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This edition was written by Elijah Asdourian, Sam Boocker, Lorae Stojanovic, and David Wessel.
Since the 1980s, household demand for assets, including stocks and real estate, has increased. Paul Beaudry of the Vancouver School of Economics and co-authors, using data from the Survey of Consumer Finances from 1989 to 2019, argue that falling real interest rates since the 1980s have been the primary driver of this trend. They find that the increase in demand reflects an increase in savings by households with similar age and income profile, as opposed to shifts in demographics or the distribution of income. For example, the wealth-to-income ratio of the 55-64 age cohort increased by up to 55% in the 30 years before COVID. With lower real rates, savers need to save a greater portion of their income to make up for the lower returns on assets.
Is the Black-white earnings gap exacerbated by residential segregation that causes Black people to live further away from professional opportunities than white people do? Using data on earnings from 2010 to 2018, David Card and Jesse Rothstein of the University of California, Berkeley, and Moises Yi of the U.S. Census Bureau find that virtually none of the Black-white earnings gap is due to "spatial mismatch." Jobs near Black neighborhoods usually offer higher wage premiums than jobs near white neighborhoods, and Black workers’ homes are also closer to all potential workplaces than the homes of white workers. Though the authors find "no evidence that Black workers are systematically under-represented at workplaces with above-average pay premiums," they note that spatial mismatch may have been more important in the past because America’s Black population has become more suburban in recent decades, "arguably leading to a reduction in spatial mismatch."
Ashvin Gandhi of UCLA and Andrew Olenski of Lehigh University find that U.S. nursing homes conceal a significant portion of their profits from public records through "tunneling." This method involves purchasing goods or services at inflated prices from affiliated companies, driving nursing home profits downward while commensurately boosting profits of related firms. This process financially benefits nursing homes because public reimbursements are often based on underlying costs, which are inflated through this process. Furthermore, by presenting themselves as low-margin operations, nursing homes may better be able to oppose stricter quality standards. A complex web of ownership also may shield nursing homes’ assets against potential malpractice lawsuits. From Illinois nursing home financial records, Gandhi and Olenski conclude that in 2019, 63% of Illinois nursing home profits were concealed in overpriced transactions with related entities, particularly in rent and management services. This finding challenges the narrative of nursing homes as marginally profitable and may clarify why the sector attracts substantial private equity investments. Gandhi and Olenski call for wider investigations into profit tunneling in healthcare, where similar incentives pervade.
"We reverted to a normal monetary policy targeting short-term interest rates, as with other central banks. We will choose the appropriate level of short-term rates in line with our economic and price outlook. But in doing so, we need to be mindful that there is some distance for inflation expectations to reach 2%. When we focus on this gap, it's necessary to maintain accommodative monetary conditions even under a normal monetary policy framework," says Kazuo Ueda, Governor of the Bank of Japan.
"… The likelihood of inflation stably achieving our target has been heightening... As a result, the likelihood reached a certain threshold that resulted in today's decision. If the likelihood heightens further and trend inflation accelerates a bit more, that will lead to a further increase in short-term rates."
The Brookings Institution, 1775 Massachusetts Ave NW, Washington,DC, 20036
