Daily
June 2, 2023
.@mattsclancy and @ArnaudDyevre survey the innovation literature and conclude that large firms and small firms invest a similar percentage of sales in R+D, but large firms are less productive, with fewer innovations and less impact per research dollar.
The first important fact about firm heterogeneity and innovation is that corporate R&D expenditures scale up proportionately with their sales. In other words, when sales double, money spent on R&D doubles too. A variety of different lines of evidence show that firms get fewer inventions per R&D dollar as they grow. Finally, when large and established firms actually do innovation resulting in observable products and services, it is more likely to be directed toward improving existing products rather than creating new ones. The bigger a firm is, the more it tries to improve its existing products. Patent evidence also points to larger firms engaging in more incremental innovation. Akcigit and Kerr also find that larger firms are more likely to cite their own patents, which is an indication that they are hewing close to the intellectual landscape they have previously explored.
Though the employment population ratio fell in May @jasonfurman notes for prime age workers it is still above its pre-pandemic level.
Another very strong headline jobs number of 339,000 in May. Bringing total jobs to 1.3 million above CBO's pre-pandemic forecast. But the unemployment rate rose from 3.4% to 3.7% which is the 94th percentile of historical one-month changes. The employment-population ratio fell a little in May but for prime age workers it remains above pre-pandemic rates. Finally, average hourly earnings (which are noisier than I would like) were up at a 4% annual rate--same as the rate for the last 3 months & lower than the 5% annual rate they had been running before. Note other indicators suggest some of this slowdown is spurious composition effects. But overall, this suggests the Fed does not need to be especially worried about the employment side of its mandate and should be willing and able to do what it needs to for the side of its mandate that is still very far from where it should be--namely the inflation side.
A @NewYorkFed survey of about 700 businesses finds an average 60% rate of cost-price passthrough over 2022-23. Survey responses show that managers often set prices as a fixed markup over costs.
Using a research design that combines open-ended interviews with a quantitative survey of about 700 businesses, we find, on average, cost-to-price passthroughs in the 60 percent range during a period of elevated inflation—when firms were intensely knowledgeable about, and focused on, prices and costs. These estimates mask considerable heterogeneity, with some firms reporting a passthrough greater than one. Firms report that the key determinants of their pricing decisions include the strength of demand, maintaining steady profit margins, labor and nonlabor costs, and competitors’ prices.
Japan’s birthrate hit a record low in 2022 as the fertility rate hit 1.25 well under the replacement rate of 2.07. @NikkeiAsia
Japan's birthrate declined for the seventh consecutive year in 2022 to a record low, the health ministry said on Friday, underscoring the sense of crisis gripping the country as the population shrinks and ages rapidly. The fertility rate, or the average number of children born to a woman in her lifetime, was 1.2565. That compares with the previous low of 1.2601 posted in 2005 and is far below the rate of 2.07 considered necessary to maintain a stable population. The number of newborns in Japan slid 5% to 770,747 last year, a new low, while the number of deaths shot 9% higher to a record 1.57 million, the data showed.
Chinese researchers have significantly improved the safety of the world’s most powerful explosive, which will enable the Chinese military to deploy CL-20 explosives in more ordnance. @SCMPNews
A Chinese research team said they have significantly improved the safety of the world’s most powerful explosive by engineering a five-fold boost to its shock resistance capacity. The breakthrough could speed up the large-scale application of the explosive in battle, making Chinese weapons far superior in terms of destructive power, according to the scientists. CL-20 is the most deadly non-nuclear explosive in existence. When detonated, it can produce destructive shock waves with blast pressures many times higher than other common explosives like TNT and RDX. The mass production of CL-20 is extremely difficult. China is the only country so far to possess such industrial capability and has used the explosive in some of its newest weapons, according to a US Energetics Technology Centre study commissioned by the Pentagon in 2021.
In light of synthetic drugs like fentanyl and methamphetamine flooding the US, @samquinones7 argues that treatment of drug users isn’t enough, and we need to use arrest and the threat of incarceration to break the hold such drugs have on their users.
Taking away a person’s freedom is never something to be done lightly. But once addicted to fentanyl or the new meth, many users are not “free” to choose treatment—or any path out of addiction—in any meaningful way. Time away from these drugs, I believe, can help them regain their agency. In an era of rampant fentanyl and meth use, drug courts and a reimagined jail—alongside robust support for voluntary treatment—should be foundations for that revival. An arrest can be an act of compassion when the odds are that, outside, meth will drive a user mad, and fentanyl will kill him.
June 1, 2023
Based on an analysis of U.S. federal tax changes between 1950 and 2006, goods-producing firms respond to tax cuts by expanding capex and employment while service firms largely used any tax windfall to increase dividend payouts. @NBERpubs
Our main finding is that corporate tax cuts generate a significant boost in investment and employment for the economy overall, but the benefits are spread unevenly across sectors and groups. In particular, goods producing companies —such as manufacturing firms— expand both capital expenditure and wage bills following a cut in corporate taxes, but do not alter dividend payments. The left column [of Figure 1] shows that a 1% cut in the marginal tax rate stimulates an increase in capital expenditure for goods producing firms peaking at 8% and 5% in year two following a cut in the marginal tax rate and an increase in the investment tax credit. In contrast, firms in the service sector—which are far less capital-intensive—do not increase investment or employment at all but use most of their windfall to pay dividends. In short, we find important differences in the effect on workers vs. shareholders across sectors of the economy.
.@verdadcap argues that given private equity’s high valuations (33.4x EBITDA) and high debt levels (8.8x net debt/EBITDA), returns going forward are likely to be low.
We took a look at all PE/VC-owned public companies, or companies with public debt, that were 30%+ sponsor-owned, had IPOed since 2018, had a recognizable sponsor as the largest holder, and were headquartered in North America. Today, the entire sample trades at 22.4x pro-forma EBITDA, which is roughly in line with the Russell 2000 Growth, where the median company trades at 20.7x EBITDA. However, for companies in our sample that reported both pro-forma and GAAP EBITDA, this includes 500bps of adjustments. On a GAAP basis, these companies trade at 33.4x EBITDA with 8.8x net debt/EBITDA. The sample of companies we looked at is nearly unprofitable on an EBITDA basis, mostly cash flow negative, and extraordinarily leveraged (mostly with floating-rate debt that is now costing nearly 12%). These companies trade at a dramatic premium to public markets on a GAAP basis, only reaching comparability after massive amounts of pro-forma adjustments. And these are the companies that most likely reflect the better outcomes in private equity.
The @sffed estimates that increased labor costs as measured by the employment cost index from 1988-2022 only contribute about .1pp to core inflation.
Labor cost growth does not appear to fuel inflation through higher demand. The light blue bars in Figure 3 show the cumulative impact of a 1pp increase in the employment cost index (ECI) on the contribution of goods, housing services, and nonhousing services (NHS) inflation to core PCE inflation over a four-year time horizon. The estimates confirm that labor costs have a stronger impact on NHS inflation than either goods or housing services inflation. The impact of the ECI on NHS inflation is statistically significant, but the magnitude is quite small. A 1pp increase in the ECI increases the contribution of NHS inflation to core PCE inflation by 0.15pp over four years—an effect of 0.04pp per year.
If the fertility of younger Americans continues at its current pace, then the birth rate for women 35-39 might soon be higher than that of the 20-24 cohort.
About 3.66 million babies were born in the U.S. in 2022, essentially unchanged from 2021 and 15% below the peak hit in 2007. The trend of decreasing birthrates among younger women continued in 2022. For teens ages 15 to 19, the birthrate fell 3%, and for ages 20 to 24 it was down 2%. The rate for the next oldest group, 25 to 29, edged up only slightly. Increases were mainly seen among women 35 to 44. If trends continue, the birthrate for women ages 35 to 39 might soon eclipse the rate for ages 20 to 24.
Related: Why Americans Are Having Fewer Babies
A composition shift has hidden the fact that over the past 15 years, every cohort of voters under the age of 50 has shifted to the right. @Nate_Cohn
The millennials of 2008 are not the same as those of 2016. For instance: six additional years of even more heavily Democratic millennials became eligible to vote after the 2008 election, canceling out the slight Republican shift among older millennials. The shift to the right appears largest among the oldest “young” voters — the older millennials who came of age in a very different political era from today. Many of the issues that drew young voters to the Democrats in 2004 or 2008 — like the Iraq War or same-sex marriage — may no longer be issues at all. Related: Millennials are Shattering the Oldest Rule in Politics and What Happened In 2022
May 31, 2023
With the reemergence of the “de-dollarization” debate, @jnordvig looks at the market and concludes, “The dollar is not weak. The dollar is strong. Perhaps not in the narrative told. But in the actual market it is.”
There is no long-term trend of USD decline. It always depends on which dollar index you look at. But regardless of the index, you will find that the USD is above its long-term average, in nominal and real terms currency, despite all the Dollar Hatred.
California’s largest homeowner insurance company, State Farm, will no longer sell coverage in the state citing “rapidly growing catastrophe exposure” due to wildfires.
The largest homeowner insurance company in California, State Farm, announced that it would stop selling coverage to homeowners. That’s not just in wildfire zones, but everywhere in the state. State Farm, which insures more homeowners in California than any other company, said it would stop accepting applications for most types of new insurance policies in the state because of “rapidly growing catastrophe exposure.” California’s woes resemble a slow-motion version of what Florida experienced after Hurricane Andrew devastated Miami in 1992. The losses bankrupted some insurers and caused most national carriers to pull out of the state. In response, Florida established a complicated system: a market based on small insurance companies, backed up by Citizens Property Insurance Corporation, a state-mandated company that would provide windstorm coverage for homeowners who couldn’t find private insurance.
Advanced economies currently have three 20–64-year-olds for everyone over 65. In 27 years, that ratio will be 2:1. @TheEconomist suggests aging societies will also see a decline in innovation.
James Liang, a Chinese economist and demographer, notes that entrepreneurship is markedly lower in older countries: an increase of one standard deviation in the median age in a country, equivalent to about 3.5 years, leads to a decrease of 2.5 percentage points in the entrepreneurship rate (the proportion of adults who start their own business). That is a huge effect, considering the global entrepreneurship rate was around 6.1% in 2010. As recently as 2010, Japanese inventors were the leading producers of patents in 35 big global industries according to the World Intellectual Property Organisation, an agency of the un. As of 2021, Japan is the leader in just three. The country has fallen behind not only China, which now occupies most of the top spots, but America too.
According to @ballmatthew’s estimate, Meta has lost at least $49B on its metaverse effort, Reality Labs, in an attempt to establish leadership in AR/VR. This investment exceeds the scale of the biggest efforts of Apple/Amazon/Google to date.
More than ever, our economy runs on ecosystems. Not just broad partnerships, large commercial deals, or expansive networks, but ecosystems. It’s to our collective interest that there’s maximum competition at the foundational platform layer and every application and service layer, too. But the cost of competition is now in the tens of billions, if not more. In a weird way, Google Cloud is cheap at $35B, but most can’t spend that much, let alone wait fifteen years for losses to end and another decade or more to generate a net return. In fact, it’s likely Google couldn’t have invested as heavily were it not for near-zero interest rates over the past decade. And that the investment wouldn’t have worked at all were it not for Google’s own ecosystem, including the consumer-facing (and Android-integrated) Google Photos, Gmail, and Drive, as well as its enterprise offerings such as Workspace. The prohibitive cost of entry has led to phenomenal profits. Apple, Microsoft, Alphabet, and Amazon are now 21% of the S&P (Apple and Microsoft are so large that alone, they would be the second largest sector of the S&P, behind the rest of big tech, and ahead of energy and healthcare).
The decline in college attendance by recent high school graduates is entirely driven by a decline in students choosing to attend 2yr schools. In 2022, 45.1% of high school graduates enrolled in a 4yr school above the 2019 level of 44.4%. @jmhorp.
Are young people really skipping traditional four-year colleges for other opportunities? The answer is a big fat No. And we can even use the same data the WSJ used (from the CPS) to prove it, but slice it more finely. The percent of recent high school graduates enrolled in 4-year colleges and universities in 2022 was 45.1%. That’s slightly higher than 2019 (44.4%) and is, in fact, the second highest level ever in this data, with only 2016 being higher at 46%. So what gives? The decline that the WSJ is reporting is entirely driven by a decline in enrollment at 2-year colleges, though you would never get a hint of that in the article. You might even think it was the opposite: perhaps young people are forgoing 4-year colleges in favor of trade schools! Nope. Here’s the data. Notice that this is in fact the exact same data as the WSJ is using. If you add the two figures for 2022, it’s the same 62% in the WSJ article. But 4-year college enrollment is up slightly since 2019, while 2-year enrollment is down about 5 percentage points. Also, it doesn’t really seem like a pandemic-induced change: this is a long-run decline in 2-year college enrollment of about 12 percentage points since the peak in 2012.
Related: More High-School Grads Forgo College in Hot Labor Market
Noting American households have been the largest buyer of US Treasuries during the hiking cycle; Torsten Sløk @apolloglobal argues that deficits of 5% means the market “will soon begin to focus on who will be buyers of US government debt.”
As the Fed has been raising rates, US households have been big buyers of US Treasuries. The appetite for Treasuries from foreigners has been more limited because of higher hedging costs. Foreigners have instead increased their holdings of equities by $3 trillion during the pandemic. With a 5% budget deficit combined with QT and the Treasury’s need to replenish cash in the Treasury General Account, markets will soon begin to focus on who will be buyers of US government debt.
.@foxjust notes that adjusted for subway ridership major crimes are running at 2005 levels giving up almost two decades of progress.
Major subway crime is on track to be 13.4% lower this year than in 2019 and lower than in all but a few years during the past quarter century. Then again, subway ridership is still down about a third from 2019 levels. Adjust for that, as one should, and the picture changes. Measured this way, subway crime rose 86% in the first year of the pandemic. It has fallen since but is still running much higher this year than from 2006 through 2019. It’s not exactly what you’d call out of control, though, just settling back toward normal after a once-in-a-century shock. My less-than-scientific take is that there are more troubled people on New York’s subways than before the pandemic, and less-crowded stations and cars have made it easier for them to make trouble. For-profit subway crime hasn’t risen; senseless acting-out has.
May 30, 2023
.@paulkrugman takeaway from @benbernanke and @ojblanchard1 new research is that “immaculate disinflation” is still a real possibility.
Even if you believe that excessive government spending played a big role in the initial rise in inflation, future inflation will reflect more persistent factors — which, in Olivier Blanchard and Ben Bernanke analysis, means focusing on the labor market, which they say is still overheated and needs to cool. The six-million-job question is whether this cooling off needs to involve a large rise in unemployment. The paper is actually fairly optimistic on that question, suggesting that “immaculate disinflation,” inflation coming down without any significant rise in unemployment, may be possible, and that even if it isn’t, those grim projections we were hearing a year ago about the need for many years of high unemployment no longer seem plausible. The ratio of vacancies to the unemployed as their measure of labor market tightness. And what has been really striking since late 2022 is that vacancies have come way down without any rise in unemployment. Related: What Caused the U.S. Pandemic-Era Inflation? and Inflation: A Series of Unfortunate Events vs. Original Sin
Rising costs of college plus a hot job market have driven down the college enrollment rate for American high school graduates aged 16-24 to 62% in 2022, down from 66% pre-pandemic. Male enrollment dropped to 57% from 67%.
The college enrollment rate for recent U.S. high-school graduates, ages 16 to 24, declined to 62% last year from 66.2% in 2019, just before the pandemic began, according to the latest Labor Department data. The rate topped out at 70.1% in 2009. The unemployment rate for teenage workers ages 16 to 19 fell to a 70-year low of 9.2% last month, fueling larger pay increases. Average hourly earnings for rank-and-file leisure and hospitality workers were up nearly 30%, seasonally adjusted, from April 2019 to April 2023, compared with roughly 20% during the same period for all workers. College enrollment has declined by about 15% in the past decade, according to federal data. The reasons include the high cost of university education, colleges closing and uneven returns from getting a degree, as well as the hot job market.
Weekly
Week of May 29, 2023
Based on an analysis of U.S. federal tax changes between 1950 and 2006, goods-producing firms respond to tax cuts by expanding capex and employment while service firms largely used any tax windfall to increase dividend payouts. @NBERpubs
Our main finding is that corporate tax cuts generate a significant boost in investment and employment for the economy overall, but the benefits are spread unevenly across sectors and groups. In particular, goods producing companies —such as manufacturing firms— expand both capital expenditure and wage bills following a cut in corporate taxes, but do not alter dividend payments. The left column [of Figure 1] shows that a 1% cut in the marginal tax rate stimulates an increase in capital expenditure for goods producing firms peaking at 8% and 5% in year two following a cut in the marginal tax rate and an increase in the investment tax credit. In contrast, firms in the service sector—which are far less capital-intensive—do not increase investment or employment at all but use most of their windfall to pay dividends. In short, we find important differences in the effect on workers vs. shareholders across sectors of the economy.
Rising costs of college plus a hot job market have driven down the college enrollment rate for American high school graduates aged 16-24 to 62% in 2022, down from 66% pre-pandemic. Male enrollment dropped to 57% from 67%.
The college enrollment rate for recent U.S. high-school graduates, ages 16 to 24, declined to 62% last year from 66.2% in 2019, just before the pandemic began, according to the latest Labor Department data. The rate topped out at 70.1% in 2009. The unemployment rate for teenage workers ages 16 to 19 fell to a 70-year low of 9.2% last month, fueling larger pay increases. Average hourly earnings for rank-and-file leisure and hospitality workers were up nearly 30%, seasonally adjusted, from April 2019 to April 2023, compared with roughly 20% during the same period for all workers. College enrollment has declined by about 15% in the past decade, according to federal data. The reasons include the high cost of university education, colleges closing and uneven returns from getting a degree, as well as the hot job market.
The decline in college attendance by recent high school graduates is entirely driven by a decline in students choosing to attend 2yr schools. In 2022, 45.1% of high school graduates enrolled in a 4yr school above the 2019 level of 44.4%. @jmhorp.
Are young people really skipping traditional four-year colleges for other opportunities? The answer is a big fat No. And we can even use the same data the WSJ used (from the CPS) to prove it, but slice it more finely. The percent of recent high school graduates enrolled in 4-year colleges and universities in 2022 was 45.1%. That’s slightly higher than 2019 (44.4%) and is, in fact, the second highest level ever in this data, with only 2016 being higher at 46%. So what gives? The decline that the WSJ is reporting is entirely driven by a decline in enrollment at 2-year colleges, though you would never get a hint of that in the article. You might even think it was the opposite: perhaps young people are forgoing 4-year colleges in favor of trade schools! Nope. Here’s the data. Notice that this is in fact the exact same data as the WSJ is using. If you add the two figures for 2022, it’s the same 62% in the WSJ article. But 4-year college enrollment is up slightly since 2019, while 2-year enrollment is down about 5 percentage points. Also, it doesn’t really seem like a pandemic-induced change: this is a long-run decline in 2-year college enrollment of about 12 percentage points since the peak in 2012.
Related: More High-School Grads Forgo College in Hot Labor Market
.@mattsclancy and @ArnaudDyevre survey the innovation literature and conclude that large firms and small firms invest a similar percentage of sales in R+D, but large firms are less productive, with fewer innovations and less impact per research dollar.
The first important fact about firm heterogeneity and innovation is that corporate R&D expenditures scale up proportionately with their sales. In other words, when sales double, money spent on R&D doubles too. A variety of different lines of evidence show that firms get fewer inventions per R&D dollar as they grow. Finally, when large and established firms actually do innovation resulting in observable products and services, it is more likely to be directed toward improving existing products rather than creating new ones. The bigger a firm is, the more it tries to improve its existing products. Patent evidence also points to larger firms engaging in more incremental innovation. Akcigit and Kerr also find that larger firms are more likely to cite their own patents, which is an indication that they are hewing close to the intellectual landscape they have previously explored.
Nicholas Eberstadt @AEI notes that, even prior to the Covid pandemic, the mortality rates of American adults born after 1980 exceeded previous cohorts.
The awful truth remains: By 2019—that is, even before COVID—the Class of 1980’s death rates at age 39 were higher than their counterparts’ from the Classes of 1970 and 1960. At age 29, the Class of 1990’s death rates were indistinguishable from those of the Class of 1950. In Japan, the Class of 1990’s mortality rate at age 29 was over 80 percent lower than those of their “grandparents” from the Class of 1930. In the US, the corresponding differential was less than 8 percent. If we look carefully at Figure 2, we can see unwelcome “crossovers”—where death rates in adulthood exceeded those of earlier cohorts—for every US cohort from the Class of 1950 onward in the years after the Berlin Wall fell (1990 onward). This is what prolonged stagnation—at times, even reversal—in national health progress looks like. Related: Who Won the Cold War? Part I and Who Won the Cold War? Part II
If the fertility of younger Americans continues at its current pace, then the birth rate for women 35-39 might soon be higher than that of the 20-24 cohort.
About 3.66 million babies were born in the U.S. in 2022, essentially unchanged from 2021 and 15% below the peak hit in 2007. The trend of decreasing birthrates among younger women continued in 2022. For teens ages 15 to 19, the birthrate fell 3%, and for ages 20 to 24 it was down 2%. The rate for the next oldest group, 25 to 29, edged up only slightly. Increases were mainly seen among women 35 to 44. If trends continue, the birthrate for women ages 35 to 39 might soon eclipse the rate for ages 20 to 24.
Related: Why Americans Are Having Fewer Babies
California’s largest homeowner insurance company, State Farm, will no longer sell coverage in the state citing “rapidly growing catastrophe exposure” due to wildfires.
The largest homeowner insurance company in California, State Farm, announced that it would stop selling coverage to homeowners. That’s not just in wildfire zones, but everywhere in the state. State Farm, which insures more homeowners in California than any other company, said it would stop accepting applications for most types of new insurance policies in the state because of “rapidly growing catastrophe exposure.” California’s woes resemble a slow-motion version of what Florida experienced after Hurricane Andrew devastated Miami in 1992. The losses bankrupted some insurers and caused most national carriers to pull out of the state. In response, Florida established a complicated system: a market based on small insurance companies, backed up by Citizens Property Insurance Corporation, a state-mandated company that would provide windstorm coverage for homeowners who couldn’t find private insurance.
A composition shift has hidden the fact that over the past 15 years, every cohort of voters under the age of 50 has shifted to the right. @Nate_Cohn
The millennials of 2008 are not the same as those of 2016. For instance: six additional years of even more heavily Democratic millennials became eligible to vote after the 2008 election, canceling out the slight Republican shift among older millennials. The shift to the right appears largest among the oldest “young” voters — the older millennials who came of age in a very different political era from today. Many of the issues that drew young voters to the Democrats in 2004 or 2008 — like the Iraq War or same-sex marriage — may no longer be issues at all. Related: Millennials are Shattering the Oldest Rule in Politics and What Happened In 2022
Week of May 22, 2023
Michael Cembalest @jpmorgan argues investors no longer need to overweight the US and emerging markets relative to Europe and Japan.
By September 2022, Europe’s P/E multiple hit a post-2006 low relative to the US. While there were valid concerns at the time about Europe’s energy situation, rising inflation and exposure to a shuttered China, investors were receiving an enormous discount for taking European equity exposure, and I should have paid more attention to that. Europe’s outperformance is likely to have a ceiling since US companies generate higher returns on equity and higher returns on assets, as shown in the table. But everything has a price, and a 35% P/E discount was apparently it. As things stand now, the discount is still large from an historical perspective.
Nicholas Eberstadt @AEI argues that America’s seemingly dominant post-Cold War economic performance is clouded by the poor performance of the wealth trajectory of the median American.
Overall, post–Cold War America has been fantastically successful in wealth creation. By the reckoning of the Federal Reserve, the net worth of American households amounted to nearly $140 trillion at the end of 2022: an average of over $400,000 per person and over a million dollars per household (for a 2.5 person home). America’s struggle for mass prosperity can also be placed in international perspective, thanks to the path-breaking research for the Credit Suisse Global Wealth Databook. Those estimates are still a work in progress for poorer societies, but they look fairly reliable for most affluent Western democracies. The Global Wealth Databook offers estimates for “median wealth per adult” in current US dollars for the years 2000–2021 for 170 countries and places. Figures 2 and 3 show US estimated median wealth per adult for 2000–2021 in relation to America’s Cold War treaty allies in Europe and Asia.
Nicholas Eberstadt @AEI notes that the age-adjusted mortality rates for Americans born in 1990, the year after the Berlin Wall fell, is now higher than for those born in 1960, and 4X higher than Italy and Spain.
Compare mortality in young adulthood for America’s Class of 1990 with their counterparts from affluent Cold War allies. Since breakdown by sex does not add much information here, we display overall mortality rates at ages 20 through 31 for the US and select Western European allies in Figure 3. Death rates at age 20 were universally lower for the treaty allies than Americans in the Class of 1990—usually much lower. Further, mortality curves for these allies generally remained much “flatter” over the course of their 20s than for the US. Consequently, the divergence in mortality risks between the US and the allies tended to increase over young adulthood for the Class of 1990, even before COVID. By age 29—i.e., in 2019, before the pandemic—mortality rates for the Class of 1990 were almost twice as high in the US as in New Zealand; two and a half times higher than in France; three time higher than in Japan; four times higher than in Italy or Spain.
Related: Who Won the Cold War? Part I
.@benbernanke and @ojblanchard1 argue that bringing the current inflationary episode to target implies an unemployment rate of 4.3%, up from 3.4% last month.
Figure 12 shows the estimated sources of inflation from 2020Q1 to 2023Q1. For comparison, the continuous line shows actual inflation. (The inflation data are quarterly, at annualized rates, and thus more jagged than the annualized series we often see.) Figure 12 yields several conclusions. First, the contributions of food [light blue] and (especially) energy [dark blue] price shocks to the pandemic-era inflation were large. Energy price shocks in particular account for much of the rise of overall inflation in late 2021 and the first half of 2022, and the for the decline in inflation in the second half of 2022. The large and extended contributions of commodity price shocks to inflation shown in Figure 12 are not inconsistent with our earlier finding that price shocks tend to have transitory effects on inflation, as both energy and food prices rose continuously over much of the period (see Figures 4 and 5), which our procedure interprets as a series of positive shocks. Second, the combination of increased demand for durables and shortages [yellow] associated with disrupted supply chains was the dominant source of inflation in 2021Q2, and the effects of supply chain problems, both direct and indirect, remained significant through the end of our sample period. Third, and importantly, the contribution to inflation of tight labor-market conditions [red] —the leading concern of many early critics of U.S. monetary and fiscal policies—was quite small early on, and indeed was negative in 2020 and early 2021 as labor markets suffered from the effects of the pandemic recession. However, over time, as the labor market has remained tight, the traditional Phillips curve effect has begun to assert itself, with the high vacancy-to-unemployment ratio becoming increasingly important, though by no means dominant, source of inflation.
.@PaulKrugman argues the decline in black unemployment might have powerful spillover effects in terms of combating the social dysfunction that has plagued black America.
The improvement in Black employment matters a lot, and not just because of the income generated. As the sociologist William Julius Wilson argued, the loss of economic opportunities as jobs moved out of urban areas was a major driving force behind social dysfunction in Black communities. I’ve long seen the recent emergence of social dysfunction in largely white small towns and rural areas left behind by a changing economy as a vindication of Wilson’s thesis (and a repudiation of “cultural” explanations). So the fact that Black America is working again is really good news on multiple fronts. But while full employment helps, racial gaps are considerably smaller now than they were circa 2000 — arguably the last time we had truly full employment. Why? I’d argue — this will probably get me in trouble on both the right and the left — that racism and racial discrimination, while both still very real, have gradually declined over time, at least in a way that’s reflected in employment numbers.
The rise in asset prices in 2020-21 shielded New York state from the consequences of the flight of higher income workers. @foxjust
The 2020-21 numbers here were released in late April by the Internal Revenue Service. They sort taxpayers by whether and where they moved between filing their taxes in 2020 and filing them in 2021; the adjusted gross incomes are for the 2020 tax year. It has been two years since May 17, 2021 — that year’s belated income tax filing deadline — and a lot has changed. But New York has continued to lose population, and if the trend depicted above were to continue, even in less extreme form, it would be disastrous for the finances of a state that relies on income taxes paid by those making $200,000 or more a year for almost half its revenue. That the loss of affluent taxpayers didn’t lead to disaster during the pandemic mainly had to do with how much the prices of stocks, houses and other assets rose in 2020 and 2021.
Phil Gramm and Mike Solon argue that even if the House GOP’s budget proposal was enacted in whole, inflation-adjusted discretionary spending would still be 2.4% greater than the CBO’s 2020 projection.
Since 1967, average inflation-adjusted transfer payments to low-income households—the bottom 20%—have grown from $9,677 to $45,389. During that same period, the percentage of prime working-age adults in the bottom 20% of income earners who actually worked collapsed from 68% to 36%. Before the pandemic, the Congressional Budget Office in January 2020 projected that total discretionary outlays in fiscal 2024 would grow to $1.549 trillion—which, adjusted for higher inflation, amounted to $1.694 trillion. The most recent CBO estimate projects that fiscal 2024 discretionary spending will clock in at $1.864 trillion—a 10% real increase from the pre-pandemic estimate. Nondefense outlays have risen 18.8% over the same period, while defense outlays have fallen 0.28% in after-inflation dollars. This growth in nondefense discretionary spending is the post-pandemic bow wave that Mr. McCarthy’s debt-limit plan seeks to mitigate. Even if the House GOP’s proposed reductions in discretionary-spending growth took effect, total discretionary spending would still be 2.4% more in inflation-adjusted dollars than the CBO’s 2020 projection for fiscal 2024.
Pew reports that 25-year-old Americans are lagging previous generations in terms of full-time work, financial independence, and marriage. @r_fry1
Young adults in the United States are reaching key life milestones later than they did 40 years ago, according to a new Pew Research Center analysis of Census Bureau data. Adults who are 21 are less likely than their predecessors four decades ago to have reached five frequently cited milestones of adulthood: having a full-time job, being financially independent, living on their own, getting married and having a child. By the time they are 25, however, today’s young adults are somewhat closer to their predecessors in 1980 on two of these milestones: having a full-time job and financial independence. In 2021, the most recent year with available data, 39% of 21-year-olds were working full time, compared with 64% in 1980. And only a quarter of people this age in 2021 were financially independent of their parents – meaning that their income was at least 150% of the poverty line – compared with 42% in 1980.
In an analysis of the 2022 midterms using voter file data, @Catalist_US finds younger voters exceeded their 2018 turnout by 6% with 65% of voters 18-29 supporting Democrats.
Gen Z and Millennial voters had exceptional levels of turnout, with young voters in heavily contested states exceeding their 2018 turnout by 6% among those who were eligible in both elections. Further, 65% of voters between the ages of 18 and 29 supported Democrats, cementing their role as a key part of a winning coalition for the party. While young voters were historically evenly split between the parties, they are increasingly voting for Democrats. Many young voters who showed up in 2018 and 2020 to elect Democrats continued to do the same in 2022. Extreme “MAGA” Republicans underperformed. Across heavily contested Senate, Gubernatorial, and Congressional races, voters penalized “MAGA” Republicans. Women voters pushed Democrats over the top in heavily contested races, where abortion rights were often their top issue.
Week of May 15, 2023
New @federalreserve research shows the majority of unemployment in 1980-2021 was concentrated in a Secondary segment of 14% of the population that experiences high labor churn, vs. a Primary segment that is almost always employed.
Workers in the primary sector, who make up around 55% of the population, are almost always employed and rarely experience unemployment. The secondary sector, which constitutes 14% of the population, absorbs most of the short-run fluctuations, both at seasonal and business cycle frequencies. Workers in this segment experience six times higher turnover rates than those in the primary tier and are ten times more likely to be unemployed than their primary counterparts. The tertiary segment consists of workers who infrequently participate in the labor market but nevertheless experience unemployment when they try to enter the labor force.
As the baby boomers start to die their children are poised to inherit $16T over the next decade.
Of the 73 million baby boomers, the youngest are turning 60. The oldest boomers are nearing 80. In 1989, total family wealth in the United States was about $38 trillion, adjusted for inflation. By 2022, that wealth had more than tripled, reaching $140 trillion. Of the $84 trillion projected to be passed down from older Americans to millennial and Gen X heirs through 2045, $16 trillion will be transferred within the next decade. Individuals with at least $5 million and $20 million in cash or easily cashable assets make up 1.5 percent of all households. Together, they constitute 42 percent of the volume of expected transfers through 2045, according to the financial research firm Cerulli Associates. That’s about $36 trillion as of 2020—numbers that have most likely increased since.
A new @BLS_gov analysis finds the number of employees of new firms was 2.7 in 2021, down from 6.4 in 1996. Firms that make it to 1, 3, and 5 year survival marks also employ fewer workers than their 1990s counterparts.
The increasing number of establishment births in combination with the decreasing number of jobs generated by those births suggests that the average size of new businesses has been shrinking in recent decades. This theory can be examined through a measure informally nicknamed “birth weight,” that is calculated as the level of gross job gains from establishment births divided by the level of establishment births. While the number of new business establishments tends to rise and fall with the business cycle of the overall economy, the decline in jobs created by establishment births raises questions regarding the changing nature of startups. The average “birth weight” has been steadily declining over the last 20 years from a high of 6.4 employees per establishment birth in 1996 to a low of 2.7 employees per establishment birth in 2021.
Related: Surging Business Formation in the Pandemic: Causes and Consequences
Database
Week of May 29, 2023
Nicholas Eberstadt @AEI notes that, even prior to the Covid pandemic, the mortality rates of American adults born after 1980 exceeded previous cohorts.
The awful truth remains: By 2019—that is, even before COVID—the Class of 1980’s death rates at age 39 were higher than their counterparts’ from the Classes of 1970 and 1960. At age 29, the Class of 1990’s death rates were indistinguishable from those of the Class of 1950. In Japan, the Class of 1990’s mortality rate at age 29 was over 80 percent lower than those of their “grandparents” from the Class of 1930. In the US, the corresponding differential was less than 8 percent. If we look carefully at Figure 2, we can see unwelcome “crossovers”—where death rates in adulthood exceeded those of earlier cohorts—for every US cohort from the Class of 1950 onward in the years after the Berlin Wall fell (1990 onward). This is what prolonged stagnation—at times, even reversal—in national health progress looks like. Related: Who Won the Cold War? Part I and Who Won the Cold War? Part II
Week of May 22, 2023
Michael Cembalest @jpmorgan argues investors no longer need to overweight the US and emerging markets relative to Europe and Japan.
By September 2022, Europe’s P/E multiple hit a post-2006 low relative to the US. While there were valid concerns at the time about Europe’s energy situation, rising inflation and exposure to a shuttered China, investors were receiving an enormous discount for taking European equity exposure, and I should have paid more attention to that. Europe’s outperformance is likely to have a ceiling since US companies generate higher returns on equity and higher returns on assets, as shown in the table. But everything has a price, and a 35% P/E discount was apparently it. As things stand now, the discount is still large from an historical perspective.
Nicholas Eberstadt @AEI argues that America’s seemingly dominant post-Cold War economic performance is clouded by the poor performance of the wealth trajectory of the median American.
Overall, post–Cold War America has been fantastically successful in wealth creation. By the reckoning of the Federal Reserve, the net worth of American households amounted to nearly $140 trillion at the end of 2022: an average of over $400,000 per person and over a million dollars per household (for a 2.5 person home). America’s struggle for mass prosperity can also be placed in international perspective, thanks to the path-breaking research for the Credit Suisse Global Wealth Databook. Those estimates are still a work in progress for poorer societies, but they look fairly reliable for most affluent Western democracies. The Global Wealth Databook offers estimates for “median wealth per adult” in current US dollars for the years 2000–2021 for 170 countries and places. Figures 2 and 3 show US estimated median wealth per adult for 2000–2021 in relation to America’s Cold War treaty allies in Europe and Asia.
.@benbernanke and @ojblanchard1 argue that bringing the current inflationary episode to target implies an unemployment rate of 4.3%, up from 3.4% last month.
Figure 12 shows the estimated sources of inflation from 2020Q1 to 2023Q1. For comparison, the continuous line shows actual inflation. (The inflation data are quarterly, at annualized rates, and thus more jagged than the annualized series we often see.) Figure 12 yields several conclusions. First, the contributions of food [light blue] and (especially) energy [dark blue] price shocks to the pandemic-era inflation were large. Energy price shocks in particular account for much of the rise of overall inflation in late 2021 and the first half of 2022, and the for the decline in inflation in the second half of 2022. The large and extended contributions of commodity price shocks to inflation shown in Figure 12 are not inconsistent with our earlier finding that price shocks tend to have transitory effects on inflation, as both energy and food prices rose continuously over much of the period (see Figures 4 and 5), which our procedure interprets as a series of positive shocks. Second, the combination of increased demand for durables and shortages [yellow] associated with disrupted supply chains was the dominant source of inflation in 2021Q2, and the effects of supply chain problems, both direct and indirect, remained significant through the end of our sample period. Third, and importantly, the contribution to inflation of tight labor-market conditions [red] —the leading concern of many early critics of U.S. monetary and fiscal policies—was quite small early on, and indeed was negative in 2020 and early 2021 as labor markets suffered from the effects of the pandemic recession. However, over time, as the labor market has remained tight, the traditional Phillips curve effect has begun to assert itself, with the high vacancy-to-unemployment ratio becoming increasingly important, though by no means dominant, source of inflation.
Phil Gramm and Mike Solon argue that even if the House GOP’s budget proposal was enacted in whole, inflation-adjusted discretionary spending would still be 2.4% greater than the CBO’s 2020 projection.
Since 1967, average inflation-adjusted transfer payments to low-income households—the bottom 20%—have grown from $9,677 to $45,389. During that same period, the percentage of prime working-age adults in the bottom 20% of income earners who actually worked collapsed from 68% to 36%. Before the pandemic, the Congressional Budget Office in January 2020 projected that total discretionary outlays in fiscal 2024 would grow to $1.549 trillion—which, adjusted for higher inflation, amounted to $1.694 trillion. The most recent CBO estimate projects that fiscal 2024 discretionary spending will clock in at $1.864 trillion—a 10% real increase from the pre-pandemic estimate. Nondefense outlays have risen 18.8% over the same period, while defense outlays have fallen 0.28% in after-inflation dollars. This growth in nondefense discretionary spending is the post-pandemic bow wave that Mr. McCarthy’s debt-limit plan seeks to mitigate. Even if the House GOP’s proposed reductions in discretionary-spending growth took effect, total discretionary spending would still be 2.4% more in inflation-adjusted dollars than the CBO’s 2020 projection for fiscal 2024.
Pew reports that 25-year-old Americans are lagging previous generations in terms of full-time work, financial independence, and marriage. @r_fry1
Young adults in the United States are reaching key life milestones later than they did 40 years ago, according to a new Pew Research Center analysis of Census Bureau data. Adults who are 21 are less likely than their predecessors four decades ago to have reached five frequently cited milestones of adulthood: having a full-time job, being financially independent, living on their own, getting married and having a child. By the time they are 25, however, today’s young adults are somewhat closer to their predecessors in 1980 on two of these milestones: having a full-time job and financial independence. In 2021, the most recent year with available data, 39% of 21-year-olds were working full time, compared with 64% in 1980. And only a quarter of people this age in 2021 were financially independent of their parents – meaning that their income was at least 150% of the poverty line – compared with 42% in 1980.
Foreign-born worker’s share of the US labor force is at its highest level in 27 years with persons born outside the US making up 18.1% of the US workforce. Foreign-born black, white and Asian workers earned more than their native-born counterparts.
Foreign-born workers’ share of the U.S. labor force rose last year to the highest level in 27 years of records, as labor demand surged, and the pandemic faded. People born outside the U.S. made up 18.1% of the overall labor force, up from 17.4% the prior year and the highest level in data back to 1996, the Labor Department said in its annual report on foreign-born workers. The number of immigrants in the labor force—those working or actively looking for jobs—rose by 1.8 million, or 6.3%, to 29.8 million in 2022.
.@martinwolf_ suggests that the G7 is losing relevance as its share of global GDP declines. He notes that China is a larger trade partner than the G7 for many emerging markets.
Moreover, both the “unipolar” moment of the US and the economic dominance of the G7 are history. True, the latter is still the most powerful and cohesive economic bloc in the world. It continues, for example, to produce all the world’s leading reserve currencies. Yet, between 2000 and 2023, its share in global output (at purchasing power) will have fallen from 44 to 30 percent, while that of all high-income countries will have fallen from 57 to 41 percent. Meanwhile, China’s share will have risen from 7 to 19 percent. For some emerging and developing countries, China is a more important economic partner than the G7: Brazil is one example. President Luiz Inácio Lula da Silva may have attended the G7, but he cannot sensibly ignore China’s heft.
In an analysis of the 2022 midterms using voter file data, @Catalist_US finds younger voters exceeded their 2018 turnout by 6% with 65% of voters 18-29 supporting Democrats.
Gen Z and Millennial voters had exceptional levels of turnout, with young voters in heavily contested states exceeding their 2018 turnout by 6% among those who were eligible in both elections. Further, 65% of voters between the ages of 18 and 29 supported Democrats, cementing their role as a key part of a winning coalition for the party. While young voters were historically evenly split between the parties, they are increasingly voting for Democrats. Many young voters who showed up in 2018 and 2020 to elect Democrats continued to do the same in 2022. Extreme “MAGA” Republicans underperformed. Across heavily contested Senate, Gubernatorial, and Congressional races, voters penalized “MAGA” Republicans. Women voters pushed Democrats over the top in heavily contested races, where abortion rights were often their top issue.
Week of May 15, 2023
.@iamstevenpedigo and @NateMJensen write that the CHIPS Act, which requires state and local subsidies to access federal dollars, has thus far been gamed by corporations to the detriment of state and local governments.
Offering tax breaks and other incentives to corporations has been proved to be one of the least effective ways for localities and states to grow their economies. State audits and independent evaluations of these programs found poor targeting of incentives, weak oversight and excessive costs that harmed rather than benefited local governments. The CHIPS Act and the Inflation Reduction Act are threatening to give [unproductive tax incentives] an enormous infusion of steroids. Micron chose to build in upstate New York [after] the state offered a staggering $5.5 billion in tax credits over the life of the project … costing local and state governments upward of $95 million annually, far more than they are likely to gain from hosting the new facilities. In February, Ford agreed to build its new electric vehicle plant in Michigan, but only after extracting a promise of as much $1.75 billion in state and local incentives...enough money to pay all the new workers’ salaries for around 15 years.
The American labor force grew by 32.8M workers between 1995-2022, and 70% of that growth consisted of immigrants or children of immigrants. Immigrants and their children are 29% of the total American workforce.
From 1995 to 2022, the U.S. labor force increased from nearly 131.6 million workers to over 164.3 million—an increase of nearly 32.8 million workers: 16.1 million of that increase came from immigrant workers (49%) and 6.7 million were children of immigrants (21%), according to data from the Current Population Survey’s Annual Social and Economic Supplement. Just 9.9 million were U.S.-born citizens without a foreign‐born parent. The actual effect of cutting off all immigration would have been even greater since the working immigrant population would have declined without more immigration by about 4.5 million. Immigrants have increased from about 10% of the U.S. labor force in 1995 to 18% in 2022, and immigrants and their children have gone from 18% to 29%.
According to an @TheEconomist analysis, Europe has significantly more economic exposure to China than the US. 8% of public European firms’ revenues are from China relative to 4% for American firms.
Europe is more economically exposed to China than America is. Some 8% of publicly-listed European firms’ revenues are from China, compared with 4% for American ones, according to Morgan Stanley. Europe and America send a similar share of goods exports to China (7-9%), but because Europe is a more trade-intensive economy its sensitivity is higher. Multinational investments in China are worth 2% of Europe’s GDP compared with 1% for America. We have come up with a yardstick of “total China exposure,. We measure each country’s exposure as a share of its own economy. The European big six’s total China exposure has hit 5.6% of their combined GDP, up from 3.9% in 2011. That is higher than America’s at 4.2%. There is a big range: Italy and Spain are at just 1-2%, France and Britain are at 4-5%. Germany is a huge outlier at 9.9%.
Week of May 8, 2023
From 2019-2022 students in the mean school district fell half a year behind in math and a third of a year behind in reading. The learning losses were more significant in poorer school districts.
According to our calculations, the average student was half a year behind in math and a third of a year behind in reading. In 2019, the typical student in the poorest 10 percent of districts scored one and a half years behind the national average for his or her year – and almost four years behind students in the richest 10 percent of districts – in both math and reading. By 2022, the typical student in the poorest districts had lost three-quarters of a year in math, more than double the decline of students in the richest districts. The declines in reading scores were half as large as in math and were similarly much larger in poor districts than rich districts. The pandemic left students in low-income and predominantly minority communities even further behind their peers in richer, whiter districts than they were.
Gun homicides in the US are being driven not by an increase in gun ownership but a decline in local trust levels. @jburnmurdoch
Levels of trust in the US have been eroding for decades and the share of Americans who say they do not trust other people in their neighbourhood is now roughly double what you would expect based on US socio-economic development. Few appreciate that at country and state level, the statistical relationship between gun availability and gun deaths is driven almost entirely by suicides. The more people who have access to guns, the more who use them to take their own lives. And since the vast majority of all gun deaths are suicides, this dynamic dominates the overall guns-deaths link. Look only at gun homicides instead, and the link with the number of guns is much weaker, whether the unit of analysis is different countries or US states. But add in interpersonal trust as well as gun ownership, and the relationship returns. In other words, it’s the interplay between guns and fear that sends homicide rates climbing.
Week of May 1, 2023
Using evidence from two large retailers @RDMetcalfe @ASollaci @ChadSyverson find that individual managers, outside of firm-wide management practices, explain 25-35% of variance in store level productivity.
Overall, managers explain between 25 and 35% of the variance of store-level productivity, which is about 50-70% of the explanatory power of store fixed effects. In the four largest connected sets across both companies, moving a manager from the 10th percentile to the 90th percentile increases overall productivity by between 22% and 82%. On average, this implies an effect on output equivalent to adding a fifth employee to a team of four. We estimate that replacing a manager at the bottom of the distribution by one at the top could increase a store’s productivity by at least 50%, and perhaps as much as doubling it, depending on the company and the relevant connected set.
Enrico Moretti and @wilson_daniel_j find 35% of billionaires leave states that have an estate tax. However, for the average state the additional revenues from an estate tax exceed the loss of revenues from forgone income taxes by 31 percent.
We find that billionaires responded strongly to geographical differences in estate taxes by increasingly moving to states without estate taxes, especially as they grew older. Our estimated elasticity implies that $80.7 billion of 2001 Forbes 400 wealth escaped estate taxation in the subsequent years due to billionaires moving away from estate tax states. Yet despite the high elasticity of geographical location with respect to the estate tax, we find that for most states the benefit of additional revenue from the estate tax exceeds the cost of forgone income tax revenue by a significant margin. Adoption of an estate tax implies a one-time tax revenue gain for the state when a resident billionaire dies, but it also reduces its billionaire population and thus their flow of income tax revenue over remaining lifetimes. For the average state the benefit of additional revenue from the estate tax exceeds the cost of forgone income tax revenue by 31 percent. While the cost-benefit ratio varies substantially across states, most states that currently do not have estate taxes would experience revenue gains if they adopted estate taxes. California, which has the highest personal income top tax rate, is the main exception In California, the cost-benefit ratio is 1.45, indicating that if California adopted the estate tax on billionaires, the state would lose revenues by a significant margin. (Currently, California does not have an estate tax.)
An earlier version of this research was cited in my chapter The Economics of Inequality in High-Wage Economies in Oxford University Press's United States Income, Wealth, Consumption, and Inequality
A new @NBERpubs paper shows that parents’ comparative skill advantage in math (vs. language) is significantly linked to the comparative skill advantage of their children. @EricHanushek @SimonWiederhold
Our analysis shows that comparative skill advantages are transferred across generations: Parents who were relatively better at math (vs. language) in childhood are more likely to have children with a similar comparative skill advantage in math. We also find that parents’ comparative skill advantage is a strong predictor of their own STEM choices and those of their children. The new Intergenerational Transmission of Skills (ITS) database that we develop permits matching skills of Dutch parents and children derived from similar tests taken at similar ages. We measure comparative skill advantage as the ordinal difference between math and language skills in the parent and child generation, respectively, each assessed by the percentile position in the nationwide skill distribution. We find that parents with a comparative advantage in math skills are significantly more likely to have children with a similar math skill advantage.
Real hourly earnings for the bottom 10% earners rose by 6.4% between January 2020 and September 2022. Real hourly earnings for the top 10% and median earners were down in real terms.
America’s lowest-earning workers are enjoying higher wage growth than top earners, after taking into account the effects of the recent bout of high inflation. Since 2020, real wages for the bottom 10 percent of the workforce have returned to their pre-pandemic level. In contrast, top earners and those on average incomes have taken a substantial hit once the effect of price growth is taken into account. Real hourly earnings for the lowest earners rose by 6.4 percent between January 2020 and September 2022.
Week of April 24, 2023
New research shows that a major increase in federal student loan funding that started in 2006 had the effect of dramatically increasing tuition without improving either inclusion or the future earnings of graduates. @JeffDenning @Econ_Sandy @AEI
In 2006, the federal government essentially uncapped student borrowing for graduate programs with the introduction of the Graduate PLUS loan program. We find that access to additional federal loans increased previously constrained students’ borrowing and shifted the composition of their loans from private to federal debt. However, the increase in borrowing limits had no effect on graduate student enrollment or the racial and gender composition of entering graduate students. We find little evidence of short or longer-run effects on the human capital accumulation of students who were or would have been constrained by federal borrowing limits in the absence of Grad PLUS, even though cumulative debt significantly increased for these students when they gained access to Grad PLUS loans. This suggests that access to additional liquidity did not constrain graduate student borrowers’ human capital investments prior to the implementation of Grad PLUS. We also find little evidence of an impact on later earnings, consistent with no change in human capital accumulation. Where we do see effects is on program prices. Grad PLUS-driven increases in federal student loans significantly increased program prices.
Week of March 27, 2023
.@TaxFoundation analysis finds that for every dollar earned by the lowest quintile of American households, they receive an additional $1.27 from the government. @tevermeer @ericadyork @alex_durante_ @JaredWalczak
The U.S. system of taxes and transfers is highly progressive. The lowest quintile experienced a combined tax and transfer rate of negative 127.0 percent, meaning that for each dollar they earned, they received an additional $1.27 from the government, netting transfers (gains) and taxes (losses), while the top quintile had a rate of positive 30.7 percent, meaning on net they paid just under $0.31 for every dollar earned. The top quintile funded 90.1 percent, or $1.6 trillion, of all government transfers in 2019. For each dollar of taxes paid, the top quintile received $0.11 in gross government transfers. Government transfers account for 59 percent of the bottom quintile’s comprehensive income. For each dollar of taxes paid by the bottom quintile, they received $6.17 in gross government transfers.