Tag: Inequality

Economic Policy Challenges in the US and Japan Panel: Globalization and Inequality

Posted on by Brad DeLong
San Francisco from Abovee Berkeley

Globalization and Inequality

J. Bradford DeLong :: U.C. Berkeley, WCEG, and NBER http://bradford-delong.com brad.delong@gmail.com @delong

.pages: https://www.icloud.com/pages/0_H9kCtNY6cZglaYpa4IRw2pQ | .key: https://www.icloud.com/keynote/0a1YIQGu-i9__uHwnHA0thhTg | .html: http://www.bradford-delong.com/2017/06/economic-policy-challenges-in-the-us-and-japan-panel.html

Globalization and Inequality

  • Moderator: Naoyuki Haraoka
  • Brad DeLong
  • Francis Fukuyama
  • Yoriko Kawaguchi
  • Hideichi Okada

Growth Strategies of the US and Japan

  • Moderator: Takeo Hoshi
  • Nick Bloom
  • Takatoshi Ito
  • Keiichiro Kobayashi
  • Kathryn Shaw

Is Technology the Answer? (or Will Silicon Valley Save the World?)

  • Moderator: Ken Singleton
  • Shai Bernstein
  • Kenji Kushida
  • Masaaki Tanaka
  • Tsunehiko Yanagihara

Proceed with Caution: What can we say about globalization and inequality?

First, we must say that we have to proceed with caution. We face truly grave problems of measurement—at measuring the extent of globalization, at measuring the prosperity and rate of economic growth of the world, and at measuring inequality.

The problems of measuring growth become insuperable unless we largely neglect the fact that we produce and consume not just more of the same commodities than we did in 1800, but new commodities and new kinds of commodities that give us, as John Maynard Keynes wrote a hundred years ago, “conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages”. The problems of measuring inequality become insuperable unless we largely neglect the implications of fact that an income one-third of the geometric average two hundred years ago meant that you starved to death unless someone took explicit pity on you personally, while an income one-third the geometric average today leaves you poor relative to your neighbors, but still rich relative to your ancestors. But if you wanted deep thoughts about these issues, you would have called for a philosopher rather than an economist.

B. Our Rough Guesses: Thus: neglecting these issues, the world’s prosperity center-of-gravity—the geometric average level of production—was up from perhaps $1000 of today’s real-value international dollars per capita per annum to $4000 , and the world’s life expectancy was up from 28 to 65 years over the period 1800-1976. And in the past forty years prosperity has jumped from $4000 to $9000, and life expectancy from from 65 to 75.

But look at the spread. The spread was roughly a factor of 8 in 1800: few countries then had average income levels less than $500 or more than $4000 per capita per annum. The spread rose to a factor of 32 as of 1976: few countries then had average income levels less than $500 or more than $16000 per capita per annum. The spread remains a factor or 32 today: few countries now have average income levels less than $1000 or more than $32000 per capita per annum.

While the story across nations is one of growing inequality from 1800-1976 followed by a stable level of inequality, the story across people is considerably different. The relative spread of people’s incomes today is substantially, gratifyingly, and fortunately much smaller than it was in 1976. Russia has regressed, not absolutely—fortunately—but relatively toward the global geometric mean.

C. China and India: China and India have grown at stupendous rates so that they now are within close shouting distance above and below the global geometric mean, and few countries and only one large country—Japan—already rich has grown rapidly and so pulled, relatively, significantly further ahead of the global geometric mean. Russia and Japan offset each other. So the “convergence” of relatively income levels across the globe that we have seen over the past forty years that has, in combination with underlying economic growth, made it the best forty year period for human economic material progress ever in global history is 100% a China-India phenomenon.

That is is only two countries makes this “convergence” difficult to interpret as we try to assess the likely future. Have we seen good governance institutions spread to another 30% of the human race, leaving less than 40% of the world with severely sub-par institutions as far as economic growth is concerned? In that case, we would expect good governance institutions for economic growth to continue to spread over the next two generations, and we would be hopeful. Or did just good luck bring good leaders to power in two countries—albeit the two countries that together amount to 30% of the human race—in which case normal luck would see the next two countries to get good governance institutions be small ones, and would perhaps see institutional backsliding, perhaps severe institutional backsliding, in China and India? On such questions as this does our optimism or pessimism about the human global future depend.

D. Branko Milanovic’s Elephant Diagram: The pattern of global growth over the past generation or so in terms of the incomes accruing to different percentile slots in the global income distribution are well-captured in what has come to be called Branko Milanovic’s “Elephant Diagram”: the tail of the elephant are the global poorest, whose lives were and remain virtually indistinguishable from those of our pre-industrial agrarian age ancestors under the curse of Malthus. The back of the elephant is the global prosperous working and middle class—primarily but far from exclusively in China. The upward-lifted tip of the trunk is the global overclass, the elite. the downward-pointing base of the trunk is Russia. And the first upward curve is the middle class of the North Atlantic economies, for whom—especially for the native-born males among whom—the past generation or so has been the worst period since 1850.

E. Globalization, Technology, Education, Institutions as Causes and as Scapegoats: In what sense is “globalization” the cause of this distressing recent generation plus for the North Atlantic middle classes? Or, alternatively, in what sense is “globalization” the scapegoat to which the North Atlantic middle classes resort on their own out of ignorance or are led to resort in an attempt to distract them from the true causes—or, in many cases, simply because if you scare mostly-elderly people about foreigners you can keep their eyeballs glued to the TV and so collect money from advertisers as they try to sell them overpriced gold funds and fake diabetes cures?

The overwhelming part of the story is: technology and educational failure as cause, and globalization as scapegoat.

In brief:

  • In the United States, manufacturing employment has gone from 30% to 12% because of technology.
    • Japan has seen analogous but much smaller technological trends—in large part because technological forces have been hobbled, if that is the word, by institutions in important sectors like food processing
    • The decline in manufacturing employment has been made a much bigger deal for distribution in the United States because the U.S. lost the race between education and technology.
    • Has it been made a bigger deal because of the rise of the overclass?
      • At U. Chicago, it is conventional to bow to Sherwin Rosen’s “superstar economy” ideas and view the rise of the overclass as an unmixed blessing.
      • Not so at Berkeley.
  • In the United States, manufacturing employment has gone from 12% to 9% because of an ill-managed savings-investment balance.
    • Not so in Japan: if the Japan savings-investment balance has been ill-managed, it has been so in the opposite direction.
    • The catastrophic mistake of the Reagan and Bush deficits—starving the country of savings in order to overincentivize the nascent overclass.
      • Japan and Germany offer a different road
      • Globalization provided an important safety valve: allowed a low savings country to continue to invest, albeit at an inadequate pace.
    • Here globalization is not the cause but the scapegoat—and a partial cure.
  • “Bad trade deals!”
    • Manufacturing employment from 9% to 8.7% because of the China shock
    • Manufacturing employment from 8.7% to 8.6% because of NAFTA
      • Trump’s economic policy team appears to have two ideas for how to renegotiate NAFTA
        • Require year-by-year bilateral balance everywhere.
        • Force Canada and Mexico to accept the provisions of the TPP
    • No effect of TPP

E. Globalization, Job Instability, and Job Quality in America: Manufacturing and other goods value-chain jobs become unstable because of the post-1980 dollar cycles the sharp up from the inauguration of Ronald Reagan to the Plaza, the sharp down from the Plaza to the Louvre, the sharp up during the dot-com boom, the down of the 2000s, and now—perhaps—the start of a Trump dollar cycle. These very large exchange rate fluctuations are side effects of improper governance and policy non-coordination. But since the end of Bretton Woods governments in the Global North appear to have decided that they would much rather let currencies float as shock absorbers than commit themselves to policy coordination to damp such fluctuations. The consequence has been to make export and import-competing manufacturing sectors very unstable—and thus very risky, especially for workers but also for investors and managers.

What role has this instability played in undermining the institutional job ladders that used to exist for blue-collar workers in the U.S., and still exist in Japan. And what role have this and other sources of instability started to play since the mid-2000s in undermining the institutional white-collar job ladder stability as well? One powerful possibility is that manufacturing and other goods value-chain jobs are good jobs only as long as they are union jobs. And dollar-cycle instability has meant maintaining a strong union movement in affected industries nearly impossible—even if firms do not prioritize union destruction.

These issues are still very unsettled. I would point people to the arguments raised by and the forthcoming debate around Richard Baldwin’s new The Great Convergence: Information Technology and the New Globalization http://amzn.to/2rhle17.

I would also say that we are next to nowheresville in terms of understanding the sources of the rise of the overclass in America. There are lots of very good but speculative theories and ideas. But there is little consensus. I find “winner take all economy” explanations completely inadequate. But what is adequate? I would point out that increasing investigation of tax avoidance and tax evasion strongly suggests that the rise of the overclass has been much stronger than one gets from the Piketty-Saez tax data. But I would also point out that, here in the U.S., pre-1987, large amounts of soft-dollar compensation and the use of recapitalizations to create ownership interests then passed on at death or committed to foundations means that we have less insight into historical trends than we would wish.

We do know that the situation is not stable. We can see, ahead, the possible transformation of the American overclass into one in which inheritance has played a much greater role a la Piketty. Has globalization played a large role in its rise? If so, it is a role that Japan—and much of continental Europe—have been largely able to neutralize. English-speaking countries, resource exporters like the Middle East and Russia, and emerging market economies able to find a place in global value chains appear to be in the domain of the rising global overclass in a way that Japan and continental western Europe.

F. Polanyian Perplexes and Fukuyamian Foresight: I have two more slides—with a long quote from Keynes, a brief attempt to apply insights from Karl Polanyi’s The Great Transformation, and a bow to Fukuyama-sensei’s 1989 “The End of History?”—note the question mark at the end—in the shadow of which we have all now lived for a generation.

But I am much more interested in hearing Fukuyama-sensei discuss these issues than I am interested in hearing me so far out of my proper confidence, and the same is almost surely true of you as well…

NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage

Files Noted for This Project:

A Few Notes on the CUNY “After Piketty” Panel…

Posted on by Brad DeLong
Cursor and After Piketty

After Piketty: The Agenda for Economics and Inequality http://amzn.to/2q0TevJ

Themes worth noting from the After Piketty CUNY launch event—that I missed, being on the wrong coast.

But having been on the wrong coast, I can now add, in a l’esprit d’escalier sense, what I would have said if I had been there, had been thinking very quickly, and had the last word:

(1) “Capital” vs. “Wealth” in PIketty’s Capital in the 21st Century

Branko Milanovic: Not a confusion, but the use of “capital” for wealth was criticized because for economists “capital” is productive capital: the input into the production function in the theory of growth, and so on. But “wealth”, for people who work on income distribution like myself, includes all other things, including real estate, and other things which are even not necessarily immediately marketable. Although, obviously, real estate is. So there is a little bit of a difference between the two. In the book… the two are really conflated…

Paul Krugman: The place where I think is closest to him being—wrong is not quite the right word—where there is a really serious critique from the economists’ point of view—I defer the historical social issues to other people–he makes a lot about the rising ratio of capital to income. That we’ve been accumulating capital in a way. That we had a lot of capital destroyed by the by the wars of the 20th century. Then we restore it and we get a much more capital. He talks about this as a story of there’s more and more capital out there and that this given certain parameters whatever it tends to raise the capital share of income even as it reduces the rate of return. The thing that has become clear is that an awful lot of that rise in the value of capital is real estate. A lot of the Piketty book is written as if there’s capital and there’s labor. That is true. But an awful lot of the capital by value turns out to be housing. That does change your picture significantly. It doesn’t mean that the underlying thesis is wrong, but it means that that it’s a little harder to make his case than might otherwise have seemed to be the case…

Brad DeLong: If “capital” in Piketty is taken to mean what neoclassical economists typically mean by “capital”—the argument K in some aggregate production function, produced means of production elastically produced under constant returns to scale and valued at their replacement cost—then Piketty’s argument does appear to have a major problem. We then face what Keynes called the euthanasia of the rentier as the capital stock-annual output ratio rises: the observed technical elasticity of substitution between capital and labor strongly suggests that the rate of profit falls more in relative terms than the capital stock-annual output ratio rises, and so the wealthier superrich receive a smaller share of society’s income over time.

But it was never Piketty’s intention for “capital” in his book to mean only he argument K in some aggregate production function, produced means of production elastically produced under constant returns to scale and valued at their replacement cost. As Thomas writes in his contribution to After Piketty:

Had I believed that the one-dimensional neoclassical model of capital accumulation (based upon the so-called production function Y = F(K,L) and the assumption of perfect competition) provided an adequate description of economic structures and property relations, then my book would have been 30 pages long rather than 800 pages long. The central reason my book is so long is that I try to describe the multidimensional transformations of capital and the complex power patterns and property relations that come with these metamorphoses (as the examples given above illustrate). I should probably have been more explicit about this issue, and I am grateful to Suresh for giving me the opportunity to clarify this important point…

Piketty’s intention was always to, in Suresh Naidu’s terms, be “wild Piketty” rather than “domesticated Piketty”. The book is about all of those assets that are claims on society’s income—monopoly rents, spoils of rent-seeking, real estate, brands, control over value chains, as well as productive physical capital receiving its marginal product.

You can claim that Piketty invited this confusion by titling his book Capital in the 21st Century rather than Wealth in the 21st Century. But you would not have to read far in the book to get a sense that it was, indeed, not 30 pages long but 800. IMHO, many critics of Piketty did not read far. What Ryan Avent said of Clive Crook can, I think, stand as an evaluation of a great deal of Piketty criticism:

Why, for instance, doesn’t Mr Piketty say that r must be significantly above g to generate the expected divergence, Mr Crook complains. This, after literally hundreds of pages in which Mr Piketty has walked through when and how the capital-income ratio has been pushed away from its long-run trend rate. You don’t even have to read hundreds of pages to get the qualification Mr Crook wants; you can start with the page on which r>g is first mentioned: “If, moreover, the rate of return on capital remains significantly above the growth rate for an extended period of time (which is more likely when the growth rate is low, though not automatic), then the risk of divergence in the distribution of wealth is very high.” Emphasis mine. I suppose if you only read the book’s conclusion you could miss these details, but who would do that?…

(2) “Patrimonial Capitalism”

Paul Krugman: We still have… an 80s frame of mind… visualize… self-made men, whether it’s Steve Jobs or Gordon Gekko depending upon… your take on the goodness or badness…. [But] increasingly now we are looking at patrimonial capitalism—inherited fortunes. Don’t think Steve Jobs. Think Koch brothers. Piketty makes an argument that that’s increasingly going to be the case[:]… Don’t think “Gilded Age”, which is America and which is an era of self-made men. Instead, think more “Belle Epoque”: late 19th century France, which is very much a dynastic inherited wealth thing….

To date most of the explosion of income concentration at the very top has… been… compensation… bonuses and executive pay. There’s a lot of interesting discussion of that in Capital in the 21st Century. But that is not nearly at the level of rigor of explanation, because it’s hard when nobody really fully understands….

I don’t think it’s a problem of us mislabelling what is truly “capital income”. If you look at what a hedge fund manager or a Fortune 500 CEO receives, he—and almost always he—because of the inherited wealth that he brought to the table. It is associated with the job. whether it’s “earned” in a social sense is a whole different question. What is true is that the way that income comes for such people is very different from the way it comes from an ordinary wage or salary worker. It’s not that there’s a job and there’s pay. It’s that you do something. You climb. It comes in the form of stock options—although those are actually a lot less tied in reality to the price of the stock than people think. The basis tends to get adjusted. In the finance industry it comes from however much profit you’ve managed to make.

What’s odd is that argument is used sometimes to defend preferential tax treatment. And we have the “carried interest” loophole, which lets people in the finance industry pay much lower tax rates. The argument is: well, yes, they’re working hard and all this stuff, but the returns to that labor are highly uncertain, so you don’t want to treat it as normal income. To that, some of us say: you know, I’m writing a book in which you put often an awful lot of work, and then you have no idea how much if any money you’re going to make at the end. And somehow or other I’m paying a full rate.

There’s something going on. To a large extent this is a category of income that must have always existed. John D. Rockefeller, the original John D. Rockefeller, did not inherit his wealth. For most of his life he presumably was making most of his money through the profits of his enterprises rather than as return on his accumulated capital. But it seems to be much more prevalent now than it was before. That is a bit of a problem for the Piketty argument. He is saying: inherited wealth will go back to becoming much more central. But I don’t think it’s a fundamental category error.

Salvatore Morelli: The original Piketty and Saez studies on top incomes in the U.S. were showing that, relatively speaking, labor income was much more prevalent at the top—if we exclude the top 0.001%, of course. But it’s also true that that study in particular was based on tax statistics, so on tax returns. The problem is that not all the capital income is reported in the tax returns. Importantly, a growing share of capital income is not reported. This led Thomas Piketty and Emmanuel Saez and Gabriel Zucman to do a follow-up study, which is now part of the DINA Project—Distributional Income National Accounts. What they did is to take the national account income and distribute it back to the population so that it does not suffer from the tax-reporting bias. When you do that, it’s actually surprising to see how capital income rises across the distribution. Even at the bottom of the distribution you have a lot of capital income—most of capital income from tax-exempt savings accounts was not reported in tax statistics. When you get to even the top 10% people are earning more income from capital and not from labor. The research question is still open. But I wanted to point that out.

Paul Krugman: Returns and profits—dividends and capital gains—which are popping up in your account in the Bahamas are just not going to be in the original Piketty-Saez data. That means that we actually are more like the 19th century than we think we are, yes.

Branko Milanovic: There is an analysis based on the French data only, because that’s the only country which apparently has the data, which shows what percentage of people would inherit what amount of money which would allow them, given improving life expectancy, to with that money live at a medium level of income for that country. That is, actually, a very impressive statistic. When you think that if I inherit something that would actually allow me to live at the mean income level of my country until I die, it is really a very strong sort of inequality that brings back the role of inheritance very strongly….

Brad DeLong: In the old days you would not get stock options—you would simply be handed the stock in a corporate organization or reorganization. Rather than showing up in the income statistics at its option value when your stock options were granted you and then at the difference between market value and strike price when you exercised your options, they would not show up in the income statistics at all. Thus even leaving to one side all of the tax-avoidance, tax-evasion, and data-quality issues, it is somewhat misleading to say that the superrich get much much more of their income from “labor” now than they used to.

And, of course, calling it “labor” and invoking marginal product theory is totally misleading. The most that the ideologues of the right seeking to justify the superrich will say is that “tournaments” are effective effort-elicitation mechanisms: that because of the cognitive biases and deficits of the CEO-financier-entrepreneurial class, you elicit an enormous amount of effort from many people relatively cheaply by offering a few really big prizes.

But the societal benefits of all of this enormous effort are missing. Corporate control is no better than it was in the 1950s. CEOs are no better than in the 1950s. Economic growth is certainly worse than in the 1950s. And as for risk management—ha!

(3) Politics: Belle Époque France and Progressive Era America

Paul Krugman: One piece that really impressed me in Piketty was the discussion of the Third French Republic, which is “liberte, egalite, fraternite”, and yet politics is dominated by vast inherited wealth dynasties. A point he makes is that the intellectual domination—that the fact that inherited wealth in effect managed to set the terms of discussion and to define what was responsible, what you could do. You
can easily see that looking at a lot of things are going on in America now. How that happens we can talk about. We can talk about foundations. We can talk about influence. We can talk about all of those things…. A countervailing thing… [is] the United States in the Progressive Era… a vastly unequal society… in which it was quite common for people—often people who were themselves very much on the top—to express ideas that would be regarded as radically left-wing today… to talk about the dangers of vast wealth… the importance of high inheritance taxes to prevent concentration… people—I believe including Theodore Roosevelt—saying things like: we would want to tax this wealth even aside from the revenue we raise, for we want to make sure that these great fortunes do not accumulate. For anyone to try to say that now you would be accused of being a radical Marxist. Maybe the dominance of patrimonial wealth is not—the intellectual dominance is not necessarily as large as we might imagine…

Brad DeLong Andrew Carnegie’s “he who dies rich dies disgraced”… The transformation to what we have today is very interesting… I remember a panel I did at Rice University with R. Glenn Hubbard. The two-step was something like: financial inheritance really does not matter because the truly valuable things our children inherit from us is the good values we inculcate in them—therefore, because they have good values, they deserve to inherit our money too. It did not seem to me to make much sense.

(4) Stakeholders

Paul Krugman: The last thing I want to say is: countervailing institutions…. Maybe my imagination is limited, but it’s hard for me to think of anything that I know in my history that is comparable to the historical but now largely vanished role, at least in this country, of unions. Organized labor has always been the huge counterweight to organized wealth. That diminution—if you ask me what would be the one thing that I would want to see happen to get us back, it would be somehow rather to restore the role of a substantial effective labor movement….

I almost hate to use the language of responsibility, not out of any personal moral aversion but because I don’t think they care. The point was that they did in fact. In the America I grew up in, there were large corporations viewed themselves as representing a variety of stakeholders—not simply not simply the stock investors. That included labor. That was partly either because they were unionized or because they knew there were unions out there, and knew that they knew would become unionized if they did not represent all stakeholders. Thus there is certainly a way in which the private sector can play a role in being an institution for equality. That is in fact the way America was for about 40 years after WWII. So it can happen here. Whether and how we get to make that happen now—I don’t know. Think about a corporate executive who has various interests. He wants to be rich. He wants to not have this employees hate him. If there’s a ninety-one percent marginal tax rate, as there was in the in the 50s, he’s probably going to pay more attention to the to the personal non-pecuniary aspects of the job. Part of the explosion of top incomes probably does reflect the fact that we’ve made it possible for people to keep whatever they get by making life harder for other people…

Brad DeLong: How much soft compensation did CEOs receive in the era of social democracy anyway?

The big countervailing institution is supposed to be the government: we are supposed to vote for progressive taxes, on the grounds that most of what produces the superrich is good luck, and good luck is a very good thing to tax—we would all agree to very high taxes on good luck if we were to make decisions back behind the veil of ignorance.

The Trump minority coalition—and the right-wing coalition generally—have been running, ever since the late-nineteenth century breaking of real American Populism on the anvil of racism, on the claim that the superrich are worthy because they are people like us while progressive taxes are illegitimate because the benefits flow to them, and they are not people like us. Obamaphones!

Alexis de Tocqueville had something very interesting to say about this, back at the end of the 1840s, in the very brief interregnum between Orleanist Monarchy and Second French Bonapartist Empire that was the Second French Republic:

I was at once struck by a spectacle that both astonished and charmed me. A certain demagogic agitation reigned, it is true, among the workmen in the towns ; but in the country all the landed proprietors, whatever their origin, antecedents, education or means, had come together, and seemed to form but one class: all former political hatred and rivalry of caste or fortune had disappeared from view. There was no more jealousy or pride displayed between the peasant and the squire, the nobleman and the commoner ; instead, I found mutual confidence, reciprocal friendliness, and regard. Property had become, with all those who owned it, a sort of badge of fraternity. The wealthy were the elder, the less endowed the younger brothers ; but all considered themselves members of one family, having the same interest in defending the common inheritance. As the French Revolution had infinitely increased the number of land-owners, the whole population seemed to belong to that vast family. I had never seen anything like it, nor had anyone in France within the memory of man….

[During the June insurrection,] I returned from my round convinced that we should come out victorious ; and what I saw on nearing the Assembly confirmed my opinion. Thousands of men were hastening to our aid from every part of France, and entering the city by all the roads not commanded by the insurgents. Thanks to the railroads, some had already come from fifty leagues’ distance, although the fighting had only begun the night before. On the next and the subsequent days, they came from distances of a hundred and two hundred leagues. These men belonged indiscriminately to every class of society ; among them were many peasants, many shopkeepers, many landlords and nobles, all mingled together in the same ranks. They were armed in an irregular and insufficient manner, but they rushed into Paris with unequalled ardour : a spectacle as strange and unprecedented in our revolutionary annals as that offered by the insurrection itself. It was evident from that moment that we should end by gaining the day, for the insurgents received no reinforcements, whereas we had all France for reserves.

On the Place Louis XV, I met, surrounded by the armed inhabitants of his canton, my kinsman Lepelletier d’Aunay, who was Vice-President of the Chamber of Deputies during the last days of the Monarchy. He wore neither uniform nor musket, but only a little silver-hiked sword which he had slung at his side over his coat by a narrow white linen bandolier. I was touched to tears on seeing this venerable white-haired man thus accoutred. “Won’t you come and dine with us this evening?”

“No, no,” he replied ; ” what would these good folk who are with me, and who know that I have more to lose than they by the victory of the insurrection — what would they say if they saw me leaving them to take it easy ? No, I will share their repast and sleep here at their bivouac. The only thing I would beg you is, if possible, to hurry the despatch of the provision of bread promised us, for we have had no food since morning”…

(5) Politics

Paul Krugman: The issue polling is interesting because for the most part as I read it it says that likely voters basically have center-left views—that the center-left movement that we say is dying is in fact, on by the issues, almost all of them, what people support. People believe in guaranteed health care. People believe in most of the strong social safety net. They want all of these things.

The most recent polling obviously has the United States has been on two things. Health care, where people just absolutely hate what’s being proposed. They suddenly discover that they love Obamacare now that it’s maybe its way out.

What was interesting—and this is maybe the last word—is the poll that came out I think this morning—Quinnipiac—showed people with very center-left views on almost everything. The one piece of the current administration’s tax agenda that people do approve of is abolition of the estate tax.

So it turns out that people want a strong welfare state, a strong middle class, and patrimonial capitalism…

Brad DeLong: As Heather Boushey said: go figure.

Inclusive AI: Technology and Policy for a Diverse Urban Future

Posted on by Brad DeLong

Inclusive AI: Technology and Policy for a Diverse Urban Future https://www.eventbrite.com/e/inclusive-ai-technology-and-policy-for-a-diverse-urban-future-tickets-31896895473: Wed, May 10, 2017 10:30 AM – 5:30 PM

Cursor and 1024px The Garden of Earthly Delights by Bosch High Resolution jpg 1 024×583 pixels

Panel 3: The Future of Work: Automation and Labor

  • Ken Goldberg
  • Brad DeLong,
  • James Manyika
  • Costas Spanos
  • Laura Tyson
  • John Zysman

https://www.icloud.com/keynote/0w1qzB37W6lJ8pGCYZplqbGcw

NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage

Since I get to go first, I will preemptively take the hyper-Olympian and very long-run historical point of view…

The human brain is a massively parallel supercomputer that fits in half a shoebox. It draws 50 W of power. Human fingers are amazingly fine manipulation devices. Human back and leg muscles—especially when testosterone soaked—are quite good at moving heavy objects. And so, back in the environment of evolutionary adaptation, we used our brains, big muscles, and fingers to lead interesting, if stressful and short, lives.

But as history has enrolled we have done other things to add economic and sociological value than use our backs, our fingers, and our brains to innovate and create. Over the long historical sweep, backs and fingers have declined and we have turned many of us into, instead:

  • robots performing repetitive tasks,
  • microcontrollers for domesticated animals and machines,
  • relatively simple accounting and recording software bots,
  • personal servitors,
  • social engineers trying to keep all those things controlled by brains—especially by the testosterone soaked ones—working together harmoniously. With limited success.

while remaining innovators and creators.

Backs started to go out with the domestication of the horse. Fingers with the invention of the spinning jenny. Microcontrollers and accounting ‘bots, we can see, are now on the way out too. So, fortunately, are the jobs that treat humans as simple robots.

That leaves us with a future of work made up of:

  • personal servitors,
  • social engineers,
  • innovators and creators.

Utopia or dystopia? Heaven or hell?

Over to you, James. And, in a broader sense, over to all of you—in the audience, and out there in Internet land…

“After Piketty” at Harvard University Press

Posted on by Brad DeLong
Cursor and After Piketty Heather Boushey J Bradford DeLong Marshall Steinbaum Harvard University Press

Thomas Piketty’s Capital in the Twenty-First Century is the most widely discussed work of economics in recent history, selling millions of copies in dozens of languages. But are its analyses of inequality and economic growth on target? Where should researchers go from here in exploring the ideas Piketty pushed to the forefront of global conversation? A cast of economists and other social scientists tackle these questions in dialogue with Piketty, in what is sure to be a much-debated book in its own right.

After Piketty opens with a discussion by Arthur Goldhammer, the book’s translator, of the reasons for Capital’s phenomenal success, followed by the published reviews of Nobel laureates Paul Krugman and Robert Solow. The rest of the book is devoted to newly commissioned essays that interrogate Piketty’s arguments. Suresh Naidu and other contributors ask whether Piketty said enough about power, slavery, and the complex nature of capital. Laura Tyson and Michael Spence consider the impact of technology on inequality. Heather Boushey, Branko Milanovic, and others consider topics ranging from gender to trends in the global South. Emmanuel Saez lays out an agenda for future research on inequality, while a variety of essayists examine the book’s implications for the social sciences more broadly. Piketty replies to these questions in a substantial concluding chapter.

An indispensable interdisciplinary work, After Piketty does not shy away from the seemingly intractable problems that made Capital in the Twenty-First Century so compelling for so many.

About the Editors:

Heather Boushey is Executive Director and Chief Economist at the Washington Center for Equitable Growth.

J. Bradford DeLong is Professor of Economics at the University of California, Berkeley.

Marshall Steinbaum is Fellow at the Roosevelt Institute, New York.

Table of Contents:

  1. The Piketty Phenomenon [Arthur Goldhammer]
  2. Thomas Piketty Is Right [Robert M. Solow]
  3. Why We’re in a New Gilded Age [Paul Krugman]
  4. What’s Wrong with Capital in the Twenty-First Century’s Model? [Devesh Raval]
  5. A Political Economy Take on W / Y [Suresh Naidu]
  6. The Ubiquitous Nature of Slave Capital [Daina Ramey Berry]
  7. Human Capital and Wealth before and after Capital in the Twenty-First Century [Eric R. Nielsen]
  8. Exploring the Effects of Technology on Income and Wealth Inequality [Laura Tyson and Michael Spence]
  9. Income Inequality, Wage Determination, and the Fissured Workplace [David Weil]
  10. Increasing Capital Income Share and Its Effect on Personal Income Inequality [Branko Milanovic]
  11. Global Inequality [Christoph Lakner]
  12. The Geographies of Capital in the Twenty-First Century: Inequality, Political Economy, and Space [Gareth A. Jones]
  13. The Research Agenda after Capital in the Twenty-First Century [Emmanuel Saez]
  14. Macro Models of Wealth Inequality [Mariacristina De Nardi, Giulio Fella, and Fang Yang]
  15. A Feminist Interpretation of Patrimonial Capitalism [Heather Boushey]
  16. What Does Rising Inequality Mean For the Macroeconomy? [Mark Zandi]
  17. Rising Inequality and Economic Stability [Salvatore Morelli]
  18. Inequality and the Rise of Social Democracy: An Ideological History [Marshall I. Steinbaum]
  19. The Legal Constitution of Capitalism [David Singh Grewal]
  20. The Historical Origins of Global Inequality [Ellora Derenoncourt]
  21. Everywhere and Nowhere: Politics in Capital in the Twenty-First Century [Elisabeth Jacobs]
  22. Toward a Reconciliation between Economics and the Social Sciences [Thomas Piketty]

Reviews:

The book serves as a fantastic introduction to Piketty’s main argument in Capital [in the Twenty-First Century], and to some of the main criticisms, including doubt that his key equation—r > g, showing that returns on capital grow faster than the economy—will hold true in the long run. It also contains thoughtful interventions in debates about the political economy of inequality.—Aaron Reeves, Nature

Thomas Piketty’s Capital in the Twenty-First Century forcibly entered the public imagination in 2014, but the book’s impact on academic thinking and research is only just starting to be felt. The essays in After Piketty offer new findings and admirably lay out an agenda that will influence future research on inequality, opportunity, and measurement for years to come.—Miles Corak, University of Ottawa

Heather Boushey, Brad DeLong, and Marshall Steinbaum have convened and shaped an ambitious and refreshingly frank conversation about Thomas Piketty’s Capital in the Twenty-First Century. This extraordinary gathering of two dozen authors—working across disciplinary boundaries—interrogates Piketty’s core claims about the causes, correlates, characteristics, and consequences of high and rising levels of income and wealth inequality in the West. The gathered authors celebrate and hone Capital’s far-reaching contributions; they also tackle substantial weaknesses and assess omissions. Readers unfamiliar with Capital will find an accessible synthesis, graduates of the original book will emerge with a more nuanced understanding, and inequality scholars—newcomers and veterans—will revise their research agendas.—Janet C. Gornick, Professor of Political Science and Sociology, Stone Center on Socio-Economic Inequality, City University of New York

Piketty’s work did what decades of rising disparities couldn’t do: it reminded macroeconomists that inequality matters. More starkly, it laid bare just how ill-equipped our existing frameworks are for understanding, predicting, and changing inequality. This extraordinary collection shows that our most nimble social scientists are responding to the challenge, collecting ideas about capital, technology, power, gender, race, and privilege that might help inform a broader understanding.—Justin Wolfers, University of Michigan

“After Piketty” Publication Day

Posted on by Brad DeLong

Today is our publication day!

Heather Boushey, J. Bradford DeLong, and Marshall Steinbaum, eds.: After Piketty: The Agenda for Economics and Inequality http://amzn.to/2qgPIRE (Cambridge: Harvard University Press: 0674504771).

Let’s see if I can maintain a post an hour today on this, shall we?

Here is my amazon review:

As one of the co-editors of this book, I know it very well. I am greatly pleased with how this project came out—we have very serious people, as Bob Solow would put it, writing very serious takes on what Thomas Piketty has accomplished, where he has gone wrong, and what gaps remain to be investigated by others. Social scientists thinking of citing on, working along lines related to, or drawing on Piketty should certainly read this book. People who have read Capital in the Twenty-First Century who are curious about how serious people are reacting to and assessing the book should read it as well.

Trade, Jobs, and Inequality

Posted on by Brad DeLong

http://videostreaming.gc.cuny.edu/videos/video/4983/embed/?access_token=shr00000049839204943398151315087172252494609

Eduardo Porter: Good evening. Thanks for coming. There has been a lot of sturm and drang over the last—what?—98 days. Today I read that the administration is preparing an executive order to start the process for the U.S. to leave NAFTA, which was one of Mr. Trump’s campaign promises. However, over the past 98 days I have come to realize that perhaps President Trump did not really mean all of the things he said on the campaign trail.

He has left China off the hook: “not a currency manipulator”. His first trade battle was against… Canada. And the first battle against Mexico he lost, today at the WTO. And yet I do not think that you would be right to discount the “Trump phenomenon”. There were tens of millions of voters who actually bought into his argument that immigration and trade have done them wrong, have taken their jobs, have weighted on their wages, have caused some of the social dysfunction that we now see in many American communities.

Here we have this group of pretty remarkable pros to talk about whether there is a case against trade. To what extent is Trump’s diagnosis correct? Is there an argument for some sort of protectionist policies to support the workers who have been displaced from their jobs, or whose wages have not improved due to competition from other countries? Perhaps Trump’s prescriptions have been pretty outlandish—slapping a 35% tariff against the world’s second largest economy, or withdrawing from NAFTA and undermining the value chains that have been built over the last 25 years, or even abandoning the WTO. This is something I would like the panel to address. But also softer stuff: like talking about using safeguards against import surges or other tools used in administrations in the past. Our upcoming trade representative thirty-five years ago was negotiating voluntary export restraints with Japan in the way of using protectionism to assist workers.

Without belaboring this further, I would like to give each of you guys an opportunity to address these topics and get this going. If I may start with you, David Autor, you have written some very important papers addressing the impact of trade on workers and your last name begins with an “A”, so we can do this alphabetically:

David Autor: Thank you very much. It is a pleasure and an honor to be here, to be on stage, to be a guest of Paul Krugman and CUNY, and I see many of my friends far more distinguished than I in the audience as well. I am going to try to set the stage. I will not talk about trade policy per se. But I will put it in the context of the dramatic changes in the U.S. labor market that have occurred over the past 35 years.

From 1980 to the present we have had a rapid rise in inequality, and a lot of that rise in inequality is divergence in earnings by education level, and a lot of that divergence is not simply higher earnings for higher education adults but falling real earnings levels for lower-education adults, particularly non-college men, particularly men with just as or with less than a high school degree.

A lot of that phenomenon, in our consensus understanding, has to do with technological change that has increased the demand for highly educated workers and those with judgment, expertise, and creativity, and reduced the demand for repetitive physical and repetitive cognitive labor. So over the last 35 years technology has been more consequential for the divergence we have seen. And up until the mid 1990s I think many economists would have said: end of story.

But things really did change in the 1990s and 2000s, and that change had a great deal to do with China’s economic development which, let us be clear, is a fabulous thing from a global perspective. This has been the best thing for the global middle class in a millennium. It has created prosperity throughout the world not just in China, but in sub-Saharan Africa, Latin America, and so forth. It has been a great thing. But it has been extremely disruptive for U.S. employment, especially U.S. manufacturing employment.

I myself am actually startled when I look at the figures. Many of us have in mind the picture that U.S. manufacturing has been in perpetual decline since 1943, when it was 38% of U.S. employment toward the end of the Second World War. It is true: if you look at the share of manufacturing employment, it is just down, down, down. You cannot even see the early 1980s recession. You can barely see China’s rise.

But if you look at the number rather than the share of U.S. manufacturing workers, you see something very different. In 1943, in the Second World War, there were 16.6 million U.S. manufacturing workers. By 1979 there were 19.7—not that much change. In 1999 there were 17.7—again not that much change. But by 2007 U.S. manufacturing employment had fallen by three and a half million jobs. And in the subsequent three years between 2007 and 2010, it fell by another one and a half million jobs. Five million jobs lost—almost a third of U.S. manufacturing employment—and that is a really traumatic shock.

It really falls off a cliff. And it does have a great deal to do with the rising position of China. Not the fault of China. All of a sudden we have a very competitive low-wage country making high-quality goods that are a better deal for consumers. Consumers start substituting toward them. That raises consumer welfare—it makes lots of goods cheaper—but it also has a very concentrated impact on the places that make those things. Manufacturing by its very nature is geographically concentrated. When we are talking about commodity furniture we are talking about Tennessee. When we are talking about textiles we are talking about the Carolinas.

Five million jobs in a labor market of 150 million really isn’t very many. But when it happens in a few places in a very short period of time—when all the firms in an industry go under at once—it has a seismic impact. We have always known that more trade has diffuse benefits and concentrated costs. That is true and theory. In the 2000s we really saw it play out in practice It is understandable that people do feel like this was unexpected, this was unwelcome, they were not warned, they were told that trade was win-win. Things did not work out as expected.

Brad DeLong: Certainly I have learned a huge amount from David Autor. Certainly I have had to substantially revise upward my own views about the negative U.S. domestic consequences of trade and the China shock that hit the U.S. starting the late 1990s as China’s industrialization shifted from something impressive for a very poor country to something that was of world historical consequence. But I would like to lay down a marker and put David’s remarks a little bit in perspective. And I would like to erase what I think might be somewhat of a misapprehension.

When you talk about the number of manufacturing jobs going from 19 million to 17 million from 1979-1999 and then down to 12 million, those aren’t the same manufacturing jobs. There is enormous churning within manufacturing. There are enormous regional shifts as well. My grandfather had to close his shoe factory in Brockton, MA in 1933 at the nadir of the Great Depression and move up to and reopen in a place where wages were even lower: South Paris, ME. The workers of Brockton were killed by this. This was taking pace at the same moment that the rest of manufacturing in southeastern Massachusetts was beginning its move down to the Carolinas. The Lord Brothers Shoe Company was a bonanza for the workers of the South Paris until 1947, when they hit the wall again.

They took the capital and split up to become real estate developers.

That was not a big shift in terms of the kinds of people employed—the net factor content of domestic employment. The Wellman-Lord Construction Company that built turnkey phosphate plants and other things in Florida employed very much the same kinds of people in terms of skills and education as had the Lord Brothers Shoe Company in South Paris, ME. But these were people in Florida rather than Maine.

There is always churn. That’s the reason I think that looking at the share—which shows a smooth decline—yields much more insight than looking at absolute numbers. Absolute numbers seem to say things were stable for a long time, and then they collapsed . What was actually happening was that the jobs were opening up and closing down the economy at all times in different regions. People were moving and shifting about. Manufacturing was not stable. New England manufacturing got killed—and New England workers along with it. Carolinas manufacturing boomed—and that was a bonanza for Carolina’s workers.

Looking at the share, you see a long decline in the share interrupted by sudden short-term sudden shocks which cause considerable distress. To throw out some numbers:

  • We were never going to permanently have 38% of our nonfarm labor force in manufacturing: that was only if we were building little but bombs and tanks.

  • The post-World War II normal was about 30%.

  • if the United States had been a normal post-World War II industrial powerhouse economy like Germany and Japan, by now the evolution of technology would’ve carried us down from 30% to about 12%.

  • We have gone from 12% to 9.2% because since the inauguration of Ronald Reagan, the United States has on the whole followed very strange and dysfunctional macroeconomic policies, policies that have made us a savings deficit rather than a savings surplus country. Instead of the United States as a rich country financing the industrialization of the rest of the world and developing economies using that financing to purchase US manufacturing exports, we have been instead acting as… a money laundering center? a provider of political risk insurance? a place to put your money so that if the balloon goes up in your country and you have to flee suddenly in the Learjet or the rubber boat you will be much happier if a large chunk of your wealth is on deposit at J.P. Morgan Chase in New York.

  • Morever, if you are not a rich person in a developing country but a developing country, and if you want to avoid being subject to the tender mercies of Christine Lagarde of the IMF, it is nice to have large dollar assets in your government’s hands to use in an emergency.

  • Then from 9.2% to 8.7% is because of changing patterns of trade, primarily the rise of China.

  • From 8.7% to 8.7% because of the result of NAFTA: NAFTA is a nothingburger as far as the fall in the manufacturing share of the workforce is concerned.

  • From 8.7% to 8.6% because of bad trade deals we have made with China, with Mexico, with Canada. They’ve taken us to the cleaners, I tell you! Over three generations they have taken us the cleaners! Bigly, they have taken us to the cleaners!

And of course, there are substantial and powerful countervailing gains in other sectors that we have gotten from the trade negotiations that have led us to shed the extra 0.1%-point of our manufacturing labor force.

I would sharply distinguish that 0.1%-point from the 0.5%-point that is due to trade, primarily the rise of China, and from the 2.8%-points that are due to the trade impact of dysfunctional macroeconomic policies, and from the 18%-points that are due to technology.

Eduardo Porter: So, Ann, is trade not it? Is trade a red herring?

Ann Harrison: Let me step back.

Let me try to negotiate between these two men to either side of me. Donald Trump won the US election by convincing voters in states like Michigan, Ohio, Pennsylvania that he would make America great again. What was his platform?

Brad DeLong: If I may say: by convincing three million fewer voters.

Ann Harrison: Yes. Let us recall that he did not win the popular vote.

He promised to impose 20% tariffs on imports. He promised to build a wall to keep out Mexican immigrants. He promised to renegotiate and perhaps throw out NAFTA. On Sunday we saw an almost-repeat of the Trump campaign in the first round of the French presidential elections. Marine le Pen has made it to the final two on a far right platform. Her platform was to take France out of the European Union. So the question is: why are such extreme anti-globalization platform so appealing?

I am going to throw out my own numbers:

Since 1984, when we had 25 million manufacturing workers, half of those workers have disappeared from manufacture. We have gone from a country where one quarter of workers are in manufacturing to one in ten workers. One of the major reasons that this decline is important is that those jobs are in fact”good jobs”. In my research I follow workers were kicked out of the manufacturing sector and move to services. Typically that will lose them 5% of their wages. However if that worker loses his or her job in manufacturing because of the trade shop, he or she loses 15 to 20% of their wages. You are losing jobs, and you are losing good jobs. The important thing is that the pain is real. We are seeing a shrinking middle class. We are seeing stagnant wages for less-educated middle-age workers. And we are seeing an enormous rise in inequality—higher than we have seen in the last 100 years.

In addition to that—and this is very important—we are seeing a rise in insecurity. Even people who still hold on to jobs are afraid for the future. They are afraid about whether their Kit is going to get into college. They are afraid about whether their kid is going to get a job at all. They are afraid about whether they are going to lose their job. That rising insecurity is really important.

Then we have to ask ourselves: somebody like me, an economist who has always supported free trade, did we miscalculate the gains from globalization? I think we made two big mistakes

  1. The first mistake we made was that we thought it would be really easy for people to retool and find new jobs. It turns out that is not so easy. We have a record number of people who have left the labor force.

  2. The second mistake is that we thought it would be easy to compensate the losers. The idea behind globalization is the winners, the exporters, the consumers, are so much richer that it is easy and straightforward to redistribute some of the winnings to compensate the losers. That turned out not to be true. Our package for helping the losers, Trade Adjustment Assistance, helped only about half those that it should have helped. But, much more important than that, Americans do not want handouts. What they really want are jobs.

That leads me to the next question: Is barricading ourselves against China and throwing out NAFTA part of the solution? This is where I am going to deviate from Professor Autor and support my former Berkeley colleague Professor DeLong. Us Berkeley types stick together.

China is a convenient scapegoat. It reminds me of Japan in the 1980s, when Michael Crichton described a “yellow menace”—very racist—in his novel The Rising Sun. I think that is what we are facing.

Why do I think protectionism won’ help? I have a new book, The Factory-Free Economy, with a coauthor and friend named Lionel Fontagne. I want to tell you a story from the very first chapter written by Richard Baldwin. Go down to South Carolina and go into a textile mill, and the only thing you will see is a man and a dog. The dog is there to protect the machinery. The man is there to feed the dog.

That tells you—this is just an anecdote—that China is not the enemy. The enemy is the machine. Let me give you some more facts to bolster my argument and this is where I’m going to support my colleague from Berkeley. My own research has tried to decompose what has happened to manufacturing jobs. My research shows that maybe 10% of the loss is due to firms going offshore. Three quarters of it can be attributed to the fact that the cost of machinery has fallen, and firms are substituting machines for people.

Let us look at the long-run trends here. Let us go back 50 years, 50 years, Long before China came on the scene, the share of manufacturing value added in the economy has stayed completely flat. It has not moved. What has changed very gradually is the share of manufacturing workers, and here again I would agree with my colleague to the left. You do not see a big decline around 2000. There is a decline but it is not enough to materially shift the trend. You see a gradual decline in the share of manufacturing workers. How can we have Constant share of manufacturing value added in GDP while the share of manufacturing workers in employment falls? The answer, once again, is machines. Rising productivity as machines are replacing workers.

Let me summarize:

  • The pain is real.
  • The solution is wrong.
  • It’s not that winter is coming. It is that the robots are coming.

David Autor: I just want to make it clear. I am not advocating trade barriers of any sort. That maybe what you took for my remarks. The China shock was real. It had a large effect. That does not mean we should try to or can turn back the hands of time. Paul wants to say more about this.

Paul Krugman: Instead of arguing with my fellow panelists, I am going to argue with my past self.

Two propositions:

  1. Economists were much too complacent about trade even up until the fairly recent past.

  2. The political system and journalists are way overreacting to trade now.

These are not contradictory. Both need to be in there now.

There was a late 1990s consensus about trade and the economy—that trade was a contributing factor but a very distinctly secondary factor and that if you got the numbers right it was not that big a deal. We should really be focusing on inequality via other programs. Trade was not the issue. If you have to ask: Who was guilty of what turned out to be a bad judgment? The answer is: me.

I was taking standard trade models. I was looking at factor content. I was concluding: look, it’s just not big enough to be having the effects non-economists are ascribing to it.

A couple of things happened. One was that trade went up a lot—and a different kind of trade. It was not just China. If you take a long time series of trade as a share of world GDP, you find that there is a big dip in the interwar period, and by 1980 it does not look that different from 1913. And then something happens. Hyperglobalization. There is this take-off of trade, this geographic deconcentration of value chains, and it is not just China.

Thus a lot of estimates that trade was just not that big a deal were using data from 1993. And guess what? Data from 2015 shows that trade with low wage countries is a much bigger thing.

And then there is the specific falling-off-a-cliff thing of the 2000s. Partly this is a statistical illusion because the rate of growth of the labor force slows a lot. The baby boomers are all in the workforce. The movement of women into the labor force was over. Thus what had been a continuing decline in the share became an absolute decline in the number of manufacturing workers.

There was a big move into trade deficit in the 2000s. A lot of it was emerging market money flooding into the United States in the wake of the financial crisis. In economics, everything is connected to everything else in at least two ways. There is this funny backwash from that. So trade becomes a much bigger deal than it was.

The other thing—which I really kick myself for missing—is what David Autor and coauthors have pointed out: workers are a lot less fungible, and a lot less mobile, a lot less able to shift jobs then we had imagined or would like to imagine. Manufacturing industries are geographically concentrated. When you get a shock you can’t just think as if all workers in the economy are the same. When all the export-oriented workers in some midwestern town have lost their jobs, that matters, the effects are bigger.

On the other hand, it is a dynamic economy. Stuff is always happening. I used the number 75000 for the number of Americans every working day. I got some internal mail from the Times—people saying: that’s ridiculous, that can’t be right, that would mean that 20 million people lose their jobs every year. Yes. 20 million people lose their jobs every year. There is a lot of churn. Things are happening all the time. More retail jobs were lost in the last two months than coal jobs were lost since 2000.

Manufacturing, because of the geographic concentration, does matter more. But disruption of manufacturing centers has been happening for a long time, that is not a new phenomenon, that does not have to be related to international trade. Walk around here and there is even a statue of a garment worker at his sewing machine. This is called the “Garment District”. There is no Garment District here anymore. There are just memories of the Garment District. That disappears, but—and I am not sure where I come down in how we deal with it—we can do the numbers. We can look at objective facts. We can say that it is only one of a number of factors. But it always has a psychological significance that makes it much bigger.

The fact that foreigners are involved makes people always emphasize trade shocks much more than corresponding alternative shocks coming in. People get upset about the disappearance of steel plants in a way they never got upset about the disappearance of the buggy manufacturers. Somehow, the sense of unfairness—and I think to a little bit economists have a reverse problem. Comparative advantage is one of the prides and glories of our profession. And so we overemphasize the good sides of trade as well. That puts us in an awkward position.

Last thought—and I am not offering any answers here—if we think that a large part of the solution is a stronger social safety net, think about the fact that France has a welfare state, a social safety net, that is beyond the wildest dreams of American leftists. Nonetheless le Pen made it into the second round of the election.

Eduardo Porter: Thanks. Just a word in defense of David and of China. I did my last column about whether China should have been labelled a currency manipulator. I was speaking to Brad Setser. He said that there was a “before David Autor” and an “after David Autor”. Because of your work identifying the local impacts of competition from China.

Paul Krugman: I just want to say that I brought multiple columns saying that China was a currency manipulator, which was true in 2010 and 2011, but is not true now…

Eduardo Porter: Part of this conversation should also be about a set of actions that the Trump administration. If trade is at best overblown as a cause of distress, what would be the costs of some of the actions that the Trump administration is proposing?

Brad DeLong: Abrogating NAFTA, for example? I would say full NAFTA abrogation—returning us to 1992—would cause a world of hurt to the American auto industry, as well as to other sectors. The argument back in 1992—Ross Perot on the right and my various labor friends on the right—was that the auto industry was in the crosshairs and gravely threatened by NAFTA. That turned out to be simply wrong.

Sherman Robinson of IFPRI and PIIE have convincingly demonstrated that that was simply not so. NAFTA enabled the creation of one of the first important sophisticated global value chains. After NAFTA, Detroit could reconfigure its work processes and so shift out the “bad”, low-productivity manufacturing jobs to Mexico—the jobs in which we use people as essentially robots because the real robots we can build are not quite good enough—while keeping the high value skilled and semi-skilled manufacturing jobs. Without Mexico there as a resource to draw on in the value chain, Detroit would have a greater cost disadvantage vis-a-vis Nissan, Toyota, Honda, Subaru, and BMW, Mercedes, Audi.

If you abrogate NAFTA, that goes away.

GM, Ford, and Chrysler are then in a much worse position.

Paul Krugman: I do not have an estimate of what Trumpist trade policies would do…

Brad DeLong: And neither does he…

Paul Krugman: We don’t even know what the policies are.

There has been a fair bit of work on BREXIT. We have a better idea of what BREXIT will actually involve. Something like 2% poorer in the long run. There is a dirty little secret: the benefits of trade and the costs of protection are not trivial, but they are not as big as the rhetoric might tend to make you believe. An abrogation of NAFTA would be something like that.

However, here the Autor point cuts in the other direction. NAFTA is not a new thing. The North American economies have adjusted to it. We have an integrated North American production system. A car assembled in Ontario is made from stuff produced all over the continent. Disrupting that would do the same kind of damage as the China shock. The old joke about the motorist who runs over a pedestrian, says “I’m sorry”, and then backs up and runs over him again. The big changes in trade are all in the rear view mirror. The China shock ended around 2008. The big changes from NAFTA ended a decade before that. Now we are talking about taking an established industrial order and disrupting it.

Eduardo Porter: Guys, folks are going to come around to collect the question cards. The cards will then be brought forward here.

David Autor: Let me try to bring this around to trade and automation, which Ann correctly emphasized. Automation has been more important. In the future, automation will likely be more important again. The China shock was hugely disruptive, but it is much closer to equilibrium now. With no change in policy we will not see anything like what we saw over the past 15 years in the next 15 years.

But we ought to learn some lessons about this. One is about our social safety net. As emphasized, trade adjustment assistance policy is woefully inadequate. But a deeper point is, jobs have their own value. You cannot make someone whole… What if you said, “Hey, Paul, we are going to take away your identity. You are no longer an esteemed economist. You are just retired”. Would you say: “Oh, great! I have all this money and I do not have to do anything!”? Of course not. For most people, work is central to organize who they are, how they perceive themselves, how others perceive them, their social identity. A better social safety net is not sufficient. We would like to actually have good jobs.

Are there other ways to go about that? Tax reform. The whole Border Adjustment Tax was a Trojan Horse for a Value Added Tax, which most other industrialized countries have. That treats imports and domestically produced goods symmetrically. Our current tax system levies a lot of taxes on domestically produced goods and only sales taxes on imports. Moving toward a better form of taxation could be beneficial for investment and for the repatriation of profits to the United States. Similarly, we could continue to invest in things that are innovative. We should be concerned about manufacturing not just as a jobs program but as a center of innovation. A lot our patents and a lot of our IP occurs. That creates a lot of wealth and employment. We would be a poorer place and we are going to be a much poorer place if we cut the National Science Foundation and the NIH, if we stop investing in our great public universities. We are really at risk of making that mistake. Severely.

The one thing I disagree with: I don’t think we should fear the robots. Automation has been with us for 200 years. It has made us rich. It has made us more productive. We lead safer, more interesting, longer lives with much higher standards of living because of the advances we have made. It is also disruptive, like trade. But it does not happen as fast. We are living in an era where people are very concerned that automation may all of a sudden change a lot of things very quickly. So far that has not happened at all. In the time since 2000, the U.S. has added 15 million jobs—as many stories as have been simultaneously written about how the robots are taking all of our jobs.

The productivity data do not support the view that we are in this productivity transformational surge. We may be—we may be at an inflection point. But it has not happened yet. We should be preparing for how we can benefit from the complementary and productivity. It is coming. We want to make sure that we are making robots here, and not buying them from China or Germany, because we are going to be using them 20 years from now. We would also like to be making them. We want to be thinking about how we take advantage of these opportunities, not how we make them go away.

Paul Krugman: I also wanted to raise this issue. You could argue that there are too few robots around—that is what the productivity statistics seem to be saying.

Ann Harrison: I want to make just two points about what would happen if we transitioned to a more protectionist state of things. One is that 95% of the world’s markets are outside US borders. A company, any worker who works for an exporting company, anybody who has to think about the rest of the world—for all of them, closing in is really not a good idea even from a narrow business perspective. That is something Trump understands.

The other more important point is that the 2 billion poorest people, the people who live on less than two dollars a day, they live outside our borders. These people in the rest of the world, particularly the Chinese, have benefited massively from the opening up of world trade. A prominent economist sitting in the front row here, Branko Milanovic, has written a very important book showing that even though inequality has risen in every single country, global inequality has fallen. Why is that? Because the poorest countries, particularly China, have been able to use access to world markets to catch up. I just do not see how we can turn our backs on the 2 billion poorest people. That is what I wanted to say about the costs of protectionism.

I want to say one more thing: the hard part is what we will do going forward. It would be great if we could discuss a proposition: Both Bill Gates—whom I think of as middle—and by somebody more on the left, the late Anthony Atkinson and his fifteen points about what should be done. Coming from very different perspectives, one a billionaire and one an Oxford Don, they both agree that what we should do is to tax machines—or find other ways to promote labor-intensive growth.

David Autor: That’s a terrible idea.

Paul Krugman: There are two things I want to say. First, in saying “don’t fear the robots” you are missing “Skynet kills us all”, but let us pat that aside.

Second, in raising this, Ann is making a point that I very much agree with but I am not sure what to do with. If we step back from a U.S. or an OECD perspective and take a rootless cosmopolitan global perspective, hyperglobalization has been an incredible force for good—and it is not just China. In fact, in some ways China is the old story. You want to be thinking about those that are not as far along. If you go to Bangladesh you are horrified: they are very poor, miserable conditions, they have industrial disasters that make the Triangle Shirtwaist fire look like nothing, and yet they are a country that was on the edge of starvation when they achieved independence and has achieved a doubling of real incomes, and it is all because of their ability to export labor intensive manufactures. They are not a banana republic, they are a pajama republic. That is terribly important. That is a reason to keep markets open.

But can you imagine running a U.S. national campaign saying: “Look, your communities are being gutted, but we have to keep these markets open for the sake of the people in Bangladesh”? I don’t know how we deal with that. I really don’t know how to think about that.

Eduardo Porter: If we could think about trade policy into the future. Is there a role for reviewing trade policy, in both the domestic and the global perspective. On the domestic side, you have folks like Larry Summers—hardly a crazy radical—writing pieces about how we should rethink the institutions. We should stop focusing on trade deals, and should focus on other things, like labor rights and institutions…

David Autor: Like the TPP, actually…

Eduardo Porter: And from the global perspective, the issue that globalization has helped a lot of countries move up from poverty is certainly true, but now there is a question about whether that will still be true in the future. You have the work of folks like Dani Rodrik wondering whether the manufacturing economy will be able to do the trick that it did for countries like China.

Brad DeLong: China may well be the last country able to use the standard strategy of export-led industrialization to a complaisant importer of last resort to build up its communities of engineering practice and so become much richer faster. A huge question. Let me say that everybody should read Richard Baldwin’s new book, The Great Convergence.

Paul Krugman: This ties into a huge number of issues. We used to say—I used to say—when we had the original Gang of Four industrializers, Korea, Taiwan, Hong Kong, and Singapore, that: “OK, you can do this, but how much labor intensive manufacturing production is there in the world?” Would it be possible once China tries to do this? And it turned out that it was possible.

Brad DeLong: Barely…

Paul Krugman: But it was possible, and that was because we learned to divide up the value chain, and take labor intensive segments and hive them off. So far—there are still a few countries, Bangladesh, Vietnam, behind China in this—there may be limits. And it doesn’t seem to work everywhere. Why has not Mexico had the takeoff we expected it to have?

Brad DeLong: One thing that it definitely is our job to do as academics and economists is to very proudly fly our rootless cosmopolite freak flag whenever the situation and the evidence calls for it. We need to be saying that a century from now historians will be writing that one of the glories of the American age was that the United States did not view its proper role as hobbling industrialization, growth, development in the rest of the world but rather in encouraging and supporting the making of a much richer world as fast as practicable. An open economy, a liberal polity—that has made the era since 1945 so great.

I find myself wondering—Pascal Lamy, at a conference I was at last November, quoting China’s sixth Buddhist patriarch: “when the wise man points at the moon, the fool looks at the finger”. There was a Hungarian Jewish sociologist 70 years ago, Karl Polanyi, who wrote that a market society was bound to destroy itself. In a market society and the only rights that matter are your property rights, and your property rights are only worth something if they give you control of scarce resources useful for making things rich people have a serious Jones for. But people Believe that their rights extend far beyond their property rights. The way Polanyi put it, people believe that they have rights to Land whether they own the land or not—that the preservation and stability of their community is a right they have. People believe that they have rights to Labor—that if they play by the rules and work hard the market owes them that they should be able to earn the standard of living they expected. People believe that they have rights to Finance—that the firms they work for and the jobs they have should not suddenly blow up and disappear because financial flows have been withdrawn at the behest of some sinister gnomes of Zürich or other tribe of rootless cosmopolites.

This is a huge problem. People believe that they have much stronger rights than the ones a market society gives. But then you try to move beyond a market society to a social democracy with a safety net. And the response is: we don’t want welfare programs. Back in the 1920s “welfare” was a good word. When Edward Filene in the 1920s talked about “welfare capitalism”—firms providing health, accident, and pension benefits to their workers—the “welfare” was in there to make his readers think that the idea was a good thing. But because people want respect, over the past century the word “welfare” has been poisoned.

Dealing with this is one of the major political-rhetorical-economic challenges of our time. As an economist, I want to pass this buck to some sociologists or political scientists somewhere.

David Autor I want to say a little more about why I am not in favor of taxing robots. Unlike carbon emissions, robots do not create direct negative pollution externalities. This would be taxing something that makes us more productive. This would be like taxing computers because they eliminate all of those clerical jobs, or taxing cars because they are displacing all these equestrians end for farriers. It would’ve been a terrible idea—not just making us poor in the short run but keeping us poorer in the long run by retarding economic and industrial development and innovation.

Ann Harrison: Did you just say it was a bad idea to tax cars?

David Autor: I did. To treat them specially and differently. I think that our tax system favors labor over capital in an unfortunate way. They should be treated symmetrically. Rapid expensing and so on is actually a poor idea, but to single out an area of technological advance and say that we are going to punish it because it could be disruptive—that is a way of making us poor in the long run. And I want to reiterate: Robots will be a really large part of production. We had a technological advantage: a lot of the technology behind robot started in the United States. It is now migrating elsewhere. We should be investing in that as a country as we have done at a societal level with so many other technologies. We should not be waving goodbye because we are scared of what it may do.

Brad DeLong: We used to have what, 500,000 women working at telephone switch boards plugging cables into sockets. Now there is nobody in the United States saying: “Gee. I wish I could get my grandmother’s job at the telephone switchboard at Con Ed! That was such a great job!” That was a job that took human being with a very sophisticated brain—one that has evolved to do everything that a hunter gatherer does plus everything else we have built on top of that—and that uses that brain only—and uses her as a massively underemployed robot because making circuits by inserting plugs in the sockets uses only a very small proportion of the intellectual capacity that is the massively parallel supercomputer that fits in the bread box and draws 50 W of power that is her brain for an eight hour shift.

Paul Krugman: Part of the question is: what is a robot? Is a machine learning algorithm that these days makes Google translate so startlingly good a robot? These days are self-driving vehicles robots? If I wanted to think about a technological change the could displace lots of workers in the near future, we have 5 million people in the United States employed as drivers. That could go away in a heartbeat. But on the other hand—third hand, fourth hand, amongst my hands—the long-run optimism about the impact of technological change is born out by history, but the long run can be very long indeed. Wages stagnated for at least 40 years during the Industrial Revolution, and 40 years from now—a lot can go wrong in 40 years.

Eduardo Porter: This conversation was focused on manufacturing. But automation and whatnot are making inroads into the service economy, which employs a lot more people.

David Autor: Software is a much bigger deal than robots already. It will probably continue to be. Software is the hamburger that eats the world.

Eduardo Porter: We have got 15 minutes for questions. I would like to start with this, which seems a great topic for you people to take on. Let me start with this one. The belief is that service sector jobs will always pay less than manufacturing jobs. But is that guaranteed? Should we put the government’s energies into making it so the service sector jobs are highly paid and good jobs rather than focusing on manufacturing, which will always be a small part of employment in the future?

Brad DeLong: I don’t think that “manufacturing” and “services” are the way to partition it. If you asked me to partition it, I would say that there are people who add value with their strong backs, but that began go go out with the domestication of the horse. And there are people who add value with their nimble fingers, but that began to go out with the invention of the spinning jenny. However, because every horse, every steam engine, every spindle, every piece of machinery needs a microcontroller, human brains added an awful lot of value as bosses of the machines that had replaced their backs and fingers. And there is accounting: keeping track of stuff, and who owns the stuff, what the stuff is good for, who is allowed to use the stuff, where the stuff is, information, organization. The problem now is that robots proper are getting rid of the microcontroller jobs and software ‘bots are about to start getting rid of the accounting another white collar Jobs keeping track of the stuff and what it is good for. The graduate admissions committees whose jobs could be better done by an algorithm…

Paul Krugman: We doing know that live job interviews make a fundamental contribution: they destroy information…

Brad DeLong: You’ve seen economists go on the job market. People have long records of what they have done and what they have worked on and what their advisers and peers say about them. And that gets an interview in a hotel room for 30 minutes. And then with the five people in the hotel room for 30 minutes say about you wipes out all previous information. And if the five people turned from’s up then you get if fly out and get to give a seminar. And then what happens in that seminar wipes out all previous information…

David Autor: I think that what Eduardo was asking about was not “service sector”—which is 80% of everything—but rather personal services, helping, assisting. Those are rapidly growing. Those are low paying. Those are low paying in every advanced economy…

Brad DeLong: Sheryl Sandberg and other managers—it’s a social-engineering-organizing job…

David Autor You added “social engineering”: I was talking about food service-security-cleaning-home health aides. 15% of employment. Very low wage. They are intrinsically low wage because they use a very generic skill set. You can be productive in those jobs in a couple of days without a lot of training because labor is not intrinsically scarce for them, they cannot be high wage jobs. They tend to be at the bottom of the ladder. You can cause there to be higher wages for those jobs with subsidies, or through regulations, and then you will tend to have less of them. It is a very challenging problem.

Paul Krugman: Healthcare jobs include a substantial number of middle-class jobs. I have been obsessed since the last election with West Virginia which went three to one for Trump. He promised to bring back the coal jobs. But there are no coal jobs. There will be no coal jobs. It is about 3% of the state workforce now. 15% of the state work force is health and human services. Some of those are low wage—but it is not clear they have to be, you could have more labor unions. Those are the jobs of the future. Of the twelve occupations predicted to go fastest over the next fifteen years, ten are nursing in one form or another. “Services” is everything from hedge fund managers to janitors. Some of those can be middle class. And where we get into things—if Walmart had been unionized, which could’ve happened in a different political environment, we would be looking at quite a different landscape situation for those jobs.

Brad DeLong: So everyone needs a personal shopper and information provider, a personal psychotherapist, a personal trainer, and a personal life coach—and at an hour a day, that’s 50% of employment right there.

Paul Krugman: If you had taken a French physiocrat who believed that the only true creators of value are farmers and showed them modern America, where there are fewer farmers than people playing World of Warcraft, they would be horrified. Everyone must be doing make-work.

Eduardo Porter: Here is a question about unions, but you just brought up. Let me broaden it a little. What institutional changes going forward—you guys have decided that the safety net is not going to do it. Trade policy seems not the right way. So where is a policy set that has some traction? And let me throw in the arguments about the fissuring of the workforce. I’m wondering whether it might have even more impact than trade, and as large a scale as technology—you sorting off workers by their marginal productivity. The janitor who used the work for GE and benefited because he worked for GE is now an employee of the janitorial services subcontractor. Relegated to a much more cutthroat labor market than he would have been in the past.

Paul Krugman: We won’t know until we try it. The decline of unionization—we said that that was inevitable as manufacturing shrank and so we are left with essentially no private sector unions. That is by no means universally true across the advanced world. Canada still has a unionization rate of greater than 20%. DeMarcus something like 70% unionization. A lot of it has to do, I think, this is an argument one could have, with the political environment. The big reason that Walmart, which is our biggest employer, it is not unionized, while GM did is that Walmart became the biggest employer in a time when the legal and political environment was very hostile to unionization. Things like card check—it is possible you could change this. There is lots of reasons to believe that there is substantial wiggle room—that wages are in no wise pinned down by something called marginal productivity to the extent Econ 101 says. Is that enough to sustain the kind of society we want in the face of the robots? I do not know.

Eduardo Porter: you guys did not talk about education. But there is a question: how about spending more on reskilling?

David Autor: Education is the most important investment to make over the long-term. To adapt. In the late 1800s and and early 1900s when agriculture was shrinking very rapidly, agricultural states like Iowa made massive investments in secondary school education to get out ahead of this. They mandated that everybody stay in school until 16. This was a radical step. Not only were those kids hitting the books, but those kids could not provide labor to the farm while they were in school. It was extremely expensive. It was incredibly forward looking. It gave the United States the most productive, the most flexible, the most skilled workforce in the world for most of the 20th Century. It did not happen automatically. It was a societal choice. Imagine taking the labor force of 1900 and plopping them into the 21st century right now. In spite of their strong back some good characters, many of them would not be employable. They would be innumerate and in many cases illiterate as well.

It is challenging. We have definitely fallen behind in this. We are now 14th in the world in getting people through secondary education. We used to be first in the world. I do not want to say “make America great again”, but we are under investing there, and the way we are gutting our great public colleges and universities is particularly tragic, because it is an area in which we are doing very well. In many parts of the world public universities are distinctly mediocre, and that has not been true in the United States.

Brad DeLong: May I concur with and endore everything David Autor has said, and then strengthen it?

Looking out at an audience that include some people who may be thinking at some future time of giving money to some private university like NYU or Columbia, let me just say that from my perspective: don’t. It won’t work. That is not how our private universities work.

Back in the 1950s Harvard educated 1200 undergraduates a year, Yale 800, in a time when the University of California—UCB and UCLA—educated 4000. Today Harvard educates 1600 undergraduates a year while the University of California educates 50,000. At Harvard has in the meantime received some $30 billion dollars in private gifts.

If you want to make a difference as far as education is concerned—it’s organizations like CUNY that carried the serious load back in the days when Harvard and Yale had hard Jewish quotas of 10%. Given the way that our privates are set up, they are unlikely to use further gift money wisely to expand education in the future.

Paul Krugman: We had an event with Raj Chetty here. He did a study of systems that do produce major amounts of upward mobility. Public universities do it. They do it in varying degrees. There is one that stands out—off the charts: CUNY.

Eduardo Porter: One more question. What’s the role of a minimum wage?

Paul Krugman: The minimum wage is clearly something we can do. It won’t transform the situation. But it will make a material difference. There is no subject in economics I know of where careful empirical work has done more to change people’s minds than the question of the minimum wage. People do dig up things I wrote 25 years ago about the minimum wage about how it would lead to a higher unemployment rate. They say: Why do you now say something different? I reply: Because Card and Krueger did the incredible work. It turns out that the evidence is overwhelming that when a minimum wages are at the levels that they are in the United States today there is no detectable employment effect of raising the minimum wage. There is clear poverty reduction. It is one of the things we do know how to do. We should be doing it.

There is a question about the $15 dollar an hour minimum wage. Fine for New York City. Is it fine for Alabama? Maybe not. But a big push on minimum wages—definitely.

Brad Delong: May I ask you to say that to David Card—that it has changed your mind? He was lamenting three weeks ago that I was the only person who had told him it had changed my mind…

Paul Krugman: I always say that. You can tell him this. I like to be open-minded. This is shockingly good work. It moved me significantly left on labor market policy, because it says that you can do much more than I thought.

Brad Delong: And it created a great mystery. It says that, somehow, the manger at the local Burger King have substantial amounts of market power at the low end of the labor market, where you would think he would not.

David Autor: We have another good policy tool in this realm. The EITC. It makes work pay better. It has had positive effects on labor force participation, earnings, and well-being in female headed households. It is almost unavailable to men who cannot claim children as dependents on their tax forms. That does not mean that they are not fathers, by the way, but they are not claiming dependents. But if you are a single mother you can get up to $6000 a year in wage subsidies through the EITC. If you are a father with two children who are not your dependents you get about $400. The greatest declines in employment and falling wages are low-education men.

Brad DeLong: And that is my fault. In 1993 we needed to get the Clinton deficit reduction package up above $500 billion over 5 years, and the EITC for “childless” workers was the last thing we in the Treasury Department had to throw out of the sleigh to the wolves…

David Autor: It’s an idea that is a good one. But it is an expensive one. And the minimum wage appears free—you are making employers pay. For the EITC you would have to pay for it…

Brad DeLong: But the minimum wage is free in an allocative-efficient sense! You are reducing a market power-generated deadweight loss!

Paul Krugman: Let me just say that there is a tone—we worry about the politics, about how hard it is to do stuff. But if you look at how successful safety net programs were in the Great Recession, the answer is: incredibly successful. Increase in child poverty: negligible. Increase in adult policy: barely there. We have the tools to make life a lot better. Do we have the tools to convince people who benefit from these programs that they should vote for politicians who support them? That is another issue.

David Autor: We haven’t done that. The tax share of GDP has been at 20%…

Brad DeLong: But three million votes…

David Autor: But all in California. You can run it up in California—it’s not real America, so…

Brad Delong: Let me make a plea for UBI. The argument against Universal Basic Income is always that it is a “handout”, and people don’t want handouts. You would have to sell it as something that is not “welfare”.

But…

After my grandfather Bill Lord moved to Florida and became a construction company boss and real estate speculator, he did well: he was briefly the richest man between Tampa and Orlando. Ever since the money from the Lord trusts has boosted my consumption by about $10000 a year. That has been my UBI. It has been quite welcome at times, and always convenient.

I don’t see this as “welfare”, as making me a “loser”, as offending my “dignity”—even though I had nothing to do with the invention of the Wellman-Lord desulfurization process or any other value created by his accomplishments, and I would accept the argument that he was overcompensated for them. Similarly, Mitt and Ann Romney do not think in any way that they are loochers—losers and moochers—from their UBI, which came from the stock American Motors had given Mitt’s father George to incentivize him, which stock they could sell to boost their standard of living when they went to BYU.

The problem with UBI and with the welfare state is one of perception and of perception of who is deserving and undeserving. Inheritance in America today is not tainted. I think UBI should not be tainted either—and I think Mitt and Ann Romney would agree, if only they would step back and think a little…

Notes: Working, Earning, and Learning In the Age of Intelligent Machines

Posted on by Brad DeLong

The key seems to me to build intelligent machines that will assist workers in labor-intensive industries, rather than build intelligent machines that will eliminate workers in capital-intensive industries. The first is a clear win. The second can be a major loss if the things made in capital-intensive industries are close enough substitutes for the products of labor-intensive industries to greatly drop their value.

But what I have to say so far is limited.

It is simply made up of: Five Disconnected Points:

  1. Cast your mind back to 1999. All of this was then viewed not as a threat but as an opportunity. Few things can turn a perceived threat into a graspable opportunity like a high-pressure economy with a tight job market and rising wages. Few things can turn a real opportunity into a phantom threat like a low-pressure economy, where jobs are scarce and wage stagnant because of the failure of macro economic policy.

  2. Those historical cases in which technological progress has been genuinely immiserizing have been relatively few. They have been confined to situations in which technological progress takes the form of greatly amplifying labor productivity in capital-intensive occupations. Those then shed labor massively, as those tasks in which human beings act like robots—filling in the gaps that machines cannot yet do—vanish. But at the same time technological progress must do next to nothing to equip workers in labor-intensive occupations with better tools to assist them. Thus the canonical case is the 19th century handloom weaving industry in Britain and India. That suggests a focus on building robots to serve as tools and assistants for workers in labor-intensive industries, as opposed to further mechanizing and thus replacing workers in capital-intensive industries.

  3. Let me endorse the observation that for the past 200 years the mechanization of manufacturing has to a great degree involved treating humans as if they were robots. We can do better. At least, we hope we can do better.

  4. Let me try to satisfy Barry’s demand for less abstraction and also endorse Nils’s emphasis on human customization by asking you to cast your minds back to the days of Metropolis, Henry Ford, and Brave New World. Henry Ford wanted to satisfy real human needs in the cheapest and most effective fashion by taking massive, mammoth, and total advantage of all possible economies of scale. You can have a car in any color you want: as long as it is black. You can have whatever kind of car you want: as long as it is a Model T. You can wear any clothes you want: as long as they are identical blue overalls. You can play any sport you want: as long as it is Centrifugal Bumble Puppy. That was not the world people wanted. Alfred P. Sloan and General Motors drank Henry Ford’s milkshake by finding a sweet spot, in which you sold everybody mass produced Chevy parts in different, near personalized configurations. We can argue about whether people should value such human touch salesmanship and customization—whether it is a cognitive behavioral mistake stemming from our origin as hunter gatherers seeking to gather the most useful objects. But the fact is we do value such human touch customization. All the evidence suggests that it makes us very happy. That is a very large set of potential labor-intensive occupation that will last for a very long time.

  5. Never forget that back in the environment of evolutionary adaptation we were sociable toolmaking hunter-gatherers—constantly interacting with the complex environment where we would choose and modify objects to advance our purposes—in which we turned ourselves into an anthology intelligence under a geas to learn as much as possible, and immediately tell it to—gossip about it with—everybody else. With the coming of first the Agrarian and then the Industrial Age our jobs became overwhelming boring. Only humans, with our brains being supercomputers that fit into a bread box and draw only 50 watts of power, could be the necessary microcontrollers for animals and machines necessary for first Agrarian Age and then Industrial Age production. But those jobs vastly underutilized the human brain. Do not overromanticize looking at the hind end of a mule or tightening bolt number six on every object coming down the assembly line for four hours without a break.

Reading List:

Interview: The Politics Guys

Posted on by Brad DeLong

Brad DeLong: Interview: The Politics Guys: “Economic inequality, economic growth, why this is the best time ever to be poor (in the United States, at least)…

…grifters and suckers, alien sinister forces, McDonalds, restaurant gift cards, how the best con artists are those who can con themselves, and lots more….

Mike talks to UC Berkeley economist Brad DeLong. Professor DeLong, who served as Deputy Assistant Secretary of the Treasury in the Clinton administration, blogs at ‘Grasping Reality….

It’s about politics. It’s about ideas. It’s about half an hour.

Trumpism on Trade as a Wild Goose Chase

Posted on by Brad DeLong

In the United States 24% of nonfarm workers were manufacturing workers in 1971.

It’s 8.6% today.

Maybe it would be 9% if NAFTA has not been negotiated and if China had not joined the WTO, but maybe it would still be 8.6%–analysts disagree on trade expansion vs. trade diversion here.

Datawrapper bzG79 Visualize

Maybe it would be 12% if the United States had followed Japan’s and Germany’s roads of being high-savings low-currency value countries focused on nurturing their communities of engineering excellence, rather than running the Reagan and Bush 43 deficits and combining that with a focus on financialization and a strong-dollar policy. I certainly think that would have been a better policy road for the United States. But it gets you only to 12% at most–not back to 24%.

The fall from 24% to 12% is the technological tide: increasing labor productivity in manufacturing, large but not infinitely elastic demand for manufactured goods.

Looking forward we can say that by 2060 manufacturing in the United States is likely to be 6% of production workers, in which case whatever you think of what the most important parts of the value chain are, tuning the location of manufacturing labor–the people watching the robots and swapping them out when they go bad and break–is unlikely to be an important part. The thing that had been a major driver of growth in employment worldwide for two centuries–since the cotton masters of Lancashire realized the first automatic spinning machines needed a lot of labor to watch and maintain them because they were fragile–will no longer be salient in our economies. Gone with it for EMs will be the road to development that used labor cost advantage to find a niche making basic manufactures and a national champion firm that could export into that niche, and then relying on learning by doing and osmotic technology transfer to carry you forward. For today’s EMs that are not already well along the road: Strait is the gait. Narrow is the way. Many are called, but few are chosen.

As Pascal Lamy said last week: “There is supposed to be an old Chinese proverb: ‘When the wise man points at the moon, the fool looks at the finger’. Market capitalism is the moon. Globalization is the finger.”

The problems of market capitalism are broad and deep. They are not solved–they are not event addressed–by trade wars, by “renegotiating” NAFTA, by (falsely today) labeling China as a currency manipulator.

And Trump’s core supporters will not be happy if his trade policies sharply raise the prices of the goods they buy at Walmart.

Inclusive Growth?: PIIE Conference

Posted on by Brad DeLong
NewImage

http://tinyurl.com/dl20161117a

NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage

PIIE: Conference on Income Inequality and Inclusive Growth: “Keynote Speaker: Paul Krugman (Graduate Center, City University of New York)

November 17, 2016 8:30 AM to 2:00 PMADD TO

The Peterson Institute for International Economics (PIIE) and the McKinsey Global Institute (MGI) will cohost a conference on income inequality and inclusive growth on November 17, 2016. Paul Krugman, Nobel laureate and Distinguished Professor of Economics at the Graduate Center of the City University of New York, will conclude the conference with a keynote address, titled “After the Elephant Diagram,” at 12:15 pm.

The conference morning will consist of two panel discussions. The first panel (8:45–10:15 am) will focus on global inequality and begin with a presentation by MGI partner Anu Madgavkar on MGI’s new report, Poorer than their parents: A new perspective on income inequality. (link is external) Sandra Black, member of the US Council of Economic Advisers, will offer her remarks drawing on the CEA’s recent research on the topic. Paolo Mauro, assistant director of the African department at the International Monetary Fund, will share his insights from his PIIE Working Paper, The Future of Worldwide Income Distribution.

The second panel (10:30 am–12:00 pm) will focus on inclusive growth policy ideas for the next US administration. The panelists include Brad DeLong, professor of economics at the University of California, Berkeley; William Spriggs, chief economist at the AFL-CIO; Jonathan Woetzel, McKinsey & Company senior partner and MGI director; and Jeromin Zettelmeyer, senior fellow at PIIE since September and previously director-general for economic policy at the German Federal Ministry for Economic Affairs and Energy.