Must-Read: I’ll take “Doom for $2000”, Nicolas…

If free trade, the industrial research lab, the gold standard, and high finance to lobby for peace and channel money to régimes that played by the rules of the game were the key stabilizing institutions of Gold Standardism, and if labor unions, Keynesian demand management, social insurance, and high-throughput oligopolistic assembly-line manufacturing were the key stabilizing institutions of Fordism, what are the next key stabilizing institutions? There is no guarantee that there will be any. There was, after all, a 33-year gap between the breakdown of Gold Standardism in 1913 and the first clear signs of the successful construction of Fordism in 1946. If we see 2000 as the last gasp of successful Fordism… we may have a long slog. For who in 1913 would have predicted the future and bet that labor unions, Keynesian demand management, social insurance, and high-throughput oligopolistic assembly-line manufacturing were the key institutions to be building?

Nicolas Colin: Doom, or Europe’s Polanyi Moment?:

The Great Transformation… is really about the social and economic institutions that are necessary to support the market system and to make economic development more sustainable and inclusive…

The ‘Great Transformation’ in and of itself is the painful process a society must go through to imagine and set up these indispensable institutions—a process that includes softer ways, like elections and collective bargaining, but also more destructive paths, like fascism and war. What Polanyi describes in his book is in fact the long economic transition between two very different worlds. One is the 19th century gold standard economy, whose prosperity culminated in the US during the Gilded Age. The other is the 20th century Fordist economy that only found its balance—and entered its Golden Age—after most developed countries had imagined and implemented the proper social and economic institutions in the wake of World War II—that is, after Polanyi finished writing his book….

We are currently going through another ‘Great Transformation’, this time from the Fordist economy to the digital economy…. New risks are emerging. Innovative firms are more prone to failure, imposing unprecedented economic insecurity on their employees. Work itself is undergoing radical change through what many deem “platform capitalism”….

As written in 2011 by John B. Judis,
The recession [triggered by the 2008 financial crisis] does not merely resemble the Great Depression; it is, to a real extent, a recurrence of it. It has the same unique causes and the same initial trajectory. Both downturns were triggered by a financial crisis coming on top of, and then deepening, a slowdown in industrial production and employment that had begun earlier and that was caused in part by rapid technological innovation. The 1920s saw the spread of electrification in industry; the 1990s saw the triumph of computerization in manufacturing and services. The recessions in 1926 and 2001 were both followed by “jobless recoveries”….

Yet another sign of a Polanyi moment is the dispute around what would be the best remedy to the multi-dimensional crisis we are currently going through. Like what happened in the 1930s between the elite who advocated restoring laissez-faire and the labor movement, we are currently seeing two movements at odds with each other. On one side are those who would like to restore the old Fordist economic order… fiscal austerity… regressive corporatism…. On the other side are those who reckon that we are undergoing another ‘Great Transformation’. For them, it’s high time we begin to tackle many difficult institutional challenges so as to support the growth of the digital economy instead of fighting it…. Finally… many institutions that were critical in balancing the Fordist economy and making it more sustainable and inclusive are unraveling at an accelerated pace….

Imagining and imposing new institutions for the digital age is incredibly hard. As for what led to setting up the institutions of the Fordist Golden Age (what we call in France the “Trente Glorieuses”, from 1945 to 1975), most developed countries had to go through total destruction before they could rebuild new institutions to be more in line with the new techno-economic paradigm…. The outcome was by no means guaranteed. The United States proved to be the only country with the leadership and the political system that could help it overcome the crisis without enduring its own destruction… a formidable leader, Franklin D. Roosevelt, surrounded by advisors of superior intellectual stature and gifted with extraordinary strategic and tactical aptitudes. Less known is the fact that the transformative effort of the New Deal also enjoyed the support of corporations that found an interest in supporting FDR’s agenda…. As written in 1984 by Thomas Ferguson and Joel Rogers in their landmark book Right Turn:

A new power bloc of capital-intensive industries, investment banks, and internationally oriented commercial banks constituted the basis of the New Deal’s great and virtually unique achievement—its ability to accommodate millions of mobilized workers amidst world depression. Because they were capital-intensive, firms in the bloc were less threatened by labor turbulence and organization. They could thus “afford” a coalition with labor, at a time when the costs of that coalition were, at least by American standards, high. Because most large capital-intensive firms were world, as well as U.S., pace-setters, they stood to gain from global free trade. They therefore allied themselves with leading institutional financiers, whose own minuscule work force presented few sources of tension, and who had supported a more broadly internationalist foreign policy and lower tariffs since the end of World War I. Together, members of this bloc provided the needed support for the two broad policy commitments—liberalism at home, internationalism abroad—centrally identified with the New Deal….

The solution won’t come from the government alone. Clearly it rests on the government, not the tech companies, to create the social and economic institutions that can align the various interests in an economy where both production and consumption are going through radical change. But we all understand how hard it is to exert the radical imagination necessary to devise what those new institutions should be. By way of expediency, many elected officials prefer to reason within the framework inherited from the Fordist economy. Instead of doing their homework and discovering new categories, they choose the easy path of trying to fit new business models into existing categories. Alas it doesn’t work…

Must-Read: Very good thoughts in a Kaleckian mode…

It is very odd. Back in 1988-1994, when I was a deficit hawk, there was reason to be: interest rates were relatively high, bad news about future deficits appeared to no longer strengthen but to slightly weaken the dollar–suggesting that the hot-money Unconfidence Fairy and the Bond Vigilantes were near if not at hand–and there was a large disconnect between the revenues and the spending that the laws in place would generate.

And now?

Not.

Interest rates are lower than anyone thought they would see in many lifetimes. The dollar’s value is not in any sense threatened by deficit news. And the thirty year fiscal gap is 1.7% of GDP–a number that normal politics can deal with–and in a world of safe asset shortage many not be too high but rather, too low (and improperly backloaded).

but none of the non-Keynesian economist professional deficit hawks have shifted sides since 1992, and a new generation has grown up and started getting their deficit-panic welfare…

Duncan Weldon: Negative Yields, the Euthanasia of the Rentier & Political Economy:

I don’t understand the political economy that has brought us tight fiscal & easy money–it simply isn’t creating enough winners to be sustainable…

Rising asset values certainly have created a block of beneficiaries…. But… with gilt yields at around 0.5%… years of saving isn’t worth as much as they hoped… [and] owning a more valuable house will [not] be seen as adequate…. This cohort will get bigger each year….

Whilst the macroeconomic argument for more active fiscal policy has always been strong, the political economy conditions that may drive it are becoming clearer. Aggressive deficit-financed state spending may (unusually) create two sets of winners–the workforce who benefit from faster growth, tighter labour markets and stronger real income growth and the mass of (relatively) small scale rentiers who would benefit from higher rates…. [But the] voting public don’t seem particularly keen on deficits. I’ve wondered myself recently–whatever happened to deficit bias? It may be that, as Eric Longeran has argued, this is the best argument for helicopter money. If fiscal policy makers won’t do what is required, then perhaps monetary policymakers can.

And Paul Krugman:

Paul Krugman: The Gridlock Economy:

it’s a very good question, but not, I think, all that puzzling…. Weldon is presuming that older voters understand something about macroeconomic policies and what they do…. My impression–from watching CNBC now and then, looking at pop-up ads on web sites, overhearing conversations in barber shops, and other scientific methods–is that older people who do pay attention to economic debates are far more likely to say “Hyperinflation is coming! Ron Paul says so!” than they are to say, “I wish the government would increase the supply of safe assets.”

There’s also the role of Very Serious People, for whom deficit posturing is a signifier of identity…. The US and the eurozone… have fiscal policy paralyzed by political gridlock, leaving the central banks as the only game in town… House Republicans who block spending on anything except weapons… nothing fiscal can happen without action by Germany, which is both self-satisfied with its situation and living in its own intellectual universe…. The UK has some room for maneuver, yet under Cameron/Osborne it went all in for austerity, at least in rhetoric…. The problem now is that while advocates of more fiscal push seem to be winning the intellectual battle, the institutional arrangements that produce macro gridlock are likely to persist. It would take a yuuuge Democratic wave to break the gridlock here, and I have no idea what will unlock Europe.

Must-Read: Devin Bunten: Is the Rent Too High? Aggregate Implications of Local Land-Use Regulation:

Highly productive U.S. cities are characterized by high housing prices, low housing stock growth, and restrictive land-use regulations (e.g., San Francisco)….

While new residents would benefit from housing stock growth due to higher incomes or shorter commutes, existing residents justify strict local land-use regulations on the grounds of congestion and other costs of further development. This paper assesses the welfare implications of these local regulations for income, congestion, and urban sprawl within a general equilibrium model with endogenous regulation. In the model, households choose from locations that vary exogenously by productivity and endogenously according to local externalities of congestion and sharing. Existing residents address these externalities by voting for regulations that limit local housing density. In equilibrium, these regulations bind and house prices compensate for differences across locations.

Relative to the planner’s optimum, the decentralized model generates spatial misallocation whereby high-productivity locations are settled at too-low densities. The model admits a straightforward calibration based on observed population density, expenditure shares on consumption and local services, and local incomes. Welfare and GDP would be 1.4% and 2.1% higher, respectively, under the planner’s allocation. Abolishing zoning regulations entirely would increase GDP by 6%, but lower welfare by 5.9% due to greater congestion.

Must-Read: The net effect of the “China shock” is a net shrinking of manufacturing employment on the order of 0.22% of the nonfarm workforce. These income-falling numbers are much too big to be attributable to any sort of “China shock”. Even the differentials of the worst hit relative to the average state are much too big to be attributable to any sort of “China shock”.

My guess: a long process of capital substitution for labor in manufacturing that turns highly toxic in the low-pressure economies of the 1980s and 2000s, but that is win-win in the high-pressure economies of the 1960s and 2000s, and neutral in the 1950s and 1970s. The standard divorce between cycle and trend is playing havoc with our analyses bigtime here, as well as elsewhere…

Justin Fox: Where Median Incomes Have Fallen the Most:

Of all the indicators describing the not-very-impressive U.S. economic performance of the first decade-and-a-half of the 21st century the least impressive is probably median household income. It hit an all-time high in 1999 of $57,843 (converted into 2014 dollars), and as of 2014 stood at $53,657–a 7.2 percent decline…. The typical American household remains poorer than it was 16 years ago.

I see a clear pattern on the downside: The states that have struggled the most tend to have manufacturing-intensive economies (Delaware and Nevada are the exceptions). Also, it’s worth pondering for a moment just how bad things have been in some of these states. The typical household in Michigan and Mississippi was more than 20 percent poorer in 2014 than in 1999. And Mississippi, which had the fifth-lowest median income in 1999, was dead last in 2014, with a median household income ($35,521) less than half that of Maryland, the most-affluent state.

On the upside, there doesn’t seem to be a single cause. North Dakota… oil boom…. The District of Columbia has seen a population boom since the late 1990s as the government-industrial complex has continued to grow and its affluent employees have increasingly chosen to live in the city…. Montana, Hawaii and the rest … you tell me…. California and Texas… differing approaches to taxes, regulation and the like. On this particular economic metric, their performance since 1999 has been remarkably similar–and significantly better than the national average. Those with the urge to draw sweeping conclusions about economic policy are thus thwarted, for now at least

Must-Read: What is driving this? Fewer progressive “careers” by which one rises from account-management drone to senior manager as one’s company grows and thrives? Much more seems to be riding on initial education and one’s choice of industry, perhaps… It’s complicated!

Michael D. Carr and Emily E. Wiemers: The decline in lifetime earnings mobility in the U.S.: Evidence from survey-linked administrative data:

Abstract: There is a sizable literature that examines whether intergenerational mobility has declined as inequality has increased….

This literature is motivated by a desire to understand whether increasing inequality has made it more difficult to rise from humble origins. An equally important component of economic mobility is the ability to move across the earnings distribution during one’s own working years.

We use survey-linked administrative data from the Survey of Income and Program Participation to examine trends in lifetime earnings mobility since 1981. These unique data allow us to produce the first estimates of lifetime earnings mobility from administrative earnings across gender and education subgroups. In contrast to much of the existing literature, we find that lifetime earnings mobility has declined since the early 1980s as inequality has increased. Declines in lifetime earnings mobility are largest for college-educated workers though mobility has declined for men and women and across the distribution of educational attainment.

One striking feature is the decline in upward mobility among middle-class workers, even those with a college degree. Across the distribution of educational attainment, the likelihood of moving to the top deciles of the earnings distribution for workers who start their career in the middle of the earnings distribution has declined by approximately 20% since the early 1980s.

Must-Read: But what does “developing countries must accept the inevitability of changes to their growth models caused by digital technologies. Instead of viewing these changes as a threat, and trying to resist them, developing economies should be getting ahead of them…” mean, concretely, on the ground? Take advantage of digital technologies and platforms (eBay, cellphones, Amazon, FedEx) that provide channels of information capture and dissemination on the one hand and distribution on the other: those are clear complements to what developing economies can do. But how is one to find a niche for one’s workers’ brains-as-cybernetic-controllers that will make the diamonds-water paradox their friend in the enormously productive digital global economy of the future?

Michael Spence: Growth in a Time of Disruption:

Developing countries are facing major obstacles…

…headwinds generated by slow advanced-economy growth and abnormal post-crisis monetary and financial conditions… disruptive impacts of digital technology… set to erode developing economies’ comparative advantage in labor-intensive manufacturing activities…. Adaptation is the only option. Robotics has already made significant inroads in electronics assembly… sewing trades, traditionally many countries’ first entry point to the global trading system, likely to come next…. Supply chains based on the location of relatively immobile and cost-effective labor will wane, with production moving closer to the final market….

Developing countries need to act now to adapt their growth strategies…. The problems in advanced countries–from slow economic growth to political uncertainty–are likely to persist…. Investment, both public and private, remains a powerful growth engine…. It is critical to manage the capital account in a way that protects and enhances the real economy’s growth potential…. A realistic approach to the digital revolution is needed…. Developing countries must accept the inevitability of changes to their growth models caused by digital technologies. Instead of viewing these changes as a threat, and trying to resist them, developing economies should be getting ahead of them….

The distribution of gains from economic growth cannot be ignored…. It is important to establish sustainable growth patterns early on…. Entrepreneurial activity is vital to translate economic potential into reality. Policies that support such activity, such as by removing obstacles to new business creation and enhancing financing opportunities, cannot be left out…

Must-Read: The floodgates opened in the late 1990s, with Clinton’s second term and the stock market boom. Why did the floodgates open, and open then, and open so much? The timing suggests the flood of insurance and commercial banking money into investment banking, and the ability of investment bankers to collect rents off of it, spilled over to CEOs who, by virtue of their ability to take their companies private and so join the Private Equity world, had effectively become investment bankers and paid like investment bankers in the late 1980s. But that is just a WAG (a Wild-A—–Guess)…

Barry Ritholtz: How Fast is CEO Compensation Rising?: “CEO compensation is growing faster than the wages of the top 0.1 percent…

…and the stock market. This is a rather amazing chart: