Macro Roundup

Mian/Straub/Sufi research presented over the weekend at Jackson Hole argues that the rise in inequality, rather than demographics has driven down the interest rates. The basic mechanism is the rich have a greater propensity to save and the resulting risk adverse capital drives down r*, note this study looks at the United States (so it’s not accounting for incoming hot money) Bottom line, "...Downward pressure on the natural rate of interest (r*) is often attributed to an increase in saving. This study uses microeconomic data from the SCF+ to explore the relative importance of demographic shifts versus rising income inequality on the evolution of saving behavior in the United States from 1950 to 2019. The evidence suggests that rising income inequality is the more important factor explaining the decline in r*. Saving rates are significantly higher for high income households within a given birth cohort relative to middle and low income households in the same birth cohort, and there has been a large rise in income shares for high income households since the 1980s. The result has been a large rise in saving by high income earners since the 1980s, which is the exact same time period during which r* has fallen. Differences in saving rates across the working age distribution are smaller, and there has not been a consistent monotonic shift in income toward any given age group. Both findings challenge the view that demographic shifts due to the aging of the baby boom generation explain the decline in r*....

Pushback at demographic argument

"...In contrast, the evidence is less favorable to the view that the baby boom generation is responsible for a rise in saving that pushes down r*. For example, saving rates across the working age distribution do not vary substantially. As a result, even when the baby boomers entered into the higher saving rate middle-age group, the rise in actual saving was modest. More generally, the limited variation in saving rates across the working age distribution makes it difficult for any large shift in income across the age distribution to explain patterns in household saving behavior. Another challenge to the baby boom generation explanation is the time series of income share shifts across the age distribution since the 1980s. The decline in r* has been monotonic and steady from 1980 onward. In contrast, the income share received by age groups with the highest saving rates has shown significant upward and downward movement since the 1980s, reflecting the entry and exit of the baby boom generation into the middle of the working age distribution. There is no statistically significant relationship in the time series between r* and the income share going to households headed by an individual between 45 and 64.This issue is especially pronounced in recent years. The baby boom generation is entering the low saving rate retirement years at the end of the sample, and so their saving should be expected to decline substantially. Yet measures of r* continue to decline. Finally, the large differences in saving behavior between high income households and the rest of the population is present within the baby boom generation. While the top 10% of the baby boom generation saved more than earlier generations, the bottom 90% actually saved less. The difference in saving behavior within the baby boom generation highlights the drawback of treating this generation as a monolith; the rich and non-rich households of the baby boom generation have displayed substantially different saving behavior over their life cycle...."

"... The evidence supports the idea that rising income inequality is an important factor putting downward pressure on r*. The saving rates of high income households within a given birth cohort are significantly higher than middle and low income households. As income has shifted toward high income households over time, they have saved 3 to 3.5 percentage points more of national income compared to the pre-1980 period. The evidence is less convincing for the baby boom generation explanation for the decline in r*. Saving rates across the working age distribution do not vary as much compared to saving rates across the within-birth-cohort income distribution, and income shift patterns are ambiguous. Demographics are one of the most cited explanations for the decline in r*. The analysis here casts doubt on one prominent channel for demographics to affect r*. There are likely other channels through which demographics matter for r*; however, these other channels should be articulated clearly and they should be subjected to empirical testing. The relative strength of the rising inequality and shifting demographics hypotheses is perhaps best measured by looking into the future. Current measures of r* are extremely low, and futures markets indicate an expectation that r* will stay low in the future. The traditional demographics view argues that measures of r* should be expected to rise as the baby boom generation retires, a process that is already underway. More recently, there has emerged disagreement on whether shifting demographics should be expected to raise or lower r* going forward..."

"... The left panel of Figure 5 shows that the share of income going to the top 10% of the within-birth cohort income distribution has increased substantially since the early 1980s. In aggregate, the share of income earned by the top 10% has risen between 10 and 15 percentage points..."

"...Table 2 conducts a similar exercise using age bins as groups instead of income. As already shown, saving rates across the age distribution do not vary substantially, and the income share shift patterns are more subtle. As a result, it should not be surprising that the shift-share approach does not predict substantial differences in saving across the age distribution. The aging of the population associated with the baby boom generation is evident, as income shares are higher for those between 45 and 74. But the size of the income share shift is modest, and the difference in saving rates is relatively small. In terms of actual saving, saving rates have fallen across almost the entire age distribution, with the exception of the 35 to 44 age bin. They have fallen substantially for the oldest age group evaluated, the 65 to 74 bin. As a result, actual saving has fallen for almost all the age groups. This highlights an important implication: a methodology that ignores the within birth-cohort income distribution will tend to find a steady decline in saving across most of the age distribution....."

“…One issue with the wealth-based shift-share approach is that the baseline year age-wealth profile...may be sensitive to the year chosen because of pure valuation effects that are unrelated to saving. This is indeed what has happened to the age-wealth profile in the United States, as shown in Figure 15. The age-wealth profile has changed significantly over the past 50 years, becoming steeper over time. This is especially striking for households with a head that is 65 or older. As a result, a shift-share approach using the age-wealth profile from a baseline year of, say, 1971 will find smaller effects of aging on the wealth to income ratio relative to a shift-share approach using the age-wealth profile from a baseline year of 2019….”

"... In summary, the conclusion we reach based on these results is that the central pattern in the discussion of household saving behavior in the United States since the 1980s is the widening gap in saving between the top 10% and the bottom 90% of the income distribution. Furthermore, this gap does not appear to be driven by life cycle issues, as it is present even when comparing the rich and non-rich within the same birth cohort. Explanations for the decline in r* should be consistent with this widening gap in saving between the rich and the non-rich...."

Atif Mian, Ludwig Straub and Amir Sufi, "What explains the decline in r∗? Rising income inequality versus demographic shifts," Federal Reserve Bank Of Kansas City, August 2021, https://www.kansascityfed.org/documents/8337/JH_paper_Sufi_3.pdf

Sam Abrams notes a recent survey that found over half of college professors are concerned about losing their job over a misunderstanding or something they said in the past, “…As the academy gets younger it grows more authoritarian, according to a new survey of over 1,400 faculty members conducted by the Foundation for Individual Rights and Expression (FIRE). More than half of faculty—52 percent—say they’re afraid they’ll lose their job or reputation over a misunderstanding of something they said or did, or because someone posted something from their past online. While almost three-quarters of conservative faculty expressed this year, 40 percent of even liberal faculty agree. That’s staggering: two in five professors who are a part of the prevailing orthodoxy on campus are fearful of losing their jobs over a misunderstanding…”

Samuel Abrams, “40 Percent of Liberal Professors Are Afraid They’ll Lose Their Jobs over a Misunderstanding,” Reason, March 1, 2023, https://www.aei.org/op-eds/40-percent-of-liberal-professors-are-afraid-theyll-lose-their-jobs-over-a-misunderstanding/

40 Percent of Liberal Professors Are Afraid They’ll Lose Their Jobs over a Misunderstanding

As the academy gets younger it grows more authoritarian, according to a new survey of over 1,400 faculty members conducted by the Foundation for Individual Rights and Expression (FIRE). The free speech group’s findings portend a dark future for higher education if this course isn’t reversed—and if faculty minds don’t become more open to dissenting viewpoints.

Over the past decade or so, many academic departments embraced ideological views in their teaching and research, promoting social justice–laden scholarship as a way of correcting the wrongs of the past. Unsurprisingly, many departments developed left-of-center academic monocultures, becoming unfriendly to differing opinions. Young faculty entering the profession are only adding to this academic echo chamber.

As a professor, I’m on the younger side for faculty members. My cohort is much more illiberal than their older colleagues. Two-thirds of faculty over 55 years old said students shouting down a speaker is never acceptable. That number plummets to 37 percent for faculty 35 and under.

Shockingly, younger faculty report more acceptance of violence to combat speech. While 97 percent of older faculty say it’s never acceptable for students to use violence to stop a campus speech, only 79 percent of younger faculty agree. That one in five younger professors show any level of acceptance for violence to stop speech should alarm all of us.

Mixing age with ideology reveals even more pronounced support for illiberal attitudes. Among liberal faculty 35 and under, only 23 percent indicated that students shouting down a speaker is never acceptable, compared with 88 percent of conservative faculty. Moderate faculty in this age group were also much more likely than their conservative colleagues to endorse the acceptability of these tactics.

Perhaps most alarming of all, only 64 percent of young and liberal faculty say it’s never acceptable for students to use violence to stop a campus speech.

Illiberalism runs deep among young liberal faculty members, and their views regrettably resemble those of their students rather than their more senior peers. As newer and far less tolerant numbers of professors replace older faculty, colleges and universities may be in a true crisis if the higher education enterprise destroys its core values.

The research also finds that faculty members are self-censoring at higher rates. In 1955, at the end of the second Red Scare after World War II during the age of McCarthy and deep anti-communist fear, 9 percent of social scientists said they toned down their writing for fear of causing controversy. Today, 25 percent say they’re very or extremely likely to self-censor their writing in academic publications.

More than half of faculty—52 percent—say they’re afraid they’ll lose their job or reputation over a misunderstanding of something they said or did, or because someone posted something from their past online. While almost three-quarters of conservative faculty expressed this year, 40 percent of even liberal faculty agree. That’s staggering: two in five professors who are a part of the prevailing orthodoxy on campus are fearful of losing their jobs over a misunderstanding.

As the report says, this “speaks volumes about the climate of fear, intimidation, and censorship on campus.”

This cannot be the environment of the future. Our society cannot thrive when opposing voices are met with fists rather than facts. And as a professor, I know that what starts on campus rarely stays there. This fear will continue to grow and infect our neighborhoods, our workplaces, and our communities.

There is still time to course correct. But students, trustees, donors, alumni, and the public must demand better from the faculty today before these young authoritarians run higher education tomorrow.

Sam Abrams notes A survey that found over half of college professors are concerned about losing their job over a misunderstanding or something they said in the past, “…As the academy gets younger it grows more authoritarian, according to a new survey of over 1,400 faculty members conducted by the Foundation for Individual Rights and Expression (FIRE). More than half of faculty—52 percent—say they're afraid they'll lose their job or reputation over a misunderstanding of something they said or did, or because someone posted something from their past online. While almost three-quarters of conservative faculty expressed this year, 40 percent of even liberal faculty agree. That's staggering: two in five professors who are a part of the prevailing orthodoxy on campus are fearful of losing their jobs over a misunderstanding…”

Samuel Abrams, "40 Percent of Liberal Professors Are Afraid They’ll Lose Their Jobs over a Misunderstanding,"Reason, March 1, 2023, https://www.aei.org/op-eds/40-percent-of-liberal-professors-are-afraid-theyll-lose-their-jobs-over-a-misunderstanding/

40 Percent of Liberal Professors Are Afraid They’ll Lose Their Jobs over a Misunderstanding

As the academy gets younger it grows more authoritarian, according to a new survey of over 1,400 faculty members conducted by the Foundation for Individual Rights and Expression (FIRE). The free speech group’s findings portend a dark future for higher education if this course isn’t reversed—and if faculty minds don’t become more open to dissenting viewpoints.

Over the past decade or so, many academic departments embraced ideological views in their teaching and research, promoting social justice-laden scholarship as a way of correcting the wrongs of the past. Unsurprisingly, many departments developed left-of-center academic monocultures, becoming unfriendly to differing opinions. Young faculty entering the profession are only adding to this academic echo chamber.

As a professor, I’m on the younger side for faculty members. My cohort is much more illiberal than their older colleagues. Two-thirds of faculty over 55 years old said students shouting down a speaker is never acceptable. That number plummets to 37 percent for faculty 35 and under.

Shockingly, younger faculty report more acceptance of violence to combat speech. While 97 percent of older faculty say it’s never acceptable for students to use violence to stop a campus speech, only 79 percent of younger faculty agree. That one in five younger professors show any level of acceptance for violence to stop speech should alarm all of us.

Mixing age with ideology reveals even more pronounced support for illiberal attitudes. Among liberal faculty 35 and under, only 23 percent indicated that students shouting down a speaker is never acceptable, compared with 88 percent of conservative faculty. Moderate faculty in this age group were also much more likely than their conservative colleagues to endorse the acceptability of these tactics.

Perhaps most alarming of all, only 64 percent of young and liberal faculty say it’s never acceptable for students to use violence to stop a campus speech.

Illiberalism runs deep among young liberal faculty members, and their views regrettably resemble those of their students rather than their more senior peers. As newer and far less tolerant numbers of professors replace older faculty, colleges and universities may be in a true crisis if the higher education enterprise destroys its core values.

The research also finds that faculty members are self-censoring at higher rates. In 1955, at the end of the second Red Scare after World War II during the age of McCarthy and deep anti-communist fear, 9 percent of social scientists said they toned down their writing for fear of causing controversy. Today, 25 percent say they’re very or extremely likely to self-censor their writing in academic publications.

More than half of faculty—52 percent—say they’re afraid they’ll lose their job or reputation over a misunderstanding of something they said or did, or because someone posted something from their past online. While almost three-quarters of conservative faculty expressed this year, 40 percent of even liberal faculty agree. That’s staggering: two in five professors who are a part of the prevailing orthodoxy on campus are fearful of losing their jobs over a misunderstanding.

As the report says, this “speaks volumes about the climate of fear, intimidation, and censorship on campus.”

This cannot be the environment of the future. Our society cannot thrive when opposing voices are met with fists rather than facts. And as a professor, I know that what starts on campus rarely stays there. This fear will continue to grow and infect our neighborhoods, our workplaces, and our communities.

There is still time to course correct. But students, trustees, donors, alumni, and the public must demand better from the faculty today before these young authoritarians run higher education tomorrow.