Things to Read on the Morning of April 28, 2015

Must- and Should-Reads:

Here at Equitable GrowthThe Equitablog

Might Like to Be Aware of:

New John Bates Clark winner takes policy-relevant research very seriously

What makes a U.S. primary or secondary school successful? Traditionally, education policy has focused on factors such as teachers’ advanced degrees and training, the class size, aRnd spending per pupil. Yet research by Harvard University economics professor Roland G. Fryer, Jr., has challenged our notions of what makes our nation’s schools most effective. Fryer, this year’s recipient of the prestigious John Bates Clark medal, given to the most promising American economist under 40, is the first African American to win the coveted prize.

Fryer’s research is characterized by rigorous empirical testing of theoretical hypotheses such as whether smaller class size and increased spending per pupil are correlated with improved school effectiveness and better student outcomes. His research and subsequent award are part of a larger trend of the economics world embracing empirical work as opposed to just theoretical modeling.

Fryer and his colleague, Will Dobbie of Princeton University, looked at 39 New York City charter schools. Because these schools are not subject to the uniform standards that public schools must follow, the two researchers were able to compare a diverse range of educational strategies. Some schools, for example, focused on immersing their students in the arts in order to inspire success. Other schools were defined by a more militant “no-excuses” environment characterized by frequent testing, long school days, and harsh discipline for even the smallest infractions—what has been called the “broken windows” educational policy.

Fryer and Dobbie’s research found that a strictly controlled environment seemed to work best in fostering success among charter school students. Out of the 500 variables they studied, they found that five policies employed by “no-excuses” charter schools accounted for almost 45 percent of the variation in the school effectiveness. Fryer wondered whether these five “tenets” of student achievement—frequent teacher feedback, the use of data to guide instruction, frequent and high-quality tutoring, extended school day and year, and a culture of high expectations—could be successfully scaled up and broadly adopted by public schools.

So, in 2010, he began working with Houston school superintendent Terry Geier to implement a program based on Fryer and Dobbie’s five tenets. The program, deemed “Apollo 20,” after Houston’s historic role in the U.S. space program, targeted 20 of the city’s worst performing schools, including four that were slated to close before Fryer stepped in. The program was controversial because it involved firing most of the principals at the selected schools and due to its high costs, which were covered mostly by public funds.

According to a follow up report done by Fryer himself, the results have been mixed. While students made significant gains in math, reading remained stagnant, highlighting the problem of trying to replicate charter school success stories on a larger scale. Regardless, other cities have taken note. Select schools in Denver and Chicago have since adopted similar programs. Fryer has recently acknowledged the differences between public and charter schools and has suggested tweaks to the Apollo program that might make it more effective.

Fryer’s empirical work follows in the footsteps of other recent John Bates Clark medal winners, such as Emmanuel Saez at the University of California-Berkeley and Raj Chetty at Harvard University. They and other prominent economists, among them Amir Sufi at the University of Chicago, are more focused on the kind of data-driven research that results in effective policy interventions rather than on theoretical models that may or may not translate into actual policy directives for the real world.

Fryer, however, has gone to greater lengths than most economists to implement the findings of his research. And, as we saw with the Apollo project, he also uses this empirically driven approach to find holes in his own research—and is open to addressing approaches that do not work. As an expert on the racial achievement gap who himself grew up in a troubled home, Fryer has a boots-on-the-ground approach to combatting inequality through a dual approach of research and application. In doing so, he is a role model for the ways in which the academic world can provide evidence-based solutions to make the world more efficient and prosperous.

 

 

 

Thinking About TPP and TATIP: “Free Trade”

The advocates for the TPP and TATIP should be making the following points:

  1. The gains from trade from these agreements will be equitably distributed as a result of policies X.
  2. The stronger copyright protections will actually boost world growth.
  3. Alternatively, if (2) is false and the stronger copyright protections are actually bad for the world, it will benefit the United States to receive higher rents from our past and future investments in intellectual property, and the United States ought to exert its bargaining power to get a better deal for us.
  4. The dispute-settlement provisions will lead to better political-economic governance in the world as a whole, and will lead to harmonization at the top rather than a race to the regulatory bottom via policies Y.

Those are the arguments that should be made–if they can–to command general support for the TPP and the TATIP.

But, as Dean Baker points out, those are not the arguments that are being made:

Dean Baker: Correction to Mankiw: Economists Actually Agree, Just Because You Call Something “Free Trade” Doesn’t Make It Free Trade: “Greg Mankiw joined the parade of prominent people saying silly things…

…to help push fast-track trade authority through Congress. He headlined a column:

‘Economists actually agree on this point: The Wisdom of Free Trade.’ 

The piece then goes on to argue for fast-track trade authority to allow for the passage of the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP).

It’s nice that Mankiw has apparently gotten out his bag of economist’s holy water and blessed them both as free trade agreements, but that doesn’t make it true. (Hey, I want to have the Congress Gives $1 Trillion to Dean Baker Free Trade Act. As an economist in good standing, Mankiw will have to support this free trade measure.)… There are merits to reducing trade barriers, but traditional trade deals will have winners and losers…. So people, including economist people, may reasonably oppose them if they think the losers will be hurt so much that it offsets the gains from the deal. (Yes, we can do redistribution, but that is a children’s story. We don’t.)

But the key point here is that neither the TPP or TTIP is a traditional trade deal…. These deals are mostly about putting in place a business-friendly structure of regulation. Some of this business friendly regulation involves increasing barriers in the form of stronger and longer patent and copyright protection. (Yes, that is ‘protection,’ as in protectionism.)…

There is one other big point which in Mankiw’s piece which needs correcting. Mankiw tells readers:

Politicians and pundits often recoil at imports because they destroy domestic jobs, while they applaud exports because they create jobs.Economists respond that full employment is possible with any pattern of trade. The main issue is not the number of jobs, but which jobs.

Mankiw probably missed it, but we had a really bad recession when the housing bubble collapsed in 2007-2009 and the labor market still has not fully recovered. Millions of people are still unemployed or have given up looking for work. Tens of millions are unable to get wage gains because of the continuing weakness of the labor market. In principle we could get back to full employment with large government budget deficits, but that is not going to happen for political reasons…. If we want to get back to full employment, we have to reduce our $500 billion (@ 3 percent of GDP) trade deficit. (This is the intro econ on which all economists agree. It can even be found in Mankiw’s textbook.)…

Must-Read: Robert Skidelsky: Debating the Confidence Fairy

Must-Read: Robert Skidelsky: Debating the Confidence Fairy: “Any Keynesian knows… a slump… is… a deficiency in total spending…

…To try to cure it by spending less is like trying to cure a sick person by bleeding. So it was natural to ask economist/advocates of bleeding like Harvard’s Alberto Alesina and Kenneth Rogoff how they expected their cure to work. Their answer was… the confidence fairy…. Alesina argued that… [the] beneficial impact on expectations would more than offset its debilitating effects. Buoyed by assurance of recovery, the half-dead patient would leap out of bed, start running, jumping, and eating normally, and would soon be restored to full vigor. The bleeding school produced some flaky evidence to show that this had happened in a few instances. Conservatives who wanted to cut public spending for ideological reasons found the bond vigilante/confidence fairy story to be ideally suited to their purpose. Talking up previous fiscal extravagance made a bond-market attack on heavily indebted governments seem more plausible (and more likely); the confidence fairy promised to reward fiscal frugality by making the economy more productive….

The cure… came about years behind schedule not through fiscal bleeding but by massive monetary stimulus…. The champions of fiscal bleeding triumphantly proclaimed that austerity had worked…. In his first budget in June 2010, Chancellor of the Exchequer George Osborne warned that ‘you can see in Greece an example of a country that didn’t face up to its problems, and that’s a fate I am determined to avoid.’ In presenting the United Kingdom’s 2015 budget in March, Osborne claimed that austerity had made Britain ‘walk tall’ again. On May 7, that claim will be put to the test in the UK’s parliamentary election. British voters, still wobbly from Osborne’s medicine, can be forgiven if they decide that they should have stayed in bed.

Must-Read: Steve Cecchetti and Kermit L. Schoenholtz: The Euro Area’s Debt Hangover

Must-Read: Steve Cecchetti and Kermit L. Schoenholtz: The Euro Area’s Debt Hangover: “You wouldn’t know it from the record low level of government bond yields…

…but much of Europe lives under a severe debt burden. Nonfinancial corporate debt exceeds 100 percent of GDP in Belgium, Finland, France, Ireland, Luxembourg, Netherlands, Portugal, and Spain. And, gross government debt (as measured by Eurostat) is close to or exceeds this threshold in Belgium, France, Greece, Ireland, Italy, Portugal and Spain. Debt levels this high… are a drag on growth… households have more difficulty maintaining consumption when income falls; firms may be unable to keep up production and investment when revenue dips; and governments are in no position to smooth expenditure when revenue falls…. Beyond that, high levels of debt reduce the effectiveness of central bank stimulus…. Granted, zero (or even negative) interest rates postpone the day of reckoning, potentially for years. But as growth returns, we expect interest rates to rise and the burden of servicing the debt will rise with it. So, the time will ultimately come when waiting is no longer an option…

Must-Read: Robert Reich: The Political Roots of Widening Inequality

Robert Reich: The Political Roots of Widening Inequality: “Globalization and technological change have made most of us less competitive…

…The tasks we used to do can now be done more cheaply by lower-paid workers abroad or by computer-driven machines. My solution—and I’m hardly alone in suggesting this—has been an activist government that raises taxes on the wealthy, invests the proceeds in excellent schools and other means people need to become more productive, and redistributes to the needy. These recommendations have been vigorously opposed by those who believe the economy will function better for everyone if government is smaller and if taxes and redistributions are curtailed. While the explanation I offered a quarter-century ago… has become… standard, widely accepted…. I’ve come to believe it overlooks a critically important phenomenon: the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules….

[The] market view… fails to account for much… doesn’t clarify why the transformation occurred so suddenly… [cannot] account for why other advanced economies facing similar forces of globalization and technological change did not succumb to them as readily… why the compensation packages of the top executives of big companies soared… the [recent] decline in wages of recent college graduates…. A deeper understanding of what has happened to American incomes over the last 25 years requires an examination of changes in the organization of the market… stem[ming] from a dramatic increase in the political power of large corporations and Wall Street…. Rising job insecurity can also be traced to high levels of unemployment. Here, too, government policies have played a significant role…. Reversing the scourge of widening inequality requires reversing the upward distributions within the rules of the market, and giving workers the bargaining leverage they need to get a larger share of the gains from growth. Yet neither will be possible as long as large corporations and Wall Street have the power to prevent such a restructuring…

Must-Read: Ravi Kanbur and Joseph Stiglitz: Dynastic Inequality, Mobility and Equality of Opportunity

Must-Read: Ravi Kanbur and Joseph Stiglitz: Dynastic Inequality, Mobility and Equality of Opportunity: “One often heard counter to the concern on rising income and wealth inequality…

…is that it is wrong to focus on inequality of outcomes in a ‘snapshot.’ Intergenerational mobility and ‘equality of opportunity’, so the argument goes, is what matters for normative evaluation. We ask what pattern of intergenerational mobility leads to lower inequality not between individuals but between the dynasties to which they belong? And how does this pattern in turn relate to commonly held views on what constitutes equality of opportunity? Focusing on bistochastic transition matrices in order to hold constant the steady state snapshot income distribution, we develop an explicit partial ordering which ranks matrices on the criterion of inequality between infinitely lived dynasties.

Things to Read on the Afternoon of April 27, 2015

Must- and Should-Reads:

Might Like to Be Aware of:

What Has Happened to the Middle Class, Anyway?

A nice piece by Patricia Cohen in the New York Times with good quotes from Cornell’s Thomas Hirschl.

One thing going on is that the major lifestyle and utility improvements of the past generation–really cheap access to communication, information, and entertainment–are overwhelmingly available to pretty much everyone. On the one hand, this means that recent economic growth assessed in terms of individual utility and well-being is much more equal then when assessed in terms of income. On the other hand, it means that access these benefits seems much more like simply the air we breathe then as a marker of class status, or achievement.

Thus a loss of the ability to securely attain enough of economic security to firmly hold the indicators of what past generations saw as middle-class life shows itself as a loss. And those who focus on security rather than on utility do not see these as offset buy the information revolution.

Patricia Cohen: Middle Class, but Feeling Economically Insecure: “As J. Bradford DeLong, an economist at the University of California, Berkeley, put it…

People who thought they were upwardly mobile are finding themselves with no-higher real incomes [than their parents]. And people who thought they were sociologically stable are finding themselves poorer.

Money, of course, provides the wherewithal for acquiring what are considered the traditional bedrocks of a middle-class life: adequate health care, college for the children and retirement savings, generally with a car and a regular summer vacation thrown in.

Some version of that basket can be bought across a range of incomes, depending on location. It might include a used Pontiac instead of a late-model Lexus, or a small walk-up instead of a house with a backyard. And even though consumption was once a useful shorthand guide to a middle-class lifestyle, it is no longer as reliable in a world where cellphones and flat-screen TVs are staples in a majority of households below the poverty line and retirement savings, even among top earners, are often treated as a luxury.

There isn’t one middle class, but many middle classes. Still, what all of them ultimately require, experts say, is a sense of economic security.

“If there’s no security, there’s no middle class,” said Thomas Hirschl, a sociologist at Cornell and an author of “Chasing the American Dream.”

The types of jobs that pay middle-class wages have shifted since 1980. Fewer of these positions are in male-dominated production occupations, while a greater share are in workplaces more open to women.

That feeling of security has been eroded by several factors.

Median per capita income has basically been flat since 2000, adjusted for inflation. The typical American family makes slightly less than a typical family did 15 years ago. And while many goods have become cheaper or better, the price of three of the biggest middle-class expenditures — housing, college and health care — have gone up much faster than the rate of inflation.

Equally important, Mr. Hirschl found a high degree of income volatility among most Americans in the four decades between 1969 and 2011. At some point in their working lives, a full 70 percent earned enough to put them in the top fifth of earners, and as many as 30 percent reached the equivalent of $200,000 in 2009 dollars, or roughly the top 4 percent.

Similarly, nearly 80 percent at least temporarily plunged into a red zone, where their income dropped near or below the poverty line, or they were compelled to gain access to a social safety net program like food stamps or collect unemployment insurance. More than half of Americans ages 25 to 60 will experience at least one year hovering around the poverty line.

For most people, their 20s and 30s have traditionally been the least secure decades, with earning power building to a peak in their 40s and 50s, Mr. Hirschl said. But the recession upended that pattern for many Americans. Older workers experienced an extended bout of unemployment, often followed by a new job at a lower wage…