Category: Equitablog

Afternoon Must-Read:

Daily Economic History: Summary of: Robert Allen: Farm to Factory: An Interpretation of the Soviet Economy

http://www.c-span.org/video/?324436-1/discussion-future-work

Larry Summers:

On the diagnosis, I want to make a confession of ignorance, make an observation, and express a worry.

First, my confession of ignorance is this, and I think it should apply to everybody who speaks confidently in this area: On the one hand we have enormous antidotal evidence and visual evidence of the kind that Erik marshals, and it points to technology having huge and pervasive effects. Whether it is in complementing workers and making them much more productive in a happy way–that’s one possibility–or whether it is substituting for them and leaving them unemployed–that is another possibility–it can be debated which. But in either of those scenarios you would expect it to be producing a Renaissance of higher productivity. On the one hand we are convinced of the far-greater pervasiveness of technology in the last few years. On the other hand, the productivity statistics over the last dozen years are dismal. Any fully-satisfactory synthetic view has to reconcile those two observations. I have not heard them satisfactorily reconciled This is something we have to figure out.

If you believe technology happens with a big lag and it’s only going to happen in the future, that’s fine. But then you can’t believe it’s already caused a large amount of inequality and disruption of employment today. That is a major puzzle, It hangs over this subject. I just want to put out there for discussion.

Second, my observation. I think it is a mistake to think of the economy as homogeneous–as producing something called “output”. As we approach these issues, an aspect that doesn’t get enough attention is that sectors through progress work themselves into economic irrelevance. Let me give an example: the illumination sector, the provision of light. It has had about a ten-fold increase in its productivity every decade for a century. We now think of it as a trivial sector in the economy. No doubt we could continue to produce ten-fold increases in productivity every decade. But actually most of us want it to be dark at night. There are more Little League night games than there used to be. There are more parking lots lit more brightly than they used to be. Basically, what has happened is that illumination has become quasi-free. Whereas candle-making was a major industry in the 1800s, illumination is a trivial industry today.

We need to recognize that a sector that has rapid technological progress but of which the world can absorb only so much becomes ultimately unimportant in the economy. Is that kind of thing relevant in thinking about the world? Here’s a fact that continues to astonish me. I concede there are a million measurement problems. But it is a fact. The way they compute the consumer price indices all prices were set to be an index of 100 in 1983. Consider two goods today: a television set, and a year at a university (or I could use a day in a hospital). The consumer price index for the latter two categories is in the neighborhood of 600. the consumer price index for the former category is 6. There has been a hundredfold change in the relative price of TV sets and the provision of basic education and health care services.

If anybody is wondering why governments can’t afford to do the things they used to do, I just gave you a big hint.

If anybody’s wondering where most people are growing to be working in the future, i just gave you a big hint.

If anybody’s completely confident we will have rapid productivity growth in the future, they should be giving pause–because no matter how much productivity we have in agriculture or illumination, it doesn’t really matter for the aggregate economy. Increasingly, that’s becoming true of a larger and larger fraction of what it is that we produce.

Third, my worry: When I was an undergraduate at MIT, and in the 1960s, there was a whole round of concern about will automation displace all the employment. What i was taught as an undergraduate was that basically the people who thought it would were a bunch of idiot Luddites. Obviously there would be enough demand. It would work itself out. If people got more productive at making more, they would spend more Maybe we needed some transition assistance, but it would all be okay.

That is what I thought and what Bob Solow thought. And Bob Solow was a hero. And the other people were all a bunch of goofballs–that was kind of what I learned. I believed that for many years. I actually repeated it often. But it has occurred to me that when I was being taught that about 6% of the men in the United States between the age of 25 and 54 were not working. Today, 16% of the men in the United States between the age of 25 and 54 are not working. It won’t be very different even when the economy is at full employment.

Something very serious has happened with respect to the general availability of quality jobs in our society. We can debate whether it is due to technology or whether it is not due to technology. We can debate whether it is the cause of dependence or whether it is caused by policies that promote dependence. But it is very hard to believe that a society in which the fraction of people–choose whatever your most prime demographic group is–who should be working in that group in which the fraction of them who are not working is doubling in a generation. Is that going to be a society that is going to function well, or function well without major social innovations?

I want to leave you with that concern. Whether you think it is due to technology or to globalization or to the maldistribution of political power, something very serious is happening in our society.

Must- and Shall-Reads:

• Institute for the Study of Labor: Research in Labor Economics: Vol. 41: ‘Gender Convergence in the Labor Market’ FREE PAPER DOWNLOAD (until March 13, 2015)
• J.W. Mason: “The essential points… the goal of the euro system to create a situation where markets can ‘pressurise governments into sound economic policies’… this requires limits on national sovereignty, which will be resisted by democratic governments; and… can only be overcome through the threat of a crisis…”

1. The Hamilton Project (@hamiltonproj) | Twitter: You can watch the full #FutureOfWork forum on @cspan http://cs.pn/1z3WKBP
   That concludes our #FutureOfWork event.Thanks to our panelists for a great discussion. Visit http://bit.ly/1BZmC4U for video & audio

2. Simon Wren-Lewis: Endogenous Supply and Depressed Demand: “Without fiscal austerity the US, UK and Eurozone could currently be at output levels that are above current estimates of potential or natural output…. But are these estimates of potential output really independent of the path of actual output?… We know that stylised view is wrong for a variety of reasons. Labour that has been unemployed may become deskilled. Firms that are forced to cut back on investment in a recession may take time to rebuild their productive capacity. However there may be other ways it is wrong for reasons that are much more difficult to quantity. In particular, if investment falls in a recession, new technology that has to be embodied in new machines may fail to emerge, so the rate of technological progress may appear to decline. These processes may not matter too much in normal (mild and short lived) booms and busts. However following a large recession they may become more important…. After a severe recession which appears to result in a loss of capacity, you use policy to explore the boundaries of just how much capacity has really been lost, and run the risk that inflation may rise as you do so. You do not sit back, tell yourself that below target inflation is probably temporary, and do nothing. And, of course, you do not plan for more fiscal austerity.”

3. Nick Bunker: Income Inequality Over the Business Cycle: “Stephen Rose argues that income inequality has not risen since the end of the Great Recession… takes aim at research by University of California-Berkeley economist Emmanuel Saez showing that 95 percent of the income gains from 2009 to 2012 were captured by the top 1 percent of earners… assert[s claims]… inequality has risen since the Great Recession… based upon a ‘statistical gimmick.’ Rose… look[s] at changes in incomes since 2007, the peak of the last business cycle…. Saez and… Piketty show… income excluding capital gains… [of] the top 1 percent dropped from 18.3 percent in 2007 to 16.7 percent in 2009…. During economic expansions, workers at the bottom of the income ladder see very large gains and those at the top see large gains as well. Those in the middle miss out. And during recessions, the incomes at both ends lose the most…. By starting his measurement from the peak of the last business cycle in 2007, Rose includes the years that have the most income reduction for those at the top. But the expansion beginning in 2009… is not over…. Yes, if 2007 is the benchmark year, incomes at the top have declined. And yes, if 2009 is the benchmark year, incomes at the top have increased dramatically…. What isn’t reasonable is using a peak as a benchmark to claim inequality hasn’t increased over an incomplete business cycle…”

Should Be Aware of:

• Alex Balk: How To Fix The Internet

1. Josh Marshall: We Can’t All Live in Interesting Times: Admonishing Jeff Herf: “The person who stood out to me more than anyone else was Herf… averring… that anyone who had opposed the [2003] Iraq War had ‘failed the test of armed anti-fascism.’ Heady words… [that] struck me at the time as full of self-regard and historical pretension. The Democratic party would never win another national election until this historical error was righted and it was the end of liberalism in its entirety, he went on. He had all the hard sectarian left’s grandiosity and picayune concern for the obscure detail grafted like a face transplant onto the values of the hard right…. Some people can’t resist the hifalutin equivalent of dressing up as cowboys and Indians or cops and robbers. Play-acting. Fantasy. At least the Civil War and World War II re-enactors know they’re reenacting. So when I saw [Herf’s] new piece, I thought, are we at another world historical moment with new Churchills and Chamberlains and Islamofascist bad guys? Well, yes we are! Only now Robert Menendez is Scoop Jackson or something like that…. One could be forgiven one episode of war intoxication. But another world historical crossroads so soon? And all over yet another government in the same part of the world to be toppled?”

2. Constitutional Mistermix: This Street Holds Its Secrets: “Yesterday my kid called me with the news that a former high school classmate, now 19 and attending Cornell, had shot and killed his father in their suburban tract house. The boy’s mother told the 911 dispatcher that the boy was defending himself from the father when he shot his dad multiple times with a shotgun. After the shooting, the boy and mother waited on the snowy driveway of the house for the sheriff’s deputies to arrive. I only knew this young man as a boy who played in the band with my kid. He was friends with some of my kid’s group of friends, but I don’t think he had ever been in our house. Neighbors say that he was always polite and helpful. There had been a number of domestic violence calls to the home. Late yesterday, the boy’s attorney told the press that there had been ‘decades’ of domestic violence and abuse perpetrated by the father on the children.  The parents are first- or second-generation Asian immigrants–I don’t know enough about their culture or their family situation to know why nobody asked for more help. I don’t know if the gun was the father’s or the son’s. All I know is that it was there in a terrible situation and now someone is dead. This is the second time in a couple of years that a gun plus a volatile domestic situation has led to death in a generally peaceful little suburb.”

3. Yael T. Abouhalkah: Kris Kobach exposed in phony Kansas voter fraud claim: “U.S. Attorney Barry Grissom…. ‘So we can avoid misstatements of facts for the future, for the record, we have received no voter fraud cases from your office in over four and a half years. And, I can assure you, I do know what I’m talking about.’”