Mike Kueber's Blog

August 10, 2013

Sunday Book Review #104 – What Went Wrong? by George Tyler and Giving Kids a Fair Chance by James Heckman

Filed under: Culture,Economics,Education — Mike Kueber @ 12:52 pm
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What Went Wrong is subtitled, “How the 1% Hijacked the American Middle Class… and What Other Countries Got Right.”  According to author George Tyler, America has been going to hell in a hand basket ever since Ronald Reagan was elected in 1980, with only a momentary respite while Bill Clinton was in office.  If that viewpoint suggests that Tyler is partisan, that would be correct – i.e., he has worked in government for Democrats Hubert Humphrey, Lloyd Bentsen, and President Clinton.

According to Tyler, the other countries that have got it right are Australia, Denmark, France, Germany, and the Netherlands.  These countries, at least according to the metrics that Tyler presents, have outperformed America since 1980.  The metrics that Tyler relies on are focused on the economic success of the middle class, something he calls family prosperity.  Although the American economy as a whole has outperformed these other economies, most of the progress in America has inured to the benefit of the 1%, which is where Tyler believes it will stay because the trickle-down concept is imaginary.

Tyler is convinced that Ronald Reagan, with his program of Reaganomics, is fully responsible for America’s dire situation.  He also places a lot of blame on two of my economic heroes – Milton Friedman and Ayn Rand – for providing intellectual cover for Reagan to implement Reaganomics, which Tyler describes as follows:

  • A culture of selfishness instead of a culture of responsibility
  • Government is invariably dangerous
  • Regulatory capture instead of wariness of corporate influence
  • Shareholder capitalism instead of stakeholder capitalism
  • Weak corporate governance instead of co-determination
  • Tax-cut cultists
  • Deficits don’t matter
  • Illusory prosperity instead of genuine wealth creation
  • Rising income disparity
  • Reducing opportunity
  • Economic mythmaking

One of Tyler’s big criticisms of the American economy and its shareholder capitalism is its excessive focus on short-term results, which contrasts with the long-term focus of stakeholder capitalism.  He also complains that the objective of any economy has to be, not the amount of wealth that it creates, but rather the amount of wealth that is widely dispersed to everyone throughout the economy.  I agree heartily with both of those positions, and Tyler does us a service in emphasizing them.  And his proposals, such as better corporate governance, resistance to regulatory capture, and improved fiscal responsibility, can move America in a better direction.

But, despite his protestations of ambivalence about the European welfare state, I get the sense that Tyler would be quite comfortable with that, and that causes me to be skeptical of broadly adopting his thesis.

After reading the voluminous, dystopian What Went Wrong (467 scholarly pages), I shifted to something more manageable and upbeat.  Giving Kids a Fair Chance by James Heckman is a short, optimistic book (only 132 small pages, with many of the pages blank).  The book has three sections:

  1. Giving Kids a Fair Chance.  Like Tyler in the What Went Wrong book, Heckman provides his analysis of the growing inequality in America, and suffice to say he doesn’t blame it on greedy corporations.  Rather he blames it on bad parenting.  To solve the problem of bad parenting, Heckman suggests that there needs to be early-childhood intervention by public and private entities.
  2. Forum.  Ten experts provide their opinion of Heckman’s diagnosis and prescription.
  3. Aiding the Life Cycle.  Heckman responds to the critics.

The lead sentence in this book is, “The accident of birth is a principal source of inequality in America today.”  From there, Heckman goes on to show how the quality of parenting affects the future success of children.  Parents with income and education generally produce children with better cognitive and social skills that often translate into a successful life.  (Heckman is careful to point out, however, that there is a correlation between income/education and good parenting, but not necessarily a causal relationship.)  And the final building block for Heckman is his studied conclusion that early intervention (pre-K) with children who are not receiving good parenting is much more effective and efficient than later efforts.

Most of the experts agreed with Heckman’s diagnosis and prescription, but quibbled over its narrow scope.  Some argued that there is a lot more “rotten in Denmark” than bad parenting or that the fix has to go beyond intervening with the parents.  Others, such as Charles Murray of Bell Curve fame, argued that Heckman cherry-picked favorable small studies regarding pre-K interventions and ignored larger unfavorable studies (e.g., the infamous Head Start study of 2012).

Heckman responded to the critics by baldly asserting that Murray misrepresented the studies and that unsuccessful interventions did not disprove alternative successful interventions.  He also chided some for being cultural relativists who were not really interested in solving the problem.

Because socio-economic mobility has become stunted in America, and because I accept Heckman’s thesis that the parenting gap is a principal cause of the absence of mobility, I think Heckman’s public-policy recommendations for early intervention by public and private groups makes a lot of sense.

Incidentally, Heckman also points out that cognitive skills are generally formed by age 11 while social skills are malleable until the mid-20s, and this fact needs to affect the type of intervention attempted).

 

 

 

 

 

 

 

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May 9, 2013

More good news on socio-economic mobility

The United States Supreme Court will be soon handing down a decision that is likely to significantly limit the use of race-based affirmative action in college admissions.  As with most Supreme Court decisions nowadays, the decision will follow a public-policy trend (gun rights) instead of blazing a trail (e.g., legalizing abortion or requiring the schooling of illegal immigrants).  In fact, the voters several large states – FL, MI, WA, and CA – declined to wait for the Supreme Court and have already forbidden race-based affirmative action. 

Not surprisingly, the “progressive” City of San Antonio seems to be still living in the past because its City Council recently rescinded its policy requiring that contracts be issued in a race-neutral manner and instead established a process for preferences to be awarded to racial minorities.  Such minority preferences are hard to rationalize, but easy to understand, when you consider that minorities comprise nine of the eleven spots on the San Antonio City Council.

As I’ve previously blogged, some colleges are beginning to look for something to replace their apparently doomed affirmative-action programs, and an article in the New York Times yesterday described a promising two-pronged approach being used in California: 

  1. Giving applicants a leg up for overcoming disadvantages like poverty, language barriers, low-performing schools and troubled neighborhoods.
  2. Disadvantaged students in poor neighborhoods are benefiting from the state university systems’ growing efforts to cultivate applicants starting in middle school.

The article concludes with the following summary:

  • It is not enough, university administrators say, to change the way they select students; they must also change the students themselves, and begin to do so long before the time arrives to fill out applications.”

These concepts applying affirmative action make perfect sense, but the trick will be the execution.  Good luck.

 

 

 

 

November 6, 2011

Equal opportunity in America

Filed under: Uncategorized — Mike Kueber @ 10:57 am
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America faces two remarkably dissimilar challenges that threaten its ability to remain the world’s shining light – (1) burgeoning debt and (2) diminished opportunity for the disadvantaged:

  • The debt problem is like an aggressive cancer that must be addressed immediately or it will become exponentially more difficult to solve.  But the way to solve the debt problem is not complicated.  As Mitch Daniels has stated, it won’t take a rocket scientist to develop a plan to get control of our budget.  But it will take a great leader.
  • By contrast, our equal-opportunity problem is like a slow-growing cancer that affords us the luxury of time to act.  Ironically, however, this luxury of time exacerbates the problem because there is a natural tendency to do nothing and maintain the status quo, especially when there is no obvious course of action to solve the problem.

Because of these characteristics, the debt problem has deservedly received the lion’s share of attention in the media.  But we need to keep working on the equal-opportunity problem, and the Occupy Wall Street movement, with its media connections, seems to be having some success with that.  The best example of that success is this week’s cover story in Time magazine – “Can You Still Move Up in America,” subtitled “Whatever happened to upward mobility?”

Everyone agrees that equal opportunity is an essential part of America’s DNA, but that is pretty much all we can agree on.  Among the things we disagree on – (a) how bad is our current problem, and (b) how do we create more opportunity for the disadvantaged.

The Time magazine article provides several benchmarks that help assess the severity of our equal-opportunity problem.  Absolute inequality (e.g., the wealth and income of the top brackets vs. the wealth and income of the bottom brackets) is one of those benchmarks that most people reject because it favors the modern welfare states with their generous safety nets.  (Equal opportunity does not require equal results.)

The better benchmark concerns the extent to which individuals or their children in lower brackets can move to higher brackets, and unfortunately, the article provides only spotty information in this regard.  For example, it reports that those born in 1970 in the bottom fifth have only a 17% chance of making it to the upper two fifths.  My first reaction to this number was that it sounded about right.  Then the article quickly disabused me of that notion by stating, “That’s not good by international standards.” But the article provided no factual support for its conclusion.  I would be interested in seeing the conclusion supported and in knowing how these numbers for America have changed in the past few decades.

When the subject shifts away from “how bad is the problem” to “how do we create more opportunity,” the solution naturally depends on how you measured the extent of the problem.  If you think that large income inequality is inherently problematic, then you can ameliorate the problem by redistributing income and wealth.  For those who go a bit deeper, however, the solution is more elusive.

The article gets extremely mushy when it delves into solutions.  It cites only one study – on the effect of the rise of India and China on the diminution of America’s middle class – and then states the obvious – “The best hope in fighting the machines is to improve education, the factor that is more closely correlated with upward mobility than any other.”

Instead of devoting any energy in describing that correlation or how to effectively “improve education,” the article quickly asserted that, “There are many other lessons to be learned from the most mobile nations”:

  • Funding universal health care without tying it to jobs can increase labor flexibility and reduce the chance that people will fall into poverty because of medical emergencies.”
  • “Europe’s higher spending on social safety nets has certainly bolstered the middle and working classes.”
  • “The final lesson that might be learned is in tax policy.  The more-mobile European nations have fewer corporate loopholes, more redistribution to the poor and middle class via
    consumption taxes and fare less complication.”

If you suspect these conclusions reveal some partisan, liberal bias, you may be correct.  In fact, such a bias was suggested early on it the article when it relied heavily on the quintessential liberal think tank, the Brookings Institution, for much of its facts and expert quotations.  But the article also displayed a fair amount of open-mindedness when it said:

  • Yet it is important to understand that when you compare Europe and America, you are comparing very different societies.  High-growth Nordic nations with good social safety nets, which have the greatest leads in social mobility over the U.S., are small and homogeneous.  On average, only 7% of their populations are ethnic minorities (who are often poorer and thus less mobile than the overall populations), compared with 28% in the U.S.  Even bigger nations like Germany don’t have to deal with populations as socially and economically diverse as America’s.”

In conclusion, thanks Time magazine for the effort, but I will need to keep looking for the practical ways to “improve education” so that it enables more socio-economic mobility.

December 15, 2010

Socio-economic mobility

Washington Post columnist Michael Gerson wrote a column yesterday titled, “The Economic Debate We Should Be Having.”  The column was prompted by the ongoing debate over the Great Compromise between Barack Obama and the congressional Republicans.  According to Gerson, the Democrats are concerned about growing income inequality in America.  Perhaps you have heard them warn that the middle-class is vanishing?  By contrast, Republicans remain focused on growing the economy.  Perhaps you have heard them aver that a rising tide floats all boats? 

Gerson suggests there is common ground if the parties would start looking for it:

  • “Our research,” argue Isabel Sawhill and Ron Haskins of the Brookings Institution, “shows that if you want to avoid poverty and join the middle class in the United States, you need to complete high school (at a minimum), work full time and marry before you have children. If you do all three, your chances of being poor fall from 12 percent to 2 percent.”  This does not release conservatives from responsibility because the distribution of social capital and opportunity is dramatically unequal. Economic inequality can be justified as the reward for greater effort – so long as there is also social mobility. In the absence of mobility, capitalism becomes a caste system. And this is what America, in violation of its self-image, threatens to become. The United States has less upward economic mobility among lower-income families than Canada, Finland or Sweden. Americans who are born into the middle class have a roughly equal chance of ascending or descending the economic ladder. But Americans born poor are likely to stay on its lowest rungs.
  • Addressing the actual causes of inequality should be common ground for the center-left and center-right – and politically appealing to American voters, who are generally more concerned about opportunity than income equality. A mobility agenda might include measures to discourage teen pregnancy; increase the rewards for work; encourage wealth-building and entrepreneurship; reform preschool programs; improve infant and child health; increase teacher quality; and increase high school graduation rates and college attendance among the poor. Children of low-income parents who gain a college degree triple their chance of earning $85,000 a year or more. If America had the same fraction of single-parent families as it had in 1970, the child poverty rate would be about 30 percent lower.
  • The leader of Britain’s Liberal Democrats, Deputy Prime Minister Nick Clegg, recently addressed the meaning of economic fairness. “Social mobility is what characterizes a fair society,” he said, “rather than a particular level of income equality. Inequalities become injustices when they are fixed; passed on, generation to generation. That’s when societies become closed, stratified and divided. For old progressives, reducing snapshot income inequality is the ultimate goal. For new progressives, reducing the barriers to mobility is.”

I agree with Gerson.  In fact, a major plank in my congressional campaign platform was titled, “Equal Opportunity – The federal government has a role in fostering meritocracy based on individual accomplishment instead of an aristocracy based on money and connections.  But equal opportunity does not mean results should be equal.”

In addition to the “mobility agenda” described by Gerson, I think our current tax policy should be considered.  Although the Death Tax arguably discourages wealth-building, I think that argument is overstated, and that on balance the Death Tax does more to encourage than discourage social mobility.  Ditto for America’s current progressive tax rates.

P.S., coincidentally, an op-ed piece in today’s NY Times recommended ending the Death Tax and replacing it with an income tax on beneficiaries.  The author recommends making the switch in conjunction with Obama’s potential tax overhaul next year.  Personally, the recommendation seems like a superficial semantical “distinction without a difference.”  I was interested, however, in the author’s comment that the Death Tax was initially intended, not only to raise revenue, but also to encourage socio-economic mobility and discourage development of an aristocracy in America.  Those two objectives remain worthwhile.