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November 26, 2014

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Posted: 26 Nov 2014 12:06 AM PST

Economic Growth and the Information Age

Posted: 25 Nov 2014 11:02 AM PST

Brad DeLong:

Over at Project Syndicate: Economic Growth and the Information Age: Daily Focus: ...America ... has become a vastly more unequal place since 1979... But the past generation has seen a third industrial revolution, a worthy information-age successor to the first of steam, iron, cotton, and machines and to the second of internal combustion, electricity, steel, and chemicals. Not everyone, but almost everyone in the North Atlantic and many and soon most in the world, can now if they wish have a smartphone–and so gain cheap access to the universe of human knowledge and entertainment to a degree that was far beyond the reach of all but the richest of a generation ago.
How much does this matter? How much does this mean that conventional measures of real income and real standard of living understate how much we, even the relatively poor of we, have progressed toward utopia? ...
Perhaps the right way to view the situation is that before the information age began our estimates of economic growth overstated true reality by perhaps 0.5%/year as the extra well-being we got from increased real wealth and income was offset by our noticing that the Jones's next door had more, better, and newer than we did? Perhaps the right way to view the situation is that those parts of the information age that escape conventional growth-accounting calculations simply neutralize those forces of envy and spite that were never included in the calculations in the first place? That is my tentative judgment–or rather guess–today.

'Is Uber Really in a Fight to the Death?'

Posted: 25 Nov 2014 10:28 AM PST

For those of you interested in Uber, this is from Joshua Gans:

Is Uber really in a fight to the death?: In recent days, since their PR troubles, there has been much discussion as to why Uber seems to be so aggressive. Reasons ranged from being inept, to the challenges of fighting politics against taxi regulations to a claim that Uber's market has a 'winner take all' nature. It is this last one that is of particular interest because it suggests that Uber has to fight hard against competitors like Lyft or it will lose. It also suggests that Uber's $20 billion odd valuation is based on beliefs that it will win, and win big.
I am not sure that this is really the case. Despite the name 'Uber' connoting, 'one Uber to rule them all,' the theory underlying the notion of winner take all is rather special and is far from being proven in cases like this. ...

''How to Think about 'Think' Tanks''

Posted: 25 Nov 2014 10:05 AM PST

Miles Corak:

Kady O'Malley Tweet on Think Tanks 1

How to think about "think" tanks: It is sometimes said that think tanks are good for democracy; indeed the more of them, the better. If there are more ideas in the public arena battling it out for your approval, then it's more likely that the best idea will win, and that we will all have better public policies. But intuitively many of us have trouble believing this, have trouble knowing who is being truthful, and don't know who to trust.
This battle of ideas, studies, and statistics has the potential to make many of us cynical about the whole process, and less trusting of all research and numbers. If a knowledgeable journalist like the Canadian Kady O'Malley expresses a certain exasperation that think-tank studies always back up "the think-tank's existing position," what hope is there for the rest of us? A flourishing of think tanks just let's politicians off the hook, always allowing them to pluck an idea that suits their purposes, and making it easier to justify what they wanted to do anyways.
Maybe we shouldn't be so surprised that think tanks produce studies confirming their (sometimes hidden) biases. After all this is something we all do. We need to arm ourselves with this self-awareness. If we do, then we can also be more aware of the things in a think tank's make-up that can help in judging its credibility, and also how public policy discussion should be structured to help promote a sincere exchange of facts and ideas. ...

He goes on to explain in considerable detail.

'A Deeper Dive into the Weeds of the CBO Household Income Data'

Posted: 25 Nov 2014 09:04 AM PST

On Twitter, Jared Bernstein says he is "Correcting the record for those who claim that accounting for taxes & transfers changes the inequality story":

A deeper dive into the weeds of the CBO household income data: ...between 1979 and 2011, inequality measured by the Gini coefficient rose 24% based solely on market outcomes and by 22% based on CBO's comprehensive, post-tax and transfer income data.
Here we show that changes in pre- and post-tax income shares* – the percentage of total U.S. income held by different income groups – reveals a similar trend:


The "low" category in this figure represents the lowest before-tax income quintile, the "middle" category represents households between the 40th and 60th income percentiles, and the "high" category represents the top quintile. As with the Gini, the change in pre- and post-tax income shares are similar. The share of total income held by the poorest households fell by 1 percentage point on a pre-tax basis, and by 1.2 points on a post-tax basis. The share of income held by middle-class households fell by almost two percentage points on a pretax basis and by 1.4 percentage points post-tax.
Only within the top fifth of households do we see relative gains, and in fact, most of the increase in top quintile income shares has accrued to the richest subset of this group: the top 1%.
A second motivation of our report was to document the stagnation of middle-class earnings to households with children and the increased importance of transfer income to these families. We note, for example, that the increase in earnings to middle-income households with children was actually less than the increase in the dollar value of transfers. ...
To be clear, there's nothing wrong and a lot right with transfers replacing lost earnings, especially in downturns. Tax cuts also helped offset middle quintile income losses. But this is not a reliable strategy by which to raise middle-class living standards for working families. For that, we must reconnect overall economic growth to paychecks... The CBO data highlight the nature of this problem and the urgency with which we must pursue the right solutions. ...

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