…higher education system in August, one that shows an important limit of current liberal thought…. The UNC System Board of Governors voted unanimously to cap the amount of tuition that may be used for financial aid for need-based students at no more than 15 percent…. As a board member told the local press, the burden of providing need-based aid ‘has become unfairly apportioned to working North Carolinians,’ and this new policy helps prevent that…. The problem for liberals isn’t just that there’s no way for them to win this argument with middle-class wages stagnating…. The far bigger issue for liberals is that this is a false choice, a real class antagonism that has been created entirely by the process of state disinvestment, privatization, cost-shifting of tuitions away from general revenues to individual, and the subsequent explosion in student debt. As long as liberals continue to play this game, they’ll be undermining their chances…
…and those that have not understood Keynes. To describe the economic mainstream in Germany as conservative misses the point…. As compelling as a comparison between the German mainstream and the Tea Party may appear, it does not survive scrutiny…. A good example of orthodox dogma was last week’s annual report of the Council of Economic Experts…. They did not criticise a lack of investment, excessive current account surpluses or overzealous fiscal rectitude. Instead they criticised the minimum wage and some minor relaxation to the retirement age. In other words: they want the government of Angela Merkel, chancellor, to be even tougher…. Macroeconomics in Germany and elsewhere are tantamount to parallel universes. In practice, German macroeconomic exceptionalism did not really matter all that much–until recently, when it started to matter a lot. When you have your own currency and engage with the rest of the world mainly through trade, a wacky ideology is your problem. That changes when you enter a monetary union, which is when policy makers have to work together…”
…with yet more good news for Obamacare…. The people who are actually using Obamacare… 74 percent said the quality of health care they received was good or excellent, and 71 percent said the overall coverage was good or excellent. What’s remarkable is that these numbers are nearly the same as those for everyone else with health insurance, which includes those with either employer coverage or Medicare. Here’s the bottom line from Cohn:
You hear a lot about what’s wrong with the coverage available through the marketplaces and some of these criticisms are legitimate. The narrow networks of providers are confusing, for example, and lack of sufficient regulations leaves some patients unfairly on the hook for ridiculously high bills. But overall the plans turn out to be as popular as other forms of private and public insurance. It’s one more sign that, if you can just block out the negative headlines and political attacks, you’ll discover a program that is working.
Republicans can huff and puff all they want, but the evidence is clear: despite its rollout problems, Obamacare is a success…
This is a weekly post we publish every Friday with links to articles we think anyone interested in equitable growth should read. We won’t be the first to share these articles, but we hope by taking a look back at the whole week we can put them in context.
Traders behaving badly
Izabella Kaminska puts the foreign exchange market-rigging scandal into context [ft alphaville].
Paul Krugman tries to understand the roots of the rage among the hedge fund set [ny times].
Labor market issues
Nick Timiraos looks at the high level of part-time employment and asks if it’s the post-Great Recession norm [wsj].
David Leonhardt argues that one fact is hanging over politics and policy: the great slowdown in wages [the upshot].
Savings and capital accumulation
Felix Salmon points out that share buybacks don’t benefit just capital but also the top management of firms [medium].
Don’t worry too much about Millennials when it comes to saving, says Catherine Rampell. Every generation saves relatively less when they are young [wapo].
The Congressional Budget Office earlier this week released a new report on the distribution of household income and federal taxes in the United States. The report contains data on household income from 1979 to 2011, which shows the impact of taxes and transfers (government income-support programs) on incomes. The data paint a different picture from the U.S. Census Bureau income data released earlier this year: the CBO shows a 47 percent increase in the median household income from 1979 to 2011 compared to a 5.3 percent increase according to Census Bureau data.
But is this latest snapshot of the distribution of U.S. incomes necessarily the right picture?
The CBO data account for a variety of factors including federal taxes, the decline in household size and the increasing importance of health insurance as a form of compensation, and transfer programs. It’s the combination of the last two categories—health insurance and transfer programs—that causes the most difficulty when measuring income.
The problem boils down to this question: how much is government-provided health insurance, Medicaid and Medicare, worth to a household? (The Affordable Care Act does not factor into this calculation, as that program did not expand health insurance coverage in earnest until 2013.)
CBO answered that question using the so-called “average cost” method. The calculation is quite easy: take all the spending on, say, Medicaid, and then divide that number by the number of Medicaid enrollees. That “average cost” is designated as the value of Medicaid to the household. Any increase in spending on the program gets registered as an increase in the value.
But CBO didn’t always answer the question this way. Prior to 2012, the agency calculated the value of government-provided health insurance by looking at the “fungible value” of health insurance. This process looks at how much money a household has compared to its basic needs for food and housing. If the household has more income than its basic costs, then the valuation process assumes that government-provided insurance would free up this money for other purposes. So that amount of money (up to the average cost) is called the fungible value.
The difference between the two methods is quite large. In their 2012 report explaining the change from the fungible value process to the average cost method, CBO noted the average cost method increased the average income of a household in the bottom 20 percent of the before-tax distribution by $4,600, or by about 25 percent. Using data from the 2013 report, which covers 1979 to 2010 and was released last December, we can see the average income of the bottom 20 percent grew by 49 percent from 1979 to 2010 using the average cost method. But using the fungible value method, the average income of that group grew by only 23 percent.
Sadly, the new 2014 report (with the latest 2011 data) doesn’t include income data using the old methodology. This means that going forward economists and policymakers will be have one less data set by which to evaluate income inequality.
Now this isn’t to say that CBO is definitely using the wrong method by dropping the average cost method. Nor is it clear that the fungible value is the correct method—after all, calculating the value of health insurance based on how much money is freed up relative to the cost of food and housing isn’t exactly intuitive. The average cost method has the merit of being consistent with the method of valuing employer-sponsored health insurance, which calculates the full value of employer-paid insurance into household income. In both cases, though, every dollar that employers spend on insurance is assumed to increase the households’ income on a one-for-one basis.
The main takeaway here is that we need to be cognizant of the difficulty of measuring the world around us. Ewe Reinhardt, a health care economist at Princeton University, admits that he and his colleagues in the profession don’t have the answer to this question yet. Government programs have certainly boosted incomes at the bottom, but we still aren’t sure by how much. If we want to understand how to improve the lot of households at the low-end of the income ladder, it’d be useful to know exactly what rung they are standing on.
Over at Grasping Reality: No, neither Lehman, nor AIG, nor Bank of America, nor Citigroup, nor Morgan Stanley, nor Goldman Sachs was solvent at then-prevailing market prices in late September 2008:
: Over at Grasping Reality: Back in 2011 when Jon Gruber was writing Health Care Reform: The Graphic Novel he assumed that subsidies were available to all purchasing on any exchange–whether a state-initiated §1311 exchange, a joint exchange, or a federally-initiated §1321 exchange did not matter: families will pay no more than 9.5% of their income to purchase health insurance–not families living in states that have established §1311 exchanges: families full stop:
The truly remarkable thing about Halbig/King is that conservatives care much more than liberals do that the health exchanges actually work. Health exchanges are a last-ditch conservative attempt to keep private health-insurance markets from collapsing under the weight of increasing adverse selection and decreasing willingness to provide a large tax subsidy for employer-sponsored insurance. If the exchanges fail, the liberals try again in another decade with single-payer–Medicare for all–in order to attain near-universal coverage. If the exchanges fail, conservatives are out of arrows.
I have never understood why conservatives interested in health policy have not drawn a line in the sand here–have not said to their political masters: “Yes, we know that you have a strong partisan interest in destroying the signature accomplishment of a Black Democratic president. But the substantive policy stakes are too high.”
…on printed job advertisements to create a jobs opening rate for years prior to 2000. And if you look at their Beveridge Curve for economic recoveries going back over 60 years, you see the current shift is actually quite typical. The curve appears to shift quite a bit (up and over to the right) after large recessions and shifts back (down and over to the left) after the labor market recovers from the large shock…
A good education is touted by U.S. politicians of all persuasions as the first step toward upward mobility and a better life. Yet news stories across the country frequently warn that an educational “achievement gap” is leaving an increasing number of young Americans without the education or skills to achieve even a basic level of economic security—with implications for our nation’s future economic growth and prosperity. In grappling with this issue, policymakers tend to focus their attention on educational accomplishment gaps based on race and ethnicity.
The racial gaps in test scores are narrowing, and undoubtedly deserve our attention. Yet there is an even larger skills gap between children in low and high income households, one that is sizeable before they even enter kindergarten. In fact, the achievement gap between the rich and the poor is widening dramatically, so much so that income is now a better predictor of test scores than race.
That is why the Washington Center for Equitable Growth awarded one of its inaugural grants to Ariel Kalil, Professor at the Harris School of Public Policy at the University of Chicago and Director of the Center for Human Potential and Public Policy. Kalil will document and examine whether and how these class-based gaps in parenting have changed over the past 25 years, and if so, whether these changes contribute to the growing income-based achievement gap.
It is clear that the fate of low- and high-income Americans has diverged in terms of educational attainment and cognitive skills, such as memory, reasoning, perception and intuition. Can the same be said for non-cognitive skills, such as resilience, motivation and attentiveness, necessary precursors for cognitive skill acquisition? While non-cognitive skill development is just as critical for future outcomes as cognitive ability, nobody has yet undertaken the research to explore whether an income-based non-cognitive skills gap exists. Kalil’s work will do so.
Kalil will focus in particular on the parenting and home environment of preschool children. Children at this age are in the midst of a crucial developmental stage. There is a strong connection between what a child experiences early in life and how much they succeed later on. It is not only the monetary investment or quantity of time that parents devote to their child that matters, but also the quality. Factors such as how a parent talks to their child, how much stress a parent is under, or even how many books are present in the home all have effects on a child’s future well-being.
While researchers have documented an income-based divergence in the amount of time parents spend with their child, they did not measure the quality of how that time was spent. We do know that economically advantaged parents are able to offer different home environments compared to their lower-income counterparts by committing more quality time and resources to their child’s development. As Kalil explains in her project description, these differences may “play a role in producing growing gaps in cognitive and non-cognitive skills, producing a feedback cycle that leads to low socioeconomic mobility and further growing inequality.”
Kalil’s research will help policymakers understand whether and how providing young children with the resources they need to succeed is merely an admirable goal or one that also affects the nation’s future economic growth. Human capital—the level of skills, education and talents in our potential workforce—is one of the most important factors in long-term economic growth. Investing in understanding the ways in which inequality affects the home environment and early childhood development will not only allow us to benefit every individual child but may also affect our long-term economic stability.
James Pethokoukis: Time for the American right to declare peace on the US welfare state: “While the recovery’s glacial pace, both in terms of GDP and jobs, is unacceptable, the safety net’s performance is encouraging. The pain from the Great Recession, as bad it was, would have been far worse for middle- and low-income Americans if we were still in a sort of 1920s, Coolidgean world that many on the right these days seem to long for…. Now declaring peace isn’t the same thing as surrendering to the status quo…. But the welfare state needs thoughtful and thorough reform. And that doesn’t mean just slapping arbitrary spending caps on federal programs and block granting them back to the states…. Edward Glaeser would alter the EITC by making it a clear and transparent wage subsidy to all workers making less than $9 an hour…. There are lots of other center-right ideas out there: expanding the child tax credit, providing lump-sum bonus payments to unemployed workers who find a job, relocation vouchers to the long-term unemployed in high-unemployment areas, premium-support Medicare reform, expanding healthcare access through tax credits and well-funded high-risk pools…. The safety net isn’t going away, nor should it, but it will need to look a different tomorrow than it does today…”
Martin Wolf: An Unethical Bet in the Climate Casino: “The Republican victory in the midterm elections was a triumph for its strategy of sustained vilification of the president and obstruction of his policies. The result will have big implications for the future of the US. But it also has implications for the rest of humanity…. The US is also the world’s second-largest emitter of greenhouse gases and among the highest emitters per head. The most important consequence of this election may therefore be to bury what little hope remained of getting to grips with the risk of dangerous climate change…. Other countries will not–indeed cannot–compensate…. Nothing now suggests that humanity will move off the path towards ever greater emissions, with potentially huge and irreversible consequence. Why is that? If one ignores the charge that the science is a hoax, one sees two justifications and two reasons. One justification is that cost of action to mitigate emissions would be inordinate. It should be noted, however, that the costs indicated above would be less, possibly substantially less, than the costs to the high-income countries of the recent financial crises…. Yet, fascinatingly, the very same people who consider the costs of mitigation excessive wish to lighten financial regulation and so increase the risk of a repetition of the recent calamity. In addition, many of the opponents of such action are firm believers in the ability of economies to respond to market forces. So why do they not believe that markets would adjust to higher carbon prices? So what then are the real reasons? The first is ideology. If one accepts the existence of large global environmental externalities, one must also accept that there exists an important role for policy…. The second and more important reason is indifference to the fate of future generations…”
Daniel Drezner: Best APEC summit ever: “This year’s APEC summit… stuff got done. Seriously, a LOT of stuff got done. For the United States, the centerpiece was three bilateral deals reached with China…. New targets for carbon emissions reductions by the United States and a first-ever commitment by China to stop its emissions from growing by 2030…. Mr. Obama and Mr. Xi also agreed to a military accord designed to avert clashes between Chinese and American planes and warships… as well as an understanding to cut tariffs for technology products. Those latter two agreements would be big deals in their own right…. The climate change agreement is even bigger, however, as it lays the groundwork for a global deal to be negotiated in Paris in 2015…”
Ian Millhiser: A Non-Lawyer’s Guide To The Latest Supreme Court Case Attacking Obamacare: “The Supreme Court announced on Friday that it would hear a lawsuit, known as King v. Burwell, seeking to undermine the Affordable Care Act by cutting of subsidies intended to help millions of Americans pay for health insurance. Obamacare gives every state government a choice…. The government’s arguments are correct and the plaintiffs’ arguments are misleading…. Congress can define the phrase ‘Exchange established by the State’ to also include exchanges established by the federal government… and that is exactly what Congress did in the Affordable Care Act. Two provisions…. The first provides that ‘[a]n Exchange shall be a governmental agency or nonprofit entity that is established by a State.’ Read in isolation, this passage can be read in one of two ways. One way to read it is as a passage limiting who can set up exchanges. If an Exchange ‘shall be’ an ‘entity that is established by a State,’ that seems to mean that no other kind of ‘Exchange’ can exist. If the passage is read this way, federally run exchanges would be illegal, because they are not an ‘entity that is established by a State.’ The other… is that it is meant to define the term ‘Exchange.’ Under this second possible reading, the word ‘Exchange’ is defined so that any Exchange is deemed to be ‘established by a State,’ even if it was actually established by the federal government…. A third provision… provides that if a state elects not to set up its own exchange, ‘the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements.’… This may seem as bizarre as using the word ‘dog’ when you really mean ‘cat,’ but Congress has the power to define words in counterintuitive ways, and courts are obligated to follow those definitions…. King v. Burwell, in other words, is a straightforward case of statutory interpretation, and the law is clearly on the government’s side…. The subtitle of the Affordable Care Act which contains the provision plaintiffs rely upon is titled ‘Affordable Coverage Choices for All Americans.’ It is not entitled, ‘Affordable Coverage Choices for Americans Who Live In States That Elect To Set Up Their Own Exchanges’…”
David Beckworth: Macro and Other Market Musings: The Cure for Neo-Fisherism: History: “Stephen Williamson, John Cochrane, and Stephanie Schmitt-Grohe and Martin… argue that a central bank holding interest rates low for a long period will cause inflation to fall. The conventional view is that such actions should cause inflation to rise…. There are two reasons to be leery of Neo-Fisherism. First, it ignores Wicksell’s cumulative process. This idea says that if the central bank pegs the short-term nominal interest rate below the natural interest rate the price level will eventually explode and vice versa. The Fisher relation is an equilibrium condition and says nothing about this disequilibrium dynamic…. Second, Neo-Fisherism has been tested in the real world and failed…. Germany During and After World War I…. The United States and the Accord of 1951…. Canada Over the Past Twenty Years…. History is filled with many examples of monetary policy regimes that violate Neo-Fisherism. In fact, it is hard to come up with examples that unambiguously fit the Neo-Fisherite view…”
Olivier Blanchard et al.: Understanding Spillovers: “Hélène Rey, Professor of Economics at the London Business School, and Research Fellow at the Center for Economic Policy Research (CEPR) and the National Bureau of Economic Research (NBER), will give the keynote Mundell-Fleming lecture on the controversial issue of global financial cycles and the extent of monetary policy independence of national central banks…. Just to give you a flavor of what to expect, here are some of the questions that we will be discussing: What is the impact of changes in US monetary policy on foreign bonds yields? Does it differ depending on the policy instrument used? Do conventional and unconventional policies have a different impact on the yield curve? How has unconventional monetary policy by the European Central Bank worked? What was the impact on Europe and the on the rest of the world? What are the relevant transmission channels; are these similar to the ones under US UMP? What is the impact of government spending on the exchange rate? Is it really associated to exchange rate depreciations, i.e. ‘beggar-thy-neighbor’ type of effects? Do sovereign debt defaults in one country trigger defaults in other countries? Do they change the cost of financing and incentives to default in other countries?
What are the conditions under which international spillovers effects are Pareto efficient? How does equilibrium with strategic policy setting at the global level compare against equilibrium with global policy cooperation? Is it optimal to restrict international capital flows amid financial markets incompleteness, i.e. prices sending signals that do not induce socially optimal outcomes? Have capital controls been effective? How is their potential effectiveness affected by leaks—i.e. the limited enforcement of these measures? Does deeper trade integration through international input linkages amplify cross-border spillovers? Can fiscal and capital market integration dampen the transmission of leveraging/deleveraging shocks within a monetary union –i.e. Europe? Did growth in countries with higher trade and financial integration fall more during the Great Depression?…”
Jesse Eisinger: The Real Roots of Hedge Fund Manager Rage: “Paul Singer, the head of the $25 billion hedge fund Elliott Management, had an Edvard Munch moment in his most recent letter to his investors. ‘Nobody can predict how long governments can get away with fake growth, fake money, fake jobs, fake financial stability, fake inflation numbers and fake income growth,’ he wrote. Some commenters think the economy is improving, but he wrote, ‘We do not think this optimism is warranted, and we think a lot of the data is cooked or misleading.’ This is only the latest howl about incipient inflation from the hedge fund manager crowd over the last several years. These inflation truthers have come in for consistent mockery, and deservedly so. They have aligned with conservative economists to attack the Federal Reserve and warn that its loose monetary policies are debasing the dollar and spurring sure-to-come, any-day-now runaway inflation. As The Washington Post’s Matt O’Brien noted, Mr. Singer made a classic, and in this case pretty hilarious, mistake of generalizing from his own experience. ‘Check out London, Manhattan, Aspen and East Hampton real estate prices, as well as high-end art prices, to see what the leading edge of hyperinflation could look like,’ Mr. Singer wrote…. Still, I come not to bury the wealthy investors, but to try to clarify what I think might be informing their perspective…. Hedge fund managers came of professional age during two gigantic bubbles, mass delusions that went on for years… the stock market bubble… a credit bubble…. These hedge fund managers–and the rest of the world of sentient markets observers–have spent the formative periods of their professional lives watching the madness of crowds, enabled by central banks…. After the stress tests, the government pronounced the banks O.K. (with a promise to backstop them if they couldn’t raise private capital). It was simply a collective exercise in looking the other way. Then, weirdly, it worked…. At the risk of sounding like a Singerite, doesn’t it sound just a bit–what’s the word?–fake? Just because you are paranoid, doesn’t mean the capital markets aren’t out to get you…”
Thomas Piketty’s ‘Capital’ wins Business Book of the Year – FT.com: cg12348: “Don’t need to read the book – here is the premise. Business dreams are nothing more than greed. An you greedy business people should pay for those who are not cut out to take risk. You did not build your business – you owe everyone for your opportunity – you may have worked harder, taken more risk and even failed and picked yourself up at great personal risk and injury ( yes we often lose relationships and loved ones fall out along the way). However, none the less your are not entitled to what you make. Forget the fact that the real reason we have massive wealth today is we can now reach the global consumers – not just local – so the numbers are larger. None the less the fact is that is not fair – and fair is something life now guarentees – social engineers demand that you suspend the laws of nature and reward all things equally. 2 plus 2 = 5 so does 3 plus 3 = 5 everything is now levelled by social engineers. We need to be responsible for those who choose not to risk, want a 9 to 5 job and health benefits and vacation. The world is entitled to that – it is only right – so you must be taxed to make up for those who are too lazy to compete, simply don’t try or fail. In short the rich must map up the gap for the also ran’s. Everyone gets a ribbon. There are exceptions – if you are Google, BIDU, Apple or someone so cool or cute or a liberal who will tell people they should pay more taxes – you aren’t to be held to the same standard as everyone else.” Martin Wolf: “@cg12348, I think you succeeded in discrediting yourself comprehensively. You didn’t read the book. You do not in fact know what is in it. But you just ‘know’ what is in it. One can only hope that you do a little more work in your business ventures.”
Morning Must-Read: Kevin Drum: People Who Use Obamacare Sure Do Like It
Weekend reading
This is a weekly post we publish every Friday with links to articles we think anyone interested in equitable growth should read. We won’t be the first to share these articles, but we hope by taking a look back at the whole week we can put them in context.
Traders behaving badly
Izabella Kaminska puts the foreign exchange market-rigging scandal into context [ft alphaville].
Paul Krugman tries to understand the roots of the rage among the hedge fund set [ny times].
Labor market issues
Nick Timiraos looks at the high level of part-time employment and asks if it’s the post-Great Recession norm [wsj].
David Leonhardt argues that one fact is hanging over politics and policy: the great slowdown in wages [the upshot].
Savings and capital accumulation
Felix Salmon points out that share buybacks don’t benefit just capital but also the top management of firms [medium].
Don’t worry too much about Millennials when it comes to saving, says Catherine Rampell. Every generation saves relatively less when they are young [wapo].
What’s the value of health insurance?
The Congressional Budget Office earlier this week released a new report on the distribution of household income and federal taxes in the United States. The report contains data on household income from 1979 to 2011, which shows the impact of taxes and transfers (government income-support programs) on incomes. The data paint a different picture from the U.S. Census Bureau income data released earlier this year: the CBO shows a 47 percent increase in the median household income from 1979 to 2011 compared to a 5.3 percent increase according to Census Bureau data.
But is this latest snapshot of the distribution of U.S. incomes necessarily the right picture?
The CBO data account for a variety of factors including federal taxes, the decline in household size and the increasing importance of health insurance as a form of compensation, and transfer programs. It’s the combination of the last two categories—health insurance and transfer programs—that causes the most difficulty when measuring income.
The problem boils down to this question: how much is government-provided health insurance, Medicaid and Medicare, worth to a household? (The Affordable Care Act does not factor into this calculation, as that program did not expand health insurance coverage in earnest until 2013.)
CBO answered that question using the so-called “average cost” method. The calculation is quite easy: take all the spending on, say, Medicaid, and then divide that number by the number of Medicaid enrollees. That “average cost” is designated as the value of Medicaid to the household. Any increase in spending on the program gets registered as an increase in the value.
But CBO didn’t always answer the question this way. Prior to 2012, the agency calculated the value of government-provided health insurance by looking at the “fungible value” of health insurance. This process looks at how much money a household has compared to its basic needs for food and housing. If the household has more income than its basic costs, then the valuation process assumes that government-provided insurance would free up this money for other purposes. So that amount of money (up to the average cost) is called the fungible value.
The difference between the two methods is quite large. In their 2012 report explaining the change from the fungible value process to the average cost method, CBO noted the average cost method increased the average income of a household in the bottom 20 percent of the before-tax distribution by $4,600, or by about 25 percent. Using data from the 2013 report, which covers 1979 to 2010 and was released last December, we can see the average income of the bottom 20 percent grew by 49 percent from 1979 to 2010 using the average cost method. But using the fungible value method, the average income of that group grew by only 23 percent.
Sadly, the new 2014 report (with the latest 2011 data) doesn’t include income data using the old methodology. This means that going forward economists and policymakers will be have one less data set by which to evaluate income inequality.
Now this isn’t to say that CBO is definitely using the wrong method by dropping the average cost method. Nor is it clear that the fungible value is the correct method—after all, calculating the value of health insurance based on how much money is freed up relative to the cost of food and housing isn’t exactly intuitive. The average cost method has the merit of being consistent with the method of valuing employer-sponsored health insurance, which calculates the full value of employer-paid insurance into household income. In both cases, though, every dollar that employers spend on insurance is assumed to increase the households’ income on a one-for-one basis.
The main takeaway here is that we need to be cognizant of the difficulty of measuring the world around us. Ewe Reinhardt, a health care economist at Princeton University, admits that he and his colleagues in the profession don’t have the answer to this question yet. Government programs have certainly boosted incomes at the bottom, but we still aren’t sure by how much. If we want to understand how to improve the lot of households at the low-end of the income ladder, it’d be useful to know exactly what rung they are standing on.
Over at Grasping Reality: The Extent of Insolvency in Late September 2008
Over at Grasping Reality: No, neither Lehman, nor AIG, nor Bank of America, nor Citigroup, nor Morgan Stanley, nor Goldman Sachs was solvent at then-prevailing market prices in late September 2008:
Over at Grasping Reality: Jon Gruber in 2011: Yes, Subsidies Are Available to People Purchasing Health Insurance on the Federal Exchange
The truly remarkable thing about Halbig/King is that conservatives care much more than liberals do that the health exchanges actually work. Health exchanges are a last-ditch conservative attempt to keep private health-insurance markets from collapsing under the weight of increasing adverse selection and decreasing willingness to provide a large tax subsidy for employer-sponsored insurance. If the exchanges fail, the liberals try again in another decade with single-payer–Medicare for all–in order to attain near-universal coverage. If the exchanges fail, conservatives are out of arrows.
I have never understood why conservatives interested in health policy have not drawn a line in the sand here–have not said to their political masters: “Yes, we know that you have a strong partisan interest in destroying the signature accomplishment of a Black Democratic president. But the substantive policy stakes are too high.”
Morning Must-Read: Nick Bunker: What the Beveridge Curve Tells Us
The evolution of class-based gaps in young children’s home environments
A good education is touted by U.S. politicians of all persuasions as the first step toward upward mobility and a better life. Yet news stories across the country frequently warn that an educational “achievement gap” is leaving an increasing number of young Americans without the education or skills to achieve even a basic level of economic security—with implications for our nation’s future economic growth and prosperity. In grappling with this issue, policymakers tend to focus their attention on educational accomplishment gaps based on race and ethnicity.
The racial gaps in test scores are narrowing, and undoubtedly deserve our attention. Yet there is an even larger skills gap between children in low and high income households, one that is sizeable before they even enter kindergarten. In fact, the achievement gap between the rich and the poor is widening dramatically, so much so that income is now a better predictor of test scores than race.
That is why the Washington Center for Equitable Growth awarded one of its inaugural grants to Ariel Kalil, Professor at the Harris School of Public Policy at the University of Chicago and Director of the Center for Human Potential and Public Policy. Kalil will document and examine whether and how these class-based gaps in parenting have changed over the past 25 years, and if so, whether these changes contribute to the growing income-based achievement gap.
It is clear that the fate of low- and high-income Americans has diverged in terms of educational attainment and cognitive skills, such as memory, reasoning, perception and intuition. Can the same be said for non-cognitive skills, such as resilience, motivation and attentiveness, necessary precursors for cognitive skill acquisition? While non-cognitive skill development is just as critical for future outcomes as cognitive ability, nobody has yet undertaken the research to explore whether an income-based non-cognitive skills gap exists. Kalil’s work will do so.
Kalil will focus in particular on the parenting and home environment of preschool children. Children at this age are in the midst of a crucial developmental stage. There is a strong connection between what a child experiences early in life and how much they succeed later on. It is not only the monetary investment or quantity of time that parents devote to their child that matters, but also the quality. Factors such as how a parent talks to their child, how much stress a parent is under, or even how many books are present in the home all have effects on a child’s future well-being.
While researchers have documented an income-based divergence in the amount of time parents spend with their child, they did not measure the quality of how that time was spent. We do know that economically advantaged parents are able to offer different home environments compared to their lower-income counterparts by committing more quality time and resources to their child’s development. As Kalil explains in her project description, these differences may “play a role in producing growing gaps in cognitive and non-cognitive skills, producing a feedback cycle that leads to low socioeconomic mobility and further growing inequality.”
Kalil’s research will help policymakers understand whether and how providing young children with the resources they need to succeed is merely an admirable goal or one that also affects the nation’s future economic growth. Human capital—the level of skills, education and talents in our potential workforce—is one of the most important factors in long-term economic growth. Investing in understanding the ways in which inequality affects the home environment and early childhood development will not only allow us to benefit every individual child but may also affect our long-term economic stability.
Noted for Your Morning Procrastination for November 13, 2014
Must- and Shall-Reads:
Ian Millhiser: A Non-Lawyer’s Guide To The Latest Supreme Court Case Attacking Obamacare: “The Supreme Court announced on Friday that it would hear a lawsuit, known as King v. Burwell, seeking to undermine the Affordable Care Act by cutting of subsidies intended to help millions of Americans pay for health insurance. Obamacare gives every state government a choice…. The government’s arguments are correct and the plaintiffs’ arguments are misleading…. Congress can define the phrase ‘Exchange established by the State’ to also include exchanges established by the federal government… and that is exactly what Congress did in the Affordable Care Act. Two provisions…. The first provides that ‘[a]n Exchange shall be a governmental agency or nonprofit entity that is established by a State.’ Read in isolation, this passage can be read in one of two ways. One way to read it is as a passage limiting who can set up exchanges. If an Exchange ‘shall be’ an ‘entity that is established by a State,’ that seems to mean that no other kind of ‘Exchange’ can exist. If the passage is read this way, federally run exchanges would be illegal, because they are not an ‘entity that is established by a State.’ The other… is that it is meant to define the term ‘Exchange.’ Under this second possible reading, the word ‘Exchange’ is defined so that any Exchange is deemed to be ‘established by a State,’ even if it was actually established by the federal government…. A third provision… provides that if a state elects not to set up its own exchange, ‘the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements.’… This may seem as bizarre as using the word ‘dog’ when you really mean ‘cat,’ but Congress has the power to define words in counterintuitive ways, and courts are obligated to follow those definitions…. King v. Burwell, in other words, is a straightforward case of statutory interpretation, and the law is clearly on the government’s side…. The subtitle of the Affordable Care Act which contains the provision plaintiffs rely upon is titled ‘Affordable Coverage Choices for All Americans.’ It is not entitled, ‘Affordable Coverage Choices for Americans Who Live In States That Elect To Set Up Their Own Exchanges’…”
David Beckworth: Macro and Other Market Musings: The Cure for Neo-Fisherism: History: “Stephen Williamson, John Cochrane, and Stephanie Schmitt-Grohe and Martin… argue that a central bank holding interest rates low for a long period will cause inflation to fall. The conventional view is that such actions should cause inflation to rise…. There are two reasons to be leery of Neo-Fisherism. First, it ignores Wicksell’s cumulative process. This idea says that if the central bank pegs the short-term nominal interest rate below the natural interest rate the price level will eventually explode and vice versa. The Fisher relation is an equilibrium condition and says nothing about this disequilibrium dynamic…. Second, Neo-Fisherism has been tested in the real world and failed…. Germany During and After World War I…. The United States and the Accord of 1951…. Canada Over the Past Twenty Years…. History is filled with many examples of monetary policy regimes that violate Neo-Fisherism. In fact, it is hard to come up with examples that unambiguously fit the Neo-Fisherite view…”
What are the conditions under which international spillovers effects are Pareto efficient? How does equilibrium with strategic policy setting at the global level compare against equilibrium with global policy cooperation? Is it optimal to restrict international capital flows amid financial markets incompleteness, i.e. prices sending signals that do not induce socially optimal outcomes? Have capital controls been effective? How is their potential effectiveness affected by leaks—i.e. the limited enforcement of these measures? Does deeper trade integration through international input linkages amplify cross-border spillovers? Can fiscal and capital market integration dampen the transmission of leveraging/deleveraging shocks within a monetary union –i.e. Europe? Did growth in countries with higher trade and financial integration fall more during the Great Depression?…”
Should Be Aware of:
Thomas Piketty’s ‘Capital’ wins Business Book of the Year – FT.com: cg12348: “Don’t need to read the book – here is the premise. Business dreams are nothing more than greed. An you greedy business people should pay for those who are not cut out to take risk. You did not build your business – you owe everyone for your opportunity – you may have worked harder, taken more risk and even failed and picked yourself up at great personal risk and injury ( yes we often lose relationships and loved ones fall out along the way). However, none the less your are not entitled to what you make. Forget the fact that the real reason we have massive wealth today is we can now reach the global consumers – not just local – so the numbers are larger. None the less the fact is that is not fair – and fair is something life now guarentees – social engineers demand that you suspend the laws of nature and reward all things equally. 2 plus 2 = 5 so does 3 plus 3 = 5 everything is now levelled by social engineers. We need to be responsible for those who choose not to risk, want a 9 to 5 job and health benefits and vacation. The world is entitled to that – it is only right – so you must be taxed to make up for those who are too lazy to compete, simply don’t try or fail. In short the rich must map up the gap for the also ran’s. Everyone gets a ribbon. There are exceptions – if you are Google, BIDU, Apple or someone so cool or cute or a liberal who will tell people they should pay more taxes – you aren’t to be held to the same standard as everyone else.” Martin Wolf: “@cg12348, I think you succeeded in discrediting yourself comprehensively. You didn’t read the book. You do not in fact know what is in it. But you just ‘know’ what is in it. One can only hope that you do a little more work in your business ventures.”