Neerav Kingsland, CEO of New Schools for New Orleans, identifies four “arrows” that could improve the quality of education in the coming decades, the third of which is particularly intriguing:

Unfortunately, international trade and technology will continue to eliminate middle-class jobs. Personally, I’m worried that our political system will not adequately ease the pain of this transition. However, this economic upheaval will increase the quality of human capital available to schools. 

What I appreciate about Neerav’s analysis is that it recognizes that not all good things go together. One challenge K-12 schools face is that, as Josh Barro has observed, the combination of the improvement in the labor market position of female college graduates and the wage compression that been reinforced by unionization has made it more difficult to recruit and retain talented teachers. (Declining student-teacher ratios, which represent both a response to consumer demand and union imperatives, have also played a role in diluting the teacher talent pool.) The first development is clearly a good thing. The second is a good thing for teachers who would have a difficult time finding stimulating and remunerative work in other sectors while being a bad thing for those in a position to do so. The result of combinging this good thing with this somewhat bad thing is that average teacher quality has suffered while other sectors have benefited from talented workers who might have otherwise devoted themselves to educating the next generation. Neerav is suggesting that we might see a reversal of these trends. That is, if the labor market position of college graduates deteriorates as offshoring and increasingly intelligent machines substitute for skilled labor, and if blended learning and other technology-driven strategies allow K-12 schools to make do with fewer teachers, there will be more high-quality workers chasing fewer jobs, and this will prove a boon to average teacher quality and (presumably) educational outcomes. I am more optimistic than Neerav about mid-skill employment opportunities, and so I am more pessimistic about the future trajectory of the teacher talent pool, though probably not by much in either case.

While corporate profits represent a rising share of U.S. GDP, labor compensation represents a declining share. Recently, University of Haifa sociologist Tali Kristal posited that deunionization is the main driver of this phenomenon, a thesis we discussed late last month. Rather than focus solely on the U.S., Loukas Karabarbounis and Brent Neiman, economists at Chicago Booth, observe that the global labor share has declined since the early 1980s, and they offer the decrease in the relative price of investment goods as the explanation:

We start by showing that the share of income accruing to labor has declined in the large majority of countries and industries. Larger labor share declines occurred in countries or industries with larger declines in their relative price of investment goods. Next, we use this cross-sectional variation to estimate the shape of the production function and conclude that the decline in the relative price of investment explains roughly half of the decline in the global labor share.

One noteworthy finding is that the deterioration of labor’s share of GDP is actually less pronounced in the U.S. than it is in other major market democracies, like (in ascending order of the size of the decline) Japan, Canada, France, Italy, and Germany. In Germany, where unionization levels remain relatively high, organized labor has worked closely with large business enterprises to restrain compensation growth. This obviously does not preclude the possibility that deunionization has played a role in weakening the bargaining position of labor, but it does complicate the picture.

David Nakamura and Sandhya Somashekhar report on conservative efforts to deny various taxpayer-financed health benefits to unauthorize immigrants. Rep. Raúl R. Labrador, for example, has insisted that unauthorized immigrants granted provisional legal status be required to purchase their own issues without federal subsidies. As Jed Graham explains, however, excluding individuals with provisional legal status from the various provisions of the health law would also give them an advantage over citizens:

Labrador’s tough line suffers from the same tunnel vision as the Senate immigration bill — at least as it stands now — which also would deny ObamaCare subsidies to immigrants for a decade or more.

Both approaches would give employers a big incentive to hire legalized immigrants in order to dodge ObamaCare’s fines for failing to provide affordable, comprehensive health coverage to workers. That’s because such fines may be levied based on the number of full-time employees who actually get subsidized coverage via ObamaCare’s exchanges.

For each subsidized worker, many employers will owe a $3,000 nondeductible fine, which equates to $5,000 in wages for a profit-making firm that pays a combined 40% federal and state tax rate. 

This is not to suggest that Labrador’s concerns are entirely misplaced. The unauthorized immigrant population is extremely poor, and while offering unauthorized immigrants provisional legal status will tend to raise their incomes, it won’t raise them enough to obviate the need for subsidized medical coverage. According to Nakamura and Somashekhar, congressional Democrats find the debate over subsidized medical coverage for legalized immigrants exasperating:

Frustrated Democrats argue that Republicans are picking a fight where one does not exist. In both chambers, Democrats say, they have agreed that illegal immigrants would not be eligible for public benefits — including health-care subsidies and Medicaid — as they embark on a path to permanent legal status, which would take at least 10 years under the Senate plan.

“We have said since Day One . . . that undocumented people will not have access to subsidies in the Affordable Care Act,” House Minority Leader Nancy Pelosi (D-Calif.) said last month. “Any thought that we want to do something different than that is simply not true. It is a bottom line. No need to even discuss it.”

Under current law, illegal immigrants and legal residents of fewer than five years are mostly barred from receiving benefits under Medicaid, the joint state-federal health insurance program for the poor. That restriction does not apply to poor immigrants who show up at hospital emergency rooms, however.

While writing the Affordable Care Act, Congress sidestepped the dicey issue of illegal immigration by excluding immigrants who are in the country illegally from its provisions. That means that those immigrants will not get government subsidies to help them buy private insurance plans, nor can they benefit from the law’s expansion of Medicaid.

At the same time, however, they are exempted from the mandate, taking effect next year, that every person must carry health insurance or face a tax penalty.

One reason congressional Democrats might believe that there is “no need to even discuss” this subject is that their current position is untenable. Los Angeles County is just one of many local governments which have raised the fact that denying legalized immigrants federal health subsidies will leave them with a crippling economic burden it can ill afford. Given that the House Minority Leader represents San Francisco, a jurisdiction that contains a nontrivial number of unauthorized immigrants who will be eligible for provisional legal status, one assumes that she understands that local taxpayers will resist fully taking on the cost of providing subsidized medical care for legalized immigrants, particularly in light of rising pension and benefits costs. So the game plan appears to be this: insist that subsidies are off the table for legalized immigrants (“no need to even discuss it”), pass the law with the support for conservatives and centrists in both parties who’d be reluctant to support it if subsidies were offered, and then extend subsidies once the law is passed by pointing to the burden that has been placed on state and local governments, and various news stories about the difficulties facing low-income legalized immigrants who don’t have access to subsidized medical coverage. 

Nakamura and Somashekhar telegraph what this debate will look like in their final paragraphs:

Last week, Rubio announced he would co-sponsor an amendment with Sen. Orrin G. Hatch (R-Utah) to mandate that illegal immigrants cannot get access to public benefits until five years after they earn green cards signifying permanent legal status.

That would mean that, although such immigrants could be eligible for citizenship after 13 years, they would not be allowed to access the health subsidies for at least 15 years.

“The 13-year-long pathway to citizenship will be hard enough,” said Sen. Mazie Hirono (D-Hawaii). “The restrictions on federal safety-net programs make the pathway even more treacherous.”

Suffice it to say, medical providers and insurers will likely embrace Hirono’s stance, as utilization of medical services will increase considerably among legalized low-income immigrants if they are granted subsidized medical coverage. 

David Nakamura and Sandhya Somashekhar report on conservative efforts to deny various taxpayer-financed health benefits to unauthorize immigrants. Rep. Raúl R. Labrador, for example, has insisted that unauthorized immigrants granted provisional legal status be required to purchase their own issues without federal subsidies. As Jed Graham explains, however, excluding individuals with provisional legal status from the various provisions of the health law would also give them an advantage over citizens:

Labrador’s tough line suffers from the same tunnel vision as the Senate immigration bill — at least as it stands now — which also would deny ObamaCare subsidies to immigrants for a decade or more.

Both approaches would give employers a big incentive to hire legalized immigrants in order to dodge ObamaCare’s fines for failing to provide affordable, comprehensive health coverage to workers. That’s because such fines may be levied based on the number of full-time employees who actually get subsidized coverage via ObamaCare’s exchanges.

For each subsidized worker, many employers will owe a $3,000 nondeductible fine, which equates to $5,000 in wages for a profit-making firm that pays a combined 40% federal and state tax rate. 

This is not to suggest that Labrador’s concerns are entirely misplaced. The unauthorized immigrant population is extremely poor, and while offering unauthorized immigrants provisional legal status will tend to raise their incomes, it won’t raise them enough to obviate the need for subsidized medical coverage. According to Nakamura and Somashekhar, congressional Democrats find the debate over subsidized medical coverage for legalized immigrants exasperating:

Frustrated Democrats argue that Republicans are picking a fight where one does not exist. In both chambers, Democrats say, they have agreed that illegal immigrants would not be eligible for public benefits — including health-care subsidies and Medicaid — as they embark on a path to permanent legal status, which would take at least 10 years under the Senate plan.

“We have said since Day One . . . that undocumented people will not have access to subsidies in the Affordable Care Act,” House Minority Leader Nancy Pelosi (D-Calif.) said last month. “Any thought that we want to do something different than that is simply not true. It is a bottom line. No need to even discuss it.”

Under current law, illegal immigrants and legal residents of fewer than five years are mostly barred from receiving benefits under Medicaid, the joint state-federal health insurance program for the poor. That restriction does not apply to poor immigrants who show up at hospital emergency rooms, however.

While writing the Affordable Care Act, Congress sidestepped the dicey issue of illegal immigration by excluding immigrants who are in the country illegally from its provisions. That means that those immigrants will not get government subsidies to help them buy private insurance plans, nor can they benefit from the law’s expansion of Medicaid.

At the same time, however, they are exempted from the mandate, taking effect next year, that every person must carry health insurance or face a tax penalty.

One reason congressional Democrats might believe that there is “no need to even discuss” this subject is that their current position is untenable. Los Angeles County is just one of many local governments which have raised the fact that denying legalized immigrants federal health subsidies will leave them with a crippling economic burden it can ill afford. Given that the House Minority Leader represents San Francisco, a jurisdiction that contains a nontrivial number of unauthorized immigrants who will be eligible for provisional legal status, one assumes that she understands that local taxpayers will resist fully taking on the cost of providing subsidized medical care for legalized immigrants, particularly in light of rising pension and benefits costs. So the game plan appears to be this: insist that subsidies are off the table for legalized immigrants (“no need to even discuss it”), pass the law with the support for conservatives and centrists in both parties who’d be reluctant to support it if subsidies were offered, and then extend subsidies once the law is passed by pointing to the burden that has been placed on state and local governments, and various news stories about the difficulties facing low-income legalized immigrants who don’t have access to subsidized medical coverage. 

Kindred Winecoff, a graduate student at the University of North Carolina, connects the peculiar labor market conditions created by the Second World War to the Great Stagnation:

World War II left industrialized societies with two main features: a lot of industrial capacity, and a lot of dead men. These combined to drive up wages for workers, and for cultural and pragmatic (high wages mean no need for dual income households; high fertility was encouraged to replenish the population) reasons workers were overwhelmingly men. The marginal unit of labor was thus very valuable and labor supply was restricted since the baby boom generation needed twenty or so years to grow up.

By the end of the 1960s the baby boomers were entering the workforce but industrial capacity had not grown at the same rate as the population. Thus, new entrants into labor markets — which increasingly included women and minorities as well as young white men — put downward pressure on wages. The marginal unit of labor was no longer very valuable. Median wages began to stagnate at the same time that over-crowding of cities was leading to social unrest. Governments did not do a good job of managing these duel pressures. The 1970s are a period of stagflation and urban decline.

The interesting part is what happens next. The increase in labor supply suppressed gains in compensation for most workers. But it created opportunites for those in a position to sell the product of their labor to a large, relatively affluent customer base, e.g., “the heads of major corporations, financiers, professional athletes,” all of whom benefit from the rise of information technology and globalization. Winecoff suggests that the real contrast isn’t capital-versus-labor, but rather between labor that occupies a central position in the economic network of late capitalism and labor that occupies the margins. It is an interesting thesis, and it complements Scott Winship’s recent work. 

Charles Kenny argues that while the Internet has changed the way we spend our leisure time and consume, it has had only a limited impact on economic growth. 

Perhaps one reason we haven’t seen a huge impact on productivity because of access to the Internet is because, once we find a job, we spend quite a lot of time surfing the Web at the office. (Some of that time is used to look for a different job, apparently.) Ninety percent of workers with a PC also say they surf recreational sites at work. Almost the same number say they send personal e-mails, and more than half report they cybershop. The reality may be worse: Tracking software suggests that 70 percent of employees visit retail sites, and more than one-third check out X-rated sites. Perhaps we’re using the Internet to do more in less time at work. Yet we’re using the extra hours to check out pictures of Kate Upton or cats playing the piano rather than producing more widgets for the boss.

More broadly, [Robert] Gordon argues that the big productivity wins from IT occurred long ago. He notes (PDF) that telephone operators disappeared in the 1960s as the first robots were arriving in factories. Reservations systems, electronic calculators, and barcode scanners spread in the 1970s and 1980s. Business-to-business electronic invoicing through electronic data interchange has been around since 1965—when Holland-America Steamship Lines started sending shipping manifests through telex messages that were automatically converted into computer data. Online retail shopping may be a comparatively recent phenomenon, but it isn’t a very important part of the overall productivity story.

The Internet has changed the economy and will continue to change it. Some industries—not least print media, booksellers, and broadcast TV—will continue to see dramatic upheaval. But the biggest impact of the technology has been as a more addictive form of entertainment than watching Friends reruns or talking to real friends in real life. If we’ve learned anything over the past 10 years, it’s that there’s no simple Web-based solution to an economy in the productivity doldrums.

Kenny is a skilled debunker, and his column is well worth reading. And he frankly sets up an easy target — the Internet alone will not deliver “an unprecedented period of sustainable, rapid growth,” as President Clinton’s Council of Economic Advisors hoped it might in 2000, particularly if the market democracies pursue destructive monetary and fiscal policies. But there are a few points worth keeping in mind:

1. Clayton Christensen and Ashwin Parameswaran have both observed that recent years have seen a great deal of efficiency innovation relative to empowering innovation, or rather process innovation relative to product innovation. That is, firms are doing the same things more efficiently rather than launching new products and services that create new forms of consumption. The first kind of innovation allows us to use fewer resources to manufacture stagecoaches. The second kind gives us new products like the personal automobile, a device that dramatically increased mobility and that fostered the creation of a wide range of ancillary services. Efficiency innovations will tend to reduce employment levels in a given sector while empowering innovation will tend to increase employment levels as new sectors and new firms arise to meet new needs. Ashwin’s work emphasizes the role of new firm entry in fostering product innovation. As we often discuss, however, the barriers to new firm entry (the debt bias in the tax code, the cost of regulatory compliance) are quite high in many sectors in mature market democracies like the U.S.

The Internet has the potential to reduce barriers to entry in some domains by facilitating disintermediation, etc. This is why some have seen the Internet as an economic panacea. Yet as long as regulatory and, more subtly, cultural barriers persist, this potential won’t be realized. A perfect companion piece for Kenny’s column is Brad Stone on “Why Redfin, Zillow, and Trulia Haven’t Killed Off Real Estate Brokers,” which explains why various real estate start-ups have failed to transform the real estate sector.

2. In 1989, Paul David’s “The Dynamo and the Computer” observed that it took many years for investment in electrification to pay off, and that a similar dynamic might apply to the deployment of information technology in the modern workplace. Kenny implicitly addresses this argument by drawing on Robert Gordon’s claim that we have largely exhausted the potential productivity gains from IT. These gains have been realized through investments in organizational capital. Firms in various sectors, ranging from knowledge-intensive services to retail, have restructured the ways in which they deploy human capital to better exploit information technology. Yet there are a number of sectors that have not gone through this restructuring, or rather that have not taken full advantage of this opportunity, e.g., the education, health, and construction sectors, among others.

3. And finally, it could be that the Industrial Internet will deliver where the Internet Internet did not, particularly if it emerges under a more favorable mix of macroeconomic policies. 

Daniel Indiviglio of Reuters finds the new bipartisan Senate bill to reform the U.S. mortgage finance system disappointing. The 2010 debate over financial reform failed to tackle Fannie Mae and Freddie Mac, despite the fact that the GSEs had only been kept afloat by a $190 billion bailout. And in the years since, the housing market recovery and the decline in mortgage defaults have greatly reduced the pressure to overhaul Fannie and Freddie, both of which have become a major profit center for the federal government. Rather than radically overhaul the U.S. mortgage finance system by reducing the extent of government involvement in the mortgage market, Sens. Mark Warner and Bob Corker have proposed replacing Fannie and Freddie with a new federal agency that would essentially provide mortgage lenders with insurance against catastrophic losses. As Indiviglio explains, this approach “leaves open the danger that lobbyists manage to ensure that the first loss is too small to discourage risky lending or the fee too low to cover the government’s risk.” But given that the political prospects for a radical overhaul have grown very dim, Warner and Corker’s incremental approach does have the advantage of offering U.S. taxpayers some limited protection:

Investors would have to take the first 10 percent loss on mortgage securities in market that’s currently $5 trillion in size, while the next 2.5 percent would be funded by guarantee fees. Overall that’s a cushion around two-and-a-half times as large as Fannie and Freddie’s losses from 2007 to 2011.

It’s a shame Congress couldn’t act sooner and more aggressively to slash government involvement and subsidies in the mortgage market. Now that Fannie and Freddie are again posting big profits, reformers have to be practical. If there’s much more delay, even this modest reform proposal may fall by the wayside.

One gets the impression that the case of the GSEs is illustrative of a broader phenomenon: the post-crisis environment created an opportunity for sweeping reform across many domains, and the Obama administration took advantage of it by passing the fiscal stimulus law and sweeping overhauls of the health system, student loans, food safety laws, and financial regulation. This ambitious legislative agenda sparked a strong reaction, primarily but not exclusively on the political right, and now it seems that the appetite for sweeping reform has mostly evaporated, despite the fact that Congress hasn’t tackled — hasn’t come close to tackling — a wide range of serious structural problems, in the mortgage market, as Indiviglio makes clear, but also in areas that we’ve notionally addressed, like the broader financial system, the health system, and the higher education sector, among much else. By 2017, we will have a new president. Somehow she or he will have to foster a renewed sense of urgency, lest we remain mired in the “New Normal.”

During the presidential election, Ryan Lizza of The New Yorker spoke to various Obama administration officials to get a sense of their vision for a second term. One persistent theme, which figured heavily in President Obama’s second inaugural address, was climate change:

Another major initiative under discussion is energy policy, but the politics of energy are almost as fraught as those of housing. As a candidate, Obama talked in stirring terms about the threat from global warming. In June, 2008, on the night he won the Democratic nomination, he declared that his victory marked “the moment when the rise of the oceans began to slow and our planet began to heal.” But climate change will remain a divisive issue after the election. Among Obama’s conservative critics, his call to halt the rise of the oceans is a frequently mocked piece of oratory. And one of the biggest failures of his first term was the Administration’s inability to win a deal on cap and trade—originally a Republican idea.

Obama talks about energy in most of his speeches, but, in contrast with 2009, when the centerpiece of his program was a cap-and-trade approach to reducing carbon emissions, his goal today is unclear. Early discussions on Capitol Hill suggest that, in a wide-ranging deal, a carbon tax might be part of a grand bargain to settle Taxmageddon.

A carbon tax did not materialize as part of the post-cliff tax deal. But the White House has signaled that the president intends to release new climate change proposals next month, a promise that Bloomberg reporter Lisa Lerer describes as a gesture in the direction of opponents of the Keystone XL pipeline, including a number of prominent donors. 

In January, the Pew Research Center found that 28 percent of the public believes that climate change legislation should be a top priority for the president and Congress. By way of comparison, 86 percent agreed that strengthening the economy should be a top priority and 79 percent said the same of improving the job situation. Moreover, one assumes most voters who place a high priority on combating climate change are inclined to back Democratic candidates, which suggests that congressional Republicans will be disinclined to dedicate much time and effort to new climate change legislation. Given that the climate change debate is going to happen, congressional Republicans, and Republican congressional candidates, would do well to offer an alternative agenda.

Broadly speaking, there are two plausible and politically attractive strategies conservatives might pursue. One strategy, which Oren Cass outlined in National Review in March, would combine opposition to carbon pricing coupled with time-limited funding for basic and applied research in energy technologies. Another strategy, which I associate with Jonathan Adler and Bob Inglis, among others, would embrace a carbon tax as part of a larger effort to reduce or replace other taxes. The latter approach is a tougher sell among Republicans. Having opposed carbon pricing for a long time, I’ve grown more sympathetic when I see it as part of a larger effort to eliminate the corporate income tax. Unfortunately, the corporate income tax is relatively politically popular, and swapping a popular tax for an unpopular tax isn’t necessarily the most attractive political move, regardless of its substantive merits. 

In light of the Obama administration’s decision to back the Syrian opposition, or rather elements of the Syrian opposition, I thought I’d share a passage from a column I published in early May:

It has been over two years since the start of the Syria conflict, and the Obama administration has been debating essentially the same set of policy options. The U.S. now appears to be leaning in the direction of arming the rebels, a step that President Obama had overruled a year ago on the grounds that it risked escalating the conflict. This decision to tread lightly did not, alas, prevent the conflict from escalating. It did mean, however, that the Gulf states have played the leading role in arming the Syrian opposition. And for obvious reasons, the Gulf states have been far less scrupulous about keeping weapons out of the hands of extremists than the U.S. and its allies might have been.

Duke University political scientist Peter Feaver, who was brought into the Bush administration during the darkest days of the Iraq War to help rescue Iraq from sectarian chaos, maintains that had the Obama administration been willing to provide extensive non-lethal aid and assistance to the Syrian opposition earlier on, the U.S. would have a far better understanding of conditions on the ground and far more influence within the opposition. This in turn would have strengthened the hand of moderate Syrian rebels relative to the extremists of the al-Nusra Front, thus making the prospect of arming the Syrian opposition far more attractive. Moreover, had the U.S. provided strong support for the Syrian opposition earlier on, the bitterness and resentment that tends to build in the course of an ethnoreligious conflict like Syria’s might have been contained.

But as the conflict has dragged on, it has become extremely difficult to imagine that Syria will emerge intact or that U.S. aid, whether non-lethal or lethal, will lead to a quick resolution. Stephen Biddle, a political scientist at George Washington University and a leading expert on the wars in Afghanistan and Iraq, offers a sobering perspective on the idea of aiding the Syrian rebels. If the U.S. and its allies ramp up support for the Syrian opposition now that the conflict is well underway, there is good reason to believe that allies of the Assad regime will also ramp up their support. It is thus possible that while the level of violence will be much higher as arms pour into the country, the balance of power will remain the same. This isn’t the only imaginable scenario, of course. It could that the Assad regime’s allies are doing as much as they can already. That appears to be true of Iran, which faces severe economic and strategic constraints. Yet it is less true of Hezbollah, the Lebanese Shia terrorist mini-state that sees itself as a defender of Syria’s Alawite minority against the largely Sunni opposition coalition. The U.S. can easily outgun Hezbollah. But Hezbollah knows the region far better than the U.S., and it sees the stakes in Syria as much higher than an Obama administration that has been desperate to avoid getting entangled in the Middle East.

And even if the U.S. provides the Syrian rebels with more and more deadly armaments than Iran and Hezbollah provide the Assad regime, thus giving the opposition the upper hand, the end of the Assad regime won’t mean the end of conflict, as Syria’s Alawite minority will do everything it can to protect itself from the prospect of eliminationist violence. The most obvious way to stabilize Syria in the wake of such a conflict would be to establish a large peacekeeping presence, composed of international and domestic security forces. This approach worked tolerably well in Bosnia, albeit it at high cost. Suffice it to say, it is difficult to imagine that the U.S. and its allies will be willing to commit 160,000 troops to policing an Arab state plagued by armed violence.

Daniel Drezner, in contrast, argues that President Obama has been pursuing a coherent realpolitik strategy in the Syria conflict.

Dylan Matthews discusses a new theory of how changes in tax rates might impact the distribution of income:

The theory comes from a paper by economists Emmanuel Saez, Thomas Piketty and surprise guest star Stefanie Stantcheva. They hypothesized that lowering marginal tax rates increases the incentive for high earners to bargain up their wages — and pocket more of their raise. Moreover, because the higher earners are bargaining for greater pay without actually becoming more productive, the additional money they’re taking in is coming form other workers, generally those lower down the income scale.

Sure enough, Saez, Piketty, and Stantcheva found that there’s a strong correlation between the size of countries’ tax cuts on the rich and increases in the income shares of the rich, even before taking taxes into account. That is, the rich are getting richer even before you take into account that they’re paying less in taxes:

What’s more, increases in the rich’s income share didn’t coincide with increases in the rate of GDP growth. That fits the Saez/Piketty/Stantcheva theory that the rich aren’t getting more productive; they’re just getting better at bargaining because lower tax rates give them the motivation to get better at bargaining.

Much more research has to be done before we can accept the Saez/Piketty/Stantcheva findings as proven. But their research does point to a plausible way that lowering income tax rates for the wealthy — and in particular lowering rates on capital income — could worsen pre-tax inequality without any economic benefit.

Two issues immediately arise. The authors draw on earlier work of Piketty and Saez on the changing tax burden for high-earners, yet Arpit Gupta has raised questions about the validity of some of their assumptions, e.g., Piketty and Saez assume that the entire burden of corporate tax rates falls on investors, despite the fact that the emerging consensus among economists is that labor bears at least some of this burden. If corporate taxes do indeed lower wages for rank-and-file employees, the tax burden on high-earners in the U.S. has decreased by less since the 1960s than Piketty and Saez assume. 

And then there is the question of whether Piketty and Saez are correct in their assessment of the increase in income inequality. This month, Phillip Armour, Richard V. Burkhauser, and Jeff Larimore released a new working paper addressing this issue, the abstract of which reads as follows:

Recent research on United States levels and trends in income inequality vary substantially in how they measure income. Piketty and Saez (2003) examine market income of tax units based on IRS tax return data, DeNavas-Walt, Proctor, and Smith (2012) and most CPS-based research uses pre-tax, post-transfer cash income of households, while the CBO (2012) uses both data sets and focuses on household size-adjusted comprehensive income of persons, including taxable realized capital gains. This paper provides a crosswalk of income growth across these common income measures using a unified data set. It then uses a more consistent Haig-Simons income definition approach to comprehensive income by incorporating yearly-accrued capital gains to measure yearly changes in wealth rather than focusing solely on the realized taxable capital gains that appear in IRS tax return data. Doing so dramatically reduces the observed growth in income inequality across the distribution, but most especially the rise in top-end income since 1989. 

Recall our discussion of tax systems that rely on annual assessments of the market value of financial assets vs. those that are realization-based. The beauty of a realization-based system, from the perspective of an investor, is that she can pick and choose when she realizes a capital gain, and she will presumably do so with an eye towards minimizing her tax burden. Some argue that one reason for the recent surge in federal tax revenues, for example, is that taxes on capital income are scheduled to increase under the post-cliff ATRA legislation. But this doesn’t change the fact that an owner of a financial asset benefits when the asset in question increases in value, whether or not she decides to sell it, e.g., rising home values tend to increase consumption. When we rely taxable realized capital gains in our analysis, we include asset appreciation that may have occurred over several years in the income for one particular year, which will tend to make the income for that year look much higher that it would otherwise. And just as importantly, this method leads us to exclude the accrued gains that occur in years when individuals don’t sell their assets, which will tend to make the income for that year look lower than it would otherwise. There is an obvious reason why we might rely on taxable realized capital gains: this is the data that is most readily accessible. That does not mean, however, that it gives us the clearest picture of how income changes over time. 

Armour et al. find that accounting for accrued gains changes the income inequality picture dramatically:

[W]hen we include yearly-accrued capital gains excluding housing gains and private business gains, instead of taxable realized capital gains, the inclusion of these gains slows income growth in all but the bottom quintile of the distribution. Thus, when using this measure that is more in line with Haig-Simon’s income principles, the top quintile of the distribution had the least growth in income from 1989 through 2007 while the bottom quintile of the distribution had the most. Measured in this way income inequality fell between 1989 and 2007.

How is it possible that the choice of treatment of capital gains can have such a dramatic difference? It results from both the timing of realizing gains and from the likelihood of assets appearing in taxable accounts for individuals at different points in the income distribution.

One driver of this outcome is that mean equity investment holdings in the bottom quintile grew over 7-fold while increasing by a factor of 3.5 in the top quintile between 1989 and 2007. One assumes that the post-crisis economic environment has darkened this picture considerably, but this development appears to be significant all the same. And limitng our analysis to taxable realized capital gains obscures this development because a disproportionately large share of this increase in equity holdings has occurred in tax-sheltered accounts. And if we assume that low-income and middle-income households hold a larger share (not a larger amount) of their equity holdings in tax-sheltered accounts, we can see how this might impact income distribution. 

Here is another thing to keep in mind: stock market gains were higher in the 1980s and 1990s than in the 2000s. If a hypothetical worker allowed her equity holdings to increase in value over those decades and started to sell them in the 2000s, as she approached retirement, we would fail to capture increases in her income in the 1980s and 1990s while in effect overstating her income gains in the 2000s. 

There are, to be sure, some weaknesses in the Armour et al. account, as they freely acknowledge, and their paper hardly represents the last word on the subject. But if taxes decreased by less on high-earners than Piketty and Saez suggest, and if relying on taxable realized capital gains has led them to overstate the increase in income inequality, we might have to return to the drawing board.

I was really delighted to hear that Yuval Levin, a friend and colleague, was awarded a 2013 Bradley Prize for his work in advancing the cause of limited government. Yesterday, he offered brief remarks on receiving the award. His characterization of conservatism as gratitude struck me as exactly right, and as a reminder of where U.S. conservatism sometimes goes wrong. Though I’m sure some of Yuval’s liberal readers will object, his basic argument is that because conservatives start from modest expectations of human affairs — “we know that people are imperfect, and fallen, and weak; that human knowledge and power are not all they’re cracked up to be; and we’re enormously impressed by the institutions that have managed to make something great of this imperfect raw material” — they tend to be (or perhaps they ought to be) grateful for the achievements of our culture and our society, and keen to preserve what is best in our past. Liberals, in contrast, often express outrage over the various failings of our society, as they start with higher expectations “about the perfectibility of human things and the potential of human knowledge and power.” I think it’s fair to say that both of these tendencies can be found on both the right and left of the political spectrum, i.e., there are utopians on the right and modest incrementalists on the left. But Yuval’s framework is central to why I identify as a conservative, despite the fact that my views are not always in line with the conservative consensus. 

And earlier today, Mike Lee, the Republican senator from Utah, gave a speech at the Faith and Freedom Coalition conference, that calls for “a conservative reform agenda” very much in keeping with Yuval’s line of thinking:

Conservatives have argued for years that the family must be at the core of our worldview. On issues like school prayer, or the right to life, or traditional marriage, or home-schooling, conservatives have said protecting the family is the most important part of our moral agenda.

Today, some critics say that times have changed, and we have to change with them. They say we have to reach out to people beyond our conservative base. They say we have to change the way we think and talk about families.

It may surprise some of you to hear, but I think they make a great point. Times have changed. We do need to broaden our appeal, and change the way we think and talk about family.

But ultimately, the critics have it backwards. The problem is not that conservatives have focused too much on the family — but far too little.

Too many in Washington seem not to realize it, but the rapid changes we have seen in recent years in America have only made the family more important, not less. The family is the foundation not only of our society, but of our economy, our culture, and our democracy as well. The family is indivisible from any facet of America’s history or destiny. Crises like divorce, fatherlessness, and social isolation – while moral in nature – have enormous social and economic consequences.

In the same way, economic problems like unequal opportunity; stagnant wages; and the spiraling costs of housing, health care, and education represent moral threats to family stability and national unity.

Working families today are bearing the brunt of all of the above. And as a result, too many are falling behind.

Their anxieties are very real – and so are the liberals’ flawed, seductive, big-government proposals to relieve them. To address those anxieties, it is not enough for us simply to oppose liberals’ ideas. We have to propose conservative ones. We have to show working families that bigger government will not solve their problems; that instead, bigger government is creating them. [Emphasis added]

Lee’s challenge will be to square the circle. Having recognized that government exacerbates many of the problems he has identified, like “the spiraling costs of housing, health care, and education,” he has to identify ways that government can help mitigate them. My sense is that he has the diagnosis right, i.e., that changes in family structure both contribute to and reflect broader economc challenges, but I am eager to see if he will also get the solutions right. As a stalwart Tea Party conservative, Lee’s opposition to big government should come as no surprise. But it does seem as though he sees a role for policy innovation — for changing what government does and how it does it rather than relying solely on rolling it back. 

P.S. Josh Barro finds Lee’s address vacuous. I can see why Josh is disinclined to give Lee the benefit of the doubt. As Josh Kraushaar reminds us in his latest column, the GOP hasn’t done much to earn the confidence in reform conservatives in the last several months, and so some skepticism is warranted. Moreover, there is a division of labor in right-of-center punditry, and Josh has long since declared himself the GOP’s “bad cop.” As one of the good cops, however, I’m obligated to raise a few points in Lee’s defense:

Ponnuru and Stein recognize that bigger tax credits for families have a fiscal cost, and that prioritizing them means shifting focus away from cutting tax rates. But Lee makes this proposal in the same breath that he calls for lower tax rates. He’s not acknowledging the fiscal trade-off: if the GOP hopes to devote more fiscal resources to the middle class it will have to devote fewer to people with high incomes.

The Stein plan, as outlined in National Affairs, envisions a top marginal tax rate of 35 percent, i.e., the Bush-era top marginal tax rate. While Stein, Ponnuru, et al. might consider the ATRA top rate of 39.6 percent acceptable, it is easy to imagine Lee proposing a return to 35 percent as part of a revenue-neutral tax reform. The expansion of the child credit will undoubtedly be very expensive, yet other tax expenditures can be trimmed even further than Stein suggests. 

It also runs directly counter to Lee’s own tax plan, which would replace all federal taxes with a 25 percent flat tax on consumed income. That would shift the tax burden dramatically away from wealthy families toward those with low- or middle-incomes.

Josh is clearly right to suggest that Lee’s current stance on tax reform entails moving past his flat tax on consumed income. 

On education, Lee is offering the same Republican hand-wave on education as ever: freer markets will fix the problem. On infrastructure, he is saying he is for good projects and against waste — like everybody else.

It’s true that Lee has not articulated a higher education agenda (yet). But on infrastructure, I think Josh is missing Lee’s emphasis on federalism. Lee explicitly states that the federal government is wasting money that states might spend more wisely. For example, Rohit Aggarwalla of Bloomberg Philanthropies has, as we’ve discussed, proposed devolving responsibility for surface transportation to state governments. This is a structural reform, and my guess is that Lee, a staunch federalist, would be sympathetic to it. 

And on welfare, what does he mean when he says we must “rethink a dysfunctional welfare system”? Well, he has endorsed a Heritage Foundation plan that would cap most welfare spending at inflation-adjusted 2007 levels and then limit its growth to inflation (or, in the case of health spending, health inflation).

That would mean the government could not respond to increased needs during recessions; as rising unemployment made more families needy, Congress would be forced to find ways to cut back welfare programs. And it would mean that welfare spending would have to decline, over time, as a share of the economy.

The plan would also repeal Obamacare and Medicaid and replace them with a uniform, $2,000-per-person tax credit that would still leave health insurance out of reach for many people. (Poor families with children would be eligible for an enhanced benefit, but it would still leave gaps.)

Again, if Lee doesn’t intend to change his position, Josh is on firm ground. If he intends to move beyond the Heritage Foundation plan, it’s possible that he has a proposal worth rallying behind. Hence my stance is to cheer Lee on for arguing that the right ought to focus its efforts on unequal opportunity and stagnant wages while taking a wait and see attitude on what he intends to do next. It’s true that Lee has endorsed proposals, liek the Heritage Foundation’s “Saving the American Dream” plan, that leave much to be desired as governing documents. But elected officials often revise their positions, e.g., President Obama was strenuously opposed to an individual mandate as a presidential candidate, and he went from backing same-sex civil marriage to opposing it to backing it again in a relatively short span of time. What Lee is doing is recasting Tea Party conservatism by emphasizing the conservative commitment to stronger communities, a reflection of the ethic celebrated by the Church of Latter Day Saints. Utah has long been home to a more communitarian conservatism, which is in many respects more politically pragmatic than the more ideological conservatism that has thrived in the South. That is not an insignificant step in itself, and I’m optimistic that Lee intends to go beyond rhetorical positioning and towards real policy innovation. 

Last night, I had a brief conversation on CNN’s OutFront on organ donations, prompted by the case, prompted by the case of Sarah Murnaghan, the 10-year-old girl who successfully secured a lung donation after her family pressed for her to get on the list for an adult rather than a pediatric lung. The central problem is that the supply of organs available for donation is limited, as individuals have to “opt-in” to a donor registry. One strategy for increasing the supply of donations is to shift to presumed consent, yet this strategy has met with considerable resistance in democratic societies — one assumes that people find the idea “creepy.” Another strategy, endorsed by Virginia Postrel, Sally Satel, and Josh Barro, among many others, is to allow some form of compensation. Many people find the idea of compensation discomfiting, as it raises the possibility of a free-for-all in which the poor and vulnerable sacrifice their bodily integrity in exchange for cash that can be used for immediate gratification. Two arguments immediately come to mind. The first is that compensation can be structured in many different ways. In 2006, Satel, who received a kidney from Postrel in March of that year, described various approaches, including:

1. A forward market for cadaver organs, as proposed by economist Lloyd Cohen — (a) receive a small amount of compensation for joining the current donor registry or (b) register now in return for a shot at more substantial compensation that will be paid to your estate in the event that your organs are harvested upon your death.

2. A centralized single compensator, in which a government agency would offer compensation in return for organs. Compensation could take the form of outright payment or (Satel suggests) a menu of options that would include tuition vouchers, retirement contributions, tax credits, charitable donations, long-term nursing care, and other forms of compensation that would not entail booze or strippers, thus defusing at least one objection to the idea of compensation.

3. And finally, private contracts between donors and recipients. Satel addresses the unfairness question in the following passage:

While private contracts may seem unfair because only those with means will be able to purchase directly, poor people who need kidneys would be no worse off—and, very likely, considerably better off—than under the current system. First, a stranger interested in selling a kidney is unlikely to give it away for free to the next person on the list (only 88 donors last year made such anonymous gifts); thus, few poor people would be deprived of kidneys they would otherwise have gotten voluntarily. Second, anyone who gets a kidney by contract is removed from the waiting list, and everyone behind him benefits by moving up. Third, private charities could offer to help subsidize the cost for a needy patient or pay outright.

Even under the most laissez-faire arrangement, the list of people in need of organ donations would shrink, thus benefiting others on the list. Squeamishness aside, I’m hard-pressed to see the downside, though of course squeamishness is nothing to sneeze at.

My argument is a bit different: opponents of compensation are operating under the assumption that one should only be motivated by altruism, or perhaps a desire for recognition. Yet we don’t ask that the surgeons who perform lung or kidney transplants abide by the same principle. A skilled surgeon has invested a great deal in her human capital, yet she also relies on an inherited endowment of traits and qualities that made her more “trainable” than the next person. We don’t ask that she provide her services for free. It’s thus not obvious to me that we should ask people to take on the risk — the negligible risk, but the risk all the same — that making an organ donation entails, or to bear the opportunity cost (three days in the hospital, etc.), without offering compensation in the same spirit. The argument is often couched in the language of protecting the bodily integrity of the poor. But I’m struck by the fact that we don’t apply the same standard to trained medical professionals. If surgeons can “profit” from transplants, why can’t people who don’t have the same skill set do they same if they also have something valuable to offer? A perfectly logical rejoinder, by the way, is that surgeons ought to be motivated only by altruism, and that compensation for performing transplanet surgeries should be put on the same footing as compensation for organ donations. But I think it’s pretty clear that the supply of people willing to perform organ donations would quickly collapse, and everyone knows it.

Rather amusingly, Steven Greenhut, a California-based fiscal policy expert, and E.J. McMahon, a New York-based fiscal policy expert, are duking it out over which state has the worst economic environment in the nation. Greenhut insists that the Golden State deserves last place while McMahon maintains that for all California’s many woes, New York still comes out ahead when it comes to profound dysfunction. Can’t we all just get along? I should note that though California and New York are burdened by all kinds of policy failures, they’re both extremely amenity-rich and, for novelty-seekers at least, very pleasant places to live. This is not a coincidence, as it takes more for a costly and inefficient public sector to drive productive people out of California and New York than it would take to drive them out of regions that don’t benefit from entrenched economic agglomerations (like the nation’s first and second largest metropolitan areas) or near-flawless Mediterranean climates. 

As Julian Sanchez explains, the third-party doctrine holds that the information that individuals disclose to businesses — credit card transactions, phone records, etc. — doesn’t carry with it a “reasonable expectation of privacy” under the Fourth Amendment, as one has “assumed the risk” that this information might at some point be disclosed. Technological innovation has meant that this third-party doctrine has vastly expanded the government’s surveillance powers:

When you buy a book, join a political e-mail list or read a website, a third-party record is created. Even the contents of your private messages or files stored in the “cloud” aren’t really yours, according to this doctrine. Federal law allows them to be obtained without a search warrant in many circumstances. Those old phone logs, meanwhile, have become far more revealing with the advent of cellular technology, which can track your geographical movements in increasingly precise detail.

The result is that a vast array of private information that would previously have required a physical search — and therefore a search warrant — to obtain is now available under a far lower standard. And much of that data concerns domains of speech and intimate association traditionally held to be protected by the First Amendment as well.

Julian notes that at least one prominent jurist, Justice Sonia Sotomayor, has suggested that “it may be necessary to reconsider the premise that an individual has no reasonable expectation of privacy in information voluntarily disclosed to third parties,” an extremely encouraging development, and further indication that Justice Sotomayor has proven a valuable addition to the Supreme Court. Eli Dourado has more on the implications of the third-party doctrine in the age of cloud computing. 

I was pleased to see Eduardo Porter devote a column to consolidation among U.S. medical providers, as Avik Roy has an article on the subject in a forthcoming issue of National Review. Porter writes:

Two decades ago, there were on average about four rival hospital systems of roughly equal size in each metropolitan area, according to research by Martin S. Gaynor of Carnegie Mellon University and Robert J. Town of the University of Pennsylvania. By 2006, the number of competitors was down to three.

The share of metropolitan areas with highly concentrated hospital markets, by the standards of antitrust enforcers at the Justice Department and the Federal Trade Commission, rose to 77 percent from 63 percent over the period.

And consolidation is continuing. Professor Gaynor counts more than 1,000 hospital system mergers since the mid-1990s, often involving dozens of hospitals. In 2002 doctors owned about three in four physician practices. By 2008 more than half were owned by hospitals.

If there is one thing that economists know, it is that market concentration drives prices up — and quality and innovation down.

Research by Leemore S. Dafny of Northwestern University, for instance, found that hospitals raise prices by about 40 percent after the merger of nearby rivals.

Other studies have found that hospital mergers increase the number of uninsured in the vicinity. Still others even suggest that market concentration may hurt the quality of care.

This brings to mind a recent Marginal Revolution post on various supply-side interventions that might help reduce the cost of medical care, e.g., a multi-pronged effort to expand the ranks of licensed medical providers, encouraging medical tourism, etc. The chief obstacle to this approach, and to health-system reform more broadly, is the power of the doctors’ lobby. 

Graeme Wood addresses food insecurity in the United States in the June 3rd issue of National Review. The article is subscribers-only as of yet, but I thought I’d share his exchanges with Parke Wilde, a food economist at Tufts University, and Neeraj Kaushal of the Columbia University School of Social Work:

Parke Wilde, a food economist at Tufts, points out that food-stamp benefits arrive only once a month, as a matter of federal regulation. Food-stamp families tend to spend their benefits early in the month and get hungry late in the month, when the benefits run out, thanks to poor planning or ne’er-do-well family members who waste resources. If food-stamp programs could parcel their assistance out every couple of weeks instead of once per month, they might impose better planning on recipients and alleviate that last-weekend hunger. So far, this option hasn’t been properly tested at any level.

Perhaps the strangest demographic choice made by the filmmakers was to portray only native-born Americans, when hunger in America is felt disproportionately by newcomers. “We deny food stamps to many of the population most in need,” says Neeraj Kaushal, an economist at Columbia. “For a rich country, the U.S. incidence of food insecurity is very high, and that’s largely because of the high incidence of food insecurity among immigrant families.” (She politely does not even mention the poor in her own native country, India, half of whose population subsists on a total daily income that is a fraction of the food-stamp benefit that left Representative McGovern “cranky.”)

Immigrants to the United States who have been here less than five years are ineligible for food stamps — a policy that might go some distance toward explaining why private charities such as Feeding America end up providing assistance to a whopping one in three Latino families in this country every year. Some immigrant families avoid contact with the government, even to pick up benefits they are legally permitted, for fear that authorities will notice and deport undocumented members of their household. The bluntest tool at our disposal, to ensure that recent immigrants don’t suffer here, would be to just give them food stamps. But of course we could just as easily make our immigration policy friendlier to skilled immigrants and decline to burden ourselves with the hunger of the world’s poor in the first place.

Twice-monthly benefits, streamlined SNAP applications, and revised immigration policies are, unfortunately, the last of the low-hanging fruit, delicious though they may be. The big remaining question — how do we make sure society’s abundance is accessible, especially given that it appears that just giving it to people isn’t sufficient? — has defied easy answers.

Analysts of food insecurity debate whether the problem is ultimately one of logistics (we have the food — now how do we get it to the people who need it at the time they need it?) or one of anti-poverty (how do we get rid of poverty?). Wilde, the Tufts professor, says that we could theoretically just pay for the missing and potentially missing meals of the food-insecure, for a price of a few billion a year. But if you think, as he does, that the problem will persist as long as poverty does, then this solution won’t be enough.

“With the food-centered approach, the common theme is If only we had the heart,” Wilde says. “But hunger is a more daunting problem.” Whatever you think can be done to make people richer (tax cuts? tax increases?), that’s probably going to be your best guess about how to get rid of hunger. But given that we can’t agree on how to end poverty, we probably shouldn’t assume that the solution to hunger is any simpler.

When we discuss food insecurity in the U.S., we tend to focus on food or agricultural policy when in fact we might be better served by focusing on immigration policy, human capital policy, the interaction between family structure and labor market outcomes, and the broader macroeconomic environment. One could argue that seemingly mundane conversations about monetary policy are ultimately conversations about hunger and food insecurity, as the prevalence of both would likely decrease under full employment. 

David Levinson, a transportation economist at the University of Minnesota, recently identified 14 trends that will shape the future of commuting, e.g.: 

1. as state and local governments take on more responsibility for surface transportation, they will tend to make better decisions on capital and operating and maintenance costs, as they will be less skewed by the prospect of “free” or cheap federal financing;

2. because the U.S. surface transportation network is fairly mature, the emphasis will shift from new construction to “fix it first“;

3. the rise of electric vehicles will contribute to the collapse in motor fuel tax revenues, thus necessitating alternatives like VMT (vehicle-miled traveled) taxes or increases in retail sales taxes;

4. the spread of sensors will facilitate traffic management in a variety of ways, reducing the burdens of congestion;

5. the continuing “dematerialization” of the economy will tend to reduce the number of automobile trips;

6. delivery will increasingly substitute for fetching, i.e., firms like Fresh Direct and Amazon will continue to train U.S. consumers to rely on e-commerce rather than trips to the supermarket;

7. though car-sharing and bike-sharing won’t become extremely common outside of dense cities, their market share will likely grow — and the rise of autonomous vehicles may well lead to explosive growth in car-sharing;

8. as people rely more on virtual social networks and less on local social networks, local travel might decline as long-distance travel increases, i.e., I’ll make fewer trips around the neighborhood, but more trips to visit relatives 2-3 hours away by plane;

9. choice in education will tend to mean that more parents will ferry their children beyond their neighborhoods to send them to school, or to afterschool enrichment programs;

10. real-time information transmitted by smartphone will further encourage spur-of-the-moment planning and novelty-seeking (“let’s try this new place that gets X stars on OpenTable”);

11. big boxes will get bigger, and when families to make trips to physical outlets for groceries, they will be more inclined to buy in bulk and to buy less often;

12. as work weeks shrink, so will the number of vehicles on the road during rush hour — though off-peak travel will increase somewhat;

13. and most interestingly, the “end of driving,” i.e., the rise of autonomous vehicles, will lead to more mobility for children, the elderly, and the disabled and it will facilitate exurbanization, which Levinson touches on elsewhere:

Self-driving vehicles hold the promise of radically altering urban transportation. Their effects on intercity transportation are less clear. On the one-hand they will extend people’s willingness to travel by auto, as they lower the cost to the driver of travel (in terms of their need to exert energy driving and attending to the road), and enable them to engage in other in-vehicle activities. In that regard, they might change the boundary between the “drive or rail” and “drive or fly” decision (e.g. moving the threshold from 300 miles to 400 miles). Thus, they are more likely to affect rail than flying.

On the other hand, self-driving vehicles will likely decrease auto-ownership and increase various types of on-demand car rental, which I have called “cloud commuting”, such as car-sharing (Zipcar, Car2Go, etc.). This is because one of the major difficulties with car rental, especially in less dense areas, having to travel to get the rental car, will be obviated. People with fewer cars on hand are more likely to use shared transportation modes (transit, intercity rail, airplanes), since they will be paying more per trip (they will have to pay to rent the car, while if they owned, they would not attribute ownership costs to a particular trip).

Robert Bruegemann, an art historian at the University of Illinois at Chicago, has suggested that self-driving cars could impact urban geography in lots of different ways at the same time:

If the driverless car reduces congestion by maximizing the use of existing highways and taking passengers farther and faster with greater comfort, it could lead to even more dispersed cities. But it could also have the opposite effect.

Given the large amount of space devoted to roads and parking in American cities, even minor increases in collective use of vehicles could lead to less need for new pavement and parking and to higher residential and commercial densities. This would reinforce a trend that is already visible, as new development at the far suburban edge of most urban regions is currently being created at higher densities than in the past and there is a great deal of infill in city centers and close-in suburbs.

Although the driverless automobile, like almost every technological advance, will undoubtedly bring on a great many new problems, it could also help ease several existing problems caused by the automobile, notably traffic fatalities and congestion. An important prerequisite for increasing the benefits and reducing the negative side effects is to abandon some of the reflex thinking that currently hobbles transportation planning.

A place to start is the widely held, but dubious, assumption that we should plan our cities around some particular transportation system. To facilitate buses and trains, many people advocate turning the clock backward and creating a denser urban fabric of the kind that was necessary for 19th-century industrial cities. There is nothing wrong with living in this way if it is what most people choose to do. The arrival of the automobile, however, gave urban dwellers a great deal more mobility and flexibility in how they lived, and a large number opted for more dispersed settlements.

The driverless car could well extend that flexibility in dramatic fashion, combining some characteristics of automobiles and public transportation and allowing people more choice in the way they live, whether it involves more compact, high-density cities, more dispersed low-density settlements — call it sprawl if you like — or, perhaps most likely, all of the above.

Bruegemann’s analysis is a reminder of how various technological innovations are facilitating the sorting process through which like-minded Americans cluster, and grow further and further apart from non-like-minded individuals. There is obviously much more to say, but I’ll leave you to speculate. 

As New York city Mayor Michael Bloomberg enters the final stretch of his long tenure, he has turned his attention to legacy-building. Cornell-Technion is one manifestation of this “edifice complex,” but in a recent address on protecting the five boroughs against future storm surges, the mayor offered an idea far more ambitious and far more promising: he called for the creation of a new neighborhood along Manhattan’s eastern edge, a “Seaport City” to be built on landfill, much like Battery Park City on the west side. The following (felicitously titled “Southern Manhattan Initiative 2″) is drawn from the city’s report on “A Stronger, More Resilient New York“:

The eastern edge of Lower Manhattan, particularly from the Battery north to Chinatown, is one ofthe lowest-lying areas in Southern Manhattan and is, therefore, subject to flooding. This vulnerability, demonstrated during Sandy, is likely to get worse as the climate changes. Though the integrated flood protection system described above could provide substantial protection during extreme weather events, there may need to be a longer-term approach that not only could offer more permanent protection,butalso,overtime,couldbeself-financing. Subjecttoavailablefunding,theCity,therefore, will study the creation of a new multi-purpose leveealongtheeasternedgeof LowerManhattan from the Battery Maritime Building to Pier 35, which would provide protection against multipleclimatechange-related threats,including storm surge and sea level rise. This approach would provide the protective value of a traditional levee while also providing new land on which commercial and residential buildings could be constructed, both to accommodate the City’s growth and to help finance the construction of the multi-purposelevee. The intention would be for this new East River neighborhood to serve much the same function as Battery Park City does along the Hudson River.

Though not quite as conceptually ambitious as “LoLo,” Vishaan Chakrabarti’s vision of a new neighborhood that would link Battery Park and Governor’s Island, Seaport City is an excellent idea for a city that is severely capacity-constrained. While other coastal global cities, like Tokyo, have expanded their footprint through landfill development in recent decades, Manhattan hasn’t seen a major expansion since Battery Park City, the landfill portion of which was completed in 1976. New York city has grown considerably since then — that year, the population was 7.4 million; the latest estimate is just over 8.3 million. The city has also grown considerably more affluent, and affluent consumers tend to consume, and certainly to prefer to consume, more living space. High housing prices suggest that the demand for New York city greatly outstrips the supply, so one natural solution is to increase supply through the use of landfull development. If anything, my criticism of the Seaport City concept is that it is not sufficiently ambitious. Though historical preservationists, environmentalists, and NIMBYs and BANANAs of all stripes would surely howl in derision, there is a strong case for Seaport City and LoLo. The only coherent case against is that we ought to prioritize upzoning existing neighborhoods before we commit to expanding Manhattan, though of course this neglects the ways in which landfill development will help protect the city from coastal flooding, etc. Both strategies ought to be vigorously pursued. Environmental objections to landfill development are particularly fatuous, given the environmental benefits of dense urban living, as described by Harvard economist Edward Glaeser:

New York City has the largest gap in emissions between central city and suburbs of any metropolitan area in the country—unsurprisingly, since New York’s central city is the epitome of dense urban living. Our estimate is that an average New York City resident emits 4,462 pounds less of transportation-related carbon dioxide than an average New York suburbanite. The reductions in carbon emissions from home heating and electricity are comparably large, thanks to New York’s famously tiny apartments. Manhattan is one of the greenest places in America.

And though congestion is a legitimate concern, a combination of congestion pricing and investment in mass transit can help mitigate any downsides. New York city’s size and productivity is a crucial strategic asset for the U.S. Increasing its size will tend to increase its productivity, per the literature on superlinear scaling. We would be foolish not to pursue this opportunity. 

Gary Burtless observes that while the labor force participation rate for younger workers has declined since 2007, it has actually increased for over-65s:

[E]mployment rates of adults between 60 and 74 have increased. The share of all labor income earned by older workers has soared in recent years because these workers have enjoyed faster wage gains than workers who are younger.

It is crucial to understand why this is the case. A major reason is that older workers are now better educated compared with prime-age workers than was the case in the past. Twenty-five years ago the gap in education between prime-age workers and older Americans was large. Americans past 60 had much less schooling than workers who were younger. The gap is now far narrower.

Trends in education are also important in accounting for the increase in Americans’ employment rates at older ages. There are major differences between the participation rates of older people with different levels of schooling. In the early 1990s nearly 60 percent of 62-74 year-old men with doctoral and professional degrees were still in labor force. In contrast, only 20 percent of male high school dropouts the same age were in the workforce. The participation-rate gap was smaller for older women, but it was still sizeable. For both sexes the employment gap between the highly educated and less educated has held steady or widened in the past two decades.

One virtue of rising labor force participation among older workers is that it has the potential to ease the burden on Social Security, which is part of why Andrew Biggs has proposed eliminating or reducing the Social Security payroll tax for workers at age 62:

Using the standard Social Security models developed by the Policy Stimulation Group, I estimate that eliminating the 12.4% payroll tax for workers at age 62 would reduce annual Social Security revenues by roughly 2.2%, or about $16.2 billion in 2012 tax collections.

Using Eric French’s parameters, it would increase the overall labor supply by around 1.4%. The average 62-year-old working full time in 2010 earned around $58,800, implying a federal income-tax rate of about 15%. Adding the 2.9% Medicare tax and a 4.4% average state income-tax rate, total non-Social Security revenues would rise by around $18.3 billion, of which the federal government would collect about $14.7 billion. Thus higher non-Social Security revenues compensate for much of the payroll tax cut. (Higher benefits earned by later retirements have no significant impact on these estimations.)

Meanwhile, the gains to individuals and the economy could be substantial. Working one additional year would boost average private pension income by almost 5%. And all Americans would benefit from the extra goods and services that older workers could provide.

GOP candidates in 2014 and 2016 would do well to embrace something like Biggs’ proposal, which would complement an expanded child credit that would benefit younger parents. 

P.S. I should add that Andrew has argued that the rising labor force participation rate among older workers reflects a desire to rebuild retirement savings damaged during the 2008 financial crisis:

Americans of all ages lost jobs during the recession, but common sense suggests that older workers would have the toughest time finding new employment. They’re paid more, they cost more in terms of benefits, and their technical skills may not be exactly cutting-edge. So the recovery, such as it has been, should have been stronger among the young. But older workers are also highly motivated: A younger person might decide to ride out the recession on his parents’ couch, but older workers need to rebuild their shrunken 401(k) balances and find health coverage.

The relative success of older Americans in the labor market suggests that motivation plays a more significant role in labor market outcomes than is commonly acknowledged.

William Saletan offers a nuanced take on the NSA’s phone surveillance program.