Must- and Should-Reads: August 22, 2017

Posted on by Brad DeLong

Interesting Reads:

Should-Read: Tim Worstall: The Robots Stealing Human Jobs-Bring It On

Posted on by Brad DeLong

Should-Read: Tim Worstall: The Robots Stealing Human Jobs-Bring It On: “Spinning especially was a hugely labour intensive process which near all women did to some extent… https://www.forbes.com/sites/timworstall/2017/08/19/the-robots-stealing-human-jobs-bring-it-on/#524f81a421ff

…Thus that very word, homespun. By the time the Spinning Jenny got into its stride, as Henderson says, hundreds of thousands were employed in industry, outside the home. But that homespun, and thus that domestic labour, had disappeared. This is again the automation of a domestic task, the automation also bringing it out into the paid, market, economy…. Discussions of working hours, automation, robots and so on only make sense in an historical context if we include domestic labour as well as market. When we do we see that the process increases incomes, leisure and there are still jobs available…

Should-Read: John Holbo: Thinking About Groups

Posted on by Brad DeLong

Should-Read: John Holbo: Thinking About Groups: “I’m going to say a few (thousand) words about… Jacob Levy’s good new book, Rationalism, Pluralism, Freedom… http://crookedtimber.org/2017/08/20/thinking-about-groups/

…At its core is a dilemma–an antinomy: two models of the optimal form and function of groups within a liberal order. Neither model can be quite it. It seems we need to split the difference or synthesize. But there is no coherent or necessarily stable way. (Well, that’s life.) There, I gave away the ending. Groups? Yes, you know the sort: families, political parties, ethnic groups, clans, churches, professional organizations, civic organizations, unions, corporations, neighborhood groups, bowling leagues. The lot…. In a modern liberal democratic society is like this: there are citizens and there is the state. Citizens enjoy a basket of liberties and rights, over and against each other and the state…. Now, if you have these two basic units, the state and the individual, it makes it kind of tricky what the normative status is of intermediate groups, eh?

What is all that in-between stuff good for or bad for? What sorts of ‘mediating groups’ need to exist–because they’re great! possibly vital for the health of citizens and/or the state itself! What sorts of stuff should not be permitted, because it’s toxic–either to the state or to some individuals. And what sorts of stuff should be merely tolerated, even though its a bit dicey, but pragmatically what are you going to do?…

At this point some people might say: I care about the health/power/status of my group way more than I care about either the stability of the state or respecting the rights and liberties of my fellow citizens…. But if you say that, you really are not… committed to liberal democracy…. I’m only considering what attitude you should have towards groups… if you have some normative commitment to making sure individuals can exercise their rights and enjoy their liberty, equally, in a stable liberal-democratic state. This is a timely issue: identity politics and groupthink and partisanship and tribalism…

Must-Watch: Jacob T. Levy: Rationalism, Pluralism, and Freedom

Posted on by Brad DeLong

Must-Watch: Jacob T. Levy: Rationalism, Pluralism, and Freedom:

Jacob T. Levy: Rationalism, Pluralism, and Freedom: “Intermediate groups—voluntary associations, churches, ethnocultural groups, universities, and more—can both protect threaten individual liberty… http://amzn.to/2igcO7Q

…The same is true for centralized state action against such groups. This wide-ranging book argues that, both normatively and historically, liberal political thought rests on a deep tension between a rationalist suspicion of intermediate and local group power, and a pluralism favorable toward intermediate group life, and preserving the bulk of its suspicion for the centralizing state.

The book studies this tension using tools from the history of political thought, normative political philosophy, law, and social theory. In the process, it retells the history of liberal thought and practice in a way that moves from the birth of intermediacy in the High Middle Ages to the British Pluralists of the twentieth century. In particular it restores centrality to the tradition of ancient constitutionalism and to Montesquieu, arguing that social contract theory’s contributions to the development of liberal thought have been mistaken for the whole tradition.

It discusses the real threats to freedom posed both by local group life and by state centralization, the ways in which those threats aggravate each other. Though the state and intermediate groups can check and balance each other in ways that protect freedom, they may also aggravate each other’s worst tendencies. Likewise, the elements of liberal thought concerned with the threats from each cannot necessarily be combined into a single satisfactory theory of freedom. While the book frequently reconstructs and defends pluralism, it ultimately argues that the tension is irreconcilable and not susceptible of harmonization or synthesis; it must be lived with, not overcome.

Should-Read: Claudia Sahm: On Twitter: “And yes, Marginal Revolution commenters have got EJMR’ers back…

Posted on by Brad DeLong

Should-Read: Claudia Sahm: On Twitter: “And yes, Marginal Revolution commenters have got EJMR’ers back… I used to comment on @MargRev and it would really piss me off… https://twitter.com/Claudia_Sahm/status/898620250287030272

…if my attempts to talk about research ended up me being called a female body part. In a discussion of economics it’s not that hard to set gender (or race or sexual orientation) aside and debate merits of an argument. I certainly never called the guys there such gendered names… stuck to why their logic stunk :-). And of course, my tweets got some pushback at MR… an example:

NewImage

But I’ve got a nice story about why I don’t reply (or “fight” as this says). After one awful blowup, I decided to get some advice, thankfully @mathbabedotorg had an advice column Aunt Pythia then. So I wrote in: on left is snippet of my question and right a bit of her advice,

Preview of Claudia Sahm on Twitter and yes Marginal Revolution commenters have got EJMR ers back

Full exchange here: https://mathbabe.org/2013/12/28/aunt-pythias-advice-32/

Must: Justin Wolfers: Evidence of a Toxic Environment for Women in Economics

Posted on by Brad DeLong

Must-Read: It should not be necessary to say that the “community” of EJMR is not Berkeley—or indeed, is not anywhere IRL. Also: cf.: Griefer.

Do not ignore or dismiss this.

But do note that the only economics professor of any ideology or university I can recall ever praising EJMR is George Borjas of Harvard, who called it “refreshing”:

Justin Wolfers: Evidence of a Toxic Environment for Women in Economics: “Ms. Wu set up her computer to identify whether the subject of each post is a man or a woman… https://www.nytimes.com/2017/08/18/upshot/evidence-of-a-toxic-environment-for-women-in-economics.html

But, again, do not ignore of dismiss this:

…The simplest version involves looking for references to “she,” “her,” “herself” or “he,” “him,” “his” or “himself.” She then adapted machine-learning techniques to ferret out the terms most uniquely associated with posts about men and about women.

The 30 words most uniquely associated with discussions of women… in order… [are]: hotter, lesbian, bb (internet speak for “baby”), sexism, tits, anal, marrying, feminazi, slut, hot, vagina, boobs, pregnant, pregnancy, cute, marry, levy, gorgeous, horny, crush, beautiful, secretary, dump, shopping, date, nonprofit, intentions, sexy, dated and prostitute….

Words about men[: juicy, keys, adviser, bully, prepare, fought, wharton, austrian, checkers, homo, genes, e7ee, mathematician, advisor, burning, pricing, philly, band, kfc, nobel, cmt, amusing, greatest, textbook, goals, irate]….

It includes words that are relevant to economics, such as adviser, Austrian (a school of thought in economics) mathematician, pricing, textbook and Wharton (the University of Pennsylvania business school that is President Trump’s alma mater). More of the words associated with discussions about men have a positive tone, including terms like goals, greatest and Nobel. And to the extent that there is a clearly gendered theme, it is a schoolyard battle for status: The list includes words like bully, burning and fought…

Must- and Should-Reads: August 17, 2017

Posted on by Brad DeLong

Interesting Reads:

In defense of the statutory U.S. corporate tax rate

Posted on by David Evans

It is increasingly apparent that many policymakers and commentators believe that business tax reform means reducing the statutory corporate tax rate. This fixation on the corporate tax rate is unfortunate and misguided. Business tax reform should be primarily about the tax base, not the tax rate. Treating the statutory rate as the key element of reform will inevitably result in a more expensive, more regressive, and less economically beneficial (if not actively harmful) reform than one that focuses on the tax base. By focusing on the base, it is possible to design reforms that achieve a given set of economic objectives at a far more modest cost. Focusing on the base therefore also makes it much easier to meet the minimum standard that tax reform should not decrease government revenues.

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In defense of the statutory U.S. corporate tax rate

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The focus on the rate is apparent in the evolution of public statements about tax reform from congressional Republicans and Trump administration officials. Modifications of the tax base were an important part of the blueprint for tax reform put out by Republicans in the House of Representatives in 2016. The blueprint contained three major proposed changes to the corporate tax: a reduction in the statutory rate; full expensing of capital investment combined with repeal of interest deductibility; and the imposition of a border adjustment that would tax imports and rebate tax on exports. But the joint statement on tax reform from six leading Republicans representing both Congress and the administration at the end of July expressed less enthusiasm for expensing and rejected outright the border adjustment, leaving the reduction in the statutory corporate rate the only element unscathed. More recently, National Economic Council Director Gary Cohn reiterated the administration’s focus on the statutory corporate rate, saying that the administration will seek the lowest statutory rate possible.

Recent research indicates that the overwhelming majority of the corporate tax base consists of excess returns, meaning returns above the risk-free rate such as those due to monopoly pricing power, and income attributable to labor that was not paid out as wages. Cutting the corporate tax rate is inefficient and regressive because these types of income are relatively efficient to tax and accrue to business owners, who are disproportionately high-income and high-wealth.

Consistent with these findings, the corporate-level tax rate on the marginal investment—the tax rate paid on a hypothetical investment in tangible or intangible capital that yields the minimum return necessary to attract financing in capital markets—is far lower than the statutory tax rate: only 6 percent, according to recent estimates from the Congressional Research Service. This rate is lower than the statutory tax rate due to provisions of the corporate tax system such as accelerated depreciation and interest deductibility that allow a substantial portion of the return on corporate investment to avoid corporate tax. Proposals for business tax reform that focus on the base rather than the rate can achieve a much more attractive combination of benefits and costs than reforms that focus on cutting the statutory tax rate because they aim to keep as large a share of excess returns and disguised labor income in the tax base as possible.

The advantages of focusing on the tax base rather than the corporate tax rate are usefully illustrated by two proposals recently put forward by the tax policy community, both of which achieve the economic objectives of their proponents at far lower cost than reducing the statutory rate in isolation.

First, consider the destination-based cash flow tax. Adopting this proposed tax would effectively repeal the corporate income tax without reducing the statutory tax rate at all. The proposal would change the tax base—allowing full expensing of capital investment, repealing interest deductibility, taxing imports, and rebating tax on exports—in such a way that it would convert the corporate income tax into another type of tax entirely: an approximation to the business cash flow tax that is part of a consumption tax system. In other words, even if one adopts the view that corporate income taxes are uniquely distortionary and should be eliminated, it is possible to do so without reducing the rate. (The policies listed above do not yield a pure destination-based cash flow tax, as they would still tax certain corporate financial income, including interest, dividends, and capital gains.)

Next, consider the proposal for corporate tax reform put forward by Eric Toder at the Tax Policy Center and Alan Viard at the American Enterprise Institute. This proposal would reduce the corporate tax rate to 15 percent while taxing investors on the change in the value of their shares in publicly traded companies on an annual basis (and providing credit for corporate taxes paid to taxable investors). The proposal also would impose tax on interest income received by nonprofit organizations and by individuals in their retirement accounts, such as 401(k)s and individual retirement accounts.

The proposal by Toder and Viard includes a reduction in the statutory rate, but it is more usefully understood as a redefinition and reallocation of the tax base across entities. By taxing investors on the change in the value of their shares, a substantial fraction of the corporate tax base is effectively shifted from the corporate level to the investor level. The new taxes applied to certain interest payments offset the exclusion of interest payments from the corporate tax base, thus achieving a more consistent treatment of investments financed in different ways. The major changes in the tax base in this proposal are the implicit partial exclusion of corporate income attributable to foreign investors and the use of market valuations rather than measuring income directly.

The common theme of these two proposals is a reform that modifies the tax base to achieve clear economic objectives at a more modest cost than simply cutting the corporate tax rate. The destination-based cash flow tax proposal shows that it is possible to completely repeal the corporate income tax in an economic sense without reducing the statutory corporate tax rate to zero. The Toder-Viard proposal highlights that full or partial integration proposals can achieve similar economic aims by shifting the tax base between firm-level taxes and investor-level taxes, provided that the investor-level taxes are appropriately reformed.

Estimates from the Tax Policy Center suggest that both the Toder-Viard proposal and the not-quite-pure destination-based cash flow tax could be implemented on a roughly revenue-neutral basis in the first decade, including the cost of providing expensing for noncorporate businesses in the cost of the latter proposal. Although both proposals have important weaknesses, either one would offer a far more attractive combination of costs and benefits than a simple reduction in the statutory corporate tax rate.

A key implication of the existence of these proposals is that simple arguments against corporate income taxation or capital taxation, even if true, are inadequate to make the case for statutory corporate rate cuts as the centerpiece of reform. Arguing for statutory rate cuts requires first rejecting superior and far cheaper policy alternatives.

Indeed, the variants of these two plans that have achieved political traction highlight the problems of focusing on the statutory tax rate. The House Republican blueprint draws heavily from the destination-based cash flow tax but adds a large cut in the statutory corporate tax rate. This rate cut would come at great cost, would be a key contributor to the higher federal budget deficits that would cause the blueprint to harm economic growth, would provide little or no economic benefit even if financed by other tax increases or spending cuts, and would be severely regressive. In effect, the blueprint shifts the United States toward a consumption tax but then adds a partial exemption for consumption by business owners (via the rate cut) with no justification.

Similarly, there has been some congressional interest in increasing tax rates on capital gains and dividends as a potential offset for statutory corporate rate cuts, but little apparent interest in the more fundamental reforms to taxation at the investor level that are core to the Toder-Viard proposal. The focus on offsets for a statutory rate cut rather than a focus on the appropriate base for taxation ultimately undermines any economic merits the proposal might otherwise have.

Regardless of one’s views on the relative merits of consumption taxation and income taxation, on the economic and fiscal costs of the erosion of the corporate tax base, or on the harm resulting from corporate inversions, business tax reform should be about reforming the tax base, not cutting the rate. Cutting the rate is an expensive and regressive substitute for other superior reforms.

Many arguments for reducing the corporate tax rate are in large part arguments for increased reliance on consumption taxes. Plausible tax legislation, however, looks quite different from reforms that would move the United States toward a consumption tax. (In the interest of disclosure, this author is not an advocate of converting the income tax into a consumption tax.) The idealized consumption tax would tax labor and excess returns while exempting from tax the risk-free return to capital. Thus, relative to current law, legislation would focus on exempting the risk-free return and leave the taxation of excess returns unaffected to the extent possible. But with the apparent focus in Congress and within the Trump administration on reducing the statutory corporate tax rate, plausible tax legislation is more likely to reverse those outcomes, reducing taxes on excess returns to the maximum extent possible and leaving the taxation of risk-free returns relatively unaffected. This approach is not the path to equitable growth.

Should-Read: Drew Conway: The Data Science Venn Diagram

Posted on by Brad DeLong

Should-Read: Drew Conway: The Data Science Venn Diagram http://www.dataists.com/2010/09/the-data-science-venn-diagram/: “The primary colors of data: hacking skills, math and stats knowledge, and substantive expertise…

…each… very valuable, but when combined with only one other are at best simply not data science, or at worst downright dangerous…. Being able to manipulate text files at the command-line, understanding vectorized operations, thinking algorithmically… the hacking skills… apply[ing] appropriate math and statistics methods… [but] data plus math and statistics only gets you machine learning, which is great if that is what you are interested in, but not if you are doing data science… [which] is about discovery and building knowledge….

The hacking skills plus substantive expertise danger zone… people who “know enough to be dangerous”… capable of extracting and structuring data… related to a field they know quite a bit about and… run a linear regression… lack[ing] any understanding of what those coefficients mean. It is from this part of the diagram that the phrase “lies, damned lies, and statistics” emanates, because either through ignorance or malice this overlap of skills gives people the ability to create what appears to be a legitimate analysis without any understanding of how they got there or what they have created.

Fortunately, it requires near willful ignorance to acquire hacking skills and substantive expertise without also learning some math and statistics along the way. As such, the danger zone is sparsely populated, however, it does not take many to produce a lot of damage…

A Very Short History Of Data Science

There is more to equal access to a good education than sound school budgets

Posted on by David Evans

Children born into poor and wealthy families alike should have an equal chance of achieving their dreams. But this is not the reality in practice. The income of a child’s parents is strongly correlated with the child’s life outcomes—such as educational attainment, occupational choice, or earnings—in adulthood. Opportunity is far from equal.

Recent research shows that the strength of the association between the child’s parents’ income and her own adult income—a useful measure of inequality of opportunity—varies a great deal between different places across the United States. In some areas, such as Salt Lake City and Los Angeles, the intergenerational association is small, which means the chances for children from low-income families to get ahead are close to those of children from high-income families, so opportunity is relatively equal.

New Working Paper
Inequality of educational opportunity? Schools as mediators of the intergenerational transmission of income

In other areas, however, such as Cincinnati and Memphis, intergenerational associations are strong, meaning differences in life outcomes between children from low-income versus high-income families are large and that opportunity is far from equally distributed. Children from low-income families are less likely to do better than their parents, while children of high-income parents will stay in the upper income brackets.

What explains the geographic variation in this intergenerational transmission of economic status? What is going right in Los Angeles and Salt Lake City but going wrong in Cincinnati and Memphis? A natural hypothesis is that these differences have to do with the quality of the local schools. Schools should be an engine of economic mobility, allowing bright, hardworking children to advance regardless of their family backgrounds. But schools are themselves often unequally distributed, and many schools serving poor children are poorly funded and low-performing.

So perhaps some low-transmission, high-economic-equality cities such as Salt Lake City and Los Angeles simply have better, more equal school systems that produce better and more equal educational outcomes and thus more equal incomes as adults. Or perhaps the differences have nothing to do with schools and instead relate to differences in labor markets in these cities—perhaps when job opportunities are more plentiful and pay is more equal, it does not matter as much whether a child had access to good schools.

In a recent paper, I assess the contributions of education and labor markets to differences across regional labor markets—commuting zones—in the United States in the intergenerational transmission of economic status. To do this, I ask whether parental income matters more for children’s educational outcomes, such as test scores and college completion, in local areas where there is stronger transmission of parental income to children’s incomes, as would be expected if the school system were a key link in this transmission.

I find that there is a great deal of variation in educational transmission across the country. Some areas do much better than others at producing closer-to-equal test scores for children from poor and rich families. Yet areas with small test-score gaps do not have lower-than-average income transmission. In other words, differences in access to high-quality elementary and secondary schools are not a key channel driving the strength of the association between parents’ incomes and their children’s incomes when they reach adulthood.

There is a bit more evidence that higher education is an important part of the story. Gaps in college enrollment and graduation are associated with intergenerational income transmission, though even here, the association is too small to account for much of the variation between regions in income transmission.

The upshot: There is little evidence that differences in the quality of primary, secondary, or postsecondary schools, or in the distribution of access to good schools, are a key mechanism driving variation in intergenerational mobility. The evidence instead points toward other factors influencing income inequality. In particular, labor markets seem to be quite important. Even when children’s test scores and educational attainment are held constant, children from poor families have higher adult earnings when they grow up in low-transmission (greater-opportunity) areas than when they are from low-opportunity, high-transmission areas. This is in part because the high-transmission areas have unusually large returns to human capital, or stronger relationships between education and earnings. Children from wealthy families do better in school than children from poor families everywhere, so a labor market that puts inordinate weight on skill will be unusually favorable to the wealthy children.

Marriage patterns also seem to matter. In cities and regions where income transmission is weaker, the “marriage gap” between those in their mid-20s from low- and high-income families is much smaller, implying that children from low-income families are more likely to have spouses contributing toward the family budget.

Together, differences in labor markets and marriage patterns account for the great majority of variation in intergenerational mobility across cities and regions in the United States. Variation in relative skill accumulation—the only portion plausibly related to schools—accounts for only 12 percent of the differences between high- and low-opportunity areas, with the rest due to marriage patterns (about one-third) and differences in labor market outcomes operating through channels other than skill accumulation, such as the return to skill in the labor market, discrimination, or referral networks that offer advantaged children a leg up in the job market (about half). (See Figure 1.)

Figure 1

Understanding better how policymakers can promote equality of opportunity in education as well as in the economy overall should remain a top priority. Educational quality is certainly a key tool to improve opportunity, yet my research indicates that it is far from the whole story. The educational system plays only a small role in explaining differences between high- and low-opportunity areas. Labor market institutions—such as minimum wages, the ability to form and join unions, the career structures of local industries, and other determinants of earnings inequality—are likely to play much larger roles and are also likely to be more powerful levers with which to promote equality of opportunity.

The principle of equal access to the pursuit of happiness is deeply rooted in American history and society. We have never accomplished it, but it remains our country’s highest aspiration. The best measure of the progress we have made toward this goal is the extent to which the circumstances of a child’s birth do or do not predict his or her life outcomes. By this measure, as by others, we have very far to travel. To do better, we need to examine all of the different ways that our society and economy work to erect hurdles in front of children from disadvantaged families—whether those hurdles are limiting access to educational opportunity or ensuring that the children will do worse in the labor market than their more advantaged peers even if they do well in school.

—Jesse Rothstein is a professor of public policy and economics at the University of California, Berkeley, and director of the Institute for Research on Labor and Employment at the University of California, Berkeley.