Pethokoukis, Economics, U.S. Economy

Why isn’t America’s baby bust ending?


Worrisome fertility news out of the Centers for Disease Control and Prevention. Even though the US economy seems to be picking up, the nation’s birth rate isn’t. From the WSJ:

The nation’s fertility rate flattened out in 2012, after four years of hefty declines, according to new data from the Centers for Disease Control and Prevention. The latest findings, which pushed the rate—the number of births per 1,000 women aged 15 to 44—to the lowest level on record, largely confirm preliminary figures released in September.

The rate dropped slightly to 63 births per 1,000 women from 63.2 births. The number of children U.S. women are expected to have over their lifetime also slipped last year to 1.88 from 1.89 in 2011.

Separately, the CDC recently released early findings on 2013 that also failed to show a post-recession uptick in births: According to these initial figures, the U.S. fertility rate dropped to 62.7 births per 1,000 women during the 12-month period ending June 2013, down from 63 between June 2011 and June 2012.

On Monday, the U.S. Census Bureau said America’s population grew just 0.72% between July 2012 and July 2013, the slowest rate of growth since around the Great Depression and well below the nation’s post-World War II average of 1.2%.

So what’s happening here? One obvious explanation is that the recovery — such as it is — has been a historically weak one, maybe the weakest ever after such a big downturn. That’s not good for family formation. Now one of the academics quoted in the WSJ piece points to non-economic factors such as a “growing number of young adults are going to college and postponing marriage and family formation.” Sure. But money is still likely a big issue. A Gallup survey from last September found 65% of Americans — it didn’t really matter if the respondents had kids or not – mentioned “not having enough money or the cost of raising a child” as a main reason couples do not have more children. What isn’t the case is that people are becoming less interesting in having kids. From Gallup:

Americans say the ideal number of children per family is 2.6, which is on par with what Gallup has found since the late 1970s. Gallup has been asking Americans “What do you think is the ideal number of children for a family to have?” since 1936, when the ideal number per family was 3.6, on average. This number declined between 1957 and 1978 to an average of about 2.5 children, where it remains today. Americans of all ages report that about the same number of children would be ideal, with younger Americans (18 to 29) having a slightly higher ideal average (2.7) than those 65 and older (2.5).


The WSJ story gives kind of an ice-water explanation as to why falling fertility is a bad thing: “Low fertility means less growth in a country’s population, barring a pickup in immigration. Fewer people can mean fewer workers to propel the economy and a smaller tax base to draw from to pay the benefits due retired Americans.”

As a proponent of an expanded child tax credit, which would hopefully give a nudge to the US birth rate, I like to stress that more kids means a younger society that is more dynamic, creative, and entrepreneurial, as Nobel laureate economist Gary Becker has written.

Pethokoukis, Economics, U.S. Economy

Why intact families are key to shared American prosperity

National Marriage Project at and the Institute for American Values

National Marriage Project at and the Institute for American Values

Family structure is often neglected when policymakers discuss income mobility, stagnation, and inequality. But it matters a lot whether kids, especially ones in working class and lower-income families, grow up with both biological parents.

Those who don’t, writes social scientist Lane Kenworthy in his new book, Social Democratic America, fare worse on a “host of outcomes, from school completion to staying out of prison to earning more in adulthood.” W. Bradford Wilcox, director of the National Marriage Project and a visiting AEI scholar, writes that when it comes to economic mobility, the “intact, two-parent family seems to be particularly important for children hailing from less privileged homes … .” Economist Scott Winship finds the share of families with single moms predicts “quite well” mobility levels in communities. And this from the scholars at the Equality of Opportunity Project: “Some of the strongest predictors of upward mobility are correlates of social capital and family structure. For instance, high upward mobility areas tended to have higher fractions of religious individuals and fewer children raised by single parents.”

Unfortunately family instability remains on the rise, and not just among the poor. Among the nearly 60% of Americans who have completed high school, but do not have a four-year degree, a stunning 44% of children are now born outside of marriage versus 13% in the late 1980s. Among women under 30, 53% of births now occur outside of marriage.

Can these trends be reversed? Many on the left don’t think so, a belief which gives rise to a “Life of Julia” agenda where government tries to transmit the social capital that stable families once did. In Coming Apart, AEI’s Charles Murray eschews a five-point plan and instead advocates that the American upper-class “preach what they practice” and speak out in favor of marriage, as well as other virtues such as industriousness.

But if you are looking for a specific policy agenda, a 2012 report from the National Marriage Project at the University of Virginia and the Institute for American Values in New York offers a bunch including eliminating marriage penalties and disincentives for the poor and unwed mothers, tripling the child tax credit, and evaluating and funding various marriage programs for at-risk couples. Along with those ideas, I would also suggest wage and relocation subsidies for the chronically unemployed. Stronger families should be at the heart of any agenda to create an America where prosperity and human flourishing are maximized.

Pethokoukis, Economics, U.S. Economy

Why Obama frets about income inequality, not family breakdown

Geoff Livingston (Flickr) (CC by 2.0)

Geoff Livingston (Flickr) (CC by 2.0)

The Obama White House argues hard that rising US income inequality makes it tougher for Americans to climb the economic ladder. When President Obama gave a big speech on “social mobility” earlier this month – liberal pundits called it the “most important” of his presidency – he mentioned inequality more than two dozen times to pound the point home. And Team Obama has much publicized its chart illustrating the “Great Gatsby Curve” which suggests strong correlation globally between high income inequality and low earnings mobility.

How many times in such an important speech did Obama mention anything about American family breakdown perhaps impeding economic mobility? Just a couple of passing references.

Yet the issue of family breakdown deserves at least as much attention, if not more, from Obama than income inequality. Using data on local jobs markets from the Equality of Opportunity Project, e21 economist Scott Winship can’t find much of a statistical relationship between inequality – particularly of the 1% vs. 99% sort — and economic mobility. The EOP authors also find “a high concentration of income in the top 1% was not highly correlated with mobility patterns.”



What does seem to be highly correlated with mobility is family structure. In these communities, the share of families with single moms predicts mobility levels “quite well all by itself,” according to Winship’s analysis.  Again, this result is not real surprising. Researchers on the left and right have found that kids raised by both biological parents fare better financially, educationally, and emotionally. And as the EOP scholars conclude: “Some of the strongest predictors of upward mobility are correlates of social capital and family structure.”


A cynic might suggest emphasizing family dysfunction, particularly among those without a college or high school diploma, doesn’t fit into the Democrats narrative as neatly as blaming Republicans for slashing taxes and weakening labor unions – both of which Obama mentioned in that speech.

If true, that’s too bad since one thing most Americans agree on is the ability of kids to climb the ladder should depend more on their skills and will than parents’ investment portfolios.  And one thing most economists agree on is that US economic mobility could be better. While the US middle class is fairly mobile, not so much for kids born at the very top and bottom.  Even the smartest kids have only a 1-in-4 chance of making it from the bottom fifth to the top fifth.

Or maybe Obama simply doesn’t believe there is anything government can do to reverse the decline of the two-parent family where it’s struggling the most. As social scientist Lane Kenworthy writes in his new book, Social Democratic Americathe “best bet with respect to family decline … is to offset the adverse impacts.” Kenworthy goes to advocate a broad and bold progressive agenda including universal early education and one-year paid parental leave. Kenworthy: “I believe our array of social programs will increasingly come to resemble those of the Nordic countries. It is in this sense that I say America’s future is a social democratic one.” Interestingly, Kenworthy thinks too much emphasis is placed on income inequality and taxing the 1% rather than raising living standards at the bottom via social programs financed through a value-added tax.

If that’s where Obama and Washington progressives believe America should be headed, they should explicitly say so. Of course, calling for massive new government spending financed by massive new taxes on the middle class might not win the Democrats too many elections any time soon. Much easier, I guess, to bash the rich and the Republicans.

Pethokoukis, Economics, U.S. Economy

A left-wing professor tells the American left to quit focusing so much on the 1%

University of Arizona social scientist Lane Kenworthy wrote one of the most important books of 2013, Social Democratic America. In it, he outlines and explains a bold — and expensive — universal social insurance agenda to make the United State a lot more Nordic. I would think his progressive credentials are beyond dispute. So it’s awfully interesting to see what he says about the left’s obsessive focus on income inequality:

I believe, as I said earlier, there are good reasons to object to the high and rising level of income inequality in the US. Yet I fear the American left’s recent move to put income inequality reduction front and centre might be harmful rather than helpful. It may foster a conviction that the key to addressing America’s social, economic and political problems is to reduce the top 1 percent’s share or the Gini coefficient.

That could distract attention from more direct and effective efforts to address those problems. Such efforts include fully universal health insurance; improvements in eligibility, duration and benefit level for various social-insurance and social-assistance programmes; wage insurance; early education; enhanced financial support for college; a minimum wage indexed to prices; an expanded earned-income tax credit indexed to average compensation; and monetary policy less tilted towards inflation avoidance.

Policy changes like these would go a long way towards improving economic security, enhancing opportunity (and mobility) and ensuring shared prosperity in the US. …

In the US, policy changes such as these will require more tax revenue. Here lies another troublesome consequence of a focus on inequality reduction: a sizeable portion of the American left has come to think of taxation solely in terms of its redistributive impact. The aim of tax reform, in this view, should be to reduce income inequality. The change many favour is higher tax rates on the top 1 percent or 5 percent. Yet while that may reduce income inequality, it will not provide the US government with anywhere near the money it needs to do the sorts of things I’ve just mentioned.

Instead, the chief aim should be to increase revenues. In my estimation, the US ought to be thinking about how to get an additional 10 percent of GDP in coming decades, and that cannot be done by increasing the taxes of just those at the top. Some of the programmes I’ve mentioned would help to reduce income inequality by boosting the incomes of households on the lower and middle rungs of the income ladder. Indeed, focusing on economic security, opportunity and rising living standards might be the most effective route to lessening income inequality.

The American public has never shown much appetite for income redistribution. Even during the past three decades, as income inequality has shot up, the main detectable reaction among Americans has been a desire to expand programmes that focus on opportunity. That does not mean it is impossible to take steps to reduce inequality in the market distribution or to increase redistribution. It means programmes that do this are more likely to be supported if they are not marketed as a means to achieve income- inequality reduction. Other programmes I listed above are public services. Though child- care, schooling and health care do not reduce the measured degree of income inequality, since they do not change household incomes, they do reduce inequality of living standards.

Income inequality is too high in the US. It would be good to reduce it. But it is a mistake, in my view, to put inequality reduction at the top of the agenda.

In other words, the American left needs to get behind a value-added tax rather than just focusing on higher taxes on business and the wealthiest Americans. Left-wing economists and wonks like Kenworthy talk like this at symposiums and conferences all the time. Unfortunately for them, Democratic politicians have stressed publicly not raising taxes on the 99% — or at least the 98% — despite the obvious inability to pay for all their promises without a VAT. As political scientist William Voegeli has put it: “The best evidence Americans oppose a EU-sized welfare state is Democrats fear of asking voters to pay for it.” Kenworthy believes history is on his side and such acceptance will come in time — although had he written his book after the Obamacare launch, he might not be so confident.

Pethokoukis, Economics, U.S. Economy

Study: No economy in the world rewards smart, skilled workers more than America’s

Eric A. Hanushek, Guido Schwerdt, Simon Wiederhold, and Ludger Woessmann

Eric A. Hanushek, Guido Schwerdt, Simon Wiederhold, and Ludger Woessmann

A new study adds another interesting wrinkle to the debate about income inequality in the United States. “Returns to Skills around the World: Evidence from PIAAC” by Eric Hanushek, Guido Schwerdt, Simon Wiederhold, and Ludger Woessmann examines the actual literacy, numeracy, and problem-solving skills — rather than completed education years — of workers across advanced economies and how those cognitive and workplace abilities affects earnings. Here are the results:

Existing estimates of the labor-market returns to human capital give a distorted picture of the role of skills across different economies. International comparisons of earnings analyses rely almost exclusively on school attainment measures of human capital, and evidence incorporating direct measures of cognitive skills is mostly restricted to early-career workers in the United States.

Analysis of the new PIAAC survey of adult skills over the full lifecycle in 22 countries shows that the focus on early-career earnings leads to underestimating the lifetime returns to skills by about one quarter. On average, a one-standard- deviation increase in numeracy skills is associated with an 18 percent wage increase among prime-age workers.

But this masks considerable heterogeneity across countries. Eight countries, including all Nordic countries, have returns between 12 and 15 percent, while six are above 21 percent with the largest return being 28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures, additional controls, and various subgroups. Intriguingly, returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.

I find particularly interesting the finding that (a) the return to skills is highest in America and lowest in Nordic-land, and (b) returns are higher in economies with more open, private-sector based labor markets. Wouldn’t this seem to argue that higher US inequality — based on pre-tax, pre-transfer market incomes — reflects 21st century market forces rewarding ability rather than some sort of breakdown in social norms? If so, shouldn’t the policy response favor creating, as much as possible, a labor force better and more broadly capable of flourishing in this environment rather than artificially lowering the return to skills and America’s growth potential?

Pethokoukis, Economics, U.S. Economy

3 key ideas from what will be one of the most important books of 2014


I am fortunate enough to have already previewed The Second Machine Age by MIT’s Erik Brynjolfsson and Andrew McAfee, out next month. It is an excellent expansion of the thesis outlined in their monograph and Kindle Single, Race Against the Machine. The authors have posted an excerpt online. Here is an excerpt of that excerpt, summarizing their conclusions:

The first is that we’re living in a time of astonishing progress with digital technologies—those that have computer hardware, software, and networks at their core. These technologies are not brand-new; businesses have been buying computers for more than half a century, and Time magazine declared the personal computer its “Machine of the Year” in 1982. But just as it took generations to improve the steam engine to the point that it could power the Industrial Revolu – tion, it’s also taken time to refine our digital engines.

Our second conclusion is that the transformations brought about by digital technology will be profoundly beneficial ones. We’re heading into an era that won’t just be different; it will be better, because we’ll be able to increase both the variety and the volume of our consumption. When we phrase it that way—in the dry vocabulary of economics—it almost sounds unappealing. Who wants to consume more and more all the time? But we don’t just consume calories and gasoline. We also consume information from books and friends, entertainment from superstars and amateurs, expertise from teachers and doctors, and countless other things that are not made of atoms. Technology can bring us more choice and even freedom.

Our third conclusion is less optimistic: digitization is going to bring with it some thorny challenges. …  Technological progress is going to leave behind some people, perhaps even a lot of people, as it races ahead. As we’ll demonstrate, there’s never been a better time to be a worker with special skills or the right education, because these people can use technology to create and capture value. However, there’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer, because computers, robots, and other digital technologies are acquiring these skills and abilities at an extraordinary rate.


Image Credit: Cleveland Fed

Image Credit: Cleveland Fed

In Race Against the Machine, Brynjolfsson and McAfee offered a numbers of ideas — there are even more in the new book — to help carbon-based lifeforms compete. Among them: 1) pay teachers more so better students want to become teachers; 2) hold teachers more accountable for performance by eliminating tenure; 3) encourage more high-skill immigration; 4) create special visas for entrepreneurs; 5) teach entrepreneurship throughout higher education; 6) create a database of “startup-in-a-box” templates; 7) lower governmental barriers to starting a business; 8) upgrade the nation’s transportation, energy, and communication infrastructure; 9) increase government funding for basic research such as that carried out by DARPA and NIH; 10) resist efforts to regulate hiring and firing; 11) lower payroll taxes; 12) decouple benefits, such as health insurance, from jobs; 13) don’t rush to regulate new innovation business structures such as crowdsourcing; 14) eliminate inefficient, crony capitalist distortions such as the home mortgage deduction and the Too Big To Fail big bank subsidy; 15) shorten copyright periods and increase the flexibility of fair use.

Here is the key thing: Even if you  are a technopessimist, that list of policy ideas makes pretty good sense anyway as way of boosting growth and helping more Americans flourish and prosper.


Economics, Health Care, Pethokoukis

Obamacare ‘not designed to reduce costs or … to make health insurance coverage affordable for the vast majority of Americans’

A day-after Christmas present of Obamacare truth from USA Today:

More than half of the counties in 34 states using the federal health insurance exchange lack even a bronze plan that’s affordable — by the government’s own definition — for 40-year-old couples who make just a little too much for financial assistance, a USA TODAY analysis shows.

Many of these counties are in rural, less populous areas that already had limited choice and pricey plans, but many others are heavily populated, such as Bergen County, N.J., and Philadelphia and Milwaukee counties.

More than a third don’t offer an affordable plan in the four tiers of coverage known as bronze, silver, gold or platinum for people buying individual plans who are 50 or older and ineligible for subsidies. …

The prices of exchange plans have shocked many shoppers, especially those who had plans canceled because they did not meet the ACA coverage requirements. But experts are not surprised.

“The ACA was not designed to reduce costs or, the law’s name notwithstanding, to make health insurance coverage affordable for the vast majority of Americans,” says health care consultant Kip Piper, a former government and insurance industry official. “The law uses taxpayer dollars to lower costs for the low-income uninsured but it also increases costs overall and shifts costs within the marketplace.”




From around the web …

A bunch of stuff I didn’t quite get to — but looks interesting:

On innovation: “Regions with large firms but few young entrepreneurial firms may benefit from policies that cultivate new ventures, while those without large firms may benefit most from policies that attract some.” - VoxEU


The Geoengineering Wars: “Does humanity’s tightening grip on the fate of nature portend new sources of global conflict? – MIT Tech Review

Is Bitcoin a real currency? – NBER

The real roots of the nuclear family – Institute of Family Studies 

Best of 2013 in Social Mobility Research – Brookings

8 ways robots stole our jobs in 2013 – WaPo

Pethokoukis, Economics, U.S. Economy

If all you know about income inequality is this famous chart, you really don’t know much

Thomas Piketty and Emmanuel Saez

Thomas Piketty and Emmanuel Saez

The above chart shows a big rise in high-end income inequality in recent decades, as documented by economist Thomas Piketty and Emmanuel Saez. Some version of it is frequently shown in news stories about inequality. Presents a pretty clear, open-and-shut case that market incomes — pre-tax, pre-transfer, pre-benefit, not-adjusted for changing household size — have become much less equally distributed.

But is that all it says? Here is economist Angus Deaton of Princeton University, author of the Great Escape, in a recent EconTalk podcast chat with host Russ Roberts

I think that demographic change is a very important part of the increase in family inequality. One of the things that people don’t I think widely know is that if you were to go back into the 1950s or 1960s, the sort of ‘Mad Men’ era, as it were, the high-earning men were married to highly educated women. But those highly educated women didn’t work. So the higher earnings the man had, the less likely was his wife to work in the labor force.

[Now it's] completely reversed, to the point where the high-earning men and women are now married to spouses who are also high-earning men and women. And that has the obvious effect of, in the 1950s that dampened down inequality because the rich people were paired off with people who weren’t earning so much or weren’t earning anything at all, and now you are pairing, you know, a couple of lawyers who are earning $300 grand each, and that’s sort of powering up the top.

And the other part which you mentioned is the big increase in, you know, people in one-person families, or one-adult families, who are down at the bottom there. So those changes are just tremendously important. And I think one of the things we’ve realized: it is very important we shouldn’t think of an inequality in terms of a single number. You just have to parse it out in different parts of the income distribution. What’s happening here, what’s happening there, and so on. It’s a very complex picture.

This analysis dovetails nicely with that of Manhattan Institute scholar Scott Winship who suggests another reason why inequality has risen since the supposed Golden Age of the 1950s and 1960s.

For decades earlier in the twentieth century, men actively fought to shelter themselves from female competition—pushing for low minimum wages for women in order to limit the extent to which female workers could pull down the market-clearing wage, demanding that union contracts require women workers to be let go if they got married, promoting the famous five-dollar-day in Ford factories (only for men).

Don’t get me wrong, the erosion of this regime has been a kick in the gut for less-skilled men, and we have done too little to help them adjust. It has been a boon for married women though, whose labor force participation rose steadily for decades from the 1940s (before men’s wages started stagnating) through the 1990s.

The problem is not a general one of the rich appropriating the workers’ pay. Instead, it is possible that top earners and shareholders would have had something like 1929- or 2013-sized incomes during the Golden Age of the American economy—except that they, too, bought into the male breadwinner family-wage regime even at the expense of their own financial self-interest.

In fact, if you start in the mid-1930s at the time of the Wagner Act’s passage that spurred union growth, median compensation and productivity have increased by roughly the same amount—it’s just that an initial period of too-rapid wage growth was followed by a long period of wage adjustment. Labor’s share of income has dropped at the same time, and the share of income going to the top one percent has risen.

Again, life is complicated and often about more than just one thing.


Guess what? Americans really care about growth and jobs. Climate change? Not so much


From Third Way:

Headlines and breaking news may drive news cycles, but according to Pew Research Center polling, the public’s #1 “top priority” has remained steadfast over the past nine years: “Strengthening the U.S. Economy.” Proving that James Carville’s blunt admonishment is as true today as it was back in 1992.

To illustrate how other top public priorities have shifted, we’ve created a heat map of 2013 priorities, which you can use to track the public mindset through three presidential elections and the wave midterms of 2010.