Earlier this month, I attended the annual meeting of the Allied Social Science Associations (ASSA), organized by the American Economic Association, on behalf of PPI. The three-day conference featured hundreds of presentations and papers on economics and social science research and was held virtually this year, sparing me a frigid trip to Chicago. The three topics that I highlight below from the conference address housing, inequality, and wealth building, with links to relevant PPI policy ideas.
Raj Chetty and Nathaniel Hendren of Harvard University presented the latest findings from their housing mobility program in the Seattle area, Creating Moves to Opportunity. The researchers designed a randomized controlled trial that gave low-income families the choice to move to higher opportunity areas through housing vouchers. They “provided services to reduce barriers to moving to high-upward-mobility neighborhoods: customized search assistance, landlord engagement, and short-term financial assistance” and families were not required to move to high-opportunity neighborhoods to receive a voucher.
Their services-based intervention proved successful. Families who received support in search assistance, landlord engagement, and short-term financial assistance moved to high-upward-mobility areas at a rate of 53%, compared with 15% of those who did not. Additionally, families who chose to move to higher opportunity areas reported higher levels of neighborhood satisfaction after moving, tended to stay in their new neighborhoods, and did not make sacrifices on other aspects of neighborhood quality.
This study fits into a larger body of research and evidence illustrating that social programs are more effective when explicitly designed to reduce administrative burdens and search costs for participants. The authors note that “these findings imply that most low-income families do not have a strong preference to stay in low-opportunity areas; instead, barriers in the housing search process are a central driver of residential segregation by income. Interviews with families reveal that the capacity to address each family’s needs in a specific manner from emotional support to brokering with landlords to customized financial assistance was critical to the program’s success. The authors conclude that “redesigning affordable housing policies to provide customized assistance in housing search could reduce residential segregation and increase upward mobility substantially” and note that the intervention is relatively inexpensive given the induced outcomes and overall size of the programs.
This macroeconomics panel provided a sweeping assessment of different trends in inequality, shining a light on the way that the pandemic has revealed and worsened inequities.
Of note, Jason Furman of Harvard University focused his discussion on several key points about inequality. He explained that while the pandemic has caused a massive increase in inequality, an overlooked outcome of government aid through stimulus checks and unemployment insurance might ultimately be a reduction in inequality as measured in many Americans’ after-tax income. Furman discussed that the causes of inequality are complex and that there is not one grand unifying theory for the widening gap over the past few decades. He did point to competition policy as one key area where inequality could be reduced through more “vigorous antitrust enforcement” to bring the market closer to competition.
With reference to his first point on a potential decrease in inequality during the pandemic, PPI’s Brendan McDermott recently discussed in a blog post the essential role that government assistance has played in poverty reduction during the Covid recession and how at the onset of the pandemic, researchers found that the poverty rate fell because of “a massive infusion of federal aid.”
Steven McMullen of Hope College shared his paper examining whether baby bonds can help reduce the racial wealth gap among Black families. A baby bond is a government-funded trust account which every child receives at birth. He considers higher deposits from the government for children in lower-income households, creating a progressive impact. The policy would be race-neutral, even if the effect is not. When the participants reach adulthood, the money would be released to be used for purposes such as education, housing, or retirement spending. The author concludes that this is a promising proposal to increase intergenerational wealth among Black and lower-income families and close the yawning racial wealth gap.
In a 2020 paper titled “Democratize Capital Ownership,” PPI’s Jason Gold discusses his idea for government-funded baby bonds linked to national service as a way to tackle the widening wealth gap. He proposes that the federal government seed an account at birth for every U.S. child and the initial investment would be put into a market index or target date fund. Families would be able to contribute post-tax earnings and the funds would be released at age 18 if the account holder agrees to perform a year of national service before they turn 25. The account savings could be used for “post-secondary education, a down payment on a first home, or starting a business.”
Thank you to the ASSA organizers and presenters for a smooth and productive conference this year despite the pandemic and virtual format!
