Brad DeLong: Worthy reads on equitable growth, July 21-27, 2020

Worthy reads from Equitable Growth:

1. Continuing Pandemic Unemployment Compensation is essential to moderating the severity of the coronavirus recession. Read the statement signed by Heather Boushey, “Statement on Pandemic Unemployment Compensation,” which says in part: “Federal Pandemic Unemployment Compensation (PUC), which is giving tens of millions of unemployed workers a $600 per week boost in unemployment income, has helped ease the pain of this crisis by providing much-needed income to families during an economic crisis and has boosted the economy overall. Every week for the last four months, more than twice as many workers have filed for unemployment insurance than during the worst week of the Great Recession. Meanwhile, cases of COVID-19 are once again rising across the country, and we still lack unified national leadership to give direction and stability in these unprecedented times. Congress must extend enhanced unemployment benefits or risk economic calamity.”

2. Big businesses can draw on deep capital markets to ride out the coronavirus recession. Small businesses cannot. This is a huge problem. Government could solve it. Read Heather Boushey, “Where’s the Life Raft for America’s Small Businesses?,” in which she writes: “Small businesses across the United States fight to survive the coronavirus recession, and all too many succumb … Only 40 percent of small business owners expected to be open at the end of 2020 should the economic crisis last six months. Especially hard-hit are minority- and women-owned businesses. While the number of active business owners in the United States fell by 22 percent from February to April 2020 (the largest drop on record), Black-owned businesses experienced a 41-percent drop, Latinx business owners a 32-percent decline, and women-owned businesses a decrease of 25 percent. Likewise, the JPMorgan Chase Institute found that cash balances of Black-owned firms in March were down by 26 percent from the previous year and by 22 percent for Asian American–owned firms, compared to a 12-percent decrease across all firms. Revenues of Asian American–owned firms declined by more than 60 percent.”

3. I find myself returning to this piece from Equitable Growth Research Advisory Board member Lisa Cook. One would think—or, at least, I would have thought—that successful inventors who are going to patent would have been relatively invulnerable to Jim Crow, lynching, and so forth. It really looks like that might well not be true—that the violently enforced rise in American segregation was absolutely devastating to African American inventors and innovators. Read Lisa Cook, “Violence & Economic Activity: Evidence from African American Patents, 1870–1940,” in which she writes: “Violent acts account for more than 1,100 missing patents compared to 726 actual patents among African American inventors over this period. Valuable patents decline in response to major riots and segregation laws. Absence of the rule of law covaries with declines in patent productivity for white and black inventors, but this decline is significant only for African American inventors. Patenting responds positively to declines in violence. These findings imply that ethnic and political conflict may affect the level, direction, and quality of invention and economic growth over time.”

Worthy reads not from Equitable Growth:

1. When unemployment is high—as it is now—government purchases directed to sectors in which excess productive capacity can be mobilized or quickly created is very powerful indeed. This is the gold standard for papers on the multiplier. An “open economy relative multiplier” of 1.5 in the United States is a closed-economy monetary-forbearance multiplier of 4 or so. Read Emi Nakamura and Jón Steinsson, “Fiscal Stimulus in a Monetary Union: Evidence from US Regions,” in which they write; “We exploit regional variation in military buildups to estimate an “open economy relative multiplier” of approximately 1.5. We develop a framework for interpreting this estimate and relating it to estimates of the standard closed economy aggregate multiplier. The latter is highly sensitive to how strongly aggregate monetary and tax policy “leans against the wind.” Our open economy relative multiplier “differences out” these effects because monetary and tax policies are uniform across the nation. Our evidence indicates that demand shocks can have large effects on output.”

2. The importance of civil rights, the rising significance of class, the productivity slowdown that started in the 1970s, the reaction of local governance to the crime wave that began in the 1960s and to the Great Migration—all of these play a powerful role in the setbacks that Black workers in America have experienced since the end of the 1960s. This is the best thing I have heard on these topics. Listen to Soumaya Keynes and Chad P. Bown, “Trade Talks: Opportunities & Setbacks for Black Workers in the 20th Century” interview Ellora Derenoncourt, Mary Kate Batistich, and Timothy Bond.

3. We at Equitable Growth warned, along with many others, that the 2017 tax cut was very badly designed from the standpoint of boosting investment and would do nothing to accelerate economic growth. Information keeps coming in proving that, unfortunately, we were right. Read Filippo Occhino, “The Effect of the 2017 Tax Reform on Investment,” in which he writes: “The 2017 tax reform affected investment through many channels. I use a macroeconomic model to estimate the overall effect. That estimate suggests that, because the different provisions worked in different directions, the initial impact of the tax reform on investment was small. The same model predicts that the tax reform will hold investment down in the medium term.”