Brad DeLong: Worthy reads on equitable growth, July 19–25, 2019

Worthy reads from Equitable Growth:

1. New and well worth reading from Lisa Cook and Jan Gerson, “The Implications of U.S. Gender and Racial Disparities in Income and Wealth Inequality at Each Stage Of The Innovation Process,” in which they write: “Women and underrepresented minorities in the United States have obtained an increasing share of bachelor’s degrees and other advanced degrees in … STEM … Yet there has been no similar increase in patenting … Closing this gender and racial gap in the U.S. innovation process could increase U.S. Gross Domestic Product per capita by 2.7 percent.”
2. Heather Boushey via Twitter directs us to Sarah Miller, Sean Altekruse, Norman Johnson, and Laura R. Wherry, “Medicaid and Mortality: New Evidence from Linked Survey and Administrative Data,” in which they write: “Changes in mortality for near-elderly adults in states with and without Affordable Care Act Medicaid expansions. We identify adults most likely to benefit using survey information on socioeconomic and citizenship status, and public program participation. We find a 0.13 percentage point decline in annual mortality, a 9.3 percent reduction over the sample mean, associated with Medicaid expansion for this population. The effect is driven by a reduction in disease-related deaths and grows over time. We find no evidence of differential pre-treatment trends in outcomes and no effects among placebo groups.”
3. Almost always, there is very little news in the daily or even monthly macroeconomic data flow. Pay attention to broader trends, not to the financial news cycle. Read my “July 19, 2019: Weekly Forecasting Update,” in which I write: “We are where we were a year ago: Stable growth at 2 percent per year with no signs of rising inflation or a rising labor share. The only significant difference is that the Fed has recognized that its hope of normalizing the Fed Funds rate in the foreseeable future is vain, and has now recognized that its confidence over the past six years that we were close to full employment was simply wrong … Specifically, it is still the case that: (1) the Trump-McConnell-Ryan tax cut has been a complete failure at boosting the American economy through increased investment in America; (2) but it has been a success in making the rich richer and thus America more unequal; (3) it delivered a short-term demand-side Keynesian fiscal stimulus to growth that has now ebbed; and (4) U.S. potential economic growth continues to be around 2 percent per year.”

Worthy reads not from Equitable Growth:

1. I never understood why so many people were desperate to interpret financial crises as things that destroyed firms’ abilities to produce rather than things that made people want to hoard their cash. Yes, a numbers of firms are short of cash and need trade credit. But most healthy firms do not. Read Felipe Benguria and Alan M. Taylor, “After the Panic: Are Financial Crises Demand or Supply Shocks? Evidence from International Trade,” in which they write: “Are financial crises a negative shock to demand or a negative shock to supply? … Arguments for monetary and fiscal stimulus usually interpret such events as demand-side shortfalls. Conversely, arguments for tax cuts and structural reform often proceed from supply-side frictions … Household deleveraging shocks are mainly demand shocks, contract imports, leave exports largely unchanged, and depreciate the real exchange rate. Firm deleveraging shocks are mainly supply shocks, contract exports, leave imports largely unchanged, and appreciate the real exchange rate … After a financial crisis event we find the dominant pattern to be that imports contract, exports hold steady or even rise, and the real exchange rate depreciates … Financial crises are very clearly a negative shock to demand.”
2. There are 260,000 people in Buncombe County, NC, encompassing Asheville, NC. That is 60,000 households, of which perhaps 40 are in the nationwide top 0.1 percent with an income of $1.6 million a year or more. That is, I am told, the range in which one should perhaps start thinking about whether one wants an 8,000 square-foot house as one of one’s items of conspicuous consumption. And such things sell slowly. So, the thing that amazes me is not that the inventory of houses priced at more than $2 million in Asheville is twice the annual turnover, but that 16 houses sold in that price range in greater Asheville last year. It’s an index of plutocracy. Read Candace Taylor, “A Growing Problem in Real Estate: Too Many Too Big Houses,” in which she writes: “Elaborate, five or six-bedroom houses in warm climates, fueled in part by the easy credit of the real estate boom. Many baby boomers poured millions into these spacious homes, planning to live out their golden years … Now … [they are] discovering that these … no longer fit their needs as they grow older, but younger people aren’t buying them … The problem is especially acute in areas with large clusters of retirees. In North Carolina’s Buncombe County, which draws retirees with its mild climate and Blue Ridge Mountain scenery, there are 34 homes priced over $2 million on the market, but only 16 sold in that price range in the past year.”
3. In the modern world, it is not tariff reduction but regulatory harmonization that is required for grasping increased benefits from the world division of labor. We need to work to level up rather than level down or level stupid, but we need to work to level the regulatory landscape. The Brexit hope is for a free-trade zone with the United States but also with “national sovereignty” over regulatory matters. That is just not how it works. Read N. Piers Ludlow, “Did We Ever Really Understand How the EU Works?,” in which he writes: “The EU is always prone to support an insider in a tussle with an outsider … the idea that the strength of Britain’s bargaining position in the negotiations springs from the commercial interest of many continental exporters in keeping access to the lucrative UK market … overlooks the extent to which all of the EU27 regard a flourishing EU as even more valuable than the British market, whether economically or politically.”