Brad DeLong: Worthy reads on equitable growth, April 5–11, 2019

Worthy reads from Equitable Growth:

1. Best thing of the week—a must-see: an incredibly engaging interview with 2017 Equitable Growth grantee, Alexander Hertel-Fernandez of Columbia University, who discusses his research on worker and management preferences for specific aspects of labor organization.
2. I confess, I do not understand why Jeff Miron and Dean Baker disagree with Equitable Growth Executive Director and chief economist Heather Boushey’s tame observation that more information relevant to societal well-being is better than less. Read Vox’s Emily Stewart, “GDP: Democrats Want to Know Who’s Benefiting from the Economy’s Growth,” in which she writes: “Democrats are pushing for the BEA to produce a new metric, the ‘income growth indicator,’ to be reported quarterly and annually with GDP numbers starting in 2020 that would show who is and isn’t benefiting from economic growth.”
3. Methinks this oldie-but-very-goodie from Equitable Growth 2014 grantee Jesse Rothstein at the University of California, Berkeley does go a little bit too far in its enthusiasm for the fact that the Earned Income Tax Credit is in the U.S. tax code. In fact, there are pluses and minuses, and the EITC is in the tax code not because of rational reasons but because Sen. Russell Long (D-LA) chaired the Senate Finance Committee back in the day. Read Rothstein’s “The Earned Income Tax Credit,” in which he writes: “The Earned Income Tax Credit is a federal refundable tax credit designed to encourage work, offset federal payroll and income taxes, and raise living standards. … The EITC has grown to be one of the largest and least controversial elements of the U.S. welfare state, with 26.7 million recipients sharing $63 billion in total federal EITC expenditures in 2013. The placement of the EITC within the tax code has three important effects.”

Worthy reads not from Equitable Growth:

1. Who says that workers are paid anything like their marginal products? Luck and market power seem, to me, to be much more important than anything that could be called net social value of the work. As I often say, a skilled worker is an unskilled worker with a good union. Read Paul Campos, “Talent Is Not Scarce,” in which he writes: “Existing social hierarchies, and especially the compensation structures that undergird them, require the constant denial of the fact that almost everyone is easily replaceable at any time. After all, if there are 500 people standing at the ready who could do just as good or better a job than Chairman Smith or President Jones or Senior Executive Vice President for West Coast Promotion Johnson or Distinguished Professor of the Newly Endowed Chair for the Worship of Capitalism Cowan, then why do these people get treated and most of all paid as if they were as unique as unicorns, as precious as Vermeer portraits, as irreplaceable as Billy Shakespeare or Willie Mays? Because if we didn’t treat them (us) in that way, that would mean the entire structure of our society is radically unjust, root and branch. And that can’t be true, obviously.”
2. Rather than saying, with Stigler, that industrial policy is too dangerous because it is too vulnerable to rent-seeking, more economists should be writing papers like this. Read Reda Cherif and Fuad Hasanov, “The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy,” in which they write: “Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition … Yet the success of the Asian Miracles … stands as an uncomfortable story … We argue that one can learn more from miracles than failures. We suggest three key principles … (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability.”
3. Noah Smith believes that if we found enough research universities in small cities, then we will have a booming economy elsewhere than on the coasts for both industrial-policy and private-entrepreneurship reasons. Read his “Universities and Colleges Can Revive Declining Rural America,” in which he writes: “Big cities aren’t the only places to benefit from knowledge industries—college towns also thrive in the new economy … College Station, Texas … Even small towns like Pikeville, Kentucky, home to the modest University of Pikeville, are doing well … Government money that gets routed to college towns via state subsidies and federal research grants, then spent locally [on] … tuition fees … university research … attracting smart people to the region, and drawing in private investment … harness the forces of knowledge-industry clustering to increase the wealth of an entire region. There’s a good chance that these forces can be harnessed to revive parts of the rural United States. It’s worth a shot.”
4. If you believe—as so many do—that one important source of the disaster of 2008–2010 was that economies had too much potentially insecure debt, you should be petrified today. Read John Authers and Lauren Leatherby, “Financial Crisis: Decade of Deleveraging Debt Didn’t Quite Work Out,” in which they write: “This was the decade of de-leveraging that wasn’t. A decade ago … there was agreement … [that] too much debt had caused the crisis, and so there must be a huge de-leveraging. It has not worked out like that … Companies, particularly in the United States, took advantage of the rock-bottom interest rates meant to bail out banks to go on their own borrowing spree. And the world found a new borrower of last resort. Ten years ago, China had been enjoying phenomenal economic growth for two decades, and largely avoided debt to fund it. No more. China’s debt has ballooned, transforming the geography of global debt in the process. It’s now bipolar, revolving around the U.S. and China.”
5. ALAS! Parents appear to value not schools that teach their children, but rather schools in which their children can rub elbows with the right kind of people. This could help make school choice a recipe for disaster. Read Atila Abdulkadiroglu, Parag A. Pathak, Jonathan Schellenberg, and Christopher R. Walters, “Do Parents Value School Effectiveness?”, in which they write: “School choice may lead to improvements in school productivity if parents’ choices reward effective schools and punish ineffective ones. This mechanism requires parents to choose schools based on causal effectiveness rather than peer characteristics … [But] parents prefer schools that enroll high-achieving peers … We find no relationship between preferences and school effectiveness after controlling for peer quality.”
6. University of California, Davis economic historian Eric Rauchway continues his long twilight struggle against the Obama administration’s claims that it did better with its crises than FDR did with his in the Great Depression-ridden 1930s. I’m with Eric here: Roosevelt knew less about how the economy worked and what to do, yet in retrospect did much better given the state of things when he took office. Read Eric Rauchway, “The New Deal Was on the Ballot in 1932,” in which he writes: “During the 1932 campaign, Franklin Roosevelt explicitly committed himself to nearly all of what would become the important programs of the New Deal. In the months before his March 4, 1933, inauguration, he made his proposed policies even clearer. Yet many Americans have forgotten this clarity of purpose … One historian [Roger Daniels] recently declared, ‘The notion that when Franklin Roosevelt became president, he had a plan in his head called the New Deal is a myth that no serious scholar has ever believed.’ Outgoing president Herbert Hoover (and voters and politicians and diplomats at the time) knew better.”
7. The China shock is not the only shock American manufacturing has experienced. Yet New England politics did not turn nativist in the 1960s. What was the difference? No Fox News? Read John F. Kennedy, “New England Industry and the South,” in which, in 1954, he wrote: “The southward migration of industry from New England has too frequently taken place for causes other than normal competition and natural advantages.”