Harvard Economist Raj Chetty Creates God’s-Eye View of Pandemic Damage - Bloomberg
Harvard’s Chetty Finds Economic Carnage in Wealthiest ZIP
Codes
The celebrated economist has built a data tool with a
God’s-eye view of the pandemic’s damage—and soaring inequality.
By September 24,
2020, 4:00 AM EDT
Raj Chetty hasn’t eaten at a restaurant in months. In fact,
he’s barely left his home near Harvard, where he’s an economics professor. The
MacArthur genius grant recipient has been getting his haircuts from a stem cell
biologist—his wife.
If you want to understand what’s really wrong with the
economy, this is a telling symptom: Chetty used to travel widely sharing
insights from his work, which mines data to paint a vividly detailed picture of
inequality in the U.S. Now he, like millions of other affluent Americans, is at
home. That might seem harmless—Chetty and his wife enjoy cooking together and
spending time with their 5-year-old daughter—until you confront the effects on
the already-precarious livelihoods of the people who fed, clothed, and
pampered this professional class.
When Covid-19 hit, Chetty and his team of about 40
researchers and policy specialists dropped everything—including work on
inequality in housing, higher education, and longevity—to document the
pandemic’s lopsided impact. The result is a data tracker that gives a
day-by-day, state-by-state, and even neighborhood-by-neighborhood view of the
coronavirus economy. First uploaded in May and frequently expanded since, it
relies on nonpublic, proprietary data supplied by some of America’s largest
corporations to give a level of detail, in real time, that traditional economic
indicators can’t match.
The American Economic Association says Chetty is “arguably
the best applied microeconomist of his
generation.”
Last month, a couple
days after former Vice President Joe Biden selected California Senator Kamala
Harris as his running mate, Chetty briefed the pair over video, presenting data
that demonstrated lower-income workers were bearing the brunt of the Covid
recession. His chart showed that by April, the bottom quarter of wage earners,
those making less than $27,000 a year, had lost almost 11 million jobs, more
than three times the number lost by the top quarter, which earn more than
$60,000 annually.
By late June the gap had widened further, even though many
businesses had reopened. In fact, the segment of Americans who are paid best
had recovered almost all the jobs lost since the start of the pandemic. “The recession has essentially ended for
high-income individuals,” Chetty told Biden and Harris. Meanwhile, the
bottom half of American workers represented almost 80% of the jobs still
missing.
Even as the better-off watched employment rebound and the
stock market surge, the virus’s economic devastation was all around them, in
shuttered restaurants, hair salons, and gyms. It was no longer possible to
ignore the economic chasms that separated people who used to live and work
alongside one another. “That creates this very local feel to the recession,”
Chetty says.
The mapping tool on his tracker allows you to visualize the
divergence as it’s played out in prosperous places from Manhattan’s Upper East
Side to San Francisco’s Pacific Heights. “The
shock is most severe actually in the richest parts of the country and the
richest neighborhoods in the country,” he says. “It’s literally the people
you were interacting with who I think are suffering the most.”
Chetty has been described as “arguably the best applied
microeconomist of his generation” by the American Economic Association, which
awarded him the Clark Medal, often called the second-most prestigious prize in
the profession after the Nobel, in 2013. Like many of his contemporaries,
Chetty largely eschews theory and ideology in favor of data—the more the
better. His goal in diagnosing the source of the economic pain is to help find
ways to cure it. “It’s really done from the perspective of science,” says Heather
Boushey, a Biden adviser who heads the Washington Center for Equitable Growth.
Chetty and his team have been talking about their newest
project to any politician who will listen. On video calls with dozens of
Democrats and Republicans in Congress, as well as Treasury officials and state
and local policymakers, his message has been consistent: Get the virus under
control at all costs—a task the U.S. has so far failed at pitifully. No matter
how many businesses are allowed to reopen, normal economic life will not resume
until their customers feel they’re no longer at risk of contagion. In the
meantime, he tells them, target assistance to the people, businesses, and
places that need it. There’s no use
sending stimulus checks to people making $150,000 a year or cutting their
payroll taxes. They have plenty of money; what they lack is places to safely
spend it.
In the weeks before the U.S. government’s first jolt of
stimulus ran out, Chetty was optimistic that both parties in Washington seemed
to be getting the message. “I’ve consistently found an appreciation for what
the data have to say, even in these polarized times,” he said then. But with
infection rates spiking in a dozen states and Congress and the White House at
an impasse over what should take the place of the now lapsed $600-a-week
pandemic unemployment benefit and other assistance furnished through the Cares
Act, Chetty has become alarmed by what his trove of data is telling him: The recovery has stalled.
Until recently, the Covid crisis of 2020 looked nothing like
the Great Recession of 2008—or any other slump. With American businesses and
workers held aloft by trillions of dollars in stimulus, the worst damage had
been limited to certain sectors and had even started to heal. Now the economy’s woes could metastasize,
taking down industries and workers that were untouched before.
All this threatens to make Chetty’s work much more
difficult. The American dream is dead, as he’d proved with exhaustive
government data showing today’s workers can no longer expect to earn more than
their parents did. Now those left behind by the economic changes of the past
few decades could be robbed of any remaining opportunities to get ahead.
One of Chetty’s most stunning findings was rendered in 2018
by the New York Times’ website in blue and yellow pixels that swarmed across
the screen. It’s beautiful, almost soothing, if you can forget you’re watching
a tragedy unfold. Each tiny square represents the life trajectory of one of
10,000 American men born into a family at the top 20% of the income spectrum.
They fall or rise based on the extent to which they were able to match their
parents’ comfortable incomes in adulthood. Those yellow pixels that keep bouncing
up at the top of the screen are White men in the sample. The blue ones that
keep tumbling to the bottom? They’re Black men. The two-minute animation is
a simple, elegant illustration of the pernicious effects of racism on even the
most privileged Black Americans.
Many of Chetty’s slides and charts tell similarly grim
stories, even if the mild-mannered 41-year-old himself rarely shows much
emotion. “He presents the data in the most detached and remote way,” says Ford
Foundation President Darren Walker. Yet “he visualizes suffering in this
country in really profound ways. As a Black man, when I see that data, I am
emotionally disturbed and profoundly impacted.”
Chetty’s base of operations is Opportunity Insights, a venture based at Harvard that is part think
tank, part research lab. Started in 2018 with $36 million, including $15
million each from Facebook founder Mark Zuckerberg and the Bill & Melinda
Gates Foundation, OI was co-founded by Chetty, Harvard colleague Nathaniel
Hendren, and Brown University professor John Friedman. Its mission, as spelled
out on its website, “is to identify barriers to economic opportunity and
develop scalable solutions that will empower people throughout the United
States to rise out of poverty and achieve better life outcomes.”
Translation: to improve economic
mobility in the U.S.
The center’s staff includes more than a dozen recent college
graduates trained in the art of sifting through data, with some sets so large
they can take a computer a day or more to analyze. Chetty and his colleagues
don’t just identify problems, they suggest ways to fix them. A 2014 study
found that the best teachers can
help each student earn an additional $50,000 over their careers, which works
out to $1.4 million per homeroom. Chetty has suggested school districts hold on
to skilled teachers by tying pay or bonuses to performance.
Improving education for poor kids wouldn’t just help them
personally, Chetty’s research suggests. It should also boost the economy
overall. An analysis of the patents filed by 1.2 million Americans found
children of the top 1% are 10 times more likely to be inventors than equally
smart kids from other backgrounds. If talented women, minorities, and children
from low-income families could invent at the same rate as well-off White men,
Chetty and his co-authors estimated, these “lost Einsteins” could quadruple innovation in the U.S.
An “Opportunity Atlas” on the center’s website maps income
mobility across the U.S. down to the city, neighborhood, and even block. The
interactive tool, built using anonymized data from the Census Bureau and the
Internal Revenue Service, also pulls statistics on factors like teen-pregnancy,
incarceration rates, education levels, and commute times. The atlas, which went
live in 2018, revealed that moving a
child from a neighborhood with below-average mobility to one with above-average
mobility could boost his or her lifetime earnings by about $200,000.
The project became the foundation for a Seattle-area
experiment in which families eligible for federal housing assistance received
relocation advice and support. U.S. Senator Todd Young, a Republican, has
co-sponsored a bipartisan bill to take the Seattle program nationwide. Back
home in Indiana, he borrows Chetty’s charts to explain the issue to rooms full
of constituents. Chetty “goes to great lengths to make his research accessible.
He’s not just speaking to other researchers,” Young says. “He’s presenting
information in plain language, in a visual format that one can understand
within seconds.”
Wealthy donors have also embraced Chetty’s research. When
he was lured back to Harvard two years ago from Stanford, billionaire hedge
fund manager Bill Ackman endowed a chair in the economics department for him.
Gates, Zuckerberg, and other donors (including Bloomberg LP founder Mike
Bloomberg) have given OI resources that few academic labs can match. The
center can hire not just research assistants to crunch data but also
experienced policy experts who turn findings into advice for
decision-makers at all levels of government and web designers who create
ambitious data visualizations. “He created a new business model for how to do
economics,” says Princeton professor Markus Brunnermeier.
Even for Chetty, whose work has documented in damning detail
the many obstacles Black Americans face in this country, the murder of George
Floyd by Minneapolis police in May inspired a reaction of “horror about how
different people’s lives can be, given just the color of their skin,” he says.
Those differences are on full display on OI’s new tracker, which shows that as
their jobs have disappeared and their children’s educations stalled, minorities
and low-income Americans have been bearing a disproportionate burden from the
virus itself. It also won’t help these groups that the disease is depriving
governments of tax revenue and putting extreme strains on nonprofits and
educational institutions. Many of the policies Chetty and his colleagues have
suggested to battle inequality, such as more inclusive college admissions and
housing desegregation, will require money to move forward. “All of this is
going to get tougher,” says Friedman, Chetty’s frequent collaborator.
Ford’s Walker is more optimistic. “For the first time in my
lifetime, we are reckoning with the issues of race and class in America,” he
says. “Americans have deluded ourselves for years that we are a meritocracy.”
Now they’re waking up to the often-insurmountable barriers to equal opportunity
Chetty has spent his career identifying. That makes him “the economist for this
moment of reckoning,” Walker says. “He understands that growing inequality
asphyxiates hope and makes it impossible
for people to dream and believe that their children will have better lives.”
When Covid-19 first reached the U.S., no one, Chetty
included, had much idea of what it was doing to the economy. Government
statistics like monthly unemployment numbers or the quarterly gross domestic
product series couldn’t keep up.
OI had started the year with a full plate of projects,
including Chetty’s most ambitious data effort yet: a collaboration with the
Census to document the economic trajectory of every American alive over the
past 70 years. Suddenly, most of the lab’s work ground to a halt as government
offices shut down.
With little else to keep their young researchers busy,
Chetty and his team started playing around with the few real-time measures of
the economy that were available. Homebase, a company that makes small-business
software, was offering researchers access to daily internal numbers, for
example.
During a meeting in early
April, Chetty, Friedman, and others struck on an idea: What if they pulled
together data from several private sources then put it all up on the
web, so anyone could access it—an economic counterpart to Johns Hopkins University’s coronavirus
tracker, which has become one of the go-to sources for health statistics.
“We didn’t realize just how big a project we were getting
ourselves into,” says Michael Stepner, a postdoctoral fellow at OI. At first,
he planned to devote 10 hours a week to the effort. But eventually it sucked in
the entire staff, with work progressing pretty much around the clock as night
owls overlapped with early birds. “This just took over the lab, and it took
over my life,” says Stepner, who will decamp for a teaching job at the
University of Toronto next year.
The team initially vetted a hodgepodge of data that might
show Covid’s effects on inequality, such as food pantry usage. Soon, though,
they focused on building only the most rigorous and comprehensive metrics.
Frequently cited as their inspiration
is Simon Kuznets, the Nobel Prize-winning economist who, in the depths of Great
Depression, developed ways to quantify gross domestic product and other
metrics. His pioneering work supplied the foundation for how the U.S. and
countries around the world measure their economies. Chetty set a similarly
ambitious goal for his project: “Bring economic measurement into the age of Big
Data.”
In today’s world, almost every economic transaction—a
debit-card swipe, a direct deposit from an employer, an electronic bill of
lading for a shipment of steel—has a
digital fingerprint that’s captured and stored somewhere. Pull enough of
this data together and, in theory, you have a God’s-eye view of the economy.
Imagine how useful that could be during a recession like
this one. In place of the
one-size-fits-most policies in the Cares Act, lawmakers would be able to
target stimulus with precision to the industries and sectors of the population
that need it most and get nearly instantaneous feedback on whether it’s
working. And of course there are applications beyond this pandemic. Using the
tracker, a state hit by a natural disaster could pinpoint which communities
were lagging in the recovery. A city trying to revive its downtown could get a
rapid read on retail spending.
Using private data to study economics isn’t a new idea, but
the Covid crisis gave Chetty the confidence that he might be able to pull off
something unprecedented. OI’s major donors were enthusiastic. “We see it as
something that has a great deal of potential for the future, well beyond the
current crisis,” says Ryan Rippel, who oversees the Gates Foundation’s work
on economic mobility and opportunity.
The first hurdle was persuading companies to part with as
precious a possession as their internal data. “Normally I wouldn’t have thought
of approaching big companies like Intuit or Mastercard,” Chetty says, but the
virus made them much more willing to help. “If we can figure out how to revive
the economy, obviously that’s good for everyone.”
Chetty’s reputation, and his years of experience in handling
supersecret government records, reassured providers their data would be
properly aggregated, anonymized, and blended with other sets in ways that fully protected privacy. “Raj’s group
is pretty advanced,” says Ram Palaniappan, chief executive officer of Earnin,
which makes a financial app that’s supplying information on wages of
lower-income workers.
Ensuring that the individual streams of data could be pooled
to render an accurate picture of the larger economy was its own challenge. “The
main issue when you get data from these private companies is that you’re
learning something about their business and not something about the economy as
a whole,” says Friedman, a co-director of the center. Some sources, a
debit-card issuer, for example, were rejected as unrepresentative. “Sometimes
it worked and sometimes it didn’t, and we tried to be creative about how to
fill in the holes we needed.”
In May, after a
five-week marathon, OI launched the
tracker, and the world got to see how jobs, spending, small business
revenue, and other metrics responded to the onset of the pandemic in the U.S.
Other academics started poring through the rich data sets, freely available for
download, to study everything from inflation to partisanship. States and local
governments started consulting the tracker to see which industries needed help.
“We literally use it every single day,” says Rob Dixon, director of the
Missouri Department of Economic Development.
On the tracker, you can see that back in March, when the
lockdowns started, almost every household in America was reeling, with overall
consumer spending plunging 33%. Then, around April 15, spending surges, with
bigger jumps in low-income neighborhoods: That’s the first round of stimulus
payments landing in people’s wallets. As jobless benefits kick in, including
the $600 per week pandemic top-up that left many workers with more than they
were earning before, spending kept rising. By late June, residents of
low-income neighborhoods were spending a bit more than they had before the
crisis.
Displayed on a map, though, the tracker data revealed some
troubling patterns. In March and April, small businesses in affluent big-city neighborhoods saw their
revenue drop 70%—more than twice the decline in the least affluent areas.
Saddled with high rents, many of these shops, restaurants, and bars shut their
doors for good.
Because high-income Americans make up such a large share of
overall spending, the effects of their caution lingered even as cities and
states allowed businesses to reopen. Using the tracker, you can compare
neighboring states that reopened at different times, such as Colorado on May 1
and New Mexico on May 16, and see there’s almost no difference in employment or
consumer spending trajectories.
Chetty grew even more alarmed as the summer wore on. His conversations
with senators about the best ways to do another round of stimulus hadn’t borne
fruit, with congressional Democrats insisting the economy needs far more
support than Trump and Republicans have proposed. In early August, unemployed Americans stopped getting their extra $600
a week. The tracker didn’t show activity plummeting right away, as Chetty
worried it might. Instead, measures like spending and small business revenue
flatlined. “We’re basically stalled,” he says.
After the tracker’s debut, OI continued to sign up companies
willing to share their data (there are 11 in total now). What emerged was an
even clearer picture of the gaps opening between the most privileged Americans
and everyone else. In August, payroll provider Paychex offered data that,
combined with info from Intuit, Earnin, and Kronos, revealed that high-income
workers had regained almost all the jobs lost in March and April. (The findings
Chetty shared with Biden and Harris.) That “all the more heightens the need for targeted unemployment benefits,” he says.
The virus’s spread, and the lack of a national strategy to
fight it, hobbled the economy in ways Chetty hadn’t expected. After cases and
deaths rose in places such as Florida and Arizona, key indicators like consumer
spending and small business revenue dipped but didn’t plunge.
Why? Chetty’s working theory is that Sun Belt states’
economic resilience might be a sign that they’re not taking the disease
seriously enough to get it under control. Trying to keep the economy humming
while the virus runs rampant is a “short-term-ist perspective” with long-term
costs, he says.
A
scenario in which Covid is never corralled the way it has been in some
countries in Europe and Asia haunts Chetty. “It’s not going to be a
sustained recovery. There’s just no way,” he says. “We’re going to be stuck trying to go along and
accept a fair number of Covid infections and deaths and muddle our way through
until finally there’s a vaccine.”
This would be especially damaging for disadvantaged groups, children
in particular. If schools can’t reopen safely for in-person learning,
low-income kids will fall even further behind their peers. The tracker includes
one bit of noneconomic data, from Zearn Inc., a nonprofit online math platform,
showing overall usage dropped when schools closed in March. Then, however, kids
in high-income areas, prodded by well-educated parents who were working from
home, started logging on again, completing more lessons in early May than they
had before the crisis. By contrast, overall participation on Zearn had dropped
almost 30%, and by more than half for children in low-income areas, possibly
because they were in households where parents were more likely to be
“essential” employees working outside the home. “Public schools were, to some
extent, serving to level the playing field and increase social mobility,”
Chetty says. With the shift to mostly or only remote learning in many school
districts, “you’re going to have massive impacts on inequality.”
Chetty doesn’t pretend to have simple solutions to the Covid
recession, or to America’s worsening inequality gap. What he has to offer are
smaller but often easier-to-implement fixes, like the program in Seattle.
Because of his scientific bent, he likes to see policies tested in one particular locale before they’re rolled out
more widely. “A lot of the solutions that are going to have the greatest
impacts are going to be locally led and community created,” says Rippel of the
Gates Foundation.
Unlike some high-profile economists who have strongly
partisan viewpoints, Chetty doesn’t ask elected leaders or their voters to
abandon their political ideologies. He just tries to get them to pay attention
to the people and places the economy has shunted aside. We’ll only see their
suffering if we obsess less about aggregate measures like GDP, and more about
what’s happening on street corners and in schoolyards where Americans are
blocked from reaching their potential.
To figure out how to restore opportunity for the
disadvantaged, Chetty will need lots more data. So he’s still on the hunt for
fresh inputs for his tracker: better ways to measure cash transactions,
health-care spending, housing costs, and the balance sheets of businesses and
households. The more data you have, the more “it brings to light the
interconnected nature of the economy,” he says.
Read next: For Fed’s Disaster Junkie, Pandemic Was One of 99
Bad Scenarios
