Worþy Reads: For 2021-05-28
A preview of my weekly read-around for Equitable Growth. ..
Worthy Reads from Equitable Growth:
1) The very sharp Adriana Kugler, one of our Equitable Growth grant recipients, on MPR news. I would highlight the urgency of accomplishing the tasks with respect to reforming unemployment benefits that she lays out. They really must be done before the next recession, which could come any year. And they should be done immediately. In the end the United States may turn out to, all in all, I have handled the coronavirus plague better than other North Atlantic economies because of the extraordinary vaccine success and a fiscal response that was, for once, at the proper scale. But the average accomplishment of the comparison group was so bad that "best in class" is very weak praise indeed:
MPR News: Unemployment Benefits Saw Unprecedented Expansion during the Pandemic. Is the System Working?: ‘Adriana Kugler, a professor at the McCourt School of Public Policy at Georgetown University, said critics of the benefit increases should remember that the dollar amounts in question are relatively modest. Even including boosts from the Federal Pandemic Unemployment Compensation program, the average American family of four would receive only $26,400 from a year of unemployment benefits. “That doesn’t exactly make you rich,” Kugler said…. Many unemployed workers found it difficult to navigate the arcane federal-state system that in many cases proved under-resourced and outdated. Some workers without recent full-time employment fell through the cracks due to complicated qualification rules. And structural racism persists in the construction of the system as a whole. The work of undertaking these and other reforms is urgent, and “it needs to be done before the next recession,” Kugler said…
2) Our Steering Committee’s Alan Blinder says: if you are really a believer in supply-side economics, you strongly support and are very heartened by the Biden American Jobs and American Families Plans. If you cannot see that this is the real and the best supply-side economics—well, that is pretty strong evidence that for you it was always a grift and a con you were trying to pull, isn’ t it?:
Alan Blinder: Biden’s Plan Encourages True Supply-Side Economics: ‘Do you remember supply-side economics… the doctrine that claimed that lowering taxes (especially on the wealthy) would cause a gusher of growth and bring in more new revenue than it lost[?] It wasn’t true, as the Reagan and Bush tax cuts demonstrated…. The Trump tax cuts… [did] little to stimulate growth as well. But certain supply-side policies really could be counted on…. Some of them were even tax cuts…. But many of the most promising supply-side policies involve government spending, including investment in physical infrastructure like roads, bridges, ports and airports. The argument for more public investment is essentially the same as the argument for more private investment…. Selecting the right projects, however, is crucial. This means not limiting ourselves to physical investments like factories and roads, because investments in human capital offer many of the highest returns. Fortunately, much of President Biden’s American Jobs Plan and American Families Plan pushes in that direction…. Opponents of programs like these often denigrate them as “socialism.” I like to praise them as real supply-side economics…
LINK: <https://www.wsj.com/articles/bidens-plan-encourages-true-supply-side-economics-11621982082?page=1>
3) And I see that the Equitable Growth twitter account is focusing on… me. My line about how inflation right now is burning rubber and leaving it on the road as we rejoin traffic at speed, not overheating and melting our engine. I think that is 100% right: I said it, after all. And I am happy to see that Paul Krugman agrees:
Equitable Growth: ’Fears of chronic, long-term inflation are overblown, especially when so many Americans are still out of work…. “Burning rubber to rejoin highway traffic is not the same thing as overheating the engine” <https://www.latimes.com/opinion/story/2021-05-06/inflation-economy-recovery-labor-shifts>…
LINK: <https://twitter. com/equitablegrowth/status/1398031648428593153
4) The sudden reappearance of the lab-leak theory of the origins of the coronavirus plague has my flummoxed. Given that we have not found a Patient 0 or an Animal -1, the origins of must remain uncertain, And virology labs are a place where viruses hang out. But most of those pushing “we should act as though lab-leak is true” rather than “probably zoonotic, but we should keep looking and investigating” are bad actors. They seem to be made up of (a) people who want to wage a cold war against China for paranoia reasons, (b) people who want to wage a cold war against China for careerist reasons, (c) people who think that the more China can be “blamed” for the virus the more Donald Trump and his enablers will be able to avoid taking on their proper share of the responsibility and blame for this catastrophic disaster, and (d) journalists who are focused on clickbait and regard their readers as cattle to be exploited rather than customers to be informed. None of these are trustworthy. If they say it is raining, check to make sure that they are not p---ing against your leg. I talked about this:
Brad DeLong: But… but… but… If it escapes from the lab, it escapes into people working at the lab who then have lots of close indoor contact with others working at the lab. Thus the first sign we see of the disease is a huge cluster among lab workers. Did we see such a cluster? No. We see no antibodies in lab workers. We see three lab workers catching what look to be bad cases of the flu in November 2019, and then no radiation until we get the superspreader event at the market:
Aylin Woodward: Lab Leak vs. Animal Spillover: Evidence for Coronavirus Origin Theories: ‘The WIV staff said… no evidence that samples… had been stored at the institute…. Records reviewed by WHO did not indicate… viruses closely related to the new coronavirus…. [But] the WHO team spent just hours…. Shi Zhengli… “is absolutely positive that she had never identified this virus prior to the outbreak happening”r…. Three WIV staff members got sick and went to a hospital more than a month before… [with] symptoms… “consistent with both COVID–19 and common seasonal illness”… blood samples… in the months ahead of the pandemic all tested negative…
No, we should not be studying dangerous viruses in labs in the middle of large cities. With nuclear weapons, there is a reason we built Lawrence Livermore lab very far indeed from the university in Berkeley that initially staffed it. We should treat contagious deadly viruses the same way. We should do this whether the lab-leak story is true or false. We should do this if we conclude that there is a 10% chance, a 1% chance, an 0.01% chance, or a 0% chance that the lab-leak story is true.
LINK: <https://braddelong.substack.com/p/briefly-noted-for-2021-05-27-th>
Worthy Reads from Elsewhere:
1) A very nice and up-to-date summary from the highly estimable Jason Furman. I would object to one statement in what I have quoted below. The Fed’s measure of inflation—the core PCE price index—is not “the most important data point for markets and the Fed”. The facts that “The core PCE price index was up 0.7% in April and now all of the pandemic-era shortfalls in prices have been made up by higher prices” are uninteresting. We knew that there would be inflation involved in pulling workers into the places in the economy we want them to go—remember the Korean War. We did not know how much, but we knew that there would be some. the most important data points for markets and the Fed is whether that inflation is becoming incorporated into expectations of future inflation. If it does, there is then a strong case for action. But so far, there are no signs I see that it is doing so:
Jason Furman: ’Personal consumption expenditures (about two-thirds of GDP) were 1% below their pre-pandemic trend in April… an eternity ago in COVID time so it is likely that in May or June consumer demand—and overall—demand will be back [to pre-plague trend]. The composition of demand, however, is changing…. Goods are massively above trend while services in April… were 7% below trend. Note that supply is not back nearly as much as demand: a lot of the goods have come from imports and inventories. That is not possible with most services so as services continue to recover they will need to be (and likely will) be matched by supply. Compensation is now back to its pre-pandemic trend. We know that employment remains well short, what is going on here? The story is likely composition: Mostly low-wage employment lost. People who have jobs are working longer hours at higher wages. The most important data point for markets and the Fed is its measure of inflation. The core PCE price index was up 0.7% in April and now all of the pandemic-era shortfalls in prices have been made up by higher prices. Many prices not back yet so likely more rises to come. Finally, households have $2.1T in excess saving from both additional income (driven by transfers) and reduced spending. One of the big questions is how this spends out. One model is it is like wealth, and people spend ~5% a year indefinitely. Another model is it is like a transfer & they spend ~50%. Yet another is pent-up demand and spend more…
LINK: <https://twitter.com/jasonfurman/status/1398263421318189057>
2) Not, I think, the most tragic consequence of the presidency of Donald Trump, the simultaneous rise of clickbait media and fundraising grifters interested in preying on his base, and the cowardly surrender of Republican apparatchiks to them. But it is a tragic consequence:
Julia Reinstein: Grieving Those Who Refuse a COVID Vaccine: ‘“Knowing there’s something that was free, accessible, and could have prevented their death, it’s heartbreaking.”… They weren’t people you’d typically pin as anti-vaxxers. He was a retired engineer and she had worked as a nurse. But the Florida couple, both in their eighties, refused to get inoculated against the coronavirus, and now he’s dead. Just over a month since her father-in-law died, Marie is still grappling with the painful fact that he and his wife ignored the science to devastating results. “It’s been worse for [my husband] because it’s his father,” Marie told BuzzFeed News. “But I’m mostly just angry at them, because this didn’t have to happen.” (Marie asked, like others in this story, that her last name and identifying details about her family not be used for privacy reasons.) It didn’t have to happen, but it is happening, and will likely keep happening, to some of the roughly 1 in 5 Americans who’ve said they will not get a COVID–19 vaccine…
LINK: <https://www.buzzfeednews.com/article/juliareinstein/grief-for-people-who-refused-covid-vaccine>
3) No. We do not know yet how the coronavirus plague year has altered workplace and work-from-home technologies and preferences, and how it has altered relative bargaining power over health and safety on the one hand and convenience and commuting on the other. Any other questions?:
Anna North: Bosses Are Acting Like the Pandemic Never Happened: ‘The last year transformed work in terrifying ways…. Workers were forced to take on health risks… with line cooks facing the highest risk of Covid–19 mortality of any occupation…. If restaurants don’t raise wages, Siby believes workers will eventually shift to retail.… While essential workers risked their lives on the job, millions of others were able to work from the relative safety of their homes…. The pandemic may have brought some workplaces closer to what Prithwiraj Choudhury… calls a “work from anywhere” ideology…. But now, some companies are trying to turn back the clock on remote work…. JPMorgan… “sometime in September, October it will look just like it did before.”… Mark Metrick calling Zoom “a culture killer for companies” and comparing its rise to “when cigarettes went mainstream”…
LINK: <https://www.vox.com/22455058/jobs-restaurants-office-employers-covid-pandemic-work>
4) The Republican Party was all in on George H.W. Bush’s NAFTA initiative. the Democratic Party was evenly split. Did NAFTA-impacted voters who shifted Republican in the 1990s not understand this? It is very hard to fit these results into any of our standard political-economy models. You need to go to the moral-economy models: economic insecurity and anxiety triggers hostility to the party that seeks to overcome ethnic cleavages and allegiance to the party that seeks to reinforce them:
Jiwon Choi, Ilyana Kuziemko, Ebonya Washington, & Gavin Wright: Local Economic and Political Effects of Trade Deals: Evidence from NAFTA: ‘Counties whose 1990 employment depended on industries vulnerable to Mexican import competition via the 1994 North American Free Trade Agreement (NAFTA) suffer large employment losses (relative to the bottom quartile of counties, counties in the top quartile of NAFTA exposure see 5–8 log-point declines in employment by 2000). Despite large employment losses, we can reject even modest population declines. Trade-adjustment-aid relief rises, but covers a tiny share of the job losses we document, and Disability Insurance in fact displays a much larger response. Exposed counties (many in the upper South) begin the period more Democratic in terms of votes in House elections, but as NAFTA is debated in 1992–1994 they shift in the Republican direction and by 2000 vote majority-Republican in House elections. We show with a variety of microdata, including 1992–1994 respondent-level panel data, that opposition to free trade predicts shifts towards Republican party identification…
5) Private housing construction as a share of GDP had crashed from its peak of 5.0% of GDP in 2005Q4 through its historical average of 3.4% in 2007Q2, and had bottomed all the way down to 2.1% by 2008Q4. That was the moment when the University of Chicago’s John H. Cochrane began claiming that a recession was necessary because there were then—still—too many people who ought to be forced into unemployment to teach that “people who spend their lives pounding nails in Nevada need something else to do”. Ludwig von Mises, Josef Schumpeter, and Friedrich von Hayek’s view that recessions were part of the market’s plan and hence needed to be welcome never had any empirical support—it always appealed to deep psychological fears driving a strong reluctance to admit that the market was not perfect. But it was and is a hell of a drug:
Claudia Sahm: ‘“We should have a recession,” John H. Cochrane said in November [2008], speaking to students and investors. “People who spend their lives pounding nails in Nevada need something else to do.” #yikes <https://t.co/vbSKhIRMtR>’…. Scott Gosnell: ‘I was there. I may even have a recording down in the archives and may have sprained my eyes I rolled them so hard…. I went to all of those econ talks at Gleacher while I lived in Chicago. The noticeable thing about Cochrane was that he was very good at financial economics, but fell apart when he tried to jump to macro. But of course faculty could say all kinds of things without getting much skepticism. Being a Mellon-style liquidationist was sort of edgy and cool among the Republican-leaning economists…. [It was a] Randian political moment. Where before, Austrian economics would get you a glance askance, in 2008, it would get you a $300+ bottle of wine at dinner with Paul Ryan…
LINK: <https://braddelong.substack.com/p/a-non-socratic-dialogue-on-the-decline>
6) An ur-text for the forces leading to the above. Here George Stigler, writing back in 1949, seeks to assimilate the classical economists Smith, Senior, and Mill to his claim that a good economic system does not produce prosperity but rather builds character. The lesson he draws from this is not that the rich should live modestly and give away their wealth to achieve equality and hence add high utilitarian well-being to the excellences of good character. It is, rather, that the non-rich have no warrant to complain about their low utilitarian well-being from poverty because they have the excellences of character. This is, of course, not good history of economic thought—Smith and Mill never, and Senior rarely, thought like Stigler did. But it is, I think, a proper object of study for people who do history of economic thought more seriously than I do:
George Stigler (1949): Five Lectures on Economic Problems: ‘Why encourage men to work and save ? The customary answer is to maximize output…. One might defend the goal of maximum output by arguing that the ultimate utilitarian goal was maximum satisfaction, and that greater output will lead to larger increases of satisfaction than will greater equality. This interpretation is plausible, but I believe it is mistaken. Most of the important classical economists explicitly rejected maximum satisfaction as a goal, and none except Bentham explicitly adopted it…. Why, then, did the classical economists display such great and persistent concern with policies that maximize output? Their concern was with the maximizing, not with the output. The struggle of men for larger incomes was good because in the process they learned independence, self-reliance, self-discipline—because, in short, they became better men…
LINK: <https://github.com/braddelong/public-files/blob/master/readings/stigler-1949-five-lectures.pdf>
7) Can scale and apps built on top of platforms a step behind and not quite cutting-edge systems come to dominate? Perhaps. That certainly seems to be the bet that those building China’s industrial policy today are seeking to make:
Nicolas Colin: China’s Industry Policy with Emily de La Bruyère: ‘[On] Jordan Schneider’s ChinaTalk podcast… the key idea …. "What matters today is the applications of science and technology––the sort of networks you build with it… capturing scale and being able to build and deploy…. [Then] it’s okay to have a slight lag in when you get the patent and when you get the really cutting edge, as long as you can apply it to scale…. The Chinese orientation appears to be focusing on that rather than on basic R&D, which creates this tremendous asymmetry vis-à-vis the U.S. and really vis-à-vis the entire global system because there’s just a different competition underway…. It’s not a matter of just pouring resources into basic research: it’s about competing for applications…
LINK: <https://europeanstraits.substack.com/p/chinas-industry-policy-w-emily-de>
8) I have read both Craig Freedman <https://link.springer.com/chapter/10.1057/978-1-137-58974-3_5> and Stigler’s 1948 LSE lectures <https://github.com/braddelong/public-files/blob/master/readings/stigler-1949-five-lectures.pdf>. The logic of Stigler’s attack on Chamberlin still eludes me. It seems to be composed of equal parts (a) things are more complex than Chamberlin allows, so we should use the even simpler Marshallian competitive model to understand these complex things; (b) Chamberlin’s model is inconsistent unless elasticities of substitution in demand are very high, in which case the differences between it and perfect competition are small; and (c) the test of whether a model is worthwhile is whether it makes correct predictions, and Chamberlin’s makes no predictions at all. But if the test of a model is whether it makes correct predictions, inconsistencies in its logical structure are not bugs. And the differences between monopolistic and perfect competition are substantial—and empirical tests come out on the “monopolistic competition” side, by and large. I am going to have to think more about this:
Paul Romer: Stigler Conviction: ‘The Great Depression was a traumatic experience for… Stigler…. Stigler wanted halt to progress in economic theory because he feared that it would lead to more theories like those of Keynes and Chamberlin (who provided the foundation for Dixit and Stiglitz). For him, there was apparently too much risk that such theories might lend political support for government policies that should not be tried. Under his division of labor with Milton Friedman, Friedman took on Keynes and Stigler took on Chamberlin. Marshall, they agreed, was safe. They turned Chicago in the last bastion of opposition to the Samuelson program and thereby prolonged for decades the confusion that Marshall had spawned…
LINK: <https://paulromer.net/what-went-wrong-in-macro-history/>
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I've done some history of thought research into the origins of Industrial Organization. I consider the father of IO to be Gardiner Means. Means is best known for the "Administered Price Hypothesis" which noted that in highly concentrated industries price changes are infrequent unlike competitive industries where prices vary more or less continually. This is relevant the discussion of Chicago School and Stigler in the post because Stigler was an outspoken opponent of Adminstered Prices. When inflation arose as a political issue in the late 50s and early 60s Means suggested Administered Prices explained Inflation in the face of weak demand. Stigler airily dismissed the Hypothesis as already disconfirmed. In fact empirical results from the 1930s supported it. Of course, the suggestion of non-market price setting is anathema to Chicago economists. Suggesting a mechanism which results in "sticky" prices is a grave threat to the notion of rapid adjustment to changing supply and demand.
Stigler's intellectual dishonesty and that of Cochran which you also highlight are consistent with a long tradition in "free market"/Austrian economics. Murray Rothbard once gave a speech where he said that supporters of free markets should be able to ignore moral limitations and lie, if necessary, in making the case for them. One of the Austrian grad student groupies in the department was shocked that such a "moral man" would make the statement.
The scariest thing about the lab-escape "theory" is the probable impact on the already bad anti-Asian violence we have been seeing. It wouldn't take much credibility to really amp this up. And the bar for credibility of the most dangerous fringe groups is very low indeed.