Must-Read: Tim Wu: What Ever Happened to Google Books?

Posted on by Brad DeLong

Must-Read: I wonder: Berkeley’s very sharp Pam Samuelson played a substantial role in helping to create this cluster#@$%. Yet I haven’t heard much from her trying to fix it. I wonder why not?

Tim Wu: What Ever Happened to Google Books?: “It was the most ambitious library project of our time…

…a plan to scan all of the world’s books and make them available to the public online…. Today, the project sits in a kind of limbo. On one hand, Google has scanned an impressive thirty million volumes… but… most of it remains inaccessible. Searches of out-of-print books often yield mere snippets of the text–there is no way to gain access to the whole book…. It would be the world’s first online library worthy of that name. And yet the attainment of that goal has been stymied, despite Google having at its disposal an unusual combination of technological means, the agreement of many authors and publishers, and enough money to compensate just about everyone who needs it. The problems began with a classic culture clash when, in 2002, Google began just scanning books, either hoping that the idealism of the project would win everyone over or following the mantra that it is always easier to get forgiveness than permission….

By 2008, representatives of authors, publishers, and Google did manage to reach a settlement to make the full library available to the public, for pay, and to institutions. In the settlement agreement, they also put terminals in libraries, but didn’t ever get around to doing that. But that agreement then came under further attacks from a whole new set of critics, including the author Ursula Le Guin, who called it a ‘deal with the devil.’… Four years ago, a federal judge sided with the critics and threw out the 2008 settlement…. ‘Sounds like a job for Congress,’ James Grimmelmann, a law professor at the University of Maryland and one of the settlement’s more vocal antagonists, said at the time. But, of course, leaving things to Congress has become a synonym for doing nothing…. Google… [could] have declared the project a non-profit…. Authors and publishers… were difficult and conspiracy-minded…. Outside critics and the courts were entirely too sanguine about killing, as opposed to improving, a settlement…

Must-Read: Matthew Yglesias: The valid point that people raise about new construction…

Posted on by Brad DeLong

Matthew Yglesias: “The valid point that people raise about new construction is this: Rich people like fancy houses…

…Rich people also like upscale neighborhood retail. So you can get an upward spiral in which fancy houses lure rich residents who lure fancy retail which lures more rich residents. There’s truth to this, but the thing you have to recognize is that a ban on building fancy new buildings is not the same as a ban on fancy houses…. People buy-up the existing housing stock and start renovating it. They create bigger units, and reduce the population density per square foot. They install granite countertops. And they unleash the upward spiral that people are worried about. What is maybe true is that if you banned not just new construction, but new renovations then you could maybe prevent richer people from moving into a neighborhood and raising prices. Or you could just ban new people from moving-in altogether. Or maybe you could allow new residents, but only if they fit the demographic profile of existing residents. I don’t want to claim that preventing the character of a neighborhood from changing is totally impossible. But to actually achieve it requires a much more robust policy response than stopping people from putting up new buildings…. Within the realm of plausible ideas that people actually consider, the best way to respond to a surge of demand for living in a neighborhood is to identify a handful of genuinely crucial historic buildings to preserve and then let people build as much new housing as is economically feasible. The neighborhood’s character will change as a result, but trying to prevent all change is silly policy objective whereas ‘maximizing the number of people who can live where they want to live’ is a pretty reasonable one.

Macro Situation: Things Are Profoundly Different Today from What 10 Years Ago We Thought Would Be

Posted on by Brad DeLong
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Must-Read: Barbara Roper: It Isn’t the Money, It’s the Economics

Posted on by Brad DeLong

Must-Read: Barbara Roper: It Isn’t the Money, It’s the Economics: “If people actually take time to read the study, which Litan coauthored with Hal Singer of the Progressive Policy Institute…

…what is most shocking… is just how poor the quality of the analysis is…. Litan and Singer’s argument hinges on… 1) that industry will follow through on its threats to stop serving smaller accounts if the rule is adopted and 2) that investors will lose access to important benefits… as a result of losing access to human advisors. The first… is based on a fundamental error…. In building their case, Litan and Singer rely heavily on a 2011 Oliver Wyman study, also funded by industry rule opponents…. That study assumed that commissions would be prohibited and concluded that small savers would lose access to advice if a ban on commissions were adopted. Litan and Singer chide the Department of Labor for its ‘too facile’ dismissal of the study ‘on the grounds that brokers can continue collecting commissions,’ noting that ‘only firms, but not individual brokers, would be able to receive commissions’ under the reproposed rule. It is difficult to say where they got this notion….. It is a verifiable fact that, under the rule, individual brokers as well as broker-dealer firms could be compensated through commissions if they abide by the terms of the best-interest contract exemption….

Litan and Singer claim, mistakenly, that “the entire evidentiary rationale for the rule … depends on individual brokers no longer receiving commissions.” On the contrary, the regulatory-impact analysis is premised on the notion that, if brokers serve their clients under a best-interest standard and place reasonable restrictions on practices that conflict with that standard, it will encourage recommendations of lower cost, higher-quality investment options. As a result, investors who turn to brokers should see higher returns. But that has nothing to do with moving brokers away from earning commissions, as Litan and Singer mistakenly assume. There are any number of other problems with the study, but these three go to the heart of its credibility, or lack thereof…

Must-Read: Nicholas Bagley, Amitabh Chandra, and Austin Frakt: Correcting Signals for Innovation in Health Care

Posted on by Brad DeLong

Nicholas Bagley, Amitabh Chandra, and Austin Frakt: Correcting Signals for Innovation in Health Care: “A combination of legal rules and institutional forces pushes health plans to cover nearly every medical innovation…

…The result is that many Americans are effectively forced to over-insure themselves for coverage of some therapies they do not much value. At the same time, others might be willing to spend even more on health plans that would cover therapies that are not considered medically necessary or that have not yet been developed. Technology developers thus receive distorted signals about the size of the market for new innovations, leading them to develop medical treatments that are not in line with what Americans would demand in a wellfunctioning market….

The most prominent policy ideas for reining in spending growth concentrate on slowing the rate of technology diffusion. In so doing, they fail to fully grapple with the mix and pace of technology innovation…. Addressing the incentives for technology development, and not just its diffusion once invented, is critical. We therefore advance a handful of policy proposals to adjust the innovation signal…. (1) Replacing the tax exclusion for employer-provided health insurance with a tax credit, (2) strengthening Medicare’s coverage determination process, and (3) experimenting with reference pricing for certain therapies…. Alternative approaches to tackling the one-size-fits-all nature of insurance–in particular, allowing health plans to compete on the scope of what technologies they cover–would require regulations that are unlikely ever to be politically and culturally attractive.

Untangling the sources of racial wealth inequality in the United States

Posted on by Bridget Ansel
Home for sale, Veer.com

Academic research on the reasons for rising wealth inequality in the United States is not as robust as research on growing income inequality, though there is little question that both types of inequality are on the rise. According to research by University of California-Berkeley economists Emmanuel Saez and Gabriel Zucman, the top 0.1 percent of families tripled their share of U.S. wealth since the late 1970s, from 7 percent to 22 percent, in 2012, the last year for which complete data are available. These 160,000 families each had a net wealth of at least $20 million.

But this is just one way of looking at how wealth is unequally distributed across society. Wealth in the United States is also highly unequally distributed by race and ethnicity. And it looks as though this inequality has increased since the Great Recession. Researchers, however, aren’t exactly sure of the sources of these wealth gaps. A new paper by economists at the Federal Reserve tries to sort out the role of various sources.

The paper, by economists Jeffery Thompson and Gustavo Suarez, tries to figure out how much of the wealth gap between white Americans and black and Hispanic Americans can be attributed to a number of “observable” characteristics. These characteristics include education level, income, homeownership and inheritances received from parents. The two authors use data from the Survey of Consumer Finances, a data set on family wealth holdings run by the Federal Reserve that covers from 1989 to 2013, to catalogue these observations.

They find that the amount of wealth inequality by race and ethnicity is quite large. The average wealth of white families was, on average, five to six times larger than that of black families, and between four to five times larger than those for Hispanic families. In sorting out the source of these gaps, Thompson and Suarez find that a large share of the gap can be explained by these “observable” factors. The largest factors appear to be the levels of income and homeownership. In other words, the fact that white Americans have higher income levels and rates of homeownership explain a large chunk of the gap. The results, however, show that inheritances don’t play that big of a role in the gap, though the authors offer no explanation of why this might be the case.

In total, the two authors believe these observable factors explain a large chunk of the racial and ethnic wealth gap. At the median, the exact middle of the distribution of wealth, they explain almost the entirety of the gap between white and Hispanic wealth and 80 percent of the gap between white and black Americans. Yet the role of unobserved factors rises the further they research those at the top of the wealth ladder. For the top 10 percent of families, the observable factors explain only 70 percent of the gap between black and white Americans and only 80 percent of gap with Hispanic families.

In other words, the gap between families at the top of the white wealth ladder and families at the top of the black and Hispanic ladders can’t be fully explained by differences in education, income levels, homeownership, and inheritances. Some other factors, then, must explain the rest of this gap.

Discrimination, in its many forms including redlining in the housing market (with probable corresponding affects on inheritances) could play a major role in this unexplained gap. But Thompson and Suarez note that these unobserved factors aren’t necessarily just discrimination. They note that the universe of things that aren’t observed is quite high, so a number of factors could be at play here. At the same time, many of the observable factors they find that explain wealth inequality can be very strongly influenced by discrimination. Disparities in income, education, homeownership, and inheritances in the United States were and are influenced by racial and ethnic discrimination.

Clearly this accounting of the wealth gap is incomplete. Teasing out what those remaining unobserved factors are and why they play a larger role at the top the of wealth ladder would give economists and policymakers alike a sense of the connections between the sources of income and wealth inequality in the United States.

Must-Read: Marshall Steinbaum: How Much Would Increasing Top Income Tax Rates Reduce Inequality?

Posted on by Brad DeLong

Must-Read: Marshall Steinbaum: How Much Would Increasing Top Income Tax Rates Reduce Inequality?: “William Gale, Melissa Kearney, and Peter Orszag… increasing top-bracket ordinary income tax rates…

would have little impact on inequality…. There are two key reasons why [their] tax scenarios do not affect [their measure of] inequality very much. First of all, the rich earn a great deal of their income in categories other than “ordinary income,” to which these tax rates apply…. The other reason… is that GKO measure inequality by the Gini Coefficient. But the scenarios only affect individuals comfortably within the top 1% of the income distribution…. The Gini Coefficient is insensitive to measuring inequality in that group….. [But] the reduction in the top 1% income share as a result of the GKO scenario is just under 20% of the total increase in inequality over the whole period the CBO analyzes…

A tale of three U.S. employment-to-population ratios

Posted on by Nick Bunker

The press received the most recent labor market data from the U.S. Bureau of Labor Statistics late last week as unexpected bad news because employment growth slowed and wage growth continued to be weak. Yet the U.S. unemployment rate sits at 5.1 percent, around its range before the Great Recession. Given the lack of wage growth in the economy, it’s become quite obvious that the current unemployment rate is overstating the health of the U.S. labor market.

But exactly how much further do we have to go? A look at a few different metrics, specifically employment-to-population ratios, might shed some light on the answer.

Perhaps the surest way to know the labor market is approaching full employment is to look at wage growth. Full employment really can’t be pinned down to one specific number, but one would expect to see strong nominal wage growth (before accounting for inflation) consistent with long-run productivity growth. Given that labor productivity growth in the long run is about 1.5 percent, and the inflation rate per the Federal Reserve’s target should be 2 percent over the long term, nominal wage growth should be 3.5 percent at the very least in a healthy labor market. Current wage growth isn’t even close to that threshold yet.

But the problem in waiting for wage growth is that you really don’t know until you get there. As University of Michigan economist Justin Wolfers points out, monetary policy acts on a lag and therefore it shouldn’t ease too much for too long given the potential for inflation to pick up. Now, that might not be so terrible given central banks’ tendencies to take away the punch bowl too early in recent years. But it’d still be nice to have an idea of how much further the labor market has to go.

Enter a new statistic from researchers at the Federal Reserve Bank of Atlanta: the Z-POP. The statistic, formally known as the utilization-to-population ratio, is an attempt by senior policy adviser John Robertson and economic policy analysis specialist Ellyn Terry to build a more accurate representation of how well labor is being used.

The ratio counts a member of the population fully utilized unless they are officially unemployed, working part-time but wanting full-time work, or out of the labor force but wanting a job. So workers who don’t want a job—say, because they’re in school or retired—are counted as fully utilized. As Josh Zumbrun of The Wall Street Journal said on Twitter, it’s like somewhere between the U-6 unemployment rate and the employment-to-population ratio. The Z-POP in September 2015 was 92.1 percent, still below its pre-Great Recession level of 92.7 percent in December 2007.

What does this new statistic tell us about the labor market compared to more traditional measures? Take a look at Figure 1, which looks at the relative changes in the Z-POP, the civilian employment-to-population ratio, and the prime-age (25-to-54 year old) employment-to-population ratio since March 2001, the peak before the dotcom-bust recession.

Figure 1

The three measures tell different stories about the pace of the current labor market recovery. The civilian ratio, which looks at the entire working-age population, shows almost no recovery. The obvious problem with this measure is that the population has undergone a demographic transformation as the Baby Boomers have started to retire, pushing down the share of the population with a job. To adjust for this demographic change, we can look at the employment-to-population ratio for workers in their prime working years. That metric shows a more significant recovery, but it has stalled out over the course of 2015. While the Z-POP is also below its pre-recession peak, it’s much closer to that March 2001 level.

So should we believe the Z-POP or the prime-age EPOP? At this point, frankly, it’s hard to tell. The prime-age employment-to-population ratio has a history of predicting wage growth well, but it doesn’t distinguish between workers out of the labor force who want to stay there  and those who’d like to jump back in. Either way, both measures indicate that we have a ways to go before seeing a truly healed labor market.

 

Must-Read: Paul Krugman: Puzzled By Peter Gourevitch

Posted on by Brad DeLong

Must-Read: Over the past twenty years, Paul Krugman has a very good track record as an economic and a political-economic analyst. His track record is so good, in fact, that any even half-rational or half reality-based organization that ever publishes a headline saying “Paul Krugman is wrong” would find itself also publishing at least five times as many headlines saying “Paul Krugman is right”. And when any organization finds itself publishing “Paul Krugman is wrong” headlines that are not vastly outnumbered by its “Paul Krugman is right” headlines, it is doing something very wrong.

Thus note this “Paul Krugman is wrong” headline from the Washington Post’s Monkey Cage:

In the article, the well-respected Peter Gourevitch puzzled and continues to puzzle Paul Krugman:

Paul Krugman: Puzzled By Peter Gourevitch: “Peter Gourevitch has a followup… that leaves me, if anything…

…more puzzled…. He notes that….

The Federal Reserve is not a seminar… not only about being ‘serious’ or ‘smart’ or ‘finding the right theory’ or getting the data right. It is… a political… multiple forces of pressure: the… Committee; Congress and the president… political parties… interest groups… media… markets… foreign governments and countries.

But how does that differ from what I’ve been saying?…

[My original] column… was all about trying to understand the political economy of a debate in which the straight economics seems to give a clear answer, but the Fed doesn’t want to accept that…. I asked who has an interest… my answer is that bankers have the motive and the means….

I talk all the time about interests and political pressures; the ‘device of the Very Serious People’ isn’t about stupidity, it’s about how political and social pressures induce conformity within the elite on certain economic views, even in the face of contrary evidence. Am I facing another version of the caricature of the dumb economist who knows nothing beyond his models? Or is all this basically a complaint that I haven’t cited enough political science literature? I remain quite puzzled.

I agree.

It puzzles me too.

So let’s look at the arguments: In what respects does Peter Gourevitch think that Paul Krugman is wrong about the Federal Reserve?

(1) Here we have, for one thing, a complaint that Paul Krugman should not believe that there is even a “correct” monetary policy that the Fed should follow. This criticism seems to me to take an “opinions of the shape of the earth differ” form. I reject this completely and utterly.

(2) Here we have, for another thing, Peter Gourevitch saying–at least I read him as saying–that: “Paul Krugman is wrong! Political science has better answers! Political science better explains the Federal Reserve’s actions than Paul Krugman does!”

Yet Gourevitch does not actually do any political science.

He does not produce any better alternative explanations than Krugman offers.

In lieu of offering any such better alternative explanations, at the end of his follow-up post he provides a true laundry list of references for further reading:

  • William Roberts Clark, Vincent Arel-Bundock. 2013. “Independent but not Indifferent: Partisan Bias in Monetary Policy at the Fed.” Economics & Politics 25, 1 (March):1-26.
  • Lawrence Broz, The Federal Reserve’s Coalition in Congress. Broz looks at roll calls in Congress to explore left and right influences on the Fed.
  • Chris Adolph, Bankers, Bureaucrats and Central Bank Policy: the myth of neutrality, Cambridge University Press 2013
  • John T. Woolley. Monetary Politics. The Federal Reserve and the Politics of Monetary Policy. 1986. * Thomas Havrilesky. The Pressures on American Monetary Policy. Kluwer 1993.
  • Cornelia Woll, The Power of Inaction.
  • Kelly H. Chang. Appointing Central Bankers: The Politics of Monetary Policy in the United States. Cambridge UP 2003.
  • Jeff Frieden, Currency Politics: The Political Economy of Exchange Rate Policy
  • Roger Lowenstein, America’s Bank: The Epic Struggle to Create the Federal Reserve (suggested by Jeff Frieden).
  • Bob Kuttner’s Debtors’ Prison
  • Mark Blyth, Austerity.
  • Paul Pierson and Jacob Hacker, American Amnesia: Rediscovering the Forgotten Roots of Prosperity.
  • Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance
  • Marion Fourcade, Economists and Societies: Discipline and Profession in the United States, Britain, and France, 1890s to 1990s; 2015
  • Marion Fourcade, “The Superiority of Economists” (with Etienne Ollion and Yann Algan), Journal of Economic Perspectives; 2013
  • Marion Fourcade, “Moral Categories in the Financial Crisis.”
  • Marion Fourcade, “Introduction” (with Cornelia Woll)
  • Marion Fourcade, “The Economy as Morality Play” Socio-Economic Review 11: 601-627.

18 references. Some of them are quite long. Figure roughly 3000 pages. Or roughly 1,000,000 words. Offered without guidance.

As one of my Doktorgrossväter, Alexander Gerschenkron, used to say: “to tell someone to read everything is to tell him to read nothing.”

So let me provide some guidance: If you are going to read one thing from Peter Gourevitch’s list, read Mark Blyth’s excellent Austerity. I do think it is the place to start.

And if you do read it, you will find a very strong book-length argument–an argument which carries the implications that Paul Krugman’s screeds against and anathemas of VSPs are not, as analytical explanations, wrong, but rather profoundly right.