Edward Conard

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  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
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  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
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  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, May 7, 2019

AI Summary. A proposed $2tn infrastructure bill may shift existing labor rather than create new jobs given very low unemployment, and any stimulus could prompt the Federal Reserve to raise interest rates, offsetting gains. The share of structurally deficient bridges has been declining for decades, and the bill's multiple competing policy goals may dilute value for money.

Ramesh Ponnuru Bloomberg
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The proposed $2tn infrastructure bill may not deliver expected economic benefits. Unemployment at its lowest since 1969, increased spending might shift existing labor rather than create new jobs @RameshPonnuru

Is large-scale infrastructure spending a poor use of $2 trillion?

Core argument: With unemployment at its lowest since 1969, the proposed $2tn infrastructure bill might shift existing labor rather than create new jobs, and any stimulus it delivers could prompt the Federal Reserve to raise interest rates, negating potential gains.

The proposed $2tn infrastructure bill may not deliver the expected economic benefits. With unemployment at its lowest since 1969, increased spending might merely shift existing labor rather than create new jobs. If the bill stimulates the economy, it could prompt the Federal Reserve to raise interest rates, negating potential gains. Although infrastructure improvements can boost productivity, political challenges often misdirect funds away from necessary maintenance to new projects. The percentage of structurally deficient bridges has been declining for decades, suggesting that the state of infrastructure is better than political rhetoric implies. Additionally, the bill's multiple policy goals, such as immediate job creation and diversity in contract awards, may dilute its economic effectiveness by not prioritizing value for money.

Takeaways by Macro Roundup® AI

  1. With unemployment at its lowest since 1969, the proposed $2tn infrastructure bill might shift existing labor rather than create new jobs, and any stimulus it delivers could prompt the Federal Reserve to raise interest rates, negating potential gains.
  2. The percentage of structurally deficient bridges has been declining for decades, suggesting infrastructure is in better condition than political rhetoric implies, while political challenges often misdirect funds from necessary maintenance toward new projects.
  3. The infrastructure bill's multiple policy goals, including immediate job creation and diversity in contract awards, may dilute its economic effectiveness by not prioritizing value for money.

Ramesh Ponnuru, "Infrastructure Bill Might Be a Bad Use of $2 Trillion,"Bloomberg, May 6, 2019, https://www.bloomberg.com/opinion/articles/2019-05-06/infrastructure-bill-might-be-a-waste

Infrastructure Bill Might Be a Bad Use of $2 Trillion

Little green shoots of bipartisanship are sufficiently rare these days that it feels mean to stomp on them. But I’m afraid that it’s very unlikely that the $2 trillion infrastructure bill that congressional Democrats and President Donald Trump are discussing will amount to a good use of taxpayer money.

The promises are big and numerous. House Speaker Nancy Pelosi explains:

It’s about jobs, jobs, jobs. It’s about promoting commerce. It’s about clean air, clean water, so therefore a public health issue. It’s a quality of life issue, getting people out of their cars not being on the road so much. And in every way, it is a safety issue.

The jobs are to be created “immediately,” Pelosi and Senate Democratic leader Charles Schumer clarified in a joint statement.

There is reason to doubt that increased federal spending on infrastructure would increase employment on net. With the unemployment rate already at its lowest level since 1969, such spending could simply redeploy labor that is already active. If the bill did stimulate the economy significantly, it would also make the Federal Reserve more likely to resume its course of raising interest rates, leaving us roughly where we started.

Would new spending at least help us “rebuild our crumbling roads, aging bridges, crowded airports and other infrastructure,” as the White House hopes? Maybe. But the condition of our infrastructure is already better than the political rhetoric suggests. The percentage of structurally deficient bridges has, for example, been falling for decades.

While money could certainly buy improvements, which could enhance the economy’s productivity, the political obstacles to directing the money in the most useful ways would be formidable. New building is more politically attractive than repairing or maintaining existing infrastructure even when the latter makes more sense. Such incentives will tend to warp spending decisions in many ways.

President Trump illustrated the pitfall in his State of the Union address last year: “We will build gleaming new roads, bridges, highways, railways, and waterways across our land.” If he had said, “we will refurbish the power grid,” it wouldn’t have had quite the same ring, even if that would have been a more intelligent use of money.

The many policy aims that the Democratic leaders have identified also militate against the rational allocation of resources. (Ryan Bourne of the Cato Institute counts nine distinct goals.) The projects that create jobs “immediately” might not be the ones with the best long-term payoff. Making sure that businesses owned by women, minorities and veterans get contracts also means not focusing single-mindedly on value for the dollar.

In theory, then, a burst of infrastructure spending could accomplish some good for the country. There are reasons to doubt it would work out that way in practice. One of those reasons is that neither the president nor the congressional Democrats seem to be thinking through the issues clearly.

Wednesday, May 8, 2019

AI Summary. The authors estimate that housing supply constraints in high-productivity cities such as New York and San Francisco misallocated labor and lowered aggregate US growth by 36% over 1964–2009. Relaxing supply in those cities to the median US city's level is estimated to have raised output 3.7%, or about $3,685 in additional average annual earnings.

Chang-Tai Hsieh and Enrico Moretti American Economic Journal
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US growth slowed by 36% from 1964-2009 due to housing supply constraints in high TFP cities like New York & San Francisco.

How much do housing supply constraints in productive cities lower US growth?

Core argument: Housing supply constraints in high-TFP cities such as New York and San Francisco impeded efficient labor allocation, reducing aggregate US growth by an estimated 36% from 1964 to 2009.

Housing supply constraints in high TFP [Total Factor Productivity] cities like New York and San Francisco have significantly impeded efficient labor allocation, reducing aggregate US growth by 36% from 1964 to 2009. These constraints have led to increased spatial dispersion in housing prices, driven by strict zoning laws, which in turn exacerbated labor misallocation. If housing supply in these cities were increased to the level of the median US city, the growth rate of aggregate output could rise by 36.3%, potentially making US GDP 3.7% higher in 2009, equating to an additional $3,685 in average annual earnings. The model suggests that while New York, San Francisco, and San Jose contributed 12% to aggregate GDP growth, their effective contribution was only 5% due to labor misallocation. In contrast, southern cities with elastic housing supply saw growth primarily through employment increases without misallocation effects.

Takeaways by Macro Roundup® AI

  1. Housing supply constraints in high-TFP cities such as New York and San Francisco impeded efficient labor allocation, reducing aggregate US growth by an estimated 36% from 1964 to 2009.
  2. Raising housing supply in constrained high-TFP cities to the median US city's level could lift the aggregate output growth rate by 36.3%, leaving 2009 US GDP 3.7% higher and average annual earnings $3,685 greater.
  3. New York, San Francisco, and San Jose contributed 12% to aggregate GDP growth in the model, but their effective contribution was 5% because of labor misallocation, while southern cities with elastic housing supply grew through employment increases without misallocation effects.

Hsieh/Moretti updated their estimates on how restricting housing supply has slowed US GDP growth, suggest that GDP would be 3.7% higher in a counterfactual. add a new suggestion that if you can’t create denser population centers the US could expand transportation to ease access to the NYC/SF labor makerts

“…Specifically, we find that a major impediment to a more efficient allocation of labor across US cities is the constraint to housing supply in high TFP cities….We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitanareas we find that these constraints lowered aggregate US growth by 36 percent from 1964 to 2009…..We use data from 220 metropolitan areas in the United States from 1964 to 2009 to perform two calculations. First, we quantify the effect of spatial misallocation. We find that most of the increased spatial dispersion in the marginal product of labor is due to the growing spatial dispersion in housing prices. In turn, the growing spatial dispersion of housing prices is largely driven by strict zoning laws in cities such as New York and the San Francisco Bay Area with strong productivity growth. We find that the increased spatial misallocation of labor due to housing supply constraints in cities with high productivity growth rates lowered aggregate growth between 1964 and 2009 by a significant amount. In particular,we calculate that increasing housing supply in New York, San Jose, and San Francisco by relaxing land use restrictions to the level of the median US city would increase the growth rate of aggregate output by 36.3 percent. In this scenario, US GDP in 2009 would be 3.7 percent higher, which translates into an additional $3,685 in average annual earnings. Second, we calculate the contribution of each US city to aggregate US growth and compare it to an “accounting” measure based solely on the growth of the city’s GDP. The difference reflects the effect of a city’s growth on the efficiency of labor allocation across cities. While the accounting measure suggests that New York, San Francisco, and San Jose’s contribution to aggregate GDP growth between 1964 and 2009 is 12 percent, viewed through the lenses of our model, these cities were only responsible for 5 percent of growth. The difference is because the aggregate benefit of TFP growth in New York and the Bay Area was in part offset by increased misallocation of labor across cities. In contrast, for southern cities the accounting and model-based measures are the same. Due to an elastic supply of housing, much of the growth in the South took the form of employment growth, with no effect on misallocation….An alternative is the development of public transportation that links local labor markets characterized by high productivity and high nominal wages to local labor markets characterized by low nominal wages. For example, a possible benefit of the high speed train currently under construction in California is to connect low wage cities in California’s Central Valley—Sacramento, Stockton, Modesto, Fresno—to high productivity jobs in the San Francisco Bay Area. This could allow the labor supply to the San Francisco economy to increase overnight without changing San Francisco housing supply constraints. An extreme example is the London metropolitan area. A vast network of trains and buses allows residents of many cities in southern England—including far away cities like Reading, Brighton, and Bristol— to commute to high TFP employers located in downtown London. Another example is the Tokyo metropolitan area. While London and Tokyo wages are significantly above the UK and Japan averages, they would arguably be even higher in the absence of these rich transportation networks. Our argument suggests that UK and Japan GDP are significantly larger due to the transportation network…..”
Chang-Tai Hsieh and Enrico Moretti, “Housing Constraints and Spatial Misallocation,”American Economic Journal, April 2019, https://faculty.chicagobooth.edu/chang-tai.hsieh/research/growth.pdf