Category: Equitablog

Should-Read: Jacob Levy: Black Liberty Matters

Posted on by Brad DeLong

Should-Read: Jacob Levy: Black Liberty Matters: “‘How is it that we hear the loudest yelps for liberty among the drivers of negroes?’…

…This was Samuel Johnson’s bitter rhetorical question about the American revolution, and the conflict it identifies has never been far from the surface of American political and intellectual life. Compared with the societies of 18th and 19th century Europe, the United States was unusually obsessed with the idea of liberty and unusually economically dependent on slave labor. Sometimes Americans like to tell ourselves that the revolutionary idea of liberty is what finally made abolition possible two generations later, but that sidesteps the paradox that the U.S. was one of the last countries to abolish slavery, and did so only after a decades-long expansion.

The great historical sociologist Orlando Patterson provided an important answer to Johnson’s question in his landmark study Freedom in the Making of Western Culture. Across the centuries, from ancient Greece to modern America, “people came to value freedom, to construct it as a powerful shared vision of life, as a result of their experience of, and response to, slavery or its recombinant form, serfdom, in their roles as masters, slaves, and nonslaves.”

It is precisely in slave societies, confronted with the reality of slavery, that people most acutely perceive the importance of freedom, most clearly articulate defenses of it,  and most passionately demand it. Sometimes it is slaves or ex-slaves who do so. But often it is masters. Understanding all too well how they rule over other human beings, they identify being ruled like that as the great social evil, and they fiercely refuse to be subjected to it. Slaveowners and their neighbors can see what unfreedom is like, and they resist it for themselves. This is only partly because they come to identify their freedom as their freedom to own and rule slaves, and are desperate to protect their status as masters. In a more general way, they become very sensitive to anyone proposing to treat them as they treat slaves…

I would cite Edmund S. Morgan (1975): American Slavery, American Freedom http://amzn.to/2yGhqao as well…

Weekend reading: “It’s been a taxing week” edition

Posted on by Ed Paisley

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. 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.

 Equitable Growth round-up

Austin Clemens highlights findings from the first annual “World Inequality Report” published by the WID.world project, examining how income inequality in the United States has increased at a rate that greatly surpasses that of other developed nations.

Iris Maréchal looks at new research that sheds lights on the mechanisms by which health inequities amplify economic inequalities.

Nick Bunker elevates a few key findings from the latest release of the Job Openings and Labor Turnover Survey, better known as JOLTS, and tells us what it means for the U.S. labor market.

Links from around the web

With all the frenzy around tax cuts on Capitol Hill, Annie Lowrey takes a moment to remind us that the United States was already a low-tax country. [the atlantic]

The proposed tax plan now before Congress will do little to drive economic growth, writes Eduardo Porter, instead redistributing money away from the poor and middle class and toward the wealthy, reducing welfare overall. [ny times]

Rana Foroohar looks into why labor is almost exclusively seen as a cost for businesses rather than an asset, and argues that investing more in workers can actually improve companies’ bottom line. [financial times]

Claudio Sanchez writes about how universal preschool in Tulsa created positive effects for children that last through middle school, according to the first long-term study of a universal pre-K program. [npr]

This week, the Minneapolis Federal Reserve published an interview with Princeton economist Anne Case, who discussed her work and career and women in the economics profession, saying that economics is not “altogether a healthy discipline for women. Unfortunately, I don’t see that as a problem that is going away.” [minneapolis fed]

Friday figure

From “New worldwide report on inequality shows how the United States compares” by Austin Clemens.

Should-Read: Jerry Taylor (2016): Is There a Future for Libertarianism?

Posted on by Brad DeLong

Should-Read: Jerry Taylor (2016): Is There a Future for Libertarianism?: “The Rand Paul campaign and its (admittedly uneven) agenda of social tolerance, military restraint, and fiscal conservatism is little more than a very small pile of smoking embers…

…Paul was crushed by candidates caught up in a bidding war to meet voter demands for nativism, know-nothing economics, know-nothing Dr. Strangelove foreign policy, and bigotry. Libertarian-minded Americans have every reason, once again, to cry in their beer. Why is the oft-prophesied libertarian moment in American politics so elusive?… Bryan Caplan… consumers in the marketplace of ideas… demand comfort and entertainment, not strict morality or empirical truth. While there is some validity to what Caplan says, he is too quick to conclude that libertarian ideas are true but simply too vexatious to bear….

Years ago, libertarian political theorist Jeffrey Friedman… a devastating critique. The bundled libertarian product…is an incoherent vacillation between a theory of rights that most people do not accept and lazy, unpersuasive utilitarian arguments for laissez faire capitalism. And he’s right. Moreover, the kind of libertarianism that is hostile to social insurance sits uncomfortably with our moral intuition. So much of who we are and where we end up is due to chance…. How morally compelling is it for libertarians to say: Tough!… Were libertarians to ungrudgingly accept the case for a more adequate social safety net (a case, after all, accepted to some extent by libertarian heroes F. A. Hayek, Milton Friedman) and give up on their blanket, dogmatic opposition to all regulation and market intervention (a perfect example is their remarkable hostility to mainstream climate science), they’d find a ticket to intellectual respectability. They would also find a ticket to political relevancy—something that is being well demonstrated by the Bernie Sanders campaign….

Libertarians are right to cringe at Sanders’ regulatory zeal, his romanticization of governmental power, and his domestic-spending plans…. Were we to leaven Sanders’ commitment to civil liberties, his anti-interventionist foreign policy, and his instincts regarding the social safety net with a proper respect for the wealth creation produced by free markets—someone, after all, has to make enough money to pay all the bills that Sanders would impose—we would have an agenda that would be entirely consistent with social and economic liberty. Libertarianism thus repurposed is the creed of honest, thoughtful liberalism. It is a creed that can appeal to the intellectually rudderless center-left and center-right… in stark contrast to the stale tribal dogmas that dominate the two parties. That’s the future of libertarianism. And it’s a worthy and powerful contender for being the future of America.

Should-Read: Guido Menzio and Shouyong Shi: Efficient Search on the Job and the Business Cycle

Posted on by Brad DeLong

Should-Read: Guido Menzio and Shouyong Shi: Efficient Search on the Job and the Business Cycle: “A model of directed search… in which transitions… between unemployment and employment and across employers are driven by heterogeneity in the quality of firm-worker matches…

…Agents’ value and policy functions are independent of the endogenous distribution of workers across employment states. Hence, the model can be solved outside of the steady state and used to measure the effect of cyclical productivity shocks on the labor market. Productivity shocks… generate large fluctuations in workers’ transitions, unemployment, and vacancies when matches are are experience goods, but not when matches are inspection goods…

Must-Read: Jason Furman and Larry Summers: Robert Barro’s Tax-Reform Advocacy: A Response

Posted on by Brad DeLong

Must-Read: Ahem! If Robert Barro seriously and carefully thought the long-run boost to national income from the tax “reform” bill was 7% rather than the 3% of the Nine Republican Economists Being Unprofessional, he should have said so then.

It is not good to say now: “our critics are right and we should have divided by 25 rather than 10 to get an 0.12% per year growth boost rather than an ‘as much as 0.3%’ growth boost, so let me multiply the 3% by 25 to get 7%”. That is neither “serious” nor “careful”. It is, instead, delivering a piece that nails the 0.3% per year growth boost that the Republican political spinmasters have settled on as the talking point.

Larry and Jason, please do not ascribe “seriousness” and “carefulness” to work unless it is both serous and careful. I do not believe either the work of the Nine Republican Economists Being Unprofessional or to the work of Robert Barro alone here qualifies: Jason Furman and Larry Summers: Robert Barro’s Tax-Reform Advocacy: A Response: “Now Barro has provided Project Syndicate with an analysis that uses his own estimates to conclude that the long-run level of output would increase by 7%…

…Assuming the economy converges to its long-run steady state at 5% per year,… an additional 0.3-percentage-point increase in the annual growth rate…. (Under his convergence assumptions, the 3% increase in output in his previous group letter would translate into a 0.1-percentage-point increase in the annual growth rate over the next decade. As we argued in our response to that letter, this is also consistent with the annual growth rates implied by the papers Barro and his co-signers cited.)… Barro… makes errors in modeling the actual tax provisions and in choosing parameters…. We believe that Barro’s method, correctly applied, would yield an increase in the level of long-run GDP of about 1%. This works out to a 0.05-percentage-point increase in the annual growth rate…. That this conclusion is similar to the JCT estimate should not be a surprise, because the JCT already incorporates most of the economic relationships that Barro is modeling, but correctly models the actual tax provisions and appropriate economic parameters….

Instead of being used to justify this tax bill, Barro’s insights could have helped to shape a much better tax bill. Such a bill would include permanent instead of temporary expensing, apply expensing to structures as well as equipment, and reduce the statutory tax rate by a smaller margin…

Tuning one’s analysis to hit a pre-specified political spinmaster mark—that is never a good game to play…

New worldwide report on inequality shows how the United States compares

Posted on by Emilie Openchowski
A homeless person is seen on Skid Row in Los Angeles, California. Income inequality has risen dramatically in the United States, as compared to countries in Eastern and Western Europe, according to a new report.

Academics from the Paris School of Economics and the University of California, Berkeley on Thursday debuted the first annual World Inequality Report. This report, part of the WID.world project, includes work from dozens of academics across the globe who, applying a standardized procedure, assembled inequality statistics for more than 70 countries. The WID.world team can now speak with authority about current levels and trends of inequality worldwide. I’ve highlighted three major implications from the report for the United States below, using graphs from the report.

Although income inequality increased everywhere between 1980 and 2016, it increased at an especially rapid clip in the United States, eclipsing the rate of increase in other developed nations.

The share of national income held by the richest 10 percent of the population in the United States increased to around 47 percent in 2016 from under 35 percent in 1980. By contrast, European nations saw a much more gradual increase, with considerable differences between nations. (See Figure 1.)

Figure 1

United States leads Europe in income inequality

Share of national income for the top 10 percent in United State and Europe

The contrast is even more pronounced when you compare income shares of the top 10 percent to the bottom 50 percent of income earners in the United States. While the top 1 percent now holds a share of total income about equal to the 20 percent held by half the population in 1980, the poorest half of Americans now hold just 13 percent of all income—essentially swapped positions. (See Figure 2.)

Figure 2

Share of income flips in the United States

Top 1 percent and bottom 50 percent shares of national income between 1980 and 2016

Income inequality is not an inevitable and unavoidable consequence of modern economics. While inequality soared in the United States, it rose much more gently, or even remained level, in many Western European nations.

The report’s authors emphasize that rising income inequality is not inevitable. It is attributable at least in part to deliberate policy decisions that have increased the incomes of the rich. Although inequality is rising in Western Europe and the United States, the pace is dramatically different. (See Figure 3.)

Figure 3

Leading European nations experience less dramatic rise in income inequality

Top 1 percent and bottom 50 percent shares of national income in Western Europe between 1980 and 2016

Disaggregating the data by country in Europe shows a similar pattern. Income inequality has increased since the 1980s, but rises in major European economies have been modest. (See Figure 4.)

Figure 4

Four major European economies show modest rise in income inequality

Top 1 percent income shares in France, Germany, Spain, and Italy, from 1890 to 2014

Although the United States exhibited higher income growth than the European average over this period, most Americans did not share in that growth. These Americans saw their incomes stagnate and lag behind their European peers.

The bottom 50 percent of income earners in the United States and Canada registered income gains of just 5 percent from 1980 to 2016 despite average growth of 63 percent, after accounting for inflation. By contrast, the poorest half of the population in Europe saw income growth of 26 percent. The upper middle class (what the authors of the report call the middle 40 percent, which represents those above the 50th percentile in wealth and below the 90th percentile) in the United States did a bit better than their Western European equivalents. But the real story is at the top of the income distribution, where the top 1 percent enjoyed unmatched income growth beat only by rapidly growing developing countries. The top 1 percent in the United States experienced an astounding 206 percent total increase in income. (See Table 1.)

Table 1

United States second to China in the growth of income inequality

Growth across regions of the world by income quantile, 1980 to 2016

These findings are the result of the continuing expansion of the WID.world project, which is adding new data series and new countries as researchers take up the challenge of adding more data to the project. Future releases of the report will let economists and policymakers track how income inequality is changing in the United States and how the nation compares to other countries. This first release shows the unusual position of the United States among developed countries and makes it clear that for the past three decades, income has not been trickling down the income ladder.

Must-Read: Samuel Bowles, Alan Kirman, and Rajiv Sethi: Reflections on Hayek

Posted on by Brad DeLong

Must-Read: Looking back at my archives, it is clear to me that I have written too little about the good and too much about the bad Friedrich von Hayek. Not, mind you, that I wrote anything wrong: when he was bad, he was horrid. But when he was good he was very, very good. And if I want to argue for interpretive charity for James Buchanan and Nancy MacLean—and I think I do—I should be willing to apply it to Friedrich von Hayek: Samuel Bowles, Alan Kirman, and Rajiv Sethi: Reflections on Hayek: “Hayek pioneered the informational view of markets in which prices are messages…

…his dynamic vision of the economy provides the basis of an alternative to the equilibrium methodology that today underpins the economics of information…. Hayek drew a sharp contrast between his approach and general equilibrium theory…. As he put it, the “argument in favour of competition does not rest on the conditions that would exist if it were perfect” (Hayek 1948: 104). Instead, his case for competitive markets rested on the idea that competition was a “procedure for discovering facts which, if the procedure did not exist, would remain unknown or at least would not be used” (Hayek 1968)….[But] the very usefulness of prices (and other economic variables) as informative messages–which is the centrepiece of Hayek’s economics–creates incentives to extract information from signals in ways that can be destabilising….

Hayek… saw the strength of the market economy as arising from the learning and diffusion of new information that it accomplishes in disequilibrium. He argued that “the modern theory of competition deals almost exclusively with a state… in which it is assumed that the data for the different individuals are fully adjusted to each other, while the problem which requires explanation is the nature of the process by which the data are thus adjusted.” In particular, “competition is by its nature a dynamic process whose essential characteristics are abstracted away under the assumptions underlying equilibrium analysis” (Hayek 1948). Hayek’s critique was aimed at the assumption of the passive, price-taking behaviour that is a defining feature of the Walrasian framework….

Is Hayek’s critique of Walrasian general equilibrium obsolete?… We think not. Economic analysis largely continues to be based on characterisations of equilibrium states, without attention to the processes through which such states might (or might not) be reached. Contemporary models of strategic competition and search are equilibrium models, characterised by mutually consistent plans…. There is a common understanding across all individuals regarding the structure of the economy in which they are embedded. Left unaddressed is the process through which such a common understanding might arise….

Hayek… did implicitly assume that the process of entrepreneurial discovery would be stabilising on average…. But the same problems of stability that have plagued general equilibrium theory also arise in the context of entrepreneurial discovery–individually profitable activities can be destabilising in the aggregate. In fact, the interpretation of prices as signals can itself give rise to destabilising feedbacks, especially through the linkage of financial and goods markets. Since changes in asset prices can lead to substantial short-term capital gains and losses, information relevant to changes in such valuations will be actively sought. To the extent that an asset price rise can be used to infer that this happened as a result of the reaction of informed individuals to a change in the conditions of demand or supply, other individuals may seek to profit by buying and hoarding the asset in anticipation of further increases in price. But this activity itself has price effects, which in turn may result in rational hoarding by others, amplifying the destabilising process.

Such effects can be captured by models of information cascades…. In financial markets, attempts to extract information from prices can give rise to prolonged departures from fundamentals in theoretical models (Hong and Stein 1999, Abreu and Brunnermeier 2003), the empirical counterpart of which is excess volatility in prices (LeRoy and Porter 1981, Shiller 1981). When leverage is significant, relatively small informational shocks can give rise to large asset revaluations as funding dries up and assets must be liquidated at fire sale prices (Brunnermeier and Pedersen 2009, Adrian and Shin 2010, Geanakoplos 2010). Since information is costly to acquire and process, assets that have sufficient seniority are considered safe under normal conditions. These can suddenly start to be perceived as risky and “information-sensitive” in crisis conditions, causing trading volume to collapse or markets to shut down entirely (Gorton 2012). Such phenomena do not remain confined to the financial sector….

While Hayek himself did not develop a mathematical formulation of his vision, there do exist models of the economy as a complex adaptive system in which aggregate outcomes are determined by the social interaction of agents with limited and local knowledge. This so-called agent-based literature makes intensive use of computational rather than analytical methods, and focuses on disequilibrium adjustment rather than the characterisation of equilibrium paths. Epstein (2007) calls the approach generative, while Tesfatsion (2006) calls it constructive. Its connection to Hayek’s thought has been previously noted (Vriend 2002, Rosser 2012, Axtell 2016). A key element in this literature is the absence of imposed coordination…. There is no assumption that individual plans are mutually consistent, or that subjectively perceived laws of motion coincide with the objectively realised laws of motion…. This does not, of course, rule out model-consistent expectations or market clearing as endogenous outcomes, arising through adaptation….

Agents may respond mechanically to inputs on the basis of physical laws or behavioural rules, or they may be sophisticated and forward-looking. They may be inter-temporal optimisers employing the same dynamic programming methods used in orthodox models, but subject to private beliefs rather than mutually consistent expectations. The key difference is that “events are driven solely by agent interactions once initial conditions have been specified… rather than focusing on the equilibrium states of a system, the idea is to watch and see if some sort of equilibrium develops over time” (Tesfatsion 2006)…. Leijonhufvud (2006) has argued that agent-based process analysis “will finally make it possible to tackle the central problem of macroeconomics, namely, the self-regulating capabilities of a capitalist economy,” but that the method remains in its “technical infancy.”… It is only a matter of time before the methodology will reach a level of development at which fundamental questions at the core of the discipline can be systematically explored…

Should-Read: David Anderson: Aetna, CVS and data thoughts

Posted on by Brad DeLong

Should-Read: The Aetna-CVS vertical combination is about sharing information, yes. But is it about sharing information to improve care? Or is it about sharing information to figure out ways to underwrite your coverage pool via plan design and advertising?: David Anderson: Aetna, CVS and data thoughts: “This is a risk adjustment data gold mine…

…Aetna has a kick-ass data team. They have huge and deep data sets that they control. It is quite likely that a significant chunk of their risk adjusted covered lives in 2018 have shown up in some point in their data bases in the past decade. An individual who is now insured by Aetna Medicare Advantage in Texas may have had an amputation claim from Aetna Medicaid in Pennsylvania that is dated in 2009. That is valuable information to build and curate a risk adjustment optimization list. However there are always serious holes in the Aetna list…. This is where CVS comes in. There is a good chance that CVS has filled some prescriptions for people who do not show up in Aetna’s data banks….

The other side… is that Aetna will have far more granular level information on their markets. This will influence plan design, it will influence marketing materials, it will influence whether or not Aetna enters or leaves a market or bids for certain contracts.

Finally, the biggest data bonanza from my point of view is the CVS non-prescription data that is tied to the loyalty card that almost everyone carries on their keychain. This should give a massive predictive edge to the Aetna data geeks. Let me share way too much personal…. If an insurer could see the non-prescription purchases tied to the customer loyalty card, they had an excellent idea of when my wife and I started trying for Kid #2. If this was an insurer that sought to be socially productive and useful, we could expect to get mailings and outreach calls on pre-natal and perhaps pre-conception health enhancers. If the insurer was run by cynical bastards and the time of the year was right, they might try to be enough of a pain in the ass to get us to switch insurers so that someone else could pay for labor and delivery….

This merger offers an incredibly rich vein of data that can be mined and minted. This makes a lot of sense to me without even thinking about how the entire pharmacy benefit management function is a messed up situation.

Should-Read: Robert Waldmann (2008): Optimal Capital Income Taxation It Is

Posted on by Brad DeLong

Should-Read: A veritable Samson armed with the jawbone of an ass—that is, the standard public finance model of capital-income taxation—Robert Waldmann wreaks havoc on the intellectual hosts of the Philistines by the mere expedient of taking the view that the most useful way to use the model is to ask what it tells us is optimal policy from a random initial starting position, rather than what optimal policy will be after a long period of optimal adjustment has passed. Very smart. But not of great interest because it brings with it unwelcome political conclusions to the overwhelming bulk of those who are etched up to follow the argument; Robert Waldmann (2008): Optimal Capital Income Taxation It Is: “The simplest… standard growth… aK model with optimizing consumers with logarithmic utility…

…or… Cass-Koopmans with Cobb-Douglas production and logarithmic utility…. The distribution of wealth is unequal at time 0. A utilitarian state would want to redistribute income… first best… with a lump sum transfer… rule that out by setting an upper limit on… tax [rates]…. What is the best policy?… Tax capital income at the maximum… until perfect equality is achieved…. [Then] there is no more reason to tax and taxes are zero….

A simple-minded application of the model to policy would suggest that we should tax as much as we can until everybody is perfectly equal. Now the model is not the world, and this would be terrible policy. However, the argument for roughly the opposite policy is based on the same silly model plus totally turning its implications upside down by pretending that time has already gone to infinity.

The assumption of logarithmic utility… makes a huge difference…. Constant elasticity of substitution…. If the state can’t precommit, the implications are just like those for logarithmic utility…. With recommitment, if the intertemporal elasticity of substitution is less than one… tax as much as possible until the initially rich are as poor as the initially poor, and then tax them so more.

These conclusions follow from analysis using standard techniques of the simplest case of the standard model. I think that they are not noted in the literature. In conclude… that… mathematical analysis of stylized models is taken seriously so long as the conclusions fit… prejudices…

The unequal economic consequences of bad health

Posted on by Emilie Openchowski
The New York City skyline gives backdrop to a man jogging along the Hudson River in Hoboken, N.J. A new study confirms the correlation between good health and higher socioeconomic outcomes.

Many studies over the past several decades document the inverse relationship between the socioeconomic status of people around the world and their health. Some of these experts argue that health conditions contribute to these socioeconomic differences, while others suggest it is the unhealthy behaviors adopted by people lower down on the rungs of the economy and society that impact their health.

Weighing into this debate are three scholars who take a new approach to the question, using a model to quantify the economic costs of being in bad health. The new research paper, by economists Mariacristina De Nardi at the Federal Reserve Bank of Chicago, Svetlana Pashchenko at the Terry College of Business at the University of Georgia, and Ponpoje Porapakkarm at China’s National Graduate Institute for Policy Studies, focus on men in the United States with high-school degrees, classified by health types (good health/bad health) according to the answers they gave in two nationwide surveys. Both of the University of Michigan surveys—the Panel Study of Income Dynamics and the Health and Retirement Study—ask respondents to rank their overall health level.

Previous research assumed that a person’s health in the future is mainly based on their health right now, but the three authors instead find that “the longer an individual has been unhealthy, the less likely he is to become healthy.” Because of this finding, they design a new model that better fits the data—a so-called effective life-cycle model, which factors in all kinds of situations individuals may face over the course of their lifetime to assess health dynamics, quantify the bad health effects, and evaluate the disparity they create. The authors’ approach takes into account each person’s history and populationwide data on the occurrence of health problems. By doing so, they can model individuals’ work histories, the health insurance they buy, and the saving decisions they make. At the same time, the model enables the authors to assess both the financial and nonfinancial consequences of bad health.

Their first finding confirms what many researches have already demonstrated: There is a substantial correlation between health-related inequalities and economic outcomes. They find that among U.S. men, the major impact of bad health is a loss in labor earnings—a cost that exceeds their out-of-pocket medical spending. This monetary burden unequally affects them across health types and rises with the number of years spent being unhealthy. Indeed, while the participation rate in the workforce for healthy U.S. men reaches 90 percent, it is only 70 percent for generally unhealthy men, who earn 28 percent less than the healthy men. What’s more, they find that the median wealth of male individuals in good health is twice that of those in bad health. The former gap is known as the income-health gradient; the latter gap is called the wealth-health gradient.

Secondly, and more importantly, De Nardi, Pashchenko, and Porapakkarm discovered a robust correlation between what economists refer to as time preferences—how individuals value their consumption today, as compared to their future consumption—and health types. The authors find that long-term unhealthy men in the United States are less patient and tend to save much less than others. Thus, the income-health gradient does not entirely imply that the wealth-health gradient is a given, but rather that the gap is mainly explained by the insight that a person in bad health (all other things being equal) would spend more than save.

The three authors’ third finding evaluated the nonfinancial effects of health by looking at lifetime utility, or the satisfaction individuals gain from being alive, considering the opportunities they have and the willingness of these men to pay to be healthy. The authors find that bad health stems from 40 percent of the variation in lifetime utility and that, on average, men in the United States are willing to pay 11 percent of their income to raise the probability of being healthy by 1 percent. Why? For these individuals, a longer life expectancy is the most valuable aspect of being healthy.

Taken together, these findings clarify the mechanisms by which health inequalities amplify economic inequalities. This new life-cycle model is a welcome contribution to the debate because it quantifies the effects of bad health on economic outcomes. But the results also suggest that future research should take into account the impact of health investments over lifespans, examining the money individuals spend in technology in order to improve their levels of health.

Iris Maréchal is a Fall intern at the Washington Center for Equitable Growth and a French exchange student at the Johns Hopkins University within the Aitchison Fellowship Program.