Politics

Education Levels, Not Income, Led to Trump

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With it being Trump’s inauguration today, I thought I’d highlight an article from November by Nate Silver. Where did Clinton do well and where did she falter?:

I took a list of all 981 U.S. counties with 50,000 or more people and sorted it by the share of the population that had completed at least a four-year college degree. Hillary Clinton improved on President Obama’s 2012 performance in 48 of the country’s 50 most-well-educated counties. And on average, she improved on Obama’s margin of victory in these countries by almost 9 percentage points, even though Obama had done pretty well in them to begin with.

Yet, when he looks at “50 counties (minimum population of 50,000) where the smallest share of the population has bachelor’s degrees,” the tune changes considerably:

These results are every bit as striking: Clinton lost ground relative to Obama in 47 of the 50 counties — she did an average of 11 percentage points worse, in fact. These are really the places that won Donald Trump the presidency, especially given that a fair number of them are in swing states such as Ohio and North Carolina. He improved on Mitt Romney’s margin by more than 30 points (!) in Ashtabula County, Ohio, for example, an industrial county along Lake Erie that hadn’t voted Republican since 1984.

Silver continues by showing just how important education was in determining Trump/Clinton support:

  • High-education, medium-income white counties shifted to Clinton.
  • High-income, medium-education white counties shifted to Trump.
  • Highly educated majority-minority counties shifted toward Clinton.
  • Low-education majority-minority counties shifted toward Trump.

Silver concludes,

In short, it appears as though educational levels are the critical factor in predicting shifts in the vote between 2012 and 2016. You can come to that conclusion with a relatively simple analysis, like the one I’ve conducted above, or by using fancier methods. In a regression analysis at the county level, for instance, lower-income counties were no more likely to shift to Trump once you control for education levels. And although there’s more work to be done, these conclusions also appear to hold if you examine the data at a more granular level, like by precinct or among individual voters in panel surveys.

So it wasn’t necessarily the economically destitute that voted for Trump. A 2016 Gallup study found

that Americans who live in places where employment in manufacturing has declined since 1990 are not more favorable to Trump. Rothwell [the author] did not find a relationship when he focused only on white respondents, either, or even specifically on white Republicans. Trump’s supporters have many other traits in common with the factory workers whose economic prospects have been negatively affected by automation and global trade. They tend to be less educated men who hold blue-collar occupations. Yet those two broad trends in factory work do not account for Trump’s appeal, Rothwell’s analysis suggests. In fact, among those who share other traits, those who live in districts with more manufacturing are less favorably disposed toward Trump.

However, Silver offers a few “competing hypotheses” to the straightforward interpretation above:

  • Education levels may be a proxy for cultural hegemony. Academia, the news media and the arts and entertainment sectors are increasingly dominated by people with a liberal, multicultural worldview, and jobs in these sectors also almost always require college degrees. Trump’s campaign may have represented a backlash against these cultural elites.[ref]I’m partial to this explanation.[/ref]
  • Educational attainment may be a better indicator of long-term economic well-being than household incomes. Unionized jobs in the auto industry often pay reasonably well even if they don’t require college degrees, for instance, but they’re also potentially at risk of being shipped overseas or automated.
  • Education levels probably have some relationship with racial resentment, although the causality isn’t clear. The act of having attended college itself may be important, insofar as colleges and universities are often more diverse places than students’ hometowns. There’s more research to be done on how exposure to racial minorities affected white voters. For instance, did white voters who live in counties with large Hispanic populations shift toward Clinton or toward Trump?
  • Education levels have strong relationships with media-consumption habits, which may have been instrumental in deciding people’s votes, especially given the overall decline in trust in the news media.
  • Trump’s approach to the campaign — relying on emotional appeals while glossing over policy details — may have resonated more among people with lower education levels as compared with Clinton’s wonkier and more cerebral approach.

So with that, enjoy Inauguration Day.

Nation Building From the Ground Up

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I’ve written on the social science of military intervention before, noting that they rarely achieve the democratic goals of those intervening. A new study distinguishes between top-down and bottom-up approaches to foreign intervention: “Top-down approaches to foreign intervention emphasise gaining citizen compliance by making it costly for citizens to oppose the state, whereas bottom-up approaches aim to increase the benefits of supporting the state by providing public goods, economic aid, and political opportunities.” Drawing on evidence from the Vietnam War, the researchers find (perhaps unsurprisingly),

Image result for vietnam warEstimates document that the bombing of South Vietnamese population centres backfired, leading more Vietnamese to participate in Viet Cong (VC) military and political activities and increasing VC attacks on troops and civilians. The initial deterioration in security entered the next quarter’s security score, increasing the probability of future bombing and hence leading to sustained increases in VC activity. Moreover, while US intervention aimed to build a strong state and engaged civic society that would provide a bulwark against communism after US withdrawal, bombing instead reduced the probability that the local government collected taxes, decreased access to primary schools, and reduced participation in civic organisations. To the extent that spillover effects of bombing on other locations exist, the impacts tend to go in the same direction as the effects on the locations that were bombed.

Interviews of VC prisoners and defectors provide a potential explanation for why bombing increased VC activity. Grievances against the government – particularly in cases where a civilian family member was killed in US or South Vietnamese attacks – were strong motivators for joining the VC (Denton 1968). Civilian casualties and property damage are plausibly particularly harmful to the trust between government and citizens that underlies an effective social contract.

In order to compare the two strategies, the authors explored

the boundary between Military Region I – commanded by the US Marine Corps (USMC) – and Military Region II – commanded by the US Army. The Marines emphasised providing security by embedding soldiers in communities and winning hearts and minds through development programmes (USMC 2009). Their approach was motivated by the view that “in small wars the goal is to gain decisive results with the least application of force… the end aim is the social, economic, and political development of the people” (USMC 1940). In contrast, the Army relied on overwhelming firepower deployed through search and destroy raids (Krepinevich 1986, Long 2016). Evidence points to this difference in counterinsurgency strategies as a central distinction between the Army and Marines.

Hamlets just to the USMC side of the boundary were less likely to have a VC presence than those just to the Army side, and public opinion data document that citizens in the USMC region reported less anti-Americanism and more positive attitudes towards all levels of South Vietnamese government than did citizens in the Army region. Pre-period VC attacks, pre-characteristics, and soldier characteristics – including Armed Forces Qualifying Test scores – are all relatively balanced across the boundary, suggesting that the effects are driven by differences in military strategy and not by omitted factors.

Civility, trust, and community work better than violence. Fancy that.

How Much is $100 Worth in Your State?

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The following map provided by the Tax Foundation (based on data from the Bureau of Economic Analysis) “shows the real value of $100 in each state. Prices for the same goods are often much cheaper in states like Missouri or Ohio than they are in states like New York or California. As a result, the same amount of cash can buy you comparatively more in a low-price state than in a high-price state…Using [BEA] data, we have adjusted the value of $100 to show how much it buys you in each state.”

Economist Alan Cole summarizes,

The states where $100 is worth the most are Mississippi ($115.34), Arkansas ($114.29), Alabama ($113.90), South Dakota ($113.64), and West Virginia ($112.49). In contrast, $100 is effectively worth the least in the District of Columbia ($84.67), Hawaii ($85.62), New York ($86.43), New Jersey ($87.34), and California ($88.97)…Regional price differences are strikingly large; real purchasing power is 36 percent greater in Mississippi than it is in the District of Columbia. In other words, by this measure, if you have $50,000 in after-tax income in Mississippi, you would have to have after-tax earnings of $68,000 in the District of Columbia just to afford the same overall standard of living.

Case in point, when adjusted for purchasing power, Nebraskan real income exceeds that of Californians:

Cole concludes,

Many policies – like minimum wage, public benefits, and tax brackets – are denominated in dollars. But with different price levels in each state, the amounts aren’t equivalent in purchasing power. This has some unexpected consequences; people in high price-level states like New Jersey will often pay more in federal taxes without feeling particularly rich.

The Cathedral Interprets the News

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Streep at the Berlinale premiere of Hail, Caesar! in February 2016 0 Glyn Lowe (CC BY 2.0)

Rod Dreher has a fantastic piece at The American Conservative about how the media is covering (or not) the awful kidnap-torture of a young, disabled man in Chicago. The super-short version? Although the young white man was kidnapped and brutally assaulted by black assailants who (while livestreaming on Facebook) shouted “F— Donald Trump!” and “f— white people” and although the crime is being investigated as a hate crime, several news outlets have gone well out of their way to delve deep into the story with nary an indication of the racial or political overtones of the story, some going so far as to insist that what is really going on is anti-disability stigma.[ref]That would be Salon, which now and then feels the need to run an article so ridiculous one can only assume it’s a pre-emptive strike against anyone taking them seriously ever.[/ref]

Now, we write a lot about political partisanship here at Difficult Run, and I want to reign things in before it becomes too much of a “look how bad those other guys are!” post, the kind we need to deplore no matter which side is targeted. And so I want to point out a few things.

  1. Dreher does a good job of providing balanced, mature context for his piece, which I can’t cover because this is a summary. (Really, go read his piece.)
  2. Some among the (alt-)right are blaming this whole thing on Black Lives Matter, which is a really solid attempt to make Salon look reasonable by comparison. (As if this needs any repeating: all sides have their crazies.)
  3. The most interesting aspect of Dreher’s piece is his extended discussion of the mainstream media as cathedral, which is interesting enough to grab your attention even without the political implications

There’s one other story I want to toss into the mix, however, which Dreher did not get to. And that’s Merryl Streep’s take-down of Donald Trump. As David French reports at the National Review, the contrast between Streep’s attacks on Trump and her standing ovation for convicted child-rapist Roman Polanski is, shall we say, informative.

A lot of people are saying that Streep’s dressing-down of Trump are, more or less, the reason he won. Well, that’s only partially true. [ref]Keep in mind, I was, am, and always will be #NeverTrump.[/ref] To really understand the disgust with which many in America hold Hollywood and the liberal establishment in general (Hollywood, the mainstream media, and academia) you have to consider both Streep’s Trump tirade and her celebratory applause for Polanski.

So, back to Dreher:

About a decade ago, as a working journalist, it became clear to me that when it came to some subjects, the media thought it’s job was more about managing the news than reporting it. If you read, for example, The New York Times as if we were the USSR and it was Pravda, you better understand its meaning. The comparison is certainly not one-to-one, but it’s closer than it ought to be.

When the mainstream press tries to tell us that the Chicago attack was about disability or lauds Merryl Streep as some kind of exemplar of moral discernment, you can see exactly where the Pravda-comparison comes from.

Biased Regulators

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Image result for nudge

In their book Nudge, authors Richard Thaler and Cass Sunstein advocate what they call “libertarian paternalism”: a kind of governmental choice architecture that seeks to influence the choices choosers make. This restructuring tends to rely on small tweaks to the system, recognizing that people are often biased and irrational in their decision-making.

However, a new study shines light on an overlooked aspect of bias and policy. Economist and paper author David Hirshleifer explains,

What if the choice architects are subject to psychological bias? This could come from biases of regulators, politicians, or even economists. It can also come from the psychological biases of the voters who hire and fire political agents.

Teoh and I argue that important features of financial and accounting rules and regulation are shaped by psychological bias on the part of the architects, rather than as a useful remedy for the biases of the decision makers being acted upon.  Typically the resulting regulation is far from libertarian, as well.

We call the approach to understanding regulation as coming from smart and benevolent architects `Good Rules for Bad Users.’ (Libertarian paternalism is slightly different: `Good Suggestions for Bad Users.’) We feel the other side of the coin has been neglected, that the architects themselves may be biased, resulting simply in `Bad Rules.’ (This is not to say that all regulation is bad, but it does say that bad rules will sometimes be approved.)  We call this perspective the psychological attraction approach to financial and accounting regulation.

Specifically, we argue that some forms of regulatory ideas are good at ensnaring the attention, emotions, and cognitive biases of regulators and the public. Such regulations do not necessarily help others, on the whole, and indeed may have highly perverse effects. But people are attracted to certain rules because they are superficially appealing. This point applies even to accounting rules, which have evolved over centuries through the interactions of different users. Rules concerning what firms have to expense, what they can capitalize, whether they are required to be conservative in reporting their performance—all, we argue, have been influenced by heuristic intuitions, not just economic efficiency.

The biases of regulators have been addressed before by other researchers. It’s a glaring oversight among “nudge” advocates that needs to be continually studied.

Politics and Emotion

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Emma Green at the Atlantic posted a conversation with Michael Wear, a conservative evangelical Christian who worked on Obama’s staff as a faith-outreach director.  In it, Wear describes the current problems with political tribalism on hot-button issues, with focus on (non-)religiously based views.  You can read the whole thing here: Democrats Have a Religion Problem, and I’ve pulled out some gems below.

On religious illiteracy:

[Wear] once drafted a faith-outreach fact sheet describing Obama’s views on poverty, titling it “Economic Fairness and the Least of These,” a reference to a famous teaching from Jesus in the Bible. Another staffer repeatedly deleted “the least of these,” commenting, “Is this a typo? It doesn’t make any sense to me. Who/what are ‘these’?” (Green)

On divisiveness:

No matter Clinton’s slogan of “Stronger Together,” we have a politics right now that is based on making enemies, and making people afraid… It’s much easier to make people scared of evangelicals, and to make evangelicals the enemy, than trying to make an appeal to them. (Wear)

On emotion:

I’ve been speaking across the country for the year leading up to the election, and I would be doing these events, and without fail, the last questioner or second-to-last questioner would cry. I’ve been doing political events for a long time, and I’ve never seen that kind of raw emotion. And out of that, I came to the conclusion that politics was causing a deep spiritual harm in our country. We’ve allowed politics to take up emotional space in our lives that it’s not meant to take up. (Wear, emphasis added.)

Perhaps politics is taking up a space that religion used to take up.  This seems to be true on both sides of the political aisle.

Unintended Consequences: Redistribution and the World’s Poor

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Last summer, two consultants at the Minneapolis Fed published a paper entitled “On the Ethics of Redistribution.” They begin by framing the discussion with a global perspective:

A typical American in the lowest 5 percent of income (for America) has a higher income than 95 percent of Indians, 80 percent of Chinese and 50 percent of Brazilians. In the United States, 99 percent of households have indoor plumbing (a toilet with a sewer connection). In India, it’s 12 percent. For Americans below the poverty line, nearly three-quarters have a car (and 31 percent have two or more) and 97 percent have air conditioning. In India, only 5 percent of all households have cars and 2 percent of all households have air conditioning.

This then begs the following question: Are policies that purport to help the comparatively well-off (those at, say, the poverty line in developed countries) at the expense of the superlatively well-off (the rich in developed countries) desirable from the behind-the-veil perspective assuming that that perspective is global?

Increasing world trade is an example of the tension between policies that help those in developing countries versus those that help those lower in the income distribution in developed countries. According to a World Bank Study, in the three decades between 1981 and 2010, the rate of extreme poverty in the developing world (subsisting on less than $1.25 per day) has gone down from more than one out of every two citizens to roughly one out of every five, all while the population of the developing world increased by 59 percent. This reduction in extreme poverty represents the single greatest decrease in material human deprivation in history.

But this decrease in extreme poverty in the developing world has coincided with a marked increase in income inequality in the developed world, and the latter has received much more attention, at least from policy analysts in these richer nations.

The authors then move to the subject of skilled/unskilled labor and the effects of redistribution:

Image result for redistributionIn a world with just two countries, one developed and the other poor, output is produced in each by a combination of skilled workers and unskilled workers. When they’re young, unskilled workers have the opportunity to become skilled by working with older, skilled workers.

…A rich-country policy to tax high incomes will redistribute income (within that country) from those with high innate abilities (and, by assumption, with the ability to become highly skilled) to those with lower innate abilities. In so doing, that policy will reduce inequality within the rich country, but it will also create disincentives there to becoming highly skilled and thereby reduce the global supply of skilled workers. This reduced supply of skilled workers from the developed country then reduces opportunities for young workers in the poor country to become skilled.

Applying the Harsanyi-Rawls behind-the-veil-of-ignorance criterion but considering only people in the developed country would appear to make this a beneficial policy because it helps the poor of that rich country. But, in our example, it hurts the poorest of the poor in the world, those in the developing nation. A proper application of the behind-the-veil-of-ignorance criterion—one that takes all people in all countries into consideration—can thus lead to the implication that such a policy is extremely undesirable. At the very least, a proper application of the criterion says that redistribution within rich countries imposes costs on people in other countries which need to be taken into account.

They conclude, “A giant literature in public finance justifies such social welfare functions by appealing to the veil-of-ignorance. Our point simply is that those who use this criterion should weight the welfare of poor people in Chad, the world’s poorest nation, very heavily. To our knowledge, very little if any of the relevant research does so.”

Geography and Unemployment

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Does geography contribute to unemployment? “In a paper published in 1965,” reports The Economist,

John Kain, an economist at Harvard University, proposed what came to be known as the “spatial-mismatch hypothesis”. Kain had noticed that while the unemployment rate in America as a whole was below 5%, it was 40% in many black, inner-city communities. He suggested that high and persistent urban joblessness was due to a movement of jobs away from the inner city, coupled with the inability of those living there to move closer to the places where jobs had gone, due to racial discrimination in housing. Employers might also discriminate against those that came from “bad” neighbourhoods. As a result, finding work was tough for many inner-city types, especially if public transport was poor and they did not own a car.

Is there any data to back up this theory?

A new paper,[ref]This is a 2014 article.[/ref] published by the National Bureau of Economic Research…looks at the job searches of nearly 250,000 poor Americans living in nine cities in the Midwest. These places contain pockets of penury: unemployment in inner Chicago, for instance, is twice the average for the remainder of the city. Even more impressive than the size of the sample is the richness of the data. They are longitudinal, not cross-sectional: the authors have repeated observations over a number of years (in this case, six). That helps them to separate cause and effect. Most importantly, the paper looks only at workers who lost their jobs during “mass lay-offs”, in which at least 30% of a company’s workforce was let go. That means the sample is less likely to include people who may live in a certain area, and be looking for work, for reasons other than plain bad luck.

For each worker the authors build an index of accessibility, which measures how far a jobseeker is from the available jobs, adjusted for how many other people are likely to be competing for them. The authors use rush-hour travel times to estimate how long a jobseeker would need to get to a particular job.

If a spatial mismatch exists, then accessibility should influence how long it takes to find a job. That is indeed what the authors find: jobs are often located where poorer people cannot afford to live. Those at the 25th percentile of the authors’ index take 7% longer to find a job that replaces at least 90% of their previous earnings than those at the 75th percentile. Those who commuted a long way to their old job find a new one faster, possibly because they are used to a long trek.

Governments could seek to “help workers either to move to areas with lots of jobs, or at least to commute to them. That would involve scrapping zoning laws that discourage cheaper housing, and improving public transport. The typical American city dweller can reach just 30% of jobs in their city within 90 minutes on public transport. That is a recipe for unemployment.”[ref]AEI’s James Pethokoukis has a good piece expanding on this.[/ref]

The Benefits of Globalization: Trade & Migration

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We sharply disagree with this dismal view of globalisation.

Image result for free tradeSo write three scholars drawing on their latest research on globalization. “Our recent research,” they continue,

indicates that the gains from trade and migration are tremendous and that the world stands to benefit greatly from their further liberalisation (Desmet et al. 2016). The problem with virtually all quantitative and empirical evaluations of trade and migration is their static nature. They completely ignore the dynamic gains from globalisation. As we will later discuss, these dynamic gains quantitatively dwarf any short-run costs. 

After providing the theory of growth behind trade and migration, the researchers present their jaw-dropping conclusions:

Completely lifting all migration restrictions would increase real world output by 126% in present discounted value terms. Since such a policy may be unrealistic, consider instead a reform that liberalises migration so that 10% of the world population moves at impact. This would yield a present discounted value increase in real world output of 14%. Such a reform would cause some extra congestion in Europe and the US, implying that average welfare would increase by 9%, a smaller but still impressive figure. It is hard to think about any other policy that could readily be applied at the world level for which estimated benefits are as large. Migration is uniquely powerful in generating positive effects. In economic terms, having an open-door policy is a no brainer, not because of some abstract theoretical arguments, but because the measurement of the relevant forces tells us so.

Turning back the clock on trade would have equally dire consequences. Increasing trade costs by 40% would lower real world output by 30% in present discounted value terms. Although globalisation might create losers in the short run, allowing the free flow of goods and people across regions and countries is still one of the best ways we know to ensure our long-run wealth and well-being.

These numbers are astronomical. The potential good that can come from liberalized trade and migration makes the rising nationalism all the more disheartening.

Minimum Wage Abroad

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Over at the World Bank’s Development Impact blog, doctoral candidate Andrés Ham looks at the effects of minimum wage hikes in developing countries. “Minimum wages in developing countries tend to be set higher, are less likely to be rigorously enforced, and labor markets are often segmented into formal and informal sectors with minimum wage policy only covering formal workers,” he writes.

Given these differences and that most developing countries implement minimum wage policies, understanding their consequences on labor markets is critical for economic growth, developing effective labor policy, and poverty alleviation.
 
My job market paper studies the impact of minimum wage policy on labor market outcomes and poverty in Honduras from 2005-2012 using repeated cross-sections of household survey data. The attributes of Honduran minimum wage policy and its labor market are similar to many developing countries, so the resulting conclusions from this case study may extend beyond its borders.

His results?

I find that a 10 percent increase in minimum wages reduces employment rates by about 1 percent. Because this result lumps formal and informal sectors together, it disguises the real effect: a significant change in labor force composition. The same minimum wage hike lowers the likelihood of employment in the formal sector by about 8 percent and increases the probability of employment in the informal sector just over 5 percent. The data indicate that individuals substitute wage earning jobs for self-employment as a direct consequence of minimum wage hikes. Wages in the formal sector increase but the observed influx of workers towards the informal sector leads to a negative net effect on informal sector wages.

Since informal sector jobs tend to be lower-paid part-time positions, average earnings in this sector often lie below formal sector incomes. Hence, there may be an adverse effect on individual well-being from these observed changes in labor force composition. To approximate the welfare effect of minimum wages, I estimate whether minimum wage increases help workers escape from extreme poverty. I find that a 10 percent increase in minimum wages has a negative but statistically insignificant effect on the risk of extreme poverty for the formal labor force. The same minimum wage hike significantly raises the risk of extreme poverty for the informal workforce by around 4 percent. This result indicates that on balance, higher minimum wages increase poverty.

I also find evidence that more formal workers are being paid less than the minimum wage. This occurs despite formal employers’ legal obligation to comply with minimum wages. Some non-compliance has always been observed in developing countries, mostly in response to imperfect enforcement from regulators (Rani et al. 2013). In Honduras, about one in three formal workers earns sub-minimum wages. As minimum wages increase, so does the level of non-compliance. I estimate that about 36 percent more formal sector workers, who should be receiving minimum wages, are underpaid by their employers.[ref]As Nathaniel pointed out to me, this indicates that Ham’s findings underestimate the negative impact of the minimum wage. If minimum wage laws were strictly complied with, the negative effects would be even greater.[/ref]

Ham concludes, “My findings imply that the costs of minimum wage increases outweigh their benefits in developing countries. The policy implication is that setting high minimum wages has detrimental effects on labor markets, well-being, and compliance.”