JULIAN JACOBS
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The Difference Principle: February 2021

2/22/2021

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Welcome back to “The Difference Principle”. 
For those that are new, this is a monthly newsletter that links to and summarizes developments in the politics and academic analysis of inequality. This includes a broad range of topics—from technological change, to trade, to legislation, and to demography. And after a brief hiatus for the holidays, we’re back up and running. 
First, let’s begin by acknowledging the most obvious news since our last December 2020 issue: there is a new presidential administration leading the United States.  For anyone that cares about America’s widening gap between the rich and poor—whether this is along geographic, racial, gender, or education level—, the entrance of a Biden Administration is a good thing.
And yet, it has been difficult to start the new year with any real sense of buoyancy. Half a million Americans have died from COVID, and millions of people are struggling with worsening mental health. Thousands of Americans—especially young people—are taking their lives. 
Beyond this, The Trump Administration had a disastrous effect on inequality in the US. According to the Federal Reserve, the wealth—i.e. assets and income minute debt— of the top one percent was roughly $28.17 trillion right before Trump took office. By the end of his presidency, however, that number ascended to $36.18 trillion. And despite modest increases in real wages prior to COVID, a disequalizing pandemic coupled with tax cuts for the wealthiest Americans and corporations has produced a historically significant bifurcation in wealth in the US. 
Of course, inequality was clearly a problem before Trump took office. When measured through income, a total of $47 trillion dollars have been transferred from America’s bottom 90 percent to the top one percent since 1975, according to a study by the Rand Corporation. The problem of inequality will continue to be a defining challenge for the US, and the effort to reduce it should be a key measure by which we evaluate the success of the Biden Administration. This is not only because high levels of inequality produce a self-reinforcing calcification of privilege, it also reduces economic mobility, produces worse recessions, and correlates with crime, the erosion of faith in democracy, and worse mental health.  
Five questions facing the Biden Administration 
With this in mind, here are five key questions the Biden Administration faces in its effort to bring the US to a fairer distribution of wealth and income. 
  1. How will the US recover from the COVID pandemic and recession? The economic impacts of the COVID lockdown have been terrible. In 2020, the US lost 9.37 million jobs, which marks it as the worst year for job losses since 1939. By contrast, the US lost 3.55 million jobs in 2008, and 5.05 million jobs in 2009, following the Financial Crisis. Given these losses, it will be of little surprise that there are currently 18 million more Americans claiming unemployment insurance and a year ago. Although there are reasons for optimism—this includes the fact that many Americans may have ‘dormant demand’, which could spur an increase in spending when the economy fully opens up—it remains a deeply challenging time. Employers hardly added any jobs in January, and many of the new jobs added were temporary ones. 
  2. How will demographic change reshape the US economy? The United States is changing. President Biden will lead an aging population that is expected to live longer. Moreover, he will preside over an unprecedented stagnation in population growth. From 2010 to 2020, the number of Americans aged 55 and over increased by 27 percent. Meanwhile, geographic inequality is on the rise, as geographic mobility (the number of people changing their residency) declines. Beyond this, the US white population declined this past decade for the first time in history, and Post-Generation Z Americans are minority white. These shifts will force the Biden Administration to reckon with fundamental questions healthcare, state responsibility, geographic inclusion, and racial justice. This is especially important when we consider the unequal distribution of the pandemic’s financial burdens—it is women, Hispanic, and Black Americans that have been disproportionately hurt by the COVID Recession. 
  3. Will technological change and shifts in the job market increase inequality? Digitalization (the infusion of computers and digital technology in the economy) has been on the rise for decades. Though this new technology has reshaped our lives in generally positive ways, it has also been partially responsible for America’s rising rates of inequality. This is because technological change has reduced the employment share of middle-wage jobs while simultaneously kindling job growth in high-wage and low-wage occupations. The result is a bifurcation of US wages. The Biden Administration has a monumental challenge in confronting these trends, which have been hastened by a greater shift to labor automation due to the COVID pandemic. And as a relatively small number of high-wage/high-skill jobs command lucrative wages, the US will continue to experience a boom in elder care and child care services, hospitality, home aids, and restaurant jobs. These service occupations tend to be lower paid, leading some economists to worry about the emergence of a master-servant economy with blunted economic mobility. 
  4. Can the US make its financial system more equitable? The inequality endemic in the US financial system is a key reason that the pandemic has had a disequalizing effect. While the US stock market rallies, it becomes easier to ignore the deep pain individuals and companies have experienced through the past year. It’s well understood that only about half of Americans are invested in the stock market, and exposure to stocks is unsurprisingly heavily concentrated among the wealthiest Americans. The ascent of the US stock market consequently explains, in part, why billionaires got nearly $1 trillion richer since the start of the COVID pandemic. A key question for the Biden Administration, then, is how best to redistribute ownership in the US economy. How can a greater share of Americans gain access to asset ownership, escape debt traps, and generally have a more significant stake in the expansion of the US economy? For more on this, I recommend reading up on Biden’s Securities and Exchange Commission (SEC) pick Gary Gensler. 
  5. an the Biden Administration pass meaningful legislation? In at least a few respects, President Biden fancies himself a modern-day FDR. By proposing an unprecedented $1.9 million stimulus—bringing the total aid eligible Americans will receive to $2000—Biden is signaling a desire for a stronger government, a more robust welfare state, and a greater role of the federal system in guiding the US through turmoil in both the short and long term. This approach is endorsed by a strong consensus of economists, including Treasury secretary and former Fed Chair Janet Yellen. And it may be a crucial step in preventing a more painful recession, especially as one-third of businesses report they will need more aid in the next six months.  The Administration’s ambitious spending plans, which also include proposals to revitalize and expand access to the Affordable Care Act, are matched with a proposed trillions of dollars in tax increases on corporations and the rich. And yet, President Biden is stopping short of entirely repealing the Trump tax cuts—he is increasing income taxes to pre-Trump levels at only the top bracket, and he is not increasing the corporate tax rate to its Obama-era level. Though much of this may stem from an abundance of caution about a further economic contraction, it does pose fundamental questions about what economic agenda Biden will pursue and how progressive it will be. Will Joe Biden succeed in ushering in a modern new deal that bolsters a strong new American middle class? Or will his razor-thin majority in the Senate and a lack of unity in the Democratic Party prevent him from achieving the kind of renewal he has promised thus far? For more on this, you can check out a primer on Biden’s paid leave proposal here. You can also read about Biden’s stimulus here. And here’s a tool to track Biden’s first 100 days. 

With this new political context in mind, our February Edition will be turning its attention to a number of fascinating studies relevant to US inequality. In our Spotlight section, we will be discussing the impacts of artificial intelligence on the labor market. In this month’s Inequality Briefing, we summarize, among other topics, how the Affordable Care Act reduced inequality, the homeownership gap between races, the presence of a US poverty trap, and how better data collection might improve outcomes for unhoused LGBTQ youth of color. Please feel free to write to me with topics for a future newsletter. 

A concluding note on mental health 
Before we turn to the research summaries, however, I would like to conclude with a note about mental health. In the last edition of this newsletter, we briefly discussed the quiet suffering of the millions of people struggling with mental health, in part due to the isolation of the COVID pandemic. This suffering is increasingly demonstrated through flooded suicide hotlines, over-extended mental health resources, and tragically also in an increase of suicides. Unfortunately, this is an issue that has been deeply personal throughout the past two months—last December a friend took their life, and just last week a family member took their life. 

Many of the readers of this newsletter are young, and therefore in the group most likely to be struggling with mental health right now. And so I want to conclude with three points. First, if you are struggling with mental health, know you are not alone and do not hesitate to ask for help. Second, if you have the capacity and bandwidth to reach out, doing so can go a long way. And third, if you have the ability, consider donating to the American Foundation for Suicide Prevention. By doing so, you can play a part in improving mental health infrastructure that can save lives. 
Thank you for reading. See you in mid-March. 
—Julian
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Announcements 
  • Help Connect Tutors: Connect Tutors is an NGO dedicated to offering free college application essay tutoring to students at under-resourced institutions. The organization is currently looking for volunteers. You can read a press piece on Connect at The Brown Daily Herald. And you can register to volunteer here. 
  • Columbia University Conference: I will be presenting a research paper at Columbia University’s “Council for European Studies” research conference in Iceland next summer. The study offers a difference in difference analysis of how American attitudes (collected from the American National Election Survey) change as the “automation potential” of their job increases. Read more about the conference here. 
  • Donate to the American Foundation for Suicide Prevention: 87 percent of suicide attempts are made on an impulse. And as millions of people struggle with worsening mental health, it has never been more important to develop stronger infrastructure to help people in need. Consider donating to the American Foundation for Suicide Prevention here. 

The Headline
Thank you to Maanasi Natarajan for research assistance with these summaries. 
How Artificial Intelligence is Quietly Reshaping the Economy 
(Daron Acemoglu, David Autor, Jonathon Hazell, Pascual Restrepo, NBER)

Artificial intelligence (AI) is getting better. Although AI innovators often have a reputation for overly optimistic projections about the growth and application of the technology, it would be difficult to look at the past decade and fail to note the significant progress. The radical capacity to automate labor that AI seems to promise is why politicians and commentators—from Bernie Sanders to Tucker Carlson—are worried about AI. While some believe that AI could help complement human productivity and increase work efficiency, others believe it may completely eliminate the need for humans in the workforce. 

This report examines AI adoption in the US and the implications it may have on the labor market and the growth of work automation. By analyzing occupations as a collection of tasks, the authors find there was a takeoff in AI vacancy postings in 2010, accelerating five to six years later. Moreover, AI exposure in an occupation is associated with the emergence of new skills and a decline in the demand for some of the skills previously required for work. This shows that AI is having a gradual impact on the nature of occupations. 

The authors also find evidence of lower hiring among companies with greater AI exposure, and they offer results that suggest the recent AI surge is driven by task substitution. They find no evidence that a surge in AI will increase hiring due to a rise in productivity, but they acknowledge that there could be other applications of AI that require a human labor component. In what might be a surprise to many doomsday theorists, this study finds no relationship between AI exposure and employment or wage levels. This indicates that the impact of AI on the US economy is still too small to have significant macroeconomic effects. And yet, the trends presented in this study seem to suggest that AI is slowly reshaping the economy and may soon have a disequalizing effect. Read more.


Your Inequality Briefing
~Education~
Why gender matters when analyzing high school graduation rates. 
(Richard V. Reeves, Eliana Buckner, and Ember Smith, The Brookings Institution)
Though states provide data on high school completion rates for a variety of racial, ethnic, and economic subgroups, a glaring omission is data on high school graduation rates by gender. Using publicly available graduation data from 2016-2019, the authors find that girls graduated at a higher rate than boys and that the data showed a stark gender gap; graduation rates for boys were at 82 percent, which was only slightly higher than the rate for economically disadvantaged students (80 percent). These gaps are even wider for Black and Hispanic boys, who have an eight to 10 point graduation gap relative to their female counterparts. The authors emphasize that the gender graduation schism is wide and important enough to justify adding gender to the list of subgroups that the Department of Education tracks. Read
~Healthcare~
The Affordable Care Act reduced inequality. 
(Matthew Buettgens, Fredric Blavin, Clare Wang Pan, Urban Institute)
This report is significant for its use of broader measures of income to assess the impacts of the Affordable Care Act (ACA). The authors find that the ACA reduced income inequality, not only in states that expanded Medicaid but also among the states that did not do so. These reductions were, however, particularly pronounced among states that expanded Medicaid. The ACA also reduced income inequality between different age groups, people of higher and lower educational attainment, and racial/ethnic groups. The authors of this report argue that the repeal of the ACA would likely increase income inequality to its previous levels. Read
~Macroeconomy~
A poverty trap is the most likely cause of persistent extreme poverty. 
(Clare Balboni, Oriana Bandiera, Robin Burgess, Maitreesh Ghatak, and Anton Heil, LSE)
Over 700 million were classified as living in extreme poverty by 2015. It is therefore unsurprising that a central goal of development theory is understanding the conditions that spur and maintain poverty. The authors of this study argue that there are two competing views on why people stay poor: one view holds that poor people have the same opportunities as others, but it is their undesirable qualities that keep them in poverty. The poverty trap explanation, on the other hand, holds that poor people have different opportunities than others, which traps them in low-earning jobs. This paper provides evidence that the average low-income household is trapped in poverty and cannot move into more lucrative occupations because of a lack of initial assets. Read
~People and Places~
The 2020 Census: The US is becoming older, more diverse, and less mobile. 
(William Frey, The Brookings Institution)
This report examines estimates of the 2020 Census results and what story those results tell about the changing nature of the United States. The author finds that the Census could show “the smallest decade-long growth rate in America’s history,” due to the effects of the Great Recession, stricter immigration policies, and the COVID pandemic, as well as a sharp growth divide between old and young populations. Moreover, waning geographic mobility is increasingly being felt on both a local level and across states. And the author argues that a decline in the white population from 2010 to 2019 is a major contributor to the US’ demographic stagnation. Population growth is thus primarily being spurred by minority demographics—this trend is made patently clear in the greater racial diversity among Gen Z and Millennials. To combat population stagnation, however, the author argues the US would need to drastically increase immigration to three times its current level. Read

Better data collection can improve outcomes for unhoused LGBTQ/GNCT youth of color.
(Jahnavi Jagannath, Kierra B. Jones, Constance Hull, Urban Institute)
Texas has one of the largest populations of lesbian, gay, bisexual, questioning/queer, gender nonconforming, and transgender (LGBQ/GNCT) youth. This group is more likely to be unhoused than the general youth population because of a number of biases and barriers that disproportionately impact them. Remediating gaps in data is one area that philanthropists can focus on in order to both better understand the challenges faced by LGBQ/GNCT youth and address the housing challenges facing them. This report proposes a partnership with youth-serving organizations in Texas to provide training, research, and technical support to advance data collection efforts. Of course, data collection is only part of the solution; the report also lays out other funding priorities for philanthropy, including supporting the implementation of non-carceral service programs and decarceration models. Read

Marriage, divorce, and child-rearing often have big effects on wealth, which are more likely to be positive for white Americans. 
(Gopi Shah Goda and Jialu Liu Streeter, NBER)
This study looks at the impacts of life milestones—marriage, divorce, and childrearing— on an individual’s wealth. Unsurprisingly, the report finds that retirement and homeownership are associated with the largest positive changes in wealth, while both early and late health shocks and disability are associated with large negative changes. The authors find that most long-run shifts in wealth are gradual rather than sudden, and the short-run changes that do occur tend to be smaller. The extent of these shifts in wealth does, however, vary by demographic. Perhaps most notably, non-whites experience long-run reductions in wealth for the same life milestones that result in long-run increases in wealth for whites. Read

Race inequality is producing greater homeownership inequality. 
(Laurie Goodman, Jun Zhu, Urban Institute)
This report analyzes homeownership over time and how race inequality has caused homeownership gaps to widen. It offers suggestions as to how systemic barriers to homeownership can be addressed in the future. The authors project many forecast new household formation will decline to 7.6 million per decade in 2030 to 2040, that almost all future net household growth will be from non-white and senior households, and that there will be a decline in homeownership for most age groups through 2040, especially among Black households headed by 45-74-year-olds. The authors also forecast that net new homeowners during this time will be non-white and almost entirely Hispanic, and the pace of renter growth will be more than double the pace of homeowner growth. The authors utilize their findings to argue in favor of more affordable housing, increased financial education, and the implementation of sustainable programs for minority borrowers to ensure that homeownership does not lose its value as a wealth-building tool. Read
~Prisons~
To improve health care outcomes for incarcerated Americans, we need better research. 
(Alexandra Kurland, Urban Institute)
This report examines how research can be used to improve healthcare in correctional facilities. The author stresses that the government has an obligation to provide adequate healthcare to incarcerated people and, moreover, to ensure that those who are released do not jeopardize those in their communities because they lack proper health care. Prisons don’t have significant mechanisms to ensure the health of incarcerated individuals, especially because measures used to track adequate health care vary between states. The metrics of accountability used to track the quality of care also vary, the author argues, elevating the importance of increasing accountability in quality of care and facilitating patient feedback. Moreover, the author finds that the health effects of incarceration are severe; prisons are overcrowded and have inadequate ventilation, poor dietary programs, and a lack of personal hygiene items. Unsurprisingly, individuals in prison are also more likely to be susceptible to mental illness. The author uses her findings to call for new research that better tracks the needs of the incarcerated. Read
~Technology~
Robots don’t reduce the number of jobs, but they do reduce job quality: evidence from Japanese nursing homes. 
(Karen Eggleston, Yong Suk Lee, And Toshiaki Iizuka, NBER)
This report acknowledges the pervasive fear of emerging tech like AI, big data, and robotics on employment. The authors suggest, however, that automation could help solve some labor market challenges, including the negative effects of the declining employment to population ratios and aging populations. In this report, the authors study the effect of robots on nursing home staffing in Japan and find that robot adoption actually increased the number of nurses and care workers. The effects were concentrated, however, on non-regular employees with flexible contracts and fewer benefits. Moreover, robot adoption reduced the wages of regular nurses and the reported turnover rate. This provides further evidence for the thesis that new technology increases wage inequality, reduces job quality, yet does not necessarily reduce the total number of jobs in the economy. Read
~Workers~
U.S. wages have been suppressed as a result of the systematic erosion of workers’ power relative to their employers
(Lawrence Mishel, IMF)
Both political parties in the United States recognize the problem of wage stagnation, though they cannot agree on its cause. This International Monetary Fund paper shows that wage stagnation is a consequence of a business and the wealthy class disempowering workers by adopting anti-worker practices and blocking reforms. The mechanisms that cause this stagnation include globalization, excessive unemployment, and eroded labor standards. A larger number of people will benefit from future economic growth if bargaining power is restored to workers. The author consequently argues that the US should eliminate forced arbitration and non-compete agreements, take steps to encourage collective bargaining, and provide more robust restrictions on labor standards. Read


Here’s What Else You Should Know
Emmanuel Saez has a new report out on the role of social environments in determining the distribution of pre-tax market incomes (NBER) 

The rise in unemployment due to the COVID pandemic will produce 0.8 million additional deaths over the next 15 years. (NBER) 

Four reasons why more public housing isn’t the solution to affordability concerns (Brookings) 

Historically Black Colleges and Universities offer excellent avenues for success with more limited resources.  (Brookings) 

Mental health innovation is important for economic recovery and upward mobility (Brookings) 

The Family Origin of the Math Gender Gap is a White Affluent Phenomenon (NBER) 

To create a stronger Black middle class, the US should restore the government and business investments that created a growing middle class in the three decades after World War II (Institute for New Economic Thinking) 

Union workers had more job security during the pandemic, but unionization remains historically low (Economic Policy Institute) 

How the pandemic is worsening inequality: Poor workers and nations suffer but rising markets boost the rich (Financial Times) 

FAFSA’s expected family contribution is finally going away. The dollar figure that the federal financial aid form spits out has long left families confused and despondent. And then there are those great expectations. (The New York Times) 

How the trading app Robinhood takes data from users and sells it to rich investors. (Jacobin) 

Deficits still matter—if not for the dollar or inflation, then for inequality and productivity (Financial Times)

Biden is shifting to the left, touting workers over wealth (Financial Times)  

Will Joe Biden’s fiscal stimulus overheat the American economy? If it does, higher inflation could be the consequence. (The Economist) 

An excellent tool to track Biden’s first 100 days. (The Economist) 

10 Challenges Biden Faces in Righting the Economy (The New York Times) 

Bad economies usually hurt both workers and investors. Only the first part has been true this time, and the rich that disproportionately own stocks have benefited. (The New York Times) 

Why are there so few Black economists at the Fed? The story of Monroe Gamble— the San Francisco Fed’s first Black research assistant. (The New York Times) 

Washington State is experimenting with a one percent tax on wealth over $billion. (CounterPunch) 

A universal basic income has limited support. A universal basic income for kids could be coming soon. (The Wall Street Journal) 

Thanks for reading. See you in March. 
​

That’s a wrap on this edition of “The Difference Principle”. 
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