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Mulling Pandemic Advice from September 2019

4 days ago

Two years ago in September 2019, before COVID was on everyone’s lips, the White House Council of Economic Advisers published a report called “Mitigating the Impact of Pandemic Influenza through Vaccine Innovation.” Even committed readers of government reports like me skipped over the report at the time. After all, I’d written about reports that discussed pandemic risks from time to time in the past (for example, here and here). Back in fall 2019, there didn’t feel like any pressing need to revisit the subject? But Alex Tabarrok referred back to the 2019 report in a recent post at the always-useful Marginal Revolution website. and given where we are today, it’s interesting to read the report again.

The CEA report states the risk quite clearly:

Every year, millions of

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International Corporate Taxation: What to Tax?

5 days ago

There have been news stories in the last month or two about broad-based support across 130 countries for a minimum corporate global tax rate of 15%. The common assertion is that a minimum tax rate will be a powerful discouragement for companies that are trying to use accounting methods to shift their profits to low-tax countries. But the problem of international corporate taxation is considerably harder than agreeing on a minimum tax rate.

Ruud de Mooij, Alexander Klemm, and Victoria Perry have edited a collection of essays that lays out the issues in Corporate Income Taxes Under Pressure: Why Reform is Needed and How it Could be Designed (IMF, 2021).

Imagine a hypothetical of a multinational company. It’s a US-based firm with management and headquarters in the US.

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How Poverty Changed in 2020: Mixed Measures

7 days ago

Each year in September, the US Census Bureau releases a report on income and poverty measures for the previous year. Thus, Income and Poverty in the United States: 2020, by Emily A. Shrider, Melissa Kollar, Frances Chen, and Jessica Semega (September 2021) looks at changes for 2020. As one would expect, given the pandemic, the poverty rate in 2020 rose.

This figure shows the poverty rate in the top graph and the number of people in poverty in the bottom graph.

This figure shows the ongoing pattern of poverty by age: the elderly have the lowest poverty rate, and it didn’t budge much in 2020. The poverty rates for children and working-age adults both rose.

But an obvious question arises here. In an attempt to offer protection against the economic costs of the pandemic, the

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The COVID Instant Experts

11 days ago

One great thing about society’s reservoir of expertise that is housed in universities and colleges is that when an important new subject turns up, at least some of these experts will be able to respond to the crisis with research and insight. But this process of pivoting to the hot topic has a downside, too. For an especially hot topic, like the COVID pandemic, those who are experts in something altogether different may suddenly start delve into a new area–and the results will not always be pretty.

One vivid example of this dynamic that has stuck in my mind happened when I was based out at Stanford University in the early 1990s and Mikhail Gorbachev came to visit. Gorbachev was president of the Soviet Union at the time, and he was following a policy of “glasnost” in which the USSR

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When Business Leaders Endorse Stakeholder Responsibility, What Are They Really Saying?

12 days ago

For-profit companies are formally responsible to their shareholders–that is, to those who own stock in the company. I emphasize “formally,” because the influence of shareholders is wielded through a board of directors whose members are often nominated by corporate management itself, and there is a long-standing question of just how this supervision process works.

However, formal responsibility to shareholders via a board of directors is quite different from saying that businesses should be responsible to all “stakeholders” affected by their actions, which is a broader group that would include shareholders but also employees, customers, suppliers, as well broader issues and groups like environmental concerns, and the community in which the firm operates.

There is sometimes a

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The US Labor Market Struggles to Reorient

13 days ago

There’s a sort of paradox in the current US labor market. By a standard measure, there is strong demand by employers to hire more workers. By a standard measure, there is strong supply of workers willing to take these jobs. But even with at first glance appears to be strong demand and supply for labor, the number of jobs remains well below pre-pandemic levels. There’s a simple explanation for this which I’m sure is part of the truth, and a more complex explanation that I suspect is a bigger part of the answer.

A standard measure of demand for labor is the number of job openings. Here’s what it looks like based on data from the Job Openings and Labor Turnover Survey done by the Bureau of Labor Statistics.

Here’s a figure from the latest JOLTS data, showing the ratio of

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A Career vs. A Job

15 days ago

The US economy has lots of jobs, but many people are looking for something that might be a career–and that’s harder to find. Here’s Claudia Goldin on the difference:

Career is achieved over time, as the etymology of the word — meaning to run a race — would imply. A career generally involves advancement and persistence and is a long-lasting, sought-after employment, the type of work — writer, teacher, doctor, accountant, religious leader — which often shapes one’s identity. A career needn’t begin right after the highest educational degree; it can emerge later in life. A career is different from a job. Jobs generally do not become part of one’s identity or life’s purpose. They are often solely taken for generating income and generally do not have a clear set of milestones..

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Horace Mann on Human Brainpower

16 days ago

As the school year gets underway, it seemed a good time to pass along a bit of rhetoric from Horace Mann, the great 19th century advocate of the “Common School” idea that every child should receive a basic education at taxpayer expense. Here’s an excerpt from one of his speeches, “Man: His Mental Power,” as published in Stryker’s Quarterly Register and Magazine (March 1849, p. 206). Mann said:

The cotton mills of Massachusetts will turn out more cloth in one day than could have been manufactured by all the inhabitants of the Eastern continent during the tenth century. … The velocity of winds, the weight of waters, and the rage of steam, are powers; each one of which is infinitely stronger than all the strength of all the nations and races of mankind, were it all gathered into a

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Thomas Sowell: Why “The Market” is a “Misleading Figure of Speech”

18 days ago

In discussions of social policy, one often hears comparisons between “the government” and “the market,” as if they were somehow similar options. Thomas Sowell argued that referring to “the market” in this way is a “misleading figure of speech.” I quote here from his book Knowledge and Decisions (1980, quoting here from 1996 edition, pp. 41-42):

“Society” is not the only figure of speech that confuses the actual decision-making units and conceals the determining incentives and constraints. “The market” is another such misleading figure of speech. Both the friends and foes of economic decision-making processes refer to “the market” as if it were an institution parallel with, and alternative to, the government as an institution. The government is indeed an institution, but “the market”

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A “Medicare Funding Warning” from the Trustees

19 days ago

The trustees of the Medicare program have published their annual report, the imposingly titled 2021 Annual Report of the Boards of the Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. The annual report came out considerably later than usual, about five months after the statutory deadline, and I suspect there’s a story there. But here, I’ll focus on the projections themselves. The trustees write:

The Trustees are issuing a determination of projected excess general revenue Medicare funding in this report because the difference between Medicare’s total outlays and its dedicated financing sources is projected to exceed 45 percent of outlays within 7 years. Since this determination was made last year as well, this year’s

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Chesterton: “The Old Man is Always Wrong, and the Young People are Always Wrong about What is Wrong With Him”

21 days ago

Why are young people so often protesting against the conditions they have inherited from the older generation? GK Chesterton offered a hypothesis in an essay in his “Our Note Book” essay written for the Illustrated London News (June 3, 1922): “[T]he old man is always wrong , and the young people are always wrong about what is wrong with him. The practical form it takes is this: that, while the old man may stand by some stupid custom, the young man always attacks it with some theory that turns out to be equally stupid.”

Moreover, Chesterton argues, the young protesters often in practice turn out to be less focused on getting rid of the previous evil than they are on force-feeding their new theory to the older generation. Chesterton writes: “In other words, the young man is not half

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Harold Demsetz: Dissecting the Nirvana Viewpoint

25 days ago

Here are two different ways to see the world. One approach looks at current problems in the context of alternative real-world institutional arrangements, recognizing that all the real-world choices will be flawed in one way or another. The other approach looks at current problems as juxtaposed with ideal outcome. In a 1969 essay, Harold Demsetz critiqued that second approach, calling it the “nirvana viewpoint.” He also argued that economics might be prone to that approach. The Demsetz essay is “Information and Efficiency: Another Viewpoint” (Journal of Law & Economics, April 1969, 12: 1, pp. 1-22). He sets up the problem this way:

The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing “imperfect”

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Finding the Path Between Berks and Wankers

26 days ago

An ongoing challenge in writing and editing is to avoid either being obsessive about detailed rules of grammar and usage or being proudly ignorant of any such rules. In his 1997 book The King’s English, Kingley Amis framed the choice as one between berks and wankers. He wrote:

Not every reader will immediately understand these two terms as I use them, but most people, most users of English, habitually distinguish between two types of person whose linguistic habits they deplore if not abhor. For  my present purpose, these habits exclude the way people say their vowel sounds, not because these are unimportant but because they are hard to notate and at least as hard to write about. Berks are careless, course, crass, gross and what anybody would agree is a lower social class than one’s

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How Stalin and the Nazis Tried to Copy Henry Ford

27 days ago

In the early decades of the 20th century, the automakers of Detroit–and Henry Ford in particular–exerted a remarkable influence. This economic period had multiple periods of economic instability and world war–and that was even before the catastrophe of the Great Depression. In particular, authoritarian rulers of the 1930s were drawn to a model that seemed to combine large-scale facilities under central control with being at the cutting edge of modern industry. Stefan Link tells the story in his recent book. Forging global Fordism : Nazi Germany, Soviet Russia, and the contest over the industrial order (Princeton University Press, 2021).

When it came to developing fresh principles after the bankruptcy of the old economic order in the global crisis of the 1930s, it was Detroit

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Can a Dose of Randomness Help Fairness?

28 days ago

As the philosophers teach, there are many ways to think about “fairness.” One common approach is to identify a source of what is deemed to be unfairness, or a practice that leads to outcomes deemed to be unfair, and then to address this specific practice or outcome in a direct way. However, there is also a line of philosophy which suggests that thinking about “fairness” might usefully include an element of randomness. For example, the outcome of a lottery is “fair,” not in the sense that it corrects or addresses other aspects of unfairness, but in the sense that every ticket has an equal chance of winning.

Some recent research takes this connection between randomness and fairness and puts it to work. For example, in the July 2021 issue of the American Economic Review,

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Bad Development Ideas

29 days ago

It has been my tradition at this blog to take a break from current events in late August. Instead, I offer a series of posts about economics, academia, and and editing, focusing on comments or themes that caught my eye in the last few months.

Back in 2008, the World Bank published the report of the Commission on Growth and Development, consisting of 19 policymakers and a couple of Nobel prize-winning economists. The Growth Report : Strategies for Sustained Growth and Inclusive Development still rewards reading today. Here, I focus on what Michael Spence, chair of the Commission, later referred to as probably the most popular section of the report–a two-page discussion just called “Bad Ideas.” The Commission wrote (pp. 68-69).

Debates help clarify good ideas, subjecting them to

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Reconsidering the “Washington Consensus”

August 18, 2021

About 20 years ago, I found myself (via a story too long and tedious to relate here) part of a small group of economists travelling in South Africa for a week, meeting with various business, government, and academic groups. Within our little group , we each had some topics on which we would focus the first round of our comments. For example, one person talked about how to structure an emerging telecommunications industry, while another talked about barriers to international trade in agriculture. My own role, at least as perceived by the audience, was to be the defender of American imperialist capitalism. And no phrase was delivered to me with quite the same scorn and disdain–and frequency–as “the Washington consensus.”

In my naivete, I was at first surprised that “the

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Pandemic Recession: By Far the Shortest on Record

August 17, 2021

In the United States, there is no government committee to set the start and end dates of recessions–for obvious political reasons. However, the National Bureau of Economic Research has a Business Cycle Dating Committee which meets irregularly to determine peaks and troughs. A peak is the start of a recession: the high point before an economy starts down. A trough is the bottom of a recession: the low point before an economy starts up.

Notice in particular that in this framework, the “end” of a recession does not mean that an economy has returned to its pre-recession norms. It just means that the period of contraction is over an a period of expansion has started.

Thus, back on June 8, 2020, the Business Cycle Dating Committee named February 2020 as the peak month before the

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The Pandemic Recession: What Was Different in Labor Markets?

August 16, 2021

It felt back in September 2008, at least to me, as if the Great Recession erupted all at once. Sure, there had been some earlier warning signs about financial markets and subprime mortgages in late 2007, but in spring 2008, the consensus view (for example, in Congressional Budget Office forecasts) was that these housing market blips were only a modest threat to the overall US economy. But by comparison with the pandemic recession, the Great Recession practically happened in slow motion.

Here’s a figure showing the monthly unemployment rate since 1970. The shaded areas show recessions, and you can see the rise in unemployment during each recession. The rise during the pandemic is much higher and faster; conversely, the decline in unemployment from its peak has was also much

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Is Geoengineering Research Objectionable?

August 13, 2021

Geoengineering is the idea of putting materials–say, certain aerosols–into the atmosphere to counteract the effects of carbon and other greenhouse gases. I’ve written about the technology and arguments a few times: for examples, see here and here.

But when small-scale experiments with this approach are proposed, like a recent effort in Sweden, there are often strong objections of the “slippery slope” variety: that is, there’s probably nothing especially dangerous or wrong with this particular limited experiment. But looking ahead, one risk is that future larger-scale experiments may pose larger risks. Also, if this research leads many people think that there is likely to be a cheap and easy techno-fix for climate change a few years down the road, they will be less likely to

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Wealth and Income Inequality: Only a Weak Correlation?

August 12, 2021

Income refers to what is received in a certain period of time, which is why we refer to “annual income” or “weekly paycheck.” Wealth refers to the total that has been accumulated over time, which is why we refer to a “retirement account.” It feels as if there should be an intuitive connection between them: for example, greater inequality of incomes should be accompanied by greater inequality of wealth. This connection is true for the US economy. But across economies of western Europe, the correlation between income and wealth inequality is close to nonexistent. Fabian T. Pfeffer and Nora Waitkus present the data in “The Wealth Inequality of Nations” (American Sociological Review, 2021, forthcoming).

Pfeffer and Waitkus use data from the Luxembourg Income Study, which goes to

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Rethinking the Great Housing Bust of 2007-8

August 11, 2021

There’s a standard story about the underlying causes of the Great Recession of 2007-9. I’m sure I’ve told it myself a time or two. It starts with excessively easy lending for home mortgages–including the so-called “sub-prime” loans–aided and abetted by financial engineering that repackaged these loans as “collateralized debt obligations” and sold them to investors, including banks. The surge of mortgage lending helped to stimulate home prices to unrealistically large annual increases. But reality eventually catches up. Home prices drop from their unrealistic highs, borrowers are unable to repay their mortgages, the financial sector seizes up, and recession is unleashed.

This story isn’t exactly wrong, but the path of housing prices since 2008 suggests that it isn’t completely

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Interview with Ayşegül Şahin: Quits and Start-ups

August 9, 2021

David A. Price has an interview with “Ayşegül Şahin: On age growth, labor’s share of income, and the gender unemployment gap” (Econ Focus: Federal Reserve Bank of Richmond, Second/Third Quarter 2021, pp. 18-22). I had not known, for example, that Şahin had completed the coursework for a doctorate in electrical and electronics engineering when she first encountered economics, and decided instead to change over and pursue a different PhD. Here are two of the comments that caught my eye, but there’s much more in the interview itself:

Differences in the labor market recovery after the Great Recession and the pandemic recession

What was striking about the Great Recession was its persistence. Everybody kept saying at the time that inflation is around the corner, the labor market

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Some Snapshots of US Income Inequality

August 5, 2021

The Congressional Budget Office has published “The Distribution of Household Income, 2018” (August 2021). It takes a couple of years to pull this data together in a reliable way. The report is full of data and figures about inequality of income over time, together with what the patterns of inequality would look like with adjustments for non-market income (like Social Security), taxes paid, and means-tested benefits received. Here are a few of the images that caught my eye.

A variety of the figures confirm the well-known fact that inequality of US incomes has expanded in recent years, with the biggest gains at the very top of the income distribution. For example, the upper figure shows average income in dollars for the top quintile (fifth) compared to the rest of the income

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Whither Battery Power?

August 4, 2021

One possible clean energy agenda is “electrify everything,” with the idea being to focus on carbon-free methods of generating electricity. However, a number of carbon-free methods, like solar and wind (and even hydro-power at some times and places), have the problem that the power generated can ebb and flow. (Nuclear and geothermal power are examples of carbon-free electricity that is not interruptible.) Are there reliable ways of storing sufficient electricity for those times–which can easily be days and might even be weeks– when the sun doesn’t shine and the wind doesn’t blow? The energy storage question may well determine the workability of the “electrify everything” agenda.

One obvious answer is to store electricity in rechargeable lithium-ion batteries, but doing this at

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Global Food Production: Too Little and Too Much

August 2, 2021

On one hand, it seems terribly important that global food supply increase dramatically in the next few decades, to feed the hungry around the world as global population rises. On another hand, obesity is a huge and ongoing health problem around the world, even in many countries that do not have high income levels. And on yet a third hand, food production around the world is often a major contributor to environmental degradation, being related to issues including water pollution, deforestation, pesticides that linger in the ecosystem, and release of greenhouse gases.

A desirable path for the future of global food production will take all of these into account. The Credit Suisse Research Institute takes a shot at reconciling them in “The Global Food System: Identifying sustainable

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An Earn-and-Learn Career Path

July 31, 2021

What paths can high school students take in accumulating hard and soft skills so that they can make the transition to a career and job? The main answer in US society is “go to college.” But for a large share of high school graduates, being told that they now need to attend several more years of classes is not what they want to hear.

Historically, a common alternative career path was that companies hired young workers who had little to offer other than energy and flexibility, and then trained and promoted those workers. Unions often played a role in advocating and supporting this training, too. But in the last few decades, it seems that a lot of companies have exited the job training business. Their general sense is that young adults aren’t likely to stay with the company, so in

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Can Administrative Health Care Reforms Get the Administrative Cost Advantages of Single Payer?

July 30, 2021

One infuriating aspect of the US health care industry is the high administrative costs. Here’s a description from David Scheinker, Barak D. Richman, Arnold Milstein, and Kevin A. Schulman in “Reducing administrative costs in US health care: Assessing single payer and its alternatives” (Health Services Research, published online March 31, 2021, not yet assigned to an issue). They write (footnotes omitted):

The transaction cost of paying for services with a commercial credit card is approximately 2% of the total cost, whereas Tseng (2018) calculated that it is 14.5% when providers bill insurance companies for physician services. A similar percentage is consumed for hospital billing, and approximately an additional 15% is retained by commercial insurers for claims processing and

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Summer 2021 Journal of Economic Perspectives Available Online

July 29, 2021

I have been the Managing Editor of the Journal of Economic Perspectives since the first issue in Summer 1987. The JEP is published by the American Economic Association, which decided about a decade ago–to my delight–that the journal would be freely available on-line, from the current issue all the way back to the first issue. You can download individual articles or the entire issue, and it is available in various e-reader formats, too. Here, I’ll start with the Table of Contents for the just-released Summer 2021 issue, which in the Taylor household is known as issue #137. Below that are abstracts and direct links for all of the papers. I will probably blog more specifically about some of the papers in the next week or two, as well.

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Odebrecht: “The Largest Foreign Bribery Case in History”

July 28, 2021

If you don’t know about the Odebrecht case, which the the US Department of Justice called “the largest foreign bribery case in history,” Nicolás Campos, Eduardo Engel, Ronald D. Fischer, and Alexander Galetovic tell the story and offer some insights in “The Ways of Corruption in Infrastructure: Lessons from the Odebrecht Case” in the Spring 2021 issue of the Journal of Economic Perspectives (where I work as Managing Editor). They describe the company’s rise and fall this way:

In 2010, the Swiss business school IMD chose Odebrecht, a Brazilian conglomerate, as the world’s best family business. Odebrecht was chosen for the excellent performance of its companies, its continuous growth, and its social and environmental responsibility. Sales had quintupled between 2005 and 2009,and

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