Category: Economics

Student Loan Forgiveness is Regressive

Medical school graduates typically owe six-figure student loans but that doesn’t mean they are poorer than high-school graduates who did not go to college. Wealth, properly measured, should include the value of educational investments students borrowed to make. Measured appropriately, student debt is concentrated among high-wealth households and loan forgiveness is regressive whether measured by income, educational attainment, or wealth. Across-the-board forgiveness is therefore a costly and ineffective way to reduce economic gaps by race or socioeconomic status.

…Accounting correctly for both human capital and effect of subsidies in student lending plans, almost a third of all student debt is owed by the wealthiest 20 percent of households and only 8 percent by the bottom 20 percent. Across-the-board student loan forgiveness is regressive measured by income, family affluence, educational attainment—and also wealth.

That’s from those well known right-wing misers at Brookings.

My Israel-only Conversation with the excellent Russ Roberts

Here is the audio, video, and transcript, here is the CWT summary:

In this special crossover special with EconTalk, Tyler interviews Russ Roberts about his new life in Israel as president of Shalem College. They discuss why there are so few new universities, managing teams in the face of linguistic and cultural barriers, how Israeli society could adapt to the loss of universal military service, why Israeli TV is so good, what American Jews don’t understand about life in Israel, what his next leadership challenge will be, and much more.

We didn’t shy away from the tough stuff, here is one question:

COWEN: Let me ask you another super easy question. Let’s say we think that under current circumstances, a two-state solution would not lead to security either for Israel or for the resulting Palestinian state. Many people believe that. Let’s say also, as I think you believe, that a one-state solution where everyone votes would not lead to security for a current version of Israel or even a modified version of it.

Let’s say also that the current reliance of the Palestinian territories on the state of Israel for protection, security, intelligence, water — many important features of life — prevent those governing bodies from ever attaining sufficient autonomy to be a credible peace partner, guaranteer of its own security, and so on. From that point of view, what do we do? We’re not utilitarians. We’re thinking about what’s right and wrong. What’s the right thing to do?

Do read Russ’s answer!  (Too long to excerpt.)  And:

COWEN: Now, the United States has about 330 million people, yet there are more Israeli TV shows I want to watch than American TV shows. There’s Srugim, there’s Shtisel, there’s Prisoners of War, there’s In Judgment, there’s Tehran. There’s more. Why is Israeli TV so good?

ROBERTS: I’m glad you mentioned Prisoners of War, which doesn’t get enough — Prisoners of War is in my top five. If I had to list my top five, I’d pick Shtisel, Prisoners of WarThe Americans, probably The Wire, and The Crown. Do you have a top five that you could reel off?

COWEN: The Sopranos would be my number one. Srugim and Prisoners of War plausibly would be in my top five.

We then consider the Israeli topic at hand.  Interesting throughout, a very good dialogue.

*Talent*, my new book with Daniel Gross

Due out May 17, you can pre-order here for Amazon, here for Barnes & Noble.

The subtitle is How to Identify Energizers, Creatives, and Winners Around the World, and my co-author is the Daniel Gross from venture capital and Pioneer.

From Amazon:

How do you find talent with a creative spark? To what extent can you predict human creativity, or is human creativity something irreducible before our eyes, perhaps to be spotted or glimpsed by intuition, but unique each time it appears?

The art and science of talent search get at exactly those questions.

From the new Kirkus review:

Personality, they note, is revealed during weekends. Another good one: “What are the open tabs on your browser right now?” The aim is to assess the applicant’s thought processes and willingness to embrace new thinking.

And:

A useful and entertaining map for companies looking toward a creative future.

Definitely recommended.

Dominant Assurance Contracts and Quadratic Funding

Here is my keynote talk for the ACM Advances in Financial Technologies conference. I discuss Two Novel Mechanisms for Funding and Discovering Public Goods, namely dominant assurance contracts (with experimental support here) and the Buterin, Hitzig, Weyl work on quadratic funding.

Lots of other excellent talks on blockchains, AMMs, decentralized finance and so forth are at the link.

Where did the $800 billion Paycheck Protection Program money go?

The Paycheck Protection Program (PPP) provided small businesses with roughly $800 billion dollars in uncollateralized, low-interest loans during the pandemic, almost all of which will be forgiven. With 93 percent of small businesses ultimately receiving one or more loans, the PPP nearly saturated its market in just two months. We estimate that the program cumulatively preserved between 2 and 3 million job-years of employment over 14 months at a cost of $170K to $257K per job-year retained. These estimates imply that only 23 to 34 percent of PPP dollars went directly to workers who would otherwise have lost jobs; the balance flowed to business owners and shareholders, including creditors and suppliers of PPP-receiving firms. Program incidence was highly regressive, with about three-quarters of PPP funds accruing to the top quintile of households. This compares unfavorably to the other two major pandemic aid programs, enhanced UI benefits and Economic Impact Payments (i.e. stimulus checks). PPP’s breakneck scale-up, its high cost per job saved, and its regressive incidence have a common origin: PPP was essentially untargeted because the United States lacked the administrative infrastructure to do otherwise.

That is from a new NBER working paper by David Autor and many others.

Duke 2022 Summer Institute on the History of Economic Thought

The Center for the History of Political Economy at Duke University will be hosting another Summer Institute on the History of Economics this summer from June 20-29, 2022. The program is designed for students in graduate programs in economics, though students in graduate school in other fields as well as newly minted PhDs will also be considered.

Students will be competitively selected and successful applicants will receive free (double occupancy) housing, a booklet of readings, and stipends for travel and food. The deadline for applying is March 1.

We are very excited about this year’s program, which will focus on giving participants the tools to set up and teach their own undergraduate course in the history of economic thought. There will also be sessions devoted to showing how concepts and ideas from the history of economics might be introduced into other classes. The sessions will be run by Duke faculty members Bruce Caldwell, Steve Medema, and Jason Brent. More information on the Summer Institute is available at our website, http://hope.econ.duke.edu/

Recommended.

TikTok returns

TikTok stars are dancing their way to the bank. Some are making more than America’s top chief executives.

Charli D’Amelio, who started posting videos of herself dancing on TikTok in 2019, brought in $17.5 million last year, according to Forbes, which recently ranked the highest-earning TikTok stars of 2021. With 133 million followers on TikTok, she makes her money from a clothing line and promoting products in TikTok videos and other ads.

By comparison, median pay for chief executives of S&P 500 companies was $13.4 million in 2020, according to a Wall Street Journal analysis of data from MyLogIQ. CEO compensation figures include stock and option awards, which typically make up most of executive pay, as well as annual salary and bonus, perks and some kinds of retirement-benefit gains. Only some 2021 CEO compensation figures have been released so far.

Here is the full WSJ article, via the excellent Kevin Lewis.

Do all left-leaning institutions need to unionize?

That is the topic of my latest Bloomberg column, here is one excerpt:

Columbia University, with its sizable endowment, is a relatively well-capitalized entity. Still, it’s appropriate to ask what problem is solved by a graduate student union. The main difficulty for these students seems to be a lack of jobs when they graduate, and a pay hike might crowd the field further, with unwelcome consequences for the job market. And in the long run, the university could simply cut back on its initial financial aid offerings. The point is, it is hard for graduate student unions to bargain effectively across many of the most relevant dimensions of their student and work experience.

In the meantime, all of these unions are introducing additional veto points into the workplace, sometimes slowing response times. If you run the business and plan to make a big change in how it operates, you might feel — either contractually or tactically — that you need to check with the union first. And if you are a Democrat and a pragmatist, you might prefer a more effective but less unionized DNC, which after all is a major promoter of unionization for the U.S. economy as a whole.

What would a less hypocritical version of a Republican organization look like? Should everyone be given equity shares, or should there be bonuses for star performers? Whatever the answer may be, it probably won’t be debated much in public, as Republicans tend to be more circumspect about such matters. That’s a danger for Republicans, who may find it harder to live up to their principles if no one is calling them to account.

The Democrats, in contrast, tend to stage noisy debates — most of which, sooner or later, seem to settle in the same direction. That’s not a healthy norm of discourse, either.

Recommended.

Noah Smith Substack interviews me

Here is the interview.  Here is one excerpt:

N.S.: So how would you generally describe the zeitgeist of the moment, if you had to give a simple summary? What do you think are a couple of most important trends in culture and thought right now? My impression has been that we’re sort of in a replay of the 70s — a period of exhaustion after several years of intense social unrest, where people are looking around for new cultural and economic paradigms to replace the ones we just smashed. But maybe I’ve just been reading too many Rick Perlstein books?

T.C.: I view the 1970s as a materialistic time, sexually highly charged, and America running into some significant real resource constraints, at least initially stemming from high oil prices. Mainstream culture was often fairly crass — just look at disco, or the ascendancy of mainstream network television. The current time I see as quite different. Sexually, we are withdrawing. Society is more feminized. America has far more immigrants. And we are obsessed with the virtual and with make-believe, to a degree the 1970s could not have imagined. Bruno Macaes is one author who is really on the right track here, with his emphasis on how America is building virtual and indeed often “unreal” fantasies.

I think today the variance of weirdness is increasing. Conformists can conform like never before, due say to social media and the Girardian desire to mimic others. But unusual people can connect with other unusual people, and make each other much weirder and more “niche.” For instance, every possible variant of political views seems to be “out there” these days, and perhaps that is not entirely reassuring. A higher variance for weirdness probably encourages creativity. But is it a positive development on net? We are going to find out.

Recommended throughout, and of course do subscribe to Noah’s Substack.

Kevin Grier reviews MMT

Now readers may wonder, has the government really hit the MMT highway? Am I mischaracterizing Kelton’s views? Is our current mess really an indictment of MMT?

Well, here is an article/interview with Kelton from back in June 2021 with the awesome headline, “Stephanie Kelton: Biden has Adopted MMT.” The article leads with this: “President Biden’s proposed $6 trillion budget will not be fully paid for with tax increases or other spending cuts. It will increase the deficit, according to Stephanie Kelton, and that constitutes an implicit if not explicit adoption of the principles of modern monetary theory (MMT).”

In June, inflation was already elevated. You may wonder what Kelton had to say about it, since in MMT inflation is evidence of overspending. Well, wonder no more dear reader: “Inflation is evidence of too big a deficit, Kelton said. But inflation does not mean that there is too big a deficit; it can be due to “excessive demand pressures.” That is what is happening, according to Kelton, with temporary shortages of goods like computer chips and lumber that will soon self-correct.”

Here is the full review.

How decentralized really are blockchains?

At this point, there are basically two companies. Almost all dApps use either Infura or Alchemy in order to interact with the blockchain. In fact, even when you connect a wallet like MetaMask to a dApp, and the dApp interacts with the blockchain via your wallet, MetaMask is just making calls to Infura!

These client APIs are not using anything to verify blockchain state or the authenticity of responses. The results aren’t even signed. An app like Autonomous Art says “hey what’s the output of this view function on this smart contract,” Alchemy or Infura responds with a JSON blob that says “this is the output,” and the app renders it.

This was surprising to me. So much work, energy, and time has gone into creating a trustless distributed consensus mechanism, but virtually all clients that wish to access it do so by simply trusting the outputs from these two companies without any further verification. It also doesn’t seem like the best privacy situation. Imagine if every time you interacted with a website in Chrome, your request first went to Google before being routed to the destination and back. That’s the situation with ethereum today. All write traffic is obviously already public on the blockchain, but these companies also have visibility into almost all read requests from almost all users in almost all dApps.

Here is the full essay by Moxie, interesting throughout.  And more generally:

One thing that has always felt strange to me about the cryptocurrency world is the lack of attention to the client/server interface. When people talk about blockchains, they talk about distributed trust, leaderless consensus, and all the mechanics of how that works, but often gloss over the reality that clients ultimately can’t participate in those mechanics. All the network diagrams are of servers, the trust model is between servers, everything is about servers. Blockchains are designed to be a network of peers, but not designed such that it’s really possible for your mobile device or your browser to be one of those peers.

Recommended.  Via Nabeel.

The background level of stress

That is a physiological or biological concept, or it may appear in the other sciences.  It rarely plays a direct role in economics, though I think it is important for understanding regime shifts.

I take any estimate of NAIRU, or indeed many other “steady-state” economic variables, as relative to a particular background level of stress.  In a pandemic, of course, that level of stress may be quite high, and to be clear much of that may stem from the policy response, not just the pandemic itself.

To be sure, I do not see the 2022 level of American stress as “permanent.”  But neither do I hold the 1998 or 2018 backgrounds levels of stress to be “permanent” or “natural” either.  If anything, those lower levels may be the historical outliers.

I think a great deal about what the forthcoming level of background stress will be, but I am quite uncertain about any prediction.  I do know I read a great number of people who either treat it as absurdly high (e.g., the climate doomsayers), or who are implicitly sure it will be quite low.

I believe this concept of background stress, if nothing else, helps you to see what a lot of apparently reasonable predictions can end up being proven wrong.

What Adam Smith thought of large, shareholder-owned companies

The only trades which it seems possible for a joint stock company to carry on successfully, without an exclusive privilege, are those, of which all the operations are capable of being reduced to what is called a routine, or to such a uniformity of method as admits of little or no variation. Of this kind is, first, the banking trade; secondly, the trade of insurance from fire, and from sea risk and capture in time of war; thirdly, the trade of making and maintaining a navigable cut or canal; and, fourthly, the similar trade of bringing water for the supply of a great city.

Of course that is from Wealth of Nations.  Always worried about agency problems and incentives, Smith saw them in large, capitalist firms as well.

Today’s labor market report

Unemployment is at 3.9%, and can’t get much better.  In the new report just 199,000 jobs were added.  Job growth is slowing and that is a pre-omicron phenomenon.  Labor force participation has not been so low since 1977.  The great economic myth of the last thirteen or so years is that you can get the labor market to pre-Covid Trump administration levels and keep it there just by having enough “aggregate demand.”  I am all for sufficient aggregate demand, to be clear, but I don’t overrate it either.

People are starting to rethink what is going on.  All coherent stories have to involve…the supply side of the labor market.  Which is precisely what the orthodoxy had been telling you to ignore.  Average is Over.