Brad DeLong: Worthy reads on equitable growth, May 3–9, 2019

Worthy reads from Equitable Growth:

1. This surprises me: “Motherhood” is not what I would have expected to see as one of the most durable and stubborn forms of either statistical or prejudicial discrimination. Yet here it is. Read Eunjung Jee, Joya Misra, and Marta Murray-Close, “Motherhood Penalties in the U.S., 1986-2014,” in which they write: “The motherhood penalty remains quite stable over time … The gross gap in pay between childless women and mothers of two or more … has narrowed … because mothers’ have increased … education and workforce experience.”
2. If you are in Washington, D.C., sign up for our joint event with the Hamilton project on Thursday, May 16. You will not be sorry. Here’s the invitation: “Preparing for the Next Recession: Policies to Reduce the Impact on the U.S. Economy.”
3. It is certainly true that you have to look at both demand and supply to figure out what happens in equilibrium. But Milton Friedman’s first rule is that supply curves do slope upward. Things have to be very weird indeed for equilibrium effects to do more than modestly attenuate impact effects. Sometimes things are really weird. But that is not the way to bet. Read “In Conversation with Raj Chetty,” in which he notes: “Empirical research has recently mainly been focused on identifying individual-level effects. But trying to figure out how things play out in equilibrium is a very challenging problem, which, I think, is something we should have on our agenda to focus on going forward.”
4. The late and persistent apparent rise in margins pretty much everywhere in the U.S. economy is one of the most surprising things to happen in the past generation. I do not know anyone very confident about why this has taken place or what all of its implications are. But it does seem highly likely that it calls for tougher antitrust policy. Here we have some very smart words from a murderers’ row of thoughtful experts—Jonathan B. Baker, Nancy L. Rose, Steven C. Salop, and Fiona Scott Morton. Read their “Competitive Edge: Principles and presumptions for U.S. vertical merger enforcement policy,” in which they write: “Agencies should consider and investigate the full range of potential anti-competitive harms … Agencies should decline to presume that vertical mergers benefit competition on balance in … oligopoly markets … Agencies should evaluate claimed efficiencies resulting from vertical mergers as carefully and critically as they evaluate claimed efficiencies resulting from horizontal mergers … Agencies should decline to adopt a safe harbor for vertical mergers, even if rebuttable … Agencies also should consider adopting presumptions (rebuttable) that a vertical merger harms competition when certain factual predicates are satisfied.”

Worthy reads not from Equitable Growth:

1. This paper seems to rest on a distinction between “removing inefficiencies” and “transformational growth” that they do not theorize, yet should. That very few of those countries that have grown faster than the North Atlantic economies over the past two decades are on anything like South Korea’s trajectory is surely true. But why not? Why doesn’t the removal of one inefficiency lead to a chain-reaction removal of others? Read Paul Johnson and Chris Papageorgiou, “It’s too Soon for Optimism about Convergence,” in which they write: “Many analysts … claim that poorer countries are catching up with advanced economies … [But] most of the economic achievements in developing economies have been the result of removing inefficiencies which are merely one-off level effects. While these effects are not unimportant and are necessary in the process of development, they do not imply ongoing economic growth.”
2. Picking winners—seeing which are the industries in which subsidizing efficient producers will produce large externalities via the creation of communities of engineering practice—has never been that difficult. It has been actually winning that is difficult: creating the institutional and political-economic discipline so that the subsidies flow where they should, rather than where the politically powerful wish them to flow. What is nice about Reda Cherif and Fuad Hasanov’s new working paper is that they have some good suggestions as to how to make this more general than it has been. Read Andrew Batson’s take on the research, “Rediscovering the Importance of Export Discipline,” in which he writes: “The new IMF working paper on industrial policy, by Reda Cherif and Fuad Hasanov, has gotten a lot of notice … But for anyone who has already done some reading on the history of successful Asian economies, particularly Taiwan and South Korea, it is not exactly surprising.”
3. It is interesting to note that Adam Smith’s one explicit use of the phrase “Invisible Hand” in his Wealth of Nations is not a situation in which the competitive market equilibrium is Pareto-optimal. It is of a situation with two market failures—a home bias psychological failure among the merchants of Amsterdam, and agglomeration economies for mercantile activity in Amsterdam. And the two offset each other. Read Glory Liu, “How the Chicago School Changed the Meaning of Adam Smith’s ‘Invisible Hand,’” in which she writes: “For Friedman and Stigler, economics’ scientific power came from its ability to predict outcomes based on two central insights … self-interest … [and,] of course, the invisible hand … What makes the Smith of Milton Friedman and George Stigler so … problematic … is that they ‘economized’ Smith in a way that obscured if not precluded the relevance of his moral philosophy.”
4. A new book is out about equitable growth, Jump-Starting America, which I have just added to my must-read list. No, I have not read it yet, but check out Jonathan Gruber and Simon Johnson’s recent video on the topic at the Institute of International Economics.