Curmudgeon’s Law of Numerical Fiction

Regular readers of Bad Money Advice will not be surprised to hear that I prefer numbers to words. (Allegations that I prefer computers to people, however, are greatly exaggerated.) I think this is a natural inclination. Any halfway thoughtful person favors evidence over feeling, and numbers have the appearance of being hard facts.

But not all published numbers are factual, even when widely repeated in respectable places. Which presents a difficulty for us lovers of digits. How can we separate the real from the realish? Not to worry, because today I am revealing for the first time my Law of Numerical Fiction which will help identify the imposters.

To be successful, that is, repeated widely as if it were true, a fake number must satisfy three criteria.

1. The number reinforces previously held beliefs. A number that runs against the grain for much of its audience isn’t going to get far. Moreover, the number must fit into the world view of the person spreading it so well that it would never occur to this person to check up on it. That person may have an explicit agenda, e.g. Lifelock, or may just think it meshes well with a larger story they want to tell, e.g. the many people who repeated Newsweek’s beauty numbers.

2. The number is remarkably extreme, but not ridiculous. In order to get spread, the number must be newsworthy, taking a preconceived notion another step or two, but not so far that people start questioning it. If I tell you my 11 year old daughter is now 5 feet tall, you will just smile politely and say “Good for her.” If I tell you she is 6 feet tall you will express surprise and tell all your friends about this guy you know with a six foot tall sixth grader. But if I tell you she is 7 feet tall you will just smile politely and say “Good for her.”

3. There is no organized [and credible] group that opposes the number. A fake number that gores somebody’s ox will not last long in the media buzz before the ox owner speaks up. Say that healthcare is expensive because the average American doctor makes $1 million a year and the AMA will be all over you like a cheap suit. But if the number doesn’t conflict with anybody’s agenda it can go blissfully unchallenged. Lifelock can claim that identity theft is as common as mosquito bites and nobody says a thing. (Cranky bloggers don’t count.) It is not as if the National Association of Identity Thieves will put out a press release to set the record straight.

Spotting false numbers that satisfy these three tests is not hard. Several examples have been mentioned in this blog in the past. And I’ll give a new one today.

Nina Olson, the National Taxpayer Advocate, in her latest annual report to Congress, tells us that:

IRS data show that taxpayers and businesses spend 7.6 billion hours a year complying with tax-filing requirements. To place this in context, it would require 3.8 million full-time employees to work 7.6 billion hours.

Her “context” is exactly the sort of sanity-check calculation that might lead a skeptic to question the original number. There are about 140 million employed workers in the US, so 3.8 million full time employees just filing tax returns implies about 2.7% of the workforce (1 in 37) is employed in this manner. And just to be clear, this is time spent only on the IRS income tax forms, not complying with any other kind of tax nor dealing with audits, etc.

Where does the number come from? The IRS maintains estimates of how long it takes, on average, to fill out each form. Olson’s office multiplied each estimate by the number of each form filed, and presto, 7.6 billion hours. Helpfully, she provides a table with the details.

And if you examine the list of estimated times for the forms on that table you quickly realize that the number is hopelessly exaggerated. Filling out and filing the old familiar 1040 allegedly took 134 million taxpayers an average of 26.4 hours each. That number includes filers of the 1040A and 1040EZ. And the 60% of Americans who hired somebody to help them.

Even the simple W-2 form is apparently burdensome. The 243 million of those produced by employers in a year take an average of 30 minutes each to prepare. In any modestly organized business the W-2 is a trivial side-effect of the payroll system. If I was running a company and I found out it was taking 30 minutes per W-2 I’d start firing bookkeepers. Heck, I’d probably call a meeting and yell at some people if I found out it was taking 30 seconds.

The 7.6 billion figure satisfies all three criteria of the law. That dealing with our absurdly complex tax regime takes a lot of our time is certainly a widely held belief. 7.6 billion is newsworthy big, but not implausible. And nobody is about to come to the defense of the tax code.

That last bit may surprise some. Surely the IRS has an agenda to minimize the perception of a burdensome tax regime? No, not really. As annoying as you find filling out all those forms every April, imagine how you would feel as a modestly paid bureaucrat who has to enforce, and explain, a tax code now at 3.7 million words, up from 1.4 million in 2001. From the IRS point of view, this is a big mess dumped on them by Congress.

And, of course, each and every member of Congress will loudly bemoan the state of the tax system while heroically defending the little bit of complexity that they personally added.

Calling attention to numbers, widely taken as fact, that aren’t fact, is important. Many of the personal financial decisions we make are based on numbers we hear from sources we assume are reliable.

Because I think it is important, and because it amuses me, I am starting a new feature here on BMA, “That Can’t Be Right” in which you, the reader, send in candidate false numbers and I, the blogger, dissect and mock them. Send them in to frank at badmoneyadvice dot com. Ideally, the number would be widely disseminated, widely believed, and, after modest examination, clearly bogus.

[Photo: Roberta F.]

Government, Media, Musings, Taxes, The Big Picture | Frank Curmudgeon | June 26, 2009 12:30 pm

256 Comments

By Mark Wolfinger, June 26, 2009 @ 12:56 pm

Will do.

But, I’ve warned you a million times not to exaggerate.

Mark
By Jim, June 26, 2009 @ 2:19 pm

I might modify rule #3 to qualify it as being a group that is *credible*.

i.e. “3. There is no organized & credible group that opposes the number.”

For example if you say that 3rd hand smoke kills 5000 children a year and the Big Evil Tobacco Association disputes this then nobody will care cause we all know that Big Evil Tobacco has no credibility so if they deny it then that just reinforces it must be true. Yet Big Evil Tobacco is very organized & well funded.

Jim
By Andrew Stevens, June 26, 2009 @ 2:59 pm

How about the ridiculously high figures used for “cost to raise a child”? These are widely disseminated, widely believed, and clearly bogus. I’ve seen numbers as high as $500,000 (including college costs) and at least $200,000+ to get a child to his/her 18th birthday. If these numbers are accurate, I’m pretty sure my siblings and I all starved to death many years ago and just didn’t notice.
By Kosmo @ The Casual Observer, June 26, 2009 @ 3:08 pm

26.4 hours for the 1040 – plus extra time for all the schedules? Crap. That would be pretty scary. Especially for the EZ. You really should be able to complete the 1040EZ during the commercial breaks of The Simpsons.

I hope my (very large) company doesn’t spend 30 minutes on each W-2. Of course, your meeting to yell at people would probably cause the number to skyrocket to 40 minutes, because that meeting could be charged toward the cost of W-2 production.

@ Mark Wolfinger – I formed a group on facebook with the name “One trillion people opposed to the exaggeration of group sizes on facebook” (or something similar, I forget the exact name). We don’t have a trillion members yet … but the multitude of groups of a “million people” haven’t hit their target, either
By Kosmo @ The Casual Observer, June 26, 2009 @ 3:16 pm

@ Andrew Stevens – I’m not sure how far off the $200K would be. We’ll have $50K+ invested in day care for our daughter through age 5 … and that completely ignores all the other costs. With food, health care, clothes (always being outgrown), diapers, etc, it’s kind of scary to think how much we’ll spend in just the first 5 years … and we’re fiscally responsible and living in a modest size midwestern city.

I’m the youngest of 8 kids, and I know that my parents didn’t spend 200K per kid, but those circumstances were different. My mom didn’t work outside the home (day care savings), we grew up on a farm (minimizing the cost of fruit, vegetables, meat), didn’t have every fancy electronic gadget (correction, didn’t have ANY fancy electronic gadget) … plus there’s the fact that costs have gone up since we were kids just due to inflation (I’m 34).

$500K does seem to be a stretch, though. I know that some of these figures take into account the cost of housing a child (as well as car, gas, etc) – using (total_cost / total_hosuehold_members) instead of a more reasonable marginal approach.
By Rob Bennett, June 26, 2009 @ 5:22 pm

Ideally, the number would be widely disseminated, widely believed, and, after modest examination, clearly bogus.

My submission is, like, so totally in the mail already!

Rob
By Frank Curmudgeon, June 26, 2009 @ 8:03 pm

Jim: A good point. Criteria three has now been modified.

Andrew Stevens & Kosmo: I think $200K as an average to get a kid to 18 isn’t so obviously nuts. That’s $11K per kid per year. Median income for a family of 4 is $75K. $500K, on the other hand, may push the envelope….
By Andrew Stevens, June 26, 2009 @ 11:25 pm

If it was broken down so that families were spending $10K per year for day care, then I’d be more likely to buy the figure. But, on the contrary, they only budget about $2K per year for day care for the first five years of life (which is probably more typical than the $10K you spend). Where they really beef up the numbers is what they claim is spent on housing per child. And this is obviously just an artifact of the methodology since there is no way to know how much of a family’s housing should be attributed to the kids. (I know plenty of people who moved into a bigger house after their kids were gone since they could afford more.)
By Kosmo @ The Casual Observer, June 27, 2009 @ 10:45 am

?? 2K per year for day care? How does that work? That’s $167/month, or $1/hour. I can’t imagine many areas of the country that have that low of a rate – unless they are assuming that the vast majority of kids aren’t going to day care, pulling down the average. I’m in IOWA and paying 10K – sure, we live in a university town that is a bit high for the area, but it’s not as if we live in NYC.

With the state mandated ratios, $167/month wouldn’t even be enough to pay a worker minimum wage (not even close), in addition to other expenses.
By Kosmo @ The Casual Observer, June 27, 2009 @ 2:08 pm

to clarify w/r/t mandated ratios, I meant ($167 * kids_allowed_by_ratio)/hours would be less than minimum, not that the 167/month would be less (clearly, that would be waaaaaaay below the minimum)
By Paul Kamp, June 27, 2009 @ 4:24 pm

Here’s one that makes me particularly angry:

Humans only use 10% of their brain.
By Kosmo @ The Casual Observer, June 27, 2009 @ 5:01 pm

“Here’s one that makes me particularly angry:

Humans only use 10% of their brain.”

Yeah, that does seem high, but they’re probably using mean insted of median. Clearly, the median would be much lower – many of the people I bump into appear to be using about 1.4%
By Steve, June 27, 2009 @ 8:59 pm

Lose 15 pounds by 4th of july (in an issue released june 15th.)
By Dave C., June 28, 2009 @ 7:41 pm

Somebody should have informed the Iranian Election committee of this formula and theory. They pretty much screwed up on all three elements in their attempt to rig the election… heheh
By Andrew Stevens, June 29, 2009 @ 10:10 am

Kosmo, the average family isn’t paying for 40-plus hours per week for daycare. I’m sure the mean for families that are is higher than $2K per year, but you have to average in families who aren’t.
By Kosmo @ The Casual Observer, June 29, 2009 @ 11:38 am

Right, I realize that the average family isn’t paying for 40+ hours … but I’d have to think the average is 20+.

This isn’t a “point in time” sort of thing, where people who don’t have kids age 0-5 would drag the mean down. It’s a per kid cost, so that anyone family with dual incomes would be incurring substantial daycare costs during the ages of 0-5 (well, unless the parents work different shifts). Even if half the families have a parent stay at home during these years (would seems quite high) and if day care cost is only $600/month on average (sure, it is lower in lesser populated areas, but those areas also have fewer people, and thus a lesser pull on the mean), that would pull the average down to about 4K (600*12*50%)

And if the family DOES have a stay-at-home parents during these years, there’s the issue of lost wages that could be construed as a cost – and this would offset any day care savings. This probably wasn’t included, though, as it’s not an out-of-pocket cost.

Suffice it to say that this particular figure interests me greatly

But I do agree that the 500K is way high.
By Andrew Stevens, June 30, 2009 @ 9:29 am

Don’t forget tax credits. 20 to 35% of daycare expenses up to $3000 ($6000 for two or more children) can be taken directly off one’s taxes. Add in tax deductibility through child care and flex accounts and one can take significant taxes off those numbers of yours.
By Kosmo @ The Casual Observer, June 30, 2009 @ 10:09 am

I’d have to double check, but I’m 95% sure that the credit is only for the expenses that are in excess of the amount that is in the child care flex account (which makes logical sense), so you can’t double dip with a credit and deductibility on the same dollar (perhaps you weren’t suggesting this). I know that in my particular case, the credit was minimal ($100 or so? Definitely not thousands)

I intentionally left out the tax impact because I felt I was already being a bit unrealistically low in my other estimates. And even taking taxes into account, the amount would still not be down to 2K.

I think key point that emerges from this discussion is that expenses can vary wildly from one situation to the next … while 200K may indeed be the mean, a person’s personal situation may be very different. It’s incredible how fast the expenses can add up. My toddler (22 months old) recently got glasses – not an expense that was in our budget!
By Jim, June 30, 2009 @ 4:32 pm

http://www.babycenter.com/0_how-much-youll-spend-on-childcare_1199776.bc

“With an average of $8,150 per year ($679 a month), daycare costs for babies and toddlers in the United States range from $4,388 to $14,647 a year ($366 to $1,221 monthly), according to data from the National Association of Child Care Resource & Referral Agencies (NACCRRA).”

I searched for daycare providers around where I live and found 3 with prices sited. Rates were in the $600-$900 / month range, so thats $7200 to $10,800 annually. The minimum they could charge to legally provide care for infants/todders in my state and pay someone only minimum wage with no expenses or profit would be $4,600/yr.
By CWulf, July 1, 2009 @ 2:01 pm

Frank:
OT regarding Financial Illiteracy in Washington (DC) and my comment 4/17/2009
I hope you will take the time to read and review Matt Taibbi’s Rolling Stone Magazine piece on Goldman Sachs. Perhaps you will understand why I believe the real perpetrators of financial fraud own the banks. Paying back the TARP is hopefully just the beginning of their contrition to the citizens of the United States.