Category Archives: Poverty & income gap

Sorry, College Kids, Living off Beer and Pizza Does Not Make You Poor

Source: Demographics Work Group, UVa

Source: Demographics Work Group, UVa

As readers know, I am a data junkie, and I post a lot of maps and charts highlighting, among other things, the variations of wealth and poverty in Virginia. The data is useful in helping us understand social, economic and political dynamics of the state, but they usually come with an asterisk. Poverty rates tend to be abnormally high in college towns. Judging by the statistics, one would expect places like Blacksburg, Charlottesville, Harrisonburg, Radford and Lexington to be havens for housing projects and trailer parks. Yet to all outward appearances, they seem to be fairly prosperous places.

Clearly, the presence of large numbers of college students who are studying (and partying)  rather than working full-time to earn a living are skewing the figures. As a new census brief from the Demographics Working Group at the University of Virginia observes:

Most college students report very low incomes, putting them below their respective poverty thresholds and—especially in cases of large off-campus student populations—raising the rate of poverty in the towns where they live. Yet, intuitively, we recognize that college or graduate student “poverty” means something different than poverty among the unemployed, families with children, or the persistently needy.

In calculating the official poverty rate, number crunchers make some adjustments to minimize the student amplification of poverty by excluding people living in group quarters such as college students in dormitories, older adults in nursing homes, prisoners and inmates, and military personnel in barracks. Even so college students living off-campus inflate the poverty numbers.

By removing all students involved in undergraduate or graduate education, the Demographics Work Group provides a clearer picture of what most of us would think of as “real” poverty. In the aforementioned college towns, making this adjustment cuts poverty rates in half. Even in most populous jurisdictions, such as Richmond, the adjustment creates a noticeable drop.

— JAB

Are the End of Times Upon Us?

Big hands... Rest easy, America

Big hands… Gog (left), Trump, and Magog

by James A. Bacon

Surely we have reached the end of times of apocalyptic lore when the leading Republican candidate for president flapped his arms during a national debate and assured the American people that not only are his hands of respectable size but so is another part of his anatomy. “I guarantee you, there’s no problem,” said the inimitable Donald Trump last night.

Such is the state of the nation that rather than explicate how he proposed to “make America great again” — beyond building a big wall, bringing in “really great” people, and hammering China, Japan and Mexico on trade — Trump felt compelled to assure the public that the size of his genitalia is something the nation can be proud of.

While Trump is grotesque, he taps into a very real malaise across a broad swath of the electorate. The American people know that something is very wrong, and that the elites have rigged the rules of the game to their favor, although they’re really not sure how. Americans are appalled by political correctness, they’re appalled by Wall Street bailouts, and they’re appalled by big money in politics. They are enraged by the loss of jobs, many of them to competitors overseas, and they are demoralized by the increasingly difficult struggle to maintain a middle-class standard of living.

My argument in Bacon’s Rebellion is that much of this malaise can be traced to the failure of core economic institutions. The health care sector, which comprises close to one-fifth of the economy, is plagued by the poorest record of productivity and quality of any economic sector, making the cost of health care increasingly unaffordable for all. Meanwhile, college tuitions have become even more burdensome, blocking a traditional path to a middle-class occupation. Both sectors have become captured by the leading players — hospitals, insurance companies, institutions of higher education — and are run to protect their interests, not the interests of the public. And don’t get me started on dysfunctional land use patterns, also the playground of special interests, which drive up the cost of housing and transportation.

How these complex systems work is poorly understood, so Trump personifies the enemy as illegal immigrants and Chinese factory workers stealing American jobs, while both Democratic candidates personify the enemy as cops killing innocent black men and deploring the United States as institutionally racist.

There is another contributor to this malaise, also poorly understood: monetary policy. I have addressed it periodically in Bacon’s Rebellion, although I only dimly comprehend the dynamics myself and assuredly speak with no authority on the subject. But Bill Gross, head of Janus Capital Group and one of the leading bond investors in the world, does understand it. And I will let him do my talking for me.

In the current issue of his monthly newsletter, Gross writes the following:

Our global, credit based economic system appears to be in the process of devolving from a production oriented model to one which recycles finance for the benefit of financiers. Making money on money seems to be the system’s flickering objective. Our global financed-based economy is becoming increasingly dormant, not because people don’t want to work or technology isn’t producing better things, but because finance itself is burning out like our future Sun.

What readers should know is that the global economy has been powered by credit – its expansion in the U.S. alone since the early 1970’s has been 58 fold – that is, we now have $58 trillion of official credit outstanding whereas in 1970 we only had $1 trillion. Staggering, is it not? But now, this expansion appears to be reaching an ending of sorts, at least in its current form. Private sector savers are growing leery of debt piled upon debt and government regulators have begun to build fences against further rampant creation. In addition, the return offered on savings/investment whether it be on deposit at a bank, in Treasuries/ Bunds, or at extremely low equity risk premiums, is inadequate relative to historical as well as mathematically defined durational risk. The negative interest rates dominating 40% of the Euroland bond market and now migrating to Japan like a Zika like contagion, are an enigma to almost all global investors. Why would someone lend money to a borrower with the certainty of getting less money back at a future date? …

Negative yields threaten bank profit margins as yield curves flatten worldwide and bank NIM’s (net interest rate margins) narrow. The recent collapse in worldwide bank stock prices can be explained not so much by potential defaults in the energy/commodity complex, as by investor recognition that banks are now not only being more tightly regulated, but that future ROE’s will be much akin to a utility stock. …

In addition to banks, business models with long term liabilities that depend on 7-8% future returns from risk assets are themselves at risk – not necessarily of bankruptcy but future profitability. … Same goes for pension funds. Puerto Rico follows Detroit not just because of overpromised benefits but because they cannot earn enough on their investment portfolios to cover the promises. Low/negative interest rates do that. And the damage extends to all savers; households worldwide that saved/invested money for college, retirement or for medical bills. They have been damaged, and only now are becoming aware of it. Negative interest rates do that. …

In addition, government policymakers seem to be setting up future roadblocks for savers. There is a somewhat suspicious uniform attack on high denomination bills of global currencies. Noted economists such as Larry Summers; respected journalists such as the FT’s Gillian Tett, central bankers such as Mario Draghi – all seem suddenly concerned that 500 Euro or 10,000 Yen Notes are facilitating drug dealers and terrorists (which they are). But what’s an economist/central banker doing opining on law enforcement? It appears that the one remaining escape hatch for ordinary citizens is being closed. Money in a mattress will heretofore be associated with drugs/terror.

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The Structural Racism of Student Loan Debt

Student loan delinquency rate by zip code. Darker colors indicate higher delinquency rate.

Student loan delinquency rate by zip code. Darker colors indicate higher rates. (Click for more detail.)

by James A. Bacon

Americans now owe $1.3 trillion in student loan debt, exceeding the amount they owe on credit cards ($700 billion) or automobile loans ($1 trillion). Unlike other forms of debt, student loans are disproportionately concentrated among young people. Further, student loans are uniquely onerous because the debt cannot be discharged in bankruptcy proceedings. In the past two decades or so, America has created a new indebted class — I call it the indentured servant class — where none existed before.

After decades of advocating the expansion of federal lending programs on the grounds that everyone who wants to attend college should be able to, America’s progressives are waking up to the idea that maybe the massive accumulation of debt is not such a good thing. Indeed, the student debt issue has become a major presidential campaign theme for the first time in American history with Bernie Sanders and Hillary Clinton vying to outbid the other with proposals for loan forgiveness, free college and the like. Progressives wouldn’t be progressives, of course, without turning massive student indebtedness, which they aided and abetted for so long, into a racial issue. Student loans, you see, constitute “structural racism.”

After an extensive analysis of the data, Marshall Steinbaum and Kavya Vaghul with the Washington Center for Equitable Growth have concluded that minority populations disproportionately suffer from high delinquency and that middle-class minorities seem to be the most adversely affected. “We believe that these two facts reflect the impact of structural racism in the U.S. higher education system, credit and labor markets, and distribution of wealth.”

Actually, I have observed previously that the piling on of student debt represents a form of “structural racism.” But rather than blaming credit and labor markets, I indict the U.S. system of higher education exclusively. One of the most proudly progressive institutions in the country is also one of the most racist — assuming we define racism the same way that progressives do, which is by the disparate impact institutional arrangements have on the poor and minorities.

Steinbaum and Vaghul have performed a useful service in building a map of student debt (from which the image above was taken). They analyzed each zip code in the country by median household income, racial composition, and student loan debt delinquency. (You can see the interactive map here.) Not surprisingly, they found strong correlations between household income, race and default rates.

Unfortunately, they superimposed upon the data their own progressive framework for analysis, citing discrimination in credit markets (minorities get less generous credit terms) and labor markets (minorities are less likely to get job offers) as important reasons for the higher default rates. Those are interesting claims, which may or may not be true — a good topic for a different blog post — but I think it’s fair to say that the most important factor explaining the higher default rate by minorities is the college completion gap.

The authors do acknowledge the reality of this gap:

African Americans and Latinos are, on average, less likely than white students to complete college once they start. According to the National Center for Education Statistics, in 2013 roughly 57 percent of recent African American high school graduates and 60 percent of recent Latino high school graduates were enrolled in college compared to 69 percent of white students. Yet the National Center for Education Statistics reports that for the 2005 starting cohort of college students, about 21 percent of African Americans and 29 percent of Hispanics complete a four-year institution within four years compared to a four-year completion rate of 42 percent for white students.

This is fundamental. The longer it takes to graduate, the more debt a student accumulates. Moreover, if a student fails to graduate and acquire the credential it takes to succeed in the job market, their debt is all the more difficult to pay off. All other factors pale in comparison.

So, the real question we should be asking is this: Why are blacks and Hispanics dropping out of college at higher rates than whites, and why do they take longer to complete their degrees? Are they less prepared academically on average than whites and Asians, perhaps because of the inadequate quality of their K-12 education? Do they take more remedial courses in college? Do they struggle with higher-level courses? Do they fail more courses? Do they get more discouraged and wonder what the hell they’re doing?

Rather than blaming credit markets and labor markets, perhaps we should take a closer look at the policies of America’s colleges and universities. To what extent, in their pursuit of diversity, do they admit minorities with lower SAT scores than the student average? If minorities do have lower SAT scores, do the colleges provide them additional support it takes to keep up — remedial classes, tutoring, mentoring, whatever — or do they let the students fend for themselves?

Here in Virginia, the University of Virginia stands out for the negligible difference in graduation rates between blacks and whites. Clearly, although UVa aggressively recruits minorities, it either (a) succeeds in recruiting minorities who are equally qualified academically, (b) provides the necessary support for those who aren’t as qualified, or (c) accomplishes some combination of the two.

If UVa is the gold standard for minority retention (not just recruitment), we should ask, how do other Virginia colleges and universities, both public and private, compare? Colleges recruiting minorities and congratulating themselves on their diverse enrollment, but then allowing minority students to struggle, drop out and accumulate massive, unpayable debt are guilty of what I call institutional racism. Such behavior is a stain that no amount of good intentions can wash away.

(Hat tip: Larry Gross)

In an Age of Washington Gridlock, the Laboratory of Democracy Is looking Pretty Good

atlantic_coverby James A. Bacon

Seventy-two percent of Americans think the United States is headed in the “wrong direction,” according to a recent AP-Gfk poll, and most of those discontents attribute their sentiment to the dysfunction of American politics. That’s no surprise given the gridlock that has beset Washington, D.C. — gridlock resulting from the polarization of the American electorate between an evenly matched “red” America and “blue” America in a constitutional system designed to thwart radical change based on slim majorities.

James Fallows, a national correspondent for the Atlantic Monthly, is nostalgic for the days when an visionary effort could galvanize the country behind a national goal. But he is clear-eyed enough to see that the political will does not exist to address, to pick an example he cares about, the inequality of wealth and power in America’s second “Gilded Age.” What ever does a social reformer solver do?

After three years of criss-crossing the country in a single-engine plane, an aerial “Travels with Charlie,” so to speak, Fallows has discovered that the national funk is less pronounced in America’s states and metropolitan regions. Indeed, working at the community level, people are finding ways to solve problems and get things done. Apparently, the old “laboratory of democracy” is alive and well, with thousands of experiments occurring across the country. Communities rich and poor, red and blue, are reinventing themselves. “Many people are discouraged about America,” he writes in the current edition of Atlantic Monthly. “But the closer they are to the action at home, the better they like what they see.”

Fallows quotes University of Virginia professor Philip Zelikow, director of the Rework America initiative, as saying: “In scores of ways, Americans are figuring out how to take advantage of the opportunities of this era, often through bypassing or ignoring the dismal national conversation. There are a lot of more positive narratives out there — but they’re lonely, and disconnected. It would make a difference to join them together, as a chorus that has a melody.”

Ordinary Americans have lost faith that they can make a difference in a Washington, D.C., ruled by special interests, entrenched bureaucracies, lobbyists and political action committees. But they feel they can make a difference in their own states and communities. Thus, according to a Mary Washington University-sponsored poll taken in November 2015, while 58% of Virginians responded that the nation was going in the wrong direction, only 43%  felt that the state is heading the wrong way. I don’t know if anyone has asked that question at the metropolitan regional level, but I suspect that, here in Virginia at least, the wrong-way sentiment would be even lower. Speaking personally, I believe that my home metro of Richmond, despite many warts and blemishes, is very definitely moving in the right direction.

Fallows sounds a rarely heard tone of optimism. Among his observations:

A talent dispersal is underway. The “big sort” is short-hand for the tendency of the most highly educated, creative, productive and entrepreneurial people to migrate to the nation’s largest talent magnets like New York, San Francisco, Seattle or Washington, D.C., draining the rest of America of energy and talent.  While that phenomenon is real, there is a counter-migration, Fallows asserts. “We were surprised by evidence of a different flow: of people with first-rate talents and ambitions who decided that someplace other than the biggest cities offered the best overall opportunities.

An archipelago of creativity. Not every computer programmer with big dreams wants to move to Silicon Valley. Enough prefer to live in less expensive, family-friendly cities that technology companies can take root elsewhere. Writes Fallows: “American thinks of itself as having a few distinct islands of creativity; I now see it as an archipelago of start-ups and reinventions.”

Even “hopeless” places are reinventing themselves. Fallows highlights the forlorn communities of San Bernardino, Calif., and northeastern Mississippi as places that have hit bottom and are clawing their way back. “If you wanted a vista of American hopelessness, you might think to start in Mississippi,” he writes. “But here again, we heard that through the country as a whole was in trouble, things are home were moving in the right direction.

The assimilation engine moves forward. While national politics focuses on illegal immigrants and Muslim terrorists, those just aren’t pressing issues at a local level. “Red” America may have the reputation as inhabited by racists, know-nothings and bigots, but Fallows was struck by how inclusive many communities are. “The anti-immigrant passion that has inflamed this election cycle was not something that most people expressed in most of the cities we visited,” he says. “Politicians, educators, businesspeople, students, and retirees frequently stressed the ways their communities were trying to attract and include new people.”

The arts revolution is transforming small cities. Art isn’t just for big, wealthy cities anymore. Fallows finds extraordinary energy poured into local arts in communities across the country.

So, where do we go with this? Washington gridlock is probably with us for a long time. I see little indication in the polls either of an electoral revolution that will give either party a lock on all three branches of the federal government, or a readiness of either Republicans or Democrats to sacrifice core principles on the size and scope of government. Any action that occurs will take place at the state and metropolitan levels.

I’ve been corresponding recently with an old Bacon’s Rebellion contributor, E M Risse, who has long argued that what he calls New Urban Regions (roughly conterminous with Metropolitan Statistical Areas) are the fundamental units of economic competition and development in the global economy. The problem, he argues, is that governance structures in the United States have not evolved in sync with the underlying economic reality. He and I used to explore this issue in depth when he was active on the blog. Perhaps it’s time to revive that discussion.

VLDS Big Data Just Got Bigger

big_databy James A. Bacon

This blog post is geeky, but it’s important — so stick with me! If you favor public policy based on what works as opposed to public policy based on ideology or political muscle, then you should be very encouraged by the progress made by the Virginia Longitudinal Data Survey (VLDS) in incorporating new government data sets.

The VLDS started as a master database of mainly educational and employment data. Now it is adding poverty-related data from the SNAP (food stamp), TANF (Temporary Assistance for Needy Families) and VIEW (Virginia Initiative for Employment not Welfare) programs from 2005 to 2014. Coming up: data sets for foster care, child care, child protective services.

Combining all this data will allow researchers to provide more authoritative answers to a host of public policy questions.

For example, writes Jeff Price in a recent VLDS blog post, “We have never been able to evaluate the impact food security, as provided by the SNAP program, has on the academic success of young children. Do children whose family receives food stamps miss fewer days of school and do better on standardized tests than children from other low income families that do not participate in the SNAP program?”

Previously, it was a bureaucratic nightmare for researchers to obtain this data. VLDS eliminates many of the obstacles by anonymizing the data, that is, stripping out personal identifiers. Price continues:

We now have the opportunity to describe the entire population of citizens we serve in ways we never could before. This will provide insight into patterns and relationships we either knew existed but couldn’t quantify, or never knew existed.  It will allow agencies to better evaluate their program policies and the approaches and strategies used in the past to determine what works best.  In some cases current assumptions will be confirmed.  In others prevailing assumptions will be shown to be incorrect.

The value of the VLDS cannot be overstated. For population studies it is a game changer.

Bacon’s bottom line: VLDS has enormous potential. My only beef is that the research conducted so far has addressed extremely narrow-bore topics, and I have yet to see any eye-opening findings. (Click here and scroll down to “VLDS Research” to view the research projects based on VLDS data.)  Hopefully, that will change as new data sets are added and researchers are able to address an ever wider array of questions.

The Student Indebtedness Dilemma

debtby James A. Bacon

The problem of student debt is finally getting high-level attention in Virginia, as evidenced by a panel discussion on the subject hosted in Richmond over the weekend. It’s less clear that anyone has a realistic idea of what to do about it.

Some one million Virginians owe a total of $30 billion in student debt. The indebtedness is disproportionately concentrated among African-Americans who tend to come from lower-income families, borrow more, take longer to graduate, are less likely to complete their degrees, are more likely to miss repayments, and are more likely to see their credit scores suffer as a consequence.

Although this was not a theme of the conference, as reported by the Richmond Times-Dispatch, I  would argue that, insofar as institutional racism is a reality today, the most oppressive institution in the United States is the system of higher education, which creates unrealistic expectations for poor, academically unprepared students and loads them up with life-crippling debt. While extremely liberal in ideology, higher ed is highly illiberal in practice, and it is creating a new class of indentured servants. Even in the early plantation economy of the American colonies, indentured servants could work off their debt in seven years. Student loan debt can last for decades.

Speaking at the Richmond event, Sen. Glen H. Sturtevant Jr., R-Midlothian, described his prospects as a Millennial with three young children. “By the time they’re ready to go to college, I’m going to be paying for them to go to college and still be paying off my student loan debt from when I went to law school.”

At least Sturtevant completed his law degree.

The underlying cause of student debt is the high cost of attending college. Due to escalating costs and stagnant contributions from the state, increases in college tuition and fees over decades have relentlessly outpaced the growth in household incomes of all but the most affluent Virginians. But that’s not all there is to the story. Colleges, driven by their commitment to racial and ethnic diversity, are especially aggressive in their recruitment of blacks with the consequence that blacks on average are less prepared academically than their peers, more likely to struggle, take longer to graduate (assuming they do graduate), and more likely to accumulate large debt obligations.

Another part of the problem is a powerful cultural belief that college is the only entry ticket to a middle-class life. Anne Holton, Virginia’s Secretary of Education, alluded to it in her panel remarks. “It’s a bit of a leap of faith,” she said, but research shows that the return on investment makes a degree worthwhile, resulting in up to $1 million in additional income in lifetime earnings.

Holton acknowledged that the $1 million figure is an average figure, and it does not apply evenly to everybody. Needless to say, a degree in engineering, computer science or business will lead to more remunerative employment prospects than a degree in education, social work, history or anthropology.

What Holton did not say (or was not quoted as saying) is that literally millions of jobs are going begging in the American economy that pay handsome middle-class wages and don’t require a four-year college degree…. Which brings us to a CNN Money story, referred to us by our friend Tim Wise (El Growler Grande), which says that the U.S. has a near-record 5.6 million job openings. American companies are looking for workers. The trouble is, they can’t find workers with the right skills — and those skills are not taught in four-year colleges.

While the number of students in college has increased from 15 million in 2000 to 20 million today (great news for the educational-industrial complex), what the economy needs is more truck drivers, electricians and plumbers. People may fret about the impact of self-driving Google cars on demand for drivers a decade from now, but the American Trucking Association says the economy could absorb 50,000 additional truck drivers today. The median annual wage for a trucker working for a private fleet is about $73,000.

Here in Virginia, 90% of all jobs in the future are forecast to require some education and training beyond high school but 50% to 65% will require less than a bachelor’s degree, according to “Workforce Credentials: The Pathway to Virginia’s New Middle Class,” a publication of the Virginia Community College System.

Put another way, for every one job that requires an advanced degree, there are two jobs that require a bachelor’s degree and seven jobs that require an associate’s degree or industry-recognized credential. The Virginia economy produces about 175,000 of those jobs each year.

Community college is cheaper than four-year residential colleges, it requires fewer years of study, and it provides degrees and/or credentials that lead to solid middle-class jobs. Lower-income students — especially those coming through school systems that did not provide them solid academic preparation — should consider an alternate, low-debt path to a middle-class life.

Nothing less than a wholesale reorientation of priorities is sufficient to fend off the social calamity of indebtedness.

A Greater Role for Nurse Practitioners

nurse_practitionerby James A. Bacon

While Medicaid expansion may have been dead on arrival at the General Assembly this year, the Senate Education and Health Committee has been thinking of other ways to improve medical access for Virginia’s poor. One solution is to loosen the regulatory restrictions that limit the ability of nurse practitioners to handle routine medical cases without a physician’s supervision. Three bills passed by the committee would improve medical access by expanding the role for nurse practitioners.

Reports the Richmond Times-Dispatch:

  •  SB 369 would establish a pilot program in which nurse practitioners would practice without direct supervision of a physician in clinics in medically under-served or high-unemployment areas. The nurses would collaborate with physicians via tele-medicine, and would have authority to issue prescriptions.
  • SB 264 would allow a nurse practitioner to provide care for up to 120 days in the event that the physician overseeing the patient care team dies, retires, becomes disabled or no longer has a license.
  • SB 463 would authorize nurse practitioners certified as nurse midwives to practice without the requirement for collaboration and consultation with a patient care team physician.

By themselves, these measures will not solve the plight of Virginia’s uninsured population, which Medicaid expansion is meant to address, but they are a step in the right direction. Combined with other measures such as the rollback of Certificate of Public Need regulations and the expansion of primary-care clinics, Virginia can do a lot to ensure better access for the poor and near-poor without exposing taxpayers to the massive fiscal risk of expanding Medicaid.

Advocates of Medicaid expansion tend to overlook a critical point: Having access to health insurance is not the same as having access to primary care services. Because Medicaid tends to pay health care providers less than it costs them to provide a service, Medicaid patients are money losers. As a consequence, many primary-care physicians, who tend to be over stretched as it is, refuse to take Medicaid patients. The looming physician shortage makes it increasingly difficult for Medicaid patients to find a primary-care physician, which is why so many end up in the emergency room.

The U.S. health care system is an extraordinarily complicated organism, and its problems cannot be fixed by throwing money at it. By taking up the if-you-don’t-like-Medicaid-expansion-what’s-the-alternative challenge, Virginia can build a health care system that works better for all. These three bills are excellent examples of the kind of thinking we need. If Republicans win the White House in 2016 and succeed in their dream of dismantling Obamacare, we’ll be darn glad we chose this path.