Brad DeLong: Worthy reads on equitable growth, August 31-September 13, 2021

Worthy reads from Equitable Growth:

1) Sixty-two very good people were funded for the next year, “Equitable Growth announces a record $1.39 million in research grants for scholars examining economic inequality and growth.” I confess that this program has been even more of a success than I had projected. It turns out a lot of very good people really were budget-constrained in doing the very good work that they wanted to do. And I confess that I had underestimated how much the research-university system as it worked a decade ago was constraining visible economic research away from policy-relevant and equitable growth-relevant topics. :

2. It was the economist Martha Bailey who first hammered home to me how incredibly important fertility control and child spacing has been for women’s economic opportunity in the United States over the past century—how huge a friction it was that you might, any year, find yourself bearing a child. This was the case even after the demographic transition. Before the demographic transition in the time of astronomical child and maternal mortality the biosocial fertility load on women was enormous, but even afterwards the inability to engage in reliable family planning was extraordinarily disruptive for women’s economic activity. Kate Bahn and Maryam Janani-Flores review the evidence, “Economic security and opportunity for women under threat after U.S. Supreme Court takes anti-abortion stance in Texas,” in which they write: “Nearly 1 in 4 women in the United States … will have an abortion by the age of 45, and nearly 1 in 20 … will have an unintended pregnancy. … An intrinsic link between reproductive justice and economic opportunity … contraception … access to abortion. … [b]odily autonomy and a person’s ability to decide when, how, and under what circumstances to plan for a family is critical to … a woman’s job opportunities and financial security”

3. Ever since the days of Alexander Hamilton, investors have regarded the debt of the U.S. government as a very valuable and safe asset. In all but rare and exceptional times, the only return debt purchasers and holders have demanded from the U.S. government is that it maintain the real value of the wealth they have entrusted to it. The U.S. government should invest this wealth wisely and prudently in the highest societal-value projects. But the main consideration and the bottom line is that—except in the 1870s and 1880s, and in the 1980s—the U.S. government has never faced a debt-financing constraint as long as long as its investments yield any possible positive return in the form of additional taxes collected downstream at all. Worried that this may change in the future if interest rates rise sharply? Then issue inflation-adjusted debt, and lock in real debt payments permanently. Read Barry Eichengreen, “The coming public debt scare should not spook U.S. policymakers from investing in physical and social infrastructure,” in which he writes: “In Defense of Public Debt, my co-authors and I show how governments, through the ages, have resorted to issuing public debt to meet emergencies and address pressing social needs … [and that] expenditure restraints that limit the U.S. economy’s capacity to grow would be counterproductive from even the narrow standpoint of debt sustainability. … Do our nation’s infrastructure problems rise to the level of a national emergency? Some answer yes, on the grounds that our physical infrastructure is old, dangerously vulnerable to climate change, and inadequately green and digital. A significant minority in the U.S. Senate insists otherwise. … One way of adjudicating the dispute is to ask whether additional infrastructure investments will pay for themselves. …We really should be comparing apples with apples—real returns with real returns. Currently … any investment that yields a positive real return is effectively self-financing.”

Worthy reads not from Equitable Growth:

1. I take Matthew Yglesias’s point here. But is this the right way to frame the question? The answer to “should local governments commit the additional money to make the bus free?” is almost surely yes. The answer to “should local governments that have a fixed pool of money to spend on buses provide a lower-quality free bus than the current system?” is almost surely no. To fail to distinguish between these two questions leaves Matt, I think, somewhat confused. The real question is: which of the many worthwhile things that bus systems could do with more money can be framed so as to win voter support and enthusiasm? Read his “Should the bus be free?,” in which he writes: “In most cases, the better investment is to make the buses better. … In a very abstract way, free transit makes sense. Cars generate pollution and traffic externalities. Ideally, we would fully price those externalities with a carbon tax and congestion charges. But in the real world, both are politically difficult, so an equivalent way of addressing the issue would be to subsidize the low-externality option—the bus—by making it free. … [but] the question becomes: if you assume your transit agency has a bunch of extra money, is eliminating fares the best way to turn money into ridership? Bus riders want better buses, not cheaper. … Cutting fares is a relatively low priority compared to other things you can straightforwardly achieve with more money, like improving bus frequency and reducing bus crowding.”

2. This is not an existential threat to the pharmaceutical industry. It is an existential threat to a PhRMA CEO who has pushed the line of maximum confrontation vis-a-vis a government seeking to reduce the growth rate of the cost of the pharmaceutical part of the public health care programs. Read Margot Sanger-Katz, “Biden Administration Goes Bigger on Cutting Drug Prices,” in which she writes: “The administration endorses a proposal for the government to negotiate on prices for all U.S. purchasers, not just Medicare. … It amounts to a signal to congressional Democrats… Senators working on the package have released few policy details as they wrestle with their approach. Steve Ubl, the C.E.O. of the industry trade group PhRMA, called the policy “an existential risk to the industry.” Major across-the-board price reductions would result in reduced revenues for drug companies, and could hurt companies’ ability to spend on research as well as cause smaller companies to close if investors leave the sector, he said. His group and the companies it represents have mobilized to fight such a plan.” 

3. This is an extremely good introduction for U.S. policymakers about what the Chinese government is hoping to do with respect to semiconductor independence, and now nearly impossible it will be for the Chinese government to do it Read Jordan Nel, “China, Semiconductors, & the Push for Independence—Part 1,” in which he writes: “China is chasing technological independence. Broadly, they’re doing a remarkable job at it barring perhaps in the field of semiconductors. And what is the crux of all modern tech? Semiconductors. … The 14th 5 year plan is the first to emphasize complete self-reliance and suggest building a near end-to-end chain locally. It is also the first time where China is in a strong enough position nationally to fund this foray and the first time where it is considered a matter of national security. …[But] the only way China can become technologically independent is … foundries. But foundries need equipment, processes, a large talent pool, clients, and an incredible amount of know-how. While money goes a long way to creating these, there are some things money can’t buy. Each equipment manufacturer has built up expertise developing that particular equipment (and maintenance) stack over decades of cycles and consolidation. For real independence, China needs to be self-sufficient not just in producing foundries, but also producing the equipment that foundries rely on. Otherwise, the chokepoint just moves further up the chain.”

September 13, 2021


Brad DeLong


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