Marginally Thoughtful

First, a brief apology to my small audience: I don’t think one can really call a blogging hiatus after two articles. I passed my qualifying exams this June, and it’s taken three months of Netflix and Steam to rehabilitate me. I should now be back to a regular posting schedule.

Today I want to start with a brief explanation of the Availability Heuristic. Discovered in 1973 by Daniel Kahneman and Amos Tversky (the psychologists who fathered behavioral economics), the Availability Heuristic is a mental shortcut we use to make probability judgments about uncertain events. Put succinctly, we use the ease with which we can recall examples of an event as a proxy for its actual likelihood. This doesn’t often work in our favor: it leads us to rely heavily on anecdotes in the face of statistical ignorance, and the way in which we receive anecdotes is itself heavily biased.

The Availability Heuristic is one of the major channels through which we internalize racism from society at large and especially from the media. We are bombarded with images of the violent Black criminal – it is practically a meme for televised news – and we incorporate these examples into our probability judgments. Even though Black-on-White crime is rare, its selective over-reporting leads us to over-estimate its dangers; this in turn colors our interactions with Black people (especially men).

One product of my first post was a number of death rates per 100,000 from interracial murder in 2009. To demonstrate just how skewed media coverage and our resulting perceptions are, I combined the death rate of non-Hispanic Whites from murder by Blacks (0.0806) with a list of other death rates for non-Hispanic Whites for 2009 from the CDC. The other death rates can be found here, in table 15 of “Deaths: Final Data for 2009.” My combined list, sorted by frequency, follows.

I think this speaks for itself.

Federal student loans have become the latest Big Issue in Washington. With current interest rates on subsidized Stafford loans set to double on July 1st, Democrats and Republicans alike are scrambling to pass legislation extending the current 3.4% rate for another year. And while both parties have actually agreed on the extension, they disagree on how to raise the money to cover the $6 billion in added costs. Republicans want to take the money from a ‘slush fund’ within the Affordable Care Act; Democrats want to take the money from a tax hike on the rich.

Both proposals miss a crucial point. Student loans are not spending. Student loans are loans. In particular, student loans are very reliable loans - partly because there are fewer protections for students who borrow from the government than those who borrow from the private sector (of course, private sector rates are very high for those without the luxury of a wealthy co-signer). Federal student loans cannot typically be discharged by declaring bankruptcy, and the government can garnish wages or withhold tax rebates to collect missed payments.

The consequence: even when student borrowers default, the federal government collects more than 90% of what it’s owed (page 31 here). The Department of Education (same source) estimates the default rate for the 2013 cohort of subsidized student loans at about 23% - meaning that about 23% of borrowers (technically 23% of loan dollars) are expected to be behind on payment at any given time. If this seems unusually large, it is - we’re still deep in the Great Recession, and many graduates are unable to find work.

Knowing these statistics, we can do some quick calculations. The federal government makes subsidized loans at 3.4%. It collects 100% of the 77% of loans in good standing, and 90% of the 23% of loans in default. Then the government expects the overall return to student loans to be about 3.07%:

Meanwhile, 30-year government bonds are trading at around 3% interest. Conveniently, at the time of writing the yield on 30-year treasury bills is 3.07%.

The solution is clear: borrow the money. If the government can borrow at the same interest rate it receives from students, selling bonds to finance subsidized student loans is revenue-neutral.

In reality, all these numbers move around over time. Such a plan might cost the government a fraction of a percent of that $6 billion figure, or earn the government a fraction of a percent. But when one considers student loans as loans, the 'problem’ of financing them can be seen for what it truly is: election-year posturing.

The Trayvon Martin story has generated a lot of backlash from conservative commentators. While most of it has been the usual thinly-veiled racist vitriol, some have coyly pointed out things like “only 3.2 percent of black victims were murdered by whites in 2005, the last year for which data are available. The black-on-white rate was higher — 8.8 percent.”

I’ve seen this statistic cited in a couple different places (though I only recall the one offhand), and a quick search tracked it back to this BJS webpage. There’s a problem; while technically correct, this statistic makes a subtle deception.

“8.8 percent” is the answer to a strange question: “given that I am White, and given that I have been murdered, what is the probability that I was murdered by someone Black?” What we really have in mind, however, is “Given that I am White, what is the probability that I will be murdered by someone Black?”

It turns out that probability is much, much lower. This stems from two distortions:

1. The percentage of the population that identifies as Caucasian for Census purposes is relatively large: roughly 250 million, or about 83%.
2. As someone White, my chances of being murdered at all are very low.

To create a statistic that answers the question we’re actually interested in, I went to the FBI Supplemental Homicide Statistics for 2009, the last year for which data are actually available. I used this handy tool from the CDC to get some population estimates, and came up with these numbers:

• In 2009, excluding ‘justifiable homicides’ like self-defense and police shootings, there were 691 Black-on-White murders and 304 White-on-Black murders.
• In 2009, the White population (incl. Whites of Hispanic origin) was estimated at 246,978,488 and the Black population was estimated at 40,999,984.

The Results: For 2009, the Black-on-White murder rate was about 0.28 per hundred thousand. The White-on-Black murder rate, by comparison, is about 0.74 per hundred thousand. This means Blacks are about 2.65 times as likely to be murdered by Whites as the other way around, almost exactly flipping the ratio quoted from the deceptive BJS statistic.

Of course, this is hardly a perfect comparison. There’s room for argument about the role of 'justifiable homicides’ - if I include them in the calculations, that 2.65 ratio rises to 3.77. For the 'Hispanic deniers’ out there, considering only non-Hispanic Whites lowers the ratio to 1.63. It’s also clear the population is not evenly distributed by race, so the numbers should be weighted to take that into account (the FBI data include region, so doing this is possible). I’ve also only used data from 2009, whereas data are available for about the last forty years. The point, however, is that a few minutes in Excel with some publicly-available data can quickly show just how wrong that 8.8%-3.2% ratio is.

Note: Sometime this summer, I plan on making a miniature project of combining the available data into some more useful form. If there’s sufficient interest, I’d be happy to make this available in something open-source instead of my usual Stata.