Must-Read: Kevin Drum: NAFTA and China Aren’t Responsible for Our Steel Woes

Must-Read: Kevin Drum: NAFTA and China Aren’t Responsible for Our Steel Woes: “Donald Trump stood in front of a pile of scrap metal yesterday in Pittsburgh and blasted both NAFTA and the accession of China into the World Trade Organization…

…He was positively poetic about how his trade policies would affect the steel industry…. There’s no question that the American steel industry has suffered over the past three decades, thanks to cheap steel imports from other countries. But this began in the 1980s and had almost nothing to do with either NAFTA or China…. Do you see a sudden slump in US steel production after NAFTA passed? Or after China entered the WTO? Nope…. It started with Japan and South Korea in the ’80s and later migrated to other countries not because of trade agreements, but because Japan and South Korea got too expensive. And it’s not as if no one noticed this was happening. Ronald Reagan tried tariffs on steel and they didn’t work. George H.W. Bush tried tariffs again. They didn’t work. George W. Bush tried tariffs a third time. No dice.

For all his bluster, when it came time for Trump to lay out his plan to ‘bring back our jobs,’ it was surprisingly lame. It was seven points long but basically amounted to withdrawing from the TPP and getting tough on trade cheaters. This would accomplish next to nothing…. The bottom line is simple: If we want access to markets overseas, we have to give them access to our markets. Donald Trump… [could be] promising to build a huge tariff wall around the entire country. He’s not willing to do that because even he knows it would trash the US economy. So instead he blusters and proposes a toothless plan. Sad.

Must-Read: Narayana Kocherlakota: Three Antidotes to the Brexit Crisis

Must-Read: Correct, IMHO, from the very sharp Narayana Kocherlakota. Now perhaps his successor Neel Kashkari and the other Reserve Bank presidents not named Charlie Evans might give him some back up?

The one thing I do not like is Narayana’s “Granted, there is a risk that such steps will spook markets by signaling that the Fed is concerned about the state of the U.S. financial system.” That sentence seems to me to misread market psychology completely. As I see it–and as the people in markets I talk to say–right now markets are fairly completely spooked by their belief that the Federal Reserve is unconcerned, and takes that lack of concern as a sign of Federal Reserve detachment from reality. Narayana’s following sentences seems to me to be highly likely to be the right take: “I’d say the markets are already pretty spooked” and “By demonstrating that it is paying attention to these obvious signals, the Fed can help to bolster confidence in its economic management”.

Let me stress that, at least from where I sit, that confidence in Federal Reserve economic management is, right now, lacking.

The people I talk to in financial markets tend to say that they believe markets took Stan Fischer on January 5 to be something of a wake-up call with respect to Fed groupthink:

Liesman: When I looked at where the market is priced, the market is priced below where the Fed median forecast is. Quite a bit. Two rate hikes really, if you count them in quarter points. Does that concern you that the market needs to catch up with where the Fed is or is it a matter of you think the Fed needs to recalibrate to where the market is?

Fischer: Well, we watch what the market thinks, but we can’t be led by what the market thinks. We’ve got to make our own analysis. We make our own analysis and our analysis says that the market is underestimating where we are going to be. You know, you can’t rule out that there is some probability they are right because there’s uncertainty. But we think that they are too low.

For eight straight years now the Federal Reserve has been more optimistic than the markets. And for eight straight years now the markets have been closer to being correct. And yet the Federal Reserve still believes that it “can’t be led by what the market thinks” and has “got to make our own analysis”? Why?

Narayana Kocherlakota: Three Antidotes to the Brexit Crisis: “The Fed should ensure that banks have enough loss-absorbing equity capital…

…not allow them to return equity to shareholders…. The measure should apply to all banks, so markets won’t read it as a signal about individual institutions’ relative strength. Second, there’s a risk that investors’ flight to safe assets could develop into a broader credit freeze. To mitigate this, the Fed should lower its short-term interest-rate target…. Finally, the Fed should consider reviving the Term Auction Facility, which allows banks to borrow funds from the central bank with less of the stigma…. Granted, there is a risk that such steps will spook markets by signaling that the Fed is concerned about the state of the U.S. financial system. That said, as an outsider who gets much of his information from Twitter, I’d say the markets are already pretty spooked. By demonstrating that it is paying attention to these obvious signals, the Fed can help to bolster confidence in its economic management. One important lesson of the last financial crisis is that the guarantors of stability must be proactive if they want to be effective. It’s time for the Fed to put that lesson into practice.

The importance of childhood education and the birth lottery for U.S. innovation

A new paper looks at the role of education in the innovation gap.

The U.S. economy could use more innovation these days. Despite the proliferation of apps and concerns about a robot takeover of the labor market, U.S. productivity growth just isn’t very strong these days. The exact reasons for weak productivity growth aren’t fully understood by economists, but a jump in innovation would seem likely to help increase it.

Getting such a boost, of course, is easier said than done. Most policies that seek to increase innovation in the United States are focused on getting as much out of current innovators as possible. But because the first seeds of new innovation sprout in many different ways perhaps policymakers should instead be focused on creating more innovators. New research shows that the key to increasing the ranks of innovators may reside in the childhoods of potential innovators.

The new research is from a working paper by Alex Bell of Harvard University, Raj Chetty of Stanford University, Xavier Jaravel of Harvard, Neviana Petkova of the U.S. Department of the Treasury, and John Van Reenen of the Massachusetts Institute of Technology. The paper takes a look at the background of innovators, as measured by individuals who filed for a patent between 1996 and 2014. (An assumption here being that patents are good indicator of innovation.) The authors have access to administrative data collected by the federal government on these patent holders that lets the economists take a look at the patent holders’ family backgrounds.

Unsurprisingly, children from low-income backgrounds are much less likely to end up getting a patent than children from high-income backgrounds. Patent holders also are more likely to be white and male. What explains these two gaps? The economists seek to answer this question by looking at the standardized test scores for all individuals who passed through the New York City public school system from 1989 and 2009. The test scores cover from the 3rd grade to the 8th grade. By linking this data with the data on patent holders, the economists can see how much of this innovator gap is related to a test score gap.

The co-authors find that only 30 percent of the difference in patenting rates between low- and high-income children can be explained by the gap in math test scores in the 3rd grade. The amount of the gap for women and children of color explained by test scores is even smaller, at 3 percent and roughly 10 percent, respectively. So education, as measured by standardized test scores, clearly plays a role in patenting later in life, at least when it comes to explaining the income gap. But a significant portion of the income gap can’t be explained by educational differences.

So that leaves the advantages of growing up in rich households. Those advantages include wealthy family and community connections, better educational opportunities, and exposure to people working in innovative fields.

Current U.S. innovation policy is focused on getting more out of the innovators we already have, such as tax credits for research and development, which increases innovation on the intensive margin. But policymakers also should be focused on increasing innovation on the extensive margin: raising more children to become innovators. This would mean less focus on tax policies that reward innovation in the short term and more on policies that can help expand the pool of next-generation innovators to include more women, people of color, and those from low-income backgrounds. The upshot might be not only more economic growth but also more equitable growth.

Must-Read: John Holbo: Podcasts I Just Listened to

Must-Read: John Holbo: Podcasts I just listened to: “I just listened to a Federalist podcast interview with Randy Barnett…

…Not my cup of tea, usually, but I have an interest in Barnett’s stuff. The guy really has a bug in his ear about John Roberts. A couple months back he was blaming Roberts for Trump and I was like–fine, fine, you lost your Obamacare case. You are a bit bitter, venting steam. But he’s still banging on about how Roberts is the betrayer-in-chief of the Constitution, hence to blame for Trump. This is polemically unfair, in ways I could spell out, but won’t. (If you really want to ask, that’s what comments are for.)

But I’ve got to wonder whether this sort of thing isn’t really pissing off Roberts. It would piss me off, if I were Roberts. Barnett isn’t just some guy. He’s like the brain and soul of the Federalist Society, these days. A bit of on-again, off-again grousing about Roberts’ ‘bad’ decisions is one thing. But Roberts is shaping up to be this consistent, vile Judas in the conservative imaginary. Roberts is going to be Chief for a while, I expect. Dale Carnegie would suggest that the way to work the refs effectively is not this. If Roberts actually turns into some flaming Living Constitutionalist slave-to-the-democratic-mob in 20 years, maybe you can give Barnett half credit.

Corey Robin: “It might piss Roberts off to hear this kind of talk now from Barnett…

…But it might also make him think twice and wonder whether, in his drive to be the conservative Court’s steward and statesman, he’s not in fact betraying the values and vision he came on the Court to pursue.

John Holbo: “I think the chance that Roberts doesn’t realize that Barnett is really uncharitably caricaturing Roberts’ position is slight…

…I don’t really think Roberts is going to move left, but I fully expect him to stick by his guns, and to realize that his guns are actually firing at the Federalist Society now.

Must-Reads: July 5, 2016


Should Reads:

Must-Read: John Authers: Yield on 10-Yr U.S. Treasury…

Must-Read: That the Brexit vote would deliver a substantial leftward IS shock to the global economy was not very foreseeable. But that something could deliver such a shock was very foreseeable indeed.

S P 500© FRED St Louis Fed 30 Year Treasury Constant Maturity Rate FRED St Louis Fed 30 Year Treasury Constant Maturity Rate FRED St Louis Fed

Do not be reassured by the recovery of the stock market: P = D/(r-g). That the stock market has not gone up as a result of Brexit indicates that the lower interest rates expected in the long run (r) have been offset by the lower growth rate of profit due to additional expected economic weakness (g).

By now Yellen and Bernanke before her have had three full Reserve Bank president-appointment cycles–2006, 2011, and 2016–to get the non-Governor members of the FOMC on the page. It is no longer credible to claim that technocratic imperatives of ideal monetary policy have to bow to the requirements of maintaining committee consensus to promote banking-sector confidence with the Fed.

If financial markets were going to scream any louder that a régime shift to a less deflationary monetary policy régime is called for, how would they do that?

John Authers : On Twitter:

U.S. democracy stuck in an “inequality trap”

Economic inequality in the United States appears to be trapped in a vicious cycle, as shown by several new working papers published today by the Washington Center for Equitable Growth alongside other recent research. Non-white, lower-income Americans are far less likely to vote than wealthier white citizens, and much of this participation gap is due to discriminatory practices at the ballot box. As a result, the political interests of lower-income minorities are not well-represented, and these interests are vastly different than those of their voting counterparts. This in turn means that policy decisions are made that exacerbate economic inequality and the inequalities that limit citizens’ voices in the first place.

To figure out how to break this cycle, social scientists need to understand what is happening at various points along the political continuum. So, let’s first examine new and existing research on the vote.

Voting inequalities are entrenched in existing inequalities

The disgraceful history of voter disenfranchisement is no secret. For more than a century, African Americans (and other marginalized groups) were restricted or even disqualified from voting. Today these practices are formally outlawed, yet we still see patterns in voter turnout that indicate that voting discrimination is alive and well. When looking across race and ethnicity, for example, data demonstrates that non-voters are predominantly African American, Hispanic, Asian, and other ethnic minorities. Non-voters also tend to be younger, less educated, and less affluent than their voting counterparts.

These trends are, in part, related to deep-seated institutional marginalization through practices including ballot access restriction—long lines, voter identification laws, and changes to polling sites—and voting dilution. But individual behaviors may play an important a role in generating voter turnout disparities, too. Recent research shows that attitudes toward civic engagement may be developed long before a citizen reaches voting age.

According to a new working paper by Sarah Bruch from the University of Iowa and Joe Soss from the University of Minnesota, enduring negative peer-to-peer relationships and authoritative interactions between 7th through 12th grades lowers the odds of civic engagement and electoral participation later in life, and also reduces future trust in government. Non-white students are disproportionately more likely than others to endure these negative interactions, suggesting that school environments may not only add to existing social inequalities but also contribute to inequalities in civic engagement and democratic participation.

Without a vote, the voice of diversity goes unheard

The absence of equal political participation translates into unequal policy voice. If wealthier white citizens had similar policy preferences to their lower-income, minority counterparts, then the participation gap would not necessarily be so troubling. Yet evidence suggests that voters’ policy preferences in the United States continue to vary sharply by race and income in ways that imply that a functional democracy needs to give equal voice to these various groups in order to be truly representative.

Just how different are these preferences? A recent report from Demos unpacks how net support for policy changes based on a variety of demographic characteristics. Using 2012 election data from the American National Election Study, Demos finds large discrepancies between the public opinions of white voters and non-white non-voters and between rich voters and poor non-voters. White voters supported more spending on the poor by a margin of 5 percentage points, for example, while non-white non-voters and poor non-voters supported these same measures by a margin of 50 percentage points. On the question about whether the government should reduce inequality, there were diametric oppositions between the two groups, respectively.

Perhaps unsurprisingly, the policy preferences of non-white, lower-income non-voters—economic policies that address on poverty and inequality—are already seldom the focus of congressional attention. Analyzing mentions of terms such as economic growth, inflation, poverty, inequality, deficit, and unemployment in the Congressional Record between 1995 and 2012, researchers Peter Enns at Cornell University, Nathan Kelly and Jana Morgan at the University of Tennessee, and Christopher Witko at the University of South Carolina find in their new working paper that Congress prioritizes the interests of the upper-class largely because they dole out political resources in the form of the all-important political campaign contributions necessary for re-election.

The four political scientists note that economic inequality increased during the period of their study while over the same time period congressional “nonresponse” to inequality or redistribution also increased. In fact, the term inequality was mentioned only 80 times in a year at its highest point compared to 30,000 mentions of “deficit,” an issue the authors note is of much greater concern to the wealthy than to the working-class.

Without a voice represented through the vote, the likelihood that issues of economic inequality are elevated in this skewed congressional climate is slim.

When the voice goes unheard, the policies that could change that go unheard, too

With Congress evidently uninterested in issues of economic inequality, it should come as no shock that the actual policies that have a tangible impact on minority and low-income voters struggle to pass. Take the minimum wage. William Franko of Auburn University and his co-authors Kelly and Witko find that changes in election rules at the state level, particularly those that limit the voice of already-marginalized voters, are associated with economic inequality. Specifically, the researchers observe that high levels of class-biases in voting make states less likely to pass minimum wage increases, and as these class-skews in voter turnout grow, states become less prone to pursuing other policies that could reduce inequality.

The same pattern is apparent when it comes to the issue of taxes. Christopher Faricy of Syracuse University finds in his new working paper that increases in public conservatism—ideologies that often don’t represent the voice of minorities—correlates with a reduction in tax progressivity. In other words, there are lower levels of social spending and lower taxes on the rich.

Without policies such as the minimum wage or progressive taxation put into practice, the tools we have to combat the economic inequalities that disproportionately burden minorities and other vulnerable groups are limited.

How do we break the inequality trap?

These recent findings suggest that inequalities seem to beget inequality writ large. As University of Oregon economist and Equitable Growth grantee John Voorheis, along with Princeton University’s Nolan McCarty and Georgetown University’s Boris Shor, show in their paper, increasing income inequality in the United States is associated with even more political polarization and gridlock, which, in turn, makes addressing inequality through public policy more challenging, too. As Faricy puts it, we’re witnessing an “inequality trap.”

So, how do we break the cycle and escape the trap? That’s a complicated question with an even more complex answer.

Expanding the franchise might be a good step. Through measures such as automatic registration, weekend voting, voting by post, reduced I.D. requirements, increased language accessibility at polling sites, and same-day registration, we can reduce the barriers to accessing the polls. Early interventions programs in schools may also play a role in changing the culture around disparate civic participation. But an equally important step, as Nick Carnes of Duke University points out in his new working paper, is reducing political gatekeeper biases and recruiting more working-class and minority candidates to be on the ballot in the first place.

In conjunction, all these efforts may work to ensure more people can voice their vote and vote their voice for the people and policies that help promote equity.

Photo by Jeff Chiu, Associated Press

Must-Read: Jamie Chisholm: Treasury Yields Hit Record Lows

Must-Read: May I please have a theory from the Federal Reserve–I am not asking for much: just a theory–as to why they continue to be confident that their models are a better guide to likely futures than financial markets, and as to why they continue to regard the lower tail of outcomes as something that can be handled if and when it happens rather than something they need to be desperately clawing away from as fast as they can?

Jamie Chisholm: Treasury Yields Hit Record Lows: “The 10-year Treasury yield is down 7 basis points to 1.39 per cent…

…earlier touching 1.377 per cent, its most meagre offering on record. The 30-year Treasury yield also hit an all-time low of 2.14 per cent. Equivalent maturity German Bunds and UK gilts are down 3bp to minus 0.17 per cent and off 4bp to 0.80 per cent, respectively — also flirting with record lows. The Bank of England has already said it is likely to loosen policy further in coming months, and governor Mark Carney on Tuesday said banks could stop building up rainy-day funds in an attempt to support lending. Shares in real estate companies, life insurers and housebuilders are leading declines in London, following the Standard Life news. Miners are under pressure too, as the ‘risk off’ mood batters commodities, with base metals lower and Brent crude down 3.6 per cent to $48.31 a barrel.

Keeping workers off the ballot: Electoral gatekeepers and the shortage of candidates from the working class

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carnes-keeping-workers-off-the-ballot-working-paper

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Author:

Nicholas Carnes, Assistant Professor of Public Policy, Sanford School of Public Policy, Duke University


Abstract:

Why do so few lower-income and working-class people hold office in the United States? One possibility suggested by research on underrepresented groups is that qualified workers might receive less encouragement from the gatekeepers who recruit new candidates (e.g., party leaders, politicians, and civic organizations). Building on studies of gatekeeping biases against women, this paper analyzes a new national survey of the county-level leaders of the Republican and Democratic parties. On several measures—including a hypothetical candidate evaluation experiment—party leaders exhibit clear and substantial preferences for white-collar professionals (even controlling for other relevant aspects of candidates’ backgrounds and party leaders’ strategic environments). These findings constitute the first evidence that gatekeepers are less likely to recruit working-class candidates, and they have important implications for research on descriptive representation, the candidate pipeline, and political inequality. One reason so few working-class Americans hold office may simply be that so few are encouraged to.

Political issues, evidence, and citizen engagement: The case of unequal access to affordable health

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krupnikov-levine-unequal-access-health-care-working-paper

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Author:

Yanna Krupnikov, Assistant Professor, Political Science, Stony Brook University
Adam Seth Levine, Assistant Professor, Government, Cornell University


Abstract:

Some social and economic problems do not gain broad awareness. Yet others become prominent (and perhaps are alleviated) in part because they successfully engage the wider citizenry. In this paper we investigate how the evidence used to describe problems affects public engagement. Using disparities in access to affordable health care – a focal aspect of economic inequality in the United States – as our main issue, we conduct a series of survey and field experiments showing how some forms of evidence hinder attitudinal and behavioral engagement while other forms increase them. Our results challenge common arguments about political communication and behavior, while also shedding new light on a central question in the study of politics: What determines when citizens become concerned about a social problem?