The Economy: Why Your Life and Government Data Disagree (UPDATE)


A statistical model is a simplification of reality that focuses attention on a few items that people can control that might make a difference in what the model is trying to predict.

A model isn’t reality. Reality is way more complicated than most people want to consider.

When a model works, it should produce results (forcasts) that make common sense.

When a model doesn’t work, it produces results that contradict real world experience.

That’s where the Federal Reserve is now.

  1. The Fed thinks the economy is picking up. That should mean rising inflation — but it doesn’t, this time. After a spike at the beginning of the year, the consumer price index is showing growth of less than 2%.(1)
  2. The Fed thinks the labor market is strengthening. My the logic of supply and demand, that should mean increasing wages. That’s not really happening either. The current month shows an increase in wages of 2.2% over a year earlier.

Models fail for two reasons:

  1. Some factor or variable is missing that’s impacting reality, or
  2. The data used the calculate the model is wrong.

In this case, the problem might be with both.

Here’s my list of possible problems:

  • Measurement of inflation is wrong.  The CPI as it is currently calculated understates price increases in both healthcare/insurance and food.
    • The government measures food cost changes by looking at prices in the Washington, DC, area. That’s one of the most expensive regions in the US. When you divide an increase by a larger base number, you get a smaller percent change. This procedure is distorted, but it helps to reduce cost-of-living increases for people on Social Security.
    • The government understates the proportion of income going to healthcare and health insurance.
    • Bottom line: Inflation is higher than the government reports.
  • Measurement of unemployment is wrong. The government treats anyone no longer calling or visiting employers to find a job as no longer unemployed. Meaning if you’ve been looking for six months, have called everyone you know and are now puttering making bird houses to sell, you are no longer unemployed. If you’re on Social Security and need additional income to make ends meet, you’re not unemployed. The real unemployment rate is 2x to 3x what the government publishes.
  • The nature of work has changed. Workers are still being moved from higher-paying to lower paying jobs, and the “gig economy” means that jobs are short-term, unstable and include no benefits (e.g., health insurance). Plus more people are working part-time, which means the number of people working two or more jobs as increased. The Fed model doesn’t deal with that.

You may have more thoughts about what’s wrong with the government numbers. Tell me.


  1. Lev Borodovsky, “What to Make of Softening Inflation,” The Wall Street Journal, 3 July 2017, B12.
  2. Jeffrey Sparshott, “Jobs Grow but Wages Stay Stuck,” The Wall Street Journal, 8-9 Juy 2017. A1.

US Immigration: the Curiosity of Numbers that Don’t Add Up


The chart below shows data for population growth pulled from the Census Wonder data system. A positive number in the “Missing” column means that the population grew by more than the net of births, naturalizations and deaths. A negative number means it grew by less than the combination of births, naturalizations and deaths.

Here’s the problem. Say you want to assume that there are 1 million illegal immigrants entering the US in 2015. To make the numbers work, you have to have more than 800,000 people living in the US leaving.

  • Possible explanation 1: That’s the American Diaspora, and it appears to be quite real.
  • Possible explanation 2: There’s less illegal immigration than most people think.

In 2011 and 2012, we appear to have had more people leaving the US than entering.

In fact, if Explanation 1 is true, then were we to stop illegal immigration, we would have a steady population drain and slower economic growth. Without major changes in productivity, economic growth is directly linked to the size of the workforce. 

This is just a preliminary analysis. I’m looking for additional data.

You may also notice from the table that the death rate is edging upward. That’s probably just the natural result of the aging US population.



ACA Repeal: The Latest


The Senate proposal is out. The proposed law is 142 pages of (perhaps unnecessary) complexity, and, given the rushed nature, probable errors. But it’s out.

It’s not out in time to prevent damage for 2018.

  • Withdrawal of insurers: Aetna notified agents that it will be withdrawing from individual markets in 18 states. Notices to policy holders will be sent on or about July 1st. Other firms have announced withdrawals from a few states, most particularly Iowa and Indiana.
  • Heavy rate increases: Insurers in the individual market in Virgina have asked for a 30% rate increase for 2018, based on uncertainty about whether the Federal government will continue subsidies for health insurance. Insurers in NY State have asked for a 16.6% increase. Most other states will be in that range.

The proposal represents a mixed signal for consumers.

  • Pre-existing conditions: The Senate version conforms with the House version in requiring insurers to cover people with pre-existing conditions. HOWEVER . . .
  • Coverage: States can apply for waivers allowing insurers to reduce the coverage they provide. Services required by people with pre-existing conditions may not be covered.
  • Medicaid: The bill supports a contraction of Federal Medicaid funding, but delays the start of cutbacks until 2021. The House version started cuts in 2020, an election year. The Senate version of the cuts are later and deeper.
    • The Medicaid expansion was an increase of the income limit for eligibility from 100% of poverty level to 138%.
    • Under the Senate version people making more than 100% of poverty level would be prevented from enrolling in Medicaid starting in 2020.
    • All Federal funding for the expansion would be limited in 2023.
    • The impact on the Medicaid program for children, CHIP, is unclear at this time.
    • Inflation adjustments for Medicaid funding would be changed from an index based on medical costs to the overall Consumer Price Index (CPI), which would reduce annual increases in funding in all future years. (See graph.) (4) The focus of this change is strictly on reducing Federal spending, not helping consumers. Federal payments would lag behind increases in medical costs — who pays the difference?fredgraph
  • Tax credits to help pay for insurance: The House version based subsidies on age; the Senate version reverts to income as the basis, consistent with the existing ACA rules. However,
    • The Senate version reduces the maximum income eligible for these subsidies, making some people now receiving subsidies ineligible for them in the future. On low low end, the Senate version makes subsidies available for people earning below below poverty level who might not be eligible for Medicaid in their state. The Senate version maintains cost-sharing subsidies for insurers through 2019.
    • The Senate version reduces the amount of subsidy people receive, increasing out of pocket costs for everyone, and especially for those between age 50 and 64.
  • Planned Parenthood: Both House and Senate versions remove funding for Planned Parenthood.
  • Tax reductions for affluent households: The Senate and House versions are in agreement on this; the reductions remain intact.
  • Individual mandate: Penalties for not having insurance are eliminated.

Sticking points:

  • For conservatives: Treating healthcare as a human right. They would rather see the ACA eliminated without replacement.
  • For moderates and those in competitive districts

Collateral damage:

  • Insurance coverage: There’s a debate as to how many people will not have insurance coverage with this law.  Estimates vary between 13 and 23 million.  The reasons for the variance in estimates include:
    • Time frame — loss of coverage will build over time as insurance costs increase and subsidies don’t.
    • Medicaid — how many people will lose coverage under Medicaid. That impacts more people than you would expect. Most people don’t have Long Term Care insurance, and Medicaid has become the prime vehicle for paying for home health aides and nursing home costs. Since nursing home costs average nationally more than $9,000 per month and Medicare pays for only the first 100 days, there are a lot of middle income families that will be in trouble. Even some moderately affluent families will be affected, and the poor . . . forget about it.
  • Tax increases: Healthcare for the uninsured will fall back on emergency rooms, largely of public hospitals. That will drive costs and budget increases and increases in local taxes. Tax savings for the rich will mean tax increases for everyone else.
  • Economic stagnation: The US is a consumer economy. I’ve argued previously that money siphoned from consumers for education, housing and healthcare is money they can’t spend for anything else. One analyst sees 1.1 million jobs disappearing by 2020 with passage of the AHCA. (3)



  1. M. J. Lee, Tami Luhby, Lauren Fox, Phil Mattingley, “Senate GOP finally unveils secret health care bill; currently lacks votes to pass,” CNN, 22 June 2017.
  2. Stephanie Armour, Kristina Peterson and Louise Radnofsky, “Battle Lines Drawn on Health Care,” The Wall Street Journal, 23 June 2017, P. A1.
  3. Josh Bivens, “Millions of people have a lot to lose under the AHCA,” Economic Policy Institute, 21 June 2017.
  4. Federal Reserve Bank of St. Louis, Economic Research. Chart downloaded 25 June 2017.,
  5. Bob Bryan, “Unveiled: The Secret Senate Healthcare bill,” Business Insider, 22 June 2017.

A Different Perspective on Mexico


The monologue on Mexico focuses on those crossing the border into the US. In fact, that’smexico a very narrow view of the relationship between the two countries.

According to the State Department, there are one million US citizens living in Mexico. However,

  • That figure was first reported in 2014. The number has been increasing since. The US government doesn’t  track residents living out of the country as long as they pay their taxes.
    • One US expat realtor reports a 40% increase in home sales in one US expat enclave just in the last year.
    • A commentator in The Guardian estimates the number of Americans living in Mexico as closer  to two million.
  • A number of the US citizens living in Mexico aren’t there legally (estimates vary from 50 to 90 percent). The Mexican government isn’t particularly good about tracking them, and doesn’t deport them. In fact, Mexico abolished a mandatory prison sentence for undocumented immigrants in 2008. Those who have not committed a crime are simply allowed to stay.

CNN reports that there are four reasons that Americans give for moving to Mexico:

  • Climate
  • Culture
  • Cost of living
  • Escaping the US political climate

One American comments that doctors in Mexico are more helpful and enjoyable to visit than are doctors in the US.

It’s cheap. It’s very patient-oriented. It’s like my father practiced in Illinois about 50 years ago, without all the paperwork.

Many Americans, including some in Congress, view Mexico through the prism of an out-dated stereotype. Of course, if that changes, more Americans might move there.


  1. Instituto Nacional de Estadística y Geografíca.\
  2. Adam Taylor, “Mexico has its own immigration problem: American retirees,” The Washington Post, 21 November 2014.
  3. Leyla Santiago and Traci Tamura, “South of the border, US expats have a different take on Mexico,” CNN 24 June 2017.
  4. “News Report: 91.2% of All Americans Who Live in Mexico Are Living There Illegally,” Latino Rebels, 5 March 2017.
  5. Millions of Americans live in Mexico. Can we continue to coexist?” The Guardian, 23 January 2017.

Immigration and the New American Reality


“I don’t want my child to grow up in the US.”

That’s a simple and direct statement from a financial professional who moved to Europe earlier this year. Her child will grow up learning between four and six languages and without the attitude/belligerence she sees in US schools. Plus college and healthcare are free.

Europeans pay high taxes. However, because so many expenses are included in those taxes, they have more money available to spend than most Americans do. That’s driving a faster economic recover in Europe than the US is seeing.

That prompted me to look at the data on migration. What are the trends? You might be surprised.

  1. Both legal and illegal immigration peaked prior to the recession in late 2008. The trends since are downward. The declines started during the Obama administration.
    • The illegal immigrant population peaked at 12.2 million in 2007.(2)
  2. Most illegal immigrants living in the US have been in the US for more than ten years. They are homeowners and taxpayers.
  3. Mexico no longer accounts for a majority of illegal immigrants. The majority now from from a combination of Central America and Asia.
  4. Mexico provides the largest number of LEGAL immigrants to the US. (1) Most Hispanic residents in the US are legal residents. (3)
  5. Recent immigrants from Mexico tend to work in the US for a few years and then return to Mexico. Pew reported in 2012 that net immigration from Mexico was zero, with the number of people leaving the US matching the number entering.
    • This “breakeven” has little to do with US immigration enforcement. People are leaving for a lower cost of living and better social services.

FT_17.04.17_unauthorized_update_2015-1The State Department estimates that 9 million US (non-military) citizens are now residents of other countries. That’s up from 4 million in 1999. However, the government has no formal mechanism for tracking citizens who move overseas. The actual number could be lower or much higher.

  • Seniors are part of the out-migration. Financial advisors recommend considering moves to places like Costa Rica in order to be able to maintain a reasonable standard of living on Medicare. (5)

The US is changing relative to other countries. There are a growing number of valid reasons for not wanting to live here, and that will have an impact on the economy and employment in the future — probably driving more jobs and business investment offshore. Don’t expect driving people and money out of the US to improve job prospects and the economy here. That’s naive in the extreme.


  1. Homeland Security, “Yearbook of Immigration Statistics 2015.”
  2. Jeffrey Passel and D’Vera Cohn, “As Mexican share declined, U.S. unauthorized immigrant population fell in 2015 below recession level,” Pew Research Center, 25 April 2017.
  3. Jie Zong and Jeanne Batalova, “Frequently Requested Statistics on Immigrants and Immigration in the United States,” Migration Policy Institute, 8 March 2017.
  4. US State Department, “CA by the Numbers,” updated June 2016.
  5. “Retire Overseas . . . and Live Better for Less . . . ” International Living, undated.

Economics and Crime


The old saying is that “crime doesn’t pay.” However, crime flourishes where people don’t ben_franklinget paid.

Published earlier this year, the list of fifteen cities with the most rapid growth in violent crime is instructive on several points:

  • They’re medium size or smaller cities
  • They have poverty and lower economic growth
  • They’re primarily in the South and Midwest
    • Alabama (Anniston-Oxford-Jacksonville)
    • California (El Centro, San Luis Obispo-Paso Robles-Arroyo Grande)
    • Iowa (Waterloo-Cedar Falls)
    • Louisiana (Alexandria, Houma-Thibodaux, Monroe)
    • Missouri (St. Josephs, Springfield)
    • Montana (Missoula)
    • Ohio (Mansfield)
    • South Dakota (Sioux Falls)
    • Texas (Abilene, Odessa)
    • Wisconsin (Milwaukee-Waukesha-West Allis)

Monroe is the worst city on the list; violent crime has increased there by more than 80% in the last five years.

Note that the Census combines smaller communities for reporting purposes.

Milwaukee is the largest city on the list, but it also ranked No. 2 on the list of poorest large American cities in 2015. (2) Milwaukee ranked 44th on a list compiled by Wallethub for quality of education; the other cities listed here fell outside the top 150).

The argument — imperfect, of course — is that people who have goals and hope don’t commit violence. Those who think they “can’t lose” due to social status or have nothing to lose, do. Education and job prospects matter.


  1. Michael Sauter and Samuel Stebbins, “Cities Where Crime Is Soaring,” 24/7 Wall St., 9 February 2017.
  2. Bruce Kennedy, “America’s 11 Poorest Cities,” Moneywatch, 18 February 2015.
  3. Richie Bernardo, “2016’s Most and Least Educated Cities,” WalletHub, 25 July 2016.

Why the US Unemployment Rate is a Nonsense Number


The US media are agog this morning with news that the unemployment rate has dropped to 4.3%, “the lowest in 16 years.”

Don’t cheer too quickly.

The US doesn’t calculate unemployment the way other countries do. The percentage is based not on total working-age population but on the number of people who are working or “actively looking for work.” In plain English, if you don’t have a job and you haven’t gone on a job interview in the last week, you’re not unemployed.

That definition of unemployment is consistent with the requirement that states have for collecting unemployment insurance. However, if you are out longer than 26 weeks, state unemployment insurance ends and there’s no point in bothering to report that you’ve looked for work in the last week. So you fall into that odd category of “not working and not unemployed.” People in that odd category are excluded from the calculation of the unemployment rate.

So, the way the US does it, you can be unemployed and not counted as unemployed.

That’s how you can have what actually happened this week:

  • The number of people working dropped
  • The new number of new jobs created by employers was “unexpectedly” low
  • The unemployment rate dropped.

The Wall Street Journal noted the anomaly in the numbers. In a truly tight labor market, one would expect to see wages increasing. However, annual wages increases have stayed around 2.5% despite the declining unemployment rate. The job market simply isn’t as good as the unemployment rate might lead you to believe.

In fairness, on the other side, we have people who work for cash that they don’t report to the IRS. That’s the “gray economy.” It includes people who report only a fraction of their income as well as those who report no income (and might even collect unemployment). It also includes income from illegal activities. We don’t know how large the gray economy is, but there is no question that making ends meet on what most states pay for unemployment is next to impossible.

Why would the US track a number that doesn’t mean anything? One possible explanation has to do with the myth that there are people who are lazy and would rather struggle on unemployment than have a decent job. If such people exist, you wouldn’t want to count them as part of the labor force. However, I’ve never actually met anyone like that, have you?


  • Eric Morath, “Unemployment Rate Falls to 16-Year Low, But Hiring Slows,” The Wall Street Journal, 2 June 2017.