# Phenomenal World

## MIDDLE WAGE

Economist STEVE KNAUSS, in a new paper published by the CANADIAN JOURNAL OF DEVELOPMENT STUDIES, examines the "myth" of the global middle class and the claim that the $2/day measurement tells us anything substantive about poverty and inequality around the world. "On the defensive in recent years, advocates of globalization have taken to highlighting achievements in developing countries, where globalization has supposedly pulled the majority out of poverty and catapulted them into the swelling "global middle class" remaking our world. This article provides a critical look at this interpretation. Carefully reviewing the global income distribution data behind such claims, it presents original calculations that generate new stylized facts for the globalization era. The global income distribution approach does potentially have much to offer in terms of revealing the complexity of these changes, but in order to do so, greater attention and resources should be devoted to deepening our knowledge of the socio-historical changes underpinning the new realities of class formation and how they relate to the observed changes in global incomes. Instead of, or in addition to, constructing groups according to income thresholds, or national/global based deciles, ventiles or percentiles, more research should start from the other end, identifying national and global groups based on similarities in class formation and then attempting to trace such trajectories through the global income distribution." Link to the article, and link to an ungated manuscript version. Jason Hickel comments: "The question is: does their new petty income from the informal sector compensate for their loss of rural land, livestock, etc? It is not clear that it does. Therefore, we cannot say that this is a straightforward narrative of 'progress'—at least not in all regions." Link to Hickel's thread. • Development economist Morten Jerven with a 2010 paper diving into the metrics question in the context of poverty in Africa: "The article therefore concludes that it is futile to use GDP estimates to prove a link between income today and existence of pro-growth institutions in the past, and recommends a searching reconsideration of the almost exclusive use of GDP as a measure of relative development." Link. ### September 22nd, 2018 ## Red Wall ## MATERIAL UNDERSTANDING ### The full resource stack needed for Amazon's Echo to "turn on the lights" In a novel new project, KATE CRAWFORD and VLADAN JOLER present an "anatomical case study" of the human labor, data, and planetary resources necessary for the functioning of an Amazon Echo. A 21-part essay accompanies an anatomical map (pictured above), making the case for the importance of understanding the complex resource networks that make up the "technical infrastructures" threaded through daily life: "At this moment in the 21st century, we see a new form of extractivism that is well underway: one that reaches into the furthest corners of the biosphere and the deepest layers of human cognitive and affective being. Many of the assumptions about human life made by machine learning systems are narrow, normative and laden with error. Yet they are inscribing and building those assumptions into a new world, and will increasingly play a role in how opportunities, wealth, and knowledge are distributed. The stack that is required to interact with an Amazon Echo goes well beyond the multi-layered 'technical stack' of data modeling, hardware, servers and networks. The full stack reaches much further into capital, labor and nature, and demands an enormous amount of each. Put simply: each small moment of convenience – be it answering a question, turning on a light, or playing a song – requires a vast planetary network, fueled by the extraction of non-renewable materials, labor, and data. The scale of resources required is many magnitudes greater than the energy and labor it would take a human to operate a household appliance or flick a switch." Link to the full essay and map. • More on the nuanced ethical dilemmas of digital technology: "Instead of being passive victims of (digital) technology, we create technology and the material, conceptual, or ethical environments, possibilities, or affordances for its production of use; this makes us also responsible for the space of possibilities that we create." Link. • As shared in our April newsletter, Tim Hwang discusses how hardware influences the progress and development of AI. Link. ### September 15th, 2018 ## The Marshes ## THE JANUS FACE ### The paradoxical outcomes of university-centered economic growth A recent paper by RICHARD FLORIDA and RUBEN GAETANI takes an empirical look at the role of research universities in anchoring local economies and driving economic growth. The paper examines the density of patenting and financial investment within the internal geographies of specific American cities and argues that knowledge agglomeration exacerbates economic, occupational, and spatial segregation. “Although universities certainly affect national levels of innovation and growth, research has shown that they tend to affect innovation and growth by operating through more localized channels. The roles played by Stanford University in the rise and economic performance of Silicon Valley and of MIT in the Boston-Cambridge ecosystem are cases in point. Universities constitute a rare, irreproducible asset at the local level. At the same time, it is increasingly clear that the knowledge-economy metros and so-called college towns suffer from relatively high levels of inequality and segregation.” Set to be released in the October issue of MANAGERIAL & DECISION ECONOMICS, the paper presents a nuanced exploration of agglomeration economies and complicates the use of universities as levers for economic revitalization, job creation, and mutual prosperity. Link to the working paper. • As spotlighted in a November newsletter, Lyman Stone discusses national problems with the role of the US higher education system: “The problems we face are: (1) the regional returns to higher education are too localized, (2) the price of higher education is bid up very high, (3) the traditional entrepreneurial player, state governments, is financially strained or unwilling, (4) private entrance is systematically suppressed by unavoidable market features.” Link. • At CityLab, Richard Florida examined venture-capital invested start-ups and found they disproportionately clustered in metropolitan regions with high-performing universities. Link. • For a deep dive into the role universities play in economic and spatial development, see Margaret O’Mara’s book on Cold War era “Cities of Knowledge." Link. ### September 8th, 2018 ## Very First Stone ## WEALTH BEGETS WEALTH ### Matt Bruenig's Social Wealth Fund proposal, and responses Last week, MATT BRUENIG of the PEOPLE’S POLICY PROJECT published the most detailed version of a bold policy he’s been writing about for a long time: a Social Wealth Fund for America. “If we want to get serious about reducing wealth and income inequality, then we have to get serious about breaking up this extreme concentration of wealth. A dividend-paying social wealth fund provides a natural solution to this problem. It reduces wealth inequality by moving wealth out of the hands of the rich who currently own it and into a collective fund that everyone in the country owns an equal part of. It then reduces income inequality by redirecting capital income away from the affluent and parceling it out as a universal basic dividend that goes out to everyone in society.” The full report contains history on Sweden and Norway, information on the Alaska Permanent Fund, and then a sketch of the “American Solidarity Fund,” including funding and governance. The report stakes conceptual ground, and doesn’t offer new macroeconomic analysis. Link. • Matt Yglesias summarizes and adds context in Vox, noting that Bruenig’s political angle is not imperative for the SWF idea. Other proposals for government stock ownership “invariably conceptualize the government as a silent partner in the enterprises it would partially own, trying to find a way for the government to reap the fiscal or economic benefits of government stock ownership without the socialistic implications of government officials running private firms. Bruenig’s proposal is the opposite of that, a way to put real meat on the bones of “democratic socialism” at a time when the phrase is gaining momentum as a slogan and an organizing project but also, to an extent, lacks clear definition.” Link. • In an illustration of Yglesias’s point, Roger Farmer, who has suggested funding a SWF through countercyclical asset purchases, makes his ideological differences clear on Twitter: “You don’t have to be a Democratic Socialist to see value in a scheme whereby government borrows and invests in the stock market…unlike Matt Bruenig I do not see this as a tool for political control of corporate agendas and I have advocated that the Treasury purchase an index fund of non-voting shares.” Link. • Mike Konczal criticizes the SWF idea along multiple lines. “We want shareholders to ruthlessly extract profits, but here for the public, yet we also want the viciousness of market relations subjected to the broader good. Approaching this as shareholders is probably the worst point of contact to try and fix this essential conflict.” Link. • Bruenig responds to Konczal. Link. • Peter Gowan expands on the idea in Jacobin: “Following [Rudolf] Meidner, I think it is worth considering multiple social wealth funds to be established along sectoral lines.” Link. • Rachel Cohen gets responses from Peter Barnes and others in the Intercept. [Link](https://theintercept.com/2018/08/28/social-wealth-fund-united-stat ### September 1st, 2018 ## The Braid ## CONSTRAINED POSSIBILITIES ### On the relationship between academic economics and public policy In a recent working paper, ELIZABETH POPP BERMAN discusses the interconnected fields of academic economics and public policy. The paper conceptualizes the translation of certain academic ideas into public policy, clarifying the relation by describing different economic theories as having certain “affordances”: "I borrow the concept of affordances, which has been used widely to describe how particular technologies proved the potential for some kinds of action but not others. I suggest that knowledge, like technologies, may afford some possibilities but not others. In particular, some theories produce knowledge that, simply because of the kind of knowledge it is, is useful and usable for particular actors in the policy field, while others, regardless of their truth or the accuracy with which they describe the world, do not.” The paper also examines the gap between academic theory and policy application and includes takeaways for those interested in the role of academic experts in the process of policy creation: "It is important to recognize the relative autonomy of the academic field from the policy field. While outside groups may support one school of thought or another, the development of academic disciplines is not determined solely by who has the most money, but also by stakes—including intellectual stakes—specific to the academic field. Similarly, while the academic and policy fields may be linked in ways that facilitate the transmission of people and ideas, the academic dominance of a particular approach does not translate to policy dominance, even given influential champions.” Link to full paper. ht Michael • This work builds off a 2014 paper Berman co-authored with David Hirschman, which also explores the degree to which economists, their tools and ideas, influence and create policy. Similar to the concept of “affordances”, Berman and Hirschman argue that “economic style can shape how policymakers approach problems, even if they ignore the specific recommendations of trained economists.” Link. • A 2010 paper offers a new framework for properly assessing research impact, which includes quantifying conventional citation data as well as other qualitative outputs. Link. ## PRESCIENT HEGEMON ### Branko Milanovic with a speculative paper on globalization from the turn of the millennium Back in 1999, economist Branko Milanovic wrote a ("several times rejected") paper proposing three periods of globalization—the third being the present one—and the countervailing ideologies that sprang up to contest the first two. From the paper: “We are currently standing at the threshold of the Third Globalization. the Roman-led one of the 2nd-4th century, the British-led one of the 19th century, and the current one led by the United States. Each of them not only had a hegemon country but was associated with a specific ideology. However, in reaction to the dominant ideology and the effects of globalization (cultural domination, increasing awareness of economic inequities) an alternative ideology (in the first case, Christianity, in the second, Communism) sprang up. The alternative ideology uses the technological means supplied by the globalizers to subvert or attack the dominant ideological paradigm." Read the full paper here. • For more Milanovic on the politics of globalization, slides from a recent presentation of his on global inequality and its political consequences features much of relevance to this vintage paper. Some of its broader questions: "Does global equality of opportunity matter? Is 'citizenship rent' morally acceptable? What is the 'optimal' global income distribution? Can something 'good' (global middle class) be the result of something 'bad' (shrinking of national middle classes and rising income inequality)? Are we back to Mandeville?" Link. ### August 25th, 2018 ## A Ship So Big, A Bridge Cringes ## SPATIAL PARAMETERS ### On place-based and adaptable public policy A recent report published by BROOKINGS INSTITUTE discusses the potential effectiveness of place-based policies for strengthening the economies of depressed areas. Co-authored by Harvard’s BENJAMIN AUSTIN, EDWARD GLAESER, and LAWRENCE H. SUMMERS, the report emphasizes that region-specific, flexible policies may best foster a nation-wide equilibrium: "Traditionally, economists have been skeptical towards [place-based] policies because of a conviction that relief is best targeted towards poor people not poor places, because incomes in poor areas were converging towards incomes in rich areas anyway, and because of fears that favoring one location would impoverish another. This paper argues for reconsidering place-based policies ... Indeed, even the most diehard opponent of place-based redistribution should see the logic of tailoring Federal policies to local labor market conditions. Standard social policy rules, like the Bailey (1976)—Chetty (2006) formula for unemployment insurance, depend on parameters that differ across space. If non-employment is particularly harmful in one location and particularly sensitive to public policies, then that diehard could still support a place-based revenue-neutral twist that reallocates funds from benefits that subsidize not working to benefits that encourage employment, without encouraging migration or raising housing prices.” Link to full paper. The two main policy recommendations are an expanded EITC and subsidies for employment. ### August 18th, 2018 ## House Fronts ## COMPENSATION TREATMENT ### In Iran, cash transfers don't reduce labor supply A new study examines the effects of Iran's changeover from energy subsidies to cash transfers. From the abstract, by DJAVAD SALEHI-ISFAHANI and MOHAMMED H. MOSTAFAVI-DEHZOOEI of the ECONOMIC RESEARCH FORUM: “This paper examines the impact of a national cash transfer program on labor supply in Iran. [...] We find no evidence that cash transfers reduced labor supply, in terms of hours worked or labor force participation. To the contrary, we find positive effects on the labor supply of women and self-employed men.” Most recent version here. The ungated working paper is available here. • Another paper co-authored by Salehi-Isfahani further details the energy subsidies program and the role that cash transfers played in the reforms, with a specific focus on differences in take-up. Link. • We’ve previously shared work from Damon Jones and Ioana Marinescu on the Alaska Permanent Fund dividend, which found that “a universal and permanent cash transfer does not significantly decrease aggregate employment.” Link. • In other Basic Income news, petitions and protests are being organized in response to the cancellation of the Ontario pilot. ### August 11th, 2018 ## Constellation ## ALCHEMIST STOCK ### Automation, employment, and capital investment At his blog STUMBLING AND MUMBLING, CHRIS DILLOW discusses recent reporting on rapid automation fears in the United Kingdom: "'More than six million workers are worried their jobs could be replaced by machines over the next decade' says the Guardian. This raises a longstanding paradox – that, especially in the UK, the robot economy is much more discussed than observed. What I mean is that the last few years have seen pretty much the exact opposite of this. Employment has grown nicely whilst capital spending has been sluggish. The ONS says that 'annual growth in gross fixed capital formation has been slowing consistently since 2014.' And the OECD reports that the UK has one of the lowest usages of industrial robots in the western world. My chart, taken from the Bank of England and ONS, puts this into historic context. It shows that the gap between the growth of the non-dwellings capital stock and employment growth has been lower in recent years than at any time since 1945. The time to worry about machines taking people’s jobs was the 60s and 70s, not today.… If we looked only at the macro data, we’d fear that people are taking robots' jobs – not vice versa." Link to the post. ### August 4th, 2018 ## The Great Abundance ## ENERGY BOOM ### A new carbon tax proposal and a big new carbon tax research report Representative Carlos Curbelo (R-FL) introduced a carbon tax bill to the House last week (though it is “sure to fail” with the current government, it's unusual to see a carbon tax proposed by a Republican). According to Reuters, “Curbelo said the tax would generate$700 billion in revenue over a decade for infrastructure investments.” A deep analysis is available from The Center on Global Energy Policy at Columbia SIPA, which started up a Carbon Tax Initiative this year.

For a broader look at carbon taxes, earlier this month the Columbia initiative published a significant four-part series on the “economic, energy, and environmental implications of federal carbon taxes” (press release here).

The overview covers impacts on energy sources:

“The effects of a carbon tax on prices are largest for energy produced by coal, followed by oil, then natural gas, due to the difference in carbon intensity of each fuel. Every additional dollar per ton of the carbon tax increases prices at the pump by slightly more than one cent per gallon for gasoline and slightly less than one cent per gallon for diesel.”

And examines a few possible revenue uses:

“How the carbon tax revenue is used is the major differentiating factor in distributional outcomes. A carbon tax policy can be progressive, regressive, or neither.”

Overview here. Link to report on energy and environmental implications; link to report on distributional implications; link to report on implications for the economy and household welfare.

## BANKING AS ART

### On the history of economists in central banks

A recent paper by FRANÇOIS CLAVEAU and JÉRÉMIE DION applies quantitative methods to the historical study of central banks, demonstrating the transition of central banking from an "esoteric art" to a science, the growth of economics research within central banking institutions, and the corresponding rise in the dominance of central banks in the field of monetary economics. From the paper:

"We study one type of organization, central banks, and its changing relationship with economic science. Our results point unambiguously toward a growing dominance of central banks in the specialized field of monetary economics. Central banks have swelling research armies, they publish a growing share of the articles in specialized scholarly journals, and these articles tend to have more impact today than the articles produced outside central banks."

Link to the paper, which contains a vivid 1929 dialogue between Keynes and Sir Ernest Musgrave Harvey of the Bank of England, who asserts, "It is a dangerous thing to start giving reasons."

h/t to the always-excellent Beatrice Cherrier who highlighted this work in a brief thread and included some visualizations, including this one showing the publishing rate of central banking researchers:

• Via both Cherrier and the paper, a brief Economist article on the crucial significance of the central banking conference in Jackson Hole, hosted by the Federal Reserve Bank of Kansas City: "Davos for central bankers." Link. (And link to an official history of the conference.)
• Another paper co-authored by Claveau looks at the history of specialties in economics, using quantitative methods to map the importance of sets of ideas through time. "Among our results, especially noteworthy are (1) the clear-cut existence of ten families of specialties, (2) the disappearance in the late 1970s of a specialty focused on general economic theory, (3) the dispersal of the econometrics-centered specialty in the early 1990s and the ensuing importance of specific econometric methods for the identity of many specialties since the 1990s, and (4) the low level of specialization of individual economists throughout the period in contrast to physicists as early as the late 1960s." Link