JANUARY 29 2016

Stephen Millard, BoE: Potential supply, the output gap and inflation. Potential supply matters!  If an economy is producing less output than it could, then there are resources that are being wasted.  And when these resources are human – that is unemployment – this carries an additional social cost.  But why, specifically, should it matter for an inflation-targeting central bank?  Presumably, because it is a good indicator of inflationary pressure!  The trouble is that there are good reasons to think that this is not actually the case.  And economic theory suggests there is a much better measure of inflationary pressure we can use.

Paul Krugman, NYT: The Rise and Fall of American Growth’ by Robert J. Gordon. Gordon suggests that the future is all too likely to be marked by stagnant living standards for most Americans, because the effects of slowing technological progress will be reinforced by a set of “headwinds”: rising inequality, a plateau in education levels, an aging population and more. It’s a shocking prediction for a society whose self-image, arguably its very identity, is bound up with the expectation of constant progress. And you have to wonder about the social and political consequences of another generation of stagnation or decline in working-class incomes.

Robert J. Gordon, Bloomberg: Jobs Are Under Attack, But Not by Robots. Does the last decade's slow growth in total factor productivity, which measures innovation, indicate that the dot-com revolution of 1994 to 2004 is unlikely to be repeated? How fast will the U.S. economy grow over the next 25 years? Not as fast as Erik Brynjolfsson and Andrew McAfee assert. They remind us that Moore’s Law predicts endless exponential growth in the performance of computer chips, yet ignore that chips have fallen behind the predicted pace of Moore’s Law since 2005. They also overlook that the decline in the price of information and communication technology equipment relative to performance was most rapid in the late 1990s, with little if any decline for several years. Exponential increases in computer performance will continue, but at a slower rate than in the past.

George J. Borjas, National Review: Lies, Damned Lies, and Immigration Statistics. Ironically, immigration supporters should welcome the fact that the Marielitos depressed the wage of low-skill workers in Miami. It is well known that the economic benefits from immigration are the flip side of the wage losses suffered by workers. The greater the wage loss, the greater the profits to employers and the greater the benefits to those who consume the services immigrants provide. If the Mariel experience could be generalized to the entire labor market, we are probably understating the economic benefits from immigration by a substantial amount.

George Borjas, NBER: The Slowdown in the Economic Assimilation of Immigrants: Aging and Cohort Effects Revisited Again. This paper examines the evolution of immigrant earnings in the United States between 1970 and 2010. There are cohort effects not only in wage levels, with more recent cohorts having lower entry wages through 1990, but also in the rate of wage growth, with more recent cohorts experiencing less economic assimilation. The slowdown in assimilation is partly related to a concurrent decline in the rate at which the new immigrants add to their human capital stock, as measured by English language proficiency. The data also suggest that the rate of economic assimilation is significantly lower for larger national origin groups.

Jacob Funk Kirkegaard, VOX: How Europe will fail to address the migration crisis in early 2016. The migrant crisis will continue to top headlines in 2016. This column takes a detailed look at the EU’s response to dealing with migration, concluding that everything points towards failure as the likely outcome. Unlike the most critical aspects of the Eurozone Crisis, the main drivers of the current migration emergency are external factors such as war. These circumstances are highly unlikely to change in the medium term. The hardball politics and threats that proved extraordinarily effective in coercing member states into accepting domestic political conditionality in return for financial aid during the Eurozone Crisis are doomed to fail when it comes to migration.

Jesse Drucker, Blooberg: The World’s Favorite New Tax Haven Is the United States. After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.

Thomas MaCurdy, Stanford University: How Effective Is the Minimum Wage at Supporting the Poor? The efficacy of minimum wage policies as an antipoverty initiative depends on which families benefit from the increased earnings attributable to minimum wages and which families pay for these higher earnings. This study projects the consequences of the increase in the national minimum wage instituted in 1996 on the redistribution of resources among rich and poor families. Under this scenario, the minimum wage increase acts like a sales tax in its effect on consumer prices, a tax that is even more regressive than a typical state sales tax. With the proceeds of this national sales tax collected to fund benefits, the 1996 increase in the minimum wage distributed these bulk of these benefits to one in four families nearly evenly across the income distribution. Far more poor families suffered reductions in resources than those who gained. As many rich families gained as poor families. These income transfer properties of the minimum wage document its considerable inefficiency as an antipoverty policy (Hat tip Flood).

Russ Roberts, EconTalk: James Heckman on Facts, Evidence, and the State of Econometrics. Heckman gives us his take on natural experiments, selection bias, randomized control trials and the reliability of sophisticated statistical analysis. The conversation closes with Heckman reminiscing about his intellectual influences throughout his career.

Jim Gabour, The Guardian: My cat really is trying to kill me – and you. A parasitic microbe commonly found in cats might have helped shape entire human cultures by manipulating the personalities of infected individuals, according to a new study. Infection by a Toxoplasma gondii could make some individuals more prone to some forms of neuroticism and could lead to differences among cultures if enough people are infected. Scientists estimate that the parasite has infected about 3 billion people, or about half of the human population. Studies by researchers in the Czech Republic have suggested T. gondii might have subtle but long-term effects on its human hosts. The parasite is thought to have different, and often opposite effects in men versus women, but both genders appear to develop a form of neuroticism called “guilt proneness.”