FRIDAY, JULY 16, 2021
BLOGS/OP-EDS
Mile-High Prices: Denver Leads U.S. Metros in Rising Housing Valuations in Past 30 Years (William Emmons, Federal Reserve Bank of St. Louis)
FRBSL’s William Emmons takes a snapshot of the housing boom and finds a surprising winner, “…the largest increase in housing valuation of a major metro area during the last 30 years, measured as the net change in a metro area’s house price-to-rent ratio, was in Denver. Between the first quarter of 1991 and the first quarter of 2021, house prices in the Mile High City grew more than twice as fast as local rents. No other major metro area came close to this dizzying pace of housing valuation increase….”
Wisconsin Manufacturing Employment and Manufactured Exports (Menzie Chinn, Econbrowser)
Menzie Chinn, using Wisconsin as an example, points out the importance of exports to the American economy, “…Does Wisconsin’s fortunes — as a manufacturing heavy state — depend on what happens in the rest-of-the world? The answer is, partly, yes…Wisconsin manufacturing exports (gross value) in 2020m01 were about $19 billion (annualized), while Wisconsin manufacturing value added in 2020Q1 was about $60 billion (annualized). One would want to compare value added in exports to value added production, but at least these numbers emphasize the point that Wisconsin depends on exports… In other words, Wisconsin’s fortunes (as are the Nation’s) are tied with the world’s….”
Understanding China’s Latest RRR Cut (Matt Klein, The Overshoot) ($)
Matt Klein highlights the POBC’s efforts to keep their ongoing intervention in fx markets under the radar, “…While the yuan appreciated somewhat during this period, it wasn’t nearly enough. The Chinese government didn’t want to risk letting the currency rise to the point that it could undermine the profitability and price-competitiveness of the country’s exporters, so the PBOC offset private decisions by buying $3.8 trillion of foreign currency….Those purchases were financed mainly by creating bank reserves, many of which were then “sterilized” to prevent inflation. (The Chinese domestic economy was growing rapidly, but it wasn’t growing enough to justify all that reserve creation.) That came at the cost of Chinese consumers, who would have spent more on imports, and enriched Chinese elites connected to the export industry….the yuan should have appreciated even more. Its failure to do so suggests that the Chinese government is leaning against market forces. But since conventional intervention measures would (rightly) cause a global uproar, the latest round of yuan suppression is probably being done surreptitiously via the banking system….If we treat the banks and the PBOC as a consolidated entity, as Brad Setser has suggested, then China is currently engaging in intervention on a massive scale, having purchased more than $500 billion in 2020 Q2-2021Q1….”
Two cheers for carbon tariffs (Paul Krugman, Krugman Wonks Out)
Paul Krugman on a big implementation problem associated with carbon tax free riders, “…carbon tariffs affect only goods that are exported and hence are only a partial solution to the problem of countries that don’t do their part in reducing greenhouse gas emissions. Consider the case of China, which says that it plans to reduce emissions but is still building a large number of coal-fired power plants. If advanced countries impose carbon tariffs, this will give China an incentive to reduce the carbon dioxide emitted in producing its steel exports. But it won’t impose any penalty for carbon emissions from the power plants that supply China’s cities with electricity. And those emissions, which aren’t related to international trade, are almost surely a bigger threat to the environment than emissions associated with exports. To fully address the problem of international cooperation, then, carbon tariffs that level the playing field wouldn’t be enough. We’d have to go beyond that to the threat of sanctions against nations behaving irresponsibly. And that would, I’m afraid, be illegal under current trade law, because it would mean intervening in policies that have traditionally been considered purely domestic. Now, given the threat of climate change, our response should be to revise or ignore trade law. But that would be a big step and won’t happen right away…”
NEWS
Will cutting unemployment benefits in America ease labour shortages? (Staff, The Economist) ($)
“…Both analysts at Morgan Stanley, a bank, and economists at the St Louis Federal Reserve find that continuous claims for ui have fallen the most in “early-ending” states. Other research finds similar trends in new claims for ui. But there is enough going on to muddy the picture: Daniel Zhao of Glassdoor, a job-search website, adds a note of caution, pointing out that new claims were already dropping faster in reforming states. It will not be until the August jobs report, released in September, that wonks will have a better idea of what is really going on at the state level. It seems likely, though, that overall employment in America will by then be somewhat higher than it would have been without the cut to ui. A survey from Indeed, a job-search website, suggests that a tenth of unemployed people “not urgently” looking for work feel this way because of ui payments….”
Gain in U.S. Retail Sales Underscores Solid, Steady Consumer (Olivia Rockeman, Bloomberg) ($)
“…U.S. retail sales rose unexpectedly in June, reflecting fairly broad gains across spending categories and wrapping up a solid quarter for household demand. The value of overall retail purchases advanced 0.6% last month following a downwardly revised 1.7% drop in May, Commerce Department figures showed Friday. Excluding autos, sales jumped 1.3% in June….”
TSMC Sees Chip Shortage Easing—but Geopolitics Aren’t Going Away (Jacky Wong, Wall Street Journal) ($)
“…, Taiwan Semiconductor Manufacturing Co. the world’s largest custom chip maker—expects the semiconductor shortage that has plagued car makers this year to ease….The company says the automotive semiconductor shortage will be greatly reduced starting this quarter as it will increase output of microcontrollers for cars this year by nearly 60% from last year, or around a 30% rise from pre-pandemic levels….”
Boston Overhauls Admissions to Exclusive Exam Schools (Ellen Barry, New York Times) ($)
“…Asian American students were 29.3 percent of Boston Latin School’s enrollment in 2020, despite making up 9 percent of students in the school’s district…..Boston School Committee voted unanimously to overhaul admissions to the city’s three selective exam schools, opening the way for far greater representation of Black and Latino students. The new admissions system will still weigh test results and grades, but, following a model pioneered in Chicago, it will also introduce ways to select applicants who come from poor and disadvantaged neighborhoods. Under the new system, the applicant pool will be divided into eight groups based on the socioeconomic conditions of their neighborhoods. The admissions team will consider applicants within each group, admitting the top students in each tier in roughly equal numbers….”
NEW ECON RESEARCH
The Dynastic Benefits of Early Childhood Education (Jorge Luis García et al., NBER) ($)
“This paper monetizes the life-cycle intragenerational and intergenerational benefits of the Perry Preschool Project, a pioneering high-quality early childhood education program implemented before Head Start that targeted disadvantaged African-Americans and was evaluated by a randomized trial. It has the longest follow-up of any experimentally evaluated early childhood education program. We follow participants into late midlife as well as their children into adulthood. Impacts on the original participants and their children generate substantial benefits. Access to life-cycle data enables us to evaluate the accuracy of widely used schemes to forecast life-cycle benefits from early-life test scores, which we find wanting.”
NEW SCIENCE
How Many Numbers Exist? Infinity Proof Moves Math Closer to an Answer (Natalie Wolchover, Quanta Magazine)
“…In October 2018, David Asperó was on holiday in Italy, gazing out a car window as his girlfriend drove them to their bed-and-breakfast, when it came to him: the missing step of what’s now a landmark new proof about the sizes of infinity. “It was this flash experience,” he said. Asperó, a mathematician at the University of East Anglia in the United Kingdom, contacted the collaborator with whom he’d long pursued the proof, Ralf Schindler of the University of Münster in Germany, and described his insight. “It was completely incomprehensible to me,” Schindler said. But eventually, the duo turned the phantasm into solid logic. Their proof, which appeared in May in the Annals of Mathematics, unites two rival axioms that have been posited as competing foundations for infinite mathematics. Asperó and Schindler showed that one of these axioms implies the other, raising the likelihood that both axioms — and all they intimate about infinity — are true….Most importantly, the result strengthens the case against the continuum hypothesis, a hugely influential 1878 conjecture about the strata of infinities. Both of the axioms that have converged in the new proof indicate that the continuum hypothesis is false, and that an extra size of infinity sits between the two that, 143 years ago, were hypothesized to be the first and second infinitely large numbers…. But with Asperó and Schindler’s result pointing compellingly to ℵ2, and Woodin building the case for ℵ1, a clear dichotomy has established itself, and an outright winner seems newly possible. Most set theorists would like nothing more than to exit the mathematical multiverse and coalesce behind a single picture of Cantor’s paradise, one that’s beautiful enough to call true. Kennedy, for one, thinks we may soon return to that “prelapsarian world.” “Hilbert, when he gave his speech, said human dignity depends upon us being able to decide things in mathematics in a yes-or-no fashion,” she said. “This was a matter of redeeming humanity, of whether mathematics is what we always thought it was: to establish the truth. Not just this truth, that truth. Not just possibilities. No. The continuum is this size, period.”…”
IN OUR AIRPODS
Labs over Fabs: Why the US and EU Should Invest in the Future of Semiconductors (Jordan Schneider, China Talk)
THURSDAY, JULY 15, 2021
BLOGS/OP-EDS
Biden Turns Back the Progressive Clock (Phil Gramm + Mike Solon, Wall Street Journal) ($)
Phil Gramm and Mike Solon try to remind President Biden that he started his career voting for deregulation, and it worked, “….deregulation of the U.S. transportation system unleashed a wave of invention and innovation that reduced logistical transportation cost—the cost of moving goods as a percentage of gross domestic product—by an astonishing 50% over 40 years. Airline fares were cut in half on a per mile basis, while air cargo surged from 5.4% of all shipments to 14.5% by 2012, making air transit for people and packages a routine part of American life. “Our economy would be much smaller and per capita income significantly lower without these far-sighted changes,” according to FedEx CEO Fred Smith. In this Carter-Kennedy led reform, the duty of government was to protect the consumer from harm, not to protect the producer from competition. Without the productive energy released by deregulating airlines, trucking, railroads, energy and communications, the U.S. might not have found its competitive legs as its postwar dominance in manufacturing ended in the late 1970s. The benefits of deregulation to this day continue to make possible powerful innovations that remake the world. Amazon, FedEx and Facebook are but a tiny fraction of a long list of progeny produced by lifting the heavy hand of Progressive Era regulation. We reimpose that regulation at our own peril….”
Ten Things We Now Know About White College Voters in the 2020 Election (Ruy Teixeira, The Liberal Patriot)
Ruy Teixeira on what white college voters looked like btw 2016 and 2020, “…White college voters moved over 8 margin points toward Biden in 2020, greater than Biden’s gains among white noncollege voters (3 points) and starkly different from nonwhite voters who actually moved toward Trump….White college voters were 28 percent of the overall vote in 2020, about the same size as the nonwhite vote. Both are dwarfed by the size (44 percent) of the white noncollege vote….White college voters were 29 percent of Biden’s vote in 2020, actually slightly less than the white noncollege share of his supporters….Among white college-educated voters, men shifted toward Biden substantially more than women—11 points vs. 6 points. You could reasonably argue that this group of men should be the poster child, as it were, for Biden’s victory…Biden actually split white college men evenly in 2020. This is a 16 point improvement for the Democrats relative to 2012….These general patterns appear to apply to most swing states where Biden made improvements over Clinton in 2020. This includes the decisive contribution of the white college vote to Biden’s victory. For example, in Arizona available data indicate that white voters, driven by white college-educated voters, contributed around 5 points to Biden’s improved margin in the state, more than enough to account for the shift in Arizona to a Democratic advantage in 2020. Thus, it was educated whites, not Hispanics, who won Arizona for Biden….Georgia is another example. The Democratic shift from a deficit in 2016 to an advantage in 2020 can be accounted for almost entirely by a sharp shift toward the Democrats among white voters, especially white college-educated voters. As with Arizona, this shift was the major factor behind Democrats carrying the state….”
NEWS
Jobless Claims Fall to Pandemic Low, Underscoring U.S. Rebound (Olivia Rockeman, Bloomberg) ($)
“…Applications for U.S. state unemployment insurance fell last week to a fresh pandemic low, indicating that dismissals are easing as business conditions improve and firms look to increase headcounts. Initial claims in regular state programs decreased by 26,000 to 360,000 in the week ended July 10, Labor Department data showed Thursday. The median estimate in a Bloomberg survey of economists called for 350,000 initial applications….”
Many Jobs Lost During the Coronavirus Pandemic Just Aren’t Coming Back (Lauren Weber, Wall Street Journal) ($)
“…Economic data show that companies have learned to do more with less over the last 16 months or so. Output nearly recovered to pre-pandemic levels in the first quarter of 2021—down just 0.5% from the end of 2019—even though U.S. workers put in 4.3% fewer hours than they did before the health crisis….The changes will require many workers to adapt. Though the job market is strong right now for highly paid professionals and low-wage service workers alike, not everyone can find a match for their skills, experience or location, creating a paradox of relatively high unemployment combined with record job openings. Economists say it can be a prolonged process for some laid-off workers to find jobs or acquire the skills needed for new careers…. Raytheon Technologies Corp., the biggest U.S. aerospace supplier by sales, laid off 21,000 employees and contractors in 2020 amid a drastic decline in air travel. Raytheon said in January that efforts to modernize its factories and back-office operations would boost profit margins and reduce the need to bring back all those jobs. The company said that most if not all of the 4,500 contract workers who were let go in 2020 wouldn’t be called back. The pandemic accelerated some of the company’s plans to automate factories and implement more digital technology, said Paolo Dal Cin, the executive vice president of operations and supply chain at Raytheon, which was formed last year through the merger of Raytheon Co. and United Technologies Corp….Last week Hilton Worldwide Holdings Inc. announced a CleanStay program, saying that most of its U.S. properties are adopting “a flexible housekeeping policy,” with daily service available upon request. “Full deep cleanings will be conducted prior to check-in and on every fifth day for extended stays,” it said. Daily housekeeping will still be free for those who request it. But Hilton businesses “will be higher-margin and require less labor than they did pre-Covid,” CEO Christopher Nassetta said on a conference call in February. The company declined to comment on how many fewer housekeepers it would employ once all the changes are implemented…”
China Inc’s new inconspicuous expansion (Staff, The Economist) ($)
“…China was the largest investor in the world in 2020. Foreign direct investment (fdi) from Chinese firms hit $133bn, down only slightly from 2019 despite the headwinds…The country has some 3,400 multinationals, almost as many as America and western Europe combined, reckons Bain, a consultancy. Around 360 big listed Chinese groups report foreign revenues. These amounted to around $700bn in 2020, compared with 250 large firms earning a total of $400bn in 2012, according to data from Bloomberg (see chart 2). In 2020 Chinese venture capitalists ploughed an estimated $3.2bn into American startups in 249 deals, the second-biggest year on record by value, calculates Rhodium Group, a research firm. Analysts at cb Insights say that Chinese investors’ participation in American venture deals last quarter was the highest since at least 2016…The Chinese presence is deep as well as broad. Last year more than 100 of the listed firms earned at least 30% of revenues outside China; 27 earned 70% or more. All told, China’s top ten foreign earners booked $350bn or so in overseas sales. This total has grown by 10% a year on average since 2005, Bain says, twice as fast as the equivalent figure in America, Europe or Japan. Tencent’s foreign sales have risen at an annual rate of 40% for nearly a decade, and now make up 7% of its huge top line….”
Germany’s export-driven foreign policy is being challenged (Staff, The Economist) ($)
“…Until a couple of years ago Germany’s China policy was guided mainly by Wandel durch Handel, promoted in particular by the big carmakers that are Germany’s most important industry. Over the past ten years China has become Germany’s biggest trading partner, with goods exchanges growing to $243bn last year. And Volkswagen, Europe’s biggest carmaker, now sells more than 40% of its passenger cars in China (see charts)……Policies are changing too. A new law requires German firms with more than 3,000 employees to prove by 2023 that their supply chains are free of human-rights abuses (from 2024 it will apply to those with more than 1,000). Penalties for infractions can be 2% of a company’s annual revenue. Even so, Mrs Merkel is sticking to her policy of treating China with kid gloves. She was loth to ban Huawei, a Chinese firm, from bidding for contracts to build Germany’s fifth-generation telecoms networks, as America wanted. In the last days of Germany’s rotating presidency of the eu last December, she pushed through a treaty that is meant to grant European firms better access to the Chinese market. This irritated the incoming Biden administration, and has been blocked by the eu parliament. And in June Mrs Merkel made fellow g7 leaders water down their summit’s final communiqué to avoid upsetting China….”
Lumber Futures Have Plunged. Here’s Why It’s Not Getting Cheaper For You (Joe Weisenthal, Odd Lots) ($)
“…Lumber futures have been plunging lately, having completely erased the meteoric gains seen in 2021….Prices will therefore come down once the big retailers have made more wholesale purchases at these levels, from which they can then do a markup….So if you see futures bottom, it may mean that the big players have stepped in to buy, and then they’ll have cheap lumber to sell at a markup. In the meantime, this seeming disconnect between what we all see on the chart and what is shown on the retail shop floor may persist….”
NEW ECON RESEARCH
Could Vaccine Dose Stretching Reduce COVID-19 Deaths? (Witold Więcek et al., NBER) ($)
“We argue that alternative COVID-19 vaccine dosing regimens could potentially dramatically accelerate global COVID-19 vaccination and reduce mortality, and that the costs of testing these regimens are dwarfed by their potential benefits. We first use the high correlation between neutralizing antibody response and efficacy against disease (Khoury et. al. 2021) to show that half or even quarter doses of some vaccines generate immune responses associated with high vaccine efficacy. We then use an SEIR model to estimate that under these efficacy levels, doubling or quadrupling the rate of vaccination by using fractional doses would dramatically reduce infections and mortality. Since the correlation between immune response and efficacy may not be fully predictive of efficacy with fractional doses, we then use the SEIR model to show that fractional dosing would substantially reduce infections and mortality over a wide range of plausible efficacy levels. Further immunogenicity studies for a range of vaccine and dose combinations could deliver outcomes in weeks and could be conducted with a few hundred healthy volunteers. National regulatory authorities could also decide to test efficacy of fractional dosing in the context of vaccination campaigns based on existing immune response data, as some did for delayed second doses. If efficacy turned out to be high, the approach could be implemented broadly, while if it turned out to be low, downside risk could be limited by administering full doses to those who had received fractional doses. The SEIR model also suggests that delaying second vaccine doses will likely have substantial mortality benefits for multiple, but not all, vaccine-variant combinations, underscoring the importance of ongoing surveillance. Finally, we find that for countries choosing between approved but lower efficacy vaccines available immediately and waiting for mRNA vaccines, using immediately available vaccines typically reduces mortality.”
NEW SCIENCE
The rise of ‘ARPA-everything’ and what it means for science (Jeff Tollefson, Nature)
“…US President Joe Biden’s administration wants to create a US$6.5-billion agency to accelerate innovations in health and medicine — and revealed new details about the unit last month1. Dubbed ARPA-Health (ARPA-H), it is the latest in a line of global science agencies now being modelled on the renowned US Defense Advanced Research Projects Agency (DARPA), whose work a generation ago laid the foundation for the modern Internet. With more DARPA clones on the horizon, researchers warn that success in replicating DARPA’s hands-on, high-risk, high-reward approach is by no means assured. “The ARPA model has been successful, and we’ve learned a lot,” says Laura Diaz Anadon, who heads the Cambridge Centre for Environment, Energy and Natural Resource Governance at the University of Cambridge, UK. “But ARPA is not a magic bullet that will apply to everything.”…”
Brain Implant Lets Man ‘Speak’ After Being Silent for More Than a Decade (Rolfe Winkler, Wall Street Journal) ($)
“…Researchers in California reported Wednesday that they had developed and successfully tested an experimental brain implant that translates brain signals into words on a computer screen….To test their neuroprosthesis, the University of California, San Francisco researchers enlisted the help of a man in his 30s who had lost the ability to speak as a result of paralysis caused by a severe stroke suffered more than 15 years ago. The man, who now communicates by using a cap-worn pointer to tap out individual letters on a screen, agreed to have a small rectangular array of electrodes surgically attached to the outer surface of his brain. Over the course of 81 weeks and in 50 separate sessions, the researchers attached a computer to the array to record the man’s brain activity as he observed individual words displayed on a screen and imagined uttering them aloud. The researchers said in the paper that they could accurately identify the word the man was saying 47% of the time….”
In-person voting really did accelerate covid-19’s spread in America (Staff) (The Economist) ($)
“…Holding other variables constant, the gap in in-person voting on election day between the state with the highest rate in our data (Alabama, at 41% of the population) and the lowest (Arizona, at 6%) was associated with an extra 173 cases per 100,000 people. This implies that if no one had voted in person on election day, 220,000 fewer people would have been diagnosed with covid-19….”
IN OUR AIRPODS
Vlad Zamfir on the Dangers of Unstoppable Software and What People Get Wrong About Blockchains (Bloomberg Odd Lots)
WEDNESDAY, JULY 14, 2021
BLOGS/OP-EDS
What Has Been the Early Impact of States Halting Federal Jobless Benefits? (Bill Dupor) (Federal Reserve Bank of St. Louis)
Bill Dupor on the impact of halting the extended Federal unemployment insurance, “…This policy difference across states generates an interesting question. What is happening to RSP participation in “halting” and “non-halting” states?…As shown in the figure below, the blue and orange lines report the continuing claims indexes for non-halters and early halters, respectively…After May 15, and particularly for the last three weeks of available data, there is a substantial separation in the two series. Relative to May 15, non-halting states’ claims have fallen by 7% whereas early halters’ claims have fallen by 12%. This difference has been persistent over the past three weeks for which the data are available….”
Here’s Who Will Be Left Behind in the Housing Boom (Ali Wolf, New York Times) ($)
Ali Wolf warns about the downside of the current housing market: we could see a market in which increasingly middle income households can’t get on the first rung of the housing ladder, “…rapidly rising home prices are leaving some potential buyers priced out, possibly forever. Those who cannot afford a sizable down payment or lack a good credit score have been less able to ascend the homeownership ladder — much less get on it — a critical part of building wealth….Relocation buyers have and will continue to fundamentally change the housing landscape across the country. The agglomeration of higher-income individuals is likely to be accompanied by a permanent shift to more expensive housing, a problem that will be exacerbated as mortgage rates rise….”
The Market Is Betting That the Fed Will Come and Stamp Out the Heat (Joe Weisenthal, Odd Lots) ($)
Joe Weisenthal on Mr. Market’s reading of the CPI data, “… As Neil Dutta of Renaissance Macro put it in a message to Bloomberg News, “(The) market trading like this is the old Fed… The market is pricing in four hikes with ten-year yields at 1.35. This only happens if people think that the Fed won’t tolerate the higher inflation prints they’ve said they would tolerate in the first place.”...When you see the long end go down like this on seemingly hot data, it’s the market suggesting that the Fed will come in and stomp out the heat, which hadn’t been the assumption before. Whether the Fed will, in fact, come in and stomp out the heat is a different question. But that’s at least the way things are looking right now….”
Chart of the day…. or century? (Mark Perry, American Enterprise Institute)
Mark Perry updates his Price Changes chart, “…Based on today’s BLS report on CPI price data through June 2021, I’ve updated the chart above with price changes through the end of last year. During the most recent 21.5-year period from January 2000 to June 2021, the CPI for All Items increased by 60.1% and the chart displays the relative price increases over that time period for 14 selected consumer goods and services, and for average hourly wages. Seven of those goods and services have increased more than average inflation of 60.1%, led by huge increases in hospital services (+207.5%), college tuition (+172%), and college textbooks (+153%), followed by increases in medical care services (+119%), child care (+107.5%), housing (+68%) and food and beverages (66%). Average wages have also increased more than average inflation since January 2000 — by almost 87% — indicating that hourly wages have increased 27% more over the last two decades than the average increase in consumer prices. The other seven price series have been flat or have declined since January 2000, led by TVs (-97%), toys (-73%), computer software (-70.5%), and cell phone services (-40%). The CPI series for new cars, household furnishings (furniture, appliances, window coverings, lamps, dishes, etc.), and clothing have remained relatively flat for the last 21.5 years. Because average consumer prices increased by 60% and wages by 87% since 2000, the real prices of all seven of those consumer goods and services in blue above have fallen significantly and have gotten increasingly more affordable over time…”
U.S. CPI inflation (Matt Klein, The Overshoot) ($)
lation story is still one of reopening, “…Outside of a few categories that are either experiencing significant idiosyncratic supply constraints or healthy price normalization due to reopening, prices rose about as much as could reasonably be expected…”
NEWS
Drug overdoses soared to a record 93,000 last year (Lenny Bernstein + Joel Achenbach, Washington Post) ($)
“…Deaths from drug overdoses soared to more than 93,000 last year…The death toll jumped by more than 21,000, or nearly 30 percent, from 2019, according to provisional data released by the National Center for Health Statistics, eclipsing the record set that year….Opioids, primarily illegal fentanyl, continued to drive the death toll, as they have for years. Overdose deaths involving opioids reached 69,710 in 2020, up from 50,963 in 2019, according to the data. Deaths from methamphetamine and cocaine also rose….”
Global investors’ exposure to Chinese assets surges to $800bn (Hudson Lockett, Financial Times) ($)
“…Global holdings of Chinese stocks and bonds have surged about 40 per cent to more than $800bn over the past year as investors bought assets at a record pace in spite of souring relations between Beijing and the international community. …Offshore investors have bought a net $35.3bn of Chinese stocks in the year to date via trading platforms that link Hong Kong with exchanges in Shanghai and Shenzhen, according to Financial Times calculations based on Bloomberg data. That was about 49 per cent higher compared with a year earlier…”
NEW ECON RESEARCH
Getting tangible about intangibles (Eric Hazan et al., McKinsey)
“…Even through economic disruptions, intangibles investments have increased. Over the past 25 years, the United States and ten European economies (Austria, Denmark, Finland, France, Germany, Italy, the Netherlands, Spain, Sweden, and the United Kingdom) achieved 63 percent growth in gross value added (GVA), a measure of economic growth. During this period, the investment share of intangibles increased by 29 percent. Rising investment in intangibles has been associated with increasing total factor productivity of entire economies. Growth in investment in intangibles slowed after the global financial crisis, and productivity growth decelerated, too, suggesting a link. Investing in intangibles correlates with productivity and sector growth. In the past quarter century, intangibles investment has risen in all sectors, and data from INTAN-Invest indicates that there is an observable link between investment in intangibles and GVA growth. It also indicates a strong association with total factor productivity. Sectors that have invested the most in intangibles— more than 12 percent of their GVA— achieved 28 percent higher growth than other sectors in GVA, at more than 2.7 percent per year between 1995 and 2019. The relationship is strongest in knowledge-intensive services such as financial services and in innovation-driven services such as telecommunications, media, and technology. This apparent correlation reflects the synergistic nature of different types of intangibles. Companies with top-notch digital analytics attract the best talent, and that talent improves the quality and scope of the analytics. Reflecting such synergies, companies and sectors that invest across intangible categories post higher GVA than their peers. Regardless of the sector, companies that invest more in intangibles grow more. The new survey indicates that top growers, defined as companies in the top quartile of GVA growth by sector in 2018–19 (whose median growth was 20 percent) are investing 2.6 times more in intangibles than low growers, defined as the bottom 50 percent of companies for GVA growth in 2018–19 (whose median growth was 3 percent). The gap increases to between five and seven times in sectors such as financial services where competitive advantage is anchored in knowledge…”
Economic Perspectives on Infrastructure Investment (Edward Glaeser + James Poterba, Aspen Economic Strategy Group)
“…Our assessment of the role of economic analysis in infrastructure investment suggests several broad conclusions. First, it is difficult to place high confidence in widely discussed measures of infrastructure “need.” The most reliable way to develop such estimates would be by applying cost-benefit analysis on a project-by-project basis and aggregating the results. But that approach is expensive, given the vast array of potential infrastructure projects, and it is subject to gaming by overstating future benefits and low-balling costs. Estimates of the returns to maintaining existing infrastructure are often higher than estimates of the returns to undertaking new projects, which suggests the importance of guarding against “ribbon-cutting bias” toward new initiatives on the part of both elected leaders and the heads of government agencies. Any major infrastructure initiative should emphasize careful ex ante analysis of project costs and benefits, with oversight where feasible of padding by advocates of the assumptions regarding future costs and benefits. Second, infrastructure projects in the United States are expensive relative to those in other nations. The precise reasons are difficult to identify, but they include project designs that incorporate many features that remediate adverse project effects, such as highway noise and the inconvenience of disruption while building, required wages for workers that may exceed area norms, project delay through regulatory processes, and weak procurement and project management by the relevant government agencies. Third, user fees warrant greater consideration as a source of infrastructure project financing. Such fees, along with congestion charges, can improve the efficiency of infrastructure use. While there are concerns about the distributional effects of user fees and burdens on low-income groups in particular, the pattern of infrastructure use across income groups suggest that some user fees are progressive—higher income households use airports, for example, more than their lower income counterparts. Public transit, particularly buses, is a notable exception. Rather than carry out income redistribution by exempting infrastructure use from charges, policymakers could consider targeted redistribution programs, such as transit vouchers for low-income households or infrastructure-use rebates mediated through the tax system. Some states currently provide income tax relief for renters or for commuters who can document their travel costs. Finally, public-private partnerships can provide a means to increase operational efficiency, but arguments that they allow project sponsors to access low-cost capital should be viewed with caution. In some cases, the cost of capital for private entities may exceed that for public sector borrowers and relying on private finance rather than public funding may ultimately increase the 42 cost of the project. Some state and local governments may be attracted to these partnerships because they relieve current cash flow constraints, but they may come at a price in terms of the long-term cost of infrastructure services….”
NEW SCIENCE
U.S. Covid-19 Case Counts Have Doubled in Recent Weeks (Talal Ansari, Wall Street Journal) ($)
“…The U.S. is averaging more than 23,000 new cases a day, double the seven-day average of around 11,300 cases three weeks ago, according to a Wall Street Journal analysis of data from Johns Hopkins University. On 17 of the past 18 days, the seven-day case average was higher than the 14-day average, also suggesting cases have been rising nationally….According to the federal Centers for Disease Control and Prevention, nearly all recent Covid-19 cases and deaths from the disease are among unvaccinated people. Americans 65 and older, who are most likely to die from Covid-19 infections, have high rates of vaccinations…”
IN OUR AIRPODS
JPM, Goldman Kick Off Earnings (Bloomberg Surveillance)
TUESDAY, JULY 13, 2021
BLOGS/OP-EDS
The China discount widens (Robert Armstrong, Financial Times) ($)
Robert Armstrong does some back of the envelope arithmetic to capture Mr. Market’s implied “CCP discount” “…So how much less should one pay for a Chinese tech company than for a US one with a similar financial profile?…So I crunched some basic numbers on the valuations of some Chinese and US tech firms, all listed in the US (sharp-eyed readers will note that the Google and Amazon numbers look a little different than the last time I ran them; I used 12-month rolling numbers this time rather than annuals). Here is what I came up with (working with company financials compiled by S&P Capital IQ)…But I think, for example, the yawning valuation gap between Alibaba and Amazon (in their price/earnings ratio, for example) tells you something important, given that both are vast, fast-growing ecommerce companies. Yes, Amazon has its great web services business, but Alibaba arguably has an even more impressive revenue growth record and even more room to grow in the future. I have more work to do on this, but I suspect the China discount — the “you don’t own it” discount — is really big, and growing….”
CEA On CPI Number (Council of Economic Advisers on Twitter, @WhiteHouseCEA)
CEA on the new CPI numbers, chart highlights the impact of vehicle related expenses, “Inflation as measured by CPI increased at a 5.4% rate year-over-year last month and 0.9% month-over-month. Core inflation—without food/energy—rose 4.5% year-over-year and 0.9% month-over-month. A large part of the increase is due to cars and pandemic-affected services. Cars once again accounted for a large share of the increase. Used cars, new cars, auto parts, and car rentals together made up about 60 percent of core month-over-month inflation. Prices of pandemic-affected services rose again this month and contributed 11 basis points to the core inflation increase in June. Without cars and pandemic-affected services, core inflation rose 0.22 percent month-over-month, relative to 0.28 percent in May and 0.31 percent in April. The year-over-year numbers were impacted by base effects from last year, although the impact of base effects is starting to move out of the data. Starting in July, year-over-year changes in CPI will be calculated off of a price level that is above the pre-pandemic level. Controlling for base effects by smoothing across the 16 months since February 2020, the rate of CPI inflation was 3.5%. In core inflation, controlling for base effects the rate of annualized CPI inflation was 3.1%. We know that the recovery from the pandemic will not be linear. The Council of Economic Advisers will continue to monitor the data as they come in.”
Rossi-Hansberg on the effects of a carbon tax (John Cochrane, The Grumpy Economist)
John Cochrane reviews a Rossi-Hansberg presentation, based on his paper with Jose Luis Cruz Alvarez on the impact of a carbon tax, “…Carbon taxes do not stop climate change. They just postpone it. They do postpone it substantially. In the bottom graph, we get 4 degrees rather than 6 by 2100. But still, we’re at the same place by 2300….”
The Percent Of Small Businesses Raising Prices Just Hit Its Highest Level Since 1981 (Joe Weisenthal, Odd Lots) ($)
Joe Weisenthal reports small businesses are planning on raising prices, “…Per the latest NFIB Small Business Optimism Survey, 47% of respondents are currently planning to raise prices. That’s the highest such number since 1981….But on the flip side, overall optimism continues to rise nicely, and is now back at its highest level since November. So the basic gist is: Companies plan to raise prices, but they also plan to do a lot more hiring and wage hikes. And over all they’re feeling better and better about things right now….”
Inside America’s household savings boom (Matt Klein, The Overshoot) ($)
Matt Klein argues that the surge in excess savings related to pandemic will likely never been spent, “…for example, the value of Americans’ stock market wealth has soared by about $10 trillion since the end of 2019, but that’s due entirely to valuation gains. On net, Americans bought about $550 billion of equities directly and liquidated $589 billion of indirect stock holdings such as mutual funds and ETFs. While there are plenty of anecdotes suggesting that Americans plowed their windfall savings into stock trading or housing, the aggregate numbers tell a different story: Americans have been putting their extra money to work by increasing their holdings of physical currency, bank deposits, money market fund shares, and cash accounts at brokerages. Since the start of 2020, Americans have spent about $5.22 trillion buying assets, of which $3.84 trillion are money-like and another $857 billion of which are real assets such as housing, cars, and other durable goods…Before the pandemic, U.S. household ownership of liquid assets rose about 4-5% a year. If that trend had continued, Americans would have held a total of about $15.2 trillion at the end of March 2021, instead of $18.2 trillion. Of that ~$3 trillion in extra liquid savings, about $1.09 trillion went to Americans in the top 1% of the income distribution, while $1.06 trillion went to Americans in the 80th-90th percentiles. Put another way, only 29% of the additional liquid savings are being held by Americans in the bottom 80% of the income distribution…The U.S. household savings rate in the years after WWII stayed above the average savings rate in the years before the war until the 1990s. The balance sheet repairs made during the war years were permanent. And that was when a lot of the gains went to people lower down the income distribution—unlike now….Put it all together, and the U.S. household saving boom should help sustain the current expansion—but it probably won’t fuel a post-pandemic spending binge….”
NEWS
U.S. Consumer Prices Jump Most Since 2008, Topping All Estimates (Olivia Rockeman, Bloomberg) ($)
“…Prices paid by U.S. consumers surged in June by the most since 2008, topping all forecasts and complicating the Federal Reserve’s debate over how soon to unwind ultra-easy monetary support for the economy. The consumer price index jumped 0.9% in June and 5.4% from the same month last year, according to Labor Department data released Tuesday. Excluding the volatile food and energy components, the so-called core CPI rose 4.5% from June 2020, the largest advance since November 1991….Used vehicles accounted for more than a third of the gain in the CPI, the agency said. The outsize increase was also driven in large part by the pricing rebound in categories associated with a broader reopening of the economy including hotel stays, car rentals, apparel and airfares…The cost of food away from home jumped 0.7% on a month-over-month basis, the largest gain since 1981….Shelter costs, which are seen as a more structural component of the CPI and make up a third of the overall index, rose 0.5% last month, the most since October 2005. The gain was driven by a 7.9% jump in hotel stays….”
Lumber Wipes Out 2021 Gain With Demand Ebbing After Record Boom (Marcy Nicholson, Bloomberg) ($)
“…Lumber, which at one point was among the world’s best-performing commodities as the pandemic sent construction demand soaring and stoked fears of inflation, has officially wiped out all of its staggering gains for the year. Prices at Monday’s close are now down 0.6% for the year as demand eases and supply expands in response to earlier gains. The rally turned a common building product into a social media sensation and a flash point in the debate over U.S. monetary policy. At one point, lumber futures were trading as high as $1,733.50 per thousand board feet, more than quadruple the level of a year earlier….”
Customers Are Back at Restaurants and Bars, but Workers Have Moved On (Heather Haddon, Te-Ping Chen, + Lauren Weber, Wall Street Journal) ($)
“…The share of U.S. restaurant and hotel workers leaving their jobs hit a two-decade high in May at 5.7%, according to the Labor Department. Though the latest jobs report shows restaurants and bars added 194,000 jobs in June, employment at such establishments remains down by 1.3 million jobs since the pandemic began. By contrast, employment has bounced back beyond pre-pandemic levels in many other sectors. Compared with February 2020, there are now 100,000 more warehousing and storage jobs, along with 39,000 more jobs in management and technical consulting, and 25,000 more jobs in insurance and finance.Data from hiring sites also indicate relatively high numbers of workers pivoting away from the sector: On Jobcase, a digital job board and social network for hourly workers, searches for restaurant and food-service jobs in April were 35% lower than the same period in 2019….”
McDonald’s Owners Offer Tuition, Childcare to Lure Burger Flippers (Heather Haddon, Wall Street Journal) ($)
“…McDonald’s Corp. owners are adding emergency child care and other benefits, as many U.S. restaurants are struggling to hire enough workers to run their businesses. U.S. franchisees of the burger giant aim to boost hourly pay, give workers paid time off and help cover tuition costs to draw enough workers and improve the Golden Arches’ image as an employer. McDonald’s corporate parent said it is making a multimillion-dollar investment to back the franchisee efforts. Franchisees own 95% of the chain’s roughly 13,450 U.S. stores….McDonald’s, one of the largest U.S. private employers with around 800,000 people working in the chain’s restaurants, is closely watched by others in the industry for its moves on pay. McDonald’s in May said it would bump up starting pay in its corporate-owned restaurants to $11 to $17 an hour and said it would keep assessing wages to be competitive.”…”
Goldman Says Pandemic Is Shaping a More Productive U.S. Economy (Enda Curran, Bloomberg) ($)
“…The Covid-19 pandemic is fueling a productivity boost for the U.S. economy by speeding up workplace digitization, according to an analysis by Goldman Sachs Group Inc. Since the crisis began, annualized growth in output per hour has risen 3.1%, compared with 1.4% in the previous business cycle, Goldman economists wrote in a note. “Stronger productivity growth has been one of the silver linings of the pandemic,” they said….In their analysis, the Goldman economists said that even once workplaces fully reopen and workers resume regular service, productivity gains aren’t likely to be unwound. “If gains from workplace digitization are indeed sustainable, the reopening of corporate office buildings and the face-to-face economy should not be associated with a pause or reversal of these trends,” they wrote….”
NEW ECON RESEARCH
Wealth Concentration in the United States Using an Expanded Measure of Net Worth (Lindsay Jacobs et al., Federal Reserve Bank of Boston)
“Defined benefit (DB) pensions and Social Security are two important resources for financing retirement that are often excluded from data, resulting in incomplete measures of wealth and representations of household wealth concentration. In this paper, the authors estimate an expanded measure of wealth that includes DB pensions and future Social Security benefits and show how that inclusion affects estimates of wealth inequality in the United States as well as trends over time. They further illustrate the impact Social Security has on these measures by simulating distributions under a scenario in which expected future Social Security Trust Fund shortfalls are addressed through a reduction in benefit payouts.”
Rents and Intangible Capital: A Q+ Framework (Nicolas Crouzet + Janice Eberly, National Bureau of Economic Research) ($)
“In recent years, US investment has been lackluster, despite rising valuations. Key explanations include growing rents and growing intangibles. We propose and estimate a framework to quantify their roles. The gap between valuations — reflected in average Q — and investment — reflected in marginal q — can be decomposed into three terms: the value of installed intangibles; rents generated by physical capital; and an interaction term, measuring rents generated by intangibles. The intangible-related terms contribute significantly to the gap, particularly in fast-growing sectors. Our findings suggest care in a pure-rents interpretation, given the rising role of intangibles.”
NEW SCIENCE
W.H.O. Experts Seek Limits on Human Gene-Editing Experiments (Gina Kolata, New York Times) ($)
“…A committee of experts working with the World Health Organization on Monday called on the nations of the world to set stronger limits on powerful methods of human gene editing….The guidelines proposed by the W.H.O. committee were prompted in large part by the case of He Jiankui, a scientist in China who stunned the world in November 2018 when he announced he had altered the DNA of human embryos using CRISPR, a technique that allows precision editing of genes. Such alterations meant that any changes that occurred in the genes would be replicated in every cell of the embryo, including sperm and egg cells. And that meant that the alterations, even if they were deleterious instead of helpful, would arise not just in the babies born after gene editing but in every generation their DNA was passed on to. Dr. He’s goal was to alter the DNA of babies in an attempt to make them genetically unable to contract H.I.V. from their parents. A court in China determined he had forged ethics documents and misled subjects in the experiments who had not realized what his gene-editing experiment consisted of. He was sentenced to three years in prison in December 2019….”
IN OUR AIRPODS
Fed’s Dilemma With Reinhart (Bloomberg Surveillance)
MONDAY, JULY 12, 2021
BLOGS/OP-EDS
Is the U.S. a “land of opportunity”? (Noah Smith, Noahpinion) ($)
Noah Smith on what mobility in America looks like, ”…As Michael Strain points out in his book The American Dream is Not Dead, if you look at individual income, the number in the graph above rises to 60%. And if you use PCE inflation instead of CPI inflation (a perennial point of disagreement in these arguments), the number rises to 67%. This is less upward mobility than the Boomer and WW2 generations enjoyed, but still a fairly substantial amount….And when we look at immigrants’ performance in America, we find an incredibly high level of intergenerational mobility. Here, for example, is an estimate (from Abramitzky et al. (2019)) of the average income percentile of American men born to fathers with incomes at the 25th percentile (i.e. fairly low), broken down by father’s ancestry: This shows a decent amount of upward mobility for native-born working-class men — on average, if you were born at the 25th percentile, you can expect to reach higher than the 45th! But for immigrants, the mobility is even higher. If you were born to a working-class Indian immigrant dad, you can expect to reach the upper middle class!…”
Feel The Power (Gregor Macdonald, The Gregor Letter) ($)
Gregor Macdonald presents more evidence on the likely sea change in electrical generation, “…Growth of fossil fuels in global power generation is probably over. This doesn’t mean that coal-fired and natural gas-fired capacity won’t grow in some regions. Nor does it mean that fossil fuel driven power capacity is headed for imminent decline. But now that wind and solar are heading towards 10% of global generation, marginal growth is being steadily handed off to those two resources. And of course, storage is coming quickly up from behind: perfecting, balancing, and enhancing wind and solar wherever deployed. The trio are now fully capable of dominating the market. The data comes from the just released BP Statistical Review, showing that combined wind and solar reached 9.12% of global generation last year. Let’s take a couple of different views of the data, so that we can more fully absorb the transition taking place. First, here is a non-zero scaled chart showing the details of last year’s configuration in which, out of a total 26,823.2 TWh generated, sources ex wind+solar provided 24,376 TWh, wind provided 1591.2 TWh, and solar provided 855.7 TWh. The chart is non-zero scaled intentionally in order to highlight the yearly changes in a discernible format. Next we have the zero-scaled chart, or what one might call the skeptic’s preferred view. Ha. In this chart we display the full height of generation ex wind+solar, which visually reduces the contribution of wind+solar, making them seem impotent in the face of legacy generation. And that’s ok. We absolutely should face up to this reality, that 90% of the world’s power—save for nuclear, hydro, and some scant other renewables—remains problematic. But the key point remains: when a new technology finally reaches, often after many years, a 5% share of any market then the incumbent technology is in peril. And how about 9.12%? Well, in every domain where combined wind+solar have reached such levels, so far, an iron wall has come down on the growth of all other sources….”
Some charts and commentary based on BP’s annual report on world energy statistics (Mark Perry, American Enterprise Institute)
My AEI colleague Mark Perry also read the new BP report, “…Primary energy consumption fell by 4.5% in 2020 – the largest decline since 1945. By country, the US, India, and Russia contributed the largest declines in energy consumption. China posted the largest increase (2.1%), one of only a handful of countries where energy demand grew last year….2. Chart of the Day II (above, click to enlarge) shows the ten countries with the largest reductions in CO2 emissions between 2000 and 2020 led by the US, and the ten countries with the largest increases in C02 emission over that period, led by China. So the US deserves credit for making the greatest global contribution to reducing greenhouse gases over the last decade. America’s impressive 24.5% reduction in CO2 since 2005 also demonstrates why the US really doesn’t need to be part of the Paris accord, since it has already met its promise for a 25% reduction by 2025, and it happened five years ahead of schedule! Further, the significant reduction in US CO2 emissions hasn’t happened as a result of any government energy policy or punitive carbon tax, it’s happened mostly due to the substitution of natural gas (an all-time high share of 40% last year) for coal (an all-time low of 17% in 2020) to generate the nation’s electricity. And that game-changing substitution was only made possible by the twin revolutionary drilling and extraction technologies of hydraulic fracturing and horizontal drilling….”
Engagement’s Second-Order Catastrophes (Tanner Greer, Scholar’s Stage)
In a review of Scott Rozelle and Natalie Hell’s Invisible China Tanner Greer covers how the “China Shock” played out south of the Rio Grande, “….Mexico was not always the economically stagnant, narcotics ridden country that it is today…in the late ‘80s and early ‘90s it was a busy manufacturing hub with a bright future. In 1994 Mexico was invited into the OECD precisely because it seemed on the verge of jumping into the high income bracket. This upward climb was derailed when the United States granted “permanent normal trade relations” to the People’s Republic of China. Americans often debate the impact this had on the U.S. industries, but its effect on the Mexican job market is much clearer—and more catastrophic: “From 2001 to 2004, Mexico lost an estimated 400,000 jobs to China. Over the course of just three years, the once-dominant Mexican textiles industry was supplanted by China as the number one exporter to the US market, and more than a third of Mexican factories assembling clothing were shut down. Many low-wage industries also contracted sharply. By 2000 “Made in Mexico” was fast disappearing from Walmart’s shelves….As the factories began to leave, Mexico’s economy faltered, then stagnated, and today has still never recovered. For the past two decades, per capita economic growth has hovered just above 1 percent (in the most optimistic accounting rules), much slower than would be expected for a country with Mexico’s level of development. In the metrics that matter most for a growing economy, Mexico has also fallen behind. Rising productivity—getting more economic output from fewer inputs through new technologies and better management approaches—is a sign of a healthy economy. But productivity in Mexico has been consistently stagnant or declining across this period….Within a couple years, 10 million people lost their jobs and that was 20% of the Mexican labor force. What did those 10 million people do? About half of them or a third of them went across the border to the U.S. China’s not gonna be able to do that. The second thing is they went into the informal economy; they started hawking fruit on the street, washing car windows, doing landscaping…. As predicted, many other people who were excluded from Mexico’s economy turned to crime. From 2000 to 2010, business theft and extortion increased dramatically. From 2007 to 2014, more than 150,000 people were killed in Mexico as part of the violence that now permeates large segments of the country…. In Michoacán, a Mexican state where organized crime has a large and violent presence, an unskilled worker might earn about US$175 a month in difficult, unsteady work in the informal sector. But that same worker might earn three times as much by working for a local gang….”
NEWS
Biden Stakes Out Position in Debate Over Power of Big Companies (Jon Hilsenrath, Wall Street Journal) ($)
“…Some research has found less cause for concern around business consolidation. “There are reasons to be cautious about concluding that market concentration has risen or is a meaningful problem for market competition and consumer welfare,” Nancy Rose, a professor in the economics department of the Massachusetts Institute of Technology, concluded in a 2019 examination of research on the issue, citing measurement challenges among reasons for skepticism….With the rise of a few big companies, jobs also have become concentrated there. John Haltiwanger, a University of Maryland professor, finds that the share of U.S. jobs at young, small firms declined to 16% in 2018 from 26% in 1987. During the same period, the share of jobs in older, larger firms rose from 41% to more than half….A wide range of other industries shows large concentrations of dominant firms. In candy, two firms control 60% of U.S. sales, according to the Open Markets Institute, a research organization focused on combating monopoly power. In mobile-phone services, four firms control 98% of market share; in airlines, four firms control 76% of the market; in hearing aids, four firms control 84% of the market; in eyeglasses, three firms have a 61% share; in diapers, two firms have a 64% share; in dialysis, two firms have a 92% share, according to Open Markets….”
JPMorgan Sees Little Sign of Workforce Gain After Benefits Cut (Peyton Forte, Bloomberg) ($)
“…In U.S. states where governors have prematurely ended supplemental unemployment insurance programs, there’s little indication that cutting off the benefits has improved the labor markets in those states. That’s the finding of a JPMorgan research note released Friday that examined Google searches for key words like “unemployment” and “jobs” in states that stopped enhanced payments provided in the pandemic. The analysts saw scant evidence of an increase in people looking for work in those regions. “We do find an increase in Google searches for ‘unemployment’ in states ending benefits in the days after the announcement, suggesting increased attention to the issue,” wrote Peter McCrory and Jesse Edgerton at JPMorgan Chase & Co. “But we find little evidence for an increase in searches for ‘jobs’ that would indicate an increase in people actually looking for jobs.”…”
Four-day working week: Iceland shows the long and the short of it (Staff, Financial Times) ($)
NEW ECON RESEARCH
Skills, Degrees and Labor Market Inequality (Peter Blair, Papia Debroy, + Justin Heck, NBER) ($)
“Over the past four decades, income inequality grew significantly between workers with bachelor’s degrees and those with high school diplomas (often called “unskilled”). Rather than being unskilled, we argue that these workers are STARs because they are skilled through alternative routes—namely their work experience. Using the skill requirements of a worker’s current job as a proxy of their actual skill, we find that though both groups of workers make transitions to occupations requiring similar skills to their previous occupations, workers with bachelor’s degrees have dramatically better access to higher-wage occupations where the skill requirements exceed the workers’ observed skill. This measured opportunity gap offers a fresh explanation of income inequality by degree status and reestablishes the important role of on-the-job training in human capital formation.”
The Evolution of Market Power in the US Auto Industry (Paul Grieco, Charles Murry, + Ali Yurukoglu, NBER) ($)
“We construct measures of industry performance and welfare in the U.S. car and light truck market from 1980-2018. We estimate a differentiated products demand model for this market using product level data on market shares, prices, and product characteristics, and consumer level data on demographics, purchases, and stated second choices. We estimate marginal costs under the conduct assumption of Nash-Bertrand pricing. We relate trends in consumer welfare and markups to industry trends in market structure and the composition of products, like the rise of import competition, the proliferation of SUV’s, and changes in vehicle characteristics. We find that although prices rose over time, concentration and market power decreased substantially. Consumer welfare increased over time due to improving product quality and falling marginal costs. The fraction of total surplus accruing to consumers also increased.”
NEW SCIENCE
DNA Has Four Bases. Some Viruses Swap in a Fifth. (Jordana Cepelewicz, Quanta Magazine)
“…A few decades ago, researchers found viruses that had swapped one of the four bases in their DNA for a novel fifth one. Now, in a trio of papers published in Science in April, three teams have identified dozens of other viruses that make this substitution, as well as the mechanisms that make it possible. The discoveries raise the thought-provoking possibility that this kind of fundamental genomic change could be much more widespread and important in biology than anyone imagined…”
