Vive La Revolution: 401(k) Plans Are A Help for Retirees

When you wonder whether the 401(k) revolution was a mistake, you have to first ask yourself, what was the 401(k) revolution? That was the move beginning in the late 1970s from defined benefit plans to an employer-sponsored retirement savings that allows workers to save and invest pre-tax payments and pay taxes when they withdraw the money after retirement.

In 2017, people under age 50 are allowed to set aside $18,000 of their income in 401(ks)s while people 50 and over can add another $6,000 annually. Employers often match a percentage of the contribution employees make, and the money goes into market products that compound over time.

And boy do they. The average 401(k), which obviously grows in later years when people earn more, was around $120,000 last year, and those participating in a 401k for at least 10 years have average balances of $251,600.

Yet, the creators of the 401(K) lamented to The Wall Street Journal this week that they were not happy with the way the whole thing turned out. They didn’t want it to be so successful, apparently, because they wanted 401(k)s to supplement traditional pensions not replace them, and they decried the fees associated with investing in an uncertain stock market while people are also living longer.

Given that more people are now invested in their own retirement plans than ever before — 61 percent today compared to 45 percent when pension participation peaked in the 1970s — and that these plans are turning around benefits at high rates — since 1984, inflation-adjusted benefits per retiree have nearly tripled — the question to ask is why is this considered failure?

Former Social Security official Andrew Biggs always offers the deep dive on how to count the money. And his analysis suggests all the hand-wringing about retirement savings is a bit overwrought.

The Journal article features a nice chart – under the headline “Savings Struggle” – showing a declining U.S. personal saving rate since 1970. Some might take that falling saving rate as denoting that workers are putting away less money for retirement. Actually, not. The reason is that the total personal saving rate also includes the amounts that retirees are drawing down from their savings (or DIS-saving) , which lowers the saving rate.

And guess what? There are more retirees today than in the 1970s – one-third more, relative to the working-age population. As I’ve pointed out, the total personal saving rate says very little about retirement saving adequacy because, over a person’s full lifetime, their personal saving rate should be zero.

So what are we to do? Start by trying to figure out how much working-age Americans are saving for retirement and whether that amount has gone up or down. … In 1975 – the peak year for traditional pension participation, for those playing along at home – total pension contributions equaled about 5.8% of wages, while by 2013 contributions has risen to 8.3% of wages. That’s a 43% increase in the amount that’s getting set aside in retirement plans, even after accounting for the growth of incomes.

Or we can look to the Consumer Expenditure Survey, which tracks how much households contribute to retirement plans from their own incomes, a figure that excludes employer contributions. The survey aggregates Social Security and pension contributions together, so I pulled out the Social Security payroll tax which rose slightly from 1984 to today. Despite the increase in payroll taxes, household pension plan contributions rose from 2.7 to 7.1% of incomes (for households aged 45 to 54, which are the prime saving years).

Pension Contributions As Percent of Household Incomes


But maybe households are contributing more to their retirement plans only because their employers are contributing less? Um, no. The Bureau of Labor Statistics generates data going back to 1986 for employer contributions to retirement plans. While employer contributions declined from 1986 to 1989, today employer contributions are 10% above their 1986 level and 38% above the average from 1989 to 2001.

Employer Contributions to Retirement Plans as Percent of Employees Earnings


Okay, so retirement savings are increasing. But maybe it’s only the rich who are participating in 401(k)s while everyone else gets left behind. Actually, participation in retirement plans today is substantially higher than it was back when traditional DB pensions ruled the world. Statistics aren’t great, and in particular the popular Current Population Survey isn’t great at catching whether employees are offered a retirement plan and whether they participate. Instead, the Social Security Administration looked at workers’ tax records, which record whether they or their employer contributed to a retirement plan. SSA found that in 2012, 61% of all workers participated in a retirement plan. According to data gathered by EBRI, back in 1979 – before 401(k)s took root – only 45% of workers participated in a retirement plan. And the news may be even better than that: if we look at the household level and leave out the poorest households — who will and should rely almost entirely on Social Security — most are saving. In the Survey of Consumer Finances, 89% of households aged 30 to 64 with per capita earnings in excess of $20,000 have either a 401(k) or IRA-style account or some entitlement to a traditional pension benefit.

Percent of All Private Sector Workers Participating in an Employer Sponsored Retirement Plan

So to sum up, we’ve got more workers saving for retirement and they’re saving larger amounts. And that’s your 401(k) failure?

Biggs adds that claims of retirement incomes stagnating due to high fees or individuals’ inability to invest are wrong, and points to a study that shows that “from 1984 to 2007 annual Social Security benefits for the median household rose by 25 percent above inflation. But incomes from private pensions increased by 141 percent. That’s one hundred forty-one percent, people. Total retirement incomes for the median household rose by 58 percent above inflation from 1989 to 2007.”

Biggs acknowledges that the retirement system has some problems, but notes that the history of the 401(k) isn’t one of them.

Read Andrew Biggs’ analysis in Forbes.

The Gift-Giving Blues: Are Bad Presents Worse Than None at All?

If you struck out on gift-giving this year, pleasing no one and getting nothing you liked, maybe next year just hand over cash. Or maybe not.

In a recent article, economist and free market happy warrior Arthur Brooks said that the word from economists is that “gifts we buy others are worth up to a third less to them than what they would buy for themselves if we just gave them the money instead.” So, really the value of our gift-giving is less than the value of our dollars.

But that sounds a little grinchy so Brooks looked into whether the old saying that “it’s the thought that counts” really means something. Apparently, he found, social science says the adage only goes so far in a relationship. One study showed that individuals are more likely to perseverate on the meaning and intent behind a bad gift than the meaning and intent behind a good one. Not much good can come from blowing it when giving a gift to a loved one, but hopefully the relationship is strong enough to survive.

On the bright side, Brooks writes that the research shows that giving the perfect gift isn’t all that important for people in new relationships.

In a 2008 study in the journal Social Cognition, four psychologists conducted an experiment in which young men and women who had just met gave one another gift certificates. Unbeknown to the participants, the researchers manipulated the gifts, giving half of the recipients popular certificates, and the other half embarrassing ones.

Let’s consider this from the point of view of a participant. You sign up for an experiment to help out a professor, because you’re a good person. You meet an attractive person in the experiment, and give him or her a certificate to a nice bookstore. Maybe he or she will go out with you later, right? It turns out the researcher switches your gift for a certificate for something like acne cream. Perhaps someone should do a study about why psychologists don’t want you to be happy.

So what happened in the experiment when the participants got a bad gift? The answer depended on gender. Women who got an undesirable certificate shrugged it off, while men who got bad certificates judged themselves to be very dissimilar from the women who gave them. In other words, it’s easier for women to wreck a new relationship with a bad gift.

Fortunately, in perhaps the most unsurprising finding of the decade, scholars in the science journal PLOS One published an article in 2013 with the self-explanatory title “Women Are Better at Selecting Gifts Than Men.” Somebody actually might have gotten tenure figuring that one out.

Meantime, psychologists counter that people are happier when they focus on the meaning of the holidays rather than the mercantile rituals associated with them, leading Brooks to reveal some simple truths.

Try to give people what they value, but if you mess up, it isn’t a big deal to the people who truly love you. Above all, give of yourself, and share your faith and affection abundantly.

So, did you get the gift you wanted this holiday? And if not, are you mad at someone for the gift you did get or for the one you didn’t get? If you are upset, you may want to reevaluate your relationship. You may also have missed the reason for the season.

Read Arthur Brooks’ article on gift-giving here.

Filling Manufacturing Jobs: How to Match Skills to Demand

You’ve probably heard by now that automation and off-shoring are responsible for the decline in manufacturing jobs in America. But in reality, manufacturing jobs are still a major contributor to the U.S. economy, and they’re not going anywhere anytime soon.

Manufacturing jobs are defined as the creation of products from components or raw materials. They range from bakers to refrigerator makers. Pretty much everything that is made into a good from something else is considered a manufactured product.

Manufacturing employment, which peaked at 19 million in the 1980s, now stands at around 12.2 million. At the same time, the U.S. population is growing. You’d think that would mean the role of manufacturing jobs is decreasing as a percentage of the economy. But while manufacturing jobs may represent only 9 percent of the U.S. workforce, they account for 18.2 percent of global goods, and contributed $2.17 trillion to the U.S. economy in 2015. They provide good salaries, with workers earning on average more than $79,000 in pay and benefits.

So what’s the issue? Why is there so much talk about the loss of manufacturing jobs?

The reality is that 322,000 manufacturing jobs are available and ready to be filled right now.  The National Association of Manufacturers predicts that over the next decade, 3.5 million manufacturing jobs will be created, but 2 million of them will go unfilled.

The types of manufacturing jobs have changed over time, and have become much more sophisticated. Manufacturing is not just about widget production and Tupperware. Manufacturing involves biotechnology, carbon fibers, and nanotechnology, among other advanced industries.

Upgrading people’s skills is a definite necessity, but re-training is not as easy as just teaching workers how to fix robots. The real issue, according to economist Aparna Mathur, is recasting manufacturing as a desirable profession.

A survey on the Public Perception of Manufacturing shows that while most Americans perceive manufacturing as the backbone of a strong domestic economy, few parents want their children to work in this industry, and manufacturing is the last career choice for people between the ages of 19 and 33.

All of this suggests that to make manufacturing great again, we need a two-pronged approach. We must encourage workers to upgrade their skills with training in math, science and computing. For younger workers, paid apprenticeships with companies could produce big results. But aside from the skills gap, we also need to tackle the “image-gap”—the unwillingness of some workers to take up these jobs because of their inherent bias against working in jobs that they perceive as similar to the factory jobs of the past.

Bringing jobs back from overseas makes for a promising campaign pledge. But filling domestic jobs through skill upgradation and changing the image of manufacturing to make it a more appealing career choice can be a more practical and achievable jobs policy.

In essence, the four-year college may not be the answer to good careers for many young people. Manufacturing jobs require more than just studying the philosophers and psychology, they require learning skills that are not traditionally taught in liberal arts studies. And with college costs spiraling out of control, that alone could make a career in manufacturing a more attractive pursuit, if approached with the right attitude.

Fake News May Distract, But It Doesn’t Rig Elections

Fake news is not a technical glitch.” This sentence is the headline of a recent article about the hysteria that has enveloped the nation over the “unexpected” presidential outcome. It also is a simple explanation that clears up much of the confusion being disseminated since the Nov. 8 vote.

Ironically, there has been a lot of misinformation about what “fake news” is. Is it false stories made up whole cloth? Yes. Is it misreporting about events that have happened? No, but that’s become a much-discussed point about the journalism profession since the issue arose. Is it media opinion? No.

Blaming members of the media for expressing their opinion rather than just stating the facts of a news story has been a complaint for decades, if not centuries. Not reporting all the facts is poor journalism, but a lie of omission is not the issue at hand.

Fake news is “creative writing,” to be kind. It’s the act of crafting imaginary facts about people whose opponents would be willing to believe are true. It’s pernicious, but it isn’t merely bad journalism. It is not based in fact at all.

Yet, people are willing to believe what they are told is news because Americans trust the format.  “Crankish conspiratorial thinking has been a theme in America for a long time,” notes professional software engineer and blogger Ariel Rabkin.

But there has been an outcry at the platforms that have unwittingly served as dispensers of fake news. The messenger has been condemned as much as the fake news itself.

Blaming the messenger — the online platforms where this fake news appears — is not the answer, however. Getting angry at Google or Facebook for “throwing” the election by permitting fake news on their sites is a pretty big waste of breath.

Consider the complaints. Facebook repeatedly tweaks its algorithm to impact how news trends, for which it recently faced a fair backlash, but that does not equate to Facebook making up false stories that show up on the site. And it would hurt Facebook’s business model to try to decide what’s real and what’s not.

As Rabkin explains:

Facebook didn’t invent rumor-mongering. It doubtless has made the problem more visible, since what used to be merely asserted drunkenly in saloons or spoken on talk radio is now in publicly visible text online. But visibility is not the same as impact and we should not assume without evidence that technology has made false rumors more dangerous to society. (The election of Donald Trump is not evidence that falsehood has any new potency. Partisans have been repeating lies about their opposition since the birth of democracy.) …

Google and Facebook have a deep ethos of neutrality, and to the extent that they are credible, it is precisely because they do not make blatant editorial decisions that embed their preconceptions and beliefs about which sources to trust. If Google or Facebook were to anoint some limited set of news sources as “authoritative” and some others as “fake,” they would immediately be faced with quite an ugly controversy about who is who, and this is controversy they avoid for both business and philosophical reasons.

Getting to the top of Facebook or Google search returns is a contest, and contestants know how to play the game.

This is the era of digital marketing, where getting seen is as important as what is said. Many players are vying for the top spot, and are willing to pay for it. An entire industry has made its fortune teaching other businesses how to rank up the Google pages. They game and test and look at data to learn how to outbid their competition to get to that spot.

This is how these platforms make their money, and they aren’t going to jeopardize the funding stream. So while Facebook and Google may constantly be rewriting and reframing their algorithms to try to second-guess what people are looking for to be able to deliver that to them, there are many, many guardians at the gate willing to point out what these platforms are doing wrong.

To wit: Being the editors of quality news is not the job description for Facebook and Google engineers.

If users are seeking carefully curated news, The New York Times and The Wall Street Journal are both available online, and there is no particular reason why Google ought to compete directly against them.

Americans do want reliable information on which to form opinions, it’s in their best interest to have all the competing arguments coming at them, good and bad. This involves becoming educated, not just by what’s on the screen, but what is in books, what occurs in real-life experiences and involves real-life witnesses.

Anybody can put anything on the Internet, for better or worse. It’s our responsibility as members of society to be able to develop and express well-considered, well-formed, and well-sourced positions.

And for all its faults, America was not “hacked” into electing Donald Trump. Some Americans may have believed fake news and used it to form their opinions, but that is not what “hacking” is. No evidence points to machines having been tampered with, despite Trump’s pre-victory claims that it could happen. The Wisconsin and Pennsylvania recounts requested by Green Party candidate Jill Stein only reinforce the validity of the vote.

So let’s be vigilant thinkers and put a little effort into determining the quality of information on which we form our opinions. We’ve no one to blame but ourselves if we fault the machines for doing a poor job of thinking for us.

Read Rabkin’s entire article on

A Better Measure of America’s Poverty Rate

Sen. Mike Lee is proposing legislation that, if instituted correctly, could more accurately reflect America’s poverty rate to better determine the impact of welfare assistance and whether it is doing the job it is supposed to do.

Lee’s proposal is called the Poverty Measurement Improvement Act. The point of it is just as the title explains: to more accurately measure household incomes to see if poverty is as bad as the data indicate.

As Lee, R-Utah, explains:

This bill would improve the data available to lawmakers by authorizing a new Census Bureau survey that would more accurately calculate income by including wages and federal means-tested benefits. This information would then be linked with individual records from the IRS and other federal agencies that administer means-tested benefit programs.

The Census Bureau calculates the official poverty rate, but the results are based on families’ pre-tax, cash income, and ignores assistance like Supplemental Nutrition Assistance Programs (SNAP) and tax credits for working families.  The result is that the Census counts the people who are being helped by these programs as still living in poverty when in fact they may be living in much better conditions.

Poverty has been a persistent and seemingly intractable problem for decades. President Lyndon Johnson launched the Great Society in 1964 with the goal of eradicating poverty. But in 1966, the poverty rate was 14.7 percent while in 2012, it was 15 percent. The lowest the poverty rate ever reached was during the Nixon administration, when it dove to 11.1 percent (1973).

In 2012, the amount spent on poverty programs was 20 times higher than when the anti-poverty programs were instituted in 1964, and during that time assistance has increased from $160 to more than $2,000 per person in real dollars.

As an aside, the number of children being raised by a single mother rose from 8 percent in 1964 to 23.7 percent in 2013 while the number of working-age men (25-54) participating in the labor force has dropped by shocking amounts.

As demographer Nick Eberstadt tells it, 7 million working-age men are currently not seeking work:

In fact, if work rates for men were only as high today as in 1965—a time when we enjoyed true “full employment”—nearly 10 million more men would have paying jobs today. Think of the difference that would make to our country.

In other words, what used to be a “nuclear household” has seemingly been nuked.  Lee noted the impact of government programs that discourage one of the most important relationships individuals have and society benefits from: families.

The core problem with our welfare system today isn’t just its bloated annual budget, but its tendency to undermine the two most dependable routes out of poverty: marriage and work.

But we can’t improve these programs until we have better data on how they are affecting working families. The Poverty Measurement Improvement Act will do just that.

Poverty researchers on both sides of the political aisle agree that government assistance helps pull people out of poverty. Accurately measuring the role of public assistance will help determine where opportunities lie to increase workforce participation, encourage stronger households, and inform the role of programs like the Earned Income Tax Credit that are used to get people into the workforce. That’s a goal to encourage, and measuring the data correctly seems like an easy starting point.

Doing What You Love Has Big Social Payoff

It would appear that what TPOH has been saying is finally catching on: doing what you love with people you care about has a greater emotional — and social — payoff than just accumulating stuff.  Attachment to people, not things, is more fulfilling.

It would seem obvious, but a study from the American Psychological Association is tapping into new evidence to measure this theory.

A series of studies tested whether people are more grateful for what they have done rather than what they have; whether they are more motivated to mention gratitude after an experience than an acquisition of a possession; and whether experiential consumption makes people more generous than material purchases.

The authors found that experiences trigger a greater sense of appreciation of one’s own circumstances, and individuals more frequently express gratitude for things they experienced, not things they have.

Why does this happen? “Keeping up with the Joneses” has apparently exhausted itself.

‘One other reason for this increased gratitude may be because experiences trigger fewer social comparisons than material possessions,’ says first author Jesse Walker, a psychology graduate student.

Thomas Gilovich, a professor of psychology at Cornell University, and his team reportedly found that experience also causes more “pro-social behavior.”

An economic game showed that thinking about a meaningful experiential purchase caused participants to behave more generously toward others than when they thought about a material purchase.

This link between gratitude and altruistic behavior is intriguing, ‘because it suggests that the benefits of experiential consumption apply not only to the consumers of those purchases themselves, but to others in their orbit as well,’ says coauthor Amit Kumar, a postdoctoral researcher at the University of Chicago.

Read more about the Cornell study at Futurity.



Infrastructure Investment to Make America Even Better

Alex Tabarrok of Marginal Revolution just ticked off a list of items where infrastructure investment through private-public partnerships (PPPs) could make American even better.

It’s one of the few subject areas that many Americans agree could help both the economy and Americans’ day-to-day lifestyles.  Now, it’s just a question of whether America has the will to get them done.

Here’s the short list:

  1. Airports: Both through privatization of the management of airports as well as the overhaul of aging terminals.
  2. Airplanes: The Federal Aviation Administration’s ban on supersonic aircraft has to do with noise. Innovation in this area could produce new, powerful, and quieter planes.
  3. The Electrical Grid: Tabarrok notes that “we have more blackouts than any other developed nation. It is a national embarrassment when millions of US residents our thrown into the dark by grid failures.” Lots of room for modifications and upgrades.
  4. Alternative Energy Transmission Lines: Solar and wind only work as well as the energy they generate being moved to where it’s needed.
  5. Nuclear Power Reactors: Technology has come huge distances, and the newest nuclear power plant in the United States is about to go live.  New reactors are safe, smaller, and more versatile integrating with alternative energy sources.

This is just one set of options for building infrastructure that isn’t just to create “shovel ready”  jobs, but actually can produce returns on investment.

Read the details of these infrastructure projects at Marginal Revolution.

A Catholic and a Buddhist Walk Into a Think Tank …

If the Dalai Lama were hanging around Washington, D.C., with the head of a free-market think tank, and the two were strategizing on how to build an embarrassment of riches, would you wonder what has become of the world?

If you would, you probably didn’t know that the Tibetan Buddhist leader is hanging out with Arthur Brooks, a man who has described himself as the most Buddhist Catholic he knows. And you probably didn’t know that the two are soulmates of a sort, in a quest to refocus Washington on increasing personal empowerment and helping people achieve their higher calling.

Indeed, Brooks and the Dalai Lama recently penned a New York Times essay in which they note their common goal.

What unites the two of us in friendship and collaboration is not shared politics or the same religion. It is something simpler: a shared belief in compassion, in human dignity, in the intrinsic usefulness of every person to contribute positively for a better and more meaningful world.

That sounds friendly, right? But what does it mean? America is living proof that financial wealth doesn’t solve all our problems. In fact, many problems are not wealth-related at all. All over the world, poverty has been reduced and billions of people now have a roof over their heads and regular meals.

Wealth disparity is not really the issue either. As the Dalai Lama points out, the billionaire’s and the pauper’s stomachs can only extend the same amount. The rich man and the poor man both have 10 fingers, whether they wear 20 rings or no rings at all.

As people all over the world become more secure and financially stable, Western society is facing an obvious malaise. The United States is looking at a decline in its labor force participation rate, and working-age men are dropping out of the workforce all over Western societies. What is the root of this problem?

Pain and indignation are sweeping through prosperous countries. The problem is not a lack of material riches. It is the growing number of people who feel they are no longer useful, no longer needed, no longer one with their societies. …

Feeling superfluous is a blow to the human spirit. It leads to social isolation and emotional pain, and creates the conditions for negative emotions to take root.

In other words, the authors suggest that the pillar of the happiest life is wealth, but not wealth defined as durable goods and bank accounts, but a sense of creating value and a positive contribution.

Much research on the topic shows that people who feel they have purpose live longer and healthier lives. If they can earn their own way, create something, and serve others, they have the greatest ability to feel purposeful. The lack of a sense of purpose has created a deep anxiety and its attendant scourges, both personally and for society at large.

Being ‘needed’ does not entail selfish pride or unhealthy attachment to the worldly esteem of others. Rather, it consists of a natural human hunger to serve our fellow men and women. As the 13th-century Buddhist sages taught, ‘If one lights a fire for others, it will also brighten one’s own way.’

In a society fraught with frenetic energy like that of the United States, defining purpose can be a mighty salve to our sense of discontent. Yes, having the financial ability to relieve day-to-day worries is always an issue, but the degree to which one contributes is the real means to reduce that stress.

Personal contribution begets money, not the other way around. And that is the very purpose of a free enterprise system. It’s not to create billionaires. It is to enable purpose.

So can our focus be redirected toward purpose and meaning? Yes, but it starts with leaders who acknowledge the changes that are need to enable all of us to excel.

Leaders need to recognize that a compassionate society must create a wealth of opportunities for meaningful work, so that everyone who is capable of contributing can do so. A compassionate society must provide children with education and training that enriches their lives, both with greater ethical understanding and with practical skills that can lead to economic security and inner peace. A compassionate society must protect the vulnerable while ensuring that these policies do not trap people in misery and dependence.

Read The New York Times article.

Why Did America Stop Working? The Pursuit to Fill Jobs

The United States is at an awkward crossroads. At a time when the 2016 presidential election is creating a bitter divide, arguments between neighbors and friends are seemingly at odds with the reality of the U.S. economy. The question is not whether the economy can produce jobs, the question is why did America stop working?

Social services and nonprofit leaders have expressed frustration. Jobs are available. Employers are creating openings. But it is becoming harder and harder to find workers to fill them. To this point, too few Americans are stepping up to take these positions.

As a recent Wall Street Journal article reported:

Retailers are scrambling to hire holiday-season workers despite an unusually early start on recruiting this year, creating a collision among employers for temporary help in a tight labor market.

Data from job-search site shows retailers, and the warehouse and logistics firms they compete with for seasonal labor, started searching for temporary workers in August, a month earlier than in recent years. This suggests retailers and other firms “anticipate stronger consumer demand and expect that it will be harder to find the people they want to hire,” said Indeed economist Jed Kolko.

Last year, more than one in four retail workers hired in the fourth quarter of 2015 started their jobs in October, the highest share on records back to the 1930s.

Companies and analysts say a number of trends are converging. The holiday-shopping season is starting before Halloween for many consumers, rather than the traditional day after Thanksgiving. There are fewer workers available, due to unemployment holding around 5% for the past year. And retailers are facing tougher holiday-hiring competition from logistics firms and distribution centers, which have grown along with e-commerce. …

The pace of overall hiring has slowed a bit this year compared with 2015, but has remained strong enough to absorb new entrants into the labor force, and keep the unemployment rate in check. As a result, wages have started to inch up. That is particularly true for the lowest-paid workers. Weekly wages for workers at the 25th percentile—someone who makes roughly $14 an hour for a full-time job—have increased 4% in the third quarter from a year earlier, compared with a narrower 3% increase for the median worker, according to the Labor Department.

Keeping the economy on track and producing opportunities will be a major task for the next administration, but so will addressing the reasons why so many potential workers are staying on the sidelines. Should we be most concerned about work disincentives in safety net programs, health challenges, or the lack of affordable child care? We have to find the answers to help more Americans go to work.

But these are only a few of the challenges the labor market faces today. In a new volume edited by AEI Director of Economic Policy Studies Michael Strain, 21 of the country’s most prominent economists answer some of our most pressing questions: Is productivity the most important determinant of compensation? How can we build workers’ skills? What should we do about workers who are especially difficult to employ?

Strain gets to the core of these policy issues by speaking to the overall reason why they matter. The chief driver is not the need for a smooth economic engine, but the personal worth that working creates. As Strain eloquently explains:

If I asked you to tell me about yourself, there’s a good chance you’d begin with your job. ‘I’m a teacher.’ ‘I’m a nurse.’ There is something noble behind the impulse to lead with your occupation: we want to contribute to society,and for many of us employment is a key avenue for social contribution. Especially in a market economy— where comparative advantage is rewarded and incentives exist to discover yours, nurture it, and apply it—who we are is, to a large degree, how we choose to contribute.

Work allows us to provide and care for our children. (That the national income statistics don’t reflect much of this work says nothing about its immense value.) Work fosters community—there is something unique and edifying in enjoying the company of your coworkers after that long, hard project is finally completed or the work week has come to a close. The best antidote for boredom and vice is often a good job. Among other features, the expressiveness inherent in work—its creative element—is, or at least can be, deeply spiritual.

Indeed, work is central to the flourishing life. And public policy, in its effort to promote the common good, is properly interested in helping to create a vibrant labor market in which individuals can earn their own success, realize their potential, and enjoy the dignity that hard work provides.

Importantly, all nine of the topics covered in the volume — which range from immigration and corporate taxes to income inequality and worker mobility — are addressed twice from different perspectives — reflecting that the competition of ideas is the best way to solve the nation’s toughest problems.

As this unpleasant election season comes to a close, these important challenges will need to be addressed by the next administration and Congress. Hopefully, come January, both parties will find common ground on a handful of important policy reforms that will be good for the country.

Robert Doar contributed to this discussion.

Millennials and Democracy: They Do Want It, Don’t They?

A recent survey of Millennials and democracy suggests they prefer authoritarianism to freedom and liberty, but a very enlightening look at the concerning phenomenon by a Russian citizen leaves hope that American democracy could actually benefit from the younger generation’s seeming rejection of it.

As America’s youngest adults search for the best future for themselves, the position of government as the go-to answer for life’s everyday problems could lose its dominance.  That may not have been the intention of author Leonid Bershidsky, but it does create the sense of relief from the head-shaking conclusion that Millennials are creeping toward totalitarianism.

First, the scary part: A look at the data that has triggered the widespread talk of Millennial rejection of democracy. Bershidsky reports on the findings in a July paper by Roberto Stefan Foa, a principal investigator of the World Values Survey, and Harvard political scientist Yascha Mouk.

More than two thirds of American Millennials do not consider it essential to live in a country that is governed democratically. About a quarter of them consider a democratic political system a ‘bad’ or ‘very bad’ way to run the country. At the same time, support for authoritarian alternatives is rising. In 1996, only 1 in 16 Americans said it would be good if the military ruled the country. By 2014, it was 1 in 6. Only 19 percent of Millennials say it wouldn’t be legitimate for the military to take over if the government proved incompetent or unable to do its job. A growing share of young people is in favor of a ‘strong leader who doesn’t have to bother with parliament and elections’ and a government of ‘experts’ rather than politicians.

Yeah, definitely scary, but the conclusions may have been misinterpreted, to everyone’s relief.

As I covered the U.S. presidential campaign, I saw much that appears to contradict Foa and Mouk’s dire warnings. Bernie Sanders’ movement, still alive despite his primary loss, has persuaded many young people that traditional politics can be used to further their goals. These Millennials and younger Generation Z-ers follow a strong leader, and much of the grassroots campaigning they do is outside the political system as we know it — but they don’t seem drawn to authoritarianism or a government of ‘experts.’

For those who think Sanders’ democratic socialist approach to governing is nothing to feel relief about, here’s where Bershidsky’s observations become more encouraging.

Democracy isn’t meritocratic enough for the Facebook generation, which deifies tech capitalists and social media stars. None of their heroes are elected. Democracy throws up people like (Donald) Trump and (Hillary) Clinton, not Mark Zuckerberg or Elon Musk. The proponents of raw democracy these days are anti-technocratic, like Michael Gove, Brexiter extraordinaire, who says Britons have ‘had enough of experts.’

Young people assume there are other ways for a talented leader to get to the top than by rising through political ranks — and the tech billionaires support that intuition by trying to bypass government as they fight disease (Zuckerberg) or prepare to colonize Mars (Musk). A world run by these well-meaning people wouldn’t be democratic, though their support comes from below. …

So, the conclusion is that young people don’t reject democracy per se, they reject the brutal game of politics and an electoral system that foists up candidates more interested in “gotcha” moments than on governing. It’s the very bureaucratic nature accompanying the growth of government that is anathema. Young people want to choose their leaders, but want those leaders to make the economy grow, increase innovation, and reduce the technocratic nature of goverment.

If millennials feel they are represented by smart people who understand their agenda and have the necessary expertise to implement it, they may like politics better than they do now. And so may the older generations: They, too, are not immune from the irritation caused by crude election battles such as this year’s.

That doesn’t suggest Millennials want authoritarian government. It suggests that they want the choice for creative problem-solvers in government. And who can argue with that?

The Gender Pay Gap Vs. College Degree Choices

Think there’s no gender pay gap? Hate to break it to you: there is. But how much of the gap is eliminated when an apples-to-apples comparison is made of all the variables that go into what men and women make? A lot!

A recent enlightening chart shows one of the variables that is often overlooked in reporting about where some of the gap begins.

The chart, constructed by economist Mark Perry, borrows from a Washington Post article about the 50 majors that offer the highest paying jobs out of college. The original article pulls from a report by job search engine Glassdoor.

Lo and behold, many of the highest-paying jobs are in fields where women are underrepresented in college graduation rates.

Shocker, right? Women are studying in majors whose fields offer lower-paying wages.

College degrees and gender wage gap

Perry’s comparison is rich in details. For instance, he notes that women earned 57 percent of the bachelor’s degrees in 2014 compared to 43 percent of men who graduated that year, yet men were “significantly over-represented for the highest-paying college majors,” specifically taking at least 80 percent of the degrees in eight of the top 10 highest-paying college majors. The one exception where women were overrepresented in a high-paying career — nursing.

He notes that for the top 20 college majors, men earn an average of nearly two-thirds of those degrees; and 60.5 percent of the degrees for the top 30 highest-paying fields.

Perry, a professor at University of Michigan-Flint, acknowledges that the comparison is complicated by the fact that the Department of Education, from where he pulled the gender data, does not separate out degree fields as carefully as Glassdoor, and doesn’t even list certain degrees that offer high-paying jobs.

For example, the Department of Education only reports the number of bachelor’s degrees by gender for the broad academic field of “engineering,” without any details on engineering degrees in the six sub-fields of engineering reported by Glassdoor (electrical, mechanical, chemical, etc.). Likewise, all of the business-related degrees in finance, accounting, marketing, human resources, advertising, etc. are only reported as bachelor’s degrees in “business” by the government. Economics degrees are included in the category Social Sciences, along with degrees in fields like sociology, anthropology, political science, etc. For some Glassdoor college majors like Fashion Design, Biotechnology, Graphic Design, Film Studies, Sports Management, it wasn’t clear what bachelor’s degrees reported by the Department of Education matched those majors, so I omitted 10 of the 50 college majors, leaving 40 majors in the table above.

The lack of detail by the Department of Education is interesting in itself, and certainly makes it more difficult for the federal government to claim to know the source of gender wage disparity, but Perry argues that the wage gap could be reduced if women chose career fields in the sciences and technical fields, as boring as they may seem to some.

Read more of Perry’s analysis.

Can Modern Economics Help Us Achieve Happiness?

Harvey C. Mansfield of Harvard University and Hoover Institution fame has contributed a most useful essay to the new edited volume, Economics and Human Flourishing: Perspectives from Political Philosophy, explaining how Aristotle applied economics to happiness, and how the study of economics has been twisted by today’s economists and political “scientists” to limit people in their ability to be virtuous.

Aristotle wrote comprehensively on both economics and the flourishing life. Modern economics makes its way without study of the ‘flourishing life,’ which is one translation of what Aristotle meant by happiness. For him, as for common sense, happiness is the goal of ethics and politics, and ultimately of economics. At present, however, economics contents itself with the ‘pursuit of happiness’ (to borrow from the Declaration of Independence), a catchall category that specifies at great length how to pursue but hardly at all what to pursue. …

Originally — and this is in Aristotle as well as in the founders of modern economics — economics supposed that it could define needs or necessities as opposed to surplus or superfluities. But necessities have a way of expanding from survival to comfort and from comfort to perfect assurance, so that it seems safer, and scientifically more exact, to consider them infinite and thus decline to define them.

Economics becomes the science of getting more without ever saying how much more. It is because of its exactness that science requires this vagueness. Economics must either be exact or fall silent; it disdains and rejects the possibility of an inexact statement that is merely probable and better than nothing. It may attempt to evade the difficulty by defining ‘probability’ exactly. The result would be either a vague definition of exact or an exact definition of vague— which leaves the common sense ‘probable’ in charge. So the science of more, of ‘growth,’ drops the utilitarian posture that requires a definition of utility—possibly contestable — and turns to ‘preferences’ that are admittedly quite subjective. Thus does the objectivity of economics require that it surrender totally to human subjectivity. And as the measuring of preferences becomes increasingly sophisticated, which means increasingly mathematical, economics becomes increasingly vague as to its end and continually further from defining the ‘flourishing life.’ …

Turning to Aristotle, we see him considering ways of life with a view to which is best rather than calculation of what brings in more. More what, he wants to know, and how much more? For him the ‘pursuit’ of happiness implies an end to the pursuit, since endless pursuit is futile and irrational. All human beings pursue happiness; everything else is instrumental to happiness and pursued because it brings happiness. Even virtue, though an end in itself and often involving sacrifice, is also pursued as the means to happiness. Virtue won’t, or at least shouldn’t, make you miserable, Aristotle says, somewhat optimistically. To be happy is to be at rest, as we say, ‘sitting pretty.’ Those who scramble without end don’t know how to stop, don’t know how to enjoy. ‘Enjoy!’ we say today in moments of respite; Aristotle would say that enjoyment (not relaxation) is the whole purpose of scrambling to get ahead. Relaxation is to gain respite from scrambling so that one can resume it refreshed, but enjoyment is satisfaction in an end attained. …

Reading from Aristotle’s Ethics as well as his Politics, we see he maintains that virtue is the core of happiness. He means this in both a normative and a descriptive sense. Descriptively, every society has a virtue or cluster of virtues that it promotes as characterizing its way of life and defining its notion of happiness, often in his day the virtue of courage or martial spirit. But as every society claims that its prized virtue is best, Aristotle feels bound to judge normatively whether this claim is correct. For him there is no unbridgeable distinction between fact and value. …

Now it is obvious that virtue cannot assure happiness. This is true not so much because we often witness the sad fact of virtue unrewarded—for virtue is its own reward (not always sufficient!)— but because we observe virtue thwarted for lack of means. Virtue stands in need of “equipment,” Aristotle says nicely. It needs good fortune or the gods’ blessing (implied in the Greek word for happiness, eudaimonia, well-blessed), and it needs wealth. One cannot be generous without wealth to give away. Here enters the need for economics as akin to a science of wealth-getting but distinct from it because economics needs to be limited. Aristotle does not hold to the purity of virtue understood as bringing no personal advantage (called “altruism”), but he does agree that wealth-getting is morally dangerous. It is essentially instrumental to virtue but can often become an end in itself regardless of virtue, Aristotle here in accord with Karl Marx. Money monetizes everything, as with the touch of King Midas, and thereby seems to dissolve all value except itself.

Virtue as the core of happiness is a habit, not a calculation. If you have to calculate the advantage from virtue, you are no longer being virtuous for the sake of virtue, which is no longer virtuous. You are merely behaving virtuously while others are watching, which is not enough. Virtue is in the intent as well as in the action. …

(W)hat makes virtue noble is doing it for its own sake rather than for your private advantage. Yet Aristotle, still eschewing moral purity, says that virtue is for your advantage as well. Virtue makes you a better person, and perhaps a still better person if you realize that your virtue makes you better. For virtue is enhanced when aware of itself as the best kind of enjoyment. Similarly, the virtuous person does not seek pleasure, but he gets pleasure as a by-product of his virtue, taking a moderate pleasure in doing good and avoiding too much self-congratulation or superiority. …

We need a return to reason, to Aristotelian reason. The reason of economics is not empirical as it claims. It is based on the dubious presumption that human beings suffer in a condition of scarcity or necessity that will oblige them with their ‘preferences’ (really, their necessities) to choose in ways that economists can predict and then control. This sort of reason begins in a dubious presumption that denies human freedom, and it dissolves, we have seen, in vagueness that fails to specify a reasonable goal of human life. Aristotle’s reason, by contrast, admits human necessities, for he was one of the founders of economics. But, because it is more empirical than economics by itself on the basis of human experience, it also seeks, through the soul, to come to terms with human nobility and freedom. Aristotle’s reason does its best to define the flourishing life, at its peak as well as in average, and measure the ordinary and the common by what is best and rare.

Mind-blowing, right? That’s just part of the essay. The notion of virtue, necessity, and decision-making has been impacted by the operation of modern politics. Mansfield describes some of the implications of this evolution on American society.

You can read the whole essay here.

Major Life Decisions: How Much Influence Does a Coin Toss Have?

Steven Levitt, a well-known economist of “Freakonomics” fame, has a new paper on a topic that we can all relate to: How do people make big, pivotal life decisions? And how can we evaluate whether we make good ones?

When I stop and think about it, the relative scarcity of a robust literature on this topic is surprising. What could be a more pressing or pertinent subject? But — among other difficulties — it is incredibly difficult to create a controlled environment with the kind of randomization that you need for rock-solid results.

Let me explain. To try and measure whether some small behavior makes people happier, researchers could simply randomly assign participants into “Group 1” and “Group 2” and impose different conditions on each. This ensures that people with preexisting differences aren’t self-selecting into different groups and polluting the direct causal link that you’re trying to measure.

This approach — create a controlled environment, randomly divide your participants into “treatment” and “control” groups, and then measure how they fare — works great for studying things like new medications. But not so much for studying major life decisions: whether to get married, what kind of person to marry, and whether to move across the country for a new job. It turns out people aren’t willing to surrender those decisions to a social scientist in the name of advancing science. Weird, I know.

That’s where this study gets creative. Levitt did the best he could to “randomize” decisions by looking at the impact of a coin toss on people’s likelihood of making certain decisions. First, he recruited more than 10,000 volunteers. Each one took a survey that asked about a big decision they were facing. Then came the interesting part: Levitt’s website presented participants with a coin flip that “told” them which choice to make. After the experiment, Levitt followed up with the recruits to see what they decided and how happy they were.

Obviously, participants weren’t bound to follow through and obey the virtual coin. So the first question the study examined was: How much does a virtual coin flip impact which choice people end up making? And as funny as it seems, it turned out that the coin flip influenced participants’ decision making a lot. Taking account of a range of other factors, Levitt finds participants who got heads were about 25 percent more likely to make the change they were considering. And these weren’t insignificant decisions. Some of the changes the participants were mulling included quitting their job or separating from their spouse.

Equally interesting, the people who went ahead and made the change they were considering usually wound up happier as a result. Among the participants who were considering “important” decisions, those who decided to make a change later reported being a full point happier (on a 1–10 scale) than those who stuck with the status quo. Maybe there’s a lesson here: If you find a potential decision sufficiently compelling that you can’t get it off your mind, you should probably just pull the trigger. (Check out my Valentine’s Day column from 2015, “Taking Risks in Love,” for one practical application of this principle.)

The potential lesson here is intriguing. The results suggest that people leave a chunk of potential happiness untapped simply by tethering themselves to the status quo. Even a randomized virtual signal from a stranger in academia was enough to give people a little momentum and push them toward improving their lives.

Official Poverty Rate Declines in 2015. Can Washington Do More?

Over the last two weeks, important new reports were released with good news for poverty fighters across the country: the official poverty rate dropped from 14.8 percent to 13.5 percent in 2015, and both food insecurity and very low food security significantly declined as well.

The fact that we are just now seeing progress, as caseloads for major assistance programs decrease, illustrates that a strengthening economy that gets more Americans working is the most essential ingredient for fighting poverty.

Still, a larger share of Americans remain poor than before the recession started in 2007, even when factoring in all non-cash and tax-based government transfers. This means turning to strategies than can further push down the poverty level.

That’s where Angela Rachidi comes in. Rachidi studies the effects of public policy and existing support programs on low-income families, and makes a convincing case that our focus throughout policy should be on getting more Americans working.

A small fraction of prime-working age people in poverty work full-time, full-year, which means that for most, the lack of a full-time job, not low wages, seems to be the primary driver of poverty.

In a study Rachidi conducted over the summer, she found that:

The vast majority of working-age adults in poverty, whether measured by the official rate or the supplemental rate, lack full-time work, and more than 60 percent in official poverty did not work for pay at all in 2014. In addition, the majority of children in official poverty were in a family without a full-time worker, and 31.3 percent were in a family with no working adult at all. …

As Rachidi explains, most working-age adults in poverty are not working for reasons unrelated to searching for work. They have to do with health issues and home and family responsibilities. In other words, Americans in poverty are frequently not able to look for work or take a job when one is offered. They are not actually resistant to doing work. Addressing those barriers could do more to pull those sitting on the sidelines back into the labor market. But government solutions to reducing poverty are addressing the wrong problem.

Antipoverty policies—such as minimum wage increases, wage subsidies, increasing job availability (including subsidized jobs), and workforce development efforts like education and training—often focus on the working poor or on those actively searching for work. Efforts like these are not well-suited to those who are not even looking for work.

From disability programs to child care assistance to apprenticeship programs, a host of changes could be made to increase employment among low-income Americans, Rachidi argues. Many of these can occur on the state level, where much of federal aid is doled out to be distributed as statewide officials see fit. This is useful in the sense that regional problems don’t need a top-down diktat from Washington.

Check out Angela Rachidi’s suggestions on how to make work more attractive to Americans.

At the same time Rachidi focuses on solutions to address the reasons people are in poverty, Edward Conard argues in his new book, “The Upside of Inequality: How Good Intentions Undermine the Middle Class,” that Americans should be wary of relying on increased income redistribution to help the lower and middle classes move up.

He dismantles major myths about income inequality’s impact on the middle and working classes, including the following:

The myth that the rich get richer by making the poor poorer. No other high-wage economy has done more to help the world’s poor than the US economy. Regardless, advocates of redistribution press on. Rising income inequality is actually the byproduct of an economy that has deployed its talent and wealth more effectively than that of other economies — and not of the rich stealing from the middle and working classes.

The myth that incentives don’t matter. In an innovation-driven economy, there are large and compounding costs to dulling incentives for entrepreneurial risk-taking. As payoffs for success have risen, entrepreneurial risk-taking has accelerated US growth relative to other high-wage economies with more equally distributed incomes. Because of this growth, today, median US household incomes are 15 to 30 percent higher than those in Germany, France, and Japan.

The myth that mobility has declined. If the success of America’s 1 percent comes at the expense of the middle and working classes, we should see mobility declining. Yet, even with significant immigration, there is little evidence that mobility has declined or that mobility in Scandinavia, the supposed paradise of redistribution, is better than in the United States.

The myth that the success of the 1 percent hurts the middle class. Since the financial crisis, accusations that crony capitalism and the success of the 1 percent slow middle- and working-class income growth have only grown louder. The incomes of the very top of the 1 percent have soared, and the growth of middle-class and working-class incomes has remained slow. Many insist that this gap has increased because the wealthy are rigging a zero-sum game to take what rightly belongs to others. Conard addresses these accusations and explains how income redistribution is what hurts the middle and working classes.

Conard says income inequality is not a bad thing in and of itself. It drives competition and entrepreneurial risk-taking. Likewise, a heavy reliance on redistributing the income of those entrepreneurs undercuts those who are willing to invest in training and hiring lesser-skilled workers.

At the same time, Conard argues, reducing regulatory rules that create instability in the banking sector would encourage risk-averse institutions to reengage, compounding and growing the economy at a faster rate.

How to Reinvigorate the Marketplace of Ideas

A fierce competition of ideas is vital not only for the future of the free enterprise movement, but also for the future of American society. Intense debate and rigorous argument are the proving ground for good ideas and good public policy.

But the marketplace of ideas needs to have principled competitors, and few politicians in Washington seem to understand and articulate the core principles of free enterprise, much less apply them to policy.

Still, one simple point that is often neglected in heated campaign seasons like this one is this: No matter which side you’re on, the vast majority of your political opponents are actually not stupid, nor are they evil.

Let’s not mistake this for some milquetoast assertion that disagreement is in itself wrong, that everything should be settled easily by simple consensus. You hear that around Washington sometimes. I don’t buy it, and you shouldn’t either.

But there’s also a middle ground between consensus and the way Washington too frequently operates. The “polarization industrial complex” fans the flames of bad-faith accusations in order to drive up audience numbers and profits, and it’s no surprise that so many of us start to feel a bitter cynicism about the other side of the aisle. Political disputes give way to personal animus and we hardly even realize it’s happening.

Giving in to these feelings and allowing ourselves to caricature our opponents can seem to offer some short-term catharsis. But something in our core militates against it. Deep down, we know that most progressives, most conservatives, and most independents seek to improve the country and lift up the vulnerable.

In addition to being simply inaccurate, caricaturing our opponents also carries a practical cost. It erodes away the civil disagreements that are so vital for building up the competition of ideas. Innovative thinking is attenuated and political gridlock becomes more entrenched.

Declare Independence From Contempt

So what’s the solution? How can we start a revolt against the politics of contempt?

I offer an old tactic to try out. Actively make a personal effort to substitute kindness for contempt. When you feel especially frustrated or angry in a conversation, deliberately try to marshal up a sense of brotherhood to take those feelings’ place. You’d be surprised how quickly answering hostility with love can turn an entire interaction upside down.

Case in point: Shortly after I published my first book for mass consumption, Who Really Cares, I received an email from a reader. My first reaction: Hey, someone actually read my book! But when I opened the message, I was greeted by a point-by-point attempt to rebut my whole thesis. The criticisms were scathing and — I thought — unreasonable.

At first, I was infuriated. I started drafting a thorough reply. But then I realized that an aggravated response was going to accomplish nothing. Instead, I responded with a note thanking the reader for picking up my book. I expressed gratitude that he had engaged with it so thoroughly.

His reply came quickly. It was about as shocking as the initial email: He immediately softened. He responded with kindness himself, sanding down the rough edges on a few of his critiques. He even proposed we get dinner together the next time I was in his hometown.

Maybe I shouldn’t have been so surprised. My friend the Dalai Lama teaches often about the value of answering anger with love. And growing up, it’s what I learned in Sunday school. Matthew 5:44 tells to pray for our enemies and those who would seek to persecute us.

Here’s the hard truth: The forces of division and polarization won’t be vanquished by one politician riding in on a white horse. The marketplace of ideas can only become less toxic from the bottom up. Fixing our politics begins with each of us treating our political adversaries with greater dignity and more respect.

Again, you might think this sounds a bit “out there.” This nation has been through a lot these past years, and the frustrations are understandable. But consider this: be open to the idea and appreciate the sentiment. Then try to act on it, and see if the outcome is better than the other route.

Labor Day Survey: Americans’ Opinions on the Work Environment

People like their jobs, and it’s not just because they have one.

As we celebrate Labor Day, polls on the American workforce show a great deal of satisfaction among workers for the jobs they have. This is no surprise. People have been giving them same answer for decades.

There has been little change in the responses since survey organizations started measuring them regularly in the 1970s. Eighty-six percent of employed people said they were completely or somewhat satisfied with their jobs, according to Gallup’s latest. (A decade ago, the response was identical.) Nearly half in the survey, 44 percent, reported that they were “completely satisfied.” Only 13 percent said they were somewhat or completely dissatisfied with their jobs. Across all income breaks, at least 70 percent say they are somewhat or completely satisfied with their jobs. Results from the National Opinion Research Center on satisfaction with work have also been positive and stable over time.

And it’s not just that people are satisfied with the work they have. They are also increasingly optimistic about the work they could possibly get.

In 1998, when the University of Connecticut/Rutgers first asked if it was a good time or a bad time to find a quality job, 69 percent said it was a good time, a reflection of the country’s strong economy. Following the 2008 crash, this response fell to an all-time low of 8 percent in November 2009 and again in November 2011. Since then, confidence in finding a quality job has continued to improve. In Gallup’s August 2016 survey, 39 percent gave that response.

Why is satisfaction so persistently strong? There are probably many reasons, but jumping out is the notion of “earned success.” In other words, having a sense of purpose gives people meaning in their lives.  And put yet another way:

Earned success means defining your future as you see fit and achieving that success on the basis of merit and hard work. It allows you to measure your life’s “profit” however you want, be it in money, making beautiful music, or helping people learn English. Earned success is at the root of American exceptionalism.

Read more about the Public Opinion Study on the State of the American Worker 2016

Pittsburgh Most Affordable Metro Area for Home Buyers: Where Does Your City Rank?

You can buy a median-priced home in Pittsburgh living on a household salary of $32,390 if you put 20 percent down. You’d need five times that to afford a median-priced home in San Francisco, according to, a housing market research firm.

The extremes are not too surprising, The least affordable metro regions for home buyers are all in California — San Diego and Los Angeles are the next most expensive towns after San Francisco.

But buying a home is becoming more difficult in most metro areas. That’s because home values are on the rise, which is a good sign for the economy, but a drag if you’re looking for a bargain. At the same time, while prices went higher in the second quarter of 2016 over the first quarter, mortgage rates dropped across the country, making it easier to afford more home.

HSH did a comparison to determine how much salary you need to buy a home in 27 metro areas. Pittsburgh came in lowest, with a median-priced home at $140,500 — though prices went up from first quarter to second quarter this year. That’s true also in Pittsburgh rival city, Cleveland, which is the second most affordable city despite increases in prices of 24 percent. For Cleveland, buyers need $34,434 annually to buy a home priced at $138,100 with 20 percent down. Cincinnati ranked third with a 17 percent hike in home prices and an average home price of $160,600. A household salary would need to be $37,179 to get a home in Cincinnatti with 20 percent down.

If you’re looking to move to a city that just became more affordable — in other words, home prices dropped — check Florida. Orlando, Tampa, and Miami are the only three cities where prices went down.

The national average salary needed to buy a home is $52,699.17, which is about what it costs to afford a median-priced home in Houston. If you want to buy a home in San Francisco, you need a $161,947.60 salary in order to afford a median-priced home of $885,600.

Of course, putting 20 percent down makes buying a home easier, but the International Center on Housing Risk notes that few first-time home buyers do. In June, 72 percent of first-time home buyers put a down payment of 5 percent or less, and 22 percent of first-time buyers had subprime credit (a score below 660), which means they’re not getting the best mortgage rate out there.  It’s clear that avoiding a housing crisis means not stretching the dollar too far.

Trying to find a bargain? Here’s a list of the metro areas HSH reviewed. HSH also produced a great interactive display so buyers can look through cities to see quarterly changes and decide where they might like to move.

Startup Nation: A Ranking of Cities and States With New Entrepreneurs

Americans are very bad at giving up. Fortunately.

America has rebounded to become a startup nation: posting its fifth most entrepreneurial year in two decades.

The Kauffman Foundation, which recently released the 2016 Kauffman Index of Startup Activity, found that 30 states have higher levels of new business activity over 2015, and 23 out of 40 metro areas experienced an increase in startup activity. That’s after a two-decade low in 2014.

Reviewing the number of start-ups in high- and low-density states, the index found that Texas led the way among the 25 largest states, followed by Florida, California, New York and Colorado. The highest startup activity in the smallest 25 states were in Montana, Nevada, Wyoming, Oklahoma and Alaska.

Across large cities, Austin, Miami, Los Angeles, San Francisco, and Las Vegas saw the highest number of startups while the largest positive shifts among cities were in Orlando, Kansas City, Cincinnati, Nashville, Detroit, and San Francisco.

New Jersey, Michigan, Minnesota, Texas, New York, and Georgia saw the largest rank increase in new startups in large states, while Oregon, Oklahoma, North Dakota, Wyoming, Mississippi, Nebraska, Arkansas and Rhode Island made the greatest ranking increase among low-population states.

The rankings were determined by evaluating the percent of adults becoming entrepreneurs in a given month; the number who were driven by an opportunity, rather than necessity; and the growth of startups that employed at least one person besides the owner in the past year. The data are pulled from the U.S. Census Bureau and the Bureau of Labor Statistics.

Though new startup activity is still below its peak of a generation ago, the growth of opportunity-driven startups is a good sign, in part because entrepreneurship affects “the well-being of every human on this tiny planet.”

“(E)ntrepreneurship should not be a privilege of the few. Indeed, one of the most powerful things about entrepreneurship is its universality. All communities, cities, and states can become “ecosystems” of entrepreneurial innovation to generate new businesses and jobs,” wrote Victor W. Hwang, Vice President of Entrepreneurship at the Kauffman Foundation, who led the study.

Larger states that saw negative shifts in their ranking for new startups were Illinois, Louisiana, South Carolina, Colorado,  and Massachusetts while smaller states a drop in their ranking were Utah, Vermont, Maine, Kentucky, Alaska, Idaho, Delaware, and Connecticut.

Metros that experienced the biggest negative shift in rank were Virginia Beach, Chicago, Sacramento, Seattle, Indianapolis, and San Antonio.

Read the entire 2016 Kauffman Index of Startup Activity.

Online Educational Games Change Principles of Learning

If you’re lamenting that kids are not getting a practical education any more, take heed, technology is leading young people in entirely new directions, with online games that teach kids everything from how to save money in virtual piggy banks to how to run multinational airline scheduling and pricing operations.

TPOH will leave it to readers to try out some of these games to determine their value, but the simple fact is that young people are no longer beholden to classroom models for learning. Simulations, interactive play, and augmented reality offer new ways of problem-solving and development exercises.

The University of Akron, for instance, provides links to all kinds of study materials in the form of games that test not only kids’ motor skills, but math, technology, economics, U.S. history and government, and many other topics.

Most of the games can be played online though some are meant to be app downloads. Many of the games the university lists are for grades K-6, but some of the games on personal finance and entrepreneurship target grades 7-12, which is important if schools are not going to make finance classes mandatory.

Thousands of resources are available online for teaching financial education to young people. provides gaming-based lessons on microeconomics, industrial theory, and of course, game theory. These are higher-level concepts, and the demonstrations would make any college-age student sit up and pay attention.

Even the U.S. Mint has interactive games, including one that teaches youth about the branches of government. It’s a study tool that forces students to consult the Constitution when they get lost. What could be better than that?

Many of the online economics games offer business simulation strategies, and many are targeted at building collaborative efforts with thousands of players at a time. Some sites are agenda-driven, like trying to teach the value of alternative energy or cooperative farming. A lot of them, surprisingly, are free.

In all, it’s a brave new world out there. Students are learning in ways that many parents and older generations may never understand. So put on your virtual reality headset and hang on for the ride.

How to Achieve the American Dream: Start By Being Frugal

Are you an extreme coupon clipper? How’s that working out? Maybe pretty good, you’re saving money. Or maybe you’re spending to save. Or maybe it takes way too much time and you abandoned this strategy for living with fewer expenses.

Well, forget about it. If you want to know how to achieve the American dream, follow the lessons of the Fatzinger family. Learn from the “Einstein of economical.”

“These days, frugality is not about clipping coupons. It’s about rethinking your finances, and maybe your life. …

‘Spend money on what makes you truly happy and on what you enjoy.'”

That’s the message from Rob Fatzinger, the patriarch of a family with 13 kids that lives outside of Washington, D.C. What’s remarkable about them isn’t so much that the family focuses on its happiness rather than on its possessions, but that it is living debt-free in one of the most expensive suburbs in the country.

TPOH doesn’t know what spur recently jabbed The Washington Post to begin covering positive new stories, like the recent one about a Republican mayor helping the poor, or the Fatzingers, a model in the pursuit of happiness. But in a world of media errors, it doesn’t matter why. It just matters that the news is good and … useful.

In the case of the Fatizingers, the story is of a devout Catholic family, led by husband and wife, Rob and Sam, who took frugality to a whole new level. The lessons are ones we can all take home to our smaller households.

Back in 2000, they bought a five-bedroom house out of foreclosure and later added three bedrooms. Nine children, including the youngest, who is 4, live there now.

The good news: The home cost $150,000. The Fatzingers paid down $50,000, saving interest on the 15-year mortgage.

The bad news: Sam said their priest, visiting to bless the new home, ‘walked in and said: “Should I do an exorcism on this house?”‘ The place was in serious disrepair.

‘Relatives gutted it and made it livable,’ Sam said. ‘Youth groups were over here, ripping up carpet, taking down walls.’ Someone gave them a wood stove. A relative gifted them a used couch. Later, another couch was left on a curb for anyone to take. Score. …

The family shops at sales or secondhand stores and checks out the Freecycle Network, a site for giving away belongings.

Friends and strangers also chip in. ‘We always have someone dropping off a bike,’ Sam said. ‘We would get things and not even know where they came from.’ …

These days, even the childless can be terrified of college costs, so just imagine having 13 kids. But the Fatzingers have a strategy, and it’s working. The plan: Start in community college, don’t expect a handout from Mom and Dad, and graduate debt-free.

So far, Alexandria, the oldest at 26, graduated at 21 with a master’s degree in social work. Joshua, 25, graduated from the University of Maryland with a degree in kinesiology and became a missionary.

Caleb, 23, is in the last year of a doctoral program in physical therapy at the University of Maryland at Baltimore. And Lizzie, 21, graduated in May from the University of Maryland with a math major, while also cleaning houses and tutoring. All four graduated from college debt-free.”

Now, this family has made sacrifices. It had a failed business. Caleb is now living off a loan to finish his doctorate. The kids work multiple jobs and really long hours. They skip over the latest must-have Nike sneakers.

But so what? As economist Mark Perry points out, being super frugal doesn’t feel like deprivation, and it isn’t so hard in today’s America.

According to data from the Department of Agriculture, aggregate spending on food in the US has been below 10% of disposable personal income in every year since 2000, compared to an average food  share of nearly 19% of personal income in the 1950s and 15% in the 1960s. …

In the first half of 2016, Americans collectively spent only $1 out of every $3 of disposable (after-tax) personal income on ‘life’s basics’ – the lowest share in history. Up until the early 1960s, American spent more than half of disposable income on ‘food, shelter and clothing;’ and that share didn’t fall below 40% until 1991. The increased affordability of manufactured durable goods like home appliances, furniture, electronic goods, and cars, along with increasingly competitive prices for food, clothing and energy have brought the share of spending on life’s basics to the lowest level ever in recent years. …

Spending on ‘energy goods and services’ as a share of total consumer spending fell below 4% of total consumer expenditures during the six months of 2016 for the first time since the BEA started collecting data back in 1929. That means that energy affordability (‘energy frugality’) has been greater in the first half of this year, when measured by energy spending as a share of total consumer spending, than at any time in US history.

Perry includes a chart to make visualizing frugality in America a little easier.

Cost of living and how to live the American dream

So, if you’re willing to “live small,” in other words, use second-hand merchandise, buy at discount stores, save money, and avoid debt, you can live the American dream, even in 2016 in a house of 15 people and a strong commitment to succeed by everyone in the family.

Read The Washington Post article on the Fatzingers.

3 Lessons on Work to Create Meaning in Your Life

Sure, pretty much everyone wants a career. It makes it a lot easier to plan your weekends that way. But having a career, or even a job, doesn’t mean that you are going to create meaning in your life. Indeed, if you hate what you do, your life is going to feel meaningless, and your likelihood of happiness takes a big tumble down the odds maker’s charts.

So how do you create meaning in your life? Ultimately, by having a vocation, a reason for doing what you do. Whether you’re a ditch digger or a high-powered executive, choosing work that feels fulfilling brings a much greater sense of happiness.

Three lessons on work can help you determine whether your day-to-day work is fulfilling to you, and hopefully help you decide whether you are living with meaning or need to pursue your happiness through work in another way.

Lesson #1: Focus on serving others

The greatest engine of misery in our society is a sense of social and economic superfluousness. Feeling like you’re needed is integral to feeling successful.  The sense of insecurity many in America feel today is contributing to the anger on display in U.S. politics.

Have a miserable colleague at work? Odds are the problem isn’t just skill mismatch or lack of drive. Most likely, they don’t feel really necessary. Don’t believe it? Reflect on your own experience. Remember that time you weren’t being used enough on the project at work? Didn’t feel good, did it?

We’re designed to serve others, we are wired to want to feel useful, and a sense of superfluousness is a social and psychological cancer.

At the same time, most public policy ideas aimed at helping the job market fail to unleash that sense of utility — and the commensurate human flourishing that goes with it — because the policies are created through a managerial mindset, treating lower income earners as data points to be managed and raised.

To promote human happiness, public policy and our politics must treat every human as a precious asset. Our organizing principle must be that everyone needs to be needed. And even if we don’t realize it, almost anyone with a job is needed and relied on. There are people counting on each of us. We should view every day as an opportunity to serve them.

Lesson #2: Ask why you do what you do

When people first meet, they often ask, “What do you do?” But rarely do you hear, “Why do you do it?” And that second question is important to consider.

Saint Thomas Aquinas asks in his Summa Theologica why people are happy or unhappy? He poses the question of whether happiness is found in such things as wealth, honor, fame, glory, power, the physical body, pleasure, the soul, or objects.

“Naught can lull man’s will save the universal good,” Aquinas contends.

What does that mean? The upshot is that miserable people chase money, power, pleasure, and fame. That’s no surprise, it’s a natural thing to do. It’s much easier to pass on your genetic material if you accumulate these things. But pushing you to pass on your genetic material is not coincident with you leading a happy life. The key to happiness isn’t being a ripe specimen in the eyes of Darwin. Mother Nature doesn’t care if you’re happy.

Understanding the real moral purpose that lies behind your choices and keeping it square in your sights is a much more viable route to happiness. The diagnostic tool is to ask yourself: Why am I doing this thing? We all want money. But is it primarily for money? Is it primarily for power? Is it primarily for fame? Or is it because I feel a sense of purpose?

Lesson #3: Don’t invest everything in work

The social science comes down pretty clear on this one. Four inputs of happiness are in our control: faith, family, community, and work. Many people might think they have all four covered. Indeed, they might. The key question is this: When was the last time you checked your life portfolio for balance among those four inputs? It’s easy to find ourselves drifting, especially at different phases of the life cycle. But this is a big trap. Just like it takes diversification to weather economic shifts, so too can big life events upend an unbalanced happiness portfolio. Investing all your time and thoughts into work is like going long on Greek bonds. No one wants to be that guy.

— modified from the work of Arthur C. Brooks

Getting Back to Work: Not Merely Happiness, But Human Fulfillment

Work is often unpleasant in our fallen world. But it contains within it the seeds of its own redemption, and ours. It often fails to make us happy, but happiness is a fleeting emotion. Work gives us something more lasting and sturdy than happiness: fulfillment.

Thus begins a manifesto called “Getting Back to Work” by economist Michael Strain on how the U.S. federal government can help workers succeed and achieve self-actualization. The essay is part of the “Room to Grow” series by the Conservative Reform Network, which began in 2014 with the goal of developing innovative solutions to challenges facing the U.S., challenges largely created by an overindulgence among politicians to engineer social outcomes.

Strain, who studies labor force participation rates and work incentives, argues that public policy does play a role in job creation by enabling a vibrant job market. He acknowledges that a safety net is critical to ensuring that those on the bottom rung of the economic ladder have a support system. But he also notes that the support system has made it harder for people to get off that first rung.

He starts with a somewhat poetic look at the roots of man’s love and need for work before discussing how public policy has gone down the path of diminishing the value of labor.

(M)illions of people doing their particular jobs a little bit better than anyone else can create enormous wealth and, more important, improve the opportunity for individuals to lead truly flourishing lives.  Work helps us to flourish by allowing us to provide for our children. (Not all of this work, of course, is paid.) And work is a cure for boredom, one of the worst parts of modern, comfortable life.

Work creates community, something all humans need for flourishing lives. Members of your work community often become lifelong friends. Work educates our passions, directing them to productive ends, emancipating us from them. Work allows us to express ourselves, and in its proper understanding is deeply spiritual: In the Abrahamic faiths, the Supreme Being works, creating the world out of nothing. Saint John Paul writes that we are ‘called to work,’ arguing that we find ‘in the very first pages of the Book of Genesis’ the ‘conviction that work is a fundamental dimension of human existence
on earth.'”

Strain also suggests multiple solutions:

  • Expand the Earned Income Tax Credit, a federal earnings subsidy for low-income households, to homes without children.
  • Expand Work-Based Learning Programs that include apprenticeships and retraining worker who have been displaced by technology or globalization.
  • Modify the safety net so that it better encourages work and doesn’t define disability as a a binary state rather than a continuum.

A person may be disabled in the sense that he can’t stock shelves, but not disabled in the sense that he can’t sit behind a desk for 25 hours per week.”

Other suggestions from Strain include cutting payroll taxes as well as commute times, making it easier for former prisoners to find jobs, and reducing occupational licensing rules. Strain also breaks through some myths about barriers to work, and points out polling that demonstrates the benefits of his positions.

In all, bringing back the sense of American pride is one key to getting people back into the labor force. Included in this, according to Strain, is the effort to recover “a culture wherein more Americans feel an obligation to build a career, even from a low starting point,” a position that has been hampered by politicians creating policies that are intended to ease the burden of job loss but have resulted in building barriers that make it harder for people to return to the workforce.

Read more from Michael Strain’s report on Getting Back to Work.

The Insanity of Occupational Licensing — $1,537 for a Shoe Shine Permit

TPOH has long been on the case of the red tape created by occupational licensing (and one of our heroes is Melony Armstrong, who took on her state’s rules and won). It seems to be a constant uphill battle, but two senators are hoping to create a model for states to follow to reduce the obstacles entrepreneurs face as a result of occupational licensing rules.

Sen. Ben Sasse, R-Neb., who has made it a mission to eliminate unnecessary occupational licensing laws — one of the few areas where the states really exceed the federal government when it comes to regulatory barriers — has been working with Sen. Mike Lee, R-Utah, on legislation to address one small area of occupational licensing — dealing with rules in Washington, D.C., where the federal government has some legislative oversight.

Sasse and Lee’s ALLOW Act would reduce occupational licensing rules in the nation’s capital to “only to those circumstances in which it is the least restrictive means of protecting the public health, safety or welfare,” reports The Weekly Standard.

The senators appear motivated in part by stories like the one told by an American University freshman who decided to go shine some shoes to help pay for expenses associated with attending one of America’s elite universities.

Before heading down to the street, the student said he double-checked online about vendor rules in D.C., and was shocked to learn that he would have to pay $1,537 in permitting and licensing fees, not to mention other arbitrary compliance laws, which included 83 pages of rules for sidewalk shoe shines. The student noted that if he didn’t get the fees — and wait six months for the permit!! — he could be fined $2,000.

Not much in the way of encouraging work.

The states would have to follow with their own revisions, but as Melony Armstrong has noted, her fight in Mississippi resulted in paperwork and permitting reductions not only in her state, but in Alabama, Arkansas, Texas, and Utah.

Read more about Sens. Sasse and Lee’s occupational licensing reduction act.

The Working Poor: When a Job is a Chore

Too few poor Americans work. That may seem obvious, but maybe the reason is not.

The most common explanations given by nonworking, poor adults  for why they aren’t employed are family and home responsibilities and disability and illness, not inability to find a job.

The full-time working poor make up only 17 percent of the 46.7 million Americans in poverty in 2014. Meantime, most working-age adults in poverty — 61.7 percent — did not work at all in 2014.

Work is a central part of the American dream. Steady employment supplies income to households, provides opportunities to move up the income ladder, and minimizes the risk of being in poverty. Only 3 percent of adults who work full-time, year-round live in poverty.

More importantly, work is often a source of dignity and purpose and is an important way in which everyone can contribute to society.

While working for pay is something that enables families to thrive and fosters a sense of pride, labor economist Angela Rachidi asserted that “labor force participation rates among prime-age workers have declined over the past two decades, suggesting that America is facing a work problem.”

If not working is a choice, then it may be of little concern to public policy. But when a lack of employment leads to poverty, it raises important questions about the role for government. In many ways, government can make poverty less painful through income transfers, but the important question is whether government can encourage those who are not employed to work and provide for themselves. …

Notably, fewer than 10 percent of nonworkers in poverty reported inability to find work as their reason for not working. This suggests that current economic and workforce development policies, which primarily focus on people already working or looking for work, have limitations. With over 60 percent of poor working-age people not working at all, public policies aimed at increasing work may have stronger effects than these other policies.”

Rachidi looked at people in poverty as described by the federal government’s definition as well as the supplemental poverty measure, which includes government benefits in determining a poor person’s income.

“Ultimately,” she wrote, “the results related to work and nonwork for people in poverty according to both measures were similar, and the conclusions were the same.”

Rachidi suggested that anti-poverty efforts may have to focus on the larger variables that drive people from the workplace, including health issues and family responsibilities, as well as disincentives to work, like those seen in disability insurance programs, which TPOH has previously noted.

Otherwise, Rachidi said, “we can either accept the status quo, which would mean leaving millions of Americans in poverty, or continue funding large government programs that transfer income from working taxpayers to the nonworking poor.”

Neither of these seems like a good option.

Who Voted for Brexit? An Analysis of Voter Turnout and Its Implications

Who voted for Brexit? A very interesting analysis on the characteristics and demographics behind Britain’s decision to leave the European Union comes from Zsolt Darvas, a senior fellow at think tank Bruegel in Brussels, Belgium.

Darvas did several regression analyses to find that low-income voters as well as older Britons supported leaving the European Union. Younger people and those with a degree were more likely to vote to stay in the Union.

And despite claims that Scotland was ready to bolt Great Britain if the UK voted to leave, turnout was low in Scotland as well as Northern Ireland, and London, where staying int he EU was preferable.

At the same time, a large presence of immigrants in a region was not a significant factor in the vote to stay or leave. Neither was the availability of disposable income in a region, according to Darvas.

But the lack of money did play a role.

The poverty rate is also robust and statistically significant, with a parameter estimate of about 1, implying that a 1 percentage point higher poverty rate boosted the share of ‘leave’ votes by 1 percentage point. This result highlights the importance of poverty as a determinant of ‘leave’ votes.”

Among some other findings, Darvas found that:

  • Turnout was lower in areas where young people are a higher share of the resident population. Therefore, the young, the main supporters of ‘remain’, abstained more from voting.

  • Older people (many of whom are ‘leave’ supporters) cast their votes in a higher proportion.

  • People with a degree (‘remain’ supporters) tended to vote in higher proportions, while people without qualifications (‘leave’ supporters) abstained more from voting.

  • Among the three social indicators, inequality contributed positively to the votes, while greater poverty and higher unemployment discouraged people from voting. These results together with the finding for uneducated people, suggests that disadvantaged people tended to vote in smaller proportions.”

Finally, Darvas concludes from the data that if Europe wants to be more unified, it should probably do more to create opportunities for low-income households to grow their wealth.

This finding calls for more inclusive growth, which is defined by the OECD as ‘economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society.’ In the UK, income inequality – a key indicator of inclusive growth – is almost the highest in the European Union. Theresa May, the new UK prime minister, has rightly emphasized very strongly the importance of a social reform to reduce the inequality of opportunities.”

Read more about who voted for Brexit.

Free Enterprise From a Marketing Perspective

AEI President and economist Arthur Brooks tells a lightly used joke in his book, “The Conservative Heart: How to Build a Fairer, Happier, and More Prosperous America.”

The joke isn’t all that funny, but it makes a point. …

An American businessman is visiting a small Mexican fishing village. He notices a small boat tied up at the dock. He’s surprised to see the boat idle, since it is about 1 p.m. — prime fishing time. The businessman walks over to investigate, peers into teh boat, and spioes one happy fisherman and one large tuna. he compliments the fisherman on his catch and asks how long it took to nab it. The Mexican man replies that it only took an hour.

‘Well, why didn’t you stay out longer to catch more?’

The fisherman replies that he has enough to fulfill all his immediate needs.

‘So what do you do during the rest of the day?’

‘I sleep late, take a nap, drink a little wine, and play guitar with my friends, senor.’

At this, the American is appalled. ‘It’s your lucky day — I’m a Harvard MBA. Let me give you some advice. First, you have got to spend more time fishing and save the money. Pretty soon, you’ll be able to buy a bigger boat and hire a few men to work for you. After a while, you can buy several boats and hire more crews. Eventually, you’ll have a whole fleet, and so you can sell your catch directly to the processor. Maybe even open your own cannery.’

Now he’s really picking up steam.

‘At that point, you could leave this small coastal village and move to Mexico City — maybe even Los Angeles! You could run your whole business from there.’

The fisherman ponders all this for a minute. Then he asks, ‘How long will all this take?’

‘I’d say about twenty or thirty years.’

‘But what then, senor?’

‘What then?! You can sell your whole enterprise for a fortune!’

‘A fortune? Wow! Then what?’

The American has to think for a moment. Then it comes to him.

‘Then,’ he triumphantly declares, ‘you can retire and do whatever you want! For example, you could move to a quaint, beautiful fishing village where you could sleep late, take a nap, drink wine, and make music with friends!’

What’s the point of this tale? It’s not that industriousness is driven by Americans, or that Mexicans are not ambitious. Far from it.

The point is that earned success means different things to different people, but the free enterprise system enables people to choose how they wish to earn their success. Prosperity is available to everyone who seeks it in a free enterprise system, but what is defined as prosperity means different things to different people.

Someone who is contented by just enough to live a self-sustaining lifestyle, or by making a fortune developing a large company will both benefit and have greater opportunity to achieve happiness in an economic system where they are free to make choices for themselves.

Read the “Conservative Heart: How to Build a Fairer, Happier, and More Prosperous America.”

Retirement Savings: You May Have More Than You Know, Need

In the realm of things that need to be vetted is the case of how much retirement savings one really needs to have in order to live close to the lifestyle one habituated during his or her working years.

Retirement savings investors, who have a rock-solid interest in making sure savers dump lots of dollars into their accounts, seem to be inflating the amount of money people need to have to live comfortably, says Andrew Biggs, a former Social Security Administration deputy commissioner and associate director of the White House National Economic Council.

Biggs has been on a tear lately, looking at different analyses, including one from and another from Aon-Hewitt, both firms that would benefit from individuals socking away higher savings. He suggests that the retirement savings “crisis” is part hysteria and part bad math.

Bankrate found that retirees had average incomes equal to just 60% of working-age households, 10 percentage points short of the 70% ‘replacement rate’ that most financial advisors recommend. In only three states – Hawaii, Alaska and South Carolina – did Bankrate find that average retirement incomes topped 70% of pre-retirement incomes.

So are things really that bad for today’s retirees? Not at all. In fact, if we recreate Bankrate’s analysis while correcting for several important errors, today’s retirees don’t merely meet the 70% ‘replacement rate’ target – they actually have average incomes that match those of households who are in their peak earning years.

How does Biggs reach his conclusion? Being an economist, he starts by comparing apples to apples. For one, he corrects for the fact that the Census Bureau’s American Community Survey, which Bankrate used to measure retiree incomes, doesn’t count IRAs and 401(k) earnings as “income” because the money doesn’t show up as a regular check in the mail. That means the drawdowns off those accounts are not counted as income in Bankrate’s analysis despite the fact that the money is the equivalent of income to finance retiree households.

Then Biggs adjusts for the fact that Bankrate averages per capita income in households based on an average of 2.3 people in the home, which is the average number of people in households not at retirement age, but in the 20 years before retirement. In households over 65, the average number of people is 1.7, which means the per capita average immediately goes up.

Lastly, Biggs notes that since incomes rise over time — on average 27 percent over the last 21 years — trying to compare incomes of retirees to incomes of working-age households is misleading because retirees have determined their retirement needs based on what they earned while they were working, not on what workers are earning today.

So what does this all mean?

If we want to accurately measure retirees’ incomes we need to accurately capture IRA and 401(k) withdrawals. That points toward IRS Statistics of Income data, since those withdrawals are taxable and thus are more fully reported. For households aged 65 and over in 2013, IRS data show an average total income of $70,085. Divide that by 1.7 individuals per household and you get per capita income of $41,227. Those same IRS data show an average income of $88,670 for households aged 45 to 64. Divide that by an average household size of 2.3 and you get per capita income of $38,552. While the IRS data have some shortcomings, which I’ll discuss below, these figures don’t look anything like the 60% “replacement rate” the Bankrate analysis produced. Indeed, today’s retirees have incomes that are very similar to Americans who are in the prime of their working lives. And that’s before accounting for the increase in salaries from the time today’s retirees were in their prime working years.

Biggs notes that the IRS data have flaws, most notably the lack of a historical data trail before 2006, the use of averages rather than medians, which measure the true middle point between high and low incomes, and the fact that low-income households don’t file returns.

But still, you get the point: Fully counting the incomes received by today’s retirees – especially, withdrawals from retirement plans – shows that, on average, retirees are doing very well. No one argues that retirees need per capita incomes as high as households 20 years younger who are at the peaks of their working careers. But according to the IRS data, that’s what they have.

Does that mean all retirees are doing fine? Of course not, nor are all working-age households doing well. But if we’re looking at averages – and averages do tell us something meaningful – then today’s retirees are doing pretty darn well.

In a separate piece, Biggs takes down Aon-Hewitt’s claim that women need savings equal to 11.5 times their final pay while men need 10.6 times their final pay in accumulated wealth. Aon Hewitt laments that women are only on track to save 8.2 times their final pay while men are projected to have 8.6 times.

Biggs then looks at the quintiles established by the Social Security Administration to evaluate how well people fare in their final year of earning pay before retirement.

The SSA’s hypothetical earners are built on administrative data from Americans’ earnings and are classified as:

  • Very low: final earnings at age 65 of about $8,095 per year. About 19% of workers have earnings similar to the very low earner;

  • Low: final earnings of about $14,562 per year. About 22.5% of workers have earnings similar to the low earner;

  • Medium:final earnings of about $32,370 per year. About 29.8% of workers have earnings similar to the medium earner;

  • High: final earnings of about $51,732 per year. About 20.1% of workers have earnings similar to the high earner; and

  • Maximum, earning the maximum earning taxable by Social Security – currently $117,500 – every year of their working career. About 8.5% of workers have earnings similar to the maximum earner.

Biggs revisits the 70 percent replacement rate number as adequate income for a retiree as compared to a working-age person before adding a few assumptions about when people retire and how long they live.

He then notes:

The specifics of the recommendations don’t matter much here, though, because anyone saving for retirement using Aon-Hewitt’s rule of thumb would knock any recommended replacement rate right out of the park. For instance, a ‘medium’ earner earns about $32,370 just prior to retirement, though more than that – about $40,000 – in the peak earnings years of her mid-50s. She would receive a Social Security benefit of $21,354 per year plus an annual payment from her retirement savings of $20,011. Add it together and she has a total annual retirement income of $41,465, which is equal to 123% of her final earnings. If she were a very low-wage worker – which describes about 17% of female workers, according to the SSA – her total replacement rate would be 174%. Even if she earned the maximum taxable wage, currently $117,500, every year of her working career, under Aon’s retirement saving rule of thumb she would have a replacement rate of 89%, which is well above what financial planners recommend for high earners.

What’s troubling is why retirement savings investors are coming up with these numbers, and it’s ponderous to conclude with an answer, but it is worrisome that retirees appear to be enjoying a more comfortable standard of living than working-age households, according to Gallup and the Health and Retirement Study, which notes that 80 percent of retirees say their life is as good or better than before they retired.

You can read Biggs’ retirement income measurements at Forbes magazine as well as his article on how much retirement income people should plan to have.

Is Political Extremism the Result of Boredom?

The European Journal of Social Psychology has published a set of experiments that suggests that people who tend toward political extremism suffer from boredom more than everybody else.

In their initial experiment the researchers recruited 97 people from a university campus. The participants first indicated their political orientation (whether they considered themselves liberal or conservative) before being randomly assigned to complete either a task deemed to be highly boring or a comparatively less boring task. …

The researchers found that liberals in the low boredom group were more moderate in their , compared to liberals in the high boredom group. A similar trend was found for conservatives, though it was not statistically significant as there were only 26 politically right-wing participants, which reduced the study’s statistical power. …

The study authors also conducted a survey of 859 people living in Ireland and found that people who were easily bored tended to endorse more extreme political views. Another survey of 300 people found that being prone to boredom was associated with searching for meaning in life, which was in turn associated with political extremism. …

The study authors also conducted a survey of 859 people living in Ireland and found that people who were easily bored tended to endorse more extreme political views. Another survey of 300 people found that being prone to boredom was associated with searching for meaning in life, which was in turn associated with political extremism.

Dr Wijnand van Tilburg from King’s College London said: ‘Boredom puts people on edge – it makes them seek engagements that are challenging, exciting, and that offer a sense of purpose. Political ideologies can aid this existential quest.’

He added: ‘Boredom motivates people to alter their situation and fosters the engagement in activities that seem more meaningful than those currently at hand.’ The authors suggest that adopting a more extreme political ideology is one way that people re-inject meaningfulness into a boring situation.

While people choose political views based on a variety of factors, the creeping and insidious nature of political argumentation, both in the U.S. and elsewhere, may be a factor driving people to political extremes, say the studies authors, because it releases them from their humdrum existence.

Of course, people could choose to participate in exciting activities that aren’t politically motivated, like bull riding or car racing. Then perhaps there’d be less partisanship and better solutions to policy differences.

Read more about the study on political extremism.

Elie Wiesel’s Universal Wisdom

Elie Wiesel died on July 2, 2016, at 87 years old. A Holocaust survivor, Nobel Peace Prize winner, novelist, scholar, historian, and human rights activist, Wiesel was 15 years old when he was taken to Auschwitz concentration camp in Poland from his home in what is now Romania. He lost his mother, father, and a younger sister to the Nazis, but was later reunited with two sisters.

He married and had one son. Wiesel had a very complex belief system when it came to faith, memory, and despair, but he held an unrelenting willingness to teach and to learn, and was a tireless activist for those seeking freedom of conscience, liberation from despotism, and relief from war.

Wiesel wrote 60 books and gave countless speeches. His quotes span decades, but much of it rings true on this day as when he first uttered his thoughts.

Here are some of his most memorable quotes.

On bigotry:

If someone had told us in 1945 that in our lifetime religious wars would rage on virtually every continent, that thousands of children would once again be dying of starvation, we would not have believed it. Or that racism and fanaticism would flourish once again, we would not have believed it.

Nobel Peace Prize Lecture, Dec. 11, 1986

On hatred:

Hatred is at the root of evil everywhere. Racial hatred, ethnic hatred, political hatred, religious hatred. In its name, all seems permitted. For those who glorify hatred, as terrorists do, the end justifies all means, including the most despicable ones.

Parade Magazine, Oct. 28, 2001

On indifference:

Indifference is not a beginning, it is an end. And, therefore, indifference is always the friend of the enemy, for it benefits the aggressor — never his victim, whose pain is magnified when he or she feels forgotten. The political prisoner in his cell, the hungry children, the homeless refugees — not to respond to their plight, not to relieve their solitude by offering them a spark of hope is to exile them from human memory. And in denying their humanity we betray our own.

White House Millennium Lecture, April 12, 1999

On God:

I rarely speak about God. To God yes. I protest against Him. I shout at Him. But open discourse about the qualities of God, about the problems that God imposes, theodicy, no. And yet He is there, in silence, in filigree.

Paris Review interview, Spring 1984

On peace:

Mankind must remember that peace is not God’s gift to his creatures; peace is our gift to each other.

Nobel Peace Prize Lecture, Dec. 11, 1986

On gratitude:

When a person doesn’t have gratitude, something is missing in his or her humanity. A person can almost be defined by his or her attitude toward gratitude.

Oprah Magazine, November 2000

Read this moving tribute to Elie Wiesel from his friend, Menachem Z. Rosensaft.

Watch Elie Wiesel give his Nobel Peace Prize acceptance speech.

We Can Do Better: Only 16% of Prime-Working Age Men Not in the Labor Force Want to Work

In recent weeks, the steady decline in labor force participation among working-age men has attracted a lot of attention. A recent report from the President’s Council of Economic Advisers (CEA) shows that the labor force participation rate among men age 25–54 has fallen by 8.3 percentage points since 1965.

This is a serious problem because not only are adults who work full-time rarely in poverty, but also work is fundamental to a flourishing life.

While the CEA believes that the decline is largely caused by decreased demand for low-skilled workers, the problem may be on the supply side. Finding ways to keep men healthy enough to work, reforming safety net programs to encourage and support employment, and changing our culture to place more value on work are all recommendations from one poverty scholar.

Here are some of the CEA’s findings.

— The share of nonparticipating prime-age men reporting they want a job has fallen over time, from a peak of 28 percent in 1985 to 16 percent in 2015.

— In 1964, 98 percent of prime-age men with a college degree or more participated in the workforce, compared to 97 percent of men with a high school degree or less. In 2015, the rate for college-educated men had fallen slightly to 94 percent while the rate for men with a high school degree or less had plummeted to 83 percent.

— In recent decades, less-educated Americans have suffered a reduction in their wages relative to other groups. From 1975 until 2014, relative wages for those with a high school degree fell from over 80 percent of the amount earned by workers with at least a college degree to less than 60 percent.

— In 2014, 11 percent of all prime-age men lived in poverty compared to 15 percent of the population as a whole, although the rate for prime-age men has nearly doubled since the 1970s. In contrast, nearly 36 percent of prime-age men not in the labor force lived below the poverty line in 2014, up from 28 percent in 1968.

— By one estimate, between 6 and 7 percent of the prime-age male population in 2008 was incarcerated at some point in their lives. These men are substantially more likely to experience joblessness after they are released from prison and in many states are legally barred from a significant number of jobs.

— Foreign-born prime-age men continue to participate at higher rates than the native-born. Their participation rate has actually risen slightly over the last two decades by 1.4 percentage point since 1994, while the native-born prime-age male participation fell by 4.4 percentage points, suggesting that increasing immigration is not a viable explanation for the decline.

Read the rest of the President’s Council of Economic Advisers findings on labor force participation among prime working-age men.