Policy driven social science research intended to influence the future of the U.S. welfare state has, during the past decade, emphasized improving the life-chances of children, particularly children disadvantaged at birth by the socioeconomic status of their parents. This essay samples that literature, discussing in detail the contents and implications of two recent largely synthetic volumes from this genre.

In an important recent article,' Modigliani has renewed his analysis of the relationship between the real and monetary parts of the Keynesian system. One of Modigliani's major points in his latest article is that his famous 1944 model 2 embodied an error, for, in his opinion, it incorrectly specified the forms of the real aggregate consumption and investment demand functions.3 While we find much to agree with in this new model, we do not agree with him as to the fundamental source of error in the 1944 model. Consequently, we are in disagreement with some important aspects of the latest formulation and, as a result, with some of his more important conclusions. basic flaw in Modigliani's 1944 model is not the fact that the aggregate real spending functions were not homogeneous of degree zero with respect to prices.4 A quite different source of error was involved, and this error has been partly perpetuated in the 1963 model. While Modigliani's 1944 system contains a direct relationship between the price level and the money-wage rate,5 this relationship is omitted entirely from the monetary subset of equations. It is this relationship, however, which provides an essential link between the monetary and real sectors. In 1944, Modigliani claimed that the four equations which defined . . the system of monetary equilibrium were completely independent of the other equations in the system and formed a determinate subset.6 Consequently, Modigliani concluded that Since the money income is determined exclusively by the monetary part of the system, the price level depends only on the amount of and therefore a change in the money-wage rate could affect the price level only if it resulted in a change in the level of output.7 This surprising result is not only in conflict with Keynes' analysis of the effects of money wage changes,8 but it is also incompatible with Modigliani's own conclusion in a later section of that same 1944 paper. Towards the end of his 1944 article, Modigliani argued that a reduction in the moneywage rate will . . depress the interest rate, the money income, and money wages without affecting the real variables of the system, employment, output, real wage rate. 9 But how then can a change in the money-wage rate affect the rate of interest? If the money-wage rate change does not affect real output, then, by Modigliani's earlier assertion, it cannot affect the price level. If both the price level and the level of real output are unaffected, there should be no change in the transactions demand for cash balances and consequently no change in the rate of interest! Of course, a change in the moneywage rate does affect prices and output and, therefore, the rate of interest. Accordingly, Modigliani's belief that the monetary subset is independent of the money-wage rate must be in error. In his latest formulation, Modigliani explicitly introduces the price level variable into his demand for money equation in order to demonstrate that, given nominal money balances, changes in the money-wage rate will shift the entire money market function relating the rate of interest and the level of output.10 This implies that contrary to the 1944 model, at any given level of output, a decrease in the money-wage rate involves a reduction in prices and money incomes and therefore a decrease in the demand for transactions balances. Modigliani can now demonstrate that the moneywage rate has an impact on the demand for money equation, but, in his system, a change in the money* authors are associate professor of economics at the University of Pennsylvania and Lilly Faculty Fellow, University of Chicago, respectively. 'F. Modigliani, The Monetary Mechanism and Its Interaction With Real Phenomena, Review of Economics and Statistics, xxxxv (Feb., 1963), 79-101. 2 F. Modigliani, Liquidity Preference and the Theory of Interest and Econometrica, xiI (Jan., 1944), 4588; reprinted in Readings in Monetary Theory (New York: Blakiston, 1951), 186-239. All references are to the Readings in Monetary Theory reprint. 'F. Modigliani, The Monetary Mechanism and Its Interaction With Real Phenomena, 82. 'In fact, we shall argue that the real aggregate consumption function is incorrectly specified in the 1963 model. 'F. Modigliani, Liquidity Preference and the Theory of Interest and 188, equation 7. Ibid., 190. 7Ibid., 210. 'J. M. Keynes, General Theory of Employment, Interest, and Money, (New York: Harcourt Brace, 1936), Chap. 19. 'F. Modigliani, Liquidity Preference and the Theory of Interest and 220. 0F. Modigliani, The Monetary Mechanism and Its Interaction with Real Phenomena, 89-90.

In this paper, we assess the likely contribution of immigration over the past three and a half decades to poverty in the U.S. We first document trends in poverty rates among the native-born by race and ethnicity and poverty trends among all immigrants, recent immigrants, and immigrants by their region and (in some instances) country of origin. Next, we assess how poverty rates among immigrants change with time in the United States. Finally, we simulate the effects of competition with immigrant labor on native wages and the likely consequent effects on native poverty rates. We find that international immigration to the U.S. between 1970 and 2005 has increased the overall poverty rate due to the facts that immigrants are more likely to be poor and that an increasing proportion of the U.S. resident population that is foreign born. This effect, however, is modest (it increases U.S. poverty rates by half a percentage point) and transitory, as immigrant poverty rates decline quickly with time in the U.S. Our wage simulations indicate that competition with immigrants does adversely impact those natives, and only those natives, with the least education. However, the impact of wage competition with immigrants on native poverty rates is negligible.

In the September 1975 issue of this Review, Morton Paglin posits a new summary statistic, the Paglin-Gini, which he uses to measure and analyze the level and trend of income inequality in the United States. This measure intends to recognize only income differences among families unrelated to the observed age-income profile as contributing to meaningful income inequality. This is to be contrasted with the standard Lorenz-Gini, in which all differences in income among living units contribute to inequality. Paglin's measure indicates substantially less inequality in the United States than is indicated by the Lorenz-Gini. Moreover, Paglin-inequality falls considerably in the post-World War II period while other measures indicate very little change in inequality over this period. Paglin is addressing an important problem. For the postwar period when the age distribution, the length of time spent in school, and the propensity of the young and the old to form their own households have all changed rapidly, the trend in the conventional Gini coefficient has no obvious normative interpretation. However, it is often given one. Unfortunately, Paglin's proposed index of inequality does not meet its objective and, even if it did, its normative content would be no clearer than that of the standard measure. Indeed, no single indicator is sufficient to capture trends in normatively relevant inequality without further analysis. Like any other time-series, a time-series of inequality must be approached with a well-specified, multivariate model. After describing Paglin's procedure in the next section, we challenge his measure in Section II. In Section III, Paglin's interpretation of policy-relevant inequality is questioned, and in Section IV the implications of the Paglin-Gini for the equity of the transfer system are analyzed. Section V is a summary of our critique.