Thank you for your response. I guess the discrepancy you’re pointing out is mentioned on page 19, para 2 of the IPS report, which begins: “This report focuses on a measurement of household wealth developed by the New York University economist Edward Wolff that differs from the Fed’s net worth calculation in that it excludes durable goods such as automobiles that can’t be converted into cash without dramatically reducing their value.”
So, they use the Fed report verbatim, except for this one calculation, where they take up this external model of debt, and then give a hand-waving explanation for why they do so. Is this model accepted by other economists? The only rationale given is a reference to another of Dr Wolff’s papers, and then a few more studies that they themselves have published. This is…not great.
You mention also that the Fed report disregards other forms of debt common in poorer communities, pointing out payday loans in particular. But that’s simply not true, as they are specifically mentioned on page 30, paras 3 and 4. There’s a breakdown of debt holdings beginning on page 22.
To me it looks a lot like these folks were looking very hard to find the conclusion they wanted. You mentioned that the Fed report seems to underestimate credit card debt by (more than) a factor of two. That would be a remarkable feat of incompentence on their part. May I ask where you came up with that figure, and is there independent data backing it up?
The Fed (and IPS) only has access to the initial sale value of a vehicle, without depreciation or consideration of the actual condition. I prefer Wolff’s approach, because the real-world value of a car that starts out at $25k is often sub-$10k within 5 years, or sometimes MUCH less. Meanwhile, the Fed’s just cruising along assuming that car is worth $25k. Likewise for other depreciating assets.
I did read that, but I reject that they could capture it all. Payday loans are notorious for being very poorly tracked. Several articles criticizing the payday loan industry have documented their shitty record-keeping, to the tune of several multiples of the industry’s own estimates.
Come on. I’ll track them down again, but it’s not like it takes more than a cursory google search. The Fed report lists 2016 credit card debt average as $5700, but at the end of 2016, CNBC reported a mean of $16,000 based on mostly data from the Fed and the Census Bureau.
That’s simply not true. Look at footnote 26, on page 21 of the Fed report:
" Survey respondents are asked to provide the year, make, and model of each of their cars, vans, sport utility vehicles, and trucks. This information is used to obtain market prices from data collected by the National Automobile Dealers Association and a variety of other sources. For other types of vehicles, the respondent is asked to provide a best estimate of the current value."
I don’t doubt that there are errors in the depreciation of vehicle assets in the Fed report, but it seems a hell of a lot better than just treating the value as zero, as the IPS report does. Strangely, all their assumptions tend towards the most pessismistic outcome.
Well, I’m glad you reject it, but do you have any sources to back up your opinion? You could very well be right, given the apparent general shadiness of that industry, but gut feelings aren’t much of an argument, and often subtly encode our own cognitive prejudices. We’ve all been there.
This took me a while to understand, although the answer is obvious in retrospect. First, the link you provide is really just a pointer to this report at Nerdwallet. The two numbers are not really in conflict. The Fed report lists the average credit card per household, as you’d expect, along with the fraction of households that carry any credit card debt. The number referenced in the nerdwallet report is the average credit card debt held by households that have this type of debt. As it happens, just under half of all households carry some level of credit card debt, neatly explaining the apparent discrepancy (id est, one is talking about a subset of the other). You can see why you’d want both pieces of information, as they allow you to get a sense of the distribution of debt. (Nerdwallet lists the average value later in their report, and it ends up a bit less than ten percent higher than the Fed value. I don’t understand that discrepancy, and the methodology section was not terribly helpful in this regard.)
Last, I’d like to comment on your final exasperated, “Come on”, as though it were some horrific imposition on my part to ask you to provide references to substantiate your opinion. You note that it “doesn’t take more than a cursory Google search”, and that’s patently false. You did a cursory Google search, and ended up confused about the difference in average rates between a population and a subset of that population. I imagine you were looking quickly for information to discredit my position, found a figure that looked promising, whipped up a response and called it a day. In doing so, you’ve missed subtle facts and distinctions that ended up undermining your own arguments. If you feel that the topic is important (and I don’t doubt your passion and good intentions), then it’s surely worth the time to read more carefully. We need fewer cursory Google searches in this crazy world of ours, and more reading and careful thinking. IMHO. Thanks.
And the answers were both in the report, and available via cursory google search. Thus, my exasperation. Since you’re new here, it is also pent-up exasperation from dealing with the passel of trollies who come onto the BBS and start “Just Asking Questions” when the answers take less than 30 seconds to find.
Fair enough, it seems they’ve taken into account depreciation, but that also doesn’t take into account condition. Most cars on the road are not worth even their depreciated (NADA or Blue Book) value. There is also the inherent problem with using vehicles as an asset. Assuming the owner
actually has need of the vehicle for transportation, it’s not for sale except under life-and-death emergencies. It’s also true that all vehicles, excluding collector cars, have a value approaching zero as time progresses. Only a fool counts a car as wealth, unless it is a fully restored 1971 Porsche 911 RSR (kept in a climate-controlled room and never driven) or something like that.
See above. Do your own research.
I’d submit you’re there right now…
?!? Of course the average debt is only calculated for people who have that debt. If the Fed report included households that had $0 debt in its average debt calculation, there’s your problem.
Yeah, I initially missed the paragraph which described Wolff’s model, as we’ve already established, and found it when I saw your response, which gave me a hint about where I should look. If I never ask, how can I learn if I’m mistaken? Have you never missed a point or concept in your reading before? Based on our brief conversation, we already know that’s not true. Anyway, what else is a forum for? Vigorous agreement?
That’s kind of a funny thing to say, since I was asking you to defend your own opinion on the matter. If you don’t know why you think a certain thing, maybe it’s just best to say that.
Well, maybe. I’m a scientist, by education and profession, and find references an important tool in warding off cognitive blind spots, both in my own work, and in evaluating that of others. A connection grounded to reality, if you like. The “30 seconds of Googling” standard currently infecting the internet is surely doing it (and me) no favours. I do try to wrestle with my cognitive biases, not always successfully, and would urge you to consider doing the same.
I only mentioned that because you claimed the Fed report had undercounted consumer credit card debt by a factor of two. That’s not true, as we’ve now established.
Anyway, it’s been nice chatting with you. It’s late, and I should probably be on my way. Feel free to grab the last word, if you want. Have a nice day.
Seems we got off on the wrong foot. You seem a decent fellow (maybe?). Here’s why I pushed back about your post.
New account? Check
Trying to poke holes in OP’s article on progressive topic? Check
Asking questions? Check
You see, we get a lot of uninformed conservative trolls coming through trying to “pwn the Libs” and you set off my troll-dar. Looks like a false alarm. Hope I didn’t make a bad impression of the BBS. I still think there are some holes in your objections to the IPS report, but you’re obviously not a drive-by. I don’t have time to do a deep dive right now, but I will. The IPS is usually really solid, so the discrepancies you point out surprise me.
