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


Monday, March 22, 2021

AI Summary. A new paper estimates that the top 1% of US households fail to report about 21% of their income, with 6 percentage points coming from sophisticated strategies that random audits miss, and that unreported income for the top 0.1% may be nearly twice conventional Internal Revenue Service estimates. The authors attribute much of this to offshore accounts and pass-through businesses.

Richard Rubin Wall Street Journal
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High-income households fail to report 21% of their income, with 6% attributed to undetected strategies. Offshore accounts & pass-through businesses drive underreporting. @RichardRubin @WSJ

How much income do top-earning households fail to report?

Core argument: The paper estimates that the top 1% of U.S. households fail to report about 21% of their income, with 6 percentage points stemming from sophisticated strategies that random audits do not detect.

Research indicates that the top 1% of households fail to report about 21% of their income, with 6 percentage points attributed to sophisticated strategies undetected by random audits. For the top 0.1%, unreported income may be nearly twice as large as conventional IRS methodologies suggest. This underreporting is largely driven by offshore accounts and pass-through businesses. Internal IRS data revealed that offshore accounts were detected only 7% of the time during random audits. The study assumes noncompliance rates for pass-throughs between those of large corporations and sole proprietorships, leading to higher projections of tax avoidance than previous IRS methods. These findings highlight significant gaps in current IRS detection capabilities and suggest a need for enhanced auditing techniques to address high-income tax evasion.

Takeaways by Macro Roundup® AI

  1. The paper estimates that the top 1% of U.S. households fail to report about 21% of their income, with 6 percentage points stemming from sophisticated strategies that random audits do not detect.
  2. For the top 0.1%, the authors estimate unreported income may be nearly twice as large as conventional IRS methodologies suggest, driven largely by offshore accounts and pass-through businesses.
  3. Internal IRS data show offshore accounts were detected only 7% of the time in random audits, and the study's assumed pass-through noncompliance rates, set between those of large corporations and sole proprietorships, yield higher avoidance estimates than prior IRS methods.

Richard Rubin reports on Research that argues tax avoidance/evasion at the top is significantly larger than prior estimates, "...The top sliver of high-income Americans dodge significantly more in income taxes than the Internal Revenue Service’s methods had previously assumed, according to forthcoming estimates from IRS researchers and academic economists. Overall, the paper estimates that the top 1% of households fail to report about 21% of their income, with 6 percentage points of that due to sophisticated strategies that random audits don’t detect. For the top 0.1%, unreported income may be nearly twice as large as conventional IRS methodologies would suggest, the researchers wrote...."
Their finding is largely driven by offshore accounts and pass throughs, "... Using internal IRS tax-return data, the researchers looked at people who disclosed offshore accounts about a decade ago when the IRS was encouraging people to come forward in exchange for more-lenient treatment. They found that hundreds of them had been picked years before their disclosures for the random audits that the IRS uses to measure tax avoidance—and that the IRS auditors found the offshore accounts just 7% of the time. For the pass-through businesses and complex partnerships, the researchers assumed noncompliance rates between those of large corporations and sole proprietorships, both areas where the IRS has better data than in those random audits it uses for research purposes on pass-throughs. That led to higher projections of avoidance than previous IRS methods...."
Note Zucman is a co-author so suspect the findings are overstated. Aside Natasha Sarin is going to Treasury as deputy assistant secretary for economic policy, her recent tax work (attached) is prob going to become relevant

Richard Rubin, "High-Income Tax Avoidance Far Larger Than Thought, New Paper Estimates," Wall Street Journal, March 22, 2021, https://www.wsj.com/articles/high-income-tax-avoidance-far-larger-than-thought-new-paper-estimates-11616364001

AI Summary. Fertility rates in Nordic countries have declined despite generous social transfers such as universal child care and parental leave, and the authors link this to the rising importance of work as a source of value in people's lives. Denmark, where work's importance fell, saw the smallest decline, while Finland, where it rose, saw the largest.

Lyman Stone Institute for Family Studies
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Nordic countries’ fertility rate has declined since 2008 despite generous social transfers, as work has gained importance in individuals’ lives. @LymanStone

Does the rising importance of work explain falling fertility despite generous benefits?

Core argument: Nordic fertility rates have declined since 2008 despite generous social transfers, a pattern the authors link to work gaining importance as a source of value in individuals' lives.

In Nordic countries, the fertility rate has declined since 2008 despite generous social transfers, as work has gained importance in individuals' lives. This trend suggests that policies aimed at increasing fertility through benefits like universal child care or parental leave may be ineffective in advanced economies. The decline in birth rates is linked to the rising significance of work as a source of value, with Denmark showing the smallest fertility decline due to a decrease in work importance, while Finland experienced the largest decline with a rise in work importance. The data indicates that highly career-focused values are associated with lower birth rates, and policies that emphasize work may inadvertently reinforce this trend. Encouraging flexible work arrangements and reducing work's primacy could be more effective pro-natal strategies, as they allow families to prioritize family life over work.

Takeaways by Macro Roundup® AI

  1. Nordic fertility rates have declined since 2008 despite generous social transfers, a pattern the authors link to work gaining importance as a source of value in individuals' lives.
  2. Denmark recorded the smallest fertility decline alongside a decrease in the importance of work, while Finland saw the largest decline alongside a rise in work importance.
  3. The authors argue that pro-natal policies such as universal child care or parental leave may be ineffective in advanced economies, and that encouraging flexible work arrangements and reducing work's primacy could work better.

Lyman Stone and Laurie DeRose point out that the Nordic countries generous social transfers to this point have (seemingly) keep their fertility rates close to replacement; however their fraternity rates have recently ticked down (starting in 2008). This is (again seemingly) somewhat explained by an uptick in the rising importance of individuals assigned to work (See Figure 3), in short as work becomes more important in the Scandinavian countries their fertility fell despite basically the Nordic countries being robust social welfare states. This suggests that simply increasing support for families, publicly supported child care won’t be that helpful in raising fertility along work driven individuals, if in Scandinavia or the United States.

Core finding, "Highly work-focused values and social attitudes among both men and women are strongly associated with lower birth rates in wealthy countries....The decline in birth rates over the last decade across many high-income countries—including some Nordic countries—can be partly explained by the rising importance individuals assign to work as a source of value and meaning in life.... Government policies that try to increase fertility by providing more benefits aimed at workers, such as universal child care or parental leave programs, may undermine their efforts as they strengthen a “workist” life-script rather than a “familist” one....."

Their core evidence, "...If countries with large increases in workism, like Finland, have very different trends from countries with large decreases, like Denmark, that would suggest support for our theory connecting work attitudes to fertility. Denmark, the only Nordic country with a decrease in work importance, also had the smallest decline in fertility over the period measured. Finland, meanwhile, had the biggest rise in work importance, along with the largest fertility decline. Trends for Iceland and Norway do not fit the pattern as well, but it is no surprise that in this simple, uncontrolled approach, the correlation between work attitudes and fertility outcomes is imperfect...The differences between men and women are small when compared to the fertility differential associated with high versus low familism (the green bars to the right in Figure 5 versus the blue bars to left)regardless of gender. People who value family as very important—both those who value it more than work (dark green bars) and those who also value work as very important (lighter green bars)—have more children than others….
Workism and fertility: The case of the Nordics: Extended Excerpt Image 1

Workism and fertility: The case of the Nordics: Extended Excerpt Image 2


Conclusion, "...We show that a key element of the general change towards expressive or individualist values is the changing significance of extremely career-focused attitudes among both men and women. The desire for meaningful or important work, not simply well-compensated work, is powerful, and has significant and negative implications for childbearing. Thus, policymakers confronting low fertility face a number of challenges. Efforts to achieve full private sphere gender equality between partners are not likely to yield large fertility recoveries, especially if they are achieved in a way that raises the salience of career-mindedness even more. So, for example, the “Womenomics” component of “Abenomics,”24 far from providing a boost to gender equity and birth rates, may have the effect of raising the salience and normativity of career-mindedness per se—for women and men. Likewise, South Korea’s campaign to get men to do more chores, or many countries’ efforts to expand day care, also seem likely to fail as they do not fundamentally challenge the primacy of work itself. While efforts to achieve gender equality are prima facie desirable to governments for many reasons, gender equality that primarily rests on the normativity of career-mindedness may have unintended consequences, including low fertility rates. From the perspective we have advanced in this paper, a better path to gender egalitarianism—particularly in countries with highly inflexible and two-tiered labor markets like South Korea or Italy—would be to enable men to work less, rather than seek means for women to work more. This is especially important, since in many very low-fertility countries like Japan and Korea, men’s total paid and unpaid working hours are similar to or higher than women’s; men do not have a large excess of free time for leisure compared to women, suggesting that the problem is work per se, not the intra-household division of that work. Likewise, the dynamics we describe here may help explain why most empirical studies have found that cash allowances increase fertility rates by more per public dollar spent than funding for child care. Cash allowances allow families to reduce work, whereas universal child care policies normalize work-focused family models even more.25 More generally, encouraging more flexible work arrangements, rolling back strict licensure and certification rules for work, and tackling “salaryman” norms could all be beneficial pro-natal strategies—not because they would give women greater equality at home and work (although they certainly would), but because they would facilitate reprioritization of family life over work life for all parents..."

Workism and fertility: The case of the Nordics: Extended Excerpt Image 3


Lyman Stone and Laurie DeRose, "Workism and fertility: The case of the Nordics," Institute For Family Studies, March 18, 2021, https://www.aei.org/articles/workism-and-fertility-the-case-of-the-nordics/

Tuesday, March 23, 2021

AI Summary. A guaranteed-income experiment in Stockton, California has been criticized for a small sample size, reliance on self-reported outcomes, and a one-year time frame, which the critique argues makes statistically significant employment effects hard to detect. High job turnover among lower earners further complicates drawing robust conclusions.

Editorial Board Wall Street Journal
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The Stockton UBI study faces criticism due to its small sample size & reliance on self-reported outcomes, complicating assessment of statistically significant effects on employment. @WSJ

Do guaranteed-income experiments reliably measure effects on employment?

Core argument: The Stockton universal basic income study ran for one year, from Feb. 2019 to Feb. 2020, a scope critics say is too limited to support robust conclusions about employment effects.

The Stockton UBI [Universal Basic Income] study faces criticism due to its small sample size and reliance on self-reported outcomes, which complicates the assessment of statistically significant effects on employment. Conducted over a one-year period from Feb. 2019 to Feb. 2020, the study's limited scope is further challenged by high labor-market turnover among lower earners, making it difficult to draw robust conclusions. These methodological flaws raise concerns about the reliability of the findings and their implications for broader economic policy discussions. The study's limitations highlight the need for more comprehensive data and longer-term analysis to accurately evaluate UBI's impact on employment and economic stability. As policymakers consider UBI as a potential tool for economic empowerment, these issues underscore the importance of rigorous research design in informing effective policy decisions.

Takeaways by Macro Roundup® AI

  1. The Stockton universal basic income study ran for one year, from Feb. 2019 to Feb. 2020, a scope critics say is too limited to support robust conclusions about employment effects.
  2. Critics fault the Stockton study's small sample size and reliance on self-reported outcomes, which complicate any assessment of statistically significant effects on employment.
  3. High labor-market turnover among lower earners further complicates interpretation of the Stockton results, pointing to the need for more comprehensive data and longer-term analysis of universal basic income's impact on employment and economic stability.

WSJ Ed board on Stockton UBIstudy"... The study’s small sample and reliance on self-reported outcomes are bigger problems. It’s difficult to assess a statistically significant effect on employment among such a small group over a one-year period—from Feb. 2019 to Feb. 2020—especially given high labor-market turnover among lower earners...."

Editorial Board, "Universal Basic Income Hype,"Wall Street Journal, March 22, 2021, https://www.wsj.com/articles/universal-basic-income-hype-11616453781

Stacia West, Amy Castro Baker, Sukhi Samra and Erin Coltrera, “Preliminary Analysis: SEED’s First Year,” Stockton Economic Empowerment Demonstration, March 2021, https://www.stocktondemonstration.org/

AI Summary. Patents that cite scientific papers are 16–23% more likely to be traded, and the share of patents citing science rose from 4% to 28% over recent decades. Shifts in federal research funding away from space and defense toward medical and energy fields are associated with more science-based patents, with smaller firms showing about four times the effect of larger firms.

Ashish Arora National Bureau of Economic Research
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Federal R&D spending reallocation from defense to fields like computer science, oceanography, and biology has led to significant shifts in research output and patent value.

Does science-based patenting make inventions more likely to be traded?

Core argument: Patents citing scientific papers are 16–23% more likely to be traded, which the authors take as an indication of higher quality innovation.

The reallocation of federal R&D spending from defense to fields like computer science, oceanography, and biology has led to significant shifts in research output and patent value. Post-USSR collapse, federal funding for Space and Defense fell by nearly 40% between 1986-1992, while Medical and Energy funding doubled, resulting in more science-based patents. Patents citing scientific papers are 16-23% more likely to be traded, indicating higher quality innovation. The share of patents citing science rose from 4% to 28% between 1980-2015. Smaller firms benefit more from science-based patents, with a fourfold larger impact on market for technology (MFT) compared to larger firms. A standard deviation increase in science-based patents correlates with a 6.5% rise in reassigned patents, underscoring the economic value of science-driven innovation.

Takeaways by Macro Roundup® AI

  1. Patents citing scientific papers are 16–23% more likely to be traded, which the authors take as an indication of higher quality innovation.
  2. Federal funding for Space and Defense fell by nearly 40% between 1986 and 1992 after the USSR's collapse, while Medical and Energy funding doubled, resulting in more science-based patents.
  3. The share of patents citing science rose from 4% to 28% between 1980 and 2015, and a standard deviation increase in science-based patents corresponds to a 6.5% rise in reassigned patents, with a fourfold larger impact for smaller firms.

Science and the Market for Technology: Extended Excerpt Image 1


Ashish Arora, Sharon Belenzon and Jungkyu Suh, "Science and the Market for Technology," National Bureau Of Economic Research, March 2021, https://www.nber.org/papers/w28534

New NBER using the collapse of the USSR as a natural experiment in terms the response of/the shock to American scientific spending as the USG reallocated Federal R&D spending away from defense (so physics, chemistry, and electrical engineering) and towards computer science, oceanography and biology (See Figure A2) Relative to the counterfactual paper finds (intuitively) more funding resulted in more papers, and less funding leads to fewer papers. Using patent citations/and tradability as a measure for usefulness the paper finds the share of patents citing scientific papers was correlated with the uptick/downtick in the number of paper by field (so driven by federal R&D spending) This in turn produced higher quality innovation in terms of the patents likelihood to be traded by the firm that owns it, "..Patents that reference a scientific article are 16-23% more likely to be traded than patents that do not reference science..."

Good factoid to demonstrate innovation has become more science intensive"...At the same time, the reliance of inventions on science has increased, as indicated by the rise in the share of patents citing science from 4% to 28% of all U.S. utility patents between 1980 and 2015..."

Core findings, first “…a patent that cites a scientific publication has a 23% higher probability of being traded compared to a patent that does not cite science. After wecontrol for quality using number of claims, triadic patenting status, (and stock market value for a subset of patents matched to listed firms), the magnitude of the science-MFT coefficient is reduced by a third, but still positive and statistically significant. We interpret this as suggesting that reliance on science is related to MFT in other ways, not just through quality…”

Second, “…consistent with the view that science increases gains from trade,we find that the relationship between science and MFT is four times larger for small firms compared to large firms. Since larger firms already have high commercialization capabilities (and hence derive lower value from selling), reliance on science will have a smaller effect on the gains they can reap from selling their invention compared to smaller firms.We also find that the science-MFT relationship is about a third larger for patents using a one standard deviation “newer” combination of technological subclasses (Fleming, 2001). Unfamiliar inventions are likely to be more difficult for buyers to evaluate, but when such inventions are based in science, buyers may gain a better understanding of otherwise unfamiliar technological components. We also find that reliance upon more recent science is more strongly associated with patent trade. This suggests that the principal channel through which science affects technology markets is not by reducing transfer costs, since mature science is more likely to provide a “common language” or background knowledge for market participants (Arora and Gambardella, 1994). Newer science, and more specialized science, on the other hand, is arguably more important in illuminating uncharted applications of inventions, thereby increasing gains from trade…”

Third, “… we present instrumental variable results that are based on an exogenous change in the availability of science, which affects the prevalence of science-based inventions unrelated to trade conditions. After the fall of the Soviet Union, federal funding for research fell by almost 40% for Space and Defense between 1986 and 1992, whereas it doubled in Medical and Energy. These changes led to substantial variation in the supply of new knowledge, and therefore, variation in the reliance on science in different fields of invention.The geopolitical circumstances that precipitated the end of the Cold War are exogenous to MFT. We find that patent classes with a standard deviation increase in the share of science-based patents experience a 6.5% increase in the share of reassigned patents. Our IV estimates are 13% smaller than our OLS estimates, but still positive and statistically significant….”
Science and the Market for Technology: Extended Excerpt Image 2

Ed Comment:“My thinking isn't clear on this but my sense from being on the waters board is that academic research is woefully unproductive relative to commercial research. Yet academies siphone off an enormous amount of talent. So the gov funding more academic research may make the academics more productive in response to the funding than they otherwise would be. But in general, gov funding of academic research makes talented people less productivity because it makes the academies larger than they otherwise would be. Is this a variation of the Simpson paradox?”