Hutchins Roundup: Aging populations, house prices, and more 

What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want to receive the Hutchins Roundup as an email? Sign up here to get it in your inbox every Thursday. 

Population aging will lower interest rates over the 21st century  

Aging populations tend to save more, which has helped explain declining interest rates and rising wealth-to-GDP ratios across advanced economies. Adrien Auclert of Stanford and co-authors challenge the influential hypothesis that as the elderly become a larger share of the population, they will dissave, pushing savings rates down and interest rates up. While dissaving by the elderly will decrease net savings, declines in the population growth rate will cause net investment to go down as well. The latter effect will dominate, the authors argue, causing interest rates to fall. Combining population forecasts with household survey data from 25 countries for the 2016-2100 period, the authors predict that population aging will decrease global interest rates by 1.2 percentage points and increase global wealth-to-GDP by 10% over the 21st century.  

Pandemic-related declines in home listings caused house prices to accelerate in 2020   

Neil Bhutta, Adithya Raajkumar, and Eileen van Straelen of the Federal Reserve Board find that counties with stricter social distancing measures and more COVID-19 deaths experienced a disproportionate decline in new home listings early in the pandemic. The disruptions in listings caused house prices in affected areas to grow faster in 2020 compared to 2019; on average, a 10-percentage point decline in new listings in the second quarter of 2020 was associated with a 1-percentage point increase in house price acceleration in the fourth quarter of the same year. However, the relationship between new listings and house prices has grown weaker in recent months, the authors find. Strong demand for houses — potentially due to low mortgages or work-from-home requirements — has driven the recent surge in housing prices, the authors conclude.    

School finance reforms increased earnings and educational attainment  

Between 1990 and 2011, 26 states enacted school finance reforms that increased spending in the most disadvantaged school districts to compensate for the higher cost of educating children from underprivileged backgrounds. Jesse Rothstein of the University of California at Berkeley and Diane Whitmore Schanzenbach at Northwestern find that the reforms, which increased spending in disadvantaged districts by an average of $839 per pupil per year, led to a $2,137 increase in annual earnings for students who were exposed to the increased educational spending for all 13 years of schooling; the effects were larger for low-income students, Black students, and men. Projecting these earnings through retirement at age 62, the authors estimate that the return on the education investment is approximately 2.9-to-1. The authors also find that the reforms led to a small increase in high-school completion and college attendance, particularly for Black and female students.  

Chart of the week: Cuts to federal unemployment insurance programs had little effect on earnings but sharply reduced household spending 

Quote of the week:  

“Businesses are struggling to find the workforce. The economy is reopening more quickly than the workforce is coming off the sidelines, so we’re very focused on what the labor market looks like, how many Americans are still out of work, what’s it going to take to bring them back into the job market so that the economy can get to full potential. The last jobs report that just came out was a really strong jobs report across the U.S. economy. But even with that strong job report, by our estimation at the Minneapolis Fed, there are still 6 to 8 million Americans who are not working today who would have been working if the pandemic had not happened,” says Neel Kashkari, President of the Minneapolis Fed. 

“We’re monitoring the data very closely to see are the high inflation readings really going to be temporary or not … I do think it is tightly linked, ultimately, to the labor market. If the 6 to 8 million workers who should be working right now, if they’re never coming back for whatever reason, then that would give me more concern that maybe the economy is overheating and maybe we are going to see sustained high inflation, because 6 to 8 million workers represents a lot of economic potential. I am not ready to draw that conclusion. My base case scenario is people do want to work and they are going to come back into the labor market. That’s what we saw in the last expansion. Every time we thought we were out of workers, wages started to climb, and Americans came off the sidelines and went back to work.”    

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