Originally published at Forbes.com on August 9, 2019.
The conventional wisdom goes like this:
Countries which have traditional cultures (and which lack access to modern contraception) have high fertility rates. Countries in which women want to build careers but there is no social welfare support structure in the form of parental leave, subsidized daycare, and the like (and in which, as a recent Foreign Policy article, “How to Fix the Baby Bust,” demonstrated, workplace culture demands long inflexible work hours), have fertility rates well below replacement. And countries such as Sweden, with its heavily subsidized, always-available daycare, generous parental leave shared by both parents, and a culture ordered around community and family life rather than work, hit the “sweet spot” of replacement-level fertility rates.
Further, that conventional wisdom goes, the United States had maintained a replacement-level fertility rate due to the high fertility of immigrants, and the high rate of unintended pregnancies. Now that women are increasingly using LARCs (long-acting reversible contraceptives such as IUDs and implants), we will need new strategies to boost our birthrate and prevent unwanted consequences such as an imbalance in young and old and an insufficient supply of young people to support the aged, and we will need to adopt the generous policies of a country like Sweden to induce more couples to procreate.
Except that the notion of a replacement rate fertility in Sweden is itself a bit of a fantasy. As of 2018, the total fertility rate in Sweden was 1.76 children per woman. Among native-born Swedes, it was even lower, at 1.67. To be sure, this rate is higher than that of such countries as Germany (1.59 in 2016, or 1.46 among women with German citizenship), and even slightly higher than the record low rate of 1.72 recorded in the United States in 2018, but it’s still not the replacement-level of 2.1.
What’s more, the Swedish birth rate has fluctuated considerably and has hit the magic marker of “replacement rate” only rarely since 1970, with troughs in the late 70s/early 80s, again in the late 90s, and a downward trend again since 2010.
Based on data at the Swedish statistical agency, “Children per woman by country of birth 1970–2018… [+]
own graph
What accounts for this?
A 2018 Mercatornet article explains the apparent recovery of fertility rates in the late 80s as a fluke:
It turns out that Sweden’s so-called “success” in the early 1990s was a statistical fluke. A change in policy regarding eligibility for parents insurance, called a “speed premium,” had the one-time effect of reducing the spacing between first and second births. This threw off calculations of the Total Fertility Rate, but this change did not significantly increase the total number of children born per family. Judged empirically, then, the Swedish model simply did not work; its so-called “success” in the 1990s was a Euro-urban-legend.
As to the spike and drop in the 2000s, this article finds an explanation in the rising levels of immigration and growing fertility rates among immigrants, but this would appear not to be borne out by the data. (Another source claims a much higher divergence between native-born and foreign-born women, and the reason for the discrepancy is not apparent.) However, if the spike peaking at around 1990 was due to shifting incentives, it stands to reason that the drop and subsequent recovery might be similarly explainable, and a 2008 paper by Stockholm University researcher Gunnar Andersson shows relatively level rates for the other Nordic countries during this time period, and a convergence by Sweden with the remaining three by 2006.
As to the drop in fertility rates since their 2010 peak, the Straits Times reports that this is a worry shared with other Nordic countries, with no particular explanation except for general “financial uncertainty and a sharp rise in housing costs.”
What’s more, Andersson provides further insight into the Swedish approach. He notes,
An important aspect of Swedish policies is that they are directed towards individuals and not families as such. They have no intention of supporting certain family forms, such as marriage, over others.
He also notes that both the Swedish income tax system and its Social Security system function on an individual basis, with no particular recognition of the marital status of a given individual (see TheLocal.se on the tax system and Business-Sweden.se for Social Security.) This, among other policies, works to promote the “dual bread-winner model of Sweden.” Again, Andersson writes,
It is important to note that Swedish family policy never has been directed specifically at encouraging childbearing but instead have been aimed to strengthen women’s attachment to the labor market and to promote gender and social equality. The focus has been on enabling individuals to pursue their family and occupational tracks without being too strongly dependent on other individuals or being constrained by various institutional factors. Policies are explicitly directed towards individuals and not towards families as such.
The operating assumption is that Swedish men and women will simply naturally want to have replacement-rate numbers of children, on average, so long as there are no impediments to this choice.
Now, it might well be that the present low birth rates in Sweden are again a fluke. Or perhaps, in the same way as Americans defer car purchases during economic downturns and then return to the dealers when times are good, this was again a pattern of Swedish parents having babies earlier than they otherwise would have, during the pre-recession 2000s. But, at the very least, these figures call into question the conventional wisdom that the path to replacement-level fertility rates is to emulate Sweden.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
http://www.dodlive.mil/2017/10/03/usns-comfort-how-the-hospital-ship-helps-during-disasters/(U.S. Air Force photo by Staff Sgt. Courtney Richardson)
You know how it goes: “there are three kinds of lies: lies, damned lies, and statistics.”
One thing I’ve been following over time is the debate about the minimum wage; most recently, the CBO produced a report projecting the effects of a substantially elevated minimum wage: it would significantly raise income for many low-wage workers, while putting other worker out of a job. Supporters of wage boosts saw this as good news (eh, those newly unemployed would probably cycle into and out of jobs and working half the year at a doubled salary, and enjoying free time the other half) and opponents, understandably enough, saw otherwise. And everyone’s got a study that proves what they want to believe and analysis of their opponents’ studies demonstrating why those studies are wrong. Heck, the other day there was a claim on twitter that when the minimum wage had been hiked in San Francisco or some such place, “only” the low-rated restaurants closed up shop, so it was no big deal.
It’s all a mess. And, to be honest, it’s not simply people intentionally deceiving others by manipulating their statistics, or even unintentionally doing so, but that there are so many factors feeding into how a local or regional or national economy is doing at any given time, and so much difficulty untangling the impact of a change and all its knock-on effects, that there is no simple answer. It stands to reason that an employer faced with boosting employees’ pay will raise prices or try to do with fewer work hours, and I have to say that over the past few days I’ve spent more time in more McDonalds’ (OK, two of them) than has been the case in a while, and they’ve installed automated ordering stations in each of them. And it’s not a simple as saying, “if an employee has work hours cut in half but a doubled pay, then it’s a win because they have more personal time,” because the employer has to keep the business going with half as much production from the employee, because, one presumes, they had already been aiming at keeping that employee busy and productive during their shift.
So look, what follows isn’t “statisticians/economists are liars,” because these instances don’t prove that anyone acted in bad faith and they really just illustrate more the degree to which, to quote a famous doll, “math is hard.”
The question at hand is this:
Did expansion of Medicaid save lives, and, by extension, the decision by some states to reject Medicaid expansion cost lives?
They took a look at mortality data by state for the 6 years prior to and the 4 years after Medicaid expansion, and sliced and diced it to look only at those folks who would have benefitted from expansion, that is, poor pre-65 adults. (I admit that I don’t quite follow exactly they integrated this all together.) They conclude that there are real, statistically significant decreases in mortality for those states which expanded Medicaid.
Here’s their bottom line:
Our estimated change in mortality for our sample translates into sizeable gains in terms of the number of lives saved under Medicaid expansion. Since there are about 3.7 million individuals who meet our sample criteria living in expansion states, our results indicate that approximately 4,800 fewer deaths occurred per year among this population, or roughly 19,200 fewer deaths over the first four years alone. Or, put differently, as there are approximately 3 million individuals meeting this sample criteria in non-expansion states, failure to expand in these states likely resulted in 15,600 additional deaths over this four year period that could have been avoided if the states had opted to expand coverage.
(Now, I would dispute the framing of “additional deaths” — even if Medicaid expansion is unambiguously a tool to reduce deaths, failing to adopt it is not an action that increases deaths above a baseline. It’s also a bit misleading to use the 15,600 as a “headline” figure when it’s a four-year calculation rather than over a single year.)
Expressed differently, they found a percentage point reduction of 0.13. In year one, the probability of dying in an expansion state relative to a non-expansion state decreased by 0.09 percentage points. In years 2 and 3, by 0.1 percentage points, and in year 4, 0.2 percentage points — in all such cases meeting the usual tests for statistical significance.
So, look, my instinct here is to be skeptical, since up to now, there had not been such proof. In fact, the best possible way of evaluating the effect of expanded government provision of health services, a randomized trial, occurred in Oregon, when they gave some poor folks, but not others, Medicaid via a lottery in 2008, then measured the outcomes. The effects?
This randomized, controlled study showed that Medicaid coverage generated no significant improvements in measured physical health outcomes in the first 2 years, but it did increase use of health care services, raise rates of diabetes detection and management, lower rates of depression, and reduce financial strain.
Which would suggest that any impacts would be more long-term, if prevention measures take a while to take effect. The new paper even references this as a part of the relevant background (and notes a calculated 16% reduction in mortality had such a large confidence interval as to be useless).
But the new analysis finds an unambiguous, immediate drop in mortality for Medicaid-expanding states relative to non-Medicaid expanding states. This seems too-good-to-be-true, especially since this is occurring at exactly the time when the opioid crisis is causing such a dramatic rise in death rates; Medicaid expansion begin in 2014, and that’s pretty much when death rates exploded per the charts this report.
(What about claims that the expansion of Medicaid ironically increased opioid deaths because people newly-able to receive painkillers through Medicaid were newly prone to opioid addiction and newly able to fill prescriptions and resell the pills? I’m not going to dig into this too much here; so far as I can tell, there’s just as much “proof” for one side or the other of the debate as with the minimum wage. An article I was pointed to via twitter, “Causality, Stories, Medicaid, and Opioids” by Andrew Goodman-Bacon at Vanderbilt and doctoral candidate Emma Sandoe at Harvard, presents what they think is a slam-dunk case that the opioid crisis was well under way before Medicaid expansion and thus unconnected to it, but a graph that they present as key evidence, showing that there was already a higher rate of drug overdoses in the expansion states, beginning earlier, in 2010 (before then, there was no difference between these two groups), so that Medicaid could not be the cause, shows a significant (and I mean visually, not statistically) jump in overdose rates in 2014, and further still in 2015 and 2016. But in any case, if the hardest-hit states are expansion states, and this study’s data shows deaths decreased on an overall basis, then one could make the case that the data supports Medicaid expansion being so fantastic that it even balanced out opioid death increases with even greater decreases in other types of deaths.)
And, for further context, we’re talking about a calculated reduction of 4,800 deaths annually in expansion states and 3,900 potentially fewer deaths in the non-expansion states, for a total of 8,700 fewer actual/hypothetical deaths per year. (Is this math right? The expansion states have, in total, much greater population, so it doesn’t entirely make a lot of sense for there to have been nearly as many hypothetical-lives-saved in the smaller number of non-expansion states than actual/calculated lives saved in the expansion states.) Yes, those are 8,700 people per year whose loved ones per the calculations didn’t/wouldn’t have to say good bye to them too soon. But there are all manner of government programs touting the lives they would save, directly or indirectly, and there’s always a cost-benefit analysis.
For comparison, in the relevant adult, non-elderly population (actually ages 20 – 64), there were 703,298 deaths reported according to the CDC’s website out of a total population of 3,436,501,449. This compares to 697,132 deaths in 2016 and 677,192 in 2015 — and death rates that have been increasing nearly every year since this online tool‘s data starts in 1999. The crude rate was 328.3 deaths per 100,000 in this age group in 1999, and is now 365 — but at the same time, this is called a “crude” rate for a reason, and year-over-year comparisons really need further adjustments to reflect that our population is, in general, aging, so an increasing death rate is, in part, simply because more of the 20 – 64s are older and at greater risk of dying, rather than necessarily saying anything about life expectancy, though that’s a piece of things, too, as the rise in “deaths of despair” is causing drops in life expectancy for middle-aged folk.
A few other thoughts:
It disturbs me that the very regional nature of Medicaid expansion — the non-expanders pretty nearly coincide with the South and Great Plains states (see this map) — means that it would be very difficult to truly differentiate between other influences on death rates impacting different regions of the country differently, and the Medicaid expansion. The study authors attempt to test for this by looking a relative differences in mortality between these two groupings of states as if the “event” started in 2010 rather than 2014; they find “no effect on . . . mortality in expansion states during this pre-ACA period” but visually, where they find an immediate and sudden drop in relative mortality coinciding with the Medicaid expansion in 2014, as soon as they look back four further years, the data actually seems to suggest that there’s a lot of variation in relative mortality (at least at the scale that they show) from one year to the next, which says to me that the changes in relative mortality in 2014 and subsequent years may be statistically significant but that the association with Medicaid expansion might not be the correct identified cause. I would be interested in a different sort of test — if they took 2014 data and sliced and diced it differently – say, separating out different regions of the country, such as East vs. West, rural vs. urban, etc., — would they see similar (apparent) impacts?
It is also, again, striking that the change should be so immediate when the conventional wisdom has always been that, prior to Medicaid providing benefits for the childless adult poor population, their immediate medical crises were taken care of via a combination of county hospitals and statutory requirements that any hospital treat any patient in the ER, but that what they missed was important long-term care like chronic disease management. And this leads me to wonder whether there is a placebo effect going on here — by which I don’t mean the self-perception aspect of the placebo effect (people rating pain levels lower when they’ve been given a sham treatment) but the fact that the experience of being treated has a real, meaningful effect on patient well-being and, it seems to me, could be working to reduce mortality at these very small levels even as the Oregon study couldn’t identify specific measures of health that were impacted.
Now, again, so far as I can tell, the math is all fine, and I don’t have any reason to call out the authors on the basis of their methodology, and (except for a small bit of phrasing) they’re not writing in an ideological manner. And, as a reminder, I’ve said from my earliest days of blogging that, while I reject the notion of “positive rights” or that people have a “right to health care” it is still an appropriate action for government to take, to make provision for the medical treatment of those members of society as cannot do so on their own, though my preference has been some variation of VoucherCare or a Staff Model HMO, the latter because it is clear to me that we simply cannot have a health system in which anyone can truly go to any doctor at any time, but that individuals need coordinated care and, yes, that includes, in part, saying “no.”
But none of this is as simple as “doing the math.”
Readers, I have been frustrated by the Illinois end-of-session legislative frenzy since it became clear that this frenzy was indeed underway. In the first paragraph of a recent Forbes article, I wrote:
Illinois readers will already be aware of the flurry of activity due to a May 31 deadline for the regular legislative session in Illinois: legalizing pot, passing a budget, and funding a massive infrastructure construction plan with tax boosts and a near-doubling of gambling positions in the state, along with some 300 other bills that sailed under the radar in the last days of the session. And — sadly, but not surprisingly — the details of these bills were largely hammered out in backroom deals, without any transparency. It’s a discouraging story, and readers elsewhere can choose whether to take this as a cautionary tale or revel in schadenfreude.
Now, part of my initial frustration was due to the funding side of things: the fact that there was no reporting, that I could tell, on how revenues from pot and gambling increases were being calculated, and there appears to be a dearth of analysis on the impact of pot and gambling on those Illinoisans who are already living paycheck-to-paycheck, other than a repeated assertion that people are already going to Indiana to gamble so we might as well keep the revenue in-state.
But it was proving difficult to comment on the state’s actual spending plans for the $45 billion in “capital” spending. Is it legitimate infrastructure spending, with allocations made by experts to get the most bang for the buck in terms of long-term benefit to the state commensurate with the long-term borrowing to fund it? Or is it pork?
How much each rank-and-file lawmaker gets to claim for his or her district is a bit of a moving target, but several Senate Democrats said they were allotted about $6 million each for what’s euphemistically called “member initiatives.” Several House Democrats said they received about $3 million each from a program their party’s rookie governor had pushed for months. . . .
Speaker Madigan played a big role in carving up the pork-barrel spending. Included in the bill is $50 million for grants to be doled out by the Illinois Arts Council, which is chaired by Shirley Madigan, the speaker’s wife.
Steve Brown, a spokesman for the speaker, said many lawmakers have long shown support for the art group’s initiatives.
Madigan’s 13th Ward in Chicago also will benefit. There’s $9 million for upgrades to Hancock College Preparatory High School, where city Public Building Commission records show a replacement school with a capacity of 1,080 students is moving forward just south of Midway Airport. Brown noted there’s a “lot of overcrowding” in area schools.
Also falling within Madigan’s sphere of influence on the Southwest Side is a $31 million grant for a new building for the Academy for Global Citizenship, an independently operated charter school in the Chicago Public Schools system. It’s slated for construction at 44th Street and Laporte Avenue, which is represented in the House by freshman Democratic Rep. Aaron Ortiz of Chicago, who did not return messages seeking comment. . . .
The capital spending plan lists millions of dollars for baseball, football and soccer fields, basketball and tennis courts, playgrounds, bike paths and other recreational venues throughout the state. In Springfield, that’s known as “spork” — sports-related pork.
Standing to benefit is pickleball, a fledgling sport that’s part tennis, part badminton and part pingpong. Democratic Sen. Terry Link of Vernon Hills tucked in $100,000 for the Buffalo Grove Park District for pickleball courts and other renovations.
The Park District plans to seal coat eight new courts at Mike Rylko Community Park because the paddle sport has “really taken off,” said Ryan Risinger, the district’s executive director. The new courts would replace rarely used sand volleyball courts, he said. . . .
The spending plan also includes plenty of money to make sure the family dog is well-exercised — $400,000 is set aside for dog parks. . . .
South Side Democratic Sen. Jacqueline Collins said she secured $370,000 for the Inner City Muslim Action Network to help with renovations of a building at 63rd and Racine Avenue to provide a grocery store for healthy food. . . .
North Side lawmakers are influential in the legislature, and the capital spending bill reflects that.
The plan includes nearly $1.5 million for an AIDS Garden to memorialize Chicago’s fight against HIV and AIDS. . . .
Rep. Mary Flowers said fellow House Democrats each were allotted $3 million to $4 million to spread around their districts to fill requests for schools, roads, bridges and other projects. . . .
“Everybody was kind of happy about being able to bring something home,” she said.
And, remember, this is not “free money”; Illinois is not so prosperous that it can merrily dole out extras just for fun. As of today, the state has an unpaid bills backlog of $6.8 billion; this is money owed to contractors/vendors who will get paid when the state is good and ready to pay them. (Who are these vendors? Lots of human service providers.) Money that’s being spent on parks or other amenities in politically-favored legislators’ districts could have gone to pay down this backlog. And, incidentally, Buffalo Grove is not a suburb that’s struggling financially.
And the GOP? They played the “if you can’t beat them, join them” game. While they don’t appear to have been sharing in the pork largesse, they are touting their success at getting tax breaks. Not at producing structural reform. Not at negotiating a pairing of the upcoming graduated income tax amendment on the 2020 ballot with an amendment to enable pension reform. Just tax breaks, mostly for their favored business-constituents.
Back in the fall, I wrote a series of articles at Forbes about multi-employer pensions. It’s a topic that I’m overdue in revisiting, because, for the “red zone” plans, the longer Congress delays in providing its fix, the worse it’ll be. But here’s something that I haven’t shared with readers before: I made some connections to folks trying to come up with solutions in that space. I even experienced what seemed like a small success when an expert group, testifying before Congress in the winter, used some of my ideas. (OK, fine, that may have been coincidence, but I’m still chalking that up as a win.)
Separately, there are serious conversations around Social Security and retirement.
But in Illinois? My efforts at writing about the pension funding crisis at the state and city (Chicago) level leave me more discouraged than ever — there is no serious effort to solve this; instead we’ve got Pritzker’s “let’s sell assets” proposal and Lightfoot’s apparent expectation that gambling and pot will pay for pensions. And it’s not just pensions, but the fact that those in power in city and state like to talk about “sacrifice” but still promise that their constituents will be happy recipients of tax cuts and government money, thanks to either a magic money tree and/or Bad People paying more.
Is there a path forward, a way in which concerned Illinoisans can say, “it’s time to fix this”? Here in my suburb, voters, by a narrow margin, chose a Democratic State Senator over the Republican incumbent in a pitched battle with multiple daily mailers and robocalls; on her website, she applauds herself for voting for the budget and for pot legalization but says nothing about the capital bill. Likewise, the Democratic State Representative in the district a half-mile over also is a first-time legislator who won in an open district formerly occupied by a Republican; he promotes his votes for the so-called “Fair Tax” as well as his vote for the budget on his webpage. (My own district is Republican-held after, again, a close vote and endless mailers.) Yes, former governor Rauner’s unpopularity, as well as the Trump-caused dislike of the GOP in general meant that their candidates were seriously disadvantaged, but the Democrats now hold such a majority that the Democratic leadership — Madigan, Cullerton, Pritzker — have, near as I can tell, unchecked power, and every intention to use that power to implement policies coming from a conviction that what ails Illinois is a failure to spend enough state money, paired with what appear to be declarations of prosperity, in the form of a massive statewide minimum wage hike and a new law fixing the minimum salary for a teacher at $40,000 statewide, with no apparent aid for the small-town and rural school districts whose starting salary begins below this threshold (except insofar as teacher salaries are an input into existing state aid). And this even as the state, year after year, loses residents.
I know it seems unwarranted to say, “we can’t do anything about this,” given that we do have free and fair elections in Illinois, but the groundswell of opposition that it would require to get Republicans elected in contested districts, when the Democrats’ war chest is so large, or to get an anti-Madigan Democrat on the ballot at the primary stage, would be so massive that it simply does not seem like a feasible endeavor, relative to the alternate approach of identifying a state to which to relocate, in our case, after the youngest is out of school.
It is wasteful and irresponsible to fund infrastructure through grand capital bills.
Consider what happens in your local town, if yours is anything like mine.
City thoroughfares are evaluated from time to time and resurfaced, maybe with state or federal funds, maybe without. Neighborhood street resurfacing happens each summer, and it’s not a particularly big deal, but just considered to be a routine part of city responsibilities. Then again, there’s no ribbon-cutting, nothing to be named after a local politician.
Or here’s the example of my local park district.
My suburb had a period of rapid growth in the 1950s and ’60s and, rather than building a single massive community center as would be the case now, they kept their existing pool and rec center as-is and built 5 new sites throughout the village, each with a pool (in one case, indoor), classrooms (in some) and a half-size gym, ball diamonds and athletic fields, playgrounds, and so on. Subsequently, in the late 1990s, following the trend to add zero-depth and spray features to pools, one of the pools was rebuilt in this fashion, which proved to be immensely popular and led to voters approving a bond issue in 2000 for a reconstruction of the remaining pools in similar fashion.
Then the park district tried the same approach with the buildings itself, tearing down and wholly reconstructing one of the buildings with more classrooms, a full-size gym and a more modern design, then asking voters to approve a bond issue for a similar remodel of the remaining buildings, dangling even more goodies like an elevated walking track, a fitness center, and the like. They used the usual pitches of how comparatively small the increase would be for a house of $X value. They talked about how super-old all the buildings were. And they said, “if you voters don’t approve the bond issue, we’ll only have enough funds from our regular tax revenue to rebuild one of these every 10 years.” To which my reaction — and that presumably of all the other voters unwilling to approve the bonds — was, “good!” That seems far more responsible, to have, in the long term, buildings that are a mix of ages, rather than leveling and rebuilding everything once every 50 years, then waiting a further 50 years for the next rebuild. That also means that, whatever the next fashion in rec centers might be, the park district can accommodate that, at least in part, rather than saying, “hey, we just rebuilt everything, you’ll have to tough it out.”
This should be obvious, shouldn’t it? Have a long-term plan in which you keep your infrastructure maintained over the long term and with adequate spacing and funding that’s appropriate for the long-term pacing?
And I acknowledge that that’s not the way infrastructure spending works at the state level, at least in Illinois. Here in Illinois, infrastructure spending is accomplished through big spending bills, the total costs of which are inflated by the desire of each state legislator to have something to show his or her district, a ribbon-cutting to attend and, if they’re lucky, a building named after them.
This time around, Gov. Pritzker has proposed a massive $41.5 billion infrastructure plan he’s calling “Rebuild Illinois.” According to the Chicago Tribune,
Pritzker’s outline includes doubling the state gas tax to 38 cents per gallon from 19 cents; tiered increases in vehicle registration fees based on the vehicle’s age; a $250 annual registration fee for electric vehicles; a $1-per-ride tax on ride sharing; and a 7% state tax on cable, satellite and streaming service.
Other taxes being discussed include a new 6% tax on daily and hourly garage parking, a 9% tax on monthly and annual garage parking, and an increase in taxes on manufacturers and importing distributors of beer, wine and spirits. . . .
Of the proposed $41.5 billion in spending, $28.6 billion would be devoted to transportation projects, including $23 billion for roads and bridges and $3.4 billion for mass transit. The plan also calls for spending $5.9 billion on repair and building projects at schools, universities and community colleges. Another $4.4 billion would go to state facilities.
The largest share of the program, $17.8 billion, would be funded through state bonds, while more than $7 billion would come from regular revenue. The plan counts on more than $10 billion in federal funding and $6.6 billion from local governments and private sources.
And, yes, it appears to be conventional wisdom that Pritzker will win the votes for his graduated-tax plan (see, for instance, this Daily Herald column) and marijuana-legalization plan from recalcitrant legislators by means of constituent-pleasing goodies in the infrastructure plan — political benefits that simply wouldn’t exist if the state had long-term infrastructure maintenance plans rather than periodic big spending bills.
And, what, by the way, happened to prior infrastructure plans?
In 2009, under Gov. Quinn, Illinois passed the “Illinois Jobs Now!” plan — yes, the exclamation point is part of the title. This was a $31 billion spending plan, though much of the money came from federal matching funds, leaving $13 billion to be funded by 20-year bonds, which were themselves to be paid for by a variety of tax and fee increases as well as video game expansion. (Fun fact: among these tax hikes were the expansion of the sales tax to include “hygiene products” — in other words, the now-nefarious “tampon tax,” which was subsequently re-excluded in 2016.) But this didn’t quite work out as planned, since the revenues from video poker fell far short of projections, requiring the state to use General Funds for debt service instead.
IJN’s second flaw [in addition to failed revenue projections] was the lack of a comprehensive plan to prioritize projects and ensure that funds were being spent efficiently and with maximal impact on Illinois’ economy. While Governor Pat Quinn’s office released a list of projects to be included in the plan, it offered no explanation of how they were selected. The last ten years of capital budgets have similarly included project lists, as well as some emphasis on various priorities. But they have fallen far short of offering a comprehensive assessment of capital needs or a clear understanding of how each project fits into the whole plan.
Prior to this plan was Gov. Ryan’s “Illinois FIRST” infrastructure plan of 1999, which set records at the time at $12 billion and which contained provisions explicitly allocating “member initiative grants” totaling $1.5 billion out of that $12 billion and which were wholly controlled by the legislators, to be doled out within their districts so that they would benefit from plaudits from beneficiaries in their communities. A subsequent scholarly analysis confirmed that exactly what you’d expect, occurred:
Among Illinois’s 118 House districts we show that member initiative monies distributed in the year and a half prior to the 2000 general election were disproportionately allocated to districts that were politically competitive, to districts represented by House legislative leaders, and to districts represented by relatively moderate legislators. We also find evidence that member initiative funds were channeled to quickly growing Illinois House districts.
All of which comes down to this:
if legislators are not willing to establish a long-term infrastructure-funding process to eliminate the need for periodic big-money bill such as these, then I call upon them to pledge that:
they will condition their support of the bill on a provision that no construction projects be named after themselves or any other politician,
they will ensure that all fund-allocation is based on outside experts’ evaluation of needs and assessment of the need for repair vs. new construction without regard for the political appeal of naming and credit-taking for new construction, or political power of individual lawmakers,
they will reject any provision that allows individual legislators any discretion in where money is spent, and
they will refuse any invitations to ribbon-cutting ceremonies or other thank-you’s honoring them for bacon they’ve brought home.
Yes, these are low expectations. But better this than nothing!
Image: https://commons.wikimedia.org/wiki/File:Road_construction_in_progress.jpg; Jose Arukatty [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)]
Originally published at Forbes.com on May 16, 2019.
How well do American save?
It seems the alarm bells are being incessantly sounded: Americans are not saving enough, and not only do they not have enough saved for retirement, they’re up to their eyeballs in debt and they’re getting suckered into payday loans.
We heard plenty of alarm bells in May of last year, when the Federal Reserve released its latest report on the “Economic Well-Being of U.S. Households” (since this is an annual survey, we’re pretty much due for the next one).
Sure seems like the facts are clear, and the only thing in dispute is the extent to which the cause of this is irresponsibility, lack of financial literacy, or a sluggish and/or inequitable economy.
Now, as it happens, Reynolds misinterprets the data as well. Survey-takers had the ability, among multiple answer choices, to choose more than one response; one presumes that the 59% percent that the Fed reports says could/would cover a $400 emergency expense by cash or its equivalent (that is, paying off a credit card at the next statement) is based on all survey-takers who answered with one or more of these cash/cashlike answers, but Reynolds adds up the percentages from these individual responses and overstates the percentage of Americans who could cover the expense without borrowing.
Nonetheless, while 50% of Americans said they would/could pay off the cost with cash, and 36% said they’d charge it and pay it off right away, a further 18% said they’d charge it and pay it off over time — does that mean they don’t have cash, or that they do but want to hold onto it, and don’t understand how costly credit card interest charges are? Reynolds also observes that, in a related question, 85% of Americans reported that the $400 expense would not affect their ability to pay their other bills in full.
Again, I don’t want to start shouting that the Fed is trying to pull a fast one on us, but the idea that 40% of adults don’t have even $400 for a car repair, while a full 50% (the report says “half” without a precise number) have a 3-month emergency fund sounds . . . off.
Then, today, what caught my eye was a new press release from NORC, the survey group at the University of Chicago, more known for their General Social Survey. The headline: “Most Working Americans Would Face Economic Hardship If They Missed More than One Paycheck.”
The actual question?
“How many paychecks in a row could you miss before you would be unable to pay for necessities (such as food, rent/mortgage, car loan) without using savings?”
Now, the actual responses people give to this question are almost besides the point because the entire objective of having savings is to be able to cover expenses such as these in a time of missed paychecks (for whatever cause: job loss, government shutdown, disability, parental leave). Yes, for two-earner couples where the survey-taker’s partner’s income is sufficient to pay household expenses, that person may respond that they could miss an infinite number of paychecks, but, well, to be honest, I’m a bit mystified as to how it was that only 8% of survey-takers responded with “other” (which included “unsure” or not answering the question).
This survey then asked:
“If your household missed paychecks and you had no additional savings, where would you get money to pay for essentials (such as food, rent/mortgage, car loans)?”
But, again, this asks what people would do once they’ve exhausted their savings. It says nothing about how at-risk households are of having to go into debt due to missed paychecks, though, interestingly enough, there’s an element of “one of these things are not like the other” with answer choices generally being variations on ways to borrow, except for one: “seek a job in the ‘gig economy'” — yet one presumes that for people in the real-world situation of missing paychecks, job-hunting is something that they’re already doing, and the question of whether to take on a lower-paying or part-time job something that is ongoing.
So what is going on?
My initial title for this article was “Are Financial Literacy Advocates Jumping The Shark?” but that sounds a bit too accusatory, and as I mulled the puzzle over some more, I began to wonder:
Financial advice website The Balance told its readers, this past February, “What You Should Spend Your Emergency Fund on and When to Use It.” Their answer: don’t spend it on car repairs or home repairs. Save it for catastrophic events such as the simultaneous job loss of both spouses, or a “major medical catastrophe.” To be sure, they assume that, at the same time as readers build an emergency fund, they are simultaneously saving for these home repairs and similar expenses in a separate fund. And Dave Ramsey on his website does give his readers permission to use their emergency fund for any “unexpected, immediate expense” with the instruction to replenish the fund as soon as possible.
If survey-takers or survey-writers think of their “savings” or “emergency fund” as reserved for the serious-est of emergencies rather than for minor unexpected expenses, then they might indeed hesitate to tap into it for repairs and prefer to borrow instead, and cause the financial state of Americans to appear to be worse off than is actually the case.
Or is it really just a poorly-designed survey?
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
So over the past couple days we’ve been getting ourselves in a tizzy about the Bernie Sanders/Alexandria Ocasio-Cortez proposal for a cap on interest rates of 15%, which is intended to be paired with the (re)introduction of a “post office bank” which will, in addition to other hoped-for benefits, also lend at lower rates than traditional credit cards and fill in gaps in the market if they cease lending with these limits. (The bill’s draft text, is limited only to the 15% interest cap but the “white paper” – a medium blog post – suggest that the post office would provide checking accounts and low interest loans.)
Now, however tempting it is to decry this as an outrage (“I already stand in long enough lines already, and AOC and Sanders want to make the post office lines even longer!” or “those employees are incompetent enough already and you want them to be bank tellers, too!” or “if you get the government into the retail banking business, next thing you know, they’ll be demanding government subsidies or loan forgiveness for people defaulting on their Post Office loans”) it is already the case that the Post Office is a hybrid sort of critter, with a monopoly on first-class mail delivery to ensure that residents of rural areas receive the same service at the same price as city folk, while trying to compete on package delivery with UPS and FedEx, and all with prices and suchlike fixed by Congress.
And that makes it at least something to consider with an open mind, whether this mandate to deliver mail while not necessarily turning a profit, but in the most cost-effective manner possible, covers whatever ancillary services can make productive use of the postal service’s existing network of facilities so as to benefit from the overhead costs already there due to the provision of mail services. If, for instance, the lines at the post office are due to small numbers of windows being open (presumably because the employees are hired on a full-time basis and if they hired to accommodate the rush hour periods at lunch and late afternoon, they’d have workers sitting around at other times?), but if having more customers simply meant opening up another window, it could be a win.
Luckily, there are two documents put together by the Post Office’s Office of Inspector General that assess the feasibility with an eye toward addressing whether there were services that could feasibly provided, not as a “welfare benefit” for the poor but as a reasonable business model: “Providing Non-Bank Financial Services for the Underserved” from January of 2014 and “The Road Ahead for Postal Financial Services,” from May of 2015. (There may be others, but this is what I am aware of.)
So here’s a quick read of these two proposals because I think it matters to understand this as context — and to remember, again, that the Post Office is already a hybrid governmental body/service provider.
To begin with, they start with the question of the “un-” and “under-banked” — the former being those who have no bank account and the latter being those who have used some sort of “non-bank financial service” such as check cashing, money orders, or payday loans. Now, I question some of this anxiety about “the underserved” since, as profiled in the 2017 book, The Unbanking of America, many users of these services do so because they provide certain advantages over traditional banks, and, at any rate, some of those classified as “unbanked” — reported to be 8% in the 2014 report — may be using prepaid debit cards which function in a meaningful way as substitute bank accounts. But nonetheless the author, Lisa Servon, explains that if your credit rating is poor enough, not only will most banks charge you fees, but they may not even allow you a checking account in the first place (or charge higher fees – see my other old blog post), to avoid the hassle of continued overdrafts, however much they might charge in fees.
In any event, the 2014 report provides 4 guiding principles: a proposed new product must fulfill an unmet market need, must be consistent with the Postal Service’s competencies and assets, must fulfill an important public purpose, and must cover its costs at full maturity.
It observes that the Post Office already has a 70% market share in the US domestic paper money order market, and also sells international money orders, though both these services are paper-based and the future of this product is electronic. Local Post Offices also sell prepaid debit cards from American Express (as well as various gift cards from retailers, along side their greeting cards). It would also be a significant revenue opportunity, although this would not be in competition with traditional banks but via partnerships with them.
Because 2006 legislation “prohibits the Postal Service from offering new nonpostal services” (p. 9) the report differentiates between services that would build on existing services and not need new authorization, and those which would be wholly new. Among these:
A “Postal Card” — a reloadable prepaid card. This appears to be similar to what already exists on the market, except with the convenience (for folks in underserved geographic areas) of being able to conduct transactions such as reloading, withdrawing cash, paying bills, or cashing checks, etc. This would “likely [be] in partnership with banks” but would offer consumers “a more transparent, affordable option that is tied to a ubiquitous physical distribution network of Post Offices” (p. 11). This doesn’t sound unreasonable as long as this is done in an unsubsidized manner.
An “interest feature” on the Postal Card to encourage savings. This sounds great in principle but a bit more questionable in practice, given how low actual interest rates are even at “real” banks.
Small loans: these would be available only to those using a Postal Card and who have a paycheck (or Social Security or other recurring benefit) loaded onto their card; they would borrow up to 50% of their paycheck, and then 5% of their pay would be autodeducted until the loan is paid off. Note, however, that in their hypothetical example, they would still charge $25 upfront and a 25% interest rate, which is higher than Bernie and AOC’s 15% cap though lower than a payday loan. In addition to the requirement for payroll deduction loan repayment, the Postal Card could be enabled to snag the tax refund of customers who default by removing the direct deposit (or losing their jobs). (Note that there are a number of companies which low-wage employers use to provide paychecks on prepaid cards already, and presumably they could offer the same service, though I’ve never heard of it and presumably they can’t do it as easily without the pairing with retail locations.) Again, the Post Office might do this in partnership with banks or other financial institutions, not by being a bank itself.
So this doesn’t really sound that outlandish to me — but at the same time, nothing in this proposal is a replacement product for consumers who want to put their new TV on a credit card and pay it off over time; it’s very focused on a very small segment of the market.
At any rate, the follow-up 2015 paper tries to look at the issue with an eye more toward real-world implementation, rather than the focus on rationale of the first paper. The paper begins by identifying “strategic advantages,” among these, that low-income prospective users viewed the Post Office (both as an institution and as a local office) favorably and were receptive to the idea and that postal clerks everyday work in their usual transactions would be easily transferable to new processes they would need to learn, with automated systems and partners handling more complex work (e.g., helping a consumer apply for a loan would be comparable to helping a consumer submit a passport application).
The 2015 report also addresses the question of which services the Post Office might need additional authorization to provide, rather than merely being an extension of existing sales of prepaid cards and money orders. For instance, they might already be allowed to provide extended check cashing services but probably couldn’t provide direct deposit of checks into an account tied to a prepaid card; they could provide bill payment only “if determined to be ancillary to sending hardcopy bill payments through the mail.”
In addition, the report assesses financial feasibility of a range of actions from simply providing floorspace for sale of products to a full-blown Post Bank, and concludes that the full-blown Post Bank is “less viable than other approaches.”
So let’s compare this to the oft-touted “public option” for healthcare, in which proponents call for the government to, put charitably, run a nonprofit health insurance agency in which the government’s lack of profit motive and large customer base enables it to offer lower prices. Why do I cringe at a “Medicare buy-in”? First of all, because I assume that the government would dictate prices to providers in an unsustainable manner and do more harm than good, and, secondly, because it appears rather likely that the structure of any such program would, even so, be rather indifferent to the actual costs of the program and involve considerable government subsidies.
But if the Postal Service, which is already a hybrid agency, can make a true business case for expanding services in a way that neither requires government subsidies nor meddling with price controls, I’m good with evaluating it on its merits.
And, finally, none of this has anything to do with the Sanders/AOC proposal with its suggestions of checking accounts and “low interest loans.”
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