Worthy Reads from November 29, 2018
Worthy Reads from Equitable Growth:
An excellent paper: On the key role of the minimum-wage extensions of the 1960s in reducing inequality, and doing so along a pronounced racial as well as class dimension, as a result of the racial skew of employment categories. It was not just that African-Americans were in predominately low-wage jobs, but that the categories of jobs they were in had previously been exempt from the minimum-wage. From two of our Equitable Growth grant recipients: Claire Montialoux and Ellora Derenoncourt: Minimum Wages and Racial Inequality: “The earnings difference between black and white workers fell dramatically in the United States in the late 1960s and early 1970s... the extension of the minimum wage played a critical role...
American do want inheritances to be taxed. They are much more ambivalent about taxing savings—perhaps because savings are seen as uniquely virtuous sources of income. A working paper that Equitable Growth issued last year, but that did not get the attention and resonance that I think it deserves: Raymond Fisma, Keith Gladstone, Ilyana Kuziemko, and Suresh Naidu (2017): Do Americans Want to Tax Capital? Evidence from Online Surveys: "Via a survey on Amazon’s Mechanical Turk... provide subjects with a set of hypothetical individuals’ incomes and wealth and elicit subjects’ preferred (absolute) tax billl... unobtrusively map[ping] both income earned and accumulated wealth into desired tax levels. Our regression results yield roughly linear desired tax rates on income of about 14 percent... positive desired wealth taxation... three percent when the source of wealth is inheritance, far higher than the 0.8 percent rate when wealth is from savings...
Another of our Equitable Growth working papers from last year that, I think, did not get the exposure in notice it deserved. Even though the unemployment rate is gratifyingly low and even the employment the population ratio is not that distressingly port right now, it is still the case that the Great Recession of 2008 2010 cast a huge shadow, reducing the economy ' potential output. We can still see its affects today, and they are powerful. And we cannot confidently look forward to a time when does affect will have dissipated. The failure to make rapid employment recovery job one in 2009-2010 was a catastrophe. Danny Yagan (2017): Employment Hysteresis from The Great Recession: “This paper uses U.S. local areas as a laboratory to test whether the Great Recession depressed 2015 employment... exposure to a 1-percentage-point-larger 2007-2009 local unemployment shock caused working-age individuals to be 0.4 percentage points less likely to be employed at all in 2015, likely via labor force exit. These shocks also increased 2015 income inequality...
Another piece from the past that, I think, did not get the notice and exposure it deserved. Equitable Growth's Jesse Rothstein with a different interpretation than Chetty et al. of the great American sociological deserts out of which upward mobility is nearly unthinkable. Chetty et al. focus on school—perhaps because pouring at resources into schools is something we can do and would in all likelihood be somewhat effective. But how effective? Our schools the key link, or just one of many factors? Jesse Rothstein believes the second, and I think he is right: Jesse Rothstein (2017): Inequality of Educational Ppportunity? Schools as Mediators of the Intergenerational Transmission of Income: “I use data from several national surveys to investigate whether children’s educational outcomes (educational attainment, test scores, and non-cognitive skills) mediate the relationship between parental and child income.... There is... little evidence that differences in the quality of K-12 schooling are a key mechanism driving variation in intergenerational mobility...
And another piece from grant recipient Ellora Derenoncourt. This is, I think, the best piece I have read in the past week. It is also the most horrifyingly depressing case I have read in the past week. Derenoncourt'a thesis is that the Great Migration of African-Americans from the south to the urban north set in motion political-economic and sociological changes in local power structures that made those migration destinations poor places, and dangerous places, to raise young black men: Ellora Derenoncourt: Can You Move to Opportunity? Evidence from the Great Migration: “The northern United States long served as a land of opportunity for black Americans, but today the region’s racial gap in intergenerational mobility rivals that of the South. I show that racial composition changes during the peak of the Great Migration (1940-1970) reduced upward mobility in northern cities in the long run, with the largest effects on black men...
Worthy Reads Elsewhere:
I do not understand why there are people claiming US economy is at full employment. Full employment is defined as that level at which nominal and real wage growth visibly accelerates. They have not yet started to do so. Maybe the US economy will be at full employment next year. But the real and nominal wage series would look different if the US economy were at full employment right now: Ernie Tedeschi: Unemployment Looks Like 2000 Again. But Wage Growth Doesn’t: “Trying to solve an economic mystery: This is, to put it mildly, a mystery. If workers are as scarce as the unemployment rate and many other measures suggest, employers should be raising wages to compete for them...
Like wood fires and nuclear fusion, ideology is a very bad master. But also, like wood fire in nuclear fusion, it is a most excellent servant. Therefore I cannot sign-on for Jerry Taylor‘s decision to abandon “ideology“. The task, I think, is to make ideologies useful by making them self reflective. After all, if a libertarian founder like John Stuart Mill can say that Positive Liberty is essential—that the British working class of his day was "imprisoned" in spite of all their negative liberty by Malthusian poverty, there is ample space for a libertarianism that keeps its good focus on human choice, potential, and opportunity without blinding itselftop a grear deal of reality: Jerry Taylor: The Alternative to Ideology: “When we launched the Niskanen Center in January 2015, we happily identified ourselves as libertarians... heterodox libertarians... left-libertarianism concerned with social justice (a libertarian perspective that I’ve defended in debates with more orthodox libertarians here and here)...
And another piece from the Niskanen Center. Brink Lindsey on the importance of the vote: Brink Lindsey: "Another election, another round of libertarians' dumping on the right to vote. I used to just find this inane and self-defeating, but now I think it's bad citizenship and affirmatively harmful...
The world is becoming richer, and dire poverty is becoming rarer, but is the world becoming more equal? Smart thoughts from Houston: Dietz Vollrath: New Evidence on Convergence: "Dev Patel, Justin Sandefur, and Arvind Subramanian posted the other day some new evidence on cross-country convergence... poor countries grow faster than rich ones, on average...
America in the 1980s and 1990s suffered from a crime wave, yes, but it was primarily a concentrated urban crime wave. Thus I think that even back then racial fear ought to have been a harder sell to the American electorate than it was: Paul Krugman (November 1, 2018): A Party Defined by Its Lies: "Selling racial fear was easier in the 1980s and early 1990s, when America really was suffering from high levels of inner-city crime. Since then, violent crime has plunged. What’s a fearmonger to do? The answer is: lie. The lies have come nonstop since Trump’s inauguration address, which conveyed a false vision of 'American carnage'...
Is it correct to view the symbolic right-wing success that was the passage of Proposition 187 in 1994 as the key link in the decline of the California Republican Party? Perhaps: Jane Coaston: How California Conservatives Became the Intellectual Engine of Trumpism: "The California GOP got wiped out in the midterms. But the heart of California-style conservatism is stronger than ever.... 'They keep coming': The story of conservative fears over demographic change in California began long before Trump. Take Proposition 187, a ballot initiative passed by voters in November 1994 that would have cut off undocumented Californians from public education and health care services and require teachers and health care providers to turn over the names of undocumented people to authorities (it was known as the “Save Our State” initiative), and to efforts to end bilingual education and establish “three strikes” laws. (A court ultimately found the initiative un-Constitutional.)...
A piece heading more over into political sociology than I am comfortable assessing, but I trust Sandy Darity as a very thoughtful economist: Sandy Darity (2016): The Latino Flight to Whiteness: "Hispanics collectively are unlikely to share common cause with Black Americans over a common racial identity.... If a coalition ever forms... it will not be on the basis of linked fate or fictive kinship anchored on race..
The argument that things like the Donald Trump administration are freak events rooted in American pecularities runs up against the problem that similar things are happening in Teresa May's administration in Britain: Rafael Behr: The Brexit wreckers Are Slinking Away from the Rancid Mess They’ve Made: "Dominic Raab and Esther McVey have resigned because they know Brexit is intrinsically dysfunctional.... There is now no Brexit true believer prepared to take an author’s credit on the deal that is about to come before parliament.... The whole leave prospectus... was a fantasy.... It is easier to be on the team that accuses the prime minister of failing to deliver majestic herds of unicorns than it is to be stuck with a portfolio that requires expertise in unicorn-breeding...
I would find the wise and public-spirited Ricardo Haussmann more convincing here if he'd had an explanation for why mandated wage compression by John Dunlop in the U.S. during World War II was not a huge success: Ricardo Hausmann: How Not to Fight Income Inequality: "Trying to combat income inequality through mandated wage compression is not just an odd preference. It is a mistake, as Mexico's president-elect, Andrés Manuel López Obrador, will find out in a few years, after much damage has been done...
I have never understood this argument—that raising and then lowering interest rate does more good to fight recession than does not raising them in the first place. And—to my knowledge—there is no underlying model behind it at all. What is the mechanism by which raising interest rates now so you can lower them later beats keeping interest rates the same now and then lowering them later if both ultimately wind up at the same place?: Martin Feldstein: Raise Rates Today to Fight a Recession Tomorrow: "As I have argued in these pages since 2013, the Fed should have begun raising the fed-funds rate several years earlier. Doing so would have prevented the recent sharp increases in the prices of equities and other assets, which will collapse when long-term interest rates rise...
