Worthy Reads from January 24, 2019
Worthy Reads at Equitable Growth:
I should long ago have told people to read this pinned tweetstorm from Equitable Growth's Will McGrew. A great many people who should know better—especially people on the ideological right—do not understand that when one assesses factors, one wants to control only for those complications that confound the effects you are trying to study, and that you have no business controlling for those complications that mediate the effects you are trying to study: Will McGrew: "Some claim that the wage gap disappears if you control for all relevant variables. This is 100% false. According to the evidence, workplace segregation and discrimination are the largest causes of the wage gap faced by Black women....
Will McGrew sends us to new EPI employee and friend of Equitable Growth Pedro Nicolaci da Costa: The U.S. Job Market Doesn’t Feel so Hot Despite the Low Unemployment Rate: "Workers need the economy to stay hot so they can begin to see the dividends of high growth.... There are several reasons a purportedly booming U.S. economy doesn’t feel like much of a boon to millions of American workers, chief among them the startling lack of wage growth many have experienced over the past four decades.... A business- and bank-friendly mindset at the Federal Reserve, whose top officials spend a lot more time with their high-flying Wall Street and industry contacts than with workers and community leaders, deepens this imbalance.... Because of the Fed’s proximity to its business contacts, it tends to think of workers as labor costs (not investments in human capital) and wages as inflation (not improvements in standards of living). This colors the Fed’s definition of 'full employment', making policy makers easily swayed by dubious claims from business executives about chronic labor shortages—made without any contention about why wages are not rising on a sustained basis...
In response to a query from Nancy M. Birdsall on what are the most important contributions to feminist economics, Equitable Growth's Kate Bahn provides a shoutout to, among others, my college classmate Joyce Jacobsen of Wesleyan—who got me my first economics RA job: Kate Bahn: "Some good resources are Beyond Economic Man and Toward a Feminist Philosophy of Economics. I particularly like Joyce Jacobsen's essay on "Some implications of the feminist project in economics for empirical methodology" in the latter...
A new book coming this fall: Heather Boushey: "On the inaugural weekend of the #womensmarch, I decided to write a book for the new economic era and made a plan. Feels really good to have sent the final manuscript in yesterday! 'Unbound' will be out in early fall...
And another from Will McGrew, who is watching California begin trying to implement policies we at Equitable Growth had hoped to see implemented nationwide starting in 2017: Will McGrew: "Congrats to @AnnOLeary & Team Newsom_ on their bold plan for 6 months of paid leave in CA. Research by @HBoushey, @jacobselisabeth & others confirms paid leave can boost labor supply, family earnings & output, driving gov't savings from more tax revenue + less social spending...
Worthy Reads Elsewhere:
Dani Rodrik joins those who believe that Donald Trump and his administration have too little competence and too childish an understanding of the world to do substantial persistent damage to equitable growth. I would like to believe him, but I worry that Italy under Berlusconi may be a relevant case that is a counterexample. As I see it, Berlusconi's kleptocratgic and chaos-monkey nature robbed Italy of a decade of economic growth Dani Rodrik: Trump’s Trade Game: "Though Trump’s unilateralism and mercantilism are bad... one should not exaggerate.... If other countries do not overreact–and, so far, they have not–the consequences for world trade will remain manageable.... The shift in global demand from goods to (less tradable) services; the increased skill-intensity of manufacturing... automation... reshoring... China’s transition... to domestic-demand-led growth... are likely to have a larger impact on trade than Trump’s bluster ever could...
Endorse: for the upper middle class who own stocks, Jack Bogle was the greatest philanthropist of this or any age. He could have claimed to have alpha magic and collected a vast fortune, but he worked for his clients and the public instead: Barry Ritholtz: Remembering Jack Bogle: "Warren Buffett.... 'The person who has done the most for American investors... Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds... [has] amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing–or... less than nothing.... Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me'...
Wise words about how we think we understand things and underestimate uncertainty. What I am not clear about is whether modern tools of communications are truly an extra secret-sauce source of disruption today, or whether it was just that from 1952 to 2007 all of the big surprises (e.g., fall of the Berlin Wall) were good ones: Charlie Stross: Someone Please Cancel 2019 Already?: "The event horizon in politics in a democracy is no more than... the maximum time between elections.... Consider Germany in January 1934, and how outlandish and dystopian the situation would have sounded if you'd described it to a German citizen in January 1929. (30% unemployment! A dictator and a state of emergency! Concentration camps! Anti-Jewish laws!)... The value proposition of democracy is that it provides for a peaceful transfer....But when you get a faction, party, or regime that no longer subscribes to the idea of democracy and refuses to back down gracefully, you get back the old problems... pressure for change builds up and when it erupts the effects can be devastating and unpleasant—especially, as we've had a crash-course reminder... when the tools of communication make it really easy for dangerous demagogues to draw a following...
Continuing to make slow progress on understanding how to add information and behavior diffusion to economics: Leonardo Bursztyn, Florian Ederer, Bruno Ferman, and Noam Yuchtman: Understanding Mechanisms Underlying Peer Effects: Evidence from a Field Experiment on Financial Decisions: "When someone purchases an asset, his peers may also want to purchase it, both because they learn from his choice ('social learning') and because his possession of the asset directly affects others' utility of owning the same asset ('social utility'). We randomize whether one member of a peer pair who chose to purchase an asset has that choice implemented... Then we randomize whether the second member of the pair: (1) receives no information... or (2) is informed of the first member's desire to purchase the asset and the result of the randomization.... This allows us to estimate the effects of learning plus possession, and learning alone.... Both social learning and social utility channels have statistically and economically significant effects.... Investors report updating their beliefs about asset quality after learning about their peer's revealed preference... report motivations consistent with 'keeping up with the Joneses' when learning about their peer's possession of the asset. These results can help shed light on the mechanisms underlying herding behavior...
Bad actors acting badly. A cengury ago the authors and distributors of the Protocols of the Elders of Zion has theological and political motives—they saw their lies as buttressing what they saw as the essential institutions of orthodoxy and autocracy—rather than just seeking to make a buck. Which is worse?: Hannes Grassegger: The Plot Against George Soros: "The Unbelievable Story Of The Plot Against George Soros: How [the] two Jewish American political consultants [Arthur Finkelstein and George Eli Birnbaum] helped create the world’s largest anti-Semitic conspiracy theory...
The extremely good American Economic Association Presidential Address. The takeaway: fear of government debt should be a second-order consideration in a time of low interest rates. And I would go further: because problems created by government debt can be dealt with at low societal cost via financial repression, it should be not a second- but a third- or fourth-order consideration: Olivier Blanchard: Public Debt and Low Interest Rates: "New theoretical foundations for how to think about fiscal policy and debt, which will stimulate the policy research agenda for the profession for years to come...
The first truly good conceptual framework I have seen on where the future of employment growth may lie: David Autor: The Future Of Work: "Three trends... help explain where employment... may be headed.... 'Frontier work'... Jetson jobs... all about new technology... Supervisor, Word Processing (1980); Robotic Machine Operator (1990); Chief Information Officer (2000); Technician, Wind Turbines; and Intelligence Analyst (2010).... 'Wealth work',... jobs that primarily provide fancy-schmancy services to the rich... Hypnotherapist and Gift Wrapper (1980), Fingernail Former and Marriage Counselor (1990), Mystery Shopper, Horse Exerciser—our personal favorite—and Barista (2000); Oyster Preparer and Sommelier (2010).... 'Last mile'... what's left after machines have eaten the tasks... the atrophied husk remaining of a job when most of it has been automated... an airline ticket agent. A couple of decades ago... greet customers, help check baggage, and assign seats on the plane. Now... throwing bags on a conveyor belt and checking IDs. And so you can think of that as sort of the last mile, the last little bit of the job that remains...
The invariable rule in America—except for African-Americans—is that it takes one or at most two generations for immigrants to essentially converge to white native-born outcomes as far as the labor market (but not wealth accumulation!) is concerned. IOt is true now: it was true for the Famine Irish: William J. Collins and Ariell Zimran: The economic assimilation of the Famine Irish in America: "The many John Kellys.... Negative sentiment towards immigrants is often based on fears about their ability to integrate into economic, political, and social institutions. This column analyses the impact of the influx of Irish immigrants into the US in the 19th century. It shows that the children of immigrants had assimilated in terms of labour market outcomes within one generation, providing some perspective for the current debate about immigration policy...
As Karl Marx wrote in the middle of the nineteenth century: Imbalances in pre-capitalist economies do not produce aggregate demand crises and collapses. Why don't they? Because Pharaoh can always command that another pyramid be built, the king can always set out on another crusade, and the bishop can always build another cathedral. The expenditures that provide employment for those not producing the consumption-goods-in-demand only have to make profit-and-loss sense under the capitalist mode of production. Capitalist economies suffer Hayek-Minsky crises when deluded financial markets suddenly recognize that they have been overoptimistic, have over invested, and need to shift investment-goods production back down not to normal but way below normal. And the collapse comes as near-universal bankruptcy and financial disruption prevents any such smooth expenditure-shifting. That Hayek-Minsky overinvestment crisis is what Paul Krugman, I, and other China-pessimists haver been fearing for two decades now. But perhaps socialism with Chinese characteristics is insufficiently capitalist for that Hayek-Minsky logic to apply, and Paul and I and others should have been paying more attention to Uncle Karl: Paul Krugman: Will China’s Economy Hit a Great Wall?: "I issued a warning.... The Chinese economy... is, I wrote, 'emerging as a danger spot'.... Unfortunately, the other day was more than 6 years ago. And it’s not just me. Many people have been predicting a China crisis for a long time, and it has kept on not happening. But now China seems to be stumbling again. Is this the moment when all the prophecies of big trouble in big China finally come true? Honestly, I have no idea. On one side, China’s problems are real. On the other, the Chinese government... has repeatedly shown its ability and willingness to do whatever it takes...
A brilliant paper. But I have a worry: those at the upper tail of the income distribution are, to a substantial degree, those whose (a) broadly-construed portfolios are ludicrously risky and who (b) happen to be unusually lucky. I am not sure the authors have properly accounted for luck here: Matthew Smith, Danny Yagan, Owen M. Zidar, and Eric Zwick: Capitalists in the Twenty-First Century: "Entrepreneurs who actively manage their firms are key for top income inequality. Most top income is non-wage income, a primary source of which is private business profit. These profits accrue to working-age owners of closely-held, mid-market firms in skill-intensive industries. Private business profit falls by three-quarters after owner retirement or premature death. Classifying three-quarters of private business profit as human capital income, we find that most top earners are working rich: they derive most of their income from human capital, not physical or financial capital. The human capital income of private business owners exceeds top wage income and top public equity income. Growth in private business profit is explained by both rising productivity and a rising share of value added accruing to owners...
#noted #weblogs #2018-01-24
