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The Collapse of the Great Gatsby Curve

Scott Winship, Donald Schneider | February 3, 2014


As expected, President Obama’s State of the Union address to the nation last week was suffused with the theme of opportunity. Over the past two years, the president has consistently tied the opportunities of poor and middle class Americans to rising income inequality, and Tuesday he stayed true to this narrative:

Testimony before the Committee on the Budget, U.S. House of Representatives, Washington, D.C. January 28, 2014

Scott Winship | January 28, 2014

Chairman Ryan, Ranking Member Van Hollen, and Members of the Committee, thank you for inviting me to appear today to discuss the central issues of poverty and opportunity in America. The fiftieth anniversary of Lyndon Johnson’s declaration of war on poverty provides an occasion to reflect on federal anti-poverty policy to date and policies to promote opportunity and to consider how to build on the progress we have made while improving on those features of policy that have not served us well.

Inequality Testimony before the Joint Economic Committee

Scott Winship | January 15, 2014


Chairman Brady, Vice Chair Klobuchar, and Members of the Committee, thank you for inviting me to appear today to discuss the topic of income inequality in America. With long-term unemployment historically high and still-pervasive economic insecurity in the wake of the Great Recession, it is understandable that many Americans have grown more concerned about the nation’s levels of inequality. Too many families struggle in poverty, too many workers have given up on finding fulltime work, and too many young adults have graduated into a weak economy that will lower their lifetime earnings.

At the same time, it is important to note that it is the fragility of the economy that lies behind concerns over inequality. Inequality was high and rising during the late 1990s, but because the growing economy was largely benefitting everyone, few people were worried about income concentration at the top. As the economy continues to recover and unemployment continues to fall, concern about inequality will recede.

As I will show, in long-run perspective, living standards have improved for the poor and middle class even as income inequality has grown. In part, that is because inequality has increased less than most analysts suggest. Furthermore, there is little compelling evidence that the gains at the top have reduced income growth lower down. And contrary to claims that rising income inequality has hurt inequality of opportunity, the evidence of a link between the two is weak. In part, that is because intergenerational mobility has not declined much—if at all—as income inequality has grown.

However, if intergenerational mobility is no worse today than it was decades ago, nor is it any better. We should not be satisfied as a nation with the limited upward mobility facing poor children today, and fifty years after Lyndon Johnson’s declaration of war on poverty, we should establish a second front against immobility. Attacking income inequality, however, is unlikely to reduce poverty or to promote equal opportunity; emphasizing it is, in fact, a distraction from the task at hand.

A Decade of Success: How Competition Drives Savings in Medicare Part D

Yevgeniy Feyman, Paul Howard | Center for Medical Progress | December 19, 2013

On December 8, 2003, then-president George W. Bush signed into law the Medicare Modernization Act (MMA). As part of the MMA, a new, voluntary prescription drug program called “Medicare Part D” was enacted. Beginning in 2006, Medicare enrollees would also be able to sign up for outpatient prescription drug coverage through private insurance companies, with premiums subsidized by Medicare. To date, seniors have expressed high levels of satisfaction with the program, and Part D expenditures have been more than 40 percent lower than initial government estimates—a rarity for a government health-care program.

Even though the program was controversial at the time of its launch in 2006, Part D is now often touted as a rare entitlement success story, with praise from both sides of the political aisle. 

In this report, we review data from the Centers for Medicare and Medicaid Services, the Congressional Budget Office, and other sources, to examine which factors—market competition, patent expirations, or other national trends (including private-sector innovations such as tiered formularies and preferred networks)—explain overestimates for Part D costs.

In our analysis, we find strong evidence that:

National trends are not a sufficient explanation for Part D’s success. 

Consumer-driven competition is a relatively new tool in the government’s effort to control health-care costs. 

Part D is an excellent model for future health-care and entitlement reforms. 

We also suggest additional reforms for Part D, including a “shared savings” program for participating plans that would encourage them to focus on chronic disease management and prevention, reducing Medicare spending in other parts of the program.

The Myth of Increasing Income Inequality

Diana Furchtgott-Roth | December 16, 2013


President Obama has called income inequality the “defining challenge of our time,” reflecting the misguided assumption that income inequality in the U.S. has increased in recent years. Populist cries for redistribution as a means to remedy this purported inequality have gained currency in both the press and in the public imagination. This paper, based on an updated original analysis of U.S. Labor Department data, concludes that inequality as measured by per capita spending is no greater today than in it was in the 1980s.

Why We Have Federal Deficits

Charles Blahous | November 14, 2013

The federal deficit is a huge public policy problem that must be understood, confronted, and solved. Federal deficits run in these last five years dwarf any precedent in U.S. post-world-war history. The Congressional Budget Office (CBO)’s latest projections warn that without legislative corrections, deficits will rise to untenable levels with severe consequences for our economic well-being.

What Has Happened to the Incomes of the Middle Class and Poor? Part Three: The Bronze Age

Scott Winship | November 6, 2013

This essay is the third in a series examining income trends for middle-class and poor households. In the first, I showed that once federal safety net programs are fully considered, the incomes of the middle class and poor are no lower today than they were in 2007, prior to the Great Recession.

20 Myths About Public-Sector Pension Plans

Richard Dreyfuss | Center for State and Local Leadership | October 23, 2013

State and municipal governments across the United States know that they are facing a looming financial crisis because of their pension obligations. Politically popular yet financially reckless decisions have left many of these governments with rapidly escalating pension costs. The situation is clearly unsustainable in the long term, which is why the issue of public-sector pensions is now front-page news from California to New York to Illinois (where legislators’ wages recently were suspended for their perpetual failure to resolve that state’s pension crisis).

These days, everyone knows that public-sector pension reform is essential. But what kind of reform? And how is it to be achieved? There is no shortage of debate (and a number of jurisdictions claim that they have put reforms in place). Much of this discussion, though, is marred by misinformation and half-truths. These misconceptions are confusing the public discussion about pensions and facilitating the enactment of pseudo-reforms that are politically attractive but financially inadequate.

This paper identifies these nuggets of misunderstanding and inaccuracy—the myths of public-sector pensions.

Intermodal Safety in the Transport of Oil

Kenneth P. Green, Diana Furchtgott-Roth | Fraser Institute | October 15, 2013

Rising oil and natural gas production in North America is outpacing the transportation capacity of our pipeline infrastructure. As one of us (Green) discussed in a previous study in this series, The Canadian Oil Transport Conundrum, Canada is poised to dramatically increase production of bitumen from oil sand deposits in Western Canada (2013). In the face of expanding production and pipeline bottlenecks, more oil is moving by rail in both Canada and the United States, but transport of oil by rail (or other non-pipeline transportation modes) carries its own set of risks. While pipe­lines may leak, trains and trucks can crash, hurting individuals, as we saw in Lac-Mégantic in July 2013, and barges can sink. There is no perfectly risk-free way to transport oil, or anything else for that matter.

Has Income Inequality Really Risen?

Scott Winship | October 9, 2013

Few serious scholars believe that middle class and poor households have seen the income growth experienced by the top in recent decades. Both the ubiquitous estimates from economists Thomas Piketty and Emmanuel Saez and figures from the Congressional Budget Office show dramatic increases in the share of income received by the richest 1 percent of Americans. Between 1979 and 2007, the Piketty-Saez numbers rise from 10 percent to 24 percent, and the CBO share increases from 7 to 17 percent. Attempts to deny that the top has pulled away generally have been wholly unpersuasive and in more than a few cases conducted with minimal regard for the truth of the matter.

When conventional wisdom coheres around some accepted truth and most of the non-adherents are easily debunked, it becomes that much easier to casually dismiss any challenge as unserious and unimportant. However, a commitment to empiricism means not only refuting sketchy claims but taking seriously well-supported ones.

Scholars, journalists, and policymakers are now confronted with such a responsibility in the inequality research of Cornell economist Richard Burkhauser and his colleagues. If their latest research holds up—and there are good reasons to think that it will—we will have to rethink whether inequality has really increased since the 1980s.

Shadow Open Market Committee meeting: "Exiting, Succession, and the Future of the Fed"

Shadow Open Market Committee | SOMC | September 20, 2013

The Fall 2013 Shadow Open Market Committee Meeting featured six papers and a presentation by Esther George, president of the Kansas City Federal Reserve. Discussion centered around the Federal Reserve's role and how its recent policy decisions will affect the economy. The presenters put forward innovative ideas that will stimulate future monetary policy debate.

Columbia University professor Charles Calomiris questioned the wisdom and necessity of macro-prudential monetary policy. (read here)

Mickey Levy of Blenheim Capital Management criticized the Federal Reserve’s forward guidance inconstancies in light of faulty FOMC forecasts. (read here)

Rutgers University professor Michael Bordo suggested that financial crises usually recover quickly and that real estate is dragging this particular recovery down—not the severity of the crisis. (read here)

Carnegie Mellon University professor Bennett McCallum discussed the merits and types of nominal GDP targeting as a Federal Reserve policy. (read here)

Boston College professor Peter Ireland evaluated the Federal Reserve’s quantitative easing exit strategy and offered his preferred actions. (read here)

Carnegie Mellon University professor Marvin Goodfriend proposed criteria for confirming the new Federal Reserve Chairman which focused on the scope of the bank’s legitimate functions and actions.(read here)

The committee released a joint statement emphasizing the need for the Federal Reserve to concern itself with monetary, not credit policy. Taking limits such as this seriously is a must for the Federal Reserve if it is to maintain its legitimacy as an independent institution. The Senate confirmation process for the new President should focus on the nominee’s perceived role, and limitations, for the Federal Reserve. (read here)

Corporate Governance and Shareholder Activism

Margaret M. O'Keefe, James R. Copland | Proxy Monitor | September 19, 2013

In recent years, large, publicly traded American corporations have increasingly faced pressure from a subset of shareholder activists that introduce proposals on the companies’ proxy ballots for consideration at annual meetings. This report draws upon information in the Proxy Monitor database to assess the 2013 proxy season in historic context. Among its key findings:

  • The number of shareholder proposals introduced is up. 
  • Support for shareholder proposals is down.
  • The overwhelming majority of shareholder proposals are sponsored by a small subset of shareholders.
  • The most frequent sponsors of shareholder proposals, labor-union pension funds, could be targeting companies for reasons other than shareholder value, including the companies’ political participation.
  • Shareholder proposals related to corporations’ political spending or lobbying constituted a plurality of all proposals in 2013 but continued to attract little support.

The FDA’s Misguided Regulation of Stem-Cell Procedures: How Administrative Overreach Blocks Medical Innovation

Richard Epstein | Center for Legal Policy | September 17, 2013

The current biomedical revolution has its most tangible application to ordinary people in the new cutting-edge techniques devised by individual physicians for the cure and palliation of chronic and degenerative diseases. The rate of advance in this area is a testimony to the creative forces unleashed by the decentralized control over medical procedures. But that progress is now threatened by the federal Food and Drug Administration (FDA), which seeks to extend its statutory authority to subject these practices to the same oversight that is given to large drug manufacturers in the design and production of new products for the mass market. One area over which the FDA has asserted its power is private adult stem-cell treatment, which has developed treatment protocols that were not possible a generation, or even a decade, ago.

The FDA has taken the aggressive position that it has oversight authority over any stem-cell procedure that reinjects harvested stem cells into the same person from whom they were removed, so long as those cells were grown and cultured outside the human body....

BETTER PAY, FAIRER PENSIONS: Reforming Teacher Compensation

Marcus A. Winters, Josh McGee | Civic Report 79 | September 4, 2013

States across the nation have recently turned considerable attention to reforming retirement programs for public school teachers. Such efforts have been spurred by the widely recognized need to address the crisis of unfunded liabilities and the escalating annual payments that states must make to their teacher pension systems. But there is another compelling reason to consider reforming these systems: They work poorly for many teachers, particularly those who remain in the profession for less than the 30 years that is often required to become eligible for the maximum payout.

From our analysis of compensation in the nation’s 10 largest school districts, we find that two simple reforms—neither of which would increase spending—would allow school districts to:

  • Raise teacher salaries, in some cases substantially;
  • Give teachers more retirement security than they now have;
  • Make teaching a more attractive option for people who are unsure that they will work for decades in the same school district; and
  • Offer teachers more control over when they stop working.

What changes would allow schools to make teaching more attractive in these ways?


Dean Ball, Stephen Eide | Issue Brief 25 | August 22, 2013

Seven states have specific clauses in their constitutions that protect public employee pensions: Alaska, Arizona, Hawaii, Illinois, Louisiana, Michigan, and New York. These seven states hold 20 percent of state governments’ total pension debt, and many billions more in local pension debt. These states should amend their constitutions to remove language guaranteeing pension benefits for public workers.

Constitutional amendments generally require a supermajority vote by the legislature and voter approval. All seven states have amended their constitutions in recent decades, in some cases dozens of times. The amendment process is worth pursuing, because protecting pensions in state constitutions is bad public policy. It limits the flexibility of bankruptcy negotiators, elevates the interests of workers over taxpayers, and prevents insolvent cities from discharging obligations that they cannot afford. 

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