Category: Equitablog

Must- and Should-Reads: October 5, 2017

Posted on by Brad DeLong

Interesting Reads:

Politics in the Way of Progress: Live Over at Project Syndicate

Posted on by Brad DeLong

Live at Project Syndicate: Politics in the Way of Progress https://www.project-syndicate.org/commentary/populist-politics-block-development-goals-by-j–bradford-delong-2017-10: BERKELEY – There are 17 United Nations Sustainable Development Goals (SDGs), which aim to tackle problems including poverty, hunger, disease, inequality, climate change, ecological degradation, and many others in between. Clearly, 17 is too many. As Frederick the Great supposedly said, “He who defends everything defends nothing.” Similarly, those who emphasize everything emphasize nothing.

This points to the problem of forging goals through consensus: they can end up being a wish list for everything short of heaven on Earth. But, to be effective, goals should operate like turnpikes, which allow you to make progress toward a specific destination much faster than if you had taken the scenic route. The purpose of consensus building, then, should be to get us to the on-ramp, after which it becomes harder to make a wrong turn or reverse course… Read MOAR at Project Syndicate

Brink Lindsey and the Road to Utopia

Posted on by Brad DeLong

Let me put a spotlight on the very sharp Brink Lindsey here…

Brink Lindsey believes utopia is in our grasp. Our problems today are, he thinks, at their root problems about the creation of truly human identities that people can embrace.

This is a remarkable shift.

Previous human societies have had very different problems:

  • how to keep famine and plague from the door;
  • how to maintain the peace;
  • how to somehow scrape up the resources to make the investments to raise average productivity to a level that would support even a half-human standard of living; and
  • how to avoid gross maldistribution.

Keeping the peace remains a problem.

Avoiding gross maldistribution remains a problem—but the consequences of maldistribution in creating dire and life-threatening poverty are now much much less.

But famine, plague, and low productivity are now very far from our doors. And while productivity could be higher (and it would be nice if it were higher), an absence or an insufficiency of calories or of simply stuff is no longer a huge problem.

Instead, the problem seems, at least in Brink Lindsey’s conceptualization, to be “the progressive unraveling of the human connections that give life structure and meaning…”

That is a statement I find needs unpacking. But how to unpack this? Let’s let him try to unpack it. I don’t think he gets all the way there, but he makes a lot of progress:

Brink Lindsey: The End of the Working Class: “Outside a well-educated and comfortable elite comprising 20-25 percent of Americans, we see unmistakable signs of social collapse… https://www.the-american-interest.com/2017/08/30/end-working-class/

…the progressive unraveling of the human connections that give life structure and meaning: declining attachment to work; declining participation in community life; declining rates of marriage and two-parent childrearing…. Its roots are spiritual, not material, deprivation…. Anne Case and Angus Deaton have alerted us to a shocking rise in mortality among middle-aged whites, fueled by suicide, substance abuse—opioids make headlines these days but they hardly exhaust the list—and other “deaths of despair.” And this past November, whites in Rust Belt states made the difference in putting the incompetent demagogue Donald Trump into the White House. What we are witnessing is the human wreckage of a great historical turning point, a profound change in the social requirements of economic life. We have come to the end of the working class….

The working class was a distinctive historical phenomenon with real internal coherence. Its members shared a whole set of binding institutions (most prominently, labor unions), an ethos of solidarity and resistance to corporate exploitation, and a genuine pride about their place and role in society. Their successors, by contrast, are just an aggregation of loose, unconnected individuals… [who] failed to… enter the meritocracy…. That failure puts them on the outside looking in, with no place of their own to give them a sense of belonging, status, and, above all, dignity. Here then is the social reality that the narrowly economic perspective cannot apprehend….

From the first stirrings of the Industrial Revolution in the 18th century until relatively recently, the miraculous technological progress and wealth creation of modern economic growth depended on large inputs of unskilled, physically demanding labor…. In the skill-neutral transition from an agrarian to an industrial economy… workers displaced from farm jobs by mechanization could find factory work without first having to acquire any new specialized expertise. By contrast, former steel and autoworkers in the Rust Belt did not have the skills needed to take advantage of the new job opportunities created by the information technology revolution….

The best part of working-class life, solidarity, was… inextricably tied up with all the worst parts. As work softened, moving out of hot, clanging factories and into air-conditioned offices, the fellow-feeling born of shared pain and struggle inevitably dissipated…. The postwar ascendancy of the working class was… due… not just [to] favorable labor laws, not just inspired collective action, but the combination of the two in conjunction with the heavy dependence on manual labor by technologically progressive industries of critical importance…. The truly essential element was the dependence of industry on manual labor. For it was that dependence, and the conflicts between companies and workers that it produced, which led to the labor movement that was responsible both for passage of the Wagner Act and the solidarity that translated law into mass unionization….

We must remember that, even in the halcyon postwar decades, blue-collar existence was a kind of bondage…. The creation of the working class was capitalism’s original sin. The economic revolution that would ultimately liberate humanity from mass poverty was made possible by a new and brutal form of domination. Yes, employment relations were voluntary: a worker was always free to quit his job and seek a better position elsewhere. And yes, over time the institution of wage labor became the primary mechanism for translating capitalism’s miraculous productivity into higher living standards for ordinary people…. Meager pay and appalling working conditions during the earlier stages of industrialization reflected not capitalist perfidy but objective reality. The abysmal poverty of the agrarian societies out of which industrialization emerged meant that nothing much better was affordable, or on offer to the great majority of families. But that is not the end of the inquiry…. Workers routinely rebelled against the factory system…. The recurrent want and physical hardships of rural life had existed since time immemorial, and thus seemed part of the natural order…. By contrast, the new energy-intensive, mechanized methods of production were jarringly novel and profoundly unnatural. And the new hierarchy of bourgeois master and proletarian servant had been erected intentionally by capitalists for their own private gain….

At the heart of the matter, though, was the nature of the work…. Humans are most productive in filling in the gaps of mechanization when they perform likewise. The problem, of course, is that people are not machines, and they don’t like being treated as such…. The nightmare of the industrial age was that the dependence of technological civilization on brute labor was never-ending….

Those old nightmares are gone—and for that we owe a prayer of thanks. Never has there been a source of human conflict more incendiary than the reliance of mass progress on mass misery…. But the old nightmare, alas, has been replaced…. Before, the problem was the immense usefulness of dehumanizing work; now, it is feelings of uselessness that threaten to leach away people’s humanity. Anchored in their unquestioned usefulness, industrial workers could struggle personally to endure their lot for the sake of their families, and they could struggle collectively to better their lot. The working class’s struggle was the source of working-class identity and pride. For today’s post-working-class “precariat,” though, the anchor is gone, and people drift aimlessly from one dead-end job to the next. Being ill-used gave industrial workers the opportunity to find dignity in fighting back. But how does one fight back against being discarded and ignored? Where is the dignity in obsolescence?…

There is at least one reason for hope. We can hope for something better because, for the first time in history, we are free to choose something better. The low productivity of traditional agriculture meant that mass oppression was unavoidable…. Once the possibilities of a productivity revolution through energy-intensive mass production were glimpsed, the creation of urban proletariats in one country after another was likewise driven by historical necessity…. The political incentives were truly decisive. When military might hinged on industrial success, geopolitical competition ensured that mass mobilizations of working classes would ensue. No equivalent dynamics operate today. There is no iron law of history impelling us to treat the majority of our fellow citizens as superfluous afterthoughts…. There is a land of milk and honey beyond this wilderness, if we have the vision and resolve to reach it.

Should-Read: Karl Smith: Just Say No To Kevin Warsh

Posted on by Brad DeLong

Should-Read: Karl Smith: Just Say No To Kevin Warsh: “Apparently Kevin Warsh is in a dead heat with Janet Yellen for Fed Chair.  I tried to articulate just how bad this is but the whole thing has me shrill… https://niskanencenter.org/blog/notes/just-say-no-kevin-warsh/

…Thankfully there are many other folks you can read while I gather my bearings.  For my part, I’ll leave you with this: back during the crisis some of us used to say “shut-up Warsh” to indicate that the previous speaker had just made a case so incoherent it wasn’t worth addressing…

…Sam Bell….

“Kevin Warsh is not a good idea,” said former Fed Vice Chairman Preston Martin, who was appointed by Republican President Ronald Reagan in 1982. “If I were on the Senate Banking Committee,” which must approve Fed nominees, “I would vote against him.”

Pedro Nicolaci da Costa at Business Insider:

Being wrong with conviction is a trademark of President Donald Trump. Perhaps that makes Kevin Warsh, his new perceived favorite to replace Janet Yellen as Federal Reserve chair, an ideal candidate…. Warsh’s mistaken policy views are especially egregious since he was brought into the Fed specifically for his purported expertise in financial markets, which were still sending panic signals even as Warsh tried to strike a more inflation-hawkish, sanguine tone.

Scott Sumner:

Can we now be sure that Warsh was wrong about monetary policy during the Great Recession?  I think so, but I’d also like to briefly discuss the implications of the other view, that we can’t be sure he was wrong.  If that were true, then monetary economics would be useless. There would be no core of knowledge worth teaching to our students.

Tim Duy:

Former Federal Reserve Governor Kevin Warsh’s column in Tuesday’s Wall Street Journal was so riddled with errors and misperceptions that it is hard to believe he was actually a governor.

Joe Gagnon:

In this week’s Wall Street Journal, Michael Spence and Kevin Warsh say the Federal Reserve’s policy of bond buys, or quantitative easing(link is external) (QE), is responsible for sluggish business investment in recent years.
There is no logical or factual basis for their claim. Indeed, logic and facts point strongly in the opposite direction. It is the reluctance of businesses and consumers to spend in the wake of a historic recession that is forcing the Fed and other central banks around the world to keep interest rates unusually low—not the other way around.

Narayana Kocherlakota….

Taylor and Warsh argued publicly against additional monetary stimulus in November 2010, when the unemployment rate was almost 10 percent and the inflation rate had fallen nearly to 1 percent. Their concerns about excessive inflation proved to be completely unjustified. Yellen, by contrast, supported stimulus.

Larry Summers:

My friends Mike Spence and Kevin Warsh, writing in yesterday’s Wall Street Journal, have produced what seems to me the single most confused analysis of US monetary policy that I have read this year (Brad DeLong has expressed related views).  Unless I am missing something — which is certainly possible — they make a variety of assertions that are usually exposed as fallacy in introductory economics classes.

[Editors Note: No Larry you are not missing a thing]

Paul Krugman

Warsh is indeed someone who has been wrong about everything; a bubble denier who spoke of strong capital markets before the crash, a hawk who has been warning about the risk of inflation for three years, an invoker of invisible bond vigilantes who somehow managed to describe the supposed threat from these vigilantes as somehow both a certainty and unknowable…

Should-Read: James Pethokoukis: Why can’t the GOP come up with any serious ideas?

Posted on by Brad DeLong

Should-Read: James Pethokoukis: Why can’t the GOP come up with any serious ideas?: “This is proving to be a monumental week in the 163-year history of the Republican Party. And so far, it isn’t going very well… http://www.aei.org/publication/why-cant-the-gop-come-up-with-any-serious-ideas/

…Republicans should be uncomfortable with any tax plan that reduces federal revenue. The national debt as a share of the economy has tripled over the past decade to a historically high level. Meanwhile, the country faces a tidal wave of increased spending on retirees. So whatever the benefits of some individual pieces of this tax plan, it is fiscally and intellectually incoherent in its totality. It also makes a joke of the GOP’s supposed deficit worries during the Obama years.

Both the GOP’s health care and tax efforts show, if not an intellectually fatigued party, then one unwilling to speak truth to its voters: Tax cuts almost never pay for themselves. Universal health insurance coverage is a proper societal goal. ObamaCare isn’t to blame for slow economic growth. The future U.S. tax burden is far more likely to rise than fall. Trying to maintain policy fictions — whether to appease Fox News, talk radio, or voters with misplaced expectations — gets you a week like this one, a week full of bad politics and bad policy. And with little sign that GOPers are ready to acknowledge these hard truths, this bad week is unlikely to be the last one.

Should-Read: Victor Chernozhukov et al.: Announcement of new Economics (econ) archive

Posted on by Brad DeLong

Should-Read: This is coming 20 years after I expected it. And it is, at the moment, confined to econometrics. But very nice to see:

Victor Chernozhukov et al.: Announcement of new Economics (econ) archive: “An Economics section of the scientific repository arXiv is opening this month… https://arxiv.org/help/econ/announcement

…arXiv is internationally acknowledged as a pioneering open access preprint repository. It has transformed the scholarly communication infrastructure of multiple fields of physics and plays an increasingly prominent role in mathematics, computer science, quantitative biology, quantitative finance, and statistics. arXiv is an essential component of scientific communication for many researchers worldwide in order to rapidly and widely disseminate their findings, establish priority of their discoveries, and seek feedback to help improve their work. It is hosted by the Cornell University Library with additional funding from 220 members libraries and several scientific foundations including the Simons Foundation.

The Economics arXiv will start with a single subject area of Econometrics, but according to demand we expect to add more subject areas in the future, and the Econometrics subject can also be subdivided further. The reason to start with Econometrics is that a significant number of Econometricians already regularly submit their work to the statistics domain of the arXiv. We hope that creating an explicit Econometrics domain will result in a majority of Econometricians to submit their work to the arXiv, so that most of the new papers in the field are disseminated in that way. If that goal is achieved, then regularly checking the Econometrics arXiv will become an efficient and easy way to stay current on the Econometrics literature. We initially want to focus on methodological papers, in agreement with the following description:

econ.EM (econometrics): Econometric Theory, Micro-Econometrics, Macro-Econometrics, Empirical Content of Economic Relations discovered via New Methods, Methodological Aspects of the Application of Statistical Inference to Economic Data
The arXiv allows to upload a new version of a paper anytime, while also maintaining all previous versions. This helps clarify academic priority of ideas, while at the same time always making the latest version of papers available.

Manuscripts can be submitted in different formats. Latex files are preferred, but pdf files printed from a word processor other than TeX or LaTeX are also possible. Before submitting an article one needs to create a user account and in some cases an endorsement from an existing user may be necessary, but this should be unproblematic.

To ensure the success of this project, we encourage you all to submit your current Econometrics working papers to the Econometrics arXiv. The first postings on the new arXiv section will appear on September 26, 2017. The inaugural moderator of econ.EM will be Victor Chernozhukov (MIT).

Should-Read: Jong-Wha Lee: South Korea’s Looming Crisis

Posted on by Brad DeLong

Should-Read: According to the IMF, South Korea is 30th in the world in GDP per capita—above New Zealand, Italy, Spain, and Israel. Shouldn’t the focus be on some of the things Korea does right, as well as “73rd… for labor-market efficiency… 58th for institutional quality… productivity in the services sector amounts to just 45% that of the manufacturing sector… compared with an OECD average of 90%”? In fact, why not say “productivity in manufacturing amounts to a massive 220% of that of the services sector, compared with an OECD average of 110%”? And do note that the U.S.’s vaunted “labor market efficiency” has plausibly been a net minus from any comprehensive societal well-being perspective over the past two decades…

Jong-Wha Lee: South Korea’s Looming Crisis: “More problematic, however, are South Korea’s low labor-market efficiency and weak institutions… https://www.project-syndicate.org/commentary/south-korea-nuclear-threat-economic-crisis-by-lee-jong-wha-2017-10

…According to the World Economic Forum’s latest global competitiveness report, South Korea ranks 73rd worldwide for labor-market efficiency, as a result of tight restrictions on employee-employer relations. And it ranks 58th for institutional quality, owing to excessive government regulations, opaque corporate governance, and policy instability. Finally, productivity in the services sector amounts to just 45% that of the manufacturing sector, on average, compared with an OECD average of 90%. The problem is most acute in finance, real estate, business services, and community and government services…

Must-Read: Tyler Cowen: The Fed Needs a Savvy Politician as Its Chair

Posted on by Brad DeLong

Must-Read: It is very hard to read the subtext of what Tyler Cowen is saying here about the Fed Chair.

If I had to guess, it would be that he is saying:

  1. The first key requirement of a Fed Chair is that he or she not have already angered Trump. Gary Cohn has angered Trump. So he is out.
  2. There are a bunch of remaining candidates on the Republican side: Taylor, Warsh, Powell, and Kashkari.
  3. The second key requirement for a Fed Chair is that he or she be a calm, sane, consensus builder.
  4. John Taylor has, over the past decade, alienated his academic colleagues to a remarkable degree in his pursuit of Republican street-red. That disqualifies him.
  5. Kevin Warsh was, while at the Fed, a strident and wrong anti-Bernanke voice. That disqualifies him.
  6. Powell and Kashkari have taken reasonable positions and made strong and reasonable arguments for them—and would be good Fed chairs.
  7. But when you “compare… [their] leadership virtues to Yellen[‘s]…” she comes out ahead.

That, at least, is what I think he is trying to say:

Tyler Cowen: The Fed Needs a Savvy Politician as Its Chair: “The next time major economic volatility comes around, Fed decisions will be scrutinized and politicized like never before… https://www.bloomberg.com/view/articles/2017-10-05/the-fed-needs-a-savvy-politician-as-its-chair

…[by] the mainstream media… social media… perhaps by our very own president…. The key factor for any Fed leader will be the ability to maintain and project a coherent, unified voice at the Fed, so that the Fed remains an island of relative sanity in the polarized nation….

National Economic Council Director Gary Cohn was a former front-runner, and may still be in the running, but his recent public squabbles with Trump disqualify him by the above standards. Candidates on the Republican side include former Fed board governor Kevin Warsh, current governor Jay Powell, Stanford University economist John Taylor and current Minneapolis Fed president Neel Kashkari, all with notable talents. I would prefer the one who, in the interviewing process, comes off as the most low-key, most able to build consensus, best with the news media, and perhaps has done the least to publicly lobby for the post.

Then compare that candidate’s leadership virtues to Yellen.

This time around, it’s all about the politics.

Should-Attend: Alice Wu: Labor Lunch: Gender Stereotyping Academia: Evidence from Economics Job Market Rumors Forum

Posted on by Brad DeLong

Should-Attend: Alice Wu: Labor Lunch: Gender Stereotyping Academia: Evidence from Economics Job Market Rumors Forum: “Thursday, October 05, 2017 | 12-1 p.m. | 648 Evans Hall… http://events.berkeley.edu/index.php/calendar/sn/econ.html?event_ID=111181 https://www.dropbox.com/s/k4i8900wgwn0gcr/Wu_EJMR_paper_09_2017.pdf?dl=0

…I first design a propensity score model to infer the gender a post mainly refers to from text, and simultaneously identify the individual words with the strongest association with gender. The words selected provide a direct look into the gender stereotyped language on this forum. Through a topic analysis of the posts, I find that when women are under discussion, the discourse tends to become significantly less academic or professionally oriented, and more about personal information and physical appearance. Moreover, a panel data analysis reveals the state dependence between the content of posts within a thread. In particular, once women are mentioned in a thread, the topic is likely to shift from academic to personal…

Old companies may be slowing down the U.S. economy

Posted on by Emilie Openchowski
People attend Vivatech, a gadgets conference in Paris, France.

Though Stevie Nicks didn’t sing about them, firms are getting older too. The age of companies is rising in the United States, just as the rate at which Americans are starting firms is declining. Fewer startups and older firms—a trend that began in 1980—could have a number of negative consequences, an important one being slower productivity growth. But how much is the aging of companies actually affecting productivity? A new paper released this week by the National Bureau of Economic Research takes a look.

The paper—by economists Titan Alon and David Berger of Northwestern University, Robert Dent of Nomura Securities, and Benjamin Pugsley of the University of Notre Dame—takes two approaches to figuring out how much the increasing age of firms may be affecting the pace of productivity growth. The first is to use data from the U.S. Census Bureau to create data on labor productivity of firms over their lifecycles. These data on the lifecycles tell us how much productivity growth differs for firms across the age spectrum. The profiles show that young firms have significantly higher productivity growth and that this growth falls off very quickly. During the first year of business, brand new firms’ productivity grows by 15 percent on average. But that growth falls very quickly over the next few years and by the fifth year, the average productivity growth is essentially zero.

What accounts for this downward trend in productivity growth? The authors decompose the lifecycle profile, attributing different portions of the trends to specific factors. The largest factor behind the large productivity growth of young firms is reallocation of resources toward more productive firms, accounting for about two-thirds of productivity growth. The other one-third is due to selection, or the fact that less-productive companies are failing more than the more productive companies.

The economists then calculate the level of productivity growth we might have seen in 2014 if the startup rate had stayed at its 1980 level and if the distribution of companies hadn’t aged over the next 34 years. According to this exercise, labor productivity would have been 3.1 percent higher in 2014 or, put differently, labor productivity would have been 0.1 percent higher each year over that period. Assuming that labor productivity increases are fully passed through to household income, median household income would have been about $1,600 higher under this situation.

The four economists also run several regression analyses on the relationship between increased startups and productivity growth across states and metropolitan statistical areas. While they want to understand how startup rates affect productivity, productivity likely has an impact on startup rates as well. People will probably start more businesses if an area has strong and growing productivity. To get around this potential problem, the authors “instrument” for new business creation by using demographic changes in the state or metropolitan statistical areas and—in the second analysis—the amount of house-price increases during the 2002–2006 bubble that were due to speculation. The logic is that areas with more population growth will see more people start businesses due to increased demand, and places that saw increased access to collateral for loans from house-price increases also will have more startups—neither factor is likely to be influenced by productivity growth. The results here are broadly consistent with the earlier findings: Fewer startups and older firms lead to slower productivity growth.

The authors don’t look at the reasons why there is less startup activity now, but increasingly researchers are looking at the role of increased market power. Productivity growth by itself won’t lead to strong increases in living standards, but living standards are unlikely to rise without it. Understanding what’s led to fewer new firms in the U.S. economy—whether it be corporate consolidation or other factors—may be more important than many economists and economic policymakers currently realize.