Weekend reading: “When it rains, it pours” edition

Posted on by Bridget Ansel

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

Three years after Thomas Piketty’s “Capital in the Twenty-First Century” became a surprise best-seller, “After Piketty: The Agenda for Economics and Inequality,” edited by Heather Boushey, Brad Delong, and Marshall Steinbaum, takes a deeper look at what Piketty’s work means for our current era. The volume, to be released next week, brings together the written reactions of a diverse group of scholars and helps set the research agenda moving forward. We provide an excerpt here.

We all know the role that debt can play in recessions, but what about credit? Nick Bunker writes about research that shows that an increase in an economy’s credit is a better predictor of how severe a recession will be compared to the level of debt.

A recent paper shows that corporations in high-income countries have all increased their savings rate, and are now lending more to the global economy than they are investing in their own corporations.

How has income inequality changed over time? Nick Bunker highlights recent research that looks at data spanning from 1957 to 2013 and finds that the median lifetime income for men has fallen by a stunning 10 percent to 19 percent. And while the results for women are less frightening, the data for the most recent groups show a stagnation.

Links from around the web

Dylan Matthews takes a closer look at the American Health Care Act, and shows why it reverses the reductions in income inequality that Obamacare created and more, leaving many people, especially the poor, worse off than they were before the Affordable Care Act. [vox]

Men’s declining labor force participation isn’t just a short-term economic issue. Andrew L. Yarrow argues that it’s harming today’s kids in a way that may exacerbate the intergenerational transmission of inequality. [san francisco chronicle]

Research shows that noncompete agreements can lower wages, reduce employee motivation, and stymie innovation. This is a sizeable problem considering that 1 in 6 workers are subject to these contracts. Orly Lobel, a University of San Diego Law Professor, argues that we should ban noncompetes, at least for low-wage workers.  [new york times]

New research shows that educated workers are much likelier to receive disability insurance benefits compared to workers with a high school degree or less. Kathy Ruffing takes a closer look at why this is considering the outsize benefits of disability insurance for less-educated workers. [cbpp]

Alexia Fernández Campbell wrote about a survey of renowned economists done last week in which every single one rejected the notion that the draft Trump tax plan will pay for itself. [vox]

Friday figure

From “Equitable Growth’s Jobs Day Graphs: April 2017 Report Edition”

Equitable Growth’s Jobs Day Graphs: April 2017 Report Edition

Posted on by Austin Clemens

Earlier this morning, The U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of April. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.

1.

The share of prime-age workers with a job increased slightly in April, once again reaching a new high for this recovery. But it remains below pre-recession levels.

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2.

Wage growth for non-managerial workers continues to stagnate in the face of inflation near two percent.

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3.

Retail employment was muted in April, adding only 6,000 jobs, but that was a welcome change from declines in previous months.

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4.

As unemployment continues to decline, the share who’ve been unemployed for 15 weeks or more also continues to decline.

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5.

The increase in part-time workers who’d like to work full-time is abating, but the number of these workers is still above pre-recession levels.

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Should-Read: Raj Chetty et al.: Trends in US absolute income mobility since 1940

Posted on by Brad DeLong

Should-Read: Raj Chetty et al.: Trends in US absolute income mobility since 1940: “Under the current distribution… we would need real GDP growth rates above 6% per year to return… http://voxeu.org/article/trends-us-absolute-income-mobility-1940

…to rates of absolute mobility in the 1940s…. Because a large fraction of GDP goes to a small fraction of high-income households today, higher GDP growth does not substantially increase the number of children who earn more than their parents…. [But] changing the distribution of growth naturally has smaller effects on absolute mobility when there is very little growth to be distributed. The key point is that increasing absolute mobility substantially would require more broad-based economic growth…. Absolute mobility has declined sharply in the US over the past half century primarily because of the growth in inequality. If one wants to revive the American Dream of high rates of absolute mobility, one must have an interest in growth that is shared more broadly across the income distribution…

Must- and Should-Reads: May 4, 2017

Posted on by Brad DeLong

Interesting Reads:

Should-Read: Tamim Bayoumi and Barry Eichengreen (1992): Shocking Aspects of European Monetary Unification

Posted on by Brad DeLong

Should-Read: Tamim Bayoumi and Barry Eichengreen (1992): Shocking Aspects of European Monetary Unification: “Data on output and prices for 11 EC member nations… http://www.nber.org/papers/w3949

…aggregate supply and demand disturbances… a VAR decomposition…. Underlying shocks are significantly more idiosyncratic across EC countries than across US regions, which may indicate that the EC will find it more difficult to operate a monetary union. However a core… Germany and her immediate neighbors… shocks of similar magnitude and cohesion as the US regions. EC countries also exhibit a slower response to aggregate shocks than US regions, presumably reflecting lower factor mobility…

Should-Read: Martin Wolf: Asia’s dynamism at risk in US and China’s competing visions for global trade

Posted on by Brad DeLong

Should-Read: Martin Wolf: Asia’s dynamism at risk in US and China’s competing visions for global trade: “China is promoting a Regional Comprehensive Economic Partnership (RCEP)… https://www.ft.com/content/343e8300-0288-11e7-aa5b-6bb07f5c8e12

…exclud[ing] the US and other TPP members from the Americas. But it adds Cambodia, China itself, India, Indonesia, South Korea, Laos, Myanmar, the Philippines and Thailand. Including the world’s two most populous states, RCEP’s members generate some 31 per cent of world exports and its aggregate GDP is bigger than that of the TPP. Though less ambitious than the accord abandoned by President Trump, the RCEP could form the basis of a future free trade area of Asia and the western Pacific, but one with China, not the US, as the hub….

China’s “One Belt, One Road” initiative… might accelerate the emergence of such a market… us[ing] China’s capital and organisational abilities to enhance the supply of infrastructure…. The infrastructure needs of the Asia-Pacific region are so vast that additional Chinese resources should be helpful.

The world, and so Asia, is now in an unstable balance between globalisation and deglobalisation and between US and Chinese leadership. The US is turning its back on its postwar role, once so vital to Asia’s economic success. Will what takes its place be chaos and confusion or a new order built around China? Optimists might consider this a time of opportunity. Pessimists can consider it a time of danger. It is in fact both.

Should-Read: Ezra Klein: Health Care Hot Potato

Posted on by Brad DeLong

Should-Read: Ezra Klein: Health Care Hot Potato: “[Like the Tea Party] Caucus… the Coverage Caucus… don’t want to be blamed for [the bill’s] defeat… https://www.vox.com/policy-and-politics/2017/5/4/15536422/health-care-hot-potato-ahca

…Their answer appears to be twofold: appropriate $8 billion for high-risk pools, even though experts on both sides of the aisle say that’s not nearly enough… and move the bill before a CBO score reveals what… they’re voting for…. The Coverage Caucus could be trying to solve… [the] problem… that the AHCA will throw tens of millions of people off health insurance and bring back the days when insurers could discriminate… on preexisting conditions, with catastrophic human and political costs…. Their proposed modifications don’t solve that problem…. They’re pushing a vote before CBO even looks at how much of that problem remains unsolved…. The Coverage Caucus could be trying to solve… [the problem of] be[ing] blamed for the AHCA’s second collapse. This objective fits their actions much better. Conventional wisdom among House moderates is that the… the best strategy is to… pass… the health care hot potato to the Senate….

The logic of playing health care hot potato is compelling…. It could lead to the bill’s eventual passage…. Promising that Health and Human Services Secretary Tom Price will use some unspecified regulatory authority to make sure nothing bad ever happens to anyone… [could lead] the Senate… [to] pass the hot potato, too…. If… the hot potato eventually gets passed to the country… millions get burned…. The GOP[‘s]… collective action problem where every individual legislator is rationally refusing to be the cause of the bill’s failure, but that could mean the entire party ends up responsible for its catastrophic success…

Posted in Uncategorized

“Capital in the Twenty-First Century,” Three Years Later

Posted on by Shonda Williams

The following is an excerpt from After Piketty: The Agenda for Economics and Inequality, edited by J. Bradford DeLong, Heather Boushey, and Marshall Steinbaum and published by Harvard University Press:

Thomas Piketty’s Capital in the Twenty-First Century, which we will abbreviate to C21, is a surprise best seller of astonishing dimensions.

Its enormous mass audience speaks to the urgency with which so many wish to hear about and participate in the political-economic conversation regarding this Second Gilded Age in which we in the Global North now find ourselves enmeshed.1 C21’s English-language translator, Art Goldhammer, reports in Chapter 1 that there are now 2.2 million copies of the book scattered around the globe in thirty different languages. Those 2.2 million copies will surely have an impact. They ought to shift the spirit of the age into another, different channel: post-Piketty, the public-intellectual debate over inequality, economic policy, and equitable growth ought to focus differently.

Yet there are counterbalancing sociopolitical forces at work. One way to look at Piketty’s project is to note that, for him, the typical low-inequality industrialized economy looks, in many respects, like post–World War II Gaullist France during its Thirty Glorious Years of economic growth, while the typical high-inequality industrialized economy looks, in many respects, like the 1870–1914 Belle Époque version of France’s Third Republic. The dominant current in the Third Republic was radically egalitarian (among the male native born) in its politics, radically opposed to ascribed authority—especially religious authority—in its ideology, and yet also radically tolerant of and extremely eager to protect and reinforce wealth. All those who had or who sought to acquire property—whether a shop to own, a vineyard, rentes, a factory, or broad estates—were brothers whose wealth needed to be protected from the envious and the alien of the socialist-leaning laboring classes.

Underlying Piketty’s book is a belief that this same cultural-ideological-economic-political complex—that all those with any property at all—need to band together to protect any threats to the possession or the profitability of such property—will come to dominate the twenty-first century political economy, in the North Atlantic at least. It will thus set in motion forces to keep the rate of profit high enough to drive the rise of the plutocracy Piketty sees in our future.

Two years ago we editors would have said, “Maybe, but also maybe not.” In the wake of the 2016 presidential election in the United States, however, Piketty’s underlying belief looks stronger. While we will not repeat the cultural dominance of property of the 1870–1914 Belle Époque French Third Republic, we do look to be engaged in the process of echoing many of its main characteristics.

It is important to note that Donald Trump won the 2016 presidential election thanks to the electoral college and not because he got more votes. But he got a lot of votes, and he got them in some places that have historically voted Democratic but faced extreme economic dislocation in the recent past. Moreover, Hillary Clinton failed to achieve the margins among young voters and racial minorities that Barack Obama did, plagued as they are with historically low employment rates, despite the record-high student debt they were promised would lead to security in the labor market. And so Piketty’s analytical political-economic case looks to us to have been greatly strengthened by Trump’s presidential election victory.

Thus we believe our book is even more important now. And so we have assembled our authors and edited their papers to highlight what we, at least, believe economists should study After Piketty as they use the book to trigger a focus on what is relevant and important.

More from After Piketty

Extracted from After Piketty edited by Heather Boushey, J. Bradford DeLong & Marshall Steinbaum published by Harvard University Press, $35. Copyright @ 2017 by the President and Fellows of Harvard College. All rights reserved.

Some very worrying trends in U.S. lifetime income growth

Posted on by Emilie Openchowski
Job seekers join a line of hundreds of people at a job fair sponsored by Monster.com in New York.

Most measures of income—and therefore income inequality—are snapshots in time. They look at one year and treat everyone who earned the same amount of money in that year as similar. But the economic prospects of a recent college graduate and a person halfway through a career who both may earn the same amount in one year are quite different. Economists have long recognized this and have noted that measures of lifetime income would be helpful. Yet the lack of a dataset that tracks incomes over long periods of time presented problems.

A new paper uses such a dataset to present trends in lifetime income in the United States. The picture painted by the data is, unfortunately, a bleak one. The authors of this new paper—Fatih Guvenen of the University of Minnesota, Greg Kaplan of the University of Chicago, Jae Song of the Social Security Administration, and Justin Weidner of Princeton University—use data on individual incomes from the SSA spanning from 1957 to 2013. Using these data, they can look at how incomes for different cohorts of people (labeled by the year they turned 25) evolved over the years until they were 55. Given the length of time the data cover, the economists can look at 27 different groups with the youngest being those who turned 25 in 1983 and 55 in 2013.

The most striking findings in the paper relate to changes in lifetime income for men. The median lifetime income for men dropped between 10 percent and 19 percent between the group that turned 25 in 1967 and the group that hit the same age in 1983. (The wide range in the income drop is due to the use of different methods to account for inflation.) The lack of income growth wasn’t a problem for only the bottom 50 percent; more than 75 percent of men saw no increase in lifetime income during this period. The vast majority of U.S. men did not see any increase in income over their prime working years for several decades.

The trends for female lifetime incomes are less frightening. The median lifetime income for women increased by about 22 percent to 33 percent from the 1967 cohort to the 1983 group. But, as the authors point out, these increases are from quite low earnings levels for women in earlier periods. And data on the most recent groups (for which a full 31 years of data are not available) show a stagnation in lifetime income for women. The gains of past decades may not be replicable, as continued increases in the share of women working (and working full time) will be difficult to sustain.

The driving factor behind the declines in lifetime income for men seem to be driven by changes in incomes early in a working career. Incomes when men are 25 years old have declined, and income growth during the first decade after turning 25 are, according to the economists, the main reason why lifetime incomes for men have stagnated. And again, the trends in income growth for younger women in the youngest cohorts are starting to look similar to the trends for men.

The results of this paper, assuming they hold up to future scrutiny, would show that concerns about outright income stagnation for many Americans are not overhyped. For most men, in fact, income growth over the course of a working life has been negligible at best. Worries about the past may be the least of our concerns, as the trends appear to be continuing for men and changing in a negative direction for women. Policymakers who ignore such trends put at risk future U.S. economic growth and broad-based prosperity.

Must- and Should-Reads: May 3, 2017

Posted on by Brad DeLong

Interesting Reads: