U.S. economy

A feeble recovery, by Josh Bivens and John Irons

Success breeds failure, by Paul Krugman

Living standards, poverty, inequality, well-being

Inequality and prices: does China benefit the poor in America?, by Christian Broda and John Romalis

Time in our hands, by Steven Cave

Black America: nearer to overcoming, The Economist

Do the right things, Financial Times

Income inequality seen as the great divide, Financial Times

Working families and economic insecurity in the states, by Shawn Fremsted, Rebecca Ray, and Hye Jin Rho

Pain and inequality, by Kathy G.

Was it easier being a mother in 1908?, by Marilyn Gardner

Controversies about the rise of American inequality: a survey, by Robert Gordon and Ian Dew-Becker

The rising instability of American family incomes, 1969-2004, by Jacob Hacker and Elizabeth Jacobs

The minimum wage merry-go-round, by Ezra Klein

Graduates versus oligarchs, by Paul Krugman (via Mark Thoma)

Seeing inflation only in the prices that go up, by David Leonhardt

People aren’t losing their jobs as much as they’re losing hours, by Matt Lewis

Nation’s poorest 1% now controls two-thirds of U.S. soda can wealth, The Onion (via Alex Hicks)

A land where CEOs have stopped smiling, by Sam Pizzigati

Do employees care about their relative position?, by Benno Togler, Markus Schaffner, Sascha Schmidt, and Bruno Frey (via Chris Dillow)

Taxes

A wake-up call for global tax cheats, BusinessWeek

President Bush has made tax day easier for the rich, at the expense of everyone else, Citizens for Tax Justice

The official word on whether capital gains tax cuts increase revenue (it’s no), by Justin Fox

The invisible hand is shaking, by Robert Frank

Forget death and taxes; how about health and taxes?, by Howard Gleckman

Lessons from Massachusetts for states considering a property tax cap, by Phil Oliff and Iris Lav

Tax policy and the house price bubble, by Thomas Palley

Taxes, Warren Buffett, and paying my fair share, by Justin Wolfers

Trade

Trade, jobs, and wages, by Josh Bivens

Free-trader fear mongering, by Dani Rodrik

Larry Summers commentary

The free-trade paradox, by James Surowiecki

How to preserve the open economy at a time of stress, by Martin Wolf

Housing

Stranded in suburbia, by Paul Krugman

Mortgage holders find it hard to walk away from their homes, New York Times

The scars of losing a home, by Robert Shiller

Keeping families above water, by David Wessel

Health care

Even the insured feel strain of health costs, New York Times

Education

The politics of human capital, by Don Arthur, Will Wilkinson, Mark Thoma

In the basement of the ivory tower, by “Professor X”

U.S. politics

What would Buddha do?, by Jared Bernstein

Skirting Appalachia, by Charles Blow

White voters, Obama, and Appalachia, by DHinMI

Vote like thy neighbor, by William Galston and Pietro Nivola

The white working class: forgotten voters no more, New York Times

Will Obama unify the Democratic party?, by John Sides

Abroad

How much does it cost to combat world hunger?, by Dean Baker

$1.25 a day, by Chris Blattman

Should Canada, Australia, and Sweden ignore most of the world?, by Chris Blattman

No wonder Iceland has the happiest people on earth, by John Carlin (via Tyler Cowen)

Paul Collier on the food crisis

Does military intervention work?, by Paul Collier and Bjørn Lomborg

New Labour and the strategy of insecurity, by Chris Dillow

On the poverty line, The Economist

The Copenhagen consensus, by Robert Kuttner

For Europe’s middle class, stagnant wages stunt lifestyle, New York Times

The new development economics, by Dani Rodrik

The rich get hungrier, by Amartya Sen

Rising wages are the least of Europe’s worries, by Andrew Watt

The growth report, World Bank Commission on Growth and Development

Miscellaneous

People are changing their minds about homosexuality, by Tina Fetner

Gay marriage support and opposition, by Charles Franklin

Top ten reasons to go vegetarian, by Bruce Friedrich

Time for Harvard to move?, by Greg Mankiw

America needs the United Nations, by Mark Mazower

In economic terms, recycling almost pays, New York Times

On the relationship between journalism and social science, by John Sides

Humor for graduate students, by Lee Sigelman

Sweden is often viewed as either social democratic paradise or lefty hell, depending on one’s political and economic orientation.

Parts of the popular image are true. Sweden has a strong political left; the Social Democratic party was in power continuously for more than four decades in the middle of the 20th century and has alternated in the government since then (it’s out at the moment). Around 80% of employed Swedes are union members, and 30% are employed by the government. More than half of the country’s GDP passes through the government in taxes, and government spending on redistributive transfers and public services is among the highest in the world. Income inequality is among the lowest. Female employment is high, and the gender pay gap is low. A 2008 Newsweek index of environmental performance put Sweden at the top. It is ranked as one of the world’s most peaceful nations.

Like all countries, though, Sweden is more complex than the stereotype suggests. Here are a few things that may surprise.

Surprises for the left

1. The country has a strong work ethos. The welfare state is generous, but most able-bodied Swedes of working age are expected to be employed. During the 2000s the Swedish employment rate has averaged about 74% of the working-age population, two percentage points higher than in the United States. The share of working-age Swedish households with no employed adult is 5%, the same as in the U.S.

2. Embrace of globalization. Exports and imports total around 45% of Swedish GDP, compared to 15% in the United States. Swedish policy aims to encourage trade and to cushion the adverse impact this inevitably has on some, ensuring their incomes remain at a decent level while they’re unemployed and facilitating transition to a different firm and/or occupation.

3. School choice. Since the early 1990s government funds have been provided not only to public elementary and secondary schools but also private ones, and parents are permitted to choose which school their children attend. This comes with strings attached: private schools wishing to receive the funding cannot base admission on ability, religion, or ethnicity. But in other relevant respects the public schools are forced to compete with private ones.

4. Partially privatized pensions. In the late 1990s a social democratic government introduced a “privatized” element into the Swedish pension system. 2.5% of employee earnings are put into a defined-contribution component. The employee has a variety of choices about how the money is invested. (A key difference between this reform and the one proposed by President Bush several years ago for the U.S.: Swedish payroll taxes were increased so that this added to the existing system, rather than replacing part of it.)

Surprises for the right

1. Sweden has a competitive economy. In the World Economic Forum’s 2007-08 “competitiveness index,” Sweden placed 4th out of 131 nations. It has been in the top ten, often among the top five, throughout this decade. Like the other Nordic countries (Denmark, Finland, Iceland, and Norway), Sweden has been successful at adapting to the shift from manufacturing to services and to a more globalized and competitive economic environment. These economies have done particularly well in high-tech industries. This owes to, among other things, high-quality educational systems, excellent public infrastructure, heavy R&D investment, and commitment to adaptation.

2. High mobility. For a long time the consensus view among researchers was that egalitarian countries such as Sweden have low inequality but also little mobility, whereas the United States has more inequality but also greater opportunity for upward and downward movement. Recent findings suggest this is wrong. Mobility in Sweden, both between generations and over the life course, is at least is great as in the United States and likely greater.

3. The poor are well-off absolutely, not just relatively. Critics of high taxes and generous government benefits sometimes imagine that these destroy economic growth, so that countries like Sweden have low inequality but also low absolute living standards. In fact, the incomes of those at the bottom of the distribution in Sweden are similar to those of their American counterparts. And Swedes work far fewer days and hours to get those incomes. They also enjoy more plentiful and higher-quality public services, from schools to child care to health care to public transportation to roads and parks.

4. Sweden is heterogeneous. Those skeptical about the applicability of Swedish policies and institutions often argue that to the extent Sweden “works,” it’s because it has an extremely homogeneous population. That was likely true half a century ago, but these days Sweden’s immigrant (foreign-born) share is virtually identical to America’s, at about 13% of the population. What effects this may have over the long run are hard to anticipate, but it’s been that way for more than a decade now.

Will Wilkinson defends the notion of separate price indexes for the poor and the rich. I don’t have a problem with that per se. The point I tried to make in my previous post concerns its relevance for our assessment of how much inequality has increased.

In his original post on this, Wilkinson writes “If you think economic inequality matters, that’s because you think relative economic well-being matters. If you think economic well-being matters, then what you care about is consumption, not income.” I disagree. We should care about inequality of income not simply because it contributes to inequality of well-being, but also because it contributes to inequality of capability.

Even if consumption inequality has increased only a little, the rise in income inequality has produced a noteworthy increase in inequality of capability. The rich aren’t forced to purchase goods and services whose prices have increased more rapidly; they could switch to the same consumption bundle as the poor if they wished.

In my view the Broda and Romalis analysis is important for our understanding of (absolute) poverty, rather than inequality. They find that the prices of goods poor Americans tend to purchase have risen less rapidly than the overall inflation rate. I can’t assess whether they’ve accurately analyzed the data and how much measurement error the data contain. But if the finding is correct, it suggests that the trend in living standards for America’s poor was more favorable (or less unfavorable) between 1994 and 2005 than income data imply.

Steven Levitt and Will Wilkinson point to a new paper that Levitt says “shatters the conventional wisdom on growing inequality” in the United States. The paper is by Christian Broda and John Romalis, economists at the University of Chicago.

Here’s their argument: Income inequality has increased over time. But analysis of consumption data indicates that people with low incomes are more likely than those with high incomes to buy inexpensive, low-quality goods. In part because those goods increasingly are produced in China, their prices rose less between 1994 and 2005 than did the prices of goods the rich tend to consume. Hence the standard measure of inequality, which is based on income rather than consumption, greatly overstates the degree to which inequality increased. The incomes of the rich rose more than those of the poor, but because the cost of living increased more for the rich than for the poor, things more or less evened out.

Their point that the prices of some goods have risen less than the overall inflation rate, and that this is due in large part to imports from China, seems perfectly valid and worth making. It has important implications for our understanding of how absolute living standards for America’s poor have changed over time.

But I’m not sure why Broda and Romalis, or Levitt and Wilkinson, think this should alter our assessment of the trend in inequality. Do they mean to suggest that the revealed preference of the poor for cheap goods is exogenous to their income? In other words, people with low incomes simply like buying inexpensive lower-quality goods, and they would continue to do so even if they had the same income as the rich. Likewise, the rich simply have a taste for better-quality but pricier goods, and they would continue to purchase them even if they suddenly became income-poor. If this is the assumption, I guess the conclusion follows. But I can’t imagine the authors, or anyone else, really believe that.

Actually, Levitt may believe it. “How rich you are,” he says, “depends on two things: how much money you have, and how much the stuff you want to buy costs” (my emphasis).

Consumption is worth paying attention to. But income is important in its own right because it confers capabilities to make choices. What matters, in this view, is what you are able to buy rather than what you want to buy. If a rich person with expensive tastes gets an extra $100,000, she can continue buying high-end clothes and gadgets. Or she can choose to purchase low-end Chinese-made products and save the difference. Suggesting that if she opts for the former there has been no rise in inequality is not very compelling.

I’ve just returned from a week in Ireland. Since the mid-1980s the Irish economy has achieved rates of growth not seen in a rich nation since Japan in the 1960s. Ireland’s GDP per capita grew at more than 6% per year from 1987 to 2000, and at better than 3% per year in the 2000s so far.

Has this rising tide lifted all Irish boats?

One way to judge is by examining how the incomes of those at the bottom of the distribution have changed. The standard way to do this is via the poverty rate — the share of persons living in households with an income below the poverty line. The following chart shows poverty rates in 1987 and 2000 in Ireland and two comparison countries — Sweden and the United States. The data are from the Luxembourg Income Study database.

While the poverty rate in Sweden and the U.S. fell slightly over this period, it increased in Ireland. Really? Can it be that despite massive economic growth, things got worse for Ireland’s poor?

Well, it’s true that a large chunk of the economic growth during this period was due to multinational companies. Maybe most the proceeds of the growth went to their foreign owners. Yet even if that were the case, it’s hard to imagine how the Irish poor could have been left worse off than before. Lots more people were working; the employment rate jumped from 52% in 1987 to 66% in 2000. And this didn’t just consist of adding second earners in already-high-earning households; the share of working-age households with no employed member dropped by more than half. Moreover, wage levels among low-end workers rose (the statutory minimum wage is now €8.65 per hour).

The problem here lies in the poverty measure. In cross-country comparisons, poverty typically is measured in a “relative” manner: the poverty line used for each country is 50% of that country’s median income. That’s the mesure I’ve used here. Although this type of measure has some value, I don’t think it should be the headline indicator of poverty (more here and here). It depends too heavily on the distribution of income and too little on the absolute level of income. The reason Ireland’s relative poverty rate increased between 1987 and 2000 is not that households at the bottom became worse off in an absolute sense, but rather that the incomes of those households increased less rapidly than the incomes of households in the middle of the distribution.

The following chart offers a more useful way of gauging trends in poverty. It shows incomes at the tenth percentile of the distribution in the three countries. They’re adjusted for inflation and converted into U.S. dollars. (The incomes also are adjusted for household size. They represent those for a single adult; for a household of four, multiply by two.) These data indicate a sharp improvement in the incomes of Irish households at this low point in the distribution. In 1987 they were well below their Swedish and American counterparts, but by 2000 the gap had narrowed considerably.

The rising tide does appear to have lifted most Irish boats. One might, perhaps, complain that the degree of improvement has been disappointing given all that economic growth. But that’s quite different from suggesting, as the relative poverty measure does, that things have gotten worse.

This very helpful book has more discussion and analysis.

A key aspect of the rise in income inequality in the United States since the 1970s is the soaring incomes of the top 1%. Is this development unique to the U.S.?

Tony Atkinson, Andrew Leigh, Thomas Piketty, Emmanuel Saez, and others have used tax records to estimate the top 1%’s share of total income in a number of countries. Leigh has made a few adjustments to enhance comparability across the countries and posted the data on his website. He has a nice paper on the issue, which includes a version of the two charts shown below. (For more data and analysis see here, here, here, here, and here.) The data are for pretax incomes excluding capital gains.

It turns out that other English-speaking countries have experienced a similar trend:

Is this, then, simply the norm? No. In other affluent nations, the top 1%’s income share has increased only slightly or not at all during this period:

What accounts for these differing developments? We don’t know. Hypotheses abound, including differences in market competition, norms, labor power, government partisanship, tax systems, corporate governance practices, and demand for entertainment, athletic, and English-speaking executive talent. Because the data are relatively new, however, there has been limited systematic analysis as of yet.

is here.

Links to others Norman Geras has done, 240 so far, are here.