Macro Roundup

new Moretti, really interesting on high tech clusters. for example impact of the demise of Kodak on the broader Rochester high-tech cluster reduce the cluster by 49.2% (data runs through 2007) and the virtuous circle that high impact firms create (Microsoft raised the productivity of non-Microsoft computer programmers in Seattle by 8%)

“… The high-tech sector is increasingly concentrated in a small number of expensive cities, with the top ten cities in “Computer Science”, “Semiconductors” and “Biology and Chemistry”, accounting for 70%, 79% and 59% of inventors, respectively…..These shares were significantly larger in 2007 than in 1971, pointing to increasing geographical agglomeration of inventors….. I use longitudinal data on top inventors based on the universe of US patents 1971 – 2007 to quantify the productivity advantages of Silicon-Valley style clusters and their implications for the overall production of patents in the US. I relate the number of patents produced by an inventor in a year to the size of the local cluster, defined as a city × research field × year. I first study the experience of Rochester NY, whose high-tech cluster declined due to the demise of its main employer, Kodak. Due to the growth of digital photography, Kodak employment collapsed after 1996, resulting in a 49.2% decline in the size of the Rochester high-tech cluster. I test whether the change in cluster size affected the productivity of inventors outside Kodak and the photography sector. I find that between 1996 and 2007 the productivity of non-Kodak inventors in Rochester declined by 20.6% relative to inventors in other cities, conditional on inventor fixed effects.In the second part of the paper, I turn to estimates based on all the data in the sample. I find that when an inventor moves to a larger cluster she experiences significant increases in the number of patents produced and the number ofcitations received. Conditional on inventor, firm, and city × year effects, the elasticity of number of patents produced with respect to cluster size is 0.0662 (0.0138).The productivity increase follows the move and there is no evidence of pre-trends. IV estimates based on the geographical structure of firms with laboratories in multiple cities are statistically similar to OLS estimates….The elasticity of number of patents in a year with respect to cluster size is 0.0662 (0.0138). The estimated elasticity implies that a computer scientist moving from the median cluster in computer science (Gainesville, FL) to the cluster at the 75th percentile of size (Richmond, VA) would experience a 12.0% increase in productivity, holding constant the inventor and the firm. In biology and chemistry, a move from the median cluster—Boise, ID—to the 75th percentile cluster—State College, PA—is associated with a productivity gain of 8.4%, holding constant the inventor and the firm…..Estimates of the elasticity of productivity with respect to cluster size can be used to quantify the spillover effects that a firm generates within a cluster. These estimates indicate that the size of the spillover varies enormously across firms. The spillover effect generated by the average firm in the average city is 0.3% and 0.24% in computer science and biology and chemistry, respectively. But it is much larger for firms that account for a large number of inventors in the local cluster. For example, the productivity of non-Microsoft computer scientist in Seattle is estimated to be 8.06% higher because of the presence of Microsoft in the local computer science cluster. This large effect reflects Microsoft remarkable size in this field in Seattle. Having estimates of the productivity spillover that a specific firm generates in a specific cluster may prove useful to local and state governments that offer subsidies to attract high-tech firms to their jurisdiction…..In the final part of the paper, I use the estimated elasticity of productivity with respect to cluster size to quantify the aggregate effects of geographical agglomeration on the overall production of patents in the US. I find macroeconomic benefits of clustering for the US as a whole. In a counterfactual scenario where the quality of U.S. inventors is held constant but their geographical location is changed so that all cities have the same number of inventors in each field, inventor productivity would increase in small clusters and decline in large clusters. On net, the overall number of patents produced in the US in a year would be 11.07% smaller….”

Enrico Moretti, “The Effect of High-Tech Clusters on the Productivity of Top Inventors,” National Bureau of Economic Research, August 2019, https://eml.berkeley.edu//~moretti/clusters.pdf

analysis from FRBSL suggests that the TCJA increased both VC investment and innovation

"...Another way to analyze the effect of the act on long-term growth is to look at data on VC investment. The PwC/CB Insights MoneyTree™ Report provides data on VC investment. Between 2007 and 2017, the average yearly growth rate of VC investment was 11.2 percent,but it grew by 51.2 percent between 2017 and 2018. That is, VC investment growth was 40 percentage points larger in 2018 than what it was previously. Figure 2 shows the levels of VC investment by sector for the years 2014-15, 2016-17, and 2018-19.5 The key is to compare the changes in VC investment after the tax cuts (2018-19 vs. 2016-17) taking into account the previous trend (2016-17 vs. 2014-15). VC investment grew faster after the act. The difference in the dollar amounts is largest for sectors that receive VC investment: internet, healthcare, and software. But there are also significant differences for other sectors that do not receive much VC investment, such as automotive and transportation. In sum, the evidence suggests that both innovation and VC investment increased significantly after the Tax Cuts and Jobs Act. The level of innovation and VC investment in 2018 and the first half of 2019 should support increased growth rates in the next years...."
Juan M. Sánchez, "Tax Cuts, Venture Capital, and Long-Term Growth," Federal Reserve Bank of St. Louis," August 30, 2019, https://research.stlouisfed.org/publications/economic-synopses/2019/08/30/tax-cuts-venture-capital-and-long-term-growth

Winship convincing argues that “deaths of despair” are actually just an opioid epidemic, see Figure 1. Full report is attached.

“…Self-reported unhappiness probably has been on the rise since around 1990 (though not all sources agree). That predates the increase in deaths of “despair” by a decade. Moreover,unhappiness likely fell over the 25 years preceding 1990, while deaths of despair rose and then plateaued. And one data source suggests stable levels of unhappiness over the long run. Rising unhappiness may have increased the demand for ways to numb or end despair, such that the cumulative effects show up years later in the form of higher death rates. But the proliferation of a uniquely addictive and deadly class of drugs has meant that the supply of despair relief has become more prevalent and more lethal, which would have increased mortality even absent an increase in despair. Given the lack of correspondence between trends in economic and social indicators, unhappiness, loneliness, and deaths of “despair,” it may be more productive for policymakers to focus on the overdose epidemic than on despair per se…”

(202) 228-6984

G-01 Senate Dirksen Office Building

Director | Social Capital Project

Executive Director | Joint Economic Committee

Scott Winship, Ph.D.

I hope you find this report—and our research generally—useful. Best, Scott

This was the last report from Phase 1 of the Social Capital Project, which was purely descriptive. Later this month we will begin releasing policy papers with the goal of expanding opportunity by shoring up the health of families, communities, and civil society. If you’ll forgive me for sending another impersonal email, I will follow up with a summary of the flagship Phase 2 paper, “The Wealth of Relations,” which we released in the spring.

We didn’t have time to do a really deep dive on this, but so as to hopefully spur more research, we have posted a spreadsheet with detailed long-term trends by age, sex, and race:https://www.jec.senate.gov/public/index.cfm.

That trend doesn’t correspond neatly with deaths of “despair” trends (nor do trends in loneliness). We close by noting that few economic or social capital trends line up well either with the trend in deaths of despair or in unhappiness, and we suggest that focusing on the opioid epidemic itself should be a greater priority than focusing on despair per se.

Among other things, we show that suicides and alcohol-related deaths were as high or higher early in the 20th century as they are today and that drug-related deaths have been rising steadily for decades (but especially after 2000). Suicides and alcohol-related deaths have been rising since 2000 but are sitting at about the same levels as in the mid-1970s. We note major national and international events that clearly affect the trends (wars, epidemics, depressions). We question whether rising “despair” is the right way to think about the increase in these deaths. In another new contribution, we present 50-year trends in unhappiness, extending a series by Betsey Stevenson and Justin Wolfers:

I am writing because I thought you might be interested in the latest release from Senator Mike Lee’s Social Capital Project, within the Joint Economic Committee: Long-Term Trends in Deaths of Despair (https://www.jec.senate.gov/public/index.cfm/republicans/analysis). Anne Case and Angus Deaton, famously, demonstrated that deaths from suicides and alcohol and drug abuse have skyrocketed since the late 1990s among middle-age non-Hispanic whites. (They have spiked for other groups, too, but among this specific demographic, the rise was enough to increase overall mortality rates.) It was a ton of work, but we took their series (a version of it) back to 1900 for the overall population (and back to 1959 for middle-age whites):

Hello,

Scott Winship, “Long-Term Trends In Deaths of Despair,” United States Congress Joint Economic Committee, September 5, 2019, https://www.jec.senate.gov/public/index.cfm/republicans/analysis

"...This process, whether by happenstance or design, yields a parent body comprised largely of the most motivated parents and those with the organizational skills and resources to meet Success Academy’s high bar for parental engagement. This sets the stage to strive for—and mostly achieve—consistent and high levels of academic achievement “at scale” among low-income children of color, who would otherwise be lost to the dull hum of mediocrity in zoned neighborhood schools...."

Robert Pondiscio, "The Secret of a Charter School’s Success? Parents,"Wall Street Journal, September 6, 2019, https://www.wsj.com/articles/the-secret-of-a-charter-schools-success-parents-11567777805

The Secret of a Charter School’s Success? Parents

Charter schools are a boutique phenomenon in American education, educating a mere 6% of U.S. school children. But they attract a disproportionate amount of attention—and controversy—because of their unique place in our education ecosystem. Public, tuition-free schools open to all students, but operated independently of school districts, they offer a Rorschach test revealing how one feels about U.S. public education at large. They can be perceived either as engines of innovation and an indispensable means to rescue children from failing neighborhood schools, or as an existential threat draining away resources—both money and engaged families—from traditional public schools.

Collectively, charter schools educate 3.2 million children in 7,000 schools in 43 states and the District of Columbia. None are more polarizing than New York City’s network of about 50 Success Academy schools, which serve 17,000 students—94% of whom are from minority backgrounds—under their visionary and lightning-rod leader, Eva Moskowitz. Most are less than a decade old, and all of them are exceptionally high performing. In a city where less than 40% of black and Hispanic children test at proficiency for reading or math, 90% of Success Academy’s students of color passed the most recent state reading test. Virtually all of them—over 98%—did so in math.

Test results should not be the sole measure of school quality, but they’re how we often keep score. By that standard, there’s no such thing as a bad Success Academy school. Its very “worst” campus saw 85% of its students pass last year’s reading test, and in math the worst was 92%—a level of quality and consistency unmatched by any other large charter school network in the U.S.

Success Academy does something else that’s unique and mostly unnoticed, but it creates the conditions that make these results possible. By law, oversubscribed charter schools must admit students by lottery. Success Academy has roughly six applicants for every seat, which gives the appearance of a randomly selected student body. But it exercises unusual influence over which students end up actually enrolling. In the end, the chances of an applicant being offered a seat appear to be closer to 50/50 than one-in-six.

Parents who win the lottery, and even those whose children are only on the wait list, must attend a series of mandatory meetings and complete various administrative steps for their applications to remain “active” between the April lottery and the start of school in August. Those who falter fall away.

At every step, school leaders aggressively preach to prospective parents about their no-nonsense culture and the expectation that parents come with eyes wide open, fully committed to Success Academy’s program and policies, including strict behavior codes, school uniform compliance, supervising homework, reading with children every night and recording what’s read in a log. Parents are warned repeatedly in unsparing language, “Success Academy may not be for you.” Significantly, the schools offer no transportation or after-school programs, a potential deal breaker for working single parents or those without the support network to pick up and drop off their children every day.

This process, whether by happenstance or design, yields a parent body comprised largely of the most motivated parents and those with the organizational skills and resources to meet Success Academy’s high bar for parental engagement. This sets the stage to strive for—and mostly achieve—consistent and high levels of academic achievement “at scale” among low-income children of color, who would otherwise be lost to the dull hum of mediocrity in zoned neighborhood schools.

To deny low-income families of color the ability to self-select into safe and well-run schools with high expectations is to impose mediocrity on them.

This seems unfair—except for the fact that the ability to self-select into a well-run, high-performing school is unremarkable and unquestioned among affluent Americans. When well-off parents pay for their children to attend a private or religious school, or when they move into high-income ZIP codes where inflated home prices and eye-popping property taxes are de facto tuition for excellent “public” schools, they are making the same decision as the low-income parents drawn to Success Academy. Both groups are voting with their feet and committing their own resources—money or time—to ensure that their children go to school with the children of similarly engaged and motivated parents.

To deny low-income families of color the ability to self-select into safe and well-run schools with high expectations is to impose mediocrity on them, ostensibly for the public good. It is a burden that no affluent family is asked or expected to bear. Ms. Moskowitz insists that even if she were allowed to, she would not screen and handpick applicants instead of admitting families by lottery. “I wouldn’t do it,” she told me, “because I don’t think I could tell who they are.” Perhaps not, but she has created a mechanism for those families to identify themselves.

Ms. Moskowitz’s many critics will look at the small but non-trivial hurdles parents must clear as proof that she is not running great schools, merely a sorting mechanism. But this ignores what’s most remarkable about Success Academy: Its schools don’t just match those of affluent suburban districts but easily outperform them. Working with self-selected families under careful conditions, Ms. Moskowitz hasn’t merely closed the achievement gap. She has reversed it.

The politics of education reform require that we be less than candid about all of this self-sorting, but the upshot for rich and poor alike is clear: School culture and parent buy-in matter. The brand of education pioneered by Success Academy may indeed be “not for everyone,” but its schools are well run, not the joyless and militaristic hothouses critics imagine. They serve much the same role as Catholic schools did for previous generations of striving New Yorkers. Success Academy suggests the upper limits of what is possible when a critical mass of active and engaged families of color, who happen to be poor, are given permission to exercise the same degree of choice as affluent families.

But this all must be done sotto voce. One former Success Academy school leader whom I interviewed struck a philosophical tone. “Is it really such a bad thing that this is basically an elite private school that admits by lottery?” he asked. “It’s the first time folks in the inner city have had that chance.”

It’s not a bad thing. The disparity of opportunity afforded to rich and poor Americans is what must change. The privileged are unfettered in their pursuit of an excellent education for their children; the rest get “equity.” Worse, we are forced to be dishonest in arguments both for and against charter schools, resorting to aspirational, politically pleasing narratives about what it takes to improve outcomes for disadvantaged children. It’s time to stop airbrushing parents out of the picture and to acknowledge the sometimes uncomfortable truth that their role is indispensable.