In 2002, the Bush administration decided that the federal government needed to get in the business of promoting (heterosexual) marriage and proposed a new federal program—the Healthy Marriage Initiative—dedicated to that purpose. In 2005, the Republican-controlled Congress authorized the program and appropriated $500 million for it over five years. Although some conservative libertarians opposed the program, other conservative think tanks, including the Heritage Foundation, lobbied strongly for it as part of a conservative approach to welfare reform.
The first rigorous evaluation of a program funded with these dollars has just come out, and shows—surprise, surprise—that it's a failure. Conducted by Mathematica Policy Research, the evaluation assigned 5,000 unmarried couples—ones who were romantically involved and either expecting a baby together or already had a baby younger than three months—to program or control groups in eight U.S. cities. The program group received three services: 1) group sessions on relationship skills; 2) individual support from family coordinators; and 3) assessment and referral to support services. The group sessions were the core of the program—in essence, program participants received roughly 20 hours of "relationship skills education" that control group participants did not. The random-assignment structure of the evaluation allowed the researchers to isolate the effects these services had outcomes including marriage, living together, domestic violence, and relationship quality.
The researchers found that the program had no effect on the likelihood of couples staying together or getting married, and no effect on relationship quality (measured by variables including subjective relationship happiness) or other measured variables. There was some difference in effects by location—one of the eight sites had generally positive effects, while another had generally negative ones (including an increase in domestic violence). The researchers note that the site with positive effects (Oklahoma City) differed from the other ones in that it included already married couples, while the site with the negative effects (Baltimore) served a higher share of couples in less committed and more tenuous relationships than other sites.
There were some reported positive effects for couples in which both partners are African American, but, on closer examination, these turn out to be underwhelming. The program did not increase the share of African American couples who were romantically involved, living together, or married. Of the six statistically significant positive impacts for African Americans, most were related to "relationship quality," only one was significant at the .01 level, and the effects themselves don't look particularly large. For example, the one outcome significant at the .01 level was an increase in the "use of constructive conflict behaviors," which, as measured by a 4-point scale, was 3.22 for the program group compared to 3.14 for the control group. Moreover, the Baltimore site, which had negative results, had the highest share (92%) of African Americans. In sum, I'm pretty skeptical that the overall apparent positive results for African American couples are real rather than random.
The Healthy Marriage Initiative was funded through 2010 with money originally diverted from other more productive uses, including child care assistance and social insurance for low-wage workers. That was a mistake then, and, given these findings, one that shouldn't be repeated going forward.
The deficit hawks have been working themselves into a frenzy in recent weeks over the prospect that the country will come out of the recession with a huge debt. They have convinced much of the policy elite (admittedly, a very gullible crew) that the United States is on the edge of becoming Greece, unable to pay its bills and forced to negotiate with the IMF, Moody’s, or other creditor creatures to avoid bankruptcy.
There is more than a little absurdity in this picture. The United States has about as much in common with Greece as it does with the robot in the old television show, “Lost in Space,” in other words, basically nothing. Greece is a relatively small economy that is very dependent on imports and does not print its own currency. The U.S. is a huge, still largely self-contained economy that does print its own current. If we’re looking for comparisons, Greece is much more like Arkansas than it is like the United States.
But, there is at least a grain of truth in the deficit hawks scare stories. If we follow the deficit path projected by the Congressional Budget Office, by 2020 we will have a debt to GDP ratio of close to 90 percent. This is far from a crisis – we have had higher ratios in the past and many countries currently have far higher ratios and have no problem whatsoever servicing their debt in international financial markets.
However, we will be paying out a much large share of our budget in interest payment on the debt in this scenario, with interest payments rising from less than 2 percent of GDP at present to close to 5 percent by 2020 – roughly the same share as at the beginning of the Clinton administration. Other things equal, it would be better not to have to pay so much interest to bondholders.
There is a simple way to prevent this rise in the interest burden. We can simply have the Federal Reserve Board buy and hold large amount of the debt issued to finance the recovery. The Fed is already buying much of the debt, but as a matter of policy Congress could dictate that it buy more and continue to hold the debt indefinitely.
This would mean that the interest on these bonds would be paid to the Fed, which would in turn refund the money back to the Treasury, thereby creating no net interest burden. If the Fed bought and held an amount equal to 20 percent of GDP (approximately $3 trillion), it could save the country $150 billion annually in interest payments.
In ordinary times this would be considered a dangerous practice since it could lead to inflation. However, few economists see inflation as a serious threat with the unemployment rate near 10 percent. In fact, we would almost certainly be better off with a somewhat higher inflation rate (3-4 percent) than the very low rate we are now seeing, since it would reduce the debt burden on homeowners and lower real interest rates.
Over the longer term, if inflation did appear to be a problem, the Fed could respond by gradually raising banks’ reserve requirements, thereby preventing the extra reserves in the system from leading to excess demand and higher prices.
In short, there is no reason that the county need bear an additional interest burden as a result of measures taken to pull the economy out of the downturn. This spending is creating demand for otherwise idle resources, not leading to excess demand in the economy.
This is a serious discussion that Congress and the country should be having right now rather than the absurd debate about plans for cutting Social Security and other important programs. But, we are not having this discussion because the deficit hawks are trying to convince us that we are like Greece and the financial markets have given us no alternative to these cuts. As the robot on Lost in Space used to say: “warning! Warning!”
Israel’s deadly storming of the Gaza Freedom Flotilla in international waters has unleashed a wave of criticism of the Netanyahu government’s actions from nearly every country in the world. Turkey deplored the killing of several of its citizens on board the Mavi Marmara and referred to the incursion as “inhumane state terror.” A number of Israel’s closest friends joined the chorus of protests with, for instance, UK’s conservative prime minister calling the raid “completely unacceptable” and France’s foreign minister saying that he was “profoundly shocked.” In contrast, the US reaction to the incident has been remarkably subdued. The White House issued a release expressing President Obama’s “deep regret about the loss of life” but was careful to avoid any direct criticism of Israel’s actions. A statement read by a U.S. representative to the United Nations even appeared to shift the blame for the incident to the flotilla organizers.
It is interesting to compare the US administration’s position on this tragic event with the positions expressed by its Latin American neighbors. In the past, Latin America has been generally friendlier to Israel than most developing regions of the world, and countries of the hemisphere considered to be solidly within the orbit of U.S. influence – for instance most of Central America – have been more reluctant to criticize Israel’s policies in the occupied territories of the West Bank and Gaza. In this case, though, the vast majority of Latin American reactions to the Israeli raid are fundamentally at odds with the U.S. position.
The first surprise, as we look south of the border, is Mexico’s response to the incident. Mexico and Israel have traditionally been close friends and signed a bilateral free trade agreement in 2000. But on May 31st Mexico’s foreign ministry condemned the Israeli “attack” “in the most energetic terms” and called on Israel to lift its embargo on Gaza. Mexico’s reaction is undoubtedly of particular concern to both Israel and the U.S. as it is a temporary member of the UN Security Council and is in charge of the presidency of that body until the end of June. According to CNN, Mexico has spoken of possibly seeking UN sanctions against Israel.
The Cato Institute wishes to erase away an entire recession, but the facts are simply not on their side. "You never heard of it because it never happened. However, the 'Depression of 1946' may be one of the most widely predicted events that never happened in American history."
If true, this would have been a truly heroic feat on the part of the private sector, given that government spending fell by $56 billion dollars from 1944 to 1947. GDP was just over $200 billion in 1944. Today such a cut would be equivalent to $3.4 trillion, or 132 percent of government expenditures.
While the private sector did pick up much of the slack, the downturn from 1945 to 1946 alone was far more severe than the current recession.
In the current recession, real GDP fell 3.8 percent peak to trough. By comparison, real GDP fell 10.9 percent from 1945 to 1946, did not begin to rise until the fourth quarter of 1947, and still did not reach 1945 levels until the third quarter of 1950.
Cato is entitled to argue that the private sector did a fair job of picking up where the government left off. However, it is wholly illegitimate for the Institute to pretend that the largest economic downturn since the Great Depression "never happened."
In a critical commentary on the Obama Administration's proposed supplemental income poverty measure (SIPM), a proposal based almost exclusively on recommendations made by the National Academy of Sciences in the 1990s, Robert Samuelson makes the puzzling claim that "the administration is defining poverty up." As usual, Samuelson gets things precisely wrong, not surprising given that in a commentary that has the chutzpah to close with a call for "political neutrality," Samuelson cites only two "poverty experts", both of whom are conservatives at right-wing think tanks. In fact, the official poverty measure has defined deprivation down over the last few decades, moving it further and further away from mainstream living standards over time, as well as from majority public opinion of the minimum amount needed to "get along" at a basic level. As I detail in a recent paper, the biggest concern we should have with the SIPM is that it will lock in this defining down of the poverty standard, not that it will "define poverty up."
The extent to which the current poverty measure has defined deprivation down can be seen by comparing the poverty line's movement over time with public opinion on the minimum income families need to make ends meet. For several decades, Gallup has asked adults: "What is the smallest amount of money a family of four (husband, wife, and two children) needs each week to get along in this community?" When it was initially developed, the official poverty line was equal to about 72 percent of the average response to this "minimum get-along" question. By 2007, the poverty line had fallen to 41 percent of the average response to the get-along question (the 2007 poverty line was $21,500; the minimum get-along average was $52,087). If the poverty line had kept pace with public opinion on the minimum get-along amount over time (that is, remained equal to 72 percent of that amount), the poverty line would have been $37,500 in 2007 rather than $21,500.
Samuelson might respond that the American people don't have a very good sense of what it takes to make ends meet. But other concrete evidence suggests otherwise. In a 2008 paper, James Lin and Jared Bernstein of the Economic Policy Institute (EPI), using a fairly standard methodology for computing "basic family budgets", estimated that on average nationwide, working families with two parents and two children need an income of $48,778 to maintain a "safe but modest standard of living," a number quite consistent with public opinion.
CEPR's kicking off the summer vacation season with an appearance by CEPR Senior Economist John Schmitt on CBS Sunday Morning this weekend (click here for airtimes). He'll be talking about paid vacation and holidays in the United States -- or lack thereof.
In No-Vacation Nation, CEPR finds that we're the only advanced nation that doesn't guarantee its workers and paid vacation or holidays. In fact, 1 in 4 U.S. workers do not receive any paid holidays or vacation -- see the grim picture below.
When we become seriously ill, we put our lives in the hands of our doctors. We hope that the doctor has the knowledge to diagnose and treat our illness; and if not, will refer us to a specialist who does.But are patients getting the best standard of care, or even decent standard of care? Doctors look to treatment guidelines to guide them when making their decisions. Treatment guidelines are developed by medical associations, and they are thought to be based on the best available science.
The Infectious Diseases Society of America (IDSA) has developed treatment guidelines for a long list of infectious diseases, including Lyme disease. In their treatment guidelines for Lyme disease, the IDSA recommends very restricted treatment of 2 to 4 weeks of antibiotic therapy. Though many patients fail this treatment (treatment failure rates range from 15 to 69% in patients with neurologic Lyme disease), the IDSA recommends against additional treatment in patients who continue to be sick.
For the IDSA to make such a radical recommendation of no additional treatment for patients who fail recommended treatment, one would expect that several large clinical trials have been conducting to support it. But that is not the case. In fact, the recommendation is based on one single study by Klempner et al. (2001) that found no treatment effect in two trials they had conducted on a total of 114 patients. And the study was not even a good one. It suffered from design defects, and the statistical analysis was seriously flawed.
Patients enrolled in the study had been sick for a long time – 4.4 years on average – and had been treated with multiple rounds of antibiotics prior to entering the study.In fact more than 25 percent of the treatment group had already received more than 116 days of antibiotic treatment before the trial, including intravenous antibiotics. So the study was not, as claimed, set up to evaluate the effect of treatment in patients who failed 2-4 weeks of treatment. It is unlikely that 90 days of additional treatment administered to patients in the study would permanently cure patients who were still sick after having received an even longer period of treatment.
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.