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…

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“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:

Must-Read: Francis Wilkinson: Trade Is the Scapegoat for Political Failure

Posted on by Brad DeLong

Must-Read: Francis Wilkinson: Trade Is the Scapegoat for Political Failure: “Democrats have no viable plans to bring back sustainable, high-paying, blue-collar jobs… https://www.bloomberg.com/view/articles/2017-05-03/trade-is-the-scapegoat-for-political-failure

…Neither, it seems, does anyone else. And wages in the service economy don’t remotely compare with the best wages of industrial glory days. (Neither do most of today’s manufacturing wages.) The notion that “lousy trade deals” are responsible for the erosion of working-class prosperity is a common denominator in the rhetoric of Trump and Bernie Sanders…. At a panel discussion last week at the City University of New York, a handful of prominent economists grappled with “Trade, Jobs and Inequality.” None echoed the views of Sanders or Trump.

“No, lousy trade deals are not a primary cause” of working-class despair, said panel member David Autor of MIT in a follow-up email to me. “It is the case that China’s accession to the WTO in 2001 was a big shock to U.S. manufacturing. This was not really a trade deal, however. This was China becoming a member of an existing trade agreement. And this was an inevitable long-term result of China’s spectacular development.”…

Bradford DeLong of the University of California at Berkeley, pointed out that technological evolution steadily drove down manufacturing’s share of U.S. labor for half a century before the China shock. The demonization of trade deals, DeLong wrote to me in an email, is off target. “NAFTA was supposed to kill the U.S. auto industry,” he wrote. “It didn’t — the auto industry loved it.”

It might not matter whether trade, automation, globalization or some combination is at fault. But it matters greatly that American politics has proved incapable of mitigating the damage, helping to open the path to power for Trump…. Ann Harrison, a former director of development policy at the World Bank who is now a professor at the University of Pennsylvania, said: “The idea behind globalization is the winners, the exporters, the consumers, are so much richer that it is easy and straightforward to redistribute some of the winnings to compensate the losers. That turned out not to be true.” That failure of redistribution is a failure of politics more than economics.

It’s in part a function of the consistent devotion of the Republican Party to lowering tax rates on the most successful while resisting virtually all efforts to help the economy’s losers. But the resistance is also rooted in powerful social attitudes…. “Our package for helping the losers, Trade Adjustment Assistance, helped only about half those that it should have helped,” Harrison said at the CUNY event. “But, much more important than that, Americans do not want handouts. What they really want are jobs.”

Good jobs bestow dignity as well as wages. Concepts such as a universal basic income are controversial in part because they promise to separate income from work…. [But] as DeLong said at CUNY, wealthy heirs don’t seem to suffer a loss of dignity when they cash their trust checks.

“Back in the 1920s ‘welfare’ was a good word,” DeLong said. “When Edward Filene in the 1920s talked about ‘welfare capitalism’—firms providing health, accident, and pension benefits to their workers—the ‘welfare’ was in there to make his readers think that the idea was a good thing. But because people want respect, over the past century the word ‘welfare’ has been poisoned.”…

Trump’s attacks on trade always implied that the old factories would materialize in their old haunts once the trade regime went away…. Abandoning nostalgia for the glory days is long overdue. Indulging it misleads voters and allows politicians to remain complacent. Trump’s extravagant promises changed U.S. politics. Perhaps his all-but-certain failure to redeem those promises will be a preface to a new and better deal for workers.

Where US Manufacturing Jobs Really Went

Posted on by Brad DeLong

Project Syndicate: J. Bradford DeLong: Where US Manufacturing Jobs Really Went: In the two decades from 1979 to 1999, the number of manufacturing jobs in the United States drifted downward, from 19 million to 17 million. But over the next decade, between 1999 and 2009, the number plummeted to 12 million. That more dramatic decline has given rise to the idea that the US economy suddenly stopped working–at least for blue-collar males–at the turn of the century…

Should-Read: Ernest Gellner (1990): The Civil and the Sacred

Posted on by Brad DeLong

Should-Read: Ernest Gellner (1990): The Civil and the Sacred: “The bourgeois fantasy lay in its doctrine that work was the very essence of man… http://www.bradford-delong.com/2017/02/weekend-reading-from-ernest-gellner-1990-the-civil-and-the-sacred.html

…that productive institutions and processes were crucial… and that this domination of historic development by the productive process would in due course lead to total human fulfillment through free, spontaneous, unconstrained labor… no state to enforce order and no civil society to check the state…. [But] in a domination-prone world, economic rationality is not rational: those who work hard see themselves deprived of the fruits of their labor only by those in power. It could be brought about only by cunning and reason, as an unintended consequence of religious anguish. Those who sought wealth were not to be granted it: those who merely sought to escape despair had wealth bestowed upon them.

But Marxism credits this distinctively bourgeois trait to the human soul as such, not to some men under the impulsion of a special torment: work is, it claims, our genuine essence and our time fulfillment…. In consequence, of course, Marxists simply possess no language in which to express their central political problem: their theory precluded the very existence of the problem and eliminated any tools for handling it. As long as political circumstance constrained them to remain within Marxist language, they simply could not even discuss their main problem…

Must-Read: Larry Summers: Steven Mnuchin’s big claims show him in a poor light

Posted on by Brad DeLong

Must-Read: On this one, I agree 100% with Larry. A U.S. Treasury Secretary needs to make it clear that he (or, I hope, someday she) knows that his (or her) ultimate, long-run principals are the voters of the United States and the people of the world. There will come a point where the Treasury Secretary will need to say: “You know that I work for you—you need to trust me on this.”

Yet Steve Mnuchin is rapidly blowing up that credibility:

Larry Summers: Steven Mnuchin’s big claims show him in a poor light: “Last week… I felt sorry for… Mnuchin… https://www.ft.com/content/e5ad91fa-9409-384e-aaa1-ea0e81bf62b4

…forced by circumstance and his president to say and do things that undermined his and Treasury’s credibility…. [But] the secretary’s comments on Monday… look from the outside like unforced errors…. He crowed to the bankers present that “you have me to thank for the increases in your stock prices”. I cannot conceive of any of the 11 other secretaries I have known making such a statement. Leave aside the question of whether whatever credit is to be claimed should be done so on behalf of the president. Since when is the stock price of banks the objective or the standard of success for economic policy? And when, as will inevitably occur, bank stock prices decline, will Mr Mnuchin accept the blame? It was quite a day.

The secretary also… predict[ed] that within years the economy will be regularly growing at above 3 per cent…. not the view of mainstream forecasters… slow growth in the adult population… reduced immigration… it would require a productivity growth miracle. He cited no evidence to support…. Mnuchin claimed that Donald Trump’s tax cuts would be the largest in history. Relative to any relevant denominator… Ronald Reagan’s were far larger…. Mnuchin has made the claim that Mr Trump has given more financial disclosure than anybody else. This is ludicrous….

There will likely come a time when the Treasury secretary will need to invoke his credibility to support confidence in the economy, to stabilise markets, or to mitigate an international crisis. Let’s hope that when that moment comes, Secretary Mnuchin will retain some credibility. This will require an end to days like Monday.

Should-Read: Kevin Drum: Paul Ryan Isn’t Even Trying to Pass a Health Care Bill Anymore

Posted on by Brad DeLong

Should-Read: Kevin Drum: Paul Ryan Isn’t Even Trying to Pass a Health Care Bill Anymore: “They just want to be able to tell their base that they tried… http://www.motherjones.com/kevin-drum/2017/04/paul-ryan-isnt-even-trying-pass-health-care-bill-anymore

…And President Trump wants to erase the taste of defeat…. If House Republicans were serious, they’d engage with the health care industry. They haven’t. If they were serious they’d care about the CBO score. They don’t. If they were serious they’d be crafting a bill that could pass Senate reconciliation rules. They aren’t even trying. If Senate Republicans were serious they’d be weighing in with a bill of their own. They aren’t wasting their time.

In the beginning, I think Paul Ryan really did want to pass something…. But he’s given up on that. At this point he just wants a piece of paper that gets 218 votes and demonstrates that the Republican caucus isn’t hopelessly inept. He knows it will be DOA in the Senate, but at least it will get health care off his plate once and for all…

Should-Read: Binyamin Applebaum:

Posted on by Brad DeLong

Should-Read: Alabama has a per capita personal income level 78% of the U.S. Since 1993, Alabama has not been catching up but rather has been falling further behind:

Cursor and Per Capita Personal Income in Alabama FRED St Louis Fed

And it is not because people have been flooding into Alabama for the jobs. 4% job growth in Alabama since 2000 compared to 10% for the country, 17% job growth in Alabama since 1993 compared to 33% for the country:

Cursor and All Employees Total Nonfarm in Alabama FRED St Louis Fed

A correspondent draws my attention to Binyamin Applebaum in the New York Times, and his story in which none of this context can be found.

Instead, what we have is:

Binyamin Applebaum: A Look Inside Airbus’s Epic Assembly Line https://www.nytimes.com/2017/05/03/magazine/a-look-inside-airbuss-epic-assembly-line.html: “A confluence of political and economic forces has prompted Europe’s largest airplane manufacturer to place a factory in Alabama…

…and to create one of the world’s most gargantuan supply chains…. The state’s industrial revolution began in 1993 when a new governor, Jim Folsom, outbid other states for the Mercedes-Benz plant. (To land the deal, Folsom also agreed to remove a Confederate battle flag from the state capitol.) Airbus, the most recent arrival, got $158.5 million in state and local benefits, including a school at Brookley where the state trains potential Airbus employees at public expense…

Isn’t it unprofessional to talk about Alabama’s “industrial revolution” without any references at all to the disappointing growth record since 1993—and the disappointing level in 1993 and today as well? Yet in terms of professionalism Binyamin Applebaum stands head-and-shoulders above the typical New York Times reporter these days.

The story closes: “‘American workers expect things to go wrong and then they fix it’, said Freddie Guinness, 25, who moved to Mobile from Ireland to manage the new facility. ‘We want it to go right the first time'”. Does that apply to workers at the New York Times too? Or will they just not bother fixing this?

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