…in the United States since World War II. The evidence from the economics literature suggests that licensing has had an important influence on wage determination, benefits, employment, and prices in ways that impose net costs on society with little improvement to service quality, health, and safety. To improve occupational licensing practices, Kleiner proposes four specific reforms. First, state agencies would make use of cost-benefit analysis to determine whether requests for additional occupational licensing requirements are warranted. Second, the federal government would promote the determination and adoption of best-practice models through financial incentives and better information. Third, state licensing standards would allow workers to move across state lines with a minimal cost for retraining or residency requirements. Fourth, where politically feasible, certain occupations that are licensed would be reclassified to a system of certification or no regulation. If federal, state, and local governments were to undertake these proposals, evidence suggests that employment in these regulated occupations would grow, consumer access to goods and services would expand, and prices would fall.
Category: Equitablog
Are big U.S. cities still the engines of innovation?
In a piece earlier this year on the economic problems caused by high housing costs in the city of San Francisco, The Economist’s Ryan Avent remarked, “We have machines to produce more ideas, and we call them things like ‘San Francisco’.” Avent was reflecting the large amount of economics research showing the importance of proximity and population density for generating new ideas and putting them into place. But over the past several decades, one of those new ideas, the Internet, seems to have reduce the importance of physical location. So are big cities still important idea generation machines?
A new working paper argues that while more densely populated cities will lead the way on innovation, their advantage has declined recently. The new National Bureau of Economic Research working paper tries to understand how the relationship between population density and innovation. The authors, Mikko Packalen of the University of Waterloo and Jay Bhattacharya of Stanford University, look at innovation in particular as the adoption of new ideas.
The stereotype of a great innovator is that of a loner genius who has his or her eureka moment alone in the lab. But in reality, innovation is a collaborative process that involves interplay among individuals. No innovator is an island. So in that regard, the ability to readily come into contact with other potential innovators helps boost the creation of ideas. Cities, with their high population density, are the perfect incubator for this process.
One of the ways that cities may help innovation is that they make it easy to bat around an idea or engage in debates over an idea’s merits. Gathering a group of individuals familiar with an area of research is much easier when they aren’t far apart physically. Yet the Internet’s great strength is its ability to allow people to discuss pretty much anything regardless of where they are on earth. The merits of a new idea can be debated my participants across continents. In this way, the Internet reduces the importance of population density in innovation.
To test this hypothesis, Packalen and Bhattacharya look at patents from the United States spanning from the 1870s up until 2006. Since they want to look at the adoption of new ideas, the economists focus in on the use of key idea phrases in the patents. To be more exact, they examine whether a patent is using an “idea input” that is among the top 5 percent of newest ideas. In other words, they want to see how many new inventions use new ideas.
Why should we care about the citation of new ideas? In a companion paper also released this week, Packalen and Bhattacharya find that inventions that cite new ideas are more likely to spur further innovation. New ideas, therefore, provide strong foundations for future innovation.
Their main way of looking at the effect of population density is to calculate the increase in probability of citing a new idea by going from the 50th percentile to the 95th percentile in population density. According to Packalen and Bhattacharya, the probability increase from this move between 1880 and 1910 was about 20 percentage points. By the 1970s and 1980s, the percentage point increase was only 8 points. And in the 1990s to 2000s—amid the rise of the Internet as a transformative technology—the increase was only 4 percentage points.
This new research still demonstrates that more densely populated cities foster more innovation and new ideas, just less so than in the past. Importantly, though, the role of the Internet in this shifting dynamic isn’t conclusively made in the paper. But the timing of the declines is consistent with the rise of technologies allow easier communication over long distances.
As interesting as these results are, there is one potential problem with the paper. The researchers assume that patents are a valuable metric of innovation. Given the rise of patent trolls in recent years, this assumption might not hold up for the later years under investigation.
If these results holds up under subsequent investigations, it doesn’t mean that the many economic advantages of large, dense cities are destined to fade away. Cities might not be as relatively important in the creation of new ideas, but they are still quite good at implementing those ideas. A long list of research finds that workers in more dense areas are more productive due to agglomeration effects.
Cities such as San Francisco are still idea-generating machines, but their relative importance in the generation process itself may be smaller than in the past. The world of ideas isn’t flat. But some wrinkles seem to have been ironed
Things to Read on the Morning of February 4, 2015
Must- and Shall-Reads:
- : For A Closing Act, Obama Has A Bold Plan To Transform Child Care
- : Tough Fedding
- : “The Federal Reserve can probably ignore the sharp decline in the bond market’s long-term inflation forecast. But not safely…. The problem lies more in what the TIPS market implies inflation will be in the five years that begin five years from now…”
- : Maternity Leave Policies in America Hurt Working Moms
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: Did the Fed’s QE program boost the US economy?: “I would think understanding the past might provide some useful insights for policymakers. To that point, understanding the Great Recession and its aftermath is especially important. Take the role of the Federal Reserve during the Not-So-Great Recovery. Here is Senator Ted Cruz on his cosponsorship of the new Fed audit bill introduced by Rand Paul…” -
: Class Resentment, Class Treason and Political Consciousness: “[Reihan] Salam proceeds to lay out a detailed brief against the mass upper class in policy terms: from their support for unproductive tax breaks… mortgage interest deduction… restrictive zoning… cartel-preserving licensure requirements… a backwards immigration system that lets in nannies but keeps out doctors…. You can contextualize… [this] policy criticism Salam is making within a general libertarian critique… or… a general left-wing critique… (we need a class-based politics that doesn’t get hijacked by cultural politics)… both frameworks for talking about how to reduce the political influence of a favored class…. But Salam doesn’t make either argument. Instead, he’s says we need to guilt the upper middle class into being a more civically-responsible gentry…. There is no virtuous class out there. Contra William F. Buckley, a collection of random names from the Boston phone book would do a terrible job running the country…. Here in New York. Our Mayor, Bill de Blasio… is trying to yoke… [a] pro-development stance to an affordable housing plan… acting against precisely the entrenched class interests that Salam thinks are so problematic…. But his cultural politics line up perfectly with the kinds of liberals Salam knows dominate the mass upper class. Which matters more? That, it seems to me, is the question.” -
: The Economist Magazine Is Wrong About Welfare’s Impact on Family: “If you want to see the right-wing denuded of its usual bluster about family values and welfare, visit this [Will Wilkinson Economist post… [that] argues that the problem isn’t a paucity of empathy for poor people who rely on welfare, but perhaps an excess of it; furthermore, the piece goes on to suggest that poor people who rely on disability benefits should, in order to get off of welfare, pack up and move away from family and friends in search of jobs…. The quandary the author refers to is the problem of preferring to rely on disability income and to stay among family and friends rather than moving to an entirely new place alone in order to relinquish benefits. There are multiple problems with this view…. There most certainly is an empathy gap when it comes to well-off individuals’ view of the poor…. The articleinadvertently admits a reality about poverty and welfare that few on the right are willing to: that poverty, rather than welfare, breaks up families…. Disability payment… allows people with disabilities to remain in places where their families live rather than chasing after work in far-flung places… resist[s] the massive social dislocation brought on by free-market capitalism…. The demands of capital and the obligations of family are often at cross-purposes…. [Will Wilkinson of] the Economist makes a good conservative case for a more expansive welfare regime: one that would really shore up family life.” -
: The Supreme Court challenge against ObamaCare is rapidly falling apart: “The Adler-Cannon brief… cite[s] a letter sent by 11 Texas House Democrats, which they say constitutes evidence for the assertion that ‘[m]any House members… recognized [PPACA] conditioned subsidies on states creating Exchanges.’ Adler and Cannon’s characterization of the letter is blatantly dishonest…. The letter’s argument that under the Senate bill ‘millions of people will be left no better off than before Congress acted’… is preceded by a discussion of how some conservative states have cut or failed to expand benefits under Medicaid and CHIPRA…. The concern of the Texas Democrats… is that… conservative states[‘]… exchanges… would… make it impossible for some residents to obtain affordable insurance. Adler and Cannon stand the meaning of the letter on its head…”
Should Be Aware of:
- : Paul Ryan’s Most Shameless Lie Ever
- : How an Amish missionary caused 2014’s massive measles outbreak
- : Optimism of intellect
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: “Re: ‘2) The ARRA was too small. Here the data (as analyzed by all but John Taylor) show that Keynes was right. But the way people think is that the recovery was feeble, we tried that and it didn’t work…’ Which is EXACTLY what us stoopid Green Lanterns predicted would happen and why we’re still hung up on the fact that Obama settled so easily for so little. ARRA being so undersized–along with the 12-dimensional-ju-jitsu-chess-master-black-belt’s assurances that it would do the job–have made it even more difficult to deploy stimulus for the foreseeable future. (Not to mention the fact that if he had structured the ARRA the way Stiglitz wanted it with infrastructure $ and direct aid to the states & localities to cover their deficits, he would have had all the little Hoovers lobbying for it or having to explain to their constituents why it was so much better to lay off all their teachers, police and fireman than to take that dirty federal money.) But, hey, get over it. It was only millions of lives that were irrevocably damaged…. And then I hear some maroon from the O[bama] administration the other day talking about how the economy has come ‘roaring back’. Seriously. Roaring. Just ask all those people whose paychecks have been growing so fast they can barely fit them in their bank accounts…” -
: Macroeconomic Cronyism: “The stories Dornbusch and Edwards analyzed, the issues of Latin America today, involved governments that really were trying to help the poor and workers…. Populist regimes, even if they didn’t end up serving the interests of their constituency. But nobody would call the Putin regime populist; he’s rejecting economics as we know it to defend a kleptocracy…. Putin seems to have brought something new, or at least formerly rare, into the world of economic policy: macroeconomic cronyism, an effort to suspend the laws on economics on behalf, not of the broad populace, but a tiny group of well connected malefactors of great wealth. Innovation!” -
: Lunch with the FT: Demis Hassabis: “DeepMind… has the aim of making ‘machines smart’…. Watch one of Hassabis’s entertaining presentations on YouTube. There, you can see him showing off the AI system… play[ing] retro arcade games such as Space Invaders. At first, the machine pilot is hopeless but, after just a few hours, it is firing missiles to its targets with uncanny accuracy…. His ambition is to create ‘general’ AI systems that use ‘unstructured’ information… to make independent decisions…. Before he leaves, I ask how long it will take to create general AI. When will Hassabis’s lines of computer code, his algorithms, start writing their own lines of code, their own algorithms?…” -
: Reagan’s Bizarre Defenders: Rick Perlstein, Phony Centrism, and the Attack on History: “‘Goldwater, Nixon, Reagan–Perlstein has moved from covering a minor saint, to a martyr, to God.’ — David Weigel. Weigel’s summary goes to the heart of why Rick Perlstein’s… ‘The Invisible Bridge’ has been received so differently from his first two histories…. A bogus plagiarism charge was even mounted to not only muddy the waters, but to actually try to prevent publication of his work…. Perlstein…. ‘My stupidest reviews come from centrists desperate to cling to myth of a sensible right’… linking to his response to a review by Jacob Weisberg…. And when UC Berkeley economist/econoblogger Brad DeLong tweeted back, ‘OK, I will grant you Jacob Weinberg. Who else?,’ Perlstein responded, ‘Sam Tanenhaus. Damon Linker [here] (he wasn’t all that bad). Robert Kaiser [here]’… Geoffrey Kabaservice and Michael Kimmage…. Perlstein’s got a point…. In his responses to Tanenhaus and Weisberg, Perlstein focused primarily on what they got wrong about his book descriptively–clearly demonstrable failures to accurately reflect the content they were commenting on…. [But] we [also] get repeated displays of ideologically loaded assumptions–it’s just that the ideology involved is a centrist one…”
Evening Must-Read: James Pethokoukis: Did the Fed’s QE Boost the US?
The predictions made to Rand Paul, Ted Cruz, Paul Ryan and others back in 2009-2010 was that QE would lead to inflation and high nominal interest rates. Now they are complaining that it has led to low nominal interest rates, dollar “volatility”, a “destabiliz[ed]… financial system” and “distort[ed] investment”. You would think that by now they would be asking some hard questions of whatever economic “advisors” they have been listening to.
Apparently not.
James Pethokoukis tries to bring some reality:
…might provide some useful insights… understanding the Great Recession… is especially important. Take the role of the Federal Reserve during the Not-So-Great Recovery. Here is Senator Ted Cruz….
It’s time for a complete audit of the Federal Reserve…. The Fed has expanded its balance sheet fivefold, yet economic growth is still tepid… and median income and household wealth are depressed. Americans are living with near-zero interest rates on their savings… small businesses report credit is still hard to get. Quantitative easing has contributed to the dollar’s volatility… destabilizes the financial system… distorts investment. Other than elevating the stock market and key prices such as oil until lately, the Fed’s policies have not resulted in a long-term cure…. Enough is enough. The Federal Reserve needs to fully open its books so Congress and the American people can see what has been going on. This is a crucial first step….
Now one might get the impression from that statement that the Fed’s monetary easing efforts have been a bad, fruitless idea. I see things differently. Fed inactivity would have led to an ugly, Eurozonesque…. Martin Feldstein… calls quantitative easing a “success” that stimulated growth and job creation:
QE’s… aggressive program of bond-buying and its commitment to keep short-term interest rates low for a prolonged period drove the long-term rate down to about 1.5%. The sharp fall in long-term rates induced investors to buy equities, driving up share prices. Low mortgage interest rates also spurred a recovery in house prices… raised households’ net worth in 2013 by $10 trillion… led to a rise in consumer spending, prompting businesses to increase production and hiring, which meant more incomes and therefore even more consumer spending…. QE’s success in the US reflected the Fed’s ability to drive down long-term interest rates…
Folks supporting an active monetary policy the past few years should take a victory lap or sorts over the tight-money crowd…. And shifting to monetary policy rule, such as NGDP level targeting would seem to make the idea superfluous–unless your ultimate goal is to back the Fed into a tight monetary stance in lieu of return to the gold standard or some other commodity-based monetary standard.
Afternoon Must-Read: Noah Millman: Class Resentment, Class Treason and Political Consciousness
against the mass upper class in policy terms: from their support for unproductive tax breaks… mortgage interest deduction… restrictive zoning… cartel-preserving licensure requirements… a backwards immigration system that lets in nannies but keeps out doctors…. You can contextualize… [this] policy criticism Salam is making within a general libertarian critique… or… a general left-wing critique… (we need a class-based politics that doesn’t get hijacked by cultural politics)… both frameworks for talking about how to reduce the political influence of a favored class….
But Salam doesn’t make either argument. Instead, he’s says we need to guilt the upper middle class into being a more civically-responsible gentry…. There is no virtuous class out there. Contra William F. Buckley, a collection of random names from the Boston phone book would do a terrible job running the country….
Here in New York. Our Mayor, Bill de Blasio… is trying to yoke… [a] pro-development stance to an affordable housing plan… acting against precisely the entrenched class interests that Salam thinks are so problematic…. But his cultural politics line up perfectly with the kinds of liberals Salam knows dominate the mass upper class. Which matters more? That, it seems to me, is the question.
Afternoon Must-Read: Elizabeth Stoker Bruenig: The Economist Magazine Is Wrong About Welfare and the Family
…about family values and welfare, visit this [Will Wilkinson Economist post… [that] argues that the problem isn’t a paucity of empathy for poor people who rely on welfare, but perhaps an excess of it; furthermore, the piece goes on to suggest that poor people who rely on disability benefits should, in order to get off of welfare, pack up and move away from family and friends in search of jobs…. The quandary the author refers to is the problem of preferring to rely on disability income and to stay among family and friends rather than moving to an entirely new place alone in order to relinquish benefits. There are multiple problems with this view…. There most certainly is an empathy gap when it comes to well-off individuals’ view of the poor…. The articleinadvertently admits a reality about poverty and welfare that few on the right are willing to: that poverty, rather than welfare, breaks up families…. Disability payment… allows people with disabilities to remain in places where their families live rather than chasing after work in far-flung places… resist[s] the massive social dislocation brought on by free-market capitalism…. The demands of capital and the obligations of family are often at cross-purposes…. [Will Wilkinson of] the Economist makes a good conservative case for a more expansive welfare regime: one that would really shore up family life.
Afternoon Must-Read: Scott Lemieux: More on the Supreme Court Challenge to ObamaCare
…cite[s] a letter sent by 11 Texas House Democrats, which they say constitutes evidence for the assertion that ‘[m]any House members… recognized [PPACA] conditioned subsidies on states creating Exchanges.’ Adler and Cannon’s characterization of the letter is blatantly dishonest…. The letter’s argument that under the Senate bill ‘millions of people will be left no better off than before Congress acted’… is preceded by a discussion of how some conservative states have cut or failed to expand benefits under Medicaid and CHIPRA…. The concern of the Texas Democrats… is that… conservative states[‘]… exchanges… would… make it impossible for some residents to obtain affordable insurance. Adler and Cannon stand the meaning of the letter on its head…”
Things to Read on the Morning of February 3, 2015
Must- and Shall-Reads:
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(2013): John Taylor the Republican Contradicts John Taylor the Economist: “John Taylor… [says] we would be better off with tighter monetary policy, and greatly tighter fiscal policy. And the other smoking guns causing the crisis (lax regulation, global imbalances, irrational exuberance, politically motivated lending to subprime borrowers, etc) were a sideshow…. Taylor’s remarks sounded like a classic Republican critique of monetary and fiscal policy… objected to QE, fearful that it would stoke up inflation… objected to the stimulus package because it went against their preference for small government. But this Republican critique flies in the face of Taylor’s… work took on the causes of the business cycle, what monetary policy can do about it, and, by very close analogy, what fiscal policy can do too…” -
: Persistent Overoptimism about Economic Growth: “Since 2007, Federal Open Market Committee participants have been persistently too optimistic about future U.S. economic growth. Real GDP growth forecasts have typically started high, but then are revised down over time as the incoming data continue to disappoint. Possible explanations for this pattern include missed warning signals about the buildup of imbalances before the crisis, overestimation of the efficacy of monetary policy following a balance-sheet recession, and the natural tendency of forecasters to extrapolate from recent data.” -
: Who’s Unreasonable Now?: “Yanis Varoufakis is saying that he and his colleagues don’t care what happens to the headline value of the debt…. What they want instead is… reducing the amount of resources transferred to creditors from 4.5 to 1-1.5 percent of GDP… flexibility to achieve these surpluses with a mix that includes more revenue and less spending austerity. This is a dastardly ploy by those left-wing radicals. You see, it’s completely reasonable…”
Should Be Aware of:
- : “‘Merits of [Jeet Heer’s](http://www.newrepublic.com/article/120884/new-republics-legacy-race) story aside, it is hard to evaluate the decision to publish it outside of Chris Hughes’s desire to justify his mismanagement and ineptitude,’ Jonathan Chait, one of the contributing editors who left, said in an interview…” <– Jonathan Chait makes his play to become the Mickey Kaus of the twenty-first century…
- : David Brooks Auditions For Graham Greene
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: Defining Issue of 2016?): “Hillary Clinton @HillaryClinton: The science is clear: The earth is round, the sky is blue, and #vaccineswork. Let’s protect all our kids. #GrandmothersKnowBest”
Morning Must-Read: Tony Yates: John Taylor the Republican Contradicts John Taylor the Economist
The question as to whether one actually believes the models one teaches, and tries to apply the principal conclusions that follow from them, or regards them as ritualistic incantations to be dropped as soon as they contradict one’s ideological instincts or the preferences of one’s political masters… this is more and more coming to seem to me to be a key issue:
…with tighter monetary policy, and greatly tighter fiscal policy. And the other smoking guns causing the crisis (lax regulation, global imbalances, irrational exuberance, politically motivated lending to subprime borrowers, etc) were a sideshow…. Taylor’s remarks sounded like a classic Republican critique of monetary and fiscal policy… objected to QE, fearful that it would stoke up inflation… objected to the stimulus package because it went against their preference for small government. But this Republican critique flies in the face of Taylor’s… work took on the causes of the business cycle, what monetary policy can do about it, and, by very close analogy, what fiscal policy can do too…
Morning Must-Read: Kevin J. Lansing and Benjamin Pyle: Persistent Overoptimism about Economic Growth
…have been persistently too optimistic about future U.S. economic growth. Real GDP growth forecasts have typically started high, but then are revised down over time as the incoming data continue to disappoint. Possible explanations for this pattern include missed warning signals about the buildup of imbalances before the crisis, overestimation of the efficacy of monetary policy following a balance-sheet recession, and the natural tendency of forecasters to extrapolate from recent data.