Brad DeLong: Worthy reads on equitable growth, February 17-22, 2021

Worthy reads from Equitable Growth:

1. What economic policy levers can we pull to make advancing technologies complements to work or skills and capabilities rather than substitutes for them? We cannot count on large, oligopolistic firms to do this job. While they can, by the nature of their business and market position, capture a substantial amount of the net returns from worker-substitute technologies, they cannot do the same thing for worker-complement technologies. There we must rely on the public and the nonprofit sectors, and we need to start doing so at scale as soon as possible. Please Register for our event on Tuesday, September 23, “A Future for All Workers: Technology & Worker Power,” featuring a keynote from SEIU International President Mary Kay Henry … and which will examine “how workplaces implement new technologies and the impact these technologies have on workers’ lives. How these technological changes are implemented, in turn, depends on the underlying economic and legal structures, as well as the extent to which workers are empowered to be full and active partners in technological adoption and integration.”

2. Fiscal automatic stabilizers are highly effective because they are state-dependent rather than time-dependent policies. We very much need to learn from and then generalize that state-dependent feature that makes those policies so effective and cost-effective. Read David Mitchell and Corey Husak, “How to replace COVID relief deadlines with automatic ‘triggers’ that meet the needs of the U.S. economy,” in which they write: “The next coronavirus relief bill can be written to keep critical benefits in place until they are no longer needed. So-called off-triggers that depend on economic data can ensure that benefits phase out as the economy recovers, not on a random date. There are a number of possible mechanisms that can serve as off-triggers … What was lacking in the Great Recession, and what is needed now, is a mechanism for ensuring that benefits remain available as long as they are necessary, with no need to wait for Congress to act. There are a number of solid, evidence-based ideas for such a mechanism. In 2019, the Washington Center for Equitable Growth and The Brookings Institution’s Hamilton Project published Recession Ready, a book of essays with comprehensive plans to strengthen automatic stabilizers, including recommendations for automatic triggers to activate supplemental benefits to families and state governments, and automatic triggers to turn them off.”

3. Policy mistakes and acts of malfeasance in one generation echo substantially into future history for very long periods of time. Read Jonathan Colmer and John Voorheis, “Reductions in air pollution have intergenerational consequences,” in which they write about their new working paper: “It was not only the children of women who benefited from regulatory reductions in exposure to air pollution during pregnancy, but also their grandchildren. The grandchildren of women who were exposed to lower levels of air pollution during pregnancy were more likely to attend college and less likely to drop out of high school 40 years later. A 10 percent reduction in prenatal exposure to particulate matter for individuals born around 1970 is associated with a 3.2 percentage point to 3.8 percentage point increase in the likelihood that their children attend college 40 years later. This corresponds to an 8 percent increase in attendance.”

Worthy reads not from Equitable Growth:

1. The rule of thumb I was taught—by Olivier Blanchard—is that one basis point increase in the long-term Treasury bond rate offsets 0.02 percentage points of national income’s worth of fiscal stimulus. A fiscal program that would notionally push $600 billion in annual national income would thus be offset by a 150 basis-point increase in long Treasury rates, which standard gearing suggests would be delivered by a 4.5 percent increase in the federal funds rate. A world in which appropriate monetary policy near a business-cycle peak is a 4.5 percent rather than a zero percent federal funds rate seems to me vastly preferable to our current secular-stagnation zero-lower-bound Fed-out-of-ammunition enormous-downside-risk world. It seems to me a place that we really do want to go. I do not understand this. I do not understand this at all. Read  Olivier Blanchard, “In defense of concerns over the $1.9 trillion relief plan,” in which he writes: “If inflation were to take off, there would be two scenarios: one in which the Fed would let inflation increase, perhaps substantially, and another—more likely—in which the Fed would tighten monetary policy, perhaps again substantially. Neither of these two scenarios is ideal. In the first, inflation expectations would likely become deanchored, cancelling one of the major accomplishments of monetary policy in the last 20 years and making monetary policy more difficult to use in the future. In the second, the increase in interest rates might have to be very large, leading to problems in financial markets. I would rather not go there.”

2. Those who fear that a $15 an hour minimum wage is too risky a policy should have long since gotten behind an expansion of the Earned Income Tax Credit. In fact, those who advocate for a $15 an hour minimum wage should also be behind an EITC expansion. That is what the research says. Read Cynthia Miller and Lawrence F. Katz, “Biden wants to boost the EITC for workers without dependent children—What Does the Research Say?,” in which they write: “Many commentators have expressed the hope that the inequalities exposed by the pandemic will lead to renewed efforts to address them by expanding the social safety net and by providing basic protections for workers. An expanded EITC can be an effective part of this effort, increasing workers’ incomes (without depressing work effort) and putting them in a better position to recover from this crisis and weather the next.”

3. This was actually much more hopeful and positive than I thought it would be about political-economy and racial politics changes in the American north in the aftermath of the Great Migration of African Americans from the south. Read Alvaro Calderon, Vasiliki Fouka, and Marco Tabellini, “Racial diversity, electoral preferences, and the supply of policy; The Great Migration and civil rights,” in which they write: “The 1940–1970 Great Migration of African Americans … how resulting changes in the racial composition of local constituencies affected voters’ preferences and politicians’ behaviour … Democrats and union members supported blacks’ struggle for racial equality, but that backlash against civil rights erupted among Republicans and among whites more exposed to racial mixing.”

February 22, 2021


Brad DeLong


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