Category: Uncategorized
Wednesday assorted links
1. Nominal wage flexibility and what it looks like.
2. Alesina overview and tribute.
3. “Reproduction rates seem to stabilize around one, as my little behavioral model suggested.”
4. Being quarantined on arrival in Korea.
5. Only half of Americans would get a Covid-19 vaccine?
6. Estimating the costs of lockdown, often highest for the elderly by the way.
7. Vaccine update.
8. Why no one can explain the drop in coronavirus cases in Israel.
Will science funding be revolutionized?
The National Science Foundation (NSF) would get a sweeping remake—including a new name, a huge infusion of cash, and responsibility for maintaining U.S. global leadership in innovation—under bipartisan bills that have just been introduced in both houses of Congress.
Many scientific leaders are thrilled that the bills call for giving NSF an additional $100 billion over 5 years to carry out its new duties. But some worry the legislation, if enacted, could compromise NSF’s historical mission to explore the frontiers of knowledge without regard to possible commercial applications.
The Endless Frontiers Act (S. 3832) proposes a major reorganization of NSF, creating a technology directorate that, within 4 years, would grow to more than four times the size of the entire agency’s existing $8 billion budget. NSF would be renamed the National Science and Technology Foundation, and both the science and technology arms would be led by a deputy reporting to the NSF director. (NSF now has a single deputy director; the slot has been unfilled since 2014.)
And:
Passage of the legislation could significantly alter how NSF operates. In particular, agency officials would have the authority to adopt some of the management practices used by the Defense Advanced Research Projects Agency (DARPA) within the Department of Defense, known for its agility and focus on tangible, deadline-driven results. “The new [technology] directorate can run like DARPA if NSF wants it to,” says one university lobbyist familiar with Schumer’s thinking.
One provision would expand NSF’s ability to use outside experts hired for short stints. At DARPA, new program managers are expected to propose significant changes to the research portfolios of their predecessors, with the best new ideas receiving generous funding. In contrast, NSF’s core disciplinary programs change very little from year to year.
The bill has some degree of bipartisan support, and of course I will be following this issue. Here is the full story, via J.
Stansbury and Summers on the declining bargaining power of labor
In one of the best papers of the year, Anna Stansbury and Larry Summers present what is to me the best non-“Great Stagnation” story of what has gone wrong, and I have read many such accounts. Here is their abstract:
Rising profitability and market valuations of US businesses, sluggish wage growth and a declining labor share of income, and reduced unemployment and inflation, have defined the macroeconomic environment of the last generation. This paper offers a unified explanation for these phenomena based on reduced worker power. Using individual, industry, and state-level data, we demonstrate that measures of reduced worker power are associated with lower wage levels, higher profit shares, and reductions in measures of the NAIRU. We argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms’ market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU, and because it is more directly supported by the data.
There is a good deal of critical thinking about how different macroeconomic trends fit together, and a willingness to consider disconfirming evidence, so I do recommend you read through this one.
I have five main worries about the argument:
1. Rather than labor losing bargaining power, I think of the key development as “management measuring the marginal product of labor more precisely.” Admittedly that does lower the bargaining power of the majority of workers, given the 20/80 rule, or whatever you think the proper proportions are (Stansbury and Summers themselves presumably are underpaid, but in general wage dispersion has been going up in high-skilled sectors).
A minority of highly productive workers have much more bargaining power than they did before, which doesn’t quite fit the “lower bargaining power per se” hypothesis. And under my interpretation, easier unionization may not be much of a solution, since the problem here is the actual reality of who produces what. Consistent with my view, labor’s share is not really down if you consider the super-talented labor/owners/capitalists who start their own companies. That is a return to labor as well.
2. It is a noted advantage of the Stansbury and Summers approach that is explains the now-lower natural rate of unemployment. The puzzle, I think, is to explain both lower NAIRU and the slower labor market matching observed over the post-2009 labor market recovery. Their hypothesis seems to predict a higher degree of worker desperation, and thus quicker matches, than what we actually observed.
If you think, as I do, that employers are now better aware of the diversity of worker quality, and that only ex post do they learn that quality, employers will be more careful upfront, which probably does slow down matching speeds, thus fitting the data better.
3. If you play down market power, and postulate a fall in the share of labor, you might expect investment to be robust, but measured investment clocks in as mediocre. The authors discuss this point at length on pp.45-46 and offer multiple rebuttals, but I suppose I still think the first-order effect here ought to be stronger than what we (seem to) observe.
4. If corporate profits are so high, how is this consistent with the persistently low demand postulated by Summers’s “secular stagnation” hypothesis? The paper does consider this question very directly on p.56, but I genuinely (just as a matter of grammar) do not understand the answer the authors are suggesting. Here goes:
A fair question about the labor rents hypothesis regards what it says about the secular stagnation hypothesis that one of us has put forward (Summers 2013). We believe that the shift towards more corporate income,that occurs as labor rents decline,operates to raise saving and reduce demand. The impact on investment of reduced labor power seems to us ambiguous, with lower labor costs on the one hand encouraging expanded output and on the other encouraging more labor-intensive production, as discussed in Section V.So,decreases in labor power may operate to promote the reductions in demand and rising gap between private saving and investment that are defining features of secular stagnation.
I suppose I had thought of low rates of profit as a (though not the?) defining feature of secular stagnation, but again I may not have understood this passage correctly.
5. Matt Rognlie found that the decline in labor’s share went to housing and land ownership, not capital.
In any case, here is a whole paper full of economics, go and enjoy it.
Tuesday assorted links
A weird Lancastrian method for reopening higher education
I’m not sure this could work, but everyone else is doing weird ideas, so let’s consider another one.
Remember Lancastrian methods of education from 19th century England? Part of the idea was to keep small group size, and economize on labor, by having the students teach each other, typically with the older students instructing the younger.
Here is my suggestion: have students use an app to arrange in-person meetings, in groups of five, for periods of a few weeks running. Social distancing and masks can be applied as conditions at the time dictate. The app will match students on the basis of stated interests, and sometimes by other methods too, such as levels of mathematical sophistication or if you wish cultural diversity. The app also will tell them where to meet on campus, all classes being held outside.
Some classes would be led by professors, but there are not enough professors to go around so many others would be led by the more senior or otherwise better informed students. Professors and TAs could rotate across various groups if so needed.
All students are given free iPads, connected to campus wireless, and sometimes those iPads would serve as collective blackboards for the small groups.
Central admin. or departments could impose curricular structure in advance, or within a topic area particular assignments might be generated by “Unconference” methods, for instance the students might agree to read a particular book or essay, or to all learn a particular skill. To the extent overseeing faculty are scarce, you can try having the students themselves finding the relevant teaching materials. Very good groups would have the option of continuing for further weeks.
Start in August, keep on going until its gets too cold, they did it at Valley Forge and people learn in the desert and tropics too. Many of the meetings can be short — say 45 minutes — and you can privilege the more valuable majors with locations in the shade. Put up as many tents as you can.
Every class has a supply of back-up YouTube material, and associated testing, for when the weather is bad, or for when the semester has to end.
For the final semester grade each student writes a 20-25 pp. paper about what he or she learned through these units. Professors and sometimes TAs would grade those papers, and do note this is not an insuperable grading burden. It rewards the “did you learn anything useful at all?” approach, rather than “did you manage to sit and suffer through through all of your boring classes?”.
I suspect it feels too much like chaos to a university administrator, but perhaps that is an argument in its favor?
You will note that this method, for all of its learning uncertainties, has two big advantages. First, it really does prioritize the health of everyone involved. Second, students still have lots of contact with each other and get to enjoy some version of the campus experience. The interactive groups might even provide a more engaging campus experience than did the status quo ex ante, keeping in mind that some schools will combine this method with the abolition or radical paring down of dorms.
Addendum: Hand out free diapers, all other plans have that issue too.
Rewatching *Dirty Harry* (no real spoilers)
Released in 1971, as usual with San Francisco movies one can see the reach of NIMBY — the city doesn’t look much larger or busier today. The subtext of the film is that law and order is collapsing, yet San Francisco was far cleaner back then and street harassment never is presented as a risk. Even the red light district of 1971 seemed better kept than many of the nicer parts circa 2020.
You can see how much the debate has shifted from “how the police treat the guilty” to “how the police treat the innocent.”
It is startling to see actual San Francisco children in the movie — they did not seem to be hired extras.
Yana was shocked that Clint Eastwood did not direct the movie, I was amazed when he started directing.
Overall it held up remarkably well I thought. Virtually every scene is good, and its ability to offend both sides (and indeed other sides too) remains evident.
Monday assorted links
4. “Historically, immigrant men were more likely to be employed than native men. The COVID-related labor market disruptions eliminated the immigrant employment advantage. By April 2020, immigrant men had lower employment rates than native men.” Link here.
5. Further evidence that violent media content lowers violence.
8. What the development of penicillin tells us about coronavirus vaccines. The piece makes several interesting points about speed.
Vaccine Testing May Fail Without Human Challenge Trials
In Why Human Challenge Trials Will Be Necessary to Get a Coronavirus Vaccine I asked, “What if we develop a vaccine for COVID-19 but can’t find enough patients–healthy yet who might get sick–to run a randomized clinical trial?” Exactly that problem is now facing the Oxford vaccine in Britain.
An Oxford University vaccine trial has only a 50 per cent chance of success because coronavirus is fading so rapidly in Britain, a project co-leader has warned.
…Hill said that of 10,000 people recruited to test the vaccine in the coming weeks — some of whom will be given a placebo — he expected fewer than 50 people to catch the virus. If fewer than 20 test positive, then the results might be useless, he warned.
As I wrote, “A low infection rate is great, unless you want to properly test a vaccine.” Challenge trials have issues of external validity and they take time to setup properly but they produce results quickly and they can be especially useful in whittling down vaccine candidates to focus on the best candidates.
1DaySooner now has over 25 thousand volunteers from over 100 countries.
Vaccines: Billions in Costs, Trillions in Benefits
Bloomberg: As sections of the global economy tip-toe toward reopening, it’s becoming clearer that a full recovery from the worst slump since the 1930s will be impossible until a vaccine or treatment is found for the deadly coronavirus.
Consumers will stay on edge and companies will be held back as temperature checks and distancing rules are set to remain in workplaces, restaurants, schools, airports, sports stadiums and more.
China — the first major economy consumed by the virus and the first to emerge on the other side — has been able to revive production but not demand. The lesson for other economies: it’ll be a stop-start path back toward normal.
There’s also the risk of new flare-ups. Some 108 million people in China’s northeast region have been put back under varying degrees of lockdown amid a new cluster of infections. Doctors there are also seeing the coronavirus manifest differently, suggesting that it may be changing in unknown ways.
In South Korea – where the virus was controlled without a hard lockdown – consumer spending remains weak as infections continue to pop up.…Harvard University professor Carmen Reinhart, who is the incoming chief economist of the World Bank, had a similar message. “We’re not going to have something akin to full normalization unless we (a) have a vaccine and (b) — and this is a big if — that vaccine is accessible to the global population at large,” she told the Harvard Gazette.
The virus is being beaten back and there are reasons for optimism but I agree with Reinhart that we won’t get full normalization without a vaccine. The world economy is on the order of $90 trillion and the IMF is projecting a 3% decline instead of an expected 3.3% increase so a loss to the world economy of around $6 trillion in 2020. Growth will probably return in 2021 and there will be some catchup but the IMF projects a cumulative loss of 9 trillion. Ending the pandemic early could generate hundreds of billions, even trillions, in output–that’s why Susan Athey, Nobel laureate Michael Kremer, Chris Snyder and myself advocate for going big on vaccines. It’s billions in costs and trillions in benefits. Warp speed ahead!
Sunday assorted links
1. Timeline of new ideas in science fiction.
2. Richard Timberlake has passed away.
3. Bolivian orchestra stranded at haunted German castle surrounded by wolves.
4. Hong Kong super-spreaders. And WSJ on the same, potentially important.
5. Too many pop-ups, but still a useful piece on the India-China border flare-up.
6. Radio stations are playing more positive and upbeat music.
7. Amihai Glazer is now on Twitter.
Alberto Alesina has passed away at age 63
He was one of the great economists of our time and a possible candidate for a Nobel Prize. Here is his Wikipedia page. Here are previous MR discussions and mentions of Alesina. Here is a short biography. Here are his most cited papers. Here are Twitter tributes.
*Big Business: Love Letter to an American Anti-Hero*
The paperback edition is now out, you can order here through Amazon, here through Barnes & Noble.
Saturday assorted links
2. How is cocaine trafficking doing?
3. Edenville dam failure caught on video.
4. Ten arguments against immunity passports. I mean…those are the arguments you should make. But there is no conception that you have to “solve for the equilibrium” if there are no formal immunity passports, and compare the two situations in terms of cost, unfairness, and the like. In that sense the authors cannot conceive that there needs to be a comparison at all.
6. Do proponents of moral outrage wish to “sneak up on women”? That would explain a lot.
7. The import of super-spreaders in Israel.
8. American Interest interview with Larry Summers. “LHS: There’s a lot of empirical evidence since Keynes wrote, and for every non-employed middle-aged man who’s learning to play the harp or to appreciate the Impressionists, there are a hundred who are drinking beer, playing video games, and watching 10 hours of TV a day.” It’s a good thing that has nothing to do with subsequent delayed re-employment (also known as “unemployment”), isn’t it?
*The Price of Peace*
The author is Zachary D. Carter, and the subtitle is Money, Democracy, and the Life of John Maynard Keynes. Maybe you’ve read plenty about Keynes, but still this book is good enough to qualify (without reservation) for the year’s “best of non-fiction” list published every December.
One surprise is that the author seems to “get” the Bloomsbury Circle, Woolf, and the like, even though he is not an old, crusty British pain in the ass.
A second surprise is that much of the biography goes well past the life of Keynes, though with no diminution of quality. I very much enjoyed for instance the discussion of Samuelson vs. Galbraith, the career of Milton Friedman, the role of the Volker Foundation, and so on.
Very readable, substantive, and the main topic never ceases to be interesting. I am not sure if there is anything truly new in here, but it is nonetheless a very good book to read about Keynes and his later influences on economic thought.
Oliver Williamson, RIP
Oliver Williamson won the Nobel in 2009 with Elinor Ostrom. My post on that event is reprinted below (no indent). See also Tyler here.
——————
In Adam Smith there is the pin factory and the market and from that beginning we trace the long literature in economics focused on the twin questions, What price to set? How much to produce? Following Coase, Williamson asks different questions, Why a pin factory? Why are the 18 steps to make a pin performed by a single firm rather than two or more? Why are there many firms instead of one large firm? Why does the pin factory not vertically integrate upwards to buy the steel factory and downwards to buy the retail hardware shop?
Williamson’s answers rest on the notions of bounded rationality, contract incompleteness, asset specificity and opportunism. Start at the end, asset specificity and opportunism. When a deal has been sealed the parties typically move from having many potential partners to being locked in. That’s bad because it raises the possibility of opportunism–one party can exploit the other. But it’s also good because when the lock-in is credible each party may be more willing to invest in assets which are extra-productive but specific to the relationship.
Marriage, for example, takes away some possibilities but it adds others. With marriage, for example, comes a greater willingness to invest in children (n.b. asset specificity, the child is of extra value but only to the specific parties involved in the marriage) but that very benefit also means that one of the parties has the leverage to be opportunistic. Knowing all of this when they enter the contract the parties bargain ex-ante, they exchange promises and make investments (the ring), they establish rules for ex-post bargaining or decide on the background rules to apply in that eventually (pre-nup, no fault divorce, covenant marriage). The rules are never perfect and the contacts are always incomplete.
Transaction cost economics is all about applying these ideas in different settings to figure out the best governance structures (marriage, vertical integration etc.) in different circumstances. How does one deal with expensive investments (such as highly individual dies or plant construction) that are specific to a given
trade and put the investor at risk yet which increase productivity? Williamson analyzes how firms come to rely on long term contracts or vertical integration or other seemingly non-competitive solutions to enhance market productivity. Early generations of antitrust enforcers often saw these as monopolistic dealings, but scholars such as Williamson helped us understand how these are essential to the workings of the invisible hand.
Williamson’s paper, The Economics of Governance is an excellent recent summary of his views in the area.
Williamson’s work is notable for inspiring a large body of empirical and theoretical work in modern industrial organization and having influence in law, political science, and management. His work has been widely cited, and by some counts he was the most widely cited economist in the world.
I especially thank John Nye who contributed to this post.