Reading the news or listening to politicians and pundits speak, one could easily get the impression that global inequality is getting worse. But is the widely held belief that the world is becoming less equal true, or is it mistaken? The overwhelming majority of long-term trends regarding living standards—ranging from rising life expectancy to declining rates of poverty and hunger—show considerable improvement, even accounting for recent pandemic-related setbacks. You can explore the evidence for yourself on websites such as Human​Progress​.org. Have those improvements been widely shared, or have they accumulated mainly to a small population while much of the world is left behind?

That’s what George Mason University economist Vincent Geloso and I set out to discover. What we found is that while global inequality unquestionably still exists, it is in fact shrinking.

Our Inequality of Human Progress Index offers a new way of measuring global inequality. It is more comprehensive than any prior international inequality index, taking into account a greater number of dimensions. We found that in addition to a global decline in income inequality, there have also been declines in lifespan inequality, nutritional inequality, educational inequality, internet access inequality, and political liberty inequality. Around the world, gaps in these areas are shrinking.

Most importantly, there has been a decline in overall global inequality. That result was consistent, even under a variety of specifications that we tested. The data show that across all but two of the areas we examined, the world has become more equal since 1990. The data does not support the narrative of rising worldwide inequality.

The exceptions were infant survival inequality and clean air inequality. While infant mortality has decreased everywhere, it has fallen faster in rich countries with advanced medical technology and neonatal intensive care units. Clean air inequality has also gone up, probably because economic development often results in more pollution during industrialization before falling as a nation attains postindustrial prosperity—a tendency economists call the “environmental Kuznets curve.” Much of the world is still undergoing this transition.

Our research shows that improvements in international development have been both greater and more dispersed than many people realize. While there are still gaps, they are shrinking, and an accurate assessment of current trends is critical as we try to deepen our understanding of the drivers of human progress. The greater global interconnectedness and market liberalization of the past few decades have, it seems, not only raised absolute living standards but also equality. The world is not only better off than is commonly appreciated but also more equal.

Two weeks ago, some of the biggest names in academia and monetary policy gathered at Brookings to discuss what factors had contributed to the recent spike in inflation. To that end, Ben Bernanke and Olivier Blanchard designed a model and found that the primary causes for post-Covid inflation were supply shortages, food price shocks, and energy price shocks – the “series of unfortunate events” explanation. However, their paper raises a larger issue with academic approaches to addressing real-world economic questions.

The model used in the paper is niche, designed specifically for their analysis. Consequently, it is hard to analyze how much of the results are driven by real effects or by an unusual choice of model. One particularly strange choice is that the model does not include a direct avenue for policy, meaning that the other channels in the paper may be spuriously picking up monetary or fiscal policy effects (and even demand factors). The result is that it is impossible to determine where inflationary effects are truly coming from.

In a discussion of the paper, Jason Furman pointed out as much, showing that most of the shocks in the paper are endogenously determined. Using an empirical and a narrative approach, Furman attributes the sharp increase in core PCE inflation to reckless policymaking – the “original sin” explanation. The two analyses offer contrasting results but neither approach uses a unified theory that allows for the simultaneous comparison of several competing causes. This problem begs the question – why not use a benchmark model that generally captures the underlying features of the U.S. economy?

Figure 1 repeats the shock decomposition for inflation from the Bernanke and Blanchard paper with a standard monetary macro model – Smets and Wouters (2007). The model is a benchmark tool for macroeconomists and the paper itself has been cited over 6,000 times. This model includes seven different sources of variation that encompass a broad range of demand, supply, and policy factors, allowing for a robust extraction of the underlying causes of inflation. The results from this approach represent a more comprehensive version of figure 12 from the Bernanke-Blanchard paper.

In Figure 1, quarterly core PCE inflation (the Fed’s preferred inflation metric) is broken down into its constituent sources from 2010 through 2022. The graph shows that neither explanation – unfortunate events nor original sin – is solely correct; both channels are at work. As is clear from the graph, inflation starts to spike in 2021 and remains high through the end of 2022. The two primary causes for elevated prices during this period are price mark-ups (supply constraints) and monetary policy, with risk premium shocks (reflecting consumer demand preferences) playing a small role.

This finding corroborates the public consensus around inflation. The U.S. economy suffered drastic supply shortages in goods and services post-Covid, which is reflected in strong price mark-ups. Additionally, as my new Cato working paper documents, Fed policy was unusually poor during this period and significantly departed from the rules-based governance that had worked well for the Fed in the past. The conclusion: both unfortunate events and original sin caused inflation.

These results are hardly surprising. Historic economic events – inflation is at a 40-year high – usually have several underlying causes. Economists should refrain from fixating on dogmatic explanations or specialized models and instead return to tried and tested empirical methods that allow for a benchmark comparison of several possible factors.

The author thanks Jerome Famularo for providing research assistance during the preparation of this essay. All data used in this analysis was collected from the FRED website with the exception of the shadow interest rate. The Wu and Xia (2016) shadow rate was used as a proxy for the federal funds rate during periods when the Fed was constrained by the zero lower bound.

Republicans will soon release an economic package that addresses a number of significant tax changes that have already or are scheduled to increase taxes on American businesses. Reporting indicates that a central component of the pro-growth package is the extension of full business expensing for R&D, equipment, and machinery.

In a recent Cato brief, I explain why maintaining and expanding full expensing is critical for American workers, especially when economic growth is weak, and inflation remains high.

What is Full Expensing?

Businesses of all sizes make capital investments in tools, buildings, and research, allowing workers to produce new goods and services and earn higher incomes. However, the normal income tax rules for deducting investments from revenues increase effective tax rates, making new investments more expensive.

Recovering the cost of an investment over multiple years decreases the after-tax return on the investment because the real value of the deduction decreases each year due to inflation and the opportunity cost of passed time. For example, if a farmer buys a new combine and can only use one-fifth of what he paid to offset revenues this year, he will have artificially high profits and thus pay higher taxes. The higher taxes will cut into his ability to make other investments in his farm, reducing his productivity and business growth.

The 2017 Tax Cuts and Jobs Act temporarily fixed this problem by allowing businesses to fully deduct the cost of new investments in the year they are made, called full expensing or 100 percent bonus depreciation. Beginning in 2022, companies started amortizing research expenses over five years, and beginning in 2023, equipment and other short-lived investments lose 20 percent of their expensing deduction each year through 2026.

Forcing taxpayers to carry investment deductions into future years—as many as 39 years for many buildings—means that the write-off’s value is eroded by inflation and time. I estimate that the loss of full expensing and five-year amortization of research expenses will deny businesses as much as 28 percent of the real value of their investment deductions. Losing more than a quarter of the real cost of investment tax deductions will make new investments that primarily benefit American workers more costly.

The Tax Code Increases Inflation Costs

A largely forgotten cost of high inflation in the 1970s was the resulting decrease in business investment due partly to the tax code’s treatment of depreciation and not allowing full expensing.

In 1979, Martin Feldstein and Lawrence Summers estimated that inflation increased the total effective tax rate on capital income by 23 percentage points, from 43 percent to 66 percent. They concluded that inflation raises effective tax rates because, without expensing, the delayed write-offs overstate taxable profits and reduce after-tax returns.

The high costs of inflation helped motivate cost recovery reforms that shortened asset lives in the 1980s. Facing high inflation again, the U.S. tax code is set to begin denying businesses the full investment deduction. By requiring long and variable depreciation deductions, the tax code will again accelerate the adverse effects of inflation on investment and economic growth. The Republican tax package would keep the worst of these effects from coming to pass.

An Economic Package for American Workers

The Republican economic tax package will likely be referred to as a package of business tax breaks, insinuating that expensing and other reforms leave families and workers behind. This misleading narrative forgets that most American workers are employed by businesses that must make new investments in technologies and tools to compete with similar producers worldwide. The American worker can’t compete for higher wages and new opportunities without new business investment.

A robust economic literature shows that businesses invest more when after-tax investment returns are higher, and the resulting larger capital stock (the accumulation of investments) increases labor demand and raises wages. The full Cato brief summarizes a more specific body of research showing that past expensing policies in the U.S. and around the world boosted investment and increased employment.

Allowing full first-year expensing to phase out will depress new investment and exacerbate the already heightened risk of recession. Congress should permanently restore full expensing for R&D and short-lived assets. Congress should also expand expensing to longer-lived structures by allowing the same immediate deduction or implementing a “neutral cost-recovery system,” which provides a similar economic benefit as expensing by enabling businesses to index their write-offs for inflation.

Congress has many important deadlines looming as major components of the 2017 tax cuts begin to expire; none is more immediately important than making full expensing permanent.

The federal government will spend $6.3 trillion in 2023, 73 percent is categorized as mandatory and 27 percent as discretionary. Mandatory spending refers to federal programs that are funded outside of annual appropriations, including Social Security, Medicare, and food stamps (SNAP). Mandatory spending also includes interest spending on the federal debt. Mandatory spending is typically ongoing and determined by statutory formula, meaning it continues from year to year, unless Congress changes the underlying law. This fact sheet lays out key details legislators and the public should know about mandatory spending.

• Mandatory spending accounts for three quarters of all federal spending, that’s $4.6 trillion in 2023 or 17.6 percent of gross domestic product (GDP).

  • The federal government will spend $35,000 in mandatory spending for every U.S. household in 2023.

  • Between 1973 and 2023, mandatory spending’s budgetary share grew from 47 percent to 73 percent of total federal spending.

  • Between 1973 and 2023 mandatory spending doubled from 8.5 percent of GDP to 17.6 percent of GDP.

  • Mandatory spending is growing as a share of the overall budget, primarily due to the growth of major entitlement programs like Social Security and Medicare.

  • Mandatory spending will reach $7.4 trillion or 19 percent of GDP by 2033 according to projections by the Congressional Budget Office (CBO).

• Most mandatory spending is for major entitlements like Social Security, Medicare, and Medicaid.

  • Social Security spending will grow from $1.4 trillion or 5.1 percent of GDP in 2023 to $2.4 trillion or 6 percent of GDP.

  • Medicare, excluding offsetting receipts such as premium payments, will spend $1 trillion in 2023.

  • Medicaid will spend $589 billion in 2023.

  • Major health care programs when combined make up the largest category of federal spending, spending $1.7 trillion in 2023 or 6.5 percent of gross domestic product (GDP).

  • Major health care spending will increase to $3 trillion or 7.8 percent of GDP by 2033. That’s almost three times what the U.S. government will spend on defense that year.

  • Spending for income security programs, including food stamps (SNAP) and unemployment compensation, will reach $413 billion in 2023.

  • Net interest spending and means-tested entitlements like food stamps, welfare, and Medicaid, grew the fastest.

• Interest spending on the federal debt is categorized as mandatory spending.

  • Interest costs on the federal debt are projected to grow faster than any other category of spending.

  • In 2023, net interest spending will reach $663 billion or 2.5 percent of GDP.

  • By 2033, interest costs are projected to double to $1.4 trillion or 3.7 percent of GDP. That’s 20 percent of total federal revenues in 2033.

  • By 2052, net interest costs are projected to rise to 7.2 percent of GDP. That would be higher than spending on Social Security or all discretionary spending.

  • If interest rates were 1 percentage point higher than projected, cumulative interest costs would increase by $3 trillion over 10 years.

• Mandatory spending is the primary driver of the U.S. fiscal imbalance.

  • Nearly 60 percent of the federal government’s long-term structural fiscal imbalance is the result of legislation enacted between 1965 and 1972 pertaining to Medicare, Medicaid, and Social Security.

  • Together, major entitlement programs and interest will be responsible for 82 percent of projected spending growth over the next 10 years.

  • Over the next 75 years, Medicare and Social Security are responsible for 95 percent of the total unfunded obligation (the present value of non-interest spending less receipts).

  • Four of the five largest federal budget functions are mandatory spending; only one of the five largest budget functions is subject to regular review and spending limits: national defense.

Further reading:

• Why We Have Federal Deficits: An Updated Analysis, by Charles Blahous

  “Nearly three-fifths of the federal government’s long-term structural fiscal imbalance derives from legislation enacted between 1965 and 1972, including the enactments of Medicare and Medicaid in 1965, expansions of Medicare and Medicaid in 1971–72, and substantial increases in Social Security benefits in 1972.”

• Designing a BRAC‐​Like Fiscal Commission To Stabilize the Debt

  “A well‐​designed BRAC‐​like process will be an effective tool for reducing government spending while also respecting Congress’s constitutional authority.”

• How a Better Budget Control Act Would Limit Spending and Control Debt

  “An independent, nonpartisan commission can help Congress overcome entitlement reform gridlock by providing politicians with political cover to approve the necessary changes sooner. [That] allows for more gradual changes to old‐​age entitlement programs that preserve benefits for the most vulnerable seniors without economically damaging tax increases on American workers.”

Download a printable PDF version of this fact sheet here.

For other fact sheets on the U.S. federal budget see:

• Federal Debt

• Discretionary Spending

• Social Security and Medicare

Removing barriers to prescribing psychologists (RxPs) saves patients the inconvenience and added expense of seeing a psychiatrist or other health care practitioner that states license to prescribe psychiatric medications. Such practitioners include family physicians, nurse practitioners, physician assistants—even general surgeons like me. Now comes a study showing that it also saves lives.

In Effects of Giving Psychologists Prescriptive Authority: Evidence From a Natural Experiment in the United States, researchers publishing in the journal Health Policy used data from the National Vital Statistics System of the National Center for Health Statistics from 1999–2015 to evaluate suicide rates before and after New Mexico and Louisiana expanded psychologists’ scope of practice to include prescriptive authority. The authors concluded:

Expanding the scope of practice of doctoral-level psychologists who have completed training in clinical psychopharmacology to include prescriptive authority is associated with a 5 to 7 pp [percentage point] decrease in suicides in New Mexico and Louisiana. The largest reductions in suicides are for male, white, married, single, and middle-aged sub-populations. The results are robust to several different additional specifications and frameworks.

And:

In the U.S., expanding scope of practice for specifically trained psychologists to include prescriptive authority may help address poor mental health care outcomes, such as suicides. Similar policy expansions may be useful for other countries where referral from a psychologist and prescription assignment from a psychiatrist are separated.

In a recent Cato briefing paper, I urged state lawmakers to remove obstacles that block doctorate-level clinical psychologists trained in clinical psychopharmacology from prescribing psych meds to their patients. For more than 30 years, RxPs have been providing mental health services to patients in the military, the U.S. Public Health Service Commissioned Corps, and the Indian Health Service. Guam lifted barriers to RxPs in 1999, followed in 2002 by the state of New Mexico and shortly after that by Louisiana. Today, six states, most recently Colorado, have expanded access to mental health services by removing barriers preventing RxPs from serving mental health patients.

With only 11 percent of psychiatrists engaging in talk therapy nowadays—most primarily practice pharmacotherapy—and roughly 50 percent of psychiatrists no longer accepting health insurance, expanding the ranks of trained psychotherapists who can also prescribe medications makes sense.

Representatives of organized medicine, most notably the American Psychiatric Association and its affiliates, oppose this reform. The President of the American Psychiatric Association argued against the proposal in a Cato online policy forum on the topic.

In testimonies before the Colorado Senate and the Arizona Senate, I told lawmakers that removing barriers to RxPs will expand access to mental health services without spending taxpayer dollars. Colorado lawmakers removed the barriers earlier this year. In Arizona, a bill to remove them passed the Senate, but the Arizona Psychiatric Association lobbied successfully against it in the House.

As the need for mental health services in the United States continues to grow, the arguments for this reform grow stronger, and the case against it grows weaker. Before long, entrenched incumbents will be unable to block this reform in the remaining states.

Critics of the H‑1B visa for skilled foreign workers often claim that the status amounts to “indentured” servitude. Indentured servitude is a contract to work for a single employer for a predetermined period without pay. H‑1B workers are not only paid—they receive wages in the top 10 percent of wage earners in the United States. As importantly, although they face more obstacles to changing jobs, H‑1B workers are not tied to a single employer, and they change jobs regularly.

In fact, H‑1B workers are leaving their initial H‑1B employers more than ever. Figure 1 shows the number of H‑1B workers changing to a new employer by fiscal year. From fiscal year 2005 to 2022, H‑1B workers changed jobs nearly 1 million times. The number of switches grew from about 24,000 in 2005 to a record 130,576 in 2022—a more than fivefold increase.

In fact, H‑1B job shifting is more common than H‑1B workers starting H‑1B employment for the first time. In 2022, about 51 percent of all H‑1B workers starting with a new employer were existing H‑1B workers hired away from other employers in the United States. This means that U.S. employers are more likely to hire an H‑1B worker already in the United States in H‑1B status as they are to hire a new H‑1B worker not already in H‑1B status.

Several causes for this increase are possible. The labor market has generally been tighter, leading to more job switching in general. In addition, more H‑1B workers are employed in the United States now for other employers to poach, and since the H‑1B cap has been so quickly met every year since 2014, there is more reason to poach. The government also made it somewhat easier to switch H‑1B jobs in 2017 by giving them a 60‐​day grace period to find a new job after losing a job.

Finally, the jump in switching in 2021 is at least partially attributable to the record number of green card applications filed that year. After 180 days, H‑1B workers who have filed a green card application may change jobs without the employer being forced to restart the green card process, easing the job switching process. However, in 2022, the number of pending employment-based green card applications declined from 2021, so this is only part of the story.

Of course, it is true that H‑1B workers are still not treated equally in the labor market. New H‑1B employers have to pay hefty fees to poach them, and the shortage of green cards for Indian workers can wrongly make those workers feel that they have to stick with their existing employer to complete that process. The best solution would be to make the conversion to a green card automatic rather than requiring a renewal after three years. The 60‐​day grace period to find a new job is still not long enough to give many workers the confidence to simply quit a problematic job without a new one already lined up.

Despite these government-imposed obstacles, the existence of widespread H‑1B job shifting further refutes the idea that H‑1B workers are “indentured” servants. The Pew Research Center reports that 2.1 percent of college graduates changed jobs per month in 2022. The population of H‑1B workers is estimated to be about 580,000.[1] The data aren’t directly comparable, but with nearly 131,000 H‑1B transfers in 2022, this implies a monthly job change rate of 1.9 percent—lower, but nothing remotely like the hyperbolic claims of “indentured servitude.”

The fact is that the government has wrongly unleveled the playing field for H‑1B workers by erecting artificial barriers to job change, but options still exist to find better employment within the H‑1B system. The government should expand those options rather than try to reduce or eliminate these workers who contribute so significantly in the areas of science, technology, engineering, math, and medicine.

Note: This post is an update of an October 2022 post on the same subject using more up-to-date numbers.

While praising the “new” trade policy of the Biden administration during a recent interview with PBS, U.S. Trade Representative Katherine Tai described this policy as “pro-competition.” It seems to me, instead, that the Biden policy in international trade is, instead, anti-competition. The protectionism of the current administration, now in full display after nearly two and one-half years, is about insulating domestic producers from foreign competition.

In part, this policy is being pursued through conventional tariffs, such as the unilateral tariffs on hundreds of billions of dollars in annual trade with China. In part, it is being pursued through the application of tariffs as inflated trade remedies. Soon, a new part of this policy may include approval of discriminatory congressional proposals for carbon border tax adjustments. In part, too, this policy is evidenced in the conditions attached to the subsidies that are being handed out to businesses as one dimension of a much-touted but much-misunderstood “industrial policy” that purports to be new but is mostly a return to the self-defeating protectionism of the past.

One particularly egregious form of such protection is the proliferation of domestic content mandates, which are central to last year’s Inflation Reduction Act (IRA). As the subsidies in the IRA are rolling out, we are starting to see how harmful these domestic content mandates are to the competitiveness of American workers, American businesses, and the overall American economy. Although “Buying American” sounds red-white-and-blue patriotic in a political campaign or in a meeting with congressional constituents, Americans pay a high price for this form of protectionism. For my further thoughts on these ill-advised mandates, see my new Cato paper, “The High Price of Buying American: The Harms of Domestic Content Mandates.”