Month: January 2014

One of the subtle, substantial shifts in the American way of life is that people are spending more of their food budget eating away from home. And when they do so, they tend to eat less healthy food. The Economic Research Service of the U.S. Department of Agriculture offers this graph to illustrate the shift in spending on food prepared away from home.

USDA reports: \”Between 1977-78 and 2005-08, U.S. consumption of food prepared away from home increased from 18 to 32 percent of total calories. Meals and snacks based on food prepared away from home contained more calories per eating occasion than those based on at-home food. Away-from-home food was also higher in nutrients that Americans overconsume (such as fat and saturated fat) and lower in nutrients that Americans underconsume (calcium, fiber, and iron).\” They cite a December 2012 report, \”Nutritional Quality of Food Prepared at Home and Away From Home, 1977-2008,\” by Biing-Hwan Lin and Joanne Guthrie. That study finds: \”In the past three decades, FAH [food at home] has changed more in response to dietary guidance, becoming significantly lower in fat content and richer in calcium, whereas FAFH [food away from home] did not.\”

Pedestrian countdown signals at crosswalks show how much time is left before the light turns yellow, thus letting pedestrians know if they should rush to cross the street–or perhaps wait for the next light. But when these signals were introduced in Toronto, the rate of rear-end auto accidents was higher at the intersections with pedestrian signals compared to neighboring intersections. Sacha Kapoor and Arvind Magesan tell the story in \”Paging Inspector Sands: The Costs of Public Information,\” which appears in the most recent issue of the American Economic Journal: Economic Policy (6:1, pp. 92–113).  (The title was obscure to me: I\’ll introduce Inspector Sands at the end.)

The story starts a few years back when the city of Toronto decided to change over its existing streetlights to a more energy-efficient variety. Then the city decided that while doing the change-over, it would also install pedestrian countdown signals at the same time. It would start in the places where it was cheapest to retrofit, and then work across the city. This history matter for the economic analysis, because the pedestrian countdown signals were installed for reasons and in an order that had nothing to do with whether an intersection was known to be unsafe or whether previous accidents had occurred. Thus, one can reasonably compare intersections with signals to nearby intersections without, and do so before and after the signals are installed.

\”Our empirical analysis reveals that countdown signals resulted in about a 5 percent increase in collisions per month at the average intersection. The effect corresponds to approximately 21.5 more collisions citywide per month. The data also reveals starkly different effects for collisions involving pedestrians and those involving automobiles only. Specifically, although they reduce the number of pedestrians struck by automobiles, countdowns increase the number of collisions between automobiles. That the total number of collisions increased while collisions involving pedestrians decreased suggests that pedestrian countdown signals had a very significant effect on driver behavior. In fact, we find that collisions rose largely because of an increase in tailgating among drivers, a finding that implies drivers who know exactly when traffic lights will change behave more aggressively.\”

In short, the pedestrian countdown signals were good for pedestrians. But some of the drivers were watching the signals, trying to squeeze through before the light changed, and rear-ending other cars.

There\’s are some narrow lessons here about pedestrian countdown signals and a broader lesson about how information works. Here are two narrow lessons, which come out of a  more detailed analysis of the data: \”The first is cities might benefit from installing countdowns at historically highly dangerous intersections and from not installing them at historically safe intersections. The second conclusion
is that while countdowns can improve safety in historically dangerous cities, they may be detrimental to safety in historically safe ones.\” Also, instead of having a pedestrian countdown signal that is visible to cars, it might make more sense to have a verbal countdown that could only be heard by pedestrians.

The broader lesson is that it\’s common to assume, without a lot of thought, that more information shared more broadly will make everyone better off. But the case of Toronto\’s countdown signals is an example of where making information available only to some (pedestrians) and not to others (drivers) is socially beneficial.

Another example involves the story of Inspector Sands in the title of the article. Kapoor and Magesan write: \”Few know who Inspector Sands is, and no one has ever met him. This is for good reason. Theater companies in the United Kingdom are believed to use the code name “Inspector Sands” in order to alert ushers to pending emergencies, such as fires and bomb threats, without inciting panic among their patrons. When theater  staff learn of a fire, for example, they page Inspector Sands to the fire’s location. When ushers arrive they can put out the fire or help to evacuate the premises in a discrete and orderly manner. By ensuring the threat remains hidden from the public eye, the code name allows ushers to complete the tasks without having to deal with panicked crowds.\” Thus, Inspector Sands is a case, like pedestrian countdown signals, where information is revealed in a limited way to some, because revealing it to all would risk causing harm.

Full disclosure: The AEJ:EP is published by the American Economic Association, which also publishes the Journal of Economic Perspectives, where I work as Managing Editor.

The United Nations declared 2005 the Year of Microcredit. In 2006, the Nobel Peace Prize was awarded to Mohammad Yunus and the Grameen Bank in Bangladesh. But more recently, the Bangladeshi government pressured Yunus out of the Grameen Bank, has tried to prosecute  him for tax fraud on what looks like frail evidence, and has proposed dismantling Grameen into 19 separate banks. A scandal erupted in India, where a microfinance lender based in Andhra Pradesh was accused of driving over 50 borrowers to commit suicide by shaming and threatening when they could not repay their small loans on schedule. David Roodman sorts out the evidence on the current state of microfinance in  \”Armageddon or Adolescence? Making Sense of Microfinance’s Recent Travails,\”  written as Center for Global Development Policy Paper 35 (January 2014).

The first fact to recognize is that microfinance has expanded a great deal, reaching nearly $80 billion and with a considerable presence all around the world. The number of microloans outstanding topped 90 million in 2010, before declining in 2011 as a result of broad economic turmoil in the world economy and the fact that microfinance dried up in several regions and countries.

Roodman goes into some detail about the financial condition of microfinance institutions. Short story: they often benefit from being able to raise capital very cheaply, through donors or loans to them made at below-market interest rates.  However, with a few notable exceptions like the microfinance institutions in Andhra Pradesh, they are then able to operate in a reasonably self-sufficient way, with repayments of previous loans funding new loans. Moreover, a number of microfinance institutions are migrating away from just giving loans, and are starting to provide a fuller range of financial services to those with low and unstable incomes, including setting up bank deposits and facilitating domestic and international money transfers.

Roodman also reviews the evidence that the benefits of microfinance have been misunderstood and misstated. The common belief is that microfinance helps low-income people start businesses, which can then lift them out of poverty. But the best and most recent economic studies find that while microfinance does help start some businesses, the effect on poverty for those receiving the small loans is negligible. Of course, future studies may come up with different results. But for now, the strongest benefits from microfinance seem to be that it enables those with very low incomes to have greater control over their lives. They can borrow to buy a durable good. They can have a place where their savings are secure, or where they can transfer money. Moreover, from a social point of view, microfinance organizations are developing the organizational and managerial capabilities to operate like standard banks.

The microfinance industry has gotten large enough that it also attracting private-sector capital. In one sense, being able to tap into private-sector financial markets is a sign of the demonstrated strength and viability of the microfinance industry. But it inevitably brings controversy when some people or organizations do well by providing goods and services to the poor. And in some cases, the institutions expanding into microfinance may take advantage of the lack of regulation and consumer protection in these economies, and the lack of sophistication from a number of their borrowers, to act in an predatory and unscrupulous manner. Roodman summarizes some key lessons for the current state of microfinance in this way:  

\”In the sweep of history, countries that are wealthy today have had the most time to learn
hard lessons (and sometimes forget them). In these nations, the lending system includes such actors as retail lenders; investors therein; credit information bureaus; and regulatory bodies that limit and monitor aspects of credit products such as term, term disclosure, even pricing. For institutions that take deposits, additional regulators come knocking—to insure those deposits or ensure that under ordinary circumstances capital is on hand to absorb losses and meet withdrawal demands. A truth often overlooked in excitement about microfinance as a retail service model is that it is no exception to this need for companion institutions. If anything, the need is greater when targeting the poor. …

\”Microfinance has been growing for 35 years and now reaches upwards of 100 million people, who cannot all be wrong in their judgments about the utility of microfinance. Moreover, most of them are served by institutions that are nearly or completely self-sufficient in financial terms; these MFIs [microfinance institutions] do not depend greatly on outside subsidies … Because of the vicissitudes of poverty, poor people need financial services more than the rich. Their financial options will always be inferior—that’s part of being poor—and microfinance offers additional options with distinctive strengths and weaknesses.

\”The microfinance industry has demonstrated an ability to build enduring institutions to
deliver a variety of inherently useful services on a large scale. Nevertheless, the recent travails are signs that something is wrong in the industry. What is wrong is, ironically, what was once so right about the industry: it largely bypassed governments in favor of an experimental, bottom-up approach to institution building. The industry got so good at building institutions and injecting funds into them that it often forgot that a durable financial system consists of more than retail institutions and their investors. The narrow focus became a widening problem as microfinance grew. … To mature, the industry and its supporters should recognize the imbalance it has created. Where possible, they should work to strengthen institutions of moderation such as credit bureaus and regulators. Accepting that such institutions will often be weak, they should err on the side of investing less. In microfinance funding, less is sometimes more.\”

In 1964, the U.S. Surgeon General famously issued its report that smoking was hazardous to your health. The current Surgeon General, is now out with a report called \”The Health Consequences of 
Smoking —50 Years of Progress.\” Most of the nearly 1,000-page report (think before you hit \”Print All Pages\” on this one!) focuses on health effects of tobacco use. Basic message: Tobacco use is much more hazardous than we thought in 1964, and even more hazardous than we thought 10 or 20 years ago. But round about p. 700 of the report it offers a few chapters on tobacco use and tobacco policy, which is where the economic issues begin to appear explicitly.

As a starting point, here are long-term trends for tobacco consumption in the United States. The first graph shows that per capita consumption of tobacco–that is, total use divided by total population–has fallen from 12 pounds per person per year in the 1950s to about 4 pounds per person per year at present.

This figure shows the share of the adult population that currently smokes cigarettes. More than half of men and about one-third of women smoked in 1964; now, it\’s around 20% for women and a little  higher for men.

Clearly, U.S. tobacco use has dropped a great deal. But as the Surgeon General\’s report reminds us: \”Despite declines in the prevalence of current smoking, the annual burden of smoking-attributable mortality in the United States has remained above 400,000 for more than a decade and currently is estimated to be about 480,000, with millions more living with smoking-related diseases. … Annual smoking-attributable economic costs in the United States estimated for the years 2009–2012 were
between $289–332.5 billion, including $132.5–175.9  billion for direct medical care of adults, $151 billion  for lost productivity due to premature death estimated  from 2005–2009, and $5.6 billion (in 2006) for lost  productivity due to exposure to secondhand smoke.\”

Since the 1964 re[pt, a variety of anti-tobacco policies have been enacted: taxes on cigarettes, lawsuits against tobacco companies, warning labels, anti-smoking media campaigns, limits on advertising cigarettes, support for quitting, and rules that limit exposure to secondhand smoke in public places. What difference has it all made and where do we stand? The January 8, 2014, issue of the Journal of the American Medical Association (JAMA) has a useful set of articles reviewing the evidence and arguments (which can be read on-line with a slightly clunky browser).

In \”Tobacco Control and the Reduction in Smoking-Related Premature Deaths in the United States, 1964-2012,\”  Theodore R. Holford, Rafael Meza, Kenneth E.Warner, Clare Meernik, Jihyoun Jeon, Suresh H. Moolgavkar, David T. Levy take on the task of estimating how much smoking in the U.S. has been reduced as a result of the anti-smoking efforts. They write (and for readability I have deleted (bracketed information about the statistical confidence intervals from this description): \”In 1964-2012, an estimated 17.7 million deaths were related to smoking, an estimated 8.0 million fewer premature smoking-related deaths than what would have occurred under the alternatives and thus associated with tobacco control (5.3 million men and 2.7 million women). This resulted in an estimated 157 million year of life saved, a mean of 19.6 years for each beneficiary (111 million for men, 46 million for women). During this time, estimated life expectancy at age 40 years increased 7.8 years for men and 5.4 years for women, of which tobacco control is associated with 2.3 years (30%) of the increase for men and 1.6 years  (29%) for women.\”

What is the appropriate public policy with regard to tobacco? The Surgeon General\’s report writes: \”This nation must create a society free of tobacco-related death and disease.\” In a note before the report, the Secretary of Health and Human Services Kathleen Sibelius writes: \”I believe that we can make the next generation tobacco-free.\”  I\’m fine with all sorts of anti-tobacco policies, but I confess that I do not find the spirit of prohibition any more attractive when applied to tobacco than when it was applied to alcohol. People eat and drink all sorts of things that can cause ill-health, especially if taken to extremes. People also fail to exercise or to take multivitamins or small amounts of aspirin that would improve their health.  But the usual starting point for economic analysis is that a free society is better off when people make their own choices. There are several potential reasons for reaching a different conclusion.

For example, one possible reason is that people lack information in making their decisions, and so the government should assure that such information is provided. After 50 years of warnings, and drilling the health hazards of smoking into schoolchildren everywhere, I find it difficult to believe that many people are ignorant of the health risks. Indeed, cigarettes were referred to as \”coffin nails\” as far back as the 19th century. Sure, it\’s possible to make the health warnings more explicit, even grotesque, but at some point such efforts stop being about \”information,\” and are essentially propaganda.

Another possible reason for anti-smoking policy is \”externalities\”–that is, smoking imposes costs on others. But when smoking reduces the productivity and wages of a smoker, the smoker bears that cost directly. When smoking shortens life expectancy, the smoker bears that cost directly, too. Indeed, even when smoking causes sicknesses that lead to expenditures on health care costs, the grim truth (as economists and demographers are willing to note off the record), is that shorter life expectancies mean less government spending for programs like Social Security and Medicare. In addition, many of those who die from smoking-induced strokes or heart disease impose relatively low costs on the health care system. The \”externalities\” argument is a strong justification for reducing unwanted exposure to second-hand smoke. But given that we already have taxes on tobacco products that can be viewed as helping to offset the health care costs imposed by these programs, it\’s not clear how much more policy intervention can be justified by this argument.

The final reason for anti-smoking policy is sometimes called \”internalities\”–that is, people would like to quit smoking, but many of them find themselves unable to do so, and so they need some public policy help to avoid imposing costs on themselves. The Surgeon General report states that \”68.9% of current adult daily smokers in that year [2010] were interested in quitting smoking. … In 2012, the overall quit ratio (i.e., the percentage of ever smokers who had quit smoking) among U.S. adults was 55.1%, which means that in that year there were more former smokers than there were current smokers in the United States.\” In this spirit, the panoply of anti-smoking policies can be views as helping people who want to quit–or perhaps would prefer never to start the habit–to find the extra energy and incentive that they need to do so. But the \”internalities\” argument should not be pushed so far as to conclude that everyone who smokes should always wants to quit. Some smokers will prefer to follow Mark Twain\’s old advice, related to  his own prodigious cigar smoking, \”If you can\’t reach 70 by a comfortable road, don\’t go.\”

The evidence on cigarette taxes and the rate of smoking is compelling. The Surgeon General writes (citations omitted): \”In 2012, the federal tax rate was $1.01 per pack and the mean state tax rate was $1.53 per pack. The average price, nationally, for a pack of cigarettes in 2012 was $6.00.\” Here\’s a figure showing the real-inflation adjusted price of a pack of cigarettes, compared with consumption of cigarettes. It\’s intriguing to note that cigarette consumption has fallen as the after-tax price has risen.

To its credit, the U.S. Office of Management and Budget keeps a list of \”High-Error Programs,\” which is roughly defined programs that pay out $750 million or more improperly. Here\’s the list for 2012.
In thinking about where the problem is most severe, the last two columns are where to focus. The last column on the right shows what proportion of payments are made in error; the second column on the right shows the amount of the improper payments. Again, these numbers are official estimates from the U.S. government, not wild-eyed claims by opponents of these programs.

Even for a flinty-hearted economist like myself, some of these examples bother me more than others. For example, the school lunch program has a fairly high 15.5% rate of improper payments, but it seems to me unlikely that anyone in school cafeterias across the country is getting rich off these payments. My guess is that many of these improper payments are to children whose families are only borderline ineligible for the programs. And providing food in schools that serve low-income populations is a reasonable policy goal.

Or the Social Security programs that handle Retirement, Survivor\’s and Disability Insurance make the list because there is a low error rate (0.4%) on a very large amount of total spending ($717 billion).

But some of the other categories are more troubling. It\’s troubling that the top three programs on the list all involve health care spending through Medicare and Medicaid, and total $61.9 billion in improper payments. As the US is struggling to implement a new system of health insurance under the Affordable Care Act, with heavy and occasionally capricious government oversight, the table suggest that the federal government is not well-situated to oversee day-to-day medical interactions and decisions.

While I\’m a fan of the Earned Income Tax Credit, the 22.4% rate of improper payments is nonetheless striking and disheartening. As I discussed here, the problem seems to be a mixture of people whose economic and family lives are often in flux and who often have no particular facility for filling out detailed paperwork and records, combined with a complex set of government rules. Throw some opportunistic fraud into the mixture as well, and the overpayment rate gets high.

Once the federal government sends out the checks, the improper payments are rarely recovered. The website states optimistically that recovery of improper payments was up to $4 billion over the previous three years, thanks mostly to efforts in Medicare. But with the improper payments running at $100 billion per year on the government\’s own estimates, this hardly seems a reason to toss the confetti.

One signal for whether the U.S. economy is ready for a more robust recovery is the extent to which the financial position of households has rebounded. Here are some illustrative figures, taken from the January 2014 issue of Economic Trends from the Cleveland Fed.

O.Emre Ergungor and Daniel Kolliner write about \”Household Economic Conditions.\” Here\’s a figure showing the movements in household wealth since 2000. Household assets and net worth have now rebounded and surpassed their pre-recession highs.

Part of what\’s happening here is that households have trimmed back on many of their debts. This figure show the change in outstanding debt in various categories over the previous four quarters. During the housing bubble, for example, mortgage debt was growing at more than 10% per year. But household mortgage debt has been contracting (that is, negative growth) since about 2008. The authors write: \”Revolving consumer credit balances plummeted in 2008 and are currently barely higher than their level in the third quarter of 2012. Outstanding home mortgage debt is still contracting due to record write-off s and reduced demand for homes in previous years. Nonrevolving consumer credit, which consists of secured and unsecured credit for student loans, automobiles, durable goods, and other purposes, is the only credit category that shows some sign of life. It is currently 8.5 percent above year-ago levels. Note, however, that the student loan component is entirely driven by federal government loans to students and does not reflect private market activity.\”

The combination of lower household debts and sustained low interest rates means that households are spending less on debt service. They write: \”The financial obligation ratio, which expresses household liabilities, such as credit card payments, mortgage payments, home property taxes, and rent payments, as a percentage of disposable income, is at its lowest level since the third quarter of 1981.\”

A result of these changes is that retail sales and consumption overall, if not yet back to healthy growth rates, are at least solidly back in positive growth after their nosedive during the Great Recession.

 Of course, the unemployment rate remains high, as do the number of long-term unemployed and concerns over whether some workers are not being counted as unemployed because they have become too discouraged to look  for work. But noting that the economy is improving is not to make the claim that it\’s already a bright sunshiny day. One final pattern caught my eye in an article on \”Employee Compensation Costs during the Recovery,\” by Joel Elvery. He points out that the patterns of wages and of benefits have been diverging in recent years.

This figure needs to be interpreted with care, because hourly compensation costs are affected by which workers have jobs. Thus, the rise in wages and salary around 2008 is not because lots of workers saw a big raise, but instead because lower-paid workers were more likely to become unemployed, and so the average wage and salary for those with jobs was  higher as a result. But the overall pattern here is clear enough. Over the last decade, wages and salaries have been pretty flat, but the costs to employers of benefits like retirement and savings accounts, as well as health insurance, have been rising. As I\’ve written before on this blog, health care costs (along with other benefits) have been eating your pay raise.

Back in 1986, 64% of the voters of California enacted Proposition 65: The Safe Drinking Water and Toxic Enforcement Act. Who could be against it? Well, I was working as an editorial writer for the San Jose Mercury News at the time, and I wrote the paper\’s editorial explaining why the law was misguided.

The main thrust of Proposition 65 was to require putting up signs to warn people when they were near something that was a known carcinogen. This sounds reasonable enough, until you realize that many common products have very small amounts of ingredients that, if consumed in bulk, could pose a risk of cancer. The law, which now requires notifications of over 860 chemicals, made no clear distinction between whether exposures were high or low. Michael L. Marlow looks at the current status of Prop. 65 in \”Too Much (Questionable) Information?\” which appears in the Winter 2013-14 issue of Regulation magazine.  Marlow gives an example of the Prop. 65 \”warnings that must be
issued by a typical California hotel.\” 

\”The warnings include: mercury in seafood; secondhand tobacco smoke; cleaning supplies and related activities; on-site construction; furnishings, hardware, and electrical components, including furniture, window treatment, locks, keys, electrical equipment, and carpeting; personal hygiene and medical supplies, including soaps, shampoos, and first aid supplies; hotel water supply systems, including faucets and other plumbing components; combustion sources, including automobile engines, gas stoves, fireplaces, and candles; office and art supplies and equipment, including carbonless paper, marking pens, copier machine chemicals, glues, crayons, and paints; landscaping supplies and pesticide treatment, including fertilizers, soil amendments, and pesticides; food and beverage service, including broiled and barbecued foods; transportation-related exposures, including motor fuels and engine exhaust; equipment and facility maintenance, including motor oil changes, carburetor cleaning, battery replacement, and facility repairs; retail sales; and recreation facilities, swimming pools, hot tubs and beaches,including beach sand (which can contain quartz sand, a form of carcinogenic crystalline silica).\” 

As the last example makes clear, the Prop. 65 rules don\’t distinguish between manufactured products and naturally-occurring carcinogens. Certain foods like bread and chicken have trace amounts of chemicals that, if fed to lab rats in large doses, can cause cancer. So restaurants need to post Prop. 65 signs, too. Unsurprisingly, when Marlow dredges through the statistics at some length, there isn\’t any clear evidence that Prop. 65 affected cancer rates.

But if the Prop. 65 signs raise consciousness a bit about health risks, even if in a potentially confusing way, is there any real harm? Well, this is where the \”bounty hunter\” provisions become important. The law was to be enforced by people bringing suit. Marlow explains:

\”Proposition 65 allows anyone bringing lawsuits to collect a portion of the civil penalties. Civil penalties of up to $2,500 per day for each violation are allowed, with one-quarter going to the party bringing suit. These payments are not linked to litigation costs, but are in effect “profits” without associated costs from litigation. Plaintiffs threatening litigation have increasingly switched their focus to demanding that businesses surrender payments directly to them rather than paying civil penalties. Plaintiffs are entitled to reimbursement of their costs of bringing a Proposition 65 suit. Businesses, however, are unlikely to collect their attorneys’ fees even if they prevail in court. Businesses are thus likely to be stuck with paying attorney fees on both sides of the case, as well as civil penalties, thus creating significant profit motives for the bounty hunters. Expert witnesses and the
indefinite nature of standards make for costly case-by-case litigation. …

\”The California Appellate Court in 2006 noted that bringing a Proposition 65 bounty-hunter action is so “absurdly easy” that the attorneys’ fees paid by defendants to avoid litigation are “objectively unconscionable.” … Over 2000–2011, there were 2,381 settlements. in 2011 alone, there were 338 settlements—the highest number of any year in this period. no information exists on how many settlements occurred prior to the 1999 amendments. Total settlement amounts over the 2000–2011 time frame totaled nearly $180 million (in 2011 dollars). that figure underestimates total costs to firms because it does not include legal and expert witness costs of defendants or court costs for cases that went to trial. Plaintiff s receive most settlement dollars in the forms of attorney fees and “other” payments made directly to organizations bringing suits or other organizations designated by filing organizations, with the California government receiving less than 15 percent of settlement costs in recent years.\”

I took some flak back in 1986 for opposing Prop. 65. But requiring a multitude of vague warnings, combined with a license to sue, is not sensible public policy.

For the Global Risks 2014 report, the World Economic Forum surveys over 700 of its members, asking them to look at 31 risks and rank their top five concerns. Top of the list? \”Fiscal crises in key economies,\” which beat out unemployment, water crises, severe income disparity, climate change, greater incidence of severe weather events, and others. The report notes:

\”The risk of fiscal crises features as the top risk in this year’s Global Risks report. … [M]ost emerging markets were able to quickly recover from the recent financial crisis. Latin American and Asian countries, which had experienced their own fiscal crises in the 1980s and 1990s, had implemented reforms to bring government debt under control. When they were hit by the fallout of the financial crisis, they had the fiscal leeway to  stimulate economic activity through the opposite of austerity – increasing spending and/or cutting taxes.  Advanced economies remain in danger of fiscal crises. Given the US’s official public debt of more than 100% of its GDP,  and Japan’s of more than 230%, investors may at some point conclude that these levels are unsustainable. In the short  run, the risks are higher for eurozone countries, which lack the option of devaluing their currencies to ease the necessary fiscal adjustment. Although ostensibly in a better position, many emerging markets have seen credit bubbles in recent  years that could turn into financial crises, and then fiscal crises, for example, the rapid credit growth in Asia since 2008. … Making fiscal frameworks more resilient in the future is even more important given the substantial longer-run fiscal challenges created by an ageing population.\”

To put some meat on the bones of that capsule description, I recommend \”Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten,\” written by Carmen M. Reinhart and Kenneth S. Rogoff as an IMF working paper (WP/13/266, December 2013).

As a starting point, here\’s gross government debt as a percentage of GDP, looking separately at advanced economies and emerging markets. The emerging markets had a surge of government debt in the 1980s, but since then, the growth of their economies has largely outstripped the growth of their debt The governments of advanced economies have been growing their debt/GDP ratios, with a few hesitations, since the 1970s, and are close to matching their post-World War II high.

But debt already owed by the government is not the only important measure of debt in an economy. When an economy has \”external debt\” owed to foreign investors, but has difficulty repaying, it has been common for the government to step in and assume some of that debt (fearing that otherwise the country might find it hard to access international capital markets in the future). Similarly, when certain kinds of private-sector debt, like banking debt, get so high that a default is imminent, it has also been common for governments to step in with some kind of a bailout. So what do these measures of debt look like? Here\’s a figure showing external debt–public and private–as a share of GDP. For emerging markets, the percentage is declining; for high-income economies, it\’s been climbing for most of the last 25 years.

What is we just look at private-sector credit as a share of GDP? For the emerging market economies, private credit as a share of GDP has been basically flat since the 1980s. For advanced economies, the ratio has been growing over time, but expecially took off in the late 1990s–at least before the Great Recession mildly deflated the private credit bubble.

The theme of these figures is that the size of debt in advanced economies, relative to the size of their GDP, is historically at high levels. This certainly doesn\’t mean that there will necessarily be a crash in the near future. But a high level of debt can make an economy more fragile when a nasty shock comes along. If the what Reinhart and Rogoff call the \”debt overhang\” is to be reduced, how might that happen? They lay out five possibilities.

The happy outcome would be a surge of sustained growth across the advanced economies that would help the growth of their GDP outstrip the growth of their borrowing. If we don\’t want to count on this happy outcome, the other possibilities are less cheerful.

Fiscal adjustment is a sustained pattern of lower spending and higher taxes to pay off the debt. A Greek-style default or restructuring would reduce the outstanding debt. An unexpected hit of inflation could reduce the value of the outstanding debt, although it might bring other undesired consequences as well like higher nominal interest rates while refinancing the remaining debt. The final option is \”financial repression,\” which is the catch-all term for rules that limit how the private sector can invest, and thus make it easier for the government to borrow money. None of these options are attractive. But when an economy has run up very large amounts of debt, the good option–minimizing the debt run-up in the first place–has already been forsaken.

To be sure, the technology isn\’t quite ready for fast food. \”From an economic perspective, cultured meat is still an experimental technology. The first in vitro burger reportedly cost about $335,000 to produce and was made by possible by financial support from Google cofounder Sergey Brin.\” Mattick and Allenby discuss a number of technological challenges. 

The U.S. economy relies to an increasing extent on immigrants for its innovative impetus. Consider two figures from William Kerr, writing in the NBER Reporter (2013, Number 4, pp. 13-16).

The first graph shows the share of U.S. patents received by various ethnic groups. The inventor needed to be living in the U.S. to be counted in this tally, but didn\’t have to be a U.S. citizen–at least not yet. Kerr writes: \”Figure 1 shows the tremendous increase in the ethnic contribution of U.S. inventors over the last 30 years, focusing only on inventors residing in the United States at the time of their work. The contribution of Chinese and Indian ethnic inventors displays exceptional growth, increasing from under 2 percent each to 9 percent and 6 percent respectively. Ethnic contributions are disproportionately concentrated in high-tech fields …\”

Here\’s a similar count broken down by company. This figure shows the share of patents by inventors of Chinese or Indian ethnicity for some high profile U.S. firms.

Many of these inventors are only in the U.S. on short-term H-1B visas, which seems foolish. We can argue back and forth about the issues involved in immigration of low-skill workers to the United States. But in a globalizing economy, high-skill immigrants bring a combination of technological moxie and international connectedness that can be deeply valuable.  Even if one just looks at high-skilled workers, innovation is not a zero-sum game: Kerr\’s research shows that when the number of high-skill immigrants on short-term visas rises in a city, and the innovation rate rises, the innovation rate for for other inventors in that city seems to rise slightly, too. It surely looks as if U.S. innovation is being sustained by recent arrivals and people who are here on a short-term basis. The U.S. education system and economy is a magnet for global talent, and we should play to that advantage.