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Student Entrepreneurs Show the Power of Ideas

From left: NAACE President and CEO Dr. Rebecca Corbin, Max Gulker, and Amanda Gordon, award recipient.

One advantage for our economy of small businesses is that they form their own ecosystem where the best ideas can evolve and rise to the top. When allowed to robustly compete for investors and customers, many small entrepreneurs will fail. But those few that truly succeed will have products and services that meet consumer needs, often in ways that a single large business could not have planned in advance.

I got to see this small business ecosystem in action on October 10, when I had the privilege of presenting the 2016 Student Entrepreneur Awards (made possible by the C. Lowell Harriss Scholarship Fund established at AIER) at the annual conference of the National Association for Community College Entrepreneurship (NACCE).

The three award recipients all embody the power of motivated young people who are mentored by the right programs. But in listening to their stories, what really struck me is that all three young entrepreneurs found the basis of their ideas from personal life experience, demonstrating their understanding of niche markets where small businesses often excel.

Third place winner Ezekiel “Zeke” MacMillan loved visiting local clothing shops, but always seemed to walk away empty handed. As told on his website, his reaction to the high-end clothing on display was “I can do that, but cooler and cheaper.” Zeke, a student at Haywood Community College in North Carolina, started Don Raven, specializing in T-shirts and sweatshirts. Born and raised in the Carolinas, Zeke’s shirts are inspired by Southern style, but are versatile enough to be worn for different uses and by people with all sorts of different taste in clothing. When I asked Zeke what sets him apart from the competition, he focused on the quality of material he uses, to which I can personally attest, after having bought a shirt myself!

Second-place winner Amanda Gordon is a creative and highly motivated student at Sir Francis Drake High School, who is also enrolled in business classes at the College of Marin in California. Amanda had a talent and interest in making jewelry, and like Zeke, saw that she could make a product better and cheaper than what was out there. The result was California Gem, offering hand and body chain jewelry personally made by Amanda. She runs a successful online business, and has also leveraged her own network and relationships by displaying a collection at Embellish Marin, a local brick-and-mortar store. Amanda is also using her business as a catalyst for social change, educating consumers on problems with child labor and exploitation in the supply chain of too much of the jewelry sold in the U.S.

First-place winner Tac Mohammed started Toppy Toddler USA, manufacturing, wholesaling and retailing waterproof baby bibs. Tac, who recently graduated from Miami-Dade College in Florida, was inspired by a need he saw all too clearly in his own life as parent of a toddler.

“I sat in awe, watching a hailstorm of rice and beans plummeting to the ground, as my 18-month-old son sat joyfully eating his dinner. Half of what was in his bowl was now resting on the table, his clothing, and the floor.” Tac turned his son’s mess into a growing company that already has $9,000 per month in revenue. Like virtually all successful entrepreneurs, Tac knows the importance of the pivot, refining not only his product along the way, but also his means of distribution. He has found a successful niche selling bulk orders to day-care centers.

It was informative to see this entrepreneurial ecosystem in action. By giving lots of small but motivated entrepreneurs help with starting a businesses, but then subjecting them to the competition of the market, ideas naturally rise to the top that a centralized planner at a large business could never have had in advance.

I’m proud that AIER, through the Harriss Scholarship Fund, is making a significant contribution to this process.

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Why It’s Hard to Rate Teacher Training Programs

As discussed in our recent research brief, there is a continuing debate in public policy about the use of value-added measures to evaluate teachers. While the Department of Education has in many cases agreed to reduce the weight assigned to value-added measures in evaluating teachers and schools, they remain by government mandate part of the conversation. Recently, federal regulations were published regarding the use of value-added measures in teacher education programs – teach-the-teachers, as we say at AIER.

Value-added models demonstrate the difference between how students perform on a standardized test, and how they were expected to perform. Such models are intended to show the added value of particular teachers to their students’ achievement.

The new regulation calls for the states to publish ratings of teacher-prep programs, including those at colleges as well as independent programs such as Teach for America. One of the criteria for rating programs: you guessed it, value-added measures. Specifically, they track a teacher’s value-added score using test scores of the students of recently minted teachers. The regulations also call for the publication of other data, such as proportion of the program’s graduates who get jobs in their chosen specialties.

Although I generally believe value-added measures are useful, I am a little skeptical this will be helpful in evaluating teaching programs. The argument in favor is straightforward: If value-added measures do capture something important about an individual teacher’s performance, then shouldn’t the average value-added score of the teachers minted by a teaching program tell us something important about the program’s performance?

Not so fast. This is actually a point that gets to the heart of what value-added measures are meant to do. Recall that traditional value-added measures compare a student’s test scores to expected scores. If one teacher has a class full of students with high past scores and another teacher has a class of students with low past scores, can we measure the teachers’ value-added score based on whose students score higher? No: We would instead compare how each class scores compare to the typical performance of students with similar histories. There are legitimate questions about whether our controls work, but education researchers put a great deal of effort into trying to account for the student’s background before entering the teacher’s classroom.

The same logic must apply to evaluations of teaching programs. Suppose a state’s two largest education programs are the education departments of Flagship University and the less prestigious Safety State. The best aspiring teachers are probably going to attend Flagship U, and Flagship’s graduates are likely to have better value-added scores and place into their chosen fields. But that does not necessarily mean their training was any better. By the same logic used in value-added, to make that claim we would have to know not only that Flagship’s graduates are better teachers than Safety’s, but that they are better teachers than they would have been if they had attended Safety State. For students, we base our expectations partly on prior test scores, but for new teachers we don’t have the equivalent prior teaching evaluations. Ironically, one common attack against value-added scores, a perceived unfairness to teachers who mentor disadvantaged students, may more correctly apply to schools that train less well-prepared future teachers.

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Gasoline, Housing Push Up Cost of Living

Inflation trends tend to evolve slowly, though individual components like energy prices or food prices can be volatile month to month. There are three key points to note from the September CPI report from the Bureau of Labor Statistics:

First, the total CPI rose 0.3 percent for the month, led by a large 2.9 percent spike in energy prices (gasoline in particular), and a sizable 0.4 percent increase in the cost of shelter (see the red lines in table above).

Second, the total CPI is up 1.5 percent over the past year while the core CPI, which excludes volatile food and energy prices, is up 2.2 percent over the past year. The total CPI is running well below the 2.0 percent Fed target (and below its long-term average of 2.1 percent), while the core CPI is slightly ahead its long-term average of 2.0 percent (see black lines in table, as well as Chart 1).

Third, within the core, price pressures are NOT evenly distributed.  Price pressures continue to be concentrated in services such as shelter, medical care and education, while core good prices are essentially flat or falling slightly – though medical care goods are the notable exception (purple lines in table, as well as Chart 2).

These long-term trends are likely to remain in place for some time to come.

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Don’t Miss Out on Unique Charitable IRA Provision

An annual deadline is approaching for a relatively new, popular provision of the tax code aimed at encouraging older Americans to make charitable donations.

Under the provision, Americans 70 ½ and older can exclude from their taxable income up to $100,000 for “qualified charitable distributions” from their Individual Retirement Accounts. This can count toward a taxpayer’s annual required minimum distribution from an IRA.

Each year, Americans are required to make distributions by Dec. 31 in order to qualify for that year’s tax deduction.

The charitable rollover had been a temporary provision enacted by Congress, and had been set to expire in 2007. Congress extended it each subsequent year, and, along with the president’s signature, made the rollover permanent in 2015.

Contributions to donor-advised funds and private foundations, except in narrow circumstances, do not qualify for tax-free IRA rollover contributions. Distributions can only be made from traditional Individual Retirement Accounts or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are ineligible for the tax-free treatment.

The distribution must come directly from the fund’s administrator, and the donor needs to send a letter requesting the distribution be made from their fund directly to the charity.

Donors cannot receive any goods or services in exchange for their contributions, and must obtain a receipt to have it counted at tax time.

As always, consult with your tax professional before you act. To consider making a charitable rollover contribution to AIER, contact Ute DeFarlo at or 413-645-3336.

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Showcasing Teach-the-Teachers in Phoenix

cee-brochure-2016Last week I attended the Council for Economic Education’s 55th Annual Financial Literacy and Economic Education Conference in Phoenix, Arizona. Every year this conference gathers K–12 educators, council affiliates from across the country, Federal Reserve partners, and other educators. AIER collaborates with the council’s regional affiliates, as well as other partners, on the Teach-the-Teachers Initiative program.

In addition to clinics and professional presentations, there were four research sessions at the conference. These sessions showcased many research projects that either evaluate the state standards in K-12 education or evaluate a program’s impact. I was fortunate to be selected to present the results of our Teach-the-Teachers Initiative’s novel approach, Economics Across the Curriculum.

The Economics-Across-the-Curriculum approach encourages the integration of economic concepts into various disciplines. This helps teachers and students experience the beauty of interdisciplinary connections among topics, and engage in intellectual inquiry beyond the impermeable walls of a single-subject area. The participants’ diversity in subject matter generates cross-pollination of ideas, dynamism, and an interdisciplinary approach to teaching.

AIER has run this program for three years so far. The first two cycles (2014 and 2015) were held at our campus in the beautiful Berkshires. In 2016, we branched out and held this program at the locations of the Federal Reserve Banks in Boston, Philadelphia, and Chicago. I was proud to present the impact of our program through the three cycles. We worked directly with 122 teachers and 483 students. But each teacher will continue to bring their expertise to more and more students through the years. If, on average, each teacher educates 75 students every year, we have indirectly had an impact on more than 9,000 students so far.

I also shared several lessons that were field-tested by our alumni teachers in their classrooms after the completion of the program. I hope that those lessons serve as catalysts for other innovative ideas to integrate economics across the high school curriculum.

In the summer of 2017 we are planning Economics Across the Curriculum workshops in St. Louis, Miami, and Omaha.


Picture by Natalia V. Smirnova.

Our Economic Index Moves Into Positive Territory

Our index of leading indicators moved back above 50 for the first time since January, reflecting a more positive tilt to recent economic data. That’s according to our October edition of Business Conditions Monthly, which we are releasing today.

However, as we cautioned when our index first fell below 50, one month does not make a trend. A single reading of 54 is not enough evidence to suggest the economy is on a significantly stronger trajectory. We still believe the results over the past eight months are consistent with an overall slow-growth environment and continued economic expansion.

One significant risk for the medium-term outlook is the fiscal position of the federal government. Federal government debt is up a whopping 123.1 percent since the end of 2007. Even more disturbing is the debt-to-GDP ratio for the federal government, at 97.5 percent at the end of the second quarter of 2016, compared with a long-term average of 67.2 percent.

Adding further concern is the projected path of federal debt and deficits. The latest Congressional Budget Office projections show annual budget deficits widening over the next several years, exceeding 4 percent by 2022 from just over 3 percent currently. As the presidential election approaches, greater attention needs to be paid to U.S. fiscal policy.  Tax policy, spending policy, and the U.S. fiscal position are critical to the long-term health of the U.S. economy.

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Social Security Benefit Adjustment: Why This Year is Unique


Yesterday, we reported our forecast that the cost-of-living adjustment to Social Security for 2017 would likely be between 0.2-0.5 percent, or $2-6 added to the average monthly Social Security payment. We are forecasting the smallest adjustment to the “COLA” on record.

Today, let’s shine a light on how we came to that conclusion. The Social Security Administration calculates the annual adjustment by using the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

But the fact that the cost-of-living adjustment is so small doesn’t mean that inflation has been quite that sluggish. Usually, the COLA and the CPI-W, as measured during the third quarter of each year, move in tandem. And if that was always the case, the adjustment for 2017 would be closer to 1 percent.

But the CPI-W was actually negative during the third quarter last year. The Social Security cost-of-living adjustment is not permitted to be negative, so in January of this year, Social Security recipients so no increase in their benefits – but no decrease, either.

However, such decreases in CPI-W offset increases to the cost-of-living adjustment in following years. The third-quarter monthly average CPI-W fell by 0.4 percent from 2014 to 2015. So that amount will be subtracted from this year’s increase.

To read Max Gulker’s short essay on the forecast, click here. The Social Security Administration will announce the actual adjustment on Oct. 18.

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COLA: We Forecast Tiny Social Security Benefit Increase

Money 2

The American Institute for Economic Research is forecasting the smallest Social Security cost-of-living adjustment since that administration began automatic annual adjustments in the 1970s.

We are forecasting with 90 percent confidence that when the increase is announced on Oct. 18, it will be between 0.2 percent and 0.5 percent. Our senior research fellow Max Gulker released a short piece on this topic today, which is available on our Web site, free of charge.

An increase in this range would add between $2-6 to the average Social Security payment, Gulker writes. This is a small increase by historical standards: The average adjustment since 2000 has been 2.3 percent, or $28 per month at current average benefit levels. Last year there was no increase at all.

Gulker writes that the low or no increases of recent years reflect low inflation levels. He shows how a beneficiary can still come out ahead despite the sluggish increases in the “COLA.” The piece is available here.

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A Solid, Not Spectacular Jobs Report

A solid though not spectacular September Employment Report suggests the economy is maintaining positive momentum heading into the fourth quarter. Accelerating wage gains on top of a good pace of jobs growth should provide support for further increases in consumer spending in the final quarter of the year.

Economic growth should be stronger in the second half of 2016 compared to the first half, though growth is still likely to be moderate by historical standards.

Mostly favorable data in this report and other economic reports make a December rate hike probable. However, the Fed is likely to continue on a path of only very gradual rate increases in the future.

Here are some highlights from the report:

The September Employment report showed strength, with the economy adding 156,000 jobs for the month; 167,000 from the private sector. The three-month average stands at 192,000 jobs per month while the 12-month average is 204,000.

Increases in payrolls were led by private services (+157,000), especially Professional & Business Services (+67,000), Education & Health Care (+29,000), Retailing (22,000), and Leisure and Hospitality (+15,000).

Goods producing industries gained 10,000 with manufacturing down 13,000, construction up 23,000, and mining unchanged.

Wages were up 0.2 percent for the month and 2.6 percent rate over the past 12 months. The length of the average workweek increased to 34.4 hours from 34.3 hours in August.

When hours are combined with payroll gains and wages, the index of aggregate weekly payrolls, a proxy for take-home pay, rose a strong 0.7 percent for September and is up 4.3 percent over the past 12 months – good news for consumer spending.

The unemployment rate ticked up to 5.0 as 444,000 people entered the labor force, pushing the participation rate to 62.9 percent.

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The Shrinking Middle Class

The United States has the smallest middle class among nine major developed countries, according to a new research brief released this week by the American Institute for Economic Research.

In the brief, author Steven Pressman points to how many different definitions there have been of the middle class, and develops his own definition.

He defined the middle class in 2013 as $54,281-$162,033 for a family of four. This range, Pressman notes, includes those households with a disposable income of two-thirds to twice the median income for their household size. The lowest end of the range is roughly twice the U.S. poverty rate.

The U.S. middle class, as he defines it, shrank from about 59 percent in the late 1970s to 55 percent in 2000, and 53 percent in 2007, down to roughly 51 percent in 2013, Pressman wrote.

According to Pressman’s measurements, the U.S. has the smallest middle class among the nine developed countries he examined, as of 2010, the last year data was available for all of those countries. The nine also include Canada, the United Kingdom, Germany, France, Italy, Finland, Sweden and Norway.

The highest in 2010 were both France and Norway, with around 68 percent apiece.

“Nobody has had a decline in the middle class anywhere near the United States, and everything looks very different, country to country. It’s not likely a problem that is international in its focus, but something specific to the individual countries themselves,” Pressman said.

Globalization and technical change is a cross-border phenomenon, with similar effects in the traditionally industrialized countries, Pressman said. The differing sizes of the middle class in each country have more to do with explanations that are specific to each country, like social or economic policies, or demographics, he said.

The middle class, he notes, does particularly poorly during recessions. Median household incomes dropped during the Great Recession, shrinking the size of the middle class throughout the developed world, he said.

The research brief is available here, and a longer version which explains his research in detail and justifies the methodology employed in the study is available as an AIER Working Paper, which can be found here.

Pressman was a visiting fellow at AIER in summer 2015. He is currently Professor of Economics at Colorado State University and author of Understanding Piketty’s Capital in the 21st Century (Routledge, 2015).

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