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February 8, 2021

The Superstar Research Driving the Checks Debate Has a Problem

It's based on ZIP code-level data, which may not be as precise as the
researchers contend

 

A study being used as a pretext to limit relief checks is not based on
household-level data. (Eric Gay/AP Photo)

The Chief

Despite Larry Summers' best efforts, it doesn't look like there's
much in the $1.9 trillion American Rescue Plan that's going to change
from Joe Biden's initial proposal. The Senate parliamentarian will
determine the fate of the $15 an hour minimum wage (Biden is being
rather defeatist

in predicting it won't make it, considering the budget impact

is as much as $500 billion.) This may also doom the paid leave sections
of the bill, and the $3,000-$3,600 annual child allowance
,
though if "giving money to families with kids" doesn't have a direct
budget impact we have to rethink the whole process.

The real variable is whether direct payments to Americans will have the
same means test threshold as in prior COVID relief bills, or whether it
will be narrowed, phasing out beginning at $50,000 in income for
individuals rather than $75,000 ($100,000 rather than $150,000 for
couples). Treasury Secretary Janet Yellen is now floating a
split-the-difference $60,000
.

For all the attempts to make this a matter of economics, it's really a
political question. There's an innate fear from Democrats of some Fox
News headline of a rich family getting a government check. But that
neglects what should be the much bigger fear of voters who got the first
two checks missing out on the third and properly blaming the new
administration for it. As Sen. Jeff Merkley (D-OR) says
,
if Democrats want to so clearly break a campaign promise and lose all
the momentum they gained in Georgia last month, that's on them. The
public doesn't actually care

about "undeserving" check recipients; this is an elite political
obsession that's going to randomly hurt a lot of people
.

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Because political elites would rather see themselves motivated by facts
and logic, they have attempted to shoehorn an economic rationale for
tightening the means test and leaving 45 million or so Americans without
a full check. They've zeroed in on a study

from Raj Chetty which claims to prove that the second check, the $600
one approved in December and sent out in early January, was not spent in
the first couple weeks by households making more than $78,000 a year.

Everyone favoring more targeted checks cites the Chetty analysis
to prove
their point, including the aforementioned Mr. Summers
.
Opportunity Insights, Chetty's Harvard-based organization, is
well-funded by very rich interests
, and has the ear
of official Washington.

I've already covered how the economics of the Chetty analysis are just
wrong
:
whether a transfer payment is spent immediately is not indicative of
whether it's worthwhile (also debt reduction

is not a poor use of funds, either). But the analysis is quietly
controversial in economic circles for a different reason: This study of
the spending habits of low- and middle-income households isn't based
on household-level income data?

As described in their technical appendix
,
the Opportunity Insights data is derived from a proprietary set of
spending data from Affinity Solutions, which has a set of about 10
percent of all U.S. credit and debit card activity. (Though it's
proprietary, Opportunity Insights has made the data publicly available
so researchers
can replicate their findings.) That data are sorted by the ZIP code
associated with the card. And then the ZIP codes are divvied up "using
2014-2018 ACS (The Census Bureau's American Community Survey)
estimates of ZIP Code median household income," according to the
appendix.

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The only way you get to the conclusion that low-income people spent the
check quickly and higher-income people didn't, in other words, is by
saying that ZIP codes that had lower-income people in them between three
and seven years ago contained a higher level of immediate spending than
ZIP codes with higher-income people during this period.

All of this time, of course, pre-dates the pandemic. As Lindsay Owens,
interim executive director of the Groundwork Collaborative, told me,
"There is absolutely no reason to be nickel and diming families, many of
whom have seen their incomes drop since 2019, on the size of the
promised checks."

When I asked Opportunity Insights about this, they acknowledged "the
distribution of incomes change within each ZIP code over time and as
people move." However, they expressed confidence that 2019 distribution
of incomes is similar to the ACS ZIP code data, and that since
employment rates have fully recovered at the top end of the income
distribution, that the ZIP code data for the top households is fairly
consistent.

ZIP code data is used fairly commonly in micro-economics, and you could
make a somewhat plausible case that this proxy works. But lots of
economists have problems with it. "I think the paper is unsuitable for
the policy discussion," said Claudia Sahm, a former Federal Reserve and
Council of Economic Advisers economist. "It's one paper at odds with
20 years of research." Sahm noted that only household-level spending and
income data would be appropriate to draw the kinds of conclusions the
paper reaches. The sampling errors in the ACS data are pretty high. "I
know the sampling error has to be in the thousands of dollars, there's
no way it's that precise," Sahm said.

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There's also potentially significant variation of income within ZIP
codes, a point that Census economist John Voorhies made on Twitter
. The
Opportunity Insights data is presented implicitly as if the income
variation doesn't apply. "This means there's such severe income
segregation that the only possible policy conclusion from your research
is to burn the whole thing down and start over," Voorhies noted.

Opportunity Insights, when questioned, agreed that there is some income
variation within a ZIP code, and said that there are bounds for the
underlying conclusions (in other words, spending from a particular
income level may vary from the analysis a bit). Of course, that's not
how the paper is presented; it makes a fairly firm argument that
households under $46,000 are spending the checks right away and
households above $78,000 are not. More important, this is happening in
the midst of a live discussion with major policy implications. "Frankly
it's irresponsible what they're doing with the data," Sahm said "The
research is not solid, and it's presented in a way that's
irresponsible and wrong."

You can believe the general story, as economist Dean Baker does, that
higher-income households are doing pretty good in this economy, which
would lead you to the same conclusions as Chetty's data. But applying
his fine-grained analysis to a means test threshold would still be a
leap of faith. And that's before you get to the obvious point that we
have no way to apply a specific income-threshold means test, because the
only tax data we have is from 2019. (That will start to change as filing
season opens this week; apparently once you file, the IRS will use 2020
tax data if
it comes in before the relief payments go out. This puts the burden on
filers to rush, or not rush, to maximize the payment, which just
highlights the inexact nature of all this.)

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JPMorgan Chase, using its own credit and debit card data, has also put
out analyses
of
spending habits in this form. (Reportedly an upcoming analysis of the
second relief checks will not show the same thing as Chetty's work.)
That uses household-level income statistics, and the spending series was
developed for six years to fine-tune it to spit out real-time data.
Opportunity Insights has only developed its tracker in the last year.

There's been some notable pushback to the Chetty-driven concept of
further means testing the checks, and not just the expected kind from
the left
.
Reps. Lisa Blunt Rochester (D-DE) and David McKinley (R-WV) pointedly
introduced a bill

last Friday with the original phase-out levels; Blunt Rochester was a
co-chair of Biden's campaign. Sen. Jon Ossoff (D-GA), who campaigned
on the checks, told HuffPost
,
"I don't want to see any reductions in the help that we're sending
to people."

President Biden has held back the forces of austerity

on most counts early in his presidency. But he's left open the
question of means testing the checks. The fact it's based on sketchy,
untested, proxy data that the government has no real way to act on
should push him over the top.

"If I knew what families really needed this money, I'd send it to
them," said Sahm, stressing the inexact nature of both Chetty's
research and IRS pre-pandemic income data. "The reality is we do not
know. Stop pretending that you know."

What Day of Biden's Presidency Is It?

Day 20.

We Can't Do This Without You

Today I Learned

* Here's my appearance on Left, Right and Center

from last Friday, discussing a variety of issues. (KCRW)

* I didn't even notice that a bunch of Blue Dogs endorsed a "shots
first" strategy

similar to my checks and shots strategy. Ah well. (The New Republic)

* The rapid spread of the UK variant

highlights even more the need for immediate vaccine funding to
accelerate distribution. (New York Times)

* We cannot settle, as Biden did in remarks this weekend
,
for not getting to herd immunity by the end of summer. (CNBC)

* There's a restaurant bailout

embedded in the budget resolution that will become the relief bill.
(Mother Jones)

* Biden has gotten around to firing several Trump loyalists but Louis
DeJoy is still postmaster general
,
because Biden has to overhaul the USPS Board of Governors to get to him.
(Washington Post)

* Fewer migrant arrests and deportations

sounds good. (Washington Post)

* Biden no longer using the American Bar Association

to vet judges. (New York Times)

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