Category: Equitablog

Jim Newell (June 10, 2014): Drudge’s new fixation: Eric Cantor and the right’s frenzied paranoia: “As a hobby, scanning the Drudge Report for signals of what rabbit hole…

…the conservative brain has gone down at any given point has lost some of its novelty over the years. Still, it was hard not to notice this morning that Drudge, in the prime upper-left real estate of his site, had listed a full 14 links regarding immigration and a supposed impending push for “amnesty” among the House Republican leadership. (Personal favorite: “Kids Complaining Burritos They’re Being Fed Making Them Sick…”) What gives on this sleepy Tuesday? We learned last week, after all, that the House won’t hold any immigration-related votes in June. That leaves the leadership a few weeks in July to pass the unicorn-like Secret Amnesty that’s not in its interest to pass. Why is it so vital to whip up the conservative base about immigration reform on today of all days? Hmmm … maybe something about Tuesday … primary season … it’s a Tuesday during primary season … Ohhhhhhhh, we get it: House Majority Leader Eric Cantor’s primary is today!

Matthew Zeitlin: Goldman Sachs CEO: “Income Inequality Is A Very Destabilizing Thing In The Country”: “Lloyd Blankfein, in an interview with CBS…

said that income inequality is “destabilizing” and “responsible for the divisions in the country.” Calling it a “very big issue..that has to be dealt with,” Blankfein said that whether or not the economy grows faster, “too much of the GDP over the last generation has gone to too few of the people”…

The highly-intelligent and thoughtful Erik Brynjolfsson tweets:

Erik Brynjolfsson: Twitter / @erikbryn: “The Beveridge curve has shifted. Part (but not all) of our economic problem is a mismatch between skills vs. needs http://pic.twitter.com/TODGowPjTL“

I think that’s what Erik says is: “true, but…”. The “true” part is that as technology advances the needs of the economy shift, and very bad things happen if the skills of the labor force do not keep up.

The not so true part is Erik’s assumption that “skill-need mismatch” will show itself in a shift in the Beveridge Curve rather than in sharp shifts in relative wages, As businesses respond by boosting what they will pay to those with skills in short supply and by reconfiguring jobs to make more use of low-wage “unskilled” labor. The way I look at it, an upward shift in the beverage curve is much, much more likely to reflect either the atrophy of the past social networks that had gotten the currently not employed their previous jobs or the nonexistence of the needed social networks on the part of young workers entering the labor market and looking for their first jobs.

There is no reason to think that our educational system was performing much poorer in the 1970s and 1980s that it had in the 1950s and 1960s or that the pace of technological progress and speed it up. Yet the Beveridge Curve shifted out sharply in those years. There is no reason to think that June 2009 was a magic moment after which “skill–needs mismatch” took a sudden upward leap.

Thus I think Erik is most likely misdiagnosing our problem here: Yes, there is an enormous amount of “skill-needs mismatch” but it has shown itself in the widening wage and salary distribution over the past generation, not in an end of 2009 shift in the Beveridge Curve. Yes, we should aggressively reform our educational system to reverse this mismatch. But we do not need to do that in order to fix our unemployment–vacancy problem, and we should not think that even successful educational reform would fix our unemployment–vacancy problem. That requires different policies to make the job matching process easier for both workers and firms to find potential matches.

Should-Reads:

1. Larry Mishel: Raising America’s Pay: A summary of the initiative: “Raising America’s Pay will: Highlight our nation’s failure to provide broad-based wage growth…. Research and explain the role of labor market policies and practices in suppressing pay…. Identify policies that will generate substantial broad-based wage growth…. Connect with key networks of civic engagement and community organizing groups…”

2. Nick Bunker: Immigration reform is pro-growth and pro-equity: “Gianmarco Ottaviano of the Universita’ di Bologna and Giovanni Peri… found that the wages of U.S. citizens, even those with less than a high school education, actually increased because of immigrant labor… immigrants were complementary workers…. The benefits of productivity gains due to immigration aren’t limited to boosting U.S. wages. Immigrants can also increase the overall productivity of the economy and spur long-run economic growth…. Passing commonsense immigration reform in 2014 is certainly a long-shot. But members of the House of Representatives and the general public should be aware of this shrinking window of opportunity…”

3. Heather Boushey And Nick Bunker: The labor market is doing better, but not fully recovered: “Six-and-a-half years after the start of the Great Recession, in some ways, the U.S. labor market has recovered nicely…. The three-month average for job growth is 234,000 a month…. And the unemployment rate has dropped from its high of 10 percent in October 2009 to 6.3 percent in May. But… these improvements are not… enough to alleviate the pain the Great Recession inflicted on our economy…. The labor force participation rate… was 62.8 percent in May…. The year-on-year growth in nominal wages was 2.1 percent…”

4. Nick Bunker: Inequality and the future rate of savings: “[If] there is a positive relationship between growth and the saving rate… [that leads] to a declining savings rate as growth declines…. There’s also the issue of net savings versus gross savings… the rate of savings has to be higher than… depreciation…. As more and more income flows to those at top, the consumption and savings decisions of top earners would have a larger effect on the overall savings rate… [and] high-income individuals have a higher savings rate than the rest of the population…”

5. Lily Kuo: Beijing is having a hard time convincing officials they shouldn’t abandon China: “Chinese state media recently reported what was meant to be another coup for president Xi Jinping’s anti-corruption campaign: a crackdown on thousands of ‘naked’ officials—those who send their family, and often their wealth, abroad, and remain behind…. China’s battle against elite families moving abroad remains an uphill one, which reflects a much broader public relations crisis for the country’s ruling party. For the Chinese public, the fact that so many government officials—whose official salaries are low—can afford to send their families to live, and their children to study, in America, Canada, or Europe is yet more proof of corruption in the government. Some also use their emigrated relatives as a way to funnel wealth abroad, often through real estate…. ‘These officials have lost confidence in the party and the country’, Chinese economist Zhao Hai Jun wrote on his blog (link in Chinese) in response to the news…”

Should Be Aware of:

• Dean Baquet: “It was really painful… to get beat by your biggest overseas competitor and your biggest national competitor…. It was just painful…. I am much, much, much more skeptical of the government’s entreaties not to publish today than I was ever before…”
• Ian Buruma: “Obama’s instincts are right… the limits of America’s power to impose a global order by force. His success as a president rests… on the stupid things he has avoided, like getting into more unnecessary wars…”
• Pierre-Daniel Huet: A Philosophical Treatise Concerning the Weakness of Human Understanding
• Jim Sleeper: Brooks, Wieseltier: Cries of American Weakness by the People Who Weakened America
• Bernard S. Black
• Dhara Ranasinghe: Japan’s Q1 GDP revised sharply higher
• Jeet Heer: The Problems with Patterson’s Heinlein Biography
• Ryan Cooper: The case for optimism on climate change
• Marissa Lingen: Robert A. Heinlein In Dialogue With His Century: Vol. 2: The Man Who Learned Better, 1948-1988, by William H. Patterson, Jr. | Novel Gazing Redux
• Robert Farley: Asia’s Greatest Fear: A U.S.-China War
• Bob Cesca: Politicians and Pundits Called For an Armed Revolution, So the Millers Tried to Deliver One
• Al Gore: “What [Snowden] revealed in the course of violating important laws included violations of the Constitution that were way more serious than the crimes he committed. In the course of violating important laws he also provided an important service because we did need to know how far this has gone…”

And:

1. Jason Furman: Global Lessons for Inclusive Growth: “The first set is policies that directly expand both growth and opportunity… preschool, which has among the highest returns of any area of investment… expanded access to college and improved demand-driven training…. The second set of policies are ones that increase growth… labor, capital, and what we can broadly call technology…. The third set of policies is aimed at ensuring that everyone shares in the benefits of growth. Currently, countries including Switzerland and the United States are focused on raising their minimum wages…. The EITC has been very successful in reducing poverty, rewarding work, and encouraging increased labor force participation. Part of ensuring that everyone shares in the benefits of growth is making sure that the process of enhancing medium- and long-term fiscal sustainability does not move in the opposite direction. One element of this is that deficit reduction be done in a balanced manner that in addition to entitlement reform include additional high-income revenue…. Ensuring everyone shares in the benefits of growth would be, from my perspective, a sufficient motivation for these policies. But as I discussed in the previous section, there is also the possibility that these policies could raise growth rates and increase the sustainability of economic expansions…. We have a lot of low-hanging fruit in terms of policies that can both reduce inequality and increase economic growth. And these policies would promote the type of inclusive growth that would manifest itself in higher median incomes, lower poverty rates, and broader, more inclusive growth. I can tell you that the Administration in the United States is very focused on all of these areas and I am hoping that we can work together to draw lessons from each other’s experiences and to cooperate on economic policies that would help advance these goals.”
   

2. Simon Wren-Lewis: mainly macro: What we do know: “There is much that we do not know in macro…. Noah [Smith] puts all this down to lack of data, rather than politics. When it comes to unconventional monetary policy this is also right. However there are some things where the data is pretty clear, and where any macroeconomist with an open mind should be able to come to a clear conclusion…. There is a huge elephant in the room: fiscal policy…. The theoretical framework used by monetary institutions almost everywhere says that fiscal contraction at the zero lower bound will do serious damage to output and unemployment (and therefore reduce core inflation). The evidence overwhelmingly confirms this proposition. While the reasons for the Great Recession may still be controversial, the major factor behind the second Eurozone recession is not: contractionary fiscal policy, in the core as well as the periphery…. Yet too many macroeconomists seem reluctant to acknowledge this. There are the anti-Keynesians who want to deny the monetary policy consensus; there are others, who want to deny the importance of the zero lower bound; and still more, who for some other reason want to deny the importance of fiscal policy. This allows policymakers to continue to press for fiscal consolidation in the Eurozone, largely ignoring those economists who do challenge this policy because they just represent ‘one view’ within the discipline…”

3. Liza Daly: 23 and Me: The Complete James Bond: “There’s a scene in which Goldfinger stages an elaborate Powerpoint presentation to a roomful of henchmen, and then immediately gasses them all to death. As someone who has to give a lot of public talks, I found this progression of events curiously appealing.”

Already-Noted Must-Reads:

1. Ben Wolcott: Austerity and the Employment Rate: “In 2010, after an initial round of coordinated stimulus from both wealthy and developing countries, deficit hawks around the world regrouped. Pointing to growing deficits and debt, they demanded that countries reverse course and begin moving toward balanced budgets. The deficit hawks argued that deficit reduction could be accomplished without impairing growth because of the effect it would have in boosting confidence among businesses and consumers. Many economists argued against this drive towards austerity at the time. They noted and rigorously explained the fallacious logic in the idea that deficit reduction could be expansionary. They also pointed out how fiscal policy had already saved the economy from a second depression and that more stimulus would likely be necessary. However, now we have more than three years of data, so we no longer have to speculate. A simple picture can be worth a thousand words (or in this case, billions)…”

2. Steve Randy Waldmann: Welfare Economics: an Introduction: “Whenever a claim about ‘welfare’ is asserted assumptions regarding ethical value are necessarily invoked as well. If you believe otherwise, you have been swindled. If claims about welfare can’t be asserted in a value-neutral way, then neither can claims of ‘efficiency’. Greg Mankiw teaches that ‘[under] free markets…[transactors] are together led by an invisible hand to an equilibrium that maximizes total benefit to buyers and sellers’. That assertion becomes completely insupportable. Even the narrow and technical notion of Pareto efficiency… is rendered problematic, as nonmarket allocations can also be Pareto efficient…. Market efficiency, deadweight loss, tax incidence, price discrimination, international trade–all of these topics are diagrammed and understood in terms of what happens to the area between supply and demand curves. If we cannot redeem those diagrams, all of that becomes little more than propaganda…. If the best ‘scientific’ economics can do is say nothing about interpersonal welfare comparison, that is neither evidence for nor evidence against policies which, like all nontrivial policies, benefit some and harm others, including policies of outright redistribution…”

3. John Aloysius Farrell: Yes, Nixon Scuttled the Vietnam Peace Talks: “Did Richard Nixon’s campaign conspire to scuttle the Vietnam War peace talks on the eve of the 1968 election to capture him the presidency? Absolutely, says Tom Charles Huston, the author of a comprehensive, still-secret report he prepared as a White House aide to Nixon. In one of 10 oral histories conducted by the National Archives and opened last week, Huston says ‘there is no question’ that Nixon campaign aides sent a message to the South Vietnamese government, promising better terms if it obstructed the talks, and helped Nixon get elected. Nixon’s campaign manager, John Mitchell, ‘was directly involved’, Huston tells interviewer Timothy Naftali. And while ‘there is no evidence that I found’ that Nixon participated, it is ‘inconceivable to me’, says Huston, that Mitchell ‘acted on his own initiative’…”

John Aloysius Farrell: Yes, Nixon Scuttled the Vietnam Peace Talks: “Did Richard Nixon’s campaign conspire to scuttle the Vietnam War peace talks on the eve of the 1968 election to capture him the presidency?

Absolutely, says Tom Charles Huston, the author of a comprehensive, still-secret report he prepared as a White House aide to Nixon. In one of 10 oral histories conducted by the National Archives and opened last week, Huston says “there is no question” that Nixon campaign aides sent a message to the South Vietnamese government, promising better terms if it obstructed the talks, and helped Nixon get elected. Nixon’s campaign manager, John Mitchell, “was directly involved,” Huston tells interviewer Timothy Naftali. And while “there is no evidence that I found” that Nixon participated, it is “inconceivable to me,” says Huston, that Mitchell “acted on his own initiative”…

Thomas Piketty emails:

We do provide long run series on capital depreciation in the “Capital is back” paper with Gabriel [Zucman] (see http://piketty.pse.ens.fr/capitalisback, appendix country tables US.8, JP.8, etc.). The series are imperfect and incomplete, but they show that in pretty much every country capital depreciation has risen from 5-8% of GDP in the 19th century and early 20th century to 10-13% of GDP in the late 20th and early 21st centuries, i.e. from about 1%[/year] of capital stock to about 2%[/year].

Of course there are huge variations across industries and across assets, and depreciation rates could be a lot higher in some sectors. Same thing for capital intensity.

The problem with taking away the housing sector (a particularly capital-intensive sector) from the aggregate capital stock is that once you start to do that it’s not clear where to stop (e.g., energy is another capital intensive sector). So we prefer to start from an aggregate macro perspective (including housing). Here it is clear that 10% or 5% depreciation rates do not make sense.

No, James Hamilton, it is not the case that the fact that “rates of 10-20%[/year] are quite common for most forms of producers’ machinery and equipment” means that 10%/year is a reasonable depreciation rate for the economy as a whole–and especially not for Piketty’s concept of wealth, which is much broader than simply produced means of production.

No, Pers Krusell and Anthony Smith, the fact that “we conducted a quick survey among macroeconomists at the London School of Economics, where Tony and I happen to be right now, and the average answer was 7%[/year” for “the” depreciation rate does not mean that you have any business using a 10%/year economy-wide depreciation rate in trying to assess how the net savings share would respond to increases in Piketty’s wealth-to-annual-net-income ratio.

Who are these London School of Economics economists who think that 7%/year is a reasonable depreciation rate for a wealth concept that attains a pre-World War I level of 7 times a year’s net national income? I cannot imagine any of the LSE economists signing on to the claim that back before WWI capital consumption in northwest European economies was equal to 50% of net income–that depreciation was a third of gross economic product…

Steve Randy Waldmann: Welfare Economics: an Introduction: “Whenever a claim about ‘welfare’ is asserted…

…assumptions regarding ethical value are necessarily invoked as well. If you believe otherwise, you have been swindled. If claims about welfare can’t be asserted in a value-neutral way, then neither can claims of ‘efficiency’. Greg Mankiw teaches that ‘[under] free markets…[transactors] are together led by an invisible hand to an equilibrium that maximizes total benefit to buyers and sellers’. That assertion becomes completely insupportable. Even the narrow and technical notion of Pareto efficiency… is rendered problematic, as nonmarket allocations can also be Pareto efficient…. Market efficiency, deadweight loss, tax incidence, price discrimination, international trade–all of these topics are diagrammed and understood in terms of what happens to the area between supply and demand curves. If we cannot redeem those diagrams, all of that becomes little more than propaganda…. If the best ‘scientific’ economics can do is say nothing about interpersonal welfare comparison, that is neither evidence for nor evidence against policies which, like all nontrivial policies, benefit some and harm others, including policies of outright redistribution…

Ben Wolcott: Austerity and the Employment Rate: “In 2010, after an initial round of coordinated stimulus…

…from both wealthy and developing countries, deficit hawks around the world regrouped. Pointing to growing deficits and debt, they demanded that countries reverse course and begin moving toward balanced budgets. The deficit hawks argued that deficit reduction could be accomplished without impairing growth because of the effect it would have in boosting confidence among businesses and consumers. Many economists argued against this drive towards austerity at the time. They noted and rigorously explained the fallacious logic in the idea that deficit reduction could be expansionary. They also pointed out how fiscal policy had already saved the economy from a second depression and that more stimulus would likely be necessary. However, now we have more than three years of data, so we no longer have to speculate. A simple picture can be worth a thousand words (or in this case, billions)…