Category Archives: Four Forces Watch

Is Housing Regulation the Fifth Force?

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Joel Kotkin writes,

High housing prices are also rapidly remaking America’s regional geography. Even areas with strong economies but ultra-high prices are not attracting new domestic migrants. One reason is soaring rents: According to Zillow, for workers between 22 and 34, rent costs claim upwards of 45 percent of income in Los Angeles, San Francisco, New York, and Miami compared to less than 30 percent of income in cities like Dallas and Houston. The costs of purchasing a house are even more lopsided: In Los Angeles and the Bay Area, a monthly mortgage takes, on average, close to 40 percent of income, compared to 15 percent nationally.

Read the whole thing. Nearly every paragraph has something I could have excerpted.

Ryan Avent, Matt Yglesias, and Matt Rognlie have already each made a point that a lot of wealth disparities in the U.S. economy can be traced to the real estate market. Avent and Yglesias have made zoning regulations an issue.

I have instead focused on what I call the four forces: New Commanding Heights of health care and education; bifurcated family patterns; globalization; and the Internet. Maybe real estate regulation is a fifth force?

My question would be how much real estate regulation has changed over the past fifty years. If zoning regulation has only gradually changed, then it would not be a fifth force.

The Future of American Cities

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Walter Russell Mead writes,

The increasing fragility of blue cities and states is the biggest problem the Democratic coalition faces. Those who hope that demographic change will create a “permanent Democratic majority” need to think about arithmetic as well as demography. The numbers don’t add up for blue cities. The governing model doesn’t produce the revenue that can sustain it long-term. Making cities work—enabling them to provide necessary services at sustainable cost levels while achieving economic development that rebuilds the urban middle class—is the biggest challenge the Democratic Party faces.

Cities have three major Democratic Party constituents, in tension with one another: gentrifiers, thanks to the New Commanding Heights industries of education and health care; urban African-American remnants of the Great Migration of the 1940s and 1950s; and public-sector union members. Among the conflicts:

–public sector unions with lavish pension benefits vs. the gentrifiers who will have to pay higher taxes or enjoy lower levels of services.

–public sector police unions vs. African-Americans upset with police mistreatment

–gentrifiers and African-Americans having different identity-politics preferences for electoral officials

Four Forces Watch

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Tyler Cowen writes,

One study indicated that if the marriage patterns of 1960 were imported into 2005, the Gini coefficient for the American economy — the standard measure of income inequality — would fall to 0.34 from 0.43, a considerable drop, given that the scale runs from zero to one. That result is from the economist Jeremy Greenwood, a professor of economics at the University of Pennsylvania, and other co-authors.

Read the whole piece. I think Tyler is right to consider this a bottom-up exercise in eugenics. My guess is that his NYT readers will hate that analysis, while at the same time behaving in ways to reinforce it.

Four Forces Watch: Assortative Mating Has Gone Up

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Tyler Cowen quotes a paper by Robert D. Mare.

Spousal resemblance on educational attainment was very high in the early twentieth century, declined to an all-time low for young couples in the early 1950s, and has increased steadily since then. These trends broadly parallel the compression and expansion of socioeconomic inequality in the United States over the twentieth century. Additionally, educationally similar parents are more likely to have offspring who themselves marry within their own educational level. If homogamy in the parent generation leads to homogamy in the offspring generation, this may reinforce the secular trend toward increased homogamy.

Commenters here have argued about this in the past. Evidently, the facts show that the Mad Men era did indeed have lower assortative mating.

Assortive Mating Questions that are rarely asked

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A commenter writes,

What I don’t understand, is who did upper middle class women marry in the Mad Men era, if the men married their secretaries?

1. The distinction between upper middle class and lower middle class was not as sharp back then.

2. College was not as much of a status marker back then. Few women went to college, and even most middle-class men did not.

3. So class selection was not as strong. A (upper-) middle-class woman who married someone without a college degree did not think of herself as marrying down.

4. The result was a lot divorces from middle-class marriages of that period. I believe that it is Stevenson and Wolfers who point out that the period of the 1970s was a transition from marriage as production complementarity (I’ll bring whom the bacon, you fry it) to consumption complementarity (let’s make sure that our leisure interests coincide). This form of marriage turns out to be much more class-selective.

The bottom line is that the upper middle class men and women both married down. In the 1970s, they got divorced, and the sorting along class lines got sharper.

Panel on Inequality

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With Thomas Piketty, Kevin Murphy, and Stephen Durlauf. View it at Mark Thoma’s blog.

Murphy offers the simplest explanation. Skilled workers become scarce, and less-skilled workers become abundant. The price of skilled labor rises, and those workers respond by working more. The price of less-skilled workers goes down, and they respond by working less. So income inequality shifts for both price and quantity reasons.

Why do skilled workers become scarce and less-skilled workers become abundant? I would say look at the four forces: bifurcated marriage patterns, New Commanding Heights (shift toward education and health care, aided by government subsidies), Moore’s Law, and globalization.

Solution Disconnected from Problem

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From a WSJ profile of Raj Chetty.

High-mobility metro areas have a combination of greater economic and racial integration, better schools and a smaller fraction of single-parent families than lower-mobility areas. Integration is lagging in Atlanta, he said. “The strongest predictors of upward mobility are measures of family structure,” Mr. Chetty said.

His proposal: move poor children to high-mobility communities and remove the impediments to mobility in poor-performing neighborhoods. He now is working with the Obama administration on ways to encourage landlords in higher-opportunity neighborhoods to take in poor families by paying landlords more or guaranteeing rent payment.

Pointer from Tyler Cowen.

The problem is family structure. The solution is engineering the spatial/income distribution of households. The connection is not there for me.

And if the problem is a need to improve teacher quality, then the solution is not for economists to run regressions on test scores. The solution is to put the power in the hands of people who care about quality and are close to the situation (i.e., parents), not in the hands of teachers’ unions.

Sanders, Warren, and Power

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Two pieces from the Washington Post. First David A. Farenthold writes,

The biggest pieces of Sanders’s domestic agenda — making college, health care and child care more affordable — seek to capture these industries and convert them to run chiefly on federal money.

Sanders obviously understands that health care and education are the New Commanding Heights.

Second, Dana Milbank writes,

It’s a sign of some clout that Warren has Litan’s hide, and Weiss’s, and Summers’s. But if her party answered to the people rather than its donors, she’d have many more.

If you combine Sanders and Warren, what you get is socialism combined with demonization and intimidation of anyone who does not support left-wing views. This is the country that the Democratic left wants to live in?

Richard V. Reeves on Inequality

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He writes,

Most journalists, scholars and policy wonks are members of the upper middle class. This undoubtedly influences their (OK, our) treatment of inequality. Those of us in the upper middle class typically find it more comfortable to examine the problems of inequality way up into the stratosphere of the super-rich, or towards the bottom of the pile among families in poverty or with low incomes. It is discomfiting to think that the inequality problem may be closer to home.

Pointer from Mark Thoma.

I recommend the entire Reeves piece. Readers of Robert Putnam, Charles Murray, and this blog will not be surprised that

the gaps by income in family structure are striking. There are more never-married than married adults (aged 35 to 40) in the bottom 40 percent of the income distribution (37 percent v. 33 percent). In the top quintile, the picture is reversed: a large majority of household heads (83 percent) are married, while just 11 percent have never been married

Reeves’ concern:

Efforts to increase redistribution, or loosen licensing laws, or free up housing markets, or reform school admissions can all run into the solid wall of rational, self-interested upper middle class resistance. This is when the separation of the upper middle class shifts from being a sociological curiosity to an economic and political problem.

He links to a piece from Reihan Salam several months ago.

Take away the mortgage interest deduction from a Koch brother and he’ll barely notice. Take it away from a two-earner couple living in an expensive suburb and you’ll have a fight on your hands. So the upper middle class often uses its political muscle to foil the fondest wishes of egalitarian liberals.

The latter, of course, coming largely from the upper middle class.

Brink Lindsey and Steve Teles like to point out that there are policies available that, contra an old book from Arthur Okun, could both reduce inequality and improve economic efficiency. However, these are the policies on which the upper middle class is dug in.