Adam Davidson walks through might happen to New York city’s rental housing market if rent regulation were to come to an end:

[A]dvocates for continued rent regulation and those who oppose it largely agree on what would happen if the programs were eliminated. It would be win-win-lose: great for landlords and the middle class and awful for people who benefit today. [Christoper] Mayer [a housing economist at Columbia Business School] walked me through a likely result. Many of the people receiving some sort of government subsidy would have to leave their apartments, probably for the outer boroughs. The landlords of those units would invest in upgrades and charge higher rents. At the same time, the subset of apartments that had been market rate would see their rents fall, because there would be, suddenly, twice as many apartments in the market.

For Mayer, as for many economists, this is proof that rent regulation is an incredibly expensive program, preventing billions of dollars of development. It also creates an odd lotterylike system in which those who are lucky enough to have a rent-regulated apartment can live in the best parts of the city for next to nothing and everyone else is shunted aside. Eliminating rent regulation would be such a huge windfall for landlords, Mayer says, that he could imagine a sort of grand bargain. The programs go away, but landlords have to pay higher property taxes. The extra city revenue could go to a fund to help poor people afford market-rate apartments. In theory, this could be designed to make the shift win-win-win. The city could stay socioeconomically diverse without any six-bedroom apartments renting for $225.

Vicki Been, the director of N.Y.U.’s Furman Center, says most rent-regulation advocates acknowledge some of Mayer’s criticisms but want to keep the programs anyway. “We can’t just say, ‘Let’s get rid of rent regulations and replace them with the optimal system,’ ” she says. “The political forces that would get rid of rent regulation would not be the forces looking for optimal legislation.” It would be landlords and developers. In the political battles that define New York’s real estate market, she says, the poor rarely come out ahead. And rent regulation — however inefficiently — does help many poor people.

Rent regulation is very likely to go away, eventually, even without any explicit effort to kill it. Some 231,000 units have been deregulated over the last 30 years. Every year, thousands more leave the program or are torn down, replaced by new condo buildings serving the wealthy. The number of market-rate units has been going up more quickly lately, and the pace will, most likely, only increase. Barring some unlikely shift in the economy or policy, Manhattan will have fewer and fewer poor people each year and almost none whatsoever in a few decades. What happens if all the rich people are on one island and the poor but creative are somewhere else? It might just destroy the strange admixture that makes Manhattan so appealing in the first place.

First, the reason new condo buildings primarily serve the wealthy is that local land-use regulations severely constrain the amount of new construction. If there were more housing built in New York city, we would eventually see market-rate housing aimed at middle-income and low-income households. When the cost of navigating the regulatory maze is extremely high, developers have little choice but to cater to the wealthy, as that is the only way for them to recoup their investment. Moreover, incumbent developers prefer the regulatory maze, as it creates a high barrier to entry to competitors. There’s nothing shocking about this landscape. Rent regulation is closely related to broader local land-use regulation, and it is important that we relax both in tandem. 

Second, Davidson neglects the role of public housing in New York city, which serves over 400,000 authorized residents. There an additional 225,000 residents in Section 8 housing units. Manhattan is home to 102 public housing developments, which include 53,890 housing units, most of which house families. Mireya Navarro has recently described the enormous appetite for public housing in New York city, the quality of which has greatly improved in recent decades. Many public housing developments have become naturally-occurring retirement communities, as residents are often very reluctant to leave. Most of these developments use their footprint very inefficiently, and there have been a number of recent proposals to develop this underutilized land. As Davidson explains, rent regulation benefits large numbers of nonpoor people and only a handful of poor people. Targeted subsidies are a far more efficient strategy for aiding the poor, and, contra Been, there is no reason to believe that developers who oppose rent regulation would also oppose housing subsidies. People who own real estate generally like housing subsidies very much, for obvious reasons. But we might also leverage existing public housing developments to encourage the construction of new housing on publicly-owned land that would combine market-rate and subsidized housing. Indeed, there are already some modest moves in this direction. Right now, NYCHA sees leasing some of its space to developers as a way to patch up funding shortfalls. Ending rent regulation will tend to increase tax revenues, thus alleviating that challenge and generating new resources with which to pursue more ambitious social housing efforts. A win-win-win scenario is entirely within reach.

In the course of a larger critique of California Gov. Jerry Brown, Lanhee Chen offers the following on California’s high-speed rail project:

Brown has insisted on hyping the state’s chimerical and high-priced high-speed rail project over other important priorities — including some critical infrastructure needs such as road and bridge repair and dam replacement. The project began when California voters in 2008 approved the issuance of $10 billion in bonds to fund construction of a $45 billion high-speed rail system connecting the state’s major urban areas. Voters were promised high-speed trains that would connect Los Angeles with San Francisco in less than three hours.

But the project has been besieged by cost overruns, delays and mismanaged expectations. The project is now expected to cost $68 billion, and that price tag was only made possible when plans to construct high-speed rail lines leading into Los Angeles and San Francisco were scrapped in favor of a plan to have high-speed trains share track with slower trains. But this means that a nonstop journey from the Bay Area to Southern California will take almost four hours, and as long as six hours if intermediate stops are included.

Worst yet, a recent study by the Reason Foundation concluded that taxpayers could be on the hook for up to $373 million a year in operating costs and financial losses once the high-speed rail system is up and running.

California is the cradle of the self-driving car, which has the potential to greatly reduce congestion and emissions while increasing travel speeds, and it is also home to several large cities that are underserved by transit. Investing in high-speed rail rather than, say, increasing density and improving transit access in coastal California is profoundly foolish. By the project’s planned completion date of 2033, high-speed rail will be a legacy technology that meets the needs of relatively few Californians, yet it will have crowded out public investment in projects that could reduce commuting time and raise incomes for low- and middle-income workers (non-drivers as well drivers) for decades. 

Ramesh Ponnuru explains how the House GOP push to link a debt limit increase to defunding the ACA might damage Republican prospects. The White House and Democrats in Congress think they can “win” a serious confrontation with House Republicans, and they are less willing to make concessions than they have been in the past. Ramesh doesn’t explicitly say that a government shutdown or partial shutdown  might lead to yet another wave election in 2014, in which House Republicans with seemingly solid majorities are defeated, but it would be foolish to rule out the possibility. 

Dylan Matthews fact-checks President Obama’s claim that the typical family income “barely budged” between 1979 and 2007 and finds it off-target. In another post, he aims to demonstrate that the Patients’ Choice Act (PCA), the 2009 bill backed by Sen. Tom Coburn and Rep. Paul Ryan as an alternative to the president’s health reform effort, is actually very similar to the Affordable Care Act. I supported the PCA, and I still think it is preferable to the ACA. Moreover, I think he is understating the differences between the two. As a general rule, the PCA is far prescriptive than the ACA. And while the outcome of auto-enroll might be similar to that of an individual mandate, it is conceptually quite different and, I’d argue, more attractive.

Brendan Greeley reports that as part of their tax reform effort, Sens. Max Baucus and Orrin Hatch are assuring their colleagues that any requests they make to preserve tax loopholes will be kept secret until the year 2063, by which time I hope to be living on some distant planet.

The U.S. prison population has declined for three years running.

I greatly enjoyed Charlie LeDuff’s mordant take on the state of Detroit in the wake of its bankruptcy filing, and I think you will too.

And be sure to read Pascal-Emmanuel Gobry’s thoughts on the future of retirement (on this planet).

As the Obama administration deliberates over who will succeed Ben Bernanke as Fed chair, there has been a steady crumbeat of criticism against Larry Summers, the former NEC chair and Treasury secretary who is perhaps the most distinguished, and controversial, Democratic economic policymaker of his generation. A bloc of Democratic senators has voiced its opposition to Summers in a letter to the White House, and leading members of the left-liberal intelligentsia has been sharpening their knives. Ezra Klein, among others, has raised the specter of sexism, the argument being that Janet Yellen, a highly-regarded academic economist who currently serves as vice chair of the Fed, has lost ground to Summers in part because she is a woman. The battlelines have been drawn under the assumption that while Yellen is closely aligned with Bernanke in her support for the Evans Rule and the successive rounds of quantitative easing, Summers is more skeptical. Wonkbook quotes Robin Harding of the Financial Times:

“Lawrence Summers made dismissive remarks about the effectiveness of quantitative easing at a conference in April, raising the possibility of a big shift in US monetary policy if he becomes chairman of the Federal Reserve. “QE in my view is less efficacious for the real economy than most people suppose,” said Mr Summers according to an official summary of his remarks at a conference organised in Santa Monica by Drobny Global, obtained by the Financial Times.”

To champions of quantitative easing, these are fighting words. Scott Sumner, a leading advocate of nominal output targeting, is among those who’ve been very critical of Summers. Matt Yglesias juxtaposes Summers’ skepticism about monetary stimulus, which Summers believes will lead private firms to undertake costly, inefficient boondoggles, and his enthusiasm for fiscal stimulus, which suggests a perhaps misplaced belief that the public sector is better about making decisions about long-term investments than the private sector. It’s a smart critique, and it does seem as though the extent of anti-Summers sentiment has undermined the former Treasury secretary’s prospects.

What I find interesting, however, is that there is a neglected position in our monetary policy debates, which is that we may well need inflation as part of a broader strategy of accelerating deleveraging and returning to full employment, but that quantitative easing is not the best way to achieve this goal. I associate this view with Ashwin Parameswaran:

[U]nlike most Fed critics who tend to be conventional “austerians”, I’m a strong critic of asset-price based monetary policy and an equally strong advocate for combined monetary-fiscal stimulus in the form of direct cash transfers to households. I support helicopter drops not just because it is fairer and more “neutral” in its impact on income distribution than quantitative easing. I support helicopter drops because it is the parachute that prevents the hard landing if we stop quantitative easing. I support helicopter drops because it is the most free-market of all macro-stabilisation policies. Rather than bailing out banks and firms and propping up asset prices, helicopter drops simply mitigate the consequences of macroeconomic volatility upon the people. I support helicopter drops because it helps us build a resilient economic system as opposed to chasing the utopian aim of perfect macroeconomic stability. [Emphasis added]

As Ashwin explains, however, central banks are worrying of helicopter drops for several reasons:

1. If the central bank simply prints money out of thin air and credits it to the people, then it suffers a loss. If the helicopter drop is sufficiently large, then the central bank may even become technically insolvent. Although this has very few technical implications for the functioning of a central bank, the political implications are significant. Opponents of the stimulus will latch on to the losses as a sign of monetary irresponsibility. The political implications and fear of loss of central banking independence may even have a negative impact on the economy. Understandably, central banks prefer to avoid such a situation. By buying financial assets, central bank governors can at least postpone losses for long enough that it becomes the next governor’s headache.

2. If the helicopter drop is financed by a bond issuance by the government, then many market participants fear that the government debt will increase to unsustainable levels that cannot be paid back.

3. If the helicopter drop is financed by a bond issued by the government and bought by the central bank, then some commentators fear that we will have crossed the rubicon into the dangerous world of monetised fiscal deficits.

And so he suggests that a helicopter drop be financed in the following manner:

The helicopter drop should be financed by a perpetual bond issued by the government and bought by the central bank. The perpetual bond pays an overnight floating interest rate equivalent to the Federal Funds rate.

Two conflicting potential dangers arise, the first of which is that governments might grow addicted to this form of fiscal-monetary stimulus and the second of which is that despite the perpetual nature of the bond, this proposal will raise the federal debt, leaving it vulnerable to the debt limit. Rajiv Sethi thus offers a modified proposal for the United States:

I would prefer the following: (i) create an account at the Fed for every US citizen with a valid social security number, including minors, (ii) stop transferring profits on Fed assets directly to the Treasury, (iii) credit all accounts in equal measure to dissipate all profits, (iv) restrict withdrawals from these accounts to tighten monetary policy, and remove restrictions to ease, (v) continue open market operations as necessary, especially in a liquidity crisis, lending at high rates against good collateral to solvent institutions in accordance with the Bagehot rule.

This last policy should result in windfall gains after a crisis. The direct transfers to account holders will boost aggregate demand when most needed.

Suffice it to say, this kind of thinking is well outside the economic policy mainstream. But it is a reminder that skepticism about the virtues of QE as practiced by the Fed doesn’t necessarily translate into opposition to fiscal-monetary stimulus. 

P.S. One political virtue of Ashwin’s approach is that while QE raises the specter of inflation, helicopter drops in the form of direct cash transfers are likely to be prove very politically popular. And unlike more targeted efforts like mortgage modifications, it’s hard to see how universal direct cash transfers create perverse incentives for individuals (as opposed to governments). 

Joshua Rauh reminds readers that unfunded state and local pension fund liabilities are far larger than advertised by state and local governments:

Currently, standard practice measures the funding status of public pensions in the US under the laughable assumption that every dollar in the pension funds will earn compound returns of 7.75% or 8% per year. That’s the basis for the $1 trillion in unfunded liabilities.

But if a state or local government promises a risk-free pension, one that will be paid regardless of how the stock market performs, then that promise is like a government bond and should be measured accordingly. That’s the way pension promises are measured in most public or semi-public plans in countries like Canada and the Netherlands. In the Netherlands, for example, discount rates of 0-4% are used. Even US companies follow this basic principle that a pension is like a bond issued by the sponsor by treating their pension liabilities as corporate bonds for the purposes of their books.

Figure 5 of the study professor Krugman links to shows $3.8 trillion total liabilities at an 8% discount rate, but $6.2 trillion of total liabilities using a 4% discount rate. A 4% rate is much closer to long-term government yields, but still too high a rate given that the benefits are guaranteed and many of them are short-term. If unfunded liabilities are $1.0 trillion under an 8% rate, then they are $3.4 trillion unfunded under a 4% rate.

(See Allison Schrager for more.)

Leaving aside the difficult question of how state and local governments will meet their pension obligations, it is worth thinking through the implications of Rauh’s informed pessimism about the future of stock market returns:

And please, don’t give me that argument that the past returns of pension funds have been that high, so we can assume that their future returns will be as well. The 20th century in the US saw an unprecedented bull market in stocks, and was also accompanied by substantial inflation as well. Everyone knows that past returns are no guarantee of future performance. In contrast, state and local governments have guaranteed their pension promises — at least until they become insolvent and unable to pay.

And let’s also not pretend that stock market price ratios tell us that the future is rosy for the stock market, so that stock returns will somehow bail us out from all of this. The Shiller P/E ratio is 24.7. That is somewhere between the 80th to 90th percentile of the highest price-earnings valuations in history. Those levels were last seen in the mid 2000s, the mid 1990s, and the mid 1960s, times after which medium-term performance was at best modest and at worst poor. [Emphasis added]

Basically, Rauh is telling all of us — not just public sector employees – that the era of relatively easy above-inflation returns is probably over, which in turn means that the 20th century dream of a decades-long retirement is also kaput. This isn’t necessarily a bad thing, particularly since those who work longer tend to also live longer. But it is a sobering thought for those who’ve come to expect retirement in the early 60s as a kind of natural law. Suffice it to say, those who work the most strenuous, physically demanding, or demoralizing jobs will tend to exit the labor force earlier than those who do not, via disability benefits, etc. Yet fairness will demand that theirs will not be a lavishly-feathered nest. 

Josh Kraushaar sketches what might have been had President Obama’s first term had focused on the economy’s health and immigration reform rather than coverage expansion:

Imagine if Obama began his presidency pitching an economic opportunity platform focused on, say, expanding job-retraining programs, extending the payroll-tax cut, and streamlining the tax code. Such measures would have showcased Obama’s commitment to the economy’s health, proving that he could pass legislation to meet his rhetoric. Remember: The president’s party held huge majorities in Congress to pass almost anything he wanted, within reason. With Democrats holding 60 Senate seats between September 2009 and February 2010, Republicans didn’t even have the opportunity to filibuster, unless they won over disaffected Democrats. With health care reform, Obama chose the path of most resistance, and paid for it both politically and at the expense of achieving other policy goals.

Without the costly haggling over health care, it’s reasonable to imagine Obama taking up immigration reform as an alternative path to spend his political capital. In the first term, then-Chief of Staff Rahm Emanuel avoided the issue, worried that the numerous House Democrats in conservative districts would take a pounding at the ballot box in the midterms. With the benefit of hindsight, those fears seem overblown. Democrats lost 63 House seats anyway, leaving behind a caucus overwhelmingly in support of immigration liberalization. The party now views the issue as the GOP’s electoral kryptonite, but it probably could have passed comprehensive reform with votes to spare in a first term.

Republicans would have had a much harder time in 2010 and 2012 had they been running against an Obama administration that had put job-retraining programs, the payroll-tax cut, and mortgage relief – perhaps along the lines of the proposals devised by Glenn Hubbard and his colleagues — front and center. GOP candidates would have no doubt attacked job-retraining programs as boondoggles, the payroll-tax cut as endangering Social Security, and mortgage relief as “paying for your neighbor’s mortgage,” per Rick Santelli’s now-famous call for a Tea Party. But this is the kind of debate Democrats, including centrist Democrats, would want to have, as it would unite their various constituencies, with the possible exception of some deficit-phobic, tax-sensitive upper-middle-income voters, while fracturing the GOP coalition. Though many Americans benefited from the payroll tax cut in our universe, there wasn’t a groundwell of support for extending it further, which suggests that Kraushaar might be wrong about the political benefits of a more populist first Obama term. Still, I think he’s on to something.

Shankar Vedantam of National Public Radio reports on a fascinating new study by Elizabeth Ananat, Shihe Fu and Stephen L. Ross, which finds that racial wage gaps are much larger in the most populous U.S. metropolitan areas than they are in smaller cities:

Ananat explains the findings with a hypothetical example: “Say there are 1,000 black engineers in Silicon Valley, compared to 20 in Topeka, and there are 10,000 total engineers in Silicon Valley, compared to 500 in Topeka. Then blacks make up 10 percent of engineers in Silicon Valley, compared to 4 percent in Topeka.”

“A black engineer in Silicon Valley has 980 more black engineers to get spillovers from than does a black engineer in Topeka,” she writes in an email. “Meanwhile, a white engineer in Silicon Valley has 8,500 more white engineers to benefit from than a white engineer in Topeka. Thus, while both white and black engineers’ wages will be higher in Silicon Valley than in Topeka, the white engineer’s wages will increase more than the black engineer’s do — in effect, the white engineer is living in a much bigger city (of engineers) than the black engineer is, if only people within one’s own race matter for urban spillovers.”

Obviously, in the real world, social encounters are not totally segregated and other factors — including out-and-out prejudice — could play a role. But what seems to be happening, Ananat says, is that minority groups often miss out on the valuable tips and mentoring that make these ecosystems so productive and profitable. The same thing happens with other ethnic minorities, and even with whites — when they are in a minority.

Lydia DePillis, a reporter at Wonkblog, recently suggested that the findings of Ananat et al. make a compelling case for race-based college admissions. But there is a problem with this line of analysis. Consider the following from Mismatch, Richard Sander and Stuart Taylor Jr.’s study of the impact of large racial preferences and academic outcomes for underrepresented minority students:

And then there is a study by three economists that should be considered the gold standard in the field — one that had actual data on the friendship networks of tens of thousands of students attending a range of colleges from moderately selective to the most elite and that explicitly attempted to understand the role of academic indices and relative academic position on cross-racial interaction.

In “Representation versus Assimilation” economists Peter Arcidiacono, Shakeeb Khan, and Jacob Vigdor found that students are much more likely to form friendships at college with other students whose level of academic preparation is similar to their own and that this is true both for same-race friendships and cross-racial friendships. Where racial preferences are large, this directly dampens the number of cross-racial friendships. The authors point out that, given the patterns they observe and the consequences of the cascade effect, our current racial preference system sharply reduces the number of cross-racial friendships that would occur if schools used smaller preferences.

Specifically, Arcidiacono et al. find that “the interaction-maximizing degree of racial preference, while positive, is significantly weaker than that observed in practice.” That is, while DePillis might be right to suggest that racial preferences might facilitate the formation of cross-racial friendships, which can in turn contribute to cross-racial professional networks, it is crucially important that the preferences not be very large. Large preferences risk conributing to negative stereotypes about students from underrepresented backgrounds, as those who benefit from large preferences tend to have much weaker academic preparation than students who do not, and so they are more likely to struggle academically.

More broadly, I’d argue that Ananat’s findings are yet another reminder that anti-poverty policy needs to place much greater emphasis on reducing the geographical concentration of poverty, a phenomenon that tends to correspond to racial segregation. Improved crime control and higher quality schools will tend to make urban neighborhoods more attractive to the nonpoor. The relaxation of local land-use regulations, meanwhile, can see to it that “gentrification” doesn’t displace poor incumbents, but rather that it creates new job opportunities as more affluent new arrivals become a customer base for local less-skilled labor. These strategies don’t promise immediate gratification. But they could do a great deal to chip away at the barriers separating black and non-black lives over time, and they’d produce many other economic and social benefits as well. 

(I should also note that the racial wage gap findings tend to reinforce the hypothesis advanced by Chenoa Flippen, namely that African Americans have been migrating from high-productivity regions to low-productivity regions in part to improve their relative status.)

David Runciman recounts the rise and fall of Blue Labour, the fitful effort on the part of Britain’s center-left opposition party to build a politics of social cohesion. Alexandra Harney warns that Japan’s “silver democracy” — in which the outsized influence of older voters, magnified through the overrepresentation of rural areas, increases with each passing year — threatens the viability of the country’s pension, nursing care, and health systems, and that it stymies a wide range of growth-enhancing reforms. (And on a tangentially related note, Kanoko Matsuyama of Bloomberg News offers a personal perspective on end-of-life in Japan.)

A new National Journal survey finds that only 36 percent of adults favor repeal of the Affordable Care Act, while 30 percent would prefer to “wait and see” and another 27 percent would prefer to devote more resources to implement the law. Alex Roarty writes:

And when told that an independent Congressional Budget Office study had determined that repealing Obamacare would actually increase the deficit, a narrow plurality of respondents preferred to keep the law. On the question, 48 percent said “Congress should keep the program to expand coverage because it’s important to reduce the number of Americans without health insurance,” while 42 percent said “Congress should repeal the program to expand coverage because the government can’t afford it at a time of large budget deficits.”

This is the Republican challenge in a nutshell. The 42 percent that favors repeal of coverage expansion is overrepresented in the GOP primary electorate, yet Republicans need to secure some portion of the wait-and-see bloc to win a general election.

Roarty’s article brought to mind Ramesh Ponnuru’s critique of libertarian populism. Tim Carney and other libertarian populists champion attractive measures like deep payroll tax cuts. Yet unless these cuts are accompanied by tax increases elsewhere, e.g., on high-earners, whether via the payroll tax or the federal income tax or some other new revenue source, left-liberals can credibly claim that deep payroll tax cuts are incompatible with the benefits to which retirees have grown accustomed and which near-retirees have come to expect.

Similarly, it seems likely that once the ACA coverage expansion is entrenched, it will become difficult to reverse for the same reasons. We’ve discussed the fact that the ACA’s beneficiaries are disproportionately found among members of the Democratic coalition, which is in theory a source of political vulnerability. But it is also true that when the ACA benefits a member of one’s extended social network, it might incline one to be more supportive of it. That is, parents of adult children who benefit from ACA exchange subsidies might be more reluctant to support repeal. This is why it is important for Republicans to craft an alternative to the ACA, or reform of the ACA, as Avik Roy recommends, that can do a better job of meeting the underlying demand for affordable coverage expansion.

Eli Dourado is enthusiastic about Ev Ehrlich’s call for a new progressive broadband agenda, published under the auspices of the center-left Progressive Policy Institute. Ehrlich contests the widely-held assumption that the quality and penetration of U.S. broadband services has been undermined by an anti-competitive “duopoly,” and he also questions the wisdom of net neutrality regulations that flow from the duopoly premise. Part of Ehrlich’s argument is that broadband providers aren’t just competing with each other — in a sense, they are competing with the providers of devices and applications that make use of broadband services:

Signal providers innovate and invest in faster and more reliable signal, only to find that device manufacturers find ways to utilize that greater capability, essentially capturing much of its value. For example, the ability to have a SIRI-type voicerecognition feature in an iPhone has existed for a long time. What has changed is the availability of a signal that allows the phone to be in continual and robust contact with cloud computers that make SIRI happen. It is an “Apple innovation” that was made possible by the innovations of signal providers. That is how competition works in the integrated market for broadband signal, devices, and services; that is how competitors innovate and improve their offerings in the “cage match.” This puts the signal providers in a position familiar to anyone who sells into a competitive marketplace— they must innovate to survive, but cannot capture the rewards to their innovations, which are taken away through competition. Far from a deviation from the competitive model, this multidimensional “cage match” competition is a perfect example of how competition works to the benefit of consumers.

So perhaps the greatest paradox inherent in “cage match” competition is that, while advocates champion more intrusive regulation, the signal providers are in the fight of their business lives. The benefits of their innovation and investment are being appropriated by the devices and services that use the signal; their stock values and capitalizations are listless compared to the companies that make devices and applications; they have made commitments in the tens of billions to build infrastructure that cannot be reversed. And they are trapped in a vicious circle: they innovate to improve signal quality and availability, these innovations make possible new devices, applications, and services that capture consumer allegiance, these other aspects of the broadband experience appropriate value and make signal more commodity-like in the eyes of consumers, which forces the providers to further improve their product, perpetuating the cycle. They are the economy’s front line for investing in and innovating for our broadband infrastructure, and perhaps they benefit from that investment and innovation the least. [Emphasis added]

Rather than champion net neutrality and common carriage regulations, which would further undermine the relative position of broadband providers, Ehrlich favors efforts to expand broadband access, including wireless services that can compete with wireline services, by (among other things) devoting more spectrum to consumer applications.

I’d be eager to read Tim Lee’s take on Ehrlich’s analysis, as well as Larry Downes’.

Given the many failures of the House Republicans, it is encouraging that all but 12 of them voted for the Student Success Act, a bill that Rick Hess of the American Enteprise Institute describes as a significant improvement on No Child Left Behind:

It dumps NCLB’s one-size-fits-all system of “adequate yearly progress” and instead requires states collecting federal funds to regularly assess students and publicly report the disaggregated results. It repeals the bureaucratic “highly qualified teacher” mandate, with its fetish for education school credentials and paperwork. It eliminates or consolidates over 70 programs. It includes new language prohibiting federal officials from compelling states to adopt and support the Common Core. It allows states to let Title I funds for low-income students follow those children to the public school of their choice.

The Student Success Act does not get Uncle Sam “out” of K-12 education, but conservatives should be okay with that. In truth, even those firebrands vociferously calling for the feds to get out have repeatedly refused to eliminate, or even aggressively cut, federal aid for low-income students and special education. Since the cost of those two programs totals about $25 billion a year, accounting for the majority of federal spending on K-12 education, the feds will be involved for the foreseeable future. Given that, the principled, constructive course is to unwind intrusive mandates and red tape while insisting on transparency when it comes to academic results and how federal tax dollars are spent.

And as Hess goes on to explain, the Student Success Act is also designed to limit the authority of the Secretary of Education, who has wide authority to waive various provisions of the No Child Left Behind Law — authority that in the view of Hess and others has been taken too far.

Unfortunately, the Student Success Act met with unified opposition from House Democrats. Many Democrats argued that the Student Success Act is not sufficiently prescriptive, as Pete Kasperowicz reports in The Hill:

Democrats say the bill is too dramatic a shift back to state control, and warned on Thursday that the bill would let state education standards slide. They also argued the bill would give states more freedom to ignore special needs students and students learning English than they can under current law.

It is thus not likely that the Student Success Act will make progress in the Democratic-controlled Senate. But the Student Success Act does seem like the kind of legislative proposal that the congressional GOP ought to champion: it grants more autonomy to state and local officials, it streamlines categorical spending, it clarifies lines of authority, yet it prunes rather than eliminates the federal government’s role.

Noam Scheiber describes the decline of “Big Law,” primarily through the lens of the recent history of Mayer Brown, a Chicago-based law firm that has gone through a tumultuous half-decade. Several of his stories are very revealing, including the following:

In May, I spoke to a former Mayer Brown associate who joined the firm’s finance group out of law school in 2001 before transferring to the pensions department so she could work saner hours. The associate, call her Helen (not her real name), survived two rounds of layoffs, then got pregnant in 2009. Helen had previously felt she was on track to make partner—her performance reviews were consistently strong—but she began to worry as she was preparing to go on maternity leave. “We would have these group meetings where we’d talk about billable hours, how down they were for our group. I knew that, if there was another layoff, we were going to be hit.”

Helen’s son was born on March 19, 2010. Just before he turned three weeks old, she received the call she’d been dreading. Mayer Brown gave her the rest of her maternity leave, plus another three months pay as severance. It was, under most circumstances, a fair offer. But Helen was in a bind. Her husband was a stay-at-home dad, and the couple owned a condominium in downtown Chicago. “I sent out a ridiculous number of resumés,” she says. “If I didn’t have a job lined up by time the time the severance ended, I didn’t have a way to make payments on my house.” She landed two or three interviews and no offers. “The market was so bad in the spring of 2010. Not a single law firm was hiring.”

Inevitably, the bank foreclosed on her condo. She and her husband relocated to the Michigan town where he grew up, and she eventually joined a local firm. Her annual salary when she left Mayer Brown was $230,000. Last year she made $40,000. It was barely enough to put food on the table and clothe her children, much less keep up with tens of thousands of dollars in law school debt. “There’s probably a bankruptcy in our future. I don’t think there’s a way out of it,” Helen told me. “In ten years, hopefully we’ll be financially recovered, we can buy a house, have a credit card again.” Before we hung up, I pointed out that the legal market had improved since 2010. Why not look for another fancy job in Chicago? “There’s no way I would go back to Big Law,” she said. “I’m doing a lot of criminal law now. I love it. It’s originally what I’d intended to do when I went to law school.” 

Any life story is enormously complex, and because Noam’s article isn’t about Helen alone, it’s entirely fair that he’s left a number of questions about her life unanswered. But a few questions nevertheless come to mind when Noam invokes Helen’s dire state of affairs: is it strictly necessary that her husband remain a stay-at-home dad, particularly if Helen is struggling to put food on the table and clothe her children? And if the chief reason that Helen is contemplating bankruptcy is that she would prefer not to return to Big Law, it’s not obvious to me that her story is particularly compelling. Given that Helen has returned to her Michigan hometown, it could be that other factors are at play, e.g., aging parents in need of care, or aging parents who are available to provide childcare while Helen’s husband seeks employment, etc. But we’re left with a story of a skilled professional who experienced a negative income shock and who appears to have chosen not to take a number of straightforward steps that would help address her financial distress. Again, I have to assume that there is more to the story, but the story as it stands is a headscratcher. I have to assume that most Americans who turn to bankruptcy are in worse shape.

P.S. Noam Scheiber kindly fills in some of the details in a series of tweets, prompted by tweets by Dylan Matthews and Matt Bruenig:

talked to her at length, i don’t think there was a ton else going on. basic details are: (1/3)

husband had been out of labor force a while, didn’t have a lot of skills. and she bought more house (2/3)

than she could afford, anticipating future bonuses, pay increases, which clearly didn’t arrive. (3/3)

only other thing is that she always struggled w/work life bal. after losing job, just decided big law (1/2)

wasnt for her. i asked her at end if she’d go back. she said no way–realized for best lifestyle wise (2/2)

“Realized for best lifestyle wise” takes some of the sting out of the notion that many U.S. families really do struggle to put food on the table and to clothe their children. It is certainly not a crime to earn less than your potential income. But when Helen says, “I don’t think there’s a way out of it” when referencing a future bankruptcy, it’s a bit galling.

One other aspect of this story that struck me is that it is a reminder of why there is such a powerful trend towards assortative mating. Had Helen’s husband been in a position to earn even a modest income when she lost her job, her family would have been in far better shape. 

Charles Kenny’s new Bloomberg Businessweek column contains the following observation:

China is churning out ever more science and technology graduates and climbing the global rankings in patent applications.

To Kenny’s credit, he goes on to offer a number of caveats regarding China’s scientific prowess. But I thought I’d share the following from Michael Beckley’s 2011 International Security article ”China’s Century?”

Today, China seems poised for scientific dominance, employing more scientists and engineers than any other country and tripling its share of world scientiªc articles over the last ten years (from 2 percent to 6 percent). Over the same time period, the United States’ share declined from 34 percent to 28 percent.

There are, however, reasons to question comparisons between imperial Germany and contemporary China. For starters, official Chinese statistics overstate the volume of China’s scientifc resources. Half of China’s “engineers” are auto mechanics or graduates of two-year vocational programs (zhuanke). In addition, data on China’s R&D spending are inflated because they are based on the real purchasing power of the Chinese yuan even though most research equipment is purchased on international markets. Nevertheless, the United States increased its lead in terms of R&D spending over the last twenty years (see figure 4), and still accounts for 50 percent of the world’s most highly cited scientific articles.

Over the next few decades, Chinese scientific research will increase significantly. In fact, it is the law: the Chinese government has decreed that, by 2020, R&D expenditures will constitute 2.5 percent of GDP and China will rank among the top five countries in terms of scientiªc article output. Topdown decrees and resource infusions, however, will not necessarily turn China into an innovation powerhouse. After all, imperial Germany coupled size with sophistication, producing not only many scientists but also world-class research. Evidence to date suggests China tends to prioritize the former at the expense of the latter. The rush to increase the quantity of Chinese scientists, for example, has reduced the quality of their education, as evidenced by sharp declines in teacher-student and funding-per-student ratios. Moreover, China’s determination to boost its article output has fostered “a Wild West climate where top researchers, under intense pressure to produce, are tempted to fake results or copy the works of others.” Chinese scientists are “preoccupied with quick outcomes and immediate returns,” and as a result, “quantitative gains in Chinese research productivity have not always been matched by qualitative gains.” According to a former Chinese biochemist turned whistleblower, “Misconduct is so widespread among Chinese academics that they have almost become used to it.” Indeed, a significant portion of new R&D spending has simply disappeared because China’s Ministry of Science and Technology lacks the capacity to monitor the ºood of new research grants. According to the most comprehensive study on Chinese scientiªc research, the result of all these deªciencies is that “much of the work coming out of Chinese laboratories and research institutes still tends to be not yet close to the cutting edge or to be derivative of what has been done elsewhere, with minor new contributions.”

In the late 1800s, German universities ranked among the best in the world and attracted talent from abroad.122 China, by contrast, currently suffers from a massive brain-drain problem. The number of Chinese students enrolled in universities in the United States increased by an average of 9 percent annually between 1996 and 2011 and 20 percent annually between 2007 and 2011. Declinists assume these students return to China after graduating and therefore “threaten U.S. technological leadership.” But 90 percent of the Chinese students who received a science or engineering Ph.D. from an American university between 1987 and 2007 joined the American workforce, and these students were typically China’s best and brightest.

Kenny’s basic point — that the U.S. should welcome work to remain a “magnet for global innovators” — is well taken. But some of the evidence he marshals to make his case strikes me as a bit odd, e.g.:

Duke University’s Vivek Wadhwa reports that the proportion of high-tech startups founded by Chinese and Indian immigrants in Silicon Valley dropped from 52 percent in 2005 to 44 percent in 2011, in part because more and more Indian and Chinese graduates of U.S. universities are returning home rather than dealing with the hassle of American immigration procedures. The U.S. is becoming less attractive to the very people who help power the U.S. innovation economy.

Wadhwa may well be right to suggest that the U.S. should be more willing to allow Indian and Chinese graduates of U.S. universities to remain in the country. But it is also true that a number of other things changed between 2005 and 2011, e.g., in the wake of the financial crisis, the relative attractiveness of high-tech entrepreneurship has increased, and so it seems plausible that a larger number of native-born Americans would be inclined to launch start-ups rather than work in financial services. That relative prestige would matter in this domain makes intuitive sense. During periods when working for elite financial services firms is particularly attractive, cultural insiders might choose to make use of their extensive social networks to join said firms. Cultural outsiders, in contrast, will be better served by striking out on their own. Once entrepreneurship starts looking like a better and relatively less risky option — that is, working in finance is not the sure bet it once was and working for a start-up looks more like a solid credential for future success — it will attract more risk-averse natives. 

Of course, it could be that as Indians and Chinese are launching fewer start-ups, they’ve been replaced by French and Canadian immigrants. If you have Wadhwa’s data, let me know!

Picking up on a theme we’ve discussed here at The Agenda, my latest Reuters Opinion column is on how computerization might impact demand for less-skilled labor in the U.S. 

David Leonhardt reports the findings of an ambitious new study of upward mobility across U.S. metropolitan regions. The results resonate with my ideological priors, and so I’ll be very interested to see how they’ll be interpreted in the weeks and months to come.

The team, led by Raj Chetty and Nathaniel Hendren of Harvard and Patrick Klein and Emmanuel Saez of UC Berkeley, sought to assess the impact of tax policy across regions. They began by analyzing earnings data with an eye towards assessing the impact of tax policy on intergenerational mobility. They found that the level of upward mobility for children raised in households in the bottom fifth of the income distribution varies considerably across regions, and there is even wide variation among regions with similar average incomes.

Yet while Chetty et al. found that larger tax credits for poor households and higher taxes on affluent households have a somewhat beneficial impact on upward mobility:

The researchers concluded that larger tax credits for the poor and higher taxes on the affluent seemed to improve income mobility only slightly. The economists also found only modest or no correlation between mobility and the number of local colleges and their tuition rates or between mobility and the amount of extreme wealth in a region.

… they identified several other factors that appeared to matter a great deal: (1) regions in which most poor families live in neighborhoods with high poverty concentrations have lower upward mobility levels than regions in which poor families live in mixed-income neighborhoods; (2) upward mobility for the poor is higher in regions with higher concentrations of two-parent families, better schools, and higher levels of civic engagement; and (3) regions with relatively high black populations tend to have less upward mobility for the poor than regions with relatively low black populations, though upward mobility tends to be lower for whites as well as blacks in these regions.

And so, Leonhardt observes, some U.S. regions, like the Pittsburgh (2.4 million), Seattle (3.5 million), and Salt Lake City (969,000) metropolitan areas, have levels of upward mobility for the poor comparable to those that obtain in countries like Denmark (5.6 million) and Norway (4.9 million), while the Atlanta (5.5 million) and Memphis (1.3 million) metropolitan areas have levels of upward mobility that would be among the lowest among affluent countries.

Leonhardt emphasizes the role of economic geography, and with good reason. In regions like Atlanta, low-wage workers tend to be more isolated from employment opportunities than low-wage workers in regions like San Francisco and New York, which are denser and relatively well-served by transit. This is why I often emphasize the role of increasing density in mitigating poverty. U.S. conservatives tend to be skeptical of efforts to increase density and the mode share of transit. But it is important to keep in mind that these efforts aren’t just complements to direct redistribution. Rather, they might serve as substitutes for it. That is, a denser region well-served by transit might require less in the way of direct redistribution, as poor families will have better access to employment opportunities, which will in turn reduce the demand for direct redistribution. The problem, of course, is that incumbents residing in dense regions tend to resist new development, and so dense, high-productivity regions tend to have high housing costs, which in turn drive many low-income families to low-density, low-productivity regions.

One of the questions raised by the work of Chetty et al. is why many Americans, particularly African Americans, are moving from regions with relatively high levels of upward mobility from the bottom of the income distribution to regions with relatively low levels of upward mobility from the bottom of the income distribution. Chenoa Flippen, a sociologist at the University of Pennsylvania, published a paper in the American Journal of Sociology earlier this year that might shed light on this phenomenon. Flippen observes that while the net migration rate for whites in the Northeast was -22.2 per thousand from 1995 to 2000, it was -41.6 per thousand for blacks. The pattern was even more pronounced in the West, where the net migration rate was 6.7 per thousand for whites and -18.7 per thousand for blacks. In the South, in contrast, the net migration rates were similar: 19 per thousand for whites and 21 per thousand for blacks. Flippen argues that blacks are moving to the South to improve their relative status:

While the link between geographic and social mobility has long been a cornerstone of sociological approaches to migration, recent research has cast doubt on the economic returns to internal U.S. migration. Moreover, there are important racial disparities in prevailing population movements, with blacks significantly more likely than whites to engage in southern migration, that remain poorly understood. This paper, which draws on data from the 2000 census, reappraises the link between migration and social mobility by taking relative deprivation into consideration. We examine the association between migration, disaggregated according to region of origin and destination, and absolute and relative measures of earnings and occupational prestige, separately by race. Our findings lend new insight into the theoretical and stratification implications of growing racial disparities in southern migration patterns; we show that while both blacks and whites who move from north to south generally average lower absolute incomes than their sedentary northern peers, they enjoy significantly higher relative social position. Moreover, the relative “gains” to migration are substantially larger for blacks than for whites. The opposite patterns obtain for south-north migration.

That is, black families might be moving to low-productivity, low-density regions in part to improve their relative status, even if their absolute incomes decline. And as Flippen explains, improving relative status is a less urgent consideration for whites residing in the Northeast:

While racial inequality has fallen substantially since the Civil Rights Movement, blacks in the North nevertheless compete for relative social position with increasingly prosperous whites. Moving south holds the potential to substantially raise relative social position both because blacks start from a relatively low position in the overall status hierarchy, and because the earnings distribution in the South houses more lower income individuals. Whites, on the other hand, are already relatively high status in the North. While they stand to gain from moving to a less prosperous area, they have less room to improve than blacks, on average. Thus even in the absence of positive absolute monetary or occupational gains, the combination of racial inequality and regional variation in social structures translate into greater potential improvements in relative position for blacks than whites stemming from north-south moves.

Flippen’s analysis raises a number of intriguing possibilities. Measures designed to make housing more affordable in dense, high-productivity regions, like relaxing local land use regulations, etc., might facilitate integration, which might in turn facilitate upward mobility. Yet measures that tend to increase wage and wealth dispersion, like a sharp increase in less-skilled immigration (which increases incomes for the highest-earners, who are in a better position to outsource household tasks, while potentially putting pressure on the lowest-earners competing for positional goods), might have more of an impact on blacks than whites.

My takeaway from Leonhardt’s article and the work of Chetty et al. is, predictably enough, that density, transit access, and marriage and social capital matter far more than is commonly understood. I would also add that effective crime control is an effective policy lever for reducing the concentration of poverty and improving cognitive outcomes among poor children. Taken together, we have a rough sketch of what a new anti-poverty policy agenda ought to keep in mind.

When you think about the most durable achievements of American social democracy, what comes to mind? I think of programs like Social Security and Medicare that managed to build incredibly inclusive constituencies. Medicaid and other means-tested programs, like Pell Grants, are in theory more vulnerable. But Medicaid also indirectly benefits large numbers of middle-income households by relieving the burden of providing aging parents with nursing home care, etc. Federal student loans flow to large numbers of young adults raised in middle-income households. Federal K-12 spending is relatively modest, yet it is spread across a wide range of school districts, including affluent districts. Having a diverse class of beneficiaries distributed across congressional districts, and across political cleavages, seems to be a really good way to ensure that a given program will have a long shelf life. 

So I was struck by Ezra Klein and Sarah Kliff’s new article on the implementation of the Affordable Care Act. Klein and Kliff describe how the Obama administration is using campaign-style tactics to encourage young people to enroll in the new state-based insurance exchanges:

This is where Obama officials say their campaign experience — and their candidate — gives them an advantage. The profile of the people they’re trying to entice into the exchanges almost perfectly matches the profile of Obama voters. And they are confident they know how to talk to those voters.

“If we were having this debate last year, the pundits would be saying that ‘it’s not clear Obama will get young people out to the polls again, it’s not clear if African Americans will turn out to vote’,” said Nancy-Ann DeParle, the former head of the White House Office of Health Reform and deputy chief of staff to Obama. “Well, guess what? As Barack Obama has repeatedly shown, he knows how to get people out. And I think they will turn out to enroll in health plans just as they did to vote last November.”

One assumes that the subsidized insurance coverage offered under the ACA will benefit a fairly large number of people, some of whom will be Republicans. But if the political scientist John Hudak is right, the ACA is remarkably well-targeted to Democratic voters:

In fact, because the president’s and Democratic governors’ electoral constituencies share demographic characteristics, their pursuit of similar voters motivates support for the law. By contrast, Republicans are successful because of the support of different demographics than Democrats. These electoral forces (not principles such as liberty or empathy) drive elected officials’ positions on health care.

Republicans often depend on white and wealthier voters for electoral success. Democrats’ electoral constituencies have a larger percentage of non-white and/or lower income voters. White and wealthier individuals are insured at dramatically higher rates. The national average for non-elderly uninsured is 18%. The rate for white Americans is only 14%. However, black Americans and Latino Americans are uninsured at rates of 22% and 32%, respectively. As one would expect, there is an inverse relationship between income and the rate of uninsured.

It should go without saying that champions of the ACA believe that it will have significant system-wide benefits, which will eventually flow to Medicare beneficiaries and people who currently have job-sponsored coverage. But in the medium-term, the Medicaid expansion and the exchanges will prove a boon to what we might describe as the core of the Obama coalition, which is why the fact that it will benefit a substantial number of people might not be that politically salient — the politically salient question is whether or not it will benefit a substantial number of swing voters, and that remains to be seen. 

If this sounds cynical, keep in mind that I’m bracketing the more substantive questions. A more “left-wing” health reform effort, e.g., the creation of a single-payer system financed by steeply progressive taxes, would have benefited a more diverse, inclusive constituency, at least in the short term, so narrowness isn’t in itself a flaw. After all, it tends to be fiscal conservatives who favor means-testing. But this narrowness might make the ACA more vulnerable than its champions think. 

In the course of a broader discussion of the moral and political questions surrounding racial profiling, Noah Millman references Ta-Nehisi Coates’ suggestion that profiling in the name of crime control represents the “annihilation of the black individual.” (It’s worth noting that other measures, like racial preferences, also efface individuality, so one assumes that the effacement of individuality per se isn’t the central problem with racial profiling.) Coates was responding to a provocative (and then some) argument by Washington Post columnist Richard Cohen that if profiling improves public safety, it may well be worth it: 

Richard Cohen concedes that this is a violation, but it is one he believes black people, for the good of their country, must learn to live with. Effectively he is arguing for a kind of racist public safety tax. The tax may, or may not, end with a frisking. More contact with the police, and people who want to be police, necessarily means more deadly tragedy. Thus Cohen is not simply calling for my son and I to bear the brunt of “violation,” he is calling for us to run a higher risk of death and serious injury at the hands of the state. Effectively he is calling for Sean Bell’s fianceé, Trayvon Martin’s parents, Amadou Diallo’s mother, Prince Jones’ daughter, the relatives of Kathryn Johnston to accept the deaths of their love ones as the price of doing business in America. [Emphasis added]

Coates adds the following:

Perhaps the standards should be different when it comes to public safety and violence. But New York City’s murder rate is as low as it has been in 50 years. How long should a racist public-safety tax last? Until black people no longer constitute a disproportionate share of our violent criminals, one assumes. But black people do not constitute such a group — victims of hundreds of years of racist state policy constitute that group. “Black on Black” crime is the racecraft by which the fact of what was done to us disappears, and the fact of our DNA becomes criminalized. 

I have another framework in mind. Black Americans are overrepresented among the victims. And while the murder rate in New York city is quite low, it is substantially higher in high-poverty neighborhoods than low-poverty neighborhoods, and high-poverty neighborhoods in turn tend to have higher black populations than low-poverty neighborhoods. It is also substantially higher than it was during the first decades of the twentieth century, and we have good reason to believe that crime actually does more damage now than it did in that era to the long-term labor market and health outcomes of children raise in high-crime neighborhoods. The New York University sociologist Patrick Sharkey, who shares Coates’ political perspective, published a fascinating article in 2010, “The acute effect of local homicides on children’s cognitive performance,” the abstract of which reads as follows:

This study estimates the acute effect of exposure to a local homicide on the cognitive performance of children across a community. Data are from a sample of children age 5–17 y in the Project on Human Development in Chicago Neighborhoods. The effect of local homicides on vocabulary and reading assessments is identified by exploiting exogenous variation in the relative timing of homicides and interview assessments among children in the same neighborhood but assessed at different times. Among African Americans, the strongest results show that exposure to a homicide in the block group that occurs less than a week before the assessment reduces performance on vocabulary and reading assessments by between ∼0.5 and ∼0.66 SD, respectively. Main results are replicated using a second independent dataset from Chicago. Findings suggest the need for broader recognition of the impact that extreme acts of violence have on children across a neighborhood, regardless of whether the violence is witnessed directly. [Emphasis added]

That is, exposure to homicide has a lasting impact on the cognitive performance of young children, and this in turn can have an enormous impact on how well these children fare later in life. I can’t imagine that Sharkey supports racial profiling. But when Coates invokes the idea of a “racist public safety tax,” I don’t think solely of racial profiling. Rather, I think of policies which systematically undervalue the lives of black people relative to non-black people, including the selective underenforcement of the law. In The Collapse of American Criminal Justice, William Stuntz offers a distinctive and compelling take on the idea of “the equal protection of the law”:

For a brief time during Reconstruction, the Fourteenth Amendment’s guarantee of “equal protection of the laws” meant roughly what it said: all citizens had the same right to the law’s protection. Ex-slaves terrorized by Klan members were entitled to a government that did its best to stop the terrorism. If local officials couldn’t or wouldn’t fulfill their constitutional obligation to protect the local population – all of that population, rich and poor, black and white – the federal government was obliged to offer some protection of its own. United States v. Cruikshank (1876) ended that constitutional obligation, and with it Reconstruction. More than a century later, McCleskey v. Kemp (1987) and Castle Rock v. Gonzales (2005) confirmed the ending: McCleskey made discrimination impossible to prove, and Castle Rock gave the government unfettered discretion to choose when to enforce the law and when to ignore it. But Cruikshank, McCleskey, and Castle Rock are at odds with the original understanding of the Fourteenth Amendment. In a better, healthier constitutional order, those decisions would fall. If they did-if the older vision of equal protection were revived-the underpolicing of violent neighborhoods, along with the consequent underenforcement of violent felonies in those neighborhoods, would be more than a policy failure. It would be a constitutional violation, one that governments at all levels would be obliged to remedy. [Emphasis added]

Coates’ “racist public safety tax” is “paid” by young black men. But who are the beneficiaries of the tax he has in mind? There is a plausible case that the principal beneficiaries are black children, roughly half of whom will grow up to be black men, and also adult women, who are far more underrepresented among victimizers than they are among victims. 

One obvious objection to this framework is that large numbers of people living in high-crime neighborhoods in cities like New York, where racial profiling has become a source of controversy, oppose the practice, which suggests that it isn’t really benefiting the class of people most directly impacted by crime. It is also true, however, that people tend to underinvest in health insurance, retirement savings, etc., as most people are present-oriented. This is why we have tax-financed social insurance programs, and it is the case for measures like the individual insurance mandate in the Affordable Care Act — these are paternalistic interventions that are designed to account for the fact that most of us have pretty short time horizons. 

If we accept that racial profling reduces crime — and I’m open to the possibility that it does not, or that there are less costly interventions that would do just as much to reduce crime — abolishing it doesn’t abolish a racist public safety tax. Rather, it shifts the incidence of the racist public safety tax. Children and women in high-crime communities will “pay” somewhat more, the men who feel as though their dignity is injured by racial profiling will pay somewhat less. This is oversimplication: the lives of women, men, and children are intertwined. And shifting the incidence of a racist public safety tax to be more favorable to young men in high-crime, high-poverty neighborhoods, a group that one could argue has been particularly damaged by broader social and economic trends, isn’t necessarily a bad thing. But it is worth thinking through the trade-off.

My own view is that reducing crime is a moral imperative, mostly because of the scarring effects of crime on the lives of poor children, but also because our collective failure to achieve the “equal protection of the laws” undermines the legitimacy of our institutions more broadly. I definitely buy the idea that racial profiling might be self-undermining, i.e., the alienation and distrust that it fosters may well outweigh its crime control benefits. I just think it’s important to acknowledge that there is another side of the ledger.

Last year, Scott Winship engaged in an epic “wonk fight” — I prefer “spirited exchange” – with Miles Corak and Justin Wolfers over the “Great Gatsby curve,” a concept Alan Krueger, who was serving at the time as chair of the president’s Council of Economic Advisors, used to illustrate the relationship between rising inequality and declining mobility:

If the Administration wants to say, “There is a relationship across countries between inequality and mobility, so that would lead us to expect that with rising inequality there will be less mobility,” that’s less objectionable, in a sense, than trying to nail down a point using the Great Gatsby Curve, giving the illusion of precision. However, the claim would still be weak, for a number of the reasons I have laid out. Better yet would be to just say, we have too little mobility and to support it with the comparatively rock-solid evidence on levels of American mobility. That is, one does not have to tie insufficient mobility to inequality, and one does not have to show that mobility is declining to argue that it is insufficiently high.

In a somewhat different vein, Greg Mankiw has offered impressionistic thoughts as to why something like the Great Gatsby curve might obtain:

[I]f we looked at Europe as a whole, rather than each nation separately, we would find that Europe as a whole has more inequality and less mobility than the individual countries. That is, Germans are richer on average than Greeks, and that difference in income tends to persist from generation to generation. When people look at the Great Gatsby curve, they omit this fact, because the nation is the unit of analysis. But it is not obvious that the political divisions that divide people are the right ones for economic analysis. We combine the persistently rich Connecticut with the persistently poor Mississippi, so why not combine Germany with Greece?

The bottom line for me is that the Great Gatsby curve is a bit interesting, but neither particularly surprising nor suggestive of any specific conclusions or policy recommendations.

Though I’m inclined to agree with Mankiw, my takeaway is that the curve is consistent with the view that it is better to be persistently rich than persistently poor, and if the U.S. had the option of annexing Greece or annexing Germany, it would be wiser to annex the latter. (And yes, I have the immigration debate in mind.) 

Ben O’Neil of The Next City describes the latest iteration of Oregon’s vehicle miles traveled (VMT) tax:

Drivers in the new program, which for now will remain voluntary and capped at 5,000 cars, will pay 1.5 cents per mile. Since these drivers are paying for VMT instead of Oregon’s 30-cent-per-gallon gas tax, they will be reimbursed whenever they fill up at an Oregon gas station. Participants in the program will continue to pay the federal 18.4-cent federal gasoline tax.

The new program is the latest development in Oregon’s decade-long plan to find a replacement for the gas tax. In the early 2000s, the state began exploring alternatives to fuel taxes. Since then it two pilot programs among state employees and legislators that were almost identical to the current system.

While the advent of more fuel efficient vehicles has been eating into gas tax revenues, a VMT tax revenues are likely to prove fairly stable. O’Neil observes that “don’t incentivize people to drive fuel-efficient cars, for instance, nor do they discourage the use of heavy vehicles that cause increased wear on highways,” but the latter deficiency can be addressed by varying the VMT tax by the weight of the vehicle, with heavier vehicles paying a higher per mile rate. A weight-based VMT tax would also indirectly reward fuel-efficiency. 

The Oregon Department of Transportation has gone to great lengths to allay concerns about privacy:

If uncomfortable with the DoT having too much knowledge of their driving habits, Oregonians will be able to opt out of the program entirely by paying a flat monthly tax. They can also install in their cars an odometer-like device that tracks the total number of miles driven and then reports that number to the state — however, these drivers will continue to be charged the VMT tax when traveling outside Oregon or on private roads. To fix the problem, some sort of GPS technology could tally number of miles driven only on in-state public roads.

One unfortunate consequence of efforts to address privacy concerns going forward is that it limits the potential of VMT systems going forward. In 2010, Felix Salmon described the virtues of Skymeter, a device that allows for a wide range of GPS-enabled road pricing schemes:

The idea behind Skymeter is that they use what they call financial-grade GPS: devices in your car which are much more accurate than the GPS devices found in navigation devices or cellphones. They can tell where you are to within a few centimeters, and once you can do that, all manner of possibilities open up in terms of charging not just to get into a city center, but rather to charge by the mile or by the minute on specific streets. Raise prices where congestion is worst, keep them low where it isn’t a problem, and solve lots of other problems at the same time — like easy charging for parking (you just park your car on the side of the road and pay for however long it’s parked there) and for pay-by-the-mile insurance. Or transform the economics of something like Zipcar, which currently just charges by the hour even when charging by a combination of hours and miles would make more economic sense.

Skymeter also allows for negative tariffs, e.g., Salmon suggests that local officials could pay drivers not to use their vehicles on certain days – a very effective tool for reducing congestion. Oregon has shrewdly given drivers many options, and the key to spurring the adoption of the VMT tax is to make it substantially more attractive than the gas tax and other alternatives, like a flat monthly tax.

Eric Jaffe has more on how VMT taxes can incorporate other anti-congestion elements, like higher mileage fees within metropolitan areas during peak hours, a concept that the Oregon Department of Transportation tested in its third VMT trial with great success.

Scott Winship argues that fears of technological unemployment are overblown:

[P]eople seem to resist the idea that if technology reduces demand for labor by a quarter, that might translate into everyone working 25 percent less rather than unemployment rising by one-fourth. The late economic historian Robert Fogel predicted that the increase in leisure between 1995 and 2040 would exceed the gain Americans saw in the 115 years before 1995.

Will Fogel be proven right? I certainly don’t know. What I’m pretty sure of, however, is that in 2040 we will not look back at 2013 and think, “We’ve made a huge mistake,” ruing the day we failed to listen to those afflicted with technophobia. Technological progress is not a trick we have played on ourselves to throw ourselves into poverty. It is a means for fulfilling our material wants and needs and continues only to the extent that it does so.

Yet Scott also cites a new report by Frank Levy and Richard Murnane, which warns that mechanization might lead to stagnant or declining wages for less-skilled workers, a report I will discuss at greater length in my next column. While I agree with Scott’s basic view that the emergence of increasingly sophisticated machines that can automate a wide range of tasks now performed by human workers won’t in itself lead to unemployment or underemployment, the real question is how technological change is likely to interact with labor market policy. That is, if it becomes increasingly expensive for firms hire low-wage employees and if it becomes increasingly less attractive for less-skilled workers to take part in the labor force, as compensation declines and non-participation in the labor force becomes more tolerable for a variety of reasons (a decrease in the cost of the goods and services needed to maintain a dignified life is one possibility, an increase in means-tested transfers is another), it isn’t too difficult to imagine that technological development will co-exist with a shrinking labor force and declining work hours. This isn’t necessarily troubling provided declining work hours and labor force participation reflect changing preferences, hence Scott’s reference to leisure time. But if this increase in leisure will does indeed occur, it will most likely be distributed unevenly. Mark Aguiar and Erik Hurst famously observed that we have seen an increase in “leisure inequality“:

This paper examines the changing allocation of time within the United States that has occurred between 1965 and 2003-2005. We find that the time individuals have allocated to leisure has increased in the U.S. for both men and women during this period, with almost the entire gain occurring prior to 1985. We also find that post 1985 there has been a substantial increase in leisure inequality, particularly for men. Over the last 20 years, less educated men increased the time they allocated to leisure while more educated men recorded a decrease in leisure time. While the relative decline in the employment rate of less educated men is important, trends in employment status explain less than half of the increase in the leisure gap.

The Economist drew on this finding in 2006 to make the following point:

Does this mean that income inequality increased only because the poor and middle class work less? Not necessarily; the causation may run the other way. Leisure is a good like any other, and has a positive income effect; as people have more income, they want to consume more of it. Since low-paying jobs tend to be more unpleasant than higher paying jobs (journalism excepted), the income effect may be stronger at the bottom of the wage distribution. Since all income groups have seen real incomes rise over the last forty years, those in the bottom half may simply have decided that since they get paid more, they don’t have to work as much.

On the other hand, the substitution effect predicts that as changes in technology have disproportionably increased the salaries of skilled workers, the better paid are likely to have worked more. People with higher wages have a greater incentive to forgo leisure time. The less skilled face a smaller opportunity cost for their leisure. So they will work less.

If the prestige associated with less-skilled, low-wage work declines as mechanization proceeds apace, the income effect at the bottom of the wage distribution might grow stronger still. And if mechanization exacerbates the polarization of the labor market, as seems plausible, the opportunity cost of leisure at the bottom of the wage distribution will shrink in relative terms. Scott is right that this scenario would not represent a straightforward case of machines throwing people out of work — rather, it would represent an intensification of a number of existing trends that have tended to exacerbate wage and income dispersion. Some left-liberals are resistant to the notion that technology has been a significant driver of increasing inequality, instead emphasizing the policy environment, e.g., the prevalence of collective bargaining, etc. Dean Baker writes:

In this story the upward redistribution of income was a conscious policy by those in power. This story points to a number of different policies that had the effect of redistributing income upward. For example, exposing manufacturing workers to direct competition with low-paid workers in the developing world, while protecting highly educated professionals (e.g. doctors and lawyers), would be expected to lower the wages of both manufacturing workers and the large number of workers who will compete for jobs with displaced manufacturing workers.

Central banks that target low inflation even at the cost of higher unemployment will also increase inequality. When a central bank like the Fed raises interest rates to slow the economy and reduce inflationary pressures, it is factory workers and retail clerks who lose their jobs, not doctors and lawyers. Even an economist can figure out that this will depress the wages of the former to benefit the latter.

Baker’s points are reasonable, yet it does seem as though a technology-driven erosion of mid-skill employment has contributed to pre-tax-and-transfer wage and income dispersion. Reducing the protections afforded credentialed professionals might have mitigated this tendency to some extent, but it seems implausible that it would have halted or reversed the deterioration of the labor market position of less-skilled workers. Highly educated professionals in other domains — management consultants, corporate executives, coders — have also seen their relative position improve, yet they don’t have organizations with the clout of the AMA and the ABA working to build barriers to entry on their behalf, which is not to say that there haven’t been attempts.