Michael Anson,
David Bholat, Miao Kang and Ryland
Thomas, BoE: Looking inside the ledgers: the Bank of England as a Lender of
Last Resort. The Bank’s generosity fell unevenly— typically the top
fifth of borrowers received over three-fourths of the amounts lent. However, we
have found no evidence that the Bank preferred lending to its existing
customers i.e. those who held current accounts with the Bank’s Drawing Office,
versus others. In sum, we find that the Bank developed into a
textbook lender of last resort over the course of the three great crises of the
mid-nineteenth century. Strikingly, it did so before Bagehot wrote his
canonical text. But our paper barely scratches the surface of the historical
treasures buried below Threadneedle Street in the Bank’s archives.
John Haltiwanger,
Henry Hyatt, and Erika McEntarfer, NBER Digest: Who Moves Up the Job Ladder? We examine demographic patterns in job ladder
mobility over the business cycle. Upward movement of workers on a "job
ladder" from low-productivity to high-productivity firms is heavily
dependent on the business cycle. During booms, net employment at high-productivity firms grows faster
than at low-productivity firms, resulting in workers moving up the ladder.
During busts, these upward job-to-job changes essentially stop. Net
employment flows are instead driven by layoffs, with low-productivity firms
losing comparatively more workers than their higher-productivity counterparts.
Barry Eichengreen,
Project Syndicate: Two Myths About Automation. While many people believe that technological progress
and job destruction are accelerating dramatically, there is no evidence of
either trend. In reality,
total factor productivity, the best summary measure of the pace of technical
change, has been stagnating since 2005 in the US and across the
advanced-country world.
Katja
Mann, Lukas Püttmann, VOX EU: Benign effects of automation: New evidence from
patent texts. Researchers
disagree over whether automation is creating or destroying jobs. This column
introduces a new indicator of automation constructed by applying a machine learning algorithm to
classify patents, and uses the result to investigate which US regions and
industries are most exposed to automation. This indicator suggests that
automation has created more jobs in the US than it has destroyed.
Thomas Piketty, Le
Monde: Trump, Macron: same fight. It is customary
to contrast Trump and Macron: on one hand the vulgar American businessman with
his xenophobic tweets and global warming scepticism; and on the other, the
well-educated, enlightened European with his concern for dialogue between
different cultures and sustainable development. All this is not entirely false
and rather pleasing to French ears. But if we take a closer look at the policies being implemented, one is
struck by the similarities. In particular, Trump, like Macron, has just had
very similar tax reforms adopted. In both cases, these constitute an incredible
flight in the direction of fiscal dumping in favour of the richest and most
mobile.
James R. Flynn,
Michael Shayer, Science Direct: IQ decline and Piaget: Does the rot start at
the top? The IQ gains of the 20th century have faltered. Losses in Nordic nations after
1995 average at 6.85 IQ points when projected over thirty years. On
Piagetian tests, Britain shows decimation among high scorers on three tests and
overall losses on one. The US sustained its historic gain (0.3 points per year)
through 2014. The Netherlands shows no change in preschoolers, mild losses at
high school, and possible gains by adults. When a later cohort is compared to
an earlier cohort, IQ trends vary dramatically by age. Piagetian trends
indicate that a decimation of top scores may be accompanied by gains in
cognitive ability below the median. They also reveal the existence of factors
that have an atypical impact at high levels of cognitive competence. Scandinavian data from
conventional tests confirm the decimation of top scorers but not factors of
atypical impact. Piagetian tests may be more sensitive to detecting this
phenomenon.
Woodley of Menie,
Michael A., APA PsycNET: What Causes the Anti-Flynn Effect? A Data Synthesis
and Analysis of Predictors. Anti-Flynn
effects (i.e., secular declines in IQ) have been noted in a few countries. Much
speculation exists about the causes of these trends; however, little progress
has been made toward comprehensively testing these. A synthetic literature
search yielded a total of 66 observations of secular IQ decline from 13
countries, with a combined sample size of 302,234 and study midyears spanning
87 years, from 1920.5 to 2007.5. Multilevel modeling (MLM) was used to examine the
effect of study midyear, and (after controlling for this and other factors)
hierarchical general linear modeling (GLM) was used. The MLM revealed that the anti-Flynn effect has
strengthened in more recent years. Index of Biological State was not a significant
predictor; however immigration predicted the decline, indicating that high
levels of immigration promote the anti-Flynn effect.
Almog Adir, Simon Whitaker, BoE: Do rich countries
lend to poor countries? In the last few years there has been a small net
overall flow of capital from advanced to emerging market economies (EMEs), in
contrast to the ‘paradox’ prevailing for much of this century of capital
flowing the ‘wrong’ way, uphill from poor to rich countries. In this post we show the
‘paradox’ in the aggregate flows actually concealed private capital flowing the
‘right’ way for much of the time. And even during recent turbulence,
foreign direct investment (FDI) flows, likely to be particularly beneficial to
growth, have persisted. But EMEs could still benefit more from
harnessing capital from advanced economies and Argentina has set a useful
precedent as it prepares to take over the Presidency of the G20 in 2018.
Amanda Bayer, David Wilcox, FED: The Unequal
Distribution of Economic Education: A Report on the Race, Ethnicity, and Gender
of Economics Majors at US Colleges and Universities. The distribution of economic education among US
college graduates is quite unequal: female and underrepresented minority
undergraduates, collectively, major in economics at 0.36 the rate that white,
non-Hispanic male students do. This paper makes a four-part contribution to address
this imbalance. First and foremost, we provide detailed comparative data at the institution
level to provoke and inform the attention of economists and senior
administrators at colleges and universities, among others. Second, we establish
a definition of full inclusion in economic education on college and university
campuses and use that definition to evaluate the status quo and to compare
institutions. Third, we illuminate the reasons why the need to improve
the distribution of economic education is urgent, including the imperative to
support economic policymaking. Lastly, we point the way forward, identifying
both currently available resources and reasonable next steps for all involved
parties to take.
Joshua Hyman, AEA: Does Money Matter in the Long Run?
Effects of School Spending on Educational Attainment. This paper measures the effect of increased primary
school spending on students’ college enrollment and completion. Using
student-level panel administrative data, I exploit variation in the school
funding formula imposed by Michigan’s 1994 school finance reform, Proposal A. Students exposed to $1,000 (10
percent) more spending were 3 percentage points (7 percent) more likely to
enroll in college and 2.3 percentage points (11 percent) more likely to earn a
postsecondary degree. The effects were concentrated among districts that
were urban and suburban, lower poverty, and higher achieving at baseline.
Districts targeted the marginal dollar toward schools serving less-poor
populations within the district.
Elizabeth Dhuey, David Figlio, Krzysztof Karbownik,
Jeffrey Roth, NBER: School Starting Age and Cognitive Development. We present evidence of a positive relationship between school starting age
and children’s cognitive development from age 6 to 15 using a regression
discontinuity design and large-scale population-level birth and school data
from the state of Florida. We estimate effects of being relatively old
for grade (being born in September versus August) that are remarkably stable –
always just around 0.2 SD difference in test scores – across a wide range of
heterogeneous groups, based on maternal education, poverty at birth,
race/ethnicity, birth weight, gestational age, and school quality. While the
September-August difference in kindergarten readiness is dramatically different
by subgroup, by the time students take their first exams, the heterogeneity in
estimated effects effectively disappears. We document substantial variation in
compensatory behaviors targeted towards young for grade children. While the
more affluent families tend to redshirt their children, young for grade
children from less affluent families are more likely to be retained in grades
prior to testing. School district practices regarding retention and redshirting
are correlated with improved outcomes for the groups less likely to use those
remediation approaches (i.e., retention in the case of more-affluent families
and redshirting in the case of less-affluent families.) We also study college
and juvenile detention outcomes using administrative data from a large Florida
school district, and show that being an older age at school entry increases children’s college
attainment and reduces the likelihood of being incarcerated for juvenile crime.
Matthew Smith et al: US Treasury Department.
Capitalists in the Twenty-First Century. Have passive rentiers replaced the working rich at the top of the U.S.
income distribution? Using administrative data linking 10 million firms to their
owners, this paper shows that private business owners who actively manage their firms are key for top
income inequality. Private business income accounts for most of the rise of top
incomes since 2000 and the majority of top earners receive private business
income most of which accrues to active owner-managers of mid-market firms in
relatively skill-intensive and unconcentrated industries. Profit falls
substantially after premature owner deaths. Top-owned firms are twice as
profitable per worker as other firms despite similar risk, and rising
profitability without rising scale explains most of their profit growth.
Together, these facts indicate that the working rich remain central to rising
top incomes in the twenty-first century.
Federica Liberini, Andrew J. Oswald, Eugenio Proto,
Michela Redoano, IZA: Was Brexit Caused by the Unhappy and the Old? This paper uses newly released information, from the
Understanding Society data set, to examine the characteristics of individuals
who were for and against Brexit. Two key findings emerge. First, unhappy
feelings contributed to Brexit. However, contrary to commonly heard views, the key channel of influence was
not through general dissatisfaction with life. It was through a person's narrow
feelings about his or her own financial situation. Second, despite some
commentators' guesses, Brexit was not caused by old people. Only the very young
were substantially pro-Remain.
Trenton G. Smith, Steven Stillman, Stuart Craig, IZA:
'Rational Overeating' in a Feast-or-Famine World: Economic Insecurity and the
Obesity Epidemic. Obesity rates
have risen dramatically in the US since the 1980s, but well-identified studies
have struggled to explain the magnitude of the observed changes. In this paper,
we estimate the causal impact of economic insecurity on obesity rates.
Specifically, we construct a synthetic panel of demographic groups over the
period 1988 to 2012 by combining the newly developed Economic Security Index
(ESI) with data from the National Health and Nutrition Examination Surveys
(NHANES). According to our
estimates, increased economic insecurity over this time period explains 50% of
the overall population-level increase in obesity.
Olivier J.
Blanchard, NBER: Should we Get rid of the Natural Rate Hypothesis? 50 years ago, Milton Friedman articulated the natural
rate hypothesis. It was composed of two sub-hypotheses: First, the natural rate
of unemployment is independent of monetary policy. Second, there is no long-run
trade-off between the deviation of unemployment from the natural rate and
inflation. Both propositions have been challenged. The paper reviews the
arguments and the macro and micro evidence against each. It concludes that, in each case,
the evidence is suggestive, but not conclusive. Policy makers should keep the
natural rate hypothesis as their null hypothesis, but keep an open mind and put
some weight on the alternatives
Björn Tyrefors
Hinnerich et al., Research Institute of Industrial Economics: Extended right to
vote kick-started the economic development in Sweden: How important are
political rules for economic growth? Recent work supports theories that changes in political institutions
can be key determinants of economic institutions and growth. We examined the impact of Sweden’s
1862 suffrage reform, which extended the voting rights of industrialists. Using
a unique data set they found that the reform was a key factor in Sweden’s
growth miracle because it gave industrialists more political clout,
kick-starting the process.
Emmanuel Saez,
Benjamin Schoefer, David Seim, VOX: The effects of employer payroll tax cuts on
employment, business activity and wages. Cuts to the employer portion of payroll taxes are often discussed as a
policy lever to reduce labour costs for firms. This column examines the effects
of a Swedish experiment which dramatically cut employer payroll taxes for young
workers between 2007 and 2015. The tax cut reduced youth unemployment by 2-3 percentage points,
without any differential increase in wages of young workers. Firms used the tax
windfall to expand employment and business activity, and firms with larger tax
windfalls raised wages for workers – both young and old – collectively.
Lisa A. Robinson,
James K. Hammitt, Harvard: Assessing the Distribution of Impacts in Global
Benefit‐Cost Analysis. There is
widespread agreement that benefit‐cost analyses should be supplemented with
information on how the impacts are distributed across individuals with different
characterics (such as income). Yet reviews of completed analyses suggest that
such information is rarely provided. Conventionally, benefit‐cost analysis
focuses on economic efficiency, summing the values of a policy’s costs and
benefits based on the preferences of those affected. Decision‐makers and other stakeholders typically
find this information useful but insufficient; they
also want to know who is harmed and who is helped and by how much. The goal of
this paper is therefore relatively simple: to encourage analysts to provide
information on the distribution of net benefits throughout the population in
addition to assessing the overall impacts of the policy.
Jon Kristian
Pareliussen, OECD: How self-sorting affects migrants’ labour market outcomes. Assuming that immigrants select destinations
according to absolute returns to their observable and unobservable human
capital, I present a human capital model of migration accounting for taxes,
transfers and limited portability of skills. The model predicts both segmented
sorting of migrants to countries with a compressed income distribution, with
negative sorting increasing with lower portability and positive sorting
increasing with portability. Sorting to countries with greater income
dispersion increases unambiguously with host-country relevant skills. Migrants
to countries with compressed incomes will hence be more likely to be either out
of work or overqualified and low-paid compared to natives with similar
observable skills, and compared to migrants to countries with greater income
dispersion. Regressions results on data for 16 OECD countries from the OECD
Survey of Adult Skills are in line with the model. Controlling for observable skills and
characteristics, including a literacy test score, immigrants from countries
that are less wealthy or further away in geographical and cultural distance are
significantly more likely to be either out of work or overqualified and
low-paid in high-benefit countries. Wage compression, generous transfers and
high taxes, typical traits of the so-called “Nordic” or “Flexicurity” model,
may therefore contribute to making immigrant integration more challenging.
David H. Autor,
Christopher J. Palmer, Parag A. Pathak, NBER: Gentrification and the Amenity
Value of Crime Reductions: Evidence from Rent Deregulation. Gentrification involves large-scale neighborhood
change whereby new residents and improved amenities increase property values.
In this paper, we study whether and how much public safety improvements are
capitalized by the housing market after an exogenous shock to the
gentrification process. We use variation induced by the sudden end of rent
control in Cambridge, Massachusetts in 1995 to examine within-Cambridge
variation in reported crime across neighborhoods with different rent-control
levels, abstracting from the prevailing city-wide decline in criminal activity.
Using detailed location-specific incident-level criminal activity data
assembled from Cambridge Police Department archives for the years 1992 through
2005, we find robust
evidence that rent decontrol caused overall crime to fall by 16
percent—approximately 1,200 reported crimes annually—with the majority of the
effect accruing through reduced property crime. By applying external estimates
of criminal victimization’s economic costs, we calculate that the crime
reduction due to rent deregulation generated approximately $10 million (in 2008
dollars) of annual direct benefit to potential victims. Capitalizing
this benefit into property values, this crime reduction accounts for 15 percent
of the contemporaneous growth in the Cambridge residential property values that
is attributable to rent decontrol. Our findings establish that reductions in
crime are an important part of gentrification and generate substantial economic
value. They also show that standard cost-of-crime estimates are within the
bounds imposed by the aggregate price appreciation due to rent decontrol.
Carrie Arnold,
Quanta Magazine: Choosy Eggs May Pick Sperm for Their Genes, Defying Mendel’s
Law. The oldest law of genetics says that gametes combine
randomly, but experiments hint that sometimes eggs select sperm actively for
their genetic assets. Random fertilization should lead to specific ratios of
gene combinations in offspring, but Nadeau has found two examples just from his
own lab that indicate fertilization can be far from random: Certain pairings of
gamete genes are much more likely than others. After ruling out obvious
alternative explanations, he could only conclude that fertilization wasn’t
random at all. “It’s the gamete equivalent of choosing a partner,” Nadeau said.
His hypothesis – that the
egg could woo sperm with specific genes and vice versa – is part of a growing
realization in biology that the egg is not the submissive, docile cell that
scientists long thought it was. Instead, researchers now see the egg as an
equal and active player in reproduction, adding layers of evolutionary control
and selection to one of the most important processes in life.
Kurt G. Lunsford,
Cleveland Fed: Productivity Growth and Real Interest Rates in the Long Run. Despite the unemployment rate's return to low levels,
inflation-adjusted or "real" interest rates have remained negative.
One popular explanation for persistently negative real interest rates is that
long-run productivity growth has slowed. I study the long-run relationship
between real interest rates and productivity growth from 1914 to 2016 and find
a negative correlation between these two variables. Hence, low productivity growth has been
historically associated with high real interest rates. Since World War II, the
correlation between these variables has been near zero. This suggests that slow
long-run productivity growth is not driving real interest rates to be
persistently negative.
Jonathan Rothwell,
NYT: Myths of the 1 Percent: What Puts People at the Top. Dispelling
misconceptions about what’s driving income inequality in the U.S. In the United States, the richest 1 percent have seen
their share of national income roughly double since 1980, to 20 percent in 2014
from 11 percent. No other
nation in the 35-member Organization for Economic Cooperation and Development
is as unequal among those with comparable tax data, and none have experienced
such a sharp rise in inequality. In Denmark, the share of income going to the
top 1 percent rose to 6 percent from just 5 percent. In the Netherlands, there
was essentially no increase from 6 percent levels. Britain (6 percent to 14
percent) and Canada (9 percent to 14 percent) had notable increases in
top-income earnings, but not as large as those in the United States. The
United States imports only a small fraction of the value of its total economy,
whereas Denmark and the Netherlands are highly dependent on imports. Tech
industries in the United States have contributed just a tiny bit to the rise of
the 1 percent, and the salaries of engineers and software developers rarely
reach the 1 percent threshold of an annual income of $390,000. There is no
correlation between changing immigration shares since 1990 and rising
top-income shares. In fact, the countries that have absorbed the most
immigrants — on a per-capita basis — have seen overall income inequality
(measured by the Gini coefficient) fall.
Ghazala Azmat,
Rosa Ferrer, Microeconomic Insights: Gender gaps among high-skilled professionals:
the case of US lawyers. Given that there
are gender gaps in career outcomes even for individuals with similar
educational background and training, to what extent are they attributable to
differences in measured performance? The legal profession assesses performance
using two measures that are widely used and comparable across law firms: the
annual number of hours billed to clients; and the annual amount of new client
revenue generated. Using
data on a representative cohort of young lawyers in the United States who
graduated from law school in 2000, we study gender gaps in hours worked,
performance, earnings and promotion to partner. Simple descriptive analysis
shows that male lawyers bill 10% more hours to clients and bring in more than
twice as much new business than female lawyers. We find that the
difference in hours billed is largely explained by the difference in hours
worked. In other words, per hour worked, women bill as many hours as men, but
client revenue per hour worked is lower for women than men. Performance gaps explain a substantial share of the gender gaps in
earnings.
Peter Lindert,
VOX. The rise and future of progressive redistribution. There has been a blossoming of research into fiscal
incidence by income class. This column combines century-long histories for
Britain and South American countries with previous research to offer a global history
of government income redistribution. Contrary to some allegations, the shift towards progressivity
in government budgets over the last 100 years has not been reversed since the
1970s. Among democratic welfare states, the closest thing to a demonstrable
reversal was Sweden’s partial retreat since the 1980s. The rise in
inequality since the 1970s therefore appears to owe nothing to a net shift
government redistribution toward the rich.
Leander Heldring,
James Robinson, Sebastian Vollmer, VOX: The origins of the Industrial
Revolution. The Industrial Revolution is
arguably the most important economic event in world history, and successful
industrialisation continues to elude many developing countries today. This
column argues that an
important driver of industrialisation in England was the development of markets
that allowed division of labour, innovation and, ultimately, social change. Institutional
change, rather than advantageous geography, is the main driver of successful
industrialisation in England.
David Grimm,
Science: These may be the world’s first images of dogs—and they’re wearing
leashes. Carved into a
sandstone cliff on the edge of a bygone river in the Arabian Desert, a hunter
draws his bow for the kill. He
is accompanied by 13 dogs, each with its own coat markings; two animals have
lines running from their necks to the man’s waist. The engravings likely date
back more than 8000 years, making them the earliest depictions of dogs, a new
study reveals. And those lines are probably leashes, suggesting that
humans mastered the art of training and controlling dogs thousands of years
earlier than previously thought.
Fatih Karahan, Sean Mihaljevich, Laura Pilossoph, NY
FED: Understanding Permanent and Temporary Income Shocks. Many labor economists have been interested in various
shocks to earnings. How big are the more permanent shocks to earnings? How
large are they relative to those that are temporary in nature? What are the
sources of these shocks? Economists have estimated that in the early 1990s wage
gains from job changes account for at least a third of early-career wage
growth. Our results corroborate this finding: The strongest effect on permanent earnings comes from
employer changes, with making one job switch erasing the negative scars of two
nonemployment spells.
Sigridur Benediktsdottir, Gauti B. Eggertsson, Eggert
Torarinsson NBER: The Rise, the Fall, and the Resurrection of Iceland. This paper documents how the Icelandic banking system
grew from 100 percent of GDP in 1998 to 9 times GDP in 2008 when it failed. We
estimate the output costs of the crisis, which was about average relative to
the 147 banking crisis documented Laeven and Valencia (2012) and the 100
banking crisis documented by Reinhart and Rogoff (2014). Our computation of the
governments direct costs, reveals that the recently concluded negotiation with foreign creditors
may leave the Icelandic government in net surplus as a consequence of the
crisis, although there is still some uncertainty about the ultimate cost and
our benchmark estimate is a cost corresponding to 5 percent of GDP.
Annette Alstadsæter, Niels Johannesen, Gabriel Zucman,
NBER: Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for
Global Inequality. Drawing on newly
published macroeconomic statistics, this paper estimates the amount of
household wealth owned by each country in offshore tax havens. The equivalent of 10% of world
GDP is held in tax havens globally, but this average masks a great deal of
heterogeneity—from a few percent of GDP in Scandinavia, to about 15% in
Continental Europe, and 60% in Gulf countries and some Latin American economies.
We use these estimates to construct revised series of top wealth shares in ten
countries, which account for close to half of world GDP. Because offshore
wealth is very concentrated at the top, accounting for it increases the top
0.01% wealth share substantially in Europe, even in countries that do not use
tax havens extensively. It has considerable effects in Russia, where the vast
majority of wealth at the top is held offshore. These results highlight the
importance of looking beyond tax and survey data to study wealth accumulation
among the very rich in a globalized world.
Uri Gneezy et al., NBER: Measuring Success in
Education: The Role of Effort on the Test Itself. Tests measuring and comparing educational achievement are an important
policy tool. We experimentally show that offering students extrinsic incentives
to put forth effort on such achievement tests has differential effects across
cultures. Offering
incentives to U.S. students, who generally perform poorly on assessments,
improved performance substantially. In contrast, Shanghai students, who are top
performers on assessments, were not affected by incentives. Our findings
suggest that in the absence of extrinsic incentives, ranking countries based on
low-stakes assessments is problematic because test scores reflect differences
in intrinsic motivation to perform well on the test itself, and not just
differences in ability.
Sarah Kuypers, Ive Marx, IZA: The Truly Vulnerable: Integrating Wealth
into the Measurement of Poverty and Social Policy Effectiveness. This paper shows that real and financial assets can
matter greatly when making assessments of who is poor and financially
vulnerable. We introduce the concept of triple precariousness, afflicting
households that not only have low income but also very low or non-existent
assets to draw on for consumption needs, especially liquid assets. We analyse
whether these households – whom we might call the truly vulnerable – have
different characteristics from those that we identify as poor or needy on the
basis of pure income based metrics. In an analysis for Belgium drawing on HFCS
data, we show that households
with a reference person that is young, unemployed, low educated, migrant,
parent of dependent children, and above all a tenant are especially vulnerable
in terms of their financial situation. By contrast, our assessment of the
extent and depth of financial need among the elderly – a segment of society
that is at a relatively high risk of income poverty – also changes. A
substantial share of income poor elderly households own significant assets.
We draw out some tentative consequences of these findings for anti-poverty and
redistributive policies.
Dani Rodrik, Project Syndicate: How to Combat Populist
Demagogues. We will never know whether greater honesty on the part
of mainstream politicians and technocrats would have spared us the rise of
nativist demagogues like Donald Trump in the US or Marine Le Pen in France. What is clear is that lack of
candor in the past has come at a steep price.
Chris Thompson, Boon Mian Teo, PHYS ORG: Can you make
a 10-year malt whisky in weeks? The chemistry says yes. So the chemistry of fast liquor is effectively sound,
but how does it taste? Research at the Food Safety and Measurement Facility at
the University of California, Davis has mapped the "chemical
fingerprint" of 60 American whiskies. This study identified between 30 and
50 specific compounds that are responsible for differentiating the taste of one
drop from another. In the
case of Lost Spirits, they have published forensic data showing a favourable
comparison to a 33-year old sample. More to the point, their Reactor Aged Islay
Whisky recently won the coveted "Liquid Gold" standard.
Christina D. Romer, David H. Romer, NBER: Why Some Times Are Different: Macroeconomic Policy and the Aftermath of
Financial Crises. Analysis based on a new
measure of financial distress for 24 advanced economies in the postwar period
shows substantial variation in the aftermath of financial crises. This paper examines the role that
macroeconomic policy plays in explaining this variation. We find that the degree of monetary and fiscal policy space prior to
financial distress--that is, whether the policy interest rate is above the zero
lower bound and whether the debt-to-GDP ratio is relatively low--greatly
affects the aftermath of crises. The
decline in output following a crisis is less than 1 percent when a country
possesses both types of policy space, but almost 10 percent when it has
neither. The difference is highly
statistically significant and robust to the measures of policy space and the
sample. We also consider the mechanisms
by which policy space matters. We find
that monetary and fiscal policy are used more aggressively when policy space is
ample. Financial distress itself is also less persistent when there is policy
space. The findings may have
implications for policy during both normal times and periods of acute financial
distress.
Paul Schmelzing, BoE: Global real interest rates since
1311: Renaissance roots and rapid reversals. This post takes a longer-term view on real rates using a dataset going
back over the past 7 centuries, and finds evidence that the trend decline in
real rates since the 1980s fits into a pattern of a much deeper trend
stretching back 5 centuries. Looking at cyclical dynamics, however, the evidence from eight previous
“real rate depressions” is that turnarounds from such environments, when they
occur, have typically been both quick and sizeable.
Ricardo Hausmann, Project Syndicate: The Moral
Identity of Homo Economicus. Two recent books
– Identity Economics by Nobel laureate George Akerlof and Rachel Kranton and
The Moral Economy by Sam Bowles – indicate that a quiet revolution is
challenging the foundations of the dismal science, promising radical changes in
how we view many aspects of organizations, public policy, and even social life.
The new revolution may have been triggered by an uncomfortable finding of the
old one. Consider the so-called ultimatum game, in which a player is given a
sum of money, say, $100. He must offer a share of that money to a second
player. If the latter accepts the offer, both get to keep the money. If not,
they both get nothing.
Homo economicus would give $1 to the second player, who should accept the
offer, because $1 is better than zero dollars. But people throughout the world
tend to reject offers below $30. Why? The new revolution assumes that when we
make choices, we do not merely consider which of the available options we like
the most. We are also asking ourselves what we ought to do.
Gregory Clark, Andrew Leigh, Mike Pottenger, IZA: Immobile Australia:
Surnames Show Strong Status Persistence, 1870–2017. The paper estimates long run social mobility in
Australia 1870–2017 tracking the status of rare surnames. The status
information includes occupations from electoral rolls 1903–1980, and records of
degrees awarded by Melbourne and Sydney universities 1852–2017. Status persistence was strong
throughout, with an intergenerational correlation of 0.7–0.8, and no change
over time. Notwithstanding egalitarian norms, high immigration and a
well-targeted social safety net, Australian long-run social mobility rates are
low. Despite evidence on conventional measures that Australia has higher
rates of social mobility than the UK or USA (Mendolia and Siminski, 2016),
status persistence for surnames is as high as that in England or the USA.
Mobility rates are also just as low if we look just at mobility within
descendants of UK immigrants, so ethnic effects explain none of the immobility.
Alex Edmans, Vivian Fang, Allen Huang, VOX: The long-term
consequences of short-term incentives. Worries about the dangers of short-term incentives for CEOs are rarely
backed by rigorous evidence. This column uses data over a ten-year period to
show that short-term
contracts lead CEOs to undertake repurchases and M&A activity that have
negative long-term consequences. The results suggest that the horizon of CEO
incentives is a more important dimension to reform than the size of pay packets.
Pierre Cahuc, Sandra Nevoux, IZA: Inefficient Short-Time Work. This paper shows that the reforms which expanded
short-time work in France after the great 2008-2009 recession were largely to
the benefit of large firms which are recurrent short-time work users. We argue that this expansion of
short-time work is an inefficient way to provide insurance to workers, as it
entails cross-subsidies which reduce aggregate production. An efficient
policy should provide unemployment insurance benefits funded by experience
rated employers' contributions instead of short-time work benefits. We find
that short-time work entails significant production losses compared to an
unemployment insurance scheme with experience rating.
Karen Evelyn Hauge, Marte Eline Ulvestad, IZA Journal of Labor Policy: Having a bad attitude? The relationship between attitudes and sickness
absence. Is sickness absence related to attitudes? Several studies point to
attitudes as an important factor for sickness absence. We study the relation
between sickness absence and attitudes towards possible reasons for sick leave,
towards cheating and towards work, by linking a survey among Norwegian
healthcare workers, aimed at identifying attitudes, to detailed data on
sickness absence from the employers. We find that there is an association between sickness absence and
certain attitudes but mainly for self-certified sick leave. Employees with more
lenient attitudes towards sick leave have more self-certified sick leave, but
not more GP-certified sick leave. Furthermore, we find no evidence of
attitudes being able to explain the persistently observed differences is
absenteeism between different demographic groups
David Byrne, Dan
Sichel, VOX: The productivity slowdown is even more puzzling than you think. One explanation given for the apparent recent
slowdown in labour productivity growth in advanced economies is poor
measurement. This column
argues that while the available evidence on mismeasurement does not in fact
provide an explanation for the slowdown, innovation is much more rapid than
would be inferred from official measures, and on-going gains in the digital
economy make the productivity slowdown even more puzzling. At the same
time, this continued technical advance could provide the basis for a future
pickup in productivity growth.
James J. Heckman,
John Eric Humphries, Gregory Veramendi, IZA: The Non-Market Benefits of
Education and Ability. This paper analyzes the non-market benefits of
education and ability. Using a dynamic model of educational choice we estimate
returns to education that account for selection bias and sorting on gains. We
investigate a range of non-market outcomes including incarceration, mental
health, voter participation, trust, and participation in welfare. We find
distinct patterns of returns that depend on the levels of schooling and
ability. Unlike the
monetary benefits of education, the benefits to education for many non-market
outcomes are greater for low-ability persons. College graduation decreases
welfare use, lowers depression, and raises self-esteem more for less-able
individuals.
Alana Semuels, The
Atlantic: Why Does Sweden Have So Many Start-Ups? Studies have found that the more a country’s
government spends per capita, the smaller the number of start-ups it tends to
have per worker—the idea being that high income taxes reduce entrepreneurs’
expected gains and thus their incentive to launch new companies. And yet Sweden
excels in promoting the formation of ambitious new businesses, on a level
that’s unexpected for a country whose population of roughly 10 million puts it
at 89th in the world in population size. Global companies like Spotify, the
music-streaming service; Klarna, the online-payment firm; and King, the gaming
company, were all founded here. Stockholm produces the second-highest number of billion-dollar tech
companies per capita, after Silicon Valley, and in Sweden overall, there are 20
start-ups—here defined as companies of any size that have been around for at
most three years—per 1,000 employees, compared to just five in the United
States.
Richard Sutch,
Social Science History: The One Percent across Two Centuries: A Replication of
Thomas Piketty's Data on the Concentration of Wealth in the United States. This exercise reproduces and assesses the historical
time series on the top shares of the wealth distribution for the United States
presented by Thomas Piketty in Capital in the Twenty-First Century. I conclude that Piketty's data
for the wealth share of the top 10 percent for the period 1870 to 1970 are
unreliable. The values he reported are manufactured from the observations for
the top 1 percent inflated by a constant 36 percentage points. Piketty's
data for the top 1 percent of the distribution for the nineteenth century
(1810–1910) are also unreliable. They are based on a single mid-century
observation that provides no guidance about the antebellum trend and only
tenuous information about the trend in inequality during the Gilded Age. The
values Piketty reported for the twentieth century (1910–2010) are based on more
solid ground, but have the disadvantage of muting the marked rise of inequality
during the Roaring Twenties and the decline associated with the Great
Depression. This article offers an alternative picture of the trend in
inequality based on newly available data and a reanalysis of the 1870 Census of
Wealth. This article does not question Piketty's integrity.
OECD: Preventing
Ageing Unequally. Income at the
same age used to increase from one generation to the next. Figure 1.15 shows
real average income by age groups for cohorts born from the 1910s to the
1980s.13 Each successive
cohort has been enjoying higher incomes than previous ones at the same age: for
example, each birth decade between the 1910s and the 1950s had an income at age
60-64 that was on average 15% higher than that of the previous cohort. But the
situation has changed: people born in the 1960s, who are now in their early
fifties, have incomes which are not higher at the same age than those of the
cohort born ten years earlier. The same applies to those born in the
1970s at age 40-44. This new pattern may well reflect the impact of the Great
Recession, and the verdict is still out on whether this will result in
persistently lower incomes of the affected cohorts.
The Economist, Why
Finland wants the EU to abolish daylight saving time. After listening to several experts, a Finnish
parliamentary committee concluded that the transition between times is anything
but smooth. Changing the clocks causes short-term sleeping disorders, poorer
work performance and potentially serious health problems, as well as hassle for
transport and industry. Moreover, it does little to help those, like the Finns,
who live at very high latitudes. In northern Finland, the sun does not set at
all during the summer, and does not rise in the winter. A citizen’s initiative against
time-turning deemed it a waste of time and effort, and clocked up 70,000
signatures. Despite an increasingly fragmented political landscape, this
temporal topic has united the country’s politicians of all ideological
orientations, from the left to the far-right. All 13 Finnish Members of
European Parliament have pledged to work to abolish daylight saving time.
Turkey and Russia have already scrapped it, and some American states are also
questioning its usefulness. Yet Finnish MEPs will struggle to push up the
agenda an issue that is both contentious and seemingly trivial. Coming from a
country that gets only a few hours of sunlight a day during wintertime, they
will need intense lobbying to convince EU bigwigs that every second counts.
Pete Klenow, Huiyu
Li, San Francisco FED: Missing Growth from Creative Destruction. When products disappear from the market with no
substitutes from the same manufacturer, they may have been replaced by cheaper
or better products from a different manufacturer. Official measurements
typically approximate price changes from such creative destruction using price
changes for products that were not replaced. This can lead to overstating inflation and, in turn,
understating economic growth. A recent estimate suggests that around 0.6 percentage
point of growth is missed per year. The bias has not increased over
time, however, so it does not explain the slowdown in productivity growth.
Branko Milanovic,
Globalinequality: Can mass mobilization wars increase income inequality? Now come two economic historians, Maria Gomez-Leon
and Herman de Jong who using detailed data on social structure of England and
Germany, and on the evolution of occupational wages and income from property
for dozens of categories, calculate the so-called “dynamic social tables” for
the two countries for the period 1900-1950. And what they find is that German
inequality indeed increased during the Great War while English went down (see
the graph). This could provide in part the explanation for who lost and who won
the war, and thus might have political significance. But for people who deal with inequality it sends a
message about contingencies and human agency: even things that appear to be
very logical (that the war needs to be financed by the rich) and find strong
empirical support in many cases, need not hold in all cases. That is,
even a modern (20th century) mass mobilization wars may be accompanied by
rising inequality—during the war years themselves.
Tyler Cowen,
Bloomberg: The New Populism Isn't About Economics. Nationalist
candidates are winning around the globe in growing economies. Another crisis is
afoot. Among emerging economies, the Philippines moved from being an
Asian growth laggard into some years of 8 percent growth. Voters responded by
electing as president Rodrigo Duterte, one of the most aggressive and
authoritarian populists around. In eastern Europe, Poland has been seeing
average 4 percent growth for more than 25 years, yet the country has moved in a
strongly nationalist direction, flirting with sanctions from the EU for
limiting judicial independence. Hungary, Slovakia, Slovenia and now the Czech
Republic all are much wealthier than 20 years ago and mostly have been booming
as of late. Yet to varying degrees they too have moved in nationalist, populist
and possibly even anti-democratic directions. So the next time you hear
material discontent cited as driving electoral results, just remember that
economic data are usually interpreted through a cultural lens.
Bert Van
Landeghem, Anneleen Vandeplas, IZA: The Relationship between Status and
Happiness. A large number of empirical
studies have investigated the link between social status and happiness, yet in
observational data identification challenges remain severe. This study exploits
the fact that in India people are assigned a caste from birth. Two identical
surveys of household heads (each with N=1000) in rural Punjab and Andhra
Pradesh show an increasing pattern in economic welfare across the hierarchy of
castes. This illustrates that at least in rural regions, one’s caste is still
an important determinant for opportunities in life. Subsequently, we find that
the castes at the top are clearly more satisfied than the lower and middle
castes. This result, which is in line with predictions of all major social
comparison theories, is robust across the two case studies. The pattern across low and
middle castes, however, is less clear, reflecting the complex theoretical
relationship between being of middle rank on the one hand, and behaviour,
aspirations and well-being on the other hand. In the Punjab sample, we even
find a significant U-shape, the middle castes being the least happy.
Interestingly, these patterns resemble those found for Olympic Medalists (first
documented by Medvec et al. 1995).
Erin Ross, AXIOS: Bird
feeders might be changing bird beaks. Bird beaks might be evolving to better fit bird feeders. A study of
great tits in the UK, where feeders are common, found the bird's beaks have grown over the
last 26 years, that British birds had longer beaks than those in the
Netherlands, and that birds with genes for longer beaks were more likely to
visit feeders, per Science News.
Olivier Blanchard
Lawrence Summers. PIIE: Rethinking Stabilization Policy. Back to the Future. The crisis has forced macroeconomists to (re)discover
the role and the complexity of the financial sector, and the danger of financial
crises. But the lessons should go largely beyond this, and force us to question
a number of cherished beliefs. Among other things, the events of the last ten
years have put into
question the presumption that economies are self-stabilizing, have raised again
the issue of whether temporary shocks can have permanent effects, and have
shown the importance of non linearities. These call for a major
reappraisal of macroeconomic thinking and macroeconomic policy.
Wouter den Haan,
Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, VOX: Global
risks from rising debt and asset prices. The outgoing German finance minister, Wolfgang Schäuble, has recently
expressed concerns about the risks posed to the world economy by high levels of
debt. This column presents the latest Centre for Macroeconomics and CEPR survey
of leading economists, in which a strong majority of respondents agree that an excess of public and
private debt together with inflated asset prices mean that the world economy
faces heightened risks. A similarly strong majority of the experts also agree
that the loose monetary policy of major central banks is responsible for the
recent increase in global leverage and asset values.
Zhi Soon, Raj
Chande and Susannah Hume, Behavioural Insights Team: Helping everyone reach
their potential: new education results. Some young people simply don’t have access to someone who asks them
about their learning. We wanted to change this. Our trial invited students to
nominate a ‘study supporter’ – a parent, older sibling, mentor or friend – to
receive regular text messages, written in conjunction with English and maths
tutors. These messages prompted the supporters to start regular conversations
with the student about their studies: chatting through a recent topic, or encouraging
revision for an upcoming test. Over 1,800 students across 9 further education
colleges took part: half their study supporters were sent texts, and half were
not. . The supportive text
messages resulted in a 4.1 percentage point (7%) increase in attendance and 6
percentage point (27%) increase in attainment for students whose study
supporters were texted, compared to those who didn’t receive texts.
Stephen Nickell and
Jumana Saleheen, IZA Journal of Development and Migration: The impact of EU and
Non-EU immigration on British wages. There is a consensus among academics that immigration has little or no
effect on native British wages, but these studies have not refined their
analysis by occupations. Our contribution is to extend the literature to
incorporate occupations. Doing so, we find that immigration has a small negative impact on average
British wages, with a somewhat larger impact within the semi/unskilled service
occupations. This paper also explores if there is any differential
impact between EU and non-EU immigration on wages. We find there to be none.
These findings are likely to be useful for shaping future immigration policy in
Britain.
Luigi Guiso,
Helios Herrera, Massimo Morelli, Tommaso Sonno, VOX: The spread of populism in
Western countries. Populism – on
both the left and right – has recently become a powerful force in western
politics. This column uses individual data on political attitudes to argue that
economic drivers are the
most important factors influencing the demand for, and supply of, populist
parties. The rare combination of markets’ and governments’ inability to
guarantee economic security has shaken the confidence in traditional political
parties and institutions, leading to an increase in fear that has been
aggravated by other threats such as mass migration. Recent data also
show that as these parties gain support, their political rivals adapt to
embrace populism.
David Silver et
al, Nature: Mastering the game of Go without human knowledge. A long-standing goal of artificial intelligence is an
algorithm that learns, tabula rasa, superhuman proficiency in challenging
domains. Recently, AlphaGo became the first program to defeat a world champion
in the game of Go. Starting tabula rasa, our new program AlphaGo Zero achieved
superhuman performance, winning 100–0 against the previously published,
champion-defeating AlphaGo. Our
results comprehensively demonstrate that a pure reinforcement learning approach
is fully feasible, even in the most challenging of domains: it is possible to
train to superhuman level, without human examples or guidance, given no
knowledge of the domain beyond basic rules. Furthermore, a pure reinforcement
learning approach requires just a few more hours to train, and achieves much better
asymptotic performance, compared to training on human expert data. Using
this approach, AlphaGo Zero defeated the strongest previous versions of
AlphaGo, which were trained from human data using handcrafted features, by a
large margin. Humankind has accumulated Go knowledge from millions of games
played over thousands of years, collectively distilled into patterns, proverbs
and books. In the space of a few days, starting tabula rasa, AlphaGo Zero was
able to rediscover much of this Go knowledge, as well as novel strategies that
provide new insights into the oldest of games
Christina
Anderson, NYT: Allah’ Is Found on Viking Funeral Clothes. The discovery of Arabic characters that spell
“Allah” and “Ali” on Viking funeral costumes in boat graves in Sweden has
raised questions about the influence of Islam in Scandinavia. The grave where
the costumes were found belonged to a woman dressed in silk burial clothes and
was excavated from a field in Gamla Uppsala, north of Stockholm, in the 1970s,
but its contents were not cataloged until a few years ago, Annika Larsson, a
textile archaeologist at Uppsala University, said on Friday. Among the contents
unearthed: a necklace with a figurine; two coins from Baghdad; and the bones of
a rooster and a large dog. The evidence,
she added, supported the theory that the Viking settlements in the Malar Valley
of Sweden were, in fact, a western outpost of the Silk Road that stretched
through Russia to silk-producing centers east of the Caspian Sea.
Kenneth
Rogoff , Project Syndicate: Crypto-Fool’s Gold? The price of Bitcoin is up 600% over the past 12 months, and 1,600% in
the past 24 months. But the long history of currency tells us that what the private sector
innovates, the state eventually regulates and appropriates – and there is no
reason to expect virtual currency to avoid a similar fate.
Francesca Gino,
Harvard Business Review: The Rise of Behavioral Economics and Its Influence on
Organizations. Nudges can solve
all sorts of problems governments and businesses alike consider important. Here
are some examples. A few years ago, for instance, General Electric’s leaders
wanted to address the issue of smoking, believing that it impacted its
employees negatively. So, in collaboration with Kevin Volpp and his co-authors,
they conducted a randomized controlled trial (think: field experiment).
Employees in the treatment group each received $250 if they stopped for six
months and $400 if they stopped for 12 months. Those in the control group did
not receive any incentive. The
researchers found that the treatment group had three times the success rate of
the control, and that the effect persisted even after the incentives were
discontinued after 12 months. Based on this work, GE changed its policy
and started using this approach for its then-152,000 employees.
Vitor Gaspar,
Mercedes Garcia-Escribano, IMF: Inequality: Fiscal Policy Can Make the
Difference. Fiscal policy accounts for a large share of
differences in inequality across countries. In advanced economies, fiscal
policy offsets about a third of income inequality before taxes and transfers—commonly
known as market income inequality—with 75 percent coming from transfers.
Spending on education and health also affects market income inequality over
time by promoting social mobility, including across generations. In developing
economies, fiscal redistribution is much weaker, given lower and less
progressive taxes and spending
Eduardo Porter,
NYT: Why Big Cities Thrive, and Smaller Ones Are Being Left Behind. The dismal performance is not surprising. Built on
coal and steel, Steubenville and Weirton were ill suited to survive the
transformations brought about by globalization and the information economy.
They have been losing population since the 1980s. To prove his point, Mr. Muro
compared the 100 largest metropolitan areas in the country, those with
populations above 550,000, with the 182 smallest, which have populations
ranging from 80,000 to about 215,000. The difference in performance widened: Private employment grew almost
twice as fast in large metropolitan areas as it did in small ones from the
trough of the recession, in 2009, to 2015. Income grew 50 percent faster. And
the labor participation rate — the share of the working-age population in the
labor force — shrank only half as much. “Economic transitions work against
smaller America.”
Atila
Abdulkadiroglu, Parag A. Pathak, Jonathan Schellenberg, Christopher R. Walters,
NBER: Do Parents Value School Effectiveness? School choice may lead to improvements in school productivity if
parents' choices reward effective schools and punish ineffective ones. This
mechanism requires parents to choose schools based on causal effectiveness
rather than peer characteristics. We study relationships among parent
preferences, peer quality, and causal effects on outcomes for applicants to New
York City's centralized high school assignment mechanism. We use applicants'
rank-ordered choice lists to measure preferences and to construct
selection-corrected estimates of treatment effects on test scores and high
school graduation. We also estimate impacts on college attendance and college
quality. Parents prefer
schools that enroll high-achieving peers, and these schools generate larger
improvements in short- and long-run student outcomes. We find no relationship
between preferences and school effectiveness after controlling for peer quality.
Petra Thiemann,
Lund University and IZA: The Persistent Effects of Short-Term Peer Groups in
Higher Education. This paper
demonstrates that short-term peer exposure can generate achievement effects which
persist for several months and years. I study a mandatory freshmen week for
firstyear undergraduates and exploit the random assignment of students to
freshmen teams. I find
that the freshmen week contributes to the formation of persistent social ties.
Furthermore, peers’ observable characteristics impact college achievement for
up to three years. Ability peer effects are non-linear, i.e. very high
or low levels of average peer ability in a group harm students’ grades. These
effects are most pronounced for low-ability students.
Josue Ortega,
Philipp Hergovich, University of Essex: The Strength of Absent Ties: Social
Integration via Online Dating. We used to
marry people to which we were somehow connected to: friends of friends,
schoolmates, neighbours. Since we were more connected to people similar to us,
we were likely to marry someone from our own race. However, online dating has
changed this pattern: people who meet online tend to be complete strangers.
Given that one-third of modern marriages start online, we investigate
theoretically, using random graphs and matching theory, the effects of those
previously absent ties in the diversity of modern societies. We find that when a society
benefits from previously absent ties, social integration occurs rapidly, even
if the number of partners met online is small. Our findings are consistent with
the sharp increase in interracial marriages in the U.S. in the last two decades.
Eran Yashiv, VOX:
The value of top footballers, bubbles, and pitfalls of the free market. The €222 million transfer of Neymar to PSG calls
into question whether football superstars are a good investment. Using the financial details of
the transfer, this column argues that, at the price paid, Neymar has a negative
net present value. While there are other explanations for PSG's
willingness to pay, in purely economic terms his contract seems a bad
investment. Policymakers might use this type of calculation to justify
intervening in the transfer market through regulation and taxation.
