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Brad DeLong: Worthy reads on equitable growth, October 14-19, 2020

Summary:
Worthy reads from Equitable Growth: 1. Unless we know where we are, we will be unable to figure out where we need to go. And we do not know where we are. Thus one of our very top priorities should be oversampling minorities to help us figure out exactly how far away we are from equal opportunity. Read Austin Clemens and Michael Garvey, “Structural racism and the coronavirus recession highlight why more andbetter U.S. data need to be widely disaggregated by race and ethnicity,” in which they write: “This issue brief details the steps Congress and executive branch agencies can take to improve our understanding of economic and social outcomes for all communities of color. There are many ways the economic statistical agencies could improve data collection, provide more analysis of

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Worthy reads from Equitable Growth:

1. Unless we know where we are, we will be unable to figure out where we need to go. And we do not know where we are. Thus one of our very top priorities should be oversampling minorities to help us figure out exactly how far away we are from equal opportunity. Read Austin Clemens and Michael Garvey, “Structural racism and the coronavirus recession highlight why more andbetter U.S. data need to be widely disaggregated by race and ethnicity,” in which they write: “This issue brief details the steps Congress and executive branch agencies can take to improve our understanding of economic and social outcomes for all communities of color. There are many ways the economic statistical agencies could improve data collection, provide more analysis of racial economic divides, and alter the presentation and publication of statistics to better inform policymakers on the needs of marginalized communities. This issue brief focuses on three concrete policy actions that could be taken now with a focus on oversampling in existing federal surveys.”

2. A guide to five excellent scholars who should definitely be on your reading list. Read Christian Edlagan, Aixa Alemán-Díaz, and Maria Monroe, “Expert Focus: The consequences of economic inequality among Latinx groups in the United States,” in which they write about: “Carlos Fernando Avenancio-León … on how political empowerment through protecting the right to vote had a positive impact on U.S. labor market inequality … Eduardo Bonilla-Silva … on how economics can better adopt a racial equity lens by drawing from outside the discipline … Adriana Kugler… on the benefits of UI extensions to improve the quality of job matches for women, non-White workers, and less-educated … Juliana Londoño-Vélez… on the feasibility of wealth taxation in developing countries … Marie Mora … on the lack of access to capital Latinx groups face.”

3. This is a great paper—and I find the identification completely convincing. It is very hard to argue that enforcement of the Voting Rights Act of 1965 was stronger in places where other factors were already rapidly closing the Black-White wage differential. Yet it was in places where the Voting Rights Act of 1965 was most strongly enforced that saw the greatest relative wage gains for American Blacks. Read Abhay Aneja and Carlos Fernando Avenancio-León, “Voting rights equal economic progress: The Voting Rights Act and U.S. economic inequality,” in which they write: “The Voting Rights Act of 1965, a signature measure of the civil rights era, narrowed the wage gap between Black and White men in the areas where it was most strictly enforced. Specifically, between 1950 and 1980, the gap between the median wages of Black and White workers in the South narrowed by approximately 30 percentage points. And our study, which builds on existing research on the economic benefits of voting rights legislation, shows that the Voting Rights Act was responsible for about one-fifth of that reduction.”

Worthy reads not from Equitable Growth:

1. Once again, the shadow left by Harry Dexter White’s victory at Bretton Woods over John Maynard Keynes, and the consequent insistence that the burden of adjustment lie in such a way as to force deflation, damages us. What the International Monetary Fund should be saying is, echoing Keynes: “What we can do, we can afford.” As long as interest rates remain this low, governments should spend whatever is necessary to employ their people. And if interest rates start rising rapidly? Governments then need to constrain that rise by incentivizing people to hold safe assets so that 2008 does not come again, and so limit the rise in interest rates: Read the IMF’s “Fiscal Monitor: Policies for the Recovery,” in which the international financial institution writes: “Governments’ measures to cushion the blow from the pandemic total a staggering $12 trillion globally. These lifelines and the worldwide recession have pushed global public debt to an all-time high. But governments should not withdraw lifelines too rapidly. Government support should shift gradually from protecting old jobs to getting people back to work and helping viable but still-vulnerable firms safely reopen. The fiscal measures for the recovery are an opportunity to make the economy more inclusive and greener.”

2. The 2007–2008 financial crisis, the Great Recession of 2007–2009, and the subsequent botched economic recovery in the global north was a large element in the global north’s relative decline—it stood still, economically and socially, for half a decade while East Asia grew. Now it is starting to look as though the coronavirus pandemic and subsequent recession will be a similar lost half decade, or more—but this time for pretty much everyone outside of East Asia with its successful (so far) virus-control policies. Read the Financial Times Editorial Board, “the global economic recovery is dramatically uneven,” in which they write: “The IMF said in its World Economic Outlook, which was released on Tuesday, that the global economy will shrink by 4.4 per cent this year—an awful figure … [with] prospects of recovery … are far from even … China, buoyed by strong export sales and a reduction in caseloads that has enabled an economic reopening, is set to grow by 1.9 per cent this year … The US and European economies, meanwhile, are still set to experience sharp contractions as a result of not being able to fully remove restrictions on movement …The US, where the Federal Reserve and the Treasury acted swiftly to shore up financial and labour markets, will perform much better than Europe. Its economy is seen as shrinking by 4.3 per cent, compared with a deeper contraction of 8.3 per cent in the eurozone. The UK economy, meanwhile, is forecast to shrink by 9.8 per cent … Divergences within the major emerging markets are stark, too … India … is expected to see its economy shrink by 10.3 per cent over the course of 2020. In Latin America, the outlook for Mexico remains bleak … Recovery will depend largely on countries’ ability to contain the virus … If the disease lingers and becomes more difficult to contain, the IMF rightly advises countries to spend whatever it takes … The focus for now must be on mitigating the impact of Covid-19 … The IMF’s forecasts suggest the best means … lie in mitigating the spread of the disease through successful track-and-trace policies that will enable economies to reopen more quickly, too. The virus first became widespread in China; the lead set by it and other east Asian countries in controlling it offers the best way out for the global economy.”

3. Looking back at economic history and then the policy mistakes that led to the Great Depression, Doug Irwin calculates that half of the damage from deflation was a result of the misguided policies of the French government. Has orthodoxy, austerity, and deflation ever worked. Read Douglas Irwin, “Did France Cause the Great Depression?,” in which he writes:  “A large body of research has linked the gold standard to the severity of the Great Depression. This column argues that while economic historians have focused on the role of tightened U.S. monetary policy, not enough attention has been given to the role of France, whose share of world gold reserves soared from 7 percent in 1926 to 27 percent in 1932. It suggests that France’s policies directly account for about half of the 30 percent deflation experienced in 1930 and 1931.”

Bradford DeLong
J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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