The 10 most popular Value Added posts of 2016

With the end of 2016 approaching,  let’s take a look back at the 10 most popular Value Added posts this year:

Does the one percent deserve what it gets? | October 4, 2016

“Some of us contribute more than members of the top one percent to the economy, and some of us contribute less. None of us gets exactly what we deserve.” Nancy Folbre writes on the just deserts theory of inequality.

Thinking about wealth taxes | January 11, 2016

Two papers presented earlier this year grapple with the economics of wealth taxation and how it might actually boost economic growth and affect wealth inequality.

“Throwing money at the problem” may actually work in education | March 17, 2016

The dominant education policy framework holds that more funds can’t really boost educational outcomes. Bridget Ansel writes on a new study that finds more money leads to higher test scores.

 Why slightly higher inflation might benefit the U.S. economy | August 16, 2016

Inflation might not be as harmful as many models of the economy would have policymakers believe, recent research argues. Perhaps slightly higher inflation would be a net benefit for the U.S. economy.

Intellectual property and the decline of the U.S. labor share | January 7, 2016

What’s behind the declining share of income going to labor? A paper points to the rising prevalence of intellectual property and increased investment in this kind of capital as a culprit in this trend.

U.S. democracy stuck in an “inequality trap” | July 5, 2016

Using a number of political science papers released as part of Equitable Growth working paper series, Kavya Vaghul makes the case the United States is stuck in a feedback loop of economic inequality feeding into political inequality and then back to economic inequality.

What’s the optimal tax for capital income? | September 28, 2016

How high should the tax rate on capital income be? Many economists would argue that it should be lower than the tax rate on labor income, but a new model argues that this might not also be the case.

The more elastic you are, the less you lose | February 9, 2016

Who ultimately pays a tax? Economic theory tells us the incidence of a tax can often be shifted onto someone who wasn’t the original target of the tax. Elasticity holds the key to understand who actually pays.

Appreciating the new economics of the minimum wage | March 16, 2016

On the 20th anniversary of the release of “Myth and Measurement: The New Economics of the Minimum Wage” it’s clear how much our understanding of how low-wage labor markets work has changed since its publication.

The corporate savings glut and the economic possibilities of the future | January 25, 2016

The high savings rates of corporations doesn’t appear to be an optimistic trend for the U.S. economy. If anything, it should make us very concerned about the future pace of economic growth.

Note: This is the last Value Added of 2016. We’ll resume publishing on January 4, 2017.

Must-Read: Dietz Vollrath: Can You Do Historical Counter-Factuals?

Should-Read: Do historians do counter-factuals? Yes. Can you do historical counter-factuals? Yes. Could you do without historical counter-factuals? No. A world in which historians do not engage in and with counterfactuals would e a world in which human actions have no meaning, because you would never be able to say “this mattered”–you would only be able to say “this happened, and then that happened, and that is what was”. And why would anyone with any volition at all wish to create or live in such a world?

Dietz Vollrath: Can You Do Historical Counter-Factuals?: “Studying slavery and capitalism, for example, we do not have thousands of different societies or cultures to page through…

…to find one that looks almost exactly like the Anglo-American industrializing societies, but doesn’t have slavery. We cannot compare like to like, and do the plausible counter-factual… somehow “switch[ing] off” slavery…. The experience and implications of slavery are entwined with every other aspect of the industrializing societies, and pulling it out would entail massive shocks to all these other aspects. “Doing the counterfactual” looks like a big mess, and perhaps this is what Foner is objecting to because it sounds like writing some sort of alternative history novel. And it would be pure speculation to write such a novel….

[But] we don’t have to think about writing down an alternative history novel. We need to think about lots and lots of possible novels in which slavery did not exist, and lots and lots in which it did. And based on those thousands of alternative history novels, is it true that when slavery remains present into the 1800’s, that capitalism develops? And is it true that when slavery fails to persist (or maybe never really exists?) that capitalism fails to develop?… We could ask if – statistically speaking – alternative histories without slavery tended to be without capitalism, and alternative histories with slavery tended to have capitalism. When economists are talking about historical counterfactuals, I think this is what they have in mind. At least, it is what I have in mind….

The claim that slavery was not necessary for capitalism… mean[s]… that of all the alternative histories we could have gotten, the ones without slavery most likely would still have gotten capitalism anyway. And the proposed explanations for that – Indian and Egyptian supply responses, alternative labor arrangements in the US South – are arguments about the probability of capitalism occurring in those thousands of alternative histories.

I see why this can be frustrating…. How could you possibly conceive of thousands of different alternative histories, when we as yet know so little about this one?… Despite this, one advantage of thinking explicitly about this in terms of many-alternative-histories is that you can avoid falling into arguments about mono-causality. If you say that slavery is necessary for capitalism, and then say that in a counterfactual history without slavery capitalism would not have existed, you a careening perilously close to saying that slavery was the single cause of capitalism. You might try to swerve to avoid this by saying that speculating about that counterfactuals is silly in the first place….

I cannot get my head around asking “why”, as Foner does, without being able to undertake any kind of counter-factual exercise, whether in the data or in my head. But perhaps the concept of thinking in terms of many-alternative-histories, rather than feeling you must commit to a single one, is a way of making the idea of counterfactuals more palatable…

Should-Read: Sue Helper and Jennifer Kuan: How engineers innovate in the automotive supply chain

Should-Read: Communities of engineering practice:

Sue Helper and Jennifer Kuan: How engineers innovate in the automotive supply chain: “In practice… critical innovation occurs daily at many points throughout a supply chain…

…Process innovations can have major downstream benefits, and ‘collaborative creativity’ between suppliers and customers is found to be critical in innovation efforts. US automakers should focus on strengthening ties with their suppliers in order to remain competitive… http://www.nber.org/chapters/c12690.pdf

Should-Read: Dietz Vollrath: Dumb Luck in Historical Development

Should-Read: Dietz Vollrath: Dumb Luck in Historical Development: “Philip Hoffman’s Why Did Europe Conquer the World?… on its face is another…

…in a long line… argu[ing that] Western European economic and colonial dominance is… due to a… specific characteristic: disease tolerance, or cows, or a knobbly coastline…. Hoffman… learning-by-doing in gunpowder technology, but where learning-by-doing only occurs if you actually fight. Hence… four conditions… frequent war, lots of resources expended on those wars, use of gunpowder specifically in those wars, and few barriers to adoption of new technology…. Europe happened to meet the four conditions because of contingent historical events. In other words, Europe randomly found itself with a political setting that encouraged many high-stakes wars that involved gunpowder. Its lead was not due to some unique European characteristic, but rather was luck of the draw…. Are there any deep structural advantages that Europe had? Maybe. But my guess is that a good portion (over 50%?) of the reason Europe advanced ahead of other areas was dumb luck…. A tip of the hat to Hoffman for his effort in that direction…

Should-Read: Edward L. Glaeser: Reinventing Boston: 1630–2003

Should-Read: Edward L. Glaeser (2004): Reinventing Boston: 1630–2003: “The three largest cities in colonial America remain at the core of three of America’s largest metropolitan areas today…

…This paper asks how Boston has been able to survive despite repeated periods of crisis and decline. Boston has reinvented itself three times: in the early 19th century as the provider of seafaring human capital for a far flung maritime trading and fishing empire; in the late 19th century as a factory town built on immigrant labor and Brahmin capital; and finally in the late 20th century as a center of the information economy. In all three instances, human capital—admittedly of radically different forms—provided the secret to Boston’s rebirth. The history of Boston suggests that a strong base of skilled workers is a more reliable source of long-run urban health.

Should-Read: George Orwell: On Book Reviewers

Should-Read: George Orwell: On Book Reviewers: “These books deal with subjects of which he is so ignorant…

…that he will have to read at least fifty pages if he is to avoid making some howler which will betray him not merely to the author (who of course knows all about the habits of book reviewers), but even to the general reader…. At about nine p.m. his mind will grow relatively clear, and until the small hours he will sit in a room which grows colder and colder, while the cigarette smoke grows thicker and thicker, skipping expertly…. In the morning, blear-eyed, surly and unshaven, he will gaze for an hour or two at a blank sheet of paper until the menacing finger of the clock frightens him into action. Then suddenly he will snap into it. All the stale old phrases — ‘a book that no one should miss’, ‘something memorable on every page’, ‘of special value are the chapters dealing with, etc. etc.’ — will jump into their places like iron filings obeying the magnet, and the review will end up at exactly the right length and with just about three minutes to go…

Must- and Should-Reads: December 21, 2016


Interesting Reads:

Should-Read: Gideon Lewis-Kraus: The Great A.I. Awakening

Should-Read: Gideon Lewis-Kraus: The Great A.I. Awakening: “Google Translate, the company’s popular machine-translation service, had suddenly and almost immeasurably improved…

…Rekimoto[‘s]… Japanese… opening to Hemingway’s “The Snows of Kilimanjaro,” then ran that passage back through Google into English… alongside Hemingway’s original….

NO. 1: Kilimanjaro is a snow-covered mountain 19,710 feet high, and is said to be the highest mountain in Africa. Its western summit is called the Masai “Ngaje Ngai,” the House of God. Close to the western summit there is the dried and frozen carcass of a leopard. No one has explained what the leopard was seeking at that altitude.

NO. 2: Kilimanjaro is a mountain of 19,710 feet covered with snow and is said to be the highest mountain in Africa. The summit of the west is called “Ngaje Ngai” in Masai, the house of God. Near the top of the west there is a dry and frozen dead body of leopard. No one has ever explained what leopard wanted at that altitude.

Even to a native English speaker, the missing article on the leopard is the only real giveaway that No. 2 was the output of an automaton. Their closeness was a source of wonder to Rekimoto, who was well acquainted with the capabilities of the previous service. Only 24 hours earlier, Google would have translated the same Japanese passage as follows:

Kilimanjaro is 19,710 feet of the mountain covered with snow, and it is said that the highest mountain in Africa. Top of the west, “Ngaje Ngai” in the Maasai language, has been referred to as the house of God. The top close to the west, there is a dry, frozen carcass of a leopard. Whether the leopard had what the demand at that altitude, there is no that nobody explained….

Everybody wondered: How had Google Translate become so uncannily artful?… Translate had been converted to an A.I.-based system for much of its traffic…. The new incarnation, to the pleasant surprise of Google’s own engineers, had been completed in only nine months. The A.I. system had demonstrated overnight improvements roughly equal to the total gains the old one had accrued over its entire lifetime…

Should-Read: John Muellbauer: Why Central Bank Models Failed. How to Repair Them

Should-Read: John Muellbauer: Why Central Bank Models Failed. How to Repair Them: “At the core of representative agent DSGE models is the Euler equation for consumption…

…popularised in the highly influential paper by Hall (1978)… essential to the iterative forward solutions of these models… based on the assumptions of inter-temporal optimising by consumers and that every consumer faces the same linear period-to-period budget constraint… [generating] the optimality condition that links expected marginal utility in the different periods. Under approximate ‘certainty equivalence’, this translates into a simple relationship between consumption at time t and planned consumption at t+1 and in periods further into the future….

The asymmetric information revolution in economics in the 1970s for which Akerlof, Spence and Stiglitz shared the Nobel prize…. Deaton (1991,1992)… Carroll (1992, 2000, 2001, 2014), Ayigari (1994), and a new generation of heterogeneous agent models (e.g. Kaplan et al. 2016) imply that household horizons then tend to be both heterogeneous and shorter–with ‘hand-to-mouth’ behaviour even by quite wealthy households…. Aggregate behaviour does not follow that of a ‘representative agent’. Kaplan et al. (2016) show that, with these better micro-foundations, quite different implications follow for monetary policy…. Structural breaks, as shown by Hendry and Mizon (2014), and radical uncertainty further invalidate DSGE models…. Evidence on financial illiteracy (Lusardi 2016)…. A fourth reason for the failure of the New Keynesian DSGE models… is the omission of debt and household balance sheets more generally….

A rise in interest rates has different effects on aggregate consumer spending depending on the nature of household balance sheets…. Monetary policy transmission via the household sector differs radically between countries–it is far more effective in the US and UK, and even counterproductive in Japan (see Muellbauer and Murata 2011)…. Building in disaggregated balance sheets and the shifting, interactive role of credit conditions, have many benefits: better interpretations of data… developing early warning in… insights into transmission for monetary and macro-prudential policy.  Approximate consistency with good theory following the information economics revolution of the 1970s is better than the exact consistency of the New Keynesian DSGE model with bad theory…

Should-Read: Laurel Lucia and Ken Jacobs: California’s Projected Economic Losses under ACA Repeal

Should-Read: Laurel Lucia and Ken Jacobs: California’s Projected Economic Losses under ACA Repeal: “[With] repeal [of] the Affordable Care Act (ACA), 3.7 million Californians enrolled in the Medi-Cal expansion would lose that coverage…

…and another 1.2 million individuals enrolled through California’s health benefit exchange, Covered California, would lose federal subsidies to make private health insurance more affordable. These two ACA provisions are the largest drivers of the historic reduction in the state’s uninsured rate from 17.2% in 2013 to 8.6% in 2015…. California would lose approximately $20.5 billion in annual federal funding for the Medi-Cal expansion and Covered California subsidies….

We estimate the effects on employment, gross domestic product (GDP), and state and local tax revenue in California with the elimination of the major health insurance expansions, reduction in taxes, and removal of penalties under a partial repeal of the ACA… especially harmed economically by ACA repeal… Fresno, Kern, Los Angeles, San Bernardino, San Joaquin, Stanislaus, and Tulare Counties.