Category: Equitablog

Must-Read: Cathy O’Neal: The Fight for 15

Posted on by Brad DeLong

Must-Read: It seems to me that there are two questions: 1. Should the the aggregate of the minimum wage and the earned income tax credit add up to a living wage? Answer: yes. 2. what is the right mix and balance between raising the minimum wage (which will, if it is raised high enough, diminish the total number of jobs) and increasing the earned income tax credit (which will, once we are away from the zero lower bound in interest rates, require raising taxes somewhere in the system)? The minimum wage should not be considered in isolation.

Of course, minimum-wage advocates are fearful of the following: We say raise the minimum wage, they say increase the earned income tax credit instead. We say increase the earned income tax credit, they say it is more important to reduce the deficit. We say fund the earned income tax credit by raising taxes, they say lower taxes promote entrepreneurship. we say cut defense spending, they say ISIS and Iran. The shift of attention to the earned income tax credit is then seen as–which it often is–part of the game of political Three Card Monte to avoid doing anything while not admitting you are opposed to doing anything.

That is all very true.

So raise the minimum wage, and then bargain back to a lower minimum wage and a higher income tax credit if it turns out that there are significant disemployment affects.

Cathy O’Neil: The Fight for 15: “Whenever I hear an argument about the possibility of raising the minimum wage to $15 per hour…

…it sounds like this. Person A, who is for it, makes the case that it’s too difficult to live on minimum wage earnings, and it doesn’t make sense for someone working full time to struggle so much to feed their kids. Person B, who’s against it, says that 15 is too high, that too many employers will be unwilling to pay for unskilled workers at that rate, and they will replace such people with machines instead of doing so. Essentially, they argue the bad will outweigh the good…. I am often Person A…. I think about what I could theoretically live on, if I had a minimum wage job, and I have extreme sympathy for people who try to.

Let’s get back to Person B’s argument. It’s weird because it sounds like Person B is arguing for the sake of the poor, but they’re ignoring the vital question of what is a living wage…. For the sake of holding on to crappy jobs that pay below living wages, and where the employees need food stamps to survive, we don’t raise the bar so they can actually sustain someone in a basic way…. As long as we live in a country where the model is that a job is supposed to support you, we should make sure it actually does.

Must-Read: Kenneth E. Thorpe, Lindsay Allen, and Peter Joski: Out-Of-Pocket Prescription Costs Under a Typical Silver Plan Are Twice as High as in the Average Employer Plan

Posted on by Brad DeLong

Kenneth E. Thorpe, Lindsay Allen, and Peter Joski: Out-Of-Pocket Prescription Costs Under a Typical Silver Plan Are Twice as High as in the Average Employer Plan: “The most popular Marketplace plan—the silver plan—has significantly higher cost sharing…

…than does a typical employer-sponsored plan, which may cause patients to reduce the use of cost-saving services that are essential for managing chronic conditions. We estimated the impact of higher cost sharing on drug and medical spending among patients with chronic conditions… out-of-pocket expenses for medications in a typical silver plan are twice as high as they are in the average employer-sponsored plan, resulting in fewer prescriptions filled and refilled and in higher spending on other medical services. Maintaining the use of cost-effective prescription medications might require lower cost sharing for patients with chronic conditions than is currently found in the Marketplaces.

Must-Read: Paul Krugman: TPP Take Two

Posted on by Brad DeLong

Paul Krugman: TPP Take Two: “What I know so far: pharma is mad because the extension of property rights in biologics is… shorter than it wanted…

…tobacco is mad because it has been carved out of the dispute settlement deal, and Rs in general are mad because the labor protection stuff is stronger than expected. All of these are good things…. I’ll need to do much more homework…. But it’s interesting that what we’re seeing so far is a harsh backlash from the right against these improvements. I find myself thinking of Grossman and Helpman’s work on the political economy of free trade agreements, in which they conclude, based on a highly stylized but nonetheless interesting model of special interest politics, that: “An FTA is most likely to politically viable exactly when it would be socially harmful.” The TPP looks better than it did, which infuriates much of Congress.

Noted for the Evening of October 6, 2015

Posted on by Brad DeLong

Must- and Should-Reads:

Might Like to Be Aware of:

Must-Read: Tim Wu: What Ever Happened to Google Books?

Posted on by Brad DeLong

Must-Read: I wonder: Berkeley’s very sharp Pam Samuelson played a substantial role in helping to create this cluster#@$%. Yet I haven’t heard much from her trying to fix it. I wonder why not?

Tim Wu: What Ever Happened to Google Books?: “It was the most ambitious library project of our time…

…a plan to scan all of the world’s books and make them available to the public online…. Today, the project sits in a kind of limbo. On one hand, Google has scanned an impressive thirty million volumes… but… most of it remains inaccessible. Searches of out-of-print books often yield mere snippets of the text–there is no way to gain access to the whole book…. It would be the world’s first online library worthy of that name. And yet the attainment of that goal has been stymied, despite Google having at its disposal an unusual combination of technological means, the agreement of many authors and publishers, and enough money to compensate just about everyone who needs it. The problems began with a classic culture clash when, in 2002, Google began just scanning books, either hoping that the idealism of the project would win everyone over or following the mantra that it is always easier to get forgiveness than permission….

By 2008, representatives of authors, publishers, and Google did manage to reach a settlement to make the full library available to the public, for pay, and to institutions. In the settlement agreement, they also put terminals in libraries, but didn’t ever get around to doing that. But that agreement then came under further attacks from a whole new set of critics, including the author Ursula Le Guin, who called it a ‘deal with the devil.’… Four years ago, a federal judge sided with the critics and threw out the 2008 settlement…. ‘Sounds like a job for Congress,’ James Grimmelmann, a law professor at the University of Maryland and one of the settlement’s more vocal antagonists, said at the time. But, of course, leaving things to Congress has become a synonym for doing nothing…. Google… [could] have declared the project a non-profit…. Authors and publishers… were difficult and conspiracy-minded…. Outside critics and the courts were entirely too sanguine about killing, as opposed to improving, a settlement…

Must-Read: Matthew Yglesias: The valid point that people raise about new construction…

Posted on by Brad DeLong

Matthew Yglesias: “The valid point that people raise about new construction is this: Rich people like fancy houses…

…Rich people also like upscale neighborhood retail. So you can get an upward spiral in which fancy houses lure rich residents who lure fancy retail which lures more rich residents. There’s truth to this, but the thing you have to recognize is that a ban on building fancy new buildings is not the same as a ban on fancy houses…. People buy-up the existing housing stock and start renovating it. They create bigger units, and reduce the population density per square foot. They install granite countertops. And they unleash the upward spiral that people are worried about. What is maybe true is that if you banned not just new construction, but new renovations then you could maybe prevent richer people from moving into a neighborhood and raising prices. Or you could just ban new people from moving-in altogether. Or maybe you could allow new residents, but only if they fit the demographic profile of existing residents. I don’t want to claim that preventing the character of a neighborhood from changing is totally impossible. But to actually achieve it requires a much more robust policy response than stopping people from putting up new buildings…. Within the realm of plausible ideas that people actually consider, the best way to respond to a surge of demand for living in a neighborhood is to identify a handful of genuinely crucial historic buildings to preserve and then let people build as much new housing as is economically feasible. The neighborhood’s character will change as a result, but trying to prevent all change is silly policy objective whereas ‘maximizing the number of people who can live where they want to live’ is a pretty reasonable one.

Macro Situation: Things Are Profoundly Different Today from What 10 Years Ago We Thought Would Be

Posted on by Brad DeLong
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Must-Read: Barbara Roper: It Isn’t the Money, It’s the Economics

Posted on by Brad DeLong

Must-Read: Barbara Roper: It Isn’t the Money, It’s the Economics: “If people actually take time to read the study, which Litan coauthored with Hal Singer of the Progressive Policy Institute…

…what is most shocking… is just how poor the quality of the analysis is…. Litan and Singer’s argument hinges on… 1) that industry will follow through on its threats to stop serving smaller accounts if the rule is adopted and 2) that investors will lose access to important benefits… as a result of losing access to human advisors. The first… is based on a fundamental error…. In building their case, Litan and Singer rely heavily on a 2011 Oliver Wyman study, also funded by industry rule opponents…. That study assumed that commissions would be prohibited and concluded that small savers would lose access to advice if a ban on commissions were adopted. Litan and Singer chide the Department of Labor for its ‘too facile’ dismissal of the study ‘on the grounds that brokers can continue collecting commissions,’ noting that ‘only firms, but not individual brokers, would be able to receive commissions’ under the reproposed rule. It is difficult to say where they got this notion….. It is a verifiable fact that, under the rule, individual brokers as well as broker-dealer firms could be compensated through commissions if they abide by the terms of the best-interest contract exemption….

Litan and Singer claim, mistakenly, that “the entire evidentiary rationale for the rule … depends on individual brokers no longer receiving commissions.” On the contrary, the regulatory-impact analysis is premised on the notion that, if brokers serve their clients under a best-interest standard and place reasonable restrictions on practices that conflict with that standard, it will encourage recommendations of lower cost, higher-quality investment options. As a result, investors who turn to brokers should see higher returns. But that has nothing to do with moving brokers away from earning commissions, as Litan and Singer mistakenly assume. There are any number of other problems with the study, but these three go to the heart of its credibility, or lack thereof…

Must-Read: Nicholas Bagley, Amitabh Chandra, and Austin Frakt: Correcting Signals for Innovation in Health Care

Posted on by Brad DeLong

Nicholas Bagley, Amitabh Chandra, and Austin Frakt: Correcting Signals for Innovation in Health Care: “A combination of legal rules and institutional forces pushes health plans to cover nearly every medical innovation…

…The result is that many Americans are effectively forced to over-insure themselves for coverage of some therapies they do not much value. At the same time, others might be willing to spend even more on health plans that would cover therapies that are not considered medically necessary or that have not yet been developed. Technology developers thus receive distorted signals about the size of the market for new innovations, leading them to develop medical treatments that are not in line with what Americans would demand in a wellfunctioning market….

The most prominent policy ideas for reining in spending growth concentrate on slowing the rate of technology diffusion. In so doing, they fail to fully grapple with the mix and pace of technology innovation…. Addressing the incentives for technology development, and not just its diffusion once invented, is critical. We therefore advance a handful of policy proposals to adjust the innovation signal…. (1) Replacing the tax exclusion for employer-provided health insurance with a tax credit, (2) strengthening Medicare’s coverage determination process, and (3) experimenting with reference pricing for certain therapies…. Alternative approaches to tackling the one-size-fits-all nature of insurance–in particular, allowing health plans to compete on the scope of what technologies they cover–would require regulations that are unlikely ever to be politically and culturally attractive.

Untangling the sources of racial wealth inequality in the United States

Posted on by Bridget Ansel
Home for sale, Veer.com

Academic research on the reasons for rising wealth inequality in the United States is not as robust as research on growing income inequality, though there is little question that both types of inequality are on the rise. According to research by University of California-Berkeley economists Emmanuel Saez and Gabriel Zucman, the top 0.1 percent of families tripled their share of U.S. wealth since the late 1970s, from 7 percent to 22 percent, in 2012, the last year for which complete data are available. These 160,000 families each had a net wealth of at least $20 million.

But this is just one way of looking at how wealth is unequally distributed across society. Wealth in the United States is also highly unequally distributed by race and ethnicity. And it looks as though this inequality has increased since the Great Recession. Researchers, however, aren’t exactly sure of the sources of these wealth gaps. A new paper by economists at the Federal Reserve tries to sort out the role of various sources.

The paper, by economists Jeffery Thompson and Gustavo Suarez, tries to figure out how much of the wealth gap between white Americans and black and Hispanic Americans can be attributed to a number of “observable” characteristics. These characteristics include education level, income, homeownership and inheritances received from parents. The two authors use data from the Survey of Consumer Finances, a data set on family wealth holdings run by the Federal Reserve that covers from 1989 to 2013, to catalogue these observations.

They find that the amount of wealth inequality by race and ethnicity is quite large. The average wealth of white families was, on average, five to six times larger than that of black families, and between four to five times larger than those for Hispanic families. In sorting out the source of these gaps, Thompson and Suarez find that a large share of the gap can be explained by these “observable” factors. The largest factors appear to be the levels of income and homeownership. In other words, the fact that white Americans have higher income levels and rates of homeownership explain a large chunk of the gap. The results, however, show that inheritances don’t play that big of a role in the gap, though the authors offer no explanation of why this might be the case.

In total, the two authors believe these observable factors explain a large chunk of the racial and ethnic wealth gap. At the median, the exact middle of the distribution of wealth, they explain almost the entirety of the gap between white and Hispanic wealth and 80 percent of the gap between white and black Americans. Yet the role of unobserved factors rises the further they research those at the top of the wealth ladder. For the top 10 percent of families, the observable factors explain only 70 percent of the gap between black and white Americans and only 80 percent of gap with Hispanic families.

In other words, the gap between families at the top of the white wealth ladder and families at the top of the black and Hispanic ladders can’t be fully explained by differences in education, income levels, homeownership, and inheritances. Some other factors, then, must explain the rest of this gap.

Discrimination, in its many forms including redlining in the housing market (with probable corresponding affects on inheritances) could play a major role in this unexplained gap. But Thompson and Suarez note that these unobserved factors aren’t necessarily just discrimination. They note that the universe of things that aren’t observed is quite high, so a number of factors could be at play here. At the same time, many of the observable factors they find that explain wealth inequality can be very strongly influenced by discrimination. Disparities in income, education, homeownership, and inheritances in the United States were and are influenced by racial and ethnic discrimination.

Clearly this accounting of the wealth gap is incomplete. Teasing out what those remaining unobserved factors are and why they play a larger role at the top the of wealth ladder would give economists and policymakers alike a sense of the connections between the sources of income and wealth inequality in the United States.