(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.
The second program is a federal job guarantee or work provision program. A version of this was tried successfully during the Great Depression, and Kevin Hassett, who has been nominated to head the president’s Council of Economic Advisers, has advocated trying it again. It could have the added effect of giving poor people a greater sense of dignity.
The third approach is a higher minimum wage, currently the focus of a national campaign. Many economists worry that rising minimum wages hurt employment of poor people, but so far the bulk of the evidence hasn’t borne this out.
The fourth idea for giving Americans more money is the simplest — a universal basic income. This is an unproven program, but many experiments are underway, and enthusiasm among its promoters is running high.
It’s crucial to realize that these programs aren’t mutually exclusive. There’s no reason a higher EITC can’t exist alongside a jobs program, a higher minimum wage and even a basic income. Those who want to put money in the pockets of America’s poor and working class shouldn’t waste too much time fighting over which approach is the best.
For middle-income Americans, the Fed’s report shows that health is the biggest worry. Unexpected medical expenses are an ever-present threat, and staggeringly high U.S. health care prices mean that medical bills take a much bigger bite out of the middle class than in other countries. The Affordable Care Act helped, but in the end, the best approach is probably a single-payer health system or public option. Extending Medicare or Medicaid to cover all Americans is the simplest and most proven solution to both the excess cost problem and the insecurity problem.
Finally, higher-earning Americans shouldn’t be neglected. Retirement is their main worry. Government can’t do much in the long run to prop up stock and housing prices, but there’s one big way that retirement security could be improved — lower fees on retirement accounts. Even fees that seem small can drain huge percentages of one’s life savings. Mandatory annual dollar invoicing would be a great step toward showing savers exactly how much they’re forking over every year, and thus pushing the industry to charge less for all sorts of money-management services.
So there are policies available to help every group of Americans with their main worries. Some of these solutions, particularly basic income or a job guarantee, would be expensive, and would require higher taxes on the wealthy — others, like a single-payer health system, EITC, and lower money-management fees, will probably ending up saving the country money. But overall, the U.S. has a large arsenal of policy tools available to tackle its citizens’ most pressing economic problems.
— Read How the American Public Feels About Financial Regulation on ThinkAdvisor.