Category: Equitablog

Must-Read: George P. Topulos et al.: Planned Parenthood at Risk

Posted on by Brad DeLong

Must-Read: The most surprising thing about all this–or maybe, come to think about it, given the goals of the players, it should not surprise me at all–is that, given our current Supreme Court and its legal structure, a world in which the federal government is prohibited from funding Planned Parenthood services is a world in which the abortion rate is significantly higher than it is today…

George P. Topulos et al.: Planned Parenthood at Risk: “Planned Parenthood is under attack–again…

…This time, a campaign of misinformation about the retrieval of fetal tissue used in research and therapy is the excuse. When women have made the decision to terminate a pregnancy, Planned Parenthood allows them the opportunity to have the fetal tissue that would otherwise be discarded be used by qualified researchers to help answer important medical questions. The organization does so carefully, following all applicable laws and ethical guidelines. In a Perspective article now published in the Journal, Charo presents compelling arguments defending these uses of fetal tissue.

Planned Parenthood, its physicians, and the researchers who do this work should be praised, not damned. The research is not easy to do, but as Charo explains, it has benefited millions of people worldwide. If the antichoice forces were allowed to rule the day, these advances would never have been made.

We strongly support Planned Parenthood not only for its efforts to channel fetal tissue into important medical research but also for its other work as one of the country’s largest providers of health care for women, especially poor women. In 2013, the most recent year for which data are available, Planned Parenthood provided services to 2.7 million women, men, and young people during 4.6 million health center visits. At least 60% of these patients benefited from public health coverage programs such as the nation’s family-planning program (Title X) and Medicaid. At least 78% of these patients lived with incomes at or below 150% of the federal poverty level. Planned Parenthood’s services included nearly 400,000 Pap tests, nearly 500,000 breast examinations, nearly 4.5 million tests for sexually transmitted illnesses (including HIV), and treatments. The contraception services that Planned Parenthood delivers may be the single greatest effort to prevent the unwanted pregnancies that result in abortions.

It is shameful that a radical antichoice group whose goal is the destruction of Planned Parenthood continues to twist the facts to achieve its ends. We thank the women who made the choice to help improve the human condition through their tissue donation; we applaud the people who make this work possible and those who use these materials to advance human health. We are outraged by those who debase these women, this work, and Planned Parenthood by distorting the facts for political ends.

Albert Hirschman’s linkages, economic growth, and convergence yet again…

Posted on by Brad DeLong

When you think about it, broadly speaking, the question of why we have seen such huge rises in the real wages of labor–of bare, unskilled labor not boosted by expensive and lengthy investments in upgrading what it can do–is somewhat puzzling.

We can see why overall productivity-per-worker has increased. We have piled up more and more machines to work with per worker, more and more structures to work in per worker, and develop more and more intellectual blueprints for how to do things. But why should any of these accumulated factors of production be strong complements for simple human labor?

Karl Marx thought that they would not: he thought that what more accumulation of capital would do would be to raise average production-per-worker while also putting strong downward pressure on the wages and incomes of labor, enriching only those with property. Yet the long sweep of history since the early 18th century invention of the steam engine sees the most extraordinary rise in the wages of simple, unskilled labor.

There are, again broadly speaking, two suggested answers:

The first is that the accumulated intellectual property of humanity since the invention of language is a highly productive resource. Nobody can claim an income from it by virtue of ownership. Therefore that part of productivity due to this key factor of production is shared out among all the other factors. And, via supply and demand, a large chunk of that is shared to labor.

The second is that there is indeed a property of the unskilled human that makes its labor a very strong complement with other factors of production. That property is this: our machines are dumb, while we are smart. Human brain fits in a breadbox, draws 50 W of power, and is an essential cybernetic control mechanism for practically everything we wish to have done, to organize, or even to keep track of. The strong and essential complementarity of our dumb machines and our smart brains is the circumstance that has driven a huge increase in labor productivity in manufacturing. And, by supply and demand, that increase has then been distributed to labor at large.

Both have surely been at work together.

But to the extent that the second has carried the load, the rise of the robots—the decline in the share of and indeed the need for human labor in manufacturing—poses grave economic problems for the future of humanity, and poses them most immediately for emerging market economies.

So let me give the mic to smart young whippersnapper Noah Smith, playing variations on a theme by Dani Rodrik:

Noah Smith: Will the World Ever Boom Again?: “Let’s step back and take a look at global economic development…

…Since the Industrial Revolution… Europe, North America and East Asia raced ahead… maintained their lead… confound[ing] the predictions of… converg[ance]. Only since the 1980s has the rest of the world been catching up…. But can it last? The main engine of global growth since 2000 has been the rapid industrialization of China… the most stupendous modernization in history, moving hundreds of millions of farmers from rural areas to cities. That in turn powered the growth of resource-exporting countries such as Brazil, Russia and many developing nations that sold their oil, metals and other resources to the new workshop of the world.  The problem is that China’s recent slowdown from 10 percent annual growth to about 7 percent is only the beginning….

But… what if China is the last country to follow the tried-and-true path of industrialization? There is really only one time-tested way for a country to get rich. It moves farmers to factories and import foreign manufacturing technology… the so-called dual-sector model of economic development pioneered by economist W. Arthur Lewis. So far, no country has reached high levels of income by moving farmers to service jobs en masse…. Poor nations are very good at copying manufacturing technologies from rich countries. But [not] in services…. Manufacturing technologies are embodied in the products themselves and in the machines… used to make the products…. Manufacturing is shrinking… all across the globe, even in China… a victim of its own success…. If manufacturing becomes a niche activity, the world’s poor countries could be in trouble…

By “a niche activity” I read “does not employ a lot of workers”–the value added of manufacturing is likely to still be very high and growing, certainly in real terms, just as the value of agricultural production is very high and growing today. But little of that value flows to unskilled labor. Rather, it flows to capital, engineering, design, and branding.

Noah’s points about economic development are, I think, completely correct.

The point is, however, one of very long standing. The mandarins of 18th-century Augustine Age Whitehall had a plan for the colony that was to become the United States. They were to focus on their current comparative advantages: produce, I’m slave plantations and elsewhere, the natural Reese source intensive primary products that the first British Empire wanted in exchange for the manufactured goods and transportation services the first British Empire provided that made it so relatively ridge for its time.

Alexander Hamilton had a very different idea. Hamilton believed very strongly that the US government needed to focus on building up manufacturing, channels through which savings be invested in industry, and exports different from those of America’s resource-based comparative advantage. The consequence would be the creation of engineering communities of technological competence which would then spread knowledge of how to be productive throughout the country. Ever since, every country that has successfully followed the Hamiltonian path–that is kept its manufacturing- and export-subsidization policies focused on boosting those firms that do actually succeed in making products foreigners are willing to buy and not havens for rent-seekers–have succeeded first in escaping poverty and second in escaping the middle-income trap.

The worry is the China will turn out to be the last economy able to take this road–that after China manufacturing will be simply too small and require too little labor as computers substitute for brains as cybernetic control mechanisms to be an engine of economy-wide growth. And the fear is that a country like India that tries to take the services-export route will find that competence in service exports does not more than competence in natural-resource exports to produce the engineering communities of technological competence which generate the economy-wide spillovers needed for modern economic growth that achieves the world technological and productivity frontier.

Very interesting times. Very interesting puzzles.

Health Economists’ Keep-the-Cadillac-Tax Letter

Posted on by Brad DeLong
Sarah Kliff on Twitter Letter defending Cadillac Tax from 101 economists reimagined with 101 Dalmatians http t co PP6td0zgDo

Health Economists’ Keep-the-Cadillac-Tax Letter:

October 1, 2015

The Honorable Orrin G. Hatch Chairman
Committee on Finance
United States Senate

The Honorable Paul D. Ryan Chairman
Committee on Ways and Means
U.S. House of Representatives

The Honorable Ron Wyden Ranking Member
Committee on Finance
United States Senate

The Honorable Sander M. Levin Ranking Member
Committee on Ways and Means
U.S. House of Representatives

Dear Chairman Hatch, Senator Wyden, Chairman Ryan, and Congressman Levin:

For decades economists and health policy experts of all political persuasions have agreed that the unlimited exclusion of employer-financed health insurance from income and payroll taxes is economically inefficient and regressive. The Affordable Care Act established an excise tax on high- cost health plans (the so-called ‘Cadillac tax’) to address these issues.

The Cadillac tax will help curtail the growth of private health insurance premiums by encouraging employers to limit the costs of plans to the tax-free amount. The excise tax will discourage the provision of insurance that covers such a large proportion of health care spending that consumers have little incentive to insist on cost-effective care and providers have little incentive to provide
it. As employers redesign health insurance plans to hold costs within the tax-free amount, cash wages or other fringe benefits will increase. Furthermore, repealing the Cadillac tax would add directly to the federal budget deficit, an estimated $91 billion over the next decade according to the Joint Committee on Taxation.

We, the undersigned health economists and policy analysts, hold widely varying views on other provisions of the Affordable Care Act, and we recognize that measures other than the Cadillac tax could have been used to restrict the open-ended health insurance tax break.

But, we unite in urging Congress to take no action to weaken, delay, or reduce the Cadillac tax until and unless it enacts an alternative tax change that would more effectively curtail cost growth.

Sincerely,

Henry Aaron Jason Abaluck David Albouy Joseph Antos Alan Auerbach Nikhil Agarwal Laurence Baker Martin Baily Ernst Berndt Linda Blumberg Thomas Buchmueller M. Kate Bundorf Leonard Burman Gary Burtless Stuart Butler Amitabh Chandra Michael Chernew Julie Berry Cullen David Cutler Leemore Dafny Patricia Danzon Angus Deaton Brad DeLong Peter Diamond Avi Dor Bryan Dowd Mark Duggan Susan Dynarski David Ellwood Douglas Elmendorf Ezekiel Emanuel Michael Frakes Austin Frakt John Friedman Donald Fullerton William Gale Martin Gaynor Paul Ginsburg Sherry Glied Lawrence Goulder Jonathan Gruber Gautam Gowrisankaran Ben Handel Ron Haskins Kate Ho John Holahan Jill Horwitz Hilary Hoynes
Robert Huckman Robert Inman Damon Jones Lawrence Katz Melissa Kearney Jenny Kenney Jonathan Kolstad Darius Lakdawalla Robin Lee Arik Levinson Frank Levy Helen Levy Erzo F.P. Luttmer Pinar Karaca Mandic Eric Maskin Thomas McGuire Ellen Meara David Meltzer Bruce Meyer Marilyn Moon Fiona Scott Morton Adriana Lleras-Muney Alicia Munnell Len Nichols Kavita Patel Mark Pauly Harold Pollack Daniel Polsky James Rebitzer Robert Reischauer Alice Mitchell Rivlin Christopher Ruhm Andrew Samwick Douglas Shackelford Louise Sheiner Kosali Simon Kent Smetters Neeray Sood Mark Stabile Amanda Starc Eugene Steuerle Katherine Swartz Richard Thaler Robert Town Paul Van de Water Tom Vogl Kevin Volpp Gail Wilensky Roberton Williams David Wise Justin Wolfers Richard Zeckhauser Stephen Zuckerman + MANY MOAR…

The relationship between U.S. productivity growth and the decline in the labor share of national income

Posted on by Nick Bunker
Photo of classroom by Derek Bruff, flickr, cc

One of the ongoing debates about the state of the U.S. economy is the extent to which the profits from productivity gains are increasingly going to the owners of capital instead of wage earners. These researchers are debating the extent to which the labor share of income, once considered a constant by economists, is on the decline.

But what if the decline of national income going to labor actually affects the measured rate of U.S. productivity growth? In a blog post published last week, University of Houston economist Dietz Vollrath sketches out a model showing just that scenario. Vollrath’s post contains the full math for those who are interested, but his analysis rests on the idea that the labor share of income is declining due to the increased market power of businesses.

Vollrath argues that businesses with more market power are able to charge higher markups on their goods and services, meaning their pricing is higher than the cost of producing an additional goods or services compared to pricing in a perfectly competitive market. So in this situation where markups are high, goods and services are being produced less efficiently, with the increased profits going to the owners of capital.

Vollrath argues that this is how measured productivity growth is affected by the decline of the labor share of income. Market power is important for thinking about measured productivity growth because, as Vollrath says, it “dictates how efficiently we use our inputs.” Remember, productivity growth is measured by the residual—or the part unexplained by additional workers or capital—of economic growth. Impeding the most efficient use of capital and labor via marked-up prices will reduce measured productivity.

But let’s be clear: Vollrath’s point is about measured productivity.  In his model, the decline of the share of income going to wage earners in the U.S. economy wouldn’t necessarily affect the true underlying pace of innovation in the economy that is not captured by current measures of productivity. So it could be that innovation is happening, but companies’ increased market power means these innovations aren’t showing up as an increasingly better usage of capital and labor in producing gross domestic product. Perhaps this could explain some of the reason why measured productivity growth looks so meager in the seeming age of innovation in Silicon Valley.

But Vollrath’s story isn’t a complete explanation of the fall in measured productivity, as he acknowledges.. For example he  cites research by University of Chicago economists Loukas Karabarbounis and Brent Neiman, which points to the falling price of investment goods as the main reason for the decline in share of income going to wage earners. Put another way, the declining price of computers is resulting in a higher share of income going to profits.

Another potential reason is a change in the kind of technological growth the U.S. economy is experiencing, an argument put forth by Harvard University economist Robert Z. Lawrence. He argues that technology is increasingly tilted toward labor instead of capital, which actually reduces labor’s share of income.

And of course there’s economist Thomas Piketty’s version of events, where capital deepening is at the center of his argument in “Capital in the 21st Century.” The Paris School of Economics professor contends that the historically constant rate of return will allow capital to gain more of income as economic growth slows down.

But Vollrath’s market power explanation for falling productivity growth, alongside the falling share of national income going to wage earners, is supported by some evidence.  Work by Massachusetts Institute of Technology graduate student Matt Rognlie, for example, found evidence of higher markups.

Whether and how the decline of the labor share of income affects productivity growth is obviously a topic far too large for a couple of blog posts. But Vollrath’s model is especially interesting for connecting two important trends in recent years: the slowdown in productivity growth and the declining labor share. It’s worth, at the very least, a bit more investigation.

Noted for Lunchtime on September 30, 2015

Posted on by Brad DeLong
Screenshot 10 3 14 6 17 PM

Must- and Should-Reads:

Might Like to Be Aware of:

Must-Read: Torsten Slok: DB: Expect More Hawkish Fedspeak

Posted on by Brad DeLong

Must-Read: Remember, relative to Fed beliefs less than four years ago, we have already seen 75 basis points of tightening relative to the benchmark of the estimated natural rate:

NewImage

The more likely it is that we are in a régime of secular stagnation, the more important it is to take the 2%/year inflation target as an average rather than a ceiling, and the less-wise is the Federal Reserve’s expressed commitment to start raining interest rates come hell or high water. The markets appear to think–quite reasonably–that the Federal Reserve is gradually moving month-by-month toward a more reality-based Larry Summers-like view of the macroeconomic situation, and that when December comes around the current FOMC consensus for raising interest rates then will have sublimed away.

And if the market is wrong, the most likely reason for it to be wrong is if the Federal Reserve decides to be contrary and to stop its ongoing rethinking process, just to show that it can and that it is boss…

Torsten Slok: DB: Expect More Hawkish Fedspeak: “Before Yellen’s speech last week, the probability of a rate hike by the end of 2015 was 42%…

…Today it is 41%. The market continues to believe that the Fed will not hike rates later this year despite 13 out of 17 FOMC members expecting a hike in 2015. Why does the market not believe the Fed? One reason is likely that the Fed for several years now has been too optimistic… has had to revise down their forecasts of not only near-term growth but also longer-term growth prospects…. This one-way revision in forecasts over many years has probably had an impact on how market participants interpret Fed communication…. We continue to expect a rate hike in December and we continue to expect Fedspeak in the coming weeks will repeat their expectation of liftoff coming in 2015..

Must-Read: Sylvia Allegretto, Arindrajit Dube, Michael Reich and Ben Zipperer: Credible Research Designs for Minimum Wage Studies: A Response to Neumark, Salas and Wascher

Posted on by Brad DeLong

Must-Read: At this stage, Neumark, Salas, and Wascher’s are only hurting themselves–and hurting confidence not just in their minimum-wage work but their non-minimum wage work as well–by their refusal to acknowledge that the overwhelming weight of the evidence is that Card and Krueger were right: that increases in the minimum wage from levels currently present in the United States have at most very small disemployment effects.

Sylvia Allegretto, Arindrajit Dube, Michael Reich and Ben Zipperer: Credible Research Designs for Minimum Wage Studies: A Response to Neumark, Salas and Wascher: “We assess the Neumark, Salas and Wascher (NSW) critique of our minimum wage findings…

…Recent studies, including one by NSW, obtain small employment elasticities for restaurants, -0.06 or less in magnitude. The substantive critique in NSW thus centers primarily upon teens. Using a longer (1979-2014) sample than used by NSW and in our own previous work, we find clear evidence that teen minimum-wage employment elasticities from a two-way fixed-effects panel model are contaminated by negative pre-existing trends. Simply including state-specific linear trends produces small and statistically insignificant estimates (around -0.07); including division-period effects further reduces the estimated magnitudes toward zero. A LASSO-based selection procedure indicates these controls for time-varying heterogeneity are warranted. Including higher order state trends does not alter these findings, contrary to NSW. Consistent with bias in the fixed-effects estimates from time-varying heterogeneity, first-difference estimates are small or positive. Small, statistically insignificant, teen employment elasticities (around -0.06) obtain from border discontinuity design with contiguous counties. Contrary to NSW, such counties are more similar to each other than to other counties. Synthetic control studies also indicate small minimum wage elasticities (around -0.04). Nearby states receive significantly more weight in creating synthetic controls, providing further support for using regional controls. Finally, NSW’s preferred new matching estimates are plagued by a problematic sample that mixes treatment and control units, obtains poor matches, and shows the largest employment drops in areas with relative minimum wage declines.

Must-Read: Ed Kligore: The Brand: What You See Is What You Get

Posted on by Brad DeLong

Ed Kilgore: The Brand: What You See Is What You Get): “Ann Friedman has written a piece for TNR that will be of great interest to all of us who have had to grapple with the idea…

…of a personal ‘brand’… back in the day… called a ‘voice.’… Friedman shares with us the hilarious and sobering tale of her own wrestling match with ‘branding’…. Personally, I find it easier to remain ‘authentic’… by letting people absorb my unique characteristics organically, rather than spending time each day trying to figure out how to improve the lefty-cracker-Christian-bloviator-with-a-surprisingly-good-vocabulary brand…. We’re not entirely immune to the logic of ‘branding,’ but for the most part, what you see is what you get.

Must-Read: Mariana Mazzucato: Jeremy Corbyn’s Necessary Agenda

Posted on by Brad DeLong

Mariana Mazzucato: Jeremy Corbyn’s Necessary Agenda: “We must drop the false dichotomy of governments versus markets…

…and begin to think more clearly about the market outcomes we want. There is plenty to learn from public investments that were mission-oriented, instead of focused on ‘facilitating’ or ‘incentivizing’ business. Policy should actively shape and create markets, not just fix them when they go wrong. Indeed, policies traditionally considered ‘business friendly,’ such as tax credits and lower tax rates, can be bad for business in the long run if they limit governments’ future ability to invest in areas that increase innovation-led growth…. Moreover, we need more patient, long-term finance. Most existing finance is too speculative and too focused on short-term outcomes. Exit-driven venture capital might be appropriate for gadgets; but technological revolutions have historically required patient, committed public financing…. When the public sector takes key risks along the innovation chain… we should think more creatively about the kinds of contracts that enable the public to share not only the risks, but also some of the rewards. We must also shape a new narrative on debt. Rather than focus on budget deficits, we should concentrate on the denominator of debt-to-GDP ratios…