Must-read: Peter Ganong and Daniel Shoag: “Why Has Regional Income Convergence in the U.S. Declined?”

Must-Read: Peter Ganong and Daniel Shoag: Why Has Regional Income Convergence in the U.S. Declined?: “The past thirty years have seen a dramatic decline in the rate of income convergence…

across states and in population flows to wealthy places. These changes coincide with (1) an increase in housing prices in productive areas, (2) a divergence in the skill-specific returns to living in those places, and (3) a redirection of unskilled migration away from productive places. We develop a model in which rising housing prices in wealthy areas deter unskilled migration and slow income convergence. Using a new panel measure of housing supply regulations, we demonstrate the importance of this channel in the data. Income convergence continues in less-regulated places, while it has mostly stopped in places with more regulation.

Must-read: Lorenzo Caliendo et al.: “Trade and Labor Market Dynamics”

Must-Read: Lorenzo Caliendo et al.: Trade and Labor Market Dynamics: “We develop a dynamic trade model…

…where production and consumption take place in spatially distinct labor markets with varying exposure to domestic and international trade. The model recognizes the role of labor mobility frictions, goods mobility frictions, geographic factors, and input-output linkages in determining equilibrium allocations. We show how to solve the equilibrium of the model without estimating productivities, migration frictions, or trade costs, which are usually di¢ cult to identify. We calibrate the model to 38 countries, 50 U.S. states, and 22 sectors and use the rise in Chinaís import competition to quantify the e§ects across more than a thousand U.S. labor markets. We find that China’s trade shock resulted in a loss of 0.8 million U.S. manufacturing jobs, about 50 percent of the change in the manufacturing employment share unexplained by a secular trend. We find aggregate welfare gains but, due to trade and migration frictions, the welfare and employment e§ects vary across U.S. labor markets. Estimated transition costs to the new long-run equilibrium are also heterogeneous and reflect the importance of accounting for labor dynamics.

Must-read: Karen M. Tani: Introduction to “States of Dependency: Welfare, Rights, and American Governance, 1935-1972”

Must-Read: I gotta get this book. I gotta read this book…

Karen M. Tani: Introduction to States of Dependency: Welfare, Rights, and American Governance, 1935-1972: “States of Dependency provides a new account of welfare law and policy…

…in the twentieth-century United States, and through it, a revised portrait of modern American governance. The book begins amid the Great Depression, with the insertion of federal money and federal rules into what had been a highly decentralized system of poor relief. Reformers hoped to use federal funds to ‘modernize’ that system – to make it more bureaucratic, centralized, expert-driven, and uniform. Drawing on original archival research, States of Dependency traces the fate of these efforts. The book analyzes federal administrators’ encounters with traditions of localism, federalism, and hostility toward the ‘undeserving poor.’ It also links these encounters to particular tactics, such as the mobilization of rights language and the use of strategic litigation. The result, four decades later, was a more legalistic and federalized public welfare apparatus, as well an expanded definition of national citizenship, but also a system of governance that sanctioned and perpetuated vast inequalities.

Project Syndicate: Debunking America’s Populist Narrative

Debunking America’s Populist Narrative: BERKELEY – One does not need to be particularly good at hearing to decipher the dog whistles being used during this year’s election campaign in the United States. Listen even briefly, and you will understand that Mexicans and Chinese are working with Wall Street to forge lousy trade deals that rob American workers of their rightful jobs, and that Muslims want to blow everyone up.

All of this fear mongering is scarier than the usual election-year fare. It is frightening to people in foreign countries, who can conclude only that voters in the world’s only superpower have become dangerously unbalanced. And it is frightening to Americans, who until recently believed – or perhaps hoped – that they were living in a republic based on the traditions established by George Washington, Abraham Lincoln, and Teddy and Franklin Roosevelt. READ MOAR

Must-read: Jared Bernstein: “Five Simple Formulas”

Must-Read: Jared Bernstein: Five Simple Formulas: “Here are five useful, simple… inequalities…

…Each one tells you something important about the big economic problems we face today or, for the last two formulas, what we should do about them. And when I say ‘simple,’ I mean it…. r>g… that if the return on wealth, or r, is greater than the economy’s growth rate, g, then wealth will continue to become ever more concentrated….

S>I… Bernanke’s imbalance…. Larry Summers’ ‘secular stagnation’ concerns offer a similar, though somewhat more narrow, version. For the record, I think this one is really serious (I mean, they’re all really serious, but relative to r>g, S>I is underappreciated)…. In theory, there are key mechanisms in the economy that should automatically kick in and repair the disequilibrium…. Central bankers, like Bernanke and Yellen, tend to discuss S>I and the jammed mechanisms just noted, as ‘temporary headwinds’ that will eventually dissipate (Summers disagrees). But while it has jumped around the globe—S>I is more a German thing right now than a China thing (Germany’s trade surplus is 8 percent of GDP!)—the S>I problem has lasted too long to warrant a ‘temporary’ label….

u>u… Baker/Bernstein’s slack attack…. For most of the past few decades—about 70 percent of the time, to be precise—u has been > than mainstream estimates of u, meaning the job market has been slack…. From the 1940s to the late 1970s, u*>u only 30 percent of the time, meaning the job market was mostly at full employment….

g>t… [Richard] Kogan’s cushion…. For most of the years that our country has existed (he’s got data back to 1792!), the economy’s growth rate (g again) has been greater than the rate the government has to pay to service its debt, which I call t. Kogan calls it r since it’s a rate of return, but it’s not the same r as in Piketty (which is why I’m calling it t)….

0.05>h… the DeLong/Summers low-cost lunch…. When the private economy is weak, government spending can be a very low-cost way to lift not just current jobs and incomes, but future growth as well…. The ‘h’ stands for hysteresis, which describes the long-term damage to the economy’s growth potential when policy neglect allows depressed economies to persist over time…. As an increase in current output by a dollar raises future output by at least a nickel, the extra spending will be easily affordable. But how do we know if 0.05>h? In a follow-up paper for CBPP’s full-employment project, D&S, along with economist Larry Ball, back out a recent number for h that amounts to 0.24, multiples of the 0.05 threshold, and evidence that, at least recently, h>0.05…

Concrete Economics @ SXSW!: Speaking 12:30 PM Meeting 10AB Level 3 :: Signing 1:00 PM Bookstore Level 3

I guess that is it: Concrete Economics @ SXSW!: Speaking 12:30 PM Meeting 10AB Level 3 :: Signing 1:00 PM Bookstore Level 3:

Stephen S. Cohen, J. Bradford DeLong: Concrete Economics: The Hamilton Approach to Economic Growth and Policy] (Allston, MA: Harvard Business Review Press:1422189813)

The benefits of free trade: Time to fly my neoliberal freak flag high!

I think Paul Krugman is wrong today on international trade. For we find him in “plague on both your houses” mode. On the one hand:

Paul Krugman: Trade and Tribulation and A Protectionist Moment?: “Protectionists almost always exaggerate the adverse effects of trade liberalization…

…Globalization is only one of several factors behind rising income inequality, and trade agreements are, in turn, only one factor in globalization. Trade deficits have been an important cause of the decline in U.S. manufacturing employment since 2000, but that decline began much earlier. And even our trade deficits are mainly a result of factors other than trade policy, like a strong dollar buoyed by global capital looking for a safe haven.

And yes, Mr. Sanders is demagoguing the issue…. If Sanders were to make it to the White House, he would find it very hard to do anything much about globalization…. The moment he looked into actually tearing up existing trade agreements the diplomatic, foreign-policy costs would be overwhelmingly obvious. In this, as in many other things, Sanders currently benefits from the luxury of irresponsibility….

But on the other hand:

That said… the elite case for ever-freer trade, the one that the public hears, is largely a scam…. [The] claims [are] that trade is an engine of job creation, that trade agreements will have big payoffs in terms of economic growth and that they are good for everyone. Yet… the models… used by real experts say… agreements that lead to more trade neither create nor destroy jobs… make countries more efficient and richer, but that the numbers aren’t huge….

False claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization and the costs of protection, hand-waving away the large distributional effects that are what standard models actually predict…. A back-of-the-envelope on the gains from hyperglobalization — only part of which can be attributed to policy — that is less than 5 percent of world GDP over a generation…. Furthermore, as Mark Kleiman sagely observes, the conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins—but we now have an ideology utterly opposed to such redistribution in full control of one party…. So the elite case for ever-freer trade is largely a scam, which voters probably sense even if they don’t know exactly what form it’s taking….

And, Paul summing up:

Why, then, did we ever pursue these agreements?… Foreign policy: Global trade agreements from the 1940s to the 1980s were used to bind democratic nations together during the Cold War, Nafta was used to reward and encourage Mexican reformers, and so on. And anyone ragging on about those past deals, like Mr. Trump or Mr. Sanders, should be asked what, exactly, he proposes doing now.… The most a progressive can responsibly call for, I’d argue, is a standstill on further deals, or at least a presumption that proposed deals are guilty unless proved innocent.

The hard question to deal with here is the Trans-Pacific Partnership…. I consider myself a soft opponent: It’s not the devil’s work, but I really wish President Obama hadn’t gone there…. Politicians should be honest and realistic about trade, rather than taking cheap shots. Striking poses is easy; figuring out what we can and should do is a lot harder. But you know, that’s a would-be president’s job…. [But] he case for more trade agreements—including TPP, which hasn’t happened yet—is very, very weak. And if a progressive makes it to the White House, she should devote no political capital whatsoever to such things.

So I guess it is time to say “I think Paul Krugman is wrong here!” and fly my neoliberal freak flag high…

On the analytics, the standard HOV models do indeed produce gains from trade by sorting production in countries to the industries in which they have comparative advantages. That leads to very large shifts in incomes toward those who owned the factors of production used intensively in the industries of comparative advantage: Big winners and big losers within a nation, with relatively small net gains.

But the map is not the territory. The model is not the reality. An older increasing-returns tradition sees productivity depend on the division of labor, the division of labor depends on the extent of the market, and free-trade greatly widens the market. Such factors can plausibly quadruple The Knick gains from trade over those from HOV models alone, and so create many more winners.

Moreover, looking around the world we see a world in which income differentials across high civilizations were twofold three centuries ago and are tenfold today. The biggest factor in global economics behind the some twentyfold or more explosion of Global North productivity over the past three centuries has been the failure of the rest of the globe to keep pace with the Global North. And what are the best ways to diffuse Global North technology to the rest of the world? Free trade: both to maximize economic contact and opportunities for learning and imitation, and to make possible the export-led growth and industrialization strategy that is the royal and indeed the only reliable road to anything like convergence.

So I figure that, all in all, not 5% but more like 30% of net global prosperity–and considerable reduction in cross-national inequality–is due to globalization. That is a very big number indeed. But, remember, even the 5% number cited by Krugman is a big deal: $4 trillion a year, and perhaps $130 trillion in present value.

As for the TPP, the real trade liberalization parts are small net goods. The economic question is whether the dispute-resolution and intellectual-property protection pieces are net goods. And on that issue I am agnostic leaning negative. The political question is: Since this is a Republican priority, why is Obama supporting it without requiring Republican support for a sensible Democratic priority as a quid pro quo?

That said, let me wholeheartedly endorse what Paul (and Mark) say here:

as Mark Kleiman sagely observes, the conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins—but we now have an ideology utterly opposed to such redistribution in full control of one party…. So the elite case for ever-freer trade is largely a scam, which voters probably sense even if they don’t know exactly what form it’s taking….

Must-Read: Branko Milanovic, Peter H. Lindert, and Jeffrey G. Williamson: Pre-Industrial Inequality

Must-Read: And the ‘winner’ for all time–in terms of success at extracting as much wealth from the workers as possible given resources, population, and technology–is Mughal India in 1750!

Branko Milanovic, Peter H. Lindert, and Jeffrey G. Williamson: Pre-Industrial Inequality: “Is inequality largely the result of the Industrial Revolution?…

…Or were pre-industrial incomes as unequal as they are today? This article infers inequality across individuals within each of the 28 pre-industrial societies, for which data were available, using what are known as social tables. It applies two new concepts: the inequality possibility frontier and the inequality extraction ratio. They compare the observed income inequality to the maximum feasible inequality that, at a given level of income, might have been ‘extracted’ by those in power. The results give new insights into the connection between inequality and economic development in the very long run.

Ye Olde Inæqualitee Shoppe Pseudoerasmus Https pseudoerasmus files wordpress com 2014 09 blwpg263 pdf

Must-Read: Belle Sawhill: Where Have All the Workers Gone?

Must-Read: I really want to see what happens to these numbers in a high-pressure low-slack economy…

Isabel Sawhill: Where Have All the Workers Gone?: “Among male heads of household between the ages of 25-54…

…[not at work,] 27 percent say it is because they are ill or disabled…. [But] we excluded from the sample anyone on disability…. Another 22 percent said they couldn’t find work–not too surprising in a year when the unemployment rate was still over 7 percent. The remaining half… going to school, taking care of home or family… retired (despite being under 55), or… some other reason for why they weren’t working…. These are all men in their prime working years and that their lack of work leaves them and anyone else in their household at or near the poverty line…. Women heading households are somewhat similar… with far fewer reporting that they are ill or disabled and more of them reporting that they are taking care of home or family…

Must-See: Ron Lee et al.: Do Millennials Stand a Chance? Giving the Next Generation a Fair Shot at a Prosperous Future

Must-See: Ron Lee, Hilary Hoynes, Henry Brady, Alex Gelber, Jesse Rothstein (November 18, 2015): Do Millennials Stand a Chance? Giving the Next Generation a Fair Shot at a Prosperous Future:

Wednesday, November 18, 2015 from 8:00 AM to 11:00 AM (PST) :: California Memorial Stadium :: 210 Stadium Rim Way