Category: Equitablog

Should-Read: Matt Townsend et al.: America’s ‘Retail Apocalypse’ Is Really Just Beginning: “The reason isn’t as simple as Amazon.com Inc. taking market share…

…or twenty-somethings spending more on experiences than things. The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains. The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary. Until this year, struggling retailers have largely been able to avoid bankruptcy by refinancing to buy more time. But the market has shifted, with the negative view on retail pushing investors to reconsider lending to them. Toys “R” Us Inc. served as an early sign of what might lie ahead…

Should-Read: Iason Gabriel: The case for fairer algorithms: “Software used to make decisions and allocate opportunities has often tended to mirror the biases of its creators, extending discrimination into new domains…

…Job search tools have been shown to offer higher paid jobs to men, a programme used for parole decisions mistakenly identified more black defendants as ‘high risk’ than other racial categories, and image recognition software has been shown to work less-well for minorities and disadvantaged groups…. A better understanding is needed of how bias enters algorithmic decisions…. The data used to train machine learning models is often incomplete or skewed…. Data… frequently contains the imprint of historical and structural patterns of discrimination…. Statistically unbiased and properly coded datasets… may still contain correlations between gender and pay, or race and incarceration, which stem from entrenched patterns of historical discrimination… Against this backdrop, it would be a serious mistake to think that technologists are not responsible for algorithmic bias or to conclude that technology itself is neutral….

Even when explicit information about race, gender, age and socioeconomic status is withheld from models, part of the remaining data often continues to correlate with these categories, serving as a proxy for them…. Patterns of discrimination intersect with each other, placing particular burdens on groups such as immigrants or single-parent families who conventionally fall outside the ‘protected category’ framework….

Be transparent about the limitations of datasets…. Conduct research and develop techniques to mitigate bias…. Deploy responsibly…. Increase awareness…. Research will contribute to our understanding of problem and potential solutions, but certain principles are already clear. We need new standards of public accountability…. And we need technologists to take responsibility for the impact of their work…

Should-Read: Jonathan Chait: New Trump Economist Kudlow Has Been Wrong About Everything: “The Republican Party… supply-side economics… not merely a generalized preference for small government with low taxes…

…but a commitment to the cause of low taxes, particularly for high earners, that borders on theological. In the time that has passed since then, that grip has not weakened…. The appointment of Lawrence Kudlow as head of the National Economic Council indicates how firmly supply-siders control Republican economic policy, and how little impact years of failed analysis have had…. They likewise believe tax cuts are the necessary tonic for every economic circumstance. The purest supply-siders, like Kudlow, go further and deeper in their commitment. Kudlow attributes every positive economic indicator to lower taxes, and every piece of negative news to higher taxes. While that sounds absurd, it is the consistent theme he has maintained throughout his career as a prognosticator. It’s not even a complex form of kookery, if you recognize the pattern. It’s a very simple and blunt kind of kookery.

In 1993, when Bill Clinton proposed an increase in the top tax rate from 31 percent to 39.6 percent, Kudlow wrote:

There is no question that President Clinton’s across-the-board tax increases… will throw a wet blanket over the recovery and depress the economy’s long-run potential to grow…

This was wrong. Instead, a boom ensued. Rather than question his analysis, Kudlow switched to crediting the results to the great tax-cutter, Ronald Reagan:

The politician most responsible for laying the groundwork for this prosperous era is not Bill Clinton, but Ronald Reagan…

he argued in February, 2000. By December 2000, the expansion had begun to slow. What had happened? According to Kudlow, it meant Reagan’s tax-cutting genius was no longer responsible for the economy’s performance:

The Clinton policies of rising tax burdens, high interest rates and re-regulation is responsible for the sinking stock market and the slumping economy…

he mourned, though no taxes or re-regulation had taken place since he had credited Reagan for the boom earlier that same year. By the time George W. Bush took office, Kudlow was plumping for his tax-cut plan. Kudlow not only endorsed Bush’s argument that the budget surplus he inherited from Clinton—the one Kudlow and his allies had insisted in 1993 could never happen, because the tax hikes would strangle the economy—would turn out to be even larger than forecast:

Faster economic growth and more profitable productivity returns will generate higher tax revenues at the new lower tax-rate levels. Future budget surpluses will rise, not fall…

This was wrong, too…. Kudlow then began to relentlessly tout Bush’s economic program…. insist that the housing bubble that was forming was a hallucination…. He made this case over and over (“There’s no recession coming. The pessimistas were wrong. It’s not going to happen. At a bare minimum, we are looking at Goldilocks 2.0. (And that’s a minimum). Goldilocks is alive and well. The Bush boom is alive and well.”) and over (“The Media Are Missing the Housing Bottom,” he wrote in July 2008). All of this was wrong. It was historically, massively wrong.

When Obama took office, Kudlow was detecting an “inflationary bubble.” That was wrong. He warned in 2009 that the administration “is waging war on investors. He’s waging war against businesses. He’s waging war against bondholders. These are very bad things.” That was also wrong, and when the recovery proceeded, by 2011, he credited the Bush tax cuts for the recovery. (Kudlow, April 2011: “March unemployment rate drop proof lower taxes work.”) By 2012, Kudlow found new grounds to test out his theories: Kansas, where he advised Republican governor Sam Brownback to implement a sweeping tax-cut plan that would produce faster growth. This was wrong. Alas, Brownback’s program has proven a comprehensive failure, falling short of all its promises and leaving the state in fiscal turmoil…

Should-Read: Lousy title. Good op-ed: Belle Sawhill: Inflation? Bring It On. Workers Could Actually Benefit: “Even if inflation does creep up above 2 percent, we shouldn’t be too worried…

…Having operated below it for many years, the economy may not be harmed if it runs for a few years above that target…. We are in the midst of a big fiscal and monetary experiment. And as with any experiment, the consequences are unknown. What we do know is that the costs of the Great Recession were enormous—at least $4 trillion in lost income…. The biggest losses were experienced by those in the bottom and middle portions of the income distribution who lost jobs and saw much of the equity in their homes destroyed. They are the ones who stand to gain the most if unemployment continues to fall and wages keep rising. Businesses, desperate for workers, reach deeper into the ranks of those who are still jobless, do more training to get those workers up to speed, and pay higher wages as they compete to hire or retain their work force. Discouraged workers — the millions who’ve left the labor force — might actually re-enter it, and workers could find their shrinking share of national income rise again. Besides, economists are not sure when super-low unemployment will set off inflation…. A stronger economy might help the left behind as much as, if not more than, any of these specific measures. The old models don’t seem to be working, and the downside risks of this experiment are limited. Let’s run a truly high-pressure economy and see what happens…

Should-Read: Dean Baker: Doesn’t Anyone Care If the Trump Tax Cuts Are Working?: “Capital goods orders for January…

…a hugely important early measure of the success of the Trump tax cuts. The ostensible rationale for the big cut in the corporate tax rate that was at the center of the tax cut is that it will lead to a flood of new investment…. If lower rates really produce a flood of investment we should at least begin to see some sign in new orders once the tax cut was certain to pass. The January report showed orders actually fell modestly for the second consecutive month…. Remarkably, these new data have gotten almost no attention from the media…

Dean Baker: Small Businesses Still Aren’t Impressed by the Republican Tax Cut: “The National Federation of Independent Businesses… 29 percent of businesses expect to make a capital expenditure in the next 3 to 6 months…

…somewhat higher than the 26 percent reported for February of 2017, but below the 32 percent reported for August of last year. It’s also the same as the 29 percent reading reported back in August of 2014 when a Kenyan socialist was in the White House…. There is no evidence here of any uptick in investment whatsoever and certainly not of the explosive increase promised by the Trump administration. Maybe if Trump did some more tweeting on the issue it would help…

Should-Read: Dylan Matthews: Larry Summers on the Midwest and South: the case for a government bailout of the heartland: “In 2016, only 5 percent of men ages 25 to 54 in Alexandria, Virginia (a rich DC suburb), were not working…

…In Flint, Michigan, the share was 51 percent. That staggering fact frames a new paper by three Harvard economists—Benjamin Austin, Ed Glaeser, and former Treasury secretary/chief Obama economic adviser Larry Summers…. it’s notable that Glaeser and Summers are now embracing an active government role in revitalizing struggling parts of the country, and trying to work through the best way to do it.

While the idea that Youngstown, Ohio, needs more help than San Francisco might seem intuitive to a non-economist, the economic case for policies targeting certain areas, rather than certain kinds of individuals, is somewhat shakier…. Most variation in incomes is within regions, not between them…. Why implement policies to boost specific geographic areas when you could just direct money to poor individuals instead?… Austin, Glaeser, and Summers argue that place-based policies are necessary because different regions respond to various public policies differently…. The authors roughly estimate how responsive workers in different areas are to employment subsidies that boost their wages by estimating how employment changes in different areas as wages rise and fall. Sure enough, they find that West Virginians are more than three times as sensitive to changes in the rewards to work as Wyoming residents are. That is: Employment subsidies targeted at struggling states like West Virginia are likely to be considerably more effective than subsidies to better-off states like Wyoming…

Should-Read: Josh Barro and Isaac Chotiner: Policy without politics, immigration, and Trump’s self-awareness: Isaac Chotiner: “Are you enjoying this moment? By ‘this moment’, I mean the last 14 to 15 months of being a political commentator?…

…Josh Barro: No, I’m not. I worked in public policy think tanks for a few years before I did [political commentary], and I wrote specifically on state and local government finance. So the reason I got into writing about politics was to be able to write about some of those issues, where I felt like I was able to explain things more clearly than people might otherwise hear them explained, help them understand relatively complicated areas of policy and what’s a good idea or a bad idea. And our politics are just not very much about policy right now…. The news that we’ve had on the tariffs over the last week or so, if the president actually goes through with this policy, will have important economic effects, but there’s been a lot of time spent on, frankly, bullshit…. I go crazy when people debate the ins and outs of what Trump said about DACA policy. It just seems irrelevant to understanding how Washington, over these last 14 months, is actually working….

Isaac Chotiner: If I’ve ever read anyone who I’ve considered kind of a centrist technocrat, it would be you, which I would assume you would view as somewhat of a badge of honor, to be referred to as that. Or not. What do you think?

Josh Barro: I think centrist technocracy has not had a great decade…. And we’re still reckoning with this. A lot of the big mistakes were in monetary policy, especially in Europe. The eurozone, which was absolutely seen as a technocratic project, has been a disaster, especially for Southern Europe, and it’s been fueling a lot of these populist movements….

Isaac Chotiner: Is there something inherent in centrist technocracy that you’re likely to have these kinds of problems? For example, in the case of immigration, I guess you could say that the reason that no one wanted to enforce these things was because the interests involved didn’t want them to. I guess what I’m wondering is: Does this change your larger analysis of whether centrist technocracy can work, rather than just think, “Oh, various bureaucrats made stupid choices or choices that were politically unfortunate”?

Josh Barro: Why did you not have robust immigration enforcement? It’s partly because interest groups on both sides didn’t really want it. Businesses wanted to have cheap labor available to them, both legally and then also illegally. Part of the advantage of illegal immigration is that they don’t have to pay people minimum wage. They don’t have to follow labor laws. And then on the left, you had various reasons for wanting higher levels of immigration. Often, the people who might immigrate are relatives and associates of people who are already here. It’s perfectly reasonable that they want those people to be able to immigrate. There are also political effects. Democrats benefit from demographic change in the country. So basically you had two sides of the issue that were not motivated to enforce, and those interest group voices, especially the business community, are overrepresented in Washington…. As for whether a centrist technocratic government is possible that works well, we’ve seen some countries that have avoided these problems. Canada and Australia are good examples.
Canada has managed their immigration system very well, and they have a large number of immigrants….

Isaac Chotiner: I think the one that’s more shocking to me than the snobbiness—and I agree, there was a certain snobbiness to some of that—is the cruelty, which I still can’t quite get over, has not registered more with people. He’s just not nice.

Josh Barro: The weird thing about this, though, is he’s been like that forever. And yet, in his contexts, in business and entertainment, he was able to be like this and then turn on a dime and act like your friend again, and people would go along with it. It’s like he’s clearly having fun, and it’s like people halfway feel like they’re in on the joke. So obviously, I don’t think Mexican immigrants feel this way. But if you’re some celebrity who was feuding with Donald Trump, and he said horrible things about you, you didn’t take it quite as seriously as you would with some other people. And frankly, I think some voters have felt that way. He did about as well with the Hispanic community as Mitt Romney had done, which is not great, but it’s millions and millions of Hispanics went out there and voted for Donald Trump after all the things that he said. There’s something about him that allows him to be nasty and for people to not react in the same way that they would react if a normal person was that nasty.

Isaac Chotiner: Before the campaign especially, there was a twinkle in his eye about some stuff. If you ever go back and listen to him on Howard Stern, there’s some sense that he has an understanding of himself as a character and could find humor in that. I find that to be less and less the case now. I don’t feel like he looks like he’s having fun. Occasionally, like with his tweet about the Oscars, saying I’m the only star…. It was funny and self-aware, exactly. And I find the self-awareness aspect of himself as a character to be less and less a part of him now.

Josh Barro: I think it’s two things. One is that the cruelty appeals to some people, and it fits in with the message of basically, “They’ve been taking advantage of you, and I’m not going to let them take advantage of you anymore.” He demonstrates strength through cruelty, which I think is ridiculous, but it appeals to some number of people. But then the other thing to remember is that Donald Trump is not popular. So I think most people do have the reaction to this that you have to it. So if you’re asking, “Am I taking crazy pills?,” it’s no. Most people agree with you…

Should-Read: Ernest Liu (2016): INDUSTRIAL POLICIES IN PRODUCTION NETWORKS: “Many developing countries adopt industrial policies that push resources towards selected economic sectors…

…How should countries choose which sectors to promote? I answer this question by characterizing optimal industrial policy in production networks embedded with market imperfections. My key finding is that effects of market imperfections accumulate through backward demand linkages, thereby generating aggregate sales distortions that are largest in the most upstream sectors. The distortion in sectoral sales is a sufficient statistic for the ratio between social and private marginal product of sectoral inputs; therefore, there is an incentive for a well-meaning government to subsidize upstream sectors. My sufficient statistic predicts the sectors targeted by government interventions in South Korea in the 1970s and in modern day China…