From C.W. at Free Exchange, there is more here.
I read much of the document last night, here are a few comments:
1. The so-called “war on poverty” has gone better than most of this document would appear to suggest, although this ends up being acknowledged in the appendix on poverty measures.
2. High implicit marginal tax rates are a problem for poor families, but they receive too much attention in this report. Those same high implicit rates never stopped higher earners, who at some point were (often) much poorer themselves. Furthermore, without some assumption of dysfunctional behavior, high implicit marginal tax rates will hurt society but should not hurt lower earners per se.
3. There is an implicit ranking of programs as good or bad. If a program is ranked as bad, there is a cataloging of its cost, but this is not compared to potential benefits, even granting that net cost is positive.
4. Two things that work to cure poverty are immigration and cash transfers. These points should be stressed more. More generally, not much of an analytical framework is imposed on the material. And the discussion of barriers to advancement is extremely thin. Collapsing families surely constitute an important issue, but reading the discussion of that topic yields precious little knowledge, not even “false knowledge.”
5. Reading through the long list — the too-long list I would say– of programs, one really does get the feeling that a lot of them ought to be replaced by cash grants or pro-employment cash incentives, such as EITC. But what else should we be doing differently? If one insists that the point of the document is simply to list extant programs, so be it. But what is the point of that exercise? Why not introduce some material on the causes of dysfunctional health care, educational, and rental sectors?
Overall this needed to be a lot better than it was. The document has almost no vision, only a marginal command of the scholarly literature, and it is a good example of how the conservative movement is still allowing the poverty issue to defeat it and tie it up in knots.
I am tonight doing an event on poverty with Neera Tanden, Steve Pearlstein, and Reihan Salam, and a few others on the Arlington campus of GMU.
Jason Furmans says yes, here is one bit:
Looking back at the history of poverty and the tax code in the last several decades reveals some important lessons for expanding opportunity and combating poverty going forward, including the value of having a pro-work, pro-family tax code. The most important new prospect in this area is expanding such an approach for households without children, a proposal that President Obama included in his 2015 budget, and an idea that is also being advanced across the political spectrum, from Senator Marco Rubio to Bush Administration economist Glenn Hubbard to Isabel Sawhill at the Brookings Institution.
That is a new research paper by Kristina M. Durante, Vladas Griskevicius, Stephanie M. Cantú , and Jeffry A. Simpson, and the abstract is here:
Each month, millions of women experience an ovulatory cycle that regulates fertility. Previous consumer research has found that this cycle influences women’s clothing and food preferences. The authors propose that the ovulatory cycle actually has a much broader effect on women’s economic behavior. Drawing on theory in evolutionary psychology, the authors hypothesize that the week-long period near ovulation should boost women’s desire for relative status, which should alter their economic decisions. Findings from three studies show that women near ovulation seek positional goods to improve their social standing. Additional findings reveal that ovulation leads women to pursue positional goods when doing so improves relative standing compared with other women but not compared with men. When playing the dictator game, for example, ovulating women gave smaller offers to a female partner but not to a male partner. Overall, women’s monthly hormonal fluctuations seem to have a substantial effect on consumer behavior by systematically altering their positional concerns, a finding that has important implications for marketers, consumers, and researchers.
Here is some popular coverage of the piece. For the pointer I thank C.
That is a new and highly useful book by Stuart J. Hillmon, here is one bit from it:
Truthfully, majoring in economics is not really all that helpful for your admissions prospects. This is true for two reasons. First, knowing who does well in undergraduate economics is not terribly helpful in identifying who will be a good academic economist. Unlike other fields such as chemistry or physics, what happens in undergraduate courses bears little relation to what happens in graduate courses. For this reason, the committee cannot predict how well you will do as an academic economist based on your doing well in your undergraduate econ courses. Consequently, they don’t give too much weight to your stellar performance in the usual undergraduate classes.
For this book, I would have asked for greater length, more discussion of government and private sector careers, and more discussion of non-orthodox paths through academic economics, or for that matter seeking employment at a teaching school or attending a Ph.D. program below the top tier. You will note “Stuart J. Hillmon is the pseudonym for an academic economist who graduated from a top five doctoral program in economics and currently teaches courses in policy and economics.” The book is structured accordingly and perhaps that will frighten some of you away. If everyone were like Hillmon, I would not myself today be an economist.
Still, this is a good place to start if you are considering whether to get a Ph.D. in economics.
Under one view, credibility is like a chain. If the United States does not keep one of its public promises, the credibility of the chain falls apart. In essence observers are using the behavior of the American government to draw inferences about its true underlying type. A single act of breaking a promise or failing to honor a commitment would show we really cannot be trusted, or that we are weak and craven, and so that characterization of our true type would be applied more generally to all or most of our commitments.
Under a second view, we don’t have that much credibility in the first place. To be sure, we can be trusted to do what is in our self-interest. But there is not much underlying uncertainty about our true type. So we can promise Ruritania the moon, and fail to deliver it, and still the world thinks we would defend Canada if we had to, simply because such a course of action makes sense for us. In this setting, our violation of a single promise changes estimates of our true scope of concern, but it does not much change anyone’s estimate of the true type of the American government.
Insofar as you believe in the first view, our inability/unwillingness to honor our commitment to the territorial integrity of Ukraine is a disaster. Insofar as you hold the second view, our other commitments remain mostly credible.
For the most part, I see the second view as more relevant to understanding U.S. foreign policy than the first. We’ve broken promises and commitments for centuries, and yet still we have some underlying credibility. Remember those helicopters evacuating Saigon rooftops in 1975?
Still, when it comes to Taiwan, or those Japanese islands, or other Pacific islands, I think the first view plays a role. That is, I think the world does not know our true type. How much are we willing to risk conflict to limit Chinese influence in the Pacific? Whatever you think should be the case, what is the case is not clear, perhaps not clear even to our policymakers themselves. (In contrast there are plenty of data on the parameters of American preferences toward Middle East and Israel-linked outcomes, and our willingness to incur costs to alter those outcomes.)
That is another way of thinking about why the Ukraine crisis is scary for the Pacific. It is one reason why the Nikkei was down 2.5% shortly after market opening Monday morning (Asia time) and ended up 1.3% down for the day. The Chinese stock market did just fine.
We all know there is nominal wage stickiness, but there is some real wage stickiness as well. Employers are reluctant to cut real wages for fear of damaging worker morale. Bryan Caplan also has written about “firing aversion,” which you can think of as an extreme case of real wage stickiness.
In many cases employers might prefer some entirely different way of organizing production and staffing their organizations. Yet they cannot get from here to there, in part because of real wage stickiness. Workers do not take kindly to the dissembly and reassembly of a firm and indeed of a big part of their lives. And so employers remain stuck. They’re still making profits, however, but the profit maximization is local rather than global.
My question is this: imagine an (admittedly impossible) thought experiment where all of the capital and labor resources are temporarily released and employers can rebuild their firms from scratch, recontracting for new wages, new personnel pools, new implicit promises to workers, new capital investments, new market positionings, and so on.
After this reshuffle, how much will income inequality have gone up? (Is there any case it might go down? I don’t see that, but feel free to make that argument in the comments.)
Given your answer, how much will income inequality go up, not because of any new cause, but simply because any economy slowly, over time, rebuilds its contractual relationships?
And what does that say about the effects of policies designed to stem growing inequality?
That is the new and excellent book by Daniel W. Drezner and the subtitle is How the World Stopped Another Great Depression. It is largely if not entirely correct, here is a summary excerpt:
A closer look at the global response to the financial crisis reveals a more optimistic assessment. Despite initial shocks that were more severe than the 1929 financial crisis, global economic governance responded in a nimble and robust fashion. Whether one looks at economic outcomes, policy outputs, or institutional operations, these governance structures either reinforced or improved upon the pre-crisis status quo. The global economy bounced back from the 2008 financial crisis with relative alacrity.
I would myself stress two additional points, whether you call them addenda or qualifications is up to you. First, we now know that the Fed could have done much more in 2008. I consider this a mistake rather than a mistake in governance, and later the Fed did a great deal to try to make up for this error. Second, the performance of the eurozone is hardly spectacular, to say the least, and the ECB should have moved to a much looser monetary policy in 2009 if not sooner. Still, given what a screwy, seventeen-nation system had been set up, and given the severe distributional consequences of four percent inflation in the eurozone, I am surprised the system performed as well as it did.
India’s eastern neighbour China has emerged as its biggest trading partner in the current fiscal replacing the UAE and pushing it to the third spot, according to a study conducted by PHD Chamber of Commerce.
India-China trade has reached USD 49.5 billion with 8.7 per cent share in India’s total trade, while the US comes second at USD 46 billion with 8.1 per cent share and the UAE third at USD 45.4 billion with 8 per cent share during the first nine months of the current fiscal, the study revealed.
The UAE was India’s biggest trading partner in the 2012-13 fiscal.
…roughly half of the current inflation in consumer products is due to the dramatic drop in the value of the yen. The drop has sharply inflated the costs of imports, especially energy imports, and these have partly been passed on to consumers. While many consumers in developed countries have been benefiting from lower energy costs, in Japan the costs of liquid natural gas — now a main source of power generation — were up 17% over a year earlier. In addition, “the Japanese also saw sharp rises in prices of foreign-made home electronics, which they increasingly import: Prices of washing machines were up 13%, while prices of audio equipment and refrigerators both rose 16%”.
Even the 0.7% annual rise in core-core inflation isn’t all it seems to be, since some 40% of the increase is accounted for by a one-off rise last year in charges for accident insurance and public services. The key point to grasp in all this is that the rise is due to what we could call “cost push” rather than “demand pull”. As Takeshi Minami, chief economist at the Norinchukin Research Institute put it,“Those increases had little to do with demand and supply.”
There is this bit too:
In the words of former Bank of Japan governor Masaaki Shirakawa, “Seemingly, there would be no linkage between demography and deflation. But it may not be the case. A cross-country comparison among advanced economies reveals intriguing evidence: Over the decade of the 2000s, the population growth rate and inflation correlate positively across 24 advanced economies. That finding shows a sharp contrast with the recently waning correlation between money growth and inflation.”
That is from Edward Hugh, who predicts Abenomics will leave behind a big mess. The post is speculative but sobering throughout.
Second, one of the stated ambitions of both TPP and the Trans-Atlantic Trade and Investment Partnership is reduction in non-tariff barriers, which in most cases add substantially more to goods costs than tariff barriers. According to estimates by the World Bank, for instance, American tariff restrictions on agricultural imports are relatively low on the whole, at just 2.2%. But the tariff equivalent of an all-in measure of restrictiveness, which takes into account non-tariff barriers, jumps to 17.0%. The all-in rates for many of the partners in TPP negotiations are substantially higher; Japan’s all-in tariff equivalent on agricultural imports is 38.3%. South Korea’s is 48.9%. Australia’s is 29.5%.
Third, “implicit protection of services” does indeed impose additional costs. For instance, the cost to foreign providers of some crucial transport and shipping services within the American market is basically infinite. Services account for four times as much economic output as goods production in America but only around one-fifth of American trade. Many services aren’t tradable, of course; haircut tariffs will not be on the TPP agenda. But a growing array are. And rules on service trade have barely changed at all in two decades. TTIP and TPP (as well as the Trade in Services Agreement) are aimed at updating rules on services trade to make it easier to sell insurance, or financial and consulting services, or IT and environmental services, and so on, across borders. Now maybe these deals are “really about” intellectual property, and all-powerful Hollywood has convinced the government to expend a lot of time and effort setting standards for services trade, the better to provide a smokescreen for its own nefarious activities. But I doubt it.
Investment is another key item on the agenda. At present rules on cross-border investment can be pretty ad hoc; a firm interested in buying shares in a business in another country often needs to be careful not to buy too much or not to invest in politically sensitive industries, lest the investment invite political scrutiny. TPP is working to reduce the scope for ad-hockery in interference in investment, which I think we would generally consider to be a good thing. TTIP is as well (that’s what the “I” is all about).
There is more here, useful throughout. I would add that this is also a foreign policy initiative and it will, if successful, allow various smaller countries in the region to resist pressures from various larger countries in same said region.
A good system of property rights establishes clear borders. Clear borders reduce disputes, encourage investment and promote efficient trade. Software patents, however, often fail to define clear borders. I am one of the amici in a amici curiae brief to the Supreme Court (regarding Alice Corp. v. CLS Bank) on software patents that makes this point:
Such abstract claims as “displaying data in
frames,” “recommending media based on past choices,” “reproducing information in material objects at a
point of sale,” or, as in the present case, using “a third
party . . . to eliminate ‘counterparty’ or ‘settlement’
risk,” simply cannot be reliably construed to define a
reasonable area of covered technology. See Wang, 197
F.3d at 1379; Interactive Gift, 256 F.3d at 1323; Pinpoint, 369 F. Supp. 2d at 995; cf. CLS Bank Int’l v.
Alice Corp. Pty. Ltd., 717 F.3d 1269, 1274 (Fed. Cir.
A general counsel at a technology startup
would be hard-pressed to describe any concrete
bounds or permissible follow-on innovations to her
fellow engineers in the face of such claims. Any
software that resulted in a similar functional result
could be construed as infringing, and any investment
in the commercialization of those technologies could
inevitably carry liabilities, risks, and costs whose
magnitudes are impossible to predict in advance.
Thus, the property system that ostensibly exists to
assure investors that long-term rents are secure does
the very opposite, casting a pall of uncertainty over
the viability of any commercial product that happens
to be adjacent to a lurking abstract claim.
Eli Dourado and I note that the Federal Circuit seems to have quite willfully disregarded the intent of the Supreme Court regarding patents on abstract ideas and I think this case may provide further pushback from the SC.
From Hollis Robbins:
As a matter of economics, why not consider the option of hiring a single professor to teach a first-year curriculum to a small number of students? At the level of the individual student, it may make sense to some families. Rather than spend $50,000 for a year of college at a selective private institution, one could hire a single Ivy League-trained individual with a doctorate and qualifications in multiple fields for, say, two-thirds the price (far more than an adjunct professor would make for teaching five courses at an average of $2,700 per course).
The idea becomes more attractive with multiple students. A half-dozen families (or the students themselves) could pool resources to hire a single professor, who would provide all six students with a tailored first-year liberal-arts education (leaving aside laboratory science) at a cost much lower than six private-college tuitions, and at the level of a real salary for a good sole-proprietor professor.
A low-cost, high-value first-year education would allow students to transfer into a traditional degree-granting institution at a second- or third-year level, saving a year or more of tuition. Home-colleged students would have a year of personal attention to writing skills, research skills, oral-presentation skills, and the relationship of disciplines in the liberal arts. The attention to oral and written skills may be particularly valuable to non-English-speaking students looking to succeed at an American college or university.
Accreditation is key, but if the problem has been solved at the secondary-school level for home schooling, why not in higher education?
Read the whole thing.
Here is the Bloomberg account, here are Krugman’s own words. I say it’s a good move and if I were in an analogous position I would do something similar. Think of it as another form of disintermediation. Think of it also as being closer to useful airports and media centers.
More generally, the value of living in either New York City or Washington, D.C. — for those who seek influence — is going up. Krugman’s decision reflects that broader reality.
Joe Weisenthal reports:
Ponder for example that the leading technological companies of this age, I think for example of Apple and Google, find themselves swimming in cash and facing the challenge of what to do with a very large cash hoard. Ponder the fact that WhatsApp has a greater market value than Sony with next to no capital investment required to achieve it. Ponder the fact that it used to require tens of millions of dollars to start a significant new venture. Significance new ventures today are seeded with hundreds of thousands of dollars in the information technology era. All of this means reduced demand for investment with consequences for the flow of – with consequences for equilibrium levels of interest rates.
…software (the blue line) is still only 15 percent of private investment and not significantly higher than points in the past two decades when interest rates were a lot higher. On the other hand, residential investment as a share of private investment, hasn’t changed much in structure since the mid-’60s and is still very sensitive to changes in the interest rate.
The full (short) piece on Summers is here.