Tuesday, July 22, 2014

Subsidise fruit not fries: addressing food insecurity in America

1 in 6 American families are food insecure. Put simply, they are going hungry.

The Federal government has relied on food assistance programs to meet the needs of the poorest families. Last year, it spent $80 billion on its Supplemental Nutritional Assistance Program alone. But budgets have been cut, reducing the amount of money in people's pockets. Reliance on non-profit food banks has increased sharply but they are unable to provide nutritionally-balanced food, like fruit and vegetables, because they are perishable.

In addition, hunger is no longer confined to the poorest or those who are unemployed. Two-thirds of food-insecure families with children have at least one adult in work. The problem, once again, is that wages have failed to keep up with the rising cost of living. After rent, bills and other necessities have been paid, there is often little left over for food.

The consequences of food insecurity are greatest for children, because health problems that set in early on are difficult to reverse. In areas where money is tight, the demand for luxuries falls, reducing the supply of supermarkets and increasing the prevalence of cheap fast-food restaurants. For this reason and others, hungry children are at a higher risk of obesity. Over a lifetime, child obesity costs $19,000 per child in medical costs ($14 billion for all current 10 year olds). Worse, many will have shorter lives than their parents.

Obesity, caused by food insecurity, has the potential to reduce the capacity of the future US workforce exactly at the time when a larger, more skilled workforce is required to support an ageing population. This is a multi-faceted problem, that captures costs, family income, lifestyle and parental education. But here are just two solutions that would tackle it at source.

To deal with rising costs, subsidise the production of fruit and vegetables. Currently, agricultural subsidies for US corn production end up inadvertently reducing the price of corn-based products like fizzy drinks or corn-fed meat, which results in cheap meat and snacks in our shops. So an adjustment to expenditure (not new money) could change consumption behaviour.

To deal with falling real incomes, raise wages. Company profitability would be supported because the workforce can afford a healthier lifestyle and are less likely to take sick days. Government finances would be boosted because higher wages lead to higher tax contributions and falling levels of income support. And tomorrow's growth is secured because higher take-home pay increases investment into children, reducing the future burden, and increasing the future capacity, of tomorrow's workforce.

Tuesday, July 15, 2014

Brazil's World Cup still half empty

Source:  Fédération Internationale de Football Association
As many on social media have pointed out, the World Cup 2014 emblem looked like a man hanging his head in shame (Figure 1).*

Not the shame that came from losing 7-1 to Germany (though that was pretty painful). The shame that came from knowing that hosting the World Cup reportedly cost the country $4.2 billion but more than half of Brazilians believed it would hurt the economy. That 50 per cent of Brazilians thought now was a bad time to find employment despite the government saying that the World Cup would create 710,000 jobs. That the number of poor people living in Brazil could have filled its World Cup stadiums 30 times over.**

After the dust settles, and the spotlight dims, the facts will re-emerge. The International Monetary Fund forecasts that the Brazilian economy will grow by 1.8 per cent this year, compared to a 10-year average of 3.5 per cent, because of weakness in manufacturing, consumer spending and export performance. Others are more bearish still. The central bank has raised interest rates in recent months, because of above-target inflation, leading to worries that economic growth will be choked off. Social discontent led to a number of high-profile protests in the months leading up to the World Cup.   

Brazil appears to have lost grip on the solid macroeconomic framework it established over the last decade. This platform generated high single-digit growth rates, funded active redistribution policies and contributed to a rapid fall in inequality. Between 2004 and 2012, poverty rates more than halved from 22 per cent to 9 per cent. Conditional cash transfer programs that provided monetary rewards in exchange for attendance at school and health centres improved outcomes for those on the lowest incomes. Between 1999 and 2009, the increase in per capita income of the poorest 10 per cent was nearly four times that of the richest 10 per cent. Out of a general rise in income, grew a substantial middle class.

This middle class is now demanding action. Brazil needs to take this opportunity to re-establish its credibility and tackle the hard problems that are preventing it from achieving sustainable and inclusive growth. It needs to push forward on much-needed reforms to infrastructure that would reduce local bottlenecks and improve the quality, not just quantity, of public education and healthcare. It needs to tackle wasteful corruption, which is estimated to cost between 1.4 and 2.3 per cent of GDP a year, and enables favours to the 'haves' at the expense of the 'have-nots'.         

Brazil will play host to the Olympics in Summer 2016. It is likely that between now and then we will see more protests from a discontented population. But, if the country undertakes substantive reform, we may also see a very different country when the spotlight returns.

* The green hands form the shape of a head, which is held in the yellow hand
** Author's calculation based on data from the World Bank and the Stadium Guide

Friday, July 4, 2014

Righting a Wrong on the Fourth of July. Period.

On this Fourth of July, when the country celebrates its right to "life, liberty and the pursuit of happiness", have we got the role of government in securing these rights... wrong?

Source: National Archives via The New York Times
"...We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed..."

New research by Danielle Allen (Princeton) on the Declaration of Independence has called into question the accepted emphasis on individual rights. She argues that an errant period was added in hand-made copies (Figure 1, highlighted). This meant that the second sentence in the Declaration (quoted) became entirely about the individual. By referring back to the original document, where the period is apparently missing, and individual and government are in the same sentence, "the logic... moves from the value of individual rights to the importance of government as a tool for protecting those rights".*

This re-interpretation of the government's role is philosophical. But consider the facts. Last year, the government provided an estimated $212 billion in welfare payments to support the poor and vulnerable. But substantially more - $335 billion - was donated by the public to US non-profits, the majority of whom exist to support education, human services and health.  

A population served predominantly by non-profits is one that has been let down by the mainstream system and fallen into the gap between the government and private sectors. Today, 1 in 7 people live in poverty. A more accurate measure shows it could be higher still. Non-profits report rising demand for services, particularly those that serve the most vulnerable. It would appear that not everyone has the right, or the opportunity**, to pursue happiness.

On the one hand, non-profits operating at the coal face are in a better position to understand local issues. On the other hand, they often deal with the consequences, rather than causes, of disadvantage. When they advocate for change, it is to the government. Only the government has the incentive, scale and investment horizon to deal with these underlying causes: more jobs; higher wages; affordable housing; higher-quality education. In the extreme, when government has done its job, charity should cease to exist. On the day that America reflects upon its "unalienable rights", for many, that concept is indeed alien.

* As quoted in the New York Times
** Or the capability, to use Amartya Sen's language

Tuesday, July 1, 2014

The Forgot-Teen Generation

There is widespread evidence that poor children in the US do not have a fair start in life. By age 2, there is a 6 month gap between children of low and high socioeconomic status in processing skills that are important for language development. By age 4, children in very poor families will have heard 30 million fewer words than their better-off peers. These differences persist. Variations in high school test scores between low and high-income children can be predicted from elementary school performance. As a result, many campaigns have focused on the importance of early years intervention in improving a child's life chances.

In addition, academic research into the high returns to investing in young children has influenced a policy shift.  James Heckman, a Nobel-prize winning economist, has argued that if the foundations of cognitive and non-cognitive development are not set early on, there will be nothing to build upon in teenage years.  He points to the seminal Perry pre-school project, an early intervention program designed to improve the outcomes of disadvantaged African-American youth in the 1960s.  The return to intervening at such a young age is estimated to be between 7 and 10 per cent, calculated as the sum of private gains (e.g. staying on in education and earning a higher wage) and social gains (e.g. costs saved from reduced crime rates).  President Obama has therefore emphasised the importance of early intervention in reducing inequality.

But there is a danger that such rhetoric leads to older children being forgotten. This blog does not dispute the evidence that early years intervention is important. But the US is not at the point at which all children start school equal. Furthermore, some schools are failing to help them catch up. An emphasis on mainstream standardised testing is detrimental to those who are not used to such discipline. Disadvantaged students are more likely to be disengaged, and have less drive, motivation and self-belief, leading to higher drop-out rates.
In addition, things are getting worse for older children, who neither appear as cute as babies nor as vulnerable as the elderly in advocacy campaigns. As mentioned in last week's blog, if you are a high-school drop out, your chance of being employed is at its lowest level since records began (in 1970). The likelihood that you are out of the workforce altogether is at its highest level for over a decade. Worse, the US schooling system is not even equipping its average student with the skills necessary to succeed in today's information economy. In a wider test of attributes of 15 year olds - the Programme for International Student Assessment - the US ranked 27th out of 34 countries. US students are, it would appear, unable to "think outside the box".
What we need to do is borrow the early years philosophy - which focuses on cognitive development - and apply it to young people, disadvantaged or otherwise.  The standardised testing approach leaves little room for the development of critical thinking and challenge. Finland, by contrast has all but eradicated standardised tests, opting for a more equitable and relaxed school experience. If we made school more enjoyable and inclusive then, in theory, students from every background could flourish, not just those who benefited from early years intervention. By doing so, we can increase the likelihood that all students finish high school more equally than they started.