Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, April 9, 2014

AI Summary. During the Great Recession, transfers rose across income groups but not strongly progressively within low-income populations: up 8% for those in deep poverty versus 11% for the near-poor. The authors find the safety net has shifted benefits toward higher incomes, with little evidence that greater spending expanded work disincentives.

Robert Moffitt Johns Hopkins University
Date Posted:
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The social safety net saw increased transfers across income groups during the Great Recession, but the increase was not strongly progressive within low-income populations.

Has the safety net shifted benefits toward higher-income households?

Core argument: During the Great Recession, transfers rose 8% for those in deep poverty across 2004–2008 and 2008–2010, compared with 9–10% for shallow poverty and 11% for near poverty, an increase that was not strongly progressive within low-income populations.

During the Great Recession, the social safety net, encompassing both transfer and major social insurance programs, saw increased transfers across income groups. However, the increase was not strongly progressive within low-income populations. Transfers rose by 8% for those in deep poverty from 2004-2008 and 2008-2010, while shallow poverty groups saw increases of 9% and 10%, and near poverty groups experienced an 11% rise. The Earned Income Tax Credit (EITC) contributed to this trend, with aggregate expenditures rising from $49bn to $59bn, a 12% increase in per capita real spending. Despite this, expansions in SNAP [Supplemental Nutrition Assistance Program] and UI [Unemployment Insurance] provided more benefits to those at the bottom of the income distribution. The evolution of the safety net has shifted benefits towards those with higher incomes, reducing progressivity, yet there is little evidence that increased social welfare spending has expanded work disincentives.

Takeaways by Macro Roundup® AI

  1. During the Great Recession, transfers rose 8% for those in deep poverty across 2004–2008 and 2008–2010, compared with 9–10% for shallow poverty and 11% for near poverty, an increase that was not strongly progressive within low-income populations.
  2. Aggregate Earned Income Tax Credit expenditures rose from $49bn to $59bn, a 12% increase in per capita real spending, while expansions in SNAP and Unemployment Insurance delivered more benefits to those at the bottom of the income distribution.
  3. The safety net's evolution has shifted benefits toward those with higher incomes and reduced progressivity, with little evidence that increased social welfare spending has expanded work disincentives.

In “The Great Recession and Social Safety Net” Robert Moffitt examines the performance of the social safety net - in which he includes both transfer programs (means tested programs) and major social insurance programs - during the Great Recession. Moffitt found the increase in transfers was shared across income groups and employment levels.

Moffitt segments the poor into three income groups, “deep poverty” (pre-tax, pre-transfer income less than 50 percent of the poverty line) “shallow poverty” (50 percent to 100 percent of the poverty line) and “near poverty” (200 percent to 150 percent of the poverty line). Notably:

The increase in transfer amounts was, however, not strongly progressive across income classes within the low-income population. The percent increase in transfers was positive for all income groups but was slightly larger for those just below the poverty line and those just above it, compared to those at the bottom of the income distribution.

The increase in average transfers were approximately 8 percent from 2004 to 2008 and from 2008 to 2010 for those in deep poverty well the corresponding rates of increase for those in shallow poverty were 9 and 10 percent respectively and for those in near poverty were 11 percent over both time intervals.

This was driven by the EITC which if looked at as a distributional program rather than one to induce work incentives is regressive within low income ranges and provides greater benefits to those with higher family incomes. Aggregate expenditures on EITC rose from $49 billion to $59 billion, or per capital real spending rose from $217 to $242, a 12 percent increase (Btw 2007-2010) However “the expansions of SNAP and UI benefitted those at the bottom of the income distribution to a greater extent.”

The primary takeaways from the paper were

  1. If the EITC is maintained as presently constituted the social safety net will have evolved to benefit those with somewhat higher incomes - decreasing progressivity.

    Total Real per Capital Spending is just under $9,000. (See Figure A-1)

    As of today there is little evidence that the expenditure increase on social welfare spending in the face of the recession has expanded the disincentives to work.

Moffitt, Robert, “The Great Recession and Social Safety Net” April 2013, Available at:http://www.econ2.jhu.edu/people/Moffitt/moffitt%20annals%204-26-2013.pdf

Wednesday, April 23, 2014

AI Summary. The authors find US income inequality rose substantially over roughly three decades, measured by the standard deviation of log household income, while consumption inequality remained relatively stable after an early rise. Leisure inequality also widened, with low-educated men gaining about 2.5 hours of weekly leisure and high-educated men losing about 1.2 hours.

Erik Hurst MIT
Date Posted:
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Income inequality rose markedly btw 1980-2010, but consumption inequality remained stable. Leisure inequality also widened, with low-educated men gaining 2.5 hours of leisure per week by 2007, while high-educated men saw a 1.2-hour decline.

Does rising income inequality show up in consumption and leisure inequality?

Core argument: US income inequality rose markedly between 1980 and 2010, with the standard deviation of log household income increasing substantially, while the standard deviation of log consumption remained relatively stable after an initial rise between 1982 and 1983.

Between 1980 and 2010, the US experienced significant shifts in income, consumption, and leisure inequality. Income inequality rose markedly, with the standard deviation of log household income increasing dramatically. However, consumption inequality did not mirror this trend, as the standard deviation of log consumption remained relatively stable after an initial rise between 1982 and 1983. The disparity in consumption distribution across income levels was less pronounced than income inequality, with differences between the 75th and 25th percentiles being smaller for nondurable consumption. Leisure inequality also widened, particularly after 1985, as low-educated men gained 2.5 hours of leisure per week by 2007, while high-educated men saw a 1.2-hour decline. This divergence highlights the complex interplay between economic factors and social behaviors over the three decades.

Takeaways by Macro Roundup® AI

  1. US income inequality rose markedly between 1980 and 2010, with the standard deviation of log household income increasing substantially, while the standard deviation of log consumption remained relatively stable after an initial rise between 1982 and 1983.
  2. Leisure inequality in the US widened after 1985, as low-educated men gained 2.5 hours of leisure per week by 2007 while high-educated men saw a 1.2-hour decline.
  3. Differences in nondurable consumption between the 75th and 25th percentiles were smaller than the corresponding differences in income, leaving consumption less dispersed across income levels than income itself.

“The evolution of income, consumption, and leisure inequality in the US, 1980-2010” is an attempt to evaluate the evolution of “wellbeing” over the last 30 years in the US. The paper looks at different measures of wellbeing: income, consumption and leisure in order to see if they paint similar pictures in regards to trends in inequality.

The authors break down these measures by different indexes and population groups in order to help understand movements in the entire distribution and effects on certain groups within the population; they believe that much of the methodology for scoring consumption is flawed and has been shielding the rise in inequality of consumption. Their data suggests that the rise in income inequality has been matched by an increase in consumption inequality as well as a divergence in leisure time by educational attainment.

They find a rise in income inequality much like most the literature. However according to their data there has been a significant change in consumption patterns in that consumption inequality has increased:

The level of the standard deviation of log consumption is considerably lower than the standard deviation of log household income in all years of the survey… The dramatic increase in the standard deviation of log income was not matched by any meaningful increase in the standard deviation of log consumption…. Starting in 1983, there was essentially no increase in the standard deviation of log consumption. The bulk of the increase from 1982 through 2010 occurred between 1982 and 1983. (NOTE This strikes me as odd)

They note that the distribution of consumption has also played out differently across income levels but is still pretty tight (rich save more?):

As with income, of the three differentials, the largest is the one between the 50thand the 10th, followed by that between the 75thand 25thand then by the one between the 90thand the 50th.The differences between the three lines, however, are much less pronounced that in the case of family income. This is particularly true for the differences between 50thand 10thand 75thand 25thpercentile that, the second part of the sample are actually very close to each other….The increase in the difference between the 75thand 25this again about 0.2 points in the case of income and less than 0.1 points for nondurable consumption.

At the same time they also find widening “inequality” in leisure with low educated households were spending much more time in leisure relative to their high educated counterparts:

…in 1985, low educated men took only slightly more hours per week of leisure than high educated men…A similar pattern holds for women. However, by 2007, the leisure differences between high and low educated men are substantial. Specially, low educated men experienced a 2.5 hours per week gain in leisure between 1985 and 2007. High educated men, during the same time period experienced a 1.2 hour per week decline in leisure. The new effect is that leisure inequality increased dramatically after 1985. Again, similar patterns are found for women.

They draw their data from Consumer Expenditure Survey which they adjusted in order to bring its numbers in line with National Account data. They limit their sample to households whose household head is aged between 25 and 65.

Attanasio, Oranzio, Erik Hurst and Luigi Pistaferri, “The evolution of income, consumption, and leisure inequality in the US, 1980-2010” NBER, March 2012. Available at:http://www.nber.org/papers/w17982