↳ Staff+picks

July 1st, 2020

↳ Staff+picks

Balanced Sheets

On the conceptual and methodological stakes of Trade Wars Are Class Wars by Matthew C. Klein and Michael Pettis

Good writing on international macroeconomics reads like a detective novel. There’s a suspicious event—hundreds of millions of dollars in phantom FX swaps, a container port’s worth of missing exports—and an enormous cast of closely-linked characters. But instead of a preternatural ability to see the clear-cut means, motive, and opportunity of fictional characters in a pulp whodunit, the macroeconomic detective is armed with the knowledge that balance sheets always balance. This simple insight, that every transaction has two sides, means that there are certain aggregate relationships between transactions that must obtain for the world economy. Knowing this, it’s possible to chase actors across seemingly unrelated balance sheets to find where the system as a whole was forced to balance. From here, the skillful economist can identify the long-run tendencies that a given balance is likely to create. (Wynne Godley famously predicted the Global Financial Crisis in just this way, following US mortgage debt around the world and back.) This kind of detective work is difficult, and often unpopular. The balance sheet approach cuts through political and media platitudes to reveal who the winners and losers are in a given regime. By taking this approach to examining trade policy, Michael Pettis and Matthew Klein have, with Trade Wars Are Class Wars, written the ideal book for understanding the long-run trends that have shaped our dysfunctional present.

Pettis and Klein tell a broad story about the last fifty years of global economic development, which links the dynamics of global supply chains and tax evasion, and the historical shift from wage-led to profit-led growth.

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June 13th, 2020

Trade Wars Are Class Wars

A discussion between Adam Tooze, Michael Pettis, and Matthew Klein

Michael Pettis and Matthew Klein's new book Trade Wars Are Class Wars begins with an epigraph from John A. Hobson: "The struggle for markets, the greater eagerness of producers to sell than of consumers to buy, is the crowning proof of a false economy of distribution. Imperialism is the fruit of this false economy." Pettis and Klein's book updates the Hobsonian thesis for the twenty-first century, arguing that, while trade wars are often thought to be the result of atavistic leadership or the contrasting economic priorities of discrete nation states, they are best understood as the malign symptoms of domestic inequalities that harm workers the world over. In a panoramic account of the shifts in the global economy over the past several decades, Pettis and Klein detail the development of the economic ills that define modern international political economy. It is essential and provocative reading with broad implications for international politics, the study of inequality, and the future of the global monetary system.

On May 28, Pettis and Klein were joined by Adam Tooze, author of Crashed, for a discussion about their new book. A recording of the conversation can be watched here. The transcript was lightly edited for length and clarity.

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May 22nd, 2020

Municipal Bonds, Race, and the American City

An interview with Destin Jenkins

The rapid and expansive action taken by the Fed over the past two months in response to the coronavirus crisis has muddied the distinction between monetary and fiscal policy. In particular, its Municipal Liquidity Facility provides a path for financing emergency spending by local governments. In some optimistic accounts, MLF-backed investment has the capacity to dramatically reduce the geographical, income, and racial inequalities which have increased in recent decades. But in order to do this, the MLF must explicitly prioritize investment in these communities.

In a recent article for the Washington Post, UChicago Professor Destin Jenkins argued the historical case. In the aftermath of WWII, a municipal bond market that valued white, middle-class consumption diverted investment outside of cities and into the suburbs. Federal housing officials, mortgage bankers and real estate agents profited off of the construction of debt-financed highways, shopping malls, schools, and parks for this upwardly mobile demographic. Cities took on billions in debt, but their black, brown, and immigrant populations saw few of the benefits. Jenkins argues that the history of municipal debt is intimately tied to the history of racial disparity in American cities, and that interventions in the politics of bond markets could enable municipalities "to avoid the punitive credit ratings that devalue certain regions or populations over others."

We spoke to Jenkins last fall about his research, which focusses on the history of racial capitalism and its consequences for democracy and inequality in the United States. His forthcoming book, The Bonds of Inequality, examines the role of municipal finance in growing American cities and widening the racial wealth gap. Jenkins is the Neubauer Family Assistant Professor of History at the University of Chicago. You can follow him here

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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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January 30th, 2020

The Long History of Algorithmic Fairness

Fair algorithms from the seventeenth century to the present

As national and regional governments form expert commissions to regulate “automated decision-making,” a new corporate-sponsored field of research proposes to formalize the elusive ideal of “fairness” as a mathematical property of algorithms and especially of their outputs. Computer scientists, economists, lawyers, lobbyists, and policy reformers wish to hammer out, in advance or in place of regulation, algorithmic redefinitions of “fairness” and such legal categories as “discrimination,” “disparate impact,” and “equal opportunity.”

But general aspirations to fair algorithms have a long history. In these notes, I recount some past attempts to answer questions of fairness through the use of algorithms. My purpose is not to be exhaustive or completist, but instead to suggest some major transformations in those attempts, pointing along the way to scholarship that has informed my account.

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December 18th, 2019

Unequal and Uneven: The Geography of Higher Education Access

Mapping market concentration in the higher education industry

In much of the existing higher education literature, “college access” is understood in terms of pre-college educational attainment, social and informational networks, and financial capacity, both for tuition and living expenses. The US ranks highly on initial college access by comparison with other countries, but this access—along with all major metrics of college success, including completion rates, default rates, and debt-to-income ratios—exhibits drastic inequality along familiar lines of race, gender, class, and geography.

Along with other pernicious myths, the media stereotype of the college student often figures undergraduates traveling far from home to live in a dorm on a leafy campus. The reality is far from the case: over 50% of students enrolled in four-year public college do so close to their home. This means that the geography of higher ed institutions strongly determines the options available to a given student. While much higher education policy discourse justly attempts to improve students’ access to information on school costs, financial aid information, completion rates, or post-graduation employment statistics to inform their school choices, political attention to geographic access remains overlooked.

Previous research on the geography of higher ed has simply reported the number of institutions in a given area. But the raw number of schools is ambiguous, as it fails to account for enrollment. We wanted to complicate the picture: given the uneven distribution of higher ed institutions and institution types—public and private non-profits, as well as for-profits of all kinds—around the country, we wanted to examine what role market concentration might play in a higher education industry increasingly characterized by a wide divide between elite institutions and the landscape of what Tressie McMillan Cottom has termed "Lower Ed." Starting from the perspective that many students are not going to travel long distances to be in residence full time at a leafy campus, how many options are they realistically looking at? And what’s the relationship between concentration, disparities on the basis of race, class, and geography, institutions’ resulting market power, and college cost, debt loads, and post-graduate earnings?

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October 24th, 2019

Exploitation, Cooperation, and Distributive Justice

An interview with John Roemer

Throughout his career, John Roemer's work has been uniquely situated between the fields of microeconomics, game theory, philosophy, and political science. His research makes use of the tools of classical economics to analyze dynamics typically thought to be outside the scope of economics: from notions of fairness and morality, to the possibility of overcoming capitalist social relations. In doing so, it defends those tools against charges that they can’t describe the behaviors we see, at the same time as it renders vital social questions digestible for disciplines that rarely engage them.

Roemer is perhaps best known for his contributions to theories of distributive justice. Within the field of moral philosophy, he is one of a handful of scholars who have sought to formalize distributive theories in order to compare their merits. To moral philosophers, he argues that outright dismissal of consequentialist theories of justice, and their replacement by complicated deontological models, is a mistake. And to the world of economics, he posits that economic theory cannot be divorced from moral philosophy—that the emphasis on reaching equilibrium itself necessarily carries moral assumptions.

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October 17th, 2019

Disparate Causes, pt. II

On the hunt for the correct counterfactual

An accurate understanding of the nature of race in our society is a prerequisite for an adequate normative theory of discrimination. If, as part one of this post suggests, limiting discrimination to only direct effects of race misunderstands the nature of living as a raced subject in a raced society, then perhaps the extension of the scope of discrimination to also include indirect effects of race would better approximate the social constructivist view of race.

Recent approaches to causal and counterfactual fairness seek fair decision procedures “achieved by correcting the variables that are descendants of the protected attribute along unfair pathways.”1 The method, thus, cancels out certain effects that are downstream of race in the diagram, thereby retaining only those path-specific effects of race that are considered fair. Despite the expanded scope of what counts as a discriminatory effect, the logic of the Path-Specific Effects method follows that of the original Pearlian causal counterfactual model of discrimination: race, as a sensitive attribute, is toggled white or black atop a causal diagram, and its effect cascades down various paths leading to the outcome variable. But, this time, the causal fairness technician does more than measure and limit the direct effect of race on the final outcome; she now also measures effects of race that are mediated by other attributes, keeping only those effects carried along paths deemed “fair.”

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