Remembering who pays Uncle Sam this year’s Tax Day

Posted on by Emilie Openchowski
Tax professional and tax preparation firm owner Alicia Utley reaches for hard copies of tax forms.

With April 15 falling on a Saturday this year, Tax Day is on Tuesday, April 18. While it may not be everyone’s idea of a good time to finalize last-minute tax returns over the weekend or even on a Monday evening, the government needs our money to function. Taxes contribute to goods and services that impact our daily lives, including our national defense, physical infrastructure, and education. Yet even as we all do our duty, feelings of civic responsibility bump up against an all-too-common narrative that everyone else is dodging their responsibility to pay their fair share.

This fear is overblown when it comes to most Americans, though there are some privileged exceptions. Much of the public debate around government programs either alludes to or directly raises the question of whether “other people” are doing their part. Some, among them Robert Rector of the Heritage Foundation, question whether immigrants or the poor pay enough into the system relative to what they take. Then there’s the concern that those at the top of the income ladder hire accountants and lawyers to avoid paying their fair share—though some policymakers regard this tax avoidance as “smart.” And, of course, there are profitable corporations that pay minimal taxes such as General Electric Co., which has paid just a 5.2 percent tax on its profits over the past 15 years.

Looking for those among us who are shirking their civic duty is a national pastime, but it turns out the evidence doesn’t fully support this view. Political scientist Vanessa Williamson’s new book, Read My Lips: Why Americans are Proud to Pay Taxes, is grounded in quantitative and qualitative evidence that shows that Americans from all walks of life not only contribute to the common good but also believe paying taxes is their civic duty. Williamson, a 2014 Equitable Growth grantee and now a fellow at The Brookings Institution, finds that Americans see paying taxes as an ethical act that we owe to our nation.

Learning this, it seems that the current national conversation on taxes—and subsequent public spending—doesn’t do taxpayers justice. Indeed, taking into account all kinds of taxes paid each year at the federal, state, and local level, this civic exercise is very much an equal-opportunity activity. In 45 states and the District of Columbia, there’s a sales tax on most nonessential items. There are federal payroll taxes borne by employees and employers. There are state and local real estate taxes, state and local income taxes (in 43 states and more than a thousand localities, ranging from cities to counties to school districts), and an array of federal income taxes—all of which affect everyone in the country to varying degrees. According to the Institute on Taxation and Economic Policy, low-income families pay about 7 percent of their income toward sales and excise taxes, compared to 1 percent among high-income families. Williamson documents that roughly half of all taxpayers whose biggest tax burden is the sales tax correctly perceive it to be so.

Still, the perception that some taxpayers are paying less than they used to is grounded in evidence for some affluent households. While the federal tax code is progressive, it has become less so over time. Policymakers have sharply reduced the rate paid by the highest income earners, from 92 percent in 1952 to 70 percent in 1960 to 39.6 percent today. At the same time, the composition of all taxes paid has shifted over the same period from income taxes to other, less progressive taxes such as sales taxes and payroll taxes—the latter of which is capped for 2016 at $118,500 for Social Security.

Restoring more progressivity to the federal tax code would be good for the U.S. economy. Economists Emmanuel Saez at the University of California, Berkeley, Thomas Piketty at the Paris School of Economics, and Stephanie Stancheva at Harvard University find that raising top rates would not lower productivity. Instead, they argue that there’s room to tax the top income earners more because it would encourage a more efficient use of firms’ resources toward productivity-enhancing activities and away from economically inefficient sky-high salaries.

As members of Congress and President Trump consider comprehensive tax reform, they should keep this background in mind. The lack of real income gains from overall U.S. economic growth for too many Americans, combined with concerns about the distribution of taxes provide an important backdrop for this debate. Without clear facts and a common baseline of reality, policymakers could end up seeking to solve problems that do not exist and failing to address problems that do exist.

Do U.S. women choose low-paid occupations, or do low-paid occupations choose them?

Posted on by Emilie Openchowski
People gather for a rally on Equal Pay Day in Montpelier, Vermont.

Tomorrow is Equal Pay Day, a “holiday” in the United States that symbolizes how far into the year women must work to earn what men did the previous year. Today, women earn 20 percent less than men on average—for African American women and Latinas, that disparity is much wider. The gender pay gap exists for many reasons, among them flat-out discrimination and the burden of outside-the-office family responsibilities, which women continue to shoulder disproportionately. And then, there are the many women who work in different jobs than men do—jobs that happen to pay less.

Skeptics of the gender wage gap point to these types of jobs as evidence that the gap does not exist. Once you account for differences in women’s employment choices, they argue, the wage gap disappears, or at least shrinks substantially. But citing “choice” to discount the gender wage gap’s existence fails to account for the social and economic factors that shape work-life decisions, as well as how society at-large values women’s work.

It is true that gender differences in occupations and industries accounts for more than half of that gap, according to research by Cornell University economists Francine Blau and Lawrence Kahn, making it the single largest factor. It is also true that many women go into lower-paid occupations. Teachers, childcare workers, and home health aides—what economists refer to as pink collar jobs—are all overwhelmingly women.

Why is it that men and women go into different occupations? First, expectations for girls and boys are set early and can have a profound effect on their later life choices, including what kinds of jobs kids eventually take. The research is clear that young girls believe boys to be better at math and science, even when their skills are equal or better to their male classmates. That perception may set little girls on a path to pursue different academic interests, most clearly illustrated by the current deficit of women in some of the highest-paying science, technology, engineering, and math, or STEM, jobs.

Women also are expected to take on a larger share of domestic duties, which may rule out certain jobs with long or inflexible hours. Research by Harvard University economist Claudia Goldin found that the wage gap is largest where the culture of face time and overwork are common. And Blau and Kahn find that dual-earner heterosexual couples are more likely to choose their location based on the man’s job, possibly limiting the options a woman has, depending on her occupation.

But then there is the growing body of research that shows the low pay of many female-dominant occupations has nothing to do with skills, but rather is simply because they are done by women. Occupations with more men tend to be paid better regardless of skill or education level. A study by Asaf Levanon of University of Haifa, Paula England of New York University, and Paul Allison of University of Pennsylvania shows that as more women enter a field, the overall pay tends to decline. The devaluation of women’s work is seen most clearly in the lowest paying—and fastest growing—occupations, which are mostly done by women. Almost two-thirds of all minimum-wage workers are women.

Of course, pure discrimination is also part of the story—Blau and Kahn estimate that it accounts for about 38 percent of the gender pay gap. This is illustrated by the fact that even within female-dominant occupations, men earn more. And as a larger share of women exit a field, the overall pay of that field goes up. Employers, it seems, place a lower value on work done by women regardless of their skills. Take computer science, which until about 30 years ago was known for being a “women’s field.” But in the mid 1980s, the number of women in computer science took a dive—just as personal computers marketed to boys and men began showing up in people’s homes. As computer programming became increasingly dominated by men, prestige and wages went up.

Discrimination does not just come in the form of a male worker getting paid more than his female colleague. Rather, it affects how society values whole industries and entire types of work—based on whether it’s done predominantly by men or women. Narrowing the gender wage gap means addressing the choices women feel they must make, as well as the biases we have as a society.

Despite increases, diversity still comes up short in U.S. venture capital

Posted on by Emilie Openchowski
Traders work on the floor at the New York Stock Exchange in New York.

Business leaders and organizations in the United States have lauded the impact of racial, ethnic, and gender diversity on companies’ bottom lines. From the acknowledgement by Forbes that a diverse workforce is more capable of forging innovative products, services, and business practices to research affirming the benefits of executive-level diversity for market growth, welcoming ethnic minorities and women couldn’t be more crucial at a time when more than 50 percent of Americans are projected to belong to a population of color by 2044. Yet despite the importance of diversity in business success, the weight of the evidence has had a negligible impact on a sector that funds new companies: venture capital.

In Diversity in Innovation, Harvard Business School professor Paul A. Gompers and Harvard economics doctorate student Sophie Q. Wang chronicle labor-participation trends among women and ethnic minorities in venture capital firms and as entrepreneurs of venture-financed startups. Using data compiled from VentureSource on 42,502 entrepreneurs and 11,555 venture capitalists between 1990 and 2016, the two researchers were able to determine changes in the entry of women and ethnic minorities into entrepreneurship and employment at venture capital firms over this period.

They find that between 1990 and 2016, women comprised less than 10 percent of the entrepreneurial and venture capital labor force, Hispanics around 2 percent, and African Americans consistently less than 1 percent. In contrast, Asians—in their paper comprising East Asian and Indian populations—experienced higher rates of entry into venture capital firms and entrepreneurship than other ethnic minorities, reaching 18 percent and 15 percent, respectively.

Remarkably, over this same period, 45 percent of the general workforce were women, yet the entry rate for women entrepreneurs held at around 7 percent in the 1990s and early 2000s, rising steadily but only to 11 percent since then. More astonishing is the low growth rate of women venture capitalists, which went from about 6 percent in the early 1990s to 9 percent in the late 1990s, and remained constant since. Among ethnic minorities, Hispanics experienced the fastest overall increase into the labor force, going from 9 percent in 1990 to about 16 percent between 2010 and 2015—though it’s worth noting that they accounted for 1 percent of both entrepreneurs and venture capitalists in 1990 before accounting for 5 percent of new entrepreneurs and 3.2 percent of new venture capitalists from 2010 to 2015, despite rapid labor participation increases.

Furthermore, despite the slow increase from 4 percent to 5 percent among labor-market entrants during this same period, Asians grew from 10 percent and 5 percent of all venture capitalists and entrepreneurs, respectively to 18 percent and 15 percent today. Patterns for African Americans have been similar to those experienced by women—their labor-market entry rate went from roughly 11 percent in 1990 to 12 percent between 2010 and 2015, overshadowing the fact that they accounted for 0.83 percent and 0.67 percent of all new entrepreneurs and venture capitalists, respectively.

Arguably the most interesting takeaway from the study is that in spite of their demonstrated lack of entry into the innovation sector, many women and ethnic minorities have received an education earning them entry into the field. For example, the share of bachelor’s degrees earned by African Americans doubled from 1990 to 2015, while black representation in venture capital remained small (0.67 percent) during the same period. This is despite entry gains in other financial industries such as investment banking, where African Americans represent 6.9 percent of investment bankers.

While growth in educational attainment among women and ethnic minorities has contributed to a slight uptick in venture capital’s diversity, it has done little to integrate the overall industry and the firms it subsidizes in a more equitable manner. Gompers and Wang’s data show that trends in venture capital entry remain consistent with overarching indications that hiring and awareness of job opportunities flow best between similarly situated people. It suggests that venture capitalists tend to hire people who look and think like them, thereby bolstering structural barriers to access to opportunities.

There is no detailed research on the consequences of the lack of diversity for venture capital investment returns, but financial returns among firms that lack diversity are not so much at risk of decline as they are at risk for stagnation, as detailed in a recent report by McKinsey & Company. According to Vivian Hunt, Dennis Layton, and Sara Prince at the global consultancy, companies in the bottom quartile for gender, racial, and ethnic diversity are less likely to achieve financial returns that are above average. Conversely, companies in the top quartile for racial and ethnic diversity are 35 percent more likely to accrue financial returns exceeding national industry averages, with those in the top quartile for gender diversity being 15 percent more likely to experience those same effects on returns.

These findings suggest that racial and ethnic diversity has a greater effect on returns than gender diversity, and that innovation cannot be achieved without acknowledging the needs of a demographically changing market. To ensure economic growth in a country projected to be majority minority by 2044, it is imperative that policymakers not only ensure equal access to education but also equitable access for qualified workers by confronting structural barriers to hiring and promotion. This task equally falls in the purview of for-profit businesses, which are major drivers of our overall economy. Only then can equitable growth be shared among all Americans, and new venture findings and new company formation tap into broader economic opportunities.

Should-Read: Craig Garthwaite and John A. Graves: Success and Failure in the Insurance Exchanges

Posted on by Brad DeLong
Health of the Medicaid Exchanges

Should-Read: Craig Garthwaite and John A. Graves: Success and Failure in the Insurance Exchanges: “President Donald Trump and large fractions of the Republican majority… campaigned on an explicit pledge to repeal and replace the ACA…

…At least part of the impetus for these promises is a general belief that the ACA’s state-based insurance marketplaces are unworkable and are resulting in higher prices and fewer choices. In 2016, the ACA marketplaces facilitated coverage purchases for approximately 13 million people nationwide. But many prominent national insurers have struggled… UnitedHealth… Aetna….

Smaller and more focused insurers are earning profits in the new market and are aggressively entering new geographic areas…. Centene and Molina have both had financial success in the ACA marketplaces…. These two insurers have historically operated in the Medicaid managed-care market….

New plans had substantially lower premiums than their local competitors… were more likely to have experience with Medicaid managed care but less likely to have direct experience in the markets they entered. This finding is consistent with the existence of a functioning market in which firms that were initially successful are moving into new geographic areas….

The available data reveal patterns of market entry and exit that are consistent with natural competitive processes separating out firms that are best suited to adapt to a new market. We be- lieve that efforts to reform or re- place the ACA should therefore proceed with the knowledge that highly publicized market exits are
a poor and probably inaccurate signal of a failing market.

Why Were Economists as a Group as Useless Over 2010-2014 as Over 1929-1935?

Posted on by Brad DeLong

Let us start with two texts this morning:

Paul Krugman: Don’t Blame Macroeconomics (Wonkish And Petty): “Robert Skidelsky… argues, quite correctly in my view, that economists have become far too inward-looking…

…But his prime examples of economics malfeasance are, well, terrible…. [The] more or less standard model of macroeconomics when interest rates are near zero [is] IS-LM in some form…. [And] policy had exactly the effects it was “supposed to.” Now, policymakers chose not to believe this…. And yes, some economists gave them cover. But that’s a very different story from the claim that economics failed to offer useful guidance…

Simon Wren-Lewis: Misrepresenting Academic Economists: “The majority of academic macroeconomists were always against austerity…

…Part of the problem is a certain disregard for consensus among economists. If you ask most scientists how a particular theory is regarded within their discipline, you will generally get a honest and fairly accurate answer…. Economists are less likely to preface a presentation of their work in the media with phrases like ‘untested idea’ or ‘minority view’…. Part of Brad’s post it seems to me is simply a lament that Reinhart and Rogoff are not even better economists than they already are. But there is also a very basic information problem: how does any economist, let alone someone who is not an economist, know what the consensus among economists is? How do we know that the people we meet at the conferences we go to are representative or not?…

“Mainstream”, “academic”, and “majority” are doing an awful lot of work here for both Paul and Simon. So let me repeat something I wrote last December, in response to Paul’s liking to say that macroeconomics has done fine since 2007. Certainly Jim Tobin’s macroeconomics has. John Maynard Keynes’s macroeconomics has. Walter Bagehot, Hyman Minsky, and Charlie Kindleberger’s macroeconomics has done fine.

But Bagehot and Minsky influenced the then top-five American economics departments–Chicago, MIT, Harvard, Princeton, Yale–only through Kindleberger. Charlie went emeritus from MIT in 1976 and died in 1991, and MIT made a decision–a long series of repeated decisions, in fact–that there was no space on its faculty for anybody like Charlie.

When Robert Skidelsky says “macroeconomics”, he means the macroeconomics of RBC and DSGE and ratex and the Great Moderation.

And he is right: Alesina and Ardagna and Reinhart and Rogoff each had more influence on what policymakers and journalists thought about the effects of fiscal policy than did Paul Krugman and company, (including me). While the Federal Reserve went full-tilt into quantitative easing (but not stamped money or helicopter money), it did so in the face of considerable know-nothing opposition. And the ECB lagged far behind in terms of even understanding its mission. Why? Because economists Taylor, Boskin, Calomiris, Lucas, Fama, and company had almost as much or even more impact as did Paul Krugman and company.

“Basic macro” did fine. But basic macro was not the really-existing macro that mattered.

And let me repeat part of my public intellectuals paper: In the last days before the coming of the Roman Empire, Marcus Tullius Cicero in Rome wrote to his BFF correspondent Titus Pomponius Atticus in Athens:

You cannot love our dear [Marcus Porcius] Cato any more than I do; but the man–although employing the finest mind and possessing the greatest trustworthiness–sometimes harms the Republic. He speaks as if we were in the Πολιτεια of Plato, and not in the sewer of Romulus…

Whatever you may think about economists’ desires to use their technical and technocratic expertise to reduce the influence of both the Trotskys and the St. Benedicts in the public square, there is the prior question of whether here and now–in this fallen sublunary sphere, among the filth of Romulus–they have and deploy any proper technical and technocratic expertise at all. And we seem to gain a new example of this every week. The most salient relatively-recent example was provided by Carmen Reinhart and Kenneth Rogoff–brilliant, hard-working economists both, from whom I have learned immense amounts….

They believed that the best path forward for… the U.S., Germany, Britain, and Japan was… to shrink their government deficits quickly and quickly halt the accumulation of and begin to pay down government debt. My faction, by contrast, believed that the best path forward for these economies was for them to expand their government deficits now and let the debt grow until either economies recover to normal levels of employment or until interest rates begin to rise significantly…. [For example:]

[Carmen] Reinhart echoed [Senator] Conrad’s point and explained that countries rarely pass the 90 percent debt-to-GDP tipping point precisely because it is dangerous to let that much debt accumulate. She said, “If it is not risky to hit the 90 percent [debt-to-GDP] threshold, we would expect a higher incidence…”

I think we have by far the better of the argument. There is no tipping point. Indeed, there is barely a correlation, and it is very hard to argue that that correlation reflects causation from high initial debt to slower subsequent growth:

NewImage

Yet it is very clear that even today Reinhart and Rogoff–and allied points by economists like Alberto Alesina, Francesco Giavazzi, et al., where I also think we have the better of the argument by far–have had a much greater impact on the public debate than my side has.

Thus, the key problem of knowledge: Since technical details matter, conclusions must be taken by non-economists on faith in economists’ expertise, by watching the development of a near-consensus of economists, and by consonance with observers’ overall world-view. But because political and moral commitments shape how we economists view the evidence, we economists will never reach conclusions with a near-consensus – even putting to one side those economists who trim their sails out of an unwarranted and excessive lust for high federal office. And note that neither Carmen Reinhart nor Kenneth Rogoff have such a lust.

We do not live in the Republic of Plato. We live in the Sewer of Romulus. In this fallen sublunary sphere, the gap between what economists should do and be and what they actually are and do is distressingly large, and uncloseable.

And this leaves you–those of you who must listen to we economists when we speak as public intellectuals in the public square–with a substantial problem.

V. Should You Pay Attention to Economists as Public Intellectuals in the Public Square?

You have to.

You have no choice.

You all have to listen.

But you have nearly no ability to evaluate what you hear. When we don’t reach a near-consensus, then Heaven help you. Unless you are willing make me intellectual dictator and philosopher-king, I cannot.

Should-Read: Simon Wren-Lewis: Misrepresenting Academic Economists

Posted on by Brad DeLong

Should-Read: I want to talk about “mainstream economists”—whatever that means. Simon Wren-Lewis wants to talk about “academic economists” and to (sharply?) distinguish them from “City economists”. And he wants to talk about after “the reason for the Eurozone crisis had been resolved by Paul De Grauwe”. That is—I think—most of why we seem to disagree:

Simon Wren-Lewis: Misrepresenting Academic Economists: “Brad DeLong [says]…

…The fact is that the “mainstream economists, and most mainstream economists” who were heard in the public sphere were not against austerity, but rather split, with, if anything, louder and larger voices on the pro-austerity side…

The dodge, and I think it is a pretty good dodge, is that politicians and a good part of the media choose the economists they publicise…. How were people outside economics… to know that particular [pro-austerity] academic economists were unrepresentative of the majority?… I’ve argued that the majority of academic macroeconomists were always against austerity, particularly once the reason for the Eurozone crisis had been resolved by Paul De Grauwe, but the evidence I use to back this up is piecemeal and indirect (see here, pages 3 to 4)…. I think the experience with austerity and Brexit suggests it is time for national economics associations (like the RES or AEA) to start representing the opinions of economists by conducting such polls of their members under their own initiative…

But there are other things we seem to disagree on as well. First, who are these “City economists”? And why does Simon dismiss them from the academic “mainstream”? Simon:

We have a particular problem… the influence of economists working in the City… some wise and experienced… but… many with limited expertise and sometimes fanciful views.. [whose] main job is to keep their firm’s clients happy…. Their views tend to reflect the economic arguments of those on the right: regulation is bad, top rates of tax should be low, the state is too large, and budget deficits are a serious and immediate concern. And part of their job is publicity, so they are readily available when the media needs a reaction or a quick interview…. Large sections of the print media have a political agenda. Unfortunately the remaining part, too, often seeks expertise among City economists who have a set of views and interests that do not reflect the profession as a whole…

I have also talked about the influence of City economists in the reporting of macroeconomic issues, which is obviously true on both sides of the Atlantic. The absence of a clear locus for received academic wisdom on fiscal policy, in contrast to monetary policy and central banks, could be important…

Most of the day-to-day macroeconomic news is about short-term market movements, and the obvious source for comment are economists working in the City. Ask an academic about why sterling moved yesterday or the latest retail sales figures, and they will probably say they have no idea…. Most of the time, therefore, academics are of little help to economic journalists. As a result, those journalists tend to establish contacts with City economists…. The problem is that City economists are not the best source for advice on major macroeconomic policy issues, like what to do with the deficit…. What we often get reported instead is what “the market” thinks… code for the speculation of City economists who have little policy expertise and a set of biases that come from the financial sector (deficits are bad, low taxes are good). City economists also have an interest in hyping up the unpredictability of the markets, and their unique role in being able to interpret the market’s fickle moods. The market is like some unpredictable god, and City economists are the high priests who can tell whether their god likes a particular policy…

Second, some of what is going on is that the U.K. press is worse than the U.S.: The U.K. press is, to a large degree, simply Fox News. The U.S. press is, to a large degree, simply “opinions of shape of earth differ”. Thus the problems he sees are more media-centered than the problems I see.

But I do think that there is a third thing: I think that he massively underestimates that fraction of even his academic economists who in 2009-11 were thinking: monetary policy is powerful, we are going to get a V-shaped recovery—and quickly—thus the stimulative need for expansionary fiscal policy is small, and structural deficits at full employment are very damaging and very hard to eliminate.

Should-Read: Harry Kitsikopoulos: The 18th Century Age of Steam

Posted on by Brad DeLong

Should-Read: Harry Kitsikopoulos: The 18th Century Age of Steam: “Using a large amount of data on fuel consumption rates… concludes that in an era of practical tinkerers…

…British engineers did get better through a classic process of ‘learning-by-doing’, but… only… after an initial stage of adjustment…. The author notes that Britain was a very unlikely candidate for the invention of steam engines…. French and Italians… first rediscovered, translated and published the ancient texts of Hero of Alexandria on steam power; they also discovered the existence of vacuum in nature…. But Britain had two advantages: first, a divorce-obsessed king who detached the island from the Catholic dogma and its alliance with the Cartesian epistemological paradigm, both denying the existence of vacuum…. Lay landlords… [were] far more keen on solving the water drainage problem plaguing the mining industry in its drive to exploit mineral wealth. Britain was also fortunate in… [that] it was relatively backward in terms of mining technology!… Germany and Liège used a technology that resolved the drainage problem, Britain failed to imitate them, hence forcing itself to seek alternative solutions, thereby leading to the invention of the steam engine… 

Must-Read: Paul Krugman (2015): Nobody Said That

Posted on by Brad DeLong

Must-Read: Paul Krugman (2015): Nobody Said That: “Imagine yourself as a regular commentator on public affairs…

…The Obama stimulus, you declare, will cause soaring interest rates; the Fed’s bond purchases will ‘debase the dollar’ and cause high inflation; the Affordable Care Act will collapse in a vicious circle of declining enrollment and surging costs. But nothing you predicted actually comes to pass. What do you do? You might admit that you were wrong, and try to figure out why. But almost nobody does that; we live in an age of unacknowledged error. Alternatively, you might insist that sinister forces are covering up the grim reality…. Finally… you can pretend that you didn’t make the predictions you did. I see that a lot when it comes to people who issued dire warnings about interest rates and inflation….

Where I’m seeing it most, however, is on the health care front…. Go back to 2013… or early 2014…. Several months into 2014 many leading Republicans—including John Boehner, the speaker of the House—were predicting that more people would lose coverage than gain it…. Instead, the new line—exemplified by, but not unique to, a recent op-ed article by the hedge-fund manager Cliff Asness—is that there’s nothing to see here: ‘That more people would be insured was never in dispute.’ Never, I guess, except in everything ever said by anyone in a position of influence on the American right. Oh, and all the good news on costs is just a coincidence….

Refusing to accept responsibility for past errors is a serious character flaw in one’s private life. It rises to the level of real wrongdoing when policies that affect millions of lives are at stake.

Plus:

Paul Krugman: Remembrance of Death Spirals Past: “Kenneth Thomas has a nice post about how those pooh-poohing the… Affordable Care Act…

…are moving the goalposts. The latest, as he points out, is this absurdity [from Cliff Asness]:

If we predict that something good will happen as a result of a new law, and that good thing happens, it doesn’t count as proof that the law was good.

But the question isn’t just whether the law is good; it is who has some credibility. So far, enrollment is growing more or less in line with the projections of supporters… [who] are looking pretty good on the prediction front…. Right-wing ‘experts’ were predicting a death spiral in which only a small number of sick people would sign up, and premiums would soar. This didn’t happen. So, of course, conservatives have ditched the people who got this so completely wrong, and started listening to those who got it right. OK, I know, sick joke.

Who is he talking about? John Cochrane, among others:

John Cochrane (December 2013): What To do When Obamacare Unravels: “The unraveling of the Affordable Care Act presents a historic opportunity for change….

…Next spring [2014] the individual mandate is likely to unravel when we see how sick the people are who signed up on exchanges, and if our government really is going to penalize voters for not buying health insurance. The employer mandate and ‘accountable care organizations’ will take their turns in the news. There will be scandals. There will be fraud. This will go on for years…

As you may have noted, there was no adverse-selection meltdown of the ObamaCare exchanges in the spring of 2014–no more than there had been an adverse-selection meltdown of the Massachusetts RomneyCare exchange when it was implemented in the second half of the 2000s.

And what has been Cochrane’s reaction to the failure of his confident prediction? The closest to an acknowledgement of error I can find is:

…Long laws and vague regulations amount to arbitrary power. The administration uses this power to buy off allies and to silence opponents. Big businesses, public-employee unions and the well-connected get subsidies and protection, in return for political support. And silence: No insurance company will speak out against ObamaCare or the Department of Health and Human Services…

Shorter John Cochrane: Never mind that all my predictions were false. ObamaCare is a disaster. And insurance companies are not happy with it–they have just been intimidated by fear that Obama will somehow come after them if they speak ou about what a disaster ObamaCare is for them.

Perhaps in a decade, there will be a column by Cochrane pretending that he always knew that on net ObamaCare was profitable for insurance companies—which would rather be in the business of making money by efficiently processing claims than by exploiting adverse selection.

Perhaps not.

Should-Read: Noah Smith: Thoughts on Will Wilkinson’s Post on Cities

Posted on by Brad DeLong

Should-Read: Noah Smith: Thoughts on Will Wilkinson’s Post on Cities: “Will Wilkinson, one of the greatest essayists working today…

…a wonderful article… two competing visions…. Here are some great excerpts:

[Trump] connected with these voters by tracing their economic decline and their fading cultural cachet to the same cause: traitorous “coastal elites” who sold their jobs to the Chinese while allowing America’s cities to become dystopian Babels, rife with dark-skinned danger — Mexican rapists, Muslim terrorists, “inner cities” plagued by black violence. He intimated that the chaos would spread to their exurbs and hamlets if he wasn’t elected to stop it… 

To advance his administration’s agenda, with its protectionism and cultural nationalism, Trump needs to spread the notion that the polyglot metropolis is a dangerous failure… 

When Trump connects immigration to Mexican cartel crime, he’s putting a menacing foreign face on white anxiety about the country’s shifting demographic profile… 

Suppose you think the United States — maybe even all Western civilization — will fall if the U.S. population ever becomes as diverse as Denver’s. You are going to want to reduce the foreign-born population as quickly as possible, and by any means necessary. You’ll deport the deportable with brutal alacrity, squeeze legal immigration to a trickle, bar those with “incompatible” religions. 

But to prop up political demand for this sort of ethnic-cleansing program — what else can you call it? — it’s crucial to get enough of the public to believe that America’s diversity is a dangerous mistake. 

I think this is all pretty much true… but… I think he glosses over a few important things…. It’s not really cities that are doing well, but certain kinds of cities, suburbs, and towns… with high levels of human capital…. It’s not city vs. country, it’s innovation hubs vs. old-economy legacy towns. Also, Will depicts cities as diverse, tolerant places. That’s true in some ways…. But in some important ways the picture is wrong. Many American cities remain extremely segregated, especially between black residents and others. Chicago is a thriving, diverse, fun, relatively safe metropolis-unless you go to the poor black areas…. So I’d focus less on the urban-suburban-rural distinction, and more on the division between new economy and old. But anyway, I really like Will’s message at the end of his post:

Honduran cooks in Chicago, Iranian engineers in Seattle, Chinese cardiologists in Atlanta, their children and grandchildren, all of them, are bedrock members of the American community. There is no “us” that excludes them. There is no American national identity apart from the dynamic hybrid culture we have always been creating together. America’s big cities accept this and grow healthier and more productive by the day, while the rest of the country does not accept this, and struggles. 

In a multicultural country like ours, an inclusive national identity makes solidarity possible. An exclusive, nostalgic national identity acts like a cancer in the body politic, eating away at the bonds of affinity and cooperation that hold our interests together.

That’s exactly the message we need to be repeating. It’s the only thing that can hold this country together. Either America succeeds as a polyracial nation, or it doesn’t succeed at all.

Weekend reading: “Looking to Alaska” edition

Posted on by Nick Bunker

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

The possibility of an implementing a universal basic income in the United States has become a trendy idea in recent years with experiments abroad gaining attention. But Heather Boushey notes that the United States has experience with the idea: in Alaska.

With fewer new firms being created in the United States, economists might expect that the difference in productivity across firms would decline as less productive firms close and more productive ones expand. But that’s not what’s happening.

Equitable Growth released a new working paper this week from University of Massachusetts Amherst economist Arindrajit Dube. The paper looks at how changes in the minimum wage change the distribution of family incomes.

Austin Clemens writes about a new data series that tries to solve a problem with almost all measures of income inequality—they don’t fully capture all the income in the U.S. economy.

Links from around the web

David Weil, an economist at Boston University, has documented the rise of the “fissured workplace” as companies outsource more and more jobs. Based on his prior experience as the Administrator of the U.S. Department of Labor’s Wage and Hour Division, Weil writes about how policy can take this trend. [hbr]

“The U.S. economy’s ability to keep finding new ways to grow, and keep spawning world-beating corporations that lead that growth, is a remarkable thing,” writes Justin Fox at Bloomberg View. “But it clearly hasn’t been enough to keep living standards from declining for large swaths of the population.” Fox looks at how the United States is getting richer and sicker. [bloomberg view]

Low-wage workers have significantly increased their working hours since the late 1970s. But that increase hasn’t been felt equally across all those workers. Gillian B. White reports on a new study that show hours for low-wage black workers have increased much more. [the atlantic]

The Net International Investment Position of the United States—the difference between the value of U.S. financial assets that foreigners own and the value of foreign financial assets that Americans own—is a deficit of about 45 percent of GDP. Joseph E. Gagnon shows how the NIIP is projected to grow and how the adjustments after such an increase could be severe. [piie]

U.S. cities seem to have become the center of all economic activity in the United States as economic activity consolidates in urban areas. But has that actually happened? Xenocrypt isn’t so sure. [medium]

Friday figure

Figure from “The once and future measurement of economic inequality in the United States” by Austin Clemens