for Jim Manzi has written a short reply to Mike Konczal on whether there really is such a thing as a “conservative reform” movement in policy. I agree with almost everything Jim has to say. Mike begins by identifying what he sees as the conservative consensus, as reflected in the congressional GOP, on a variety of policy issues, and then he questions the extent to which conservative reformers actually depart from this consensus. Jim focuses on identifying how and why his own views vary from the consensus as described by Mike. But Mike also goes on to ask whether the various reformist departures amount to much:

What are they adding to the table? As far as I read what reformers bring to the table, it consists of:

a. Monetary policy shouldn’t adopt a price stability mandate (or a gold standard, for that matter), and in fact Ben Bernanke could and should be doing more to help the recovery with the powers he has available. (Fiscal policy like the stimulus, however, is a bad idea that largely fails.)

b. Tax credits, particularly the earned income tax credit and the child tax credit, are successful programs which might even be expanded. They’re good even though they mean 47 percent of Americans pay no federal income tax, which conservatives hate. (“Predistribution” means of boosting low-end wages, like a higher minimum wage, should be avoided though.)

c. Financial institutions should hold more capital, and perhaps we should apply a “structural” reform to the sector like a size cap or siloing of functions.

d. The government protects incumbent interests in industry, both with obvious subsidies but also with certain property rights, like copyright.

Am I missing more? These are important things, but it’s really tough to think of this as a general new direction in policy. Much of it is actually a defense and potential extension of already-existing policies against people further to the right.

One challenge for Mike is that he is describing an idiosyncratic and diverse group of thinkers, and it’s not at all clear that the loose collection of conservative reformers he has in mind has coalesced into anything like a cohesive movement. That is, if the question is whether or not there really is a “conservative reform” movement in policy, the answer would have to be no under a stringent definition of a movement. It might be more apt to refer to a reformist tendency, which doesn’t so much represent a dramatic departure from U.S. conservatism as it’s been practiced in recent decades but rather a shift of emphasis. Last fall, Evan Soltas wrote a column on how Republicans have embraced increasingly ideological language to characterize policy positions that are in many cases fairly familiar or banal, a development which he associates with the rise of the Tea Party movement. The aging of the Republican primary electorate and the evolution of the campaign finance regime — specifically the weakening of the major political parties and the growing strength of independent expenditure groups and risk-averse incumbents representing ideologically homogenous constituencies — has contributed to this larger rhetorical shift. Mike is dismissive of conservative reformers because he finds (correctly) that they are basically conservatives. But of course that is the point. The reformist impulse is fundamentally conservative, as it aims to preserve what is best in our current mix of institutions through incremental change.

Yuval Levin has argued that the challenge facing conservatives is that the mixed economy settlement of the postwar era, in which a generous old-age safety net co-existed with a reasonably healthy, open, and competitive private enterprise economy, is not aging well, as the basic design of U.S. health entitlement programs has exacerbated cost growth and is driving a substantial increase in the size and reach of the federal government. And so preserving something like the mixed economy settlement of the postwar era will require redesigning health entitlements, among other things. The goal is not to abandon the federal commitment to a generous old-age safety net, but rather to put it on a more sustainable footing and, relatedly, to encourage empowering innovations in medical care that might lower its cost while raising its quality. This is hardly a utopian ambition. It does, however, entail challenging the interests of a wide range of incumbent interests, including interests that are in many cases supportive of conservative policy goals. Physicians, to name the most obvious example, tend to oppose measures that empower other medical professionals, like nurse practitioners and physician assistants, at their expense. Conservative reformers will generally be more inclined to put pressure on incumbents of this kind than most current members of the House GOP, who are, for obvious reasons, more sensitive to real-world conservative constituencies. One question for conservative reformers is whether they can conceive of and successfully pursue alternative constituencies, just as GOP opponents of the Stop Online Piracy Act (SOPA) eventually realized that the entertainment industry wasn’t the only organized interest group that had a stake in the regulation of the internet. 

My sense is that Mike and his allies believe that only those who see the financial crisis as an indictment of U.S. capitalism ought to be taken seriously. This view has gained credence on the center-left, and it has helped foster an intellectual resurgence among more radical critics of U.S. political economy. I suspect that this is why Mike has devoted considerable energy to arguing against the “market monetarist” interpretation of the crisis and the post-crisis malaise — he seems to recognize that if the market monetarists are right, the Great Recession is better understood, in Robert Hetzel’s words, as a reflection of monetary disorder and not market disorder. Mike suggests that the departure of conservative reformers on monetary policy is fairly trivial. But it is actually very important along a number of dimensions. Whereas most conservatives have struggled to find a post-crisis narrative, market monetarism, like the supply-side thinking of the late 1970s, gives center-right thinkers a “non-zero-sum” economic narrative. If one embraces the market monetarist thesis, one needn’t maintain that the only road to recovery is to endure high unemployment as we work our way through a skills mismatch. Rather, what we need is for the central bank to keep nominal output growing at a steady rate, as this will allow entrepreneurs, investors, and workers to make decisions about the future with confidence. There are, of course, conservative reformers who reject the market monetarist thesis, but I would argue that they are in a tougher position intellectually than those who do. 

Then there is the question of ”predistribution,” or regulatory efforts to shape the marketplace before taxes and transfers. As Mike understands, minimum wage regulations are hardly the only imaginable predistribution intervention. There are many other ways in which the public sector can shape the labor market, e.g., human capital policy, family policy, and immigration policy. Most of the conservative reformers favor robust reform of K-12 and higher education. The advent of charter schools is a development that has been celebrated by neoliberal centrists and conservatives alike, and conservative reformers tend to see it as paradigmatic of their approach to public sector reform. Yet many conservative reformers also favor more far-reaching reforms, like course-level instructional choice, that will introduce elements of competition and empowering innovation into traditional public schools, per Clayton Christensen et al. On family policy, conservative reformers — particularly those of a more culturally conservative bent — are amenable to family-friendly tax reform and, to a lesser extent, modest marriage and relationship education efforts that are designed to reduce the burdens on child-rearing and to encourage family stability. Given the scale of the family disruption problem, these measures aren’t likely to have a dramatic effect, yet they represent a recognition of the extent to which family life structures economic life, i.e., the extent to family life is very a matter of predistribution. Immigration policy, meanwhile, is deeply tied to predistribution, as the skill endowments of immigrants have a powerful impact on their earning potential, and thus on the demand for redistribution via taxes and transfers. 

More broadly, one might think of efforts to reduce the debt bias in the tax code and to scale back other protections for incumbent firms as a strategy of “predistribution,” as Ashwin Parameswaran has suggested, and the same can be said of efforts to reform the financial sector. Again, this isn’t about a radical effort to restructure the U.S. economy. William J. Baumol, Robert E. Litan, and Carl J. Schramm characterize the U.S. economy as a blend of “entrepreneurial capitalism” and “big-firm” capitalism, and they see this (rightly) as a good thing. The question is whether we’ve struck the right balance between these two modes. Christensen, whom I see as a crucially important figure for conservative reformers, though he is a scrupulously nonpartisan intellectual, has argued that an excessive emphasis on husbanding capital has damaged the U.S. economy, and contributed to sluggish job growth in recent decades. Suffice it to say, Christensen’s critique of the Doctrine of New Finance isn’t a call for a state-guided economy, and the same is true of Amar Bhide’s intriguing critique of debt market liquidity. Rather, Christensen and Bhide are seeking to explain how certain deficiencies of the post-1970s American economy have actually undermined the best aspects of capitalist dynamism. 

Mike sees support for wage subsidies and work supports among conservative reformers as little more than a defense of the status quo, and that’s fair enough. Some conservative reformers, however, favor a larger reordering of anti-poverty policy. The challenge, according to this framework, is that upward mobility from the bottom fifth of the household income distribution is extremely limited for a variety of reasons, ranging from the intergenerational effects of exposure to concentrated poverty to the weakness of social networks among the very poor to the lasting consequences of living in high-crime neighborhoods. So while the old right-of-center crime control agenda — which Mike critiqued in a fascinating article in the socialist magazine Jacobin, which notably made no reference to the post-1960s surge in violent crime — was oriented towards the concerns of nonpoor suburbanites, a new right-of-center crime control agenda might be best understood as part of a larger effort to fight the causes of persistent poverty. One aspect of this shift is already underway, namely the embrace of criminal justice reform by conservatives who recognize that incarceration damages the earnings prospects of ex-offenders, which in turn damages the prospects of the children of ex-offenders.

There is much more to be said. But if Mike’s claim is that conservative reformers are basically conservatives, he is clearly correct. The much bigger issue, in my view, is that many of the conservative who object to conservative reformism — who’ve been fighting House Majority Leader Eric Cantor’s efforts to reform higher education and efforts to craft a coherent and workable replacement for the Affordable Care Act, etc. — don’t seem to appreciate that reform is necessary to preserve what conservatives value most about American life. 

Michael Levi of the Council on Foreign Relations observes that what seems like a puzzle — the fact that even as domestic oil production increases, oil prices remain quite high — isn’t a puzzle at all. U.S. and Canadian oil supplies are as a general rule quite expensive to access, and so we’d be producing much less oil if the global price were substantially lower. Moreover, when the U.S. increases production, Saudi Arabia and other major suppliers tend to cut back, in the interests of preventing prices from collapsing. Oil demand in emerging markets continues to increase. All of these factors taken together suggest that instead of hoping for lower oil prices, the U.S. ought to continue to encourage increased domestic production while also stepping up efforts to reduce domestic consumption, as doing so will help shield consumers and taxpayers from a future surge in oil prices.

Last week, Yuval Levin explained that the recent deceleration in the growth of medical expenditures isn’t in fact a new phenomenon — rather, it started in 2003, when health cost inflation fell from 9.7 percent in 2002 to 8.4 percent, and it has stalled at 3.9 percent between 2009 and 2011. One optimistic interpretation is that as employers increasingly rely on higher-deductible plans designed to encourage cost-consciousness, consumers have become more savvy and medical providers are responding. But as Yuval makes clear, there is good reason to believe that as the population ages, health cost inflation will once again accelerate. For example, we’ve discussed the costs associated with dementia. A recent RAND report estimates that the cost of treating dementia on a per adult basis will increase by 79 percent from now until 2040, and the number of adults afflicted with dementia is expected to increase dramatically over the same interval. 

Another issue, which consultant Tom Emerick raises, is that even a slight decline in the number of workers aged 55 or above will tend to reduce health cost inflation by a disproportionate amount. It could be that we’re seeing a temporary dip in medical expenditures by boomers who’ve been downsized that will be matched or exceeded by an increase in medical expenditures once they are eligible for subsidized care.

Margot Sanger-Katz of National Journal describes a new Wal-Mart initiative to contain rising health expenditures:

So last October, Wal-Mart announced that employees who needed certain pricey surgeries would have the option of traveling to one of the six best hospitals in the country that specialize in those procedures. Cashiers in California and store greeters in Alabama could fly to the Mayo Clinic in Minnesota—all expenses paid. The model, sometimes called “centers of excellence” or “travel surgery,” has caught on among a few large corporations and their employees. Unlike in retail stores, where the cheapest item is probably the shoddiest, this program is premised on the idea that cheaper health care is to be found at the nation’s very best providers. “We come at it from the perspective of how can we improve quality,” said Sally Welborn, Wal-Mart’s senior vice president of global benefits. “When we improve quality, often there will be a reduction in waste or unintended or unnecessary cost.”

John Goodman of the National Council on Policy Analysis has championed this kind of medical tourism, going so far as to claim that it could allow employers to cut their health costs in half:

Employers can cut their health costs in half if they will do three things:

1. Establish a generous Health Savings Account and let employees pay directly for all primary care.

2. Establish special HSAs for the chronically ill, giving them the opportunity to manage their own care.

3. Direct elective surgery patients to low-cost, high-quality hospitals (which may require travel to another city); if the employee chooses to go to some other hospital, he must pay the full marginal cost of the more expensive choice.

In describing the potential of domestic medical tourism, Goodman referenced MediBid, a firm that allows medical providers to bid to provide care. As Sanger-Katz explains, one of the chief advantages of travel-surgery programs like Wal-Mart is that they offer fixed-price contracts:

Instead of the usual arrangement, where insurance companies reimburse providers à la carte for various services, the travel-surgery programs are based on a flat fee for all the care involved in a procedure. Tough transplants don’t cost the employer any more than patients who sail through the surgery easily. The flat fee reduces employers’ risks and gives the hospital an incentive to avoid problems that could prove expensive down the line.

That is, the purchasing is shifting the risk of cost overruns to the provider, and the provider is betting that it is capable of delivering care for less than the flat fee. If Wal-Mart can help break down the cultural resistance to travel-surgery, the benefits could be enormous. High-quality, low-cost medical providers located in Minnesota and Ohio will be in a position to compete against low-quality, high-cost medical providers located in New York and California. For cities battered by the decline in mid-skill manufacturing employment, the rise of medical tourism could prove a huge boon, as patients from more affluent regions spend some of their wealth in Rust Belt centers of medical excellence. And as medical care becomes something more like a tradable good, we can expect it to get better – and cheaper – faster than if patients remained bound to a limited geographical area, not least because inefficient big-city hospitals will be forced to compete on cost. 

During the first decades of the twentieth century, Argentina experienced rapid economic and population growth, in part due to an immigration policy that was far less restrictive than that of the United States. Advocates of an increase in less-skilled immigration might point to Argentina in that era as a success story. There is a small problem, however. In Polyarchy, the political theorist Robert Dahl briefly suggests that the scale of the immigrant influx might have influenced the evolution of Argentina’s political culture:

The rate of immigration to Argentina far exceeded that to the United States … In 1914 nearly a third of the population of Argentina were foreigners; in Buenos Aires, which dominates the political life of the country, half the people were foreigners. Among adults, the proportions were even higher — 72 percent in Buenos Aires, 51 percent in five of the most thickly settled provinces, 20 percent elsewhere. Among male adults (who as citizens would have been entitled to vote) the percentages were higher yet: perhaps four out of five adult males in Buenos Aires were noncitizens and thus automatically excluded from participating in the political life of the country. The immigrants were, of course, disproportionately concentrated among the working classes. Thus Argentina had a large proletariat and even a sizable middle class with not great attachment to the Argentine political system.

What is striking is that as this foreign-born working class population achieved political integration, it contributed to the shift from laissez-faire economic policies and integration in the global economy that had defined Argentinian political economy during its economic rise towards the mix of populism, authoritarianism, and import substitution industrialization that contributed to Argentina’s relative economic decline. This outcome wasn’t inevitable, and of course there are other countries that have welcomed large numbers of immigrants in the modern era and have flourished culturally and economically. Canada and Australia are two sterling examples. Of course, Canada and Australia have tightly-managed immigration policies that are strongly skewed towards immigrants with a college education or more, and so immigrants find themselves not in the “proletariat” but rather in the economic mainstream, and in many cases in the upper half of the income distribution. I definitely don’t think we should read too much into Argentina’s experience. But it does seem to be worthy of note, and I encourage anyone out there to read and write about it more. 

The corporate income tax is a really terrible way to raise revenue. As Aparna Mathur has argued on a number of occasions, high corporate income taxes tend to reduce productivity and wages, and so they harm more than just the owners of capital. Earlier this week, Evan Soltas of Bloomberg View described the many distortions caused by the corporate income tax, and he made the case for its abolition. The challenge, as virtually all critics of the corporate income tax acknowledge, is that the corporate income tax raises a substantial amount of revenue. The Joint Committee on Taxation projects that it will raise $455 billion in 2015, or more than a tenth of the $3.373 trillion the CBO projects the federal government will raise in revenue that year. A number of economists, like Alan Viard of the American Enterprise Institute, have suggested that shifting from firm-level income taxation to residence-based individual income taxation is a strategy worth pursuing:

On the whole, however, it appears that American well-being would be promoted by the imposition of individual portfolio income taxes on a residence basis and (at least in the long run) the imposition of any corporate income taxes on a territorial basis. An extension of the above analysis suggests that the appropriate corporate income tax rate may be close to zero because source-based investment taxation prompts the relocation of investment abroad and transfer pricing schemes. In short, the best way to tax investment income is likely to be at the individual level on a residence basis, an approach that avoids both the capital flight triggered by source-based taxation and the migration away from domestic corporate charters triggered by charter-based taxation.

But the JCT projects that reduced rates on dividends and long-term capital gains will be worth $114.9 billion, an amount that would presumably be even smaller if corporate income taxes were abolished, as firms would be less inclined to offer dividends and owners of capital assets might be more reluctant to sell them. One way to mitigate this behavioral response would be to shift from a realization rule (you only pay taxes when you actually sell an asset) to accrual taxation (annual increases and decreases in the value of a given asset are included in the tax base, whether or not the asset is sold). This shift will, however, spark resistance, as it implies that cash-poor owners of valuable assets will have to find some way of scaring up enough money to afford large tax payments. At the same time, accrual taxation would greatly simplify the tax code and limit certain tax avoidance strategies.

Rather than completely eliminate the corporate income tax, Rosanne Altshuler, Benjamin H. Harris, and Eric Toder have proposed taxing capital gains and dividends at the same rate as ordinary income to finance a cut in the corporate income tax rate from 35 percent to 26 percent. Harris observes that this approach would prove more progressive than the current code:

[T]rading a lower corporate tax for higher taxes on investors in the U.S. would be progressive. My TPC colleagues and I analyzed a revenue-neutral plan to tax capital gains and dividends as ordinary income while simultaneously lowering the corporate tax rate from 35 percent to about 26 percent; we found the plan would lower the average tax burden for the bottom 99 percent of taxpayers.

One wonders if there might be some way to combine the proposals of Altshuler et al. with Robert Pozen and Lucas Goodman’s call for financing a deep cut in the corporate income tax rate — from 35 percent to 25 percent — by capping the deductibility of corporate interest expense. Of course, the Pozen and Goodman proposal only raises revenue if the corporate income tax is still on the books. This raises the question of whether it might make sense to introduce an entirely new revenue source to finance a reduction in the corporate income tax. Greg Mankiw, for example, has called for increasing the gasoline tax or imposing a carbon tax to finance such a cut. In 2011, the CBO estimated that a $20 per ton fee on carbon emissions would yield $1.2 trillion over a decade. There are a number of reasons why one might oppose a carbon tax, e.g., imposing a domestic carbon price might encourage the “leakage” of carbon-intensive economic activity to jurisdictions with lighter regulations. If carbon tax revenue is used to finance a much lower corporate income tax rate, or for that matter to partially finance the abolition of the corporate income tax, it is at least possible that the net effect on investment and job growth would be positive. 

Republican resistance to carbon pricing is deeply-rooted, in part because its consequences would be very uneven. Some regions and sectors would benefit much more than others. And measures designed to contain these disparate impacts would introduce new complexities that would give enormous power to the federal government, power that might not be used wisely. Yet the case for abolishing the corporate income tax is sufficiently strong that I wonder if linking the two issues might change the political dynamic. 

The corporate income tax is a really terrible way to raise revenue. As Aparna Mathur has argued on a number of occasions, high corporate income taxes tend to reduce productivity and wages, and so they harm more than just the owners of capital. Earlier this week, Evan Soltas of Bloomberg View described the many distortions caused by the corporate income tax, and he made the case for its abolition. The challenge, as virtually all critics of the corporate income tax acknowledge, is that the corporate income tax raises a substantial amount of revenue. The Joint Committee on Taxation projects that it will raise $455 billion in 2015, or more than a tenth of the $3.373 trillion the CBO projects the federal government will raise in revenue that year. A number of economists, like Alan Viard of the American Enterprise Institute, have suggested that shifting from firm-level income taxation to residence-based individual income taxation is a strategy worth pursuing:

On the whole, however, it appears that American well-being would be promoted by the imposition of individual portfolio income taxes on a residence basis and (at least in the long run) the imposition of any corporate income taxes on a territorial basis. An extension of the above analysis suggests that the appropriate corporate income tax rate may be close to zero because source-based investment taxation prompts the relocation of investment abroad and transfer pricing schemes. In short, the best way to tax investment income is likely to be at the individual level on a residence basis, an approach that avoids both the capital flight triggered by source-based taxation and the migration away from domestic corporate charters triggered by charter-based taxation.

But the JCT projects that reduced rates on dividends and long-term capital gains will be worth $114.9 billion, an amount that would presumably be even smaller if corporate income taxes were abolished, as firms would be less inclined to offer dividends and owners of capital assets might be more reluctant to sell them. One way to mitigate this behavioral response would be to shift from a realization rule (you only pay taxes when you actually sell an asset) to accrual taxation (annual increases and decreases in the value of a given asset are included in the tax base, whether or not the asset is sold). This shift will, however, spark resistance, as it implies that cash-poor owners of valuable assets will have to find some way of scaring up enough money to afford large tax payments. At the same time, accrual taxation would greatly simplify the tax code and limit certain tax avoidance strategies.

Rather than completely eliminate the corporate income tax, Rosanne Altshuler, Benjamin H. Harris, and Eric Toder have proposed taxing capital gains and dividends at the same rate as ordinary income to finance a cut in the corporate income tax rate from 35 percent to 26 percent. Harris observes that this approach would prove more progressive than the current code:

[T]rading a lower corporate tax for higher taxes on investors in the U.S. would be progressive. My TPC colleagues and I analyzed a revenue-neutral plan to tax capital gains and dividends as ordinary income while simultaneously lowering the corporate tax rate from 35 percent to about 26 percent; we found the plan would lower the average tax burden for the bottom 99 percent of taxpayers.

One wonders if there might be some way to combine the proposals of Altshuler et al. with Robert Pozen and Lucas Goodman’s call for financing a deep cut in the corporate income tax rate — from 35 percent to 25 percent — by capping the deductibility of corporate interest expense. Of course, the Pozen and Goodman proposal only raises revenue if the corporate income tax is still on the books. This raises the question of whether it might make sense to introduce an entirely new revenue source to finance a reduction in the corporate income tax. Greg Mankiw, for example, has called for increasing the gasoline tax or imposing a carbon tax to finance such a cut. In 2011, the CBO estimated that a $20 per ton fee on carbon emissions would yield $1.2 trillion over a decade. There are a number of reasons why one might oppose a carbon tax, e.g., imposing a domestic carbon price might encourage the “leakage” of carbon-intensive economic activity to jurisdictions with lighter regulations. If carbon tax revenue is used to finance a much lower corporate income tax rate, or for that matter to partially finance the abolition of the corporate income tax, it is at least possible that the net effect on investment and job growth would be positive. 

Republican resistance to carbon pricing is deeply-rooted, in part because its consequences would be very uneven. Some regions and sectors would benefit much more than others. And measures designed to contain these disparate impacts would introduce new complexities that would give enormous power to the federal government, power that might not be used wisely. Yet the case for abolishing the corporate income tax is sufficiently strong that I wonder if linking the two issues might change the political dynamic. 

Given the obstacles the president is likely to encounter in advancing his top legislative priorities — robust climate change legislation and higher taxes on high-earners, among other things — my latest column for Reuters Opinion argues that he ought to devote more time and effort to making the moral case for stronger families. 

1. Edward Conard, author of the controversial economic manifesto Unintended Consequences, offers a contrarian reply to Fareed Zakaria’s recent call for increased public sector infrastructure investment.

2. Eugene Steuerle warns that Social Security has evolved into a “middle-age retirement system,” and he offers on how it might be reformed.

3. Sean Trende analyzes the Virginia gubernatorial race and concludes that the Democratic candidate, Terry McAuliffe, has a slight edge. 

4. Ta-Nehisi Coates interviews geneticist Neil Risch on African American origins and race.

Clayton M. Christensen, Michael B. Horn, and Heather Staker have a new paper on the coming transformation of K-12 education. Rather than displace traditional modes of instruction, online learning will co-exist with them in the medium-term, particularly for younger students. Online learning will be incorporated in such a way as to extend the viability of the existing business model of K-12 schools, in part because in the earlier grades, there is no non-consuming population that constitutes a potential market for truly disruptive low-cost online learning models, as virtually all children have access to publicly-financed schools. In the higher grades, however, online learning may well prove truly disruptive, e.g., online learning might prove more effective at meeting the needs of students who might otherwise drop out of high school, many of whom would prefer more flexible schedules that allow them to combine education or work or, in some cases, education and child-rearing.

Online learning has already had considerable success in meeting the needs of students interested in taking courses — AP courses, foreign language instruction — not available at local schools, a big source of the success of Alabama’s ACCESS program and the Florida Virtual School. This A La Carte model has a lot of room to grow:

In this model, students dispense with the traditional classroom altogether to take online courses in addition to their traditional courses. An online teacher is the teacher of record for the online courses—although schools can certainly make this an intentional part of their strategy—and in some cases even arm students with a variety of in-person supports, like mentors in e-learning cafes. The A La Carte model is the clearest case of pure disruption. Looking just at the course itself and not at the rest of a student’s experience, it often has no blended component; taken as a part of a student’s full schooling experience, it represents a student engaging in blended learning. It leaves no doubt that the traditional classroom is absent from the model because for fully online courses, students do not attend a traditional brick-and-mortar classroom, even if some models offer students the ability to take the courses in cyber cafes or learning labs.

One of the most attractive aspects of the A La Carte model is that it lowers the barriers to instructional innovation. The charter school movement has achieved a good deal of success, yet building entirely new schools from scratch is a challenging proposition and the scope for competition is limited in regions with low population densities. Course-level choice allows teams of educators to specialize — we’re very good at teaching accounting, and we’ll stick to that rather than build an entirely new school – and online learning allows specialized instructional models to achieve scale — instead of hiring a run-of-the-mill accounting teacher, we’ll allow students to take the best accounting course in the country. Another advantage of course-level choice is that it has the potential to overcome the risk-aversion of parents and educators, as it doesn’t entail wholesale change and it can exist in jurisdictions that don’t permit much in the way of school choice. In an ideal world, however, course-level choice would encourage cost-consciousness, e.g., students who choose lower-cost instructional options would be rewarded with a share of the savings, which can be applied to college savings or extracurricular enrichment, as Burck Smith has proposed. 

Mark Kleiman describes a recent exchange with Jonathan Rauch, and in doing so sheds light on how different people approach public policy questions. Kleiman has observed that while roughly 80 percent of the users of any given drug use it responsibly and without causing harm to others, the remaining 20 percent are a different story — they consume 80 percent or more of the drug and they account for an even higher proportion of the harm that results from its abuse. For Kleiman, the existence of this 20 percent necessitates regulation of drug use, as sellers of the drug in question will profit from the problem use of the 20 percent while the public has an interest in containing the damage it causes, to bystanders and to the problem users themselves. But, Rauch asks, is this fair to the 80 percent of responsible users? Are we sacrificing their interests at the expense of those of the problem users?

If you think of problem users and non-problem users as different people, it’s natural to ask which group’s interests ought to make way for the other’s. That seems to be a moral or constitutional question. But if you think of yourself as a potential user of a drug (or, as Jonathan suggested to me, the parent of a potential user), unable to know in advance whether your (or your child’s) use will remain controlled or will instead progress to dependency, and ask how much inconvenience in controlled use you want to sacrifice for protection against a bad habit, then you confront a practical problem rather than a moral one.

The same framework can apply to other policy questions: 

Asking “How much do the non-poor owe to the poor?” is a moral question. Asking “How much protection would a reasonable person want against the risk of poverty?” sounds more like a computation. Of course, if you think of yourself as naturally immune to the risks of drug abuse or of poverty, you’ll be more inclined to let the drug abusers, and the poor, go hang.

Kleiman’s framework raises a number of interesting questions, and it reminds me of our recent discussion of Brink Lindsey’s thoughts on IQ. The risk of poverty is likely to vary across individuals. One of the main arguments for favoring skilled immigrants over less-skilled immigrants is that the risk of poverty is likely to be much higher among non-college-educated adults with limited English proficiency than among college-educated adults with a high degree of English language proficiency. And so immigration policy raises both moral questions — do we have the same kind of moral obligations to foreigners as we do to fellow citizens? — as well as practical questions. When I consider that I may well have been born as a non-American, I might be more sympathetic to a more generous immigration policy, as I’d want to increase the likelihood that I’d be able to access the U.S. labor market even if I had been born elsewhere. Or perhaps I’d conclude that because non-Americans benefit indirectly from the existence of a certain kind of American polity, a more restrictive immigration policy is compatible with a veil-of-ignorance perspective. 

One last thought on the veil-of-ignorance perspective and protection against the risk of poverty. I often discuss the importance of crime control, as the fact that we aren’t close to achieving the “equal protection of the law” is a powerful driver of unequal social outcomes. The University of Arizona sociologist Lane Kenworthy, in contrast, often emphasizes the importance of early childhood education. It’s a safe bet that Kenworthy believes that we ought to move aggressively on both fronts. Yet if we assume limited resources, it is easy to imagine that at least some reasonable people would choose a stronger guarantee of physical security over lower-cost access to pre-K instruction. On the other hand, I tend to think that a veil-of-ignorance perspective would tend to incline people towards spending more on wage subsidies and work supports than we do at present.

Steven Johnson has written an excellent reply to George Packer’s new essay on Silicon Valley. Johnson makes two central arguments, the first of which is that the politics of Silicon Valley are not best described as libertarian but rather as “peer progressive,” a belief system that embraces the virtues of decentralized systems, yet which also emphasizes the importance of collaboration outside of the realm of the market, e.g., participatory democracy.  

When I was writing Future Perfect—which makes a cameo in Packer’s piece—I spent quite a few pages clarifying that while the new “peer progressive” worldview shared some superficial characteristics with Randian libertarianism, it was in actuality fundamentally different. Yes, people who work in the tech sector today (particularly around the web and social media) believe in the power of decentralized systems and less hierarchical forms of organization. But that does not mean they are greed-is-good market fundamentalists. For starters, almost all of them recognize that their industry itself arose out of government funding (see ARPANET), and some of the most celebrated achievements of the digital culture (open source software, Wikipedia) involve commons-based collaboration with no conventional definition of private property whatsoever. It’s precisely because we lack a new vocabulary to describe this worldview that we end up lumping the tech sector together in the libertarian camp.

Johnson emphasizes that Democrats have fared well in Silicon Valley.

By focusing so much on the libertarian framework, Packer buries (or indeed doesn’t even bother to mention) the lede, which is the stunning advantage that Democrats now have among the rising information classes. The most dynamic sector of the global capitalist economy is now decisively in the camp of the Democrats. How could this somehow go unmentioned in a piece about politics in Silicon Valley? The consequences of this shift are likely to be profound and multifaceted ones.

But “peer progressivism” is hardly incompatible with a broadly pragmatic center-right, if not rigorously libertarian, worldview. Rick Perry, the Republican governor of Texas, for example, is one of the leading champions of state-level industrial policy. I can’t say I think this is a good thing, but it has helped chip away at his know-nothing reputation. GOP weakness among the rising information classes has prompted a great deal of soul-searching among conservatives, on issues ranging from same-sex civil marriage to immigration reform, and change is underway. Political identity tends to be durable, and one assumes that Silicon Valley voters will continue to back Democrats in large numbers in the indefinite future. It is at least possible, however, that a pragmatic coastal conservative like Chris Christie could connect with this constituency, provided his Democratic opponent isn’t similarly deft or compelling. 

Johnson’s more important point is that Packer misreads the economic life of Silicon Valley. Rather than see the Valley as an illustration of American inequality at its worst, the widespread practice of distributing meaningful equity to ordinary employees might in fact represent a powerful tool to redress inequality:

Of course, the fact that Silicon Valley companies are more egalitarian than their equivalents in other industries doesn’t help us with the wider problem of inequality. Not everyone can work for Google, and in general, tech sector companies employ fewer Americans than their industrial predecessors. And all those middle-management millionaires make it harder for everyone else to live in the the same region, particularly where real estate values are concerned. For Packer, the lesson seems to be: the excesses of the digital-era super rich give us a case study in the growing problem of inequality throughout the U.S.. But you could reasonably draw the exact opposite lesson: that one way to deal with rising inequality is to make the rest of corporate America act more like Silicon Valley.

There is a growing body of research that shows that companies that limit their high-low wage ratios and distribute generous option plans consistently outperform more traditional, inegalitarian firms. Companies that flatten hierarchies and distribute rewards more fairly are actually more profitable, and not just nicer places to work. They don’t need high-flying IPOs to do this; simply flattening the ratio of executive-to-average-worker-pay creates similar benefits. The movement towards these more egalitarian corporate structures goes by many names: “stakeholder” or “partner” or even “conscious” capitalism. (In Future Perfect, I talk about this as one of the tenets of peer progressivism.) But whatever you call it, the framework has clearly generated its most spectacular results in Silicon Valley.

The whole premise of stakeholder capitalism offers a powerful and distinct message, because it gets at both our desire to be competitive in the global marketplace, but also to be more fair and equitable in the way we share our wealth. True libertarians would be repulsed at the thought, but the success of Silicon Valley even suggests that governments could do much more to encourage these kinds of internal compensation structures, in the name of better business and social cohesion. (Not to mention old-fashioned fairness.)

My objection to Johnson’s framework is that Silicon Valley firms are egalitarian for much the same reason that Denmark is egalitarian — both are highly exclusive clubs. Firms that limit their high-low wage ratios might work when virtually all employees are college-educated, or indeed when virtually all employees have even higher skill levels, but flatter hierarchies might be tougher in labor-intensive services that make extensive use of less-skilled labor. The gap between frontline employees and the back office will necessarily be larger in such firms. To suggest that simply flattening the ratio of executive-to-average-worker-pay would make, say, a construction company as successful as a firm that sells knowledge-intensive services and that exclusively employs workers with postgraduate degrees is silly. I don’t doubt that employee ownership might work well in these sectors, but it’s certainly not a no-brainer, as management is a highly specialized skill. 

So while Packer is perhaps too pessimistic about the ominous lessons of Silicon Valley, Johnson is perhaps too optimistic about the applicability of the lessons of Los Gatos to the world of labor-intensive services. One final note: if we’re concerned about the boom in land prices in Silicon Valley — as we ought to be — the obvious solution is to reform the zoning laws and embrace higher density.

George Packer’s meditation on Silicon Valley and the new American inequality has prompted two smart replies from quite different angles. To break things up, I’ll discuss them in two separate posts. The first, by the political theorist Samuel Goldman, accepts Packer’s basic economic narrative, which reads as follows:

The fortunes of middle-class Americans have declined while prospects for many women and minorities have risen. There’s no reason why they couldn’t have improved together—this is what appeared to be happening in the late nineteen-sixties and early seventies. Since then, many women and minorities have done better than in any previous generations, but many others in both groups have seen their lives and communities squeezed by the economic contractions of the past generation.

Before turning to Goldman’s critique of Packer, I’ll first observe that Scott Winship has carefully analyzed the claims that the fortunes of middle-class Americans have declined in a series of articles, including “Bogeyman Economics” in National Affairs and “The Affluent Economy” in Breakthrough Journal. Early last year, he observed that the shrinking of the U.S. middle class cited by Alan Krueger as an indication of decline largely reflects the fact that there is a larger number of U.S. households that have higher-than-middle-class earnings:

Krueger’s claim of a shrinking middle class relies on the same peculiar definition. Specifically, “middle class” is defined as having a household income at least half of median income but no more than 1.5 times the median. I re-ran the numbers using the same definition and data source as Krueger and found that the entire reason the middle class has “shrunk” is that more households today have incomes that put them above middle class. That’s right, the share of households with income that puts them in the middle class or higher was 76 percent in 1970 and 75 percent in 2010—two figures that are statistically indistinguishable. For that matter, I am not discovering fire here; Third Way made the same point in early 2007 (page 7). A shrinking middle class is only a problem if it reflects fewer people reaching the middle class. 

This isn’t to suggest that middle-income Americans don’t face serious challenges. The main challenge, and one of the central focuses of this blog, is that the last thirty years have seen dramatic real price increases in medical care and education at the same time that various consumer goods have seen similarly dramatic real price decreases. It is not unreasonable to suggest that access to high-quality medical care and education is more important than, for example, access to high-quality televisions or even to the wealth of information that is now readily available via new low-cost communications technologies, as the former can extend healthy lifespan (though there is a case that behavior matters just as much if not more) and the latter helps build earning potential and cultivates the ability to manipulate newly-accessible information. But as Scott often argues, this meta-problem is far more pressing for Americans in low-income households than it is for Americans in middle-income households, and there is a real danger that a near-exclusive emphasis on the plight of the middle class will tend to undermine rather than strengthen the case for doing more for the very poor. 

One could offer a more narrowly-tailored version of Packer’s passage that would be more compelling: specifically, the fortunes of large numbers of U.S. men have deteriorated relative to women, because high school dropout rates are higher among men than among women, college completion rates are lower, and men are far more likely to be incarcerated and, relatedly, to abuse alochol or narcotics. A more knowledge-intensive economy has tended to make the consequences of these differences more problematic for men, but of course women have been forced to bear the consequences of this decline in male economic prospects, the rising share of single mother households being only the most obvious example. Racial differences are more complex, as the demographic composition of the population has changed considerably since the 1960s and 1970s. The Hispanic slice of the U.S. population in 2013 is very different from the Hispanic slice in 1980, as immigration has meant that some non-trivial share of Hispanic 45-year-olds living in the U.S. were not living in the U.S. 33 years ago. The same is true of the Asian American population. African American women have made impressive gains over this period, but African American men have not gained much ground — and by some accounts they may have lost ground. One hypothesis as to why this might be true is that, as NYU sociologist Patrick Sharkey has argued, the effects of living in high-poverty neighborhoods are to some extent cumulative across generations, and black Americans at any given income level are likely to live in higher-poverty neighborhoods than their non-Hispanic white counterparts. We don’t have a clear sense of why women have been better able to navigate this landscape than men, but David Autor and Melanie Wasserman have recently offered some tentative thoughts as to what exactly is going on in “Wayward Sons“:

[W]e argue first that sharp declines in the earnings power of non-college males combined with gains in the economic selfsufficiency of women—rising educational attainment, a falling gender gap, and greater female control over fertility choices—have reduced the economic value of marriage for women. This has catalyzed a sharp decline in the marriage rates of non-college U.S. adults—both in absolute terms and relative to college-educated adults—a steep rise in the fraction of U.S. children born out of wedlock, and a commensurate growth in the fraction of children reared in households characterized by absent fathers.

The second part of the hypothesis posits that the increased prevalence of single-headed households and the diminished child-rearing role played by stable male parents may serve to reinforce the emerging gender gaps in education and labor force participation by negatively affecting male children in particular. Specifically, we review evidence that suggests that male children raised in single-parent households tend to fare particularly poorly, with effects apparent in almost all academic and economic outcomes. One reason why single-headedness may affect male children more and differently than female children is that the vast majority of single-headed households are female-headed households. Thus, boys raised in these households are less likely to have a positive or stable same-sex role model present. Moreover, male and female children reared in female-headed households may form divergent expectations about their own roles in adulthood—with girls anticipating assuming primary childrearing and primary incomeearning responsibilities in adulthood and boys anticipating assuming a secondary role in both domains.

To suggest that there is no reason why the economic pattern of the last three decades shouldn’t have been identical to the economic pattern of the late nineteen-sixties and early seventies strikes me as peculiar. There are a few obvious reasons why we might have seen divergence between different groups:

1. Matt Yglesias — a staunch advocate of increased immigration, including increased less-skilled immigration – has described how the rising foreign-born share of the U.S. population has contributed to the increase in measured inequality. 

2. Automation and offshoring have contributed to a deterioration in the labor market position of less-skilled workers around the world. Virtually all of the market democracies, including the U.S., have reacted to this development by increasing social transfers, including wage subsidies and work supports, but some have increased transfers more than others. Redistribution at the federal level in the U.S. tends to be dominated by transfers to older Americans and tax expenditures that tend to benefit middle-income and upper-income taxpayers. Wage subsidies and work supports have increased, but not by enough to offset the deterioration in the labor market position of less-skilled U.S. workers. We might have done more on this front, but doing so would have entailed a trade-off, e.g., we might have financed more generous transfer by imposing something like a value-added tax, drawing on the lessons of the Scandinavian social market economies. Yet this might have constrained the purchasing power of middle-income Americans. Whether or not you believe this is an appropriate trade-off, it is a trade-off. 

3. The transformation of U.S. family life, which appears to be closely related to the deterioration in the labor market position of less-skilled workers, has been a cumulative process. Rates of child-rearing outside of marriage increased sharply from the 1960s on. If we assume that being raised in a single parent family has consequences for one’s cognitive development and economic potential, the fact that the share of single mother families was much higher in the early 1980s than it was in the early 1950s gives us another reason why the economic fates of Americans raised at the bottom end of the household income distribution might have diverged from those raised at the top end. Problems that might have been relatively small and manageable in that era have grown much larger and much less tractable over the intervening decades.

So if anything, I’d suggest that the fact that American economic life looks really different now than it did in the late 1960s and early 1970s is overdetermined. Even under the best, most enlightened policy regime, there is a process of trial-and-error involved in meeting changed social circumstances. For example, public education spending per pupil has increased over this period, yet the student population faces a number of challenges it did not in earlier eras and the demands being placed on the public education system are commensurately much greater. That the performance of K-12 schools hasn’t deteriorated even further than it has in thus in some sense an improvement, particularly since the welcome decline in labor market discrimination against college-educated women and minorities and declining student-teacher ratios have put enormous pressure on the teacher talent pool. Of course, this semi-non-deterioration has been purchased at extraordinary expense. Were reformers wrong to press for spending more money on K-12 schools? I’m inclined to think that they were just doing their best, and they happened to hit upon a politically attractive solution (spend more, hire more). 

With that long detour out of the way, Goldman maintains that Packer’s mistake is that he fails to understand the interrelationship between the politics of personal emancipation and the decline of working-class solidarity:

In our time, the stories of greater social equality and economic inequality are far from “unrelated”. Rather, social inclusion has been used to legitimize economic inequality by means of familiar arguments about meritocracy. According to this view, it’s fine that the road from Harvard Yard to Wall Street is paved with gold, so long a few representatives of every religion, color, and sexual permutation manage to complete the journey. Superficial diversity at the top thus provides an moral alibi for the gap between the one percent and the rest.

Goldman’s thesis has merit. There really has been a normative shift within elite institutions, as their stewards have concluded that representativeness is essential to their survival and flourishing. This hasn’t been a cynical shift, or rather it hasn’t mostly been a cynical shift. But because I am more inclined to believe that economic inequality isn’t an intrinsically bad thing — what really matters, in my view, is absolute well-being, and if some increase in upper-tail market inequality is compatible with or indeed facilitates a rise in absolute well-being in the bottom half, through the market-driven creation of new products and services or even through redistribution, I have no problem with it — I don’t share Goldman’s jaundiced view. That elite institutions are somewhat more inclusive strikes me as a good thing, though of course I’d rather these institutions become more meaningfully inclusive by, for example, broadening access to high-quality educational or employment opportunities. 

Goldman’s broader critique of Packer is that the celebration of diversity undermines egalitarianism:

More generally, it is hard for a society characterized by ethnic and cultural pluralism to generate the solidarity required for the redistribution of wealth. People are willing, on the whole, to pay high taxes and forgo luxuries to support those they see as like themselves. They are often unwilling to do so for those who look, sound, or act very differently. In this respect, the affirmations of choice and diversity that now characterize American culture, tend to undermine appeals to collective action or shared responsibility. If we’re all equal in our right to live own lives, why should we do much to help each other?

This strikes me as very much on-target, and I confess to having mixed feelings about it. Erica Grieder’s excellent new book on Texas, Big, Hot, Cheap, and Right, observes that Texas’s public culture is open to immigration precisely because the state’s public sector is so stingy towards low-income individuals. I can imagine many different equilibria being reasonably attractive and stable — highly unequal, highly inclusive, highly diverse; highly equal, highly exclusive, highly homogeneous, etc. — and much depends on our moral and aesthetic priorities. I think of America’s polyglot cities as sites of dynamism, inequality, and diversity, and I like and identify with these spaces. But I am under no illusion that these spaces can be reconciled with social-democratic or egalitarian aspirations without making them very, very different, e.g., without pursuing a far-reaching project of cultural assimilation that would have to rest on curbing immigration in a quite dramatic way. I keep thinking that we can find some middle ground — more diverse than midcentury America, but with somewhat more solidarity than the America of the past thirty years. But there’s no guarantee that such a middle ground is available to us. 

Apple CEO Tim Cook proved very effective in defending his company’s tax practices before the Senate’s Permanent Subcommittee on Investigations, and Josh Green of Bloomberg Businessweek has done an amusing job of breaking down Cook’s performance, which combined flattery and the deft exploitation congressional ignorance and beffudlement. Cook also emphasized that he is eager for corporate tax reform, a cause widely embraced by his questioners, but which of course means different things to different people. I’ve described my preferred model for corporate tax reform — let’s finance a substantial reduction in the corporate tax rate by capping the amount of interest firms can deduct from their tax bills, a measure proposed by Robert Pozen and Lucas Goodman. The basic idea is that this approach would tend to use the debt bias embedded in the tax code, which might help level the playing field for start-ups that raise money by selling shares in competition with large incumbents that can take greater advantage of borrowing.

But one might go even further by abolishing corporate income taxes and instead raising capital income taxes on individuals, an idea that has been embraced by, among many others, Megan McArdle, James Pethokoukis, and Matt Yglesias. Matt, however, raises an interesting wrinkle: relying on corporate income taxes might do a better job of encouraging firms to deploy their capital efficiently while relying on higher dividend taxes might encourage them to blow money on futile quests for market share. But like Matt and my guru Ashwin Parameswaran, I see this as a feature and not a bug. One of Ashwin’s central arguments (it’s not original to him, as he happily acknowledges, but he does an excellent job of distilling it) is that new product innovation is only rarely driven by incumbent firms:

In the absence of new firm entry, even a competitive industry with many players will focus on process innovation and cost reduction and avoid any potentially disruptive product innovation. When incumbent firms do undertake product innovation, they do when their existing source of super-normal profits is threatened by disruptive products from new entrants. In an environment where product innovation is high, not undertaking new product initiatives is the riskier option. Simply protecting existing revenue streams rarely works out. Despite this, many incumbent firms are rarely able to respond effectively to new entrants, primarily due to organisational rigidity. New entrants on the other hand face a different set of incentives. Having no existing profits to protect, the lure of capturing such super-normal profits drives their actions far more than the much larger possibility of failure.

Ashwin is talking about the virtues of start-ups. Something similar can be said of encouraging cash-rich incumbent firms in one sector to enter another sector. Spurring CEOs to attack rival firms in adjacent or even entirely new domains is rarely good for the bottom line, but it does the important work of keeping incumbents on their toes. Matt uses the example of Bing, Microsoft’s search engine that aims to displace, or at least to put pressure on, Google’s search engine, which remains the core of Google’s business. Google, in a somewhat similar vein, has made forays into delivering high-speed data connections, presumably in an effort to demonstrate the viability of doing so and thus to bait other firms into doing the same. If shifting from corporate income taxes to higher capital income taxes on individuals leads to more of this kind of reckless behavior, consumers, and workers, will tend to benefit. 

Meera Louis of Bloomberg Businessweek draws out the differences between U.S. and Canadian immigration policy in a short article on Canadian efforts to recruit skilled U.S. workers:

Canada is opening the door to Americans at the same time the U.S. Congress is battling over whether to let in more skilled workers. In Canada last year, 160,617 immigrants were granted permanent residency because of the economic value they brought, while 64,901 became residents via family ties, according to the government. In the U.S., with a population about nine times as big as Canada’s, 680,799 immigrants became residents through family sponsorships in fiscal 2012, and only 143,998 obtained residency based on their employment, federal data show.

It can take a decade for an employed immigrant to get a U.S. green card; in Canada a skilled worker can obtain permanent residency within 18 months, says Richard Kurland, an immigration lawyer in Vancouver. Foreigners can also apply for residency on their own, without an employer’s help—another big difference from the U.S. Word of the perks has spread all over the world.

The Senate immigration reform bill aims to increase skilled immigration, yet it will also have the effect of increasing less-skilled immigration. Family sponsorships are to be curtailed (in theory), yet they will continue to play a more important role than they do in Canada at present.

A few weeks ago, I wrote a short piece (paywalled) on gun regulation that touched on rising suburban crime rates. While the homicide rate in large U.S. cities declined by 16.7 percent from 2001 to 2010, it increased by 16.9 percent in suburbs over the same period. Though the overall number of murders had declined over this period, the gap between large cities and suburbs decreased considerably. I mention this because Joel Kotkin and Wendell Cox have a new article on rising poverty levels that makes the following point:

Despite substantial improvement in crime rates in “core cities” over the past two decades, suburban areas generally have substantially lower crime rates, according to Brookings Institution’s own research. Yet at the same time suburban burgs dominate the list of safest cities over 100,000 led by Irvine and Temecula, Calif., followed by Cary, N.C. Overall suburban crime remains far lower than that in core cities.

A review of 2011 crime data, as reported by the FBI, indicates that the violent-crime rate in the core cities of major metropolitan areas was approximately 3.4 times that of the suburbs. (The data covers 47 of the 51 metropolitan areas with more than 1 million population, with data not being available for Chicago, Las Vegas, Minneapolis-St. Paul, and Providence.)

In the least suburbanized core cities, that is places that have annexed little or no territory since before World War II (New York, Philadelphia, Washington, etc.) the violent crime rate was 4.3 times the suburban rate. Among the 24 metropolitan areas that had strong central cities at the beginning of World War II but which have significant amounts of postwar suburban territory (Portland, Seattle, Milwaukee, Los Angeles, etc.), the violent crime rate is 3.1 times the suburban rate. Among the metropolitan areas that did not have strong pre–World War II core cities (San Jose, Austin, Phoenix, etc.), the violent crime rate was 2.2 times the suburban rate. Basically, the more suburban the metropolis, the lower the crime rate. Rather than castigating suburbs for exaggerated dysfunction, retro-urbanists would be much better served focusing on how to correct and confront the issue of poverty, which continues to concentrate heavily in the urban core and elsewhere in America.

This is a peculiar way to frame the issue. Kotkin and Cox observe that crime has fallen in core cities. What they don’t mention — and what is surely relevant — is that it has also been increasing in the suburbs. The gap remains, and it will likely persist. But surely rising suburban crime levels should at least be acknowledged. 

Moreover, Kotkin and Cox’s reference to crime levels across cities raises the question of whether or not there are other variables at work other than density. What happens when we correct for police officers per capita, for example, or the demographic composition of the population? It is certainly true that average density varies across Philadelphia and Portland and San Jose, but of course these cities are different in many other ways as well — mean January temperatures, concentration of college-educated workers, etc. Not all core cities are created equal.

More broadly, I think Kotkin and Cox misunderstand why the rise of suburban poverty is a problem. They note that poverty levels continue to be much higher in core cities than suburbs, which is of course true, and that the rise of suburban poverty in part reflects the fact that there has been a continuing shift from central cities to suburbs:

Many poor suburbs are developing because minorities and working-class populations are moving to suburbs. Yet even accounting for these shifts, cities continue to contain pockets of wealth and gentrification that give way to swathes of poverty. In Brooklyn, it’s a short walk east from designer shoe stores and locavore eateries to vast stretches of slumscape. The sad fact is that in American cities, poor people—not hipsters or yuppies—constitute the fastest-growing population. In the core cities of the 51 metropolitan areas, 81 percent of the population increase over the past decade was under the poverty line, compared to 32 percent of the suburban population increase.

In Chicago, oft cited as an exemplar of “the great inversion” of affluence from suburbs to cities, the city poverty rate stands at 22.5 percent, compared to 10 percent in the suburbs. In New York, roughly 20 percent of the city population lives in poverty, compared to only 9 percent in the suburbs.

As Cox has acknowledged, however, core-city population growth has been small in absolute terms. And the core cities of the 51 metropolitan areas in question vary dramatically in terms of economic health. New York City is an increasingly desirable destination. Cleveland and Detroit are less desirable destinations now than they might have been in decades past. Lumping these cities together tells us something, but I’m not sure it tells us something we don’t already know, e.g., that there is a kind of tournament dynamic at work in U.S. urban regions, in which the most productive and amenity-rich regions are gaining at the expense of others, subject to affordability constraints.

And this leads us to the most important issue: the fact that a fifth of New York city’s population lives in poverty while the same is true of only 9 percent of the population in its suburbs doesn’t represent a failing — rather, it reflects the fact that density and the widespread availability of mass transit are particularly valuable to the poor, who find it more difficult to purchase and maintain automobiles and for whom density facilitates greater access to service jobs. Commuting from Hempstead, a Long Island community with relatively high poverty levels, to a service job in New York city’s urban core is more time-consuming and expensive than commuting from Brooklyn or Queens. Commuting from Hempstead to one of Long Island’s affluent suburban neighboods can also be time-consuming and expensive, particularly when there are no direct transit links, as is often the case. So suburban poverty poses problems that poverty in dense cities well-served by transit does not. The problem we face is that the U.S. has relatively few dense cities that are well-served by transit, as such cities can greatly facilitate upward mobility for the very poor. 

Back in 2010, the Tax Foundation released an estimate of the distributional effects of the Affordable Care Act in fiscal year 2016. The numbers are dated, as the post-cliff ATRA tax code and new estimates of the cost of subsidies, etc., will have moved things around. But it is a good guide to the rough magnitude of the impact of the ACA on income redistribution. The taxes embedded in the ACA, e.g., the unearned income Medicare contribution tax, are fairly narrowly-targeted to high-earners, and so redistribution away from the highest-earners is substantial. And the average value of subsidies for households at the 40th household income percentile and below is quite large. If the goal of the ACA were simply to reorient resources from the rich to the poor (and not to spend the money wisely, etc.), it is likely to be a success. Yet the ACA isn’t actually transferring cash to low-earners but rather an in-kind benefit. The providers of this in-kind benefit (insurers, medical providers) will capture a good amount of the value of this transfer of resources. Coalitions in favor of expanding in-kind benefits profit from having focused constituencies working on their behalf, while coalitions in favor of, for example, increasing wage subsidies or unconditional cash transfers can’t say the same. Increasing the purchasing power of low-income households will benefit the members of these households and the various businesses that cater to them, but this is a fairly diffuse and diverse group. One thing that can be said for increasing wage subsidies, however, is that like the cause of subsidizing medical care, it has a moralistic appeal. 

I tend to think that we’d be better off if more redistribution took place via conditional transfers like wage subsidies rather than in-kind transfers, like subsidies for medical coverage. In an ideal world, increasing the purchasing power of low-income households via wage subsidies would make low-income individuals more attractive customers for innovative, low-cost medical providers. But betting on this outcome entails betting that low-income individuals will make good decisions in guarding themselves against the risk of catastrophic expenditures. So the push for coverage expansion is motivated not just by humanitarian gut instinct or by the narrow interests of medical providers, but also by an implicit conviction that many people (if not most) are terrible at planning ahead, or that many (if not most) would prefer not to do so. Some argue that the chief virtue of Canada’s single-payer system and others like it is that they remove the maddening uncertainty and switching costs that arise in a more fragmented payment system like our own. 

Critics of the Affordable Care Act need to reckon with all of these issues: because the ACA is very much about redistribution, whether or not its advocates acknowledge that this is the case, is there another model of redistribution that we prefer? Are the frustrations that arise under a fragmnted system actually worth it? The ACA will still leave us with a fragmented system, but is there a different fragmented health system that will yield much better results that centralized systems? I think that the answer to the latter question is probably yes, but ACA opponents need to do a better job of explaining how and why. One of most convincing arguments I’ve heard against a more centralized U.S. health system is that American political culture is allergic to rationing, and so only by having private sector intermediaries governing decisions about how health dollars are deployed can we have any hope of imposing meaningful cost control. When a private insurer tells you that you can get an MRI at a deep discount if you do it at 4 AM, you might be grateful for the opportunity to take advantage of a deal. But if Medicare told you to do the same, you might be angry at Congress. Disintermediation thus has a pretty significant downside. 

According to Congressional Quarterly (in a paywalled article), members of the House immigration reform group have agreed in principle on a 15-year path to citizenship for unauthorized immigrants and, for now at least, to table the issue of creating a guest worker program. But Heidi Przbyla and Kathleen Hunter of Bloomberg report that the U.S. Chamber of Commerce is pressing for doubling the number of temporary work visas granted to less-skilled workers, and that some influential congressional Republicans want to go even further: 

In talks during the drafting of the Senate bill, labor unions secured caps on the number of foreign, low-skilled workers allowed in the U.S., particularly in the construction industry suffering high unemployment. That agreement reached with the Chamber is drawing criticism from House Republicans.

“The Senate bill is a nonstarter in the House,” said Texas Republican Representative John Carter, a member of the House’s immigration negotiating group. “I’m not going to accept what the Senate and the Chamber came up with.” Geoff Burr, vice president of federal affairs for Associated Builders and Contractors, a group lobbying for higher caps, blamed Democrats for the impasse.

“They do have an incentive not to agree because then the Senate would be the only game in town,” he said.

The matter may not be closed in the Senate either. Senator John Cornyn, a Texas Republican, said he would wait until the legislation reaches the Senate floor to make pro-business alterations to the temporary worker program — eliminating a 15,000-worker annual cap on construction-industry visas.

Keep in mind that only a fifth of Republicans believe that legal immigration levels should be increased while 41 percent believe that they should be decreased, according to the Pew Research Center. It seems likely that these numbers are somewhat different in Texas, but it is not at all clear that Carter and Cornyn are representative of conservative opinion in the electorate. Because I favor a substantial increase in skilled immigration and a reduction in less-skilled immigration, I see the decision to punt on a guest worker program as a good thing. One problem, however, is that the U.S. Chamber of Commerce might lose interest in a legislative proposal that does not increase less-skilled immigration. While technology and financial services firms are keenly interested in increasing skilled immigration, and would likely be content with legislation that did little more than that, firms in low-wage, labor-intensive services would be sorely disappointed. And it is these firms that are providing much of the muscle behind the immigration reform effort. Without them, it is somewhat more likely that conservative lawmakers — particularly conservative lawmakers who are skeptical about the wisdom of creating a path to citizenship for unauthorized immigrants — will defect from the legislative push. 

Mina Kimes profiles Doug Oberhelman, CEO of Caterpillar, one of the most successful U.S. manufacturing firms, in the new Bloomberg Businessweek, and in doing so she illustrates a number of important economic ideas. In the hands of a lesser journalist, one suspects that the article would become a tirade against corporate greed. And there is fodder in the article for readers eager to draw the conclusion that Caterpillar’s efforts to fight wage increases even as its profits have reached new heights are somehow sinister. Mina contrasts Oberhelman’s compensation with the hourly wages of production workers, and she conveys the anxieties and concerns of Caterpillar employees who fear that manufacturing employment will never give them the middle-class prosperity they badly want. But she also situates the Caterpillar story in the larger context of slack labor demand:

In 2005, long before recession loomed, Oberhelman oversaw the company’s plan to prepare for a steep financial downturn—a task that made him unpopular, he says, but proved invaluable. After laying off 30,000 people in 2009, Caterpillar made it through the crisis without losing money. Last year, Caterpillar made $45,000 per employee, up from $12,000 in 2007. “The argument they make is, at a time when we’re very profitable, we can’t afford to more equitably distribute the wealth, because there may come a time when we won’t be,” says Robert Bruno, a professor at the University of Illinois at Urbana-Champaign’s school of labor and employment relations. “So when is it appropriate to share the wealth?”

Caterpillar employees know that the answer to this question is up to Oberhelman. The dwindling number of manufacturing jobs combined with the decline of unions has weakened workers’ leverage. When Caterpillar offers jobs in nonunion Southern states that pay $12 an hour, applicants line up around the block. “You’re basically expendable,” says Emily Young, a welder who has worked at Caterpillar’s Decatur plant for eight years. “For every one person who doesn’t work, there’s five waiting in line.”

The root cause of Caterpillar’s unwillingness to make concessions to organized labor, as Young understands, is that Caterpillar has the option of shifting production to lower-cost locations. Caterpillar could raise compensation for its legacy workforce and in doing so reduce its profits, but this would lead to an investor revolt and it might also strengthen the relative position of Caterpillar’s competitors or encourage new firm entry. The only durable solution to the problem of stagnant manufacturing wages is, according to Oberhelman, a stronger economy and a tighter labor market:

If Caterpillar refused to pay its executives high salaries, they could probably find other jobs, whereas hourly workers have much less mobility. Oberhelman acknowledges this dynamic, though he tends to characterize Caterpillar’s role as a passive one, as though the company lacks the power to choose how it disburses its profits.

When will workers’ wages rise? Oberhelman exhales sharply. “The answer to that is: when we start to see economic growth through GDP,” he says. “Part of the reason we’re seeing no inflation is because there’s no growth. Inflation was driven by higher labor costs, not higher goods costs. Frankly, I’d love to see a little bit of that. Because I’d love to pay people more. I’d love to see rising wages for everybody.” [Emphasis added]

I found Oberhelman’s statement, which strikes me as correct, intriguing in its potential political implications. Stronger economic growth would presumably increase demand for Caterpillar’s products and those of its competitors, like Komatsu. It might even spur other firms to enter the market, thus putting pressure on Caterpillar’s profits and increasing demand for workers with the relevant set of specialized skills. One issue, of course, is that as manufacturing becomes more capital-intensive, it leads to a bifurcation of the workforce, with some job functions demanding higher skill levels and others demanding the same or lower skill levels. But stronger growth will tend to raise labor demand for workers of both types, albeit unevenly, and so firms like Caterpillar would have little choice but to raise compensation levels. So while it is tempting to demonize Caterpillar in a climate of slack labor demand, the real blame lies, I would argue, with policymakers who have failed to deliver the conditions for higher growth. 

Moreover, Oberhelman seems to be suggesting that he is not averse to somewhat higher inflation if it is part of a package with higher real GDP growth, a view that is not dissimilar to that of market monetarists like Scott Sumner. I’m reminded of hedge fund manager Daniel Loeb’s recent letter to senior Sony executives, as described by Andrew Ross Sorkin and Michael J. De La Merced earlier this week. Loeb offered fulsome praise for Japanese Prime Minister Shinzo Abe, claiming that Abe’s leadership might allow Japan to “regain its position as one of the world’s pre-eminent economic powerhouses and manufacturing engines”:

Mr. Loeb has recently expressed his interest in Japan. Referring to the changes by the Abe government, he called it “a huge game change” at an industry conference last week. “And there’s a lot more room to go,” he added.

Mr. Abe has called his revival effort a plan of “three arrows,” including aggressive monetary easing by the Bank of Japan and enormous stimulus spending by the government.

So far, that effort appears to have drawn investor plaudits. The yen weakened in value last week, to 100 to the dollar, a level unseen in four years, helping local companies like Sony and Toyota. And the Nikkei 225-stock index has risen 43 percent so far this year. At the same time two years ago, the Nikkei was down 5.7 percent.

This is particularly interesting because leading hedge fund managers have tended to be very critical of aggressive monetary easying, which has been the main arrow in Abe’s quiver. Might influential business leaders like Oberhelman and Loeb embrace the idea that hitting 2 percent inflation might prove an economic boon, and press their allies in Congress to respond accordingly? That is, will they embrace what we might call the Sumner-Pethokoukis thesis — that what the U.S. needs are free markets and NGDP targeting? I wouldn’t hold my breath, but the idea isn’t crazy. 

In The New York Review of Books, Anne Applebaum, author of the brilliant Iron Curtain, reviews Sheryl Sandberg’s Lean In, contrasting it against Hanna Rosin’s very different The End of Men. She concludes on a provocative note: could it be that having more women in senior leadership roles, the goal Sandberg identifies as being of transcendent importance, is not as important as some of the broader social and political goals that Sandberg largely ignores, like redressing the closely related problems caused by family breakdown and deterioration of the labor market position of less-skilled men. If greater representativeness doesn’t have a concrete impact on the lives of working women, perhaps it shouldn’t be our foremost concern. I’m really not doing the essay justice — you ought to read it.