Category: Equitablog

Measuring Productivity Growth: No Longer So Live at Project Syndicate

Posted on by Brad DeLong

Measuring Productivity Growth: The world’s population today is about 20 times richer than it was back during the long Agrarian Age from 7000 BC to 1500, during which limited resources, slow technological advance, and Malthusian pressures kept the overwhelming proportion of human populations at near-“subsistence”–incomes of less than $1.50 per person per day. Today only 1/15 of the world’s population is that poor. And today if we were to take the total money value of what we produce and use it to buy what people receiving less than $1.50/day buy, at current prices the value of global output would be $30/day per person. That is our roughly $80 trillion of annual global income today.

We cannot but greatly lament the enormously unequal distribution of the fruits of our global productivity. But that we today are such a wealthy global society would strike our predecessors from 7000 BC to 1500 dumb.

Moreover, most of what we make and consume today is not what our near-“subsistence” era predecessors. What good to any of us would 40,000 kcal/day in basic grains be? Most of what we make and consume today are goods and services with analogues back in the Agrarian Age that were absurdly expensive. Could Tiberius Claudius Nero eat strawberries and cream in January? No. For one thing, we think the idea of combining strawberries and cream was un-thought of before the cooks of the sixteenth-century Tudor dynasty courtier Thomas Cardinal Wolsey. There was one and only one person who could see a bloody audio-visual drama about witches in his house in the year 1606. He was named James Steuart, he was king of England and Scotland, and he had William Shakespeare and Shakespeare’s acting company on retainer. Yet today more than 4 billion people with their smartphones, tablets, and televisions live, in this dimension at least, better than kings. Nathan Meyer Rothschild, richest man in the early nineteenth century, died in his fifties of an infected abscess. He would have given the bulk of his wealth for one dose of modern antibiotics. He could not.

Thus when we say that the typical person in the world today is twenty times as well-off, materially, as his or her Agrarian-Age predecessor, we are saying something misleading. The typical person with today’s income would be twenty times as well off if he or she were restricted to only purchase and consume goods and services broadly available back in the Agrarian Age. But our additional range of choice–that we today know how to make more things and more types of things–gives an additional boost to our wealth today.

Now the statisticians at the U.S. Department of Commerce’s Bureau of Economic Analysis and at its sister agencies around the globe by and large cannot measure this “variety” boost to our productivity. They do try. But for the most part they fail. Thus the standard estimates of labor productivity growth in the North Atlantic–1%/year on average from 1800 to 1870, 2%/year on average from 1870-1970, 1.5%/year since and possibly slowing further in the past decade–are for the most parts estimates of how much better we have gotten at making the necessities of the world’s poor, not of how much life has been potentially enriched by higher productivity.

A good deal of this enrichment-via-increasingv-variety is truly game-changing innovations: things that transform human life. Flush toilets, automobiles, electric power, long-distance communications, modern information processing, and so forth. To provide even roughly the same capabilities in earlier eras would have been–was–absurdly, ludicrously, insanely expensive and rare. A political aristocrat in the late Roman Empire might purchase a nomenclator–a slave whose job it was to memorize names and faces and whisper to you what was the name of the person you were about to greet. Is having a smart phone more like having more like 10 or 100 or 1000 nomenclator-like assistants following you around?

Whenever we start to try to think about what opportunities economic growth will open up for humanity in the future, we need first to look back and reflect on what economic growth has done and the past. Yet I, at least, find myself stymied even in my attempt to measure how much economic growth there has been in the North Atlantic over the past 200 years. Yes, I am confident that there has been much more than 30-fold’s worth of economic growth. But how much more? And what does that mean? For that I feel I need a philosopher, to tell me who we were, who we are, and who are successors should want to be.

Consulted:

Should-Read: Martin Longman: Not Even Trump Supports the GOP Healthcare Bill

Posted on by Brad DeLong

Should Read: Martin Longman: Not Even Trump Supports the GOP Healthcare Bill: “President Trump sent White House Budget Director Mick Mulvaney down to Capitol Hill…

…A rowdy group of Republicans burst out of the meeting like explorers on a quest for glory. “Burn the ships,” one Republican shouted to House Majority Whip Steve Scalise (La.), invoking the command that Hernan Cortes, the Spanish conquistador, gave his men upon landing in Mexico in 1519. The message was clear, to the GOP leaders now and the Spaniards in 1519, there was no turning back….

Among the people who think it was either a mistake to take up a health care bill at all or who think it is a mistake to support this particular bill are:

  • President Trump,
  • his son-in-law [Jared Kushner],
  • his top “strategist” [Steve Bannon], and
  • his National Economic Council director [Gary Cohn].

They’re leaking that they think failure to pass this bill will be a 100% win for the administration. And, yet, they sent their Budget Director down to the Hill last night to tell folks to plunge ahead. No retreat, no surrender! What kind of sucker do you have to be to vote for ChumpCare?

How pissed off would you be if you were a Republican lawmaker who has to decide how to vote on this piece of crap when you have the White House telling you that they’ll go after you if you vote against them and telling the press that they see losing the vote as a 100% win?

You’d have to be a dumb son of a bitch to burn the ships behind you on this vote, especially considering that the bill has the support of about 17% of the people, which is lower even than the Crazification Factor. If you don’t know, the Crazification factor is calculated by looking at how many people preferred Alan Keyes to Barack Obama in the 2004 Illinois Senate race/

Should-Read: Joe Barton: “Sometimes you’re playing Fantasy Football and sometimes you’re in the real world…”

Posted on by Brad DeLong

Should-Read: It was always just dingbat kabuki all the way down:

Joe Barton: Representative, R-TX: “[Asked by] reporters… why, after Republicans had held dozens of nearly-unanimous votes to repeal ObamaCare…

… under President Obama, they were getting cold feet now that they control the levers of power. “Sometimes you’re playing Fantasy Football and sometimes you’re in the real world”, [Rep. Joe Barton R-TX] admitted. “We knew the president, if we could get a repeat bill to his desk, it would almost certainly be vetoed. This time we knew if it got to the president’s desk it would be signed.”

It has, as far as the Republican congressional caucus is concerned, always been dingbat kabuki–at least, ever since Gingrich’s revolt against George H.W. Bush at the start of the 1990s, if not ever since the passage of the Reagan “none of us really understands what’s going on with all these numbers” tax cut in 1981.

David Brooks: “Any large vision…

…was beyond the drafters of this legislation…. They were more concerned with what this internal faction…. In 24 hours of ugly machinations, the Trump administration was willing to rip out big elements of the bill and insert big new ones, without regard to substance or ramification. House members were rushed to commit to legislation even while major pieces of it were still in flux… when the Congressional Budget Office had no time to score it, when the effect on health outcomes of actual Americans was an absolute mystery….

This House Republican plan would increase suffering, morbidity and death among the middle class and poor in order to provide tax cuts to the rich. It would cut Medicaid benefits by $880 billion between now and 2026. It would boost the after-tax income for those making more than $1 million a year by 14 percent…. This bill takes the most vicious progressive stereotypes about conservatives and validates them…. This bill has just a 17 percent approval rating….

If we’re going to have the rough edges of a populist revolt, you’d think that at least somebody would be interested in listening to the people. But with this bill the Republican leadership sets an all-time new land speed record for forgetting where you came from…. The Republicans can’t run policy-making from the White House because they have a marketing guy in charge of the factory. But they can’t run policy from Capitol Hill because it’s visionless and internally divided…. The politics driving the substance, not the other way around. The new elite is worse than the old elite—and certainly more vapid.

Must-Read: Ezra Klein: How Paul Ryan Played Donald Trump

Posted on by Brad DeLong

Must-Read: I think Ezra has this wrong: Donald Trump may have “promised” lots of things, but why on earth would anyone think that he ever meant to keep any of those promises? Trump doesn’t know enough about policy to have policy goals—it’s reality TV, not reality.

Trump did not get played.

Trump’s voters and supporters on the other hand…

Ezra Klein: How Paul Ryan Played Donald Trump: “Donald Trump promised to be a… populist…

…fighting on behalf of the “forgotten man,” taking on the GOP establishment, draining the Washington swamp, protecting Medicaid from cuts, vowing to cover everyone with health care and make the government pay for it. He was a pragmatic businessman who was going to make Washington work for you, the little guy, not the ideologues and special interests. Instead, Trump has become a pitchman for Paul Ryan and his agenda. He’s spent the past week fighting for a health care bill he didn’t campaign on, didn’t draft, doesn’t understand, doesn’t like to talk about, and can’t defend. Rather than forcing the Republican establishment to come around to his principles, he’s come around to theirs—with disastrous results.

Democrats don’t like this bill. Independents don’t like this bill. Conservatives don’t like this bill. Moderates don’t like this bill. All the energy behind the American Health Care Act is coming from inside the GOP congressional establishment—and now from Trump himself…. Sixty days into his presidency, Trump has lashed himself to a Paul Ryan passion project that’s polling at 56-17 percent against. As political scientist Ryan Enos drolly observed, “in a hyper-partisan political climate, it’s actually an accomplishment to write legislation this unpopular.”…

The AHCA breaks Trump’s promises to his base so fulsomely, so completely, that when told by Tucker Carlson on Fox News “that counties that voted for you, middle-class and working-class counties, would do far less well under the bill,” Trump was reduced to saying, simply: “Oh, I know.” Donald Trump has become Paul Ryan with orange hair. How did it happen?…

His populism often edged into xenophobia and bigotry. But it seemed real enough…. Whatever Trumpism was, it sure as hell wasn’t Ryanism. And then it became Ryanism…. How did Ryan persuade Trump to adopt his bill? The truth is, it doesn’t appear to have been very hard. On Wednesday, the New Yorker’s Ryan Lizza published a series of messages from a House Freedom Caucus source laying out the state of play on the American Health Care Act. “Don’t source to me,” the person wrote, “but R’s astonish[ed] how in over his head Trump is. He seems to neither get the politics nor the policy of this.”… It’s an interesting question why the plan Ryan concocted is such a shoddy piece of work, and why Ryan didn’t spend more time building stakeholder support or mapping out a sensible process. But it’s not particularly surprising that once Ryan had a plan, Trump was persuaded to sign off on it—the people to whom he’s outsourced these decisions share Ryan’s instincts and ideology, not Trump’s, and Trump isn’t knowledgeable enough or interested enough to question their judgments….

Ryan amped up both the flattery and the pressure. “I’ve never seen, since I’ve been in Congress—and this is the fourth president I’ve served with—I’ve never seen a president as deep and involved and engaged on passing the signature legislation as this one,” he said. And that’s how a bill that Trump didn’t campaign on and didn’t write and doesn’t understand become his “signature legislation,” and that’s how its possible failure could be recast as proof that Trump isn’t the closer he promised to be, even when he’s maximally involved in the effort….

Changing the ideology of a political party is a difficult effort. But Trump didn’t even try, and now he has burnt much of the political capital he had on Paul Ryan’s health care plan—there is no one, after this, who thinks his salesmanship unstoppable or his commitment to his own agenda unshakable, and that weakens his ability to push the Republican Party to places it doesn’t already want to go. We are 60 days into Trump’s presidency, and Trumpism is already being strangled by Ryanism. As Drudge wrote, sometimes the swamp drains you.

Weekend Reading, “the antitrust” edition

Posted on by Bridget Ansel

Equitable Growth round-up

Jonathan Baker, a professor at American University’s Washington College of Law, looks at how firms’ exercise of market power is a major issue, despite well-establish antitrust enforcement. Baker argues that if decreasing competition goes unchecked, it may slow overall economic growth and increase inequality.

While reducing social security income for disabled adults may succeed in pushing some workers into the labor force, Dionna Cheatham and Gabriel Matthews write that these adults also experience more income volatility and a reduction in lifetime earnings.

In our latest installment of Equitable Growth’s “In Conversation” series, Research Director John Schmitt talks with Duke University economist William A. (“Sandy”) Darity Jr. about the importance of stratification economics in understanding U.S. economic growth and inequality.

Nick Bunker sheds light on the extent to which the current lack of racial and ethnic diversity within the Federal Reserve results in narrow-minded policies that could overlook the concerns of millions of Americans.

While current conversations surrounding corporate tax reform in the United States have centered on aspects such as the border adjustment tax, distributional impacts of federal tax reform, and projected revenue losses, Kavya Vaghul argues that we must also consider pass-through businesses, which give owners a sizable tax advantage.

When central banks can no longer push down long-term interest rates, what should policymakers do? Nick Bunker discusses research that unpacks what kind of fiscal policy is most effective at the zero lower bound.

Links from around the web

Harvard University economist F.M. Scherer argues that antitrust agencies have not done enough to address tech firm’s market dominance in the United States, and discusses the connection between increased market concentration and inequality. [promarket]

Two years ago, Anne Case and Angus Deaton’s research found that the mortality rates for middle-aged white Americans had gone up substantially, even as their counterparts in other developed countries were living longer than ever. Julia Belluz writes about the two researchers’ follow-up study, which finds that the unhealthy ways in which people cope—alcoholism, drug abuse, or even suicide—is to blame for the rising death rate. [vox]

Despite low interest rates, investment spending in developed companies remains subdued. The New York Federal Reserve’s Thomas Klitgaard and Harry Wheeler consider why. [liberty street economics]

The story of the men’s declining labor force participation usually focuses on those without a college degree. But men are also losing ground within higher-skilled occupations as well. Lauren Weber writes about research suggesting that this phenomenon may be because many of today’s high paying occupations require the kind of interpersonal skills more commonly seen among women. [wsj]

Why do black families struggle to build wealth? Gillian White sits down with Brandeis University professor Tom Shapiro about his new book on how systemic racism embedded in government policy has helped create and maintain huge gaps in wealth between black and white families. [the atlantic]

Friday Figure

From “Repealing the Affordable Care Act could exacerbate U.S. income and health inequality” by Kavya Vaghul.

Must- and Should-Reads: March 24, 2017

Posted on by Brad DeLong

Interesting Reads:

Must-Read: Ray Dalio et al.: Populism: The Phenomenon

Posted on by Brad DeLong
Https www bridgewater com resources bwam032217 pdf

Must-Read: Ray Dalio often climbs to the top of my must-read list. (a) He is very sharp. And (b) he thinks very differently than I do (c) on subjects in which I have considerable expertise. That combination of (a), (b), and (c) means that I learn more from reading him than from reading almost anybody else.

But one—huge—complaint. “Populism” is a phenomenon of the 1880s and 1890s, centered in the American west, and other movements since that have been similar to it. The movement that reaches its first peak in the 1930s is called “Fascism”. If Ray wants to be polite, he should call it “neofascism”. But he should not go any further. He should not destroy the meaning of the word “Populism” because we obsess about being overly polite. Call things by their names: the Fascists called Fascism Fascism because they thought that carried good connotations. That it no longer carries good connotations is an important fact about the world, and not one we should sweep under the rug:

Ray Dalio et al.: Populism: The Phenomenon: “This report is an examination of populism, the phenomenon…

…how it typically germinates, grows, and runs its course. Populism is not well understood because, over the past several decades, it has been infrequent in emerging countries (e.g., Chávez’s Venezuela, Duterte’s Philippines, etc.) and virtually nonexistent in developed countries. It is one of those phenomena that comes along in a big way about once a lifetime—like pandemics, depressions, or wars. The last time that it existed as a major force in the world was in the 1930s, when most countries became populist. Over the last year, it has again emerged as a major force…

Should-Read: Caitlin MacNeal: Mulvaney: If Your State Doesn’t Mandate Maternity Care, Change Your State

Posted on by Brad DeLong

Should-Read: This doesn’t even make sense: Mick Mulvaney is about to break something, some states will then step in to fix it, and that makes it a “local problem” that we should not “look to the federal government to… fix”? This does not even make any sense at all. It’s not that I disapprove of the Trump administration’s methods here. I see no method here–not even from the most supposedly “technocratic” and “competent” members of it:

Caitlin MacNeal: Mulvaney: If Your State Doesn’t Mandate Maternity Care, Change Your State: “Budget Director Mick Mulvaney… brushed off concerns about… repeal[ing] the Essential Health Benefits requirement….

…”If you live in a state that wants to mandate maternity coverage for everybody, including 60-year-old women, that’s fine,” he said. Co-host Alex Wagner asked Mulvaney about people who do not live in a state that requires maternity coverage. “Then you can figure out a way to change the state that you live in…. Change… state legislatures and their state laws. Why do we look to the federal government to try and fix our local problems?”

Should-Read: Alan de Bromhead et al.: When Britain turned inward

Posted on by Brad DeLong

Should-Read: Alan de Bromhead et al.: When Britain turned inward: “[To what] extent… [was] trade policy… responsible…

…for the shift towards intra-imperial trade in the interwar period[?] Both tariffs and quotas increased the Empire’s share of British trade, suggesting that trade policy mattered more for interwar trade patterns than the cliometric literature has suggested…. If trade policy had remained frozen at its 1930 level, the Empire would have accounted for between 30% (γ = 2) and 32% (γ = 1) of UK imports in 1935, whereas in fact it accounted for 39%…. There are substantial advantages to using disaggregated data, and to looking at what trade blocs do, as opposed to using aggregate data and simply looking at whether blocs exist or not. Historically, the paper suggests that interwar trade policy mattered more for trade patterns than the cliometric literature has suggested. It certainly mattered a lot in the British case; whether what was true for the UK was also true elsewhere is a question that we hope to address in future research.

Must Read: David Anderson: The Individual Market Under AHCA V2

Posted on by Brad DeLong

Must Read: David Anderson: The Individual Market Under AHCA V2: “What [could] the individual insurance market could look like under the AHCA as rumored to be as of 0030, March 23, 2017[?]…

I want to speculate about how insurers would do their plan designs. The major policy planks that would influence plan design are the following:

  • Guarantee issue at a universal price (community rating)
  • No Essential Health Benefits
  • No actuarial value requirements
  • 5:1 premium rating
  • Risk adjustment is either ineffective/easy to game or gone
  • Fixed, age based subsidies
  • No ability to transfer surplus subsidies to HSA

Smart insurers will bifurcate their product design.  They can’t underwrite their way to a healthy risk pool so they will use benefit design to segment it instead.

The first stream of product design will be aimed to cover very little.  The primary objective of these plans are to be priced at the subsidy point.  They will be very narrow networks with no major academic medical centers involved; their benefits will be designed to drive away sick people with chronic conditions.  For instance, asthma inhalers or insulin or Epi-Pens might not be covered.  Hep-C drugs would not be covered.  Maternity care would not be covered except after a $15,000 stand-alone deductible. They will use donut benefit designed principles where the first couple of PCP visits are no cost sharing but everything else comes with $300 co-pays and $20,000 deductibles.  Utilization is designed to be very low and the population that will choose these policies will have to be very healthy.

The selling point for this plan is that it is free out of pocket after the subsidy AND it is sufficient to not incur the continuous coverage 30% premium penalty.

For the 50% of the population that drives 3% of the spend, this will be sufficient for most people as long as they don’t get hit by a bus nor come down with cancer during the policy year.

The other path of coverage is a full service insurance for the sick.  It is a privatized and non-inclusive high cost risk pool.  It will offer a network with top tier hospitals, it will cover chemotherapy.  It will cover the cost of chronic disease management.  It will look a lot like the insurance people get from their jobs.  It will be massively out of reach for most people with chronic conditions as the subsidies will be grossly inadequate and the cost of care for some conditions are more than half the median income of an American family.  But “access” to a good policy will be there.

There are a lot of moving parts so this is purely speculation but if I was working for an insurer, that is the strategic choice that is clear given the rules of the AHCA.