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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

The Mirage of MOOC Completion Rates



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From John Lauerman of Bloomberg News:

About 95 percent of students enrolled in free, online courses from Harvard University and the Massachusetts Institute of Technology dropped them before getting a completion certificate.

Out of 841,687 registrants in 17 courses offered in 2012 and 2013 by the universities’ joint EdX program, 43,196 saw the classes to conclusion, according to an e-mailed statement from the Cambridge, Massachusetts-based schools. Some of the students signed up for multiple courses, according to the statement.

Those numbers sound discouraging. Yet as Kevin Carey of the New America Foundation argued last month, the real comparison isn’t between the share of registrants who complete an EdX course and the share of Harvard or MIT undergraduates who complete a course in which they’ve enrolled. Rather, it is between the share of students who applied to Harvard or MIT and managed to gain admission and attend Harvard or MIT, and then managed to complete a given course offered by other school. The “completion rate” of students in the former scenario would if anything be even lower than what we’ve seen in EdX. The purpose of the EdX initiative is to make educational opportunities more accessible; hence the barriers to entry are lower, and many people, as Lauerman explains, do little more than dip a toe in the water. I am one of the hundreds of thousands of people to have registered for an online course without ever doing a lick of work, and if you’re reading this, there is a decent chance that you’ve done the same. So the next time you see someone use low “completion rates” against efforts to experiment with creating more accessible learning opportunities, keep this in mind.

What’s the Matter with Hoboken?



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Josh Barro of Business Insider addresses Hoboken Mayor Dawn Zimmer’s new allegations against members of the Christie administration. According to Zimmer, Lt. Gov. Kim Guadagno threatened to withhold post-Sandy assistance if she didn’t play ball with a zoning change that would benefit an influential real estate developer, the Rockefeller Group. Basically, Barro explains that the modest amount that Hoboken has received under the state’s Hazard Mitigation Grant Program (HMGP) makes sense when viewed in the context of the amount of money that has been disbursed so far, the share of grant funds that were available to local governments in the first place, and the grant applications for which Hoboken has been eligible so far. And though Barro acknowledges the possibility that the HMGP was structured in a way that cuts against the interests of a dense urban jurisdiction like Hoboken, that can hardly be characterized as the product of political retribution against Zimmer, as there are many other dense urban jurisdictions that have been disadvantaged in the same way. Barro does, however, criticize Team Christie’s PR strategy of focusing on funds that have been disbursed to Hoboken through programs other than HMGP, as the Christie administration has limited leverage over these other funds. 

On a related note, Nikolai Fedak defends the Rockefeller Group’s multi-use real estate development that is at issue, and he states that Zimmer has adopted an anti-development posture that is harming Hoboken’s long-term interests. Zimmer is, of course, entitled to have unwise public policy preferences. But I can’t help but think that while threatening to withhold post-Sandy assistance as part of a quid pro quo would obviously be inappropriate, it seems perfectly reasonable for Christie administration officials to stress the importance of strengthening Hoboken’s, and New Jersey’s, tax base. 

And in light of the shenanigans at the Port Authority of New York and New Jersey, Stephen Smith of The Next City calls for its abolition.

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What Libertarians Understand About Liberalism



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Will Wilkinson, who has largely left behind writing bracing polemics to instead write fiction, kindly offers us a thought-provoking blast from the past:

Liberals and socialists often accuse libertarians, not without justice, of acting as unwitting apologists for plutocracy. Many free-marketeers do have a bad habit of confusing our unjustifiably rigged political economy with a very different laissez faire ideal, and their defenses of the actually-existing “free enterprise system” really do redound to the benefit of those the system is rigged to enrich. Likewise, liberals do have a bad habit of confusing actual, nominally liberal states with a very different liberal ideal, and their defenses of the actual “liberal state” do tend to redound to the benefit of the insidiously illiberal segments of the state that cannot be justified or accounted for on almost any standard liberal theory of legitimacy. The point being that too many “liberals” are really conservative apologists for the status quo political order, just as too many “libertarians” are really conservative apologists for the status quo economic order.

Wilkinson is exercised by the fact that though the practices of the national security state run afoul of liberal ideals, mainstream liberals have allowed their distaste for libertarianism to cloud their judgment:

[T]he fact is, mundane liberalism is flatly incompatible with the security state as we know it. That anyone spurred to action against the illiberal security state by the democratic jusificatory ethos of mundane liberalism has come to seem a little “libertarian,” and may even therefore confess some personal “libertarian” sympathies, suggests to me a problem with “liberalism” as it is embodied in actual political discourse and practice. It suggests that liberalism is effectively a corrupt form of statist institutional conservatism, and that the democratic justificatory ethos of mundane liberalism has somehow survived within the ethos of “libertarianism,” even if, as an explicit doctrinal matter, libertarians are generally hostile to the ideas of democracy and the legitimate liberal state. It’s nice that libertarians have kept liberalism alive, but it would be even nicer if it were possible for liberals to espouse liberalism without therefore being confused for libertarians.

I’m more sympathetic to what Wilkinson calls the “actually-existing criminal state,” in the economic and national security domains. (Really, it doesn’t take much to be more sympathetic than Wilkinson.) But I think he is right that most self-identified liberals fail to appreciate the full implications of mundane liberalism taken seriously. I often fixate on the tension between the moral cosmopolitanism embedded in mundane liberalism and the nationalist instincts of most of the electorate, and the analytical nationalism that has traditionally been central to policymaking in nation-state democracies. Wilkinson is pointing to the fact that a similar tension can be observed in many other controversies as well.

The post-crisis era has seen a modest revival of left-wing thinking, and more conventional liberals have started to confront the many ways in which critics to their left seem to have a better grasp on their core principles than they do. It’s unclear whether this self-examination will lead the center-left towards a politically self-marginalizing turn towards ideological rigor, or if this development will be a limited towards a small group of people who mainly talk to themselves. Either way, conservatives have an opportunity to become the party of “what works where” — of pragmatic trial-and-error, test-and-learn thinking – while our friendly competitors focus on adhering to arid abstractions. 

Boys Are at the Heart of the Family Stability Problem



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In “Is Marriage Promotion Possible?,” Ross Douthat discusses how policymakers might contribute to building a “non-punitive cultural consensus around the two-parent norm, one that shapes and channels behavior without treating outliers as the absolute worst of sinners.” It is important to keep in mind policymakers can’t play a central role in building a cultural consensus. Rather, they can help make the environment more favorable in various ways. For example, one of the problems facing women living in high-poverty neighborhoods is that the supply of “marriageable” men is constrained by the absence of employment opportunities for which less-skilled men are well-suited and high incarceration rates. Criminal justice reform is thus one way of improving the family stability picture, and the same goes for more generous wage subsidies that flow to childless adult men. 

It is also true that rising affluence makes it easier for unmarried adults to live independently. So efforts to increase disposable income through a combination of employment-friendly macroeconomic policies, wage subsidies aimed at raising incomes for low-wage workers, and zoning reforms that can reduce the burden of housing prices might actually make single parenting somewhat more attractive, at least in the short term. This is a theme Matt Yglesias (implicitly, and cleverly) touches on in “The Parable of the Housemate.”

So why can’t we just focus on getting rich and put aside the divisive moralizing? The problem is that child-rearing is labor-intensive in a special way. Though some aspects of child-rearing can be outsourced reasonably well (schools do a pretty job of teaching kids about fractions, and keeping them out of traffic), others cannot. David Autor and Melanie Wasserman address this thorny problem in their essay on the emerging gender gap in labor markets and education:

We noted above that the shift in household structures among less-educated and minority adults towards resource-poor, female- headed households may propagate the intergenerational transmission of inequality. For boys, there is a further consequence: the diminished involvement of the related male parent may magnify the emerging gender gap in educational attainment and labor market outcomes. Although male and female children within a given household are theoretically exposed to the same environment—including schools, neighborhoods, and adult guardians—the increasing prevalence of female-headed households implies that the majority of girls continue to cohabit with their same-sex biological parent who will likely serve as a same-sex role model. By contrast, male children raised in female-headed households are less likely to have a positive male adult household member present that serves an analogous role. A growing body of evidence, summarized below, indicates that the absence of stable fathers from children’s lives has particularly significant adverse consequences for boys’ psychosocial development and educational achievement.

While it would be inaccurate to claim that social science has reached consensus on the differential effects that parents have on the social and educational development of their same-sex children, recent data suggest that the female advantage in educational attainment is substantially more pronounced in female-headed households and in households where the father is less educated than the mother. For example, comparing the educational attainments of children born in the late 1960s according to both the educational attainment of their parents and the presence of the father in the household, Buchman and DiPrete94 document a large female advantage in college completion— on the order of 10 to 14 percentage points—in households where the mother has at least some college education and the father is either less educated than the mother or is absent. By contrast, in households where the father is both present and highly educated (some college or above), boys and girls are about equally likely to complete college.

We appear to have entered a vicious circle: men are falling further and further behind women in educational attainment and in labor market success below the uppermost echelons of U.S. society; women are thus finding it difficult to find partners who even approach them in educational attainment and labor market success; and so women are either parenting boys alone, or they are co-parenting with men who are less than ideal role models for their male children. 

If some technology emerges to address this vicious circle, I welcome it. But I think it’s far more likely that, as Ross suggests, we will have to do the patient, difficult work of building a new marriage culture. An important component of this work will be done by policymakers, e.g., recognizing the damage done by mass incarceration, and finding new ways to make our most violent neighborhoods safer, healthier environments. Most of this work, however, will be done not by policymakers, but by families and communities shaping the habits and expectations of their younger members. 

Should You Be Freaking Out Over the Net Neutrality Ruling?



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Brian Fung of The Switch answers “11 questions you were too afraid to ask about the net neutrality ruling.” Essentially, the D.C. Circuit Court of Appeals has ruled that the FCC doesn’t have the authority to require that Internet Service Providers not discriminate between different kinds of web traffic. So if I’m an ISP, I can’t charge you the consumer more for accessing Netflix rather than Hulu. 

Tim Wu of Columbia Law School, an early champion of net neutrality regulations, is dismayed:

Without net-neutrality rules, a firm like Verizon or Comcast can do whatever it likes to content moving across its network. If it wants, it can make a blog that criticized its latest policies unreachable, or block T-Mobile’s customer support. Acting together, the Internet service providers could destroy Netflix by slowing its data to a crawl, making movies impossible to watch.

Such obvious outrages are unlikely; the firms will surely promise to behave themselves. But they might, instead, slowly begin bleeding money out of the Internet economy with quiet threats and expensive carrots, extracting fees and tolls wherever they can. “You better pay for ‘turbo’ access, Mr. Blogger, otherwise who knows how long it will take readers to reach your content.” Or, to a new video-streaming service, it might say, “We’re going to put Hulu ahead of you, unless you pay up”—meaning that its customers would have an easier time watching Hulu videos than content from the new guy. A. T. & T., Verizon, and Comcast already collect more than three hundred billion dollars in revenues every year. But, like any good corporate citizen, they’d like more.

That’s not all. These days, Internet firms like Google and Facebook are so powerful that they could decide to turn around and demand that Internet providers pay them for the right to access their sites. This is the norm in cable television, and the situation was painfully illustrated to Time Warner Cable’s customers, this fall, when they lost CBS programming for a month during a fee dispute between the two companies. (CBS ultimately prevailed in extracting higher fees to carry its content.) In the absence of net-neutrality rules—which set a norm of zero prices—we face the prospect of pricing wars pitting all against all, in the Hobbesian sense. The losers will be smaller speakers, nonprofits, and the consumer, who will be forced to pay more for less.

In September, Larry Downes, management theorist and co-author, with Paul Nunes, of the new book Big Bang Disruption, anticipated the FCC’s ruling, and he testified before Congress that the FCC did not have the legal authority to impose net neutrality regulations. And he has a very different take on the subject than Wu. First, he argues that the net neutrality concept greatly oversimplifies the workings of real-world networks. And second, he argues that the regulations designed to enforce a content neutrality principle are stymieing innovation by ISPs:

As text-based transmissions have been overshadowed in volume by voice and video, which put more strain on the packet-switching architecture and which require more predictable delivery to maintain coherence, the neutrality principle has largely disappeared—at least as a feature of the Internet’s design.

Load balancing and other network management techniques are constantly evolving, making the most of existing infrastructure as demand spikes. Frequently-accessed content (think YouTube videos) is replicated at key points in the network to ensure rapid delivery to user demand, using technologies including content delivery networks. Services that require higher-bandwidth and more predictable performance, such as telemedicine and internal corporate networks, have long had dedicated resources operating on the same equipment as consumers.

In all, the FCC’s Open Internet order itself cataloged a dozen major non-neutral technologies, protocols, and business arrangements that have long been necessary parts of the Internet.  Sensibly and of necessity, the agency granted exceptions from the rules for each and every one of them, recognizing that the “open” Internet, at least from an engineering standpoint, was anything but.  For the Internet to continue functioning at all, the rhetoric had to give way to reality.

But there was no way for the rules to preemptively grant similar permission to any future network optimization technologies, other than to caveat all of the rules with exemptions for “reasonable network management.” That term couldn’t be defined, however, meaning that any future innovations will require FCC approval before large-scale implementation.

What’s so dangerous about that? The short answer is that innovation delayed is innovation destroyed.

Downes is also more sanguine about market competition as a disciplining force — ISPs won’t screw over their customers because they can’t afford to do so:

The FCC couldn’t find any examples of consumer harms in urgent need of address because there weren’t any. And not because the companies large and small who make up the Internet ecosystem always act principally in the best interests of their customers. The market and the technology deter counter-productive behavior. If not perfectly, than certainly more effectively than slow-moving federal regulators and even slower-moving federal courts.

I am inclined to think that Downes is right. Yet it is worth keeping in mind that the looming threat of FCC regulation might have done much to keep ISPs in line. The broadband market is defined by high barriers to entry, and one suspects that at least some ISPs will be willing to test the bounds of their customers’ patience before competitors spring up to challenge entrenched incumbents. Or perhaps ISPs will find ways to differentiate their offerings in ultimately consumer-friendly ways. I would feel more comfortable if the U.S. were more open to alternative arrangements, like municipal broadband networks, and if more spectrum were available for innovative wireless technologies deployed by new entrants. 

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Scorched-Earth Politics is Overdetermined



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Frances Lee, a political scientist at the University of Maryland, states a truth that should be obvious, but that many analysts nevertheless miss:

[T]he period since 1980 stands out as the longest sustained period of competitive balance between the parties since the Civil War. Our politics is distinctive for its narrow and switching national majorities. Nearly every recent election has held out the possibility of a shift in party control of one institution or another. Looking back, the period most similar to the present was the Gilded Age (1876-1896), another era of close and alternating party majorities, as well as of ferocious party conflict.

Competition fuels party conflict by raising the political stakes of every policy dispute. When control of national institutions hangs in the balance, no party wants to grant political legitimacy to its opposition by voting for the measures it champions. After all, how can a party wage an effective campaign after supporting or collaborating with its opposition on public policy? Instead, parties in a competitive environment will want to amplify the differences voters perceive between themselves and their opposition. They will continually strive to give voters an answer to the key question: “Why should you support us instead of them?” Even when the parties do not disagree in substantive terms, they still have political motivations to actively seek and find reasons to oppose one another. In an environment as closely competitive as the present, even small political advantages can be decisive in winning or losing institutional majorities.

This is one of the ways in which, per Lee, “today’s political context disincentivizes successful bipartisan negotiation.”

But you’ll notice that in many conversations about partisan polarization, you’ll hear that Republicans are the most egregious offenders, or that when Democrats make unattractive compromises, it is out of fear of right-wing demagoguery. For example, Democrats might have chosen a less “corporatist” approach to the Affordable Care Act, but they were forced into a “kludgey” approach by intransigent conservatives.

Consider the same basic story applied to a different case. During the George W. Bush presidency, the White House sought to couple the creation of a new prescription drug entitlement with reform of the core Medicare entitlement; the goal was to move Medicare from an open-ended benefit to a premium support system, a transition that conservatives believed would eventually yield substantial savings. But vulnerable Republican lawmakers, fearing Democratic scare-mongering, balked at Medicare reform, and the Bush administration, recognizing that a failure to create a prescription drug entitlement might endanger the president’s reelection effort, chose to take the less ambitious approach. And so one can blame Democrats for boxing Republicans into a corner, “forcing” them to create a deficit-expanding entitlement without securing commensurate savings elsewhere in Medicare through structural reform.

This isn’t the narrative we generally hear. Rather, we hear from the Tea Party right that big government Republican sellouts were hellbent on growing the welfare state to win the favor of the Georgetown cocktail party set while liberals (including those who made premium support politically toxic, presumably because they thought it was a bad idea) damned the GOP for its anti-spending hypocrisy. Notice a key aspect of this story: liberals opposed premium support because they tend to be somewhat more skeptical of the use of market mechanisms in certain domains (health and education in particular) than in others, and they feared that it would degrade the quality of the medical care available to older Americans. Some liberals might have also recognized that had Republicans succeeded in passing a premium support reform of Medicare, they would have handed conservatives a significant ideological victory — they would have succeeded, for better or for worse, in making a dent in the growth of public social expenditures. Denying the right a victory made sense to liberals on substantive grounds (they think premium support is bad), on ideological grounds (they are opposed to what they see as the nihilistic anti-statism of spending hawks), and on political grounds (let’s make it costly for them to achieve a political victory, and perhaps drive a wedge between the elected GOP and its ideological true believers). My impression is that ideologically liberal voters seem to be more forgiving of Democratic politicians than ideologically conservative voters are of Republican politicians, which could reflect the fact that ideological liberalism is in some sense more transactional (half a loaf is better than none) than ideological conservatism, which tends to be more cosmic (you’re either for freedom or against it, and a revolving cast of right-of-center media personalities, activists, and elected officials are constantly reformulating the litmus tests). 

All of this this is to say that some of the most unattractive aspects of the Republican approach to governance, like the most unattractive aspects of the Democratic approach to governance, are the products of a highly competitive political environment. Committed Democrats want to move from a highly competitive political environment to one in which Democrats are dominant and Republicans evolve into a me-too party, and committed Republicans are rooting for a mirror-image scenario. Scorched-earth campaigning is overdetermined. 

Easier Business Creation Isn’t Going to Eliminate Entrenched Poverty



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Among libertarian populists, there is a conviction – a morally and intellectually attractive one – that the best way to deal with entrenched poverty is to repeal regulations, like occupational licensing schemes, that serve as barriers to entry to enterprising low-income individuals. The idea is that if government gets out of the way, and if the public sector doesn’t collude with rich and powerful incumbents, people outside of privileged circles will have a fighting chance to climb the economic ladder. Efforts to better the lives of the poor through transfers, in contrast, are enervating, and ought to be avoided. There is much to be said for this way of thinking, and most of us on the right (and indeed, most people on the left) will agree that easier business creation has much to recommend it. But of course not all poor people will take advantage of easier business creation, because not all poor people are inclined towards entrepreneurship, or even self-employment. The same is true of more affluent people. Most people see work as an important but not necessarily central part of their lives, which is why the conservative celebration of entrepreneurship feels so irrelevant to people anxious about the prospect of finding stable work, or earning enough to achieve even relatively modest life goals. 

Robert VerBruggen adds another dimension to this discussion. He observes that children who grew up in low-income households are far more likely to score in the lowest third on tests of cognitive ability than in the top third, and he suggests, not unreasonably, that it is people who score relatively well on tests of cognitive ability who are most likely to take advantage of the opportunities created by easier business creation. To be sure, people who don’t score well on such tests could benefit from relaxed occupational licensing, as self-employment doesn’t necessarily require strong cognitive skills. But building a growing business — the kind that can help a family build substantial wealth, and thus facilitate significant upward mobility for the entrepreneur herself while providing a meaningful asset base for the next generation — is a different story. This is certainly not to suggest that the most successful entrepreneurs are the people who score highest on such tests. It could be that very high levels of cognitive ability are, like very low levels, actually detrimental to entrepreneurial success. Nevertheless, it’s not unreasonable to suggest that entrepreneurial success stories are going to cluster in the top half of the cognitive distribution. 

So we return to an important, vexing question: assuming we allow for easier business creation, as we can and should. How do we better the lives of the people who aren’t going to start new businesses, whether because they can’t or won’t? Education is obviously important, but as VerBruggen observes, improving the quality of education (which is much easier said than done) is hardly a silver bullet, as improving average performance will still leave us with a not insignificant number of people who struggle to master basic skills. VerBruggen ends on the following note:

It’s terrific that it will become easier to start businesses. It might even help some talented poor kids improve themselves. But if Tyler Cowen is right that average will soon be over, we should be worrying about the people who are not talented — and we can’t forget that starting a business comes with as much risk as it does reward.

Recently, Dylan Matthews interviewed the University of Arizona sociologist Lane Kenworthy, an exceptionally smart and thoughtful guy, and they briefly touched on less-skilled immigration:

Some on the left would say that, to get median wages rising again and improve things for the working class, we need to affect distribution before taxes, transfers and services through things like cutting the trade deficit, reducing low-skilled immigration or increasing union density. Why don’t you take that approach?

It’s a combination of two reasons. One has to do with my normative inclinations. So, for example, I would be against reducing immigration because people who come here tend to be poorer than even the poorest Americans, and their lives tend to be better off because they came. Even though I agree that the evidence suggests immigration reduces the wages of low-skilled native workers, I still think we shouldn’t cut back on immigration.

To me, this is a paradigmatic example of what separates reform conservatives from left-of-center neoliberals. While I appreciate Kenworthy’s normative inclinations, when you confront the fact that poverty is a complex, multi-causal, multi-dimensional phenomenon, and that much of the poverty we see in the U.S. is the product of intergenerational transmission, you first have to confront the fact that it is actually very hard to redress. Yes, you can mathematically eliminate statistical poverty through transfers, but it is much harder to cultivate the habits of economic self-reliance that help keep people out of substance abuse and other forms of self-harm, and that make it easier to impart valuable social and emotional skills to children. I am of the view that government can help address the intergenerational transmission of poverty, but that the interventions we’d need to undertake are labor-intensive, and thus expensive, and not guaranteed to succeed. Given this set of beliefs, I have a hard time believing that it makes a great deal of sense to invite large numbers of adults who lack basic skills to live and work in the U.S., particularly when there is strong evidence that U.S. K-12 schools aren’t up to the task of helping the children of these new arrivals to catch up with the children of adults who have basic skills and more. Because the native-born skill level has increased, immigrants who might have flourished in late 19th century America, or even mid-20th century America, face a very different economic environment. Let’s recognize that entrenched poverty in the U.S. is a big problem that requires labor-intensive solutions, and let’s not deliberately make the problem worse. 

That Which Makes the ACA Stronger Might Also Kill It



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Ezra Klein is convinced that the new enrollment figures for the ACA exchanges demonstrate that there will be no “death spiral“:

No one anywhere expected that the risk pool would be balanced by Jan. 1. Major health laws always follow the same pattern: The people who badly need insurance sign up first, and they tend to be older and sicker. Younger people sign up later — typically right before the penalty hits. So far, the age pattern in Obamacare enrollment is tracking the age pattern in enrollment for the Massachusetts reforms quite closely.

And even if the age mix of the exchanges remains at its current levels, Klein believes that the results will be manageable:

The Kaiser Family Foundation estimates that if the market’s age distribution freezes at its current level — an extremely unlikely scenario — “overall costs in individual market plans would be about 2.4% higher than premium revenues.” So, in theory, premiums costs might rise by a few percentage points. That’s a problem, but it’s nothing even in the neighborhood of a death spiral.

Moreover, provisions of the ACA designed to help manage the transition will kick in:

That calculation, however, omits the transitional policies in Obamacare that help insurers keep premiums low as the risk pool sorts itself out over the first three years. Add those in, and it’s unlikely that 2015 will see any premium increase at all. Robert Laszewski, a consultant for the insurance industry, agrees. “I think the 2015 rates will be the rates you’re looking at today, more or less,” he says.

Avik Roy offers a more skeptical take. He begins by stating that “[w]e may not get as far as a true ‘death spiral,’” but he offers a different interpretation of recent findings, e.g.:

As Philip Klein notes, a recent article by Larry Levitt, Gary Claxton, and Anthony Damico of the Kaiser Family Foundation described an enrollment of 25 percent among 18-34 year olds as a “worst-case scenario,” estimating that insurers would lose money on these plans, because “overall costs…would be about 2.4% higher than premium revenues.”

2.4 percent may seem like a small number, but given that the average insurer has profit margins of 4 to 6 percent, a 2.4 percent loss on premiums—before we even count overhead costs—is a serious problem. It’s why Humana reported to the Securities and Exchange Commission that it expected meaningful losses in its exchange-based plans.

I would emphasize the fact that if the threat of the individual mandate penalty helps keep the risk pool fairly balanced, it will be because there will have been a widespread public information campaign informing people that they are subject to a nontrivial penalty for failing to purchase insurance that at least some people will consider quite expensive (provided that they aren’t among those who’ve had their insurance policies canceled). And if insurers experience significant losses, as seems well within the realm of possibility, taxpayers will be obligated to make up much of the difference. This might be the right policy. It’s not at all obvious, however, that it will be popular. Rigorous enforcement of the mandate and the transitional mechanisms for protecting insurers might both be necessary to get the ACA exchanges up and running and they might endanger the ACA’s political health.

Three Medium-Sized Budget Deals



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In light of the Ryan-Murray budget deal, Maya MacGuineas offers a roadmap for a series relatively modest $150 billion budget deals that have the potential to unite Republicans and Democrats while improving, if only slightly, the broader fiscal picture:

(1) She proposes coupling an extension of emergency unemployment compensation (EUC) with a “growth package” that would include infrastructure spending, targeted tax breaks, and other measures, to be paid for by non-Social Security savings that would flow from the adoption of chained CPI. Andrew Biggs has persuaded me that adopting chained CPI for setting Social Security benefits and tax brackets is unwise, so I’d be inclined to pass on this deal. Trading an extension of EUC for structural reforms like those identified by Michael Strain in his new National Affairs essay would be a better bet, politically and substantively. Unfortunately, there appears to be relatively little interest among Republican lawmakers in this approach:

Giving unemployed workers a modest cash bonus when they secure employment has been shown to be effective in shortening the length of unemployment spells, and, if targeted at workers who have a high probability of exhausting benefits, it can actually save the taxpayers money in the long run. It seems implausible that a re-employment bonus would have a large effect on long-term unemployment, but evidence suggests that it would help in addressing shorter unemployment spells. There is also some evidence that giving out lump-sum unemployment benefits may be preferable to the current system of weekly checks. Under traditional unemployment insurance, a worker forgoes his unemployment benefit by taking a job. Lump-sum unemployment insurance may be beneficial because it would mitigate the weekly-check system’s incentive to delay starting a job. With lump-sum unemployment benefits paid, say, every month rather than every week, a worker who got a job at the beginning of a pay period could take in both unemployment compensation and a paycheck for that month. If this gets workers off unemployment faster, then the program could save money over traditional unemployment insurance.

(2) MacGuineas offers a $150 billion health package that aims to finance the partial rollback of the planned Sustainable Growth Rate cuts to Medicare reimbursement rates by adopting a series of structural health reforms, e.g.:

Such a package could include expanding new forms of cost-controls like bundled payments and readmission penalties; restricting supplemental health plans which lead to the overconsumption of health care; reforming overly-complicated cost-sharing rules; increasing the use of generic drugs; and expanding the means testing of Medicare premiums.

This seems like a reasonable step.

(3) And finally, she calls for swapping a one-year extension of various “tax extenders,” a permanent extension of increases to the child tax credit and the EITC that are scheduled to expire in 2017, and paying for these measures with limits on the use of tax expenditures by high-earners. This deal seems defensible, but also as little more than a bridge to a more comprehensive tax reform, as she acknowledges. 

The Iraq Litmus Test



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Jeremy Lott of RealClearWorld insists that GOP presidential candidates in 2016 explicitly state that the decision to invade Iraq was a mistake:

Any Republican seeking nomination for the 2016 presidential election should at a minimum be willing to admit Iraq was a mistake. It was an error that cost us upwards of $1.5 trillion, thousands of U.S. lives and hundreds of thousands of Iraqi dead, while seriously hindering our efforts to track down the real culprits of September 11. (The war, incidentally, helped pave the way for a Nancy Pelosi-controlled House and a Barack Obama-controlled White House, as well.)

Republican pols are afraid to do so because they read American opinion polls. These polls show that either a large plurality or a bare majority of Americans think the war was a mistake. Those numbers would be much higher if Republican voters agreed with the majority. Since they need to win over Republican voters for the nomination, many presidentially-minded pols are reluctant to admit a Republican-sponsored war of choice was the wrong call.

They ought to take the chance and tell the truth. It would help restore the party’s credibility with the broad mass of independent voters and with those Democrats sick of the George W. Bush-Barack Obama-Hillary Clinton foreign policy framework. It would also force rank-and-file party regulars to either cease their misguided cheerleading or bury their own heads ever deeper in the sand.

I disagree with Lott, for a few reasons. The first is that political parties are networks, and any future Republican president will rely on personnel who were intimately involved in the decision to invade Iraq and in the attempt to pacify the country in the aftermath of the invasion. It is one thing for Republican presidential candidates to state that knowing what we know now, invading Iraq to eliminate the threat posed by its efforts to develop weapons of mass destruction was ill-advised, because what we know now is that Iraqi capabilities were so badly degraded that it would have been exceptionally difficult, and costly, for the Iraqi state to develop and deploy WMDs. But there was great uncertainty about Iraqi capabilities before the invasion, and policymakers were dealing with limited information. Policymakers who were skeptical about the invasion for the right reasons, e.g., an informed belief that the costs of post-conflict stability operations would be unacceptably high as opposed to, say, reflexive opposition to the use of military force, deserve to have their reputations enhanced. This is different from arguing that presidential candidates who aren’t willing to state that invading Iraq was obviously a mistake even without the benefit of hindsight should be disqualified from consideration. 

That said, I think that it would be good and useful for Republicans to learn from Ronald Reagan’s characterization of the U.S. effort to defend South Vietnam, at a staggering cost in Vietnamese and American lives, as a “noble cause,” if also a cause that was not beyond reproach. 

Some Thoughts on the Future of Organized Labor



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Nelson Lichtenstein, a distinguished labor historian teaching at the University of California, Santa Barbara, believes that the U.S. is on the cusp of left-liberal ascendancy, and that we may well see a trade union revival in the decade to come. Lichtenstein sees two roads ahead if such a revival is to come to pass. The first road, which keep in mind he sees as desirable and even exciting, would involve massive street protests and crippling strikes:

The first road would look something like what transpired on May 1, 2006, when during the massive “Day Without Immigrants” demonstrations millions of Latinos and supporters shut down scores of food-processing plants, restaurants, vineyards, and transport hubs in what was, in effect, a general strike. In its early hopeful stages, the Arab Spring looked something like this, and had Occupy been a dozen times larger it might have resembled a de facto sit-in that paralyzed urban financial hubs. We’ve had such mass upheavals in the more distant American past: in the industrial cities of the Midwest during the height of the 1936 and 1937 sit-down strikes; and in the era of hospital, teacher, and sanitation worker militancy in the late 1960s and early 1970s.

In such moments of controlled but hopeful chaos, the union movement wins allies and partners from a surprisingly wide array of forces: in the 1930s Hollywood stars and consumer advocates identified with the new upsurge while those who had long opposed unionism and worker empowerment rushed to offer concessions, if only to avoid something more radical or destabilizing. Smart labor leaders, like John L. Lewis and Walter Reuther in the late 1930s or Jerry Wurf and Leon Davis in the 1960s, first champion this turbulent insurgency and then channel it into a set of well-consolidated laws, institutions, and bargaining arrangements that can last a generation or more. Brilliant and charismatic leaders, like Cesar Chavez, who fail to institutionalize such genuine but momentary militancy are destined to become tragic figures.

The problem with this first road forward is that it is impossible to plan or predict.

The second road Lichtenstein invokes involves establishing Democratic political hegemony, an outcome he sees as all but inevitable:

Here the union movement relies upon what now seems an inexorable drift to the left in American electoral politics. This has been obscured by Republican obstructionism in Congress, but the cultural and demographic revolutions that have liberated gays, made Latinos a decisive voting bloc, elevated an African American to the presidency, and made the Republicans hegemonic only among those white people who live in the states that once composed the old Confederacy seem to ensure that the Democrats, even liberal Democrats, are going to be the natural ruling party for the next generation. The task before organized labor is to make sure that this Democratic hegemony extends to working people, and not just in terms of an anti-poverty agenda or better health care, but in terms of their capacity to build institutional power—to organize new workers into trade unions and then give those unions the freedom to press forward their economic and political agenda.

Trumka’s decision to open up the September 2013 AFL–CIO convention in Los Angeles to a wide array of liberal groups was a symbolic step in this direction. He bragged that the convention was the most inclusive in decades, casting the effort to link up with progressive groups like the NAACP, the Sierra Club, as well as gay and immigrant rights advocates in almost existential terms. “We are in a crisis right now,” he told a press conference on the eve of the convention. “None of us are big enough to change the economy and make it work for everybody. It takes all progressive voices working together.”

He ends by praising “alt-labor,” the new organizing campaigns that seek not to establish traditional unions or collective contracts, but to band workers together in service to various political causes and to advocate for higher wages and benefits, among other things. What Lichtenstein misses is that “alt-labor” could evolve in a very different direction — away from political organizing and towards a more service-oriented culture, in which unions move from an adversarial posture towards meeting the needs of workers as they shift from one employer to another, by, for example, helping them upgrade their skills. This is something a small handful of unions do reasonably well, but it is something new labor organizations freed from the legacy of traditional unions can do even more effectively.

Moreover, Lichtenstein overstates the durability of the left-liberal coalition — the broader and more diverse it gets, the easier it will be for the rival conservative coalition to poach disgruntled members, as reconciling the interests of tax-sensitive upper-middle-income voters and low-income voters is easier said than done, leaving other, less-obvious cleavages aside. The return of labor radicalism is just as likely to alienate voters, including middle-income and lower-middle-income voters, as it is to inspire new coalitions. 

Lichtenstein largely neglects the increasingly central role of public sector unions in the AFL-CIO, despite the fact that their relative rise helps account for the larger ideological transformation of labor he celebrates:

Not all unions endorse the coalition-building, public policy orientation of either the AFL–CIO or the SEIU. Some leaders from the traditionally more conservative and parochial building trades have been alarmed at the prospect that environmental groups might increase their influence within the AFL–CIO, since they oppose the Keystone XL Pipeline and some other big infrastructure projects. “Does that mean we are going to turn energy policy of the AFL–CIO over to the Sierra Club?” asked Terry O’Sullivan, president of the Laborers’ International Union of North America. “I grew up in the movement to do one of two things. We support anything that’s good for another union brother or sister, or we keep our mouths shut.” Harold Schaitberger, president of the International Association of Fire Fighters, also resisted Trumka’s new initiative, arguing that the whole purpose of trade unionism was to represent workers as workers: “We are not going to be the American Federation of Progressive and Liberal Organizations,” he told a press conference in the days leading up to the AFL–CIO convention.

If the majority of unionized employees work for the public sector, for organizations that can’t “go out of business,” political militancy (on behalf of the expansion of public payrolls) and environmental enthusiasms (that damage for-profit firms but that may well promote the expansion of public payrolls) will seem more attractive and less costly.

Odds and Ends, Plus A New Health Safety Net



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On Friday, I wrote about Florida Sen. Marco Rubio’s new proposal for overhauling the safety net. I also have an article in the new National Review on the two gender gaps — the “high-end” gender gap between highly-educated women and men in professions in which the returns to long hours are nonlinear (i.e., work twice as many hours, get more more than twice as much compensation) and the emerging “low-end” gender gap, in which moderately-educated women are adapting relatively well to the changing labor market while their male counterparts are struggling. 

But the new issue has a number of other excellent articles, including J.D. Vance’s critique of higher education as a barrier to entry:

You can imagine the reaction if, tomorrow, Congress passed a worker-identification law with the following provision: “Only those who carry their federal ID card may apply for jobs that pay more than $45,000; ID cards may be obtained from government vendors for $100,000.” The country would erupt in protest. Yet this is what college does. When two people apply for a job, and they’re alike in every way except schooling, the employer will almost always hire the more educated. That’s true even of the many jobs that don’t require a college degree. As economists Neeta Fogg and Paul Harrington recently found, a shocking 39 percent of new graduates are working such jobs.

And I recommend David Goldhill’s call for a national catastrophic coverage plan as the best way to allow market competition to drive down the cost and improve the quality of medical care. At first glance, Goldhill’s proposal seems quite radical. But when we fully appreciate the complexities of the existing U.S. health system, and the ways in which medical providers exploit these complexities, Goldhill’s proposal starts to look very attractive indeed — please forgive the long excerpt:

One of the blessings of the ACA is that the layers of insurance, tax subsidies, public aid, and mandated care that are supposed to magically create “affordability” are being seen for what they are. Ever more Americans are realizing that we’re putting a lot more into the system than we’re getting out of it, and this has created fertile ground for a new approach.

But while more of us are seeing the cost and administrative mess of our current system, we continue to worry about whether we can pay for treatment of a health catastrophe. This concern can be allayed with a national catastrophic-care insurance plan: cradle-to-grave protection of all Americans against the most extreme health crises. It should be single-pool, since much of the complexity of our current system — and therefore the unreliability of our current safety net — comes from the endless transitions between forms of coverage. Such a system should be seen as a safety net much more than as traditional insurance, because bad luck in the genetic lottery will always sentence some share of our population — sometimes from birth — to crippling medical problems. Premiums would be charged, but they should be roughly the same for all, with slight variations according to the age of the consumer.

At the same time, we should try to shift as much funding of health care as possible to individuals. That means building into the national plan an intelligent definition of what is catastrophic, and reducing its coverage benefits over time as Americans build up personal health accounts. In the near term, this means revising the tax code so that it treats individual health accounts more favorably than insurance premiums. This would reduce the incentive to over insure. It also means providing more of our aid to the needy in the form of cash transfers to personal health accounts, so that all individuals can participate equally in the new system. Medicare and Medicaid, by contrast, segregate the old and the poor as second- and third-class customers. For perspective, consider that the cost of subsidized care in our current system — roughly $1 trillion — is enough to grant 100 million people the funds to pay catastrophic-insurance premiums and enjoy a substantial health savings account as well.

The risk of any national-insurance program is that it will lack accountability and become a driver of excess care at high prices, as became the case with Medicare and Medicaid. But there are a number of ways to reduce this risk. The program could be structured like Singapore’s, in which the government subsidizes certain types of care but individuals always make the purchasing decisions directly. The benefit could be defined based on diagnosis, with participating providers required to accept patients at this fixed price (similar to the initial conception of Medicare’s payment system). Premium growth could be limited by statute (for example, held to the rate of inflation), and the national insurer required to balance its books each year.

The transition to a national catastrophic plan and privately funded basic care would take time. At first, the plan would sit on top of current public and private insurance schemes, essentially reinsuring them for catastrophic loss. Over time, as the benefits of running more of our dollars through a “many payers” normal marketplace became clear, we could accelerate the transition to a consumer-driven health-care economy.

Goldhill’s vision for the health system is, in my view, the most viable alternative to single-payer over the long-term. The problem with the status quo is that the public sector plays an unacknowledged role as insurer of last resort, and various players within the healthcare marketplace take advantage of the opacity and confusion that results. Goldhill’s system clarifies matters, and by greatly empowering consumers, it promises to give rise to new, more constructive and value-creating business models. 

The Difference Between Affordable Housing Programs and Affordable Housing



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Though New York city’s government devoted substantial sums to build 45,000 new income-targeted apartments through its New Housing Marketplace Plan and to preserve another 100,000 existing units affordable to low-income households, Laura Kusisto of the Wall Street Journal, drawing on a new report from the Community Service Society, finds that rising rents proved a far more powerful force:

The study defined a “low-income” New Yorker as at or below 200% of the federal poverty threshold, a demographic that makes up about 40% of the city, according to Mr. Waters. A family of three would make about $37,000 at that income level and would be able to afford a monthly rent of slightly more than $900.

For New Yorkers at those income levels, the city lost more than 385,000 units of housing from 2002 through 2011; about half of the units were rent-regulated, based on the group’s analysis of data from the New York City Housing and Vacancy Survey.

Affordable-housing advocates point to a couple of factors: One is the ability of landlords to raise rents after renovating rent-regulated apartments, eventually allowing them to convert those apartments to market-rate. Another is rapidly increasing rents in gentrifying areas, such as Harlem and the Corona neighborhood of Queens.

The new mayor, Bill de Blasio, is committed to redoubling efforts to build new income-targeted apartments. But the only reliable way to make housing in New York city more affordable is to ease the land-use regulations that limit new construction, including high-end construction in established neighborhoods, as high-end construction will tend to absorb high-earners who might otherwise gentrify marginal neighborhoods, thus driving rent increases, as Stephen Smith of The Next City has explained.

Elsewhere, Smith identifies a number of buildings built in Houston, which has perhaps the most lightly-regulated real estate development market in the country. One consequence of Houston’s (relatively) laissez-faire approach to development is that housing is more affordable than in most other cities of comparable size.

Leon Neyfakh of The Boston Globe recently observed that a growing number of left-of-center analysts are embracing the idea that allowing for more real estate development and more density in high-productivity cities might be one of the most effective ways to promote economic opportunity, and one hopes that the trend will continue — and that conservatives will also recognize how exclusionary zoning makes it harder for poor people to find remunerative employment.

Paul Krugman on the Connection Between Poverty and Inequality



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Paul Krugman argues that poverty and inequality are tightly intertwined:

[T]he war on poverty has, in fact, achieved quite a lot. It’s true that the standard measure of poverty hasn’t fallen much. But this measure doesn’t include the value of crucial public programs like food stamps and the earned-income tax credit. Once these programs are taken into account, the data show a significant decline in poverty, and a much larger decline in extreme poverty. Other evidence also points to a big improvement in the lives of America’s poor: lower-income Americans are much healthier and better-nourished than they were in the 1960s.

Furthermore, there is strong evidence that antipoverty programs have long-term benefits, both to their recipients and to the nation as a whole. For example, children who had access to food stamps were healthier and had higher incomes in later life than people who didn’t.

And if progress against poverty has nonetheless been disappointingly slow — which it has — blame rests not with the poor but with a changing labor market, one that no longer offers good wages to ordinary workers. Wages used to rise along with worker productivity, but that linkage ended around 1980. The bottom third of the American work force has seen little or no rise in inflation-adjusted wages since the early 1970s; the bottom third of male workers has experienced a sharp wage decline. This wage stagnation, not social decay, is the reason poverty has proved so hard to eradicate.

Or to put it a different way, the problem of poverty has become part of the broader problem of rising income inequality, of an economy in which all the fruits of growth seem to go to a small elite, leaving everyone else behind.

Scott Winship has done valuable work on how household incomes, including wages, have changed since the early 1970s that offers a slightly different picture than Krugman’s, but good for Krugman for acknowledging the role of programs like food stamps and the earned-income tax credit (and Medicaid) in lifting living standards for poor Americans. What is trickier is Krugman’s claim that the problem of poverty is part of the broader problem of rising inequality, for the simple reason that, as Roger Pielke Jr. observes, one could mathematically eliminate poverty without making much of a dent in income inequality:

1. Assume 50 million Americans in poverty in 2012, using the SPM (described in this post).
2. Assume the poverty rate is $12,000 (see poverty rate discussion)
3. For simplicity assume that the average income of those 50M is thus $6,000
4. That means that everyone in poverty could be lifted above the poverty threshold with 50M*$6,000 = $300 billion
5. Assume that the $300B is simply transferred from the incomes of the top 1%
6. That would mean that the income of the 1% goes down from $2T to $1.4T
7. The income of the 99% would increase from $6.85T to $7.45T
8. The share of income of the 1% would be reduced from 23% to 19%, or from 2012 levels to 2011 levels.

So poverty, formally defined, could be made to disappear with essentially no significant impact on income inequality. QED.

The rejoinder to Pielke is that the reason we don’t create such a transfer program is that influential high-earners would fight it tooth and nail. One could also argue, however, that as Krugman acknowledges, the past several decades have seen the emergence of a wide array of anti-poverty programs, and it’s not clear that they’ve done a good job of promoting economic self-reliance and upward mobility. This has contributed to skepticism about the wisdom of increasing expenditures devoted to fighting poverty, among some high-earners, to be sure, but also among less affluent voters as well. Krugman considers it “obvious” that “the rise of the 1 percent [has been] at the expense of everyone else.” One version of this story is the argument made by Thomas Piketty and others that falling top marginal tax rates have encouraged high-earners to leverage their power within business enterprises to extract more than they might have in the past. But not all high-earners are corporate executives, and there are other stories that at least as compelling (e.g., as the market capitalization of large public companies grows, small differences in the quality of management make a bigger difference; the tournament-like nature of many elite occupations generates a nonlinear distribution of rewards, etc.). University of Arizona sociologist Lane Kenworthy, author of the new book Social Democratic America, has found that rising income inequality doesn’t appear to depress income growth for middle-class incomes across the affluent market democracies. Moreover, he has observed that though rising incomes at the top haven’t been “Rawlsian,” i.e., they don’t appear to have benefited the poor, they also haven’t measurably hurt the poor. Kenworthy emphasizes that “[t]he key driver of improvements in absolute incomes for the poor has been shifts in transfers and taxes, and these do not seem to have been influenced by trends in income inequality.” Krugman and Kenworthy might agree on the remedy for poverty. But Kenworthy certainly doesn’t think that rising inequality is an insuperable obstacle to rising redistribution levels. Indeed, the experience of the past three decades suggests otherwise, as the reach of safety net programs has steadily grown.

Oversimplifing the Connection Between Marriage and Poverty



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Emily Badger of The Atlantic Cities argues that we ought stop blaming poverty on the decline in marriage. My concern, however, is that she is approaching the issue from the wrong angle:

“All of these marriage-promotion policies were based on a fundamental misunderstanding of the link between poverty and marriage,” says Kristi Williams, an associate professor of sociology at Ohio State University and a research associate at the Council on Contemporary Families. “They’re assuming people are poor because they don’t marry, when I would say there’s much more evidence that it’s poverty that deters people from marriage.”

Fractured family structures don’t cause poverty. Poverty causes these family structures. Reduce poverty through more direct means, and we might actually reverse the retreat of marriage along the way.

“We know marriage has a wide range of benefits, particularly for raising children,” Williams says. “And it’s not unreasonable to think that it would be nice if all children could enjoy these benefits. The problem is that there’s no evidence that the kind of marriages that poor, single parents enter into will have these same benefits.”

In her own research and elsewhere, studies have overwhelmingly found very few benefits to marriage for single mothers and their children. Williams has looked at more than 30 years worth of national data and found almost no physical or mental health benefits to children of single mothers who later married. Another national study found that nearly two-thirds of single mothers who did later marry were divorced by the time they were 35-44. A study of the marriage-promotion programs funded through welfare reform also found few long-term results.

Why would the institution of marriage be so much less beneficial for these families than for higher-income parents and their children? For one thing, the families of low-income single mothers differ from higher-income, two-parent families in so many ways that have nothing to do with marriage. These families must also contend with everything else that comes from (and contributes to) poverty, from higher unemployment and incarceration rates, to lower access to good education and quality jobs.

All of these points are well taken, and I don’t they’re seriously in dispute. The question is whether encouraging young people to avoid non-marital childbearing in the first place is a strategy worth pursuing. Brad Wilcox elaborates:

Scholars have known for a long time that putting marriage after the baby carriage is risky—particularly when the marriage involves a man who is not the baby’s father. Deborah Roempke Graefe (Penn State) and Daniel Lichter (Cornell) pointed out this very fact more than a decade ago, and noted: “When the new husband is not the biological father, the presence of a child may strain economic resources and be a source of conflict (leading, for example, to arguments over visitation rights or resource allocation within the household).” So it’s not news that marriage is no panacea for poor single mothers.

Ironically, this CCF report just confirms that old wisdom recently articulated in the report Knot Yet: The Benefits and Costs of Delayed Marriage in America: namely, men, women, and children are much more likely to enjoy a stable and supportive family life when they sequence marriage before parenthood. As Ron Haskins and Isabel Sawhill at the Brookings Institution pointed out in their book Creating an Opportunity Society, young adults who put education, work, marriage, and parenthood in the right order—first finishing high school (or college), then getting a job, then marrying, and then having a baby—face very low odds of poverty.

So yes, cajoling impoverished single mothers into marrying men who don’t have particularly bright labor market prospects, and who are not the biological fathers of the children in question, isn’t a recipe for success. One can agree with Williams that marriage promotion initiatives for single parents aren’t likely to succeed while also believing that intervening before young people become parents is an approach that might have greater success. In effect, we are recapitulating the debate over job training programs. According to the “skills beget skills” framework, it is much easier to impart valuable social, emotional, and cognitive skills to children than to adults, which is why job-training programs aimed at adults have had, at best, a mixed record. The “decline in marriage” is really a synecdoche for a wider constellation of issues relating to the ways in which young people think about their future: are they giving due regard to the challenges involved in raising children independently, etc.?

Higher Wages and Housing Supply



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Peter Coy of Bloomberg Businessweek touches on an important issue — the ways in which exclusionary zoning regulations make life harder for low-income Americans, and push them from high-productivity regions with severe housing supply constraints to lower-productivity regions with more affordable housing. But he doesn’t take the next step.

In a number of states, including California, there is a new political push to establish higher minimum wages. And though scholars like Jonathan Meer and Jeremy West have found that higher minimum wages tend to depress employment growth, other scholars have found that higher minimum wages increase low-end incomes. It remains to be seen if either set of claims will hold up, but let’s say that higher minimum wages to translate into higher low-end incomes. What happens if supply constraints in the housing market remain untouched, or if the housing supply actually shrinks? A recent report from Harvard’s Joint Center for Housing Studies from that the number of “cost-burdened renters” had greatly increased:

While the steady erosion of household incomes has helped lift the ranks of cost-burdened renters, the affordability problem fundamentally reflects the simple fact that the cost of providing decent housing exceeds what low-income renters can afford to pay. Consider the case of renters with $15,000 in annual income. To meet the 30-percent-of-income affordability standard, they would have to find housing that costs no more than $375 a month. By comparison, the 2011 median monthly cost for housing built within the previous four years was more than $1,000. Less than 34 percent of these new units rented for less than $800, and only 5 percent for less than $400.

Given this mismatch, it is no surprise that the gap between the number of lower-income renters and the supply of affordable units continues to grow. In 2011, 11.8 million renters with extremely low incomes (less than 30 percent of area median income, or about $19,000 nationally) competed for just 6.9 million rentals affordable at that income cutoff—a shortfall of 4.9 million units. The supply gap worsened sub stantially in 2001–11 as the number of extremely low-income renters climbed by 3.0 million while the number of afford able rentals was unchanged. Making matters worse, 2.6 million of these affordable rentals were occupied by higher-income households.

If higher minimum wages do substantially increase low-end incomes, we address an important aspect of the problem by increasing the rent that low-income households can comfortably afford to pay. Higher incomes might, in an unconstrained housing market, include new housing supply. The problem is limited by regulatory barriers, rent inflation will eat up some share of the income gains—possibly a very large share. The report offers some recommendations on supply:

To make progress on the nation’s legislative goal of affordable homes for all requires a multi-pronged approach. Part of the solution is to persist in efforts to reduce regulatory barriers to construction of rental housing in general, because expanding the supply helps to reduce rent inflation for all households. But efforts to develop low-cost rentals deserve particular attention. A growing number of jurisdictions have in fact put some form of requirements or incentives in place to include more affordable housing in larger developments. State and local governments are also under growing pressure to provide greater allowances for the construction of smaller units, higher-density developments, and rentals with fewer amenities. For example, building accessory dwelling units (ADUs) within established neighborhoods is a promising means of adding modest rentals in convenient locations. Development of very small apartments, or micro units, may also help increase the affordable supply in high-density, high-cost areas.

But one wonders if the recent emphasis on statutory wage floors makes much sense given that housing supply constraints in high-cost regions will be untouched by such measures, and might actually matter more when it comes to improving access to economic opportunity by allowing low-wage workers to remain in or to migrate to high-productivity regions. 

 

The Reemergence of Medicare-for-All



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The difficulties the Obama administration has encountered in implementing the Affordable Care Act has convinced at least some observers, mostly on the left but also at least some on the right, that the U.S. is headed for Medicare-for-all. The theory is that left-liberals will point to the ways in which Obamacare has been a bureaucratic mess and will ask voters to contrast the maddening exchanges with the (supposed) simplicity of Medicare. Peter Suderman of Reason disagrees, and he uses Noam Scheiber of The New Republic as his foil:

For one thing, [Scheiber] assumes that irritation with Obamacare—a law designed and implemented exclusively by Democrats—will somehow generate public support for additional Democratic health legislation that is even more sweeping. But judging by the beating Democrats have taken at the polls over last few months, public frustrations with Obamacare will turn the electorate toward Republicans. Democrats won’t be given a second chance, with a mandate to do even more.

Scheiber’s theory also overlooks how tough passage of Obamacare was in the first place—and how much support the administration had to get from health industry stakeholders in order to eke out a legislative victory. Single payer would be even tougher. Moderate Democrats who were nervous about Obamacare the first time around would be even less likely to support single payer, especially given how the law cost Democrats at the voting booth. And there’s no way that doctors, insurers, hospitals, and other major health industry groups would play nice with a single-payer push. Quite the opposite: Even beyond the insurers, much of the industry would see single-payer as a de facto nationalization of the health system, and they would fight the transition with everything they could muster.

Finally, Scheiber’s argument rests on the odd idea that individuals with private coverage will become jealous of people with Medicare and Medicaid.

I might be willing to believe that some people would prefer Medicare to private coverage, but Medicaid isn’t going to become a consumer favorite any time soon.

The question for Suderman is why Medicaid would be the more relevant frame of reference than Medicare for swing voters, and whether the single-payer partisans might prove more successful if they pursue an incremental strategy, e.g., if they advocate Medicare buy-in for older workers below the Medicare eligibility age to serve as a public option. The CBO has yet to score the Affordable Care Act in light of the various administrative changes we’ve seen in recent months, and in light of the very real possibility that the risk corridors program and other initiatives designed to shield private insurers from an unanticipated surge in expenditures. But if single-payer advocates are able to deploy projections which find that expanding Medicare will yield savings, whether or not these projections are borne out, they will have a powerful political weapon at their disposal.

Peak College



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Richard Vedder and Christopher Denhart argue that the recent dip in college enrollment — which is down 1.5 percent since 2012 — reflects the rising cost of higher education couple with its declining value:

A key measure of the benefits of a degree is the college graduate’s earning potential—and on this score, their advantage over high-school graduates is deteriorating. Since 2006, the gap between what the median college graduate earned compared with the median high-school graduate has narrowed by $1,387 for men over 25 working full time, a 5% fall. Women in the same category have fared worse, losing 7% of their income advantage ($1,496).

A college degree’s declining value is even more pronounced for younger Americans. According to data collected by the College Board, for those in the 25-34 age range the differential between college graduate and high school graduate earnings fell 11% for men, to $18,303 from $20,623. The decline for women was an extraordinary 19.7%, to $14,868 from $18,525.

Vedder and Denhart point to the rising number of college graduates working in occupations that don’t require a college degree as an indication that enrollment growth has been excessive, and they call on higher education institutions to (a) embrace cost-saving innovation and (b) accept the use of new benchmarks to assess the value of the education they offer. The perfect complement to Vedder and Denhart’s argument is Anya Kamenetz’s roadmap for reforming public higher education, “$1 Trillion and Rising.”

The Profit Motive in the Public Sector



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In Against the Profit Motive, Nicholas Parrillo, a legal historian at Yale Law School, recounts the “salary revolution” in U.S. administrative history. For much of American history, public officials were compensated in a variety of ways we’d now find quite unusual:

Judges charged fees for transactions in the cases they heard. District attorneys won a fee for each criminal they convicted. Tax investigators received a percentage of the evasions they discovered. Naval officers were awarded a percentage of the value of the ships they captured, plus bounties for the enemy sailors on board ships they sank. Militiamen enjoyed rewards for capturing Indians or taking their scalps. Policemen were allowed rewards for recovering stolen property or arresting suspects. Jailors collected fees from inmates for permitting them various privileges, and the managers of penitentiaries had a share of the product of inmates’ labor. Clerks deciding immigrants’ applications for citizenship took a fee for every application. Government doctors deciding veterans’ applications for benefits did the same, as did federal land officers deciding settlers’ applications for homesteads. Even diplomats could lawfully accept a “gift” from a foreign government upon finalizing a treaty.

Parrillo distinguishes between two broad types of pay that were common before the salary revolution — facilitative payments (the officer is paid for performing a service a person wants or needs) and bounties (the officer is paid for performing a “service” the person in question would rather the officer did not perform, like making an arrest or seizing an asset). Over time, people became convinced that facilitative payments were corrupting because they were a recipe for inconsistent as opposed to equal treatment, and because they led officers to treat those who make facilitative payments as customers, with all that entails; the critique of bounties flowed from the fact that they worked all too well in fostering an adversarial relationship between officials and the targets of their efforts. The salary emerged as a solution that fell between the two:

Taken together, lawmakers’ disillusionment with facilitative payments and with bounties resulted in a convergence upon the solution of paying officials by salary. The salary embodied a new state-society relationship, one that distanced the official from the wishes of the layperson (in contrast to the facilitative pay- ment) without radically alienating the two from each other (in contrast to the bounty). Compared with the two old forms of compensation, the salary placed the official in a middle distance vis-à-vis the population.

Moreover, Parrillo suggests that salarization was not not primarily about providing officials with career stability or imposing top-down control within bureaucracies. Rather, it was about the realization among lawmakers that laypeople will only fully cooperate with government officials if they consider them legitimate, and how facilitative payments and bounties undermine perceptions of legitimacy.

One of the reasons Parrillo’s book is worth reading is that for all the weaknesses he identifies in facilitate payments and bounties, they also have virtues that modern policymakers are rediscovering in fits and starts. So Against the Profit Motive can be understood as a cautionary tale in moving away from salarization, or as guide to pitfalls that those of us who are interested in experimenting with a more entrepreneurial approach to delivering public services ought to at least keep in mind.

How a Sense of Cultural Superiority and Insecurity Create Economic Advantage



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Amy Chua and Jed Rubenfeld have a forthcoming book (The Triple Package) on why some cultural groups flourish in the U.S. and others do not. Their thesis has been egregiously misrepresented as racist, on the grounds that identifying successful groups necessarily entails identifying less-successful groups, and for daring to articulate characteristics shared by the successful groups. First, it should be that said that the fact that some groups have been successful along certain dimensions (wealth accumulation, cultural influence, etc.) doesn’t make them intrinsically superior. Rather, their success is an artifact of the institutions of a particular society, and the cultural sensibilities that prevail. Change the institutions and some of the groups that flourish will likely find themselves less successful while others will capitalize on the shift. Cultural practices that are beneficial in one context might be poorly adapted to another. Second, the qualities Chua and Rubenfeld associate with successful groups aren’t unique to those groups, though they are difficult to replicate. Reading about the Chua and Rubenfeld thesis reminded me of the work of Barak Richman of Duke Law School, who has studied the intersection of the economic and cultural practices of Jewish diamond merchants — the following is the abstract of a short paper on “How Communities Create Economic Advantage“:

Diamonds are portable, easily concealable, and extremely valuable, thereby rendering courts powerless in policing diamond theft and credibly enforcing diamond credit sales. Since credit sales are highly preferable to simultaneous exchange, success in the industry requires an ability to enforce executory agreements that are beyond the reach of public courts. Relying on a reputation mechanism that is supported by a distinctive set of industry, family, and community institutions, Jewish diamond merchants have been able to enforce such contracts and have thus maintained industry leadership for several centuries. An industry arbitration system publicizes instances where promises are not kept. Intergenerational legacies induce merchants to deal honestly through their very last transaction, so that their children may inherit valuable livelihoods. And ultra-Orthodox Jews, for whom participation in their communities is paramount, provide important value-added services to the industry without posing the threat of theft and flight.

The diamond industry is idiosyncratic, and it should go without saying that qualities that prove advantageous in the diamond trade might not be of much use in other domains. Yet a strong reputation mechanism can regulate behavior in all kinds of beneficial ways, by promoting impulse control, etc. Chua and Rubenfeld have been mocked for suggesting that successful groups benefit both from a sense of superiority — of being separate and distinct from other groups, and in some sense better — and a sense of insecurity and the vulnerability that comes with it. But the connection should be obvious, as superiority and insecurity both contribute to a concern for the reputation of the broader group. How does my behavior reflect on those associated with me, whether they are part of my family or my extended family? I very much look forward to engaging with Chua and Rubenfeld’s ideas at greater length. They’ve been criticized for being imprecise, as it is hard to measure outcomes for many of the groups they’ve chosen — e.g., we don’t have solid numbers on household incomes for members of the LDS church. I find this is laughable, as it reflects the fact much of the intellectual work produced by our society fixates on the small handful of things that we can measure, even though the things we can’t measure, or can’t measure well, might actually be the most important. Hayek made this point in his 1974 Nobel Memorial Prize lecture:

While in the physical sciences it is generally assumed, probably with good reason, that any important factor which determines the observed events will itself be directly observable and measurable, in the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process, for reasons which I shall explain later, will hardly ever be fully known or measurable. 

We know: of course, with regard to the market and similar social structures, a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information. And because the effects of these facts in any particular instance cannot be confirmed by quantitative evidence, they are simply disregarded by those sworn to admit only what they regard as scientific evidence: they thereupon happily proceed on the fiction that the factors which they can measure are the only ones that are relevant.

This is certainly not to say that we should try to get as much hard evidence as we can. But thinkers like Chua and Rubenfeld do us a service by reaching beyond the limits of what we can quantify.

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