Annie Lowrey of The Washington Independent has a sobering report on the shrinking labor force. I recommend reading the entire post. A year ago, Lowrey wrote an excellent piece for Foreign Policy magazine on the unemployment crisis facing young European workers. It’s now clear that the crisis has hit home for young U.S. workers:

The people hit hardest, though, were young workers, aged between 16 to 24. They made up 44.5 percent of the June decline, though they comprise only 13.5 percent of the labor force overall. Those young workers — who suffer from the highest unemployment rate out of any demographic group, particularly for young black men — also tend to suffer from the worst effects from periods of unemployment.

The long-term impact on these discouraged workers may be worse than simply a temporary spell of unemployment. Long periods of joblessness tend to leave workers — particularly young ones — with permanent scars: lower incomes in the future and more trouble finding work for years. The long-term unemployed often find it harder to get work in good labor markets as well. They lose their skills and confidence, and often have trouble switching from shrinking industries into growing ones. Like all members of the long-term unemployed, they tend to suffer from more depression, health issues and even relationship troubles and divorce, due to the financial, personal and emotional stress of joblessness.

Lowrey then cites Heidi Schierholz, an economist at the left-of-center Economic Policy Institute:

“When you’re in a downturn like this, the logic gets flipped on its head,” she explains. “To receive unemployment benefits, you need to be looking for work. You are actually required to be looking for a job, whereas if you aren’t getting unemployment insurance, and there aren’t any jobs, you might lose your incentive to look for work.”

Shierholz says the June labor market report indicates that workers are dropping out once they exhaust their benefits, or after months of fruitlessly searching for a job in an economy where five people are competing for every one opening and most economists do not foresee unemployment dropping to levels below 8 percent for years. “Even in a time of strong economic growth, there is lots of churn in the labor market and lots of people leave and later re-enter the labor force. There are plenty of good reasons to drop out — to go to school, or to take care of a relative,” she says. “But when it happens en masse, during a period of labor-market weakness, it is a further signal of weakness. The canonical example is someone who says, ‘I’ve knocked on every door in town ten times. This is futile.’ And there is a lot of that happening right now.”

I wonder if Shierholz is right about the impact of the requirement that recipients of unemployment benefits actively look for work. Much depends on the design of the search requirement, a subject I briefly touch on in this post from March.

There is considerable dispute as to what happens when unemployment benefits are exhausted. For example, Casey Mulligan has written the following:

One feature of the unemployment insurance program is that it specifies an exhaustion date: a person stops receiving benefits when he or she starts working again, or reaches the exhaustion date (often a fixed number of weeks after being laid off), whichever comes first.

In the past, economists observed that a large fraction of unemployed people suddenly started working again within a week or so of their exhaustion date, despite having been without work for so many weeks prior: evidence that the benefits themselves were sustaining unemployment.

He goes on to cite a study of unemployed workers in Pittsburgh that seems to confirm his point. There is, however, another possibility, as suggested by economists David Card, Raj Chetty, and Andrew Weber in a paper titled “The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?” After a meta-analysis of existing research on unemployment exits and a study of data tracking unemployed Austrian workers, the authors offer the following: 

We conclude that most job seekers in Austria are not waiting to return to work until their UI benefits are exhausted. Rather, a large fraction simply leave the unemployment registry once their benefits end and they are no longer required to register to maintain their eligibility for benefits. This finding underscores the importance of distinguishing between the effects of government programs such as UI on the decision to work vs. their auxiliary effects on the classification of non-working time. The effect of UI on whether individuals choose to be classified as “unemployed” or “out of the labor force” can be relatively large because it requires little change in actual behavior. The distortionary costs of the program, however, ultimately depend on how UI affects the time spent working. Hence, the spike in unemployment-exit hazards may substantially overstate the degree of moral hazard induced by UI. The “reporting” effects induced by UI benefits can also lead to biases in comparisons of unemployment rates across countries that have different unemployment systems.

I can’t speak to what Card, Chetty, and Weber make of the Pittsburgh study cited by Mulligan, but this is interesting. 

 Rather discouragingly, Casey Mulligan is convinced that the labor market will do little more than keep up with population growth:

For better or for worse, many in our country want a more extensive safety net and more government regulation of business activities, as Western Europeans already have. Economists may argue about the short-run effects of a generous safety net, and whether it is desirable in the long run, but they agree that one way or another a generous safety net eventually reduces hours worked per person.

Even without expanding social programs, it seems that the Bush tax cuts may expire, and the federal government may otherwise raise taxes. With higher tax rates in the future, we have to expect hours worked per American to remain below what it was before the recession.

Part of what’s going on is that the size of the tax burden has, as you might expect, short-term and long-term effects. Over a short period of time, increases in marginal tax rates might have a negligible impact on hours worked per American. Over a longer period of time, however, we’re likely to see “changes in hours constraints” and as firms “tailor job offers to match workers’ aggregate tax preferences in equilibrium.” Those two phrases are drawn from a very interesting paper — “Adjustment Costs, Firm Responses, and Labor Supply Elasticities: Evidence from Danish Tax Records” —  by economists Raj Chetty, John N. Friedman, Tore Olsen, and Luigi Pistaferri. My colleague Arpit Gupta led me to the paper, and it contains a number of valuable insights. The following is from the paper’s conclusion:

This paper has shown that the effects of tax policies on labor supply are shaped by adjustment costs and hours constraints endogenously chosen by firms. Because of these forces, modern micro-econometric methods of estimating elasticities focusing on policy changes that affect a subgroup of workers may substantially underestimate the structural elasticities that control steady-state behavioral responses.

As I understand it, the authors are recognizing that increasing returns to scale in leisure, etc., mean that hours constraints can’t change at the drop of a hat. No firm is an island and no subgroup of workers is an island. An increase in the tax burden might not make a huge difference for workers who are already socialized into working a certain number of hours, not least because discrete increases in marginal tax rates tend to be incremental. But a large cumulative increase in the tax burden will, over a period of years, definitely have an impact on the kind of jobs that are available, and the patterns that younger workers will embrace when it comes to vacations, etc. 

So why does this matter? There is no question that the United States will face a much higher tax burden in the years to come, as Donald Marron of the Tax Policy Center explains:

Facing an aging population and rising health care costs, the federal government will continue to expand even if policymakers take serious steps to trim spending. That’s why policy wonks are working so hard to evaluate ways to raise more revenue. Cutting back on loopholes and other tax expenditures, taxing carbon emissions, introducing a value-added tax – all of these deserve attention in case America decides that it wants to finance a substantially larger federal government.

However, that focus sometimes overshadows a key fact about our tax system: Revenues are already on track to rise substantially in coming years. And not just because of an economic rebound and expiring tax cuts. There are structural reasons why tax revenues will grow faster than the economy.

Marron goes on to explain that this will hold true even if we see substantial tax cuts. This will have consequences for the U.S. labor market. High consumption taxes imposed at a flat rate can be compatible with robust growth, though, as Randall Holcombe has argued, the VAT might not work as well in the U.S. as it has elsewhere. Realistically, however, we’re far more likely to see a more steeply progressive tax code and, under PPACA, large increases in implicit marginal tax rates. I hope this isn’t a recipe for economic stagnation, but it looks like it. 

Ezra Klein wonders why conservatives are opposed to the appointment of Donald Berwick to head the Centers for Medicare and Medicaid Services (CMS):

Conservatives are making a serious mistake by forcing the administration to rely on a recess appointment for Berwick. Ultimately, what weakens Berwick weakens them, as Berwick, whether they know it or not, is one of the best friends they could have in the administration. That’s because insofar as Berwick is a radical, he’s a radical in favor of a patient-centered health-care system — a position that has traditionally been associated with conservatives, not liberals.

This has escaped notice because political activists don’t pay much attention to questions of delivery-system reform.

I agree with Klein that Berwick and conservatives have some areas of common ground. Here is what I wrote about Berwick in April:

While [Berwick] was a big supporter of Obamacare, [he] acknowledges its core failing; in an October lecture, he said, “Health-care reform without attention to the nature and nurture of health care as a system is doomed. It will at best simply feed the beast, pouring precious resources into the overdevelopment of parts and never attending to the whole — that is, care as our patients, their families, and their communities experience it.” Indeed, if you put Berwick in a room with a leading market-oriented health-care analyst, the two would find broad areas of agreement as to where our health-care system fails patients.

But they would diverge on the most important questions of all: can, and should, the state provide quality health care for all? Can enlightened, public-minded experts effectively manage one-sixth of the U.S. economy?

It is possible for conservatives and liberals to find agreement on certain aspects of health care: for example, the use of checklists in reducing surgical errors and hospital-borne infections. Such questions are ideologically neutral, and Berwick has spent a great deal of productive time considering these kinds of questions.

Where conservatives take issue with Berwick is in his sweeping confidence in the ability of politicians and technocrats to manage something as complex as our health care system. They also take issue with the idea that NHS-style bureaucrats should decide what treatments are appropriate for them. (To give one of many troubling examples, NHS initially refused to pay for a blindness drug until patients were already blind in one eye.)

Klein is right to point out that Berwick acknowledges some of the flaws of Britain’s approach in his speech to the NHS. But Berwick’s criticisms miss the point: poor quality is the inevitable consequence of the NHS approach. And that is where Berwick goes tragically wrong.

* Mike Konczal highlights a post by JW Mason on why recessions matter:

The real cost of unemployment is the unemployment itself. In part, this is about the loss of income – not the small reduction in aggregate lifetime income, but the large reduction in current income for those whose lose their jobs. The proportion of people without secure access to food, housing and other necessities is a much better measure of the economic costs of recession than the fall in GDP. But even this is the smaller part of the cost of unemployment. The most important thing about work, under capitalism, isn’t that it produces goods and provides an income, but that it is the carrier of self-worth, status and social power. For most of us, our work is our main bond with society at large; surveys agree with practical experience that losing a job is among the more important events in peoples’ lives.

Mike also has a good post on how a cramdown might have worked that’s worth reading.

* Tim Lee pointed me to this excellent Mike Masnick post on on how legacy industries shape the political environment to their benefit.

* Ed Glaeser has a characteristically sane post on how to stimulate the economy.

* Tyler Cowen constructively and open-mindedly counters some frustratingly glib analysis re: Ireland.

The Irish experiment remains an open book.  In the meantime, it’s simply not true that the pre-emptive austerity advocates are committing some kind of economic malpractice.  Three years out from now, let’s compare Ireland to the other PIIGS.

* Austin Frakt reinforces my sense that the CBO alternative baseline was very reasonable indeed with a brief look at health reform in Massachusetts:

So, there you have it. Costs are rising, in part due to increased ER use. But efforts to rein in costs with a reformed payment system is on hold. I’m not surprised by either of these. The forces pushing increased costs and maintenance of the status quo are strong. Things will have to get far worse before they get better.

* The Pew Research Center has a survey on how the recession has impacted daily life.

* Ezra Klein observes that David Brooks is comfortable with extending unemployment benefits and aid to states, provided the aid is accompanied by plans to achieve long-term fiscal balance. As far as I can tell, this is a view held by many conservatives, which is why I tend to think that a more modest fiscal stimulus bill would have attracted more Republican support. Politics is an iterative game, and the way that ARRA played out shaped expectations, and rhetoric, on both sides. Of course, this is all very speculative.

* Melena Ryzik of the New York Times has a story on an innovative collaborative space in Brooklyn’s Bushwick neighborhood. My sense is that the American economic comeback will be driven by the energy thrown off by places like 3rd Ward.

David Frum writes:

America suffers much more child poverty than do comparably wealthy countries – Germany, France, Canada, etc. – for two main reasons:

* Our much higher levels of immigration and especially unskilled immigration, which continually add to the population of poor in this country.

* Our much lower levels of social spending, which mean that poor families receive far less social support than do poor families in other countries.

I disagree with this interpretation. In “For richer or for poorer: Marriage as an antipoverty strategy,” Adam Thomas and Isabel Sawhill of Brookings examined the effect of changes in family structure on the child poverty rate:

This study examines the effects of changes in family structure on children’s economic well-being. An initial shift-share analysis indicates that, had the proportion of children living in female-headed families remained constant since 1970, the 1998 child poverty rate would have been 4.4 percentage points lower than its actual 1998 level of 18.3 percent. The March 1999 Current Population Survey is then used to conduct a second analysis in which marriages are simulated between single mothers and demographically similar, unrelated males. The microsimulation analysis addresses some of the shortcomings of the shift-share approach by making it possible to account for the possibility of a shortage of marriageable men, to control for unobservable differences between married men and women and their unmarried counterparts, and to measure directly the effects of increases in marriage on the economic well-being of children. Results from the microsimulation analysis suggest that, had the proportion of children living in female-headed families remained constant since 1970, the child poverty rate would have been 3.4 percentage points lower than its actual 1998 level. Among children whose mother participated in a simulated marriage, the poverty rate would have fallen by almost two-thirds.

This isn’t dispositive, obviously. But it is certainly suggestive. 

Now we turn to my favorite statistic, from “The spread of single-parent families in the United States since 1960” by David Ellwood and Christopher Jencks:

Similar changes have occurred in most other affluent nations, but Figure 2 reveals that none have nearly as much family disruption as the United States. It is true that out-of-wedlock birthsare as common in many European countries as in the United States. But the estimated percentageof fifteen year olds living with both of their biological parents is far lower in the United States thatin Western Europe. Even in Sweden, where nonmarital births are almost twice as common as in the United States, most unmarried parents raise their children together. As a result, two-thirds of all Swedish fifteen year olds are expected to live with both of their biological parents – a figurecomparable to that in Germany and France.

Suffice it to say, this presumably has a considerable impact on levels of child poverty across countries. And the Thomas-Sawhill analysis doesn’t capture the extent of the problem insofar as many unmarried parents are far less likely to raise their children in the U.S. than in Sweden, as sociologist Andrew Cherlin has observed.

As for Frum’s claim regarding the role of the immigrant influx in exacerbating child poverty, I’m not sure he’s right. Brookings has a survey of child poverty across the states:

At the other end of the spectrum, there are five states – Connecticut, Minnesota, Nebraska, New Jersey and Wyoming – where child poverty was below 15 percent in 2008, and there was only moderate growth in recipients of SNAP benefits through June 2009. The children in these five states are at less risk of poverty in 2009 than children in the rest of the country.

At 18.9 percent, New Jersey, one of the states with the lowest levels of child poverty, has the third highest proportion of foreign-born residents in the United States after California and New York. To be sure, this could reflect the relative affluence of New Jersey’s foreign-born population relative to other states.

But of course Sweden has a very low rate of child poverty and the foreign-born share of the population is 12 percent, roughly comparable to the level in the United States. And unlike Canada or Australia, Sweden hasn’t had a so-called “designer” immigration policy. From the Migration Policy Institute:

Most immigration in the 1950s and 1960s was from neighboring Nordic countries, with the largest numbers coming from Finland. However, since the early 1970s, immigration has consisted mainly of refugee migration and family reunification from non-European countries in the Middle East and Latin America. In the 1990s, Sweden received thousands of refugees from the former Yugoslavia. Currently, about 12 percent of Sweden’s population is foreign born. A number of social indicators show that people of migrant origin have considerably higher rates of unemployment than native Swedes and that they are more heavily dependent on social welfare benefits. Labor immigration is not and will not be accepted from non-EU countries in this situation.

I personally think our immigration policy should change. But I don’t think child poverty rates are the reason. While we’re at it, I recommend checking out Michael Clemens’s very sober thoughts on immigration reform, which I found via Will Wilkinson. Clemens writes:

There are other routes to political compromise, other ways to avoid the perception of diluting the value of citizenship: offer some immigrants something other than citizenship. There is no fundamental reason why the bundle of obligations and privileges we call U.S. citizenship — jury duty, military service in time of draft, access to federal government services, access to many jobs, and so on — must always and exclusively be conferred to other people as an unchangeable bundle. Different elements of the bundle can be conferred to different people. Granting some of today’s unauthorized immigrants a status that is legal but is not citizenship is another, different way to avoid the perception that amnesty cheapens citizenship.

This is far from radical. It has been the norm in past regularizations of migrants. Amanda Levinson of the Migration Policy Institute lists 24 different regularizations in the U.S. and other countries over the past three decades. These have offered a range of different permits — that is, a range of different bundles of obligations and privileges. I’ve seen thoughtful discussions of how citizenship is defined by Alex Aleinikoff, Kerry Howley, and CGD’s Lant Pritchett, and there are many others. All of them point out in different ways that there have always been different bundles of obligations and privileges given to people living in the same place, and it is up to societies to choose how many bundles there are, what’s in each bundle, and who gets them.

I’m more skeptical about guest worker programs than Clemens and Wilkinson, but they offer an interesting way to think through the problem. And Wilkinson, a diehard cosmopolitan who has tussled with our own Jonah Goldberg on whether patriotism is defensible, has written a brilliant column calling for an end to birthright citizenship — he changed my mind of the subject, and he might change yours as well.

A quick thought on sin taxes — Rod Adams and Joe Weisenthal have both written posts that are worth your attention. First, Weisenthal cites a USDA study which finds that:

A tax-induced 20-percent price increase on caloric sweetened beverages could cause an average reduction of 37 calories per day, or 3.8 pounds of body weight over a year, for adults and an average of 43 calories per day, or 4.5 pounds over a year, for children. Given these reductions in calorie consumption, results show an estimated decline in adult overweight prevalence (66.9 to 62.4 percent) and obesity prevalence (33.4 to 30.4 percent), as well as the child at-risk-for-overweight prevalence (32.3 to 27.0 percent) and the overweight prevalence (16.6 to 13.7 percent).

This, of course, is exactly the kind of nudge that soda tax advocates have in mind. Like Weisenthal, I tend to think that some kind of soda tax is inevitable. As Alan Viard suggests, it is very tempting to tax seemingly frivolous goods, like tanning and “luxury” vehicles. I would much prefer having a simple, transparent revenue source. But stealth taxes like the soda tax are a way of keeping the headline numbers on income taxes and flat consumption taxes low. And if the soda tax really does lead to a significant public health improvement, well, who can strenuously complain? Cigarette taxes seem to have turned out reasonably well when we consider reduced levels of cigarette consumption on the part of teenagers and young adults.

Yet there is another possibility. Rod Adams of the excellent Atomic Insights Blog weighs in on Germany’s new proposal for a tax on atomic fuel rods:

Some of my fiscally conservative friends think this is a terrible idea that should not be emulated by any government – their theory is that if a government actually wants to encourage a beneficial technology, it should ease the tax burden and perhaps even offer subsidies to make the investment more attractive.

I have a rather convoluted thought to offer. If the tax is approved and the revenues start flowing into government coffers, much of the official opposition to nuclear energy will be silenced by the cash flow. When representatives stand up in future sessions to offer legislation that would force reactors to shut down before their end of life or that would severely restrict new development, other representatives will remind them that they will need to replace the revenues coming from the fuel tax. They will also mention all of the wonderful things that they are accomplishing for their people as the fuel tax revenues increase because more fuel rods are being sold to more and more nuclear power plants.

Rod’s insight closely resembles an argument Monica Prasad made in the New York Times after carefully surveying carbon pricing efforts in Europe. Prasad found that only Denmark succeeded in using a carbon pricing mechanism to actually reduce emissions, and she had a theory as to why that was so:

What did Denmark do right? There are many elements to its success, but taken together, the insight they provide is that if reducing emissions is the goal, then a carbon tax is a tax you want to impose but never collect.

This is a hard lesson to learn. The very thought of new tax revenue has a way of changing the priorities of the most hard-headed politicians — even Genghis Khan learned to be peaceful, the story goes, when he saw how much more rewarding it was to tax peasants than to kill them. But if we want lower emissions, the goal of a carbon tax is to prompt producers to change their behavior, not to allow them to continue polluting while handing over cash to the government.

That is, governments get addicted to new revenue sources. Indeed, in an insightful post on carbon taxes, T.C. of The Economist‘s Free Exchange blog crafted two scenarios that featured a well-designed economy-wide carbon tax:

With all that in mind, we investigated two different basic scenarios. One applied an economy-wide carbon tax that aimed to raise 1% of GDP in revenue by 2020; the other applied a tax set at a level designed to ensure that Britain meets its commitment to cut emissions by 34%, relative to their 1990 levels, by 2020. In both cases, to keep things simple, we scrapped all the other policies that aim at the same outcome, such as Britain’s membership of Europe’s emissions-trading scheme, subsidies for renewable energy and so on. The results of the first scenario are set out in the print piece, but briefly, electricity prices fall as expensive subsidies for renewable energy are replaced by the carbon tax. That provides an economic boost, the government gets an extra revenue stream, and output is 2.5% higher come 2020 than in the baseline scenario. Somewhat embarassingly, emissions of carbon are slightly higher than in the baseline scenario. But we chose 1% of GDP as our target figure for convenience more than anything else.

And the scenario ignored the political economy impact of the new revenue source. This shouldn’t be taken as a case against Pigovian taxes per se, but it should give us some pause.

What is there to say? The unemployment picture is bleak. Trends that worried me 5-6 years ago — declining labor force participation among prime age males, etc. — have reached crisis levels. 

So here’s Felix Salmon, Annie Lowrey, Mike Konczal, David Leonhardt, Catherine Rampell, and Neil Irwin. If you read only one of those links, check out Irwin’s report. Konczal offers a somewhat broader perspective. 

Motoko Rich of the New York Times, in a related vein, reports on how a growing skills deficit is making it very difficult for manufacturers to fill a number of demanding jobs:

As unlikely as it would seem against this backdrop, manufacturers who want to expand find that hiring is not always easy. During the recession, domestic manufacturers appear to have accelerated the long-term move toward greater automation, laying off more of their lowest-skilled workers and replacing them with cheaper labor abroad.

Now they are looking to hire people who can operate sophisticated computerized machinery, follow complex blueprints and demonstrate higher math proficiency than was previously required of the typical assembly line worker.

Makers of innovative products like advanced medical devices and wind turbines are among those growing quickly and looking to hire, and they too need higher skills.

It’s easy to feel glum, not least because policymakers seem overawed by the dire labor market conditions. And I’m still dismayed by the enormous scale of the “troubled assets” burdening millions of households. 

Greg Mankiw flags a new finding that might have significant public policy implications:

An article in the Wall Street Journal notes that scientists have identified genetic markers for the proclivity to live a long life.  This raises a host of interesting economic questions:

* Will linsurance companies start offering better life-insurance rates to those with these markers? 

* Will they require annuity purchasers to take this test and offer the long-lived worse rates? 

* If insurance companies do not use these markers, perhaps because of regulation, will the availability of these tests cause the markets for life insurance and annuities to unravel because of increased adverse selection?

As you might expect, the questions continue. Mankiw’s discussion reminded me of economist Stephen Cecchetti’s argument that medical breakthroughs of this kind would doom private insurance:

The time is fast approaching when we will have an inexpensive test that is capable of revealing a person’s genetic propensity to contract a broad array of chronic diseases.  That means that we will be able to accurately assess the cost of medical treatment over their lifetime. …

The fact that we will all have health scores has profound implication for insurance; or, more accurately, for the failure of market-based insurance. If I have the information revealing that I am likely to be healthy, living a long and low-medical-care-cost life, this knowledge alone will create adverse selection, causing me to forgo insurance for everything except treatments arising from accidents, which can never be forecasted.

To understand the problem, think about a simple case in which there are only two kinds of people, those with high and low expected future medical-care-costs lives. Imagine that the insurance company can’t distinguish the two types, so it charges all comers the average cost across the entire population.  For the healthy people, the cost of the insurance will look very high, so they won’t buy it.  That means that the only people who will buy the insurance are the unhealthy.  Realising this, the insurance company will have to raise their price further to compensate for the fact that only the high cost people are willing to buy insurance.  This is the classic “lemons” problem that causes markets to fail and was first described by George Akerlof.

Alternatively, if my insurance company can obtain my health score, then, in the same way that lenders use my credit score to calibrate the interest rate they offer on a loan, they will adjust my health insurance premium based on their precise estimate of the cost of my future medical care. And, importantly, a clever insurance company that is precluded from learning my health score directly will find a pricing scheme that leads me to reveal it to them through the choices that I make.

Cecchetti concludes that a single-payer, publicly-run health system will be the inevitable end result of this wave of innovation. Agree or disagree, it is an excellent and insightful discussion of the underlying issues shaping the private insurance market of the future. 

My friend Ezra Klein — the hardest-working policy blogger in the business, who makes my job much, much easier than it would be in his absence — writes the following:

Reihan Salam is a friend of mine and a very smart guy, but he has an odd habit of substituting positions he likes for positions that are operative in the American political debate. There’s something to that: It’s important to respond to strong positions even if they’re not being advocated by either political party. But it’s also important to respond to the positions being advocated by actual politicians when you’re talking about votes they may or may not make.

As a general rule, I think my job is holding powerful people accountable. This is the reason why I spent a lot of time criticizing the Bush White House and it is why I spend a lot of time criticizing the Obama White House. When I see broad generalizations about austerity-advocates — the term “austerity-advocates” strikes me as too broad, but we’ll put that to the side — it worries me, because, like Ezra, I’d like strong positions to get the attention they deserve. 

But I wanted to highlight another small point. I often draw attention to Jeffrey Sachs’s call for balancing the budget over the business cycle, one reason why he’s been critical of the Administration’s approach to fiscal stimulus. I’m always careful to note that Sachs is also well to my left, and that he’s far more comfortable with, for example, sharp increases in marginal tax rates than I am. Ezra offers a characterization of Sachs’s views that I find very useful:

As for Sachs, I doubt that the austerity-advocates would find much truck with his views. He’s for debt reduction, yes, but he wants to see it in the context of a transformation into Switzerland. His specific recommendations are “income support for the poor, universal access to basic healthcare and education, a scaling up of job training programmes and promotion of higher education”; massive public investment in “good education, cutting-edge technology, reliable infrastructure”; and tax reform such that “the rich pay more in income and wealth taxes – indeed, a lot more.” He also says that “fighting for market credibility via draconian cuts in spending … is the wrong approach.” At another point in the column, Sachs says he would’ve been fine with a massive stimulus that had been focused on green jobs, “in which the fall in consumer spending would be offset by investments in sustainable energy.”

I’d dispute that last observation. I don’t think he “would’ve been fine with a massive stimulus that had been focused on green jobs.” Sachs’s use of the term “offset” is easy to interpret that way, but massive spending would in tension with his broader case against extreme swings in macroeconomic policy. My impression is that Sachs was talking about a long-term project of transforming the U.S. economy, one that would involve raising revenue through a variety of strategies. Again, I don’t share Sachs’s enthusiasm for large-scale green industrial policy, but this is a serious argument.

I’d also add that what you might call the Chicago view of stimulus is that a depressed economy could mean that we can purchase valuable assets at a discount: this is one way of viewing infrastructure spending. The trouble is determining which investments are truly valuable or not. The case for a stimulus driven by a large Investment Tax Credit is that private firms are better at identifying cost-effective, valuable investments. We’ve managed to conflate a lot of different ideas under the umbrella of stimulus, some of them good and some of them bad. I think it’s important to maintain distinctions. 

But I certainly like the idea of making the U.S. more like Switzerland. As Ezra’s colleague Dylan Matthews, a terrific blogger in his own right, reports in a handy chart, Switzerland is one of the OECD countries that spend far less on government at all levels than the United States. And in 2008, Switzerland also generated a healthy surplus. It’s true that Switzerland has a modest wealth tax. Overall, though, the Swiss are very lightly taxed by international standards. The Swiss government, at the confederation and cantonal levels, tends to do a better job of efficiently delivering public services than we do. Part of that, I’d submit, reflects the strength of Tiebout choice in a highly decentralized society and the fiscal discipline imposed by small-scale, participatory local governments.

As for Scott Brown and John Boehner, and Nancy Pelosi and Dick Durbin, I guess I don’t weigh their public statements very heavily. Sure, I’m pleased when Boehner says reasonably smart things about reforming Social Security. But I’m more interested in what Hill staffers and White House staffers think and where they’re getting their intellectual ammunition. I’m also interesting in learning from others engaged in these conversations and making a small contribution to how a small handful of engaged citizens think about important public policy questions. That often means less simplifying and more “complexifying.” 

Admittedly, this might make for a less entertaining blog …

Economic outcomes for children are profoundly shaped by family structure. That much is not in dispute. What we know is that family structure in the United States is changing. A bare majority of U.S. children live in disrupted families, i.e., about half of 15-year-olds do not live with both biological parents. This is a huge driver of our persistently high child poverty rates and much else besides. As Ross and I argued in Grand New Party, and as Kay Hymowitz and University of Virginia sociologist Brad Wilcox have documented, there has been a remarkable polarization in family structure as well, with more affluent households embracing a “neo-traditional” pattern — intact families led by two-earner couples in which one partner focuses on market labor while the other focuses on household labor, but duties are shared — and less affluent households tending to be led by single parents, usually overstretched mothers. Wilcox describes neo-traditional families as follows:

I think we’re going to see a continued growth of more egalitarian marriages in a large subset of the population. But we’re going to also continue to see what I call a neo-traditional model of family life. What I mean by neo-traditional is that it’s progressive in a sense that men, particularly religious men, are investing more and more—especially in the emotional arena—in their wives and children. But it’s traditional in that there’s still some kind of effort to, in a sense, mark off who is the primary breadwinner and who is the primary nurturer. That may mean that both the husband and wife are working in the outside labor force, but there’s still some effort to give the lead for breadwinning to the husband and the lead for nurturing to the wife. This kind of neo-traditional family model is here to stay. I think that prediction is somewhat at odds with what many of my colleagues in the academy would predict.

We have to think more seriously about family pluralism in the U.S. There are different models of family life in the United States, from single-parent families to more egalitarian married families to more neo-traditional married families. The first two tend to get most of the focus in the media. The third group gets less attention, but it makes up about a third of all families in the United States or more, depending upon how you describe neo-traditional. So they’re an important group. And what this research suggests is that the marriages in this neo-traditional group are happier and probably also more stable than the other forms of families in the U.S. 

In a thought-provoking essay at io9, Annalee Newitz offers thoughts on how family structure will evolve:

We are about to witness a revolution similar to what happened in the 1960s with the introduction of the Pill and other readily-available forms of birth control. Once women could have sex without fear of pregnancy, norms around sex shifted. Most young people began to have sex before marriage, and today it is common for people to have many sexual partners throughout their lives, most of whom they will never marry.

Today the revolution has to do with child rearing. Now that women can have children without needing a man to support them, it is going to become more common for women to have children outside marriage. But this doesn’t mean you’re necessarily going to see a rise in single motherhood. Women will be free to experiment with many different kinds of parenting arrangements, from raising children alone or with a female partner, to raising them in an extended family.

More reproductive freedom does not mean women will want to lead non-traditional lives or abandon their families. In twenty years, a woman might decide she wants children, but instead of getting married she wants to live with her parents and grandparents. Because she has the income to pay for her child’s needs, and to contribute to the family home, she now has the freedom to choose this option.

I get the impression that Newitz is right. Her argument dovetails with persuasive arguments about the direction of change in U.S. marriage and childrearing patterns made by feminist historian Stephanie Coontz. 

But while Newitz is definitely on to something, I tend to think that the changing shape of family pluralism in the U.S. is cause for concern. Family forms have always been diverse, Ozzie-and-Harriet was always an imperfect portrait of family life for many if not most Americans. Yet the fact that the balance is shifting even further away from two-parent households is going to stretch public resources to the limit. My guess is that intact neo-traditional families that Wilcox describes in his work will continue to yield the best outcomes with regards to educational attainment and household income and hard indicators of emotional well-being — e.g., levels of abuse, incarceration, institutionalization, etc. Of course, it is also possible that technological and cultural change will mitigate these effects.   

This new family landscape has interesting class implications, which Newitz touches on in her conclusion:

Bizarrely, a futuristic world of working women could take us back in time. We may return to arrangements that look a lot like what people had over a century ago, when servants and nannies took care of middle-class homes while the middle- and upper-classes ran countries and businesses. Except this time around, women’s incomes will be what allows a household to afford its servants. (Remember, the wealthiest families are dual-income.)

To draw on the work of economists Betsey Stevenson and Justin Wolfers, this just reflects an acceleration of existing trends:

While the benefits of one member of a family specializing in the home have fallen, the costs of being such a specialist have risen. Improvements in the technology of birth control have made investing in a wife’s human capital a better bet, and this has been abetted by a decline in discrimination and improved wages. These greater opportunities also connote a greater opportunity cost for a couple contemplating a stay-at-home spouse.

This has driven a cultural shift in the nature of marriage:

So what drives modern marriage? We believe that the answer lies in a shift from the family as a forum for shared production, to shared consumption. In case the language of economic lacks romance, let’s be clearer: modern marriage is about love and companionship. Most things in life are simply better shared with another person: this ranges from the simple pleasures such as enjoying a movie or a hobby together, to shared social ties such as attending the same church, and finally, to the joint project of bringing up children. Returning to the language of economics, the key today is consumption complementarities — activities that are not only enjoyable, but are more enjoyable when shared with a spouse. We call this new model of sharing our lives “hedonic marriage”.

Stevenson and Wolfers are also more sanguine about the polarization of marriage that Hymowitz and conservatives like myself often fret over:

Less educated women have their own market opportunities available to them and have less to gain from marrying today than in the past. The new hedonic model of marriage thrives when households have the time and resources to enjoy their lives. This suggests that increasing the financial stability of these households will lead to marriage rather than marriage leading to financial stability. 

Trends in marital behavior reflect a common-sense response to the economic and social circumstances surrounding us. Just as we have deregulated the economy so that firms and businesses can deal with changing conditions, the long-run trend in U.S. family policy has been to deregulate the marriage market, and the book of rules governing who can get married or divorced where and when has become much thinner. Yet much of the current political debate is precisely about re-regulating marriage. Our concern is that this re-regulation may actually be a force undermining the dynamic institution that is the modern U.S. family. [Emphasis added.]

Let’s hope Stevenson and Wolfers are right. One wonders about the mechanism we ought to use to increase financial stability. Cultural change is a delicate process. British experience suggests that increasing transfers to increase financial stability and thus promote hedonic marriage among the less affluent isn’t a terribly effective strategy. Robust economic growth and job growth would be vastly preferable, though that prospect has arguably dimmed — not just because of the downturn, but because of structural shifts that could lead to further reductions in overall labor force participation among prime age males, a phenomenon that long predates the downturn. 

Annalee Newitz has given us much food for thought, and for that we should be grateful.