Macro Roundup

"... Stuyvesant high school... Of the 895 places available last year, only seven (or 0.8%) were offered to black pupils (in a district where 25% of pupils are black). Asian-Americans do far better in the entrance exam and are 73% of the school population—or four times their share of the pupil population in the district...."

Economist Staff, "A battle over gifted education is brewing in America,"The Economist, January 9, 2020, https://www.economist.com/united-states/2020/01/09/a-battle-over-gifted-education-is-brewing-in-america

"..This is the new class war. Forget the familiar three-way social diagram, with a big middle class bracketed on either end by a small upper class and small lower or impoverished class. The deepest cleavage in Western democracies yawns between college-educated managers and professionals—a third of the population, at most—and the majority who lack college educations. The new class divide is manifested in striking cleavages along the lines of geography, family relationships and politics...."

Michael Lind, "Saving Democracy From the Managerial Elite,"Wall Street Journal, January 10, 2020, https://www.wsj.com/articles/saving-democracy-from-the-managerial-elite-11578672945
Saving Democracy From the Managerial Elite

The ongoing turmoil in U.S. politics is part of a larger political crisis that is shattering old alignments of left and right in North America and Western Europe. On both sides of the Atlantic, embattled establishments are besieged by populist insurgents. The rebellion takes different forms in different countries—the election of Donald Trump in the U.S., Brexit in the U.K., the revolt of the yellow vests in France. But the underlying dynamic is the same: the revolt of alienated, mostly but not exclusively native and white working-class voters against post-national metropolitan elites.

This is the new class war. Forget the familiar three-way social diagram, with a big middle class bracketed on either end by a small upper class and small lower or impoverished class. The deepest cleavage in Western democracies yawns between college-educated managers and professionals—a third of the population, at most—and the majority who lack college educations. The new class divide is manifested in striking cleavages along the lines of geography, family relationships and politics.

The major geographic divide in Western democracies is not between urban and rural areas but between expensive hubs or urban cores where professionals and immigrant service workers cluster, on the one hand, and exurbs and satellite towns on the peripheries of metro areas, where most working class people find jobs and low-cost housing.

Credentialed professionals are the most likely to move long distances to pursue careers in hub cities that specialize in particular sectors—Silicon Valley in tech, New York and London in finance, Los Angeles in entertainment. But it is a snobbish mistake to assume that people in “left behind” regions should simply “move to opportunity.” Why should members of the working class move? The jobs that are being created in the greatest numbers in the U.S., including home health aide, retail clerk and restaurant worker, do not require college degrees and can be done almost everywhere.

Moreover, members of the working class are more likely to depend on relatives for child care and elder care, unlike affluent professionals, who can pay nannies or other child care or elder care workers, many of them low-wage immigrants. As Quoctrung Bai and Claire Cain Miller noted in a 2015 article in the New York Times, the average American lives within 18 miles of her mother, and 37% of Americans live in their hometowns, apart from periods of military service and education. More than half live in the states in which they were born.

The class divide is most visible in politics. Between 2010 and 2018, whites with a college degree fell from 40% to 29% of Republican voters; Democrats now win an overwhelming share of the country’s most highly educated counties. Similarly, in predicting a vote for Brexit in the U.K. in 2016, lower educational attainment was more important than race or ethnicity.

Unwilling to admit that the center-left has been largely captured by the managerial elite, many pundits and academics on the left insist that mindless bigotry, rather than class interests, explains the attraction of many working-class voters to populist parties that promise to restrict trade and immigration. But it is just as rational for workers to prefer a seller’s market in labor as it is for employers to prefer a buyer’s market in labor. Blue-collar workers who have abandoned center-left parties for populist movements bring with them the historic suspicion of large-scale immigration that was typical of organized labor for generations.

And as MIT economist David Autor and his colleagues have shown, voters in the U.S. regions hit hardest by Chinese import competition were the most likely to favor Donald Trump or Bernie Sanders in 2016. Strict environmental regulations, which impose few costs on the urban elites, can threaten the livelihoods and lifestyles of workers in the exurban heartlands, like the French yellow vest protesters who rebelled against a tax on diesel fuel intended to mitigate climate change.

The new class war is very real—and the managerial class is winning. A few decades ago, corporate managers, politicians and university professors had distinct subcultures. No longer. What we might call “woke capitalism” represents a fusion of the three elites at the commanding heights of the economy, the culture and politics; they increasingly constitute a single conformist caste.

This newly consolidated ruling class is best described as “liberaltarian,” combining moderately libertarian views in economics with cultural progressivism in values. From its citadels in a few big cities, this oligarchy periodically notifies the working-class majority what values and opinions about sex, immigration and other topics it must immediately adopt without debate, on pain of being blacklisted by the private sector, prosecuted by the government or censored or erased by the media.

Many elites in history have justified their largely hereditary privileges by a doctrine of noblesse oblige, which imposes special military or economic obligations on members of the ruling class. But today’s managerial elite is different. The pretense that it springs solely from “merit”—from individual talent and hard work—creates a false sense of superiority for its members, stoking resentment among their fellow citizens, who are defined as failures in fair competition.

The managerial overclasses of the West understand that the policies they prefer on trade, immigration, entitlements and other issues are unpopular and can be threatened by voter rebellions. That is why for the last few generations they have sought to remove decision-making authority from legislatures, which are somewhat accountable to working-class majorities, and deliver it to administrative agencies, courts and transnational institutions such as the European Union.

This transfer of power permits establishment politicians pressed by working-class voters to claim that they can do nothing because their hands are tied by courts and treaties. As a result, casting votes is like putting coins into a broken vending machine. When there is no response, frustrated people tend to kick the machine.

In his 1941 global best seller “The Managerial Revolution,” James Burnham, a disillusioned Marxist, argued that old-fashioned, small-scale bourgeois capitalism was being succeeded not by socialism but by a new kind of society dominated by professional managers—not just in corporations but also in the public and nonprofit sectors. Burnham warned of the potential for collective tyranny by this managerial elite over the working-class majority.

Fortunately, his nightmare vision did not come true. In the U.S. and Western Europe after World War II, the power of the managerial minority in the economy, the culture and politics was limited by a variety of extragovernmental checks and balances. Unions checked the power of private sector managers. Influential churches and civic organizations, through mass organizations like the National Legion of Decency, limited the cultural power of the commercial mass media. And parties accountable to ordinary voters through local political machines checked the power of national politicians and elite bureaucrats.

No longer. Today, private sector unions have been weakened and, in the U.S., driven into virtual extinction. In the culture, the elite university has replaced the church or synagogue as the source of moral ideas and moral authority for a growing number of Westerners, particularly in the elite. And the urban political machines and county courthouse gangs are long gone, replaced by parties that are little more than marketing labels fought for by politicians and their billionaire donors.

Having lost the tribunes who once represented them—the political machine bosses, the union officials and, yes, the censorious church ladies—and seeing their traditional values stigmatized by metropolitan elites, many in the working classes of the West have grown alienated from politics. Some have lost interest in voting. Others, however, have rallied behind populist tribunes of the people, themselves often members of the elite, like Donald Trump and Boris Johnson.

Successful populists can channel legitimate grievances. But populism is a symptom of a sick body politic, not a cure. History shows that populist demagogues are less likely to reform the system than to sell out to the existing establishment or build corrupt personal political machines, steering government patronage to supporters. When a society is trapped in a vicious circle in which patronizing oligarchs alternate with populist hucksters, economic growth and the rule of law are endangered.

What can be done? Mere policy reforms—a bit of trade or immigration restriction here, a bigger child tax credit or health care subsidy there—are not enough to bridge the widening divide between the ruling managerial elite and excluded working-class citizens, native and immigrant alike. Nor will mere political realignment be sufficient, because elected officials have lost or ceded so much policy-making power to unaccountable executive branch bureaucrats, judges and transnational agencies.

Ending the new class war in the U.S. and Europe will require a new era of genuine power-sharing by today’s power-hoarding managerial overclass. The trade unions, powerful religious organizations and local political machines of the 20th century will not return. Their 21st-century equivalents are needed, in the form of mass membership organizations accountable to working-class people rather than to elite donors or granters. Only genuine bottom-up institutions can allow working-class citizens to exercise countervailing power against the elite by pooling the only resource they have: their numbers.

In the political realm, ending the new class war will require strengthening national, state and local legislatures. The executive and judiciary branches tend to be staffed by the social elite and are responsive to its interests and values. Ordinary people are most likely to have influence in legislative assemblies, which to some degree reflect the actual diversity of the U.S., Britain, France and other western nations, rather than mirroring the graduating classes of the Ivy League, Oxbridge or the Grandes Ecoles.

In addition to restoring powerful legislatures, renewing federalism can empower working-class citizens. Basic civil rights should be the same for all, but many decisions that are now made at the national level, where elite influence is greatest, can be made just as well at the regional, state, urban and even neighborhood level, with more opportunities for popular input.

But it is not enough for the non-college-educated majority of all races to regain lost influence in government if the managerial elite can pursue its narrow interests and impose its particular vision by exerting its power in the economy and culture. In the 20th century, trade unions balanced the power of corporate managers in the workplace while religious institutions checked the domination of the culture by secular progressives. As a rule, conservatives do not like organized labor, and progressives do not like organized religion. But the decline of these institutions means the decline of popular power, because most citizens are employees, and the working class is more likely to be religious than the college-educated elite.

To reduce the sense of powerlessness that populist demagogues exploit, conservatives must acknowledge the legitimacy of collective bargaining, in the private sector if not in the public sector, while progressives must accept that religious diversity requires respect for fellow citizens who belong to traditional religious and moral subcultures. In a modern economy that is naturally dominated by large firms, it is absurd to pretend that working-class employees have any bargaining power as individuals. It is just as absurd to pretend that devout Christians, Jews and Muslims can find alternatives to social media platforms and public school monopolies that stigmatize their creeds and mock their values.

In the interest of inter-class peace and creedal coexistence, both labor markets and cultural institutions require a degree of regulation. Collective bargaining to set basic wages and workplace rights can take forms other than the failed American system of enterprise bargaining. There could be, for example, bargaining among representatives of all firms and employees in particular industries, occupation-specific wage boards or labor representation on corporate boards. As for the media and education, institutionalized consultation with religious institutions and other organizations represented on government oversight commissions could be part of a new Fairness Doctrine like the one that governed TV and radio in the 20th-century U.S.

The details of a settlement or peace treaty to end the new class war will differ among Western democracies. The great need is for a new democratic pluralism that incorporates the excluded and empowers the powerless. Today’s angry voters do not need handouts or diversionary culture wars. They need power and respect.

interesting factoid from BEA, during the 1980's illegal drugs accounted for 5% of total personal consumption expenditure in US.

"....In 2017, the level of nominal GDP rises by more than 1 percent when illegal activity is tracked in the U.S. National Income and Product Accounts (NIPAs). By category, illegal drugs add $111 billion to measured nominal GDP in 2017, illegal prostitution adds $10 billion, illegal gambling adds $4 billion, and theft from businesses adds $109 billion. Real GDP and productivity growth also change. Real illegal output grew faster than overall GDP during the 1970s. As a result, tracking illegal activity ameliorates the 1970s slowdown in measured productivity growth and partially ameliorates the post-2008 slowdown in measured productivity growth.... Chart 1 shows that expenditures on many different illegal drugs grew rapidly after 1965 and peaked around 1980. In total, this paper calculates that illegal drugs accounted for 5 percent of total PCE in 1980. This high expenditure share is consistent with contemporaneous reports. For example, a Washington Post article estimated that Americans bought $35 billion of cocaine(O’Toole 1981)....."

Rachel Soloveichik, "Including Illegal Activity in the U.S. National Economic Accounts," Bureau of Economic Analysis, January 2020, https://www.bea.gov/system/files/papers/WP2019-4_4.pdf

“…The bottom line: The number of people crossing the border fell for the seventh straight month in December — the first time that number of border crossings has fallen from November to December since 2012, according to new Customs and Border Protection (CBP) data….”

More than 50,000 Central American asylum seekers have already been forced to wait out their legal cases in Mexico under the Migrant Protection Protocols (MPP) — "Remain in Mexico." The program is expected to expand.

Between the lines: Even the thousands who have waited out their time in Mexico for a chance at asylum face steep odds of ever gaining legal passage into the U.S.

So far, just 117 people impacted by MPP since January of last year have been granted asylum by an immigration judge, according to immigration court data collected by Syracuse University's Transactional Records Access Clearinghouse.
More than 15,000 have been given orders of removal.

The bottom line: The number of people crossing the border fell for the seventh straight month in December — the first time that number of border crossings has fallen from November to December since 2012, according to new Customs and Border Protection (CBP) data.

Last month, just 40,620 migrants were arrested or turned away at the southern border — down from a peak of 144,116 in May of last year.
What to watch: Federal courts could still send Trump's wall of policies and programs tumbling, which some experts and officials fear could lead to another surge at the border in 2020.

What's next: Trump continues his slow campaign for a physical wall. The WashPost reports that he's "preparing to divert an additional $7.2 billion in Pentagon funding for border wall construction this year, five times what Congress authorized."

The administration planned to begin removing Mexican asylum seekers to Guatemala, although the plan is temporarily on hold after broad backlash, according to Buzzfeed's Hamed Aleaziz.

The final details of the Honduras agreement will be implemented soon, DHS acting secretary Chad Wolf said last Thursday. The Honduran Foreign Relations minister has said the country agreed to accept migrants from Mexico, Brazil, Nicaragua, Guatemala and El Salvador, La Prensa reports.

Officials could begin kicking Mexican, Central American and South American asylum seekers to Honduras or El Salvador as well — even if they are not from there — once the details of those agreements are worked out and put in motion.

Stef Kight, "Trump doesn't need a border wall,"Axios, January 14, 2020, https://www.axios.com/border-numbers-december-immigration-dhs-cbp-dfab0f40-1a6a-46d9-9a34-44f9b52614d4.html

Trump doesn't need a border wall

President Trump has successfully built an immigration wall that has proven impenetrable for tens of thousands of migrants — it's just not the physical one he and others obsess about.

What's happening: The number of attempted border crossings is falling, and denial rates are climbing. The very nations most migrants flee from are now the nations where asylum seekers are being sent.

The big picture: Over the last few months, the Trump administration has begun implementing its asylum agreements with Central American nations, which could help keep asylum seekers out of the U.S.

They're sending Hondurans to Guatemala — the origin nation for the highest number of migrants who reached the U.S. border last year.

New Ed Lazear paper using OECD data (including hours worked) implicitly supports that idea the labor markets have segmented and high skill (he uses education as a proxy for skill) workers are increasingly servicing other high skilled workers, "..heart of this research, is to show thataggregate productivity masks a key part of the story. The productivity distribution has not merely shifted. It has stretched out. Productivity among more educated workers has grown more rapidly than productivity of less educated workers.This is consistent with growing wage dispersion, where the wages of highly educated, high wage workers have pulled away from wages of less educated, low wage workers..."

“…. heart of this research, is to show that aggregate productivity masks a key part of the story. The productivity distribution has not merely shifted. It has stretched out. Productivity among more educated workers has grown more rapidly than productivity of less educated workers. This is consistent with growing wage dispersion, where the wages of highly educated, high wage workers have pulled away from wages of less educated, low wage workers..."

His core finding,

“…. The commonality of the pattern across countries suggests that global rather than institutional factors are at work. The most obvious candidate is the often discussed biased nature of technological change that has benefitted disproportionately highly skilled workers.....It is difficult to observe productivity at the individual level, but industry data on productivity can be linked with demographic and data on education. This permits an examination of changes in productivity industries that are dominated by highly educated workers versus those dominated by less educated ones. By doing this, it is possible to determine whether the productivity distribution has spread out over time consistent with the changing wage distribution..... Cross-industry data provide evidence that rather than merely displacing upward, the entire distribution has changed shape. The upper tail of the distribution has moved away from the lower tail. The rise in productivity of the high skilled, typically highly educated workers, relative to the low skilled typically less educated workers, has generated an increase in skill disparity, which is consistent with observed increases in inequality over time....There are a number of potential causes of the spreading out of the productivity distribution.... One is the frequently referenced skill-biased technological change that postulates that changes in technology have affected the productivity of highly educated workers more than less educated ones..... Another is that trade has increased in a way that enhances the productivity and wages of the most skilled workers...A third possibility is that schools in the United States may have become more proficient over time in educating the better students relative to the weaker ones.... The main conclusion is that changes in productivity at different educational levels are more than sufficient to account for changes in the wage distribution. The college-high school premium in wages has increased by much less than the college-high school premium in productivity has increased over the past almost-three decades. These changes are consistent with a number of possible causes, which include skill-biased technological change, trade patterns that have altered prices in a non-neutral fashion, and changes in human capital production technologies that favor tertiary over primary and secondary education. The analysis cannot address the specific cause, nor does the fact that non-neutral productivity growth can account for growing skill differences lessen the problem...”

He hypothesis these returns could be caused by several factors but doesn’t attempt to attribute causality

“…The most obvious illustration of the correlation between wages and productivity at the aggregate level comes from cross country comparisons. OECD data on wages and productivity across countries make immediately apparent that the two are linked. Figure 2, which plots the 2017 average wage against labor productivity (the last year for which data are available),defined as output in US dollars per hour worked, reveals the close co-movement of wages with productivity. Countries like Switzerland, Norway, Denmark and Luxembourg all have both high productivity and high wages. At the other end, countries like Mexico, Chile, Latvia, Poland and Estonia have low productivity and low wages.The correlation coefficient between log wage and log productivity in 2017 is.84…The most important finding is summarized in figure 9. Forty 3-digit industries for which complete productivity, wage and education data are available over the period 1989-2017 are split into two groups. The top and bottom groups are comprised of industries that rank in the highest and lowest 50% based on average education level in the industry in 1989. The left two bars compare productivity growth in logs for high and low education industries. Productivity in the top education industries grew by over.34 log points between 1989 and 2017. Productivity in the bottom education industries grew only.20 log points during that same 30 year period. The right two bars compare wage growth in those same industries. The same pattern holds, but not with the same force. Wages in highly educated industries grew by.26 log points while those in the low education half grew by.24 log points during the 1989-2017 period. The difference in productivity between the groups is more pronounced than the difference in wages. This simple comparison suggests that productivity growth differences between groups is more than sufficient to explain the better wage growth that more educated workers enjoyed as compared with less educated workers….”

This is supported by his Figure 2 figure for the cross country comparisons, which mirrors our relationship btw skill and hourly wage (which was the OECD math/hourly wage data) which we used in the chapter and Figure 9 is his charting of the change in the relationship btw productive and wages in the US by skill level

"....There is compelling evidence that productivity and wages are linked. The pattern is clear in cross-country comparisons and for virtually all individual countries over time. Furthermore, all parts of the income distribution seem to benefit from increases in aggregate productivity. The mean wage rises as does the wage of the lowest wage earners and highest wage earners when productivity increases. It is also true that wages have spread out over time in most OECD countries where data are available. The ratio of wages of the 90th percentile worker to the median worker has risen in 15 out of 17 countries between 1997 and 2015. In the United States, this is apparent not only in percentiles, but in returns to education. The education coefficient in log wage regressions is significantly higher in 2017 than it is in 1989…”

He uses several series as proxies for productivity, though he does note in terms of individuals, “It is virtually impossible to measure individual productivity except in some firm-based data where measures of output are readily available”For outside the US“…The productivity data are from the OECD Compendium of Productivity Indicators….”Where the “GDP per hour worked” series lives. For the US he uses BLS’s “Nonfarm Business Sector: Real Output Per Hour of All Persons” At the industry level for the US he uses data from The Division of Industry Productivity Studies (DIPS) in the Office of Productivity and Technology at the Bureau of Labor Statistics who have an industry series “Labor Productivity and Costs Measures” which has value added per hour in absolute terms and a productivity index.

Good Morgan Stanley Chart (Vis Bloomberg) implicit support forAutor/Dorn/Katz/Patterson/Van Reenen’s conclusion that,".... While the prediction that rising market toughness could generate an increase in concentration and the profit share may seem counterintuitive, the ambiguous relationship between concentration, profit shares, and the stringency of competition often arises in industrial organization...".

Justina Lee and Luke Kawa, "Big Companies Have Never Dominated the S&P 500 Like They Do Now," Bloomberg, January 13, 2020, https://www.bloomberg.com/news/articles/2020-01-13/big-companies-have-never-dominated-the-s-p-500-like-they-do-now

“…As the S&P 500 Index once again tests its record high, the top five publicly-traded American companies now make up a record 18% share of the benchmark’s capitalization -- higher than the tech bubble, Morgan Stanley said on Monday. U.S. large-cap equities have jumped to near the highest in more than 10 years against small capsin the early days of this new decade. Companies that make the most money overseas are near the highest since April versus domestic peers, Goldman Sachs baskets show….”

Ernie's updated his demographically-adjusted LFPR on the new jobs numbers; both employment and participation rates rose. Prime age EPOP made a new high and his demographically adjusted LFPR remains within 20bp of its 1999-2000 average.

Ernie Tedeschi, "Demographically-adjusted LFPR," January 10 2020, https://twitter.com/ernietedeschi/status/1215642083857510401