Macro Roundup

you will hate their takeaway from their data (Dalioesque/Mian and Sufi) but it really is the perfect paper for illustrating your point about what the financial system does. Jorda, Oscar and Moritz Schularick and Alan Taylor, "The Great Mortgaging: Housing Finance, Crises, and Business Cycles," NBER, September 2014. Available at:http://www.frbsf.org/economic-research/publications/working-papers/wp2014-23.pdf"...To a large extent the core business model of banks in advanced economies today resembles that of real estate funds; banks are borrowing (short) from the public and capital markets to invest (long) into assets linked to real estate...looking more deeply at the composition of bank credit, it becomes clear thatthe rapid growth of mortgage lending to households has been the driving force behind this remarkable change in the composition of banks' balance sheets....We found that in the second half of the 20th century, banks and households have been heavily leveraging up through mortgages. Mortgage credit on the balance sheets of banks has been the driving force behind the increasingly financialization of advanced economies. In relation to GDP, non-mortgage bank lending to companies and households has remained stable, with virtually all the increase in the size of the financial sector stemming from a boom in mortgage lending to households. Household leverage ratios (mortgage debt divided by the value of the housing stock) have increased substantially in many economies over the 20th century.About two thirds of the business of banking today consists of the intermediation of savings to the household sector for the purchase of real estate. At the beginning of the 20th century mortgage lending accounted for less than a third of the typical bank’s loan book....we showed thatthe growth of mortgage credit has important implications for the sources of financial fragility in advanced economies, and hence for macroeconomic policies. Mortgage booms are an important source of financial instability in the post-WWII era, and mortgages have growing weight in total financial sector activity. We present evidence that the changing nature of financial intermediation has shifted the locus of crisis risk towards mortgage lending booms....we demonstrated that mortgage credit has also increasingly left its mark on business cycle dynamics. In the post-WWII period the aftermath of mortgage boomsgone bust is marked by considerably slower growth rates, irrespective of whether a financial crisis occured or not. Non-mortgage credit no longer appears to have such an effect. Contemporary business cycles seem to be increasingly shaped by the dynamics of mortgage credit, with non-mortgage lending playing only a minor role...Overall, the findings of this paper call for a differentiated perspective on credit growth and on the implications that this differentiation has for financial stability, macroeconomic policies, and financial regulation. Important insights into the sources of financial fragility and the role of credit in the business cycle would be missed without a disaggregated perspective on the various types of credit and their development over the course of modern macroeconomic history..."

Summers on education. Looking forward to hearing the full panel. "...I think the policies that Aneesh is talking about are largely whistling past the graveyard. The core problem is that there aren't enough jobs. If you help some people, you could help them get the jobs, but then someone else won't get the jobs. Unless you're doing things that have things that are effecting the demand for jobs, you're helping people win a race to get a finite number of jobs. …Folks, wage inflation in the united states is 2%. It has not gone up in five years. There are not 3% of the economy where there's any evidence of hyper wage inflation of a kind that would go with worker shortages.The idea that you can just have better training and then there are all these jobs, all these places where there are shortages and we just need the train people is fundamentally an evasion... I am concerned that if we allow the idea to take hold, that all we need to do is there are all these jobs with skills and if we can just train people a bit, then they'll be able to get into them and the whole problem will go away. i think that is fundamentally an evasion of a profound social challenge....What we need is more demand and that goes to short run cyclical policy, more generally to how we operate macroeconomic policy, and the enormous importance of having tighter labor markets, so that firms have an incentive to reach for worker, rather than workers having to reach for firms...I think that the broad empowerment of labor in a world where an increasing part of the economy is generating income that has a kind of rent aspect to it, the question of of who's going to share in it becomes very large. One of the puzzles of our economy today is that on the one hand, we have record low real interest rates, ones that are expected to be record low for 30 years if you look at the index bond market. And on the other hand, we have record high profits. If you tend to think record high profits would mean record high returns to capital, which would mean really high interest rates. And what we actually have is really low real interest rates. The way to think about that is there's a lot of rents in what we're calling profits that don't really represent a return to investment, but represent a rent. The question then is who's going to get those rents? Which goes to the minimum wage, goes to the power of union, goes through the presence of profit sharing, goes to the length of patents and a variety of other government policies that confer rents and then when those are received, goes to the question of how progressive the tax and transfer system is. That has got to be a very, very large part of the picture...."Konczal, Mike, "The One Where Larry Summers Demolished the Robots and Skills Arguments,"Roosevelt Institute Blog, February 20, 2016. Available at:http://www.nextnewdeal.net/rortybomb/one-where-larry-summers-demolished-robots-and-skills-argumentsThe One Where Larry Summers Demolished the Robots and Skills Arguments Feb 20, 2015Mike KonczalEveryone should take it easy on the robot stuff for a while. There's been a small, but influential, hysteria surrounding the idea is that a huge wave of automation, technology and skills have lead to a huge structural change in the economy since 2010. The implicit argument here is that robots and machines have both made traditional demand-side policies irrelevant or naïve, and been a major driver of wage stagnation and inequality. Though not the most pernicious story that gained prominence as the recovery remained sluggish in 2010 to 2011, it gained important foothold among elite discussion. That is over. They say Washington DC has had a huge crime decline, but I just saw one of the most vicious muggings I’m likely to see, one where David Autor and Larry Summers just tore this idea that a Machine Age is responsible for our economic plight apart ona panel yesterday at the Hamilition Projectfor the launch of anew Machine Age report. Summers, in particular, took an aggressive tone that is likely to be where liberal and Democratic Party mainstream economic thinking is in advance of 2016. It is a very, very good place. As Larry Mishelnoted in an American Prospect pieceon the eve of the event, the robots and skills story has many problems. But I was genuinely surprised at how poorly those pushing the argument - Erik Brynjolfsson and Andrew McAfee, authors of the influentialThe Second Machine Age, were there - could address the pretty obvious counterarguments that were brought up. You can see the eventat CSPAN here. This piece will mostly be blockquotes, because the quotes are too good to try and summarize. (Any transcribing errors are my own.) First up, economist David Autor of MIT demolished the core claims in about a minute of speaking. For those with ears to hear it, this is him also moderating and walking back portions of his“job polarization”arguments from 2010. Autor:

The second point i want to make, when we think about how technology interacts with labor market we think of substitution of labor with machinery. What is neglected is that it complements us as well. Many activities require a mixture of things. it requires a mixture of information process and creativity, motor power and dexterity. if those things need to be done together if you make one cheaper and more productive, you increase the value of the other. It got worse for the robots. Here's Larry Summers:

On the one hand we have enormous antidotal evidence and visual evidence that points to technology having huge and pervasive effects. Whether it is complementing workers and making them much more productive in a happy way, or whether it is substituting for them and leaving them unemployed can be debated. In either of those scenarios you would expect it to be producing a renaissance of higher productivity. So, on the one hand are convinced of the far greater pervasiveness of technology in the last few years, and, on the other hand, the productivity statistics on the last dozen years are dismal. Any fully satisfactory view has to reconcile those two observations and i have not heard it satisfactorily reconciled.

If you believe technology happens with a big lag and it's only going to happen in the future, that's fine. But then you can't believe it's already caused a large amount of inequality and disruption of employment today. Let's take retailing. You can imagine you can have all kinds of spiffy technology so you no longer have to have people behind cash registers. The problem is you wouldn't expect the people behind the cash registers would get fired before the people working the systems got the new systems working. I understand why it might take years for it all to have an effect. What i have a harder time understanding is how there can be substantial disemployment ahead of the effect of the productivity. That is, if you thought that it just was impossible to put in these systems and so forth, then you might think that in the short run it would be a big employment boom. You have to keep your old legacy system going and you have to have a million guys running around figuring out how to put the new computer system in.

I think the policies that Aneesh is talking about are largely whistling past the graveyard. The core problem is that there aren't enough jobs. If you help some people, you could help them get the jobs, but then someone else won't get the jobs. Unless you're doing things that have things that are effecting the demand for jobs, you're helping people win a race to get a finite number of jobs. Folks, wage inflation in the united states is 2%. It has not gone up in five years. There are not 3% of the economy where there's any evidence of hyper wage inflation of a kind that would go with worker shortages. The idea that you can just have better training and then there are all these jobs, all these places where there are shortages and we just need the train people is fundamentally an evasion. I am concerned that if we allow the idea to take hold, that all we need to do is there are all these jobs with skills and if we can just train people a bit, then they'll be able to get into them and the whole problem will go away. i think that is fundamentally an evasion of a profound social challenge.

What we need is more demand and that goes to short run cyclical policy, more generally to how we operate macroeconomic policy, and the enormous importance of having tighter labor markets, so that firms have an incentive to reach for worker, rather than workers having to reach for firms. I think that the broad empowerment of labor in a world where an increasing part of the economy is generating income that has a kind of rent aspect to it, the question of of who's going to share in it becomes very large. One of the puzzles of our economy today is that on the one hand, we have record low real interest rates, ones that are expected to be record low for 30 years if you look at the index bond market. And on the other hand, we have record high profits. If you tend to think record high profits would mean record high returns to capital, which would mean really high interest rates. And what we actually have is really low real interest rates. The way to think about that is there's a lot of rents in what we're calling profits that don't really represent a return to investment, but represent a rent. The question then is who's going to get those rents? Which goes to the minimum wage, goes to the power of union, goes through the presence of profit sharing, goes to the length of patents and a variety of other government policies that confer rents and then when those are received, goes to the question of how progressive the tax and transfer system is. That has got to be a very, very large part of the picture.

If we had the income distribution in the United States that we did in 1979, the top 1% would have $1 trillion less today, and the bottom 80% would have $1 trillion more. That works out to about $700,000 a family for the top 1%, and about $11,000 a year for a family in the bottom 80%. That's a trillion dollars. I don't know what the number is, but my guess is that the total cost of the Earned Income Tax Credit is $50 billion. Nobody's got on the policy agenda doubling the Earned Income Tax Credit. The big, aggressive agendas are probably to increase it by a third or a half. So, i'm all for it, but we are talking about 2.5% of the redistribution that has taken place. So, you have to be looking for things and there's no one thing that is going to do it. My reading of the evidence, it's a fairly general evidence, is that while there may be some elasticity, the elasticity around the current level of the minimum wage is very low.

We may need an increase in the income tax credit, not only for those who receive it at the present time but perhaps much further up the income scale. Measures that facilitate collective bargaining can result in a broader participation in the benefits of productivity and growth If we have ever rapid technological development and it is labor displacing, at some point in the future -- as i say, that may be some distant point in the future -- should that lead to some basic change in our lifestyles with less work, more lecture and a richer, more robust use of that leisure? In addition to everything that needs to be done to enhance growth, tighten labor markets and to improve the position of middle and lower income workers, should there be increased redistribution to accomplish the broad objectives of our society?

I think there's reason for some skepticism about how fast things are actually moving. There’s a lot of aggregate data that don't support the idea the labor market is changing or the economy is changing as rapidly as this very dramatic story. The premium to higher education has plateaued over the last 10 years. We see evidence highly skilled workers have less rapid career directories and are moving into less skill occupation if anything. Productivity is not growing very rapidly, and a lot of the employment growth we’ve seen in the past 15 years has been in relatively low education, in-person service occupations.