Results for “Larry Summers”
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Monday assorted links

1. Checkout lanes for people who want it to be slow?

2. “In summary I’d say the most important and mysterious unanswered question of economics is the point from #2: which cooperative norms are chosen to be enforced and how does this come about?”  Link here.

3. Larry Summers and his wife discussing poetry, mostly Larry doing the reading (video), and discussion here.

4. New and important results on why labor’s share has fallen:

The recent fall of labor’s share of GDP in numerous countries is well-documented, but its causes are poorly understood. We sketch a “superstar firm” model where industries are increasingly characterized by “winner take most” competition, leading a small number of highly profitable (and low labor share) firms to command growing market share. Building on Autor et al. (2017), we evaluate and confirm two core claims of the superstar firm hypothesis: the concentration of sales among firms within industries has risen across much of the private sector; and industries with larger increases in concentration exhibit a larger decline in labor’s share.

That is from Autor, Dorn, Katz, Patterson, and van Reenen.

Thursday assorted links

1. Might China have its own bubble burst?

2. Package X-Ray, from Amazon.

3. Some details on the Trump infrastructure plan.

4. Bannonism.  And everyone else is linking to this Scott Alexander post on crying wolf and racism, but I think it is naive, and suspect he has never really lived under deeply racist conditions.  Here is perspective from Larry Summers.  And Matt Yglesias is worried about the first one hundred days.

5. Data on fake news on Facebook.  And Leonid Bershidsky on related matters.  Are Danish people happier when they quit Facebook?

6. Spectator picks for best books of the year.  And Telegraph picks.

It’s not just repairing a bridge that takes longer than it used to

Remember the recent Op-Ed by Larry Summers on the difficulty of repairing bridges rapidly?  Well, this problem has a new angle:

The Verrazano-Narrows Bridge, which connects Brooklyn and Staten Island, was named after an Italian explorer. There is just one problem: The man is widely known as Giovanni da Verrazzano, with two z’s.

More than a half-century after the bridge opened, some New Yorkers are calling for the spelling error to be corrected. An online petition taking up the cause has brought renewed attention to the enduring discrepancy.

“By rectifying Verrazzano’s name, we’re really saying to all Italians and Italian-Americans that we respect them and appreciate them,” said Joseph V. Scelsa, the president of the Italian American Museum in Lower Manhattan.

The Metropolitan Transportation Authority does not appear eager to tackle the issue. A spokesman for the authority, Christopher McKniff, said adjusting the bridge’s name would be an expensive and labor-intensive undertaking.

“At this time, we are not considering any name change for the Verrazano Bridge,” Mr. McKniff said in a statement that hewed to the one-z spelling.

Here is the full NYT story.

The resurrection of the Lucas supply function at the hands of Keynesians

Wolfgang Munchau has perhaps the clearest statement of the view that an extra dose of current inflation will boost output:

A helicopter drop means that the ECB would print and distribute money to citizens directly. If it were to distribute, say, €3,000bn or about €10,000 per citizen over five years, that would take care of the inflation problem nicely. It would provide an immediate demand boost, and drive up investment as suppliers expanded their capacity to meet this extra demand.

I don’t mean to pick on Munchnau, who is one of the two or three best columnists in the world (thus the clarity), but I view this as incorrect as stated.  And it is symptomatic of a mistake which I see more and more frequently, including from reputable economists.  Given the genesis of the Great Recession, commentators have become obsessed with stimulating demand, but “mere inflation” does not on its own put people back to work, at least not by much.

To be clear, if aggregate demand is on the verge of falling, and expansionary monetary policy maintains aggregate demand, that will indeed prevent a big increase in unemployment.  And typically that is very much worth doing, and most of all what is useful is an ex ante AD maintenance rule from the get-go.  But that does not mean inflation in any particular state of affairs will boost employment significantly.

Let’s go back in time to the 1970s and 1980s.  Bob Lucas developed a monetary misperceptions version of business cycle theory, in which boosts of inflation encouraged people to work more, at least temporarily, and set off a cyclical pattern of boom and bust.  Fortunately the Keynesians stepped in and criticized Lucas in a rather devastating manner.  The measured responsiveness of labor supply, or for that matter investment, to inflation, or for that matter relative price changes, simply wasn’t that large.  That also was a big problem with the core labor market mechanisms of real business cycle theory; for instance read the prescient critique by Larry Summers (pdf).  Those same arguments imply that today more inflation will boost employment by only small amounts.

And consistent with that claim, the Phillips Curve is not exactly stable as of late.

There are also plenty of papers on inflation and investment.  They are hard to summarize, but overall it is easier to argue that more inflation harms investment rather than helping it (pdf).  And at the most general level, it is real cash flow that predicts investment well, not nominal cash flow.  So I am not so optimistic about more inflation today boosting investment by very much, even though I agree that a higher price inflation or ngdp target in the steady state would be very useful for preventing aggregate demand collapses.

Now you might think we are in special circumstances with rates of price inflation at especially low levels.  What harm is there in risking more inflation and having prices rise at 2 percent, 2.5 percent, or even three percent a year?  I agree with this argument.  (I’d be happy to see higher rates of price inflation if only to erode the value of academic tenure.)  Still, if we ask ourselves what is the best point estimate for how much more an extra dose of inflation today will boost investment (and not just the stock market), any strongly positive answer is based more on faith than on clear evidence.  The mere fact that you know “demand hasn’t been high enough” — which is true — doesn’t have to mean current doses of price inflation are going to get us very far.  Yet that is the mistake I see people making again and again.

People, economists have known this for a long time, it’s just that they now are starting to forget it.

One more point: demand could go up through yet another mechanism.  Imagine the economy becomes more productive, wages rise, and stronger consumer demands percolate throughout the broader economy.  That too is an increase in demand, and for that matter supply, and a decline in the risk premium.  It is quite possible the effect of that kind of demand increase on output is stronger than the effects of higher price inflation.  We should not conflate these two scenarios, and I get nervous when I see the word “demand” without further qualifiers or description.

Here are related remarks from Matthew C. Klein.

Against Historic Preservation

Larry Summers asks:

How…could our society have regressed to the point where a bridge that could be built in less than a year one century ago takes five times as long to repair today?

As I wrote in Launching:

Our ancestors were bold and industrious–they built a significant portion of our energy and road infrastructure more than half a century ago. It would be almost impossible to build the system today. Unfortunately, we cannot rely on the infrastructure of our past to travel to our future.

Summers alludes to the regulatory thicket as a cause of the infrastructure slowdown but doesn’t have much to say about fixing the problem. Here’s a place to begin. Repeal all historic preservation laws. It’s one thing to require safety permits but no construction project should require a historic preservation permit. Here are three reasons:

First, it’s often the case that buildings of little historical worth are preserved by rules and regulations that are used as a pretext to slow competitors, maintain monopoly rents, and keep neighborhoods in a kind of aesthetic stasis that benefits a small number of people at the expense of many others.

Second, a confident nation builds so that future people may look back and marvel at their ancestor’s ingenuity and aesthetic vision. A nation in decline looks to the past in a vain attempt to “preserve” what was once great. Preservation is what you do to dead butterflies.

Ironically, if today’s rules for historical preservation had been in place in the past the buildings that some now want to preserve would never have been built at all. The opportunity cost of preservation is future greatness.

Third, repealing historic preservation laws does not mean ending historic preservation. There is a very simple way that truly great buildings can be preserved–they can be bought or their preservation rights paid for. The problem with historic preservation laws is not the goal but the methods. Historic preservation laws attempt to foist the cost of preservation on those who want to build (very much including builders of infrastructure such as the government). Attempting to foist costs on others, however, almost inevitably leads to a system full of lawyers, lobbying and rent seeking–and that leads to high transaction costs and delay. Richard Epstein advocated a compensation system for takings because takings violate ethics and constitutional law. But perhaps an even bigger virtue of a compensation system is that it’s quick. A building worth preserving is worth paying to preserve. A compensation system unites builders and those who want to preserve and thus allows for quick decisions about what will be preserved and what will not.

Some people will object that repealing historic preservation laws will lead to some lovely buildings being destroyed. Of course, it will. There is no point pretending otherwise. It will also lead to some lovely buildings being created. More generally, however, the logic of regulatory thickets tells us that we cannot have everything. As I argued in Launching:

There are good regulations and bad regulations and lots of debate over which is which. From an innovation perspective, however, this debate misses a key point. Let’s assume that all regulations are good. The problem is that even if each regulation is good, the net effect of all the regulations combined may be bad. A single pebble in a big stream doesn’t do much, but throw enough pebbles and the stream of innovation is dammed.

It’s time to blow the dam. Creative destruction requires some destruction.

Sunday assorted links

1. Larry Summers on why Americans don’t trust government: “Though the bridge took only 11 months to build in 1912, it will take close to five years to repair today at a huge cost in dollars and mass delays.”

2. Men who live as dogs.  And this man lived as a goat: “So in the Alps, I had to use a pressure cooker at night to cook the grass I’d chewed up during the day, and spat into my not-quite artificial rumen.”

3. Prototype markets in everything: prosthetic foot designed for high heels.

4. U.S. nuclear force still uses eight inch floppy disks.

5. How masculine are millennials?  And why has Chicago stayed so violent? (NYT)

6. More on DAO, which is (sort of) a bot which runs a company.

7. Cass Sunstein on Star Wars, don’t forget June 15 is my conversation with Cass.

Should Harvard pay out less?

Larry Summers says it is worth a rethink:

Former Harvard University President Lawrence Summers suggested that the school consider curbing annual payouts from its world-record $37.6 billion endowment to reflect the likelihood of lower investment returns.

Real, or inflation-adjusted, short-term interest rates have been falling steadily since 1999 and are effectively projected by financial markets to be around zero percent in the long-run, Summers said in a presentation Friday to a National Bureau of Economic Research meeting in Cambridge, Massachusetts, where Harvard is based.

“If it makes sense for Harvard University to pay out 5 percent of its endowment in 1999 when the real interest rate was 4 percent, it’s really quite unlikely that it makes sense to pay out 5 percent of its endowment in 2016 when the real interest rate is zero,” said Summers, a former U.S. Treasury secretary who is now a professor at Harvard.

I’ve never had a good handle on what you might call “the welfare economics of endowments,” in part because I don’t think economists have a good theory of endowments period.

One normative view is that if g > r, funds should simply accumulate in the endowment, more or less indefinitely, to further maximize societal wealth.  The g > r condition might hold for Harvard, though it is hard to measure what the school’s borrowing rate consists of.  Arguably new money at the margin comes from donations rather than from loans or bond issues.

A second view is that inequality is bad, and institutions tend to become sluggish and excessively bureaucratic in the longer run.  Perhaps every now and then they should be required to “start afresh”; a’ la Jefferson: “every now and then higher education must be refreshed…” etc.  That would suggest a higher payout rate.  You will note that the law mandates a payout rate of five to six percent for charitable foundations; Harvard isn’t a foundation, but analogous factors might apply.

A third view is to note that income inequality has gone up, and that means higher returns from investing in Harvard students, even if overall rates of return in the economy are low.  We know that the variance of corporate returns is much higher than it used to be, and many of those successful corporations stem from Harvard, MIT, and Stanford, among other top schools.  That would suggest spending more money today, because the Harvard endowment may not always be so valuable in terms of the uses to which it can be put.  Low rates of return on (most) investments are more reason to follow this advice and keep on spending, not less reason.  Can you imagine a better investment these days than Harvard human capital?  You will note that in this view “keeping Harvard at the top,” while a goal, is not the number one consideration.

There is something to be said for all of these perspectives, but mine is closest to number three.  In any case the question deserves closer consideration than I see it receiving.

Tuesday assorted links

1. How did France, Canada, and Japan keep costs down for nuclear power.  This is also a good essay for understanding health care.

2. First accident with a self-driving car?  “The car was rolling at 2 mph and the bus at 15 mph. No one was injured.”

3. Sweden’s first unmanned food store, all you need is a phone.

4. Larry Summers on Donald Trump.  If you need further persuasion, just imagine Japan deciding to build nuclear weapons.

5. How black immigrants are reshaping America: “A full 9% of black Americans are immigrants…”

6. The Myth of the Rational Voter 2016, by Bryan Caplan.

What is going on in China right now?

Given all of the recent publicity, I thought I would re-up on my China video, The Rise and Fall of the Chinese Economy.  This is a recent addition to our Everyday Economics series from MRUniversity, and it also will be part of our in-progress macroeconomics course.

The Learn More page features additional resources about this topic.  As I say in the video, the key variable to track for whether things get really bad is capital flight.  In other words, recent developments have indeed been unsettling.

What we’ve seen is the central government spending down reserves at a much higher pace than virtually anyone had expected…except perhaps the central government.  The response to falling stock prices has been to make it legally harder and harder to sell — what do the prices even mean at this point?  A barometer of which kind of PR hit the government feels like taking on a given day?  And perhaps most importantly of all, more and more people, both in and outside of China, are questioning whether the government really has matters under control.  It seems not.

By the way, here is your China fact of the day, Larry Summers informs us:

Over the past year, about 20 per cent of China’s growth as reported in its official statistics has come from its financial services sector, which is now about as large relative to gross domestic product as in Britain, and Chinese debt levels are extraordinarily high. This is hardly a case of healthy or sustainable growth.

That said, China will do everything possible to prevent a financial crisis.

On the (somewhat) cheerier side: “Film market analysts have pointed out that the biggest films have performed similarly in China and the US in recent years.”  Star Wars: The Force Awakens had the biggest single-day opener in Chinese history (FT link), let’s see how well the future installments do.

Thursday assorted links

1. The chunkiness of space?

2. Data on affirmative action and enrollments.

3. Claims about quantum computing.

4. Roman history reading list.  And was the Roman world caught in a Malthusian trap?  And all roads lead to Rome.

5. Robin Hanson on Thomas Schelling on climate change.

6. Bill Kristol interviews Larry Summers: “I remember saying to a friend at the time it feels like my human capital is now denominated almost entirely in Pesos.”

Wednesday assorted links

1. Should you be an insider or an outsider?  With advice from Larry Summers.

2. Paul Krugman refers to a piece on New Deal bankers wanting higher interest rates.

3. Would leaving the EU make it easier for the UK to control its border? (no, shout from rooftops)

4. Video excerpt, Luigi Zingales on whether Pope Francis is overrated or underrated.  And lots of cheating on emissions tests, not just Volkswagen.  Speaking of cheating, Angus and I say North Carolina barbecue is in decline.

5. The polity that is New York City:”Custodians took home an average pay of $109,467 in the 2013-14 school year — and 634 of the city’s 799 custodians earned more than $100,000 in salary and overtime during that time, city payroll records show.”

6. What are the current restrictions on American travel to Cuba?

7. How Iceland managed to survive and bounce back.