Must- and Should-Reads July 13

Posted on by Brad DeLong

Interesting Reads:

Should-Read: Jacob Levy: The Sovereign Myth

Posted on by Brad DeLong

Jacob Levy: The Sovereign Myth: “The sense of control that is often attributed to voters in the olden days was really a sense of satisfaction with outcomes… https://niskanencenter.org/blog/sovereign-myth/

…Long years of economic growth in the West, broadly shared in, and in excess of the expectations of people who had lived through wars and economic collapse, propelled this satisfaction. In retrospect, though, it’s easy to flatter ourselves that, if things went well, it’s because we made such good decisions. Things look rather different when expectations are suddenly, sharply disappointed, as in the 2008 financial crisis and its aftermath…. The simple versions of the “economic anxiety” explanations for who supports such political movements have been widely debunked. But I think it is part of what makes fertile ground for such holist and fear-based political movements. The loss of the feeling of control can, moreover, go past economic questions; the demagogue can promise a restoration of control to the real people on social and cultural matters, too.

But in all these domains, the promise of control will be disappointed.

To the demagogue, the disappointment is a feature, not a bug. A perpetually frustrated and perpetually fearful populace is one that will continue to lend support to demagoguery. The policies adopted by an Erdogan or a Duterte are not meant to solve problems, but to keep the fear of them alive. Those of us hoping to see decent liberal democratic constitutionalism in the future have to proceed differently. Yes, there has to be hope for a better future; but hope is not the same as autarkic, nationalist, or democratic sovereign control…. We need to think of politics itself as a result of human action but not human design and decision, which even those who understand spontaneous and emergent orders in economics and society have been reluctant to do. It’s difficult to come to terms with. But however we are to manage the difficult psychological task of navigating currents that we didn’t decide into being, the first step will be understanding and admitting that we didn’t decide them.

I discuss some of these issues in greater depth in two recent academic pieces: Contra politanism, Against solidarity: Democracy without fraternity

Should-Read: Salvatore Morelli: Is growing inequality hurting our economies?

Posted on by Brad DeLong

Should-Read: Salvatore Morelli: Is growing inequality hurting our economies?: “The recent 2007–2008 collapse of the global financial system naturally acted as a catalyst for growing concerns around the increasing dispersion of economic resources within most advanced economies… https://equitablegrowth.org/research-analysis/is-growing-inequality-hurting-our-economies/

…Subsequently, the landmark book by Thomas Piketty, Capital in the Twenty-First Century, underlined very clearly the risk of the rising importance of inherited intergenerational advantages in transforming our societies into patrimonial capitalistic economies dominated by wealthy dynasties…. The reverse direction of inquiry—how macroeconomic performance may be affected by the extent of inequality—rests instead outside the scope of Piketty’s analysis and modeling…. In fact, the investigation of the (fairly complex) relationship between inequality and economic growth has been featured prominently in the empirical literature on inequality, with disparate findings and hypotheses pointing in different directions….

Economic theory provides different anchors as to why the so-called equity-efficiency trade-off may fall apart…. If most of the dispersion of economic outcomes of individuals results from inequality of opportunities… opportunities are not necessarily given to the most talented but to individuals with predetermined circumstances, and economic growth may in turn be weakened…. High levels of income and wealth inequality… may be detrimental to the level of economic activity as only those who inherit sufficiently high wealth may be able to pay the fixed cost of entrepreneurial activity or education…. Investments in productive capital and risky activities themselves can also be discouraged by highly unequal distribution of resources as a result of increasing rent-seeking behavior and other expropriation actions…. Does wealth inequality really promote rent-seeking behavior?… Bonica and Rosenthal documented the U.S. campaign contributions of the Forbes 400 wealthiest individuals between 1982 and 2012. Their figures imply an average individual donation of $10,000 for each $1 million increase in wealth—presumably a relatively easy achievement for a billionaire…

Should-Read: Martin Sandbu: Globalisation goes on without those who want to get off

Posted on by Brad DeLong

Should-Read: Martin Sandbu: Globalisation goes on without those who want to get off: “The EU, Japan and Canada keep the economic openness show on the road… https://www.ft.com/content/97582468-5fc7-11e7-8814-0ac7eb84e5f1

…The significance of this imminent accomplishment is only matched by the degree to which it is ignored by the public…. The EU, flanked by Japan and Canada, has taken on the leadership mantle of economic globalisation. Even more importantly, if implemented, the two deals show that Europe is capable of leading successfully…. For countries such as the US and the UK, which behave as if they have been victimised by globalisation, the new European trade deals show the wrong-headedness of their self-pity…. The US and the UK can hurt themselves by throwing up barriers to trade between themselves and their trading partners. But that is all they will achieve; there will not be a reorientation of “better” or “fairer” trade that will somehow improve on the status quo ante. (Of course there are plenty of domestic policies that these countries can improve, but there is no need to deglobalise to make those changes.) Meanwhile the countries that have stuck to their senses will simply move ahead shaping the global economy…

Should-Read: Koichi Hamada: The Rebirth of the TPP

Posted on by Brad DeLong

Should-Read: Koichi Hamada: The Rebirth of the TPP: “Jagdish Bhagwati said… ‘the TPP was a bit like allowing people to play golf in a club, but only if they also attended a particular church’… https://www.project-syndicate.org/commentary/tpp-revival-japan-us-by-koichi-hamada-2017-06

…The deal’s signatories were in it for the golf–that is, the expanded trade and investment flows. But they couldn’t avoid the obligation to accept rules that would benefit the US…. The US… had a strong national interest in both the golf and the church. Now it will get neither. And when the new TPP, excluding the US, begins to flourish, US businesses will be wishing Trump had not canceled their tee time…

Should-Read: Stefan Klasen et al.: Inequality – worldwide trends and current debates

Posted on by Brad DeLong

Should-Read: Stefan Klasen et al.: Inequality – worldwide trends and current debates: “Income inequality has been rising in many developing countries since the 1980s…” https://www.econstor.eu/bitstream/10419/142156/1/86139593X.pdf

…At the same time, global income inequality has been roughly stable (or even falling slightly) and there is great heterogeneity in within-country inequality trends across countries and regions. Non-income inequality tends to have fallen, both within and between countries. There is no empirical evidence that rising inequality is an inevitable consequence of economic growth; similarly, the evidence of the impact of changes in inequality on growth is also inconclusive, although higher levels of inequality appear to be harmful for subsequent development. At the same time, reducing inequality is seen as important to promote greater fairness as well as to speed up poverty reduction. To study trends in inequality, we use a framework where income inequality is related to inequality in assets (land, labor, human capital, and physical capital), return to these assets, inequality in private transfers, and redistribution by the state. Trends in inequality are tied to these different drivers which differ greatly by country and over time. This framework also generates opportunities for policy intervention to tackle inequality.

This will, however, depend greatly on the country. As a result, it is useful to start a policy framework with an inequality diagnostics to identify the most important drivers of levels and changes in inequality in a particular country; this is also an activity where bilateral development partners can play an important supporting role. When it comes to particular policy issues, some of the issues that have been discussed for a long time remain highly relevant, including land reform (where land is still an important asset), pro-poor educational policies, rural infrastructure, and a focus on improving agricultural productivity of poor farmers. At the same time, increasing the redistributive role of the state through a higher tax take (to be achieved via broadening the tax base, increasing tax compliance, increase resource taxes), and increasing pro- poor social transfers. On the international dimension, there is now a greater emphasis on assisting developing countries with fighting tax evasion and tax avoidance of firms and individuals. As a single bilateral donor, it is not easy to have a significant impact on inequality and an explicit aid program on inequality reduction might also be politically contentious.

In principle, the potential is there for significantly affecting inequality via technical cooperation assisting states (and potentially non-state actors) in implementing an inequality-reducing agenda. Budget support and other systemic approaches can of course also support an overall agenda of reducing inequality, as can investment projects if they focus on the policy-areas for inequality reduction outlined here…

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Should-Read: Douglas L. Campbell: In the Idiocy of Kevin Warsh: More Evidence for the ‘Self-Induced Paralysis’ Thesis

Posted on by Brad DeLong

Should-Read: Doug Campbell: Douglas L. Campbell: In the Idiocy of Kevin Warsh: More Evidence for the ‘Self-Induced Paralysis’ Thesis: “I believe it is clear that the main reason the economy has been growing slowly since the financial crisis is overly tight monetary policy… http://douglaslcampbell.blogspot.ru/2017/07/in-idiocy-of-kevin-warsh-more-evidence.html

…In particular, look at… 2009, when the Fed adopted no new stimulus despite headline deflation and mass job losses, on net (in terms of rates or asset purchases, forward guidance was done), or in 2010, when the Fed raised the discount rate. What on Earth could they have been thinking?… Part of the answer might be that Ben Bernanke, ever a consensus builder, would have liked to do more, but was also constrained by other members of the FOMC. Sam Bell provides some evidence for this in a can’t miss article on Kevin Warsh, who now appears to be a front-runner for the Fed Chair job, who was still worried about inflation pressures even after Lehman Brothers failed in 2008…. Warsh is a lawyer by training… appointed to the Fed at age 35 with a light resume after his father-in-law, Ronald Lauder… likely influenced his selection with donations. Even as the economy was tanking in 2008 and 2009, Bell writes that “Warsh adopted a skeptical and increasingly oppositional posture. He doubted the Fed could do much good without creating much bigger problems.”

Much bigger problems? What could be a bigger problem than letting the economy burn in a financial crisis?

“In March 2009 he told his Fed colleagues that he was “quite uncomfortable with the idea of purchasing long-term Treasuries in size” because ‘if the Fed is perceived to be monetizing debt and serving as a buyer of last resort in the name of lowering risk-free rates, we could end up with higher rates and less credibility as a central bank.'” The Fed should hold off on more stimulus in the worst recession in 75 years because it might actually end up with higher rates and lose credibility? Why wouldn’t the Fed lose credibility if it was perceived as not fighting the recession? Warsh continued to warn about the dangers of both monetary and fiscal stimulus in 2010. Warsh was also far and away not the only crazy one at the Fed at that time. In 2011… Daniel Tarullo… told me he believed that Jean-Claude Trichet’s interest rate hikes in 2010–which are widely seen to have been premature and to have helped ignite the European Debt Crisis–were justified. These comments suggested to me that Tarullo was somewhere to the right of Genghis Khan on monetary policy. Then, there were also worthies like Richard Fisher, Often Wrong but Seldom Boring, who “warned throughout most of 2008 that inflation was the primary danger to the economy”.

And that, my friends, is how the Tea Party was born….

The FOMC is that it’s a job most people seem to not want to do for very long. It’s a revolving door. Most people will do it for 4-5 years, and then quit for greener pastures, as it is not a job that pays that much, particularly by the pornographic standards of finance and banking…. In part because it is a revolving door the Obama administration never took its appointments seriously. They left in place an FOMC made up mostly of Republicans, including staunch white male MBA-holding Republicans raised in the south in the 1960s. Obama’s economic advisors apparently did not see this as potentially problematic.

And, then we had Bernanke, who apparently still holds the view that economic growth in the US economy is still more-or-less OK. In 2011, I also had a conversation with Ben Bernanke…. He was actually surprised when I asked him why he wasn’t doing more, given that core inflation at the time was running around 1.4%. His response is that higher inflation wasn’t costless. But I didn’t see how inflation of 2% vs. 1.4% would be as costly as millions of people out of work. It seems, few people at the Fed were trying to influence him in the direction of doing more. What all of this evidence does is make the thesis of “Self-Induced Paralysis”, that the major problem with the US economy is overly tight monetary policy, more plausible…

Are economic boom-and-bust cycles stronger when capital is more available?

Posted on by Meghan Miller
A worker stands in the early morning sunlight on a home construction project in Newtown, Pennsylvania, June 2012.

Sometimes when policymakers try to compensate for a deficiency in an economy, they can go overboard and create a problem with excess. During the late 1970s and early 1980s, the U.S. economy appeared to be suffering from a lack of credit. Policymakers worked to solve that problem and increased the flow of credit. Credit growth did improve as a number of states deregulated their lending institutions, but at what cost? The short-term gains of an increase in credit supply led to a boom, but the medium-term effects aren’t entirely clear. Was the boom due to increased business investment that created a foundation for a stronger economy? Or did it lead instead to a boost in demand that was not sustainable in the long run?

In a new paper released yesterday as an Equitable Growth working paper, economists Atif Mian of Princeton University, Amir Sufi of the University of Chicago, and Emil Verner, also of Princeton, show the potential downsides for an economy when credit growth jumps upward.

During the late 1970s and early 1980s, the United States went through a period of banking deregulation, letting banks from different states compete in each others’ markets. The result was increased access to capital as financial institutions decided to lend more. Importantly—at least for the empirical approach of this paper—the states didn’t deregulate all at once. The difference in timing allows Mian, Sufi, and Verner to tease out the impact of banking deregulation on states’ economies.

What they find is that the shock of increasing the supply of credit led to a more pronounced business cycle: a bigger boom during the 1982–1989 expansion and a stronger decline during the 1989–1992 recessionary period. How this happened was due primarily to where the credit flowed once the supply was increased. Let’s simplify their findings a bit here and assume there’s two main ways the credit could flow. The first is increased lending to businesses, which leads to more investment and higher productivity growth. The second is lending that took the form of loans to households, which strengthened local demand.

Mian, Sufi, and Verner’s results are more consistent with the second case. The increase in credit during this period is almost entirely channeled toward household loans in the form of real estate lending. States that deregulated early saw a much larger increase in household debt as well as bigger increases in home prices. At the same time, those states also had larger increases in employment in “non-tradable” sectors—think retail or construction—as well as stronger wage growth in those industries compared with tradable industries such as manufacturing. There was also stronger price growth in the non-tradable sectors.

All these factors made the recessions that followed the economic booms in that period more severe. The increased demand led to higher wages in the less productive non-tradable sector and higher prices in the non-tradable sector. The higher wages required more layoffs when the downturns hit, while higher prices in non-tradable industries meant that those states’ local economies were less competitive.

This pattern is familiar to anyone who’s paid attention to the state of the European economy in the 21st century. The introduction of the euro in 1999 increased credit flows to countries such as Greece and Spain, acting in a similar way to the increase in credit from deregulation in the United States in that earlier period. The result, at least in Spain, was a large boost to household debt and the construction industry, followed by a housing bust, recession, and a grindingly slow economic recovery.

It’s hard to tell at this point the long-term effects of credit-supply shocks, at least in the wake of banking deregulation in the United States four decades ago, because the estimates from Mian, Sufi, and Verner for the long-term effects aren’t precise enough to come to firm conclusions. Further research is needed. But this research should keep us alert to the very real possibility that increasing the supply of credit in an economy might not be everywhere and always a positive force.

Explaining the “What is equitable growth?” essay series

Posted on by Nick Bunker

What is “equitable growth” and how do we measure it? This new recurring series asks economists, other researchers, and practitioners to explore these questions. Equitable growth means an economy that raises living standards for all families. We have seen decades of economic growth in the U.S.—commonly measured by GDP. Yet that success has not meant significant income growth for most American families. Clearly GDP doesn’t provide the full picture. How do we know we’re on the right track? There is little consensus around what specific of indicators are required to quantify whether the economy is growing on behalf of all Americans. Is it a matter of looking at different already existing measures? Should new data using existing concepts of income and well-being be created? Do our concepts of what’s important to measure need updating as well? A better understanding of equitable growth—and how to measure it—can improve our understanding, inform decisions and lead to better outcomes for all.

The “What is equitable growth” series of essays

Why current definitions of family income are misleading, and why this matters for measures of inequality
By Nancy Folbre, director of the program on gender and care work at the Political Economy Research Center at the University of Massachusetts, Amherst

Improving the measurement and understanding of economic inequality in the United States
By Robert Solow, professor emeritus at the Massachusetts Institute of Technology.

Why current definitions of family income are misleading, and why this matters for measures of inequality

Posted on by Nick Bunker

What is “equitable growth” and how do we measure it? The following essay, part of a series, asks economists, other researchers, and practitioners to explore these questions. Equitable growth means an economy that raises living standards for all families. We have seen decades of economic growth in the U.S.—commonly measured by GDP. Yet that success has not meant significant income growth for most American families. Clearly GDP doesn’t provide the full picture. How do we know we’re on the right track? There is little consensus around what specific of indicators are required to quantify whether the economy is growing on behalf of all Americans. Is it a matter of looking at different already existing measures? Should new data using existing concepts of income and well-being be created? Do our concepts of what’s important to measure need updating as well? A better understanding of equitable growth—and how to measure it—can improve our understanding, inform decisions and lead to better outcomes for all.

Researchers studying income distribution in the United States seem reluctant to acknowledge the family as an important unit of production and distribution. As a result, they often rely on statistics that provide a misleading picture of inequalities based on class, race or ethnicity, and especially gender.

Incomplete definitions of both family and income either obscure or render invisible transfers between and within households, including the value of housework and family care. Evidence from specialized surveys—such as the Health and Retirement Survey, the Panel Survey of Income Dynamics, the Survey of Income and Program Participation, and the American Time Use Survey—clearly demonstrate the quantitative relevance of these omissions.

Conventional measures

What, exactly, do economists mean by income, and what, exactly, is the presumed income-receiving unit? Usually, income refers to direct market income (labor earnings plus income from capital such as interest or dividends, and including, where feasible, indirect market income such as the dollar value of transfers from private pensions or government).

Many shortcomings of this measure are widely recognized. For instance, conventional estimates do not include any valuation of the flow of implicit service income from capital assets such as housing or the increase in wealth due to capital gains appreciation.1 Sources of income that take the form of in-kind benefits and/or tax expenditures such as the Earned Income Tax Credit are seldom included. These problems, however, have received more attention than those related to largely unmeasured aspects of the family economy.

Most individuals in the United States pool at least some of their income with other family members over a significant portion of their lifecycles. As a result, family income is a better indicator of material living standards than individual earnings. Family-based measures are especially relevant to the economic welfare of children, the elderly, and individuals who are sick or disabled, as well as those supporting or providing direct care for such dependents.

Many unrelated individuals live together in households without pooling income, but benefit from household public goods and economies of scale in household production. That’s why it is difficult to measure the extent to which individuals pool their income and what share of family or household income should be imputed to them. While it is often assumed that married couples equally share their market income, empirical research suggests that is not always the case. 2 The proliferation of informal partnerships such as cohabitation further complicate the story. 3

Intrafamily transfers of money and time—mediated by the public-good aspects of household consumption and economies of scale in household production—potentially affect both the size and the distribution of individual income. For instance, improvements in women’s earnings relative to those of men may be counterbalanced by a decline in intrahousehold or intrafamily transfers related to nonmarriage, loss of household economies of scale, or increases in the percentage of children maintained by women alone. 4

Defining the family in family income

Seeking a practical solution to a complex problem, the U.S. Census Bureau enforces a clear distinction between family and household. Specifically:

A family consists of two or more people (one of whom is the householder) related by birth, marriage, or adoption residing in the same housing unit. A household consists of all people who occupy a housing unit regardless of relationship. A household may consist of a person living alone or multiple unrelated individuals or families living together. 5

Note, however, that the definition of family provided here is limited to family members living in the same household. In this sense, it represents a truncated and, in some respects, misleading definition. While the U.S. Current Population Survey asks some questions relating to intrahousehold family transfers, these are largely been considered a private matter, except where they represent a traditional obligation rendered visible by child support agreements.

By contrast, the Health and Retirement Survey asks respondents to report financial help, defined as:

Giving money, helping pay bills, or covering specific types of costs such as those for medical care OR insurance, schooling, down payment for a home, rent, etc. The financial help can be considered support, a gift or a loan.

This is a much broader definition of intrafamily transfers than that in the Current Population Survey, and a recent empirical analysis of the Health and Retirement Survey finds that households with an adult between the ages of 50 and 64 transferred an average of $8,350 to family members over a two-year period between 2008 and 2010. Both the probability and the size of these transfers were positively correlated with income, and the overall likelihood of such transfers increased substantially between 1998 and 2010. 6 In other words, relatively affluent adults approaching retirement age have provided an increasingly significant economic boost to their adult children, which is not factored into conventional family-income calculations.

This analysis of the Health and Retirement Survey does not break out transfers by race or ethnicity, but other research utilizing data from the 2005 and 2007 Panel Study of Income Dynamics, as well as the Survey of Consumer Finance, shows that middle- and upper-income African Americans are more likely to provide informal financial assistance than whites with similar characteristics. 7 Not surprisingly, black families are more likely to have needy family members and friends—what might be termed a negative network effect. This difference can account for a significant portion of the racial gap in wealth.

Overall, such transfers may have an equalizing effect because they generally flow from those with more market income to those with less. But young white adults are more likely to receive transfers from relatively affluent parents, while young black adults are more likely to transfer income to those closer to the bottom of distribution.

Equivalence scales and intrafamily transfers

Comparisons of family income are often unadjusted for family household composition or are adjusted on a per-capita basis, simply divided by the number of household members. Both approaches are misleading. A family of two is much better off with an income of $50,000 than a family of six. In contrast, a family of six does not need three times as much income to be as well off as a family of two, even though it has three times as many members.

For this reason, family income is often adjusted by an equivalence scale that assigns a different weight to children and adults, and takes economies of scale into account. The U.S. poverty line and benchmarks based upon it—such as the 200 percent of the poverty line—represents an implicit equivalence scale. Another common measure divides family income by the square root of family size. 8 Such scales represent an approximation of what might be termed an intrafamily transfer. 9

Virtually all conventional equivalence scales assume that children are less costly than adults because the cost of feeding and clothing them is lower. 10 Further, virtually all applications of equivalence scales to family income in the United States apply the same scales at every point in time. Since the mid-1960s, however, children have become more costly relative to adults, and family budgets have shifted away from food and clothing toward services such as childcare and education.

A major factor behind increased childcare costs is the significant increase in the labor-force participation of mothers between 1975 and the mid-1990s. Another is the steady climb in the percentage of children living in families maintained by a mother alone, since mothers are required to engage in paid employment in order to even qualify for public assistance.

While longitudinal data are scarce, a recent Census Bureau report based on the Survey of Income and Program Participation estimates that overall expenditures on childcare doubled between 1985 and 2011, from $84 to $143 per week in constant dollars. In the most recent year, families with incomes below the federal poverty line spent about 30 percent of their income on childcare, compared to 8 percent for families not in poverty. 11

Parental spending on higher education has also increased, the combined result of increasing college enrollments (despite relatively stagnant graduation rates) and significant increases in tuition and fees, particularly over the past 15 years. 12 Research also shows that home buyers and renters pay a significant premium for houses in high-quality school districts, indirectly increasing the cost of children. 13

These factors have important implications for considering the distribution of adjusted family income today. Whites in general are less likely than African Americans or Hispanics to live in households with children, and college-educated women are significantly less likely than other women to become single parents. Current equivalence scales significantly understate the economic significance of these demographic differences. Yet many dual-earner families with children sit squarely in the middle of the (conventionally measured) family-income distribution.

In current economic parlance, disposable income is typically defined as income after taxes. One could conceptualize “adult disposable income” as the net of taxes and benefits and transfers to children and other dependents. Instead, current assumptions treat spending on children or other needy family members merely as another form of consumption, no different than spending on restaurant meals or automobiles.

The value of nonmarket work

Housework and family care are now widely recognized as forms of work that yield economic benefits. Recent data from the American Time Use Survey show that productive activities that someone else could, in principle, be paid to perform constitute roughly half of all time devoted to work in the United States. 14

A number of studies impute a market value to this work on the aggregate level, simply multiplying the number of hours by an estimate of quality-adjusted replacement cost. This exercise suggests that the contribution of nonmarket work to an expanded definition of Gross Domestic Product in the United States lies somewhere between 30 percent and 40 percent. 15 Yet, with a few notable exceptions, the value of nonmarket work is largely ignored in estimates of family income on the microeconomic level. 16

Consider two family households of identical composition consisting of two adults and two children under the age of 5, both with a family income of $50,000 (ignoring both taxes and benefits, for the sake of simplicity). Conventional measures would place both of these families at exactly the same place in the distribution of income. But what if the first family includes two wage-earners, both working 40 hours per week and earning $25,000 per year, and the second family includes one wage-earner, working 40 hours per week and earning $50,000 per year, along with one stay-at-home parent who prepares meals, does shopping, and provides childcare.

Surely the second family is significantly better off than the first, if only because it does not incur the childcare costs alluded to in the section above.

What effect does imputation of the value of nonmarket work have on estimates of the distribution of family income in the United States? Empirical work today suggests that it has an equalizing effect in the cross-section, not because low-income families devote more time to it, on average, but because any imputation of the value of that work represents a larger percentage of their market income. 17

The implications for trends over time are quite different. The equalizing effect of valuing nonmarket work was almost certainly greater in the 1960s, when a relatively large percentage of married women were full-time homemakers. As women entered wage employment and substituted market employment for at least some of their nonmarket work, this equalizing effect diminished. Inequality in women’s earnings is also far greater today than it was in the 1960s, with high-earning women likely to marry high-earning men. 18

Whatever the gender implications of the traditional breadwinner/homemaker family, it may well have mitigated some aspects of class inequality among whites (it was never widespread among blacks). But most studies of the impact of women’s increased labor-force participation on income inequality completely ignore the value of nonmarket work, essentially assigning homemakers a contribution of “zero” in their empirical analysis. 19

Implications

Changes in the family economy of the United States have probably had only small effects on the relative income of the top 1 percent or the top 5 percent. They have larger implications for both the reality and the perception of relative income among households with divergent patterns of female labor-force participation and family responsibility.

Many public benefits in the United States—from the Supplemental Nutrition Assistance Program to financial aid for college—are conditioned on conventional measures of family income. Because these measures provide an incomplete and misleading picture of relative well-being of families, reliance on them may breed frustration and resentment. 20

Many of the policy proposals emerging from both political parties speak to concerns about the costs of family care: increased public provision of care and education, as well as child and dependent care tax credits. The potentially equalizing effect of such policies deserves serious consideration. In principle, many of the data sources cited above offer the potential to enlarge appreciation of the family in family income.

—Nancy Folbre is the director of the program on gender and care work at the Political Economy Research Center at the University of Massachusetts, Amherst.