Must-read: Cory Doctorow: “Supreme Court sends Authors Guild packing, won’t hear Google Books case”

Posted on by Brad DeLong

Must-Read: A defeat for the rent-seekers!

Cory Doctorow: Supreme Court sends Authors Guild packing, won’t hear Google Books case: “The Authors Guild has been trying to get a court to shut down…

…Google’s book-scanning/book-search program for more than a decade. Last October, the Second Circuit Court of Appeals — the most publisher-friendly court in America — ruled that the program was legal. Today, the Supreme Court settled the question forever, by declining to hear the Authors Guild’s appeal. I’ve written a lot about this, but here’s the tl;dr: if making a copy in order to create a search index violates copyright, then all search engines are illegal….

Unlike other forms of Google search, Google does not display advertising to book searchers, nor does it receive payment if a searcher uses Google’s link to buy a copy. Google’s book scanning project started in 2004. Working with major libraries like Stanford, Columbia, the University of California, and the New York Public Library, Google has scanned and made machine-readable more than 20 million books. Many of them are nonfiction and out of print.

Must-read: Suresh Naidu and Noam Yuchtman: “Labor Market Institutions in the Gilded Age”

Posted on by Brad DeLong

Must-Read: Suresh Naidu and Noam Yuchtman: Labor Market Institutions in the Gilded Age: “Although 19th century labor markets were unencumbered by regulatory legislation…

…there existed frictions and rents… [that] played an active role in determining labor market outcomes and the distribution of income…. When firms experienced positive output price shocks, their employees earned wage premia…. The existence of rents in the labor contract suggests a role for bargaining and conflict between employees and employers. Workers in the late 19th century
attempted to strike to increase their wages; we present data on the frequency of strikes in the 19th century as well as some evidence suggesting that strikes were correlated with workers’ wages. Employers were supported by institutions of their own: we describe the important role played by the U.S. government in limiting the efficacy of union strikes in the 19th century…. We present new evidence documenting the rise of judicial injunctions that ended strikes, pointing to the important role played by the judicial branch of the U.S. government in structuring (Northern) American labor market institutions prior to the rise of legislative regulation.

Must-read: Narayana Kocherlakota: “The World Needs More U.S. Government Debt”

Posted on by Brad DeLong

Must-Read: Narayana Kocherlakota: The World Needs More U.S. Government Debt: “Are government-imposed restrictions holding back the U.S. economy?…

…In a way, yes: The federal government is causing great harm by failing to issue enough debt.

The U.S. generates more income than any other country, and will keep doing so for many years to come. The federal government can generate a lot of revenue by taxing this income — a power that puts it in a unique position to issue the kind of extremely safe bonds that are in great demand among the world’s investors. How is the U.S. government wielding its power? Not well. The yield on a 20-year inflation-protected Treasury bond, at just over 0.5 percent, is nearly two full percentage points lower than it was 10 years ago. This means that the price is near record highs, suggesting that the U.S. government’s supply of such safe investments is falling far short of demand. In other words, we’re starving the world of desperately needed financial safety. To some, the idea that the U.S. government isn’t issuing enough debt may seem counterintuitive — after all, federal debt outstanding has more than doubled over the past 10 years. But scarcity is not about supply alone. In the wake of the financial crisis, households and businesses are demanding more safe assets to protect themselves against sudden downturns. Similarly, regulators are requiring banks to hold more safe assets. Market prices tell us that the government needs to produce more safety in order to meet this increased demand. The scarcity of safety creates hardships for people and businesses…

Must-See: Imran Rasul and Brendon McConnell: Ethnic Sentencing Differentials in the Federal Criminal Justice System

Posted on by Brad DeLong

Must-See: More evidence that the federal judicial system needs more wise Latinas on the bench…

Imran Rasul and Brendon McConnell: Ethnic Sentencing Differentials in the Federal Criminal Justice System: “Wed, May 4: 4:00 PM: In the Federal criminal justice system…

…large differences in sentencing outcomes exist between minority and White defendants…. [Does] unobserved heterogeneity of defendants, correlated to their ethnicity, drive these differentials[?] We… estimat[e]… bounds on treatment effects of ethnicity…. Black-White judicial sentencing differentials are not robust to accounting for unobserved heterogeneity across defendants. Hispanic-White differentials are robust along multiple sentencing margins. A candidate explanation is ingroup bias causing outsiders' (Hispanics) to be treated differently toinsiders’ (Whites and Blacks). We test this explanation by exploiting 9-11 as an exogenously timed cue heightening the salience of insider-outsider differences…. Among those sentenced post 9-11, Hispanic-White judicial sentencing differentials are further exacerbated. Decomposition analysis shows that only 7% of the DiD Hispanic-White gap is attributable to observables…. We find evidence for prosecutor’s ingroup biases in setting initial offense charges…. In districts with a higher proportion of Hispanic judges, the Hispanic-White sentencing differential is significantly reduced, consistent with judges’ ingroup biases driving their sentencing decisions…

Must-reads: May 2, 2016

Posted on by Brad DeLong

Should-reads:

Must-read: Shane Ferro: “Thoughts on Business Insider”

Posted on by Brad DeLong

Must-Read: Shane Ferro may think that she is not so good at the game of being a twenty-first century journalist working in internet advertising-supported media. But she is very good as a trusted information intermediary and synthesist. In an ideal world, I think she would be one of two-hundred and fifty people I follow who would spend one week a year doing ten posts a day and the rest of the year doing from between five posts a week down to one a month…

Shane Ferro: Thoughts on Business Insider: “Tanzina Vega went on a tweetstorm this morning about the state of journalism…

…based on some thoughts about… why so many people have left Business Insider…. I used to work at Business Insider. I quit after 10 months. The first three months were great…. During the second three months the pressure to get more traffic and write a higher number of posts per day ramped up. The last four months, I remember mostly tense meetings about how I wasn’t hitting my goals–five posts per day and one million unique visitors per month. I remember riding the elevator downstairs in the afternoons, hoping that no one would see me crying until I hit the front door and made a left from Fifth Avenue onto 21st Street. I cried a lot while pacing back and forth on 21st street in the summer of 2015…. I never came close to hitting my goals, despite the fact that I became something of a hot take machine….

As Tanzina says in her tweetstorm, it takes quite a bit of thought to come up with a coherent opinion. I don’t have five opinions per day. I have maybe one…. The pro-labor rights econ nerd in me has at times been really angry with BI for how much content they try to squeeze out of writers. But the truth is I knew what I was getting into when I joined…. I wanted to learn how to be Joe Weisenthal. I expected it to be hard, but to ultimately give me another tool in my journalist toolbox…. My problem is my brain doesn’t work the way that it needs to work in order to succeed in that kind of environment. I either spend five seconds on a subject — I read, I think of one thought, I tweet it, and I move on — or I spend somewhere between five hours and five days really thinking through something. I am either intensely focused or completely unfocused. To succeed at BI, you have to be good at the middle ground, where you can read something, spend 30 minutes putting together a summary, maybe add another thought or two, hit publish, and then be immediately ready to start again….

BI is the extreme version of what every news organization now expects of its journalists: fast copy with a broad appeal that’s turned in without much need for editing…. I did not do well at BI…. It ended up being a good thing. It sped up the time it took me to realize that I am bad at the click game, and that means I probably don’t want to be a journalist forever. I spent the last year and a half giving a lot of thought to what’s next (and omfg I am so excited about it!).

What’s the deal with U.S. wage growth?

Posted on by David Hudson
Companies speak with job seekers at a job fair in Pittsburgh, Wednesday, March 30, 2016.

The U.S. unemployment rate has been at or under 5 percent for more than six months. But even though that number is close to many estimates of the long-run unemployment rate, neither inflation nor wage growth has picked up considerably, despite expectations that they would.

To paraphrase an influential figure of the last era of full employment, what’s the deal with that? Why hasn’t accelerating—never mind strong—wage growth appeared yet? There are a number of possibilities, each a likely contributor to the failure of wage growth to pick up. The challenge is figuring out which are the largest contributors.

But first, a quick review of the state of nominal wage growth. After a period of seemingly being locked in at 2 percent, nominal wage growth in the United States appeared to pick up in 2015 by a number of measures. But as reflected in Figure 1, it looks like nominal wage growth has since halted its advances. Consider the Employment Cost Index, which seemed to show the first signs of accelerating wage growth in early 2015. The latest data for the first quarter of 2016, released this past Friday, show an annual growth rate of only 2 percent for private-sector workers. Nominal wage growth seems slightly higher according to the Current Employment Statistics data released every month with the jobs report. But both measures only show annual growth of about 2.3 percent—a decline from prior months.

Figure 1

Now let’s look at the possible culprits.

First, a 5 percent unemployment rate may not mean what it used to mean. With the long-term decline of the U.S. labor force participation rate, the unemployment rate may be slightly overstating the health of the country’s labor market. Measured by the employed share of workers ages 25 to 54, the labor market has a long way to go before it hits a level usually associated with strong wage growth.

Or perhaps wage growth is behaving strangely because inflation is acting strangely. That’s an argument put forward by Adam Ozimek of Moody’s Analytics, who points out that inflation acted in some unprecedented ways over the course of 2015. Overall inflation, measured by the Consumer Price Index, actually went below zero during some months last year. The last time that happened outside of a recession was in the 1950s. Low inflation has an impact on wage growth, because employers will be less willing to pass along wage hikes to prices, and employees will need less of a wage increase as their real wage growth has been higher.

A third argument is that compositional effects are to blame for the lack of acceleration in measured wage growth. Several economists at the Federal Reserve Bank of San Francisco have argued that low measured wage growth is due in part to low-wage workers moving into full-time employment. This means that while already-full-time employees are seeing rising wages, that growth is masked by the entrance of lower-earning workers. And the apparent stall in the Employment Cost Index disappears and a clearer upward trend emerges once occupations that pay quite a bit in bonuses are taken out of the calculation.

Of course, all three of these stories as well as others could be true—they’re not mutually exclusive. The relative importance is key. As I’ve written before, the compositional effect has some truth to it, but measures of wage growth looking at only full-time employment seem to indicate only the early stages of a tightening labor market, not its end stage. And while low inflation may mean employers are hesitant to raise prices, research indicates that wage increases are less likely to pass through to overall price increases so that concern might be overblown at this time.

It seems likely then that the labor market just isn’t strong enough to trigger broad-based, strong, accelerating wage growth. Five percent just isn’t what it used to be anymore.

Must-read: Raj Chetty and Nathaniel Hendren: “The Impacts of Neighborhoods on Intergenerational Mobility: Childhood Exposure Effects and County-Level Estimates”

Posted on by Brad DeLong

Must-Read: Raj Chetty and Nathaniel Hendren: The Impacts of Neighborhoods on Intergenerational Mobility: Childhood Exposure Effects and County-Level Estimates: “Studying more than five million families who move across counties in the U.S….

…we present quasi-experimental evidence that neighborhoods affect intergenerational mobility through childhood exposure fects. In particular, the outcomes of children whose families move to a better neighborhood – as measured by the outcomes of children already living there – improve linearly in proportion to the time they spend growing up in that area. We distinguish the causal effects of neighborhoods from confounding factors by… outcomes of siblings… moves triggered by displacement shocks, and… sharp variation in predicted place effects across birth cohorts, genders, and quantiles. We also document analogous childhood exposure effects for college attendance, teenage birth rates, and marriage rates….

For children growing up in families at the 25th percentile of the income distribution, each year of childhood exposure to a one standard deviation (SD) better county increases income in adulthood by 0.5%. Hence, growing up in a one SD better county from birth increases a child’s income by approximately 10%. Low-income children are most likely to succeed in counties that have less concentrated poverty, less income inequality, better schools, a larger share of two-parent families, and lower crime rates. Boys’ outcomes vary more across areas than girls, and boys have especially poor outcomes in highly-segregated areas. In urban areas, better areas have higher house prices, but our analysis uncovers significant variation in neighborhood quality even conditional on prices.

Must-read: Adam Smith (1776): “As if by an Invisible Hand…”

Posted on by Brad DeLong

Must-Read: Adam Smith’s “Invisible Hand” argument. It’s not “markets are good”. It is, instead, two moves:

  1. Complicated processes involving the interactions of large numbers of humans have emergent properties and produce outcomes that often are not and cannot be understand as intended by any one of the humans whose actions led to the outcome.

  2. Sometimes (often?) the emergent properties are those that we want to nurture and develop: as Bernard Mandeville first noted, one of the tasks of the clever statesman is to structure things so that the satisfaction of private vices does in fact yield public benefits.

Note that in this particular example, it is the (a) psychological home bias of merchants combined with (b) increasing returns in the agglomeration of economic activity that leads to the good outcome–and it is a good outcome for Amsterdam, not for Lisbon or Königsberg…

Adam Smith (1776): Wealth of Nations, Book IV, Chapter 2: “The capital which an Amsterdam merchant employs in carrying corn from Konigsberg to Lisbon…

…and fruit and wine from Lisbon to Königsberg, must generally be the one half of it at Königsberg and the other half at Lisbon. No part of it need ever come to Amsterdam. The natural residence of such a merchant should either be at Konigsberg or Lisbon, and it can only be some very particular circumstances which can make him prefer the residence of Amsterdam. The uneasiness… which he feels at being separated so far from his capital generally determines him to bring part… of the… goods… to Amsterdam… though this necessarily subjects him to a double charge of loading and unloading, as well as to the payment of some duties and customs, yet for the sake of having some part of his capital always under his own view and command, he willingly submits…. In this manner that every country which has any considerable share of the carrying trade becomes always the emporium, or general market, for the goods of all the different countries whose trade it carries on….

A capital employed in the home-trade… necessarily puts into motion a greater quantity of domestic industry, and gives revenue and employment to a greater number of the inhabitants of the country…. Upon equal, or only nearly equal profits, therefore, every individual naturally inclines to employ his capital in the manner in which it is likely to afford the greatest support to domestic industry, and to give revenue and employment to the greatest number of people of his own country….

By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it…

Must-reads: May 1, 2016

Posted on by Brad DeLong

Should-reads: