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The Economics of Early Childhood Investments

April 7, 2015 Comments off

The Economics of Early Childhood Investments (PDF)
Source: Council of Economic Advisers

Early childhood, beginning in infancy, is a period of profound advances in reasoning, language acquisition, and problem solving, and importantly, a child’s environment can dramatically influence the degree and pace of these advances. By supporting development when children are very young, early childhood development and education programs can complement parental investments and produce large benefits to children, parents, and society.

An analysis by the President’s Council of Economic Advisers describes the economic returns to investments in childhood development and early education. Some of these benefits, such as increases in parental earnings and employment, are realized immediately, while other benefits, such as greater educational attainment and earnings, are realized later when children reach adulthood. In total, the existing research suggests expanding early learning initiatives would provide benefits to society of roughly $8.60 for every $1 spent, about half of which comes from increased earnings for children when they grow up.

Big Data and Differential Pricing

April 7, 2015 Comments off

Big Data and Differential Pricing (PDF)
Source: Council of Economic Advisers

Big data refers to the ability to gather large volumes of data, often from multiple sources, and with it produce new kinds of observations, measurements and predictions. Commercial applications of big data deserve ongoing scrutiny given the speed at which both the technology and business practices are evolving. One of the many questions raised by big data is whether companies will use the information they harvest to more effectively charge different prices to different customers, a practice that economists call price discrimination. Economics suggests that many forms of differential pricing, such as senior citizen discounts at the box office or tiered pricing for air travel, can be good for both businesses and consumers. However, the combination of differential pricing and big data raises concerns that some consumers can be made worse off, and have very little knowledge why. This report finds that many companies already use big data for targeted marketing, and some are experimenting with personalized pricing, though examples of personalized pricing remain fairly limited. While substantive concerns about differential pricing in the age of big data remain, many of them can be addressed by enforcing existing antidiscrimination, privacy, and consumer protection laws. In addition, providing consumers with increased transparency into how companies use and trade their data would promote more competition and better informed consumer choice.

The Effects of Conflicted Investment Advice on Retirement Savings

February 24, 2015 Comments off

The Effects of Conflicted Investment Advice on Retirement Savings (PDF)
Source: Council of Economic Advisors
From blog post (Whitehouse.gov):

Americans’ retirement income is derived from many sources, including Social Security, traditional pensions, employer-based retirement savings plans such as 401(k)s, and Individual Retirement Accounts (IRAs). While this landscape is familiar today, it reflects a dramatic change from the landscape 40 years ago. The share of working Americans covered by traditional pension plans—which offer a guaranteed income stream in retirement—has fallen sharply. Today, most workers participating in a retirement plan at work are covered by a defined contribution plan, such as a 401(k). Importantly, the income available in retirement from a defined contribution plan depends on both the amount initially saved and the return on those savings. The shift from traditional pensions to defined contribution plans raises important policy issues about investment responsibilities and the roles of individual households, employers, and investment advisers in ensuring the retirement security of Americans.

Defined contribution plans and IRAs are intricately linked, as the overwhelming majority of money flowing into IRAs comes from rollovers from an employer-based retirement plan, not direct IRA contributions. Collectively, more than 40 million American families have savings of more than $7 trillion in IRAs. More than 75 million families have an employer-based retirement plan, own an IRA, or both. Rollovers to IRAs exceeded $300 billion in 2012 and are expected to increase steadily in the coming years. The decision whether to roll over one’s assets into an IRA can be confusing and the set of financial products that can be held in an IRA is vast, including savings accounts, money market accounts, mutual funds, exchange-traded funds, individual stocks and bonds, and annuities. Selecting and managing IRA investments can be a challenging and time-consuming task, frequently one of the most complex financial decisions in a person’s life, and many Americans turn to professional advisers for assistance. However, financial advisers are often compensated through fees and commissions that depend on their clients’ actions. Such fee structures generate acute conflicts of interest: the best recommendation for the saver may not be the best recommendation for the adviser’s bottom line.

CEA’s new report The Effects of Conflicted Investment Advice on Retirement Savings examines the evidence on the cost of conflicted investment advice and its effects on Americans’ retirement savings, focusing on IRAs. Investment losses due to conflicted advice result from the incentives conflicted payments generate for financial advisers to steer savers into products or investment strategies that provide larger payments to the adviser but are not necessarily the best choice for the saver.

The 2015 Economic Report of the President

February 19, 2015 Comments off

The 2015 Economic Report of the President
Source: Council of Economic Advisers

This morning, the Council of Economic Advisers released the 69th-annual Economic Report of the President, which reviews the United States’ accelerating recovery and ways to further support middle-class families as the recovery continues. The economy is recovering from the Great Recession at an increasing pace, growing at an annual rate of 2.8 percent over the past two years, compared with 2.1 percent over the first three-and-a-half years of the recovery. The speed-up is especially clear in the labor market, where job gains have reached a pace not seen since the 1990s. But it is essential that a broad range of households benefit from the United States’ resurgent growth, so this year’s Report focuses on factors that are important to middle-class incomes: productivity, labor force participation, and income inequality. The President’s approach to economic policies, what he calls “middle-class economics,” aims to improve each of these long-standing elements and ensure that Americans of all income levels share in the accelerating recovery.

The Cost of Delaying Action to Stem Climate Change

August 12, 2014 Comments off

The Cost of Delaying Action to Stem Climate Change (PDF)
Source: Council of Economic Advisers (White House)

The signs of climate change are all around us. The average temperature in the United States during the past decade was 0.8 ° Celsius (1.5 ° Fahrenheit) warmer than the 1901 – 1960 average, and the last decade was the warmest on record both in the United States and globally. Global sea levels are currently rising at approximately 1.25 inches per decade, and the rate of increase appears to be accelerating. Climate change is having different impacts across regions within the United States. In the West, heat waves have become more frequent and more intense, while heavy downpours are increasing throughout the lower 48 States and Alaska, especially in the Midwest and Northeast. The scientific consensus is that these changes, and many others, are largely consequences of anthropogenic emissions of greenhouse gases.

The emission of greenhouse gases such as carbon dioxide (CO 2) harms others in a way that is not reflected in the price of carbon – based energy, that is, CO 2 emissions create a negative externality. Because the price of carbon – based energy does not refl ect the full costs, or economic damages, of CO 2 emissions , market forces result in a level of CO2 emissions that is too high . Because of this market failure, public policies are needed to reduce CO 2 emissions and thereby to limit the damage to economies and the natural world from further climate change.

There is a vigorous public debate over whether to act now to stem climate change or instead to delay implementing mitigation policies until a future date. This report examines the economic consequences of delaying implementing such policies and reaches two main conclusions, both of which point to the benefits of implementing mitigation policies now and to the net costs of delaying taking such actions.

The Labor Force Participation Rate Since 2007: Causes and Policy Implications

July 31, 2014 Comments off

The Labor Force Participation Rate Since 2007: Causes and Policy Implications (PDF)
Source: Council of Economic Advisers (White House)

In 2008, the U.S. economy collided with two historic forces. The first force was the Great Recession, the most severe economic crisis in a generation. While the economy has recovered considerably over the last five years, there is little doubt that more work remains to address some of the challenges left in the wake of the Great Recession. The turmoil of 2008 inflicted tremendous pain on millions of families, overshadowing the fact that 2008 also marked a unique milestone in U.S. economic history. That year, the first baby boomers (those born in 1946) turned 62 and became eligible for Social Security early retirement benefits. This second force — the demographic inflection point stemming from the retirement of the baby boomers — was felt far less acutely than the Great Recession, but will continue to have a profound influence on the economy for years to come, well after the business cycle recovery from the Great Recession is considered complete.

In addition to these inflection points in 2008, a number of longer – term trends had been playing out in the U.S. labor force prior to 2008 — and have continued since then. These include the nearly continuous decline in labor force participation rates for prime – age males (i.e., age 25 – 54) since the mid – 1950s and the dramatic rise in labor force participation rates for prime – age females in the 1970s and 1980s followed by a st alling and slight trend decline after the late 1990s.

Many dimensions of the economy’s performance over the last several years can only be properly evaluated when the effects of the Great Recession, the retirement boom, and the longer – term labor force trends are taken into account . One of the clearest illustrations of this point is the labor force participation rate, which represents the fraction of the adult population either working or looking for work. Changes in labor force participation reflect not just current economic conditions like job availability and workers’ assessments of job – finding prospects, but also more structural factors like the age distribution of the population and other aspects of society that impact people’s decisions to participate in the labor force .

This report analyzes the evolution of the labor force participation rate since late 2007 and attempts to quantify the effects of these various forces. We examine the period since 2007 to focus on how each of the two largest forces, the Great Recession and the retirement of the baby boomers, has impacted labor force participation in recent years . We find that the combination of demographic changes and the drop in labor force participation that would have been expected based on historical business cycle patterns explain most but not all of the recent drop in labor force participation. This implies that other factors, likely including both a continuation of pre – existing trends in labor force participation by certain groups and the unique ef fects of the Great Recession have also been important. This report also discusses the labor force participation rates for different groups, discusses potential future scenarios for the participation rate, and lays out policies that would help to boost part icipation in the years to come.

White House — Increasing Tourism to Spur Economic Growth

June 3, 2014 Comments off

Increasing Tourism to Spur Economic Growth (PDF)
Source: Executive Office of the President

Travel and tourism is a major driver of the U.S. economy. It supports millions of jobs across the country and furthers U.S. strategic and diplomatic interests.

In May 2012, the Administration launched the National Travel and Tourism Strategy for expanding travel to and within the United States, and the President set an ambitious goal of attracting and welcoming 100 million international visitors annually by the end of 2021, who are estimated to spend $250 billion on an annual basis. Two years later, we are on track to meet our goal, and we have made significant progress on specific actions to encourage and make it easier for international travelers to visit the United States…

This report highlights the many economic benefits to the United States from increased travel and tourism and the progress that the Administration is making in implementing the President’s strategy.

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