Morning Must-Read: Dan Davies: How Secular Stagnation Came to Smurf Village

Dan Davies: How Secular Stagnation Came to Smurf Village: “The real lesson of the Smurf village model is that secular stagnation isn’t really about growth slowing down…

…It’s about investment slowing down, and none of the normal policy levers being able to speed it up again. What all six of the Smurfs’ explanations have in common is that investment capital, instead of circulating round the economy, gets stuck and starts to pile up somewhere, despite price signals telling it that it ought to be chasing new investments. So any policy response to secular stagnation needs to come up with new ways of persuading investors to invest, ways which aren’t (at least, not in the conventional sense,) price signals.

Looking inside the data-making factory

Accessing economic data these days can be almost deceptively easy. A few clicks on the U.S. Bureau of Labor Statistics’ website or a simple search on the St. Louis Federal Reserve’s FRED site reveals thousands of datasets that anyone interested in economics can grab. Such quick-and-easy access to data has helped drive the “credibility revolution” in empirical economics research. Yet this multitude of data sets does not burst forth into the world fully formed. Rather, the creation of data can be a messy process, especially when considering the version that the U.S. public and researchers may eventually see.

Here’s one such mess—a new paper presented at last week’s Brooking Panel on Economic Activity warns that procedures used to protect privacy might be distorting many of the data sets that researchers use. Large data sets can be incredibly powerful in the amount of information they capture about individuals, but they also present a risk to those individuals’ privacy. Take the Current Population Survey, which is maintained by the U.S. Bureau of Labor Statistics and the U.S. Census Bureau. The survey contains information about a person’s family status, their income, their location, and quite a few more variables. If these data were made available to the public unaltered, then someone could look into the data and conceivably identify a respondent.

To avoid identification through these means, both private and public sector data providers mask the identity through a number of statistical processes. In the new Brookings paper, John M. Abowd of Cornell University and Ian M. Schmutte of the University of Georgia detail the ways that statistical disclosure limitations, or SDL—the catch-all name for these processes—can affect economic analyses. The authors single out one form of SDL that is particularly nefarious: swapping. In this process, the statistical agency or company will swap certain attributes of respondents. The location of individuals, for example, might be switched in order to protect their identities, but that could corrupt the economic analysis a researcher is running.

What the authors call for is a certain amount of disclosure from the organization creating these limited datasets. Abowd and Schmutte don’t want the raw, unaltered data, but rather better disclosure of how exactly the organization changed the data. If the agencies or companies let researchers know about certain aspects of the process that anonymized the data, then the researchers could account for these distortions in their analysis.

Of course, the agencies could just make more of the raw data available. But as participants at the Brookings panel noted, there are severe consequences for the employees of these agencies if someone is identified in the data. The punishment could include a fine of several thousand dollars or jail time. That potential punishment makes agency staff quite averse to disclosing data.

These statistical disclosure limitation processes right now are almost exclusively used on survey data, which makes some economists sanguine about the future of data. Microeconomists have increasingly turned to administrative data, which is taken directly from government sources and includes things like tax receipts, and away from survey data. But one participant warned that these SDL processes will almost certainly make their way to administrative data.

Abowd and Schmutte’s paper is an important reminder that we all need to pay attention to the sources and presentation of economic data. The old joke about economic analysis is that it’s like looking for a set of lost keys only where the streetlight illuminates the pavement. The least we can do is to make sure the light shines as bright and as wide as possible.

Nighttime Must-Read: Adam Ozimek: Dirty Energy Taxes and Clean Energy Innovation

Adam Ozimek: Dirty Energy Taxes and Clean Energy Innovation: “I have a concern that not enough attention is being paid to the innovation function for clean energy….

…For clean energy to become globally dominant faster it’s better for the U.S. to just subsidize solar innovation and let the untaxed U.S. market price of dirty energy stand as a strong incentive for solar to drive costs lower…. Taxing dirty energy and using all the money for subsidies of clean tech innovation is really more efficient than subsidies without taxes…. The money for subsidies will need to come from somewhere…. [And perhaps] economies of scale and learning by doing are extremely important in this industry…. The downward march of solar energy costs is perhaps the most important factor determining how successful we will be at mitigating global warming, and I think policy should really be almost entirely about how do we keep this going and how do we accelerate it…

Regional Economics and Living Standards: Portland OR vs. Kansas City MO/KS

Each time I go directly from Kansas City MO/KS to Portland OR—or from Portland OR to Kansas City KS/MO—I am struck by cognitive dissonance.

There is a very large gulf between what I see around me and what, say, the charts people put up on the screen for relative levels of real cost-of-living adjusted income in Kansas City and Portland. The numbers seem to say that the Kansas City MO/KS metropolitan area is about 10% richer than the Portland OR metropolitan area. But my eyes tell me that Portland is about 20% richer than Kansas City.

There are a number of possible resolutions:

  • Perhaps the Portland income distribution is more sharply peaked: The average dollar spent in Portland is, therefore, spent by somebody considerably richer than is spending the average dollar in Kansas City. What my eye sees does thus does not reflect the average, let alone the median.
  • Perhaps we have public affluences and private squalor in Portland: Perhaps people in Portland are affluent in public while people in Kansas City are affluent in private. Thus in Portland we see a certain degree of conspicuous consumption and a great deal of hipster twee, while behind the closed private doors of the suburban mcmansions of Kansas City are the well-appointed furnishings and sous vide cookery on granite countertops.
  • Perhaps it is financial regulation: Perhaps the sheer number of signs one sees for more-than-usurious auto-loan and check-cashing shops in Kansas City has hypnotized me into thinking everyone in Kansas City is on the edge of bankruptcy: on the point of pledging their car to borrow a small sum at 10%/month interest so they can avoid the unpleasant conversation with their spouse for a few more months. But perhaps this is not true: perhaps people in both metropolitan areas are equally close to the edge, but Pacific northwest consumer financial regulation keeps it from being so wrong.
  • Perhaps the numbers are wrong : Kansas City has larger houses located much further from the center of things and thus relatively far from the interesting places—even the other suburban interesting places—that one might want to be. The statistical agencies value large houses, and they value conveniently-located residences, but the hedonic adjustments in order to properly value each and balance off the two are very difficult and very delicate. Perhaps the numbers think that the low cost of housing in Kansas City relative to Portland gets you more value than it, in fact, does
    .
    Other suggestions, anyone? I am finding this a strangely difficult puzzle to solve—either to satisfy myself that the numbers are wrong, or to figure out a way to reconcile my perceptions with the numbers.

Support for redistribution on the wane among U.S. seniors and African Americans

According to long-trusted economic models, when economic inequality increases so too does government redistribution of income. As the average income in an economy pulls away from the median income, more voters will want to redistribute the uneven gains from economic growth accruing to the wealthy. Yet in the United States, redistribution towards the bottom and middle hasn’t increased even though inequality has increased quite a bit. Why have these long-trusted models failed to accurately predict reality?

There is some evidence that U.S. elected officials’ responsiveness to preferences for redistribution has declined over time. But voters’ demand for redistribution also appears not to have increased over time. A new paper presented last week as part of a recent Brookings Papers on Economic Activity event tries to understand why preferences for redistribution have changed among voters over time.

Political scientist Vivekinan Ashok of Yale University and economists Ebonya Washington of Yale and Ilyana Kuziemko of Princeton University try to understand the demand for redistribution by looking at responses to questions from the General Social Survey and American National Election Studies survey— which include questions that are related to redistribution. What they find is that while the overall trend in support of redistribution stood still, two groups that were once traditionally in favor of redistribution shifted away from it over time.

Those two groups: seniors and black Americans.

The three authors also point to some of the reasons why this may be the case with these two important voting blocs. For seniors, it all comes down to one particular form of redistribution: health care. The authors argue that calls for higher redistribution make seniors, who receive health insurance via Medicare, believe this particular form of redistribution will be curtailed. Ashok, Washington, and Kuziemko point out that support for redistribution among seniors in other advanced economies that provide universal health insurance has not declined more compared to their general population, which makes sense as they wouldn’t have to fear about cuts to healthcare in order to expand it to others. And the survey data show that attitudes among U.S. seniors toward redistribution via health insurance are strongly predictive of overall attitudes toward redistribution.

The authors are less sure of an explanation for African Americans’ declining preference for redistribution. The authors’ research shows that most of the decline among blacks is because of declining demand for race-based redistributive programs. But why that has happened even as the relative economic progress of blacks compared to whites has stalled isn’t clear.

At the Brookings event, one of the constant comments about the paper was that their findings could also be explained by the shifting generational arc. The decline in demand for redistribution among seniors could be about the passing of the Greatest Generation, who were generally in favor of redistribution, alongside the aging of the Baby Boomers, who appear to not prefer redistribution as they near or enter retirement. One participant added that some preliminary research finds that Americans believe inequality is a problem but that they think it’s the responsibility of business to reduce the gap between the rich and the poor.

Ashok, Kuziemko, and Washington are clear that their paper doesn’t provide all the answers. But in pointing out some key facts and offering some possible explanations, they provide an important jumping-off point for understanding how public opinion about redistribution have changed in an era of rising inequality.

Nighttime Must-Read: Jay Rosen: “Claims that climate science is a hoax…

Jay Rosen: “Claims that climate science is a hoax, that human action is not a factor: these are not just positions in a political debate. They are ways of saying–saying to the press–hey, the evidence doesn’t matter…

…Louisiana Gov. Bobby Jindal and Wisconsin Gov. Scott Walker fall into the… dodgers category. The Do-Nothings are… Chris Christie of New Jersey and John Kasich of Ohio. In a sign of how far rightward Republicans have moved since 2008, these are actually the guys who are trying to position themselves as relatively moderate and pragmatic…. Sen. Marco Rubio and… Gov. Mike Huckabee… are staunch conservatives but only partial wingnuts. Back when that meant believing in climate change, they did, but they have since followed their base into fantasyland. Everyone else is an outright denier and always has been….

So here’s the problem: As more and more journalists come to the conclusion that they should no longer take seriously the arguments of ‘someone who believes the entire field of study is built on a pillar of sand,’ the Republican presidential field has more and more of these someones, and candidates who often flirt with that position. What to do?… 1. Normalize it: treat denialist claims like any other campaign position…. 2. Savvy analysis: is denialism a winning move or is it costing the candidate?… 3. Persistence: Call what it is–a rejection of the science–and keep calling it that…. 4. Confrontation: Try to raise the costs of denialism…. Actively confronting the candidate is a more aggressive way to go. Advantage: Fulfills the watchdog role of the press and says to politicians: there are limits, this is beyond the pale. Problem: Easily politicized, certain to trigger culture war attacks…. The Washington Post reviewed [Ted] Cruz’s career and positions…. Katie Zezima and Robert Costa wrote… ‘Cruz does not believe in climate change and has said that data does not support it. Cruz chairs the Senate committee that oversees NASA and has said that the agency needs to focus more on space exploration and less on Earth science.’ That’s Normalize it: treat denialist claims like any other campaign position…

The Old Is New Again in the Analysis of Modern Authoritarian Regimes…

Sergei Guriev and Daniel Treisman: “From the Peru of Alberto Fujimori to the Hungary of Viktor Orban, illiberal regimes have managed to consolidate power without fencing off their countries or resorting to mass murder….

New forms of dictatorship based on manipulating information rather than on mass violence… can survive… in the face of moderate economic underperformance… [via] an increase in censorship and propaganda…”

I read this, and I say: Wait a minute! All the classic analyses of Naziism and Stalinism–from Franz Neumann, Behemoth, to Hannah Arendt, Origins of Totalitarianism, and Eric Fromm, Escape from Freedom–placed great stress on the fact that the totalitarian regimes were popular with the great masses of those who were not purged, in large part because of their successful and psychologically shrewd use of mass communications-driven propaganda…

Nighttime Must-Read: Simon Wren-Lewis: Default Panic and Other Tall Stories

Simon Wren-Lewis: Default Panic and Other Tall Stories: “People still say to me that the UK or the US had to embark on austerity, because otherwise the markets would have taken fright at the ‘simply huge’ budget deficit…

…How do they know this? Because people ‘close to the market’ keep telling them so. What can I do to show that this is wrong? The most obvious point is that interest rates on UK or US government debt have been falling since 2008, but the response I sometimes get is that rates have only stayed low because of austerity policies. So how about… the UK general election of 2010…. If there was any default premium implicit in yields on UK government debt, it should have fallen between 5th May and 13th May, either because Labour were defeated, or because the LibDems capitulated on the deficit…. As you can see, rates were higher on 13th May compared to 5th May… no noticeable decline in rates because fiscal consolidation was going to be greater….

The more sophisticated defence of austerity… is that there exists a ‘tipping point’ somewhere…. As we do not know where that tipping point is, it is best to stay well away from it…. The problem with this argument is that having your own central bank makes a key difference…. Markets could… begin to suspect default even when there is absolutely no intention within government to let this happen…. But… [with] Quantitative Easing… the cost of servicing government debt does not rise, because additional money is created…. There is no vicious circle. There is plenty of time for the government to take whatever action it wishes to take to reassure the markets…. Having your own central bank… undertaking Quantitative Easing… crucially changes the dynamics… [no] vicious circle…