Brad DeLong: Worthy reads on equitable growth, September–29 October 5, 2020
Worthy reads from Equitable Growth:
1. Excellent to see Michael Kades present his antirust point-of-view on video. Policymakers must pursue legislative reform, tougher enforcement, and new regulations—all three are required and are complementary. Watch him testify before Congress: “Proposals to Strengthen the Antitrust Laws and Restore Competition Online.”
2. The recovery trajectory from the Great Recession of 2007-2009 was bad. The recovery from this downturn may well be worse. I am scared, primarily of the coronavirus, but secondarily of a U.S. economy that has already within recent memory failed to achieve a rapid and healthy recovery. Read my “The Limits of American Recovery,” in which I write: “The recovery experienced so far may represent all that the U.S. economy will get for now. Just because the economy has recovered by 60 percent doesn’t mean that it will get all the way back to 100 percent. After all, the current recovery is unfolding in the shadow of the recovery from the 2008 financial crisis and Great Recession, which was also a period of zero-lower-bound interest rates. It is worth remembering that this previous recovery did not feature a recovery in production, which remained as far below its pre-crisis trend as it had been when the unemployment rate was at its peak. As employment recovered slowly after the Great Recession, productivity continued to lag ever-further behind. But, because there was a persistent lag in output, too, this lack of productivity growth allowed for employment eventually to recover.”
Worthy reads not from Equitable Growth:
1. Our financial markets are not doing a good job of pricing expected return properly adjusted for risk right now. Read Gerardo Ferrara, Maria Flora, and Roberto Renò, “Market fragility in the pandemic era,” in which they write: “Flash crashes or longer lasting V-shaped events could also affect markets other than Government bonds … [such as] secondary equity issuances, U.S. Treasury and corporate bond issuances … [and] mutual funds [that are] experiencing large redemptions. This post illustrates a new methodology to detect distressed markets.”
2. The externalities are such that I see little danger of unproductively incentivizing people not to return to work as long as the pandemic lasts. And the magnitude of the windfalls is such that it pushes up my view of the desired top rate. Read John Quiggin, “Inequality and the Pandemic, Part 1: Luck,” in which he writes: “At an individual level, lucky or unlucky breaks of various kinds are much more important than many of us like to believe … The pandemic has reinforced this lesson in the most brutal way possible. As is usual, the poorest members of society have been most exposed … But everyone is vulnerable, and it is a matter of chance whether any of us gets infected, and whether the consequences are harmless, severe or fatal. Similarly, exposure to economic damage is largely random … Concerns about the incentive effects of high taxes on those at the top of the income distribution are misplaced.”
