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Has the day of the Congressional Budget Office come and gone?

By Dan Sichel·June 12
Wellesley College

The Issue:

In an interview with the Washington Examiner in May, the Director of the Office of Management and Budget, Mick Mulvaney, asked whether the Congressional Budget Office (CBO) — Congress’ own budget analysis agency — has outlived its usefulness.

The Facts:

  • The CBO was established 40 years ago to evaluate the budget and economic implications of policy changes through a neutral lens. The Director of the CBO is appointed by the Congressional leadership. The current Director, Keith Hall, was appointed in 2015 by Speaker Paul Ryan and president pro tempore Orrin Hatch — both Republicans.
  • The agency hires technically skilled staff and never makes policy recommendations. It has filled this role under Directors appointed by both Democratic and Republican congressional leaders, and its work is widely recognized as non-partisan.
  • Given the complexity and controversial nature of the issues CBO analyzes, their work has, at times, frustrated Presidents and members of Congress from both parties. It has countered the assessments of energy policy under the Carter Administration, budgetary issues during the Reagan Administration, and the impact of Health Care proposals under the Clinton Administration, among others.

What this Means:

Mulvaney’s attack on CBO’s credibility stems, no doubt in part, from his frustration that the agency’s analysis of the House’s ObamaCare repeal bill has become such an important piece of the argument against the bill. But, his attack also fits with a broader effort to push the country even further away from relying on factual analysis in policy making. In this time of “fake news” and questions about the accuracy of information reported in the media, the nation needs, more than ever, the best possible unbiased, non-partisan analysis of complex issues. The CBO provides just such analysis.

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The Effects of ‘Ban the Box’ on the Employment of Black Men

By Amanda Agan and Jennifer Doleac·June 9
Rutgers University and University of Virginia

The Issue:

"Ban the Box" policies prevent employers from asking about someone’s criminal record until late in the job application process — giving applicants an opportunity to explain their qualifications first. The goal is to increase employment for people with criminal records, in the hopes of reducing recidivism, and to reduce racial disparities in employment. Over 150 cities and counties across the United States had adopted versions of the policy as of 2017, and President Obama ‘banned the box’ on federal employment applications in November 2016.

The Facts:

  • Young, low-skilled black men are more likely to have recent convictions than white or hispanic men. Employers who do not want to hire people with criminal records may try to guess the likelihood an applicant has a record based on their perceived race.
  • Amanda Agan and Sonja Starr found that when employers were allowed to inquire about criminal history, white applicants had only a slight advantage over similar black applicants who had the same criminal record status. After Ban the Box policies were implemented, white applicants were 43 percent more likely to get called back for an interview than similar black applicants (see chart).
  • New research by Jennifer Doleac and Benjamin Hansen finds evidence that changes in interview callback rates translate to differences in employment outcomes: They found that BTB reduces employment for young black men without a college degree by 5.1 percent, and that effect grows over time.

What this Means:

Criminal records are a clear barrier to employment. However, banning employers from asking about criminal histories early in the application process has the unintended consequence of reducing employment opportunities for young, low-skill black men without criminal convictions. New evidence shows it may even reduce employment for men with criminal records. It is worth experimenting with other policy options that could be more effective at achieving the laudable goals of Ban the Box without this unintended consequence.

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The Decline in the Dollar

By Michael W. Klein and Jay C. Shambaugh·June 2
Fletcher School, Tufts University and George Washington University

The Issue:

The dollar got stronger in the immediate wake of the election. But there has since been a decline in the value of the dollar as well as a decline in the interest rate on 10-year Treasury Bills.

The Facts:

  • The U.S. dollar strongly appreciated in the wake of the presidential election, rising by 4 percent between the election and the end of 2016. The interest rate on the 10-year Treasury bill also rose by almost 70 basis points, from 1.82 percent to 2.51 percent (see chart).
  • Changes in exchange rate indices and the 10-year Treasury bill rate in the eight weeks after the election reflected the market’s view of the expected effects of policies advocated by Candidate Trump. Policies such as tax cuts, infrastructure spending, and higher taxes on foreign goods, if enacted, would raise interest rates in the United States and, in so doing, bid up the value of the dollar as foreign investors seek to hold higher-yielding U.S. assets.
  • The dollar fell over the first six months of 2017 by 4.4 percent against the index of major currencies and by 4 percent against the index of other currencies. These shifts likely reflect changing market perceptions of the likelihood of the administration succeeding in getting tax cuts or an infrastructure spending bill through Congress or of a border tax adjustment being included in a tax reform.

What this Means:

The dollar is still relatively strong after its huge prior appreciation, but the added appreciation associated with the election seems to have faded – at least for now.

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Unintended Consequences: Lessons From an Anti-Fraud Reform

By Raymond Fisman·June 1
Boston University

The Issue:

Abuse of government programs often leads to reforms as a way of improving effectiveness and reducing costs. But reforms can have unintended consequences that limit the efficacy of increased enforcement and even lead to undesirable side effects. An effort to reduce instances of fraud by grocery stores participating in the Supplemental Nutrition Program for Women, Infants, and Children (WIC) illustrates this problem.

The Facts:

  • WIC provides low-income pregnant women and mothers of young children with vouchers to obtain high-nutrition staples. Paper vouchers provide access to a fixed quantity of food, such as a gallon of milk, at participating stores. Because there is no monetary value associated with the vouchers, participants have no incentive to seek out lower prices. Research by Katherine Meckel of Texas A&M University found that small grocery stores in Texas charged up to 50 percent higher prices to WIC customers compared to customers who paid cash. The small grocery stores were able to engage in fraud because the use of paper vouchers allowed them to record WIC purchases separately.
  • Federal legislation now requires WIC providers to transition to an electronic system by 2020. This facilitates the comparison of prices using scanner data. Meckel found that the change to the electronic system led to a convergence in prices paid by WIC customers and cash customers in Texas, as stores were no longer charging WIC customers higher prices.
  • But the transition reduced the number of stores carrying WIC-eligible products, lowered the number of eligible beneficiaries participating in the program, and raised some food prices for non-WIC customers, according to Meckel's study.

What this Means:

It may be possible – with sufficient forethought – to anticipate some of the unexpected consequences of reforms. Pilot implementation may help to identify reform misfires before rolling them out system-wide. Recent research suggests that, if the reforms themselves are well-executed, the overall social benefits of improved program delivery likely exceed any costs from strategic responses. But, as the WIC study illustrates, it is particularly important to consider whether and how reform efforts impact the poorest and most vulnerable, lest they themselves be the victims of well-meaning reforms.

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College Financial Aid: What You Don’t Know Can Cost You

By Phillip B. Levine·May 30
Wellesley College

The Issue:

Listed college costs at elite private colleges and universities are unaffordable for the majority of the population. Yet financial aid at many of these institutions brings an elite college education within reach for well-qualified students. The problem: many of those who stand to benefit are unaware of the option.

The Facts:

  • Extensive financial aid is available at many elite private colleges and universities. The estimated average out-of-pocket cost, including room and board, for a typical family that earns $40,000 per year is about $2,200 at a group of institutions with an average list price (at the private colleges) of $66,300 (see chart).
  • Survey evidence indicates that the majority of students of college-going age only know the stated sticker price that colleges charge. This misinformation reduces the likelihood that well-qualified students attend those institutions. One study found that almost half of high-achieving, low income students attend non-selective institutions.
  • Starting in 2011, federal legislation has required that every college and university post a “net price calculator” on their web site, to provide students/families with estimates of their expected cost based on their own finances. These calculators are often difficult to use and require users to provide information from tax forms that they may be reluctant to dig out and may not understand.

What this Means:

One critical component of any attempt to increase access to college for low and moderate income students is better information regarding costs. Federal proposals to improve net price calculators are one approach to address this problem. Alternatively, Wellesley and a handful of other colleges have taken steps on their own to introduce easy to use cost calculators. An online tool, which I created and which has been financed by Wellesley College, MyinTuition, requires users to enter just the most common types of financial information and takes an average of 3 minutes to complete.

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