Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…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
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


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?”

Wednesday, March 24, 2021

AI Summary. U.S. Census Bureau measures showing a 21.4% rise in income inequality over five decades omit two-thirds of government transfers and taxes paid; counting all transfers as income and subtracting taxes leaves an increase of just 2.3%. The authors argue that adjusting for survey method changes shows inequality is lower than 50 years earlier.

Phil Gramm and John Early Wall Street Journal
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Income inequality in the US has only risen by 2.3% btw 1967 and 2017 when accounting for all government transfers as income and taxes paid. @PhilGramm @JohnEarly @WSJ.

Does counting all transfers and taxes shrink measured income inequality?

Core argument: U.S. income inequality rose 21.4% between 1967 and 2017 as reported, but counting all government transfers as income and subtracting taxes paid cuts the increase to 2.3%, a nearly 90% error in the reported data.

Between 1967 and 2017, income inequality in the U.S. reportedly increased by 21.4%, but this figure is misleading due to flawed data collection methods. When accounting for all government transfer payments as income and reducing household income by taxes paid, the increase in income inequality is only 2.3%. This discrepancy highlights a nearly 90% error in the reported data. The Census Bureau's failure to include two-thirds of government transfers and taxes paid in its calculations has distorted the perception of income inequality. Adjustments for changes in data-collection methods in 1993 and 2013 further reveal that income inequality is actually lower today than it was 50 years ago. In 2017, $2.8tn was redistributed by governments, with more than two-thirds going to the bottom two income quintiles, yet only $900bn was counted as income. This oversight underscores the need for accurate data to inform policy decisions.

Takeaways by Macro Roundup® AI

  1. U.S. income inequality rose 21.4% between 1967 and 2017 as reported, but counting all government transfers as income and subtracting taxes paid cuts the increase to 2.3%, a nearly 90% error in the reported data.
  2. The Census Bureau omits two-thirds of government transfers and taxes paid from its income calculations, counting only $900bn of the $2.8tn governments redistributed in 2017, of which more than two-thirds went to the bottom two income quintiles.
  3. Adjusting for the 1993 and 2013 changes in Census data-collection methods indicates U.S. income inequality is lower today than it was 50 years ago.

John Early measure of say relized income (post taxes/post transfers) finds“…When measuring income inequality, however, the Census Bureau doesn’t reduce household income by the amount paid in taxes. Had it done so and counted all transfer payments as income, inequality from 1967 to 2017 would have increased by only 2.3% instead of the reported 21.4%. That’s a difference of almost 90%—a rather large error….”

Phil Gramm and John Early, "Incredible Shrinking Income Inequality,"Wall Street Journal, March 23, 2021, https://www.wsj.com/articles/incredible-shrinking-income-inequality-11616517284

Incredible Shrinking Income Inequality

The refrain is all too familiar: Widening income inequality is a fatal flaw in capitalism and an “existential” threat to democracy. From 1967 to 2017, income inequality in the U.S. spiked 21.4%, and everyone from U.S. senators to the pope says it’s an urgent problem. Yet the data upon which claims about income inequality are based are profoundly flawed.

We have shown on these pages that Census Bureau income data fail to count two-thirds of all government transfer payments—including Medicare, Medicaid, food stamps and some 100 other government transfer payments—as income to the recipients. Furthermore, census data fail to count taxes paid as income lost to the taxpayer. When official government data are used to correct these deficiencies—when income is defined the way people actually define it—“income inequality” is reduced dramatically.

We can now show that if you count all government transfers (minus administrative costs) as income to the recipient household, reduce household income by taxes paid, and correct for two major discontinuities in the time-series data on income inequality that were caused solely by changes in Census Bureau data-collection methods, the claim that income inequality is growing on a secular basis collapses. Not only is income inequality in America not growing, it is lower today than it was 50 years ago.

While the disparity in earned income has become more pronounced in the past 50 years, the actual inflation-adjusted income received by the bottom quintile, counting the value of all transfer payments received net of taxes paid, has risen by 300%. The top quintile has seen its after-tax income rise by only 213%. As government transfer payments to low-income households exploded, their labor-force participation collapsed and the percentage of income in the bottom quintile coming from government payments rose above 90%.

In 2017, federal, state and local governments redistributed $2.8 trillion, or 22% of the nation’s earned household income. More than two-thirds of those transfer payments went to households in the bottom two income quintiles. Remarkably the Census Bureau chooses to count only $900 billion of that $2.8 trillion as income for the recipients. Excluded from the measurement of household income is some $1.9 trillion of government transfers. These include the earned-income tax credit, whose beneficiaries get a check from the Treasury; food stamps, which let beneficiaries buy food with government issued debit cards; and numerous other programs in which government pays for the benefits directly.

Incredible Shrinking Income Inequality: Extended Excerpt Image 1


Americans pay $4.4 trillion a year in federal, state and local taxes. Households in the top two earned-income quintiles pay 82% of the tax bill, although they never see most of this money because it is deducted directly from their paychecks. When measuring income inequality, however, the Census Bureau doesn’t reduce household income by the amount paid in taxes. Had it done so and counted all transfer payments as income, inequality from 1967 to 2017 would have increased by only 2.3% instead of the reported 21.4%. That’s a difference of almost 90%—a rather large error.

Twice over the past 50 years, the Census Bureau has significantly changed how it collects and records income statistics. In 1993 and 2013 the Census Bureau changed its methods in an effort to collect better information from high-income households. These changes created two major discontinuities and distorted the time-series so that the change in measured income inequality in those years was as much as 15 times the average annual change found for the entire 50-year period. At the time, the Census Bureau explained in detail what it had done. It also explained the limitations the changes imposed on the use of its income-inequality measure to look at changes over extended periods. In subsequent use of the data by the Census Bureau and others, however, those warnings have been neglected.

The simple solution would have been to isolate the distortions caused solely by the changes in data-collection techniques and adjusted the previous years’ measures to reflect the effect of the changes. We made these adjustments and they are shown in the nearby figure. The blue line is the actual reported Census Bureau measurement of income inequality. The yellow line eliminates the effects of the 1993 and 2013 discontinuities caused solely by changes in measurement technique. The black line shows income inequality when the value of all transfer payments received is counted as income, income is reduced by taxes paid, and the two technical corrections are made.

Lo and behold—income inequality is lower than it was 50 years ago.

The raging debate over income inequality in America calls to mind the old Will Rogers adage: “It ain’t what you don’t know that gets you into trouble. It is what you do know that ain’t so.” We are debating the alleged injustice of a supposedly growing social problem when—for all the reasons outlined above—that problem isn’t growing, it’s shrinking. Those who want to transform the greatest economic system in the history of the world ought to get their facts straight first.