Russ Roberts asks for a response on TGS, plus some all-purpose responses to queries
Read the whole post by Russ, but here is one excerpt:
So my challenge to Tyler is to tell me what he thinks the stagnation in median income signifies. Has there been a change in the returns to education or creativity? Or is it mostly a statistical artifact? Whichever answer he gives, I would like to see him reconcile it with the panel data–the surveys of economic information that follow the same people over time.
I will put the rest under the fold…Russ makes points about household size and immigration and there are brief mentions of CPI bias and rising benefits. A few responses:
1. I discuss household size in the footnotes to TGS. Adjusting for it doesn’t make a huge difference and furthermore the rapid-median-income-growth 1960s were a time when household size was falling quite rapidly. I blogged some of the details here.
2. Immigration doesn’t seem to shift the median enough to create an illusion of stagnation, I blogged the numbers and details here.
3. CPI bias has likely fallen over time, which will make the true median income growth differential over time even greater than the numbers indicate. Furthermore CPI measures are getting better over time and doing more to adjust for quality biases; that’s further bad news. Most of all, a lot of CPI bias is offset by ‘wasteful spending on health care, education, defense, and government yet all counted in gdp” bias.
4. Russ doesn’t mention the internet but it’s getting more monetized — and thus more counted in gdp — all the time. The consumer surplus of the unpriced parts, once you eliminate double-counting, probably isn’t much more than two percent of income. Not “two percent growth a year” but two percent period. I could see it being three or four percent, for sure, but that still won’t overturn the basic slowdown.
5. Rising household debt and abysmal job creation since 2000 suggest to me that the quantity data are in line with the incomes data. Around 1999-2000, stagnation suddenly becomes much worse. The only good years since then are the bubble years, whereas across 1973-1998 there are some truly good economic years (partially offset by some very bad ones).
6. 1995-1998 are a poster child for what a non-stagnating period should look like in terms of wages and median income. Lots and lots of years since 1973 don’t look anything like that period. When the growth is real, it shows up in all of the standard numbers and no mystery variables or invocations of biased measurements are needed. I find this comparison illuminating.
7. I discuss benefits in the book, for the time being I’ll note a) cradle-to-grave private sector jobs, with union-based pension benefits are rarer than they used to be, b) fewer people get health care through their jobs than used to be the case, c) most of the benefits are health insurance but don’t fixate on the size of the expenditure, rather consider that health progress has been slowing down, and d) last year health insurance costs rose by nine percent and no way should that be interpreted as equivalent to an increase in real income, rather it is a sign of system failure. That all said, the text of TGS still leaves room open for a world where virtually all of the benefits of economic growth accrue to the elderly. Such a world still will have a lot of TGS properties.
8. Consumption data often selectively focus on the commodities which have become much cheaper (e.g., flat-screen TVs) and ignore the growth in debt, which now must be paid back.
9. The 2000-2011 case for stagnation is stronger and clearer than the 1973-2011 and there also has been more growth along the latter and longer period of time, plus numbers are easier to interpret across shorter time stretches. I will ask Russ if he at least can buy into TGS for the last eleven to twelve years.
I don’t see panel data as offering a significantly different story from the above but if Russ tosses me a specific citation I will consider it.
On the Conover critique of income stagnation, Karl Smith is devastating. On all the general issues, Arnold Kling comments.
Going back to the Russ excerpt above, I don’t think we should reify median income statistics or give them a final ontological meaning; they are tools. The slow growth in the measured median, or zero growth since that late 90s, strongly suggests that something is seriously wrong with the real economy. That slowdown seems robust to the standard attempts to explain it away.
I don’t dismiss Arnold Kling’s factor price equalization hypothesis, but still the question remains why we haven’t kept leapfrogging ahead of our competitors, as we had done in earlier decades. We’ve become much more of a sitting duck and that will make Samuelson-Stolper effects stronger if you are the world leader on the technological frontier.
On Russ’s other query, there has been an ongoing change in the returns to education. Note the recent study that over the last decade only Ph.ds, MBAs, JDs, and MDs have seen real income gains; even individuals with a Masters degree are getting whacked. One way of reading those numbers is that the workers with lower educational credentials are getting less “manna from heaven” in the form of new innovations cascading into their laps. On top of that, there is more rent-seeking in the economy and many jobs require stronger cognitive skills than in the past.
Countercyclical anecdotes
A senior U.S. policymaker, a fan of Mr. Ahamed’s book, called me the other day. “Promise me,” he said, “that if you write a sequel about the Great Depression of 2012 that you’ll note that I was one of the guys really trying to head it off.”
Here is more. For the pointer I thank Paul, a loyal MR reader.
New tech blog with stars
Shane Greenstein writes to me:
This email is to alert you to a new blog project established by myself, Joshua Gans and Erik Brynjolffsson — www.digitopoly.org. We noticed that while there was plenty of commentary on technical issues there was, in fact, no blog exclusively devoted to the economics of the digital world. As we three blogged regularly about these, we decided to combine our efforts in this new forum. In addition to the new site we also have a Twitter feed @digitopoly.
Cole and Ohanian ask a good question about the Great Depression
The main point of our op-ed, as well as our earlier work, is that most of the increase in per-capita output that occurred after 1933 was due to higher productivity – not higher labor input. The figure [at the link] shows total hours worked per adult for the 1930s. There is little recovery in labor, as hours are about 27 percent down in 1933 relative to 1929, and remain about 21 percent down in 1939. But increasing aggregate demand is supposed to increase output by increasing labor, not by increasing productivity, which is typically considered to be outside the scope of short-run spending/monetary policies.
There is more at the link.
How many Borders are being replaced by other bookstores?
The article is interesting throughout, but here are, to me, the salient bits:
Vanderbilt University in Nashville is moving its bookstore to a 27,000 square-foot former Borders, betting that the new location on the perimeter of campus can serve students and residents in an area where several bookstores have disappeared.
… Although Books-A-Million has taken over leases for more than a dozen Borders stores, and Barnes & Noble is expected to acquire some of its intellectual property, like the Borders.com Web site, there were few takers for the Borders leases offered at auction in recent weeks under the bankruptcy process. Bidders were required to take over the lease under the existing terms…
…One niche that has proved attractive is Borders’ airport locations. The Hudson Group has taken over at least nine former Borders stores at airports in Las Vegas, Baltimore, Newark, Boston, Washington Dulles and Raleigh-Durham, in some cases, turning over the space in less than a week.
The day may yet come when one takes a flight to have a satisfactory book-browsing experience.
Assorted links
1. n = 3, any takers for n = 4?
2. Betting odds for the Nobel Prize in literature, and the Harvard economics pool in the Nobel Prize.
3. Greece: scarier than I had thought, and this too.
4. Videos from The Economist’s Ideas Summit, including Martha Stewart, and also me.
5. Princeton bans its academics from handing over copyright to journal publishers.
6. The Ponzi scheme felon who blogs financial crises; one of his early works is here (pdf).
Is the economic crisis still making Americans unhappy?
In a new paper, Angus Deaton says maybe not so much (pdf). Happiness surveys show a big negative effect from the downturn in 2008, but most of it has since evaporated. You can conclude that a) things really are better, b) they are not focusing enough on the long-term unemployed, c) I shouldn’t trust happiness surveys, d) this explains why we are still headed off a cliff, or some combination of the above. For the pointer I thank Eric Barker.
*When the Sleeper Wakes*
Reading this H.G. Wells novel (free on Kindle), I kept on thinking of Robin Hanson in the lead role, which I suppose means I enjoyed it. The basic premise is that a man wakes up after a two-hundred year coma, and because of compound interest he owns half the earth. He is also feared and worshiped, and over the previous two hundred years more than a few people have tried to speak and rule on his behalf.
The story predicts that future hypnosis techniques will allow everyone to calculate math problems and play chess like a savant, “relieved from the wanderings of imagination and emotion.” Years of study will be replaced by a “few weeks of trances.” Memories will be grafted, but not desires. There will be silk-like threads running through all banknotes and they will offer the blurred image of a temple and promise miracles, sound familiar?
I consider Wells to be an underrated author, especially in some of the “minor” works. There is all of Wells for $3.00 here.
Sentences to ponder
Crime-fiction buffs are perhaps America’s least parochial readers. They certainly seem to be the only ones still buying imported and even translated novels in large numbers.
That is from a story on Peter Temple, Australian crime writer.
Michael Lewis’s *Boomerang*, and the new Richard Pomfret book
The subtitle is Travels in the New Third World, and it is a convenient collection of Lewis’s recent and sometimes controversial writings on the financial crisis. I liked the Iceland piece best, the German one least. It is out next week, but a review copy is in my hands.
There is also in my pile Richard Pomfret’s The Age of Equality: The Twentieth Century in Economic Perspective, Belknap Press, a popular economic history of the 20th century, listed as due out October 15 but my paid-for copy just arrived.
Assorted links
1. How Asia will build up its top business schools, and the advent of the seven-figure salary.
2. Update on the worst idea ever; this will just mean that employers won’t want to get anywhere near the unemployed.
3. Jeremy Nalewaik on gdp vs. gdi.
4. What is an empirically empty economic theory used for?
5. Biodegradable toilets, and can European banks fund themselves?
What I’ve been reading
1. David Stevenson, With Our Backs to the Wall: Victory and Defeat in 1918. Thorough, readable, never thrilling but consistently satisfying. It is a good follow-up to Niall Ferguson’s splendid The Pity of War.
2. Daniel Yergin, The Quest: Energy, Security, and the Remaking of the Modern World. No surprises, good, perhaps best on the evolution of the natural gas market.
3. Colm Tóibín, Brooklyn. Never bad, it becomes excellent by the end.
4. Roger Ebert, Life Itself: A Memoir. One-fifth or so of this book is interesting, so some small number of you should wade through it. I liked the discussion of black and white cinema best, but most of it is rambling and insufferable.
5. Steve Sem-Samberg, The Emperor of Lies, A Novel. “I don’t want to read any more about the Holocaust” is not good enough reason to neglect this stunning Swedish novel. A fictionalized account of the Lodz Ghetto, it looks at the lives of the ghetto rulers and whether they were heroes or collaborators. I found it tough to read more than one hundred pages of this at a time; by focusing on the suicides rather than the murder victims, it is especially brutal. Definitely recommended, I urge you to get up the gumption.
6. Jo Nesbo, Nemesis: A Novel. Highly entertaining, indeed gripping, but by the end I was wondering whether I had wasted my time. It turns out not to be conceptual after all. A good plane read, which is for me what it was.
I didn’t “get” the new Stephen Greenblatt book; was Poggio so important? I still find myself unable to enjoy Hollinghurst, though in the abstract I admire the writing. Bellow’s The Victim is beautifully written but seemed to me dated.
A simple cure for eurozone problems, requiring only one law
Give the United States Federal Reserve System the power to create euros at will, at its discretion, subject to no outside checks. This power may last for a specified number of years or who knows, maybe forever.
The Fed’s incentive is not exactly to maximize European social welfare, but it is probably close enough. The Fed’s incentive is to prevent contagion from spreading to the United States and its banking system. Toward this end it would create euros and distribute them to various European banking systems, or lend them out, do more swaps, etc. It would help Europe but in a fairly balanced way, in particular the Fed probably would not “screw over” the major U.S. allies on the Continent, namely France and Germany.
Bernanke has a track record of dealing with severe financial crises, no? And is he not insulated from the worst of European politicking and gridlock? Foie gras and feta probably would not sway him, and the EU would have to agree to this only once. No further plans need be announced and no coalition governments will have further checks. Stock markets would rise immediately.
Conservatives might not mind if the Fed “wrecked the European economies with inflation.”
This law need not preempt other European initiatives, if those initiatives were to prove desirable. The ECB would be ceding no powers whatsoever and it would not have to modify its charter.
Forget about the dual mandate, we need Dual Central Banks.
Such a rescue operation is not without historical precedent.
And while we’re at it, let’s give the ECB the power to create dollars! (just kidding folks…or am I?)
What are the side costs of trade with China?
There is a new study from David Autor, Gordon Hanson, and David Dorn:
The study rated every U.S. county for their manufacturers’ exposure to competition from China, and found that regions most exposed to China tended not only to lose more manufacturing jobs, but also to see overall employment decline. Areas with higher exposure also had larger increases in workers receiving unemployment insurance, food stamps and disability payments.
The authors calculate that the cost to the economy from the increased government payments amounts to one- to two-thirds of the gains from trade with China. In other words, a big portion of the ways trade with China has helped the U.S.—such as by providing inexpensive Chinese goods to consumers—has been wiped out. And that estimate doesn’t include any economic losses experienced by people who lost their jobs.
…Dartmouth College economist Douglas Irwin said the new research paints too bleak a picture. There are, he says, important benefits from trade that aren’t captured—because nobody has figured out how to measure them. For example, commodity-producing countries the U.S. exports to have been boosted by China’s growth, creating greater demand in those nations for U.S. goods. “But if we had more exports of (Caterpillar) heavy equipment to Australia, that’s not being measured” as a gain from trade with China, he says.
The original paper is here.
Assorted links
1. Do brains and markets share fundamental topological properties?
2. Riderless bikes, and research paper here (pdf).
3. What are the bestsellers in Dubai?
4. Which country has the second fastest internet speeds in the entire world? (no peeking!)
6. Avinash Dixit gives career advice (pdf).