Economics

“In a word,” writes sociologist W. Bradford Wilcox and Anna Sutherland,

the increasingly “separate and unequal” character of family life in the United States is fueling economic, racial, and gender inequality. How is family life “separate and unequal”? First, Americans exhibit a growing class divide in marriage where the college-educated are more likely to enjoy high-quality, stable marriages than the less-educated. For instance, since the divorce revolution of the 1970s, divorce has fallen among college-educated Americans, while remaining comparatively common among Americans without college degrees.

Furthermore, the timing of these trends provides “strong evidence that family change preceded growing economic inequality. Specifically, the rise of nonmarital childbearing and divorce date back to the 1960s, well before economic inequality began growing in the late 1970s.”

The authors find that “scholarly research demonstrates that America’s growing marriage divide has helped to fuel three forms of economic and social inequality”:

1. “First and foremost is inequality in Americans’ family income, which has risen since the 1970s.”
2. “The retreat from marriage also looms large in another form of economic inequality in America: racial inequality.”
3. “Third, the growing marriage divide is fueling a historically unusual type of gender inequality in low-income communities…”

There’s much more. The research is both compelling and important. Check out the full post.

A recent study out of George Mason University concludes that “[b]y altering investment decisions and disrupting the innovation that comes from investment in knowledge creation, regulations have a cumulative and detrimental effect on economic growth—and, over time, have a real impact on American families and workers.” The key findings:

• If regulation had been held constant at levels observed in 1980, the US economy would have been about 25 percent larger than it actually was as of 2012.
• This means that in 2012, the economy was $4 trillion smaller than it would have been in the absence of regulatory growth since 1980.
• This amounts to a loss of approximately $13,000 per capita, a significant amount of money for most American workers.

Check it out.

Absolute poverty is declining. This is a fact. “But,” asks Swedish economist Andreas Bergh, “why is poverty falling? Is it happening because of globalization, or perhaps despite globalization?”

His recent blog post on the matter seeks to answer just that. Drawing on some of the latest research, he points out that “more globalization is indeed followed by decreasing poverty, but only a small part is explained by the growth of average income levels.” It seems that globalization via trade liberalization not only brings about income growth, but also increased information. In fact, lower trade restrictions and larger information flows seem to be the major factors behind decreasing poverty.

However, this is arguably the most important finding:

Using various components from the International Country Risk Guide to quantify institutions such as government stability, law and order, bureaucratic quality, corruption and democratic accountability, in combination with the data from Bergh & Nilsson (2014), we showed in a follow-up paper (Bergh, Mirkina and Nilsson 2015) that the poverty-decreasing effect of globalization is bigger in countries where institutions are worse. The graph below shows how the marginal effect of information flows on poverty varies depending on the level of bureaucratic quality. The slope looks the same for all institutional indicators, suggesting that globalization is especially important for the poor in countries with high corruption levels and inefficient public sectors.

Bergh concludes, “[T]he data show rather convincingly that globalization has been good for the poor, but you should still be careful when giving policy advice to countries.”

The organization GiveDirectly is about to embark on a potentially paradigm-shifting social experiment:

to try to permanently end extreme poverty across dozens of villages and thousands of people in Kenya by guaranteeing them an ongoing income high enough to meet their basic needs—a universal basic income, or basic income guarantee. We’ve spent much of the past decade delivering cash transfers to the extremely poor through GiveDirectly, but have never structured the transfers exactly this way: universal, long-term, and sufficient to meetbasic needs. And that’s the point—nobody has and we think now is the time to try.

The reasons for this are evidence-based:

Across many contexts and continents, experimental tests show that the poor don’t stop trying when they are given money,[ref]There is evidence that government programs and benefits can discourage work (at least in an already rich country like the U.S.), including unemployment benefits, Social Security Disability Insurance and VA’s Disability Compensation, Obamacare, Medicaid, the Negative Income Tax, and other forms of welfare. Charles Murray argued decades ago that the welfare state creates perverse incentives. However, not all forms of welfare are created equal, which is the point of the debate.[/ref] and they don’t get drunk. Instead, they make productive use of the funds, feeding their families, sending their children to school, and investing in businesses and their own futures. Even a short-term infusion of capital has been shown to significantly improve long-term living standards, improve psychological well-being, and even add one year of life.

On the other hand, well-intentioned social programs have often fallen short. A recent World Bank study concludes that “skills training and microfinance have shown little impact on poverty or stability, especially relative to program cost.” Moreover, this paternalistic approach is often for naught: Jesse Cunha, for example, finds no differences in health and nutritional outcomes between providing basic foods and providing an equally sized cash program. Most importantly, though, the poor prefer the freedom, dignity, and flexibility of cash transfers—more than 80 percent of the poor in a study in Bihar, India, were willing to sell their food vouchers for cash, many at a 25 to 75 percent discount.

As the authors note, the “idea of a basic income guarantee is being debated around the globe, with pilots being considered by Finland’s center-right government and Canada’s liberal party, and support from across the political landscape, including libertarians from the Cato Institute[ref]Slight quibble: the essay is for Cato Unbound, but Matt Zwolinski isn’t with the Cato Institute. Nonetheless, Zwolinski has praised GiveDirectly.[/ref] and liberals from the Brookings Institution.”

“But fundamentally,” the authors point out,

the question should be an empirical one: What are the impacts of a universal basic income? And how do they compare with other forms of assistance?

We’re planning to find out. To do so, we’re planning to provide at least 6,000 Kenyans with a basic income for 10 to 15 years. These recipients are some of the most vulnerable people in the world, living on the U.S. equivalent of less than a dollar. And we’re going to work with leading academic researchers, including Abhijit Banerjee of MIT, to rigorously test the impacts.

…To get started, we’re putting in $10 million of our own funds to match the first $10 million donated by others. At worst that money will shift the life trajectories of thousands of low-income households. At best, it will change how the world thinks about ending poverty.

This is really exciting stuff. See more on it here.

In the comments on my last post, Robert C made an important point based on his own experience that “the poor in the U.S. experience a high degree of social, emotional, and psychological stress in comparison to the lack of such stress among the relatively rich in other countries.” My interest in economics and data is largely about providing proper context and analysis, but sometimes it can make me look like a cold-blooded bastard.

Robert is right though. The working class in America does face major problems. The experiences of those growing up in working-class neighborhoods are often traumatic and these experiences have negative effects on economic outcomes (let alone well-being). David Lapp, a research fellow at the Institute for Family Studies, had a powerful reply to a couple recent articles blasting the American white working class. As Lapp tells it,

No true calamity or awful disaster has befallen the white working class?

Try telling that to [the boy] whose own mother abused him and whose parents left him. Try telling that to the girl molested by her mother’s boyfriend, or the little girl whose mom and boyfriend passed out in the McDonald’s parking lot because of a heroin overdose, or the 10-year-old boy who walked into his parents’ bedroom to find his dad having sex with a stranger. (Those are just some of the typical stories we heard in our interviews with members of the working class in Ohio.) As one young man told me, “Besides killing a small child I would say that divorce is the second-worst thing that can ever happen. Because divorce is the symbol of violently breaking apart. Like in my case, my dad and my mom separating, it tore the family apart, literally. It was the symbol of breaking apart and shards went everywhere.”

I understand the point that Williamson and French are trying to make: when we speak of divorce and abuse and heroin and father absence, we are not talking about the factory that left, but acts perpetrated by adults with moral responsibilities. But that is no solace to the young victims—yes, we must speak of victims—of those traumatic events.

Because the divorce culture is a true calamity for generations of young people growing up in the aftermath. Nor should we imagine that just because a cause is cultural or familial, and not economic, that it involves no victims. As Rod Dreher writes in a response to Williamson’s post, “Children are not empty receptacles into which we can insert knowledge. If they live in homes filled with noise, chaos, violence, and contempt, it doesn’t matter what race they are, they are going to be very lucky to make it.”

Families are in trouble, but people aren’t making bad decisions in isolation. The family is in trouble because marriage is a social institution, and many young people have seen their own parents, grandparents, and great-grandparents divorce (sometimes two, three, and four times). Whatever the reasons for divorce that the pioneers of the divorce revolution had, the young people walking into marriage today—or looking bewilderingly at it from the outside—are left feeling broken. That raises serious questions.

…We can always point to some people who grew up in troubled families and nevertheless succeed. We admire their courage and perseverance. Still, isn’t it self-evident that a child who suffers his parents’ divorce, or the absence of his father, or parental abuse, is much less likely to form good and lasting relationships as an adult? More likely to despair and resort to Oxycontin and heroin? And shouldn’t that fact matter for how we think and talk about the problems that confront the poor and working class, many of whom suffer these traumas?

Lapp recognizes that narratives about the poor often fall into two extreme categories and that he could easily adopt one of these extremes in telling of the story of those he’s interviewed. One extreme highlights external factors and lack of resources (typically the political left), but this largely ignores the poor’s “own words about how things could have been different if they had made different choices.” The other extreme focuses “almost exclusively on these young adults’ own moral responsibilities, and downplay the cultural and economic forces and trauma clearly impinging on their lives” (typically the political right). “The true story,” Lapp says, “…is one that shows how cultural and economic forces and trauma intersect with people’s own free decisions.” To “scold the “downscale” people about their sins and “entitlement” and their communities “that deserve to die”” is to assume that “a person suffering from years of trauma and deprived of good models of family life could just snap out of it with a few good rebukes.” When we do this, we fail “to look squarely at not just “the problem,” but the person in front of us.”

The complexities of poverty demonstrate the need for strong communities, families, churches, charities, and yes, even government programs. I still think economic growth does far more to lift the poor out of poverty than anything else. But when traumatic home life retards your emotional, psychological, educational, and economic development, this is not something that should be shamed. It’s something that should be dealt with through integration into a supportive social network.

And this–to borrow language from one of the recent critiques of the working class–requires us to “get off our asses” and help them out.

In honor of former World Bank economist Branko Milanovic’s[ref]Nathaniel and I used some of Milanovic’s work in our SquareTwo article.[/ref] new book Global Inequality: A New Approach for the Age of Globalization (out this month),[ref]You can find The Economist‘s review of the book here.[/ref] here is a NYT piece on his previous book The Haves and Have-Nots:

The graph shows inequality within a country, in the context of inequality around the world. It can take a few minutes to get your bearings with this chart, but trust me, it’s worth it.

Here the population of each country is divided into 20 equally-sized income groups, ranked by their household per-capita income. These are called “ventiles,” as you can see on the horizontal axis, and each “ventile” translates to a cluster of five percentiles.

The household income numbers are all converted into international dollars adjusted for equal purchasing power, since the cost of goods varies from country to country. In other words, the chart adjusts for the cost of living in different countries, so we are looking at consistent living standards worldwide.

Now on the vertical axis, you can see where any given ventile from any country falls when compared to the entire population of the world.

Now the clincher:

Now take a look at America.

Notice how the entire line for the United States resides in the top portion of the graph? That’s because the entire country is relatively rich. In fact, America’s bottom ventile is still richer than most of the world: That is, the typical person in the bottom 5 percent of the American income distribution is still richer than 68 percent of the world’s inhabitants.

Now check out the line for India. India’s poorest ventile corresponds with the 4th poorest percentile worldwide. And its richest? The 68th percentile. Yes, that’s right: America’s poorest are, as a group, about as rich as India’s richest.

This goes hand-in-hand with yesterday’s post about GDP per capita (PPP). Should provide some much-needed context when we talk about inequality and “the rich.”