Category Archives: Poverty & income gap

Is There Really a Problem Here?

washington_metro

by James A. Bacon

A new report by the Pew Research Center, “The Geography of America’s Shrinking Middle Class,” has garnered widespread attention by focusing on the erosion of America’s “middle class” between 2000 and 2014, confirming the dominant narrative of increasing income inequality across the United States. As a summary of the report emphasizes, “The middle class lost ground in nearly nine-in-ten U.S. metropolitan areas examined.”

The percentile share of the middle class fell in 203 of the 229 metropolitan statistical areas examined in the analysis. Meanwhile, the share of adults in upper-income households increased in 172 regions and the share in lower-income households increased in 160 regions over the same 14-year period.

The decline of the middle class is a reflection of rising income inequality in the U.S. Generally speaking, middle-class households are more prevalent in metropolitan areas where there is less of a gap between the incomes of households near the top and the bottom ends of the income distribution. Moreover, from 2000 to 2014, the middle-class share decreased more in areas with a greater increase in income inequality.

The study neglects to tell us how the shrinking middle class is faring nationally according to its methodology, or whether it is due primarily to upward or downward mobility. The trends vary widely from region to region, reflecting the circumstances of local economies. Manufacturing-oriented regions fared poorly, while energy-related economies prospered. At the same time, some regions are doing a better job of building their technology and professional-services sectors. If, as a generality, larger metros are making progress while smaller metros are sliding, that’s unfortunate for the smaller metros but it’s not necessarily a national crisis — it simply reflects the reality that competitive economic advantage is shifting from smaller to larger metros. It is a basic question but Pew ignores it.

While there is much to be said in favor of a strong middle class, a shrinking middle class (defined by Pew as between about $42,000 to $125,000 per year for a family of three) can be construed as a good thing if people are rising into the so-called upper-income class. The trend is clearly undesirable if it results from households sinking into the lower-income brackets. What appears to be happening is a little of both — although in Virginia upward mobility predominates.

Pew’s analysis covered five metropolitan regions in Virginia: Washington, Hampton Roads, Richmond, Lynchburg and Blacksburg. (Don’t ask me why Roanoke, Charlottesville and other smaller metros weren’t included, I don’t know.)

The Washington metro (see chart above) experienced what could be construed as an alarming decline in the middle class — 6.1 percentage points. But even a cursory look at the data shows that the lower-income group remained stable (actually declining 0.1%) while the upper-income group shot up. By Pew’s measure, the Washington region became more unequal. But it apparently did so by hundreds of thousands of households moving into higher income brackets. Is this “losing ground?” Are we supposed to flagellate ourselves over this?

Admittedly, Washington may be an outlier. It is, after all, America’s imperial city and, with the exception of occasional bouts of sequestration or defense cutbacks, it is largely immune from the trends that afflict other parts of the country. So, let’s take a look at Virginia’s second largest metropolitan area, Hampton Roads (labeled Virginia Beach).

virginia_beach_metro

Once again, the middle class shrunk. Oh, noooo! But look closer. So did the lower-income class. The affluent class increased by 4.8 percentage points. It is hard to spin this as anything but a positive development.

The outlook for the other three Virginia metros is less clear cut. Here’s Richmond:

richmond_metro

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“Coming Apart” — Virginia Edition

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Odds are, one out of three of these babies is born out of wedlock.

by James A. Bacon

Three years ago sociologist Charles Murray wrote a book, “Coming Apart: The State of White America, 1960-2010,” in which he described the social disintegration of lower-income and working-class whites in the United States. He documented the decline of marriage, the rise of out-of-wedlock births, the spread of substance abuse, and deterioration of work ethic, respect for the law and religious observance. The range of social pathologies once stereotyped as African-American is increasingly prevalent among whites. Anyone interested in the problem of social and income inequality in America needs to read the book.

Against that backdrop, I now present some numbers from a fascinating data set published by the Virginia Department of Health and passed along by reader Jim Weigand. This table breaks down the rate of “non-marital” births by whites, blacks and “others” by locality and planning district across Virginia.

The overall numbers should be terrifying to anyone worried that the rise of fatherless families contributes to dysfunctional social behaviors such as poor school performance, substance abuse, sub-par employment prospects, descent into criminality, child neglect and abuse, and, of course, more out-of-wedlock births in a downward social spiral. Across the state, one out of three (34%) children is born out of wedlock. That works out to 25.2% for whites, 64.7% for blacks, and 29.2% for others. (“Others” is a meaningless category which conflates Asians with their lower rate of out-of-wedlock-birth and Hispanics with their higher rate.)

In a majority of rural counties, the incidence of white non-marital births runs well over 30%. In Alleghany County the rate is 50%. One might expect as much in communities where a large percentage of the population lives in trailer parks. But in reasonably affluent communities like Henrico and Chesterfield counties, out-of-wedlock birth rates for whites run an astonishingly high 22.9% and 25.0% respectively. Even in super-affluent counties such as Fairfax and Loudoun, the white, non-marital birth rates are 12.2% and 11.3% respectively.

(Not every out-of-wedlock child is “fatherless,” of course. Many are born to unmarried but cohabitating couples in which the father continues to play a role, at least for as long as the couples stay together. Apparently, cohabiting in Europe can lead to stable social arrangements, but in the United States cohabitation tends to be a less stable relationship than marriage, and fathers tend to be less involved in the raising of the child.)

The situation for African-Americans is a social calamity but I can’t talk about that without someone insinuating that I’m a racist. So, for now, let’s focus on what’s happening in white America. That’s bad enough.

Polite but Restrained Applause for UVa’s Scaled-Back Tuition Hike

wahoo_wa

by James A. Bacon

Let’s give a polite golf clap to the University of Virginia. After getting a $3 million boost in state support in the new FY 2017 budget, the Board of Trustees has scaled back its planned 3% tuition increase for continuing in-state students to 1.5%, reports the Daily Progress. The planned 10% increase for incoming state students will be trimmed to 8.5%.

After years of relentless tuition increases, the action comes as a welcome break to Virginia parents. The 1.5% adjustment still exceeds the rate of inflation, which was close to o.5% between 2015 and 2016, but it’s in line with recent increases in household incomes. (The median household income figures for 2015 aren’t available, but the figure increased about 1.8% between 2013 and 2014.)

“The University of Virginia’s decision is a direct result of good governance by both state and university leaders,” said House Speaker Howell, R-Stafford in a press release. “The General Assembly made significant investments in higher education aimed at improving access and affordability for Virginia families and UVA responded decisively by cutting its tuition increase in half.”

Howell said the General Assembly deserves credit for coughing up $78 million more for higher education than Gov. Terry McAuliffe had included in his original budget proposal. “The House of Delegates led the effort this year to increase funding for higher education, resulting in $120 million specifically to help hold costs down for Virginia families, who continue to struggle with the ever-increasing cost of college.”

Bacon’s bottom line: Howell’s statement is fascinating. To me it shows how the Republican Party of Virginia has given up any pretext of driving fundamental reform of state-run institutions, and has evolved instead into the party that panders to the rural and suburban middle class. Thus, rightly observing that the middle class parents feel crushed by the rising cost of a college education, the entry ticket into a middle-class lifestyle for their children, the Republican answer is to increase the public subsidy without strings or conditions. That is essentially the same solution proposed by President Obama on the national level — increase the availability of Pell grants and student loans.

That wasn’t always the case. I remember how soaring college tuition was an issue during the Allen administration between 1994 and 1998. (Yeah, I’m that old). I can’t recall whether the General Assembly cut or increased state funding back then, but I do remember how Gov. George Allen pushed the idea of restructuring higher ed. There was a recognition that publicly assisted colleges and universities had obligations to make hard choices: by re-engineering processes, cutting administration, or pruning academic programs that were no longer relevant or suffered declining enrollment. While the State Council for Higher Education in Virginia does exercise some oversight — mainly over the expansion into new programs — I don’t see anyone pushing hard for those kinds of reforms today. Much is given to universities but little is asked in return.

With the exception of the Historically Black Colleges and Universities, which are struggling for relevance and survival, and perhaps the community colleges, which have maintained a focus on job training, the priority of Virginia colleges and universities is on erecting new buildings, hiring more renowned faculty, bolstering scientific research, recruiting students with higher SAT scores and launching new programs. They are not driven by profit; they are driven by a hunger for prestige. And they compete against other institutions also seeking to enhance their prestige. There is no finish line, just an endless, open-ended competition in which public subsidies and student loans feed the beast.

Higher ed is out of control, and the only solutions the political class can devise are bigger state subsidies and more generous student loans. So, while I regard UVa’s tuition decision as a minor tactical victory for college affordability, the Board of Visitors inevitably will come back in later  years with new, grandiose plans that require higher tuition and fees. We are nowhere near winning the war of college affordability.

How Many Millions Have Died from This Failed Scientific Orthodoxy?

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Graphic credit: Washington Post

One of the most rigorous scientific experiments on the effects of fatty foods in the diet took some 40 years to complete, but the results are now in. Reports the Washington Post:

Collectively, the fuller results undermine the conventional wisdom regarding dietary fat that has persisted for decades and is currently enshrined in influential publications such as the U.S. government’s Dietary Guidelines for Americans. And the long-belated story of the Minnesota Coronary Experiment suggests just how difficult it can be for new evidence to see the light of day when it contradicts widely held theories.

The special diet given to mental patients in Minnesota did succeed in its intent to reduce cholesterol levels. What no one anticipated was that participants were more likely than patients on a conventional diet to die earlier.

Bacon’s bottom line. First question: By regulating and brow-beating food processors to reformulate their packaged foods and by pushing Americans into embracing the new nutritional guidelines, social engineers succeeded in altering the American diet. How many millions of Americans have died as a result?

As an aside, given the obsession with race and class today, one is tempted to ask also if minorities and the poor were disproportionately impacted. Did the nutritional social engineering of the 1970s lead to more obesity, more hypertension, more coronary blockage, and more diabetes than would have occurred otherwise? How many millions suffered death and disability as a result?

Second question: Will the social engineers ever own up to this calamitous public health failure and their complicity, however well intended, in the premature death of millions of Americans? Will Black Lives Matter point an accusing finger at the nutritional policies that arguably have snuffed out a thousand times more African-Americans lives than unjustified police killings?

Third question: What can we learn about what happens when science, politics and scientific funding intersect? As the WaPo summarizes why early results of the study were buried when they conflicted with orthodoxy:

The Minnesota investigators had a theory that they believed in — that reducing blood cholesterol would make people healthier. Indeed, the idea was widespread and would soon be adopted by the federal government in the first dietary recommendations. So when the data they collected from the mental patients conflicted with this theory, the scientists may have been reluctant to believe what their experiment had turned up.

Could the same thing be happening in some other sphere of public policy? Could contradictory scientific evidence be ignored or suppressed? Just asking.

— JAB

Debt Bondage Update

debt_bondageby James A. Bacon

As student loan debt passed the $1.3 trillion mark, 43% of the roughly 22 million Americans with student loans were not making their loan payments, according to new numbers published by the U.S. Department of Education. About 3.6 million borrowers were in default on $56 billion in student debt as of Jan. 1, meaning they had gone at least a year without making a payment. Meanwhile, another three million owing $110 billion were in “forbearance,” meaning they had received permission to temporarily halt payments, reports the Wall Street Journal.

Advocacy groups fault loan service companies for not doing enough to reach troubled borrowers. But Navient Corp., which services student loans and offers payment plans tied to income, says it attempts to reach each borrower on average 230 to 300 times through letters, emails, calls and text messages in the year leading up to default. Ninety percent of those borrowers never respond. A large percentage of borrowers have fallen off the radar screen — they are untrackable.

Meanwhile, worried about the federal government’s astronomical bad debt exposure — borrowers are behind on more than $200 billion overall — the government is garnishing wages and tax refunds. Needless to say, falling behind on loans also hurts credit ratings, making it more difficult or more expensive to take on other forms of debt.

The WSJ quotes Carlo Salerno, an economist who studies higher education and consults for the private student-lending industry:

The government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work. “On what planet does a financing vehicle with those kinds of terms and performance metrics make sense,” he said.

Bacon’s bottom line: All told some $200 billion in student loans are at risk of not being repaid. Much, if not most, of that sum has accumulated in recent years as the result of liberalized federal lending policies, creating a massive potential liability for taxpayers. The country now faces a hideous choice — either hound millions of Americans for repayment of their loans, driving many of them out of the workforce or into the underground economy, and ruining their credit ratings in the bargain, or institute a debt-forgiveness jubilee that rewards irresponsible behavior and punishes taxpayers.

The reckless expansion of student lending over the past several years is one of the most disastrous social policies in U.S. history, harming many of the lower-income Americans the program was designed to help. There has been nothing to compare to this creation of a new class of indebted servitude… well, nothing since the home-ownership mania of the 1990s and 2000s that lured lower-income Americans into houses they could not afford and obliterated their net worth in the real estate crash.

Americans think Wall Street is stealing them blind. While the big financial institutions did benefit enormously from the federal bailout during the last recession — a bailout thousands of Main Street businesses never got — at least they repaid their loans! The biggest blight on lower-income Americans over the past 10 to 20 years hasn’t been the Chinese, or the Mexicans, or Wall Street, or greedy millionaires and billionaires, it has been calamitous social policy that has immiserated those it intended to help.

When will we ever learn?

Update: Probably never. Headline from today’s Washington Post… “Obama administration pushes banks to make home loans to people with weaker credit.” The federal government doesn’t just tax us to advance its social-justice goals, it commandeers the credit system of the entire country, creating a new form of systemic risk.

Demographic Mystery Almost Solved

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by James A. Bacon

And now for an answer to the fascinating question posed by Hamilton Lombard on the StatChat blog: why African-Americans living in Virginia, Maryland and Delaware have the highest median incomes anywhere in the United States (see “A Demographic Mystery“)…. Ultimately, he says, the answer can be traced to the history of slavery in the Chesapeake region that gave rise to a large population of free blacks.

At the risk of oversimplifying (I urge you to read his full blog post), Lombard’s argument goes like this: With the introduction of tobacco to Virginia in the early 1600s, Virginia was the first state on the North American mainland to develop a plantation economy. Most slaves at that time originated from Angola. Because that region of Africa had been under Portuguese influence since the 1400s, many of the slaves were Christian, which may have entitled them to different consideration than pagans. Moreover, English common law prohibited slavery. Therefore, the first Africans in Virginia, like whites, were engaged as indentured servants and gained their freedom after working for a set time.

(Lombard doesn’t mention this but it fits with his theme: Many followers of Nathaniel Bacon during Bacon’s Rebellion in 1676 were freed African servants and slaves, who made common cause with freed white servants and small farmers.)

The institution of slavery did not cohere into the chattel form with which we are familiar until 1705 when the Virginia House of Burgesses codified a system of forced labor for non-Europeans and non-Christians. By that point, the slave trade had shifted to West Africa where Africans were far less likely to be Christianized.

I would expand upon Lombard’s argument as follows. Chesapeake slavery was built largely around tobacco plantations. By the late 1700s, tobacco cultivation had exhausted the soils, and the industry went into sharp decline, leaving farmers and plantation owners with a large surplus of slaves. At the same time that slaves were losing value as a means of production, many slave owners were feeling the contradiction between their ownership of other human beings and their belief in egalitarian, revolutionary ideas. Manumission became a fairly common practice, peaking around 1800. (I have a Bacon ancestor living in Sussex County, Del., who, according to family lore, granted his slaves their freedom after his death.)

Everything changed around 1800. Eli Whitney invented the cotton gin in 1794, making possible the profitable cultivation of cotton — but not in the Chesapeake states, which were too far north to grow the plant. And then the United States banned the Atlantic slave trade in 1808. The institution of slavery in the Chesapeake region gained a new lease on life as slave owners sold their slaves to markets in the deep south. The end result was a demographic pattern by 1860 in which 10% to 25% or more of the black population in Virginia, Maryland and Delaware counties were free but, outside a few counties in North Carolina, free blacks were almost unknown elsewhere.

That freedom, argues Lombard, gave Chesapeake blacks a head start in the accumulation of property and wealth. A glance at the maps he produces shows that across most of Virginia, the black farm ownership rate in 1920 was over 50% across the state and over 75% for big chunks of it — far higher than anywhere else in the country, even the North. Another map shows that the black home ownership rate in 1940 exceeded 60% in much of Virginia — again, far higher than anywhere else in the country. Lombard suggests that the lack of a sharecropping economy in Virginia may explain the difference.

The analysis at this point gets a little fuzzy because, based upon an eyeballing of Lombard’s maps, the rate of farm- and home-ownership in Virginia were considerably higher than in Maryland and Delaware, so there may have been other factors at work than the percentage of free blacks and/or the lack of sharecropping institutions. Lombard doesn’t address this issue. Could Virginia’s Jim Crow laws been less restrictive than those of Maryland or Delaware? Were Virginia blacks more highly educated? Whatever, the reason, it can hardly be coincidental that Richmond, where many blacks proudly trace their ancestry back to the free black population of the ante-bellum era, became known as the “Harlem of the South.”

Any analysis also need to consider the massive early 20th-century migration of Southern blacks to cities in the Northeast and Midwest, and then the subsequent migration of blacks back to the South, both of which created a large mixing effect. While some Virginia blacks trace their roots back to free blacks living in the state in 1860, how many do?

In sum, Lombard’s argument is incomplete. Not wrong, just incomplete. His hypothesis — positing a link between the percentage of free blacks in the population in 1860 and the economic well being of Virginia blacks today — is fascinating and inherently plausible. It would make a great PhD thesis.

A Demographic Mystery

Black poverty rate by county. Source StatChat

Black poverty rate by county. Source: StatChat

The highest median income for African-Americans is highest in Maryland, second highest in Delaware and third highest in Virginia. The flip side of the coin is that the counties with the lowest African-American poverty rates are overwhelmingly clustered in the Mid-Atlantic, as can be seen in the map above. What’s going on? What’s so special about the Mid-Atlantic?

One obvious explanation is that the high median African-American incomes are centered on the Washington metropolitan area. That may be a factor but there’s more. African-American prosperity extends southward well past the Richmond metropolitan area and north into Delaware.

The data comes from Hamilton Lombard with the Demographics Research Group at the University of Virginia, who published on the StatChat blog. In a future post, he says, he will examine how that came to be. I eagerly await his analysis.

(Hat tip: Frank Muraca, Nutshell.)

— JAB