Macro Roundup

Ed Comment, “Great stuff! Wow:"Migrants to the U.S. are four to six times more productive than stayers, while migrants to the U.K. are more than twice as productive as stayers." I believe something akin to this is true for all highly talented knowledge workers near the frontier--they are more productive than their counterparts elsewhere because in the US they are nearer to the frontier and with a critical mass of explorers/miners than elsewhere. In addition to large differences in output, we see America's top earners work longer hours, take more entrepreneurial risk, and get more valuable training when they are younger and throughout their lives. Surely it's the 2 to 4 times relatively higher productivity/payoffs that motivate them (which can be reduced significantly/multiplicatively with higher taxes). Academics underappreciate this because 1) they don't understand that, unlike academics, these people are largely motivated by money. Why else would they spend their lives arduously catering to the tedious demands of customers instead of following their own whims and curiosity like academics? 2) To make more money they have to take risks. There simply is no other way. Why would they take more risk IF it wasn't for the money? And if they take risk, they will work harder and get more/better training. 3) The people driven by money (i.e. by satisfying customer demands rather than their own demands) are the predominant contributors to increased productivity. That's WHY the lucky/successful ones end up with more money. Of course there is a lot of randomness. But this is true on average.”

Patrick Gaule Comment, “…You raise a really good pointas this is indeed not in the paper but could be a useful extension. A first quick look at the data suggests that U.S. stayers are around 20% more productive that EU stayers, but less productive than U.K. stayers.However, we would need to look at this in more detail before drawing any conclusions….”

Ed Comment, “What is the difference between graph a and c, and graphs b and d? The paper seems to say the super-rich have moved to the coasts while everyone else is converging.”

The convergence in poverty rates, “….First, poverty rates have equalized both within and between Census regions (Figure A.2). The between region component has played a dominant role in this equalization post-2000 as poverty rates rose in the Northeast and Midwest relative to the South and West(Figure A.3). Second, counties that were very poor in 1990 had large reductions in poverty by 2018, while those that were less poor had substantial poverty increases (Figure A.4). Finally, the poverty dissimilarity index also fell dramatically between the 1960 and 1980 Censuses (Figure A.5)….”

Key findings, “…..Our findings paint a more nuanced story than the common refrain that American communities are growing apart. Mean incomes are diverging across areas but those means give outsize influence to individuals with especially high incomes. In contrast, median incomes, which arguably provide a better measure of the well-being of a typical household, exhibit more muted divergence over the past thirty years. The equalization of poverty rates across space we document aligns closely with independent evidence that bottom income percentiles and means-tested transfers are converging across locations. Given that the migration flows of less educated workers are only weakly related to area income (Ganong and Shoag, 2017), we suspect this democratization of poverty is not driven primarily by a reshuffling of households. An interesting question for future research is the extent to which changes in labor market institutions such as the minimum wage or transfer programs such as disability insurance are driving these trends. The increasing geographic concentration of high income households we document is broadly consistent with the well known rise in top incomes across individuals. Perhaps influenced by these trends, coastal states including New York and California have recently enacted or increased “millionaire taxes” on households with high incomes. Assessing whether place based millionaire taxes will be subverted by income shifting or real migration responses is a priority for future research….”

Steve Comment: “So in Figure 3 the left two Figures (A,C) are pre-tax income, the right two figures (B,D) are pre-tax income including transfers. They are using them to prove your takeaway, the increase took place in the Middle Atlantic, Pacific, and New England Census divisions driven by high earners disproportionately relocating there. Here is how they describe Figure 3, “The upper panels of Figure 3 display estimates of dispersion within Census regions along with the between region component of variance. Between region income inequality has remained remarkably stable over the past 40 years. In contrast, dispersion across counties in the West and Northeast has risen dramatically. The lower panels of Figure 3 reveal that much of this increase took place in the Middle Atlantic, Pacific, and New England Census divisions. Cross-division inequality has remained remarkably stable, indicating that inequality patterns are not driven by coastal states drifting apart from inland communities. Rather, dispersion in the fortunes of counties within these states is driving the steady increase in county level inequality…”…”

Ed Comment 1/2:“Add to db. Note this has a shelf life. I find it hard to believe that the private sector has reduced its level of indebtedness by 50% of GDP. The last time we saw the fed graph that I recently ask you to check to see if they had updated it (plz send it to me for perspective) company debt had risen while mortgage debt had fallen. But now people are building and buying houses like crazy. Prices have risen so I would have guessed debt has also risen as a result. Somin’ don’t smell right. BTW, I thought Klien was a never trump conservative. With debt above 100% of GDP, I’m surprised he is encouraging more spending even though rates are low. Rates are low in large part because of covid—people all over the world are saving like crazy (although I would still be surprised if Americans saved enough to reduce debt by 50% of GDP). If they spend that money when the economy recovers, rates my not stay low. That said, long rates are still very low too. He says: But America also faces significant challenges in the decade ahead—whether it’s shifting to renewable-energy resources to reduce carbon emissions, reviving the manufacturing base, or confronting an increasingly aggressive China—and meeting them will probably require substantial public investment. If that’s true, why would we borrow and redistribute/consume which is what biden is proposing with his $1.9T? He says: “investments that boost growth—whether in infrastructure, pollution control, scientific research, education, or public health—effectively pay for themselves.” NO. theycanpay for themselves if they grow the economy enough, but the data says they rarely do because government does such a poor job of managing them effectively. Worse he says CBO say our economy could have been 12% bigger. I’m highly doubtful the kind of investment the government makes with risk-averse savings are the kind of investment that produce that growth. Those are risky equity bets that luckily payoff….”

Ed Comment 2/2:“I think matt Klein might be an unreliable interpreter of the data. I think financial debt is double counted with private sector debt (since all financial sector debt eventually is borrowed by the private sector. It may also be the case that as the banks hold reserves it reduces their net debt (debt-cash). But in today’s f-up monetary policy regime, bank reserves are just “federal reserve debt” financing treasury debt. So he may be seeing an offset that he doesn’t account for—as public debt rises and is being financed by (the fed paying interest on) bank reserves, net financial sector debt may appear to be declining, even though financial sector loans to the private haven’t changes (and never should have been included in the first place, since they were included in the private sector). I also know from Waters that, unlike the bond markets, the bank market has not fully recovered. Financial sector debt is often counted multiple time as one link in the chain of intermediation lends to the next that lends to the next, etc. before it get lent to the end user. (the repo market is an example of banks lending to banks and not to end users. It may be the case that the number of steps in the chain of intermediation has declined as bank lending has backed up. So financial sector debt (which can be “double” counted many times inside of the financial sector before it is then again double counted when it is lent to the private sector) may have declined for this reason. My guess is your chart is more accurate than his. And what I surmised is true, namely, that there has been no offsetting private sector decline. …and that cash saved and not spent in the pandemic is likely to be consumed when the pandemic is over.”