JUNE 15 2017

Alex Tuckett, BoE: Imports and the composition of expenditure. A fall in the real exchange rate can increase demand for domestic output in two main ways. The volume of exports – which become cheaper – is boosted. And goods and services that were previously imported can instead be supplied by domestic producers, which become more competitive as the price of imports rises. Economists call the second effect ‘import substitution’. Using data from Supply-Use tables can help us better understand the process of import substitution, in particular by examining how the composition of expenditure has influenced imports. Doing so shows that the import substitution effect of the 2008-09 depreciation was partly masked by other, co-incident factors.

American Economic Association: The resource curse in action. In a study appearing in this month’s issue of the American Economic Review, the authors look at geocoded data on violent incidents and note the proximity of each incident to mining clusters. In theory, productive mines could potentially lead to violence for a number of reasons – profitable mines are a natural target for warring factions, and a captured mine can provide financial support to a rebel group looking to expand its reach. The researchers find that rising commodity prices did lead to greater violence, especially near sites where the profitable minerals like platinum and nickel were being extracted. The map below indicates regions where conflict would have been less likely to occur in 2010 if commodity prices had remained at their lower 1990s levels.

William R. Emmons , Lowell R. Ricketts, FED St.Louis: College Inadvertently Increases Racial and Ethnic Disparity in Income and Wealth. Growing gaps in college-attainment rates, together with large differences in the economic and financial returns associated with any given level of education, suggest that racial and ethnic income and wealth gaps are likely to grow larger in the future.Successive generations of Hispanics and blacks are falling further behind their white and Asian counterparts in obtaining four-year college degrees. Second, the payoffs for increasing levels of education obtained by Hispanics and blacks generally are lower than those for whites and Asians. As a consequence of these quantity and quality gaps, higher education unintentionally has become an engine for widening disparities rather than for accelerating the convergence of economic and financial opportunities across races and ethnicities.  

Laura Tyson, Project Syndicate:Labor Markets in the Age of Automation. Advances in artificial intelligence and robotics are powering a new wave of automation, with machines matching or outperforming humans in a fast-growing range of tasks, including some that require complex cognitive capabilities and advanced degrees. This process has outpaced the expectations of experts; not surprisingly, its possible adverse effects on both the quantity and quality of employment have raised serious concerns. Winner-take-all effects that bring massive benefits to superstars and the luckiest few, as well as rents from imperfect competition and first-mover advantages in networked systems. Returns to digital capital tend to exceed the returns to physical capital and reflect power-law distributions, with an outsize share of returns again accruing to relatively few actors.

Emmanuel Saez, NBER: Taxing the Rich More: Preliminary Evidence from the 2013 Tax Increase. This paper provides preliminary evidence on behavioral responses to taxation around the 2013 tax increase that raised top marginal tax rates on capital income by about 9.5 points and on labor income by about 6.5 points. Using published tabulated tax statistics from the Statistics of Income division of the IRS, we find that reported top 1% incomes were significantly higher in 2012 than in 2013, implying a large short-run elasticity of reported income with respect to the net-of-tax rate in excess of one. This large short-run elasticity is due to income retiming for tax avoidance purposes and is particularly high for realized capital gains and dividends, and highest at the very top of the income distribution. However, comparing 2011 and 2015 top incomes uncovers only a small medium-term response to the tax increase as top income shares resumed their upward trend after 2013. Overall, we estimate that at most 20% of the projected tax revenue increase from the 2013 tax reform is lost through behavioral responses. This implies that the 2013 tax increase was an efficient way to raise revenue.

Paul A. Gompers, Sophie Q. Wang, Harvard University: And the Children Shall Lead: Gender Diversity and Performance in Venture Capital. With an overall lack of gender and ethnic diversity in the innovation sector documented in Gompers and Wang (2017), we ask the natural next question: Does increased diversity lead to better firm performances? In this paper, we attempt to answer this question using a unique dataset of the gender of venture capital partners’ children. First, we find strong evidence that parenting more daughters leads to an increased propensity to hire female partners by venture capital firms. Second, using an instrumental variable set-up, we also show that improved gender diversity, induced by parenting more daughters, improves deal and fund performances. These effects concentrate overwhelmingly on the daughters of senior partners than junior partners. Taken together, our findings have profound implications on how the capital markets could function better with improved diversity.

Simen Markussen, Knut Røed, IZA: Egalitarianism under Pressure: Toward Lower Economic Mobility in the Knowledge Economy? Based on complete population data, with the exact same definitions of family class background and economic outcomes for a large number of birth cohorts, we examine post-war trends in intergenerational economic mobility in Norway. Despite only mild fluctuations in standard rank-based summary statistics, we show that men and women born into the lowest parts of the parental earnings rank distribution have fallen considerably behind in terms of several quality-of-life outcomes, such as earnings rank, earnings share, employment propensity, educational attainment, and the establishment of a family. In particular, the prime-age employment rates of lower class sons have declined spectacularly, both because their rank outcomes have deteriorated and because the lowest ranks to an increasing extent have become associated with non-employment rather than low-wage employment. We provide suggestive evidence that higher educational requirements in the labor market has increased the importance of parental encouragement and support and thus enlarged the handicap of being born into a less resourceful family. There is no evidence whatsoever of a relative decline in the lower classes' cognitive abilities.

Arthur Waldron, SupChina: There is no Thucydides Trap. Since the attack on Scarborough Shoal, now six years ago, my own opinion is that China expected to have occupied a lot more. Her slightly delusional view of her claims, first made explicit in ASEAN’s winter meeting of 2010 in Hanoi, was that “small” countries would all bow respectfully to China’s new pre-eminence. This has failed to occur. All of China’s neighbors are now building up strong military capabilities. Japanese and South Korean nuclear weapons are even a possibility. Over-relying on their traditional concept of awesomeness (威 wēi), the Chinese expected a cake walk. They have got instead an arms race with neighbors including Japan and other American allies and India too. With so much firepower now in place the danger of accident, pilot error, faulty command and control, etc. must be considered.

Alix Spiegel, NPR: Eager To Burst His Own Bubble, A Techie Made Apps To Randomize His Life. In San Francisco, the life Max Hawkins lived was arguably perfect. He was employed by Google, surrounded by friends and had his routine nailed down. He woke to artisanal coffee, biked to work along the beautiful Embarcadero waterfront roadway, lunched on Google's famed free food ("like four different kinds of kale" level) and — possibly the true mark of a successful millennial — got invited to many happy hours. But something was missing. Max started small, with an app that integrated Uber. He would press a button in the app and a car would arrive. But then, a twist: He couldn't select a drop-off location; the app would choose a spot within a range without disclosing it. The only thing the rider had to do was enjoy the journey — and hope for a good destination. From there, Max's applications became more complex. He built an app that used a Facebook search function for public events to find ones near him. Then the app would randomly choose which event Max would attend.

Francesca Chambers, MailOnline: Russia tried to delete or alter voter data during cyber attacks that affected virtually EVERY state before the election. Hackers got into databases and software systems in 39 states - twice as many as the government has said, according to a report. In one state they were able to access a campaign finance database. In Illinois, the attackers tried to delete and make changes to voter data. The Obama administration contacted the Kremlin about the menacing behavior through a back

Jan Kabátek, David C. Ribar, IZA: Not Your Lucky Day: Romantically and Numerically Special Wedding Date Divorce Risks. Characteristics of couples on or about their wedding day and characteristics of weddings have been shown to predict marital outcomes. Little is known, however, about how the dates of the weddings predict marriage durability. Using Dutch marriage and divorce registries from 1999-2013, this study compares the durations of marriages that began on Valentine's Day and numerically special days (dates with the same or sequential number values, e.g., 9.9.99, 1.2.03) with marriages on other dates. In the Netherlands, the incidence of weddings was 137-509% higher on special dates than ordinary dates, on an adjusted basis, and the hazard odds of divorce for special-date marriages were 18-36% higher. Sorting on couples' observable characteristics accounts for part of this increase, but even after controlling for these characteristics, special-date marriages were more vulnerable, with 11-18% higher divorce odds compared to ordinary dates. This relation is even stronger for couples who have not married before.

Mitch Prinstein, NYT: Popular People Live Longer. Julianne Holt-Lunstad, a psychologist at Brigham Young University, consolidated data from 148 investigations published over 28 years on the effects of social relationships, collectively including over 308,000 participants between the ages of 6 and 92 from all over the world. The results revealed that being unpopular — feeling isolated, disconnected, lonely — predicts our life span. More surprising is just how powerful this effect can be. Dr. Holt-Lunstad found that people who had larger networks of friends had a 50 percent increased chance of survival by the end of the study they were in. And those who had good-quality relationships had a 91 percent higher survival rate. This suggests that being unpopular increases our chance of death more strongly than obesity, physical inactivity or binge drinking. In fact, the only comparable health hazard is smoking.