Macro Roundup

literature review (We've read most of this already) from Stantcheva (worth noting she's is a frequent Saez collaborator) finds that"....certain segments of the labor market, especially high-income workers and professions with little location-specific human capital, may be quite responsive to taxes in their location decisions...."

"....The key question — and the one with which we are preoccupied in this paper — is if income tax rates distort the location choices of broader segments of workers? And if they do, how large are the responses and what are the implications for policy?.... This body of work has shown that certain segments of the labor market, especially high-income workers and professions with little location-specific human capital, may be quite responsive to taxes in their location decisions....."
Henrik Kleven, Camille Landais, Mathilde Muñoz, Stefanie Stantcheva, "Taxation and Migration: Evidence and Policy Implications," National Bureau of Economic Research, April 2019, https://www.nber.org/papers/w25740

New Miles Corak (of the Great Gatsby Curve) my take is that his paper is actually pretty strong evidence that mobility (or lack therefore of) isn't generated by policy choices given that while US mobility is overall lower then Canada's that's largely due to us getting dragged down by the low levels of mobility in the American South.... ".... But the other reason the national statistics suggest Canada is more mobile has to do with the fact that there is a high concentration of low mobility in the southern United States..."

Marie Connolly, Miles Corak and Catherine Haeck, "Intergenerational Mobility between and within Canada and the United States," National Bureau of Economic Research, April 2019, https://www.nber.org/papers/w25735

"....Intergenerational income mobility is lower in the United States than in Canada, even when Canadians are placed in the American income distribution. This is the case almost without regard to the statistic used to gauge intergenerational dynamics: income mobility, rank mobility, or directional mobility measured by transition matrices.For example, our analysis of rank mobility shows that Canadian children raised by parents in the bottom fifth of the income distribution can on average aspire to rise more than 30 percentiles, approaching the median income in their generation. This is almost 10 percentiles higher than the expected rank of their American counterparts. These differences in rank mobility reflect a combination of differences in absolute mobility, the expected rise in the income distribution of child raised by bottom ranking parents, and differences in relative mobility, the transmission of an additional percentile rank among parents to their children. We document public opinion research that we interpret as suggesting that a comparison between these two countries may be particularly apt. Canadians and Americans share values associated with their personal aspirations, and the aspirations they hold for their children. The “American Dream” has a very similar meaning on both sides of this international border, and citizens seem to have a common perspective on the importance of individual initiative and responsibility, and on the value associated with equality of outcomes versus equality of opportunity as social goals. As such, a pairing of these two countries may offer insights on the drivers of intergenerational mobility. Comparisons of the United States with many other countries might be interpreted as being policy irrelevant because the results may reflect differences in underlying values and social choices. A Canada-US comparison cannot be as easily dismissed. The most important difference between Canadians and Americans has to do with their perspectives on the role of the government in supporting individuals and families in striving to realize their aspirations, Canadians being significantly more inclined to see government as a help rather than a hindrance. Progressive public policies are one factor promoting intergenerational mobility, but there are many others. These have to do with the strength and capacities of families to invest in the human capital of their children and to support them in all of the transitions they must make from infancy to adulthood, and with the structure of labor markets that reflect the economic returns to skills and education. Public policy, families, and labor markets all interact to determine differences in intergenerational mobility across space. Our analysis of administrative data associated with the income tax records of the labor market outcomes of a cohort of Canadian men and women born in the early 1980s, a data set we construct to resemble that used by Chetty et al. (2014) for the United States, allows us to document the level and variation of intergenerational mobility across about 1,000 small areas that completely cover these two countries. This between and within country description shows considerable variation in outcomes within both countries, and we use unsupervised machine learning to cluster regions that are most similar across a battery of five related measures of mobility. The findings support two broad descriptive conclusions that call for more detailed study.The first conclusion is that it is too simplistic to suggest that the international border is the most accurate way to understand the variation across these regions. Many areas in Canada share very high levels of intergenerational mobility with many areas in the United States. At the same time, some of the least mobile Canadian regions have more in common with the least mobile parts of the United States than they do with other parts of Canada. The second conclusion is that the Canada-US landscape can be best summarized as consisting of four broad regions, three of which the countries share, and one that is almost entirely American.These findings in turn raise at least two issues that may help in understanding the underlying drivers of intergenerational mobility. One important reason that there is less intergenerational mobility in the United States has to do with the very low levels of mobility in the American South. While some parts of northern Canada share these challenges, they represent a much smaller fraction of the Canadian population. The US challenge may have to do with the longstanding issue of fully integrating the black population into the economic mainstream of cities and regions that have a long history of exclusion.As such, our findings echo existing research suggesting there is a much lower degree of mobility among the black population in the United States. The Canadian challenges may be just as important, but different in nature, more likely being associated with the Indigenous populations in some geographically more isolated areas of the country. There is no parallel in Canada for the magnitude of the experiences in the American South, which as Alesina and Glaeser (2004) stress is a central factor in understanding US-European differences in the nature and size of the welfare state. We suggest these same issues may be playing out in understanding the relatively low level of intergenerational mobility in the United States, and by implication the greater capacity for the Canadian welfare state to reduce poverty rates and lower inequality in the lower half of the income distribution. Another reason there is more intergenerational mobility in Canada concerns a region of affluence but of low mobility that is distinct to the United States. Many regions along the Great Lakes and Northeastern seaboard of the United States are characterized by a relatively lower degree of mobility. They are not part of the Canadian landscape, with the great bulk of the Canadian population living in adjacent yet relatively more mobile communities. These Canadian communities are on average less affluent, but also characterized by less income inequality. This finding suggests that the search for causal explanations place less emphasis on inequalities in family life and private and public investments in education, and look more carefully at the structure of labor markets, the returns to human capital, and at income support to the least advantaged, an insight offered at one level by the Great Gatsby Curve. For example, Rothstein (2018) carefully mines the Commuting Zone data on relative rank mobility produced by Chetty et al. (2014) to show that parental influences on the educational attainment of their children may be second order in determining the degree of intergenerational mobility. His results emphasize the relatively strong role that variations in the returns to human capital across regions plays in determining the degree to which income is transmitted across the generations. Our findings also lean in this direction, suggesting an important role for labor market institutions, and the inequalities embedded in them, as a potential factor in understanding Canada-US differences...."

"... The share of U.S. population growth attributable to immigrants hit 48% for the fiscal year ended June 30, 2018, up from 35% in fiscal 2011. The result is a country that is becoming increasingly dependent on immigrants to fill jobs and fund programs like Social Security and Medicare, economists said. “We have a situation where U.S. fertility rates are really low and we’re not actively adding to the workforce through natural increase,” said Aparna Mathur, a resident scholar of economic policy at the American Enterprise Institute, a conservative think tank in Washington. “We cannot afford to talk about immigrants as bad for the U.S. economy.” Separate federal statistics released last year suggest that a number of women who put off having babies after the 2007-09 recession are forgoing them altogether. The general fertility rate in 2017 for women age 15 to 44 was 60.2 births per 1,000 women—the lowest since the government began tracking it more than a century ago, according to the National Center for Health Statistics...."

Janet Adamy and Paul Overberg, "Immigrants Propel Population Growth in 10% of U.S. Counties,"Wall Street Journal, April 18, 2019, https://www.wsj.com/articles/immigrants-propel-population-growth-in-10-of-u-s-counties-11555560061

“…Colleges across America are beginning to prepare for graduation season, but in some corners of campus, you’re more likely to hear sounds of dread than of celebration. These are the humanities departments—English, history, philosophy, classics and others—where enrollments have dropped precipitously since the financial crisis of 2008. “This wasn’t a gradual decline; it was more like a tidal wave,” as the president of Macalester College, Brian C. Rosenberg, told the Atlantic last fall. At the University of Wisconsin-Madison, for instance, the number of students graduating with humanities degrees fell from 1,830 in 2008 to 1,025 in 2016. Nationwide, according to the National Center for Education Statistics, English departments have lost some 20% of their majors over the last 10 years. Meanwhile, students are flocking to STEM subjects: At the University of Pennsylvania, the number of students majoring in biology went up 25% between 2005 and 2014…”

Adam Kirsch, “Stop Worrying About the ‘Death’ of the Humanities,”Wall Street Journal, April 26, 2019, https://www.wsj.com/articles/stop-worrying-about-the-death-of-the-humanities-11556290279

Stop Worrying About the ‘Death’ of the Humanities

Colleges across America are beginning to prepare for graduation season, but in some corners of campus, you’re more likely to hear sounds of dread than of celebration. These are the humanities departments—English, history, philosophy, classics and others—where enrollments have dropped precipitously since the financial crisis of 2008. “This wasn’t a gradual decline; it was more like a tidal wave,” as the president of Macalester College, Brian C. Rosenberg, told the Atlantic last fall. At the University of Wisconsin-Madison, for instance, the number of students graduating with humanities degrees fell from 1,830 in 2008 to 1,025 in 2016. Nationwide, according to the National Center for Education Statistics, English departments have lost some 20% of their majors over the last 10 years. Meanwhile, students are flocking to STEM subjects: At the University of Pennsylvania, the number of students majoring in biology went up 25% between 2005 and 2014.

These trends started to spark alarm around five years ago, when observers began to talk about the “death,” “decline” or “crisis” of the humanities. Since then, alarm has turned into something more like panic. “Who is going to save the humanities?” wondered Michael Massing in the New York Review of Books earlier this month, echoing last summer’s headline in the Chronicle of Higher Education: “The Humanities as We Know Them Are Doomed. Now What?”

Yet strangely, when you look outside the gates of the university, the fate of the humanities doesn’t look so bleak. When it comes to the wider American public, there has been no apparent decline of interest in humanistic pursuits. A Pew Research Center study found that the percentage of Americans who read print books has fallen slightly, from 71% in 2011 to 63% in 2018; over the same period, however, more Americans read e-books and listened to audiobooks. Last year, the National Endowment for the Arts reported that attendance at arts activities increased by 3.6% between 2012 and 2017, while the number of Americans who reported reading poetry increased by an amazing 76%, more than doubling among readers aged 18 to 24.

This disconnect suggests that talk of the death of the humanities is founded on a certain confusion about what the humanities are and where they live. Pursuits such as literature, art and philosophy are fundamental expressions of human nature. While they have taken very different forms in different times and places, no civilization has been without them, and there is no reason to think that ours will be the first.

Universities are not responsible for, or capable of, creating a living humanistic culture.

But only in a few societies have these pursuits been formal subjects of academic study, and only quite recently, in historical terms, has the university been seen as the most natural place for them to reside. Universities are not responsible for, or capable of, creating a living humanistic culture. Scholarship is an important part of that culture but not its engine; if anything, it is a lagging indicator, where cultural developments that have been generated elsewhere turn up for formal examination.

Naturally, the plight of the academic humanities has prompted a flood of diagnoses and prescriptions. Is the problem the ever-rising cost of college, which makes students feel that they should focus on subjects that will lead to more lucrative careers? As The Journal reported in 2017, the highest-earning majors are all STEM fields. With the average cost of tuition at a four-year private college now more than $35,000 a year, perhaps a degree in the humanities is perceived as an unaffordable luxury.

Has humanities education turned off students by becoming too ideologically monolithic? Research by Samuel J. Abrams, a professor of politics at Sarah Lawrence College, found that liberal professors outnumbered their conservative colleagues nationwide by a ratio of six to one (rising to 28 to one in New England, home to many of the country’s oldest and most prestigious schools). Some academics have started to take this critique seriously: The scholarly group Heterodox Academy was founded in 2015 to promote “viewpoint diversity” among college faculty.

Or maybe the humanities have simply lost confidence in their mission. In her 2005 novel “On Beauty,” Zadie Smith imagined the experience of a young student who arrives at college hoping to find like-minded people who share her love of Rembrandt. Instead, she has a professor who only wants to “interrogate…the mytheme of artist as autonomous individual with privileged insight into the human.” This is comedy, but it is based on a reality that will be familiar to many students and former students of the humanities.

In the 19th century, the English poet and critic Matthew Arnold defined culture as “the best which has been thought and said in the world,” but few humanities professors would now want to claim the authority to say what is best, or even agree that there is such a thing as “the best” art or thought. For reasons both good and bad, the humanities today are largely focused on critique rather than celebration.

Humanistic scholarship fertilized European culture in profound ways, yet the best of that culture was not itself produced in universities.

Whatever its cause, the decline of the academic humanities is often understood as a crisis for American culture, even for American democracy. Much of what students of the humanities learn may not be directly applicable to their lives or careers—very few of us need to know how to identify a school of painting or interpret a poem—but a humanistic education is supposed to teach us how to read critically and think independently, skills that are crucial to democratic citizenship. This is what the critic George Steiner once referred to, skeptically, as the idea that the humanities humanize—that studying literature, art and philosophy makes us better people.

Historically speaking, this is a difficult argument to make. It is easy to cite examples to the contrary—highly educated people who were, for instance, devoted Nazis or Stalinists and who used their learning to buttress their defense of inhumanity. One of the greatest philosophers of the 20th century, Martin Heidegger, was in charge of the Nazification of his university after Hitler came to power.

More broadly, it is hard to argue that the health of our body politic relies on college-level study of the humanities when only a tiny fraction of the population has ever held a humanities degree. History may have the strongest claim of any humanistic discipline to being a civic necessity, so it is sobering that, according to the American Historical Association, the number of degrees awarded in history fell by some 10,000 between 2008 and 2017. But even in 2008, the total was only about 35,000, out of nearly two million degrees awarded in total. Clearly, if we are depending on college history classes to teach Americans basic civic knowledge and ideals, we are doomed to disappointment.

The real connection between culture and the academic humanities is harder to trace. The terms “humanities” and “humanist” arose in the West during the Renaissance, when scholars of ancient Greek and Latin literature and philosophy called what they were doing studia humanitatis—studies of or befitting a human being—to distinguish it from traditional academic subjects like theology.

Humanistic scholarship fertilized European culture in profound ways, yet the best of that culture was not itself produced in universities. The humanists often preferred to write their works in Latin, seeing it as the most appropriate language for serious writing; today, such Neo-Latin works are known only to a few experts. Meanwhile, Renaissance writers who addressed popular audiences in vernacular languages, like Shakespeare and Cervantes, became the founders of modern literature. Shakespeare famously knew “small Latin and less Greek,” in the words of Ben Jonson’s elegy, and his knowledge of the life of Julius Caesar or Mark Antony wouldn’t pass muster in any history department. But it is only through Shakespeare’s imagination that Caesar and Antony live for most people today.

This is the paradox of culture: It requires knowledge but flees academicization. Friedrich Nietzsche, a professor of Greek who quit his job at the University of Basel to devote himself to writing and thinking, made this point in his 1874 essay “The Use and Abuse of History for Life,” where he observed that “Antiquarian history knows only how to preserve life, not how to generate it.”

Until the 20th century, the distinction between the life of culture and the study of culture was reflected in university curricula, which focused on the art and thought of the distant past. When English became an academic subject around the turn of the 20th century, it meant studying Beowulf and Chaucer, not living writers. And only since the 1960s has it become common for writers and artists themselves to have careers as university professors.

When we consider the university the only place where society can explicitly formulate its visions of truth, beauty and justice, it’s no wonder that campuses become fierce ideological battlegrounds.

What is true for the “producers” of humanistic culture is also true for the “consumers.” The real action takes place outside the classroom, in theaters, concert halls, art galleries and libraries, or simply in the living rooms where people read and think. Being a successful literature or history or art major requires different skills than the ones needed to make these things a part of one’s actual inner life. Students are judged by what they can readily articulate, but in life, it is what we don’t know how to express that draws us to read, think, listen to music or look at art.

When the university comes to be seen as the sole custodian of the humanities, both the humanities and the university suffer. Most scholarship in the humanities is directed solely to other scholars and has little or no effect on the culture at large. (In 2005, the average history book from a scholarly publisher sold 200 copies.) There are exceptions—important thinkers whose work changes the way we see the world and ourselves—but these are as rare inside the academy as outside it.

Certainly there is a hunger in the U.S. for engagement with ideas and culture that isn’t mediated by universities. The Center for Fiction recently opened a beautiful new headquarters in Brooklyn, where it houses readings, workshops and a massive library; the Poetry Foundation does the same for verse in its home in Chicago. The NEA’s Big Read program, which encourages cities and communities to read and discuss a chosen book, has attracted almost five million people to its events since its launch in 2005. And the past decade has seen the emergence of several important intellectual journals, from Jacobin on the left to American Affairs on the right, which keep alive the tradition of the independent “little magazine.”

But the habit of seeing universities as the main or even sole custodians of humanistic culture isn’t just inaccurate; it is bad for universities themselves. When we consider the university the only place where society can explicitly formulate its visions of truth, beauty and justice, it’s no wonder that campuses become fierce ideological battlegrounds—for students, faculty and outside observers alike. (When the University of Tulsa recently reorganized its curriculum, for instance, it created a division called “Humanities and Social Justice,” as if these were two faces of the same coin.)

This conception of the humanities invites the same problem that often afflicts an established church: It becomes a place where we put our ideals for safekeeping while we go about our real lives. The crumbling of such a church doesn’t necessarily imply that belief is in decline. It can also mean that belief is taking different forms and requires new outlets for expression.

Indeed, the most important ideas are often considered transgressive and dangerous by the respectable institutions of their day. Socrates was executed by the right-thinking citizens of Athens on a charge of corrupting the young—the ultimate deplatforming, one might say. Spinoza wasn’t allowed to publish his radical thoughts about God, even in liberal 17th-century Amsterdam. Modern art began with a rebellion against the official academies and salons that controlled the art world of 19th-century Europe. All of these ideas and movements were eventually incorporated into the academic humanities, but they could never have been born there.

There is no reason to take pleasure in declining humanities enrollments, of course, but they hardly represent the death of the things that humanists cherish: free thought and free expression, the quest for beauty and truth.

John Stoll, "Why Investors Don’t Care That Snap and Lyft Are Hemorrhaging Money,"Wall Street Journal, April 26, 2019, https://www.wsj.com/articles/why-investors-dont-care-that-snap-and-lyft-are-hemorrhaging-money-11556289952

Why Investors Don’t Care That Snap and Lyft Are Hemorrhaging Money

Snap Inc. SNAP 0.14% posted a $310 million loss on $320 million in revenue Tuesday, but you would have never known it from the stock market.

As the social media company’s shares were rising that day, my colleague Christopher Mims, wondered on Twitter:

“Has there ever been a time where this many companies lost this much money and everyone acted like it was completely normal?”

This could be asked every day. Ride-hailing company Uber Technologies Inc., aiming to pave the way for an initial public offering, said Friday it lost at least $1 billion in the initial three months of 2019. Work-place messaging company Slack Technologies Inc. published its IPO paperwork saying it lost $140 million in the last fiscal year, equal to the prior year, when revenue was 82% lower.

Many an executive and investor has winced as shares of a solidly profitable Blue Chip gets pummeled because guidance was tweaked or earnings-per-share didn’t quite satisfy analyst consensus. 3M Co. MMM -0.23% is earning decent money, but shares plummeted Thursday after it reported slower sales, job cuts and a weaker outlook.

Nary a quarter goes by when a management guru or money manager doesn’t blame the market’s myopia as the reason a research-and-development department was chopped or a marketing budget was slashed.

In Silicon Valley, meanwhile, the red ink flows. A stable of so-called unicorns and decacorns (startups valued at billions or tens of billions of dollars) are going public this year. As they do, eye-popping market capitalizations are assigned to companies whose plan for profitability is hard to discern beyond their willingness to spend and spend and spend on growth that promises a profit...someday.

The lesson here is one that has been with us since the Dutch invented the public company 400 years ago: Growth sells.

There’s a lot of handwringing over what feels like a relatively free pass handed to Elon Musk at Tesla Inc. or Dara Khosrowshahi at Uber Technologies Inc. Yes, they are peddling money-losing cars or running an unprofitable ride-hailing service. But investors love what they are selling.

Look at a company like Lyft Inc., an Uber competitor worth about $26.5 billion when it went public last month. The stock fell as much as 23% during initial weeks of trading. Still, nearly all major analysts covering the stock have overweight, outperform or buy rating on Lyft. Their $80.70 average price target represents a 44% premium over Thursday’s low.

Lyft lost nearly $1 billion in 2018, and could have been far closer to profitability if it cut down on subsidies designed to steal riders from Uber, or had it dialed back technology investments. However, if Lyft did this, it wouldn’t just be crushed by Uber—it would just be another taxi company and not a candidate to enjoy the spoils of the expected dominance that app-based mobility services could enjoy.

Not all sectors work like this. If an unprofitable restaurant chain tried to build an IPO on a promise to add more stores, the market would scoff, Mr. Ritter says, because no one will believe that you can make money on 150 restaurants if you can’t do it with 100.

What makes tech companies different? The belief that their product has a much brighter future where revenues will eventually rise to cover an astronomical cost base, and that they’ll eventually be freed of the cutthroat competition that forces them to buy market share.

If this feels like a remake of a movie you’ve seen before, that’s because in some ways it is. More than 600 companies staged initial public offerings in 1999 and 2000, just prior to the dot-com bubble bursting. Only 14% of those companies were profitable, according to Mr. Ritter’s research.

The percentage of money-losing tech startups filling IPOs was nearly the same in 2018, but Mr. Ritter says there is less reason to panic these days.

Why so calm? Fewer startups are going public—the median age of an IPO’d tech company is 12 years old, compared with four in 1999; and about 80% of startups are bought by bigger companies or other investors, compared to about half 20 years ago. That means many of the companies actually making it to public markets are fairly well capitalized and already have a proven business idea.

Jeff Bezos, the Amazon.com Inc. founder who weathered the dot-com bubble, said his company delivered a case study in how patience can pay off. Shortly after his company surpassed $1 trillion in market value, Mr. Bezos told the Economic Club of Washington, how he turned an online bookseller into a tech conglomerate.

“People always accused us selling dollar bills for 90 cents and said ‘look anybody can do that and grow revenue,’” he said. Mr. Bezos remembered when former NBC anchorman Tom Brokaw asked him if he could even spell profit. Mr. Bezos responded, “P-R-O-P-H-E-T.”

“It’s a fixed cost business and so what I could see from the internal metrics at a certain volume level we would cover our fixed costs, and we would be profitable,” he said.

Airbnb, a decade-old company that allows users to book lodging, often in other people’s homes, is one of those companies looking like a candidate as the next Amazon. It has grown bigger than most hotel chains and is expected to file an IPO by 2020 with a valuation in excess of $30 billion.

Unlike many Silicon Valley peers, the company says it is profitable. But before it was ready for prime time, it endured years in what Airbnb co-founder Joe Gebbia calls “the trough of sorrow.” This is a period when a startup founder considers an idea worth funding even before there is a sizable market for it.

The moral of Airbnb’s story: Don’t go big too early. Irrational exuberance is no match for the trough of sorrow.

Little-known YogaWorks Inc. is one of many companies learning this the hard way. It billed itself as fast-growing wellness company in preparation for a $40 million IPO in August 2017. It had 50 studios that offered affordable classes for novices to master yogis. It looked like a reasonable bet for investors watching the popularity of Lululemon Athletica Inc. yoga pants and no-frills gyms like Planet Fitness Inc.

The California-based chain was bleeding money, though, and investors were selling the stock at a 50% discount by Christmas. Executives plowed ahead, adding about 20 more studios in high-rent cities like Boston and Washington. By May 2018, having racked up $25 million in losses on $56 million in revenue since its IPO, the company backed off the costly acquisition spree to focus on improving performance at existing locations and MyYogaWorks.com.

Is it too late? All the humbled company can hope is that every downward-facing dog has its day.