The On-the-Economy Podcast: Episode 3 is here!!

February 21st, 2017 at 2:22 pm

Ben and I give an overview of what full employment is and why it’s important, then bring in Slate’s very insightful Jordan Weissmann to discuss some of the Trump Administration’s comments about the labor market and how policymakers should think about increasing employment opportunities for people.

Musical Interlude: “Driftin’’” by Herbie Hancock

Jared’s Reading Recommendation: “Why I Voted to Keep Rates Steady” by Neel Kashkari

Ben’s Reading Recommendation: “Why We Need a Federal Job Guarantee” by Mark Paul, William Darity Jr., and Darrick Hamilton

And don’t forget to write us at otepodcast@gmail.com if you have any suggestions to improve the show or questions you’d like us to tackle in our mailbag section.

Before you blame the robots, look to the policy (and the data)

February 21st, 2017 at 11:32 am

This very incisive bit of work from the NYT editorial page makes two critical points:

  1. The data do not support the claim that there’s been an acceleration in labor-replacing technology displacing US workers. To the contrary, measures of capital investment and especially and most persuasively, productivity growth, have slowed, trends that point in the opposite direction.
  2. The adjustment to technological change (and trade, and every other structural shift) takes place in a policy context that can either help those hurt by the change, or ignore them. US labor policy used to be a lot more helpful.

Re point #1, here’s the relevant figure. If automation were increasingly displacing workers, we’d be seeing more output produced in fewer labor hours, aka, faster productivity growth. But we see the opposite. I know that measurement issues have been raised–the idea that we’re under-counting output related to IT–but if anything, the evidence pushes the other way: we’re now doing a better job of accounting for the productive aspects of new technologies.

Source: NYT

Re point #2, the editorial provides a useful, quick sweep through the kinds of labor standards and “guardrails” that have historically been in place to facilitate the adjustment to tech changes:

When automation on the farm resulted in the mass migration of Americans from rural to urban areas in the early decades of the 20th century, agricultural states led the way in instituting universal public high school education to prepare for the future. At the dawn of the modern technological age at the end of World War II, the G.I. Bill turned a generation of veterans into college graduates.

When productivity led to vast profits in America’s auto industry, unions ensured that pay rose accordingly.

Corporate efforts to keep profits high by keeping pay low were countered by a robust federal minimum wage and time-and-a-half for overtime.

Fair taxation of corporations and the wealthy ensured the public a fair share of profits from companies enriched by government investments in science and technology.

Productivity and pay rose in tandem for decades after World War II, until labor and wage protections began to be eroded. Public education has been given short shrift, unions have been weakened, tax overhauls have benefited the rich and basic labor standards have not been updated.

To be clear, none of this denies the ongoing infusion and defusion of digital technologies into our work and our lives. Obviously, you see robots in today’s factories that weren’t there years ago, and productivity is growing, albeit too slowly.

But I think a lot of people miss a really simple, fundamental point about all this: productivity is pretty much always growing. We’re almost always creating and adding new machines that complement the production processes, and no question, there are workers who get displaced in the process. But throughout it all, we’ve had periods of full employment and equitably distributed growth, and periods of slack and inequality.

The questions are thus: is there enough labor demand in the economy to provide those displaced workers with other opportunities, and are the policy measures in place to help them handily find their footing again? In recent decades, the answers to those questions has been a resounding “no.”

FTR, I made all these same points years ago, but if anything, the automation story is getting louder.

People, if you’d just let me rule the world, we wouldn’t have to go through all of this!

I don’t understand this graph

February 21st, 2017 at 7:58 am

I’ll have a lot more to say about this later, but I don’t understand this figure from the front page of my WSJ this AM.

Source: Wall St. Journal

The idea, which has some merit but is easily abused, is that the Trump admin wants to refine the way we measure trade flows–imports and exports–by accounting for re-exports, goods made elsewhere that pass through our country en route to somewhere else.

There’s a cogent argument that these goods should not be treated as exports, since they were not made here, and thus did not involve the economic activity of regular exports (other than some port/warehousing activities, I guess).

But here’s the thing, and the reason I find the figure above confusing, though I may well be missing something and will read up on this ASAP: if you’re going to disregard the exports, then you must also disregard the imports. That is, when a good is re-exported, I see a rationale for subtracting its value from US exports. But, as a statistician emphasizes in the article, that same value must also be subtracted from US imports.

That won’t change the overall trade balance, but it will change our bilateral balances with our individual trading partners. From what I’ve seen, for example, our trade balance with Mexico will worsen, but our trade balance with some Asian countries might improve (implying imports from Asia that pass through the US on their way to Mexico).

So, a) I don’t get why the WSJ figure appears to show a larger overall trade deficit, and b) you just have to be really nervous when team Trump starts fooling around with this sort of thing.

More to come…

If only we could apply dynamic scoring to the rest of life

February 19th, 2017 at 9:51 am

“Dynamic scoring” is one of those phrases that sounds way more innocent than it is. It’s the process of guesstimating what impact your budget proposals will have on economic growth, and in turn, revenues flowing into the Treasury.

For example, if your budget includes big tax cuts, as Trump’s will, that’s obvious a revenue loser, which is exactly what the “static” scores show. But with dynamic scoring, you can claim to make back some share of that loss due to the growth effects spun off by your awesome, pro-growth tax-cut plan.

You see the problem. Economic models are dumb, or at least compliant, beasts who will give you whatever answer you want. Put such models in the hands of the purveyors of alternative facts, and the outcome is predictable, as the WSJ reported on Friday and budget nerd extraordinaire Stan Collender takes apart here. Depending on your willingness to torture the model, that “some share of the loss” you can allegedly get back approaches 100%.

This is a serious problem, and I’m not sure what the rest of us can do about it. In normal times, the scoring of the Trump budget by the nonpartisan Congressional Budget Office, which would surely show it to cause deep pools of red ink, would pose at least somewhat of a constraint. But expect team Trump to be closer to the heavenly figure below (h/t: R Kogan, who has this cartoon on his office wall).

Source: New Yorker

In the meanwhile, consider how great it would be if we could use dynamic scoring in the rest of our lives:

Diets: This salted caramel milkshake with extra whip cream has a static calorie score of 800. But when I factor in the efforts expended in 1) taking the paper off the straw 2) drawing the thick shake through the straw (which really is exhausting) and 3) stirring in the extra whip cream, the net caloric intake is -60.

Dating apps: “Statically scored, I probably don’t seem that appealing. But once you dynamically account for certain attributes, you’ll want to swipe right. I mean, who else up here is going to regale you with in-the-weeds facts on budget processes? If you’re looking for a pro-growth guy, that’s me!”

Sports outcomes: The static box score had us losing the basketball game 100-40, but once you dynamically model the counterfactual that their 7-foot center played for our team instead of theirs, that score flips and we win.

Elections: Yes, Trump won the electoral college, but he lost the popular vote, and if we dynamically score the possible damage to our fiscal accounts by putting him in charge, especially given the extent to which he will abuse dynamic scoring, he loses. Yes, that logic uses dynamic scoring against dynamic scoring, but what are you gonna do about it?!

A look at a few recent articles that caught our attention: immigration, SNAP, ACA repeal.

February 16th, 2017 at 10:11 am

First, Eduardo Porter of the NYT wrote a controversial piece about the negative impacts of immigration (not Porter’s view–he’s reporting, not endorsing). I’ll have a lot more to say about the research in the piece, but to put it mildly, I’m unconvinced.

The piece reports on research suggesting the increase in low-skill immigration has put downward pressure on productivity growth, by lowering the skill level of the workforce. This immediately triggered my BS meter, as no one really knows what makes productivity growth go up and down. Given the sharp slowdown in this key variable in recent years–which really is a problem–our ignorance enables people to plug in the thing they don’t like as the cause.

Neither does the pattern of immigrant flows make much sense in this regard, at least from 40,000 feet up. As immigrant flows from the south (of persons with relatively low education levels) accelerated in the 1990s, so did productivity growth. As southern flows sharply decelerated, productivity growth slowed as well.

Where immigration increasingly matters in macro terms is around issues of labor supply. Our aging demographics is one reason for slower labor force growth, which in turn is a main factor in slower output growth. Diminished immigration plays a role in that, as this research note I got just this AM from the Goldman Sachs econ team (no link) shows.

Reduced immigration would result in slower labor force growth and therefore slower growth in potential GDP—the economy’s “speed limit”. In addition, academic studies suggest there could be negative knock-on effects on productivity growth. As a result, we see immigration restrictions as an important source of downside risk to our 1.75% estimate of potential growth…

Given that my BS meter is symmetrical, I’m skeptical of this upside productivity claim as well, but the labor-force-growth part of this sounds right.

The other really troublesome bit of Porter’s reporting comes from this bit of what seemed much more like racism than economics to me and to Ben Spielberg, who tweeted:

Like I said, more analysis to come on this. I fully admit a BS meter doesn’t take the place of doing the work. But I also submit that my BS meter rarely fails me.

*******

Next, Chuck Lane objects to a recent piece by Ben S and me on SNAP, or food stamps. We made two arguments. Our main point was that the NYT mis-reported on a study that the paper suggested showed SNAP recipients:

…buy very different, and nutritionally much worse, food than households that don’t use food stamps.

In reality, here’s the study’s headline finding: “There were no major differences in the expenditure patterns of SNAP and non-SNAP households, no matter how the data were categorized.” A related finding — one that reflects an important truth that comes out of the Times piece — was: “Less healthy food items were common purchases for both SNAP and non-SNAP households.

We then argued:

American diets could surely use some improvement. But the improvement mechanism the Times’ reporting discussed — paternalistic bans on the types of food low-income people are allowed to buy with food stamps — is the wrong way to promote healthier eating.

Lane glossed over our first point, though he shouldn’t. Mis-reporting on that study is a big deal and even the NYT public editor got into the mix, supporting the case made by me and Ben. Especially with facts on the run these days, it’s really important to get this sort of thing right.

But Lane disagreed with our paternalism point, and he’s not alone. I’ve long heard the argument that as long as taxpayers are footing part of SNAP recipients’ grocery bill, we should have some say on what’s in their basket.

End of the day, this just comes down to how you feel about paternalistic policies. Lane makes a fair case with which some readers will agree. We strongly object to imposing such rules on one group of people–the poor–because we can, while the same behaviors by more affluent people are out of the reach of policy makers.

But Lane likely goes too far when he suggests that our anti-paternalism will “undermine” food stamps, or that a more paternalistic program would be less vulnerable to cuts. I’d love to see some evidence to support that claim and fear that those who would cut or “block grant” the program would not be moved by restrictions on what recipients could buy.

Finally, I’d urge Lane and others to consider the evidence we show:

Anderson and Butcher analyzed the relationship between SNAP benefits and both food spending and food-related activities. As the figure below shows, they estimate that a $30 boost to SNAP benefits would increase vegetable consumption by about 1.5 percent, increase the time spent on food shopping and preparation by 2.5 and 3.5 percent, respectively, and decrease fast food consumption by about 2.5 percent.

More evidence, less chin-stroking!

*******

Finally, and this deserves more attention than I can give it right now, but some of the gears of “repeal and replace” Obamacare are moving and must be scrutinized.

Today’s papers have articles about President Trump’s executive order on the ACA that is making some changes to IRS rules and to requirements of insurers in the exchanges. My CBPP colleagues Aviva Aron-Dine and Edwin Park take you through some of these changes and their impact on consumers.

The Trump Administration’s new proposed rule on health care would raise premiums, out-of-pocket costs, or both for millions of moderate-income families. If finalized as proposed, the rule would reduce the amount of health care that marketplace plans have to cover. That would allow individual-market insurers to offer plans with higher deductibles and other out-of-pocket costs than they can now sell through the marketplaces. It would also have the hidden impact of reducing the Affordable Care Act’s (ACA) premium tax credits, which help moderate-income marketplace consumers afford health care. As a result, the rule would force millions of families to choose between higher premiums and worse coverage.

I’ve got one point about this, and it’s one that seems fundamental in whatever’s coming in this space of ACA repeal, replace, delay, or repair. It’s my belief, based on focus groups and polling, that there is a large gap between what health consumers, especially those with low or moderate incomes, want from Trump, Ryan, et al, and what they’re likely to get. What’s on offer–high deductibles, less helping paying for coverage, more paperwork, more power to insurers, less comprehensive coverage–isn’t at all what people were looking for when they complained about Obamacare.

More to come…