Lessons from marshmallows, fertility and Babylon

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Afternoon all,

It’s time for excessive flag waving, daytime drinking and back-of-a-fag-packet maths. And that’s just the Brexit discussion at the upcoming June EU Council… On the World Cup front enjoy the only month when we can all pretend that the most pressing concern around Russia isn’t which election they’ll try to rig next, but whether its transport infrastructure can handle a football tournament.

For when the inevitable happens and you realise that most of the games you’re watching are truly dire, this weekend’s reading should come in handy…

Have a great weekend,

Torsten

Director, Resolution Foundation

 

Marshmallow smarshmallow. Once upon a time (1990) a famous social science experiment found that a child’s performance in “the marshmallow test” (ie how long they can delay gratification before snaffling a sweet) was a strong indicator that they would achieve academically AND behave well as teenagers. This isn’t just a story about marshmallows – it’s been central to some policy wonks’ arguments that how well we do, and even whether we are in poverty, is driven by our individual self-control. But as part of the (welcome) fad for replicating famous papers a new piece of work has re-run the experiment. It still finds a link between marshmallow waiting time and academic achievement, but once family background and ability are controlled for, two-thirds of the effect disappears. And the most important news is that it was only waiting around 20 seconds that made the difference. The conclusion? You haven’t got to have that much self-control to achieve and poverty might be about more than marshmallows……

Culture. It matters. It’s the 21st Century. But in the US women are actually working less than they were back in 2000, compared to a 4.5 percentage point rise in the percentage of working-age women employed here in the UK. Lots of us have focused on the disaster that is maternity rights and childcare policy across the Atlantic as a cause of this worrying trend. But a new blog by Matt Bruenig points to another factor – almost half of the change is explained by the big increase in Latina groups in the US population, and the fact that Latina women have much lower employment rates. Why is that? Because culture matters – there’s a big (12 percentage point) gap in employment between single and married Latina women, which doesn’t exist among white and black demographic groups. Turns out social norms can trump economics any day of the week.

Naughty Ireland. Everyone’s used to being told that globalisation means ever lower corporation tax rates are inevitable as countries compete to attract foot loose and fancy free capital investment. Here in Britain we’re working really hard not just to compete in but to win that race to the bottom – our corporate tax rate set to reach a ludicrous 17 per cent in 2020. But an interesting new piece of work from Gabriel Zucman and colleagues shows that it’s not capital investment countries are competing over but profit-shifting by multinationals. As they put it: ‘machines don’t move to low-tax places; paper profits do’. They estimate that in 2015 almost 40 per cent of multinational profits were shifted to tax havens. And this isn’t just about profits being booked in sunny islands in the Caribbean – Ireland stands out for gaming the system with foreign firms there having ratios of profits to wages of as much as 800 per cent. Now maybe some employees are that profitable – but I’ve never met them…

Housing boom, baby bust. Post-financial crisis the US has seen a house price recovery but a baby bust. But are soaring house prices and a falling birth rate related? Well a new study finds a link between house price rises and birth rates for 25- to 29-year-old women. Places in the top 20 per cent for price rises saw late-20s fertility drop by about 13 per cent from 2010 to 2016. The authors speculate – though it isn’t proved – that people delay family formation until they are financially secure, which takes longer when houses get more expensive. Looking ahead the bigger question is whether millennials will delay having kids or have less of them. And it’s not just the Yanks – see a similar study for the UK that finds if house prices go up, the birth rate increases among home owners but decreases among renters.

Radical history lessons. There’s lots of clamour for big bold ideas in economic policy – usually in the context of concerns about inequality of income and wealth. An intriguing blog from Charles Goodhart and Michael Hudson takes some historical inspiration (from Babylonia among other places) to try and answer that demand. They look back at the ancient idea of the debt jubilee, which some ancient societies implemented. Every generation or so, rulers would cancel agricultural debts and free bond-servants to avoid society becoming polarised with too many people not benefitting from the status quo. But what would a radical jubilee policy to build wider asset ownership look like today, given that writing off large swathes of debt would destroy the banking system? The authors have three ideas that aren’t new but would be radical: property taxes to fund support for first time buyers, graduate taxes rather than student debt, and capital grants for the young – sound familiar?

Chart of the week… It’s the perennial question for all parents – how much to spend on a birthday present. Now imagine you’re the responsible adult for the NHS as it approaches its 70th birthday in July. Nightmare. No wonder rows are brewing over whether to spend 5, 10 or 20 (billion) pounds. But the chart below from our Healthy Finances report shows why we’re having that row. If the government doesn’t announce quite a bit more cash for the NHS, average annual spending growth is on course to be lower this decade than at any other time in the NHS’s history. Real terms per capita spending is set to grow by an average of just 0.4 per cent a year between 2010-11 and 2019-20, down from an average of 5.9 per cent a year in the preceding decade.