Macro Roundup

Matthew Denes, Sabrina Howell, Filippo Mezzanotti, Xinxin Wang, Ting Xu, "Investor Tax Credits and Entrepreneurship: Evidence from U.S. States," National Bureau Of Economic Research, August 2020, https://www.nber.org/papers/w27751

12 countries and more than 30 states across the U.S. have implemented tax credits for angel investors…First, we find that angel tax credits significantly increase state-level angel investment. This increase is connected to a decline in the ex-ante growth characteristics of the marginal startups funded by angels…. We find that angel tax credits increase the number of angel investments by approximately 18%. This effect is amplified when programs impose fewer restrictions and when the supply of alternative startup capital is more limited. Relatedly, angel tax credits increase the number of individual angel investors by about 27%..… Second, we fail to find evidence that these policies had any impact on the real effects that policymakers focus on, such as new business starts or young firm employment. Third, we show that the increase in angel investments is mostly driven by a surge in inexperienced, young, and new investors, with no change in professional angel activity…we document that these new investments primarily flow to low-growth potential firms, measured by pre-investment employment, employment growth, and founder experience. Average ex-ante growth characteristics of angel-backed firms also deteriorate after the implementation of angel tax credits. A decline in quality may be expected in response to a positive funding shock if relaxing financial constraints yields worse performing firms to be financed at the margin…and does not imply that the investments are not privately or socially valuable. However, the large declines raise concerns about the ability of angel tax credits to reach high-growth startups and have a significant impact on the local economy...”

Interesting they also find the tax credits increase investment from new investors, so they do increase the amount of risk seeking capital, but these less skilled investors/capital have no observable effect of entrepreneurial activity.

Great new paper finds that angel tax credit have no impact on professional investor’s decision to invest in a startup, as they look at the “home run” potential, indeed they generally don’t’ even access them“…We find that angel tax credits are a relatively unimportant factor for professional investors when deciding whether or not to invest in a startup. Instead, experienced investors focus on whether or not a startup has the potential to be a home run.Theseinvestors tend not to use tax credits even when they are available because of information, coordination, and administrative costs..”

Wojciech Kopczuk and Eric Zwick, "Business Incomes at the Top," National Bureau Of Economic Research, August 2020, https://www.nber.org/papers/w27752

Majority of young adults 18-29 live with parents, though this counts college students as living with parents“…In July, 52% of young adults resided with one or both of their parents, up from 47% in February, according to a new Pew Research Center analysis of monthly Census Bureau data. The number living with parents grew to 26.6 million, an increase of 2.6 million from February. The number and share of young adults living with their parents grew across the board for all major racial and ethnic groups, men and women, and metropolitan and rural residents, as well as in all four main census regions. Growth was sharpest for the youngest adults (ages 18 to 24) and for White young adults….”

Richard Fry, Jeffrey Passel and D'Vera Cohn, "A majority of young adults in the U.S. live with their parents for the first time since the Great Depression," Pew Research Center, September 4, 2020, https://www.pewresearch.org/fact-tank/2020/09/04/a-majority-of-young-adults-in-the-u-s-live-with-their-parents-for-the-first-time-since-the-great-depression/

Javier de la Fuente, Gail Davies, Andrew Grotzinger, Elliot Tucker-Drob and Ian Deary, "A General Dimension Of Fenetic Sharing Across Diverse Cognitive Traits Inferred From Molecular Data,"Nature Human Behaviour, September 7, 2020, https://www.nature.com/articles/s41562-020-00936-2

Wow, newNaturestudy finds that the genetic g factor model closely approximated the genetic covariance structure among cognitive tests. Paper says the genetic g factor accounted for 58.36% (SE = 4.84%) of the genetic variance in the seven cognitive traits.

“…The importance of our results may be seen by contrasting the results of trails-B with RT. Analyses of multivariate genome-wide architecture indicated that, for trails-B, 95% of the genetic variance is accounted for by genetic g and only 5% is specific to trails-B. Moreover, all seven loci for trails-B have previously been reported in GWAS of other cognitive phenotypes…. and four of these were implicated as relevant for genetic g at non-significant levels of heterogeneity. In contrast, for RT, analyses of multivariate genome-wide architecture indicated that 9.5% of the genetic variance is accounted for by genetic g while 90.5% of the genetic variance is specific to RT.Many of the 39 loci associated with RT have not been found in univariate GWAS of other cognitive traits…and only four were implicated as relevant for genetic g at non-significant levels of heterogeneity. Therefore, when identifying loci associated with performance on an individual cognitive test, it is essential to know the extent to which its associations are broadly related to genetic g or specifically related to the phenotype under investigation…”

Here they discuss RT (Reaction Time) that you flagged, relative low g variance versus it’s high specific variance

“…Psychometrically, a hierarchical structure of cognitive abilities is commonly agreed, with cognitive tests’ variance accounted for by three different strata of variation (Supplementary Fig. 1), representing (1) each test’s specific variance (s), (2) broad domains of cognitive function (for example, reasoning, processing speed, memory) and (3) g (ref. 5 ). All cognitive tests have some g loading, though this varies from test to test….”

And some of the variance is“…thought to bespecific to that test (its s)…”or the test specific factor.

Pierre Azoulay, Benjamin Jones, J. Daniel Kim and Javier Miranda, “Immigration and Entrepreneurship In The United States,” National Bureau Of Economic Research, September 2020, https://www.nber.org/papers/w27778

“…We use three independent data sets. Our primary analysis uses administrative data to studyall new firms in the United States from 2005-2010 (“administrative data”).Our second analysis studies theU.S. Census Bureau’s 2012 Survey of Business Ownersto examine a representative sample of U.S. businesses and their founders (“representative sample”). Our third analysis studies the Fortune 500 to consider the country’s largest firms and their founders (“Fortune 500”).We describe these data sets here, with additional detail in the appendix…..”

The three datasets

Their conclusion: “….Overall, the entrepreneurial lens suggests that immigrants appear to play a relatively strong role in expanding labor demand relative to labor supply, compared to the native-born population…”

“…First, reflecting existing research, immigrants start firms at higher rates than native-born individuals do….Second, immigrants do not simply start small firms. Rather, they tend to start more firms at every size, compared to U.S.-born individuals. This is the key finding of the paper. There is effectively a “right shift” in entrepreneurship for immigrants, with immigrants playing relatively large roles as employers rather than employees, compared to U.S.-born individuals. Overall, the findings suggest that immigrants appear to “create jobs” (expand labor demand) more than they “take jobs” (expand labor supply) in the U.S. economy.By studying immigrants as both entrepreneurs and workers, one produces a fuller picture of the impact of immigration. The new facts can help resolve existing puzzles where empirical evidence, including natural experiments and longer-run historical analysis, often suggests more positive economic effects from immigration than labor-supply oriented perspectives produce….”

The net effect of this is immigrants appear to create more jobs (expand labor demand) than they take jobs (expand labor supply):

“…Using administrative data, a representative sample, and Fortune 500 data, we present new findings on the size of firms these different founder populations create. Across all three data sets,we find that immigrants present a “right shift” in new venture formation, where immigrants tend to start more firms of each size per member of their population….”

New NBER finds immigrants play an outsized role in American high-growth entrepreneurship versus native born workers:

Cochrane on the risk of rising debt levels (a follow up post of his is attached) he notes that the bond market did not give advance warning of inflation during the 1970’s or the disinflation of the 1980s.

My takeaway is he thinks the government might be able to generate inflation if the government keeps spending without raising taxes

“…The danger the US faces, the danger we should repeat and keep in mind, is a debt crisis. We print our own money, so the result may be a sharp inflation that wipes away the value of debt rather than an even more disruptive default, but the consequences will be almost as dire…..Yes, I've warned about this before, and no, it hasn't happened yet. Well, if you live in California you live on an earthquake fault. That the big one hasn't happened yet doesn't mean it never will. No, interest rates do not signal such problems. (Alan Blinder, covering such matters in the Wall Street Journal, "if the U.S. Treasury starts to supply more bonds than the world's investors demand, the markets will warn us with higher interest rates and a sagging dollar. No such yellow lights are flashing.) They never do. Greek interest rates were low right up until they weren’t. Interest rates did not signal the inflation of the 1970s, or the disinflation of the 1980s. Lehman borrowed at low rates until it didn’t. Nobody expects a debt crisis, or it would have already happened….”

Also sent you a follow up post. 1/2

John Cochrane, “Debt Matters,” The Grump Economist, September 4, 2020, https://johnhcochrane.blogspot.com/2020/09/debt-matters.html

John Cochrane, “More On Debt,” The Grump Economist, September 6, 2020, https://johnhcochrane.blogspot.com/2020/09/more-on-debt.html

“…As we look forward, debt/GDP dynamics for the next 20 years are going to be dominated by the primary surplus/deficit, not plausible variation in r-g. The CBO's 10 years of 6-8% of GDP overwhelm 1-2% of r-g.If each crisis continues to ratchet up 10% of GDP deficits per year, more so. The Green New Deal, and large federal assumption of student debts, state and local debts, pension obligations, and so forth would add far more to debt/GDP than decades of r vs. g...”

Cochrane argues that the debt/GDP dynamics of the next 20 years will be dominated by primary surplus or deficit not changes in r versus g. 2/2

Here are CBS’s claims (I used your language describing them as opposed to theirs)

I’ve added in descending order research that refutes or provides context for their claims. Please let me know if this is directionally what you were looking for.

Steve

“….40% can’t cover a $400 expense (fed) disputed…”

We read the Fed report when it was released and pointed out it’s being misrepresented. However Michael Strain refuted it effectively in the Bloomberg op-ed, “…It turns out the claim that nearly half of Americans are a flat tire away from financial crisis is largely based on an inaccurate reading of one survey question. The question comes from theannual“Report on the Economic Well-Being of U.S. Households” by the Federal Reserve. Thereportfinds, in 2018, that 61% of adults would cover a $400 unexpected expense using cash (or its equivalent). Politicians and many in the media seem to be subtracting 61 from 100, and concluding that 39% of people, to use Warren’s phrase, “can’t come up with” the money they’d need to handle this situation….”

CBS News, “Income Inequality, and coronavirus’ economic fallout,” CBS News, September 6, 2020, https://www.cbsnews.com/news/income-inequality-and-coronavirus-economic-fallout/

CBS claims live here:

Kriston McIntosh, Emily Moss, Ryan Nunn and Jay Shambaugh, “Examing The Black-White Wealth Gap,” Brookings, February 27, 2020, https://www.brookings.edu/blog/up-front/2020/02/27/examining-the-black-white-wealth-gap/

Brookings provides some context for driver of the wealth gap btw black and white families with the same income, “…Why are high- and middle-income white families so much wealthier than Black families with the same incomes? We note a few reasons. White families receive much larger inheritances on average than Black families. Economists Darrick Hamilton and Sandy Darity conclude that inheritances and other intergenerational transfers “account for more of the racial wealth gap than any other demographic and socioeconomic indicators.”In addition, the income groups in figure 2 are based on a snapshot of family income, which does not fully capture lifetime income. Black families who make it to the top of the income distribution in a particular year are more likely than white families to drop out of the top in subsequent years, and their respective wealth levels reflect this difference. Likely less important, but still notable, high- and middle-income Black families are more likely than their white counterparts to be called upon to assist family members and neighbors…”

Rakesh Kochhar and Anthony Cilluffo, “How Wealth Inequlaity Has Changed In The U.S. Since The Great Recession, By Race, Ethnicity And Income,” Pew Research Center, November 1, 2017, https://www.pewresearch.org/fact-tank/2017/11/01/how-wealth-inequality-has-changed-in-the-u-s-since-the-great-recession-by-race-ethnicity-and-income/

They are attributing this to Pew’s analysis of SCF data, “… In 2016, the median wealth of white households was $171,000. That’s 10 times the wealth of black households ($17,100)– a larger gap than in 2007 – and eight times that of Hispanic households ($20,600), about the same gap as in 2007. (Asians and other racial groups are not separately identified in the SCF data.)…”

“…Black network 10% of white federal reserve…Hispanic 12% (same source)…”

Amazon’s pre-Covid peak for 2020 2,170.22 on February 19, it’s trough was March 12 1,676.61. Currently it’s 3,182.78 From February to today it’s up 46.65% from trough to today it’s up 89.83%. From the 18thto today it’s up just over 40%.

You are correct the work is benchmarked to March 18th.

“….Net worth of 600 billionaires increased (20%), I suspect they start at the market bottom and not the day before the drop… Bezo net worth up $43.8 B (again probably at the trough)…

https://www.dol.gov/ui/data.pdf

Thomas Stengle, “Covid-19 Impact,” U.S. Department Of Labor, September 3, 2020,

According to Labor Department this checks out, as of mid august 29mm persons were getting UI insurance

“…..29mm collecting unemployment…”

USDA “How Many People Lived In Food-Insecure Households?” USDA Economic Research Service, Accessed September 8, 2020, https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics.aspx

9.5mm adults and 540,000 (.7% of children)lived in households which one of more children experienced very low food security defined as“…In these food-insecure households, normal eating patterns of one or more household members were disrupted and food intake was reduced at times during the year because they had insufficient money or other resources for food…”

If you look at the USDA statistics themselves37.2mm individual were in the broader food insecure households(this is defined as “These food-insecure households obtained enough food to avoid substantially disrupting their eating patterns or reducing food intake by using a variety of coping strategies, such as eating less varied diets, participating in Federal food assistance programs, or getting emergency food from community food pantries”

Paul Roderick Gregory, “If Children Are Hungry In America, It Is The Parents’ Fault,” The Mercury News, July 1, 2013, https://www.mercurynews.com/2013/07/01/hoover-fellow-if-children-are-hungry-in-america-it-is-the-parents-fault/

“…The 20 percent of families that are classified as “food insecure” worry food will run out, substitute cheaper foods, serve unbalanced meals or cut meal sizes at least once in the past 12 months. Such measures are far from the concept of regular hunger that celebrity media ads, sponsored by Feeding America, imply. Meanwhile, the USDA’s specific questions about child hunger are dutifully ignored. They are inconveniently low. The USDA’s most direct measures of child hunger show that around 1 percent of families with children have a child who experienced hunger (skipping meals or not eating for a whole day) at least one day in the last 12 months. This is a far cry from “1 in 5” children going to bed hungry we hear regularly in the media. The USDA’s figures for an incidence of child hunger on an average day show that one tenth of 1 percent of children were hungry on an average day. This adds up to two hungry children per ZIP code.Adult hunger should be higher than child hunger because USDA studies show children are given preference when food is low. The USDA finds, however, that on an average daily basis, one quarter of one percent of all adults do not eat for a whole day due to lack of money. That is 21/2 per thousand….”

Paul Roderick Gregory from Hoover has debunked this myth

“…54mm food insecure (feeding America)…”

His FPMis “..matches President Johnson’s initial standard. Second,these initial 1963 thresholds must be held constant in real terms over time by updating them each year using an unbiased measure of inflation. Third, the metric for evaluating success should include the full array of anti-poverty programs utilized by the government, including in-kind transfers and transfers administered through the tax code. No existing poverty measure meets all three of these conditions. We create a poverty measure, which we refer to as the Full-Income Poverty Measure (FPM), which meets all three of these conditions…”

Obviously Burkhauser finding that poverty rate based on President Johnson’s standards fell from 19.5 percent in 1963 to 2.3 percent in 2017 are also useful. What did Will Rogers say during the depression“We are the first nation in the history of the world to go to the poorhouse in an automobile”

Jeff Larrimore, Jacob Mortenson and David Splinter, “Presence and Persistence of Poverty in U.S. Tax Data,” Federal Reserve Board and Joint Committee on Taxation, February 2020, http://www.davidsplinter.com/LMS_PersistencePoverty_2020.pdf

“….There is substantial mobility in and out of poverty. For example, 41 percent of those in poverty in 2007 were out of poverty in the following year. However, many of those who are poor spend multiple years in poverty or escape poverty only to fall back into it. Of those who were in poverty in 2007, one-third are in poverty for at least half of the years through 2018….”

FRED actually has 41mm, however I think David Splinter’s research that shows the transitory nature of poverty for younger people is a better way to contextualize that number (granted he finds older people who are poor stay poor)

“…38mm in poverty (census)….”

Sarin’s SS paper may also be also useful here, she is showing that the Top 10% (so not top 5%) have around ~ 60% of total wealth with the top 1% accounting about half that with Social Security

Matthew Smith, Owen Zidar and Eric Zwick, “Top Wealth in the United States: New Estimates and Implications for Taxing the Rich,” National Bureau of Economic Research, July 19, 2019, http://ericzwick.com/wealth/wealth.pdf

Smith/Zidar/Zwick agree“…Overall, wealth is very concentrated: the top 1% holds as much wealth as the bottom 90%. However, the “P90-99” class holds more wealth than either group after accounting for heterogeneity. Relative to a top 0.1% wealth share of more than 20% under equal returns, we estimate a top 0.1% wealth share of and find that the rise since 1980 in top wealth shares falls by ….”

“Distribution Of Household Wealth In The U.S. Since 1989,” Distributional Financial Accounts Federal Reserve, Accessed September 8, 2020, https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/

This is directionally correct according to the Fed’s Z1 data the top 10% 68.7% of US wealth with the top 1% holding 31.2%, so presumably 96-99 get you there

“….5% own 2/3s of the wealth (sourced to oddly the NBER)….”

Bruce Meyer and James Sullivan, “Consumption And Income Inequality In The US Since The 1960s,” Center For Economics And Policy Research, January 15, 2018, https://voxeu.org/article/consumption-and-income-inequality-us-1960s

Meyer’s work on consumption inequality is also an effective rebuttal

Sylvain Catherine, Max Miller and Natasha Sarin, “Social Security and Trends in Inequality,” University of Pennsylvania, February 29, 2020, https://papers.ssrn.com/sol3/papers.cfm

Perhaps a better rebuttal is Sarin SS paper that found that wealth inequality has not increased in the past three decades after accounting for social security given she is Summer’s protégé

Gerald Auten and David Splinter, “Income Inequality in the United States: Using Tax Data to Measure Long-term Trends,” December 20, 2019, http://davidsplinter.com/AutenSplinter-Tax_Data_and_Inequality.pdf

Three recent paper’s come to mind that provide context, first the initial Auten/Splinter that found the top.1% income share had gone up, but not nearly as much as Saez suggests it has net taxes.

U.S. Census Bureau, “Income Gini Ratio For Households By Race Of Householder, All Races,” Federal Reserve Bank Of St. Louis, Accessed September 8, 2020, https://fred.stlouisfed.org/series/GINIALLRH

CBS is also citing Census which claims“The Gini index was significantly higher in 2018 than 2017 for the United States”but they are usingMedian Household Income showing.482 for 2017 and.485 for 2018.So that checks, even if we can point to the Household Gini to pushback.

According to FRED the Income Gini Ratio ForHouseholds By Race of Householders, All Racesticked down btw 2017 and 2018 (last year with available data from ) (from Census) from. 489 to.486

“…income inequality at highest level in 50 years Census 2109….”

Michael Strain, “Americans May Be Strapped, But the Go-To Statistic Is False,” Bloomberg, June 4, 2019, https://www.bloomberg.com/opinion/articles/2019-06-04/the-400-emergency-expense-story-is-wrong

Meyer’s finds that the fiscal response to the Covid 19 pandemic lead to a fall in poverty of 1.5 percentage points:

“…The results in Figure 1 indicate that poverty was falling fairly steadily in the period leading up to the pandemic. Between November 2019 and February 2020, poverty fell by 0.9 percentage points. This decline then accelerates once the pandemic hits. Between the pre and post periods poverty fell by 1.5 percentage points (or about 14 percent), and this difference is statistically significant…”

Steve Post

Academic Paper

Government Spending

Business Cycle

Poverty/Crime

Wages/Income

Factoid

Suggusted Tags

Jeehoon Han, Bruce Meyer and James Sullivan, “Income And Poverty In The Covid-19 Pandemic,” National Bureau Of Economic Research, August 2020, https://www.nber.org/papers/w27729.pdf

“…Looking beyond poverty estimates, we also consider how the COVID-19 pandemic affected different points in the distribution of income. In Figure 2 we report estimates of the 10th, 25th, 50th, and 75th percentiles of family income (equivalized to a family with 2 adults and 2 children) for the period from January 2019 to June 2020. Then, in Table 2, we report estimates of the 25th percentile for each month between January and June of 2020, as well as changes in the 25th percentile between the pre-and post-onset of COVID-19 periods. Results similar to those in Table 2 but for the 50th and 75th percentiles are reported in Appendix Tables 8 and 9. The results in Figure 2 show that income for each of the percentiles we report remains flat for the period from January 2019 through February 2020. Then, incomes start to rise after that. The 25th percentile of family income increased from about $46,000 in January and February to about $49,000 in April, May, and June, a statistically significant increase of about $3,000, or 6.4 percent (Table 2).11 This increase seems reasonable given the government benefits low income families were potentially eligible for, including a $3,400 Economic Impact Payment (for a married couple with two children) and UI benefits that included a $600 per week top off. We also see a rise in income at higher percentiles, although the extent of the rise is smaller as we move up the distribution. Median income (Appendix Table 8) rose by about $2,500 (2.8 percent) during this period and this rise is statistically significant. At the 75th percentile (Figure 2 and Appendix Table 9), incomes rose more modestly, by about $1,300 (0.9 percent), and this rise is not statistically significant.A rise in income at the 75th percentile would not be too surprising given that those with incomes at this level would potentially still be eligible for the expanded government benefits. The equivalized income values for the 75th percentile are about $145,000 for a married couple with 2 children and about $65,000 for an individual. These values are below the income thresholds for receiving the full amount of the Economic Impact Payment….”

Meyer’s also looks at the distributional impact of the fiscal response, found the 25 percentile of family income saw an ~ $3,000 gain