Category: Equitablog

Must-Reads: July 14, 2016

Posted on by Brad DeLong

Should Reads:

Must-Read: Larry Summers: When the best umps blow a call

Posted on by Brad DeLong

Must-Read: I think Larry Summers gets this wrong. Under Rivlin, Reischauer, Orszag, and Elmendorf the CBO was a national treasure. Otherwise… Not so much. Hit and miss.

Remember June O’Neill talking about how many people would lose their jobs from health care reform, and never once telling the reporters she briefed that in her models people hadn’t “lost” their jobs, they quit jobs they did not want to have and were made happier thereby?

And now we have an assumed-but-hidden 2%/year real rate of return on government infrastructure investment driving an analysis:

Larry Summers: When the best umps blow a call: “The Congressional Budget Office is an American national treasure…

…Without the impartial objectivity it brings to the budget process, our country would make much worse policy. Baseball without an umpire would be a very different game, and similarly the making of budget policy without CBO would be a very different and inferior activity. However, even the best umps occasionally blow a call, and I am afraid that is what CBO has done in its recent infrastructure report…

How other nations handle student debt and what the United States could learn from them

Posted on by Bridget Ansel
Graduates pose for photographs during commencement at Yale University in New Haven, Conn.

Looking just at its face value, paying back a home mortgage in the United States can seem like an impossible task. Most mortgages are 30-year loans, with payments spread over decades. This makes sense, though, because a home is a durable long-term investment. A college degree is also a long-term investment for an individual, but, in contrast, the typical student loan repayment period is 10 years. Such a short payback period amid dramatically rising student loan debt in the United States means higher loan burdens for borrowers. Giving borrowers more time to repay loans would help not only individual borrowers but also boost overall demand in the U.S. economy.

In a column for the New York Times, University of Michigan economist Susan Dynarksi describes the experience of several high-income countries with student loan repayments. Compared to other countries, the typical repayment period in the United States is very short. According to Dynarski, periods in other countries range from 20 years in Germany to up to 30 years in the United Kingdom. In Sweden, where students borrow amounts close to U.S. students, the repayments are spread over 25 years. (Tuition is free in Sweden, but students still need to borrow to cover living expenses.) So individual payments are much lower.

Given the extent of the student debt burden in the United States, stretching out payments over time could reduce the crush of today’s burden and potentially stem the rise in defaults as well.

Dynarski also highlights the Australian system, which makes student loans that are less debt-like and more flexible. In Australia, repayment for loans is done through automatic withholding like the tax system. This means not only that payments are automatic but also that the government knows exactly how much a borrower is earning. This is important because the student loan system doesn’t require repayment if earnings are under a set amount, about $40,000.

The result is a much more flexible system in Australia than in the United States. If college-educated workers with student debt are not seeing the returns from their investment, then they don’t have to pay it back until their earn more than that threshold. A shift to such a system would probably reduce defaults quite a bit in the United States as defaults are concentrated among borrowers with low balances and low earnings.

There’s also a potential macroeconomic upside to such a proposal. In Australia, when a recession hits and many workers are thrown out of a job, those newly unemployed workers don’t have to worry about making their loan payments. Their balance sheets are temporarily less burdened and so they have more cash in their pocket to continue spending in the economy. Less default and less of a downturn in consumer spending results in a somewhat stronger recovery for the overall economy, enabling more workers to return to work sooner and resume repayments on their student loans. Such a temporary reprieve would seem like a win for a large chunk of the U.S. population.

Must-Read: Mark Yzaguirre: Texas Has Prospered In Spite of Social Conservatism, Not Because of It

Posted on by Brad DeLong

Must-Read: Mark Yzaguirre: Texas Has Prospered In Spite of Social Conservatism, Not Because of It: “My normal response when I hear people… criticizing Texas is… to try and find a way to defend or at least explain it…

…Governor Greg Abbott… Twitter… ‘NY led way in taxes, regulations, union abuses, high living costs & how New Yorkers are fleeing to TX’. This is a nonresponsive and utterly unsatisfactory answer from Governor Abbott. The New York ad talks about human rights, not regulatory policy and taxes. I would agree that those items are of great importance when it comes to fostering a business-friendly environment and I probably have views closer to Governor Abbott’s on such points than many of my fellow Democrats. They aren’t the only issues that matter, however. Culture, legal protections for individuals and quality of life are also big drivers for development and it’s no accident that the parts of Texas where most of the wealth is generated and prosperity is centered are its more socially progressive cities….

Business leaders in Texas, even those who might otherwise lean Republican, seem to understand that revanchist social conservatism doesn’t work well if you want to encourage educated and tolerant people to move to and stay in your city and state…. One wonders if Texas’s reputation as a bastion of a certain sort of intolerant social conservatism hurts it economically in the long run and it’s hard to find evidence that it has ever been helpful…. The Texas of the future is not the Texas that supports anti-LGBT policies and other retrograde ideas that are indefensible on general principle and do nothing to make anyone’s life better. In this one case, it was appropriate for New York to mess with Texas.

Must-Read: Noel D. Johnsony and Mark Koyamaz: States and Economic Growth: Capacity and Constraints

Posted on by Brad DeLong

Must-Read: Noel D. Johnsony and Mark Koyamaz: States and Economic Growth: Capacity and Constraints: “In this survey we review the contributions of economic history to the study of state capacity…

…Economic history makes an important contribution to understanding how state capacity developed by ‘decompressing’ the historical coevolution of fiscal capacity, legal capacity, and rule of law. We emphasize the heterogeneity in the experiences of the countries which have eventually achieved rule of law states. We present two lessons drawn from historical research. The first is that institutions which respect the rule of law are unlikely to be robust unless a state has first adopted intermediate fiscal and political institutions which create incentives for,first elites, and eventually the rest of the population, to support them. Second, we emphasize the difficulties associated with disentangling the role of public-order and private-order institutions in generating support for growth-enhancing institutions. We argue that, in fact, both have played vital roles in the creation of institutions which support the rule of law in modern states.

Must-Reads: July 13, 2016

Posted on by Brad DeLong

Should Reads:

A graphical update on the latest data on the U.S. jobs market

Posted on by Bridget Ansel

The monthly Employment Situation report from the U.S. Bureau of Statistics contains a lot of information about the U.S. labor market, but this data is not the only useful source of information about the jobs market in the United States. Yesterday morning, the agency released the Job Openings and Labor Turnover Survey, or JOLTS, data for May 2016. This lesser-known data set looks at the flows of the labor market—hiring, firing, and job switching. Below are a few graphs highlighting interesting and important trends evident in the data.

First of all, the relationship between job openings and the unemployment rate—known as the Beveridge curve seems to have shifted after the Great Recession ended in mid-2009. Outward shifts in the curve are often interpreted as increases in structural unemployment as employers can’t find adequate workers in the labor market. If that were true, then we’d expect wage growth to accelerate significantly as job openings increased. But wage growth hasn’t been particularly strong and most of the increase in real wage growth has been due to low inflation

Looking more closely at the JOLTS data, the entirety of shift in the Beveridge curve appears to be due to the extraordinarily high unemployment rate for those out of a job for more than 27 weeks.

But has this relationship changed for other labor market flow data? Let’s look at the relationship between hiring and the unemployment rate. As the graph below shows, it really hasn’t changed since the end of the recession. For a given strength of the labor market (measured by the unemployment rate), employers don’t seem to have changed their hiring rates.

The relationship between quits and the unemployment rate hasn’t changed much either. For a given unemployment rate, workers are leaving jobs at about the rate we think they would have given previous data.

So, for a given unemployment rate, employers are hiring workers to join the firm at their usual rate and workers are leaving firms at an expected rate then clearly something has changed with how firms post job openings.  The focus, then, should be less on the employees side when it comes to labor market problems and more on the employer side.

Must-Read: Jack Ayer: Khlopotat’

Posted on by Brad DeLong

Must-Read: On central planning, or perhaps simply on bureaucracy:

Jack Ayer: Khlopotat’: “Another Teffi, except this is actually a translator’s note on what might be the perfect Russianism:

Here we are translating khlopotat’, a common Russian word for which there is no English equivalent. Elsewhere, in passages where Teffi draws less attention to this verb, we have translated it in different ways: ‘apply for,’ ‘try to obtain,’ ‘procure,’ etc. In ‘Moscow: the Last Days,’ an article she published in Kiev in October 1918, Teffi explains the word: ‘Incidentally, there is no equivalent to this idiotic term khlopotat’ in any other language in the world. A foreigner will say, ‘I’ll go and get the documents.’ A Russian, ‘I must hurry and start to khlopotat’ with regard to the documents.’ The foreigner will go to the appropriate institution and obtain what he needs. The Russian will go to three people he knows for advice, to two more who can ‘pull strings’, then to the institution—but it’ll be the wrong one—then to the right institution—but he’ll keep on knocking at the wrong doors until it’s too late. Then he’ll start everything all over again and, when he’s finally brought everything to a conclusion, he’ll leave the documents in a cab. This whole process is what is described by the word khlopotat’. Such work, if carried out on behalf of a third party, is highly valued and well paid’ (Teffi v strane vospominanii, pp. 167–70).’

from ‘Memories: From Moscow to the Black Sea (New York Review Books Classics)’ by Teffi, Edythe Haber, Robert Chandler, Anne Marie Jackson, Irina Steinberg.

Must-Read: Tony Barber: A Renewed Nationalism Is Stalking Europe

Posted on by Brad DeLong

Must-Read: Tony Barber: A Renewed Nationalism Is Stalking Europe: “Part of the appeal of rightwing populism is that it hammers away relentlessly on the theme that mainstream political parties…

…especially since the end of the Cold War, are almost indistinguishable from each other and offer no proper choice. Not without reason, the parties are depicted as corrupt and detached…. But… they have no economic policies beyond an iconoclastic rage at the euro, free trade and foreigners alleged to be parasites on the welfare state. The new nationalism, in its radical rightist colours, has no credible solutions for a modern Europe that, despite all its troubles, must pin its hopes for a better future on mutual co-operation and an open face to the world…