Brad DeLong: Worthy reads on equitable growth, January 18–24, 2019

Worthy reads from Equitable Growth:

1. Submit! The deadline for Equitable Growth’s Request for Proposals is January 31!

Worthy reads not from Equitable Growth:

1. Read Pedro Nicolaci da Costa, “The U.S. Job Market Doesn’t Feel so Hot Despite the Low Unemployment Rate,” in which he writes: “Workers need the economy to stay hot so they can begin to see the dividends of high growth … There are several reasons a purportedly booming U.S. economy doesn’t feel like much of a boon to millions of American workers, chief among them the startling lack of wage growth many have experienced over the past four decades … A business- and bank-friendly mindset at the Federal Reserve, whose top officials spend a lot more time with their high-flying Wall Street and industry contacts than with workers and community leaders, deepens this imbalance … Because of the Fed’s proximity to its business contacts, it tends to think of workers as labor costs (not investments in human capital) and wages as inflation (not improvements in standards of living). This colors the Fed’s definition of ‘full employment,’ making policymakers easily swayed by dubious claims from business executives about chronic labor shortages—made without any contention about why wages are not rising on a sustained basis.”
2. Dani Rodrik joins those who believe that President Donald Trump and his administration have too little competence and too childish an understanding of the world to do substantial, persistent damage to equitable growth. I would like to believe him, but I worry that Italy under former Prime Minister Silvio Berlusconi may be a relevant case that is a counterexample. As I see it, Berlusconi’s kleptocratic and chaos-monkey nature robbed Italy of a decade of economic growth. Read Dani Rodrik, “Trump’s Trade Game,” in which he writes: “Though Trump’s unilateralism and mercantilism are bad … one should not exaggerate … If other countries do not overreact—and, so far, they have not—the consequencesfor world trade will remain manageable … The shift in global demand from goods to (less tradable) services; the increased skill-intensity of manufacturing … automation … reshoring … China’s transition … to domestic-demand-led growth … are likely to have a larger impact on trade than Trump’s bluster ever could.”
3. Read Oliver Blanchard’s extremely good American Economic Association Presidential Address, “Public Debt and Low Interest Rates.” The takeaway: Fear of government debt should be a second-order consideration in a time of low interest rates. And I would go further: Because problems created by government debt can be dealt with at low societal cost via financial repression, it should be not a second-, but a third- or fourth-order consideration. Blanchard, in his address, makes this important point about “new theoretical foundations for how to think about fiscal policy and debt, which will stimulate the policy research agenda for the profession for years to come.”
4. The first truly good conceptual framework I have seen from a journalist on where the future of employment growth may lie, based on the work of David Autor. Read “The Future Of Work,” in which the NPR reporter Greg Rosalsky writes: “Three trends … help explain where employment … may be headed … ‘Frontier work’ … Jetson jobs … all about new technology … Supervisor, Word Processing (1980); Robotic Machine Operator (1990); Chief Information Officer (2000); Technician, Wind Turbines; and Intelligence Analyst (2010) … ‘Wealth work … jobs that primarily provide fancy-schmancy services to the rich … Hypnotherapist and Gift Wrapper (1980), Fingernail Former and Marriage Counselor (1990), Mystery Shopper, Horse Exerciser—our personal favorite—and Barista (2000); Oyster Preparer and Sommelier (2010) … ‘Last mile’ … what’s left after machines have eaten the tasks … the atrophied husk remaining of a job when most of it has been automated … an airline ticket agent. A couple of decades ago … greet customers, help check baggage, and assign seats on the plane. Now … throwing bags on a conveyor belt and checking IDs. And so you can think of that as sort of the last mile, the last little bit of the job that remains.”
5. The invariable rule in America—except for African Americans—is that it takes one, or at most two, generations for immigrants to essentially converge to white native-born outcomes as far as the labor market (but not wealth accumulation!) is concerned. It was true for the Famine Irish, write William J. Collins and Ariell Zimran in “The economic assimilation of the Famine Irish in America.” They write: “Negative sentiment toward immigrants is often based on fears about their ability to integrate into economic, political, and social institutions. This column analyses the impact of the influx of Irish immigrants into the U.S. in the 19th century. It shows that the children of immigrants had assimilated in terms of labour market outcomes within one generation, providing some perspective for the current debate about immigration policy.”
6. As Karl Marx wrote in the middle of the 19th century, imbalances in pre-capitalist economies do not produce aggregate demand crises and collapses. Why don’t they? Because Pharaoh can always command that another pyramid be built, the king can always set out on another crusade, and the bishop can always build another cathedral. The expenditures that provide employment for those not producing the consumption-goods-in-demand only have to make profit-and-loss sense under the capitalist mode of production. Capitalist economies suffer Hayek-Minsky crises when deluded financial markets suddenly recognize that they have been overoptimistic, have overinvested, and need to shift investment-goods production back down, not to normal but way below normal. And the collapse comes as near-universal bankruptcy and financial disruption prevents any such smooth expenditure-shifting. That Hayek-Minsky overinvestment crisis is what Paul Krugman, I, and other China pessimists have been fearing would happen for two decades now. But perhaps socialism with Chinese characteristics is insufficiently capitalist for that Hayek-Minsky logic to apply, and Paul and I and others should have been paying more attention to Uncle Karl. Read Paul Krugman, “Will China’s Economy Hit a Great Wall?,” in which he writes: “I issued a warning … The Chinese economy … is, I wrote, ’emerging as a danger spot’ … Unfortunately [that] was more than 6 years ago. And it’s not just me. Many people have been predicting a China crisis for a long time, and it has kept on not happening. But now China seems to be stumbling again. Is this the moment when all the prophecies of big trouble in big China finally come true? Honestly, I have no idea. On one side, China’s problems are real. On the other, the Chinese government … has repeatedly shown its ability and willingness to do whatever it takes.”
7. This is a brilliant paper by Matthew Smith, Danny Yagan, Owen M. Zidar, and Eric Zwick, “Capitalists in the Twenty-First Century,” but I have a worry: Those at the upper tail of the income distribution are, to a substantial degree, those whose (a) broadly construed portfolios are ludicrously risky and who (b) happen to be unusually lucky. I am not sure the authors have properly accounted for luck here. Read their new paper, in which they write: “Entrepreneurs who actively manage their firms are key for top income inequality. Most top income is nonwage income, a primary source of which is private business profit. These profits accrue to working-age owners of closely-held, mid-market firms in skill-intensive industries. Private business profit falls by three-quarters after owner retirement or premature death. Classifying three-quarters of private business profit as human capital income, we find that most top earners are working rich: They derive most of their income from human capital, not physical or financial capital. The human capital income of private business owners exceeds top wage income and top public equity income. Growth in private business profit is explained by both rising productivity and a rising share of value added accruing to owners.”