Worþy Reads: For 2021-10-08
A preview of my weekly read-round for Equitable Growth;
Worthy Reads from Equitable Growth
1) If the distribution of income and wealth is not moving much, and if one is (for reasons that are largely tactical-political) willing to submerge questions about the current state of the distribution of income and wealth, then there is some sense in taking measures of national income as a summary statistic of the state of the economy. If not, not. For a generation and a half it has been clear that neither of those conditions holds anymore, if they ever really held at all. And yet we are still using national income as our summary statistic—when we are not using the stock market, that is:
Austin Clemens: Measuring Economic Outcomes for All U.S. Workers & Their Families Will Hold Policymakers Accountable for Creating Broad-Based Growth: ‘U.S. GDP is completely inadequate for understanding our modern economy or the well-being of U.S. workers and their families. It cannot tell economists or policymakers anything about the informal work sector, inequality in the economy, sustainability, and myriad other issues that are essential for policymaking in the 21st century. The problems with the GDP measure are emblematic of the work by the Washington Center for Equitable Growth to improve economic measurements. We know from research that changes in GDP have a huge impact on the tenor of economic narratives in the United States. But we also know that GDP is increasingly disconnected from the experience of most U.S. workers and their families, most of whom generally see increases in their own incomes that are well below headline GDP figures…
2) I find myself returning to this often: we have a society and a family-organization setup that did make some (although not a great deal of) sense with respect to economic efficiency and the societal work of childcare back in the large-family era before the demographic transition. But that is now a century gone. And we still have mammoth failures of readjustment, many of them linked to the survival of the expectation that the past denial of female opportunity creates a large captive care-work labor force that can be paid low salaries:
Sam Abbott: The Child Care Economy: ‘Investments in early care and education can fuel U.S. economic growth immediately and over the long term. Fast facts: Insufficient child care options can prevent parents who wish to work from doing so, with mothers often bearing the brunt of this challenge. Among parents who wish to work, child-rearing tends to interfere more with women’s labor supply and employment outcomes than with men’s. This leaves potential economic growth unrealized, as women’s labor force participation is significantly associated with Gross Domestic Product growth. High-quality early care and education provides critical socialization and learning opportunities when the brain is developing rapidly and is particularly responsive to the outside environment. Young children in pre-Kindergarten programs experience positive developmental outcomes and are better prepared for school, scoring higher than their peers on standardized measures of reading, spelling, math, and problem-solving skills. Adequate funding is necessary for human capital development. Fully funding the subsidy programs and devoting resources for state-level agencies to assist providers in qualifying for subsidies are two ways in which greater public investment could increase child care availability and quality. Supporting child care workers is crucial for promoting quality care and human capital development. Using public funds to support higher compensation would help stabilize the child care workforce, ensuring that these workers can afford to stay in their jobs. Investing in the nation’s children is one of the safest bets policymakers can make. Research on early care and education programs finds that $1 in spending generates $8.60 in economic activity…
LINK: <https://equitablegrowth.org/research-paper/the-child-care-economy/>
3) Another one of my favorite moments from the Equitable Growth 2021 conference:
Michelle Holder: Child Care & the Economy: 'Lisa Cook and Michelle Holder’s In Conversation at Equitable Growth 2021...
4) Back in the late 1800s, the Iron Chancellor of the German Empire, Otto von Bismarck, could and did say that socialist measures had a place–a not un-prominent place—in his policies. Why? Because on their implementation depended the health and wealth of the German people. The health and wealth of the German people was in the trust of the Emperor, and he was the Emperor’s servant. Plus the health and wealth of the German people was essential if the Emperor was to be able to lead a strong Germany to accomplish his other purposes. And so it is conservative Imperial Germany in the late 1800s that leads the way toward national health insurance, national unemployment insurance, and national pension benefits. There were Bismarck-like conservatives in America once—Herbert Hoover in his progressive moods in the 1920s, before the Great Depression and then the at least success of Franklin Roosevelt new deal made him totally deranged – was one such. But where are the equivalent now?:
Brad DeLong: The Strange Death of Conservative America: ‘American conservatives once sought to ride the waves of markets and innovation toward ever-greater wealth and prosperity, but now they cower in fear. And, as the trajectory of today’s Republican Party shows, that makes them a threat to democracy. If you are concerned about the well-being of the United States and interested in what the country could do to help itself, stop what you are doing and read historian Geoffrey Kabaservice’s superb 2012 book, Rule and Ruin: The Downfall of Moderation and the Destruction of the Republican Party, from Eisenhower to the Tea Party <https://global.oup.com/academic/product/rule-and-ruin-9780199768400?cc=us&lang=en&…>
LINK: <https://braddelong.substack.com/p/project-syndicate-the-strange-death>
Worthy Reads from Elsewhere
1) Dan Alpert is right. The cutting-off of plague-time income support to the unemployed is a huge, huge shock. Yet Friday’s employment numbers show not a ripple. This powerfully reinforces the view that this shift is having no effect on labor supply whatsoever. Thus everybody who has been talking about the adverse labor-supply effects of income support really needs to take a hard Look at their thought processes:
Dan Alpert: 'Second only to the lockdowns in spring of 2020, the biggest pandemic-era shock to the U.S. employment situation was the elimination—by law, not economics—of nearly 10mm workers from the unemployment benefit rolls in September. Will that register yet in payrolls? Stay tuned. BLS NF payrolls up only 194,000. Unemployment falls to 4.8% (odd). Hourly wages up 0.6% M/M.... "Good" news, I suppose is that private sector was up 317K as government fell 123K on huge (and odd, someone explain) collapse in teaching jobs -144K. Of the 317K gain in private sector payrolls—at first blush about half were in traditionally low-wage/low-hours sectors (leisure, retail, administrative, healthcare and social assistance). But some of these sectors saw whopping M/M hourly wage increases. Retail hourly wages were up 0.72% M/M and Education and Healthcare were up a stunning 1.47% M/M. The 52K gain in Goods Producing jobs is a decent number (had the headline been bigger). But even with the good prior monthly revisions, the fact is that adding only 317K private sector jobs when there are supposedly 10mm on offer (and plenty of unemployed) is stunningly low. Flipping over to the household survey for a minute, I am going to go out on a limb here: 183K workers left the labor force (unusual given "labor shortage" and rising wages). But this may be the tip of the iceberg - some former benefit recipients may be throwing in the towel…
2) in the world in which there are powerful psychological and institutional reasons why nominal wage and price levels in many, many sectors and for many, many occupations are sticky downward, structural adjustment via the market requires some inflation. And the more structural adjustment there is to be done in a shorter time, the more inflation is a desirable addition to rather than a subtraction from the supply-side potential of the economy. And yet there are a remarkably large number of people who do not factor this into their thinking. They continue to hold, no matter what the underlying realities of the fundamental economic situation, 21 inflation target that Alan Greenspan kicked out of the air in the 1990s as if it were a sacred totem:
Andrew Elrod: The Specter of Inflation: ‘What are we to make of the jump? Thirteen years ago the bulge in prices was concentrated in petroleum products and food; today the spike is driven by used cars, airfare, and restaurants—sectors acutely impacted by the pandemic. But unlike 2008, there is little reason to suspect today’s rising prices are evidence of an overactive economy. The U-6 rate of total unemployment, which includes those working part-time involuntarily and those who have quit looking for work, remains 9.2 percent. Total capacity utilization, meanwhile, remains sharply depressed at 76 percent.... The history of inflation politics has a very different lesson.... Inflation is not always a problem of excess demand; it can also be caused by mismatch between existing demand and existing supply—a problem of shifting supply to changing demands. (Arguably this is what we are seeing now.) Moreover, reducing the level of spending in the economy can prevent us from achieving other, higher goals.... Both Harry Truman and Franklin Roosevelt confronted inflation without hiking rates and tightening budgets, and there is no reason governments can’t manage their economies similarly today. Inflation, in short, does not have to be a totalizing problem, and we certainly have better prescriptions for dealing with it than those on offer today. The far greater threat, history shows, is inflation fearmongering…
LINK: <https://bostonreview.net/class-inequality-politics/andrew-elrod-specter-inflation>
3) Yes, it would be nice to have cheap reliable zero-carbon fission power. Yes, France got there. Yes, it would be even nicer to have even cheaper and more reliable fission power. Yes, it would be nicer still to have cheap reliable fusion power. But it really looks like, for the next generation at least, the low-hanging economic fruit is all in solar power. It would be silly to make a difficult-to-attain second-best the enemy of a first best that is already at hand:
Noah Smith: Nuclear vs. Solar: ‘One has promise for the future. The other is changing our world right now.... I would love to see technological breakthroughs that solve fission power’s basic problems, and fusion, if it works would be even more exciting.... France’s experience powering itself largely with nuclear reactors (thanks to massive government financing and coordination) shows that we could have done so safely and efficiently—and reduced our carbon emissions enormously in the process—had we chosen to do so. Furthermore, scrapping existing nuclear power plants, like the one at Diablo Canyon, is crazy, and will increase carbon emissions for no good reason.... “Clean firm” power is key to rapidly decarbonizing the grid, and nuclear power is one of the ways we get that. In sum, I am pro-nuclear. But I also feel that many of my techno-optimist friends, in their focus on the promise of nuclear, are giving short shrift to the even greater technological revolution happening right under their noses—the unbelievable progress in both solar power and battery storage. If you are a true techno-optimist, you should definitely be excited by this! It’s not the kind of thing that happens once in a generation—it’s the kind of thing that has never happened before…
4) I keep thinking that it is vitally important that I understand the Chinese economy and China’s political economy. But the more I read and study, the more I realize that I do not understand it. Here at Project Syndicate, however, there are a number of well-written and persuasive pieces by smart people who think they do understand the Chinese economy and Chinese political economy today:
Project Syndicate: A Reckoning for the China Dream: ‘Chinese policymakers may well have the wherewithal to prevent the crisis at Evergrande, the country’s second-largest property developer, from triggering a broader financial and economic meltdown. But whether they can successfully reorient China’s growth model is far less certain.... Shang-Jin Wei urges the Chinese authorities to make it clear that they will do what is necessary to contain potential spillovers.... Kenneth Rogoff... [says] the larger challenge... is to rebalance an economy that has depended for too long on a bloated real estate sector.... Stephen S. Roach... fears that President Xi Jinping’s regulatory clampdown and “common prosperity” campaign will subdue... entrepreneurial.... Raghuram G. Rajan... warn[s]... China’s lack of political checks and balances heightens the risk.... Yuen Yuen Ang... explains why Xi is determined to take China out of its current decadent Gilded Age and into its own era of progressive reform. But Northwestern University’s Nancy Qian recalls that... consequences... prove calamitous when policymakers get it wrong…
LINK: <https://www.project-syndicate.org/bigpicture/a-reckoning-for-the-china-dream>
5) A very well written and persuasive argument that, at least since 1948, academic economics has been under a powerful curse to increase its “formal rigor“ at the expense of greatly narrowing its range of proper application, all the while pretending that it remains highly relevant to pretty much everything. This needed to be stopped at least two generations ago. And now, finally, it may actually be being stopped:
Nick Gruen: A Lucky Boy from a Golden Age of Economics: ‘Success as an economist—a discipline which, as Keynes remarked, is intellectually “a very easy subject compared with the higher branches of philosophy and pure science?” Keynes’ sting in the tail was that “good, or even competent, economists are the rarest of birds.”... Economics itself is built on very simple foundations.... I was once at a lunch following the launch of Nugget Coombs’ last book.... I responded that economics might look complex, “but it’s really all built on a single idea”. Nugget, who like surprisingly many economists towards the end of their days despair of their profession, leant across to her and said: “Yes and it’s wrong!” Max [Corden] and my father made their careers during a golden age of economics in which conceptual simplicity was a feature not a bug and the central criterion of good work was its generality and usefulness. Gradually academia somehow came to reward conspicuous cleverness as its apex value and quite quickly its usefulness of economics receded.... The money quote from Hicks: “It is, I believe, only possible to salvage anything from this wreck... if we can assume that the markets... do not differ very greatly from perfectly competitive.... At least this get-away seems well worth trying. We must be aware, however, that we are taking a dangerous step, and probably limiting to a serious extent the problems with which our subsequent analysis will be fitted to deal…
LINK: <https://www.themandarin.com.au/94551-a-lucky-boy-from-a-golden-age-of-economics/>
6) Paul Krugman is the best in the world at building a sensible economic model to serve as a very powerful intuition pump and mind opener. And he is thus one of the very few of us whom John Maynard Keynes would classify as an excellent economist. I think he hits one of the nails squarely on the head here when he stresses that model-building is useful when it is used to open minds to possibilities, and destructive when it is used to close minds to reality:
Paul Krugman (2018): Uses and Abuses of Economic Formalism: ‘[Nick] Gruen... really, really doesn’t like the formalization of economies of scale and imperfect competition in trade that went along with the rise of the “new trade theory”, and compares it to the excessive faith in formalism that I myself have condemned in much of macroeconomics. Obviously I don’t think that’s fair, and could say a lot about why I think the formalism was helpful.... What the freshwater school did was to take the actual experience of business cycles and say, “We don’t see how to formalize this experience in terms of maximizing equilibrium models; therefore it doesn’t exist.”... This attitude, I’ve argued, had major negative consequences, not just for research, but for policy: it helped cultivate a sense of learned helplessness in the face of mass unemployment. What about new trade theory? What us new trade theorists did was say, “It looks as if there’s a lot going on in world trade that can’t be explained in existing formal models. So let’s see if there’s a different approach to modeling that can make sense of what we see.” In other words, the attitude toward formalization was... to help clarify our reality sense, not deny it. Now, we can argue about how much good this formalization did. I still believe that the formal models provided a level of clarity and legitimacy to trade discussion that wasn’t there before.... But one thing new trade theory certainly didn’t do was lend support to really bad ideas, or induce policy paralysis. And another thing it didn’t do was divert trade economists away from studying the real world.... It should be that formalism is there to open your mind, not close it, and if the real world seems to be telling you something inconsistent with your model, the problem lies in the model, not the world…
7) Out of my wheelhouse, but I do think it is very important to register that there are three things going on here: (1) mRNA (and other) vaccines remain very effective at preventing infection with the COVID plague. (2) Conditional on catching the plague, having been vaccinated does not make you less infectious to others. (3) Conditional on catching the plague, having been vaccinated does make you much less vulnerable to severe disease and death. Vaccines are very effective for the vaccinated. But vaccines do not make it any healthier for the unvaccinated to come in contact with a plague carrier:
Charlotte B. Acharya & al.: No Significant Difference in Viral Load Between Vaccinated & Unvaccinated, Asymptomatic & Symptomatic Groups Infected with SARS-CoV-2 Delta Variant: ‘This article is a preprint and has not been peer-reviewed [what does this mean?]. It reports new medical research that has yet to be evaluated and so should not be used to guide clinical practice…
LINK: <https://www.medrxiv.org/content/10.1101/2021.09.28.21264262v1>
8) Truth be told, I never thought much of the Yale program in “grand strategy“. I was arrested by the fact that, in the introduction to his book On Grand Strategy, ex-program director John Lewis Gaddis thanks, as “practitioners“ of grand strategy, David Brooks and Peggy Noonan, among others. Anyone that eager to flatter right wing offered colonists is, I suspect, Not likely to be directing an academic program high-quality enough to be worth my time. Now it appears that the Yale President and the Yale Development Office Regarded it as a money pump from donors rather than as an intellectual crown jewel, and Gaddis’s successor as program Director, history professor Beverly Gage, has resigned in protest against Development Office and donor infringements of academic freedom. Not a good look at all:
Yale Department of History: Statement: ‘The Department of History stands with Beverly Gage in her resignation from the Grand Strategy Program. No faculty member should have their courses or programs under outside surveillance. It is a longstanding principle of academic freedom that donors to university programs do not control or shape the scholarship, curriculum, or classes that their donations support. And they should not select the members of advisory boards, nor should we have advisory boards intended to oversee and regulate our teaching. We protest the infringement on Professor Gage’s admirable leadership of the Grand Strategy Program. We would like explicit reassurance that the university administration will protect the academic freedom of all faculty members and the integrity of all departments, programs, centers, and institutes on our campus…
LINK: <https://history.yale.edu/news/statement-department-history>
That COVID paper was about viral load. It doesn't account for duration of the infectious period. The vaccine changes the mix of mild and severe cases. I'm out of my wheelhouse here too, but I'm under the impression that people with mild COVID cases are infectious for a shorter period of time than people who get much sicker. If you get over the disease in a few days or a week, you will be spreading it for a shorter time than if you are suffering for weeks or months.
The number we want is the integral over the infectious duration times of the shedding viral load. This is probably a pain in the nose to measure.
Brad, Noah,
Has either of you thought about addressing the economic claims of teh UK conservative party over their claim that the UK is embarked on a high-wage and high-productivity model which explains the current supply shortages?
I can see high wages occurring, but how is higher productivity to be achieved with service jobs like HGV drivers, or farm animal butchers?
It seems to me that Roubini might be right about stagflation if applied to the UK.