(Bloomberg View) — Usually, when economists think about how to improve the lives of people, they rely on introspection and theoretical assumptions. Many an econ paper buries itself in abstract calculations of utility and welfare, deploying pages of equations to derive optimal rules of policy. But there’s a simpler, alternate approach to figuring out what kind of policies people want and need: Just ask them.
The Federal Reserve Board does this every year, in its Report on the Economic Well-Being of U.S. Households. Last year’s report just came out, and it has a lot to tell us about what kind of things the U.S. government could do to improve people’s lives.
Many of the findings won’t be a surprise. College graduates are doing better than those with just a high-school degree. Many Americans have little savings, live on the knife edge of insolvency, fear a sudden large medical bill, and struggle with student-loan debt. Black and Hispanic Americans report slightly more economic worries than whites do. But overall, most Americans say that they’re doing well economically. Even among those without college degrees, 60% say that they’re either doing well or living comfortably, and this number has crept up several percentage points in the past four years. Improvements have come across every age, race and education level. The recovery from the Great Recession hasn’t gone unnoticed, it seems.
But many problems persist. The report analyzes the results of open-ended surveys, in which Americans discussed their economic worries in their own terms. The responses were categorized and broken down by income group:
For lower-income Americans, holding down a job and being able to pay this month’s bills loomed as the largest concerns. For those in the upper income ranks, retirement security mattered the most. And for middle-income families, health care was cited as the biggest problem.
These findings should give policy makers a road map for how to improve Americans’ lives at every income class. They should also guide economists’ research efforts. Each level of American society has its own needs, and the government should be thinking about how to help everyone at once.
Poor and working-class people have the simplest needs — basically, they need more money. Fortunately, economists have spent a lot of time thinking about how to get poor people more money, and there are at least four approaches worthy of attention.
The first of these is the earned income tax credit, which pays poor people to work. Despite worries that it would end up as a subsidy to employers, the EITC is a proven poverty-fighter. Some leaders are already suggesting it be expanded substantially.