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November 2, 2009

Economist's View - 5 new articles

"Half of US Children -- and Most Black Children -- Will Use Food Stamps"

Following up on the post below this one on poverty, I hope we realize the importance of social insurance for children. Our social insurance programs for children are not as good as they should be, but what we do have does some good:

Half of US children -- and most black children -- will use food stamps, Cornell study reports, EurekAlert: Nearly half of American children – including 90 percent of black children and 90 percent of children who spend their childhoods in single-parent households – will eat meals paid for by food stamps at some point during childhood, reports a Cornell researcher.

Nearly one-quarter of U.S. children will live in homes that receive food stamps for five or more years. Food stamps are important indicators of poverty and risk of food insecurity, "two of the most detrimental economic conditions affecting a child's health," says Thomas A. Hirschl, Cornell professor of development sociology...

The study is based on an analysis of the Panel Study of Income Dynamics, a 32-year study of about 4,800 U.S. households...

"Children in poverty are significantly more likely to experience a range of health problems, including low birth weight, lead poisoning, asthma, mental health disorders, delayed immunization, dental problems and accidental death," write Hirschl and co-author Mark R. Rank of Washington University in St. Louis. "Poverty during childhood is also associated with a host of health, economic and social problems later in life."

It also adds some $22 billion per year in additional health care costs, the researchers report.

And the risk of living in homes using food stamps is far from equitably distributed: Ninety percent of children who live with single parents (compared with 37 percent who live in married and other two-parent households), 90 percent of black children (compared with 37 percent of white children) and 62 percent of those whose head of household did not graduate from high school (compared with 31 percent where the head has more than 12 years of school) "encounter spells of food stamp use," the authors find.

Putting those risk factors together, the researchers found that 97 percent of black children living in non-married households where the household head has less than 12 years of education will have received food stamps, compared with 21 percent of white children living in married households whose head of household has 12 or more years of education.

"The situation is likely bad for children," says Hirschl, "because families eligible for food stamps who participate tend to be worse off nutritionally than eligible families who don't participate." Only about 60 percent of families eligible for food stamps actually participate, he said, because of the stigma associated with government help. Although the sample used is representative of the U.S. populations, it does not reflect the immigrant population.

To pick up another theme in the posts today, this also shows the importance of providing jobs programs that employ low-income workers having trouble finding work due to the recession.

And isn't it nice that children likely go hungry due to the stigma associated with seeking help from the government? Who shall we thank for that?

"Five Myths About Our Land of Opportunity"

Five myths about social mobility from Isabel V. Sawhill and Ron Haskins of Brookings:

Five Myths About Our Land of Opportunity, by Isabel V. Sawhill and Ron Haskins, Brookings: Americans have always believed that their country is unique in providing the opportunity to get ahead. ... But rising unemployment and financial turmoil are puncturing that self-image. The reality of this "land of opportunity" is considerably more complex than the myths would suggest:
1. Americans enjoy more economic opportunity than people in other countries.
Actually, some other advanced economies offer more opportunity than ours does. For example, recent research shows that in the Nordic countries and in the United Kingdom, children born into a lower-income family have a greater chance than those in the United States of forming a substantially higher-income family by the time they're adults.
If you are born into a middle-class family in the United States, you have a roughly even chance of moving up or down the ladder by the time you are an adult. But the story for low-income Americans is quite different; going from rags to riches in a generation is rare. ...
2. In the United States, each generation does better than the past one.
As a result of economic growth, each generation can usually count on having a higher income, in inflation-adjusted dollars, than the previous one. ... But that kind of steady progress appears to have stalled. Today, men in their 30s earn 12 percent less than the previous generation did at the same age.
The main reason today's families have modestly higher overall income than prior generations is simple:... Women have joined the labor force in a big way, and their earnings have increased as well. But with so many families now having two earners, continued progress along this path will be difficult unless wages for both men and women rise more quickly.
3. Immigrant workers and the offshoring of jobs drive poverty and inequality in the United States.
Although immigration and trade are often blamed, a more important reason for our lack of progress against poverty and our growing inequality is a dramatic change in American family life. Almost 30 percent of children now live in single-parent families, up from 12 percent in 1968. Since poverty rates in single-parent households are roughly five times as high as in two-parent households, this shift has helped keep the poverty rate up... Among women under age 30, more than half of all births now occur outside marriage...
In addition, we have seen a growing tendency among well-educated men and women to marry each other, exacerbating income disparities. If we add to these family changes the fact that wages for low-skilled workers have stagnated or declined in recent decades, we can explain most of the increase in poverty and much of the increase in the income gap as well.
4. If we want to increase opportunities for children, we should give their families more income.
Of course money is a factor in upward mobility, but it isn't the only one; it may not even be the most important. Our research 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, and your chances of joining the middle class or above rise from 56 to 74 percent. ...
Many American families need supplements to their incomes in the form of food stamps, affordable housing and welfare payments. But such aid should not be given unconditionally. First, the public is concerned that unconditional assistance will end up supporting those who are not trying to help themselves. Second, new research ... has shown that individuals frequently behave in ways that undermine their long-term welfare and can benefit from a government nudge in the right direction.
And third, policies with strings attached have had considerable success. ...[S]ocial policies will be more successful if they encourage people to do things that bring longer-term success.
5. We can fund new programs to boost opportunity by cutting waste and abuse in the federal budget.
Can we cut enough ineffective programs or impose enough new taxes to put better teachers in classrooms, expand child-care assistance for working families and provide more financial aid to disadvantaged students while reducing projected deficits? The answer is a resounding no. ... Just three rapidly growing programs - Medicare, Social Security and Medicaid - along with interest on the debt threaten to crowd out all other spending in a few decades.
So we also need to revise the contract between the generations in a way that gradually reallocates resources from the more affluent elderly to struggling younger families and their children. Such a shift would not only help create more opportunity, it would improve the productivity of the next generation, making its members better able to contribute to the costs of retirement - including their own.

The idea that the poverty problem would be much smaller if people would get married seems to me to avoid the important question of what factors are driving the change in the marriage trend. To the extent that these factors are economic and hence that poverty is also a cause of the falling marriage rate (if it is), then it's more complicated than suggested above.

Also, with respect to the last sentence, retirement funds -- Social Security funding -- is not the long-run budget problem we should be worried about, this can be handled relatively easily with a few minor changes. It's health care costs that are the problem. The argument that we should help people in poverty so that they can help pay for Social Security is far down the list of reasons I'd put forth for helping.

Update: See Mathew Yglesias on single parents and poverty.

Paul Krugman: Too Little of a Good Thing

We need to do more to stimulate employment and the economy, but the political climate is unfavorable:

Too Little of a Good Thing, by Paul Krugman, Commentary, NY Times: The good news is that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, is working just about the way textbook macroeconomics said it would. But that's also the bad news — because the same textbook analysis says that the stimulus was far too small given the scale of our economic problems. Unless something changes drastically, we're looking at many years of high unemployment.
And the really bad news is that "centrists" in Congress aren't able or willing to draw the obvious conclusion, which is that we need a lot more federal spending on job creation.
About that good news: not that long ago the U.S. economy was in free fall. ... The stimulus ... was enough to break the vicious circle of economic decline. ... And the free fall has ended. Last week's G.D.P. report showed the economy growing again, at a better-than-expected annual rate of 3.5 percent. ... But it's not ... enough.
Suppose that the economy were to keep growing at 3.5 percent. The experience of the Clinton era, when the economy grew at an average rate of 3.7 percent for eight years ... suggests ... we'd be lucky to see the unemployment rate fall by half a percentage point per year, meaning that it would take a decade to return to something like full employment.
Worse yet, it's far from clear that growth will continue at this rate. The effects of the stimulus will build over time..., but its peak impact ... is already behind us. Solid growth will continue only if private spending takes up the baton as the effect of the stimulus fades. And so far there's no sign that this is happening.
So the government needs to do much more. Unfortunately, the political prospects for further action aren't good.
What I keep hearing from Washington is ... either (1) the stimulus has failed, unemployment is still rising, so we shouldn't do any more, or (2) the stimulus has succeeded, G.D.P. is growing, so we don't need to do any more. The truth, which is that the stimulus ... helped, but it wasn't big enough — seems to be too complicated for an era of sound-bite politics.
But can we afford to do more? We can't afford not to.
High unemployment doesn't just punish the economy today; it punishes the future, too. In the face of a depressed economy, businesses have slashed investment spending... This will hurt the economy's potential for years to come.
Deficit hawks like to complain that today's young people will end up having to pay higher taxes to service the debt we're running up... But anyone who really cared about the prospects of young Americans would be pushing for much more job creation, since the burden of high unemployment falls disproportionately on young workers...
Even the claim that we'll have to pay for stimulus ... with higher taxes later is mostly wrong. Spending more on recovery will lead to a stronger economy,... and a stronger economy means more government revenue. Stimulus spending probably doesn't pay for itself, but its true cost ... is only a fraction of the headline number.
O.K., I know I'm being impractical: major economic programs can't pass Congress without the support of relatively conservative Democrats, and these Democrats have been telling reporters that they have lost their appetite for stimulus.
But I hope their stomachs start rumbling soon. We now know that stimulus works, but we aren't doing nearly enough of it. For the sake of today's unemployed, and for the sake of the nation's future, we need to do much more.

"A Shaky Start"

I have something at Room for Debate (written last Friday) on the the extent to which the recent improvement in GDP growth can be attributed to the stimulus package, and whether more stimulus is needed ("Did the Stimulus Work?").

The link is to the much shorter version that appears on the NYT site. Here's the wordier, unedited version:

A Shaky Start, by Mark Thoma: With the news yesterday that output grew by 3.5% during the third quarter of this year, it appears we may finally be seeing the green shoots that signal the onset of the recovery. But what is driving the growth in output, what will it take to sustain that growth, and how long will it take to make up for the lost output and employment we experienced during the crisis?
A look beneath the growth numbers announced yesterday answers the first question. Increased consumer spending accounted for 2.4% of the 3.5% increase in growth, and much of the increase in consumption was driven by the Cash for Clunkers and other government stimulus programs. Today's announcement that consumer spending fell by .5% in September now that the Cash for Clunkers program has ended raises serious questions about the sustainability of the growth we are seeing. Without further help from the government, which has clearly aided the economy despite what you may have heard from naysayers, will the private sector be able to sustain growth on its own?
One of the big dangers we face is that we will declare victory too soon and begin raising interest rates and cutting back on stimulus before the private sector has recovered the ability to sustain growth without help from the government. I believe that we need more stimuli right now to maintain the growth we are seeing, particularly given how far the recovery in employment lags behind the recovery in output, but adding to the stimulus package is a political non-starter. However, amid the worries about the growing deficit and fears of inflation that make further stimulus political poison, we can and must maintain the stimulus that is already in place.
The need to at least maintain the stimulus we have, if not increase it, is enhanced by the fact that even though a 3.5% growth rate is far better than the negative rates we have seen recently, it's not nearly enough to make up for the output we lost during the crisis in a reasonable amount of time (Paul Krugman says that at this rate, "we wouldn't reach anything that feels like full employment until well into the second Palin administration"). The recovery period from past recessions were associated with output growth rates of 6-7%, enough to resume the level of growth that existed before the crisis, and to make up for losses in a reasonable amount of time. If those losses had not been recovered, if the level of output had been permanently lower instead of just a temporary deviation from its long-run trend, then employment and income would have also been permanently lower. That is not a desirable outcome in any case, and in the current recession the weakness in employment markets combined with the stagnation in middle class incomes even before the crisis began makes such an outcome even more undesirable. Unfortunately, at a rate of 3.5% -- which is only slightly above the long-run trend rate of growth -- it will take many, many years to make up for losses and return to the long-run trend, and any further slippage in growth would make the losses permanent.
The recovery we are seeing is being driven, in large part, by government stimulus programs. The fact that growth is weaker than we need to fully recover losses in a reasonable amount of time, and the even slower recovery we are seeing in employment markets, indicates that the stimulus programs already in place are too small. Thus, even though it's unlikely to happen, the economy could use more help than it's getting, but in any case it's imperative that we avoid cutting back too soon.
The signs are encouraging, and at some point the private sector will be able to sustain growth on its own, but it's far too soon to declare victory.

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