Over at the Washington Center for Equitable Growth: The Social Insurance State, Economic Problems of the North Atlantic, Redistribution, and the Lesser Depression: Monday Focus: March 10, 2014: Back in the 1970s and 1980s I was told over and over again–by pundits, right-of-center politicians, political scientists, and not a few economists–that the source of the North Atlantic’s economic problems play in its overly-democratic politics.
The argument went more-or-less like this:
Some voters want goodies; other voters want low taxes; politician satisfy them by expanding programs and cutting taxes, producing debt. The debt must either be amortized through high taxes that discourage investment and entrepreneurship or through printing money which produces inflation and also deranges the price system and slows growth.
Thus, I was told over and over again, the economic problems of the north Atlantic in the 1970s and 1980s–the productivity growth slowdown in the inflation of the 1970s–were the result of an overly-large welfare state produced by an overly-democratic government. Both of these, the argument went, needed to be fixed.
This never seemed to me to make quantitative sense… READ MORE
Kevin Drum: Map of the Day: America's Cities Are the Real America | Mother Jones: "You've seen all those Election Day maps that show gigantic swaths of red, suggesting that the vast majority of real America votes conservative.
Well, for your entertainment, here's the flip side. David Atkins passes along the map below, which shows economic activity in the United States. The 25 or so largest urban centers in America account for half of all economic activity.
Not bad for a bunch of pinko elitists, is it?
Thomas Frank: Paul Krugman won’t save us: “When President Obama declared in December that gross inequality is the ‘defining challenge of our time’, he was right, and resoundingly so…. However, he quickly backed away… at the urging of pollsters and various Democratic grandees. I can understand the Democrats’ fears… a throwback to an incomprehensible time…. Unfortunately, they really have no choice. Watching… the bankers steered us into disaster in 2008 and then… harvested the fruits of our labored recovery–these spectacles have forced the nation to rediscover social class…
My thought here is to ask the Tonto question: “Who is this ‘us’, kemosabe?” The nation–with the exception of the top 1%, who understand social class very well–has not rediscovered social class. If the nation had rediscovered social class, “inequality” would poll better and “upward mobility” would poll worse–would be seen as the mess of overdone pottage that it is. I think we would have a healthier politics if the 99% had rediscovered social class. But pretending it has does not make it so. There is a big task of education and analysis ahead. And trashing Paul Krugman is a rather odd exercise to engage in, given that Paul Krugman has been raising the hue-and-cry about the disastrous consequences of rising inequality for America since Thomas Frank was in diapers. READ MORE
The New York Times > Washington > Social Security, Growth and Stock Returns: In barnstorming the country over Social Security, administration officials predict that American economic growth will slow to an anemic rate of 1.9 percent as baby boomers reach retirement. Yet as they extol the rewards of letting people invest some of their payroll taxes in personal retirement accounts, President Bush and his allies assume that stock returns will be almost as high as ever, about 6.5 percent a year after inflation.
Can we trust our Silicon Valley behemoths, our new "captains of industry" for the twenty-first century? Ben Thompson has an interesting take:
Ben Thompson: Microsoft v Microsoft: "In his first column for the New York Times, Farhood Manjoo advocated relying on Apple, Google, and Amazon:
When you decide what to use, you’ve got to play every tech giant against the other, to make every tech decision as if you were a cad — sample every firm’s best features and never overcommit to any one.
I rather agree with and follow Manjoo’s advice, and my reasoning is all about the incentives that arise from Apple, Google, and Amazon’s business models:
C. Northcote Parkinson was the first to identify the phenomenon of "injelitance"--the jealousy that the less-than-competent feel for the capable.
Here we have a classic case from the anthropologists at Savage Mind, who are both positively green with envy at Jared Diamond's ability to make interesting arguments in a striking and comprehensible way, and also remarkably incompetent at critique.
Michael Mazerov: More Evidence That You Can’t Lure Entrepreneurs With Tax Cuts: "Cutting state taxes to attract entrepreneurs is likely futile at best and self-defeating at worst, a new survey of founders of some of the country’s fastest-growing companies suggests....
The 150 executives surveyed by Endeavor Insight... said a skilled workforce and high quality of life were the main reasons why they founded their companies where they did.... This suggests that states that cut taxes and then address the revenue loss by letting their schools, parks, roads, and public safety deteriorate will become less attractive to the kinds of people who found high-growth companies. (Hat tip to urbanologist Richard Florida for calling attention to the study.) As I wrote last year on why studies show state income tax cuts aren’t an effective way to boost small-business job creation:
Nascent entrepreneurs are not particularly mobile. Rather, they tend to create their businesses where they are, where they are familiar with local market conditions and have ties to local sources of finance, key employees, and other essential business inputs....
The new survey... found that:
The most common reason cited by entrepreneurs for launching their business in a given city was that it was where they lived at the time... personal connections... specific quality of life factors... access to nature or local cultural attractions.... 31% of founders cited access to talent as a factor... the link between the ability to attract talented employees and a city’s quality of life.... 5% of entrepreneurs cited low tax rates as a factor... [2% mentioned] business-friendly regulations....
Kansas, North Carolina, and Ohio have cut personal income taxes significantly in the last two years, and in each case the governor argued that it would give a big boost to creating or attracting new firms. This new study provides more compelling evidence that that’s the wrong approach. Let’s hope other states don’t start down the same dead-end path.
Outsourced to Blue Girl: They gave us a republic...:: What's the Worst that Could Happen?: "Al Gore... spoke to a packed Grand Ballroom at the Westin Crown Center for about an hour, and the audience could not have been more receptive or friendlier.
He was clearly a man at ease, who knew he was among friends, and this was conveyed by a warm, engaging and easy manner. It was enough to make me wonder "Where was this guy in 2000? This guy would have carried his home state, or at least most of those Nader voters and that would have been enough."... What is within our power to change, as he pointed out, is the future, and then he made the people... responsible for making sure we each and every one understood that we are integral to making sure that we, as a society, choose the right pathways as we move forward....
Over at the Washington Center for Equitable Growth: How Key Was the Seventeenth-Eighteenth Century Commercial Revolution to the Eighteenth-Nineteenth Century Constitutional-Government Revolution?:
I have been thinking about Mauricio Drelichman and Hans-Joachim Voth’s Lending to the Borrower from Hell: Debt, Taxes, and Default in the Age of Philip II. And I just finished ranting about all this over breakfast at Rick and Ann’s to the patient, good-humored, and extremely intelligent Joachim Voth.
So it is only fair that I inflict on the rest of the world what I inflicted on him:
BERKELEY – Back in the late 1980’s, Japan seemingly could do no wrong in economists’ eyes. They saw a clear edge in Japan’s competitiveness relative to the North Atlantic across a broad range of high-tech precision and mass-production industries manufacturing tradable goods. They also saw an economy that, since reconstruction began after World War II, had significantly outperformed the expected growth of European economies. And they saw an economy growing considerably faster than North Atlantic economies had when they possessed the same absolute and relative economy-wide productivity level.
Angus Deaton: US inequality and the Pareto Criterion:
There is much to be said for equality of opportunity, and for not penalizing people for the success that comes from their own hard work. Yet, compared with other rich countries, and in spite of the popular belief in the American dream that anyone can succeed, the United States is in fact not particularly good at actually delivering equal opportunities.
From his eyrie in Palo Alto, CA, square in the middle of the Bay Area megalopolis, one of the key jewels of the urbanity and urbane civilization that is the Left Coast, Victor Davis Hanson writes... something that is, quite frankly, remarkable even for him.
So how is new UC Berkeley Chancellor Nicholas Dirks doing, anyway?
As you may or may not remember, I think that the historic tasks of a UC Berkeley Chancellor today are three: two financial (with concomitant implications for the deployment of Berkeley's resources) and the third technological. The financial tasks are:
The technological task is:
And, of course, the chancellor must make progress via the Sisyphean process of bureaucratic persuasion and marginal budget reallocation.
This will be in large part the point of the Equitablog weblogging exercise: we want to play our position, and help focus the attention of the public sphere on the issues that are truly important, rather than joining the webloggy equivalent of the 20 six-year-olds in a mass around the soccer ball who have forgotten which goal is there's and are kicking randomly.
And putting out, once a week or so, an introduction-and-assessment of an issue area seems a good way to do that.
In a year we will have 52 slots. That should be enough to cover great deal of the issues relevant to equitable growth--to the seamless web of advancing material well-being, in its components of accumulation and investment (of factors, ideas, and institutions), production (providing incentives to use accumulated and invested resources to produce stuff, producing stuff in the right proportions, and ensuring demand is there to get the produced stuff bought), distribution (plus its feedbacks onto production and accumulation and investment), and implementation.
Plus dialogue: this will work only if we get the dialogue going...
So: Suggestions? Examples? Pitches? Requests?
The first three are:
Attention Conservation Notice: 2700 words mostly by Ashok Rao reviewing--and dismissing--the arguments against worrying that rising inequality has been a major problem over the past generation.
The near-consensus view over here at Equitable Growth and at the Equitablog is that U.S. economic growth over the past generation has been very disappointing. Too-much of our economic growth has been wasted producing the wrong stuff and delivering it to the wrong people, and we have failed to properly and productively invest at the rate we could in people, machines and buildings, ideas and organizations, and institutions. The hunch around here is that these two are tightly coupled: that the rapid rise in inequality as a result of the derangement of incentives has both decoupled the links between higher measured real GDP and human economic welfare and material well-being, and has also slowed the growth of our potential to produce real GDP.
But we could be wrong. And many argue that we are. What do we think of their arguments at their best?
Overwhelmed with work, I asked the smart, thoughtful, and enthusiastic Ashok Rao--along with Evan Soltas one of the leading lights in the next generation of webloggers--to take a look at the arguments of Scott Winship (formerly of Brookings and now of the Manhattan Institute) and others. He was not persuaded: cherry-picking and tendentious shifting of the burden of proof was his assessment.
So let me turn the microphone over to Ashok Rao:
Attention Conservation Notice: tl;dr. 9000 words trying to work my way through and in the process provide a reader's guide to the techno-growth stagnation arguments of Robert Gordon, Tyler Cowen, and Brink Lindsey. The arguments are powerful. The authors are very serious economists. I wind up skeptical, and optimistic--partly because I am a techno-optimist by nature, partly because I am a politico-optimist and I think the literature confuses the past generation's failures in distribution and demand-management due to political dysfunction with failures in accumulation and innovation, and partly because I have a different more micro-incremental conception of the process of economic growth than does Robert Gordon.
I. Once and Future Ages of Diminished Expectations
Back in 1990 Paul Krugman wrote a little book--a very nice little book--called The Age of Diminished Expectations. The central point was that the long era of more than a century during which Americans could expect 2%/year growth on average in their real per capita incomes and standards of living was over. This era stretched back to the immediate aftermath of the Civil War. This era saw each generation attain a level of material wealth and well-being twice that of its predecessors: 2%/year growth for 35 years is a doubling. And, Krugman wrote, the slow growth from 1973-1990--during which real GDP per worker had been a mere 1%/year--was a harbinger of a new, more pessimistic future: an age in which Americans' formerly-great expectations of the future would have to be diminished.
Attention Conservation Notice: Harley Shaiken at the Berkeley Center for Latin American Studies asked me if I could write a short comment on a piece he was running by Javier Couso about Chilean politics, "neoliberalismo", once-and-future President Michelle Bachelet, and the electoral victory of her New Majority Coalition--Couso being one of the co-authors of the currently highly influential El Otro Modelo: Del Orden Neoliberal al Regimen de lo Publico. The piece got out of control, and is not a success...
But if you are interested in my not-very-well-connected thoughts on Chilean politics, "neoliberalismo", once-and-future President Michelle Bachelet, Seeing Like a *State the really-existing socialist and neoliberal projects of the twentieth century, and the electoral victory of her New Majority Coalition, they are below the fold...
Jacopo Jacobo Timmerman writes about Gabriel Garcia Marquez writing about Fidel Castro. Marquez is amazed and transfixed as he worshipfully writes about how Castro works so late into the night, telling how many people what they should do in so many different disciplines of life--orthopedics, the baking of bread, and the distribution of beer. Timmerman n writes about how only an insane social system would require a single dictator to be the omniscient expert and authority on everything. And Timmerman n wonders why it is that Marquez responds to this situation with awe rather than with horror.
Where did I read this? When did I read this? Why can't I find it again? Why is my Google-Fu failing me?
Lawrence Jacobs: Right vs. Left in the Midwest:
MINNESOTA and Wisconsin... in 2010... diverged... began a natural experiment.... Wisconsin elected Republicans to majorities in the Legislature and selected a... Republican governor, Scott Walker.... Which side of the experiment--the new right or modern progressivism--has been most effective in increasing jobs and improving business opportunities, not to mention living conditions?... Three years into Mr. Walker’s term, Wisconsin lags behind Minnesota in job creation and economic growth.... Higher taxes and economic growth in Minnesota have attracted a surprisingly broad coalition...
Three years is too short a time to draw any conclusions about state-level economic policies and economic growth. But if the political differences persist, the two states do make a very good matched pair for comparisons: it's not as though one has oil and the other does not, after all.
On a broader scale, there is the possibility of learning a lot about American political economy by comparing the places where the "throw the bums out" effect of the 2010 election was strong enough to, well, throw the bums out and divert the course of governance from its previous pattern, and where the effect was not.
Now, west of the Mississippi and east of the Sierra, I understand why most cities are where they are and where their population comes from: Omaha and Albuquerque, Tulsa and Tucson, Salt Lake City and Oklahoma City, Austin and Las Vegas, Kansas City and San Antonio, Denver and St. Louis and Houston. River crossings and railroads, oil and state capitals, etc.
But Dallas? Why Dallas? What are nearly seven million people doing living in Dallas?
Hear now the words of Rabbi Yeshua Ben Yosef:
Use well your talents for some good purpose. The Kingdom of Heaven is at hand, and if you use your talents well:
the LORD will say unto you: "Well done, thou good and faithful servant: thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy LORD."
In honor of the Parable of the Talents, for the 24 hours starting at 6 AM PST November 17, 2013, the DeLong-Marciarille household will match up to $40 per household all donations made online to Grandmothers Raising Grandchildren at: http://grgahero.org/.
Grandmothers Raising Grandchildren is 48 Luo grandmothers and great-grandmothers raising their 150 AIDS-orphaned grandchildren and great-grandchildren in Ahero, in western Kenya. It is funded through this one-woman zero-overhead NGO who is our California neighbor Bie Bostrom. She spent two years in Ahero as the oldest Peace Corps volunteer in East Africa. Yes, we are giving of our surplus only. But just because you don't want to give of your substance is no reason to be a #%^%€>¥ and not to give at all:
For the kingdom of heaven is as a man traveling into a far country, who called his own servants, and delivered unto them his goods. And unto one he gave five talents, to another two, and to another one; to every man according to his several ability; and straightway took his journey. Then he that had received the five talents went and traded with the same, and made them other five talents. And likewise he that had received two, he also gained other two. But he that had received one went and digged in the earth, and hid his lord's money.
After a long time the lord of those servants cometh, and reckoneth with them. And so he that had received five talents came and brought other five talents, saying:
Lord, thou deliveredst unto me five talents: behold, I have gained beside them five talents more.
His lord said unto him:
Well done, thou good and faithful servant: thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord.
He also that had received two talents came and said:
Lord, thou deliveredst unto me two talents: behold, I have gained two other talents beside them.
His lord said unto him:
Well done, good and faithful servant; thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord.
Then he which had received the one talent came and said:
Lord, I knew thee that thou art an hard man, reaping where thou hast not sown, and gathering where thou hast not strawed. And I was afraid, and went and hid thy talent in the earth: lo, there thou hast that is thine.
His lord answered and said unto him:
Thou wicked and slothful servant, thou knewest that I reap where I sowed not, and gather where I have not strawed. Thou oughtest therefore to have put my money to the exchangers, and then at my coming I should have received mine own with usury. Take therefore the talent from him, and give it unto him which hath ten talents:
For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath. And cast ye the unprofitable servant into outer darkness: there shall be weeping and gnashing of teeth.
It's your choice:
Send a little money at zero overhead to AIDS orphans in Kenya, or...
Get cast into the outer darkness, where there shall be weeping and gnashing of teeth, and--even worse--where you shall have the company of all the other unprofitable servants...
 A talent being a lifetime's earnings for a working-class man.
The United States economy has undergone dramatic changes in the last three decades. Arguably, none of these changes has been so well documented as the rise in income inequality.
From 1979 to 2007, the top 1 percent of households saw their incomes skyrocket by 275 percent, while incomes for the bottom fifth of earners increased by less than 20 percent. Last year, the top 10 percent of earners took home more than 50 percent of national income, a higher share than in the 1920s. And today, the wealthiest one percent of households possess more than a third of U.S. total net wealth; the average CEO makes $14 million a year, while the average worker makes $51,200.
Marijana: MARCH 30, 2011: Yesterday at the Web 2.0 conference in San Francisco, Google’s Chief Economist Hal Varian dedicated his keynote speech to explaining the economic value of Google advertising and search... more than $119 billion[/year]...
Pat Kline and Enrico Moretti: People, Places and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs:
Subsidizing poor or unproductive places is an imperfect way of transferring resources to poor people.... Mobility responses may lead the local cost of living to change, which in turn can lead landlords, some of whom may not live in the community, to capture some of the benefits associated with a policy. This is more likely when the housing market is already tight or when there are sharp restrictions on building. For this reason, it may be advisable to target areas with depressed housing markets and high vacancy rates that have enough slack to absorb a demand increase without a large increase in the cost of living.... A potentially compelling case for place based policies can be made based upon the remediation of localized market imperfections. When private and social returns diverge, local governments may be able to raise the welfare of their residents by re-aligning private incentives through taxes or subsidies or the provision of local public goods.... The presence of agglomeration economies does not imply that every state or country should attempt to generate a Silicon Valley equivalent from scratch...
Dave Reifschneider, William Wascher, and David Wilcox: Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy:
The recent financial crisis and ensuing recession appear to have put the productive capacity of the economy on a lower and shallower trajectory than the one that seemed to be in place prior to 2007. Using a version of an unobserved components model introduced by Fleischman and Roberts (2011), we estimate that potential GDP is currently about 7 percent below the trajectory it appeared to be on prior to 2007.
We also examine the recent performance of the labor market. While the available indicators are still inconclusive, some indicators suggest that hysteresis should be a more present concern now than it has been during previous periods of economic recovery in the United States. We go on to argue that a significant portion of the recent damage to the supply side of the economy plausibly was endogenous to the weakness in aggregate demand—contrary to the conventional view that policymakers must simply accommodate themselves to aggregate supply conditions.
Endogeneity of supply with respect to demand provides a strong motivation for a vigorous policy response to a weakening in aggregate demand, and we present optimal-control simulations showing how monetary policy might respond to such endogeneity in the absence of other considerations. We then discuss how other considerations— such as increased risks of financial instability or inflation instability—could cause policymakers to exercise restraint in their response to cyclical weakness.
Carmen M. Reinhart and Takeshi Tashiro: Crowding Out Redefined: The Role of Reserve Accumulation
It is well understood that investment serves as a shock absorber at the time of crisis. The duration of the drag on investment, however, is perplexing. For the nine Asian economies we focus on in this study, average investment/GDP is about 6 percentage points lower during 1998-2012 than its average level in the decade before the crisis; if China and India are excluded, the estimated decline exceeds 9 percent. We document how in the wake of crisis home bias in finance usually increases markedly as public and private sectors look inward when external financing becomes prohibitively costly, altogether impossible, or just plain undesirable from a financial stability perspective. Also, previous studies have not made a connection between the sustained reserve accumulation and the persistent and significantly lower levels of investment in the region. Put differently, reserve accumulation involves an official institution (i.e., the central bank) funneling domestic saving abroad and thus competing with domestic borrowers in the market for loanable funds. We suggest a broader definition of crowding out, driven importantly by increased home bias in finance and by official capital outflows. We present evidence from Asia to support this interpretation.
Lance Knobel: So, Brad, one of your areas is economic history. I am curious: as we face this increasing automation, robotization, is this something that’s likely to be something we have seen before in economic history or is this time going to be different?
Brad DeLong: Well, it is always going to be different, because history does not repeat itself--although it does rhyme. The question is: how is it going to be different?
Looking back at all the major transformations in history before--as we have seen entire categories of things we do to add value to our society vanish--we always found new valued things for people to do. Technological unemployment has been a yearly thing, a decade thing, a generational thing perhaps--but never before more than a generational thing.
Matthew Yglesias: BART strike: Here's how to think about it.:
The recent strike of Bay Area Rapid Transit workers looking for a raise has prompted a fascinating window in the (often-dark) souls of privileged Bay Area high-tech workers. That, in turn, has prompted an outpouring of self-righteousness from east coast writer types about the evils of the privileged Bay Area high-tech workers. But at the end of the day, a strike at BART or any other mass transit agency isn't about privileged high-tech workers it's about the mass transit system.
Joshua Bloom: Wealth and Labor in the Cognitive Automation Era:
Disruptive technologies have always been greeted with a concern—and many times a back reaction—by the institutions that they are, or are meant to, disrupt. In the startup world, we think about disruption as replacing established technologies and ways of doing things with compelling (and better) alternatives, challenging incumbent market dominants. But disruption also means changing how people work, and therefore also means upheaval in labor markets. [October 25], in the Uncharted Forum here in Berkeley, I discussed artificial intelligence on stage with former Deputy Assistant Secretary of the Treasury Brad DeLong (also a professor with me at Berkeley). Uncharted is a new ideas-exchange event modeled in part after SXSW, Ted and Davos.
Brad DeLong : James Scott and Friedrich Hayek: October 24, 2007:
JAMES SCOTT AND FRIEDRICH HAYEK
My review of James Scott (1998), Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (New Haven: Yale University Press: 0300070160):
There is a lot that is excellent in James Scott's Seeing Like a State:
On one level, it is an extraordinary well-written and well-argued tour through the various forms of damage that have been done in the twentieth century by centrally-planned social-engineering projects--by what James Scott calls "high modernism" and the attempt to use high modernist principles and practices to build utopia. As such, every economist who reads it will see it as marking the final stage in the intellectual struggle that the Austrian tradition has long waged against apostles of central planning. Heaven knows that I am no Austrian--I am a monetarist-Keynesian, a liberal, and a social democrat--but within economics even monetarist-Keynesian liberal social democrats acknowledge that the Austrians won total and decisive victory in their intellectual war with the central planners long, long ago. This book marks the final stage because it shows the spread of what every economist would see as "Austrian ideas" into political science, sociology, and anthropology as well. No one can finish reading Scott without believing--as Austrians have argued for three-quarters of a century--that centrally-planned social-engineering is not an appropriate mechanism for building a better society.
John Podesta and Neera Tanden: Proponents of austerity are out of ideas. We have the alternative:
We can have strong economic growth without shredding the social safety net... by investing in the true engine of economic growth: the middle class. These are the policies real people believe in.... Conservative politicians are out of ideas. We've tried their solutions. Their trickle-down ideology of austerity for the poor and tax cuts for the rich has dominated policymaking for the better part of three decades. And what has it gotten us? Increasing inequality. Stagnating wages. One in four American children living in poverty.... The worst economic crisis since the Great Depression. And yet today's conservatives call for more of the same....
At present, 24 States (and DC) have decided to move ahead with the Medicaid expansion provided for in Obamacare... 21 have rejected expansion... 6 are still considering their options. If the current decisions hold, it will result in a self-imposed redistribution of money from poorer (and typically Red states), to richer (and typically Blue ones). According to an analysis I [and Callie Gable] have done... in 2016... the 24 expanding states will receive $30.3 Billion... those not expanding will forego... $35.0 Billion... the fence sitters have... $15.2 Billion at stake....
The rejectors have 1/3 of the wealth of the nation--call it $5 trillion/year. They are throwing 0.7% of that away to make a political point. If this federal money was, say, to host an Air Force wing they would be begging for it. But since it is simply to help their poor afford to go to the doctor and make the lives of their medical professionals easier by not forcing them to play a shell game to raise the resources to treat the uninsured...
I am increasingly convinced that the Republicans of the Prairies and the South just do not understand how to play the game of economic growth or, indeed, of capitalism in the 21st century. Betting your economic growth strategy on low wages, a lack of infrastructure, low taxes, union-busting, natural resources, and the direction of farm subsidies, defense spending, and NASA to your districts carries you only so far, after all.
In the short-run of our currently-depressed economy we want to apply the within-monetary-union Keynesian multiplier to these flows: Medicaid-rejcting red states are thus making themselves 2% poorer in the short-run. For medical-care hubs like Dallas, Omaha, Atlanta, and Kansas City, the effects are likely to be larger: 3% less in terms of economic activity relative to the baseline, while the Bostons, the Denvers, and the Albuquerques will be on baseline. In the long-run--should they continue this insane and self-destructive policy--we want to apply Enrico Moretti's long-run regional economic distribution multipliers--which means that we are talking a fall relative to baseline growth of 6% of regional GDP as far as medical-hub cities are concerned.
Doctors of Overland Park, Kansas, and businessmen and -women of Kansas City, Dallas, Omaha, and Atlanta to the red courtesy phone, please...
Ashok Rao: Feed the Beast:
Since 1988 education (purple) has increased almost seven fold. Healthcare (red) five fold. Food and beverage prices have only doubled, apparel costs have flatlined, while technology and entertainment prices have plummeted. Basically prices for everything the government is good for have a positive slope and everything it’s bad for have a negative slope. I don’t think any other graph could more clearly explode hopes for a smaller, or even flatlined, government.
Stolen from FT Alphaville, in turn stolen from John McDermott, in turn stolen from Branco Milanovic:
Note that these are not the changes in income of individuals in the world economy. Rather, they are the changes in the incomes associated with particular percentile slots in the world economy. Your average citizen of China is in a much higher percentile of the income distribution today than twenty years ago.
Also note that Milanovic's numbers on the prosperity of the pre-1991 Communist Bloc have always looked to me to be considerably higher than reality--they have never seemed to me to make adequate allowances for quality, variety, and the hassle factor involved in obtaining goods and services in a centrally-planned really existing-socialist economy.
Plus I am a techno-optimist: I see the coming of internet access as contributing an enormous amount to human well-being via consumer surplus that is simply not captured by standard GDP accounts.
Neverthless, the (relative) failure of development for the 75-90 percentile of the world income distribution over 1988-2008 is a fact, a fascinating one, and a somewhat terrifying one.
Morning session I: Robots, architecture
October 25 @ 11:40 am - 12:40 pm
I, for one, welcome our new robot overlords. Brad DeLong in conversation with Joshua Bloom
What will increasing automation mean for our economy and our society? Will it exacerbate unemployment, or will it spur new industries? Are there some aspects of automation that we’re unlikely to accept?
The bridge to somewhere. Donald MacDonald in conversation with Felix Salmon
The architect of the new East Span of the Bay Bridge discusses the importance of bridges and what they can bring to an urban environment.
Start: October 25, 2013 11:40 am
End: October 25, 2013 12:40 pm
Event Category: Conversation
Four things create value:
And let me know that, as far back as we can tell, your status and standard of living depends on (a) the value you directly add and (b) what you are able to grab (and persuade others that you are right to grab) from our joint-product common store.
The greatest hesitation I have about the market economy is the wedge between demand and the willingness to pay that is the ability to pay. This is, after all, why full employment is so important. This is why opportunity and equality are so important.... This wedge... presents] insurmountable problems... [to]any kind of welfare claims about the market economy.... We can't say anything about the quality of the system as a whole that isn't contingent on implausible assumption about the quality of the distribution of the ability to pay. The trouble is the ability to pay is tied up with productivity, and this doesn't seem to be a justifiable basis for distributing well-being. At the same time allocating productivity efficiently is the only chance of getting a surplus in the first place to distribute.
If we have robots, robot socialism is probably an answer. Until then I just don't know.
Enrico Moretti: Where the Good Jobs Are—and Why:
It is a tipping-point.... Once a city spawns some innovative companies, its ecosystem changes in ways that make it even more attractive to others.... Salesforce, Twitter and Yelp in downtown San Francisco increases the city's appeal to other high-tech entrepreneurs.... Scientists and software engineers are not the only ones who thrive as a result... for each new innovation-job in a city, five additional jobs are created... professional occupations (lawyers, teachers, nurses) but also nonprofessional occupations (waiters, hairdressers, carpenters). For each new software designer hired at Twitter in San Francisco, there are five new job openings for baristas, personal trainers, therapists and taxi drivers. The most important effect of high-tech companies on the local economy is outside high-tech.
This matters for wages, too. In 1980, salaries for workers with a high-school diploma in Austin and Raleigh were significantly lower than the national average. Then those cities became important hubs for IT and life science, respectively. Salaries are 45% higher, and the gap keeps expanding. High-school graduates in Austin and Raleigh don't work harder or have higher IQs. The ecosystem around them is different. Most industries have a multiplier effect. But none has a bigger one than the innovation sector: about three times as large as that of extractive industries or traditional manufacturing. Clearly, the best way for a city or state to generate jobs for everyone is to attract innovative companies that hire highly educated workers.
The physiocrats saw France as having four kinds of jobs:
Farmers, they thought, produced the net value in the economy--the net product. Their labor combined with water, soil, and sun grew the food they and others ate. Artisans, the physiocrats thought, were best seen not as creators but as transformers of wealth--transformers of wealth in the form of food into wealth in the form of manufactures. Aristocrats collected this net product--agricultural production in excess of farmers' subsistence needs--and spent it buying manufactured goods and, when they got sated with manufactured goods, employing flunkies.
Economists--my own tribe--hink that people are better off if they have more money--which is fine as far as it goes. So if a few people get a lot more money and most people get little or nothing, but do not lose out, economists will usually argue that the world is a better place. And indeed there is enormous appeal to the idea that, as long as no one gets hurt, better off is better; it is called the Pareto criterion. Yet this idea is completely undermined if wellbeing is defined too narrowly; people have to be better off, or no worse off, in wellbeing, not just in material living standards. If those who get rich get favorable political treatment, or undermine the public health or education systems, so that those who do less well lose out in politics, health, or education, then those who have done less well may have gained money but they are not better off. One cannot assess society, or justice, using living standards alone. Yet economists routinely and incorrectly apply the Pareto argument to income, ignoring other aspects of wellbeing...
Andrew Gelman: Ivy Jew update:
Nurit Baytch posted a document, A Critique of Ron Unz’s Article “The Myth of American Meritocracy”, that is relevant to an ongoing discussion we had on this blog. Baytch’s article....
I shall demonstrate that Unz’s conclusion that Jews are over-admitted to Harvard... relied on faulty assumptions and spurious data: Unz substantially overestimated the percentage of Jews at Harvard while grossly underestimating the percentage of Jews among high academic achievers, when, in fact, there is no discrepancy.... Unz’s analysis of Jewish academic achievement is predicated on his ability to identify Jews on the basis of their names, which proved spectacularly wrong for the one data set on which there exists confirmed, peer-reviewed data....
"Hello. My name is Brad DeLong. I'm the parent of two kids at Burton Valley. I'm volunteering tonight to call people to ask for their support for Measure E, the parcel tax measure for local Lafayette schools."
Note the words parent, volunteer, local. I'm not Washington calling: I'm your neighbor. This isn't big government: this is volunteerism. This isn't for some federal construction boondoggle: this is for the school in your neighborhood.
Oregon Economic Forum: After the Recession: Opportunities and Challenges
The 10th Annual Oregon Economic Forum
Thursday, October 24, 2013
Portland Art Museum
Doors open at 0700am. Breakfast Served.
Come join us for our 10th Anniversary.
This summer will mark the fourth year of the recovery. Four years of slow economic growth that defied early-expectations of a rapid rebound. But while fiscal contraction is dragging down overall growth, momentum in the private sector is building. The long-awaited return to a more normal recovery may finally be at hand.
Paul Krugman: Agglomerating A Revolution:
Nicks, Crafts and Wolf... argue that the cutting edge of Britain’s Industrial Revolution, the cotton textile industry, benefited hugely from agglomeration.... Crafts and Wolf suggest, in effect, that at least some of England’s comparative advantage in cloth came from external economies, not underlying national characteristics.... It’s interesting to at least contemplate the possibility that but for the accidents of history, cotton cloth might have been made by the banks of the Tagus rather than in the region of the Mersey.
Only if you give Portugal (i) Britain's super-cheap coal, and (ii) have it gain Britain's early-nineteenth century seaborne empire and thus have Britain's real wage levels--only then is even the agglomerated early-nineteenth technology profitable when deployed, and only if you deploy early-nineteenth century technology can you develop mid-nineteenth century technology.
And the problem was that it didn't have the coal, and the fact that it had to defend its border (not terribly successfully) against Spain meant that it couldn't focus on gaining and keeping the empire.
Truth to tell, as Bob Allen points out, only Britain, the Ruhr, and Silesia had the geography to give them cheap-enough coal; and only Britain (and, I suppose, Ireland) had both the ports and the islandishness to allow them to focus on dominating the world of the commercial revolution.
And if we had somehow had an 1805 in which the Portuguese navy won the Battle of Trafalgar while the coals were still in Newcastle, what would the world of today look like?
And yet Greenspan forgets Bill Clinton's (and Al Gore's!) insistence that budget enforcement mechanisms be strengthened in order to "lock box" the budget surpluses--precisely in order to boost national savings and secure an economy strong enough to fund the entitlement programs.
The dot-com boom, for example, produced the budget surpluses of 1998 to 2001 for the federal government and many states. No elected officials in modern times seem to resist being enticed by unexpected surplus cash sitting around, uncommitted…
It wasn't enough for you to support the Bush tax cut of 2001, Mr. Greenspan?
I remember what policies Barack Obama has in fact pursued: