Edward Conard

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Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, March 25, 2021

AI Summary. Economists have proposed thresholds for identifying an overheating economy, including core inflation above 3% over 12 months — a level not crossed in the past 25 years — and a 10-year nominal interest rate above 3% that could require fiscal policy adjustments. Inflation-protected Treasury securities imply moderate inflation expectations of 2.5% over five years and 2.3% over 10 years.

Neil Irwin New York Times
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Overheating indicators establish key thresholds: Core inflation >3% (first in 25yrs), 10yr rate >3% signal risk. TIPS data counters alarm: 5yr at 2.5%, 10yr at 2.3% show moderate expectations.

How do economists define the thresholds that signal an overheating economy?

Core argument: Mankiw identifies core inflation above 3% over a 12-month period — a threshold not crossed in the past 25 years — as a signal of potential economic overheating.

Concerns about economic overheating are highlighted by Mankiw and Furman, who emphasize the risks of rising inflation and interest rates. Mankiw warns that core inflation exceeding 3% over a 12-month period, a threshold not crossed in the past 25 years, signals potential overheating. Furman adds that a 10-year nominal interest rate surpassing 3% could necessitate fiscal policy adjustments. Both economists suggest that such conditions could lead to macroeconomic instability, with potential negative impacts on GDP and unemployment rates. Despite these concerns, current TIPS [Treasury Inflation-Protected Securities] data indicate moderate inflation expectations, with the five-year rate at 2.5% and the 10-year at 2.3%, suggesting limited anticipation of sustained high inflation.

Takeaways by Macro Roundup® AI

  1. Mankiw identifies core inflation above 3% over a 12-month period — a threshold not crossed in the past 25 years — as a signal of potential economic overheating.
  2. Furman argues that a 10-year nominal interest rate above 3% could require fiscal policy adjustments, and both economists warn such conditions could produce macroeconomic instability affecting GDP and unemployment.
  3. TIPS-implied inflation expectations stand at 2.5% over five years and 2.3% over 10 years, suggesting limited anticipation of sustained high inflation.

New York Times asked a few prominent economists what overheating would look like, though Mankiw and Furman’ comments were worth noting:

Furman, "Ultimately we’re worried about an outcome in the real economy, which is rapid growth in 2021 followed by a significant reversal in 2022 or 2023 with anything like a recession, negative growth or a sizable increase in the unemployment rate. Much of what we call “overheating” is mostly a concern insofar as it triggers that outcome. But some more proximate measures: Inflation in the second half of 2021 or the four quarters of 2022 at an annual rate of 2 to 2.5 percent would be desirable; 2.5 to 3.5 percent would cause more worries than it objectively should, but those worries could create self-fulfilling problems; and above 3.5 percent would create a substantial risk of macroeconomic reactions that create genuine instability and problems in the economy. The 10-year nominal interest rate going above 3 percent in 2021 should give us some pause, and going above 4 percent should raise the possibility of a meaningful course correction for fiscal policy. Finally, not a proximate measure, but a fear (and this is not my central guess), is that overheating could happen without a large decline in the unemployment rate. If, for example, people don’t return quickly to the labor force and it takes a while for the unemployed to find jobs, then you could have overheating even with an unemployment rate of 4.5 or 5 percent. That would be the worst scenario because it would really discourage policy activism for some time to come. Not my main prediction and maybe a risk worth taking, but is the gnawing fear that keeps me up at night...."

Mankiw, "I would say the economy is overheated if G.D.P. rises above potential G.D.P. (as estimated by, say, C.B.O.), and core inflation (P.C.E. price index excluding food and energy) rises above 3 percent over a 12-month period. (Inflation has not broken that threshold anytime during the past quarter century.)Such an overheating could be temporary. I would say we have an ongoing overheating problem if, in addition, five-year break-even inflation — a gauge of inflation expectations — rises above 3 percent...."

Blanchard very honest, “…I have no clue as to what happens to inflation and rates, because it is in a part of the space we have not been in for a very long time.Uncertainty about multipliers, uncertainty about the Phillips curve, uncertainty about the dovishness of the Fed, uncertainty about how much of the $1.9 trillion package will turn out to be permanent, uncertainty about the size and the financing of the infrastructure plan. All I know is that any of these pieces could go wrong…”

Neil Irwin, "How 10 Prominent Economists Think About Overheating,"New York Times, March 24, 2021, https://www.nytimes.com/2021/03/24/upshot/economy-inflation.html

Goolsbee“…If you are impatient to get an idea before having to wait four years, you would expect this to show up in the TIPS implied inflation expectations. Compare the five-year TIPS to the 10-year TIPS, and it will tell you whether they expect a heavy, sustained inflation. Right now the five-year is 2.5 percent, and the 10-year is 2.3 percent, so they don’t expect high inflation and they don’t expect rising, sustained inflation. It’s as simple as that….”

AI Summary. An international adult skills assessment finds wide regional gaps in U.S. numeracy, with advanced cognitive skills held by 0–17% of adults in areas such as Appalachia and the Ozarks versus 42.8–67.2% in southern New England, coastal California, and the upper Midwest. Advanced skills cluster around major universities.

Caroline Hoxby Brookings Papers on Economic Activity
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The analysis of U.S. PIAAC numeracy scores reveals significant regional disparities in advanced cognitive skills, with notable “deserts” in areas like Appalachia & the Ozarks, where only 0-17% of adults possess such skills.

How widely do advanced adult numeracy skills vary across U.S. regions?

Core argument: U.S. PIAAC numeracy scores show "advanced cognitive skill deserts" in Appalachia and the Ozarks, where only 0–17% of adults demonstrate advanced skills, versus 42.8–67.2% in southern New England, coastal California, and the upper Midwest's Lutheran Belt.

The analysis of U.S. PIAAC [Program for the International Assessment of Adult Competencies] numeracy scores reveals significant regional disparities in advanced cognitive skills, with notable "deserts" in areas like Appalachia and the Ozarks, where only 0-17% of adults possess such skills. Conversely, regions like southern New England, coastal California, and the Lutheran Belt in the upper Midwest show higher concentrations, with 42.8-67.2% of adults demonstrating advanced skills. These disparities suggest that early-age factors and migration patterns may influence cognitive skill distribution, impacting economic policies and political economy. The clustering of advanced skills around major universities highlights the role of educational institutions in skill development. Understanding these patterns is crucial for policymakers aiming to address skill gaps and enhance economic competitiveness.

Takeaways by Macro Roundup® AI

  1. U.S. PIAAC numeracy scores show "advanced cognitive skill deserts" in Appalachia and the Ozarks, where only 0–17% of adults demonstrate advanced skills, versus 42.8–67.2% in southern New England, coastal California, and the upper Midwest's Lutheran Belt.
  2. The analysis suggests early-age factors and migration patterns may shape the regional distribution of advanced cognitive skills, with implications for economic policy and political economy.
  3. Advanced cognitive skills cluster around major U.S. universities, which the analysis takes to highlight the role of educational institutions in skill development.

Advanced Cognitive Skill Deserts in the U.S.: Their Likely Causes and Implications: Extended Excerpt Image 1

Caroline Hoxby, "Advanced Cognitive Skill Deserts in the U.S.: Their Likely Causes and Implications," Brookings Papers On Economic Activity, March 25, 2021, https://www.brookings.edu/wp-content/uploads/2021/03/BPEASP21_Hoxby_conf-draft_updated.pdf

Note the children’s scores aren’t based on

Her takeaway, “…What are we to make of these findings?They suggest that a child's cognitive skills in the third grade are not destiny. Even a child's skills in the fifth grade are not destiny. It is only as we look at the map for grade eight that we begin to see patterns that mostly resemble those for adults. By twelfth grade, the resemblance to the adult map is quite strong though of course imperfect…”

Where are advanced cognitive skills not prevalent?“…. The most obvious pattern is Appalachia, the area that follows the Appalachian mountain range through several states starting in northeastern Alabama and northwestern Georgia, running though eastern Tennessee and eastern Kentucky, encompassing all of West Virginia, continuing through southeastern Ohio, proceeding through Pennsylvania, and finally ending in New York.Although Appalachia is the most obvious desert, within it there are numerous counties, often in small clusters, in which advanced cognitive skills are prevalent. I show in the next figure that these are often counties in which a major university is located. Before examining the next figure, however,also note that advanced cognitive skills are not prevalent in the Ozarks (a mountainous plateau mainly in Missouri, Arkansas, and Oklahoma) and in some inland areas of the South—for instance, inland Louisiana, inland Mississippi, and an inland stretch that begins in north Florida, runs through northeastern Georgia, through inland South Carolina, and ends in inland North Carolina….”

Where are advanced cognitive skills prevalent? Where you would think, but also the Lutheran Belt ie the upper Midwest which was largely settled by Scandinavians ““…Figure 3 maps advanced cognitive skills by county for the U.S., based on the PIAAC numeracy data. The percentage of adults with advanced cognitive skills is divided in 10 deciles. In the bottom decile, only 0 to 17 percent of adults have advanced cognitive skills. In the top decile, 42.8 to 67.2 percent of adults have these skills... Observe the areas where advanced cognitive skills are most prevalent: most of southern New England but especially the area centered around Boston; scattered counties in New York and New Jersey but especially the area centered around New York City; coastal Washington and Oregon but especially the area centered around Seattle; coastal California but especially the areas centered around San Francisco, Sacramento, Los Angeles, and San Diego; the Salt Lake City area; and the Washington D.C. area including parts of Maryland and Virginia. None of these findings is surprising. A finding that may surprise some readers (although not those familiar with statistics on American education) is the overall dark shading of the so-called "Lutheran Belt" which occupies southern Minnesota and parts of Wisconsin, Iowa, and the Dakotas. The Lutheran Belt has long had a reputation for strong educational outcomes and explanations vary. While the area does not contain an advanced cognitive skills concentration like Boston's, say, most of its counties fall into the top four deciles of prevalence. (Remember to ignore some of its large, sparsely-populated counties.)…”
Advanced Cognitive Skill Deserts in the U.S.: Their Likely Causes and Implications: Extended Excerpt Image 2

What are advanced cognitive skills for the purposes of the paper, "Advanced cognitive skills are generally defined to be those that require higher order reasoning. They require a capacity to solve problems through logic, think in the abstract, engage in critical thinking, and derive general principles from a set of facts. They are also often described as integrative or synthesizing. Advanced cognitive skills can be meaningfully differentiated from skills such as memorization, summarization, organization of facts, and other methods of acquiring concrete information...Long division, long multiplication, addition of fractions: these are all exercises that require a person to follow an algorithm that can even be fairly complex. They differ from algebra because algebra requires a person to translate a problem into equations, which are then solved to find the solution. Algebra thus requires abstract thinking. Proof-based mathematics is even more distinct because it requires logical reasoning that can extend over many steps. In short, algebra and the mathematics that typically follows it in the curriculum can be characterized as advanced cognitive skills….”

Core of the paper, “…attempts to test whether there is much variation among U.S. counties in the prevalence of adults with advanced cognitive skills. Being interested in areas where advanced cognitive skills are especially non-prevalent, I label such areas "deserts" as a shorthand. This exercise is not the same as testing whether there is much variation in the share of adults employed in skilled occupations. Such occupational variation could be caused by any number of supply and demand factors that vary among areas: regulations, tax policies, natural resources, place-based policies that favor certain firms. Rather, I am interested in variation that is a layer deeper: cognition. Understanding how the variation in the supply of advanced cognitive skills arises might reveal ways to improve such skills. It might also have consequences for economic policies such as trade and consequences for political economy. Second, this paper attempts to provide enough age-related evidence on the three explanations to help us parse them. Specifically, are advanced cognitive skill deserts associated with early-age factors that can be difficult to affect with policy? Are they associated with adolescent-age factors more likely to be influenced by policy? Finally, are they associated with individuals migrating towards areas where other people have advanced cognitive skills similar to their own?...,my measures of advanced cognitive skills depend only on the percentage of people with the skills, not the physical density of people with the skills. That is, I do not show advanced cognitive skills per square mile. This is a deliberate choice because I wish to avoid maps that mechanically predict that rural, low density areas are skill deserts. However, the consequence is that the viewer must consciously avoid focusing on sparsely populated counties with a large land mass: the skill measures might be based on relatively few people. The implications of a county’s having only 800 people, all of whom have advanced cognitive skills are very different from the implications of having 50,000 or 300,000 people with such skills. Generally speaking, the more sparsely populated a county is, the larger its land mass. It takes self-discipline on the viewer's part to ignore vast counties in Nevada, Arizona, Utah, New Mexico, south-eastern California, Montana, and the Dakotas…Third, the only nationally representative measure of cognitive skills among adults in the U.S. comes from the Program for the International Assessment of Adult Competencies (PIAAC). It measures 16 to 65 year olds’ numeracy (mathematics) and literacy. PIAAC has six levels of skill for each test, and its tests can identify very advanced skills. For instance, its top level in both numeracy and literacy contains only 1 percent of adults and its second-to-top numeracy level contains only 9 percent of adults. See Table 1. Also, PIAAC data can in theory be broken down by age which would be interesting even though it would not be longitudinal data.....For mapping, all of the adult ages are consolidated, only county level statistics are possible, and PIAAC aggregates the top three levels of skill for each test.16 Unfortunately, this makes only the numeracy test useful for mapping advanced cognitive skills. Its top three levels contain 37 percent of the adult population—already a coarser definition of advanced than I would prefer....PIAAC describes adults with the top three levels of numeracy skills as "proficient at working with math information and ideas. They have a range of numeracy skills from the ability to recognize math relationships and apply proportions to the ability to understand abstract representations of math concepts and engage in complex reasoning about quantities and data...”

Here’s her map, specifically the percentage of adults with advanced cognitive skills is divided in 10 deciles. In the bottom decile, only 0 to 17 percent of adults have advanced cognitive skills. In the top decile, 42.8 to 67.2 percent of adults have these skills.

Great data from Research being presented at BPEA today. Caroline Hoxby attempts to map what I’ll call the cognitive topography of the United States using the numeracy PIAAC data we’ve looked at. Her measure is the top 37% of the adult population which is the most limited run possible as PIAAC aggregates the top three levels of skill. Note she also does the same exercise for children at different age levels which ~ mirrors the adult population but uses SAT and State level test scores and does suggests some sorting, as does the clustering around college towns in the “Advanced Cognitive Skill Deserts”

Of course the underlying genetic topography isn't mentioned as a possible explanation.

Ed Comment:I love this PIAAC data. And I want Ben and you to explore it and the studies of others who have, especially the relationship between, test scores, wages, and race, i.e., how much more or less do blacks earn relative to whites for a given test score. But this seems like a not-so-interesting use of the data (even though I'm eager to see any use of the data). No surprise 1) talent has moved to the large cities, especially on the coast 2) the Scandinavians in Minnesota are higher scoring on average (and in Europe too). And 3) there are a few smart doctors, lawyers and successful businessman scattered around rural America.PS and no surprise, the effect of education wears off by the 12th grade. It seems that teaching (dumb) young kids accelerated skills is akin to teaching dogs parlor tricks. It doesn't make them smarter. It just stresses them out. In the end, they end up where they are going to end up. That's not to say that teaching people technical knowledge/skill, especially smart people, doesn't make them more productive. It's just that's not what the overwhelming majority of education does. It teaches generalized skills to the vast majority of students who aren't very motivated to learn more than a modicum of those skills and have little use for them as adults (because they aren't reliable enough users of those skills for anyone to rely on them to use them). As bill gates, the person who has spent hundreds of millions of his own money, his own way, with the foremost experts advising him, trying to prove the no-improvement history of education wrong and failing spectacularly (but bravo for trying): "It's easier to cure malaria than it is to raise test scores." And: "The problem isn't unmotivated teachers: it's unmotivated students."

AI Summary. Proposed federal, state, and city tax increases could push the top marginal rate above 63% for high earners in New York City. The author argues this could drive wealthy individuals and businesses out of the city, hitting revenue because a small group of high earners contributes disproportionately to the budget.

Post Editorial Board New York Post
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NYC’s top marginal tax rate could hit 63% due to proposed federal & state tax hikes. State lawmakers aim to increase top income-tax rate to 11.85% & President Biden’s plan would add 39.6% & 2.35% Medicare tax.

Will a 63% top tax rate drive high earners out?

Core argument: Combined federal, New York State, and New York City tax increases would push the top marginal rate on high earners in New York City above 63%, by the author's calculation.

The proposed tax hikes from both federal and state levels could result in a top marginal tax rate of over 63% for high earners in NYC. State lawmakers aim to increase the top income-tax rate from 8.82% to 11.85%, combined with the city's 3.876% rate, leading to nearly 16% before federal taxes. President Biden's plan to raise the top federal rate to 39.6%, along with a 2.35% Medicare tax for incomes over $200,000, pushes the total to over 57%. Additionally, applying a 6.2% Social Security tax on earnings above $400,000 could add $620,000 in taxes for an executive earning $10.4m, culminating in a total tax rate exceeding 63%. This could drive wealthy individuals and businesses out of NYC, potentially stalling economic recovery and significantly impacting the city's revenue, as a small group of high earners contributes disproportionately to the budget.

Takeaways by Macro Roundup® AI

  1. Combined federal, New York State, and New York City tax increases would push the top marginal rate on high earners in New York City above 63%, by the author's calculation.
  2. New York State lawmakers propose raising the top income-tax rate from 8.82% to 11.85%, which with the city's 3.876% rate brings the state-local burden to nearly 16% before federal taxes.
  3. Applying the 6.2% Social Security tax to earnings above $400,000 would add $620,000 in taxes for an executive earning $10.4m, and the author argues such burdens could drive wealthy residents and businesses out of New York City.

Post ed board on the cumulative impact of suggested state and federal tax hikes for high earners in NYC, "...As we reported, state lawmakers want to hit New Yorkers with $7 billion in new taxes, including whopping spikes in income-tax rates for millionaires. The top rate, for example, would go from 8.82 percent to 11.85 percent. Add the city’s 3.876 percent top rate, and a wealthy taxpayer will be handing over nearly 16 percent of his income before the feds even come into it. President Biden, meanwhile,wants to pump up the top federal rate to 39.6 percent, so a rich Gothamite is looking at a more than 55 percent total income-tax squeeze.Now fold in theMedicare tax — 2.35 percent, for those earning more than $200,000 — and you’re up to more than 57 percent.And all that doesn’t include another heavy hit that Biden has mentioned:applying the 6.2 percent Social Security tax employees pay to all earnings above $400,000. (Under current law, only the first $142,800 is subject to this levy.) If Biden gets his way, an executive making $10.4 million would pay a full $620,000 more in Social Security taxes alone. It would put the total cumulative tax rate on high incomes in the city at more than 63 percent...."
Post Editorial Board, "Those tax hits from Washington and Albany are even worse than you think,"New York Post, March 22, 2021, https://nypost.com/2021/03/22/those-tax-hits-from-washington-and-albany-are-even-worse-than-you-think/

Those tax hits from Washington and Albany are even worse than you think

Anyone not thoroughly shocked by The Post’s examples Sunday of planned tax hikes from Albany and Washington should consider this: Our illustrations didn’t even include Social Security and Medicare taxes, which would increase the total tax bite on the rich to ridiculous levels. The wealthy will flee, and with them the money to rebuild New York.

As we reported, state lawmakers want to hit New Yorkers with $7 billion in new taxes, including whopping spikes in income-tax rates for millionaires. The top rate, for example, would go from 8.82 percent to 11.85 percent. Add the city’s 3.876 percent top rate, and a wealthy taxpayer will be handing over nearly 16 percent of his income before the feds even come into it.

President Biden, meanwhile, wants to pump up the top federal rate to 39.6 percent, so a rich Gothamite is looking at a more than 55 percent total income-tax squeeze. Now fold in the Medicare tax — 2.35 percent, for those earning more than $200,000 — and you’re up to more than 57 percent.

And all that doesn’t include another heavy hit that Biden has mentioned: applying the 6.2 percent Social Security tax employees pay to all earnings above $400,000. (Under current law, only the first $142,800 is subject to this levy.) If Biden gets his way, an executive making $10.4 million would pay a full $620,000 more in Social Security taxes alone.

It would put the total cumulative tax rate on high incomes in the city at more than 63 percent. Do progressives truly believe this won’t push top earners and their companies to flee and stall any post-COVID economic recovery?

A very small group of taxpayers provides a disproportionate amount of New York’s revenue — a dozen leave, and there goes the budget.

Partnership for New York City Executive Vice President Merrill Pond estimates that a single city taxpayer pulling in $5 million a year would see his taxes jump from $2.6 million to $3 million. One making $35 million would pay $22 million in taxes, instead of $18 million — a mind-numbing $4 million jump.

Add to that the innate hostility to corporations and the wealthy from the political establishment, and the exodus will be massive. These are the people who can afford to live most of the year somewhere else.

To his credit, Gov. Cuomo said Monday that New York taxes don’t need to increase. The state has plenty of money. But for a lot of progressive pols, it’s not just the money — it’s the punishment. Let’s hope, for the sake of the state, that Cuomo can hold the line on their vindictiveness.

Tuesday, March 30, 2021

AI Summary. Younger men, especially those born after 1985, account for a disproportionate share of the decline in US labor force participation: they make up 22% of the 16–59 population but 43% of "missing" workers. Among women, those born after 1995 are 10% of the population but 18% of missing workers.

William Emmons Federal Reserve Bank of St. Louis
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Men born after 1985, 22% of 16-59 age group, account for 43% of “missing” workers, highlighting significant challenges in employment recovery for younger generations.

Are younger workers driving the decline in labor force participation?

Core argument: Men born after 1985 made up 22% of the U.S. population aged 16–59 in 2020 but accounted for 43% of "missing" workers.

The decline in Labor Force Participation [LFP] is notably driven by younger men, particularly those born after 1985. In 2020, the majority of "missing" workers under 60 were under 35, with 5.4m more men and 3.2m more women potentially employed if age- and gender-specific employment-to-population ratios had remained stable since 2000. Men born after 1985, comprising 22% of the 16-59 age group, accounted for a disproportionate 43% of missing workers. Among women, those born after 1995 were most affected, representing 10% of the population but 18% of missing workers. This demographic shift highlights significant challenges in employment recovery for younger generations, exacerbated by pandemic-induced labor market disruptions.

Takeaways by Macro Roundup® AI

  1. Men born after 1985 made up 22% of the U.S. population aged 16–59 in 2020 but accounted for 43% of "missing" workers.
  2. If age- and gender-specific employment-to-population ratios had held at their 2000 levels, 5.4m more men and 3.2m more women could potentially have been employed in 2020.
  3. Among women, those born after 1995 were the most affected cohort, representing 10% of the population but 18% of missing workers.

Good note from Bill at FRBSL. More evidence that labor force participation problem is being driven by younger men. The decline in LFP (relative to 2000) is being driven by male workers born after 1985.

, “…I show that the majority of the “missing” workers under 60 were, in fact, under 35 years old in 2020. Specifically, for those born after 1985, 5.4 million more men and 3.2 million more women would have been employed in 2020 if age- and gender-specific E-P ratios had not declined for those groups between 2000 and 2020. People between 35 and 59 years old in 2020, making up 55% of the 16-59 age group, represented only 33% of the missing workers. In fact, no workers were missing in the 55-59 group…. The most disproportionate effects were among men born after 1985. This group made up 22% of the population between 16 and 59 in 2020, but it accounted for 43% of the missing workers.Among women, the hardest hit by lower-than-predicted employment were those born after 1995; making up 10% of the population between 16 and 59, they accounted for 18% of these missing workers….”

William Emmons, "Americans Born after 1985 Bear the Brunt of Lower Employment," Federal Reserve Bank Of St. Louis, Of March 4, 2021, https://www.stlouisfed.org/on-the-economy/2021/march/americans-born-after-1985-bear-brunt-lower-employment

Pandemic helping force older workers out of labor force might help but have to assume hysteresis in terms of the employability of many of these workers has already set in.

AI Summary. Older millennials born in the 1980s made real median wealth gains that cut their shortfall relative to expectations from 40% to 11% below. Homeownership rates among millennials and Gen Z are comparable to earlier generations at similar ages, and home equity remains a key wealth source, suggesting scope for faster wealth accumulation.

Lowell R. Ricketts Federal Reserve Bank of St. Louis
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Millennials are catching up in terms of generational wealth. Older millennials made significant real median wealth gains prior to the pandemic (2016-2019), reducing their wealth deficit from 40% to 11% below expectations.

Are younger generations closing their wealth gap with earlier generations?

Core argument: Older millennials born in the 1980s narrowed their real median wealth deficit from 40% below expectations to 11% between 2016 and 2019, despite high entry-level home prices and student loan obligations.

From 2016 to 2019, older millennials (born in the 1980s) made significant real median wealth gains, reducing their wealth deficit from 40% to 11% below expectations. This progress is notable given the high prices for entry-level homes and financial obligations like student loans. Despite these challenges, the homeownership rate among millennials and Gen Zers is comparable to previous generations at similar ages, suggesting potential for accelerated wealth accumulation. Home equity remains a crucial wealth source, and the uptick in millennial homeownership rates indicates a promising trend for closing wealth gaps. As younger generations, including those born in the 1990s, continue to gain education and experience, they are expected to follow a steeper wealth life cycle, eventually bridging current deficits.

Takeaways by Macro Roundup® AI

  1. Older millennials born in the 1980s narrowed their real median wealth deficit from 40% below expectations to 11% between 2016 and 2019, despite high entry-level home prices and student loan obligations.
  2. Homeownership rates among millennials and Gen Zers are comparable to those of previous generations at similar ages, and home equity remains a crucial source of wealth.
  3. Younger cohorts, including those born in the 1990s, are expected to follow a steeper wealth life cycle as they gain education and experience, eventually bridging current wealth deficits.

Ana Hernández Kent and Lowell R. Ricketts, "Millennials Are Catching Up in Terms of Generational Wealth," Federal Reserve Bank Of St. Louis, March 30, 2021, https://www.stlouisfed.org/on-the-economy/2021/march/millennials-catching-up-earlier-generational-wealth

Ed Comment, “Ok to add but I don’t find it very enlightening without also knowing what’s happening to income. I would be less concerned for example if the children weren’t earning as much as their parents. As families get more prosperous and growth slows down, which seems likely, I expected a fewer percent of children’s to earn more than their parents relative to the past. I know that will be trumped as propaganda. But given how prosperous we are today, I’m nonpulsed by that. I only care about the averages. If we want to be concerned about something, we should be concerned about growth slowing down. But replicating the transition from agriculture to manufacturing with its fast productivity growth seems highly unlikely to be repeated. It’s easier to earn more than your parent when your parents were relatively poor. We have witnessed a once-in-a-lifetime 35-year decline in interest rates and expansion of multiples. I double the future will compare favorable to that. Ho hum. Surely lower interest rates are a good thing, notwithstanding the fact that the Dems may waste the money reckless, drive up rates, and drive down future consumption to pay for toady’s one-time splurge. Lrt’s not blame the wrong thing though. We should blame booming real estate on land use restrictions, not low rates. There is no economic reason why real estate should be more than replacement cost. I suppose one could make an argument that we should redistribute income because of land use restrictions. Although we partially do that through property taxes. I aslo think the value of real estate is temporarily inflated because baby boomers will eventually die and leave behind a surplus of real estate. I don’t expect my real estate to be worth what it is worth today. I believe the demand is temporarily inflated by demographics. Regardless, i have no intention of selling it. There is a lot of love in the value of residential real estate beyond its financial value.”

FRBSL research the WSJ mentioned, the 1980-1989 doing gangbusters relative to 1990-1999 segment. I wonder how much of this is a story of housing (they don’t break out the drivers of the gap narrowing by sector) but they do allude to homeowner rates for the millennials upticking.

Their takeaway, …“From 2016 to 2019, families with respondents born between 1940 and 1989 all gained ground in relation to wealth expectations. (See the figure below.)While older millennials (those born in the 1980s) were still 11% below wealth expectations, this represented significant progress from a 40% deficit in 2016.4 Those born in the 1960s were also slightly below wealth expectations, while the 1990s cohort showed a significant deficit of 50% (though that group was still quite young, with an average age of 25 in 2019).…Even though families of younger millennials (born between 1990 and 1996) and older Generation Z (born between 1997 and 1999) were behind, they also have time to gain lost ground; for example, from 2016 to 2019, older millennials and Gen Xers staged a remarkable comeback. Keep in mind that the 1990s cohort is also set to become a highly educated generation. Therefore, it is possible that younger generations will simply have a steeper wealth life cycle than older generations (which make up the majority of our sample) and will eventually make up the difference. Despite high prices for entry-level homes and financial obligations such as student loans, the share of millennials and Gen Zers who have become homeowners is similar to that of previous generations when they were the same ages. Because home equity (the value of the home less the mortgage debt) is an important source of wealth for many families, comparable rates of ownership for these younger generations give hope that these families can accumulate wealth faster and make up the shortfalls we currently observe….”

AI Summary. A study using an Education Freedom Index covering vouchers, tax-credit scholarships, home-schooling, and charter schools finds that states with more school choice, such as Arizona and Indiana, post higher 8th grade math and reading scores on the National Assessment of Educational Progress. Greater education freedom is significantly associated with both higher achievement levels and score gains.

Editorial Board Wall Street Journal
Date Posted:
Is Database:
Database

A study by the University of Arkansas’s School Choice Demonstration Project reveals a positive correlation btw educational choice and NAEP scores. States with higher education freedom, like Arizona and Indiana, achieve better NAEP outcomes.

Do states with more school choice post higher test scores?

Core argument: A University of Arkansas School Choice Demonstration Project study finds that greater education freedom is significantly associated with both higher NAEP achievement levels and gains in NAEP scores across 2003–2019.

A study by the University of Arkansas's School Choice Demonstration Project reveals a positive correlation between educational choice and NAEP [National Assessment of Educational Progress] scores. The Education Freedom Index, which evaluates school-choice environments including vouchers, tax-credit scholarships, home-schooling, and charter schools, shows that states with higher education freedom, like Arizona and Indiana, achieve better NAEP outcomes. Specifically, these states exhibit higher 8th grade math and reading scores. The data from 2003 to 2019 indicates that increased education freedom is significantly associated with both higher achievement levels and gains in NAEP scores, underscoring the potential macroeconomic benefits of school choice policies.

Takeaways by Macro Roundup® AI

  1. A University of Arkansas School Choice Demonstration Project study finds that greater education freedom is significantly associated with both higher NAEP achievement levels and gains in NAEP scores across 2003–2019.
  2. The study's Education Freedom Index scores state school-choice environments across vouchers, tax-credit scholarships, home-schooling, and charter schools, with higher-ranking states such as Arizona and Indiana showing better NAEP outcomes.
  3. States with higher education freedom show higher 8th grade math and reading NAEP scores, and the study points to potential macroeconomic benefits of school-choice policies.

Study finds school choice linked with better NAEP outcomes, “…Researchers at the University of Arkansas’s School Choice Demonstration Project developed an Education Freedom Index to measure school-choice environments in the states and Washington, D.C. The index considers offerings for private school choice like vouchers and tax-credit scholarships, home-schooling, public school choice (i.e., ability to switch schools or districts), and charter schools. Arizona, which has education savings accounts, tax-credit scholarships and expansive charter school programs, takes first place. Indiana is second, and Hawaii ranks last. The study finds the rankings strongly correlate with state NAEP scores for 8th grade math and reading.”Higher levels of education freedom,” the authors write, “are significantly associated with higher NAEP achievement levels and higher NAEP achievement gains” between 2003 and 2019 in all of their models….”

Editorial Board, "School Choice Scores for Public Schools,"Wall Street Journal, March 26, 2021, https://www.wsj.com/articles/school-choice-scores-for-public-schools-11616799171