Regulatory activism and the rest of us

by Ryan Streeter on August 22, 2016. Follow Ryan on Twitter.

Holman Jenkins’ column on the regulatory state is one of the best in recent memory.

The problem today isn’t just the size and scope of the 4th branch of government and its regulations. It’s the scope of regulatory activism and its reach into our lives.

He writes:

[Rent-seeking is] the term economists use for exercising government power to create private gains for political purposes. Consider:

Mr. Obama’s bank policy dramatically consolidated the banking industry, which the government routinely sues for billions of dollars, with the proceeds partly distributed to Democratic activist groups.

His consumer-finance agency manufactured fake evidence of racism against wholesale auto lenders in order to facilitate a billion-dollar shakedown.

His airline policy, urged by labor unions, led to a major-carrier oligopoly, with rising fares and profits.

His FDA is seeking to extinguish small e-cigarette makers for the benefit of Big Tobacco and Big Pharma (whose smoking-cessation franchise is threatened by cheap and relatively safe electronic cigarettes).

His National Labor Relations Board, by undermining the power of independent franchisees, is working to cartelize the fast-food industry for the benefit of organized labor.

We could go on. Mr. Obama’s own Council of Economic Advisers complains about the increasing cartelization of the U.S. economy—as if this were not a natural output of regulation. In a much-noted Harvard Business Review piece this spring, James Bessen, an economist, lawyer and software entrepreneur, cites increased “political rent seeking” to explain the puzzle of rising corporate profits in the absence of job creation and economic growth.

I recommend Bessen’s article to you. It’s eye-opening.

The problem with the regulatory state is how it advances special interests in the name of the public interest. As long as it goes on unabated, we all lose.

“The Scandinavian Fantasy”

by Ryan Streeter on July 4, 2016. Follow Ryan on Twitter.

That’s the title of an interesting new paper (pdf) by James Heckman and Rasmus Landersø. Here’s the abstract:

This paper examines the sources of differences in social mobility between the U.S. and Denmark. Measured by income mobility, Denmark is a more mobile society, but not when measured by educational mobility. There are pronounced nonlinearities in income and educational mobility in both countries. Greater Danish income mobility is largely a consequence of redistributional tax, transfer, and wage compression policies. While Danish social policies for children produce more favorable cognitive test scores for disadvantaged children, these do not translate into more favorable educational outcomes, partly because of disincentives to acquire education arising from the redistributional policies that increase income mobility.

On the tribalism of cosmopolitanism

by Ryan Streeter on July 4, 2016. Follow Ryan on Twitter.

I think this Ross Douthat column on elite cosmopolitanism is the best insight to date of all the elites-vs.-populists narratives that have sprung up in the commentariat during the age of Trump, Sanders, and Brexit.

His basic point is that today’s cosmopolitan elites are just as tribal as the populists they battle against, yet their tribalism is something to which they are largely blind, which in turn renders them unable to comprehend what exactly populists are rebelling against:

The people who consider themselves “cosmopolitan” in today’s West, by contrast, are part of a meritocratic order that transforms difference into similarity, by plucking the best and brightest from everywhere and homogenizing them into the peculiar species that we call “global citizens”…

They have their own distinctive worldview (basically liberal Christianity without Christ), their own common educational experience, their own shared values and assumptions (social psychologists call these WEIRD — for Western, Educated, Industrialized, Rich and Democratic), and of course their own outgroups (evangelicals, Little Englanders) to fear, pity and despise. And like any tribal cohort they seek comfort and familiarity: From London to Paris to New York, each Western “global city” (like each “global university”) is increasingly interchangeable, so that wherever the citizen of the world travels he already feels at home.

Today’s cosmopolitans, he writes, are not like those in bygone eras who were happy to disappear into foreign cultures and live amidst the tension and discomfort of competing cultural norms and practices.

I think of my brother in law who runs a fresh water drilling nonprofit in Africa. He lives in Lyon, France, from where he regularly commutes to Africa. He’s feels just as “at home” in French cafes as in back-alley bars in Bangui with distant sounds of gunfire as this or that coup unfolds.  His family is originally from the midwest but he spent his formative years in Mali when his dad ditched his corporate job for the missionary life. He’s worked with Africans and Africa-serving organizations for years. I have learned more about differences between African people and how Africans think and live from his missives and descriptions from whichever  bar he’s in with local drilling rig operators than anything I’ve read coming out of the World Bank. He’s not a gatekeeper or powerbroker among the global elite, but I’ve always considered him more cosmopolitan than the people I know along the I-95 corridor who regularly jet off to London and Paris and have lots to say about global issues.

The problem, Ross writes, is that the I-95 corridor crowd “can’t see themselves the way the Brexiteers and Trumpistas and Marine Le Pen voters see them.”

They can’t see that paeans to multicultural openness can sound like self-serving cant coming from open-borders Londoners who love Afghan restaurants but would never live near an immigrant housing project, or American liberals who hail the end of whiteness while doing everything possible to keep their kids out of majority-minority schools.

The problem, it seems to me, is that the goods and benefits of globalism – which I confess I enjoy as someone who migrated over his life from a lower-middle class midwestern upbringing to what most would consider elite status – are either not available to everyday people or not appreciated as much as elites think they should be. It’s hard to appreciate how cheaply you can buy towels and toilet paper at Walmart when your income hasn’t increased much in ten years and there are more boarded up windows in your town than “Coming Soon!” signs.

Meanwhile, the benefits of globalism are piling up in the halls and homes of the crowd Douthat critiques, and unbeknownst to them, everyday people have been observing, watching, and putting the pieces together. And now they’re rebelling. And no one knows exactly where it’s going.

When middle class becomes upper middle class…and what it means for policy

by Ryan Streeter on June 27, 2016. Follow Ryan on Twitter.

Yep:

Our central goal should be getting the bottom up, which is more important than pulling the top down. It’s also tougher.

That’s Robert Samuelson’s conclusion after drawing attention to an important new study by Stephen Rose at the Urban Institute. Rose’s study found that between 1979 and 2014 there “was a gradual and broad-based shift of Americans from poorer to richer status. Productivity gains have translated into higher living standards more than is generally believed.”

So, basically, when you hear about the “disappearing middle class,” be sure to ask how many of those families went from middle class to upper middle class, or even to plain old “rich.” It turns out that poor families (below $29,999) have declined from 24.3% of the population to 19.8% in that time period, and lower middle class ($30-49,999) has dropped from 23.9% to 17.1%.

These numbers are truly staggering:

[I]ncomes from $100,000 to $349,999…grew from 12.9 percent of Americans in 1979 to 29.4 percent in 2014 — from 1 in 8 U.S. households to more than 1 in 4. The rich ($350,000 in income or more) went from 0.1 percent of households to 1.8 percent in 2014. If these two groups are combined, nearly one-third of Americans have incomes exceeding $100,000. (Note: All these thresholds apply to three-person households; income levels are adjusted for differences in household size.)

The richest 1 percent are indeed outpacing everyone else, but so are the upper middle class because formerly middle class families are moving up.

Clearly, things like increasing shares of dual-income households with dual college-degree earners is a big part of this, as are the returns to certain kinds of work requiring college and advanced degrees. Whatever the case, it is astounding that 1/3 of American households earn above $100,000 per year.

So, to Samuelson’s point, should our policy goal be to reduce that number, or should we be trying to help more lower income families make their way upwards faster? I agree it should be the latter, and I also agree that doing so is no easy task.

What explains the loss of faith in institutions?

by Ryan Streeter on June 16, 2016. Follow Ryan on Twitter.

Gallup’s updated numbers on American confidence came out this week, and they’re still not pretty.

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In the season of Trump and Sanders it has become common among commentators to talk about the loss of faith in institutions. The disconnect between  elites and a restive populace has been on full display this past year.

But what really explains that sharp drop that began in 2004, four years before the financial crisis, and what keeps confidence from rebounding even as the economy improves?

The biggest confidence drops in the past ten years since 2006 happened with regard to banks, Congress, religious institutions, and the media (newspapers and TV). Public schools were not too far behind, but the rest of the institutions that Gallup tracks have similar confidence levels today as they did ten years ago.

The loss of faith in banks, which has mostly occurred since the financial crisis, is probably the easiest to explain. But what about the others? The bigger question is whether and how the loss of confidence in specific institutions that Gallup tracks is related to the resurgent populism and popular unrest we see in the election. What is it about religious organizations and the media? Why has Congress taken a bigger hit than the presidency?

There’s been widespread adoption of the notion that Americans have lost faith in institutions, but there’s too little analysis and explanation of exactly what that means and its effects on our economy and politics.

As the middle class shrinks, where are formerly middle-class people going?

by Ryan Streeter on May 12, 2016. Follow Ryan on Twitter.

In this Wonkblog overview of the new Pew report on the diminishing middle class, the authors write:

As the middle class has shrunk, Pew points out, the lower and upper classes in America have grown in size and significance. In some metros, the middle class is dwindling primarily because families are falling out of it and into the lower class…But in other places, the shrinking middle class is actually a sign of economic gains, as more people who were once middle class have joined the ranks at the top.

The latter point is one we don’t hear as much about in our public debates, namely that one reason the middle class is getting smaller is that a significant number of formerly middle class families and/or their children are getting wealthier. It’s at least as significant as the other problem whereby people fall out of the middle class into the lower ranks:

In total, 172 of [the] 229 metros [in the study] saw a growing share of households in the upper-income tier. About as many — 160 — saw a growing share at the bottom. And 108 experienced both: The middle class shrank as the ranks of both the poor and the rich grew.

In some cases the two trends appear to be directly related. For instance, look at the green (upper income) and blue (middle income) lines in this infographic:

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Understanding the reasons for the growth in the upper tier seems just as important as understanding the forces shaping the lower tier. The trend is more widespread than the infographic might suggest. You see the same blue-green trends above in cities such as Minneapolis, Midland, TX, and New Orleans, not just the super-charged areas in and around New York, DC, and San Francisco. Presumably, household formation together with growing percentages of metro economies favoring specialized and higher forms of education are a big part of this. But getting into the gritty details region by region would help us understand more about that thesis, and how correct it is in varying places.

Regardless of how many Americans say they’re middle class, the number actually living in middle class neighborhoods has plummeted

by Ryan Streeter on April 28, 2016. Follow Ryan on Twitter.

This new study by Sean Reardon and Kendra Bischoff builds on the theme in this post and expands our perspective on what is perhaps one of the most important and complicated socioeconomic issues of our time: growing segregation in America by income.

This graph shows how wealth and poverty are concentrating more and more at the expense of the middle class:

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The authors write:

The results presented in this report show that from 2007 to 2012 income segregation continued on the long upward trajectory that began in 1980. During the 2007‐2012 period—which spans the start of the Great Recession and the early years of recovery—middle‐class, mixed‐income neighborhoods became less common as more and more neighborhoods of concentrated poverty and concentrated affluence developed. These are not new trends, but the increase in segregation in the last five years exacerbates the increase of economically polarized communities that has occurred over the last four decades.

This table adds some detail:

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Where you live predicts how elitist you are more than your education level predicts your income

by Ryan Streeter on April 21, 2016. Follow Ryan on Twitter.

In his latest installment on the “bubble quiz,” Charles Murray shows again that people who are disconnected from the mainstream congregate around each other in a significant way.

He writes of the graph below:

The correlation between the bubble score and the combined [Socio-Economic Score] index is .43. For the social sciences, that’s high. For example, the correlation between educational attainment and income is usually around .4. The strongest single predictor of job productivity is an IQ score, and that correlation averages about .4 across studies. If someone took the effort to refine the items on the Bubble Quiz, and added a dozen additional questions, it should be possible to jack up the correlation with the combined SES index to around .5, the average correlation of a child’s IQ with the midpoint of parental IQ.

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Big companies, diminishing competition, and the rigged game

by Ryan Streeter on March 26, 2016. Follow Ryan on Twitter.

The Economist has an interesting piece out on the bigness of American firms.

A very profitable American firm has an 80% chance of being that way ten years later. In the 1990s the odds were only about 50%. Some companies are capable of sustained excellence, but most would expect to see their profits competed away. Today, incumbents find it easier to make hay for longer.

The source of this trend? A lack of competition, the authors claim, rooted in the rigged-gamesmanship of big firms and regulators.

Our analysis of census data suggests that two-thirds of the economy’s 900-odd industries have become more concentrated since 1997…A $10 trillion wave of mergers since 2008 has raised levels of concentration further…Getting bigger is not the only way to squish competitors. As the mesh of regulation has got denser since the 2007-08 financial crisis, the task of navigating bureaucratic waters has become more central to firms’ success. Lobbying spending has risen by a third in the past decade, to $3 billion. A mastery of patent rules has become essential in health care and technology, America’s two most profitable industries. And new regulations do not just fence big banks in: they keep rivals out.

And then there’s the disconnect between politicians’ proposals and what’s really going on:

Most of the remedies dangled by politicians to solve America’s economic woes would make things worse. Higher taxes would deter investment. Jumps in minimum wages would discourage hiring. Protectionism would give yet more shelter to dominant firms. Better to unleash a wave of competition.

War on the young update: Inequality growing faster among the young than the old

by Ryan Streeter on February 16, 2016. Follow Ryan on Twitter.

Following on the theme of my last post, here is Brookings’ Gary Burtless on another aspect of the Social Security conundrum:

In new research with my colleagues Barry Bosworth and Kan Zhang, I have examined trends in real incomes and inequality among the nation’s elderly and compared them with the same trends in working-age families. We show that inequality has increased among both the elderly and nonelderly, but it has increased much faster among families headed by prime-age and younger adults than among families headed by someone past age 62. More to the point, real money incomes have increased much faster among middle- and low-income aged families compared with middle- and low-income working-age families.