JUNE 18 2015

Tyler Cowan, NYT: Don’t Be So Sure the Economy Will Return to Normal. It is hard to avoid the feeling that our current economic problems are more than just a cyclical downturn. We know that the economy has gone through some bad times. But what exactly are we experiencing? One relatively optimistic view is that observed deficiencies — like slow growth in real wages and the overall economy, persistently low interest rates and low levels of labor participation — are merely temporary. In this view, these problems will dwindle after manageable problems like high levels of public or household debt have been reduced. There is a much more disturbing possibility that could turn out to be more accurate: namely, that the recession was a learning experience that we haven’t fully absorbed. From this perspective, the radical and sudden changes of the financial crisis were early indicators of deep fragility and dysfunctionality.

Esther Ann Bøler, Beata Javorcik, Karen-Helene Ulltveit-Moe, VOX: Globalisation: A woman's best friend? Not quite so. The gender wage gap persists even in gender equal societies such as the Nordic countries. This column suggests that globalisation may play a role in that. The authors show that exporting firms have higher gender wage gaps although the effect is only present among college graduates. The heightened competition faced by exporters requires greater commitment and flexibility on the part of the workers, which leads to statistical gender discrimination.

Tim Harford, The Undercover Economist: Tax: a Scandinavian solution. With tax, our politicians seem determined to make the process as clumsy and painful as possible. If a politician was a surgeon, faced with the task of amputating your leg, we can well imagine how it would go. First he’d deny that he planned to amputate the leg. Then he’d pass a law making it illegal to amputate the leg. Then he’d say that he’d amputate an investment banker’s leg instead. Finally, he would blame the mess handed to him by the previous surgeon and would begin to rub away at your toes with a cheese grater.

Brad Hershbein, Melissa S. Kearney, and Lawrence H. Summers: Increasing Education, The Hamilton Project: What It Will And Will Not Do For Earnings And Earnings Inequality. We have empirically simulated what would happen to the distribution of earnings if one out of every ten men aged 25–64 who did not have a bachelor’s degree were to instantly obtain one—a sizeable increase in college attainment. We focus on men not because women are unimportant—they clearly are important to the workforce—but because low-skilled men have seen the largest drops in employment and earnings over the past few decades, and are now considerably less likely to attend and graduate from college. We focus on college attainment because the data are readily available, but we acknowledge that it is an imperfect measure of skills, perhaps increasingly so. Despite these caveats, this empirical exercise is illuminating and sheds much needed light on an often-muddled public debate. Increasing educational attainment will not significantly change overall earnings inequality. The reason is that a large share of earnings inequality is at the top of the earnings distribution, and changing college shares will not shrink those differences.

Paul Withrington and Richard Wellings, IEA: Paving over the tracks: a better use of Britain’s railways? The politicisation of the transport sector has stifled the market processes that reallocate infrastructure to higher value uses. As a consequence, government transport spending is misallocated on a grand scale. This is particularly apparent on the rail network, where high levels of taxpayer subsidy are combined with poor levels of service. There is strong evidence that allowing some commuter railways to be converted into busways would provide higher capacity at lower cost, reduce fares for passengers and cut subsidies from taxpayers. A related policy of phasing out government support for the railways could save around £6 billion a year. In combination with the existing road network, busways would facilitate fast and direct services into city centres from suburbs and villages not currently linked by rail, increasing the choice of routes and reducing overall journey times for many commuters. Express coaches on congestion-free infrastructure could match the train for speed except on the longest journeys, and would also deliver much more frequent services.