## Ten Pieces Worth Reading, Mostly Economics: March 6, 2010

This paper uses panel data from four developed nations to estimate permanent income inequality, measured by averaging equivalized household income across multiple years. In general, I find that permanent income inequality has followed similar trends to annual income inequality, rising particularly sharply in the United States over the 1980s and 1990s. Comparing levels of permanent income inequality across countries, the ranking of triennial pre-government inequality is Germany, the US, Britain, Australia. However, a more progressive systems of taxes and transfers in Britain and Germany changes these rankings substantially. In terms of triennial post-government inequality, the ranking is the US, Australia, Germany, Britain. Additionally, I calculate mobility rates across countries, and find some evidence that mobility rates rose during the 1990s in both Britain and the US. Ranking the four countries in terms of mobility, and taking the effects of government policies into account, I find that in the most recent year, the most mobile of the four countries is Australia, while the least mobile is Germany.

Less expensive, lower-quality innovations abound in every economic sector—except medicine: The rabbi’s eulogy for Sheldon Kravitz solved a minor mystery for my father: what was behind the odd shape of the juice cups he had been drinking from after morning services for the last few years? Adding a bit of levity while praising his thrift and resourcefulness, the rabbi told of how Sheldon purchased, for pennies on the dollar, hundreds of urine specimen cups from Job Lot, that legendary collection of pushcarts in lower Manhattan carrying surplus goods—leftovers, overproduced or discontinued products, unclaimed cargo. At the risk of perpetuating a pernicious cultural stereotype, for men of my father’s generation like Sheldon, raised during the Great Depression, bargain hunting was a contact sport and Job Lot was a beloved arena. My father, too, would respond to the extreme bargains there with ecstatic automatisms of purchasing behavior and come home with all manner of consumer refuse, including, and to my profound dismay, sneakers that bore (at best) a superficial resemblance to the suede Pumas worn and endorsed by my basketball idol, the incomparably smooth Walt “Clyde” Frazier. My father would insist that such items were “just as good” as the name brands. But we, of course, knew what “just as good” really meant. In fairness to my father and his friends, from a utilitarian perspective (decidedly not the perspective of pre-adolescents), maximizing the overall good of the family involves economic trade-offs. Money saved from something “just as good” can be reallocated toward items that bring greater benefit than the value sacrificed. Indeed, these types of cost-versus-quality trade-offs are ubiquitous in our economy, and are especially useful when resources are tightly constrained. Those following the long march to health-care reform know that one of the few things beyond argument is that the old approach is unsustainable and threatens to bankrupt the country. Perhaps a little belt tightening and bargain hunting of this sort might make our health-care dollars stretch farther...

THE BILLIONS of dollars being spent on infrastructure across the nation provide an opportunity to plan for a better America, but politics-as-usual favors sprawl over city. This anti-urban bias of national policies must end. Over the past 60 years, cities have been hit by a painful policy trifecta: subsidization of highways, subsidization of homeownership, and a school system that creates strong incentives for many parents to leave city borders. Nathaniel Baum-Snow, an economist at Brown University, has documented that each new federally-funded "highway passing through a central city reduces its population by about 18 percent." Subsidizing transportation decreases the advantage of living close together in cities, which should make every urbanite worry about the Senate’s fondness for using highway spending to fight recession. The current Senate jobs bill calls for a more than $30 billion increase for transportation over the next two years. It is a mistake to think that spending on trains balances the scales. Cities will always benefit far less than exurbs from transportation because dense areas already have good means of getting around, like walking. Urban advocates would do better to either reduce highway subsidies or to balance that spending with more funding for urban schools... In recent weeks, a few commentators have sounded an alarm about the recession’s impact on Social Security’s near-term prospects, which may lead some people to think that the program faces financial problems in the next several years. Fortunately, that is not the case. Social Security continues to run annual surpluses and remains capable of paying scheduled benefits in full for the next three decades or so. The deep recession has indisputably affected the Social Security system’s finances, and the next report of the Social Security Trustees — due this spring — is expected to show some deterioration in the program’s financial outlook. (Last year’s report estimated that starting in 2037, balances in the Social Security trust funds would be inadequate to pay full benefits promised under current law.) But Social Security faces no immediate threat. In recent days, Sen. Jim Bunning has been obstructing the passage of a bill that would extend unemployment benefits for nearly a million Americans, claiming that they aren’t “paid for.” But in 2003, Bunning not only voted for an unemployment extension but also put out a glowing press release lauding the extension of unemployment benefits as “hopeful news for our most needy families in Kentucky“: U.S. Senator Jim Bunning today announced that legislation to extend temporary unemployment benefits for an additional five months has passed the United States Congress. The legislation, which was unanimously approved yesterday by the Senate and by a vote of 416-4 today in the House, would also provide a temporary 13-week extension of unemployment benefits for all individuals who exhaust their traditional benefits before June 1, 2003. “The 108th Congress is off to a solid start,” said Bunning. “This is hopeful news for our most needy families in Kentucky. By approving this legislation we will help those folks who are currently without work continue to make ends meet until they can find new employment.” Passage of this legislation means that there will be no lapse in assistance for the nearly 10,000 Kentuckians who have filed claims so far for extended benefits. The last extension expired on December 28, 2002. President Bush is expected to sign the bill tomorrow, which means the next payment to states can still be made on Friday, January 10, as originally scheduled. The CBO estimates that at the time, the budgetary cost of the unemployment benefit increase was$6.6 billion between 2003 and 2007. The Labor Department estimates that 4,300 Kentuckians will lose their unemployment benefits during the week of March 13 without an extension. If Bunning’s stance today is truly principled, then why didn’t he stand up to fight the unpaid-for benefits in 2003, under the Republican President Bush?

6) DELONG SMACKDOWN OF THE DAY: Jed Graham: Courtesy Brad DeLong Smackdown:

Last March, Treasury Secretary Tim Geithner’s Public-Private Investment Partnership was greeted with much skepticism, but not by DeLong, who was arguably the program’s foremost defender outside of the administration. A fair assessment is that the program has been inconsequential. As Reuters wrote last month, the PPIP — “once envisioned as a $1 trillion sponge to soak up toxic assets — held mortgage bonds worth$3.4 billion on Dec. 31.” Any second thoughts about this approach to financial-engineering our way to recovery?...

7) PICTURE OF THE DAY: From Tyler Cowen, Paul Sherman, Loren Poulsen, and Eliot Williams:

8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Noam Scheiber: The Chief:

In February,The Washington Post’s Dana Milbank penned a column defending Emanuel against a rising drumbeat of criticism, including some recent calls for his resignation. The column made several valid points about Emanuel and his value to the president. But it also indulged in caricature. While holding up Emanuel as an all-knowing sage, Milbank dismissed Gibbs as a “hyper-partisan former campaign flack” and Axelrod as a man so “blinded by Obama love” he can't think clearly. The reaction was immediate and intense--multiple sources told me it had created tension within the White House. It also, in some respects, epitomized the Emanuel dilemma. Contrary to his cut-throat reputation, Emanuel has generally been a team player during his time as chief of staff.... He is quick to defend colleagues from the kvetching of journalists and pundits, and he has thrown himself into major initiatives whose logic he disagrees with. On health care, one administration official told me, “It may not be the thing he wanted to do his whole life. But he put his shoulder to the wheel to get the thing done.” Above all, no one I spoke with for this piece questioned Emanuel’s loyalty to Obama. “I’ve talked to Rahm every day,” says his friend Paul Begala. “In the year and a month, whatever it’s been, I’ve never heard him complain about the president.” Which raised an intriguing paradox. On the one hand, no one seemed to believe Emanuel had engineered the Milbank piece--even critics conceded that, if nothing else, he was too savvy for such a stunt. Nonetheless, almost all these people believed the Milbank piece was a problem for Emanuel, because less-informed outsiders would assume he was behind it, prompting a cascade of chatter about White House infighting....

I asked Axelrod the question I would have put to [Emmanuel]: Has the president’s goal of promoting transparency, civility, and accountability worked at cross-purposes with his chief of staff’s strategy for hustling the agenda through Congress? “Look, there are things the president insisted on that wouldn’t have been at the top of Rahm’s list,” Axelrod told me. “The kinds of things the president felt strongly about as a way of keeping faith with his fundamental belief that we have to change the way we do business in this town. It wasn’t that Rahm was negative on that, but he would not have made them the first thing on his list.... Look, it’s a tough time to govern. We inherited multiple crises. And a very sour economy. And that creates political problems in and of itself. Governing is very, very tough,” he said. There is considerable truth to this. On the other hand, the enormity of the challenges Barack Obama faces, and the ambitiousness of his program, mean he has almost no margin for error. Indeed, Emanuel--the grizzled, battle-hardened Washington insider--was brought into the Obama White House for precisely this reason, because Obama was shrewd enough to recognize the chasm between campaigning and governing.... But what we’re discovering is that Obama wasn’t prepared to give up on his campaign ideals so quickly. Deep down, he didn’t necessarily want a hard-nosed insider to execute his agenda; maybe he just wanted to want such a person. For all of his flaws, Rahm Emanuel was supposed to be the man who helped Barack Obama do things the easy way rather than learn lessons the hard way. But, sometimes, deciding to go the easy way can be the hardest thing of all...

9) STUPIDEST THING I HAVE SEEN TODAY: Republicans, as observed by Sam Stein: Republicans Worry About Objectivity Of Parliamentarian They Appointed:

Senate Republicans have begun a campaign to cast doubt on the Senate Parliamentarian and his capacity to impartially handle the reconciliation process for passing health care fixes. Several lawmakers and GOP officials told Politico that Alan Frumin is too close to Senate Majority Leader Harry Reid (D-Nev.) and thus predisposed to rule in his favor when reconciliation is raised. It's a bold gambit to "work the ref" before the game has begun and it reflects some chutzpah on the part of the GOP, considering the recent history of the position. Frumin was elevated to the post by Republican leadership in 2001, in part because he had a reputation for adhering to institutional mores rather than personal ideology. At the time, Majority Leader Trent Lott said he was confident Frumin could do the job, having known him for many years. "It's going to be pretty hard for anybody to be too critical of it," Lott said of the appointment.

For Republicans to now raise concerns that Democratic leadership has compromised Frumin's objectivity is even more peculiar considering the GOP's antics leading up to his hiring. In May 2001, Republican leadership fired Frumin's predecessor, Robert Dove, after he issued a series of rulings that complicated their efforts to pass aspects of the Bush tax cuts and budget proposals through reconciliation. Dove had decided it was inappropriate for money intended for natural disaster relief to be considered through budgetary rules -- and he was summarily axed. It was not the first time Dove had been fired from the post. In a Washington Post op-ed at the time, Washington attorney Jeffrey Smith noted that: "The Democrats have also fired the parliamentarian. When he became majority leader in 1987, Robert Byrd fired Dove. When the Republicans regained the Senate in 1994, they brought Dove back as parliamentarian."

10) HOISTED FROM THE ARCHIVES: DeLong (January 2009): New Deal Dreaming:

I just dreamed that it was the 1930s and I was briefing the Cravath lawyers for today's scotus oral argument in Schechter Poultry... That is all.