My Talk on the Four Forces and Inspiration to Quality Comments

First, the inspiration part.

Organizers say it will almost certainly be the first paper at the prestigious Brookings Papers on Economic Activity that was commissioned based on a blog comment. It is also a rare honor for a graduate student to present a sole-authored paper there; a quick scan of Brookings records shows a similar appearance by the now-renowned economist Jeffrey Sachs when he was a doctoral student in 1979.

“It’s made Matt famous,” said Tyler Cowen, the George Mason University economist who runs the Marginal Revolution blog, and who elevated Rognlie’s comment into a standalone post on his site. “It was brilliantly reasoned and right on target. And very elegant.”

More links here. Even more from Timothy Taylor.

Note that it should inspire high-quality comments, not quantity or snark.

The topic is inequality, which leads to a summary of my talk.

In 1965, the St. Louis Cardinals played their home games in Sportsman’s Park (aka Busch Stadium I). The most expensive seat in the ballpark, a box seat, cost $3.50. A blue-collar worker, who earned about $2 an hour at the time, could treat a family of four to a game in these most expensive seats for less than one day’s pay.

These days, the Cards play at the new stadium, Busch Stadium III. A typical blue-collar worker makes something like $20 an hour The cheapest seat in the stadium still costs less than an hour’s pay. But the most expensive seats cost somewhere north of $800. It would take a month for a blue collar worker to earn enough to treat a family of four to the best seats in the ballpark.

In fact, most seats at the new ballpark are out of reach of blue-collar workers. Why is this? Are the new owners more greedy than Augie Busch, who gave tickets away cheap because he was a nice guy? I think not.

The new owners charge high prices for most seats because nowadays they can. In 1965, the top third and the bottom third of the earnings distribution were not that far apart, so that if you charged prices way above what a blue-collar worker could afford, you would have had mostly empty seats. Today, the top third provide a cadre of highly affluent customers.

In 1965, if you were in the top third and went to a baseball game, chances are that there were people sitting nearby from the bottom third Today, the top third and the bottom third are not sitting in the same part of the ballpark.

I think that the explanation for this comes from the four forces.

1. The New Commanding Heights, which means that over the past 100 years more of the increase in total wealth has been spent on education and health care than on manufactured goods. This trend has become most noticeable in the last thirty years. It means that earnings are no longer split between corporate shareholders and a nearly-homogeneous work force. They are split between high-skilled professionals and low-skilled support staff.

2. Bifurcated marriage patterns. Fifty years ago, one often found a marriage between someone who originated in the top third of the distribution and someone who originated in the bottom third. Since the 1960s, that has become rare. That creates the Coming Apart phenomenon documented by Charles Murray and re-documented by Robert Putnam.

3. Factor-price equalization exacerbates the competitive pressure on low-skilled workers.

4. Moore’s Law means that when computers are able to do a task as well as humans, they soon surpass humans.

Policy interventions to try to stop these four forces or reverse their effects are likely to be futile. The future will be some combination of the Diamond Age scenario (everyone’s basic needs satisfied, with an upper class of Vickys enjoying handmade luxury goods) and a Beyond Therapy scenario, with everyone enhanced by genetic engineering, implants, and drugs.

Megan McArdle on Bifurcated Family Patterns

She writes,

Could this be genetic? you ask. People who have impulse-control problems might be more likely to divorce and pass those traits on to their kids. Partially, sure. But two evidence points argue against genetic determinism. First, similar, although less severe, patterns show up in the case of kids who lose one parent, which is mostly not going to be due to homicide. And second, if this is genetic, how come it has changed over time? Have we all gotten genetically less able to stay out of jail or sustain a long-term marriage?

We know that children of single-parent households have worse outcomes than children of two-parent households. To simplify, let us say that there are favorable family patterns and unfavorable family patterns.

First question: how much of this is causal?

It could be that an inability to do well on the marshmallow test causes you to be less likely to raise children in a favorable family pattern and also more likely to pass on to your children genes that cause them to be unable to do well on the marshmallow test. That is how genetics could account for the relationship between family patterns and child outcomes.

Megan asks, what has changed over time? It could be two things. First, nowadays it may be that you have to be much better at the marshmallow test to sustain a favorable family pattern. Second, it may that we have gone through two or three generations of increasingly assortive mating.

Until 1965, a man who was in the top third on the marshmallow test might very well have been married to a woman in the bottom third, and conversely. For one thing, the top third and the bottom third were not that far apart. For another, the signals of being able to do well on the marshmallow test were not as clear (college education was too rare to be a reliable signal, particularly among women). Finally, men and women cared more about separate respective roles (breadwinner and homemaker) than about common abilities in the marshmallow test.

But in the 1960s that began to change. So you get one generation of assortive mating, and for the children of these marriages the difference between the top third and the bottom third on the marshmallow test starts to widen. Then they grow up, engage in assortive mating, have children, and difference widens once more. And so on.

But suppose we assume that there is a strong causal relationship between bad family patterns and bad outcomes. That leads to our

Second question: what can policy makers do to improve family patterns?

If anti-poverty programs are the solution, then why has the problem been getting worse? The Center on Budget and Policy Priorities (pointer from Mark Thoma) will tell you that anti-poverty programs are working to keep people out of poverty. So why are we not seeing more family stability? (Ross Douthat makes related points. Pointer from Tyler Cowen.)

Of course, there is a hypothesis, going back to Moynihan’s analysis, that anti-poverty programs are the problem, rather than the solution, because on the margin they reduce incentives to marry. I am skeptical about that, but as you know I am all for replacing current means-tested programs with a universal benefit that has a low implicit marginal tax rate. The idea is to reduce the adverse incentives that presently exist.

Megan, like Charles Murray, would like to see elites proclaim the benefits of good family patterns. I am skeptical of that, also.

My guess is that family patterns are not amenable to public policy interventions.

What I’m Reading

Sapiens: A Brief History of Humankind, by Yuval Noah Harari. I think I mentioned this the other day. Harari argues that in prehistorical times humans were responsible for the extinction of many large species. I was reminded of this today when Tyler Cowen pointed to a piece on the relatively recent extinction of woolly mammoths on a large island. The story says,

Archaeological evidence suggests that humans reached Wrangel Island at roughly the same time the last mammoths vanished, but there’s no evidence yet to indicate that they ever hunted the mammoths. The more likely answer is climate change, which as a side effect might well have made it easier for humans to reach the island to serve as witnesses to the mammoths’ final days.

Harari points out that humans do not have to hunt creatures in order to cause their extinction. For example, humans could disrupt food sources.

I am only part way through the book. My ultimate evaluation may not be favorable.

The Age of Creative Ambiguity

Tyler Cowen writes,

File under “The End of Creative Ambiguity.” That file is growing larger all the time.

What is Creative Ambiguity? I would define it as the attempt by policy makers to ignore trade-offs and to deny the need to make hard choices. Consider the Fed’s balance sheet. One hard choice might be to sell its gigantic portfolio of bonds and mortgage-backed securities. That would depress the prices of those assets and make it harder for the government to borrow and to provide mortgage loans. The other hard choice might be to provide whatever support is necessary to enable the government to borrow and to provide mortgage loans, even if it means printing enough money to risk hyperinflation. Creative ambiguity means convincing investors that neither hard choice will be necessary. Perhaps that is even true.

However, if the Fed’s hard choices are to be avoided, then at some point the government must get its fiscal house in order. That is where the real creative ambiguity comes in. See Lenders and Spenders.

David Brooks on Redistribution vs. Education

He writes,

No redistributionist measure will have the same long-term effect as good early-childhood education and better community colleges, or increasing the share of men capable of joining the labor force.

Pointer from Tyler Cowen.

A cynical believer in the Null Hypothesis would argue that putting money into education is an exercise in redistribution. It will redistribute income toward teachers’ unions members, college professors, and administrators.

Also, what is the probability that Brooks is simply trolling Bryan Caplan?

Sentences I Might Have Written

from Megan McArdle:

1950s health care isn’t expensive; this same regimen would be a bargain at today’s prices. What’s expensive is things that didn’t exist in 1950. You can say that “health care” has gotten more expensive—or you can say that the declining cost of other things has allowed us to pour a lot more resources into exciting new health products that give us both longer and healthier lives.

In Crisis of Abundance, I wrote,

The American middle class can still afford the wonderful health care that was available in 1975–easily. . .as a thought experiment, a return to 1975 health care standards would completely resolve what is commonly described as America’s health care crisis.

You know, that book was written 10 years ago (it came out in 2006), and at the time I said it would have a shelf life of ten years, meaning that I thought that it would still accurately describe the issues for another decade. In fact, it is looking like it will be valid for another ten years. I would say that the majority of popular books on politics and economics expire much more quickly.

Four forces watch: In addition to the New Commanding Heights, McArdle’s essay also touches on the Demographic Divide.

while the college educated class seems to have found a new equilibrium of stable and happy later marriages, marriage is collapsing among the majority who do not have a college degree, leaving millions of children in unstable family situations where fathers are often absent from the home, and their attention and financial resources are divided between multiple children with multiple women.

Other sentences are reminiscent of The Reality of the Real Wage. There, I recycled a bit from my book.

My guess is that if you could find a health insurance policy today that only covered diagnostic procedures and treatments that were available in 1958, the cost of that policy would not be much higher than it was then. Much of the additional spending goes for MRIs and other advanced medical equipment, as well as for health care professionals with more extensive specialization and training than what was available 50 years ago.

I recommend McArdle’s entire essay. Brink Lindsey adds more statistics, such as

In 2011, 87 percent of kids who had at least one parent with a college degree were living with both their parents. For the children of high school dropouts and high school grads, the corresponding figures were 53 and 47 percent, respectively.

Finally, on this same topic, a reviewer (Francis Fukuyama) of an about-to-be-released Robert Putnam book writes,

One of the most sobering graphs in Our Kids shows that while the proportion of young children from college-educated backgrounds living in single-parent families has declined to well under 10 per cent, the number has risen steadily for the working class and now stands at close to 70 per cent.

Pointer from Tyler Cowen.

Labor Policy and Implicit Bias

Commenting on a book about behavioral considerations in public policy, Jason Collins writes,

The opening substantive chapter by Curtis Hardin and Mahzarin Banaji is on bias – and particularly implicit bias. Implicit biases are unconscious negative (or positive) attitudes towards a person or group. Most people who claim (and believe) they are not biased because they don’t show explicit bias will nevertheless have implicit bias that affects their actions.

I think that thinking in terms of the oppressor-oppressed axis is an example of implicit bias. For example, labor policies, such as the minimum wage, are based on an implicit bias that workers are oppressed. I was reminded of this by a recent Tyler Cowen post.

I am often struck by the conflict between one supposition and one fact. First, employers are supposed to be reaping some big surplus from hiring unskilled labor. Second, when a downturn comes, it is unskilled labor who are laid off.

The three-axes model would explain the supposition as a form of implicit bias.

The New Demographics

Nicholas Eberstadt writes,

Europe’s most rapidly growing family type is the one-person household: the home not only child-free, but partner- and relative-free as well. In Western Europe, nearly one home in three (32%) is already a one-person unit, while in autonomy-prizing Denmark the number exceeds 45%. The rise of the one-person home coincides with population aging. But it is not primarily driven by the graying of European society, at least thus far: Over twice as many Danes under 65 are living alone as those over 65.

Pointer from Tyler Cowen. The entire essay is recommended.

My impression of the United States is that we have two marital cultures. One culture, more prevalent among the affluent, is traditional marriage, delayed and with fewer children, with reasonably low divorce rates. The other culture, more prevalent among the less-than-affluent, is child-bearing outside of marriage, with a low proportion of long-lasting marriages.

Eberstadt’s global tour makes it difficult to claim that a single factor, such as affluence or local culture or the welfare state, is causing the decline in traditional marriage.

One thought I have is that the traditional family is highly congruent with an agricultural society. Perhaps we are seeing a sort of delayed response to industrialization and urbanization.

Reluctant Heroes Austan Goolsbee and Alan Krueger

They write,

It is fair to say that no one involved in the decision to rescue and restructure GM and Chrysler ever wanted to be in the position of bailing out failed companies or having the government own a majority stake in a major private company. We are both thrilled and relieved with the result: the automakers got back on their feet, which helped the recovery of the U.S. economy. Indeed, the auto industry’s outsized contribution to the economic recovery has been one of the unexpected consequences of the government intervention.

Pointer from Tyler Cowen.

I guess there is no such thing as the seen and the unseen. For those of you who do not know, Goolsbee and Krueger were officials in the Obama Administration as the bailout was being executed. Here, if their arms do not break from patting themselves on the back, it won’t be for lack of trying.

Timothy Taylor, I question the editorial decision to publish this piece, even if you also include an article that challenges the auto bailouts. Could you not find a neutral party to tell the pro-bailout side? If not, then what does that tell us?

New Commanding Heights Watch

From the NYT.

Ms. Waugh, like many other hard-working and often overlooked Americans, has secured a spot in a profoundly transformed middle class. While the group continues to include large numbers of people sitting at desks, far fewer middle-income workers of the 21st century are donning overalls. Instead, reflecting the biggest change in recent years, millions more are in scrubs.

Pointer from Tyler Cowen. The New Commanding Heights are health care and education. As they increase employment at the margin while manufacturing production work decreases at the margin, male participation in the labor force continues to decline. Note, however, that female labor force participation has been trending down in this century, also.