Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, October 31, 2019

AI Summary. The authors estimate that rising incomes among the wealthy have driven gentrification and higher downtown housing prices, widening the welfare gap between the 90th and 10th income percentiles by 2.3 percentage points. Residents at the 10th percentile lost about 2.5% in well-being from higher rents and less valued amenities, while wealthier households' welfare was little changed.

Victor Couture, Cecile Gaubert, Jessie Handbury and Erik Hurst National Bureau of Economic Research
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Urban income study: Downtown housing costs driven by top earner influx; welfare gap btw 90th/10th percentiles widened 18% points (1990-2013). Higher-income residents’ spatial preferences amplify inequality

Does gentrification driven by rising top incomes reduce poorer residents' welfare?

Core argument: Urban spatial sorting widened the welfare gap between the 90th and 10th income percentiles by 2.3 percentage points from 1990 to 2013, a period when the income gap between those percentiles grew by 18 percentage points.

Rising incomes among the wealthy have significantly contributed to urban gentrification, leading to increased housing prices in downtown areas. This spatial sorting has resulted in a 2.3 percentage point increase in welfare differences between the 90th and 10th income percentiles from 1990 to 2013. The income gap between these percentiles grew by 18 percentage points during this period. Poorer residents, particularly those at the 10th percentile, experienced a 2.5% reduction in well-being due to higher rents and less valued amenities. Meanwhile, the welfare of wealthier households remained largely unchanged, as increased amenities offset the impact of rising house prices. This dynamic underscores the understated welfare impacts of income inequality when spatial sorting is overlooked, highlighting the need for targeted policy interventions to address these disparities.

Takeaways by Macro Roundup® AI

  1. Urban spatial sorting widened the welfare gap between the 90th and 10th income percentiles by 2.3 percentage points from 1990 to 2013, a period when the income gap between those percentiles grew by 18 percentage points.
  2. Households at the 10th income percentile experienced a 2.5% reduction in well-being from higher rents and less valued amenities, while welfare of wealthier households remained largely unchanged as added amenities offset rising house prices.
  3. Rising incomes among the wealthy contributed to gentrification and higher downtown housing prices, and ignoring spatial sorting understates the welfare effects of income inequality.

new Hurst's NBER, low skilled workers are unable to pass though to employers an uptick in housing prices and are thus worse off after rents

"....In order to explore the link between rising incomes at the top of the income distribution and urban gentrification, we write down a spatial model of a city with heterogeneous agents and nonhomothetic preferences. We quantify the model using detailed location and income data, at the tract level, on the the top 100 CBSA's in the US. We then use the quantified model to tease out how much of the change in spatial sorting over time can be plausibly traced back to changes in the income distribution, tilted towards higher incomes. In the model, as the rich get richer, their increased demand for urban amenities drives up housing prices in downtown areas, where the development of these amenities is fueled by economies of density.The poor are either displaced or end up paying higher rents, making them worse off.Our preliminary estimates suggest that increases in the incomes of high income individuals was a substantive contributor to increased urban neighborhood change during the last 25 years within the U.S. and that the neighborhood change resulting from the increased incomes of the rich did, in fact, make poorer residents worse off. We explore possible policy responses to the rise in gentrification,and find that policies that contain gentrification seem to only lead to a very modest mitigation of the increase in well-being inequality, which could arguably be targeted more efficiently by direct redistribution....One of the paper's main findings is that, because of externalities imposed by the in-migration of the rich, welfare estimates of increased income inequality are understated when spatial sorting responses are ignored. Preliminary estimates suggest that welfare differences between those at the 90th percentile of the income distribution and those at the 10th percentile of the income distribution increased by an additional 2.3 percentage points once accounting for the changing nature of spatial sorting of the rich into downtown urban areas during the 1990 to 2013 period. As way of comparison, in our sample of large cities, the measured income gap between the 10th and 90th percentiles of the income distribution increased by about 18 percentage points during this time period. Moreover, we are finding that the resulting neighborhood change within downtown areas in response to the rising incomes of the rich reduced the well-being of those at the 10th percentile of the income distribution by about 2.5 percent, in consumption equivalent terms....In particular, as the rich got richer, they moved into downtown urban areas making the poor worse off.The welfare for households at the 90th percentile of the income distribution is essentially unchanged from the associated spatial sorting response. In particular, their welfare only fell by -0.25 percentage points. As they move into downtown areas, amenities which they value endogenously respond making them better off. House prices increase making them slightly worse. These two effects roughly cancel out for higher income households. Households at the 10th percentile of the income distribution, however, are made worse off in absolute terms. Specifically, households at the 10th percentile have 2.6 percentage points lower utility from the movement of higher income individuals into urban areas as a response to their rising incomes. Their rents are increasing downtown and while amenities are increasing, they do not value those amenities as much..."
Victor Couture, Cecile Gaubert, Jessie Handbury and Erik Hurst, "Income Growth and the Distributional Effects of Urban Spatial Sorting," October 19, 20919, National Bureau of Economic Research, August 2019, https://www.nber.org/papers/w26142

Friday, November 1, 2019

AI Summary. The labor force participation rate, adjusted for shifts in the population's age structure, has surpassed its 1999–2000 average, indicating more people are working or seeking work than demographic trends alone would predict.

Ernie Tedeschi @ernietedeschi
Date Posted:
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Demographically-Adjusted LFPR Above 1999-2000 Average.

Is labor force participation stronger than age trends predict?

Core argument: The demographically-adjusted Labor Force Participation Rate has surpassed its 1999–2000 average, with the adjustment accounting for changes in population age structure.

The demographically-adjusted Labor Force Participation Rate (LFPR) has surpassed its 1999-2000 average, indicating a significant shift in workforce dynamics. This adjustment accounts for changes in population age structure, providing a clearer picture of labor market engagement. The increase suggests that more individuals are participating in the labor force than would be expected based solely on demographic trends. This trend has important implications for economic policy and planning, as it reflects a more robust labor market than traditional metrics might suggest. The rise in LFPR could influence GDP growth projections and inform decisions on interest rates and employment policies. Understanding these dynamics is crucial for economists and policymakers aiming to foster sustainable economic growth.

Takeaways by Macro Roundup® AI

  1. The demographically-adjusted Labor Force Participation Rate has surpassed its 1999–2000 average, with the adjustment accounting for changes in population age structure.
  2. More individuals are participating in the labor force than demographic trends alone would suggest, pointing to a more robust labor market than traditional metrics indicate.
  3. The rise in the demographically-adjusted participation rate carries implications for GDP growth projections and for decisions on interest rates and employment policy.

Good morning, Ernie's demographically-adjusted LFPR is now above it's 1999-2000 levels!

Demographically-adjusted LFPR: Extended Excerpt Image 1


Demographically-adjusted LFPR: Extended Excerpt Image 2

Ernie Tedeschi, "Demographically-adjusted LFPR," November 1 2019, https://twitter.com/ernietedeschi/status/1157274423508000769