Category: Equitablog

Should-Read: A very interesting paper by very sharp people. The problem is that I do to know what it means. The post-2000 period has one huge, huge, huge shock in it: 2008-2009. How is the fact that the post-2000 sample has a Great Recession in it and the pre-2000 does not affect their conclusions? I don’t know. And I don’t think they know: Ryan A. Decker, John C. Haltiwanger, Ron S. Jarmin, and Javier Miranda: Changing Business Dynamism and Productivity: Shocks vs. Responsiveness: “The pace of job reallocation has declined in all U.S. sectors since 2000…

…In standard models, aggregate job reallocation depends on (a) the dispersion of idiosyncratic productivity shocks faced by businesses and (b) the marginal responsiveness of businesses to those shocks. Using several novel empirical facts from business microdata, we infer that the pervasive post-2000 decline in reallocation reflects weaker responsiveness in a manner consistent with rising adjustment frictions and not lower dispersion of shocks. The within-industry dispersion of TFP and output per worker has risen, while the marginal responsiveness of employment growth to business-level productivity has weakened. The responsiveness in the post-2000 period for young firms in the high-tech sector is only about half (in manufacturing) to two thirds (economy wide) of the peak in the 1990s. Counterfactuals show that weakening productivity responsiveness since 2000 accounts for a significant drag on aggregate productivity…

Should-Read: In praise of the truly excellent Tim Jost: Ann Marie Marciarille: Say It Isn’t So, Tim: “Sarah Kliff once noted that Tim Jost was ‘scary fast/good’ with his health law and policy analysis. I could not agree more…

…Tim Jost’s consistently stellar blogging on all things health law and health regulation-related has been a tremendous resource for me and for my students as we work to keep up in a fast-developing area. I wish Tim well in all the spare time he will surely have now that he has decided to end his Health Affairs  ACA-blogging, close to  nine years and over 600 blog posts later. I wonder if some of Tim’s more remarkable posts might not make a fine book of collected essays on health care reform, how the sausage was made. Some of my favorites, for those of you who have not dabbled in this area, include (in no particular order):

• Implementing Health Reform: Essential Benefits and Medical Loss Ratios (Feb. 18, 2012)
• Taking Stock of Health Reform: Where We’ve Been and Where We’re Going (Dec. 6, 2016)
• The Tax Bill and the Individual Mandate: What Happened and What Does It Mean (Dec. 20, 2017)

Tim, you truly are the horse whisperer of ACA regulatory interpretation and policy analysis. Katie Keith is up and running with quality output, I know. You will be missed…

Should-Read: Why hasn’t globalization reduced inequality in emerging markets over the past generation? Jeffrey Frankel wants to say that it is because the HO-SS theory is misleading and unhelpful for inequality issues. I think that is not right. HO-SS says economic integration will reduce inequality if it raises the relative demand for factors of production controlled by the poor. But the most important shift in relative factor abundance has been the ability to plug yourself into the world economy: that is controlled by the rich in emerging markets, and that has become much much scarcer relative to demand: Jeffrey Frankel: Does Trade Fuel Inequality?: “Trade has been among the most powerful drivers of… the convergence between the developed and developing worlds…

…The HO-SS theory, which dominated international economic thinking from the 1950s through 1970s, predicted that international trade would benefit the abundant factor of production (in rich countries, the owners of capital) and hurt the scarce factor of production (in rich countries, unskilled labor)…. Then… Paul Krugman and Elhanan Helpman introduced… imperfect competition and increasing returns… Marc Melitz… shift[ing] resources from low-productivity to high-productivity firms…. Not all of the HO-SS theory’s predictions have come true…. Pinelopi Goldberg and Nina Pavcnik…. “There is overwhelming evidence,” they write, “that less-skilled workers in developing countries “are generally not better off, at least not relative to workers with higher skill or education levels.”… Ten years later, inequality continues to worsen within developing countries, including the so-called BRICS…. This does not mean that the forces described by the HO-SS theory are irrelevant. But there is clearly more to current inequality trends than trade…. Inequality is clearly a serious problem that merits political attention. But focusing on trade is not the way to resolve it…

Should-Read: Ronald Reagan was not up to the job. And he had lots of bad policy ideas and bad policy advisors. But Ronald Reagan was an American: Ronald Reagan: Remarks to Members of the National Association of Minority Contractors: “We’re trying to provide the broadest possible range of opportunities to all Americans without regard to race, creed, color, or sex. And sometimes it makes your day when you hear from people that understand this and agree…”

Should-Read: Robynn Cox, Seva Rodnyansky, Benjamin Henwood, and Suzanne WenzelMeasuring population estimates of housing insecurity in the United States: A comprehensive approach: “A seven dimension definition of housing security set forth by Cox et al. (2017)…

…While the categories overlap, they do not do so perfectly…. Rural, exurban, and central city locations experience the most housing concerns…. Single households, poor households (i.e., income less than two times the poverty line), black households, Hispanic households, undocumented immigrants, and less educated individuals experience more severe forms of housing insecurity…. Older adults are also more likely to experience low housing security. This provides some validation that our measure is trending with well-established poverty measures…

Should-Read: Elizabeth U. Cascio: Does Universal Preschool Hit the Target?: Program Access and Preschool Impacts: “This paper takes advantage of age-eligibility rules to construct an instrument for prekindergarten (pre-K) attendance…

…in survey data where the mediating influence of program access can be directly assessed… exploit[ing] the relatively large difference in pre-K attendance rates between 4 year olds in adjacent kindergarten entry cohorts in states with robust state-funded pre-K programs. This approach reveals a substantial positive effect of attending pre-K on cognitive test scores at age 4, but only for low-income children enrolled in universal programs.

Both universal and targeted programs displace enrollment in other center-based care, and differences in state standards cannot explain the higher impacts of universal programs for low-income children. Together, these findings suggest that universal programs offer a relatively high-quality learning experience for low-income 4 year olds not reflected in the quality metrics
frequently targeted by policymakers…

Should-Read: I think Skidelsky gets it closer to right here than Krugman did in the piece Skidelsky is critiquing: Robert Skidelsky: How Economics Survived the Economic Crisis: “Unlike the Great Depression of the 1930s, which produced Keynesian economics, and the stagflation of the 1970s, which gave rise to Milton Friedman’s monetarism…

…the Great Recession has elicited no such response from the economics profession. Why?… There are serious problems with Krugman’s narrative…. Krugman’s… response is that the New Keynesians… [had] a failure not of theory, but of “data collection.” They had “overlooked” crucial institutional changes in the financial system…. Faced with the crisis itself, the New Keynesians had risen to the challenge. They dusted off their old sticky-price models from the 1950s and 1960s, which told them… budget deficits would not drive up near-zero interest rates… increases in the monetary base would not lead to high inflation… and… there would be a positive… multiplier… from changes in government spending and taxation…. [But] the success of New Keynesian policy had the ironic effect of allowing “the more inflexible members of our profession [the New Classicals from Chicago] to ignore events in a way they couldn’t in past episodes.” So neither school–sect might be the better word–was challenged to re-think first principles.

This clever history of pre- and post-crash economics leaves key questions unanswered…. Krugman admits to a gap in “evidence collection.” But the choice of evidence is theory-driven. In my view, New Keynesian economists turned a blind eye to instabilities building up in the banking system, because their models told them that financial institutions could accurately price risk…. Krugman fails to explain why the Keynesian policies vindicated in 2008-2009 were so rapidly reversed and replaced by fiscal austerity…. The answer I would give is that… Keynes was briefly exhumed for six months in 2008-2009… for political, not intellectual, reasons…. Krugman comes close to acknowledging this: New Keynesians, he writes, “start with rational behavior and market equilibrium as a baseline, and try to get economic dysfunction by tweaking that baseline at the edges.”… The problem for New Keynesian macroeconomists is that they fail to acknowledge radical uncertainty in their models, leaving them without any theory of what to do in good times in order to avoid the bad times…. Without acknowledgement of uncertainty, saltwater economics is bound to collapse into its freshwater counterpart…. So Krugman’s argument, while provocative, is certainly not conclusive. Macroeconomics still needs to come up with a big new idea…

Should-Read: What an enormous, unbelievable mess. The IRS ought to draw this tightly—goods producers, licensed architects, and degreed engineers qualify; everybody in the service sector is selling their “reputation or skill” and hence does not qualify. But I do not think that they will: Ruth Simon: The Tax Break That Doctors and Plumbers Both Will Miss: “Architecture and engineering groups…

“are right in the sweet spot”, said Mr. Viviano…. Owners of financial services, brokerage services and investment management firms cannot claim the deduction if their income is above the limits. Neither can the owner of a business “involving the performance of services” in health, law, accounting, performing arts, actuarial science, consulting or athletics. The “reputation or skill” clause could create a tax hurdle for celebrity chefs and people in many industries who built companies on their brands…. For celebrity brands, whether or not they get to benefit from the 20% deduction is likely to depend on a variety of factors, including the fine points of licensing agreements, said Howard Wagner, a managing director at the accounting firm Crowe Horwath LLP. “This stuff is as clear as mud,” he said….

Tax experts are looking to the Internal Revenue Service to help clarify many of the gray areas, including who falls under the reputation and skills limits and which businesses are covered by words such as “health” and “consulting.”… Marshall Goldsmith, a California-based executive coach, is among those struggling to determine whether he will be able to claim the new deduction. “My accountant is not sure how this impacts me,” Mr. Goldsmith said in an email. “I guess my answer is, ’I don’t know’”…