Fakers? Perhaps Not.

It’s a common thing to view welfare recipients as unmotivated. (Personally, I don’t hold that view, but it’s common enough for me to put it in the title of this post).

That has some overlap with lazy, but it isn’t quite the same thing: you could be one without the other, or both.

However, unmotivated could also be a function of background or environment. So it’s possible that if a welfare recipient is unmotivated to get a job, it’s because they were previously unmotivated to get the skills to be gainfully employed.

Whatever. Can we test for this with data from the real world? Manal Dashpande, a recent Ph.D. student from MIT, now on the faculty at the University of Chicago, has been researching this (here is an older draft of her paper, and here is a summary more accessible to undergraduates).

To do work like this, you look for a “natural experiment”. In short, this means that somehow the circumstances of the people you’re interested were changed, and they had to respond to this change, but they weren’t capable of influencing how or when their circumstances were changed.

Deshpande looked at the change in welfare in 1996. There was a “bright line” cutoff that made the natural experiment possible: children were treated differently based on whether or not they turned 18 before or after August 22, 1996. For a particular form of welfare (SSI), prior to that cutoff, if you got it (as an adult) before the cutoff you automatically got it afterwards. After that cutoff, if you got that form of welfare as a child, you had to be reevaluated when you turned 18. About 40% of childhood recipients were denied as adults. The motivation for that was that some conditions, say mild mental retardation, may incur extra expenses in childhood, but don’t affect a person’s ability to get and hold a job.

One comparison Deshpande made was the income performance of people whose benefits were removed at 18 versus three other groups. One was those who stayed on SSI after age 18 (they were not denied benefits at 18). A second were those who applied for the first time as adults but who were denied (you might call those “fakers”). The third were children whose families had received AFDC (that program was replaced by TANF, which we still have), a program targeted at low income families rather than disabled children (you might call these “poor yet able”). Here’s a chart of their income performance:

The “poor yet able” are the red points: their income rose through time. The “fakers” are the maroonish-purplish points: their incomes also rose. In both cases the rise was up to an average of about $15,000 per year in income. That’s not a lot, but since it’s an average, it indicates that some portion of them were able to do better than minimum wage employment.

The people who were retained on SSI are the dark blue dots at the bottom. Their incomes outside of welfare stayed close to zero, but were supplemented by those continued welfare payments.

The light blue dots indicate that welfare reform may have been to aggressive. Children who were denied benefits when they turned 18, on average, had income that never approached those of more advantaged youth. Deshpande estimated the present value of their income loss at $76,000 over the ages of 18 to 34.

Basically, welfare reform was a big tax on some low income people: being raised on welfare is a condition that hurts your future income prospects. That’s not an argument for getting rid of welfare, but it probably does mean we need to do a lot more to condition recipients to use it as a leg up on their future.

Via Marginal Revolution.

FOH for FMOOWMP (Office Hours)

Students have big trouble with this … especially early in their college careers.

Hat tip to these two pieces from NPR on how to overcome your fear of office hours, and how office hours are particularly foreign to students from rural areas.

FOH for FMOOWMP (Office Hours)

Students have big trouble with this … especially early in their college careers.

Test Post

For some reason a post will not load up here. You can see it by clicking through to my personal blog: it’s entitled “An Interactive Chart of Real GDP Per Capita Improvements”.

A New Progressive Counterpoint About Median Income Over the Last Two Generations

I’m not going to offer any cites for this; it’s a commonplace for Democratic-oriented people to say that incomes have stagnated over the last two generations (say,back to somewhere in the 1973-1982 range). This is usually based on data from the Census Bureau, whose data is more favorable to that position.

This is countered by many economists, whose professional position gives more support to the  Republican-oriented parts of the public. The economists argue that the finding that incomes have stagnated is an artifact of using price indices that systematically overstate inflation, thus making real values lower than they should be. Former Senator and Texas A&M macroeconomist Phil Gramm had a piece with John F. Early (a former assistant commissioner of the Bureau of Labor Statistics — whose overstated inflation measures are at the core of this problem) in The Wall Street Journal just the other day, making this point (entitled “Americans Are Richer Than We Think”).

Mark Thoma (a macroeconomist at the University of Oregon), via Marginal Revolution, pointed me to the blog of Richard Green (a macroeconomist at USC). And he makes an interesting new point that tends to support the progressive side of this debate. Due note that he uses the Census Bureau data, so someone should apply the Gramm and Early critique to it at some point.

Phew … that’s a lot of background in a small space. Anyway, he asserts that the problem is a bit worse because we have a greater share of the population in the bins whose income has stagnated the most. He provides the following table:

	Share in Age Category		Median Earnings (2017 $)
	1980	2017	1980	2017
15-24	0.216	0.120	$13,057	$13,734
25-34	0.232	0.183	$44,252	$40,575
35-44	0.161	0.167	$56,911	$52,403
45-54	0.136	0.169	$56,732	$53,985
55-64	0.127	0.165	$45,200	$48,863
65+	0.127	0.196	$20,845	$32,654

Here’s what’s going on. The first row, people probably your age, have improved a bit from 1980 to 2017. That’s the two columns on the right. But there’s a lot less of them. That’s the second and third columns from the left.

The big problem is that there are 3 rows of people in their prime earning years, 35-54, who are both doing worse, and who are around in greater numbers.  These are somewhat offset by the two oldest rows (which correspond to baby boomers and older).

Personally, I hate most of the other names for generations (there’s a demographic reason to have labeled baby boomers with certain dates, but I feel the others are just random marketing choices). Anyway, other people do use them, and according to Green, it is Generation X and Millenials who are hurting, and that does correspond to general perceptions out in the public.

Some Background On the “Genealogy” of Obamacare, Romneycare, Bill Clinton’s Proposed Reforms, and Republican Ideas

Alan Blinder:†

… Before the ACA, the U.S. stood out from the international pack on health care in two very unpleasant ways. First, it spent a far larger share of gross domestic product on health care. Second, it was the only advanced industrial nation that left vast swaths of its population uninsured. These two doleful facts remain true …

There are several ways to get more people covered. One is to adopt a system in which the government provides or pays for universal coverage—the British or Canadian model. This won’t happen soon in the U.S., not even as Medicare for All.

A second route, advocated unsuccessfully by President Clinton in 1993, is to mandate that every employer provide health insurance to its workers. This approach might seem natural in the U.S. context because so many workers already receive health insurance that way. But the employer mandate has fatal flaws. It wouldn’t cover the nonworking population, and it would impose heavy burdens on small businesses.

For these and other reasons, many economists in the Clinton administration—including me—favored an individual mandate. But that idea was dead in the water in 1993 because it had been advocated by the Heritage Foundation starting in 1989. It was therefore a “right wing” idea.

There are problems with an individual mandate, too. For one, the high cost of U.S. health insurance means that many low- and moderate-income families cannot afford to buy policies on their own. For another, if for-profit insurance companies are made to lose money by covering people with pre-existing conditions, the government must also force young healthy people, who tend to have limited medical expenses, into the insurance pool.

Fortunately, both problems are easily solved—conceptually, that is, not politically—by mandating that everyone buy a policy and providing subsidies to the needy. Massachusetts legislators understood this in 2006. They also knew they were not writing on a blank slate; many citizens received health insurance through their jobs and didn’t want to lose it. Hence the hybrid system that became known as RomneyCare.

If this short description reminds you of the ACA, it should. The two plans are not identical twins, but there is a family resemblance. In 2010 Democrats didn’t follow in the footsteps of Romney Republicans to make them look good; they designed their plan that way because under the constraints of precedent, the underlying logic practically forces you there.

Keep that in mind: If there ever is a TrumpCare, an unlikely proposition, it’s bound to resemble RomneyCare and ObamaCare—no matter what the president claims.

Parse that again: yes, the individual mandate that Obamacare included, and which drew from Romenycare in Massachusetts, that was struck down in 2018 (to the cheers of Republicans), was originally a Republican idea which the Clinton administration rejected (The Heritage Foundation is a conservative think tank).

Read the whole thing, entitled “The Individual Mandate Is Here to Stay”, in the April 14, 2019 issue of The Wall Street Journal.

† Alan Blinder is a pretty big name in macroeconomics, and one you should familiarize yourself with. He’s been a professor at Princeton for a long time, served in the Clinton White House, was vice chair of the Federal Reserve Board of Governors, and is co-author of one of the major principles texts. While he’s published a ton, my sense is that he’s never had the one hugely cited article that puts you on any list for a Nobel Prize.

Barro On GDP and Welfare

Barro [2019] observes that GDP is not a good measure of welfare. Yes, we already knew that, but we use it anyway because it so comprehensive.

But that comprehensiveness gets us into trouble because GDP is a better measure of effort than consumption/welfare.

In particular, he points out that we double-count investment. It’s counted initially when it’s purchased and added to the existing stock of capital. But it’s counted a second time when we include the income from what the existing capital stock produces.

It’s a good thing to count his somewhere, but it’s probably not a good thing to count it in something you’re going to use to assess welfare.

The upshot is that countries that invest more have higher GDP without necessarily making their people better off. That’s not an argument to not invest, but rather an argument that ranking outcomes by GDP will make countries that gyp their citizens look better off than they are.

Here’s a low level discussion of the results, asserting that over half of the capital share of GDP (that thing progressives are so worried about going up) should not be included in GDP at all.

FWIW: this paper shows one of the top macroeconomists of the last 50 years using a model not much beyond what we do in ECON 3020 and the Handbook for the class to make a fundamental point about how we should think about the world. And the method is calculatable with currently existing data.