Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, January 3, 2019

AI Summary. The Supreme Court holds a conservative majority for the first time since 1936, which the author argues could restrain the administrative state through originalist interpretation of the Constitution. The author contends the Court could revive the nondelegation doctrine, end judicial deference to agencies' interpretations of law, and vest executive power in the president.

John Yoo Fox News
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The Supreme Court has the potential to restrain government overreach by adhering to originalism, reviving the nondelegation doctrine, ending judicial deference to agency interpretations, and ensuring executive power remains vested in the president.

Can a conservative Supreme Court majority restrain the administrative state?

Core argument: The Supreme Court holds a conservative majority for the first time since 1936, which the author argues positions it to restrain government overreach by interpreting the Constitution as originally intended.

In 2019, the Supreme Court, with a conservative majority for the first time since 1936, has the potential to significantly restrain government overreach by adhering to originalism. This approach emphasizes interpreting the Constitution as it was originally intended, which could lead to a reduction in the administrative state's power. The federal government has expanded with numerous agencies issuing regulations without congressional approval, undermining the separation of powers. The court can address this by reviving the nondelegation doctrine, ending judicial deference to agency interpretations, and ensuring executive power remains vested in the president. These actions could restore constitutional balance and limit unchecked governmental authority, impacting economic policy and regulatory environments.

Takeaways by Macro Roundup® AI

  1. The Supreme Court holds a conservative majority for the first time since 1936, which the author argues positions it to restrain government overreach by interpreting the Constitution as originally intended.
  2. The author argues the federal government's expansion through agencies issuing regulations without congressional approval undermines the separation of powers, a trend the Court could check by reviving the nondelegation doctrine.
  3. Ending judicial deference to agency interpretations and keeping executive power vested in the president would, in the author's view, restore constitutional balance and affect economic policy and regulatory environments.

John Yoo, "2019 could be an incredible and historic year for the Supreme Court - Here’s why," Fox News, December 30, 2018, https://www.foxnews.com/opinion/2019-could-be-an-incredible-and-historic-year-for-the-supreme-court-heres-why

2019 could be an incredible and historic year for the Supreme Court - Here’s why

The year ahead has the potential to be historic for the U.S. Supreme Court. With Justice Brett Kavanaugh replacing the inconsistent Justice Anthony M. Kennedy, conservatives have a majority on the court for the first time since 1936.

More importantly, for the first time in generations a majority of the justices on the court believe, to varying degrees, in interpreting the Constitution according to its original meaning. This could produce a return of humility to the judiciary.

For decades, liberals have pushed a view of the high court and a method of judging that is antithetical to our written Constitution. Founded on beliefs from the legal realism movement - still the primary approach taught today in American law schools - the left deems the law as just politics and power.

Under this view, the courts are to worry about outcomes rather than the process of determining what the law means and applying it to the facts of the case. Forget about the ideal of blind Lady Justice. She has both eyes wide open to hand legal victory to the preferred party.

This worldview was on display when President Obama said he wanted judges who had empathy. Of course, this was selective empathy, such as for racial minorities, unions and criminal suspects - not for corporations or the police.

But the Constitution demands a better way. As Chief Justice John Roberts suggested during his confirmation hearings, judges are like umpires - just calling balls and strikes. In other words, a judge’s job is to follow the right process, not reach a preferred outcome. The outcomes take care of themselves.

These two competing visions of the proper role of a judge lead to two very different ways of interpreting the Constitution. For the judge-as-philosopher-king model, judges exercise the same power as legislators, free to change the meaning of the law as they see fit. Hence, the Supreme Court can write its own values into the Constitution.

For the judge-as-umpire model, however, the court does not make the law. Rather, it determines what the words of the law meant at the time of the law’s enactment, and applies that meaning to the case at hand. This methodology of discerning the law according to its original meaning is called “originalism” when dealing with the Constitution and “textualism” when dealing with statutes.

And in some form or another, this way of judging goes all the way back to our nation’s founding.

From the Constitution’s perspective, originalism is superior to an approach where judges just implement their policy preferences. There are at least two reasons for this.

As Chief Justice John Roberts suggested during his confirmation hearings, judges are like umpires - just calling balls and strikes.

First, originalism is the only legitimate way for judges to exercise the “judicial power” granted them by the Constitution. That power is abused - or more accurately, legislative power is usurped - if, as Alexander Hamilton warned, “courts … exercise WILL instead of Judgment, the consequence (being) the substitution of their pleasure to that of the legislative body.”

Second, allowing courts to bend the law to their own desires weakens the republic. The power to amend the Constitution was left with the people - the sovereign - to be exercised through state constitutional conventions and their representatives in Congress.

President Abraham Lincoln warned that “if the policy of the Government upon vital questions affecting the whole people is to be irrevocably fixed by decisions of the Supreme Court … the people will have ceased to be their own rulers, having to that extent practically resigned their Government into the hands of that eminent tribunal.”

Now committed to originalism, a majority of the Supreme Court can begin the process of restoring the Constitution to its original meaning and returning the judiciary to its place as the “least dangerous” branch. And that restoration may well begin in 2019.

Perhaps the most immediate area, but also the most influential, will be cutting back the administrative state. The federal government has swollen to a gargantuan size with numerous federal agencies passing tens of thousands of pages of regulations every year that never undergo approval by the House and Senate and signature by the president.

When designing the Constitution, the founders understood that the accumulation of power can lead to tyranny. To prevent this, they diffused power at the federal level by creating three branches of government exercising three different powers. The founders also diffused power between the federal and state governments. This created what Madison called a “double security” for the people’s liberty.

But President Woodrow Wilson introduced the idea that these constitutional protections have become antiquated and inefficient. Accelerated by President Franklin Delano Roosevelt during the New Deal, our government evaded the separation of powers by concentrating all three powers - executive, legislative, and judicial - in federal agencies.

The Supreme Court can put a stop to this in at least three ways.

First, in this term’s Gundy case, the high court can once again enforce the Constitution’s separation of federal power among the three branches by resuscitating the nondelegation doctrine. Simply put, that doctrine holds that one branch of the federal government cannot delegate its power to another. Congress cannot authorize agencies to pass rules that legally bind the public in its stead.

Second, the court can kill the judicially created doctrine of requiring federal judges to defer to agency interpretations of ambiguous statutes and regulations. It is a court’s constitutional role to determine what the law means in a dispute before it, and it should do so without deferring to any party, particularly not a different branch of government.

The Supreme Court has the chance to end deference in the context of regulations in this term’s case of Kisor v. Wilkie.

Finally, the court can restore the constitutional fact that all of the executive power has been vested in the president. Therefore, to exercise that power and see that the laws are faithfully executed, the president must be able to oversee all who work under him.

Congress has sought to insulate some federal agencies from presidential oversight by making them independent of the president’s ability to remove their leaders or check their actions.

But this just creates a politically unaccountable, and potentially rogue, faction of the executive branch. That’s not what the Constitution allows.

The Supreme Court should overturn past cases, such as Morrison v. Olson and Humphrey’s Executor, which allowed federal prosecutors or agency commissioners to act free from White House control.

The Constitution, as written and understood when enacted, is our supreme law. The Supreme Court has long viewed its own pronouncements as on a par with our founding document.

The high court can restore judicial humility by following the Constitution’s original meaning, until the people choose to change it. And if the court begins this process of restoration in 2019, it will be a very good year for the republic.

AI Summary. An analysis of 16,000 wells run by 29 major producers in Texas and North Dakota found that two-thirds of fracking forecasts were overly optimistic, with companies on track to produce nearly 10% less oil and gas than projected. That shortfall amounts to almost 1bn barrels over 30 years, worth more than $30bn at current prices.

Bradley Olson, Rebecca Elliott and Christopher M. Matthews Wall Street Journal
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US energy production may be lower than forecasted due to unsustainable economics in fracking. Analysis of 16,000 wells shows 2/3 of 2014-2017 projections were overly optimistic.

Are shale oil wells producing less than companies forecast?

Core argument: An analysis of 16,000 wells operated by 29 major producers in Texas and North Dakota found two-thirds of 2014–2017 fracking projections were overly optimistic.

Analysis of 16,000 wells operated by 29 major producers in Texas and North Dakota reveals that two-thirds of fracking projections from 2014-2017 were overly optimistic. Companies are on track to produce nearly 10% less oil and gas than forecasted, equating to almost 1bn barrels over 30 years, valued at over $30bn at current prices. Some regions face discrepancies exceeding 50%. This shortfall suggests that current production levels are built on unsustainable economics, potentially leading to reduced future energy output. The implications for the US energy sector are significant, as reliance on inflated forecasts could undermine long-term energy security and economic stability.

Takeaways by Macro Roundup® AI

  1. An analysis of 16,000 wells operated by 29 major producers in Texas and North Dakota found two-thirds of 2014–2017 fracking projections were overly optimistic.
  2. The companies are on track to produce nearly 10% less oil and gas than forecast, almost 1bn barrels over 30 years, worth over $30bn at current prices.
  3. Some regions show discrepancies between forecast and actual output exceeding 50%.

"...Two-thirds of projections made by the fracking companies between 2014 and 2017 in America’s four hottest drilling regions appear to have been overly optimistic, according to the analysis of some 16,000 wells operated by 29 of the biggest producers in oil basins in Texas and North Dakota. Collectively, the companies that made projections are on track to pump nearly 10% less oil and gas than they forecast for those areas, according to the analysis of data from Rystad Energy AS, an energy consulting firm.That is the equivalent of almost one billion barrels of oil and gas over 30 years, worth more than $30 billion at current prices. Some companies are off track by more than 50% in certain regions...."
Bradley Olson, Rebecca Elliott and Christopher M. Matthews, "Fracking’s Secret Problem—Oil Wells Aren’t Producing as Much as Forecast,"Wall Street Journal, January 2, 2018, https://www.wsj.com/articles/frackings-secret-problemoil-wells-arent-producing-as-much-as-forecast-11546450162

Ed Comment:I thought the most interesting paragraph was:Shale companies have attracted huge amounts of capital from Wall Street over the past decade. So far, investors have largely lost money. Since 2008, an index of U.S. oil-and-gas companies has fallen 43%, while the S&P 500 index has more than doubled in that time, including dividends. The 29 companies in the Journal’s analysis have spent $112 billion more in cash than they generated from operations in the last 10 years, according to data from FactSet, a financial-information firm. I think that reflects the economics of innovation more broadly. Specifically I think this says the US will produce less energy in the future because current production levels were built from unsustainable economics and production drys up quickly without a lot of investment.

AI Summary. The authors estimate that a $1,000 increase in per-worker import exposure from Chinese competition raised the likelihood of whites favoring fewer immigrants by 4.1% and excluding illegal immigrants by 6.3%, with larger effects where immigrant populations are low. Import exposure also increased identification as religiously fundamentalist without changing overall religiosity.

Michael Strain American Enterprise Institute
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The “China Shock” hardened existing racial and religious views among whites, rather than altering attitudes broadly. @MichaelStrain, American Enterprise Institute.

Does import competition harden whites' attitudes toward immigrants and religion?

Core argument: A $1,000 increase in per worker import exposure from the "China Shock" raised the likelihood of whites favoring fewer immigrants by 4.1% and support for excluding illegal immigrants by 6.3%.

The "China Shock" significantly hardened existing racial and religious views among whites, rather than altering attitudes broadly. A $1,000 increase in per worker import exposure led to a 4.1% rise in the likelihood of whites favoring fewer immigrants and a 6.3% increase in support for excluding illegal immigrants. In areas with low immigrant populations, these figures rose to 8.3% and 8.6%, respectively. Import exposure also increased the probability of whites identifying as fundamentalist without affecting overall religiosity. In regions with historical racial tensions, increased import competition intensified negative racial attitudes. These findings suggest that economic disruptions from globalization reinforce preexisting social views, particularly in areas with low immigrant presence or racial antipathy, rather than shifting them across the board.

Takeaways by Macro Roundup® AI

  1. A $1,000 increase in per worker import exposure from the "China Shock" raised the likelihood of whites favoring fewer immigrants by 4.1% and support for excluding illegal immigrants by 6.3%.
  2. In areas with low immigrant populations, those figures rose to 8.3% and 8.6%, and in regions with historical racial tensions increased import competition intensified negative racial attitudes.
  3. Import exposure increased the probability of whites identifying as fundamentalist without affecting overall religiosity, a pattern the findings suggest reflects economic disruption reinforcing preexisting social views rather than shifting them across the board.

Reviewed the Strain paper, in general he finds the "China Shock" hardened existing views among whites versus changing peoples views across the board. for example increase trade exposure increases the likelihood of an individual identifies as fundamentalist but doesn't make people more religious (table 1) no significant overall effect on views of African Americans (Table 3) however when they look at racial views in commuting zones that contained at least one county mentioned in the voting rights act (table 4) they find that the increase in imports"...significantly harden racial attitudes among whites..."Table 5 looking at the impact on views of immigrants finds the same phenomenon, whites in areas with a relatively low immigrant share had more negative attitudes towards immigrants then those living in areas with a higher immigrant population initially. same thing with guns, "...Overall, increases in import exposure are associated with increases in the likelihood a respondent owns a gun, and appear to harden attitudes against gun ownership in areas where few people own guns...."

Michael Strain and Stan Veuger, "Economic Shocks and Clinging," American Enterprise Institute, January 2019, https://www.aei.org/wp-content/uploads/2019/01/Economic_shocks_wp.pdf

".....We find that the sudden surge of import competition during this period did affect social attitudes in important and nuanced ways..... On balance, we interpret our findings as lending only very limited support to the hypothesis that the economic effects of globalization affect the social attitudes of whites towards immigrants, minorities, guns and religion in the aggregate. At the same time, the increase in trade with China seems to materially harden preexisting attitudes. Specifically, the stronger a sudden surge in import competition, the more likely whites are to embrace religious fundamentalism. It is in areas that have a history of racial antipathy that “the China shock” led whites to develop more strongly negative views towards African Americans. Commuting zones with low initial levels of immigration witness a rise in anti-immigrant sentiments following sudden and intense import competition. And gun ownership becomes both even less common and even less popular in areas where gun ownership was low to begin with....Appendix table A3, shows that a $1,000 increase in per worker import exposure is associated with a 4.1 percentage point increase in the probability a white respondent feels the United States should let in fewer immigrants, and a 6.3 percentage point increase in the probability a white respondent believes the United States should do more to exclude illegal immigrants. We find no significant effect on the probability a person believes that immigrants are not good for America, immigrants take jobs from native-born workers, or that the United States should let in fewer total immigrants.....Panel A shows that in commuting zones in the bottom quartile of immigrants as a share of total population in 1990, a $1,000 increase in per worker import exposure is associated with an 8.3 percent increase in the probability a white respondent believes that immigrants are not good for the United States, a 10.2 percent increase in the probability a respondent believes immigrants take jobs from native-born workers, an 8.2 percent increase in the likelihood a respondent feels the United States should let in fewer immigrants, and a 8.6 percent increase in the likelihood a respondent believes that the United States should do more to exclude undocumented immigrants. Similarly, from panel B we see that in commuting zones in the bottom decile of immigrants as a share of total population in 1990, a $1,000 increase in per worker import exposure is associated with a 8.1 percent increase in the probability a white respondent believes that immigrants are not good for the United States, a 6.3 percent increase in the probability a respondent believes immigrants take jobs from native-born workers, a 4.8 percent increase in the likelihood a respondent feels the United States should let in fewer immigrants, and a 6.9 percent increase in the likelihood a respondent believes that the United States should do more to exclude undocumented immigrants. Overall increases in import exposure appear to harden attitudes towards immigrants among white Americans, particularly in areas where the preexisting share of immigrants is low.....These results suggest a nuanced relationship between the economic disruption caused by globalization — specifically, a local labor market’s exposure to import penetration from the “China shock” — and social attitudes among whites. Increases in import exposure are associated with an increased probability that white Americans identify as fundamentalist, but appear to have no effect on whether a person views himself as religious or not. Exposure to imports from China has no discernable effect on gun ownership or disapproval of gun regulation overall, but it makes people in areas where guns are not popular to begin with even more skeptical of gun ownership. Among the general white population, an increase in import competition only marginally increases support for restrictions on immigration. However, in areas with small immigrant populations, it both increases support for more restrictive immigration policies and triggers more negative views of immigrants. A similar picture arises when we examine the relationship between a sudden surge in import competition and the racial attitudes of white Americans. While racial attitudes grow slightly more negative in general, in labor markets containing at least one country mentioned in the 1965 Voting Rights Act a sudden increase in the effects of globalization materially increases the probability white respondents report feeling African Americans are lazy, believing African Americans are generally unintelligent, and who believe that African Americans lack education. These results suggest economic disruption from increased competition from abroad may lead to a hardening of racial views in areas with a history of racial tension. Taken as a whole, the economic effects of globalization materially affect the social attitudes of whites towards immigrants, minorities, guns and religion. They do so by hardening existing views, as opposed to altering attitudes across the board. These results are, of course, ultimately derived from variation in import competition. The availability of cheaper goods and services facilitated by increases in foreign output and productivity raises the purchasing power of American consumers, and globalization increases demand for exports, along with labor demand in export-intensive firms and industries. This may well, through these channels, have the opposite effect on the social views we study here, which leaves the aggregate impact of increased globalization on said views in both specific areas and the country as a whole to be determined...."

AI Summary. The equity risk premium — the additional return investors expect from stocks over risk-free assets — was estimated at 5.96%, a reminder of the risk inherent in equity investments.

Aswath Damodaran Musing on Markets
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The Equity Risk Premium (ERP) in January 2019 was 5.96%, highlighting the inherent risk associated with equities.

How much extra return do investors expect from stocks?

Core argument: The equity risk premium was updated to 5.96% in January 2019, representing the additional return investors expect from stocks over risk-free assets.

In January 2019, the Equity Risk Premium (ERP) was updated to 5.96%, highlighting the inherent risk associated with equities. This figure serves as a crucial indicator for investors, reflecting the additional return expected from investing in stocks over risk-free assets. The ERP's current level underscores the volatility and uncertainty in equity markets, reminding investors of the potential for significant fluctuations in returns. As market conditions evolve, the ERP can provide insights into investor sentiment and risk tolerance, influencing decisions in portfolio management and asset allocation. This update is a timely reminder for business professionals, economists, and policymakers to remain vigilant about the risks inherent in equity investments, especially in a dynamic economic environment.

Takeaways by Macro Roundup® AI

  1. The equity risk premium was updated to 5.96% in January 2019, representing the additional return investors expect from stocks over risk-free assets.
  2. The equity risk premium can offer insights into investor sentiment and risk tolerance as market conditions change, informing portfolio management and asset allocation decisions.

Aswath updated his ERP # currently 5.96%January 2019 Data Update 1: A reminder that equities are risky, in case you forgot!: Extended Excerpt Image 1

Aswath Damodaran, "January 2019 Data Update 1: A reminder that equities are risky, in case you forgot!,"Musing on Markets, January 2, 2019, http://pages.stern.nyu.edu/~adamodar/

AI Summary. The authors argue that longer work hours among high-skilled workers raised the value of their time and the cost of commuting, driving demand for central-city locations and initiating urban gentrification, with incoming high-skilled residents endogenously improving amenities. They estimate this widened the welfare gap by 8.41 percentage points, 33% larger than the increase in the earnings gap.

Yichen Su American Economic Association
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High-skilled workers started working longer hours in the mid-1980s, increasing the value of their time & raising commuting costs, driving a demand for central city locations & initiating urban gentrification.

Do longer work hours among high-skilled workers drive urban gentrification?

Core argument: The authors estimate that the welfare gap between high- and low-skilled workers widened by 8.41 percentage points, 33% larger than the increase in the earnings gap, reflecting changes in the value of time and amenities.

Starting in the mid-1980s, high-skilled workers began working longer hours, increasing the value of their time and raising commuting costs. This shift drove a demand for central city locations, initiating urban gentrification. The inflow of high-skilled workers led to an endogenous process of amenity improvement, further attracting these workers despite rising rents. Evidence shows that before 1980, low-wage workers worked longer hours, but this reversed post-1980, with high-wage earners now working more. The spatial relocation of high-skilled workers to central cities is linked to their desire for shorter commutes. This shift has widened the welfare gap by 8.41 percentage points, 33% larger than the earnings gap increase, highlighting the significant impact of time value and amenity changes on urban dynamics.

Takeaways by Macro Roundup® AI

  1. The authors estimate that the welfare gap between high- and low-skilled workers widened by 8.41 percentage points, 33% larger than the increase in the earnings gap, reflecting changes in the value of time and amenities.
  2. Starting in the mid-1980s, high-skilled workers began working longer hours, raising the value of their time and their commuting costs, which drove demand for central city locations and initiated urban gentrification.
  3. Before 1980 low-wage workers worked longer hours than high-wage workers, a pattern that reversed after 1980, with the relocation of high-skilled workers to central cities linked to their desire for shorter commutes.

new paper being presented tomorrow at the AEA meeting. starting in the mid 1980's high skilled workers started working longer hours, their increasing value of time raises the cost of commuting and they responded by moving to cities. while the change in value of time is an initial force behind gentrification the paper finds that the new amenities create a feedback loop that drives the process.

"...I estimate a spatial equilibrium model to show that the rising value of high-skilled workers’ time is an important driving force behind the gentrification of American central cities. I show that the increasing value of time raises the cost of commuting and exogenously increases the demand for central locations by high-skilled workers. While change in value of time is an initial force behind gentrification, its effect is substantially magnified by endogenous amenity improvement. The model implies that welfare inequality in the recent decades increases by more than the rise in earnings inequality if the forces behind gentrification are considered...In this paper,I show that the demand for shorter commute time by the high-skilled workers due to the rising value of time is an important exogenous force that pushes high-skilled workers into the central city neighborhoods.I further show that the inflow of high-skilled workers leads to an endogenous process of amenity change.In the endogenous process,both the levels of amenities and rents in the central cities increase in response to the inflow of the high-skilled urban "pioneers."While all workers dislike higher rents,high skilled workers value the improved amenities more than low-skilled workers do. As a result,more high-skilled workers sort into the central city neighborhoods while low-skilled workers sort out to the suburbs,which endogenously leads to further improvement in amenities in the central cities.I show that while the rising value of time among high-skilled workers is an important underlying driving force behind gentrification,the resulting endogenous amenity change greatly magnifies its direct effect.Finally,I find that the rising value of time, amenity and rent change lead to an increase in welfare gap larger than the increase in income gap between high-and low-skilled workers. To motivate my analysis,I document that the time period of gentrification coincides with a period in which working long hours became more prevalent among high-wage earners. Evidence.....suggests that,before 1980,low-wage workers tended to work longer hours than high-wage workers.However,since mid-1980,this pattern has reversed itself. In recent years,high-wage workers have been much more likely to work long hours than their low-wage counterparts.Moreover,I show that,since 1980,the growth of reported commute time is much slower among the workers in the top wage deciles than workers in lower wage deciles, suggesting some of the spatial relocation of high-skilled workers in to the central cities is likely attributed to their changing value of time and increasing desire for shorter commute time......exploit the fact that even within the same residential neighborhood, commute time can be dramatically different across different occupations. This is because jobs in different occupations are located differential across space. For example financial managers and medical doctors are both highly skilled workers.However financial jobs are very concentrated in lower end of Manhattan while doctors in New York City area can work in any number of locationsbecause clinics and hospitals are spread throughout the metropolitan area.I can therefore use the variation in expected commute time across occupations to identify the effect of commute cost on workers’valuation of neighborhoods,controlling for other neighborhood characteristics that are occupation-invariant.....Finally,using the estimated model,I evaluate the welfare impact of the spatial sorting on high- skilled and low-skilled workers.I find that the change in the value of time,rents,and amenities leads to an increase in welfare gap equivalent to 8.41 percentage point in the earnings gap,which is 33% larger than the increase in the actual earnings gap...."

Yichen Su, "The Rising Value of Time and the Origin of Urban Gentrification," American Economic Association, January 4, 2019, https://www.aeaweb.org/conference/2019/preliminary/699

Friday, January 4, 2019

AI Summary. The Federal Reserve Bank of New York estimates that higher U.S. import tariffs raised the aggregate Producer Price Index by about 0.33%, with a similar estimated effect on consumer prices. The analysis indicates a modest pass-through from tariffs to consumer prices.

Mary Amiti Federal Reserve Bank of New York
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New York Fed analysis finds tariffs had a minor impact on US domestic prices, with a 33bps increase in theppI & a similar effect on CPI.

How much do higher import tariffs raise US domestic prices?

Core argument: The New York Fed estimates that increased U.S. import tariffs raised the aggregate Producer Price Index by roughly 33 basis points in 2018, an impact it characterizes as relatively minor.

The New York Fed's analysis indicates that the impact of tariffs on U.S. domestic prices is relatively minor, with an estimated increase of ~33 basis points (bps) in the aggregate Producer Price Index (PPI). This translates to a similar effect on the Consumer Price Index (CPI), suggesting that both producer and consumer prices were approximately 0.33% higher in 2018 due to increased import tariffs. The study highlights a modest pass-through effect from tariffs to consumer prices, underscoring the limited influence of tariffs on overall inflationary pressures within the U.S. economy. This data-driven insight provides a nuanced understanding of how trade policies affect domestic price levels, offering valuable context for economists and policymakers evaluating the broader economic implications of tariff adjustments.

Takeaways by Macro Roundup® AI

  1. The New York Fed estimates that increased U.S. import tariffs raised the aggregate Producer Price Index by roughly 33 basis points in 2018, an impact it characterizes as relatively minor.
  2. The New York Fed's analysis finds a similar effect of about 0.33% on the Consumer Price Index, indicating a modest pass-through from tariffs to consumer prices.
  3. The New York Fed's analysis suggests tariffs exerted limited influence on overall U.S. inflationary pressures.

New York Fed looks at the impact of tariffs on US domestic prices, unsurprisingly finds effect relatively minor overall, ~ 33 bps.

"...back of the envelope calculation using the regression coefficients and the actual changes in tariffs is still informative—they suggest an effect on aggregateppI of around a third of a percentage point. The correlations between the overallppI and CPI suggest a pass-through that yields CPI effects of similar magnitude to theppI effects. In sum, our analysis suggests that that producer and consumer prices are about a third of a percent higher in 2018 as a result of higher import tariffs...."

Mary Amiti, Sebastian Heise, and Noah Kwicklis, "The Impact of Import Tariffs on U.S. Domestic Prices," Federal Reserve Bank of New York, January 4, 2019, https://libertystreeteconomics.newyorkfed.org/2019/01/the-impact-of-import-tariffs-on-us-domestic-prices.html

AI Summary. Hispanic workers in the US are disproportionately concentrated in lower-skill occupations, a pattern the authors attribute mainly to lower educational attainment, since controlling for education, age, and gender largely eliminates Hispanic/non-Hispanic labor market gaps. The authors argue that improving Hispanic educational outcomes could raise aggregate US productivity.

Alexander Monge-Naranjo Federal Reserve Bank of St. Louis
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Hispanic workers are disproportionately assigned to lower-skill occupations due to lower educational attainment compared to non-Hispanic workers. Controlling for education, age, and gender largely eliminates the Hispanic/non-Hispanic labor market gaps.

Does education explain Hispanic workers' concentration in lower-skill occupations?

Core argument: Hispanic workers are disproportionately concentrated in lower-skill occupations, primarily because of lower educational attainment relative to non-Hispanic workers.

Hispanic workers are disproportionately assigned to lower-skill occupations, primarily due to lower educational attainment compared to non-Hispanic workers. This educational gap is a significant factor holding back Hispanic workers in the U.S., as controlling for education, age, and gender differences largely eliminates the Hispanic/non-Hispanic labor market gaps. Despite progress, the Hispanic population still lags behind, suggesting that enhancing their educational outcomes could boost the country's aggregate productivity. Notably, Hispanic women have advanced at a faster pace than men, aligning with broader workforce trends.

Takeaways by Macro Roundup® AI

  1. Hispanic workers are disproportionately concentrated in lower-skill occupations, primarily because of lower educational attainment relative to non-Hispanic workers.
  2. Controlling for differences in education, age, and gender largely eliminates Hispanic/non-Hispanic labor market gaps, pointing to education as a significant factor holding Hispanic workers back.
  3. Hispanic women have advanced faster than Hispanic men, consistent with broader workforce trends, and improving Hispanic educational outcomes could raise U.S. aggregate productivity.

"....we found that Hispanic workers are assigned in higher proportions to lower-skill occupations. To explain these findings,we argue that the education of Hispanic workers lags behind that of non-Hispanic workers, so the observed pattern is consistent with recent assignment models, in which workers choose occupations on the basis of their comparative advantage....The data suggest that the observed disadvantages of Hispanic workers in the U.S. labor markets do not seem to be the result of labor market frictions, e.g., sheer discrimination or lack of information. Once we control for education, age and gender differences, the Hispanic/non-Hispanic gaps mostly disappear. Instead, the factor holding back Hispanic workers in the U.S. seems to be their educational attainment.To be sure, progress has been made there, but the Hispanic population is still lagging behind the rest of workers. Regardless of the reason why Hispanics remain behind, the aggregate productivity of the country would improve if that source of talent and skills is fully developed and exploited..... we found that women have advanced at a faster pace than men have. The patterns for Hispanic females are in line with the findings for all the workers in general...."
Alexander Monge-Naranjo and Juan Ignacio Vizcaino, "Hispanics and Their Contribution to America’s Human Capital," Federal Reserve Bank of St. Louis, 2018, https://www.stlouisfed.org/publications/regional-economist/second-quarter-2018/hispanics-contribution-human-capital

AI Summary. Men aged 25-54 who temporarily exit the labor force for under two years, mainly for leisure, account for 20-40% of the decline in prime-age male labor force participation over recent decades, and the authors attribute this to labor supply preferences rather than weaker labor demand. Unlike permanent dropouts, these "in-and-outs" keep strong workforce attachment and show no lifetime earnings loss.

John Coglianese American Economic Association
Date Posted:
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Database

Decline in Labor Force Participation among prime age men driven by “in-and-outs” who temporarily exit the labor force for leisure activities, without affecting lifetime earnings.

How much of declining prime-age male participation reflects temporary exits?

Core argument: "In-and-outs," men who leave the labor force for under two years, account for 20–40% of the decline in prime age male labor force participation from 1984 to 2011, exiting primarily for leisure.

The decline in Labor Force Participation (LFP) among prime age men is significantly driven by "in-and-outs," who account for 20-40% of the decrease from 1984 to 2011. These men temporarily exit the labor force for periods under two years, primarily for leisure activities, without affecting their lifetime earnings. In 1960, over 97% of men aged 25-54 were employed or job-seeking, but by 2015, this fell to 88%, equating to 5.5m fewer workers. The rise of in-and-outs is not due to reduced labor demand but reflects changes in personal labor supply preferences. Unlike permanent dropouts, in-and-outs maintain strong workforce attachment and do not experience income loss upon reentry. This trend highlights a distinct labor supply margin, separate from permanent dropouts, which has minimal impact on lifetime income inequality compared to the substantial inequality increase caused by long-term dropouts.

Takeaways by Macro Roundup® AI

  1. "In-and-outs," men who leave the labor force for under two years, account for 20–40% of the decline in prime age male labor force participation from 1984 to 2011, exiting primarily for leisure.
  2. Labor force participation among men aged 25–54 fell from over 97% in 1960 to 88% in 2015, equal to 5.5m fewer workers.
  3. In-and-outs retain strong workforce attachment and lose no income on reentry, leaving lifetime earnings unaffected, while long-term dropouts account for a substantial increase in lifetime income inequality.

New paper finds that the decline in LFP in prime age men is in large part (20-40%) from "in and out" men who pop in and out of the labor force for periods of two years, as opposed to dropouts. these men are largely capable in that there absence from labor force doesn't effect their lifetime earnings, implies it's largely a function of personal preference, "....While out of the labor force, in-and-outs replace time spent working with leisure activities, primarily watching television. In-and-outs do not spend much more time on child care, care for adults, educational activities, or job search during these breaks...."

John Coglianese, "The Rise of In-and-Outs: Declining Labor Force Participation of Prime Age Men," American Economic Association, January 2019, https://www.aeaweb.org/conference/2019/preliminary/608

".....This paper documents that much of the decline in labor force participation of U.S. prime age men comes from “in-and-outs”—who I define as men who temporarily leave the labor force. Individuals moving in and out of the labor force have been an understudied margin of labor supplybut account for 20-40% of the decline in participation between 1984 and 2011. In-and-outs are distinct from unemployed individuals, experiencing no loss of future income as a result of their time out of the labor force, and represent a distinct margin of labor supply from long-term labor force dropouts. Examining explanations for the rise of in-and-outs,I find little evidence to suggest that changes in labor demand are responsible.... In 1960, more than 97% of American men between the ages of 25 and 54 were either employed or actively looking for work. By 2015, this rate had fallen to 88%, representing nearly 5.5 million fewer prime age workers in the labor force at any point in time.... document that participation has changed along an understudied margin of labor supply. I find that “in-and-outs”—men who temporarily leave the labor force—represent a growing fraction of prime age men across multiple data sources and are responsible for 20-40% of the decline in the participation rate between 1984 and 2011. In-and-outs take short, infrequent breaks out of the labor force in between jobs, but they are otherwise continuously attached to the labor force. Leading explanations for the growing share of permanent labor force dropouts, such as disability, do not apply to in-and-outs. Additionally, evidence indicates that the rise of in-and-outs does not result from a decline in labor demand for prime age men. Together, these facts paint a different picture of declining labor supply among prime age men than documented previously..... show that the rise of in-and-outs is a robust phenomenon observed over the last several decades in a number of different longitudinal data sources. In the Survey of Income and Program Participation (SIPP), the share of men who are out of the labor force in any given month rose 5.3 p.p. from 1984 to 2011, with between 1.3 and 2.0 p.p. of this increase coming from nonparticipation spells lasting less than two years. Similar increases in temporary nonparticipation are evident in other longitudinal datasets, including administrative earnings records. Additionally, retrospective data sources inaccurately estimate the number of in-and-outs, as measurement error in retrospective collection is growing over time, possibly due to recall problems or increased rounding by respondents. After returning to the labor force, most in-and-outs are highly attached to the workforce over the subsequent decade.... The rise of in-and-outs appears to be a distinct margin of labor supply from changes in permanent dropouts. The two groups cite different reasons for leaving the labor force, report different qualities of life, and show up in different regions. While some in-andouts could turn into dropouts, the distinctions between these two groups make it more natural to treat them as separate components of the participation decline, with separate explanations, rather than intertwined aspects of the same phenomenon. Additionally, some of the most common explanations that have been put forward for the growth of permanent dropouts, such as disability insurance or incarceration, cannot explain the rise of in-and-outs. In-and-outs do not represent men switching between market-sector work and home production. While out of the labor force, in-and-outs replace time spent working with leisure activities, primarily watching television. In-and-outs do not spend much more time on child care, care for adults, educational activities, or job search during these breaks..... I find that changes in men’s market opportunities can explain little of the rise of in-and-outs.... The rise of in-and-outs forms a different picture of declining labor supply than the common view of men permanently withdrawn from the labor force. In-and-outs are highly attached to the labor force, work typical jobs, and are only notable in that they take brief breaks out of the labor force. I have presented evidence that the increasing prevalence of these breaks does not reflect a change in labor demand. Instead, the rise of in-and-outs may be due to changes in the desired amount of labor supply among prime age men in the US. Since in-and-outs’ breaks are typically short and infrequent, as well as incurring no permanent costs, the rise of in-and-outs likely has had a minimal effect on the inequality of lifetime incomes among men. In contrast, the growth of permanent dropouts over the last several decades, responsible for the other two-thirds of the decline in participation since 1977, likely raised lifetime income inequality substantially. Dropouts not only forgo years of income while out of the labor force but may also experience lower wages if they return to the labor force, compounding the increase in inequality. The differences in consequences between changes along these two margins illustrates the importance of separating in-and-outs from dropouts when studying changes in labor supply....."