Worthy reads from Equitable Growth:
 

1. At each stage of the process by which the innovation workforce is built, being black and being female is a powerful disadvantage at making it through the filter and proceeding to the next stage. Read Lisa Cook and Jan Gerso, “The implications of U.S. gender and racial disparities in income and wealth inequality at each stage of the innovation process,” in which they write: “Gender and racial disparities exist at each stage of the innovation process, from education to training, and from the practice of invention to the commercialization of invention, and can be costly to the U.S. economy. These disparities can also lead to increased income and wealth inequalities at each stage for those who would otherwise participate in the innovation economy. Let’s look at each stage to assess this problem in further detail.”
2. A better-run IRS would devote much more in the way of resources to investigating “independent contractor” fraud and abuse. Read Corey Husak, “How U.S. companies harm workers by making them independent contractors,” in which he writes: “Being classified as either an employee or an independent contractor can determine whether workers in the United States have access to reliable pay, benefits, and protection from discrimination. Intense fights are cropping up across the country as companies try to argue that their workers are just ‘independent contractors’ and do not qualify for many protections under U.S. labor law, while workers and some courts say the opposite, that some workers are actually employees. Many ‘gig economy’ companies, such as Uber Technologies Inc., base their business models around misclassifying their workers as self-employed. Billions of dollars in worker pay is at stake.”
3. Heather Boushey interviews the great Gabriel Zucman. The most important point is that the increase in inequality in the United States has been largely a choice—a choice of those elected, even if the one elected was done so by a margin of 5-4 Supreme Court justices or collected 3 million fewer popular votes. Read “In Conversation with Gabriel Zucman,” which he explains: “There is this widespread view that rising inequality is a mechanical consequence of globalization and technical change, spurred in large part by competition with China and the substitutions between workers and machines. But, you know, France has computers too, and also trades with China—and generally trades more than the United States. So, it does not seem possible to explain the stagnation of U.S. working-class income by globalization and technical change. It’s more likely that this stagnation of income for the bottom half of the U.S. income distribution comes from policy changes. Things such as the collapse of the federal minimum wage, the declining power of unions, changes to taxation, to access to higher education.”

Worthy reads not from Equitable Growth:

1. Martin Wolf has an aggressive thumbs-down on Facebook Inc.’s Libra payments system. Basically, it is “fool me once, shame on you; fool me twice, shame on me.” Facebook’s claim that it is built on “blockchain technology” seems simply wrong, and a grift—a second-order grift, given that “blockchain technology” is already a grift. Plus, he writes that “Facebook has been grossly irresponsible over its impact on our democracies. It cannot obviously be trusted with our payments systems. … Beware.” The fact that Facebook’s past behavior has created such a strong anti-Facebook presumption in somebody as reasonable and fair as Martin is, I think, a powerful thing to note. Read Martin Wolf, “Facebook Enters Dangerous Waters With Libra Cryptocurrency,” in which he writes: “Facebook seems likely to dominate Libra’s technical development. That will surely give it predominant influence … The claim that it is based on ‘blockchain’ technology seems rather questionable … There is indeed potential for greatly improved payment systems. But the emergence of a payment system on a network of Facebook’s scale would raise some huge questions … This would be true even if the lead sponsor were not Facebook. But it is. So beware.”
2. This baseline assumption seems, to me, to be a very useful position to start from—that groups of people who behave differently have different powers and face different constraints, not that they want different things. Read George J. Stigler and Gary S. Becker, “De Gustibus Non Est Disputandum,” in which they write: “The establishment of the proposition that one may usefully treat tastes as stable over time and similar among people is the central task of this essay. The ambitiousness of our agenda deserves emphasis: We are proposing the hypothesis that widespread and/or persistent human behavior can be explained by a generalized calculus of utility-maximizing behavior, without introducing the qualification ‘tastes remaining the same.’”

This is a post we publish each Friday with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is relevant and interesting articles we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

Being classified as either an employee or an independent contractor can determine whether workers in the United States have access to reliable pay, benefits, and protection from discrimination. Many “gig economy” companies, writes Corey Husak, base their business models on misclassifying their workers as self-employed. Billions of dollars in worker pay and benefits is at stake for these workers, who generally lack the meaningful work independence one associates with true independent contractors.

Michael Kades continues to track the progress in the U.S. Congress of bipartisan legislation to contain prescription drug prices by injecting greater competition into the marketplace. Last month, two Senate committees passed legislation that the Washington Center for Equitable Growth advised Congress would help achieve this goal. This follows action by the full House on related or identical bills. The legislation has had strong bipartisan support throughout the process, and the White House is supportive, but Kades points out that barriers remain.

The U.S. Bureau of Labor Statistics issued its monthly report on the U.S. labor market. Kate Bahn and Will McGrew perused the report, which covers July, and compiled five graphs highlighting important trends.

Catch up on Brad DeLong’s latest worthy reads from Equitable Growth and around the web.

Links from around the web

What’s the best way to gauge the health of the U.S. economy? Not necessarily by measuring Gross Domestic Product, writes Gretchen Frazee at PBS. She notes that it disregards key factors that affect people’s well-being, such as health and the environment, and cites Equitable Growth grantee Nancy Folbre, who notes that it ignores unpaid work, including taking care of one’s children. [pbs]

Chicago’s city council has approved a “fair workweek” ordinance that requires large employers to give workers at least two weeks’ notice of their schedules and compensate them for last-minute changes, writes Alexia Elejalde-Ruiz at the Chicago Tribune. A lack of schedule stability is gaining increasing attention as both a source and product of income inequality. [Chicago Tribune]

There are a number of ways to see that an economic expansion is near or at an end and a recession is on the horizon or actually underway, writes Ben Casselman at The New York Times. Recessions are inevitable, and recognizing them before the economy has already begun contracting has been more art than science. But that may no longer be true. Casselman cites Equitable Growth Research Advisory Board member Claudia Sahm‘s rule of thumb, which focuses on changes in the unemployment rate. [nyt]

The DoorDash tipping controversy continues to make for interesting reading. Columnist Farhad Manjoo writes that the issue “lays bare how shaky and capricious the entire digital economy is for workers.” “What worries me,” he adds, “is that these laborers are invisible ‘ghost workers’ hidden behind screens and apps and algorithms and digital tip jars, working for unpredictable, A.I.-dictated, sub-minimum wage…” [nyt]

Friday figure

Figure is from Equitable Growth’s “How U.S. companies harm workers by making them independent contractors,” by Corey Husak.

Worthy reads from Equitable Growth:
 
Here are links to four important pieces at the Washington Center for Equitable Growth providing context to the recent presidential primary debates:

1. Carmen Ye, “Why we need better re-employment policies for formerly incarcerated African American men,” in which she writes: “African American men … 33 percent of the 1.56 million Americans held in state or federal prisons … When these men are released from prison, what will their employment prospects look like? … Black applicants with no criminal record receive a callback or job offer at the same rate as white applicants with a felony conviction. Yet black applicants without a criminal record were three times as likely to get a callback as those with a record.”
2. Will McGrew, “Investments in early childhood education improve outcomes for program participants—and perhaps other children too,” in which he writes: “Governments that spend money on early childhood education get a lot of bang for their buck—an estimated 7 percent to 10 percent annual return for programs targeted at disadvantaged children … [plus] also long-term improvements in human capital and earnings. But do those test-score gains last? … Mariana Zerpa … finds that children in states with early childhood education programs are 30 percent less likely to repeat a grade between ages 6 and 8—and that this effect lasts at least until age 12.”
3. Equitable Growth, “Gender wage inequality in the United States: Causes and solutions to improve family well-being and economic growth”: “Disparities between men’s and women’s wages in the United States hinders economic growth by constraining family incomes and spending power. When comparing average full-time year-round incomes of men to those of women, research indicates that women make only 80.5 percent of men’s wages, a gap that is even larger when accounting for race. In the long run, these disparities heighten the risks of financial stress and inadequate retirement savings at times of economic shocks.”
4. Greg Leiserson, “Wealth taxation: An introduction to net worth taxes and how one might work in the United States,” in which he writes: “Probably the most significant challenge in implementing a net worth tax is that determining tax liabilities requires a valuation for all of the assets subject to the tax … Such a tax would impose burden primarily on the wealthiest families—reducing wealth inequality—and could raise substantial revenues. As noted above, the United States taxes wealth in several forms already. Thus, the policy debate is less about whether to tax wealth and more about the best ways to tax wealth and how much it should be taxed. A net worth tax could be a useful complement to—or substitute for—other means of taxing wealth, as well as a tool for increasing overall taxation of wealth.”

Worthy reads not from Equitable Growth:

1. The Tax Cuts and Jobs Act of 2017 was supposed to produce faster growth even though it was inequitable. But that hope appears to have been vain. Read Dan Drezner, “How Donald Trump is sanctioning the U.S. economy,” in which he writes: “Second-quarter GDP growth was only 2.1 percent … far short of the 3 percent target that President Trump has repeatedly promised. Data revisions released Friday wiped away what had been a prized talking point for the White House: GDP grew 2.5 percent for all of 2018, down from the 3 percent previously reported … [and] a far cry from Larry Kudlow’s 2018 claim that GDP growth would top 4 percent for a few quarters … Trump has unwittingly sanctioned the U.S. economy … has made himself the uncertainty engine for those interested in investing in the United States. And the effects are starting to be felt. In the second quarter, business investment was -0.6 percent. As in, negative … Part of the problem is the drying up of foreign direct investment … How will Trump react to the growth news? It is possible that he will respond in a mature fashion.”
2. These numbers on the human costs of the Supreme Court’s decision in National Federation of Independent Business v. Sibelius are only about one-quarter of what I had feared. Read Scott Lemieux, “Matters of Life and Death,” in which he writes: “15,000 people died in three years because Republican states refused to accept the Medicaid expansion … And let us not forget that this was all made possible by the intervention of the Supreme Court, based on arguments so weak that, as Joan Biskupic’s new bio finds, [Supreme Court Chief Justice] John Roberts himself initially rejected them … Regarding the expansion of Medicaid for poor people, all four liberal justices … voted to uphold the program … [and] punctured … arguments that Congress had exceeded its spending power and its ability to attach conditions … In the private March 30 conference, Roberts also voted to uphold the Medicaid expansion.”
3. At a recent conference, my fellow University of California, Berkeley professor and former President’s Council of Economic Adviser’s Chair Laura D. Tyson gave a powerful endorsement and shout-out to this book by my fellow UC-Berkeley professor Barry Eichengreen as the best survey of the history and prospect of what he calls “populism” and I would call “neo-fascism.” Read Barry Eichengreen’s new book, The Populist Temptation: Economic Grievance and Political Reaction in the Modern Era. Here are excerpts from a summary of the book: “Populists tend to thrive most in the wake of economic downturns, when it is easy to convince the masses of elite malfeasance. Yet while there is more than a grain of truth that bankers, financiers, and ‘bought’ politicians are responsible for the mess, populists’ own solutions tend to be simplistic and economically counterproductive. Moreover, by arguing that the ordinary people are at the mercy of extra-national forces beyond their control—international capital, immigrants, cosmopolitan globalists—populists often degenerate into demagoguery and xenophobia. There is no one solution … [but] there is an obvious place to start: shoring up and improving the welfare state … America’s patchwork welfare state was not well equipped to deal with the economic fallout that attended globalization and the decline of manufacturing in America … Lucidly explaining both the appeals and dangers of populism across history, this book is essential reading for anyone seeking to understand not just the populist phenomenon, but more generally the lasting political fallout that follows in the wake of major economic crises.”
4. Adopting robots may cost jobs, but not adopting robots appears to cost many more jobs. Read Wolfgang Dauth, Sebastian Findeisen, Jens Südekum, and Nicole Woessner, “Robots and firms,” in which they write: “Our study is based on firm-level data from Spain, a country with one of the highest robot density levels per worker in Europe. The data come from the Encuesta Sobre Estrategias Empresariales, an annual survey of around 1,900 Spanish manufacturing firms … We reveal significant job losses in non-adopting firms. Our estimates imply that 10 percent of jobs in non-adopting firms are destroyed when the share of sales attributable to robot-using firms in their industries increases from zero to one half. The same logic applies to changes in output and survival probabilities … Aggregate productivity gains are partly driven by substantial intra-industry reallocation of market shares and resources following a more widespread diffusion of robot technology, and a polarization between high-productivity robot adopters and low-productivity non-adopters.”

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

David Mitchell explains the findings in a new working paper by economists Christina Romer and David Romer of the University of California, Berkeley that looks at how policymakers’ perceptions of debt and budgetary constraints limit their stimulus spending in economic downturns.

In a new issue brief for Equitable Growth, University of Michigan economists Lisa Cook and Janet Gerson explore why—despite earning an increasing share of postsecondary degrees in STEM fields—there is not a corresponding increase in patenting activity among women and people of color. Discrimination remains at the heart of the problem, and the authors estimate that closing the gender and racial gap in the U.S. innovation process could increase U.S. Gross Domestic Product per capita by 2.7 percent. In an accompanying Value Added blog post, Will McGrew summarizes the authors’ findings about the causes of the problem and their recommended policy solutions, including better mentorship, as well as actions to prevent the role of discrimination in patent review.

Catch up on Brad DeLong’s latest worthy reads from Equitable Growth and around the web.

Links from around the web

Four years ago, Seattle adopted a $15 minimum wage, the highest in the nation. New research from Jennifer Romich of the University of Washington into the effects of the changes found that jobs in restaurants and bars were not lost as a result of the change, and that low-wage workers experienced more rapid hourly wage growth, among other findings. [vox]

This week, the Department of Justice announced it was opening an antitrust review of whether online platforms such as Facebook, Inc., Google, Amazon.com Inc., and Apple Inc. are stifling competition. This is in addition to the taskforce created earlier this year by the Federal Trade Commission, which also has jurisdiction over antitrust, to look into the tech giants. [wsj]

While DoorDash announced a change in its policy for the allocation of tips in response to public outcry that they were not passing them directly along to workers, the issue illustrates the problems caused for delivery workers by their characterization as “independent contractors” rather than employees, allowing employers to avoid labor laws such as a minimum wage. [nyt]

A new working paper by Harvard economists Nathaniel Hendren and Benjamin Sprung-Keyser analyzed U.S. social safety net programs and found that programs that invested in children’s health and education had a net return on taxpayer dollars because they increased their future earnings and therefore how much they paid in taxes. [wsj]

Friday figure

Figure is from Equitable Growth’s “The intersectional wage gaps faced by Latina women in the United States” by Kate Bahn and Will McGrew.

Worthy reads from Equitable Growth:

1. New and well worth reading from Lisa Cook and Jan Gerson, “The Implications of U.S. Gender and Racial Disparities in Income and Wealth Inequality at Each Stage Of The Innovation Process,” in which they write: “Women and underrepresented minorities in the United States have obtained an increasing share of bachelor’s degrees and other advanced degrees in … STEM … Yet there has been no similar increase in patenting … Closing this gender and racial gap in the U.S. innovation process could increase U.S. Gross Domestic Product per capita by 2.7 percent.”
2. Heather Boushey via Twitter directs us to Sarah Miller, Sean Altekruse, Norman Johnson, and Laura R. Wherry, “Medicaid and Mortality: New Evidence from Linked Survey and Administrative Data,” in which they write: “Changes in mortality for near-elderly adults in states with and without Affordable Care Act Medicaid expansions. We identify adults most likely to benefit using survey information on socioeconomic and citizenship status, and public program participation. We find a 0.13 percentage point decline in annual mortality, a 9.3 percent reduction over the sample mean, associated with Medicaid expansion for this population. The effect is driven by a reduction in disease-related deaths and grows over time. We find no evidence of differential pre-treatment trends in outcomes and no effects among placebo groups.”
3. Almost always, there is very little news in the daily or even monthly macroeconomic data flow. Pay attention to broader trends, not to the financial news cycle. Read my “July 19, 2019: Weekly Forecasting Update,” in which I write: “We are where we were a year ago: Stable growth at 2 percent per year with no signs of rising inflation or a rising labor share. The only significant difference is that the Fed has recognized that its hope of normalizing the Fed Funds rate in the foreseeable future is vain, and has now recognized that its confidence over the past six years that we were close to full employment was simply wrong … Specifically, it is still the case that: (1) the Trump-McConnell-Ryan tax cut has been a complete failure at boosting the American economy through increased investment in America; (2) but it has been a success in making the rich richer and thus America more unequal; (3) it delivered a short-term demand-side Keynesian fiscal stimulus to growth that has now ebbed; and (4) U.S. potential economic growth continues to be around 2 percent per year.”

Worthy reads not from Equitable Growth:

1. I never understood why so many people were desperate to interpret financial crises as things that destroyed firms’ abilities to produce rather than things that made people want to hoard their cash. Yes, a numbers of firms are short of cash and need trade credit. But most healthy firms do not. Read Felipe Benguria and Alan M. Taylor, “After the Panic: Are Financial Crises Demand or Supply Shocks? Evidence from International Trade,” in which they write: “Are financial crises a negative shock to demand or a negative shock to supply? … Arguments for monetary and fiscal stimulus usually interpret such events as demand-side shortfalls. Conversely, arguments for tax cuts and structural reform often proceed from supply-side frictions … Household deleveraging shocks are mainly demand shocks, contract imports, leave exports largely unchanged, and depreciate the real exchange rate. Firm deleveraging shocks are mainly supply shocks, contract exports, leave imports largely unchanged, and appreciate the real exchange rate … After a financial crisis event we find the dominant pattern to be that imports contract, exports hold steady or even rise, and the real exchange rate depreciates … Financial crises are very clearly a negative shock to demand.”
2. There are 260,000 people in Buncombe County, NC, encompassing Asheville, NC. That is 60,000 households, of which perhaps 40 are in the nationwide top 0.1 percent with an income of $1.6 million a year or more. That is, I am told, the range in which one should perhaps start thinking about whether one wants an 8,000 square-foot house as one of one’s items of conspicuous consumption. And such things sell slowly. So, the thing that amazes me is not that the inventory of houses priced at more than $2 million in Asheville is twice the annual turnover, but that 16 houses sold in that price range in greater Asheville last year. It’s an index of plutocracy. Read Candace Taylor, “A Growing Problem in Real Estate: Too Many Too Big Houses,” in which she writes: “Elaborate, five or six-bedroom houses in warm climates, fueled in part by the easy credit of the real estate boom. Many baby boomers poured millions into these spacious homes, planning to live out their golden years … Now … [they are] discovering that these … no longer fit their needs as they grow older, but younger people aren’t buying them … The problem is especially acute in areas with large clusters of retirees. In North Carolina’s Buncombe County, which draws retirees with its mild climate and Blue Ridge Mountain scenery, there are 34 homes priced over $2 million on the market, but only 16 sold in that price range in the past year.”
3. In the modern world, it is not tariff reduction but regulatory harmonization that is required for grasping increased benefits from the world division of labor. We need to work to level up rather than level down or level stupid, but we need to work to level the regulatory landscape. The Brexit hope is for a free-trade zone with the United States but also with “national sovereignty” over regulatory matters. That is just not how it works. Read N. Piers Ludlow, “Did We Ever Really Understand How the EU Works?,” in which he writes: “The EU is always prone to support an insider in a tussle with an outsider … the idea that the strength of Britain’s bargaining position in the negotiations springs from the commercial interest of many continental exporters in keeping access to the lucrative UK market … overlooks the extent to which all of the EU27 regard a flourishing EU as even more valuable than the British market, whether economically or politically.”