Macro Roundup

:… The big picture: The numbers simply do not lie. America, as a whole, and swing states, in particular, are growing more diverse, more quickly. There is no way Republicans can change birth rates or curb this trend — and there's not a single demographic megatrend that favors Republicans….”

Long-term, it seems unambiguous: If you need more African American and Hispanic voters, maligning and marginalizing them strikes even some inside this White House as stupid politics.

Go deeper: A tough time to be a Trump supporter

In less than a decade, the under-30 population will be majority non-white.

Between the lines: Trump clearly thinks this is good short-term politics.

Truth is: It's unknowable, though highly debatable.

Florida and Texas, two of the big electoral giants that voted for Trump, are witnessing the fastest non-white population growth.

This wave is only accelerating, as Stef reported in "America's majority minority future":

Next year, the entire under-18 population will be majority non-white, according to Brookings demographer William Frey.

Hispanic people now make up a quarter of the population in Florida, almost a third of the population in Arizona and 39% of Texas — all Trump states in 2016 that are becoming more winnable by Democrats.

The context, from AP: "Not since George Wallace's campaign in 1968 has a presidential candidate — and certainly not an incumbent president — put racial polarization at the center of his call to voters."

For any Republican thinking past 2020, here are numbers to fear, reported by Axios' Stef Kight:

The Hispanic share of the population has grown in every state since 2000, according to Census data.

Jim VandeHei, Mike Allen, "The GOP's demographic decay,"Axios, July 18, 2019, https://www.axios.com/republican-party-demographics-threat-trump-racism-1524a8a1-c2f1-4183-896f-107420e2d50a.html

The GOP's demographic decay

The single biggest threat to Republicans' long-term viability is demographics.

The big picture: The numbers simply do not lie. America, as a whole, and swing states, in particular, are growing more diverse, more quickly. There is no way Republicans can change birth rates or curb this trend — and there's not a single demographic megatrend that favors Republicans.

About last night: Trump paused while speaking at a "Make America Great Again" campaign rally in Greenville, N.C., to savor supporters' new roar: "Send her back!"

"I have a suggestion for the hate-filled extremists who are constantly trying to tear our country down," Trump said. "They never have anything good to say. That's why I say, 'Hey if you don't like it, let 'em leave, let 'em leave.'"

new NBER reinforces that the "hollowing out" of middle income jobs has been driven by demand for more high wage workers, not previous middle wage workers becoming low wage workers. paper also"....rule out the hypothesis that computerization and automation lie behind rising wage inequality...."

"...We reexamine whether U.S. workers are increasingly concentrated in both low and high wage jobs, a phenomenon known as employment polarization. We depart from most previous literature, which equates a job with an occupation, by instead considering jobs at the individual level. By assigning workers in the CPS to real hourly wage bins with time-invariant thresholds and tracking over time the shares of workers in each,we find a steady decline since 1973 in the share of workers earning middle wages, consistent with occupation based analysis. However, we find that both over the business cycle and the longer run, the shares of workers in the top and bottom bins move in opposite directions, inconsistent with employment polarization.....On the one hand, the displacement of workers from middle wage occupations to low wage occupations increases supply of low wage workers; on the other hand, demand for low wage services may rise with the rising numbers of the high wage workers.....Grouping workers into four time invariant bins defined only by workers' wages, we do find a steady decline in the share of workers in the middle two wage groups, but one that belies offsetting forces that vary over time and by gender, variously reflecting either upward mobility (workers moving faster from the middle to the top than from the bottom to the middle) or downward mobility (workers moving faster from the middle to the bottom than from the top to the middle), but not employment polarization....However, the shares of workers in the top and bottom groups generally move in opposite directions over the longer term as well, with the share in the top group rising markedly and the share in the bottom falling slightly. The patterns are very similar with ten wage bins rather than four...The slight downward trend in the share of workers with low wages could in principle coexist with the growing employment share of low wage occupations found in the literature: we show that the share of low wage occupation workers with low wages falls greatly with time. However, we also show that the share of employment in low wage occupations is trending up only from 2002-2012, and that the apparent earlier growth found in the literature is an artifact of unbridgeable changes in occupation codes. The late emergence of occupation based polarization is inconsistent with the explanation that computerization and automation have caused both employment polarization and rising wage inequality, unless underlying occupation based employment polarization in earlier periods was masked by human capital driven occupational upgrading of workers. We demonstrate that even absent breaks in occupation codes, occupation mean wages are unsuitable for the analysis of wage inequality: most of the increase in wage inequality is within and not between occupation; occupation mean wages do not capture the bottom of the individual wage distribution; and middle{wage workers are distributed widely across occupations. Computerization and automation may be increasing wage inequality, but the hypothesis cannot be studied through the lens of occupations and does not find support in our analysis...."

Jennifer Hunt and Ryan Nunn, "Is Employment Polarization Informative About Wage Inequality and Is Employment Really Polarizing?," National Bureau of Economic Research, July 2019, https://www.nber.org/papers/w26064

Research (preliminary) from Brookings using FHA data finds that the cost of building one mile of interstate highway in the 1980s was three times what it cost in the 1960s, adjusted for inflation.

".... There is widespread consensus that US infrastructure investment - and infrastructure quality - has been on the decline. In response, politicians across the ideological spectrum have called for increased infrastructure spending. How much infrastructure we would get depends on how much output is produced per dollar of spending. Yet we know surprisingly little about infrastructure costs across time and place. We help to fill this gap by using data we digitized on the Interstate highway system—one of the nation’s most valuable infrastructure assets—to document spending per mile over the history of its construction. We make two main contributions. First, we find that spending per mile on Interstate construction increased more than three-fold (in real terms) from the 1960s to the 1980s. We date the inflection point of increase to the early 1970s. We further show that neither changes in the observed geography of spending nor increases in material and labor prices explain these changes. Second, we provide suggestive evidence of the determinants of the increase in spending per mile. In particular, the increased spending per mile coincides with the rise of “citizen voice” in government decision-making in the early 1970s. And rising incomes and housing prices nearly completely statistically explain the increase in costs.We also largely rule out several common explanations for rising costs, such as increases in per-unit labor or materials prices.....The first is that the demand for more expensive Interstate highways increases with income, as either richer people are willing to pay for more expensive highways or in any case they can have their interests heard in the political process. The doubling in real median per capita income over the period accounts for roughly half of the increase in expenditures per mile over the period. Also consistent with this, and with the finding that the increased costs are due to increased inputs, not per unit input prices, we show that states construct more ancillary structures, such as bridges and ramps, and more wiggly routes in later years of the program. Controls for home value also account for a large proportion of the temporal increase; taken together, income and home value increases account for almost all the temporal change in costs..."

Leah Brooks and Zachary Liscow, "Infrastructure Costs," Brookings Institution, July 2019, https://www.brookings.edu/wp-content/uploads/2019/07/2019-07-12_infrastructure_costs_v2.pdf

"....China today differs in significant ways from Taiwan, South Korea and Japan at similar stages of development. One is that infrastructure, most of it state-led, and housing, are much more important in China, representing half of total investment, says Dwight Perkins, a China expert at Harvard University. This made sense when the average family’s apartment was just 200 square feet and even its most densely populated regions lacked freeways. Now, though, the average apartment is 800 feet, and new highways and railroads increasingly serve remote areas with less potential payoff. “It’s good for those areas, but the return on that investment has undoubtedly fallen very sharply.” Another difference is China’s reliance on debt, which, according to Mr. Tilton, is, as a share of GDP, two to four times that of its east Asian peers at similar stages of development. The upshot: China invests just as heavily but far less efficiently than its peers did. It shows:The return on capital plummeted from 19% in 2007 to 8.4% in 2017, according to Andrew Batson of Gavekal Dragonomics, a research service. The China Development Research Foundation, a government think tank, says total-factor productivity, which measures how efficiently labor and capital are deployed, began growing faster in 2016, led by services. But some analysts are skeptical of official data and say productivity growth has been negative for years. An inefficient state sector matters less if the private sector grows fast enough. But in recent years, private firms in China have faced multiple headwinds. State-controlled banks prefer to lend to state-owned enterprises, so private firms borrow from less-regulated “shadow banks,” which the authorities have targeted in their crackdown on excess lending. The domestic private sector’s share of total sales has dropped about 5 percentage points since 2016, according to Goldman, while the state sector’s share has risen roughly as much..."

Greg Ip, "China’s State-Driven Growth Model Is Running Out of Gas,"Wall Street Journal, July 17, 2019, https://www.wsj.com/articles/chinas-state-driven-growth-model-is-running-out-of-gas-11563372006

"...I am not suggesting a direct lineage from those awakenings to today’s. The 2010s are no more similar to the 1730s and 1830s than to the 1930s. There are, however, two important parallels. First, both religion and nation are neither threats nor panaceas but something more fundamental. They are central arenas of human endeavor—institutional embodiments of human understanding and aspiration, of human excellence and folly. To oppose them is to oppose human nature. To say that the nationalist hatreds of the past oblige us to reject a political order of independent nations is akin to saying that the Crusades and Wars of Religion make atheism the only viable belief system...."

Christopher DeMuth, "America’s Nationalist Awakening,"Wall Street Journal, July 19, 2019, https://www.wsj.com/articles/americas-nationalist-awakening-11563574717

America’s Nationalist Awakening

No one saw it coming—that the next big thing of the 21st century would be the nation-state, an idea from the 17th. Yet it has suddenly become a global phenomenon—a driving force of politics in the U.S. and around the world and the subject of intense intellectual debate. The news has even come to Harvard, where a professor of history has written a book about American nationhood, and a professor of economics says that “there is something special about the nation-state—it creates reciprocal obligations that don’t exist across national borders.”

There is, to be sure, a resistance. One salvo against the organizers of this week’s National Conservatism Conference in Washington accuses us of injecting “a malignant form of nationalism... into the American body politic” and said we “need to be mercilessly defeated on the battlefield of ideas as if September 1, 1939”—the day Germany invaded Poland—“were approaching.”

But in general, the mood has moved through the stages of grief from denial to anger to acceptance—acceptance that the nation-state is alive and well, not about to die and make way for global progressivism. To wit:

• The race card and the Nazi card have been played so promiscuously against nationalism proponents that they have lost most of their power. The accusers keep flailing away, but at this point they are only complicating efforts to isolate and condemn the actual white supremacists and anti-Semites in our midst.

• Some liberals acknowledge—or even insist—that fraternal affections and group loyalties are natural and potentially even worthy. Some even show hints of recognizing that social customs and national traditions are a firmer foundation for political order than the ideology of atomized, free-floating individual autonomy.

• Beyond the world of political activists and intellectuals, these propositions have wide appeal, grounded in everyday experience. Even in the midst of all the scare talk, pollster Scott Rasmussen reports that a substantial majority of Americans—yes, even suburban women—have a favorable view of “nationalism” and “America nationalism.”

So we political conservatives, who have been aroused in our own way by the nationalist awakening, have a great opportunity to recast, enlarge and proselytize our ideas. It’s time to move beyond dueling litanies of the nation-state’s past glories on the one hand and horrors on the other.

Let me draw an analogy from earlier awakenings—the religious Great Awakenings that swept over America in the 18th and 19th centuries. In the American colonies and early U.S., the new religious impulses were much more populist, participatory, and enthusiastic than what had come before, and posited a new relationship between God and his people and among his people. Many feared that the awakenings were dangerous and divisive, that they threatened to rekindle the old intolerant religious hatreds and bloodshed that had brought so many to the New World in the first place.

Yet as it turned out, the secular consequences of the awakenings were unifying and enlarging, galvanizing the American nation. For one thing, they brought many women and black Americans to Christian practice and belief. Beginning in the 1730s, the First Great Awakening—with its emphasis on personal responsibility and self-rule—was an important antecedent to the American Revolution, the Declaration of Independence and the Constitution. The 19th-century Second Great Awakening, with its emphasis on moral obligation and social justice, was a vital impetus to the abolition of slavery.

I am not suggesting a direct lineage from those awakenings to today’s. The 2010s are no more similar to the 1730s and 1830s than to the 1930s. There are, however, two important parallels. First, both religion and nation are neither threats nor panaceas but something more fundamental. They are central arenas of human endeavor—institutional embodiments of human understanding and aspiration, of human excellence and folly. To oppose them is to oppose human nature. To say that the nationalist hatreds of the past oblige us to reject a political order of independent nations is akin to saying that the Crusades and Wars of Religion make atheism the only viable belief system.

Some people do say these things, but they are making empty debaters’ points. They ignore the intrinsic claims of nationalism and religion and the circumstances of human existence that give rise to them. The circumstances that gave rise to today’s nationalist awakening, at least in the West, have nothing to do with suppressing minorities or invading foreign lands. Instead, the new nationalism is a revolt against the failures and weaknesses of modern nation-states. It is neither intolerant nor triumphalist but rather is defensive, grounded in well-justified apprehensions of political and institutional decline.

In America, the nationalist claim is that the federal government has abdicated basic responsibilities and broken trust with large numbers of citizens:

• It has failed to secure the national borders and provide regular procedures for immigration and assimilation.

• It has delegated lawmaking to foreign and international bodies, and domestic bureaucracies, that have scant regard for the interests and values of many of our fellow citizens.

• It has acquiesced in, or actively promoted, the splintering of the nation into contending racial, religious and other groups and has favored some at the expense of others.

• It has neglected core American principles and traditions—separation of powers, due process, the presumption of innocence, local prerogative, freedom of association—allowing them to atrophy or be subjected to political conditions.

These claims are closely aligned with traditional conservative precepts, although conservative politicians and activists have not always adhered to them in recent decades. That is why the nationalist awakening is a conservative awakening, too, and presents distinct opportunities for those of our persuasion.

Which brings me to the second parallel with the Great Awakenings. Adamant revivalist energies, while unruly and disruptive, may be precursors to social enlargement and a new sense of collective purpose. I am choosing my words carefully and did not say “national unity” and “cohesion”—that has never been the American Way, outside wars and similar crises, and it never could be. All we need is a serviceable consensus on the essentials of American identity and character, sufficiently broad and representative for the tasks of cultural and political reform.

The national conservatism we are developing is going to have some hard edges and provoke some clever counterattacks and dismissals. The rancor proves the seriousness of the challenge we face. As the Danish physicist-poet Piet Hein wrote: “Problems worthy of attack / Prove their worth by fighting back.”

But the American nation is not only vast, heterogeneous and fractious but also tough, resilient and practical. The ideas conservative nationalists are developing have broad transcultural potential. Modern progressivism has turned against essential precepts of the American liberal tradition, such as equal opportunity and freedom of inquiry, religion and enterprise. We are assimilating them into conservatism, and old-fashioned liberals cannot help but notice.

An important virtue of the nation-state is that it is a constraint. The contemporary peaceable nation takes what it is given—its borders and territory and resources, its citizens and tribes, its affinities and antagonisms, its history and traditions and ways of getting along—and makes the most of them. The order of independent nation-states addresses international problems by working with the positions and interests of individual nations as they are. Many idealists would prefer to avoid these constraints by operating through stateless, single-minded political structures.

One of the most arresting features of modern life in the rich democracies is the pervasive rejection of the idea of natural constraint. One sees this throughout culture high and low, social relations, and politics and government. Where a boundary exists, it is there to be transgressed. Where a hardship exists, it must be because of an injustice, which we can remedy if only we have the will. Today’s recipe for success and happiness is not to manage within limits and accommodate constraints, but to keep one’s options open. The newest frontier is the notion that even your sex is an option, and the sooner young children are informed of this, the better.

I do not know where this impulse came from. Perhaps wealth and technology have relieved so many age-old constraints that we have come to imagine we can live with no constraint at all. Whatever the cause, it is a revolt against reality. Resources are limited. Lasting achievement is possible only within a structure. My own favorite field, economics, is out of favor these days, but it has at least one profound truth, that of opportunity cost: Everything we do necessarily involves not doing something else.

The illusion of unlimited optionality has been especially damaging in government and politics. A dramatic recent instance came in the Democrats’ presidential primary debates, where many candidates favored both open borders and free health care for everyone who shows up. This would plainly amount to the abolition of the United States. Still, the proponents would say in all earnestness that they have ingenious plans to make it work.

That is an extreme instance of the phenomenon that every social problem or inconvenience summons forth costly new spending or regulatory solutions, with hardly a care to where the resources will come from or what other problems will be slighted. It is a bipartisan phenomenon, and it has left us with a massively indebted government that spends trillions of borrowed dollars on our immediate needs, with the bills kited to future generations.

The American nation-state is rich, powerful and less constrained than any other, yet it is much more constrained than we have led ourselves to believe. Thinking of ourselves as a nation-state is, as Peter Thiel has observed, a means of unromantic self-knowledge. National conservatism, by directing our attention to our nation as it is—warts, wonders and all—is a means of reminding ourselves of our dependence on one another in the here and now, and of facing up to the constraints that are the sources of productive freedom.

“…reveal the real threat from Baumol’s disease: not that work will flow toward less-productive industries, which is inevitable, but that gains from rising productivity are unevenly shared. When firms in highly productive industries crave highly credentialed workers, it is the pay of similar workers elsewhere in the economy—of doctors, say—that rises in response. That worsens inequality, as low-income workers must still pay higher prices for essential services like health care. Even so, the productivity growth that drives cost disease could make everyone better off. But governments often do too little to tax the winners and compensate the losers. And politicians who do not understand the Baumol effect sometimes cap spending on education and health. Unsurprisingly, since they misunderstand the diagnosis, the treatment they prescribe makes the ailment worse…”

Economist Staff, "The rising cost of education and health care is less troubling than believed,"The Economist, June 20, 2019, https://www.economist.com/finance-and-economics/2019/06/20/the-rising-cost-of-education-and-health-care-is-less-troubling-than-believed

“…One is that new technologies take time to produce productivity and wage gains. It was several decades before industrialisation led to significantly higher wages for British workers in the early 1800s, a delay known as Engels’s pause, after the theorist of communism who observed it. Another lesson is that, even though it eventually increases the overall size of the economic pie, automation is also likely to boost inequality in the short run, by pushing some people into lower-paid jobs. Mr Frey is concerned that automation will leave many people worse off in the short term, leading to unrest and opposition, which could in turn slow the pace of automation and productivity growth. Everyone would then be worse off in the long run. This is the titular “technology trap”. Whereas many people assume he worries about a world with too many robots, Mr Frey is in reality more concerned about a future with too few….”

Economist Staff, "Will a robot really take your job?,"The Economist, June 27, 2019, https://www.economist.com/business/2019/06/27/will-a-robot-really-take-your-job

“… system relies on three types of data. First come economic figures such as gdp growth and interest rates. Next are market fundamentals, like the ratios of home prices to rents and incomes. Last come historical prices, to take into account momentum and mean reversion. The impact of each of these variables often depends on the others. To combine them, we used a machine-learning algorithm called a random forest. This method creates a “forest” of “decision trees”, each containing a series of yes/no choices such as “Has gdp been rising?” or “Are price-to-rent ratios below the long-run average?”, and averages the output of each tree. The model fares well in back-testing. On average, its forecasts with 18 months’ lead time came within three percentage points of actual yearly price changes. These errors are larger during booms or busts—but still small enough for the model to be useful.…”

Economist Staff, " For now, residential-property prices are likely to keep rising,"The Economist, June 29, 2019, https://www.economist.com/graphic-detail/2019/06/29/for-now-residential-property-prices-are-likely-to-keep-rising

breaking rule as I suspect you will be hearing about this paper (released this AM) from your democratic friends. Harvard economists look @ when government social spending on adults/children "pays" for itself, note though they do not account for the deadweight cost of taxation (page 13), their MVPF is a shadow price of a policy so only captures the beneficiaries value, not the opportunity cost of providing the benefits by my reading of their work.

Their core finding, "... Children pay back the initial cost as adults through additional tax revenue and reduced transfer payments. For example, we examine four major health insurance expansions to children over the last 50 years. We calculate an average across those policies and find that for each $1 of initial expenditure they repaid $1.78 back to the government in the long-run. In particular, we find that three of four policies fully repaid their initial costs...."They also find lower MVPF's for spending on adults as it reduces labor earnings, "... Our results show lower MVPFs for policies targeted to adults. Most of these MVPFs lie between 0.5 and 2. For example, we find MVPFs ranging from 0.40-1.63 for health insurance expansions to adults, 0.42-1.07 for in-kind transfers such as housing vouchers and food stamps, and 0.11-1.20 for tax credits and cash welfare programs to low-income households....."

Nathaniel Hendren, Ben Sprung-Keyser, "A Unified Welfare Analysis of Government Policies," Harvard University, July 2019, https://opportunityinsights.org/paper/welfare/

"...We conduct a comparative welfare analysis of 133 historical policy changes over the past half-century in the United States, focusing on policies in social insurance, education and job training, taxes and cash transfers, and in-kind transfers. For each policy, we use existing causal estimates to calculate both the benefit that each policy provides its recipients (measured as their willingness to pay) and the policy’s net cost, inclusive of long-term impacts on the government’s budget. We divide the willingness to pay by the net cost to the government to form each policy’s Marginal Value of Public Funds, or its “MVPF”. Comparing MVPFs across policies provides a unified method of assessing their impact on social welfare. Our results suggest that direct investments in low-income children’s health and education have historically had the highest MVPFs, on average exceeding 5. Many such policies have paid for themselves as governments recouped the cost of their initial expenditures through additional taxes collected and reduced transfers. We find large MVPFs for education and health policies amongst children of all ages, rather than observing diminishing marginal returns throughout childhood. We find smaller MVPFs for policies targeting adults, generally between 0.5 and 2. Expenditures on adults have exceeded this MVPF range in particular if they induced large spillovers on children.We relate our estimates to existing theories of optimal government policy and we discuss how the MVPF provides lessons for the design of future research.... Main Results Our estimates reveal a stark pattern: MVPFs vary substantially based on the age of each policy's beneficiaries.We find the highest MVPFs for direct investments in the health and education of low-income children. This includes Medicaid expansions, childhood education spending, and expenditures on college. In many cases, these policies actually pay for themselves in the long-run. Children pay back the initial cost as adults through additional tax revenue and reduced transfer payments.For example, we examine four major health insurance expansions to children over the last 50 years. We calculate an average across those policies and find that for each $1 of initial expenditure they repaid $1.78 back to the government in the long-run.In particular, we find that three of four policies fully repaid their initial costs. We find high MVPFs for policies targeting children throughout childhood. We do find high MVPFs for early childhood education programs, including an MVPF of roughly 44 for Perry Preschool and 12 for Abecedarian.7 In addition, we find large MVPFs for policies targeting older children, such as historical equalizations in K-12 school financing (studied in Jackson et al. (2016)) and policies increasing college attainment. Our broad patterns contrast with the notion that opportunities for high-return investment in children decline rapidly with age (Heckman, 2006). Our results show lower MVPFs for policies targeted to adults. Most of these MVPFs lie between 0.5 and 2. For example, we find MVPFs ranging from 0.40-1.63 for health insurance expansions to adults, 0.42-1.07 for in-kind transfers such as housing vouchers and food stamps, and 0.11-1.20 for tax credits and cash welfare programs to low-income households. These lower MVPFs reflect the fact that spending on many of these policies reduced labor earnings. This lies in contrast to our finding that many policies spending on children increased later-life earnings.It is important to note that these differences in returns by age represent general patterns, but do not hold uniformly. There are a number of exceptions. For child policies, we find large variation in MVPFs across policies, with some estimates relatively close to 1. In particular, we find lower MVPFs for job training programs and for college subsidies that do not lead to increases in attainment. We also find lower MVPFs for transfers to disabled children and their families. This latter case illustrates that policies with lower MVPFs are not necessarily "undesirable" they can be welfare-enhancing depending on one's social preferences. Unlike expenditures with infinite MVPFs, policies with low MVPFs involve a budgetary tradeoff that should be weighed against one's preference for redistribution...."