Welcome to Pocket Economist, an occasional Storyline column where we take your questions about the economy and answer them with stories. Or witty banter. Or both.
A few months back I found myself on the campus of Kenyon College, a pastoral liberal arts school outside Columbus, Ohio, which prides itself on looking a lot like Hogwarts. I was there to talk about income inequality, along with Ross Douthat of the New York Times and Lizzie O’Leary, the host of public radio’s Marketplace Weekend, from APM, which is online at www.marketplaceweekend.org and @marketplacewknd on Twitter.
After the discussion ended, Ross and I shuffled offstage. Students mobbed Lizzie. It was easy to see why — we’d been talking about pretty grim stuff, income stagnation and economic malaise, but she’d had managed to pepper her dose of harsh reality with a Hermione Granger-esque level of nerdy optimism.
So for our debut question and answer column on Storyline, which will often feature guest contributors, she was the obvious first call. (Plus, she has a new show to plug.)
The goal of the column is to take your questions about the health of the economy and how economic policy affects your life. We solicited the first round of them on Twitter, and in the Post internal chat room, and among brightly dressed tourists in downtown D.C., and then Lizzie and I kicked our answers back and forth over a few days of e-mail and one long chat. Here are our answers — and please, keep the questions coming. We’ll do another round soon.
1. Can you ask (Lizzie) to weigh in on that Brookings report on student debt? Does she think it’s an overstated problem?
Lizzie O’Leary: Oh, good. You tossed me the hot potato of student loans. I guarantee that any way I answer this, someone is going to want to punch me in the face.
The Brookings report got a lot of attention because it basically said hey, there’s not a loan crisis and we’re paying the same amount of our incomes in loans as we used to be.
Plus, they say those loans help you get a better gig, and it comes out in the wash. In econo-speak, that’s an “increase in earnings received over the course of 2.4 years would pay for the increase in debt incurred.”
There are a couple places where I’m skeptical. The data only runs through 2010. Since then, tuitions have continued to rise and median wages haven’t kept up with them.
In addition, the Brookings report looks at income, not wealth. Sure, your income can go up, and that will help you pay your loans. But let’s say you came from a family with very little money. Those loans may have helped you get a better job after school, but there’s no cushion if something happens to your income (you get sick, you lose your job, etc). And that’s the intersection between democratized access to expensive education and student loans that worries me.
2. Should I ever go to grad school?
Jim Tankersley: Lizzie, I’m so glad you took the college/loans question. When I go out on reporting trips and tell people I write about the economy, someone always asks about student debt, why it’s going up so much and whether college is worth it. Usually I say yes, it’s almost always worth it if you make it all the way through, but I also talk about community college and technical school and finding the right fit for you, and I ramble, and people start getting that face-punching look, so I try to head them off by making a joke about USC. “Everyone” loves a good USC joke.
Hardly anyone asks about grad school, but they should. Grad school is a huge economic decision. Tuition is expensive. If you go full time, you’re not working — or working as much as you could. On the other hand, you are, very broadly speaking, setting yourself up for higher future earnings and better odds of getting a job. As these charts show. (I’ve made them USC colored; my mom has a degree from USC; sorry about the jokes earlier, Mom!)
Of course, as they say, your results may vary, especially depending on what grad school you’re thinking about. Which brings me to the other half of this answer, economically: The value of work isn’t just about money. There’s value in enjoying what you do, as the president of the American Enterprise Institute, Arthur C. Brooks, argues. Will that grad degree help you land that job you love? Make that part of your utility-function calculation, too.
3. Should I buy a house?
O’Leary: Should you buy a house? Ask me that and I have 800 other questions for you.
I could talk to you about interest rates (they’re good right now). Down payments (how much can you afford?), and calculators (http://www.trulia.com/rent_vs_buy/). But to me, it’s about words, not numbers.
What is a house to you? If your answer is a place to live and build equity, then yes, by all means. If it’s a cash register, then nope. Houses are the single biggest asset most Americans will have. But they sure don’t appreciate like investment portfolios (yes, yes, I know the market is risky).
Since 1983, stocks and financial assets have returned 7%. Homes have returned 1.6%.
Bonus: You can listen to me interview Ray Boshara from the St. Louis Fed about this. http://www.marketplace.org/topics/wealth-poverty/low-income-folks-should-build-wealth-then-buy-home
4. Any sectors where job growth or job decline surprises you?
Tankersley: This is not a surprise to smart folks who listen to Marketplace, but it is a fact that never fails to astonish me about the last few years: Manufacturing in America is absolutely crushing it right now, in terms of economic output. But it is not, how do you say, doing much hiring. There are reasons for this — automation being the main one; it just takes fewer people in an actual factory to produce the same amount of stuff these days — but those reasons have not stopped many people, including President Obama and his team, from predicting a much larger wave of manufacturing job creation than what we’re seeing. The surprise is that they keep predicting it.
5. Is our current economy the new “normal”? High inequality gap, shrinking middle class, etc?
Tankersley: Teaser alert: I have an entire multipart series in store for this topic. Short preview: There’s plenty of evidence that the American economy isn’t working the way it used to (in the rising tide lifting boats sense), but also there’s nothing in American history that suggests we are stuck in our current economic situation.
O’Leary: I sort of hate this question because … I’m afraid it might be true … at least in the short term.
Do you remember that panel on inequality we were on together at Kenyon? I feel like no one there had a good answer about how we get out of this moment.
And to me, it’s not just about income inequality, but about wealth inequality.
Which means … it’s harder to buy houses, build assets, and pass things on to your kids.
This research on home ownership by African Americans is pretty telling, I think, about how much inequality eats away at our ability to build wealth for future generations.
And I don’t think we can actually get out of this until we, as a country, figure out how to pay people higher wages across the board.
Tankersley: That Kenyon panel was dispiriting. The room was full of hopeful young scholars and we — you and Ross Douthat and I — we crushed their spirits!
O’Leary: We totally did. But we swore. Which I think was maybe cool? We were the journalist panel and we were supposed to be saltier than the economists.
Tankersley: To your point on compensating people better: I think there’s a real sense in America, a correct one, among a wide swath of people, that people like me aren’t getting ahead.
O’Leary: Right. BUT — who is a part of that “like me”?
Tankersley: It’s psychologically powerful, that sense. Here is some research from USC on this topic:
But this is a storytelling question and answer column. So back to our New Normal question:
What’s the story of the American economy right now, would you say? WHO is the story of the economy?
O’Leary: Running in place is the answer to your first question. So that’s GDP, and productivity, and manufacturing all going up … but it still doesn’t mean we see the kinds of jobs that mean you can send your kids to school without debt.
And who? I think that’s an hourly wage earner. Someone who’s working in health care, maybe.
Or that lovely Navy chaplain I met, Jason DiPinto. Served in Afghanistan (before he was in the Navy), and still can’t afford to buy a house.
It just seems like maybe someone or some THING isn’t holding up its end of the bargain.
And I think on a gut level, beyond all the numbers, people feel that.
We’re depressing everyone.
Tankersley: We’re horrible people.
O’Leary: No! I’m an optimist!
Tankersley: Let’s just move on to the last question.
6. (Submitted by New York Times economics correspondent Neil Irwin) Which has higher marginal product of labor, 100 duck-sized horses, or 1 horse-sized duck?
O’Leary: They are both more productive than a New York Times economics correspondent.