Worþy Reads: For 2021-06-04
A preview of my weekly read-around for Equitable Growth...
Worthy Reads from Equitable Growth:
1) A brand-new very interesting and very well-done working paper. Having government announced three openings during the plague year not only accelerated the spread of the virus but did increase spending and thus employment. “Reopenings" were thus not a completely pointless mistake, but rather a trade-off:
Raissa Dantas & Jacob Robbins: Covid–19 Businesses Reopenings & Consumer Spending: ‘This paper studies… Covid–19 retail and restaurant shutdowns…. We find reopening policies substantially increased he dramatic ‘V’ shaped pattern of consumer spending spending for categories directly impacted by the laws: a 68.4 p.p. increase in non-essential in-store spending and a 16.7 p.p. increase in full-service indoor dining. For sectors not directly impacted—essential retail, limited-service restaurants, and online—we find a limited impact of reopenings. We estimate that retail reopenings are responsible for 34% of the total trough-to-peak recovery in spending, while restaurant reopenings are responsible for 15% of the recovery…
LINK: <https://equitablegrowth.org/working-papers/covid-19-businesses-reopenings-and-consumer-spending/>
2) I am greatly looking forward to this, because it is important and it is an area in which my ignorance is great. Tu June 15, 2:00 PM EDT. I do find myself curious that Austin Clemens is now a “Computational Social Scientist”—that is not an occupation classification I have ever seen before:
Equitable Growth: Data Infrastructure for the 21st Century: A Focus on Racial Equity: ‘Large… racial divides in income, wealth, employment, and other markers of economic well-being… have a tragic human cost…. Pay discrimination, barriers to wealth accumulation, and other forms of systemic racism prevent people from developing and fully deploying their human capital. The Biden administration has… an Equitable Data Working Group. Across many domains, federal data collection and reporting can be improved to better reflect the diversity of our economy. These improvements could then guide policymakers in implementing more finely tuned policies to address the legacy of systemic racism and the differential impacts of recessions and other economic shocks on communities of color. This event will convene a panel of academics to discuss some actionable areas of policy where the Biden administration could take steps to increase the quality and utility of economic data disaggregation and how these steps will lead to better policy outcomes. Please direct questions related to event content to Computational Social Scientist, Austin Clemens…
LINK: <https://web.cvent.com/event/443b4018-f6b5-49c5-8ec9-37389d827977/summary>
3) I discover that Bloomberg Opinion’s Noah Smith and myself are both remarkably optimistic about the future of employment, as long as we can maintain a relatively egalitarian income distribution and thus a middle-class society. In a middle-class society in the future, care work will be in very high demand and will be highly valued. Our goods-manufacturing productivity will mean that even a middle-class care-work wage will enable the purchase of enormous quantities of goods. And advanced worker-aiding technologies will mean that the care work—from psychotherapy to legal services to life coaching to changing bedpans—will be of very high quality and value. What is not to like—if we maintain a relatively egalitarian income distribution and thus a middle-class society?:
Noah Smith & Brad DeLong: PODCAST: “Hexapodia” Is the Key Insight XVII: What Will the Jobs of the Future Be Like?: ‘If we get an relatively egalitarian income distribution, the care-centered service economy will give us at least as many interesting jobs to do in the future as we could possibly want—at least for “future” meaning “next two hundred years”… Who controls the consumption spending decisions is key to answering the question of what the future of work will be like: it really matters whether it is a few rich people, a broad base of humanity, or the robots… The market economy is very efficient at crowdsourcing solutions to and then organizing the implementation of the problems that it sets itself. But the major problem the market economy sets itself is how to maximize the amount of necessities, conveniences, and luxuries delivered to the people who control valuable property rights who think they need stuff…
LINK: <https://braddelong.substack.com/p/podcast-hexapodia-xvii-what-will>
4) Going outside my wheelhouse, again. But this is very important. China is best seen not as a country but as a civilization. And a civilization needs to have institutional and governance diversity so that it is always exploring options—and then copying successes and deep-sizing failure. The right model for China in the future will not be that of a centralized empire obeying authoritative commands from the center, but rather something highly federalized like the European Union:
J. Bradford DeLong: Xi’s Historic Mistake: ‘Consider an alternative history in which the People’s Liberation Army had overrun both Hong Kong and Taiwan in 1949; Sichuan had not been allowed to pursue pilot reform programs in 1975, when Zhao Ziyang was appointed provincial party secretary; and China’s centralization had proceeded to the point that the Guangzhou Military District could not offer Deng refuge from the wrath of the Gang of Four in 1976…. Rather than enjoying a rapid ascent to economic superpower status, China would [now] find itself being compared to the likes of Burma or Pakistan. When Mao Zedong died in 1976, China was impoverished and rudderless. But it learned to stand on its own two feet by drawing on Taiwan and Hong Kong’s entrepreneurial classes and financing systems, emulating Zhao’s policies in Sichuan, and opening up Special Economic Zones in places like Guangzhou and Shenzhen.…
Worthy Reads from Elsewhere:
1) I need to find time to try to do a deep dive into where this anomalous construction number is coming from. That also means I need to do a very deep dive into the current state of the aggregated and disaggregated seasonal adjustment factors as well. It is excellent that leisure and hospitality are growing so rapidly. But this pace of job growth is not going to get us to full employment this year:
Mike Konczal: ‘Leisure and hospitality: +292,000; within that: Accommodation and food services: +220,600 I just don’t see the service sector labor supply crisis here. Again, these numbers are on (or above) the expectation; it’s the –20,000 workers in construction that leaves me puzzled…
LINK: <https://twitter.com/rortybomb/status/1400794183380746249>
2) A very nice video talk from Markus Brunnermeier’s series over at Princeton. But it lacks explicit consideration of the end-stage of what Larry Summers started us calling “secular stagnation”. What happens when the era of a safe-asset shortage ends? How can we make it end? And should we now be attempting to do so? Kicking the government debt can down the road is indeed a very profitable and good thing to do when interest rates are at their current values. And perhaps they will stay at their current values for so long that we will look back and see debt accumulation as a very effective way of boosting societal well-being, and wish that we had done more of it. But what happens if interest rates start to normalize is still a relevant question. My view is that it will require action, but that the costs of high debt if interest rates normalize cannot be greater than moderate, if only because the situation can always be handled by financial repression, and while the costs of financial repression are positive, they are moderate. However, I would like smarter people than me thinking about this, and then telling me what I should believe:
Olivier Blanchard: Fiscal & Monetary Policy After Covid
3) A very nice, very concise, and very balanced—both optimistic and pessimistic, in different ways—take on the current state and evolution of the American labor market from the wise Jay Shambaugh:
Jay C. Shambaugh: ’While below expectations, seems worth remembering this is a top 10 monthly job gain in history. If you throw out months with >4 million on temporary layoff in the previous month (April – October 2020), then it is top 5. It is hard to get job gains over 1 million with new job matches. The disappointing part is at 500k per month, will take a couple years to get back to trend. Possible optimism is [that] on May 12, [there were] still not so many fully vaccinated in 16–64 age range. Possibility for gains to increase June – August. (See <https://brookings.edu/blog/up-front/2021/06/03/examining-the-uneven-and-hard-to-predict-labor-market-recovery/>…
LINK: <https://twitter.com/JayCShambaugh/status/1400799100208099330>
4) Princeton’s Markus Brunnermeier explains his personal framework for thinking about safe assets, and why the fiscal theory of the price level is badly broken right now, and thus not to be relied on. Start here if you want to approach these issues from the theoretical side:
Markus Brunnermeier: Inflation, Safe Assets & Debt Sustainability: ‘The Fiscal Theory of [the] Price Level[’s]… key equation is the nominal value of government bonds divided by the price level equals the discounted present value of the primary surpluses…. [But] a bubble term needs to be added… Japanese experience provides a nice case study…. Countries can have a primary deficit all the time… if the interest rate on the government bond is smaller than the growth rate of the economy…. Interest is low if the government debt is a safe asset, i.e. it allows precautionary self-insurance via retrading and gains in value in times of recessions…. The risk-free rate for a log-utility setting is the sum of the time preference rate (valuing future utility), the expected growth of consumption (higher rates for future wealth), and negative precautionary savings components consisting of the variance of aggregate and idiosyncratic consumption growth risk. A risk premium is added to the risk-free rate… inflation risk and the loss of safe asset status risk. Finally, the convenience yield is subtracted… because… government bonds… [can be] collateral…
5) Bloomberg Opinion’s Noah Smith tries to account for popular distaste for inflation by claiming that there is an inverse correlation between inflation and real-wage growth. And there is—for supply hock caused inflation. But Noah, the claim is that people hate inflation, not that people hate supply-shock caused inflation, which is the kind that reduces worker well-being. But there are other kinds of inflation as well: wage-push inflation, and demand-pull inflation. Wage-push inflation is definitely associated with higher real wages for the working class and thus for the overwhelming bulk of the electorate. Demand-pull inflation produces wealth for those who find themselves holding positions at bottlenecks, but also tends to boost wages because it squeezes non-bottleneck profits when the labor market gets tight. And yet the claim I see in the public discourse is that demand-pull inflation—the kind we are hoping to get over the next eighteen months—is massively unpopular as well. Why? North does not have an answer:
Noah Smith: Why Do People Hate Inflation?: ‘I don’t think we should be panicking about inflation yet. But… why do we even care… in the first place?… Inflation really made people very very upset from maybe around 1974 to around 1983. That roughly coincides with when inflation was actually high in America…. When you look at a graph of nominal wages, it sure looks like inflation doesn’t affect it very much…. Now look at a graph of real wages! It’s all over the place!… It sure looks like nominal wages are sticky, meaning that inflation—if it happens for the wrong reasons—can reduce workers’ wages and real purchasing power….. Why is it so hard for workers to negotiate cost-of-living raises? Why was this so hard even in the late 60s and 70s, when unions were much stronger than they are today? What is broken in our wage-setting process? If we can answer that question, we might have a chance of fixing it…
LINK: <https://noahpinion.substack.com/p/why-do-people-hate-inflation>
6) In 1453 the Muslim-Turkish empire ruled by the Osmanli dynasty is the most powerful, best organized, potentially richest state and society in the world. And, indeed, up to 1688 it is the Turkish armies of the Ottoman Empire that are periodically besieging Vienna, not Austrian armies that are periodically besieging Constantinople. And yet 1453 is the fundamental power zenith: thereafter the Ottoman economy and society fail to take pace with growth and innovation in Western Europe. Why? This is a deep puzzle. Here the very sharp Anton Howes takes a look at a small piece of it, and concludes that it is inequality and centralization, plus frictions, that blocked the Ottoman Empire from copying European innovations in printing with movable type:
Anton Howes: Why Didn’t the Ottomans Print More?: ‘There was not, then, necessarily any particular obstacle to the introduction of Arabic-character printing presses to the Ottoman Empire. It’s just that, given the much higher costs involved in both establishing and running them, it really needed an active interest from the Sultan. He was the one person able to afford the up-front costs and commercial risks, which in western Europe could otherwise be borne by a much broader group of elites, among whom would-be printers could expect to find at least a handful of interested people to become patrons. The reason for the non-adoption of the printing press in the empire may thus have been as simple as apathy, which was only overcome in the 1720s when Müteferrika forcefully made the case for printing’s benefits. There may, of course, have also been many reasons for earlier sultans to not want to encourage printing either, and the tales of European travellers are replete with supposed justifications for its absence in the empire. But I suspect that the sultan’s mere apathy was probably enough…
LINK: <https://antonhowes.substack.com/p/age-of-invention-why-didnt-the-ottomans>
7) Cryptocurrencies are not just a bizarre exhibition of the madness of crowds in finance. They are a menace. So says Ken Rogoff. And I believe he is correct:
Ken Rogoff: A Curse Worse than Cash: ‘Although prominent cryptocurrency advocates are politically connected and have democratized their base, regulators simply cannot sit on their hands forever. Malicious ransomware attacks targeting growing numbers of firms and individuals could prove to be the tipping point…. The view that cryptocurrencies are just an innocent store of value is stupefyingly naive. Sure, their transaction costs can be significant enough to deter most ordinary retail trade. But for anyone trying to avoid stringent capital controls (say, in China or Argentina), launder illicit gains (perhaps from the drug trade), or evade US financial sanctions (on countries, firms, individuals, or terrorist groups), crypto can still be an ideal option. After all, the US government has for many decades turned a blind eye to the role its $100 bills play in facilitating weapons purchases and human trafficking, not to mention undermining poor-country governments’ ability to collect tax revenues or maintain domestic peace. Although Bitcoin and its crypto variants have by no means surpassed the dollar in facilitating the global underground economy, they are certainly on the rise…. Cryptocurrencies offer a way to invest in the global underground economy…. Crypto investors sometimes argue that the sector has become so big, and attracted so many institutional investors, that politicians will never dare regulate it. Perhaps they are right. The longer it takes for regulators to act, the harder it will be to get private digital coins under control…
8) I do not know whether our legislators are actually bad guys, or think that they must posture in front of us because too many of us voters are bad guys. But the pose of the cackling villain—we abandoned the moral high ground long ago, ha-ha! Now we can act evilly and do evil!!—is very disconcerting:
James Medlock: ’Little known fact: when you lose the moral high ground, that precludes you from acting morally going forward: Ted Lieu: "I strongly disagree with the Biden Administration on their global vaccine rollout. We should help our allies first instead of letting a third party decide where vaccines should go. Since there are not enough vaccines, should we help India or Iran? We should help India first. We lost that moral high ground the moment we decided to prioritize Americans first when it came to vaccines. Now we need to make sure American interests are protected first”…
Not So Blind Caesar: ‘Medlock, stop bullying the 19 year old intern who kinda forgot how policy communications go…
James Medlock: ‘I sorta feel like this is Ted himself, he strikes me as a very online person…
Bernie Prat: ‘I lost the moral high ground back in ‘87 and haven’t looked back. It’s liberating, honestly. I’m surprised Ted waited so long…
LINK: <https://twitter.com/jdcmedlock/status/1400658244700278786>
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Howes makes a good point about the printing press, but what was the point of a printing press without a literate community. In Europe, there was a literate community of priests and scholars. The church had kept literacy alive, and, by 1453, there were universities all over Western Europe. Books were outlandishly expensive, but there were people to read them.
More importantly, those literary communities were valuable to the ruling class. A university would produce engineers, cartographers, chemists, bureaucrats, officers, propagandists, jurists and other useful persons. There was no dynamic like this in the Ottoman Empire, if only because there was a lot more inter-state competition in Europe than in the Mideast. To compete, in business, peace or war, one needed that literate community as a source of ideas as well as bureaucratic cogs.
My problem with Noah Smith's optimism is that ignores the natural structure of market economies. He speaks of a large happy healthy middle class perhaps compromising most of society. The problem is that while market economies have have positive eigenvalues, they also have eigenvectors that lead to a concentration of wealth. This is because central planning and increasing scale raise productivity, but the same market forces that reward that increase also narrow the path for rewards to others. Worse, since this a natural resonance, the benefits to all first go to win, place and show, but then to win alone. Almost every society, market based or not, heads down the same path and subject to the same forces.
I cannot imagine how one can design a market economy that avoids that problem. The only real solution is to change the matrix and provide a countervailing force, one that lessens the individual rewards for increasing productivity by spreading them across society at large. We know how something about the necessary changes. They were demonstrated in the US by the New Deal and in many countries after World War II. One big problem flows from the aggregated prisoner's dilemma. There are always enough survivors who have benefitted from betrayal and enough followers inspired by their success to form a powerful political force against a middle class society.