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The U.S. Federal Reserve seen through a canopy of trees in Washington October 12, 2016. REUTERS/Kevin Lamarque - RTSRYC5
Brookings Now

The latest economic research: “Deaths of despair” are on the rise, Trump’s wall is unnecessary, and more

Fred Dews

It’s that time of year again! Brookings is hosting dozens of economists to discuss new research submitted to the Brookings Papers on Economic Activity (BPEA), the academic journal published by Brookings Economic Studies that has been informing public policy since 1970.

This batch of papers has six new findings on everything from immigration to the U.S. from Latin America to the declining natural rate of interest.

You can find full versions of all six papers here, or read highlights below.

1. Working class white Americans are dying in midlife at alarming rates

The showstopper paper at this year’s conference was a much-anticipated follow-up from Princeton Professors Anne Case and Agnus Deaton to their previous research documenting a shocking rise in the proportion of white non-Hispanic Americans dying in middle-age.

So what’s new in the follow-up paper? First, the authors look at the rise in midlife mortality rates by geography from 2000 to 2014, finding that “deaths of despair” (deaths by drugs, alcohol, and suicide) played a critical role in the overall increase. Dividing the country into 1,000-plus regions, the authors find that the rate of “deaths of despair” for white non-Hispanics rose in nearly every part of the country and at every level of urbanization—from deep rural areas to large central cities—hitting men and women similarly.

Visit this map of the U.S. to see the increase your part of the country.

Breaking the data down by education, Case and Deaton find that “deaths of despair” in midlife rose most dramatically for white non-Hispanic Americans with a high school degree or less—a pattern that diverges sharply from overall rates of “deaths of despair” in midlife in other rich countries. The chart below compares “deaths of despair” in midlife for white non-Hispanics in the U.S. with overall “deaths of despair” (all races combined) in midlife in other rich countries over time.

Fig1.5_ddrise_crosscountry

2. By 2050, immigration from Mexico and other Latin American countries will be near zero—with or without a border wall

These projections of low-skilled immigration to the U.S. from Latin America over the next several decades make a strong case against President Trump’s proposed U.S.-Mexico border wall, but highlight another problem posed by undocumented immigration that could call for increased deportations.

Though demographics, increased anti-immigration efforts, and other macroeconomic factors have been working together to slow immigration rates up until now, demographic changes will play a key role in further slowing rates of influx to the U.S. moving forward. Labor supply growth in Latin America is slowing—meaning there will be fewer and fewer young workers there who have an incentive to migrate. See the projections here:

Immg_Fig16_blogversion

Given the likely massive decline in immigration by young, unskilled workers—rendering the proposed border wall irrelevant—the authors highlight another trend that does pose a problem in need of a solution: The population of Latin American-born residents already in the U.S. over age 40 will grow by 82 percent over the next 15 years. As they age, many in this group will lack health insurance and be in need of expensive social services, begging the question: How will the U.S. bear the cost? Or should we send settled workers back home?

This paper is full of many interesting facts worth browsing. See a quick list of them here.

3. GDP is unlikely to return to its historic 3 percent growth rate

Given the steady decline of the unemployment rate post-Great Recession, why is the U.S. still seeing sluggish economic growth rates? The authors of this new paper set out to answer that question, finding that structural, non-cyclical factors—and not just the financial crisis and subsequent recession—are likely to blame for weak GDP growth. Had earlier trends prevailed, the authors argue, economic output per capita would have been 14 percent higher since the Great Recession

So what are those structural factors? Fewer able-bodied Americans are in the work force (known as the labor force participation rate), and productivity (the amount produced per worker) has also grown slowly. Both phenomena predate the recession and appear unrelated to the effects of the financial crisis. The authors suggest that without changes in productivity and the labor force participation trends, growth rates are much more likely to be around 2 percent going forward.

4. The natural rate of interest is likely to remain low

Most economists agree that the natural rate of interest has been falling for decades. Where they disagree is why—and whether the rate will rebound.

First, it’s helpful to point out that the natural rate of interest isn’t the same as the interest rates set by the Federal Reserve, but rather a theoretical construct—representing the real rate of return that prevails when the economy is at its potential—that the Fed estimates in order to inform its policymaking. If you’re still confused, you can check out this helpful explainer from Brookings’ Hutchins Center on Fiscal and Monetary Policy.

As to why rates are falling in the U.S., economists from the Federal Reserve Bank of New York find that that the decline can be largely attributed to the strong demand for safe and liquid assets, and especially U.S. Treasury securities, provoked in part by foreign and domestic crises over the past 20 years. Their finding is related to a version of the popular “savings glut” hypothesis put forth by former Fed Chair Ben Bernanke (read Bernanke’s take on his Brookings blog), which emphasizes the shortage of safe assets in the world economy as a possible source of “secular stagnation.”

And will they rebound? Several Federal Reserve Board economists find in another paper that rates could hit zero as much as 40 percent of the time—twice as often as predicted in work by others— according to standard economic models of the type used at the Federal Reserve and other central banks.

5. European cultural differences are widening despite economic integration

That’s according to an analysis of cultural dimensions across 15 EU countries and Norway aimed at determining whether the so-called European political project was “too ambitious.”

The authors’ conclusion? Europe’s future as a political union may not be doomed, but rising nationalism is fast becoming a major stumbling block to European political unity. On average, the percentage of people proud of their nationality has increased from 37 percent in the early 1980s to almost 50 percent in 2008-2009.

Interestingly, the analysis finds that Europe as a whole is not more culturally different than other functioning political unions—for example, the United States:

“Perhaps the only contrast between these two continents is that, while in Europe geographically more distant people are marginally more different also in culture, geographic distance does not explain any of the U.S. cultural distance…Thus, in this respect, if Americans can share a functioning federal union, so could Europeans.”

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