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Friday, January 28, 2011

Numbers Don't Lie (But They Sure Do Prevaricate)

My email inbox is the repository for a steady stream of messages forwarded to me by friends and relatives; stuff I clearly need to know about. Sometimes there are jokes, which I mostly enjoy and occasionally pass on to others. Sometimes there are inspirational or religious messages of one kind or another, which I could mostly live without; at this point in life, probably at (if not well beyond) the half-way point, I am about as inspired and/or religious as I am going to get.

There are also the "amazing facts" messages, such as the one claiming that Bob Keeshan (known better to me and millions of others who watched TV as small children in the early 1960's as Captain Kangaroo) and Lee Marvin (the actor) fought together during the battle for Iwo Jima in WWII, or the one stating that Fred Rogers ("Mr. Rogers", he of the sweater and hand puppets) was a former Navy Seal who had killed a couple dozen people in Vietnam. Actually, maybe that was all in the same email; I don't remember. But it doesn't matter, since all of those "facts" are basically anything but.

A variant of the "amazing facts" genre are the political messages. As far as I can recall, these are always from a conservative/Republican point of view. I would think there would be similar liberal/Democratic chain emails circulating on the net, but I don't think I've ever received one, if they are out there. A few of the political messages I get are of the "throw the bastards out" variety, more or less targeted at politicians in general and not at any particular party, or, once in a great while, at entities such as "Wall Street" or "big business". But the vast majority of them are attacks on Democratic policies and/or leaders that are based on some very creative interpretations of facts.

It kind of pains me to get these messages from intelligent adults. I would be embarrassed to pass on some outlandish-sounding piece of information without first checking and double-checking it. When I get one of these "amazing facts" messages (political or non-political) my standard response is to head for Google to see what I can find out, preferably from as many sources as possible. I look at the standard sites for that sort of thing, like Snopes.com and Factcheck.org, but if it's a political message, I also try to find mention of it at conservative-leaning sites like Foxnews.com as well (I'm a "fair and balanced" kind of guy). But I do so knowing what I'm probably going to find. There is the old adage, "if it sounds too good to be true, it probably is." The corollary to that is that if it sounds too outrageous to be true, you are probably a fool to take it at face value.

The biggest alarm bell goes off in my head when I get a message describing how the axis of evil (Pelosi/Reid/Obama) is plotting some wickedness that will cause a world of pain to senior citizens. Anyone who follows politics even a little must surely be aware that the one segment of the electorate that consistently heads to the polls in large numbers on election day is (drum roll, cymbal crash)… senior citizens. So why would a politician of any political persuasion specifically single out older people to bear the brunt of the negative effects of some new policy? It just makes no sense.

In the past couple of days I received two forwarded political messages of the sort that is just screaming for fact-checking. What sort of sets them apart is that they use a lot of numbers to make their case. There they are, in black and white, the numbers, and they don't lie, right?

Well, maybe that's not exactly the case, on either count. First of all, I don't know what it is about these political chain emails, but they're often in anything but black and white. The text is very often in two or three different colors, in multiple typefaces and sizes. They look like they were composed by someone who only just discovered that his PC can do this and wants to exploit that capability to the fullest; if "less is more" then I guess that more must be waaaaaaaaaaay more. Even the ones that don't contain a random mix of formatting often insist on presenting their case in gigantic type, for some reason. I guess it's the written equivalent of shouting at someone who doesn't speak your language on the theory that this will somehow make him understand you better.

But second, and more importantly, numbers often do lie. Or to be more precise, they only tell part of the story or get misquoted. I give you therefore the aforementioned two email messages that arrived this week.

Message number one is reproduced below approximately as it arrived in my inbox.

It looks like someone actually read the “Change” in store for all of us??? Maybe 2012 will get us back on the right track??
Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it?  That's $3,800 on a $100,000 home etc.
When did this happen? It's in the health care bill. Just thought you should know.
SALES TAX TO GO INTO EFFECT 2013 (Part of HC Bill)
 REAL ESTATE SALES TAX
So, this is "change you can believe in"?
Under the new health care bill - did you know that all real estate transactions will be subject to a 3.8% Sales Tax?  The bulk of these new taxes don't kick in until 2013 if you sell your $400,000 home, there will be a $15,200 tax.  This bill is set toscrew the retiring generation who often downsize their homes. Does this stuff make your November 2012 vote more important?
Oh, you weren't aware this was in the ObamaCare bill? Guess what, you aren't alone. There are more than a few members of Congress that aren't aware of it either. 
Why am I sending you this?  The same reason I hope you forward this to every single person in your address bookbecause you can make a difference.

Huh! Obama is going toscrew <sic> the retiring generation! That doesn't seem like a good move for such a wily politician. I must know more. It sure would be helpful if that message referred to the part of the health care bill that imposes this outrageous burden on the elderly, but it doesn't, which is par for the course with this genre of messages. So I looked at various web sites to see what I could find.

What I learned is that first of all, there is a 3.8% tax imposed by the bill, but it's not a sales tax on real estate, it's an amendment to the tax code that creates a new Medicare tax on capital gains. A capital gain is the difference between what you paid for a capital asset (e.g. a share of stock, or a piece of real estate) and what you later receive when you sell it, i.e., it's the profit on the sale. The part of the bill that imposes this new tax is section 1402. I read it and I will be the first to admit that it is massively confusing to a mere mortal such as myself, but I can at least assure you that neither the term "sales tax" nor any reference to "real estate" appear anywhere in the text, meaning that whoever wrote that message didn't spend a whole lot of effort on research.

Let's dissect some of that. Note that this is a Medicare tax. Previously, capital gains were not even subject to Medicare taxes. Now they are. But they are only subject to the tax if your income exceeds $200,000 per year (individuals) or $250,000 (couples filing jointly). That's about 5% of all taxpayers, according to this article. And in the event you do fall into that category, you're going to give Uncle Sam 3.8% of the profit on the sale, not the total sale amount. Suppose you sold that house mentioned in the message for $400,000, but you paid $300,000 for it; your tax would be $3,800, not $15,200. But that's only if that house was not your primary residence, e.g. it was a vacation home. If it was your primary residence, the profit would fall under an additional exemption of $250,000 (individuals) or $500,000 (couples filing jointly), so you wouldn't owe anything at all.

Disclaimer: I am not a CPA, tax attorney or anything like that, so don't take my analysis at face value; do your own research (here's one good place to start). I'm just a guy who can read. And I can tell you that what I'm reading says that there's a gigantic gap between what's in that message and what the law really says. 

Let's look at that second message. This one's not as colorful, but I sure don't need to put on my glasses to read it.

CLUNKER MATH
The person who calculated this bit of information has been a professor at The University of West Virginia in Morgantown,  West Virginia for the last forty some years.
A clunker that travels  12,000 miles a year at 15 mpg uses 800 gallons of gas a year.
A vehicle  that travels 12,000 miles a year at 25 mpg uses 480 gallons of gas a  year.
So, the average Cash for Clunkers transaction will reduce gasoline  consumption by 320 gallons per year.
The government claims 700,000 clunkers  have been replaced so that’s 224 million gallons saved per year.
That  equates to a bit over 5 million barrels of oil.  5 million barrels is  about 5 hours worth of US consumption.
More importantly, 5 million barrels  of oil at $70 per barrel costs about $350 million dollars.
So, the  government paid $3 billion of our tax dollars to save $350 million.
We  spent $8.57 for every $1.00 we saved.

I’m pretty sure they will  do a better job with our health care, though......


This thing is an exercise in misinformation and fallacious reasoning. It applies a technique that I see in a lot of these messages, i.e., naming some authority figure that I guess is supposed to impress me (here it's a gen-u-wine perfesser—I wonder if he also has a name, and what he is a professor of—presumably it's not accounting). But let's do the math ourselves.

To produce one gallon of gasoline, the amount of crude oil you need varies depending on things like the grade of oil you are starting out with and the efficiency of the refining equipment and process you are using. According to the US Energy Information Administration, one barrel of oil (=42 US gallons) produces 19-21 gallons of gasoline. So let's be generous and say that we can get 21 gallons of gas from a barrel of oil, which is equivalent to saying that producing a gallon of gas requires two gallons of oil. If we saved 224 million gallons of gas per year, that means we saved 448 million gallons or about 10,666,667 barrels of oil (not "a bit over 5 million"—our anonymous professor doesn't seem to know the difference between gasoline and petroleum, so I guess he's not a professor of chemistry or geology, either). So if oil is $70/barrel, we saved $746,666,690 in the first year.

Notice that I said "in the first year". Our professor apparently assumes that all of those cars are going to be on the road for exactly one more year. Well, I drive a car that would have qualified for "Cash for Clunkers", and I'm still driving it, and I will probably continue driving it until it more or less falls apart. So I'll bet those cars that did get traded in under the program would have been on the road for another 3-5 years, meaning the total reduction in oil consumption is on the order of 32.0–53.3 million barrels or, at $70 barrel, $2.24–$3.73 billion.

But why use $70/barrel? As I write this, the price of a barrel of "light sweet" crude oil (the kind that's especially good for making gasoline) is around $90/barrel. That values our savings at about $2.88–$4.80 billion. Now, I'm ignoring adjustments for things like the "time value of money" and other such book-lernin' I got in that thar fancy college I went to, but suddenly this doesn't look like such a bad return on the $3 billion investment after all, especially when I consider that forecasts like this one don't foresee falling oil prices any time soon.

That "Cash for Clunkers" message also ignores the other beneficial effects of the program. The reduction in oil consumption implies a reduction in pollution, which in turn means a reduction in costs associated therewith (costs of pollution-related health problems, for example). And the program probably also kept one or two jobs in the automotive industry going longer than they otherwise would have. Those benefits play no role in our professor's analysis.

So what do we learn from this? Caveat lector, I guess. Believe what you want, but at least do the math first.

3 comments:

  1. That's interesting; I also have never seen any mass-emailed Big Lie blather that was from a liberal point of view. The rightwing Bie Lie e-mails are everywhere. They probably reach as many people as Fox News and talk radio.

    Liberal organizations might have to stoop to this tactic, as sleazy as it is. It seems to be working.

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  2. Tom: Maybe the folks on the left just aren't as creative.

    The people who pass these things on to me are people I care about. They are good people who have their view of things and I'm probably not going to change that, no matter how hard I try. I can only wish that they themselves would be a little more skeptical about messages making outlandish claims that come from nowhere in particular before they pass them on to me, because they aren't exactly making a convincing case for their views by passing on this stuff that is so easily refuted. I remember my parents telling me when I was a wee lad, "Don't believe everything you see on TV." In that respect the Internet has become the TV of the 21st century.

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