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Complacency Or Community Commitment? Human And Social Capital Reconsidered

by Barkley Rosser (originally published at Econospeak)

Complacency Or Community Commitment? Human And Social Capital Reconsidered

I have been poking at Tyler Cowen’s recent book on The Complacent Class, along with those who have praised it unstintingly, with my main complaint being that what he calls complacency may really be fear.  In an exchange posted today between Tyler and Noah Smith at Bloomberg, Noah makes many of my points, saying that what people who are not moving or changing jobs are doing is seeking “safety and security,” with “complacency” sounding like “blithe optimism.” Tyler then admits that “many people are afraid,” but then says that they are still complacent because they are not reacting “with urgency.”  He also says that a lack of increased income volatility shows that they do not have reason to feel they are facing more risks than those in the past did, although it looks to me like the greater risks they face are more due to higher payments they must make for health or education rather than greater volatility of income.  But this is not what I want mostly to address here, at least further.

I wish to go back to the implications of people not quitting jobs and not moving as much as they used to. Rather than rerunning the fear versus complacency point, I want to think about how this relates to human and social capital accumulation.  In particular, I think  that while people may increase their individual human capital by moving around more, there may be an increase in social capital from people staying in one place more.  This greater social capital may result in more committing by people to the quality of their communities, more engagement in civic groups, and so  on.  It may be that the human capital part means that greater mobility improves economic growth, but this may be at the expense of better quality of life and other parts of economic growth associated with having high quality communities with high social capital.

Since I am setting up in effect a competition between human and social capital, I must admit that some of  the early work on these matters,  especially by sociologists like James Coleman and political scientists like Robert Putnam, initially argued that they were linked, that social capital enhances human capital.  Now I am not going to deny that. Certainly a person with a larger network of trusting acquaintances may be able to be more productive in their work and have essentially higher skills than someone who does not. Nevertheless, I am going to note how they may also be in conflict.

A crucial issue here involves externalities.  I  think that social capital involves and leads to more externatities than does human capital.  Or, even if I am wrong, they will involve different kinds of externalities.

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Variations on the Phillips Curve: unemployment and underemployment

by New Deal democrat

Variations on the Phillips Curve: unemployment and underemployment

This is part of a longer post I wanted to write, and if FRED didn’t play so poorly with iPad I would put it all up.  But, having finished with my cursing, let me put up a truncated version now and follow up with another one sometime in the next week.

This picks up on my post from several days ago in which I noted that a fuller explanation of the cycle of wage gains should take into account the labor force participation rate for prime age workers.  So I thought I would show the differences in how the Phillips Curve (the tradeoff between wages and unemployment) looks depending on how completely we look at it.

Let’s start with the unemployment rate (bottom scale) vs. YoY nonsupervisory wage growth (left scale) since the series started in the 1960s:


It’s pretty clear that there are two regimes, higher vs. lower wage growth (top vs. bottom).  And if you were looking for a clean relationship in which lower inflation equals higher wage growth, it ain’t there.

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Fifty Shades of Yellow? Post-Truth Then and Now

by Peter Dorman (originally published at Econospeak)

Fifty Shades of Yellow? Post-Truth Then and Now

Simon Wren-Lewis can’t take it anymore. I’ve just read his fulminations on the blatant dishonesty of right wing media outlets in the US and the UK, untethered to any residual professional attachment to standards of evidence and nakedly in the service of political ideologues. He’ll get no argument from me about that.

But I think his distinction between post-truth outlets and the other kind (pre-truth?) is much too clean. We won’t understand the new frontier of news/fiction unless we see what connects it to the rest of the media world.

A first hint appears in his discussion of the difference between UK and German media on the issue of immigration. The nativist tabloids in the UK bombarded its readership with several stories per day that dehumanized immigrants and presented them as threats to jobs, services and civil order, while their counterparts in Germany (e.g. Bild) had heartwarming portrayals of immigrants overcoming great odds to save themselves and their families. This is true; I saw it myself when I was in Germany during the runup to Merkel’s adoption of a Welcome Culture policy.

But this was also the period during which Greece, led by Syriza, faced off against Schäuble and his EU Wall of Nein. Here the ruling interests in Germany showed their other side, and the popular press was filled with made-up atrocities about the lazy, dishonest crew in Greece whose main purpose in life was to fleece the German taxpayer. (I posted here at the time about the false news, widely reported in Germany, that Syriza, financed by EU funds, had made rail travel free as a ploy to buy votes.) Obviously the probity of German journalism was selective.

And similar post-truth spasms have characterized media outlets in the English-speaking world ever since the advent of the printing press. These were in the service of fomenting war fever (the Spanish-American War, World War I, Vietnam, and Iraq, to mention examples from US history), demonizing labor organizers and civil rights activists or whatever cause needed a bit of extra buttressing.

If there is anything new, I think it might be on one of these fronts: (1) The doctrine that deceit and manipulation are virtuous in the service of the Cause, an element of fascism and Leninism alike, has now found a home in somewhat more mainstream ideologies on the right. A self-conscious defense of making stuff up increases its effectiveness, because embarrassment at being caught out is no longer a risk. (2) Post-truth is being deployed, to some extent, against the interests of the capitalist class, particularly as it attacks globalization. It is “out of control”, the figurative loose cannon on the deck of the battleship, rolling around and capable of firing in any direction. It needs to be domesticated again.

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What’s behind stalled nonsupervisory wage growth?

by New Deal democrat

What’s behind stalled nonsupervisory wage growth?

Wage growth for nonsupervisory workers nominally has been stuck in the +2.3% to +2.5% range (or worse) for three years.  Why?

Over the weekend I was cleaning out some old graphs, and came across this one from the Atlanta Fed, suggesting that the Phillips Curve (the tradeoff between unemployment and inflation) is very much alive, with the tweak that the amount of wage growth follows a decline in the unemployment rate with a one year lag:

The red line is the progression of the Phillips Curve since the beginning of 2011. The dotted line indicates that the Altanta Fed’s model was calling for a significant acceleration of wage growth between the spring of 2016 and spring this year.  [NOTE: all of the discussion in this post is about nominal, not inflation-adjusted wage growth, which has an awful lot to do with the volatility of gas prices.]

Except when we look at wages for nonsupervisory workers, that really hasn’t happened, at least not through February.  The below graph compares the YoY change in the unemployment rate (blue) and YoY wage growth for nonsupervisory workers (red):

As noted above, wage growth has been stuck at between 2.3% YoY and 2.5% YoY with some (mainly negative) exceptions since the end of 2013.

Using the U6 underemployment rate to capture the broader picture doesn’t change the outcome:


So, what’s going on?

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Competition from China reduced Innovation in the US

Via Tyler Cowen, here is a piece by David Autor, David Dorn, Gordon Hanson, Gary P. Pisano and Pian Shu.

Cowen quoted the most important part, so let me follow his lead:

The central finding of our regression analysis is that firms whose industries were exposed to a greater surge of Chinese import competition from 1991 to 2007 experienced a significant decline in their patent output. A one standard deviation larger increase in import penetration decreased a firm’s patent output by 15 percentage points. Using data from the 1975 to 1991 period and a regression setup that accounts for the diverging secular innovation trends in computers and chemical, we confirm that firms in China-exposed industries did not already have a weaker patent growth prior to the arrival of the competing imports.

…The innovation activity of US firms did not merely shift from the US to other countries. We estimate similar negative effects of import competition on patents by US firms’ domestic employees and by their foreign employees. Instead, our results are most consistent with the notion that the rapid and large increase in competition squeezed firms’ profitability and forced them to downsize along many margins, including innovation. Consistent with that interpretation, we find that the adverse impact of import competition on patent output was concentrated in firms that were already initially more indebted and less profitable.

Here’s what I think is happening. Chinese imports typically enter a market from the bottom, with a low price and a reputation for low quality. After a few years, the quality begins to improve, though it takes somewhat longer for the reputation to follow.

From the perspective of incumbent players, the Chinese don’t play at the top of the market where the high margin flagships are, but they take up a lot of market share in the lower end products. But, though broadline products have slim profit margins, they keep the plants operating at capacity, and that’s what covers capital costs.

So… the existential threat to the incumbents comes from having higher costs than the new competitor. The natural reaction then, is to cut costs. Fire people, idle plants and reduce expenses like marketing and R&D.

Despite Schumpeterian theory, many of the most innovative (large) companies in post-WW2 America were monopolies or awfully close to it. Think Bell Labs, Xerox Parc or Skunk Works (i.e., Lockheed’s Advanced Development Projects) for classic examples from back in the day. Ma Bell could afford the time and money needed to do world-class research.  Today’s phone companies cannot. Smaller companies have other dynamics, and often they are the source of innovation in many industries.  Smaller innovators whose technology proves successful end up being bought (and sometimes ruined) by the more established players.

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Repeal of the PPACA Vote On Hold

House leaders postponed a vote Thursday on their plan to overhaul the nation’s health-care system, casting doubt on whether President Trump and House Speaker Paul D. Ryan (R-Wis.) can deliver on one of the GOP’s central promises to the voters who placed Republicans in power.
Lawmakers and White House officials continued to express confidence that the revisions to the Affordable Care Act would pass by week’s end, and talks resumed soon after leaders announced the postponement. As evening came, members of the conservative House Freedom Caucus filed into the office of Speaker Paul D. Ryan (R-Wis.), as did White House Chief of Staff Reince Priebus and Trump’s chief strategist, Steve Bannon.”

It would be nice to snatch their healthcare at the same time or make sure some of those old folk get to pay for premiums at a 5:1 ratio. New CBO scoring after changes to the bill shows only $150 billion saved. Also the changes to the bill do nothing to prevent 14 million from being uninsured in the next year.

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What Percentage of Americans are Attorneys?

Here’s a graph showing the number of attorneys as a share of the US population:

attorneys as a pct of US pop 20170322a

The increase seems pretty inexorable starting around 1970, doesn’t it?

For grins and giggles, here’s snide graph on which I will make no comment:

attorneys as a pct of US pop v Growth in Real GDP per capita 20170322a

If you’re wondering where the lawyers live, a quick google search turned up this post which shows attorneys by state. Needless to say, the share of attorneys as a percentage of the population is greater in the District of Columbia than any of the states, by far.

Data for (“resident active”) attorneys used in these graphs comes are from the American Bar Association. The ABA’s website seems insistent that anyone referencing their data should state it is “Reprinted by permission of the American Bar Association. All rights reserved.” I am afraid to argue with them.

Data and estimates for the US population originates with the Census, but I’m using the set cleaned up by the Texas State Library and Archives Commission since its in an easy to use format. Real GDP per capita comes from NIPA Table 7.1.

If you want my spreadsheet, drop me a line at my first name (mike) dot my last name (that’s kimel with one m) at gmail with a dot com.

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Housing, production, and JOLTS all good news

by New Deal democrat

Housing, production, and JOLTS all good news

We’ve had a good run of economic news this week.

First, in the leading housing sector, both of the most important datapoints made new highs.  Single family permits, which are just as leading as permits overall, but much less volatile, made yet another post-recession high.  Further, the three month rolling average of housing starts, which are more volatile and a little less leading, but represent actual economic activity, also made a new post-recession high:


The headline number for industrial production for February was flat, but once again that was due to the seasonally-adjusted big

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It Takes “Alternative Math” to Claim That Redistribution Is Futile

Via Economists View (some of the comments are worth review as Deirdre McCloskey comments).  Also see below Peter Dorman’s   Review of Economism: Bad Economics and the Rise of Inequality by James Kwak at Econospeak.

Adam M. Finkel at RegBlog:

It Takes “Alternative Math” to Claim That Redistribution Is Futile: The unequal distribution of costs and benefits across society is one of the hottest topics in the regulatory arena—and one that, regretfully, has sparked fundamentally flawed arguments, threatening to distort and obscure much-needed discussion about redistributive policies. …

Although all policies have redistributive effects, some ideologies are viscerally, even militantly, opposed to government interventions that benefit the poor, whether by intention or even as a side effect of an otherwise sound policy. …

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