Must Watch: Joel Mokyr (2015): Culture of Growth: Origins of the Modern Economy:
Category: Equitablog
Weekend reading: “How many Big Macs will that minimum wage buy?” edition
This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.
Equitable Growth round-up
Weak U.S. productivity growth has been one of the most troubling trends since the Great Recession. Is it just a coincidence that productivity has been weak since the crash? Or did the recession have an impact?
The conventional wisdom about encouraging entrepreneurship is that policymakers should increase the return to starting a business. But increasing evidence shows that we should be concerned about reducing the cost of a failing business as well.
The permanent income hypothesis is an important tool for thinking about how people react to drops or boosts to their income. The idea, however, has some flaws and doesn’t hold up for the entire U.S. population.
With the policy conversation centered on proposals to raise the minimum wage to rates unseen in the United States, it’s hard to tell how such an increase would play out in the United States. New School economist and Equitable Growth grantee David Howell takes a look at the international data for answers. And Bridget Ansel pulls out some of the key graphs and takeaways from Howell’s brief.
Links from around the web
The Federal Reserve kept U.S. interest rates steady at its most recent meeting this week. Ylan Mui writes that the central bank is coming around to the view that U.S. economic growth in the future will be much weaker than it previously thought. [wonkblog]
Because the Federal Reserve has kept U.S. interest rates so low for so long, some economists have thrown out the idea that low interest rates are causing low inflation despite the established view that low interest rates increase inflation. Noah Smith reports on a new paper that tries to settle the question that has quite interesting results. [bloomberg view]
Speaking of unconventional monetary policy, the prospect of “helicopter money” becoming a real world policy is starting to sink in among economists and policy analysts. Neil Irwin gives some background on the idea. [the upshot]
How important is the U.S. government to economic growth and economic policy writ large? Mike Konczal reviews two books on the topic with very different opinions on the matter. [boston review]
“Red tape no doubt prevents some firms from making growth-boosting investments. But bigger gains might come from creating an economy in which firms found themselves needing to compete to attract workers.” Ryan Avent writes on the increase evidence that economic sclerosis in high-income countries is related to inequality and insufficient demand. [the economist]
Friday figure
Figure from “The employment effects of a much higher U.S. federal minimum wage: Lessons from other rich countries” by David Howell
The Federal Reserve: I Repeat Myself
I repeat myself: to begin a tightening cycle and a process of interest-rate increases in December 2016–in fact, to announce in mid 2014 the end of further moves toward monetary expansion and a bias toward tightening as soon as it is not grossly imprudent–requires that one place only an infinitesimal weight on:
- Bond market very pessimistic long-run expectations.
- The asymmetry in policy responses and thus in risks created by the zero lower bound on short-term safe nominal interest rates.
I have been asking for quite a while now why any FOMC would choose to place such an infinitesimal weight not on just one but on both of these considerations. I have not gotten an answer from anywhere. I would like one. Very much…
What More Has to Happen Before the Fed Concludes That This Looks Like Yet Another Failed Interest-Rate Liftoff?
If you had told the Federal Reserve at the start of last December that 2015Q4, 2016Q1, and 2016Q2 were going to come in at 0.9%, 0.8%, and 1.2%, respectively, a rational Fed would not only have not raised interest rates in December, they would have announced that they would not even think of raising interest rates until well into 2017, and they would have started looking for more things they could do that would safely boost demand.
So why is the FOMC now not cutting interest rates back to zero? I mean, what more has to happen before the balance of probabilities says that this is likely to be yet another failed liftoff of interest rates?
Must-Read: Ananya Roy: In Defense of “Poverty”
Must-Read: Ananya Roy: In Defense of “Poverty”:
A glimpse of the public assistance bureaucracy that the poor must navigate….
Despite being fluent in sophisticated understandings of poverty and inequality, the… middle-class social justice professionals were thoroughly disoriented by the sheer dehumanization…. Shunted from office to office, in search of basic paperwork, trying to meet convoluted criteria of eligibility, we the privileged… were reminded that we are not poor and that we barely understand the lived condition of poverty. That lived condition, in the United States, is necessarily and persistently racialized…. This history did not start with the Great Recession or even with the era of neoliberalization. It is the long history of racialized expropriation and quarantine. I worry that a general narrative of inequality elides both the specificity of poverty and the distinctive history of impoverishment…
Must-Read: Olivier J. Blanchard and Lawrence H. Summers (1986): Hysteresis and the European Unemployment Problem
Must-Read: (1986): Hysteresis and the European Unemployment Problem:
European unemployment has been steadily increasing for the last 15 years and is expected to remain very high for many years to come….
We argue that this fact implies that shocks have much more persistent effects on unemployment than standard theories can possibly explain. We develop a theory which can explain such persistence, and which is based on the distinction between insiders and outsiders in wage bargaining. We argue that if wages are largely set by bargaining between insiders and firms, shocks which affect actual unemployment tend also to affect equilibrium unemployment. We then confront the theory to both the detailed facts of the European situation as well as to earlier periods of high persistent unemployment such as the Great Depression in the US.
Must-Read: Michael Kalecki (1943): Political Aspects of Full Employment
Must-Read: (1943): Political Aspects of Full Employment: “Most economists are now agreed that full employment may be achieved by government spending…
…There is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic…. The reasons for the opposition of the ‘industrial leaders’ to full employment achieved by government spending… [are]: (i) dislike of government interference in the problem of employment as such; (ii) dislike of… public investment and subsidizing consumption… (iii) dislike of the social and political changes resulting from the maintenance of full employment….
Capitalists [have] a powerful indirect control over government policy: everything which may shake the state of confidence… [might] cause an economic crisis…. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence…. The dislike of business leaders for a government spending policy grows even more acute when they come to consider the objects on which the money would be spent…. Public investment… be confined to objects which do not compete with the equipment of private business… suits the businessmen very well. But the scope for public investment of this type is rather narrow….
The maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. The ‘sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow…. ‘Discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system…
Must-Reads: July 29, 2016
- (1936): The General Theory of Employment, Interest and Money by John Maynard Keynes
- Jacob Vigdor et al.: Report on the Impact of Seattle’s Minimum Wage Ordinance
- Cosma Shalizi (2014): [Review of Oliver Morton (2008): “Eating the Sun: How Plants Power the Planet”][]
Should Reads:
- Tony Yates: The perceived-grievance-wrong-headed sop vortex
- Pseudoerasmus: Sven Beckert’s Empire of Cotton: A Reductionist Summary
- Weekend Reading: From W. Arthur Lewis (1977): The Evolution of the International Economic Order
- Programming in the 21st Century…
- Liveblogging History: July 28, 1932: The Bonus Army
Must-Read:John Maynard Keynes (1936): The General Theory of Employment, Interest and Money
Must-Read: (1936): The General Theory of Employment, Interest and Money:
Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism, I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.
For if effective demand is deficient, not only is the public scandal of wasted resources intolerable, but the individual enterpriser who seeks to bring these resources into action is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros, so that the players as a whole will lose if they have the energy and hope to deal all the cards. Hitherto the increment of the world’s wealth has fallen short of the aggregate of positive individual savings; and the difference has been made up by the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough.
The authoritarian state systems of today seem to solve the problem of unemployment at the expense of efficiency and of freedom. It is certain that the world will not much longer tolerate the unemployment which, apart from brief intervals of excitement, is associated and in my opinion, inevitably associated with present-day capitalistic individualism. But it may be possible by a right analysis of the problem to cure the disease whilst preserving efficiency and freedom…
Must-Read: Cosma Shalizi (2014): Review of Oliver Morton (2008): Eating the Sun: How Plants Power the Planet
Must-Read: Cosma Shalizi (2014): [Review of Oliver Morton (2008): “Eating the Sun: How Plants Power the Planet”][]:
Of Heliophagy: I cannot remember the last time I read a popular science book with such enjoyment, or learned so much from it….
Photosynthesis… relayed by telling the story of how we came to… understanding… the lives of its discoverers… biochemistry… isotopes and radioactive decay… molecular bonding and the interaction of light and electricity, the biophysics of free energy flow through cells and through molecules, crystallography, the molecular biology which let us isolate and manipulate individual enzymes, and so on…. discovery, rivalry, insights and false paths, human and biological ingenuity, and ultimately a deep understanding of one of the fundamental processes of life as we know it….
The evolution of photosynthesis… everything from the origin of life to plate tectonics to the spread of grasses over the last few million years. Again, much of it is told through stories of discovery and the history of the science. It is necessarily more conjectural than the very settled science of how photosynthesis works, but none the less fascinating for all that. The… “climate/carbon crisis”. Agriculture already had non-trivial impacts on climate, but our real change began with the Industrial Revolution and the vast growth in consuming fossil fuels…. Atmospheric carbon dioxide concentration has already drastically increased… is good at trapping heat radiated back from the ground… warm[ing] the Earth. The exact effects depend on incredibly complicated and ill-understood feedback processes…. To take these uncertainties as ground for complacency, though, seems grotesque.
Our global civilization runs at something like 40 terawatts…. Tidal and geothermal energy are too localized and small-scale…. Nuclear fission looks more attractive when one compares long-lived radioactive waste to long-lived carbon dioxide as a pollutant, but there are very real practical obstacles. All our other options are ultimately solar…. Morton is very hopeful about the last two, and especially about what real molecular engineering might be able to do in the space intermediate between photovoltaic plates (high efficiency, but also high cost) and naturally-occurring leaves (low efficiency, but they grow)…. A marvelous book, filled with wonders: I strongly urge you to encounter them for yourself.