Macro Roundup

“…suggest $400 statistic be used with caution. For instance: A footnote in the survey highlights 2016 research that found 76% of households had at least $400 in liquid assets, far higher than the 56% in 2016 who said they would cover a $400 expense with cash or its equivalent. (Reasonable to assume that first number is higher today.) Moreover, the fact that some people choose to hold both high-interest credit card debt and cash that could be used to pay down that debt has been termed the “credit card debt puzzle.” It’s a thing. Indeed, only 12% said they wouldn’t use any means to pay that expense. (A great thread by National Review’s Robert VerBruggen notes, among other things, that 25% of those billed as being unable to cover $400 with borrowing or selling make more than $75,000 a year.”)…”

James Pethokoukis, "The insatiable appetite for dour data about a decent economy," American Enterprise Institute, May 28, 2019, https://www.aei.org/pethokoukis/the-insatiable-appetite-for-dour-data-about-a-decent-economy/

The insatiable appetite for dour data about a decent economy

If you look at the national unemployment rate of 3.6% — the lowest in more than 50 years — American capitalism doesn’t appear to be terribly broken. And as the economy has rebounded from the Great Recession and Financial Crisis, real wages continue to rise, especially so for lower-income Americans. Another seeming sign of non-brokenness.

Or to approach things a different way: A recent Federal Reserve survey finds 75% of U.S. adults say they are either “doing okay or living comfortably,” 56% say they are better off than their parents were at the same age (vs. 25% saying “about the same” and 19% “worse off”), and 64% rate their local economic conditions as “good” or “excellent.”

But none of those upbeat Fed survey findings were given the media attention of this one: Many adults are “financially vulnerable and would have difficulty handling an emergency expense as small as $400.” Specifically — and here I will use The Washington Post’s description of the survey results — “Almost 4 in 10 people (39%) said they wouldn’t be able to scrape together the cash to meet a $400 emergency expense” while 61% say they would cover it with cash, savings, or a credit card paid off at the next statement.

Instead, this group would resort to a number of alternate options, including putting the expense on a credit card and paying it off over time, borrowing from family members, and selling something to raise cash. (People could choose more than one option.) Proof positive, apparently, of a deep vein of financial fragility running through this economic boomlet.

But people are funny about money, and those behavioral quirks suggest $400 statistic be used with caution. For instance: A footnote in the survey highlights 2016 research that found 76% of households had at least $400 in liquid assets, far higher than the 56% in 2016 who said they would cover a $400 expense with cash or its equivalent. (Reasonable to assume that first number is higher today.)

Moreover, the fact that some people choose to hold both high-interest credit card debt and cash that could be used to pay down that debt has been termed the “credit card debt puzzle.” It’s a thing. Indeed, only 12% said they wouldn’t use any means to pay that expense. (A great thread by National Review’s Robert VerBruggen notes, among other things, that 25% of those billed as being unable to cover $400 with borrowing or selling make more than $75,000 a year.”)

The survey itself poses the question: “Although so many incurring additional costs for a modest expense is disconcerting, it is possible that some would choose to borrow even if they had $400 available, preserving their cash as a buffer for other expenses.”

Like I said, people are funny about money — and that includes answering surveys about money. (Question wording might be key here, such as “would” vs. “could.”) My AEI colleague Andrew Biggs notes on Twitter that while the Fed survey finds only 36% of non-retired adults think their retirement saving is on track, the reality of retirement finances suggest far more should be confident. As Biggs wrote in The Wall Street Journal earlier this year:

Eight in 10 retirees tell Gallup they have enough money to “live comfortably,” and 6 in 10 working-age households say the same. Seventy-five percent of retirees tell the Federal Reserve’s Survey of Consumer Finances they have “at least enough to maintain standard of living,” up from 61% in 1992. Census Bureau research that uses Internal Revenue Service data to measure retirees’ incomes found that the over-65 poverty rate was only 6.7% in 2012, down from 9.7% in 1990 and lower than any other age group…. According to Fed data, the median retiree household’s income grew by 56% above inflation from 1989 through 2016, versus only 4% real growth for working-age households. Incomes grew faster at the poorest fifth percentile retirees than at the 95th percentile of the working-age population.

The $400 statistic is certainly interesting and worth reporting in context, but no more so than other data on wages and mobility showing American capitalism might be doing better than you think.

Drew Desilver, "The politics of American generations: How age affects attitudes and voting behavior," Pew Research Center, July 9, 2014, https://www.pewresearch.org/fact-tank/2014/07/09/the-politics-of-american-generations-how-age-affects-attitudes-and-voting-behavior/

The politics of American generations: How age affects attitudes and voting behavior

The report, based on a survey of more than 10,000 Americans, finds that among the oldest Americans (those ages 65 and up), nearly two-thirds are at opposite ends of the typology. 32% fall into the two strongest Republican-oriented groups (what we call Steadfast Conservatives and Business Conservatives) and 33% are either Solid Liberals or Faith and Family Left, the two strongest Democratic-aligned groups. (Steadfast and Business Conservatives are separated mainly by the latter’s more Wall Street orientation, while the Faith and Family Left tend to be more conservative on social issues than Solid Liberals.)

Looking at the youngest American adults, those ages 18 to 29, nearly one-in-five are what we call Young Outsiders — GOP leaners who favor limited government but are socially liberal. Almost exactly the same percentage are what we’ve termed the Next Generation Left, who tilt more to the Democrats but are wary of social-welfare programs. And many (17%) are Bystanders — not registered to vote, don’t follow politics and generally the least politically engaged. That’s the biggest share among all age brackets, though perhaps not entirely surprising.

Who are the political typology groups?

On an individual level, of course, many people’s political views evolve over the course of their lives. But academic research indicates not only that generations have distinct political identities, but that most people’s basic outlooks and orientations are set fairly early on in life. As one famous longitudinal study of Bennington College women put it, “through late childhood and early adolescence, attitudes are relatively malleable…with the potential for dramatic change possible in late adolescence or early adulthood. ut greater stability sets in at some early point, and attitudes tend to be increasingly persistent as people age.”

A recent paper by two Columbia University researchers that combined multiple survey data sources finds evidence of this sort of generational imprinting. Their study identified five main generations of presidential voters, each shaped by political events during their formative years: New Deal Democrats, Eisenhower Republicans, Baby Boomers, Reagan Conservatives and Millennials. (The researchers note, however, that their model works best among non-Hispanic whites.) Amanda Cox of The Upshot (The New York Times’ data blog) has created a fascinating interactive visualization of the researchers’ model.

Pew Research Center surveys over the past two decades also have found compelling evidence that generations carry with them the imprint of early political experiences.

read the Fed's "$400 dollar" report you were interested in,the NYT reporting sort of buried the lead, the percentage that would pay in cash is 61%, up from half in 2013, which granted they did note but seems significant. the "real" number is only 12% would be unable to pay.

a footnote also cites a study that found that 76% of household had $400 in liquid assets.

".....Relatively small, unexpected expenses, such as a car repair or replacing a broken appliance, can be a hardship for many families without adequate savings. When faced with a hypothetical expense of $400, 61 percent of adults in 2018 say they would cover it, using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as “cash or its equivalent”)—a 2 percentage point increase from 2017 (figure 10). In 2013, half of adults would have covered such an expense in the same way. Among the remaining 4 in 10 adults who would have more difficulty covering such an expense, the most common approaches include carrying a balance on credit cards and borrowing from friends or family (figure 11). Twelve percent of adults would be unable to pay the expense by any means. Although so many incurring additional costs for a modest expense is disconcerting, it is possible that some would choose to borrow even if they had $400 available, preserving their cash as a buffer for other expenses...."

Federal Reserve Staff, “Report on the Economic Well-Being of U.S. Households in 2018," Federal Reserve, May 2019, https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf

Williams biology professor

"....However, when one assumes that everyone is a blank slate, differences between what males and females do can be explained only by bias and harassment. The conclusion is obvious: All STEM fields are cesspools of sex discrimination. This is what happens when ideology replaces biology. It’s become taboo to even mention the possibility that men and women might have different preferences. Sadly, students do not seem to realize that their good intentions may lead them to resist learning scientific facts, and can even harm their own goal of helping women and ethnic minorities. The existence of any genetic differences between males and females, or between different ethnic groups, does not imply that we should treat members of those groups differently. Denying reality and pretending that differences do not exist—as if this were the only possible path toward equality—is dangerous. If you believe that moral equality relies on biological equality, this makes your moral views susceptible to future research that might reveal biological inequalities. Instead, equality and equal opportunity for all should be the default position, regardless of potential biological differences. When students at Williams or anywhere else try to protect their worldview by denying scientific evidence, it is bound to affect what professors teach and how they teach it. Campus norms proscribe any discourse that might offend women, minorities, or anyone perceived as a victim of patriarchal white societies. However, this rule, no matter how well intentioned, is harming the very people it aims to protect. The argument favoring a certain amount of self-censorship is that it is necessary to protect minority students from feeling unsafe when they hear what they see as “hate speech.” However, by not talking about science that some find unsettling, we deny students opportunities for learning and for intellectual empowerment. How well can they argue their positions effectively unless they are seeing the world as it really is?..."
Luana Maroja, "Self-censorship on Campus Is Bad for Science,"The Atlantic, May 29, 2019, https://www.theatlantic.com/ideas/archive/2019/05/self-censorship-campus-bad-science/589969/

Self-censorship on Campus Is Bad for Science

I have taught evolution and genetics at Williams College for about a decade. For most of that time, the only complaints I got from students were about grades. But that all changed after Donald Trump’s election as president. At that moment, political tensions were running high on our campus. And well-established scientific ideas that I’d been teaching for years suddenly met with stiff ideological resistance.

The trouble began when we discussed the notion of heritability as it applies to human intelligence. (Heritability is the degree to which offspring genetically resemble their parents; the concept can apply not only to physical traits, but also to behavioral ones.) In a classroom discussion, I noted that researchers have measured a large average difference in IQ between the inhabitants of the United States and those of my home country, Brazil. I challenged the supposed intelligence differential between Americans and Brazilians. I asked students to think about the limitations of the data, which do not control for environmental differences, and explained that the raw numbers say nothing about whether observed differences are indeed “inborn”—that is, genetic.

There is, of course, a long history of charlatans who have cited dubious “science” as proof that certain racial and ethnic groups are genetically superior to others. My approach has been to teach students how to see through those efforts, by explaining how scientists understand heritability today, and by discussing how to interpret intelligence data—and how not to.

In class, though, some students argued instead that it is impossible to measure IQ in the first place, that IQ tests were invented to ostracize minority groups, or that IQ is not heritable at all. None of these arguments is true. In fact, IQ can certainly be measured, and it has some predictive value. While the score may not reflect satisfaction in life, it does correlate with academic success. And while IQ is very highly influenced by environmental differences, it also has a substantial heritable component; about 50 percent of the variation in measured intelligence among individuals in a population is based on variation in their genes. Even so, some students, without any evidence, started to deny the existence of heritability as a biological phenomenon.

Similar biological denialism exists about nearly any observed difference between human groups, including those between males and females. Unfortunately, students push back against these phenomena not by using scientific arguments, but by employing an a priori moral commitment to equality, anti-racism, and anti-sexism. They resort to denialism to protect themselves from having to confront a worldview they reject—that certain differences between groups may be based partly on biology. This denialism manifests itself at times in classroom discussions and in emails in which students explain at length why I should not be teaching the topic.

To my surprise, some students even objected to other well-established biological concepts, such as “kin selection,” the idea that, when individuals take actions for the benefit of their offspring and siblings, they are indirectly perpetuating their own genes. Startled students, falling into what we call the “naturalistic fallacy”—the notion that what occurs in nature is good—thought I was actually endorsing Trump’s hiring of his family! Things have gone so far that, in my classes, I now feel compelled to issue a caveat: Just because a trait has evolved by natural selection does not mean that it is also morally desirable.

The duty of scientists is to study the world—including the human body and mind—as it is. Some of our students, however, are seeing only what they want to see and denying real-world phenomena that conflict with their ideology. Take, for example, the obvious biological differences between the sexes, not only in physical traits (men, on average, are clearly stronger and faster than women are), but also in aptitudes and preferences (boys generally prefer wheeled toys, and girls prefer plush toys, a preference that is also observed in baby monkeys!).

People expect an equal sex ratio across academic professions and sometimes ascribe the lack of such equality to bias. In the so-called STEM fields—science, technology, engineering, and mathematics—the relative paucity of women is frequently taken to reflect endemic sexism. While this is undoubtedly a factor, the effect of bias as opposed to other factors, such as differences in what male and female students prefer, requires detailed empirical study.

One set of data challenges the idea that bias is the only cause of sex-ratio differences in the STEM fields. The so-called gender-equality paradox involves the observation that, while women and men around the world perform equally well on standardized science tests, countries with the highest proportion of women in STEM are not the ones with the least discrimination or sexual harassment, but those with the greatest gender inequality. Where women are free to choose their own path and do not have to worry about pay, they gravitate toward the humanities. Countries such as Norway and Finland have relatively few women in STEM fields, while countries such as Algeria and Indonesia have an ample supply.

However, when one assumes that everyone is a blank slate, differences between what males and females do can be explained only by bias and harassment. The conclusion is obvious: All STEM fields are cesspools of sex discrimination. This is what happens when ideology replaces biology. It’s become taboo to even mention the possibility that men and women might have different preferences.

Sadly, students do not seem to realize that their good intentions may lead them to resist learning scientific facts, and can even harm their own goal of helping women and ethnic minorities. The existence of any genetic differences between males and females, or between different ethnic groups, does not imply that we should treat members of those groups differently. Denying reality and pretending that differences do not exist—as if this were the only possible path toward equality—is dangerous. If you believe that moral equality relies on biological equality, this makes your moral views susceptible to future research that might reveal biological inequalities. Instead, equality and equal opportunity for all should be the default position, regardless of potential biological differences.

When students at Williams or anywhere else try to protect their worldview by denying scientific evidence, it is bound to affect what professors teach and how they teach it. Campus norms proscribe any discourse that might offend women, minorities, or anyone perceived as a victim of patriarchal white societies. However, this rule, no matter how well intentioned, is harming the very people it aims to protect. The argument favoring a certain amount of self-censorship is that it is necessary to protect minority students from feeling unsafe when they hear what they see as “hate speech.” However, by not talking about science that some find unsettling, we deny students opportunities for learning and for intellectual empowerment. How well can they argue their positions effectively unless they are seeing the world as it really is?

Some of the World’s Largest Employers No Longer Sell Things, They Rent Workers

The list of the world’s largest employers was once dominated by household names like Ford Motor Co., J.C. Penney Co., and General Electric Co., companies that made and sold things.

A Analysis conducted for The Wall Street Journal shows those names are nowhere to be found on that list today. In their place are large outsourcing companies like Compass Group PLC, Accenture PLC and other businesses that essentially lease workers to clients.

Of the top 20 global employers in 2017, five are outsourcing and “workforce solutions” companies, according to an analysis by S&P Global Market Intelligence. In 2000, only one employer in the top 20—International Business Machines Corp., which offers outsourced IT services among its many businesses—fell into that bucket.

Outsourcing companies are vacuuming up the world’s workers as traditional employers are handing over more of their tasks to nonemployees, a shift that has transformed the way corporations do business and had profound effects on workers’ prospects and pay.

The past two decades have been boom times for the outsourcing sector, with the annual value of contracts growing to $37 billion in 2016 from $12.5 billion in 2000, according to research and advisory firm Information Services Group Inc. III -1.68% The market is expected to rise again in 2017 and 2018, thanks partly to double-digit growth in big technology projects as more companies transfer massive volumes of data to the cloud.

For employers, dispatching work to outside companies saves money and lets them access skills they need without adding to their headcount. Workers in jobs that have gone to outsourcers, though, can feel moved around like chess pieces, either displaced entirely or re-badged as employees of a service provider, sometimes with fewer benefits and lower pay. A growing body of economic research suggests that outsourcing is a significant factor fueling the rise of income inequality in the past decade.

“If all the engineers are in one firm and the cleaners are in another, you get less diversity within firms and more inequality across firms,” says Nicholas Bloom, an economist at Stanford University.

On behalf of loan-servicing companies, Accenture’s people collect debts from homeowners who defaulted on their mortgages. For large insurance clients, doctors and nurses employed by Accenture make wellness calls to diabetes patients. For Alphabet Inc.’s Google, it oversees contractors who review content for the search giant.

“We become part of our clients’ operations, we become part of the talent that’s in their operations,” says Debbie Polishook, group chief executive of Accenture Operations, which houses the company’s outsourcing work.

“When CEOs tell me they want to keep all of their talent, my response is ‘Why?’” says longtime Kelly Services Inc. boss Carl Camden, who retired earlier this year. “ ‘If they’re not our people, how can they be our people?’ is a tautology you have to work them through.”

The breadth of services on offer from outsourcing firms is staggering. Compass Group was founded in 1941 to run factory cafeterias in wartime England, eventually branching out into corporate catering. It now employs more than 550,000 and counts among its subsidiaries firms like Eurest Services, which staffs and manages mailrooms for clients, provides them with full-time receptionists, sets up their conference rooms for meetings and operates their warehouses. Eurest’s clients include Google, SAP and Pfizer Inc.

With so much work done outside the company, businesses employ fewer kinds of workers than they used to, a change that economists say has fueled income inequality.

Outsourcing leads to workers being clustered in companies according to their skills, which affects pay and benefits. A bank used to employ janitors and security guards, in addition to traders and salespeople. For the sake of morale and a sense of fairness, management had an incentive to limit the disparities in employees’ compensation. That had the effect of boosting the pay of lower-skilled staff.

Now, those janitors might just as often work for an outside firm like Denmark’s ISS AS, one of the largest facility services companies in the world, while the high-skilled workers remain employed by the bank—a trend economists call occupational sorting. Pay for outside workers tends to be lower because outsourcing firms need to keep costs low to compete for contracts and because the workers don’t reap rewards from the financial successes of the bank.

Companies that provide security guards or IT help-desk workers have to show they can do the job more cheaply than the client can, keeping a tight lid on wages for those workers, says David Weil, a Labor Department official in the Obama administration and an expert on contract labor.

Outsourcing firms’ workforces, though, may shrink as algorithms take on more tasks, says Steve Hall, a partner at ISG.

“The large outsourcers are using a combination of analytics and automation to significantly reduce the need for labor,” he says.
I'm one of the opinion editors atDow Jones MarketWatch, a no-paywall website about all things money. We get about 30 million unique visitors a month, mostly from the U.S. I'm reaching out because I have your book "The Upside of Inquality" and just read theNew York Times article about all the contract workers in Silicon Valley. I'm looking for an op-ed on what this says about the changing nature of work and the political ramifications of this sort of change. Is this a topic you'd be interested in writing about for a broad audience? If so I'd love to talk. I look forward to hearing from you. Silvia Ascarelli

Lauren Weber, "Some of the World’s Largest Employers No Longer Sell Things, They Rent Workers,"Wall Street Journal, December 28, 2017, https://www.wsj.com/articles/some-of-the-worlds-largest-employers-no-longer-sell-things-they-rent-workers-1514479580

McKinsey thinks that sector specific supercycles/boom bust account for 1/3 of the decline in labor's share of income in the United States, also finds that 75% of the decline in labor share btw 1945-2016 took place btw 2000-2016

"....In this paper, we look at the relative importance of different factors in the United States through a focus on the complement of the labor share decline—that is, the rise in capital share of income. We decompose this into the role of depreciation, capital-to-output ratios, and returns on invested capital and link them to a microanalysis of 12 sectors.While our findings confirm the relevance of the most commonly cited factors, they also suggest that other trends often absent from the current debate played an even more central role. Key findings: The labor share of income in the US private business sector declined by about 5.4 percentage points between the periods 1998 to 2002 and 2012 to 2016. Without such a decline since 1998, average worker pay might be about $3,000 higher per year in real terms. The decrease between 2000 and 2016 accounts for three-quarters of the overall decline in the US labor share of income since World War II. Our analysis finds that the fall accounts for 18 percent of the gap that opened between median wage growth and historical productivity growth. Weak productivity growth explains 50 percent of the gap, while disproportionate distribution of income gains to highly paid workers accounts for 19 percent. Twelve sectors that make up about one-third of employment and 44 percent of economic output explain the overall decline in labor share or increase in capital share. These tend to be more globalized, more digitized, and more capital-intensive than the overall economy, but also include high-employment services like wholesale and retail. Eight of the 12 sectors experienced faster than-average wage growth, in most cases supported by above-average productivity growth. Nevertheless, almost all of these sectors have experienced a decline in labor share of more than five percentage points. In analyzing the various hypotheses behind the labor share decline across these sectors,we find that a set of supercycle and boom-bust effects appears as the main driver, accounting for one-third of the total decline since 1998. The commodity supercycle notably increased profits in the mining sector, while the real estate boom temporarily increased capital stocks in the sector and its weight in the total economy. The second-most important factor (26 percent of the decline) is rising and faster depreciation, due to higher capital stocks and a shift to intangible assets with shorter life cycles.For example, computer and electronics manufacturing raised the share of assets from intellectual property products in total capital and, with it, depreciation. Pharmaceuticals and chemicals also used more intangible capital and experienced higher depreciation. Superstar effects—which see a small proportion of large firms capturing a disproportionately larger share of economic profit than their peers—along with industry consolidation appear to explain about 18 percent of the decline, including in sectors such as telecommunications, media, and transportation. Capital substitution of labor and automation could underpin 12 percent of the labor share decline, according to our estimates. Globalization and decreased labor bargaining power, which affected the automotive sector among others, account for the remaining 11 percent.While further research will be needed to confirm and refine these findings, they already highlight some trends and implications. First, it is clear that economic context matters and a decline in labor share is not, per se, “bad.” For instance, while the shift to intangibles has negatively affected the labor share, it can raise productivity. Our research highlights the importance of driving productivity growth as the most important determinant of wage growth. Improving human capital will also be essential. Raising investment rates could have a much higher positive effect on productivity and wages than the historically smallish negative impact of capital deepening on the labor share. Our research suggests that labor share declines could continue but at a slower pace.Commodity cycle effects should taper off, and offshoring for reasons of labor-cost arbitrage is declining. The ongoing shift to intangibles will likely continue to raise depreciation, however. Superstar effects also have grown stronger, although policy changes or hypercompetition might alter the trajectory. Capital substitution and technology deployment look set to continue or accelerate, with significant uncertainty around the elasticities of labor substitution versus complementation as a critical determinant of whether that will be good or bad for the labor share. Our research on automation suggests that more occupations will be complemented than substituted...."

James Manyika, Jan Mischke, Jacques Bughin, Jonathan Woetzel, Mekala Krishnan, and Samuel Cudre, "A new look at the declining labor share of income in the United States," McKinsey & Company, May 2019, https://www.mckinsey.com/featured-insights/employment-and-growth/a-new-look-at-the-declining-labor-share-of-income-in-the-united-states