conversableeconomist

The Closing of the (Urban) Frontier

Much of the history of the United States for its first century is a story of expansion from its original foothold on the eastern seaboard across the North American continent. By 1890 or so, that expansion was over. The historian Frederick J. Turner wrote about this shift in a famous 1893 essay, \”The Significance of the Frontier in American History.\”  He began: 

In a recent bulletin of the Superintendent of the Census for 1890 appear these significant words: “Up to and including 1880 the country had a frontier of settlement, but at present the unsettled area has been so broken into by isolated bodies of settlement that there can hardly be said to be a frontier line. In the discussion of its extent, its westward movement, etc., it can not, therefore, any longer have a place in the census reports.” This brief official statement marks the closing of a great historic movement. Up to our own day American history has been in a large degree the history of the colonization of the Great West. The existence of an area of free land, its continuous recession, and the advance of American settlement westward, explain American development.

America\’s narrative of opportunity and mobility shifted at the tail end of the 19th century. In the 20th century, the narrative focused much less on a rural frontier, and instead was a story of moving to the city, where the opportunities to raise one\’s economic status and social status. But over the last 50 years or so, Edward L. Glaeser argues, we have in effect seen \”The Closing of America’s Urban Frontier\” (Cityscape: US Department of Housing and Urban Development, 2020, 22:2, pp. 5-21). 

As Glaeser points out that the end of the western frontier was an important cultural event. But even back in the decades before Turner was writing, a relatively small share of the US population was actually made up of settlers. The land that mattered most for US economic growth and was not plots of ranchland in wide-open western states, but instead the areas surrounding the urban cores of that time, what Glaeser calls the \”open urban frontier.\” The overwhelming population movement of the late 19th and early 20th century was from rural to urban areas, often in search of economic opportunity. Glaeser writes (citations omitted): 

In a sense, America’s urban frontier became more open during Turner’s lifetime [1861-1932] because the traditional downsides of urban crowding, such as contagious disease, became less problematic. The urban frontier remained largely open during the dynamic 25 years that followed World War II. African-Americans migrated north by the millions to flee the Jim Crow South and take advantage of urban industrial jobs. Americans built new car-oriented cities in Sun Belt states like Arizona and Texas. The movement of people and firms diminished the vast income differences that once existed between locations.

Sometime around 1970, the urban frontier began to close. Community groups mobilized and opposed new housing and infrastructure. Highway revolts slowed urban expansion in car-oriented suburbs. Historic preservation made it more difficult to add new density in older cities. Suburbs crafted land-use restrictions that stopped new construction. While some productive Sun Belt cities still permitted significant amounts of new housing, even those one-time refuges of affordable urbanism had begun to be more restrictive. …

Migration has fallen dramatically over the past 20 years, and poorer migrants no longer move disproportionately to richer places. Housing costs have risen sharply in more productive places, which has generated a wealth shift from the young to the old. Income convergence across regions has stalled.  … America’s growing geographic sclerosis makes it increasingly difficult for out-migration to solve the problems of local joblessness. …

The closing of America’s urban frontier seems to be a far more significant event in American economic history than Turner’s motivating fact that “the unsettled area has been so broken into by isolated bodies of settlement that there can hardly be said to be a frontier line.” Vast amounts of the American West were unpopulated in Turner’s time and remain so today. Cheap land could still be had for homesteading in 1893, and there remains plenty of inexpensive ranchland today for anyone who wants the rugged life of a mid-19th century frontiersman. By contrast, the high price of accessing America’s most productive urban areas today is an important fact of life for tens of millions of Americans.

Glaeser discusses these shifts in some detail, but ultimately, his focus is on housing costs. In the last few decades, metro areas with exceptionally high productivity and a large share of high-skilled workers have experienced a virtuous circle, where they become magnets for other high-skilled workers and still greater productivity. However, when this shift is combined with limits on housing and infrastructure, these urban areas become unaffordably expensive for those who are not already high-skill workers. The young up-and-coming go-getter, especially if the person is thinking about starting a family, would have to hesitate before moving to these areas unless there is already a high-paying job lined up. 

At least in theory, at some point the cost of living in these high-cost, high-skilled, high-productivity areas should rise so high that economic activity is displaced to other areas. But at least so far, any such process of displacement has been very slow. What gets displaced to other metro areas is often a fairly standard factory or office, not the companies (or parts of companies) with the highest economic value-added.
There are essentially two non-exclusive approaches here. One is to make it easier for people of average and lower skill levels to move to the skill-magnet cities. The major step here is make it more affordable to live in those metro areas, which involves thinking about a large surge of housing construction along with patterns of transportation. The other approach is to figure out how to increase the number of cities with concentrations of high-skilled and highly productive workers, and in particular how to have such cities more spread across the country. I\’ve written about some proposals along these lines in \”Re-seeding America\’s Economic and Technological Future\” (January 31, 2020). Both of these approaches have numerous costs and tradeoffs, and actual policies to achieve these goals are largely unproven.
Although I don\’t have a proven policy to propose, I\’ll note  that this separation across US metro areas isn\’t healthy in economic terms. When people are hindered by high housing costs from moving to whether they could be more productive and earn higher wages, economic growth suffers. It\’s also not healthy in political terms. When looking at a political map of the United States, this separation between the cities that have become magnets for high-skilled, knowledge-based growth and the rest of the country is very stark. 
conversableeconomist

Some Ways the Pandemic Could Alter the Shape of the US Economy

It\’s clear that the COVID-19 pandemic has caused a recession. But is the form of this particular recession also reshaping the US economy in other ways? The Hamilton Project at the Brookings Institution recently published a set of four papers on the subject \”How COVID-19 is Reshaping the Future of Business and Work.\” Video of a one-hour discussion by some of the authors, along with links to the paper, is available here. 

Recessions often result from an imbalance in the economy— for example, overinvestment in a sector, asset bubbles, or excessive leverage by businesses and households—and a rapid change in expectations about the future. … The COVID-19 recession was precipitated by necessary collective action taken to preserve the lives of Americans and to buy time to put responsive public health measures in place; a partial shutdown of the economy resulted from decisions by federal, state, and local governments as well as decisions by businesses and households. The nature of the shutdown led to a much sharper contraction than during prior recessions but also—so far—to a shorter period during which the economy was contracting. The unemployment rate began to fall just two months after it initially rose, and job gains in May were the fastest on record (BLS 2020). Retail sales bounced up in May after a sharp downturn in April (U.S. Census Bureau 2020a). Still, the quick onset of the recovery has not meant a full rebound, and the resurgence of the virus in June and July may signal more ups and downs for the economy. Even if improvements in the labor market and spending continue to be significant, the U.S. economy will likely face a sharply elevated unemployment rate and sizable gap in output relative to precrisis levels for well over a year (Congressional Budget Office 2020).

What are some likely effects of this particular kind of recession? David Autor and Elisabeth Reynolds point out several of them in \”The Nature of Work after the COVID Crisis:Too Few Low-Wage Jobs \” (July 2020). One example is what they call \”telepresence,\” which is meant to describe a wider phenomenon than just telecommuting. 

Autor and Reynolds trace the term \”telepresence\” to an essay a few years back about underwater drones. As they write: 

Placing people in any physically hostile environment—such as at the bottom of the sea, in Earth’s upper atmosphere, at a bomb disposal site—entails costly, energy-intensive, life-support systems that provide climate control (i.e., oxygen, temperature regulation, atmospheric pressure), water delivery, waste disposal, and so on. By obviating these needs, telepresence not only reduces costs but also typically creates better functionality: machines unencumbered by physically present operators can take on tasks that would be perilous with humans aboard. These same lessons apply to workplaces.

Though (most) work environments are not overtly hostile to human life, they are expensive, duplicative places for performing tasks that many employees could telepresently accomplish from elsewhere, albeit with a loss of the important social aspects of work that they facilitate. Not only is providing and maintaining physical offices costly for employers, but also the need to be physically present in offices imposes substantial indirect costs on the employee. The Census Bureau estimates that U.S. workers spends on average of 27 minutes commuting to work one way, which cumulates to 225 hours per year (U.S. Census Bureau 2019; authors’ calculations). Arguably, many of us who perform “knowledge work” have been so accustomed to the habit of “being there” that we failed to notice the rapid improvements in the next best alternative: not being there.

Telepresence is not just a matter of commuting to previous job locations, of course. It also involves business travel, and rebalances the question of when it\’s worth a personal trip and when telepresence will suffice. It involves how telepresence may substitute for in-person visits in health care, education, retail shopping, perhaps even in areas like guidance for doing your own small repairs around the home. It involves shifts in the travel, hospitality, and entertainment businesses. Once these possibilities are discovered and explored, they will not just vanish from memory as the economy recovers. 
 Autor and Reynolds also point to prospects for \”urban de-densification\”: 

The past three decades have witnessed an urban renaissance. U.S. cities have seen steep reductions in crime, significant gains in racial and ethnic diversity, outsized increases in educational attainment, and a reversal of the tide of suburbanization that drew young, upwardly mobile families out of cities in earlier decades (Autor 2019; Autor and Fournier 2019; Berry and Glaeser 2005; Diamond 2016; Glaeser 2020). It seems plausible, though far from certain, that the postpandemic economy will see a partial reversal of these trends. If financiers, consultants, product designers, researchers, marketing executives, and corporate heads conclude that it is no longer necessary to commute daily to crowded downtown offices, and moreover, if business travelers find that they need to appear at these locations less frequently, this may spur a decline of the economic centrality, and even the cultural vitality, of cities.

Cities have needed to redefine and reinvent themselves repeatedly over the decades and centuries. In the aftermath of the pandemic, they may need to do it again. 
Autor and Reynolds also point to \”automation forcing,\” which is just the idea that in case you were already worried about automation and labor markets, now there is additional economic pressure to substitute machines for people. They write: 

Spurred by social distancing requirements and stay-at-home orders that generated a severe temporary labor shortage, firms have discovered new ways to harness emerging technologies to accomplish their core tasks with less human labor—fewer workers per store, fewer security guards and more cameras, more automation in warehouses, and more machinery applied to nightly scrubbing of workplaces. In June of 2020, for example, the MIT Computer Science and Artificial Intelligence Lab launched a fleet of warehouse disinfecting robots to reduce COVID risk at Boston area food banks (Gordon 2020). Throughout the world, firms and governments have deployed aerial drones to deliver medical supplies, monitor social distancing in crowds, and scan pedestrians for potential fever (Williams 2020). In the meatpacking industry, where the novel coronavirus has sickened thousands of workers, the COVID crisis will speed the adoption of robotic automation (Motlteni 2020). Surely, there are myriad other examples that are not yet widely known but will ultimately prove important. … As the danger of infection recedes and millions of displaced workers seek reemployment … [f]irms will not, however, entirely unlearn the labor-saving methods that they have recently developed. We can expect leaner staffing in retail stores, restaurants, auto dealerships, and meat-packing facilities, among many other places.

Yet another shift is that the business sector is seeing a wave of bankruptcies, which may lead to some monthly rates as bad as the depths of the Great Recession. On the other side, business start-up rates were already on a downward trend in the US economy. With more firms going broke and fewer start-ups, the economic stage seems set for large firms to play a bigger role. Moreover, some months down the road if and when the public health trends become more clear, a number of weakened firms will want to seek out partners for mergers as they try to reconstitute their strength.  Nancy L. Rose discusses these issues in  \”Will Competition Be Another COVID-19 Casualty?\” (July 2020). She writes: 
In the tech sector, responses to COVID-19 produced strong positive demand shocks for many firms engaged with the digital economy, as work, school, shopping, entertainment, and other traditionally in-person interactions all moved online (Koeze and Popper 2020). Social media sites saw increases in usage, and online video and streaming services reported record growth in demand, likely reflecting a combination of new users and more-intensive engagement by preexisting users. This has tended to reinforce the preexisting advantages of the largest firms, which often had the systems, logistics, and capacity to better accommodate the surge in demand associated with the shift online. This impact is likely to reinforce their dominant position not only during COVID-19 shutdowns, but also extending into the future. As many households tried online grocery shopping for the first time, for example, their experiences may keep them as regular online grocery shoppers even when the economy reopens, exacerbating the shift from brick-and-mortar retail to online shopping, and to the largest online grocers, including Amazon’s subsidiary, Whole Foods. If this reinforces the network advantages of these large platforms, it may become even more difficult for competitors to gain a toehold. As competition diminishes, consumers, workers, and suppliers all stand to lose.
These economic shifts will not affect all groups equally. The in-person service industries that are some of the hardest-hit in this recession are also industries that hired relatively large numbers of low-skilled workers and also women worker. Women who are parents are also experiencing a double-whammy in the recession, because they are more likely to bear the larger share of child-care responsibilities at a time when schools and child-care facilities are shut down. Betsey Stevenson discusses this issue in \”The Initial Impact of COVID-19 on Labor MarketOutcomes Across Groups and thePotential for Permanent Scarring\” (July 2020)

The pandemic has also hit women harder than men by the increased burden of care since children’s schools, daycare providers, and camps have closed, and many remain closed. Additionally, many families have had to consider how to best provide elder care and how to ensure the safety of those more vulnerable to the worst effects of COVID. Women’s traditional caregiving role and the crisis of care that many families are facing in the United States could have long-term repercussions for women’s labor force attachment and success, although we have yet to see this impact in the data. … 

While Congress has scrambled to save airlines on the belief that air travel is essential for a well-functioning modern economy, they have overlooked what is perhaps the most important industry in a modern economy: our child-care providers and schools. Parents will continue to struggle with child-care issues, particularly with the potential of children out of school and without child care this coming fall and the risk to grandparents of relying on them for child care. The pandemic has highlighted the fact that child care is not a women’s issue, it is not a personal issue, it is an economic issue; parents cannot fully return to work until they are able to ensure that their children can safely return to child-care and educational arrangements. The child-care crisis spurred by the pandemic could force families to make difficult decisions that will lead to lower labor force participation and lower earnings for decades to come. The solution to preventing large-scale permanent scarring, particularly among women, is to prioritize safely opening schools, to ensure that child-care centers do not go bankrupt and that the centers have the resources to adapt their buildings and practices to new protocols like improved air flow and increased surface disinfecting, and to encourage workplace flexibility

My youngest child graduated from 12th grade earlier this year, so I no longer have a child in the K-12 system. But I\’ll point out in passing that several nonpartisan organizations and reports have argued that for the good of the children, and with appropriate precautions in place,  K-12 schools should be reopened this fall. For example, here\’s a short statement from the the American Academic of Pediatrics (June 25, 2020) and here\’s a more detailed report from the National Academy of Sciences on
Reopening K-12 Schools During the COVID-19 Pandemic: Prioritizing Health, Equity, and Communities. 

conversableeconomist

Equality of Opportunity for Young Children

Children are born into very different settings: families with higher or lower incomes; two parents or one; neighborhoods with high poverty and unemployment; and many other differences. On average, and of course with lots of individual exceptions, these circumstances of early childhood matter. For example, Ariel Kalil and Rebecca Ryan write in their essay in the Spring 2020 issue of Future of Children (\”Parenting Practices and Socioeconomic Gaps in Childhood Outcomes\”): 

Socioeconomic status is correlated across generations. In the United States, 43 percent of adults who were raised in the poorest fifth of the income distribution now have incomes in the poorest fifth, and 70 percent have incomes in the poorest half. Likewise, among adults raised in the richest fifth of the income distribution, 40 percent have incomes in the richest fifth and 53 percent have incomes in the richest half. Many factors influence this intergenerational correlation, but evidence suggests that parenting practices play a crucial role. These include doing enriching activities with children, getting involved in their schoolwork, providing educational materials, and exhibiting warmth and patience. Parental behavior interpreted in this way probably accounts for around half of the variance in adult economic outcomes, and therefore contributes significantly to a country’s intergenerational mobility.

For those unfamiliar with the term, \”socioeconomic status\” or SES is common term in the social sciences. It\’s often defined a little differently across various studies, but it commonly includes some mixture of data on income, education, and occupation. This issue of Future of Children looks at a number of factors that have a bigger effect on children from low-SES families. Here are some examples: 

Melissa S. Kearney and Phillip B. Levine look at \”Role Models, Mentors, and Media Influences.\” They point out that children born into families with different income levels grow up in different neighborhoods: more adults who are high school dropouts and fewer who are college graduates, higher unemployment, more single mothers, more families receiving public assistance. 

They also look at data from the Child Development Supplement to the Panel Study of Income Dynamics (PSID-CDS) and find that the ways in which children spend time are different in lower-SES households: specifically, less time in school and family or other adults, and more time involved with media. They write: 

The amount of time children spend in school has risen over the years, particularly among preschool children. Between 1981–82 and 2014, the length of time spent in preschool has almost doubled, jumping from a little over two hours per weekday to four hours. This is consistent with the rise of full-day preschool programs during this period. …  We also see a large shift toward children spending much more weekend time with media, though weekday media exposure hasn’t changed much. Weekend media exposure has jumped by 62 percent among children ages 12 to 17, and by roughly 40 percent among younger children. The data show a corresponding drop in time spent with family, other adults, and peers.

Young low-SES children spent considerably more time exposed to media and considerably less time in school, as compared to higher-SES children. In fact, low-SES children between the ages of two and five spend more than twice as much time exposed to media as do high-SES children: 2.6 hours per day versus 1.2 hours per day. They also spend much less time in school: 3.7 hours per day versus 5.2 hours. … Other researchers have found especially large summer timeuse gaps across SES groups, most notably in children’s television viewing.

Other papers in the issue, like \”Peer and Family Effects in Work and Program Participation,\” by Gordon B. Dahl and \”Social Capital, Networks, and Economic Well-being,\” dig into the effects of growing up in neighborhoods with different social and peer networks. 

In their essay, Ariel Kalil and Rebecca Ryan \”provide an overview of what scholars know about the differences in parenting behavior by SES that contribute to differences in children’s outcomes by SES.\” They survey evidence  that \”high-SES parents have consistently engaged in a wide range of enriching activities in and outside the home—such as reading to children and taking them to the library or a museum—far more often than their lower-SES counterparts.\” They mention the well-known study of how many words children hear in their early years: 

A famous example of this difference comes from a study by Betty Hart and Todd Risley, who intensively observed the language patterns of 42 families with young children. They found that in professional families, children heard an average of 2,153 words per hour; in working-class families, the number was 1,251 words per hour; and in welfare-recipient families, it was only 616 words per hour. By age four, a child in a welfare-recipient family could have heard 32 million fewer words than a classmate in a professional family. More recent studies have clarified that the bulk of the difference in the number of words heard by children in higher- versus lower-SES families comes from words spoken directly to the children, not words said when children are present, and that the language used in higher-SES homes is more diverse and responsive to children’s speech than that in lower-SES homes. This SES-based difference in linguistic environments could plausibly contribute to SES-based gaps in children’s early language skills, especially given the robust evidence linking the quantity and quality of parents’ speech to young children to children’s early language development.

More broadly, research has found differences in parenting styles: 

Mothers living in poverty display less sensitivity during interactions with their babies than do their higher-SES counterparts, and in descriptive analyses these differences explain gaps in children’s early language outcomes and behavior problems. … Authoritative parenting describes a broad style of interacting in which parents place high demands on children but also use high levels of warmth and responsiveness. Authoritarian parenting, by contrast, is characterized by strict limits on children and little warmth or dialogue, and punishment tends to be harsh. Studies have found that parents—both mothers and fathers—with more education are more likely to use an authoritative style than less-educated parents, who are likelier to use either an authoritarian style or a permissive style (characterized by “low demands coupled with high levels of warmth and responsiveness”), a pattern we see within racial and ethnic groups and in cross-country comparisons. Supporting these broad differences in style, studies have also shown that lower-income parents use more directives and prohibitions in speech with children than their middle-income counterparts do. Finally, in a large national sample, researchers saw a significant negative correlation between punitive behavior (such as yelling and hitting) and income.

One reason behind these differences is the financial resources available to families. A common pattern is that lower-income families spend a greater share of income on their children than higher-income families. But in absolute dollars, the gap between what high- and low-income families spend on children is rising. Moreover, the gap in time spent with children by high-income and low-income families is also rising: 

The best evidence on differences in money spent on children across the socioeconomic distribution comes from two studies by Emory University sociologist Sabino Kornrich, using data from the Consumer Expenditure Survey. (This survey, conducted by the Bureau of Labor Statistics, provides data on the expenditures, income, and demographic characteristics of US consumers.) Kornrich and his colleague Frank Furstenberg found not only that parents at the top of the income distribution spend more on children’s enrichment than lower-income parents do, but also that the difference in real dollars has increased substantially since the 1970s. This spending gap has grown despite the fact that parents at all income levels are devoting an increasing share of their income to children, and that the lowest-income parents spend the largest share. …

That said, high-SES parents (especially mothers) tend to work more hours than lower-SES parents and have less discretionary time—but still spend more time with their children. This stems from fact that higher-SES parents (especially mothers) spend more of their childcare time primarily engaged in activities, while lower-SES mothers tend to spend childcare time being accessible to their children but largely engaged in housework or leisure activities. … [I]n a crossnational comparison study, highly educated mothers in many developed countries spent more time than less-educated mothers in primary child investment activities—even in Norway, where universal family policies are designed to equalize resources across parents.

The puzzle posed by Kalil and Ryan is that in survey data, families across different levels of income and education express similar beliefs about what characteristics their children will need to succeed. But on average, families with lower levels of education and income are not spending the same time or having the same success in providing these skills. 

Family structure surely plays a role here as well, and Melanie Wasserman contributes an essay on \”The Disparate Effects of Family Structure.\” The big-picture patterns are probably familiar to many readers, but at least for me, they have not lost their ability to shock. From the 1960s through the 1980s, there is a sharp decline in share of children living with two-parent families, which has leveled out since about 1990. 

The pattern is less extreme for some groups and more extreme for others. Here\’s the data on black children, where the share growing up with two parents dropped sharply in the 1960s and 1970s and has remained at that lower level since then. 
As Wasserman points out, the effects of growing up in a family without a father, and in a neighborhood with few fathers, seems to have a negative effect on boys in particular. 

Research indicates that growing up outside a family with two biological, married parents yields especially negative consequences for boys, with effects evident in educational, behavioral, and employment outcomes. On the other hand, the effects of family structure don’t vary systematically for white and minority youth—with the exception of black boys, who appear to fare especially poorly in families and low-income neighborhoods without fathers present. … The evidence on the disparate effects of family structure for certain groups of children may help explain certain aggregate US trends. For instance, although boys and girls are raised in similar family environments, attend similar schools, and live in similar neighborhoods, boys are falling behind in key measures of educational attainment, including high school and college completion. The fact that boys’ outcomes are particularly malleable to the family in which they’re raised provides an explanation for this disparity. … And when we’re considering policy, it’s important to emphasize that the benefits of being raised by continuously married parents don’t stem from marital status alone. Instead, parents’ characteristics, their resources, and children’s characteristics all work together. In particular, when their biological fathers have limited financial, emotional, and educational resources, children’s cognitive and behavioral outcomes are no better when they’re raised by married parents than when they’re raised by non-married parents.59 Perhaps for this reason, policies intended to encourage marriage or marriage stability among fathers with limited resources are unlikely to generate lasting benefits for children.

The issues offers a number of other angles and perspectives as well. For example, I posted a few weeks about about Daniel Hungerman\’s essay on investigates \”Religious Institutions and Economic Wellbeing,\” which explores an institution that also provides support and networking.  There are a couple of articles about articles about discrimination and bias, relating to the effects on parents and families, and also whether young people grow up believing that they have an  opportunity to succeed: 

\”How Discrimination and Bias Shape Outcomes,\” by Kevin Lang and Ariella Kahn-Lang Spitzer, and \”The Double-Edged Consequences of Beliefs about Opportunity and Economic Mobility,\” by Mesmin Destin.
Many of the article discuss possible policy interventions, and a number of the ideas are being pilot-tested in communities around the country. Here, I\’ll just say that a lot of the interventions are focused on families: for example, support groups or home visits for new parents, helping new parents set goals for the kind of parents they want to be and then follow-up on these goals, income support for new parents, job training and placement, and other steps. It seems important to continue experimenting with such programs and paying attention to the results. 
But I\’ll also add that it may be of equal or greater importance to focus on the communities in which children from low-SES households are growing up. What I have in mind here is support for public libraries, with after-school and evening hours; public parks with opportunities for recreation and hanging out; passes and concrete travel plans to go to museums, historical sites, state parks, cultural events;  pre-school and after-school programs; recreation centers; and just the basic provision of carving out ever-larger safe areas and times in neighborhoods. 
conversableeconomist

The Case for Income-Share Repayment of Student Loans

Student loans for higher education strike me as both sensible and crazy. The sensible part is that on average, a college degree raises income levels by more than the cost of college. The crazy part is that the United States is a country where someone from the ages of 18-20 is not legally allowed to order a beer, but is allowed to accumulate tens of thousands of dollars of debt. Moreover, basing an individual  decision on average outcomes is a risky business: as a statistics professor of mine used to say, \”On average, the Great Lakes don\’t freeze.\” Some students will complete college and have careers that easily allow them to repay college loans. At the other end of the spectrum, some student will take out loans and not complete college, or will complete college but end up on a lower-paid career path so that repaying the student loans is very hard. 
One way to think about income-contingent college loans is that they limit the risk of being unable to repay because of poor career outcomes, but they also can impose higher costs on those with good career outcomes. 
The basic idea is that when you borrow for your college loan, you promise to repay, say, 10% of your monthly income for the next 30 years. You never need to pay more than 10%: indeed, there are often provisions that if your income is especially low, you don\’t need to repay at all during that period. In addition, any remaining loans after 30 years are wiped out. So you know that your future payments will be a limited share of your income, for a limited time. 
On the other side, if you have a strong income-earning career, paying 10% per month may cover what you borrowed within a few years. However, in this case the rule might be that you need to keep paying until you have repaid twice the principal of the original loan. The underlying idea here is that in exchange for the flexibility to avoid repaying your loan, depending on your your career turns out, you need to promise to repay extra if your career turns out well. But even so, there is a cap on the total amount you need to repay. 
Proposals along these lines are not new. For example, back in 1993 the Journal of Economic Perspectives (where I work as Managing Editor) published an article on the topic by Alan B. Krueger and William G. Bowen (\”Policy Watch: Income-Contingent College Loans,\” 7:3, pp. 193-201). As they point out, the idea can be traced back to a 1955 essay by Milton Friedman titled \”The Role of Government in Education\”(in Economics and the Public Interest, edited by Robert A. Sol). Friedman wrote 65 years ago: 

This underinvestment in human capital presumably reflects an imperfection in the capital market: investment in human beings cannot be financed on the same terms or with the same ease as investment in physical capital. It is easy to see why there would be such a difference. … A loan to finance the training of an individual who has no security to offer other than his future earnings is therefore a much less attractive proposition than a loan to finance, say, the erection of a building: the security is less, and the cost of subsequent collection of interest and principal is very much greater.

A further complication is introduced by the inappropriateness of fixed money loans to finance investment in training. Such an investment necessarily involves much risk. The average expected return may be high, but there is wide variation about the average. Death or physical incapacity is one obvious source of variation but is probably much less important than differences in ability, energy, and good fortune. The result is that if fixed money loans were made, and were secured only by expected future earnings, a considerable fraction would never be repaid. … The device adopted to meet the corresponding problem for other risky investments is equity investment plus limited liability on the part of shareholders. The counterpart for education would be to \”buy\” a share in an individual\’s earning prospects: to advance him the funds needed to finance his training on condition that he agree to pay the lender a specified fraction of his future earnings. In this way, a lender would get back more than his initial investment from relatively successful individuals, which would compensate for the failure to recoup his original investment from the unsuccessful. …

One reason why such contracts have not become common, despite their potential profitability to both lenders and borrowers, is presumably the high costs of administering them, given the freedom of individuals to move from one place to another, the need for getting accurate income statements, and the long period over which the contracts would run. These costs would presumably be particularly high for investment on a small scale with a resultant wide geographical spread of the individuals financed in this way. Such costs may well be the primary reason why this type of investment has never developed under private auspices. But I have never been able to persuade myself that a major role has not also been played by the cumulative effect of such factors as the novelty of the idea, the reluctance to think of investment in human beings as strictly comparable to investment in physical assets, the resultant likelihood of irrational public condemnation of such contracts, even if voluntarily entered into, and legal and conventional limitation on the kind of investments that may be made by the financial intermediaries that would be best suited to engage in such investments, namely, life insurance companies. The potential gains, particularly to early entrants, are so great that it would be worth incurring extremely heavy administrative costs. …

Individuals should bear the costs of investment in themselves and receive the rewards, and they should not be prevented by market imperfections from making the investment when they are willing to bear the costs. One way to do this is to have government engage in equity investment in human beings of the kind described above. A governmental body could offer to finance or help finance the training of any individual who could meet minimum quality standards by making available not more than a limited sum per year for not more than a specified number of years, provided it was spent on securing training at a recognized institution. The individual would agree in return to pay to the government in each future year x per cent of his earnings in excess of y dollars for each $1,000 that he gets in this way. This payment could easily be combined with payment of income tax and so involve a minimum of additional administrative expense. The base sum, $y, should be set equal to estimated average –or perhaps modal–earnings without the specialized training; the fraction of earnings paid, x, should be calculated so as to make the whole project self-financing. In this way the individuals who received the training would in effect bear the whole cost.

But there are various signs that the idea of income-contingent loans is gaining some momentum. For example, back in 1998 the United Kingdom underwent a seismic shift in higher education. It shifted away from a model where tuition was government-paid, but free to students, and toward a model where universities would charge tuition. But at the same time, it set up a program of income-contingent loans. Here a quick overview from a report by  Jason D. Delisle and Preston Cooper (\”International Higher Education Rankings: Why No Country\’s Higher Education System Can Be the Best,\” American Enterprise Institute, August 2019), which I posted about last summer. They write: 

In England, where the vast majority of the country’s population is concentrated, universities charge undergraduate students tuition of up to $11,856, making English universities some of the most expensive in the world. … To enable students to afford these high fees, the government offers student loans that fully cover tuition. Ninety-five percent of eligible students borrow. Repayment is income contingent; new students pay back 9 percent of their income above a threshold for up to 30 years, after which remaining balances are forgiven. Despite the lengthy term, the program is heavily subsidized: The government estimates that just 45 percent of borrowers who take out loans after 2016 will repay them in full … England’s high-resource, high-tuition model is relatively new. Until 1998, English universities were tuition-free, with the government directly appropriating the vast majority of higher education funding.

Another sign of the attractiveness of income-contingent loans is that at some institutions–Purdue University is a leading example–have started providing such loans. Tim Sablik tells the story in \”Education without Loans: Some schools are offering to buy a share of students\’ future income in exchange for funding their education\” (Econ Focus, Federal Reserve Bank of Richmond, First Quarter 2020). Rather than referring to this arrangement as an \”income-contingent loan,\” Sablik\’s article refers to it as an \”income share agreement\” or ISA: 

ISAs provide students with funding to cover their education expenses in exchange for a portion of their income once they start working. Under a typical contract, recipients pledge to pay a fixed percentage of their incomes for a set period of time up to an agreed cap. For example, a student who has $10,000 of his or her tuition covered through an ISA might agree to repay 5 percent of his or her monthly income for the next 120 months (10 years), up to a maximum of $20,000. ISAs typically also have a minimum income threshold before payments kick in; if the recipient earns less than the minimum, he or she pays nothing. This means that ISAs offer students more downside protection than a traditional loan.

A company called Vemo \”reports that it works with more than 75 schools and training programs to offer ISAs.\” Many schools limit such programs to those who have already made progress toward completing certain courses of study, and just need a financial boost to make it over the finish line. 

The United States is seeing a shift toward income-contingent loans as well. Here\’s a comment from a e Congressional Budget Office report on \”Income-Driven Repayment Plans for Student Loans: Budgetary Costs and Policy Options\” (February 2020), which I discussed in a post earlier this year:

Between 1965 and 2010, most federal student loans were issued by private lending institutions and guaranteed by the government, and most student loan borrowers made fixed monthly payments over a set period—typically 10 years. Since 2010, however, all federal student loans have been issued directly by the federal government, and borrowers have begun repaying a large and growing fraction of those loans through income-driven repayment plans.

Under the most popular income-driven plans, borrowers’ payments are 10 or 15 percent of their discretionary income, which is typically defined as income above 150 percent of the federal poverty guideline. Furthermore, most plans cap monthly payments at the amount a borrower would have paid under a 10-year fixed-payment plan. … Borrowers who have not paid off their loans by the end of the repayment period—typically 20 or 25 years—have the outstanding balance forgiven. (Qualifying borrowers may receive forgiveness in as little as 10 years under the Public Service Loan Forgiveness, or PSLF, program.)

For me, the idea of income-contingent loans is a useful way of striking a balance between financial access to higher education and protecting students from being stuck with large and lifelong debts. (There are even legal provisions for garnishing Social Security benefits to repay student loans. The idea that this step is either necessary or possible seems demented.)  I also think that for many undergraduate students, telling them that they are promising to pay a certain percentage of income over the next 2-3 decades would put such loans in a more honest and open context. 

But as usual, I\’m all about acknowledging the tradeoffs, which arise for both economic and political reasons. Let\’s make the plausible assumption that students have some ability to know in advance whether they are going to be able to repay a conventional student loan within a few years. Those who are more likely to repay will take out conventional student loans rather than income-contingent loans–so they can avoid the risk of repaying more than they borrowed. Those who are less likely to repay will take out income-contingent loans, so they have greater protection against difficulties in meeting a conventional repayment plan.  This adverse selection dynamic suggests the underpayers are likely to outnumber the overpayers. 
In addition, politicians aren\’t great at setting up loan repayment plans. When setting the share of income to be repaid, or the length of time, political forces will tend to choose numbers that are unrealistically low in an actuarial sense. Politicians are also continually tempted to come up with lists of exceptions where repayment doesn\’t need to be made: for certain careers, in certain locations, during certain economic condition, and so on and so on. 
Putting these forces together, it seems likely that a substantial share of income-contingent loans will not be repaid in full. A rough estimate based on the UK experience and on the US experience since 2010 is that about half of income-contingent loans, at least under the current rules, will not be repay the full principal and interest. I\’m OK with some government subsidy of higher education, at both the state and federal level. But an honest plan for income-contingent loans may need to have higher repayment rates, for longer periods, than politicians and borrowers would prefer. 
conversableeconomist

Interview with Melissa Dell: Persistence Across History

Tyler Cowen inteviews Melissa Dell, the most recent winner of the Clark medal (which \”is awarded annually .. to that American economist under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge). Both audio and a transcript of the one-hour conversation are available. From the overview: 

Melissa joined Tyler to discuss what’s behind Vietnam’s economic performance, why persistence isn’t predictive, the benefits and drawbacks of state capacity, the differing economic legacies of forced labor in Indonesia and Peru, whether people like her should still be called a Rhodes scholar, if SATs are useful, the joys of long-distance running, why higher temps are bad for economic growth, how her grandmother cultivated her curiosity, her next project looking to unlock huge historical datasets, and more.

Here, I\’ll just mention a couple of broad points that caught my eye. Dell specializes in looking at how conditions in at one point in time–say, being in an area which for a time has strong centralized tax-collecting government–can have persistent effects on economic outcomes decades or even centuries later. For those skeptical of such effects, Dell argues that explaining, say, 10% of a big difference between two areas is a meaningful feat for social science. She says: 

I was presenting some work that I’d done on Mexico to a group of historians. And I think that historians have a very different approach than economists. They tend to focus in on a very narrow context. They might look at a specific village, and they want to explain a hundred percent of what was going on in that village in that time period. Whereas in this paper, I was looking at the impacts of the Mexican Revolution, which is a historical conflict in economic development. And this historian, who had studied it extensively and knows a ton, was saying, “Well, I kind of see what you’re saying, and that holds in this case, but what about this exception? And what about that exception?”

And my response was to say my partial R-squared, which is the percent of the variation that this regression explains, is 0.1, which means it’s explaining 10 percent of the variation in the data. And I think, you know, that’s pretty good because the world’s a complex place, so something that explains 10 percent of the variation is potentially a pretty big deal.

But that means there’s still 90 percent of the variation that’s explained by other things. And obviously, if you go down to the individual level, there’s even more variation there in the data to explain. So I think that in these cases where we see even 10 percent of the variation being explained by a historical variable, that’s actually really strong persistence. But there’s a huge scope for so many things to matter.

I’ll say the same thing when I teach an undergrad class about economic growth in history. We talk about the various explanations you can have: geography, different types of institutions, cultural factors. Well, there’s places in sub-Saharan Africa that are 40 times poorer than the US. When you have that kind of income differential, there’s just a massive amount of variation to explain.

Nathan Nunn’s work on slavery and the role that that plays in explaining Africa’s long-run underdevelopment — he gets pretty large coefficients, but they still leave a massive amount of difference to be explained by other things as well, because there’s such large income differences between poor places in the world and rich places. I think if persistence explains 10 percent of it, that’s a case where we see really strong persistence, and of course, there’s other cases where we don’t see much. So there’s plenty of room for everybody’s preferred theory of economic development to be important just because the differences are so huge.

Dell also discusses a project to organize historical data, like old newspapers, in ways that will make them available for empirical analysis.  She says: 

I have a couple of broad projects which are, in substance, both about unlocking data on a massive scale to answer questions that we haven’t been able to look at before. If you take historical data, whether it be tables or a compendia of biographies or newspapers, and you go and you put those into Amazon Textract or Google Cloud Vision, it will output complete garbage. It’s been very specifically geared towards specific things which are like single-column books and just does not do well with digitizing historical data on a large scale. So we’ve been really investing in methods in computer vision as well as in natural language processing to process the output so that we can take data, historical data, on a large scale. These datasets would be too large to ever digitize by hand. And we can get them into a format that can be used to analyze and answer lots of questions.

One example is historical newspapers. We have about 25 million-page scans of front pages and editorial pages from newspapers across thousands and thousands of US communities. Newspapers tend to have a complex structure. They might have seven columns, and then there’s headlines, and there’s pictures, and there’s advertisements and captions. If you just put those into Google Cloud Vision, again, it will read it like a single-column book and give you total garbage. That means that the entire large literature using historical newspapers, unless it uses something like the New York Times or the Wall Street Journal that has been carefully digitized by a person sitting there and manually drawing boxes around the content, all you have are keywords.

You can see what words appear on the page, but you can’t put those words together into sentences or into paragraphs. And that means we can’t extract the sentiment. We don’t understand how people are talking about things in these communities. We see what they’re talking about, what words they use, but not how they’re talking about it.

So, by devising methods to automatically extract that data, it gives us a potential to do sentiment analysis, to understand, across different communities in the US, how people are talking about very specific events, whether it be about the Vietnam War, whether it be about the rise of scientific medicine, conspiracy theories — name anything you want, like how are people in local newspapers talking about this? Are they talking about it at all?

We can process the images. What sort of iconic images are appearing? Are they appearing? So I think it can unlock a ton of information about news.

We’re also applying these techniques to lots of firm-level and individual-level data from Japan, historically, to understand more about their economic development. We have annual data on like 40,000 Japanese firms and lots of their economic output. This is tables, very different than newspapers, but it’s a similar problem of extracting structure from data, working on methods to get all of that out, to look at a variety of questions about long-run development in Japan and how they were able to be so successful. 

conversableeconomist

Lower Tax Rates or Less Tax Enforcement?

Let\’s compare two hypothetical tax cuts. In the first tax cut, we decide which groups will pay lower rates, and we may have a dispute over what share the tax cut should go to those with low incomes, or families with children, or as an incentive for job training or research and development or some other purpose. In the second tax cut, we announce that those who are willing to take the risk of breaking the tax laws can pay less, but everyone else will pay the same. 
I prefer the first form of tax cut, and I suspect I am not alone in that preference.  But by reducing funding to the IRS in the last decade or so, we are in fact choosing the second form of tax cut. The Congressional Budget Office lays out the evidence in \”Trends in the Internal Revenue Service’s Funding and Enforcement\” (July 2020). Here are some bullet-points to consider from CBO: 

  • In its most recent report on uncollected taxes, the IRS estimated that an average of $441 billion (16 percent) of the taxes owed annually between 2011 and 2013 was not paid in accordance with the law. Most of the unpaid taxes were the result of taxpayers’ underreporting their income. Through enforcement, the IRS collected an average of $60 billion of those unpaid taxes annually, reducing the gap between taxes owed and taxes paid in those years to $381 billion per year, on average.
  • The IRS’s appropriations have fallen by 20 percent in inflation-adjusted dollars since 2010, resulting in the elimination of 22 percent of its staff. The amount of funding and staff allocated to enforcement activities has declined by about 30 percent since 2010.
  • Since 2010, the IRS has done less to enforce tax laws. Between 2010 and 2018, the share of individual income tax returns it examined fell by 46 percent, and the share of corporate income tax returns it examined fell by 37 percent. The disruptions stemming from the 2020 coronavirus pandemic will further reduce the ability of the IRS to enforce tax laws.
  • CBO estimates that increasing the IRS’s funding for examinations and collections by $20 billion over 10 years would increase revenues by $61 billion and that increasing such funding by $40 billion over 10 years would increase revenues by $103 billion.
Unsurprisingly, most Americans don\’t have a lot of room to fiddle with our taxes. Our employer reports our pay to the IRS; our bank reports our meager interest income; other parts of the financial industry report if we had any capital gains or other financial benefits in the year. However, those who receive income in forms not separately reported by third parties–like income for the proprietors of a business, or from royalties or rents–have much more ability to understate their income. 
Most of the drop in enforcement relates to a lower chance of close inspection of the tax returns of high-income individuals and large corporations. 
Notice that the comparisons given do not go back decades, but only about a decade.  Maybe I\’m just not remembering clearly (always a possibility!), but it doesn\’t seem to me that the perennial complaints over the intrusiveness of IRS enforcement were higher than usual in 2010. I also don\’t remember any policy consensus that a reduction in tax enforcement would be a bipartisan policy choice over the decade following 2010. Raising IRS enforcement spending 20%, so it returns to 2010 levels, does not seem excessive or onerous. And although many government tax and spending policies claim to \”pay for themselves,\” this one actually does so. 
conversableeconomist

The US Dollar in the Global Economy

The two left-hand red bars in this table show the US share of global trade and the US share of the global economy. The other blue bars show the role of the US dollar in cross-border loans, international debt securities, foreign exchange transaction volume, official foreign exchange reserves, invoicing of international trade, and payments made through the international network (mainly but not all banks) called SWIFT.  
The CGFS report goes into considerable detail on the role of the US dollar in each of these areas. But here\’s an overview of pluses and minuses for the world economy: 

Global economic and financial activity depends on the ability of US dollar funding to flow smoothly and efficiently between users. The broad international use of a dominant funding currency generates significant benefits to the global financial system, but also presents risks. Benefits arise from economies of scale and network effects, which reduce the costs of transferring capital and risks around the financial system. At the same time, financial globalisation, coupled with the dominant role of the US dollar in international markets, may have led to a more synchronised behaviour of actors in the global financial system, at least in part because many international investors and borrowers are exposed to the US dollar. As a consequence, it is possible that shocks stemming from US monetary policy, US credit conditions or general spikes in global risk aversion get transmitted across the globe. These dynamics increase the need for participants to manage the risk of a retrenchment in cross-border flows.

In short, having a currency that can be widely used around the global economy–whether directly or as a fallback whenever needed–is a huge benefit. But one tradeoff is that many players in global markets around the world are dependent on having access to a continuing supply of US dollars (say, to make payments or repay loans). This may not be a problem in many cases–for example, perhaps the party in question has a US dollar credit line at a big bank. But many other parties around the world may not have direct access to US dollars when needed. 
In addition, when someone who is in an economy that doesn\’t use US dollars promises to make payments in US dollars, there is always a danger that if exchange rates shift, that payment may become more difficult to make. 
And also in addition, if there was for whatever reason a shortage of US dollar financing for the global economy as a whole, the problems would hit in all kinds of locations and markets all at once. Because of the global dependence on US dollars, any actions of the  Federal Reserve or the US banking authorities can have outsized and unexpected effects on the rest of the global economy. As a policy response, the Federal Reserve has set up \”swap lines\” with a number of central banks around the world, where the Fed agrees in advance to swap US dollars for the currency of that central bank during a time of crisis, so that the other central bank, in turn, could make sure those US dollars were available in its own economy. 
Problems along these lines arose during the global financial crisis from 2007-2009, and again during the crisis in European sovereign debt markets in 2010. Although the main focus of this report is an overall perspectives on international US dollar funding, it does include some discussion of how these issues erupted in March 2020 as concerns over COVID-19 erupted. Financial and corporate actors around the world had an increased desire to hold US dollars, as a safety precaution in uncertain times. The foreign exchange value of the dollar appreciated about 8% in a couple of weeks. Those who had been planning to trade in US dollars or borrow in US dollars, around the world, found that it was more difficult and costly to do so. The report notes: 

The prospect of a severe economic downturn drove a significant increase in demand for US dollar liquidity. Many businesses around the globe, anticipating sharp declines in their revenues, sought to borrow funds (including US dollars) to meet upcoming expenses such as paying suppliers or servicing debts. US dollars were in particularly high demand given the dollar’s extensive international use in the invoicing of trade, short-term trade finance and long-term funding … Faced with uncertainty about how large such needs would be, many firms, as a precaution, chose to draw on any source of US dollar funding they could obtain.

The activities of NBFIs [non-bank financial institutions] also appear to have contributed to strong demand for US dollar liquidity. In recent years, non-US insurers and pension funds have funded large positions in US dollar assets by borrowing US dollars on a hedged basis … The appreciation of the US dollar meant that these NBFIs in some jurisdictions were required to make margin payments, potentially adding to demand for US dollar funding. … At the same time, US dollar funding became much more difficult to obtain in global capital markets as suppliers of funding shifted into cash and very liquid assets. …

Finally, EMEs [emerging market economies] that raise US dollar funding have faced particular strain. Over the past decade, corporations, banks and sovereigns in EMEs had issued large volumes of US dollar debt securities, partly owing to a shift away from bank-intermediated funding … The pandemic has seen fund managers substantially shift their portfolios away from US dollar bonds issued by EME borrowers …  At the same time, many EME governments and corporations have an increased demand for funding (across currencies), owing to fiscal expansions and sharply lower revenues, including from commodity exports. Together, these pressures have contributed to a spike in US dollar bond yields for EME sovereigns and corporations …

 The US Federal Reserve worked with central banks around the world to make sure that the flow of US dollar financing was only hindered in a way that gave it a reasonable chance to adjust, not harshly interrupted. With the widespread use of the US dollar around the world, and the interconnections of the world economy, the Fed has little choice but to accept some responsibility for the availability of US dollars not just in the US economy, but around the world. 

conversableeconomist

Some Background about Police Shootings

The Annals of the American Academy of Political and Social Science devoted its January 2020 issue to a set of 14 articles on the theme of   \”Fatal Police Shootings: Patterns, Policy, and Prevention.\” I\’ll post a Table of Contents for the issue below. Here, I\’ll just note some of the lessons one might take away from a few of the papers in the issue.

Franklin Zimring lays out some useful background (citations omitted): 

Police shoot and kill about a thousand civilians each year, and other types of conflict and custodial force add more than one hundred other lives lost to the annual total death toll. This is a death toll far in excess of any other fully developed nation, and the existing empirical evidence suggests that at least half and perhaps as many as 80 percent of these killings are not necessary to safeguard police or protect other citizens from life-threatening force. …

One reason why U.S. police kill so many civilians is that U.S. police themselves are vastly more likely than police in other rich nations to die from violent civilian attacks. In Great Britain or Germany, the number of police deaths from civilian attack most years is either one or zero. In the United States—four or five times larger—the death toll from civilian assaults is fifty times larger. And the reason for the larger danger to police is the proliferation of concealable handguns throughout the social spectrum. When police officers die from assault in Germany or England, the cause is usually a firearm, but firearms ownership is low, and concealed firearms are rare. There are, however, at least 60 million concealable handguns in the United States and the firearm is the cause of an officer’s death in 97.5 percent of intentional fatal assaults, an effective monopoly of life-threatening force even though more than 95 percent of all assaults against police and an even higher fraction of those said to cause injury are not gun related. … 

A theme that runs loosely through a number of these essays is that police-citizen interactions can involve \”tight coupling,\” which is organizational behavior jargon for an interrelated system with lots of stresses and little slack. A \”tightly coupled\” system is bad at dealing with unexpected shocks, which can cause catastrophic breakdowns. A situation where a police officer is feeling threatened and stress, and as if there is a need for immediate urgent action, is also a situation where racial prejudices about who poses a danger and what actions are justified in response more easily boil to the surface. 

An implication of this insight is that focusing just on the situations where a breakdown (in this case, a policy shooting) occurs runs a risk of missing the point, which is that the system is fragile and prone to failure. Thus,  Zimring points out both that criminal prosecutions in cases of police shooting are extremely low–indeed, so low as to raise concerns that justice is not being done in many cases–but also to argue that while responding after-the-fact with prosecutions of police who kill someone can be a useful step in some cases, it misses the broader point. He writes:

One important problem in the governmental control of unnecessary police use of deadly force is the fact that police officers have been operating with near impunity when efforts are made by citizens or law enforcement to prosecute police officers for criminal misuse of their lethal weapons. The thousand or so killings of civilians by police officers in the United States each year have in recent history produced about one felony conviction of a uniformed officer per year. According to research by Philip Stinson of Bowling Green University, there were in the years 2000 to 2014 an average of 4.4 cases per year in the United States where police killings resulted in murder or manslaughter charges against one or more officers, and the prospects for obtaining felony conviction in these cases were low. The odds of a death producing a felony conviction were close to one in one thousand. …

If the high death rates generated by police activity in the United States were for the most part the result of blameworthy activity by a few bad cops, then criminal law would make sense as a primary control strategy. But the problems are a mix of ineffective administrative controls, vague regulations, and the absence of administrative policy analyses and incentives for reducing death rates. It is hard to pin 100 percent of the blame for this mess on one or two officers. … The critical problem with reform priorities in the first years after Ferguson, Missouri, was the exclusive emphasis on criminal prosecutions and criminal prosecutors. Ineffective police administrators—and the vague and permissive nonspecificity of their deadly force standards—have been unjustly spared in the reexamination of why the epidemic of civilian deaths is a chronic part of our national experience.

So what is to be done to adjust the system of policing. There are a number of There are a number of proposals for improving police performance across-the-board, including a hoped-for reduction in the number of shootings. But the evidence in support of the efficacy of these steps is somewhere between weak and nonexistent. Robin S. Engel, Hannah D. McManus, Gabrielle T. Isaza write: \”Of the litany of recommendations believed to reduce police shootings, five have garnered widespread support: body-worn cameras, de-escalation training, implicit bias training, early intervention systems, and civilian oversight. These highly endorsed interventions, however, are not supported by a strong body of empirical evidence that demonstrates their effectiveness.\” 

They review the partial and limited evidence on these policies. They point out that when it comes to public policy, it isn\’t always possible or desirable to wait for years of study to be sure that something works. As the social scientists say, absence of evidence is not evidence of absence. Instead, jurisdictions that are trying these policies should also be trying to couple new policies with rigorous evaluation. They describe the experience of the University of Cincinnati Department of Public Safety, which works closely with the Cincinnati police: 

This is the approach we used to facilitate the reform efforts within the UCPD. Our first step was to redesign data collection systems to include the data necessary to evaluate the impact of our work. Our executive team modified existing data collection processes and also mandated the collection of new data. Changes in data collection instruments and practices resulted in new data generated during traffic and pedestrian stops, during the citizen complaint process, through the review and cataloging of BWC footage, during potential use-of-force encounters (e.g., when officers draw their Tasers or firearms but do not deploy them), along with multiple citizen and officer surveys. Each of these data collection changes required an accompanying change in policy, training, and supervisory oversight to ensure that the data were being properly collected and used. The UCPD is now in a better position to test specific propositions about the effectiveness of our own reform efforts.

What other factors might matter? Greg Ridgeway writes in his essay: 

Using data from the New York City Police Department (NYPD) and the Major Cities’ Chiefs Association (MCCA), the analysis finds that police officers who join the NYPD later in their careers have a lower shooting risk: for each additional year of their recruitment age, the odds of being shooters declines by 10 percent. Both officer race and prior problem behavior (e.g., losing a firearm, crashing a department vehicle) predict up to three times greater odds of shooting, yet officers who made numerous misdemeanor arrests were four times less likely to shoot.

Laurie O. Robinson adds: 

When President Obama asked my White House Task Force cochair, Chuck Ramsey, and me if there was one area we would have delved into if given more time, we said that area was recruitment. American policing in the future will be shaped by the men and women now coming into the police academies, yet at a time when there are calls for advancing a “guardian” culture in policing, many training academies are still organized as military-style boot camps emphasizing a “warrior” approach …… 

Robinson also notes that there have been lots of changes in use-of-force policies in major police departments. As she writes: 

Larger police agencies are, in fact, taking steps to revise their use of force policies, and it is having an impact. According to a survey of forty-seven of the largest law enforcement agencies in the United States from 2015 to 2017 conducted by the Major Cities Chiefs Association (MCCA) and the National Police Foundation, 39 percent of the departments changed their use of force policies and revised their training to incorporate de-escalation and beef up scenario-based training approaches. Significantly, officer-involved shootings during this period dropped by 21 percent in the agencies surveyed …

The editor of the volume, Lawrence W. Sherman, suggests in an essay near the close of the volume that there are three proposals \”that seem to have the greatest chance of winning a political consensus, and then winning implementation.\” He writes: 

These proposals are

  1. to empower police to seize guns without a court order, as may appear necessary to them in a “split-second decision”;
  2. to develop the core tactics underlying systems that seek to reduce “tight coupling” that creates “split-second decisions” and leave too little time to save lives; and
  3. to equip police with more powerful first aid strategies, from hi-tech bandages in every police car to policies enabling police to “scoop and run” with every shooting or stabbing victim.
But ultimately, a fundamental problem is that there are something like 18,000 police departments across the United States, and when a police shooting occurs, the US system of government often assumes that the same local law enforcement mechanisms that include the police in a central role will also be able to investigate the police. It\’s not a surprise that this often doesn\’t work well. In some cases, the state steps in, but as Zimring points out: \”The unit of government that maintains authority in many other criminal justice operations—the state level—usually has no concern with and little statutory authority about policing.\”
Thus, Zimring suggests that there could be a national-level Office of Police Conduct, which can serve as a clearinghouse for complaints, reports, and information He writes: 

There is also one important foreign model of a national fact-gathering institution that could also be incorporated into the U.S. government’s Department of Justice, perhaps in the civil rights division. Police departments in England and Wales have decentralized administrations, not unlike the United States. But the United Kingdom also created an Independent Office for Police Conduct (formerly known as the Independent Police Complaints Commission) that has become a statistical and analysis resource that is worthy of emulation on this side of the Atlantic … 

conversableeconomist

The Subway Map View of US Mortality and Health

If the US had a national goal of improving health, it would quite possibly take aggressive action to reduce current spending on health care, and instead use those funds to address social factors that affect health. Donald M. Berwick makes this case in his short essay, \”The Moral Determinants of Health\” (Journal of the American Medical Association, June 12, 2020). Berwick writes (footnotes omitted): 

Except for a few clinical preventive services, most hospitals and physician offices are repair shops, trying to correct the damage of causes collectively denoted “social determinants of health.” Marmot has summarized these in 6 categories: conditions of birth and early childhood, education, work, the social circumstances of elders, a collection of elements of community resilience (such as transportation, housing, security, and a sense of community self-efficacy), and, cross-cutting all, what he calls “fairness,” which generally amounts to a sufficient redistribution of wealth and income to ensure social and economic security and basic equity. …

The power of these societal factors is enormous compared with the power of health care to counteract them. One common metaphor for social and health disparities is the “subway map” view of life expectancy, showing the expected life span of people who reside in the neighborhood of a train or subway stop. From midtown Manhattan to the South Bronx in New York City, life expectancy declines by 10 years: 6 months for every minute on the subway. Between the Chicago Loop and west side of the city, the difference in life expectancy is 16 years. At a population level, no existing or conceivable medical intervention comes within an order of magnitude of the effect of place on health. …

How do humans invest in their own vitality and longevity? The answer seems illogical. In wealthy nations, science points to social causes, but most economic investments are nowhere near those causes. Vast, expensive repair shops (such as medical centers and emergency services) are hard at work, but minimal facilities are available to prevent the damage. In the US at the moment, 40 million people are hungry, almost 600 000 are homeless, 2.3 million are in prisons and jails with minimal health services (70% of whom experience mental illness or substance abuse), 40 million live in poverty, 40% of elders live in loneliness, and public transport in cities is decaying. …

Decades of research on the true causes of ill health, a long series of pedigreed reports, and voices of public health advocacy have not changed this underinvestment in actual human well-being. Two possible sources of funds seem logically possible: either (a) raise taxes to allow governments to improve social determinants, or (b) shift some substantial fraction of health expenditures from an overbuilt, high-priced, wasteful, and frankly confiscatory system of hospitals and specialty care toward addressing social determinants instead. Either is logically possible, but neither is politically possible, at least not so far.

Here is one of the 21 \”subway maps\” of life expectancy in different areas of the United States from researchers at Virginia Commonwealth University (\”Mapping Life Expectancy,\” September 26, 2016), this one using data from Chicago. 
LE Map, Chicago, jpg, black
Health care spending is headed for one-fifth of total GDP, and there\’s substantial reason to doubt that it is improving health by enough to justify that bill.  For example, here\’s a figure from Our World in Data showing the shifts health care spending per person over time (horizontal axis) and the change in life expectancy over time (vertical axis). The US is clearly on a different path from other high-income countries. 
Making sure people have access the kind of health care with a high impact on health seems like a valuable social goal. But if the overall social goal is improving health, not just feeding the health care industry, finding ways to transfer funds away from health care to other social needs that affect health may be more important than health insurance for all. For a previous post on the need for spending on programs \”upstream\” of medical care, see \”U.S. Health Care: The Case for Going Upstream\” (March 15, 2017). 
conversableeconomist

Marketable Pollution Permits and Medieval Indulgences

Eugene McCarthy died in 2005, and last held public office in 1971, so I suspect he is not well-known among the under-50 crowd. But he was a grand old man of Democratic politics: a Congressman from Minnesota from 1949-59, a Senator from 1959-1971, someone who got some consideration as LBJ\’s vice-president in the 1964, and someone who made a credible run for the Democratic presidential nomination in 1968, followed by less credible presidential runs in 1972 and 1976. His 1968 campaign left us with the slogan \”Get Clean for Gene,\” referring to how a number of his young adult campaign volunteers cut their hair and beards so that they would be less likely to alienate undecided voters when going door-to-door. For the tone of the times, you may prefer listening to the Peter, Paul and Mary campaign song: \”Eugene McCarthy for President (If You Love Your Country).\” 
I pass along this background to emphasize that when McCarthy wrote an essay in 1990 for The New Republic, analogizing marketable pollution permits as a tool for reducing sulfur dioxide emissions to the sale of indulgences by the Catholic Church in the Middle Ages, his views got some attention (Eugene J. McCarthy, \”Pollution Absolution,\” The New Republic, October 29, 1990, p. 9). McCarthy wrote: 

[T]he practice of giving or selling indulgences … operated in the Middle Ages on the principle that some persons were better than they needed to be in order to escape temporal or purgatorial punishments, whereas many others, known as sinners, fell short. Under the terms of the granting of indulgences, credits built up by the good could be transferred to those who had fallen short, or even to those who anticipated falling short. The transfer could be gratuitous, it could be in answer to prayers and petitions, or it could be for money. The anticipation of credits for forgiveness of sin, according to the record, moved William of Aquitaine to establish the monastery of Cluny with the instruction that the monks pray continuously for his salvation while be went about his work of war, pillage, rapine, and other activities. This procedure is perfectly echoed in an amendment to the Senate\’s version of the Clean Air bill, which would allow, for example, the aerospace industry in California to buy from a local supervisory authority pollution rights in excess of its allotted amount and then allow the authority to use the money to subsidize or pay for pollution reduction somewhere else in the region, by some other person or company.

I had McCarthy\’s essay in mind when I sat down to write \”Are Property Rights a Solution to Pollution?\” for the special  issue of PERC Reports (Summer 2020), commemorating 40 years of the PERC free-market environmentalism think tank in Bozeman, Montana. The essay may offer a useful overview for those not familiar with broad picture of economic thinking about the environment: Alfred Marshall and the idea of externalities in 1890; Marshall\’s student A.C. Pigou and the idea of that a Pigovian tax can offer a socially appropriate adjustment for externalities in 1920; Ronald Coase\’s classic 1960 essay and the idea of thinking about externalities in terms of property rights; early experiments by the Environmental Protection Agency in the 1970s with first allowing firms the flexibility to meet overall pollution-reduction goals in the way that seemed most cost-effective to the firm, and then allowing firms to trade pollution permits with each other; the use of marketable permits for reducing other pollutants like lead and  sulfur (after that 1990 legislation; and novel ways of using marketable pollution permits including efforts to reduce water pollutants and carbon emissions. 
Here, I\’ll just add a couple of points not especially emphasized in my essay, and instead aimed at McCarthy\’s view that pollution is a sin to be shamed and punished, not an undesirable output from otherwise useful production that needs to be managed. 
One point is that marketable pollution permits have been proven to work, at least in certain settings and for certain purposes. McCarthy wrote in 1990: \”It should perhaps be remembered, however, that the sale of indulgences did not serve the Church well—nor, in the long run, as the record shows, did it discourage sinners.\” In contrast, marketable pollution permits have now worked in a variety of settings as a more cost-effective way of reducing a range of pollutants. 
The other point is that those who are have a reflexively negative reaction to marketable pollution permits may wish to reflect on the idea that a law limiting pollution is, in its own way, a property right to pollute. After all, such a law grants to firms a legal right–which can be viewed as a property right owned by the firm–to emit any amount of pollution up to the limit. However, with this legal-limit property right to pollute, a firm has no incentive to seek out innovative ways of reducing pollution below the legal limit. In contrast, a marketable pollution permit means that firms do have an incentive to seek out innovative and cost-effective ways of reducing pollution, because if they reduce beyond pollution below the legal limit, they can sell those pollution permits to other firms (or in some cases, \”bank\” the permits for their own future use). Thus, in choosing between a legal rule to limit pollution emissions and a marketable permit system, the central issue is not whether firms are granted a legal property right to pollute–this happens in either case. The difference is that marketable permits unleashes incentives to seek out ways of reducing pollution more quickly and cheaply.