Monday, June 18, 2018

Sample Size of One

Three weeks ago at Noblesville West Middle School in central Indiana, a student left the classroom and returned with two handguns.  He shot one student and a teacher, who heroically tackled him and wrestled the guns away. He was soon taken into custody and charged with attempted murder.

About two weeks later the news came out that the shooter would not be charged as an adult because he is only 13 years old. Indiana law allows children as young as twelve to be charged as an adult for murder but the cut-off for attempted murder is fourteen. Of course, legislature is springing into action to correct this apparent injustice. US News reported that the speaker of the house asked state lawmakers to review the law.

This is a good example of what we used to call in business a sample size of one and is typical of government action.  Someone sees an error, a problem or an accident and wants to fix it.  But that same person, and others who look on, never ask how common is it. Is it common, or is it a fluke?  That never seems to matter.  We don’t ever want it to happen again, regardless.  Laws are changed and new regulations are put in place. Energy and resources are spent on one-off issues just to show that action has been taken.

This reaction is not limited to lawmakers. People do this every day when they accept the word of a friend or relative about the effectiveness of some product or practice instead of looking at the research.  The endorsement of a celebrity or even some unnamed doctor (who it turns out may be part owner of the company) will sway them to send away for a miracle cure advertised on television or on the Internet.

So many times in the past when reviewing scientific research or health studies, I have emphasized the need for an adequate sample size. The exact calculation is somewhat complicated, but a good rule of thumb is that a sample with fewer than 100 subjects is questionable. A small sample with fewer than 30 usually calls for a special statistical approach. But studies make the news where researchers or pollsters work with 15 or 25 (perhaps not even carefully chosen) people and publish results. No matter, a single occurrence cannot even show a trend.

Remember, plane crashes and volcanoes make the news; the 100 deaths a day from auto accidents don’t. And when newsworthy things happen, no one ever stops to ask the questions: what percent are we talking about, how important is it to insure against a similar occurrence or how big is the problem?

So a single incident of a school shooting in Indiana where the shooter happened to be under fourteen leads to a review of the law. I’m sure the lawmakers will feel good about avoiding possible miscarriages of justice in the future, no matter how rare it may be. Do they think that the next thirteen-year-old is going to stop to consider the enhanced penalty, or is it just a matter of fairness to punish a kid, who is probably in far more need of some kind of psychological intervention than decades in prison?

It often takes only a sample size of one to get people so upset and excited that they start demanding action.

Friday, June 15, 2018

Discipline and Spending Sprees

We all have problems with discipline from time to time, especially in the area of spending. Some people are forced to live from paycheck to paycheck out of necessity unable to add anything to savings. Others spend what they have without distinguishing between wants and needs pushing the consequences to the future.

When we hear news about government spending we expect some level of responsibility, assuming that new spending is necessary and productive and that going into debt to support that spending is a prudent choice.  But Americans rarely look closely at the numbers, taking the word of their favorite news outlet or economist as to the wisdom of these choices.

But looking into the numbers is not that difficult and the results should be surprising, even shocking to almost everyone – not because the numbers are unimaginably huge, billions and trillions, but because the perspective over 30 years is so revealing. It’s like raising children.  As a parent you don’t notice the children growing in the same way that a distant friend or relative, who looks at the latest Christmas card photo, does.  It sneaks up on you.

As I said, the numbers are easy to find.  My source is the Federal Reserve Bank of St. Louis.  They post on their website quarterly government expenditures and receipts, seasonally adjusted.  The graphs below represent a different look at each from 1stQuarter 1990 to 1stQuarter 2018.

The first graph shows government expenditures for that period.  What's striking is the apparent acceleration in spending shortly after 2001.

The next graph shows that the increase was real.  I took the average quarterly increase for the 1990 to 2000 period and applied it to the rest of the data. The red bars show the continuation of the trend as a percent increase – rather than as a straight-line trend, which would be lower.  The actual is now in blue.  The appetite for spending seems to have increased disproportionately.

Finally, when I apply government receipts, shown in green, it’s surprising that, even with the much-maligned tax cuts of 2001, had spending continued to increase at the same pace, there would have been another budget surplus from 2006 to mid-2008 just as there was at the beginning of the century, and we would have come very close to still another around 2013 – 2015.

Readers can draw their own conclusions. But perhaps we have a truly representative form of government where elected officials mirror the behavior of many citizens who cannot keep spending under control, acting as if the wants of today are more important than the needs of tomorrow.  Let our children and grandchildren worry about it.  (Keep in mind that the numbers on the x-axis are in billions of dollars!)

Monday, June 11, 2018

Food Labeling

It’s interesting how many food items are being relabeled to take advantage of all the misinformation in the news and on social media. They label food as containing no high fructose corn syrup (HFCS). That simply means it contains sugar instead.  One is no better or worse for you than the other. If something is labeled as containing no sugar, it’s likely to contain an artificial sweetener. There are all kinds of rumors about how dangerous artificial sweeteners are. Some are labeled as no sugar added, but may have more natural sugar than a comparable product without the label. Everyone should easily be able to figure out that these special labels make little difference to the actual wholesomeness of the food. So why do the food companies make such an effort?

Apparently, it’s because most people don’t go to the trouble to figure this out.  The labels are shortcuts allowing them to follow their superstition of choice – yes, superstition. They are no different than the Salem Witch Trials except no one is killed, but they use the same tactics of mass hysteria.  Someone or some group pick up the chant of avoiding sugar or HFCS or artificial anything or GMOs or gluten (for most healthy people) and people choose to ignore evidence and climb on board the Superstition Express. 

One of the worst cases is the anti-GMO movement. The unreasonable opposition to GMOs starves people and adds to climate change. The promise of increased yields from smaller fields along with reduced reliance on pesticides and fertilizers supports the effort to reduce greenhouse gases and should be embraced by anyone concerned about climate change, but they pick and choose their cause. Mitch Daniels, president of Purdue University, calls the stance against GMOs both anti-science and immoral emphasizing the absence of evidence that these products have hurt anyone or have been a detriment to the environment –“no disruption of an ecosystem nor any adverse human health or even digestive problems, after 5 billion acres have been cultivated cumulatively and trillions of meals consumed.” It’s a distraction and political football that keeps good food from hungry people in less-developed countries.

The typical reaction is referred to in this article as the “healthy halo.” Food companies have found that certain labels elicit a positive response, regardless of logic, making consumers more likely to buy and more likely to pay more. To test this, researchers from Cornell University asked 115 shoppers to give their opinions of the value of snack foods based only on their labels. “People thought foods labeled ‘organic’ were more nutritious, lower in fat, and higher in fiber than the ‘regular’ foods, and were willing to pay up to 23.4 percent more for the food labeled as organic.” The difference was in the labels only: all the study participants were eating the same foods. The ink is cheap and the ability to increase the price by over 20 percent merely by adding one word to the label would be a marketing homerun for any company! And millions of superstitious Americans let them get away with it.

The manufacturers don’t care. And if it gives them an advantage in the market, they will even endorse any error or misconception their customers may have. It’s really sad.

Friday, June 8, 2018

Not Enough Babies!

Oh, no!  We're running out of people!

The Washington Post, along with several other news outlets reported a few weeks ago that the birth rate in the US is down. It fell 1% from 2015 to 2016. Why is this news? Is it a problem?

 Apparently it is. The article says we are “in the midst of what some worry is a baby crisis.” The birth rate has been declining for years and is now at a historic low according to the Centers for Disease Control and Prevention. Some predict it will result in “economic and cultural turmoil” and that “there's a danger that we wouldn't be able to replace the aging workforce and have enough tax revenue to keep the economy stable.”

The workforce issue could be a worry if the birthrate falls and stays below the replacement level, unless robots fill some of those jobs that the aging workforce leaves. Of course, the idea of robots taking jobs is another of the worries that the news media presents as a potential crisis! But maybe it would be a good thing.

With robots doing the work, there would not be enough human workers to pay into the Social Security fund that the retirees draw from. But that is already a problem, a flaw in the design of the program rather than a crisis brought about by not enough babies. It is compounded by the inadequate savings of many older Americans, but fewer children would cost parents less and with a little more discipline the may be averted.

Then there is the fact that as economies strengthen and the standard of living improves it is natural for parents to have fewer children. Populations migrate from farm to city, and the childhood survival rate improves as healthcare improves. It happens in every country, not just here. According to the article countries that already have low birthrates are fighting this trend by putting “pro-family policies into place to try to encourage couples to have babies.” 

That smacks of yet another government attempt to sway individual decisions – there is already a tax break for having children and assistance payments are calculated on a per child basis.  Now should programs like mandatory parent leave be added? Do we have people in Washington (or anywhere) capable of fine-tuning the birthrate by turning on and off programs and regulations? Even if we did, is it politically realistic to expect that such benefits could easily be turned off? 

At the same time we have a distress call every summer that children are out of school and will be going hungry because they no longer get free breakfasts and lunches. Charitable organizations are putting together programs to address this problem.  Would more babies compound this problem?  

Finally, since everyone is worried about climate change, isn’t having fewer people burning fossil fuel, otherwise adding to greenhouse gases by eating meat and generally using up the earth’s resources a good thing? Technically, your children and grandchildren are part of your carbon footprint. Maybe this is another case of wanting to clean up the planet by letting someone else do it.

The news media are always eager to pick up on the worries of certain experts even if they seem to conflict with the worries of other experts.  This sounds like another crisis where the experts have already made up their minds about the problem and course of action without looking at the many trade offs and contradictions – puzzling.

Monday, June 4, 2018

Being Misled About Multivitamins

I have been writing about a couple of related subjects lately. Last Monday’s theme was that no amount of consumer protection will keep the charlatans of the health industry from coming up with enticing schemes based on junk science. Americans must use critical thinking to avoid the traps that lead to certain financial loses and possible physical harm. The second is that much of what makes the news as “a new study” or “latest research” is merely a rehash of previous discoveries, traditional understanding or common sense.

Here is another example from last week characterized as a new study, attacking what to many is a “sacred cow,” which is why it has been ignored for so many years.

Canadian researchers found: “Popular vitamin and mineral supplements didn't provide any measurable health benefits to prevent cardiovascular disease, stroke or early death.” They also “found no helpful or harmful outcomes for people who took multivitamins, vitamin D, calcium and vitamin C.” But this was not based on comparing medical records for a large number of people. Instead findings came from a review and analysis of existing information, many other studies mostly around from 2012 through the fall of 2017 – in other words, old news with information confirmed many times over.

A quick search of the Internet yields many of these previous studies. A CBS News story from December 2013 carries the headline: “Multivitamin researchers say ‘case is closed’ after studies find no health benefits.” The advice back then was to save your money because “supplementing the diet of well-nourished adults with (most) mineral or vitamin supplements has no clear benefit and might even be harmful.” Studies backing up this announcement were not trivial. One tracked 24 studies and two trials involving more than 350,000 individuals. A second followed 5,950 older male doctors over a 12-year period under controlled conditions. Another of 1,700 heart patients showed “no difference in rates of another heart attack, chest pain, the need for hospitalization, cardiac catheterization, or rates of stroke and early death between vitamin-takers and placebo-takers.”

Clearly, this is not new. Many professionals have recognized the ineffectiveness of multivitamins for a long time. Five years ago the U.S. Preventive Services Task Force (USPSTF) decided not to recommend the regular use of any multivitamins or of any herbal supplements and recommended against taking additional beta-carotene or vitamin E.

But what about the earlier comment that they found no helpful or harmful outcomes? This comes from the USA Today last summer.  “Taking too much vitamin B6 and B12 could dramatically increase lung cancer in men, according to a new study.” That study consisted of more than 77,000 patients followed for more than 10 years. 

The majority opinion is that these supplements have no benefits, and adverse side effects are possible. So, as this headline reads, why do “Americans Spend Billions on Vitamins and Herbs That Don’t Work”? The numbers vary from one source to another, but the amount spent on vitamins and herbal supplements, which can be far more dangerous, ranges from $30 billion to $37 billion per year, and that number is expected to grow with an aging population and increased health concerns.

Sales typically make up “5 percent of all grocery sales in the United States” with profit margins nearly ten times higher. But despite the high cost and years of research 50% of Americans take at least one multivitamin and about 20%, take other supplements as well. Have they not been paying attention?

The explanation is simple. The power of the industry and the accompanying superstitions that drive people to the magic of supplements and so-called health foods is frightening. As an example, one of the references I cited above proclaiming the dangers and impurities in supplements has an accompanying link to one of those you-may-also-be-interested articles entitled: “11 Vitamins and Supplements That Boost Energy.” After warning of the dangers in the first article, the second sings the praises of a bunch of airy-fairy herbs and chemicals. Everyone should know better, but there is no escaping the hype.

Friday, June 1, 2018

Looking into Financial Rules of Thumb

I recently ran across this site carrying information, pet peeves and rules of thumb about financial advice. After reading through it, and in the spirit of economic understanding as well as last Monday’s comments about how there is always someone out to con us, I thought I would add my two cents.

One of the questions asks how much life insurance a person should buy. The writer was confused and concerned because the answers differed depending on which expert you ask. “Some say your policy should cover five times your annual income. Others say ten times. And Suze Orman recommends 20 times annual income needs.”

The real answer, of course, is that it depends.  Some people need no life insurance. Just as homeowners insurance is designed to cover a financial loss and inconvenience of losing a house to fire or a tornado, life insurance is designed to cover loss of income for some period of time until those who remain behind can work out other solutions. “You only need it if other people — like a spouse or children — would face financial hardship when you die. If you don’t have kids, if your spouse has a good income, or you have substantial savings, then life insurance isn’t a necessity."

He goes on to say: “Even if you do need life insurance, you probably don’t need to carry as much as your insurance agent is willing to sell you,” and recommends checking a site called the Life Insurance Needs Calculator. This calculator still needs to be taken with a grain of salt, but from what we learn here it’s pretty clear that life insurance for a child is unnecessary – the probabilities are low and the financial contribution is zero. So those inexpensive offers sent to grandparents in the mail border on being scams.

A second comment in the article that I took some exception with was the identification of inflation as a “silent killer of wealth.” This is a pretty common theme from financial experts. And it is true that if a person invests $100 modestly at a rate about 3%, ten years later he will have over $130 but the buying power on average will be a little less than when he started out.  It’s really a breakeven strategy at best. People may feel richer but they are no better off.

To earn more than the inflation rate though, requires putting some of the principal at risk. (A 10-year CD from Discover Bank, where you never lose your initial investment, is paying only 2.7%.) To beat inflation over time one must invest in the stock market (or similar instrument more risky than a bond or CD) and ride the roller coaster hoping to hit a peak and not a valley when the money is needed. Advisors help their customers do that, but as we know, past performance does not guarantee future returns.

But not to worry – there is another side of the story. This article reminds us that buying power is not easy to calculate. It gives a list comparing prices of numerous items including: bicycles, stoves, home entertainment systems, slow cookers, gas grills and more, for 1979 and 2015 not only in terms of dollars (for inflation), but also in terms of number of hours of labor required by an average worker to earn that amount.  In all cases there is a steep decline in required labor – and the product quality is much better.  For example, a vacuum cleaner went from 15 hours to 2.3 hours with a vast improvement in the machine itself.

To compare to 1979 is one thing.  If the list used 1959 instead, a microwave wouldn’t even be on it. I read in another source that 100 years ago it would have taken almost 11 months of average wage work to buy a refrigerator compared to a just few days today! That’s why almost no one owned one then and almost everyone owns one now. That’s perspective!

Monday, May 28, 2018

More Junk Science

Almost everyone is interested in making money and possibly even becoming rich. One way to do this is to offer others a product or service that makes their lives easier.  We buy bread at the store or at a bakery because we save the time it would take to bake the bread and the people who work there are usually better at it. The same general concept applies to almost all grocery items, entertainment, furniture and household appliances, vehicles, and everything else we buy. By exchanging goods and services in this way, we are really exchanging talents, each doing something for others thereby allowing them to use their talent to our benefit.  We use money to keep track of most of these exchanges.

Economic understanding leads to the conclusion that we can all be better off, enjoying a higher standard of living. By this talent exchange, everyone playing his or her role, the economic “pie” gets bigger and everyone benefits.

Another way to get rich is to fool people into thinking that a product or service will make their lives better, selling them something of little or no value for a price that is justified only by the hype. This is widespread, but is particularly common in the areas of health and diet. It is also not new. Medicine men and snake oil salesmen date back centuries.

When we patronize these businesses, we are parting with money that could be used for a real benefit and getting nothing of value in return. How can the standard of living improve when people are spending on lies and false hope? Somebody is getting rich, but they are not doing it by making lives better. Their talent is persuasion, and they employ all the tricks.

I am reminded of this when I see articles represented by this series of headlines from a newsletter called Consumer Health Digest, which is published weekly to warn of medical frauds and to expose some of the wrongdoers.  Here is just a sample:
  • “Former holistic nutritionist confesses" that what she had learned in school and practiced for many years was based on “limited education” and a “lack of respect and understanding for real science.
  • “QLaser marketers sentenced” to 12 years in prison for selling “medical devices with false and misleading labeling in order to defraud consumers,” in one case to the tune of at least $16,669,015.
  • “Funeral homes failing to disclose pricing information” – some do not offer the information as required by the FTC intended to keep them from taking advantage of grieving families.
  •  “Beautician sentenced for illegal buttocks enhancement injections” to 24 months in jail for “receiving and delivering an adulterated and misbranded medical device” while charging thousands of dollars per treatment.
  • “Studies Show that Liberation Therapy for Multiple Sclerosis Doesn't Work.
  •  “Discredited, alarmist HPV vaccine study retracted” – A journal retracted an article incorrectly blaming the vaccine for side effects such headaches, fatigue, and poor concentration based on a few anecdotal reports.
This is just a sample from 3 weeks of newsletters, but should serve as a reminder of the importance of critical thinking in the area of healthy living and medicine.  There are people out there, just as there have always been, more than willing to take your money based on false promises and magical answers.  As technology moves forward we get more real cures and procedures that seem miraculous, but that opens the door for even more sophisticated charlatans ready to take advantage of the desperate, the lazy, the unscientific and those who put their faith in unproven methods.  We can’t and shouldn’t expect the FDA or the FTC or some consumer protection organization to have our backs in every case. Sometimes critical thinking is nothing more than looking out for yourself.