Symposia and E-books

The Aspen Economic Strategy Group has published an e-book with eight essays on the broad theme: Rebuilding the Post-Pandemic Economy  (November 2021, https://www.economicstrategygroup.org/publication/rebuilding/). As one example, Benjamin F. Jones writes:

"We massively underinvest in science and innovation, with implications for our standards of living, health, national competitiveness, and capacity to respond to crisis. . . . Whether facing a pandemic, climate change, cybersecurity threats, outright conflict, or other challenges, a robust capacity to innovate—and to do so quickly—appears central to national security and national resilience. . . . [A] sustained doubling of all forms of R&D expenditure in the U.S. economy could raise U.S. productivity and real per-capita income growth rates by an additional 0.5 percentage points per year over a long time horizon. . . . In many ways, the vision of science and innovation needs to be the opposite of 'picking winners.' Rather, we need to 'pick portfolios,' with an emphasis on both increasing the scale of funding and human capital, and the diversity of approaches that are taken." 

Jones offers many concrete illustrations of broader points:  "To study DNA, it must first be replicated into measurable quantities, and this replication process depends on many prior scientific advances. One critical if unexpected advance occurred in 1969, when two University of Indiana biologists, Thomas Brock and Hudson Freeze, were exploring hot springs in Yellowstone National Park. Brock and Freeze were asking a simple question: can life exist in such hot environments? They discovered a bacterium that not only survived but thrived—a so-called extremophile organism—which they named Thermus aquaticus. . . . [T]his type of scientific inquiry was motivated by a desire for a deeper understanding of nature, and it had no obvious or immediate application. However, in the 1980s, Kary Mullis at the Cetus Corporation was searching for an enzyme that could efficiently replicate human DNA. Such replication faces a deep challenge: it needs to be conducted at high heat, where the DNA unwinds and can be copied, but at high heat replication enzymes do not hold together. Mullis, in a Eureka moment, recalled the story of Thermus aquaticus, knowing that this little bacterium must be able to replicate its DNA at high heat given its environment. And indeed, Thermus aquaticus turned out to provide what was needed. Its replication enzyme was declared by Science Magazine to be the 'molecule of the year' in 1989. Mullis would be awarded a Nobel Prize soon after, and the biotechnology industry would boom, opening new chapters of human progress."

Recession Remedies: Lessons Learned from the U.S. Economic Policy Response to COVID-19, offers nine essays edited by Wendy Edelberg, Louise Sheiner, and David Wessel (Brookings Institution, April 2022, https://www.brookings.edu/essay/recession-remedies). For example, Edelberg, Jason Furman, and Timothy F. Geithner note:

"Overall, the United States' fiscal response appears to have been much larger than the response undertaken by any other country; this was especially true in 2021, when fiscal policy was as supportive as it was in 2020. The U.S. GDP recovery has been among the strongest of any of the advanced economies, but the U.S. employment recovery has been among the weakest; this suggests that both the size of the response and, perhaps, its character and preexisting institutions all matter. . . . The economy experienced major side effects from the pandemic and associated policy response, most notably the highest inflation rate in 40 years, far outpacing the increase in wages and leading to the largest real wage declines in decades. In addition, the U.S. government incurred substantial debt during the pandemic. With the expiration of most forms of fiscal support, real household income is likely to be lower in 2022 than in 2021 and could well be below its pre-pandemic trend. As a result, poverty is on track to rise in 2022. Moreover, inflationary pressures and the efforts to moderate those pressures might bring an end to the expansion."

Sheiner's essay looks at state and local spending: "[F]ederal aid was more than sufficient to offset any revenue losses in every state. Nevertheless, state and local government employment declined sharply, and the decline has been quite persistent. . . . [I]n February 2022, the state and local sector accounted for 23 percent of the shortfall in U.S. employment from its pre-pandemic trend. . . . [G]enerous federal aid to states was clearly not sufficient to reverse or prevent all the employment losses. One important question is, why not? What did state and local governments do with the federal aid, and why didn’t they use it to increase employment?"

Justin Sandefur has edited an e-book of six essays on the theme Schooling for All: Feasible Strategies to Achieve Universal Education. (Center for Global Development, April 2022, https://www.cgdev.org/publication/schooling-all-feasible-strategies-achieve-universal-education). As one example, Biniam Bedasso writes:

"School feeding programs have emerged as one of the most common social policy interventions in a wide range of developing countries over the past few decades. Before the disruptions caused by the COVID-19 pandemic, nearly half the world’s schoolchildren, about 388 million, received a meal at school every day (WFP 2020). As such, school feeding is regarded as the most ubiquitous instrument of social protection in the world employed by developing and developed countries alike. But school feeding is also a human capital development tool. . . . A review of 11 experimental and quasi-experimental studies from low- and middle-income countries reveals that school feeding contributes to better learning outcomes at the same time as it keeps vulnerable children in school and improves gender equity in education. Although school feeding might appear cost-ineffective compared with specialized education or social protection interventions, the economies of scope it generates are likely to make it a worthwhile investment particularly in food-insecure areas."

In Jack Rossiter's essay, he estimates that the costs of universal primary and secondary school spending would be about $1.9 trillion for low- and middle-income countries in 2030, while the projected education spending for these countries is about $750 billion less. He makes a sobering case: "Even if international financing comes in line to meet targets, governments are not going to have anything like the sums that costing exercises require. We can choose to ignore this shortfall, stick with plans, and watch costs creep up. Or we can see it as a serious budget constraint, redirect our attention toward finding ways to push costs down, and try hard to get close to universal access in the next decade."

The Journal of Economic Methodology (29:1, https://www.tandfonline.com/toc/rjec20/29/1) has published a six-paper symposium for the 50th anniversary of the classic 1972 paper in the Journal of Economic Theory by Robert E. Lucas, "Expectations and the neutrality of money."

Personal essays by Thomas J. Sargent on "Learning from Lucas" and Harald Uhlig on "The lasting influence of Robert E. Lucas on Chicago economics" describe how Lucas influenced the intellectual journey of the authors. In his essay, Peter Galbács describes how the 1972 paper emerged from Lucas's earlier work: "The way Lucas arrived at his monetary island-model framework was thus a step-by-step process starting in the earliest stage of his career. The first step was the choice-theoretic analysis of firm behaviour. At this stage, Lucas's focus was on the firm’s investment decision through which he distinguished short-run and long-run reactions of the firm and the industry. . . . [This work was] shortly extended to labour market modelling—so Lucas's work with [Leonard] Rapping is rooted in his earlier record in firm microeconomics. As they assumed, the household decides on short-run labour supply on the basis of a given set of price and wage expectations, while it adjusts to long-run changes with a firm-like investment decision that implies the revision of expectations. After this second step taken in labour market modelling, the third stage realizing his Expectations and the neutrality of money (Lucas, 1970/1972a) directly followed. . . . First of all, he needed the very island-model framework. It is [Edmund] Phelps (1970, pp. 6–9) who called his attention to the option of reformulating the decision problem by scattering the agents over isolated markets, while it is [David] Cass who led Lucas to a correct mathematical exposition. However, it is [Edward] Prescott who in their collaboration prepared Lucas for this exposition; and it is also Prescott who, teamed up with Lucas, provided the paradigmatic example of applying the Muthian rational expectations hypothesis in a stochastic setting with which Lucas (1966/1981b) had formerly dealt only in the less interesting non-stochastic case."

Interviews

William Zhao interviews Jeffrey Wooldridge on "The Current and Future of Econometrics" (SciEcon AMA, March 7, 2022, https://medium.com/sciecon-ama/the-current-and-future-of-econometrics-ed30569e7edd, podcast and transcript available).

"When we publish papers, the best way to get your work published is to show that it works better than existing methods. Since the people writing the theory and deriving the methods are the same ones doing the simulations, it will probably be better if there's some disconnection there. . . . I’ve always thought that we should have more competitions, such as blind competitions where people who participate don't know what the truth is. They apply their favorite method across a bunch of different scenarios, so we can evaluate how the different methods do. I’m guessing that machine learning will come out pretty well with that, but that’s an impression. I'm not convinced that somebody using basic methods who has good intuition and is creative can't do as well. . . . I think the work on applying machine learning methods to causal inference has guaranteed that it will have a long history in econometrics and other fields that use data analysis. When I took visits to campuses, Amazon, Google, they're using machine learning methods quite a bit. That's no secret. These companies are in the business of earning profits, and they’re not going to employ methods that somehow aren’t working for them. So, I think the market is certainly speaking on that. For prediction purposes, they seem to work very well.”

Noah Smith serves as interlocutor in “Interview: Arvind Subramanian, former Chief Economic Advisor to the Government of India” (Noahpinion, https://noahpinion.substack.com/p/interview-arvind-subramanian-former).

"Great strides have not just been made in physical but digital infrastructure. In 2015, I coined a term JAM which represented the coming together of financial inclusion (the J from the Hindi "Jan Dhan"), biometric identity (the A for "Aadhaar") and telecommunications (the M for mobile). The government has used this trinity for a variety of purposes, including making direct cash transfers to the poor. In addition, a public-private partnership has created a digital, non-proprietary platform called the Unified Payment Interface (UPI) which is driving a lot of private dynamism and innovation in a number of sectors—finance, tourism, e-commerce, software solutions etc. I like to joke that India is creating unicorns roughly at the rate that it is creating chess grandmasters. While cause for cheer, this dynamism, based on skill- and technology-intensive factors of production, cannot drive structural transformation because that requires creating jobs for India's vast, relatively less skilled labor force. And India’s job situation, especially after the pandemic, is sobering.Which leads to your question about why India has not really managed to achieve scale in its manufacturing operations and why Indian capital is reticent in doing so. I suspect, although I am not sure, that there is again a lot of path-dependence here.  For a long time under the license Raj, domestic entrepreneurship was penalized. And there was a particular aversion to size, fearing the economic and political power that large firms could wield. . . . So, paradoxically, labour feels vulnerable to the power exercised by large firms but equally capital does not feel protected by the state either. So, we are in a bad equilibrium that favors small over big."   

Allison Schrager has a 50-minute interview with economic historian Joel Mokyr on the topic of “The Future Economy” (Risk Talking podcast, May 17, 2022, https://www.city-journal.org/the-future-economy-with-joel-mokyr).

"[T]he real problem is that most of the important contributions to economic welfare are often seriously, seriously, seriously underestimated in our procedures. And I believe that they are getting more and more underestimated. If the degree of underestimation is more or less constant, then you don’t care because over time if it isn’t changing over time, you can still see what the trend looks like. But I think that's not right. I think we are more and more underestimated because the knowledge economy and the digital economy are famously subject to underestimation. . . . I mean, just look at the enormous gain in human welfare that we have achieved because we were able to come up with vaccines against corona. Now, it's not a net addition to GDP because before that we didn’t have corona, but think about the subtraction we would’ve had if it wasn't for that. And so, I remain a technological optimist, but I’m also very much aware that measures that measure technological progress in a system that was designed for an economy that produced wheat and steel aren't appropriate for an economy that produces high-tech things that are produced by a knowledge economy.”

Later, Mokyr says: "'Technological progress is neither good nor bad, nor is it neutral.' This is known as Kranzberg’s law. It was Melvin Kranzberg who said that, and people keep citing that, although nobody quite knows what he meant."

Sara Frueh interviews Daniel Kahneman in “Try to Design an Approach to Making a Judgment; Don’t Just Go Into It Trusting Your Intuition” (Issues in Science and Technology, Spring 2022, https://issues.org/daniel-kahneman-interview-noise-judgment-decisionmaking/).

"Well, I think that there is widespread antipathy to algorithms, and it's a special case of people's preference for the natural over the artificial. In general we prefer something that is authentic over something that is fabricated, and we prefer something that’s human over something that is mechanical. And so we are strongly biased against algorithms. I think that's true for all of us. Other things being equal, we would prefer a diagnosis to be made or a sentence to be passed by a human rather than by an algorithm. That's an emotional thing. But that feeling has to be weighed against the fact that algorithms, when they're feasible, have major advantages over human judgment—one of them being that they are noise-free. That is, when you present the same problem to an algorithm on two occasions, you are going to get the same answer. So, that's one big advantage of algorithms. The other is that they're improvable. So, if you detect a bias or you detect something that is wrong, you can improve the algorithm much more easily than you can improve human judgment. And the third is that humans are biased and noisy. It's not as if we're talking of humans not being biased. The biases of humans are hidden by the noise in their judgment, whereas when there is a bias in an algorithm, you can see it because there is no noise to hide it. But the idea that only algorithms are biased is ridiculous; to the extent they have their biases, they learn them from people. . . . The real deep principle of what we call decision hygiene is independence. That is, you want items of information to be as independent of each other as possible. For example, you want witnesses who don't talk to each other, and preferably who saw the same event from different perspectives. You do not want all your information to be redundant. So, good decisions are decisions that are made on the basis of diverse information."

Kahneman also notes: “I have more confidence in the ability of institutions to improve their thinking than in the ability of individuals to improve their thinking."

Discussion Starters

Angelo Duarte, Jon Frost, Leonardo Gambacorta, Priscilla Koo Wilkens, and Hyun Song Shin tell the story of "Central banks, the monetary system and public payment infrastructures: lessons from Brazil's Pix" (Bank of International Settlements, BIS Bulletin #52, March 23, 2022, https://www.bis.org/publ/bisbull52.pdf).

"The BCB [Brazil Central Bank] decided in 2018 to launch an instant payment scheme developed, managed, operated and owned by the central bank. Pix was launched in November 2020. . . . The BCB plays two roles in Pix: it operates the system and it sets the overall rulebook. As a system operator, the BCB fully developed the infrastructure and operates the platform as a public good. As rulebook owner, the BCB sets the rules and technical specifications (e.g., APIs) in line with its legal mandate for retail payments. This promotes a standardised, competitive, inclusive, safe and open environment, improving the overall payment experience for end-users. Since its launch, Pix has seen remarkable growth. By end-February 2022 (15 months after launch), 114 million individuals, or 67 percent of the Brazilian adult population, had either made or received a Pix transaction. Moreover, 9.1 million companies have signed up—fully 60 percent of firms with a relationship in the national financial system."

Manvir Singh describes the evidence in “Primitive communism: Marx’s idea that societies were naturally egalitarian and communal before farming is widely influential and quite wrong” (Aeon, April 19, 2022, https://aeon.co/essays/the-idea-of-primitive-communism-is-as-seductive-as-it-is-wrong).

"The idea goes like this. Once upon a time, private property was unknown. Food went to those in need. Everyone was cared for. Then agriculture arose and, with it, ownership over land, labour and wild resources. The organic community splintered under the weight of competition. The story predates Marx and Engels. The patron saint of capitalism, Adam Smith, proposed something similar, as did the 19th-century American anthropologist Lewis Henry Morgan. Even ancient Buddhist texts described a pre-state society free of property. . . . Today, many writers and academics still treat primitive communism as a historical fact. . . . Primitive communism is appealing. It endorses an Edenic image of humanity, one in which modernity has corrupted our natural goodness."

After a review of property rights, punishments, and some examples of brutal behavior in early societies, Singh writes: "For anyone hoping to critique existing institutions, primitive communism conveniently casts modern society as a perversion of a more prosocial human nature. Yet this storytelling is counterproductive. By drawing a contrast between an angelic past and our greedy present, primitive communism blinds us to the true determinants of trust, freedom and equity."

Nuno Palma, Andrea Papadia, Thales Pereira, and Leonardo Weller discuss "Slavery and Development in Nineteenth Century Brazil" (Capitalism: A Journal of History and Economics, Summer 2021, 2:2, pp. 372–426, https://muse.jhu.edu/article/798739).

"Prior to abolition in 1888, slavery was a pronounced and pervasive feature of Brazil's economy. More African captives arrived on Brazilian shores than anywhere else in the Americas. From the sixteenth to the nineteenth century, 4.9 million Africans landed in what was a Portuguese colony in the Americas until 1808, an independent joint kingdom with Portugal from 1808 to 1822, and then the Brazilian Empire from 1822 until the Republic was proclaimed in 1889, the year after emancipation. The total number of Africans transported to Brazil corresponds to 46 percent of all the enslaved arrivals in the New World and double the number who arrived in the whole of the British Caribbean. In comparison, the slave trade to the United States was much smaller: only 388,746 slaves disembarked there . . . [T]he abolition of slavery allowed municipalities to exploit their potential to become manufacturing centers. . . . This result also highlights the presence of potential distortions in the Brazilian economy brought about by slavery: locations with high potential for industrialization, as evidenced by post-abolition developments, were actually disadvantaged earlier on due to a continued focus on cash crops fueled by the prevalence of slave-based production. If we consider the fact that slavery discouraged free migrants from settling, slavery might have also been harmful through this additional indirect channel. . . . There is no evidence that slavery benefited the societies that relied largely on it. Not only is slavery abhorrent from a modern normative perspective, but it also mostly had negative development consequences: while slave-owners and a few narrow sectors profited from it, overall society lost out. . . . The case of Brazil lends credibility to the view that slavery benefited a small elite but delayed overall economic development in the societies where it existed, as has been argued for the US South."

Jeffrey Brinkman and Jeffrey Lin discuss "The Costs and Benefits of Fixing Downtown Freeways," subtitled "Urban freeways spurred our suburban boom. Can burying them do the same for the urban core?" (Economic Insights: Federal Reserve Bank of Philadelphia, Winter 2022, 7:1, pp. 17–22, https://www.philadelphiafed.org/the-economy/the-costs-and-benefits-of-fixing-downtown-freeways).

"Using fine geographic data covering 1950 to 2010, we studied long-run changes in neighborhoods before and after the interstate highway system was built. . . . We find that in the group of central-city neighborhoods closest to freeways, population declined by 32 percent, while in the group of central neighborhoods more than 2 miles from freeways, population actually grew by 56 percent." "Using quantitative methods developed in urban economics, we simulate the effects of burying a section of I-95 from Snyder Avenue to Girard Avenue [in Philadelphia]. This roughly 4.5-mile stretch of freeway starts in South Philly and traverses the riverfront neighborhoods of Pennsport, Queen Village, Society Hill, Old City, Northern Liberties, and Fishtown. The proximity of these neighborhoods to the central business district and their high population density suggest that this might be an ideal setting for such an intervention. . . . Economic development was an important rationale for freeway construction, but not everyone benefited from the new freeways. That’s because freeways bring amenities to some neighborhoods by increasing access but disamenities to others by reducing the quality of life. Using techniques developed in recent economic research, we can quantify neighborhood amenities and thus the costs and benefits of freeway construction for individual neighborhoods and for an entire metro area. Many cities, including Philadelphia, could benefit from mitigation of freeway disamenities by covering or capping central city highways."

Áine Doris asks “Do Shoppers Have Too Many Choices? US consumer goods are proliferating rapidly, with implications for consumers and companies” (Chicago Booth Review, May 23, 2022, https://www.chicagobooth.edu/review/do-shoppers-have-too-many-choices).

"The number of 'niche' alternative products increased by 4.5 percent a year from 2004 to 2016, according to a study of consumer packaged goods [Joseph] Vavra conducted with Booth's Brent Neiman in which they analyzed data on almost 700 million transactions involving 118 different product groups. US households appear to have welcomed this product explosion. . . . Growing variety, when all else is equal, creates what economists call positive welfare effects for consumers. As companies fragment their products more and more, consumers are able to buy the things that they really like—getting closer to their optimal choice. Even better for consumers, we haven't been paying more for the additional choice. . . . Over time, the likes of General Mills, Nestlé, Procter & Gamble, and Unilever have systematically acquired and subsumed other consumer brands. This trend notionally gives them not only market share but also the lion’s share of market power by which to influence or even set prices. . . . [But] this trend is being offset by another: an upswing in competition at the individual product level. Although there are fewer companies offering products in a certain sector (say, food products), there are more companies offering them in a specific market (such as chips). That is creating more competition at the level of individual products, which keeps prices low."