2020 is finally coming to an end.
In the aftermath of a year that was incredibly difficult for many people, it feels bizarre to commemorate this year with a celebration. Yet as vaccinations continue to reach more and more people, the transition into 2021 offers a moment to meditate on the pain that so many individuals endured this year. It also offers a chance to reflect on how, in a new year with a changing administration, we can respond to a year marked by two million COVID deaths worldwide, a reckoning with systemic racism, and widening inequalities.
With this final 2020 edition of The Difference Principle, I will begin by offering a brief summary of where inequality stands as the year ends. This month’s “Headline” piece discusses an amalgam of studies that consider the impact of the Trump Administration on inequality generally. The “Inequality Briefing” goes on to discuss a number of other topics, including the impacts of offering housing for the homeless, student debt forgiveness, and what we can learn from how early innovations in electricity impacted the gap between the rich and poor.
Five Ways of Understanding Inequality in 2020
Throughout the past year, this newsletter has tried to distill the numerous forces operating in tandem to widen US inequality. Before we turn to our research summaries, I want to highlight five key about American inequity this year.
Before we conclude this edition and begin the new year, I want to take a moment to recognize two crises that I believe are under-discussed.
The first of these is the enduring and unyielding scale of the COVID-19 pandemic in developing countries. Right now places like Zimbabwe, Mexico, and Pakistan are struggling to gain access to the COVID-19 vaccine. And many of these countries may not receive it until as late as 2022. This comes as cases rise in much of the developing world and at least two new strains of COVID-19 appear more contagious than the original virus. As we enter the new year, it is worth thinking about global inequality in vaccine access and considering donating to protect vulnerable individuals in developing countries. I personally recommend using Give Directly, which provides direct cash transfers to the individuals that need aid most. Here’s a link.
Second, I would like to take a moment to acknowledge the immense toll the COVID-19 pandemic has taken on people struggling with mental illness. Just over a week ago, I lost a good friend to suicide. And so with rising rates of anxiety and depression as well as overwhelmed suicide hotline infrastructure, those that can to might consider donating to the American Foundation for Suicide Prevention. And since 87 percent of suicide attempts are made on an impulse, this particularly dark moment may be an important time to reach out to loved ones grappling, with loneliness, depression, anxiety, or any form of mental illness. A call, text, email, or voice note can go a long way.
Thank you for reading. See you in February 2021.
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Moving Forward After a Disequalizing and Disasterous Pandemic Response
(The Brookings Institution; The National Bureau of Economic Research)
No failure has marked the Trump Administration more than the mishandling of the COVID-19 pandemic. To date, the US leads the world with over 19 million cases and three hundred thousand deaths. And though most countries struggled considerably to contain the virus—from Merkel’s Germany to Suga’s Japan—it is difficult to dispel the view that things did not need to be this way.
And yet, as these reports show, the US pandemic response has resulted in massive economic costs and ultimately allowed inequality to widen considerably. This will not be news to any regular reader of this newsletter. COVID-19 has exposed deep systemic health and economic disparities, which have served to dampen aggregate demand, slow the growth of productivity and ultimately exacerbate a spirit of social discontent that is fueling political radicalization. It has resulted in widespread job loss, heightened racial and economic inequality, produced rising rates of hunger, increased poverty, and resulted in a considerable erosion of progress in gender income equality. Meanwhile, lower wage and middle-skill workers are being left behind in the COVID-hastened substitution of labor for capital in many industries. The result is the further extension of an economic structure that disproportionately rewards high-skill and high wage workers with adequate savings while punishing the rest.
What about the Trump Administration’s efforts to provide aid to Americans? Put simply, though the initial stimulus was essential to preventing an economic freefall and a complete loss of livelihoods for millions of Americans, the CARES Act hasn’t provided the relief many had hoped it might. Small businesses (and disproportionately those owned by Black and ethnic minorities) found themselves slipping through regulatory cracks. And there was a considerable lack of oversight over the dispersal of CARES Act funds; no official government agency or individual within the federal government was tasked with ensuring that pandemic relief funds reach the small businesses and communities that need it most.
Moreover, as these reports show, the CARES Act did little to prevent the disproportionate burden the COVID-19 pandemic placed on Black and, especially, Hispanic Americans. This is as true in health outcomes as it is of the pandemic’s economic costs. And so as the Trump Administration offered up tax refunds to corporate executives, Black and minority-owned businesses struggled to get relief, and small businesses generally were left behind throughout the bond buying effort.
The results of this pandemic on mental health have also been disasterous and highly unequal. A March survey studied the differences in well-being between the rich and poor, and it found low-income respondents reported more negative emotions —that includes worry, sadness, loneliness, and anger — than high-income ones. This is an important finding because many of the most negatively impacted individuals are lower-income people in rural parts of the country, which have been comparatively less touched by COVID. And yet, the tundra of economic uncertainty ushered in by the pandemic has meant that areas previously grappling with deaths of despair—from suicide and opioids—have faired even worse. From March to July, EMS saw a sharp increase in the number of incidents of overdose, death, and mental health crises.
Where then does this leave the incoming Biden Administration? These reports offer a number of potential solutions to growing US inequality. This begins with addressing many of the underlying catalysts of America’s persistent inequality, including indebtedness, poor investments in education, and sluggish training for the digital skills of the 21st century. It also includes adopting a labor market bent on improving workers’ mobility and ability to bargain as well as the maintenance of competition through monopoly-busting. Moreover, the Biden Administration should immediately adopt stimulus oversight commitees dedicated to ensuring that small communities and businesses receive the relief that they need; given the chronic lack of minority financial regulatories, communities of color should also receive a chance to oversee the distribution of stimulus funds. Finally, these reports argue the Biden Administration ought to turn away from an emphasis purely on economic growth, focusing also on community vitality, health and well being, and a recognition of the harmful effects posed by unequal economic expansion. By pursuing policies bent on inclusive economic growth, the Biden Administration can take steps to not only ensure a fairer country, but also a more efficient economic model better able to withstand recessions and sustain growth. Read NBER. Read Brookings.
Your Inequality Briefing
Student debt forgiveness would disproportionately benefit students from higher-income households.
(Sylvain Catherine & Constantine Yannelis, The National Bureau of Economic Research)
This report estimates the potential impact of partial or full student loan forgiveness on individuals across income demographics. The authors find that student loan forgiveness is ultimately a regressive policy because it disproportionately benefits higher income households, which took out larger loans. In total, the report shows that student loan forgiveness would benefit the wealthiest 10 percent of households as much as the bottom 30 percent of households combined. Black and Hispanic Americans would also stand to benefit considerably less than other demographics. As a consequence, the authors propose a system linking loan forgiveness to earnings, which would disproportionately benefit middle-income individuals. Read.
Providing homeless people with housing assistance reduces crime, increases employment, improves health, and does not increase reliance on social benefits.
(Elior Cohen, University of California, Los Angeles)
This report studies the impact of housing assistance for the homeless on recidivism and socio-economic outcomes. By utilizing a dataset of administrative records from Los Angeles County public agencies, the author finds that housing assistance for single adults experiencing homelessness reduces the future rate of homelessness by 20 percent over an 18 month period. The author argues this effect is driven by housing solutions that can offer enduring help for individuals with physical or mental illnesses. This results in a decline of crime, an increase in employment, improvements in health, and no increase in social benefit reliance. Within just 18 months, 80 percent of the housing costs are offset by the potential economic benefits. This shows that providing housing to the homeless is not simply the right thing to do; it’s also the economically efficient thing to do. Read.
~People and Places~
Biden-voting America makes up 70 percent of the economy, underscoring the scale of geographic inequality.
(Mark Muro, Eli Byerly Duke, Yang You, and Robert Maxim, The Brookings Institution)
This report analyzes the scale of geographic inequality along political lines. The authors find that in 2016, Clinton’s voting base represented two-thirds of the overall economy. And in 2020, Biden’s voting base made up 70 percent of the economy. This widening schism in regional opportunity in the US adds further evidence that Trump tapped into the largely working class and white angst of a poorer and more rural America. The authors warn that the deep partisan divide may couple with massive geographic economic rifts to further exacerbate polarization, produce gridlock, and impose economic harm to vulnerable areas. Read
~ Race Inequality~
The legacy of segregation and enduring urban poverty is causing lasting damage.
(Marcela Escobari, Ian Seyal, Carlos Daboin, The Brookings Institution)
It’s no question that racial and urban inequality has had an enduring impact across generations. This Brookings blog highlights the impact of segregation on rising urban poverty throughout the past forty years—today urban poverty rates are far more pronounced for Black Americans. The authors highlight the case study of Washington, D.C., where a concentrated Black population is segregated from the rest of the city, and economic outcomes are poorer in those Black communities. The authors argue that policymakers should consequently pursue community-led policies dedicated to improving public schools and transportation, reducing crime, offering better healthcare, and encouraging local entrepreneurship. Read
~ Social Security & Taxation~
Americans increasingly agree on increasing the minimum wage.
(Molly Kinder, The Brookings Institution)
This report discusses the recent ballot initiative to raise Florida’s state minimum wage from $8.56 to $15 per hour by 2026. The proposal, which passed with more than 60 percent of the vote, stands in stark contrast to the state’s conservativism streak, support for Donald Trump, and election of representatives on both the state and federal level that oppose a minimum wage hike. And yet this result is not wholly unsurprising. A 2019 national survey from the Pew Research Center found that two-thirds of respondents supported a federal minimum wage increase to $15 per hour. With growing bipartisan support amidst the pandemic, a growing share of Americans is keen to offer protections for the low-wage workers that have suffered the most financial strain during COVID-19. Read
How innovations in electricity during the Second Industrial Revolution widened inequality and eroded the middle class.
(Martin Fiszbein, Jeanne Lafortune, Ethan G. Lewis, Jose Tessada, NBER)
This study attempts to distill lessons on the impacts of technological advancements on inequality and the middle class. To do this, the authors focus on the innovations in electricity that took hold in manufacturing production during the Second Industrial Revolution, from 1890 to 1940. The report shows that electricity innovations resulted in long lasting productivity gains. Yet this came at the cost of employment, as the share of middle-skill jobs in the economy declined relative to high and low-skill jobs. This polarization of the labor market therefore provides further support for David Autor’s thesis that technological shifts often result in the erosion of the middle class. As a growing number of companies replace labor for capital in the aftermath of the COVID pandemic, this is a study worth paying attention to. Read
Here’s What Else You Should Know
US billionaires (roughly 200 people) got $1 trillion richer during Trump's term, and they have poured their earnings into luxury goods (sports teams and real estate, for example). (Bloomberg)
A global Financial Times survey shows resentment is festering among young people as unemployment and restrictions take their toll (Financial Times)
Geographic inequality is reshaping the political map. From 2010 to 2019, the number of people in counties won by Biden grew by an average of 3.1 percent. Meanwhile the counties won by Trump averaged an increase of just 0.6 percent. (Economic Innovation Group)
The shift to online learning is particularly hurting low achieving students. During closures, students on average reduced daily learning time by about half, and the reduction was significantly larger for low-achieving student (Centre for Economic Policy Research)
10 percent of parents of young children report that their kids do not have sufficient food and that they lack the resources to purchase more. (The Brookings Institution)
A primer on the new stimulus package and what’s in it for you. (The New York Times)
The American middle class is highly racially diverse and quickly becoming more diverse. (The Brookings Institution)
More than 25 million workers are being hurt by the coronavirus downturn. This includes individuals who are employed, unemployed, or have dropped out of the labor force altogether. (Economic Policy Institute)
Generative Pre-trained Transformer 3 is a transformative innovation in deep learning and artificial intelligence. In this report, the Financial Times summarizes some of its potential risks and rewards. (Financial Times)
High veteran homelessness can be prevented: lessons from community initiatives in Detroit, Ann Arbor, Fresno City, and others. (Urban Institute)
The Black-white wealth gap left Black households more vulnerable during this pandemic due to a more limited asset base or financial “cushion”. (The Brookings Institution)
The Biden Administration must focus on reskilling workers for a digital age. (The Brookings Institution)
Thanks for reading. See you in February 2021.