Page 103 – Equitable Growth

Weekend reading: the “U.S. Census Bureau data” edition

Posted on September 13, 2019September 13, 2019 by Ed Paisley

This is a post we publish each Friday 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 relevant and interesting articles 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

Median household income has not changed in a statistically significant way between 2017 and 2018, writes Alix Gould-Werth in an analysis of this week’s U.S. Census Bureau release of the 2018 poverty rate and 2018 median household income in the United States. While the official poverty rate went down 0.5 percent, finally returning to its pre-Great Recession level, median household income has not improved significantly relative to 2007. A more nuanced look at the data shows that overall economic hardship did not decrease in 2018—despite an increase in Gross Domestic Product over the same time period—thanks to growing income inequality. This means millions of families are vulnerable to falling into poverty again when the next recession inevitably hits.

As wealth inequality grows, ideas about how to raise taxes on that wealth abound. In an issue brief, Greg Leiserson and Will McGrew outline a system of mark-to-market taxation, which changes the way we currently tax investment income such that investors would pay tax on the increase in the value of their investments each year, rather than deferring tax until those investments are sold. The brief reviews the revenue potential of this taxation system and summarizes the distribution of the resulting burden, which would fall overwhelmingly on wealthy individuals.

The U.S. Bureau of Labor Statistics this week released the July data from the Job Openings and Labor Turnover Survey, or JOLTS. Kate Bahn and Raksha Kopparam produced four graphs using the data, which demonstrate an expansionary labor market even as job openings decreased slightly in July.

Read Will McGrew’s coverage of last month’s sixth annual Freedom and Justice Conference—hosted by the National Economic Association and the American Society of Hispanic Economists at University of New Mexico’s Department of Economics—which focused on better incorporating those who are economically marginalized into the field of economics, both as researchers and as subjects of research.

Equitable Growth announced more than $200,000 in funding for two grants studying the effects of state-level paid family and medical leave on labor market participation and on opioid abuse. The two off-cycle grants will study issues “that matter to families and that also have profound implications for the labor market and broader economy,” said Alix Gould-Werth in a press release.

Brad DeLong gives us his latest worthy reads, providing his takes on content from Equitable Growth and around the web.

Links from around the web

During President Donald Trump’s second year in office, safety net programs—including the Supplemental Nutrition Assistance Program, Social Security, and housing subsidies—and the benefits they provide to low-income families kept almost 48 million people out of poverty. That’s close to 3 million more people above the poverty threshold than in 2017, reports Alexia Fernández Campbell for Vox, analyzing the newly released U.S. Census Bureau data on poverty and median income. Yet, she continues, repeated efforts to slash welfare spending—including President Trump’s budget proposal for fiscal year 2020 and attempts to disable Obamacare—will only push more people into poverty, should they succeed.

Since 2009, the rate of uninsured people living in the United States has been declining, largely thanks to the Affordable Care Act and the creation of state healthcare exchanges in 2014. But in 2018, that progress halted, as almost 2 million more people became uninsured, bringing the total to 27.5 million Americans living without healthcare coverage—including more than 4 million children—reports Tami Luhby for CNN.

After the California state legislature passed landmark legislation on Wednesday changing the employment status of app-based company employees, companies such as Uber Technologies, Inc. and Lyft, Inc.—which are some of the main targets of the law—responded by declaring they were exempt from key provisions, leading to confusion about who, exactly, will be covered once it goes into effect. Under the law, workers are considered employees (with all the rights, benefits, and protections that implies), and not contractors, if a company controls how they perform their tasks or if their work is central to a company’s regular business. So, if this law doesn’t affect Uber and Lyft drivers, then who does it apply to? The ensuing debate “could have wide economic ramifications for businesses and workers alike in California, and potentially well beyond as lawmakers in other states seek to make similar changes,” write Kate Conger and Noam Scheiber for The New York Times.

For the first time in history, write Heather Long and Andrew Van Dam for The Washington Post, most new hires of prime working age (ages 25 to 54) in the United States are people of color. Specifically, black and Hispanic women—who have been entering the workforce at an increasing rate since 2015—have reshaped the workforce and pushed it across this historic threshold. But, the authors ask, will these minority groups be able to hold on to these gains when the labor market weakens as the economy slows down?

Attorneys general for 50 states and territories—only California and Alabama have not signed on—announced an antitrust investigation into Alphabet Inc.’s Google unit, stopping short of filing a lawsuit for the time being. The probe is focused on the tech giant’s online advertising, though could expand to other areas, including “the way the company processes and ranks search results to the extent to which it may not fully protect users’ personal information,” writes Tony Romm for The Washington Post. This investigation comes as regulators around the world are looking into the company’s practices, including investigators in the European Union, who recently fined Google $9 billion for competition-related issues over the past 3 years.

Friday Figure

Figure is from Equitable Growth’s “Newly released U.S. poverty statistics show that recent economic growth is not broadly shared,” by Alix Gould-Werth.

Brad DeLong: Worthy reads on equitable growth, September 6–13, 2019

Posted on September 13, 2019 by Ed Paisley

Worthy reads from Equitable Growth:

Diverse scholars at conferences ask different questions—questions as, if not more, important than the mainstream. Will McGrew reports on this year’s “National Economic Association and the American Society of Hispanic Economists Work to Diversify and Strengthen Economics Research,” writing: “Last month, the National Economic Association and the American Society of Hispanic Economists hosted the sixth annual NEA-ASHE Freedom and Justice Conference at University of New Mexico’s Department of Economics. As in previous years, this conference provided an invaluable contribution to the field by elevating new communities, topics, and methodologies within economics research. Indeed, the papers presented at the conference painted a fuller picture of the current state of the U.S. economy and provided empirically grounded recommendations for a stronger and fairer economic future.”
Very good advice for California now—and for future congressional majority leaders and speakers and presidents who might represent the large majorities of American voters who want these problems addressed sensibly and substantially. Read Heather Boushey’s “Equitable Growth CEO’s Written Testimony at California Future of Work Commission,” in which she writes: “The monopoly power problem … exacerbates inequality, contributes to wage stagnation, limits entrepreneurship, increases the cost of living, and stifles innovation … Industry concentration and declining economic dynamism reduces wages by limiting workers’ employment options and opportunities for advancement, and allows firms to use their increasing power to squeeze worker compensation in favor of greater profits. Workplace fissuring, through the rise of independent contractors, franchisors, and contingent hiring, prevents workers from accessing career ladders, matching into the jobs they are best suited for, and gaining sufficient bargaining power to unlock wage increases. Persistent historical disparities such as wage discrimination and social norms reinforce occupational segregation into jobs that don’t pay well enough and offer little room for advancement. Yet policymaking over the past several decades has been moving in the wrong direction. Specifically: Antitrust law now allows firms to accrue and abuse monopoly power, not just over consumers but also in many cases over workers. Successive rounds of tax cuts, including the Tax Cuts and Jobs Act of 2017 and several tax cuts under the George W. Bush administration, have lowered the progressivity of the tax code and greatly decreased taxes on wealth, capital, inheritances, and corporate profits. Outdated labor law provides insufficient protection of workers and has facilitated the long decline of unions, traditionally the most vocal and ardent advocates for the middle class. We have an opportunity right now to take a step back to look at the scale and scope of the problems and develop real solutions.”
These two are Equitable Growth’s not-so-secret but very powerful intellectual weapons on issue of public finance. Read Greg Leiserson and Will McGrew, “Taxing Wealth by Taxing Investment Income: An Introduction to Mark-To-Market Taxation,” who write: “The sharp increase in U.S. wealth inequality in recent decades has spurred interest in increasing taxes on wealth. This issue brief introduces mark-to-market taxation, one approach to raising taxes on wealth by reforming the taxation of investment income. In a system of mark-to-market taxation, investors pay tax on the increase in the value of their investments each year rather than deferring tax until those investments are sold, as they do under current law. This issue brief first defines investment income and explains how mark-to-market taxation works. It then reviews the revenue potential of this approach to taxing investment income, explaining why a mark-to-market system can raise substantial revenues. Finally, it summarizes the distribution of the burden that would result, which would fall overwhelmingly on wealthy individuals.”

Worthy reads not from Equitable Growth:

Listen to a conversation between Reed Hundt and me about the “limits of, and challenges to, free-market economics,” with Joshua Cohen, co-editor of Boston Review, “Neoliberalism and Its Discontents,” which is prefaced on the web pages of the host of the discussion, the Commonwealth Club: “At the end of the Carter administration and throughout the Reagan Revolution, belief in the power of markets became America’s preferred economic policy doctrine. President Bill Clinton all but announced the triumph of free markets when he declared that ‘the era of big government is over.’ President Barack Obama faced the worst economic crisis since the Great Depression and pushed a recovery plan that was more limited than many had hoped, seeming to protect the very sectors that had created it … In his new book, A Crisis Wasted, Reed Hundt … makes the argument that Obama missed an opportunity to push for a new progressive era of governance, a miscalculation that ultimately hobbled his administration.”
A more sophisticated model says that the 2 percentage point drop in the Wicksellian equilibrium real interest rate due to the coming of the low interest rates of “secular stagnation” should have triggered a 2 percentage point increase in the Federal Reserve’s inflation target. I think this is probably right. It mirrors the conclusion of a less-sophisticated model—one in which proper policy simply seeks to keep inflation as low as is consistent with not exceeding a fixed small probability of hitting the zero lower bound on interest rates. Read Philippe Andrade, Jordi Galí, Hervé Le Bihan, and Julien Matheron, “The Optimal Inflation Target and the Natural Rate of Interest,” in which they write: “Starting from pre-crisis values, a 1 percentage point decline in the natural rate should be accommodated by an increase in the optimal inﬂation target of about 0.9 to 1 percentage point.”
The interest rate is an optimal-control variable. Almost always, in an optimal control problem—like in steering a boat—you are doing one of two things: as much as you can (wheel hard left or hard right), or staying the course (wheel center, unsure whether your next move will be to nudge it left or right, but certainly your next move will be small). Only when something special is going on—like following a narrow channel or passing a reef—do you tend to deviate from that rule. The Fed knows that its next move is highly likely to be a rate cut. I see no reef. I see no island. Why has the rate cut not happened already? What is the reason? Read Tim Duy, “Gearing Up For A Rate Cut,” in which he writes: “One take on the numbers is fairly positive. The economy continues to generate jobs at a pace sufficient to either lower unemployment further or encourage more people to enter the labor force. The jump in wage growth might even suggest that the economy is finally bumping up against full capacity and that is the primary culprit behind slower job growth. And maybe the August jobs number is revised up. Another take is less positive. The job market has clearly slowed, and, after accounting for the [U.S.] Census [Bureau] hires, may have slowed very close to the point where unemployment at best holds steady. That significant downshift in momentum is very worrisome. The second derivative here is not our friend. Moreover, don’t take too much comfort in the stronger wage numbers, as that can easily be a lagging variable; wages might not take a hit until unemployment starts rising … [Gross Domestic Product] tracking measures from the New York and Atlanta Federal Reserve Banks are both at a below trend 1.5 percent for the third quarter. New York is looking at 1.1 percent growth for the fourth quarter. Most definitely nothing to write home about.”

Newly released U.S. poverty statistics show that recent economic growth is not broadly shared

Posted on September 11, 2019September 11, 2019 by Ed Paisley

The U.S. Census Bureau yesterday released the 2018 poverty rate alongside information on the 2018 median household income in the United States. The takeaway? Things are not improving that much. Looking across all households, median household income was not statistically different in 2018 from what it was in 2017. (See Figure 1.)

Figure 1

But what about looking at the most economically vulnerable members of society specifically? Taking a closer look at the bottom of the income distribution, the official poverty rate decreased 0.5 percentage points. This is good news, especially if you rely on the official poverty measure.

Yet the official poverty measure isn’t a great gauge of the actual hardship people face—it simply multiplies the 1963 cost of nutritionally adequate food for the year by three, indexes it to inflation, and then sees how a household’s cash income before taxes stacks up against that number. In 2018, the poverty threshold for a four-person household was slightly more than $25,000.

The Supplemental Poverty Measure is more nuanced. This measure, first used by the Census Bureau in 2011, is based on expenditures on food, clothing, shelter, and utilities rather than just food. It takes into account the regional cost of living. And, when adding up a household’s resources, this measure considers gains and losses from taxation, noncash benefits such as government-provided housing and food assistance, and expenses such as child support payments, medical expenses, and work expenses.

This more nuanced look at economic hardship shows no significant change from 2017 to 2018. That means that, on average, things were the same in 2018 as they were in 2017 both for U.S. households on average and for people in poverty, according to this more nuanced measure.

This type of stagnation is what economists and policymakers might expect in the context of a slow-growing economy. But 2018 was a bang-up year for the United States as a whole: The U.S. Gross Domestic Product increased by 2.9 percent! The Census Bureau’s poverty numbers, however, indicate that the fruits of growth are not reaching those on the brink of poverty. Indeed, this is part of a larger trend—since 1980, U.S. economic growth has disproportionately accrued to the households at the top of the income distribution, leaving others behind.

It’s also important to put these figures in more recent historical context. From the end of 2007 to 2009, the United States experienced its most severe recession since the Great Depression, and poverty rates spiked. From 2009 until today, the United States has experienced the most prolonged economic expansion in history. Yet, the median household has not seen significant improvement in income levels relative to 2007, and the poverty numbers are just now recovering to where they were on the eve of the Great Recession.

While it sounds good to reach pre-recession poverty levels, the picture of poverty prior to the recession wasn’t particularly rosy. Today, as then, more than 1 in 10 people living in the United States are officially poor, and this is a lower bound for economic hardship—a far greater number of people than those officially classified as poor are unable to put food on the table or are unable to get the medical care they need because they lack the money needed to do so. It is shocking that economic hardship is so prevalent in a wealthy nation in the midst of an expansion.

What’s more, economic expansions don’t last forever. Another recession is inevitable, which means policymakers should anticipate that poverty rates will spike again. It is wonderful that fewer people in the country are experiencing economic hardship today than were during the Great Recession and its aftermath. Real people experienced real pain during that time. But we shouldn’t conflate the amelioration of pain with progress. When it has taken nearly a decade for people at the bottom of the income distribution to get back to the starting line they were at in 2007, and when they are likely to be pushed backward again by a recession in the near future, that is not progress. That is struggling to keep up.

Though the numbers released by the U.S. Census Bureau yesterday don’t tell a story of progress, they do tell a story of policy successes. Looking at the Supplemental Poverty Measure, the data show that—holding all else constant—Social Security benefits lifted 27.3 million people out of poverty. Similar calculations show refundable tax credits such as the Earned Income Tax Credit lifting 7.9 million people out of poverty and the Supplemental Nutrition Assistance Program and housing subsidies each lifting about 3 million people out of poverty. Our social safety net is catching people. In fact, it is catching millions of people.

The numbers released yesterday paint a picture of a society in which economic gains are not reflected in the paychecks of its most economically vulnerable people, but where the social safety net offers some crucial assistance. Policymakers should take a hard look at these numbers and think carefully about labor market and tax interventions that can facilitate a broader sharing of economic growth. They should also note that in the absence of these changes—or, better yet, as a complement to them—an expansion, or at least a maintenance of social safety net programs, protect people who fall prey to the vagaries of the market.

Equitable Growth CEO’s written testimony at California Future of Work Commission

Posted on September 11, 2019September 11, 2019 by Maria Monroe

Unbound: How Inequality Constricts Our Economy
Heather Boushey
California Future of Work Commission
September 10, 2019

On Sept. 10, 2019, Heather Boushey, president and CEO of the Washington Center for Equitable Growth, participated in a discussion hosted by California Gov. Gavin Newsom as part of his Future of Work Commission. Below are her written remarks.

We are currently experiencing the longest economic recovery in U.S. history, but the gains from that economic growth—the money in peoples’ pockets—aren’t being shared. That hurts families and the long-term trajectory of our economy.

The top-line economic markers signal to policymakers that our economy is growing—indicators such as a historically low unemployment rate and annual Gross Domestic Product growth of around 2 percent—and that real wage growth has begun to pick up in recent months. But it’s also true that wages are not growing commensurate with a tight labor market and that the fruits of our economic growth, in terms of both income and wealth, are diverging sharply.

The Federal Reserve Board’s new Distributional Financial Accounts and the latest research by University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman document that income inequality is historically high, and wealth inequality is outpacing it.¹

Inequality hurts economic growth and mobility. Growth has slowed since 1980, and average people no longer share in the growth we do have. The bottom 50 percent of the population has the same inflation-adjusted pretax income that they did in 1980, and lower absolute mobility means that people born in 1980 now have only a 50 percent chance of surpassing their parents’ income.²

Inequality constricts growth by:

Obstructing the supply of people and ideas into our economy and limiting opportunity for those not already at the top, which slows productivity growth over time
Subverting the institutions that manage the market, making our political system ineffective and our labor markets dysfunctional
Distorting demand through its effects on consumption and investment, which both drags down and destabilizes short- and long-term growth in economic output

Emblematic of these impediments to more broad-based economic growth today is the monopoly power problem—one that exacerbates inequality, contributes to wage stagnation, limits entrepreneurship, increases the cost of living, and stifles innovation. This affects the U.S. labor market in three interconnected ways:

Industry concentration and declining economic dynamism reduces wages by limiting workers’ employment options and opportunities for advancement, and allows firms to use their increasing power to squeeze worker compensation in favor of greater profits.
Workplace fissuring, through the rise of independent contractors, franchisors, and contingent hiring, prevents workers from accessing career ladders, matching into the jobs they are best suited for, and gaining sufficient bargaining power to unlock wage increases.³
Persistent historical disparities such as wage discrimination and social norms reinforce occupational segregation into jobs that don’t pay well enough and offer little room for advancement.

Yet policymaking over the past several decades has been moving in the wrong direction. Specifically:

Antitrust law now allows firms to accrue and abuse monopoly power, not just over consumers but also in many cases over workers.⁴
Successive rounds of tax cuts, including the Tax Cuts and Jobs Act of 2017 and several tax cuts under the George W. Bush administration, have lowered the progressivity of the tax code and greatly decreased taxes on wealth, capital, inheritances, and corporate profits.
Outdated labor law provides insufficient protection of workers and has facilitated the long decline of unions, traditionally the most vocal and ardent advocates for the middle class.

We have an opportunity right now to take a step back to look at the scale and scope of the problems and develop real solutions. We need an economic policy agenda that supports families and builds a strong economy. Policies must fit the scale and scope of today’s problems.

There are fast-growing jobs—in the provision of childcare and eldercare, in healthcare, and education, for example—that face a lower risk of worker displacement by technology. Yet workers in many of these jobs have little to no bargaining power and access to few benefits. In 2018, the median hourly wage for personal care workers in California was $11.80—significantly lower than the state median wage of $20.40. About 6 in 10 childcare workers in California earn so little that they qualify for public assistance.⁵

The effect automation and artificial intelligence will have on workers are important challenges. But the way we as a society respond to them will be determined by the power arrangements in place in the labor market.

Workers’ voices need to be heard to balance the potential negative consequences of automation and AI. Worker input can shape the implementation of new technology, so that its consequences are more equitable for workplace dynamics and production processes, and help workers share in the gains of growth.

And fundamental to addressing abusive labor practices associated with the problem of fissuring in the workplace are the continual goals of the U.S. labor movement. These include higher minimum wages and union representation in addition to enforcement and expansion of workplace protections such as schedule stability protections, paid family and medical leave, and paid sick leave.⁶

Policymakers should also design and fully embrace policies to eliminate discrimination in the labor market. Policymakers can start by measuring the structural problems—collecting firm-specific employment and pay data by gender, race, and ethnicity.

It is vitally important to think about the “future of work,” but we can and must prepare for the jobs of now.

Taxing wealth by taxing investment income: An introduction to mark-to-market taxation

Posted on September 11, 2019September 10, 2019 by Maria Monroe

Overview

The sharp increase in U.S. wealth inequality in recent decades has spurred interest in increasing taxes on wealth. This issue brief introduces mark-to-market taxation, one approach to raising taxes on wealth by reforming the taxation of investment income.⁷ In a system of mark-to-market taxation, investors pay tax on the increase in the value of their investments each year rather than deferring tax until those investments are sold, as they do under current law. This issue brief first defines investment income and explains how mark-to-market taxation works. It then reviews the revenue potential of this approach to taxing investment income, explaining why a mark-to-market system can raise substantial revenues. Finally, it summarizes the distribution of the burden that would result, which would fall overwhelmingly on wealthy individuals.

Download File
Taxing wealth by taxing investment income: An introduction to mark-to-market taxation

What is investment income?

Investment income is income generated by wealth, including interest on a bond, dividends paid on a corporate stock, rents from real estate, and profits from a pass-through business such as a partnership. A pass-through business is one that “passes through” profits to its owners for tax purposes, who then pay income tax on those profits. In contrast, shareholders in a traditional C corporation do not pay tax on the corporation’s profits.

In addition to explicit payments and returns, investment income also includes increases in wealth that result from increases in the price of assets, such as increases in the price of stocks, bonds, real estate, or mutual fund shares. The income resulting from these price increases is known as a capital gain.⁸ For instance, if an investor buys $100,000 of corporate stock and then sells it 1 year later for $110,000, then that $10,000 of income is a capital gain. Some assets, such as bonds, tend to generate income mostly in explicit payments, while other assets, such as stocks, tend to generate more income in capital gains.

Capital gains are a key form of investment income for U.S. households. Since 2009, capital gains have added $3 trillion to investment income each year, on average. Capital gains are also a much more volatile form of income than interest, dividends, and profits from pass-through businesses. They are the source of large losses in some years and large gains in others. (See Table 1 for a breakdown of the investment income of U.S. households and nonprofits, as estimated in the U.S. Integrated Macroeconomic Accounts, from 2013 to 2017. A portion of the total investment income received offsets the reduction in purchasing power that results from inflation. An estimate of the income necessary to offset inflation in each year is also provided in the table.)

Table 1

How is investment income taxed in the United States today?

The taxation of investment income varies dramatically across different types of assets.

Interest payments, dividends from corporate stocks and mutual funds, and rents are taxed when earned. Dividends and distributions from pass-through businesses, such as partnerships and S corporations, are largely exempt from taxation. Instead, as noted above, the owners pay tax on the profits of these businesses as those profits are earned.

Notably, to measure income more accurately and prevent tax avoidance, U.S. tax law requires many taxpayers to measure interest and profits as they accrue, not when money changes hands. Under the rules for what’s known as “original issue discount,” for example, an investor who owns a bond that does not pay interest on an annual basis must include in their income each year a portion of the interest that will eventually be paid as if it had been paid that year. Similarly, large businesses must measure profits, for tax purposes, according to the principles of accrual accounting, meaning they measure income when it is earned, not when it is received.

Interest payments are taxed at the same rates that apply to wages and most other sources of income (up to a maximum rate of 40.8 percent).⁹ Rents and profits from pass-through businesses may be taxed at these rates or may be eligible for preferential tax rates introduced by the tax legislation enacted at the end of 2017 (up to a maximum rate of 33.4 percent). Dividends from corporate stock are generally eligible for an even more generous set of preferential rates (up to a maximum rate of 23.8 percent).

In contrast to the contemporaneous taxation of interest, dividends, and pass-through profits, capital gains and losses are taxed only when the gain or loss is realized, which generally means when the underlying asset is sold. The ability to delay paying tax on gains until an asset is sold is known as deferral. Suppose an investor purchases $10 million worth of shares in a nondividend-paying stock at the beginning of the year, holds them for 2 years, and then sells them for $12 million. The shares are worth $11 million at the end of the first year. The investor realizes no income and pays no tax on the investment in the first year and realizes $2 million of income and pays tax on that $2 million in the second year. In this example, the taxpayer has deferred $1 million of income from the first year into the second year. The computation of gains and losses in the tax code does not make any adjustments for inflation.

Capital gains on corporate stock held for 1 year or less (short-term gains) are taxed at the same rates applied to wages and other income (up to a maximum rate of 40.8 percent). Capital gains on corporate stock held for more than 1 year (long-term gains) are generally eligible for preferential rates (up to a maximum rate of 23.8 percent). Capital gains on other types of assets are subject to a variety of different rates. Collectibles, such as works of art, are taxed at a maximum rate of 31.8 percent, for example.

In addition to the complexity of the basic structure for taxing capital gains, additional preferences exist for certain types of gains. Any unrealized capital gains on assets held when a taxpayer dies are permanently exempt from taxation under a provision known as “step up in basis.” The basis of an asset is generally the cost of the investment in that asset, and the gain when sold is the sales proceeds less the basis. Under this provision, the basis for assets held at death is reset (stepped up) to the market value at death, which wipes out the gain for tax purposes. Another set of special rules allows taxpayers to swap one real estate asset for another similar asset—a so-called like-kind exchange—and defer the gain on the first asset until the second asset is sold.

Tax-advantaged pensions and retirement accounts also provide a substantially reduced rate of tax for investment income earned in these accounts. Contributions to pension funds and retirement accounts are limited under the law precisely because they offer this benefit. Owner-occupied housing is also tax preferred. Homeowners are not taxed on the implicit rent they pay themselves, and they may also exclude up to $250,000 ($500,000 for married couples) of capital gains on the sale of a primary residence.

The preferences for certain types of investment income, including the preferential rates, offer a direct benefit to investors. In addition, the complexity of these rules and the interactions between them open the door to a variety of tax avoidance strategies. Perhaps most notably, the realization system means that investors can delay paying taxes indefinitely by holding onto appreciated assets. They may be waiting for Congress to lower the capital gains rate or offer some other benefit, or simply holding the assets until they die, at which point the gains will be eliminated entirely through step up in basis when the assets are passed onto their heirs.

Taxpayers may also attempt to convert income that would be taxed at higher rates into capital gains so that it is eligible for the preferential rates. Owners of a closely held C corporation, for example, may pay themselves less in wages than they would absent tax considerations. This reduction in wages increases the value of the corporation, turning those wages into tax-preferred capital gains.¹⁰

What is mark-to-market taxation?

Mark-to-market taxation is an approach to taxing investment income under which any increase in the value of a taxpayer’s assets is included in income each year. In other words, taxable income includes the full value of capital gains in the year they accrue, whether the gain is realized or not. As a result, a mark-to-market system of taxation treats capital gains in the same way interest, rents, and profits from pass-through businesses are treated under current law. In essence, adopting a system of mark-to-market taxation means repealing deferral. The name mark-to-market taxation comes from accounting, in which valuing an asset at its market value is known as marking to market. This type of approach is also sometimes known as accrual taxation. Figure 1 below illustrates the tax treatment of (a) interest under current law, (b) capital gains under current law, and (c) capital gains under mark-to-market taxation.

Figure 1

Three key design choices for a system of mark-to-market taxation are (1) the set of assets covered by the system, (2) the rate of tax to apply, and (3) whether to adopt special rules for dealing with volatility. We briefly discuss each of these choices.

First, under a mark-to-market system, taxpayers include capital gains in their income each year. This requires an annual valuation for each covered asset. The primary advantage of applying mark-to-market accounting to all assets is the reduction in tax avoidance opportunities resulting from a single, uniform system of taxation. Yet applying mark-to-market taxation only to a limited set of assets that are easier to value (potentially in combination with a deferral charge, as described below) may make compliance and administration easier.

Second, in principle, investment income could be taxed on a mark-to-market basis at any tax rate. But proposals to adopt mark-to-market taxation are often combined with proposals to raise the tax rate on capital gains. Applying the same rate to capital gains as to wages and other sources of income offers potential advantages by eliminating avoidance strategies that seek to convert income from the more heavily taxed type to the more lightly taxed type. In addition, one reason for adopting mark-to-market taxation is that it reduces the effectiveness of strategies used to avoid paying taxes. As a result, raising tax rates on capital gains raises more revenue if a mark-to-market system has already been adopted (or is adopted at the same time) than it would if enacted on its own.

Lastly, as noted above, capital gains are a more volatile source of income than interest and dividends. In some years, capital losses exceed capital gains. Thus, the treatment of losses under a mark-to-market system can be important. A more generous approach would allow losses to offset any other sources of income in the current year. A more conservative approach would allow unlimited loss carryforwards, meaning that a loss in the current year can be deducted against investment income in any future year but cannot offset noninvestment income in the current year. In an alternative scenario, taxpayers might include only a portion of their gains and losses in income each year, effectively implementing a form of income averaging.

If a comprehensive system of mark-to-market taxation is enacted, then there would be no unrealized gains at death going forward, because gains will have been taxed on an annual basis, including in the year the person dies. However, unless the system applies to gains accrued prior to enactment, there would still be unrealized gains on existing investments. Thus, proposals for mark-to-market taxation often also tax gains at death or when assets are given away—effectively repealing step up in basis—to ensure equal treatment across generations and raise additional revenue. Including taxation of gains at death or gift becomes even more important if the system exempts certain taxpayers, as discussed in more detail below.

Though not an essential feature of mark-to-market taxation, adopting a system of mark-to-market taxation also offers an opportunity to address other weaknesses of the tax code. Measures to limit the balances accumulated in tax-preferred retirement accounts, such as mandatory distributions for account balances above a certain threshold, and additional limitations on the capital gains exclusion for home sales would fit naturally within the context of a proposal for mark-to-market taxation of capital gains.¹¹

What is a deferral (or lookback) charge?

A deferral (or lookback) charge is an additional tax payment imposed when an asset is sold after being held for more than 1 year to account for the fact that the gains on the asset were not taxed on an annual basis—in other words, that taxes have been deferred. Deferral charges are an alternative approach to limiting or eliminating the tax benefit of deferral, while still relying on realization as the trigger for tax liability. The primary advantage of a deferral charge system, relative to a mark-to-market system, is that it avoids the need to value assets on an annual basis, which may be difficult in certain cases.

Some proposals for mark-to-market taxation combine mark-to-market taxation of certain assets with deferral charges for other assets.¹² In general, the mark-to-market system is applied to assets for which independent valuations are more readily available, such as a stock traded on a public exchange, and deferral charges are used for assets for which an independent valuation may not be as readily available, such as a privately owned business. These approaches aim to balance competing goals in designing the system. A mark-to-market system requires valuations for hard-to-value assets, while a deferral charge system creates opportunities for tax avoidance through exploiting differences in the tax resulting from the deferral charge and the tax that would have resulted from annual taxation of accrued gains and losses.

A variety of structures for deferral charges have been proposed in the academic literature.¹³ Under one benchmark approach, the gain on an asset when sold is allocated in equal dollar amounts to each year between purchase and sale, the tax is computed on the income assigned to each year at the rate applicable in that year, and the unpaid taxes are accumulated with interest to compute the tax due. A closely related approach allocates the gain over the course of the investment’s lifetime assuming a constant rate of return rather than a constant dollar increase in value each year.

In addition, under a deferral charge system, unrealized gains would be deemed realized at death or when given away. Thus, all gains would eventually be taxed whether the assets are sold or not.

How could a mark-to-market system exempt middle-class taxpayers?

Mark-to-market taxation could be adopted as the universal approach to taxing investment income. Current proposals set forth by U.S. policymakers, however, have tended to apply the system only to wealthy taxpayers. Two approaches policymakers have suggested they might use for this purpose are a lifetime exemption on gains and an asset-based threshold for applying the tax.

Under a lifetime exemption approach, taxpayers would compute income under the mark-to-market system annually but would not pay tax on any mark-to-market gains or losses until they reach a cumulative amount of gains, such as $500,000, over their lifetime. This exemption could be used against mark-to-market gains, the interest portion of a deferral charge, and taxation of gains at death or when given away. But, under this approach, the exemption could not be applied against taxes due based on realized gains. Under the asset-based approach, taxpayers would only be covered by the mark-to-market system if their assets exceed a stated amount, such as $2 million.

A major difference between the asset-based approach and the lifetime exemption approach is that under the asset-based approach, taxpayers would enter and exit the mark-to-market regime multiple times if the value of their assets fluctuates. However, under the lifetime exemption approach, taxpayers are outside the regime until they have enough gains to be inside the regime and then remain inside the regime.

How much revenue could this type of tax reform raise?

The revenue potential of reforms to the taxation of investment income in the United States is large. Under current law, long-term capital gains and dividends are taxed at a 40 percent discount, relative to ordinary income. Moreover, tax planning strategies that take advantage of deferral, step up in basis, and other preferences for investment income mean that much investment income simply does not appear on tax returns at all.

Estimates of the revenue raised by reforms to the taxation of investment income are uncertain, as they depend on both the detailed specification of the tax and assumptions about how families would respond to the tax. But previous estimates suggest that mark-to-market reforms that also apply the tax rates on wage income to capital gains and dividends could easily raise $1 trillion over the next decade—and potentially much more, depending on how widely the higher tax rates are applied and what accompanying reforms are included.¹⁴

The revenue potential from increasing the capital gains tax rate in isolation is likely much smaller. The ease of tax avoidance under current law, such as the ready opportunity to defer tax by not selling assets and potentially avoid tax entirely through step up in basis—all while simply borrowing against these same assets to finance any spending—means that taxpayers may substantially reduce realizations in response to an increase in the capital gains rate.

A recent Congressional Research Service analysis, for example, suggests that taxpayers might avoid as much as 50 percent of the tax liability that would otherwise result from a 5 percentage point increase in the capital gains rate through avoidance.¹⁵ The report also highlights that some analysts might conclude that an even higher share of revenue would be lost through avoidance. Robust reforms to the tax base such as those discussed in this brief, however, would sharply limit these avoidance strategies and yield much higher revenues.

Who would bear the burden of a mark-to-market reform?

Reforms to the taxation of investment income such as those described above would be highly progressive. The economic incidence of these taxes—meaning the economic burden of the taxes, which is distinct from the legal obligation to pay them—would lie primarily on the owners of wealth.¹⁶

Wealth ownership in the United States is highly unequal. The wealthiest 1 percent of families holds 31 percent of all wealth, and the wealthiest 10 percent holds 70 percent of all wealth.¹⁷ (See Figure 2.) If policymakers include an exemption in the design of a mark-to-market system, the burden of the tax would be limited almost exclusively to high-wealth families.

Figure 2

Why might policymakers adopt mark-to-market taxation?

Reforms to the taxation of investment income could raise substantial revenues from the wealthiest families. The highest-income 1 percent of families receives 75 percent of the benefit of the preferential rates for capital gains and dividends under current law. Moreover, adopting a mark-to-market system would be a relatively efficient way to raise revenues, as the current system of taxing investment income allows wealthy taxpayers to avoid paying taxes by taking advantage of deferral, step up in basis, and other tax preferences. A mark-to-market system would scale back or eliminate these preferences and thus sharply reduce tax avoidance. Policymakers looking for a progressive tax instrument that raises substantial revenues would find mark-to-market taxation an appealing option.

JOLTS Day Graphs: July 2019 Report Edition

Posted on September 10, 2019 by Raksha Kopparam

Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for July 2019. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.

1. The quit rate increased slightly to 2.4%, after holding steady at 2.3% for over one year.

2. Hires increased in July while job openings decreased very slightly, which may signify a slowing labor market expansion.

3. Job openings declined slightly in July, but there continues to be fewer than one unemployed worker per job opening.

4. The Beveridge Curve continues to hover at a high rate of job openings and a low rate of unemployment, demonstrating an expansionary labor market even as job openings declined slightly in July.

The National Economic Association and the American Society of Hispanic Economists work to diversify and strengthen economics research

Posted on September 9, 2019September 9, 2019 by Maria Monroe

Last month, the National Economic Association and the American Society of Hispanic Economists hosted the sixth annual NEA-ASHE Freedom and Justice Conference at University of New Mexico’s Department of Economics. As in previous years, this conference provided an invaluable contribution to the field by elevating new communities, topics, and methodologies within economics research. Indeed, the papers presented at the conference painted a fuller picture of the current state of the U.S. economy and provided empirically grounded recommendations for a stronger and fairer economic future.

Rep. Deb Haaland (D-NM) set the tone of the conference in her keynote address. Specifically, she argued that the focus of the field of economics should be on citizens who are economically marginalized and forgotten—from workers on the verge of bankruptcy to single mothers to rural and native populations. This ethos ran throughout the paper presentations during the two-day conference. Emblematic of the range of topics and communities discussed by presenters:

Economist Jessica Gordon-Nembhard at the John Jay College of the City University of New York focused on formerly incarcerated workers and their efforts in countries around the world to sustain themselves economically via worker cooperatives.
Researchers Danielle Hiraldo, Kyra James, and Mary Beth Jäger at the University of Arizona’s Native Nations Institute delved into efforts to advance tribal legal rights on the part of state-recognized tribes, who often receive less focus than their federally-recognized peers.
Economists Samuel Myers at the University of Minnesota and Marina Gorsuch at St. Catherine University performed econometric analyses to investigate the causes of Native Americans’ heightened risk of death from drowning.
Economist Nina Banks at Bucknell University provided a preliminary framework for analyzing the organization of nonmarket community advocacy work performed by women of color, as well as the boosts to living standards that such work facilitates for the wider community.
Economist and incoming ASHE President Mónica García-Pérez of St. Cloud University unpacked the complex empirical relationship between health and wealth in the Latino community.
Doctoral student Brooke Adams and political scientist Kathy Powers at the University of New Mexico along with economist Bob Williams at Guilford College presented on political and financial considerations in the implementation of reparations for the descendants of enslaved people in the United States.

Researchers at NEA-ASHE conference drew on a variety of methodologies to investigate the economic realities of different communities and their implications for the economy as a whole. Economist Stefan Lefebrve of American University, for example, presented co-authored theoretical work laying out a framework of Latinx stratification economics to analyze the complex inequalities faced by Latinx workers. Patrick Lenain of the Organisation for Economic Co-operation and Development presented descriptive research investigating differing economic outcomes of native populations across member nations of the OECD. And in respective studies of the wage gap for Latinas and occupational segregation for black women, Kate Bahn and I, as well as economists Michelle Holder of John Jay College and Thomas Masterson of Bard College, relied instead on regression-based techniques to investigate challenges faced by each group in the labor market.

The conference’s mission of bringing more diverse communities into economics research—both as researchers and as subjects of research—is helping strengthen the economics profession for future generations. As conference organizer and Bucknell economist Nina Banks pointed out, it is critical to incorporate the perspectives and lived experiences of different communities to ensure that the findings of economics research are accurate and reflective of workers’ realities.

As a sponsor of the conference, the Washington Center for Equitable Growth was proud to be able to support the critical work of the NEA-ASHE Freedom and Justice Conference and looks forward to continuing this partnership for many years into the future.

Weekend reading: “Declining Worker Power” edition

Posted on September 6, 2019September 6, 2019 by Maria Monroe

Equitable Growth round-up

This Labor Day week brought us three Equitable Growth pieces relating to workers and the economy.

The Phillips Curve—the economic rule of thumb that says when unemployment drops, inflation rises—is dead, and something needs to take its place. Wages, a key inflation factor, can no longer be counted on to rise significantly in an era of sustained low unemployment. The reason, write Kate Bahn and Austin Clemens, is that the “demise of unions and the rise of monopsony markets, where people only have the choice to work for a small number of employers, have devastated the bargaining position of workers.” They continue, “Addressing inequality and the collapse of worker power will require a new analytic lens … [E]conomic policymaking institutions should embrace economic indicators that shed light on our new, unequal economy. Pivoting to measures of economic progress that are broken down by level of income, race, or gender will provide a better picture of how all U.S. workers and their families are faring.”

A working paper by David Howell, professor of economics and public policy and director of the doctoral program in public and urban policy at the New School, documents the “concentration of young workers in lousy- and low-wage jobs” since the 1970s. A 2014 Equitable Growth grantee and now a member of our Research Advisory Board, Howell says the data suggest “that their plummeting decent-job rates cannot be adequately explained by supply-side failures to invest in education or by the job-destroying forces of globalization and computerization. More consistent with this paper’s job quality results are major shifts in institutions, policies, and employer human resource strategies that have undermined worker bargaining power.”

Finally, the U.S. Bureau of Labor Statistics issued its monthly report on the U.S. labor market for August, documenting that the trends above continued: low unemployment, inadequate wage gains, and workers without a college education continuing to lag behind other workers. Kate Bahn, Will McGrew, and Raksha Kopparam have put together five graphs highlighting these important trends in the monthly announcement.

And be sure to check out Brad DeLong’s worthy reads, which provide Brad’s takes on content from Equitable Growth and around the web.

Links from around the web

A longstanding practice in the economics profession that has raised increasing questions is ending. The American Economic Association, writes The Wall Street Journal’s David Harrison, is implementing new rules forbidding universities and other employers from interviewing thousands of candidates for university and other jobs in hotel rooms during the organization’s annual conference. The only exception will be the use of a living room in a suite taken for that purpose.

With the tech industry facing increasing government scrutiny over antitrust issues, The Washington Post’s Reed Albergotti reports on Apple Inc.’s practice of taking ideas from apps created by outside developers that are sold and used on its devices and incorporating them into its own products. He writes that “Apple plays a dual role in the app economy: provider of access to independent apps and giant competitor to them.” He notes that “some apps have simply buckled under the pressure, in some cases shutting down. They generally don’t sue Apple because of the difficulty and expense in fighting the tech giant—and the consequences they might face from being dependent on the platform. The imbalance of power between Apple and the apps on its platform could turn into a rare chink in the company’s armor as regulators and lawmakers put the dominance of big technology companies under an antitrust microscope.”

The Washington Post’s Robert Samuels reports on the results of an experimental program that is providing a small number of low-income mothers in Mississippi with a year of universal basic income—$1,000 a month—to determine the potential impact of such a program. The initiative is being carried out by a nonprofit organization. The concept, Samuels notes, has gained considerable traction “from the presidential debate stage to Silicon Valley, where tech titans such as Mark Zuckerberg and Elon Musk have promoted it as a way to fend off a gloomy future in which automation and climate change eliminate millions of jobs.”

And one final story on the challenges faced by workers and unions: Slate’s Mark Joseph Stern tells us that Alaska is trying to crush its public employee unions by making it extremely difficult for workers to sign up for unions. The tactics the state is planning to use are unique, to say the least, and, so far, do not appear to have been covered in any other national press outlet.

Friday Figure

Figure is from “Equitable Growth’s Jobs Day Graphs: August 2019 Report Edition,” by Kate Bahn, Will McGrew, and Raksha Kopparam.

Equitable Growth’s Jobs Day Graphs: August 2019 Report Edition

Posted on September 6, 2019September 9, 2019 by Raksha Kopparam

On September 6th, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of August. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

1. The employment-to-population ratio for prime-age workers increased to 80%, its highest level since 2008.

2. The unemployment rate for Black workers declined to 5.5% in August, largely driven by a substantial decline in the unemployment rate for Black women from 5.2% to 4.4%, but it still remains twice the unemployment rate for White workers.

3. Employment growth continues to be dominated by service sector jobs like healthcare, which increased by 30,000 jobs in August compared to manufacturing, which increased by only 16,000 jobs.

4. The top-line unemployment rate of 3.7% remains unchanged—reflecting plateauing unemployment rates for workers by education level—and those with lower levels of education consistently face higher rates of unemployment.

5. Average hourly earnings have increased 3.2% year-over-year, but this remains below what would be expected in a tight labor market, with no cause for concern over inflation given low unemployment.

Brad DeLong: Worthy reads on equitable growth, August 31–September 5, 2019

Posted on September 5, 2019September 5, 2019 by Maria Monroe

Worthy reads from Equitable Growth:

Looking forward to this: “Please join us Oct. 30th for Programs w/a Purpose with @HBoushey, Pres./CEO of @equitablegrowth. She will discuss her book [Unbound: How Inequality Constricts Our Economy and What We Can Do about It],” in which she will discuss how “many fear that efforts to address inequality will undermine the economy as a whole … but the opposite is true: rising inequality has become a drag on growth and an impediment to market competition. Unbound breaks down the problem and argues that we can preserve our nation’s economic traditions while promoting shared economic growth.” (An invitation to the official launch of Unbound on September 18 is here.)
Worth highlighting from last January, as even U.S. businesses begin to worry that our system gives too much a share of good things to shareholders. Read Greg Leiserson, “Wealth taxation: An introduction to net worth taxes and how one might work in the United States,” in which he writes: “Probably the most significant challenge in implementing a net worth tax is that determining tax liabilities requires a valuation for all of the assets subject to the tax … Such a tax would impose burden primarily on the wealthiest families—reducing wealth inequality—and could raise substantial revenues … the United States taxes wealth in several forms already. Thus, the policy debate is less about whether to tax wealth and more about the best ways to tax wealth and how much it should be taxed. A net worth tax could be a useful complement to—or substitute for—other means of taxing wealth, as well as a tool for increasing overall taxation of wealth.”
From 2 years ago, Liz Hipple saying very smart things about what is at stake in the debate over antitrust policy. Read her “Understanding the importance of antitrust policy for U.S. economic competitiveness and consumer choice,” in which she writes: “Changes in antitrust policy’s presumptions about the competitive consequences of increases in concentration … over the past 50 years [have] shifted from a viewpoint that held that even modest increases in concentration would result in above-competitive prices and profits to one in which it was believed that tougher merger standards sacrificed cost efficiencies, which presumably would be passed along to consumers. While antitrust policy has moderated somewhat from that so-called Chicago school view, the FTC enforcement data from 1996 through 2011 nonetheless demonstrate that there has continued to be a shift away from merger enforcement actions in all but the most concentrated markets. Furthermore, while the latest merger guidelines, published in 2010, emphasize the multiplicity of relevant factors beyond just cost efficiencies in evaluating the likelihood of possible harms from a merger, they also further relax the thresholds for the levels and changes in concentration at which a merger might be presumed to lessen competition.”

Worthy reads not from Equitable Growth:

There are many proposals to revamp education in economics and to get economists to their right place in the public sphere—whatever that “right place” might turn out to be. The highly estimable Martin Wolf is here, on the side of those who think that economics ought to focus on basic principles, arresting stories, and big data as a way of figuring out which stories are, in fact, representative of broader trends. He is critical of over-mathematization and, more so, of over-theorization. I, at least, am reminded of Larry Meyer’s take on Robert Lucas’s brand of economics: “In our firm, we always thanked Robert Lucas for giving us a virtual monopoly. Because of Lucas and others, for two decades, no graduate students are trained who were capable of competing with us by building econometric models that had a hope of explaining short-run output and price dynamics. [Academic economics Ph.D. programs] educated a lot of macroeconomists who were trained to do only two things—teach macroeconomics to graduate students, and publish in the journals.” Read Martin Wolf, “Why Economists Failed as “Experts”—and How to Make Them Matter Again,” in which he writes: “Michael Gove was wrong, in my view, about expertise applied in the Brexit debate. But he was not altogether wrong about the expertise of economists. If we were more humble and more honest, we might be better recognized as experts able to contribute to public debate … At bottom, economics is a field of inquiry and a way of thinking. Among its valuable core concepts are: opportunity cost, marginal cost, rent, sunk costs, externalities, and effective demand. Economics also allows people to make at least some sense of debates on growth, taxation, monetary policy, economic development, inequality, and so forth. It is unnecessary to possess a vast technical apparatus to understand these ideas. Indeed, the technical apparatus can get in the way … The teaching of economics to undergraduates must focus on core ideas, essential questions, and actual realities. Such a curriculum might not be the best way to produce candidates for Ph.D. programs. So be it. The study of economics at university must not be seen through so narrow a lens. Its purpose is to produce people with a broad economic enlightenment. That is what the public debate needs. It is what education has to provide.”
The very sharp Barry Eichengreen has a theory of why President Donald Trump wants to put ex-tight money advocate Judy Shelton on the Federal Reserve Board. It is certainly a more plausible and sensible theory of what he is aiming at than any other theory that I have seen put forward. But I fear that it is wrong: Understanding a word or deed of the Trump administration from the standpoint that there is a coherent vision of the world from which it is plausible and sensible seems deeply flawed to me. Read Barry Eichengreen, “Trump’s Cross of Gold,” in which he writes: “Shelton is a proponent of fixed exchange rates. Her belief in fixed rates is catnip to an administration that sees currency manipulation as a threat to winning its trade war. Team Trump wants to compress the U.S. trade deficit and enhance the competitiveness of domestic manufactures by using tariffs to raise the price of imported goods. But a 10 percent tariff that is offset by a 10 percent depreciation of foreign currencies against the dollar leaves the relative prices of U.S. imports unchanged … Thus, the challenge for Team Trump is to get other countries to change their policies to prevent their currencies from moving. That’s what the demand for stable exchange rates and an end to ‘currency manipulation’ is all about … But in the absence of a global conference—something that would be anathema to Trump—the way to get there is the same as under the 19th century gold standard … If the United States moves first, ‘preemptively’ as Shelton puts it, other countries will follow. Behind this presumption, however, lie a number of logical nonsequiturs. First, other countries show little desire to stabilize their exchange rates … Second, gold is no longer a stable anchor … Today … the stabilizing capacity of the mining industry is weaker … Arguments for a gold standard and pegged exchange rates are deeply flawed. But there is a silver lining, as it were: nothing along these lines is going to happen, Governor Shelton or not.”
Very interesting work on gender peer effects in U.S. graduate education. Read Valerie K. Bostwick and Bruce A. Weinberg, “Nevertheless She Persisted? Gender Peer Effects in Doctoral STEM Programs,” in which they write: “We study the effects of peer gender composition, a proxy for female-friendliness of environment, in STEM doctoral programs on persistence and degree completion. Leveraging unique new data and quasi-random variation in gender composition across cohorts within programs, we show that women entering cohorts with no female peers are 11.9 percentage points less likely to graduate within 6 years than their male counterparts. A 1 standard deviation increase in the percentage of female students differentially increases the probability of on-time graduation for women by 4.6 percentage points. These gender peer effects function primarily through changes in the probability of dropping out in the first year of a Ph.D. program and are largest in programs that are typically male-dominated.”
Here’s a piece of evidence that affirmative-action programs do not, in fact, harm beneficiaries via mismatch. Read Joshua D. Angrist, Parag A. Pathak, and Román Andrés Zárate, “Choice and Consequence: Assessing Mismatch at Chicago Exam Schools,” in which they write: “The educational mismatch hypothesis asserts that students are hurt by affirmative action policies that place them in selective schools for which they wouldn’t otherwise qualify. We evaluate mismatch in Chicago’s selective public exam schools … show that … mismatch arises because exam school admission diverts many applicants from high-performing Noble Network charter schools, where they would have done well … Exam school applicants’ previous achievement, race, and other characteristics that are sometimes said to mediate student-school matching play no role in this story.”