Recently, some papers have suggested that assortative mating has a role to play in household income inequality. Empirically, it has been found that the proportion of couples who share the same level of schooling has been growing over the past few decades. This has been accompanied by a rise in household income inequality. A paper by economists at the Federal Reserve Bank found that changing family structure accounted for 52 percent of the increase in the 50-10 ratio (50th percentile to 10th percentile) and 49 percent of the increase in the 95-5 ratio. Research by Harvard economists, Chetty et al. concludes that the single strongest correlate of upward economic mobility across geographic regions of America is the fraction of children living in single-parent families.
Monthly Archives: November 2014
A Great Time to Rent
Multifamily construction is now higher than it was during the peak in the previous housing cycle, reached in 2006. But back then, far more of these units were being built as condominiums, not as rentals.
Policy makers see young people reluctant to buy homes, and they respond in the usual way, by proposing government-subsidized lenient mortgage credit. Meanwhile, entrepreneurs respond by building more apartments.
How the Fed Became a Giant Hedge Fund
Jeffrey Rogers Hummel tells the story.
Phase Two of Bernanke’s policies transformed the Federal Reserve from a central bank confined primarily to managing the money supply into an institution that is now a giant government intermediary borrowing massive sums in order to allocate credit. In that respect, the Fed has become similar to Fannie or Freddie, with the important distinction that the Fed has greater discretion in subsidizing a wider variety of assets.
Problems with Spectrum Property Rights
Dale Hatfield and Phil Weiser write,
For a band like that traditionally used for AM broadcasting, it seems impractical, if not impossible, to provide licenses with anything close to certainty in terms of interference protection…a station in an adjacent–or more remote–geographic area could seek damages or injunctive relief based on a series of natural conditions that happen only infrequently…the realities of radio wave propagation in this region of the spectrum simply do not lend themselves to clear and enforceable boundaries for the geographic are dimension of the spectrum resource.
The authors do point out that the properties of the PCS band (the frequency range used by cell phones) are less problematic for a property-rights regime. Moreover,
the commonality of interest among cellular and PCS providers reflects a shared understanding that there is a mutual threat of interference and a mutual benefit to cooperation…Consequently, even though the reality of the spectrum property right is “muddy,” the affected parties are still able to agree on mutually beneficial accomodations.
BIG, Money Illusion, and PSST
Somehow, the interview on Russian TV (I appear on minutes 14 through 22) touched on all three topics.
How to Regulate Comcast and Verizon FIOS
Require utility companies to lease space on their rights-of-way to at least four ISPs, at cost.
Call it infrastructure neutrality, or open leasing. This proposal should independently provide most of the benefits in changing the Internet companies’ status to “telecommunications service,” as mere competition between local firms will discourage them from withholding any service or level of service offered by their local competitors. This competition would thus provide the consumer protections that voters are looking for, while allowing Internet companies to remain more lightly regulated (and thus more innovative) “information services.”
This sounds like a terrific idea to me. Competition is not a perfect regulator, but it is a better regulator than the FCC.
Edifice Complexes
1. Here is my alma mater, Swarthmore. Trust me, they do not need this building. There are already hundreds of square feet of physical plant per student there.
2. Here is the University of Maryland.
Cole Field House would be reborn under a $155 million plan to convert the 59-year-old former basketball arena at the University of Maryland into an indoor football practice facility and “innovation” lab to help the school recruit athletes and others who are would-be entrepreneurs.
No doubt the funds for this were donated by someone with a deep love of education.
Are People Really Moving Back to Cities?
The last decennial census showed, if anything, that suburban growth accounted for something close to 90 percent of all metropolitan population increases, a number considerably higher than in the ’90s. Although core cities (urban areas within two miles of downtown) did gain more than 250,000 net residents during the first decade of the new century, surrounding inner ring suburbs actually lost 272,000 residents across the country. In contrast, areas 10 to 20 miles away from city hall gained roughly 15 million net residents.
I had the opportunity to discuss urban economics with Phil Longman the other night. He had many interesting points.
1. The distribution of income both within metro areas and across metro areas is much wider than it was in the 1970s. In the 1970s, Manhattan was not so much richer than Staten Island. New York was not so much richer than Detroit.
2. Some cities are now “colonial economies” in the sense that they are dominated by businesses owned elsewhere, with few local-owned businesses. He cited St. Louis as an example. When I grew up there, we had McDonnell-Douglas and Monsanto. Now even Anheuser-Busch is not locally owned.
3. So many venture capitalists are in San Francisco that it’s not clear that San Jose is still the capital of Silicon Valley.
4. Whatever happened to the death of distance? It seems that people will pay up to live in cities.
Of course, my theory is that cities are dominated by the New Commanding Heights of universities and hospitals. This brings in highly-paid professionals. So cities that were blue-collar in 1950 and became ghetto by 1980 are becoming yuppie now.
Kotkin’s finding of growth in outer-ring suburbs is really counter to the anecdotal picture of people being attracted by the new urbanism. I think it might be best to think about location choices in the aggregate as driven by supply elasticity. Take it as given that development in cities and close-in suburbs is restricted. If the overall trend is to move away from small towns and rural areas, then the increased demand shows up in P in the city and the close-in suburbs, while the Q shows up in the last place the pundit class would expect it–the distant suburbs.
Martin Baily Interviews Robert Solow
The French automobile industry, much to my surprise, turned out to be more capital intensive than the American automobile industry. So it was not that either. The MGI studies instead traced these differences in productivity to organizational differences, to the way tasks were allocated within a firm or a division—essentially, to failures in managerial decisions.
I would note that if this is the case, then it is possible that high executive pay reflects a productivity differential. Of course, if French auto executives are paid as much as American executives, that would spoil my argument.
Solow has a different take:
An interesting conclusion to me was that international trade serves a purpose beyond exploiting comparative advantage. It exposes high-level managers in various countries to a little fright. And fright turns out to be an important motivation.
Pointer from Timothy Taylor. The whole interview is interesting.
Other Growth Suggestions
1. Philip K. Howard has several complaints about the legal environment in the United States.
My favorite failure is civil service — designed to be “the merit system,” it instead makes it illegal to judge anyone based on merit.
He writes,
Law should be radically simplified into goals and governing principles, like the Constitution, and leave to accountable humans the responsibility to achieve those goals fairly and sensibly.
I received a lot of pushback on my last post on principles-based regulation. But I still think that it is a promising idea, and evidently so does Howard.
2. Jonathan Rauch argues that apprenticeships are a neglected way to improve human capital. Of course, affluent kids already have a very broad apprenticeship program. Except to maintain class distinctions, their program is called internships.
The literature is not very supportive of claims that simple changes in policy would improve productivity and real incomes. For every common argument about a simple policy change that would increase the productivity of land, labor, capital, and everything else that matters I have found compelling contrary or at least complicating evidence.
TANSTAAFL.
Posts on this topic by other writers are coming.