Relevant and even prescient commentary on news, politics and the economy.

Why Economists Are Bad At Economics

by Sandwichman

Why Economists Are Bad At Economics

If you want an informed, thoughtful analysis of the effects of robotization on productivity, investment, employment and wages, ask an art school professor. Jason E. Smith’s two-part series, “Nowhere to Go: Automation, Then and Now,” (part one and part two) at Brooklyn Rail cuts through all the statistical aggregation category errors to highlight the accumulation dilemma that economists just don’t seem capable of either grasping or admitting.

Current speculations on both the promise and threat of automation are confronted with an ongoing crisis of accumulation. In this climate, a fragmentary implementation of automation is unlikely either to liberate large fractions of humanity from work, or produce mass unemployment of the sort envisioned over and again by commentators for the past century.

Smith has a PhD in comparative literature, which perhaps explains why he can tell the difference between an arbitrary catch-all term like “service sector” and the very different and distinctive components that are lumped together in it. Both promise and threat evaporate when the components are dis-aggregated and the jumble untangled. Definitely worth a read.

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How Between-Firm Inequality Drives Economic and Social Inequality

Conversable Economist takes an interesting look at inequality: (worth a look…hat tip Spencer England)

How Between-Firm Inequality Drives Economic and Social Inequality

“The real engine fueling rising income inequality is `firm inequality’: In an increasingly winner-take-all or at least winner-take-most economy, the best-educated and most-skilled employees cluster inside the most successful companies, their incomes rising dramatically compared with those of outsiders. This corporate segregation is accelerated by the relentless outsourcing and automation of noncore activities and by growing investment in technology.”

In contrast, a rise in between-firm inequality suggests that the US and other leading economies are becoming a more economically segregated, in the sense that those with high pay and those with lower pay are becoming less likely to have the same employer. It means that the classic “American dream” success story, of someone being hired in the mailroom or as a secretary or janitor, and then getting promoted up the company ladder, is less likely to occur. Nowadays, those jobs in the mailroom or the secretarial pool or the janitorial work are more likely to involve working for an outside contractor. In that sense, some of the rungs on the bottom of the ladder of success have been sawed off.

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Working class and Dems

by Peter Dorman   (originally published at Econospeak)

The Intersectionality that Dare Not Speak Its Name

The New York Times ran a Nate Cohn piece today that epitomizes the way conventional liberals spin American politics.  On the one hand we have the turnout and voting preferences of people of color—blacks, Hispanics, Asian-Americans.  On the other we have whites and, in particular, the white working class.  Not much happened in the 2016 presidential election on the POC side, says Cohn; nearly all the movement was among working class whites.
I suppose it’s good that political discourse can now acknowledge the presence of a working class, at least where white people are concerned.  Wouldn’t it be nice if they allowed people of other hues to be workers too?

Seriously, what’s the basis for dichotomizing the political terrain into race versus class?  Why not examine not just white workers, but workers?
The issue is not simply how many nonwhite workers switched their vote to Trump or waited out the election altogether.  The starting point should be that Trump ran the most openly racist presidential campaign since George Wallace, and this should have cost him big time among all the groups he disparaged—but it didn’t.  So let’s do a class breakdown for nonwhite voters the way it’s now becoming fashionable to do for whites.  How did Clinton do with working class black and Hispanic voters compared to more affluent POC?  How does adding the nonwhite slices of the electorate change how we assess the role of the working class as a whole in electing Trump, if at all?

The working class is multiracial, and it is also a working class.  There’s nothing either/or about it.

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On @UnlearningEcon

Unlearning Economics is a person somewhere on planet earth. He or she has been debating with Simon Wren-Lewis and Nick Rowe (on twitter). Brad DeLong joined the discussion.

But what about me. Elisabetta Addis (we’re married) just returned from Palermo. I was eager to talk with a physically present human being having not done so all day. First I said “Hodor” (and had to explain). Then, looking for a topic, I said, “Unlearning economics is someone who is debating”.

She said “incredibile” and showed me her smart phone. On the small screen I could read (barely) the post by unlearning economics which I was planning to discuss.

OK now we are reading the post so that we can discuss it.

The world is highly connected. The 21st century is very strange.

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Accountability Bond Accounting

Recently I learned about a proposal for Euro denominated “accountability bonds”. They are basically a clever way to enforce the stability and growth pact. I don’t like the pact, so I don’t support the proposal which I made by Clemens Fuerst here . The idea is that borrowing beyond the level allowed by the stability and growth pact could be financed only by special junior bonds. Owners of those bonds would lose everything before owners of senior bonds lose or taxpayers who finance the ESM risk anything.

The key part (which I don’t support) is that currently outstanding bonds are senior to these new bonds. This means that the reform will cause a windfall gain to current bond owners. The value of their bonds will not be diluted by the junior bonds. The risk that it would be diluted by regular bonds issued above the stability and growth pact levels would vanish. Importantly, this windfall would not be openly paid by the Treasury issuing the junior bonds – on its face, the reform regulates only the interaction of those Treasuries with new investors. The windfall would be paid by other investors who value the old bonds more highly. The old bonds will be more valuable in case of default, because they will be more senior than the average outstanding bond (the average including the junior bonds). Since investors in junior bonds won’t pay this cost in (at least subjective) expected value, the issuing Treasury will.

If no junior bonds are issued, old bonds are average bonds so there is no windfall and no cost. Byt the reform appears to only regulate the interaction between issuing treasuries and investors in new bonds. It is a penalty to be levied by investors thinking of their own interests, so it is a penalty which will actually be levied.

I don’t like the windfall (which Fuerst might consider the whole point of the reform). It implies giving people who are on average wealthy something for nothing. It isn’t hard to come up with a proposal for junior and senior bonds, related to the stability and growth pact, which does not create a windfall. The problem (or whole purpose) is that old bonds are senior to the average bond. The solution is to require that, in case of default, recovery ratios for old bonds are equal to average recovery ratios.

My proposal is that as of the start date T, there is a limit on the issuance of new senior bonds. Beyond that limit, new bonds must be new junior bonds. In case of default, first payments (coupons plus face values of maturing bonds) are divided into the proportions due to newer than T and older than T bonds – so payments to old bonds are
(total payments)(amount owed on old bonds)/(total amount owed).

The remaining payments must first go to new senior bonds and any money left goes to new junior bonds.

Discussion of the effects of such a plan after the jump.

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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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