Macro Roundup

The Editorial Board, "The Latest Front Against Civil Rights,"New York Times, January 4, 2019, https://www.nytimes.com/2019/01/04/opinion/disparate-impact-discrimination-trump.html

The law of “disparate impact” isn’t broken. There’s no need for Donald Trump to rewrite it.

Reaffirming that “much progress remains to be made … in moving the nation toward a more integrated society,” Justice Anthony Kennedy wrote in a 5-4 Supreme Court decision in 2015 that it was appropriate for the Fair Housing Act of 1968 to let discrimination be measured by its “disparate impact” on minorities even if there was not proof of intentional discrimination.

The reason, as he noted, is that discrimination doesn’t just happen overtly, that governments and private actors sometimes take actions that fall hardest — or have a disparate impact — on people of color or other groups.

But the Trump administration, which has already rolled back Justice Department oversight of police departments and Education Department protections for transgender students, may be targeting the principle of disparate impact in its latest effort to undermine civil rights enforcement, according to a report in The Washington Post.

Of course, some trial balloons floated out of the Trump administration vanish into the ether without becoming policy. May this be one of them. The reported changes would be a major shift in the way the executive branch has enforced civil rights laws for the past few decades.

Federal voting rights and employment statutes, as well as the Fair Housing Act, recognize the use of disparate impact to find discrimination in those areas, and Donald Trump would need Congress to rewrite such laws if he wants to do anything about that.

But regulations and what the administration likes to call “sub-regulatory guidance” that accept the use of disparate impact may be changed or scrapped by administrative action — as Betsy DeVos, the secretary of education, did last month when she did away with school discipline guidelines the Obama administration issued to curb the disproportionate punishment of black and brown schoolchildren.

In a report published ahead of that decision, the Education Department said disparate impact “may lead schools to adopt racial quotas or proportionality requirements.”

This same attitude is likely what drove the Department of Housing and Urban Development, under Secretary Ben Carson, to reconsider a 2013 rule that set up a standard for how to impose liability for housing practices that had a disparate impact on minorities. The rule revision is still pending, but in 2017, the Treasury Department told HUD that disparate impact assessments could be illegal and disrupt the insurance industry.

What the Trump administration is doing is nothing new. Republicans and conservative legal theorists have long set their sights on the disparate impact principle, claiming that the only true evil that needs to be rooted out under the law is intentional discrimination. To the Reagan Justice Department, disparate impact was a “rhetorical misappropriation” of the word “discrimination” — a “contrived theory” that only perpetuates injustice and inequality.

In reality, discrimination is often subtle and systemic, and Congress and the courts over time have recognized that by bolstering, not weakening, the use of disparate impact in a broad spectrum of civil rights protections.

Justice Kennedy has been replaced by Justice Brett Kavanaugh, a more doctrinaire conservative. Given the court’s increasing disregard for precedent, the 2015 decision that Justice Kennedy wrote may not last long.

As the nation continues its long march toward equality, it would be outrageous to destroy such an important means of advancement — one the civil rights bar still depends on to make its case in court.

“Marriott ROA 2006-2020,” Macrotrends, Accessed May 15, 2020, https://www.macrotrends.net/stocks/charts/MAR/marriott/roa

WSJ reports on the BLS study on the "Gig Economy" we looked at last summer and previews a forthcoming Krueger/Katz paper confirming the findings

".... “After sifting through the new evidence,” Mr. Krueger said, “Larry Katz and I now conclude that there was a modest rise in the share of the workforce in nontraditional jobs over the last decade—probably on the order of one to 2 percentage points, instead of the five percentage point rise we originally reported.”Comparisons between 2005 and 2015 had a hard time accounting for the difference in economic health. In 2005, wages and overall gross domestic product were growing around 3% a year—the housing bubble meant this growth would be fleeting—and about 63% of U.S. adults had jobs. The housing bust and recession that began in 2007 wrecked all of that, and by 2015, the economy had been on a slow mend. Wages and GDP growth were stagnant at 2%, and employment as a share of the population was about 4 percentage points lower. This created a fertile environment for people to experiment with gig work. Butit didn’t represent a permanent shift, as the Labor Department’s 2017 survey made clear Messrs. Krueger and Katz also conclude surveys of the topic have flaws.By studying individual survey responses, they found that when people answer questions about their spouses, they are much less likely to mention secondary jobs than when they answer questions about themselves. Their own survey hadn’t asked additional questions about spouses, whereas the Labor Department does, leading to a significant discrepancy. “These factors distorted our initial comparison, and highlight the importance of using consistent methods to measure labor force trends over time,” Mr. Katz said...."
Josh Zumbrun, "How Estimates of the Gig Economy Went Wrong,"Wall Street Journal, January 7, 2019, https://www.wsj.com/articles/how-estimates-of-the-gig-economy-went-wrong-11546857000

just a FYI new Moretti blogpost on his paper from the fall, charts are better then the ones from the paper

“…Assortative matching matters in two different ways. First, there is the tendency of high-quality workers and plants to co-locate in the same local labour markets. The top two panels in Figure 2 show the positive relationship between average worker and plant quality across the 204 cities for two separate time windows. The figure suggests that the strength of this co-location pattern almost doubled over time: the elasticity is 0.457 in the period 1985-1991 and 0.884 in 2008-2014. The places were high-quality workers and plants cluster together tend to be the large West German cities like Munich, Hamburg or Frankfurt. This is shown in the bottom two panels of Figure 2 where we find positive associations between local population size and both average quality measures. But large cities like Munich do not only exhibit increasingly better pools of workers and plants than small cities like Uelzen. The second key mechanism is stronger assortative matching within those local labour markets. Inside Munich, matches are formed where the qualities of employers and employees are tightly aligned. The relatively best-paid persons tend to work for the relatively best paying local firms. Within Uelzen, by contrast, matching is far less assortative; who works for whom is closer to random. To show this more specifically, we compute the correlation of the worker fixed effects and the corresponding plant fixed effects of their employers in the first year of the respective time window. Figure 3 shows that this correlation tends to be higher in larger cities. Moreover, the association between local labour market size and within-city assortativeness has become considerably stronger over time: the elasticity is 0.038 in the period 1985-1991 and 0.061 in 2008-2014. In other words, job matches in Munich were more assortative than in Uelzen already in 1985-1991, but even more so in 2008-2014. This has contributed considerably to the rising wage gap between Munich and Uelzen….”
Wolfgang Dauth, Sebastian Findeisen, Enrico Moretti, Jens Südekum, “Assortative matching in cities,” Center for Economic and Policy Research, January 6, 2019, https://voxeu.org/article/assortative-matching-cities

very disingenuous Krugman column/chart"... Look at the history of top marginal income tax rates (left) versus growth in real GDP per capita (right, measured over 10 years, to smooth out short-run fluctuations.):.... What we see is that America used to have very high tax rates on the rich — higher even than those AOC is proposing — and did just fine. Since then tax rates have come way down, and if anything the economy has done less well....."

Paul Krugman, "The Economics of Soaking the Rich,"New York Times, January 5, 2019, https://www.nytimes.com/2019/01/05/opinion/alexandria-ocasio-cortez-tax-policy-dance.html

new intuitive finding from Rajan finds that geographic lending distances expand and contract with credit conditions, ie banks stay close to home during contractions and expand their reach during expansion. holds true across bank sizes

"....We examine the degree to which competition amongst lenders interacts with the cyclicality in lending standards using a simple measure, the average physical distance of borrowers from banks’ branches. We propose that this novel measure captures the extent to which lenders are willing to stretch their lending portfolio. Consistent with this idea, we find a significant cyclical component in the evolution of lending distances. Distances widen considerably when credit conditions are lax and shorten considerably when credit conditions become tighter. Next, we show that a sharp departure from the trend in distance between banks and borrowers is indicative of increased risk taking..... We find that the long-run trend toward greater average distances between banks and their borrowers, initially documented by Petersen and Rajan (2002), persists in the past 20 years. Importantly, we also find a significant cyclical component in the evolution of lending distances. Distances widen considerably when credit conditions are lax and also shorten considerably when credit conditions become tighter. Between 2004 and 2007, banks increased their average distances from 175 miles to 350 miles. These distances, however, quickly slipped back to approximately 200 miles following the 2008 financial crisis.This cyclical pattern in lending distances is robust to the inclusion of county-year fixed effects and bank fixed effects suggesting that the results cannot be explained by differences in growth across counties or by changes in the composition of lenders in the economy. This cyclicality also holds when we examine other points of the distribution of distances, such as the median, and lower and upper deciles. We also confirm that it is not driven by a few large banks but can be seen in different size classes of banks...... Finally, we provide evidence that as competition in banks’ local markets increases, their willingness to make loans at greater distance increases. Since average lending distance is easily measurable, it is potentially a useful measure for bank supervisors..... We find that the higher the average non-performing loan ratio of the bank, the more cyclical is its pattern in lending distance, suggesting that it was risky to go the extra mile during the boom...."

João Granja, Christian Leuz, Raghuram Rajan, "Going the Extra Mile: Distant Lending and Credit Cycles," National Bureau of Economic Research, October 2018, https://www.nber.org/papers/w25196

Ernie Tedeschi, "Average effective tax rates on top 1%," Evercore ISI, January 5, 2019, https://twitter.com/ernietedeschi/status/1081725446243434496

"....Here's how a 70% top marginal rate would have affected the avg effective tax rate for the top 1% in 2014Had the rate only applied to incomes >$10 mil, the top 1% AETR would have gone up 0.4pp to 36.8%. If the entire top bracket had gone to 70%, AETR would have risen 5pp to 42%In other words, when looking at the whole top 1% by income, raising marginal rates just on filers above $10m doesn't affect top 1% AETRs much; therefore, it raises very little revenue. Raising the whole top bracket to 70% by contrast pushes top 1% AETRs back to their 1945-70 & 2000 levels Note these AETRs may have fallen between 2014 and 2018 thanks to the TCJA. We find out in a few years. The >$10M hike would have yielded at most $9 billion in 2014....."

Ernie estimate the revenue from a hypothetics new 70% marginal income tax rate on income over 10m on Federal revenue using 2014 numbers. 9 billion dollars.

Kevin Erdmann, "Rich Cities Created the Housing Shortage,"Wall Street Journal, January 6, 2019, https://www.wsj.com/articles/rich-cities-created-the-housing-shortage-11546804458

Rich Cities Created the Housing Shortage

Could the dramatic pause in the housing market soon become a steep slide? Home sales, prices and new construction have been rising more slowly each month, triggering memories of the 2008 collapse. That crisis was a comeuppance from the excesses that preceded it: too much money, debt, housing, imports and consumption. Americans lived beyond our collective means, and the bills inevitably came due.

But what if that understanding of what happened is wrong? What if, even at the peak of building in 2005, the problem was too little housing rather than too much? And what if we still haven’t diagnosed the true cause of the crisis, let alone resolved it?

The first overlooked factor in the crash was the urbanization triggered by the information economy. Four main urban centers—New York, Los Angeles, Boston and San Francisco—share two important characteristics: They’re centers of new economic opportunity, and they permit new housing at rates much lower than their successful peers. Call them closed-access cities.

These metro areas had—and still have—a lid on the number of families that could access their lucrative labor markets. The lack of adequate housing, especially in prosperous urban centers, led to a stagnant job market. The mounting mortgage debt before the crisis was the result of a bidding war for access to limited urban prosperity.

At the height of the boom, closed-access cities lost more than 200,000 households each year on net as families were forced to withdraw their bids for access to metropolises. Most of those were lower-income residents who decamped for places like Arizona and Florida. Their arrival created a new housing bubble.

As in the San Francisco Gold Rush of 1849, the inflow of people overwhelmed local infrastructure and drove up costs in cities like Phoenix. But what they experienced from 2004-05 was a reverse gold rush, taking in people who had been pushed out of places where others were striking it rich. Phoenix did experience a housing bubble, but it was inflated by exclusion and compromise. It was more like a refugee crisis than a credit boom.

When the Federal Reserve tried to deflate the bubble by raising interest rates, one of the first unintended consequences was the collapse of the reverse gold rush. Net migration from Los Angeles to Phoenix had grown to about 16,000 residents annually in 2005. By 2008, it was less than 1,500 and continued to fall.

Credit standards were tightened in 2008 to control what appeared to be loose lending in lower-priced markets. Yet the reverse gold rush dried up long before 2008. Housing starts in Phoenix and cities like it, such as Las Vegas and Tampa, Fla., had been declining since early 2006. They had felt plenty of discipline already, thanks very much.

For decades leading up to the crisis, closed-access cities accumulated rules restricting new construction. This produced trillions of dollars of wealth for existing urban owners and prevented millions of Americans from moving to where they could be teachers, nurses and custodians for the companies and employees who design software, medical devices and autonomous cars.

The current housing slide seems unlikely to end in a 2008-like crash because the flight from high-price cities is less pronounced. Tepid income growth and federal restrictions on mortgage lending have dampened funding for the closed-access bidding war. But that’s a perverse method—and a temporary one—of avoiding a housing bubble. Growing metropolitan areas eventually will have to loosen housing restrictions in order to expand access. Those restrictions to access are the true source of a “bubble economy,” pushing up asset prices which then collapse in a frenzy when the economy slows.

The prudent path toward a stable housing market is more construction, more lending and more homeownership. Housing restrictions make economic growth painful by overinflating the price it takes to access the gains. Until they are reformed, many Americans will be stuck in the hopeless circumstance of running from booming regions rather than toward them.

Mr. Erdmann is a visiting fellow at the Mercatus Center at George Mason University and author of the forthcoming book “Shut Out: How a Housing Shortage Caused the Great Recession and Crippled Our Economy.”