Worþy Reads: For 2021-07-23 Fr
A preview of my weekly read-around for Equitable Growth:
Worthy Reads from Equitable Growth:
1) I would put this more strongly. The price level now is 10% below where consensus forecasts that it would be a decade ago. In that context, a quarter—or a year, or two years—of 5%/year inflation is simply not an issue:
Francesco D’Acunto & Michael Weber: A Temporary Increase in Inflation Is Not a Long-Run Threat to U.S. Economic Growth & Prosperity: ‘Recent 5 percent inflation rate appears much less concerning once we account for what economists call the base rate effect—the price level 12 months ago, in the midst of a pandemic recession in which demand was artificially low due to lockdown measures…. As this base rate effect vanishes over the next few months—due to the sharp drop in the price level early in the recession partially reversing in the second half of 2020—then, all else being equal, policymakers should expect more moderate Consumer Price Index inflation readings going forward…. Accumulation of higher savings, paired with new spending opportunities and the reopening of the U.S. economy, made the scope for demand pressure very concrete. Indeed, new car and home sales are at their highest levels since before the Great Recession of 2007–2009…
2) As John Maynard Keynes wrote, long ago, the boom not the slump is the time for austerity. And “slump” includes the first, second, and third stages of the recovery as well. From <http://voxeu.org>:
Davide Furceri, Prakash Loungani, Jonathan Ostry, & Pietro Pizzuto: Fiscal Austerity Intensifies the Increase in Inequality After Pandemics: ‘This column predicts the likely distributional effects of Covid–19 by analysing evidence from five previous outbreaks (SARS, H1N1, MERS, Ebola, and Zika). It finds that severe austerity measures were associated with inequality increases three times greater than expansive fiscal policy following a pandemic. Premature austerity is self-defeating from both a macro and an equity standpoint…
LINK: <https://equitablegrowth.org/fiscal-austerity-intensifies-the-increase-in-inequality-after-pandemics/>
3) I think this piece was extremely well put together:
Kate Bahn: Testimony Before the Joint Economic Committee on Monopsony, Workers, & Corporate Power: ‘When employers have outsized power in employment relationships, they are able to set wages for their workers, rather than wages being determined by competitive market forces. Given this monopsony power, employers undercut workers. This means paying them less than the value they contribute to production. One recent survey of all the economic research on monopsony finds that, on average across studies, employers have the power to keep wages over one-third less than they would be in a perfectly competitive market. Put another way, in a theoretical competitive market, if an employer cut wages then all workers would quit. But in reality, these estimates are the equivalent of a firm cutting wages by 5 percent yet only losing 10 percent to 20 percent of their workers, thus growing their profits without significantly impacting their business…
4) The concentration of profits into a relatively small number of firms over the past two generations is something that I do not well understand about the American economy I live in:
Heather Boushey: ‘The Guardrails Have Come Off the US Economy’: ‘Over… most of my life… growing economic inequality…. How do we make productivity and wages grow together?… We’ve allowed some to reap the gains of growth and we’ve allowed the economy to shift in a direction that isn’t good for people and families. We can see that in how we’ve been enforcing our notion of what is a fair market, how we’ve been taxing and who we’ve been taxing and who is paying their fair share to the tax system, and what we’re doing to the planet in climate change, which is ultimately destabilising…. For me it is, “are we making sure that markets work, that they’re open, that they’re competitive, that capitalism can bring us all the good things without just a very small number of businesses taking the gains and then that not leading to the kind of investment that we see in a much more competitive economy?” So I think competition policy is one. Making sure that we are thinking about a fair and just tax system is another…. Other things you have to think about—do American workers have the right to organise? Also, this isn’t in my lane, but do they have the right to vote?…
LINK: <https://www.ft.com/content/33a86191-3a75-452b-b3ce-d3d35ae90e06>
Worthy Reads from Elsewhere:
1) The people claiming that it was very likely there would be a big employment boost from cutting off plague-time unemployment insurance always seemed to me to be… not competent… or not thinking coherently. And, as of right now, it is looking as though they were, as expected completely wrong. But will there be any rethinking on their part as the empirical evidence comes in? I strongly suspect not. As is more and more the case these days, policy effectiveness and societal well-being optimality is not the point. The cruelty is the point:
Arindrajit Dube: Early Impacts of the Expiration of Pandemic Unemployment Insurance Programs: ‘So far, 25 states have ended their participation in all or most of the pandemic unemployment insurance (UI) programs…. All… have ended the $300/week benefit boost (Pandemic Unemployment Compensation, or PUC)…. 21… have also ended their participation in the Pandemic Emergency Unemployment Compensation (PEUC)… Pandemic Unemployment Assistance (PUA)…. Around 3/4 of workers…. This… [would be] especially true in the 25 states cutting off UI, since unemployment rates are lower there than in states keeping the pandemic UI for now. So what has been the impact so far on the labor market?… I group states by their dates of expiration: 4 states ended the programs on June 12, then 8 more states ended them on June 19, and finally 10 additional states ended participation on June 26…. In the 12 states where pandemic UI expired on June 12 (grey) or 19 (green), the share of population receiving UI fell sharply between early June and early July… a roughly 60 percent reduction in the UI rolls in these states…. Between early June and early July, the EPOP rates in the states seeing large drops in UI receipt (i.e., 12th and 19th June cohorts in grey and green) saw no uptick in employment…. Certainly there was no immediate boost to employment during the 2–3 weeks following the expiration of the pandemic UI benefits…. Of course, this evidence is still early, and more data is needed to paint a fuller picture…
2) More on how to think about the coming SARS-COVID-19-DELTA plague in a half-vaxxed country:
Natalie E. Dean: ’Vaccines reduce… risk… but they aren’t perfect. Then what fraction of transmission in the population is from the vaccinated? How might this change with new variants?… A mental model with worked examples…. Are vaccine breakthroughs less likely to transmit? Due to lower viral load, shorter illness, location of replication (nose, lungs). This is VE against infectiousness (aka VE_I). A recent preprint estimated 50% (w/ high uncertainty)…. How often vaccinated individuals go on to transmit also depends upon: - The level of exposure in the community - The fraction of people vaccinated - The reproduction number R(t)…. If we assume exposure is similar for unvaccinated and vaccinated individuals… in this simplified model, the key is the % of the population vaccinated, plus the combination of the vaccine’s effect to reduce infection and reduce infectiousness (sometimes called VE against transmission)…. Consider a vaccine that reduces infection by 80% and reduces infectiousness by 50%. If 50% of the population is vaccinated, about 9% of transmission is attributable to vaccinated individuals…
LINK: <https://twitter.com/nataliexdean/status/1418577831097901056>
3) I confess this really surprises me, too. “Obeying the law is for little people” is not something that seems to be to be a likely vote-winner for any set of politicians. And as the Democratic Party shifts to the left with its increasing concern with equitable growth, where might the Republican donors go should Republican candidates cross them on things like pay-your-taxes?:
Paul Krugman: Should Only the Little People Pay Taxes?: ‘Even I was caught by surprise when Republicans negotiating over a possible infrastructure bill ruled out paying for it in part by giving the Internal Revenue Service more resources to go after tax evasion…. I’m not surprised to learn that a significant number of senators are sympathetic to the interests of wealthy tax cheats, that they are objectively pro-tax evasion. I am, however, surprised that they are willing to be so open about their sympathies. There is, after all, a big difference between arguing for low taxes on the rich and arguing, in effect, that rich people who don’t pay what they legally owe should be allowed to get away with it…
LINK: <https://www.nytimes.com/2021/07/22/opinion/tax-evasion-irs.html>
4) The ease with which the right-wing base can be grifted continues to amaze me:
Tom Porter: Trump’s PAC Spent No Money on Proving Election-Fraud Claims: Report: ‘Trump founded the Save America leadership PAC last year as he pushed his “big lie” that the election had been stolen from him as a result of an elaborate plot by Democrats…. None of the money had been channeled into concrete attempts to challenge last year’s election result…. Trump… he hasn’t used the money from his PAC war chest to support the reviews…. The deadline for the PAC to make public its financial statements in compliance with federal laws is July 31. A Trump spokesperson did not immediately respond to Insider’s request for comment…
5) It is much less clear to me than it is to Paul that the “median” core measures are to be preferred—it depends on how rising used-car and hotel prices feed into expectations. What is clear to me is that I DO NOT CARE. We are burning rubber as we rejoin the highway at speed. Some inflation now is necessary, and a sign that we are doing desirable things:
Paul Krugman: Strengthening Your Core: ’The theory of core inflation has been a huge success story: people who understood it avoided the inflation panics of 2008 and early 2011 (remember Paul Ryan accusing Bernanke of “debasing the dollar”?). Which measure of core inflation should you use? It didn’t really matter: they all told the same story—until now. But in the post-pandemic, conventional core is running very hot, while other measures, especially median inflation, not. It seems clear to me that the less-used measures are telling a more accurate story: used car prices and hotel rates don’t belong in core inflation. Markets seem to get that; economic reporting less so…
LINK: <https://twitter.com/paulkrugman/status/1416786559752409093>
6) The right solution, in my opinion, is to make a Supreme Court appointment a twenty-year one-shot job, and appoint a new Supreme Court justice every year:
Ben Wittes: Prepared Statement: ‘I do not doubt that Republican conduct over the past half decade has set a new milestone of aggressiveness, and I am not trying to draw any sort of equivalence between Republican behavior during the Trump administration and prior outrages against the norms of the confirmation process. They are not equivalent. That is the nature of an escalatory cycle; each escalation takes the combatants to a new place. My point, rather, is that the behavior was altogether predictable given the cycles of retribution that had taken place over the previous three decades. I believe that court-packing, enlargement, or some other manipulative scheme will likely serve as the next phase of this ongoing escalation—unless, that is, as I describe below, our political actors take it as an opportunity for deescalation. The essential reason for the long-term escalatory cycle is that both sides perceive themselves as playing defense against a high-stakes attack on their fundamental values. Both sides perceive the judicial nominations of the other side as deeply threatening and as part of a long-term attempt by the opposing party to exercise political control through unelected means. Moreover, both sides believe, with some justice, that the other side plays dirty and will manipulate the rules to its own advantage. Hence, each side has a significant incentive to violate the current norms when it has the chance and the power—believing, probably rightly, that the other side would do the same as soon as it had the chance. It’s a classic prisoner’s dilemma, and it operates according to its own logic. The perception on the part of each party that it is acting defensively blinds both sides to their own contributions to the decay of the governing norms…
LINK: <https://www.whitehouse.gov/wp-content/uploads/2021/07/Wittes-Testimony.pdf>
7) A very nice history lesson from the extremely sharp Annette Gordon-Reed, Harvard Law School University Professor. No successful Haitian Revolution, no Louisiana Purchase sale to Jefferson, and then in all likelihood both France and Britain willing to spend resources to contest control of the Mississippi Valley with the United States—especially as one’s presence in the area will induce the other to see it as a key cold- or hot-war battlefield:
Annette Gordon-Reed: We Owe Haiti a Debt We Can’t Repay: ‘In 1791 the enslaved people of Haiti… engineered the first and only successful slave revolt in modern history…. France’s richest colony… worldwide demand for sugar and the slavery-based economy that fulfilled it. Led by Toussaint L’Ouverture, Africans on the island violently threw off their enslavers…. Americans watched these proceedings closely. As refugees from Saint-Domingue arrived in the United States, bringing news of the successful revolt, white Southerners were alarmed…. Napoleon brought a new challenge to Saint-Domingue when he decided in 1802 to reassert control over French colonies in the Americas. He sent a fleet to the island to accomplish the task. The residents fought back and, with the help of Aedes Aegypti, the mosquito that carries yellow fever, repelled the invaders…. Napoleon… the territory of Louisiana as a supply station…. Once the Haitians had shattered his dream, Napoleon saw no reason to hold on to the territory. He was eager to sell it, and President Jefferson was equally eager to buy….If not for the French defeat at the hands of the Haitians, the sale may not have come off, leaving the United States possibly forever divided by a huge swath of French-controlled land or forced into armed conflict with the French over it. Of course, what the United States really bought from France was the right to contend with the various Indigenous people who had their own claims to the land…. The Haitians, who suffered enormously for their victory in the early years of the 19th century and who were treated so poorly by Americans and Europeans for decades after that, gave the people and the government of the United States a generally unrecognized benefit. Writing in “History of the United States During the Administrations of Thomas Jefferson,” Henry Adams said it plainly: the “prejudice of race alone blinded the American people to the debt they owed to the desperate courage of five hundred thousand Haytian Negroes who would not be enslaved”…
LINK: <https://www.nytimes.com/2021/07/21/opinion/haiti-us-history.html>
8) The extremely sharp Leah Boustan, Princeton economic history professor, is a very kind and warm-hearted person. So what has prompted her to highlight this from 2019?
Leah Boustan: ’I don’t say this lightly because I try to be kind and open to everyone on Twitter but f— you: David Brooks: “Waiters are 87% friendlier as they hand me the bill and I’m about to decide the tip amount than they are at any other point in the meal…
LINK: <https://twitter.com/leah_boustan/status/1154738232808091648>
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Regarding two of the quotes above:
"I’m not surprised to learn that a significant number of senators are sympathetic to the interests of wealthy tax cheats, that they are objectively pro-tax evasion. I am, however, surprised that they are willing to be so open about their sympathies." (from 3)
"None of the money had been channeled into concrete attempts to challenge last year’s election result…. " (from 4)
I suspect that part of the issue in these cases - and others - is that the USA seems to have reached a tipping point of "politics as entertainment". For a significant part of the population, it seems (at least from my distant vantage point) that it literally does not matter at all what elected officials actually DO; all that matters is how they perform for the cameras.
This is exacerbated by media that glorifies false narratives and outright falsehoods, but also by "mainstream" "quality" media sources who constantly publish a narrative of conflict - largely disconnected from the facts of the matter or what is or is not being accomplished.
The end result is something like professional wrestling, where the only thing that matters is who one is rooting for, and the end result is of no real importance.