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Brad DeLong: Worthy reads on equitable growth, July 20-26, 2021

Summary:
Worthy reads from Equitable Growth: 1. I would put this analysis more strongly. The price level now is 10 percent below where consensus forecasts that it would be a decade ago. In that context, a quarter—or a year, or two years—of 5 percent-a-year inflation is simply not an issue. Read Francesco D’Acunto and Michael Weber, “A temporary increase in inflation is not a long-run threat to U.S. economic growth and prosperity,” in which they write: “Recent 5 percent inflation rate appears much less concerning once we account for what economists call the base rate effect—the price level 12 months ago, in the midst of a pandemic recession in which demand was artificially low due to lockdown measures. … As this base rate effect vanishes over the next few months—due to the sharp drop in

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Worthy reads from Equitable Growth:

1. I would put this analysis more strongly. The price level now is 10 percent below where consensus forecasts that it would be a decade ago. In that context, a quarter—or a year, or two years—of 5 percent-a-year inflation is simply not an issue. Read Francesco D’Acunto and Michael Weber, “A temporary increase in inflation is not a long-run threat to U.S. economic growth and prosperity,” in which they write: “Recent 5 percent inflation rate appears much less concerning once we account for what economists call the base rate effect—the price level 12 months ago, in the midst of a pandemic recession in which demand was artificially low due to lockdown measures. … As this base rate effect vanishes over the next few months—due to the sharp drop in the price level early in the recession partially reversing in the second half of 2020—then, all else being equal, policymakers should expect more moderate Consumer Price Index inflation readings going forward. … Accumulation of higher savings, paired with new spending opportunities and the reopening of the U.S. economy, made the scope for demand pressure very concrete. Indeed, new car and home sales are at their highest levels since before the Great Recession of 2007–2009.”

2. As John Maynard Keynes wrote, long ago, the boom not the slump is the time for austerity. And “slump” includes the first, second, and third stages of the recovery as well. Read Davide Furceri, Prakash Loungani, Jonathan Ostry, and Pietro Pizzuto, “Fiscal austerity intensifies the increase in inequality after pandemics,” in which they write: “This column predicts the likely distributional effects of Covid–19 by analysing evidence from five previous outbreaks (SARS, H1N1, MERS, Ebola, and Zika). It finds that severe austerity measures were associated with inequality increases three times greater than expansive fiscal policy following a pandemic. Premature austerity is self-defeating from both a macro and an equity standpoint.” 

3. I think this congressional testimony was extremely well put together. Read Kate Bahn, “Testimony before the Joint Economic Committee on monopsony, workers, and corporate power,” in which she writes: “When employers have outsized power in employment relationships, they are able to set wages for their workers, rather than wages being determined by competitive market forces. Given this monopsony power, employers undercut workers. This means paying them less than the value they contribute to production. One recent survey of all the economic research on monopsony finds that, on average across studies, employers have the power to keep wages over one-third less than they would be in a perfectly competitive market. Put another way, in a theoretical competitive market, if an employer cut wages then all workers would quit. But in reality, these estimates are the equivalent of a firm cutting wages by 5 percent yet only losing 10 percent to 20 percent of their workers, thus growing their profits without significantly impacting their business.” 

Worthy reads not from Equitable Growth:

1. The people claiming that it was very likely there would be a big employment boost from cutting off pandemic unemployment insurance always seemed to me to be not competent or not thinking coherently. And, as of right now, it is looking as though they were, as expected completely wrong. But will there be any rethinking on their part as the empirical evidence comes in? Read Arindrajit Dube, “Early impacts of the expiration of pandemic unemployment insurance programs,” in which he writes: So far, 25 states have ended their participation in all or most of the pandemic unemployment insurance (UI) programs. … So what has been the impact so far on the labor market? … I group states by their dates of expiration: 4 states ended the programs on June 12, then 8 more states ended them on June 19, and finally 10 additional states ended participation on June 26. … In the 12 states where pandemic UI expired on June 12 (grey) or 19 (green), the share of population receiving UI fell sharply between early June and early July … a roughly 60 percent reduction in the UI rolls in these states. … Between early June and early July, the EPOP rates in the states seeing large drops in UI receipt (i.e., 12th and 19th June cohorts in grey and green) saw no uptick in employment. … Certainly there was no immediate boost to employment during the 2–3 weeks following the expiration of the pandemic UI benefits. … Of course, this evidence is still early, and more data is needed to paint a fuller picture.”

2.  I confess this really surprises me, too. “Obeying the law is for little people” is not something that seems to be to be a likely vote-winner for any set of politicians. And as the Democratic Party shifts to the left with its increasing concern with equitable growth, where might the Republican donors go should Republican candidates cross them on things like pay-your-taxes? Read Paul Krugman, “Should Only the Little People Pay Taxes?,” in which he writes: “Even I was caught by surprise when Republicans negotiating over a possible infrastructure bill ruled out paying for it in part by giving the Internal Revenue Service more resources to go after tax evasion. … I’m not surprised to learn that a significant number of senators are sympathetic to the interests of wealthy tax cheats, that they are objectively pro-tax evasion. I am, however, surprised that they are willing to be so open about their sympathies. There is, after all, a big difference between arguing for low taxes on the rich and arguing, in effect, that rich people who don’t pay what they legally owe should be allowed to get away with it.”

3. A very nice history lesson from the extremely sharp Annette Gordon-Reed. No successful Haitian Revolution, no Louisiana Purchase sale to President Thomas Jefferson, and then in all likelihood both France and Great Britain willing to spend resources to contest control of the Mississippi Valley with the United States—especially as one’s presence in the area will induce the other to see it as a key cold- or hot-war battlefield. Read her “We Owe Haiti a Debt We Can’t Repay,” in which she writes: “In 1791 the enslaved people of Haiti … engineered the first and only successful slave revolt in modern history. … France’s richest colony … [supplied] worldwide demand for sugar and the slavery-based economy that fulfilled it. Led by Toussaint L’Ouverture, Africans on the island violently threw off their enslavers. … Americans watched these proceedings closely. As refugees from Saint-Domingue arrived in the United States, bringing news of the successful revolt, white Southerners were alarmed. … Napoleon brought a new challenge to Saint-Domingue when he decided in 1802 to reassert control over French colonies in the Americas. He sent a fleet to the island to accomplish the task. The residents fought back and, with the help of “Aedes Aegypti,” the mosquito that carries yellow fever, repelled the invaders. … Napoleon … [used] the territory of Louisiana as a supply station. … Once the Haitians had shattered his dream, Napoleon saw no reason to hold on to the territory. He was eager to sell it, and President Jefferson was equally eager to buy. … If not for the French defeat at the hands of the Haitians, the sale may not have come off, leaving the United States possibly forever divided by a huge swath of French-controlled land or forced into armed conflict with the French over it. Of course, what the United States really bought from France was the right to contend with the various Indigenous people who had their own claims to the land. … The Haitians, who suffered enormously for their victory in the early years of the 19th century and who were treated so poorly by Americans and Europeans for decades after that, gave the people and the government of the United States a generally unrecognized benefit. Writing in ‘History of the United States During the Administrations of Thomas Jefferson,’ Henry Adams said it plainly: the ‘prejudice of race alone blinded the American people to the debt they owed to the desperate courage of five hundred thousand Haytian Negroes who would not be enslaved.’”

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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