Year: 2019

China\’s economy is simultaneously huge in absolute size and lagging far behind the world leaders on a per person basis. According to World Bank data, China\’s GDP (measuring in current US dollars) is
$13.6 trillion, roughly triple the size of Germany or Japan, but still in second place among countries of the world behind the US GDP of $20.4 trillion. However, measured by per capita GDP, the World Bank data shows that China is at $9,770, just one-sixth of the US level of $62,641.

Any evaluation of China\’s economy finds itself bouncing back and forth between the enormous size that has already been achieved and the possibility of so much more growth and change in the future. This pattern keeps recurring in \”China and the world: Inside the dynamics of a changing relationship,\” written by the team of Jonathan Woetzel, Jeongmin Seong, Nick Leung, Joe Ngai, James Manyika, Anu Madgavkar, Susan Lund, and Andrey Mironenko at the McKinsey Global Institute (July 2019).

Here\’s one illustration. The figure shows the total GDP of China, Japan, and Germany as a share of the US level, which is set at 100%. On this figure, Germany\’s GDP as a share of the US level peaked in 1979, and Japan\’s peaked in 1991.

What\’s interesting about China\’s situation is not just that the level has risen so sharply. In addition, the peaks for Germany and Japan happened when their levels of per capita GDP were similar or higher to the US level (given the prevailing exchange rates at the time). China\’s per capita GDP is much lower, suggesting much more room to grow. Similarly, the urbanization rates for Germany in 1979 and Japan in 1991 were in the 70s, while China\’s urbanization rate is only 58%–again suggesting considerably more room for China to grow.

Here are some other examples of the changes in China that have already happened, with a hint of the potential for much larger changes still remaining. The MGI report notes:

Trade. … China became the world’s largest exporter of goods in 2009, and the largest trading nation in goods in 2013. China’s share of global goods trade increased from 1.9 percent in 2000 to 11.4 percent in 2017. In an analysis of 186 countries, China is the largest export destination for 33 countries and the largest source of imports for 65. … However, China’s share of global services trade is 6.4 percent, about half that of goods trade.

Firms. … Consider that in 2018 there were 110 firms from the mainland China and Hong Kong in the Global Fortune 500, getting toward the US tally of 126. … However, although the share of these firms’ revenue earned outside China has increased, less than 20 percent of revenue is made overseas even by these global firms. To put this in context, the average share of revenue earned overseas for S&P 500 companies is 44 percent. Furthermore, only one Chinese company is in the world’s 100 most valuable brands.

Finance. China was also the world’s the second largest source of outbound FDI and the second largest recipient of inbound FDI from 2015 to 2017. … Foreign ownership accounted for only about 2 percent of the Chinese banking system, 2 percent of the Chinese bond market, and about 6 percent of China’s stock market in 2018. Furthermore, in 2017, its inbound and outbound capital flows (including FDI, loans, debt, equity, and reserve assets) were only about 30 percent those of the United States. …

Technology. China’s scale in R&D expenditure has soared—spending on domestic R&D rose from about $9 billion in 2000 to $293 billion in 2018—the second-highest in the world—thereby narrowing the gap with the United States. However, China still depends on imports of some core technologies such as semiconductors and optical devices, and intellectual property (IP) from abroad. In 2017, China incurred $29 billion worth of imported IP charges, while only charging others around $5 billion in exported IP charges (17 percent of its imports). China’s technology import contracts are highly concentrated geographically, with more than half of purchases of foreign R&D coming from only three countries—31 percent from the United States, 21 percent from Japan, and 10 percent from Germany.

Culture. China has invested heavily in building a global cultural presence. … Furthermore, its financing of the global entertainment industry has led to more movies being shot in China: 12 percent of the world’s top 50 movies were shot at least partially in China in 2017, up from 2 percent in 2010. However, significant investment appears to have had yet to achieve mainstream cultural relevance globally. Chinese exports of television dramas in terms of the value of exports are only about one-third those of South Korea, and the number of subscribers to the top ten Chinese musicians on a global streaming platform are only three percent those of the top ten South Korean artists, for instance.

The MGI report argues that when looking specifically at trade, technology and financial capital, China\’s economy is becoming less dependent on the rest of the world, while the rest of the world economy is becoming more dependent on China. For example, one big shift in the last few years is that China\’s economy has been \”rebalancing,\” which refers to a greater share China\’s output going to China\’s consumers and less to capital investment or exports. This shift also means that rising levels of consumption in China are a major force in driving global consumption of goods and services.

In 11 of the 16 quarters since 2015, domestic consumption contributed more than 60 percent of total GDP growth. In 2017 to 2018, about 76 percent of GDP growth came from domestic consumption, while net trade made a negative contribution to GDP growth. As recently as 2008, China’s net trade surplus amounted to 8 percent of GDP; by 2018, that figure was estimated to be only 1.3 percent—less than either Germany or South Korea, where net trade surpluses amount to between 5 and 8 percent of GDP. Rising demand and the development of domestic value chains in China also partly explain the recent decline in trade intensity at the global level. …Although it only accounts for 10 percent of global household consumption, China was the source of 38 percent of global household consumption growth from 2010 to 2016, according to World Bank data. Moreover, in some categories including automobiles and mobile phones, China’s share of global consumption is 30 percent or more.

I read now and then about the prospect of China\’s economy \”decoupling\” from the US economy.. From a US power politics point of view, I think the mental model here is how the economy of the Soviet Union operated in the decades after World War II. Most of the trade of the USSR operated within its own centrally-planned trading bloc, called the Council for Mutual Economic Assistance, of Soviet-controlled countries. The results in terms of output and quality were so miserably bad that jokes told by Russians about their economy became a staple among economists. Since the fall of the USSR, Russia\’s economy has staggered from one catastrophe another (for discussion, see here and here), while occasionally being buoyed up when oil prices are high.

China\’s situation is very different. It\’s economy is not reliant on exports of oil or other natural resources. China\’s government still controls the financial industry and steers funds to state-owned companies, but it is not following a Soviet-style approach to central planning. In the 21st century, China not isolating itself from the rest of the world economy; rather, it is actively building transportation and trade ties to countries around the world. The education and health levels of China\’s population are rising rapidly. Future economic  growth for China is likely to be slower and bumpier than the pattern of the last 40 years–while still being notably faster on average than the growth of high-income economies like the U.S.

There are a number of hard questions to face about China\’s rise in the global economy, and many of the hardest ones go well beyond economics. But old mental models drawn from a time when the US was by far the dominant economy in the world and its main geopolitical opponent was the USSR are not likely to be very useful in searching for answers.

The last decade shows that humans can record their own actions when faced with certain tasks, which can be recycled to make new decisions that score as well as humans’ (or maybe better, because the recycled decisions are immune to fatigue and impulse). … Recycled human intelligence does not deserve to be called augmented intelligence. It does not truly augment the range of capabilities that humans possess. … Relying on such recycled intelligence is risky; it may give systematically wrong answers …\”

No proposal to raise the minimum wage can be evaluated without asking \”how fast and by how much?\” The Congressional Budget Office offers an evaluation of three alternatives in \”The Effects on Employment and Family Income of Increasing the Federal Minimum Wage\” (July 2019).  CBO considers three proposals: \”The options would raise the minimum wage to $15, $12, and $10, respectively, in six steps between January 1, 2020, and January 1, 2025. Under the $15 option, the minimum wage would then be indexed to median hourly wages; under the $12 and $10 options, it would not.\” (There are some other complexities involving possible subminimum wages for teenage workers, tipped worker, and disables workers, which I won\’t discuss here.)

One way to understand the result is to compare these proposals with the path of wages in the US economy. The top dashed line shows the (adjusted for inflation) wages of workers at the 25th percentile of the wage distribution. The second dashed line shows the wages of workers at the 10th percentile of the wage distribution. The orange line shows the federal minimum wage under current law, both past and present. The three proposals for raising the minimum wage appear on the far right-hand side of the figure.

An obvious takeaway here is that the minimum wage was roughly equal to the 10th percentile of the income distribution in the 1970s. While the minimum wage has fallen below the 10th percentile since then, it almost rises back to that level after the series of minimum wage increases enacted in 2007. However, the minimum wage has been separating from the 10th percentile wage, and the gap is projected to keep growing under current law.

This general background suggests that in a big picture sense, the consequences of having a minimum wage that rises to, say, $12 per hour, won\’t be all that different from the past consequences of having a minimum wage that\’s a little below the 10th percentile of wages. However, an increase up to $15/hour in the federal minimum wage would potentially have a greater effect, outside the historical norm.

Considering the effects of a higher federal minimum wage is also complicated by the fact that so many states and cities have already enacted higher minimum wages. The CBO notes:

As of 2019, 29 states and the District of Columbia have a minimum wage higher than the federal minimum. (Many of those states have boosted their minimum wage in recent years.) The minimum wage is indexed to inflation in 17 of those states, and future increases have been mandated in 6 more. Some localities also have minimum wages higher than the applicable state or federal minimum wage; in San Francisco, for instance, the minimum wage increased to $15.59 per hour as of July 1, 2019, and is adjusted for inflation annually. About 60 percent of all workers currently live in states where the applicable minimum wage is more than $7.25 per hour. And in 2025, about 30 percent of workers will live in states with a minimum wage of $15 or higher, CBO estimates …

Because of all this state and local activity with higher minimum wages, the argument raising the  federal wage has shifted. It\’s not as much about a minimum wage for all US workers, as it is about a higher minimum wage for the 40% of US workers where that hasn\’t already happened. And often, those workers live in lower-wage places where the combined forces of politics and economics haven\’t yet led to a higher minimum wage.

The effects of a higher minimum wage on employment and wages are affected by lots of factors, including all the ways that employers and worker might react to to such an increase in the short-run and the long run, not just through hiring, but also through decisions related to pricing of products and investment in equipment. There are lots of uncertainties in modelling minimum wage increases. CBO did a review of 11 recent studies, finding some that predict a minimum wage will increase employment while others predict it will decrease employment. Here\’s a table of the studies, for readers who would like to dig deeper. The elasticity is by how much employment for those directly affected by the minimum wage will change in response to a change in wages of 1% caused by the higher minimum wage. In most studies, but not all, the long-run effect is larger than the short-run effect. 

With these uncertainties duly recognized, here the CBO estimate for a phased-in rise in the minimum wage to $15/hour: 

Under the first option [of raising the minimum wage to $15/hour] according to CBO’s median estimate, about 1.3 million workers who would otherwise be employed would be jobless in an average week in 2025. That decrease would account for 0.8 percent of all workers and 7 percent of directly affected workers who would otherwise earn less than $15 per hour. Wages would rise, however, for 17 million directly affected workers who remained employed and for many of the 10 million potentially affected workers whose wages would otherwise fall slightly above $15 per hour—specifically, between the new federal minimum and that amount plus 50 percent of the increase in their applicable minimum wage. The higher wages for those potentially affected workers might lead to reductions in their employment, but some firms might hire more of those workers as substitutes for lower-paid workers whose wages had increased by larger amounts. Those two factors would roughly offset for those higher-wage workers, CBO anticipates. 

The $15 option would alter employment more for some groups than for others. Almost 50 percent of the newly jobless workers in a given week—600,000 of 1.3 million—would be teenagers (some of whom would live in families with income well above the poverty threshold). Employment would also fall disproportionately among part-time workers and adults without a high school diploma. …

That net effect is due to the combination of factors described above:

• Real earnings for workers while they remained employed would increase by $64 billion,

• Real earnings for workers while they were jobless would decrease by $20 billion,

• Real income for business owners would decrease by $14 billion, and

• Real income for consumers would decrease by $39 billion.

My own quick take is that an increase in the federal minimum wage to $10/hour or even $12/hour is well within the range of past experience, and the effects are likely to be relatively small. Going to $15/hour is a bigger jump.

In particular, there are states and big parts of the country outside of major metropolitan areas where quite a large share of workers make less than $15/hour. Here are some comparisons from Census Bureau data. In May 2018, for example, the median hourly wage in California as a whole was $20.40. However, the median wage in the San Francisco-Oakland-Hayward metro area was $26/hour, while in the Fresno area the median wage was $16.40/hour. Or if one looks across states, the median hourly wage in Mississippi is $14.70/hour, or in Idaho was $16.47/hour. With a very large and diverse US economy, the effects of a higher federal minimum wage will not be evenly distributed by geography. 

\”For decades, US multinational corporations (MNCs) conducted nearly all their research and development (R&D) within the United States. Their focus on R&D at home helped establish the United States as the unrivaled leader of innovation and technology advances in the world economy. Since the late 1990s, however, the amount of R&D conducted overseas by US MNCs has grown nearly fourfold and its geographic distribution has expanded from a few advanced industrial countries (such as Germany, Japan, and Canada) to many parts of the developing world …\”

Lee G. Branstetter, Britta Glennon, andJ. Bradford Jensen discuss this shift in \”The Rise of Global Innovation by US Multinationals Poses Risks and Opportunities\” (June 2019, Peterson Institute for International Economics,  Policy Brief 19-9).

Here\’s the quadrupling in foreign-based R&D by US multinationals in the last couple of decades:

Mark Twain wrote an essay back in 1905 called \”The Czar\’s Soliloquy\” (North American Review, Vol. 180.No. DLXXX).  The essay was triggered by a sentence in the London Times, reporting: \”After the Czar\’s morning bath it is his habit to meditate an hour before dressing himself.\” Twain imagined that the Czar, standing naked in front of a mirror, was for a few moments honest with himself about the injustices and cruelties that he had allowed and perpetrated, and hoped for a better future. Imagining the Czar\’s words to himself, Twain wrote:

There are twenty-five million families in Russia. There is a man-child at every mother\’s knee. If these were twenty-five million patriotic mothers, they would teach these man-children daily, saying : \”Remember this, take it to heart, live by it, die for it if necessary: that our patriotism is medieval, outworn, obsolete; that the modern patriotism, the true patriotism, the only rational patriotism, is loyalty to the Nation all the time, loyalty to the Government when it deserves it.

On the Fourth of July in particular, it makes me sad to run into people whose patriotism ebbs and flows according to what political party occupies the White House. There ought to be a large and real line between support of whoever who is in government at a particular time, and a broader patriotism. A country is a mixture of people, ideals, geography, history, cultures, and more. It should be possible to love your country, whether your feelings about the government are positive, negative, neutral, ambivalent, or don\’t-give-a-damn.

The phrase “the American Dream” was coined by a Pulitzer prize-winning historian named James Truslow Adams in his 1931 book The Epic of America. Truslow described the American Dream in this way (pp. 415-416):

But there has been also the American dream, that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position. I once had an intelligent young Frenchman as a guest in New York, and after a few days I asked him what struck him most among his new impressions. Without hesitation he replied, \”The way that everyone of every sort looks you right in the eye, without a thought if inequality. Some time ago a foreigner who used to do some work for me, and who had picked up a very fair education, occasionally sat and chatted with me in my study after I had finished my work. One day he said that such a relationship was the great difference between America and his homeland. There, he said, \”I would do my work and might get a pleasant word, but I could never sit and talk like this. There is a difference there between social grades which cannot be got over. I would not talk to you there as man to man, but as my employer.\”

No, the American dream that has lured tens of millions of all nations to our shores in the past century has not been a dream of merely material plenty, though that has doubtless counted heavily. It has been much more than that. It has been a dream of being able to grow to fullest development as man and woman, unhampered by the barriers which had slowly been erected by older civilizations, unrepressed by social orders which had developed for the benefit of classes rather than just for the simple human being of any and every class. And that dream has been realized more fully in actual life here than anywhere else, though very imperfectly even among ourselves.

Adams puts this idea of the \”American dream\” at the center of his description of telling the American narrative and describing what it means to be an American (p. 174):

If Americanism in the above sense has been a dream, it has also been one of the great realities of American life. It has been a moving force as truly as wheat or gold. It is all that has distinguished American from a mere quantitative comparison in wealth or art or letters or power with the nations of old Europe. It is Americanism, and its shrine has been in the heart of the common man. He may not have done much for American culture in its narrower sense, but in its wider meaning it is he who almost alone has fought to hold fast to the American dream. This is what has made the common man a great figure in the American drama. This is the dominant motif in the American epic.

It seems to me that the American dream is sometimes reduced to the idea of upward economic mobility, and while that\’s certainly part of the vision, it\’s useful to remember that Adams meant something considerably broader: not just material well-being, but also the opportunity to shape one\’s destiny; when social order means less and individuals mean more, when social equality is a common presumption in a way that reaches beyond equal treatment before the law, and when the successes and failures of the country are judged by how they affect everyday people.

George Washington\’s Farewell Address in 1796 is perhaps best-remembered today for his advice: \”\’Tis our true policy to steer clear of permanent Alliances, with any portion of the foreign World.\” But on this Fourth of July, I felt moved to remember and to reconsider Washington\’s warnings about how political parties set up false alarms, misrepresent others, agitate the community, and can even lead to foreign influence and corruption.

As a sampler, Washington said:

• \”One of the expedients of Party to acquire influence, within particular districts, is to misrepresent the opinions & aims of other Districts.\”
• \”The alternate domination of one faction over another, sharpened by the spirit of revenge natural to party dissention, which in different ages & countries has perpetrated the most horrid enormities, is itself a frightful despotism.\” 
• \”[The spirit of Party] serves always to distract the Public Councils and enfeeble the Public Administration. It agitates the Community with ill founded Jealousies and false alarms, kindles the animosity of one part against another, foments occasionally riot & insurrection. It opens the door to foreign influence & corruption, which find a facilitated access to the government itself through the channels of party passions.\” 

Here\’s a fuller quotation:

\”One of the expedients of Party to acquire influence, within particular districts, is to misrepresent the opinions & aims of other Districts. You cannot shield yourselves too much against the jealousies & heart burnings which spring from these  misrepresentations. They tend to render Alien to each other those who ought to be bound together by fraternal Affection. … …

\”I have already intimated to you the danger of Parties in the State, with particular reference to the founding of them on Geographical discriminations. Let me now take a more comprehensive view, & warn you in the most solemn manner against the baneful effects of the Spirit of Party, generally.

\”This Spirit, unfortunately, is inseperable from our nature, having its root in the strongest passions of the human Mind. It exists under different shapes in all Governments, more or less stifled, controuled, or repressed; but in those of the popular form it is seen in its greatest rankness and is truly their worst enemy.

\”The alternate domination of one faction over another, sharpened by the spirit of revenge natural to party dissention, which in different ages & countries has perpetrated the most horrid enormities, is itself a frightful despotism. But this leads at length to a more formal and permanent despotism. The disorders & miseries, which result, gradually incline the minds of men to seek security & repose in the absolute power of an Individual: and sooner or later the chief of some prevailing faction more able or more fortunate than his competitors, turns this disposition to the purposes of his own elevation, on the ruins of Public Liberty.

\”Without looking forward to an extremity of this kind (which nevertheless ought not to be entirely out of sight) the common & continual mischiefs of the spirit of Party are sufficient to make it the interest and the duty of a wise People to discourage and restrain

\”It serves always to distract the Public Councils and enfeeble the Public Administration. It agitates the Community with ill founded Jealousies and false alarms, kindles the animosity of one part against another, foments occasionally riot & insurrection. It opens the door to foreign influence & corruption, which find a facilitated access to the government itself through the channels of party passions. Thus the policy and the will of one country, are subjected to the policy and will of another.

\”There is an opinion that parties in free countries are useful checks upon the Administration of the Government and serve to keep alive the spirit of Liberty. This within certain limits is probably true–and in Governments of a Monarchical cast Patriotism may look with endulgence, if not with favour, upon the spirit of party. But in those of the popular character, in Governments purely elective, it is a spirit not to be encouraged. From their natural tendency, it is certain there will always be enough of that spirit for every salutary purpose. And there being constant danger of excess, the effort ought to be, by force of public opinion, to mitigate & assuage it. A fire not to be quenched; it demands a uniform vigilance to prevent its bursting into a flame, lest instead of warming it should consume.\”

In my experience, complaints about the system of health care finance over the years almost always began with the lack of universal health insurance coverage, and how many tens of millions of Americans lacked health insurance. Then, somewhat later in the conversation, the high per capita costs of US health care spending might or might not come up.

The Patient Protection and Affordable Care Act of 2010 was a reflection of these priorities. The strength of the legislation was that it increased federal spending by over $110 billion per year to cover an expansion of health insurance for about 22 million people. But in terms of controlling healthc are costs, not much happened. US health care spending was 8/9% of GDP in 1980, 13.4% of GDP in 2000, 17.3% of GDP in 2010 when the legislation passed, 17.9% of GDP for the most recent data in 2017, and projected to hit 19.4% of GDP by 2027 by the Centers for Medicare and Medicaid Services. One can argue back and forth over whether this increase in health care spending as a share of GDP has been worth it, but you can\’t argue that health care costs have held steady or been reduced.

But there are some glimmerings that health care costs are becoming a more prominent and focal issue. For example, West Health and Gallup published \”The U.S. Healthcare Cost Crisis\” (March 2019, free registration required to download). Based on a nationally representative survey in January and February of this year, here are some findings:

• \”Indeed, when given the choice between a freeze in healthcare costs for the next five years and a 10% increase in household income, 61% of Americans report their preference is a freeze in costs. This sentiment runs inversely to income: Among those low-earners with annual household incomes under $24,000 per year, two-thirds would prefer the rising cost of healthcare be fully curtailed for five years over a pay raise. Even among high-earning households with annual incomes of $180,000 or more, there is majority support for frozen costs over increased wages, which would represent at least another $18,000 per year.\”
• When asked \”\”Relative to the quality of care, do you think Americans generally are paying too much, too little, or the right amount for most of the care that they receive from the U.S. healthcare system?\” 76% of Americans answer \”too much.\”
• \”77% of Americans fear rising healthcare costs will damage the U.S. economy, and 45% fear a major health event will lead to bankruptcy.\”
• \”47% of Americans never know what a visit to the emergency room will cost, and 41% report forgoing care in an emergency department due to cost in the past 12 months.\”
• \”Americans borrowed an estimated $88 billion to pay for healthcare, and 65 million adults report having a health issue but not seeking treatment due to cost in the past 12 months.\”

Social scientists sometimes say that \”demography is destiny,\” which never seemed quite right to me. Yes, demography has powerful and often underestimated effects. It constrains and shapes the options available to society. But society also makes decisions about how to react to demographic forces, too. In that spirit, here are some of the population constraints that will be shaping and constraining global politics and economics in the next few decades, from World Population Prospects 2019 done by demographers at the United Nations. In particular, I\’m drawing here from the World Population Prospects 2019: Highlights report (June 2019).

\”The world’s population continues to grow, albeit at a slower pace than at any time since 1950, owing to reduced levels of fertility. From an estimated 7.7 billion people worldwide in 2019, the medium-variant projection indicates that the global population could grow to around 8.5 billion in 2030, 9.7 billion in 2050, and 10.9 billion in 2100.\”

\”In 2018, for the first time in history, persons aged 65 years or over worldwide outnumbered children under age five. Projections indicate that by 2050 there will be more than twice as many persons above 65 as children under five. By 2050, the number of persons aged 65 years or over globally will also surpass the number of adolescents and youth aged 15 to 24 years. …\”

\”Total fertility has fallen markedly over recent decades in many countries, such that today close to half of all people globally live in a country or area where lifetime fertility is below 2.1 live births per woman, which is roughly the level required for populations with low mortality to have a growth rate of zero in the long run. In 2019, fertility remains above this level, on average, in sub-Saharan Africa (4.6 live births per woman), Oceania excluding Australia and New Zealand (3.4), Northern Africa and Western Asia (2.9), and Central and Southern Asia (2.4). …\”

\”Life expectancy at birth for the world’s  population reached 72.6 years in 2019, an improvement of more than 8 years since 1990. Further improvements in survival are projected to result in an average length of life globally of around 77.1 years in 2050. …\”

\”With a projected addition of over one billion people, countries of sub-Saharan Africa could account for more than half of the growth of the world’s population between 2019 and 2050, and the region’s population is projected to continue growing through the end of the century. By contrast, populations in Eastern and South-Eastern Asia, Central and Southern Asia, Latin America and the Caribbean, and Europe and Northern America are projected to reach peak population size and to begin to decline before the end of this century. …\”

\”More than half of the projected increase in the global population up to 2050 will be concentrated in just nine countries: the Democratic Republic of the Congo, Egypt, Ethiopia, India, Indonesia, Nigeria, Pakistan, the United Republic of Tanzania, and the United States of America.\”

\”Disparate population growth rates among the world’s largest countries will re-order their ranking by  size: for example, India is projected to surpass  China as the world’s most populous country around 2027.\”

The number of people receiving benefits from the Supplemental Nutrition Assistance Program (SNAP), perhaps better know as \”food stamps,\” rose slowly in early 2000s, then leaped during the Great Recession, and now has been sagging lower for a few years, although remaining above pre-recession levels.  Victor Oliveira gives a quick overview in \”The Food Assistance Landscape:FY 2018 Annual Report\” (US Department of Agriculture, April 2019)

Here\’s a figure showing the number of SNAP recipients and total spending on the program.

And here\’s a figure showing the percentage of Americans receiving food stamps.

The modest rise in food stamp spending before the Great Recession reflects changes in federal rules making it easier for people to apply, and also easier for states to certify to the federal government that the benefits are being targeted.

The sharp rise in food stamp spending did not reflect any substantial change in eligibility standards. Instead, it mostly showed that many more people fell under the pre-existing eligibility rules when the recession hit. There was also a temporary boost in SNAP benefits in the Recovery Act of 2009. But there was also an additional change. The \”take-up rate\” for SNAP benefits rose: that is, those who were eligible for benefits were more likely to apply for them and receive them.  Dottie Rosenbaum and Brynne Keith-Jennings of the Center on Budget and Policy Priorities provide some information in \”SNAP Caseload and Spending Declines Have Accelerated in Recent Years\” (June 6, 2019). Here one of their figures:

What seems to have happened is that more people became aware that they were eligible for SNAP benefits, and even as the unemployment rate has fallen in recent years, the take-up rate for benefits has stayed high. Here\’s a breakdown by age of what they call the \”participation rate,\” meaning the share of those who are eligible who participate in the program.

Of course, these higher participation or take-up rates aren\’t occurring in a vacuum. People tend to think of the SNAP program as supporting food purchases, but as economists have pointed out for a long time, providing a way for people to buy food also frees up other income to purchase other goods. For this reason, SNAP plays much broader role in the safety net than just a nutrition-assistance program.

For context, SNAP spending was $68 billion in 2018, and it all comes from the federal government with the same rules applying across states. This is about the same size as the Earned Income Tax Credit, counting both tax revenues foregone and refundable credits paid under that proram. As another comparison, total spending on Temporary Assistance for Needy Families (TANF) is often thought of as the nation\’s main welfare program, but it spent only about half as much in 2018–and half of that funding came from states with a high level of variation in benefits. For example, monthly TANF benefit levels for a family of three were $714 in California in 2018, compared with $170 per month in Mississippi. In many states with low TANF benefits, SNAP offers considerably more assistance to low-income families.

A different report from the Center on Budget and Policy Priorities, \”Policy Basics:

The average SNAP recipient received about $127 a month (or about $4.17 a day, $1.39 per meal) in fiscal year 2018. The SNAP benefit formula targets benefits according to need: very poor households receive larger benefits than households closer to the poverty line since they need more help affording an adequate diet. The benefit formula assumes that families will spend 30 percent of their net income for food; SNAP makes up the difference between that 30 percent contribution and the cost of the Thrifty Food Plan, a diet plan the U.S. Agriculture Department (USDA) establishes that is designed to be nutritionally adequate at a very low cost.

A family with no net income receives the maximum benefit amount, which equals the cost of the Thrifty Food Plan for a household of its size …  For example, a family of three with $600 in net monthly income receives the maximum benefit ($505) minus 30 percent of its net income (30 percent of $600 is $180), or $324. …

SNAP is heavily focused on the poor. About 92 percent of SNAP benefits go to households with incomes at or below the poverty line, and 55 percent go to households at or below half of the poverty line (about $10,390 for a family of three in 2019). 

Thus, what\’s happening with SNAP benefits in recent years is that the number of people eligible is declining, as it should when unemployment rates have fallen this low, but the take-up or participation rate in the program has remained high. As one more sign of this shift, the share of SNAP recipients who are also working has been rising over time.