Things to Read on the Morning of May 29, 2014
Should-Reads:
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Michael Spence: Digitally enabled supply chains…. Economic activity… moved to any accessible country or region that had relatively inexpensive labor… complexity became manageable…. Many services related to intermediate and final demand require knowledge, expertise, information, and communication for their delivery. What they do not require is geographical nearness or the physical movement of goods…. Now comes a second, potentially even more powerful, wave of digital technology that is replacing labor in increasingly complex tasks. This process of labor substitution and disintermediation has been underway for some time in service sectors–think of ATMs, online banking, enterprise resource planning, customer relationship management, mobile payment systems, and much more…. With a huge potential global market to amortize the upfront fixed costs of design and testing, the incentives to invest are compelling…. Unlike the preceding wave of digital technology, which motivated firms to gain access to and deploy underutilized pools of valuable labor around the world, the driving force in this round is cost reduction via the replacement of labor…. Meanwhile, the impact of robotics… is not confined to production… the impact on logistics is no less transformative…”
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Albert Wenger: Computers and Wages: “There is good reason to believe that computers are substitutes for labor in general. Their apparent complementarity with skilled labor was the result of substituting skilled labor for unskilled labor rather than being based on a fundamental technological complementarity…. Let’s look instead at the type of skilled work that to date has been boosted by the use of computers…. As we have used computers to substitute for unskilled labor we have created massive additional profits. Skilled labor has been given some share of that but that share is limited to roughly the marginal product by competition between engineers. That leaves a large pool to be split between top management and capital. And in that bargaining situation it turns out that top management is surprisingly well positioned. Why? Because there is a large principal-agent problem between board members and the capital that they represent…. We should not expect the benefits for skilled labor to last forever. Instead, we will gradually see computers substituting for those as well and only top management (and capital) continuing to benefit. And so the current idea that we can somehow educate our way out of this divergence without the need for more profound changes in how we think about income is likely deeply flawed…”
Should Be Aware of:
And:
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Henry Farrell: George Packer and his problems: “Packer’s claim that Snowden says that he doesn’t care about the outcome of his actions is a gross misrepresentation…. The ‘outcome’ that he doesn’t care about is what happens to him personally as a result of his actions. This, very obviously, is not an abdication of Weberian responsibility… just the opposite. Weber is quite clear that the ethic of political responsibility requires that the individual political actor subordinate his individual amour-propre in his devotion to his ultimate cause…. Second–there is a quite extraordinary elision in Packer’s quotation of Snowden…. Snowden doesn’t say that ‘it doesn’t matter what the outcome is’. He says ‘it doesn’t matter what the outcome is so long as the public gets to make their own decisions about how that’s applied‘. (my italics). Those are two very different statements. The one can be represented, with a bit of creative ingenuity, as a That’s-not-my-department-says-Wernher-von-Braun style abdication of moral responsiblity…. The other makes it clear that Snowden’s actions are aimed towards a specific and defensible political goal–to reveal what is going on to the American public, so that the public can decide what to do next…. ‘For me, in terms of personal satisfaction, the mission’s already accomplished’, [Snowden] said. ‘I already won. As soon as the journalists were able to work, everything that I had been trying to do was validated. Because, remember, I didn’t want to change society. I wanted to give society a chance to determine if it should change itself…. All I wanted was for the public to be able to have a say in how they are governed. That is a milestone we left a long time ago. Right now, all we are looking at are stretch goals’. To be blunt, I find it hard to see how Packer’s truncation of this quote can be explained by anything other than the kind of lack of intellectual integrity that he accuses his opponents of…”
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Albert Wenger: Continuations : Consumer Surplus and Returns to Capital: “Yesterday’s post on the impact of computers on the return of capital didn’t mention the shift from producer to consumer surplus. Tren Griffin rightly called this out on Twitter. I have written a lot about the rising importance of consumer surplus and should have mentioned it in this context as well. This shift will definitely reduce the return on capital in the long run as we move more information into the commons and as information becomes more important than physical capital or output. It is a good reminder that I also wanted to write about the role of information as a factor of production (and as an output)…”
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Glenn D. Rudebusch and John C. Williams: A wedge in the dual mandate: monetary policy and long-term unemployment: “In standard macroeconomic models, the two objectives in the Federal Reserve’s dual mandate—full employment and price stability—are closely intertwined. We motivate and estimate an alternative model in which long-term unemployment varies endogenously over the business cycle but does not affect price inflation. In this new model, an increase in long-term unemployment as a share of total unemployment creates short-term tradeoffs for optimal monetary policy and a wedge in the dual mandate. In particular, faced with high long-term unemployment following the Great Recession, optimal monetary policy would allow inflation to overshoot its target more than in standard models…”
Already-Noted Must-Reads:
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Alicia Munnell: Is health reform working in Massachusetts?: “One fear following the Massachusetts health reform and reiterated on the national stage, was decreased labor supply–making it easier to get health insurance not tied to employment might cause some individuals to stop working. It was also feared that employers would cut back on employees or hours to avoid the requirement to offer health insurance, which is based on the number of full-time equivalent workers…. Compar[ing] Massachusetts to four other states and found that the… employment rate followed a generally similar pattern…. Massachusetts did not see relative increases in the share of workers working part-time…. Another concern was that employer-sponsored insurance would be crowded out by public insurance, as employers simply dropped coverage and paid the $295 fine per employee. In fact, the percentage of employers offering coverage actually increased after the reform…. Insurance coverage and access to health care have increased, that health outcomes appear to be improving, and that the worst fears about employment have not come to pass in Massachusetts. Costs, however, remain an issue…
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Jason Furman and Matt Fiedler: Alongside Expanded Coverage, Underlying Slow Growth in Health Costs Is Continuing: “It is no secret that the last several months have seen dramatic progress in expanding access to high-quality, affordable health insurance…. What is not widely known is that the last several months have also seen a steady stream of good news on health care costs…. Perhaps the most striking evidence from the last few months that underlying trend in health costs remains favorable is the continued slow growth in the prices of health care goods and services. As measured using data from the Bureau of Economic Analysis through March 2014, prices of health care goods and services were up just 0.9 percent relative to a year ago, the slowest rate of increase in the last 50 years. The slow growth in health prices does not merely reflect slow inflation economy-wide, as the gap between health care inflation and general inflation is also low in historical terms. (A portion of the slow growth in health care prices over the last year does reflect the initiation of sequestration in the spring of 2013; sequestration will not have the same dampening effect on price growth going forward as it did over its first year. Nonetheless, health care price inflation reached levels not seen since 1963 even before sequestration began last spring.)…”