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April 1, 2015

Latest Posts from Economist's View

Latest Posts from Economist's View

'Why More Education Won’t Fix Economic Inequality'

Posted: 01 Apr 2015 01:55 AM PDT

Speaking of Larry Summers:

Why More Education Won't Fix Economic Inequality: Suppose you accept the persuasive data that inequality has been rising in the United States and most advanced nations in recent decades. But suppose you don't want to fight inequality through politically polarizing steps like higher taxes on the wealthy or a more generous social welfare system.
There remains a plausible solution to rising inequality that avoids those polarizing ideas: strengthening education so that more Americans can benefit from the advances of the 21st-century economy. This is a solution that conservatives, centrists and liberals alike can comfortably get behind. After all, who doesn't favor a stronger educational system? But a new paper shows why the math just doesn't add up, at least if the goal is addressing the gap between the very rich and everyone else.
Brad Hershbein, Melissa Kearney and Lawrence Summers offer a simple little simulation that shows the limits of education as an inequality-fighter. In short, more education would be great news for middle and lower-income Americans, increasing their pay and economic security. It just isn't up to the task of meaningfully reducing inequality, which is being driven by the sharp upward movement of the very top of the income distribution. ...

On Secular Stagnation: A Response to Bernanke

Posted: 01 Apr 2015 01:42 AM PDT

Larry Summers responds to Ben Bernanke:

On Secular Stagnation: A Response to Bernanke, by Larry Summers: Ben Bernanke has inaugurated his blog with a set of thoughtful observations on the determinants of real interest rates (see his post here) and the secular stagnation hypothesis that I have invoked in an effort to understand recent macroeconomic developments. I agree with much of what Ben writes and would highlight in particular his recognition that the Fed is in a sense a follower rather than a leader with respect to real interest rates – since they are determined by broad factors bearing on the supply and demand for capital – and his recognition that equilibrium real rates appear to have been trending downward for quite some time. His challenges to the secular stagnation hypothesis have helped me clarify my thinking and provide an opportunity to address a number of points where I think there has been some confusion in the public debate. ...

His conclusion:

I would like nothing better than to be wrong as Alvin Hansen was with respect to secular stagnation. It may be that growth will soon take hold in the industrial world and allow interest rates and financial conditions to normalize. If so, those like Ben who judged slow recovery to be a reflection of temporary headwinds and misguided fiscal contractions will be vindicated and fears of secular stagnation will have been misplaced.
But throughout the industrial world the vast majority of the revisions in growth forecasts have been downwards for many years now. So, I continue to urge that it is worth taking seriously the possibility that we face a chronic problem of an excess of desired saving relative to investment. If this is the case, monetary policy will not be able to normalize, there will be a continuing need for expanded public and private investment, and there will be a need for global coordination to assure an adequate level of demand and its appropriate distribution. Macroeconomists can contribute by moving beyond their traditional models of business cycles to contemplate the possibility of secular stagnation.

Links for 04-01-15

Posted: 01 Apr 2015 12:06 AM PDT

'Illegal Discrimination Still Significant and Persistent'

Posted: 31 Mar 2015 05:52 AM PDT

From the RES Conference at the University of Manchester:

Illegal Discrimination Still Significant and Persistent: If you are black, foreign, female, elderly, disabled, gay, obese or not a member of the dominant caste or religion in your community, you may face 'significant and persistent discrimination' when you go to apply for a job, rent a house or buy a product. That is the overall conclusion of a new survey by Judith Rich of 70 field studies of discrimination conducted during the last 15 years. Her report will be presented at the Royal Economic Society's 2015 annual conference.
Field studies of discrimination in markets ensure that group identity is the only difference observed by the decision-maker about an individual. Carefully matched testers, one from the group that may be the victim of discrimination, apply for jobs, rental accommodation or to buy a house or flat, or to purchase goods or services. This can be done in person, over the telephone, (where testers are trained) or, in the majority of studies, in writing, usually by email (where content and style are equivalent).
Among the findings of the 70 experiments in the analysis:
  • An African-American applicant needed to apply to 50% more job vacancies than a white applicant to be offered an interview.
  • Having a higher qualification made virtually no difference for African-Americans but it made a significant improvement in interview offers for whites.
  • White applicants with a criminal record received more interviews than African-Americans with no criminal record.
  • Older workers needed to make between two to three times as many job applications as a young worker to get an offer of interview. 
  • When purchasing products, higher prices were quoted to minority applicants buying used cars in the United State and Israel, drinks in nightclubs and bars in New Orleans, and seeking car repairs in Chicago.
The author notes that discrimination of this type is hard to counteract by developing additional skills: 'Immigrant groups were discriminated against despite being educated in schools, and proficient in the language, of the country of residence.'
It is illegal in many countries for an employer or estate agent to discriminate, but these studies indicate its continued covert existence. One problem is that it is difficult for a victim of this type of discrimination to find evidence to instigate legal action under current legislation, raising the issue of the adequacy of anti-discrimination laws. ...

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