This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including — for the first time — total returns to the largest, but oft ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.
We ask whether a pay-as-you-go financed social security system is welfare improving in an economy with idiosyncratic productivity and aggregate business cycle risk. We show analytically that the whole welfare benefit from joint insurance against both risks is greater than the sum of benefits from insurance against the isolated risk components. One reason is the convexity of the welfare gain in total risk. The other reason is a direct risk interaction which amplifies the utility losses from consumption risk. We proceed with a quantitative evaluation of social security’s welfare effects. We find that introducing an unconditional minimum pension leads to substantial welfare gains in expectation, even net of the welfare losses from crowding out. About 60% of the welfare gains would be missing when simply summing up the isolated benefits.
In this paper we set up an overlapping generations model of gerontological founded human aging that takes the interaction between R&D-driven medical progress and access to health care into account. We use the model to explore potential futures of human health and longevity. For the baseline policy scenario of health care access, the calibrated model predicts substantial future increases in health and life expectancy, associated with rising shares of health expenditure in GDP. Freezing the expenditure share at the 2020 level by rationing access to health care severely reduces potential gains in health, longevity and welfare. These losses are greatest in the long run due to reduced incentives for medical R&D. For example, rationing is predicted to reduce potential gains of life-expectancy at age 65 by about 4 years in the year 2050. Generally, and perhaps surprisingly, young individuals (i.e. those who save the most health care contributions through rationing) are predicted to suffer the greatest losses in terms of life expectancy and welfare.
In his important new book, The Crisis of the Middle-Class Constitution, Ganesh Sitaraman argues that growing economic inequality over the last several decades and the resulting decline of the middle class is “the number one threat to American constitutional government.” He also contends that the American Founding Fathers sought to establish a “middle-class constitution” in which the avoidance of extremes of wealth and poverty would ensure the stability of democratic government. These are bold and provocative claims, but large elements of them fail to withstand scrutiny. Economic inequality is not as serious a threat to our political system as the growing size and complexity of government. These forces make it increasingly difficult for ordinary people to exercise effective control over government—or even to understand what it is doing.
In addition, Sitaraman’s focus on the Founders’ fear of excessive inequality of wealth leads him to ignore their much stronger concern for protecting liberty and property rights, and limiting and decentralizing government power. These latter ideas can help us address the more dangerous elements of our present situation.
While Sitaraman overstates the dangers of inequality, he is right to highlight the perils of declining opportunity for the poor and lower-middle class, and the ways in which the modern state offers all too many opportunities for the wealthy and powerful to enrich themselves at the expense of the public interest. But there are ways to mitigate these problems, while simultaneously reducing the size and complexity of government that have undermined democratic accountability and empowered unscrupulous elites.
Measured between quarters with identical unemployment rates, U. S. economic growth slowed by more than half from 3.2 percent per year during 1970-2006 to only 1.4 percent during 2006-16, and only half of this GDP growth slowdown is accounted for diminished productivity growth. The paper starts from the proposition that GDP growth matters, not just productivity growth, because slower GDP growth provides fewer resources to address the nation’s problems, including faltering education, aging infrastructure, and the looming shortfall in funding for Social Security and Medicare, and it also implies lower net investment and a reduced rate at which new capital can embody the latest technology. The paper documents the contribution to slower GDP growth of the separate components of demography — fertility, mortality, life expectancy, and immigration. Particular emphasis is placed on the interaction between rising inequality and the slower secular rise of life expectancy in the U.S. compared to other developed countries, both in the form of a large gap in life expectancy between rich and poor, and the stagnation of life expectancy for the lowest income quintile. Further contributions to slowing growth are made by a decline in the population share of both legal and illegal immigration and a turnaround from rising to declining labor force participation. Rising inequality creates a gap between the growth of average real per-capita income relative to that of median real income, and alternative measures of the evolution of this gap are compared and assessed.Causes of declining productivity growth begin with the slowdown in the rate of increase of educational attainment resulting from the interplay of demand and supply factors, including the flattening of the college wage premium and the rising relative price of college education. Why did productivity growth decline after 2006 despite an increase in the rate at which new U.S. patents were issued in 2006-16 compared to earlier decades? Part of the slowdown is attributed to the maturity of the IT revolution, which also helps to explain the trajectory of the college wage premium. Aspects of the productivity growth slowdown include the declining productivity of research workers, diminishing returns to drug innovation, and the evolutionary rather than revolutionary impact of robots and artificial intelligence, which are replacing workers slowly and only in a minority of industrial sectors throughout the economy. Also considered are alternative explanations of slower productivity growth, including low investment and mismeasurement.
Abortion, Contraception, and Non-Marital Births: Re-Interpreting the Akerlof-Yellen-Katz Model of Pre-Marital Sex and Shotgun MarriageMay 8, 2018
In a well-known paper, Akerlof, Yellen, and Katz proposed a counter-intuitive explanation for the rise of non-marital births in the United States that emphasized how birth control and abortion weakened the responsibility of men to their unmarried partner’s pregnancy. The paper is regularly cited by social conservatives to support measures to restrict sex education and access to contraception and abortion. I argue that this use of the paper’s findings stems from specific modeling assumptions about “types” of women. I present a reformulation of the model using more reasonable “types” that generates precisely the same results, but with radically different policy implications.
Are Older People a Vulnerable Group? Philosophical and Bioethical Perspectives on Ageing and VulnerabilityMay 7, 2018
The elderly are often considered a vulnerable group in public and academic bioethical debates and regulations. In this paper, we examine and challenge this assumption and its ethical implications. We begin by systematically delineating the different concepts of vulnerability commonly used in bioethics, before then examining whether these concepts can be applied to old age. We argue that old age should not, in and of itself, be used as a marker of vulnerability, since ageing is a process that can develop in a variety of different ways and is not always associated with particular experiences of vulnerability. We, therefore, turn to more fundamental phenomenological considerations in order to reconstruct from a first person perspective the intricate interconnections between the experiences of ageing and vulnerability. According to this account, ageing and old age are phenomena in which the basic anthropological vulnerability of human beings can manifest itself in an increased likelihood of harm and exploitation. Thus, we plead for a combined model of vulnerability that helps to avoid problems related to the current concepts of vulnerability. We conclude first that old age as such is not a sufficient criterion for being categorized as vulnerable in applied ethics, and second that reflections on ageing can help to develop a better understanding of the central role of vulnerability in human existence and in applied ethics.