Inequality and the Crash: A Bleg

Hello world. Has anyone run across sources of data on the effects of the recession/financial crash on income, wealth, and/or consumption inequality? Or is it just too soon to know?

The Happiness Gender Gap Again

Stevenson and Wolfers’ paper, “The Paradox of Declining Female Happiness,” covered in the Times back in 2007, has just been released as an NBER paper, giving it a second wind. Ross Douthat in his column today argues that it means that we need to do a better job stigmatizing single motherhood. That’s one way we could go. In my 2007 Free Exchange post on the subject, I suggested destigmatizing female indifference to familial responsibility.

[We should] strongly and repeatedly reinforce the point that women should not have to do so much of the unpleasant domestic and child- and parent-care work. It seems to me our culture remains awash in quasi-Victorian super-sentimenal romanticism about the mother-child bond, which makes women feel guilty if they approach childrearing with the same sort of genial detachment of even attentive, involved, and loving dads. Surely many men ought to do more of this work. But I think men doing more is less important than women doing less. Neither women nor men ought not be made to feel guilty if they outsource this work to daycare, nannies, or assisted-living facilities.

The happiness studies show that men now spend less time unpleasantly occupied than they used to. That’s good! Our focus should not be on the equitible distribution of unpleasantness, but on an overall reduction. The best path is cultural change that lowers to women the cost of opting out of unfair social expectations—expectations that lead them to spend too much of their time devoted to unpleasant acts of altruism.

There’s no logically logical reason why Ross’s restigmatization campaign can’t go hand in hand with my destigmatization campaign. Ladies: don’t be a single mother, because that would be bad for you, and if you are a mother, ignore your kids more, because that would be good for you! But I’m afraid there’s a kind of deep cultural logic that rules out this sort of arrangement.

Happiness and Income Inequality

Yglesias writes:

I think the links between taxation, spending, and inequality are the most plausible explanation of the fact that the highest-taxed countries are the happiest. It can’t be that paying taxes makes Danes happy. But plausibly, living in a relatively egalitarian society makes people happy.

I wrote a paper about this! At the time, the studies showed no notable systematic relationship between income inequality and happiness. (I know Betsey Stevenson and Justin Wolfers are looking at the question again with the bigger, better Gallup survey, so maybe they’ll offer a somewhat differnet, more accurate picture.) Danes say they’re really happy and have the lowest inequality. But Americans are nearly as happy and have high inequality for an OECD country. Mexicans are a quite upbeat lot, but have really, really high income inequality. So there’s not much of a clear pattern in the data. The effect of inequality on happiness appears to be pretty strongly ideologically mediated. Unsurprisingly, high inequality tends to be disquieting to egalitarians. But it doesn’t so much bother meritocrats. Additionally, the causes of high inequality are various. Economic predation by political elites (lots of Latin America and Africa) is pretty likely to create a sense of victimization and injustice. But high levels of wealth creation in more or less fair institutions but with relatively little fiscal redistribution (the U.S.) doesn’t bother people as long as they think the system is more or less fair. So the national income inequality variable itself tends to have little or no independent effect. The effect it does have depends on other things people believe and care about and the specific causes of inequality in different places. Anyway, why would you expect nation-level income inequality to figure much into an individual’s assessment of life satisfaction? People don’t experience national Gini coefficients. They worry about their neighbor’s car.

Support Gay Marriage, Support Religious Freedom

Jason Kuznicki points us to this excellent video…

As Jason says:

Couldn’t have said it better. If you take taxpayers’ money, you should have to treat all taxpayers equally. If you’re privately funded, you should be free to do as you like. Want to discriminate? Fine. Just don’t take tax money to do it.

And… if you support discrimination laws that touch purely private interactions and that benefit yourself, then you can hardly complain when others want those same benefits for their groups, too.

The Structural Inequality Lobby

Tim Carney’s piece on the power of the teachers’ unions and their massive push to drive a stake through the heart of Washington, DC’s modest and locally popular experiment in school vouchers should be sobering to anyone with a romantic view of democracy. 

Beltway bandits, defense contractors, influential industries—most of them pale in their influence efforts compared to the teachers unions, according to data from the Center for Responsive Politics.

Take defense contractors. Lockheed Martin, the top recipient of military contracts most years, spent more on politics than any other defense firm in the 2008 elections. They still spent less than the American Federation of Teachers, which shelled out $2.8 million in the last cycle—with nearly every AFT dime going to Democrats.

The top two teachers unions—AFT and the National Education Association—spent more combined, $5.27 million, than the top two defense contractors.

The top five lobbying firms, combined, didn’t equal the AFT and the NEA in federal contributions in the 2008 cycle. Both of the teachers unions gave more than any oil company, and the NEA and AFT combined gave more than the top four oil companies combined.

These contributions give the unions clout, and federal lobbying records show they use this clout. Again, on closer inspection, the teachers unions look an awful lot like those corporate special interests Democrats supposedly oppose.

The NEA employs four different lobbying firms in Washington, in addition to their in-house lobbying arm, which includes at least six lobbyists.  Over the past two years, the NEA spent $10.7 million on lobbying. Reviewing the filings of the NEA, the AFT, and their K Street hires reveals that lobbying to kill DC vouchers was a priority.

[…]

Again, there are substantive arguments against D.C. school vouchers. But with this money trail, it appears that congressional Democrats’ push to kill vouchers is simply a case of the piper playing the tune that the AFT has called.

If you believe, as I do, that the returns to further government spending on education, given its present structure, is zero or negative, and that the best hope for increasing the quality of education for the least well-off, and for increasing economic and social mobility generally, is to legalize competitive markets in education, then you will tend to believe, as I do, that this attempt to destroy voucher programs before than can show themselves effective is nothing less than a powerful political interest group screwing over poor people by bending the democratic process to their advantage. The sad thing, from my perspective, is that strong Democratic partisans (and especially members of the teachers’ unions) are likely to violently reject any such argument out of hand on the basis of their deep conviction that the Democratic Party cares about the poor, and so would certainly not allow itself to become captured by groups with interests diametrically opposed to interests of the poor. As time goes on, I think the relevant social science is going to brutalize the standard Democratic position, and the clash between the Democratic Party’s most powerful client and the poor will become increasingly stark. But for now, the unions will probably succeed in temporarily extinguishing the possibility of demonstrating a superior alternative to the status quo system of education.

Inequality and American Exceptionalism

Princeton sociologist Douglas Massey is one of my favorite scholars. The abstract from his new paper [gated] on “Globalization and Inequality: Explaining American Exceptionalism” will sound familiar to readers of other eminent Princetonians, such as Paul Krugman and Larry Bartels. I’m starting to think of it as “the Princeton Narrative” about inequality in the U.S. 

Globalization creates pressure for greater inequality throughout the world, but these pressures are expressed more fully in the United States than in other developed nations. Although the distribution of US income before taxes is no more unequal than other nations, after taxes it is considerably less egalitarian. This occurs because of specific institutional arrangements that fail to redistribute income effectively and allow the pressures of globalization to be fully realized. These arrangements represent a shift from the past and were deliberately enacted over the past two decades with divergent consequences for those at the top and bottom of the socioeconomic hierarchy. The realignment of the US political economy can ultimately be traced to America’s legacy of racism. Once leaders in the Democratic party sought to include African Americans in the benefits of Roosevelt’s New Deal, support for economic populism evaporated in the middle and working classes. The advantage of the wealthy is further enhanced by a political system in which those with money are better able to have their interests served legislatively than the poor or working classes.

I have not read the paper, just the abstract. So I will certainly do violence to the nuance in the argument. But here are a few thoughts loosely inspired by the summary.

First, I think there’s a good deal of truth in the Princeton Narrative. Second, racism aside, American exceptionalism has a good deal to do with our exceptional18th Century Constitution, the political culture that created it, and the political culture it subsquently reinforced. See Glaeser and Alesina and Persson and Tabellini.

Third, let’s say explicitly what is implicit here: the New Deal was democratically feasible because it catered to Southern racism. Which is to say that many of the policies of the “Great Compression” were predicated on the explicit exclusion of blacks from many programs, which is part of the point of Brink’s Nostalgianomics paper. The New Deal may have been economically egalitarian in the aggregate, but may have also helped to perpetuate more viciously inegalitarian Southern racial apartheid. The New Deal involved a magic button-style tradeoff between two kinds of equality. It’s not clear to me that a liberal egalitarian, more concerned about equality of rights and social standing than about equality of material holdings, should have pushed that button.

Third, Barack Obama, points (a) and (b). Barack Obama point (a): wealthy voters now seem to be trending to the more redistributive party, and it seems that extremely wealthy voters may have very strongly preferred Barack Obama. Barack Obama point (b): Barack Obama is black, and his electoral success certainly signals a weakening in American racial animus. So, if the major impediments to higher rates of downward redistribution are that wealthy people don’t want to redistribute, and most white Americans don’t want to redistribute because black people will get their money and they don’t like black people, then the success of Barack Obama in general, and among the rich in particular, is great news for egalitarians in two separate ways.

Fourth, it is a mistake to assume that equality of democratic voice improves the prospects of the poor and working classes unless the poor and working classes support policies that actually promote their interests. This is a pretty simple point many people have a hard time getting their heads around. But it’s pretty clear that populist socialist revolutions around the world have not been very kind to poor and working-class people, because populist socialism doesn’t tend to work very well. The now-vast public ignorance literature (subscribe to Critical Review!) would seem to suggest that the best case scenario for the poor and working classes is to have a relatively weak voice in a coalition with relatively strong-voiced highly-educated elites sincerely conerned with poverty alleviation and economic mobility. This presents another magic button for egalitarians. Suppose there is a button that simultaneously equalizes the democratic voice of the poor and working classes and reduces their expected lifetime income by 50%. Would you push it? Egalitarian liberals are going to continue to sound confused unless they can make up their minds about this.

America's Checkered Past: Not a Model for the Future

Brink Lindsey replies to Matt Yglesias’s criticism of his paper:

I think Matt misunderstands both my argument and what Krugman has been doing. I quite agree that Krugman doesn’t want a full-scale reinstatement of the corporatist, cartelistic policies of yesteryear. I say as much in the paper. What Krugman does want, however, is to portray the economic policies of the early postwar decades as an inspiration for progressives today — an example of how activist, interventionist government can simultaneously promote growth and reduce inequality. To quote Krugman’s Conscience of a Liberal: “During the thirties and forties, liberals managed to achieve a remarkable reduction in income inequality, with almost entirely positive effects on the economy as a whole. The men and women behind that achievement offer today’s liberals an object lesson in the difference leadership can make.”

To get to that ideologically convenient punch line, Krugman is forced to systematically misrepresent the policies and culture of the early postwar decades. He has to leave out all the things he doesn’t like, all the things that virtually all his fellow economists and fellow progressives don’t like, about the supposedly good old days — for example, the widespread cartelization efforts of the thirties, farm supports, price and entry controls on large sectors of the economy, restrictions on retail competition, high trade barriers, racist immigration laws, and the sexist confinement of working women to a pink collar ghetto. All of these contributed to the compression of incomes, yet they don’t serve Krugman’s ideological purposes. So he ignores them. That’s nostalgia-mongering, plain and simple: the selective recall of the past to make it seem better than it really was.

I think Brink is exactly right, and that earlier periods of American history simply aren’t usefully comparable to the present. The so-called Great Compression was singular and, as Brink notes, it was driven in no small part by policies and social  norms that decent, well-informed people should now consider completely off the table. When it comes to policy to address inequality, the relevant comparison is to other contemporary liberal democracies. I think the evidence is strong that a high level of spending on welfare and social insurance is consistent with high levels of growth, as long as the economy is not hampered by excessive regulation, restrictions on trade, and large amounts of unproductive public spending. American progressives would make a lot more sense if they concentrated almost exclusively on reconfiguring the composition of curent levels of American spending–for example, moving money from defense to social insurance–rather than arguing for additional tax-financed spending. When progressives push for, say, more heavily regulated labor markets and trade barriers, it shows that they’re looking back to an era that wasn’t as good as they think, while failing to grasp what makes contemporary high-growth, eqalitarian social insurance states work relatively well.

Inequality and Policy

In his interesting post responding to Brink’s new Nostalgianomics paper, Matt Yglesias writes:

I think that in a lot of ways the most interesting recent research on inequality turns out to be about skill-biased technological change after all. Specifically, Claudia Goldin and Lawrence Katz argue in The Race Between Education and Technology that we shouldn’t look at SBTC as something that just comes along and causes inequality. Rather, it causes inequality when society fails to respond to SBTC by expanding the quantity of educated citizens. Seen in this light, the SBTC component of growing inequality is, indeed, a policy failure.

The issue isn’t “quantity of educated citizens,” it is the “quantity of citizens with economically remunerative skills,” which just isn’t the same thing. The pre-schooling distribution of ability to acquire economically-valued skills may put a pretty hard limit on the usefulness of pushing people to spend ever more time in college. (Here’s Cato Unbound’s debate on whether more college is worth it.) You can think of this in IQ terms, like Charles Murray, or in early childhood development terms, like James Heckman. But it remains that inequalities in skill-acquisition abilities may not be ameliorable by getting more kids to spend more time in college. Moreover, Goldin and Katz provide basically no evidence to the effect that education can or will keep up with SBTC given their preferred policies. If certain new technologies continuously and disporportionately increase the productivity of people over the 3rd standard deviation of skill, say, then wage gaps will stretch out no matter how many people you put through grad school. Please read Kling and Merrifield

That said, I think there’s a huge amount of wasted potential out there, and bad policy is to blame. I think inequalities in the quality of primary education are very important, and that policies that would improve the quality of primary instruction promise both large gains in equality and overall economic performance. The problem is, to provide an aggravating Yglesias-style diagnosis, is that the Democratic Party has the public education cartel as one its major clients. So if increasing economic mobility and reducing inequality requires fundamentally reforming the structure of the primary education delivery in the U.S. so that it can deliver higher-quality instruction to a broader range of people, then too effin’ bad!

Nostalgianomics

Cato has released a great new paper by my friend and colleague Brink Lindsey on “Paul Krugman’s Nostalgianomics:  Economic Policies, Social Norms, and Income Inequality.” Here’s the executive summary:

What accounts for the rise in income inequality since the 1970s? According to most economists, the answer lies in structural changes in the economy–in particular, technological changes that have raised the demand for highly skilled workers and thereby boosted their pay. Opposing this prevailing view, however, is Princeton economist and New York Times columnist Paul Krugman, winner of the 2008 Nobel Prize in economics. According to Krugman and a group of like-minded scholars, structural explanations of inequality are inadequate. They argue instead that changes in economic policies and social norms have played a major role in the widening of the income distribution.

Krugman and company have a point. For the quarter century or so after World War II, incomes were much more compressed than they are today. Since then, American society has experienced major changes in both political economy and cultural values. And both economic logic and empirical evidence provide reasons for concluding that those changes have helped to restrain low-end income growth while accelerating growth at the top of the income scale.

However, Krugman and his colleagues offer a highly selective and misleading account of the relevant changes. Looking back at the early postwar decades, they cherry-pick the historical record in a way that allows them to portray that time as an enlightened period of well-designed economic policies and healthy social norms. Such a rosy-colored view of the past fails as objective historical analysis. Instead, it amounts to ideologically motivated nostalgia. Once those bygone policies and norms are seen in their totality, it should be clear that nostalgia for them is misplaced. The political economy of the early postwar decades, while it generated impressive results under the peculiar conditions of the time, is totally unsuited to serve as a model for 21st-century policymakers. And as to the social attitudes and values that undergirded that political economy, it is frankly astonishing that self-described progressives could find them attractive.

As reader’s of Brink’s The Age of Abundance know, he’s a terrific writer, and “Nostalgianomics” is a great read.

Recession and Inequality

Megan McArdle writes:

[R]ecessions can make many, or even most people materially better off, because wages are sticky downward and prices are much less so.  Most of what recessions do is deepen the gap between the haves and the have-nots.  Those who have a job may experience declining costs and actually improve their purchasing power.  But the number of the unemployed rises, the length of the time required to find a new job stretches out, and the net decrease in their welfare far outstrips the moderate increase in the purchasing power of most consumers. 

I agree with the gist of Megan’s message here. But about that gap between the haves and the have-nots… My sense is that income inequality as measured by, say, the gap between the median of the bottom decile and the median of the top decile, has fallen sharply due to super-huge finance-related losses at the top. I’m pretty sure this big tumble at the pinnacle swamps the small gains in real wages for those with steady jobs. So the gap between the haves and the have nots may have narrowed overall, despite rapidly climbing unemployment. But who cares?! Maybe now some egalitarians will grasp the irrelevance of Gini-style measures. The fact that inequality tends to decline during recessions isn’t some kind of silver lining of recessions. In recessions, lots of people suddenly become have-nots, and that’s a serious problem whether or not the have-a-lots are more than proportionally slammed. Once the economy, and income inequality, starts to pick up again, the real problem will the same as ever: the opportunity and welfare of the have-nots, not some silly, meaningless ratio.