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An updated Brookings report finds that “income inequality remains a salient issue in many big cities today. Moreover, they lend support to the concern that rising incomes at the top of the distribution are not—at least in the short term—lifting earnings near the bottom, even in local markets.”
Interesting, but I find that solutions bit of the report even more so:
Since the debate over the $15/hour minimum wage started in Seattle in late 2013, many other cities—including Chicago, Los Angeles, New York, and San Francisco—are considering or have enacted increases to the minimum wage locally. While the minimum wage is a potentially important means for helping low-earner households living in high-cost places, local policymakers should not ignore the other tools they have at hand—from education to economic development to housing and zoning policies—that are essential for improving social mobility and sustaining income diversity in big cities today.
Housing, housing, housing. Let me again point out Tyler Cowen’s reply to Thomas Piketty” … deregulating urban development and loosening zoning laws, which would encourage more housing construction and make it easier and cheaper to live in cities such as San Francisco and, yes, Paris.”
There’s been lots of speculation lately about the impact of robotics and other sorts of automation on workers. So this study, via VoxEU, is quite timely. From “Estimating the impact of robots on productivity and employment” by Guy Michaels and Georg Graetz:
We compile a new dataset spanning 14 industries (mainly manufacturing industries, but also agriculture and utilities) in 17 developed countries (including European countries, Australia, South Korea, and the US). Uniquely, our dataset includes a measure of the use of industrial robots employed in each industry, in each of these countries, and how it has changed from 1993-2007. … We find that industrial robots increase labour productivity, total factor productivity, and wages. At the same time, while industrial robots had no significant effect on total hours worked, there is some evidence that they reduced the employment of low skilled workers, and to a lesser extent also middle skilled workers.
So higher productivity overall and less employment for the less skilled. Indeed, the researchers found “no significant effect on the employment of high-skilled workers.” They also note that this “pattern differs from the effect that recent work has found for ICT, which seems to benefit high-skilled workers at the expense of middle-skilled workers.” So robots and AI are perhaps different kinds of automation with different impacts, at least so far. Maybe a manufacturing vs. services / factory workers vs. office workers difference.
Michaels and Graetz also estimate the economic impact of robotic automation:
We conservatively calculate that on average, the increased use of robots contributed about 0.37 percentage points to the annual GDP growth, which accounts for more than one tenth of total GDP growth over this period. The contribution to labour productivity growth was about 0.36 percentage points, accounting for one sixth of productivity growth. This makes robots’ contribution to the aggregate economy roughly on par with previous important technologies, such as the railroads in the nineteenth century and the US highways in the twentieth century. The effects are also fairly comparable to the recent contributions of information and communication technologies.
Bloomberg has two (!) editorials up regarding the Lee-Rubio tax plan and its child tax credit expansion. From “Republicans’ Middle-Class Economics”:
Which then leads to a final question: Why pay any attention at all? Mainly because it captures an emerging strain of Republican thinking in the political debate over the meaning of “middle-class economics.”
On that score, the plan is less ambitious than its authors claim, but not as feckless as its critics contend. Eliminating taxes on estates and investments certainly won’t do much to help middle-class wage earners. But an increased child tax credit would — as would, to choose but one example, streamlining and simplifying the confusing array of tax-free vehicles Americans use to save for retirement.
None of this is likely to happen in the next two years, of course. But a prerequisite for any change is expanding the range of acceptable choices. That’s what Rubio and Lee have done.
And this from “Have Kids? You Deserve a Tax Break”:
Fairly compensating parents for what their newborns will contribute to entitlement programs would require a credit closer to $10,000, estimates Robert Stein, a former Treasury official. That would surely be too costly. But Stein suggests a $4,000 credit — applied against both the income tax and payroll taxes — would be reasonable and could supplant other elements of the tax code related to kids, including the child-care credit, the dependent exemption and the adoption credit. This would simplify things, offer some relief for parents and help correct the system’s inherent bias against having children. Studies indicate that it might even boost fertility.
And it could be a boon to the poor: In 2013, the child tax credit kept some 3.1 million people out of poverty, including 1.7 million children. Keeping kids out of poverty can have lifelong benefits in terms of their educational attainment and earnings.
This approach also makes more sense than expanding the child-care credit, as many Democrats advocate. That credit subsidizes one particular cost of parenting that may not make sense for every family. And expanding it is likely to increase the price of commercial day care and to place the government’s finger on the scale in parents’ decisions about whether to work outside the home. A bigger child credit would let parents make up their own minds about how to spend the money and thus about who minds their kids.
Paying for this, of course, will require trade-offs. They ought to be debated if tax reform gets a serious airing in this Congress. (One idea: Scale back the mortgage-interest deduction, which already subsidizes parents as they buy larger homes but comes with a long and costly list of distortions.) Expanding the child credit, however, remains the right thing to do as a matter of fairness and principle — which can’t be said of every break in the Internal Revenue Code.
While there is much in Lee-Rubio that one might expect to find in a GOP tax plan — for good and ill — there is also much else that shows different thinking, or an expanded “range of acceptable choices,” as the Bloomberg comments put it. And that’s for the good.
You can believe there’s a Lieutenant Commander Data in our future without also believing he’ll be visiting soon. Economist Robin Hanson agrees with the former speculation, not so much the latter. Hanson thinks “super-robots are likely to arrive eventually” and will “eventually get good enough to take pretty much all jobs.”
Eventually, eventually. But what about right now or pretty soon? What about IBM’s Jeopardy champ Watson, Baxter the flexibly programmable robot, and the Google driverless car? And what about that scary Oxford paper that predicts 47% of US. jobs are just a decade or two from being automated away?
Well, there is evidence that automation is already having a big impact on workers, particularly those in middle-skill jobs composed of “routine, codifiable tasks,” according to economist David Autor. And this may be contributing to the “jobless” recoveries of the past three recessions. What’s more, you can thank automation for this simple chart looking at manufacturing employment and output:
And perhaps we are on our way toward a future where a small, tech-adept slice of the population has high-paying jobs while the rest will be physical therapists and high-end butlers — if most have jobs at all. Note the current recovery where GDP is expanding, jobs are being created, but median wages are going nowhere.
But let’s not get ahead of ourselves. Hanson thinks “Rise of the Robots: Technology and the Threat of a Jobless Future” by Martin Ford does just that, which is why he doesn’t much like it. Ford frets that a mostly jobless, automated world is fast approaching, Hanson writes, and thus we need to soon tax the rich heavily to fund a basic income for the rest of us. The book comes out in May, but according to the publisher description, Ford argues that “artificial intelligence is already well on its way to making “good jobs” obsolete … The result could well be massive unemployment and inequality as well as the implosion of the consumer economy itself.”
Hanson offers a numbers criticisms: For starters, that 47% job-loss figure is not rigorously calculated. And while median wages have been stagnant and the labor share of income falling, many factors are probably at play. Indeed, Autor recently wrote that “the deceleration of the U.S. labor market after 2000, and further after 2007, is more closely associated” with bursting bubbles and the rise of Chinese manufacturing than computerization. More from Hanson:
But while computer prices have been falling dramatically for 70 years, the job-displacement rate has held pretty steady. This suggests that jobs vary greatly in the computing power required to displace them and that jobs are spread out rather evenly along this parameter. We have no particular reason to think that, contrary to prior experience, a big clump of displaceable jobs lies near ahead.
And then there is Ford’s fourth reason: all the impressive computing demos he has seen lately. … . Only rarely does Ford air any suspicions that such promoters exaggerate the rate of change or the breadth of the impact their new systems will have. … And of course several generations have seen A.I. demos with just as impressive advances over previous systems.
To be fair, I have not read Ford’s book, only Hanson’s critique. But even if Ford is wrong and over the long run technology and mass employment can coexist, “the lessons of the Industrial Revolution suggest that the transition could last quite a while and could be very painful,” as AEI’s Michael Strain has written.
So why not get to work on the smart policies that would equip workers for a more automated future and are obviously good ideas on their own? Before we crank up taxes and start writing big checks to the forever jobless, how about some of these ideas from Erik Brynjolfsson and Andrew in “The Second Machine Age“: (a) improve education with higher teacher salaries, more accountability, and new digital models; (b) create more startups through less regulation and more high-skill immigration; (c) loosen intellectual property regimes; (d) more government support for scientists, including via prizes; and (e) upgrade infrastructure.
Longer-term, the MIT economists would prefer a negative income tax over a basic income since the wage subsidy “encourages people to start working and keep finding more work to do even if the wages they receive for work are low.” Another option, suggested by economist Tyler Cowen, are so-called universal 401(k) plans where government would help fund tax-free retirement accounts for lower-income Americans. I would also recommend taking a look at these ideas from venture capitalist Marc Andreessen on creating a more dynamic economy.
The prospect of an Age of Automation, whenever its arrival, is a good reason for policy action. Let’s just make sure they are the right policies.
Is the US job market back to full health? It pretty much is if you look at the “official unemployment rate” of 5.5%, a number at “the top of the 5.2%-to-5.5% range many Fed policy makers consider to be full employment, or the rate the economy can sustain without stoking too much inflation,” according to the WSJ’s Eric Morath.
Or look at it this way: If the 2015 job market reran the 2014 job market — same employment gains, labor force participation, etc. — the jobless rate at year end would be 4.5%. And as it is, monthly job growth is actually running a bit hotter than 2014.
But that single number hardly tells the whole story of the American labor market in 2015. Morath:
But other job-market measures suggest the labor market isn’t that tight. Wage growth remains tepid, a reflection of relatively weak demand for labor. A historically small share of Americans are working or looking for jobs. And a broader unemployment measure from the Labor Department, including people who have given up looking for work and those stuck in part-time jobs, remains elevated compared to the official measure. …
The disconnect is shown in the broader U-6 reading, which is 5.5 percentage points higher than the most common gauge of unemployment. In the decade before the recession began in late 2007, the average spread was 3.6 percentage points.The gap has narrowed by 0.4 percentage point over the past year, but remains stubbornly wide. The gap suggests that despite steady job creation, an unusually large number of Americans are underemployed or on the fringes of the job market.
That gap can be see in the above chart. Morath goes on to cite the work of two economists who think another 3 million jobs — about year’s worth given the rate of the past twelve months — would put the US at actual full employment. But I would also like to see what wage growth, the employment rate, and long-term unemployment look like a year from now. Inflation, too.
New York Times reporter David Leonhardt asserts that “for all their similarities, Hillarynomics (the phrase “Clintonomics” is already taken) and Obamanomics will not be identical.”
Maybe not, but the piece makes me think they’ll be pretty darn similar. For instance: Like President Obama, Clinton may seek middle-class tax cuts and pay for them through higher taxes on the rich. Would those tax hikes come through higher rates or scaling back tax breaks? Obama has done both. Would Clinton want to take the top statutory income tax rate above the current 39.6%, the top rate during hubby Bill’s administration? Similarly, as Times reporter Josh Barro wonders, would she take the capital gains tax rate above 20%, the current rate (not counting the 3.8% Obamacare tax) and the top rate during Clinton I. Back during her 2008 presidential campaign she said she would not.
Leonhardt goes on to mention a recent report put forward by the Center for American Progress’s Commission on Inclusive Prosperity, “a group with close ties to Mrs. Clinton,” which contains a number of policy suggestions. It was co-written by Larry Summers, economic adviser to Obama and Bill Clinton and focuses both on growing the economy faster and increasing labor’s share of the gains. (I would advise paying close attention his writings for clues to how Hillarynomics might evolve.)
Among its suggestions (which I summarize broadly): (a) increase support for profit sharing and employee stock ownership plans; (b) increase union power; (c) more infrastructure spending; (d) encourage home ownership through more Fannie and Freddie lending, plus principal reduction; (d) more public service jobs for young people; (e) “ensure a level playing field for global trade”; (f) raise effective tax rates on wealthier Americans; (g) more financial regulation; (h) “paid parental leave, paid caregiving leave, paid sick days, paid vacation,protections for part-time workers”; (i) more immigration at all skill levels; (j) more spending on early childhood education; and (k) executive pay reform.
Let’s say Clinton more of less adopts this “the era of big government is not over” agenda. Directionally, it seems in sync with Obamanomics, 2015 version, as seen in the president’s most recent State of the Union speech. That is to say, it would be to the left of Bill Clintonomics. It would be more skeptical of trade and Wall Street, more pro-union, and more redistributive. It would be where the Democratic Party is today, not 1999, even though candidate Clinton would surely recall the 1990s as a Clinton-led golden age. So Barack’s third term, not Bill’s, seems more likely. And the party’s slide to the left would continue.
How can state and local governments boost entrepreneurship? Well, not by the traditional methods of public venture funds or incubators, according to a new report from the Kauffman Foundation. The research offers a number of suggestions, here are a few:
Reexamine professional and occupational licensing. Nearly one-third of American workers are required to have a government-issued license to do their jobs. Occupational licensing can act as a barrier to entrepreneurs seeking to bring new innovations and business models to market. While licensing is meant to ensure quality, other policy options exist that protect public health and safety, while fostering competition and new-business creation.
Simplify tax codes and payment systems. Taxes matter, but what entrepreneurs are most concerned about is tax complexity. Simplifying tax codes and payment systems so they are easier to understand will relieve what many entrepreneurs feel is a burden on them and their businesses. For instance, different sales tax rates by different cities and counties, and different rules about taxing within the metropolitan area are frequently cited as barriers by entrepreneurs.
Rethink non-compete agreements. Many entrepreneurs have prior industry experience that they leverage to create new companies. Yet, if potential entrepreneurs are restricted by employee noncompete agreements, their ability to start companies will be hindered. The barriers erected by non-compete agreements can be mitigated by changes to state law governing these employment arrangements.
Streamline zoning approval processes and offer clear guidelines. Land-use and zoning regulations are consistently reported as significant concerns of entrepreneurs. Surveys consistently find that business owners identified zoning, land use, or run-off as the type of rules that create the greatest difficulty for them, a greater percentage than regulations related to environmental or hazardous materials. This concern is likely significant because about half of all entrepreneurs start their firms within their own homes, while only 40 percent rent or lease space. … One immediate action cities can take is to establish transparent criteria for zoning approvals and to institute quick decisionmaking processes by local boards. Both are crucial to startups, especially those in the earliest stages. Cumbersome and long decision-making processes can function as a de facto denial and are detrimental to entrepreneurs who have business ideas, operating cash, and customers, but must wait months to find out where they can locate their businesses.
Welcome immigrants. Immigrants have been nearly twice as likely as native-born Americans to start businesses. Initially, this activity was thought to be limited to low-skill and low-entry sectors, such as grocery shops, restaurants, and the provision of basic services. More recent studies, however, indicate that immigrants also are more entrepreneurial in high-skill, high-tech sectors. Indeed, 52 percent of key founders of hightech firms in Silicon Valley were immigrants. While the federal government is responsible for larger immigration policy issues such as visas and citizenship, local governments can create a welcome environment for all immigrants and embrace ethnic diversity in order to attract job-creating immigrant entrepreneurs.
Pew Research Center surveyed people in 44 countries last spring and discovered that America was exceptional in ways beyond economic wealth and military power. Americans really do think differently when it comes to individualism, God, and whether they are having a good day. Draw your own conclusions about correlation and causality:
At least in Sweden. From “Wealth, Health, and Child Development: Evidence from Administrative Data on Swedish Lottery Players”:
We use administrative data on Swedish lottery players to estimate the causal impact of wealth on players own health and their children’s health and developmental outcomes… . For most outcomes, we report estimates that are not statistically distinguishable from zero but often precise enough to bound the parameter being estimated to a very tight range around the point estimate. Three possible exceptions to our overall finding of zero effects are that wealth appears to improve adults’s mental health, increase children’s short-run hospitalization, and perhaps reduce their obesity risk.
There are limitations to what can be learnt about health and child achievement gradients by studying the randomized assignment of large lottery prizes to Swedish lottery players. Sweden has a publicly funded and universal health care system, and a schooling system that requires schools to follow a national curriculum and prohibits them from charging tuition. An attempt to generalize the results reported here to developing countries, where we have sound theoretical reasons to expect larger fects and compelling evidence consistent with this expectation (Case 2004) would clearly be inappropriate. Nor should one infer from our findings that large, positive, wealth shocks will necessarily have small impacts on health care demand also in developed countries without universal health care.
The Federal Reserve is not above criticism. Certainly no institution so powerful should be. But the “audit/abolish the Fed” folks miss the point and make the wrong sort of criticism. Ramesh Ponnuru, in his Bloomberg column, does not miss the point:
It’s true that the Fed could have done worse — by mimicking the policies of the European Central Bank, for example — and true as well that some of the Fed’s critics wanted it to go in that direction. But Fed officials bear a great deal of responsibility for worsening the financial crisis from which we’re supposed to congratulate them for rescuing us. The Fed’s monetary policy in 2008 kept credit much too tight. Even after Lehman Brothers collapsed in September 2008, the Fed refused to cut interest rates and expressed concern about the rate of inflation (which has stayed low ever since). Its first post-collapse decision was to institute the contractionary policy of paying interest on excess bank reserves. It engaged in monetary expansion afterward, but not enough to meet its main statutory mandates: The inflation rate ran below its target and the unemployment rate ran above it.
In other words, a rough repeat of its errors during the Great Depression. And that is why center-right policymakers should consider arguing for a simple policy rule — such as targeting total nominal spending — to minimize the chance of future repeats. The story of the Great Recession probably isn’t just a story of Wall Street gone wild, as some on the left suggest.
Of course, I think the Fed also deserves much, much credit for being the Un-ECB and avoiding a double/triple/quadruple-dip recession. (Not that its stimulus policies were optimally constructed or exexcuted.) As a side note, my The Week colleague Ryan Cooper scolds Ramesh for his piece, as if he’s thrown his lot in with the gold bugs and inflation-truthers by arguing the Fed deserves criticism. But Ramesh is making a very different argument, I think.