Cecchetti,
Schoenholtz, Money & Banking: The Future of the Euro. European economic and monetary union (EMU) is not
now, nor has it ever been, primarily an economic endeavor. Instead, its
founders viewed EMU as a step toward political union in Europe. Helmut Kohl
famously elevated the importance of European integration to a question of war
and peace in the 21st century. Some (and perhaps many) EMU advocates understood
that a common currency would lead to stresses—financial, economic and
political. Yet, their experience with the disaster of 20th century European
nationalism (and with the policy developments that preceded the euro) led them
to expect that these stresses would push future European leaders to make
greater sacrifices of sovereignty to save and advance political union. Now, it
seems, the public’s will to continue is more uncertain than it has ever been.
When asked, the British
have voted to leave the European Union. Will the French, when they are given
the opportunity in a few months, opt to leave the euro? Will the nationalism
that led to repeated 20th century catastrophes resurface? We surely hope not.
But markets price risk, not hope.
David Autor, David
Dorn, Gordon H. Hanson, Gary Pisano, Pian Shu, NBER: Foreign Competition and
Domestic Innovation: Evidence from U.S. Patents. Manufacturing is the locus of U.S. innovation,
accounting for more than three quarters of U.S. corporate patents. The rise of
import competition from China has represented a major competitive shock to the
sector, which in theory could benefit or stifle innovation. In this paper we
empirically examine how rising import competition from China has affected U.S.
innovation. We confront two empirical challenges in assessing the impact. We
map all U.S. utility patents granted by March 2013 to firm-level data using a
novel internet-based matching algorithm that corrects for a preponderance of
false negatives when using firm names alone. And we contend with the fact that
patenting is highly concentrated in certain product categories and that this
concentration has been shifting over time. Accounting for secular trends in
innovative activities, we
find that the impact of the change in import exposure on the change in patents
produced is strongly negative. It remains so once we add an extensive set of
further industry- and firm-level controls. Rising import exposure also reduces
global employment, global sales, and global R&D expenditure at the firm
level. It would appear that a simple mechanism in which greater foreign
competition induces U.S. manufacturing firms to contract their operations along
multiple margins of activity goes a long way toward explaining the response of
U.S. innovation to the China trade shock.
Dave Donaldson,
Microeconomic Insights: Economic benefits of transportation infrastructure:
historical evidence from India and America. Recent research finds that the economic benefits of transportation
infrastructure investment can be significant. To measure some of these benefits
I analyzed two of the most ambitious transportation projects in history: the
building of the vast railroad system in India by the British government from
1870 to 1930 and the dramatic expansion of the railroad network in America from
1870 to 1890. Railroad infrastructure reduced trade costs and increased the
shipment of goods. When observing the railroad network in India, I estimated
that in a typical district, the arrival of railroad access caused real Gross
Domestic Product (GDP) in the agricultural sector (the largest sector of
India’s economy at that time) to increase by around 17 percent. My estimates
with my colleague, Richard Hornbeck, imply that a counterfactual 1890 U.S.
economy without railroads would have seen a 60 percent reduction in the value
of aggregate farmland. While
these are only two historical case studies, and extrapolating from them to a
full understanding of the returns of modern-day investments cannot be done
without great care, these lessons from history teach us not to underestimate
the economic benefits of transportation infrastructure.
Scott Alexander,
Slate Star Codex: Considerations On Cost Disease. My impression is that most people still don’t know
about cost disease, or don’t realize the extent of it. So I thought I would
make the case for the cost disease in the sectors health care and education –
plus a couple more. Per student spending has increased about 2.5x in the past
forty years even after adjusting for inflation. At the same time, test scores
have stayed relatively stagnant. High school students’ reading scores went from
285 in 1971 to 287 today – a difference of 0.7%. The cost of health care has
about quintupled since 1970. It’s actually been rising since earlier than that,
but I can’t find a good graph; it looks like it would have been about $1200 in
today’s dollars in 1960, for an increase of about 800% in those fifty years. This time I can’t say with 100% certainty that all this extra spending
has been for nothing. Life expectancy has gone way up since 1960. We could tell
a story like this to explain rising costs in education, health care, etc. If
technology increases productivity for skilled laborers in other industries,
then less susceptible industries might end up footing the bill since they have
to pay their workers more. There’s
only one problem: health care and education aren’t paying their workers more;
in fact, quite the opposite. What’s happening? I don’t know
and I find it really scary.
Tyler Cowen,
Bloomberg: Feisty, Protectionist Populism? New Zealand Tried That. What would you think of a Western democratic leader
who was populist, obsessed with the balance of trade, especially effective on
television, feisty and combative with the press, and able to take over his
country’s right-wing party and swing it in a more interventionist direction? Meet
Robert Muldoon, prime minister of New Zealand from 1975 to 1984. For all the
comparisons of President Donald Trump to Mussolini or various unsavory Latin
American leaders, Muldoon is a clearer parallel case. Some of the similarities
are striking. Muldoon often made rude or unusually frank comments about foreign
leaders (including U.S. President Jimmy Carter and the Australian prime
minister), and his diplomats worked hard to undo them. When Muldoon spoke, he
so often made the issue about him. His slogan was “New Zealand -- The Way You
Want It.” One lesson from
the comparison is that a leader like Muldoon can be fairly popular, as he
stayed in power from 1975 to 1984, winning three terms despite mistakes,
antagonisms and policy failures. He was a plain-speaker who related well to
many Kiwi voters, and he was masterful at defusing or rechanneling opposition
within his own party.
Andreas Bergh,
Milken Institute Review: The Swedish Economy. Triumph of Social Democracy — or
Serendipity? By now, the debate regarding
the Swedish model had shifted. Chronic economic problems (especially slow
productivity growth) were now seen as proof that socialism didn't work – not
even in Sweden. A new center-right government was elected in 1991, and this
time the mandate was to make fundamental changes in the Swedish model, rather
than to polish the one that Sweden had long embraced. In some areas the
government succeeded; in others it hit a wall of resistance. Simply put,
competition and economic freedom increased in many areas of the Swedish
economy. But key areas, notably the labor market and the housing market,
remained highly regulated. The
winding road Sweden has taken has made it difficult to say whether being more
like Sweden involves increasing taxes and government intervention in the
economy – or whether it means liberalization, deregulation and welfare-state
retrenchment. So, before other countries try too hard to become more like
Sweden, it is wise to look back at how Sweden came to be Sweden. The
answers may surprise you – they certainly surprise a lot of Swedes.
Robert Frank, NYT:
Why Aren’t There More Female Billionaires? Women have been rapidly climbing the employment and wage ladders in
recent decades. But only a small fraction have made it to the top rungs — and
their progress may be slowing. New research shows that after making big strides in the 1980s and ’90s,
the number of women breaking into the top 1 percent of earners has stalled.
Women account for only 16 percent of the 1 percent, a number that has remained
essentially flat over the past decade, according to a paper by three
economists. And they account for only 11 percent of the top 0.1 percent of
earners.
Dan Jones, Nature:
Cognitive science: Dennett rides again. As Dennett and others argue, genetic evolution is not enough to
explain the skills, power and versatility of the human mind. Over the past
10,000 years, human behaviour and our ability to manipulate the planet have
changed too quickly for biological evolution to have been the driving force. In
Dennett's view, our brains
turned into fully fledged modern minds thanks to cultural memes: 'ways of
behaving' — pronouncing a word this way, dancing like so — that can be copied,
remembered and passed on. Some memes are better than others at getting passed
on. This drives natural selection, fashioning memetic design without a designer.
Philip Bunn,
Jeanne Le Roux, Kate Reinold, Paolo Surico. BoE: Do consumers respond in the
same way to good and bad income surprises? If you
unexpectedly received £1000 of extra income this year, how much of it would you
spend? All? Half? None? Now, by how much would you cut your spending if it had
been an unexpected fall in income? Standard economic theory (for example the
‘permanent income hypothesis’) suggests that your answers should be symmetric.
But there are good reasons to think that they might not be, for example in the
face of limits on borrowing or uncertainty about future income. That is backed
up by new survey evidence, which finds that an unanticipated fall in income leads to consumption
changes which are significantly larger than the consumption changes associated
with an income rise of the same size.
Olivier Blanchard
, Guido Lorenzoni, Jean Paul L'Huillier, PIIE: Short-Run
Effects of Lower Productivity Growth: A Twist on the Secular Stagnation
Hypothesis. Despite interest rates being
very close to zero, US GDP growth has been anemic in the last four years
largely due to lower optimism about the future, more specifically to downward
revisions in growth forecasts, rather than legacies of the past. Put simply,
demand is temporarily weak because people are adjusting to a less bright
future. The authors
suggest that downward revisions of productivity growth may have decreased
demand by 0.5 to 1.0 percent a year since 2012. This explanation, if correct,
has important implications for policy and forecasts. It may weaken the case for
secular stagnation, as it suggests that the need for very low interest rates to
sustain demand may be partly temporary. It also implies that, to the
extent that investors in financial markets have not fully taken this
undershooting into account, the current yield curve may underestimate the
strength of future demand and the need for higher interest rates in the future.
Larry Summers, FT:
Revoking trade deals will not help American middle classes: The idea that renegotiating trade agreements will
“make America great again” by substantially increasing job creation and
economic growth swept Donald Trump into office. More broadly, the idea that
past trade agreements have damaged the American middle class and that the
prospective Trans-Pacific Partnership would do further damage is now widely
accepted in both major US political parties. ...The reality is that the impact
of trade and globalisation on wages is debatable and could be substantial. But the idea that the US trade
agreements of the past generation have impoverished to any significant extent
is absurd. ... My judgment is that these effects are considerably smaller than
the impacts of technological progress. A strategy of returning to the
protectionism of the past and seeking to thwart the growth of other nations is
untenable and would likely lead to a downward spiral in the global economy. The
right approach is to maintain openness while finding ways to help workers at
home who are displaced by technical progress, trade or other challenges
Andrés Velasco,
Project Syndicate: How Economic Populism Works. Anti-populists in
the US, the UK, and elsewhere must come to terms with the reality that bad
policies pay off, both economically and politically, long before they become
toxic. Yes, the excessive private and public debt, the loss of export
capacity, and the weakening of institutions harm the economy (and the polity) –
but only in the long run. If critics do not understand that and act accordingly,
populists will have as long (and destructive) a run in the rich countries as
they once had in Latin America.
Michael A.
Clemens, Ethan G. Lewis, Hannah M. Postel, NBER: Immigration Restrictions as
Active Labor Market Policy: Evidence from the Mexican Bracero Exclusion. An important class of active labor market policy has
received little rigorous impact evaluation: immigration barriers intended to
improve the terms of employment for domestic workers by deliberately shrinking
the workforce. Recent advances in the theory of endogenous technical change
suggest that such policies could have limited or even perverse labor-market
effects, but empirical tests are scarce. We study a natural experiment that
excluded almost half a million Mexican ‘bracero’ seasonal agricultural workers
from the United States, with the stated goal of raising wages and employment
for domestic farm workers. We build a simple model to clarify how the
labor-market effects of bracero exclusion depend on assumptions about
production technology, and test it by collecting novel archival data on the
bracero program that allow us to measure state-level exposure to exclusion for
the first time. We cannot
reject the hypothesis that bracero exclusion had no effect on U.S. agricultural
wages or employment, and find that important mechanisms for this result include
both adoption of less labor-intensive technologies and shifts in crop mix.
Gustavo A.
Marrero, Juan Gabriel Rodríguez, Roy Van der Weide, VOX: Unequal opportunities,
unequal growth. Inequality can
be both good and bad for growth. Unequal societies may be holding back one
segment of the population while helping another. This column exploits US data
to argue that inequality
affects negatively the future income growth of the poor and positively that of
the rich. This relationship is largely driven by inequality of
opportunity, which limits the growth prospects at the bottom of the income
distribution.
Alex Gibney, Zero
Days: A
black ops cyber-attack launched by the U.S. and Israel on an Iranian nuclear
facility unleashed malware with unforeseen consequences. The Stuxnet virus
infiltrated its pre-determined target only to spread its infection outward,
ultimately exposing systemic vulnerabilities that threatened the very safety of
the planet. Delve deep into the burgeoning world of digital warfare in
this documentary thriller from Academy Award® winning filmmaker Alex Gibney. A
must-see for everybody, recently on Svtplay.
Tyler Cowen,
Marginal Revolution: Toni Erdmann, misunderstood masterpiece (full of
spoilers). I say the optimal time to
read this post is in the middle of the movie, not before, not after. I’ll put the rest of under the fold…First, Toni Erdmann is one of the most
stimulating and multi-faceted movies I’ve seen in years, utterly unique and
wholly indefinable. An elite
female German management consultant is called in to advise on outsourcing to
Bucharest, and during the course of the movie she discovers she cannot get away
from her father so easily. Most of the core action unfolds after the woman’s
father comes to visit her in Bucharest, and subjects her to an escalating
series of escapades, mostly with co-workers.
At least on the surface, the woman is efficient and worldly but emotionally
stunted. Her father is rude and genuine
and comic and self-destructive with his blundering interventions, unable to
stop offending people, grabbing the attention, and repeatedly undercutting his
daughter’s self-confidence. Everything
has to be about him. As the movie
progresses, however, the daughter learns she and her father are not so
different after all.
Carmen
Reinhart, Project Syndicate: Is the Deflation Cycle Over? Until the global financial crisis of 2008-2009,
deflation had all but disappeared as a concern for policymakers and investors
in the advanced economies, apart from Japan, which has been subject to
persistent downward pressure on prices for nearly a generation. And now
deflationary fears are on the wane again. If 2017 really does mark a broad
reversal of a decade of deflation, it is reasonable to expect that most major central banks will be not be
inclined to overreact if, after a decade or so (longer for Japan) of mostly
downside disappointments, inflation overshoots its target. Furthermore,
the view that higher inflation targets (perhaps 4%) may be desirable (because
they would provide central banks with more space to lower interest rates in the
advent of a future recession) has gained ground in some academic and policy
quarters.
Cecchetti &
Schoenholtz, Money&Banking: When Government Misguides. Governments play favorites. They promote residential
construction by making mortgages tax deductible. They encourage ethanol
production by subsidizing corn. They boost sales of electric cars by offering
tax rebates. These political favors usually diminish, rather than increase,
aggregate income. They’re about distribution, not production. We could stop
here and simply conclude that we are concerned that the Trump Administration has embarked down a road that
will protect high-cost inefficient firms and industries under the guise of
saving jobs. In the short term, this will drive up prices; in the long run, it
won’t save jobs. But the situation is much worse than that. Presidential
threats circumvent orderly legal processes, making the United States a less
attractive place to invest.
Daniel S.
Hamermesh, Katie R. Genadek, Michael Burda, NBER: Racial/Ethnic Differences in Non-Work at
Work. Evidence from the American Time Use Survey 2003-12
suggests the existence of small but statistically significant racial/ethnic
differences in time spent not working at the workplace. Minorities, especially men, spend a greater
fraction of their workdays not working than do white non-Hispanics. These
differences are robust to the inclusion of large numbers of demographic,
industry, occupation, time and geographic controls. They do not vary by
union status, public-private sector attachment, pay method or age; nor do they
arise from the effects of equal-employment enforcement or geographic
differences in racial/ethnic representation. The findings imply that measures
of the adjusted wage disadvantages of minority employees are overstated by
about 10 percent.
Sebastian Galiani,
Matthew Staiger, Gustavo Torrens, NBER:When Children Rule: Parenting in Modern
Families. During the 20th century there
was a secular transformation within American families from a household
dominated by the father to a more egalitarian one in which the wife and the
children have been empowered. This transformation coincided with two major
economic and demographic changes, namely the increase in economic opportunities
for women and a decline in family size. To explain the connection between these
trends and the transformation in family relationships we develop a novel model
of parenting styles that highlights the importance of competition within the
family. The key intuition is that the rise in relative earnings of wives
increased competition between spouses for the love and affection of their children while
the decline in family size reduced competition between children for resources
from their parents. The
combined effect has
empowered children within the household and allowed them to capture an
increasing share of the household surplus over the past hundred years.
Alison L. Booth,
Eiji Yamamura, IZA: Performance in Mixed-Sex and Single-Sex Tournaments: What
We Can Learn from Speedboat Races in Japan. In speedboat racing in Japan, women racers participate and compete in
races under the same conditions as men, and all individuals are randomly
assigned to mixed-gender or single-gender groups for each race. In this paper
we use a sample of over 140,000 observations of individual-level racing records
provided by the Japanese Speedboat Racing Association to examine how
male-dominated circumstances affect women's racing performance. We control for
individual fixed-effects plus a host of other factors affecting performance
(such as starting lane, fitness and weather conditions). Our estimates reveal
that women's race-time is
slower in mixed-gender races than in all-women races, whereas men racer's time
is faster in mixed-gender races than men-only races. In mixed-gender races,
male racers are found to be more 'aggressive' – as proxied by lane-changing –
in spite of the risk of being penalized if they contravene the rules, whereas
women follow less aggressive strategies. We find no difference in
disqualifications between genders. We suggest that gender-differences in
risk-attitudes and over-confidence may result in different responses to the
competitive environment and penalties for rule-breaking, and that gender-identity
also plays a role.
National Geographic: Before the Flood. From Academy Award-winning filmmaker Fisher Stevens
and Academy Award-winning actor, and environmental activist Leonardo DiCaprio,
Before The Flood presents a riveting
account of the dramatic changes now occurring around the world due to climate
change.
