“Those People”

February 26, 2011
Posted by Jay Livingston

The previous post here discussed Daniel Hamermesh’s observation that the relatively stingy welfare policies of the US stem from two aspects of American culture – optimism and a lack of concern about inequality. But why are Americans so sanguine about inequality when over 40 million of their fellow Americans are so poor that, according to the official definition of poverty, they cannot afford to adequately feed their families?

Maybe it’s because Americans do not consider the poor to be their “fellow Americans,” as part of the same community. Claude Fischer discusses a more general version of this world-view in the central chapter of his recent (and excellent) book Made in America. He calls it “voluntarism” – the idea that the only legitimate groups are the ones that people voluntarily join. While people have strong obligations to others in those groups, they have little or no obligations towards people not in those groups. Under the principle of voluntarism, if I haven’t voluntarily joined a group that provides assistance to poor people, I have no obligations to them, and for the government to use my tax dollars to do so is tantamount to robbery.

The voluntarism ideology may exist in varying degrees in many other societies. Still, some countries have more generous welfare than others, and within the US, some states have more generous policies than others. These differences may reflect the social distance that the majority feel from the poor. If we perceive the poor as similar to us, as part of our community, we will be more generous. If the poor are a different type of person, we will not want our taxpayer dollars going to “those people.”

What might be influencing those perceptions of similarity or difference?

Ten years ago, economists Alberto Alesina, Edward Glaeser, and Bruce Sacerdote put the question bluntly in the title of their paper, “Why Doesn't the United States Have a European-Style Welfare State?” (A pdf of the paper is here.) Is there something else going on besides voluntarism, optimism, and concern about inequality? Their answer was yes, and that something else is race.

They compared measures of welfare spending among countries and within the US among states. In both cases, racial homogeneity was a strong predictor of welfare generosity. Here is a scatterplot of countries.

(Click on the chart for a larger view that will allow you to read the country names.)

The less homogenous the population of the country, the less generous are its welfare policies.

In the US, as anybody who has been here for more than about five minutes knows, the welfare/poverty issue is not just about income and nutrition and inequality. It’s about race. So Alesina, et. al. plotted welfare against percent African American in the fifty states.

The greater a state’s black population, the stingier are its welfare benefits

There is a strong negative relationship between the generosity of a state’s program and the share of the state’s population that is black: the raw correlation is 49 percent.

True, state revenue is also a factor – the states with lower welfare and more blacks are also states that are poorer, and those lower state budgets may affect welfare payments. But it’s not just the lack of funds.

When we regress the maximum AFDC payment on both state median income and the share of the state population that is black, our primary result is still significant. The estimated regression is (standard errors are in parentheses)

maximum AFDC payment = –149 (72)– 692* (131) percent black + 0.017* (0.002) median income N = 50, R2 = 0.71.

As the authors summarize this aspect of their study:

Americans think of the poor as members of some different group than themselves, while Europeans think of the poor as members of their group.

Views of Poverty – Optimism and Stinginess

February 25, 2011
Posted by Jay Livingston

Ask Americans how much income a family needs to “just get by” – to be not poor – and the answers will generally be a number that’s 50-55% of the median income. That’s not how we compute the official poverty line, though. That number is based the price of food. The poverty line is three times the amount a family would need to spend to provide the minimum adequate nutrition.

In European countries, as Daniel Hamemersh at Freakonomics has learned, the poverty line is based on relative income, usually about 50% of the median. (When the US poverty formula was created, that three-times-food formula did work out to about 55% of the national median. Now it’s closer to 40% of the national median. The family at the poverty line can still feed itself, just as it could fifty years ago. But it’s much farther away from the average US family.)

Hamemersh says that this choice of how to calculate poverty reflects two American characteristics:

• optimism – if low incomes go up just a little, and food prices remain stable, nobody will be “poor.”
• lack of concern about inequality

Hamermesh contrasts this with the view from across the pond.

In Europe, even with income growth, unless inequality decreases, the fraction of households in poverty won’t change. How pessimistic, yet how concerned about equality!

Optimism goes with stinginess towards the poor; pessimism with generosity.

Here are some charts that I used in a post last month about the belief in the the efficacy of work (the first two bars). But the last two questions support Hamermesh’s ideas about the difference between the US and other countries on the question of inequality and welfare. (The data come from a Brookings survey.)

(Click on the chart for a larger, readable view.)

Your Money's Worth

February 24, 2011
Posted by Jay Livingston

My grandfather was in the retail business – furniture. When he and my grandmother went shopping – for other things, not furniture – she was sometimes stunned by the prices. “What makes this so expensive?” she would ask. My grandfather, pretending a careful examination of the item, would nod his head thoughtfully and say, “Profit.”

I remembered Grandpa Jack when I saw this graph posted by Aaron Carroll at The Incidental Economist. It shows healthcare expenditures per capita plotted against GDP per capita.


As you would expect, the richer a nation is, the more it spends on healthcare, just as it spends more on food, entertainment, or anything else.

Carroll adds:

Notice two things however. The first is that Norway and Luxembourg (the two countries farthest to the right), fall below the line. This is because – presumably – at some point you can spend more money, but what’s the point? The drugs won’t work better,* the advice is still the same, and the doctors can’t do any more. At some point, spending more is just waste, because the outcomes don’t get any better.     The second thing to notice is the US. You can’t miss it. It’s the big red dot that’s way at the top. We’ve chosen to ignore what I just said.

It may be “waste,” but that money has to be going somewhere.

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* A while ago I posted (here) some charts comparing the US and several other countries on the costs of various aspects of healthcare – standard procedures, office visits, widely-used drugs. I included the line, “Since . . . you get what you pay for, our Lipitor must be four to ten times as good as the Lipitor that Canadians take.” It was my only post ever to get Boinged, and for a day the number of visits here climbed to about 2600, doing my heart much more good than would any prescription meds.

Race to the Bottom?

February 23, 2011
Posted by Jay Livingston

Scott Lemieux passes along this information from his friend Ken Sherrill:

Only 5 states do not have collective bargaining for educators and have deemed it illegal. Those states and their ranking on ACT/SAT scores are as follows:

• South Carolina – 50th
• North Carolina – 49th
• Georgia – 48th
• Texas – 47th
• Virginia – 44th

If you are wondering, Wisconsin, with its collective bargaining for teachers, is ranked 2nd in the country. Let’s keep it that way.

A convincing study of the effects of unionization on student performance would have to take into account a host of variables – demographic, budgetary, etc. – and their interactions. It should also have more sensitive measures of union strength and perhaps of outcome variables as well. But this is a start.

The message seems to be that if you are going to argue that the absence of teachers’ unions brings educational benefits to schoolchildren, you’re starting out down by about five runs in the first inning.

A complete list of the states is here. (And what’s up with South Carolina? It seems to be intent on making itself the punch line to a variety of jokes. See this previous post, for example.)