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Category: Economic Policy

  • Immigration Policy and Undocumented Immigrants in the Workforce

    Immigration Policy and Undocumented Immigrants in the Workforce

    American immigration policy largely reflects the historical context and cultural beliefs, and immigrants are often politicized through their impact on the American workplace. Whether this is touting the benefits of immigrants as an innovative and necessary group, or warning that undocumented immigrants pose a threat to native workers, the fiscal repercussions of migration patterns are a central talking point on either side of the political spectrum. In an attempt to reconcile these views while addressing the questions surrounding unauthorized workers, President Reagan signed into law the Immigration Reform and Control Act in 1986 and left a complicated legacy that still instructs the federal response to undocumented labor. 

    The Immigration Reform and Control Act 

    In an attempt to reduce the demand for undocumented labor (and, in turn, reduce the number of unauthorized workers migrating to the U.S.), the IRCA prohibits employers from knowingly hiring, recruiting, or referring for a fee any alien who is unauthorized to work in the U.S. The offense is punishable by fees ranging from $100-1,000 per worker, or criminal liability with the possibility of imprisonment. In addition to the bill’s outlined punishments for employers, the IRCA also granted amnesty to unauthorized residents currently living in the U.S., which led to the citizenship of approximately 3 million formerly undocumented immigrants. 

    The Legacy of the IRCA

    At the time of the act’s passage, many pointed out that the IRCA’s potential punishments for employers might lead them to discriminate against foreign workers regardless of their legal status as citizens. In fact, a study by Urban Institute in the years following the IRCA’s passage found that Latinx applicants were three times more likely than their white counterparts to encounter unfavorable treatment when applying for a job. In a similar study done by the General Accounting Office, 5% of employers responded that their interpretation of the IRCA had led them to turn away applicants because of a “foreign appearance or accent” and 14% of employers responded that they had begun a practice of not hiring those with temporary work eligibility. To address these issues and other inadequacies created by the IRCA, the 1990 Immigration Act was passed to reform legal immigration by instating a citizenship preference system that favored skilled workers. 

    Arguments in favor of more regulation of unauthorized immigrants in the workplace

    Many argue that measures such as the IRCA are necessary to ensure citizens can find a job and receive fair wages. Proponents of this idea say that an influx of migrant workers means a higher labor supply for a fixed demand, forcing down wages in the long run. Politicians like former Presidents Reagan and Trump have pointed to the disproportional impact migrant labor has on low-skilled workers and Latinx and African American workers in the United States. According to census data, immigrants entering the U.S. in the past 20 years have increased the number of low-skilled workers (defined here as workers without a high school diploma) by about a quarter. As a result, the annual earnings of this group have dropped between $800-1500. Legislation such as the IRCA is also meant to control the numbers of seasonal workers who often come to the U.S. temporarily in search of work, as many argue that these workers are unauthorized and therefore exempt from tax burdens of legal citizens while utilizing public services. A study by the Center for Immigration Studies found that in 2014, 63% of households headed by a non-citizen used at least one welfare program compared to 35% of native-headed households. Statistics like these are often used to support measures to ensure companies comply with workplace standards regarding workers’ citizenship. Some worry that continuing to employ unauthorized migrants will increase the undocumented population in the U.S. 

    Arguments against more regulation of unauthorized immigrants in the workplace 

    On the other hand, many argue that immigrants, regardless of their legal status, can be valuable additions to the cultural makeup of the U.S. and our economy. One argument is that immigrants, particularly undocumented immigrants, often work in industries with labor needs not fulfilled by U.S. citizens. A 2020 report released by the Center for American Progress found that an estimated 7 million undocumented immigrants are contributing to the American workforce. Undocumented workers make up 13% of the construction industry, and approximately a quarter of workers in the forestry, fishing, and farming occupations. Beyond the undocumented immigrant presence in these industries, many argue that laws such as the IRCA make it harder for immigrants to feasibly find work and gain even temporary visas, which will diminish the total immigrant population in the long run. As it currently stands, employers must file an application with both the USCIS and DOL for their employees to begin the green card process. Some believe these processes keep many from even the opportunity of gaining citizenship and may facilitate economic loss, as they point out the entrepreneurial opportunities many immigrants have found in the U.S. According to the Brookings Institute, immigrants make up 15% of the general U.S. workforce. Yet, they are approximately 25% of the entrepreneurs and investors in the U.S. 

    Conclusion 

    Despite its passage nearly 40 years ago, the IRCA is still largely indicative of the rhetoric surrounding immigrants as economic actors and speaks to the political compromises necessary to pass sweeping immigration reform. While the demographics and scope of U.S. immigration have rapidly shifted over the past few decades, bipartisan gridlock has made immigration reform nearly impossible, as a center anchored around the American business community largely does not exist today.

  • What are Cap-and-Trade Emissions Trading Programs?

    What are Cap-and-Trade Emissions Trading Programs?

    [ Map depicting the status of regional, national and subnational carbon pricing initiatives. Image courtesy of Center for Climate and Energy Solutions.]

    Introduction

    In response to the impending threat of climate change, governments have begun to explore options for regulating greenhouse gas emissions. One of these options is an emissions trading program called cap-and-trade. Cap-and-trade programs are market-based regulations on greenhouse gas emissions, especially carbon dioxide. They contain two main features. The first is a “cap” set by government regulators that establishes the maximum level of emissions and becomes more strict over time. The second main feature is the allocation of emission allowances to emitters through tradable permits, which allows individual emitters to buy and sell allowances in order to comply with emissions caps. Cap-and-trade programs incentivize firms to operate below their emissions cap, because excess allowances can be sold at a profit to other emitters.  These policies also add a layer of enforceability and accountability to corporate environmental protection.    

    Cap-and-Trade Programs in the US

    Although there is no national cap-and-trade program in the US today, there are several state-level and interstate programs worth noting. Support for cap-and-trade programs is highest in the Northeast and the Pacific Coast, which are the only regions of the country where emissions trading systems have been implemented.

    The Regional Greenhouse Gas Initiative (RGGI), the first US program, was established in 2005 and is now active in eleven states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia. The RGGI has gradually attracted more states to become signatories and has been effective in reducing emissions and generating state revenue. Between 2006 and 2018, the RGGI led to a 48% decrease in emissions among plants that were under regulation. From 2009–2017, the initiative generated $4.7 billion of state revenue from allowance auctions.

    Three states have their own cap-and-trade programs. California was the first state to implement an emissions trading system in 2012. The program enforces caps on approximately 85% of greenhouse gas emissions in the state. So far, decreases in emissions have been on track with the program’s climate goals, and both enforcement and compliance have been strong, with 100% of companies meeting compliance requirements. In 2021, Washington State passed the Climate Commitment Act which includes a “cap-and-invest” program among other features. “Cap and invest” programs extend upon cap-and-trades by allocating proceeds made by permit auctions to finance other climate resiliency projects. Most recently, Oregon adopted the Climate Protection Program in 2021 that included cap-and-trade measures upon fuel suppliers as part of an executive order by the Governor.  

    Cap-and-Trades in Other OECD Nations 

    Other nations in the Organization for Economic Cooperation and Development (OECD) have also adopted cap-and-trade policies. The European Union’s Emissions Trading System (ETS) is a unique case of a multi-national program that encompasses both EU States as well as some other European countries. This system covers around 41% of greenhouse gas emissions in the EU including those from power plants, energy-intensive industries, and civil aviation. Other individual countries that have implemented cap-and-trade policies are Australia, New Zealand, South Korea, Quebec and some cities and provinces in China while the country works towards a national standard.

    Arguments For Cap-and-Trade

    When designed with proper monitoring and enforcement measures, cap-and-trade programs have proven to be environmentally and cost effective. While cap-and-trades largely focus on carbon emissions today, prior initiatives have focused on other pollutants. For example, many proponents point to the success of the United States’ Acid Rain Program in the 1990s, which targeted sulfur and nitrogen oxide emissions that contribute to acid rain. This program exceeded expectations in decreasing acid rain and met its targets years ahead of the original timeline. Because of these measures, the impact of acid rain in the US is far less than it had been in the late 1900’s.

    One main feature of cap-and-trade programs that draws support is their market-based nature. This means that the carbon being traded creates a new market, where the price of carbon is determined by principles of supply and demand. Research indicates market-based regulatory options are more cost-effective than traditional regulations such as fuel regulation or fuel economy requirements. This is because market-based approaches allow individual actors the flexibility to find the most-cost effective ways to cut emissions and implement the cheapest abatement options first. 

    Supporters of cap-and-trade programs also stress that well-implemented programs are economically stimulating. Proponents argue caps on emissions can create a positive economic shock by spurring investment in green energy technologies and conservation measures. Additionally, supporters argue these policies promote the creation of new energy efficiency programs which generate jobs. It is also argued that revenue generated from auctioning carbon allowances can be directed toward investments for other green projects, including renewable energy production, conservation projects, and more energy-efficiency undertakings.

    Arguments Against Cap-and-Trade

    Many arguments against the implementation of emissions trading programs focus on the economic well-being of consumers. Critics argue that cap-and-trade programs damage the economy by raising energy prices, which would create a tax on energy consumption that falls on consumers as companies shift this burden onto customers instead of absorbing the costs themselves. In effect, this would burden low-income households and lead companies to outsource manufacturing, which would harm American jobs and increase unemployment. Opponents also point to previous examples of firms avoiding the cost of cap-and-trade programs. For example, the 2009 Waxman-Markey Bill sought to initiate the US’s transition into a more green economy with cap-and-trade programs, but it was met with high levels of corporate disapproval. In response, lawmakers included “handouts” to industry groups in the bill in an effort to generate enough support for the bill’s passage.

    Opponents cite concerns over energy security (oil acquisition) in the US and a future of dependence on foreign nations. In the US, cap-and-trades will limit domestic oil production even though there are high levels of extractable resources. They argue that this will lead to a heavier reliance on foreign oil, especially from the Middle East.

    Critics also assert that the design of cap-and-trade programs can be problematic. They cite past issues of cap-and-trade initiatives, like those associated with the European Union Emissions Trading System (ETS) or Regional Greenhouse Gas Initiative (RGGI). The EU ETS initially over-allocated emissions permits and set a very weak cap, rendering it ineffective until this was fixed. The RGGI initially taxed emissions without effectively reducing them overall. It is argued that these failures were due to weak design provisions, such as frequently fluctuating carbon prices and vague, over-allocated, and flexible emissions caps. 

    Emissions leakage is a challenge that affects many cap-and-trade programs. Leakage occurs when emission reductions in one jurisdiction are accompanied by increased emissions in other regions with fewer rules, as emitters search for ways to avoid regulation. Critics point to emissions leakage as evidence of design flaws that require additional cooperation to address.

  • Carbon Pricing Explained

    Carbon Pricing Explained

    Carbon dioxide is a colorless, odorless gas released during the combustion of fossil fuels. As the Sun’s radiation hits Earth’s surface and warms it, much of it is re-radiated back into space as heat. Carbon dioxide in the atmosphere traps heat in the atmosphere, preventing it from leaching into space. This is called the greenhouse effect, and it causes Earth’s temperature to rise. While some other gasses have greater warming potential than carbon dioxide, carbon dioxide is released the most as a byproduct of human activity, accounting for 79% of U.S. emissions in 2020. 

    As the most prevalent greenhouse gas, carbon dioxide is often the focus of policies to cut emissions, and as such is being incorporated into the economic system. Treating carbon as a financial cost is seen as one method of restructuring the global economy to rely less on burning fossil fuels and seek lower cost alternatives, namely renewables that do not emit greenhouse gasses.

    Key Terms

    • Social cost of carbon: The present value in dollars of the future damage caused by each unit of carbon emissions, calculated using models that project population and economic growth, as well as disasters and health impacts from climate change, over several hundred years  — currently estimated by the U.S. government to be $51/ton of CO2
    • Carbon pricing: A method of quantifying costs paid by the public for carbon emissions — in the form of damages to property and health caused by rapid climate change — and assigning a dollar value to each unit of carbon emitted.
    • Carbon tax: Money collected by a government per quantity of carbon emitted.
    • Emissions Trading System (cap-and-trade): Limits total carbon emissions to a set level, and allows emitters to buy and sell emissions credits with each other where the total amount of credits in circulation equals the set limit.

    Social Cost of Carbon

    Carbon emissions can be assigned a price because they have costs that can be quantified. Climate change due to increased carbon dioxide emissions has a wide range of impacts, including extreme weather events, droughts, damage to structures, and injury or death related to heat, flooding, storms, and increased spread of tropical diseases. These impacts can be translated into dollar value costs, which are factored into the complex economic models used to price carbon. The modeling arrives at a dollar value that can be used to assess carbon-emitting actions: the social cost of carbon.

    Due to the complexity—and ultimately the impossibility—of calculating an exact cost per unit of carbon, estimates vary widely. One meta-analysis finds social costs of carbon estimates ranging from -$50 to $8752/ton of CO2. Across U.S. federal agencies, the social cost of carbon currently used is near the lower end of estimates at $51/ton of CO2. Notably, this number is a reinstatement of a 2017 calculation by the federal Interagency Working Group (IWG), which stated in its report that this is an underestimate that does not reflect more recent scientific developments. For example, New York State estimates the cost at $125/ton. The IWG is currently working to reassess the social cost of carbon.

    If an exact social cost of carbon cannot be determined, then what is its use? Its purpose is to provide a tool for estimating the damages associated with carbon emissions, and to give a reference point for potential carbon taxes or Emissions Trading Systems (ETS). Nations can ultimately calculate a cost of carbon informed by their own values—deciding the “cost” of losing lives due to climate induced disasters becomes more of a value judgment than a simple, quantifiable metric.

    The social cost of carbon is not without controversy in U.S. politics, with conservatives often questioning its use and liberals being in favor of using it more often. The Obama administration was the first to implement a social cost of carbon at $51/ton, which was then devalued to $1-$7/ton by the Trump administration, in addition to disbanding the IWG. The Biden administration has restored the IWG and its past estimate, however a recent legal campaign by Republican-led states sought to block the Biden administration from reinstating the $51/ton metric from the Obama era, but failed in the Supreme Court.

    Carbon Pricing Policies

    Many governments have chosen to implement policies that enact carbon pricing that seek to lower emissions by making them expensive. In other words this uses the market to incentivize companies to stop emitting, as opposed to simply mandating emissions to be reduced. By assigning a cost paid for carbon emissions, policymakers hope that companies will try to reduce their carbon footprint as a means to cut costs and maximize profits. The two main policy mechanisms deployed are carbon taxes and ETS.

    • Carbon Taxes: Carbon taxes are a method of pricing carbon and making emitters pay for it by assigning a value to each ton of carbon emitted, and collecting taxes based on this value, multiplied by total emissions. Companies are given the choice of paying for their emissions or avoiding the tax by reducing emissions, and the underlying logic is that a more expensive tax will result in more emissions reductions.
    • Emissions Trading Systems (ETS): Emissions trading systems, also called cap-and-trade programs, are an alternative way of making emitters pay for carbon by setting a limit on cumulative emissions (a cap) and allowing companies to trade emissions allowances with each other, where the total value of all allowances in circulation is equal to the total carbon limit set by the government. This is different from a carbon tax in that carbon taxes do not set a limit, they merely make emitters pay a flat rate per unit of carbon. These systems allow for a more flexible market-based approach, as heavier emitters can buy allowances from less polluting industries and decide whether it is more cost effective to pay for allowances or simply decrease their emissions. ETS where the government gives away allowances for free also especially rewards companies that can lower emissions, because they can sell their allocated allowances to other companies and earn money. A few other key elements of such a system include heavy fines for exceeding allotted emissions, to make it more viable to pay for additional allowances or reduce emissions, and distributing allowances directly (giving them to industries based on their projected emission requirements) or through auctions that let companies bid for allowances as they see fit. 

    Carbon Pricing Debates

    Even when all parties agree that climate change is a serious issue, there are disagreements over the implementation of solutions, including pricing carbon to reduce emissions.

    Those in favor of implementing carbon pricing claim that it is the most effective way of quickly reducing carbon emissions which is a necessary action to prevent catastrophic planetary warming. The World Bank and the International Monetary Fund both support it as a market based strategy to meet emissions reduction targets. Proponents also estimate that a government imposed price on carbon would generate significant revenues for the government, enough to cover the costs of implementing carbon prices. The Tax Foundation projects that a carbon tax of $50/metric ton at an annual growth rate of 5% would generate $1.87 trillion over ten years. They explain that the economic impacts depend on how the tax revenue is spent; if the excess revenue is distributed to workers through tax cuts or direct rebates, it can offset the inherent regressiveness of a carbon tax. 

    A drawback of carbon pricing, and a major barrier to its implementation, is that a rise in fossil fuel prices negatively affects the economy. The UK’s National Institute for Economic and Social Research calculates that an abrupt implementation of a carbon tax set at $100/ton would raise inflation and lower Gross Domestic Product by 1-2% across most Organization for Economic Co-operation and Development (OECD) countries. The inherent problem is that most economies still rely heavily on fossil fuels, so raising the cost of carbon emissions drives up prices across all sectors. This can affect the poorest citizens the most, and the poorest countries as well, where fossil fuels are essential for light, heat, and transportation. Fears over economy-wide price increases are why carbon taxes are generally politically toxic, despite economists claims that they are the most effective measure for reducing emissions.

    Another issue commonly discussed with carbon pricing schemes, and most climate change plans for that matter, is that they rely on international cooperation to be successful. If one country implements carbon pricing, industrial practices may shift to other countries with no carbon pricing, leading to no change in net emissions—a phenomenon known as carbon leakage. For this reason, one of the major policies discussed by global institutions like the IMF has been an international carbon price floor, which would set minimum carbon prices globally and require the involvement of most countries to be effective. Another potential solution being tested in the European Union is deploying a Carbon Border Adjustment Mechanism, that aims to charge equivalent fees on carbon emissions for all goods, including imports, once factoring in any potential carbon emissions paid for in countries of origin.

    As it stands, carbon pricing schemes have not been implemented at the international level, but many countries have some form of carbon price. As of 2022, carbon pricing covers 23% of global greenhouse gas emissions according to a report by the World Bank. Global carbon pricing revenue in 2021 was $84 billion.

    State and Trends of Carbon Pricing 2022, World Bank 

  • The KORUS Free Trade Agreement

    The KORUS Free Trade Agreement

    Historically, the United States and South Korea have had a strong military alliance, and moved to expand economic relations through the KOR-US Free Trade Agreement (FTA), which entered into force in 2012. An FTA is an economic agreement between two nations setting expectations and obligations in terms of the exchange of goods and services, protection of investors, etc. For the US, the aim is to protect US economic interests abroad and to aid US exports. Key provisions in the FTA include:

    • Consumer and industrial products became duty free and 95% would be expected to be duty free within three years.
    • Textiles and apparel—“yarn forward” treatment allowing for apparel that uses materials from US/SK qualifies for preferential treatment.
    • Trade remedies (actions taken in response to import surges, fair value sales, etc.) which allowed for US to exempt SK imports if it did not endanger the US domestic industry, and established a third-party committee— Medicines and Medical Devices Committee— to review government reimbursements and pricing on pharmaceuticals and medical devices. 
    • Some provisions for digital trade, but they are less extensive than other agreements, and some have called for updates to this specific provision. 

    The KORUS Free Trade Agreement is the United States’ second-largest FTA by trade-flows, only surpassed by NAFTA, now called the United States-Mexico-Canada Agreement (USMCA). US-SK exports were $80.5 billion, imports were $88.1 billion, totalling an estimated $168.6 billion (2019) in trade flows. 

    Challenges to the Free Trade Agreement

    When negotiating the final agreement, the beef and auto sectors were two major sticking points. South Korea had banned American beef after the outbreak of mad-cow disease in 2003, and there was significant debate about lifting that restriction. The issue of beef was perceived as a public health issue and became highly politicized. In the initial 2007 agreement, beef was avoided entirely because of its sensitive nature in South Korea, but eventually restrictions were lifted on boneless beef under 30 months old. On the US side, the auto industry had concerns over the rising imports and a weakening domestic market—General Motors, Ford, and Chrysler sales in 2007 fell 7.3% while U.S. sales of foreign brands (U.S.-based production plus imports) rose about 3%. Because of these conflicts, President Bush did not submit legislation to ratify the agreement 

    The Obama Administration took office focused on improving terms for the US auto industry in the FTA, leading to a supplemental trade agreement. The new terms expanded on Korean safety standards and allowed for 25,000 cars per US automaker to be imported into Korea as long as they meet US federal safety standards, and more leniency for small-volume importers (up to 4500 vehicles) in terms of environmental standards. The letter also specifies under Section A that there would be a reduction in duties (taxes), and in Section B desires more transparency from South Korea in preventing delays and barriers to trade while establishing an early-warning system. The beef issue was resolved when South Korea eliminated its 40 percent tariff, which was projected to save $1,300 per ton of beef imported to Korea and would approximately total $90 million annually for US beef producers at 2010 sales levels.

    Recent Developments and Critiques

    According to the Office of the United States Trade Representative, as of 2019, South Korea is the US’ 6th largest goods trading partner with $134.0 billion in total (two way) goods trade during 2019, and the US is South Korea’s 2nd largest trading partner. However, under the Trump Administration, the US threatened to leave the agreement, leading to increased economic tension between the two countries. Trump blamed Korea for an increase in trade deficit, and wanted Korea to reduce policies which disadvantage American firms so that trade would be more balanced, with the current trade deficit at 29 billion (2021). He also raised concerns over non-tariff barriers (NTBs) in the steel and auto industry that disadvantaged American markets by protecting Korean manufacturers. Non-tariff barriers are restrictions in trade that arise due to sanctions, domestic laws, quotas, etc. and are outside the agreed upon terms of an FTA. Minor revisions were made to the FTA in 2019 to address these concerns. 

    • The previous limit of 25,000 cars per US automaker imported by Korea was raised to 50,000 cars.
    • The 25% tariff on Korean trucks that was supposed to expire in January 2021 was extended to 2041.
    • The US restricted imports on steel and washing machines (Section 201 and 232). 
    • Minor changes were made to pharmaceuticals, customs, and investor-state dispute settlement.

    When Trump threatened to leave the agreement in 2017 due to the deficit, 2017 (Jan-May) data showed that US merchandise exports to Korea were up 23% year over year and and US imports from Korea were down 2%. It was suggested that trade diversion (where imports shift from lower cost nations to higher cost nations, something that can follow free trade agreements) may have contributed to the trade deficit, but ended up leaving the global trade balance largely unchanged in the long term. From 2012, the date of implementation, the US trade deficit in goods with Korea increased by 75% from $13.2 billion to $23.1 billion in 2017. 

    The rising trade deficit has led to concerns over the FTA, but many economists argue that the balance of trade is not an accurate way to measure the benefits of a trade agreement. For example, high US imports indicate consumers have access to products at lower prices, or better-quality goods at similar prices. Currency value also plays a major role in trade deficits; when the dollar is strong American consumers can afford to buy more imported goods, but American goods on foreign markets are comparatively more expensive. 

    Future Developments

    During a May 2021 summit, President Biden and President Moon Jae-in announced plans for greater cooperation to address trade and industry developments, but the Trump-era restrictions remained in place. The Korean government urged the Biden administration to ease the steel restrictions, but they remain in place as of July, 2022. South Korea recently elected a new president, so the future of the FTA could change. In their joint statement, both leaders reaffirmed their support for the FTA and discussed close cooperation on foreign exchange market developments. It is important to keep an eye on the renewable energy, semiconductor, and auto industries for the future, especially considering Biden’s $5 billion investment in an electric vehicle plant. 

    Reopening the FTA discussion would affect current steel restrictions and open conversations about the auto industry again, but also provide an opportunity to fill in the gaps of the digital industry which currently exist in the FTA, and add updated provisions about climate change. President Biden also recently launched the Indo-Pacific Economic Framework for Prosperity (IPEF), which includes South Korea, that aims to address supply-chain issues, climate change, business ethics, and more. As the IPEF develops and more details are finalized, it may create more opportunities for cooperation between the US and South Korea. 

  • Universal Basic Income

    Universal Basic Income

    Introduction

    Universal Basic Income (UBI) is a developing policy of providing a regular, guaranteed payment to all citizens regardless of financial need to replace other need-based social programs that potentially require greater government involvement. This concept of “free money with no strings attached” can be implemented by all levels of government: local, state, and federal. Interest in UBI has grown in recent years due to the fundamental changes to the economy—mainly due to the growth of automation—that threaten to leave many Americans without jobs. A 2019 report by the Brookings Institution found that one-quarter of all U.S. jobs are susceptible to automation. Researchers argue that jobs entailing more routine tasks, such as those in manufacturing, transportation, and office administration, are most vulnerable. 

    With the COVID-19 pandemic and its effect on unemployment, UBI has gained more attention from the public. After the COVID-19 pandemic drove up unemployment and job insecurity in 2020, some have urged for a nationwide UBI, and pilot programs have been initiated across the country. Those who support UBI say it’s an easy way to distribute aid to vulnerable populations. Others worry that it would be costly and discourage workers from finding jobs. Opinions vary, but UBI has developed into a political debate among policymakers in the United States.

    Universal Basic Income in the United States: Federal

    On a federal level, Democratic presidential candidate Andrew Yang made UBI a key pillar of his 2020 campaign, which helped bring UBI into the national spotlight. Yang’s plan promised every American adult $1,000 per month from the federal government. According to the nonprofit Tax Foundation, Andrew Yang’s $1,000-a-month Freedom Dividend for every adult would cost $2.8 trillion each year. He proposed funding the program by consolidating welfare programs (food stamps, homelessness services, disability services, etc.) and implementing a Value Added Tax of 10%. Residents who receive benefits from welfare and social programs would be given a choice between their current benefits or $1,000 cash unconditionally.

    Universal Basic Income in the United States: State

    A form of UBI on a state level is Alaska’s distribution of $1,000-$2,000 checks to its residents each year since 1982 from a fund created with oil revenues, also known as the Alaska Permanent Fund. In 2017, the government distributed a dividend of $1,100 per person including children. For example, a household of six would have received $6,600 in that year. The National Bureau of Economic Research conducted a study to observe the effects of the permanent fund on the state. The study was based on data from the Current Population Survey and a synthetic control. The study focused on tracking two outcomes: the full-time employment to population ratio and the population share working part-time. The results showed that the dividend had no negative effect on full-time employment. For part-time employment, a 1.8 percentage point (17%) increase since the beginning of the program was observed. Overall, the test results suggested that UBI does not significantly decrease aggregate employment.

    Universal Basic Income in the United States: Local

    A local-level experiment on UBI is the Stockton Economic Empowerment Demonstration (SEED). SEED was the nation’s first mayor-led guaranteed income demonstration launched in February 2019 by former mayor Michael D. Tubbs of Stockon, California. For comparative purposes, Stockton’s median household income of $46,033 is about 40% below that of California as a whole. SEED distributed $500 a month to 125 randomly selected residents for 24 months. From a preliminary analysis of the first year of the program, those who received the monthly dividend were surveyed as healthier, happier, and less anxious than those in a control group not receiving the monthly dividend. At the start of the study period in February 2019, 28% of recipients had full-time employment. A year later, it increased to 40%. By comparison, full-time employment in the control group rose from 32% to 37% after a year. Additionally, the experiment suggested that recipients experienced less income volatility than those who did not receive the guaranteed income, which allowed them to plan for the future with fewer financial burdens.

    Arguments for Universal Basic Income

    Those who support UBI argue that it is the most efficient method of distributing aid to vulnerable populations. Its simplicity provides immediate aid to income poverty as it eliminates eligibility restrictions that make it difficult for some households to access other need-based services. For the government, UBI systems eliminate the need to spend resources reviewing applications and monitoring benefits. Programs like the Supplemental Nutrition Assistance Program (SNAP) and housing vouchers require 10% of their funding for benefits and services to be spent on state administrative costs. In other words, only 90% of the program expenditures are allocated to distribution. Also, these programs require recipients to invest their time in applying. UBI would likely cost less than 1% in administrative costs and involve little to no burden on recipients. 

    Some conservatives argue that UBI provides a possible replacement for current social safety nets at a lower cost for those in need. According to political scientist Charles Murray, a guaranteed universal income of $10,000 a year could potentially eliminate need-based programs such as Social Security, Medicare, Medicaid, agricultural subsidies, and corporate welfare. It can remove both the social stigma that accompanies public assistance and the risk of anyone in need falling through the cracks. Furthermore, UBI can provide a boost in entrepreneurship as people would feel more comfortable starting a business. The stipend provides a financial cushion needed for workers who are considering changing jobs, retiring earlier, or quitting the workforce to care for children or other loved ones.

    Arguments Against Universal Basic Income

    According to the Center for Budget and Policy Priorities, the federal government providing all Americans with a basic $10,000 a year would cost $3 trillion annually. That would be three-quarters of the federal budget and the influx of cash into the economy could also drive up inflation. Paying for it, along with Social Security, Medicare, defense, and infrastructure, would require higher tax rates. Moreover, even substituting these social programs with UBI is not so simple as studies show that the current programs—Social Security, Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), housing assistance, food stamps (SNAP), and the Earned Income Tax Credit (EITC)—have cut the poverty rate across family types. Comparing administrative data from these programs and the 2008-2013 Survey of Income and Programs Participation data, the study found that Social Security cut the poverty rate by a third within the 5 years. All programs except the EITC reduced poverty below 50% of the poverty line. For the elderly, Social Security decreased poverty levels by 75%. If the UBI program was to acquire funding through new taxes, it would most likely leave some people worse off from the reduced income after taxes and transfers. Furthermore, there is a vast difference in the cost of living across the country. Depending on the size of payments, UBI could allow people in some parts of the country to live comfortably without working. The benefit might be more than sufficient in low-cost states such as South Dakota, but it might not be enough in high-cost states such as California and New York. 
    Outside the United States, Finland carried out a nationwide, randomized control experiment on UBI. The results of the 2017 UBI Program in the country did not meet the expectations set from the beginning. The experiment consisted of giving 2,000 unemployed people a basic income of €560 (approximately $630) per month for two years with the hope that it would motivate them to work. The findings from the first year suggested that individuals who received a basic income were no more likely to find work than those who didn’t. On average, both groups worked nearly 50 days a year and earned around €4,250.

  • American Supply Chains and American Food Security

    American Supply Chains and American Food Security

    Background

    American grocery stores offer customers a variety of foods, allowing for significant options year-round, and in 2020, the average American spent only 11.9% of their disposable income on food. This sort of reliable and affordable food supply contributes to a robust food system and increases food security. However, these advantages are not felt evenly across incomes. Those in the lowest income quintile spent, on average, over 25% of their income on food in 2020 and according to the U.S. Department of Agriculture (USDA), 10.5% of households in the U.S. were affected by food insecurity. Additionally, recent increases in food inflation (alongside inflation in the larger economy) have created issues for American consumers, especially low-income consumers, though this inflation has been caused by a number of outside factors, including the COVID-19 pandemic and the war in Ukraine. The American food system is thus characterized both by generally affordable, accessible and varied food options, and food insecurity rooted in inequality. 

    This juxtaposition between positive and negative aspects in the food system is reflected in the supply chains that make up the U.S. food system. The U.S. infant formula and meat supply chains are useful examples. The latter is not a solitary system, but a number of different chains that make up the meat-product elements of the U.S. food system (and contribute to the global food network in which that system is embedded). Beef, poultry, and pork, for example, each have their own supply chain, though there is some overlap between the companies that operate in each industry. Both the infant formula and meat supply chains are characterized by significant concentration in market share and concentration in production facilities, meaning there are a relatively small number of large firms that are responsible for a very large amount of production, in addition to there being a relatively small number of factories that are responsible for a very large amount of production. Both must strike a balance between the useful aspects of this concentration, and the drawbacks it produces.

    Infant Formula Supply Chain

    Around 98% of infant formula consumption in the U.S. comes from domestic production, with a very small imported portion. Domestic production is done mainly by four large firms: Abbott Laboratory, Nestlé, Mead-Johnson, and Perrigo. In August of 2020, market concentration in these firms was very high, with Abbott Laboratories holding 48.1%, Mead-Johnson 20%, Perrigo 11.6%, and Nestlé 7.7%. The remaining 12.6% of U.S. production comes from small, independent operators. The industry’s high concentration creates some serious vulnerabilities to the food security of those who use infant formula—though there are other sources of vulnerability in the system as well, such as issues with bacterial infections in infant formula—, as seen in the baby formula shortage that occurred in 2022. 

    The crisis began when Abbott Nutrition Facility in Michigan was temporarily shut down by the Food and Drug Administration (FDA), because of formula contamination and unsanitary conditions. It was reopened under strict oversight in early June 2022, but had to be closed again soon after due to serious flooding in the area. The facility was responsible for an estimated 43% of domestic infant formula consumption. The industry’s concentration has a number of different causes, including tariffs and quotas on infant formula imports, and the process by which the Special Supplemental Nutrition Program for Women, Infants and Children (WIC) obtains the baby formula that it offers WIC recipients. WIC is a nutrition support program that provides services to almost 8 million women, children and infants. About 50% of the United States’ formula consumption comes from purchases of infant formula through the program, and as such, the program plays a massive role in the industry. 

    In order to facilitate this large expenditure, WIC utilizes an extremely competitive bidding process. Each state (in addition to a number of American territories and Tribal organizations) operates its own WIC agency to administer the program and utilize the funds given to it by the federal government. In addition, each state WIC program allows different infant formula companies to compete to become the sole-source provider of infant formula to WIC recipients in that state. This means the brand that wins the bid becomes the only brand that can be purchased through that state’s WIC program. The companies compete to offer the lowest wholesale price and largest rebate to the state’s agency. The rebates are sums of money that companies give to state WIC agencies, essentially allowing the state WIC agencies to acquire infant formula at a significantly reduced cost. The rebates are very large, accounting for up to $2 billion in savings each year for the WIC program overall (meaning every state WIC program combined). Without them, the program would either need to receive far more government funding, or serve 2 million fewer people.

    The winning formula brand, in turn, receives significant rewards. Because the company that wins in a state’s bidding process becomes that state WIC agency’s sole-source provider, retailers recognize that there will be a guaranteed volume of product sales. As such, retail outlets (e.g. stores in which infant formula is sold, such as Walmart) give the brands that win state WIC contracts eye-catching product placement and large amounts of shelf space. Additionally, winning a state WIC contract may lead physicians to be more likely to refer patients to the corresponding brand. These market impacts appear to make it more difficult for new companies to enter the infant formula industry.  

    President Biden has used the Defense Production Act to give infant formula companies preferential access to resources vital to formula production, and the Food and Drug Administration (FDA) announced a decision to exercise case-by-case discretion on enforcing certain infant formula production requirements, which could increase the amount of formula the U.S. receives from foreign manufacturers. The Access to Baby Formula Act – which gives WIC recipients greater flexibility in using WIC to purchase infant formula – was also enacted in an effort to address the infant formula shortage. These actions were designed to both bolster domestic production, and potentially increase imports (temporarily at least), while increasing WIC recipients’ options without significantly changing the WIC competitive bidding process. 

    Meat Supply Chains

    Much like the infant formula industry, meat supply chains each experience significant market concentration. In the beef supply chain, the top 10 largest processing facilities are responsible for 47% of average daily beef slaughter. Because firms can own multiple facilities, the concentration among firms is higher than concentration among facilities, and the four largest cattle processing firms are responsible for 85% of annual slaughters in the U.S. 

    Figures for the pork industry are similar to that of the beef industry, although concentration among firms is lower: the four largest firms are responsible for only 67% of total annual hog slaughter in the U.S. The poultry sector is less concentrated in terms of facilities, with the ten largest poultry processors responsible for only 13% of total annual chicken slaughter in the U.S., but its firm concentration rate is more in line with that of beef and pork, with the four largest processing firms responsible for 53% of total annual slaughter. Additionally, the way in which livestock are grown has moved towards an increase in the size of farms and a decrease in the number of farms. 

    There are sources of vulnerability in U.S. meat supply chains that are not directly tied to concentration, including a lack of a steady labor force in processing facilities and the threat posed by diseases that target farm animals. Additionally, some of the meat supply chains’ characteristics may improve food supply issues overall by allowing for highly efficient food production, but also have some negative impacts on specific groups, such as small farmers. For example, it has been argued that vertical integration in meat processing increases efficiency by allowing the owners of processing facilities to have greater control over the characteristics of the livestock they are processing and the rate at which those animals are processed. But it has also been argued that these increases in efficiency come at a cost to family farms.

    Understanding the Tradeoffs

    In the meat industry, as in the infant formula industry, there is a tradeoff between the benefits offered by concentration, and the challenges that it creates. Because people need to eat every day, any disruption in a food supply chain will have an immediate impact on American consumers, making vulnerabilities in supply particularly important. The concentration in meat supply chains appears to make them more vulnerable to these sorts of disruptions, thereby exposing consumers to food insecurity. For example, during the COVID-19 pandemic, several big meat processing facilities were closed due to illness among workers, which caused temporary, but major, disruptions in the supply chain and led to price volatility (meaning the prices of meat products became less stable). Some have also expressed concerns that facility concentration will result in increases in food prices for consumers (and lower prices for meat-producing farmers). USDA funds have been used to support local, regional, and diversified processing facilities through loans, grants, and technical assistance; in addition, there are measures designed to encourage competition in the meat industry, such as passing new rules under the Packers and Stockyards Act in order to improve its antitrust enforcement. These measures reflect the federal government’s intention of addressing market concentration in meat supply chains. 

    On the other hand, it has been argued that the level of concentration in food supply chains in general has, overall, not resulted in higher prices for consumers, and that concentration is at least partially responsible for the affordability of food for the average American, as well as for the range of year-round food options that American consumers are able to access. It has also been argued that the practices of large food retailers like Walmart have driven down the food prices of competitors, and their participation in global supply chains allows for access to a wide variety of foods. In addition, large food retailers have complex disaster alert infrastructures that can be a useful tool in managing environmental threats to the food supply. As such, the meat supply chain, like the infant formula supply chain, faces the challenge of balancing the gains it receives from concentration against the vulnerabilities concentration can create.

  • Fossil Fuel Subsidies Explained

    Fossil Fuel Subsidies Explained

    As the global economy rebounded from the COVID-19 recession in 2021, carbon dioxide (CO2) emissions hit their highest-ever recorded levels. Since CO2 is the primary gas involved in human-induced climate change, this will likely continue to accelerate the catastrophic effects of planetary warming. Hand-in-hand with this rise in fossil fuel use was a resurgence of fossil fuel subsidies—demonstrating the link between the subsidies and fuel use. Combined, subsidies on fossil fuels totaled $440 billion in 2021. Fossil fuel subsidies encourage burning fossil fuels by decreasing the cost of consumption, so they are widely recognized as a barrier to shifting to renewable energy.

    What are Fossil Fuel Subsidies? 

    A subsidy is when a government pays a private entity, directly or indirectly, to further a broader public goal. 

    • Direct subsidies are a straightforward transfer of money from a government to a private entity. 
    • Indirect subsidies decrease the cost of fossil fuels without direct payments; they can take the form of tax breaks or favorable loans.

    Fossil fuel subsidies are any policy by a government that directly or indirectly pays for the costs of producing or using fossil fuels. This lowers the operating costs for fossil fuel companies and keeps fossil fuels cheaper than their “true” cost for consumers, which would otherwise be set by global markets. Because fuel is cheaper than it would be without subsidies, there is greater use of fossil fuels.

    Fossil fuel subsidies can be further classified into two categories: production subsidies and consumption subsidies. 

    • Production subsidies are those that target the producers of fossil fuels; they can include government funding or support for accessing fossil fuel reserves, extracting resources, and building industrial facilities. They are common in wealthy nations that produce oil. 
    • Consumption subsidies, on the other hand, target individuals and enterprises that purchase fossil fuels or electricity derived from it. Common examples include capping gas prices or helping pay for energy bills. These are common in developing nations where large populations require cheap fuel for cooking, heating, and transportation. 

    Fossil fuel subsidization gets more complex, as many wealthy countries with large fossil fuel industries will subsidize the development of infrastructure in developing nations to better extract fossil fuels.

    Most economies still largely depend on fossil fuels, so for many governments it makes sense to keep their prices low. Rising costs of gas make it more expensive to travel, work, and power homes, which can negatively impact people’s finances and economic opportunity. Because fossil fuels are so widely used, subsidies on their production and consumption are found in practically every country. Global subsidies currently cost $440 billion, which fluctuates year to year based on individual countries’ policies.

    Fossil fuel subsidies by country in 2019, reflecting pre-pandemic levels of demand. Subsidies in general fell sharply in 2020 and rebounded in 2021.

    Why are Fossil Fuel Subsidies Considered Harmful?

    The main issue associated with fossil fuel subsidies is climate change. Because subsidies make it artificially cheap to produce and buy fossil fuels, they encourage greater use, which leads to increased emissions. Rapid climate change is a serious problem that is believed to cause more severe weather patterns, increased drought, sea level rise, crop failures, and displacement of people; these effects are projected to worsen as temperatures continue to rise at an unnaturally fast rate. 

    In addition, by encouraging the burning of more fossil fuels these subsidies also contribute to air pollution, a major known cause of human illness and death. Research from Harvard and the UK attributes 1 in 5 air pollution deaths worldwide to fossil fuels, or 1.6 million of the 8 million people killed in 2018. 

    A more indirect argument put forth by some is that fossil fuel subsidies are not the most efficient use of government money for maximizing social welfare—that is, the billions poured into making fossil fuels cheaper could be better spent in areas like healthcare, education, or even renewable energy. The United Nations notes that more is being spent on fossil fuel subsidies than poverty elimination, and calls for reallocating funds towards more sustainable projects.

    Why are Fossil Fuel Subsidies Considered Necessary?

    Proponents of fossil fuel subsidies and cautious governments argue that the solution is not as simple as getting rid of them overnight. Fossil fuel subsidies make energy more affordable for many people across the world, particularly in countries with high levels of poverty. Removing them might push some people further into poverty by driving up the cost of living. Because entire economies run on burning fossil fuels for energy, a spike in energy costs when subsidies are dropped could trigger inflation or recession. When gas prices go up, the price of everything else tends to rise as well, because it becomes more expensive for businesses to move goods around and to manufacture products. Removing subsidies quickly can cause a price shock because economies are adjusted to run on artificially low gas prices. An extreme example of this is Kazakhstan, where the removal of consumption subsidies on fuel proved to be the catalyst for violent uprisings after the cost of fuel rose sharply. In general emerging economies are more vulnerable to inflation and economic turmoil, which can be triggered by spikes in the prices of essential commodities like oil and gas. 

    The most staunch defenders of subsidies are fossil fuel companies themselves, which are able to use their vast wealth and connections to stall government action. For example, over 100 fossil fuel companies sent a combined 500 lobbyists to COP26, the international climate change summit held in 2021, more representatives than any nation present.

    Current Action by World Governments

    Despite the hundreds of billions of dollars spent annually by governments subsidizing fossil fuels, there has been general acknowledgement that fossil fuel subsidies present a problem for the climate, and many countries have pledged to work towards eliminating them where possible. Every year since 2009, the G7 and G20 nations (groups of leading economies composed of 7 and 20 members, respectively) have committed to phasing out fossil fuel subsidies by 2025. The Glasgow Climate Pact, signed in 2021 after the COP26 conference, calls upon all signatories to “phase-out inefficient fossil fuel subsidies” as part of the plan to limit warming to 1.5 ºC above pre-industrial levels. The UN General Assembly also lists phasing out harmful fossil fuel subsidies as a step towards achieving “sustainable consumption and production patterns”. Despite these pledges, fossil fuel subsidies remain widespread, and their recent resurgence in 2021 from the low levels seen during COVID lockdowns indicates that the debate over how to address these subsidies is ongoing.

  • Policy Debates Surrounding Changes to the Supplemental Nutrition Assistance Program

    Policy Debates Surrounding Changes to the Supplemental Nutrition Assistance Program

    Background Information

    The Supplemental Nutrition Assistance Program, or SNAP (formerly labeled food stamps, and often still referred to as such), is an American federal food assistance program that provides credits to people that may be used to purchase food items. Funding for the program is covered fully by the federal government, though states are responsible for administering the program, and for some of the administration costs. The program was expanded, starting in the spring of 2020, in order to address increased food insecurity brought on by COVID-19. These pandemic-era expansions of the program have illuminated significant debate about the future direction of the program. 

    Some have placed emphasis on maximizing SNAP’s ability to combat food insecurity, while others have expressed concerns about ensuring that the program does not overly disincentivize work or contribute to a lack of self-sufficiency. Pandemic-era expansions of SNAP in 2020 and 2021 have added fuel to these questions on both sides of the policy discussion, although these debates have been around for decades. 

    At the program’s inception in 1939, and its second iteration in the early 1960s, food stamp recipients were required to purchase stamps equaling their normal food expenditure, and would receive, in the form of the stamps, the ability to purchase more food than they would normally have been able to purchase with that sum. Some criticized the requirement, arguing that it placed limits on participation, and it was removed by the Food and Agriculture Act of 1977, leading to an increase in participation.The act also established more regulation on the availability of food stamps. For example, it included a penalty for stamp recipients who voluntarily quit their jobs without good cause. This penalty has persisted in SNAP’s general work requirement. Those who do not meet the work requirements can be suspended from the SNAP program for a month or more.

    COVID-19 Pandemic Era Expansions

    The pandemic-era relief packages passed by Congress included the following changes:

    While all of these measures have technically been temporary, there was also a permanent increase in SNAP’s maximum allotment in 2021 through a program called the Thrifty Food Plan (TFP). The re-evaluation of the TFP was mandated by the 2018 Farm Bill, which required that the TFP be reassessed to be better representative of the cost of a healthy diet. The TFP re-evaluation raised the maximum allotment by 21%, though other publications have pegged the increase at over 25%, perhaps due to differences in calculation.

    Concerns about SNAP’s impact on employment and self-sufficiency

    The employment-incentive-focused side of the SNAP debate is most contentious when discussing the TFP permanent increase in the maximum allotment, and the temporary and partial suspension of the ABAWD work requirement. One element of controversy are discretionary exemptions, which allow states to exempt one ABAWD from the ABAWD work requirements for a month. States receive a limited number of exemptions, and these can be carried over into subsequent fiscal years. It has been argued that as the current suspension of the ABAWD work requirement makes the use of these discretionary exemptions redundant, states will store up their discretionary exemptions and, once the national public health emergency declaration has ended, use them to exempt a high number of ABAWDs.

    SNAP work disincentives have been alleged to contribute to a host of negative outcomes, including interfering with economic recovery, and contributing to a shortage of labor. One study published in Labour Economics found that access to SNAP decreased the rate at which single women were employed by 6%, and caused married men to reduce the hours they worked by 5%. 

    Concerns about increasing food security

    However, other studies report contrary results. Another study from the Association for Public Policy Analysis and Management found that SNAP increased the labor participation of participants by around 5%, and increased their yearly hours worked by 47 hours per year. They attributed this mostly to the ABAWD work requirement and reason that it increases workforce participation.

    Additionally, it has been argued that SNAP’s benefits structure is designed to reduce the work disincentives that some allege emerge when recipients of welfare benefits lose those benefits as a result of increases in income. Because SNAP is designed to gradually reduce benefits with rises in income, and includes an income deduction that further reduces the amount of benefits that are lost with increases in income, there is less risk of SNAP participants being dissuaded from working for fear of an abrupt loss of benefits. There is an income threshold, past which SNAP recipients will lose SNAP benefits, but because of this gradual reduction in benefits, the loss is not a large one.

    A vocal group of supporters of SNAP are calling for extended or permanent expansions of the SNAP benefits that were implemented in the early months of the pandemic. This perspective praises the TFP permanent increase in the maximum allotment, as well as the temporary suspension of the ABAWD work requirement, as providing a necessary increase in the program’s ability to improve the food security of recipients. The program has been shown to have a significant impact on food insecurity—it brings down overall food insecurity by as much as 30%—but the Urban Institute, an economic and social policy-research think-tank, found that before the TFP increase, the average maximum SNAP allotment (which varies based on household size), covered the cost of a modestly priced meal in 4% of the counties in the contiguous United States. The study found that after the increase, the average maximum SNAP allotment covered the cost of a modestly priced meal in 79% of US counties. Some posit that this is still insufficient, and that more should be done to combat food insecurity. 

    Others suggest making the suspension of the ABAWD work requirement permanent. They believe it causes significant harm by taking benefits away from ABAWD SNAP recipients who may be working part time with irregular hours, or facing significant barriers to work and therefore cannot meet the requirement. 

    It has also been argued that available research shows the requirements do not have a meaningful impact on employment. A recent report by the U.S. Department of Agriculture (USDA) analyzed nine states and found that the ABAWD work requirement reduced SNAP enrollment. The amount of reduction varied based on the state, from a 5% decrease in some Colorado counties to a 41% decrease in Vermont. However, the study found that a large portion of those subject to the ABAWD work requirement were found to be unemployed four quarters after the requirement was implemented. This contradicts the findings of previously mentioned studies and demonstrates a large potential for future research on the subject. 

    The pandemic era expansions of SNAP have illuminated one of the policy debates that has guided the program since its beginning: differing ideas about what recipients should have to do in order to receive SNAP, and how much they should receive. The core of the debate is grounded in differing ideas about the role that government should play in providing resources to citizens to help people better support themselves. This debate will continue to drive the development of future discussions around SNAP.

  • President Biden’s Student Loan Forgiveness Plan

    President Biden’s Student Loan Forgiveness Plan

    This brief was originally published by Jia Williams on November 11, 2021. It was updated and republished by Thomas Lee on June 20, 2022.

    Introduction

    In recent decades, about 45 million college-educated Americans have collectively amassed $1.75 trillion in student loan debt, leading to decreased national Gross Domestic Product, sustained generational inequality, and increased loan delinquencies. In the past decade alone, student loan debt has increased by 91% from 2011. This increase in national student loan debt is not a new development, as the cost of higher education has been on the rise since President Reagan cut federal spending on higher education by 25% in the 1980s. It rose again after the Great Recession of 2007, when the government cut higher education spending once more. The effects of these budget cuts are seen in higher tuition, less aid to low income students, and more student debt than ever before. 

    President Biden’s Policies So Far

    The election of President Joe Biden has brought on a resurgence of demand for student loan forgiveness in many different capacities. So far, Biden has only enacted targeted loan cancellation for three groups of student loan borrowers—borrowers with total and permanent disabilities (TPD); borrowers under the Borrower Defense to Repayment Rule (BD Rule); and most recently, students under the Public Service Loan Forgiveness Program (PSLF). As of May 27, 2022, Biden has canceled over $18.5 billion in student loans for targeted groups. 

    Students under the TPD borrowers category have a disability that prevents them from earning an income and subsequently paying their loans. Eligible borrowers under this program automatically had their loans discharged if they passed a data match between the Department of Education (DoE) and the Social Security Administration or between the DoE and the Department of Veteran Affairs. Borrowers who believe they qualify as a TPD borrower can also obtain certification from a licensed doctor to confirm that they are totally and permanently disabled. 

    The BD Rule covers borrowers who were defrauded by their schools or who’s schools were closed before they could complete their degree. Students who were defrauded by their schools were intentionally misled by their universities about the education programs offered or attended universities that violated state laws such as consumer protection statutes. Other qualifying conditions under the BD Rule include employment rates that differ from what was advertised, misrepresentation of the transferability of credits, and misrepresentation of graduate placement rates and salaries, among others. In March of 2021, about 72,000 borrowers under the BD rule were awarded a total of $1 billion in loan cancellations. Borrowers received an additional $500 million for 18,000 borrowers again in June, and received another $1.1 billion in late August for an additional 115,000 borrowers who were defrauded..

    The PSLF Program was started by Congress in 2007, but has been underutilized due to its complexity and poor management. The purpose of the program is to cancel student debt for public servants after they’ve paid 120 on-time monthly payments for 10 years. On October 6th, the DoE announced a waiver that would allow borrowers in the program to count payments from federal loan programs and repayment plans that were not previously eligible under the program. The waiver is temporary and will be accepted only until October 31, 2022. The DoE expects this waiver to bring 550,000 borrowers a total of $1.74 billion in student loan relief.

    In total, Biden has canceled $7.8 billion for more than 400,000 student loan borrowers with a TPD, $2 billion for 105,000 student loan borrowers under the BD Rule, and $6.8 billion for 113,000 borrowers under the PSLF Program. Along with the loan cancellations, the administration has extended student loan relief for temporary student loan forbearance through August 31, 2022. Temporary student loan forbearance suspends or lowers student loan payments temporarily for borrowers. 

    Future Policies from the Biden Administration

    In the future, Biden hopes to improve student loan financing for student loan borrowers, hold student loans servicers accountable, enact more student loan cancellation programs, improve policies concerning student loan debt collection, streamline the process of applying for student loan debt forgiveness and cancellation, as well as hold colleges and universities accountable for misleading students about education programs and loan financing. There are a multitude of ways his administration plans on accomplishing these goals. To start, the DoE aims to establish a committee that will be tasked with rewriting regulations to improve the student loan crisis. Their responsibilities entail addressing issues in the BD Rule, in interest capitalization on federal student loans, in Pell Grant eligibility for prison education programs, and in the PSLF Program, as well as exploring TPD charges further. They also aspire to make student loan forgiveness more accessible by eliminating the required application and 3-year monitoring period for people who qualify for TPD. 

    After months of internal discussion over how to structure loan forgiveness for tens of millions of Americans, it appears that President Biden plans to forgive $10,000 in student debt per borrower. Canceling $10,000 in federal student loans for every borrower would wipe out the student loan debt for over 16 million people, representing around a third of all borrowers, according to the Center for American Progress. However, the White House plans to limit debt forgiveness to Americans who earned less than $150,000 in the previous year, or less than $300,000 for married couples filing jointly. Biden’s executive action to cancel student loans would almost certainly be limited to federal student loans only. It is still unclear whether Biden would limit the relief further to only Direct federal student loans or government-owned federal student loans, or whether it could also include commercially-held FFEL-program student loans as well. The Department of Justice is currently reviewing his executive authority to cancel all student loan debt. If it is concluded that he does not have authority to do so, responsibility will fall on Congress to pass legislation that will enact widespread student loan forgiveness.

    Arguments For Student Loan Forgiveness

    Progressive Democrats believe that full student loan forgiveness is possible under the Biden administration and are advocating for student loan forgiveness of up to $50,000 per borrower who earns less than $250,000 a year. At the head of the push for student loan forgiveness are Massachusetts Senator Elizabeth Warren and Senate Majority Leader Chuck Schumer of New York. They, along with Representative Ilhan Omar of Minnesota and Representative Alexandria Ocasio-Cortez of New York, believe that student loan debt is preventing a generation of student loan borrowers from advancing in life. They cite recent research that shows current generations are getting married and starting families at older ages than previous generations. Overall, they believe that student loan debt cancellation, in any capacity, is necessary to decrease generational and racial wealth disparities and increase opportunities for young Americans. Biden is hesitant to forgive $50,000 per borrower, but has expressed a willingness to forgive up to $10,000 per borrower.

    Arguments Against Student Loan Forgiveness

    Republican politicians have been actively opposing this view and believe it will promote fiscal irresponsibility. Representative Steve Stivers of Ohio explains that borrowers will incur student debt rashly if they assume the government will cancel it. Senator John Thune of South Dakota, also advocates against student loan forgiveness for this reason. Republican politicians also believe that the federal government cannot afford canceling student debt, especially during a time of economic downturn due to the COVID-19 pandemic. Full student debt cancellation does not address the root causes of the student debt crisis and could even potentially exacerbate the issue due to irresponsible debt accrual. Some also raise the point that total student loan forgiveness is regressive because of its disproportionate benefits for high-income earners who took out more loans to pay for higher levels of education. These individuals are already more likely to pay off student loans without the added advantages of federal student loan forgiveness, leading many to believe that widespread student loan forgiveness is an uneven wealth transfer.   

    An analysis from the Brooking Institute addresses the concerns of both perspectives and asserts that student loan forgiveness could be progressive and reduce social inequities and increase economic opportunity—but only if debt cancellation is contingent on post-college earning and family income. For example, someone earning $170,000 a year with $65,000 in student loan debt is comparatively in a better position to pay off loans than someone earning $60,000 a year with the national average of $36,000 in student loan debt. The proposal to cancel all student loan debt is estimated to cost $1.6 trillion, making it one of the largest wealth transfers in U.S. history, greater than 20 years of spending on unemployment insurance, the Earned Income Tax Credit, and Food Stamps. As opposed to these programs, widespread student debt cancellation would largely benefit higher income, better educated, likely white borrowers. From this perspective, targeted student loan cancellation based on post-college earnings would be less costly than widespread loan cancellation, while still helping to mitigate racial disparities and generational inequity.

  • Introduction to Renewable Portfolio Standards

    Introduction to Renewable Portfolio Standards

    Overview of Renewable Portfolio Standards (RPS)

    A renewable portfolio standard (RPS) is a standard that requires a set percentage of a state’s electricity utilities to come from renewable sources. Currently, 31 states, Washington D.C, and two U.S. territories have created RPS to help their states diversify their energy portfolios and reduce emissions. Eligible renewable energy sources included in most RPS standards include solar, wind, geothermal, biomass, and some hydroelectric facilities. However, the exact mix of eligible sources, as well as specific RPS targets, varies by state. Most states have existing requirements around 40%, but many, including Virginia, Washington, Nevada, and New Mexico, are beginning to renew and increase their requirements to 100%. The metric used to measure standards also differs by state, but the most common is the percentage of retail electric sales, followed by specific amounts of renewable energy capacity, and percentage of peak demand.

    Another set of related energy policies that have risen in popularity in recent years are clean energy standards (CES). Though similar to RPS, some “clean” energy sources under CES are not also “renewable,” enabling the distinction. A “clean” energy source is one that is carbon-free, and a “renewable” energy source is one that is not depleted when used. Nuclear energy is one such “clean” energy source because it has zero carbon emissions, but it is not renewable. Due to the broader definition of CES, most CES policies also have an RPS component. For example, if a CES policy sets a 90% requirement, a sub-RPS policy might require 30% from renewable sources and the remaining 60% can come from any eligible carbon-free or carbon-neutral source.

    Arguments in Favor of RPS  

    Proponents of RPS argue that its policies provide a valuable opportunity for economic growth, diversification of state energy sources, and carbon emission reductions. Though increased adoption of RPS has positive impacts on the environment, most states view environmental impact as a secondary goal. Instead, many states are pursuing RPS policies as an opportunity for economic development through diversification of their respective energy supplies. Due to their positive economic impact, most RPS policy proposals have bipartisan support, but some questions posed by their rising popularity include: How high should future targets be set? And should favored status be given to some renewable energy sources that aren’t as popular because of higher costs to promote their development? 

    Evidence suggests state RPS policies have helped reduce carbon emissions while also boosting the economy. A recent study found that the greenhouse gas and air pollution reductions from state RPS policies saved the U.S. $7.4 billion in 2013, while a different study from the same team found average annual costs to be about $1 billion, indicating that the benefits outweigh the costs. In addition, 200,000 jobs centered around renewable energy were created in 2013, partially due to the increasing adoption of state RPS. Some smaller benefits from state RPS include lower national water consumption.

    One state that has been particularly successful with RPS is Texas. Similar to most states, Texas’s eligible mix of resources was determined by its existing mix of energy and the potential sources of renewable energy given location. Wind energy quickly emerged as a prime area for energy development as a result of high wind speeds in West Texas. The 1999 legislation that put an RPS into place for the state established a robust system for the success of renewable energy in the state including a renewable energy credit program, a transparent market transaction process, and an alternative compliance mechanism. The state has since renewed their RPS many times and now has a standard of 10,000 megawatts of renewable energy. 

    Given the success of most state RPS, some scholars suggest a national RPS is necessary to more efficiently promote renewable energy and reduce greenhouse gas emissions. Keeping RPS policies at the state level allows for states to utilize their most abundant natural resources to create an energy portfolio that minimizes costs for their specific state. States like Texas can utilize naturally occurring high wind speeds and states like Florida and California can create robust solar energy systems. The challenge, though, is that state-based RPS allows for some states to choose not to implement or renew their RPS, thereby not contributing to the national transition to renewable energy. Due to its larger scope, a national RPS would allow for the benefits of renewable energy to be distributed nationwide without the need for individual state action. 

    Challenges Facing RPS

    In general, RPS is thought to encourage economic development through the increased production of domestic energy. However, skeptics of RPS have argued against the adoption of a national RPS for a few primary reasons. First, “renewable” and “low greenhouse gas emissions” are not synonymous, as there are other cheaper forms of electricity with low CO2 emissions, such as nuclear energy, that are not renewable. Second, the spread out locations of renewable energy sources requires building infrastructure to get energy to people, which is unlikely to happen due to time and resource constraints. Wind and solar energy collection farms, in particular, need to be sited in areas with low population density, but demand for energy in these areas is low compared to further areas with higher population density. To transport the energy to areas with higher demand would require robust transmission line infrastructure, which can be costly and time-intensive to buil.

    Following these broad concerns are a few logistical challenges. The first is that areas with a lot of renewable energy and low population density, means that supply of renewable energy can and likely will exceed demand. This presents an even larger problem given the variability of primary renewable energy sources. Supply of these resources is dependent on non-controllable factors such as weather and time of day. As a result, resources such as wind and solar power do not generate energy during times of peak demand. Another resulting logistical issue is that variable energy generation poses challenges for the electricity grid as operators seek to match levels of electricity supply and demand. Variable energy generation increases the risk of supply disruptions and blackouts. Because the grid is highly interconnected, disturbances can quickly spread and impact larger regions. Another problem is that a national RPS policy would likely rely heavily on expanding wind energy. Wind and geothermal energy have the nation’s highest growth percentage among renewable energy sources, however wind is more cost-effective. For its cost-efficacy and high rate of growth, wind will likely become a key vehicle for expanding RPS. Consequently, setting a national RPS requirement of even 15% would mean wind would have to expand exponentially in a short period of time. 

    Siting issues also present a challenge for the rollout of renewable energy technology. Siting issues could also lead to public discontent in states with high population density around viable sites. Wind and solar farms require large areas of land to generate significant amounts of energy, which can alter habitats for wildlife and result in aesthetic degradation.