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Influential Politicians, Low-Income Housing And Creative Destruction

inthepapersEvery Monday, the National Bureau of Economic Research, a nonprofit organization made up of some of North America’s most respected economists, releases its latest batch of working papers. The papers aren’t peer-reviewed, so their conclusions are preliminary (and occasionally flat-out wrong). But they offer an early peek into some of the research that will shape economic thinking in the years ahead. Here are a few of this week’s most interesting papers.

Title: “Do Politicians Change Public Attitudes?”

Authors: Magnus Carlsson, Gordon B. Dahl, Dan-Olof Rooth

What they found: Just as a politician responds to voter preferences, an elected official’s stand on an issue can change voter beliefs — but not always in the official’s favor.

Why it matters: The standard (cynical) view of how elected officials relate to voters presumes politicians choose their views based on voter preferences. This paper flips that notion on its head and investigates a different feedback loop: how elected officials’ views affect those held by the public. The authors looked at 290 local municipal elections in Sweden. These city council-like boards have multiple seats, with eight or more parties clamoring for representation. Parties only earn a seat if their vote totals exceed a strict minimum. Comparing elections just below and just above these thresholds, the authors were able to isolate areas with nearly identical voting preferences, but where an issue-specific party won an additional seat. For example, in places where the anti-nuclear energy Green Party earned an extra seat, voters’ support for nuclear energy fell 18 percent on average and the party won 9 percent more votes in the next election. It would seem that holding an extra seat in local government swayed voters to the party’s side of the issue. But for the Sweden Democrats, an anti-immigration party, winning another seat resulted in a 7 percent increase in the public’s support for immigration, and the party did no better in the next election.

Key quote: “Our results indicate the power politicians have to alter attitudes depends at least in part on outside forces, with the media playing an important mediating role in the framing of a political party and their message.”

Data they used: Municipal election results and attitudinal surveys of citizens at the municipal level in Sweden.

Title: “Low-Income Housing Policy”

Authors: Robert Collinson, Ingrid Gould Ellen, Jens Ludwig

What they found: The U.S. government spends nearly $50 billion each year on low-income housing. While the overall research quality on the effects of housing programs is lacking, studies to date have shown that subsidies alone do not seem to improve outcomes in children’s educational attainment or adult’s employment prospects.

Why it matters: Annual spending on low-income housing dwarfs that of other anti-poverty programs — it’s more than double the spending on cash welfare and four times the spending on children’s health insurance. The authors of this paper argue it’s not clear that housing subsidies have positive effects, and suggest a cash transfer program might be better at increasing adults’ employment prospects and children’s educational attainment. They point to literature on “neighborhood effects,” which finds that people can improve their outcomes by relocating to a different, similarly-priced neighborhood. This connection could bolster the argument for moving away from in-kind housing assistance to cash transfers, which would more easily enable recipients to move to a better neighborhood. But the authors admit the evidence to justify such a change is scarce; data and research in this area needs improvement.

Key quote: “While housing programs do indeed increase housing consumption and quality for poor families and improve affordability relative to not receiving a subsidy, surprisingly little is currently known about the effects on these outcomes of housing programs relative to cash transfers.”

Data they used: Numerous data sets used throughout the literature.

Title: “Creative Destruction and Subjective Wellbeing”

Authors: Philippe Aghion, Ufuk Akcigit, Angus Deaton, Alexandra Roulet

What they found: When economic growth is strong but the rate of job turnover is high, Americans still report greater happiness, especially about the future — but only in places that cushion the blow of losing a job.

Why it matters: In general, higher incomes are associated with higher self-reported happiness. But under a certain growth scenario known as “creative destruction” — where economic growth is powered by frequent job destruction among and within industries — the higher rate of job turnover could to dint happiness. The authors of this paper study individuals’ happiness under this scenario, using local-level data on jobs and wellbeing in the U.S. They find people are not only happier with high-turnover growth, but their self-reported future wellbeing, in particular, shows significant improvement. Americans seem to be willing to trade greater variability in their employment for higher lifetime earnings. This boost in happiness, however, depends on an important variable: the unemployment rate. The areas better suited to sustain happiness under creative destruction are those able to cushion the blow from losing a job — those in states offering generous unemployment benefits, for example, or where there is greater protection from outsourcing.

Key quote: “We also find that the positive effect of turnover is stronger on anticipated wellbeing than on current wellbeing. On the other hand, creative destruction increases individuals’ worry — which reflects the fact that more creative destruction is associated with higher perceived risk by individuals. … We find that the positive effect of turnover on wellbeing is stronger in [metropolitan statistical areas] with above median productivity growth or with below median outsourcing trends. Finally, we find that higher turnover increases wellbeing more in states with unemployment insurance policies that are more generous than the median.”

Data they used: Cross-section MSA-level data from the U.S. Census’s Business Dynamics Statistics, and measures of well-being from the Behavioral Risk Factor Surveillance System and the Gallup Healthways Wellbeing Index.

Andrew Flowers wrote about economics and sports for FiveThirtyEight.