Category: Equitablog

Equitable Growth’s Jobs Day Graphs: March 2017 Report Edition

Posted on by Austin Clemens

Earlier this morning, The U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of March. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

1.

The share of workers in their prime working years jumped up to a new high of 78.5 percent for this recovery. But the prime-age employment rate still has a way to go to match the 2007 peak of about 80 percent, never mind the 2001 levels of around 82 percent.

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2.

The U-6 rate, a broader measure of labor market slack than the unemployment rate, declined in March, but still is above pre-recession levels.

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3.

Nominal wage growth is increasing for all workers but it declined to an annual 2.3 percent rate in March for production and nonsupervisory employees from 2.5 percent in February. And this is happening as headline inflation is increasing.

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4.

Manufacturing jobs, a focus of much policy conversation, still have not recovered from the Great Recession and growth rates are slow. In contrast, education and health services have been steadily growing for the last decade.

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5.

The overall unemployment rate fell to 4.5 percent in March, but let’s not forget the significant variation in unemployment by educational levels.

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Evidence of ongoing gender discrimination in the U.S. labor market

Posted on by Emilie Openchowski
Traders works on the floor of the New York Stock Exchange.

In his 1957 book, The Economics of Discrimination, the late Nobel Prize-winning economist Gary Becker argued that well-functioning markets work inexorably to eliminate racial, and other forms of, discrimination.

By Becker’s reasoning, if an employer, for example, had an ingrained prejudice against workers from a particular group, then that employer would be at a competitive disadvantage relative to employers who did not have the same prejudice. If, say, an employer believes—incorrectly—that workers from one group are inherently less productive, then he or she will offer members of that group lower wages. Meanwhile, his or her competitors who do not hold the same prejudice will offer members of the same group higher wages that are commensurate with their actual level of productivity.

Oversimplifying somewhat, Becker argued that in the long run, nondiscriminating employers will attract more productive workers and will grow, while those employers who discriminate will see their businesses wither and eventually die. This kind of theoretical argument has led many economists over the years to doubt the existence and especially the persistence of labor-market discrimination based on race, gender, religion, and other characteristics. A new paper by Mark Egan of the University of Minnesota, Gregor Matvos of the University of Chicago, and Amit Seru of Stanford University, however, joins a large body of more empirically oriented research that strongly suggests that discrimination remains an important feature of contemporary labor markets.

Egan, Matvos, and Seru have constructed a unique dataset containing information on all of the 1.2 million registered financial advisors operating in the United States between 2005 and 2015. Their data include information on each advisor’s gender, employment history, assets under management, professional licenses held, and industry exams passed, as well as records of any formally reported customer disputes and related disciplinary actions. Misconduct, as measured by the authors of the paper, included churning accounts, breaches of fiduciary duty, fraud, negligence, risky investments, and other forms of financial wrongdoing. Each year, about 0.7 percent of male advisors and about 0.3 percent of female advisors were involved in these forms of misconduct.

The three researchers use the new dataset to ask whether firms treat male and female financial advisors differently after they have been accused of misconduct. The data point solidly in the direction of employer discrimination against female financial advisors. Relative to male advisors, female advisors were less likely to engage in any kind of reported financial misconduct, were less likely to be repeat offenders, and when women did engage in misconduct, the infractions were less costly to the firms where they worked.

Yet women who engaged in misconduct were, on average, subject to much harsher punishments. After engaging in misconduct, female advisors were 20 percent more likely than male advisors to lose their jobs and were 30 percent less likely to be hired subsequently by another financial firm. Women who did manage to land a new job as a financial adviser took significantly longer than their male counterparts to find their new job.

Egan, Matvos, and Seru painstakingly eliminate a host of alternative explanations for these results. Maybe the female advisors were less productive than their male counterparts? The results hold even after controlling for three reasonable proxies for advisors’ productivity: assets brought to the firm, value of assets under management, and an independent, proprietary quality assessment available for a large subset of their sample. Maybe the women have less experience or more career interruptions? Again, the results hold even after controlling for on-the-job experience. Maybe the female advisors have fewer formal qualifications or certifications? No, not the case.

Their analysis leads the researchers to conclude that there are “large and pervasive differences in the treatment of male and female advisers” and the “financial advisory industry is willing to give male advisers a second chance, while female advisers are likely to be cast from the industry.”

Must- and Should-Reads: April 5, 2017

Posted on by Brad DeLong

Interesting Reads:

Artificial Intelligence and Artificial Problems

Posted on by Brad DeLong

Over at Project Syndicate: Former U.S. Treasury Secretary Larry Summers is fencing with current U.S. Treasury Secretary Steve Mnuchin about “artificial intelligence”–AI–and related topics.

Most of their differences are differences of emphasis.

Mnuchin is drawing the issue narrowly: the particular technologies called “Artificial Intelligence taking over American jobs”. And he is, at least as I read him, is elliptically criticizing high stock market values for “unicorns”: companies with valuations above a billion dollars and yet no past record or clear future path to producing revenues to justify such valuations. **Read MOAR Over at Project Syndicate

Time for an inflation rethink?

Posted on by Emilie Openchowski
Federal Reserve Board Chair Janet Yellen testifies on Capitol Hill in Washington before the House Financial Services Committee.

Has the time come for central bankers to rethink their policy goals for inflation? In the Wall Street Journal earlier this week, David Harrison writes that just such a reconsideration may be afoot. With the Federal Reserve’s preferred measure of inflation bumping over the central bank’s 2 percent target in February, now seems as good a time as any to think about what level of inflation is necessary and proper in today’s economy. The central bank consensus around low and stable inflation was forged in a different time, and a rethink for our current situation should be welcome.

Harrison’s article mentions a new paper by economists Michael T. Kiley and John M. Roberts of the Board of Governors of the Federal Reserve system. The paper, recently released by the Brookings Institution, serves as a good jumping off point for why central banks should be thinking about their inflation goals. It looks at the conduct of monetary policy in a world where the interest rate that gets the U.S. economy to full employment and also hits the central bank’s inflation target (the natural rate of interest) is quite low.

Kiley and Roberts build a model of the U.S. economy where, given an inflation-adjusted natural rate of interest of 1 percent, monetary policy hits the zero lower bound quite often. Monetary policy gets “constrained” (can’t do more to boost economic growth) about 40 percent of the time in their model, compared to more than half that rate in other models. (Other models had assumed central banks would be ultra loose with monetary policy and that monetary policy could be constrained for only up to 4 years.) In the model, given the low natural rate of interest and a 2 percent inflation target, the central bank can’t get interest rates low enough to give the economy the full amount of stimulus it needs.

There’s one straightforward solution to this problem: Central banks can increase their inflation target. If the Federal Reserve increased its target to, say, 4 percent, then it would reduce the bind on monetary policy. The concerns about raising the target are due to the potential longer-term costs of higher inflation—though some of those costs may not be as large as many think. Remember that the Federal Reserve’s mandate is to keep prices stable. The 2 percent target, officially declared five years ago, is a choice the central bank made for itself.

But if monetary policymakers don’t want to increase their inflation target, then they might want to make it more flexible. In Kiley and Roberts’s model, hitting a 2 percent inflation target over the long term requires letting inflation rise higher than 2 percent at times. In their model, inflation ideally would need to run at about 3 percent when monetary policy wasn’t constrained. In other words, to get to 2 percent over the long run, central banks would need 3 percent inflation during good times to make up for below 2 percent inflation in bad times.

If this idea of overshooting in the good times sounds familiar, that’s because it’s at the heart of policies that would target either the level of prices or the nominal output of the economy. Kiley and Roberts describe a rule for the Federal Reserve that would have policymakers hold interest rates low until their estimate of the short-term natural rate matches the current rate. But as John Williams, president of the Federal Reserve Bank of San Francisco, points out, price-level targeting and nominal GDP targeting rules would deliver similar results.

Whether an increase in the targeted inflation rate or a change to targeting the level is needed, a change in thinking about inflation seems warranted. In a world of low interest rates, the price of not doing so may be too high.

Remembering who pays Uncle Sam this year’s Tax Day

Posted on by Emilie Openchowski
Tax professional and tax preparation firm owner Alicia Utley reaches for hard copies of tax forms.

With April 15 falling on a Saturday this year, Tax Day is on Tuesday, April 18. While it may not be everyone’s idea of a good time to finalize last-minute tax returns over the weekend or even on a Monday evening, the government needs our money to function. Taxes contribute to goods and services that impact our daily lives, including our national defense, physical infrastructure, and education. Yet even as we all do our duty, feelings of civic responsibility bump up against an all-too-common narrative that everyone else is dodging their responsibility to pay their fair share.

This fear is overblown when it comes to most Americans, though there are some privileged exceptions. Much of the public debate around government programs either alludes to or directly raises the question of whether “other people” are doing their part. Some, among them Robert Rector of the Heritage Foundation, question whether immigrants or the poor pay enough into the system relative to what they take. Then there’s the concern that those at the top of the income ladder hire accountants and lawyers to avoid paying their fair share—though some policymakers regard this tax avoidance as “smart.” And, of course, there are profitable corporations that pay minimal taxes such as General Electric Co., which has paid just a 5.2 percent tax on its profits over the past 15 years.

Looking for those among us who are shirking their civic duty is a national pastime, but it turns out the evidence doesn’t fully support this view. Political scientist Vanessa Williamson’s new book, Read My Lips: Why Americans are Proud to Pay Taxes, is grounded in quantitative and qualitative evidence that shows that Americans from all walks of life not only contribute to the common good but also believe paying taxes is their civic duty. Williamson, a 2014 Equitable Growth grantee and now a fellow at The Brookings Institution, finds that Americans see paying taxes as an ethical act that we owe to our nation.

Learning this, it seems that the current national conversation on taxes—and subsequent public spending—doesn’t do taxpayers justice. Indeed, taking into account all kinds of taxes paid each year at the federal, state, and local level, this civic exercise is very much an equal-opportunity activity. In 45 states and the District of Columbia, there’s a sales tax on most nonessential items. There are federal payroll taxes borne by employees and employers. There are state and local real estate taxes, state and local income taxes (in 43 states and more than a thousand localities, ranging from cities to counties to school districts), and an array of federal income taxes—all of which affect everyone in the country to varying degrees. According to the Institute on Taxation and Economic Policy, low-income families pay about 7 percent of their income toward sales and excise taxes, compared to 1 percent among high-income families. Williamson documents that roughly half of all taxpayers whose biggest tax burden is the sales tax correctly perceive it to be so.

Still, the perception that some taxpayers are paying less than they used to is grounded in evidence for some affluent households. While the federal tax code is progressive, it has become less so over time. Policymakers have sharply reduced the rate paid by the highest income earners, from 92 percent in 1952 to 70 percent in 1960 to 39.6 percent today. At the same time, the composition of all taxes paid has shifted over the same period from income taxes to other, less progressive taxes such as sales taxes and payroll taxes—the latter of which is capped for 2016 at $118,500 for Social Security.

Restoring more progressivity to the federal tax code would be good for the U.S. economy. Economists Emmanuel Saez at the University of California, Berkeley, Thomas Piketty at the Paris School of Economics, and Stephanie Stancheva at Harvard University find that raising top rates would not lower productivity. Instead, they argue that there’s room to tax the top income earners more because it would encourage a more efficient use of firms’ resources toward productivity-enhancing activities and away from economically inefficient sky-high salaries.

As members of Congress and President Trump consider comprehensive tax reform, they should keep this background in mind. The lack of real income gains from overall U.S. economic growth for too many Americans, combined with concerns about the distribution of taxes provide an important backdrop for this debate. Without clear facts and a common baseline of reality, policymakers could end up seeking to solve problems that do not exist and failing to address problems that do exist.

Do U.S. women choose low-paid occupations, or do low-paid occupations choose them?

Posted on by Emilie Openchowski
People gather for a rally on Equal Pay Day in Montpelier, Vermont.

Tomorrow is Equal Pay Day, a “holiday” in the United States that symbolizes how far into the year women must work to earn what men did the previous year. Today, women earn 20 percent less than men on average—for African American women and Latinas, that disparity is much wider. The gender pay gap exists for many reasons, among them flat-out discrimination and the burden of outside-the-office family responsibilities, which women continue to shoulder disproportionately. And then, there are the many women who work in different jobs than men do—jobs that happen to pay less.

Skeptics of the gender wage gap point to these types of jobs as evidence that the gap does not exist. Once you account for differences in women’s employment choices, they argue, the wage gap disappears, or at least shrinks substantially. But citing “choice” to discount the gender wage gap’s existence fails to account for the social and economic factors that shape work-life decisions, as well as how society at-large values women’s work.

It is true that gender differences in occupations and industries accounts for more than half of that gap, according to research by Cornell University economists Francine Blau and Lawrence Kahn, making it the single largest factor. It is also true that many women go into lower-paid occupations. Teachers, childcare workers, and home health aides—what economists refer to as pink collar jobs—are all overwhelmingly women.

Why is it that men and women go into different occupations? First, expectations for girls and boys are set early and can have a profound effect on their later life choices, including what kinds of jobs kids eventually take. The research is clear that young girls believe boys to be better at math and science, even when their skills are equal or better to their male classmates. That perception may set little girls on a path to pursue different academic interests, most clearly illustrated by the current deficit of women in some of the highest-paying science, technology, engineering, and math, or STEM, jobs.

Women also are expected to take on a larger share of domestic duties, which may rule out certain jobs with long or inflexible hours. Research by Harvard University economist Claudia Goldin found that the wage gap is largest where the culture of face time and overwork are common. And Blau and Kahn find that dual-earner heterosexual couples are more likely to choose their location based on the man’s job, possibly limiting the options a woman has, depending on her occupation.

But then there is the growing body of research that shows the low pay of many female-dominant occupations has nothing to do with skills, but rather is simply because they are done by women. Occupations with more men tend to be paid better regardless of skill or education level. A study by Asaf Levanon of University of Haifa, Paula England of New York University, and Paul Allison of University of Pennsylvania shows that as more women enter a field, the overall pay tends to decline. The devaluation of women’s work is seen most clearly in the lowest paying—and fastest growing—occupations, which are mostly done by women. Almost two-thirds of all minimum-wage workers are women.

Of course, pure discrimination is also part of the story—Blau and Kahn estimate that it accounts for about 38 percent of the gender pay gap. This is illustrated by the fact that even within female-dominant occupations, men earn more. And as a larger share of women exit a field, the overall pay of that field goes up. Employers, it seems, place a lower value on work done by women regardless of their skills. Take computer science, which until about 30 years ago was known for being a “women’s field.” But in the mid 1980s, the number of women in computer science took a dive—just as personal computers marketed to boys and men began showing up in people’s homes. As computer programming became increasingly dominated by men, prestige and wages went up.

Discrimination does not just come in the form of a male worker getting paid more than his female colleague. Rather, it affects how society values whole industries and entire types of work—based on whether it’s done predominantly by men or women. Narrowing the gender wage gap means addressing the choices women feel they must make, as well as the biases we have as a society.

Despite increases, diversity still comes up short in U.S. venture capital

Posted on by Emilie Openchowski
Traders work on the floor at the New York Stock Exchange in New York.

Business leaders and organizations in the United States have lauded the impact of racial, ethnic, and gender diversity on companies’ bottom lines. From the acknowledgement by Forbes that a diverse workforce is more capable of forging innovative products, services, and business practices to research affirming the benefits of executive-level diversity for market growth, welcoming ethnic minorities and women couldn’t be more crucial at a time when more than 50 percent of Americans are projected to belong to a population of color by 2044. Yet despite the importance of diversity in business success, the weight of the evidence has had a negligible impact on a sector that funds new companies: venture capital.

In Diversity in Innovation, Harvard Business School professor Paul A. Gompers and Harvard economics doctorate student Sophie Q. Wang chronicle labor-participation trends among women and ethnic minorities in venture capital firms and as entrepreneurs of venture-financed startups. Using data compiled from VentureSource on 42,502 entrepreneurs and 11,555 venture capitalists between 1990 and 2016, the two researchers were able to determine changes in the entry of women and ethnic minorities into entrepreneurship and employment at venture capital firms over this period.

They find that between 1990 and 2016, women comprised less than 10 percent of the entrepreneurial and venture capital labor force, Hispanics around 2 percent, and African Americans consistently less than 1 percent. In contrast, Asians—in their paper comprising East Asian and Indian populations—experienced higher rates of entry into venture capital firms and entrepreneurship than other ethnic minorities, reaching 18 percent and 15 percent, respectively.

Remarkably, over this same period, 45 percent of the general workforce were women, yet the entry rate for women entrepreneurs held at around 7 percent in the 1990s and early 2000s, rising steadily but only to 11 percent since then. More astonishing is the low growth rate of women venture capitalists, which went from about 6 percent in the early 1990s to 9 percent in the late 1990s, and remained constant since. Among ethnic minorities, Hispanics experienced the fastest overall increase into the labor force, going from 9 percent in 1990 to about 16 percent between 2010 and 2015—though it’s worth noting that they accounted for 1 percent of both entrepreneurs and venture capitalists in 1990 before accounting for 5 percent of new entrepreneurs and 3.2 percent of new venture capitalists from 2010 to 2015, despite rapid labor participation increases.

Furthermore, despite the slow increase from 4 percent to 5 percent among labor-market entrants during this same period, Asians grew from 10 percent and 5 percent of all venture capitalists and entrepreneurs, respectively to 18 percent and 15 percent today. Patterns for African Americans have been similar to those experienced by women—their labor-market entry rate went from roughly 11 percent in 1990 to 12 percent between 2010 and 2015, overshadowing the fact that they accounted for 0.83 percent and 0.67 percent of all new entrepreneurs and venture capitalists, respectively.

Arguably the most interesting takeaway from the study is that in spite of their demonstrated lack of entry into the innovation sector, many women and ethnic minorities have received an education earning them entry into the field. For example, the share of bachelor’s degrees earned by African Americans doubled from 1990 to 2015, while black representation in venture capital remained small (0.67 percent) during the same period. This is despite entry gains in other financial industries such as investment banking, where African Americans represent 6.9 percent of investment bankers.

While growth in educational attainment among women and ethnic minorities has contributed to a slight uptick in venture capital’s diversity, it has done little to integrate the overall industry and the firms it subsidizes in a more equitable manner. Gompers and Wang’s data show that trends in venture capital entry remain consistent with overarching indications that hiring and awareness of job opportunities flow best between similarly situated people. It suggests that venture capitalists tend to hire people who look and think like them, thereby bolstering structural barriers to access to opportunities.

There is no detailed research on the consequences of the lack of diversity for venture capital investment returns, but financial returns among firms that lack diversity are not so much at risk of decline as they are at risk for stagnation, as detailed in a recent report by McKinsey & Company. According to Vivian Hunt, Dennis Layton, and Sara Prince at the global consultancy, companies in the bottom quartile for gender, racial, and ethnic diversity are less likely to achieve financial returns that are above average. Conversely, companies in the top quartile for racial and ethnic diversity are 35 percent more likely to accrue financial returns exceeding national industry averages, with those in the top quartile for gender diversity being 15 percent more likely to experience those same effects on returns.

These findings suggest that racial and ethnic diversity has a greater effect on returns than gender diversity, and that innovation cannot be achieved without acknowledging the needs of a demographically changing market. To ensure economic growth in a country projected to be majority minority by 2044, it is imperative that policymakers not only ensure equal access to education but also equitable access for qualified workers by confronting structural barriers to hiring and promotion. This task equally falls in the purview of for-profit businesses, which are major drivers of our overall economy. Only then can equitable growth be shared among all Americans, and new venture findings and new company formation tap into broader economic opportunities.

Should-Read: Craig Garthwaite and John A. Graves: Success and Failure in the Insurance Exchanges

Posted on by Brad DeLong
Health of the Medicaid Exchanges

Should-Read: Craig Garthwaite and John A. Graves: Success and Failure in the Insurance Exchanges: “President Donald Trump and large fractions of the Republican majority… campaigned on an explicit pledge to repeal and replace the ACA…

…At least part of the impetus for these promises is a general belief that the ACA’s state-based insurance marketplaces are unworkable and are resulting in higher prices and fewer choices. In 2016, the ACA marketplaces facilitated coverage purchases for approximately 13 million people nationwide. But many prominent national insurers have struggled… UnitedHealth… Aetna….

Smaller and more focused insurers are earning profits in the new market and are aggressively entering new geographic areas…. Centene and Molina have both had financial success in the ACA marketplaces…. These two insurers have historically operated in the Medicaid managed-care market….

New plans had substantially lower premiums than their local competitors… were more likely to have experience with Medicaid managed care but less likely to have direct experience in the markets they entered. This finding is consistent with the existence of a functioning market in which firms that were initially successful are moving into new geographic areas….

The available data reveal patterns of market entry and exit that are consistent with natural competitive processes separating out firms that are best suited to adapt to a new market. We be- lieve that efforts to reform or re- place the ACA should therefore proceed with the knowledge that highly publicized market exits are
a poor and probably inaccurate signal of a failing market.

Why Were Economists as a Group as Useless Over 2010-2014 as Over 1929-1935?

Posted on by Brad DeLong

Let us start with two texts this morning:

Paul Krugman: Don’t Blame Macroeconomics (Wonkish And Petty): “Robert Skidelsky… argues, quite correctly in my view, that economists have become far too inward-looking…

…But his prime examples of economics malfeasance are, well, terrible…. [The] more or less standard model of macroeconomics when interest rates are near zero [is] IS-LM in some form…. [And] policy had exactly the effects it was “supposed to.” Now, policymakers chose not to believe this…. And yes, some economists gave them cover. But that’s a very different story from the claim that economics failed to offer useful guidance…

Simon Wren-Lewis: Misrepresenting Academic Economists: “The majority of academic macroeconomists were always against austerity…

…Part of the problem is a certain disregard for consensus among economists. If you ask most scientists how a particular theory is regarded within their discipline, you will generally get a honest and fairly accurate answer…. Economists are less likely to preface a presentation of their work in the media with phrases like ‘untested idea’ or ‘minority view’…. Part of Brad’s post it seems to me is simply a lament that Reinhart and Rogoff are not even better economists than they already are. But there is also a very basic information problem: how does any economist, let alone someone who is not an economist, know what the consensus among economists is? How do we know that the people we meet at the conferences we go to are representative or not?…

“Mainstream”, “academic”, and “majority” are doing an awful lot of work here for both Paul and Simon. So let me repeat something I wrote last December, in response to Paul’s liking to say that macroeconomics has done fine since 2007. Certainly Jim Tobin’s macroeconomics has. John Maynard Keynes’s macroeconomics has. Walter Bagehot, Hyman Minsky, and Charlie Kindleberger’s macroeconomics has done fine.

But Bagehot and Minsky influenced the then top-five American economics departments–Chicago, MIT, Harvard, Princeton, Yale–only through Kindleberger. Charlie went emeritus from MIT in 1976 and died in 1991, and MIT made a decision–a long series of repeated decisions, in fact–that there was no space on its faculty for anybody like Charlie.

When Robert Skidelsky says “macroeconomics”, he means the macroeconomics of RBC and DSGE and ratex and the Great Moderation.

And he is right: Alesina and Ardagna and Reinhart and Rogoff each had more influence on what policymakers and journalists thought about the effects of fiscal policy than did Paul Krugman and company, (including me). While the Federal Reserve went full-tilt into quantitative easing (but not stamped money or helicopter money), it did so in the face of considerable know-nothing opposition. And the ECB lagged far behind in terms of even understanding its mission. Why? Because economists Taylor, Boskin, Calomiris, Lucas, Fama, and company had almost as much or even more impact as did Paul Krugman and company.

“Basic macro” did fine. But basic macro was not the really-existing macro that mattered.

And let me repeat part of my public intellectuals paper: In the last days before the coming of the Roman Empire, Marcus Tullius Cicero in Rome wrote to his BFF correspondent Titus Pomponius Atticus in Athens:

You cannot love our dear [Marcus Porcius] Cato any more than I do; but the man–although employing the finest mind and possessing the greatest trustworthiness–sometimes harms the Republic. He speaks as if we were in the Πολιτεια of Plato, and not in the sewer of Romulus…

Whatever you may think about economists’ desires to use their technical and technocratic expertise to reduce the influence of both the Trotskys and the St. Benedicts in the public square, there is the prior question of whether here and now–in this fallen sublunary sphere, among the filth of Romulus–they have and deploy any proper technical and technocratic expertise at all. And we seem to gain a new example of this every week. The most salient relatively-recent example was provided by Carmen Reinhart and Kenneth Rogoff–brilliant, hard-working economists both, from whom I have learned immense amounts….

They believed that the best path forward for… the U.S., Germany, Britain, and Japan was… to shrink their government deficits quickly and quickly halt the accumulation of and begin to pay down government debt. My faction, by contrast, believed that the best path forward for these economies was for them to expand their government deficits now and let the debt grow until either economies recover to normal levels of employment or until interest rates begin to rise significantly…. [For example:]

[Carmen] Reinhart echoed [Senator] Conrad’s point and explained that countries rarely pass the 90 percent debt-to-GDP tipping point precisely because it is dangerous to let that much debt accumulate. She said, “If it is not risky to hit the 90 percent [debt-to-GDP] threshold, we would expect a higher incidence…”

I think we have by far the better of the argument. There is no tipping point. Indeed, there is barely a correlation, and it is very hard to argue that that correlation reflects causation from high initial debt to slower subsequent growth:

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Yet it is very clear that even today Reinhart and Rogoff–and allied points by economists like Alberto Alesina, Francesco Giavazzi, et al., where I also think we have the better of the argument by far–have had a much greater impact on the public debate than my side has.

Thus, the key problem of knowledge: Since technical details matter, conclusions must be taken by non-economists on faith in economists’ expertise, by watching the development of a near-consensus of economists, and by consonance with observers’ overall world-view. But because political and moral commitments shape how we economists view the evidence, we economists will never reach conclusions with a near-consensus – even putting to one side those economists who trim their sails out of an unwarranted and excessive lust for high federal office. And note that neither Carmen Reinhart nor Kenneth Rogoff have such a lust.

We do not live in the Republic of Plato. We live in the Sewer of Romulus. In this fallen sublunary sphere, the gap between what economists should do and be and what they actually are and do is distressingly large, and uncloseable.

And this leaves you–those of you who must listen to we economists when we speak as public intellectuals in the public square–with a substantial problem.

V. Should You Pay Attention to Economists as Public Intellectuals in the Public Square?

You have to.

You have no choice.

You all have to listen.

But you have nearly no ability to evaluate what you hear. When we don’t reach a near-consensus, then Heaven help you. Unless you are willing make me intellectual dictator and philosopher-king, I cannot.