Two types of scandal

I think most people will agree that, tautologically speaking, scandals are unexpected events.

There are two ways to think about encountering unexpected events.  First, it may be that our senses and ability to recognize these events are just fine, but the events themselves are rare. Call these discoveries “Aberrations.”  Or it could be that the events are relatively common but our ability to detect them is lacking.  Let’s call these “Revelations.”  Whenever a new scandal breaks, I like to ask myself whether it is more likely that this is an Aberration (i.e., an example of uniquely troubled people doing uniquely troubling things) or a Revelation (i.e., an exposure that the world, or at least a part that the individuals caught in the scandal represent, is more troubled than we thought).

My classic example of Revelatory scandal is Libor rigging.  No bank is more closely associated with the Libor rigging scandal than Barclays, but that is mostly because Barclays was the bank that got caught in the scandal first and a lot of the early press put “BARCLAYS,” “LIBOR,” and “RIGGING” right next to one another in the headlines.  Eventually a dozen or so major financial institutions also paid fines.

My classic example of Aberrant scandals used to be Jerry Sandusky.  But, ech, then there was Larry Nassar and Richard Strauss and I just don’t know have the confidence that I would like to.

In fact, more or less since the distinction occurred to me, hedging on the side that any given scandal was more Revelatory than Aberrant has been a pretty safe and pretty sad bet.  Cheating on emissions tests? Not just Volkswagen, but Nissan, Opel, Volvo, Renault, Jeep, Hyundai, and Fiat were all accused.  Harvey Weinstein?  More analogs than blogspot can handle.  Even “colluding with foreign powers to rig elections” comes up with more hits than you may care to know about.

It is easy, maybe even instinctive, to assume a fresh scandal is Aberrant rather than Revelatory.  But this can lead to a bigger reputational penalty imposed on the first company or person caught in a scandal than they deserve relative to their peers.  That’s not to say it is okay to rig Libor, just that it may be epistemologically unsound to attach too much of the blame to one bank.  So with that in mind, for the time being I am going to refrain from putting down specific nineteen-year-olds who might have gotten into a good school based partly on fraudulent pretenses, because it might turn out that the college admissions process in general is even further from the clean, meritocratic ideal than we would like to believe. 

What I Learned from the Roslings

The book is Factfulness, and the authors Hans Rosling, Ola Rosing, and Anna Rosling Rönnlund.

When I was in middle or early high school, among the best and densest nuggets of my education was the World in Figures pamphlets published by The Economist.  These came out around Christmas time each year, were the height and width of a travel brochure, and had hundreds of tables of rankings.  Some were familiar (tallest mountains, longest rivers), some you would expect to see (all countries by GDP PPP per capita), and some you wouldn't (vaccination rates, most beer consumed).

Factfulness reminds me a lot of that pamphlet, but with the Roslings spelling out a few morals that ought to be evident to anyone spending time with the data.

First and foremost, the world is better than you think.  When asked basic multiple-choice questions about global life expectancy, vaccination rates, girls' educational attainment, people on average do worse than monkeys guessing randomly.  For example, given the question, "In the last 20 years, the proportion of the world population living in extreme poverty has _________," and three possible answers, "A. Doubled, B. Stayed roughly the same, C. Halved," only 10% of respondents answered correctly, "C. Halved."  Other questions also show a clear bias towards pessimism, or perhaps underestimating developing countries.  Embarrassingly, when Hans Rosling asks similar questions of Davos attendees and Nobel laureates, he finds they often do even worse than average people.

Other notables of the book:

1. My understanding is that the book was written in English, despite all the authors being native Swedish speakers.  Despite this barrier, I thought it was more readable than the average pop social science book.  The prose is plain, but there is some clever wordplay (e.g., "difficult math" is used to describe a census of infant mortality in Mozambique).
2. Hans was dyslexic.
3. In a chapter on assigning blame, there is an anecdote about syphilis.  Russians called it the "Polish disease," the Polish called it the "German disease," the Germans called it the "French disease," and the French called it the "Italian disease."  The chain ends there, as Italians returned the favor by calling it the "French disease."  The Roslings used this as a parable of the instinct to assign blame on a particular group, and clearly it is ridiculous to suppose that all of these names could be right.  However, syphilis was undocumented in Europe before Columbus' voyage to the New World.  The scapegoating clearly tracks backwards from Eastern to Western Europe.  Might the local names accurately reflect the trade routes along which the disease travelled?
4. Hans' viral Ted talk about the magic washing machine gets a retelling, and yes it did very nearly make me cry.

Wilbur Ross Is Right to Be Confused!

Recent media stories have popularized an estimate (citing a 2018 Fed report) that 40% of Americans can't cover a $400 emergency expense.

From Karen M. Pence (2011):

To gauge the share of household who, according to the SCF [Survey of Consumer Finances] data, could not come up with $2,000 in an emergency, I tabulated several measures of financial capacity.  I began with two measures of whether households have $3,000 or less in savings.  (I assume throughout that a $1,000 buffer is needed beyond the $2,000 shock.)  The first measure is liquid savings:  checkings, savings, and money market accounts as as well as call accounts at brokerages.  A second measure of "broader savings" adds to liquid savings the sum of mutual funds, stocks, bonds, the cash value of whole life insurance, and one-third of the value of home equity, certificates of deposit, and "liquid" tax-favored retirement accounts such as 401(k)s that the account holder can borrow against.  To assess households' access to the credit markets, I tabulate the share of households who have $3,000 or less of unused capacity on the credit cards, as well as the share who may have more limited access to the formal credit markets, as measured by having been turned down for credit or discouraged from applying for credit in the last 2 years.  To assess the extent of support from friends or family, I tabulate the share who said they could not borrow $3,000 or more from friends or family in an emergency.

The kicker:

The share of SCF households who could not meet a shock from either savings, mainstream credit, or friends and family is quite small: 9 percent of households using the liquid savings measure and 5 percent using the broader savings measure.

The difference in Pence's 9%/$3000 findings and the more newsworthy 40%/$400 number comes down to design.  The estimates 2018 Fed report linked at the top are from the Survey of Households and Economics Decisionmaking ("SHED").  SHED asked participants outright "Suppose that you have any emergency expense that costs $400. Based on your current financial situation, how would you pay for this expense?"  The SCF asks people more directly about their current assets and liabilities, and then Pence triages the lines which people would be most likely to draw on first.

And I do not like putting these disclaimers since I trust people not to jump to conclusions, but none of this is pointed out to trivialize the disruptive experience that many people would find a $400 emergency to be (even 9 percent is still high!, and taking out credit be it formally or from family is not painless!).  Nor do I want to dismiss the value of surveying sentiment (even when biased towards the pessimistic) versus having a cold look at the data.  However, I do suspect many people overstate the difficulties of meeting a $400 expense, much like people underrepresent their savings or simple surveys tend to overestimate the size of the "middle class."  Therefore I see the 40%/$400 as similar to how I see the Warren et al work on medical bankruptcies:  a useful approach for arriving at a very conservative upper bound for the result in question.