Work requirements

The debate over work requirements for social programs is hot and heavy. I'll chime in there as I don't think even the Wall Street Journal Editorial pages have stated the issue clearly from an economic point of view.  As usual, it's getting obfuscated in a moral cloud by both sides: How could you be so heartless as to force unfortunate people to work, vs. how immoral it is to subsidize indolence, and value of the "culture" of self-sufficiency. 

Economics, as usual, offers a straightforward value-free way to think about the issue: Incentives. When you put all our social programs together, low income Americans face roughly 100% marginal tax rates. Earn an extra dollar, lose a dollar of benefits. It's not that simple, of course, with multiple cliffs of infinite tax rates (earn an extra cent, lose a program entirely), and depends on how many and which programs people sign up for. But the order of magnitude is right. 

The incentive effect is clear: don't work (legally). As Phil Gramm and Mike Solon report, 

Since 1967, average inflation-adjusted transfer payments to low-income households—the bottom 20%—have grown from $9,677 to $45,389. During that same period, the percentage of prime working-age adults in the bottom 20% of income earners who actually worked collapsed from 68% to 36%.

36%. The latter number is my main point, we'll get to cost later. Similarly, the WSJ points to  a report by Jonathan Bain and Jonathan Ingram at the Foundation for Government Accountability that

there are four million able-bodied adults without dependents on food stamps, and three in four don’t work at all. Less than 3% work full-time.

3%. 

Incentives are a budget constraint to government policy, hard and immutable. Your feelings about people one way or another do not move the incentives at all. A gift of money with an income phase-out leads people to work less, and to require more gifts of money.  That's just a fact. 

What to do? 

Cheers for Powell

 Jay Powell's Stockholm speech lays it out with Gettysburg address clarity and brevity. Relative to usual central-bankerese it's soaring rhetoric too. 

...Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public's will as expressed through elections.

... without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a "climate policymaker."

Gramm, Early and the Unfixable Problem

Phil Gramm and John Early have a new WSJ oped, based on their smashing new book. Both are based on an astounding fact: The numbers used by the Census Bureau, and countless following researchers, to define income inequality and poverty do not include taxes, which reduce income of the rich, and transfers, which increase income of the poor. The latter, obviously, matters to just how many Americans fall in the Census Bureau's definition of poverty.

Specifically, in the oped, the new refundable tax credit cannot, by arithmetic, do anything to alleviate measured child poverty because 

"the income numbers used to calculate the official poverty rates don’t count refundable tax credits as income to the recipients. "

This is wonderful for advocates of ever larger transfer programs, as it creates a problem that can never be measured to be fixed! 

The more general issue 

The Census Bureau fails to count two-thirds of all government transfer payments to households in the income numbers it uses to calculate not only poverty levels but also income inequality and income growth. In addition to not counting refundable tax credits, which are paid by checks from the U.S. Treasury, the official Census Bureau measure doesn’t count food stamps, Medicaid, the Children’s Health Insurance Program, rent subsidies, energy subsidies and health-insurance subsidies under the Affordable Care Act. In total, benefits provided in more than 100 other federal, state and local transfer payments aren’t counted by the Census Bureau as income to the recipients

The book goes on to show how this startling omission overturns just about everything you've heard from the hyperventilating classes about income inequality. Granted, spending zillions on rotten health insurance that people value much less than a dollar per dollar is not quite the same as cash, but there are lots of cash or cash equivalent transfers in there. 

A question I do not know the answer to: Do means-tested programs count as "income" the transfers from other means-tested programs? If a program is only available to, say, those with less than $50,000 per year income, does that figure include any other means-tested programs?  Even the ones that send cash, rather than in-kind transfers such as rent, energy, and health insurance subsidies? I suspect largely no. If not, the incentives for means-tested programs are far worse than even they appear. Facts welcome.

One might easily respond that ok, but evil capitalism created wider pre-tax pre-transfer inequality, and only by the grace of larger and larger transfers has some measure of stability been restored. Well, which is the cause and which is the effect -- wider pre-tax pre-transfer inequality, or the large expansion of means-tested programs, all of which add to the stupendous marginal tax rates facing Americans with less opportunity? The book goes on to argue convincingly the latter. I'll cover that later. Noting here, they anticipate the argument. 

How much do interest rates help?

So if the Fed raises interest rates, how much and how soon will that help inflation? For another project, I went back to Valerie Ramey's classic review. Here is her replication and update of two classic estimates: 

Two estimates of the effect of monetary policy shocks. Top:  Christiano et al. (1999) identification. 1965m1–1995m6 full specification: solid black lines; 1983m1–2007m12 full specification: short dashed blue lines; 1983m1–2007m12, omits money and reserves: long-dashed red lines. Light gray bands are 90% confidence bands. Bottom: Romer and Romer monetary shock. Coibion VAR 1969m3–1996m12: solid black lines; 1983m1–2007m12: short dashed blue lines; 1969m3–2007m12: long- dashed red lines. Source: Ramey (2016)

The left side tells us what the federal funds rate typically does after the Fed raises it. The right shows the effect of the rate rise on the level of the CPI. Inflation is the slope of the curve. The horizontal axis is quarters. The top panel uses a vector autoregression. The bottom panel uses the Romer and Romer reading of the Fed minutes to isolate a monetary policy shock. 

Top pane (VAR): Multiplying by 10, a 2 percentage point rise in the funds rate (blue dash) might lower cumulative inflation by one percentage point in three years (12 quarters), before it runs out of steam. The black line is the most hopeful, but it is essentially the 1980 experience. Still, multiplying by 5, a 2 percentage point rise in the funds rate only lowers inflation half a percent in those first three years (12 quarters), though after 10 years (40 quarters) you get a full percentage point reduction in the price level.

Bottom panel (Narrative): In  the black and red lines that include the 1980 shock, a 3% rise in interest rate produces no noticeable decline in inflation for the first three years. 10 years later, the price level is a decent 4 percent lower, but that is 0.4% per year reduction in inflation. The blue lines that exclude 1980 show a plausible longer-lasting shock, but 1% higher interest rate only produces 1% lower price level in 10 years, m 0.1% per year. 

The problem is the ephemeral Phillips curve, which I emphasized in my WSJ oped. In the VARs, the Fed is pretty good at inducing a recession. Here are the Romer-Romer shocks' effects on output and unemployment: 

It's just that inducing recessions is not particularly effective at lowering inflation. 

And I cherry picked good looking graphs. Many estimates don't find any effect on inflation, or even a positive one: 

No theory today, just the facts. This is the empirical basis for the idea that the Fed can swiftly stop inflation by raising interest rates. The underlying machinery does the best that 50 years on the topic has been able to do to separate causation from correlation, and to isolate the Fed's actions from other influences on inflation. Perfect, no, but this is what we have. 

Perhaps counting on the Fed to stop inflation all by itself is not such a great idea. And I don't have in mind more jawboning and WIN buttons. 

Update: A few Twitter commenters say that we really don't get much out of "normal times" and we have to look to big "regime shifts." 1980 is an example, and the results with and without 1980 are telling. But that is perhaps the point. If so, then it will take a "regime shift" to tame inflation not the usual "tools." 

  

AEA P&P, a measure of an organization

The American Economics Association papers and proceedings are out. This is a selection of the selection of papers presented at the AEA annual meetings. It tells you a lot about where the economics profession is--what papers are submitted--and also where the AEA as our (so far) premier professional organization is--what papers got included -- and perhaps more interestingly, where it isn't. 

Here are the papers. The AEA put the sessions in random order; I reorganized by rough topic. Of course many of the topics have intersectional elements so this isn't perfect either. Comments below, but you should read the raw data first and find your own inferences. 

AEA DISTINGUISHED LECTURE

On the Dynamics of Human Behavior: The Past, Present, and Future of Culture, Conflict, and Cooperation

Race

RACE, GENDER, AND FINANCIAL WELL-BEING

• Black Land Loss: 1920−1997
• Intersectionality and Financial Inclusion in the United States
• At the Intersection of Race, Occupational Status, and Middle-Class Attainment in Young Adulthood
• Child-to-Parent Intergenerational Transfers, Social Security, and Child Wealth Building

RACISM IN THE UNITED STATES: EVIDENCE FROM ECONOMIC HISTORY

• Media Access and Consumption in the Civil Rights Era
• On the Impact of Federal Housing Policies on Racial Inequality
• Sundown Towns and Racial Exclusion: The Southern White Diaspora and the "Great Retreat"
• Discrimination, Segregation, Integration, and Expropriation

The Phillips Curve

Behold the Phillips curve, one more statistical correlation treated as an eternal verity that our inflationary era has just undermined. 

From 2007 to 2019, the standard observation was "The Phillips curve has become flat." Large changes in unemployment correspond to very little change in inflation, or small changes in inflation correspond to huge changes in unemployment, depending on which causal (mis) reading of the correlation you choose. To the optimist, allowing a tiny bit of inflation could dramatically reduce unemployment. To the pessimist, it would take immense unemployment to do anything about inflation, should we have to.

Then came the pandemic. Unemployment shot up with no change in inflation, right on the curve. 

Then came the inflation. The Phillips curve woke up. It's almost vertical! (The scales of the two axes are different). 

Much Fed and commentator thinking relies on the Phillips curve. It's the central way interest rates affect inflation, in conventional thinking. High interest rates raise real interest rates lower aggregate demand cause unemployment which causes via the Phillips curve, lower inflation. 

Clearly, something is very wrong here. Maybe expectations shift. Maybe supply shocks do matter after all. Surely one should start with a serious dynamic Phillips curve, as most macro literature does. Maybe the Phillips curve is flexible up but sticky down, and the natural rate shifts around.  Maybe prices are sticky until they aren't. As Bob Lucas showed long ago, the slope of the Phillips curve depends on the volatility of inflation. Countries with volatile inflation get no output boost from additional inflation. Thousands of epicycles can be added, and this post is a bit of an invitation to do so. Or maybe the Phillips curve was just a correlation after all, hiding a deeper reality. (My view, but for another blog post). 

In the meantime, it's another good warning not to take statistical correlations too seriously, and certainly not as causally as we tend to do. Such as inflation will always be 2%. Such as real interest rates are on a permanent downward trend? 

This time of inflation will lead us to rewrite an awful lot of macroeconomics. 

What's in the reconciliation bill? A conversation with Casey Mulligan.

 A podcast discussion with Casey Mulligan. What's in the reconciliation bill? How will it work? 

Link to the podcast page, with lots of other formats. 

Yesterday Casey tweeted that he had read the entire 2,400 page bill. Casey does this sort of thing, as explained in his book "Your'e hired." I have been trying to figure out what's in it for a while. The media coverage is basically absent. (See this great Marginal Revolution post and Bloomberg column (gated, sadly) by Tyler Cowen.) I tried downloading the actual bill too, but promptly fell asleep. (Casey has some good hints on how to read it.) 

But here we are, about to embark on a huge set of new federal programs, really larger than anything since the Johnson Administration, and there is essentially no description of what they are, no debate on how they will work, and especially (my hobby horse) what incentives and disincentives they provide. Many of the previous welfare-state programs were disastrous for the supposed beneficiaries. How are we going to avoid that again? At most we talk about top line numbers. I'm a debt hawk, but if we could heal the planet, end all inequity, bring full social racial and gender justice, wipe out poverty, give every American a life of dignity, prosperity, and opportunity for a mere $3.5 trillion, I'm in. Double it. The real question is whether any of this will happen. 

Well, Casey read the bill and knows what's in it! Tune in to find out.. 

PS, I hope to get the podcast going more regularly this fall,

Update: 

A summary and review from David Henderson. 

Casey writes a detailed blog post on BBB disincentives. 

Inequality/opportunity survey

I was interested by a simple survey run by the Archbridge Institute on attitudes regarding inequality vs. opportunity, and  equality vs. equity issues. 

Reducing inequality, "there should be no Billionaires" is only the top issue for a quarter of people. Equality of opportunity, and help for those on the bottom garner about 60%. The demographic consistency is interesting. Yes, the young and the credentialed skew more left -- our education system is passing on its values. But not nearly as much as you'd think. Minorities are not much different than the rest. Redistributionist opinions are a bit of a luxury belief, but again not as much as you'd think. 

The meaning of "equality," the founding concept of our nation (Jefferson) is even more stark. Equity -- end up in the same place -- scores dismally. Even starting in the same place scores dismally. Extra help for the disadvantaged, something I would choose as #2 goal, scores dismally. "Equality before the law and people have a fair chance to pursue opportunity regardless of where they started" is the overwhelming winner. Again, the demographic consistency is surprising relative to the Standard Narrative. And heart-warming.

What is the best way to get ahead economically? Employment, college degree, and family and social support completely drown out even the fable of "well-designed" government assistance programs. 

The report goes on like this, with a nice executive summary. 

Even around Hoover, I hear passed along a conventional wisdom: Income inequality is a Huge Problem. It will lead to social and political unrest. "We" must do something about it or our country will fall apart. 

Not, apparently, according to vast quantities of survey respondents. Opportunity remains a problem in the US, and if I were to design something to appeal to these survey respondents, that's the word I would be using. 

Infrastructure and jobs

William Gropper, Construction of the Dam, 1938

To many on the left, it's always 1933. Building "roads and bridges" will "create jobs," soaking up the mass army of unemployed desperate for work that they seem to see. 

Driving around though, I notice that we build roads with big machines, not lots of people. And construction jobs are high-skill jobs, not people with shovels. "Shovel-ready" itself is a misnomer. Nobody uses shovels on a construction site anymore, they use a backhoe. Neither you, reading this, nor I, nor an unemployed Wal-Mart greeter or bartender could do much of anything useful on a road construction site. 

On a lark, I went to the Bureau of Labor Statistics to see just how many people are employed on roads and bridge construction. 

	Latest	Feb-Mar change
Total nonfarm	144,120.0	916
Construction of buildings	1,689.3	17.8
Heavy and civil engineering construction	1,062.9	27.3
Water and sewer system construction	183.8
Oil and gas pipeline construction	134.9
Power and communication system construction	211.3
Highway street and bridge construction	338.3
Specialty trade contractors	4,714.2	65.0

For perspective, total nonfarm employment is 144 million people, up nearly a million in the last month. That's a lot, usually 200,000 is a good month. Well, we're recovering fast from the pandemic. In case you didn't hear the pounding of nails, building construction employees 1.6 million people, with 4.7 million more in the trades. (We're not so much building new housing as building in new places.) 

Total unemployment is 9.7 million right now, down from 23 million at its peak. 

Roads and bridges employ 338,000 people. The total is a half of this month's gain alone.  We could use some water construction here in California, though it's not going to happen, and with only 184,000 people employed there looks to be room to expand. 135,000 are building oil and gas pipelines. Uh-oh.

Ip on Bidenomics

Greg Ip has a great column in the WSJ on Bidenomics.  It's not long, it's so well written that it's hard to condense the good parts, and you should really read it all. 

There is an intellectual framework to Bidenomics, and with that a scarily more durable move on economic policy. 

There used to be 

"certain rules about how the world worked: governments should avoid deficits, liberalize trade and trust in markets. Taxes and social programs shouldn’t discourage work."

By contrast President Biden's (really his team's) "embrace of bigger government" is founded on different economic ideas. To wit, abridged: 

Growth

Old view: Scarcity is the default condition of economies: the demand for goods, services, labor and capital is limitless, their supply is limited. ...faster growth requires raising potential by increasing incentives to work and invest. Macroeconomic tools—monetary and fiscal policy—are only occasionally needed to deal with recessions and inflation.

New view: Slack is the default condition of economies. Growth is held back not by supply but chronic lack of demand, calling for continuously stimulative fiscal and monetary policy. J.W. Mason.. said, that “‘depression economics’ applies basically all of the time.”

I guess I'm an old fogie. 

Defining inequality so it can't be fixed

In one of their series of excellent WSJ essays, Phil Gramm and John Early notice that conventional income inequality numbers report the distribution of income before taxes and transfers. After taxes and transfers, income inequality is flat or decreasing, depending on your starting point. 

Source: Phil Gramm and John Early in the Wall Street Journal

If your game is to argue for more taxes and transfers to fix income inequality, that is a dandy subterfuge as no amount of taxing and transferring can ever improve the measured problem! 

Summers tweet stream on secular stagnation

Larry Summers has an interesting tweet stream (HT Marginal Revolution) on the state of monetary policy. Much I agree with and find insightful:

Can central banking as we know it be the primary tool of macroeconomic stabilization in the industrial world over the next decade?...There is little room for interest rate cuts..QE and forward guidance have been tried on a substantial scale....It is hard to believe that changing adverbs here and there or altering the timing of press conferences or the mode of presenting projections is consequential...interest rates stuck at zero with no real prospect of escape - is now the confident market expectation in Europe & Japan, with essentially zero or negative yields over a generation....The one thing that was taught as axiomatic to economics students around the world was that monetary authorities could over the long term create as much inflation as they wanted through monetary policy. This proposition is now very much in doubt.

Agreed so far, and well put. "Monetary policy" here means buying government bonds and issuing reserves in return, or lowering short-term interest rates. I am still intrigued by the possibility that a commitment to permanently higher rates might raise inflation, but that's quite speculative.

and later

Limited nominal GDP growth in the face of very low interest rates has been interpreted as evidence simply that the neutral rate has fallen substantially....We believe it is at least equally plausible that the impact of interest rates on aggregate demand has declined sharply, and that the marginal impact falls off as rates fall.  It is even plausible that in some cases interest rate cuts may reduce aggregate demand: because of target saving behavior, reversal rate effects on fin. intermediaries, option effects on irreversible investment, and the arithmetic effect of lower rates on gov’t deficits

Central banks are a lot less powerful than everyone seems to think, and potentially for deep reasons. File this as speculative but very interesting. Larry has many thoughts on why lowering interest rates may be ineffective or unwise.

The question is just how bad this is? The economy is growing, unemployment is at an all time low, inflation is nonexistent, the dollar is strong. Larry and I grew up in the 1970s, and monetary affairs can be a lot worse.

Yes, the worry is how much the Fed can "stimulate" in the next recession. But it is not obvious to me that recessions come from somewhere else and are much mitigated by lowering short term rates as "stimulus." Many postwar recessions were induced by the Fed, and the Great Depression was made much worse by the Fed. Perhaps it is enough for the Fed simply not to screw up -- do its supervisory job of enforcing capital standards in booms (please, at last!) do its lender of last resort job in financial crises, and don't make matters worse.

But how bad is it now? Here Larry and I part company. Larry is, surprisingly to me, still pushing "secular stagnation"

Call it the black hole problem, secular stagnation, or Japanification, this set of issues should be what central banks are worrying about...We have come to agree w/ the point long stressed by Post Keynesian economists & recently emphasized by Palley that the role of specific frictions in economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand. 

The right issue for macroeconomists to be focused on is assuring adequate aggregate demand.  

My jaw drops.

The unemployment rate is 3.9%, lower than it has ever been in a half century. It fell faster after about 2014 than in the last two recessions.

Labor force participation is trending back up.

Wages are rising faster and faster, especially for less skilled and education educated workers.

 There are 8 million job openings in the US.

Why in the world are we talking about "lack of demand?

Clemens on minimum wage

Jeff Clemens offers a "roadmap for navigating recent research" on minimum wages in a nice CATO policy analysis.  A review and a doubt.

He discusses the recent claims that minimum wages don't hurt low-skilled people. This is an impressive and readable account of a vast literature. It's not as easy as it seems to evaluate cause and effect in economics.  Evidence from small increases in the minimum wage over short time intervals in some locations in good economic times may not tell you the effects of large increases over longer time intervals in all locations in bad economic times.

The "new conventional wisdom," of small effects, Jeff reports, ignores a lot of the more recent work, and especially work that  uses "data from individual-level administrative records" rather than "aggregate data and survey data," work that runs "experiments whenever possible," and work that "transparently analyzes compact historical episodes in the U.S. experience" (P. 8)

Jitters

Or, "the beginning of the end, or the end of the beginning?" Or, "from demand to supply?"

An Op-Ed for The Hill with some extras:


The economic expansion and stock market runup have been going on for a decade, and a case of the jitters seems to be spreading. How long can this go on? Is the end around the corner?

After years of quiet, the stock market suddenly became volatile again last March. Volatility is a sign of uncertainty, and often presages a decline. Stock prices are high relative to earnings and dividends, which often precedes a fall. Short term interest rates have risen, and long term rates and short term rates are nearly the same. An inverted yield curve, when short term rates are higher than long term rates, is one of the most reliable warning signs of a recession. The unemployment rate is down to 3.9%, a level that historically has only happened at business cycle peaks — that were soon followed by troughs. House prices and credit are up too, as they were at recent peaks. Is it time to worry?

What's good about economics (sometimes)

Bryan Caplan has a nice post at ecconlib. The last part is an ode to the value of simple economic theory, much disparaged in public debate.

Bryan's central point: Economic theory lets you vastly broaden the range of experience that you can bring to one question -- the effect of minimum wages in Seattle, for example. Economic theory also forces logical consistency that would not otherwise be obvious. You can't argue that the labor demand curve is vertical today, for the minimum wage, and horizontal tomorrow, for immigrants. There is one labor demand curve, and it is what it is. Economics lets one experience illuminate the other, and done right forces politically uncomfortable consistency on those views. You can't argue that sticky too-high wages cause unemployment in recessions and in Greece, and not argue that sticky too-high wages from minimum wages laws do not cause unemployment in Seattle.

This kind of integrated thinking is far too rare in evaluating economic policies. But that's the fault of economists, not of economics.

Bryan:

Research doesn't have to officially be about the minimum wage to be highly relevant to the debate.  All of the following empirical literatures support the orthodox view that the minimum wage has pronounced disemployment effects: 

1. The literature on the effect of low-skilled immigration on native wages.  A strong consensus finds that large increases in low-skilled immigration have little effect on low-skilled native wages.  David Card himself is a major contributor here, most famously for his study of the Mariel boatlift.  These results imply a highly elastic demand curve for low-skilled labor, which in turn implies a large disemployment effect of the minimum wage.

This consensus among immigration researchers is so strong that George Borjas titled his dissenting paper "The Labor Demand Curve Is Downward Sloping."  If this were a paper on the minimum wage, readers would assume Borjas was arguing that the labor demand curve is downward-sloping rather than vertical.  Since he's writing about immigration, however, he's actually claiming the labor demand curve is downward-sloping rather than horizontal!

2. The literature on the effect of European labor market regulation. Most economists who study European labor markets admit that strict labor market regulations are an important cause of high long-term unemployment.  When I ask random European economists, they tell me, "The economics is clear; the problem is politics," meaning that European governments are afraid to embrace the deregulation they know they need to restore full employment.  To be fair, high minimum wages are only one facet of European labor market regulation.  But if you find that one kind of regulation that raises labor costs reduces employment, the reasonable inference to draw is that any regulation that raises labor costs has similar effects - including, of course, the minimum wage.

3. The literature on the effects of price controls in general.  There are vast empirical literatures studying the effects of price controls of housing (rent control), agriculture (price supports), energy (oil and gas price controls), banking (Regulation Q) etc.  Each of these literatures bolsters the textbook story about the effect of price controls - and therefore ipso facto bolsters the textbook story about the effect of price controls in the labor market.  

If you object, "Evidence on rent control is only relevant for housing markets, not labor markets," I'll retort, "In that case, evidence on the minimum wage in New Jersey and Pennsylvania in the 1990s is only relevant for those two states during that decade."  My point: If you can't generalize empirical results from one market to another, you can't generalize empirical results from one state to another, or one era to another.  And if that's what you think, empirical work is a waste of time.

4. The literature on Keynesian macroeconomics.  If you're even mildly Keynesian, you know that downward nominal wage rigidity occasionally leads to lots of involuntary unemployment.  If, like most Keynesians, you think that your view is backed by overwhelming empirical evidence, I have a challenge for you: Explain why market-driven downward nominal wage rigidity leads to unemployment without implying that a government-imposed minimum wage leads to unemployment.  The challenge is tough because the whole point of the minimum wage is to intensify what Keynesians correctly see as the fundamental cause of unemployment: The failure of nominal wages to fall until the market clears.

Automation and jobs

I am often asked to opine about whether automation will destroy all the jobs. Yes, we talk about tractors, which brought farm employment from something like 70% of the country at the beginning of the 20th century to about 3% today. And cars, which put the horse drivers out of business. And trains, which put the canal boats out of business.

A more recent case occurred to me. This is what offices looked like in the 1950s and 1960s:

Embed from Getty Images

Typing Pool. Source: Getty Images

This is a "typing pool." There used to be basketball-court sized rooms that looked like this, all over the place, staffed almost exclusively by  women.

Then along came the copier -- many of these women are copying documents by typing them over again with a few sheets of carbon paper -- the fax machine, the word processor, the PC. And that's just typing. Accounting involved similar roomfuls of women with adding machines. Filing disappeared. Roomfuls of women used to operate telephone switchboards, now all automated.

This memory lives on in the architecture of universities. All the old buildings have empty hutches for secretaries.

If you are prognosticating in about 1970, and someone asks, "what will happen now that women want to join the workforce, but office automation is going to destroy all their jobs?" It would be a pretty gloomy forecast.

What actually happened: Female labor force increased from 20 million to 75 million. The female participation rate increased from below 35% to 60%. Women's wages relative to men rose -- they moved in to higher productivity activities than typing the same memo over a hundred times. Businesses expanded. And no, 55 million men are not out on the streets begging for spare change.

Civilian Labor Force Level: Women

Civilian Labor Force Participation Rate: Women

I'm simplifying of course. And surely some people with specific skills -- shorthand, typing without making mistakes, and so on -- who could not retrain didn't do as well as others. But the magnitude of the phenomenon is pretty impressive.

Update. So did women just take all the men's jobs? As MC points out, the male labor force participation rate did decline, from 87.5 to 70.0. That's a big, worrisome decline. But it's 15 percentage points, while the women's increase was 25 percentage points.

But even if women are moving in and men are moving out of employment, that does make the case that you don't just look at who has what jobs now threatened by automation! The typing pool got better jobs.

Please (please!) keep in mind the point here. No, this is not a post about all the ills of the labor market, and "middle class" America, and all the rest. Yes, there are plenty. The narrow point is, will automation mean that all the jobs vanish. In this case, even combined with a large expansion of the people wanting to work, it did not.

Also the male labor force expanded from 45 million to 82 million. So the idea that there is a fixed number of jobs and if women take them men lose them is not true.

Miserable 21st Century

Nicholas Eberstadt in Commentary, (HT Marginal Revolution) offers a revealing look at what's wrong with "middle" America's stagnation. Read the whole thing, but the following snapshot jumped out at me.

He starts with a review, probably familiar to readers of this blog, of the sharp decline in work rates, even among prime-age men and women.

As of late 2016, the adult work rate in America was still at its lowest level in more than 30 years. To put things another way: If our nation’s work rate today were back up to its start-of-the-century highs, well over 10 million more Americans would currently have paying jobs.

Why are so many not working, not studying for work, and not even looking for work? What is going on in their lives? One answer:

The opioid epidemic of pain pills and heroin that has been ravaging and shortening lives from coast to coast is a new plague for our new century...

According to [Alan Krueger's] work, nearly half of all prime working-age male labor-force dropouts—an army now totaling roughly 7 million men—currently take pain medication on a daily basis.

I think Krueger had a different idea in mind: that they are in pain, indicated by medication, so can't be expected to work. How the explosion in disability jibes with a much safer workplace is an interesting puzzle to that view. Eberstadt has a different interpretation, and the lovely thing about facts is they are facts, not interpretations.

We already knew from other sources (such as BLS “time use” surveys) that the overwhelming majority of the prime-age men in this un-working army generally don’t “do civil society” (charitable work, religious activities, volunteering), or for that matter much in the way of child care or help for others in the home either, despite the abundance of time on their hands. Their routine, instead, typically centers on watching—watching TV, DVDs, Internet, hand-held devices, etc.—and indeed watching for an average of 2,000 hours a year, as if it were a full-time job. But Krueger’s study adds a poignant and immensely sad detail to this portrait of daily life in 21st-century America: In our mind’s eye we can now picture many millions of un-working men in the prime of life, out of work and not looking for jobs, sitting in front of screens—stoned.

Carrier Commentary

When Paul Krugman, Larry Summers,  Sarah Palin, and the Wall Street Journal all agree on something -- that presidential deal-making and strong-arming over plant location is a terrible idea -- it's worth paying attention to.

I think Tyler Cowen did the best job of describing what's wrong with the deal, interviewed on NPR. (Transcript, Highlights and audio link).

(This is an impressive radio interview. I long to be able to express something that quickly clearly and coherently on radio. Tyler must have really prepared hard for it.)

INSKEEP: Don Evans says this is a way for the president-elect to send a strong message to workers and to corporations about what his priorities are. What's wrong with that?

TYLER COWEN: We're supposed to live under a republic of the rule of law. Not the rule of man. This deal is completely non-transparent. And the notion that every major American company has to negotiate person-to-person with the president over Twitter is going to make all business decisions politicized.

Testimony 2

On the way back from Washington, I passed the time reformatting my little essay for the Budget committee to html for blog readers. See below. (Short oral remarks here in the last blog post, and pdf version of this post here.)

I learned a few things while in DC.

The Paul Ryan "A better way" plan is serious, detailed, and you will be hearing a lot about it. I read most of it in preparation for my trip, and it's impressive. Expect reviews here soon. I learned that Republicans seem to be uniting behind it and ready to make a major push to publicize it. It is, by design, a document that Senatorial and Congressional candidates will use to define a positive agenda for their campaigns, as well as describing a comprehensive legislative and policy agenda.

"Infrastructure" is bigger in the conversation than I thought. But since there is no case that potholes caused the halving of America's trend growth rate, do not be surprised if infrastructure fails to double the trend growth rate. It's also a bit sad that the most common growth idea in Washington is, acording to my commenters, about 2,500 years old -- employment on public works.

Washington conversation remains in thrall to the latest numbers. There was lots of buzz at my hearing about a recent census report that median family income was up 5%. Chicagoans used to get excited about the 40 degree February thaw.

The quality can be very very good. Congressman Price, the chair of my session, covered just about every topic in my testimony, and possibly better. Congressional staff are really good, and they are paying attention to the latest. If you write policy-related economics, take heart, they really are listening.

The questions at my hearing pushed me to clarify just how will debt problems affect the average American. What I had not said in the prepared remarks needs to be said. If we don't get an explosion of growth, the US will not be able to make good on its promises to social security, health care, government pensions, credit guarantees, taxpayers, and bondholders. Something's got to give. And the growing size of entitlements means they must give. Even a default on the debt, raising taxes to the long-run Laffer limit, will not pay for current pension and health promises. Those will be cut. The question is how. If we wait to a fiscal crisis, they will be cut unexpectedly and by large amounts, leaving people who counted on them in dire straits. Greece is a good example. If we make sensible sustainable promises now, they will be cut less, and people will have decades to adjust.


Ok, on to html testimony:

Growing Risks to the Budget and the Economy.

Testimony of John H. Cochrane before the House Committee on Budget.

September 14 2016

Chairman Price, Ranking Member Van Hollen, and members of the committee: It is an honor to speak to you today.

I am John H. Cochrane. I am a Senior Fellow of the Hoover Institution at Stanford University¹. I speak to you today on my own behalf on not that of any institution with which I am affiliated.

Sclerotic growth is our country's most fundamental economic problem.² From 1950 to 2000, our economy grew at 3.6% per year.³ Since 2000, it has grown at barely half that rate, 1.8% per year. Even starting at the bottom of the recession in 2009, usually a period of super-fast catch-up growth, it has grown at just over 2% per year. Growth per person fell from 2.3% to 0.9%, and since the recession has been 1.3%.

Universal Basic Income

Universal Basic Income is in the news. Charles Murray wrote a thoughtful piece in the Wall Street Journal Saturday Review. The Swiss overwhelmingly rejected a referendum -- but on a proposal quite different from Murray's.

Murray proposes that "every American citizen age 21 and older would get" $10,000 per year "deposited electronically into a bank account in monthly installments." along with essentially a $3,000 per year health insurance voucher.

The most important part of Murray's proposal: UBI completely replaces

 Social Security, Medicare, Medicaid, food stamps, Supplemental Security Income, housing subsidies, welfare for single women and every other kind of welfare and social-services program, as well as agricultural subsidies and corporate welfare. 

There is a lot to commend this idea. First, it would reduce the dramatic waste in the current system:

Under my UBI plan, the entire bureaucratic apparatus of government social workers would disappear

Moreover, the bulk of government spending now does not go to people who are really poor. SSI and medicare go to old people, many of whom are quite well off. Housing subsidies such as the mortgage interest deduction go to people with big mortgages and big tax rates -- nor poor people. Murray doesn't really emphasize this point, but his proposal is far more progressive than the current transfer system.

Second, it would reduce the very high disincentives of the current system, which traps people.

 Under the current system, taking a job makes you ineligible for many welfare benefits or makes them subject to extremely high marginal tax rates. Under my version of the UBI, taking a job is pure profit with no downside until you reach $30,000—at which point you’re bringing home way too much ($40,000 net) to be deterred from work by the imposition of a surtax.