Macro Roundup

“..In February of this year Max Eden wrote for the Manhattan Institute that for some children pre-K programs are not even useless—they may cause genuine harm given how young the kids are when they are moved out of the household and into a new setting:These findings are consistent with—and likely partly explained by—recent advances in our understanding of neuroscience and child development. Studies suggest that many children exhibit higher levels of stress hormones—colloquially termed “toxic stress”—in child-care environments than they do at home, which could leave a lasting physical impact on their brain architecture…”

James Freeman, "The Bernie Sanders Experiment for America’s Children,"Wall Street Journal, October 26, 2021, https://www.wsj.com/articles/the-bernie-sanders-experiment-for-americas-children-11635280881

The Bernie Sanders Experiment for America’s Children

The story of the Covid era is largely about a political class imposing one burden after another on the young for the theoretical benefit of the old, with little effort to conduct serious calculations of risks and costs. Kids who were never in great danger from the virus have been forced into isolation and quarantine, forced to suffer lost educational and cultural opportunities, and forced to accept an expanded federal debt burden that will haunt them through their taxpaying lives. Many children remain masked all day thanks to edicts from politicos with hardly a care for the long-term consequences to mental health or development.

Now we have Sen. Bernie Sanders (socialist, Vt.), who has been an elected official for nearly 40 years, preparing to add to the federal debt burden once again but claiming that his massive new program is for the children. Mr. Sanders is on the brink of achieving his dream of a federal universal pre-kindergarten program. No doubt it will be costly for taxpayers, but parents should not assume it will benefit their kids.

Like everything else in the pending reconciliation bill, the highly consequential details remain hidden from the public. Reporting on the back-room negotiations for the Democrats’ multitrillion-dollar plan, the Journal’s Andrew Duehren, Kristina Peterson and Natalie Andrews write that the next draft “is still set to include several party priorities, such as universal prekindergarten.” They add that according to a source, House Speaker Nancy Pelosi (D., Calif.) told House Democrats on Tuesday that Congress was on “the verge of something major.”

Let’s hope that sometime before enactment, Americans are able to learn what exactly that something is, given the enormity of the interventions Democrats are attempting into American life.

As for the pre-K plan, a New York Times report accurately described it as part of “a progressive dream for the nation’s education system.” Expanding government is the point. When critics point out disappointing results from various pre-K programs, advocates simply clarify that what they are building is “high-quality pre-K,” as if universal government programs are synonymous with high quality.

In 2017 the Brookings Institution assembled a task force of interdisciplinary scientists from various leading research universities to assess state-funded pre-K programs. The Brookings task force reported:

Convincing evidence on the longer-term impacts of scaled-up pre-k programs on academic outcomes and school progress is sparse, precluding broad conclusions. The evidence that does exist often shows that pre-k-induced improvements in learning are detectable during elementary school, but studies also reveal null or negative longer-term impacts for some programs.

In 2018 Early Childhood Research Quarterly published a paper by Vanderbilt researchers: “This study of the Tennessee Voluntary Pre-K Program (VPK) is the first randomized control trial of a state pre-k program.” The Vanderbilt team reported that while pre-K students in the program initially surpassed kids who didn’t go to pre-K across a battery of achievement tests, this advantage didn’t hold:

During the kindergarten year and thereafter, the control children caught up with the pre-k participants on those tests and generally surpassed them. Similar results appeared on the 3rd grade state achievement tests for the full randomized sample - pre-k participants did not perform as well as the control children.

In February of this year Max Eden wrote for the Manhattan Institute that for some children pre-K programs are not even useless—they may cause genuine harm given how young the kids are when they are moved out of the household and into a new setting:

These findings are consistent with—and likely partly explained by—recent advances in our understanding of neuroscience and child development. Studies suggest that many children exhibit higher levels of stress hormones—colloquially termed “toxic stress”—in child-care environments than they do at home, which could leave a lasting physical impact on their brain architecture.
Such concerns may not necessarily deter Mr. Sanders given his ideological commitment to central planning. Pre-K is just one part of a larger plan for the federal government to be involved in child care from the earliest ages. But voters may want to urge their elected representatives to pause before initiating this Sanders revolution.

Mr. Eden writes:

The most representative and rigorous research on early childhood interventions does not suggest that additional investment would yield great benefits. Indeed, it provides good reason to believe that the opposite is true: additional investment may come at a substantial cost to the next generation.

The Quebec Family Policy provides the closest analogue to what we might expect if America were to make a similar commitment to universal child care. For children in two-parent households, the results were rather grim: deterioration in parenting practices, deterioration in children’s behavior, and long-term harm to their health and life satisfaction.

"... Looking at 20 American technology companies, Mr Sullivan calculates that in 2017 the firms had booked as much as two-thirds of their profits overseas. Recently, their domestic profits as a share of total profits rose sharply, from 40% in 2019 to 56% in 2020.Pandemic and supply disruptions notwithstanding, actual business activity is unlikely to explain this big a jump. Four tech titans—Microsoft, Apple, Alphabet and Facebook—brought home a whopping $49.3bn. Some firms recorded a far higher share of their profits overseas than in previous years. As the pandemic raged, ten Big Pharma firms booked just 11% of their global profits at home, notes Mr Sullivan, down from a quarter in 2019. Yet overall, for all publicly traded American multinationals, domestic profits as a share of worldwide profits rose from 51% to 56% between 2019 and 2020.The likely explanation, writes Mr Sullivan, is that the TCJA’s international provisions are at last taking effect. The act employed both carrot and stick. The carrot was a tax deduction for foreign-derived intangible income (FDII), including earnings on intellectual property and other assets that are not physical in nature. The stick was its “Gilti” levy on what it called global intangible low-taxed income booked in Ireland, Caribbean islands and elsewhere...."

Economist Staff, "American tech firms are repatriating billions in offshore profits,"The Economist, September 15, 2021, https://www.economist.com/graphic-detail/2021/09/15/american-tech-firms-are-repatriating-billions-in-offshore-profits

American tech firms are repatriating billions in offshore profits

Shifting income is the practice by which multinationals artificially divorce their reported profits from where they actually do business. A tech giant, for example, may park its intellectual property in Bermuda, then charge its subsidiary in a higher-tax country such as France or America for using the IP. Profit is thus magicked away to the tax haven.

Martin Sullivan, an American economist, has long been exposing such schemes. He is known for combing the footnotes of large multinationals’ financial reports to divine what taxes are paid where. Now his Tax Notes newsletter has some good news. A great repatriation of profits by American tech companies is in full swing. That should mean higher tax revenue.

Some firms recorded a far higher share of their profits overseas than in previous years. As the pandemic raged, ten Big Pharma firms booked just 11% of their global profits at home, notes Mr Sullivan, down from a quarter in 2019. Yet overall, for all publicly traded American multinationals, domestic profits as a share of worldwide profits rose from 51% to 56% between 2019 and 2020.

The likely explanation, writes Mr Sullivan, is that the TCJA’s international provisions are at last taking effect. The act employed both carrot and stick. The carrot was a tax deduction for foreign-derived intangible income (FDII), including earnings on intellectual property and other assets that are not physical in nature. The stick was its “Gilti” levy on what it called global intangible low-taxed income booked in Ireland, Caribbean islands and elsewhere.

Despite Gilti and other elements, the act had been seen as weak because of other provisions that alleviated tax for corporations. But Mr Biden may now have to acknowledge the TCJA had some good effects. He still wants to go further. He plans to raise the Gilti tax rate from 10.5% to 21% and repeal the FDII deduction. The measure with the biggest potential impact would be a 15% “minimum book tax” on big firms that report high profits but have little taxable income. That might further lift the share of profits being booked in America.

Jan Eeckhout, Christoph Hedtrich and Roberto Pinheiro, "IT and Urban Polarization," Federal Reserve Bank Of Cleveland, September 2021, https://www.clevelandfed.org/en/newsroom-and-events/publications/working-papers/2021-working-papers/wp-2118-it-and-urban-polarization.aspx

"...Fact 2. Routine Cognitive Occupations Decline Faster in Expensive Cities. We now turn to the second result: high cost locations feature a decline in the share of workers in routine occupations, whose tasks can presumably be automated after the introduction of new technology. We use 1980 as the pre-technology period in order to construct the control variables and compare it to the occupational composition in the period 1990-2015. Our focus on such a long span of time is motivated by the fact that in the model, we compare steady-state predictions and ignore short-term dynamics. Furthermore, the national trend shows a decline in the share of routine cognitive jobs starting in the late 1980s. Table 3 presents the results of linear regressions of the change in the MSA’s share of routine cognitive occupations between 1990 and 2015. Specification (1) indicates that a one standard deviation increase in the local price index (an increase of 21.4 percent in the local price index) is associated with a 0.8 percentage point larger drop in the routine cognitive share over 1990-2015. Thus, the most expensive places have about a 4.5 percentage point larger drop in the routine cognitive share relative to the cheapest locations. This is one quarter lower than the average routine-cognitive share of 23 percent in 2015….”

"...A counterfactual exercise where we simulate a fall in IT prices by 65 percent - corresponding to a similar change in the data between 1990 and 2015 - explains both the fall in employment in routine cognitive jobs and the rise in non-routine cognitive jobs. Quantitatively, the exercise explains about 28 percent of the change in employment shares in cognitive occupations...."

"...the employment share of routine cognitive occupations falls substantially more in expensive locations, about 40 percent more relative to the average. Similarly, the wage gap between routine and non-routine cognitive jobs widens even more in expensive locations, about 20 percent more compared to the average. Overall the results indicate a strong role for IT in the displacement of routine cognitive employment and a rise in non-routine cognitive employment and the accompanying polarization of earnings across jobs and cities..."

Evidence"...Fact 1. Stronger IT Adoption in Expensive Cities. Figure 2 visualizes the positive correlation between local rental prices and the average IT budget per worker. Mere inspection shows that the magnitude of the change in IT spending as the rent index changes is sizable. Furthermore,Table 1 shows the results for MSA-level linear regression models of the log of the average IT budget per worker, adjusted for plant employment interacted with three-digit SIC industries, following Beaudry et al. (2010) and Doms and Lewis (2006). The regression results provide support for the hypothesis that IT expenditure per worker is increasing in the cost of housing. The elasticity is highly significant and its value barely changes under different regression specifications. The MSA’s rental price index in 1980 helps to explain the variation in IT budget per worker across MSAs, even after controlling for the presence of natural amenities, housing supply elasticity, and industry composition.9 In specification (1), a one standard deviation increase in the local price index (an increase of 21.4 percent in the 1980 local price index) is associated with an increase of $107.43 in the MSA’s average IT budget per worker. This magnitude corresponds to an increase of 3.67 percent in the average IT budget per worker. Specification (2) finds no statistically significant correlation between the MSA’s share of routine cognitive jobs in 1980 and the average IT budget per worker in 2015. Specification (3) finds a statistically significant correlation between the area’s ratio of college equivalents to non-college equivalents and the average IT budget per worker in 2015, constructed as suggested by Beaudry et al. (2010). However, as we include all controls presented in specifications (1)-(3) together in specification (4), the area’s ratio of college equivalents to non-college equivalents loses statistical significance. Differently, the impact of local rent prices shows just minor change in statistical significance between specifications (1) and (4). Finally, specification (5) controls for the MSA’s average degree of offshorability of local jobs in 1980 - using the task offshorability index presented by Autor and Dorn (2013). We find again that the impact of local housing prices is robust to the addition of the controls...."

Bottomline, "We show that differential IT investment across cities has been a key driver of job and wage polarization since the 1980s. Using a novel data set, we establish two stylized facts:IT investment is highest in firms in large and expensive cities, and the decline in routine cognitive occupations is most prevalent in large and expensive cities. To explain these facts, we propose a model mechanism where the substitution of routine workers by IT leads to higher IT adoption in large cities due to a higher cost of living and higher wages. We estimate the spatial equilibrium model to trace out the effects of IT on the labor market between 1990 and 2015. We find that the fall in IT prices explains 50 percent of the rising wage gap between routine and non-routine cognitive jobs. The decline in IT prices also accounts for 28 percent of the shift in employment away from routine cognitive towards non-routine cognitive jobs. Moreover, our estimates show that the impact of IT is uneven across space. Expensive locations have seen a stronger displacement of routine cognitive jobs and a larger widening of the wage gap between routine and non-routine cognitive jobs….Figure 2 visualizes the positive correlation between local rental prices and the average IT budget per worker. Mere inspection shows that the magnitude of the change in IT spending as the rent index changes is sizable….”

New Winship on declining LFP, finds that pay hasn't declined, nor has pay lagged productivity (though median pay has lagged productivity growth) implies decline in LFP is driven by other factors (cultural, transfers though he doesn’t attempt to quantify those drivers) Key chart, “…Rather than showing trends in hourly wages,Figure 11 displays the trend in median annual earnings. Line 1 shows the trend in annual wage and salary income among those who have no self-employment earnings. From 1973 to 2019, the increase in the annual median was 6 percent, compared with a 5 percent rise in the median hourly wage of prime-age men. Adding nonwage compensation (Line 2) leads to a 14 percent increase (compared with 12 percent for hourly compensation). It turns out that adding the self-employed (and their earnings) to this sample does not change that conclusion: median annual compensation (Line 3) rises 13 percent.56 At the 10th percentile (not shown), annual compensation (including the earnings of the self-employed) rose 4 percent, compared with 10 percent for the 10th percentile of hourly compensation among employees. In this case, lower annual compensation compared to the hourly measure is likely because more workers at the 10th percentile do not work consistently throughout the year or work fewer hours overall. A final criticism of the trends shown in this section is that we cannot observe the compensation of non-working prime-age males who have dropped out of the labor force. It may be that the only reason compensation seems to have risen is because would-be workers with low compensation are more likely to drop out of the data. In this telling, demand for less-skilled workers may have fallen, but the charts above fail to show it because they only look at men who continue to work. Line 4 of Figure 11 attempts to address this criticism by displaying a counterfactual trend. Respondents in the Current Population Survey data who did not work in the previous year are asked why they did not work. The possible answers include inability to find work, being sick or disabled, taking care of home or family, going to school, retirement, being in the Armed Forces, or “other.” Imagine that nonworking men who were disabled, sick, retired, or said they were nonworking for ‘other’ reasons not listed did not become a larger group between 1973 and 2019 relative to workers. Further, imagine that all these additional men who would have been working would have been below-median workers had they held down jobs. Finally, imagine that in every year all men with no earnings who said they could not find work had worked at below-median compensation. Line 4 in Figure 11 attempts to say what the trend in prime-age male compensation would have been under those counterfactual circumstances. According to this counterfactual trend, the annual compensation of prime-age men still would have risen by 11 percent (instead of 13 percent).

Lit review of scale estimates, "...The inner product of the low scenario vector and the jobs vector yields the answer that about29 million jobs are offshorable, which was about 22% of the labour force in 2004.The inner product of the high scenario vector with the jobs vector gives the answer that about 38 million jobs might be offshorable (about 29% of all jobs). Blinderrefined the first vector, which describes the offshorability of each occupation, in subsequent research (Blinder 2009; Blinder and Krueger 2013). Some researchers came up with broadly similar results, while others found much lower figures. McKinsey Global Institute (2005) looked at eight representative sectors in various high-wage economies and estimated that about 11% of the jobs were offshorable to developing countries. Bardhan and Kroll (2003) found that about 11% of all US jobs were offshorable, but they limited themselves to occupations where some offshoring was already occurring.Van Welsum and Vickery (2005) gauged that 20% of total US employment was offshorable. Jensen and Kletzer (2010) used a very different approach that leveraged location data inside the US. Geographically concentrated service sectors were more tradable, they suggested, because service consumers tend to be dispersed in proportion to the population. Their work implied that 38% of US workers are in tradable, and therefore offshorable, occupations. In brief, the estimates were never negligible, but some were less than half those of Blinder’s original estimate...."

These jobs are English and soft skill intensive"...As shown in Figure 2.3, jobs that can be done remotely are also occupations that typically place greater importance on oral expression and written expression. Figure 2.4 shows that teleworkable jobs also typically place greater importance on persuasion and social perceptiveness.Both sales engineers and mathematical technicians can telework, but they are at opposite extremes in terms of the importance of persuasion (4.25 versus 1.66 out of 5). To the extent that social and cultural contexts vary across countries, this makes it less likely that a public relations specialist or a sales engineer located in Hanoi is a perfect substitute for one located in Seattle..."

See their table 4.4,"...The first line of Table 4.4 reports the value of US OBS imports in 2019 from four partners: China, India, Brazil, and Canada. The United States is the largest destination for Brazilian, Canadian, and Indian exports of OBS. It is China's second largest destination after Hong Kong. The figures are all very modest: about $11 billion from India and Canada and even less from China and Brazil. The resulting numbers of telemigrant jobs suggested by the calculation are 190,000 in Canada, 400,000 in Brazil, 360,000 in China, and 2.38 million in India. As a result, the jobs increases associated with an 18% increase in US OBS imports are very modest. For India, the number is 420,000 more telemigrant jobs. The figure is less than 70,000 for the three other economies. The job increases associated with increased exports to the EU are similarly modest...."

Richard Baldwin and Jonathan Dingel start to try to think about how offshoring will work going forward in terms of moving higher skilled jobs from high wage to low wage countries, "...The starting point is to recognize that many jobs that can be performed remotely require soft skills that make domestic and foreign workers imperfect substitutes. The equilibrium number of telemigrants, therefore, depends on the number of potential foreign suppliers of these tasks and the bilateral frictions that impede trade in these services..."
Ultimately they suspect the impact will be small (on the recipient country)"...Our quantification is based on two simple ingredients. The first is interpreting trade in certain services as payments to telemigrants so that the gravity equation for trade flows can be used to describe how the volume of transactions will respond to lower trade costs. We updated gravity regressions estimated by Head, Mayer, and Ries (2009) to ballpark these magnitudes. The second ingredient is to assess the development potential of this trade by crudely translating trade flows into numbers of jobs using average wages and the approximation that payments for these services are mainly payments to workers. This is clearly not true for some types of services trade - fees for using oil pipelines, for instance - but it seems sensible for categories like Other Business Services, which contains many of the activities that would be transformed by remote work going global. Our quantification exercise yields a simple message: the number of offshored jobs is unlikely to be transformative when it comes to the development paths of most emerging economies. This conclusion stems from a point of fact and a point of economic logic. First, the current baseline of trade in Other Business Services is very small. Multiplying these flows by a factor of two or three would not translate to many jobs in emerging markets. Second, quantitative trade models that assume constant elasticities cannot generate very large responses to modest declines in trade costs. There are no “tipping points” in canonical structural gravity models...."

Note they don’t provide the regression results but describe them, “…Yet, even when districts are the same on these dimensions,a CDO remains significantly and negatively related to both the level and change in white-black achievement gaps. The white-Hispanic achievement gap and the rate of change in that gap, at least for math test scores, continues to be negatively associated with a district employing a CDO even when all of these other factors are controlled. The relationship between a CDO position and achievement gaps between non-poor and poor students ceases to be statistically significant—meaning that one can no longer be confident that the gaps differ from zero, even when other factors are controlled statistically….”

Here is their achievement gap data, “…A simple comparison of achievement gaps in districts with and without CDOs shows that gaps are larger in districts that employ CDOs. In districts without a CDO, the average black student is 1.9 grade levels behind the average white student on standardized test results. In districts with CDOs, the achievement gap is half a grade level larger, with the average black student being 2.4 grade levels behind the average white student. This pattern repeats itself for the white-Hispanic and the non-poor-poor achievement gaps. The gap between the average white and Hispanic student on standardized tests is 0.44 grade levels larger in districts with a CDO than it is in districts without that position. The gap between the average non-poor and poor students is 0.37 grade levels larger in districts with CDOs than in those without them. Perhaps districts create CDO positions because they have larger achievement gaps that they wish to remedy. To address this concern, it is possible to examine the trend in achievement gaps, over time, rather than the static magnitude of those gaps, to see if districts with CDOs are making progress to close those gaps. Standardized test results show that achievement gaps are growing wider over time in districts with CDOs. From 2009 to 2018, the white-black achievement gap grew by 0.03 grade levels each year in districts with CDOs relative to districts without that position. The white-Hispanic achievement gap grew by 0.02 grade levels more per year over this time period in districts with CDOs versus those without them. And the gap between poor and non-poor students grew by 0.01 grade level in districts with CDOs compared to those without them. Even when other observed characteristics about school districts are controlled statistically, the negative relationship between a CDO position and achievement gaps remains. A regression can make statistical adjustments for differences across districts to gain a better picture of how CDOs affect achievement gaps….”

Reviewed the Heritage study, here is who has diversity officers, “…The picture that emerges is that being in a larger district, in a blue state, with more black students, more ELL and FRL students, and more school resources all contribute to the likelihood of school districts employing a CDO. Being in a blue state may make CDOs more common because there is stronger political sympathy for the activities in which CDOs engage. Larger districts with more resources may be in a better position to afford CDOs. More black students, more non-English-speaking students, and more students in poverty may increase the chances of having a CDO because districts may believe that these are the groups that a CDO is meant to assist…”

“…According to the Almanac of American Philanthropy, Americans donate around seven times as much as continental Europeans to charitable causes per capita. Per person, even after adjusting for differences in household income, Americans donate twice as much of their income as the Dutch, three times as much as the French, five times as much as Germans, and ten times that of Italians. Only 14 percent of American donations come from foundation grants, and another 5 percent from corporations. More than 80 percent of charitable giving, however, is done by individuals. And this charity is found wide and deep within society. Every year, six out of ten households in the United States donate to a charitable cause, and the typical household gives somewhere around $2,000 to $3,000. The entire nation is altruistic, though the more religious the population, the more it gives. But even 40 percent of secular Americans give to charity, still better than most European nations….”

David Harsanyi, "Americans are more generous than Europeans — by a large margin,"New York Post, October 23, 2021, https://nypost.com/2021/10/23/americans-are-more-generous-than-europeans-by-a-large-margin/

Americans are more generous than Europeans — by a large margin

Liberals often love to portray America as a cartoonishly greedy nation driven by a hyperindividualistic and capitalistic nature that exhibits little concern regarding the common good or others around the world.

This idea pervades our culture. When asked to describe themselves, 68 percent of Americans came to the word “selfish” as the top negative trait.

Yet by nearly every measure Americans are more generous with their money and time than anyone — including Europeans.

Indeed, American charitable giving exceeds the entire GDP of most European countries.

According to the Almanac of American Philanthropy, Americans donate around seven times as much as continental Europeans to charitable causes per capita. Per person, even after adjusting for differences in household income, Americans donate twice as much of their income as the Dutch, three times as much as the French, five times as much as Germans, and ten times that of Italians.

Only 14 percent of American donations come from foundation grants, and another 5 percent from corporations. More than 80 percent of charitable giving, however, is done by individuals. And this charity is found wide and deep within society. Every year, six out of ten households in the United States donate to a charitable cause, and the typical household gives somewhere around $2,000 to $3,000.

The entire nation is altruistic, though the more religious the population, the more it gives. But even 40 percent of secular Americans give to charity, still better than most European nations.

Indeed, in the United States, the generous can be found among the wealthy and the poor. As a percentage of income, Americans in lower income brackets are just as generous as the wealthy, and more generous than most of the middle class. Unsurprisingly, in absolute dollars the rich give the most, with the top 1 percent of the income earners donating a third of all charity. And the richest 1.4 percent are responsible for nearly all charitable donations made at death.

Despite stereotypes about the selfishly rich, the more the nation struggles, the more the wealthy Americans pitch in. During the coronavirus crisis, for example, the nonprofit arms of major investment houses saw huge increases in charitable giving from wealthy Americans. Grants to food banks and other food assistance programs were up 667 percent nationally — 800 percent in the hardest-hit mid-Atlantic states.

Middle- and working-class people continued to give to their local charities, even as they struggled — one report tallied over 750,000 transactions to more than 100,000 charities in the first three months of the pandemic.

Critics of the US argue that most of the charitable donations are given to religious groups, and are thus obligations rather than altruism.

This is also a myth. The three most popular causes Americans contribute to are household basic social services, “combined purpose” charitable organizations like United Way or Catholic Charities — which help the poor — and health care.

Europeans will, no doubt, argue that they already give charity in high taxes that fund big social safety nets. The data shows, however, that in overall spending, there isn’t much difference between the United States and other developed nations — each redistributing 20 percent of GDP. Once added in with the massive amount of charity, there is no comparing American generosity — the only difference is that most of ours is not a state obligation.

The American disposition is to rely far more on the communal and local help than Europeans, who rely on government to do their charity for them. The cultural habits formed over 200 years of American life have created a society that both values and leans heavily on charitable causes.