17 June 2009

Fun with Numbers

Over at The Atlantic, Megan McArdle destroys the report put out by Elizabeth Warren that claims medical bankruptcies are destroying the middle class.

Here's the link.
Here's a link to her follow-up discussion.

Here's the pertinent graph:

For the mathematically challenged, that shows that personal bankruptcies fell in 2006. There was also a corresponding drop of 33% in the number of bankruptcies for medical reasons. But, Ms. Warren claims that medical-related bankruptcies are a growing portion of the reasons for declaring bankruptcy.

Yes, she get's there by playing with numbers.

Absolute numbers of bankruptcies fell. Absolute numbers of bankruptcies for medical reasons fell, but not in proportion. Therefore, the percentage of bankruptcies caused by medical costs "rose," although the actual numbers fell.

To put it another way, my company sells two products, A and B. Each consists of 50% of my revenue. However, this year with the recession, no one wants to buy A, and fewer people want to buy B. My percentage of revenue from A is 0% while B "grows" to 100%. But I still made less money. In effect, Ms. Warren states that "Revenue from B doubles! Holy crap the world is coming to an end!."

But, this little blog posting won't stop people from claiming that bankruptcies are increasing because of medical costs. But it is something to remember the next time someone trots out the "we need government health care" card.

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