The Pew Research Center has a new report on the living arrangements of Americans between the ages of 18 and 31. The headline finding is that the share of young adults living with their parents is at its highest level in forty years:

In 2012, 36% of the nation’s young adults ages 18 to 31—the so-called Millennial generation—were living in their parents’ home, according to a new Pew Research Center analysis of U.S. Census Bureau data. This is the highest share in at least four decades and represents a slow but steady increase over the 32% of their same-aged counterparts who were living at home prior to the Great Recession in 2007 and the 34% doing so when it officially ended in 2009.

Employment levels among young adults are substantially lower than they were in 2007:

In 2012, 63% of 18- to 31-year-olds had jobs, down from the 70% of their same-aged counterparts who had jobs in 2007. In 2012, unemployed Millennials were much more likely than employed Millennials to be living with their parents (45% versus 29%).

This in part reflects rising college enrollment:

In March 2012, 39% of 18- to 24-year-olds were enrolled in college, up from 35% in March 2007. Among 18 to 24 year olds, those enrolled in college were much more likely than those not in college to be living at home – 66% versus 50%.

Meanwhile, marriage rates have declined:

In 2012 just 25% of Millennials were married, down from the 30% of 18- to 31-year-olds who were married in 2007. Today’s unmarried Millennials are much more likely than married Millennials to be living with their parents (47% versus 3%). [Emphasis added]

The share of young adults who were married and living with a spouse has fallen from 56 percent in 1968 to 23 percent in 2012.

Given this changing landscape, it is hardly surprising that the U.S. has seen a changing pattern of wage and wealth dispersion in recent decades. 

Josh Barro dismantles the notion that firms ought to pay employees above-market wages, yet he argues that “the lack of a moral obligation for employers to pay more actually strengthens the argument for policy interventions to enrich low-wage workers.” Megan McArdle describes the potential fallout of a sharp Chinese economic slowdown. Karl Rove warns congressional Republicans against overreaching. Julian Barnes reports on deep cuts in military expenditures, including planned reductions in the size of ground forces. David Wessel describes a number of Stanford computer scientist Balaji Prabhakar’s ingenious strategies to reduce congestion and promote walking, which have met with success in field tests in India, Singapore, and California. As Evan Soltas explains, the CBO’s deficit forecasts rest on the assumption that the U.S. economy will close the output gap in the medium-term future — an assumption that seems increasingly untenable. Robert VerBruggen discusses the economics of “swipe fees.” And finally, Matt Yglesias says that rather than contrast inflation hawks and doves, we ought to be thinking in terms of turkeys, who doubt that the Federal Reserve can generate inflation at the zero bound and high unemployment, and hummingbirds, who believe that the Federal Reserve has tremendous scope to increase inflation expectations. Virtually all of the relevant players in U.S. monetary policy debates, including Janet Yellen and Lawrence Summers, are turkeys.

Uruguay is on track to legalize the recreational use of marijuana in a carefully controlled manner, as Ken Parks of the Wall Street Journal reports:

Adults would be allowed to grow up to 480 grams (1.06 pounds) a year of marijuana for personal use, while marijuana clubs of up to 45 people could grow as many as 99 plants. The government would also grant permits for limited commercial production to satisfy the domestic market and license pharmacies to sell pot. People convicted of breaking these laws could face fines of as much as $61,000 and up to 10 years in prison.

By eliminating the risk premium criminals charge for illegal pot, Mr. [Julio] Calzada of the National Drugs Secretariat says legal producers will be competitive in terms of prices, though he recognized that contraband will continue to exist. He pointed to the cigarette market, in which smuggling accounts for just under 10%.

“What we are proposing is to dispute the 100% of the market that is today in the hands of criminal organizations,” he said. “If I end up with 80% or 90% I practically eliminate the black market. That is the medium-term objective.”

Calzada comes across as a sophisticated public servant. He observes that “other countries that have different realities, cultures and notions about the state should find their own path,” and he doesn’t pretend that his reform initiative will eliminate contraband. The structure of the marijuana market the Uruguayans have devised will make large-scale commercialization and marketing a challenge, which is good news from a public health perspective. It will be interesting to see if the Uruguay experiment proves successful, and it is replicated across the region.

A chart that accompanies Parks’ article draws UNDOC surveys conducted between 2002 and 2009 to offer estimates of the percentage of 12 to 65 year-olds who have consumed marijuana in the last year in various New World countries, and it turns out that the United States is, despite marijuana prohibition, an extreme outlier: roughly 14 percent of Americans have consumed marijuana in the last year, roughly double the share in the country with the next highest level of marijuana consumption, Argentina. One assumes that tastes vary, and other narcotics take pride of place elsewhere in the Americas. 

(Drug policy reform, including efforts to reduce or eliminate the legal drinking age, is a libertarian populist effort I can get behind. I draw the line at returning to the gold standard.)

Tony Bennett, Florida’s education commissioner, has resigned from his position. This is, in my view, very sad news, as Bennett is widely regarded as one of the country’s smartest, savviest, and most effective education reformers. Earlier on, Bennett had served with distinction as Indiana’s elected state superintendent, but he was defeated in his bid for reelection last year. This week, a series of emails emerged which have seriously damaged his reputation. It seems that Bennett and members of his staff revised the evaluation procedure for schools on learning that a school backed by Christel DeHaan, one of Bennett’s prominent supporters, was due to receive a “C” rather than an “A.” Rick Hess of AEI, a leading expert on education reform and a friend and ally of Bennett, interviewed Bennett yesterday, before Bennett’s resignation:

A typical headline from Monday and yesterday was that over the Huffington Post story. It read, “Tony Bennett… Changed Top GOP Donor’s School’s Grade.” Having long been a friend and admirer of Bennett’s, I was interested in hearing his take on the situation. We spoke yesterday afternoon, and here’s what he had to say.

Rick Hess: So, Tony. You know that the story here is disconcerting at first look. Can you offer any more context or backstory that we should know?

Tony Bennett: The backstory is simple here, Rick. In our first run of the new school calculations in Indiana, we turned up an anomaly in the results. As we were looking at the grades we were giving our schools, we realized that state law created an unfair penalty for schools that didn’t have 11th and 12th grades. Statewide, there were 13 schools in question had unusual grade configurations. The data for grades 11 and 12 came in as zero. When we caught it, we fixed it. That’s what this is all about.

RH: And Christel House is one of those 13?

TB: Because Christel House was a K-10 school, the systems essentially counted the other two grades as zeroes. That brought the school’s score down from an “A” to a “C”.

RH: The media coverage features the flurry of e-mails specifically around Christel House. Why did that provoke such a sharp reaction?

TB: Someone gave me a great analogy. I’m a track and field guy. I run, I try to keep my weight down at about 190. Christel has been a track-performing school for a number of years. If I get on the scale one day, am doing everything the same, and am still wearing my same clothes and they fit, and the scale suddenly reads 215, I am going to question what’s going on. So when we ran these grades, it became apparent that we had done something incorrectly. Christel House was a high-performing school with a track record, but when they stepped on our scale they were a “C”. So we suspected there might be something that was being weighed incorrectly by our grading system. That school was the catalyst for us to review the program and implement changes that wouldn’t penalize other schools with different grade configurations.

RH: Did other school grades change?

TB: I think grades changed for all 13. All 13 didn’t have 11th or 12th grades the way our system would recognize them, so they were all being calculated at zero for those particular measures.

If Bennett is being completely above-board with Hess, it seems that Florida has lost a gifted public servant for no good reason. 

Of course, it could be that Bennett is being dishonest or misleading. But you’d think that his critics would at least respond to his claims before resorting to cheap insults. Does it really make sense to arbitrarily punish K-10 schools?

P.S. And sure enough, there is a reply to Bennett’s argument. According to Anne Hyslop, Bennett’s story doesn’t hold water:

The state has several variations of its grading rubric to apply to different school situations and set-ups. The basic models are 1) elementary and/or middle school grades and 2) high school grades. Then, there is a combined model for schools that have students in grades preK-8 and grades 9-12 – like Christel House, which served students through 10th grade in 2011-12. The grade point averages for the 3-8 portion of the school and the 9-12 portion of the school are weighted according to the percentage of enrolled students in each grade span to arrive at one final, combined grade. (The final scale: 3.51 – 4.00 points = A; 3.00 – 3.50 points = B; 2.00 – 2.99 points = C; 1.00 – 1.99 points = D; 0.00 – 0.99 points = F)

Within the two basic models (ES/MS and HS), there are also deviations for special circumstances. Typically high school grades are calculated with a 60% weight on proficiency in end-of-course exams in Algebra I and English 10 (with potential bonus points for increases in proficiency rates from grades 8-10 and grades 10-12), 30% weight on graduation rates, and 10% weight on college readiness indicators. But some high schools are given special consideration: small schools, HS feeder schools (grade 9 only), 9-10 schools, and 11-12 schools. In the 9-10 model, proficiency rates make up the entire school grade, split evenly between Algebra I and English 10, and the bonus points do not apply.

Confused yet? Bear with me. Christel House should have been evaluated using a mixture of two of the models: the 9-10 model and the combined ES/MS + HS model. Except they weren’t. Because Christel House wouldn’t have gotten an ‘A’ that way. In fact, one of the released emails walks through the calculation (using preliminary, rather than final, achievement data). Under this method, Christel House earned a ‘C’ grade, “a HUGE problem for us” according to officials. 

So it seems that Christel House’s poor high school performance led Bennett and his staff to discount high school data across the board. I’m still inclined to think that Bennett is an admirable public servant. But Christel House has permanently tarnished his reputation. 

To shed light on why a growing number of college graduates in the affluent market democracies are experiencing ex-post regret about the time and resources devoted to higher education, Justine Hastings, Christopher Neilson, and Seth Zimmerman have a new paper on labor market outcomes for Chileans who enrolled in postsecondary education from 1985 to 2011:

We use administrative data from Chile from 1985 through 2011 to estimate the returns to postsecondary admission as a function of field of study, course requirements, selectivity, and student socioeconomic status. Our data link high school and college records to labor market earnings from federal tax forms. We exploit hundreds of regression discontinuities from the centralized, score-based admissions system to estimate the causal impacts of interest. Returns are positive and significant only among more-selective degrees. Returns are highly heterogeneous by field of study, with large returns in health, law and social science, as well as selective technology and business degrees. We find small to negative returns in arts, humanities and education degrees. We do not find evidence that vocational curriculum focus increases returns for less selective degrees. We do not find differential outcomes for students coming from low- versus high-socioeconomic backgrounds admitted to selective degrees. [Emphasis added]

One of the potential implications is that Chile and other countries that have invested large sums in higher education ought to do a better job of informing students about the labor market outcomes for students who’ve enrolled in various courses of study:

Our findings also speak to key economic and policy questions. First, they suggest sizeable market frictions in the supply of and/or demand for high-return degrees. Marginally increasing offerings in particular fields could raise aggregate earnings, suggesting constraints on supply (Bound and Turner, 2007). On the other hand, while excess demand for degrees with zero to negative earnings returns may be driven by non-pecuniary factors, recent empirical evidence suggests that students may make uninformed or short-sighted college and career choices (Arcidiacono et al. 2010; Jensen, 2010; Hastings et al. 2013a,b; Hastings, Neilson and Zimmerman 2013; Jacob, McCall and Stange, 2013; Wiswall and Zafar 2013). Information aggregation may be a public good, suggesting a role for government to facilitate informed demand and responsive supply (Beyer et al. 2013). Finally, we show that students from low-SES backgrounds gain from attending selective programs and high-return fields as much or more than their high-SES counterparts, suggesting a role for targeted admissions, loan and recruitment policy (Hoxby and Avery 2012). [Emphasis added]

Note that bipartisan opposition to a federal student unit record system, which mostly reflects the opposition of higher education incumbents, is a huge barrier to informed demand and responsive supply in the United States.

Reuel Marc Gerecht’s article on Egypt’s “Great Collision,” between left-liberal secularists and reactionary Islamists, is fascinating, and it merits a longer discussion. It’s a serious, no-holds-barred critique of Egypt’s Muslim liberals and their allies in the U.S., and a condemnation of what he describes as the “rationalization” of the Egyptian coup that removed Mohamed Morsi from power. The following is a brief excerpt that should hopefully give you some sense of the argument. But if you have any interest in Egypt, and indeed if you are inclined to disagree with Gerecht’s interpretation of the Egyptian political scene, you must read the article:

Creating a modern economy in Egypt will hinge on devout Muslims buying into the project; they, not the super-rich businessmen of the Mubarak era, and certainly not the deeply socialist secular youth who look upon the government as the employer of first resort, are the key, as in Turkey, to unleashing Egypt’s economic potential. The coup has made that buy-in much more difficult; it may retard the development of large-scale private enterprise among religious Muslims.

And there is little reason to be optimistic about Egypt’s secularists. We don’t even know whether they believe in political pluralism; they obviously are not firmly attached to the ballot box. Given the concatenation of forces in the anti-Morsi demonstrations, it’s perhaps best to think of the movement they formed as a mix of the meanings of the word they took as their name: tamarrod. Beyond “rebellion” there’s “refractoriness,” “disobedience,” and “insubordination.” What the scholar Olivier Roy has seen among the Islamists is triply true for the secular crowd: An inchoate but powerful individualism has taken hold. Rebellion against authority and the status quo, moreover, can be addictive, but isn’t likely to lead to personal tolerance and civil manners, let alone a coherent political philosophy, without which parties cannot form. Judging by the glee with which many within the rebellion have greeted the military crackdown on the Brotherhood, it’s doubtful that the Tamarrod would ever again agree to allow the Islamists, or even just the religious, a decisive hand in writing a constitution.

For the secularists, political pluralism appears to mean that their views must be dominant regardless of any vote. Where once secular liberals lined up, however reluctantly, behind the kings and presidents-for-life, they now line up, more enthusiastically, behind “limited” democracy, whose possibilities are circumscribed by the military, since only the military can check the reemergence of an Islamist majority. Egyptian liberals don’t want to see it that way, of course. They are convinced, as are some of their Western supporters, that after the massive protests on June 30 (engineered by the military, the Tamarrod’s leaders, and the business elite), a majority of Egyptian Muslims became part of a durable secular coalition. Twelve months of Morsi’s “tyranny” and economic incompetence (probably also engineered in part by the military and the business elite) have supposedly transformed the politics of the voters who gave fundamentalists some 70 percent of the seats in parliament in 2012.

While Americans often praise European governments for having embraced renewable energy, David Garman and Samuel Thernstrom of the Energy Innovation Reform Project (EIRP) note that these efforts have proven extremely costly:

Wind and solar generate 3.5% of America’s electricity today, but Denmark gets 30% of its electricity from wind and hopes to produce 50% by 2020. Germany, Europe’s largest national economy, produces roughly 12% of its electricity from wind and solar today, and it wants renewable energy to account for 35% of electricity generation by 2020.

Clean energy powered by renewable resources is understandably attractive. But the honeymoon with renewables is ending for some Europeans as the practical challenges of the relationship become clear.

The first challenge is cost. Germany has reportedly invested more than $250 billion in renewable energy deployment, and its households pay the highest power costs in Europe—except for the Danish. On average, Germans and Danes pay roughly 300% more for residential electricity than Americans do.

Another challenge of Europe’s growing dependence on renewable energy is far more serious: the potential loss of reliable electrical supply. It’s one thing to ask consumers to pay more for cleaner energy; it’s another to force them to endure blackouts. [Emphasis added]

Garman and Thernstrom go on to explain the challenges that have arisen as the penetration of intermittent renewables has increased, and they identify lessons for U.S. energy reform advocates:

Lavish subsidies for wind and solar have changed Europe’s generation mix, but the costs have been high because the subsidy structure prioritized mass deployment rather than efficiency, reliability and innovation. Even in the U.S., the wind-production tax credit has occasionally produced “negative pricing”—that is, turbine operators pay grid operators to take their power even though it isn’t needed, just so the wind generators can collect tax credits.

If Congress insists on subsidizing renewable energy (and to be fair, Washington subsidizes all forms of energy), it should reform subsidies to incentivize innovations that would improve the efficiency and reliability of wind and solar, as well as the development of improved energy-storage technologies.

I look forward to more from the EIRP on exactly how we might overhaul energy subsidies to promote efficiency and reliability.

In “Grand Old Opportunity,” Yuval elaborates on the opportunities and the constraints binding Democrats and Republicans, and he concludes (not surprisingly) that GOP politicians would be wise to embrace the politics of conservative reform:

The political and economic appeal of lower health care, education, energy, and tax bills should be obvious, and the moral force of saving the safety net and combating the collapse of poor families and communities is plain. Yet amazingly, neither party has seriously offered such an agenda.

The Democrats have an excuse: Their electoral coalition makes it impossible for them to offer that agenda. Progressives are committed to every jot and tittle of today’s broken welfare state, environmentalists are allergic to oil and gas, teachers’ unions oppose meaningful K-12 reform, the professors would never put up with a new business model for higher education, public employees will resist every effort to modernize government services, and cultural liberals see a moral awakening as a recipe for repression. Far from owning the future, Democrats are helplessly stuck in the past. There is a reason why the president ran on no agenda and why Democrats now offer only blind reaction.

Republicans have no such excuse except inertia. In fact, a growth agenda geared to reviving upward mobility and offering relief to middle-class families would be a perfect marriage of conservative principles and Republican political objectives. It would powerfully appeal to demographic categories the Democrats imagine they own while uniting core Republican constituencies and exposing progressivism for the spent force it is.

The substantive policy agenda for such a modernized conservatism largely exists in the world of right-leaning wonks, but the politicians have been slow to embrace it. It is high time they did, not only for their party’s sake but for their country’s.

Yuval’s remarks bring to mind one of the central challenges facing conservative reformers, which is the difficulty of reconciling a religiously-infused cultural populism with a changing electorate. Conservative reformers share a common interest in seeing America as it is in 2013, and as it will be in the decades to come: an urban, multiracial, aging, and secularizing society, in which nonmarital family structures are widespread and the foreign-born share of the population is set to reach historically high levels. Most conservatives lament at least some aspects of this landscape, in particular the transformation of family structure and secularization. Indeed, one could argue that the point of the conservative reform project is to alter the trajectory of family transformation, by addressing the sources of gender gaps in educational and labor market outcomes and (perhaps) by fostering the kind of moral awakening Yuval invokes above. 

The problem, however, is that the electorate has already been shaped by the rise of nonmarital family structures, religious diversity, and secularization, and this complicates efforts to foster a cultural revival. Individuals living in nonmarital households may well be troubled by the economic insecurity that flows from family disruption, but they won’t necessarily embrace a politics that identifies family disruption as a social scourge. Rather, they might be more amenable to what some on the left are calling a politics of “household diversity,” in which nonmarital families are afforded greater recognition and esteem as well as more generous taxpayer-financed support. It is possible that an instinctive cultural conservatism will win out, and that today’s young will not just aspire to form neo-traditional families but actually form them in practice, overcoming various economic and cultural obstacles in the process. But this outcome is hardly inevitable, or even likely. 

On a more prosaic note, the religiously-infused cultural populism identified with Republicans is, for obvious reasons, very Christian. There was a time when Republicans were not just Christian-identified but Protestant-identified, but that time has passed; Republicans are now associated with religiously-observant conservative Christians of all denominations. Republicans have made impressive efforts to reach Jewish voters, with some limited success. But a large majority of Jewish voters, including economically right-of-center Jewish voters, back Democrats. This wouldn’t be too significant in itself, given the relatively small Jewish share of the electorate. Yet as Razib Khan has suggested, it seems as other non-Christian religious minorities (Hindus, Buddhists, and Muslims) are following the Jewish pattern. Religiously unaffiliated voters — a growing constituency — appear to be somewhat less hostile to the GOP than members of non-Christian religious minorities, but they’re pretty hostile. One wonders if there is a way to talk about a moral awakening without fostering anxiety and dread among members of non-Christian religious minorities.

In 1998, the economic historian Robert Fogel offered thoughts on the American future, focusing on the need for a moral awakening:

The new equity issues in the United States do not arise from the shock of rapid urbanization, the destruction of small businesses, or the massive destitution created by long-term unemployment. Rather, the new issues are to a large extent the products of the solutions to these problems, achieved by a combination of economic growth and social reforms.

The most serious threats to egalitarian progress — certainly the most intractable forms of poverty — are related to the unequal distribution of spiritual (immaterial) resources. These include such immaterial resources as a sense of purpose, a vision of opportunity, a strong family ethic, a sense of community, a work ethic, a sense of discipline, a capacity for self-education and an appreciation for quality. Without these and other spiritual resources, individuals will be increasingly unable to cope with the new world or to share in its abundance, and they will become estranged from the mainstream of society.

Spiritual resources are unequally distributed among young and old, among men and women, among various ethnic groups and among rich and poor. Those among the rich who are continuously preoccupied by sensual gratification are as likely to fail in self-realization as the poor who share that preoccupation. It is vital for the future success of our nation that we discuss ways to distribute immaterial resources to the most deprived members of society, which includes the chronically poor, the alienated young, the defeated midlifers, and the estranged elderly.

Realization of the potential of an individual is not something that can be legislated by the state, nor can it be provided to the weak by the strong. It is something that has to develop within each individual, and must be fostered within a society committed to developing the most virtuous aspects of human nature.

Fogel’s economistic language about “the unequal distribution of spiritual (immaterial) resources” is very much an artifact of our normative diversity, and this normative diversity arguably makes a moral awakening less likely to emerge than in a society with more in the way of common cultural symbols and allegiances. If some kind of moral awakening does happen, it’s going to look and sound very different from those that came before it.

Ross Douthat’s (wise) Sunday column on the post-Bush, post-Romney conservative movement prompted a reply from Yuval Levin here at NRO, which includes the following passage:

Recovering this understanding of conservative economics would help today’s Republicans see an enormous public need, and an enormous political opportunity, they tend to miss, and to which conservatism could be very usefully applied. It would point to a conservative agenda to help working families better afford life in the middle class, and to give more Americans a chance to rise. This would mean emphasizing conservative paths to higher wages and a lower cost of living for working families (like pro-family tax reform, a more growth-oriented monetary policy, health-care reform that reduces costs through competition and consumer power, energy policy aimed at both spurring growth and lowering utility bills by making the most of our domestic resources, K–12 reform to give families more ways to escape failing schools, higher-ed reforms to restrain tuition inflation, entitlement reform to reduce the burden of debt on the young while retaining the safety net for the poor and the old). It would also mean financial regulation with an eye to competition, rather than consolidation.

The Democratic party can’t really do most of this. Both its ideology and its electoral coalition leave its options quite constrained. It has to make the most of its status as the party of entrenched insiders, and to employ populist rhetoric to mask its increasingly elitist agenda. 

Briefly, I want to elaborate on Yuval’s characterization of the Democratic party. Yuval is unsparing about the GOP in its current configuration, characterizing it as “the party of cultural populism and economic elitism,” yet he nevertheless sees it as the superior vehicle for conservative reformism. I can’t speak for why Yuval feels this way, but my own view is that while Republicans really are beholden to a number of problematic constituencies (e.g., physicians) and largely disconnected from a number of really important ones (e.g., lifetime low-earner single parents), the Republican coalition poses far less of an obstacle to the kinds of institutional reform I believe the U.S. needs right now than the Democratic coalition. To be sure, the Democratic coalition is extremely diverse. But the policy agenda of the Democratic party is heavily influenced by public employee unions, higher education incumbents, and large urban hospitals. (One might also add large financial services firms, but large financial services firms have at least as much influence on Republican policymaking.) And if you support the kind of K-12, higher education, and health reforms that aim to spur business-model innovation that might damage the near-term interests of some non-trivial number of public employees, higher education incumbents, and large urban hospitals, etc., you will find yourself pushing a rock uphill as a Democrat. 

This doesn’t mean that the GOP is an ideal vehicle for conservative reformers, at least not yet. A few weeks ago, I wrote on how partisan demographics shape policy thinking, observing that because lifetime low-earners tend not to be a part of GOP electoral constituencies (i.e., the people who actually vote for you rather than the broader constituency one might represent), there is a natural tendency for Republicans to discount their interests. This is clearly a barrier to good policymaking — whether you’re a libertarian populist who believes that Republicans should care more about trade barriers that keep the price of basic food items higher than they need to be or a conservative reformer who is really invested in K-12 reform as a vehicle to improve human capital outcomes among poor children, you need Republican lawmakers to invest time and effort in these causes. The question is whether it is easier to persuade Republican politicians to care about the education of “someone else’s children” or to convince Democratic politicians to take actions that will damage the interests of the median public employee. Over time, I think Republican voters are more likely to become more concerned about educational outcomes among poor children than that unionized public employees will lose interest in assiduously defending their interests. So you could argue that conservative reformers are making a bet about the future that may or may not pay off. 

In an effort to make common cause with congressional Republicans, the president is proposing an overhaul of the corporate tax code to finance increased spending on infrastructure and training programs. It’s not clear why the White House believes that this deal will prove attractive to conservatives, as the corporate tax overhaul the president has in mind isn’t terribly attractive and the spending proposals he has in mind have already met with resistance.

In 2012, Bloomberg View contrasted Mitt Romney’s call for a territorial tax system with Barack Obama’s defense of worldwide taxation of U.S. multinationals:

The U.S.’s current “worldwide” tax system is a mess. Large companies are taxed on all their income, domestic and international, at a top official rate of 35 percent (one of the highest in the world, although most pay a lower effective rate). When these companies earn money abroad, they pay taxes to the host government, then again to the U.S. when the profits are repatriated. They receive credits for what they’ve already paid in foreign taxes, and can defer U.S. taxes until the profit is brought home.

The rationale for such a system is known as capital-export neutrality: If companies are taxed equally at home and abroad, the thinking goes, they will make decisions about where to invest based on business considerations and not tax advantages. That reasoning no longer holds in a global economy in which a company’s foreign branches can grow by simply investing retained earnings and accessing capital markets on their own.

The current system also leads to a web of distortions. It puts U.S. companies at a disadvantage, since almost all other advanced countries have moved to some version of a territorial system. It encourages companies to take on debt. And compliance costs are enormous relative to what the government receives in revenue.

It also leads to gamesmanship. The tax can be deferred indefinitely as long as the earnings aren’t repatriated, so companies retain their profits abroad. Multinationals also use elaborate strategies to show that their income wasn’t really earned in the U.S., including a practice known as transfer pricing, by which they manipulate the way they value transactions between subsidiaries to allocate profit to low-tax jurisdictions.

A territorial system would go a long way toward improving this picture. Foreign profit would be exempt from taxation, so there would be no reason not to repatriate it. U.S. businesses looking to invest abroad would no longer be at a competitive disadvantage. And a vast amount of red tape would be eliminated in short order.

While it is true that a territorial system might increase employment levels at overseas affiliates of U.S. multinationals, the editors cited Greg Mankiw and Phillip Swagel’s finding that “increased employment in the overseas affiliates of U.S. multinationals is associated with more employment in the U.S. parent rather than less.” The president, however, seems keen to double down on a worldwide tax system. Moreover, the president’s proposal entails a more favorable tax rate for manufacturing, which seems unwise.

In March, Ramesh Ponnuru touted Rep. Devin Nunes’s business consumption tax proposal, which would tax cashflow rather than income, thus leaving investments tax-free:

Even if the rate were left at the 35 percent that currently applies to corporations, the shift to the new tax would still be a boon for the economy. The statutory rate would be higher than that of other countries, but the number that matters — the effective tax rate on investments — would be a very competitive zero, thanks to companies’ ability to write off their costs immediately. Eliminating the deduction for interest, meanwhile, would end a destabilizing distortion in the economy: the federal tax code’s preference for corporate financing via debt rather than equity. That preference also gives an advantage to established firms that have greater borrowing capacity than startups.

This debt bias in the corporate tax code, which we’ve discussed in the past, has contributed to excessive debt levels, which have in turn exacerbated the fragility of the financial system. So Nunes’s proposal represents a substantial improvement over the status quo on many levels.

Encouragingly, Josh Barro suggests that there might be room for compromise between the president’s approach to corporate tax reform and Dave Camp’s. But it would be nicer still if Republicans and Democrats united behind Nunes’s BCT.

Though a full report won’t be issued until next month, Anya Kamenetz offers thoughts on why the recent collaboration between Udacity, the for-profit higher education start-up, and San Jose State University went awry.

1. Many of the students enrolled in the SJSU/Udacity experiment didn’t have access to computers or the Internet at home.

2. The courses were assembled on the fly, and this created a great deal of confusion. Though students were given access to live tutoring, many didn’t know actually actually know it until the courses were well underway.

3. And the third problem Anya identifies might have been the most important:

Students in these courses didn’t have face-to-face support from qualified instructors, as they would in the classroom. They also didn’t really have the leisure to explore their curiosity or to work at their own pace, as they would in a truly open online learning environment, because the course was shoehorned into a traditional 12-week semester with deadlines, exams and grades—a factor that probably contributes to the generally poor completion rates of MOOCs as well.

The failure of the SJSU/Udacity experiment has led to a great deal of schadenfreude from online education skeptics, which is why it is enormously frustrating that SJSU/Udacity were so careless in rolling out these courses. But the incentives to keep pursuing blended learning strategies remain very strong.

For David Skeel of Penn Law School, Detroit’s bankruptcy filing is a reminder that Congress ought to pass a bankruptcy law for state governments:

If a major city is willing to file for bankruptcy, it is certainly possible that a state in dire financial distress might do the same if there were no good alternative. To be sure, the situation in Detroit was unusual. Mayor Dave Bing and the Detroit city council were not the ones who decided to file for bankruptcy. The initial recommendation was made by Kevyn Orr, a bankruptcy lawyer who was brought in to run Detroit under a controversial Michigan law that permits the governor to appoint an emergency manager when a city is deeply distressed. But the ultimate decision to permit Detroit to file for bankruptcy rested with the governor, Rick Snyder. In June 2011, Snyder had said (much as the California and New York officials did) that he would never permit Detroit to file for bankruptcy. But given Detroit’s predicament, he quite properly changed his mind. Snyder’s willingness to face the flack suggests that a governor also might be willing to file for state bankruptcy if the state’s financial condition were sufficiently dire.

Detroit’s bankruptcy filing also undercuts claims that enacting a state bankruptcy framework would cripple the state bond markets. Similar claims were made about municipal bankruptcy when the predecessor to Chapter 9 was enacted in the 1930s, but none of the dire predictions came true. Only if bond markets are incapable of distinguishing between profligate cities or states and fiscally responsible ones would the mere enactment of a state bankruptcy law roil the markets for every state, not just the troubled ones. The market’s reaction to the Detroit filing suggests the bond markets know the difference. Although a few pundits warned of disaster, there was very little change in municipal bond prices, even the day after Detroit’s filing.

E.J. McMahon of the Manhattan Institute made the case against state bankruptcy in 2011, arguing that state officials had the tools they need to address unsustainable cost structures and that state bankruptcy would cause collateral damage:

For constitutional reasons, any federal law enabling state bankruptcy would have to be voluntary, meaning states would have to invite federal judges to play tough with their unions. But if Gov. Jerry Brown and the California legislature are unwilling to rewrite their collective bargaining rules—signed into law by Mr. Brown himself, 33 years ago—why assume they would plead with a federal judge to do it for them?

It’s more likely that a state like California would pursue bankruptcy if powerful unions and other budget-dependent interest groups saw this as a way to deflect some of the pain to bondholders. California is one of the states that constitutionally guarantees its general obligation debt, and whose bondholders are now seemingly untouchable. That could change with a bankruptcy option.

Such an option would certainly rattle the bond market—which bankruptcy proponents see as a good thing. Yet this ignores the potential for collateral damage and disruption. While bond spreads might get wider for the most troubled states, the enactment of a state bankruptcy law is likely to raise the cost of borrowing for all municipal issuers.

McMahon is not alone in his concerns. A February 2011 Knowledge@Wharton article offers a balanced account of the issue. I think I’m with Skeel, but there are strong arguments on the other side.

Australia has a strong claim to being the most successful of the market democracies in recent decades. Though it is entirely possible that Australia will fall into a recession in the months to come, it has managed to avoid one since the early 1990s. Australia is also by far the most egalitarian of the English-speaking market democracies, with a Gini coefficient of .303, which is closer to Denmark’s .248 than to America’s .467. It is true that, as Anahad O’Connor reports, Australians are getting fatter, but there is much to be said for its model of “low-tax egalitarianism.” One of the reasons Australia manages to combine low taxes and low child poverty could be its approach to immigration policy, which places a heavy emphasis on skills, including English language proficiency. “Competing for Skills,” a study sponsored by the Australian government, found that the level of welfare dependence among migrants was extremely low, consistent with the relatively high wages earned by migrants. Australia’s Labor government has sought to reduce legal immigration, in part due to popular concerns about exceptionally high population growth, driven in no small part by high levels of net immigration. And so visas for international students and the General Skilled Migration program have been downsized.

This is the context you need to understanding Australia’s new policy regarding so-called “boat people” or asylum-seekers. Kevin Rudd, the Australian prime minister, has forged an agreement with Papua New Guinea to settle asylum-seekers coming to Australia in PNG, and in exchange Australia will provide PNG with an undisclosed sum. The Economist is critical of the new policy, which it suggests is little more than a political ploy to fend off Australia’s right-of-center Liberal-National alliance:

On the boats, [Rudd] admits his “regional resettlement arrangement” with PNG is a “very hardline decision”. Some refugee-law experts go further. James Hathaway, of the University of Melbourne, calls it the “most bizarre overreaction”. He reckons refugees are paying the price for Mr Rudd’s “wanting to appear more butch than Julia Gillard and more reactionary than Tony Abbott”. Australia does not have an asylum problem, says Mr Hathaway. “It has a political problem.”

The figures bear him out. Political leaders of all stripes tend to underrate Australia’s capacity to absorb outsiders. Last year the country admitted almost 200,000 immigrants. Most of the 47,000 boat people of the past five years were found to be “genuine refugees”. In 2011 Australia received 3% of asylum applications lodged in industrialised countries, a proportion roughly in line with its population.

Note that there is a broad political consensus in Australia that net migration should decrease, and that Australia’s immigrant as of last year was roughly twice that of the United States as a share of population. The Economist’s correspondent is indifferent to this political consensus, confident that Australia has an impressive capacity to absorb outsiders. Yet he neglects the possibility that the selectivity of Australian immigration policy contributes to the perception that the country has a very high absorptive capacity – absorbing skilled English-speaking migrants who earn the median income or above is not necessarily easy, but it is presumably easier than absorbing rural refugees from radically different cultural backgrounds. The article goes on to detail the difficulties the Australian authorities have experienced with refugee resettlement in the recent past:

Just this week at least nine people drowned, 180 were rescued and an unknown number were missing after a boat sank off the Indonesian island of Java. Over 1,000 people are thought to have drowned trying to reach Australia in the past ten years. Iran, Afghanistan, Sri Lanka and Pakistan are now the main sources of asylum-seekers.

Since their hasty reopening last year, the camps have proved politically more explosive than ever. Much of the Nauru one burned down in a riot among its 544 detainees on July 19th. And after an outcry earlier this year about the children held at the Manus Island camp in PNG, Australia moved them and their families to Christmas Island and the Australian mainland. After a visit to Manus Island in June, the UN’s refugee agency reported that conditions were still below international standards. On July 23rd Rod St George, who used to work there, told Australian television that men had been sexually and physically abused by fellow detainees.

Mr Hathaway calls Manus Island “the hellhole of PNG”. With Mr Rudd’s PNG idea, Australia plans to expand the camp’s capacity fivefold to hold about 3,000 asylum-seekers. It will also give Mr O’Neill’s government more aid, on top of the A$500m ($463m) a year Australia already provides, for health, policing and university education. Ben Saul, a human-rights lawyer, reckons the PNG solution could breach the spirit of Australia’s obligations under the UN’s refugee convention, which stipulates that countries capable of dealing with refugee flows should not shift responsibility onto others. For Mr Rudd that seems of less importance than shoring up votes at home. He calculates that the prospect of living indefinitely in PNG will stop the boat people, where earlier lurches to the right have failed. It is a gamble.

Given the volume of refugees willing to risk death to reach Australian shores, the notion that Rudd’s decision is entirely cynical seems strange. What might happen — how many would-be refugees would take to water — if Rudd didn’t seek to deter asylum-seekers from believing that Australia would welcome them in large numbers? 

Bloomberg View reacts even more harshly to Rudd’s PNG decision:

Despite Rudd’s tough talk, the country is not being swamped by ocean-going refugees. In 2011, it received just 3 percent of global asylum seekers. Last year, 7,379 people arriving by boat were processed as refugees, an increase of 43 percent over the previous year. But the 4,766 maritime asylum applications approved still represent just 0.02 percent of the country’s population, or about one for every 5,000 Australians.

By contrast, there will soon be one Syrian in Jordan for every six Jordanians, the result of Syria’s drawn-out civil war. Jordan, the 115th-richest nation in the world, can’t afford to pay its neighbors to take refugees off its hands. Australia, the 10th-richest nation, can. For both countries, however, there remains a moral obligation to provide a refuge for those fleeing persecution. Is it acceptable for a country to essentially buy its way out of it?

Bloomberg treats a 43 percent increase in the space of one year as trivial, because the annual influx of refugees nevertheless represented a small share of Australia’s total population, neglecting the possibility that a more lax policy might yield a larger influx in the future. This larger influx, in turn, may well lead to more deaths at sea. 

And as for Jordan, there is no question that it faces serious economic constraints. Several of its neighbors, however, are in a strong position to lend a hand. Consider, for example, a recent article by Robin Pogrebin in the New York Times, “Qatari Riches Are Buying Art World Influence“:

No one knows exactly how much Sheika al Mayassa has spent on behalf of her family or the museum authority since she was named chairwoman by her father, the former emir, in 2006. But experts estimate the acquisition budget reaches $1 billion a year and say the Qataris have used it to secure a host of undisputed modern and contemporary masterpieces by Francis Bacon, Roy Lichtenstein, Andy Warhol and Jeff Koons.

Where all this art will eventually end up remains something of a mystery. But it seems clear that, just as Qatar has used its oil riches to boost its influence in the Middle East with ventures like arming Syrian rebels, its wealth is also being deployed to help the country become a force in the world of culture.

This effort to create a first-class contemporary art collection, essentially from scratch, has buoyed the international art market, experts say, and contributed to some of the escalation in prices.

Until Qatar’s 2007 purchase, for example, the most expensive Rothko ever sold at auction (“Homage to Matisse”) had drawn $22 million in 2005, less than one-third of the price Qatar paid. In 2011 the $250 million spent for “Card Players” was four times the highest public price ever paid for a work by that artist.

Far be it from me to criticize Qatari public policy. But while Qatar is raising the floor on the price of Rothkos, Australia is committed to spending large sums ($463 million per annum, an amount that is set to increase substantially under the new policy, though we’ll see if it ever gets as high as Qatar’s acquisition budget) to resettle refugees in Papua New Guinea, a country that is, as Bloomberg View reminds us, very poor:

Papua New Guinea, where life expectancy is 63 years and the average adult has fewer than four years of education, ranks 156th (out of 186) on the UN Human Development Index. Whether the country can properly care for asylum seekers is at best an open question.

Even if it can meet that test, Australia’s decision faces a second challenge. The UN claims that the convention commits states to sharing the responsibility of protecting asylum seekers, rather than trying to shift that burden elsewhere. By that benchmark, Australia looks to be violating the spirit of the convention, if not the letter.

But Papua New Guinea is also relatively safe, particularly when compared to war-ravaged Syria. The purpose of refugee resettlement is to shelter individuals from war-ravaged societies, or who face persecution or even extermination. Refugees from Syria will face no such danger in PNG.

Moreover, the idea that Australia can’t discharge its duty to refugees by offering compensation — in the form of subsidizing their presence in PNG — defies logic. Baumol’s cost disease tells us that it is far more expensive to deliver labor-intensive services in rich countries than poor countries, as the medical and education sectors in rich countries have to compete for skilled labor with firms in highly-productive tradable sectors. If refugees can be offered a reasonable standard of care at much lower cost in PNG, it makes little sense to try to do to the same in Australia. Indeed, Australia’s decision has the potential to give the economy of Papua New Guinea a boost, a development that shouldn’t be scoffed at given PNG’s relative poverty. Bloomberg View isn’t explicitly asking that every individual Australian welcome a Syrian into their home. Rather, its editors are asking Australian taxpayers to pay much more than is strictly necessary to shelter refugees from horrendous violence, despite the fact that doing so will deprive PNG of jobs and resources that it can use to better the lives of its own citizens.

Given that PNG is relatively safe, and that Australian resources can purchase a standard of care at least comparable to what is on offer in Jordan, the only explanation for why Australia should allow asylum-seekers to settle in Australia proper is that this is not about seeking shelter at all, but rather about offering asylum-seekers the superior economic opportunities offered by a more affluent urban country. That, of course, leads us into an entirely different debate about whether or not Australia should abandon what has proven a quite successful immigration policy in favor of an entirely different policy that might lead to a far less egalitarian society. 

In light of the new vogue for revisiting insider trading laws, I thought I’d share an old column I published in The Daily back in 2011, when we were young and innocent. This morning, Matt Yglesias made a strong case against legalizing insider trading, on the grounds that it has the potential to cause serious corporate governance challenges, among other things. The argument I make below is less susceptible to this charge, as it takes more of a “let’s burn the whole thing down and start all over again” approach — which is to say a wildly unrealistic approach.

Very few Americans will shed a tear for Raj Rajaratnam, the billionaire hedge fund manager convicted this week of insider trading, and that is fair enough. Of the hundreds of thousands of men and women we lock up every year, Rajaratnam is hardly the most sympathetic. Though the federal government’s case against Rajaratnam may have overreached in some respects, there is no question that he bribed people like disgraced former Intel executive Rajiv Goel into betraying their employers, and that alone merits jail time.

But Rajaratnam’s crimes are just a symptom of a much bigger problem.As the economist Amar Bhidé argues in A Call for Judgment, insider trading rules have helped create a centralized and super-sized financial sector that is sapping the real economy of its growth potential, leaving all of us poorer than we can and should be.

After the Crash of 1929, small investors fled the stock market en masse, convinced that it was rigged against them. In 1934, the Roosevelt administration created the Securities and Exchange Commission as part of an effort to restore confidence in the stock market. The SEC’s central goal was to protect the interests of small investors. Publicly-traded companies had to disclose information about their financial condition and who was running the show. Over time, these disclosure requirements expanded as the SEC demanded more information about the inner workings of public companies. In addition, the Securities Exchange Act put in place rules against insider trading.

The basic idea behind these rules is that officers, directors, and stockholders that own at least 10% of a company should not be allowed to use inside information to influence their investment decisions. Say a senior executive knows that his company is about to post huge losses in the next quarter. He might use this information to dump the company’s stock before outside investors catch wind of the bad news and the stock price plummets. Similarly, investors who own a big stake in a company can bend the ear of directors or executives to gain the material nonpublic information, i.e., information that only insiders have that could effect the movement of the stock price. The SEC demands that insiders file statements that reveal all of the equity securities they own, to guard against just this kind of behavior.

The result of these regulations is that American investors, large and small, keep the executives running the big public companies they invest in at arm’s length. They don’t forge long-term relationships based in mutual trust. Instead, thousands of anonymous investors pump money in and out of these companies, knowing nothing more than what appears in annual and quarterly reports. As Bhidé puts it, “the oversight and counsel provided by one shareholder benefits all others, with the result that all of them may shirk their responsibilities.” Once a company has thousands of shareholders, and each of those shareholders own shares in dozens or even hundreds of companies, who exactly is going to take the time to provide real oversight and counsel?

As a result, the executives and directors of big public companies can get away with almost anything, as their investors are widely dispersed and legally barred from profiting from any effort to get under the hood of the company. The corporate scandals that marked the Enron era, the headlong rush into toxic assets, the corruption of corporate boards — all can be traced to the resulting lack of accountability. Ironically enough, insider trading rules work all too well. They’ve not only restored confidence in the stock market. They’ve created the illusion that it is safe to invest in a company without doing any due diligence of your own.

Contrast this with venture capitalists, who devote considerable energy to getting to know the entrepreneurs they back. It’s not unusual for VCs to offer advice to the start-ups they invest in, and to devour all of the information they can to keep their partners on track. The best VCs understand that it is this nitty-gritty engagement in their investments can make all the difference between success and failure. It allows them to recognize when a bad quarter is just a speed bump and when it is a sign of trouble. Steven Levy’s In the Plex recounts the many times Google’s earliest backers fretted over this or that decision made by Larry Page and Sergey Brin. But these savvy VCs had a basic confidence in Larry and Sergey rooted in actual give-and-take conversations stretching over months.

Though Google eventually went public, It is hardly surprising that a growing number of promising start-ups are delaying going public as long as possible, and many others are choosing to remain in private hands.

In an alternate universe, the Raj Rajaratnams of the world wouldn’t spend all of their time goosing stock prices to make fast money. They’d make long-term investments, and devote their considerable brainpower to helping businesses achieve sustainable growth. And this, in turn, would make for a healthier, and richer, American economy. We won’t get from here to there overnight, but rolling back insider trading rules would be an excellent first step.

Kevin Carey argues that rather than defend shared governance and tenure, college professors should embrace technology and institutional innovation:

The same technological tools that are making academic labor more productive are eliminating the need for top-heavy academic administration. Professors—the good ones, anyway—have the expertise and teaching skills that students need. They can cut out the middlemen and thrive on the flip side of labor productivity. Not fewer educators, but more and better education for more people.

To succeed, these new organizations would need to have a coherent theory of themselves and a specific educational focus. They couldn’t be all things to all people, because that way lies bureaucratic bloat. The people who work there would be at-will employees—as almost all professionals are now—required to do a great job teaching. Some of the professors would live elsewhere, and so would some of the students, in the kind of hybrid terrestrial and virtual communities that increasingly characterize modern life. Teaching would no longer be the handmaiden of research. The grotesqueries of intercollegiate athletes would be gone.

These new colleges would be built where people want to live, and taught the way people want and need to learn. The long cold war between administration and professoriate would fall to history, where it belongs.

One assumes, however, that the transformation of academic labor will be driven by outside pressures, from taxpayers and fee-paying students, and not by college professors, which is why Congress has an important role to play.

As part of a longer discussion of public subsidies for sports facilities, Aaron Gordon briefly references Glendale, Arizona, home of the newly-renamed Arizona Coyotes, one of the least popular teams in the National Hockey League. 

All the while, American cities, counties, and states continue to struggle. Glendale, Arizona, may actually sell City Hall so they can afford to keep subsidizing a hockey team that few people actually pay to see.

Back in 2011, shortly before the Atlanta Thrashers moved to Winnipeg, the University of Toronto’s Mowat Centre for Policy Innovation released a report on “the new economics of the NHL,” and why Canada can sustain a larger number and share of NHL franchises:

The market did not decide that Canada should only have six teams, or that Southern Ontario should only have one—the NHL did. The league has no interest in having supply meet demand, but rather benefits from ensuring that supply always remains below demand. For the NHL, this is an entirely rational strategy: artificial scarcity in the number of teams drives up their value. A team that runs into trouble in one city can be sold to a hopeful owner in another city. In contrast, a failed restaurant in Phoenix is not moved to Winnipeg; it just fails. Artificial scarcity also allows owners of even successful franchises to extract a payoff from local governments in order to move, or to stay put. All of North America’s big professional sports leagues are structured to play this game. Artificial scarcity allows owners to create bidding wars among local governments, with the city offering the most attractive subsidy package being granted a franchise. These subsidies generally take the form of building a stadium or arena with taxpayer dollars, and then allowing the team to play there at very low rent, or no rent at all.

Canadian governments have largely stayed out of this game. Local American governments, in contrast, rarely refuse to play. The most egregious recent case is that of the Phoenix Coyotes: as this report goes to press the city of Glendale, in the face of mounting criticism and the possibility of legal challenge under the Arizona constitution, is still trying to borrow more than US$100 million on behalf of the Coyotes, as part of a plan to give the team’s intended buyer a subsidy greater than the team purchase price. Were it not for these subsidies, along with revenue transfers from Canadian fans and taxpayers (the latter via the CBC TV contract), the Coyotes would not be in Phoenix. They would be in a city where fan demand is sufficient to allow them to earn enough money to cover their costs.

U.S. cities should take a page from their Canadian counterparts.

Oklahoma Sen. Tom Coburn continues to distinguish himself. In an interview with Byron York of the Washington Examiner, Coburn explains why he opposes the new effort to defund the Affordable Care Act:

Even though Republicans don’t have the votes to defund Obamacare, they do have the power, if they choose, to bring the government to a halt. Coburn sees that as a disastrous possible result of the plan. “You’re not going to stop the funding, but what you will do is shut down the government,” he said. “Among that group of senators that has been considering this, I was the only one who was here for that,” a reference to the government shutdowns of 1995 and 1996, when Coburn was a member of the House. “The president is never going to sign a bill defunding Obamacare. Do you think he’s going to cave?”

“The strategy that has been laid out is a good way for Republicans to lose the House.”

I’m an admirer of Utah Sen. Mike Lee, who is spearheading the effort to defund the ACA. But in this case I think Coburn is right and Lee is wrong. 

Paul Krugman blames sprawl the lack of upward mobility among children raised in households in the bottom of the income distribution. I have often argued that density can facilitate upward mobility, as it implies greater access to employment opportunities within a given commuter-shed. But there are a few problems with Krugman’s analysis. 

First, Krugman draws on William Julius Wilson to suggest that deindustrialization in central cities is a key part of the upward mobility story:

A quarter-century ago Mr. Wilson, a distinguished sociologist, famously argued that the postwar movement of employment out of city centers to the suburbs dealt African-American families, concentrated in those city centers, a heavy blow, removing economic opportunity just as the civil rights movement was finally ending explicit discrimination. And he further argued that social phenomena such as the prevalence of single mothers, often cited as causes of lagging black performance, were actually effects — that is, the family was being undermined by the absence of good jobs.

The evaporation of a certain set of economic opportunities for less-skilled workers in city centers was indeed a heavy blow. The more difficult question to answer is why we see such a sharp divergence in outcomes between women and men, an issue David Autor and Melanie Wasserman explore in “Wayward Sons.” And though Autor and Wasserman don’t pretend to offer conclusive answers, they acknowledge the possibility that the direction of causality might run both ways, i.e., contra Krugman, it’s not simply that the absence of good jobs led to the prevalence of single-headed households (though this dynamic did indeed play a role), but that the prevalence of single-headed households seems to have contributed to male underperformance. Moreover, Lawrence Mead has observed that male non-work has persisted even during periods of tight labor markets. In Expanding Work Programs for Poor Men, Mead noted that even the most generous voluntary work programs, like the New Hope Project in Milwaukee, which offered generous benefits in return for working thirty hours a week, found it very difficult to attract jobless men. 

Second, Krugman arguably underemphasizes the spatial dimension of upward mobility while overemphasizing the existing level of inequality:

When the researchers looked for factors that correlate with low or high social mobility, they found, perhaps surprisingly, little direct role for race, one obvious candidate. They did find a significant correlation with the existing level of inequality: “areas with a smaller middle class had lower rates of upward mobility.” This matches what we find in international comparisons, where relatively equal societies like Sweden have much higher mobility than highly unequal America.

One of the reasons why relatively equal societies might have higher mobility than relatively unequal societies is that relatively equal societies by definition have more compressed income distributions. That is, if households in the bottom fifth in Societies A and B have roughly the same income, yet households in the top fifth have much higher incomes in Society B than in Society A, it is not unreasonable to assume that relative mobility across household income quintiles will be higher in Society A than Society B, as there is less distance to travel between the bottom and the top. Also, Krugman cites the work of Miles Corak to make his point about international comparisons, and Scott Winship has written extensively about the limits of Corak’s analysis. 

The study Krugman cites found that several U.S. metropolitan areas had levels of upward mobility for the poor comparable to the international leaders. See the discussion by David Leonhardt:

[T]he parts of this country with the highest mobility rates — like Pittsburgh, Seattle and Salt Lake City — have rates roughly as high as those in Denmark and Norway, two countries at the top of the international mobility rankings. In areas like Atlanta and Memphis, by comparison, upward mobility appears to be substantially lower than in any other rich country, Mr. Chetty said.

Especially intriguing is the fact that children who moved at a young age from a low-mobility area to a high-mobility area did almost as well as those who spent their entire childhoods in a higher-mobility area. But children who moved as teenagers did less well.

Yet these U.S. metropolitan areas (Seattle, Salt Lake City, Pittsburgh) have much higher Gini coefficients than Denmark and Norway. By way of comparison, the Gini coefficient (0 is perfect equality, 1 is perfect inequality) for the U.S. is .467, it is .248 for Denmark and .250 for Norway. Seattle has a Gini coefficient of .439, Salt Lake City has a Gini coefficient of .417, and Pittsburgh has a Gini coefficient of .459. If there is a tight association between inequality and mobility, how is it that Seattle and Salt Lake City and Pittsburgh are roughly matching the upward mobility performance of Denmark and Norway with levels of inequality that are subtantially higher? Again, this doesn’t mean that inequality is irrelevant. But if Pittsburgh (.459) and Denmark (.248) are in roughly the same ballpark, it seems that we ought to pay close attention to what Pittsburgh and cities like it are getting right.

The Gini coefficient for Atlanta is .452 while the Gini coefficient for Memphis is 0.478. Memphis clearly has an extremely high Gini coefficient. Note, however, that Atlanta, a metropolitan area that fares very poorly in terms of upward mobility for the poor, actually has a lower Gini coefficient than Pittsburgh, a metropolitan area that fares extremely well. Several other large U.S. metropolitan areas with higher Gini coefficients than Atlanta also far surpass Atlanta in terms of upward mobility for the poor, including highly unequal San Francisco, New York, and Los Angeles.

I want to stress than the correlation between low levels of inequality and high levels of mobility makes perfect sense, among other things because it is easier to climb a shorter income ladder than a taller one. The irony, however, is that an emphasis on inequality might distract us from a far more important issue, which is integration. Atlanta and Pittsburgh demonstrate that two metropolitan areas with similar levels of inequality can produce markedly different results for poor households. If one metropolitan area is highly segregated, with poor people living very far from rich people, while another is relatively integrated, with poor people and rich people living in close proximity, or with good transit links connecting the two groups, it seems pretty clear that poor people are much better off in the latter metropolitan area. 

Rather than endlessly recapitulate the inequality debate, we need to have a more robust debate about economic geography. Progressive taxation gets all of the attention. But local land-use regulation that limits density, and that make it more difficult for poor workers to live within easy commuting distance of rich customers, gets virtually none.

Alex Holt, a program associate with the Education Policy Program at the New America Foundation, has kindly agreed to share his thoughts on Oregon’s new “Pay It Forward” initiative.

A few weeks ago the Oregon state legislature directed a relatively obscure state education panel to consider creating a pilot program on a relatively obscure student loan repayment scheme that was pitched by a group of college students from Portland State University. No groundbreaking news there. Except something unexpected happened: the Wall Street Journal and New York Times both picked up the story, with the Times going a step further and assembling a team of education experts to weigh in on the proposal. That propelled the policy idea into the national media, and the higher education policy world has been debating it ever since.

So are the students at Portland State University onto something big, or were the Times and the Journal duped?

The catchy title “Pay It Forward, Pay It Back,” admittedly suggests something big, as does the elevator pitch. Eliminate tuition and fees entirely at Oregon universities and instead charge graduates 3 percent of their incomes for a period of 24 years after they leave school. That means payments are more equitable because they are based on after-school earnings not family income when a student attends school, and graduates without the ability to pay simply won’t have to. As if that wasn’t enough, the program will purportedly pay for itself.

Despite the snappy name and the slick elevator pitch, there are three big problems that the state education panel will have to confront to implement this type of program.

The first is adverse selection. If the plan is meant to pay for itself over time, high income graduates must pay more to offset the low payments from graduates earning little income. While that seems obvious, few people realize that also means high income graduates would probably have to pay more than they would under existing student loan options. That creates an incentive for students undertaking high value degrees, like computer science majors, to opt out of a program like ‘Pay It Forward’, and to go the traditional loan route. Oregon is then stuck funding low-return educational investments and is unable to recoup the costs of the program. And forget about the state charging different degree seekers different rates in order to avoid adverse selection. The political backlash that will occur once Oregonians realize social workers and teachers have to pay 10 percent of their incomes while engineers pay 2 percent will likely sink the program.

Second is the difficulty of collecting the incomes of graduates living outside Oregon. The state only has taxing power within its borders, which means that students who leave Oregon may get away with not paying. Creating an incentive for students to leave Oregon is obviously not the intent of the policy, and there are possibly ways for the state to either get the federal government to help out, or to hire collection agencies to hunt down offenders. Those may nevertheless be prohibitively burdensome and costly.

Third, up until now the discussion about costs has been naïve. For instance, some commentators have even suggested that the policy would make money for Oregon. Those arguments have largely been based on analysis from the Oregon Center for Public Policy (OCPP), which calculates that the average student opting into the policy would pay $7,000 more than their original $32,000 tuition expenses, though the analysis ignores the time-value of money in that calculation.

This argument is misguided because it is not a comprehensive accounting of the costs. Oregon has to pay the cost of running a university system now, but the students would pay those costs slowly over 24 years. To bridge that gap the state must borrow in the credit markets by selling bonds that pay interest.

Assume investors would demand five percent interest for a revenue bond backed by the student payments over 24 years. Now the state is on the hook for the $32,000 tuition for any given student, since I’m sure professors are unwilling to work for free. So the state has just taken out a massive loan to fund tuition, and that means that in order for the policy to pay for itself, students must effectively break even on paying back a $32,000 loan at 5 percent over the course of 24 years. The student makes less money at the beginning, which means that the interest is piling up on the loan balance. If we treat this as an income-contingent loan for the student, where they pay back a percentage of their income while interest accrues, the OCPP data actually shows that Oregon students would, collectively, never pay back their loans, and in fact would never even make a principal payment on them. In fact, the typical Oregon student would receive an equivalent of $36,205 in loan forgiveness at the end of their 24th year. But the state’s bondholders wouldn’t forgive the debt, of course, so taxpayers would have to fund the difference.

And that is the irony in the Oregon plan – it doesn’t eliminate debt. Someone still has to borrow if Oregon wants to pay university faculty today with some future stream of payments, it just happens to be the state.

‘Pay It Forward’ is a dangerous, half-baked idea, and as Dylan Matthews argues at the end of his thorough analysis of the program, changing the existing loan program to automatically enroll students in Income-Based Repayment is a better idea:

“If you like the idea of payment based on income, but don’t want people to pay more than their education actually cost, and want a system enforced by an institution that both has a lot of experience running this kind of thing and can print its own money, the Petri-Polis bill [which would automatically enroll all students into Income-Based Repayment] is probably a better bet than what’s being tried in Oregon.”

He’s right—automatically enrolling students in IBR is infinitely better than trying to scale the Oregon program. But that actually makes this situation even more tragic, because funding students through an equity finance arrangement, as opposed to having students take out loans, is, in principle, a great idea. Students would bear no upfront risk and investors could be compensated well for students who go on to make good salaries. This system would have the added benefit of signaling the relative value of different institutions or programs to students based on the difference in the percentage of their income the student would have to pay back. This makes equity financing a fundamentally better option than income-based repayment because it signals economic value to the student and provides an upside to the investor. However, this investment risk should be borne by private investors, not by the state.

Oregon, on the other hand, has proposed creating a graduate tax with a rate that would either be so low that it would cost the state money or so high that all of the “good investments” would opt-out, and, again, cost the state money. There may be a happy medium, but it seems like a tall order for a government panel to find it.

Rep. Paul Ryan has been drawing attention to rising poverty levels in the United States, per a new report from Tom Curry of NBC News:

“Next year marks the fiftieth anniversary of the War on Poverty. We’ve spent approximately $15 trillion and the question we ought to be asking ourselves is, ‘where are we?’ With a 15 percent poverty rate today — the highest in a generation — and with 46 million people in poverty, I would argue it’s not working very well.”

He said, “We shouldn’t be measuring our success in the war on poverty by inputs, by how much money we throw at programs, by how many people we enroll in programs; we ought to be measuring success in the War on Poverty by measuring how many people we get out of poverty…..”

This is exactly the right issue for Ryan to be working on. So far, Ryan has been reluctant to lay out a full-fledged anti-poverty agenda. Rather, he has been on an informal listening tour that, one hopes, will culminate in something more fleshed out. One thing that seems clear is that worklessness will have to be the focus of this agenda. Consider a new report from Isabel Sawhill and Quentin Karpilow that explores a variety of different anti-poverty strategies:

[W]e find that low-income households are disproportionately female, minority, and young. Most of these households have minor children at home, and many are headed by single parents. Their low incomes are partly due to their low wages, but even more to a lack of employment. Sixty percent of bottom-third household heads don’t work at all or work less than full time, while only 40 percent work full time (40 hours a week for 50 weeks a year or 2000 hours in total). In the upper two-thirds, 86 percent of household heads work full time. Another reason for the greater success of the upper two-thirds is that they are more likely to have two earners in the family. In short, and not surprisingly, a scarcity of second earners combined with a shortage of work hours and low pay rates keep the bottom third out of the middle class. However, the most important reason by far for the low incomes of these households is a lack of work. They are less likely to be employed and work fewer hours when they do hold a job. We refer to this as the “work gap.”

We then do a series of simulations to determine what might help the bottom third improve their prospects and find that some of the work gap is related to the high unemployment rates that existed in 2011. Were the economy to return to full employment, the earnings of these low-income households would increase by 15 percent and the relative earnings gap between them and the upper two-thirds would narrow considerably. This 15 percent increase reflects the impact of a stronger economy on both the availability of work, including full-time work, and higher pay. While a full-employment economy will help this group of low-income households substantially, it will not move them very far up the ladder. Larger improvements in their economic status will require that they work more (even when jobs are available), obtain more education, and/or live in families with more working-age adults and/or fewer dependent children. [Emphasis added]

Getting macroeconomic policy right is clearly essential to an effective anti-poverty agenda. (This is an area where it’s not clear that Ryan is in the right place.) Sawhill and Karpilow also emphasize the importance of improving work incentives:

Even when the economy is at full employment, a work gap remains. Some individuals have trouble finding work even when jobs are plentiful because of factors such as a lack of education or skills, health problems, or a prison record. In addition, some of the work gap appears to be voluntary. Based on their own reports, many of these low-income individuals have retired early (before age 55), have returned to school as adults, or are keeping house, even though, according to the data, these activities clearly leave them and their households with a low income (less than $26,000). They may be supplementing their low incomes by drawing down their savings or by getting help from friends or relatives. They are also much more dependent than more affluent households on government assistance. Overall, one quarter of their income comes from non-earned sources, especially government programs such as unemployment insurance, welfare, veteran’s benefits, disability payments to children in the household, and educational assistance. It is possible that the availability of such non-earned income has encouraged or permitted them to work less than they otherwise would. However, we believe based on other research that such effects are relatively modest. [Emphasis added]

That some number of poor people will choose not to work isn’t intrinsically problematic — unless, that is, this decision burdens those who do choose to work, as they are taxed in part to finance anti-poverty spending.

We also find that a higher minimum wage would have very small effects on this group. When we ask what would happen to the annual earnings of low-income households if all of the workers in these families earned at least $9 an hour, as recently proposed by President Obama, we find that the higher minimum wage would increase their annual earnings from $11,047 to $11,828, or by 7 percent, although by more than this if a higher minimum wage encouraged employers to adjust their pay practices for employees earning more than the new minimum and not just for those currently earning less than $9 an hour. It is worth noting that 36 percent of low-income households contained at least one person earning less than the minimum wage. Other policies, such as a generous EITC and child care assistance may be even more helpful because they more strongly encourage (or facilitate) work in addition to supplementing income (or reducing household expenses). [Emphasis added]

Broadly speaking, the landscape described by Sawhill and Karpilow seems to point in the direction of increasing wage subsidies and work supports rather than unconditional cash transfers. It will be interesting to see how coverage expansion shapes the future low-end labor market.