Steven Johnson has written an excellent reply to George Packer’s new essay on Silicon Valley. Johnson makes two central arguments, the first of which is that the politics of Silicon Valley are not best described as libertarian but rather as “peer progressive,” a belief system that embraces the virtues of decentralized systems, yet which also emphasizes the importance of collaboration outside of the realm of the market, e.g., participatory democracy.  

When I was writing Future Perfect—which makes a cameo in Packer’s piece—I spent quite a few pages clarifying that while the new “peer progressive” worldview shared some superficial characteristics with Randian libertarianism, it was in actuality fundamentally different. Yes, people who work in the tech sector today (particularly around the web and social media) believe in the power of decentralized systems and less hierarchical forms of organization. But that does not mean they are greed-is-good market fundamentalists. For starters, almost all of them recognize that their industry itself arose out of government funding (see ARPANET), and some of the most celebrated achievements of the digital culture (open source software, Wikipedia) involve commons-based collaboration with no conventional definition of private property whatsoever. It’s precisely because we lack a new vocabulary to describe this worldview that we end up lumping the tech sector together in the libertarian camp.

Johnson emphasizes that Democrats have fared well in Silicon Valley.

By focusing so much on the libertarian framework, Packer buries (or indeed doesn’t even bother to mention) the lede, which is the stunning advantage that Democrats now have among the rising information classes. The most dynamic sector of the global capitalist economy is now decisively in the camp of the Democrats. How could this somehow go unmentioned in a piece about politics in Silicon Valley? The consequences of this shift are likely to be profound and multifaceted ones.

But “peer progressivism” is hardly incompatible with a broadly pragmatic center-right, if not rigorously libertarian, worldview. Rick Perry, the Republican governor of Texas, for example, is one of the leading champions of state-level industrial policy. I can’t say I think this is a good thing, but it has helped chip away at his know-nothing reputation. GOP weakness among the rising information classes has prompted a great deal of soul-searching among conservatives, on issues ranging from same-sex civil marriage to immigration reform, and change is underway. Political identity tends to be durable, and one assumes that Silicon Valley voters will continue to back Democrats in large numbers in the indefinite future. It is at least possible, however, that a pragmatic coastal conservative like Chris Christie could connect with this constituency, provided his Democratic opponent isn’t similarly deft or compelling. 

Johnson’s more important point is that Packer misreads the economic life of Silicon Valley. Rather than see the Valley as an illustration of American inequality at its worst, the widespread practice of distributing meaningful equity to ordinary employees might in fact represent a powerful tool to redress inequality:

Of course, the fact that Silicon Valley companies are more egalitarian than their equivalents in other industries doesn’t help us with the wider problem of inequality. Not everyone can work for Google, and in general, tech sector companies employ fewer Americans than their industrial predecessors. And all those middle-management millionaires make it harder for everyone else to live in the the same region, particularly where real estate values are concerned. For Packer, the lesson seems to be: the excesses of the digital-era super rich give us a case study in the growing problem of inequality throughout the U.S.. But you could reasonably draw the exact opposite lesson: that one way to deal with rising inequality is to make the rest of corporate America act more like Silicon Valley.

There is a growing body of research that shows that companies that limit their high-low wage ratios and distribute generous option plans consistently outperform more traditional, inegalitarian firms. Companies that flatten hierarchies and distribute rewards more fairly are actually more profitable, and not just nicer places to work. They don’t need high-flying IPOs to do this; simply flattening the ratio of executive-to-average-worker-pay creates similar benefits. The movement towards these more egalitarian corporate structures goes by many names: “stakeholder” or “partner” or even “conscious” capitalism. (In Future Perfect, I talk about this as one of the tenets of peer progressivism.) But whatever you call it, the framework has clearly generated its most spectacular results in Silicon Valley.

The whole premise of stakeholder capitalism offers a powerful and distinct message, because it gets at both our desire to be competitive in the global marketplace, but also to be more fair and equitable in the way we share our wealth. True libertarians would be repulsed at the thought, but the success of Silicon Valley even suggests that governments could do much more to encourage these kinds of internal compensation structures, in the name of better business and social cohesion. (Not to mention old-fashioned fairness.)

My objection to Johnson’s framework is that Silicon Valley firms are egalitarian for much the same reason that Denmark is egalitarian — both are highly exclusive clubs. Firms that limit their high-low wage ratios might work when virtually all employees are college-educated, or indeed when virtually all employees have even higher skill levels, but flatter hierarchies might be tougher in labor-intensive services that make extensive use of less-skilled labor. The gap between frontline employees and the back office will necessarily be larger in such firms. To suggest that simply flattening the ratio of executive-to-average-worker-pay would make, say, a construction company as successful as a firm that sells knowledge-intensive services and that exclusively employs workers with postgraduate degrees is silly. I don’t doubt that employee ownership might work well in these sectors, but it’s certainly not a no-brainer, as management is a highly specialized skill. 

So while Packer is perhaps too pessimistic about the ominous lessons of Silicon Valley, Johnson is perhaps too optimistic about the applicability of the lessons of Los Gatos to the world of labor-intensive services. One final note: if we’re concerned about the boom in land prices in Silicon Valley — as we ought to be — the obvious solution is to reform the zoning laws and embrace higher density.

George Packer’s meditation on Silicon Valley and the new American inequality has prompted two smart replies from quite different angles. To break things up, I’ll discuss them in two separate posts. The first, by the political theorist Samuel Goldman, accepts Packer’s basic economic narrative, which reads as follows:

The fortunes of middle-class Americans have declined while prospects for many women and minorities have risen. There’s no reason why they couldn’t have improved together—this is what appeared to be happening in the late nineteen-sixties and early seventies. Since then, many women and minorities have done better than in any previous generations, but many others in both groups have seen their lives and communities squeezed by the economic contractions of the past generation.

Before turning to Goldman’s critique of Packer, I’ll first observe that Scott Winship has carefully analyzed the claims that the fortunes of middle-class Americans have declined in a series of articles, including “Bogeyman Economics” in National Affairs and “The Affluent Economy” in Breakthrough Journal. Early last year, he observed that the shrinking of the U.S. middle class cited by Alan Krueger as an indication of decline largely reflects the fact that there is a larger number of U.S. households that have higher-than-middle-class earnings:

Krueger’s claim of a shrinking middle class relies on the same peculiar definition. Specifically, “middle class” is defined as having a household income at least half of median income but no more than 1.5 times the median. I re-ran the numbers using the same definition and data source as Krueger and found that the entire reason the middle class has “shrunk” is that more households today have incomes that put them above middle class. That’s right, the share of households with income that puts them in the middle class or higher was 76 percent in 1970 and 75 percent in 2010—two figures that are statistically indistinguishable. For that matter, I am not discovering fire here; Third Way made the same point in early 2007 (page 7). A shrinking middle class is only a problem if it reflects fewer people reaching the middle class. 

This isn’t to suggest that middle-income Americans don’t face serious challenges. The main challenge, and one of the central focuses of this blog, is that the last thirty years have seen dramatic real price increases in medical care and education at the same time that various consumer goods have seen similarly dramatic real price decreases. It is not unreasonable to suggest that access to high-quality medical care and education is more important than, for example, access to high-quality televisions or even to the wealth of information that is now readily available via new low-cost communications technologies, as the former can extend healthy lifespan (though there is a case that behavior matters just as much if not more) and the latter helps build earning potential and cultivates the ability to manipulate newly-accessible information. But as Scott often argues, this meta-problem is far more pressing for Americans in low-income households than it is for Americans in middle-income households, and there is a real danger that a near-exclusive emphasis on the plight of the middle class will tend to undermine rather than strengthen the case for doing more for the very poor. 

One could offer a more narrowly-tailored version of Packer’s passage that would be more compelling: specifically, the fortunes of large numbers of U.S. men have deteriorated relative to women, because high school dropout rates are higher among men than among women, college completion rates are lower, and men are far more likely to be incarcerated and, relatedly, to abuse alochol or narcotics. A more knowledge-intensive economy has tended to make the consequences of these differences more problematic for men, but of course women have been forced to bear the consequences of this decline in male economic prospects, the rising share of single mother households being only the most obvious example. Racial differences are more complex, as the demographic composition of the population has changed considerably since the 1960s and 1970s. The Hispanic slice of the U.S. population in 2013 is very different from the Hispanic slice in 1980, as immigration has meant that some non-trivial share of Hispanic 45-year-olds living in the U.S. were not living in the U.S. 33 years ago. The same is true of the Asian American population. African American women have made impressive gains over this period, but African American men have not gained much ground — and by some accounts they may have lost ground. One hypothesis as to why this might be true is that, as NYU sociologist Patrick Sharkey has argued, the effects of living in high-poverty neighborhoods are to some extent cumulative across generations, and black Americans at any given income level are likely to live in higher-poverty neighborhoods than their non-Hispanic white counterparts. We don’t have a clear sense of why women have been better able to navigate this landscape than men, but David Autor and Melanie Wasserman have recently offered some tentative thoughts as to what exactly is going on in “Wayward Sons“:

[W]e argue first that sharp declines in the earnings power of non-college males combined with gains in the economic selfsufficiency of women—rising educational attainment, a falling gender gap, and greater female control over fertility choices—have reduced the economic value of marriage for women. This has catalyzed a sharp decline in the marriage rates of non-college U.S. adults—both in absolute terms and relative to college-educated adults—a steep rise in the fraction of U.S. children born out of wedlock, and a commensurate growth in the fraction of children reared in households characterized by absent fathers.

The second part of the hypothesis posits that the increased prevalence of single-headed households and the diminished child-rearing role played by stable male parents may serve to reinforce the emerging gender gaps in education and labor force participation by negatively affecting male children in particular. Specifically, we review evidence that suggests that male children raised in single-parent households tend to fare particularly poorly, with effects apparent in almost all academic and economic outcomes. One reason why single-headedness may affect male children more and differently than female children is that the vast majority of single-headed households are female-headed households. Thus, boys raised in these households are less likely to have a positive or stable same-sex role model present. Moreover, male and female children reared in female-headed households may form divergent expectations about their own roles in adulthood—with girls anticipating assuming primary childrearing and primary incomeearning responsibilities in adulthood and boys anticipating assuming a secondary role in both domains.

To suggest that there is no reason why the economic pattern of the last three decades shouldn’t have been identical to the economic pattern of the late nineteen-sixties and early seventies strikes me as peculiar. There are a few obvious reasons why we might have seen divergence between different groups:

1. Matt Yglesias — a staunch advocate of increased immigration, including increased less-skilled immigration – has described how the rising foreign-born share of the U.S. population has contributed to the increase in measured inequality. 

2. Automation and offshoring have contributed to a deterioration in the labor market position of less-skilled workers around the world. Virtually all of the market democracies, including the U.S., have reacted to this development by increasing social transfers, including wage subsidies and work supports, but some have increased transfers more than others. Redistribution at the federal level in the U.S. tends to be dominated by transfers to older Americans and tax expenditures that tend to benefit middle-income and upper-income taxpayers. Wage subsidies and work supports have increased, but not by enough to offset the deterioration in the labor market position of less-skilled U.S. workers. We might have done more on this front, but doing so would have entailed a trade-off, e.g., we might have financed more generous transfer by imposing something like a value-added tax, drawing on the lessons of the Scandinavian social market economies. Yet this might have constrained the purchasing power of middle-income Americans. Whether or not you believe this is an appropriate trade-off, it is a trade-off. 

3. The transformation of U.S. family life, which appears to be closely related to the deterioration in the labor market position of less-skilled workers, has been a cumulative process. Rates of child-rearing outside of marriage increased sharply from the 1960s on. If we assume that being raised in a single parent family has consequences for one’s cognitive development and economic potential, the fact that the share of single mother families was much higher in the early 1980s than it was in the early 1950s gives us another reason why the economic fates of Americans raised at the bottom end of the household income distribution might have diverged from those raised at the top end. Problems that might have been relatively small and manageable in that era have grown much larger and much less tractable over the intervening decades.

So if anything, I’d suggest that the fact that American economic life looks really different now than it did in the late 1960s and early 1970s is overdetermined. Even under the best, most enlightened policy regime, there is a process of trial-and-error involved in meeting changed social circumstances. For example, public education spending per pupil has increased over this period, yet the student population faces a number of challenges it did not in earlier eras and the demands being placed on the public education system are commensurately much greater. That the performance of K-12 schools hasn’t deteriorated even further than it has in thus in some sense an improvement, particularly since the welcome decline in labor market discrimination against college-educated women and minorities and declining student-teacher ratios have put enormous pressure on the teacher talent pool. Of course, this semi-non-deterioration has been purchased at extraordinary expense. Were reformers wrong to press for spending more money on K-12 schools? I’m inclined to think that they were just doing their best, and they happened to hit upon a politically attractive solution (spend more, hire more). 

With that long detour out of the way, Goldman maintains that Packer’s mistake is that he fails to understand the interrelationship between the politics of personal emancipation and the decline of working-class solidarity:

In our time, the stories of greater social equality and economic inequality are far from “unrelated”. Rather, social inclusion has been used to legitimize economic inequality by means of familiar arguments about meritocracy. According to this view, it’s fine that the road from Harvard Yard to Wall Street is paved with gold, so long a few representatives of every religion, color, and sexual permutation manage to complete the journey. Superficial diversity at the top thus provides an moral alibi for the gap between the one percent and the rest.

Goldman’s thesis has merit. There really has been a normative shift within elite institutions, as their stewards have concluded that representativeness is essential to their survival and flourishing. This hasn’t been a cynical shift, or rather it hasn’t mostly been a cynical shift. But because I am more inclined to believe that economic inequality isn’t an intrinsically bad thing — what really matters, in my view, is absolute well-being, and if some increase in upper-tail market inequality is compatible with or indeed facilitates a rise in absolute well-being in the bottom half, through the market-driven creation of new products and services or even through redistribution, I have no problem with it — I don’t share Goldman’s jaundiced view. That elite institutions are somewhat more inclusive strikes me as a good thing, though of course I’d rather these institutions become more meaningfully inclusive by, for example, broadening access to high-quality educational or employment opportunities. 

Goldman’s broader critique of Packer is that the celebration of diversity undermines egalitarianism:

More generally, it is hard for a society characterized by ethnic and cultural pluralism to generate the solidarity required for the redistribution of wealth. People are willing, on the whole, to pay high taxes and forgo luxuries to support those they see as like themselves. They are often unwilling to do so for those who look, sound, or act very differently. In this respect, the affirmations of choice and diversity that now characterize American culture, tend to undermine appeals to collective action or shared responsibility. If we’re all equal in our right to live own lives, why should we do much to help each other?

This strikes me as very much on-target, and I confess to having mixed feelings about it. Erica Grieder’s excellent new book on Texas, Big, Hot, Cheap, and Right, observes that Texas’s public culture is open to immigration precisely because the state’s public sector is so stingy towards low-income individuals. I can imagine many different equilibria being reasonably attractive and stable — highly unequal, highly inclusive, highly diverse; highly equal, highly exclusive, highly homogeneous, etc. — and much depends on our moral and aesthetic priorities. I think of America’s polyglot cities as sites of dynamism, inequality, and diversity, and I like and identify with these spaces. But I am under no illusion that these spaces can be reconciled with social-democratic or egalitarian aspirations without making them very, very different, e.g., without pursuing a far-reaching project of cultural assimilation that would have to rest on curbing immigration in a quite dramatic way. I keep thinking that we can find some middle ground — more diverse than midcentury America, but with somewhat more solidarity than the America of the past thirty years. But there’s no guarantee that such a middle ground is available to us. 

Apple CEO Tim Cook proved very effective in defending his company’s tax practices before the Senate’s Permanent Subcommittee on Investigations, and Josh Green of Bloomberg Businessweek has done an amusing job of breaking down Cook’s performance, which combined flattery and the deft exploitation congressional ignorance and beffudlement. Cook also emphasized that he is eager for corporate tax reform, a cause widely embraced by his questioners, but which of course means different things to different people. I’ve described my preferred model for corporate tax reform — let’s finance a substantial reduction in the corporate tax rate by capping the amount of interest firms can deduct from their tax bills, a measure proposed by Robert Pozen and Lucas Goodman. The basic idea is that this approach would tend to use the debt bias embedded in the tax code, which might help level the playing field for start-ups that raise money by selling shares in competition with large incumbents that can take greater advantage of borrowing.

But one might go even further by abolishing corporate income taxes and instead raising capital income taxes on individuals, an idea that has been embraced by, among many others, Megan McArdle, James Pethokoukis, and Matt Yglesias. Matt, however, raises an interesting wrinkle: relying on corporate income taxes might do a better job of encouraging firms to deploy their capital efficiently while relying on higher dividend taxes might encourage them to blow money on futile quests for market share. But like Matt and my guru Ashwin Parameswaran, I see this as a feature and not a bug. One of Ashwin’s central arguments (it’s not original to him, as he happily acknowledges, but he does an excellent job of distilling it) is that new product innovation is only rarely driven by incumbent firms:

In the absence of new firm entry, even a competitive industry with many players will focus on process innovation and cost reduction and avoid any potentially disruptive product innovation. When incumbent firms do undertake product innovation, they do when their existing source of super-normal profits is threatened by disruptive products from new entrants. In an environment where product innovation is high, not undertaking new product initiatives is the riskier option. Simply protecting existing revenue streams rarely works out. Despite this, many incumbent firms are rarely able to respond effectively to new entrants, primarily due to organisational rigidity. New entrants on the other hand face a different set of incentives. Having no existing profits to protect, the lure of capturing such super-normal profits drives their actions far more than the much larger possibility of failure.

Ashwin is talking about the virtues of start-ups. Something similar can be said of encouraging cash-rich incumbent firms in one sector to enter another sector. Spurring CEOs to attack rival firms in adjacent or even entirely new domains is rarely good for the bottom line, but it does the important work of keeping incumbents on their toes. Matt uses the example of Bing, Microsoft’s search engine that aims to displace, or at least to put pressure on, Google’s search engine, which remains the core of Google’s business. Google, in a somewhat similar vein, has made forays into delivering high-speed data connections, presumably in an effort to demonstrate the viability of doing so and thus to bait other firms into doing the same. If shifting from corporate income taxes to higher capital income taxes on individuals leads to more of this kind of reckless behavior, consumers, and workers, will tend to benefit. 

Meera Louis of Bloomberg Businessweek draws out the differences between U.S. and Canadian immigration policy in a short article on Canadian efforts to recruit skilled U.S. workers:

Canada is opening the door to Americans at the same time the U.S. Congress is battling over whether to let in more skilled workers. In Canada last year, 160,617 immigrants were granted permanent residency because of the economic value they brought, while 64,901 became residents via family ties, according to the government. In the U.S., with a population about nine times as big as Canada’s, 680,799 immigrants became residents through family sponsorships in fiscal 2012, and only 143,998 obtained residency based on their employment, federal data show.

It can take a decade for an employed immigrant to get a U.S. green card; in Canada a skilled worker can obtain permanent residency within 18 months, says Richard Kurland, an immigration lawyer in Vancouver. Foreigners can also apply for residency on their own, without an employer’s help—another big difference from the U.S. Word of the perks has spread all over the world.

The Senate immigration reform bill aims to increase skilled immigration, yet it will also have the effect of increasing less-skilled immigration. Family sponsorships are to be curtailed (in theory), yet they will continue to play a more important role than they do in Canada at present.

A few weeks ago, I wrote a short piece (paywalled) on gun regulation that touched on rising suburban crime rates. While the homicide rate in large U.S. cities declined by 16.7 percent from 2001 to 2010, it increased by 16.9 percent in suburbs over the same period. Though the overall number of murders had declined over this period, the gap between large cities and suburbs decreased considerably. I mention this because Joel Kotkin and Wendell Cox have a new article on rising poverty levels that makes the following point:

Despite substantial improvement in crime rates in “core cities” over the past two decades, suburban areas generally have substantially lower crime rates, according to Brookings Institution’s own research. Yet at the same time suburban burgs dominate the list of safest cities over 100,000 led by Irvine and Temecula, Calif., followed by Cary, N.C. Overall suburban crime remains far lower than that in core cities.

A review of 2011 crime data, as reported by the FBI, indicates that the violent-crime rate in the core cities of major metropolitan areas was approximately 3.4 times that of the suburbs. (The data covers 47 of the 51 metropolitan areas with more than 1 million population, with data not being available for Chicago, Las Vegas, Minneapolis-St. Paul, and Providence.)

In the least suburbanized core cities, that is places that have annexed little or no territory since before World War II (New York, Philadelphia, Washington, etc.) the violent crime rate was 4.3 times the suburban rate. Among the 24 metropolitan areas that had strong central cities at the beginning of World War II but which have significant amounts of postwar suburban territory (Portland, Seattle, Milwaukee, Los Angeles, etc.), the violent crime rate is 3.1 times the suburban rate. Among the metropolitan areas that did not have strong pre–World War II core cities (San Jose, Austin, Phoenix, etc.), the violent crime rate was 2.2 times the suburban rate. Basically, the more suburban the metropolis, the lower the crime rate. Rather than castigating suburbs for exaggerated dysfunction, retro-urbanists would be much better served focusing on how to correct and confront the issue of poverty, which continues to concentrate heavily in the urban core and elsewhere in America.

This is a peculiar way to frame the issue. Kotkin and Cox observe that crime has fallen in core cities. What they don’t mention — and what is surely relevant — is that it has also been increasing in the suburbs. The gap remains, and it will likely persist. But surely rising suburban crime levels should at least be acknowledged. 

Moreover, Kotkin and Cox’s reference to crime levels across cities raises the question of whether or not there are other variables at work other than density. What happens when we correct for police officers per capita, for example, or the demographic composition of the population? It is certainly true that average density varies across Philadelphia and Portland and San Jose, but of course these cities are different in many other ways as well — mean January temperatures, concentration of college-educated workers, etc. Not all core cities are created equal.

More broadly, I think Kotkin and Cox misunderstand why the rise of suburban poverty is a problem. They note that poverty levels continue to be much higher in core cities than suburbs, which is of course true, and that the rise of suburban poverty in part reflects the fact that there has been a continuing shift from central cities to suburbs:

Many poor suburbs are developing because minorities and working-class populations are moving to suburbs. Yet even accounting for these shifts, cities continue to contain pockets of wealth and gentrification that give way to swathes of poverty. In Brooklyn, it’s a short walk east from designer shoe stores and locavore eateries to vast stretches of slumscape. The sad fact is that in American cities, poor people—not hipsters or yuppies—constitute the fastest-growing population. In the core cities of the 51 metropolitan areas, 81 percent of the population increase over the past decade was under the poverty line, compared to 32 percent of the suburban population increase.

In Chicago, oft cited as an exemplar of “the great inversion” of affluence from suburbs to cities, the city poverty rate stands at 22.5 percent, compared to 10 percent in the suburbs. In New York, roughly 20 percent of the city population lives in poverty, compared to only 9 percent in the suburbs.

As Cox has acknowledged, however, core-city population growth has been small in absolute terms. And the core cities of the 51 metropolitan areas in question vary dramatically in terms of economic health. New York City is an increasingly desirable destination. Cleveland and Detroit are less desirable destinations now than they might have been in decades past. Lumping these cities together tells us something, but I’m not sure it tells us something we don’t already know, e.g., that there is a kind of tournament dynamic at work in U.S. urban regions, in which the most productive and amenity-rich regions are gaining at the expense of others, subject to affordability constraints.

And this leads us to the most important issue: the fact that a fifth of New York city’s population lives in poverty while the same is true of only 9 percent of the population in its suburbs doesn’t represent a failing — rather, it reflects the fact that density and the widespread availability of mass transit are particularly valuable to the poor, who find it more difficult to purchase and maintain automobiles and for whom density facilitates greater access to service jobs. Commuting from Hempstead, a Long Island community with relatively high poverty levels, to a service job in New York city’s urban core is more time-consuming and expensive than commuting from Brooklyn or Queens. Commuting from Hempstead to one of Long Island’s affluent suburban neighboods can also be time-consuming and expensive, particularly when there are no direct transit links, as is often the case. So suburban poverty poses problems that poverty in dense cities well-served by transit does not. The problem we face is that the U.S. has relatively few dense cities that are well-served by transit, as such cities can greatly facilitate upward mobility for the very poor. 

Back in 2010, the Tax Foundation released an estimate of the distributional effects of the Affordable Care Act in fiscal year 2016. The numbers are dated, as the post-cliff ATRA tax code and new estimates of the cost of subsidies, etc., will have moved things around. But it is a good guide to the rough magnitude of the impact of the ACA on income redistribution. The taxes embedded in the ACA, e.g., the unearned income Medicare contribution tax, are fairly narrowly-targeted to high-earners, and so redistribution away from the highest-earners is substantial. And the average value of subsidies for households at the 40th household income percentile and below is quite large. If the goal of the ACA were simply to reorient resources from the rich to the poor (and not to spend the money wisely, etc.), it is likely to be a success. Yet the ACA isn’t actually transferring cash to low-earners but rather an in-kind benefit. The providers of this in-kind benefit (insurers, medical providers) will capture a good amount of the value of this transfer of resources. Coalitions in favor of expanding in-kind benefits profit from having focused constituencies working on their behalf, while coalitions in favor of, for example, increasing wage subsidies or unconditional cash transfers can’t say the same. Increasing the purchasing power of low-income households will benefit the members of these households and the various businesses that cater to them, but this is a fairly diffuse and diverse group. One thing that can be said for increasing wage subsidies, however, is that like the cause of subsidizing medical care, it has a moralistic appeal. 

I tend to think that we’d be better off if more redistribution took place via conditional transfers like wage subsidies rather than in-kind transfers, like subsidies for medical coverage. In an ideal world, increasing the purchasing power of low-income households via wage subsidies would make low-income individuals more attractive customers for innovative, low-cost medical providers. But betting on this outcome entails betting that low-income individuals will make good decisions in guarding themselves against the risk of catastrophic expenditures. So the push for coverage expansion is motivated not just by humanitarian gut instinct or by the narrow interests of medical providers, but also by an implicit conviction that many people (if not most) are terrible at planning ahead, or that many (if not most) would prefer not to do so. Some argue that the chief virtue of Canada’s single-payer system and others like it is that they remove the maddening uncertainty and switching costs that arise in a more fragmented payment system like our own. 

Critics of the Affordable Care Act need to reckon with all of these issues: because the ACA is very much about redistribution, whether or not its advocates acknowledge that this is the case, is there another model of redistribution that we prefer? Are the frustrations that arise under a fragmnted system actually worth it? The ACA will still leave us with a fragmented system, but is there a different fragmented health system that will yield much better results that centralized systems? I think that the answer to the latter question is probably yes, but ACA opponents need to do a better job of explaining how and why. One of most convincing arguments I’ve heard against a more centralized U.S. health system is that American political culture is allergic to rationing, and so only by having private sector intermediaries governing decisions about how health dollars are deployed can we have any hope of imposing meaningful cost control. When a private insurer tells you that you can get an MRI at a deep discount if you do it at 4 AM, you might be grateful for the opportunity to take advantage of a deal. But if Medicare told you to do the same, you might be angry at Congress. Disintermediation thus has a pretty significant downside. 

According to Congressional Quarterly (in a paywalled article), members of the House immigration reform group have agreed in principle on a 15-year path to citizenship for unauthorized immigrants and, for now at least, to table the issue of creating a guest worker program. But Heidi Przbyla and Kathleen Hunter of Bloomberg report that the U.S. Chamber of Commerce is pressing for doubling the number of temporary work visas granted to less-skilled workers, and that some influential congressional Republicans want to go even further: 

In talks during the drafting of the Senate bill, labor unions secured caps on the number of foreign, low-skilled workers allowed in the U.S., particularly in the construction industry suffering high unemployment. That agreement reached with the Chamber is drawing criticism from House Republicans.

“The Senate bill is a nonstarter in the House,” said Texas Republican Representative John Carter, a member of the House’s immigration negotiating group. “I’m not going to accept what the Senate and the Chamber came up with.” Geoff Burr, vice president of federal affairs for Associated Builders and Contractors, a group lobbying for higher caps, blamed Democrats for the impasse.

“They do have an incentive not to agree because then the Senate would be the only game in town,” he said.

The matter may not be closed in the Senate either. Senator John Cornyn, a Texas Republican, said he would wait until the legislation reaches the Senate floor to make pro-business alterations to the temporary worker program — eliminating a 15,000-worker annual cap on construction-industry visas.

Keep in mind that only a fifth of Republicans believe that legal immigration levels should be increased while 41 percent believe that they should be decreased, according to the Pew Research Center. It seems likely that these numbers are somewhat different in Texas, but it is not at all clear that Carter and Cornyn are representative of conservative opinion in the electorate. Because I favor a substantial increase in skilled immigration and a reduction in less-skilled immigration, I see the decision to punt on a guest worker program as a good thing. One problem, however, is that the U.S. Chamber of Commerce might lose interest in a legislative proposal that does not increase less-skilled immigration. While technology and financial services firms are keenly interested in increasing skilled immigration, and would likely be content with legislation that did little more than that, firms in low-wage, labor-intensive services would be sorely disappointed. And it is these firms that are providing much of the muscle behind the immigration reform effort. Without them, it is somewhat more likely that conservative lawmakers — particularly conservative lawmakers who are skeptical about the wisdom of creating a path to citizenship for unauthorized immigrants — will defect from the legislative push. 

Mina Kimes profiles Doug Oberhelman, CEO of Caterpillar, one of the most successful U.S. manufacturing firms, in the new Bloomberg Businessweek, and in doing so she illustrates a number of important economic ideas. In the hands of a lesser journalist, one suspects that the article would become a tirade against corporate greed. And there is fodder in the article for readers eager to draw the conclusion that Caterpillar’s efforts to fight wage increases even as its profits have reached new heights are somehow sinister. Mina contrasts Oberhelman’s compensation with the hourly wages of production workers, and she conveys the anxieties and concerns of Caterpillar employees who fear that manufacturing employment will never give them the middle-class prosperity they badly want. But she also situates the Caterpillar story in the larger context of slack labor demand:

In 2005, long before recession loomed, Oberhelman oversaw the company’s plan to prepare for a steep financial downturn—a task that made him unpopular, he says, but proved invaluable. After laying off 30,000 people in 2009, Caterpillar made it through the crisis without losing money. Last year, Caterpillar made $45,000 per employee, up from $12,000 in 2007. “The argument they make is, at a time when we’re very profitable, we can’t afford to more equitably distribute the wealth, because there may come a time when we won’t be,” says Robert Bruno, a professor at the University of Illinois at Urbana-Champaign’s school of labor and employment relations. “So when is it appropriate to share the wealth?”

Caterpillar employees know that the answer to this question is up to Oberhelman. The dwindling number of manufacturing jobs combined with the decline of unions has weakened workers’ leverage. When Caterpillar offers jobs in nonunion Southern states that pay $12 an hour, applicants line up around the block. “You’re basically expendable,” says Emily Young, a welder who has worked at Caterpillar’s Decatur plant for eight years. “For every one person who doesn’t work, there’s five waiting in line.”

The root cause of Caterpillar’s unwillingness to make concessions to organized labor, as Young understands, is that Caterpillar has the option of shifting production to lower-cost locations. Caterpillar could raise compensation for its legacy workforce and in doing so reduce its profits, but this would lead to an investor revolt and it might also strengthen the relative position of Caterpillar’s competitors or encourage new firm entry. The only durable solution to the problem of stagnant manufacturing wages is, according to Oberhelman, a stronger economy and a tighter labor market:

If Caterpillar refused to pay its executives high salaries, they could probably find other jobs, whereas hourly workers have much less mobility. Oberhelman acknowledges this dynamic, though he tends to characterize Caterpillar’s role as a passive one, as though the company lacks the power to choose how it disburses its profits.

When will workers’ wages rise? Oberhelman exhales sharply. “The answer to that is: when we start to see economic growth through GDP,” he says. “Part of the reason we’re seeing no inflation is because there’s no growth. Inflation was driven by higher labor costs, not higher goods costs. Frankly, I’d love to see a little bit of that. Because I’d love to pay people more. I’d love to see rising wages for everybody.” [Emphasis added]

I found Oberhelman’s statement, which strikes me as correct, intriguing in its potential political implications. Stronger economic growth would presumably increase demand for Caterpillar’s products and those of its competitors, like Komatsu. It might even spur other firms to enter the market, thus putting pressure on Caterpillar’s profits and increasing demand for workers with the relevant set of specialized skills. One issue, of course, is that as manufacturing becomes more capital-intensive, it leads to a bifurcation of the workforce, with some job functions demanding higher skill levels and others demanding the same or lower skill levels. But stronger growth will tend to raise labor demand for workers of both types, albeit unevenly, and so firms like Caterpillar would have little choice but to raise compensation levels. So while it is tempting to demonize Caterpillar in a climate of slack labor demand, the real blame lies, I would argue, with policymakers who have failed to deliver the conditions for higher growth. 

Moreover, Oberhelman seems to be suggesting that he is not averse to somewhat higher inflation if it is part of a package with higher real GDP growth, a view that is not dissimilar to that of market monetarists like Scott Sumner. I’m reminded of hedge fund manager Daniel Loeb’s recent letter to senior Sony executives, as described by Andrew Ross Sorkin and Michael J. De La Merced earlier this week. Loeb offered fulsome praise for Japanese Prime Minister Shinzo Abe, claiming that Abe’s leadership might allow Japan to “regain its position as one of the world’s pre-eminent economic powerhouses and manufacturing engines”:

Mr. Loeb has recently expressed his interest in Japan. Referring to the changes by the Abe government, he called it “a huge game change” at an industry conference last week. “And there’s a lot more room to go,” he added.

Mr. Abe has called his revival effort a plan of “three arrows,” including aggressive monetary easing by the Bank of Japan and enormous stimulus spending by the government.

So far, that effort appears to have drawn investor plaudits. The yen weakened in value last week, to 100 to the dollar, a level unseen in four years, helping local companies like Sony and Toyota. And the Nikkei 225-stock index has risen 43 percent so far this year. At the same time two years ago, the Nikkei was down 5.7 percent.

This is particularly interesting because leading hedge fund managers have tended to be very critical of aggressive monetary easying, which has been the main arrow in Abe’s quiver. Might influential business leaders like Oberhelman and Loeb embrace the idea that hitting 2 percent inflation might prove an economic boon, and press their allies in Congress to respond accordingly? That is, will they embrace what we might call the Sumner-Pethokoukis thesis — that what the U.S. needs are free markets and NGDP targeting? I wouldn’t hold my breath, but the idea isn’t crazy. 

In The New York Review of Books, Anne Applebaum, author of the brilliant Iron Curtain, reviews Sheryl Sandberg’s Lean In, contrasting it against Hanna Rosin’s very different The End of Men. She concludes on a provocative note: could it be that having more women in senior leadership roles, the goal Sandberg identifies as being of transcendent importance, is not as important as some of the broader social and political goals that Sandberg largely ignores, like redressing the closely related problems caused by family breakdown and deterioration of the labor market position of less-skilled men. If greater representativeness doesn’t have a concrete impact on the lives of working women, perhaps it shouldn’t be our foremost concern. I’m really not doing the essay justice — you ought to read it. 

The casualties at Rana Plaza have prompted a far-reaching discussion of the economics and the ethics of the global garment manufacturing supply chain. Earlier this week, Keith Bradsher of the New York Times described the scramble among retailers to identify new low-cost garment manufacturing locations in the developing world, a scramble that has taken on new urgency as Bangladesh’s reputation has been tarnished. Indonesia, which has a GDP per capita (PPP) two-and-a-half times as high as that of Bangladesh and a government that has improved markedly in recent years, has been gaining momentum. Bradsher reports that many elite brands had harbored concerns about Bangladesh’s reliance on high-rise factories, a reflection of rising land values in prime manufacturing districts, which are in turn a reflection of transportation bottlenecks that threaten the reliability of shipments.

One of the sources Bradsher interviewed, Rubana Huq, managing director of the Mohammadi Group, published an op-ed in today’s Wall Street Journal detailing the challenges facing Bangladeshi garment manufacturing firms. In it, she describes the cost components of a shirt that is sold at the wholesale price of $6.75: $4.75 is spent purchasing fabric, $1 is spent purchasing labels and accessories specified by the retailer, and the last $1 is divided among “cutting and making” (includes wages), capital expenses, securing credit for future inventory, and profits. 

Imagine an order for 400,000 shirts is spread over a four-line (meaning four rows of sewing machines, each row with 50 workers) factory of 1,600 square meters. Those 400 workers produce 3,077 pieces per day. The wage cost works out to about 38 U.S. cents per shirt. Another 15 cents goes to sending the shirt for a fine washing spin. Rent and utilities for the factory floor works out to about 11 cents per shirt, and head-office and marketing costs for the factory are 11 cents.

As for the remaining 25 cents, that will just about cover repaying a 10-year bank loan at 18% interest, which the factory owner has used for set-up costs along with a home and car. All is at a delicate equilibrium, until the owner feels compelled to give in to a firmly worded request from the retailer for an additional discount, or a demand to air-freight, at the manufacturer’s expense, some boxes of shirts that suffered a two-week production delay and now won’t be accepted by the retailer if they are any later than they already are.

In light of these very narrow margins, Huq suggests that a substantial increase in the statutory minimum wage will prove problematic. The Bangladeshi government has actually proposed a retroactive increase in the minimum wage, which will prove extremely burdensome to garment manufacturing firms locked into supply contracts. If Bangladeshi garment manufacturing firms didn’t face competition from Indonesia and other low-cost locations, they’d presumably have enough pricing power to raise prices and to finance upgrades in safety standards and much else. Adam Davidson’s latest column for the New York Times Magazine argues that just such an outcome is possible, because there aren’t many good alternatives to Bangladesh as a hub for garment manufacturing:

Many in Bangladesh fear that if the country becomes too expensive a place to make clothes, countless sewing machines will be sent to new factories in Nigeria, Kenya or Ghana. But Vijaya Ramachandran, an economist at the Center for Global Development, who recently studied the industrial prospects of sub-Saharan nations, says this outcome is unlikely. African countries may have a steady supply of unskilled labor, but a higher cost of living should keep them from competing with Bangladesh.

Ramachandran and I tried to figure out what countries might inherit Bangladesh’s T-shirt phase. Other than Burma, a long shot, Ramachandran couldn’t think of any. For now, Bangladesh might be where this centuries-long T-shirt journey ends, which means that their race to the bottom may be rooted in a misunderstanding. The country’s manufacturers can afford to take a step or two up the value chain. Not only can they pay their workers more, treat them better and house them in safe and clean factories, but there is also a significant economic incentive to do so.

The problem with Ramachandran’s line of analysis, however, is that countries more affluent than Bangladesh, like Indonesia, can also pick up the slack, as many of these countries are unevenly developed, and so they still have scope, and an appetite, for an increase in labor-intensive manufacturing. India, which has a GDP per capita (PPP) twice as high as that of Bangladesh, has many regions that are just as poor, and which are desperate for labor-intensive manufacturing work. In Why Growth Matters, the economists Jagdish Bhagwati and Arvind Panagariya recommend (somewhat ironically post-Rana Plaza) that reform its labor laws to match recent progress made by Vietnam and Bangladesh:

With the wages in China reaching levels at which it is likely to be forced out of these sectors, India is well positioned to become the world’s manufacturing hub. But if the costs of employment remain as they are, that opportunity is likely to be seized by a large number of smaller countries, such as Vietnam and Bangladesh. These countries allow firms to hire and fire workers under reasonable conditions and maintain a balance between the rights of both workers and employers. As a result, large firms in sectors such as apparel can be found aplenty in both countries and both have also seen significantly faster growth of the sector and done extremely well on the export front.

It should go without saying that not everyone believes that Bangladesh has done a good job of balancing the rights of workers and employers, yet it is true that employment in garment manufacturing has been a driver of poverty alleviation in Vietnam and Bangladesh alike, and that the unevenness of India’s economic development — with growth concentrated in knowledge-intensive services and other sectors that are not very labor-intensive while most workers remain in a moribund agricultural sector — is a profound problem. Garment manufacturing could facilitate the transition from low-productivity agriculture to higher-productivity export-oriented manufacturing, and it’s hard to imagine that India will keep screwing up on this front forever. So I’m inclined to think Huq is closer to the truth about Bangladesh’s (vulnerable) competitive position than Davidson and Ramachandran. 

Alan Tonelson, an economic policy analyst who has long been critical of free trade, has an op-ed in Bloomberg View which makes the case that the best way forward for Bangladesh and other developing countries is a reimposition of the quotas established under the Multifibre Arrangement, which expired in 2005. His basic argument is that quotas took the pressure off of manufacturing firms in exporting countries, as they could be confident that they wouldn’t be undercut by foreign rivals:

[W]ithout quota-granted guaranteed market access, cost-cutting became all the more important for smaller exporting countries simply to preserve their new gains. As U.S. trade data demonstrate, most of the freed-up customers were won by the huge Asian producers that enjoyed big natural and government-created cost advantages. For example, China’s share of U.S. apparel imports rose to 33.44 percent from 26.07 percent during the first two years of quota-free trade (2005-07) alone. Indonesian and Vietnamese sales boomed, too.

Significantly, Bangladesh also excelled, and like China, Indonesia and especially Vietnam, its market share has continued to grow, reaching 5.25 percent last year, despite the sluggish U.S. economy.

Unfortunately, however, much of the surge in Bangladeshi exports can be attributed to that country’s reliance on rock-bottom wages and firetrap factories, with the tragic consequences we recently witnessed. Worse, the dynamics of today’s quotaless apparel trade practically guarantee that better, costlier work conditions in Bangladesh will simply drive much production and jobs elsewhere. That is what occurred in higher-cost garment exporters such as Turkey and South Africa, as well as smaller Western Hemisphere and African producers — most of whose U.S. exports have fallen in absolute terms since the quotas ended in 2005.

I’m extremely skeptical about the wisdom of this approach, which would, among other things, raise the cost of apparel in the consuming countries. I have no intrinsic problem with higher apparel costs, particularly if they reflect changing consumer tastes and preferences, but Tonelson is explicitly counseling the repoliticization of global trade in apparel, a process that can easily be gamed by, for example, domestic manufacturers seeking to raise prices. That said, Tonelson’s op-ed deserves praise for having introduced a broader historical perspective into the discussion.  

I recently had the great pleasure of seeing Noah Baumbach’s Frances Ha. Though I don’t to make a habit of making film recommendations in this space, I highly recommend watching if if you get a chance. A.O. Scott has written a nice review that gets at (part of) why I found it very affecting. Earlier today, after watching a conversation between Canadian Prime Minister Stephen Harper and former Treasury Secretary Robert Rubin, I had a brief conversation with a friend which reminded me of the various ways in which an era of stagnant growth — we are now seven years into what looks to be a lost decade — is infantilizing. Scott’s review observes that “27 is not as old as it used to be, as in decades past “members of the American middle class could be expected to reach that age in possession of a career, a spouse and at least one child.” This reflects changing cultural mores, obviously. Yet it also reflects economic constraints. The rigors of adult life are more easily met when housing is affordable, when labor markets are tight and jobs churn and plenty of people “fail upward,” and when young adults profit from a broader climate of optimism. Under stagnant growth, in contrast, there is a collective tendency to lower our sights, and to put off daunting decisions and commitments. Simpler, cheaper, more accessible pleasures take precedence. I’m reminded of cultural stories chronicling the lives of young Japanese during that country’s lost decade, who purchased expensive consumer goods while living with their parents in cramped quarters. In most of America, economic life is more expansive than all that, even now. But for those who aspire to knowledge-intensive work, and who are burdened by student debt (see Annie Lowrey’s recent article on the subject), the world really does feel cramped. Some manage to lead comfortable lives by relying of strong family networks, and in particular on transfers from parents, an issue that is glancingly explored in Frances Ha. Baby boomers who acquired hard assets before the Great Disinflation of the 1980s are in many cases well-positioned to aid their adult children. Suffice it to say, not every young adult can rely on this kind of parental largesse. And so children of the meritocracy raised to have the same cultural and economic aspirations find themselves divided, with those who grasshoppers for parents on one side of the line and those who had ants for parents on the other, with divorce and other forms of family disruption complicating the picture. 

Frances Ha is a smart, well-crafted look at this landscape. My guess is that Baumbach and Greta Gerwig, who co-wrote the film and who portrays the protagonist, didn’t really intend to make some kind of larger statement about the cultural consequences of economic stagnation. Rather, they just made a really smart character study that is genuinely au courant. I still can’t help but connect it to these larger themes. And before you assume the film is crazily dour, it’s actually crazily uplifting once you make it to the end. 

Congressional Republicans are debating what they ought to demand in exchange for raising the debt limit. I am sympathetic to the view that we should not have a statutory debt limit. But if we’re going to have a negotation, what should Republican lawmakers ask for? Lori Montgomery of the Washington Post recently described the debate among House Republicans:

With the budget deficit falling far faster than anyone expected, House leaders have backed off their insistence that any debt-limit increase be paired with budget cuts of equal value. Now, it seems, the sky’s the limit.

At the meeting, 39 lawmakers lined up at microphones to offer suggestions. They ranged from tax and entitlement reform to approval of the Keystone XL pipeline to passage of a bill that would require congressional approval for any federal regulation that would impose more than $100 million in new costs on business.

At least one person wanted to take on late-term abortion in the wake of the conviction of Philadelphia doctor Kermit Gosnell. Others suggested repeal or delay of Obama’s health-care initiative. But for the most part, lawmakers tried to be “realistic,” aides said, suggesting measures that could reasonably be expected to both improve the economy and pass the Democratic Senate.

Approval of the Keystone XL pipeline and requiring congressional approval for large-scale regulatory initiatives both strike me as excellent ideas, as they can plausibly be described as growth-enhancing. Jonathan Adler has written extensively about the potential implications of the House-passed REINS Act:

Over the past several decades, the scope, reach and cost of federal regulations have increased dramatically, prompting bipartisan calls for regulatory reform. One such proposed reform is the Regulations of the Executive in Need of Scrutiny Act (REINS Act). This proposal aims to restore political accountability to federal regulatory policy decisions by requiring both Houses of Congress to approve any proposed “major rule.” In effect, the REINS Act would limit the delegation of regulatory authority to federal agencies, and restore legislative control and accountability to Congress. This article seeks to assess the REINS Act and its likely effects on regulatory policy. It explains why constitutional objections to the proposal are unfounded and many policy objections overstate the REINS Act’s likely impact on the growth of federal regulation. The REINS Act is not likely to be the deregulatory blunderbuss feared by its opponents and longed for by some of its proponents. The REINS Act should be seen more as a measure to enhance accountability than to combat regulatory activity.

Kristina Costa of the Center for American Progress has outlined the various objections to the REINS Act from the left, among them that the rule-making the legislation proposes to “rein in” essentially represent a technocratic process of implementing laws that have already been passed, and so there should be no concerns about the democratic legitimacy of even the most sweeping rules. The deeper question, however, is whether this delegation of regulatory authority to federal administrative agencies is appropriate in the first place. Adler writes:

Delegation may be expedient, or even necessary, but it also has costs. When Congress delegates broad regulatory authority to executive or independent agencies, it inevitably loses some degree of control over how that authority is exercised. The resulting loss of political accountability for regulatory decisions has allowed regulatory agencies to adopt policies at odds with congressional intent or contemporary priorities. This is particularly so when Congress delegates broad authority to pursue generic—almost platitudinous goals—such as advancing the public welfare or protecting public health. For instance, if Congress instructs a federal agency to adopt measures that will address a given environmental problem as far as is practicable, the federal agency retains substantial discretion to determine what sorts of measures should be adopted and at what cost. And should the agency veer off course and adopt a measure of which Congress disapproves, it is not so easy to put the genie back in the bottle.

As Adler goes on to argue, it is unlikely that limiting the delegation of regulatory authority will lead to a larger rollback of regulation for the simple reason that many regulations are actually pretty popular. All the REINS Act does is force lawmakers to accept responsibility for approving expensive new regulations — and some will presumably be very happy to do so. One implication of Adler’s argument, alas, is that the REINS Act won’t necessarily be enormously growth-enhancing. But it seems like a good measure to press for all the same. 

Neerav Kingsland of New Schools for New Orleans is the leading proponent of the idea of “relinquishment” in public education, i.e., that centralized school districts should as a general rule cede control of the actual day-to-day operation of schools to educators, and that they should focus on monitoring quality and creating government-managed enrollment systems to ensure equity. The goal is that over time, innovative instructional models will emerge and the most successful will expand while the least successful will shrink out of existence. He’s recently written a summary of the basic ideas behind relinquishment that I highly recommend. Neerav has a knack for reconciling seemingly opposed views.

One of the greatest intellectual contributions the economists Lant Pritchett and Michael Clemens have made to the study of migration is the concept of “income per natural.” Rather than compare countries only by GDP per capita, Pritchett and Clemens, both of whom are advocates of freeing global labor mobility as a poverty alleviation strategy, they propose comparing the incomes of individuals born in a given society, or income per natural. So rather than divide all measured economic activity in Guyana by the number of people residing in Guyana, they propose measuring the mean annual income of persons born in Guyana, whether they live in Guyana or Canada or Brazil: 

If income per capita has any interpretation as a welfare measure, exclusive focus on the nationally resident population can lead to substantial errors of the income of the natural population for countries where emigration is an important path to greater welfare. The estimates differ substantially from traditional measures of GDP or GNI per resident, and not just for a handful of tiny countries. Almost 43 million people live in a group of countries whose income per natural collectively is 50 percent higher than GDP per resident. For 1.1 billion people the difference exceeds 10 percent. The authors also show that poverty estimates are different for national residents and naturals; for example, 26 percent of Haitian naturals who are not poor by the two-dollar-a-day standard live in the United States. These estimates are simply descriptive statistics and do not depend on any assumptions about how much of observed income differences across naturals is selection and how much is a pure location effect. Our conservative, if rough, estimate is that three quarters of this difference represents the effect of international migration on income per natural.

Recently, Matt Yglesias explored the implications of income per natural for the U.S. immigration debate:

The foreign-born population in the United States is poorer than the native-born population. If all those people evaporated tomorrow, the average income of the remaining people would fall but per capita income would rise due to compositional effects. We would also have “more equality” since a disproportionate share of the poorest people would have vanished, and the incomes of capital owners would fall more than the incomes of wage earners. But again, very few actual people would be made better off this way. The better way to get the poverty-reducing effects of eliminating the immigrants is to simply count income per natural instead. The average income of people born in Mexico is higher than the average income of people residing in Mexico, because many of the people born in Mexico now live in the United States. Conversely, the average income of people born in the United States is higher than the average income of people residing in the United States, because many of the people residing in the United States were born in Mexico. [Emphasis added]

One of the reasons we rely on GDP and GDP per capita, however, is that it helps define the fiscal capacity of the state. If the main vehicle for social insurance provision and human capital investment were diaspora networks of naturals rather than traditional nation-states, this line of analysis would make a great deal of sense. Guyanese migrants to Canada would rely on social services and blended learning programs financed by taxes on all Guyanese naturals, thus raising the quality of life for Guyanese naturals in Guyana and around the world. (There is a case that remittance flows can be understood along these lines, but the transfers tend to be one way.) Canadian naturals wouldn’t need to be concerned about the cost of raising incomes among Guyanese naturals to Canadian natural levels, as (somehow) parallel standards of what constitutes a decent social minimum would co-exist in the same geographical space. Standards of living among Guyanese naturals might be somewhat lower than among Canadian naturals, and perhaps Guyanese naturals would congregate in neighborhoods with building codes and public safety measures that are better attuned to prevailing income levels. The trouble, of course, is that arrangements of this kind have gone out of fashion since the era of the Ottoman millet system, and would likely prove difficult to sustain. I don’t doubt that technological and cultural change might eventually move us in this direction – Neal Stephenson imagined just such a world in his science fiction novel The Diamond Age. But as long as we live in a world in which the nation-state remains the dominant institutional form, I think a focus on policies that keep GDP per capita high makes a lot of sense. 

Brink Lindsey argues against using IQ scores as a metric of innate ability:

Though the tests are good measures of skills relevant to success in American society, the scores are only a good indicator of relative intellectual ability for people who have been exposed to equivalent opportunities for developing those skills – and who actually have the motivation to try hard on the test. IQ tests are good measures of innate intelligence–if all other factors are held steady. But if IQ tests are being used to compare individuals of wildly different backgrounds, then the variable of innate intelligence is not being tested in isolation. Instead, the scores will reflect some impossible-to-sort-out combination of ability and differences in opportunities and motivations. Let’s take a look at why that might be the case.

Comparisons of IQ scores across ethnic groups, cultures, countries, or time periods founder on this basic problem: The cognitive skills that IQ tests assess are not used or valued to the same extent in all times and places. Indeed, the widespread usefulness of these skills is emphatically not the norm in human history. After all, IQ tests put great stress on reading ability and vocabulary, yet writing was invented only about 6,000 years ago – rather late in the day given that anatomically modern humans have been around for over 100,000 years. And as recently as two hundred years ago, only about 15 percent of people could read or write at all.

More generally, IQ tests reward the possession of abstract theoretical knowledge and a facility for formal analytical rigor. But for most people throughout history, intelligence would have taken the form of concrete practical knowledge of the resources and dangers present in the local environment. To grasp how culturally contingent our current conception of intelligence is, just imagine how well you might do on an IQ test devised by Amazonian hunter-gatherers or medieval European peasants.

The mass development of highly abstract thinking skills represents a cultural adaptation to the mind-boggling complexity of modern technological society. But the complexity of contemporary life is not evenly distributed, and neither is the demand for written language fluency or analytical dexterity. Such skills are used more intensively in the most advanced economies than they are in the rest of the world. And within advanced societies, they are put to much greater use by the managers and professionals of the socioeconomic elite than by everybody else. As a result, American kids generally will have better opportunities to develop these skills than kids in, say, Mexico or Guatemala. And in America, the children of college-educated parents will have much better opportunities than working-class kids. [Emphasis added]

Brink’s analysis strikes me as entirely correct. Yet its implications for the immigration debate are not entirely clear. As a matter of distributive justice, discriminating against a given class of persons on grounds of inherited disadvantage seems profoundly unfair. And if we collectively decide that our immigration policy ought to be crafted with global distributive justice foremost in mind, admitting large numbers of less-skilled immigrants is obviously the right thing to do, given the size of the “place premium.” But if our goal is instead to recruit immigrants who are likely to flourish in an advanced economy, the case for assessing immigrants on the basis of whether or not they possess the highly abstract thinking skills associated with success seems much stronger. This would be the case whether or not a relative lack of the skills in question reflects some intrinsic quality (which, like Brink, I’m pretty sure is not the case) or contingent historical circumstances. 

Recently, Greg Clark, author of A Farewell to Alms, has been pursuing a crazily ambitious research agenda on social mobility over long historical periods. He has been drawing on surname analysis to gauge the extent to which descendants of the upper classes of the 17th, 18th, and 19th centuries predominate in the upper classes of the present. His initial results are, frankly, rather discomfiting, as they at least suggest that — to grossly oversimplify matters — having literate ancestors two hundred years ago, when, as Brink observes, only 15 percent of people were literate, is associated with doing well in the 21st century. Viewed through this lens, the really interesting thing about the contemporary U.S. economy is not the persistence of inequality across groups, some of which were disproportionately literate two centuries ago while others were decidedly not, but rather the extent of the progress we’ve made in redressing these inequalities. Back in 2011, the libertarian economist Jason Sorens compared inequality in the U.S. to other New World post-slavery societies:

The U.S. has the least inequality, by a fair margin, of these countries. Of course, the U.S. also has a smaller combined percentage of blacks and Amerindians than all of these other countries except Costa Rica, Chile, Argentina, and Uruguay. But that’s precisely the point – the overriding factor determining inequality in New World countries is the white or mestizo percentage of the population. When you control for that, the U.S. actually has very low inequality.

If the U.S. is exceptional at all, it is exceptional for its high GDP per capita and low income inequality, relative to similarly situated countries.

This suggests that if African Americans make substantial economic progress in the next three decades, or in other words if black men catch up with the extraordinary progress made by black women in educational attainment, wages, and occupational stature over the past three decades, the reduction in inequality and the gain in collective wealth would be enormous. I see this as cause for optimism rather than despair. The problem, however, is that achieving this kind of economic and social uplift will be a resource-intensive endeavor, whether those resources are drawn from the public sector or civil society. Recruiting immigrants who will find it difficult to navigate what Brink (correctly) describes as the mind-boggling complexity of modern technological society means making our inherited disadvantage challenge bigger rather than smaller. If we assume finite resources — a pretty reasonable assumption — we have to decide if we want to focus resources devoting to breaking the intergenerational transmission of poverty to long-settled U.S. historical communities that have endured a long history of discrimination or if we want to spread them across a larger population that includes people who have voluntarily chosen to settle in the U.S., yet who bear the legacy of other histories of exclusion and disadvantage. 

There is, to be sure, another view, which is that a history of exclusion and disadvantage has absolutely no consequences in the present day and that Clark et al. are entirely wrong. This would mean that the children of less-skilled immigrants won’t require more substantial taxpayer-funded human capital investments than the children of educated middle-income native-born Americans to fare well as adults. Though I’m sure that this is true of some of the children of less-skilled immigrants, I wouldn’t count on it being true for all of them. 

Keith Hennessey points out that two of the main drivers of the federal government’s improved fiscal position are the tax increases under the post-cliff ATRA legislation and, as Economics 21 recently noted, surging dividends from Fannie and Freddie, which reflect the effective nationalization of mortgage finance. Hennessey’s core contention, which is clearly correct, is that the new deficit news is far less promising than it looks, particularly if you prefer a lower tax burden and a truly private market for mortgage finance. Sen. Bob Corker (R-TN) has proposed legislation that would prevent the federal government from using revenue from Fannie and Freddie to subsidize other government functions on the grounds that turning the government-sponsored entities (GSEs) into cash cows will make reform all but politically impossible. But of course this kind of self-denial is never likely to be popular in Congress.

Once again, the new deficit projections are a reminder that focusing on the deficit alone has always been a fool’s errand. The country faces a number of interrelated challenges. Reforming entitlement programs, and in particular health entitlement programs, are among the most important of these challenges, but not just because they are a driver of future deficits. After all, we could raise taxes, including relatively efficient consumption taxes, to address fiscal imbalances. Rather, the deeper problem is that while some of our institutions work relatively well for most people — we live in one of the world’s most prosperous countries, and gains in the material standard of living have been pretty decent for Americans living above the bottom two-fifths of the household income distribution, even during periods of sluggish growth —  a lot of them work really badly for people in the bottom two-fifths. It’s not that K-12 education is substantially worse now than it was in the 1970s. It’s just that as family patterns have changed and the demand for skilled workers has increased while the demand for less-skilled workers has decreased, we need K-12 schools to do more for more people, and the strategies we’ve pursued to meet this need (e.g., reducing class sizes) has proven to be both very expensive and of limited efficacy, a miserable combination.

Something broadly similar is true of medical care. In The Cost Disease, the economist William Baumol observes that in 2005, U.S. health care spending per capita was $6,400 while all other spending per capita was $35,400. He projects that if growth in output continues at its historical average while growth in medical expenditures does the same over the next century, health care spending per capita in 2105 will be $213,000 while all other spending per capita will be $130,000. That is, health care spending will go from 15 percent of GDP to approximately 60 percent in the space of a century. Baumol’s eye-catching extrapolation has potentially enormous implications for how we ought to think about government. As of 2011, the federal government financed 28 percent of total U.S. health expenditures while state and local governments accounted for an additional 17 percent, with the rest divided between business (21 percent), households (28 percent), and other private revenues (7 percent). Medical expenditures by business and households and other private sources are subsidized in various ways by government at all levels, but we’ll leave that aside and say that government accounted for 45 percent of medical expenditures in 2011. This number will most likely increase as the Affordable Care Act is implemented, but let’s also leave that to the side and imagine that government will account for 45 percent of medical expenditures in 2105 — government spending on medical care alone with represent 27 percent of GDP. This is the best-case scenario. In this world, total government expenditures (federal, state, and local) might represent as much as 60 percent of GDP. Even if we achieve fiscal balance with government expenditures at 60 percent of GDP, the space for private enterprise, civil society, and voluntary cooperation writ large will be smaller than it is today, and it is not unreasonable to believe that this might have deleterious consequences on dynamism and initiative. 

This landscape creates opportunities for more ambitious thinking. In the realm of medicine, for example, James Pinkerton has called for what he calls a “cure-first” approach, which aims to reduce medical expenditures by curing seemingly intractable ailments, thus reducing the demand for medical care. Early experiments in online education and blended learning remain in many cases inferior to the best brick-and-mortar alternatives, but like all disruptive innovations, they have the advantage of being cheaper and thus more accessible to the non-consuming population and they have the potential to get better faster than brick-and-mortar education. These causes are fairly familiar on the pro-market right, and for good reason: they are paradigmatic. And though both are related to the cause of spending restraint, they are also related to the cause of delivering better services and a better quality-of-life. Focusing on the deficit, meanwhile, gives advocates of tax increases and status quo government the upper hand. 

Ross Douthat has some excellent thoughts on related themes. We’re in this, or we should be in this, for more than just paring down the debt.

Rebecca Strauss of the Council on Foreign Relations offers a sobering perspective on America’s demographic future:

1. While the U.S. has a higher birthrate than the affluent market democracies of Europe and East Asia, labor force participation among men has been drifting down in recent years. The labor force participation rate of American men in their late 30s, for example, is lower than in almost every European country.

2. As we’ve often discussed in this space, the rate of increase in labor force quality in the U.S. is stagnant.

3. And finally, American children tend to experience higher levels of family disruption than their counterparts in other wealthy societies, and this has lasting consequences for well-being. 

So America’s edge relative to peer societies in terms of demographic vitality is arguably outweighed by declining labor force participation, stagnation in educational attainment, and chaotic child-rearing patterns that damage the lives of future workers. The first two challenges are susceptible to well-designed policy interventions; the third is much less so, and it is arguably more consequential than the first two.

In a new report on the Pell Grant program, Stephen Burd of the New America Foundation’s Education Policy Program outlines how many U.S. colleges and universities design their policies to enroll as many affluent students as possible. Alex Holt of New America summarizes Burd’s findings:

Burd uses data, many of which are available through our Federal Education Budget Project database, on Pell Grant enrollment and net price for the lowest-income students at thousands of individual colleges. The analysis shows that hundreds of public and private non-profit colleges expect the neediest students to pay an annual amount that is equal to or even more than their families’ entire yearly earnings. As a result, these students are left with little choice but to take on heavy debt loads or to behave in ways that are demonstrated to reduce the likelihood of earning their degrees, such as working full-time while enrolled or dropping out until they can afford to return. Only a few dozen exclusive colleges meet the full financial need of the lowest-income students they enroll. Nearly two-thirds of the private institutions analyzed charge students from the lowest-income families, those making $30,000 or less annually, a net price of over $15,000 a year.

Many private colleges have small endowments, making it extremely difficult for them to provide adequate support to those students with the greatest need. According to the report, the poorest schools are often the ones that enroll the largest share of federal Pell Grant recipients, but they charge these students high net prices because of their own limited resources. At the same time, many of these institutions provide deep tuition discounts to wealthier students to attract those high-achieving students to the school.

A number of public universities are pursuing similar strategies — rather than focusing aid resources on students who might not otherwise afford to go to college, they use them to attract the strongest students, most of whom would attend college even at higher cost. Holt concludes on a discouraging note:

And worse yet, there is compelling evidence to suggest that many schools are engaged in an elaborate shell game: using Pell Grants, the primary source of federal aid for low-income students, to supplant institutional aid they would have provided to financially needy students otherwise, and then shifting these funds to help recruit wealthier students. This is one reason that, even after historic increases in Pell Grant funding, the college-going gap between low-income students and their wealthier counterparts remains as wide as ever.

Holt’s analysis raises the question of why so many Republican lawmakers are unwilling to subject colleges and universities that receive large amounts of federal funds to increase access to greater scrutiny. 

Aaron Renn argues that gentrification, which he defines as the gradual replacement of an urban neighborhood’s poor population with a more affluent population, has emerged as a popular strategy for urban revitalization because there are few other proven pathways. Immigrants have succeeded in revitalizing outlying urban neighborhoods, to be sure, but the decline of mid-skill manufacturing employment and the fiscal limits to expanding public sector employment limit the potential for an influx of middle-income households in urban neighborhoods. The problem with the gentrification model, in Renn’s view, is that it generates few benefits for households further down the economic ladder.

My sense is that gentrification is fully compatible with a broader strategy for the economic uplift of low- and middle-income city residents, provided the supply of housing increases as public safety and local quality-of-life improve. This will tend to mitigate increases in housing costs, thus limiting the geographical displacement of incumbents and creating mixed-income neighborhoods. Poverty concentration will decline, which will tend to reduce the economic isolation of low-income households. Renn laments the decline of mid-skill manufacturing employment, yet gentrification coupled with an increase in housing supply will create opportunities for relatively lucrative service work, provided less-skilled workers have the necessary complement of noncognitive skills. This is a big “if,” and it is a reason why immigrants often fare better in urban labor markets than the native-born poor.

Jim Manzi, author of Uncontrolled and a leading expert on the design of business experiments, offers observations on the Oregon Health Experiment. Among other things, he notes that of the 90,000 Oregon residents who applied for Medicaid coverage under the state’s lottery, 35,000 won the lottery — yet only 60 percent of the lottery winners took the next step of actually signing up for coverage. As Jim goes on to explain, this raises a number of hard-to-answer questions about the experiment itself, as it is premised on the notion that we can differentiate between those who secured coverage via the lottery and those who lost the lottery, despite the fact that there is a large population of lottery winners (approximately 14,000) who chose not to accept coverage. In an ideal world, we’d want to know more about the rationality and the conscientiousness of participants in the experiment, as these qualities are not necessarily evenly distributed across this population. It turns out, for example, that while fewer than 25 percent of Americans between 19 and 64 smoke cigarettes, the same is true of 48.4 percent of those who received free coverage smoke cigarettes. If granting smokers coverage makes them somewhat more likely to quit smoking, the health benefits would be substantial. But if it made them somewhat less likely to quit smoking, the health benefits would be far more modest. The experiment doesn’t settle this particular question. Jim observes that advocates of Medicaid expansion have pointed to some of the observed health benefits of coverage that don’t pass the test of statistical significance. The problem, however, is that there are also negative effects that don’t pass the test of statistical signifiance, and there is no principled way to embrace the former findings while dismissing the latter.

Jim concludes that if nothing else, the Oregon Health Experiment demonstrates the value of randomized controlled trials in informing public policy decisions. One promising area for policymakers to explore is how we might embed the capacity for experimentation and analysis into social service provision more broadly.

Over the past several months, a combination of higher-than-expected revenues and lower-than-expected spending levels has been shrinking the federal deficit at a healthy clip. James Pethokoukis of the American Enterprise Institute recently observed that if growth climbs above 4 percent by 2014, it is at least possible that there will be a surplus by the 2015 fiscal year. The news that the federal government generated a substantial surplus in April came as icing on the cake. Yet Red Jahncke, a Greenwich-based management consultant, suggests that what we’re really seeing is a last-ditch attempt to take advantage of the lower capital gains taxes of the Bush-era tax code as the post-cliff ATRA legislation goes into effect:

Much of the increase in 2013 receipts is due to final tax payments for 2012 deriving from a rush to realize long-term capital gains before the 15% “Bush” tax rate on such gains expired at the end of 2012—and before the new 23.8% rate on long-term capital gains for higher-income taxpayers took effect on Jan. 1. How do we know this? Because virtually the same tax change occurred during the Reagan years, when the long-term capital gains tax rate jumped eight points, to 28% in 1987, when the Tax Reform Act took effect, from 20% in 1986.

Jahncke acknowledges that we can’t be sure that the recent revenue surge reflects shrewd tax planning, at least not yet, but he makes a compelling case. One hopes that a stronger recovery is doing at least some of the work, and Jahncke’s scenario doesn’t preclude that possibility. But it ought to temper our enthusiasm.

Kelly Field of the Chronicle of Higher Education reports on the bipartisan Student Right to Know Before You Go Act of 2013, which aims to provide students and parents with reliable information on earnings by program of study and state of employment, cumulative debt levels, transfer rates, and graduation rates at U.S. coleges and universities. The higher education lobby has fought similar measures in the past on the grounds that a federal “unit record” system threatens the privacy of students, and so students and parents have no reliable way of knowing, for example, how many Pell Grant recipients at a given school actually graduate within five years. This data can be anonymized, and so the privacy concerns are almost entirely a canard. But the widespread availability of reliable data on student outcomes would, for obvious reasons, represent a grave threat to colleges and universities that offer a substandard education and that leave many students with heavy debt loads and little else. Opponents of the legislation are now turning to delaying tactics — some are calling for further study to determine the data students want on outcomes, as though we will somehow discover that students don’t really care about graduation rates and debt levels and earnings by program of study after all. It could be that students would prefer to know which colleges party the hardest. I doubt it, but it’s at least possible. Yet data on things like graduation rates and debt levels and earnings are presumably of great interest to parents and to taxpayers, which seems like reason enough to pass the Student Right to Know Before You Go Act, and indeed to go further in the direction of creating a unit record system.

One of the main ways Sen. Marco Rubio has tried to build support among conservatives for immigration reform is by establishing that immigrants receiving provisional status will not be eligible for subsidized health benefits under the Affordable Care Act. As Jed Graham of Investor’s Business Daily explains, however, this introduces a serious complication:

While the outlook for immigration reform is uncertain, the hurdle to passage could be significantly higher if the employer mandate remains unchanged. As IBD first reported, the interaction of the Gang of Eight’s immigration reform with ObamaCare would give some employers a $3,000 incentive (after taxes) to hire a newly legalized immigrant over an American citizen

This perverse outcome, which isn’t desired by anyone, and the growing realization — even among Democrats — that the employer mandate risks hurting working-class wage-earners whom ObamaCare is intended to help have created a window of opportunity.

And Los Angeles County is concerned about this provision as well, as Kitty Felde of Southern California Public Radio reports:

Tucked away in the 844-page Senate immigration bill is a provision that forbids undocumented immigrants from getting health insurance through the exchanges set up by the Affordable Care Act — until they complete their provisional status. L.A. County Supervisor Don Knabe says that’s 15 years of no federal dollars.

Knabe says the county currently gets about $600 million annually from the federal government to partially reimburse hospitals for treating the uninsured. Because the immigration bill also forbids any entitlement dollars from being spent on the undocumented, the county would lose the money.

“While we all we all may support immigration reform to a certain degree or a path to citizenship, ” says Knabe, “it can’t be at any cost. They have to be sensitive to the costs to local governments.”

I think it is far more likely that Los Angeles County and similarly-situated local governments will receive a carve-out of some kind, now or later, than that hospitals won’t be reimbursed by the federal government. And if the Gang of Eight immigration reform is passed in its current form, there is good reason to believe that W visa holders — less-skilled “temporary” workers who will be permitted to bring their spouses and children with them — will eventually join the ranks of the unauthorized immigrant population rather than return home to their native countries. This will create a new population of mixed-status households led by unauthorized immigrant parents, as some nontrivial number W visa holders will inevitably have children while living and working in the United States. Medical providers in metropolitan areas with large immigrant populations will have a strong incentive to advocate expanding federally-subsidized medical coverage to this population, the more comprehensive the better, as the federal government is in a better position to use debt finance to meet its obligations than state and local governments. All this is to say that the toughest provisions of the immigration reform bill will likely prove unsustainable.  

According to Eli Dourado, existing federal, state, and local privacy laws are more than enough to protect consumers, and so there is no need for new regulations to govern the commercial use of unmanned aerial vehicles. I am inclined to agree. 

Matt Yglesias finds conservative objections to less-skilled immigration puzzling:

Liberals care not just about the size of the economic pie, but also its distribution. And it’s perfectly appropriate to put greater weight on the economic needs of poor people than rich people. But in the low-skilled immigration calculus the poorest people—the immigrants—are the ones who receive the largest benefit. To the extent that you have more immigrants you have both a stronger moral case for redistribution to low-income natives (greater objective needs) and a stronger practical case for redistribution to low-income natives (greater fiscal capacity) but the idea of avoiding a small harm to poor people by inflicting a much-larger harm on substantially poorer people makes very little sense to me. That’s especially true when the pie could be further expanded and the distributional effect counteracted by allowing for more skilled migrants—not just computer programmers but doctors and other professionals.

The conservative view of this manages to be even more puzzling, since in all other contexts conservatives strongly favor policy measures that increase the marginal return to capital and vehemently reject consideration of the distributional implications of such measures. Class war is a great evil to be avoided at all cost except in a case where the interests of the American working class can be putatively advanced by punishing the third world poor.

I think this puzzle is pretty easily resolved if you believe a few things:

1. You could believe that membership in a given nation-state community is not best understood as morally arbitrary, but rather that the citizens, and perhaps all lawful residents, of a given country are better understood as the “heirs” of a series of historical achievements. A bus driver in Flatbush earns far more than a bus driver in Varanasi, India, despite the fact that if anything, the work of the bus driver in Varansasi is more stressful and strenuous. This reflects decades of “capital deepening” that greatly magnifies the value of an hour of work in Brooklyn, a cumulative process to which millions of anonymous individuals — not just great entrepreneurs, industrialists, and inventors — have contributed. We could understand the productive potential that has arisen in America’s cities as the common inheritance of humanity, or as the common inheritance of the set of people we understand as Americans. Suffice it to say, it is not surprising that people who are uncomfortable with the idea of the intergenerational transmission of wealth within families find the intergenerational transmission of wealth within nation-state communities uncomfortable as well, as kin-based networks are far more substantial and “real” than nation-state communities. 

2. Or you could believe that membership in a nation-state community is significant because it embeds one in “the coercive network of state governance,” as Michael Blake has suggested. That is, even under a globally impartial liberal theory, one might conclude that a concern with relative economic shares makes sense only when we are asked to live under the same system of laws. This absolutely doesn’t preclude worrying about the absolute deprivation of those who live under other regimes. But if we ask people to live under a set of private property rules and there is a class of persons that finds itself getting the short end of the stick, it’s not crazy to be concerned about how this class of persons fares in relative terms, particularly if we believe that we have an obligation to establish some moral justification for this set of private property rules. This obligation doesn’t apply, or rather it doesn’t apply in the same way, to individuals who don’t live under the laws established by the regime in question. And so advancing the interests of the U.S. working class — understood as working to increase its relative economic share — really ought to take precedence over the interests of foreigners.

I tend to think about this through a historical lens. Specifically, the United States has a long history of entrenched, multi-generational black poverty. Extreme relative deprivation among African Americans is a really serious problem, and I think that we ought to devote more resources to combating it. I see this as a legitimacy issue, i.e., the legitimacy of the U.S. political order would be greatly enhanced if we could achieve greater economic and social uplift among blacks. The reason is that historically, black Americans have been on the “business end” of coercion, from the enslavement era to the segregation era to, in complicated and very different ways, the era of mass incarceration. African Americans have made a great deal of social and economic progress over the last century, but much more can and ought to be done. Welcoming less-skilled immigrants who’ve also experiened entrenched, multi-generational poverty in their own countries introduces a complex set of challenges for U.S. policymakers and social service providers. Learning how to address the unique challenges posed by impoverished Wolof- or Bengali-speakers who have only a very limited experience of urban life in their own countries (if any) is actually really, really hard, as many New York city public school teachers will tell you. In light of what we might think of as our inherited poverty challenge, I think it makes a lot of sense to be somewhat cautious about taking on new poverty challenges. 

One complication with this coercion framework is that some countries have more power than others in the international system. It is undoubtedly true that the United States shapes the regimes of many other countries, whether through the direct application of military coercion or through the exercise of our economic weight in trade negotiations. So it could be that we’re not dealing with bright lines, but rather with a continuum. This intuition is captured in a number of ways: the U.S. was far more open to Hmong refugees in the years following the U.S. military effort in Vietnam than to, say, Bihari refugees from Bangladesh’s 1971 war of liberation, for the obvious reason that many Americans felt an obligation to “do right” by the Hmong and other ethnic communities that had allied themselves with the U.S. Similarly, one of the arguments for offering unauthorized immigrants a path to legalization is that failures of U.S. policy and U.S. demand for immigrant labor are at least partially responsible for the size of this population. 

3. And most fuzzily — but not least importantly — you could believe that culture matters. Matt illustrates an economistic frame of mind, which is fair enough (it’s his job):

If immigration policy can be structured to make the welfare state more sustainable, then it’s a huge win for everyone. If immigration policy is structured to make the welfare state less sustainable, then there’s potentially a problem. The great thing about immigration is that since it uncontroversially increases GDP, it’s clearly possible to structure immigration policy in a fiscally beneficial way.

Here’s the thing: does redistribution ever work this smoothly? Less-skilled immigrants enable skilled workers to work longer hours, as it makes it cheaper for skilled workers to outsource household production. But instead of working longer hours, at least some skilled workers might choose more leisure. This clearly benefits the skilled workers in question, yet it doesn’t yield revenue that can be devoted to transfer payments. Much depends on the mix of taxes we choose, the demographic composition of the population (a workforce of parents with mortgages might have a lower elasticity of income than a workforce of single adults who love to party), etc. And what form will redistribution take? To some degree, this questions rests on culture.

Some societies place a strong emphasis on the value of work, and so they are less inclined to back unconditional cash transfers and more inclined to back work supports and wage subsidies. Immigration shapes these cultural preferences. Edward Glaeser and Alberto Alesina have observed that ethnoracial heterogeneity is associated with lower support for redistribution, and Robert Putnam has found that neighborhood diversity appears to be associated with lower levels of social capital. Policymakers can’t anticipate with any certitude how immigration will shape political preferences, as much depends on the quirks of how different cultural encounters play out and how quickly newcomers embrace the values and sensibilities of the native-born population. It could be that newcomers have superior values, and that the native-born population ought to get with the program. But it is hardly surprising that the native-born population might be disinclined to embrace this view, and that it will prefer that newcomers assimilate. This implies that it’s not crazy for members of the native-born population to select immigrants who are more likely to assimilate and to intermarry. There is some reason to believe that immigrants who match or exceed the average native-born skill level are more likely to flourish along these dimensions. 

Though I can’t imagine I’ll persuade Matt of the correctness or wisdom, or even the moral decency, of this framework, I hope it clears things up. 

In Politicians Don’t Pander, the left-of-center political scientists Lawrence Jacobs and Robert Shapiro argued that the democratic responsiveness of the American political system was in decline:

Politicians respond to public opinion, then, but in two quite different ways. In one, politicians assemble information on public opinion to design government policy. This is usually equated with “pandering,” and this is most evident during the relatively short period when presidential elections are imminent. The use of public opinion research here, however, raises a troubling question: why has the derogatory term “pander” been pinned on politicians who respond to public opinion? The answer is revealing: the term is deliberately deployed by politicians, pundits, and other elites to belittle government responsiveness to public opinion and reflects a long-standing fear, uneasiness, and hostility among elites toward popular consent and influence over the affairs of government. 

It is surely odd in a democracy to consider responsiveness to public opinion as disreputable. We challenge the stigmatizing use of the term “pandering” and adopt the neutral concept of “political responsiveness.” We suggest that the public’s preferences offer both broad directions to policymakers (e.g., establish universal health insurance) and some specific instructions (e.g., rely on an employer mandate for financing reform). In general, policymakers should follow these preferences.

Politicians respond to public opinion in a second manner—they use research on public opinion to pinpoint the most alluring words, symbols, and arguments in an attempt to move public opinion to support their desired policies. Public opinion research is used by politicians to manipulate public opinion, that is, to move Americans to “hold opinions that they would not hold if aware of the best available information and analysis” (Zaller 1992, 313). Their objective is to simulate responsiveness. Their words and presentations are crafted to change public opinion and create the appearance of responsiveness as they pursue their desired policy goals. Intent on lowering the potential electoral costs of subordinating voters’ preferences to their policy goals, politicians use polls and focus groups not to move their positions closer to the public’s but just the opposite: to find the most effective means to move public opinion closer to their own desired policies.

Essentially, Jacobs and Shapiro argue that this second manner had gained ground over the first. Though I don’t agree with Jacobs and Shapiro on many policy questions, their work has informed my thinking about the divergence between Republican and Democratic policymaking elites and their voting constituencies. It has motivated me to think harder about the stated goals and ambitions of voters, and how we might use this information to inform policymaking in a substantive way. 

And the recent immigration debate strikes me as an excellent illustration of this broader phenomenon of “crafted talk.” Consider the fact that FWD.us, the coalition of technology leaders backing immigration reform, has sponsored two organizations — Americans for a Conservative Direction and the Council for American Job Growth — to appeal to conservatives and liberals respectively. The rather clever idea is that to build a real bipartisan coalition, it is necessary to advance separate, partisan messages emphasizing the core commitments of different ideological constituencies. And so Americans for a Conservative Direction insists that the Gang of Eight immigration reform bill is really, really tough, because conservatives like toughness. This is “crafted talk” at its best:

Politicians track public opinion not to make policy but rather to determine how to craft their public presentations and win public support for the policies they and their supporters favor. Politicians want the best of both worlds: to enact their preferred policies and to be reelected.

I was reminded of crafted talk as I read a new Pew survey on immigration reform, conducted earlier this month. Here are some of the findings:

The latest national survey by the Pew Research Center, conducted May 1-5 among 1,504 adults, finds that 73% say there should be a way for illegal immigrants already in the United States who meet certain requirements to stay here. But fewer than half (44%) favor allowing those here illegally to apply for U.S. citizenship, while 25% think permanent legal status is more appropriate.

That is, the position articulated by Boston College political scientist Peter Skerry, that we ought to grant unauthorized immigrants a path to permanent non-citizen resident status — is in fact more popular than granting them a path to citizenship, the position that has become politically unassailable.

When it comes to legal immigration, relatively few (31%) see current levels as satisfactory, but there is no consensus as to whether the level of legal immigration should be decreased (36%) or increased (25%).

I take this to mean that 75 percent of Americans believe that legal immigration levels should remain at or below current levels, yet it seems very likely that the Gang of Eight proposal will increase the size of the immigrant influx.

And there appears to be a significant gap between the views of Hispanic survey respondents and the views of immigration advocacy organizations:

Hispanics are divided in views of legal immigration: Approximately equal percentages say it should be decreased (32%), kept at its present level (29%) and increased (28%). A plurality of whites (39%) favor decreasing the level of legal immigration, while just 22% say it should be increased and 32% say it should be kept at its current level.

We’re left with an interesting question. Does anyone believe that these survey results will have a significant impact on the immigration reform debate? Pew notes that views on its broad immigration questions “are virtually unchanged from March,” and widespread skepticism about increasing the legal immigration flow doesn’t seem to have made much of a difference.

Josh Barro writes that his jury duty experience in Queens led him to believe that New York city’s most cosmopolitan borough is an attractive model for America’s ethnocultural future. Having grown up in neighboring Brooklyn, and having chosen to live in a fairly diverse stretch of Downtown, I am inclined to agree that dense, diverse neighborhoods can be very pleasant places to live. But Queens is not the only imaginable future. Heather Mac Donald’s account of California’s demographic revolution in City Journal reminds us that in some regions, less-skilled immigration has led to hypersegregation, economic isolation, and entrenched poverty. Moreover, not all Americans believe that density and diversity are ideal. I’m inclined to think that while density and diversity ought to be an option, which they very much are in the form of our big, highly-productive metropolitan areas, there is also much to be said for diversity across regions. In a democratic polity, the fact that large majorities oppose increasing legal immigration ought to at least inform the policy debate. So far, I don’t think this pretty significant fact has played much of a role, which, when you think about it, is both weird and telling. 

Gideon Lewis-Kraus has written a really excellent short essay on the forgotten lessons of David Riesman’s The Lonely Crowd, a book that is often characterized as a jeremiad against conformity, yet which is in fact better understand as “a discussion of the emotional life of information.” His distinction between inner-direction and other-direction — both ideal types — wasn’t mean to contrast nonconformists against conformists, but rather to contrast different modes of conformity:

It’s not that the inner-directed person consults some deep, subjective, romantically sui generis oracle. It’s that the inner-directed person consults the internalized voices of a mostly dead lineage, while her other-directed counterpart heeds the external voices of her living contemporaries. As Riesman put it, “the gyroscopic mechanism allows the inner-directed person to appear far more independent than he really is: he is no less a conformist to others than the other-directed person, but the voices to which he listens are more distant, of an older generation, their cues internalized in his childhood.” The inner-directed person is, simply, “somewhat less concerned than the other-directed person with continuously obtaining from contemporaries (or their stand-ins: the mass media) a flow of guidance, expectation, and approbation.” You can imagine how the Internet intensifies things.

Riesman drew no moral from the transition from a community of primarily inner-directed people to a community of the other-directed. Instead, he saw that each ideal type had different advantages and faced different problems. As Riesman understood it, the primary disciplining emotion under tradition direction is shame, the threat of ostracism and exile that enforces traditional action. Inner-directed people experience not shame but guilt, or the fear that one’s behavior won’t be commensurate with the imago within. And, finally, other-directed folks experience not guilt but a “contagious, highly diffuse” anxiety—the possibility that, now that authority itself is diffuse and ambiguous, we might be doing the wrong thing all the time.

And Riesman observed that other-direction had a number of positive aspects, e.g., greater openness and interest in the values, experiences, and opinions of others. Lewis-Kraus builds his mini-essay around a critique of Lee Siegel and an effort to capture what really sucks about Yelp, an online review site. Yet he also gives us reason to be optimistic about other aspects of contemporary culture.

Dylan Matthews reports that Jason Richwine, co-author of the recent Heritage report on the fiscal impact of less-skilled immigration (which AEI’s Andrew Biggs, an occasional co-author of Richwine, has addressed in a smart and measured way), wrote his doctoral dissertation on immigration and IQ. I find it odd that is proving to be such an explosive revelation, as Richwine has written on this subject on a number of occasions, e.g., in an article for The American on immigration and the “diversity dilemma” described by Harvard political scientist Robert Putnam. The gist of the article is captured in the passage below:

I intend to focus on one such important characteristic—how smart the immigrants are. Intuitively, it is not a stretch to believe that smarter people are better at organizing networks and understanding the long-term benefits of cooperation, and a burgeoning academic literature confirms that intuition. IQ, a construct that psychologists use to estimate general intelligence, has been separately linked to elements of social capital, such as sophisticated ethical thinking, altruism, planning for the future, political awareness, adherence to informal community standards of behavior, and cooperation for the greater good. Despite this research, the direct link between intelligence and social capital has been drawn only in a handful of technical articles. It is time to bring the IQ-social capital link out of the academic journals and into the policy debate. Doing so could help us deal realistically with the problems Putnam has identified.

Some might object to the notion that “smarter people are better at organizing networks and understanding the long-term benefits of cooperation,” but as Garett Jones observes in his paper on “National IQ and National Productivity,” this is a widely held view. The really controversial aspect of what Richwine writes relates to race. Dylan writes:

Richwine’s dissertation asserts that there are deep-set differentials in intelligence between races. While it’s clear he thinks it is partly due to genetics — “the totality of the evidence suggests a genetic component to group differences in IQ” — he argues the most important thing is that the differences in group IQs are persistent, for whatever reason. He writes, “No one knows whether Hispanics will ever reach IQ parity with whites, but the prediction that new Hispanic immigrants will have low-IQ children and grandchildren is difficult to argue against.”

Toward the end of the thesis, Richwine writes that though he believes racial differences in IQ to be real and persistent, one need not agree with that to accept his case for basing immigration on IQ. Rather than excluding what he judges to be low-IQ races, we can just test each individual’s IQ and exclude those with low scores. “I believe there is a strong case for IQ selection,” he writes, “since it is theoretically a win-win for the U.S. and potential immigrants.” He does caution against referring to it as IQ-based selection, saying that using the term “skill-based” would “blunt the negative reaction.”

A few thoughts immediately come to mind:

1. What troubles me about Dylan’s story is that I think it will be used to tarnish all individuals who believe in a skill-based immigration policy with a racialist brush, when in fact a skill-based immigration policy would yield an immigrant influx that is at least as racially diverse as the current immigrant influx. 

2. Here’s the thing. There is an enormous difference between race, as described by scholars like Armand Leroi, and historical ethnicity. And the groups that we use in the U.S. shouldn’t really count as either. Americans who identify as Hispanics come from a dizzying variety of racial and ethnic groups, and are in many cases the product of generations of ethnoracial admixture. To suggest that there is some genetic component (i.e., more than zero) to differences in IQ across individuals is not generally considered controversial, and that there would be differenes in IQ across groups defined somewhat arbitrarily — the people who come from countries within this broad circle, whether they are of Amerindian or African or East Asian or European origin, or some mixture of the above, as compared to people who come from countries within some other broad circle, which might have a similarly diverse population — seems reasonable enough. I wouldn’t be surprised if there were some difference in IQ between the residents of my apartment building and some apartment building down the street. But I think we’d all agree that job candidates should be evaluated on the basis of their own qualifications and skills rather than their address. This is why a points-based system that rewards immigrants for educational attainment and English language proficiency makes more sense than a system that heavily weighs national origin, or for that matter group membership. One might object that the system I have in mind privileges members of the college-educated “group” over the non-college-educated “group,” yet the distinction that is doing the work is not a racial distinction.

3. One of the core goals of egalitarians in recent years has been addressing deficits in cognitive and noncognitive skills created by deficient or disrupted home environments. This work is premised on a recognition that (a) there is such a thing as deficient home environments and (b) that deficient or disrupted home environments have an impact on cognitive and noncognitive skills. If this is true of households, and if concentrations of similarly situated households can give rise to problematic neighborhood effects — hence the case for reducing poverty concentrations — it is not unreasonable to suggest that intense poverty in a given society can mean that individuals raised in the society in question might suffer from serious deficits in cognitive and noncognitive skills. Consider, for example, the impact of enviromental health risks on IQ, as documented by Jones:

A study of excessive fluoride in Indian drinking water found a 13 IQ point-difference between children “residing in two [separate] village areas of India with similar educational and socioeconomic conditions” (Trivedi et al. 2007, 178). If even half of this relationship is genuinely causal, and if intelligence has some of the technological and political spillover effects discussed below, then public health matters are of first-order concern for economic development.

Arsenic and fluoride exposures are also associated with low IQ in the People’s Republic of China’s (PRC) Shanxi province (Wang et al. 2007, 664), even when comparing “groups [who] lived in rural areas with similar geographic and cultural conditions and a comparable level of socioeconomic development.” High arsenic exposure was associated with a 10-point IQ gap, and high fluoride exposure with a 4-point gap. In both cases, the “normal” group had an IQ of 105, 5 points above the US mean.

In the Visayas region of the Philippines, Solon et al. (2008) found evidence that lead levels reduced the IQ of children. In their study, one microgram of lead per liter of blood was associated with a 2.5 point reduction in the verbal IQ of older children, and a 3.3 point reduction in the IQ of young children. In their sample of children, the levels of lead in the blood averaged 7.1 micrograms per liter, so lead exposure could be costing the average child in this sample 15 IQ points even under conservative estimates.

In an experimental nutritional study in Pune City, India, 10 weeks of zinc supplementation caused a 15–25 percent increase in the number of correct answers on the Raven’s Progressive Matrices (Tupe and Chiplonkar 2009).

Is it impossible to imagine that some countries might have more exposure to these environmental health risks than others? If anything, I’d suggest that it is far more likely that poor people growing up in very poor countries will be exposed to these and other environmental health risks than nonpoor people growing up in affluent countries, which is why I, like many other people, favor humanitarian measures designed to mitigate these environmental health risks in the developing world. One could think of these measures as a kind of “human enhancement” technology. In a similar vein, welcoming less-skilled individuals from impoverished countries, many of whom will inevitably suffer from serious deficits in cognitive and noncognitive skills that flow from their deprived upbringings, will give their children a better shot at a successful life. But the cost of doing so will not be trivial.

One conceptual question for those of us with a humanitarian interest in bettering the lives of the global poor is this: should we try to rescue some trivial share of the global poor by allowing them to work and settle in the U.S., and accept that they will tend to cluster in the bottom fifth of the U.S. socioeconomic distribution while spending a significant sum of money to help them lead dignified lives in a high-cost country? Or should we devote this significant sum — or some much larger or even much smaller sum — to interventions that might benefit a much larger share of the global poor, e.g., by making investments in mitigating various environmental health risks? I can see the sentimental case for rescuing a trivial share of the global poor by allowing them to become U.S. service workers. It’s not clear, however, that this is the best strategy in terms of bang-for-the-buck, or that it best serves the interests of various domestic constituencies, the issue that I tend to focus on in this space. 

I was pleased to see David Brooks reference Richard Alba’s excellent book Blurring the Color Line, which I briefly discussed in a column The Daily back in 2011. Alba’s book offers a very smart framework for thinking about America’s ethnic future. Basically, periods of ethnic transition go more smoothly when there is robust economic growth, as growth creates the possibility of “non-zero-sum mobility,” in which members of the dominant group and members of minority groups can rise in tandem. Sluggish growth, in contrast, implies that members of the dominant group might resist progress by members of outgroups, as everyone is duking it out over the size of the slices of a slow-growing pie. Alba, and by extension David, are absolutely right that the retirement of the baby boomers creates opportunities for members of minority groups. One anxiety, however, is that the level of educational attainment among Latinos and African Americans is somewhat lower than it is among Asian Americans and non-Hispanic white Americans, and so as the demographic composition of the labor force shifts, there is a real danger that, for example, the college wage premium will increase, which in turn will exacerbate racial inequality.  I recently discussed this dynamic in a post on “The Undereducated American and U.S. Immigration Policy.” I would thus argue that raising the level of educational attainment among Latinos and African Americans is a higher priority that increasing the size of the less-skilled immigrant influx, as the former strategy will tend to mitigate interethnic economic divides while the latter strategy will tend to exacerbate them.

More broadly, I disagree with David about some fairly important issues, e.g.:

Some intelligent skeptics say that mobility is fine through the second generation but stalls by the third. It is indeed harder to rise in a more chaotic and fragmented society. But one of the country’s leading immigration researchers, Richard Alba of the City University of New York, calls the third generation stall “a statistical illusion.”

Much of the research that shows the effect compares today’s third-generation immigrants with today’s second-generation group. But the third-generation families originally came to the U.S. decades ago, at a time when segregation was prevalent, discrimination was high and immigrants were harshly treated. You’d expect those families to progress more slowly than families that came to more welcoming conditions a generation later.

It could be that segregation, discrimination, and harsh treatment are the main factors that held back less-skilled immigrants in earlier eras. But as David Autor and Melanie Wasserman document in “Wayward Sons,” their report for the center-left think tank Third Way on “emerging gender gap in labor markets and education,”

Figure 2 plots changes in real hourly wage levels by sex and education group between 1979 and 2010 for two age groups: ages 25-39 and 40-54.8 The first category corresponds to young prime-age workers, and the latter represents workers in their peak earnings years. This figure highlights two key facts about the evolution of U.S. earnings. First, real earnings growth for U.S. males has been remarkably weak. For males with less than a four-year college education, earnings fell in real terms, declining between 5% and 25%. The steepest falls are found among the least-educated and youngest males, in particular, males under age 40 with high school or lower education. Only among males with four or more years of college education do we see real earnings growth in this 30-year period.

Equally apparent from the figure is that the earnings trajectory of U.S. women has been far more propitious. Females have fared better than males in every educational category, and highly educated women have made especially sharp gains in earnings. While real earnings gains among women without any college education have been modest— especially for younger workers—the trends are at least weakly positive for seven of eight female demographics (the exception being young, high-school dropout females).

The report goes on to document declining male employment rates, which are concentrated among less-skilled workers. Note that Autor and Wasserman are writing about all U.S. workers. Even if we assume that segregation, discrimination, and harsh treatment have vanished entirely, less-skilled workers face an extremely challenging environment, even if we assume that Autor and Wasserman are overstating the case.  

David is lumping together all opponents of the Gang of Eight immigration reform bill as, among other things, opponents of assimilation, love, social mobility, skilled immigration, and ethnic diversity. This strikes me as an offbeat interpretation. The main reason I oppose the Gang of Eight immigration reform bill in its current form is that it increases the less-skilled influx beyond levels I consider wise or appropriate – at this point I accept that immigration reform will include a path to legalization for unauthorized immigrants who’ve resided in the U.S. for longer than X number of years. And as I’ve been writing in this space, the reasons I favor a bias towards skilled immigrants are legion, and they correspond neatly to David’s categories: skilled immigrants with a high level of English language proficiency have very low incarceration rates, high rates of labor force participation, high incomes, and they are more likely to assimilate and somewhat more likely intermarry. The children and grandchildren of the college-educated tend to experience more upward mobility (in absolute terms) than the children and grandchildren of the non-college-educated. Proponents of skilled immigration are pretty clear in favr of skills. And skilled immigrants come from a wide variety of ethnic backgrounds, e.g., large numbers of skilled immigrants to the U.S. hail from sub-Saharan Africa, a region that has been historically underrepresented in immigration flows to the U.S. 

So if we stick with David’s (defensible and reasonable) criteria for the things one ought to care about in an immigration reform proposal, one has pretty good reason to be concerned about the aspects of the legislation that will increase the size of the less-skilled influx — as less-skilled immigrants are less likely to assimilate and intermarry, their children are more likely to struggle in a knowledge-intensive economy and to remain in ethnic enclaves, etc. David is extremely sensitive to the importance of cultivating skills and networks, and doing it in a way that benefits the poorest and most vulnerable children. This is why he strongly supports early childhood interventions. My argument is simple: given the scale of the domestic multigenerational poverty challenge, does it really makes sense to make this challenge more difficult to solve by welcoming large numbers of non-college-educated workers to live and work in the U.S.? 

James Pethokoukis cites a new report from Potomac Research to suggest that there is at least a slim chance that the U.S. federal government will achieve a budget surplus by fiscal year 2015. Pethokoukis makes the most important political points — a surplus will make it difficult for the Obama administration to make the case for further tax increases, yet it will also undermine the case for entitlement reform. But to be cynical and political for a moment, a surplus would be even worse news for the Republican Party. Since the start of the Obama presidency, the GOP has put all of its eggs in the basket of short- to medium-term fiscal consolidation. During the presidential race, some argued that while the politics of deficit reduction were not of particularly great interest to states with high unemployment rates, it did have some resonance for middle-income and upper-middle-income voters in states like New Hampshire and Iowa. In the end, a Romney campaign that placed a fairly heavy emphasis on the importance of deficit reduction lost New Hampshire and Iowa. And questions about Romney’s commitment to the economic interests of middle-income voters contributed to the Republican defeat in states like Ohio, Florida, and Virginia, each one of which has more votes in the Electoral College than New Hampshire and Iowa combined. 

So imagine 2016 in the unlikely but not completely impossible event that a budget surplus does materialize. Republican elevation of the deficit issue will allow the Obama administration and its Democratic allies to declare “mission accomplished,” all without taking the blame for entitlement reform. The House-passed budget that promised a balanced budget within the ten-year budget window by making unrealistically deep cuts in Medicaid and domestic discretionary spending will continue to be hung around the necks of congressional Republicans. One hopes that one or several of the GOP presidential candidates will devise a more compelling economic message and reform agenda. But this will have to be done in a near-vacuum, as conservative lawmakers have been emphasizing deficit reduction above almost everything else. This is why it is extremely, extremely important that the GOP find 2014 candidates who are committed to advancing the economic interests of middle-income households, and who can address this subject in a compelling, plausible way. Ramesh Ponnuru has sketched out what this agenda might look like in National Review and Bloomberg View – the template is there, but actual candidates need to step up. Josh Kraushaar of National Journal has been writing about how gun-shy Republicans have been in key Senate races, which is not the most encouraging sign.