Brad DeLong: Worthy reads on equitable growth, June 14–20, 2019

Worthy reads from Equitable Growth:

  1. Relationships between user and supplier firms were never arms-length. But while the assumption that they were may have been a minor error three generations ago, it is a major error today. We need more people like Susan Helper thinking about the consequences of the information and technology flows generated in today’s value-chain economy. Such flows are a very important piece of our community of engineering practice. Read her “Building high-road supply networks in the United States,” in which she writes: “A different kind of outsourcing is possible—’high-road’ supply networks that benefit firms, workers, and consumers … collaboration between management and workers and along the length of the supply chain, sharing of skills and ideas, new and innovative processes, and, ultimately, better products that can deliver higher profits to firms and higher wages to workers. Firms could take a key step by themselves, since it could improve profits. Collaboration among firms along a supply chain can lead to greater productivity and innovation. Lead firms can raise the capabilities of supplier firms and their workers such that even routine operations can benefit from collaboration for continuous improvement.”
  2. This is exactly the kind of work we at Equitable Growth want to fund and see carried out by exactly the kind of young people we ought to be financing. It’s very well done. Read Ellora Derenoncourt and Claire Montialoux, “Minimum Wages and Racial Inequality,” in which they write: “The earnings difference between black and white workers fell dramatically in the United States in the late 1960s and early 1970s. This paper shows that the extension of the minimum wage played a critical role in this decline. The 1966 Fair Labor Standards Act extended federal minimum wage coverage to agriculture, restaurants, nursing homes, and other services which were previously uncovered and where nearly a third of black workers were employed.”
  3. Inequality leads to leverage. Leverage leads to instability. Instability leads to depression. Read Heather Boushey’s piece in Democracy, “A New Economic Paradigm,” in which she writes: “We should let go of the workhorse macroeconomic models … [that] have all but ignored inequality in their thinking … [making the] ‘implicit, if not explicit, assumption … that inequality doesn’t matter much when gauging the macroeconomic outlook’… [In] the long-term picture or consider[ing] the potential for the system to spin out of control … higher inequality increases the likelihood of instability.”
  4. I am trying to think through what the issues we should be talking about really are when we talk about “manufacturing jobs.” I am not having a great deal of success. Read my reponse to Noah Smith, in which I write: “Yes, Susan [Houseman] is right; yes, the index-number problem rears its ugly head; yes, there are absolute numbers and there are employment shares; yes, there is manufacturing; yes, there is noncomputer manufacturing; yes, there are traditional blue-collar occupations. One reading of Susan is ‘traditional blue-collar occupations are of special concern, and manufacturing excluding computers is important because computer manufacturing is not really a blue-collar semi-skilled easy-to-unionize source of employment.’ That characterization of computer manufacturing is increasingly true over time—but it also applies increasingly over time to sunbelt manufacturing as well.”

Worthy reads not from Equitable Growth:

  1. The Fed now seems to be saying: “We misjudged the situation late last year. We are going to reverse our policy. But not quite yet.” And I do not understand the frame of mind in which that is a coherent system of thought. I wish they would explain. Read Tim Duy’s take on the matter, “Rate Cut On The Way,” in which he writes: ‘The Fed turned … dovish … basically announcing a July rate cut … The proximity to the lower bound coupled with low inflation was always going to lead the Fed to err on the side of a rate cut. It just took them some time to find their way there … It would be exceedingly difficult to pull back on a rate cut now. Nor is there any reason to.”
  2. The evidence for the position that minimum wage increases can often be an effective policy for equitable growth continues to pile up. Read Péter Harasztosi and Attila Lindner, “Who Pays for the Minimum Wage?,” in which they write: “A large and persistent minimum wage increase in Hungary … Employment elasticities are negative but small even four years after the reform … 75 percent of the minimum wage increase was paid by consumers and 25 percent by firm owners; that firms responded to the minimum wage by substituting labor with capital; and that dis-employment effects were greater in industries where passing the wage costs to consumers is more difficult.”
  3. In very important dimensions, Europe is handling the coming of the Second Gilded Age significantly better than we are handling it here in the United States. Read Thomas Blanchet, Lucas Chancel, and Amory Gethin, “Forty Years of Inequality in Europe,” in which they write: “Despite the growing importance of inequalities in policy debates, it is still difficult to compare inequality levels across European countries and to tell how European growth has been shared across income groups. This column draws on new evidence combining surveys, tax data, and national accounts to document a rise in income inequality in most European countries between 1980 and 2017. It finds that income disparities on the old continent have increased less than in the United States and shows that this is essentially due to ‘predistribution’ policies.”

June 20, 2019


Brad DeLong


Connect with us!

Explore the Equitable Growth network of experts around the country and get answers to today's most pressing questions!

Get in Touch