Friday, August 18, 2017

Homeowner's Insurance - a Different Perspective

About the middle of April there was an isolated hailstorm in the neighborhood.  A few miles away was nothing, but on my block and in the immediate surrounding area houses and cars suffered some damage.  The hail tore window screens, chipped and cracked vinyl siding and (supposedly) damaged roofs.

I looked at the damage to my house and decided I could repair six screens myself, and with the help of a friend I repaired the siding damage with leftover siding from the matching shed that the previous owner built in the backyard.  The roof looked OK.  Total cost was about $30.

Over the next three months, however, driving through the neighborhood was like walking down the aisles of a home improvement show.  On well over half the lawns were signs from a dozen or more siding and roofing companies.  The hammering went on constantly, even on weekends.  The siding color on at least half of the houses in my subdivision has changed since Easter.  (Many of them are less than 10 years old.)

Everyone understands the typical thought process: “I paid all that money every year to the insurance company and now it’s time to get some back.”

A couple of things occurred to me.  First I assume the actions of my neighbors will raise my insurance premiums regardless of whether I filed a claim and regardless of whether they have the same insurance company.  Insurance companies are driven by risk of future claims as much as by today’s claims.

Second, this seems very much out of sync with the history of property insurance as I understand it.

Back in colonial times, and even more recently in the rural areas, when someone had a loss the community would often work together to fix it.  If a barn burned down, neighbors would have a barn-raising event where everyone would pitch in.  Wikipedia explains these events were particularly common in 18th- and 19th-century America.  If a family was in distress, finding a job too big to manage alone, the problem was solved by “enlisting members of the community, unpaid, to assist in the building of their neighbors' barns. Because each member was entitled to recruit others for help, the favor would eventually return to each participant.”  That was the custom.

Soon in the cities this practice faded away, but people still needed protection from destructive acts of nature.  Insurance took the place of community action.  Companies administered the insurance by collecting from everyone and distributing the money to those in need.  That change replaced the act of contributing tools and labor toward the erection of a new barn with an insurance payment.

No one in those 18th century communities would imagine thinking, “Great, my barn is burning.  Now I can get paid back for all the times I had to raise someone else’s barn.”  This would be a very silly reaction.  Weird as it may sound, seen from this perspective, paying premiums to an insurance company is not a cost of owning a house, but an act of helping your neighbors and contributing to the community.

Sure the insurance companies haven’t done much to instill this kind of attitude.  They always act like the reluctant neighbor that doesn’t want to pitch in.  But this attitude may be healthier than resenting the annual premium payment and rejoicing when some major or minor disaster brings the opportunity for monetary revenge.

Monday, August 14, 2017

Anticipating Panic About Tax Reform

I noticed in passing a sense of panic among a number of people over the proposed GOP tax reform plan.  I went on line to try to find the source of the information and found articles from January and April of this year and from August 2016 (based on campaign promises), but nothing about a current proposed plan.  I finally tracked down the source of the information, a local newsletter with no references cited.

The newsletter was consistent with those older sources, warning of the loss of itemized deductions and personal exemptions as the standard deduction is raised to $24,000 from the 2016 level of $12,600.  The tone was the same.  Loss of those deductions (medical expenses, state income and property taxes, home mortgage interest, gifts to charity, casualty and theft losses, and some job expenses) would be a hardship on the middle class.  This got me thinking about taxes and deductions.

Several references told me that 45% of households pay no income taxes at all.  These are typically those who don’t earn enough (not the rich using loopholes).  Their attitude should be, “Reform away; we don’t care!”

Another source tells that only about 30% of filers use the itemized deduction.  That means that only about one in six households has any stake in the outcome of this debate.  And most of those are in the upper income range.  As this graph shows the 30% average becomes 60% for those above 75k, almost 80% for those in the 100k to 200k earnings range and almost 95% for those households making over 200k per year.  The number who shouldn’t care increases to 5 out of 6.

Next let’s look again at itemized deductions vs. the standard deduction for a sample lower income family.  Remember, itemizing only starts to matter once you hit the standard deduction, because that is what you get anyway without doing anything or keeping any records.  On top of that, medical expenses don’t count until you have spent 10% of income.

For a household making $68,000 per year, approximately 20% above average, under the old plan they would subtract $12,600 and $4050 for each exemption (use $12,150 assuming a family of 3) and pay 15% of the remaining $43,250.  Under the new plan they would subtract $24,000 and pay at only 12% of the remaining $44,000.  How high would their itemized deductions have to be under today’s system to pay the same amount?

Surprisingly the answer is $32,800 (plus $6,800 more if the medical bills are used to qualify) in itemized deductions!  That’s an unusually high number of deductions for a fairly modest income.  It’s logical to conclude that any low to middle income family hurt by this would be a rare exception.

So what we are left with is speculation on what the proposal would look like and typical exaggeration about how many it would hurt and how severely.  From this cursory overview it seems the ones who would be most affected are those who buy big, expensive houses or who give to charity as a tax strategy rather than out of generosity or those unfortunates with very high medical expenses.

The problem is that I doubt anyone will look at it even this thoroughly.  Instead the parties will fight back and forth expressing shock and outrage (more outrage!) at the “rhetoric” of the other side.

Think of how easy it would be for someone to post a simple spreadsheet form on line and let each family calculate the difference between any new proposal and the current system.  This way after filling in a few numbers, everyone would know approximately where they stood without the breathless hyperbole and political spin.  Does anyone want to bet we see this kind of critical thinking scenario instead of the usual anxious generalizations about hurting the middle class or favoring the rich?

Friday, August 11, 2017

Consider The Source

When I was in high school, our English (language arts?) teacher taught us to challenge everything we read.  See who the author is.  Does he or she have the expertise required?  Is there a hidden agenda or built-in bias?  How does this come across in the story, book or report?

Now here is a story that hit the news earlier in the week.  I picked it up from Yahoo News, but it also appeared in Forbes, the AP and several other outlets.  “Many Google employees have expressed outrage over a document in which a senior Google engineer reportedly claims that biological gender differences make women less effective programmers and argues that the company should not actively work to improve diversity in staffing.”

Wait a minute!  This guy is a computer engineer.  Do we expect him to know anything about biological gender differences?  I certainly don’t.  In fact, the statement shows that he is somewhat ignorant on the subject.  Later in the article it states: “There is no evidence that women are inherently less skilled coders than men.” Additionally, about a year ago the Guardian published the results of a study showing that a peer review of work “approved code written by women at a higher rate than code written by men, but only if the gender was not disclosed.” 

(This is the same kind of gender bias that infected many symphony orchestras until they started holding auditions behind a screen.  It also shows up when we hear of a female visual artist after being  overlooked for many years finally getting recognition.  What were the critics looking at instead of the pictures?  The problem has clearly not been confined to Silicon Valley.)

The conclusion in this case:  He doesn’t know what he is talking about.  He has no particular expertise in the field.  This is easy – consider the source.  The leaders of the company should take him aside and require behavior that does not reflect this error in judgment or if they didn’t think that was possible, fire him.  No outrage necessary.  Problem solved.  (As it turned out, he was fired.)

But also consider this next paragraph of the story.  “The document is a personal statement not sanctioned in any way by the company, but has been circulating widely within Google.”  Of course it’s been widely circulated.  You can’t be outraged without sharing your outrage with as many other people as possible.  That’s no fun.  And the media likes nothing better than a case of outrage to feature in headlines to help spread the outrage around.  This becomes not a Google issue to deal with, but another national crisis.

In America, the truth is no longer something sought out and discovered.  The truth is voted upon – by voice vote, usually shouting.  If you are outraged, you tweet or post on Facebook or start a petition.  The point is to get likes and shares and signatures and others shouting about it.  Spread the outrage!  That’s how you win for your point of view.  It’s not a matter of a simple counterargument with better facts.  Especially when there are no legitimate facts to support a particular point of view, outrage becomes the only avenue.  Unfortunately it has become a habit, even among those who, as in this case, are clearly in the right and have the facts on their side.

Maybe we need a little less outrage, which can easily turn into bullying to cut off all debate, and more actual conversation.  Maybe we need Americans to follow the consider-the-source rule and not cling to the pronouncements of every actor, musician, politician or scientist with a different field of specialization on subjects they are not in the least bit qualified to represent, for example, economics, climate, nutrition and vaccinations.  Sure, they have a right to express opinions, but the fact that their opinion is no more valid than almost anyone else’s too often goes unchallenged.

Monday, August 7, 2017

Linked To Does NOT Mean Causes

Recently I came across this Washington Post headline:  “59,000 farmer suicides in India over 30 years may be linked to climate change, study says.”  The article explains that a researcher looked back almost 50 years comparing data and climate information and “concluded that temperature may have ‘a strong influence’ on suicide rates during the growing season.”  Note the words “may have a strong [but unspecified] influence.”  The researcher goes on to project an increase in the number of “lives lost to self-harm” in India.

What are we to make of this?  The number of suicides correlates to the temperature.  Is Global Warming to blame?

Correlation is a mathematical expression of how closely any two measurements move relative to each other.  If the first one gets larger at exactly the same rate as the second, the correlation equals 1, a perfect positive correlation.  If the first one decreases at exactly the same rate that the second increases, the correlation equals -1, a perfect negative correlation.

In our imperfect world this rarely happens, so a correlation of 90% seems to indicate that the two measurements are moving very closely together.  A correlation close to zero shows no mathematical relationship.  The math is not difficult.  A laptop can do it easily and show the graph with points either closely tracking each other for a strong correlation or looking like a random scattering of points for a weak (near zero) correlation.

The most important thing to understand about correlation is that correlation is not causation!  This is a major point of emphasis in every first year statistics class.  Just because two things vary together, they are not necessarily related in any way.

Lots of things get bigger together and are related, like the size of a tree and the amount of lumber available from the tree or the number of pizzas (or amount of beer) needed to feed guests at a party – more people = more pizza.  Gas mileage (MPG) may be related to the size of a truck, the power of the engine or the weight of the load.  These correlations are easy to explain.

When two measures are correlated, sometimes one influences the other, or perhaps they are both affected by some unseen common factor.  Often though, two measures are mathematically related but have no logical link.  Some websites specialize in finding odd examples of these supposed relationships.

Here is one I’ve used before telling about a study correlating dog ownership with eating eggrolls, eating cabbage with having an innie bellybutton, and many others.  Another site, with lovely graphs, correlates the divorce rate in Maine with consumption of margarine, consumption of cheese with the number of people who died by becoming tangled in their bed sheets and several more entertaining examples.  There is the joking relationships between the stock market and skirt lengths or the stock market and the conference of the team that won the last Super Bowl.  I wrote last year about the journalist who compared many measurements and found a surprising correlation between eating dark chocolate and weight loss in one data set.  He later admitted that it was bad science and should not be taken seriously.  If you look hard enough, you can find all kinds of weird examples of data that correlate just by coincidence.  That’s what makes it tricky.

The use of correlation is quite common in studies about health and other areas.  Studies find a mathematical relationship and use the magic word linked.  An action or habit is linked to a healthy or unhealthy outcome.  Eating A is linked to longer or shorter life.  Researchers find relationships that may be the direct, pizza supply to number-of-guests, kind or it may be the cheese to death-by-bed-sheets kind.  But at that point it's only math, not reality.

This is what came to mind when I saw that headline.  To be fair, the researcher tries to explain how there can be an other-than-mathematical relationship.  “High temperatures in the growing season reduce crop yields, putting economic pressure on India's farmers.”  I think any farmer can tell you that weather often increases economic pressure, but how often does that lead to suicide?  Don’t we need more than just two sets of numbers to compare on a graph?  Is this reality or just math?

Whenever critical thinkers hear the word linked, they know someone has found a mathematical relationship.  Researchers hope to discover a real relationship so they can use the word causes, as in action A causes outcome B, but that is much more difficult.  Understanding this is very important to keep from panicking over the latest headline, insisting that someone do something or trying to persuade friends and family to change eating habits to avoid catastrophe.  You don’t have to be a math or statistical wizard to know that linked is not necessarily the same as causes.

Friday, August 4, 2017

Bogus Teflon Warnings

Back on July 10 as I was reviewing my favorite posts, I recommended questioning and researching to find evidence of scientific findings.  This is strong behavior when making health-related decisions.  The opposite, and what seems to have become prevalent with the ability for social media to spread misinformation far and wide and instantaneously, is the habit of basing health-related decisions and beliefs on rumor, gossip and hearsay.

This came up again recently as a neighbor remarked that she was replacing her old cookware because the Teflon was chipped or cracked.  She warned us that eating food cooked in those pots causes cancer.

Poor behavior on my part would have been to accept this information without question.  I had a vague feeling I had heard it somewhere before.  Also, Teflon, a brand name for polytetrafluoroethylene, is a manmade chemical – warnings about the dangers of which fly around the Internet almost every day.  Even the word chemical alone is a red flag to many.  As a result, this assertion may seem reasonable to the average person.

Despite the apparent validity of this warning, positive behavior on my part would be to do a little research before throwing away old, possibly perfectly good cookware based on the word of a neighbor (or a celebrity or a newscaster or even a scientist or doctor with expertise in a different field).  It didn’t take much time to find what I needed.

According to a website called homeguides, “The Food and Drug Administration advises that the chips [in Teflon cookware] pose no health hazard when they pass through the body.”  Apparently, most of the fear is derived from another manmade chemical, PFOA, which is used in the process of making Teflon.  “However, the Environment Protection Agency reports that Teflon doesn’t actually contain PFOA so there is no health hazard from using it.”

It’s smart to check more than one source, and with the Internet at one’s fingertips it’s easy to do.  The American Cancer Society lists Teflon and PFOA as a subject for discussion.  They state clearly, “Teflon itself is not suspected of causing cancer.”

Other than the possible risk of flu-like symptoms from breathing in fumes from an overheated Teflon-coated pan, there are no known risks to humans from using Teflon-coated cookware. While PFOA is used in making Teflon, it is not present (or is present in extremely small amounts) in Teflon-coated products.”

Furthermore on the subject of PFOA itself, they look to the experts citing the International Agency for Research on Cancer (IARC), part of the World Health Organization.  “One of its goals is to identify causes of cancer. IARC has classified PFOA as ‘possibly carcinogenic to humans’ (Group 2B), based on limited evidence in humans.”  But the EPA’s position is equally vague:  There is “suggestive evidence of carcinogenicity, but not sufficient to assess human carcinogenic potential.”

What we have then is an urban-myth cancer scare over something that is perfectly safe because it is only peripherally associated with something that may (or may not) be a problem.  To find this out takes only about 15 minutes.  Why wouldn’t everyone do it and promote the spread of valid information?

It’s much easier to listen to neighbors, celebrities and the media (social and otherwise) and get faulty information, worry needlessly about fantasy dangers and put hopes into fantasy cures.  In this case, we only throw out perfectly good pots.  But the typical reaction in America on so many similar subjects is to jump to conclusions based on endorsements and opinion rather than evidence.  We then become prey to advertisers using these false notions to sell more of what we don’t need with features that add no value.