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I read over the referenced Brookings paper and I can't make any sense of it. The paper doesn't really define what they mean by "wealthy" and "poor" (which is a

by kens 13y ago

I read over the referenced Brookings paper and I can't make any sense of it. The paper doesn't really define what they mean by "wealthy" and "poor" (which is a red flag). It seems like they define "wealthy" as having a nonzero amount of illiquid assets, and "poor" as having a zero amount of illiquid assets. This is crazy - if you have one dollar in home equity, you are wealthy by this definition. The paper's main conclusion is that 1/3 of people living hand-to-mouth [hand-to-mouth is the paper's term for having no liquid assets] are poor, and 2/3 of them are wealthy. But I couldn't find any data on what fraction of the population is "poor" and what fraction is "wealthy", which makes it impossible to interpret this result. Are "wealthy" people more or less likely to live hand-to-mouth than "poor" people? I couldn't figure that out from the paper. The Atlantic article also seems to be totally wrong in interpreting the paper, saying the "wealthy" have at least $50,000 in illiquid assets. The paper, however, says "the [wealthy hand-to-mouth households] typically hold sizable amounts of illiquid wealth: for example, the median at age 40 is around $50,000." Confusing the minimum amount of wealth with the median amount of wealth is a huge, huge error that totally changes the meaning. If anyone could figure out what this paper is really saying, I'd like to know (not sarcasm). Link to paper: http://www.brookings.edu/~/media/projects/bpea/spring%202014/2014a_kaplan.pdf http://www.brookings.edu/~/media/projects/bpea/spring%202014...

jpmattia 13y ago
Warning: Cynical poster alert. Modern economics is inextricably entwined with politics. Look at the last line of the conclusion: > Second, we showed that the model that allows for W-HtM behavior implies that to maximize the aggregate consumption response to scal stimulus payments, the payments should feature more moderate phasing out with household income. During the economic shock of 2008, there was a fiscal response applied that was pretty much formulated in the wake of the depression: Give money to folks who are very poor (unemployment, welfare, foodstamps), who will then boost the economy a bit because they will not save/hoard the money or go tie up wealth in long-term assets. The current paper is pointing out: "Hey, there are wealthy people living hand-to-mouth. If you give money (= "fiscal stimulus") to them, you will achieve a boost in the economy as well." Who knows, maybe the conclusion is right. But god knows how you'd achieve any confidence that the conclusion wasn't a function of the authors' funding.
- gohrt 13y ago
  This is explains all the counter-intuitive formulations and statistical errors in the paper; thank you for highlighting it. Really, though, this sort of thing happens every single time an _Atlantic_ story is posted.
maxerickson 13y ago
I skimmed over it earlier. They are reasonably consistent in saying "wealthy hand to mouth", which I think is at least a strange construction, but it is clear enough in describing a particular group (they do define it as you say, having some non liquid assets, but they don't take the next step and say that this makes them wealthy in any unqualified sense). They put the total number of hand to mouth households at about 1/3 (in the U.S., paragraph 2 of their page 4, pdf page 6). The last few paragraphs seem to sum it up well enough, they think that this analysis and some of their modeling work point to some changes that could be made in fiscal stimulus programs (to make the programs have a larger impact).

by kens 13y ago

jpmattia 13y ago

Warning: Cynical poster alert. Modern economics is inextricably entwined with politics. Look at the last line of the conclusion: > Second, we showed that the model that allows for W-HtM behavior implies that to maximize the aggregate consumption response to scal stimulus payments, the payments should feature more moderate phasing out with household income. During the economic shock of 2008, there was a fiscal response applied that was pretty much formulated in the wake of the depression: Give money to folks who are very poor (unemployment, welfare, foodstamps), who will then boost the economy a bit because they will not save/hoard the money or go tie up wealth in long-term assets. The current paper is pointing out: "Hey, there are wealthy people living hand-to-mouth. If you give money (= "fiscal stimulus") to them, you will achieve a boost in the economy as well." Who knows, maybe the conclusion is right. But god knows how you'd achieve any confidence that the conclusion wasn't a function of the authors' funding.

gohrt 13y ago
This is explains all the counter-intuitive formulations and statistical errors in the paper; thank you for highlighting it. Really, though, this sort of thing happens every single time an _Atlantic_ story is posted.

maxerickson 13y ago

I skimmed over it earlier. They are reasonably consistent in saying "wealthy hand to mouth", which I think is at least a strange construction, but it is clear enough in describing a particular group (they do define it as you say, having some non liquid assets, but they don't take the next step and say that this makes them wealthy in any unqualified sense). They put the total number of hand to mouth households at about 1/3 (in the U.S., paragraph 2 of their page 4, pdf page 6). The last few paragraphs seem to sum it up well enough, they think that this analysis and some of their modeling work point to some changes that could be made in fiscal stimulus programs (to make the programs have a larger impact).