JANUARY 26 2017

Lars E.O. Svensson, VOX: Re-evaluating the result that the costs of ‘leaning against the wind’ exceed the benefits. The IMF and the Federal Open Market Committee have both suggested that the costs of ‘leaning against the wind’ exceed the benefits. This column responds to claims that the results of the author's research backing up this conclusion could be overturned. It argues that the alternative assumptions necessary to overturn the result are unrealistic, and that the finding that the costs of the policy exceed the benefits therefore seems to be robust.

Daron Acemoglu, Pascual Restrepo, NBER: Secular Stagnation? The Effect of Aging on Economic Growth in the Age of Automation. Several recent theories emphasize the negative effects of an aging population on economic growth, either because of the lower labor force participation and productivity of older workers or because aging will create an excess of savings over desired investment, leading to secular stagnation. We show that there is no such negative relationship in the data. If anything, countries experiencing more rapid aging have grown more in recent decades. We suggest that this counterintuitive finding might reflect the more rapid adoption of automation technologies in countries undergoing more pronounced demographic changes, and provide evidence and theoretical underpinnings for this argument.

Jed Kolko, Indeed Blog: How the Jobs That Immigrants Do Are Changing. We used the Census’s American Community Survey (ACS), which asks respondents about their employment status, occupation, birthplace, and citizenship, among many other topics. We analyzed the data for all immigrants in the U.S. and then focused on those who have been in the country less than five years. The punchline is that compared with earlier immigrants, recent immigrants are more educated, more likely to come from Asia rather than Latin America, and less likely to work in occupations where they might compete directly with the native-born workers who were most supportive of Trump.

Prakash Loungani, IMF: Inclusive Growth and the IMF. More inclusive economic growth demands policies that address the needs of those who lose out … Otherwise our political problems will only deepen. Trampoline policies such as job counseling and retraining allow workers to bounce back from job loss: they help people adjust faster when economic shocks occur, reduce long unemployment spells and hence keep the skills of workers from depreciating. While such programs which already exist in many advanced economies, they deserve further study so that all can benefit from best practice. Safety net programs have a role to play too. Governments can offer wage insurance for workers displaced into lower-paying jobs and offer employers wage subsidies for hiring displaced workers. Programs such as the U.S. earned income tax credit should be extended to further narrow income gaps while encouraging people to work.

Michael Chernew et al., NBER: Understanding the Improvement in Disability Free Life Expectancy in the U.S. Elderly Population. This paper explores changes in healthy lifespan in the U.S. over time and considers reasons for the changes. First, we show that healthy life increased measurably in the US between 1992 and 2008. Years of healthy life expectancy at age 65 increased by 1.8 years over that time period, while disabled life expectancy fell by 0.5 years. The largest improvements in healthy life expectancy come from reduced incidence and improved functioning for those with cardiovascular disease and vision problems. Together, these conditions account for 63 percent of the improvement in disability-free life expectancy. Third and more speculatively, we explore the role of medical treatments in the improvements for these two conditions. We estimate that improved medical care is likely responsible for a significant part of the cardiovascular and vision-related extension of healthy life.

Derek Thompson, the Atlantic: Trump’s Populism Is a Fiction. The theme of President Donald Trump’s inaugural address was the return of power to “the people”—the forgotten Americans, the victims of “American carnage.” It harkened back to his campaign, when Trump presented himself as a populist who eschewed traditional conservative-liberal orthodoxies. But despite the speech’s theme of transferring power from the cosmopolitan rich to the everyman, his administration’s emerging economic policy would be an unambiguous transfer of income and power in the opposite direction: from the public to the rich.

Hunt Allcott, Matthew Gentzkow, NYU/Stanford: Social Media and Fake News in the 2016 Election. We present new evidence on the role of false stories circulated on social media prior to the 2016 US presidential election. Drawing on audience data, archives of fact-checking websites, and results from a new online survey, we find: (i) social media was an important but not dominant source of news in the run-up to the election, with 14 percent of Americans calling social media their “most important” source of election news; (ii) of the known false news stories that appeared in the three months before the election, those favoring Trump were shared a total of 30 million times on Facebook, while those favoring Clinton were shared eight million times; (iii) the average American saw and remembered 0.92 pro-Trump fake news stories and 0.23 pro-Clinton fake news stories, with just over half of those who recalled seeing fake news stories believing them; (iv) for fake news to have changed the outcome of the election, a single fake article would need to have had the same persuasive effect as 36 television campaign ads.