Must-read: Lorenzo Caliendo et al.: “Trade and Labor Market Dynamics”

Must-Read: Lorenzo Caliendo et al.: Trade and Labor Market Dynamics: “We develop a dynamic trade model…

…where production and consumption take place in spatially distinct labor markets with varying exposure to domestic and international trade. The model recognizes the role of labor mobility frictions, goods mobility frictions, geographic factors, and input-output linkages in determining equilibrium allocations. We show how to solve the equilibrium of the model without estimating productivities, migration frictions, or trade costs, which are usually di¢ cult to identify. We calibrate the model to 38 countries, 50 U.S. states, and 22 sectors and use the rise in Chinaís import competition to quantify the e§ects across more than a thousand U.S. labor markets. We find that China’s trade shock resulted in a loss of 0.8 million U.S. manufacturing jobs, about 50 percent of the change in the manufacturing employment share unexplained by a secular trend. We find aggregate welfare gains but, due to trade and migration frictions, the welfare and employment e§ects vary across U.S. labor markets. Estimated transition costs to the new long-run equilibrium are also heterogeneous and reflect the importance of accounting for labor dynamics.

Must-read: Miles Kimball: “Density is Destiny”

Must-Read: Miles Kimball: Density is Destiny: “Every time the population of a city doubles…

…every individual measure of human interaction there also increases by 15% to 20%. Not so long ago, futurists predicted that the ease of electronic connectivity would make big cities obsolete. Instead, Harvard University economist Edward Glaeser and others now say that improvements in information technology strengthen cities that are centers of innovation by speeding the flow of ideas. Urban density facilitates contact between smart people and fosters innovation, increasing urban incomes as new businesses take hold, they say…. To my taste, to have high density be delightful, there are five key desiderata: 1. plenty of floor space in the home. 2. no stairs within an individual family’s home…. 3. plenty of windows looking out. 4. excellent soundproofing. 5. plenty of green space nearby All of these are compatible with very high density, given good design….

Even as things are now, I think Manhattan is very pleasant. With residential buildings like the ones I am describing, almost any city could have high density and be even more pleasant than Manhattan is now–except for one thing: as long as each family gets plenty of floor space, no stairs to climb, plenty of windows, excellent soundproofing, and plenty of green space, when it comes to cities, bigger is better. And New York City has a head start.

Must-read: ProGrowthLiberal: “Social Security Replacement Rates as Reported by the CBO”

Must-Read: ProGrowthLiberal: Social Security Replacement Rates as Reported by the CBO: “Brian Faler warned us a year ago…

Republicans on Friday named Keith Hall head of the Congressional Budget Office, installing a conservative Bush administration economist atop an agency charged with determining how much lawmakers’ bills would cost…

Keith Hall just admitted:

After questions were raised by outside analysts, we identified some errors in one part of our report, CBO’s 2015 Long-Term Projections for Social Security: Additional Information, which was released on December 16, 2015. The errors occurred in CBO’s calculations of replacement rates—the ratio of Social Security recipients’ benefits to their past earnings.

Who were these outside analysts and what was this about? Alicia Munnell explains:

CBO suggests that Social Security is getting more generous every day. The stage is being set for cuts in Social Security, and the Congressional Budget Office (CBO) has become a major player in this effort. The agency’s most recent report shows not only a huge increase in the 75-year deficit, but also an enormous increase in the generosity of the program as measured by replacement rates — benefits relative to pre-retirement earnings. None of the changes that increase the deficit — lower interest rates, higher incidence of disability, longer life expectancy, and a lower share of taxable earnings — should have any major effect on replacement rates. CBO has simply been revising its methodology each year in ways that produce higher numbers….

Putting out such a high number without any effort to reconcile it with the historical data is irresponsible. And those waiting for an opportunity to show that Social Security is excessively generous have pounced on the new CBO replacement rate number and publicized it in op-eds from coast-to-coast. Social Security is the backbone of the nation’s retirement system. Its finances need to be treated more thoughtfully.

Agreed. My only question is whether anyone in Congress can the courage to demand that Mr. Hall explain…

Must-read: Karen M. Tani: Introduction to “States of Dependency: Welfare, Rights, and American Governance, 1935-1972”

Must-Read: I gotta get this book. I gotta read this book…

Karen M. Tani: Introduction to States of Dependency: Welfare, Rights, and American Governance, 1935-1972: “States of Dependency provides a new account of welfare law and policy…

…in the twentieth-century United States, and through it, a revised portrait of modern American governance. The book begins amid the Great Depression, with the insertion of federal money and federal rules into what had been a highly decentralized system of poor relief. Reformers hoped to use federal funds to ‘modernize’ that system – to make it more bureaucratic, centralized, expert-driven, and uniform. Drawing on original archival research, States of Dependency traces the fate of these efforts. The book analyzes federal administrators’ encounters with traditions of localism, federalism, and hostility toward the ‘undeserving poor.’ It also links these encounters to particular tactics, such as the mobilization of rights language and the use of strategic litigation. The result, four decades later, was a more legalistic and federalized public welfare apparatus, as well an expanded definition of national citizenship, but also a system of governance that sanctioned and perpetuated vast inequalities.

Must-Read: Martin Wolf: Why Fossil Fuel Power Plants Will Be Left Stranded

Must-Read: Martin Wolf: Why Fossil Fuel Power Plants Will Be Left Stranded: “Virtually all new fossil fuel-burning power-generation capacity will end up ‘stranded’…

…This is the argument of a paper by academics at Oxford university…. February was the warmest month on record. The current El Niño–the warming of the global climate triggered by the Pacific Ocean–has boosted temperatures, just as it did in 1997-98…. Two forms of inertia govern climate policy…. Infrastructure in power generation… is long-lived…. Carbon dioxide remains in the atmosphere for centuries. Thus it is necessary to think not of annual flows but of cumulative emissions or of a global carbon budget…. Within power generation itself, there are four options. The first would be a more or less immediate shift to zero-emissions technologies. The second would be retrofitting of conventional capacity with carbon capture and storage. The third would be to replace new capital stock with zero-emissions capacity early in its life. The last would be early introduction of technologies to remove atmospheric stocks of carbon….

Far from having years to work out how to curb the risks of climate change, we face an imminent moment of truth…. After last year’s Paris climate conference, the world congratulated itself on having agreed a new process, even though real action was postponed. Yet, given the longevity of a large part of the capital stock, the time for decisive change is right now, not decades in future. But the world is not really serious about climate, is it? It prefers fiddling while the planet burns.

Must-reads: April 5, 2016


Must-read: The Economist: “Chairman of Everything”

Must-Read: I do not understand China. But it now looks more likely than not to me that Xi Jinping’s rule will lose China a decade, if not half a century…

The Economist: Chairman of Everything: “Two curious articles appeared in government-linked news media…

…The first [was] written in an allegorical style traditionally used in China to criticise those in power, in this case in the form of an essay praising the seventh-century emperor, Taizong, for heeding a plain-talking courtier… [and] called for more debate and freer speech at a time when China’s president, Xi Jinping, has been restricting both. ‘The ability to air opinions freely often determined the rise and fall of dynasties,’ it said. ‘We should not be afraid of people saying the wrong things; we should be afraid of people not speaking at all.’ The second article, in the form of an open letter, ran—fleetingly—on a state-run website. ‘Hello, Comrade Xi Jinping. We are loyal Communist Party members,’ the letter began. It called on Mr Xi to step down and eviscerated his record in office. The president, it said, had abandoned the party’s system of ‘collective’ leadership; arrogated too much power to himself; sidelined the prime minister, Li Keqiang; caused instability in equity and property markets; distorted the role of the media; and condoned a personality cult….

The historical essay was reposted on the disciplinary commission’s website (where it remains); it was clearly more than the work of a single disgruntled editor. The letter may have been planted by a lone dissident who managed to hack into an official portal, but it raised many eyebrows in China. The police have reportedly detained around 20 people…. When he became the party’s leader in 2012, more was known about Mr Xi’s family and personal qualities than about his politics. He was a princeling…. Mr Xi had spent almost 20 years in Fujian, a southern province far from political nerve-centres. More is now clear. As Geremie Barmé, an Australian academic, puts it, Mr Xi is China’s ‘COE’, or chairman of everything….

Mr Hu was a wooden leader whose rule was overshadowed by the retired Mr Jiang; Mr Jiang, while in power, had to bow to his retired predecessor, Deng Xiaoping; even Deng trod carefully for fear of upsetting fellow party elders. Mr Xi, like Mao, appears unfettered by such concerns. He wants the country to know it, too…. Mr Xi is no Mao, a man whose whims caused the deaths of tens of millions and who revelled in the hysteria of his cult. But he rules in a way unlike any leader since the Great Helmsman. After Mao’s death, Deng tried to create a leadership of equals in order to push China away from Maoist caprices. Mr Xi is turning from that system back towards a more personal one. Indeed, he is more of a micromanager than Mao ever was….

The anti-corruption campaign has involved a radical change in the unwritten rules that have held the party together since the near civil war that Mao inflicted on it…. The anti-graft campaign is popular with the public, which suffers hugely from officials’ corruption, negligence and incompetence (a scandal that came to light in March involved rampant corruption in the state’s oversight of the sale and use of vaccines). But it has dismayed officials, many of whom have responded with passive resistance and fear-driven inertia…. Mr Xi has also sown alarm throughout the 2.3m-member People’s Liberation Army (PLA), the collective name for the armed forces. He has arrested generals for graft who were once considered untouchable, announced a trimming of the ranks by 300,000, shaken up the outdated command structure and slimmed down the top-heavy high command. Any one of these moves would have been impressive…. Mr Xi’s willingness to take on these tasks simultaneously suggests remarkable confidence….

Both in his reforms of the PLA and in his fight against corruption, Mr Xi’s actions aim first and foremost at tightening control: both the party’s over the army and his own over the party. It is similar in other areas of politics…. Mr Xi is determined to reimpose discipline on a querulous society that in recent years, thanks to the rapid spread of social media, has become much better equipped to organise itself independently of the party and to evade official controls. In the war against dissent, however, Mr Xi is facing visible resistance. Ren Zhiqiang, a property mogul turned commentator, said the media should serve readers and viewers, not the party….

Mr Xi has been even more hesitant in his handling of the economy. Months after taking power, he proclaimed that under his leadership markets would play a ‘decisive’ role. Since last year he has begun to talk of a need for ‘supply-side’ reforms, implying that inefficient, debt-laden and overstaffed state-owned enterprises (SOEs)—ie, most of them—need shaking up. But his approach has been marked by uncertainty, U-turns and, occasionally, incompetence…. Mr Xi’s lack of clear focus on the economy, and his unwillingness to let people more expert in such matters (namely, the prime minister, Mr Li) handle it, have caused a series of errors…. Markets are unpredictable and no Chinese leader (including Mr Xi) has any experience of the way they work in Western economies. But it is also likely that Mr Xi’s desire to hog power is partly to blame…. Mr Xi understands power, is not afraid to use it and is willing to take risks. He understands less about the new complexities of a changing society and worries about social unrest, so plays safe. He does not understand the economy well, is not sure what to do and does not trust others to act for him.

The way Mr Xi rules has three broad implications. The first is that problems common to all dictatorships will grow…. Another implication is that it is no longer reasonable to argue that China is a model of an authoritarian country opening up economically without doing so politically…. The third is that Deng’s policy of putting ‘economic construction at the centre’ is no longer the country’s most hallowed guiding principle. For Mr Xi, politics comes first every time…. The success of Mr Xi’s rule will rest not just on whether he wins the battles he has chosen to fight, but on whether he has picked the right ones. Seen from the point of view of China as a whole, it does not look as if he has. Mr Xi seems bent on strengthening his party and keeping himself in power, not on making China the wealthier and more open society that its people crave.

Must-read: Heather Boushey and Kavya Vaghul: “Women have made the difference for family economic security”

Must-Read: Heather Boushey and Kavya Vaghul: Women have made the difference for family economic security: “The steady movement of women into the U.S. workforce over the past half-century…

…has dramatically changed the composition of family incomes…. Even as more women have joined the labor force and families have lost their time for caregiving, too many families’ continue to face economic insecurity…. Over the past four decades, women’s increased earnings and increased annual hours of work have been essential as families across the United States seek to find and maintain economic security….
This analysis is an extension and update of the analysis presented in the forthcoming book ‘Finding Time: The Economics of Work-Life Conflict’ authored by… Heather Boushey….

Between 1979 and 2013, on average, low-income families in the United States saw their incomes fall by 2.0 percent. Middle-income families, however, saw their incomes grow by 12.4 percent, and professional families saw their incomes rise by 48.8 percent. Over the same time period, the average woman in the United States saw her annual working hours increase by 26.4 percent…