Conversable Economist

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

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

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

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

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

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

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

As a sampler, Washington said:

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

Here\’s a fuller quotation:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Since the terrorist attacks of 9/11, a number of economists and other social scientists have been studying terrorism. Khusrav Gaibulloev and Todd Sandler summarize the findings in a review article written for the Journal of Economic Literature (June 2019, pp. 275-328, not freely available online, but many readers should have access via subscriptions through their library).  Here, I\’ll hit some high spots of their five main themes, and I\’ll skip the citations, but the paper itself has vastly more detail.

\”First, terrorism has altered in form after the rising dominance of religious fundamentalist terrorism in the 1990s and the augmented security measures in the West after 9/11. These considerations have changed the lethality, location, and nature of terrorism over time …\”

Examples include a shift in the nature of groups most likely to engaged in terrorist activities, along with a decline in transnational and a rise in domestic terrorism.

\”Prior to the 1990s, most terrorist groups were left wing or nationalist/separatist. The rapid rise of religious fundamentalist terrorist groups started in the 1990s with al-Qaida and its Islamic extremist affiliated groups. Unlike the leftists who generally wanted to limit casualties and collateral damage, the religious fundamentalists wanted to maximize carnage, as 9/11 and the March 11, 2004 Madrid commuter bombings demonstrate. During the 1990s, the religious fundamentalists assumed a dominant influence among terrorist groups. … [T]he number of transnational terrorist incidents have fallen by about
40 percent since the start of the 1990s; however, each incident was much more likely
to involve casualties since then.\”

\”After 9/11, the sustained War on Terror is seen to have apparently little long-term effect on global terrorism. … Furthermore, enhanced border security since 9/11 caused transference of attacks from North America and Europe to the Middle East, Africa, and Asia, consistent with the earlier defensive game theory model.\”

A few decades ago, when the market was booming, Florida wild gator hides reportedly sold for up to $35 a linear foot. Now, trappers hope their skins might fetch $7 a foot if they’re fortunate. (Stephens, who has been a nuisance trapper for less than a decade, says he once sold hides for $28.50 a linear foot but now can hardly find a bulk buyer.) Plus, Stephens explains, he and others in the sector fight the perception that “you trappers are getting rich off the hides,” as he says a state politician put it to him once. He showed the legislator his mileage logs for nuisance calls. At a cost of nearly $200 per gator, Stephens says he was much closer to breaking even than getting rich from trapping.

The idea of using market incentives to manage wildlife and game is not especially common, but neither is it unknown. Watkins points out the Australian kangaroo market as another example:

That’s basically the approach that Australia has taken to manage its estimated 50 million kangaroos, which damage crops, forage pastures, and destroy fairways across much of the country. Licensed cullers are permitted to hunt ’roos and sell their game products to processors and distributors. In recent years, the kangaroo market has evolved and broadened, as National Geographic recently reported: “Global brands such as Nike, Puma, and Adidas buy strong, supple ‘k-leather’ to make athletic gear. And kangaroo meat, once sold mainly as pet food, is finding its way into more and more grocery stores and high-end restaurants.” Australia sells kangaroo products to more than 50 countries and earned $29 million in exports from the animal products in 2017.

Market forces are clearly powerful enough to threaten species with extinction: indeed, market forces from hunting to land development are why the alligator nearly became extinct. Another prominent example that I\’ve discussed of market forces driving a species to near-extinction is the American buffalo (see here and here). Clearly, the power of an unregulated and unrestrained market can be environmentally destructive. But the the power of a regulated and restrained market can be a tool for environmental gains (for example, via cap-and-trade pollution permits) and wildlife management, too.

Discussions of socialism often consist of throwing examples at each other. What about Sweden and Norway? Well, what about Venezuela and the Soviet Union? In an \”Eye on the Market\” brief written for JP Morgan, Michael Cembalist writes \”Lost in Space: The Search for Democratic Socialism in the Real World, and how I ended up halfway around the globe from where I began\” (June 24, 2019).

Cembalist makes the point that if the Nordic countries are taken to be the definition of \”socialism,\” it is certainly true that they have higher social benefits and more government spending focused on redistribution. However, it\’s also true that the social largesse of the Nordic countries is  heavily funded by taxes paid by the middle-class, like value-added taxes (a form of national sales tax) and payroll taxes, rather than by taxes on those with higher incomes or wealth. In addition, Cembalist points out that the Nordic countries are extremely conscious of the need to have a strong private sector as the basis for supporting their more expansive welfare states. He provides an array of evidence that these countries have greater business freedom, more free trade, and lower levels of government effort to regulate firms or to push back against oligopolies.  I\’ve made similar arguments here, as in \”The Scandinavian Style of Capitalism\” (November 5, 2018).

It would be an interesting political development if a prominent US politician did take a Nordic \”socialist\” position: extremely pro-business and pro-trade, favoring higher middle-income taxes, and with high spending on those with lower incomes. But I\’m not aware of any prominent US politician actually staking out the Nordic combination of positions.

Cembalist argues that if one thinks of socialism as involving heavy government regulation affecting business, hiring, and workers, high taxes and government spending, and limits on international flows of goods and capital, then Argentina is a leading example. Whether you agree with his discussion of Argentina as the true prototypes of \”socialism\” or not, he provides a couple of striking figures showing the evolution of the wealth of nations around the world that are of broader interest beyond this particular context.

The first figure shows the ratio of current per capita GDP for a number of countries to the per capita GDP in 1913. Countries that were very poor in 1913 (small denominator) and have had strong growth in the last century (big numerator) will do well on this ratio. Thus,  Taiwan, South Korea, Singapore Hong Kong, Japan, and China are on the far left of the figure, where standard of living as measured by per capita GDP has risen by a multiple of 20 to 40. The US is in the middle, clustered with a lot of other countris that were relatively well-off in the world rankings back in 1913, with per capita GDP rising by a multiple of 7-8. On the far right are countries with relatively little growth in 1913, but haven\’t grown much since. Argentina is the last entry, accompanied by Syria, South Africa, Algeria, and Ghana.

The second figure shows how rankings of countries by per capita GDP have shifted over time. On the axes, countries are ranked by percentile, from the first percentile up to the 100th percentile, in 1913 on the horizontal axis and for 2018 on the vertical axis. Countries that are on the diagonal line (like the US) have remained at about the same global rank over time. Countries above the diagonal line have risen in the rankings, and those below the diagonal line have fallen in the rankings. Again, the sharp fall of Argentina in the rankings is apparent.

Of course, per capita GDP is a rough-and-ready measure of well-being. The choice of appropriate exchange rate will make a big difference, for example. But at least to me, the overall shape of the patterns in these figures gives a fair sense of the shifts in the wealth of nations over time.

The Congressional Budget Office has published \”The 2019 Long-Term Budget Outlook\” (June 2019), which offers a chance for a quick overview of where US government spending, taxes, and debt are headed in the next 30 years. For those who have been paying attention, there are no bombshell revelations here. But for thus just arriving at the party, the patterns may be eye-opening. 

Three years ago today, on June 23, 2016, the Brexit vote occurred. After three years of negotiation, I have no clear idea what the endpoint will be. But to commemorate the day and some of the choices to be faced, here are links to a three earlier posts on Brexit.

1) I happened to be on a family vacation in the UK on the day of the Brexit vote. When I got back, I wrote \”Seven Reflections on Brexit\” (June 27, 2016).  Here was my first point:

The Brexit vote seemed to me a strangely American moment. Some of the lasting slogans handed down from the American revolution against England are \”no taxation without representation\” and \”don\’t tread on me.\” Thus, for an American there was some historical irony in hearing many of the British argue, in effect, that there should be \”no regulation without representation,\” or perhaps \”no legislation without representation.\” There was similar irony in hearing some of the British turn loose their \”don\’t tread on me\” spirit while railing against annoying but in some sense small-scale regulatory impositions from the central power, like rules that sought to standardize shapes and sizes for fruit and vegetable produce, or the rules with force of law that sales of loose and packaged good use only metric measurements. I found myself half-expecting some \”Leave\” advocates to start quoting the US Declaration of Independence: \”When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature\’s God entitle them …\”

2) A couple of months later, Richard E. Baldwin edited an e-book for VoxEU, Brexit Beckons: Thinking Ahead by Leading Economists, with short and readable contributions by 19 economists.  I tried to sum up some of the main possibilities for what might come next in \”Brexit: Getting Concrete about Next Steps\” (August 2, 2016). Looking back today at those options has a sort of nostalgic feeling to it. Some of those options might have been achievable, with a certain kind of determined and talented political leadership. But three years later, with a legacy of failed negotiations and various timetables that seem to be threatening to expire on some days and then retreating a few months into the future, I\’m not confident that any of the possibilities from three years ago are still on the table.

3) In the Fall 2017 issue of the Journal of Economic Perspectives, and Thomas Sampson sums up the research on what is known and what might come next in \”Brexit: The Economics of International Disintegration, \”  In turn, I offered some summary of his main points and thoughts of my own in \”Brexit: Still a Process, Not Yet a Destination\” (November 17, 2017). In thinking about the effects of Brexit, one can do worse than start with Sampson\’s one-paragraph description of the UK economy:

The United Kingdom is a small open economy with a comparative advantage in services that relies heavily on trade with the European Union. In 2015, the UK’s trade openness, measured by the sum of its exports and imports relative to GDP, was 0.57, compared to 0.28 for the United States and 0.86 for Germany (World Bank 2017). The EU accounted for 44 percent of UK exports and 53 percent of its imports. Total UK–EU trade was 3.2 times larger than the UK’s trade with the United States, its second-largest trade partner. UK–EU trade is substantially more important to the United Kingdom than to the EU. Exports to the EU account for 12 percent of UK GDP, whereas imports from the EU account for only 3 percent of EU GDP. Services make up 40 percent of the UK’s exports to the EU, with “Financial services” and “Other business services,” which includes management consulting and legal services, together comprising half the total. Brexit will lead to a reduction in economic integration between the United Kingdom and its main trading partner.

At this point, perhaps the only positive description one can offer of the Brexit negotiations is that any business or consumer or investor with eyes to see should know not to be relying on British economic integration into the EU in the future. Thus, there has been a three-year period of having time to plan and adjust for that outcome.