Category: Equitablog

Must-Read: Charles Arthur: Artificial Intelligence

Posted on by Brad DeLong

Must-Read: Just what is it that makes some personal service jobs–personal-care attendant, housekeeper–low-status and Low-pay, while keeping others–investment manager who fails to beat the indexes–high status and high pay?

Charles Arthur: Artificial Intelligence: “‘Homo sapiens will be split into a handful of gods…

…and the rest of us’. A new report suggests that the marriage of AI and robotics could replace so many jobs that the era of mass employment could come to an end… a new 300-page report from Bank of America Merrill Lynch… promises robot carers for an ageing population… [and] huge numbers of jobs being wiped out: up to 35% of all workers in the UK and 47% of those in the US, including white-collar jobs, seeing their livelihoods taken away by machines…. “The poster child for automation is agriculture,” says Calum Chace, author of Surviving AI and the novel Pandora’s Brain. “In 1900, 40% of the US labour force worked in agriculture. By 1960, the figure was a few per cent. And yet people had jobs; the nature of the jobs had changed. But then again, there were 21 million horses in the US in 1900. By 1960, there were just three million. The difference was that humans have cognitive skills–we could learn to do new things. But that might not always be the case as machines get smarter and smarter”….

Lawyers who used to slog through giant files for the “discovery” phase of a trial can turn it over to a computer…. Foxconn… aims to replace much of its workforce with automated systems…. Carl Benedikt Frey… points out that even while some jobs are replaced, new ones spring up that focus more on services and interaction with and between people. “The fastest-growing occupations in the past five years are all related to services,” he tells the Observer. “The two biggest are Zumba instructor and personal trainer.” Frey observes that technology is leading to a rarification of leading-edge employment, where fewer and fewer people have the necessary skills to work in the frontline of its advances… technology doesn’t create that many new jobs now compared to the past….. There will be people who own the AI, and therefore own everything else,” he says. “Which means homo sapiens will be split into a handful of ‘gods’, and then the rest of us…

Must-Read: Jeffry Frieden: ‘The Money Makers,’ by Eric Rauchway

Posted on by Brad DeLong

Must-Read: Few people today realize the extent to which the New Deal was not ideological or theoretical but rather their opposites: pragmatic. And where the New Deal was ideological or theoretical, it tended to be the least successful–witness Thurman Arnold and utilities, or Roosevelt’s austerian turn in 1937-1938:

Jeffry Frieden: ‘The Money Makers,’ by Eric Rauchway: “In 2008, the international economy came within weeks of catastrophic collapse…

…Concerted action by the world’s monetary authorities staved off disaster. Although stagnation continues to plague much of the globe, especially Europe, a major depression was avoided. The world was not so lucky in 1929…. The policies of the world’s major governments helped turn the recession that began in 1929 into a full-fledged depression…. [But[ the sooner countries left the gold standard in the 1930s, the more quickly their economies rebounded. Britain went off gold in September 1931, followed by most of the rest of the world. America’s path out of the Depression was slowed by the Hoover administration’s gold-standard orthodoxy. When Roosevelt took office in 1933, he almost immediately took the United States off gold and devalued the dollar. The result, as Rauchway shows, was a robust recovery. By 1936, the world had left gold behind. For the next 10 years, even as war clouds gathered and then as war raged, American and British policy makers, led by John Maynard Keynes and the United States Treasury official Harry Dexter White, planned a new international monetary order…. Rauchway tells this important story with passion, intelligence and style….

The major players come alive in ‘The Money Makers.’ Rauchway’s archival research gives depth to Roosevelt and Treasury Secretary Henry Morgenthau Jr., showing that both men understood the economic and political implications of their monetary policies, even if they were uninterested in the theoretical foundations for them that Keynes and others were building. The book also gives great detail about the practical involvement of the two principal economists involved, Keynes and White. Rauchway places the political context front and center, especially in addressing the issue of White’s contacts with Soviet agents…. Perhaps today’s policy makers — especially contemporary advocates of orthodox austerity sitting in Berlin — can learn something from the story Eric Rauchway tells so well.”

Must-Read: William Poole: Don’t Blame the Fed for Low Rates

Posted on by Brad DeLong

Must-Read: You know, given the demographic headwinds of this decade, the consensus of economic historians is likely to say that job growth under Obama was not weak, but quite possibly the second-strongest relative to baseline since the Oil Shock of 1973–somewhat worse than under Clinton, a hair better than under Carter or Reagan, and massively superior to job growth under either Bush:

Graph All Employees Total Nonfarm Payrolls FRED St Louis Fed

William Poole: Don’t Blame the Fed for Low Rates: “Long-term rates reflect weak job creation and credit demand, both a result of President Obama’s poor economic stewardship…

…The frequent claim that Federal Reserve Chair Janet Yellen and her colleagues are responsible for continuing low rates of interest may be correct in the small, but not in the large…. The real villain behind low interest rates is President Obama. Long-term rates reflect weak job creation and credit demand…. The real rate of interest, currently negative for short-term interest rates and only slightly positive for long rates, is a consequence of non-monetary conditions that have held the economy back….

Disincentives to business investment deserve special notice…. The Obama administration has created one disincentive after another… the failure to pursue tax reform… insistence on higher tax rates… environmental activism… growth-killing overreach in the Affordable Care Act and Dodd-Frank to the Consumer Financial Protection Bureau, the Environmental Protection Agency and the Labor Department….

The Fed is responsible, however, for not defending itself by explaining to Congress and the public what is going on. The Fed is too afraid politically to mention any details of its general position that it cannot do the job on its own. Yes, there are “headwinds,” but they are largely the doing of the administration…. The Obama administration didn’t create Fannie Mae and Freddie Mac, for instance, or the government’s affordable-housing goals—both of which fueled the 2008 financial crisis. But the Obama administration has failed to correct the economic problems it inherited. It has simply piled on more and more disincentives to growth. These disincentives have kept long-term rates low.

It seems to me that very little of William Poole’s argument makes any sense at all.

If the factors he points to were there and were operating, they would operate by lowering the future profits of both new capital and old capital. They should thus produce both (a) a fall in interest rates and (b) a fall in the equity values of established companies. We have the first. We do not have the second. Thus I find it very hard to understand in what sense this is made as a technocratic argument. It seems, instead, to be some strange fact-light checking off of political and ideological boxes: Obama BAD! Federal Reserve GOOD!!

Must-Reads Up to Breakfast Time on November 25, 2015

Posted on by Brad DeLong

Must-Read: Mark Thoma Sends Us to Simon Wren-Lewis: Economists and the Eurozone: Wake Up Calls and Political Capture

Posted on by Brad DeLong

Must-Read: Mark Thoma sends us to Simon Wren-Lewis: Economists and the Eurozone: Wake Up Calls and Political Capture: “I have often tried… to ask whether Germany’s strange stance on these macro issues…

…simply reflects this different conjunctural position. I think the answer is no…. Germany’s stance reflects similar political economy pressures as you will find in other OECD economies: there is no German exceptionalism, but rather that the forces that everywhere are pushing austerity and tighter monetary policy happen for various reasons to be stronger in Germany. From this perspective, this post from Frances Coppola is particularly interesting. Perhaps the problem at the heart of the Eurozone is that economic policy advice in Germany has been effectively captured by employers’ interests, and perhaps the interests of banks in particular…

And Mark comments:

Economic policy effectively captured by business and financial interests? That could never happen here…

Must-Read: Ian Johnson: Xi’s China: The Illusion of Change

Posted on by Brad DeLong
“Lights of Shanghai” by David Almeida, flickr, cc

Must-Read: Ian Johnson: Xi’s China: The Illusion of Change: “Xi[‘s]… goal has been to recreate the early years of Communist rule…

…in the early to mid-1950s when his father was part of the ruling elite. Back then, according to official mythology, the party was clean and officials were upright, and the populace was content. Returning to this imagined past means strengthening, not weakening party control. If we briefly survey Xi’s actions… we can see this as the primary goal of his reforms. Most obvious and probably the most disappointing for optimists is the economy…. Most of Xi’s changes—such as incremental bank rate liberalizations or opening the stock market a bit wider to foreign investors—can more properly be viewed as technocratic tinkering. It’s true that a lot of small repairs can lead to an overhaul, but only if the changes are part of a broader plan with a clear goal. There has been no indication that such a plan exists—at least not one that would lead to a more open economy. It is possible that Xi might reverse course… but signs are not promising. A recent, outstanding piece of fly-on-the-wall reporting in The Wall Street Journal shows that despite Xi’s anger about the slowing economy, the slow growth itself has made him cautious and even less willing to push reforms…

Must-Read: Isabel Sawhill: Where Have All the Workers Gone?

Posted on by Brad DeLong

Must-Read: Isabel Sawhill: Where Have All the Workers Gone?: “Real wages have fallen by 28 percent for high-school educated men since 1980…

…making work much less attractive, but also signaling that employers are looking for a higher level of skill…. Disability rolls have been growing (primarily because of musculoskeletal and mental health issues)… [which] create[s] a disincentive to re-enter…. Now that women are almost half the labor force, the pressure for men to work has lessened. In the shorter run, it’s hard to tell how much of the recent sharp drop in employment is related to weak demand and how much to these longer-term factors…. A rather large group may simply be unemployable at an attractive wage and may have figured out how to get by without working very much….

Will workers reap from changing demographics?

Posted on by Bridget Ansel
Active retirement by Diego Cervo, veer.com

When Stevie Nicks sang about getting older, she almost certainly wasn’t thinking about the ramifications for the global economy. But it looks like the global economy is on the path toward a demographic landslide.

Wall Street Journal reporter Greg Ip argues that the world is on the verge of a “population implosion” that will have broad implications for the global economy—namely, the drop in population growth will push down economic growth rates. As Ip points out, a drop in the U.S. population in the 1930s provoked economist Alvin Hansen to coin the term “secular stagnation” for concerns about perpetually lower economic growth.

Hansen’s fears weren’t met back then, but what would a decline in population today mean for the global economy? To answer this question, let’s take a broad look at two areas: the supply of labor and the supply of capital.

When it comes to the supply of labor, an aging population means a shrinking of the global workforce. As Baby Boomers enter retirement in the United States, other countries are also aging, noticeably China. This decrease in the effective supply of labor might push up wages, if we assume the demand for labor will be relatively the same. That’s a big assumption, of course—but all things equal, a smaller supply of labor would push up wages in the short run.

When it comes to the supply of capital, an aging population would likely increase the supply of savings as well. As Ip notes, older workers save more of their income. So countries with relatively more old workers save more, which increases the supply of capital. This increase in the savings rate would, under a traditional neoclassical economics model, be another good sign for wages: More savings means more capital. And since capital is complementary to wages, this would improve labor productivity in the short run. So there’s another boost to global wage growth.

But in the long run, wage growth is determined by productivity growth in these models. And in recent years we’ve seen a decline in productivity growth. Weak productivity growth isn’t just a problem for the U.S. economy, but seems to be a problem for many countries around the world.

But we actually have an example of these trends playing out in miniature: Japan. The country has both an aging population and a high savings rate, but the result certainly hasn’t been higher wages for workers. In fact, the country’s much slower economic growth is more reminiscent of Alvin Hansen’s warning from the 1930s and the more updated versions of secular stagnation being floated today.

While demographics are certainly key shapers of economic reality, they don’t set our destiny in stone. They can bound our path in the future, but policy helps determine our ultimate course.

The question, then, is which prediction will come closer to the truth: Will a greying global workforce see wages increase and push back against economic inequality? Or will slower economic growth and secular stagnation be the themes of the future? Given the difficulties with predictions—especially those about the future—we’ll just have to wait and see.

Housing supply, rents, and economic mobility

Posted on by Bridget Ansel
Jason Furman by Charles Dharapak, AP Photo

The debate about the causes of declining geographic mobility in the United States continues apace with a new contribution from Jason Furman, chairman of the President’s Council of Economic Advisers. In a speech to the Urban Institute last Friday, Furman suggested that the restriction of zoning supply in metropolitan areas is not only a force for pushing down mobility rates, but also a source of higher inequality and lower productivity growth.

Stitching together a number of research papers, Furman lays out the following narrative: Tighter restrictions on land use in some cities reduces the supply of housing, boosting housing prices in those areas. And the higher housing prices increase inequality by boosting the value of homes of incumbent homeowners while throwing up a barrier to prospective residents who want to move in.

That last part is worth digging into more.

Furman says that higher rents reduce the payoff of moving to a new location. Consider, for example, a person who might want to move from San Antonio to San Francisco. She might be able to get a higher-paying job in San Francisco. But if the rent there is much more expensive, her disposable pay may not be that much higher than it would be in San Antonio. Why move to a new city if rent is going to eat away your raise?

Furman also points out that the decline in migration started at the same time as the increased regulation of land use around 1970. But it’s unclear how much of the decline in mobility can be laid at the feet of higher housing costs.

Furman cites research by economists Raven Malloy and Christopher L. Smith of the Federal Reserve, and Abigail Wozniak of the University of Notre Dame, showing a decline in moves from state to state, moves from one county to another county in the same state, and moves within a county. Research by Equitable Growth’s Marshall Steinbaum also shows that most moves in the United States are relatively short. High rents, however, are an unlikely explanation for why workers are less likely to move within a county as opposed to moving across state lines. As Furman notes, declining migration has many causes and the research has yet to untangle the relative importance of factors.

On the topic of inequality, allowing for more construction in high-demand urban areas might not unambiguously decrease inequality. If more buildings can be built on a given piece of land, the value of the land will increase even more. An individual apartment will rent for less, but the overall profits from owning the land will go up because there are now more apartments. As a result, the economic rent going to the people who own the land might go up. The share of economic output going to land instead of capital or labor would rise as disposable income for renters rises.

Now, there very well could be significant gains and improvements for the U.S. economy by lowering housing prices. Workers would be able to move to cities that they might not to be able to afford otherwise. But it’s worthwhile to kick the tires on this story to get a sense of just how much we would actually reap.

Must-Reads Found Up to Breakfast on November 23, 2015

Posted on by Brad DeLong