The mayoral election in Baltimore has brought local economic development strategies to the forefront. In a city in which inequality—by income, by race, and between neighborhoods—has increased in the past five years, the candidates have made it clear that more action must be taken to close disparities and improve economic outcomes for all residents. In a podcast segment, I commend the much-needed focus on equity but argue that the mayoral candidates should not lose sight of another critical piece of the equity equation: economic growth. Citing lessons from my recent paper, I outline strategies that Baltimore’s presumptive leaders should pursue—as well as several they should abandon—to place the city’s residents on the path to a more prosperous, equitable future.

Listen to the full podcast segment here: 

       

At the very heart of the American idea is the notion that, unlike in other places, we can start from nothing and through hard work have everything. That nothing we can imagine is beyond our reach. That we will pull up stakes, go anywhere, do anything to make our dreams come true. But what if that's just a myth? What if the truth is something very different? What if we are…stuck?

I. What does it mean to be an American?

Full disclosure: I'm British. Partial defense: I was born on the Fourth of July. I also have made my home here, because I want my teenage sons to feel more American. What does that mean? I don't just mean waving flags and watching football and drinking bad beer. (Okay, yes, the beer is excellent now; otherwise, it would have been a harder migration.) I'm talking about the essence of Americanism. It is a question on which much ink—and blood—has been spent. But I think it can be answered very simply: To be American is to be free to make something of yourself. An everyday phrase that's used to admire another ("She's really made something of herself") or as a proud boast ("I'm a self-made man!"), it also expresses a theological truth. The most important American-manufactured products are Americans themselves. The spirit of self-creation offers a strong and inspiring contrast with English identity, which is based on social class. In my old country, people are supposed to know their place. British people, still constitutionally subjects of Her Majesty Queen Elizabeth, can say things like "Oh, no, that's not for people like me." Infuriating.

Americans do not know their place in society; they make their place. American social structures and hierarchies are open, fluid, and dynamic. Mobility, not nobility. Or at least that's the theory. Here's President Obama, in his second inaugural address: "We are true to our creed when a little girl born into the bleakest poverty knows that she has the same chance to succeed as anybody else because she is an American; she is free, and she is equal, not just in the eyes of God but also in our own."

Politicians of the left in Europe would lament the existence of bleak poverty. Obama instead attacks the idea that a child born to poor parents will inherit their status. "The same chance to succeed as anybody else because she is an American…."

Americanism is a unique and powerful cocktail, blending radical egalitarianism (born equal) with fierce individualism (it's up to you): equal parts Thomas Paine and Horatio Alger. Egalitarian individualism is in America's DNA. In his original draft of the Declaration of Independence, Thomas Jefferson wrote that "men are created equal and independent," a sentiment that remained even though the last two words were ultimately cut. It was a declaration not only of national independence but also of a nation of independents.

The problem lately is not the American Dream in the abstract. It is the growing failure to realize it. Two necessary ingredients of Americanism—meritocracy and momentum—are now sorely lacking.

America is stuck.

Almost everywhere you look—at class structures, Congress, the economy, race gaps, residential mobility, even the roads—progress is slowing. Gridlock has already become a useful term for political inactivity in Washington, D. C. But it goes much deeper than that. American society itself has become stuck, with weak circulation and mobility across class lines. The economy has lost its postwar dynamism. Racial gaps, illuminated by the burning of churches and urban unrest, stubbornly persist.

In a nation where progress was once unquestioned, stasis threatens. Many Americans I talk to sense that things just aren't moving the way they once were. They are right. Right now this prevailing feeling of stuckness, of limited possibilities and uncertain futures, is fueling a growing contempt for institutions, from the banks and Congress to the media and big business, and a wave of antipolitics on both left and right. It is an impotent anger that has yet to take coherent shape. But even if the American people don't know what to do about it, they know that something is profoundly wrong.

II. How stuck are we?

Let's start with the most important symptom: a lack of social mobility. For all the boasts of meritocracy—only in America!—Americans born at the bottom of the ladder are in fact now less likely to rise to the top than those situated similarly in most other nations, and only half as likely as their Canadian counterparts. The proportion of children born on the bottom rung of the ladder who rise to the top as adults in the U.S. is 7.5 percent—lower than in the U.K. (9 percent), Denmark (11.7), and Canada (13.5). Horatio Alger has a funny Canadian accent now.

It is not just poverty that is inherited. Affluent Americans are solidifying their own status and passing it on to their children more than the affluent in other nations and more than they did in the past. Boys born in 1948 to a high-earning father (in the top quarter of wage distribution) had a 33 percent chance of becoming a top earner themselves; for those born in 1980, the chance of staying at the top rose sharply to 44 percent, according to calculations by Manhattan Institute economist Scott Winship. The sons of fathers with really high earnings—in the top 5 percent—are much less likely to tumble down the ladder in the U. S. than in Canada (44 percent versus 59 percent). A "glass floor" prevents even the least talented offspring of the affluent from falling. There is a blockage in the circulation of the American elite as well, a system-wide hardening of the arteries.

Exhibit A in the case against the American political elites: the U. S. tax code. To call it Byzantine is an insult to medieval Roman administrative prowess. There is one good reason for this complexity: The American tax system is a major instrument of social policy, especially in terms of tax credits to lower-income families, health-care subsidies, incentives for retirement savings, and so on. But there are plenty of bad reasons, too—above all, the billions of dollars' worth of breaks and exceptions resulting from lobbying efforts by the very people the tax system favors.

So fragile is the American political ego that we can't go five minutes without congratulating ourselves on the greatness of our system, yet policy choices exacerbate stuckness.

The American system is also a weak reed when it comes to redistribution. You will have read and heard many times that the United States is one of the most unequal nations in the world. That is true, but only after the impact of taxes and benefits is taken into account. What economists call "market inequality," which exists before any government intervention at all, is much lower—in fact it's about the same as in Germany and France. There is a lot going on under the hood here, but the key point is clear enough: America is unequal because American policy moves less money from rich to poor. Inequality is not fate or an act of nature. Inequality is a choice.

These are facts that should shock America into action. For a nation organized principally around the ideas of opportunity and openness, social stickiness of this order amounts to an existential threat. Although political leaders declare their dedication to openness, the hard issues raised by social inertia are receiving insufficient attention in terms of actual policy solutions. Most American politicians remain cheerleaders for the American Dream, merely offering loud encouragement from the sidelines, as if that were their role. So fragile is the American political ego that we can't go five minutes without congratulating ourselves on the greatness of our system, yet policy choices exacerbate stuckness and ensure decline.

In Britain (where stickiness has historically been an accepted social condition), by contrast, the issues of social mobility and class stickiness have risen to the top of the political and policy agenda. In the previous U.K. government (in which I served as director of strategy to Nick Clegg, the deputy prime minister), we devoted whole Cabinet meetings to the problems of intergenerational mobility and the development of a new national strategy. (One result has been a dramatic expansion in pre-K education and care: Every 3- and 4-year-old will soon be entitled to 30 hours a week for free.) Many of the Cabinet members were schooled at the nation's finest private high schools. A few had hereditary titles. But they pored over data and argued over remedies—posh people worrying over intergenerational income quintiles.

Why is social mobility a hotter topic in the old country? Here is my theory: Brits are acutely aware that they live in a class-divided society. Cues and clues of accent, dress, education, and comportment are constantly calibrated. But this awareness increases political pressure to reduce these divisions. In America, by contrast, the myth of classlessness stands in the way of progress. The everyday folksiness of Americans—which, to be clear, I love—serves as a social camouflage for deep economic inequality. Americans tell themselves and one another that they live in a classless land of open opportunity. But it is starting to ring hollow, isn't it?

III. For black Americans, claims of equal opportunity have, of course, been false from the founding.

They remain false today. The chances of being stuck in poverty are far, far greater for black kids. Half of those born on the bottom rung of the income ladder (the bottom fifth) will stay there as adults. Perhaps even more disturbing, seven out of ten black kids raised in middle-income homes (i.e., the middle fifth) will end up lower down as adults. A boy who grows up in Baltimore will earn 28 percent less simply because he grew up in Baltimore: In other words, this supersedes all other factors. Sixty-six percent of black children live in America's poorest neighborhoods, compared with six percent of white children.

Recent events have shone a light on the black experience in dozens of U. S. cities.

Behind the riots and the rage, the statistics tell a simple, damning story. Progress toward equality for black Americans has essentially halted. The average black family has an income that is 59 percent of the average white family's, down from 65 percent in 2000. In the job market, race gaps are immobile, too. In the 1950s, black Americans were twice as likely to be unemployed as whites. And today? Still twice as likely.

From heeding the call "Go west, young man" to loading up the U-Haul in search of a better job, the instinctive restlessness of America has always matched skills to work, people to opportunities, labor to capital.

Race gaps in wealth are perhaps the most striking of all. The average white household is now thirteen times wealthier than the average black one. This is the widest gap in a quarter of a century. The recession hit families of all races, but it resulted in a wealth wipeout for black families. In 2007, the average black family had a net worth of $19,200, almost entirely in housing stock, typically at the cheap, fragile end of the market. By 2010, this had fallen to $16,600. By 2013—by which point white wealth levels had started to recover—it was down to $11,000. In national economic terms, black wealth is now essentially nonexistent.

Half a century after the passing of the Civil Rights Act, the arc of history is no longer bending toward justice. A few years ago, it was reasonable to hope that changing attitudes, increasing education, and a growing economy would surely, if slowly, bring black America and white America closer together. No longer. America is stuck.

IV. The economy is also getting stuck.

Labor productivity growth, measured as growth in output per hour, has averaged 1.6 percent since 1973. Male earning power is flatlining. In 2014, the median full-time male wage was $50,000, down from $53,000 in 1973 (in the dollar equivalent of 2014). Capital is being hoarded rather than invested in the businesses of the future. U. S. corporations have almost $1.5 trillion sitting on their balance sheets, and many are busily buying up their own stock. But capital expenditure lags, hindering the economic recovery.

New-business creation and entrepreneurial activity are declining, too. As economist Robert Litan has shown, the proportion of "baby businesses" (firms less than a year old) has almost halved since the late 1970s, decreasing from 15 percent to 8 percent—the hallmark of "a steady, secular decline in business dynamism." It is significant that this downward trend set in long before the Great Recession hit. There is less movement between jobs as well, another symptom of declining economic vigor.

Americans are settling behind their desks—and also into their neighborhoods. The proportion of American adults moving house each year has decreased by almost half since the postwar years, to around 12 percent. Long-distance moves across state lines have as well. This is partly due to technological advances, which have weakened the link between location and job prospects, and partly to the growth of economic diversity in cities; there are few "one industry" towns today. But it is also due to a less vibrant housing market, slower rates of new business creation, and a lessening in Americans' appetite for disruption, change, and risk.

This geographic settling is at odds with historic American geographic mobility. From heeding the call "Go west, young man" to loading up the U-Haul in search of a better job, the instinctive restlessness of America has always matched skills to work, people to opportunities, labor to capital. Rather than waiting for help from the government, or for the economic tide to turn back in their favor, millions of Americans changed their life prospects by changing their address. Now they are more likely to stay put and wait. Others, especially black Americans, are unable to escape the poor neighborhoods of their childhood. They are, as the title of an influential book by sociologist Patrick Sharkey puts it, Stuck in Place.

There are everyday symptoms of stuckness, too. Take transport. In 2014, Americans collectively spent almost seven billion hours stuck motionless in traffic—that's a couple days each. The roads get more jammed every year. But money for infrastructure improvements is stuck in a failing road fund, and the railophobia of politicians hampers investment in public transport.

Whose job is it to do something about this? The most visible symptom of our disease is the glue slowly hardening in the machinery of national government. The last two Congresses have been the least productive in history by almost any measure chosen, just when we need them to be the most productive. The U. S. political system, with its strong separation among competing centers of power, relies on a spirit of cross-party compromise and trust in order to work. Good luck there.

V. So what is to be done?

As with anything, the first step is to admit the problem. Americans have to stop convincing themselves they live in a society of opportunity. It is a painful admission, of course, especially for the most successful. The most fervent believers in meritocracy are naturally those who have enjoyed success. It is hard to acknowledge the role of good fortune, including the lottery of birth, when describing your own path to greatness.

There is a general reckoning needed. In the golden years following World War II, the economy grew at 4 percent per annum and wages surged. Wealth accumulated. The federal government, at the zenith of its powers, built interstates and the welfare system, sent GIs to college and men to the moon. But here's the thing: Those days are gone, and they're not coming back. Opportunity and growth will no longer be delivered, almost automatically, by a buoyant and largely unchallenged economy. Now it will take work.

The future success of the American idea must now be intentional.

Entrepreneurial, mobile, aspirational: New Americans are true Americans. We need a lot more of them.

There are plenty of ideas for reform that simply require will and a functioning political system. At the heart of them is the determination to think big again and to vigorously engage in public investment. And we need to put money into future generations like our lives depended on it, because they do: Access to affordable, effective contraception dramatically cuts rates of unplanned pregnancy and gives kids a better start in life. Done well, pre-K education closes learning gaps and prepares children for school. More generous income benefits stabilize homes and help kids. Reading programs for new parents improve literacy levels. Strong school principals attract good teachers and raise standards. College coaches help get nontraditional students to and through college. And so on. We are not lacking ideas. We are lacking a necessary sense of political urgency. We are stuck.

But we can move again if we choose.

In addition to a rejuvenation of policy in all these fields, there are two big shifts required for an American twenty-first-century renaissance: becoming open to more immigration and shifting power from Washington to the cities.

VI. America needs another wave of immigration.

This is in part just basic math: We need more young workers to fund the old age of the baby boomers. But there is more to it than that. Immigrants also provide a shot in the arm to American vitality itself. Always have, always will. Immigrants are now twice as likely to start a new business as native-born Americans. Rates of entrepreneurialism are declining among natives but rising among immigrants.

Immigrant children show extraordinary upward-mobility rates, shooting up the income-distribution ladder like rockets, yet by the third or fourth generation, the rates go down, reflecting indigenous norms. Among children born in Los Angeles to poorly educated Chinese immigrants, for example, an astonishing 70 percent complete a four-year-college degree. As the work of my Brookings colleague William Frey shows, immigrants are migrants within the U. S., too, moving on from traditional immigrant cities—New York, Los Angeles—to other towns and cities in search of a better future. Entrepreneurial, mobile, aspirational: New Americans are true Americans. We need a lot more of them.

This makes a mockery of our contemporary political "debates" about immigration reform, which have become intertwined with race and racism. Some Republicans tap directly into white fears of an America growing steadily browner. More than four in ten white seniors say that a growing population of immigrants is a "change for the worse"; half of white boomers believe immigration is "a threat to traditional American customs and values." But immigration delves deeper into the question of American identity than it does even issues of race. Immigrants generate more dynamism and aspiration, but they are also unsettling and challenging. Where this debate ends will therefore tell us a great deal about the trajectory of the nation. An America that closes its doors will be an America that has chosen to settle rather than grow, that has allowed security to trump dynamism.

VII. The second big shift needed to get America unstuck is a revival of city and state governance.

Since the American Dream is part of the national identity, it seems natural to look to the national government to help make it a reality. But cities are now where the American Dream will live or die. America's hundred biggest metros are home to 67 percent of the nation's population and 75 percent of its economy. Americans love the iconography of the small town, even at the movies—but they watch those movies in big cities.

Powerful mayors in those cities have greater room for maneuvering and making an impact than the average U. S. senator. Even smaller cities and towns can be strongly influenced by their mayor.

There are choices to be made. Class divisions are hardening. Upward mobility has a very weak pulse. Race gaps are widening.

The new federalism in part is being born of necessity. National politics is in ruins, and national institutions are weakened by years of short-termism and partisanship. Power, finding a vacuum in D. C., is diffusive. But it may also be that many of the big domestic-policy challenges will be better answered at a subnational level, because that is where many of the levers of change are to be found: education, family planning, housing, desegregation, job creation, transport, and training. Amid the furor over Common Core and federal standards, it is important to remember that for every hundred dollars spent on education, just nine come from the federal government.

We may be witnessing the end of many decades of national-government dominance in domestic policy-making (the New Deal, Social Security, Medicare, welfare reform, Obamacare). The Affordable Care Act is important in itself, but it may also come to have a place in history as the legislative bookend to a long period of national-policy virtuosity.

The case for the new federalism need not be overstated. There will still be plenty of problems for the national government to fix, including, among the most urgent, infrastructure and nuclear waste. The main tools of macroeconomic policy will remain the Federal Reserve and the federal tax code. But the twentieth-century model of big federal social-policy reforms is in decline. Mayors and governors are starting to notice, and because they don't have the luxury of being stuck, they are forced to be entrepreneurs of a new politics simply to survive.

VIII. It is possible for America to recover its earlier dynamism, but it won't be easy.

The big question for Americans is: Do you really want to? Societies, like people, age. They might also settle down, lose some dynamism, trade a little less openness for a little more security, get a bit stuck in their ways. Many of the settled nations of old Europe have largely come to terms with their middle age. They are wary of immigration but enthusiastic about generous welfare systems and income redistribution. Less dynamism, maybe, but more security in exchange.

America, it seems to me, is not made to be a settled society. Such a notion runs counter to the story we tell ourselves about who we are. (That's right, we. We've all come from somewhere else, haven't we? I just got here a bit more recently.) But over time, our narratives become myths, insulating us from the truth. For we are surely stuck, if not settled. And so America needs to decide one way or the other. There are choices to be made. Class divisions are hardening. Upward mobility has a very weak pulse. Race gaps are widening. The worst of all worlds threatens: a European class structure without European welfare systems to dull the pain.

Americans tell themselves and the world that theirs is a society in which each and all can rise, an inspiring contrast to the hereditary cultures from which it sprang. It's one of the reasons I'm here. But have I arrived to raise my children here just in time to be stuck, too? Or will America be America again?

Editor's note: This piece originally appeared in Esquire.

       

We have received many emails and calls in response to our blog last week about our campaign finance reform “Solutions Summit," so we thought we would share some pictures and quotes from the event. Also, Issue One’s Nick Penniman and I just co-authored an op-ed highlighting the themes of the event, which you can find here.

Ann Ravel, Commissioner of the Federal Election Commission and the outgoing Chairwoman kicked us off as our luncheon speaker. She noted that, “campaign finance issues [will] only be addressed when there is a scandal. The truth is, that campaign finance today is a scandal.”

    

(L-R, Ann Ravel, Trevor Potter, Peter Schweizer, Timothy Roemer)

Commenting on Ann’s remarks from a conservative perspective, Peter Schweizer, the President of the Government Accountability Institute, noted that, “increasingly today the problem is more one of extortion, that the challenge not so much from businesses that are trying to influence politicians, although that certainly happens, but that businesses feel and are targeted by politicians in the search for cash.” That’s Trevor Potter, who introduced Ann, to Peter’s left.

Kicking off the first panel, a deep dive into the elements of the campaign finance crisis, was Tim Roemer, former Ambassador to India (2009-2011), Member of the U.S. House of Representatives, (D-IN, 1991-2003) Member of the 9/11 Commission and Senior Strategic Advisor to Issue One. He explained that “This is not a red state problem. It’s not a blue state problem. Across the heartland, across America, the Left, the Right, the Democrats, the Republicans, Independents, we all need to work together to fix this.”

(L-R, Fred Wertheimer, John Bonifaz, Dan Wolf, Roger Katz, Allen Loughry, Cheri Beasley, Norman Eisen)

Our second panel addressed solutions at the federal and state level.  Here, Fred Wertheimer, the founder and President of Democracy 21 is saying that, “We are going to have major scandals again and we are going to have opportunities for major reforms. With this corrupt campaign finance system it is only a matter of time before the scandals really break out. The American people are clearly ready for a change. The largest national reform movement in decades now exists and it’s growing rapidly.”

Our third and final panel explained why the time for reform is now. John Sarbanes, Member of the U.S. House of Representatives (D-MD) argued that fixes are in political reach. He explains, “If we can build on the way people feel about [what] they’re passionate on and lead them that way to this need for reform, then we’re going to build the kind of broad, deep coalition that will achieve success ultimately.”

 

(L-R in each photo, John Sarbanes, Claudine Schneider, Zephyr Teachout)

Reinforcing John’s remarks, Claudine Schneider, Member of the U.S. House of Representatives (R-RI, 1981-1991) pointed out that “we need to keep pounding the media with letters to the editor, with editorial press conferences, with broad spectrum of media strategies where we can get the attention of the masses. Because once the masses rise up, I believe that’s when were really going to get the change, from the bottom up and the top down.”

Grace Abiera contributed to this post.

       

Policy Brief #185

The unprecedented surge in incarceration since 1980 has stimulated a national debate between those who claim that locking up over 2 million people is necessitated by public safety concerns, and those who say the human and financial burden of imprisoning so many of our citizens is intolerable.

But framing the incarceration debate as a tradeoff between public safety and public finance is far too narrow. The best evidence suggests the prison population would be substantially reduced with negligible effects on crime rates. Crime could actually be reduced if the savings were put to use in strengthening other criminal justice programs and implementing other reforms. Making this case requires that we confront widespread skepticism about the possibility of reducing criminal behavior on the outside.

The research community has made real progress in identifying the causal effect of various crime-related policies in recent years, providing us with proven alternatives to prison for controlling crime. The key has been to make greater use of experimental methods of the sort that are common in medicine, as well as "natural experiments" that arise from naturally occurring policy or demographic shifts.

	RECOMMENDATIONS
	The resources currently dedicated to supporting long prison sentences should be reallocated to produce swifter, surer, but more moderate punishment. This approach includes hiring more police officers -we know now that chiefs using modern management techniques can make effective use of them.   Increased alcohol excise taxes reduce not only alcohol abuse but also the associated crime at very little cost to anyone except the heaviest drinkers. Federal and state levies should be raised.   Crime patterns and crime control are as much the result of private actions as public. The productivity of private-security efforts and private cooperation with law enforcement should be encouraged through government regulation and other incentives.   While convicts typically lack work experience and skills, it has proven very difficult to increase the quality and quantity of their licit employment through job creation and traditional training, either before or after they become involved with criminal activity. More effective rehabilitation (and prevention) programs seek to develop non-academic ("social-cognitive") skills like self-control, planning, and empathy.   Adding an element of coercion to social policy can also help reduce crime, including threatening probationers with swift, certain and mild punishments for illegal drug use, and compulsory schooling laws that force people to stay in school longer.

The unprecedented surge in incarceration since 1980 has stimulated a national debate between those who claim that locking up over 2 million people is necessitated by public safety concerns, and those who say the human and financial burden of imprisoning so many of our citizens is intolerable. This debate played itself out vividly in the U.S. Supreme Court's May 2011 decision (Brown v. Plata) requiring California to dramatically scale back the size of its prison population. The majority's decision written by Justice Anthony Kennedy focused on inhumane conditions in California's prisons. In dissent, Justice Antonin Scalia emphasized the "terrible things [that were] sure to happen as a consequence of this outrageous order," while Justice Samuel Alito argued the majority was "gambling with the safety of the people of California." These dissenting opinions will sound familiar to states considering cutbacks in incarceration to balance dwindling state budgets.

However, framing the incarceration debate as a tradeoff between public safety and public finance is far too narrow. Prison is not the only option we have for controlling crime. But making the case for alternative approaches has historically been an uphill battle. What noted crime expert and UCLA professor Mark Kleiman calls the "brute force" strategy of locking up lots of people in prison has an obvious logic to it. The perception that "prison works" is reinforced by today's crime rates, now at a 50-year low.

In contrast, there is an abiding skepticism about the effectiveness of other efforts to change criminal behavior on the outside. One reason for this skepticism is the difficulty of distinguishing cause from effect in crime data. For decades, criminologists have maintained that one obvious alternative to prison - putting more police on the streets to help deter crime - doesn't work, because the numbers suggest a positive association between the crime rate and the number of police. (This is analogous to the association between the large numbers of physicians in areas with high concentrations of sick people, such as hospitals.)

Confidence in rehabilitation through social programs also is low, because recidivism rates are so high, even among inmates who participate in re-entry programs. In a recent interview, for example, the Los Angeles District Attorney told Time that, with respect to rehabilitation for gang-involved inmates, "we predict with some degree of confidence . . . it will fail in many, many, many cases."

Fortunately, in recent years researchers have made real progress in identifying the impact of various crime-related policies. The key has been to make greater use of experimental methods of the sort common in medicine, as well as "natural experiments" that arise from naturally occurring policy or demographic shifts.

The over-riding conclusion of the best new research is that there is "money on the table"; we can reduce the financial and human costs of crime without stimulating resurgence in crime rates.

Prisons and crime

Much of the reluctance to reduce the prison population reflects a belief that the extraordinary reduction in crime that occurred in the 1990s was caused by a surge in imprisonment. But even a casual look at the actual statistics challenges the view that prison trends get all or most of the credit for the crime drop.

Looking at three periods from recent history, we see that the crime drop of the 1990s did coincide with a large increase in the prison population. But the large crime increase during the prior period was also associated with a jump in imprisonment - and so was the relatively static crime pattern since 2000. If the prison surge of the 1990s gets credit for the crime drop, then fairness requires that the prison surge of the 1980s gets the blame for the crime increase of that period, while the prison increase of the 2000s was largely irrelevant. This type of armchair analysis supports almost any conclusion.

PERCENTAGE CHANGE
	Prisoners/cap	Robbery rate
1984-1991	+66	+33
1991-2000	+42	-47   (the crime drop)
2000-2008	+10	0

Studies suggest that increased use of imprisonment indeed should receive part of the credit for the crime drop of the 1990s, in the sense that crime was lower than it would have been had we taken all the funds devoted to prison increases and spent it for purposes other than crime control. But is that the right counterfactual? If the vast increase in prison expenditures came at the expense of alternative crime-control efforts that might be even more effective, then the net effect of the imprisonment boom is not so clear, even qualitatively.

Alternatives to prison

Prison alternatives can be organized into two large and somewhat overlapping bins of crime-control activities, which we label "changing individual propensities towards crime" and "changing the offending environment." Under each heading, we identify particularly promising programs, based on recent assessments of costs and benefits. We conclude with rough calculations that highlight the potential magnitude of the inefficiency within our current policy approach - that is, how much extra crime-prevention could be achieved by simply reallocating resources from less-efficient to more-efficient uses.

Changing individual propensities towards crime

1. The difficulties of changing poverty and adverse mental health: While a large body of criminological and psychological theory has emphasized the role of economic disadvantage and mental health problems in contributing to criminal behavior, empirical evidence suggests that job training and mental health courts are not the most cost-effective ways to control crime - not because these disadvantages don't matter, but because they are so difficult to modify in practice.
    
2. Coercive social policy: The average high school graduation rate in the America's 50 biggest urban school systems is about 53 percent. One of the few levers available to policymakers to ensure youth stay in school is to raise the compulsory schooling age - although it is natural to wonder what good schooling will do for youth who are being forced to go against their will. It is thus striking that we have strong quasi-experimental evidence from both the United States and Great Britain that cohorts exposed to an increased compulsory schooling age have reduced crime involvement. That benefit augments the usual list of benefits associated with more schooling, and it complements the benefits of early childhood interventions like Perry Preschool (a two-year preschool program for disadvantaged 3- and 4-year-olds) and Head Start (the large-scale federal preschool program).
    
3. Social-cognitive skill interventions: Most of the economics-of-crime literature has focused on ways of reducing crime by changing the incentives that confront potential offenders, with very little attention devoted to helping people respond to the incentives they already face. A growing body of evidence shows that social-cognitive skills - for example, impulse control, inter-personal skills and future orientation - influence people's response to incentives and predict criminal involvement, schooling and employment participation.

Moreover, intervention research also suggests that targeted efforts to improve the social-cognitive skills of young people at risk and to modify the social systems that may contribute to or reinforce delinquency can reduce crime. The benefits of such efforts can far exceed their costs.

Changing the offending environment

1. Swiftness and certainty, not severity, of punishment: Much of the increase in America's prison population since the 1970s comes from an increase in average sentence lengths. Yet new data from the randomized Hawaii Opportunity Probation with Enforcement (HOPE) experiment found that frequent drug testing, followed immediately by a very short jail stay for dirty urine, substantially reduced drug use and criminality among probationers. Studies of the federal government's Community Oriented Policing Services (COPS) police hiring grants provides further empirical support for the growing suspicion that swiftness and certainty of punishment may actually be most important for controlling crime. The notion that crime is reduced by simply putting more police on the streets without changing what they do, and that deterrence (rather than simply incapacitation) may be an important mechanism behind this result, also overturns the conventional wisdom that prevails in many criminology circles.
    
2. Demand curves for criminogenic goods are negatively sloped: The federal and state excise taxes on beer and liquor have declined markedly (in real terms) since World War II. These rates are considerably below the marginal external social cost, even if effects on crime are not considered. Many people outside the economics profession are skeptical that modest changes in the price of alcohol can do much to change use, given the social context in which drinking so frequently occurs; the possibility that many of highest-risk alcohol users have some level of dependency; and how little attention so many people pay to a 5, 10 or even 20 percent change in prices. Yet the empirical evidence that raising taxes and prices would reduce some types of crime is very strong.
    
3. Private co-production: Most of the research on crime control strategies focuses on the role played by government and non-profit interventions. But private citizens and businesses account for a surprisingly large share of resources devoted to preventing crime. State and local governments can help reduce crime indirectly by encouraging private actions that make law enforcement more productive. Two examples for which benefits exceed costs by an order of magnitude are building the police-tracking infrastructure for Lojack, and creating the legal framework for Business Improvement Districts (where local businesses are subject to tax payments that go in part toward making the neighborhood clean and safe).

It bears repeating that the goal is not to identify the "best" alternative to prison, but rather the best portfolio of options.

What the status quo costs us

Our review of the best available social science suggests that America's current approach to crime control is woefully inefficient. Much greater crime control could be achieved at lower human and financial cost. To illustrate the potential gains from improving the efficiency of the current system, consider the following hypothetical policy experiment.

Imagine that we changed sentencing policies and practices in the United States so that the average length of a prison sentence reverted to what it was in 1984 - i.e., midway through the Reagan administration. This policy change would reduce our current prison population by around 400,000 and total prison spending (currently $70 billion annually) by about $12 billion per year.

What would we give up by reducing average sentence lengths back to 1984 levels? In terms of crime control: not all that much. Assume that society "breaks even" on the $12 billion we spend per year to have average sentence lengths at 2009 rather than 1984 (so that the benefits to society are just worth $12 billion), although more pessimistic assumptions are also warranted.

What could we do instead with our newly acquired $12 billion? One possibility would be to put more police on the streets. Currently, the United States spends around $100 billion per year on police protection, so this hypothetical policy switch would increase the nation's police budget by 12 percent, enabling deployment of as many as 100,000 more police officers. The estimated elasticity of crime with respect to police is far larger (in absolute value) than even the most optimistic assessment of what the elasticity of crime would be with respect to increased sentence lengths. This resource reallocation would lead to a decline of hundreds of thousands of violent and property crime victimizations each year.

A different way to think about the potential size of this efficiency gain is to note that the benefit-cost ratio for increased spending on police may be on the order of 4:1. If the benefit-cost ratio for marginal spending on long prison sentences is no more than 1:1, then reducing average sentence lengths to 1984 levels in order to increase spending on police could generate net benefits to society on the order of $36 billion to $90 billion per year.

Suppose instead that we devote the resources from a $12 billion cut in prison spending to supporting high-quality preschool programs. This would enable a large increase in federal spending on preschool services - for example, $12 billion would represent a 150 percent increase in the annual budget for Head Start (currently around $8 billion per year). Currently Head Start can enroll only around half of eligible 3 and 4-year-olds, and provides early childhood education services that are far less intensive than successful, widely-cited model programs like the Perry Preschool and Abecedarian. Head Start children participate in the program for shorter periods (usually one year, versus two to five years for the others), and the educational attainment of Head Start teachers is lower.

A 150 percent increase in Head Start's budget could dramatically expand the program on both the extensive and intensive margins. Given available data, the benefit-cost ratio of this expenditure would fall in the range of 2:1 to 6:1 - that is, from two to six dollars in long-term benefit for every dollar spent. Reallocating resources from long prison sentences to early childhood education might generate from $12 billion to $60 billion in net benefits to society.

If crime reduction is a key goal, we might do better still by focusing on human capital investments in the highest-risk subset of the population - through efforts to address social-cognitive skill deficits of young people already involved in the criminal justice system. Marvin Wolfgang's seminal cohort studies found that only a small fraction of each cohort commits the bulk of all crime. While early intervention programs target children during the time of life in which they are most developmentally "plastic," interventions with adolescents and young adults can be more tightly targeted on those whose arrest histories suggest they are likely to end up as serious offenders. Another benefit of targeting criminally active teens and adults is an immediate crime reduction payoff.

What sort of social-cognitive skill development could we provide to high-risk young people with $12 billion per year?

With around $1 billion, we could provide functional family therapy (FFT) to each of the roughly 300,000 youths on juvenile probation. E.K. Drake and colleagues estimate that FFT costs something less than $2,500 per youth, with a benefit-cost ratio that may be as high as 25:1 from crime reduction alone.

With the remaining $11 billion we could provide multi-systemic therapy (MST) to almost every arrestee age 19 and under. The cost of MST is around $4,500 per year, with a benefit-cost ratio of around 5:1.

Estimates such as these indicate that diverting $12 billion from long prison sentences to addressing social-cognitive skill deficits among high-risk youth could generate net social benefits on the order of $70 billion per year. Even if FFT and MST, when implemented at large scale, are only half as effective as previous experiments suggest, this resource switch would still generate substantial societal benefits.

The preceding calculations are intended to be illustrative rather than comprehensive benefit-cost analyses, and, clearly, they are subject to a great deal of uncertainty. Nevertheless, they strongly suggest the enormous efficiency gains that could result from reallocating resources from prisons to other uses that will, among other beneficial outcomes, reduce crime.

A key challenge we currently face is that our government systems are not well suited to converting the fifth year of a convicted drug dealer's prison term into an extra year or two of Head Start for a poor child. Government agency heads have strong incentives to maximize the budgets of their agencies, and pour any resources that are freed-up from eliminating ineffective program activities back into their own agencies. This is the intrinsic difficulty of rationalizing policies across domains, agencies, and levels of government. If we could solve this problem - and orient the policy system to up-weight evidence from design-driven research - then in our quest for effective crime control, it appears possible that we could have more for less.

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Many proposals to accelerate and improve medical product innovation and regulation focus on reforming the product development and regulatory review processes that occur before drugs and devices get to market. While important, such proposals alone do not fully recognize the broader opportunities that exist to learn more about the safety and effectiveness of drugs and devices after approval. As drugs and devices begin to be used in larger and more diverse populations and in more personalized clinical combinations, evidence from real-world use during routine patient care is increasingly important for accelerating innovation and improving regulation.

First, further evidence development from medical product use in large populations can allow providers to better target and treat individuals, precisely matching the right drug or device to the right patients. As genomic sequencing and other diagnostic technologies continue to improve, postmarket evidence development is critical to assessing the full range of genomic subtypes, comorbidities, patient characteristics and preferences, and other factors that may significantly affect the safety and effectiveness of drugs and devices. This information is often not available or population sizes are inadequate to characterize such subgroup differences in premarket randomized controlled trials.

Second, improved processes for generating postmarket data on medical products are necessary for fully realizing the intended effect of premarket reforms that expedite regulatory approval. The absence of a reliable postmarket system to follow up on potential safety or effectiveness issues means that potential signals or concerns must instead be addressed through additional premarket studies or through one-off postmarket evaluations that are more costly, slower, and likely to be less definitive than would be possible through a better-established infrastructure. As a result, the absence of better systems for generating postmarket evidence creates a barrier to more extensive use of premarket reforms to promote innovation.

These issues can be addressed through initiatives that combine targeted premarket reforms with postmarket steps to enhance innovation and improve evidence on safety and effectiveness throughout the life cycle of a drug or device. The ability to routinely capture clinically relevant electronic health data within our health care ecosystem is improving, increasingly allowing electronic health records, payer claims data, patient-reported data, and other relevant data to be leveraged for further research and innovation in care. Recent legislative proposals released by the House of Representatives’ 21st Century Cures effort acknowledge and seek to build on this progress in order to improve medical product research, development, and use. The initial Cures discussion draft included provisions for better, more systematic reporting of and access to clinical trials data; for increased access to Medicare claims data for research; and for FDA to promulgate guidance on the sources, analysis, and potential use of so-called Real World Evidence. These are potentially useful proposals that could contribute valuable data and methods to advancing the development of better treatments.

What remains a gap in the Cures proposals, however, is a more systematic approach to improving the availability of postmarket evidence. Such a systematic approach is possible now. Biomedical researchers and health care plans and providers are doing more to collect and analyze clinical and outcomes data. Multiple independent efforts – including the U.S. Food and Drug Administration’s Sentinel Initiative for active postmarket drug safety surveillance, the Patient-Centered Outcomes Research Institute’s PCORnet for clinical effectiveness studies, the Medical Device Epidemiology Network (MDEpiNet) for developing better methods and medical device registries for medical device surveillance and a number of dedicated, product-specific outcomes registries – have demonstrated the potential for large-scale, systematic postmarket data collection. Building on these efforts could provide unprecedented evidence on how medical products perform in the real-world and on the course of underlying diseases that they are designed to treat, while still protecting patient privacy and confidentiality.

These and other postmarket data systems now hold the potential to contribute to public-private collaboration for improved population-based evidence on medical products on a wider scale. Action in the Cures initiative to unlock this potential will enable the legislation to achieve its intended effect of promoting quicker, more efficient development of effective, personalized treatments and cures.

What follows is a set of both short- and long-term proposals that would bolster the current systems for postmarket evidence development, create new mechanisms for generating postmarket data, and enable individual initiatives on evidence development to work together as part of a broad push toward a truly learning health care system.

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INTRODUCTION

In August, 2010 the government of Kenya adopted a new constitution. This followed a referendum in which an overwhelming majority of Kenyans voted for change. The decisive impetus for reform came from the widespread violence and political crisis that followed the 2007 election. While claims of electoral fraud provided the immediate catalyst for violence, the deeper causes were to be found in the interaction of a highly centralized ‘winner-take-all’ political system with deep social disparities based in part on group identity (Hanson 2008).

Provisions for equity figure prominently in the new constitution. Backed by a bill of rights that opens the door to legal enforcement, citizenship rights have been strengthened in many areas,including access to basic services. ‘Equitable sharing’ has been introduced as a guiding principle for public spending. National and devolved governments are now constitutionally required to redress social disparities, target disadvantaged areas and provide affirmative action for marginalized groups.

Translating these provisions into tangible outcomes will not be straightforward. Equity is a principle that would be readily endorsed by most policymakers in Kenya and Kenya’s citizens have provided their own endorsement through the referendum. However, there is an ongoing debate over what the commitment to equity means in practice, as well as over the pace and direction of reform. Much of that debate has centered on the constitutional injunction requiring ‘equitable sharing’ in public spending.

On most measures of human development, Kenya registers average outcomes considerably above those for sub-Saharan Africa as a region. Yet the national average masks extreme disparities—and the benefits of increased prosperity have been unequally shared.

There are compelling grounds for a strengthened focus on equity in Kenya. In recent years, the country has maintained a respectable, if less than spectacular, record on economic growth. Social indicators are also on an upward trend. On most measures of human development, Kenya registers average outcomes considerably above those for sub-Saharan Africa as a region. Yet the national average masks extreme disparities—and the benefits of increased prosperity have been unequally shared. Some regions and social groups face levels of deprivation that rank alongside the worst in Africa. Moreover, the deep fault lines running through society are widely perceived as a source of injustice and potential political instability.

High levels of inequality in Kenya raise wider concerns. There has been a tendency in domestic debates to see ‘equitable sharing’ as a guiding principle for social justice, rather than as a condition for accelerated growth and enhanced economic efficiency. Yet international evidence strongly suggests that extreme inequality—especially in opportunities for education— is profoundly damaging for economic growth. It follows that redistributive public spending has the potential to support growth.

The current paper focuses on a group of 12 counties located in Kenya’s Arid and Semi-Arid Lands (ASALs). They are among the most disadvantaged in the country. Most are characterized by high levels of income poverty, chronic food insecurity and acute deprivation across a wide range of social indicators.

Nowhere is the deprivation starker than in education. The ASAL counties account for a disproportionately large share of Kenya’s out-of-school children, pointing to problems in access and school retention. Gender disparities in education are among the widest in the country. Learning outcomes for the small number of children who get through primary school are for the most part abysmal, even by the generally low national average standards.

Unequal public spending patterns have played no small part in creating the disparities that separate the ASAL counties from the rest of Kenya—and ‘equitable sharing’ could play a role in closing the gap. But what would a more equitable approach to public spending look like in practice?

This paper addresses that question. It looks in some detail at education for two reasons. First, good quality education is itself a powerful motor of enhanced equity. It has the potential to equip children and youth with the skills and competencies that they need to break out of cycles of poverty and to participate more fully in national prosperity. If Kenya is to embark on a more equitable pattern of development, there are strong grounds for prioritizing the creation of more equal opportunities in education. Second, the education sector illustrates many of the wider challenges and debates that Kenya’s policymakers will have to address as they seek to translate constitutional provisions into public spending strategies. In particular, it highlights the importance of weighting for indicators that reflect need in designing formulae for budget allocations.

Our broad conclusion is that, while Kenya clearly needs to avoid public spending reforms that jeopardize service delivery in wealthier counties, redistributive measures are justified on the grounds of efficiency and equity.

The paper is organized as follows. Part 1 provides an overview of the approach to equity enshrined in the constitution. While the spirit of the constitution is unequivocal, the letter is open to a vast array of interpretations. We briefly explore the implications of a range of approaches. Our broad conclusion is that, while Kenya clearly needs to avoid public spending reforms that jeopardize service delivery in wealthier counties, redistributive measures are justified on the grounds of efficiency and equity. Although this paper focuses principally on basic services, we caution against approaches that treat equity as a matter of social sector financing to the exclusion of growth-oriented productive investment.

Part 2 provides an analysis of some key indicators on poverty, health and nutrition. Drawing on household expenditure data, the report locates the 12 ASAL counties in the national league table for the incidence and depth of poverty. Data on health outcomes and access to basic services provide another indicator of the state of human development. While there are some marked variations across counties and indicators, most of the 12 counties register levels of deprivation in poverty and basic health far in excess of those found in other areas.

Part 3 shifts the focus to education. Over the past decade, Kenya has made considerable progress in improving access to basic education. Enrollment rates in primary education have increased sharply since the elimination of school fees in 2003. Transition rates to secondary school are also rising. The record on learning achievement is less impressive. While Kenya lacks a comprehensive national learning assessment, survey evidence points to systemic problems in education quality. In both access and learning, children in the ASAL counties—especially female children—are at a considerable disadvantage. After setting out the national picture, the paper explores the distinctive problems facing these counties.

In Part 4 we look beyond Kenya to wider international experience. Many countries have grappled with the challenge of reducing disparities between less-favored and more-favored regions. There are no blueprints on offer. However, there are some useful lessons and guidelines that may be of some relevance to the policy debate in Kenya. The experience of South Africa may be particularly instructive given the weight attached to equity in the post-apartheid constitution.

Part 5 of the paper explores a range of approaches to financial allocations. Converting constitutional principle into operational practice will require the development of formulae-based approaches. From an equitable financing perspective there is no perfect model. Any formula that is adopted will involve trade-offs between different goals. Policymakers have to determine what weight to attach to different dimensions of equity (for example, gender, income, education and health), the time frame for achieving stated policy goals, and whether to frame targets in terms of outcomes or inputs. These questions go beyond devolved financing. The Kenyan constitution is unequivocal in stipulating that the ‘equitable sharing’ provision applies to all public spending. We therefore undertake a series of formula-based exercises illustrating the allocation patterns that would emerge under different formulae, with specific reference to the 12 ASAL focus counties and to education.

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Jonathan Rauch describes the concept of honest graft in Washington politics and policymaking. Politics needs good leaders, but it needs good followers even more, and they don’t come cheap. Loyalty gets you only so far, and ideology is divisive. Political machines need to exist, and they need to work.

       

       

       

       

       

       

       

       

       

       

       

       

       

       

Baltimore provides a prime example of how metropolitan areas around the nation are turning to clean, green industries as a source of vibrant, sustainable growth. Expert Jennifer Vey outlines how such communities can identify their assets and capitalize on them to revitalize their economies.

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• Baltimore as a Case Study in Metro Economic Recovery

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The Centers for Medicare and Medicaid Services (CMS) recently released more detailed ACO-level data for participants in first two years of the Pioneer ACO Model. The program, which is designed for health systems with more experience assuming financial risk for patient populations, has generated savings and improvements in quality measures, but has also struggled to retain participants. The program began with 32 provider organizations; following a series of recent announcements there are now 19 total participants.

Last month, CMS announced that the Pioneer Program was able to yield total program savings of $96 million in its second year and resulted in ACOs sharing in savings of $68 million. CMS also reported that the Pioneers were able to improve mean quality scores by 19 percent and increased performance on 28 of 33 measures between performance year one and performance year two.

Financial Results

The latest financial results provide more participant-level data and allow for a new level of analysis of performance across all these ACOs. In year one of the program, financial performance for individual Pioneers ranged from a gross loss of $9.31 million to a gross savings of $23.34 million. Thirteen Pioneers reduced costs enough to qualify for shared savings, with an average of $5.85 million returned to the ACOs, ranging from $1.00 million to $14.00 million. One ACO owed shared losses of $2.55 million. The remaining eighteen ACOs were within the minimum savings or loss rate and did not earn shared savings or owe money to Medicare due to losses.

Following year one, nine Pioneer ACOs either left the Medicare ACO program entirely, or moved to the lower risk Medicare Shared Savings Program (MSSP). Eight of the nine Pioneers that left the program failed to reduce spending in their first year. Out of the remaining 23 participants in the second performance year, three of these ACOs opted to defer reconciliation until the end of Performance Year 3. The 20 Pioneers with final Performance Year 2 data had financial performance ranging from a gross savings of $24.59 million to gross losses of $6.26 million. Fourteen ACOs reduced spending in Performance Year 2, eleven of which reduced enough to qualify for shared savings. The average shared savings for these ACOs was $6.55 million, ranging from $1.22 million to $13.41 million. Three Pioneers shared losses, averaging $2.33 million back to the Medicare program.

The table below shows the breakdown of ACOs according to whether they reduced spending, increased spending, shared in savings, or owed money back to Medicare due to losses. More than half of the Pioneers were able to reduce spending in year one (18/32) and year two (14/23), with more than one-third of total ACOs earning shared savings in each year as well.

The data also suggest that those ACOs that were most successful in reducing spending in the first year were also more likely to reduce spending in their second year. As the chart below shows, three ACOs that earned shared savings in year one owed money back to Medicare due to losses in year two, while no ACO that had shared losses in year one was able to attain shared savings in year two.  

Quality Results

CMS also released ACO-level performance on all 33 measures for Pioneer participants in year one and year two. The 23 ACOs that remain in the Pioneer Program showed overall improvement in average quality scores from the first to second performance year. The ACOs also improved overall on 28 of 33 measures, as the chart below shows.

The quality domain with the greatest improvement in year two was Domain 4 (At Risk-Populations) which saw an overall improvement from 67.5% to 83%. The marked improvement in this domain suggests that ACOs are making progress at better coordinating and delivery care for high-risk patients, many of whom have multiple chronic conditions. Chronic care management for conditions such as diabetes, coronary artery disease, and hypertension is critical for the continued success of accountable care efforts. All other domains saw average quality improvement as well, summarized below.

Likewise, almost all of the individual Pioneer ACOs improved their performance on quality measures from year one to year two. Of the ACOs that remained in the program for year two, all but one ACO was able to improve its overall quality score in its second year.

Additionally, the percentage of Pioneer ACOs performing in the 80^th or 90^th percentile in quality scores also increased from year one to year two, as shown in the chart below.

Putting Together Financial and Quality Results

In year one of the Pioneer Program there appeared to be no direct correlation between average quality scores and gross savings or losses for individual ACOs. This may not be unexpected, especially since Pioneer ACOs in their first year are eligible for shared savings simply by reporting their quality. In subsequent years, however, the ACO’s quality score impacts the level of shared savings that the Pioneers are eligible to receive, so we might expect a bit more alignment between quality and financial performance. Average quality scores and level of savings or losses for each of the 32 first year Pioneer ACOs is below.

After year two, there still does not appear to be a direct relationship between higher quality scores and level of savings or losses in the Pioneer Program. Further examination of results begs additional questions about why certain ACOs clustered in different parts of the grid relative to others.

Of those ACOs in the red circle above— higher total savings and relatively average quality scores—two of the ACOs are from the Boston area and the remaining ones from other large metropolitan areas (New York City; Orange County, CA; Phoenix, AZ; and Detroit, MI). The average per capita Medicare spending for the counties corresponding to these ACOs is $11,544, compared to an average of $10,384 for counties corresponding to all 23 of the Pioneer participants.

Meanwhile those ACOs within the yellow circle had the highest quality scores, but also experience financial losses or slight savings. Many of these ACOs are from less densely populated areas, such as Maine, Wisconsin, and Illinois. There are a number of factors that could be contributing to their quality success, but little financial savings—healthier patient populations, a smaller or more engaged patient population, financial baselines impacted by lower per capita spending in these areas, or other factors driven by their region. Further analysis of these ACOs and the other public and private ACO programs, including both their characteristics and regional market characteristics, will provide needed further insights on the factors most likely to drive success.

Next Steps

These ACO-level data reflect the range of experiences across Pioneer participants. Some ACOs have sustained positive performance to date, while others have seen diminishing rates of return. Those organizations more committed to clinical transformation, patient outreach, and organizational change may be more likely to do better, but further analysis of differences in performance could enable the Pioneer Program and ACOs to achieve bigger impacts over time.

It is hard to know what the third performance year of the Pioneer program will show, but as noted earlier, the Pioneer Program has already lost over a third of its original 32 participants. Despite the decline in participation and mixed results so far, CMS remains optimistic and committed to the program, and the overall number of Medicare, Medicaid, and privately-insured individuals in ACO arrangements continues to rise. We can anticipate a proposed rule impacting the MSSP, likely later this Fall, which will impact elements of the Pioneer ACO program. Regulatory changes that may help increase the ability of the Medicare ACO programs to support better care while ensuring sustainability include: adjustments to attribution methods, benchmark calculations, collection and sharing of data with ACOs, updating performance measures, linking to other ongoing payment and delivery reforms, and creating more financial sustainability for program participants. The current Pioneer program can be a key step toward effective payment reform, but further steps are needed to assure long-term success.

       

       

       

       

       

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In a new paper, William Galston and Elaine Kamarck argue that the laws and rules that shape corporate and investor behavior today must be changed. They argue that Wall Street today is trapped in an incentive system that results in delivering quarterly profits and earnings at the expense of long-term investment.

As Galston and Kamarck see it, there’s nothing wrong with paying investors handsome returns, and a vibrant stock market is something to strive for. But when the very few can move stock prices in the short term and simultaneously reap handsome rewards for themselves, not their companies, and when this cycle becomes standard operating procedure, crowding out investments that boost productivity and wage increases that boost consumption, the long-term consequences for the economy are debilitating.

Galston and Kamarck argue that a set of incentives has evolved that favors short-term gains over long-term growth. These damaging incentives include:

• The proliferation of stock buybacks and dividends
• The increase in non-cash compensation
• The fixation on quarterly earnings
• The rise of activist Investors

These micro-incentives are so powerful that once they became pervasive in the private sector, they have broad effects, Galston and Kamarck write. Taken together, they have contributed significantly to economy-wide problems such as: (1) Rising inequality, (2) A shrinking middle class, (3) An increasing wedge between productivity & compensation, (4) Less business investment, and (5) Excessive financialization of the U.S. economy.

So what should be done? Galston and Kamarck propose reining in both share repurchases and the use of stock awards and options to compensate managers as well as refocusing corporate reporting on the long term. To this end, these scholars recommend the following policy steps:

• Repeal SEC Rule 10-B-18 and the 25% exemption
• Improve corporate disclosure practices
• Strengthen sustainability standards in 10-K reporting
• Toughen executive compensation rules
• Reform the taxation of executive compensation

Galston and Kamarck state that the American economy would work better if public corporations behaved more like private and family-held firms—if they made long-term investments, retained and trained their workers, grew organically, and offered reasonable but not excessive compensation to their top managers, based on long-term performance rather than quarterly earnings. To make these significant changes happen, the incentives that shape the decisions of CEOs and board of directors must be restructured. Reining in stock buybacks, reducing short-term equity gains from compensation packages, and shifting managers’ focus toward long-term objectives, Galston and Kamarck argue, will help address the most significant challenges facing America’s workers and corporations.  

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Editor's Note: This blog originally appeared on AARP's Thinking Policy blog

Automatic enrollment for retirement saving is both effective and popular among all income, gender and ethnic groups. It has increased participation, helped people to both start saving earlier and to make appropriate investment choices.This mechanism would be even more useful, especially for younger workers and those with low-to-moderate incomes if retirement savings plans also allowed employees to save for unexpected expenses. Recent research by the US Financial Diaries Project, which looks at the actual income flows of low-to-moderate income consumers shows why this feature would be valuable.

Their studies found that low-to-moderate income households are saving for near-term small emergencies. However, those situations happen so often that they prevent households from building up higher savings for larger emergencies. A split auto enrollment plan would help them to have money for those bigger problems.

One way to structure such a plan would be to automatically enroll an employee into a saving program where part of the contributions would go to a regular 401k-style retirement saving account and the rest into a passbook savings account at a federally insured bank or credit union. The emergency savings could be a percentage of the total contribution or based on income levels, such as a percentage of contributions on the first $20,000 of annual income. Auto escalation would apply only to the retirement contributions.

Some will correctly argue that the split reduces potential retirement savings, but it also potentially reduces leakage from those accounts. When an unexpected expense arises, workers will have other savings that they can use instead of dipping into their retirement accounts.

As with all automatic enrollment plans, the saver would have complete control, and could choose to save more or less, change where the savings go, or even to not participate at all. If the employee already has a passbook account, he or she could either direct all contributions to the retirement account or send the passbook money to the existing account instead of a new one.

Savers would receive whatever tax benefit their plan type offers for retirement contributions, but they would not receive any additional tax advantages for the passbook balances. They could withdraw money from the passbook account at any time without any penalty. And those balances would earn whatever interest rate the bank or credit union is paying on passbook accounts.

Because the passbook account feature is under the legal framework of a retirement plan, it would be appropriate that no more than half of the total contribution would go into general savings. In addition, a plan should be required to set its base contribution rate at 6 percent of income before it could offer such a feature. The passbook savings are intended to supplement retirement contributions, and not to replace them. And if the employer matches savings, that amount would go into the retirement account.

This type of split is possibly legal already, but there are technical issues that need to be considered. The 2006 Pension Protection Act eliminated any state legal barriers for automatic enrollment into a retirement account. It may be that federal regulators could interpret that provision as applying also to passbook amounts as the split savings is a feature of the retirement plan. If not, then legislative action would be needed. Certain provisions of the PATRIOT Act may also need to be revised.

And to encourage employers to offer such an account, regulatory burdens should be kept to a minimum. An employer would be considered to have met its responsibilities for picking an appropriate product under the federal Employee Retirement Income Security Act if it chooses a simple passbook account at any federally insured bank or credit union. Adding an automatic enrollment passbook savings account could make 401k-type retirement accounts even more valuable to new and low-to-moderate income savers. Retirement would always remain the primary reason to save, but the split contribution would make a 401k more attractive and help to build a general savings habit.

       

       

       

When a new drug is approved in the United States, it is virtually impossible to know all of the risks that a population may encounter when using that product. Even though the U.S. Food and Drug Administration (FDA) requires drug manufacturers to meet rigorous standards demonstrating the drug’s safety and effectiveness for its intended use, once approved, drugs can be used by many more patients than were studied in clinical trials. This may include patients with unique clinical conditions, differing health status, ethnicity, age, or other characteristics which were not well-represented before the drug’s approval. Further, the drugs themselves can be used in different ways and in different settings than were studied. Until recently, FDA did not have the necessary tools and data access to rapidly and consistently track the risks of serious side effects of regulated drugs after approval. Recognizing this challenge, FDA has developed a pilot system to make the best use of available electronic health data using a new data and research network capable of evaluating the safety of medical products in the U.S. 

Authorized by the Food and Drug Administration Amendments Act (FDAAA) of 2007, this pilot is known as Mini-Sentinel, and is part of FDA’s larger Sentinel Initiative. Sentinel was envisioned as a national electronic system to track the safety of regulated medical products, through the use of existing health insurance claims and electronic clinical data that are generated as part of routine care. In the four years since its inception, Mini-Sentinel has made tremendous progress toward developing this system. Mini-Sentinel is comprised of insurance claims and clinical data from 18 participating data-partners, including some of the largest private health plans in the United States. In order to best protect patient privacy, the data from each partner is maintained behind each individual health plan fire-wall. This “distributed data” approach allows a single coordinating center to distribute FDA safety questions in the form of “queries,” to each of the participating data partners to be run against their own data. Aggregated summary results are then sent back to the coordinating center for final analysis. This process allows FDA to access data that can help in addressing safety questions in near real-time.  

Through Mini-Sentinel, FDA has the capability to better understand the safety outcomes using electronic health care data of approximately 169 million covered lives. This accumulation of data represents the capture of 382 million person-years of observation time and billions of prescription dispensings.[1] Examples of the types of safety questions that have already been addressed by Mini-Sentinel include the following:

• Safety concerns with drugs used to treat high blood pressure and the incidence of angioedema;
• Safety concerns with a new diabetes treatment and the incidence of heart attacks; and
• Impact of FDA regulatory actions (i.e. drug label changes) intended to mitigate serious risks of drugs.

The Mini-Sentinel pilot has demonstrated substantial progress and has proven to be a very useful tool for FDA, largely due to the strong partnerships developed between FDA, collaborating academic institutions, and private health plans. However, in order to ensure continued progress and long-term sustainability, it will be critical for progress to continue in several key areas. 

First, continued methods development and data understanding will be necessary to ensure FDA has access to the most innovative tools. The field of pharmacoepidemiology and drug safety surveillance is still young and the continued development of better study designs and analytic tools to quantify risks of serious adverse events, while accounting for many confounding factors that are inherent on observational data, will be critical. Further, as health reforms impact that way health care is delivered and financed (e.g., development of accountable care organizations and increased use of bundled payments), the electronic health data will change. It will be important to focus efforts on understanding how these changes will impact data used for safety evaluations. 

Second, it is clear that Sentinel’s contributions may extend well beyond FDA’s medical product assessments. The tools and infrastructure that have been developed by FDA over the last four years could be used as a platform to establish a national resource for a more evidence-based learning health care system. This system will enable a better understanding of not only the risks, but also benefits and best uses, of drugs in the post-market settings. 

FDA has initiated steps to ensure the long-term sustainability and impact of Sentinel infrastructure and tools. Within the next few years, FDA has proposed that Sentinel be transitioned into three main components: the Sentinel Operations Center, the Nation Resource Data Infrastructure, and the Methodological Resource for Medical Product Surveillance using Electronic Healthcare Databases. FDA has indicated that while the Sentinel Operations Center will continue to serve as FDA’s portal to the distributed database, the Nation Resource Data Infrastructure could potentially be used by other groups to support broader evidence generation. Potential groups with interest in improving our understanding of the impact of medical products and who could benefit from this framework include the National Institutes of Health, the Regan-Udall Foundation, the Patient Centered Outcomes Research Institute, and other possible stakeholder groups, such as the private industry. 

Collectively, these components will ensure that FDA continues to have the tools to engage in medical product surveillance, while ensuring the long-term sustainability of the system. In just four years, the Sentinel Initiative has laid the groundwork to transform how FDA, and the nation, benefits from electronic health care data. This network continues to foster a community of stakeholders committed the evidence generation, which will ultimately contribute to a learning health care system.

For more information on these issues, including discussion by leaders from Sentinel stakeholders, please visit the Sentinel Initiative Public Workshop event page. There you will find archived video, presentations, and further reading.

Video

• New Advances in Medical Records Reflects the Realities of the U.S. Healthcare System

       

       

At the very heart of the American idea is the notion that, unlike in other places, we can start from nothing and through hard work have everything. That nothing we can imagine is beyond our reach. That we will pull up stakes, go anywhere, do anything to make our dreams come true. But what if that's just a myth? What if the truth is something very different? What if we are…stuck?

I. What does it mean to be an American?

Full disclosure: I'm British. Partial defense: I was born on the Fourth of July. I also have made my home here, because I want my teenage sons to feel more American. What does that mean? I don't just mean waving flags and watching football and drinking bad beer. (Okay, yes, the beer is excellent now; otherwise, it would have been a harder migration.) I'm talking about the essence of Americanism. It is a question on which much ink—and blood—has been spent. But I think it can be answered very simply: To be American is to be free to make something of yourself. An everyday phrase that's used to admire another ("She's really made something of herself") or as a proud boast ("I'm a self-made man!"), it also expresses a theological truth. The most important American-manufactured products are Americans themselves. The spirit of self-creation offers a strong and inspiring contrast with English identity, which is based on social class. In my old country, people are supposed to know their place. British people, still constitutionally subjects of Her Majesty Queen Elizabeth, can say things like "Oh, no, that's not for people like me." Infuriating.

Americans do not know their place in society; they make their place. American social structures and hierarchies are open, fluid, and dynamic. Mobility, not nobility. Or at least that's the theory. Here's President Obama, in his second inaugural address: "We are true to our creed when a little girl born into the bleakest poverty knows that she has the same chance to succeed as anybody else because she is an American; she is free, and she is equal, not just in the eyes of God but also in our own."

Politicians of the left in Europe would lament the existence of bleak poverty. Obama instead attacks the idea that a child born to poor parents will inherit their status. "The same chance to succeed as anybody else because she is an American…."

Americanism is a unique and powerful cocktail, blending radical egalitarianism (born equal) with fierce individualism (it's up to you): equal parts Thomas Paine and Horatio Alger. Egalitarian individualism is in America's DNA. In his original draft of the Declaration of Independence, Thomas Jefferson wrote that "men are created equal and independent," a sentiment that remained even though the last two words were ultimately cut. It was a declaration not only of national independence but also of a nation of independents.

The problem lately is not the American Dream in the abstract. It is the growing failure to realize it. Two necessary ingredients of Americanism—meritocracy and momentum—are now sorely lacking.

America is stuck.

Almost everywhere you look—at class structures, Congress, the economy, race gaps, residential mobility, even the roads—progress is slowing. Gridlock has already become a useful term for political inactivity in Washington, D. C. But it goes much deeper than that. American society itself has become stuck, with weak circulation and mobility across class lines. The economy has lost its postwar dynamism. Racial gaps, illuminated by the burning of churches and urban unrest, stubbornly persist.

In a nation where progress was once unquestioned, stasis threatens. Many Americans I talk to sense that things just aren't moving the way they once were. They are right. Right now this prevailing feeling of stuckness, of limited possibilities and uncertain futures, is fueling a growing contempt for institutions, from the banks and Congress to the media and big business, and a wave of antipolitics on both left and right. It is an impotent anger that has yet to take coherent shape. But even if the American people don't know what to do about it, they know that something is profoundly wrong.

II. How stuck are we?

Let's start with the most important symptom: a lack of social mobility. For all the boasts of meritocracy—only in America!—Americans born at the bottom of the ladder are in fact now less likely to rise to the top than those situated similarly in most other nations, and only half as likely as their Canadian counterparts. The proportion of children born on the bottom rung of the ladder who rise to the top as adults in the U.S. is 7.5 percent—lower than in the U.K. (9 percent), Denmark (11.7), and Canada (13.5). Horatio Alger has a funny Canadian accent now.

It is not just poverty that is inherited. Affluent Americans are solidifying their own status and passing it on to their children more than the affluent in other nations and more than they did in the past. Boys born in 1948 to a high-earning father (in the top quarter of wage distribution) had a 33 percent chance of becoming a top earner themselves; for those born in 1980, the chance of staying at the top rose sharply to 44 percent, according to calculations by Manhattan Institute economist Scott Winship. The sons of fathers with really high earnings—in the top 5 percent—are much less likely to tumble down the ladder in the U. S. than in Canada (44 percent versus 59 percent). A "glass floor" prevents even the least talented offspring of the affluent from falling. There is a blockage in the circulation of the American elite as well, a system-wide hardening of the arteries.

Exhibit A in the case against the American political elites: the U. S. tax code. To call it Byzantine is an insult to medieval Roman administrative prowess. There is one good reason for this complexity: The American tax system is a major instrument of social policy, especially in terms of tax credits to lower-income families, health-care subsidies, incentives for retirement savings, and so on. But there are plenty of bad reasons, too—above all, the billions of dollars' worth of breaks and exceptions resulting from lobbying efforts by the very people the tax system favors.

So fragile is the American political ego that we can't go five minutes without congratulating ourselves on the greatness of our system, yet policy choices exacerbate stuckness.

The American system is also a weak reed when it comes to redistribution. You will have read and heard many times that the United States is one of the most unequal nations in the world. That is true, but only after the impact of taxes and benefits is taken into account. What economists call "market inequality," which exists before any government intervention at all, is much lower—in fact it's about the same as in Germany and France. There is a lot going on under the hood here, but the key point is clear enough: America is unequal because American policy moves less money from rich to poor. Inequality is not fate or an act of nature. Inequality is a choice.

These are facts that should shock America into action. For a nation organized principally around the ideas of opportunity and openness, social stickiness of this order amounts to an existential threat. Although political leaders declare their dedication to openness, the hard issues raised by social inertia are receiving insufficient attention in terms of actual policy solutions. Most American politicians remain cheerleaders for the American Dream, merely offering loud encouragement from the sidelines, as if that were their role. So fragile is the American political ego that we can't go five minutes without congratulating ourselves on the greatness of our system, yet policy choices exacerbate stuckness and ensure decline.

In Britain (where stickiness has historically been an accepted social condition), by contrast, the issues of social mobility and class stickiness have risen to the top of the political and policy agenda. In the previous U.K. government (in which I served as director of strategy to Nick Clegg, the deputy prime minister), we devoted whole Cabinet meetings to the problems of intergenerational mobility and the development of a new national strategy. (One result has been a dramatic expansion in pre-K education and care: Every 3- and 4-year-old will soon be entitled to 30 hours a week for free.) Many of the Cabinet members were schooled at the nation's finest private high schools. A few had hereditary titles. But they pored over data and argued over remedies—posh people worrying over intergenerational income quintiles.

Why is social mobility a hotter topic in the old country? Here is my theory: Brits are acutely aware that they live in a class-divided society. Cues and clues of accent, dress, education, and comportment are constantly calibrated. But this awareness increases political pressure to reduce these divisions. In America, by contrast, the myth of classlessness stands in the way of progress. The everyday folksiness of Americans—which, to be clear, I love—serves as a social camouflage for deep economic inequality. Americans tell themselves and one another that they live in a classless land of open opportunity. But it is starting to ring hollow, isn't it?

III. For black Americans, claims of equal opportunity have, of course, been false from the founding.

They remain false today. The chances of being stuck in poverty are far, far greater for black kids. Half of those born on the bottom rung of the income ladder (the bottom fifth) will stay there as adults. Perhaps even more disturbing, seven out of ten black kids raised in middle-income homes (i.e., the middle fifth) will end up lower down as adults. A boy who grows up in Baltimore will earn 28 percent less simply because he grew up in Baltimore: In other words, this supersedes all other factors. Sixty-six percent of black children live in America's poorest neighborhoods, compared with six percent of white children.

Recent events have shone a light on the black experience in dozens of U. S. cities.

Behind the riots and the rage, the statistics tell a simple, damning story. Progress toward equality for black Americans has essentially halted. The average black family has an income that is 59 percent of the average white family's, down from 65 percent in 2000. In the job market, race gaps are immobile, too. In the 1950s, black Americans were twice as likely to be unemployed as whites. And today? Still twice as likely.

From heeding the call "Go west, young man" to loading up the U-Haul in search of a better job, the instinctive restlessness of America has always matched skills to work, people to opportunities, labor to capital.

Race gaps in wealth are perhaps the most striking of all. The average white household is now thirteen times wealthier than the average black one. This is the widest gap in a quarter of a century. The recession hit families of all races, but it resulted in a wealth wipeout for black families. In 2007, the average black family had a net worth of $19,200, almost entirely in housing stock, typically at the cheap, fragile end of the market. By 2010, this had fallen to $16,600. By 2013—by which point white wealth levels had started to recover—it was down to $11,000. In national economic terms, black wealth is now essentially nonexistent.

Half a century after the passing of the Civil Rights Act, the arc of history is no longer bending toward justice. A few years ago, it was reasonable to hope that changing attitudes, increasing education, and a growing economy would surely, if slowly, bring black America and white America closer together. No longer. America is stuck.

IV. The economy is also getting stuck.

Labor productivity growth, measured as growth in output per hour, has averaged 1.6 percent since 1973. Male earning power is flatlining. In 2014, the median full-time male wage was $50,000, down from $53,000 in 1973 (in the dollar equivalent of 2014). Capital is being hoarded rather than invested in the businesses of the future. U. S. corporations have almost $1.5 trillion sitting on their balance sheets, and many are busily buying up their own stock. But capital expenditure lags, hindering the economic recovery.

New-business creation and entrepreneurial activity are declining, too. As economist Robert Litan has shown, the proportion of "baby businesses" (firms less than a year old) has almost halved since the late 1970s, decreasing from 15 percent to 8 percent—the hallmark of "a steady, secular decline in business dynamism." It is significant that this downward trend set in long before the Great Recession hit. There is less movement between jobs as well, another symptom of declining economic vigor.

Americans are settling behind their desks—and also into their neighborhoods. The proportion of American adults moving house each year has decreased by almost half since the postwar years, to around 12 percent. Long-distance moves across state lines have as well. This is partly due to technological advances, which have weakened the link between location and job prospects, and partly to the growth of economic diversity in cities; there are few "one industry" towns today. But it is also due to a less vibrant housing market, slower rates of new business creation, and a lessening in Americans' appetite for disruption, change, and risk.

This geographic settling is at odds with historic American geographic mobility. From heeding the call "Go west, young man" to loading up the U-Haul in search of a better job, the instinctive restlessness of America has always matched skills to work, people to opportunities, labor to capital. Rather than waiting for help from the government, or for the economic tide to turn back in their favor, millions of Americans changed their life prospects by changing their address. Now they are more likely to stay put and wait. Others, especially black Americans, are unable to escape the poor neighborhoods of their childhood. They are, as the title of an influential book by sociologist Patrick Sharkey puts it, Stuck in Place.

There are everyday symptoms of stuckness, too. Take transport. In 2014, Americans collectively spent almost seven billion hours stuck motionless in traffic—that's a couple days each. The roads get more jammed every year. But money for infrastructure improvements is stuck in a failing road fund, and the railophobia of politicians hampers investment in public transport.

Whose job is it to do something about this? The most visible symptom of our disease is the glue slowly hardening in the machinery of national government. The last two Congresses have been the least productive in history by almost any measure chosen, just when we need them to be the most productive. The U. S. political system, with its strong separation among competing centers of power, relies on a spirit of cross-party compromise and trust in order to work. Good luck there.

V. So what is to be done?

As with anything, the first step is to admit the problem. Americans have to stop convincing themselves they live in a society of opportunity. It is a painful admission, of course, especially for the most successful. The most fervent believers in meritocracy are naturally those who have enjoyed success. It is hard to acknowledge the role of good fortune, including the lottery of birth, when describing your own path to greatness.

There is a general reckoning needed. In the golden years following World War II, the economy grew at 4 percent per annum and wages surged. Wealth accumulated. The federal government, at the zenith of its powers, built interstates and the welfare system, sent GIs to college and men to the moon. But here's the thing: Those days are gone, and they're not coming back. Opportunity and growth will no longer be delivered, almost automatically, by a buoyant and largely unchallenged economy. Now it will take work.

The future success of the American idea must now be intentional.

Entrepreneurial, mobile, aspirational: New Americans are true Americans. We need a lot more of them.

There are plenty of ideas for reform that simply require will and a functioning political system. At the heart of them is the determination to think big again and to vigorously engage in public investment. And we need to put money into future generations like our lives depended on it, because they do: Access to affordable, effective contraception dramatically cuts rates of unplanned pregnancy and gives kids a better start in life. Done well, pre-K education closes learning gaps and prepares children for school. More generous income benefits stabilize homes and help kids. Reading programs for new parents improve literacy levels. Strong school principals attract good teachers and raise standards. College coaches help get nontraditional students to and through college. And so on. We are not lacking ideas. We are lacking a necessary sense of political urgency. We are stuck.

But we can move again if we choose.

In addition to a rejuvenation of policy in all these fields, there are two big shifts required for an American twenty-first-century renaissance: becoming open to more immigration and shifting power from Washington to the cities.

VI. America needs another wave of immigration.

This is in part just basic math: We need more young workers to fund the old age of the baby boomers. But there is more to it than that. Immigrants also provide a shot in the arm to American vitality itself. Always have, always will. Immigrants are now twice as likely to start a new business as native-born Americans. Rates of entrepreneurialism are declining among natives but rising among immigrants.

Immigrant children show extraordinary upward-mobility rates, shooting up the income-distribution ladder like rockets, yet by the third or fourth generation, the rates go down, reflecting indigenous norms. Among children born in Los Angeles to poorly educated Chinese immigrants, for example, an astonishing 70 percent complete a four-year-college degree. As the work of my Brookings colleague William Frey shows, immigrants are migrants within the U. S., too, moving on from traditional immigrant cities—New York, Los Angeles—to other towns and cities in search of a better future. Entrepreneurial, mobile, aspirational: New Americans are true Americans. We need a lot more of them.

This makes a mockery of our contemporary political "debates" about immigration reform, which have become intertwined with race and racism. Some Republicans tap directly into white fears of an America growing steadily browner. More than four in ten white seniors say that a growing population of immigrants is a "change for the worse"; half of white boomers believe immigration is "a threat to traditional American customs and values." But immigration delves deeper into the question of American identity than it does even issues of race. Immigrants generate more dynamism and aspiration, but they are also unsettling and challenging. Where this debate ends will therefore tell us a great deal about the trajectory of the nation. An America that closes its doors will be an America that has chosen to settle rather than grow, that has allowed security to trump dynamism.

VII. The second big shift needed to get America unstuck is a revival of city and state governance.

Since the American Dream is part of the national identity, it seems natural to look to the national government to help make it a reality. But cities are now where the American Dream will live or die. America's hundred biggest metros are home to 67 percent of the nation's population and 75 percent of its economy. Americans love the iconography of the small town, even at the movies—but they watch those movies in big cities.

Powerful mayors in those cities have greater room for maneuvering and making an impact than the average U. S. senator. Even smaller cities and towns can be strongly influenced by their mayor.

There are choices to be made. Class divisions are hardening. Upward mobility has a very weak pulse. Race gaps are widening.

The new federalism in part is being born of necessity. National politics is in ruins, and national institutions are weakened by years of short-termism and partisanship. Power, finding a vacuum in D. C., is diffusive. But it may also be that many of the big domestic-policy challenges will be better answered at a subnational level, because that is where many of the levers of change are to be found: education, family planning, housing, desegregation, job creation, transport, and training. Amid the furor over Common Core and federal standards, it is important to remember that for every hundred dollars spent on education, just nine come from the federal government.

We may be witnessing the end of many decades of national-government dominance in domestic policy-making (the New Deal, Social Security, Medicare, welfare reform, Obamacare). The Affordable Care Act is important in itself, but it may also come to have a place in history as the legislative bookend to a long period of national-policy virtuosity.

The case for the new federalism need not be overstated. There will still be plenty of problems for the national government to fix, including, among the most urgent, infrastructure and nuclear waste. The main tools of macroeconomic policy will remain the Federal Reserve and the federal tax code. But the twentieth-century model of big federal social-policy reforms is in decline. Mayors and governors are starting to notice, and because they don't have the luxury of being stuck, they are forced to be entrepreneurs of a new politics simply to survive.

VIII. It is possible for America to recover its earlier dynamism, but it won't be easy.

The big question for Americans is: Do you really want to? Societies, like people, age. They might also settle down, lose some dynamism, trade a little less openness for a little more security, get a bit stuck in their ways. Many of the settled nations of old Europe have largely come to terms with their middle age. They are wary of immigration but enthusiastic about generous welfare systems and income redistribution. Less dynamism, maybe, but more security in exchange.

America, it seems to me, is not made to be a settled society. Such a notion runs counter to the story we tell ourselves about who we are. (That's right, we. We've all come from somewhere else, haven't we? I just got here a bit more recently.) But over time, our narratives become myths, insulating us from the truth. For we are surely stuck, if not settled. And so America needs to decide one way or the other. There are choices to be made. Class divisions are hardening. Upward mobility has a very weak pulse. Race gaps are widening. The worst of all worlds threatens: a European class structure without European welfare systems to dull the pain.

Americans tell themselves and the world that theirs is a society in which each and all can rise, an inspiring contrast to the hereditary cultures from which it sprang. It's one of the reasons I'm here. But have I arrived to raise my children here just in time to be stuck, too? Or will America be America again?

Editor's note: This piece originally appeared in Esquire.

      

Baltimore police officer Edward Nero, one of six being tried separately in relation to the arrest and death of Freddie Gray, has been acquitted on all counts. The outcome for officer Nero was widely expected, but officials are nonetheless aware of the level of frustration and anger that remains in the city. Mayor Stephanie Rawlings Blake said: "We once again ask the citizens to be patient and to allow the entire process to come to a conclusion."

Since Baltimore came to national attention, Brookings scholars have probed the city’s challenges and opportunities, as well addressing broader questions of place, race and opportunity.

• In this podcast, Jennifer Vey describes how, for parts of Baltimore, economic growth has been largely a spectator sport: "1/5 people in Baltimore lives in a neighborhood of extreme poverty, and yet these communities are located in a relatively affluent metro area, in a city with many vibrant and growing neighborhoods."
• Vey and her colleague Alan Berube, in this piece on the "Two Baltimores," reinforce the point about the distribution of economic opportunity and resources in the city:
  

  In 2013, 40,000 Baltimore households earned at least $100,000. Compare that to Milwaukee, a similar-sized city where only half as many households have such high incomes. As our analysis uncovered, jobs in Baltimore pay about $7,000 more on average than those nationally. The increasing presence of high-earning households and good jobs in Baltimore City helps explain why, as the piece itself notes, the city’s bond rating has improved and property values are rising at a healthy clip."

• Groundbreaking work by Raj Chetty, which we summarized here, shows that Baltimore City is the worst place for a boy to grow up in the U.S. in terms of their likely adult earnings:

• Here Amy Liu offered some advice to the new mayor of the city: "I commend the much-needed focus on equity but…the mayoral candidates should not lose sight of another critical piece of the equity equation: economic growth."
• Following an event focused on race, place and opportunity, in this piece I drew out "Six policies to improve social mobility," including better targeting of housing vouchers, more incentives to build affordable homes in better-off neighborhoods, and looser zoning restrictions.
• Frederick C. Harris assessed President Obama’s initiative to help young men of color, "My Brother’s Keeper," praising many policy shifts and calling for a renewed focus on social capital and educational access. But Harris also warned that rhetoric counts and that a priority for policymakers is to "challenge some misconceptions about the shortcomings of black men, which have become a part of the negative public discourse."
• Malcolm Sparrow has a Brookings book on policing reform, "Handcuffed: What Holds Policing Back, and the Keys to Reform" (there is a selection here on Medium). Sparrow writes:
  

  Citizens of any mature democracy can expect and should demand police services that are responsive to their needs, tolerant of diversity, and skillful in unraveling and tackling crime and other community problems. They should expect and demand that police officers are decent, courteous, humane, sparing and skillful in the use of force, respectful of citizens’ rights, disciplined, and professional. These are ordinary, reasonable expectations."

Five more police officers await their verdicts. But the city of Baltimore should not have to wait much longer for stronger governance, and more inclusive growth.

      

As every good teacher knows, education is not just about academics. It is about broadening horizons and discovering passions. (The root of education is the Latin e ducere, meaning “to draw out.”) From this perspective, extra-curricular activities count for a great deal. But as Robert Putnam highlights in his book Our Kids, there are growing class gaps in the availability of music, sports, and other non-classroom activities.

Fewer field trips?

Schools under pressure may also cut back on field trips outside the school walls to parks, zoos, theaters, or museums. In the 2008-09 school year, 9 percent of school administrators reported eliminating field trips, according to the annual surveys by the American Association of School Administrators (AASA). That figure rose through the recession:

Just 12 percent of the administrators surveyed about 2015-16 said they had brought back their field trips to pre-recession levels. Museums around the country report hosting fewer students, from Los Angeles and Sarasota, to Minneapolis, and Columbia, Missouri. None of this is definitive proof of a decline in field trips, since we are relying on a single survey question. But it suggests a downward trend in recent years.

Museums help with science tests

If some children are missing out on field trips, does it matter? They may be nice treats, but do they have any real impact, especially when they take time away from traditional learning? There is some evidence that they do.

Middle school children with the chance to go on a field trip score higher on science tests, according to a 2015 study by Emilyn Ruble Whitesell.

She studied New York City middle schools with teachers in Urban Advantage, a program that gives science teachers additional training and resources—as well as vouchers for visiting museums. In some schools, the Urban Advantage teachers used the field trip vouchers more than others. Whitesell exploits this difference in her study, and finds that attending a school with at least 0.25 trips per student increased 8^th grade scores by 0.026 standard deviations (SD). The odds of a student passing the exam improved by 1.2 percentage points. There were bigger effects for poor students, who saw a 0.043 SD improvement in test scores, and 1.9 percentage point increase in exam pass rates.

Art broadens young minds

Students visiting an art museum show statistically significant increases in critical thinking ability and more open-minded attitudes, according to a randomized evaluation of student visits to the Crystal Bridges Museum in northwest Arkansas. One example: those who visited the museum more often agreed with statements like: “I appreciate hearing views different from my own” and “I think people can have different opinions about the same thing.” The effects are modest. But the intervention (a single day at the museum) is, too. Again, there were larger effects for poor students:

All this needs to be put in perspective. In comparison with the challenge of closing academic gaps and quality teaching, field trips are small beer. But schools create citizens as well as undergraduates and employees. It matters, then, if we have allowed field trips to become a casualty of the great recession.

      

Feminism needs fathers. Unless and until men and women share the responsibilities of parenting equally, gender parity in the labor market will remain out of reach.

As Isabel Sawhill and I argued in our piece on “Men’s Lib” for the New York Times, “The gender revolution has been a one-sided effort. We have not pushed hard enough to put men in traditionally female roles—that is where our priority should lie now.”

Dads on the home front: Paternity leave

An important step towards gender equality is then the provision of paternity leave, or at least forms of parental leave that can be taken up by fathers as well as mothers. Right now the U.S. is one of the few advanced nations with no dedicated leave for fathers:

But there are reasons to be hopeful. More companies are offering paternity leave or, like Amazon, a “leave bank” that parents can share between them. Hillary Clinton is promising to push for paid family leave if she wins in November. Recent studies of California’s paid leave scheme, introduced in 2004, suggest that there are significant benefits for fathers.

The number of fathers taking leave while the mother is in paid work rose by 50 percent, according to an analysis of the American Community Survey by Ann Bartel of Colombia and her colleagues.

Fathers of sons are more likely to take leave than those with daughters, suggesting that parents particularly value father-son bonding. Fathers were also very much more likely to take leave if they worked in occupations with a high share of female workers, indicating that workplace culture is also a big factor.

Men are more likely to take leave when it is exclusively available to them—with a so-called “use it or lose it” design—and when the period of leave is paid. The Quebec Parental Insurance Plan, for instance, which offers fathers three to five weeks at home with a child, resulted in a 250 percent increase father’s participation in parental leave.

Benefits of paternity leave

Of course, there are costs. Paid leave has to be funded: either through payroll taxes (as most Democrats including Senator Kirsten Gillibrand want), taxes on the wealthy (Clinton’s preferred approach), or tax breaks for firms (as Marco Rubio has suggested).

So what are the upsides? Among the potential benefits from paternity leave are:

• A more equal division of labor in terms of parenting and childcare
• More equal sharing of domestic labor, including housework
• Less stress on the family
• Closer father-infant bonding
• Higher pay for mothers (according to a study in Sweden, future income for new mothers rises by 7 percent on average for every month of paternity leave taken by the father)

More than a day

Gender roles have evolved rapidly in recent decades, especially in terms of the place and status of women. But the evolution of our mental models of masculinity, and especially fatherhood, has been slower. Helping fathers to take time to care for their children will help children, families, and women. Fathers need more than a day.

       

       

       

       

       

       

Innovative activity and innovation districts are not evenly distributed across cities. Some metropolitan areas may have two or three districts scattered about, while other cities are lucky to have the critical mass to support even one strong district. London, however, a global city with nearly unparalleled assets, can best be understood as not just a collection of innovation districts but as a contiguous “city of innovation.” 

Our understanding of that innovative activity has taken a leap forward with the publication of a new report by the Centre for London called "Spaces to Think". Even for a paragon of innovation, a critique such as this is imperative if the city desires to maximize its assets while continuing to grow in a sustainable and inclusive manner. Much as we have recommended that urban leaders across the United States undertake an asset audit of their districts to identify key priorities, "Spaces to Think" focuses on 17 distinct districts, mapping their assets, classifying their typologies, and identifying governance structures.

The 17 study areas in "Spaces to Think"

The report provides lessons applicable to many cities.

Having identified, across all 17 districts, the three major drivers of innovative activity—talent, space, and financing—it becomes clear that the main hurdle for London, as a global magnet of talent and capital, is affordable physical space: “Increasing pressure for land…risks constraining London’s potential as a leading global city for innovation.” Similar to hot-market cities across the United States, many of the study areas of greatest promise are older industrial areas, such as Here East, Canary Wharf, and Kings Cross, where large plots of underutilized land have been reimagined as innovation districts. 

But who is prepared to undertake new regeneration projects? The report places significant responsibility on London’s many universities—whose expansions already account for much of the large-scale development opportunities in the city—for a “third mission” of local economic development. It is universities, the report notes, that are “devoting increasing amounts of money, resources, and planning to building new or redesigned facilities…pitched as part of a wider regeneration strategy, or the creation of an innovation district.” 

A second concern is the democratization of the innovation economy. Already a victim of rising inequality, London’s future growth must reach down the ladder. As we’ve argued, with intentionality and purpose, innovation districts can advance a more inclusive knowledge economy, especially given that they are often abut neighborhoods of above-average poverty and unemployment. Spaces to Think expands upon four key strategies: local hiring and sourcing practices for innovation institutions; upskilling of local residents through vocational and technical programs within local firms; increased tax yield, especially given recent reforms in which “local authorities retain 100 percent of business rates”; and shared assets and rejuvenation of place. This final lever requires inclusive governance that encourages neighborhood ownership of the public realm.

Finally, the report notes that, while there is much diversity of leadership in the study areas—some are university-led, some are entrepreneurial, some are industry-led—“good governance and good relations between institutions, are at the heart of what makes innovation districts tick.” This issue is at the heart of our work moving forward: identifying and spreading effective governance models that encourage collaboration and coordination between the public, private, and civic actors within innovation districts.

We are pleased that this future work will be strengthened by a new partnership between the Bass Initiative on Innovation and Placemaking and the Centre for London. The ambition of this Transatlantic Innovation Districts Partnership is to increase our mutual understanding of innovation districts found in Europe through additional qualitative and quantitative analysis and to integrate European leaders into a global network, all to accelerate the transfer of lessons and best practices from districts across the world.

       

I came across an interesting chart in yesterday’s Morning Money tipsheet from Politico that struck me as a something that sounded intuitively correct but was, in fact, not. It's worth a comment on this blog, which has served as a forum for discussion of jobs numbers throughout the recovery.

Between last week’s BLS employment report and last night’s State of the Union, we’ve heard a lot about impressive job growth in 2015. For my part, I wrote on this blog last week that the 2.6 million jobs created last year makes 2015 the second best calendar-year for job gains of the current recovery.

The tipsheet’s "Chart of the Day," however, suggested that job growth in 2015 was actually lower-than-average if we adjust for the change in the size of the labor force. This is what was in the tipsheet from Politico:

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CHART OF THE DAY: NOMINAL JOB GROWTH — Via Hamilton Place Strategies: "Adjusting jobs data to account for labor force shifts can help shed some light on voters' economic angst, even as we see good headline statistics. … Though 2015 was a good year in terms of job growth during the current recovery and had higher-than-average job growth as compared to recent recoveries, 2015 actually had lower-than-average job growth if we adjust for the change in the size of the labor force." http://bit.ly/1OnBXSm

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I decided to look at the numbers.

The authors propose that we should "scale" reported job gains by the number of workers, which at first seems to make sense. Surely, an increase in monthly employment of 210,000 cannot mean the same thing when there are already 150 million employed people as when there are just 75 million employed people.

But this intuition is subtly wrong for a simple reason: The age structure of the population may also differ in the two situations I have just described. Suppose when there are 75 million employed people, the population of 20-to-64 year-old people is growing 300,000 every month. Suppose also when there are 150 million employed people, the population of 20-to-64 year-olds is shrinking 100,000 per month. 

Most informed observers would say that job growth of 210,000 a month is much more impressive under the latter assumptions than it is under the first set of assumptions, even though under the latter assumptions the number of employed people is twice as high as it is under the first assumptions.

BLS estimates show that in the seven years from December 2008-December 2015, the average monthly growth in the 16-to-64 year-old (noninstitutionalized) U.S. population was 85,200 per month. That is the lowest average growth rate of the working-age population going back to at least 1960. Here are the numbers:

Once we scale the monthly employment gain by the growth in the working-age population, the growth of jobs in recent years has been more impressive—not less—than suggested by the raw monthly totals. Gains in employer payrolls have far surpassed the growth in the number of working-age Americans over the past five years.

Headline writers have been impressed by recent job gains because the job gains have been impressive.

      

Social Security is the most popular legacy of Franklin Roosevelt's New Deal. Last year almost 60 million Americans received benefits from the program. Payments amounted to over $875 billion, nearly a quarter of all federal spending.  For more than two decades, most discussion of Social Security, at least in Washington, has centered on its funding shortfall. Contributions to the program are not high enough to pay for all benefits scheduled under current law. The Social Security Trust Fund is expected to be depleted around 2030. If Congress does not address the funding problem before reserves are exhausted, monthly payments will have to be cut about one-fifth.

Despite the projected shortfall, Democrats in Congress have begun to argue that Social Security benefits should be expanded rather than cut.  Senators Bernie Sanders and Brian Schatz have offered proposals to boost monthly pensions while at the same time shoring up Social Security finances through tax hikes on high-income Americans. 

That Democratic voters and lawmakers embrace these ideas is not surprising. But opinion polling suggests such reforms also enjoy broad support among self-identified independents and Republicans. For example, 57 percent of Republicans (versus 71 percent of Democrats) favor increasing cost-of-living adjustments in the benefit formula. Forty-eight percent of Republicans (versus 67 percent of Democrats) favor boosting the minimum benefit available to low-wage workers who have contributed for many years to the program.  Seventy-four percent of Republicans (versus 88 percent of Democrats) favor raising taxes in order to protect benefits. These polling numbers were obtained in 2013, but more recent polls show similar opinions. Even if debates among Washington insiders and GOP lawmakers focus on how to trim benefits in order to keep Social Security solvent, poll results suggest Senator Sanders holds views closer to those of the typical voter.

One question for both voters and policymakers is whether the aged population is really the most deserving target for additional government spending.  Much of the discussion of voter disaffection in the current election cycle has focused on the stagnation of middle class incomes and the rise in inequality.  While these represent major problems for families headed by a working-age person, they have not been notably troublesome for the nation’s elderly.  The incomes of the elderly, unlike those of the nonelderly, have increased steadily over the past three or four decades.  For low- and middle-income retirees, incomes have clearly improved. The same cannot be said for the incomes of low- and middle-income working-age families. Income inequality among the elderly has increased, to be sure, but much more slowly than among working-age families.

In new research with my colleagues Barry Bosworth and Kan Zhang, I have examined trends in real incomes and inequality among the nation’s elderly and compared them with the same trends in working-age families. We show that inequality has increased among both the elderly and nonelderly, but it has increased much faster among families headed by prime-age and younger adults than among families headed by someone past age 62.  More to the point, real money incomes have increased much faster among middle- and low-income aged families compared with middle- and low-income working-age families. 

Our estimates of the annual rate of change in real money income are displayed in the chart below. The changes are estimated over the period from 1979 to 2012 based on data reported in the Census Bureau’s annual income survey. The top panel shows changes in families with a head who is less than 62. The bottom panel shows changes in families with a head older than 62.  Each bar shows the annual rate of change in real income at the indicated position of the income distribution, either for nonaged families (in the top panel) or for aged families (in the bottom panel).  At the top of the two income distributions—that is, at the 98^th income percentile—real income gains are virtually the same in the two groups.  Further down the income ladder, the income gains differ noticeably, with bigger differences the further down we go.  Middle- and low-income working-age families have clearly fared much worse than families with an equivalent position in the old-age income distribution.

Estimates of income growth based solely on pre-tax cash incomes, such as the ones in the chart, almost certainly understate the improvement families have seen in their living standards, as I have argued elsewhere (here and here).  However, the understatement is bigger in the case of elderly and low-income Americans than it is for the nonelderly and affluent.  If we adjust family incomes to reflect the taxes families owe and the monetary value of their noncash benefits, the relative improvement in the standard of living of older Americans is even greater than is shown in the chart. Under almost any plausible income definition, the elderly have fared better than the nonelderly, especially at the bottom of the income distribution.

The income statistics do not prove the policy reforms urged by Congressional Democrats are unneeded or undesirable. Their proposals spring from an accurate reading of a long-term trend toward less pension coverage — ironically, a trend that has mainly affected working-age adults.  Whereas workers in the 1950s through the 1970s enjoyed continuous improvement in their access to employer-provided retirement benefits, the improvement ceased after 1980. Since that time, private-sector workers have seen reductions in the coverage and generosity of their employer-sponsored pensions. If the private sector voluntarily provides less retirement protection, it does not seem unreasonable to expect the government to provide more.

A crucial reason the nation’s elderly population fared better compared with the nonelderly after 1980 is that Social Security and Medicare provided them government protection that was far more generous (and more costly to taxpayers) than the protection available to working-age adults and their youngsters. The gap was especially glaring in the case of families headed by low-wage breadwinners, who have suffered sizeable reductions in pay and employment opportunities. In the years since 1980, their losses have been only modestly compensated through changes in the tax code and expansions of public health insurance.

Changes in the labor market make it important to protect future retirement benefits provided through Social Security. The same labor market developments make it even more urgent to expand the employment opportunities and improve the protections and work supports offered to working-age breadwinners.  In 2016, the weakening of future income protection for the aged is mostly theoretical. In contrast, the sinking fortunes of less skilled working-age adults are anything but theoretical. They are plain to anyone who can read Census and Bureau of Labor Statistics reports. If taxpayers can identify additional resources to pay for major new initiatives, my vote is for programs that improve the prospects of struggling wage earners. The equity arguments for such an initiative seem to me more persuasive than the case for an across-the-board benefit hike targeted on retirees.

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Editor's note: This piece originally appeared in Real Clear Markets.