Category: Equitablog

Asked at: Berkeley Haas School Center for Responsible Business 2018 Microsoft Conference on Business, Technology, and Human Rights: **The Future of Work: I think I understand why previous waves of technology have boosted the employment and wages of unskilled workers. It is because “unskilled” human work is a very hard AI problem. Thus enormous numbers of jobs have been created for humans—jobs that are in a sense drudgery, but necessary drudgery:

1. performing repetitive tasks as robots we do not yet know how to build,
2. being simple info processing software bots dealing with and taking action on documents, and
3. being microprocessors controlling machines and animals.

Practically all humans with their eye-ear-arm-hand-brain combination—the brain being a 50W supercomputer that fits in a breadbox designed by the genetic algorithm over 750 years of Mammalian evolution—can do anything in any of these three types of tasks. And doing them is very valuable. And until a decade ago, no machines or ‘bots could do those tasks.

Hence enormous technological progress has gone along with an extraordinary increase in the value of the human body and the human brain.

But all three of these categories seem to have reached their peak. We are now solving these hard AI problems. And I have no sense of what kinds of things the masses of displaced workers will do in the future at the level of “microprocessor”, “robot”, “accounting software ‘bot”.

What kinds of things will we do in the future, at that level of description?

Should-Read: Martin Wolf: Economics failed us before the global crisis: “Macroeconomics… invented by John Maynard Keynes…. The tests… are whether its adepts understand what might go wrong in the economy and how to put it right…

…When the financial crisis that hit in 2007 caught the profession almost completely unawares, it failed the first of these tests. It did better on the second. Nevertheless, it needs rebuilding…. The core macroeconomic model rested on two critical assumptions: the efficient markets hypothesis and rational expectations. Neither looks convincing…. It is questionable whether it is even possible to have “rational expectations” of a profoundly uncertain future…. Hyman Minsky’s view of the dangers of speculative tendencies in finance was roughly right, while many of the brightest macroeconomists proved precisely wrong. It is not good enough to argue that the canonical model works in normal times. We need also to understand the risks of crises and what to do about them….

A big question is not only whether we know how to respond to a crisis, but whether we did so. In his contribution, the Nobel laureate Paul Krugman argues, to my mind persuasively, that the basic Keynesian remedies—a strong fiscal and monetary response—remain right. Also vital is swift revitalisation of the banking system. The contrast between the swifter US recovery and the dreadful delays in the eurozone gives striking support for this view….

Fixing a huge crisis after the event is terribly hard. The obvious need then is to make economies more resilient…. Obvious solutions include eliminating the incentives towards leverage in our tax systems, encouraging greater use by the economy of equity finance and debt that can be readily converted into equity, raising the reserve and capital requirements of banks and moving swiftly towards the issuance of digital central bank cash…. We may never understand how such complex systems—animated, as they are, by human desires and misunderstandings — actually function. This does not mean that attempting to improve understanding is a foolish exercise. On the contrary, it is important. But it is arguably more vital in practice to focus on two other tasks… how to make the body economic more resistant… how to restore it to health as quickly as possible. On both counts, we need to think more and do more…

Should-Read: Noah Smith: Why Money Managers Are Paid So Much Is a Mystery: “Mutual-fund managers are paid less for beating the market than for marketing—i.e., the ability to collect assets…

…This bolsters the notion of “money doctors”—the idea that managers mainly add value by building trust with investors. Investors are naturally wary about putting their money in stocks and other risky assets, and want a qualified professional to tell them it’s safe to do so. This could potentially be a win-win relationship; investors pay fees, but get higher returns than they would if they had stayed out of the market. Or it could be a potentially toxic relationship, if managers use personal or cultural affinity to sell investors on a bad deal. More research is needed in order to tell how many money doctors are really quacks. But the new research into fund-manager pay also shows that a large percentage of compensation remains unexplained, having apparently little to do with fund size or returns. There is a lot of money sloshing around in the financial industry, and much of how it gets divvied up remains a mystery…

Should-Read: Charlie Stross: Test Case: “There are ramifications…

…The current legal framework privileges corporations over individuals with respect to moral hazard. So I’m going to stick my neck out and predict that there’s going to be a lot of lobbying money spent to ensure that this situation continues… and that in the radiant Randian libertarian future, all self-driving cars will be owned by limited liability shell companies…

Should-Read: Benjamin D. Sommers, Atul A. Gawande, and Katherine Baicker: Health Insurance Coverage and Health—What the Recent Evidence Tells Us: “An analysis of mortality changes after Medicaid expansion suggests that expanding Medicaid saves lives at a societal cost of $327,000 to $867,000 per life saved…

…By comparison, other public policies that reduce mortality have been found to average $7.6 million per life saved, suggesting that expanding health insurance is a more cost-effective investment than many others we currently make in areas such as workplace safety and environmental protections.29,54 Factoring in enhanced well-being, mental health, and other outcomes would only further improve the cost–benefit ratio. But ultimately, policymakers and other stakeholders must decide how much they value these improvements in health, relative to other uses of public resources—from spending them on education and other social services to reducing taxes…

Should-Read: Lant Pritchett: Alleviating Global Poverty: Labor Mobility, Direct Assistance, and Economic Growth: “A well-designed, well-implemented, multi-faceted intervention can in fact have an apparently sustained impact on the incomes of the poor (Banerjee et al 2015)…

…The magnitude of the income gains of the “best you can do” via direct interventions to raise the income of the poor in situ is about 40 times smaller than the income gain from allowing people from those same poor countries to work in a high productivity country like the USA. Simply allowing more labor mobility holds vastly more promise for reducing poverty than anything else on the development agenda. That said, the magnitude of the gains from large growth accelerations (and losses from large decelerations) are also many-fold larger than the potential gains from directed individual interventions and the poverty reduction gains from large, extended periods of rapid growth are larger than from targeted interventions and also hold promise (and have delivered) for reducing global poverty…

Should-Read: Simon Wren-Lewis: Beliefs about Brexit: “I want to… ask why public opinion seems oblivious to the failures of all those claims before the negotiations that ‘we hold all the cards’ compared to the reality that the UK has largely agreed to the terms set out by the EU…

…The view of the overwhelming majority of economists, and all the analysis from serious academics, the OBR, IMF, OECD, and now even the government, is that leaving the EU will involve significant economic costs. Yet despite all this the poll above shows as many people think we will be better off leaving as think we will be worse off. This is the kind of polling that should stop everyone in their tracks, much like the polls before the US election that said more people trusted Donald Trump than Hillary Clinton. The result in this poll is all the more incredible because so far people are worse off as a result of Brexit….

I can think of two classes of explanation for this apparent paradox. The first is that people are fully aware of what experts and the government thinks, but ignore this…. If that is the line you want to take, then it has a clear implication. The implication is never hold a referendum on anything. It is not normally a good idea to take decisions where you ignore all expertise….

A second and much simpler explanation…. [How] do people who pay far less attention to economics and politics know this? How would they know this? They will know very little about it from reading the papers that campaigned so hard for Brexit in the first place…. This propaganda could be countered by informed and informing reporting by broadcasters. Unfortunately, with the exception of Sky News, the standard of reporting by broadcasters on Brexit has been very poor….

I missed the importance of the Irish border until September last year. I do not think I was unusual in this respect. I suspect I did so because I was influenced by the UK line that this issue was really a phase 2 problem, a line we heard over and over again on the MSM. What the MSM rarely did was ask what people in Irish Republic felt about the border, and hence why it got to be a first stage issue in the first place. Once I realised its importance, I could see that the Irish border issue would have a fundamental influence on any final deal…. But the BBC in particular seems unable to incorporate expert opinion, either directly or indirectly, into its coverage….

This is not the first time in recent memory that the media has failed to accurately report what was going on and what experts thought. Before the 2015 election the media accepted the idea that getting the budget deficit down was the most important goal of macroeconomic policy, and that the economic fundamentals were strong. Few experts would agree with the former, and the latter was simply false. What I call mediamacro swung the election for the Conservatives. The UK government wants a Brexit… not dictated by the referendum result but by the wishes of the Brexiters in the Conservative party. The only people who can stop this happening are other Conservative MPs, but many have said that these MPs will only be able to defy their government if public opinion swings against Brexit. But that is not going to happen…. People remain unaware of the overwhelming expert opinion that they will continue to become worse off after Brexit. That in turn represents another victory for right wing press propaganda, and another critical failure from most of our broadcast media…

Should-Read: Lawrence Summers: “A strong, fully employed economy—where firms looking for workers is a larger issue than workers looking for firms…

….is the best social program we know. It is shortages of labor that induce firms to figure out how to train felons, to move beyond their traditional prejudices, to figure out how to skill unskilled workers, to reach into distressed or depressed communities…”

Should-Read: The Washington Post these days is a really bad neighborhood. Bad actors. Bad actions: David Brady: We… would be delighted by… lift[ing] all single mothers out of poverty…. Making a substantial fraction of people not poor would reduce poverty. Duh: “In @washingtonpost, Robert Samuelson has written a ‘critique’ of our NY Times piece…

…It isn’t clear he understands our arguments or whether his arguments actually contradict our arguments. His main grievance seems to be vaguely about what he says “the impression that the Times leaves its readers.” His biggest error is attributing to us: “eliminating poverty among single mothers wouldn’t have much effect on overall poverty.” Actually, we say eliminating single MOTHERHOOD–not single mother POVERTY–wouldn’t really reduce poverty…. Samuelson calculates what would happen if all single parent (not single mother) families were not (officially) poor. We simulate what would happen to overall poverty if all single mothers were not single mothers.

From a public policy perspective, we actually would be delighted by his suggestion to simply lift all single mothers out of poverty. We agree that making a substantial fraction of people not poor would reduce poverty. Duh. This is true for ANY random group of poor people.

He chastises us for not explain our poverty measure, which we explain in AJS but not the NYT piece. Okay. But, then, he uses the terrible official U.S. measure. I also don’t understand why he includes single fathers in his calculations. Samuelson alludes to “several acrimonious exchanges” with me, but we talked only once on the phone. It was a very strange conversation. I’ll admit I didn’t like when he condescendingly told me that social science wasn’t real science. Samuelson first asked me to send all published critiques of our piece and how we responded to them. It wasn’t clear to me why I should do his job for him. He said he was too old to read twitter himself. After Samuelson read text to me, he didn’t like it when I read him part of our piece that unambiguously contradicted his claims. Then, he said elsewhere in the piece gave reasonable readers a different impression (funny that part didn’t make it into his piece).

Then, Samuelson wanted me to compose a reply to what he had read to me over the phone. I said I needed to be quoted verbatim (as I didn’t trust his paraphrasing). He said “No. We simply cannot cede editorial responsibility to outsiders.”

I don’t have much experience with columnists like Samuelson, and it isn’t clear to me if this is how columnists normally operate. In the end, I’d be happy if his piece directs even more readers to our work. I’m happy to let readers decide for themselves.