Weekend reading: Our new working paper series, UI extensions, and more

Posted on by David Hudson

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 has published this week and the second is 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

Equitable Growth launched our working paper series this week, which will feature research by our grantees, our in-house researchers, and other researchers in our network. The first three papers cover school finance reform, labor standards in the restaurant industry, and econometric techniques.

There’s a still-simmering debate among left-leaning economists about the potential impact of Sen. Bernie Sanders’ economic plan. But as Heather Boushey points out, researchers and policymakers shouldn’t ignore the important role of policy that focuses on supporting care and work-life balance.

Extending the duration of unemployment insurance benefits during a recession increases the unemployment rate. But looking at studies that only consider the first step of the process misses something important: Less job searching can help more unemployed workers find jobs.

U.S. business investment is weak. Productivity growth is slow. Our companies are less dynamic than in the past. All of these trends are intertwined and in ways that researchers and policymakers don’t quite understand. If we care about economic growth, we need to pay more attention to these trends.

Links from around the web

Economists and policymakers are concerned with the drop-off in the rate at which new businesses are being started. But not all startups are created equal. Ben Casselman highlights new research showing that ambitious startups are growing slower than in the past. [fivethirtyeight]

How do we accelerate economic growth? Well, it depends on the timeframe over which you want to boost growth. Dietz Vollrath discusses how policies that focus on aggregate demand work for the short term, and the long term is the provenance of supply-side reforms. [growth economics]

Poverty and housing policy are inextricably linked. Emily Badger highlights a new book by sociologist Matthew Desmond on eviction in U.S. cities, which explores how the rental housing market helps perpetuate U.S. urban poverty. [wonkblog]

A new study shows that a large portion of financial advisers in the United States have histories of “misconduct.” And these brokers and advisers seem to be concentrated in certain firms and certain areas of the country. Matthew C. Klein takes a deeper look at the research. [ft alphaville]

The presidential election season is a time for hearing plans about how the federal government can improve the country. Presidential administrations can make tremendous differences, but some areas are outside of their control, such as housing supply. Derek Thompson argues for the importance of housing constraints. [the atlantic]

Friday figure

 

Figure from “History shows why New Hampshire has room for higher minimum wages” by Ben Zipperer.

Must-reads: March 4, 2016

Posted on by Brad DeLong

Must-read: Thorstein Beck et al.: “The Global Crisis Special Issue of Economic Policy”

Posted on by Brad DeLong

Must-Read: Thorstein Beck et al.: The Global Crisis Special Issue of Economic Policy: “The Global Crisis was a watershed… for economies around the world… [and] for economics as a discipline…

…[This] special issue of Economic Policy… chart[s] the evolution of economists’ thinking on the causes of and cures for the Global and EZ Crises…. A large literature has explored commonalities across crisis countries, relating to macroeconomic imbalances, financial sector fragilities and policy variables. Applying this to the the euro periphery countries shows that their pre-crisis domestic vulnerabilities resemble those of earlier crises…. The extensive knowledge accumulated through these past banking crises… could have helped to both provide early warning signals and design recovery policies…. Evidence from the Great Depression shows that the decision by many countries to use fiscal stimulus policies was the right one….

International capital flows were an important part of the pre-crisis boom as much as their retrenchment was an important dimension of the crises…. Current account imbalances were financed mostly by intra-Eurozone capital inflows, which permitted external imbalances to grow over many years until the EZ Crisis hit…. Iceland has often been pointed to as having taken a very different approach to resolving the crisis, with the government cutting banks loose early on (with the result that the Icelandic government never lost its investment grade credit rating)…. The Greek sovereign debt crisis was at the core of the EZ Crisis…. One of the countries suffering from ‘contagion’ of the Greek debt restructuring was Cyprus….

Early on, observers noted the difference between the rapid and coordinated reaction of monetary policymakers to the crises – providing ample liquidity to unfreeze markets on the one hand – and the uncoordinated and rather inefficient reaction to bank failures on the other…. In the absence of bank resolution frameworks that allowed an effective and swift intervention into failing banks, most European countries (with the notable exception of Iceland) decided in 2008/9 for bailouts in the form of public recapitalisation…. Only large recapitalisations and infusions of common equity are associated with higher total regulatory capital ratios and sustained loan growth. These findings send the important message that if you bail out, you better do it well!…

The deadly embrace of sovereign and banks has been at the core of the EZ Crisis. This vicious cycle started in January 2009 when the nationalisation of Anglo-Irish by the Irish government showed the limitations of fiscal support for national banks…. The banking union is partly a response to this deadly embrace, although many observers would argue that it has not completely solved the problems….

The papers included in this special issue are just a sample… have… been an important source for the crisis consensus narrative…. Stay tuned for more…

Must-read: Abbe Gluck et al.: “Yale Health Care Industry Symposium”

Posted on by Brad DeLong

Must-Read: Abbe Gluck et al.: Yale Health Care Industry Symposium: “The New Health Care Industry—Consolidation, Integration, Competition In The Wake Of The ACA…

…Building An ACO—What Services Do You Need And How Are Physicians Impacted? Michael Chernew…. States’ Critical Role Overseeing Vertical Health Care Integration Jaime King and Erin Fuse Brown…. A Healthy Skepticism Of Incumbents, A Healthy Commitment To Entry Barak Richman… Unpacking The Issues Of Vertical And Horizontal Consolidation—The St. Luke’s Case Toby Singer…. Physicians And The New Health Care Industry—Benefits Of Generational Change William Sage…. High Prices And Payment Reform—Let’s Get Practical Robert Berenson…. Consolidation And Competition In US Health Care Martin Gaynor…. Dubious Health Care Merger Justifications—The Sumo Wrestler And ‘Government Made Me Do It’ Defenses Thomas Greaney…. No Evidence That Insurance Market Consolidation Leads To Greater Innovation Leemore Dafny and Christopher Ody…

Must-read: Simon Wren-Lewis: “Understanding the Austerity Obsession”

Posted on by Brad DeLong

Must-Read: Simon Wren-Lewis: Understanding the Austerity Obsession: “The diagnosis in the case of the Republican party in the US is reasonably clear…

…The main economic goal is to cut taxes, particularly for the very rich. That requires, sooner or later, less public spending. What about evidence that more public investment would help everyone?… This group suffers from the delusion that the only way to help the economy is to tax the rich less and starve the beast that is the state… infect[ion] by the neoliberal ideology virus….

Germany… is much more difficult to diagnose… Swabian syndrome: a belief that the economy is just like a household, and the imperative is to balance the books. This seems like a case of labelling rather than explaining a disease. There may be an allergy involved: an aversion to Keynesian economics, and anything that sounds vaguely Keynesian. But the microeconomic case for additional public investment in Germany is also strong… the German public capital stock has been shrinking for over a decade…. The nature of the illness in Germany is therefore more of a mystery….

The Conservative Party in the UK also seem to have the symptoms associated with Swabian syndrome…. Some… argue that in reality the party are feigning the symptoms as a means of winning elections, while still others claim that tests have revealed clear traces of the ideology virus. What has become clear is that the traditional way of treating the austerity obsession, which involves occasional counselling with well trained economists, is having little effect. We also now know that the financial crisis shock treatment only makes the neoliberal virus more virulent. Extended therapy is the only known cure for this virus. As for Swabian syndrome, our best hope may be that the public gradually develop an immunity to the disease as its consequences become clear.

How concerned should we be about business investment and productivity growth?

Posted on by Bridget Ansel
Jason Furman, the Council of Economic Advisers Chairman, gives a talk at the Eisenhower Executive Office Building in the White House complex.

While the U.S. economy certainly has some considerable cyclical problems to work through right now, we can’t forget the longer-term problems that also plague us—such as the low rate of productivity growth in the United States, fewer business startups, and declining business investment. These problems are not unrelated. The changes in business behavior in recent decades are factors in the recent slowdown in productivity growth.

But how concerned should we be about these trends? Are they cyclical problems that will soon be corrected? Or are they deeper structural changes we should grapple with more?

A couple of speeches by Jason Furman, Chair of the President’s Council of Economic Advisers, provide a good starting point for this conversation. The first speech, delivered at the Peterson Institute of International Economics last July, is about productivity growth. Furman covers a wide range of topics in the talk, but for our purposes, we’ll focus on his analysis of the current productivity slowdown.

Furman focuses on labor productivity, which can be broken down to improvements in “labor quality” (education levels, essentially), increases in capital investment, and total factor productivity. He points out that since 2010, the decline in labor productivity growth in the United States has been driven mostly by a decline in capital per worker—or in other words, by a slowdown in business investment. As Dietz Vollrath points out, the decline in capital per worker has been widespread across all classes of capital.

This, then, raises the question: How do we boost business investment? That brings us to Furman’s second speech, given at the Progressive Policy Institute this past September. Furman cites research that argues the extremely weak growth in U.S. business investment since the Great Recession is due to the nation’s weak economic growth during the recovery. Businesses plan investment based on expectations of future spending by consumers, so investing based on future growth makes sense.

But while this “accelerator” view of the slowdown makes sense, Furman notes some puzzles. In particular, the return to capital has increased substantially while investment has not. What are firms doing with all these profits they’re earning and not investing, then?

The data show that a large chunk of these profits are being distributed to shareholders in the form of increased dividends and stock buybacks—a trend highlighted by economist J.W. Mason of the Roosevelt Institute and John Jay College. Mason noted that this change in the distribution of profits goes back to the 1980s, presenting the possibility that this is a structural impediment to increased business investment.

In his speech (and subsequent work), Furman notes that the increase in the rate of return on capital may be a result of increased rents in the economy, due to increased business consolidation and market power. Given that a more consolidated market will invest less, that’s another possible structural roadblock to higher investment and stronger labor productivity growth.

But let’s return to Furman’s first speech. Although labor productivity has slowed on average, this is not true for all firms.  On that front, Furman points to research from the Organisation for Economic Co-operation and Development showing that productivity growth at leading firms is doing well. Again, Furman interprets this as a sign that the recent productivity decline is mostly about the investment slowdown. The problem is that the innovations at “frontier” firms aren’t spreading to the rest of the economy. In part, this may be due to the declining business dynamism in the United States, with fewer firms being started and ended every year. That’s a problem of misallocation that may require a policy response.

Declining business investment and dynamism, insomuch as they are affecting productivity growth, should concern policymakers and everyday Americans. Stronger productivity is a necessary requirement for higher living standards. Of course, we know productivity isn’t always entirely captured by workers. It’s not sufficient, but it is necessary. We should be watching these trends, concerned about them, and wondering how we might be able to change them.

Must-reads: March 3, 2016

Posted on by Brad DeLong

Must-read: Richard Mayhew: “Depression and Paying for Pills or Exercise”

Posted on by Brad DeLong

Must-Read: Richard Mayhew: Depression and paying for pills or exercise: “Last night in the Super Tuesday open thread…

…Iowa Old Lady  told us about her evening plans:

I go to the gym because it’s supposed to fight my depression, but lately I’ve come to believe that I’m depressed because I have to go and ‘feel better’ part is that I’m so happy it’s over.

This morning I just got out of a meeting with an accountable care organization that is brainstorming on ways to get some of their behavioral health and co-morbidity health and cost risks under better control.  The big suggestion from some of the Primary Care Providers (PCP’s) and master level clinicians was getting some of these individuals into personal training classes to do something fun… increased social connectives and increased physical activity… better health, lower pharmacy costs and fewer infrequent but high cost acute events. Their revenue model is a modified capitation model with gain sharing, they can pay for dance classes, weight lifting classes, gym memberships and yoga instructors without having to justify the expense on a claim. There is a long history of research that shows moderate exercise is at least as good as common Selective Serotonin Re-uptake Inhibitors (SSRI’s) in managing depression….

A gym membership with personal trainers and potentially day by day incentives for people to go to the gym may make a lot of medical sense and even more financial sense. However under a fee for service model, reducing pharmacy costs because people were able to step down their SSRI dose or eliminate it entirely was probably a net money loser for the PCP…. The incentives change on risk capitation models as the personal trainer still can not bill the insurer directly, but her salary is paid by the provider office. A personal trainer at $50 to $75  an hour in total costs  is far cheaper than a PCP at $180 to $250 per hour…. Things like this is why I am fundamentally optimistic about health care reform in the United States. This is not genius-level work. It is basic work and rejiggering of incentives to avoid being stupid. We have several iterations of being less stupid before we actually have to get too smart.

Must-read: Mark Thoma: “The Case for Infrastructure Spending—Now”

Posted on by Brad DeLong

Must-Read: At least as I see it, there is no case against. And yet a lot of people who call themselves “economists” remain silent–or even opposed:

Mark Thoma: The Case for Infrastructure Spending—Now: “Suppose your house needs a new roof…

…and the interest rate on the loan you require to get the work done is extraordinarily low — but expected to rise in the future. In addition, construction work has been slow in the area, meaning labor and other costs are at bargain rates for the time being. Should you get the work done now or wait until later when it might cost quite a bit more? That’s the situation the U.S. now faces over infrastructure spending…

Must-read: Eduardo Porter: “Does a Carbon Tax Work? Ask British Columbia”

Posted on by Brad DeLong

Must-Read: Eduardo Porter: Does a Carbon Tax Work? Ask British Columbia: “Ted Cruz says climate change is not happening…

…Donald Trump says he doesn’t believe in it. Marco Rubio, whose hometown, Miami, is projected to be largely underwater within the not too distant future as ice caps shrink and the sea level rises, argues that government efforts to combat it will ‘destroy our economy.’ But those views are not widely shared by conservatives elsewhere around the world. Indeed, not that long ago in a not too distant country, a right-leaning party that shares many of the antitax, pro-business beliefs of Republicans in the United States did exactly what its unbelieving candidates so fear….
In 2008, the British Columbia Liberal Party, which confoundingly leans right, introduced a tax on the carbon emissions of businesses and families, cars and trucks, factories and homes across the province…. Their experience shows that cutting carbon emissions enough to make a difference in preventing global warming remains a difficult challenge. But the most important takeaway for American skeptics is that the policy basically worked as advertised. British Columbia’s economy did not collapse…