↳ Analysis

February 27th, 2020

↳ Analysis

The Economics of Race

On the neoclassical and stratification theories of race

Black America has had less wealth, less income, less education, and poorer health than white America for as long as records have been kept. To account for this disparity, economists have advanced three explanations: genetic, cultural, and structural. While the first of these had mostly fallen out of favor among social scientists by the mid-20th century (until a worrying revival in recent decades), the latter two have been adopted by somewhat distinct research communities that frequently collide. According to the cultural theory, racial disparities are the result of social capital deficits. This is the view that has been most widely adopted by the mainstream of the economics profession, and I refer to it as the neoclassical economics of race. By contrast, the structural theory argues that racial disparities in socioeconomic outcomes are created and maintained over time by American institutions, which privilege White Americans at the expense of Black Americans. This view is known as stratification economics, and, as I argue here, it offers a more accurate and empirically sound explanation for racial disparities in America than its counterpart. The neoclassical and stratification approaches disagree over the causes of and remedies for racial disparities in socioeconomic outcomes and differ substantially in their understanding of income, education, wealth, and health.

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February 6th, 2020

Decision Making in a Dynamic World

Exploring the limits of Expected Utility

I once wrote a post criticizing modern microeconomic models as both overly complex and unrealistic, leading their practitioners into theoretical dead ends without much corresponding increase in explanatory power. I suggested the entire enterprise of Expected Utility (EU) was a dead end based on a mistake and that I’d eventually write about superior ways of modelling individual decision making under uncertainty. It’s been a long time coming, but below I outline why taking time into account leads to better theories of decision making, and why human psychology does a fairly good job of guiding decisions in a dynamic world.

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January 30th, 2020

The Long History of Algorithmic Fairness

Fair algorithms from the seventeenth century to the present

As national and regional governments form expert commissions to regulate “automated decision-making,” a new corporate-sponsored field of research proposes to formalize the elusive ideal of “fairness” as a mathematical property of algorithms and especially of their outputs. Computer scientists, economists, lawyers, lobbyists, and policy reformers wish to hammer out, in advance or in place of regulation, algorithmic redefinitions of “fairness” and such legal categories as “discrimination,” “disparate impact,” and “equal opportunity.”

But general aspirations to fair algorithms have a long history. In these notes, I recount some past attempts to answer questions of fairness through the use of algorithms. My purpose is not to be exhaustive or completist, but instead to suggest some major transformations in those attempts, pointing along the way to scholarship that has informed my account.

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January 23rd, 2020

What Would a UBI Fund?

Lessons from the 1970s experiments in guaranteed income

One of the questions at the heart of contemporary debates over the merits of UBI is ‘what would it fund?’ In other words, what type of activities would it encourage? There are of course the widely debunked quibbles about guaranteed income encouraging anti-social behaviors, but there’s also a feminist critique of basic income proposals.

The feminist case against a UBI centers around the fear that, in contrast to more robust funding for social programs such as subsidized child care or parental leave, UBI would disproportionately encourage women to leave the labor force to provide care work in the home— reinscribing the gendered division of labor against which women have long struggled. In this view, UBI is undesirable—expected to fund the isolation of women in the domestic sphere, and preventing them from wielding influence over the real machinations of society.

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January 17th, 2020

UBI & the City

A new working paper models the effects of a basic income in New York City

Skeptics of guaranteed income tend to worry about the policy’s inflationary effects; absent rent regulation, for instance, one might expect housing costs to rise in proportion to the increase in disposable income generated by the policy. A new JFI-supported working paper presents the first attempt to model a UBI’s general equilibrium effects at the city level. In “Universal Basic Income and the City,” Khalil Esmkhani, Jack Favilukis and Stijn Van Nieuwerburgh explore the effects of a guaranteed income policy implemented at the city-level in New York City. They find that, when financed through a progressive income tax, a UBI increases general welfare and, perhaps most surprisingly, does not lead to housing market inflation. Their research sheds new light on the possible inflationary effects of basic income policies. It also suggests that the method used to finance a UBI has significant implications for the policy’s outcomes and characteristics. Though the results are tentative and the authors plan to expand their analysis to examine different scenarios and to perform sensitivity checks, their efforts already represent a major advance in the study cash transfer policy. In what follows, I present an overview of the macroeconomic literature on basic income before turning back to the model, its findings, and the plan for future work.

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January 16th, 2020

Macro Modeling in the Age of Inequality

On incorporating distributional concerns into macroeconomic models

Recent years have seen the revival of academic conversation around rising wealth inequality and its distributional consequences. But while applied, microeconomics-oriented fields like public and labor economics have long engaged with questions around inequality, macroeconomics has historically paid less attention to these questions, particularly as they relate to business cycles. Instead, it has focused more on the relationships between aggregate macroeconomic outcomes—such as unemployment, income, and consumption—and how they fluctuate during booms and recessions. As a result, research on rising income and wealth inequality in the United States tends to overlook the macroeconomic consequences of these developments, as well as the long-term macroeconomic trends which have contributed to their rise.

In order to assess what rising inequality means for our society, and what policies we should enact to mitigate its effects, we must understand its relationship to the economy as a whole. What macroeconomic forces have contributed to rising inequality, and how might elevated levels of inequality be shaping our economy? We need macroeconomic research to fully understand how income and wealth inequality have evolved in the United States. Particularly, we need a range of macroeconomic models, each of which can capture meaningful differences in household income or wealth but emphasizes different, potentially relevant features of the economy.

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December 18th, 2019

Unequal and Uneven: The Geography of Higher Education Access

Mapping market concentration in the higher education industry

In much of the existing higher education literature, “college access” is understood in terms of pre-college educational attainment, social and informational networks, and financial capacity, both for tuition and living expenses. The US ranks highly on initial college access by comparison with other countries, but this access—along with all major metrics of college success, including completion rates, default rates, and debt-to-income ratios—exhibits drastic inequality along familiar lines of race, gender, class, and geography.

Along with other pernicious myths, the media stereotype of the college student often figures undergraduates traveling far from home to live in a dorm on a leafy campus. The reality is far from the case: over 50% of students enrolled in four-year public college do so close to their home. This means that the geography of higher ed institutions strongly determines the options available to a given student. While much higher education policy discourse justly attempts to improve students’ access to information on school costs, financial aid information, completion rates, or post-graduation employment statistics to inform their school choices, political attention to geographic access remains overlooked.

Previous research on the geography of higher ed has simply reported the number of institutions in a given area. But the raw number of schools is ambiguous, as it fails to account for enrollment. We wanted to complicate the picture: given the uneven distribution of higher ed institutions and institution types—public and private non-profits, as well as for-profits of all kinds—around the country, we wanted to examine what role market concentration might play in a higher education industry increasingly characterized by a wide divide between elite institutions and the landscape of what Tressie McMillan Cottom has termed "Lower Ed." Starting from the perspective that many students are not going to travel long distances to be in residence full time at a leafy campus, how many options are they realistically looking at? And what’s the relationship between concentration, disparities on the basis of race, class, and geography, institutions’ resulting market power, and college cost, debt loads, and post-graduate earnings?

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November 22nd, 2019

Development and Displacement

The effects of big development initiatives

Infrastructure lies at the heart of development. From transportation and telecommunication networks to electrical grids and water pipelines, large-scale infrastructure projects play a pivotal role in the global development landscape. (In 2015, infrastructure spending totaled $9.5 trillion or 14% of global GDP). Infrastructure development also holds political significance.

Both historically and in the present, state investment in resource generation in the Global South has been a cornerstone of national movements for economic independence. But while infrastructure development projects generate jobs and drive long-term growth, the economic gains are often unevenly distributed. The burden of development weighs heavily on individuals and communities who are forced to leave their homes to make way for these large-scale projects.

In the development literature, this phenomenon is referred to as development-induced displacement and resettlement (DIDR)—individuals and communities being forced to leave their place of residence and abandon their land due to development initiatives. Some accounts estimate that 200 million people were displaced by development projects over the last two decades of the 20th century, and the current scale of DIDR is estimated to be around 15 million people per year. People displaced by development projects fall into the broader category of Internally Displaced Persons (IDPs)—a United Nations designation for "persons or groups of persons who have been forced or obliged to flee or to leave their homes or places of habitual residence as a result of armed conflict, internal strife, and habitual violations of human rights, as well as natural or man-made disasters involving one or more of these elements, and who have not crossed an internationally recognized state border." In the case of DIDR, resettlement—if any occurs—is often inadequate, leaving migrants impoverished and disempowered. Unlike refugees that cross international borders and are under the protection of international law, internally-displaced persons remain within the jurisdiction of their own government—vulnerable to the same lack of protection that caused their displacement. Urban, transportation, and water supply projects account for the majority of displacements—between 1986 and 1993, 80 to 90 million people were involuntarily displaced by these three types of infrastructure development projects alone.

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November 7th, 2019

Collective Ownership in the Green New Deal

What rural electrification can teach us about a just transition

This year, we once again shattered the record for atmospheric carbon concentration, and witnessed a series of devastating setbacks in US climate policy—from attempts to waive state protections against pipelines to wholesale attacks on climate science. Against this discouraging backdrop, one idea has inspired hope: the “Green New Deal,” a bold vision for addressing both the climate crisis and the crushing inequalities of our economy by transitioning onto renewable energy and generating up to 10 million well paid jobs in the process. It’s an exciting notion, and it’s gaining traction—top Democratic presidential candidates have all revealed plans for climate action that engage directly with the Green New Deal. According to the Yale Project on Climate Communications, as of May 2019, the Green New Deal had the support of 96% of liberal democrats, 88% of moderate democrats, 64% of moderate republicans, and 32% of conservative republicans. In order to succeed, however, a Green New Deal must prioritize projects that are owned and controlled by frontline communities.

Whose power lines? Our power lines!

Efforts to electrify the rural South during the New Deal present a useful case study for understanding the impact of ownership models on policy success. Up until the mid-1930s, 9 out of 10 Southern households had no access to electricity, and local economies remained largely agricultural. Southern communities were characterized by low literacy rates and a weak relationship to the cash nexus, distancing them from the federal government both culturally and materially. They were also economically destitute—a series of droughts throughout the 20s led to the proliferation of foreclosures and tenant farming. With the initial purpose of promoting employment in the area, the Roosevelt administration launched the Rural Electrification Administration in 1935. The Rural Electrification Act of 1936 sought to extend electrical distribution, first by establishing low-interest loans to fund private utility companies. The utility companies turned them down: private shareholders had little reason to invest in sparsely populated and impoverished counties, whose residents could not be assured to pay for services; private investors lacked the incentive to fund electrification for the communities who needed it most.

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October 17th, 2019

Disparate Causes, pt. II

On the hunt for the correct counterfactual

An accurate understanding of the nature of race in our society is a prerequisite for an adequate normative theory of discrimination. If, as part one of this post suggests, limiting discrimination to only direct effects of race misunderstands the nature of living as a raced subject in a raced society, then perhaps the extension of the scope of discrimination to also include indirect effects of race would better approximate the social constructivist view of race.

Recent approaches to causal and counterfactual fairness seek fair decision procedures “achieved by correcting the variables that are descendants of the protected attribute along unfair pathways.”1 The method, thus, cancels out certain effects that are downstream of race in the diagram, thereby retaining only those path-specific effects of race that are considered fair. Despite the expanded scope of what counts as a discriminatory effect, the logic of the Path-Specific Effects method follows that of the original Pearlian causal counterfactual model of discrimination: race, as a sensitive attribute, is toggled white or black atop a causal diagram, and its effect cascades down various paths leading to the outcome variable. But, this time, the causal fairness technician does more than measure and limit the direct effect of race on the final outcome; she now also measures effects of race that are mediated by other attributes, keeping only those effects carried along paths deemed “fair.”

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