WORÞY READS: from 2021-02-12

My Equitable Growth survey from last week...

Over at: <https://equitablegrowth.org/?s=delong>

Worthy Reads from Equitable Growth:

1. If you haven’t read this, read it. If you have read it, re-read it now. My grandfather used, to the end of his days, lament that his discipline had turned from “Public Administration” to “Political Science” over his lifetime. Political science, he thought, was a swamp of opinion and ideology that produced very little of value. Public Administration on the other hand—there was a great deal that was known, and a great deal to study, and the tools to study it to learn more:

Amanda Fischer & Alix Gould-Werth (2020-07-29): Broken Plumbing: How Systems for Delivering Economic Relief in Response to the Coronavirus Recession Failed the U.S. Economy https://equitablegrowth.org/broken-plumbing-how-systems-for-delivering-economic-relief-in-response-to-the-coronavirus-recession-failed-the-u-s-economy/: ‘Four delivery systems [were] tasked with providing relief during the coronavirus recession—relief targeted to small and large businesses, Unemployment Insurance, direct payments to consumers, and paid leave programs…. Looking at business rescue programs, we see pipes well-designed to flow easily to people with power, while the taps of the less powerful remain dry. Looking at Unemployment Insurance, we see the failure to invest in pipes, preventing these benefits from flowing smoothly to people who need them the most. Looking at direct payments, we see who profits when the plumbing is routed through costly private systems that twist and turn, enabling the powerful to siphon off of the plumbing. And looking at paid leave, we see what happens when policymakers build no pipes at all and suddenly need to turn on a spigot when the economy hits a drought…

2. Two of our Equitable Growth people get airtime on NPR. They, I think, do very well:

Ellora Derenoncourt, Arindrajit Dube, & al.: NPR: Life on Minimum Wage: Why the Federal Debate Continues https://www.npr.org/2021/01/29/962236606/life-on-minimum-wage-why-the-federal-debate-continues (13:00): ‘The history of the minimum wage in the U.S. is tied closely to civil rights. Ellora Derenoncourt, an economist at the University of California, Berkeley, says one theme of the 1963 March on Washington was a call for a higher minimum wage. Many states have a higher minimum wage than the federally mandated $7.25. Arindrajit Dube from the University of Massachusetts, Amherst discusses how those states have fared…

3. And if you haven’t read this, read it. If you have, reread it. Practically everything in it is still very valuable, and we will hopefully have time and political energy to put all the recommendations into effect before the next recession comes to visit:

Equitable Growth & Hamilton Project: Recesson Ready: Fiscal Policies to Stabilize the American Economy https://equitablegrowth.org/recession-ready-2/: ‘Economic recessions are inevitable and they are painful, with harsh short-term effects on families and businesses and potentially deep long-term impacts on the economy and society. But we can ameliorate some of the next recession’s worst effects and minimize its long-term costs if we adopt smart policies now that will be triggered when its first warning signs appear. Equitable Growth has joined forces with The Hamilton Project to advance a set of specific, evidence-based policy ideas for shortening and easing the impacts of the next recession. In a new book, Recession Ready: Fiscal Policies to Stabilize the American Economy, experts from academia and the policy community propose six big ideas, including two entirely new initiatives and four significant improvements to existing programs, all to be triggered when the economy shows clear, proven signs of heading into a recession. These proposals (see more on each below) aim to strengthen and add to our automatic stabilizers: policies that inject money into the economy in a downturn and withdraw stimulus when the economy is strong. Congress should consider these policy proposals now because when the next recession appears on the horizon, it may be too late…

4. The minimum wage debate appears to be moving in a very good direction this winter. OK remains the question of what will bring 10 Republican senators onboard for the Fight for 15. But I think the intellectual discussion is pretty-well won, and the popular-political discussion is pretty-well won as well:

Brad DeLong: DeLongTODAY: How to Think About the Minimum Wage http://delongtoday.com: ‘The first thing to note is that the sweet spot is not the point at which the minimum wage level results in the most jobs…. The purpose of the minimum wage is to ensure that the market is our servant, not our master—that the market was made for man, not man for the market. The market economy needs to deliver a fair distribution of income and wealth. Having the minimum wage to make sure that even low-wage jobs are fairly remunerated is an important part of that. As Adam Smith wrote back in 1776…. “It is but equity… that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged…” The sweet spot for society as a whole is above the point at which the employment-inducing effect of the minimum wage is exactly offset by the growing employment-shrinking effect…

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Worthy Reads from Elsewhere:

1. Hiring Ezra Klein may well be one of the very, very few really good decisions the New York Times editorial editors have made in this millennium. I would note that much of what Ezra Klein fears in California are the consequences of immense wealth inequality—and would melt away if we could return to a properly social-democratic income distribution via an appropriate federal-level tax system. But this is very keen-eyed. Read, as they say, the whole thing. It is short.

Ezra Klein: California Is Making Liberals Squirm https://www.nytimes.com/2021/02/11/opinion/california-san-francisco-schools.html?smid=tw-share: ‘The California Environmental Quality Act wasn’t passed to stop mass transit—a fact California finally acknowledged when it recently passed legislation carving out exemptions. The profusion of councils and public hearings that let NIMBYs block new homes are a legacy of a progressivism that wanted to stop big developers from slicing communities up with highways, not help wealthy homeowners fight affordable apartments. California['s]... structures of decision making too often privilege incumbents who like things the way they are over those who need them to change.... Ibram X. Kendi.... “Racist policies are... policy that leads to racial inequity”.... In California, taking that standard seriously might mean worrying less about the name on the school than whether there are children inside it—as Mayor Breed has been insisting. It might mean worrying less about the sign in the yard than the median home price on the block. And yes, it might mean worrying less about a cumbersome process that claims to be about environmental protection and more about how to speed along projects that will lead to environmental justice.... If progressivism cannot work here, why should the country believe it can work anywhere else?…

2. One thing puzzling me right now about the left-establishment’s intellectual attack on Larry Summers this week is that when you look at the bottom line of his Washington Post column, it is this: “Stimulus measures of the magnitude contemplated are steps into the unknown and need to be accompanied by clear statements tha the consequences will be monitored closely, and there will be the capacity and will to adjust policy quickly…” And that seems to me to be completely true, and not something with which anyone can, should, or would—if they had read it—take any exception whatsoever:

Noah Smith & Brad DeLong: Hexapodia Podcast: Biden’s $1.9T Reconciliation Rescue, Relief, Support, & Stimulus https://braddelong.substack.com/p/hexapodia-is-the-key-insight-i-relief: ‘Perhaps the rise of MMT has worried people about that, that politicians will decide there is no such thing as too much debt or deficit… no fiscal constraint and that a cowed central bank will be cowed into supporting infinite fiscal expansion… a scary policy regime and… that's what people are scared of…. “Stimulus measures of the magnitude contemplated are steps into the unknown and need to be accompanied by clear statements tha the consequences will be monitored closely, and there will be the capacity and will to adjust policy quickly”—that is a quote from Summers’s Washington Post op-ed…. Virtually no one talking about this has actually read the thing…

3. A very well-done, useful, and extremely timely demonstration that the Republican “moderate” plan for rescue, relief, support, and stimulus is too small. It is not clear to me who could have been advising them who would have recommended this:

Wendy Edelberg & Louise Sheiner: A Macroeconomic Analysis of a Senate Republican COVID Relief Package https://www.hamiltonproject.org/blog/a_macroeconomic_analysis_of_a_senate_republican_covid_relief_package: ‘Ten Senate Republicans recently proposed a $618-billion COVID relief package. In this piece, we provide an analysis of that package and update our analysis of the Biden Administration’s $1.9 trillion fiscal package, using the current-law GDP projections that the Congressional Budget Office (CBO) released on Monday. We estimate that the Republican plan would raise the level of real (inflation adjusted) gross domestic product (GDP) by 1.6 percent in the fourth quarter of 2021 and 0.8 percent in the fourth quarter of 2022, above the baseline level that CBO projects under current law (which assumes no additional fiscal support). This would leave GDP about 0.8 percent below its pre-pandemic trajectory at the end of both and 2021 and 2022, but a touch above CBO’s estimate of potential GDP—the maximum sustainable level of output… 

4. Back in 1993, the expanded EITC for childless workers was one of the last things the Clinton Treasury threw out of the wolf-pursued troika as we dashed through the snow in the race to get the Clinton reconciliation bill across the finish line. “We will fix it next year”, we promised ourselves then. Nobody ever has:

Cynthia Miller & Lawrence F. Katz: Biden Wants to Boost the EITC for Workers without Dependent Children—What Does the Research Say? https://thehill.com/opinion/finance/538298-biden-wants-to-boost-the-eitc-for-workers-without-dependent-children-what?rl=1#.YCUykA0cLq8.twitter: ‘Many commentators have expressed the hope that the inequalities exposed by the pandemic will lead to renewed efforts to address them by expanding the social safety net and by providing basic protections for workers. An expanded EITC can be an effective part of this effort, increasing workers’ incomes (without depressing work effort) and putting them in a better position to recover from this crisis and weather the next…

5. The slowdown over the past fifteen years in the rate at which the value of the stock of useful ideas about technology and organization has been growing in the global north is very worrisome. In order to figure out why it happened and how to repair it, we need to think straight about how our industrial research labs create and our corporation-based value chains deploy new ideas. And William Janeway has spent a lifetime working in this sector and thinking about it:

William Janeway: Venture Capital in the 21st Centuryhttps://www.ineteconomics.org/perspectives/videos/venture-capital: ‘In this eight-part lecture series, Bill Janeway investigates the relationship between venture capital and technological innovation, and the interdependent roles of entrepreneurial firms, the mission-driven State and financial speculation in the overall innovation system…

6. The age when low-wage companies could seek a comparative advantage in light manufacturing and then use that to massively upgrade the skill level of their workforces and the functionality of their communities of engineering practice is over. Manufacturing either does not upgrade skills or does not employ enough workers. This is a huge problem for countries that hope to develop in the future. I do not have an answer to it:

Dani Rodrik: Poor Countries’ Technology Dilemmahttps://www.project-syndicate.org/commentary/poor-countries-technology-dilemma-by-dani-rodrik-2021-02: ‘Africa’s manufacturing renaissance… [but] few good jobs have been created in the more modern, formal, and productive manufacturing branches…. The bulk of the increase in manufacturing employment coming from small, informal enterprises. This experience stands in stark contrast with that of the rapid industrializers of East Asia…. Large firms in the manufacturing sectors of Tanzania and Ethiopia to be significantly more capital-intensive than these countries’ income levels or factor endowments would suggest… as capital-intensive as firms in the Czech Republic…. African economies [are] in a bind. Their manufacturing firms can either become more productive and competitive, or they can generate more jobs. Doing both at the same time seems very difficult, if not impossible…. This is yet another reason for a public debate on the direction of technological change and the tools that governments have to reorient it…

7. Do not let yourself get confused by numbers about “vaccine efficacy” that do not tell you what you really want to know. A lot of things have to go right for the virus for it to kill you. If not nearly everything goes right for the virus, you survive. And a vaccine that is not strong enough to keep you from getting the disease is strong enough to keep almost everything from going right for it:

Matt Yglesias: Vaccines Are Better than You Think https://www.slowboring.com/p/good-vaccines: ‘None of the people in the Pfizer/Moderna treatment groups died or even fell seriously ill and had to be hospitalized…. These days they vaccinate kids against chickenpox, so kids mostly don’t get chicken pox. But even more remarkable, when they do get chickenpox these days it’s a “sick for a few days” kind of thing not “miss weeks of school while suffering in agony.” This is a really big deal with regard to the lower efficacy we are expecting from the AstraZeneca and Johnson & Johnson vaccines. A vaccine that’s only 70 percent effective at blocking infection would be expected to generate a larger than that reduction in hospitalizations and an even larger reduction in deaths…

8. Why isn’t the unequal distribution of ex ante expected lifetime income—inequality of opportunity—conceptualized by us economists as the greatest of all market failures? And why isn’t the distribution of political power that creates & preserves a property order of unequal wealth seen as the greatest of all “regulatory capture by a special interest group” flaws in the working of society, economy, and the state? Remember: I learned much of my political economy from Richard Musgrave and his TA Manuel Trajtenberg, who explicitly conceptualized public finance as having 3 branches: (1) repairing Pigovian externalities, (2) fiscal policy for full employment, (3) redistribution to shrink all the Negishi weights in the market’s SWF toward one:

Trevon Logan: Trevon D Logan: ’This is actually a deep point

Dr. Trevon D Logan @TrevonDLogan

This is actually a deep point @delong is making— we have not recognized the single largest market failure in the economy. And we rarely talk about it as a market failure at all. The answer: that’s how they wanted it when they sold it to you!

Brad DeLong: 'Live long, & prosper!' @delong

@Undercoverhist @Econ_Marshall I remember back in the... spring of 1981, I think it was. I asked my professor, William Thomson, visiting from Rochester, roughly this: "The utilitarian social welfare function is Ω = U(1) + U(2) + U(3)... The competitive market economy maximizes a market social welfare 1/

…. We have not recognized the single largest market failure in the economy. And we rarely talk about it as a market failure at all. The answer: that’s how they wanted it when they sold it to you! Anyone who has seriously thought about equilibrium theory knows that the lack of attention to endowments is pretty shameful. DeLong extends that here to thinking of the weights we apply and why it should encourage, not discourage, redistribution. But we never quite get there…

Ben Boehlert: ’I’m consistently shocked in my undergrad Econ classes how inequality of opportunity almost never comes up. In a world where everyone is perfectly rational, it seems like pretty big deal!…