WORÞY READS: From 2021-01-29 Fr

Last week's worþy reads column from Equitable Growth...

Worthy Reads from Equitable Growth:

1. The coronavirus plague depression has been a disaster for low-paid workers in jobs requiring personal contact. How permanent will this be? Human smiles and social intelligence are a powerful way people can add value. But there is an ongoing shift substituting information technology for human guidance In retail. Is the coronavirus plague depression going to accelerate this trend? Or, rather, how much is the coronavirus plague depression going to accelerate the strand?:

Kate Bahn & Carmen Sanchez Cumming: U.S. retail sector’s recession experiences highlight continuing labor market travailshttps://equitablegrowth.org/u-s-retail-sectors-recession-experiences-highlight-continuing-labor-market-travails/: ‘Public health measures require limiting in-person services, and as a result, many industries saw sharp declines in employment.... We examine... the retail industry.... In December 2020, the retail sector employed 410,000 fewer workers than in February of that year... sports, hobby, book, and music stores shrunk more than 17 percent between February 2020 and December 2020. Almost 1 in 4 clothing store jobs have been lost.... Garden supply stores, nonstore retailers, and general merchandise... have actually grown.... Workers employed in nonessential businesses and holding jobs that require face-to-face interactions... more exposed.... The downturn could be accelerating dynamics that were reshaping the retail sector well before the onset of the recession..... Continued job losses in the retail sector are hurting some of the most vulnerable workers.... Retail jobs are often the first rung in workers’ career ladders, making good jobs in retail an important piece of career advancement and influencing lifetime earnings growth. And while many workers transition out of the retail sector when switching jobs, workers of color in general and Black women in particular are less likely...

2. From last June. Back then the need for much more support In order to keep the coronavirus plague depression from being both deep and long was obvious. It is still obvious. Republican economists need to stand up and be part of a bipartisan telling of truth to power about the need for fiscal expansion to support recovery:

Erica Handloff (June 2020): More than 150 economists tell Congress: More relief needed to avoid ‘prolonged suffering’ & ‘stunted economic growth’https://equitablegrowth.org/press/more-than-150-economists-tell-congress-more-relief-needed-to-avoid-prolonged-suffering-and-stunted-economic-growth/: 'Led by Ben Bernanke, Heather Boushey, and Cecilia Rouse, statement endorsers include two former chairs of the Federal Reserve, four former chairs of the Council of Economic Advisers, and two Nobel laureates, among others: The Washington Center for Equitable Growth released a statement imploring Congress to immediately pass a “multifaceted relief bill of a magnitude commensurate with the challenges our economy faces.”... Congress and the Federal Reserve have each provided unprecedented levels of economic support for those affected by the coronavirus recession, but the endorsers underscore the need for additional legislation. This relief will help avoid prolonged suffering, particularly in Black, Latinx, and Native American communities, all of which are disproportionately affected by both the public health and economic crises.... New legislation should provide, at a minimum, “continued support for the unemployed, new assistance to states and localities, investments in programs that preserve the employer-employee relationship, and additional aid to stabilize aggregate demand.” The signers also emphasize that “an adequate response must be large, commensurate with the nearly $16 trillion nominal output gap our economy faces over the next decade”…

3. This is rather pleasing news. Formal employer monopsony power as measured by standard concentration ratios does not appear to be a big deal in shifting income from labor to capital in America today. Of course, there remains the substantial puzzle that firms are not price takers even where buyers are not concentrated, but that is something that this very good paper cannot address:

Gregor Schubert, Anna Stansbury, & Bledi Taska: Employer Concentration & Outside Optionshttps://equitablegrowth.org/working-papers/employer-concentration-and-outside-options/: ‘We develop an instrument for employer concentration... estimate the effect of plausibly exogenous variation in employer concentration on wages across the large majority of U.S. occupations and metropolitan areas. Second, we... identify... relevant job options outside a worker’s own occupation using new occupational mobility data constructed from 16 million resumes.... Moving from the median to the 95th percentile of employer concentration reduces wages by 3%. But we also reveal substantial heterogeneity: the effect of employer concentration is at least four times higher for low outward mobility occupations than those with high outward mobility. Since the majority of U.S. workers are not in highly concentrated labor markets, the aggregate effects of concentration on wages do not appear large enough to have substantial explanatory power for income incomeinequality or wage stagnation. Nonetheless, our estimates suggest that a material subset of workers experience meaningful negative wage effects…

4. I have never understood why anybody would ever have imagined that noncompete clauses could be a good thing for an economy. What is the externality that cannot otherwise be contracted around that such are supposed to fix? Only when an employee has knowledge that would allow a competitor that learns it to route around intellectual property protections would there be a case. That case would seem to hinge on the belief that our intellectual property protections are less than efficiently strong—an argument I do not see made often:

David Balan: Why noncompete clauses in employment contracts are by and large harmful to U.S. workers & the U.S. economyhttps://equitablegrowth.org/competitive-edge-why-noncompete-clauses-in-employment-contracts-are-by-and-large-harmful-to-u-s-workers-and-the-u-s-economy/: ‘For a firm to succeed in attracting workers by not requiring a noncompete, it would likely have to make the absence of a noncompete a central element of its recruiting message to the exclusion of other, likely more effective messages. Moreover, if only one or a few firms did not require a noncompete, then they would tend to attract the workers who care the most about avoiding a noncompete.... The specific claims of positive effects...  that they facilitate efficient transfer of knowledge... they facilitate efficient worker-funded employee training.... Much information sharing will occur with or without a noncompete simply because it is impossible to operate the business any other way. The efficiency benefit is only the increment of information sharing.... By the same logic that the noncompete increases the firm’s incentive to generate new knowledge, it decreases the worker’s incentive to do so.... Noncompetes also impede the efficient flow of people across firms.... Some training will occur with or without the noncompete simply because it is impossible to operate the business any other way.... Standard economic theory indicates that, in a competitive labor market, training with benefits that exceed the costs will occur regardless. With a noncompete, the firm will pay the cost and receive the benefit, but without a noncompete, the worker will pay the cost (through formal schooling and/or lower wages early in a career) and receive the benefit. The training will occur regardless...


Worthy Reads from Elsewhere:

1. Interesting and very useful numbers about the likely effects of the Biden economic support plan. If the economy recovers more rapidly than expected, well and good, the federal reserve can’t handle any excess aggregate demand problems. But if the economy does not recover more rapidly than expected, this looks to be a very welcome thing for the American economy over the next several years:

Wendy Edelberg & Louise Sheiner: The Macroeconomic Implications of Biden’s $1.9 Trillion Fiscal Packagehttps://www.brookings.edu/blog/up-front/2021/01/28/the-macroeconomic-implications-of-bidens-1-9-trillion-fiscal-package/?preview_id=1391404: ‘We estimate that the package would boost economic activity, as measured by the level of real gross domestic product (GDP), by about 4 percent at the end of 2021 and 2 percent at the end of 2022, relative to a projection that assumes no additional fiscal support. We project that if the Biden package were enacted, GDP would reach the Congressional Budget Office’s (CBO) pre-pandemic GDP projection after the third quarter of 2021, exceeding it by 1 percent in the fourth quarter. In the middle of 2022, GDP would show a temporary and shallow decline and then grow at an annual rate of about 1.5 percent, coming close to the path projected just before the pandemic…

2. Every two years since 2000, financiers have expected interest rates to significantly normalize over the next two years. They are still expecting this. They have always been wrong. And yet they do not seem to learn, or at least do not seem to learn fast enough. It would seem to require some regime shift in order to make such forecasts of a resumption to normalcy in interest rates in the near term to be rational. But I do not see now, anymore than I saw 2, 4, 6, 8, or 10 years ago, what this resume shift is supposed to be colder

Kieran Healy: ’On the one hand, this is pretty strong evidence that something is wrong with your theory. On the other hand, at least you’re in a position to collect pretty strong evidence that something is wrong with your theory, which is more than I can say for a lot of theories.…

3. From 1870 to 1914, Britain was the dominant economy and the dominant global power. Then from 1914 to 1945, as the US became the dominant economy and the dominant global power, it did not enthusiastically take up the burden of hegemony. Enormous distress and discontent was the result. After 1945, as the US fit itself for hegemony, the world worked much much more smoothly than it had during the age of transition. Now we are entering a new age of transition. How well will things play out this time?:

Tom Orlik & Bjorn Van Roye: An Economist’s Guide to the World in 2050https://www.bloomberg.com/graphics/#2020-global-economic-forecast-2050/: ‘China has emerged as a major global power, its single-party rule and state-dominated economy the cause of alarm in foreign capitals—and pride in Beijing. By 2035, Bloomberg Economics forecasts, China will have overtaken the U.S. to become the world’s biggest economy and perhaps also its most powerful political actor.... A remarkable period of stability, stretching from the end of World War II through to the early 21st century, is coming to an end. The center of economic gravity is shifting from West to East, from advanced economies to emerging markets, from free markets to state controls and from established democracies to authoritarian and populist rulers. The transition is already upending global politics, economics and markets. This is just the beginning…. The world is in the midst of a messy transition as the balance of economic and political power shifts from West to East, from free markets to the state and from democracies to authoritarianism and populism. For businesses, investors and policy makers, history isn’t over. It’s just getting started…

4. The Financial Times’s Ed Luce warns us the era of Trump, or rather of the Trumps, is not over. And he warns us that the next generation looks to be as toxic for America as the last one:

Ed Luce: A ‘First Family’ That Warped Americahttps://www.ft.com/content/68abcad5-485f-489b-a9ee-851ad787958b: ‘As Donald Trump limbered up to give his infamous speech to last week’s “Save America march”... Donald Jr shot a video for the ages... a festive first family... swaying to Laura Branigan’s “Gloria” shortly before Capitol Hill was breached. The video was for “all you awesome patriots who are sick of the bullshit”, said Don Jr. It showed Mr Trump and his self-styled first daughter transfixed by images of the waiting crowd. It ended with Ms Guilfoyle calling on ralliers to “do the right thing — fight!”... This desecration was at the incitement of the US president. It was also egged on by his family.... Had the rally happened on any previous day of the Trump presidency, Mike Pence, the vice-president, would surely also have spoken. Because of his role of overseeing the electoral certification, Mr Pence had turned into an enemy overnight. Some of the trespassers chanted “hang Pence” as they marauded the Capitol building. A hangman’s scaffolding was erected outside. There is no one quite so vulnerable as an apostate. The only people that Mr Trump and his base can trust are his family.... His children are all keen to carry the torch.... The Trumps will be down but they are by no means out.

5. I have three New York Times pieces by my elbow: one says Joe Biden owns a Rolex, a secon that he owns a Peleton, a third that America wants a dysfunctional government rather than a president who issues executive orders. I don’t know who the New York Times is working for, but it is not readers who wish to become informed. We need, badly, new business models for journalism. Now the tech venture capitalists are wondering if there is anything they can do in the space:

Andreessen Horowitz: Doubling Down on the Futurehttps://a16z.com/2021/01/25/doubling-down-marketing-update-new-media/: ‘People want to learn about the future. If Software really  lost to isEating the World, there needs to be a place that is dedicated to explaining and tracking it. So we are doing just that: we are building a new and separate media property about the future that makes sense of technology, innovation, and where things are going — and now, we’re expanding and opening up our platform to do this on a much bigger scale. We want to be the go-to place for understanding and building the future, for anyone who is building, making, or curious about tech…

6. The health of an economy is different from the health of its manufacturing sector. The health of manufacturing as a productive enterprise is different from The number of workers employed in manufacturing. And the subunits and regional units of manufacturing are very very different things as well. Do not presume that any of these are identical or even highly correlated with any of the others:

Scott Lincicome: Busting the ‘Deindustrialization’ Mythhttps://capitolism.thedispatch.com/p/busting-the-deindustrialization-myth: ‘Since trade often gets the blame for manufacturing job losses, it’s good to add Robert Lawrence’s 2020 examination of 60 developed and developing countries between 1995 and 2011, which found that nations with manufacturing trade surpluses actually experienced slightly larger declines in manufacturing employment than those with manufacturing trade deficits. He also found that manufacturing job losses were as large in countries with “improving” manufacturing trade balances over this period as those with “worsening” ones. Why? Because manufacturing job loss is less a story of “deindustrialization” and more one of economic development. In general, all countries generally follow the same “inverted-U” pattern of development, first adding and then losing manufacturing jobs as they get richer (and gaining services jobs over the same timeframe)… 

7. One of the very, very best takes on the GameStop affair that I have seen: a short squeeze—positive-feedback tradinbg leading to financial destabilization—assisted by weaponized derivatives—technical bulls using their counterparties’ hedging strategies to leverage-up their positions. This is a normal (to the extent that finance is ever normal) pump-and-dump. But this time the pump-and-dump is not the work of a small cabal of insiders, but rather an emergent Internet crowd. One of what I thought the things that I thought I had known about finance has turned out not to be true. I thought a bubble needed sufficient uncertainty about the underlying to make it not implausible to fear that it might not be a bubble. This time, it is not even that there is a ridiculous story about how it is not a bubble. This time, there is no claim at all that this price move is not a bubble:

Daniel Davies: The GameStop affair is like tulip mania on steroidshttps://www.theguardian.com/commentisfree/2021/jan/29/gamestop-tulip-mania-16th-century-dutch-bubble-internet: ‘New York’s finest hedge funds bet against GameStop’.... The Reddit crowd appears to have decided that this was unfair and that they should fight back on behalf of gamers... using derivatives and brokerage credit in surprisingly sophisticated ways…. To everyone’s surprise, the crowd won…. Stock exchanges have always frowned on this sort of concerted action, and on the use of leverage to manipulate the market. The sheer volume of orders had also grown well beyond the capacity of the small, fee-free brokerages favoured by the WallStreetBets crowd. Credit lines were pulled, accounts were frozen and the retail crowd were forced to sell; yesterday the price gave back a large proportion of its gains. To people who know a lot about stock exchange regulation and securities settlement, this outcome was quite inevitable—it’s part of the reason why things like this don’t happen every day. To a lot of American Redditors, though, it was a surprising introduction... taking place in circumstances almost perfectly designed to convince them that the system is rigged for the benefit of big money. Corners, bear raids and squeezes, in the industry jargon, have been around for as long as stock markets.... The GameStop affair exhibits some surprising new features... largely self-organising….. For most of stock market history, orchestrating a pool of people to manipulate markets has been something only the most skilful could achieve. Some of the finest buildings in New York were erected on the proceeds of this rare talent.... The idea that such a pool could coalesce so quickly and without any obvious sign of a single controlling mind is brand new and ought to worry us a bit…

8. Balancing one of the best, perhaps the single worst take on the GameStop affair. I sometimes hear earnest people claim that, back in the day, long long ago, Tom Friedman was actually a pretty good reporter on the Middle East beat. But here, we have: Long sellers are supposed to benefit somehow from watching the value of their GameStop stock go from $60 to $4? Short-sellers as magical hyenas who make a wildebeest carcass appear 50% bigger? The whole thing somehow the natural "circle of life”, rather than human sociological-economic dysfunction? I look at this, and all I can think is: "Why?!?!":

Tom FriedmanSquawk Box

: 'The whole thing is like I am watching a giant National Geographic nature film.... These people called "lions", they're long sellers. They noticed the wildebeast... hobbling.... GME stock, and they ate it... $63... down to $4.... Then along came hyenas. They're called "short sellers".... They fed off the carcass.... They're magical hyenas. They actually made the carcass grow 50% larger than it actually was. Then along came... "short-squeezers".... They were vultures who ate the hyenas.... The really smart vultures ate and flew away when the stock was $500. The dumb ones are going to stick around and keep eating, and in the end the lions will come along and eat them and the stock will eventually go back to $4 or $5. It's the circle of life. Hakuna matata...