OCTOBER 27 2016

John Fernald, FED San Francisco: What Is the New Normal for U.S. Growth? Estimates suggest the new normal for U.S. GDP growth has dropped to between 1½ and 1¾%, noticeably slower than the typical postwar pace. The slowdown stems mainly from demographics and educational attainment. As baby boomers retire, employment growth shrinks. And educational attainment of the workforce has plateaued, reducing its contribution to productivity growth through labor quality. The GDP growth forecast assumes that, apart from these effects, the modest productivity growth is relatively “normal”—in line with its pace for most of the period since 1973.

Adam Chandler, The Atlantic: Why Do Americans Move So Much More Than Europeans? Decades of data, including a more recent Gallup study, characterizes the United States as one of the most geographically mobile countries in the world. According to data from the U.S. Census Bureau, the average person in the United States moves residences more than 11 times in his or her lifetime. According to a survey conducted by the real-estate company Re/Max earlier this year, that figure across 16 European countries is roughly four. More than half of interstate migrants said they moved for employment-related reasons. Workers in the U.S. now “put in almost 25 percent more hours than Europeans” in a given year. Fatih Karahan and Darius Li at the New York Fed are the latest to note that U.S. workers are moving around less than before. Karahan and Li put much stock in the effects of an aging workforce, to which they attribute “at least half” of the decline in interstate migration.

Caroline M. Hoxby, NBER: The Dramatic Economics  of the U.S. Market  for Higher Education. I show the productivity of institutions across this market. Strikingly, among institutions that experience strong market forces, the productivity of a dollar of educational resources is fairly similar, even if the schools serve students with substantially different CR. On the other hand, among institutions that experience weak market forces, productivity is lower and more dispersed. These facts suggest that market forces are needed to keep schools productive and to allocate resources across schools in a way that assures that the marginal return to additional resources at different institutions is roughly comparable.

Richard Susskind, Daniel Susskind, Harvard Business Review: Robots Will Replace Doctors, Lawyers, and Other Professionals. Most mainstream professionals — doctors, lawyers, accountants, and so on — believe they will emerge largely unscathed. During our consulting work and at conferences, we regularly hear practitioners concede that routine work can be taken on by machines, but they maintain that human experts will always be needed for the tricky stuff that calls for judgment, creativity, and empathy. Our research and analysis challenges the idea that these professionals will be spared. We expect that within decades the traditional professions will be dismantled, leaving most, but not all, professionals to be replaced by less-expert people, new types of experts, and high-performing systems.

Hansen, Bertel Teilfeldt et al, Epidemiology: The consequences of daylight savings time transitions on the incidence rate of unipolar depressive episodes. Daylight savings time (DST) transitions affect approximately 1.6 billion people worldwide. Prior studies have documented associations between DST transitions and adverse health outcomes. Using time series intervention analysis of nationwide data from the Danish Psychiatric Central Research Register from 1995 to 2012 we compared the observed trend in the incidence rate of hospital contacts for unipolar depressive episodes after the transitions to and from summer time to the predicted trend in the incidence rate. The analyses were based on 185.419 hospital contacts for unipolar depression and showed that the transition from summer time to standard time led to an 11 percent increase (95% CI: 7, 15%) in the incidence rate of hospital contacts for unipolar depressive episodes that dissipated over approximately 10 weeks.

Austin C. Smith, American Economic Journal: Applied Economics: Spring Forward at Your Own Risk: Daylight Saving Time and Fatal Vehicle Crashes. Daylight Saving Time (DST) impacts over 1.5 billion people, yet many of its impacts on practicing populations remain uncertain. Exploiting the discrete nature of DST transitions and a 2007 policy change, I estimate the impact of DST on fatal automobile crashes. My results imply that from 2002–2011 the transition into DST caused over 30 deaths at a social cost of $275 million annually. Employing four tests to decompose the aggregate effect into an ambient light or sleep mechanism, I find that shifting ambient light only reallocates fatalities within a day, while sleep deprivation caused by the spring transition increases risk.

Havranek, Tomas, Herman, Dominik, Irsova, Zuzana, MPRA: Does Daylight Saving Save Energy? A Meta-Analysis. The original rationale for adopting daylight saving time (DST) was energy savings. Modern research studies, however, question the magnitude and even direction of the effect of DST on energy consumption. Representing the first meta-analysis in this literature, we collect 162 estimates from 44 studies and find that the mean reported estimate indicates modest energy savings: 0.34% during the days when DST applies. Energy savings are larger for countries farther away from the equator, while subtropical regions consume more energy because of DST.

Jochen Bittner, NYT: What Do Trump and Marx Have in Common? We have a word in German, “Wutbürger,” which means “angry citizen”. Wutbürgers lie at both ends of the political spectrum. A Wutbürger rages against a new train station and tilts against wind turbines. Many British Wutbürgers voted for Brexit. French Wutbürgers will vote for Marine Le Pen’s National Front. Perhaps the most powerful Wutbürger of them all is Donald J. Trump. Which raises the question: How was anger hijacked? Karl Marx was a Wutbürger. The upper class has gained much more from the internationalization of trade and finances than the working class has, often in obscene ways. We live in a world, the liberal British historian Timothy Garton Ash noted lately, “which would have Marx rubbing his hands with Schadenfreude.” In Germany a recent poll showed that only 14 percent of the citizens trusted the politicians.

OCTOBER 20 2016

Etienne Gagnon, Benjamin K. Johannsen, David Lopez-Salido, FED: Understanding the New Normal: The Role of Demographics. Since the Great Recession, the U.S. economy has experienced low real GDP growth and low real interest rates, including for long maturities. We show that these developments were largely predictable by calibrating an overlapping-generation model with a rich demographic structure to observed and projected changes in U.S. population, family composition, life expectancy, and labor market activity. The model accounts for a 1¼{percentage-point decline in both real GDP growth and the equilibrium real interest rate since 1980|essentially all of the permanent declines in those variables according to some estimates. The model also implies that these declines were especially pronounced over the past decade or so because of demographic factors most-directly associated with the post-war baby boom and the passing of the information technology boom. Our results further suggest that real GDP growth and real interest rates will remain low in coming decades, consistent with the U.S. economy having reached a “new normal."

Alan B. Krueger, Princeton University: Where Have All the Workers Gone? The labor force participation rate in the U.S. has declined since 2007 primarily because of population aging and ongoing trends that preceded the recession. The participation rate has evolved differently, and for different reasons, across demographic groups. A rise in school enrollment has largely offset declining participation for young workers since the 1990s. Participation in the labor force has been declining for prime age men for decades, and about half of prime age men who are not in the labor force (NLF) may have a serious health condition that is a barrier to work. Nearly half of prime age NLF men take pain medication on a daily basis, and in nearly two-thirds of cases they take prescription pain medication. The labor force participation rate has stopped rising for cohorts of women born after 1960. Prime age men who are out of the labor force report that they experience notably low levels of emotional well-being throughout their days and that they derive relatively little meaning from their daily activities.

The Economist: The superstar company. A giant problem. There are some worrying similarities to a much earlier era. In 1860-1917 the global economy was reshaped by the rise of giant new industries (steel and oil) and revolutionary new technologies (electricity and the combustion engine). These disruptions led to brief bursts of competition followed by prolonged periods of oligopoly. The business titans of that age reinforced their positions by driving their competitors out of business and cultivating close relations with politicians. The backlash that followed helped to destroy the liberal order in much of Europe. So, by all means celebrate the astonishing achievements of today’s superstar companies. But also watch them. The world needs a healthy dose of competition to keep today’s giants on their toes and to give those in their shadow a chance to grow.

Peter Coy, Businessweek: How to Raise the Retirement Age for People Who Want to Work. Most Americans are healthy enough to work longer than they actually do. The economists look at the health of those men and what share of them is working and compare them with men at older ages. The study finds that health declines slowly with age, but work declines rapidly. The pattern is the same for women. Poor health, in other words, isn't what's pushing most people into retirement. Unfortunately, there's no way to raise the retirement age that's problem-free.

Jennifer Doleac, Benjamin Hansen, TIME: How Hiding Criminal Records Hurts Black and Hispanic Men. If we want to reduce incarceration rates, we must help ex-offenders build stable lives outside prison walls. One common method is to “Ban The Box,” which amounts to preventing employers from asking about applicants’ criminal records until late in the application process. (The policy gets its name from the box that applicants are asked to check if they’ve been convicted of a crime.) This seems like a good idea. But recent evidence suggests that BTB laws do more harm than good. They actually decrease employment for young, low-skilled black and Hispanic men overall, a group that already struggles to get work even when they have committed no crime.

Carl Gornitzki, Agne Larsson, Bengt Fadeel, BMJ: Freewheelin’ scientists: citing Bob Dylan in the biomedical literature. In September 2014 it emerged that a group of scientists at the Karolinska Institute in Sweden had been sneaking the lyrics of Bob Dylan into their papers as part of a long running bet. Was this Dylan citing unique to the Karolinska Institute? A 2015 analysis published in The BMJ found 727 potential references to Dylan songs in a search of the Medline biomedical journals database; the authors ultimately concluded that 213 of the references could be “classified as unequivocally citing Dylan.” The earliest article the authors identified appeared in 1970 in The Journal of Practical Nursing. The title? “The Times They Are a-Changin’.

OCTOBER 6 2016

Paul Krugman: What Have We Learned From The Crisis? The crisis of 2008 and its aftermath have taken place in an environment in which conservative ideology retains a powerful position in real-world politics and the academy alike. So relatively few economists or policymakers have been willing to reconsider their views despite overwhelming empirical refutation. Or to put it another way, one thing we seem to have learned from the crisis is that many of our colleagues are less engaged in something like science, an attempt to understand the world as it is, than we would like to think. Instead, when they invoke evidence it’s the way a drunkard uses a lamppost: for support, not illumination. The best excuse one can offer is that even hard scientists are often reluctant to change their views – “Science progresses one funeral at a time,” said Max Planck. But what I’m pointing out here isn’t just that too few economists were willing to learn from the Great Recession, but that there’s a notable contrast with the way the profession seized on the troubles of the 1970s. This asymmetry is what’s troubling, and suggests that politics and ideology have distorted our field.

Kenneth Rogoff, Project Syndicate: Is the Fed Playing Politics? In his recent debate with his opponent Hillary Clinton, Republican presidential candidate Donald Trump pressed his claim that US Federal Reserve Chair Janet Yellen is politically motivated. The Fed, Trump claims, is applying overdoses of monetary stimulus to hypnotize voters into believing that economic recovery is underway. It’s not a completely crazy idea, but I just don’t see it. If Yellen is so determined to keep interest rates in a deep freeze, why has she been trying in recent months to talk up longer-term rates by insisting that the Fed is likely to hike rates faster than the market currently believes?

Larry Summers, FT: Men Without Work. Job destruction caused by technology is not a futuristic concern.  It is something we have been living with for two generations.  A simple linear trend suggests that by mid-century about a quarter of men between 25 and 54 will not be working at any moment. I think this is likely a substantial underestimate unless something is done for a number of reasons.  First everything we hear and see regarding technology suggests the rate of job destruction will pick up.  Think of the elimination of drivers, and of those who work behind cash registers.  Second, the gains in average education and health of the workforce over the last 50 years are unlikely to be repeated.  Third, to the extent that non-work is contagious, it is likely to grow exponentially rather than at a linear rate.  Fourth, declining marriage rates are likely to raise rates of labor force withdrawal given that non-work is much more common for unmarried than married men.

Katharine G. Abraham el al. NBERT: The Consequences of Long Term Unemployment: Evidence from Matched Employer-Employee Data. It is well known that the long-term unemployed fare worse in the labor market than the short-term unemployed, but less clear why this is so. The rich information on work histories provided by the wage records allows us to control for individual heterogeneity that could be affecting post-unemployment labor market outcomes. Even with these controls in place, we find that unemployment duration has a strongly negative effect on the likelihood of subsequent employment. This finding is inconsistent with the “bad apple” (heterogeneity) explanation for why the long-term unemployed fare worse than the short-term unemployed. We also find that longer unemployment durations are associated with lower subsequent earnings, though this is mainly attributable to the long-term unemployed having a lower likelihood of subsequent employment rather than to their having lower earnings once a job is found.

Ali Alichi, Kory Kantenga, Juan Solé, IMF: Income Polarization in the United States. Since the turn of the current century, most of polarization has been towards lower incomes. This result is striking and in contrast with findings of other recent contributions. In addition, the paper finds evidence that, after conditioning on income and household characteristics, the marginal propensity to consume from permanent changes in income has somewhat fallen in recent years. We assess the potential impacts of these trends on private consumption. During 1998-2013, the rise in income polarization and lower marginal propensity to consume have suppressed the level of real consumption at the aggregate level, by about 3½ percent—equivalent to more than one year of consumption

Bruce Bower, Science News: Big Viking families nurtured murder. Murder was a calculated family affair among Iceland’s early Viking settlers. And the bigger the family, the more bloodthirsty. Data from three family histories spanning six generations support the idea that disparities in family size have long influenced who killed whom in small-scale societies. These epic written stories, or sagas, record everything from births and marriages to deals and feuds. Iceland’s Viking killers had on average of nearly three times as many biological relatives and in-laws as their victims did, says a team led by evolutionary psychologist Robin Dunbar of the University of Oxford. Prolific killers responsible for five or more murders had the greatest advantage in kin numbers.

SEPTEMBER 29 2016

Ben Bernanke, Brookings: Modifying the Fed’s policy framework: Does a higher inflation target beat negative interest rates? It would be extremely helpful if central banks could count on other policymakers, particularly fiscal policymakers, to take on some of the burden of stabilizing the economy during the next recession. Since that can’t be assured, and since the current low-interest-rate environment may persist, there are good reasons for the Fed and other central bankers to consider changes in their policy frameworks. The option of raising the inflation target should be part of that discussion. But, as I have argued in this post, it is premature to rule out alternative or potentially complementary approaches, including the possibility of using negative interest rates.

Larry Summers, FT: Building the case for greater infrastructure investment. The case for infrastructure investment has been strong for a long time, but it gets stronger with each passing year, as government borrowing costs decline and ongoing neglect raises the return on incremental spending increases. As it becomes clearer that growth will not return to pre-financial-crisis levels on its own, the urgency of policy action rises. Just as the infrastructure failure at Chernobyl was a sign of malaise in the Soviet Union’s last years, profound questions about America’s future are raised by collapsing bridges, children losing IQ points because of lead in water and an air traffic control system that does not use GPS technology.

 

John Lewis, BoE: Robot Macroeconomics: What can theory and several centuries of economic history teach us? On the plus side, if you are worried about secular stagnation then robots offer you a couple of reasons to be cheerful.   First up, if robotisation does constitute a major productivity gain that raises the marginal productivity of capital, then this should push up on long run-equilibrium real rates, and hence ease fears of secular stagnation.  Second, whilst economic theory usually assumes that technological growth means capital is just costlessly melted down and made into newer, more productive machines, in practice, some innovations might require scrapping of old capital, and hence a wave of new investment.

Robert Rich, Joseph Tracy, Ellen Fu; NY FED: U.S. Real Wage Growth: Slowing Down With Age. Life-cycle pattern of real wage growth is characterized by high growth early in a worker’s career, little to no growth in mid-career, and negative growth as workers near retirement. A growing fraction of the U.S. adult population is transitioning into the flat to negative real wage growth phases of their careers. Here, we turn our attention to estimating the effect of this demographic shift on the economy-wide average real wage growth rate. Our analysis shows that this economy-wide average real wage growth rate has declined by a third since the mid-1980s.

The National Academies of Science: The Economic and Fiscal Consequences of Immigration. The number of immigrants living in the United States increased by more than 70 percent—from 24.5 million (about 9 percent of the population) in 1995 to 42.3 million (about 13 percent of the population) in 2014. One set of headline questions concerns the economy, specifically jobs and wages. Other questions arise about taxes and public spending. The literature on employment impacts finds little evidence that immigration significantly affects the overall employment levels of native-born workers. However, recent research finds that immigration reduces the number of hours worked by native teens. There is some evidence that recent immigrants reduce the employment rate of prior immigrants. Cross-sectional data from 1994-2013 reveal that, at any given age, the net fiscal contribution of adults in the first generation (and not including costs or benefits generated by their dependents) was on average consistently less favorable than that of the second and third-plus generations. Viewed over a long time horizon (75 years in our estimates), the fiscal impacts of immigrants are generally positive at the federal level and negative at the state and local levels.

Robert J. Shiller, NYT: Today’s Inequality Could Easily Become Tomorrow’s Catastrophe.  Truly extreme gaps in income and wealth could arise from many causes. Consider just a few: Innovations in robotics and artificial intelligence, which are already making many jobs uncompetitive, could lead us into a world in which basic work with decent pay becomes impossible to find. An environmental disaster like global warming, pollution or disease could sharply reduce the ability of people of ordinary means to live in specific regions or entire countries.

The Economist: Post-truth politics. Art of the lie. That politicians sometimes peddle lies is not news. But post-truth politics is more than just an invention of whingeing elites who have been outflanked. The term picks out the heart of what is new: that truth is not falsified, or contested, but of secondary importance. Once, the purpose of political lying was to create a false view of the world. The lies of men like Mr Trump do not work like that. They are not intended to convince the elites, whom their target voters neither trust nor like, but to reinforce prejudices. Feelings, not facts, are what matter in this sort of campaigning.

Daily Mail: The police dog that can sniff out child porn. Dog named Ruger can detect a chemical found on flash drives or SD cards. This allows him to sniff out stashes of electronics to bust pedophiles. The dogs are trained by isolating the odor specific to these devices. Soon, he will join the K9 unit to sniff out pedophiles for the Internet Crimes Against Children Task Force.