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12/31/15

How the politics of education changed in 2015 (and what it means for 2016)

In 2015, K-12 and higher education officially switched places in the hierarchy of national issues. On the K-12 side, federal policymakers have quietly reined in the expansive federal role that took root under No Child Left Behind, and school reform has been largely absent from presidential debates. Meanwhile, college affordability has been a near-constant topic on the campaign trail, with candidates proposing far-reaching changes to the federal role in higher education. In Congress, calls for free college, accreditation reform, and risk-sharing are now commonplace. The federal role in K-12 is now clearly in retreat, but the push for higher education reform is gaining momentum.

It has not always been this way. Over the past 15 years, in fact, K-12 education reform was most often in the spotlight. In the late 1990s and early 2000s, leading Democrats and Republicans placed K-12 education at the center of their domestic agendas. President Clinton bemoaned low test scores and called on states to adopt rigorous standards and accountability systems. Later, candidate George W. Bush promised to end the “soft bigotry of low expectations” by bringing Texas-style accountability to federal policy. One month before the 2000 election, 17 percent of voters cited “education” as the “most important problem” facing the country (second only to economic concerns, cited by 21 percent).

After Bush took office, he worked with allies in congress to cobble together a bipartisan coalition around a federal system of test-based accountability. The coalition’s signature law—the No Child Left Behind Act—required states to regularly test students in reading, math, and science, disaggregate the results by demographic subgroups, and intervene in schools that repeatedly failed to make “adequate yearly progress.”

Though support for NCLB began to fray almost as soon as the law touched American schools, President Obama and Secretary of Education Arne Duncan essentially doubled down on its main tenets. They used competitive grants and waivers to promote it, but the goals were similar: states had to adopt higher standards, intervene in the worst performing schools, evaluate teachers using test scores, and support charter schooling. Obama’s Race to the Top—a distillation of these priorities—garnered glowing accolades from elites on left and right, seemingly signaling the emergence of a lasting consensus around this conception of the federal role.

Fast-forward 7 years and the consensus has all but evaporated, as has candidates’ interest in campaigning on K-12 education reform. Earlier this month, Congress passed the Every Student Succeeds Act (ESSA), which maintains some testing and transparency rules but otherwise dismantles NCLB’s school improvement requirements. Secretary Duncan tried to put a happy spin on the law, but carping from former Bush and Obama administration personnel (as well as from professional education reformers here in Washington) shows how significant a defeat ESSA was for what remained of the NCLB coalition. Now that the federal role has been rolled back, it’s hard to see how it will expand again in the near future.

Few have run faster from this crumbling consensus than the 2016 presidential candidates. Republicans have all derided federal overreach and promised a return to local control. The three Democrats haven’t said much at all. Across three of their debates, the candidates have uttered less than 500 words on K-12 education reform, and even then it has usually been in passing—ie: “we should spend less on jails and more on education.” Hillary Clinton made headlines for a few skeptical remarks about charter schools and an off the cuff remark about closing schools that weren’t “above average.” But otherwise it’s been mostly crickets.

Contrast that with the higher education side. All three Democratic candidates have released higher education plans that call for a massive expansion of federal spending and power to create tuition free or debt-free public colleges. Higher education reform has come up repeatedly in Democratic debates. Transcripts show that they have spent more than 3,000 words discussing college affordability—six times as much as K-12.

The Republican debates have spent far less time on education (and all domestic policy issues, for that matter). But Sen. Marco Rubio and Gov. John Kasich have discussed college costs and innovation on the debate stage, and journalists on the stump report that, unlike 2012, college affordability “[comes] up again and again at GOP events.” In Congress, conservative Republicans like Sens. Mike Lee and Rubio, Reps. Duncan Hunter and Ron DeSantis, and Speaker Paul Ryan have all introduced or co-sponsored higher education legislation.

The shift in emphasis from K-12 to higher ed reflects growing voter anxiety about the cost of college. In 2013, when National Journal asked voters which policies would do the most to improve the middle class, improving access to and lowering the cost of higher education was the top choice, chosen by 38 percent of respondents. In that same survey, 49 percent of voters said that while higher education was key to a middle class life, it was only affordable for the rich. Gallup polls indicate that parents are now more concerned about paying for college than saving for retirement.

In other words, 2016 may be to federal higher education policy what 2000 was to federal K-12 policy: the start of a sustained period of federal reform. The question, of course, is what that reform effort should look like. Democrats’ free or debt-free college plans call for a familiar, NCLB-like formula: the feds provide new money to states and colleges in exchange for new federal rules about which reforms they must implement, how they spend the money, even which type of faculty they hire in Sanders’ case.

Here, candidates would be wise to learn from the mistakes of No Child Left Behind. While proponents of the law have chalked its demise up to intransigent congressional Republicans and powerful teachers unions, the plain fact is that NCLB laid bare the limitations of federal power in education. Specifically, it showed that while the feds can use carrots and sticks to require that states set standards, test annually, and disclose the results, they are hard-pressed to fix schools from Washington. Whether it was the mandated remedies of NCLB or the lofty promises states made to win Race to the Top, federal efforts to improve struggling schools have encouraged a lot of plans, pledges, and compliance, but not a whole lot of meaningful improvement. You can require state and local actors to do something, but you cannot require that they do it well.

The key question for higher education reformers, then, is the same one that Rick Hess and I have asked in K-12: what is the federal government well-equipped to do in higher ed, and what tasks are better left to others? Providing need-based vouchers to poor students, setting basic standards for participation in federal student aid programs, collecting and publishing data that empowers consumers to vote with their feet, and “trust-busting” cartels like accreditation that limit competition seem well within the feds’ reach. Telling state and institutional leaders to adopt and faithfully implement chosen reforms in return for federal money? Cutting the checks will be the easy part. Trying to improve public colleges seems like a recipe for more disappointment.

Reformers should therefore avoid what Hess calls the “starry eyed progressive credo:” “if something is important, Washington should do it.” Instead, they should work to channel public anxiety and policymaker attention toward items on the “can-do” list. To be fair, members of both parties have promoted policy ideas drawn from that side of the ledger; President Obama has pushed for greater transparency around costs and outcomes, while Rubio, Lee, and others have touted the need to break down barriers to entry and encourage innovation. This is a good thing.

But, as we saw over the past 15 years, the temptation to supersize the federal role can be great for both sides of the aisle, especially when the public is calling on leaders to “do something.” Hewing to a realistic understanding of the federal government’s limitations will help higher education reformers avoid this pitfall, and families and taxpayers will be the better for it.



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Special feature: What we will be watching in 2016

This past week, we issued a challenge. We asked some of our scholars to reflect on and list the main events, trends, negotiations, policy goals, etc., that will, could, or should shape 2016.

So what should we mark in red on our calendars? What is at the front of policy and political leaders’ minds this New Year? Read on to be enlightened by Danielle Pletka (Foreign and Defense Policy), Karlyn Bowman and Heather Sims (the Political Corner), and Alan D. Viard (Economics).

Shutterstock.

Shutterstock.

Danielle Pletka:

The motto for 2016 may well be plus ça change, plus ça reste la meme chose… And that will go double for foreign policy.

Here are 8 things that should happen, but probably won’t, in 2016.

1. A policy to defeat ISIS. Yeah, no. Amazingly, the president thinks his policy is working despite evidence to the contrary on every single front.

2. A policy for a post-Assad Syria. If it’s one thing the isolationists of every political stripe get right, it’s that you can’t get rid of a dictator without having a plan for what to do afterwards. (P.S.: ideally, that plan isn’t written by Ayatollah Khamenei or Vladimir Putin.)

3. Honest implementation of the Joint Comprehensive Plan of Action. You know, the Iran Deal. Already being violated per the terms laid out by the president, who is apparently really fine with those violations.

4. A policy to push back on the People’s Republic of China. Increasingly aggressive both at home and abroad, Xi Jinping likely feels a sense of impunity in Asia which could lead to almost anything, including the invasion of Taiwan.

5. A policy for Latin America. I’m easy here. We could show some spine on Cuba, where the Castro brothers have used Obama’s embrace to crack down on dissidents; on Venezuela, increasingly at risk of collapse; on Honduras, where spiraling criminality is pushing citizens to seek refuge in the United States… It’s an open field really. Would be good to, you know, do something.

6. A policy for Russia. Oh that silly Putin. Look at him in Ukraine. In Syria. Selling that crazy stuff to Iran. What will he do next?! No really, what will he do next?

7. Move on the Trans-Pacific Partnership. That’s you, Congress. Perhaps this year, Congress won’t just sit there. Any bets? Didn’t think so.

8. Leadership. None in the White House. None on Capitol Hill. Not much from the candidates for president. Look for it in 2017. We hope.

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Shutterstock.

The Political Corner:

The key dates for AEI’s Political Corner in 2016 are election-related and front-loaded. Here’s what we’ll be watching and why.

January 1: Early reports from the presidential campaign committees about their fourth quarter 2015 fundraising are beginning to dribble in. Ted Cruz raised nearly $19 million. His average contribution: $67. Since he announced in March, his campaign has received 670,000 donations from over 300,000 donors. Ben Carson also reported a good haul. Will Bernie Sanders raise almost as much as Hillary? Also in January, Super PACs will report their activity for the second half of 2015.

January 4 is Bill Clinton’s first solo trip for Hillary’s 2016 bid (He’s going to New Hampshire). Will he be an asset on the trail?

January 12 is President Obama’s final State of the Union address. This speech will lay out the parts of his legacy he will focus on most in his final year as president. It will also set the stage for any remaining conflicts with Congress, which will bear heavily on Republicans as they try to hold onto their majority in the Senate and keep their losses to a minimum in the House.

January 14 is the next GOP debate, followed quickly by another Democratic one on Sunday, January 17. Will either debate further winnow the field?

February 1: It starts officially with the Iowa caucuses. In 2012, most people went to bed thinking Mitt Romney had won the Iowa caucuses. But when the votes were finally certified, Rick Santorum had. Both parties are working with Microsoft on a new technology that should address past problems with voter reporting. But, yet again, the outcome is all but certain.

In 2008, 57% who attended Iowa’s Democratic caucuses told the entrance pollsters that they were first-time caucus goers. The Obama campaign did a brilliant job of enlarging the electorate that year. Will any candidate do that in 2016?

February 9: The New Hampshire primaries. The threshold for getting delegates in the New Hampshire GOP primary is 10%; in the Democratic primary it is 15%. Today, in the Real Clear Politics average of recent polls in the Granite State, only four GOP candidates are polling at that level or above. Given the state’s moderate orientation, this state should be fertile territory for a John Kasich or Chris Christie. But Donald Trump continues to lead the GOP field there, as Sanders continues to lead the Democratic one.

February late: South Carolina holds its primary on the 20th. This state’s GOP electorate looks more like the nation than Iowa’s or New Hampshire’s. On February 23, Nevada holds its caucuses. Without Mitt Romney in the race this time (he did well among Nevada’s Mormon population), this contest could be pivotal.

March 1: Super Tuesday. The SEC primary. Call it what you will; its significance remains the same. Five hundred and sixty five bound delegates will be awarded this day. The 13 primaries and caucuses that take place on March 1 have different rules and thresholds for allocating their delegates. Watch the big states of Texas (155 delegates) and Georgia (76), but Tennessee (58) could be very important given the influence of its media markets in nearby states, such as Arkansas and Virginia, that will also hold contests on March 1.

March 8: The date on which half of the GOP delegates will have been allocated. In 2008 and 2012, the GOP leader in the delegate count at that point has been able to win the nomination by the time 75% of the delegates are awarded.

March 15: If no Republican candidate has a strong lead at this point, states that award their delegates by a winner-take-all system on March 15 will assume enormous importance. Watch Florida (99) and Ohio (66). Illinois (69) and North Carolina (72), which also hold their contests on Super Tuesday, have a version of winner-take-all allocation.

July 18 and 25: The Democratic Party’s convention begins on July 18 followed by the GOP’s the week of July 25. The mid-summer gatherings are earlier than recent conventions by design to give the parties’ nominees more time to campaign before Election Day.

September 5: The home stretch. For those of us in Washington, campaigns never stop. But most Americans start tuning in to them in earnest after Labor Day. Polls have very little predictive value until about 100 days out from the election. If you thought polls mattered before, they really matter now.

November 8. Election Day. It’s all over. Will Republicans hold the Senate? Will Democrats gain governorships? Will they pick up more than a handful of seats in the House? Will this election be the pollsters’ Waterloo? Join AEI’s Election Watch team for lunch on Thursday, November 10 to understand what happened and why.

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Shutterstock.

Alan D. Viard:

Some things to consider for the economy and the US in 2016.

1. Will the economic expansion continue in 2016?

The severe recession that the United States experienced from December 2007 to June 2009 was followed by an agonizingly slow recovery. But it looks like the economy may have finally turned the corner. The unemployment rate, which peaked at 10.0% in October 2009, has fallen to 5.0%. The economy has added 12.6 million jobs since September 2010, after losing 8.1 million jobs in the 32 preceding months. Will the expansion continue in 2016 or will it stall? What will happen to labor force participation and wages?

2. What will the Fed do in 2016?

After holding interest rates near zero for eight years, the Federal Reserve inched rates up by a quarter of a percentage point on December 16. The Fed has indicated that it may raise rates by approximately another percentage point during 2016, but has emphasized that its actions will be dictated by economic developments. The pace of interest-rate increases will not only affect inflation and the strength of the economic expansion, but will also affect the returns earned by savers and the costs paid by borrowers.

3. Will Congress and the president be able to agree on corporate tax reform in 2016?

There’s broad agreement that the 35% corporate income tax rate should be reduced and that the corporate tax base should be broadened by curtailing deductions and credits. But, the devil is in the details. Which credits and deductions should be curtailed? How should the overseas income of US multinationals be taxed? What changes, if any, should be made to the taxation of partnerships and other non-corporate businesses? Reaching agreement in 2016 would be very difficult, but not impossible.

4. Will the 2016 presidential campaign lay the groundwork for a future value added tax?

Many budget observers believe that closing the long-term fiscal gap will eventually require the adoption of a value added tax (VAT). But the VAT has never been popular in the United States due to concerns about its burden on the poor and its potential ability to fuel increased government spending. Nevertheless, two Republican presidential candidates, Senators Rand Paul and Ted Cruz, are proposing replacing an array of existing taxes with a VAT. If their proposals gain traction, future historians may look back at the 2016 presidential campaign as the point at which the VAT became a respectable policy option.

5. What will happen to Puerto Rico’s debt in 2016?

The Puerto Rican government, which has defaulted on some debts owed by its agencies, continues to struggle to pay its general-obligation debt. Some observers have compared Puerto Rico’s troubles to those of Greece. During 2016, the commonwealth and its creditors will face key decisions on how and whether to restructure its debt. Congress will have to decide what relief, if any, the federal government should offer and whether to adopt legislation allowing Puerto Rico to declare bankruptcy.

6. How will the Supreme Court rule on President Obama’s immigration initiative?

In November 2014, President Obama instituted the Deferred Action for Parents of Americans and Lawful Permanent Residents (DAPA) program, which offers protection from deportation and access to some government benefits to four million immigrants who are illegally present in the United States. The US Court of Appeals for the Fifth Circuit recently held that DAPA likely exceeded the administration’s authority under the immigration laws. In January, the Supreme Court will decide whether to hear the administration’s challenge to that ruling. The Court is likely to take the case and to decide whether DAPA is legal.

 

 

From all of us at AEI: Happy New Year!



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The party of Trump

This article will be published in the January 11 issue of The Weekly Standard.

Within weeks of announcing his candidacy for the Republican presidential nomination in June, Donald Trump seized the lead in virtually every national poll of GOP voters and has held that lead ever since. The Real Clear Politics average has Trump polling at 35.6 percent, with a 17-point spread between Trump and his nearest competitor.

Republican presidential candidate Donald Trump signs his autograph after speaking at a campaign event at the Veterans Memorial Building in Cedar Rapids, Iowa, December 19, 2015. Reuters

Republican presidential candidate Donald Trump signs his autograph after speaking at a campaign event at the Veterans Memorial Building in Cedar Rapids, Iowa, December 19, 2015. Reuters

Although there is no poll of GOP officials, it is pretty clear from news accounts and political reporting that elected Republicans and party officials do not favor a Trump nomination. Far from it. To judge by attributed and unattributed quotes from those stories, it would be surprising if more than 5 percent of those GOP regulars favor Trump.

No doubt GOP officials’ disconnect from general polls relates to their view that his nomination would likely result in the Democrats holding onto the White House. Hillary Clinton regularly outpoints Trump, and even Bernie Sanders — the most left-wing Democratic candidate in recent decades — outpolls Trump according to the most recent Quinnipiac survey. According to the same poll, half of America would be “embarrassed” to see Trump sitting in the Oval Office. For the party pros, it’s difficult to see how a nominee with such high negatives can win in November.

And a losing presidential candidate, especially if the margin is significant, can only hurt Republicans running for the Senate and House in November. It will be rough sledding regardless for the Senate GOP, with Republicans trying to hold onto a slim majority while defending 24 seats compared with the Democrats’ 10. As for the House, the deputy chair of the National Republican Congressional Committee, Rep. Steve Stivers, put the matter more starkly: A Trump nomination would be “devastating.”

Putting aside Trump’s particular views on policy matters, it is a rather remarkable thing that a political party has so little say over who its nominee is. Presumably, political parties should not have to follow their putative leader, lemming-like, off the proverbial cliff.

Of course, losing for the sake of a principled position is not unheard of and, in fact, may rejuvenate a party for the long term. There are those who argue that Barry Goldwater’s loss to Lyndon Johnson in 1964 set the stage for a more successful and coherent Republican party in the decades that followed.

But is Trump another Goldwater? Hardly. Trump’s policy positions are substantively an inch deep and bombastically a mile wide. In times past, his flippant comments, vulgar attacks on opponents, and appeals to the public’s anger and fears would have been characterized as demagogic.

None of this should surprise. Trump has bounced around with his party identification. Sometimes he has registered as a Republican, other times as a Democrat, and still other times as nonaligned or aligned with the Independence party. Trump himself admits he’s been more than willing to give support and money to whomever might help him and his various enterprises.

There is nothing unprecedented about such behavior; it might even be smart business. But, again, there is nothing here to suggest a candidate committed to a principled party platform.

At some level, candidates should reflect the party’s principles. Or, at least, that was the original intent for creating modern political parties. Otherwise, voting would be a matter of choosing this or that personality on a ballot who might or might not be anchored to some broader substantive program. And it is precisely those substantive ties to a party and its platform that give the voting public their best sense of what policies a candidate might actually follow while in office. Voting for president shouldn’t be a game of Russian roulette.

Obviously, a party needs to test whether a candidate has popular appeal. Nobody, in this day and age, would argue for a system in which candidates are picked in the backrooms by political insiders cutting deals with each other. But today’s system is so wide open that the party as party has little to no say over who might run, how the field is narrowed, and, ultimately, who the candidate will be.

As Edmund Burke, the founding father of the modern idea of party politics, understood, partisanship in government is inevitable. Without principled parties, however, men were bound to take advantage of that partisanship by appealing to the fears and hopes of citizens and doing so without offering up policies that might provide sound and stable government.

Perhaps the current system for choosing presidential candidates is here to stay; it is difficult to see a path to something different. But the Trump phenomenon is a reminder that a presidential nominating system that is so open, so independent of the very entity whose flag the nominee is supposed to carry, is a system that can produce what we see today: a potential nominee whose commitment to the party and its principles is nil to nonexistent.

Gary Schmitt is director of the Program on American Citizenship at the American Enterprise Institute.



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12/30/15

Charts of the day: Another look at how America’s middle class is disappearing into higher income households

incomesharesIncomeShares1

Here’s another look in the two charts above showing how America’s lower-income and middle-income households have declined as a share of all US households between 1967 and 2014, while the share of high-income households keeps increasing.

1. The top chart shows the three income groups: a) low-income households with income of $35,000 and below (in 2014 dollars), whose share of US households declined from by five percentage points from 38.7% in 1967 to 33.7% (in 2014 dollars), b) middle-income households with income between $35,000 and $100,000 (in 2014 dollars), whose share of all households declined by 11.6 percentage points from 53.2% to 41.6% between 1967 and 2014, and c) high-income households with income of $100,000 and above (in 2014 dollars) whose share increased by a factor of more than three times (and by 16.6 percentage points), from 8.1% in 1967 to 24.7% in 2014.

2. The bottom chart shows the three income groups: a) low-income households with income of $50,000 and below (in 2014 dollars), whose share of US households declined from by 11.4 percentage points from 58.2% in 1967 to 46.8% in 2014, b) middle-income households with income between $50,000 and $100,000 (in 2014 dollars), whose share of all households declined by 5.2 percentage points from 33.7% to 28.5% between 1967 and 2014, and c) high-income households with income of $100,000 and above (in 2014 dollars) whose share increased by a factor of more than three times (and by 16.6 percentage points), from 8.1% in 1967 to 24.7% in 2014 (same as before for this income category).

Bottom Line: Over the last nearly 50 years the biggest gain for US households has been the 16.6 percentage point increase n the share of high-income households earning $100,000 or more per year, which accounts for the declining share of low-income and middle-income households (by two different measures). Yes, the middle-class has been disappearing over the last generation or more, but they have moved into higher-income categories of household income, not moving down into lower-income categories of household income.

Special thanks to Tom Sullivan for research help with this post.



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Obama’s legacy: A work in progress

Is it too early to think about President Obama’s legacy? The pollsters don’t think so. The upcoming January issue of AEI’s Political Report compiles some of their early assessments. We find opinion of Obama in general and with respect to specific issues more negative than positive, although it is heavily influenced by partisan affiliation.

When the McClatchy-Marist poll asked people earlier this year how President Obama would be remembered when he finished his second term, around a third said he would be remembered as one of the best presidents in US history or above average. Thirty-eight percent expressed opinions at the other end of the scale, saying they thought he would be remembered as below average or one of the worst presidents. As is the case with most survey questions about Obama these days, these responses reflect strong partisan differences. Forty-eight percent of Republicans said he would be regarded as one of the worst presidents and another 26 percent as below average.

When the Pew Research Center updated a question that Gallup previously asked about other presidents, 44 percent said the Obama administration’s accomplishments would outweigh its failures, while 50 percent felt the opposite. In comparison, more people said the Bush administration would be defined by its failures, whereas for the Clinton administration more people said it would be defined by its accomplishments.

Overall, Obama’s disapproval rating has been higher than his approval rating for almost all of the past two years in CNN/Opinion Research Corporation polls. Nationally, his approval ratings hover around 45 percent. This middling overall rating derives from assessments of Obama’s handling of two core issues: foreign policy and the economy. Americans initially liked Obama’s efforts to pull the US back from hot spots around the globe. But they don’t appear to like the results. His ratings on handling foreign affairs and terrorism have declined sharply since his presidency began. Fifty-eight percent in a recent Pew Research Center survey said his approach to foreign policy and national security issues was not tough enough, and around a third (34 percent) said it was about right. In June 2009, however, those responses were nearly flipped, with 38 percent saying not tough enough and 51 percent about right.

Opinion of Obama’s handling of the economy has been consistently low. In Gallup’s latest poll, 54 percent disapproved. That response has been more negative than positive in all of Gallup’s polls since September 2009. In July 2015, 42 percent of registered voters told Fox News pollsters that Obama’s administration had made the economy better, but slightly more, 47 percent, said its action had made things worse. People recognize that Obama inherited dire economic conditions. While they continue to blame Bush more than Obama for the economy’s weaknesses, they have yet to credit Obama in any significant way for its recovery.

And what about views on what some call his signature achievement, the Affordable Care Act? Though close, opinion of the law has been more unfavorable than favorable in most of the monthly Kaiser Family Foundation’s surveys taken since the law’s passage in 2010. Obama’s handling of health care has been more negative than positive for more than two years. Still, it is not clear what Americans want Congress to do with the law now. Twenty-two percent in a December Kaiser poll wanted to expand what the law does, while 35 percent wanted to repeal it entirely. Eighteen percent wanted to proceed with implementation as is and 14 percent scale it back.

As for race relations, blacks were initially hopeful. Nearly half said in January 2009 that his election would be the start of a new era of better race relations, and 32 percent said it would result in some improvement. Just 14 percent said his presidency would create no real change. In a June 2015 poll, however, blacks were divided about what has happened to race relations since Obama’s initial election. A third said race relations were better, 35 percent worse, and 32 percent said they had stayed the same. Still, a large majority of blacks (84 percent) currently approve of the way he is handling race relations, down about 10 points from the summer of 2009.

As the first African-American president, President Obama’s place in history is secure. But a year of unpredictable politics ahead and his mediocre poll numbers now suggest that Obama’s legacy is still a work in progress.



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2016 Data Point: Was 2015 a good year for you?

As 2016 officially begins, how do Americans feel about the year coming to an end? Was 2015 a good year for them? Forty-two percent say 2015 was an “about average year” for them personally. Twenty-eight percent say it was “one of the best years” or an “above-average year” for them, while 29 percent say it was a “below-average year” or “one of the worst years.” These responses are generally consistent with those from 2013, the first year NBC News/Wall Street Journal asked the question, and 2014. Even so, opinion of 2015 is not quite as negative as opinion of 2013 was when 34 percent said it was a “below-average year” or “one of the worst years” for them.

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A new era in South Korean–Japanese relations begins

The news out of Tokyo and Seoul on the eve of the New Year was nothing short of blockbuster. After decades of dispute, recrimination, and ill will, Asia’s two most powerful democracies agreed to resolve one of the bitterest lingering issues from World War II. In forthrightly offering “his most sincere apologies and remorse to all the women who underwent immeasurable and painful experiences and suffered incurable physical and psychological wounds,” Japanese prime minister Shinzo Abe appears to have succeeded in bringing diplomatic closure to the issue of South Korea’s “comfort women” — captives forced to have sex with Japanese servicemen.

There are officially 64 surviving comfort women in South Korea today, out of the tens of thousands forcibly taken by the Imperial Japanese Army for sexual services during World War II. The question of official responsibility for the “comfort women” has plagued postwar relations between Tokyo and Seoul, becoming among the most rancorous of disputes resulting from Japan’s 35-year colonization of the Korean peninsula, from 1910 to 1945. Tokyo has claimed that the issue was resolved with the 1965 normalization of relations between Japan and South Korea and the establishment of a private fund in the 1990s to provide compensation to surviving comfort women.

The unambiguous public statement by Abe met the demands of South Korean president Park Geun-hye, allowing her to drop her opposition to engaging with her counterpart beyond diplomatic photo sessions. Perhaps just as significantly, Abe pledged $8.3 million in government funds, thereby giving official imprimatur to the compensation that Koreans had long argued Tokyo was avoiding. Yet Japanese foreign minister Fumio Kishida asserted that from Tokyo’s perspective, the new monies were not additional compensation, but were to help the surviving comfort women with emotional and physical needs. The epochal nature of the agreement was made clear by a joint statement by Kishida and his South Korean counterpart, Yun Byung-se, that it had forged a “final and irrevocable resolution” of the issue.

Not only the Japanese compromised. South Korea pledged no longer to criticize Japan over the issue, effectively removing it from Korea’s national discussion and diplomatic agenda. The Park government also agreed to begin discussions on removing a controversial private comfort-woman statue that is located in front of the Japanese embassy in downtown Seoul. In a region where creative diplomacy is rare, the governments of Japan and South Korea showed initiative and maturity in tackling a problem that had defied solution for two generations.

To paraphrase Winston Churchill, the agreement is the end of the beginning in postwar Korean–Japanese relations. Although a half century has passed since the normalization of ties, unresolved war issues have been a constant drag, severely limiting how far the two countries could go towards a truly normal relationship. There are still outstanding issues that could harm bilateral relations, including Korean opposition to Japanese grade-school textbooks that they claim whitewash Japan’s wartime guilt, and a legal dispute over sovereignty of the Liancourt Rocks (which are known as Dokdo in Korean and Takeshima in Japanese). Moreover, Western media reporting on the agreement was quick to point out that not all the surviving comfort women, nor all Koreans, accepted that this was the end of the issue.

Pessimism aside, the two governments have shown leadership and illuminated a way forward in relations. For Abe, the agreement was as much about the future as it was about the past. Reiterating thoughts from his address before the U.S. Congress earlier this year, Abe made clear that he did not want “our children, grandchildren, and their offspring to keep apologizing” for a history from the previous century. Yet what’s just as important, as Japanese officials in Washington told me, is that Japan and South Korea face a common set of regional challenges, including the North Korean nuclear threat and an increasingly assertive China, and need to work together to respond to them. The question is whether South Korea, which has deepened relations with China under Park, also sees the benefit of closer ties with Japan.

Seoul and Tokyo are Washington’s closest allies in the Indo-Pacific region, and the freeze in their relations in recent years has complicated efforts to get the three countries working more closely on security issues. Yet their interests in preserving freedom of maritime and aerial navigation, the desire to contain if not denuclearize North Korea, and the need to continue engaging Beijing to encourage more cooperative behavior create a host of common issues on which Japan and South Korea can work together.

No one should think the road ahead will be smooth. The next era in Korean–Japanese relations will require the willingness of both governments not merely to put the past behind them, but to focus on the future. After so many decades of distrust, creating meaningful working relations will take time. Each side must commit to understanding the outlook and priorities of the other, and diplomacy as creative as that which resulted in today’s agreement must now be employed to craft a common agenda.

As Asia’s two strongest and most developed democracies, Japan and South Korea can play a major role in reshaping the region’s politics. Their common embrace of liberal values, rule of law, freedom of the press, and the like can form a new center of gravity in Asia. With enough trust and with growing experience, they can work together with their American ally to uphold the rules-based order in Asia that has provided security and stability for decades. They can also help encourage Asia’s other democracies, such as newly liberalizing Myanmar, and encourage those that have turned away from democracy, like Thailand, to return to liberal principles.

Such a new Asian core may be far in the future, and such optimism unfamiliar. But the agreement on comfort women offers the best opportunity in a generation for Asia’s leading democracies to recognize their common interests and begin the challenging process of figuring out how interested they are in working together. In a region in which the risk of conflict seems to have been growing, Seoul and Tokyo have offered a much-needed example of cooperation and realism. It may well portend a better year ahead for Asia than many expected.



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Fault lines in the global economy

Global economic policymakers should approach 2016 with more than the usual degree of caution. Not only do there appear to be an unusually large number of identifiable fault lines in the global economy, but those fault lines also appear to be both interconnected and of systemic consequence. This is all too likely to result in yet further slowing in the global economic recovery next year that would argue against any premature additional tightening in Federal Reserve interest rate policy.

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Among the fault lines of most systemic importance is the marked divergence in the monetary policy stance between the world’s major economies. Whereas the Federal Reserve has long since ended its quantitative easing program and has now begun the process of normalizing interest rates, both the European Central Bank (ECB) and the Bank of Japan (BOJ) are engaged in highly aggressive quantitative easing programs. During the period ahead, there is every likelihood that this divergence will increase as both the ECB and the BOJ step up their unorthodox policy stances to support their anemic economic recoveries and to fend off the risk of deflation.
Over the past year, the divergence in monetary policies between the world’s major economies contributed to more than a 10 percent effective U.S. dollar appreciation as well as to a start to the reversal in the large U.S. capital outflows that characterized the prolonged period of ultra-easy Federal Reserve monetary policy. A clear and present danger for the global economy is that this trend toward a stronger U.S. dollar and a return of capital to the United States will be exacerbated by a further divergence in relative monetary policy stances.

A further strengthening of the U.S. dollar is likely to highly complicate China’s efforts to rebalance its distorted economy from one which relies excessively on investment and export-led growth to one that has domestic consumption play a larger role. This is especially the case since it is occurring at a time when China’s economy is already slowing and there has been more than S$800 billion in Chinese capital outflows over the past year. It is also occurring at a time when the Chinese economy is characterized by massive excessive manufacturing capacity as well as by over-investment in its property sector.

The Chinese authorities have mainly responded to the weakening in China’s economy by easing monetary policy and by moving away from the dollar toward a basket of currencies in setting its exchange rate. There is the very real danger that this policy mix might hasten the already very rapid pace of Chinese capital outflows and speed up the pace of Chinese currency depreciation. That, in turn, would raise the risk of unsettling global financial markets. It would do so by inducing China’s Asian competitors to weaken their currencies and by prompting the ECB and BOJ to further cheapen the euro and Japanese yen through even more money printing.

Yet another considerable risk to the global economy in 2016 could very well come from the major emerging market economies, which now account for close to 40 percent of the world economy. A slowing in the Chinese economy will more than likely keep international commodity prices at their currently highly depressed levels, which will deal a continued body blow to major commodity exporters like Brazil, Indonesia, Russia and South Africa.

At the same time, a strengthening of the U.S. dollar and a return of capital flows to the United States is bound to exert considerable pressure on emerging market corporates. According to the Bank for International Settlements, since 2009, those corporates have increased their U.S. dollar-denominated borrowing by more than $3.25 trillion. This has to be a major threat to the global financial system, since it must be only a matter of time before these corporates start defaulting on these loans.

Sadly, six years after the start of European sovereign debt crisis, the European economy is still far from out of the woods. Indeed, Europe’s economic recovery remains anemic while the already disturbingly high debt levels of its peripheral countries have continued to rise. More worrying yet, as evidenced by election results this past year in Greece, Portugal and Spain, which each saw the fall of their governments, strong winds of political change are blowing through Europe. As a result, Europe is now suffering from both austerity and structural-reform fatigue. This makes it all too vulnerable to another round in its painful sovereign debt crisis should global liquidity conditions tighten and should the global economic recovery falter.

Hopefully, none of the risks identified above will materialize. However, past experience with the unwinding of credit bubbles would suggest that global policymakers would be mistaken to premise policy on such a hope. Rather, they should seek ways to coordinate policies, especially in the exchange rate area, with a view toward minimizing those risks and preventing their materialization from becoming self-reinforcing.



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How North Korea became the World’s worst economy

Economic history is a story of progress and success, but also of retrogression and failure. Among the latter cases, the most gruesome is surely the Democratic People’s Republic of North Korea (DPRK). Its signature catastrophe, the Great North Korean Famine of the 1990s, was, so far as can be told, the only famine in all of human history to beset an urbanized and literate society during peacetime.

Pyongyang’s descent into penury is all the more tragic considering that from the 1950s on into the 1970s, intelligence from Washington and Seoul suggested that North Korea’s per capita output was higher than South Korea’s. An array of public data—on urbanization and energy consumption, for instance—appears to corroborate that judgment. How the once-developing DPRK went from a rapid ascent into a stall, and then into a dreadful downward spiral, is a cautionary tale with implications far beyond the Korean peninsula.

The ruling Kim regime suppresses data about the country’s performance, but sufficient hard evidence has seeped out to describe both the dimensions and the causes of its continuing economic calamity. The most meaningful quantitative measure available comes from “mirror statistics” on the country’s international trade—reports by its trading partners on their purchases from and sales to the DPRK of various commodities. These data provide indirect but powerful evidence about productivity, living standards and technological attainment.

The full text for this article is available online at the Wall Street Journal and will be posted in full on AEI.org January 4, 2016.



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The ‘retirement crisis’ that isn’t

Ask pretty much anyone and they’ll tell you: Americans are undersaving for retirement. It’s not just thought to be a few households falling through the cracks. Rather, there’s a perception that, after a “golden age” of traditional pensions that lasted from World War II until about 1970, most Americans won’t have nearly enough income in retirement to maintain their pre-retirement standards of living. Financial writer Jane Bryant Quinn states the view succinctly: “America’s retirement savings system has failed.” All the Democratic presidential candidates have proposed expanding Social Security benefits to address this “retirement crisis.”

But new data shed light on America’s retirement system, both how it compares with the systems in other countries and how retirement savings are developing over time. The results may surprise you.

On Dec. 1, the Organization for Economic Cooperation and Development (OECD) updated its Pensions at a Glance survey of retirement saving in more than 30 countries. The United States’ Social Security program is indeed less generous than most OECD countries’ plans. Americans who earn the average wage each year of their careers will receive Social Security benefits equal to about 35 percent of the current average U.S. income. Note that comparing a country’s retirement benefits with that country’s current average income is different from a “replacement rate” that compares retirees’ benefits with their own pre-retirement earnings. Nevertheless, these data show that while Social Security is comparable to retirement programs in Britain (30 percent) and Canada (33 percent), it’s still below the OECD average of 53 percent.

But retirement income security is about more than just government benefits. It also includes private retirement saving and work in retirement, where the United States does very well. The total incomes of Americans age 65 or older are equal to 92 percent of the national average income, according to the OECD. The United States ranks 10th out of 32 OECD countries and above countries such as Sweden (86 percent), Germany (87 percent) and Denmark (77 percent). In absolute dollar terms, U.S. seniors have the second-highest average incomes in the world, behind tiny Luxembourg.

But what about working-age Americans? Hasn’t their retirement saving fallen? Using Federal Reserve and Social Security Administration data, I tallied the total assets Americans have built for retirement, including 401(k) and Individual Retirement Account balances and benefits accrued under traditional pensions and Social Security. As of 1996, the first year for which full data are available, Americans’ total retirement assets were equal to 2.7 times total personal incomes. By early 2015, retirement assets had risen to 4.1 times personal incomes.

In fact, the historical shift from traditional pensions to 401(k) plans has not reduced retirement saving, Boston College’s Center for Retirement Research recently concluded. It’s true that with 401(k)s, workers themselves bear the risks related to how their retirement funds are invested. But retirement saving is more widespread: More Americans have retirement plans today than did during the “golden age.” And unlike with traditional pensions, which pay a decent benefit only to long-term employees, members of America’s mobile workforce can carry their 401(k) plans with them as they change jobs.

Are some Americans falling short? Unquestionably, and retirement policy needs to help them. For instance, unmarried, less-educated women are far less likely to be financially prepared for retirement, in part because many fail to meet Social Security’s 10-year vesting period to qualify for benefits. Paying a universal minimum benefit to all retirees, which Social Security doesn’t currently do, would reduce old-age poverty caused by short working careers.

Likewise, many small businesses don’t offer 401(k) plans, due to the high fixed costs of establishing the plans. “Starter 401(k)s” with lower regulatory costs or multiple-employer 401(k)s could make offering retirement plans more affordable.

But massive Social Security expansions are unnecessary and unaffordable. Unnecessary because, as the OECD data show, when government retirement programs offer more generous benefits, households do less to prepare for retirement. On average, for each dollar of additional retirement benefits paid by an OECD government, households in that country generate 82 cents less in income through personal saving or work in retirement. Across-the-board benefit hikes would almost certainly result in lower retirement saving by middle- and upper-income households, which receive most of the benefit increases under expansion plans such as those proposed by Democratic presidential candidate Bernie Sanders.

Benefit expansions are also unaffordable. While the Democratic presidential candidates have promised expanded Social Security benefits, none have proposed plans that would enable Social Security to pay for the benefits it already has promised. That’s important, since Social Security’s long-term funding shortfall rose by 58 percent from 2008 to 2015.

The data show that the biggest retirement danger isn’t that Americans haven’t saved enough. It is politicians, both past and present, who promise Social Security benefits without paying for them. That’s the true retirement crisis the presidential candidates need to address.

Andrew G. Biggs, a resident scholar at the American Enterprise Institute, was principal deputy commissioner of the Social Security Administration from 2007 to 2008. He served on the Society of Actuaries’ Blue Ribbon Panel on Public Pension Plan Funding from 2013 to 2014.



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12/29/15

Tuesday evening links

Jobless

1. Chart of the Day (above) shows annual jobless rates for men and women between 1990 and 2015. In only 4 of the last 26 years (1997, 1998, 1999, 2000) has the male jobless rate been lower than the female jobless rate; in all other years the female jobless rate was either equal to the male jobless rate (1995, 1996, 2005, 2006) or below (1990-1994, 2001-2004, and 2007-2015). On average over the last quarter century, the average female jobless rate (5.88%) was below the average male jobless rate (6.28%) by 0.40%. Perhaps this gender difference in jobless rates explains some of the 17% un-adjusted gender wage gap — more men work in higher-paying jobs like construction that also have a higher risk of layoff or job loss (and higher average jobless rates) while women gravitate towards lower-paying jobs like teaching (81% of elementary and middle school teachers are female) that have greater job security and a lower risk of layoff or job loss (and lower average jobless rate).

2. Gender and Ethnic Wage Gaps. The BLS released its annual Women in the Labor Force: A Databook today for 2015, and buried in the 105 page report were these interesting wage gaps:

a. In 2000, Asian women earned 85 cents for every dollar men earned. In 2014, Asian women earned 97 cents for every dollar the average man earned.

b. In 2000, white women earned 92 cents for every dollar earned by Asian women. In 2014, white women earned 87 cents for every dollar earned by Asian women.

c. In 2000, the average white male earned 94 cents for every dollar an Asian man earned. In 2014, the average white male earned only 83 cents for every $1 earned by Asian men.

Bottom Line: Asian women are gaining on American men and now earn only 3% less on average than the average male worker. White women are falling behind relative to female Asian workers, as are white men falling behind relative to the earnings of Asian men. If gender pay disparities prove discrimination and motivate legislation, then maybe we need laws to equalize pay between whites and Asians?

====================================

VennNYCigarettes

3. Venn Diagram of the Day I (above). As a result of cigarette taxes in New York State that now exceed $6 per pack, the number of state-taxed cigarette packs sold in New York has plummeted by 54% in the past decade. Wouldn’t the $6.00 per hour “labor tax” being proposed in New York by raising the state’s minimum wage to $15 an hour from $9 have a similar negative effect on the state’s entry level employment opportunities?

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VennNYCMinWage

4. Venn Diagram of the Day II (above). Since 1987, New York City has had a “minimum space law” that makes it illegal to build apartments smaller than 400 square feet. To make it easier for entry-level renters to find affordable apartments, the AP is reporting that “NYC officials are now proposing to end the limit on how small apartments can be, opening the door for more “micro-apartments” that advocates see as affordable adaptations to a growing population of single people.” And yet many of those same “officials” probably don’t realize that increasing the minimum wage, just like increasing a “minimum space law,” would make it harder for entry-level workers to find jobs.

5. The New York Times Editorial Board expressed its economic death wish for the state and the nation in its editorial last Sunday that called for a $15 an hour national minimum wage. The New York Times certainly has regressed a long way since 1987 when its editorial board exhibited a lot more economic sanity when it correctly advocated for “The Right Minimum Wage: $0.00.

6. Good Question from Don Boudreaux: What if the same quality of reasoning and familiarity with economic reality and economic theory that fuel the typical argument in support of the minimum wage were to be applied to CEO pay? You can find Don’s answer here.

7. Investment Returns YTD: a) the average global hedge fund is down by –3.72% this year, b) the average equity hedge fund is down by -2.55%, while c) the total return of the S&P500 Index is up 1.98%.

8. Who-d a-Thunk It? Waiting times under Canada’s socialized medicine have doubled? From Syracuse.com, “Canadians get most of their medical care for ‘free’ through their government’s health care system. But the waits are getting longer because of a doctor shortage and overcrowded clinics and emergency rooms. The median wait time to see a specialist in Canada is 18.3 weeks, up from 9.3 weeks in 1993.”

9. Markets in Everything: “The underbelly of e-commerce is a booming business in which little-known companies collect, process and often resell piles of unwanted gifts, flawed merchandise and other items that shoppers simply regretted buying. This holiday season, goods with an original retail value of $19.4 billion—nearly one-quarter of e-commerce sales—are expected to be returned, writes the WSJ. Hey, this provides more support for the position that the most economically efficient gift is…. cash.

10. Video of the Day. Another Milton Friedman classic video from around 1980, when the Nobel economist schools a young David Brooks and some other college-age students about why higher education NOT be subsidized by coercive taxation.



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The Economic Welfare and Trade Relations Implications of the 2014 Farm Bill

Hardcover

ISBN: 978-1-7856-0521-5

Price: $74.95

Publisher: Emerald Group Publishing

Buy the book.

Before now, there was no comprehensive, accessible account of the economic welfare effects of the 2014 Farm Bill, passed by the US Congress and signed into law by President Barack Obama on February 7, 2014. This edited collection consists of 10 essays by distinguished scholars, each focused on a particular area of the US farm programs. The authors describe and assess the economic welfare impact of the programs in those areas, combining illuminating new research with assessments based on state-of-the-art research. As the first comprehensive account to address contemporary US agricultural policy as defined by the 2014 Farm Bill, this book provides a careful analysis of US agricultural policy, made accessible to students, graduates, interest groups, and policymakers. Essential reading for anyone interested in the international trade and trade relations implications of US agricultural policy and the 2014 farm bill.

In summary, the authors find that while some subsidized programs are beneficial for US citizens and enhance economic efficiency and productivity (for example, publicly funded agricultural research programs), most are intended to transfer income and wealth to farmers and related agricultural business. They do so at a substantial cost to most US citizens by distorting resource uses, artificially increasing prices (for example, through sugar import quotas and domestic sugar supply controls), and encouraging socially sub-optimal risk taking. Many farm subsidy programs also create the potential for adverse impacts on international trade and trade relations.

Vincent H. Smith is a visiting scholar at AEI and codirector of AEI’s agricultural policy initiative. He is also a professor of economics in the department of agricultural economics and director of the Agricultural Marketing Policy Center at Montana State University.



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A book recommendation: The alternative history of Stephen Fry’s Making History

Last month suddenly put alternative (World War II) history at the center of the nation’s public discourse — and in a way that makes me want to share a book recommendation, dear reader.

Near the end of the month Amazon released its original series The Man in the High Castle. It turned out to be a drab rendition of Philip K. Dick’s novel of the same name about a world in which the Axis powers won World War II. The makers of the show had cunningly tricked viewers into demanding and then watching a full season with a few clever Riefenstahl-style shots in the pilot.

A couple of weeks before that, the desirability of alternative histories and presents had come to the forefront in the presidential campaign. Former Republican frontrunner ¡Jeb! Bush was in the middle of attempting to execute a new campaign strategy, one that emphasized his strength and decisiveness. Instead of going Snickers, he had started eating nails before breakfast. And when asked whether he would kill baby Hitler if he could go back in time, he responded “Hell yeah, I would. You gotta step up, man. That would be key.”

Governor Bush immediately expressed some Back to the Future-inspired concern that traveling back in time to murder an infant might have some unintended consequences, “but I’d do it – I mean, Hitler.”

Cambridge University. Shutterstock.

Cambridge University. Shutterstock.

More deeply felt concerns about unintended consequences are expressed in Stephen Fry’s wonderful 1996 novel Making History. Mr. Fry, a British actor and writer (perhaps best known for portraying Jeeves in the TV show Jeeves and Wooster? Or for playing the Master of Lake-Town in Peter Jackson’s The Hobbit movies? Or for creating A Bit of Fry and Laurie with Hugh Laurie, who is, indeed, both Wooster and Dr. House? He is very powerful.), tells the story of a graduate student in history at Cambridge, Michael Young, who has just completed his dissertation. That is, he has made (hundreds of pages of) history.

Mr. Young studies, you guessed it, the baby Hitler.

[SPOILER ALERT]

He meets an aging German physicist Leo Zuckerman who, in a desire to avert the Shoah, has developed a technology that allows for the insertion of objects into the past – the making of history! – and together they keep the baby Hitler from being born. They succeed without murdering the baby Hitler, and suddenly Michael finds himself in a different world – a world in which he plays baseball and has better teeth, a world in which things are named for something instead of after something, but also a world more similar to that of The Man in the High Castle than he had hoped.

[NO MORE SPOILERS]

His adventures, in Cambridgeshire and New Jersey, range from the incredibly funny to the deeply frustrating until they come to a touching close. Enjoy!



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Pethokoukis Podcast: What should we do about the homeless? A Q&A with Kevin Corinth

Should you give a homeless person money or food, or just keep walking? It’s a quandary many Americans face, especially those who live in big cities. Homelessness raises other questions as well. How can we reduce the problem? How do the data misrepresent the issues? In what cities are there real “states of emergency”? And are shelters for the homeless – a seemingly obvious solution to the profile – actually effective in solving the greater social problems that homelessness embodies?

I sat down with Kevin Corinth to get some of the answers. He is a research fellow in economic policy studies at AEI where he focuses on homelessness and the programs and policies put in place to assist the homeless. (He has written repeatedly for the blog; see some of his work here, here, here, and here.) Corinth has a bachelor’s degree in economics and political science from Boston College and a master’s and doctorate in economics from the University of Chicago, where he was also a lecturer.

Some excerpts of our talk via my podcast over at Ricochet.

Shutterstock.

Shutterstock.

James Pethokoukis: The last time I remember people really talking about homelessness, it was the 1980s, during the Reagan Administration. Mitch Schneider here in Washington DC really gave the issue a lot of public attention. So why does this issue seem to pop up, and then go away and re-emerge? Is this a business-cycle thing, where we’ve had a recession and so the number of homeless has gone up? Why does has it emerged and receded from the public consciousness over the past generation?

Kevin Corinth: There’s a pretty broad consensus that homelessness has gone up a lot, beginning in the early 1980s. There’s a lot of debate over why that happened – the de-institutionalization of the mentally ill, increasing poverty, whether there was an increase in single-parent families. There’s been a lot of debate about that… We started to actually do some surveys beginning in the ‘80s and ‘90s.

Taking you up to the modern era, starting in 2007, there has been a much bigger federal government effort to count homeless people. And once you start to count them on a regular basis, you get a lot more of the politics involved [around] whether numbers are going up or down. There’s a lot more interest in that.

So yes there’s a reality part, which is that homelessness is higher than it was before the ‘80s; how it’s gone up or down since then, there’s a lot less that we really know.

Before we get to the state of things today, just one more thing about the ‘80s. You mentioned a few different theories. What do you think was the causation for that increase? De-institutionalization of the homeless? Poverty? What strikes you as the most plausible reason that it jumped from the ‘60s and ‘70s?

It looks like it is “all of the above.” The de-institutionalization can’t really explain all of it; there’s been good work showing that but it probably does explain some of it, especially for those sleeping on the streets. There’s more of those people. I think one reason that isn’t talked about as much is perhaps the disillusionment with the family. You have a lot more single-parent families, a lot more kids growing up without parents. Maybe that disconnection amounts later on to potential spells of homelessness. And there’s less attention on that. I think that’s another theory that could explain part of the increase.

Am I wrong to say the issue seems to have reemerged in the past few years as something policy makers pay attention to? Why is it a big issue again?

With the recession you would expect there would be more homelessness but actually you didn’t see any more homelessness as the Recession happened, or as it recovered. That’s a very interesting puzzle, and I have a theory about that, that for a lot of the sheltered homeless population, shelters really didn’t expand when the Recession hit. When people don’t go to shelters, either they turn to the street or they turn to other situations where they are not found in the street with other people.

So why is there more attention now? Maybe the Recession has something to do with that. But I think a lot of it is based on these annual counts and there is more emphasis from the federal government to really do something about homelessness. A focus on trying to end homelessness, we don’t want to add shelters, we want to bring homelessness down, and I think that brings a lot of excitement from people as a social justice type of issue.

What do we know about how many people are chronically living on the streets? And that is what we mean by homeless, right? If you are able to go to a shelter, are you no longer counted homeless? So who are the homeless? How do you define that? And then let’s get into the causes.

These are extremely difficult questions. These very basic questions – how do you define them? How do you count them? –  those are two of the hardest things to answer. And I won’t give you the magical definitions or counts today. But to answer your first question about how many… If we are talking about numbers of people on the street, they do a count every year. Volunteers go out across the country, this is done in the middle of January. They find about 170,000 people on the streets. That number is probably higher in the warmer months, especially in colder weather places, New York City, Chicago, but they find lots of people in warm weather areas.

In terms of definitions, obviously they count people on the street as homeless. People who are in emergency shelters and also something called transitional housing, maybe apartment-style living but maybe it’s for six months to two years at most – that’s all called homelessness. Everything else is not, at least when we are talking about the official Department of Housing and Urban Development definition. Other departments have other definitions. For instance, the Department of Education has another definition which includes people who double-up for economic reasons.

What does that mean, doubling-up?

It means if you have a family who moves in with a relative or friend because otherwise they wouldn’t have housing on their own.

So what do we know about the reasons? I went on Twitter and asked people what they’d like to know, and I think the number one thing is: is this a poverty-issue? Is this a mental illness issue? A substance abuse issue? What do we know about the causality?

It’s kind of all those things. The thing is, if you’re just poor and don’t have these other issues, you probably won’t be homeless. If you just have a substance abuse issue but you’re not poor, you probably won’t be homeless. So a lot of times it’s the combination of poverty, high-housing costs, substance abuse, mental illness, that causes someone to land in homelessness. And another important part of this too is disconnection from family. This isn’t true in all cases but often those who end up in homelessness have a lot of disconnection from family – a recent divorce in history, or the breakdown of a family relationship. So instead of going to live with somebody else, they may end up in a shelter or on the street.

I think when someone sees someone on the street, a couple things pop into mind. One, does this person have a drug problem? [Two], this person came from somewhere; they have parents, they must have cousins somewhere… where are these people and that family safety net?

That’s an important and sometimes ignored issue. Sometimes people do use those other safety nets. People who are on the street or in shelters — before they were there – they were in family situations, or they will go there after. I find those social supports are extremely important, and there may be policy levers we can press to spur those on, because that could be both a cheaper and maybe more effective and humanizing way to deal with homelessness.

And again, many people are homeless because those relationships have broken down and are not healthy. So it’s a really hard field to play with in terms of policy but it’s one we really can’t ignore because these are real human beings. Somebody’s brother, somebody’s daughter, son, or parent. Those relationships are hugely important and we need to make sure when we think about policies, we think about these things too.

The other thing that pops into people’s heads is that this is a breakdown of the mental health system. You mentioned earlier that we loosened up all these rules in the 1960s and 70s. Address that issue.

That’s such a tough issue and it’s a big one. Personally I think there could be a role for some institutionalization… it’s such a hard line to draw [between incarceration and institutionalization]. I think reasonable people could come up with a reasonable policy. But that wouldn’t solve homelessness. There would still be non-mentally ill people on the streets, whether for substance abuse issues, or just total poverty or some life choice. You get the gamut of reasons. Any one thing won’t be the magic bullet. But those issues around mental health should really be decided by mental health experts… We need a more holistic policy around it in that area.

I remember as a kid watching these ABC after-school specials and I remember one of them being  – this was in the late ‘70s or early ‘80s – about homelessness and a family. They had lost a job and were living in their car. How typical is that kind of homelessness today?

You’ve now transitioned into a different form of homelessness. Before we were talking about the single-adults, people on the street… but when it comes to families, at least when we do these flawed government counts, we are finding people who are mostly in shelters. Not many of them are on the streets or in their cars.

But that being said, these counts are flawed so people may end up in their cars. The most common place where people end up as a homeless family is again these shared-housing, doubled-up situations. You can decide whether to call that homeless or not; I say not. But that’s what most people do when they lose their housing, a job. A lot of people will say they are one or two paychecks away from homelessness. A lot of people have family members who will take them in in those situations, and a lot of people in poverty too. But again when those relationships dissolve or opportunities are no longer available, they may end up in shelters or in cars.

Again, these families don’t want to be found. If you are found with your kids in a car on the street, you may potentially lose your children, so these are really tough things to do from a policy perspective – when people you are trying to count and serve are hesitant to even appear.

So, any idea what share of the homeless are families in shelters or doubling-up versus single people on the street?

If you look at these annual counts done in January, you have about 107,000 who are on the streets and that’s almost all single adults, mostly males, mostly middle aged. There’s another 2 to 300,000 who are in shelters, single adults, some families as well. And that’s at a point in time. There are a lot of people doubling-up. There are some reports on family homelessness, and for those who define family homelessness as doubling-up for economic reasons, you get something in the millions.

I think that’s the wrong way to define homelessness. A lot of people share housing for economic reasons, but that can be a good thing. There’s obviously crowded situations and issues of domestic violence and abuse that we want to avoid. But the fact that people are using family support systems, friends, especially on a stable basis, that allows them to free up money for other things, school, etc. It’s important to distinguish between single adults on the streets and in shelters versus doubling-up. They are very different issues and require different solutions.

Do you have a feel for what share of those adults on the street have diagnosable psychological issues?

Again, these numbers are hard. There was a survey done in 1996 that tried to survey those who said they were using some kind of service but were sleeping on the street. They found that 40 to 50 % had diagnosable mental health problems. 75% had either a mental health or substance abuse problem. So yes among that population, those problems are prevalent. And again there are people who do not have those issues either, so I don’t want to cast any… be too general with this.

This is a question from Twitter: Is there some sense in which homelessness is a lifestyle choice?

You hear about that. I don’t believe it’s common at all, though I’m sure it exists. And to the extent that it does exist, from a policy perspective, I’m not sure there’s anything we need to do about that. If it’s someone who’s making a choice, who has places to go, assuming they aren’t using expensive services, don’t have mental health problems, don’t have drug abuse problems interfering with their ability to make decisions, that becomes less of an important issue. But that said, this is probably a small subset. There are important policy things to do for those who are not in that group.

This is one of the first questions I asked you when you joined AEI, and I’m sure you get it all the time: someone’s on the street, asking for money. What do you do? Keep walking? Hand them money? Give them a card to go to McDonalds? How should that interaction go optimally to help that person?

Optimally I think it’s important to acknowledge another human being’s humanity. Operating from that mindset is key. I personally don’t offer money to those on the street; I worry it will be used for something that will harm them. When they do surveys, they find people do often use it for food but do often use it for these other harmful things. There are usually soup kitchens and services available in the community.

That being said, though I think that money may not be the best thing, I do think that addressing someone’s humanity by offering some amount of money may not be the worst thing in the world. There is this cost obviously that they may do something bad with it. If that’s what allows you to address someone and act out of love, it’s not the worst thing in the world. But from a practical perspective, I generally would not.

As you’ve written, there are plenty of cities where the goals are to not acknowledge these human beings, move them away so we don’t have to see them. What’s going on with those sorts of policies right now, especially in big cities?

There’s a lot of concern for what people call the criminalization of homelessness. In some cities not-for-profits are not allowed to feed people in certain areas of homelessness. There may be bans on sleeping in certain or all areas, bans on panhandling …

Or physical obstacles to people sleeping in certain areas, so beside the legal restrictions, they make it less desirable and likely to be in certain areas.

Yes so in London they put spikes out on the sidewalks where people were sleeping. On the criminalization issue, the big problem I have with this, I think there can be room for policies that maybe restrict where people can sleep. The thing I worry about is when these laws are put in place to make people go away, so we don’t have to see them. I mean, there could be some really worthwhile ordinances that say where you should not sleep for safety reasons, or we could involve the police to help get people into services that they need.

But I think a lot of cities aren’t thinking in that compassionate way and more “we need to clean up our cities for tourists.”  I think the worst example is something known as Greyhound therapy. Greyhound, as we know, is a bus line and there have been a lot of anecdotal cases and some cities that have been caught giving one-way bus tickets to people with severe mental health problems. That’s a really tempting thing to do if you are just trying to get rid of the homelessness problem, and so I worry a lot about that. But I think there are reasonable measures that can be taken for a city, even from a quality of life perspective. If someone’s outside of a store blocking customers, I think it’s reasonable for the city or police to ask someone to move.

San Francisco – very expensive to live there. There’s a public defecation thing happening there. If you are a policy maker in a city like that, what is the next step? Maybe now’s the time to talk about the new Housing First idea. What is that?

Let me be modest and say I don’t have all the magical solutions. Housing First has been one of the major policy developments in the last decade or so; it’s a very simple, very intuitive, very hopeful policy message. It says, for people who have been sleeping on the street, they may have a lot of mental disease or substance abuse problems. You give them permanent housing, no strings attached, you do offer supportive services for things like mental health and getting over substance abuse problems. People are not forced to comply.

So there has been a huge increase in supportive housing which uses this Housing First approach. Something like a 67% increase since 207. That’s deemed as the current favorite for what will solve homelessness.

So you’re putting someone in a completely subsidized apartment?

It could be an apartment. It could be one large facility with lots of different rooms. Usually the person does have their own apartment.

With a door and a lock and a key, so you’re not in a cot in the corner.

Exactly. They usually pay 30% of their income, usually money off the government, less frequently money from a job, so there’s a lot to like about this. It gets us on the right path. It says we will target our assistance on the chronically homeless, those who need the most help. We won’t screen people out because they aren’t willing to engage in any services. So there’s a lot to like about it though I don’t think it’s the ultimate solution.

My issue is that it doesn’t really … it’s not results based in terms of addressing these other issues. It’s good at keeping people housed. It hasn’t been shown to be any better at getting people over their drug abuse or addressing heir mental health. So I think there are two things. One, I think it is really important we do address those problems, and they are really important to me in order to overcome homelessness.

The other problem is that, if people stay in these housing programs and we are not getting them over these other issues, we cannot use this housing for other people in the future.  I think we need a lot more accountability from some of these non-profit programs running these Housing First programs in addressing some of these other issues and getting more positive exits so we can use this system for other people in the future. Otherwise we are at risk of expanding our permanent housing, and there will be more homeless people coming, and there will be less money for more short-term assistance that gets at some of these core issues.

It reminds me of the classic left-right debate, when the right says “if you want to get a benefit, welfare, there needs to be a work requirement,” whereas those on the left say you should get those benefits as a human right. Is that the way the debate is playing out?

I think there is some of that, and I think there can be room for some strings attached eventually. I think it makes sense to get people into a supportive environment without strings at first. Even if there are no strings attached ever, I do think we have a moral and financial responsibility to ensure that these providers we are giving lots of money to are addressing these other issues. If it’s just about getting homeless bodies off the street and into some kind of housing, that’s fine. I don’t have a problem with it, I think it’s actually a good thing. But we do have the responsibility to make sure that we are only giving the best providers, the people giving the most supportive environments and doing a good job working with people to overcome these other issues, reconnecting with family, I think those must be part of the equation or we are selling human beings short.

Some people support the idea of a universal basic income. Maybe it’s cheaper to give people a basic income, no strings, just a check. Similarly just give people some sort of housing. Is Housing First more expensive? How much are we already spending?

People who are homeless are expensive. They use emergency rooms, jails, shelters, so if we do nothing, there are still lots of costs. Costs depend on the city. I’ve seen estimates of anywhere from $20,000 to $50,000 a year for some of the intensive users of services.

Per person?

Yes per person per year. Most of that is emergency room services. Health issues are exacerbated by living on the streets. That’s why there’s a lot to be said for Housing First. That said, Housing First is extremely expensive too. For most people, Housing First will cost money in the long run, and that’s why I think we need to focus more on these positive exits. Getting people into these housing programs and transitioning them into other places and making sure providers are really accountable.

To what extent is this a government-driven issue, with droning and regulations contributing to it such that even low-end housing is pricy?

Zoning is a huge issue and everyone pretty much agrees that housing costs are a big driver of homelessness, especially more on the family side. So government policy keeping housing prices high by zoning, that’s a big problem. That said, a lot of expensive cities will be expensive. So the question is, what do you do in those areas? Do you encourage people to move to cheaper areas, which would be the natural economic progression? Or do you try to get people to stay in their areas? There are people who have ties to a city and the extent to which we are not allowing people to stay there because we have zoning policies that keep housing way too expensive, that’s a huge problem. Getting rid of zoning regulations would be a great step towards making housing more affordable for people and decreasing homelessness. Just helping people in general.

What percentages of Americans are actually living one or two paychecks from homelessness?

The loss of a paycheck really isn’t the correct margin here. A lot of people may be one or two paychecks from being evicted from their apartments or having to ask someone for help. But in a lot of those situations, a lot of people will then go use their family safety net. The really important margin here is when they are living with those other people that that breaks down. I don’t know how many people are actually on the margin between missing a paycheck and going to live with family, obviously a lot of people doubled-up. How close they are to homelessness, I really don’t know. It depends on the strength of those relationships, and get back into making it.

What is the Zero: 2016 initiative?

Yes so it is an effort to end veteran homelessness by 2016. The Obama administration set forth a plan to end homelessness among veterans in five years and that timetable is about work. That wasn’t going to work. There were never going to be zero homeless veterans ever.

In the long run, these political campaigns just suggest that we are not taking these issues seriously, and if we fail once, can we ever trust the government again to do something. I am kind of weary of that stuff.

Homeless veterans: is that a separate issue? Does it require different kinds of programs?

Veterans are people too. I think the reason they are segregated is that there is more political will for funding programs for homeless veterans.

How did this end up being your specialty?

A lot of boring reasons. I guess in grad school I just turned to it. But what keeps me going is that the purpose of life is unconditionally loving other people, and when it comes to homelessness, these are people that a lot of horrible things have happened to – break down of family, poverty, job loss, mental illness, abuse, bad choices – but these are human beings owed unconditional love from other people. That’s got to be our drive. These are the least empowered people in society. Our solutions have to do a much better job at providing them the power and the ability to go out and serve others too.



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Debt and no degree

For all the back and forth about student debt in America, the debate is too often evidence-free. Thankfully, earlier this month student aid expert Mark Kantrowitz added some much-needed analysis to the discussion.

Kantrowitz’s study shows that an increasing fraction of America’s college graduates are leaving school with what he labels “excessive student loan debt.” That is, many are leaving with debts large enough that their monthly payments will likely consume an unmanageable percentage – 10 percent or more under his standard – of their after-school income.

This might not seem like an earth-shattering conclusion: After all, don’t we all know by now that student debt is a growing problem? Amidst the hustle and bustle of the holiday season, it’s easy to simply file this study away as further evidence that student debt is a serious problem for graduates and the economy.

However, it’s worth taking a minute away from the holiday break to look more closely at the paper’s conclusions. While they do offer some reinforcement for the standard narrative around student debt, Kantrowitz’s findings also reveal the limitations of the conventional wisdom that is often on display in media coverage of this topic.

In his analysis, Kantrowitz looks at graduates’ debt balances compared to their initial incomes after school. In each case, he considers a debt excessive if a borrower’s monthly payments, for a 10-year repayment term, would consume more than 10 percent of his income. Classifying excessive debt in this way makes some sense: Graduates with high balances but also high incomes may do just fine, so it’s important to look at more than just a borrower’s loan balance.

Using this approach, he finds that the fraction of students graduating with excessive debt has grown steadily for several decades, starting at 6.5 percent in 1985 and climbing to 14.4 percent in 2007. These findings also track with the general direction of student borrowing overall: As Kantrowitz reports, college graduates who borrowed took an average of around $35K in 2014, up from roughly $20K in 2004 and $11K in 1994.

Sounds pretty bad, right? On some level, sure. An increasing number of traditional-age college graduates are struggling under the weight of student debt. This trend alone suggests that we need serious policy reform to address ever-rising college costs that are consuming more and more of young Americans’ future incomes.

But the paper also reveals ways in which this standard story is overstated. The 15 percent figure Kantrowitz estimates is still a distinct minority of America’s college graduates. Furthermore, borrowers with federal loans have a range of options to make their payments more affordable, including extended repayment terms and income-based options that offer loan forgiveness after 20 years. As a result, college graduates appear to default at a very low rate, relatively speaking.

Meanwhile, as the hand-wringing in the media and among policymakers bemoans the struggles of the freshly minted undergraduate with a six-figure debt – the exception to the rule, as only 2 percent of college attendees take on more than $50K – problems that are arguably far more significant haven’t received the attention they deserve.

While 15 percent of college graduates are said to be struggling, there is a huge, less visible swath of student borrowers who appear to have been made worse off for having interacted with our higher education system at all. As was highlighted in an influential paper released earlier this fall, these non-traditional, often low-income borrowers tend to be heavily concentrated in schools with relatively poor student outcomes, typically for-profit and two-year public schools. As of 2014, according to the paper, these students represented 40 percent of all federal loan borrowers.

Because many drop out, these borrowers don’t tend to have as much debt as your typical college graduate – half have around $10K or below. But for those leaving school in 2011 and finding a job in 2013, half earned less than $20,900 (for-profit graduates) or $23,900 (community college graduates), and 21 and 17 percent were unemployed, respectively. And while many of these borrowers also have access to federal repayment options, they seem to have a harder time navigating the bureaucracy that stands in the way of actually using them. As a result, more than 25 percent default within three years.

The point is not that policymakers should be indifferent to the challenges facing college graduates carrying excessive debt loads. These are clearly very real for a significant and growing fraction of young Americans, as Kantrowitz’s paper highlights. But in overhyping the issues facing this segment of the population, the media narrative around student debt often overlooks the struggles of other groups – like those with debt and no degree – who are often far worse off.



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