Subscribe: EconLog
http://econlog.econlib.org//index.xml
Added By: Feedage Forager Feedage Grade B rated
Language: English
Tags:
buchanan  construction  diversity  effects  growth  housing  inflation  low  people  percent  poverty rate  poverty  rate  trust 
Rate this Feed
Rate this feedRate this feedRate this feedRate this feedRate this feed
Rate this feed 1 starRate this feed 2 starRate this feed 3 starRate this feed 4 starRate this feed 5 star

Comments (0)

Feed Details and Statistics Feed Statistics
Preview: EconLog

EconLog





Last Build Date: Thu, 22 Jun 2017 14:01:49 -0500

Copyright: Copyright 2017
 



Progressive/Libertarian: The Alliance That Isn't, by Bryan Caplan

Thu, 22 Jun 2017 14:01:49 -0500

My one big disagreement with Ed Glaeser's great piece on housing deregulation is when he says:
Reforming local land use controls is one of those rare areas in which the libertarian and the progressive agree. The current system restricts the freedom of the property owner, and also makes life harder for poorer Americans. The politics of zoning reform may be hard, but our land use regulations are badly in need of rethinking.
Actually, there are four other big areas where the two ideologies converge. 

1. Immigration.  Immigration restrictions deprive billions of basic liberties, impoverish the world, and do so on the backs of the global poor, most of whom are non-white.

2. Occupational licensing.  Licensing laws bar tens of millions of people from switching to more lucrative and socially valuable occupations, all to benefit richer insiders at the expense of poorer outsiders.

3. War, especially the War on Terror.  Since 2002, the U.S. has literally spent trillions fighting the quantitatively tiny problem of terrorism by waging non-stop wars in the Middle East.  We don't know what the Middle East would have looked like if the U.S. had stayed out, but it's hard to believe it would be worse.  And there's no end in sight.

4. The criminal justice system, especially the War on Drugs.  Hundreds of thousands of non-violent people, disproportionately poor and non-white, are in prison.  Why?  To stop willing consumers from doing what they want with their own bodies.

These four issues are so massive, you'd expect a staunch progressive/libertarian alliance would have been forged long ago.  But of course it hasn't.  Why not?  Some progressives flatly disagree with one or more of these policies; see Bernie contra open borders.  But the bigger stumbling block is that progressives place far lower priority on these issues than libertarians.  That includes war, unless the Republicans hold the White House

Why not?  I regretfully invoke my Simplistic Theory of Left and Right.  The heart of the left isn't helping the poor, or reducing inequality, or even minority rights.  The heart of the left is being anti-market.  With some honorable exceptions, very few leftists are capable of being excited about deregulation of any kind.  And even the leftists who do get excited about well-targeted deregulation get far more excited about stamping out the hydra-headed evils of market.

Can we make parallel accusations against libertarians?  Sure.  The second half of my Simplistic Theory says: The heart of the right is being anti-left.  Since most libertarians loosely identify with the right, stubbornly focusing on housing, immigration, licensing, peace, and criminal justice is dry.  Though these five areas are plausibly the biggest and most harmful abridgements of human freedom on Earth, it's more exciting for libertarians to dwell on symbolic issues that drive the left to apoplexy.

Prove me wrong, kids.  Prove me wrong.

(5 COMMENTS)



Tanenhaus on James Buchanan, by David Henderson

Wed, 21 Jun 2017 18:42:24 -0500

I have just read the first serious book review I've seen of historian Nancy MacLean's hatchet job book on James Buchanan, Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America. It's by Sam Tanenhaus. He is, by and large, sympathetic with MacLean's strong claims about the role of James Buchanan in the rise of the radical right. Those of us who knew him well are more skeptical, partly because he was so bookish, so into thinking about fundamental ideas about governments and societies, and not really up to date on this or that political skirmish or current politician. In any case, parts of the Sam Tanenhaus piece read as if Tanenhuas is writing for an audience that knows little economics and little U.S. history and is, therefore, credulous. Or it's possible it's Tanenhaus himself who's ignorant and credulous. I don't know. Three passages stand out. Buchanan played a part, MacLean writes, by teaming up with another new University of Virginia hire, G. Warren Nutter (who was later a close adviser to Barry Goldwater), on an influential paper. In it they argued that the crux of the desegregation problem was that "state run" schools had become a "monopoly," which could be broken by privatization. If authorities sold off school buildings and equipment, and limited their own involvement in education to setting minimum standards, then all different kinds of schools might blossom. Each parent "would cast his vote in the marketplace and have it count." The argument impressed Friedman, who a few years earlier had published his own critique of "government schools," saying that "the denationalization of education would widen the range of choice available to parents." Far-fetched though these schemes were, they gave ammunition to southern policy makers looking to mount the nonracial case for maintaining Jim Crow in a new form. Friedman himself left race completely out of it. Buchanan did too at first, telling skeptical colleagues in the North that the "transcendent issue" had nothing to do with race; it came down to the question of "whether the federal government shall dictate the solutions." But in their paper (initially a document submitted to a Virginia education commission and soon published in a Richmond newspaper), Buchanan and Nutter were more direct, stating their belief that "every individual should be free to associate with persons of his own choosing"--the sanitized phrasing of segregationists. See what Tanenhaus does here? He starts out by laying out Buchanan's pretty good argument against government monopoly. But then he says that southern politicians could use this argument to mount the nonracial case for maintaining Jim Crow. I'm not sure how. If people could choose their own schools, then Jim Crow would crumble. The essence of Jim Crow was lack of choice. See Loving v. Virginia. Tanenhaus continues. Buchanan left out race too "at first." So then a reader would think that Buchanan later introduced race, right? Let's see. Buchanan and Nutter stated their belief that "every individual should be free to associate with persons of his own choosing." Tanenhaus says that this was the sanitized phrasing of segregationists. Possibly. I don't know. But it's also the phrasing of people who opposed Jim Crow laws, which forbade certain forms of freedom of association. One would think that if Tanenhuas wants to make his case that Buchanan favored segregation, he would come up with direct quotes to make it. It appears that he can't. So he uses a quote making the case against segregation and claims that it's really a disguised case for desegregation. For Buchanan, the trouble now went beyond the government. The enemy was the public itself, expressed through the tyranny of majority rule: The have-nots preyed on the rich, egged on by the new elite--labor bosses, benevolent corporations, and pandering politicians--who fell over themselves promising more and more. This is a roughly accurate view of Buchanan's thoughts on democracy, although I don't recall Buchanan talking abou[...]



Build, Baby, Build, by Bryan Caplan

Wed, 21 Jun 2017 14:35:05 -0500

Ed Glaeser makes the case for housing deregulation for Brookings:Housing advocates often discuss affordability, which is defined by linking the cost of living to incomes. But the regulatory approach on housing should compare housing prices to the Minimum Profitable Construction Cost, or MPPC. An unfettered construction market won't magically reduce the price of purchasing lumber or plumbing. The best price outcome possible, without subsidies, is that prices hew more closely to the physical cost of building.In a recent paper with Joseph Gyourko, we characterize the distribution of  prices relative to Minimum Profitable Construction Costs across the U.S... We base our estimates on an "economy" quality home, and assume that builders in an unregulated market should expect to earn 17 percent over this purely physical cost of construction, which would have to cover other soft costs of construction including land assembly. We then compare these construction costs with the distribution of self-assessed housing values in the American Housing Survey. The distribution of price to MPPC ratios shows a nation of extremes.  Fully, 40 percent of the American Housing Survey homes are valued at 75 percent or less of their Minimum Profitable Production Cost... Another 33 percent of homes are valued at between 75 percent and 125 percent of construction costs.[...] But most productive parts of America are unaffordable. The National Association of Realtors data shows median sales prices over $1,000,000 in the San Jose metropolitan area and over $500,000 in Los Angeles. One tenth of American homes in 2013 were valued at more than double Minimum Profitable Production Costs, and assuredly the share is much higher today. In 2005, at the height of the boom, almost 30 percent of American homes were valued at more than twice production costs.  We should blame the government, especially local government:How do we know that high housing costs have anything to do with artificial restrictions on supply? Perhaps the most compelling argument uses the tools of Economics 101. If demand alone drove prices, then we should expect to see places that have high costs also have high levels of construction. The reverse is true.  Places that are expensive don't build a lot and places that build a lot aren't expensive. San Francisco and urban Honolulu have the highest ratios of prices to construction costs in our data, and these areas permitted little housing between 2000 and 2013. In our sample, Las Vegas was the biggest builder and it emerged from the crisis with home values far below construction costs.The top alternate theory is wrong:The primary alternative to the view that regulation is responsible for limiting supply and boosting prices is that some areas have a natural shortage of land. Albert Saiz's (2011) work on geography and housing supply shows that where geography, like water and hills, constrains building, prices are higher.   He also finds that measures of housing regulation predict less building and higher prices. But lack of land can't be the whole story. Many expensive parts of America, like Middlesex County Massachusetts, have modest density levels and low levels of construction. Other areas, like Harris County, Texas, have higher density levels, higher construction rates and lower prices...If land scarcity was the whole story, then we should expect houses on large lots to be extremely expensive in America's high priced metropolitan areas. Yet typically, the willingness to pay for an extra acre of land is low, even in high cost areas. We should also expect apartments to cost roughly the cost of adding an extra story to a high-rise building, since growing up doesn't require more land. Typically, Manhattan apartments are sold for far more than the engineering cost of growing up, which implies the power of regulatory constraints (Glaeser, Gyourko and Saks, 2005).Which regulations are doing the damage?  It's compli[...]



What's causing the low inflation?, by Scott Sumner

Wed, 21 Jun 2017 11:23:34 -0500

This article caught my eye: When online retail giant Amazon.com Inc. announced last Friday that it would purchase Whole Foods Market Inc., a plunge in retail and grocery stocks reinforced the disinflationary tone set by three straight months of disappointing data on consumer prices. It's an example of the technological forces that are increasing competition and further limiting companies' ability to pass on higher wage costs to customers. "That normally indicates that somebody thinks that they are not going to be earning as much as they were," Federal Reserve Bank of Chicago President Charles Evans said of the market reaction to the deal while speaking with reporters Monday evening after a speech in New York. "For me, it just seems like technology keeps moving, it's disruptive, and it's showing up in places where -- probably nobody thought too much three years ago about Amazon merging with Whole Foods," he said. Evans, a voter on the Federal Open Market Committee this year who supported its decision to raise interest rates last week, says he is less confident than most of his colleagues that inflation will soon rise to their 2 percent target. A big reason for his ambivalence: Deflationary competitive pressures could have become more important for the overall trend in prices than the so-called Phillips Curve relationship, which links inflation to the state of the labor market. That model, coined almost 60 years ago, is the basis for the Fed's outlook for continued gradual rate increases. I'm a bit confused by this. I certainly agree that there are good reasons to question the Phillips Curve model, for standard "never reason from a price change" reasons. The Phillips Curve only works if changes in inflation are driven by AD shocks, not aggregate supply shocks. In that sense I agree with Evans. But what is the nature of these mysterious AS shocks? Evans points to technology and competition, but these are forces that would cause the long run AS curve to shift to the right more rapidly. In other words, these are factors that would lead to a higher trend rate of growth in real GDP. The most noteworthy aspect of our modern economy, however, is slowing trend RGDP growth. Instead, it seems that wage moderation has shifted the SRAS curve to the right, producing a steady decline in the unemployment rate. The economy is not growing very fast at all, and what growth is occurring (roughly 2%) appears to be well above the long run trend rate, as the unemployment rate can't keep falling forever. I'm not saying that he is wrong about Amazon, or even retailing as a whole. But when you look at the data it's clear that technology is not having much impact on overall real GDP growth. And even if you argue that we aren't measuring growth properly, and the actual RGDP is higher because we miss all the goodies provided for free on the internet, it still doesn't solve the puzzle. The puzzle is the low rate of reported inflation. If real growth is higher than the official figures suggest, then inflation is even lower. And this leads us to the point where macroeconomic discussions ought to start---with NGDP growth. The real issue for monetary policymakers is not inflation and/or RGDP growth, it's NGDP growth. The only way to have low inflation despite low RGDP growth is if the Fed has such a tight monetary policy that NGDP growth remains slow. And that's exactly what they've done since 2009. If you produce 4% NGDP growth year after year after year, then why be surprised that inflation remains low? Why look for explanations having to do with "technology" or "competition" if the answer is right there in front of your eyes---NGDP. If the Fed starts delivering 11% NGDP growth, as in the 1970s, and we still have sub-2% inflation, then we can start worrying that technology is holding down inflation. But in that case we'd have no reason to worry about the low inflation "problem", as RGDP growth would be 9%. Which is just another stating a point[...]



Positive-Sum Diversity, by Bryan Caplan

Tue, 20 Jun 2017 14:35:35 -0500

My last post pointed out a fundamental distinction between effects of diversity on trust and effects of demography on trust:
If, as in Putnam's original story, diversity per se were really bad for growth, segregation would sharply raise average trust.  Indeed, segregating two communities could conceivably raise trust in both communities.  This is what makes diversity a special social variable.  If diversity in and of itself has bad effects, so does integration - regardless of the characteristics of the mingling populations.  If the effects of diversity are demographic effects in disguise, however, integration has distributional effects, but is zero-sum overall.
Is there any way diversity could end up being a social positive, rather than merely zero-sum?  Sure.  The top mechanism to consider:

Standard economic theory says that good things have decreasing marginal utility and bad things have increasing marginal disutility.  Doubling the quantity of food less than doubles the social value of food.  Doubling the quantity of pollution more than doubles the social harm of pollution.  Now suppose you can either have a segregated society, where half the population has 25% trust and half has 75%, or an integrated society, where the whole population has 50%.  While average trust is the same in both scenarios, the social effects of trust should be, on net, better in the integrated society.  Why?  Because the net benefits of moving from 50% to 75% trust will, by standard economic logic, be smaller than the net benefits of moving from 25% to 50% trust. 

One variant on this story: Innovation itself might vary non-linearly with trust.  Very low trust might choke off innovation entirely, while moderate trust provides a solid foundation for dynamism.  Returning to the 25%/75% scenario, homogeneity allows growth only in the high-trust enclave, while diversity allows growth in both.

Are such effects genuine?  Unfortunately, I've seen few papers that test for non-linear benefits of trust, except for this paper finding negative marginal effects of high trust on GDP per capita.*  Anything I've missed?

* Nor should we forget the historic crimes that homogeneous societies like Germany and Japan have inflicted on out-groups and dissidents. 

(2 COMMENTS)



Special Diversity, by Bryan Caplan

Mon, 19 Jun 2017 13:53:18 -0500

When Robert Putnam runs a proper statistical horserace, one of his favorite predictors of trust - diversity - barely matters.  To recap:

(image) Now a diversity skeptic could look at Putnam's results and say: "Fine, diversity per se is no big deal.  But Putnam does show that blacks and Hispanics have low trust.  And that's controlling for household income, the area's poverty rate, and Spanish prevalence, all of which further depress trust.  The presence of blacks and Hispanics is truly terrible."

The easiest reply is: "You're right qualitatively, but not quantitatively."  The whole point of a regression is to measure the size of effects, not just their directions - and the size of demographic effects is modest.  Suppose the black share rises from 5% to 55%, the poverty rate rises from 10% to 40%, and average household income falls from $75k to $25k.  This drastic demographic shift reduces Putnam's predicted trust by .31*.50 + .66*.5 + .5*.14 = .56.  Is that massive?  No, because Putnam measures trust on a 4-point scale.  .56 is less than 20% of size of the trust spectrum - noticeable, but hardly the end of the world.

But there's a subtler reply.  Namely: The effect of demographics on trust is zero-sum.  If low-trust people move into a high-trust area, the change is bad for the incumbents but good for the entrants.  Calling black migration "bad for trust" is just NIMBYism: keeping low trust away from you doesn't make society's trust higher.

Isn't this always true?  No.  If, as in Putnam's original story, diversity per se were really bad for growth, segregation would sharply raise average trust.  Indeed, segregating two communities could conceivably raise trust in both communities.  This is what makes diversity a special social variable.  If diversity in and of itself has bad effects, so does integration - regardless of the characteristics of the mingling populations.  If the effects of diversity are demographic effects in disguise, however, integration has distributional effects, but is zero-sum overall.

In a sense, then, Putnam was right to focus on diversity, because diversity is conceptually special.  In the real world, arguments about diversity usually boil down to identity politics: Diversity is bad if it hurts my group, good if it helps my group.  In theory, however, you could have an anti-diversity universalist - someone who thinks that society as a whole will be better off if people stick to their own kind.  Putnam's empirics suggest that anti-diversity universalists are rare for a reason: The numbers just don't add up.

(11 COMMENTS)



The tragedy of Grenfell Tower and some Internet demagogues, by Alberto Mingardi

Mon, 19 Jun 2017 12:05:01 -0500

Last week, Grenfell Tower in North Kensington, London went up in flames. At least 58 people died, including two young Italian architects. In my own country, therefore, the story was quickly picked up in the media - and it is a tremendously sad one. The young couple called their respective families when the fire began and assured them of their safety, but eventually the young woman, Gloria, when she understood she was about to die, called her mother to thank her for all she did for her in her 27 years of life. This is heart-breaking. If you're human at all, you can't but feel sympathy for the casualties of such a disastrous event, for their family, and for the other tenants who saw their holdings destroyed. Several crowdfunding campaigns are being set up to provide these people with much needed help. Politics is a quintessentially human activity, but sometimes may well be dehumanising. Galvanised by recent elections, the British left is trying to exploit the fire politically. A Labour MP, Clive Lewis, tweeted: "Burn Neoliberalism, not people". His understanding of neoliberalism is quite limited. (For example, he tweets about a "Montepellier set", thinking, I suppose, of the Mont Pelerin Society.) Economist Mariana Mazzucato didn't miss a chance to play her part: "Grenfell Tower = microcosm of 3 very bad economic ideas 1. De-regulation; 2. Outsourcing (public service for private profit); 3. Austerity". I confess that, while I fancy myself having at least a broad understanding of what people mean when they say "neoliberalism," I don't know enough about Grenfell Tower to express more than grief on the subject. Be aware, therefore, that what follows is based on Wikipedia, articles I've read in these last few days, and conversations with British friends. I will try to read Mariana Mazzucato charitably. Grenfell Tower is in fact an example of social housing: it is owned by the Kensington and Chelsea London Borough Council. The building was managed by a tenant management organisation, Kensington and Chelsea TMO. Their own website explains the structure and nature of such an organisation. The building was thus owned by the Council, which refurbished it in 2012. One residents' group had issued multiple warnings about the safety of the building. I think Mazzucato wants to say that: (a) Thatcherite deregulation weakened safety and fire regulation (a point made also by London mayor Sadiq Khan); (b) organisations like Kensington and Chelsea TMO weaken political oversight over buildings like this; and (c) austerity forced the council to go for a less expensive renovation plan rather than for the more expensive one. These criticisms only seem to be appropriate. First, deregulation is hardly such a widespread phenomenon as socialists believe. It is one thing to say that British fire regulations are "old" or "inadequate" and quite another to maintain that the British government actually deregulated in this case. This would be news to me. It is safe to assume, I'd maintain, that newer (say: 1990s and 2000s) buildings in London are safer than those built in the 1960s and 1970s. Better standards have emerged. I don't know if this happened because of regulation or because of technological advances. But either way it seems to be incompatible with the idea that developers have been given a blank cheque to build unsafe buildings. On top of that, rule-making involves making trade-offs. Megan McArdle has pointed out that while "People who died in the Grenfell fire might be alive today if regulators had required sprinkler systems," "it's possible that by allowing large residential buildings to operate without sprinkler systems, the British government has prevented untold thousands of people from being driven into homelessness by higher housing costs." Her piece is thoughtful and well worth reading. Second, I suppose that a council could take one of these two routes: create a sp[...]



Immigration and growth, by Scott Sumner

Mon, 19 Jun 2017 09:59:36 -0500

There are some indications that the immigration crackdown may slow economic growth:

AUSTIN, Texas (AP) -- Though construction is in high demand in Texas' booming capital city, Oscar Martinez's drywall company is suddenly struggling.

One-third of the approximately 20 employees Martinez uses to build new homes and commercial spaces have recently fled the state, spooked by a combination of a federal immigration crackdown by the Trump administration and a tough anti-"sanctuary cities" law approved last month by Texas' Republican-controlled Legislature.

"I took a big hit since my workers started hearing crazy stories about being deported, and they panicked," said Martinez, who relies on immigrants in the U.S. illegally for labor and has failed to find replacements for the physically grueling, precise work.

"The Americans I hire can't last in this job more than half a day," Martinez said.


And it's not just about the quantity of workers, immigration also boosts the quality of the workforce:

JOSÉ ROMMEL UMANO, who is originally from the Philippines, moved to New York last autumn. He came on a family-reunification visa and joined his wife, who had been living in America for some time. This is a typical tale: America gives more weight to close family members when considering immigration applications than some other rich countries do. More surprising is that Mr Rommel Umano arrived with a master's degree from the University of Tokyo and 20 years of experience as an architect in Japan. Yet this, it turns out, is typical too. Nearly half of all immigrants who arrived between 2011 and 2015 were college-educated. . . .

The result is that America has switched from importing people who are, on average, less educated than the natives to people who are better schooled.


For the past several years I've argued that 1.2% is the new trend rate of growth in real GDP. I see no reason to change that forecast.

(image)

(7 COMMENTS)



A Father's Day Tribute, by David Henderson

Sun, 18 Jun 2017 18:51:05 -0500

This tribute is to one of the two people without whom I wouldn't be a father: my daughter. (The other, of course, is my wife.)

A little over a year ago, on Mother's Day, my wife and I drove to San Francisco to have lunch with my daughter. She had just finished being on a jury for a one or two-week-long (I've forgotten which) trial. That was her first time.

I was impressed about everything she told us: how she didn't lie to get out of the jury, how she paid close attention to what was going on, and how, as instructed, she didn't talk about the case to friends or us during the trial. But two other things most impress me.

One was her keen powers of observation about an economic issue. This is what made me think that she would have been a natural in economics. She pointed out that when the jury pool was reduced from over 100 to 24, the person with the least amount of formal education was someone with an associate's degree. Everyone else had at least a bachelor's degree and many had graduate degrees, either Masters' or professional degrees. "What's that telling you?" she asked me, grinning as we were debriefing her. "That they were highly formally educated," I answered. "No," she said, "that's true, but it's telling you how expensive housing is in San Francisco. The high price of housing is pricing out people who are less formally educated, and we are the ones left." (Or words to that effect.)

The other thing that impressed me was the question she had the judge ask the defendant. He was a race-car driver clocked at 73 mph on a 35 mph road through Golden Gate Park. The police chased him and the big issue was whether, as they said, he tried to get away or, as he said, his car malfunctioned. There was pretty good evidence that it was the former, but Karen, my daughter, kept an open mind. The jury was allowed to write out questions and hold them up so the bailiff could pick them up and take them to the judge. The judge would then decide whether the questions were legitimate. All of Karen's questions passed muster. Here was the killer question, which came after it was revealed that the driver's friend had picked his car up the next day from the lot where it has been impounded:

Didn't you fear that the car might still malfunction and that, therefore, your friend might be in danger?

The defendant's answer: No.

That, plus the other evidence, cinched it for Karen to vote Guilty.

There's one other thing that impressed me about Karen and the other 11 jurors. Their straw vote at the outset showed unanimity but they spent a whole day making sure. One of their biggest concerns was this: Given that the guy was a race-car driver and there were no drugs or alcohol involved, was he really that much of a danger? I asked her if it would have helped her and some of the other jurors if they had been able to know the penalty the judge was likely to give. She said yes. But she followed the rules and didn't independently research the penalty.

By the way, the simple fact that she was on the jury is a great counterexample to a claim that co-blogger Bryan Caplan made in an otherwise excellent interview. At the 1:45 point of this interview, in making the case for private arbitration, a case that I entirely agree with, Bryan dumps on the jury system by saying that the 12 jurors are "too dumb to get out of jury duty." As my daughter's experience shows, there are some people who are probably smart enough to get out of jury duty but don't.

(19 COMMENTS)



How much did poverty rise under Reagan?, by Scott Sumner

Sat, 17 Jun 2017 09:14:26 -0500

This is from a Jeff Madrick article on poverty in America, in the New York Review of Books:

The poverty rate has been as low as 11.1 percent, in the 1970s; it rose under Ronald Reagan to approximately 15 percent and then fell to about 13 percent before rising again, then fell again under Bill Clinton to 11.3 percent before rising in the 2000s.
I see this all the time, and I find it really annoying. In a very technical sense this is true, but I'm going to present more complete data, and you tell me whether it's misleading.

The poverty rate was 11.6% when Carter took office in 1977. The poverty rate rose to 14% in 1981, when Reagan took office. The poverty rate fell to 12.8% in 1989, when Reagan left office.

So how can the NYR of Books say "it rose under Reagan to approximately 15 percent"? That's because in Reagan's second year there was a very serious recession, and the poverty rate reached 15%. But the NYR of Books creates the impression that it rose during the 8 years that Reagan was in office, which is simply not true. Poverty fell under Reagan. it was Jimmy Carter who presided over a surge in poverty.

Of course there are lots of ways to massage the data, such as adjusting for changes in the business cycle, as well as inflation. As a general rule, poverty increases during presidencies when the economy deteriorates (Carter, Bush I, Bush II) and declines during presidencies where the economy improves (Reagan, Clinton, Obama). Unfortunately, Jeff Madrick seems to have an agenda, which requires his readers to believe that poverty increased under Reagan.

One other point. Yesterday, David Henderson quoted from a book by Peter Schuck. Here is one bit that caught my attention:

If we include noncash government benefits such as food and housing, if we take account of the Earned Income Tax Credit, and if we use a more realistic measure of inflation than the Consumer Price Index, then we would conclude that the 2013 poverty rate was not the reported 14.5%, but, rather, 4.8%.
Over the course of 61 years, I've run into a surprisingly large number of people who earn income on the fringes of the economy, doing various odd jobs. They are often paid in cash. Many of these people probably had very low "official incomes" being reported to the government. Thus I suspect that if you included money earned in the underground economy, the poverty rate would be far lower than even 4.8%.

The point of this exercise is not to suggest that there is not a lot of poverty in America, in a relative sense. I am not trying to minimize the problem. I'm quite happy with people claiming that 15% of Americans are poor if they mean, "incomes that the average upper middle class person views as low". Thus people in New York or LA who make 20% or 30% above the official poverty line are probably viewed as "poor" by the average well paid professional. That's a valid opinion.

Rather my claim is that absolute poverty, not having enough income for food, clothing, and some form of shelter, has decreased sharply in America, even as relative poverty may reasonably be said to have stayed around 10% to 15%, or perhaps even edged up a bit.

Here is the official poverty rate data:

(image)

(16 COMMENTS)