Category: Equitablog

Should-Read: Saying that gender inequality in Denmark is one third wage and salary rates, one third hours conditional on participation in the paid labor force, and one third labor force participation simply does not do it for me. Informed people make choices in environments. Discrimination and unfreedom is found not in outcome measures but in choice sets—plus the knotty question of how and what people are taught they should prefer, and how such preferences are then enforced: Hate the game, not the players. And does the departure of children from the household then close the gap? The authors take a stab at this with their analyses of the intergenerational transmission of lowered female earnings upon child arrival through the female line. But I want MOAR!: Henrik Kleven, Camille Landais, and Jakob Egholt Søgaard: CHILDREN AND GENDER INEQUALITY: EVIDENCE FROM DENMARK: “Despite considerable gender convergence over time, substantial gender inequality persists in all countries…

…Using Danish administrative data from 1980-2013 and an event study approach, we show that most of the remaining gender inequality in earnings is due to children. The arrival of children creates a gender gap in earnings of around 20% in the long run, driven in roughly equal proportions by labor force participation, hours of work, and wage rates. Underlying these “child penalties”, we find clear dynamic impacts on occupation, promotion to manager, sector, and the family friendliness of the firm for women relative to men. Based on a dynamic decomposition framework, we show that the fraction of gender inequality caused by child penalties has increased dramatically over time, from about 40% in 1980 to about 80% in 2013. As a possible explanation for the persistence of child penalties, we show that they are transmitted through generations, from parents to daughters (but not sons), consistent with an influence of childhood environment in the formation of women’s preferences over family and career…

Must-Read: Very few people have properly read Paul Krugman’s “It’s Back”. As I understand the paper, one of its key messages is this: When the economy is in a liquidity trap—at the zero lower bound—it wants inflation. Inflation is the way a flex-price economy would keep the zero lower bound from causing a deep, persistent depression. A competent central bank that wants to mimic a flex-price economy as closely as possible in a sticky-price world—a competent central bank that wants to make Say’s Law true in practice even though it is not true in theory—will therefore strain every nerve to generate that inflation. Its leader will not say, as Fed Chair Ben Bernanke said repeatedly, that he does not want higher inflation. He will say that he does. But Bernanke never understood that. And few of those advising him understood that. They had not, I believe, understood Krugman: Paul Krugman: It’s Baaack, Twenty Years Later: “In early 1998 I set out to reassure myself… to show that if Japan was having troubles, it was simply because the Bank of Japan wasn’t trying hard enough…

…But as sometimes happens when you try to model your intuitions explicitly (and is one of the main reasons for doing formal analysis), the model ended up telling me something quite different–namely, that when short-term interest rates are near zero it is not, in fact, easy for the central bank to reflate the economy. In fact, even very large increases in the monetary base will have essentially no effect unless the private sector is convinced that there has been a permanent shift in the central bank’s objectives, a new willingness to accept and even promote inflation. As I put it, the central bank needed to “credibly promise to be irresponsible.”…

Ten years later my fears came true…. With the coming of the global financial crisis the whole advanced world basically turned Japanese, experiencing a protracted era of near-zero interest rates. The United States has emerged from that era, barely; Europe and Japan itself have not. What I want to ask in this paper is how good the analytical approach of 1998 looks in the light of subsequent experience. Were its basic predictions correct? Where did it fall down? What new issues have arisen? And how does its policy prescription look after all these years?…

Should-Read: A very interesting exploration of how inequality that is or is perceived as risk by the relatively young potentially destroys entrepreneurship and growth. I am going to have to think about this some more. But it is very plain to me that rising inequality is not best thought of as “rising dispersion in individual fixed effects”, but rather as individuals—in their teens, in their twenties, in their thirties—finding themselves in the right (or the wrong) place at the right (or the wrong) time: Adrien Auclert and Matthew Rognlie: Inequality and aggregate demand: “We explore the transmission mechanism of income inequality to output…

…In the short run, higher inequality reduces output because marginal propensities to consume are negatively correlated with incomes, but this effect is quantitatively small in the data and in our model. In the long run, the output effects of income inequality are small if inequality is caused by rising dispersion in individual fixed effects, but can be large if it is the manifestation of higher individual income risk. We formalize the connection between partial and general equilibrium effects, and show that the two are closely related under standard assumptions about the behavior of monetary policy. Our economy features a depressed long-run real interest rate, allowing us to quantify the potential contribution of income inequality to secular stagnation…

Should-Read: Colonial régimes were unwilling to make the “normal” investments in education and infrastructure that even a subnormal autonomous régime would have made. And without those investments colonies could not take full advantage of comparative advantage opportunities opened up by globalization. Full Stop. Thus colonization meant social dislocation and the enrichment of a “comprador” stratum little tied to the broader underlying economy. Is this the story that economic history is telling us these days about the British, French, Portuguese, Italian empires?: Bishnupriya Gupta: Falling Behind and Catching up: India’s Transition from a Colonial Economy: “India fell behind during colonial rule…

…The absolute and relative decline of Indian GDP per capita with respect to Britain began before colonization and coincided with the rising textile trade with Europe in the 18th century. The decline of traditional industries was not the main driver of Indian decline and stagnation. Inadequate investment in agriculture and consequent decline in yield per acre stalled economic growth. Modern industries emerged and grew relatively fast.

The falling behind was reversed after independence. Policies of industrialization and a green revolution in agriculture increased productivity growth in agriculture and industry, but Indian growth has been led by services. A strong focus on higher education under colonial policy had created an advantage for the service sector, which today has a high concentration of human capital. However, the slow expansion in primary education was a disadvantage in comparison with the high growth East Asian economies…

Should-Read: Johannes A. Schwarzer: Cost-Push and Demand-Pull Inflation: Milton Friedman and the “Cruel Dilemma”: “In the 1950s and 1960s… many economists… emphasized the issue of a seemingly unavoidable inflationary pressure at or even below full employment…

…In contrast, Milton Friedman was convinced that full employment and price stability are not conflicting policy objectives. This dividing line between the two camps ultimately rested on fundamentally different views about the inflationary process: For economists of the 1950s and 1960s cost-push forces are responsible for the apparent conflict between price stability and full employment. On the other hand, Friedman, who regarded inflation to be an exclusively monetary phenomenon, rejected the notion of ongoing inflationary cost-push pressures at full employment. Besides his emphasis on the full adjustment of inflation expectations, this rejection of cost-push theories of inflation, which implied a decoupling of the two previously perceived incompatible policy objectives, was the other important element in Friedman’s attack on the Phillips curve tradeoff in his 1967 presidential address to the American Economic Association…

Should-Read: Where is the advantage—if any—of Medicare Advantage as opposed to Traditional Medicare coming from? Could it be that some aspects of the promise of HMOs are finally being realized—that there is somebody monitoring and tracking and thus disposed to deal with the health problems of beneficiaries, as evidence by their having HCC codes?: Joseph P. Newhouse, Mary Beth Landrum, Mary Price, J. Michael McWilliams, John Hsu, and Thomas McGuire: The Comparative Advantage of Medicare Advantage: “We find differences in the distribution of beneficiaries across H[ierarchal ]C[ondition ]C[ategories]’s between TM and MA, principally in the smaller share of MA enrollees with no coded HCC, consistent with greater coding intensity in MA…

…Among those with an HCC code, absolute differences between MA and TM shares of beneficiaries are small, consistent with little service-level selection. Variation in HCC margins does not predict differences between an HCC’s share of MA and TM enrollees, although one cannot a priori sign a relationship between margin and service-level selection. Margins are negatively associated with the importance of post-acute care in the HCC. Margins among common chronic disease classes amenable to medical management and typically managed by primary care physicians are larger than among diseases typically managed by specialists. These margin differences by disease are robust against a test for coding effects and suggest that the average technical efficiency of MA relative to TM may vary by diagnosis. If so, service-level selection on the basis of relative technical efficiency could be welfare enhancing…

Should-Read: The very sharp John Lukacs on what I call “fascism”—proletarian ethnoi that need to fight enemies foreign and domestic with economic cleavages within the ethnoi papered over, rather than proletarian classes that need the economic system unrigged. For some reason he calls it “nationalism”, which I think is properly something different: there may well be elective affinity between belief in the nation-state as a political and sociological community and fascism, but it is certainly not an identity: John Lukacs: The Duel: The Eighty Day Struggle Between Churchill and Hitler: “The principal force of the twentieth century is nationalism…

…It has been the fatal, or near fatal, error of Communism as well as Democracy to ignore that until it is—almost—too late. The greatest and most powerful apostle of modern nationalism was Adolf Hitler… a superlative—I am employing this word not in its commendatory sense—incarnation of a historical movement that, at least for twenty or twenty-five years, in novel forms seemed to overrun the world. From about 1920 to 1945, the quarter century that corresponds to the span of the political career of Hitler (though not of Churchill), the history of the world (and not only of Europe) was marked by a triangular struggle… Communism… Democracy… and… a new historical force, inadequately called “Fascism”…. This is why it is not only historically wrong but dangerous to see Hitler and Hitlerism as no more than a strange parenthesis in the history of the twentieth century, the transitory rise and fall of a madman.

In spite of its international pretensions and propaganda Communism did not go very far outside the Soviet Union…. Alone among the great revolutions of the world—consider only how the American and French revolutions had soon been emulated by a host of other peoples, in Latin America and in Western Europe, often without the support of American or French armies—Communism was unable to achieve power anywhere outside the Soviet Union until after the Second World War….

During the twenty years before 1940 liberal parliamentary democracy failed and was abandoned by the peoples of Italy, Turkey, Portugal, Spain, Bulgaria, Greece, Rumania, Yugoslavia, Hungary, Albania, Poland, Estonia, Latvia, Lithuania, Austria, Germany — not to speak of Japan, China and many Central and South American countries. These changes were not the results of external pressure. They were the results of spontaneous developments…. The character of these dictatorships varied from country to country. Most of them were not “totalitarian,” in the later accepted sense of that term. Some of these national dictatorships resisted Hitler. But, by and large, Democracy was in retreat. It gave the impression of institutions and ideas that were tired and outworn. The very political map of Europe reflected this….

Within every nation, including the Western democracies, there were people who not only opposed the war—this war, against the German Third Reich—but whose opposition was inseparable from (indeed, often it was motivated by) their contempt for the democratic politics and government of their own nation, and from their consequent respect for what Hitler and his order seemed to represent…. Within France convinced Nazi sympathizers were few; but there were many men and women whose contempt for their seemingly corrupt and ineffectual governmental and social system debouched naturally into their dislike for France’s waging war in alliance with Britain. Even in the United States, where “isolationism” was widespread and politically strong, consistent isolationists were few and far between. Most isolationists, bitter opponents of Roosevelt and his administration, were not opposed to armaments and the military. What they opposed was this war, the war waged by the aged and corrupt British and French empires against Germany, and the inclinations of Roosevelt and others to side with the former…

Should-Read: This seems to me like fuzzy thinking from the sharp Dani Rodrik. It is, I believe, the result of a failure to call things by their right names. There is “populism”: rallying broad political majorities behind their economic interest in a less unequal distribution of income and wealth in pursuit of a policy agenda—mixed wise and unwise—that boosts rewards at the bottom and the middle and increases opportunity. There is “fascism”: rallying ethno-cultural groups against cultural and ethnic enemies foreign and domestic, with economic cleavages within the ethnos elided and covered over as unimportant: proletarian peoples oppressed by others, not proletarian classes oppressed by the rich and by an unfair system. That it is considered impolite to use the F-word does not mean that one should confuse oneself by calling “populist” movements that are not so. And why the claim that it is “globalization” that is driving the extraordinary American income and wealth polarization? Yes, there are fewer manufacturing workers because of the trade deficit. But the trade deficit is largely a home-brewed consequence of government budget deficits and finance-friendly political economy, not of increasing volumes of global trade. And the overwhelming bulk of the manufacturing employment decline has nothing to do with the trade deficit. And the bulk of income stagnation below the top has little to do with the manufacturing employment decline. And a lack of national policy autonomy is not the problem with America—or the problem with the European Union as a whole. Both of those entities have all the national policy autonomy they could possibly wish for, and more: Dani Rodrik: What Does a True Populism Look Like? It Looks Like the New Deal: “When populism succeeds, it does so not by cosmetic gimmicks but by going after the roots of economic injustice directly…

…Populism in the 21st century is as much a reaction to globalization as its late-19th-century version…. Large segments of the workers in these advanced economies—older, less-skilled manufacturing employees and the communities they live in—have seen their earnings decline or stagnate and their relative social status take a big hit. These groups see governments as increasingly in the pocket of financial and business elites, the big winners of globalization. The discontent in turn fuels populist leaders who promise to wrest control from faceless global market forces and re-empower the nation-state…. Yes, globalization expands economic opportunities: There are gains from trade. But globalization also entails stark distributional consequences, with some groups almost always left worse off. Factory closings, job displacement and offshoring are the flip side of the gains from trade….

In principle, an active government can take the edge off the resentment produced by redistribution…. But often the response of the government has been to plead incapacity in the face of inexorable global economic realities: “We cannot tax the winners—the wealthy investors, financiers and skilled professionals—because they are footloose and they would move to other countries.” This reinforces populists’ yearning to reassert national economic control….

President Trump and his European counterparts have capitalized on the economic difficulties of the middle and lower-middle classes by wrapping them in narratives that exploit prevailing ethno-nationalist prejudices. In the United States, they attribute declining wages and job prospects to Mexican immigrants, Chinese exporters and the federal government’s preoccupation with minority groups at the expense of the white middle class. In Europe, they lay the blame for the erosion of the welfare state and public services on competition from immigrants and refugees. But none of this really helps the middle and lower-middle classes. Worse, the illiberal politics of the strategy undermines democracy….

If governments feel themselves powerless to institute the tax policies and regulations needed to address the dislocations caused by economic and technological shocks, the solution is not just to seek more national autonomy but also to deploy it toward such reforms…