It is John Kenneth Galbraith’s world. We simply live in it.

I have always found it interesting that economists have worked so hard to pretend that we do not live in John Kenneth Galbraith’s world. Harvard University’s Andrei Shleifer once remarked to me that the collapse of Galbraith’s influence—that there were next to no “Galbraithians”—was a very interesting puzzle in the history of economic thought.

But now there are some Galbraithians!

In a new working paper released earlier this month, “Unions and Inequality Over the Twentieth Century: New Evidence from Survey Data,” co-authors Henry S. Farber, Daniel Herbst, and Ilyana Kuziemko at Princeton University and Suresh Naidu at Columbia University write:

U.S. income inequality has varied inversely with union density … But moving beyond this aggregate relationship has proven difficult, in part because of the absence of micro-level data on union membership prior to 1973. We develop a new source of micro-data on union membership, opinion polls primarily from Gallup (N ≈ 980, 000), to look at the effects of unions on inequality from 1936 to the present. First, we present a new time series of household union membership from this period. Second, we use these data to show that, throughout this period, union density is inversely correlated with the relative skill of union members. When density was at its peak in the 1950s and 1960s, union members were relatively less-skilled, whereas today and in the pre-World War II period, union members are equally skilled as non-members. Third, we estimate union household income premiums over this same period, finding that despite large changes in union density and selection, the premium holds steady, at roughly 15–20 log points, over the past eighty years. Finally, we present a number of direct results that, across a variety of identifying assumptions, suggest unions have had a significant, equalizing effect on the income distribution over our long sample period…

And, indeed, I did eventually write up my take on the answer to Shleifer’s question, in a review of Parker’s biography of Galbraith:

If there were justice in the world, John Kenneth Galbraith would rank as the 20th century’s most influential American economist. He has published several books that are among the best analyses of modern U.S. history, played a key role in mid-century policymaking, and advised more presidents and senators than would seem possible in three lifetimes. Yet today, Galbraith’s influence on economics is small, and his influence on U.S. politics is receding by the year. In this lively and thoughtful biography, Parker sets himself the task of explaining Galbraith’s career: why it was so dazzling, and why its long-term impact has turned out to be so much less than expected. The result is not only the story of a smart, witty, and important man, but also a fascinating meditation on the rise and fall of twentieth-century American liberalism.

Worthy reads at Equitable Growth:

1. The awesomely smart and industrious Chye-Ching Huang of the Center for Budget and Policy Priorites praises Greg Leiserson‘s must-read guide to understanding last December’s tax bill. There was space for a growth-promoting corporate tax cut that did not widen income inequality that much. That space was occupied, instead, by something that manages to increase inequality sharply while reducing projected national income—three steps backward for equitable growth.
2. Increasingly it looks to me like a career-interruption and child-raising penalty are institutions designed to figure out which men are committed to the job and are thus worth paying to keep but are misapplied to women. Alan Greenspan a generation and a half ago saw a market opportunity for his forecasting firm to get more productive workers for the salary dollar. But it looks as though he was and is a substantial exception: Sarah Jane Glynn writes in “Gender wage inequality: What we know and how we can fix it” that “women are still severely limited by gender pay inequality…. Close to half of all currently employed workers (46.7 percent), yet… average earnings of… full time, year round is 80.5 percent of men…”
3. Nick Bunker provides an excellent tweetstorm on the issues involved in thinking about slack, wage growth, unemployment, and employment. He also mourns for the pre-twitter bite web: “remember blogposts? Those were cool!” It is certainly the case that Twitter has devoted zero—nay, less than zero—effort to building tools for curating tweet call-and-response episodes into anything that Plato would recognize as a dialogue…
4. The extremely thoughtful Miles Kimball highlights my very brief talk about who the market works for from last fall’s Institute for New Economic Thinking conference in Edinburgh…

Worthy reads not at Equitable Growth:

1. From the University of Oregon, Mark Thoma‘s Economists’ View continues to be the single best link aggregator in economic policy and theoretical economics: read him, and the things he links to.
2. If you do not make the Economic Policy Institute one of your trusted information intermediaries, you are doing it wrong. Badly wrong.
3. Noah Smith sends us to hard but very important truths about why African Americans are so poor relative to their fellow citizens: William Darity plus a team of six more scholars write in “What We Get Wrong About Closing the Racial Wealth Gap” that “a narrative that places theonus of the racial wealth gap on black defectiveness is false in all of its permutations. We challenge the conventional set of claims that are made about the racial wealth gap in the United States. We contend that the cause of the gap must be found in the structural characteristics of the American economy, heavily infused at every point with both an inheritance of racism and the ongoing authority of white supremacy…”
4. This is true. This makes the sharp slowdown in measured productivity growth since 2007 a great puzzle—and is one important thing making me believe it is a depression-related “hysteresis” phenomenon. Read Jeff Desjardins, “A brief history of technology” in which he writes that “the rate at which newly commercialized technologies get adopted by consumers is also getting faster…. Through increased connectivity, instant communication, and established infrastructure systems, new ideas and products can spread at speeds never seen before—and this enables a new product to get in the hands of consumers in the blink of an eye…”
5. This is not new, but it is true, and I take it as a sign of hope that this can now be said and attract a mass audience: George Yancy: “The Ugly Truth of Being a Black Professor in America.“
6. An interesting and complex argument from Ben Thompson in The Moat Map: “Aggregators and Platforms….Apple and Microsoft, the two “bicycle of the mind” companies…platforms…. Google and Facebook …products of the Internet…not to platforms but to aggregators …Platforms need 3rd parties….Aggregators attract end users by virtue of their inherent usefulness and, over time, leave suppliers no choice but to follow the aggregators’ dictates….[But] what of companies like Amazon, or Netflix?…Clearly both have very different businesses—and supplier relationships—than either Google and Facebook on one side or Apple and Microsoft on the other, even as they both derive their power from owning the customer relationship….Owning the customer relationship remains critical: that is the critical insight of Aggregation Theory. How that ownership of the customer translates into an enduring moat, though, depends on the interaction of two distinct attributes: supplier differentiation and network effects…”
7. The states have been serving as laboratories of democracy over the past decade, with Wisconsin and Kansas seeing the greatest policy swerves and serving as the most striking ominous warnings. Read David Cooper‘s report “As Wisconsin’s and Minnesota’s lawmakers took divergent paths, so did their economies: Since 2010, Minnesota’s economy has performed far better for working families than Wisconsin’s,” in which he writes that “even years removed from when each governor took office, there is ample data to assess which state’s economy—and by extension, which set of policies—delivered more for the welfare of its residents. The results could not be more clear: by virtually every available measure, Minnesota’s recovery has outperformed Wisconsin’s…”
8. With respect to U.S. technological leadership, it may be time to start quoting John Donne: “Ask not for whom the bell tolls…” And remember England, starting a century and a half ago, when reading Dan Wang‘s “How smartphones made Shenzhen China’s innovation capital.” Wang highlights that “companies have invested millions of dollars in figuring out how to make them small, cheap, and light enough to include in smartphones. And most of these chips have proven useful well beyond the smartphone market. As a result, we’re in the midst of a hardware renaissance, in which it’s easier than ever to develop and market new gadgets. The center of this renaissance is Shenzhen…”
9. The Sisyphean work of getting people to recognize that the Reagan “morning in America” boom was a standard Keynesian reaction to a larger federal deficit in a time of high unemployment continues: Menzie Chinn, in “The Reagan Tax Cuts and Defense Buildup: Supply-Side Miracle or Keynesian Stimulus?” writes that “this set of outcomes does not deny the existence of some supply side effect—the dots in Figure 2 don’t line up exactly on a straight line—but the overall pattern seems to be more consistent with an AD shift from the tax cuts and spending increases (combined with monetary policy relaxation) as opposed to a supply-side scenario as laid out by Wanniski and Laffer…. Bruce Bartlett, who was there at the inception, reminds me of Barry Ritholtz’s review of Reaganomics. See also Bartlett’s piece on the subject…”
10. Written four years ago, and IMHO not just one of the best things written in 2014 but a true keeper, is something nobody interested in the slippage between maximizing income and maximizing social well-being should fail to read: Steve Randy Waldman‘s 2014 presentation: Welfare economics.
11. Nearly 60 years ago California made provision for moving into an era of the knowledge-based economy: “A Master Plan for Higher Education in California.”

The extremely intelligent Martin Wolf reviews Maria Mazzucato. I blush to say that her book is still in THE PILE—I have not read it yet: Martin Wolf: Who creates a nation’s economic value?: “Who creates value? Who extracts value? Who destroys value?…

…If we mistake those who do the second or third for those who do the first, or mistake those who do the first for those who do the second or third, we will end up with impoverished and unhappy societies, in which plunderers rule. Many advanced western countries, in particular the US and Britain, have already reached that state, according to Mariana Mazzucato. The consequences of this, including soaring inequality and declining growth are already visible, argues the author…. An obvious example is the way the financial sector generated a huge increase in household debt in the years leading to the financial crisis of 2007-09. This funded zero-sum competition to buy the existing housing stock at soaring prices. Its legacy included a huge crisis, a debt overhang, weak growth and political disenchantment. Yet, for those who created, manipulated and sold this debt, it was a gold mine. This represented value extraction and destruction…. Much the same picture can be seen in asset management, with its excessive trading, exorbitant fees, lack of transparency, poor stewardship and conflicts of interest. This financial sector, together with the “shareholder value maximisation” that economists have promoted, has had a malign effect on the corporate sector as a whole, argues Mazzucato….

That it is hard to see much wider economic benefit from the massive increase in the relative size and influence of finance over the past half century seems self-evident…. If this is success, what might failure look like?…

Mazzucato also attacks… information technology and pharmaceuticals… the award of overly generous or simply unjustifiable rights to intellectual property….

A fundamental thesis… is that mistaking value extraction for value creation, and vice versa, has its roots in the errors of economists…. In Mazzucato’s view the evident failings of our economies are a consequence of our inability to distinguish among activities that create, redistribute and destroy value…. What I would have liked to see far more of, however, is a probing investigation of when and how governments add value. The US government, for example, has played an extraordinary role in innovation….

The book has three significant strengths. First, Mazzucato pushes us to get away from the simplistic creed that markets are always good and governments always bad. Second, she offers the Left a positive goal of prosperity-inducing innovation rather than a sterile and ultimately destructive politics of resentment and redistribution. Finally, she forces us to ask ourselves what adds value to society and how to create an economic and social order that promotes that. The book itself adds value by forcing us to confront these points.