↳ Analysis

July 10th, 2020

↳ Analysis

The Crisis and the Free Market

On crisis, partisanship, and public policy

Will the current crisis transform America’s politics and economic institutions? With unemployment higher than at any point since the Great Depression, rising food insecurity, and an increasingly muscular role for government—are we witnessing the beginning of the end of the four-decade-long era of the free market ushered in by Ronald Reagan? It’s a question worth considering, whether you’re a Democrat who blames the rising inequality of the last four decades on the policies of smaller government, or a Republican who thinks those policies saved America.

It wouldn’t be the first time a crisis has altered the trajectory of the country. The Republican Party of today is defined by its commitment to tax cuts, deregulation, and cuts in social spending. But prior to the Reagan administration, the Republicans were actually the party seen as most likely to increase taxes, because their main commitment throughout the post-war period had been to avoid deficits. The party was, in Newt Gingrich’s famous dismissal, the tax collector for the welfare state.

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July 3rd, 2020

Pandemic and Poverty

What the pandemic teaches us about poverty measurements

Since the onset of the Covid-19 pandemic in the United States, more than 40 million people have applied for unemployment benefits. In April, unemployment spiked to nearly 20 percent, almost double the rate observed at the peak of the Great Recession. To blunt the financial blow, Congress passed the CARES Act, a package that included, among many other things, around $500 billion in income transfers for the U.S. population.

With my colleagues at Columbia University’s Center on Poverty & Social Policy, I have worked to understand how the CARES Act might affect annual poverty rates in the U.S. Our findings took us by surprise: despite the rapid rise in unemployment, we find that the CARES Act’s two major income transfers—the Recovery Rebates (one-time stimulus payment) and expanded unemployment benefits—have potential to return projected poverty rates to pre-crisis levels if access to the benefits is adequate. Jason DeParle of The New York Times neatly brings life to the findings here, while our full report can be found at the Center’s website. The report also details the many important shortcomings of the CARES Act, such as its exclusion of undocumented immigrants, the difficulties that families are facing in accessing the benefits, and the upcoming expiration of the top-up to unemployment benefits.

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June 25th, 2020

Declining Access, Rising Cost: The Geography of Higher Education Post-2008

Mapping concentration and prices in the US higher education industry

During and after the Great Recession, public funding for higher education was slashed as part of state budget austerity. Staff and programs were cut and tuition rose; in many states, even by 2018, funding had not returned to pre-recession levels. Meanwhile, enrollment soared. As students locked out of a slack labor market were told they “lacked the skills necessary for today’s jobs,” the solution to unemployment and wage stagnation was to be found in more degrees at higher prices. The result was the acceleration of what is now a four or five-decade trend in US higher education: the replacement of a public good model with a private consumer model, dependent on tuition financed with federal debt, all justified on the back of supposed earnings increases that fail to materialize.

With skyrocketing prices and ballooning student debt, the private for-profit model has taken hold in even traditional schools, which are seeking to cut teaching costs while retaining students and their hefty tuition payments. Even leaving aside the possible collapse of tuition revenues from nonattendance, forecasts for state budget cuts coming out of the Covid-19 recession are alarming—unless the patterns of the Great Recession are avoided, we can abandon hope of a more equitable, inclusive, or expansive higher education landscape into the 2020s.

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May 28th, 2020

Digital Scab, Digital Snitch

On automation and worker surveillance

Before Covid-19 hit, we'd become used to reports about Amazon's robotics innovations and the impending large-scale automation of warehouse jobs. But recent strikes and protests by Amazon's very human workers have exposed how far we are from robotic warehouses. In fact, as part of its effort to keep its warehouses fully staffed during the crisis, Amazon recently announced that it is ending its recently-instituted sick leave and base pay expansions, replacing both with increased overtime pay. While higher pay encourages more workers to apply for jobs, overtime incentivizes existing workers to work longer hours. Amazon’s strategy for increasing output in the pandemic seems to be getting its human employees to work harder.

In late-February, I took what must have been one of the last public tours of an Amazon warehouse in Edison, New Jersey. Prepared to witness vast and impression automation, I was met instead by a traffic jam of workers exiting the facility. Inside, there were of course robots—shelving units known as "pods," whizzing stuff from one end of the warehouse to the other—performing tasks previously done by people with forklifts. (According to Amazon, these robots have raised productivity of the remaining workers by orders of magnitude.) But there were other innovative technologies on view, at the workstations of human “stowers,” who distribute incoming products to the pods, “pickers,” who take items off the pods to fulfil orders, and “packers,” who put the orders in boxes and tape them shut. Over their shoulders, there were clocks counting down how much time each worker had to complete each task. The technology tracks which workers fall behind, and ‘learns’ how hard it can push them. In place of a human foreman, Amazon's timers dictate the pace of work and mete out automated discipline.

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May 1st, 2020

The Class Politics of the Dollar System

Managing an international public good

The global dollar system has few national winners. The typical frame for understanding the US dollar is that of “exorbitant privilege.” But the role of the dollar in structuring the international financial system and defining the relationship between a hegemonic US and the rest of the world is ambiguous—as is the question of who exactly benefits from the current arrangement. Dollar primacy feeds a growing American trade deficit that shifts the country’s economy toward the accumulation of rents rather than the growth of productivity. This has contributed to a falling labor and capital share of income, and to the ballooning cost of services such as education, medical care, and rental housing. With sicknesses like these, can we say for certain that the reserve currency confers substantial benefits to the country that provides liquidity and benchmark assets denominated in that currency?

For the rest of the world, the ills are clear enough. In developing countries, the need to insure their economies against currency crises and debt deflation has meant the accumulation of dollars at the expense of necessary domestic investment. These policies are usually accompanied by a suppression of consumption and incomes to establish a permanent trade surplus vis-à-vis the dollar system. And in many countries, the dollar system allows corrupt elites to safely transport their ill-gotten earnings to global banking centers located in jurisdictions with opaque ownership laws.

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April 17th, 2020

Inside Out

Shaping the base of a renewable economy

The transition to a post-carbon energy economy will require extraction. As the sun set on the Bernie Sanders campaign, and with it the prominence of the Green New Deal in the contest for the presidency, the Trump administration issued an executive order encouraging private US exploitation of mineral resources in space. Whatever the shape of the coming transition away from fossil fuels, the need to understand the social and distributional costs of a changing energy infrastructure has never been greater. In a new report, I survey the state of mining, near-future ploys for extra-terrestrial extraction, and the persistent externalities of extraction.

Recent years have seen growing attention to the material requirements of information technologies, and especially to the social and environmental harms of sourcing rare earths and cobalt. Researchers highlight, for example, the dependence of electric vehicles and wind power infrastructure on rare earths, or batteries on lithium. But these discussions have tended to omit emphasis on necessity of extraction, relying instead on a more familiar idiom of consumer and corporate responsibility. Both the Trump administration's vision of celestial expansion and some visions of a post-carbon future depend, stated or not, upon a continuing regime of mineral extraction and outsourced harm.

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April 3rd, 2020

Crisis and Recovery

The underlying problems in the US economy

Today’s Bureau of Labor Statistics (BLS) report hardly registers the cataclysm in the US job market. The sharp 0.9 percent uptick in unemployment—itself newsworthy—only grasps the very beginnings of the shutdown of the American economy. Since the BLS surveys were conducted in the week of March 12, 10 million people have filed for jobless benefits. Only when the April numbers are released at the beginning of next month will we begin to get a fuller statistical picture of the magnitude of the Covid-19 crash. Unemployment rates are expected to rise to 20 percent or more. Given the 10-year-long, bull run of the stock market, one might imagine that the US economy was in good shape before that crash began, and that the labor market will therefore bounce back from the novel coronavirus’s punch once the public health crisis ends. However, the opposite is true: the fundamentals of the US economy were already incredibly weak. They have been for some time. After a decade of slow economic expansion, the US labor market was barely beginning to recover from the last crisis in 2008. If the past is any guide to the future, it will likely take even longer to recover from this one. We are only starting to get a sense of the true extent of this disaster from the perspective of American workers.

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March 25th, 2020

The First Services Recession

The shape of the Covid-19 recession

It is hard to see how the United States can avoid a recession. Unemployment insurance claims have already surged, and this week's numbers look to be in the millions. All indications point to one of the fastest plunges of GDP in US history. Facing this, we may want to turn to previous American recessions to think about our immediate future. But the dynamics of this recession will be different in at least one major way from the recessions of recent memory: services. In most recessions, services are basically acyclical—they just don't move up and down with the booms and busts of the economy. The exception here is the Great Depression (see Figure 1 below), but there the decline in investment is much more severe, as is the upward swing in the recovery. Services, it seems, just don't fall that much—even in the Depression.

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February 27th, 2020

The Economics of Race

On the neoclassical and stratification theories of race

Black America has had less wealth, less income, less education, and poorer health than white America for as long as records have been kept. To account for this disparity, economists have advanced three explanations: genetic, cultural, and structural. While the first of these had mostly fallen out of favor among social scientists by the mid-20th century (until a worrying revival in recent decades), the latter two have been adopted by somewhat distinct research communities that frequently collide. According to the cultural theory, racial disparities are the result of social capital deficits. This is the view that has been most widely adopted by the mainstream of the economics profession, and I refer to it as the neoclassical economics of race. By contrast, the structural theory argues that racial disparities in socioeconomic outcomes are created and maintained over time by American institutions, which privilege White Americans at the expense of Black Americans. This view is known as stratification economics, and, as I argue here, it offers a more accurate and empirically sound explanation for racial disparities in America than its counterpart. The neoclassical and stratification approaches disagree over the causes of and remedies for racial disparities in socioeconomic outcomes and differ substantially in their understanding of income, education, wealth, and health.

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February 6th, 2020

Decision Making in a Dynamic World

Exploring the limits of Expected Utility

I once wrote a post criticizing modern microeconomic models as both overly complex and unrealistic, leading their practitioners into theoretical dead ends without much corresponding increase in explanatory power. I suggested the entire enterprise of Expected Utility (EU) was a dead end based on a mistake and that I’d eventually write about superior ways of modelling individual decision making under uncertainty. It’s been a long time coming, but below I outline why taking time into account leads to better theories of decision making, and why human psychology does a fairly good job of guiding decisions in a dynamic world.

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