Interview with Melissa Dell: Persistence Across History [feedly]

The new John Bates Clark winner -- nearly as prestigious as the Nobel in Economics. The historical data mining technique she discusses is fascinating: its goal is to do textual analysis, yielding semantic, and sentimental context  through recorded history. The potential is huge for many disciplines in the social sciences

Interview with Melissa Dell: Persistence Across History
https://conversableeconomist.blogspot.com/2020/07/interview-with-melissa-dell-persistence.html

Tyler Cowen inteviews Melissa Dell, the most recent winner of the Clark medal(which "is awarded annually .. to that American economist under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge). Both audio and a transcript of the one-hour conversation are available. From the overview: 

Melissa joined Tyler to discuss what's behind Vietnam's economic performance, why persistence isn't predictive, the benefits and drawbacks of state capacity, the differing economic legacies of forced labor in Indonesia and Peru, whether people like her should still be called a Rhodes scholar, if SATs are useful, the joys of long-distance running, why higher temps are bad for economic growth, how her grandmother cultivated her curiosity, her next project looking to unlock huge historical datasets, and more.

Here, I'll just mention a couple of broad points that caught my eye. Dell specializes in looking at how conditions in at one point in time--say, being in an area which for a time has strong centralized tax-collecting government--can have persistent effects on economic outcomes decades or even centuries later. For those skeptical of such effects, Dell argues that explaining, say, 10% of a big difference between two areas is a meaningful feat for social science. She says: 

I was presenting some work that I'd done on Mexico to a group of historians. And I think that historians have a very different approach than economists. They tend to focus in on a very narrow context. They might look at a specific village, and they want to explain a hundred percent of what was going on in that village in that time period. Whereas in this paper, I was looking at the impacts of the Mexican Revolution, which is a historical conflict in economic development. And this historian, who had studied it extensively and knows a ton, was saying, "Well, I kind of see what you're saying, and that holds in this case, but what about this exception? And what about that exception?"

And my response was to say my partial R-squared, which is the percent of the variation that this regression explains, is 0.1, which means it's explaining 10 percent of the variation in the data. And I think, you know, that's pretty good because the world's a complex place, so something that explains 10 percent of the variation is potentially a pretty big deal.

But that means there's still 90 percent of the variation that's explained by other things. And obviously, if you go down to the individual level, there's even more variation there in the data to explain. So I think that in these cases where we see even 10 percent of the variation being explained by a historical variable, that's actually really strong persistence. But there's a huge scope for so many things to matter.

I'll say the same thing when I teach an undergrad class about economic growth in history. We talk about the various explanations you can have: geography, different types of institutions, cultural factors. Well, there's places in sub-Saharan Africa that are 40 times poorer than the US. When you have that kind of income differential, there's just a massive amount of variation to explain.

Nathan Nunn's work on slavery and the role that that plays in explaining Africa's long-run underdevelopment — he gets pretty large coefficients, but they still leave a massive amount of difference to be explained by other things as well, because there's such large income differences between poor places in the world and rich places. I think if persistence explains 10 percent of it, that's a case where we see really strong persistence, and of course, there's other cases where we don't see much. So there's plenty of room for everybody's preferred theory of economic development to be important just because the differences are so huge.

Dell also discusses a project to organize historical data, like old newspapers, in ways that will make them available for empirical analysis.  She says: 

I have a couple of broad projects which are, in substance, both about unlocking data on a massive scale to answer questions that we haven't been able to look at before. If you take historical data, whether it be tables or a compendia of biographies or newspapers, and you go and you put those into Amazon Textract or Google Cloud Vision, it will output complete garbage. It's been very specifically geared towards specific things which are like single-column books and just does not do well with digitizing historical data on a large scale. So we've been really investing in methods in computer vision as well as in natural language processing to process the output so that we can take data, historical data, on a large scale. These datasets would be too large to ever digitize by hand. And we can get them into a format that can be used to analyze and answer lots of questions.

One example is historical newspapers. We have about 25 million-page scans of front pages and editorial pages from newspapers across thousands and thousands of US communities. Newspapers tend to have a complex structure. They might have seven columns, and then there's headlines, and there's pictures, and there's advertisements and captions. If you just put those into Google Cloud Vision, again, it will read it like a single-column book and give you total garbage. That means that the entire large literature using historical newspapers, unless it uses something like the New York Times or the Wall Street Journal that has been carefully digitized by a person sitting there and manually drawing boxes around the content, all you have are keywords.

You can see what words appear on the page, but you can't put those words together into sentences or into paragraphs. And that means we can't extract the sentiment. We don't understand how people are talking about things in these communities. We see what they're talking about, what words they use, but not how they're talking about it.

So, by devising methods to automatically extract that data, it gives us a potential to do sentiment analysis, to understand, across different communities in the US, how people are talking about very specific events, whether it be about the Vietnam War, whether it be about the rise of scientific medicine, conspiracy theories — name anything you want, like how are people in local newspapers talking about this? Are they talking about it at all?

We can process the images. What sort of iconic images are appearing? Are they appearing? So I think it can unlock a ton of information about news.

We're also applying these techniques to lots of firm-level and individual-level data from Japan, historically, to understand more about their economic development. We have annual data on like 40,000 Japanese firms and lots of their economic output. This is tables, very different than newspapers, but it's a similar problem of extracting structure from data, working on methods to get all of that out, to look at a variety of questions about long-run development in Japan and how they were able to be so successful. 

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Comments on Weekly Unemployment Claims [feedly]

Comments on Weekly Unemployment Claims
http://feedproxy.google.com/~r/CalculatedRisk/~3/IUs8nb4Uwfo/comments-on-weekly-unemployment-claims_16.html

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China's GDP Rebound Shows Resilience Trump's Strategy Overlooks [feedly]

China's GDP Rebound Shows Resilience Trump's Strategy Overlooks
https://www.bloomberg.com/news/newsletters/2020-07-16/supply-chains-latest-china-s-gdp-shows-strength-u-s-overlooks

China's data on gross domestic product for the second quarter shows the economy bouncing back.

Sure, growth of 3.2% year-on-year is way off the pre-virus trend. Still, with the Covid-19 pandemic dragging the world into a deep recession, the country's return to expansion is a rare bright spot. The contrast with the U.S., where spiraling new cases raise the possibility of an extended downturn, couldn't be clearer.

China's rapid recovery also exposes the fallacies in the "coming collapse" thesis that continues to pervade U.S. views on its main geopolitical rival. According to the conventional narrative, China's massive debt, conflicted leadership, sclerotic state sector, and overbuilt real estate represent insuperable problems. The question on the China crisis is not "if," but "when" and "how big."

In fact, as I argue in my new book China: The Bubble That Never Pops, the conventional narrative ignores important sources of strength. In the Covid-19 stress test, some of those have come in handy:

• China's policy makers — in common with democratic governments in Europe, South Korea, and Japan — have been relatively successful at containing the virus.
• State firms have held on to their workers and accelerated investment plans — hiring and spending when private firms turn cautious and accelerating progress out of the slump.
• Banks that are overextended on loans but rock solid on funding have been able to provide cash-strapped borrowers with a payment holiday — heading off risks to financial stability.

As the U.S.-China conflict spreads across trade, technology, capital flows, scientific research, claims to the South China Sea, and mounting concern about human rights in Xinjiang and Hong Kong, the rapid rebound in China's growth carries a lesson for U.S. policy makers. While China's economic model has serious stresses, it also has major strengths. If the Covid-19 shock doesn't burst the bubble, it's not clear what will.

U.S.-China relations are at a critical moment. Whether Washington continues with the strategy of containment adopted by the Trump administration or shifts to managed engagement under a possible Biden administration, the starting point should be a realistic appraisal of China's economic strengths. A strategy underpinned by the assumption of weakness is doomed to fail.

—Tom Orlik in Washington

Charted Territory

India's trade balance returned to a surplus in June after 18 years, as a decline in imports was sharper than exports. Exports contracted 12.4% from a year earlier, while imports declined 47.6%, leaving a trade surplus of $790 million. The balance was last in surplus in March 2002.

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Dean Baker: Ross Douthat Shows Trouble With Arithmetic In New York Times Column on China’s “Decade” [feedly]

omigod: Baker is becoming a China watcher too, like me, and questioning the NYT/Post liberal line....

Ross Douthat Shows Trouble With Arithmetic In New York Times Column on China's "Decade"
http://feedproxy.google.com/~r/beat_the_press/~3/DkmZZ5JxCGo/

Ross Douthat has good news for folks who don't like China. His NYT columnyesterday told us that China's economy will run out of steam in a decade and that the U.S. will again be able to reclaim world leadership after 2030. The problem is that the piece presents nothing to support this claim.

After telling readers that China is passing the U.S. for world leadership due to the inept presidency of Donald Trump, Douthat gets to the meat of his piece:

"It's possible that we're nearing a peak of U.S.-China tension not because China is poised to permanently overtake the United States as a global power, but because China itself is peaking — with a slowing growth rate that may leave it short of the prosperity achieved by its Pacific neighbors, a swiftly aging population, and a combination of self-limiting soft power and maxed-out hard power that's likely to diminish, relative to the U.S. and India and others, in the 2040s and beyond.

"Instead of a Chinese Century, in other words, the coronavirus might be ushering in a Chinese Decade, in which Xi Jinping's government behaves with maximal aggression because it sees an opportunity that won't come again."

The problem is that the cited piece for "China's slowing growth rate" still has China growing close to 4.0 percent annually. That is almost 2.0 percentage points faster than the 2.1 percent growth rate projected for the U.S. in the last five years of the decade.

Furthermore, the U.S. economy is starting from a much lower base. In 2019 China's economy was already more than 25 percent larger than the U.S. economy, while the U.S. economy is projected to shrink by 5.5 percent this year, China's is expected to grow by 1.8 percent. It is hard to see how an economy that is starting from a lower level and growing at a slower pace, will pass a larger economy that is growing more rapidly. I guess it takes an NYT columnist to figure that one out.

One final point, there seems to be an obsession in the media with China's lower birth rate and likely declining population. While the idea that this is a big problem for China is repeated endlessly, it really lead to the obvious question, why?

So the country will have fewer people. This will likely mean fewer people working in very low productivity jobs in agriculture and the service sector. And why exactly would this be a problem for China?

The post Ross Douthat Shows Trouble With Arithmetic In New York Times Column on China's "Decade" appeared first on Center for Economic and Policy Research.

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The Kansas City Approach to Modern Money Theory [feedly]

The Kansas City Approach to Modern Money Theory
http://www.levyinstitute.org/publications/?docid=2682

Modern money theory (MMT) synthesizes several traditions from heterodox economics. Its focus is on describing monetary and fiscal operations in nations that issue a sovereign currency. As such, it applies Georg Friedrich Knapp's state money approach (chartalism), also adopted by John Maynard Keynes in his Treatise on Money. MMT emphasizes the difference between a sovereign currency issuer and a sovereign currency user with respect to issues such as fiscal and monetary policy space, ability to make all payments as they come due, credit worthiness, and insolvency. Following A. Mitchell Innes, however, MMT acknowledges some similarities between sovereign and nonsovereign issues of liabilities, and hence integrates a credit theory of money (or, "endogenous money theory," as it is usually termed by post-Keynesians) with state money theory. MMT uses this integration in policy analysis to address issues such as exchange rate regimes, full employment policy, financial and economic stability, and the current challenges facing modern economies: rising inequality, climate change, aging of the population, tendency toward secular stagnation, and uneven development. This paper will focus on the development of the "Kansas City" approach to MMT at the University of Missouri–Kansas City (UMKC) and the Levy Economics Institute of Bard College.  

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Reconstructing internationalism [feedly]

Reconstructing internationalism
https://www.lemonde.fr/blog/piketty/2020/07/14/reconstructing-internationalism/

Can we restore positive meaning to the idea of internationalism? Yes, but on condition that we turn our backs on the ideology of unfettered free trade which has till now guided globalisation and adopt a new model for development based on explicit principles of economic and climatic justice. This model must be internationalist in its final aims but sovereignist in its practical modalities, in the sense that each country, each political community must be able to determine the conditions for the pursuit of trade with the rest of the world without waiting for the unanimous agreement of its partners. The task will not be simple and it will not always be easy to distinguish this sovereignism with a universalist vocation from nationalist-type sovereignism. It is therefore particularly urgent to indicate the differences.

Lets us suppose that one country, or a political majority within it, considers it would be desirable to set up a highly progressive tax on top income and wealth holders to bring about a major redistribution in favour of the poorest socioeconomic groups while at the same time financing a programme for social, educational and ecological investment. To move in this direction, this country is considering a taxation at source on corporate profits and most importantly a system of financial registry that would enable the identification of the ultimate owners of the shares and dividends and thus the application of the desired progressive tax rates at individual level. The whole package could be completed by an individual carbon card thus encouraging responsible behaviour, while taxing the highest emissions heavily ; those who benefit from the profits of the most polluting firms would also be taxed. Once again this would demand a knowledge of the owners.

Unfortunately, a financial registry of this type has not been provided for by the Treaties for the free circulation of capital established in the 1980s-1990s, in particular in Europe in the framework of the Single European Act (1986) and the Maastricht Treaty (1992), texts which have strongly influenced those adopted thereafter throughout the world. This ultra-sophisticated legal architecture, still in force today, has de facto created a quasi-sacred right to get rich by using the infrastructures of one country, then by one click on a laptop, transferring one's assets to another jurisdiction, with no possibility provided for the community to find any trace of it. Following the crisis in 2008, as the excesses of financial deregulation came to light, agreements on the automatic exchange of banking information have been developed within the OECD, true. But these measures, established on a purely voluntary basis, do not contain the slightest sanction for recalcitrant countries.

Let us suppose therefore that a country wishes to accelerate the movement and sets up a redistributive form of taxation and a financial registry. Now, let's imagine that one of its neighbours does not share this point of view and applies a ridiculously small profit tax and carbon tax on firms based on its territory (whether in actual fact or fictiously), while refusing to transmit the information as to their owners. In these circumstances, the first country should in my view impose commercial sanctions on the second ; the amount would vary, depending on the firm and the extent of the fiscal and climatic damage caused. Recent research has shown that sanctions of this type would bring in substantial revenues and would encourage other countries to co-operate. Of course, we would have to plead that these sanctions are merely correcting unfair competition and the non-respect of the climate agreements. But the latter are so vague and, on the contrary, the treaties on the free circulation of goods and capital are so sophisticated and absolute, particularly at European level, that a country which adopts this approach stands a considerable risk of being condemned by European or International bodies (The Court of Justice of the European Union, the World Trade Organisation). If such were the case, the country should leave the Treaties in question unilaterally, while at the same time suggesting new ones.

What is the difference between the social and ecological sovereignism which I have just outlined and nationalist sovereignism (for example, of the Trump, Chinese, Indian or, tomorrow, the French or European variety) based on the defense of identity of a specific civilisation and of interests deemed to be homogenous within it ?

There are two. Firstly, before taking possible unilateral measures, it is crucial to propose to other countries a model for cooperative development based on universal values : social justice, reduction of inequality, conservation of the planet. It is also important to describe in detail the transnational assemblies (such as the French-German Agreement created last year, but with real powers) which ideally would be in charge of global public property and common policies for fiscal and climatic justice.

Then, if these social-federalist proposals are not taken up at the moment, the unilateral approach should nevertheless remain incentive-based and reversible. The aim of sanctions is to encourage other countries to exit from fiscal and climatic dumping ; the aim is not to establish permanent protectionism. From this point of view the sectoral measures with no universal basis such as the GAFA tax should be avoided because they easily lend themselves to ratcheting up sanctions (wine taxes versus digital taxes, etc.)

To claim that this type of path is easy to follow and well sign-posted would be absurd : it all still has to be invented. But historical experience demonstrates that nationalism can only lead to exacerbating inegalitarian and climatic tensions and that there is no future for unfettered free trade. One more reason for thinking, as from today, about the conditions for a new internationalism.

Note. For a first estimate of the possible amount of anti-dumping sanctions, see Ana Seco Justo, « Profit Allocation and Corporate Taxing Rights: Global and Unilateral Perspectives« , PSE 2020.

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Equitable Growth: understanding-the-importance-of-monopsony-power-in-the-u-s-labor-market

Definition of Monopsony:

A monopsony occurs when a firm has market power in employing factors of production (e.g. labour). A monopsony means there is one buyer and many sellers. It often refers to a monopsony employer – who has market power in hiring workers. This is a similar concept to monopoly where there is one seller and many buyers.  

https://equitablegrowth.org/understanding-the-importance-of-monopsony-power-in-the-u-s-labor-market/

There are many obstacles in finding a job in the United States. Some of these obstacles are socially constructed, such as more household responsibilities shouldered by women compared to men. Other obstacles are the result of a long discriminatory past, especially the immense inequality in household wealth between racial and ethnic groups. These obstacles inhibit workers from moving freely between jobs and thus give employers monopsony power—the power to push down wages when workers have few suitable outside options. 

Because these obstacles more commonly confront women and non-White workers, employers have more power over such workers, which means employers can push their wages down more compared to White men workers. In a new working paper, we demonstrate how these racialized and gendered wealth disparities reinforce discriminatory pay penalties by examining how workers search for jobs. We find that institutional support for worker power—in the form of greater protections for collective action and a more pro-worker National Labor Relations Board that facilitates organizing through overseeing union elections and hearing unfair labor practice charges—can limit the ability of employers to exploit workers based on their gender or race and ethnic backgrounds.

But first, let's look at the corollary history of racial and gender wage gaps, which have been remarkably persistent. The gender wage divide converged somewhat in the 1970s and 1980s, but since the early 1990s, those gains have stalled. As of 2018, White women only earn around 79 percent of equivalent White men. And since at least the 1980s, the wage gap has widened between equivalent Black and White workers. 

Furthermore, evidence suggests that wage disparities faced by Black women workers and Latinx women workers is greater than the sum of their racial-ethnic and gender components. These disparities demonstrate the existence of intersectional wage gaps.

The predominant model in economics to explain these differences is the human capital model, in which differences in earnings are presumed to reflect differences in "capital" allotments that result in productivity differences between workers. Yet this model is insufficient when describing changes over time and as human capital investments among groups of workers has changed. The failure of the human capital model to explain outcomes in the real economy is evident in the higher discriminatory wage penalties for Black workers compared to White workers with similarly higher levels of education. Audit studies likewise demonstrate how pay and hiring discrimination persists for equivalently productive workers.

Employers' wage-setting power, or monopsony power, may explain some of these persistent differences and how they have changed over time. Applying the original application of monopsony pioneered by the late British economist Joan Robinson to gender wage gaps explains why different rates of unionization between men and women affected wages. Robinson showed that employers are less able to extract monopsony rents for primarily male unionized workers. Limited subsequent research also found differences in labor supply elasticity between men and women and between Black and White workers.

Yet no theoretical extension of the monopsony model has been developed to illuminate the underlying dynamics that result in these outcomes. Our new working paper develops a theoretical monopsony model to explain these dynamics—a model that shows pre-existing disparities in individual wealth influence job search behavior. Workers with greater wealth are more able to navigate potential money shortfalls in the job search process and are thus more responsive to market signals. Conversely, lower levels of wealth decrease the level of the so-called reservation wage, or the wage level that is just enough to incentivize the worker to take a new job. Thus, more wealth among job candidates reduces employers' ability to push down their wages.

White workers, of course, are more likely to have access to more wealth due to the persistent wealth gap in the United States. In contrast, individuals with less household wealth, predominantly workers of color, are less able to weather potential household financial crises that could result from switching jobs.

Likewise, if women workers are constrained in their geographic job search due to household responsibilities, then fewer suitable job prospects will also reduce their ability to search for jobs. Thus, employers can exploit workers with lower household wealth and more household responsibilities more intensely, and it is profit maximizing to do so.

Empirical research demonstrates this multiplicative intersectional wage gap, and our theoretical model shows how these constraints to job search are greater than the sum of their parts, reducing wages offered to women of color workers under monopsony. Thus, the wages these workers receive represent discriminatory pay because two elements—systemic racism and misogyny—confront workers in the U.S. economy and American society in general.

Yet these wage disparities, and monopsony power more broadly, are moderated by workers' ability to act collectively as a countervailing force, and that kind of worker power is a function of institutional supports for collective action. Thus, policies that reduce monopsony power also will limit the ability of employers to exploit workers based on their race, ethnicity, gender, and other socially salient identities correlated with average wealth.

Our model is extended to include varying government support for collective action, in parallel with the model by one of the co-authors of our working paper, Mark Stelzner, along with Mark Paul at the New College of Florida, in the Equitable Growth working paper "How does market power affect wages? Monopsony and collective action in an institutional context." In our working paper, "Discrimination and Monopsony," we show that institutional support for organized labor is able to offset employers' monopsony power along racial, ethnic, gender, and intersectional lines.

In practice, proposed policies—such as the Protecting the Right to Organize Act (passed by the U.S. House of Representatives but stalled in the Senate in early 2020) that would expand the ability of unions to organize workers alongside institutions, including a more effective National Labor Relations Board, which upholds current U.S. labor organizing laws but is largely ineffectual—would limit employers' ability to exploit workers along multiple axes. The need for more pro-labor policies is increasingly evident as employers' monopsony power mounts, partially due to an anti-labor policy and institutional environment since the 1970s, and as racial and gender wage disparities remain persistent and are likely to worsen due to differences in unemployment amid the coronavirus pandemic.

In addition to policies aimed at balancing worker power, broader policies that reduce racial and gender wealth disparities and household constraints facing women workers also would increase the ability of workers to search for and match into better jobs at higher levels of pay. One of the most sweeping ideas for addressing racial wealth disparities are proposals for reparations, which would be targeted at wealth redistribution among the descendants of enslaved Black Americans, who continue to be negatively impacted not just by the devastating legacy of slavery but also by barely less violent and oppressive post-Civil War discrimination.

Family economic security policies are another pro-worker set of policies that help families manage care responsibilities, such as paid leave and accessible quality childcare. As long as women continue to take responsibility for the lion's share of family caretaking, these polices can increase women's ability to search more broadly for jobs and help reduce the gender wage gap.

Our model demonstrates how a variety of factors intersect to result in discriminatory wage outcomes for workers along the lines of race, ethnicity, and gender, and likewise shows that a suite of policies in tandem that address these broad constraints would lead to more efficient outcomes and higher levels of social welfare. Amid the life-altering circumstances brought about by the coronavirus recession and the subsequently swift shift in work-life balances among women frontline workers and workers of color in particular, pro-labor policies to strengthen collective action by workers in the United States is of paramount importance.