America’s great decoupling

Income inequality in the United States is high compared to other rich democratic nations, and it has risen sharply since the late 1970s. During that period, household incomes in the middle have grown slowly — much more slowly than the economy (GDP per capita or per household). It looks very likely that top-end income inequality has been a key cause of slow income growth in the middle. The two are arithmetically related, the timing fits, and the key hypothesized causal path, wages, behaves as predicted. The high and rising income share of the top 1 percent appears to have cut income growth since 1979 for the median American household roughly in half.

The full paper is here.

Posted in Uncategorized

Working but poor

The United States has long been committed, more than any other rich democratic country, to the notion that employment is the key to poverty reduction. This presupposes that people in work can get enough hours at a sufficiently high wage to earn a decent income. How has this approach fared? An assessment here.

Posted in Uncategorized

Social-democratic vs market-friendly progressivism

I learn from virtually everything I read by Mike Konczal, and agree with much of it. But the essay he and Patrick Iber have written on Karl Polanyi, progressivism, and the 2016 Democratic nomination contest leaves me with more questions than answers.

Iber and Konczal aim to highlight a tension within the American left between a “social democratic” vision of how to address social problems and a “progressive but market-friendly” vision. They say Bernie Sanders, a social democrat, believes access to education and healthcare should be a right, available to all persons regardless of income or wealth, whereas Hillary Clinton, a market-friendly progressive, thinks education and healthcare should remain market commodities, with access hinging at least partly on a person’s ability to pay. Sanders, according to Iber and Konczal, “offers a straightforward defense of decommodification — the idea that some things do not belong in the marketplace — that is at odds with the kind of politics that the leadership of the Democratic Party has offered more or less since Carter.”

What does treating education or healthcare as a right imply for policy?

Though Sanders favors free college for everyone, that isn’t what he would provide. He proposes zero tuition (for in-state students at four-year public universities). But that wouldn’t cover room and board, which costs $10,000 a year or more for a typical student. Offering “free” college that doesn’t include room and board is a bit like offering “free” healthcare that covers the cost of surgery but requires patients to pay out of pocket for the hospital room. In the Sanders plan, low-income students, but not middle-income ones, “would be able to use federal, state, and college financial aid to cover room and board, books, and living expenses.” So for Sanders, like for Clinton, college education wouldn’t be genuinely decommodified.

That’s the case in Sweden too, which is why a large portion of young Swedes leave college with fairly large student loan debt despite paying zero tuition. Earlier in the life course, Swedes benefit from high-quality child care and preschool. But while public funds heavily subsidize the cost, parents do have to pay for this early education, up to 10% of household income. Is Sweden failing to treat education as a right?

How about healthcare? I share Sanders’ preference for a single-payer system, but that wouldn’t necessarily decouple access to healthcare from one’s income. Medicare pays, on average, only about two-thirds of elderly Americans’ total medical expenses, so “Medicare for all” arguably wouldn’t ensure everyone a right to what we think of as minimally adequate healthcare.

If we believe in a right to healthcare and education, shouldn’t the same be true for food and housing? If so, does that mean everyone should receive a basic food allowance? A housing allowance? What if providing a meaningful housing allowance to all Americans turns out to be extremely expensive? Wouldn’t we want to consider a policy that ensures housing for those least able to afford it but provides less help to those with higher incomes? That would be a “market-friendly” approach, in Iber and Konczal’s formulation, but it might also be the best one.

To me, labeling Bernie Sanders’ proposals “social democratic” and Hillary Clinton’s “market friendly” obscures more than it clarifies. And applying an overarching principle, such as universal right to access, doesn’t get us very far in figuring out the policy details for education (early, K-12, college), healthcare, food, housing, and more.

Posted in Uncategorized

Would Bernie Sanders’ policies give a huge boost to economic growth?

Gerald Friedman forecasts that if Bernie Sanders’ full set of policy proposals were enacted in early 2017, America’s GDP per capita would grow at a rate of 4.5% over the decade from 2016 to 2026. Is that plausible?

Figure 1. Growth rates of GDP per capita in 20 affluent countries
Average growth rate of inflation-adjusted gross domestic product per capita. The countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The data for 1900-1970 are from Angus Maddison, The data for 1970-2014 are from the OECD,, National Accounts. The last two periods are business cycles rather than decades.

Figure 1 shows growth rates by decade for the world’s 20 rich longstanding-democratic nations since 1900. Only a handful of countries have achieved a growth rate of 4.5% or better over a full decade:

  • Countries rebuilding in the 1950s after the Great Depression and World War II devastation: Japan, Germany, Austria, and Italy.
  • Less-affluent nations catching up to the rest of the pack: Japan in the 1930s and 1960s; Spain, Portugal, and Italy in the 1960s; Ireland in the 1990s.
  • The Netherlands in the 1940s.

This is the basis of the widespread skepticism about Friedman’s forecast (Krueger-Goolsbee-Romer-Tyson, Krugman, DeLong).

But others (Klein, Mason, Konczal) point out that the 2008-09 economic crisis and sluggish recovery have left the American economy with a sizable output gap. GDP per capita fell well below its pre-2008 trend, and it remains well below. As figure 2 shows, after past recessions the economy has tended to sooner or later spring back up to the trend line. That includes the Great Depression. In the 1940s, GDP per capita increased at a rate of 3.9% (the closest we’ve gotten to 4.5%, as figure 1 indicates), eventually returning to the pre-Depression trend.

Figure 2. Trend and actual GDP per capita in the United States
Dots: natural log of inflation-adjusted GDP per capita. Line: linear regression line representing a constant rate of economic growth. Data source: Angus Maddison,; OECD,, National Accounts.

How did that happen? A key part of the story was the war effort from 1940 to 1945, which served as a massive economic stimulus package, boosting demand and economic growth. Friedman’s 4.5% growth forecast for 2016-26 hinges on the notion that Bernie Sanders’ policy package would achieve something similar.

Would it? My reading of Friedman’s paper is that the 4.5% number should be treated as an upper-bound estimate. It’s what could conceivably happen in the most optimistic scenario, rather than what’s most likely to happen. I’d want to see a lot more sensitivity analysis before giving that number any real credence.

Update: Romer and Romer.

Posted in Uncategorized

Is economic insecurity to blame for the increase in deaths among middle-aged whites?

The death rate among middle-aged non-Hispanic whites in the United States increased between 1999 and 2013, according to a new study by Anne Case and Angus Deaton. In other rich nations it fell during this period, and it had been falling here in the US in prior years.

From Case and Deaton, “Rising Morbity and Mortality,” 2015

What caused this shift? One hypothesis, advanced by Case and Deaton and by some others, points to rising economic insecurity and stagnant wages and incomes. I’m skeptical.

  • Trends in wages, household incomes, and economic security in the US were about the same from 1979 to 1995 as they were in the 2000s (see here, here, and here). Yet Case and Deaton find that the death rate for middle-aged whites increased only in the latter period, not in the former.
  • Around 80% of middle-aged whites are homeowners. From 1999 to 2006, the first half of the Case-Deaton period, home values appreciated rapidly. So even though many were experiencing job insecurity and wage and income stagnation, quite a few also enjoyed a significant increase in wealth. Yet the rise in the death rate among middle-aged whites was, if anything, faster during this period than in the period of falling home prices after 2006.
  • The Great Recession of 2008-09 increased economic insecurity among middle-aged whites. Employment rates dropped and household incomes shrank. Yet there was no acceleration in the increase in middle-aged white deaths.
  • Whites, African Americans, and Hispanics have experienced similar trends in wages, household incomes, and income instability since the late 1990s. But while the death rate among the middle-aged has risen for whites, it has fallen sharply for blacks and Hispanics.
  • Men and women have experienced similar trends in wages since the late 1990s. But as Andrew Gelman has found, the middle-aged white death rate has increased  more for women than for men.
  • Trends in household income and in income instability since the late 1990s vary a good bit across the US states. Yet Case and Deaton report a rise in self-assessed poor health (correlated with mortality) among middle-aged whites in all 50 states.

If economic insecurity isn’t the chief driver, what is? I’m not sure, but the increase in availability of prescription opiod pain relievers such as oxycodone and methadone, noted by Case and Deaton and others, might be a more plausible culprit.

Posted in Uncategorized