Last week, the CEPR March CPS Uniform Extracts, Version 0.9, for 1980-2009 was added to CEPR's consistent database of the Current Population Survey (CPS). The March CPS (also known as the Annual Social and Economic Supplement), collected by the Census Bureau every March, contains a series of supplemental information on income, non-cash benefits, health insurance, and work experience. Please visit the Census Bureau's website for more information on the CPS.
Available for download from the CEPR database are the uniform data or underlying Stata program files that were used to extract the data. You can also download our recently updated 2009 CEPR CPS ORG and Basic Monthly Uniform Extracts, Version 1.5.
CEPR makes wide use of the CPS extracts in our publications, available here. For example, CEPR recently published a study using the March CPS extracts, looking at the health-insurance coverage rates for U.S. workers in the past three decades. CEPR's CPS ORG extracts are frequently used to examine changes in the labor market.
***Note that this is a beta release. Please feel free to send us any comments or questions about the release.***
Almost the whole of the U.S. economics profession missed the build-up of the housing bubble that caused the Great Recession. So, it may surprise many non-economists to learn that for the last two decades U.S. economists have used standard tools to predict many of the economic problems currently facing the European Union.
The January 2010 edition of the Econ Journal Watch contains a fascinating review of U.S. economic research from the late 1980s through the early 2000s on the likely outcome of a single European currency. The authors of the paper --Swedish economist Lars Jonung and Irish economist Eoin Drea examined about 170 publications written between 1989 and 2002 by U.S. economists in academia and at the Federal Reserve.
The title of the new paper, which does a remarkable job of summarizing its main findings, is drawn from a quotation from the late MIT economist Rudiger Dornbusch. In 2001, Dornbusch described the U.S. economic profession's views on the euro as generally taking one of three positions: "It can't happen"; "It's a bad idea"; and "It can't last."
After a brief hiatus, trade popped back into the headlines this week, on two accounts.
First, several of the races in this past Tuesday’s primaries and elections focused on trade, with the critics of the past failed model coming out winners with the public. For example, as Mike Elk notes:
“Democrat Mark Critz ran on a much more progressive platform of job creation through trade reform. He blasted his Republican candidate for being in favor of tax loopholes that favor companies that outsource jobs, even as the Obama Administration just this week used a lobbyist memo to claim that outsourcing created jobs.”
Since being critical of our job-killing and wage-depressing failed trade policy has been a boon for Democrats in both 2008 and 2006 elections, it seems natural that President Obama would want to make good on his campaign commitment to renegotiate NAFTA. This was the reason for the second airing of trade issues this week: the visit of Mexican President Calderon to Washington DC. While his “war on drugs,” which has resulted in the deaths of over 23,000 people, garnered significant media attention, the 6.5 percent contraction in Mexico’s economy last year should be an equally troubling statistic in terms of its impacts on most Mexicans’ daily lives.
Welcome to the May, 2010 edition of the CEPR NEWS. This monthly newsletter highlights CEPR's latest research, publications, events and much more.
CEPR celebrates two important victories on Financial Reform
Last week, the Senate passed two amendments to the financial system reform legislation that CEPR has been championing for a long time. The first, an amendment offered by Bernie Sanders to audit the Federal Reserve, passed by a vote of 96-0. Under the amendment, the Government Accountability Office (GAO) would undertake a one-time audit of the emergency lending programs created by the Fed since December of 2007 and report the findings to Congress. The amendment would also require the Fed to make public by December 1 important details about these lending facilities.
According to CEPR Co-Director Dean Baker, "The country is best served by having an independent Fed, but one that is nonetheless accountable to Congress in the same way that the Food and Drug Administration is or any other government agency. This action by the Senate is an important step towards increasing the level of Fed accountability". Baker has written extensively in support of the audit the Fed measure throughout the past year, most recently signing on to an economist letter supporting the amendment. His most recent piece can be found here.
The second CEPR victory came in the form of an amendment offered by Senator Al Franken. Called the "Restore Integrity To Credit Ratings" amendment, it is aimed at preventing the securities industry from shopping around among credit rating agencies. Under the amendment, which passed by a 64-35 vote, the Securities and Exchange Commission would appoint a panel to develop a system that would independently match ratings agencies with firms that have securities that need to be rated. Dean Baker proposed this obvious fix to the conflict of interest in the current rating agencies system in his book Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also mentions it here.
Earlier this month, as the US loudly complained about Venezuela’s decision to purchase arms from Russia, South America’s ministers of defense came together in Guayaquil, Ecuador and put the finishing touches on an agreement to develop common mechanisms of transparency in defense policy and spending. The agreement, which also calls for the creation of a multilateral Center for Strategic Defense Studies, is the most recent example of the growing effectiveness of the Union of South American Nations (Spanish acronym UNASUR) as a forum for addressing the most urgent and sensitive issues on the regional agenda. Though the group remains unknown to most of the US public - and is rarely referred to by US policy makers - it has, in the space of a few years, emerged as one of the Western Hemisphere’s leading multilateral bodies and, in the process, is rapidly undermining the regional clout of the Washington-based Organization of American States (OAS).
UNASUR first began to take form in 2004 when South American leaders signed the Cusco Declaration that committed their governments to creating “a politically, socially, economically, environmentally and infrastructurally integrated South American area.” Despite the diverging political agendas of the region’s governments, the leaders agreed on prioritizing the group’s role as a geopolitical actor or, in the words of the declaration, pursuing “concerted and coordinated political and diplomatic efforts that will strengthen the region as a differentiated and dynamic factor in its foreign relations.”
Thus, the IMF's deal with Greece restricts "early retirement to age 60 by 2011, including those insured before 1993, workers in heavy and arduous professions, and those with 35 or more years of contributions."
It's time for another round of missing-the-point-on-entitlements. This time from the Cato Institute, which declared, "Our welfare state is already well on the path to bankruptcy. ... Compared to the damage done by native-born U.S. citizens and their cursedly long lifespans, the immigrants' overall effects are quite small. It would be unkind of us to set up such an ill-considered system and then pin its inevitable demise on others."
Unable to argue with the last point, it is unfortunate to see that Cato highlights long lifespans as a primary source of trouble in our entitlement programs. In fact, longer life expectancy accounts for very little of the long-run deficits. Rather, an expensive and increasingly costly health-care system drives the projections of long-term deficits.
In 2009, the Congressional Budget Office projected a budget deficit of 45 percent of GDP in 2083. Merely restricting health-care cost growth to overall growth in the economy plus aging of the population would eliminate more than three-fourths of the projected deficit. If the U.S. were to spend as much per-capita on health care as the Euro area (which has life expectancy two years longer than the United States) then by 2083 the federal government would be running surpluses of more than 10 percent of GDP.
Today "Robin Hood" the movie -- starring Russell Crowe and directed by Ridley Scott -- opens in theaters nationwide. With Wall Street turning profits and paying big bonuses again, less than 2 years after getting bailed out by Main Street taxpayers, this is a good time to remember what Robin Hood was all about -- taking from the rich and giving to the poor, in the interest of economic and social justice.
Who's against it? You guessed it: big banks and Wall Street. The Robin Hood Tax campaign even put together a fun video (directed by Richard Curtis, director of "Four Weddings and a Funeral") with the pirate actor Bill Nighy playing a big banker -- and showing how their arguments don't hold water.
Markets can be irrational, as Keynes famously pointed out, and the Eurozone/Greek crisis is a classic example. “The markets” for months have been demanding more blood from Greece, as the financial press has continuously and often unquestioningly reported. More commitment to spending cuts, tax increases, and “procyclical” policies that the bondholders, EU authorities and IMF have also demanded. As I noted yesterday, this just pushes Greece deeper into recession, and doesn’t even make it more likely that they will pay off their debt in full. The same is true, to varying degrees, for the other weaker Eurozone economies: Portugal, Ireland, Italy and Spain.
So why do they do it? I have been asked that question many times recently, and of course I can’t speak for the EU authorities or the IMF, which in this case is subordinate to the former. The most likely explanation is one proposed by George Soros nearly a decade ago to explain such attitudes during the Argentine crisis: punishment. The Greeks (and others) must pay for their governments’ “profligacy,” lest others be tempted to run up unsustainable debt. “The markets” and the authorities who follow their dictates don’t particularly care about the injustice of punishing the general population for decisions made by a few. But do they care if they are making the economy worse and possibly reducing the chance that the bondholders get paid in full? Or weakening the whole Eurozone economy? Or possibly worse, exacerbating “systemic risk,” as we saw in the wild ride of worldwide stock markets last week?
Upton Sinclair famously used to say that it was "difficult to get a man to understand something if his salary depends on not understanding it." It's also the case that it is difficult to get someone to change a mistaken belief when their deeply held preconceptions and world view depends on it. Facts, as various studies have shown, have a tendency to bounce off ineffectively when they don't fit the preconceptions (or mental "frame") people bring to an issue.
In a recent piece in The Forum, political scientist Brendan Nyhan compares how this process worked in both the Obama and Clinton health care reform proposals. Various misconceptions about the proposals, such as the "death panel" myth, were held most strongly by ideological opponents who believed they were particularly well informed:
... beliefs about the Clinton and Obama reform plans represented misperceptions rather than simple ignorance—a distinction that is emphasized by Kuklinski et al. (2000: 792). The difference between the two concepts is that members of the public who are uninformed typically know that they lack information about a given issue, while those who hold misperceptions are paradoxically more likely to believe that they are well-informed. For instance, Kuklinski et al. (2000) found that Illinois residents who held misperceptions about welfare benefit levels and the beneficiary population were the most confident in the accuracy of their beliefs. Using survey data from 1993 and 2009, we observe a similar dynamic in misperceptions about the Clinton and Obama health care plans among opposing partisans (i.e., Republicans). As noted above, the confidence with which these beliefs are held is one reason they are so difficult to correct.
The Heritage Foundation recently expressed concern that “unless entitlement spending is reined in, it will consume all federal revenue in just 42 years, with nothing left over for defense.”
Interestingly, Heritage made no mention of why entitlement spending is projected to rise so quickly. The fact is that the federal government is projected to spend a tremendous amount of money because the health-care system in this country is severely broken. According to the Congressional Budget Office, the cost of health care is rising so fast that per-capita consumption of all other goods and services is projected to rise only 6 percent between 2007 and 2035—less than 0.2 percent per year.
If serious efforts aren't made to rein in the cost of health care, in 29 years it will double as a share of GDP—accounting for fully one-third of the entire economic output of the country. In 70 years, health care will be nearly one-half the economy.
And yes, it is the cost of health care, not the quantity that accounts for the spending increase. If federal spending on health care rose only on account of economic growth and aging of the population, it would total 7.3 percent of GDP by 2083. Because of projected cost growth, federal spending is projected to reach 17.8 percent of GDP.
MIT economist Esther Duflo is the most recent recipient of the John Bates Clark Medal, arguably the economics profession's most selective award (harder to get than the Economics Nobel). She received the award for her work at MIT's Abdul Latif Jameel Poverty Action Lab, which has pioneered the use of randomized field experiments to test specific social policies, such as distributing bednets to prevent the spread of malaria or providing small financial incentives to parents to encourage them to vaccinate their children.
What is particularly appealing about Duflo's work is that it uses the strongly empirical approach that has made "Freakonomics" so popular. But she does not just wonder whether sumo wrestlers cheat or prostitutes are patriotic. She manages to ask questions that can vastly improve, even save, millions of lives in poor countries around the world.
If you have 16 minutes and 47 seconds, Duflo does a superb job summarizing some of her work in this recent video in the TED series.
Randomized field trials aren't the answer to every important question in economics. They have almost nothing to say about how we got into or how we can get out of the current world recession, for example. But, it sure is nice to see an economist ask and convincingly answer questions that really matter.
The National Institutes of Health (NIH) spend more than $30 billion on medical research every year. Some research is done in-house, but most is contracted out to universities and research organizations. But the NIH is not always getting its money’s worth when it contracts out.The selection process for awarding grants is inconsistent, and rigorous review of study design and statistical methods is missing. As a result the quality of NIH-supported research is shockingly poor, at least for some diseases.
After becoming sick with Lyme disease in 2003, I read up on the medical literature on treatment of Lyme disease. Lyme disease is a bacterial infection caused by a tick bite. It is treated with antibiotics, but unfortunately many patients fail the recommended treatment of 2-4 weeks of antibiotics. Currently, there is a fierce debate among medical professionals about the optimal treatment. The debate is fuel by the lack of good research. The NIH has in the past funded four medical trials that looked at additional antibiotic therapy in Lyme patients who failed previous treatment. All four trials had serious design flaws that biased them against finding a treatment effect.
Further confirmation of the grave deterioration of the human rights situation in Honduras can be found in a detailed report on freedom of speech released on May 3rd by the Tegucigalpa-based organization Committee for Free Speech, or C-Libre. Though it has received scant attention in the media, the report (which can be accessed here in Spanish) offers an alarming and scathing account of the attacks endured by Honduran media outlets and journalists critical of the June 28 coup.
Update (February 15, 2011): Work-sharing is becoming more common across the OECD. The general pattern still appears to hold, those countries have pushed it most aggressively have seen the smallest increases in unemployment. The graph below has been updated.
The April jobs numbers showed the unemployment rate rising back to 9.9 percent. While the main reason was that more people were looking for jobs (rather than more people losing jobs), on the current path, the unemployment rate will not fall to normal levels any time soon.
There are two ways to fix this situation. The first one is to expand the size of the economy. This could be done by running larger budget deficits, through more expansionary monetary policy at the Fed, or by pushing the dollar down to increase our net exports. In principle, all three of these can be effective routes to boosting the economy and expanding employment, however as practical matter, none of these paths look very plausible politically any time soon.
If we can't reduce unemployment by increasing demand, then we can try the second route to full employment: share the work. The basic concept is simple, if we can't get generate more jobs, then we can share the jobs we have by everyone working fewer hours. This is "workshare" system is already in place in several other wealthy countries, most notably the Netherlands and Germany.
In Germany, the standard practice is that employers reduce work time by 20 percent. The government then makes up 60 percent of the lost wage or 12 percent of the total age. It requires the employer to make up another 20 percent of the lost wages or 4 percent of the total wage. The worker then absorbs a paycut of 4 percent in exchange for working 20 percent fewer hours. This might mean a 4-day week instead of a 5-day week. In these circumstances, the reduction in transportation costs and other work-related expenses can easily exceed the lost pay.
Even though its loss in GDP has been larger than the decline in the United States, the Netherlands has seen almost no rise in unemployment in this downturn. Germany has actually seen its unemployment rate go down. On average, the rise in the unemployment rate has been less than 1 percentage point for the 8 countries that the International Labor Organization reports as having some form of worksharing program in place. By contrast, for the other wealthy countries, the average increase has been close to 3 percentage points.
The Geneva-based South Centre has recently published a bulletin with updates about the status of the World Trade Organization (WTO) expansion negotiations, known as the “Doha Round.” You can click here for the entire – extremely useful – collection. At this point, the poorest developing countries are asking for an “early harvest” on the promised development benefits of the Round, and middle-income developing countries are demanding more balance within the negotiations on agriculture and industrial tariffs, as well as between the two issues.
Launched in 2001, governments worldwide have repeatedly rejected various iterations of the proposed expansion, which would further slash tariffs and other employment and industrial protections. What sane government is going to agree to job-killing tariff cuts during a global recession? Countries of the global South are also being asked to slash agricultural tariffs (to let in more subsidized agribusiness imports) while the minimal protections they’re demanding for farmers’ livelihoods and food security are being opposed – mostly by the United States. (This contradicts Obama’s commitment to global food security, by the way.) See here for more background on agriculture and food security issues.
Welfare reform in Wisconsin includes a mix of conservative and progressive elements that date to the date to the early 1990s. The progressive elements include a state Earned Income Tax Credit and broad expansions of child care assistance and health insurance for low-income families. The conservative element, which got the most attention nationally, was a radical redesign of its Aid to Families with Dependent Children (AFDC) program. The Wisconsin redesign, known as Wisconsin Works or W-2, was fully implemented when the federal government replaced AFDC with the Temporary Assistance program in 1996.
The conservative changes to Temporary Assistance effectively resulted in the near-elimination of means-tested income supplements for unemployed parents. As a result, the number of unemployed, low-income parents receiving income supplements in Wisconsin declined by an extraordinary 87 percent in Wisconsin between 1993 and 1998. It remains depressed even in the current economic downturn. In a recent analysis, Tim Casey of Legal Momentum, found that the number of families receiving Temporary Assistance income supplements in the state increased by only 2.4 percent between December 2007 and March 2009; by comparison, the number of people receiving Food Stamps nationally increased by 20 percent over the same period. Similarly, a recent study by the state agency that administers W-2 found thousands of families without any income aren't participating in it.
Conservative welfare reformers have generally lauded the changes that led to these reductions in the number of Wisconsin families receiving help. For example, political scientist Lawrence Mead, a proponent of a "New Paternalist" approach to social policy, pointing almost exclusively to the reduction in the number of families helped (or as he put it, reductions in "dependency"), has argued that Wisconsin's redesign was the "most radical and, arguably, the most successful in the nation."
The problems with using this sort of low bar to determine success became apparent in 2002 when the NAACP, Legal Action of Wisconsin and other organization filed a complaint with the federal HHS Office of Civil Rights alleging that the state systematically discriminated on the basis of race and disability in administering the program. In 2004, the state's own report found racial disparities in the program's treatment of Latino and African-American parents. Other research has found that many parents who applied for help from the program and could have benefitted from it, were "diverted", that is, effectively denied assistance.
Some progress was made on this front last week when the U.S. Department of Health and Human Services (HHS) announced they had reached a compliance agreement with the state on modest improvements to the program that should reduce discrimination. The improvements are mostly common-sense ones, like conducting assessments of the potential mental or physical health limitations of parents, and other needs they may have related to employment and training, at the "front-end" of the program when parents are applying for benefits, but they're important nonetheless. As a recent research on poverty and disability by Peiyun She and Gina Livermore has shown, nearly two-thirds of working-age adults who experience consistent income poverty (36 months in a 48-month period) have a disability. (For a synthesis of this and related research, see my paper Half in Ten). Wisconsin still has a long way to go when it comes to providing effective social insurance for low-wage workers who experience unemployment, but the HHS agreement is at least a step forward.
CEPR co-Director Mark Weisbrot responds to questions from a Greek journalist about the agreement reached Sunday for a 100 billion euro loan package, between the Greek government and the European Commission, the European Central Bank, and the IMF:
1. Are these measures [the Sunday loan agreement] good to resolve the problem?
I would say no. Note that the finance ministry just lowered their projections for Greece's GDP growth: from negative 2 to negative 4 percent for 2010. They may well be lowered again soon, if the policies are implemented. In Latvia, the IMF projected negative five percent growth for 2009 and it came in at negative 18 percent.Also, they are projecting a debt of 149 percent of GDP by 2013 under this program. Unless most of this debt can be rolled over at extremely low interest rates, which nobody is talking about, this is not sustainable, and simply pushes the inevitable restructuring a few years into the future, after the debt burden becomes larger as the economy shrinks further.
2. If they are not, is there any other option now?
Well there are a lot of options but they all involve taking a harder line with the EC/IMF/ECB and refusing to accept the proposed conditions. If they were willing to make the loan at near-zero-interest rates and drop the pro-cyclical conditions, then a sustainable deal might be possible. Other options include a forced restructuring of the debt and/or leaving the Euro. These would also involve costs to the Greek economy, but they may well be smaller, and shorter-lived, than those of the open-ended recession and potential long-term stagnation that the current arrangement commits the government to.
Today the MIT Press is publishing CEPR co-director Dean Baker's latest book, Taking Economics Seriously. It's a cloth/hardcover compact (4 1/2" by 7" and 136 pages) book that offers an alternative Econ 101. A great little graduation gift, especially for econ geeks, but it's accessible enough for anyone.
But don't believe me. Here's what Simon Johnson (former IMF chief economist and co-founder of The Baseline Scenario) and Elizabeth Warren (Harvard Law Professor and Chair of the Congressional Oversight Panel) say about it:
Baker's analysis is always insightful and his proposals entirely reasonable. Read this book only if you are worried about where the United States is heading. - Simon Johnson
A terrific book. Dean Baker deconstructs the myth that big corporations have any interest in free markets and deregulation. And he is right: industry interests support government intervention all the time -- when it helps them. They have thrown the free market under the bus to maximize profits, and Taking Economics Seriously explains how. - Elizabeth Warren.
And while you're at it, pick one up for yourself! Unless, of course, you're not worried about where the U.S. is heading.
In March, MDRC released its initial evaluation of New York City's Family Reward's demonstration program. Family Rewards provides cash payments to very low-income parents (below 130 percent of the current poverty line) who meet various conditions related to their children's education (including children's school attendance and scoring above a certain level on standardized tests), family health (maintaining health insurance coverage and preventive care), and their own employment and training (full-time work and participating in certain education and training activities). Family Rewards is based on "conditional cash transfer" programs that currently operate in Latin America, particularly Mexico's Oportunidades program.
The headlines from press accounts of the evaluation (NYT: "New York to End Program to Give Cash to the Poor"; AP: "Money for Good Habits Doesn't Change Lives") frame the demonstration as having little impact, but the actual results are more nuanced. Most notably, families enrolled in the program experienced average monthly income gains of $366 compared to families in a control group. Family Rewards payments amounted to about 80 percent of the difference. Families in the demonstration also experienced substantial reductions in various economic hardships and financial strain. They were less likely to have their phone and utilities disconnected or be food insecure, and more likely to report an improved financial situation compared to the previous year.
The results related to children's education, however, were quite limited. There was generally no improvement in the test scores or school attendance of children in the program (although attendance was already quite high). One exception was for a subgroup of high school students: those students who scored at or above proficiency level in the previous year (before entering the program) saw some gains in attendance and likelihood of moving forward to the next grade. One caveat to these results is that they are based on only one year of data. It may be that additional time is needed for the program to have an impact on educational outcomes; we'll know in 2013 when the final longer-term evaluation is released.
What I take away from the evaluation is that providing income supplements to low-income families increases their income and reduces their levels of economic hardship. This may seem like an insignificant point, but remember that conservatives and even many mainstream anti-poverty researchers believe that public income supplements are counter-productive because they have a large "work disincentive" effect unless conditioned explicitly on employment. That wasn't the case here. (Although Family Rewards isn't a clear-cut test since one of the 22 incentives was for maintaining full-time employment.)
The big question with Family Rewards is whether it's a better way to deliver income supplements to low-income families than other alternatives. The Bloomberg administration describes Family Rewards as the "first major conditional cash transfer initiative" implemented in the United States. This is true in a narrow programmatic sense—the program is the first U.S. demonstration directly modeled on the Latin American CCT programs—but it's not really the case in the broader conceptual sense implied by the term conditional cash transfer. Federal and state governments provide all sorts of transfers that are conditioned on meeting various requirements. Federal tax law, for example, provides subsidies conditioned on homeownership (the mortgage interest deduction), on earnings (the Earned Income Tax Credit), and education (the Hope Tax Credit, Lifetime Learning Credit and others).
While Family Rewards shares these programs' conditionality, it's different in other ways: 1) the transfers are not explicitly linked to costs associated with meeting the conditions; 2) the program is limited to very-low income families; 3) it provides a long list of micro-incentives under a single programmatic umbrella administered by a non-profit agency. This approach might make sense in Mexico and other middle- and lower-income countries where existing means-tested social insurance programs are limited or non-existent, but I'm skeptical that it makes much sense in the United States where we already have established structures for delivering means-tested social insurance and conditional transfers.
So, instead of 22 incentives bundled in a single program, I'd opt for focusing on a handful of benefits that could be made progressively universal and are designed to offset specific costs. To a large extent, this would simply mean extending existing benefits to low-income families. For example, the Lifetime Learning Tax Credit offsets the costs of post-secondary education and training for adults, but it's only available if you have federal income tax liability. The Earned Income Tax Credit provides benefits conditioned on earnings, but the benefits are teensy for low-wage workers without children and youth are completely excluded. Both credits should be made more inclusive and progressive. In terms of new benefits, I'd focus on something for youth in the 16-24 age range, a group who are largely ignored by current social policy (and left mainly to the criminal justice and educational systems). One possibility would be a credit for completing high school (in part to explicitly reduce economic pressures to leave school for work) and, after doing so, moving into work or post-secondary educational and training.