Policy for US Children in Low-Income Households

When it comes to public policy affecting children, two issues always arise. One is that children don’t have a vote, while other groups like the elderly vote in large numbers. The other is that when we start talking about the situation of children, the discussion often slides over to the effects on the parents of children–for example, incentives for the adults to work or marry or to have additional children. Concerns about incentives for parents are of course legitimate–but the situation of the children themselves matters, too.

A bipartisan group of academics under the moniker of the AEI-Brookings Working Group on Childhood in the United States has produced a report on “Rebalancing: Children First” (February 2022). Although there’s a chapter at the end about teenagers, the main focus of the report is on children under 12. Overall, here’s the philosophy:

The working group proposes, in short, rewriting the generational contract. In 2019, the share of the federal budget spent on children was 9.2 percent and the share spent on the adult portions of Social Security, Medicare, and Medicaid was 45 percent. … This allocation is a statement of national priorities—priorities that the working group agrees need to change.

The underlying issues have been the same for some decades now. About one child in seven in the United States lives in a household that’s below the poverty line. The share of US children being raised in a household with two parents present has been falling over time, and the report reviews a considerable body of evidence that children who grow up in stable two-parent households have (on average, and with exceptions of course) better educational and health incomes over time.

We know that children growing up in low-income households have (on average, and of course with exceptions) worse outcomes on a variety of measures: education, health, crime, and others. Here’s one of many measures, using eligibility of a child for a free or reduced-price school lunch as a measure of poverty, here are the shares of those scoring above proficient in reading and math in 4th grade. Again, I recognize that some children make great leaps after 4th grade. But if only one-quarter or one-fifth of a group is proficient in fourth grade, that group is going to have a harder time moving forward.

What’s perhaps most interesting to me in the report is the accumulation of research evidence no how programs benefit children. For example, the Earned Income Tax Credit is a federal program that gives a “refundable tax credit” to working low-income families.

The EITC also has a large antipoverty impact, having raised 5.6 million people, including about 3 million children, out of poverty in 2018. The EITC has been expanded several times since it was introduced in 1975, and researchers have been able to study the impact of these expansions to estimate its impact. Because the EITC is available only to families with positive earned income, it leads to increases in employment, which further raises family incomes (Hoynes and Patel 2018; Schanzenbach and Strain 2020). Studies of the EITC therefore measure the combined effects of both increased income as well as changes in parental employment—likely positive to the extent that employment brings additional income to the family, but potentially negative to the extent that children attend a low-quality childcare
program or receive a smaller investment of time from their parents. The EITC has been shown to improve a wide range of children’s outcomes. Infant health is improved—both increasing average birth weight (Baker 2008; Strully, Rehkopf, and Xuan 2010) and decreasing the share of low-birth-weight newborns (less than 5.5 pounds) (Hoynes, Miller, and Simon 2015). The EITC also improves educational outcomes, from test scores to high school graduation and college enrollment (Bastian and Michelmore 2018; Chetty, Friedman, and Rockoff 2011; Dahl and Lochner 2012, 2017).

Another example is the “food stamps” program, which some years ago was rechristened as Supplemental Nutrition Assistance Program (SNAP):

SNAP provides food vouchers to low-income families to use at the grocery store and reaches a large number of families. In 2019 10.9 percent of the population participated in SNAP, with average monthly benefits of $258 per household, or about $130 per person. SNAP is estimated to have lifted 3.3 million children out of poverty in 2016. Unlike the EITC, SNAP is not conditioned on work. Access to SNAP has also been shown to improve infants’ health at birth, increasing birth weights and reducing the incidence of low-birth-weight newborns (Almond, Hoynes, and Schanzenbach 2011; East 2018). SNAP availability for children under age 5 has also been shown to improve their parent-reported health in adolescence, potentially through reduced school absences, doctor visits, and hospitalizations (East 2020). Furthermore, children with access to SNAP had better health in adulthood, as measured by lower obesity rates, healthier body mass index, and fewer chronic conditions, such as diabetes and high blood pressure. Similarly, access to SNAP during childhood improves later education and economic outcomes, such as increasing high school graduation rates by 18 percentage points. SNAP during childhood also leads to improved outcomes for women, including higher earnings, higher family income, better educational attainment, and
increased rates of employment (Hoynes, Schanzenbach, and Almond 2016).

Here’s another example of a program with targeted support for food for households with pregnant and postpartum women:

Another nutrition assistance program, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), provides targeted support for pregnant and postpartum women and for those with young children to purchase certain food items. WIC has been shown to increase birth weight for infants born to mothers who receive WIC benefits (Hoynes, Page, and Stevens 2011; Rossin-Slater 2013). Prenatal WIC participation also leads to reductions in subsequent diagnoses for attention-deficit/hyperactivity disorder (ADHD) and other childhood mental health conditions and reduces the chances of a child repeating a grade in school (Chorniy, Currie, and Sonchak 2019).

The programs that I have mentioned here aren’t perfect; for example, these programs could often be redesigned so that mothers in low-income households don’t have a disincentive to marry because it would lead to a cutoff of benefits. There are also not the only programs relevant to children. For example, it remains an important goal to get pregnant women from low-income households into prenatal care and then into early-infant care and parental support programs. Steps that improve jobs and wages for low-income households, or that improve schools and neighborhoods in low-income communities, will help children who live there, too.

My main point here is that there can be a tendency to think of the EITC as just a program that provides work incentives and additional income, or to think of SNAP as just a program that helps the poor buy food. Thinking about anti-poverty programs mainly in terms of their effect in bringing down the poverty rate isn’t wrong, but it is limited. It ignores perhaps the most important benefit of these programs, which is their demonstrated ability to provide long-term benefits to the health and education of children from low-income families, which in turn have long-lasting consequences for the future of these children as workers and citizens.

A lot of the policy steps taken during the pandemic were about replacing household income or keeping businesses afloat. However, children from low-income families have been disproportionately affected by pandemic, including in particular the effects of the K-12 schooling going online during the pandemic. A pro-child policy agenda was overdue before the pandemic, and that was before a situation where many children have spent two years of being hindered in their normal social and educational development.

Interview with Pinelopi Goldberg: Trade and Development

David A. Price serves as interlocutor in an “Interview” with Pinelopi Goldberg, subtitled “On developing countries, measuring economies by satellite, and the learning crisis” (Econ Focus, Federal Reserve Bank of Richmond, Winter 2022, pp. 22-26). Here are a few of the points that caught my eye.

Why are COVID death rates so much lower in low-income countries?

EF: In work with Tristan Reed, you have found that COVID-19 deaths per capita were actually much lower in poorer countries than in richer ones. This seems surprising. What happened?

Goldberg: Tristan and I presented this research at a Brookings conference in June 2020 with great trepidation, because that was near the beginning of the pandemic. Most people’s reaction was that this result was just because poor countries are not connected, so COVID-19 had not arrived there yet. But there was anecdotal evidence that COVID-19 had indeed arrived there. Most capitals of low-income countries are not as isolated as people think; many of these cities are global cities. They are connected to the rest of the world. So it was surprising that the deaths were so low.

Another reaction was that this was all measurement error. … But the differences in deaths are huge — orders of magnitude apart. Just to give you one striking example, in the United States right now, the deaths per million are around 2,500. In Nigeria, the number is 14; in India, it’s 340. And it’s not easy to hide deaths. Yes, there is measurement error — probably deaths and hospitalizations are much higher in low-income countries than the statistics show — but still, there is a big difference between low-income countries and richer ones.

I think there are three reasons at work. We pointed out two of them in this initial working paper. First, everyone agrees that two of the risk factors for a serious reaction to COVID-19 leading to hospitalization and death are age and obesity. The age distribution in many low-income countries is very different from that in the United States. To mention a striking case, in Niger, the median age is 15; there, COVID-19 would probably not have very severe health effects on the population. On top of that, in low-income settings, obesity is much lower. These two factors alone could explain a lot of the difference.

In addition, many epidemiologists talk about what they call “trained immunity” for low-income countries. The idea is that people in those countries are exposed to disease all the time, so their immune systems have learned how to cope. An alternative interpretation is that there has been selection; the ones who have managed to survive the various diseases they’ve been exposed to have very strong immune systems.

It seems that all these factors have contributed. It’s still the case that the poorer the country, the lower the per capita COVID-19 deaths so far. We’ll see whether this holds in the future.

What have been the effects of the Trump administration tariffs on China imposed in 2018?

EF: In research that was published in 2020 in the Quarterly Journal of Economics, you looked at the effects of the 2018 Trump tariffs. You found that between those tariffs and the retaliatory tariffs of other countries, such as China, there was a substantial redistribution from U.S. buyers of foreign goods in favor of U.S. producers and to the government. Is this what you expected to see?

Goldberg: To a certain extent, what we didn’t expect to see is that U.S. buyers would be hurt. This is because the United States is a powerful country; to a certain extent, everyone thought that China would eat some of the tariff. What our work showed, and others’ as well, is that the tariffs were completely paid by the U.S. importing side. The other effect that some people didn’t expect is that the part of the economy that was hurt the most by the tariffs was people in Republican counties, and this is because of the retaliation by China; they targeted mainly agricultural commodities.

We have a follow-up paper where we look at how third countries were affected by the tariffs. What we show is that many countries benefited from the tariffs; trade seems to have been reallocated from the United States and China toward other countries. What did not happen is reshoring of economic activity back to the United States. …

[In] my follow-up work on the U.S.-China trade war … we focus in our new paper on bystander countries or third countries. One interesting finding of this work is that we find that the trade war didn’t simply reallocate the exports of these countries toward the United States and China, as you might expect. It also increased global exports. So, to a certain extent, it led to net trade creation, which is surprising. We don’t expect a trade war to actually lead to more trade. But it seems that happened in this case, maybe because countries decided to invest more in trade capacity, or perhaps because there are scale economies. We think it’s an interesting pattern.

In the interview, Koujianou also mentions a recent paper in the Summer 2021 issue of the Journal of Economic Perspectives (where I work as Managing Editor), co-authored with Noam Angrist and Dean Jolliffe, called “Why Is Growth in Developing Countries So Hard to Measure?” From the abstract of that paper:

Occasional widely publicized controversies have led to the perception that growth statistics from developing countries are not to be trusted. Based on the comparison of several data sources and analysis of novel IMF audit data, we find no support for the view that growth is on average measured less accurately or manipulated more in developing than in developed countries. While developing countries face many challenges in measuring growth, so do higher-income countries, especially those with complex and sometimes rapidly changing economic structures. However, we find consistently higher dispersion of growth estimates from developing countries, lending support to the view that classical measurement error is more problematic in poorer countries and that a few outliers may have had a disproportionate effect on (mis)measurement perceptions. 

Fighting in a Canoe: Thomas Schelling Redux

Thomas Schelling won the Nobel prize in economics (2005) “for having enhanced our understanding of conflict and cooperation through game-theory analysis.” Watching events unfold in Ukraine reminds me of one of his lesser-known metaphors about fighting in a canoe.

For those of you who have not experienced the pleasure of gliding across a northwoods lake or river in a canoe, I’ll just note that a canoe has a point at both ends, which make it maneuverable but also potentially tippy. In contrast, a rowboat has a point at one end but is flat on the other end, which makes it more stable. From this standpoint, are small conflicts between great powers “better” in some sense than larger ones? Yes. But if there is too great a willingness to engage in many smaller conflicts, then the chance that one of them will escalate in the tippy canoe to a larger conflict is worrisome. Is a fight more likely to dump you into the water in a canoe or a rowboat? Once the fight starts, a canoe is tippier. But if neither party wants to end up in the water (in this case, a metaphor for a much broader war or a nuclear exchange), then they might be less likely to start a fight in a canoe than in a rowboat in the first place.

Here is some Schelling on conflict (and canoes) between the western and Soviet blocs from his 1966 book, Arms and Influence (available via JSTOR).

Engaging in well-isolated small wars or comparatively safe forms of harassment ought to be less unattractive than wrestling on the brink of a big war. But the reason why most contests, military or not, will be contests of nerve is simply that brinkmanship is unavoidable and potent. It would be hard to design a war, involving the forces of East and West on any scale, in which the risk of its getting out of control were not of commensurate importance
with the other costs and dangers involved. Limited war, as remarked earlier, is like fighting in a canoe. A blow hard enough to hurt is in some danger of overturning the canoe. One may
stand up to strike a better blow, but if the other yields it may not have been the harder blow that worried him. …

Stability, of course, is not the only thing a country seeks in its military forces. In fact a case can be made that some instability can induce prudence in military affairs. If there were no danger of crises getting out of hand, or of small wars blowing up into large ones, the inhibition on small wars and other disruptive events might be less. The fear of “accidental war”—of an unpremeditated war, one that arises out of aggravated misunderstandings, false alarms, menacing alert postures, and a recognized urgency of striking quickly in the event of war—may tend to police the world against overt disturbances and adventures. A canoe can be safer than a rowboat if it induces more caution in the passengers, particularly if they are otherwise inclined to squabble and fight among themselves. Still, the danger is almost
bound to be too little stability, not too much of it; and we can hope for technological developments that make the military environment more stable, not less …

Here’s one more comment from Schelling, about the importance of each party in a great power confrontation having clear expectations of how the other party will react–and about reacting during even small confrontations in a way that creates a belief in ultimate firmness in what actions or reactions are likely. Schelling wrote:

It might be hard to persuade the Soviets, if the United States yielded on Cuba and then on Puerto Rico, that it would go to war over Key West. No service is done to the other side by behaving in a way that undermines its belief in one’s ultimate firmness. It may be safer in a long run to hew to the center of the road than to yield six inches on successive nights, if one really intends to stop yielding before he is pushed onto the shoulder. It may save both parties a collision.

It is often argued that “face” is a frivolous asset to preserve, and that it is a sign of immaturity that a government can’t swallow its pride and lose face. It is undoubtedly true that false pride often tempts a government’s officials to take irrational risks or to do undignified things—to bully some small country that insults them, for example. But there is also the more serious
kind of “face,” the kind that in modern jargon is known as a country’s “image,” consisting of other countries’ beliefs (their leaders’ beliefs, that is) about how the country can be expected to behave. It relates not to a country’s “worth” or “status” or even “honor,” but to its reputation for action. If the question is raised whether this kind of “face” is worth fighting over, the answer is that this kind of face is one of the few things worth fighting over. Few parts of the world are intrinsically worth the risk of serious war by themselves, especially when taken slice by slice, but defending them or running risks to protect them may preserve one’s commitments to action in other parts of the world and at later times.

“Face” is merely the interdependence of a country’s commitments; it is a country’s reputation for action, the expectations other countries have about its behavior. We lost thirty thousand dead in Korea to save face for the United States and the United Nations, not to save South Korea for the South Koreans, and it was undoubtedly worth it. Soviet expectations about the behavior of the United States are one of the most valuable assets we possess in world affairs.

Still, the value of “face” is not absolute. That preserving face—maintaining others’ expectations about one’s own behavior—can be worth some cost and risk does not mean that in every instance it is worth the cost or risk of that occasion. In particular, “face” should not be allowed to attach itself to an unworthy enterprise if a clash is inevitable. Like any threat, the commitment of face is costly when it fails. Equally important is to help to decouple an adversary’s prestige and reputation from a dispute; if we cannot afford to back down we must hope that he can and, if necessary, help him.

In the present context, several thoughts flow from these lines of thinking.

  1. When it comes to the United States and Russia, both armed with nuclear weapons, we are still fighting in a canoe. We do not wish to be dumped into the waters of a nuclear exchange, or even a head-to-head military confrontation. Thus, we stick to responses that limited, like economic and diplomatic sanctions and tacitly encouraging others to send weapons and supplies to Ukraine. However, we do not send in air forces or ground troops.
  2. The unity and fierceness of the global response to Russia’s invasion of Ukraine is useful for global security not primarily for the people of Ukraine–any more than US participation in the Korean war was primarily about the people of Korea–but because it lays down a marker for those governments thinking about crossing national boundaries in the future.
  3. There are too many imponderables that could be affecting Vladimir Putin’s decision process to make any definite claims, but one wonders if his decision to invade Ukraine might have been affected by earlier western actions. For example, what if there had been a stronger western reaction when Soviet troops essentially levelled the city of Grozny in Chechnya about 20 years ago? What if the countries of western Europe had been more willing to keep their promises to commit 2% of GDP to military spending over the last two decades? What if Germany had not been so extraordinarily eager to become dependent on inflows of Russian-exported oil and gas? What if various assassinations that appeared to be engineered by Russia had been met with greater pushback? What if the Winter Olympics in 2014 had not been held in Sochi? What if the Russia-Ukraine conflict of 2014, which ended with Russia annexing Crimea and other areas, had received greater pushback when Joe Biden was vice-president? What if the American pullout from Afghanistan last summer had been better-managed? What if there had been a greater effort in the last decade or so to build soft connections from Ukraine to the EU and the United States–travel, cultural exchanges, students and faculty, and so on? Perhaps none of these would have mattered. Or perhaps the highly undesirable outcome now occurred in substantial part because of decisions made and not made in the last 20 years.
  4. When in a conflict, the temptation is always to push harder, but pushing harder can be counterproductive. Russia is not going to surrender to Ukraine, and Russia is not likely to leave Ukraine (at least in the near-term and not without tremendous destruction) without having something it can brandish as a “victory.” If the goal is to get Russia out of Ukraine sooner rather than later, it is worth thinking about what face-saving “victory” Russia can claim. As Schelling wrote: “[I]f we cannot afford to back down we must hope that he can and, if necessary, help him.” I don’t have any deep insight here, except for remembering the old adage that when a conflict seems irresolvable, it can be useful to “expand the pie” by widening the range of topics under negotiation. Negotiations over more topics could offer Russia more options for conceding on the key point–in this case, getting Russian troops out of Ukraine–while being able to claim an overall success. Personally, I’d be happy to offer US support for holding the 2030 Winter Olympics in Sochi, along with some similar gestures, as a tradeoff for the withdrawal of Russian troops.

Diversification Three Ways: Across Stocks, Countries, and Assets

Each year, the Credit Suisse Research Institute publishes a “Global Investment Returns Yearbook,” with a summary edition available online (February 2022). This year’s version is authored by Elroy Dimson, Paul Marsh, and Mike Staunton, and includes a special topics chapter focused on “Diversification.” As the authors point out, “Diversification allows us to either reduce risk for the same level of expected return or increase expected returns for the same level of risk.” They discuss the evidence and arguments for diversifying across stocks, across countries, and across asset classes. Here are a few points that caught my eye from a much more in-depth discussion.

For diversifying across stocks, let’s start with a figure that, as the authors say appears in “[a]most every textbook in investments or corporate finance.” (All figures in this blog post are reproduced with explicit permission of the authors.) In the first panel, the dark blue line shows the market risk for all stocks traded on the New York Stock Exchange from 2011 to 2020: that is, the standard deviation of the return in a given year is plus or minus about 20%. The lighter blue line looks at the risk of portfolios that include one stock, two stocks, three stocks, and so on up to 25 stocks–with these portfolios chosen at random. Because diversification means that random winners and losers will tend to balance each other out, a portfolio with more stocks will tend to have less risk, gradually approaching the risk of the market portfolio.

The authors write:

Conventional wisdom is that a small number of stocks – say 10 to 20 – is sufficient to provide market-mimicking returns. That interpretation is misleading … Many more stocks are needed to create a well-diversified portfolio. It would be more helpful if the standard diversification chart was presented as on the right-hand side of Figure 66, which shows the fall in unsystematic risk as the number of stocks is increased. It shows that even with 100 stocks, the tracking error is still 3.3% per annum. …

Despite the longstanding and widespread advice to hold well-diversified portfolios, many studies find that most investors hold very concentrated portfolios. Goetzmann and Kumar (2008), for example, analyzed more than 60,000 investors at a large US discount brokerage house. Their average holding was four stocks (the median was three). Only 5% held fewer than [TT note: Should probably read “more than”] ten stocks. The level of underdiversification was greater among younger, low-income, less educated and less sophisticated investors.

There are large costs to being underdiversified. Bessembinder (2018) shows that the majority of US stocks (57.4%) have had lifetime buy-and-hold returns below that on Treasury bills. Since 1926, the best-performing 4% of companies explain the net gain for the entire US stock
market. This is caused by the strong positive skewness in individual stock returns. The positive premium over bills that we observe for overall stock markets is driven by very large returns for The relatively few stocks. Bessembinder et al. (2021) examined some 64,000 stocks from 42 countries and showed that the same pattern held for non- US stocks. The average individual with a concentrated portfolio is thus likely to receive less than the return on the overall market.

Does the same lesson of diversification apply across countries? Perhaps not for US investors, at least not in the last half-century of so. Here’s a figure showing the share of different countries in global equity markets in 1899 and at the start of 2022. In 1899, the US accounted for 15% of all global equity markets; by the start of 2022, the US was about 60% of all global equity markets. Some of the major equity markets back at the start of the 20th century are much less important like the UK, Germany, and France. Other equity markets that seemed important at the end of 1899, like Russia and the Austro-Hungarian Empire, essentially disappeared and provides zero value for their investors.

The dramatically different results for US equity markets imply that if you were outside the US economy and invested in US stocks, that was an excellent move to diversify. But if you were inside the US and thinking about investing outside the country, the potential results from diversifying to other countries are much smaller, or negative. Dimson, Marsh, and Staunton write:

From 1980 onward, US investors made increasingly large investments in overseas
equities. However, in risk-return terms, they would have been better off staying at home. … Moreover, this is before taking account of the higher costs of investing internationally in the earlier part of this period.

For a US investor, domestic investment beat global investment over these … periods for two reasons. First, US equities performed exceptionally well. Over the 48 years from 1974 to 2021, US stocks beat non-US stocks by 1.9% per year. Over the 32 years since 1990, the outperformance was even greater at 4.6% per annum. Dimson, Marsh and Staunton (2021) have documented this continuing outperformance of US equities and describe it as
a case of “American exceptionalism.”

Second, over this period, global diversification failed to lower volatility for US investors. The US equity market was among the world’s least volatile as its size, scope and breadth ensured
that it was highly diversified. Over the 1974–2021 period, the equally weighted average SD [standard deviation] of non-US countries in the world index was almost double that of the US market. US investors had less to gain from risk reduction than their foreign counterparts.

In addition, a number of large US firms had much more involvement in global markets in recent decades: thus, by investing in the stock of those US firms, an investor was in effect, if indirectly, diversifying across countries to some extent. Conversely, deciding to buy stock in foreign markets directly involves various transaction costs as well as exposure to currency fluctuations, regulatory changes, and political risks.

Finally, what about diversifying across classes of assets: in particular, the authors focus on diversifying across the two major classes of assets, stocks and bonds. They point out that the correlation between returns on stocks and bonds has shifted substantially in the last 20 years or so. The darker blue line shows correlation between returns on stocks and bonds for the US; the lighter blue line for the UK. The key point here for most of the 20th century, returns on stocks and bonds were positively correlated, but starting around 2000 they have been negatively correlated, especially in the US.

From a standpoint of diversification, a negative correlation between stocks and bonds is very helpful: gains in one will tend to offset losses in the other, and vice versa. But why has the pattern shifted? And will the change be lasting? The authors list some possible factors, but argue that this remains a puzzle. They write:

The stock-bond correlation plays an important role in institutional portfolio construction. It is central to forming optimal portfolios, designing hedging strategies and assessing risk. Stock-bond correlations have now been mostly negative in major world markets for some 20 years. This negative correlation means that stocks and bonds have served as a hedge for each other, enabling investors to increase stock allocations while still satisfying a portfolio risk budget. …

In recent years, much research has focused on why the sign of the stock-bond correlation
flipped in the late 1990s. What was different about the period before and afterwards? From
the late 1990s on, there were more frequent crises, including three major bear markets,
much lower/falling real and nominal interest rates, far lower and more stable inflation,
somewhat slower economic growth, a more accommodative monetary policy (especially
from 2008), somewhat more volatile and lower real equity returns, and less volatile and higher real bond returns.

The period since the late 1990s is relatively short, making it hard to establish statistically significant results. … Despite the volume of research, neither theory nor empirical studies point to a single or clear explanation for the negative stock-bond correlation. Those who claim to have found explanations largely replace one puzzle with another. For example, why have crises been more frequent or why has the correlation between the output gap and inflation changed signs?

College Completion Rates

Children in the United States hear a huge amount about the importance of getting a college degree. But most of them don’t.

A standard measure of college graduation rates is to look at the “six-year” rate–that is, the share of people who complete a college degree within six years of starting it. Here’s a figure on six-year completion rates from Completing College: National and State Reports, published by the National Student Clearinghouse® Research Center (February 3, 2022).

Completion rates for getting any kind of college degree six years after starting have been creeping up over time. Overall, the green line shows the national rate is 62.2 percent for those who started college six years ago.

But of course, not all students start attending college in the first place. The right-leaning think-tank American Compass has published “A Guide to College-for-All” (January 2022) that offers some background information on the topic. The report looks at the pipeline from K-12 education to college and notes:

Put it all together, and the college pipeline proves incredibly leaky. Out of 100 high school students, 13 won’t complete high school, another 29 will complete high school but not enroll in college, and 27 will enroll in college but fail to complete a degree. Of the 31 who do earn a college degree, 13 will end up in jobs that don’t require one. That leaves just 18 of 100 young Americans—call them the Fortunate Fifth—actually moving smoothly from high school to college to career.

Many policymakers talk about the goal of college-for-all, but it doesn’t seem to me that they are actually serious. After all, it would require a massive upgrade of K-12 education so that everyone would graduate and be able to do college-level work. In addition, it would then require an enormous expansion of America’s colleges and universities so that they could handle the vastly increased enrollment of college-for-all. While our society does seek incremental improvements in education, here and there, there has not been substantial political support for this kind of radical change.

When most people say college-for-all, they actually in practice mean something like: “It’s good to keep your aspirations high, especially when you’re young, and we should reduce any financial barriers to higher education.” But when students in K-12 education get a heavy and repeated emphasis on college-for-all, it’s difficult for them not to to also come to believe that that college is “success” and lack of college is not. For students who were in the bottom third or so of academic standing throughout their K-12 experience, telling them that they need another four years of school to be a “success” is the opposite of encouraging.

It seems to me that what many students want is a pathway to a career-type job, by which I mean a job with skills, which offers decent wages, reliable employment and the possibility of of higher pay and responsibility over time. The American Compass report offer some interesting charts on what how this might be achieved without making college-for-all the goal. Here’s one based on OECD data:

In most countries, something like 20-50% of high school students are in classes aimed vocational education and training. However, if you search the figure above for the US level, you will not find it. As a note reports under the table:

The United States is the only country that the OECD excludes from its statistics on vocational education. It reports, “All countries except the United States have some students enrolled in vocational upper secondary education. In the United States, there is no distinct vocational path at upper secondary level, although optional vocational courses are offered within the general track and VET programmes start at the post-secondary level.”

When you are the one high-income country not even included in these statistics, because “there is no distinct vocational path at upper secondary level,” it seems time to reconsider. I’m open to a wide array of possibilities here, from vocational classes to apprenticeships to training programs run through community colleges. Such programs work best when there is a widespread national effort to connect students to real-world employers. However, the United States has largely chosen “to place all its eggs in the college attendance basket,” as the American Compass report puts it:

Our funding decisions also make it clear: We send hundreds of billions of dollars annually toward higher education while slowly starving noncollege pathways of support. This was an intentional choice and one that differs dramatically from the model embraced in most developed economies, where noncollege pathways enjoy equitable support.

Latin America’s Challenges: A Sampling of Economists

Ilan Goldfajn and Eduardo Levy Yeyati have edited an e-book, Latin America: The Post-Pandemic Decade. Conversations with 16 Latin American Economists (VOX EU/CEPR Press, December 2021). Much of the content is focused on immediate social, fiscal, and health issues facing countries of Latin America. Here, I’ll just offer a sampling of a few of the comments that caught my eye with a focus on longer-run challenges.

Ricardo Hausmann on Latin America’s difficulties with adopting new technologies

Over the past 60 years, the region has not shown a capacity to narrow the huge income gap it has with the advanced countries, except in short periods of unusually favourable international conditions. The region’s income per capita at market prices is less than 1/7 th
that of the United States, 1/4th when adjusted for purchasing power parity. The gains
achieved during the 2004–14 commodity super-cycle have all been given back.

This lack of progress in closing the income gap is surprising in light of the fact that gaps
in education, health, life expectancy, infant mortality, urbanisation, fertility rates and
female labour force participation have narrowed dramatically or even reversed, while
gaps in investment effort are either small or negative. All this means that the gaps in
physical and human capital have narrowed substantially. Policies have also become
more market friendly: inflation is way down in the single digits (except in Venezuela and
Argentina), credit ratings have improved, trade has been liberalised, public enterprises
have been privatised and many other indicators of market-friendly structural policies
have all been moving in the right direction, suggesting that the productivity with which
physical and human capital are used should have improved, causing a convergence of
income that should be even faster than the convergence in factors of production. And
yet, we see no such narrowing of the income gap. Standard income or growth show a
significant worsening of the productivity gap across the board, including in relatively
good performers such as Chile, Peru, Colombia and Panama.

My interpretation of this state of affairs is that there is a growing technology gap: Latin
America is particularly bad at adopting and adapting technology. … In
my opinion, this is because technology adoption requires adaptation to local conditions,
and this requires the production of other ‘ideas’ and the acquisition of missing knowhow. …
One indication of efforts at the creation of productive ideas is investment in R&D
and patenting. The OECD puts together statistics for R&D investment for its member
countries and a few others. Fortunately, there are three Latin American OECD members.
Unfortunately, these three countries – Colombia, Chile and Mexico – have the lowest
reported rates of R&D spending in the OECD.

With patents, the numbers are even starker. For the region as a whole, the rate of
patenting is 1/70th that of the United States, with the best performers – Brazil and Chile
– at about 1/40th of US levels. This is not a typical feature of middle-income countries:
China’s patenting rate per capita is higher than the United States and Korea holds the
world patenting record per capita, while Turkey, Eastern Europe and the former Soviet
Union dwarf the best Latin American performers. Moreover, Latin America’s patenting
rate is incredibly low when compared to the very large size of its university system and the
rate at which it publishes scientific papers. While Latin America’s patenting rates average
1.5% of US per capita levels, its scientific publications average 13% of US levels, meaning
that Latin America’s patenting rate is nine times smaller than would be expected given
its scientific publications.

A final piece of evidence is the dearth of new exports in Latin America: while the
export basket of fast-growing countries in East Asia and Easter Europe shows rapid
diversification and sophistication – from garments, to electronics, to cars, to machinery,
to chemicals and beyond – Latin America has been stuck in a narrow set of exports.
Even Latin America’s own positive deviance – blueberries, soybeans, avocadoes and other
fruits – speak about technological developments adapted to local conditions that allowed
the region to deploy physical and human capital into new ‘ideas’.

Nora Lustig on lasting effect of the pandemic on inequality of educational outcomes across Latin America

Education may be Latin America’s most lasting scar from Covid-19. Our research suggests that the likelihood of today’s students completing secondary education may drop from a regional average of 61% to 46% (Neidhöfer et al. 2021). This average, however, hides striking differences across socioeconomic groups. While schools shut their doors to children of all backgrounds, their ability to continue learning depended on their parents’ income and educational level. Children in low-parental education households found it difficult, if not impossible, to continue their education at home due to lack of adequate equipment, connectivity and – above all – one-on-one coaching. Just as an example of such inequalities, the internet coverage for households whose head has less than secondary school in Bolivia, El Salvador, Honduras and Nicaragua is around 30%, while it is above 90% in families headed by adults with more than secondary education.

The probability of completing secondary school for children in low-parental education
households could fall by almost 20 percentage points, from 52% to 32%. This low level
of educational attainment for children of disadvantaged families was last reported for
cohorts born in the 1960s (!). In contrast, children from highly educated families will be
hardly affected. The growing educational gap will damage social mobility and equality
of opportunity for years to come unless we take the warning signs seriously and act fast.

Francisco Ferreira on Brazil and its public finances

Although I emphasised low (total factor) productivity growth as the main cause of the region’s disappointing long-term growth performance earlier, it is true that in many countries investment rates are also too low. I am not an expert on growth but, looking at a country like my own – Brazil – I have the impression that more public and private investment are both needed, and are likely to be quite complementary. After all, better ports and highways, reliable electricity supply and telecommunications would all lower the so-called Custo Brasil, and presumably encourage private investment.

What we need less of is public consumption – basically a polite name for all kinds of wasteful public expenditure that, as I suggested earlier, leave us with an OECD tax rate and Central American public services. Once we fix that – again, much easier said than done – then the state will have earned the right to ask for additional tax revenues – if those are needed. … Brazil is probably an extreme case of a bloated public sector in Latin America, perhaps followed by Argentina and Uruguay. The latest OECD revenue statistics for Latin America put Brazil’s overall tax-to-GDP ratio at 33.1% in 2019, just below the OECD average (33.8%) and well above the LAC average (22.9%). Even in Brazil, of course, taxation can still be made more progressive. Elsewhere, there is a likely a case for both raising taxes in aggregate – hopefully all of it coming from the rich – and making public spending more efficient.

Rodrigo Valdés on the economic challenges in Chile

There are different hypotheses, of course, but let me offer one that applies to Chile. Potential growth has declined relentlessly in the last 20 years. Part of this was normalisation (it was extraordinarily high at some moment) and convergence (as you become more prosperous, you grow less). But what happened is much more intense than what these considerations can explain. In 1999, the IMF estimated Chile would grow by 7% in 2004 (five years out); in 2005, it expected 5% for 2009; currently, it predicts just 2% for 2025.

It is not (only) that the current and previous governments may have made mistakes or face unexpected shocks. Among the different macroeconomic drivers, only one has suffered a true sudden stop in the past couple of decades: the volume of exports. In per capita terms, exports increased fast until 1997 and have remained flat since 2008. From 1984 to 2000, Chilean exports consistently grew above world trade, and the opposite happened after 2006 (and this negative divergence has only increased). One possibility is that natural resource-based exports eventually do hit some ceiling. This appears to be the story at the micro level, as different industries show a similar pattern: birth, slow growth, take-off, consolidation. Of course, it is possible to discover new natural resources-based exporting initiatives, but it seems more promising to look to other areas. Export services, for example, seem to have been an essential step up in the growth trajectory of small open economies that reached developed status. In sum, our development strategy worked well for a while, but, at least for smaller countries, it now looks insufficient. How to transit to a new one is an unknown path full of perils.