Monday , May 17 2021
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Timothy Taylor

Timothy Taylor

Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota, which can be read free on-line courtesy of the American Economic Association.

Articles by Timothy Taylor

Interview with Christopher Pissarides: Unemployment and Labor Markets

3 days ago

Michael Chui and Anna Bernasek of the McKinsey Global Institute interview Christopher Pissarides (Nobel, ’10) "about how he developed the matching
theory of unemployment, how COVID-19 affected
his research, and what might be in store for labor
markets after the pandemic" (May 12, 2021, "Forward Thinking on
unemployment with
Sir Christopher Pissarides"). At the website, audio is available for the half-hour interview, along with an edited transcript, upon which I will draw here.As a starting point, it’s useful to remember that labor markets always have, at the same time, both unemployed workers who are looking for jobs and employers who have job vacancies. For example, the US economy had about 9.7 million unemployed workers in March 2021, and at the same time, employers were listing 8.,1

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Political Economy of the Pandemic Response

5 days ago

If economics-minded policy-makers rules made decisions in response to the pandemic, what might they do differently, and why? Peter Boettke and Benjamin Powell suggest some answers to that question in "The political economy of the COVID‐19 pandemic" (Southern Economic Journal, April 2021, pp. 1090-1106). Their paper leads off a symposium on the topic. I’ll list all the papers in the symposium below. I’m told that they are all freely available online now, and for the next few weeks, so if you don’t have library access to the journal, you might want to check them out sooner rather than later. Boettke and Powell write: [F]rom the perspective of promoting overall societal well‐being, we believe that governments in the United States and around the world made significant errors in their policy

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Is the Pandemic Worse in Lower- or Higher-Income Countries?

5 days ago

It seems obvious that the COVID-19 pandemic must be worse in lower-income countries. After all, it seems as if the opportunities for social  distancing must be lower in urban areas in those countries, and the resources for everything from protective gear to hospital care must be lower. There are certainly cases where the pandemic has hit some areas hard outside of  high-income countries: for example, the current situation in India, or the city of Manaus in Brazil that suffered a a first wave, and then suffered a second wave with a new variant of COVID.  But that said, Angus Deaton (Nobel ’15) makes a case that the areas outside the high-income countries of the world have, as a group, been less affected by the pandemic in "Covid-19 and Global Income Inequality" (Milken Institute Review,

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The Slow Magic from Agricultural R&D

6 days ago

For much of human history, a majority of people have worked in agriculture. In the countries of sub-Saharan Africa, about half of all workers are currently in agriculture–more in lower-income countries. The process of raising the overall standard of living requires a rise in agricultural productivity, so that a substantial share of workers can shift away from agriculture, and thus be able to work in other sectors of the economy. In turn, rises in agricultural productivity are typically driven by research and development, which has been lagging. Julian M. Alston, Philip G. Pardey, and Xudong Rao make the case in "Rekindling the Slow Magic of Agricultural R&D" (Issues in Science and Technology, May 3, 2021).The authors discuss CGIAR, which stands for Consultative Group on International

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Interview with Matthew Jackson: Human Networks

11 days ago

David A. Price does an "Interview" with Matthew Jackson, with the subheading "On human networks, the friendship paradox, and the information economics of protest movements" (Econ Focus: Federal Reserve Bank of Richmond, 2021, Q1, pp. 16-20). Here are a few snippets of the conversation, suggestive of the bigger themes.Homophily[O]ne key network phenomenon is known among sociologists and economists as homophily. It’s the fact that friendships are overwhelmingly composed of people who are similar to each other. This is a natural phenomenon, but it’s one that tends to fragment our society. When you put this together with other facts about social networks — for instance, their importance in finding jobs — it means many people end up in the same professions as their friends and most people end

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The Great Texas Power Failure of February 2021

12 days ago

In the aftermath of the Texas power failures in February, a number commenters found confirmation that, amazingly, they had been right about everything all along. Thus, those who were against wind power and renewable energy mandated in general blamed the wind farms. Those who are suspicious of competition in markets for generating electrical power blamed deregulation, although blaming "the market" for what happens in a heavily regulated industry seems peculiar to me. Some critics even blamed Enron, a company that has not existed for years. What actually happened seems simpler, if less reinforcing for various preconceptions: It got really cold. Michael Giberson provides an overview in "Texas Power Failures: What happened in February 2021 and What Can be Done" (Reason Foundation, April

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China’s Population: The Coming Decline

13 days ago

Pity China’s statisticians, who seem caught in the middle between the facts of arithmetic and the demands of government. The recent kerfuffle started about a week ago when the Financial Times reported, "China set to report first population decline in five decades" (April 27, 2021).  The report was based on "people familiar with the research," who presumably had some insight into the results of China’s population census that was completed last December, with data schedule for released in April. But apparently this census data was too hot to handle. The FT quoted Huang Wenzheng, a fellow at the a Beijing-based think-tank, who said: "The census results will have a huge impact on how the Chinese people see their country and how various government departments work. They need to be handled very

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Spring 2021 Journal of Economic Perspectives Available Online

14 days ago

I am now in my 35th year as Managing Editor of the Journal of Economic Perspectives. 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 Spring 2021 issue, which in the Taylor household is known as issue #136. 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.______________________________________Symposium on the European Union"The

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Electrification of Everything: The Transmission Lines Challenge

19 days ago

Reducing carbon emissions will require a number of different intertwined steps, and  one  of them is commonly being referred to as "electrification of everything." Basically, the more that society can rely for its energy needs on electricity generated from low-carbon or carbon-free methods, the more it can turn away from  burning fossil fuels. In turn, this policy agenda will require a vast expansion of high-voltage electricity transmission lines, especially if a substantial share of that electricity is generated from solar and wind. If there is more reliance on intermittent sources of electricity, there is also more need to ship electricity from place to place–more need for what is sometimes called a National Supergrid.  However, the prospect of doubling the number of long-distance

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Amazon and Value Creation: A Bezos Farewell

21 days ago

Jeff Bezos is stepping down from daily management tasks as chief executive officer of Amazon, the company he founded in 1994, although he will continue to be involved in the company as executive chairman of the board. Earlier this month, Bezos wrote his last annual letter to company shareholders. A main focus of the letter is on how Amazon creates "value."  Of course, for economists one measure of value is the total value of Amazon’s stock, which now stands at about $1.6 trillion (and Bezos owns about one-eighth of that). But his letter focuses on the most recent year. He writes: Last year, we hired 500,000 employees and now directly employ 1.3 million people around the world. We have more than 200 million Prime members worldwide. More than 1.9 million small and medium-sized businesses

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Nine Principles of Policing from 1829

22 days ago

In the early 19th century, various cities in Scotland and Ireland had established their own police forces. Sir Robert Peel is typically credited with the lead role in bringing a police force to London via the passage of the Metropolitan Police Act of 1829. Indeed, the early London police were often called "peelers." Either Peel or the early commissions of the London Police Force wrote down nine principles of policing, which have been fairly well-known since then to police everywhere. Here are "9 Policing Principles" are as listed at the website of the Law Enforcement Action Partnership. To prevent crime and disorder, as an alternative to their repression by military force and severity of legal punishment.To recognize always that the power of the police to fulfill their functions and

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Stigler’s Economic Theory of Regulation: The Semicentennial

24 days ago

I’ve found that the word "regulation" is a sort of Rorschach test on which many people project their broader political beliefs. Some are deeply suspicious of any proposals that can be characterized as "deregulation," and predisposed to favor "regulation" even before knowing the details of the proposal. These people tend to begin with a belief that private market actors are almost also pushing up to and beyond the edge of what is good for society, and thus comfortable with a presumption that government pushback in the form or regulation may help.  Indeed, for the first three-quarters of the 20th century, during the rise of US regulatory agencies from near-zero to high prominence, this group was preeminent in how most academics and policy-makers thought about regulation. On the other side,

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International Trade and Economic Disruption in Context

25 days ago

Paul Romer (Nobel ’18) offered a pithy aphorism  a few years ago: "Everyone wants progress. Nobody wants change." But of course, the process of economic progress is inevitably lumpy. It doesn’t smoothly affect everyone in the same way. International trade is one part of the process of economic progress, but nobody wants change. Adam S. Posen pushed back against the resulting dynamic in "The Price of Nostalgia: America’s Self-Defeating Economic Retreat" (Foreign Affairs, May/June 2021). He writes: There is a popular notion that the United States has been sacrificing justice in the name of economic efficiency, and so it is time to correct the imbalance by stepping back from globalization. This is a largely false narrative. The United States has been withdrawing from the world economy for 20

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An Economics with Verbs, Not Just Nouns

26 days ago

W. Brian Arthur re-opens some old questions about the discipline of economics and the role of mathematics with fresh language iu "Economics in Nouns and Verbs" (April 5, 2021, preprint at arXiv). Here’s a flavor of his argument:I will argue that economics, as expressed via algebraic mathematics, deals only in nouns—quantifiable nouns—and does not deal with verbs (actions), and that this has deep consequences for what we see in the economy and how we theorize about it. …Let me begin by pointing out that economics deals with prices, quantities produced, consumption, rates of interest, rates of exchange, rates of inflation, unemployment levels, trade surpluses, GDP, financial assets, Gini coefficients. These are all nouns. In fact, they are all quantifiable nouns—amounts of things, levels

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The US Net International Investment Position, aka “Debtor Nation”

27 days ago

US investors of all types–individual, corporate, government–purchase debt and equity issued in other countries. International investors of all types–individual, corporate, government–purchase debt and equity issued in the United State. The US Bureau of Economic Analysis estimates the total holdings of foreign assets by US investors, and the total holdings of US assets by foreign investors. Here’s the tally from the BEA: Back in 2011,  US-owned assets abroad (blue line) were about $2.5 trillion less than the US liabilities owned by foreign investors (orange line). At the end of 2020, the gap had risen to $14 trillion. This is the US "net international investment position."This gap can change for two main reasons. One reason is that, in a given year, the inflow and outflow of financial

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A Hive of Authentic College Applicants

29 days ago

As someone with a couple of college-age children who have navigated the admissions process at selective colleges, I found myself nodding in agreement with Matt Feeney’s essay in the Chronicle of Higher Education, "The Abiding Scandal of College Admissions: The process has become an intrusive and morally presumptuous inquisition of an applicant’s soul" (April 16, 2021). A basic fact is that applications at selective colleges are way up, and given a fixed number of slots of students, acceptance rates are way down. For example, the Washington Post just reported: "Columbia’s applications were up a stunning 51 percent this year, and Harvard’s were up 42 percent. There were also double-digit increases at Brown (27 percent), Dartmouth (33 percent), Princeton (15 percent), the University of

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Interview with Esther Duflo: On Experimental Methods and Inequality

April 16, 2021

Douglas Clement provides an "Esther Duflo interview: Deciding how to share" (For All: Federal Reserve Bank of Minneapolis, Spring 2021).  On the existence of a tradeoff between growth and inequality:I think the whole notion of a trade-off is likely a fallacy, for various reasons. First of all, there is no clear link either on theoretical grounds or empirically between higher inequality and more growth. There is no reason why inequality is necessary for growth. And there is no law of economics that says that growth increases inequality either. So I think there is no causality necessarily going in either direction; therefore, there is not necessarily a trade-off. Just as a matter of accounting, growth is equality-enhancing if most of the benefits of growth are going toward the poor. And

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Pharma R&D: Vaccines and Other Drugs

April 15, 2021

Surely one of the key lessons of the pandemic is the value of research and development, which in turn means the value of making the investments over time in education and equipment so that researchers are tooled up and ready to go as needed. The Congressional Budget Office has published "Research and Development in the Pharmaceutical Industry" (April 2021), which offers a useful primer in getting up to speed on some of the key trends and issues. Here are five of the main themes as I see them. 1) Research and development may play a bigger role in pharmaceuticals than in any other industry. This figure shows how much different industries spend on R&D as a share of their "net revenues"–that is, revenues minus expenses. A few years back, pharmaceuticals were similar in their "research

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What Do You Call a Bigger Wave of Debt?

April 13, 2021

Sometimes you work on a big and worthwhile project, and then find yourself to be overtaken by events. The project remains worthwhile, but it can suddenly feel outdated. Thus, I found myself wincing in sympathy at  Global Waves of Debt: Causes and Consequences, a World Bank report written by M. Ayhan Kose, Peter Nagle, Franziska Ohnsorge, and Naotaka Sugawara and published in March 2021. The problem is that the report focuses on four major waves of government debt up through 2018. Of course, when the authors launched into this project they had no way of knowing that the world was on the cusp of a COVID-related surge in government debt starting in 2020.  But the result is that the authors are warning of the potential dangers of a wave of government debt given the debt levels of 2018–but

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The US Productivity Slowdown After 2005

April 12, 2021

In the long run, a rising standard of living is all about productivity growth. When the average person in a country produces more per hour worked, then it becomes possible for the average person to consume more per hour worked. Yes, there is a meaningful and necessary role for redistribution to the needy. But the main reason why societies get rich is by redistributing more: rather, societies are able to redistribute more because rising productivity expands the size of the overall pie. In the latest issue of the Monthly Labor Review from the US Bureau of Labor Statistics, Shawn Sprague provides an overview in "The U.S. productivity slowdown: an economy-wide and industry-level analysis" (April 2021). In particular, he is focused on the slowdown in US productivity growth since 2005, after a

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Electrify Everything: Some Limitations of Solar and Wind

April 9, 2021

The "electrify everything" vision supports generating electricity in low-carbon or zero-carbon ways, and then also using electricity to replace other sources of energy like oil, coal, and natural gas–for example, by using cars powered by electricity rather than vehicles rather than by gasoline. It seems to me that some advocates of this vision are (implicitly) hoping that solar and wind power can meet most or all of future energy needs. That’s not likely, as discussed in "Clean Firm Power is the Key to California’s Carbon-Free Energy Future" by Jane C.S. Long, Ejeong Baik, Jesse D. Jenkins, Clea Kolster, Kiran Chawla, Arne Olson, Armond Cohen, Michael Colvin, Sally M. Benson, Robert B. Jackson, David G. Victor, and Steven Hamburg (Issue in Science and Technology, March 24, 2021). Just to

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Dispose of Masks Properly, Or Else

April 8, 2021

II suppose it was pretty much inevitable that when a few billion disposable masks were distributed around the world in response to the pandemic, they would become a garbage problem, too. The first report I saw on this subject was called "Masks on the Beach: The Impact of COVID-19 on Marine Plastic Pollution," by Teale Phelps Bondaroff  and Sam Cooke from a marine conservation nonprofit called OceansAsia (December 2020). They write:The number of masks entering the environment on a monthly basis as a result of the COVID-19 pandemic is staggering. From a global production projection of 52 billion masks for 2020, we estimate that 1.56 billion masks will enter our oceans in 2020, amounting to between 4,680 and 6,240 metric tonnes of plastic pollution. These masks will take as long as 450 years

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Evolving Patterns of Innovation Across States and Industries

April 7, 2021

Patents are an imperfect measure of innovation, but they can nonetheless convey the underlying story. Jesse LaBelle and Ana Maria Santacreu offer some interesting descriptions of how patent patterns changed between the 1980s and the 2000s in "Geographic Patterns of Innovation Across U.S. States: 1980-2010 (Economic Synopses, Federal Reserve Bank of St. Louis, 2021, #5). To interpret these figures, it’s important to know that new patents granted each year have been rising substantially over time, from about 40,000 in 1980 to 110,000 in 2010. Here’s a figure showing the distribution of patents by US state: the top panel shows the 1980s, and the bottom panel shows the 2000s (that is, 2000-2010). Given that overall patent levels have risen, the figure shows many more states with higher patent

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Policy for the Next Pandemics

April 6, 2021

After a year of pandemic, one of the last topics I want to think seriously about is a future of pandemics. But with pandemics as with so many other problems, not thinking about it doesn’t make it go away. Monica de Bolle, Maurice Obstfeld, and Adam S. Posen have edited a short 12-chapter e-book titled Economic Policy for a Pandemic Age: How the World Must Prepare (Peterson Institute for International Economics, April 2021). The book considers the discomfiting possibilities that COVID-19 may be a chronic pandemic for some time to come and what lessons might be learned for future pandemics. Several of the essays warn about the emergence of COVID variants around the world, including the UK, Brazilian, and South African variants that are known, but quite possibly others variants that are not

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Nature as Part of the Stock of Humanity’s Wealth

April 2, 2021

I despair of writing a blog post that captures a sense of The Economics of Biodiversity: The Dasgupta Review (February 2021) The report is 600 pages. It is a UK government-backed report, technically the "Final Report of the Independent Review on the Economics of Biodiversity led by Professor Sir Partha Dasgupta." If you know Dasgupta or his remarkable output of deeply insightful, nuanced, and humane work, you need no further persuasion to take a look. If not, this is a chance to get acquainted. The title of the report seems unfortunate to me, because the discussion in the report is broader than the what is usually  meant by biodiversity.  Here, I’ll start with a snippet from Dasgupta’s preface to the volume, which gives a fuller sense of its purpose. Then I’ll try to give a flavor of the

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The Spread in Labor Costs Across the European Union

March 31, 2021

In a common market, labor costs will look fairly similar across areas. Sure, there will be some places with differing skill levels, different mixes of industry, and different levels of urbanization, thus leading to somewhat higher or lower labor costs. But over time, workers from lower-pay areas will tend to relocate to higher-pay areas and employers in higher-pay areas will tend to relocate to lower-pay areas. Thus, it’s interesting that the European Union continues to show large gaps in hourly labor costs. Here are some figures just released by Eurostat (March 31, 2021) on labor costs across countries. As you can see, hourly labor costs are up around €40/hour in Denmark, Luxembourg, and Belgium, but €10/hour or below in some countries of eastern Europe like Poland or the Baltic states

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Data and Development

March 30, 2021

The 2021 World Development Report. one of the annual flagship reports of the World Bank, is focused on the theme of "Data for Better Lives" (released in March 2021). The WDR is one of the flagship reports of the World Bank, and it is always a nice mixture of big-picture overview and specific examples. Here, I’ll focus on a few of the themes that occurred to me in reading the report. First, there are lots of examples of how improved data can help economic development. For many economists, the first reaction is to think about dissemination of information related to production and markets. As the report notes: For millennia, farming and food supply have depended on access to accurate information. When will the rains come? How large will the yields be? What crops will earn the most money at

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Will the Fed Keep Interest Rates Low for the US Treasury?

March 29, 2021

Looking at the long-term budget projections from the Congressional Budget Office, which are based on current legislation, a key problem is that interest payments on past borrowing start climbing higher and higher–and as those have overborrowed on their credit cards know all too well, once you are on that interest rate treadmill it’s hard to get off. So, will the Federal Reserve help out the US Government by keeping interest rates ultra-low for the foreseeable future? Fed Governor Christopher J. Waller says not in his talk "Treasury–Federal Reserve Cooperation and the Importance of Central Bank Independence" (March 29, 2021, given via webcast at the Peterson Institute for International Economics). Here’s Waller: Because of the large fiscal deficits and rising federal debt, a narrative has

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China-US Trade: Some Patterns Since 1990

March 24, 2021

In US-based conversations about China-US trade, it sometimes seems to me that the working assumption is that China’s economy is heavily dependent on trade with the United States–which in turn would give the US government strong leverage in trade disputes.  How true is that assumption? Here’s some baseline evidence from the DHL Global Connectedness Index 2020: The State of Globalization in a Distancing World, by Stephen A. Altman and Phillip Bastian (December 2020). These first two figures show China-US trade in perspective to China: the top panel shows it relative to China’s GDP, and the bottom panel shows it relative to China’s total trade flows. Bottom line is that while China’s exports to the US were as high as 7% of China’s GDP back in 2007, after the big surge in China’s exports to

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Mission Creep for Bank Regulators and Central Banks

March 22, 2021

The standard argument for government regulators who supervise the extent of bank risk is that if banks take on too much risk in the pursuit of short-term profits, but also raise the risk of  becoming insolvent, there are dangers not just to the banks themselves, but also risk to to bank depositors, the supply of credit in the economy, and other intertwined financial institutions. To put it another way, if the government is likely to end up bailing out individuals, firms, or the economy itself, then the government has a reason to check on how much risk is being taken.  But what if countries start to load up the bank regulators with a few other goals at the same time? What tradeoffs might emerge? Sasin Kirakul, Jeffery Yong, and Raihan Zamil describe the situation in "The universe of

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