Hutchins Roundup: Intergenerational mobility, global debt, and more

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US intergenerational mobility was lower in the past than typical estimates suggest

Standard measures of intergenerational mobility in the U.S. have declined in the last 150 years, implying that, over time, individual wellbeing has become more dependent on the socioeconomic status of one’s parents. Zachary Ward of Baylor University finds that much of the recent decline in intergenerational mobility may be due to the overestimation of past mobility. Using census data that link fathers and sons over the 1850 to 1940 period, the author finds that mismeasurement of fathers’ economic status and the use of white-only samples in historical estimates bias intergenerational mobility rates upward. Accounting for the measurement error and using racially representative samples over time suggest that intergenerational mobility is higher for cohorts born after World War II than those born before. The results support the idea that “institutional changes over the 20th century helped to improve outcomes for disadvantaged groups,” the author concludes.

Emerging markets and developing economies have limited options to sustain high levels of debt

Global debt has surged in recent decades, increasing the debt burden on emerging markets and developing economies (EMDEs). M. Ayhan Kose of the World Bank and co-authors argue that, compared to advanced economies, EMDEs run higher risks of default and have fewer options to keep their debt at sustainable levels. For instance, 90% of EMDE external debt, on average, is denominated in foreign currencies. As a result, EMDEs stand to benefit less from inflation as its debt-reducing effects are offset by currency depreciation, the authors find. Reviewing policies that have been implemented in EMDEs in the past, the authors argue that a mix of high growth, low interest rates, and financial repression can help EMDEs address their domestic and external debt. However, developing economies face technical, practical, and political obstacles when it comes to implementing such policies, implying that inequality between advanced economies and the rest of the world could worsen in the future, the authors conclude.

Community colleges improve outcomes for those who wouldn’t otherwise go to college  

Two-year community colleges prepare students to transfer to four-year institutions and provide terminal vocational training. Jack Mountjoy of the University of Chicago links schooling and earnings data in Texas and finds that the effect of going to a two-year college varies by type of student. Two-year college students who would not have attended college if the two-year option were unavailable, about two thirds of students, complete 1.7 more years of schooling, have a 26% probability of obtaining a bachelor’s degree and earn 22% more around age 30. However, students who attend two-year colleges instead of directly enrolling in four-year colleges earn one half of a year less of schooling, are 18 percentage points less likely to earn a bachelor’s degree, and have slightly lower earnings around age 30 as compared to the counterfactual of enrolling directly in a four-year institution. Blanket policies encouraging two-year college attendance, the author concludes, are not as effective as policies targeting students who would otherwise not attend any higher education institution.

Chart of the week: Foreign demand for US Treasuries has surged in recent months

Source: Financial Times

Quote of the week:

“We have a basic bargain in the United States, been around for about 90 years since the Great Depression. Investors get to decide whether you invest, but the issuer has to give you full and fair disclosure, and we protect against fraud and manipulation in the markets. That’s one of my worries about crypto and the crypto asset class,” says Gary Gensler, Chairman of the Securities and Exchange Commission.

“We have to ensure for investor and consumer protection, that’s what an agency like ours, the [Securities and Exchange Commission], does, but also ensure other public policy goals, that people are compliant with taxes and compliant with what’s called anti-money laundering and the like, and we don’t undermine the stability of the system. So, I think it’s better to bring it inside the public policy framework and ensure that we address these important public policy goals … Public money has a certain place around the globe. Private monies usually don’t last that long. So, I don’t think there’s a long-term viability for five- or six thousand private forms of money. History tells us otherwise. So, in the meantime, I think it’s worthwhile to have an investor protection regime placed around this.”

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