Category Archives: income distribution-wealth-poverty

Would Universal Health Coverage Help the Poor?

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Apparently, Larry Summers wants to stake out that position. Pointer from Tyler Cowen.

I seriously doubt that medical services are the relevant margin for improving the health of the poor. Public health measures I can see. Otherwise, my bet is that economic growth and diffusion of knowledge are the relevant margins.

Of course, if Larry believes otherwise, he is always welcome to donate his own funds to relevant charitable causes. As long as he does not take my money to donate to his preferred causes.

Contemporary Segregation

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Ann Owens writes,

Segregation of upper-middle-class and affluent families from all others increased the most. In 2010, families with incomes in the top 10 percent of the national income distribution lived in the most homogenous districts, with other affluent families like them. In contrast, we found that poor families have become slightly more integrated by income between school districts. However, given that high-income families have distanced themselves from others, poor families are likely integrating with working-poor or lower-middle-class families rather than the affluent.

Pointer from Mark Thoma.

As I have said, the affluent folks advocating for more Syrian refugees are unlikely to end up living next to them.

Incidentally, Charles Murray gives a generous review (gated) to Robert Putnam, which is particularly gentlemanly in comparison to Putnam’s treatment of Murray.

Questions that came up at lunch yesterday

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Organized by Tim Kane, with John Cochrane, several GMU stalwarts, Tevi Troy, Brink Lindsey, and others. These were some of the questions I asked.

1. Are colleges deteriorating in quality as fast as I think they are? This was a side conversation, and several participants expressed the viewpoint (wishful thinking?) that all but the most well-endowed colleges could find themselves suddenly overwhelmed by alternative modes of education and credentialing.

2. In the 1950s, many of the large successful businesses (McDonalds, Holiday Inn) were founded by men who never attended college. Why does that seem unlikely today? One answer given was that in the 1950s, you could have only a high school education and still be well above average in terms of cognitive skills, self-control, and other traits.

3. There was a lot of talk about how things are not really as bad for the middle class as the left makes them out to be. I asked, if things are not so bad, then imagine giving a talk to people in a small town in Ohio or in rural Oklahoma. What sorts of advice about future jobs would you give? Some of the answers were glib (“Move to the city.”) Others suggested that the jobs would be in fields like nursing. But not everyone is cut out to be a nurse.

4. Think of a world with momentum investors (“the trend is your friend”) and contrarian investors “If something cannot go on forever, it will stop.”) Can we get bubbles when for a period of time momentum investors overwhelm contrarian investors? The response (I’ll take a risk that I am violating some implicit rules and give away that it was John Cochrane who gave it) is that this sort of thing is more likely to happen in real estate markets than in financial markets, because in real estate markets transaction costs are high. You cannot go short. It is hard to take a large long position (you buy one house at a time, not many houses).

One question that came up concerned the effect of Chinese exports on American wages. With manufacturing a relatively small share of GDP, it was argued that the effect on overall wages cannot be large. Still, the effect on some niches of workers seems to be large.

Someone else asked about the narrative that American workers are worse off than they were 50 years ago or 100 years ago. To those of us at lunch (all on the right side of the political spectrum), that seems ridiculously inaccurate. Yet it holds sway on the left, and it seems to work with the general public.

One answer is that people who take a pessimistic view of recent decades may be thinking in terms of the second derivative. That is, the standard of living is still increasing, but it is increasing much more slowly than it did 40 years ago, and thus it has disappointed expectations.

Another possible answer is that “average is over.” If you are poor and not always employed, then between government benefits and low-cost goods, you can get by. But if you work full time and aspire to be middle class, your consumption basket is more expensive and government is not helping you.

Later, it occurred to me that the left’s story has the advantage that there is a villain. The evil CEOs and capitalists have taken away something from ordinary workers. No matter how many facts you throw back at them, any story with a villain is more compelling than one without one.

Incidentally, that makes it pretty futile for conservatives to try to play the compassion card (sorry, Arthur Brooks). People respond to villains. To compassion, not so much.

Yankee Scandinavian Dandy

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Nima Sanandaji writes,

The descendants of Scandinavian migrants on the other side of the Atlantic live in a very different policy environment compared with the residents of the Scandinavian countries. The former live in an environment with less welfare, lower taxes and (in general) freer markets. Interestingly, the social and economic success of the descendants of Scandinavian migrants in the US is on a par with or even better than their cousins in Scandinavia

Pointer from Tyler Cowen. This is political incorrectness, squared. It argues that the Scandinavian welfare state is not the success that its reputation advertises. And it implicitly assumes that some groups enjoy genetic and/or cultural advantages relative to others.

My guess is that few progressives would accept the factual claims and analysis of the author. But if they did, and they wanted to maintain the oppressor-oppressed axis, might they argue that moving to America enables Scandinavians to profit more from being an oppressor class than they are able to profit from remaining in Scandinavia?

Self-Control and Unemployment

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Jason Collins passes along this not-surprising result from a study by Michael Daly and others.

Analyzing unemployment data from two nationally representative British cohorts (N = 16,780), we found that low self-control in childhood was associated with the emergence and persistence of unemployment across four decades. On average, a 1-SD increase in self-control was associated with a reduction in the probability of unemployment of 1.4 percentage points after adjustment for intelligence, social class, and gender. From labor-market entry to middle age, individuals with low self-control experienced 1.6 times as many months of unemployment as those with high self-control.

This is one reason that it will be difficult to disentangle the effect of single parenting on economic outcomes. If parents of out-of-wedlock children have less self-control than married parents, and if self-control is somewhat heritable, then one could observe poor outcomes for children of single-parent families even if the family environments are not a problem.

Gary Solon on Gregory Clark

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Solon writes,

Evidently, the results reported by Clark do not reflect a universal law of social mobility. Quite to the contrary, other studies based on group-average data, even surnames data, frequently produce intergenerational coefficient estimates much smaller than Clark’s.

If you are interested in the issues raised by Clark, read the whole thing. Solon’s interpretation of Clark’s thesis as involving errors-in-variables is similar to mine.

A Dissenting View on Bifurcating Families

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Nicole Sussner Rodgers writes,

according to a recent analysis of new census data on family structure, education and income from the Council on Contemporary Families (CCF). It found that financial security helps children more than does any particular family structure. Marriage is not a panacea for poverty: There are almost as many poor or near-poor children in two-parent families as there are in single-parent ones.

I believe that the analysis to which she refers is by Shannon Cavanagh. If you can find anything analytical in the piece, let me know. The last paragraph says,

Financial security, even more than household composition, shapes children’s everyday experiences in ways that contribute to growing inequality. Between the mid-1970s and the mid-2000s, the difference between what the richest 20 percent and the poorest 20 percent of parents spent on enrichment activities for their children nearly tripled (Duncan & Murnane, 2014). Today, a 20 percentage point difference in participation in extracurricular sports exists for children in families at or above 200 percent (42.5 percent) compared to those children in poverty (22.5 percent). The difference between children of two married parents and children with a single parent is only 10 percentage points (Hofferth, 2015). Although having a second parent in the household may be important, having financial resources may be even more important, and having a second parent by no means guarantees such resources.

I think that merely saying that “there are poor children in two-parent households, too” is not really the best strategy. I think that the long-term outcomes for children of two-parent households are demonstrably better than those for children of single-parent households. Robert Putnam is as forthcoming on that as anyone.

Instead, if you want to question the conservative advocacy of traditional families as a solution for poverty, I think you have at least two good arguments to make.

1. Correlation is not causation. That is, the greater presence of bad outcomes for children of single-parent households does not necessarily reflect a causal role for family structure. Of course, my suggestion that the correlation may be genetic is not exactly the sort of argument the left would like to use.

2. We know how to alleviate poverty by providing cash and other benefits. We do not know how to fix families.

But

The Null Hypothesis for Income and Wealth

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The abstract of a working paper by David Cesarini and others says,

We use administrative data on Swedish lottery players to estimate the causal impact of wealth on players’ own health and their children’s health and developmental outcomes. Our estimation sample is large, virtually free of attrition, and allows us to control for the factors ‒ such as the number of lottery tickets ‒ conditional on which the prizes were randomly assigned. In adults, we find no evidence that wealth impacts mortality or health care utilization, with the possible exception of a small reduction in the consumption of mental health drugs.

Our estimates allow us to rule out effects on 10-year mortality one sixth as large the cross-sectional gradient. In our intergenerational analyses, we find that wealth increases children’s health care utilization in the years following the lottery and may also reduce obesity risk. The effects on most other child outcomes, which include drug consumption, scholastic performance, and skills, can usually be bounded to a tight interval around zero. Overall, our findings suggest that correlations observed in affluent, developed countries between (i) wealth and health or (ii) parental income and children’s outcomes do not reflect a causal effect of wealth.

Pointer from James Pethokoukis.

Somebody should replicate this study in the United States. I would not be surprised if the effects on child outcomes were closely bounded to a tight interval around zero here, also.

This is the sort of evidence that I wish Robert Putnam would confront.

The new Robert Putnam Book

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I got it as soon as it was released and finished it in a few hours.

I like his top third/bottom third way to approach inequality. Of the four forces, he emphasizes what I have been calling demographic disparity and what he calls, more descriptively, bifurcated family patterns; he mentions, using different terms, factor-price equalization and Moore’s Law, but does little with them. Nothing on the New Commanding Heights.

He is inexcusably shabby toward Charles Murray. He does not say he owes a debt to Murray. He does not summarize Coming Apart. He just gives it one brief, dismissive footnote.

Putnam plays very fast and loose with correlation and causality. At one point, he even admits this.

He never once mentions genetics as a factor in inequality. This biases the analysis much more in favor of policy remedies than is reasonable.

Overall, I came away with some new data points, but no new insights, and some anger and frustration with the flaws.

Some of the data and some of the analysis goes against his lefty readers’ biases, although he makes it easy for them to stumble over these truths, pick themselves up, and move on as if nothing happened. (Churchill’s phrase)

Piketty and Mort Sahl

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Timothy Taylor quotes from a recent journal article by Piketty, and then summarizes,

In case you didn’t catch all that, Piketty is noting that r>g is not useful for discussing income inequality, and does not necessarily lead to wealth inequality, and that the future of wealth inequality is highly uncertain. Instead, Piketty argues in JEP that when the difference between r and g is relatively large, it will tend to exaggerate the effect of other changes that make wealth more unequal. As he writes: “To summarize: the effect of r − g on inequality follows from its dynamic cumulative effects in wealth accumulation models with random shocks, and the quantitative magnitude of this impact seems to be sufficiently large to account for very important variations in wealth inequality.”

It was the humorist Mort Sahl who would say, “I am prepared not only to retract anything I said but to deny under oath that I ever said it.”