Worthy reads from Equitable Growth:

1. My impression is that Equitable Growth’s academic grantgiving is more short of good projects to fund than short of money with which to fund them, so it is definitely worthwhile to throw your hat into the ring if you have what you think is a good idea for how to discover important things about equitable growth. Go to Equitable Growth’s “2022 Request for Proposals,” which “seeks to deepen our understanding of how inequality affects economic growth and stability. To do so, we support research investigating the various channels through which economic inequality, in all its forms, may or may not impact economic growth and stability. Equitable Growth promotes efforts to increase diversity in the economics profession and across the social sciences. We recognize the importance of diverse perspectives in broadening and deepening research on the topics in this request for proposals.”

2. In an interview with NPR, Michelle Holder does a very good job explaining “how the economy has managed to pull off a disappearing act with people’s wages.” Listen to Stacey Vanek Smith and Julia Ritchey, “The Money Illusion: Have Americans really gotten a raise?”

Worthy reads not from Equitable Growth:

1. I confess I do not understand why anybody thinks that the 1970s are a better model for what is now going on with inflation than after World War II. This seems to me to be a likely mistake that nobody who has learned any history could make. Read Paul Krugman, “History Says Don’t Panic About Inflation,” in which he writes: “Back in July the White House’s Council of Economic Advisers posted a thoughtful article to its blog titled, ‘Historical Parallels to Today’s Inflationary Episode.’ The article looked at six surges in inflation since World War II and argued persuasively that current events don’t look anything like the 1970s. Instead, the closest parallel to 2021’s inflation is the first of these surges, the price spike from 1946 to 1948. … It was a one-time event, not the start of a protracted wage-price spiral. And the biggest mistake policymakers made in response to that inflation surge was failing to appreciate its transitory nature: They were still fighting inflation even as inflation was ceasing to be a problem, and in so doing helped bring on the recession of 1948–49. … Demand in the United States actually doesn’t look all that high; real gross domestic product … is still about 2 percent below what we would have expected the economy’s capacity to be if the pandemic hadn’t happened. But demand has been skewed, with consumers buying fewer services but more goods than before, putting a strain on ports, trucking, warehouses and more. These supply-chain issues have been exacerbated by the global shortage of semiconductor chips, together with the Great Resignation—the reluctance of many workers to return to their old jobs. So we’re having an inflation spurt. … So what can 1946–48 teach us about inflation in 2021? Then as now there was a surge in consumer spending, as families rushed to buy the goods that had been unavailable in wartime. Then as now it took time for the economy to adjust to a big shift in demand. … But the inflation didn’t last. It didn’t end immediately: Prices kept rising rapidly for well over a year. Over the course of 1948, however, inflation plunged, and by 1949 it had turned into brief deflation. … An inflation spurt is no reason to cancel long-term investment plans. The inflation surge of the 1940s was followed by an epic period of public investment in America’s future, which included the construction of the Interstate Highway System. That investment didn’t reignite inflation — if anything, by improving America’s logistics, it probably helped keep inflation down. The same can be said of the Biden administration’s spending proposals, which would do little to boost short-term demand and would help long-term supply…. People making knee-jerk comparisons with the 1970s and screaming about stagflation are looking at the wrong history. When you look at the right history, it tells you not to panic.”

2. Disagree with this assessment of the housing market bubble in the 2000s, but it is smart. After the start of the Great Recession, the United States was starved of housing construction for a decade, especially construction in places where people can get jobs of high productivity or where people can get very good value for their leisure. This shortage of supply means that today’s elevated housing prices are quite likely to be “fundamental.” But 2005 was half a generation ago, and then the supply demand balance in housing was different. So values in 2005 were a bubble, I think, even though the same inflation-adjusted values today are “fundamental.” Read Timothy B. Lee, “The 2000s housing bubble was greatly exaggerated,” in which he writes: “Housing prices are now above the supposedly unsustainable levels of 2006. And that’s after adjusting for inflation. And yet not very many people think we’re in the middle of a second housing bubble. Rather, most experts believe that today’s housing prices reflect ‘fundamental’ factors. Interest rates are at all-time lows, giving homebuyers more spending power. And regulatory restrictions have created housing shortages in many metropolitan areas. But that leads to a question that at first glance might seem crazy: What if those same explanations largely explain the housing boom that peaked in 2006? What if the big problem in the early 2000s wasn’t an excess of houses but a shortage of them? … That’s the thesis of ‘Shut Out,’ a 2019 book by Kevin Erdmann. … Erdmann argues that policymakers misdiagnosed the causes of the housing boom, and that led to catastrophic policy errors. In particular, because the Federal Reserve thought housing was overvalued in 2007, it didn’t cut rates fast enough in response to the housing crash. … If Erdmann and Schubert are right, we’re still living with the consequences of misdiagnosing the housing boom as a speculative bubble.”

Worthy reads from Equitable Growth:

1. The general flow of news and misinformation in today’s media gives people who are not following closely a very false impression. It greatly understates how far we still are away from full employment. There remain considerable supply constraints on people’s willingness and ability to work—fear of catching Covid-19 and then giving it to immunocompromised and elderly relatives and friends, plus the logistical difficulties that stubbornly remain large, due to the inability to get all of the pieces of the family weekly schedule together, and due to failures of supply chain management in the U.S. economy as a whole. As these supply constraints are relaxed in the future, there will then need to be the demand to pull people back into work, and into the best attainable work for themselves and the economy and to reach full employment. Read Kathryn Zickuhr and Carmen Sanchez Cumming, “Equitable Growth’s Jobs Day Graphs: October 2021 Report Edition,” in which they write: “Total nonfarm employment rose by 531,000 in October, and the prime-age employment rate for prime-age workers rose to 78.3 percent. … The unemployment rate declined to 4.6 percent in October … [but] higher for Black workers (7.9 percent) and Latinx workers (5.9 percent). … Unemployment rates are markedly higher for workers with lower levels of education, at 7.4 percent for those with less than a high school degree and 5.4 percent for high school graduates. … Public-sector employment fell in October and remains significantly below pre-crisis levels, while private sector employment continued to see more rapid gains. … The proportion of unemployed U.S. workers facing long-term unemployment … remains elevated, as 45.0 percent of unemployed workers have now been out of work for more than 15 weeks.”

2. Reproductive autonomy—the ability to effectively engage in family planning—has always been key to what opportunities women have had and what freedom to live their lives as they choose women have been able to grasp. Abortion rights have been a very powerful part of enabling women’s opportunities in America over the past two generations. They now appear to be under considerable threat in Texas, Louisiana, and elsewhere. Read Kate Bahn and Maryam Janani-Flores, “Economic security and opportunity for women under threat after U.S. Supreme Court takes anti-abortion stance in Texas,” in which they write: “Nearly 1 in 4 women in the United States… will have an abortion by the age of 45, and nearly 1 in 20 women will have an unintended pregnancy…. Research by economists and other social scientists repeatedly demonstrates how this link between bodily autonomy and a person’s ability to decide when, how, and under what circumstances to plan for a family is critical to economic security and stability…. The early broad-based dissemination of the birth control pill and on restrictions for abortion services, including gestational limits and targeted restrictions of abortion providers, or TRAP laws, finds that autonomy over family planning choices is directly linked to a woman’s job opportunities and financial security.”

3. In September Alix Gould-Werth highlighted a new Transportation Security Index developed by her and her co-researchers to measure transportation inequities. Here is their more recent and very interesting take on how the inability to be sure that you will get to the job, or the appointment, greatly hobbles many people’s ability to successfully maneuver day-by-day in our society of sprawl. Read Alexandra K. Murphy, Alix Gould-Werth, and Jamie Griffin, “Validating the Sixteen-Item Transportation Security Index in a Nationally Representative Sample: A Confirmatory Factor Analysis,” in which they write: “We developed a preliminary Transportation Security Index (TSI): a 16-item measure that captures the experience of transportation insecurity at the individual level. … We use confirmatory factor analysis to replicate and validate the 16-item TSI. Our results show that a slightly modified TSI16 is an effective tool that can be used to uncover transportation insecurity across different samples. They also suggest that, counter to the results of our previous study, transportation insecurity is a unidimensional condition that is experienced both materially and relationally.”

Worthy reads not from Equitable Growth:

1. The U.S. workforce and job system has so much month-to-month churn, and the value of the local information present in a business’s knowledge of the quirks of an employee and an employee’s knowledge of the quirks of a business and a boss is so large, that I have never, ever understood why the U.S. private sector has not done a better job of maintaining employer-employee ties across all the accidents and disruptions of life that lead people to need to step away from the job for a week, a month, or a season. Requiring medical and caregiving leave be offered, and making it paid leave, would jumpstart a more general shift to preserve much of this valuable information—information now lost when employee-employer ties are completely severed—across time. Read Julia M. Goodman and Daniel Schneider, “The association of paid medical and caregiving leave with the economic security and wellbeing of service sector workers,” in which they write: “Our objective was to determine whether paid leave was associated with improved economic security and wellbeing for workers. … Data collected in 2020 by the Shift Project from 11,689 hourly service-sector workers …[showed that] twenty percent of workers needed medical or caregiving leave in the reference period. Workers who took paid leave reported significantly less difficulty making ends meet, less hunger and utility payment hardship, and better sleep quality than those who had similar serious health or caregiving needs but did not take paid leave. Access to paid leave enables frontline workers to take needed leave from work while maintaining their financial security and wellbeing.”

2. Tax policy at the U.S. Department of the Treasury rightly focuses on exactly how much money the Build Back Better legislation can raise for the federal government by simply collecting taxes that are already owed but have not been collected due to the understanding of the IRS in the past. Read Lily Batchelder, “Preliminary Estimates Show Build Back Better Legislation Will Reduce Deficits,” in which she writes: ‘The Build Back Better Act invests meaningfully in American families and workers, while laying the foundation for meeting imperative climate goals. … The legislation would, as the President proposed, generate more than $2 trillion in savings. These savings come from ensuring large multinational corporations and wealthy Americans pay their fair share and reducing the cost of prescription drugs. These provisions will not raise taxes on any taxpayer making less than $400,000. … At the crux of reforms to the tax code is a historic overhaul of the international tax regime, whose global adoption has been successfully negotiated with 136 countries representing nearly 95 percent of the world’s economy. As a result of these changes, the ability of large corporations to shift profits abroad will be substantially limited, and the race to the bottom in corporate taxation will no longer be a driving force weakening capital taxation. … The largest pay-for in the bill is not a tax increase at all. By collecting taxes that are already owed—and disproportionately unpaid by the highest-earners—the Build Back Better Act will generate at least $400 billion in additional revenue. Over the last decade, an under-resourced IRS has been unable to appropriately focus attention on top earners who are most responsible for the tax gap. … These are historic policy achievements in and of themselves—and they also pay for transformational investments that will improve the lives of American workers, our children, and the generations that will follow.”

3. Here is another very good study strongly suggesting that current news-flow fears of a return to 1970s-style inflation vastly overstate the true risks here. Read Davide Brignone, Alistair Dieppe, and Martino Ricci, “Quantifying risks of persistently higher US inflation,” in which they write: “Using the ECB-Global model, this column estimates the impact on inflation of the fiscal stimulus to be limited. Three scenarios … a steeper Phillips curve, stronger fiscal multipliers, and rising inflation expectations … suggest that the impact on inflation from these sources of risk is likely to be moderate, unless all of the risks materialize simultaneously, and the Fed does not depart from the assumed monetary policy path.”

Worthy reads from Equitable Growth:

1. The excellent Anna Stansbury makes a very good point here—the size of the penalties multiplied by the likelihood of enforcement are such that a firm can, in all probability, make higher profits by violating than by complying with the Fair Labor Standards Act and the Nation Labor Relations Act. To the extent that firms do comply with these legal obligations, it is as part of a broader social contract of expectations of cooperative behavior. But that social contract has been degrading and decaying at least since the late 1960s. Read her “Do US Firms Have an Incentive to Comply with the FLSA and the NLRA?,” in which she writes: ‘To what extent do US firms have an incentive to comply with the Fair Labor Standards Act and the National Labor Relations Act ? I examine this question through a simple comparison of the expected costs of noncompliance (in terms of legal sanctions) to the profits firms can earn through noncompliance. In the case of the FLSA minimum wage and overtime provisions, typical willful violators are required to pay back wages owed and in some cases additional penalties, if detected by the Department of Labor. Based on available data on the penalties levied, a typical firm would need to expect a chance of at least 78–88 percent that its violation would be detected in order to have an incentive to comply with the FLSA. In practice, the probability of detection many firms can expect to face is likely much lower than this. In the case of the NLRA, a firm that fires a worker illegally is required to reinstate the worker with back pay if the violation is detected. Based on empirical estimates of the effect of unionization on firm profits, a typical firm may have an incentive to fire a worker illegally for union activities if this illegal firing would reduce the likelihood of unionization at the firm by as little as 0.15–2 percent. These analyses illustrate that neither the FLSA nor the NLRA penalty and enforcement regimes create sufficient incentive to comply for many firms. In this context, the substantial evidence of minimum wage and overtime violations, and of illegal employer behavior toward unions, is not surprising.”

2. This event, I think, went very well. I certainly learned an enormous amount. And, indeed, it made me think of that I had underestimated for nearly my entire career how important nowcasting was (relative to forecasting). Watch “Equitable Growth Presents: Opportunities and challenges of real-time economic measurement,” which “convened experts on the analysis and application of real-time data … Austin Clemens, Director of Economic Measurement Policy, Washington Center for Equitable Growth; Erica Groshen, Senior Economics Advisor, Cornell University; Jeehoon Han, Assistant Professor, Zhejiang University; Dana Peterson, Chief Economist, The Conference Board [all of whom discussed how] … The coronavirus recession led to a crop of economics working papers trying to understand the effects of the pandemic in real time. … The incredibly short turnaround time of much of this research was unprecedented. … The severity of the COVID-19 crisis, the availability of administrative data sources, and new statistical tools combined to produce an enormous amount of nearly real-time data.”

Worthy reads not from Equitable Growth:

1. Only once in my lifetime—1994—has the U.S. Federal Reserve successfully attained a “soft landing“ by maintaining price stability and tightening monetary policy without sending the economy into a recession, and so prematurely cutting short a useful and beneficial expansion. The fear of a repeat of the inflationary 1970s has indeed imposed heavy long-term costs on American economic growth. Read Antonio Fatás, “The short-lived high-pressure economy,” in which he writes: “In 2019, the U.S. economy had reached levels of employment that ensured that the gains of the economic expansion were shared across many segments of the labor market. Unfortunately, the benefits of this high-pressure economy were short-lived thanks to the recession that started in March 2020. This column argues that this pattern fits all previous U.S .cycles. Expansions end too early to allow for long periods of stable and low unemployment.”

2. I did not see this letter when people were looking for people to sign on, and that leaves me a little bit sad. The only thing I would add is that the social-spending package is only going to counter a small proportion of the harm done by the substantial decades of underinvestment by the public sector that began back in the days of Richard Nixon. It will take a much greater effort, and be a much heavier lift, to get the public capital stock and its pace of growth back to where it really ought to be. Read Juliana Kaplan and Ben Winck, “61 Economists including a Nobel call on Congress to pass Biden’s social spending framework,” in which they write: “The package would ‘counteract decades of underinvestment,’ the group said in a letter organized by Invest in America Action. The plan includes funding for universal preschool, affordable housing, and clean-energy projects, among other provisions.”