, when in reality a third or less have any strong causal relationship with medical bills. Obviously, this was also held out as an argument for PPACA, making an implicit promise to the American people which I believe to be false.
But it also matters because a large part of Warren’s prominence comes from the fact that she’s an academic. If she came from . . . well, the sort of think tank that publishes this sort of advocacy science . . . she would have considerably less glamor, and power.
And perhaps it mattes most of all because this woman is now under consideration to head a powerful new agency. If this is how she evaluates data, then isn’t that going to hamper her in making good policy? If we’re going to have a consumer financial protection agency, I want one that has a keen eye to the empirical evidence on consumer welfare–not one that makes progressives most happy by reinforcing their prior beliefs.
The old joke* about Richard Nixon asked “How can you tell when he’s lying?”
The answer: ”When his lips move.”
I’ve finally come to the conclusion that something similar must be said about Megan McArdle. Perhaps lying is too harsh a word — but the serial errors that all fall on the side that supports her initial claims and that recur again and again in her work suggest to me that something other than mere intellectual sloth and sloppiness is the driver.
Ordinarily, such a record wouldn’t matter much, especially in journalism. In theory, a series of clips as riddled with error as McArdle’s would end most careers in high prestige journalism. Hot Air might still find a use for you, but The Atlantic?
But it is one that does real damage to the republic, as the post that aroused this latest bout of McArdle-bashing demonstrates. In it, McArdle seeks to discredit Elizabeth Warren as a potential leader of the new Consumer Finance Protection Agency to be set up under the just-passed financial reform bill.
To do so she tries to impugn both the quality and integrity of Warren’s scholarship, and she does so by a mix of her usual tricks — among them simple falsehoods;** highly redacted descriptions of what Warren and her (never mentioned) colleagues actually said;*** and descriptions of Warren’s work that are inflammatory — and clearly wrong, in ways she seems to hope no one will bother to check.****
You can see the footnotes for quick examples of these sins. Here, I’ll confine myself to pointing out that in this post you find McArdle doing the respectable-society version of the same approach to argument that Andy Breitbart has just showed us can have such potent effect.
To see what I mean, you have to follow through two steps: how McArdle constructs her picture of a feckless, partisan and dishonest Warren — and then how she generalizes from it.
Partly, McArdle relies on the strength of her platorm. As “Business and Economics editor of The Atlantic” she routinely writes in assertions that we are to accept on her say -so.
(As an aside — this argument from authority is never that strong, and, as McArdle demonstrated very recently, can descend to pure, if unintended, comedy (go to Aimai’s comment at the bottom of Susan of Texas’s post), its flip side is that different. Everytime someone gets something thing wrong in a consequential way, the loss of trust should advance, ratcheting up with each such error detected, to the point where it becomes the safest default position to assume that someone — McArdle, for example — is always wrong till proven otherwise.)
But back to the anatomy of McArdle’s campaign. I’m going to focus on just one example where McArdle asks us to believe that her argument is strong and supported by the literature — without quite fessing up to what her supporting material actually says. As part of her sustained campaign to deny the significance of medical bankruptcy in the US, she writes,
A pretty convincing paper argues that the single best predictor of bankruptcy is simply how much debt you’ve accumulated–not income, job loss, divorce, or what have you. People who declare bankruptcy tend to have nicer stuff than others at the same income level.
The problem here is that the paper does not actually say quite what McArdle implies it does. She’s mastered here the trick Sally Field played in Absence of Malice — she’s managed to come up with a sentence that is accurate…but not truthful.
In fact, should you actually take the trouble to read the cited study (by UC Davis finance prof, Ning Zhu) you will find material like this: ”households with medical conditions are twice more likely to file for bankruptcy (33.5 percent) than households that do not have medical conditions (14.8 percent)…;”
And this: “Having medical problems increases the households’ filing probability by 7.6 percent and one standard deviation of increase in employment tenure is associated with an increase of 9.2 percent in the filing probability. Such changes represent 48.40 and 58.60 percent deviation from the baseline probability….;”
And this “our results provide qualitative support for both the adverse event and the over-consumption/strategic filing explanations.”
To be fair Zhu concludes that overconsumption — spending too much on housing, cars and credit cards account for more of the total burden of bankruptcy than medical events, divorce or unemployment, as McArdle wrote.
But as McArdle completely failed to acknowledge, Zhu does so while using somewhat more stringent standard for counting medical expenses as a factor in bankruptcy than other scholars employed — as he explicitly acknowledges. He concedes the continuing significance of medically -induced bankruptcy. He acknowledges what he believes to be a weak underweighting of that factor (because some people pay for medical expenses on credit cards). And he notes that a number of other studies, not limited to those co-authored by Warren, come to different conclusions.
In other words: McArdle correctly describes one conclusion of this paper in a way that yields for its readers a false conclusion about what the paper itself actually says. And look what that false impression implies: if medical bankruptcy is a trivial problem, society-wide, then Warren can be shown to be both a sloppy scholar and, as McArdle more or less explicitly says, a dishonest one as well.
McMegan Is Always Wrong
So . . . McArdle correctly gives the paper’s statistically valid conclusion but fails to acknowledge that the paper’s author — who devised the methodology — noted that his methodology was rigorous? And this is evidence of McArdle’s sleazy manipulation?
Seriously, the quoted portion of McArdle’s essay is essentially a paraphrase of the article’s abstract. And even a cursory look at the article itself indicates that the authors conclude that overspending is the key factor in bankruptcy. See this, from page 5:
A closer look at the bankrupt households reveals that they consume in a surprisingly similar fashion to the control groups. Bankrupt households take out more mortgage liabilities (mean=$66,731), automobile loans (mean=$10,160), and credit card debts (mean=25,101), in absolute dollar value, than the control groups (mean is $56,141, $9,000, and $2,488, respectively). This is somewhat surprising given that they make less than one half of what the control households do.
Reading further into the paper, the main public policy conclusion is that the pre-2005 reform bankruptcy laws created incentives toward overconsumption. So the author not only provides data that supports McArdle’s views but comes to the same policy conclusion!
The contrary “evidence” in the paper is that, in the obligatory Literature Review, it cites other papers on the topic that showed that medical expenses were a key factor in bankruptcy. But the purpose of this paper was to show that, controlling for medical expenses and other important social variables, that household spending malpractice was a decisive factor.
Richard Eskow at Huffington Post:
Despite the fact that McArdle is ” the business and economics editor for The Atlantic,” numbers don’t seem to be her thing. She infamously miscalculated the effect of repealing Bush’s tax cuts for each American by a factor of 10, arriving at $25 instead of $250 per person, and then blithely explained: “The calculator on my computer won’t go into the billions, and I truncated incorrectly. The main point stands; even a very optimistic set of assumptions doesn’t yield huge net benefit.” Actually, $250 for every man, woman, and child in the US — and that’s only for the next two years — is serious money. And as for that calculator problem, Ms. McArdle, there’s only one word for that: spreadsheets. You’ve heard of them, I trust.
Spreadsheets are particularly handy when you’re making statements like this: “Does it matter if we have a regulator that can use data consistently?” In this piece McArdle leans on an old Wall Street Journal anti-tax screed by Todd Wysocki. “More weird metrics for Elizabeth Warren,” her headline quavers. McArdle eagerly repeats Wysocki’s suggestion that family living expenses are actually less than they were in the 1970s. But Wysocki’s stacking the deck (and making a completely different point) by using pre-tax rather than after-tax figures. Warren’s point is that two-earner families have less disposable income today than one-earner families did in the seventies, even with both adults working.
She’s right. I used a spreadsheet (highly recommended) to look at the increases in expenses, using the figures Wysocki (and the McArdle) cites. Here’s what I found: Mortgage costs increased from 18% to nearly 20% of after-tax income. Health insurance premiums increased from 3.5% to 3.63%. (That doesn’t include increases in out of pocket expenses like copays and deductibles.) And there was a whopping new expense of nearly 20% for day care, which wasn’t needed with a one-earner family. Add in car payments and the expenses Wysocki cites went from 39% of after-tax income to 62.3% — which pretty effectively underscores Prof. Warren’s point, don’t you think?
McArdle saves her real “firepower,” such as it is, for a piece she calls “Considering Elizabeth Warren, the Scholar.” It’s a blend of deception, misdirection, and poor analysis, chock full of comments like this one about Warren’s book on two-earner families: “… Warren simply fails to grapple with what her thesis suggests … Admittedly, I don’t quite know what to say, but at least I can acknowledge that it’s a pretty powerful problem for the current family model. Warren kind of waves her hands and mumbles about social programs and more supportive work environments. There is no possible solution outside of a more left-wing government.”
Got it? McArdle says Warren’s book is a failure because a) Warren fails to solve one of the problems she identifies, b) not that McArdle knows what the answer is, but c) “Warren kind of waves her hands” (get me a rewrite!) and “d) mumbles about social programs etc.” — which means she does propose solutions, but they’re ones that involve e) “more left-wing government.” Which McArdle doesn’t think is the solution, even though she acknowledges that she doesn’t have a solution.
Does it matter if we have a “business and economics editor” who can use data … and logic … consistently?
McArdle then suggests that Warren doesn’t understand numbers because Warren asserts that (says McArdle) “housing consumption hasn’t increased much … by less than a room per house.” McArdle conclues that this is a “twenty percent” increase, given a starting size of five rooms per house, although if consumption’s gone up by less than a room per house it’s less than twenty percent per house (no calculator needed for that one!) And that’s with two people working full-time instead of one.
“The square footage of new homes has increased dramatically since 1960,” writes McArdle. But how much of that is McMansions and other high-end homes? She doesn’t say, presumably because she doesn’t know. Since we’re talking about housing consumption among middle- and lower-income working families, a basic understanding of “mean,” “median,” and “average” would make that kind of information critical to McArdle’s argument.
Mike Konczal at Rortybomb:
So Megan McArdle wrote a long post attacking Elizabeth Warren as a scholar. What’s surprising is how little “there-there” there is to her critique. I would love to see nomination hearings based around how expansive of a definition to use for medical bankruptcies and watching Warren rip the face off of Senators when it comes to empirical methods. I doubt it is going to come to this, but I’ll go ahead and respond. (I’ve been waiting for part two to respond, which I assume may not show up.)
Because that isn’t what this is about. It’s about giving the impression that Warren is a weak scholar. Given that Warren is considered “the leading authority in the country on bankruptcy law,” being called a hack by McArdle, of all people, is something. Especially when we get a gem of a major screwup like this right out the door in the post:
Megan McArdle, blog post: 2. The response rate on their survey was only 20%. Given the deep shame surrounding bankruptcy, you have to worry that they got an unrepresentative sample. And how is that sample most likely to be unrepresentative? Well, one pretty likely way is that people who went bankrupt through no fault of their own–folks who got whacked by large and unpayable medical bills or a business closure–were more likely to respond than the people with drug or alcohol problems, profound depression that left them unable to work, compulsive gambling issues, and so forth….
Katie Porter, comments: Also, I would like to correct the misstatement, I believe of a commentator, that Ms. McCardle reproduces in her article above, that the response rate to the survey was 20%. The response rate was right at 50%, or just under that, depending on the exact metric for response rate used. More detail on the response rate for the written survey, as well as on the bias checks that were performed for sample selection bias, is also available in the above articles.
Megan McArdle, comments: They had a 50% response rate on the questionnaires, but by the time you got to the interviews, they were down to 20%. It’s in the article.
I have no idea what to make of this. Megan opens her critique by saying that there’s a massive bias in the data sample implied by the low response rate of 20%. A commenter politely responds that the response rate is 50%. She is very polite as the 50% is on the front page of the 2009 study. Megan then says she meant the interview rate.
Nobody is perfect, especially on the blogs. I’ve messed up data on this blog before, I’ve confused terms that I knew but didn’t catch in a proofread, and I’ve used data and terms that I thought meant one thing that turned out to mean another thing. Anytime someone points this out I correct it, or pause and double-check what I thought, or quietly ditch using that information. Humility is usually the best antidote to being a hack.
But notice how Megan just keeps on going. This is one of the major planks of her argument, that the sample is corrupted, and when someone points out that what she stated was factually incorrect she just changing the terms and keeps on going as if she what she wrote wasn’t wrong. How is a reader supposed to read this? Did she mean to say interview rate in the beginning? Does she think that a 50% response rate is too low? Useless without a 50% interview rate? Did she know at the time of writing the difference between the two terms? Does she want to reconsider her argument?
(It’s pretty similar to the classic McArdle instance of “It wasn’t a statistic–it was a hypothetical” when it came to US profits of pharma.)
Which is a shame. Like the hypothetical case there’s no pause, no reflection, so as a reader I just want to assume bad faith and move along.
But I won’t. Let’s continue.
“4. Their methodology is quite explicitly designed to capture every case where medical bills, or medical loss of income, coexist with some other causal factor–but the medical issues are then always designated as causal in their discussion…If you’re a plumber who has a stroke, you may well end up in bankruptcy simply because you lose income while you can’t work (the medical bills may or may not play a large causal role).”
Another problem Megan has with Warren’s research is that Megan believes it says medical debt is the cause of bankruptcies instead of something that contributes to bankruptcies. Instead of simply being a contributor among many multi-causal problems Megan states that Warren believes that medical debts are the sole cause (“always designated as causal”) instead of a contributor among a multi-causal set of items.
Is that true? Let’s look at the title of the paper that kicks off this line of research: “Illness And Injury As Contributors To Bankruptcy.” (my bold, italics, and underline.) It’s in the #@$%@# title that it’s a contributor and not the sole cause!
From the abstract of the 2007 paper Megan hates: “Our 2001 study in 5 states found that medical problems contributed to at least 46.2% of all bankruptcies…CONCLUSIONS: Illness and medical bills contribute to a large and increasing share of US bankruptcies.” (my bold, italics, and underline.)
This may look like a little nitpick but it is important: bankruptcies are multi-causal, and as far as I can tell Warren’s research has always emphasized this. Certainly the titles and conclusions of her paper place emphasis on this. Megan is trying to imply a con job, that Warren is an ideologue who manipulates her results and her conclusions to be stronger than they deserve. That’s not true.
Data Data Everywhere
There’s a lot of this: “The authors have an odd tendency to ignore what the respondents themselves say. 32% of those surveyed about their 2007 bankruptcies–not 62%–reported that ‘medical problem of self or spouse was reason for bankruptcy.’”
Notice what is going on here. Warren and her co-authors realize that there are a lot of ways to interpret the data and, ethically, put the data out there so others can disagree and make counter-arguments. All the data results are there. Megan does make these counter-arguments but gives off the impression that something is being hidden, or a sneaky move is being made.
Which gets to the bigger complaint Megan has about the paper: “As I discussed at the time, early 2007 is a terrible, horrible, no good, very bad time to do any sort of study on bankruptcy… Bringing me to my next point: the paper thoroughly obscures the point that by their own calculations, the number of medical bankruptcies fell quite dramatically between 2001 and 2007.”
I still don’t get this complaint. There was an absolute overhaul in the way bankruptcy is carried out in 2005. Comparing the absolute numbers before and after wouldn’t be an apple-to-apples comparison. You can argue that no valid research could possibly done and that any empirical statistics should never be carried out on post-2005 data, which is what I think Megan argues, or that you acknowledge the data limitations, do your best to compensate and provide additional information, which Warren and the rest do under the section “Changes in the Law”, and carry on. I’m in the second camp.