·June 11, 2019
The Public Charge rule is a proposal that would change the way immigrants access U.S. public benefits. An underlying assumption to this rule is that immigrants are a burden on native-born U.S. taxpayers. But is this true? Economists at Cornell University and University of California at Berkeley looked at the evidence. We explain their findings in our new segment
Keen to know more? Have a look at the EconoFact memo on whether immigrants cost native-born taxpayers money.
Federal Budget Deficit
Federal Budget Deficit
·June 7, 2019
The Fletcher School, Tufts University and Williams College
Modern Monetary Theory (MMT) has attracted attention, especially among many who see in it a support for greater government spending. However, there is confusion about the ideas underlying MMT and controversy about its proposed policies. While some have taken MMT to say that government budget deficits do not matter, its proponents say there are situations when deficits are a source of concern.
- Proponents of Modern Monetary Theory emphasize that a country that controls its own currency and borrows in its own currency, like the United States, cannot default on its debt. This is because the central bank can, if necessary, “print” the money needed to pay the government’s creditors, a process called monetization. MMT proponents argue that a high level of debt, relative to GDP, should not by itself constitute a constraint on deficit spending. They say that "the only potential risk with the national debt increasing over time is inflation". They argue that the government can, and should, use deficit spending aggressively to boost employment.
- Sustained deficit monetization is inflationary. Money growth in excess of GDP growth causes inflation. In the United States the rate of inflation generally has been equivalent to the difference between the growth in the monetary base and economic growth (see chart).
- MMT gives the President and Congress a greater role in maintaining price stability. MMT proponents, argue that at some future point the debt can get to be so large that interest payments on the debt — on top of normal government spending — can end up meaning that there is too much income chasing too few goods. "Too much income" can be controlled by either tax increases or reducing government spending. This manner of managing inflation is the opposite of the current arrangement, in which the Fed has the dual mandate of maintaining price stability and full employment.
- There is a legitimate debate among economists regarding the maximum sustainable level of debt and the appropriate debt-to-GDP ratio. For example, Olivier Blanchard, a former Chief Economist of the International Monetary Fund, has argued that debt sustainability is less of a pressing problem in the current climate of low interest rates. Nonetheless, there is a limit to the deficit that can be sustained without leading to an explosion in the debt-to-GDP ratio.
MMT’s prescription for the aggressive use of fiscal policy to promote full employment is not inconsistent with conventional macroeconomic analysis, which supports the robust use of countercyclical deficit spending to buffer downturns, especially when monetary policy is constrained by the zero lower bound on the nominal interest rate. However, contrary to MMT doctrine, there are very real constraints on the government’s use of deficit spending. First, using sustained monetization (“printing money”) to finance deficits, a core principle of MMT, invariably creates inflation. Second, the reliance on tax hikes or spending cuts to quell inflation is highly unrealistic, given politicians’ extreme aversion to fiscal austerity, not to mention the lags inherent in the budgeting process. And third, MMT ignores the fact, that above a certain level, deficit spending will contribute to an ever-rising ratio of debt to GDP, whose costs will eventually be borne by future generations.
·May 31, 2019
University of California, Davis and Abt Associates
Career technical education (CTE) programs are seen as part of the solution to workforce training needs. Do the vocational or career technical education programs at public community colleges provide an alternative path to higher earnings for people without four-year college degrees?
- Vocational and career technical programs train students for specific occupations in a broad range of fields such as police, prison officers, health care providers, or construction workers, among others.
- Systematic information on the returns to specific CTE programs is rare. Our research studies whether completing a CTE program leads to higher earnings. We use individuals’ own earnings prior to CTE enrollment to estimate the path their earnings would have followed had they not enrolled in CTE.
- We find that completing a CTE program does, in fact, raise a person’s earnings. In general, there is a higher earnings effect with longer programs: a CTE degree can increase earnings by an average of approximately 14 percent for shorter-term certificates (representing 6 to 17 credits) to 45 percent for associate degrees (which require 60 or more credits).
- The estimated earnings effect varies substantially across disciplines: a certificate in health care earned through taking 30-59 credits can raise a student’s earned income by nearly 50 percent, while the earnings effect of completing a public and protective services certificate with the same number of credits is 17 percent, and that for business is 11.5 percent.
- Many private, for-profit schools also offer CTE programs that have not been found to increase earnings. Recent research on 2-year and shorter degrees within the for-profit sector finds little evidence of positive effects for typical enrollees.
Vocational and career technical certificates and degrees offered at public community colleges can improve the level of human capital of students and lead to substantial increases in their future earnings. An important caveat is that there is wide variation in the earnings effects across programs, and across students with different characteristics and preferences. This implies that sensible policies cannot simply funnel all students into “high-return” programs. For programs that are a public policy priority and for which demand from both students and consumers merits expansion, such as nursing, policies to expand program availability may make sense.
Editor's note: This post was co-written with freelance writer Beatriz Yemail based on “Career Technical Education and Labor Market Outcomes: Evidence From California Community Colleges” by Ann Huff Stevens, Michal Kurlaender, and Michel Grosz, Journal of Human Resources, April 2018.