Worthy Reads from February 13, 2019
Worth Reads at Equitable Growth:
Excellent testimony from Heather Boushey. But am I allowed to whimper that focusing too much on the EITC and the CTC may distract attention from the fact that SSI and SSDI are broken, and that the interface between the safety net for the employed and the safety net for the non-employed is very broken?: Heather Boushey: Testimony Before the Ways and Means Committee: "At the bottom end, one easy step is to preserve and expand evidence-backed refundable tax credits like the Earned Income Tax Credit and the Child Tax Credit, which lifted 8.9 million American out of poverty in 2017. In the middle, it is important to make sure the fruits of growth are widely shared and to make the economy work for workers and families. Some proven ways to do this include making sure every family can afford to send their children to high quality, affordable childcare and offering a national paid family and medical leave. It can also mean investing in infrastructure. And we need to know much more about the top. Many of the statistics we rely on to inform us about the state of our economy are measures of the average...
And it is time for Equitable Growth's monthly charticle about the most useful monthly employment report—not the (usually) first-Friday report, but rather the JOLTS report: Kate Bahn and Raksha Kopparam: JOLTS Day Graphs: December 2018 Report Edition: "Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for December 2018. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report...
An excellent catch from Equitable Growth's Michael Kades here. The debate over hospital mergers was mostly about whether scale-driven improvements in quality and reductions in cost would or would not be outweighed by the harm done by greater monopoly-power margins in charges to insurance companies and to patients. But it is looking increasingly likely that there are no scale driven improvements in quality or reductions in costs. He sends us to the extremely sharp Austin Frakt: Michael Kades: "The hospital industry, perhaps more than any other, had argued that consolidation will improve quality. Data increasingly says no: Austin Frakt: Hospital Mergers Improve Health? Evidence Shows the Opposite: "The claim was that larger organizations would be able to harness economies of scale and offer better care...
Kate Bahn sends us to Equitable Growth alumnus Nick Bunker. Nick continues his campaign to get people to look not at inflation but at wage growth—which has been slowly inching up since 2014—to gauge how close we are to that mysterious "full employment". Bottom line: we are not there yet: Nick Bunker: "Inflation-adjusted average hourly earnings up 1.7% over the past year. A friendly-reminder that real wage growth isn’t a good metric for assessing short-term health/slack of labor market. (Unless, of course, you think swings in energy prices are telling you something very important about the US labor market.) Far less volatility when you look at core inflation, but at this point why not just look at nominal wage growth?...
I must confess that my knee-jerk reaction given my socialization into the neoliberal cult when young to paid leave programs is to worry that loading responsibility for providing social insurance onto employers is a hazardous activity—it is not the 1920s, and we are not the tarry-eyed Edward Filene certain that paternalistic companies engaged in welfare capitalism can do more to enhance societal well-being than the ardent socialists and social democrats. But evidence is piling up from the laboratories of social insurance that are the states that my knee-jerk reaction is wrong: Heather Boushey: Increasing Evidence of the Benefits of Paid Leave Means Congress Needs to Consider a Federal Program like the FAMILY Act: "The existing state programs—the oldest, in California, dates back to 2004—have provided a laboratory for researchers to study labor and health outcomes for individuals, performance and productivity outcomes for firms, and broader macroeconomic outcomes of paid family and medical leave. This work builds on a considerable body of research from long-established programs in some European countries. The answers to many questions are already coming into focus.... In states with paid leave insurance programs, mothers who use paid leave are more likely to remain in the workforce in the year following a birth. The women experiencing the benefits of these new programs are more likely to be less educated, which makes sense given that they are less likely to have had access to paid leave in the absence of a state program.... In instances where paid leave is provided there is less reliance on public assistance to contend with family medical emergencies. Moreover, there has been no evidence of higher employee turnover or rising wage costs for businesses. Research on parental leave programs abroad also suggests that paid leave of the length contemplated by the FAMILY Act, up to 12 weeks, has a positive effect on women’s income and likelihood of remaining in the workforce...
Worthy Reads Elsewhere:
Information technology does not fit into a market economy very well. Organizations that focus on profit to the exclusion of all other goals have had a hard time staying dominant in technology industries. Perhaps Google has decided that it is time to focus on profit rather than on leading humanity into the information age: Graydon Saunders: I'm Going to Miss Google: "I mean, it'll be awhile, but they've gone and decided to die.... Rumour—highly plausible rumour—has it that the business decision to kill the Inbox app, rather than the Gmail app, comes down to 'Inbox makes it too easy to dodge promo emails'. Google's original business model was 'let's get more people using the Internet'. That worked, in large part because there was a vast amount of unrealized utility available. Now, though, it's turning into 'let's glue eyeballs to ads'. Which, well. You can have success, or you can have control. Both is not an option. This is Google deciding that it MUST have control. That'll kill ya...
What is going on with "Brexit"? To everybody outside Britain—no, not outside Britain, outside England—it is a bizarre and incomprehensible mystery. But here, I believe, Hari Kunzru gets as close as an outsider can to understanding why the English political class is engaged in this farcical tragedy of policy: Hari Kunzru: Fool Britannia: "Heroic Failure: Brexit and the Politics of Pain, by Fintan O’Toole.... The battle over Europe has been fought not over the... open border between Northern Ireland and the Republic... NHS funding, or traffic flow through Dover, let alone harmonized airline regulations or the trading benefits of a Canada-plus model... but through Spitfires, Cornish pasties, singing 'Jerusalem' on the last night of the Proms, and what the Irish historian and journalist Fintan O’Toole calls 'the strange sense of imaginary oppression that underlies Brexit'...
This has become a classic for all wishing to think clearly about progressive income taxation. Note that their conclusions in favor of a high top marginal rate do rest on strong and proper state actions to close loopholes and shut down tax havens: Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva (2011): Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities: "A model where top incomes respond to marginal tax rates through... (1) the standard supply-side channel... the tax avoidance channel, [and] (3) the compensation-bargaining channel through efforts in influencing own-pay setting.... The first elasticity (supply side) is the sole real factor limiting optimal top tax rates. The optimal tax system should be designed to minimize the second elasticity (avoidance) through tax enforcement and tax neutrality... in which case the second elasticity becomes irrelevant. The optimal top tax rate increases with the third elasticity (bargaining) as bargaining efforts are zero-sum in aggregate..... There is a strong correlation between cuts in top tax rates and increases in top 1% income shares since 1975, implying that the overall elasticity is large. But top income share increases have not translated into higher economic growth, consistent with the zero-sum bargaining model. This suggests that the first elasticity is modest in size and that the overall effect comes mostly from the third elasticity. Consequently, socially optimal top tax rates might possibly be much higher than what is commonly assumed...
Put me, for one, down as welcoming a sensible technocratic debts-and-deficits debate: Brendan Greeley: Give the Kids Permission to Fool Around: "Several weeks ago Alphaville was forwarded a panicked email from the Committee for a Responsible Federal Budget.... The subject... 'Be wary of mischaracterisations of Olivier Blanchard's debt report'.... Here's Mr Blanchard, in his own words, talking to Alphachat... 'use it for the right things. If the economy is very weak and monetary policy cannot be used, use it. If there is public investment to be done, the infrastructure is in terrible shape, use it.... It's a tool, it's not a tool you should avoid to use at any price. It's a tool you should use when you need to'.... He wants a 'richer discussion of the costs of debt and of fiscal policy than is currently the case'.... Alphaville believes that the discussion alone is what the Committee for a Responsible Federal Budget finds so alarming...
Migration—temporary and permanent—is turning out to be one of the magic bullets for global economic growth: Ricardo Hausmann (2013): The Tacit-Knowledge Economy: "Know-how resides in brains, and emerging and developing countries should focus on attracting them, instead of erecting barriers to skilled immigration. Because knowledge moves when people do, they should tap into their diasporas, attract foreign direct investment in new areas, and acquire foreign firms if possible.... Recent research at Harvard University’s Center for International Development (CID) suggests that tacit knowledge flows through amazingly slow and narrow channels. The productivity of Nuevo León, Mexico, is higher than in South Korea, but that of Guerrero, another Mexican state, resembles levels in Honduras. Moving knowledge across Mexican states has been difficult and slow. It is easier to move brains than it is to move tacit knowledge into brains, and not only in Mexico. For example, as the CID’s Frank Neffke has shown, when new industries are launched in German and Swedish cities, it is mostly because entrepreneurs and firms from other cities move in, bringing with them skilled workers with relevant industry experience.... Knowledge moves when people do...
Olivier Coibion, Yuriy Gorodnichenko, and Mauricio Ulate: Is Inflation Just Around the Corner? The Phillips Curve and Global Inflationary Pressures: "An expectations-augmented Phillips curve can account for inflation not just in the U.S. but across a range of countries, once household or firm-level inflation expectations are used.... We find that the implied slack was pushing inflation below expectations in the years after the Great Recession but the global and U.S. inflation gaps have shrunk in recent years thus suggesting tighter economic conditions. While we find no evidence that inflation is on the brink of rising, the sustained deflationary pressures following the Great Recession have abated...
Yes, it looks lie the world economy is now entering a recession—one that the U.S. is so far escaping: Brad Setser: China's Slowdown and the World Economy: "China, it now seems, has entered into a real slump.... China's total imports remained pretty strong though until the last couple of months. But they have now turned down. Sharply.... China (still) isn’t that important a market for the rest of the world’s manufactures. China’s overall imports (of goods) are significant, at around $2 trillion. But about a third are commodities, about a third are parts for re-export (think $800 billion of processing imports vs. exports of around $2.4 trillion), and a bit less than a third are imports of manufactures that China actually uses at home.... A fall in Chinese auto demand has a big impact on Chinese domestic output (most Chinese cars are made in China, with largely Chinese parts, thanks to China’s tariff wall), a measurable impact on the profits of some foreign firms with successful Chinese JVs, a modest impact on German exports and, at the margin, a measurable impact on global growth in oil demand...
There is no Phillips Curve-breakdown puzzle in the behavior of infaltion over the past decade once one recognizes that (a) the employment-to-population ratio and not the unemployment rate is the right measure of how bad the job market is, and (b) that people have been—I think largely because of misinformation from the press—thinking that inflation is higher than it in fact is: Laurence M. Ball and Sandeep Mazumder: The Nonpuzzling Behavior of Median Inflation: "Inflation behavior is easier to understand if we divide headline inflation into core and transitory components, and if core inflation is measured by the weighted median of industry inflation rates... [that] filters out large price changes in all industries. We illustrate the usefulness of the weighted median with a case study of inflation in 2017 and early 2018. We also show that a Phillips curve relating the weighted median to unemployment appears clearly in the data for 1985-2017, with no sign of a breakdown in 2008...
The American electorate contains very few libertarians—very few who want a (largely) unregulated markets economy and also a (largely) tolerant society in which flying your personal freak-flag in public is encouraged. Americans are, rather, much more likely to be egalitarian with respect to the distribution of economic wealth and status and socially tolerant, or hierarchical—seeking a society in which everybody knows their place and toes the line both economically and socially. And the people who don't fit into those two liberal and conservative baskets? They are, overwhelmingly, believers in a social order that also produces an egalitarian economy for those who toe the social-order line. This poses problems for those billionaires who would like to become president but also wish to speak honestly to the electorate: Paul Krugman: The Empty Quarters of U.S. Politics: "Socially liberal, economically conservative voters... the people Schultz thought he could appeal to; but basically they don’t exist, accounting for only around, yes, 4 percent of the electorate.... The absence of economically liberal, socially conservative politicians... There are plenty of voters who would like that mix, and Trump pretended to be their man; but he wasn’t, and neither is anyone else. Understanding these empty quarters is, I’d argue, the key to understanding U.S. politics. Once upon a time there were racist populists... segregationist Dixiecrats. But this was always unstable. In practice, advocating economic inclusion seems to spill over into advocacy of racial and social inclusion, too.... Meanwhile, the modern Republican Party is all about cutting taxes on the rich and benefits for the poor and the middle class. And Trump, despite his campaign posturing, has turned out to be no different. Hence the failure of our political system to serve socially conservative/racist voters who also want to tax the rich and preserve Social Security. Democrats won’t ratify their racism; Republicans, who have no such compunctions, will—remember, the party establishment solidly backed Roy Moore’s Senate bid—but won’t protect the programs they depend on...
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