Results for “law literature”
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*Shylock on Trial: The Appellate Briefs*

That is the new eBook by Richard Posner and Charles Fried, and I just bought my copy and expect I will be adding it to my Law and Literature syllabus.  The book’s home page is here.

A longer book, edited by Bradin Cormack, Marthua Nussbaum, and Richard Strier will be coming out as well, Shakespeare and the Law, containing this piece among others.

The Solow Model

The Solow Model is a workhorse model of economic growth. Many subsequent papers in growth theory and in business cycle theory build on this model. A model of growth helps us to structure our thinking. Why is it, for example, that China is growing faster than the United States despite having much poorer institutions such as the rule of law?  Surprisingly, even a simple version of the Solow model offers some useful predictions and ways to interpret aspects of the the growth data. At MRUniversity this week we have four videos on the Solow model. These videos are a bit more technical than many of our previous videos and we think they will be useful in many other classes such as macroeconomics, especially if you are using a truly excellent textbook. The videos will also be useful for anyone who wants to read more of the literature on growth theory or the empirics of growth (such as can be found, for example, in Barro and Sala-i-Martin’s Economic Growth or David Weil’s textbook Economic Growth). Even if you don’t want to study the theory in more depth, we think these videos will be useful for understanding development and how economists use theory and data to understand the sources of growth (and its absence).

Charter cities and extraterritoriality

In part I am writing this post because Google yields so little on that combination of words.

It would be a mistake to equate charter cities with extraterritoriality.  For one thing, a charter city has its own laws and governance, possibly enforced by overseas courts, rather than imposing foreign courts upon domestic governance, a’la Shanghai through the early 20th century.  Still, the history of extraterritoriality gives us some sense of what it looks like to have foreign courts operating outside their usual domestic environment.

The problem with extraterritoriality, as I read the literature, is not the Chinese courts had a superior system of commercial or criminal law which was tragically pushed out by inferior Western ideas.  The problem was that the foreign courts were not supported by comparably strong domestic interest groups and there was a clash between the foreign courts, national symbols, fairness perceptions, domestic rents and the like, all in a manner which led to eventual talk of foreign devils and violent overreaction against the influence of outsiders.

The history of extraterritoriality focuses one’s attention on the question of who has an incentive to support the external system of law, when such a system is transplanted abroad.  This question does seem relevant to charter cities and related concepts.

Hong Kong worked because the UK and USA were able to exert enough control at a distance, at least for a long while, and because China was weak.

One vision is that a charter city works because a dominant hegemon — perhaps at a distance — supports the external system of law.

A second vision is that a charter city works because the external system of law serves up some new and especially tasty rents to domestic interest groups.  In the meantime, avoid Tongans.

A related question is what it means for the external legal system to be “invited” in, and how much such an invitation constitutes prima facie evidence of real domestic support.

I would like to see these topics receive more discussion.

Two interesting books are:

1. Wesley R. Fishel, The End of Extraterritoriality in China, and

2. Par Kristoffer Cassel, Grounds of Judgment: Extraterritoriality and Imperial Power in Nineteenth-Century China and Japan.

Addendum: Here is an update about Romer’s group and Honduras.  There is lots going on, and probably even more than is captured in this story.  Here is the account from Romer’s group.

Assorted links

1. Why is UK employment up and output down?

2. Genetics vs. paleoanthropology?

3. Price inflation and stock returns (pdf), and here, and here, and most recently here; “There is a consistent lack of positive relation between stock returns and inflation in most of the countries.”  I am urging a) a bit of caution, and b) engagement with the literature on this topic.  I do favor a more expansionary monetary policy, but I see the balance of evidence as different from how it is frequently portrayed in the blogosphere.

4. New archery gold medal winner is legally blind, and here.

How to improve firms’ treatment of workers

Say a firm screws over a worker on ten dimensions at once, subject to some constraint of the worker leaving.  With those ten depredations, the firm tries to extract from the worker as efficiently as possible, but again so the worker does not leave or leaves only with some lower probability.

Let’s then say the law alters one of those dimensions to favor the worker, for instance the firm cannot force the worker to consent to a body search.  The firm may then increase one of the other depredations. Perhaps not for individual workers on the spot (there is “depredation stickiness”), but over time firms will fill the niches of new depredations to the maximum degree possible.

The new depredations will be less efficient ways of extracting rents than the old, which may hurt the worker.  At the same time, the firm’s rate of return on enforcing depredations may decrease, which may help the worker.

The net effect is indeterminate.  Note also that the lower efficiency may in the longer run limit firm entry and production, which will hurt workers and consumers (and possibly shareholders).  Again, the net effect still is indeterminate but the more you think about this model the less you will see it as an effective way to help workers.  You might try “regulating all ten depredations” but for that to work you also must fix the wage, and so on.

Maybe some of the model variants here will help the workers, but come on, let’s be realistic.  Is it the case that the commentators have firm beliefs about these models for well-argued reasons?  I don’t think so.  It is more likely the case that there is a core belief something should be done, with not too much concern for the systemic effects nor with the “not totally sound but still better than what the critics are serving up literature on compensating differentials.”  I am worried by the common tendency to first cite a lack of perfect competition and then assume the proverbial pony.

Here is Henry Farrell’s response to Matt Yglesias.

Fortunately there is a rather smooth path forward.  Raise the utility of unemployment to workers.  This could be a guaranteed annual income, better unemployment insurance, more food stamps, whatever.  Call it the welfare state.  Improving the welfare state will improve worker bargaining across virtually all workplace dimensions and in the longer run limit the scope of all the employer depredations.

We’re back to the point that what helps is to give people cash, or something cash-like, including when it comes to the dimensions of workplace quality.  It is also a huge help to institute policies which will raise rather than lower worker productivity.

As I said before, the criticisms haven’t even yet dented the traditional economic point of view on this issue.  Those criticisms are operating within the current frontier of analysis, not on it much less beyond it.

The Iceland dust-up

There has been enough coverage that I won’t summarize the entire debate, suffice to say that Krugman offered a picture like this:

Some writers from the CFR (I am not completely sure how to attribute authorship), offered this picture, along with some analysis and links (and further pictures).  The key point is that the second picture considers a longer time horizon, and all of a sudden the relative performance of the different countries has changed:

They argue that in this light, looking over the longer time horizon, the Icelandic story appears mediocre rather than impressive relative to some of the other small countries.  A few points:

1. Arvind Subramanian argues we should look at per capita growth and also PPP vs. market exchange rates, read here.

2. Arvind’s point aside, that the pictures give different impressions is more important than either picture taken alone.

3. The second picture brings value-added to the debate, and it suggests stories which the first picture taken alone does not.  I’ll come back to that.

4. The debates have mixed together a few different questions, such as “how well have the countries done?,” “how well have the countries’ policies done?,” and “should we be looking at both pictures?”  Since the answer to the first two is obviously agnostic — too soon to tell — I will focus on the last of these questions and the answer is yes, we definitely should be looking at both pictures.

Krugman’s response, once you get past the inappropriate insults, doesn’t serve up much.  He has arguments against the view “Don’t look at the first picture” but no good arguments against “Look at both pictures very carefully and integrate.”

Ryan Avent offers a more polite response here.  He focuses on convergence (maybe we should have expected the Baltics to have outperformed Iceland, so a tie means Krugman wins), but this estimate suggests the fixed exchange rate did not really cost the Baltics much in the way of convergence points.  In any case I fear the goalposts are being shifted and what we know about convergence and its speed is iffy anyway; for instance anyone worried about bad monetary policy, and opposing 1980s style RBC theories, should be a convergence pessimist for the short run.

Most importantly, there is still no argument against looking at both pictures in a serious way.

So what additional thoughts come to mind looking at the second picture, which you might not get so much from the first picture alone?  Here are two:

a. Some countries simply may be more volatile than others, and this may or may not have to do with their policy responses.  I’ll note Cowen’s Second Law, namely that there is a literature on this and the people who work in that literature consider this to be a plausible proposition (which does not mean it is here the operative explanation, however).

b. The size of an initial run-up, possibly bubbly at that, is correlated with the size of the later collapse and also the difficulty of recovering from that later large collapse.

There is a literature on that too, start here, it is not an absurd proposition by any means.

By the way, did I mention a 2009 IMF Staff Report which concluded that Latvian “output exceeded potential by 9 percent in 2007.”?  That supports the relevance of b) and possibly a) as well, and it discriminates against Krugman’s story of the peak being a point reattainable through policy management.

I take Krugman to be suggesting something like c): all the relevant information for understanding performance is contained in post-bust policy, so we needn’t look at earlier years and in fact doing so may mislead us.

Yet this attempts to pre-settle the dispute by putting all of the explanatory burden on post-crash policy.  In general commentators often overattribute results to policies and in any case we should not build in this bias a priori.

Are you a fan of Dani Rodrik’s “every country is different” hypothesis?  If so, you probably should think that both graphs are important.  Country characteristics don’t morph away overnight, so earlier data points should matter for understanding current policy results.

If we look carefully at both pictures, I say we still don’t know what is going on, but we do have a richer sense of the possibilities.

From now on these two pictures should be shown and considered together.

Contractionary devaluations in Eastern Europe, again

Also known as the continuing case for agnosticism, especially when it comes to small countries.  There is actually a paper on this topic (Cowen’s Second Law!), let’s look at the end part:

Currency depreciation is said to stimulate aggregate demand by increasing its net export component. On the other hand, it is said to discourage aggregate supply by increasing cost of imported inputs. The ultimate impact is ambiguous on theoretical grounds. A recent review article reveals that in developing countries, devaluation or real depreciation is indeed contractionary in the short run. In the long run, however, devaluation is neutral in most countries. Emerging economies have received no attention and we try to fill this gap in this paper.

In this paper we consider the experience of nine emerging countries of Belarus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Russia, and Slovak Republic with currency depreciation. Using the bounds testing approach to cointegration and error-correction modeling that distinguishes the short-run effects from the long-run effects, the results turn out to be country specific.  In the short run we find that real depreciation is expansionary in Belarus, Latvia, Poland, and Slovak Republic; contractionary in Czech Republic, Estonia, Hungary, and Russia; and has no effect in Lithuania. In almost none of the countries, the short-run effects lasted into the long run.

A few remarks on this:

1. I have read dozens or maybe hundreds of blog discussions about the wage effects of depreciation/devaluation.  I can’t recall very many on the input and portfolio effects.  I can’t recall any serious assessment of which effects are more import (sorry if I have forgotten your post or didn’t read it).  I also don’t see many discussions of whether observed short-run effects persist in the longer run.

2. I am not trying to push the particular conclusion of this paper on you (“Ah, now I understand where Belarus falls!”), rather I wish to indicate that the matter is not so simple as to always favor floating rates.  I am myself usually in the floating rate camp, but with far more agnosticism than I usually see when this topic is tossed around these days.  Furthermore the growth literature does not in general indicate that simply sticking with a fixed rate offers inferior long-run performance.

3. It is fine to argue that this 2008 paper may not apply to the conditions of 2012.  That would again leave us will very little sound basis to go on for assessing 2012, as we would be asserting that the previous evidence no longer is relevant.  Such an attitude should not then push us into a dogmatic point of view, one way or the other.

4. In general I worry that the literature on contractionary devaluation does not have clearly defined exogenous events, or good independent measures of how bad the economic situation is in the first place.

5. The people who actually study this topic, if I dare introduce them into this discussion, very often end up believing that country-specific factors are extremely important.  This makes “Econ 101” (or is that 306?) discussions of the topic misleading.

6. It is not the fault of any single individual, but overall I find it disconcerting, and not reflecting so favorably on the econ blogosphere, how disconnected this discussion has been from the actual literature.

7. As a good rule of thumb, any time you hear a dogmatic macroeconomic pronouncement in the econ blogosphere, or the assertion that someone else doesn’t know what he or she is talking about, the actual reality is usually far less certain than the view which is being pushed on you.

Either later today or tomorrow I will address some remarks to the latest dust-up over Iceland, but you can take this post as useful background.

The value of diversification, Haitian style

The confirmation that senior Haitian officials hold foreign nationality lends growing credence to a leading senator’s charge that Haitian President Michel Martelly is a U.S. citizen and hence illegally in power.

Two weeks ago, Sen. Moïse Jean Charles submitted what he called “irrefutable” evidence to a special Senate Select Committee that Martelly and 38 other high government officials hold dual, and sometimes triple, nationalities.

On Jan. 24, Sen. Joseph Lambert, the Commission’s president, announced in a press conference that the Commission has confirmed dual nationality for two of the 10 cases it has investigated to date. However, Lambert has so far refused to release the names of dual citizenship officials, saying his commission would proceed “impartially” and “without emotion.” He said arrangements have been made to continue the nationality investigations overseas.

The Senate inquiry threatens to create a political crisis which may force President Martelly, his Prime Minister Garry Conille, and other ministers to step down. If the charges against him prove true, it means that candidate Martelly lied to election officials about holding dual citizenship, which current Haitian law explicitly forbids for a high elected official.

Here is more.  There is the small matter of the Haitian constitution:

Commission member Sen. Steven Irvenson Benoît said that Haiti’s 1987 Constitution prohibits any foreign national not only from becoming president or prime minister, but also from acting as a minister or secretary of state. The Constitution’s Article 56 stipulates: “An alien may be expelled from the territory of the Republic if he becomes involved in the political life of the country, or in cases determined by law.

Michel Martelly (“Sweet Mickey”) spent so much time in the United States, often giving concerts, that for years I simply assumed he held dual citizenship.  Until recently, I had not known about this provision of the Haitian constitution.  What is the old Haitian saying?:

“The constitution is paper, the bayonet is steel.”

Or something like that.

How good are the upper classes?

Seven studies using experimental and naturalistic methods reveal that upper-class individuals behave more unethically than lower-class individuals. In studies 1 and 2, upper-class individuals were more likely to break the law while driving, relative to lower-class individuals. In follow-up laboratory studies, upper-class individuals were more likely to exhibit unethical decision-making tendencies (study 3), take valued goods from others (study 4), lie in a negotiation (study 5), cheat to increase their chances of winning a prize (study 6), and endorse unethical behavior at work (study 7) than were lower-class individuals. Mediator and moderator data demonstrated that upper-class individuals’ unethical tendencies are accounted for, in part, by their more favorable attitudes toward greed.

That is an abstract from Paul K. Piff, Daniel M. Stancato, Stephane Coté, Rodolfo Mendoza-Denton, and Dacher Keltner.  There is a gated version of the paper here,  a Wired summary hereDozens of other sources covered the paper on-line but virtually all fell afoul of mood affiliation (something is wrong with the wealthy and here is a chance to disapprove of them), and a very large number made the subtle shift from “upper class” to “wealthy,” which of course is not the same.

We need to be cautious in our interpretation of these results.  Of the seven tests, two of them showed that people driving more expensive cars are more in a hurry and more likely to cut off others or not yield.  That’s not praiseworthy, but hardly a major moral condemnation.  Several of the tests involved people being asked to imagine they were high class, not actual “high class” people themselves.  To that extent we are testing the lower class view of the upper classes, noting that I would not use those terms as given.  One of the tests showed that social class did not matter once we adjust for a person’s attitude toward greed.   A positive attitude toward greed is positively correlated with social class, but it was also easy enough to “prime” the lower class individuals to feel the same way, suggesting that extreme context dependence will hold here.

Let’s view these results in light of the literature as a whole (I haven’t seen any journalistic source do this).  Very often in studies the highest trust, lowest corruption societies in the world are the relatively wealthy Nordic countries, not poor countries.  There is plenty of evidence that it is low and falling incomes — not wealth — which helped to explain voter support for fascism.  Consumers are eager to buy products from companies such as Apple, and they regard the wealth of the shareholders, and the high profit margins, as a sign they will get a high quality product, not a reason to fear a rip-off.  (Can you think of many cases where consumers deliberately seek out lower-class suppliers to minimize the chance of rip-off?)  The work of Garett Jones shows that high IQ predicts greater cooperativeness.

That all said, allow me to speculate.  If I were playing bridge, and my opponents were wealthy, I really would expect them to cheat more, say with regard to the exchange of illegal cues between partners.  For one thing cheating requires some smarts and for another it requires some confidence that it can lead to victory.  I expect Vlade Divac to flop more to draw a foul, or expect Kobe Bryant to work harder to manipulate a referee, than I would expect from a lower-status rookie player.

One simple hypothesis — which for now I will take as the default, when you sum up all the evidence — is that high-status people cheat more at games and less at many other activities, including those of real life.  (They are also in more of a hurry on the road.)  That’s very different than how this paper is being reported, and it’s also a much more interesting hypothesis.

Addendum: Kevin Drum comments.

What are the best sources on how to be a good teacher?

Charlie Clarke, a Finance PhD student at UConn, and a loyal MR reader, writes to me:

Hi Tyler,

I’m a grad student teaching for the first time, and I was wondering if  you had any recommendations for a book relaying evidence based advice for teaching methods.  I know Cowen’s law, “There is a literature on everything.”  Just hoping there is a good book or two synthesizing that literature so that I can use it to improve my teaching.

Love the blog.

The most important lesson is to use the right textbook.  Beyond that:

1. Give a damn.

2. Get to the point when you speak.

3. Expect something from them.

4. Teach to the students who are interested in learning.

5. At all levels, do not overestimate the attention span of your audience.

6. Do not be afraid to be idiosyncratic, provided you adhere strictly to #2.

Those are my tips.  But to be honest, I do not consider them RCT-tested and I am not sure they maximize social welfare.  They instead start from the premise that the key question is what kind of person do I want to be, and then the method asks the students to conform to that vision.  Some or all of them might prove RCT-neutral, or worse.  Nonetheless, the approach is a good way to motivate me and that is part of the problem.

Doesn’t Bryan Caplan have a post on this?  Here is John Baez on how to teach.  Peoples, what can you recommend from the literature?

Are CEOs paid their value added?

Remember Paul Krugman’s forays into “the wage reflects what the top earners are really worth” topic, and the surrounding debates?  Why should this discussion be such a fact-free zone?  Why so little discussion of tax incidence?

Let’s start with the literature.

Read this paper by Kevin Murphy (pdf), especially pp.33-38.  Admittedly the paper is from 1999 and it won’t pick up the more recent problems with the financial sector.  But most of the data are from plain, ol’ garden variety CEOs.  In many of the estimations we see CEOs picking up less than one percent of the value they create for the firm, and all of the estimates of their value capture are impressively small, albeit rising over time.  Never is the percentage of value capture anything close to one hundred percent.  “One percent value capture” is an entirely plausible belief.

You might think this sounds whacky but it makes theoretical sense.  For instance often CEO performance is motivated by equity and options, but few CEOs are wealthy enough to own more than a very small chunk of the company (risk-aversion may be a factor too), and that will mean their pay won’t reflect value created at the margin.  It’s a standard result of agency theory, stemming from first principles.

Maybe you’re suspicious of this work but the way these estimates are done is quite straightforward, and results of this kind have not been overturned.  You can formulate a “pay isn’t closely enough linked to performance” critique from these investigations, but not a “they’re paid as much as they contribute” conclusion or anything close to that.  (And, if it matters, the “conservative” and also WSJ Op-Ed page view has embraced these results for almost two decades, at least since the original Jensen-Murphy JPE piece; Krugman identified the conservative position with the Clarkian perfect competition w = mp stance but that is incorrect.)

You might be thinking “Ha!  Burn on Krugman!,” but not so fast.  Like Wagner’s music, Krugman’s position here is “better than it sounds,” though not nearly as strong as Krugman would like it to be.

Let’s turn to taxation of the top 0.1 percent, and focus on these CEOs.  If the tax rate on their income/K gains goes up, the firm will compensate by giving them more equity/options, to keep them working hard.  In other words, the tax rate on the top earners can be hiked without much effect on CEO effort because there is an offset internal to the firm.  At some margin the firm’s shareholders will be reluctant to chop off more equity/options to the CEO, but the marginal value created by maintaining the incentive seems to be very high, for reasons presented above, and so the net CEO incentives will be maintained, even in light of new and higher taxes on CEO earnings.

But here’s the problem, if that’s the right word.  The incidence of that tax is going to fall on shareholders in general and thus on capital in general.  These top CEOs could even get off scot-free, if the shareholders up the equity/options participation of the CEO to offset completely the effects of the new and higher tax rate.  This is also relevant to the Piketty-Saez-Stantcheva analysis that everyone has been talking about; they don’t see these mechanisms with sufficient clarity.

Moral of the story: it’s harder to tax the top earners than you think.

The second moral is that tax incidence remains a neglected topic, even among top economists.

The third moral is that too many people, including both Krugman and his critics on this point, have been neglecting the literature.

By the way, other assumptions can be made and other results generated, but I am focusing on one of the core cases.

Natural experiments and the return to schooling

Cowen’s First Law: There is a literature on everything.

Responding to queries from Kling and Caplan and Henderson, let us turn the microphone over to Andrew Leigh and Chris Ryan:

How much do returns to education differ across different natural experiment methods? To test this, we estimate the rate of return to schooling in Australia using two different instruments for schooling: month of birth and changes in compulsory schooling laws. With annual pre-tax income as our measure of income, we find that the naıve ordinary least squares (OLS) returns to an additional year of schooling is 13%. The month of birth IV approach gives an 8% rate of return to schooling, while using changes in compulsory schooling laws as an IV produces a 12% rate of return. We then compare our results with a third natural experiment: studies of Australian twins that have been conducted by other researchers. While these studies have tended to estimate a lower return to education than ours, we believe that this is primarily due to the better measurement of income and schooling in our data set. Australian twins studies are consistent with our findings insofar as they find little evidence of ability bias in the OLS rate of return to schooling. Together, the estimates suggest that between one-tenth and two-fifths of the OLS return to schooling is due to ability bias. The rate of return to education in Australia, corrected for ability bias, is around 10%, which is similar to the rate in Britain, Canada, the Netherlands, Norway and the United States.

There are many other papers in this genre, such as by Joshua Angrist, and they yield broadly similar results.  Here is an Esther Duflo paper on Indonesia.  There is an excellent David Card survey on the causal returns to education, from 1999, but more recent results have shown the same.  Card’s conclusion:

Consistent with earlier surveys of the literature, I conclude that the average (or average marginal) return to education is not much below the estimate that emerges from a standard human capital earnings function fit by OLS. Evidence from the latest studies of identical twins suggests a small upward “ability” bias – on the order of 10%. A consistent finding among studies using instrumental variables based on institutional changes in the education system is that the estimated returns to schooling are 20-40% above the corresponding OLS estimates.

That last sentence is because the marginal student is especially in need of education.  The view that education is mostly about signaling is inconsistent with the established consensus on the returns to schooling and yet the writers at EconLog do not respond to this literature or, as far as I can tell, even acknowledge it.

Here is one of my earlier posts on education.  Here is my theory of (some) education.

Dennis is Not More Likely to be a Dentist

Pelham, Mirenberg and Jones (2002) found that the names Jerry, Dennis and Walter were the 39th, 40th, and 41st most frequent male names in the 1990 census (moreover the absolute frequency of (Jerry+Walter)/2 was almost identical to that of Dennis). But in a nationwide search they found 482 dentists named Dennis but just 257 named Walter, and 270 named Jerry, a highly statistical significant difference. Hence the meme was born, “Dennis is more like to be a Dentist.”

The expected number of dentists named Dennis, however, depends not on the frequency of Dennis in the 1990 Census but on the entire stock of people named Dennis over the past ~70 years and similarly for Walter and Jerry. If, for example, no one was ever named Jerry prior to 1989 but in 1990 the name skyrocketed to prominence following the appearance of Seinfeld then there would be no dentists named Jerry despite Jerry being a popular name in the 1990 census.

Following this logic, Uri Simonsohn proposes that instead of comparing the number of dentists named Dennis  to those named Jerry or Walter we compare the number of dentists named Dennis to the number of lawyers named Dennis. Making this comparison, Simonsohn finds that Dennis’s are just as overrepresented among lawyers as among dentists, thus the Dennis is a dentist finding is most likely due to a spurious cohort effect.

In addition, to testing the name-profession link Simonsohn reexamines many of the classics of the implicit egoism literature and finds many of them (not all and he does not challenge the experimental results) wanting. Virginia is not more likely to move to Virginia, for example. The Simonsohn paper is impressive and a great resource for anyone wanting to teach the difficulties of doing causal statistical research.

Hat tip to Andrew Gelman who comments here and here.

Thoughts about labor markets

Today, the number of layoffs and discharges is very low — in fact, layoffs are at their lowest level since the Labor Department began collecting this data in 2000. Today’s problem instead is the very slow pace of job creation.

Yet unemployment remains high.  File under “increasing polarization of labor market outcomes.”

Here is Steve Pearlstein channeling A. Michael Spence:

…what ails the U.S. economy is primarily a structural problem, not a cyclical one that can be effectively dealt with through the magic of short-term Keynesian stimulus.

Or let’s consider David Leonhardt’s very good piece on the labor market:

Lawrence Katz, a Harvard labor economist, calls the full [labor market] picture “genuinely puzzling.”

That is Larry Katz, who was chief economist at the Department of Labor under Clinton and who is arguably the most knowledgeable labor economist in the world.  Larry Katz, who is renowned for how many literatures he holds at his fingertips.  (Here are some papers by Larry Katz, including a good, short piece on unemployment in the great recession.)  Larry Katz, who wrote the most effective critique of the Lilien “sectoral shift” hypothesis.  Larry Katz, force of nature.

I am not asking you to agree with Spence or Katz, only to keep them in mind.  What is striking about the current generation of popular Keynesian models is how little effort they make to integrate cyclical and structural phenomena.  This is very much like some of the original Keynesian models of the 1930s, but it is an out of date approach and it will lead to excess optimism about the ability of fiscal stimulus to set things right.