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November 6, 2011

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Posted: 06 Nov 2011 12:06 AM PDT

Miscellaneous

Posted: 05 Nov 2011 06:57 PM PDT

Larry Summers :

To end slump, United States must spend, MIT News: ... Summers also weighed in on economists' performance in light of the largely unanticipated economic crisis. For the most part, Summers defended economists, arguing that the profession has made world leaders better informed in recent decades.

"I've had meetings with vice premiers, number-two people in China, who have asked me questions about NBER [National Bureau of Economic Research] working papers in macroeconomics," Summers said. "That says the work has an enormously positive and important impact."

However, Summers asserted, the dynamic stochastic general equilibrium models used by many economists, which often assume the economy will naturally return to a basic equilibrium with full employment, have been of little value in these complex times.

"In four years of reflection and rather intense involvement with this financial crisis, not a single aspect of dynamic stochastic general equilibrium has seemed worth even a passing thought," Summers said, adding: "I think the profession is not entirely innocent."

Still, Summers said, the complaint that economists should have seen the crisis coming represents "a confusion" on the part of critics. Identifying financial bubbles and knowing when they will burst, he claimed, "is to ask more of the profession than it can reasonably expect to discover."

David Autor:

The Polarization of Job Opportunities in the U.S. Labor Market, by David Autor: ... Conclusion Although the U.S. labor market will almost surely rebound from the Great Recession, this article presents a somewhat disheartening picture of its longer-term evolution. Rising demand for highly educated workers, combined with lagging supply, is contributing to higher levels of earnings inequality. Demand for middle-skill jobs is declining, and consequently, workers that do not obtain postsecondary education face a contracting set of job opportunities.
Perhaps most alarmingly, males as a group have adapted comparatively poorly to the changing labor market. Male educational attainment has slowed and male labor force 16 Community Investments, Fall 2011 – Volume 23, Issue 2 participation has declined. For males without a four-year college degree, wages have stagnated or fallen over three decades. And as these males have moved out of middleskill blue-collar jobs, they have generally moved downward in the occupational skill and earnings distribution.
The obvious question, as Scrooge asks the Ghost of Christmas Yet to Come is: "[A]nswer me one question. Are these the shadows of the things that Will be, or are they shadows of things that May be, only?" Is the labor market history of the last three decades inevitably our destiny—or is it just that it could end up being our destiny if we do not implement forward-looking policy responses?
While this article is intended as a spur to policy discussion rather than a source of policy recommendations, I will note a few policy responses that seem especially worthy of discussion.
First, encouraging more young adults to obtain higher education would have multiple benefits. Many jobs are being created that demand college-educated workers, so this will boost incomes. Additionally, an increased supply of college graduates should eventually help to drive down the college wage premium and limit the rise in inequality.
Second, the United States should foster improvements in K-12 education so that more people will be prepared to go on to higher education. Indeed, one potential explanation for the lagging college attainment of males is that K-12 education is not adequately preparing enough men to see that as a realistic option.
Third, educators and policymakers should consider training programs to boost skill levels and earnings opportunities in historically low-skilled service jobs—and more broadly, to offer programs for supporting continual learning, retraining, and mobility for all workers.
Finally, another potential policy response is to consider R&D and infrastructure investments that will have broadly distributed benefits across the economy. Examples might include expanding job opportunities in energy, the environment, and health care. The return of the classic manufacturing job as a path to a middle-class life is unlikely. But it may be that various service jobs grow into attractive job opportunities, with the appropriate complementary investments in training, technology, and physical capital. Perhaps these could be the shadows of what is yet to come.

Dan Little:

Beijing Forum 2011, by Dan Little: I'm attending the Beijing Forum 2011 this week, and it's a superb international conference. Much of the conference took place at Peking University. ... The focus is on academic perspectives and dialogues around the overarching theme of "The Harmony of Civilizations and Prosperity for All." This year's organizing theme is "Tradition and Modernity, Transition and Transformation." ...
My paper, "Justice Matters in Global Economic Development," was included in the Economic Growth theme. I argued five basic points: We generally agree about the basics of a just society. The current state of the world badly contradicts those values (poverty, inequality, abuse and coercion). Amartya Sen's writings provide a powerful basis for those commonsense ideas about justice. The greatest impediment to improving justice is the untrammeled power private and state interests have vis-a-vis the poor. And injustice matters because it causes serious social problems. So states need to strive to reduce injustice.
I didn't really have a good sense of how the argument was received by the participants, but there was a fairly clear split between "laissez-faire" growth advocates and economists who took inequalities of income and health very seriously. I assume the latter group was more receptive than the former.
The academic question I received during the formal discussion period came from an American economist. He pointed out that China's 10% annual growth since the 1990s has greatly improved the standard of living for a hundred million people in coastal China, and created job opportunities for tens of millions of migrant workers. He wanted to know if I was seriously advocating a slower rate of growth as the price of greater justice. The question reflects the assumptions of many of the economists in the session: state policies aimed at enhancing equality are highly destructive to economic growth. So, by inference, preferring economic justice is harmful for a society.
My response, in a nutshell, was "yes". Economic development involves choices. And it is possible that a strategy with a lower growth rate would do a better job of bringing all of China up together, rather than creating a broadening gap between rural poor and affluent urban people. I am indeed arguing that it would be best to choose the second strategy. (This might take the form of investing a larger percentage of China's formidable savings and reserves in substantially enhanced public goods for the rural poor -- education, healthcare, and retirement.)
What is equally important, is that the power differential between poor people and propertied interests in China today almost guarantees that the poor will lose out. Property confiscations by businesses and municipal development authorities are a good example. (Coincidentally, the Thai urban planning expert I talked with said this is precisely the case in and around Bangkok, and the Angola urban planner made similar comments about Angolan farmers and the residual white settlers.) So injustice is as much about power as it is about exploitation. And this means that legal and institutional reforms are needed if China's inequalities are to be reduced.
It was striking to me that the thrust of my talk seemed to be most resonant with the Peking University students in the room. A cluster of them came over to talk about the implications of these ideas for China during the break. These young people seemed genuinely concerned about how China might address some of the large issues of social inequality that have arisen since the economic reforms began in the 1980s. (In fact, even some officials I've talked with here in China believe that more serious attention to justice issues is needed in China's future -- for example, with regard to China's rural poor and to migrant workers and their families.)

Differing Attitudes Toward Genuine Hypocrisy

Posted: 05 Nov 2011 09:27 AM PDT

Paul Krugman has a question for you:

Genuine Hypocrisy, And Attitudes Thereto, by Paul Krugman: Not sure how much blogging I can do this weekend... But here's an item that caught my eye, given what I wrote about hypocrisy yesterday:
Deadbeat Rep. Joe Walsh, Who Owes $100k In Child Support, Receives 'Pro-Family' Award From Family Research Council.
Now that's real hypocrisy — and if the past is any indication, it won't matter at all for Rep. Walsh's career.
There's a big difference between the left and the right in such matters, one that I don't fully understand, although I'm trying. Here's how it goes: if a liberal politician is caught behaving badly — enriching himself while preaching the need to help the poor, or just in general showing himself less than admirable by having an affair, visiting call girls, whatever — his career is over.
But if a conservative politician who preaches stern traditional morality is caught engaging in actions that are at odds with what he preaches — buying sex, taking wide stances in restrooms, or, in this case, stiffing his family even while preaching family values — he may well ride right through the scandal. Witness what's going on now with Herman Cain.
How can this be? Here's what I understand: on the right, "moral values" are considered to be, literally, God-given principles. And a politician is well-regarded for advocating those values, no matter what he does personally. Instead of his personal behavior devaluing his political position, his political position excuses his personal behavior; a philandering politician who preaches the sacred bond of marriage is considered a good man because of what he says, no matter what he does.
And I sort of understand the logic of that position; if the cause is what matters, the flaws of those who serve that cause can be overlooked.
In a way the liberal attitude is more puzzling. Why don't people like me show an equal willingness to overlook the sins of those who espouse ideas we like? And we don't. I'm willing to cut some slack; it really matters not at all whom FDR may have turned to for solace, but I can't imagine forgiving a liberal politician who behaved like Walsh.
The answer may lie in a greater degree of openness, which makes the principles less absolute and therefore gives greater weight to the personal attributes of the messenger. But I'm not entirely sure. Discuss.

I am not sure about this, but let me give another explanation a try anyway. The right believes that the need for government programs derives from the lack of morals of the lower classes. That is, the reason some people are asked to give up a portion of their income to support others -- a redistribution of income the right abhors -- is because these people make poor choices. If they had the necessary morals, if they behaved better, we wouldn't have to take so many resources from those who are successful and waste them on people who could do better if they only had the right value structure.

A successful politician, businessperson, etc. obviously doesn't have these problems. They are successful and their transgressions won't, in the end, result in someone else having to give up income to bail them or their families out. They are not the problem the right is trying to solve. If a poor person takes drugs, endangers their family, drinks too much, etc. the result is a strain on social services and hence on the successful. But when a successful person doesn't live up to the moral code in every way, there's no danger that it will cost others anything -- there are no social externalities to worry about as there are with the poor.

The moral code for the right is really about finding a way to stop asking the good, hard-working people to support people who could support themselves, but make bad choices the hard-working who care about their families would never make. Everyone makes mistakes and people who are basically moral -- and have proven they must be by their success -- should be forgiven when they step over the line, politicians included, it's the fundamentally immoral people that are the problem.

The left, of course, believes social conditions rather than exogenous personal choices have a lot to do with economic outcomes, and that part of this is due to the moral transgressions of those who are better off exploiting the vulnerable. Thus, moral transgressions by the powerful are harder to forgive -- they are a sign that the powerful have no respect for those who are less powerful (e.g. sexual harassment). A tax cheat probably cheats on wages, safety, etc. too, their morals matter for the economic outcomes of the less fortunate, and transgressions are harder to forgive.

But surely you'll have better explanations in comments...

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