Yuval Levin warns that the Obama administration’s recent moves to delay or relax reporting requirements for employers and individuals under the Affordable Care Act will greatly increase the risk of fraud. He also suggests that the Obama administration is taking a calculated risk to prevent a nightmare scenario in which the exchanges are too small to constitute stable insurance pools: 

Opening the door wide open to fraud could well increase the number of people in the exchanges, but it will also make that number far less meaningful—casting a shadow over whatever is achieved by the enrollment effort set to launch in the fall. It will also, needless to say, increase the cost of the exchange subsidies. The administration is clearly worried enough about enrollment to take that risk and bear that cost. It seems to be operating under the assumption that the way to secure Obamacare’s future is to get as many people as possible into the system and receiving subsidies. Maybe they’re right, and maybe they’re wrong, but they certainly seem increasingly desperate.

The strongest counterargument that comes to mind is that the threat of future enforcement will contain the number of fraudulent claims, but this is hardly a guarantee. And last week employer mandate and income verification announcements aren’t the only signs that the ACA is on shaky ground, as Peter Suderman reports. I’m obviously inclined to agree with Yuval and Peter, so I was struck by a more optimistic take on the employer mandate delay from Linda Blumberg, John Holahan, and Judy Feder of the Urban Institute, released before the income verification announcement:

As we have explained elsewhere, there is very little in the ACA that changes the incentives facing employers that already offer coverage to their workers, and fully 96 percent of employers with 50 or more workers already offer today. Competition for labor, the fact that most employees get greater value from the tax exclusion for employer sponsored insurance than they would from exchange-based subsidies, and the introduction of a requirement for individuals to obtain coverage or pay a penalty themselves, are the major factors that will keep the lion’s share of employers continuing to do just what they do today with no requirements in place to do so.

Lessons from the Massachusetts health reform experience are instructive here as well. The Massachusetts law has substantially lower penalties for non-offering employers than does the ACA – the Massachusetts Fair Share Requirements is a maximum of $295 per worker, compared to a potential ACA maximum of $2,000 per worker. However, nominal as those assessments are, employer-sponsored insurance actually increased post-reform, as our analyses done prior to implementation predicted. This increase in employer based coverage was the consequence of individuals facing a new requirement to obtain insurance coverage and deciding their preferred source of coverage if they had to get it was their employer.

Throughout the development and the implementation of the ACA, there has been more worry than warranted that employers will drop insurance coverage. The current furor over the delay of the employer penalties appears to be more of the same. With or without the penalties, most people will still get coverage through their employers; the fundamental structure of the law will remain intact.

One reason employer-sponsored insurance might increase is that the mandate might lead some non-trivial number of employees who have decided to waive employer-sponsored insurance to ask for it. So perhaps Yuval, Peter, et al. are needlessly concerned. It is worth noting, however, that while 95.7 percent of private employers with 50 or more workers offer health insurance today, it’s unclear if the insurance that is currently offered by these firms would be considered acceptable under the guidelines established under the Affordable Care Act. The share of private employers that offer private insurance increases with the number of workers — 0-10 workers (28.3 percent), 10-24 (58.4 percent), 25-99 (78.1 percent), 100-999 (93.3 percent), and 1000+ (99.5 percent). The 25-99 category seems to be most salient, as it captures firms crossing from 49 to 50 employees.

Firms with more than 50 workers that rely heavily on part-time employers are much less likely to offer health insurance than those that rely primarily on full-time employees — less than 25 percent full-time (82.7 percent), 75 percent or more full-time (97.4 percent). And among firms with more than 50 workers that employ 50 percent or more low-wage employees, 91.5 percent offer health insurance as compared to 98.1 percent of firms that employ 50 percent or fewer. I was most struck by the age of firm numbers. While 97.7 percent of firms with more than 50 workers that have existed for 20 years or more offer health insurance, the same is true of only 70.1 percent of firms with more than 50 workers that are less than five years old. The fact that young firms are much less likely to offer health insurance than old firms suggests that there is a cultural shift taking place, and that as younger firms replace older firms through churn and attrition, employer-sponsored insurance will fade with it. The salient question is whether enforcement of the employer mandate would make a difference. Back in May, Christopher Weaver and Anna Wilde Mathews reported in the Wall Street Journal that at least some firms were embracing so-called “skinny” health plans as a way to avoid having to pay the penalty under the employer mandate. The article also raises so-called “mini-meds”:

Firms now offering low-cost policies known as mini-meds, generally plans that cap benefits at low levels, could favor the tactic. Companies sought federal health department waivers to cover nearly four million with mini-meds and other similar plans, which will be barred next year. Some employers are “thinking of this as a replacement for the mini-med plan,” said Tracy Watts, national leader for health-care reform at Mercer, a consulting unit of Marsh & McLennan Cos. [Emphasis added]

Blumberg, Holahan, and Feder cite data concerning the share of employers with more than 50 workers that offer health insurance, but it’s not clear that these firms offer health insurance to all of their employees, including part-time and low-wage employees, nor is it clear how many of them offer mini-med plans that will be barred under the Affordable Care Act. This is all salient information. Moreover, while most employees might get greater value from the tax exclusion for ESI than they would from the exchange-based subsidies, this isn’t true of low-wage employees with low levels of federal income tax liability. All that said, I hope Blumberg, Holahan, and Feder are right and that recent decisions made by the Obama administration won’t greatly increase the cost of the ACA. 

I have further thoughts on the new ACA news in my new Reuters Opinion column.

P.S. In December of last year, Nirmita Panchal, Matthew Rae and Gary Claxton provide helpful information regarding employer-provided coverage across firms:

In addition to the percentage of firms that offer benefits, an important component of coverage is the percentage of workers at those firms who are covered by benefits. Either because some workers are not eligible or they choose not to accept the coverage, a portion of workers at firms which offer health benefits are not covered by health benefits. While the percentage of covered workers at firms offering benefits is similar between small and large firms (61% and 62%, respectively), the lower offer rate at small firms means a smaller percentage of workers are covered. Forty-seven percent of workers at both offering and non-offering firms are covered by health benefits at small firms compared to 62% at large firms.

In addition to lower offer and coverage rates, small firms are also less likely to offer health benefits to part-time workers than are large firms (28% vs. 45%). A similar pattern is seen for temporary workers (2% in small firms vs. 6% in large firms). There is a great variability in the number of services covered by health plans across firms. In regards to separate dental and vision benefits, small firms are far less likely to offer or contribute to such plans compared to large firms. For example, 89% of large firms offer dental benefits compared to 53% of small firms. Likewise, sixty-two percent of large firms offer vision benefits, while only 27% of small firms do so. [Emphasis added]

These numbers suggest that the employer mandate, coupled with ACA regulations concerning what constitutes an acceptable affordable insurance option, might have a very significant impact on the labor market.

Bill Wasik, a senior editor at Wired, observes that “the Bush years hardened the left’s sense of “what it means to be a Democrat” on some issues,” including unions. He draws on Matt Yglesias’s related claim that bipartisan chumminess among retired elected officials, elite media, and lobbyists matters less now in shaping political outcomes than it had in earlier eras

In a super-literal way, the city that I live in—where people live on the Green Line or in Bloomingdale/Eckington/LeDroit Park or out on H Street NE—is a very different city from the one Leibovich profiles. And the now-dominant political paradigm is one in which ideology and partisanship carry much more weight, and personal connections and relationships carry much less. It’s a paradigm in which all the Democratic Senators support immigration reform, even when they represent Ohio or Alaska or Louisiana. It’s a paradigm in which there’s no set of concessions you make to moderate Republican Senators from Maine to get them to back your health care bill. There are many fewer angles to work, and many fewer favors to call in. It’s in a lot of ways a town that’s remedied the things people used to say they hated about Washington. It’s become a city of principle, and a city where much less gets done in back-room deals. But it’s also a city with much more vicious partisanship and much less of a spirit of “let’s compromise for the public good.” It’s a city that people have come to hate for whole different reasons and in whole different ways.

But whether you think it’s been change for the better or for the worse, it’s clearly the direction things are going. Nationalized, very partisan politics in which elected officials are looking over their shoulders at a blend of ideologically motivated grassroots and ideologically motivated mega-donors and falling in line. Carl Hulse had a piece over the weekend in the NYT about how Harry Reid came to be an orthodox liberal on a whole range of issues that I think tells you the real story of politics today—more sorting, less deal-making.

My decidedly unoriginal thesis is that partisan rancor increases as the competitiveness of a given political system increases. Once the 1994 congressional elections demonstrated that a more ideologically coherent GOP could wrest control of the House from Democrats, the incentives facing the minority party changed dramatically. Rather than work with the majority to influence legislation at the margins, minority partisans preferred to maximize their chances of securing control of the House. This explains the unified Democratic opposition to President Bush’s ill-conceived 2005 Social Security reform push as well as unified Republican opposition to President Obama’s major legislative initiatives, particularly the poorly-crafted Affordable Care Act (ACA). Liberals often insist that Republicans ought to have cooperated with congressional Democrats on coverage expansion, on the grounds that doing so might have led to better legislation. Yet Republican opposition came very close to derailing the ACA, which conservatives saw as flawed in ways that were difficult to repair. (Flattening the subsidies is one idea some Republicans, including Arizona Sen. John McCain, had advocated, yet the president and his allies successfully demonized the idea during the 2012 presidential campaign, limiting room for maneuver.) And derailing the ACA would have left congressional Democrats and the Obama administration in an even more politically vulnerable position, given the amount of time they had devoted to securing its passage. Sometimes gambles don’t pay off. Regardless, it’s hard for me to see how this dynamic changes short of large-scale structural reforms that are hard to imagine, e.g., multi-member congressional districts in populous urban regions might yield more Republicans who are inclined to occasionally cooperate with Democrats on various domestic policy issues, or, more realistically, campaign finance regulations that strengthen the parties might yield more centrist Democrats and Republicans in swing districts. Short of that, one party or the other will have to be banished to the wilderness for a very long time before we see a return of bipartisan amity. 

Over the weekend, Ross Douthat argued that left-of-center and right-of-center health policy analysts tend to be skeptical of the virtues of employer-sponsored insurance, and that allowing ESI to slide into the dustbin of history wouldn’t be such a terrible thing. Ramesh Ponnuru replied with a modest defense of existing health-insurance arrangements, including employer coverage:

Employer coverage has its benefits, and in a free market where it had no special privileges over other forms of health insurance it might account for a large share of the market. That’s fine, and the government ought not to do anything to prevent it. Some conservatives and libertarians like the idea of everyone’s purchasing catastrophic insurance for himself (sometimes with help), and that model has its attractions too, but there is no good reason for the government to impose it on everyone.

Bryan Dowd, a health economist at the University of Minnesota, kindly shared his thoughts with me on this subject earlier this year. Specifically, Dowd addressed the concern that equalizing the tax treatment between the group and individual insurance markets would lead to a collapse of employer-sponsored insurance:

Employment-based health insurance is enormously efficient in the sense that employees are unlikely to change jobs just to get a better deal on their health insurance. Large employers thus are able to form relatively stable insurance pools that allow them to offer longer-term risk protection than typically is available in the individual insurance market. Particularly in large firms, if you get cancer next year you still can expect to pay the same community-rated premiums as your fellow employees, as long as you are healthy enough to remain employed. I thought that the ability of employment-based health insurance to maintain a stable insurance pool would be enough to ensure its continued existence, even in the absence of favorable tax treatment.

The goal of the state-based insurance exchanges established under the Affordable Care Act is to create similarly stable insurance pools that can offer longer-term risk protection for those who lack access to large group employer-sponsored insurance. But he offers a few cautionary notes:

The inability to purchase an insurance policy that offers long-term protection against losing health insurance for people who lose their job and have a serious health condition was a “missing market” prior to the PPACA legislation. Every risk-averse person should have been willing to purchase such insurance (without being mandated to do so) if it were available at an actuarially fair premium, but it wasn’t, and it isn’t clear that the private market is structurally capable of offering that insurance product. The PPACA exchanges at least offer the hope of filling that missing market. Had I been overseeing the PPACA legislation, I would have explained that to the public and then proposed a dedicated source of revenue for that long-term risk protection product that was not mixed with other goals such as income redistribution.

While I hope that the exchanges will work, I cannot be overly optimistic. Minnesota tried to run such an exchange in the 1990s. It operated for seven years and then folded. I suspect that the state and federal entities running the PPACA exchanges soon will discover that they need late enrollment penalties and much harsher penalties for remaining uninsured. They also will need strict monitoring of insurers’ attempts to “cherry pick” the good risks out of the exchange pools by offering them slightly different policies at lower premiums.

The architecture of the Affordable Care Act looked rickety from the start, and the recent delay of employer mandate and income verification enforcement measures suggests that it will unravel even more quickly than some of its critics had anticipated. The most logical next step, in my view, is to move towards fixed-sum refundable, advanceable tax credits, an idea that has been advanced by many conservative health policy scholars, including James Capretta. As a transitional step, one might limit these credits to those who do not receive employer-sponsored insurance, while the value of the tax exclusion for ESI might be capped. (See our discussion of Caprettacare from a few months back.) Reforming the tax treatment of medical insurance wouldn’t address the rising cost of Medicaid, but it would certainly make our health system more coherent. And as the employer mandate and income verification imbroglios demonstrate, that is no small thing. 

The fact that Eliot Spitzer is a hypocrite who abused his authority as governor deserves to be taken seriously. So is the rank opportunism that characterized his tenure as attorney general. Spitzer has a reputation for arrogance that would greatly undermine his ability to get things done as, say, mayor of New York city. But I wouldn’t dismiss the possibility that he could do a decent job as city comptroller, not least because he’d have something to prove. 

Walter Olson of the Cato Institute reminds us that the prostitution scandal that brought down former New York Gov. Eliot Spitzer was about much more than marital infidelity:

In all seriousness, some of the prime memories to keep fresh about the 2008 scandal are: 1) Spitzer not only prosecuted those who engaged in the same behavior he was up to, but cynically led a public campaign for longer sentences for “johns”; 2) he engaged in the white-collar offense of structuring or “smurfing,” deliberately keeping financial transactions below a reportable threshold, after prosecuting others based on the same sorts of bank reports; 3) he then used expensive lawyers to beat the rap on both counts, even as smaller fry continue to be convicted for both; 4) from what I can tell – I invite correction if I’m wrong – he’s done approximately nothing in the years since to work toward relaxing or removing legal penalties for small-fry (or for that matter big-fish) johns and smurfers.

These are extremely serious charges, and they demonstrate a deep moral failure and a dereliction of duty on the part of Spitzer, who was once considered a serious Democratic presidential aspirant. It is also true, however, that Spitzer has a knowledge base that is relevant to the job he is now seeking, that of New York city comptroller. The comptroller serves as a fiscal watchdog, as Daniel Gross of The Daily Beast explains:

New York City, along with New York State and many other jurisdictions, engages in the practice of putting crucial financial and money-management decisions in the hands of elected officials, rather than in the hands of career bureaucrats. And because of the city’s size and financial heft, there’s a lot at stake. The comptroller oversees the city’s five public-employee pension funds, which combined have about $140 billion in assets and manage money on behalf of 237,000 retirees and 344,000 employees of the city and related entities. The comptroller also helps deal with bond issuance. New York City has about $41 billion in general-obligation debt outstanding. In 2012, the city issued $8.1 billion in new-money bonds, and sold another $6.6 billion in bonds to refinance existing debt at lower interest rates.

The stakes are extremely high. The costs of poor management in these areas are massive, for all taxpayers.

The skills required to navigate this landscape successfully are scarce, and there is no good reason to believe that an election is the right way to identify the best candidate for this particular, highly specialized job. Research by Alexander Whalley suggests that appointive treasurers tend to do a better job than their elected counterparts. But as long as New York city has an elected comptroller, it would be foolish to prematurely dismiss a qualified candidate. I can’t say whether Spitzer is the best candidate for comptroller. His opponent in the Democratic primary, Scott Stringer, the Manhattan borough president, has a good reputation, and as Smith recently observed, he seems to have drawn on the work of Alon Levy to highlight waste and inefficiency in local infrastructure spending. (But during his brief tenure as governor, Spitzer made a real effort to curb overspending at the Port Authority, as Stephen Smith recounts in his sobering chronicle of cost overruns at the new “Transportation Hub” at the World Trade Center site in Lower Manhattan.) The Republican candidate, John Burnett, has a respectable CV. Unfortunately, downballot races in monolithically Democratic cities like New York are largely a matter of party ID. So I say we let Spitzer make his case. 

P.S. See Josh Barro for more on why Spitzer might be right for the job. The big takeaway: 

He’s an outsider who doesn’t owe anything to the city’s unions, contractors, health care interests, real estate investors, or anybody else. He has a public profile that will rival the next mayor’s, whoever that is. And he isn’t a mediocrity.

Spitzer told the New York Times yesterday that he intends to broaden the role of the comptroller, by auditing not just the city’s finances but the effectiveness of government policies overall. In other words, it sounds like he intends to set up a shadow mayor’s office.

Stringer, in contrast, might be more cautious, as a more aggressive posture might alienate local labor unions. 

Jed Graham of Investor’s Business Daily has been drawing attention to the labor market implications of the Affordable Care Act’s employer mandate for the past several months. Specifically, he has warned that the mandate may lead low-wage employers to reduce work hours and staffing levels. Now that the Obama administration has announced that it will defer enforcement of the employer mandate until 2015, many are asking what a delay might mean for the future of the ACA. The Obama administration claims that it is deferring enforcement due to the fact that the federal government needs more time to put the relevant regulations in place. Graham, however, argues that getting the regulations right won’t address the underlying labor market problem:

[W]hile there’s no question the law has left many employers befuddled, a delay won’t fix the real problem or unwind the consequences already seen: a pile-up in lost hours worked for modest-wage earners.

A cursory search of official announcements from employers by IBD revealed cuts in the workweek for 16,500 workers ahead of the onset of ObamaCare penalties. That number barely scratches the surface of the law’s real impact because it excludes the vast majority of announcements in which employers have been vague or silent about the number of workers facing reduced hours.

For example, a decision by Regal Entertainment Group (RGC) to cut the hours of non-salaried workers below 30 per week at its 500-plus theaters will certainly affect thousands, but those are excluded. Likewise, this accounting excludes the actions by most employers who have kept their cards close to their vest to avoid the potential for negative publicity and those who have yet to make their plans clear.

Still, the 16,500 number is significant because it makes two things clear: 1) Modest-wage workers will bear the brunt of ObamaCare’s mandate that employers pay to provide health coverage for those clocking at least 30 hours per week. 2) A delay to 2015 is not long at all, since many employers acted to curb hours in the spring of 2013, well before the original 2014 start date. Thus, the delay is unlikely to provide comfort to workers already impacted — or to Democrats ahead of the 2014 mid-terms.

I should stress that Graham does not favor repealing the Affordable Care Act as far as I can tell. He has proposed various reforms that can make the ACA more sustainable. Yet he does seem to have identified a serious problem with the law, which will require rethinking its architecture. Josh Barro has addressed the same set of issues:

The whole point of the employer mandate is to incent employers to offer health coverage to full-time workers. Firms might otherwise drop coverage and direct employees to buy through the insurance exchanges created under Obamacare.

That would be costly for taxpayers, as most workers will be eligible for subsidies to help them buy insurance in the exchanges, and often those subsidies will far exceed the value of the tax preferences given for employer-provided health insurance.

And he also adds a political observation:

Obama needed the mandate to get Obamacare passed because it would reduce participation in the exchanges and therefore the law’s overall costs. One of his key selling points for the law was that it would cut the deficit. Now that the law has passed, his administration is freer to pursue changes that will raise Obamacare’s cost to taxpayers but improve its effects on the economy.

Delaying the employer mandate, perhaps indefinitely, is one way to do that. It’s a better reason than “we couldn’t figure out how to do the reporting.” But it’s not one you can say out loud.

Doug Holtz-Eakin offers further thoughts, as do Chris Conover and Avik Roy. Avik suggests, along with many other health policy analysts, that the delay might accelerate the unraveling of employer-sponsored health coverage:

If you like Obamacare, and you want it to work, you don’t need the employer mandate. Democrats put the employer mandate in Obamacare because the President was worried that, without a mandate, employers would dump coverage, violating his oft-repeated promise that “if you like your plan, you can keep it.” Before Mitt Romney signed Massachusetts’ health-reform bill into law, he vetoed that state’s employer mandate. The heavily Democratic legislature overrode his veto.

Even if the Obama administration’s delay lasts for only one year, that delay will give firms time to restructure their businesses to avoid offering costly coverage, leading to an expansion of the individual insurance market and a shrinkage of the employer-sponsored market. Remember that the administration is not delaying the individual mandate, which requires most Americans to buy health coverage or face a fine.

But delaying the employer mandate could lead, ultimately, to its repeal, which would do much to transition our insurance market from an employer-sponsored one to an individually-purchased one. Indeed, earlier this year, a bill to do just that was introduced by Rep. Charles Boustany (R., La.), Sen. Lamar Alexander (R., Tenn.), and Sen. Orrin Hatch (R., Utah). If the employer mandate were to ultimately be repealed, or never implemented, today’s news may turn out to be one of the most significant developments in health care policy in recent memory.

What I find funny about the bill Avik describes (the “American Job Protection Act”) is that one can very easily imagine it being taken up by left-wing Democrats as well as right-wing Republicans, albeit for different reasons.

Ezra Klein frames the delay as a victory for large employers, and he ends with an eye towards the future:

Congress should use the next year to improve the employer mandate. There are plenty of better ideas out there: The Senate Health Committee’s bill used a mandate with a smaller penalty, but one that accrued to both full-time and part-time workers. The House bill tied its penalty to the percentage of payroll an employer spent on health care. We can do better, and we should.

And then, in a couple of years, when the exchanges are up and running and expensive employer-based plans are getting hit by the “Cadillac Tax”, perhaps employers will be open to rethinking whether they should be in the health-insurance business at all. If and when that happens, Congress should happily help them ease out of it.

There is another way of looking at the slow-motion collapse of employer-sponsored health coverage, however: as Chris Pope argues, employer-sponsored health coverage has proven fairly successful because under ERISA, it is not generally subject to onerous state-based insurance regulations. If we transition from employer-provided coverage to tightly-regulated state-based insurance markets, it is possible that the insurance business will become even more rigid than it already is — this is why I’ve called for a national exchange as a kind of escape hatch. And of course if the private insurance market becomes more dysfunctional, a single-payer, Medicare-for-all alternative will become more politically attractive. 

Kevin Roose laments the rise of private transportation services:

Companies like Uber and Lyft didn’t cause the public sector’s problems, but they’re profiting from them. And when policy-makers begin to see these services as legitimate replacements for public infrastructure, their incentives to make public services better will disappear. The BART strike has shown how decades of erosion of the tax base, coupled with the rise of a tech-savvy elite that can afford to pay for private services, has reduced public transportation to a second-class alternative and taken away much of the subway unions’ negotiating leverage. After all, with so many private options for getting around, why does it matter if a few hundred thousand BART riders are stranded?

The founders of companies like Uber say they want to make private transportation cheap enough for everyone to use. It’s a noble impulse, and it should be applauded. But public transportation will always be more cost-effective than even the cheapest private services. You can get from Oakland to South San Francisco on BART for $4. No private-sector app will ever survive by charging fees that low.

I’m guilty in supporting the rise of premium, for-profit transportation services. I use them all the time, and I’m generally glad they exist, for times when public transportation falls short or isn’t available. I might even use one to get into San Francisco this afternoon, for a meeting I’m scheduled to have. But if I do, I’ll do it with a tinge of guilt, while thinking of the people who are truly stranded by BART’s shutdown and left out of the private-sector schemes of Silicon Valley disrupters.

Roose’s analysis neglects a few important issues:

1. The Bay Area is a vast, sprawling, auto-dependent region, and San Francisco, the densest large city in the region, is far less dense than the five boroughs of New York city. (Recall that if San Francisco had the density of the five boroughs — including Staten Island and Queens! – its population would be 1.2 million, or 50 percent higher than it is in our universe.) Local land-use regulations that limit density have contributed to rising rents and home prices, yet they have also made public transportation less viable than it would be in a denser region. So if we’re going to point to a culprit, it might make sense to focus on opponents of upzoning rather than companies like Uber and Lyft.

2. Companies like Uber and Lyft, and car-sharing services like Zipcar and Getaround, can be understood as an alternative to public transportation. But they can also be understood — and indeed, they are perhaps better understood — as an alternative to private automobile ownership. Almost by definition, public transportation does not offer point-to-point travel. That is, the BART of the Muni won’t take me from my front door to my office building. The Census tracks “mode share” across U.S. cities, i.e., the share of commutes across automobiles (driving alone or carpooling), transit, biking, and walking. In New York city, transit mode share was 54.9 percent in 2009 while driving alone was 23.5 percent. In San Francisco, transit mode share was 31.8 percent while driving alone was 38.9 percent. Carpooling represented 5.3 percent of mode share in New York and 7.4 percent of mode share in San Francisco that year. So here is the question: are Uber and Lyft reducing transit mode share or are they reducing driving alone, which greatly outweighs transit in San Francisco? If it’s the later, it seems as though Uber and Lyft are doing a great deal of good, as reducing driving alone will tend to reduce congestion, which in turn will tend to benefit commuters who travel via bus.

3. Roose references the buses that large technology enterprises like Google and Facebook provide for their employees as an emblem of a “two-tier transportation caste system.” Once again, we have to ask if these buses are reducing transit mode share or if they are in fact reducing driving alone. Many of the big technology campuses in the South Bay aren’t convenient to transit, and so it is difficult to use Caltrain to access them — unless, that is, one is using a car at the other end. What Google and Facebook have done is allow employees who want to live in neighborhoods like San Francisco’s Mission District the opportunity to do so without owning automobiles and contributing to traffic congestion. Plenty of people who live in the Mission District might prefer that Google and Facebook employees lived elsewhere (on another planet, or at least in the suburbs), but I think it’s not such a bad thing for them to live in a relatively diverse society where they can serve as a customer base for less-affluent service workers who benefit from the city’s density. The public sector could finance bespoke transportation services designed to meet the needs of high-income technology commuters, yet it is not obvious that this would represent a sensible or for that matter egalitarian use of resources. One could argue that Google, Facebook, et al., should be located closer to transit, but this leads us back to the density question: low densities make it very difficult to sustain mass transit. 

4. Stephen Smith, a reporter at the New York Observer and a friend, observes that in dense New York city, the private sector picks up the slack among the poor, e.g., the dollar vans that flourish in Flatbush first emerged during a transit strike in the 1980s and have continued to flourish as a low-cost transportation alternative, and a wave of new van services serve Chinese-Americans communities in Brooklyn and Queens. The so-called “Chinese vans” perfectly illustrate the challenge: legacy public transportation systems tend to travel from outlying neighborhoods to the traditional central business districts, yet New York city, like many cities around the world, is evolving in a “polycentric” direction, in which commutes aren’t just from outlying areas to the CBD, but from outlying areas to other outlying areas that are emerging as centers for commerce and culture. New Yorkers who want to travel between Sunset Park, Chinatown, and Flushing can do so via public transportation, but the rides are long and convenient. Private services that rely on the road network can offer a faster and in some cases cheaper ride than public transit. This doesn’t reflect disinvestment, as it is unrealistic to imagine a public sector service that will cater to the small but non-trivial number of New Yorkers who want to travel from one ethnic enclave to another. Public sector and private sector transportation networks can and should constructively co-exist.

5. And finally, Roose attributes the low quality of transit in the Bay Area to “decades of erosion of the tax base,” yet Smith has noted that transit funding in the region has been fairly generous — the problem is that it has been deployed very poorly. Rather than invest in Caltrain, which connects San Francisco to job centers in the South Bay, local officials have invested in light-rail systems in San Jose and a BART extension to suburban San Jose. I don’t doubt that the erosion of the tax base is an issue in California, which severely limits local fiscal autonomy and property taxes. But it’s not true that large sums of money haven’t been invested in transit projects. It’s just that transit projects in low-density regions aren’t likely to make much of a dent in congestion, and they aren’t likely to benefit low-income commuters.

Basically, I think the underlying problem with the Bay Area and with transit in the Bay Area is restrictive local land-use regulations that limit density, as limiting density necessarily limits the potential of transit. But even if density were to increase, and even if transit mode share and investment were to increase in tandem, private transportation services would have an important role to play as an alternative to private automobile ownership in a polycentric urban region.

All that said, I like fulminating too. 

Earlier today, I had a brief conversation with Josh Barro of Business Insider, during which we briefly touched on a number of topics, including climate policy and the employer mandate. This reminded me of Josh’s series of charts describing the various ways in which the demographic composition of congressional districts represented by Republicans and Democrats differ. The most striking contrast is that Republicans represent districts that have a much higher proportion of non-Hispanic whites (75% R, 51% D), married-couple families (52% R, 44% D), and homeowners (42% R, 30% D). And as David Frum observed in 2008, regions represented by Republicans also tend to have an egalitarian distribution of income, which might flow from the fact that they have somewhat fewer adults with less than a high school diploma as well as fewer adults with a college degree or more. 

So why does this matter? A year ago, during the GOP presidential primaries, I described how the demographics of partisanship might interact with the demographics of unemployment. Crudely, I argued that because unemployment had more of an impact of Democratic-aligned constituencies than Republican-aligned constituencies, Republican candidates faced less political pressure to focus on the near-term unemployment problem. John Hudak’s analysis of the politics of coverage expansion makes a similar point: Republican governors of states with large numbers of uninsured individuals generally don’t represent the uninsured population, which is disproportionately Latino and black and low-income. 

In a basic way, Republican and Democratic governors are not putting principle before politics. Instead, they are capitalizing on the politics of health care and appealing to the voters most important to their electoral needs. While Republican governors have higher percentages of uninsured in their states, their key voters don’t face the same burden. Conversely, voters critical to Democrats’ electoral fates face dramatically higher uninsured rates. Such a basis for policy support—constituency needs—is certainly not a damning trait. Elected officials are seeking to represent a sufficient percentage of their electorate. However, both sides’ political rhetoric of principle and altruism is disingenuous. Concerns about general health and welfare or of government takeovers are window dressing for political pandering.

One might object to Hudak’s ungenerous framing — but the upshot is the same if we assume, as we ought to, that Republican governors and lawmakers are more engaged with the concerns and interests of their supporters, for the obvious reason that they are more likely to interact with their supporters. Tax-sensitive middle-income and upper-middle-income voters weigh more heavily in their minds than voters who rely heavily on means-tested programs like Medicaid or who are uninsured, and so a desire to contain the costs of Medicaid will tend to trump a desire to expand access to Medicaid or to make the Medicaid program more generous. In a similar vein, Democratic governors and lawmakers might be more inclined to emphasize coverage expansion, as they are more likely to represent voters who would directly benefit from it. Democrats also tend to represent public employees, which will incline them towards backing the expansion of public services more broadly. (Hudak’s analysis sheds light on the debate over comprehensive immigration reform. Democrats have tended to emphasize that less-skilled immigration will improve labor market matching and thus will expand the overall size of the economic pie, which can then be divvied up to meet any resulting increase in the demand for means-tested transfers. Republicans, or rather some Republicans, have tended to emphasize that less-skilled immigration will increase the demand for means-tested transfers, and that even if we assume that less-skilled immigration will grow the economic pie, the benefits will largely accrue to new immigrants and the most affluent natives and the process of divvying up the pie for redistributive purposes is notoriously imprecise and friction-creating.) 

To return to Josh’s charts, looking at the demographics of congressional districts is one thing. If we were able to drill into the demographics of Republican voters in these districts in congressional elections, or indeed in GOP primaries, I would guess that we’d find a population in which non-Hispanic whites, married-couple families, and homeowners are even more overrepresented relative to the country as a whole. Though there are many married non-Hispanic white homeowners who’ve suffered in the post-crisis economic climate – I imagine that the numbers are particularly high in states like Nevada, Arizona, and Florida that were hit hardest by the housing bust – this is a constituency that has fared relatively well, and that is disproportionately likely to have access to employer-provided health coverage. (In the new issue of National Affairs, Chris Pope describes the often-unheralded virtues of employer-provided coverage.)

And finally, consider educational outcomes for non-Hispanic white students. We are often told that U.S. K-12 students perform poorly relative to their counterparts in other affluent countries. In 2010, Tino Sanandaji contrasted educational outcomes for Americans of European ancestry with students of European ancestry from other OECD countries, the U.S. performed extremely well. Finland, Switzerland, Canada, the Netherlands, Germany, and Belgium were ahead of the U.S., but the U.S. was ahead of Estonia, Australia, Denmark, France, Luxembourg, Norway, Iceland, Sweden, Slovenia, the United Kingdom, Poland, Ireland, Austria, Hungary, the Czech Republic, Spain, Portugal, Italy, Slovakia, and Greece. Americans of European ancestry were just behind the average of Japan, South Korea, Singapore, and Hong Kong. Sanandaji’s methods are imperfect, as he would readily acknowledge. Yet his analysis does help explain why Republican voters tend to be content with the quality of their local schools. GOP advocates of school reform have tended to have the most success at the state level, when entrepreneurial governors have sought to promote institutional innovation by reducing the power of teachers unions. This reflects the fact that Republicans running statewide are obligated to represent a somewhat broader constituency than Republican lawmakers, but it might also reflect the fact that reducing the power of teacher unions might have ancillary political benefits, as teachers unions are a large, vocal, and active Democratic constituency. 

Conservative reformers often argue that the GOP ought to devote more time and attention to coverage expansion, education reform, and efforts to increase employment and wage levels. Some go further and argue that Republicans should place less of an emphasis on reducing federal taxes overall or making the federal tax burden less steeply progressive while placing more of an emphasis on a wide range of affordability and quality-of-life issues, e.g., the cost of higher education and medical care, traffic congestion, etc. I’m a big believer in this agenda. It is important to acknowledge, however, that this agenda is a tough sell, as voters tend to be risk-averse and the benefits of many aspects of this agenda will likely flow to non-Republicans while the costs will be borne by Republicans. Efforts to contain medical expenditures will involve curbing the power of physicians, a constituency that is divided between the two major parties, yet which contains large numbers of Republicans. Reducing taxes on middle-income families with children in a revenue-neutral fashion will require (under one scenario) raising taxes on high-income families residing in high-tax jurisdictions, a group that is overrepresented among influential Republicans, including many GOP donors. Everyone benefits from efforts to increase employment and wage levels — but if these efforts entail tolerating somewhat higher inflation levels and somewhat higher deficits in the medium-term, tax-sensitive employed voters who see inflation and deficits through a moralistic lens aren’t going to be thrilled. 

None of this is to suggest that reform conservatism is doomed. It is a natural fit for Republicans running for national office, or in diverse, heavily urbanized states and congressional districts, as these GOP candidates are obligated to win the votes of at least some voters who are outside of the party’s cultural and economic wheelhouse. But my guess is that more Republicans in the near-term will gravitate towards the libertarian populism championed by Ben Domenech and others, as it is better-aligned with the (perceived) interests of the existing Republican constituency and it is thus likely to appeal to the Republican primary electorate. So if reform conservatism is going to bear fruit, I’d anticipate that it will take a fairly long time. If the country elects a Republican president and a Republican Congress, including a filibuster-proof GOP Senate majority, in 2016, conservatives will have a good shot at repealing the Affordable Care Act in 2017. If Republicans fall short, it seems more likely than not that conservatives will have to find a way to reform the ACA. And as the Obama administration’s decision to delay the employer mandate ought to make clear, living with the ACA will require a much broader transformation of U.S. political economy than we’ve been led to believe. So that is the time horizon I have in mind. 

Basically, Republican voters are faring tolerably well in a pretty dismal economy, and this is actually making it harder for Republican politicians to embrace policy approaches that are relevant to the broader economic and social problems facing the country as a whole. Democratic voters are divided between those who are also doing tolerably well and those who are doing terribly, and so Democrats are schizophrenic. 

P.S. Briefly, I thought I’d point out that the Democratic coalition creates problems of its own. A coalition that includes upper-middle-income knowledge workers and less-skilled women and men at the bottom of the income distribution, many of whom are only intermittently attached to the formal labor market, may well fragment as the strategy of raising taxes on only the highest-earners to finance coverage expansion and public services reaches its limits, as it will grow increasingly difficult to shield upper-middle-income households from tax increases. Democrats represent both the neediest consumers of public services and the providers of public services, and the interests of these groups don’t always align — a phenomenon that is most vividly illustrated in K-12 education. Democrats are committed to increasing the size of the less-skilled immigrant influx, which will tend to increase the incidence of food insecurity and other correlates of poverty, which in turn will shift resources away from other public sector priorities. Republicans don’t have much to be smug about, but Democrats don’t either.  

Tyler Cowen links to Bård Harstad’s recent argument for supply-side environmental policy, the abstract of which reads as follows:

Free-riding is at the core of environmental problems. If a climate coalition reduces its emissions, world prices change and nonparticipants typically emit more; they may also extract the dirtiest type of fossil fuel and invest too little in green technology. The coalition’s second-best policy distorts trade and is not time consistent. However, suppose that the countries can trade the rights to exploit fossil-fuel deposits: As soon as the market clears, the above-mentioned problems vanish and the first-best is implemented. In short, the coalition’s best policy is to simply buy foreign deposits and conserve them.

I found this argument particularly interesting because my friend Matt Frost had a very similar idea a while back, which he’s just written up for his blog. I’m very pleased to see this line of thinking draw attention, as it strikes me as the most plausible, and least risky, carbon mitigation strategy that can be pursued unilaterally. The following is from Matt:

The ideal solution to carbon pollution is a zero-carbon energy source cheaper than fossil fuels. In the absence of such a technology, the developed economies have tried to price CO2-related externalities into the market cost of coal, oil, and natural gas, in hopes that alternatives would become less expensive in comparison. Because coal is more carbon-intensive than natural gas or petroleum, it is the fuel source most sensitive to the imposition of carbon-based penalties, and offers the greatest potential for single-source carbon reduction. None of the various attempts to reduce CO2 emissions, such as a carbon tax or a credit trading market, have been successful, in part because advocates have shifted their efforts among several strategies, allowing their opportunistic opponents to shoot down each weakly-defended idea one at a time. The U.S. carbon abatement community lacks a clear focal point toward which its policy efforts can be coherently directed.

So, as my gift to America’s environmental policy entrepreneurs, here’s a proposal that focuses on the fuel source and sector with the greatest potential for incremental carbon abatement, could reduce emissions by about 40 percent of the reduction that a full switch to low-carbon resources would accomplish, uses currently available technology, does not require unrealistic levels of international cooperation, does not create artificial markets in ephemeral government-enforced carbon credits, and can be financed with federal debt spending, rather than by a distributed tax on energy consumers. Its only major counterfactual assumption is the political will to pay for averting carbon emissions with an enormous lump of debt spending, but I’m going to assume that particular can opener for the sake of argument. A preference for carbon reduction is concentrated among the political elite, so the least-impossible solution would be one that exploits the tools available to the US’s permanent government (regulation and deficit spending), rather than one that assume popular acceptance of higher energy costs. 

Funding research devoted to cheap zero-carbon energy is probably an easier political sell than using debt financing to buy coal deposits that will never be used. But the latter strategy is essentially a sure bet while the former is not. 

Dana Goldstein has a new review of Doing the Best I Can, a long-awaited study of low-income unwed fathers in inner-city Philadelphia and Camden by Kathryn Edin and Timothy Nelson. The following passage is drawn from the review:

Poor, single dads have a lot in common with their female counterparts. Both young men and young women in these neighborhoods see forgoing contraception as a key sign of sexual trust and fidelity, and they demonstrate little anxiety about unexpected pregnancy—a surprising notion for many middle-class Americans, who viscerally fear the loss of educational, career, and romantic opportunities that premature parenthood brings. Far from disdaining marriage, low-income single parents have fully absorbed mainstream cultural messages about what that institution should entail: two good jobs, home ownership, and a “soul mate” kind of love. Because these goals appear impossible for people living hand-to-mouth at the bottom rung of the American economy, however, men told the researchers that marriage is generally off the table as a realistic lifestyle. Indeed, they mistrust women, whom they see as enforcers of middle-class earning expectations they cannot meet. The love these men feel for their children is far stronger than any romantic connection they’ve made with those children’s mothers.

This narrative proves why marriage-promotion programs are such ill-conceived public policy. It’s not that poor people don’t respect marriage. It’s that in a country in which more than 300,000 low-skill, well-paid manufacturing jobs have disappeared since the early 1950s—replaced by unstable, low-paid positions in the service sector—many single mothers smartly choose not to live with or marry their children’s fathers, because they are not attractive mates. These men are typically unemployed or severely underemployed, and sometimes also addicted or abusive. Marriage promotion won’t work until low-income men get the education, health care (both physical and mental), and jobs they need to contribute to family life.

While it is true that less-skilled manufacturing work has largely evaporated, there are still labor market opportunities for less-skilled workers, as demonstrated by the appetite on the part of U.S. business enterprises for less-skilled immigrants. Per the authors of “Luxury, Necessity, and Anachronistic Workers: Does the United States Need Unskilled Immigrant Labor?,” the declining native-born birthrate and rising educational attainment among the native-born has reduced the size of the less-skilled labor pool. Unfortunately, native-born less-skilled adults appear to be more susceptible to drug and alcohol abuse than their immigrant counterparts, and they are more likely to be incarcerated. I am sympathetic to the notion that mass incarceration is to at least some degree a self-perpetuating problem, and that a crime control strategy that emphasized deterrence over incarceration would yield better social outcomes. And Dana is correct to point out that less-skilled service sector work is often unstable and generally not well-paid. To some extent, however, this may reflect the challenging nature of the available labor pool, i.e., employers that have to deal with large numbers of alcohol and drug dependent employees might be less inclined to embrace “high-road” strategies. Rather, they might prefer to limit their commitment to employees, and to shed them at the first sign of difficulty, thus minimizing downside risk. The “casualization” of service sector work may well have exacerbated the problems of less-skilled native-born men — but it may also be a reflection of the fact that many less-skilled native-born men suffer from maladies that impact their work performance. 

Back in 2007, when the labor market was in much stronger shape, Lawrence Mead, a political scientist at New York University, published “Toward a mandatory work policy for men,” which called for a more paternalist approach to encouraging male labor force participation:

Lawrence Mead addresses the problem of nonwork among low-income men, particularly low-income black men, and its implications for families and children. The poor work effort, he says, appears to be caused partly by falling wages and other opportunity constraints but principally by an oppositional culture and a breakdown of work discipline. Mead argues that if government policies are to increase work among poor men, they must not merely improve wages and skills but enforce work in available jobs. Using the same “help with hassle” approach that welfare reform has used successfully to increase work among poor mothers, policymakers should adapt the child support enforcement and criminal justice systems so that both actively help their clients find employment and then back up that help with a requirement that they work. Men with unpaid child support judgments and parolees leaving prison would be told to get a job or pay up, as they are now. But if they did not, they would be remanded to a required work program where their efforts to work would be closely supervised. They would have to participate and get a private job and have their subsequent employment verified. Failing that, they would be assigned to work crews, where again compliance would be verified. Men who failed to participate and work steadily would–unless there were good cause–be sent back to the child support or parole authorities to be imprisoned. But men who complied would be freed from the work program after a year or two. They would then revert to the looser supervision practiced by the regular child support and parole systems. If their employment record deteriorated, they could again be remanded to the work program. Mead estimates that such a program would involve as many as 1.5 million men who are already in the child support and criminal justice systems and would cost $2.4 billion to $4.8 billion a year. It is premature, says Mead, for such a program to be mandated nationwide. Rather, the best role for national policy at this point is to establish and evaluate promising model programs to see which work best. [Emphasis added]

I tend to favor something like Mead’s approach. It should go without saying, however, that it is decidedly un-libertarian, and that as a result many on the left and some on the right will find it discomfiting.

And finally, I’m more inclined to think that there might be some value to marriage-promotion programs, not because poor people “don’t respect marriage” — as Dana points out, that is not generally true — but rather because committed relationships require a skill set that is not evenly distributed across the population. As women have entered the workforce, “traditional” gender roles have been fading. And so individual couples and families find themselves negotiating responsibilities and boundaries in ways that weren’t strictly necessary in an age of rigidly-defined gender roles. As a good friend pointed out in conversation a few weeks back, it is thus not surprising that marriages have tended to be more durable and successful among educated Americans with strong communication skills, as they are more accustomed to navigating complex relationships in the course of their working lives. Imparting communication skills is extremely difficult, and it might be a lost cause. But the best marriage-promotion programs rest on the idea that communication skills that can reduce friction in relationships really can be taught. Now, the programs I have in mind might not be best understood as “marriage-promotion” programs, but rather as marriage and relationship education programs, of the kind championed by the National Marriage Institute in their recent report, “The President’s Marriage Agenda.”

While the CBO analysis of the Senate immigration bill received a great deal of attention, the Social Security Administration analysis has not. Fortunately, Yuval Levin and Andrew Biggs are on the case. The CBO projected that the Senate immigration bill would reduce the deficit over the next two decades, due almost entirely to increased Social Security revenues, according to the Committee for a Responsible Federal Budget. One obvious problem with this approach is that it counts years during whch immigrants are of working-age, yet it doesn’t factor in the fact that they will at some point collect Social Security benefits. Another problem, which Andrew carefully addresses, is that the SSA appears to be making unrealistic assumptions about the immigrant population, e.g., legal immigrants have low average earnings and they tend to live longer than natives, yet the SSA doesn’t seem to take either fact into account. I hope Andrew’s analysis draws attention on the Hill as House members debate immigration reform. 

Francis Fukuyama links recent political unrest in Turkey and Brazil:

In Turkey and Brazil, as in Tunisia and Egypt before them, political protest has been led not by the poor but by young people with higher-than-average levels of education and income. They are technology-savvy and use social media like Facebook and Twitter to broadcast information and organize demonstrations. Even when they live in countries that hold regular democratic elections, they feel alienated from the ruling political elite.

And their relative prosperity spurs them to political action:

Families who have durable assets like a house or apartment have a much greater stake in politics, since these are things that the government could take away from them. Since the middle classes tend to be the ones who pay taxes, they have a direct interest in making government accountable. Most importantly, newly arrived members of the middle class are more likely to be spurred to action by what the late political scientist Samuel Huntington called “the gap”: that is, the failure of society to meet their rapidly rising expectations for economic and social advancement. While the poor struggle to survive from day to day, disappointed middle-class people are much more likely to engage in political activism to get their way.

Fukuyama argues that while today’s middle class revolutions can be channeled in a reformist direction, dedicated to spreading the benefits of growth and prosperity, they might also dissipate as members of the urban middle class are bought off individually. In Turkey, Recep Tayyip Erdogan’s policies have contributed to robust economic growth, yet they have alienated members of the urban middle class, many of whom are troubled by the dramatic expansion of their picturesque cities, and economic growth that brings with it large waves of rural migrants. Meeting the demands of the urban middle class might entail pursuing policies that tend to dampen economic growth in the name of other (admirable) goals, like environmental sustainability and historical preservation. This is one of the challenges involved in governing uneven societies, in which some swathes of the population live in affluent urban societies, which prize tolerance, cosmopolitanism, and novelty, while others live in poor rural societies, which prize stability, tradition, and cultural integrity. 

Scott Winship has an expanded and annotated version of his recent National Review article (“Men’s Rising Earnings“) at the Brookings Institution website. He begins by citing an influential study by Michael Greenstone and Adam Looney of the Hamilton Project:

Greenstone and Looney, whose work I generally admire, argue that the rise in labor-force dropout among working-age men masks frightful trends. People who spend the entire year jobless are not usually included in earnings statistics, but if these men, most of whom are less skilled, did work, they would be factored into the Census Bureau’s Current Population Survey (CPS). The result would be not the stagnation in male earnings seen in Census Bureau figures, but sharp decline. Taking this into account, the Hamilton Project reports that median earnings among men ages 25 to 64 declined by an astonishing 28 percent from 1969 to 2009.

Scott suggests that the finding is misleading for the following reasons:

1. He suggests that analysts should rely on the CPI-U-RS, which the Census Bureau and the Bureau of Labor Statistics use to analyze income trends, rather than the CPI-U, as the CPI-U is widely believed to overstate inflation. Using the CPI-U yields a 12 percent decline in median earnings among men ages 25 to 64 while using the CPI-U-RS yields a decline of 1 percent.

2. Rather than count all non-working men ages 25 to 64 as below-median earners, Scott offers an alternative assessment that only counts non-working men who report not being able to find work and those who report being sick or disabled, leaving retirees, students, stay-at-home dads, armed-forces members who live in barracks, and men living in mental institutions or residential-care facilities out of the analysis:

If we accept the Hamilton Project’s correction but follow the Census Bureau’s practice of using the CPI-U-RS, the 28 percent decline through 2011 shrinks to 19 percent. If we then include as below-median earners only those non-working men who report being sick or disabled and those who report not being able to find work, median earnings fall just 12 percent. Finally, if we compare the peak year of 1969 with 2007, another peak year, rather than with 2011, a year in which the economy was recovering from the worst downturn since the Great Depression, there is no decline at all.

3. Scott then makes an effort to account for how immigration has changed the composition of the U.S. labor force. Unfortunately, it impossible to identify immigrants in the data before 1993, but Scott uses the Hispanic population as a crude proxy:

Assuming the 1969-to-1970 earnings change was the same as that for men in general, median earnings among non-Hispanic men declined from 1969 to 2011 not by 12 percent but by 8 percent. From 1969 to 2007, they rose by 2 percent. Among Hispanic men, earnings fell by 24 percent through 2011, but this decline is simply a more dramatic demonstration of how rising immigration pulls the median downward. Among non-Hispanics, the earnings increase for blacks was stronger than for whites, so this is not simply a story about non-Hispanic whites’ doing better than everyone else.

4. He also argues that any assessment of how compensation has changed over time ought to take into account non-wage benefits, which represented a much larger share of total compensation in 2011 than in 1969.

Scott raises a number of other issues as well, e.g., he argues that analysts ought to use the PCE (personal consumption expenditure) deflator rather than the CPI-U-RS, as it does a better job of accounting for substitution bias. One thing should be clear: Scott is certainly not arguing that income trends in recent decades tell us that all is right with the U.S. labor market. A number of demographic, cultural, and economic changes that have shaped labor market outcomes for U.S. men in recent decades, including a large influx of less-skilled immigrants, early retirement, rising incarceration rates, and rising female labor force participation. The overall picture really is alarming, in my view, particularly as it relates to institutionalized men. But Scott’s done us a great service by clarifying some of the underlying data.

We know that the Fed has made large purchases of Treasury bonds and mortgage-backed securities in the post-crisis years, and that the Fed’s balance sheet has increased substantially as a result. Yet inflation has remained very low by historical standards. Martin Feldstein offers an explanation for why Fed bond buying hasn’t boosted inflation by very much at all, and a hypothesis as to how we might return to “stagflation” in the near future.

When the Fed buys Treasury bonds or other assets like mortgage-backed securities, it creates “reserves” for the commercial banks, which the banks deposit at the Fed itself.

Commercial banks are required to hold reserves equal to a share of their checkable deposits. Since reserves in excess of the required amount did not earn any interest from the Fed before 2008, commercial banks had an incentive to lend to households and businesses until the resulting growth of deposits used up all of those excess reserves. …

An increase in bank loans allows households and businesses to increase their spending. That extra spending means a higher level of nominal GDP (output at market prices). Some of the increase in nominal GDP takes the form of higher real (inflation-adjusted) GDP, while the rest shows up as inflation. …

The link between Fed bond purchases and the subsequent growth of the money stock changed after 2008, because the Fed began to pay interest on excess reserves. The interest rate on these totally safe and liquid deposits induced the banks to maintain excess reserves at the Fed instead of lending and creating deposits to absorb the increased reserves, as they would have done before 2008. …

As a result, the volume of excess reserves held at the Fed increased dramatically from less than $2 billion in 2008 to $1.8 trillion now. But the new Fed policy of paying interest on excess reserves meant that this increased availability of excess reserves did not lead after 2008 to much faster deposit growth and a much larger stock of money.

The danger, according to Feldstein, is that as the economy recovers and as the demand for loans increases, commercial banks with enough capital will be able to meet this demand without worrying about inadequate reserves. This would fuel spending growth that could lead to an increase in inflation that could spiral, but the Fed could nip inflation in the bud by raising the interest rate on reserves. The question Feldstein raises is whether the Fed would be willing to do this if employment levels under this scenario remained disappointing. One can thus imagine inflation taking off while unemployment remains high, or stagflation redux. I take Feldstein’s basic point that low inflation at present doesn’t mean that inflation will never again reach excessive levels, but there are many, many things that would have to go wrong for this scenario to come to pass.

This past weekend, a friend mentioned that if San Francisco had the population density of Manhattan, it would have a population of 3.3 million, far more than its actual population of 825,000. And I calculated that if San Francisco had the population density of the five boroughs of New York city, including relatively low-density outer boroughs like Staten Island and Queens, it would have a population of 1.2 million. Despite San Francisco’s reputation as a hotbed of progressivism, the city is in many respects very “conservative,” which is to say resistant to change. Many San Franciscans are adamant that the look of the city remains frozen in its midcentury state. There is a good amount of new development in neighborhoods like South of Market, where the technology industry has clustered and where many young knowledge workers are choosing to live. Yet demand for housing far outstrips supply, due to a combination of restrictions on development, motivated in large part by aesthetic and cultural considerations, and rent regulation. The upshot of these sharp constraints on housing supply has been that a number of neighborhoods are experiencing gentrification-as-displacement. That is, as affluent people bid up market-rate rents in neighborhoods like the Mission, less-affluent incumbents who are also paying market-rate rents find it more difficult to remain in the neighborhood. Less-affluent incumbents paying below-market rents also face difficulties, as property owners might be less inclined to maintain regulated properties and they might find that the mix of retail options is changing in ways that make the neighborhood less affordable and less welcoming. One important complication is that there is a natural churn in neighborhoods, i.e., when the quality of life in a neighborhood does not improve, incumbents will tend to move out. But when quality of life improves , incumbents are more likely to want to remain in place, so the feeling of displacement in part reflects the fact that gentrification tends to associated with other improvements, e.g., improved public safety. Late last year, Stephen Smith contrasted gentrification with filtering:

If downtown Brooklyn does not make room for more newcomers, it will simply price working-class residents out of less trendy, historically black neighborhoods like these. When a housing market is functioning properly, new luxury construction can not only prevent this type of gentrification but also reverse it entirely, creating new affordable housing units.

Housing economists call it “filtering.” Housing filtering is the gradual decline of home values as structures age — and with home values, prices and rents — and the new opportunities for low-cost housing that this affords. In other words, with time, all housing eventually becomes affordable. Designs go out of style, appliances age and new technologies such as central air conditioning are not installed. Middle-class, single-family homes on the Lower East Side were carved up into tenement apartments during the late 1800s, and grand apartments across the city were divided into more reasonable one- and two- bedroom units during the Great Depression.

This concept might seem totally alien to New Yorkers today, though, who are accustomed to multimillion-dollar renovated brownstones and elite prewar co-ops. Because New York has allowed so little new construction after the passage of its anti-urban 1961 zoning code, most of its housing stock is very old, and so the opposite of filtering is occurring: gentrification. Rather than poor people moving into rich people’s old houses and apartments, as had been the pattern for most of civilized history, gentrification is when the wealthy take the homes of the poor.

I would argue that gentrification-as-displacement is not the only possible model for a neighborhood. Instead, we might have gentrification-as-integration, in which new construction allows for more affluent new arrivals, absorbing rising demand, yet the incumbent population is in a better position to remain in place. Gentrification-as-integration will tend to improve the employment opportunities available to less-affluent incumbents, as the new arrivals will increase the size and purchasing power of the local customer base. This, in turn, will tend to reduce the duration of commutes, thus increasing quality of life. 

And as Ryan Avent argues in The Gated City, facilitating development in high-productivty regions like the Bay Area will have broader economic and social benefits:

When Americans ration access to economically dynamic places with high housing costs, it isn’t the rich that suffer most. It’s the middle- and low- income households who must accept long, costly commutes or move elsewhere. Dynamic cities should be engines of economic mobility. Historically they have been. But one can’t take advantage of the economic vibrancy of a city if one can’t afford to live there. When we filter rich and poor into productive and unproductive cities, we limit opportunity and advance the calcification of the income distribution.

Though it’s a safe bet that most San Franciscans would bristle at the idea of making their city much denser and more populous, there is a strong economic, and a strong egalitarian, case for doing so. And while I’m on the subject, I recommend another article by Stephen on transit in the Bay Area, and why it has proven so dysfunctional. (Lydia DePillis offers a more sanguine perspective on development policies in the Bay Area.)

My latest Reuters Opinion column is on climate policy. I rather awkwardly shoehorned a political observation at the very end, so now I’ll riff on the subject a bit more broadly.

Basically, there seems to be very little political percentage in crafting a GOP climate policy that can counter the Democratic emphasis on on cap-and-trade programs and industrial policy, at least not right now. While four-in-ten Democrats and three-in-ten independents believe that climate change ought to be a top priority, only 13 percent of Republicans feel the same way. Only 44 percent of Republicans believe that there is solid evidence of global warming, and only 19 percent believe that warming can be attributed to human activity. But in 2016 there will be several candidates competing for the 50 percent of GOP voters who reject the notion that there is solid evidence of global warming, which suggests that candidates who are willing to entertain the idea will have a better shot at the other 44 percent. And in a general election, climate policy might offer a Republican presidential nominee a way to appeal to centrist voters. The challenge is wooing centrists without alienating conservatives and voters residing in coal-dependent, hydrocarbon-producing states.

The most obvious way to thread this needle is to call for the reform of U.S. energy innovation policy, along the lines of the “Putting Energy Innovation First” strategy I briefly reference in this week’s column. Rather than call for a big increase in spending on energy innovation research, the report calls better allocating existing resources by restructuring the U.S. Department of Energy. The idea is modest, yet well-conceived. Though not incompatible with a carbon pricing effort, it represents an alternative strategy. Successful cap-and-trade programs (CTPs) of the past share a few defining qualities: they address pollutants that are released in fairly centralized fashion, and the technologies needed to curb emissions are widely available. While it is true that we have the technological means to curb carbon emissions, we don’t have the means to curb carbon emissions without substantially changing how we organize our society in ways that will tend to also curb consumption and mobility. This is why energy innovation, and specifically devising cheaper-than-coal energy technologies, is so important: energy poverty remains an enormous problem, and so we have to find a way to both increase energy consumption while also reducing reliance on carbon-intensive energy sources. Carbon pricing can help encourage the adoption of low-emissions technologies and reduce the amount of driving, etc., yet politically realistic carbon taxes are unlikely to have a dramatic effect. Politically unrealistic carbon taxes, meanwhile, will tend to shift carbon-intensive activities to jurisdictions that don’t impose them. Cheaper-than-coal technologies, in contrast, will spread organically, and quickly. So if energy innovation reform increases the likelihood of achieving energy breakthroughs, I think it makes sense to prioritize it above carbon taxation or CTPs, both as a political and as a substantive matter. And again, energy innovation reform is not at all incompatible with a carbon tax that is pursued primarily as a revenue source — but you can see why it’s an easier political sell.

Very impressively, every single Senate Democrat and Democratic-leaning independent voted for the Senate immigration bill on Thursday of this week. What is even more impressive is the almost complete absence of skepticism among center-left intellectuals, with the notable exception of Mickey Kaus, who writes for a right-of-center publication and is famously iconoclastic. John Judis has raised questions about the wisdom of the Senate immigration bill, and so has T. A. Frank, a regular New Republic contributor who has just published a liberal case against the bill:

The country I want for myself and future Americans is one that’s prosperous, cohesive, harmonious, wealthy in land and resources per capita, nurturing of its skilled citizens, and, most important, protective of its unskilled citizens, who deserve as much any other Americans to live in dignity. This bill threatens to put all of that out of reach, because it fails to control illegal immigration. The problem is not that it provides 11 million people eventual amnesty (I don’t object to that, in theory); the problem is that it sets in motion the next waves of millions.

What I’ve found most striking about the immigration debate is that I suspect that many of my left-liberal interlocutors don’t share Frank’s working premise, as they believe that income per natural rather than wealth in land and resources per capita should guide us. That is, even if a substantial less-skilled influx depresses U.S. GDP per capita, it should be embraced if it raises incomes for discrete groups of immigrants and natives. My view is that this objective, while coherent and morally praiseworthy, is in tension with the goals of achieving a cohesive and harmonious society, two of the other goals Frank identifies, as less-skilled immigration will tend to increase domestic poverty, and this in turn will tend to increase the “strains of commitment.”

Jim Pethokoukis, drawing on an excellent new article by Michael Strain and Alan Viard, reminds us that there are many factors that will likely force higher taxes on middle-income households over the next two decades, including the aging of the 1945-1970 birth cohort. Because less-skilled immigrants tend to earn low incomes, and because low-income households tend to rely more heavily on means-tested transfers, it is not unreasonable to believe that their net fiscal contribution will be smaller than that of skilled immigrants over the lifecourse. This in turn suggests that less-skilled immigration might contribute to the net fiscal burden on U.S. middle-income households, which is already expected to increase substantially. The important question, of course, is how this scenario compares to various counterfactuals, as an emphasis on skilled immigration will tend to increase the cost of immigration enforcement and a shortage of less-skilled immigrant labor will presumably raise the price of various labor-intensive services consumed by middle-income households. Moreover, much depends on how demand for less-skilled labor will change over time and how the descendants of less-skilled immigrants will fare in a changing labor market. If the Congressional Budget Office is right in assuming that a large influx of less-skilled immigrants will lead to a dramatic increase in total factor productivity (TFP), the Senate immigration bill may well be wise policy. But the evidence for such an effect is limited and the downside risks are substantial. 

Another issue, which I’ve touched on only briefly in the past, is cultural cohesion, and whether an increase in the size of the less-skilled influx will tend to retard the progress of integration, assimilation, and intermarriage, forces that tend to bind a society together and to facilitate cooperation across regions and cultural groups. The U.S. has proven relatively successful at achieving a high level of cooperation in a diverse society, but it is not clear that this capacity is limitless and there is at least some reason to believe that it is eroding, though of course this erosion can be reversed with effort. Though my priorities are different from Frank’s, I hope his article is widely read.  

Jim Pethokoukis ably summarizes a 2012 American Behavioral Scientist article (“Luxury, Necessity, and Anachronistic Workers: Does the United States Need Unskilled Immigrant Labor?”) which argues that because there has been “a reduction of both the size and quality of the pool of natives available to carry out” a variety of menial tasks, the U.S. ought to embrace a substantial increase in less-skilled immigration. He identifies the following core arguments:

1. The birth rate in the native-born population is now 20% below replacement level, with the size of the population ages 25 to 34 shrinking since 1980. “This means that the numbers of natives available to meet societal workforce needs are now in both relative and absolute decline, on account of diminished fertility alone.”

2. Far more natives are attending college or getting some post-high school education. The share of adults with more than a high school education has gone up from 5.3% in 1950 to nearly 60% today. As a result, there are now relatively and absolutely fewer numbers of persons with high-school degrees or less. The percentage of the adult population with less than a high school education in 1950 was 87% vs. less than 13% today.

3. The authors point to several other factors reducing the available labor pool: Low-skilled natives are a) often less likely to live where low-skilled jobs are available, b) more likely to manifest problems with alcohol and drug usage, c) more likely to suffer from poor health and physical limitations, and d) more likely to have incurred arrest, conviction, and incarceration for civil and criminal offenses. [Emphasis added]

Jim raises important caveats, e.g., it is possible that many of these jobs will be obviated by outsourcing and automation, yet he also notes that the authors believe that only a tenth of these jobs are vulnerable to either. I would offer a somewhat different set of arguments, which I recognize aren’t entirely airtight:

(a) If less-skilled natives don’t live where less-skilled jobs are available, perhaps we should press for reducing zoning restrictions and land-use regulations that restrict growth in development in America’s most productive regions. We might also consider taking steps to improve the cost-effectiveness of investments in infrastructure and transit, as this will tend to increase connectivity within metropolitan regions.

(b) Restricting less-skilled immigration might lend increased urgency to efforts to address problems with alcohol and drug usage within the native population. Relatively low-cost interventions, like raising alcohol taxes, might make an appreciable difference in the amount of binge drinking, which would also tend to reduce domestic violence, street crime, and other maladies. 

(c) A similar logic applies to the poor health and physical limitations of less-skilled natives — if low-wage employers are forced to rely on less-skilled natives, they might be more inclined to support policy and civil society initiatives designed to improve health outcomes.

(d) And the fact that less-skilled natives are more likely than immigrants to have arrest records seems like yet another good reason to invest more and more shrewdly in crime control efforts, with a focus on deterrence.

Granted, the birth rate piece and the rising educational attainment piece might be a bigger part of the picture. But if restricting less-skilled immigration forces U.S. policymakers and employers to confront the fact that much of the less-skilled native population has been ravaged by alcohol and drug abuse, poor health, and crime, it’s not obvious to me that this is an entirely bad thing. 

Scott Borgerson has bad news for people who like bad news. While it looked as though Arctic warming might spark intense geopolitical conflict as recently as five years ago, countries in the region “have given up on saber rattling and engaged in various impressive feats of cooperation.” Large investments are being made in the region’s oil and gas deposits, yet there are many other economic opportunities as well, e.g., underwater telecommunications cables, hydropower and geothermal energy development, and data-storage centers that exploit low temperatures. Borgerson envisions that Anchorage and Reykjavik might emerge as shipping centers and financial capitals, and he offers a roadmap as to how the U.S. might take advantage of Arctic opportunities:

The United States also has no Arctic deep-water port, no military aviation facility in the region, and no comprehensive network for monitoring Arctic shipping, which would prove especially useful in the Bering Strait, the 55-mile-wide chokepoint between the Pacific and Arctic oceans. The federal government should build on the real progress that Alaska has made in these areas on its own over the last few years. Washington need not spend as much as it did building the canals, bridges, dams, and roads that opened up the American West, but some minimum investments would help the United States compete in the region.

And he also offers advice to Alaskan policymakers:

In Alaska, this means allowing oil and gas projects to proceed on a case-by-case basis but using some of the profits to create a more diversified economy. Otherwise, the state risks becoming just another petro-colony laid low by the resource curse. Alaska should invest its considerable wealth in its underdeveloped university system, finance ambitious infrastructure projects, and create policies that attract talented immigrants and encourage them to start new businesses, such as renewable energy ventures. The model to follow is Norway, which took advantage of an oil windfall to fund a progressive state and kick-start its renewable energy sector. Such an approach would be deeply Alaskan, too, consistent with the state constitution’s order that Alaska “encourage the settlement of its land and the development of its resources by making them available for maximum use consistent with the public interest.”

Borgerson’s approach sounds a bit more prescriptive than I’d like. But building a better framework for Arctic development merits some congressional attention.

Thomas Edsall, a left-of-center Columbia University journalism professor and contributor to the New York Times, has written an overheated response to some of Richard Burkhauser recent work on income inequality, claiming that Burkhauser is “a champion of the right” despite the fact that Burkhauser’s work has no obvious political valence. As we’ve discussed, Burkhauser’s recent work with Phillip Armour and Jeff Larrimore suggests that if we use accrued gains rather than taxable realized capital gains to track how income changes over time, inequality patterns in recent decades look quite different. Edsall characterizes this work as “a challenge to liberals,” and he cites a number of reasonable methodological critiques. But the basic idea of using accrued gains is sound for this reason: when I own an asset, I can borrow against it, even if I don’t sell it. Increases in the value of my asset contribute to my economic well-being whether or not I sell it, hence the increase in consumer spending that flowed from rising house prices during the housing boom. Researchers tend to rely on taxable realized capital gains because the data is more readily available, but a person who owns financial assets doesn’t suddenly become affluent once she sells them — she benefits as her assets gain value in real-time.

Edsall’s rhetoric is over-the-top:

Not only would Burkhauser lay waste to a core liberal argument — inequality is worsening — but his claim that a declining share of income is going to the wealthy could be used to justify further tax cuts for the affluent in order to foster top-down investment and growth, just as Republicans justified the Reagan tax cuts of 1981 and the Bush tax cuts of 2001 and 2003.

Burkhauser does not find that inequality vanishes, and given that the share of income going to the wealthy remains quite high, the fact that it might have declined isn’t in itself an argument for increasing it. The strongest core liberal arguments rest on the idea that we don’t invest enough in the human capital of the poor and near-poor, and that taxing the most well-off Americans to increase public investment is a responsible strategy that won’t undermine growth. Burkhauser’s work has no bearing on whether or not this strategy is sound. 

Edsall makes no mention of the wealth effect caused by asset appreciation:

The unfairness of Burkhauser’s approach is clearly acute at the bottom and middle of income distribution. The most common large asset for those on the bottom rungs is a house. Burkhauser would increase the income of those below the median lucky enough to own a home by the annual appreciation in the value of the home through 2007. For many of these families, however, selling their home is not an option. In Burkhauser’s view, their income goes up even if their living conditions remain unchanged.

There is another kind of “unfairness” to keep in mind. Some Americans purchased homes with the aid of mortgages before the Reagan-Volcker disinflation while others purchased them afterwards. When we compare two 35-year-olds, one of whom inherits a home from a parent who purchased a house in 1979 and one of whom inherits a home from an otherwise-identical parent who purchased a house in 1989, there is good reason to believe that the former will be better off than the latter, as inflation would have greatly reduced the debt burden on the former family, and the resulting savings might have been applied in many different ways, e.g., to purchase a higher-quality education, to purchase other financial assets, etc. Differences of this kind are major drivers of unequal outcomes, yet ignoring accrued gains masks them. 

Edsall insists that accrued gains are irrelevant because one can’t use them to purchase a higher standard of living, and that borrowing against assets doesn’t count, as the value of an asset can decline. This doesn’t strike me as a very sophisticated reading. It is true, as Edsall observes, that wealth levels have declined in the wake of the housing bust. But of course Burkhauser doesn’t deny this — if anything, it reinforces his point that accrued gains and losses matter, as households burdened by declining home values have been spending much less, thus dampening consumer spending levels overall. Indeed, Burkhauser’s approach can reinforce other apocalyptic narratives liberals might appreciate, e.g., a focus on accrued gains reveals that racial inequalities in the post-crisis are more severe than alternative approaches might lead us to believe.

Incorporating accrued gains doesn’t really undermine arguments for redistribution. What it does do is give us a richer picture of how U.S. households are really faring, for better or for worse. 

In light of the yesterday’s DOMA and Proposition 8 rulings, which have sparked an enthusiastic response from advocates of same-sex civil marriage and a fairly muted response from opponents, David A. Bell’s recent essay on French opposition to same-sex civil marriage might be of interest:

An important current of French thought, which has no real American equivalent, has maintained that while women deserve equal rights, these rights must not entail the supposed erasure of sexual difference. Historians and philosophers such as Mona Ozouf and Philippe Raynaud have seen a particular threat in American-style protections against sexual harassment, which they have labeled “sexual Stalinism.” The sociologist Irène Théry has called for a féminisme à la française that acknowledges the “asymmetrical pleasures of seduction.” The philosopher Sylviane Agacinski goes so far as to call sexual difference the true basis for sexual equality in law. The “parity” in elections demanded by the 2000 law, in her view, reflected the natural division of the human race into complementary male and female halves. Other feminists countered that the law should pay no attention to gender beyond guaranteeing equal rights for all (the American historian Joan Scott, herself a frequent target of French criticism, has keenly analyzed all of this).

And so opposition to same-sex civil marriage in France is rooted in the belief that women and men have complementary roles in family life, and particularly with respect to child-rearing:

Unlike in the United States, most opponents of marriage equality have had relatively little to say about the morality of homosexual sex acts, or about threats to the “institution of marriage” in general. Instead, they speak above all about children, insisting that a psychologically healthy family life rests on the union of a man and woman. Back in 1999, when the French Parliament approved a form of civil union, much of the opposition centered on this issue.

Bell observes that while 60 percent of French respondents support same-sex marriage, “a majority still favors banning child adoption by homosexual couples.” In the United States, in contrast, support for gay adoption is now fairly widespread, for reasons Alison Gash recently explored in the Washington Monthly:

Where marriage equality advocates had little choice but to engage in open political battles and bring high profile constitutional court cases on behalf of their fundamental rights, the fight for same-sex parental rights has mostly played out in obscure family courts, with few reporters present, and with advocates consciously delaying or avoiding high court review. This below-the-radar strategy created a foundation of “facts on the ground”—tens of thousands of intact gay and lesbian-headed families with children-well before most conservative activists were even aware the phenomenon existed, making their subsequent efforts to block same-sex parenting an uphill fight.

Gash argues that the success of the same-sex parenting movement was an important precursor of the success of the same-sex civil marriage movement, which makes sense. Indeed, one could argue that the under-the-radar success of the same-sex parenting movement made the job of opposing same-sex civil marriage far more difficult than most critics understood a decade ago. (Ramesh Ponnuru was a rare exception.)