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Posts by Nate

Inequality in America: Does Redistribution Work?

A recent piece from the “Democracy in America” blog of the Economist suggests two ideas about inequality in America: that it could be much worse, and that the nation’s social programs could do more to lower the inequality gap by moving away from a low-income focus and embracing a universal view.

According to a graph created by Janet Cornick, an economist working with the CUNY research center, the United States has one of the highest income inequality rates in the developed world, 0.42 on the Gini coefficient, which is a scale that measures the income inequality of a given nation. (“The metric at play is a number between 0 and 1 known as the Gini coefficient. In a hypothetical country with a coefficient of 0, everyone has exactly the same income, while a nation with a coefficient of 1.0 is home to one fat cat who takes everything while everyone else earns nil.”) That said, although America’s rating would be even higher, 0.57, if its social programs and taxes were removed, “on that count America doesn’t fare badly in comparison to other OECD countries.”

From the Economist:

“At 0.57, America is neck-and-neck with Spain and every Scandinavian nation, and less unequal than Britain, Greece and Ireland. But the American taxation and welfare state clips only 0.15 off of the pre-tax-and-transfer Gini coefficient, while more aggressively egalitarian countries slice off 0.20 (Luxembourg, Norway), 0.24 (Germany, the Netherlands, Sweden) or 0.28 (Ireland).”

So while it’s true that America’s social programs do reduce economic inequality, the piece suggests that the U.S. could do more to reduce its income gap by focusing on a universal application of its existing programs.

Again, from the Economist:

“…pouring less money into low-income health programs in favor of universal social policies like national health insurance seems to be the recipe for greater equality. With more all-embracing programmes like Social Security, buy-in is broader and the social benefits are more stable.

But perhaps most interesting is the firestorm of comments this piece has provoked, including this one: “This is a terrible, terrible idea. Also note that Europe is far poorer than we are!”

You can read the full story and comments here.

U.S. Health Care: Spending Up, Efficiency Down

credit: commons.wikimedia.orgA pair of graphs from the Huffington Post and Bloomberg suggest spending and efficiency are not always connected, especially when it comes to heath care in America.

The United States ranked 46th out of 48 countries in a measure of the world’s most efficient health care countries, coming in below Saudi Arabia, Slovakia, China and the Dominican Republic. According to the Bloomberg graph, health care costs make up just over 17 percent of the U.S.’s GDP per capita, and  health care costs per capita is over $8,000. This is measured against an average life expectancy of 78.6 years.

The next closest country in terms of GDP per capita is the Netherlands, where a lower 13 percent GDP per capita measures against a higher life expectancy of 81.2 years. The U.S. did finish above Siberia and Brazil, where the average cost of health care per capita is $622 and $1,121.

The Huffington Post’s graph, which pulls its information from the OECD, shows that the U.S. spends “far and away more on health care than any other country.”

From the Huffington Post:

“What bothers me most is not that…we are lower than we should be,” Aaron Carroll, professor at the Indiana University School of Medicine wrote on his blog of the chart. “It’s that we are all alone. We are spending so, so, so much more than everyone else.”

You can look at the Bloomberg chart and the Huffington Post chart by clicking the links.

The Regulation Argument: Auto Loans Up, Credit Cards Down

Two recent articles from Quartz look at how lending and credit have changed since the 2007 recession and show how government regulation can impact (or not impact) American consumer economics.

The first article, which looks at sub-prime auto lending trends in the last few years, found that independent lenders are giving more car loans to U.S. customers with bad credit. Nearly 27 percent of all auto loans in the past five years were to consumers with credit scores of 500 or less. A loophole in the Dodd-Frank financial reform act of 2010 is seen as a cause of this trend.

From Quartz:

“That law had created the Consumer Financial Protection Bureau (CFPB) to act as a watchdog for retail lending, but had explicitly carved out auto dealerships from supervision. This made consumer advocates nervous but had investors seeing an opportunity to charge high costs for loans at a time of low yields.”

While regulation (or lack there of) has made it easier (if not safer) to get a car loan in 2013, it has had the opposite impact on credit cards. The second story looks at the way credit card debt has decreased in America since implementation of the US Credit Card Accountability, Responsibility and Disclosure Act (CARD) in 2010.

From Quartz:

“The CARD ACT … blocked credit card companies from extending credit without assessing the customer’s ability to pay … implemented rules on marketing to people under the age of 21 to crack down on abuse at college campuses … limited a credit card company’s ability to levy penalty fees … and restricted the circumstances in which the company could jack up interest rates.”

The results of CARD, according to the story, include a 2 million decrease in the the number credit cards issued to Americans under the age of 21 since 2007, and that credit card companies have “just stopped giving cards to people on the bubble.”

You can read both stories on Quartz by clicking the links below.

More Bad Borrowers are Getting Car Loans

The U.S. Has Kicked its Credit Card Addiction

How Do America’s Rich Feel About the Economy?

The state of the U.S. economy often depends on whom you ask. For example, a new piece in the Washington Post says that, according to the nation’s wealthy people, the economy is doing great.

The Post looks at a survey done by the American Affluence Research Center that asks families in the top 10 percent of net worth their opinions on a number of issues. The recent results show that economic sentiment among these families is at their highest levels since 2007.

From the Washington Post:

It shouldn’t be terribly surprising. The stock market is up 24 percent this year. Unemployment among the educated is at very low levels. It stands to reason that the economy looks to be recovering much better if you’re someone with large investment holdings and a high-level job than if you’re scraping by at a lower-wage job and not benefiting from a run-up in asset prices.

Economic sentiment might be lower among the 46 million Americans who, according to a piece in the Atlantic, lived below the poverty line in 2012.

That number, which represents 15 percent of the country, might seem insurmountable, but, according to the piece, the fix for poverty in America could be as easy as giving everyone in the country a $3,000 bonus.

From the Atlantic:

In 2012, those 46.5 million impoverished Americans were, collectively, $175 billion dollars below the poverty line. That figure is equivalent to 1.08 percent of the country’s GDP, one-quarter of the country’s $700 billion military budget, and exactly what we spend on Social Security disability benefits. Finding an optimal way to get $175 billion to these 46.5 million people is all that stands in the way of a country with an official poverty rate of zero.

Using the dataset from the latest Census poverty report, I determined that if we cut a $2,920 check to every single American—adults, children, and retirees—we could cut official poverty in half. 

Of course, there is a caveat to this plan: in order to fund the $3,000 payday for the impoverished, the Atlantic piece suggests increasing taxes the country’s wealthiest citizens, which might knock their economic outlook down a peg.

Read the Washington Post story here. 

Read the Atlantic story here.

Is it Time to Fix College Rankings?

credit: commons.wikimedia.orgA post in the Fiscal Times looks at the importance of college rankings and says that, while prospective students are using them as tool to help select the next phase of their education, the idea of “college rankings” needs to be re-evaluated.

Anthony Carnevale, director of Georgetown University’s Center for Education and the Workforce, says in the piece that the current rankings “are completely devoid of economic information” and are “a guide to college consumption … not an investment.”

From the Fiscal Times:

More important than rankings, experts say, is a college’s graduation rate; its job placement rate; and whether a student can reasonably afford to attend. While some of that data has historically been difficult to come by, the demands for such information have become tough for schools to ignore.

The piece goes on to say that reforms like President Obama’s proposed college ratings matrix suggest that prospective students are starting to consider economic factors such as tuition, level of debt upon graduation, and percentage of low-income students who graduate, but that school prestige should not be the deciding factor in how students select colleges.

A related article from the New York Times calls for a review of how colleges are ranked and considered, but Carolyn Hoxby of Stanford University doesn’t believe the government should get into the ranking business.

From the New York Times:

“I do not believe the federal government currently has the capacity to generate a ratings system that will even be neutral,” she said. “I think it’s more likely that it will be harmful to students.”

A truly useful analysis, she suggested, would have two main parts. “One, a lot of information about the outcomes for students … and the ability to control for variations in the student body. Let’s say you looked at Harvard, Yale, Stanford,” she explained. “You’d say they have all these great outcomes. But that doesn’t necessarily mean that’s the value added by those colleges, because their students were terrific” to begin with.

Read the Fiscal Times story here, and the New York Times story here.

An Unreliable Unemployment Rate?

An economics report from the Wall Street Journal suggests that the Fed might not take action on its bond-buying programs this October because of some unusual statistics tied to the country’s unemployment rate.

The piece explains that the Fed has often used the unemployment rate as a barometer of what to do with bond-buying programs and interest rates, but slow growth and a decline in people in the workforce are causing the organization to hold off on its bond decision.

From the Wall Street Journal:

“The unemployment rate is behaving in peculiar ways. It is coming down as people leave the labor force and exit the tallies of those seeking employment. In normal times, the labor force grows as the population grows, and employment must grow in excess of that labor force growth in order to reduce the unemployment rate. Now, because the labor force isn’t growing much, even small employment gains are bringing down the unemployment rate, even though millions of Americans remain parked on the sidelines.”

In other words, the unemployment numbers might not be as a strong an indicator of what the Fed should do about bonds as it has been in the past. This “disconnect makes it very hard to for them to send clear signals or make decisions with conviction.”

Read the full story here.

How to Fix Healthcare.gov

In light of the launch of Healthcare.gov and its ongoing technical problems, Lydia DePillis thinks it might be time for the government to reconsider how it handles its tech projects.

Her article for the Washington Post looks at ways the government could adjust its technical strategy to get better results from projects like healthcare.gov in the future, including considering proposals from companies that don’t have governmental experience and making the software more open to the tech development community.

Still, DePillis thinks the long-term fix is a fundamental change in how the government goes about planning its projects.

From the Wonkblog on WashingtonPost.com:

The software development version … is what’s known as the “waterfall” model, where bidders describe what they’re going to do, and then proceed to design and construct it — with testing all the way at the end. A big problem with Healthcare.gov was that the team didn’t have time to run many tests before the Oct. 1 cutoff date, which meant nobody knew quite what would happen when it went live. 

“That style of development is something that the government continues to latch onto, because it seems to be easy to understand, easier to procure for. But it generates a tremendous amount of risk,” Larry Fitzpatrick, IT director for the Financial Industry Regulatory Authority says. 

She goes on to say that a different developmental model, something like Agile, which has less “static stages” and emphasizes constant testing and reevaluation, might lead to more functional products from the government. The problem with this, she says, is that government officials would have to get used to “not knowing exactly what it will look like.”

Check out her full story here.

AIER Projects the 2014 COLA at 1.4-1.6 Percent

icon (1)With the government shut down and no data being released officially, the Associated Press published a story about estimates of what the Social Security Cost-of-Living Adjustment for 2014 might be, projecting a 1.5 percent increase, one of the lowest adjustments since the 70s.

From AP:

Polina Vlasenko, a research fellow at the American Institute for Economic Research, projects the COLA will be between 1.4 percent and 1.6 percent.

Her projection is similar to those done by others, including AARP, which estimates the COLA will be between 1.5 percent and 1.7 percent. The Senior Citizens League estimates it will be about 1.5 percent.

Lower prices for gasoline are helping fuel low inflation, Vlasenko said.

“In years with high COLA’s, a lot of that had to do with fuel prices and in some cases, food prices. Neither of those increased much this year,” Vlasenko said. “So that kept the lid on the overall increase in prices.” 

Vlasenko’s in-depth article on next year’s COLA can be read on  AIER’s website here.

American Adults are Financially Illiterate

credit: commons.wikimedia.orgFor many, understanding finances can be a challenge. Unfortunately, there is evidence to suggest even financial fundamentals are beyond the grasp of adults in America.

In his piece for the New York Times, economist Richard Thaler looks at a study out of George Washington University and the Wharton School that shows nearly two-thirds of polled adults couldn’t correctly answer basic questions about interest rates, managing a personal bank account, or how to invest wisely in the market.

From the New York Times:

“This is particularly troubling given the inherent complexity of our modern economy. Whether in taking out a student loan, buying a house or saving for retirement, people are being asked to make decisions that are difficult even if they have graduate training in finance and economics. Throwing the financially illiterate into that maelstrom is like taking students currently enrolled in driver’s education and asking them to compete in the Indianapolis 500.”

Thaler goes on to look at potential ways to improve financial literacy, including just-in-time education (giving someone the information they need right before they have to make a financial decision), and offering simple guidelines and principals instead of more nuanced, specific guidance. For his money, he thinks the answer is to make understanding money simpler.

“If we made choosing a suitable mortgage as easy as checking the weather in Timbuktu, fewer households would find themselves underwater when real estate markets tumble… The financial services industry — either on its own or as required by government regulators — needs to find ways to make it easier for people to make sound decisions.”

To take the simple quiz yourself, click here.

Government Failure Doesn’t Equal Economic Failure

credit: commons.wikimedia.orgWhile many media outlets and pundits are rallying around the idea that U.S. debt default brought on by gridlock in Congress would be cataclysmic for the nation’s economy, analyst Zachary Karabell is taking a slightly less severe view.

Karabell’s op-ed for Reuters concedes that default is “something we should most definitely avoid,” but says it is worth considering that it wouldn’t result in economic collapse, if for no other reason than “it’s such an unprecedented possibility that no one can predict what the outcome might be.”

He goes on to cite an increase in demand for U.S. bonds and a lack of real insolvency as possible indicators that economic collapse might not result from a U.S. default, pointing out that “government” and “economy” are not the same thing.

From Reuters:

What would also quickly become clear is the disjuncture between government on the one hand and “the economy” on the other. For now, we have a tendency to conflate the two, and assume that government is either essential to economic growth (a classic Democrat stance) or inimical to it (a typical Republican approach). A default, or even the threat of one, might expose the degree to which government is one factor among many in the complicated world of economic affairs, and not nearly as powerful a factor as enemies or advocates believe.

You can read Karabell’s article, where he says “it’s wrong to assume the worst just because the worst is so easy to assume,” here.