Social Security System and Income Inequality

                                                                 
                                                    Comments due by March, 8, 2015

An expanded Social Security system is a solution to four serious challenges facing our nation: the income insufficiency of today's seniors; the retirement income crisis confronting today's middle-aged and young workers; insufficient recognition of and public support for the caregiving functions of the family; and increased inequality, now hollowing out the middle class. While not a total solution, Social Security has a key role to play.

We demonstrate that key role, by presenting our plan, the Social Security Works All Generations Plan - a comprehensive package of benefit and revenue changes that expands Social Security's protections in important ways. Our plan is but one among a number of excellent plans. A growing number of United States senators, members of the House of Representatives, academics, and leading organizations representing, among others, women, seniors, people with disabilities, low-income Americans, and people of color, have put forward Social Security expansion plans.

All of the plans present solutions to pressing challenges. All pay for the improvements. All truly strengthen, rather than cut, our Social Security system. Combined, these proposals and plans illustrate that there are many paths to building on our existing Social Security system to provide stronger, affordable protection for America's families, while reducing income inequality.

More specifically, we describe benefit improvements and how they strengthen retirement security for today's retirees and workers, and how they strengthen protections across all generations in the family, including those giving care to others. We also explain why and how the richest nation in the world can pay for these benefit improvements. How doing so can slow the rapid growth of income inequality, while correcting the damage to Social Security's financing that income inequality has wrought.

Prior to the enactment of Social Security, the large majority of workers were unable to retire with enough income to live with independence and dignity. Social Security changed that. But, we may be returning to a time where a growing number of seniors who want to live independently without burdening their children will lack the financial resources to do so. Indeed, the majority of today's seniors are at significant economic risk - some living in or close to poverty, and many others just one economic shock away from trouble meeting basic needs. And, tomorrow's seniors are likely to be in worse financial shape.

Social Security currently provides a strong foundation, but its benefits are far from adequate by themselves. Indeed, they are modest by virtually any measure. Social Security's retirement benefits average just $15,571 a year. They do not come close to replacing a large enough percentage of wages to allow workers to maintain their standards of living once wages are gone. Moreover, these already minimal replacement rates will be lower in the future, as the result of the already enacted cuts, now being phased in. As another measure, Social Security's benefits are extremely low by international standards, ranking near the bottom when measured against the old-age benefits provided by other developed countries.

In light of Social Security's near universality, efficiency, fairness in its benefit distribution, portability from job to job, and security, the obvious solution to the nation's looming retirement income crisis is to increase Social Security's modest benefits. Recognizing the retirement income crisis, a number of policymakers have proposed additional savings vehicles and incentives to save. Some have proposed building on tax-favored IRAs and 401(k)s. But savings will not be effective for the vast majority of workers; what will unquestionably be effective is insurance, in the form of time-tested Social Security.

Increasing Social Security's benefits can be done simply and quickly, with no start-up costs, no additional regulation, and virtually no additional administrative costs. It is very important to recognize that benefit improvements will, over time, be conveyed to all generations in the family and those to come. In fact, younger generations will reap greater benefits from an across-the-board increase than today's old. That's because, in raising the benefits of current beneficiaries, we also raise the benefits of those who will receive them in the future, and because today's old will receive this benefit improvement for fewer years than tomorrow's old. It will also lessen the squeeze on those who feel responsible to supplement the incomes of their aging parents while also assisting their own children and grandchildren.

Moreover, increasing Social Security benefits will increase the benefits not just of retired workers but also of disabled workers, their families, and the families of deceased workers.

 Nancy Altman and Eric R. Kingson.

Medicare program saves lives.

                Comments due by Mar. 1 , 2015

So what do you think is the expenditure by the Medicare program justified?

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The Medicare prescription-drug benefit introduced in 2006 saved an estimated 19,000 to 27,000 lives in its first year by expanding access to medications that treat cardiovascular killers like strokes and heart disease, according to new research from the Federal Reserve Bank of San Francisco.

“While the exact magnitude of the number of lives saved depends on the particular specification, the basic result of a decline in cardiovascular-related deaths is shown to hold up across a multitude of robustness tests,” economists Abe Dunn and Adam Hale Shapiro wrote this month in a working paper, “Does Medicare Part D Save Lives?”

The Part D benefit, enacted by Congress in 2003 and introduced in 2006, subsidized drug coverage for elderly and disabled Americans through the Medicare program.

A guide to the new Medicare drug prescription program in November 2005.

Getty Images

To evaluate its effects, Mr. Dunn, of the Commerce Department’s Bureau of Economic Analysis, and Mr. Shapiro, a senior economist at the San Francisco Fed, analyzed data from the Centers for Medicare & Medicaid Services and the Centers for Disease Control and Prevention.

The benefit was introduced at the beginning of 2006, so the economists zoomed in on mid-2006 to mid-2007 “as the initial 12 months that Part D would have an impact on mortality,” they wrote. They used geographic differences in pre-2006 drug coverage to separate out the effects of the new benefit in terms of encouraging people to obtain medication. And they looked specifically at cardiovascular diseases like heart attacks and strokes, since they can be effectively and quickly treated with drugs that target high cholesterol, high blood pressure and blood clots.

They found that cardiovascular-related deaths declined, especially “in those counties that had a high share of individuals without drug coverage prior to the reform,” Messrs. Dunn and Shapiro wrote. That finding, they wrote, “offers strong evidence that Part D led to a sharp reduction in cardiovascular-related deaths, and the observation that we find no effect on noncardiovascular deaths bolsters this evidence.” Other analysis also supported that conclusion, they wrote.

“Estimates suggest that between 19,000 and 27,000 more individuals were alive in mid-2007 because of the Part D implementation in mid-2006,” they wrote.
Assuming a year of life is worth $200,000, they added, “we find that the additional value of life-years gained is between $3.9 billion and $5.4 billion, which greatly exceeds the additional out-of-pocket costs for cardiovascular-related drugs of approximately $870 million. In fact, the total benefit exceeds the total estimated additional spending on cardiovascular drugs from the program of $3.8 billion.”

 (WSJ Blog)

How Disruptive is Online Learning?

                                           Comments due by Feb, 22, 2015

Online learning has been viewed as the disruptive innovation in higher education today, with traditional classroom instruction at risk of being replaced by superstar professors teaching elabourate courses developed by teams – or by Massive Open Online Courses (MOOCs) offering instruction to students worldwide (see, e.g., Christensen and Eyring 2011, Cowen and Tabarrok 2014). Even if they do not revolutionise higher education, online courses are a potentially important source of cost savings in higher education, with the primary channel being reduced labour costs through larger class size and less face-to-face interaction (Bowen 2012).

The potential for disruption can be seen in the tremendous recent growth in the granting of online bachelor’s degrees – 2012 saw 23 large for-profit online campuses award nearly 75,000 bachelor’s degrees in the United States, more than 5% of the total and nearly twenty times as many online bachelor’s degrees as were granted just a decade before.  Although the growth of online education has until recently occurred mostly in the for-profit sector, public institutions are increasingly competing for students online – perhaps in response to cost pressures (Hoxby 2014).

What do we know about the performance of online education thus far? Scholars have been stymied in evaluating online education because:

• Data on the granting of online degrees has been limited, and
• Comparing the outcomes of students enrolled in online programs with those of students in traditional programs is plagued by differences between online and traditional students other than their degrees.

In two recent papers we have begun to fill the gap in our knowledge, collecting evidence on both the cost savings of online education, and employers’ perceptions of the quality of online degrees (Deming et al. 2014, 2015).

The most basic question about online programs is whether they can actually reduce the cost of tertiary education. To answer this question, we use data from the Integrated Postsecondary Education Data System (IPEDS) of the U.S. Department of Education to examine the relationship between a school’s tuition (and fees) and the fraction of students enrolled in an online program (Deming et al. 2015). We find evidence that there are modestly lower prices charged at schools at which more students are enrolled online. A 10% increase in the fraction of students enrolled online is associated with roughly a 1.4% reduction in tuition.  We also find that from 2006 to 2013, the price of a full-time undergraduate online education (among private non-profit and for-profit schools) declined by 34%. For comparison, over the same period, the price of a traditional education at a large for-profit or private non-profit school dropped by about 8%, and tuition at all non-selective four-year public institutions increased by 9.2%.

Thus, we find some evidence that colleges are charging lower prices for online coursework, suggesting that advances in online learning technology might be able to ‘bend the cost curve’ in higher education.

This finding raises another question: does the quality of education suffer when content is delivered online? An initial randomised trial of a college statistics course found no difference in student achievement in online versus in-person course sections (Bowen et al. 2014). But two recent studies have found negative impacts of switching from in-person to online instruction on course final grades in an introductory economics class (Alpert et al. 2014, Joyce et al. 2014).

One would also like to know how employers view online degrees compared with traditional degrees. An important challenge in any study of labour market outcomes associated with the degree an individual acquires is that individuals select into their degree programs (or are selected into them) based on a range of characteristics that might also determine labour market outcomes. It may not be possible to control for these differences to the extent that they are not observable to the researcher.

To learn how employers view online degrees – while holding other characteristics of applicants constant – we recently conducted a ‘resume audit experiment’ in which we submitted more than 10,000 ‘synthetic’ (fictional, but very realistic) resumes to real job openings, with the type of degree randomly assigned across otherwise identical resumes (Deming et al. 2014). This setup allows us to isolate the effect of just the degree on employers’ likelihood of calling an applicant back.

We find that for business job vacancies (the largest group of job postings) that require a bachelor’s degree, employers strongly prefer applicants with degrees from (nonselective or selective) public institutions as opposed to applicants with degrees from for-profits. The biggest callback ‘penalty’ is imposed on the applicants with an online for-profit degree. Callback rates were 8.5% for the resumes with (randomly assigned) nonselective or selective public institution bachelor degrees and around 7.8% for ‘brick and mortar’ for-profits.  But they were only around 6.3% for the online for-profits.  Thus callback rates were 26% lower for the online for-profits than for the publics (22% in the regression-adjusted figures).

Overall our findings suggest that online education is indeed a technological advance that can succeed in cutting the costs of a college degree. But preliminary evidence suggests that – at least for the time being – the new technology comes at a cost of quality: it does not produce a product perceived by employers to be as good as one from the traditional, more expensive mode of production.

References

Alpert, W T, Kenneth A. Couch, and Oskar R. Harmon (2014). “Online, Blended and Classroom Teaching of Economics Principles: A Randomized Experiment.” Working paper, University of Connecticut, Stamford.

Bowen, William G. (2012). “The ‘Cost Disease’ in Higher Education: Is Technology the Answer.” The Tanner Lectures, Stanford University.

Bowen, William G., Matthew M. Chingos, Kelly A. Lack, and Thomas I. Nygren (2014). “Interactive Learning Online at Public Universities: Evidence from a Six-Campus Randomized Trial,” Journal of Policy Analysis and Management, 33(1), pp. 94-111

Christensen, Clayton M., and Henry J. Eyring (2011). The Innovative University: Changing the DNA of Higher Education from the Inside Out, New York, NY: John Wiley & Sons.

Cowen, Tyler, and Alex Tabarrok (2014). “The Industrial Organization of Online Education.” The American Economic Review, 104 (5), pp. 519-22.

Deming, David J., Claudia Goldin, Lawrence F. Katz, and Noam Yuchtman (2015). “Can Online Learning Bend the Higher Education Cost Curve?" National Bureau of Economic Research Working Paper 20890.

Deming, David J., Noam Yuchtman, Amira Abulafi, Claudia Goldin, and Lawrence F. Katz (2014). “The Value of Postsecondary Credentials in the Labour Market: An Experimental Study." National Bureau of Economic Research Working Paper No. 20528.

Hoxby, Caroline M. (2014). “The Economics of Online Postsecondary Education: MOOCs, Nonselective Education, and Highly Selective Education.” The American Economic Review 104(5), pp. 528-33.

Joyce, Theodore J., Sean Crockett, David A. Jaeger, Onur Altindag, and Stephen D. O’Connell (2014). “Does Classroom Time Matter? A Randomized Field Experiment of Hybrid and Traditional Lecture Formats in Economics.” National Bureau of Economic Research Working Paper 20006.

The Blurry Line Between Competition and Cooperation.

 
































































































































































































Comments due by Feb. 15, 2015Many people view economics as morally suspect because they perceive economics as emphasizing competition, rather than the arguably more virtuous approach of cooperation.

When I bump into this concern, I often respond that economics seeks to analyze the world as it is, not as we might prefer it to be. We live in an economy in which consumers often seek the best deal; workers commonly seek the job with the best mixture of work conditions and compensation; and firms seek higher profits. If you want to discuss the real-world economy, diagnose problems and suggest solutions, the presence of competition and self-interest among individuals and firms is typically a useful working assumption. The study of economics and public policy would be quite different in a hypothetical world of perfect cooperators.

This response typically works, in the sense that the questioner is more or less satisfied with having received an answer. However, I fear that it concedes too much ground. Specifically, it risks conceding that competition and cooperation are, indeed, opposites, with vice on one side and virtue on the other. But this is a false dichotomy.

Instead, a concept of cooperation is actually embedded in the meaning of the word "compete." According to the Oxford English Dictionary, "compete" derives from Latin, in which "com-" means "together" and "petĕre" has a variety of meanings that include "to fall upon, assail, aim at, make for, try to reach, strive after, sue for, solicit, ask, seek." Based on this derivation, valid meanings of competition would be "to aim at together," "to try to reach together," and "to strive after together."

Competition can come in many forms. The version of competition that economists typically invoke when discussing markets is not about wolves competing in a pen full of sheep; nor is it competition among weeds to choke a flowerbed. The market-based competition envisioned in economics is disciplined by rules and reputations, and those who break the rules through fraud, theft or other offenses are clearly outside the shared process of market competition.

 

Market-based competition is closer in spirit to the interaction among Olympic figure skaters, in which pressure from other competitors and from outside judges pushes individuals to seek innovations, to strive for doing the old and familiar in better ways. Sure, the figure skaters are trying their hardest to compete and win, but their process of competing under agreed-upon rules is a deeply cooperative and shared enterprise. In the 1994 U.S. Figure Skating Championships, when the ex-husband of skater Tonya Harding hired a thug to try to break the leg of another skater, Nancy Kerrigan, the attack was clearly outside the meaning of competition because it breached the cooperative essence behind how Olympic competition works.

Just as competition is not a shorthand for "anything goes," the quick and thoughtless inference that cooperation is necessarily virtuous is often unjustified. In many cases, cooperation is a tool for an in-group to take advantage of those outside the group. For example, if large companies cooperate to lobby national politicians for policies that impose costs on consumers and taxpayers as a way of adding to corporate profits and bailing them out for their mistakes, it is surely not an example of virtuous behavior. If firms cooperate in an attempt to raise the prices that they charge to consumers, it is illegal under the antitrust laws because it represents a failure to compete. Those who seek to discriminate based on race, gender and ethnicity often demonstrate a high degree of cooperation with others who share their views. Criminals often cooperate with each other by refusing to rat out other criminals. War often involves a conflict between societies that show high levels of internal cooperation.

In short, real-world examples of "cooperation" are often not as selfless as, say, volunteering to donate blood or anonymously sending cash to a charity. Instead, real-world cooperation is often enforced by a group of peers, using a combination of economic, legal and social incentives to reward those who act with the group and to impose costs on those outside the group. Those who are quick to believe that cooperation should be automatically equated with virtue should take a step back and consider both what each specific cooperative behavior is intended to achieve and how it is enforced among those within the group who might have preferred not to cooperate in a certain situation.

In contrast, competition within a market context actually happens as a series of genuinely cooperative decisions, every time a buyer and seller come together in a mutually agreed-upon and voluntarily made transaction. This idea of cooperation within the market is at the heart of what the philosopher Robert Nozick referred to in his 1974 work, Anarchy, State, and Utopia, as "capitalist acts between consenting adults."1

When Steve Jobs died in 2011, the media were full of glowing praise for how he had transformed the world of consumer electronics several times over, from the personal computer to the portable music player to the smartphone. But if you know anything about Steve Jobs as a person (and I recommend the eponymous 2011 biography by Walter Isaacson2), you know that Jobs was often driven, tactless and harsh—in many ways the opposite of what would conventionally be regarded as a cooperative personality. But the type of cooperation implicit within competition does not require that the competitors themselves be warm and friendly toward each other. Like many other hard-driving business leaders, Jobs competed like the market-sector equivalent of an Olympic skater, striving together with competitors from other firms in a rule-based process to win an innovation contest. Millions of people then demonstrated their desire to cooperate with Apple by purchasing the products that Jobs played a substantial role in designing and bringing to market.

Thinking about markets as a blend of competition and cooperation has become more or less standard in business schools. Back in 1996, for example, Adam M. Brandenburger and Barry J. Nalebuff wrote a prominent book called Co-opetition, which is, as it says on the cover, "a revolutionary mindset that combines competition and cooperation."3 That word "revolutionary" contains a bit of puffery, but the book usefully points out many ways in which competition and cooperation are intertwined.

For example, many firms either have or hope to have ongoing relationships with their customers, and they benefit when customers offer them honest feedback and communication. Similarly, many firms rely on long-term relationships with suppliers, and they count on those suppliers to make long-term investments and to pursue innovations in a cooperative manner. If firms in a certain market were only competitors, then gains for one firm should always mean corresponding losses for the other. But if the competitors of a firm in a given market act in a way that makes the product appear unsafe or the industry appear irresponsible, then all firms in that industry may well suffer as a result. Conversely, if competitors in a market innovate in a way that opens up new market opportunities, almost all firms in that market can often find ways to benefit.

 

For more on the relationship between competition and cooperation, see the EconTalk podcast episode Otteson on Adam Smith and its discussion of Adam Smith's early use of the term "the invisible hand" to capture the effects of self-interest and competition in producing a result akin to cooperation, in The Theory of Moral Sentiments, para. IV.I.10:

They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society....

In short, competition and cooperation are not polar opposites. Competition refers to a situation in which people or organizations (such as firms) apply their efforts and talents toward a certain goal, and they receive results based substantially on their performance relative to each other. The true opposite of competition would be a situation in which those who strive to meet a certain goal experience outcomes that have little or nothing to do with their actual performance, as occurs when government overrides the process of competition by offering subsidies to loss-making firms.

Cooperation refers to a situation in which the participants seek out win-win outcomes from working together. Thus, the opposite of cooperation would be a situation in which such win-win outcomes are difficult or discouraged. For example, this could reflect a situation of lawlessness or a set of social norms in which people expect that cooperative agreements are likely to be broken—and, thus, the incentive to cooperate is low.

If both competition and cooperation are understood as voluntary choices (and, after all, "involuntary cooperation" is an oxymoron), then a fully planned economy would be the opposite of both competition and cooperation. When government dictates prices and quantities, a planned economy eliminates the incentives of market participants—whether suppliers, producers, or consumers—either to compete or to cooperate.

Those of us who self-identify as economists should not wear the terminology of "competition" as a badge of shame, while wistfully contemplating a presumed ideal of cooperation. For the study of economics, as in the real-world economy, the concepts and practices of competition and cooperation are inevitably interlocking.

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Footnotes

1.

Nozick, Robert. 1974. Anarchy, State, Utopia. Basic Books.

2.

Isaacson, Walter. 2011. Steve Jobs. Simon and Schuster.

3.

Brandenburger, Adam M., and Barry J. Nalebuff, 1996. Co-opetition. Currency Doubleday.

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*Timothy Taylor is Managing Editor of the Journal of Economic Perspectives