A Few Thoughts on Nobel Prize Winner Richard Thaler

Richard Thaler, economist and professor at the University of Chicago, was awarded the Nobel Prize in Economic Sciences earlier this week. There were a few good pieces about Thaler this week that are worth citing.

This column at Bloomberg emphasizes the positive role Thaler has played in improving the average American worker’s chance of saving enough for retirement. Thaler has been a public advocate of automatic enrollment of employees into retirement plans (e.g. 401(k)) for at least a decade. He also has recommended the implementation of auto escalation of one’s savings rate over the course of a career. Auto escalation (e.g., save 1% of your income in Year 1, then increase by another 1% each year going forward) can drastically increase a person’s total savings by the end of their career.

Thank Thaler for higher auto enrollment rate of retirement plans

Jason Zweig at WSJ mentions an anecdote from Thaler in the mid-1990s about the average person’s habit of delaying investment of their savings until a later date. Thaler’s assessment: “what investors fear even more than losing money is having to say ‘What an idiot I am.’”

This characterization of Thaler by Zweig is also great: “Much of Prof. Thaler’s contribution comes from a mindset more investors should try to emulate: He sees the world as if through a child’s eyes, as something wondrous and strange, as it is. To him, a consensus doesn’t confer authority; it calls his attention to the odd assumptions you have to make to believe in it.” Fellow Nobel Prize winner Daniel Kahneman agrees with Zweig: “He’s an ironic observer: He looks at the world, and the world looks funny to him.”

One last takeaway that Kahneman makes about Thaler that we can apply to our own work: Thaler’s ratio of home runs relative to average hits in his research is very high. “He has never wasted his time on problems that didn’t matter.”

Last, fellow economist Tim Harford wrote a congratulatory column about Thaler. He finished with this: “Mr Thaler’s catch-all advice: whether you’re a business or a government, if you want people to do something, make it easy.”

Why Immigrants Still View America as a Great Opportunity

I suggest reading this 8 paragraph post in an investor forum in its entirety. It comes from a 36-year old Chinese national who immigrated to the United States as a child in the 1980s. He walks through why Chinese residents looking for a better life abroad are more likely to find it in America than in Japan, Hong Kong, or Taiwan.

If his family had gone to Hong Kong, they could make a far better wage than they could in their rural Chinese town, but it would only be a short-term fix. Hong Kong is a tough place to build a life because the wealth disparity is far worse than it is in the US.

In Japan, there is no way for a Chinese citizen to gain legal status. There is also still discrimination against Chinese immigrants.

The US provides the most apathetic environment to an immigrant willing to work very long hours to make a small business work. Customers do not mind they are supporting immigrants if they products or service is a good value. Lenders and landlords will also support the owners if the business model is reliable (e.g., Chinese immigrants running a Chinese restaurant). This is very different from other countries where large bribes must be paid just to get a permit to start a business or rent a small workspace.

The children of these Chinese immigrants have had success in reaching college and graduating with valuable degrees. An interesting wrinkle though is more of the recent grads are returning to China because they are finding better work opportunities in venture capital and tech without the risk of ethnic discrimination in the workplace.

Source: User “BG2008” on the Corner of Berkshire and Fairfax forum

US City Neighborhoods Remain Divided by Education

It’s amazing how geography professor Kyle Walker has been able to visualize city populations like the image below. The color coded dots in this case relate to how much education the residents in those areas received growing up.

Blue dots are graduate degrees, green are bachelor’s, yellow are some college, orange are high school, and red is everything short of high school.

Unfortunately, the clear divide in education across boroughs in New York City is evident in most of the thirteen city maps shown in this link. I recommend scrolling through them as they are fascinating to see and send a message that is hard to ignore.

New York City is one example of division across neighborhoods by population

Source: Chris Weller at Business Insider/World Economic Forum

How Prices Have Changed in USA in Last 20 Years

I can’t place the chart from Our World in Data in this post, so please click on this link to see for yourself. It’s an excellent view at what’s gotten cheaper and what’s gotten more expensive for US consumers.

As a comparison against each component, total inflation for all goods and services is +52% from 1997 to today. That’s about in-line with inflation in housing prices and food/beverage costs.

Not surprisingly, price hikes in education and health care are much higher. Luckily, prices of cars, clothes, TVs, and other electronics have not budged or gotten a lot cheaper.

One Rising Inequality Factor: Outsourced Services Jobs

From Neil Irwin at The New York Times:

Today, there is little opportunity for support services workers (e.g., janitors) to move up to more skilled, higher paying jobs at their current places of work. This is because many of these jobs have been outsourced by the large corporations to contractors.

The rationale for the corporations makes sense. Outsourcing has saved them money, and these were services that were not core to the companies’ operations. The unfortunate consequence is the individuals still performing these jobs no longer have anyone looking out for their best interest in the long-term.

The $16.60 per hour Ms. Ramos earns as a janitor at Apple works out to about the same in inflation-adjusted terms as what Ms. Evans earned 35 years ago. But that’s where the similarities end.

Ms. Evans was a full-time employee of Kodak. She received more than four weeks of paid vacation per year, reimbursement of some tuition costs to go to college part time, and a bonus payment every March. When the facility she cleaned was shut down, the company found another job for her: cutting film.

Ms. Ramos is an employee of a contractor that Apple uses to keep its facilities clean. She hasn’t taken a vacation in years, because she can’t afford the lost wages. Going back to school is similarly out of reach. There are certainly no bonuses, nor even a remote possibility of being transferred to some other role at Apple.

Yet the biggest difference between their two experiences is in the opportunities they created. A manager learned that Ms. Evans was taking computer classes while she was working as a janitor and asked her to teach some other employees how to use spreadsheet software to track inventory. When she eventually finished her college degree in 1987, she was promoted to a professional-track job in information technology.

Less than a decade later, Ms. Evans was chief technology officer of the whole company, and she has had a long career since as a senior executive at other top companies. Ms. Ramos sees the only advancement possibility as becoming a team leader keeping tabs on a few other janitors, which pays an extra 50 cents an hour.