Predicting 2014’s “Fauxbel” Laureate(s)

The announcement of the 2014 Nobel laureates in economics – or rather, “Fauxbel” laureates, given that the economics prize is technically not a “Nobel Prize” – is due tomorrow morning. I offered some predictions last year as to who would win, and I actually got one! (Got one correct, that is; I myself was not among those honored with an early morning call from Swedish-accented strangers.)

Marginal Revolution’s Tyler Cowen predicts that the Nobel committee will select William J. Baumol, perhaps in conjunction with William G. Bowen, for his work on the cost disease. The Guardian floats Baumol as well, along with a host of others. So does Thomson Reuters, which also places its bets on Philippe Aghion, Peter Howitt, Israel Kirzner, and Mark Granovetter (a sociologist). Econ Job Market Rumors, one of the internet’s great econ-themed cesspools, has a thread on Nobel predictions where one poster wonders whether, instead of giving a prize this year, the committee shouldn’t opt for taking some back.

The Wall Street Journal’s Real Time Economics lists a number of contenders, including my own official guess: Harvard University’s Robert Barro. As noted by RTE, Barro currently ranks as the #2 most-cited economist on IDEAS, a database of research papers in economics maintained by the Federal Reserve Bank of St. Louis, and he is mentioned almost every year as a leading contender for the highest honor in the discipline.

An additional reason why I’m wagering that it’ll be Barro is because of the rough alternation of the prize between recognition of empirical and theoretical work. Last year’s award highlighted empirical research in asset pricing, 2012’s honored two theorists, and 2011’s celebrated the development of econometric techniques used to untangle cause and effect in macroeconomics. Barro is best known for his contributions to growth theory, so his selection would certainly fit with this pattern. It’s also been over 25 years since a Nobel was explicitly awarded for work in this area, so the field is arguably due. Plus, a Barro win would undoubtedly mean some entertaining tweets from his son, a factor the committee presumably weighs heavily.

Here’s hoping my one-year streak remains unbroken!

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Dave Camp Makes the Case for Taxing Red Meat

On February 26th, Rep. Dave Camp (R-MI), chairman of the House Ways and Means Committee, released a proposal for a major overhaul of the individual tax code that he claimed would significantly reduce the amount of effort that individuals would have to expend on preparing their returns. I read a bit about Camp’s ideas when they first came out, and had planned on offering some thoughts here at RM. Unfortunately, his observation that the process of filing tax returns can be quite burdensome turned out to be an astute one: I spent the following seven weeks (right up until midnight yesterday!) working hard on my taxes, and had not a moment to spare to write about the Camp Plan until now.

Okay, not really; I actually just forgot. (I also started and finished my taxes this past Sunday, thank you very much.) But I was reminded of the issue as I filled out my forms and searched under the couch cushions for my W-2’s over the weekend, and now that everything is in the mail I thought I’d take a minute to discuss some of my reactions to Camp’s bold proposal.

And boy, is it bold. The sheer political implausibility of some elements of the plan led many commentators to declare it dead on arrival, with a few even going so far as to claim that its release was only ever intended as a bit of showmanship. Despite the early buzz, the proposal seems to have faded from the headlines; the conventional wisdom is that nothing even remotely that ambitious could pass Congress in an election year.

But that fact alone is no reason to ignore Camp’s work. The Republican Party has seen a relative flowering of policy entrepreneurship in recent months, even if some of the more wonkish conservative thinkers and pundits are misguided about how broad-based the renaissance really is. And even if none of Camp’s agenda has any chance whatsoever of becoming a reality anytime soon, parts of it could very well make their way into the platforms of future Republican candidates for higher office who are eager to present voters with fresh ideas.

On the whole, I think that Rep. Camp’s proposal is a serious one. It contains a number of good ideas that ought (in a less polarized political environment) to enjoy broad appeal among members of both parties. But it is not without its weaknesses, and it certainly isn’t above gimmicky red-meat-throwing. In fact, those two tend to coincide, with the most questionable parts of the plan also those that were most clearly included to score political points and poke political enemies.

First, a few of the commendable bits. Camp advocates scaling back the mortgage interest deduction, which is one of the most expensive tax subsidies in the individual code. The Center for Budget and Policy Priorities estimates that it reduced federal revenues by about $70 billion in 2012 alone. Since it is a deduction (which reduces taxable income) and not a credit (which reduces the dollar amount of taxes owed, and which in some cases may increase the size of a refund even if nothing is owed), its benefits tend to flow to those in higher tax brackets. In fact, the CBPP figures that in recent years more than three-quarters of the benefits associated with the mortgage interest deduction went to individuals with incomes above $100,000.

Although many budget experts have recommended converting the deduction to a credit, Camp at least takes a step in the right direction by lowering the cap on the amount of mortgage interest that is eligible for the deduction. Rather than allowing filers to deduct the interest paid on the first $1,000,000 of a mortgage, Cap would limit them to writing off only that pertaining to the first $500,000. He projects that this wouls only affect “less than 5 percent of the most expensive homes on the market today.” Given that the intent of this policy is presumably to facilitate homebuying for those who might otherwise be shut out of the housing market, and not to allow those who can already easily afford a home to afford a larger one, this tweak is certainly a sensible one.

Camp also demonstrates some courage by embracing ideas previously endorsed by President Obama and other Democrats, including “eliminating special depreciation benefits related to corporate jets” and treating “carried interest” as regular income rather than as capital gains for the purposes of taxation. He also takes steps toward shedding the GOP’s image as the party of plutocrats by proposing a quarterly 0.035% tax on any assets held by financial firms in excess of $500 billion. He defends this policy on the grounds that corporations designated as “Systemically Important Financial Institutions” or “SIFI’s” by the Dodd-Frank Act of 2010 are believed to enjoy lower borrowing costs on account of the fact that other market participants think they will be the recipients of public assistance (read, bailouts) in the event of another financial meltdown. Camp argues that taxpayers ought to be compensated for what is in effect an implicit subsidy.

Although – or perhaps because – only a handful of the very largest banks would be affected by this tax, it has provoked a great deal of backlash from lobbyists representing Wall Street banks. Mother Jones’ Kevin Drum has wondered whether Camp might have intended to provoke this backlash in order to guarantee that a SIFI tax would not be included in Republican reform plans in the future, but it’s unclear whether his motives were really that cynical. The GOP certainly has an image problem when it comes to its ties to the financial industry (although the Democrats are not immune to this problem either), and Camp seems to be at least trying to do something about it. Moreover, the notion of a financial transaction tax is one that has been endorsed on the merits by economists and pundits from across the political spectrum.

Now for the questionable parts. Camp asserts that waste and fraud in the tax system is an overwhelmingly serious problem:

Not only is the way Washington takes your money unfair, it wastes the money it takes from you… This is particularly true of existing refundable tax credit programs, where the IRS is unwilling or unable to stop the waste, fraud and abuse. For example, over the last 10 years, the IRS erroneously sent out an estimated $132 billion of your tax dollars to false claimants. The Earned Income Tax Credit (EITC), the largest refundable tax credit, consistently ranks among the worst government programs in terms of waste, fraud and abuse [emphasis added] – even though it is one of the most important tools to help low-income, working Americans. Last year, 21 to 25 percent of all EITC payments were incorrect, costing American taxpayers as much as $13.6 billion.

Leaving aside the question of whether fraud is really a problem that the IRS has not been effectively tackling, singling out the EITC for special criticism seems strange. The Republican Party’s standard response to calls from Democrats for an increase in the federal minimum wage has been to argue that expanding the EITC would be a much more effective and less costly strategy for boosting the wages of poor and low-skilled workers. Granted, Camp acknowledges that it is “one of the most important tools to help low-income, working Americans,” but this is clearly a footnote to the main argument being made here.

Deficit hawks have plenty of examples of silly or frivolous federal spending from which to choose, and are generally untroubled by creating the impression that spending of that sort represents a much, much larger share of federal outlays than it actually does. So why go after the EITC? Considering that he has three or four more examples of allegedly wasteful programs in the next several paragraphs, why not just omit it?

We should give credit to Mr. Camp for being less demagogic than many of his colleagues and for illustrating his point with more serious examples than “beaver management.” We should also acknowledge that he never actually calls for abolishing or even meaningfully scaling back the EITC. But in his zeal to attack a perennial conservative punching bag, he ends up undermining the plausibility of his own party’s alternative to a hugely popular minimum wage increase. Especially if other Republicans run with this meme in the future, the self-inflicted wound could split open even wider. (For the record, I support an expansion of the EITC in conjunction with a minimum wage hike, and I think Camp’s criticisms are more clumsy than damning.)

Another element of the plan that attracted a great deal of attention in the press when it first came out was Camp’s proposal to repeal the deduction for state and local taxes, including income, property, and sales taxes. His contention is that “[t]his deduction redistribute[s] wealth to big-government, high-tax states from small-government, low-tax states.” Commentators rightly read this as a jab at blue-state governors and legislatures, and Camp correctly notes that this benefit is most valuable to those who live in states with high taxes, which by-and-large are those that lean Democratic.

That’s one way to look at it. Another way to look at this deduction is as a benefit that redistributes wealth toward states that are self-reliant and away from those that depend most heavily on the federal government. The states with the largest total burden of state and local taxes also tend to be those that receive the smallest amount of federal spending for every dollar they send to Washington. According to the center-right Tax Foundation,

[t]hanks to a steeply progressive federal income tax, states with higher incomes [i.e. blue states, on average –MM] pay vastly higher federal taxes, payments that are unlikely ever to be matched by federal spending directed to those states.

The Tax Foundation regularly produces a ranking of states based on their average tax burden, excluding federal taxes. In 2011, four of the ten states identified as bearing the heaviest burdens – California, Minnesota, New Jersey, and New York – were also among the ten states with the largest net revenue contributions to the federal government, based on tax data from the IRS and spending data from Transparency.gov. Four of the ten states identified as having the lightest burdens – Alabama, Louisiana, South Carolina, and Texas – were among the ten states with the largest net inflow of spending from the federal government (calculations available upon request).

This is just a quick, unscientific exercise, and we can quibble about the best way to measure which states are most “self-reliant.” But they are incredibly suggestive, and provide some support for the intuition that the states that levy the highest taxes on their citizens are also those that are Washington’s largest revenue-raisers. If there’s any redistribution going on here, it’s toward low-tax states. In the absence of the state and local income tax deduction, that redistribution would be even more stark.

Why does this matter? Conservatives are typically champions of devolving as many functions of government as possible to the states, and states that do more for their residents will tend to require more revenue. Yet encouraging states to reduce taxation may incentivize them to shift more of the work of providing public services to the feds. One can understand on a political level why Camp would want to axe this particular piece of the tax code, but he ought to have thought more deeply about the potential policy consequences of doing so.

Rep. Camp has offered a credible template for revamping the tax code. Although his core assumption that complexity is its main defect has come in for some criticism – The New Republic ran a piece for Tax Day presenting survey evidence that most Americans don’t consider it that difficult to do their taxes, and that the ubiquity of tax preparation software could even allow us to implement a system with infinitely many tax brackets without much pushback – it seems like a good idea to regularly reevaluate whether the code makes sense and to pare back some of its kludgy accretions.

Camp is surprisingly honest about the tradeoffs required by any such root-and-branch reform, and is willing to write concrete proposals that take on some of his party’s sacred cows. This is not the plan that I would have come up with, but in a less acrimonious political universe it would offer a reasonable starting point for bipartisan negotiations (I stand by my claim that “reformocons” would have a better chance of getting a hearing in the Democratic Party, but that’s an argument for another day).

Yet whenever Camp indulges in political gimmickry, his plan is consistently the worse for it. Maybe the next congressman to release a brief on tax reform can propose a tax on red meat.

“Why Popes and Economists Need to Talk”

Last Monday after work I made what I was surprised to learn is a very long trek from lower Manhattan to Fordham University in the Bronx to attend a talk by Daniel K. Finn, an economic ethicist at the University of Saint John’s in Collegeville, Minnesota. The lecture, sponsored by Fordham’s Curran Center for American Catholic Studies, was entitled “Building Better Economies: Why Popes and Economists Need to Talk,” and marked the kickoff of a planned two-year series of events to celebrate the 125th anniversary of Pope Leo XIII’s economic encyclical Rerum Novarum.

The main objectives of Finn’s talk were a) to encourage economists and theologians/ethicists, particularly within the Catholic academy, to engage in more interdisciplinary discussion, and b) to critique the tendency within academia for different subject areas to self-segregate into inward-looking cliques (he accompanied his introduction of this idea with a nice illustration of silos). As promised by his title, Finn made a compelling case for why popes and economists need to talk, but I had been hoping that he would deal more extensively with what practical steps might be taken to further promote and even institutionalize this kind of dialogue.

In the first half of the lecture, Finn summarized studies from a subfield known as behavioral economics that have sought to illuminate the psychological impacts of poverty. He focused in particular on an observation from the literature that the stress associated with a chronic lack of basic necessities leads to “reduced mental bandwidth,” and to shortsighted decision-making, poor impulse control, and weaker problem-solving abilities. This in turn can generate self-defeating patterns of behavior that can keep someone from rising out of poverty.

Such an empirical finding can have clear implications for public policy. Finn argued, for example, that accepting this understanding of why poverty persists would militate against imposing a fixed lifetime limit on the amount of welfare benefits that can be collected by a given individual, since this sort of restriction misunderstands the nature of “poverty-induced tunneling.” In other words, the intended incentive effects of such a limit will tend to be attenuated by the fact that the poor are focused not on making plans for far in the future, but on short-term subsistence. A better alternative might be to institute a cap on what can be collected during a given spell of poverty or unemployment (e.g. to allow a maximum of X dollars to be collected every Y months).

Although he didn’t deal explicitly with how “popes” might assimilate the fruits of such research into Church teaching, Finn did mention that Pope John Paul II is known to have consulted with economists when writing Centesimus Annus, his landmark social encyclical. At a more practical level, a better understanding of how to break cycles of poverty can assist Church-affiliated organizations like Catholic Relief Services in designing more effective strategies for promoting growth and development.

The latter half of the talk dealt with the contributions that popes and other churchmen, theologians, and ethicists can make to the dialogue with economists. In addition to simply reminding economists that their research ought always to be conducted with an eye toward fostering the common good, the exhortations of Church leaders can contribute to a deeper, more fundamental rethinking of what is possible in the realm of political economy. Finn quoted liberally from Benedict XVI’s 2009 treatise on the global economic order, Caritas in Veritate, to show what form this kind of rethinking might take. We can see hints of the Benedictine (and Franciscan!) vision of “commercial entities based on mutualist principles and pursuing social ends” in organizations like credit unions or grocery co-ops or health insurance co-ops, but these types of arrangements remain exceptions to the basic order of capitalism.

As Finn concluded his remarks, I was left wondering about what might actually be done to further the sort of dialogue he believes is necessary. Sure, popes have consulted with economists when they want to write about economics; have economists consulted with popes when they want to write about ethics? Do economists ever want to write about ethics? I approached Finn after the talk and asked him what he made of this asymmetry and how he thought it should be addressed. He acknowledged that this was a problem, and offered a few examples of forums and conferences that have modeled the kind of interaction wants to see become more widespread. Yet his examples were events that were sponsored by the Church! My point still stood.

The 2010 documentary Inside Job, in which Matt Damon explains the financial crisis, features a discussion about the uncomfortably close ties between the financial industry and business school/econ department faculty, and the ways in which these ties can distort and bias economic research. I personally am fortunate enough to work with morally upstanding economists on a daily basis, but the near-universal lack of ethical training as a component of degree programs in business and economics is something that worries me.

As insistent as recent popes have been that their social teaching is generally applicable to the whole of humanity, and rises above the level of ecclesiastical law binding only on Catholics, the Church will nevertheless have to build coalitions with those outside of Catholicism if it hopes to overcome the perception that its forays into discussions about political and economic concerns are driven by narrow sectarian interests.

I think that Finn and others like him have started in a logical place by zeroing in on Catholic universities, though. Kenneth Garcia, in a book called Academic Freedom and the Telos of the Catholic University, argues that Catholic colleges ought to focus more on recruiting intellectuals who are well-trained in both their own particular subject area and the broader philosophical and ethical tradition of the Church. This is a tall order, and at least one reviewer expressed skepticism that there are very many of these strange beasts out there to be recruited (not to mention that previous attempts to accomplish something similar, even at Garcia’s own university, have not necessarily ended well). But if Finn’s exercise in silo-breaking is to succeed, it would seem that these are the places where it will have to get off the ground first.

A day or two after Dan Finn’s talk, I read a review by Michael Sean Winters at the National Catholic Reporter of a forthcoming book by Andrew Abela and Joseph Capizzi entitled A Catechism for Business, which attempts to offer practical advice for Catholics seeking to integrate their moral principles with their professional work. Although Winters is critical of the free-market sympathies of its authors, one a moral theologian at Catholic University of America and the other the dean of CUA’s business school, he nevertheless believes that the book makes a unique contribution:

A Catechism for Business consists of quotes drawn from the Church’s teaching on issues of business and economics and one can only hope that many Catholic businesspeople will better acquaint themselves with that teaching via this medium. They certainly would be inclined to change some of their business practices and, what is more important, the whole way business is conceived in our hyper-commercial U.S. culture…

This Catechism is a worthwhile project and I hope it will be widely distributed and read. And, I believe the conversation between traditional advocates of Catholic social teaching and economists like Abela should continue, if only to convert him from his evident devotion to the fuzzy free-market thinking we associate with the Austrians not the Apostles. But, Abela is sincere, not sinister and his collaboration with Capizzi in producing this Catechism has yielded a fine compendium of Church teachings which, if taken seriously by the business community, could result in a far more humane economy than the one those businessmen have erected on their own.

Winters seems to equivocate about precisely how broad an audience the book might be able to attract, writing first that he hopes it will be read by “many Catholic businesspeople,” but then later that it would be wonderful to see it “taken seriously by the business community [in general].”

My own sense is that a book by two academics at CUA replete with quotations from papal documents will struggle to get a hearing outside of the Church. But in the age of Francis, who knows? People like Finn, Abela, and Capizzi are doing important work, but they should be cognizant of the fact that they may need to use different language when talking to different audiences. A multiplicity of approaches will be required if we really want to “build better economies.”

Will the Geographic Profile of the College of Cardinals Really Change Under Francis?

The Pope’s Promotions

Earlier today, Pope Francis formally elevated 19 Catholic prelates to the rank of cardinal in a ceremony known as a “consistory,” marking the first time that he has made such promotions since his election last March. As with all of Pope Francis’ “firsts,” the announcement of his first picks for the cardinalate had generated a significant amount of buzz in light of his evident intention to dramatically shift the geographic distribution of the red hats.

Since their main responsibility is to elect the next pope, there is naturally a great deal of interest in the cardinals – where they come from, who they are, and what issues they care about. In the run-up to the conclave that elected Francis last March, the Pew Research Center produced a graphic showing how the percentage of cardinals from each region of the world compared to the percentage of the world’s Catholics living in those regions. The visual was stark: while Europe only accounted for less than a quarter of the world’s Catholics as of 2013, it was home to over half of the cardinals eligible to vote in the conclave. Latin America, with nearly 40% of the global Catholic population, could claim only 17% of the cardinal electors as its own.

The conventional wisdom seems to be that Francis is accelerating a trend toward the “de-Italianization” or “de-Europeanization” of the College of Cardinals that has been at work for some time. National Catholic Register‘s Edward Pentin observed in January that “[f]ewer cardinals [from] the Roman Curia [the Vatican bureaucracy] will allow the Pope to choose more widely from the Church’s resident archbishops, thereby giving a more equitable distribution of cardinals from around the world.” In keeping with his emphasis on caring for the poor, Francis’ choices included clerics from developing countries like Burkina Faso, Ivory Coast, and Nicaragua. Bishop Chibly Langlois was selected as the first cardinal from Haiti, one of the most impoverished nations in the world.

But looking at how the nationalities of the cardinals have evolved over time only tells half the story. As the Pew graphic emphasized, one also needs to take into account the ratio of cardinals to Catholics in a given region to get a sense of whether that part of the world is represented as fairly as another.

Of course, when I talk about “representation,” I don’t mean to imply that the cardinals represent the laity in the same way that congressmen represent their constituents in the U.S. House of Representatives. While the College is a quasi-democratic institution with a protocol for electing the pope that resembles the protocol used by the Electoral College to elect the President of the United States, the cardinals do not literally poll the faithful on who they want to be pontiff. Moreover, the College’s role in the actual governance of the Church is generally very limited, despite the fact that it is sometimes referred to as the “papal senate” (though the amount of input that its members have varies from papacy to papacy, and may well be reaching a high-water mark under Francis).

That said, there are clear reasons to prefer a distribution of cardinals roughly commensurate with the global distribution of the Catholic population. One is that the issues that appear most pressing to the Church in Rome may not seem all that important or urgent to the Church in the Third World, and vice versa. For example, the European and North American bishops and cardinals are more likely to worry about secularism, church-state conflicts, the aftermath of the sexual abuse crisis, and bioethical controversies than their counterparts elsewhere. In Africa, the most pressing concerns are hunger, genocide, and Islamic extremism. In South America, starvation and poverty again top the list, along with environmental degradation and governmental corruption. A Church that becomes too myopically Eurocentric will be unable to react appropriately to problems in other parts of the world.

I was curious to see whether the geographic distribution of the cardinalate has in fact become significantly more or less equitable over time, so I fired up my copy of Stata 12 and starting crunching the numbers.

 

Data and Methodology

The first step was to find some data. Fortunately, virtually all of the hard work of compiling information on the College of Cardinals had already been done by Florida International University’s Salvador Miranda, who curates a wonderfully comprehensive website on “The Cardinals of the Holy Roman Church.” Since the majority of Catholics lived in Europe for most of the Church’s history, and since the cardinals were almost all of Italian descent until relatively recently, I figured it would be enough to begin my analysis around 1900 (this was also the earliest date for which I could find estimates of the global Catholic population, as I explain below). I pulled data from Miranda’s website going far enough back in time to be sure that I had included all men who were cardinals at the start of the twentieth century.

Counting cardinals at any given point in time is in fact a bit trickier than it might seem. Cardinals can exit the College either by dying, by being elected pope, or (in a couple rare instances) by resigning their position. The pope can also create “secret cardinals” or cardinals in pectore, whose names are kept “in his breast” until such time as he decides to publish them. Although the date of promotion of such cardinals is technically the date the pope promoted other cardinals he chose at the same time, I thought it would make more sense to count only cardinals whose names were known publicly on the date in question.

Moreover, assigning cardinals to a particular region of the world can also get complicated. Many have held positions in the Vatican at the time of their elevation despite having been born and raised elsewhere. I decided to assign cardinals to regions based on where they worked when they were promoted, not on their nationality at birth. Since I argued at the outset that we should care about the geographic distribution of the red hats because it can affect the Church’s global perspective, I figured it was logical to count men working in the Holy See as Italians/Europeans. (That said, I also redid my analysis with nationality at birth, and the results are very similar. These, along with all of my computations, are available on request.)

For population data, I turned to the World Christian Database (WCD), sponsored by the Center for the Study of Global Christianity at the Gordon-Conwell Theological Seminary in South Hamilton, Massachusetts. From the website of the WCD I was able to obtain estimates of the global Catholic population by continent in 1900, 1950, 1970, 2000, and 2010, as well as projections for 2020.

Following some work in the political science literature, I decided to employ the Gini coefficient – most commonly used in economics as a measure of income or wealth disparities – to get a sense of inequality in the geographic distribution of cardinals. I don’t want to bore non-econ geeks with a mathematical discussion of the Gini coefficient*, so I’ll stick to essentials: Gini readings close to zero represent more equal distributions (e.g. every region of the world having a number of cardinals proportional to its share of the global Catholic population) and readings close to one represent unequal distributions (e.g. one region having all the cardinals while the others have none). In other words, the lower the Gini coefficient, the better.

Although the Gini coefficient is constantly in flux as older cardinals pass away and/or as the world population of Catholics changes, I obviously had to limit myself to calculating it at a finite number of points in time. I chose to do so at the times of the consistories when new cardinals are inducted, and at the times of the conclaves when new popes are elected. Because I only have population data at select dates, I used simple linear interpolations to estimate population at the times of the consistories and conclaves (i.e. if I had population data at time t and time t+1, I assumed that population growth between t and t+1 could be modeled with a straight line).

Following the promulgation of Pope Paul VI’s apostolic constitution Romano Pontifici Eligendo in 1975, not all cardinals are permitted to cast votes for pope during conclaves; that privilege is reserved to those under 80 years of age. Since their right to vote for pope is the primary (but by no means only) reason we are interested in their nationalities, I do my analysis in the post-1975 period on both the entire set of cardinals and on a restricted sample of the sub-octogenarians.

 

Results

The following figures provide the key takeaways of my investigation.

Fig. 1: Size of the College of Cardinals, 1900 – 2014

Graph_College_of_Cardinals_Size

Fig. 1 illustrates how the size of the College has increased dramatically since 1900, even as the number of eligible electors has remained relatively constant in recent years (owing to a decree of Pope John Paul II that no more than 120 cardinals may cast ballots in conclave).

Fig. 2: Percentage Share of Cardinals by Continent, 1900 – 2014

Graph_Cardinals_Region_Shares_2

Fig. 2 shows how the percentage of cardinals hailing from each continent has evolved over time. While Europeans have lost a lot of ground compared to the early twentieth century, the absolute share of European cardinals has remained roughly constant for the last thirty years or so.

Fig. 3: Estimated Percentage of Global Catholic Population by Continent, 1900 – 2014

Graph_Population_Shares

Fig. 3 plots the population series I constructed from the WCD data, and gives a rough idea of how the Catholic populations of different parts of the world have changed in the last hundred-odd years. A comparison of Figs. 2 and 3 makes it clear that representation of the non-European continents in the College has not grown in proportion to the growth in their shares of the worldwide population of Catholics.

Fig. 4: Estimated Gini Coefficients for all Cardinals and Cardinal Electors, 1900 – 2020

Gini_Graph_All

This final graph presents the estimated Gini coefficients for the College of Cardinals from 1900 to the present. The solid lines denote computations using historical data, while the dashed lines indicate projections for 2020 based on the estimated future Catholic populations of each continent in the WCD data and the assumption that regional representation in the College will remain at current levels going forward.

The pattern seen in this graph runs somewhat counter to the conventional wisdom. The lines drop off sharply at the very end of the series, indicating that Francis’ recent set of picks is indeed moving the College toward geographic equity (the coefficient for all cardinals decreased from 0.359 on March. 13th, 2013 to 0.278 today, and the coefficient for the electors from 0.329 to 0.216). Yet it is also clear that the long-run trend over the past several decades has been toward greater inequity, reversing an earlier trend that stalled out around the time of Paul VI’s reforms. Even though Popes John Paul II and Benedict XVI made an effort to extend red hats to bishops from beyond the European continent, this analysis suggests that Catholic population growth outside of Europe has proceeded even faster than the “de-Europeanization” of the College.

On top of that, the projections for 2020 offer some cause for concern. Even if the present diversity of the College is maintained, the Gini coefficient is expected to actually rise modestly over the next few years (to 0.300 for all cardinals and 0.237 for the electors). This would imply that Francis and future popes might have to be even more aggressive about looking to the ends of the Earth for new “Princes of the Church” if they are serious about making the Catholic hierarchy more geographically inclusive.

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*Readers interested in the technical details of how the Gini coefficient is computed can check out page 9 of a working paper entitled “How Has the Literature on Gini’s Index Evolved in the Past 80 Years?” by Kuan Xu of the Dalhousie University Department of Economics in Nova Scotia for a lucid, step-by-step derivation.

Media Consumption Trends for 2014: The Rise of the Upgrade

Joshua Topolsky, editor-in-chief of The Verge, recently penned a column in which he argues that “we have now become defined by our penchant and desire for the upgrade.”  His thesis is that heightened consumer interest in technology initiatives across most major industries, including finance, transportation, science, food, and more, is fueling “a collective dream” of revolutionary, epochal change at a faster pace than ever before.

Topolsky’s large-scale envisioning of a coordinated push for a massive social and cultural “upgrade” seems a little too hyperbolic and optimistic.  On a smaller-scale, though, I think his use of “upgrade” as a talisman for 2014 is unintentionally prescient.  I predict the following three kinds of “upgrades” will gain increasing prominence in 2014 and will become central to our cultural economy over the next three to five years.   

1) Component Upgrades

Phonebloks, a modular phone concept created by Duth designer Dave Hakkens, attracted a social outreach of 36 million people in the last four months of 2013.  The Phonebloks device features a base motherboard that allows the user to “plug in” other components – the screen, battery, processor, camera, etc. – based on his/her preferences or needs.   Hakkens created the concept as an alternative to current phone and electronic manufacturing conventions, wherein one broken or outdated component requires scrapping the entire device.  His goal was to decrease needless electronic waste and allow for greater personal customization. 

Google and subsidiary Motorola liked what they saw.  In late 2013 they brought Hakkens on to their Project Ara team and announced that they were developing hardware to make his vision a reality. 

The powerful social and corporate response to Hakkens’ concept suggests there is substantial demand for technology that features easily upgradable components.  Hakkens correctly identified the financial and ecological inefficiencies in many of today’s products and his insight resonated with consumers- it really does cost a good deal of money to upgrade your phone, computer, tablet, game console, and other electronic devices every product cycle.  Creating devices that allow for lower-cost incremental upgrades is a logical and potentially profitable solution to this problem.

Other tech companies seem to agree.  Razer recently announced its Project Christine PC concept, which features similar swappable hardware modules designed to make modding or upgrading performance a hassle-free experience.  I wouldn’t be surprised if other tech firms hop on the component upgrade bandwagon over the next year, especially if Google is able to create enough buzz about Project Ara by previewing working prototypes.  Expect pushback from entrenched companies like Apple, but the swappable, component upgrade platform seems like a concept that’s going to become a prominent alternative pretty quickly.

2) Ownership Upgrades

The purchase of digital files and software is not the future of media ownership.  Billboard reports that music download sales fell 5.7% to 1.26 billion units in 2013.  eBook sales were only up 4.8% through the first eight months of 2013, compared to double-digit growth rates in previous years. 

The streaming database model is replacing the necessity to buy digital files.  Netflix, of course, is the company exemplar for why streaming is profitable, but other firms are starting to offer subscription services in additional media sectors.  Spotify is credited for the reduction of music download purchases in 2013 and recently received a fresh injection of $250 million in investment money.  eBook subscription services like Oyster and Scribd seem poised to attract new customers in 2014, especially if they can agree to licensing terms with additional publishing houses.  Microsoft’s push for Office to become a subscription, cloud-based service indicates that software ownership is trending away from the cyclical upgrade model too.  My guess is that video games are the next industry to take the plunge; perhaps Valve could negotiate some sort of a package “rental” service that gives gamers access to large swaths of its Steam catalog for a (relatively hefty) monthly fee.

The purchase of a digital file is increasingly a less preferential option for consumers, who can spend their money on supplementary services that offer equivalent accessibility and additional variety.  The concept of digital ownership will become increasingly unpopular as customers choose to upgrade to subscription models. 

3) Physical Upgrades

Of course, there are some products that simply won’t be available via subscription service- a given out-of-print album or a movie that’s not included in Netflix’s catalog.  In these cases, physical purchases will become an increasing norm instead of digital file purchases.  Look for publishers to increase the value that their physical products provide by offering additional services and benefits inaccessible in a digital subscription model. 

Vinyl sales were up by almost 33% in 2013 to 6 million units and account for 2% of album sales.  This is still far short of digital album sales at 40.6% of the market, but vinyl offers superior sound quality as well as the option for bonus physical products bundled with the music.  (CD sales allow for the same bonus packaging as vinyl, but their inferior sound quality makes it more likely that they’ll continue to bottom out in the forseeable future.)

Hardcover book purchases were also up by 10% in the first eight months of 2013.  As consumers spend more and more time working with screens and consuming content on mobile devices, there will be a market opportunity for print books to be a “digital overload alternative.”  Lavish book covers and high quality designs will allow for physical books to be reborn as luxury items that serve a decorative purpose beyond functional reading.

The popularity of subscription services presents an opportunity for publishers to show why their products are valuable enough to warrant a specific purchase.  In this sense, I am bullish on the prospects of print and physical sales as an alternate kind of upgrade to digital media purchases.

Summary

Taken together, these three trends suggest individuals will pursue consumption patterns that involve:

  • Pooled streaming software and content that involve higher recurring costs
  • Occasional physical purchases that supplement the streaming pool
  • Interchangeable hardware that features lower, more infrequent costs

Hardware will still be integral to consumer purchases, since the device is the medium to access the content, but it seems that the trend going forward will be decreased annual spending on hardware upgrades.  This decreased spending might instead flow towards software and content. 

Content subscription services are no sure thing, of course.  There is a wide discrepancy between Netflix’s soaring stock price and Spotify’s inability to turn a quarterly profit.  Sustained consumer interest in modular hardware is also not guaranteed, since there will always be demand for self-contained devices that guarantee form and content work in perfect synergy (such as the iPhone).  

Yet the relative affordability of subscription services (at least with respect to their marginal utility) coupled with increasing market permeation suggests that streaming companies are poised for significant expansion in the coming years.  And the significant interest in interchangeable hardware products indicates this is an avenue worth pursuing in the short term.  These kind of upgrades might not precede the macro technological revolution that Topolsky envisions, but they do promise more choices and easier information accessibility going forward.  That is cause for celebration and, indeed, (moderate) excitement.  

Basic Thoughts on Basic Income’s Future

The feasibility of a national basic income model has become a hot conversation topic over the last couple of weeks, spurred by Switzerland’s upcoming public referendum on the implementation of a basic income guarantee for its citizens. In a basic income model, the government provides each of its voting-age citizens a monthly or annual stipend to replace the various social welfare payments the government normally distributes. The goal is to effectively eliminate poverty by ensuring that everyone has a minimum income for self-sufficiency while also creating a more efficient centralized payment system.

No widespread adoption of this model has occurred in the past, though a host of small towns and districts from around the world have enacted basic income guarantees with generally successful results. As Annie Lowrey mentions in her report on Switzerland’s ballot, beyond ridding these “test” communities of poverty, guaranteed income also spurred positive externalities such as higher education levels and lower hospitalization rates.

Of course, local-level implementation of the basic income model differs greatly from any sort of theoretical national implementation, especially in the United States. Many economists are skeptical or outright pessimistic about its efficacy and feasibility. Questions about currency inflation and monetary devaluation are inherent, as is the fear that this kind of lump-sum payment will either disincentivize people from working or lead to adverse spending on things that won’t actually reduce poverty. On the budget side, Danny Vinick calculates that it would cost $2.14 trillion to provide a poverty-line level of basic income to all American adults between the ages of 21 and 65. Even when the costs of programs rendered unnecessary by a basic income policy are credited to that total (such as food stamps and earned income tax credits), we would still be short about $1.2 trillion annually.

Although basic income may not be a viable policy proposal at present, it wouldn’t surprise me if it becomes an increasingly popular idea over the next few decades. I say this for two overarching reasons:

1) It appeals to both conservatives and liberals.

Well… sort of. For the most part, basic income appeals to libertarians and quasi-socialists who are operating on wildly different premises. Charles Murray, one of the faces of the libertarian basic income movement, argues that it’s a more efficient mechanism for disbursing government funding since it aggregates all social welfare payments into one check per individual. He believes it’s an avenue to make the market more efficient and less bureaucratic. On the left, scholar Philippe Van Parijs, who has published extensively on basic income, argues that it’s a means to achieve “true freedom” and one of the only mechanisms that justifies capitalism.

Despite these disparate philosophical positions on basic income, it’s promising to think that a common ground exists, especially one which solves the harms that both men identify. Not only do we realize greater economic freedom and poverty alleviation, but it’s done in such a way that makes American capitalism theoretically more efficient and reduces the role of government in managing a host of welfare programs. There should certainly be skepticism whether either of these outcomes could actually be achieved, but it’s heartening to imagine that we could find a relatively broad consensus on an issue that would nominally seem so divisive.

Actually seeing these ideas trickle down to a viable political level is no guarantee, especially since they’re coming from each party’s outer orbit. But I think this will become a more mainstream issue in the future because…

2) A permanently post-manufacturing society has to support its population somehow. This might be a way.

Much has been said about America’s loss of manufacturing jobs over the last 3-4 decades. Despite recurring reports about the small-scale American manufacturing revitalization, it’s unlikely that most of these jobs are coming back. Ideas- and service-based industries are already central to our economy and will likely become even greater components of U.S. GDP in the future.

Coupled with the likelihood of increased automation in service and production lines (including machines building and creating new machines), there will be fewer and fewer lower-skilled jobs in the future. A premium will be placed on people with ideas to create new things, but there will likely be fewer and fewer positions for people to actually make those things.

How will low-skilled people, who will probably make up a sizable proportion of eligible workers, be able to earn a living in this scenario? Perhaps this is where basic income could come in. The primary critique economists cite against basic income is that it disincentivizes people from working, but if there simply aren’t enough jobs to go around, then this disincentive becomes a potentially helpful mechanism to temper a swelling labor supply.

In this scenario, basic income serves as a mediating factor to ensure that all citizens are at least provided a minimum level of security and livelihood. It functions as a security hedge, too- unrest is always higher when people can’t work and can’t eat. The result is a new kind of social structure in which people can opt not to look for work and still have basic securities (food, clothing) or to look for a job and work to move beyond this minimum. Everyone has the basics but those who want to pursue further profit can do so.

This is a gross simplification of what would be a very complex situation, of course, and it doesn’t address the problems identified earlier that exist today. It’s unlikely we’re going to have an extra $1.2 trillion (2013 dollars) each year lying around in 2090 to spend on something like this. But I’d imagine the proposition of basic income will become more and more prominent as the years go by and we have to start confronting what a decidedly post-manufacturing society will look like. Given the potential for overlapping interest from the left and the right, basic income experiments in small towns might become more and more common as a means to test national feasibility.

I’m hoping Switzerland’s referendum passes. It’ll be fascinating to see whether this can work on a larger scale.

The Political Economy of New Jersey’s Minimum Wage

Barring any last-minute surprises, New Jerseyans are poised to head to the polls on Tuesday ready to take the paradoxical step of reelecting Republican Governor Chris Christie by an overwhelming margin at the same time that they amend the state constitution to raise the minimum wage to $8.25 and to provide for automatic cost-of-living adjustments (COLAs) in the future. Paradoxical because of the fact that Christie publicly opposes the ballot measure, and vetoed a bill passed by the Legislature earlier this year that would have enacted a policy almost identical to the one now being put to the voters.

In a statement following his conditional veto of a measure that would have raised the state minimum to $8.50 from the current federally-mandated floor of $7.25 while also instituting annual COLAs, Christie argued that the “sudden, significant minimum-wage increase in this bill, coupled with automatic raises each year tied to the United States Consumer Price Index, will jeopardize the economic recovery we all seek.”

Democrats in the Legislature argued at the time that Christie’s action was one he would come to regret, and that the opportunity to put the issue before voters in November would ultimately redound to their own political benefit. The electorate might not have been enthusiastic about the party’s little-known gubernatorial nominee, State Sen. Barbara Buono, but the minimum wage question would, according to this line of thinking, prod Democratic leaners to show up at the polls and allow the party to tap an otherwise unmotivated reservoir of anti-Christie votes. The excitement generated by a referendum campaign would help to make up for the enthusiasm gap left behind when better-known Democrats like Cory Booker – who, as the Star Ledger put it last December, “picked a cozy run for Frank Lautenberg’s Senate seat over a bare-knuckle brawl with the big man” – took a pass on the race.

But with polls now projecting that both Christie and Question Two will easily prevail, it is clear that this strategy failed to deliver. That said, the Democrats were not necessarily crazy for believing it would improve their chances; Christie just happens to be an exception to this particular rule of political thumb. The minimum wage has always been an effective cudgel with which Democrats can beat up Republicans. The policy is easy to understand and speaks to the personal experience of a sizeable fraction of the American population (even though only a small share of the workforce is earning the minimum wage at any given moment in time, the proportion of workers who have ever earned the minimum at some point in their lives is much higher).

The most common argument against raising the minimum wage, like many arguments proffered by Republicans in defense of less government regulation, relies on an apparent counterintuition. Claims that low-income people are hurt the most by policies that require employers to pay their low-income workers more, whatever their validity, resonate less with voters than the simple populist refrain that wealthy business owners can afford to (and therefore ought to) share more of their surplus with the little guys. For that reason, Republicans will almost always be at a rhetorical disadvantage whenever the issue comes up. Those who are worried about the party’s long-term viability and competitiveness in national elections should be eager to find some way to take it permanently off of the table.

Ten states have minimum wages that are indexed to inflation. Both Barack Obama and his former challenger Mitt Romney are supportive of inflation indexing at the federal level, yet congressional Republicans continue to block the proposal. By doing so, they only guaranteed that the issue will be resurrected by their opponents again and again. Perhaps Christie had all of this in mind, and vetoed the original bill in an attempt to let the Democrats resolve the issue for good without having to alienate his allies in the business community. Not that he didn’t alienate them anyway, though; some business groups are just as opposed to automatic minimum wage hikes as they are to ad hoc ones. The National Federation of Independent Business, a conservative advocacy group best known as the lead plaintiff in the Supreme Court case that upheld the Affordable Care Act, recently tweeted that it is inappropriate to use constitutional amendments as a vehicle for making economic policy (given their support for state amendments prohibiting individual health insurance mandates, one suspects that this position is one of expedience rather than principle).

NFIB believes that allowing a provision like this to make it into a state constitution will make it harder to remove or amend when the injurious side effects of an ever-higher minimum wage begin to materialize. Even if their warnings about these effects are overblown, they may have a point: on my reading, the ballot measure only provides for increases in the minimum during years in which the Consumer Price Index rises, meaning that it would remain flat in the event that the CPI stagnates (similar to the way that COLAs work for Social Security). This means that a relatively severe bout of deflation could lead to a sharp increase in the minimum wage in real terms, potentially increasing the severity of an economic downturn.

How exactly this scenario would play out is an open question that will have to be left to empirical economic research, but all else equal, policymakers would indeed find it more difficult to tinker with the law if it were embedded in the constitution rather than dictated by statute. Early in his first term, Governor Christie advocated amending the state constitution to cap local property tax increases, though he ultimately struck a deal with the Legislature to enact a statutory cap instead. This was seen at the time as a victory for the Democrats, since a statutory cap would be easier to undo if, as many of them predicted, towns and municipalities found it too onerous to abide by the caps without sacrificing vital priorities.

All of that said, conservatives should still on balance find the idea of minimum wage COLAs appealing. They reduce uncertainty for businesses and make it easier for them to plan for the future. Instead of large, discrete hikes in the minimum that can come at unexpected times and be driven by the vicissitudes of public opinion and the vagaries of the political cycle, all future increases under such a policy regime would be modest and would occur at regular intervals. In response to Christie’s conditional veto of the original minimum wage legislation, Senate President Steve Sweeney declared that “[Christie’s] action shows that he believes politics and politicians need to remain part of the process on minimum wage… I think they need to be removed from it entirely.” Shouldn’t conservatives worried about the threat posed to the private sector by uncertainty be supportive of making labor market regulations more predictable?

Both Christie and the business community will likely come to be thankful for the fact that the minimum wage will never again be a subject of debate in New Jersey (if they don’t quietly believe this already). Democrats, in achieving a spectacular policy victory, will have relinquished a reliable political weapon. Imagine the benefit to the national Republican Party if it too came to grasp the deep logic of this issue and disposed of it once at for all at the federal level. Can anybody think of some candidate who, come 2016, might be able to help it connect those dots?