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The number of Americans using food stamps usually goes up when unemployment rises and goes down when unemployment falls. But this economic recovery has been a weird one. The number of food stamp recipients kept rising even after the Great Recession ended and is only now slowly receding from its December 2012 peak. As AEI’s Robert Doar explains: “If this recent recovery had behaved like that of the 1980s, by 2013 only 11.5 percent of the population would have been receiving SNAP benefits: 36 million individuals as opposed to 47.6 million.”
So why has the number of food stamp recipients remains so stubbornly high? Doar offers several possible reasons:
A common answer is that the economy is still very weak. And there may be some truth to that, but it can’t explain the whole difference because the unemployment rate has dropped too far — indicating that jobs are much more available. Or perhaps the jobs which are coming back don’t pay enough to allow many workers to earn enough to no longer be eligible for SNAP benefits? For some time now, many social services leaders including myself have promoted SNAP benefits as a “work support” which can help shore up low wages or limited hours for families with at least one adult worker.
But even that explanation isn’t entirely sufficient for one very important reason – a lot of SNAP recipients, who could be working at least a little, aren’t. Government data show that as many as 10 million working age adults are getting SNAP and reporting no income from earnings. A program can’t be a “work support” if the recipients aren’t working.
Or are they? My experience and many studies of low-income communities suggest that at least some of the SNAP recipients who report no earnings have earnings which they receive off the books.
Then there is the Casey Mulligan effect, named that after the University of Chicago economist who has shown that various safety net programs – absent a work requirement – are allowing people to stay out of work longer than they otherwise would if no benefits were available. In the past, I have been skeptical of this position when it is directed at SNAP benefits alone. It is difficult to see how a voucher for food with an average household benefit of less than $230 per month could provide enough aid to make someone decline looking for work. But if that benefit is combined with other benefits — such as housing assistance, Medicaid or Unemployment Insurance benefits — it is then possible, even predictable, that this layering of programs may lead some to decide that full time, on-the-books employment is not worth the effort.
To some, this is a positive outcome. Layered safety net programs, taken together, provide a minimum level of income that may free families from taking jobs they would rather not have. But there are at least three problems with that position. First, one of the contributors to the slow recovery is a declining labor force participation – the economy won’t grow as fast as we would like if people are increasingly disconnected from it. Second, many studies have shown that having adults in full time work is positive for families in myriad ways beyond the increased income work provides. Third, and most important, families which rely on benefits and not work are almost always still poor and have little chance of moving up.
View related content: Pethokoukis
“CEOs possess considerably higher cognitive and non- cognitive ability and are much taller than the population on average” is the big finding from “Match Made at Birth? What Traits of a Million Swedes Tell Us about CEOs” by Renée Adams (University of New South Wales), Matti Keloharju (Aalto University School of Business), and Samuli Knüpfer (London Business School) for the Sweden’s Research Institute of Industrial Economics.
And the summary:
This paper analyzes the role three personal traits — cognitive and non – cognitive ability, and height — play in the market for CEOs. We merge data on the traits of more than one million Swedish males , measured at age 18 in a mandatory military enlistment test, with comprehensive data on their income, education, profession, and service as a CEO of any Swedish company. We find that the traits of large – company CEOs are at par or higher than those of other high – caliber professions. For example, large – company CEOs have about the same cognitive ability, and about one – half of a standard deviation higher non – cognitive ability and height than medical doctors. Their traits compare even more favorably with those of lawyers. The traits contribute to pay in two ways. First, higher – caliber CEOs are assigned to larger companies, which tend to pay more. Second, the traits contribute to pay over and above that driven by firm size. We estimate that 27 − 58 % of the effect of traits on pay comes from CEO’s assignment to larger companies. Our results are consistent with models where the labor market allocates higher – caliber CEOs to more productive positions.
This paper was passed along to me by Tino Sanandaji, a research fellow at the institute, who adds this commentary on how the result relate to the inequality debate:
CEOs of large Swedish companies have an average IQ little above 130 (the average I.Q of Harvard students is estimated a little below 130 as a comparison). They are even more extreme in terms of estimated psychological strength by the military. CEOs of smaller firms are also above average, with an average IQ around 115. To me, this indirectly proves that the CEO-market is highly competitive and driven by skill, not just nepotism and contacts as [French economist and inequality researcher Thomas] Piketty and many on the left claim.
The charts below from the paper show the distributions of personal traits of CEOs from different size companies and the population at large. The light bars indicate the population whereas the grey and black bars show the distributions for CEOs in firms with less than 100 million and more than 10 billion in total assets, respectively.
Atlanta Fed’s Lockhart: The ‘second machine age’ is here, and workers better get ready for massive automation
The Federal Reserve has been behind the curve on the issue of automation and jobs. When Fed chairman Ben Bernanke mentioned “robotics” in a June 2013 commencement address, he was the first central-bank boss to use the word in a speech since Alan Greenspan in 2000. But the Fed is catching up. Back in January, economists John Fernald of the San Francisco Federal Reserve and Charles Jones of Stanford’s business school wrote a paper, “The Future of U.S. Economic Growth,” that offered some fascinating speculation on how artificial intelligence and machine learning will affect workers.
Along those lines, Atlanta Fed President Dennis Lockhart has this to say in a new speech:
A recent McKinsey article entitled “The Great Decoupling” starts with the statement, “As machine learning advances at exponential rates, many highly skilled jobs once considered the exclusive domain of humans are increasingly being carried out by computers.” The same article quotes from a recent book by Erik Brynjolfsson and Andrew McAfee called The Second Machine Age.
That’s a useful phrase, so I’ll borrow it. We can quibble about the meaning of highly skilled, middle skilled, and low skilled, but I’ll argue that the second machine age has seen the automation of many middle-skill jobs. It has contributed to the phenomenon of job polarization and middle-class income stagnation. Job polarization refers to the decline of mid-level positions relative to higher-level and lower-skilled jobs.
We are seeing a wide range of relatively low- and middle-skill vocations under siege. As examples, I would point to production-line manufacturing positions, waiters, retail checkout clerks, hotel check-in personnel, and customer service staff. Maybe, before long, the list will include drivers.
The process of substitution will likely be gradual, but I find it hard to believe the trend will reverse. If you accept as reality the persistence and growth of automation, robotics, production algorithms, and digitization in general, I don’t think it’s difficult to imagine what jobs will increasingly require as hard skills and consequently what strategic workforce development will entail.
Here are some thoughts: Most workers will deal with a digital interface device of some kind. Familiarity with technology and the literacy and numeracy skills to operate such a device will be essential.
In a world where much that is routine and repeatable is done by machine, human work will call for problem analysis and troubleshooting, critical thinking where judgment and discretion are required, and fine, customized work involving customer or colleague interaction and communication. Making emotional connections is human work. Workers will need lifelong learning skills to adapt to changing job requirements dictated by the pace of substitution of technology for what they used to do.
Education is an important policy response. But this new machine age will also mean a rethink of tax, regulatory, and welfare policy, too. At least some policymakers are starting to recognize this. And how will automation affect monetary policy? Lockhart didn’t say, unfortunately.
On his gatesnotes blog, Microsoft cofounder and philanthropist Bill Gates offers his thoughts about inequality, particularly concerning economist Thomas Piketty’s Capital in the Twenty-First Century. Among his insights: (a) extreme inequality is a societal problem, and government has a ameliorative role, (b) Piketty underplays how much of American superwealth comes from entrepreneurs rather than passive rentiers, (c) inequality analysis need to look at consumption data, not just wealth and income, (d) Piketty understates the many forces that decay wealth. Gates:
Take a look at the Forbes 400 list of the wealthiest Americans. About half the people on the list are entrepreneurs whose companies did very well (thanks to hard work as well as a lot of luck). Contrary to Piketty’s rentier hypothesis, I don’t see anyone on the list whose ancestors bought a great parcel of land in 1780 and have been accumulating family wealth by collecting rents ever since. In America, that old money is long gone—through instability, inflation, taxes, philanthropy, and spending.
Gates, perhaps not surprisingly, also disagrees with Piketty’s inequality fix: extremely high wealth taxes:
I agree that taxation should shift away from taxing labor. It doesn’t make any sense that labor in the United States is taxed so heavily relative to capital. It will make even less sense in the coming years, as robots and other forms of automation come to perform more and more of the skills that human laborers do today.
But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. Think about the three wealthy people I described earlier: One investing in companies, one in philanthropy, and one in a lavish lifestyle. There’s nothing wrong with the last guy, but I think he should pay more taxes than the others. As Piketty pointed out when we spoke, it’s hard to measure consumption (for example, should political donations count?). But then, almost every tax system—including a wealth tax—has similar challenges.
Spot on. Under one version of a progressive consumption tax, individuals would pay tax on their wages only, not on any income from saving. And companies could immediately write off their investments, rather than depreciating them over a period of years. A progressive consumption tax could boost GDP by around 6% in the long run. As AEI’s Alan Vaird explains, consumption taxes promote economic growth because they avoid a central flaw of income taxes, the penalty on saving and investment. A progressive consumption tax would a vast, pro-growth improvement over the current code. And given that some folks on the left like the idea, too, it might actually have some political legs if given a big push in Washington.
Update: Here is Bill Gates at AEI making a similar point on the consumption tax:
Many good charts in this Mercatus report on states giving subsidies to business. From the study by Veronique de Rugy:
While corporate welfare, whether in the form of subsidies or bailouts, is more often associated with the federal government, state governments also regularly use generous, targeted subsidy packages to entice corporations to locate within their borders. …
Targeted state subsidies to private businesses are often promoted as a “market-friendly” means to boost growth, jobs, and development. However, the empirical studies on state subsidies find that these programs have little to no effect in producing their intended goals.
What’s more, as Christopher Coyne and Lotta Moberg write in their recent Mercatus working paper, “The Political Economy of State-Provided Targeted Benefits,” these subsidies are often ultimately damaging. Targeted state subsidies misallocate scarce public resources while encouraging rent-seeking, regulatory capture, and cronyism. To encourage sustainable state economic growth, policymakers should shift their focus away from tailoring policies to benefit specific firms toward policies that create a general environment in which all can flourish. The first step is to end the practice of targeted state subsidies.
While the greens have been focusing on regulation, taxes, and scarcity, US free enterprise system just innovated a fusion reactor
Lockheed Martin Corp said on Wednesday it had made a technological breakthrough in developing a power source based on nuclear fusion, and the first reactors, small enough to fit on the back of a truck, could be ready for use in a decade.
Tom McGuire, who heads the project, said he and a small team had been working on fusion energy at Lockheed’s secretive Skunk Works for about four years, but were now going public to find potential partners in industry and government for their work.
Initial work demonstrated the feasibility of building a 100-megawatt reactor measuring seven feet by 10 feet, which could fit on the back of a large truck, and is about 10 times smaller than current reactors, McGuire told reporters.
In a statement, the company, the Pentagon’s largest supplier, said it would build and test a compact fusion reactor in less than a year, and build a prototype in five years.
Score one for the Skunk Works! And some more details from Aviation Weekly:
The early reactors will be designed to generate around 100 MW and fit into transportable units measuring 23 X 43 ft. “That’s the size we are thinking of now. You could put it on a semi-trailer, similar to a small gas turbine, put it on a pad, hook it up and can be running in a few weeks,” McGuire says. The concept makes use of the existing power infrastructures to enable the CFR to be easily adapted into the current grid. The 100-MW unit would provide sufficient power for up to 80,000 homes in a power-hungry U.S. city and is also “enough to run a ship,” he notes.
Lockheed estimates that less than 25 kg (55 lb.) of fuel would be required to run an entire year of operations. The fuel itself is also plentiful. Deuterium is produced from sea water and is therefore considered unlimited, while tritium is “bred” from lithium. “We already mine enough lithium to supply a worldwide fleet of reactors, so with tritium you never have too much built up, and that’s what keeps it safe. Tritium would be a health risk if there were enough released, but it is safe enough in small quantities. You don’t need very much to run a reactor because it is a million times more powerful than a chemical reaction,” McGuire notes.
A new report from Capital Economics carries this title: “Market moves hard to square with solid economic fundamentals.” But maybe the fundamentals are not so solid, not so sound. Maybe falling stocks are telling us something we don’t really want to hear right now. MKM economist Mike Darda offers some useful perspective:
Retail sales growth disappointed in September after surprising to the upside in August. However, real retail sales are up 2.7% year-to-year, above the 1.9% average going back to the late 1960s.
If financial market turbulence is going to have broad-based macroeconomic repercussions (shocks to the money demand function not accommodated by the Fed), we would look for it to show up in confidence and jobless claims data. Claims will tend to rise 20% year-to-year on a four-week moving average basis heading into a recession whereas the Conference Board’s Present Situations Index tends to fall 15 Index points or more.
We are nowhere near these levels and don’t expect to be for some time to come.
Of course, this assumes the Fed is watching the precipitous decline in long-term inflation expectations carefully. Unless the Fed wants to continue to undershoot its inflation target and thus return to the ZLB on short rates the next time a shock/recession hits, it should make it absolutely clear that no tightening will occur with expected inflation below the Fed’s target. In other words, the bubble hawks that have seemed to shift the consensus toward a mechanical / calendar based tightening of monetary policy sometime next year need to literally be taken out to the woodshed.
Yet again, Obama shows he doesn’t quite ‘get’ why free enterprise is so important. So let me explain
President Obama recently gave a speech at Northwestern University’s business school in which he offered his philosophical insights into government and economic freedom:
There is a reason why I came to a business school instead of a school of government. I actually believe that capitalism is the greatest force for prosperity and opportunity the world has ever known. And I believe in private enterprise — not government, but innovators and risk-takers and makers and doers — driving job creation.
But I also believe in a higher principle, which is we’re all in this together. That’s the spirit that made the American economy work. That’s what made the American economy not just the world’s greatest wealth creator, but the world’s greatest opportunity generator. And because you’re America’s future business leaders and civic leaders, that makes you the stewards of America’s greatest singlet asset — and that’s our people.
So as you engage in the pursuit of profits, I challenge you to do so with a sense of purpose. As you chase your own success, I challenge you to cultivate more ways to help more Americans chase their success.
See, it’s stuff like that make folks on the right wonder if the president really “gets” the true value of the free enterprise system. Free enterprise doesn’t just make us a richer people — it doesn’t just “deliver the goods” – it makes us a better people. The pursuit of profits, often at the same time the pursuit of a dream and of personal meaning, can be high purpose.
First of all, economic freedom goes hand-in-hand with political freedom. As Milton Friedman wrote in “Capitalism and Freedom”: “Viewed as a means to the end of political freedom, economic arrangements are important because of their effect on the concentration or dispersion of power. The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other.”
Note that Friedman uses the phrase “competitive capitalism.” That means businesses living and dying based on their ability to generate consumer-relevant value, not their ability to lobby government for support and favor. Competitive capitalism is not crony capitalism or corporatism where Big Business works hand in hand with Big Government.
Second, free enterprise enriches life beyond material riches. Economist Deirdre McCloskey, from her book “The Bourgeois Virtues: Ethics for an Age of Commerce“:
I claim that actually existing capitalism, not the collectivisms of the left or of the right, has reached beyond mere consumption, producing the best art and the best people. People have purposes. A capitalist economy gives them scope to try them out. Go to an American Kennel Club show, or an antique show, or a square-dancing convention, or to a gathering of the many millions of American birdwatchers, and you’ll find people of no social pretensions passionately engaged. Yes, some people watch more than four hours of TV a day. Yes, some people engage in corrupting purchases. But they are no worse than their ancestors, and on average better.
Participation in capitalist markets and bourgeois virtues has civilized the world. Richer and more urban people, contrary to what the magazines of opinion sometimes suggest, are less materialistic, less violent, less superficial than poor and rural people. Because people in capitalist countries already possess the material, they are less attached to their possessions than people in poor countries. And because they have more to lose from a society of violence, they resist it.
The richer, more urban, more bourgeois people, one person averaged with another, I claim, have larger, not smaller, spiritual lives than their impoverished ancestors of the pastoral. They have more, not fewer, real friends than their great-great-great-great grandparents in “closed-corporate” villages. They have broader, not narrower, choices of identity than the one imposed on them by the country, custom, language, and religion of their birth. They have deeper, not shallower, contacts with the transcendent of art or science or God, and sometimes even of nature, than the superstitious peasants and haunted hunters-gatherers from whom we all descend.
They are better humans—because they in their billions have acquired the scope to become so and because market societies encourage art and science and religion to flourish and because anyway a life in careers and deal making and companies and marketplaces is not the worst life for a full human being.
As the economist and philosopher Amartya Sen puts it, “The freedom to exchange words, or goods, or gifts does not need defensive justification in terms of their favorable but distant effects; they are part of the way human beings in society live. . . . We have good reasons to buy and sell, to exchange, and to seek lives that can flourish on the basis of transactions.” He instances the liberation of women worldwide through access to markets.
Capitalism has not corrupted the spirit. On the contrary, had capitalism not enriched the world by a cent nonetheless its bourgeois, antifeudal virtues would have made us better people than in the world we have lost. As a system it has been good for us.
Capitalists ended slavery and emancipated women and founded universities and rebuilt churches, none of these for material profit and none by damaging the rest of the world. Bourgeois virtues led us from terrified hunter bands and violent agricultural villages to peaceful suburbs and lively cities. Enlightened people such as Voltaire, Montesquieu, Adam Smith, and Mary Wollstonecraft believed that work and trade enriched people in more than material things. They believed that a capitalism not yet named broke down privileges that had kept men poor and women and children dependent.
And for the soul they believed that labor and trade were on the whole good, not dishonorable. Work is “rough toil that dignifies the mind,” wrote Wollstonecraft, as against “the indolent calm that stupefies the good sort of women it sucks in.” Commerce, the French said, was a sweetener: le doux commerce. Commerce may have lowered the spirit of the proud noble, Voltaire noted with little regret, having suffered literal beatings at his behest, but it sweetened and elevated the rude peasant.
I guess I would like to see a little more of that in Obama’s musings on free enterprise, a bit more poetry and wonder, rather than the perfunctory boilerplate and box ticking he typically offers before transitioning to his core message about “higher principles” where he urges his audience to transcend the pursuit of lucre for more enlightened purpose. Actually, creating a prosperous society where as many people as possible have the means and opportunity and freedom to pursue happiness as they see it is high principle and high purpose. Full stop. The president may understand this, but you wouldn’t know it by listening to him.
Perhaps you recall French inequality researcher Thomas Piketty’s blockbuster book, “Capital in the Twenty-First Century.” In it, the economist argues that when the return on capital exceeds the growth rate of the economy, inequality will increase. As AEI economist Michael Strain explains, “Because under this condition income generated from capital will grow faster than non-capital income, like wages. Wealth, therefore, will grow faster than take-home pay, the rich will get richer and richer, and we will end up in a world of vast inequality.”
The above chart from the University of Chicago’s IGM Forum shows Piketty’s fellow economists remain, by and large, unpersuaded that r>g is the most important force driving inequality. Among the comments:
– “Theoretically and empirically the case that r-g is a major determinant of inequality or even top inequality is weak.”
– “Many other factors affect inequality including technological change, globalization, increasing returns to education, and others.”
– “Don’t find r-g a particularly useful summary of anything (doesn’t really capture role of technology, training, tax policy)”
– “A glance at the biographies of the truly rich shows most came from upper middle class families. Good luck and some skill produced the wealth.”
– “Argument has poor theory & negligible empirics.”
– “Is this an inside joke? BEA estimates show little change in rate of return.”
View related content: Pethokoukis
My recent The Week column, “Why the rise of cosplay is a bad sign for the U.S. economy,” may be the most read piece I’ve written strictly for the internet.
It may also be the most misunderstood. Based on the comments and Tweets I’ve received, the most common misunderstanding is that I was arguing the increase in “costume playing” — primarily based on Japanese anime and manga, as well as similar American media — is somehow responsible for the anemic economic recovery. (Lots of comments by cosplayers about how the money they spend on costumes actually helps the economy or how some even turn their hobby into a small business.)
And for that, I partly blame this io9 story on my column: “Apparently The Economic Downturn Is Cosplayers’ Fault.” Or to be more specific, I blame the io9 headline. The actual piece by Rob Bricken, though hyperbolically and theatrically critical, acknowledges that I am saying just the opposite of the headline. Bricken:
To be fair, despite the headline and subhed that seems to indicate that cosplayers are in fact responsible for the sluggish growth of America’s economy, Pethokoukis states it’s the opposite: “It’s not to say that all or even most cosplay aficionados are struggling to find work. It’s only to say that any rise in people fleeing reality for fantasy suggests problems with our reality.”
Bricken goes on to wonder why I am focusing on cosplay as opposed to other possible diversions:
If our economy is driving people to escape from reality, then perhaps television, movies, sports, books, alcohol, drugs, and videogames might be somewhat more recognizable factors than cosplayers. And if that’s the case, then I also have to wonder if maybe — just maybe — this desire to escape is true of people of all ages who are being f—-d over by the lacks of jobs and job growth, people struggling to find jobs and to hold them, who resent their lack of advancement, or more likely their lack of anything resembling job security.
The reason isn’t because I have something against cosplay. As a comics guy with kids who are into anime and manga, I actually think it’s pretty cool and understand all kinds of people participate for all kinds of reasons. The reason I chose cosplay was because I was making a comparison between the Japanese and American economies. From my column:
Indeed, Japan’s Lost Decades have coincided with a major spike in “people escaping to virtual worlds of games, animation, and costume play,” Masahiro Yamada, a sociology professor at Chuo University in Tokyo, recently told the Financial Times. “Here, even the young and poor can feel as though they are a hero.
So perhaps, to some degree, the rise in cosplay here — at least more recently — similarly reflects escapism from a depressing economic reality for some cosplayers (not all, of course), particularly 20somethings facing a depressed labor market. So that’s the theory. Connecting cosplay with escapism doesn’t seem like a huge conjectural leap, as Bricken concedes. Neither does io9′s sister publication Kotaku. From its 2013 piece “Cosplayers Are Passionate, Talented Folks. But There’s A Darker Side To This Community, Too“: “Perhaps not surprisingly, there is also an element of escapism to cosplay.”
Now the Kotaku story wasn’t talking about escape from a bad economy, but it is well known — even commonsensically — that we humans look for diversions during tough times. As the consultancy Euromonitor put it in a 2009 report:
With the global financial crisis hitting home for many, all consumers really want is to do is flee from reality: just as they flocked to see Fred and Ginger movies during the Great Depression, consumers are turning to products and media that take their minds off the daily doom and gloom. This new report examines how leisure trends are changing in the face of recession and ongoing digitalisation, how much consumers are spending and what the impact of these changes will be going forward.
Escapism, then, is perhaps a soft metric that reflects sustained economic weakness. And for some, cosplay serves as economic escapism. And from that perspective, cosplay’s increased popularity is a bad sign for the US economy, as it is for Japan’s — though, on the bright side, at least there is something positive to escape to.