The rise of women in the workforce has been hailed by The Atlantic as not only the greatest economic development in the last 50 years, but also the most positive overall development in the whole global economy. But a new study suggests that, for working women in the U.S., there is a surprising cost to earning more than your partner. Evidence suggests that couples are less likely to get married if the woman’s income exceeds her partner’s. Once married, a wife earning more than her husband is more likely to be unhappy in the marriage, more likely to feel pressured to take fewer hours, and more likely to get divorced.

To fully unpack this thing, let’s start with a quick and dirty overview of the marriage market, as economist are fond of call it rather un-romantically. In the last 50 years, marriage has been in decline, technically speaking, as the share of adults who are married has fallen from 72 percent to 51 percent of the 18-and-over population. Sounds like one big marriage drought, but in fact, there are two marriage markets (at least). Among the most-educated and highest-earning men and women, marriage rates are generally high and rising, although these couples are also getting hitched a bit later in life than they used to. Meanwhile, the bottom half of female earners have seen their marriage rates decline by 25 percentage points since 1970. Here’s the picture from the Hamilton Project:

The classical economic explanation for the decline of marriage among the low-income starts by blaming the guys. Sorry, guys. This theory of marriage starts with “gains from trade” (a wonky term for “what each side brings to the table”). You’ll note that declining marriage rates correlate roughly with declining male earnings (see graph below, also from the Hamilton Project). Men simply offer less financial security than they used to — especially compared with women, who are more financially self-sufficient than ever.

This classic approach to marriage economics might explain why there are fewer overall marriages. But it fails to explain something that might be even more interesting: Why there are so very few marriages where women earn more than their husbands, and why such marriages are so troubled.

This story is best told through pictures. Here’s the distribution of marriages by the wife’s share of household income. As you can see, there’s a sharp drop-off after the .5 mark, where the women earns more than 50 percent of the household income. That means it’s surprisingly rare to see a woman earn 60 percent or more of a couple’s income today, even though women earn a similar share of all today’s bachelor degrees.

This drop-off is simply too steep to be explained by randomness or classical economics. If men and women were forming marriages without concern for relative incomes, we’d expect a smoother distribution curve, more like this guy …

If classical economics doesn’t do the trick, maybe it’s because the dearth of female breadwinners has little to do with classical economics. In a cool new paper, Marianne Bertrand, Jessica Pan, and Emir Kamenica pose a theory that some people might find controversial but others might find intuitive: What if there’s a deficit of marriages where the wife is the top earner because — to put things bluntly — husbands hate being out-earned by their wives, and wives hate living with husbands who resent them?

If this were true, we would expect to see at least three other things to be true. First, we’d expect marriages with female breadwinners to be surprisingly rare. Second, we’d expect them to produce unhappier marriages. Third, we might expect these women to cut back on hours, do more household, or make other gestures to make their husbands feel better. Fourth, we’d expect these marriages to end more in divorce. Lo and behold (as you no doubt guessed), the economists found all of those assumptions borne out by the evidence.

“There simply aren’t nearly as many relationships with women out-earning men as we would expect [through random pairing],” Kamenica told me. “And women who should out-earn their husbands based on their education and other demographics are more likely to stay at home [and not work] than the similar women who don’t out-earn the husbands,” Kamenica said.

But that’s not the most surprising finding from their research, he added. The most surprising thing was that wives who earn more from paid work also report doing significantly more chores around the house. This doesn’t make much sense, intuitively. For women and men at all income levels, more work in the office usually leads to less time spent doing chores at home. But suddenly, when a wife earns more than her husband, her hours spent on chores and childcare go up.

“Classical economics can’t explain that increase,” Kamenica said. “The only way to make sense of it is compensatory behavior.” In English, please? “Maybe the husband feels threatened, so she does more of the cooking, even though she earns more.”

The economists found the exact same trend in Canada. Not only did they find a “sharp decrease in the number of couples once the wife’s income exceeds the husband’s,” but also they found no correlation between divorce and income except when the wife earned more than their husbands.

One hundred years ago, husbands and wives specialized. He worked for pay. She worked at home. But with married women working more and more, this paper suggests gender norms are changing slower than gender economics, and many women still aren’t comfortable out-earning their boyfriends — and many men still aren’t comfortable earning less than their wives.

They’d better get comfortable. Women are going to be the primary breadwinners in more and more families for so many reasons  — (1) the shift from brawn economy to service economy; (2) women’s growing share of college degrees; and (3) sexism softening among male-dominated industries as women establish themselves in more positions of power. A national aversion to successful wives is a really bad recipe for economic growth and family formation. Get over it, guys. It’s a woman’s world, now.

[via theatlantic]

The United States has a problem: rapidly rising student debt. It also has a solution: online education. The primary reason for spiraling student debt is the soaring costs of a college education at a physical college. Online education strips away all of those expenses except for the cost of the professor’s time and experience. It sounds perfect, an alignment of technology, social need and limited resources. So why do so many people believe that it is a deeply flawed solution?

Because it means massive swaths of higher education is about to change. Technology has disrupted many industries; now it’s about to do the same to higher ed.

But it is the students who need aid, and not the financial kind. They have too much of that as it is. The amount of student debt is large and getting larger. It will top $ 1.1 trillion this year; two-thirds of college students will graduate with debt. The average debt burden is $ 27,000, though that is skewed higher by a small percentage who owe a lot more. Forty percent of students owe less than $ 10,000. The amount of student debt has doubled since 2007, tripled since 2004, and many economists believe that the effect on the overall economy is negative.

While college graduates undoubtedly land in higher-paid jobs (earning almost twice those with only high school degrees), that may be offset by the burden of interest payments on student loans. Says Diane Swonk of Mesirow Financial: “Student debt has a dramatic impact on the ability to buy a house, and to buy the dishwashers and the lawnmowers and all the other purchases that stem from that … It has a ripple effect throughout the economy.”

As for the students, the price of the debt is often not worth the benefits. According to economists at the Federal Reserve Bank of New York, 17 percent of students are in default, compared with 10 percent in 2004. And a large portion of those defaulting are over 30 years old, which means that the problems with student debt don’t disappear with age.

Some debt is clearly manageable, rational and reasonable. Taking on a modest amount of debt for a degree that dramatically enhances your earnings power makes eminent sense. Yes, interest rates on federal student loans are too high relative to mortgage and market rates, and they are set to go higher this year, possibly to nearly 7 percent. But the problem with student debt is not that it has gotten so large so fast; it’s the extent to which a college degree has become so expensive for so many who cannot afford it, yet leaves so many with a credential that is excessively costly relative to the skills it offers.

Colleges, including commuter community colleges, cost money to run and build, and they cost ever more as even third- and fourth-tier institutions try to entice students. Most students earn a degree because the credential is required for almost all higher-paying jobs. If the cost is between $ 25,000 and $ 75,000, and more than $ 200,000 at elite schools, then that is the price that must be born.

But is it? That is where the burgeoning world of massively online education presents such an opportunity. Institutions like the University of Phoenix have been offering online courses since the 1990s, but this new wave is larger in scale and now includes traditional universities. Online courses cost a fraction of a brick-and-mortar education. New companies such as Udacity and Coursera have been experimenting with new models, ranging from per fee, limited-enrollment classes with select professors to the so-called MOOCs (“massive, open, online classes”) that attract tens of thousands of students per class. Coursera, barely a year old, already has 3.5 million registered users. Students anywhere in the country and indeed the world can sign up, take a course with skilled professors, meet with other students in their area for study groups and learn the material. Even more crucial, they assemble a menu of courses that combine pure learning and more-tailored vocational studies based on skills needed for particular jobs. And all for a fraction of the costs.

The problem is that many in the business of higher education hate the idea. It’s disruptive to the traditional model and profoundly threatening to the current economics of the academic industry. The elite schools have embraced the online world because it allows them to use the power of their brand to extend everywhere. But many community colleges find the prospect more challenging, as it could well undermine their mission and the need for them. One critic quoted in a recent New Yorker described what might happen:

Imagine you’re at South Dakota State and they’re cash-strapped, and they say, ‘Oh! There are these Harvard courses. We’ll hire an adjunct for three thousand dollars a semester, and we’ll have the students watch this TV show.’ Their faculty is going to dwindle very quickly. Eventually, that dwindling is going to make it to larger and less poverty-stricken universities and colleges.

Unquestionably, the next wave of online education will disrupt. It will threaten faculty and colleges, but it will empower students. Yes, we are a few years away from online courses providing degrees and credentials that will be seen by the marketplace as adequate. For now, taking courses online may enrich your life, but it will not provide the entrée into jobs requiring a degree, whether associate’s or bachelor’s. Many fields of graduate study will be untouched, but many others – law, accounting and others – are ripe for online credentializing.

Having spent almost a decade as a graduate student and professor, I was always struck by how resistant to change and questioning academic cabals could be. The growth of online education is yet another example. Many are embracing it, and many are resisting it because it represents change to a world that often moves at the pace of medieval guilds.

The beneficiaries, however, are students, which really means all of us. The costs of obtaining needed credentials will plummet, and the ability to create more tailored, vocational programs aligned with the skills employers need will increase exponentially. That will likely lead to some shrinkage in the number of physical institutions offering degrees, but an increase in the number of people obtaining them. It will also mean that those taking on debt – especially at elite schools – will be those most likely to be able to bear those debts, while those who need more specific and vocational education for decently paid but not high-paying jobs will not be saddled with loans out of proportion to their earning potential.

This online educational revolution is the next wave, and it is still very early. Rarely has a societal problem been presented with such an ideal solution. We should embrace it passionately, because it’s happening whether we do or not.

“The Edgy Optimist” column is initially published at Reuters.com, an Atlantic partner site.

[via theatlantic]

(Reuters)

I don’t think suffering is good, but I do believe that we have to pay a price for past sins, and the longer we put it off, the higher the price will be.

But this cure has been one ice-cream sundae after another. It can’t be that easy, can it? The puritan in me says that there has to be some pain. That’s not to say that there hasn’t been plenty of economic pain. But that pain has come from the recession itself, not the cure.

[via theatlantic]

Remember when you first learned what socialism was and somebody explained that it was nice in theory, but bad in practice? Here’s the sort of thing they were talking about. 

Venezuela is now suffering from a government-induced toilet paper shortage. The situation has become politically dire enough that the government has promised to import 50 million rolls to calm shoppers. 

For those familiar with the Bolivarian Republic’s less-than-sterling economic record of late, this won’t come as a surprise. The country, while relatively wealthy by developing-world standards, has been suffering through a chronic shortfall of everything from groceries to asthma inhalers, resulting in desperate lines of shoppers and a healthy black market trade in kitchen staples like flour. 

While the government prefers to blame shadowy political enemies for the shortages — according to the AP, Commerce Secretary Alejandro Fleming said the toilet paper crisis was the result of “excessive demand” sparked by “a media campaign that has been generated to disrupt the country” — the explanation is much more straightforward.

In 2003, then President Hugo Chavez slammed currency controls into place to prevent money from fleeing the country while government seized land and corporate assets. Those rules have made it harder to buy imports. Meanwhile, price caps meant to make basic staples affordable to the poor are so low that, for many products, they don’t pay for the cost of production. 

Nobody’s going to make toilet paper if they’ll lose money selling it.  

It’s tempting make light of this situation, but it’s really sort of tragic, yet another self-inflicted wound on an economy rich in natural resources. The shortages are bad enough that Venezuela’s central bank has created a scarcity index (shown below in this WSJ graph), which has lately been hovering around a four-year peak. “The revolution will bring the country the equivalent of 50 million rolls of toilet paper,” Fleming told a state news agency. It would be much easier to let the free market do it instead. 

[My editor has forbidden me from writing puns into this story, but feel free to get them out of your system in the comments.]

[via theatlantic]

The Treasury Inspector General issued a report today finding the IRS used “inappropriate criteria” to target conservative groups. Long story very short: In response to a surge in 501(c)(4) applications, some IRS officials took short cuts to determine if the organizations were acting in an overtly political manner, which would violate their tax-free status (i.e.: flag anything that includes the words “tea party”). The IRS told the group to use less politically charged criteria. And they didn’t.

Here is the president’s response to today’s report (via Ryan Lizza)

Here is the summary of the Inspector General report:

Highlights of Inspector General report on IRS targeting of conservative groups

And here is the report in full:

Inspector General report on IRS targeting conservative groups

[via theatlantic]

The Wall Street Journal reports today that long-suffering Rust Belt cities like St. Louis and Detroit are hoping to arrest their decline by recruiting more immigrants. But they have a problem: Foreigners usually settle near family or job opportunities. And while old-line industrial cities have plenty of charms (one hasn’t truly lived until they’ve eaten a deep-fried brat), they are lacking not only for foreign-born communities, but also for families and workers in general.

Here’s what places like Detroit, St. Louis, and Pittsburgh do have, however: big universities, if not inside their city limits, then fairly close by. And so unsurprisingly, some Rust Belt efforts at immigrant outreach have been focused on convincing international students to stay put after graduation. 

There’s a lesson for Congress in this story. Right now, the way politicians think about high-skilled immigrants is deeply influenced by tech companies, which dubiously argue that we need more foreign talent because there’s a widespread shortage of computer skills in the United States. Silicon Valley types like this angle because it justifies expanding guest worker pipelines such as the H1-B visa program, and guest workers make for fairly compliant and often inexpensive employees (some would call them “indentured”). But there’s a much better justification for welcoming educated workers to our shores. They’re good for growth. They can start businesses, conduct research at our universities, and join corporations. At an even more basic level, they buy homes, shop, and have families, all of which add up to more spending at local businesses. In short, they set down roots in a community, which is what Rust Belt cities are really hoping for.

Immigrants will be more likely to do those things, however, if they’re given permission to stay here long-term. It’s easier to invest in a home if you’re certain you’ll be in the U.S. more than five years down the line. Likewise, you’re more likely to take career risks, or demand that you be paid what you’re worth, if you’re not relying on your employer to keep you in the country.

Right now, Capitol Hill is taking an all-of-the-above approach to high-skill foreigners. The immigration bill would dramatically grow the annual allotment of guest worker visas available to corporations and expand the number of green cards for educated professionals. But we should be focusing less on the former, and more on the latter — pushing for fewer guest workers and for more green cards. We shouldn’t just think about what companies want in Silicon Valley, but what people are trying to do in places like Detroit. 

[via theatlantic]

Hedge fund manager Paul Singer thnks Ben Bernanke is destroying society (Reuters)

There’s nothing more dangerous than knowing a little economics. Just ask hedge funders.

The past four years have been a great time for investors, but not for hedge funds. While the S&P 500 has rallied more than 140 percent from its March 2009 lows, the supposedly smart money hasn’t made nearly as much of it. Hedge funds, as a whole, haven’t beaten the market — and they charge investors 2 percent of all assets, and 20 percent of all profits (if there are any) for this privilege. Indeed, in 2012, big-name managers Ray Dalio and Steve Cohen made $ 1.7 billion and $ 1.4 billion, respectively, despite lagging the S&P 500. Not bad work, if you can get it.

But hedge funds haven’t just been a sucker’s bet for the past five years. It’s been more like ten. As you can see in this chart from The Economist, a 60-40 equity-bond index fund would have returned over 90 percent the past decade. Hedge funds would have returned just 17 percent, after fees.

Why can’t the masters of the universe master a simple index fund? Well, markets are efficient-ish, and there are only a handful of people who can consistently beat them. But that’s not what they think is going on. They think a certain Princeton economics professor is to blame. (No, not Paul Krugman).

As Joe Weisenthal points out, the recent Ira Sohn Investment Conference hasn’t just been a confab for hedge fund bigwigs; it’s been a never-ending two minutes of hate for Ben Bernanke. Now, the Fed Chairman might seem like an odd target for big-money bile, and he should. If nothing else, quantitative easing has propped up equity prices the past few years — but that apparently isn’t what hedgies want. Why? A few theories. For one, as Weisenthal argues, most hedge fund managers today came of age during the 1970s, back when inflation was real and not bogeyman, and they can’t shake their fear of what they think is easy money. For another, they (mostly) don’t understand that the rules change when the economy is in a liquidity trap. Or, as Krugman puts it, they don’t like that they keep being wrong, and a bearded academic like Bernanke (or somebody else for that matter) keeps being right.

In other words, they don’t get Keynesianism.

The biggest mistake an investor can make today is not realizing it’s Keynes’ world, and we’re all just living in it. Now, in normal times, there’s a straightforward relationship between money and prices: the more of the former, the higher the latter. (Indeed, Keynes wrote about this before he invented Keynesian economics). But these aren’t normal times — interest rates are stuck at zero. When cash and bonds are close substitutes — both yield nothing — printing money won’t increase inflation. It won’t do anything. New money will just pile up in the banks as excess reserves. That’s exactly what you can see in the chart below: reserves have gone up over 1,000-fold the past five years, but prices haven’t even gone up 10 percent.

But hedge funders see something different in this chart. They see the canary in the hyperinflationary coal mine. They figure the banks will eventually lend out these $ 1.8 trillion of reserves, and this will make prices explode. Or, alternatively, they think the Fed will soon have to start hiking interest rates (including interest on reserves) to head off such a stagflationary nightmare. In other words, they can’t imagine that quantitative easing won’t end in tears: as either a rerun of the inflationary 1970s or the bond massacre of 1994. And they think this is the next black swan. 

Remember, the promise, and allure, of hedge funds is that they can deliver outsized returns. That’s why they can charge such outsized fees (though maybe not for long). It’s about identifying major market mispricings. That’s what hedgies who shorted the housing bubble found, and that’s what hedgies who went long inflation or short bonds thought they had found.

Let me conclude with a gift suggestion for that hedge fund manager who has it all. Ubiquitous fund-of-funder Anthony Scaramucci says middle-aged white men adore the band Train. But there’s a better way to spend $ 90 than on a soft-rock concert. It’s a Paul Krugman textbook.

“Hey Soul Sister” has nothing on the IS-LM model.

[via theatlantic]