MARCH 18 2016

Lizzie Drapper, Hasdeep Sethi, BoE: Houses: who has stopped buying them? In 2006, 64 English houses in every 1000 changed hands. Three years and a credit crunch later, this had halved to only 32 transactions per 1000 houses. Since 2009, transactions have recovered, but remain well below their pre-crisis level. Transactions are a key metric of the health of the UK housing market and can be seen as a measure of “liquidity”. The reasons behind low transactions levels may also provide further insight into people’s behaviour and view of housing in the UK. In the work set out below, we conclude that it is unlikely that transactions regain their pre-crisis level any time soon, because of affordability constraints for first-time buyers and fewer discretionary moves by existing owners.

Valeria Pellegrini, Alessandra Sanelli, Enrico Tosti, VOX: Unreported assets held abroad and tax evasion: Hints from external statistics. Balance of payments statistics suggest that assets held abroad are greatly underestimated – particularly for mutual fund shares and bank deposits. This column looks into the role played by tax havens and estimates that unreported financial assets amount to between $6 and $7 trillion. On this figure, the related tax evasion is between $19 and $38 billion a year on capital income, and between $2 and $2.6 trillion on personal income. Recent policy initiatives such as automatic information exchanges constitute real progress, but some critical aspects might jeopardise their effectiveness.

Bruno Van der Linden, IZA: Do in-work benefits work for low-skilled workers? Permanent in-work benefits (IWB) often increase labor force participation by single mothers and reduce in-work poverty. In the UK and the US, these effects appear to be accompanied by improved indicators of health and life satisfaction for the beneficiaries, as well as some positive effects detected on their children. There is also a broad consensus that IWB can improve the redistribution of income. Still, IWB have a negative impact on low wages in the absence of downward wage rigidities, which reduces their redistribution effects.

Jane Waldfogel, Columbia University: The role of preschool in reducing inequality. Preschool improves child outcomes, especially for disadvantaged children. Evidence on the potential of preschool programs to reduce inequality in child development is quite strong. It has been clear for some time that small model preschool programs can lead to substantial improvements in school readiness for children from disadvantaged backgrounds who would otherwise have little access to high-quality early childhood care or education and who have the most to gain from high-quality programs. This early evidence suggested that preschool might be an effective way to reduce inequality.

Joao Pedro Jerico et al., Cornell: When does inequality freeze an economy? Inequality and its consequences are the subject of intense recent debate. We address the relation between inequality and liquidity, i.e. the frequency of economic exchanges in the economy. We do that within an intentionally simplified model of the economy, where all exchanges that are compatible with agents' budget constraints are possible. Assuming a Pareto distribution of capital for the agents, that is consistent with empirical findings, we find an inverse relation between inequality and liquidity. By quantifying the amount of inequality in the system by the exponent of the Pareto distribution, we show that an increase in inequality of capital results in an even sharper concentration of financial resources, leading to congestion of the flow of goods and the arrest of the economy when the Pareto exponent reaches one.

Branko Milanovic, VOX: Introducing Kuznets waves: How income inequality waxes and wanes over the very long run. The Kuznets curve was widely used to describe the relationship between growth and inequality over the second half of the 20th century, but it has fallen out of favour in recent decades. This column suggests that the current upswing in inequality can be viewed as a second Kuznets curve. It is driven, like the first, by technological progress, inter-sectoral reallocation of labour, globalisation, and policy. The author argues that the US has still not reached the peak of inequality in this second Kuznets wave of the modern era.

Paul Krugman, NYT: Return of the Undeserving Poor. When I was growing up, there was a great deal of alarm over the troubles of the African-American community, where social disorder was on the rise even as explicit legal discrimination (although not de facto discrimination) was coming to an end. What was going on? William Julius Wilson argued that the underlying cause was economic: good jobs, while still fairly plentiful in America as a whole, were disappearing from the urban centers where the A-A population was concentrated. And the social collapse, while real, followed from that underlying cause. This story contained a clear prediction — namely, that if whites were to face a similar disappearance of opportunity, they would develop similar behavior patterns. And sure enough, with the hollowing out of the middle class, we saw what Kevin Williamson describes as the welfare dependency, the drug and alcohol addiction, the family anarchy.

Jessica Tyrrell, BMJ: Height, body mass index, and socioeconomic status: mendelian randomisation study in UK Biobank. These data support evidence that height and BMI play an important partial role in determining several aspects of a person’s socioeconomic status, especially women’s BMI for income and deprivation and men’s height for education, income, and job class. These findings have important social and health implications, supporting evidence that overweight people, especially women, are at a disadvantage and that taller people, especially men, are at an advantage.