Morning Must-Read: David Howell: Links Between Institutions and Shared Growth
Allan Meltzer on Imminent Inflation, and Other Topics

Noted for Your Lunchtime Procrastination for February 25, 2015

Screenshot 10 3 14 6 17 PMOver at Equitable Growth--The Equitablog


Must- and Shall-Reads:

And Over Here:

  1. Bruce Bartlett: The Coming Crisis: America's Dangerous Debt...

  2. David Howell: The links between institutions and shared growth: "[Standard] arguments leave little or no room for labor market institutions and public policies in the determining changes in the distribution of earnings up and down the income ladder. An alternative view is that institutionally-driven bargaining power is a critical piece of the story.... All rich countries face challenges from technology and globalization, but only the United States and the United Kingdom show inequality rising to extreme levels.... I will compare the United States with Canada, Australia, Germany, and France.... The United States can do a better job of generating decent jobs, and a sensible first step is to learn from the experiences of other countries."

  3. Mark Thoma: The Best Investment the U.S. Could Make Is Affordable Higher Education: "The skills-gap story ignores the fact that education will never be the answer for everyone.... However... a college degree is a worthwhile investment.... Fortunately for me, CSU Chico, which was nearby, only charged approximately $100 per semester.... If it hadn’t been for the cheap tuition, I would have been stuck in that town with little hope of finding my potential. I am grateful to this day that the State of California gave me that opportunity for an education, and that I was able to eventually make it through graduate school with very little debt.... How many people who are in a situation like I faced will be stuck there, unable to afford to go to the college that best suits them, or can’t go at all? When that happens, when so much potential is unrealized, it makes us all worse off.... We can do better than this."

  4. Òscar Jordà, Moritz Schularick, and Alan Taylor: Monetary Policy and Housing Prices: Lessons from 140 Years: "Housing played a major role in the Global Crisis, and some worry that the ultra-low interest rate environment is inflating new housing bubbles.  Using 140 years of data from 14 advanced economies, this column provides a quantitative measure of the financial stability risks that stem from extended periods of ultra-low interest rates.  The historical insights suggest that the potentially destabilising by-products of easy money must be taken seriously and weighed carefully against the stimulus benefits.  Macroeconomic stabilisation policy has implications for financial stability, and vice versa. Resolving this dichotomy requires central banks greater use of macroprudential tools."

  5. Elizabeth Warren, Elijah Cummings, et al.: Middle Class Prosperity Project Forum

  6. Paul Krugman: Phantom Phiscal Crises - "Matthew Klein takes on...the mysterious, persistent fear that Japan and other countries that borrow in their own currencies could suddenly face a Greek-style fiscal crisis.... It’s not just BowlesSimpsonGreenspan who believe in the threat; Taka Ito... is a good and sensible economist; so is Olivier Blanchard.... The answer I seem to get is fear of a dramatic flip in circumstances--that Japan, say, could engage in a sort of macroeconomic quantum tunneling, suddenly transitioning from deflation to crashing currency and runaway inflation.... It does seem an odd thing to be worrying about right now.. does... obsessing about the state of Social Security in 2030, really make that much difference to the prospect of such an abrupt transition? I don’t see the plausibility--and it seems really strange for that concern to loom so large in the face of everything else going wrong."

Should Be Aware of:


  1. Charles Stross: A different cluetrain: "Axioms about politics.... Automation privileges capital over labour (because capital can be substituted for labour, and the profit from its deployment thereby accrues to capital.... A side-effect of the rise of capital is the financialization of everything.... Since the collapse of the USSR and the rise of post-Tiananmen China it has become glaringly obvious that capitalism does not require democracy. Or even benefit from it.... The iron law of bureaucracy states that for all organizations, most of their activity will be devoted to the perpetuation of the organization.... Governments are organizations.... We observe the increasing militarization of police... the priviliging of intelligence agencies... and in the media a permanent drumbeat of fear, doubt and paranoia directed at "terrorists".... Money can buy you cooperation from people in government, even when it's not supposed to. The internet disintermediates supply chains.... Our mechanisms for democratic power transfer date to the 18th century. They are inherently slower to respond to change than the internet and our contemporary news media.... The expansion of the security state is seen as desirable by the government... because... the legitimacy of government is becoming increasingly hard to assert.... We're all doomed. Have a nice century!"

Tweets and Comments:

  • Robert Waldmann: Comment on "Noted for Your Morning Procrastination for February 24, 2015": "On the robots will rise but not yet at equitable growth: I think to a large part they have risen already (in the form of digitally operated machine tools). the great intequality U turn corresponds to the inverted U of manufacturing employment almost exactly US manufacturing value added has continued to increase. That looks like substitution of capital for labor and capital biased technological progress to me. The Hamilton discussion was a bit vague on timing -- is the issue increased inequality from 1979 to now (technology seems to have mattered a lot 79-2000) or what's going wrong since 2000 ? I'd stick with it hasn't been technology demand for people with formal education since 2000 (see of course rip van skillsgap by Krugman) and then not appeal to data on changes since 1979. For very recent events, I think it is clear that the slack labor market matters a lot. in fact, corporate profits share of GDP has consistently risen early in recoveries and peaked well before GDP peaked. This fits sluggish wages allowing firms to capture a large part of growing income until the Phillips curve kicks in. The sums are small compared to the huge shifts in the income distribution (I mean corporate profits net of taxes and depreciation are amazingly small) but you can see how they should be correlated with S-corporation profits and other income. The decline of unions (including union threat to non-union firms) must matter, but what hope is there to bring them back ? I'd be interested in the effect of tax rates on pre-tax income -- the shift is correlated with the Reagan Kemp Roth tax cuts. This is promising as effective average tax rates on high incomes are back roughly where they used to be. The idea is that leakage to the treasury has an effect on bargaining say between corporate CEOs and principals (which means themselves uh ...). Maybe also occupational choice -- it is less tempting to sell out one's principles if the IRS gets 70% of the marginal ill gotten gains. This is a bit reassuring, since it is likely that the old equality of measured income was partly due disguising income as fringe benefits (like a company car) or capital gains. The growth of finance seems to me to be important for the top 1%. I'd say finance was long depressed by memories of the great depression. Got going in the 60s then oil shocks and miserable market performance and then grew. I'd say a finance cycle (much longer than credit cycles) of mania crash panic, fear then forgetting and going crazy again (the Minsky story)."