Macro Roundup

Giovanni Peri and Reem Zaiour estimate that relative to the 2020 trend the United States is down 2 million working aged immigrants, half of whom would have been college educated, "...During the years 2020 and 2021, the number of immigrants arriving in the United States decreased substantially...This decline in immigrant and nonimmigrant visa arrivals resulted in zero growth in working-age foreign-born people in the United States. Prior to 2019, the foreign born population of working age (18 to 65) grew by about 660,000 people per year, as reported in data from the monthly Current Population survey…. This trend came to a stop already in 2019 before the pandemic, due to a combination of stricter immigration enforcement and a drop in the inflow of Mexican immigrants. The halt to international travel in 2020 added a significant drop in the working-age immigrant population. As of the end of 2021, the number of working-age foreign-born people in the United States is still somewhat smaller than it was in early 2019. and,relative to the level it would have achieved if the 2010-2019 trend had continued, there is a shortfall of about 2 million people. A similar calculation done using Current Population Survey (CPS) monthly data on foreign-born individuals with a college degree indicates that of the missing two million foreign workers, about 950,000 would have been college educated, had the pre-2020 trend continued. This is a very substantial loss of skilled workers, equal to 1.8 percent of all college-educated individuals working in the US in 2019.... As the U.S economy recovered from the Covid-19 crisis in 2021 and job-creation increased, employers found it more difficult to fill jobs. Across sectors, these shortages are significantly associated with the loss of foreign workers. The recent economic recovery has seen more numerous job openings and jobs going unfilled for longer periods of time. In spite of upward pressure on wages in several sectors, such as hospitality and food-related services, the number of unfilled job openings relative to employment has remained very high. The absence of foreign-born workers plays an important role in this. Those sectors that had a higher percentage of foreign workers in 2019 had significantly higher rates of unfilled jobs in 2021 (see second chart). Our estimates suggest that an industry that had a 10% higher dependence on foreign workers than another industry in 2019 saw a 3% higher rate of unfilled jobs in 2021….The loss of two million potential immigrants, of which a million are college educated, could impact productivity and employment in the long run..."

Giovanni Peri and Reem Zaiour, "Labor Shortages and the Immigration Shortfall,"Econofact, January 11, 2022, https://econofact.org/labor-shortages-and-the-immigration-shortfall

Labor Shortages and the Immigration Shortfall

The Issue:

The Facts:

During the years 2020 and 2021, the number of immigrants arriving in the United States decreased substantially. In the early months of 2020 and in response to the Covid-19 health crisis, the Trump administration closed the borders with Mexico and Canada and placed restrictions on international arrivals. Visa processing at U.S. embassies and consulates around the world was also severely disrupted, leading to a dramatic decline in the inflow of foreign nationals on all types of temporary visas. According to the Department of State, the slowdown in visa processing generated much fewer visa entries and a large backlog of more than 460,000 people with unprocessed visas as of late 2021. Similarly, the number of permanent residents arriving in the U.S. also fell substantially. Statistical estimates relative to the Fiscal year 2020 (from October 1st 2019 to September 30th 2020) indicate a decrease of immigrant visas by 45% and a decrease of nonimmigrant visas by 54% relative to the previous year.

This decline in immigrant and nonimmigrant visa arrivals resulted in zero growth in working-age foreign-born people in the United States. Prior to 2019, the foreign born population of working age (18 to 65) grew by about 660,000 people per year, as reported in data from the monthly Current Population survey (see the first chart). This trend came to a stop already in 2019 before the pandemic, due to a combination of stricter immigration enforcement and a drop in the inflow of Mexican immigrants. The halt to international travel in 2020 added a significant drop in the working-age immigrant population. As of the end of 2021, the number of working-age foreign-born people in the United States is still somewhat smaller than it was in early 2019. and, relative to the level it would have achieved if the 2010-2019 trend had continued, there is a shortfall of about 2 million people. A similar calculation done using Current Population Survey (CPS) monthly data on foreign-born individuals with a college degree indicates that of the missing two million foreign workers, about 950,000 would have been college educated, had the pre-2020 trend continued. This is a very substantial loss of skilled workers, equal to 1.8 percent of all college-educated individuals working in the US in 2019.

The loss of foreign workers is not the only reason for the high rate of unfilled jobs. Increased retirement and increased bargaining power of workers are likely playing an important role. While more generous unemployment and welfare benefits introduced during the crisis may have discouraged workers from taking low-paying jobs in 2020 and early 2021, they do not seem to be the cause of current shortages, since most of those benefits expired by mid-2021. Recent anecdotal and preliminary evidence finds a push by workers for more job-flexibility, safety and, generally, better conditions causing resignations and contributing to unfilled job openings. Moreover, increased retirement rates have contributed to the decline in available workers. A recent study finds that just excess retirement and reduced re-entry of retirees to the labor force has increased the share of retirees relative to the US labor force by 1.3 percentage points in the last 2 years (compared to an annual rate of increase or about 0.3 percentage points prior to the pandemic). These factors have affected labor availability, especially in low-paying manual-intensive jobs in sectors as food services and hospitality. The second chart shows that the rates of unfilled jobs in those two sectors are well above what is predicted by the statistical association across all industries between the rate of unfilled jobs and industries' dependence on foreign workers, suggesting that other factors are at work in those sectors.

The loss of two million potential immigrants, of which a million are college educated, could impact productivity and employment in the long run. A recent study by one of the authors shows that college educated immigrants are likely to work in the Science, Technology, Engineering and Math (STEM) sectors; these jobs are drivers of innovation and productivity growth. Additionally, research focused on the high-skilled STEM jobs shows that they are responsible for creating a job-multiplier effect at the local level, producing opportunities of up to 2.5 additional jobs for each additional employed high-skilled worker through local demand for goods and services and by companies expanding and hiring other workers. In light of these effects, the loss of one million college-educated immigrants may leave the U.S. economy with lower productivity which translates to lower growth. Applying the estimated job multiplier from the research referenced above to the observed loss of college-educated immigrants implies 2.5 million fewer jobs in those local economies where the immigrants would have worked.

The loss of immigrants could imply a large loss of entrepreneurship. Immigrants have a three times higher probability of starting firms than natives in the U.S., according to estimates from an article published in 2020. Immigrants are more likely to start small firms (with 0-10 employees) but also medium size and large firms (with 1000 employees or more) relative to natives. Using the estimated entrepreneurship rate of immigrants from this study, two million fewer immigrants would imply a decline in firm creation, solely due to lack of entrepreneurs, corresponding to a loss of more than 200,000 jobs.

The loss of foreign college students will affect American educational institutions. Foreign college students are the part of the foreign-born population with the largest decline in the last 2 years. After decades of continued growth in foreign enrollment in American colleges and universities, peaking in 2018-19, their number dropped by 20% in 2020. This has had an adverse effect on higher education, one of the largest U.S. service exports. Furthermore, foreign students, especially graduate students, have been very important contributors to US research and innovation and patenting. Their absence could weaken the innovation and patenting potential of those universities, research institutions, and businesses that depend on cutting-edge research and innovation.

What this Means:

The shortfall of immigrants over the past two years has had immediate adverse consequences for filling jobs and also harms the long-run prospects for the U.S. economy. The drop in the number of foreign students and high-skilled immigrants is particularly concerning for the long-run effects on productivity, innovation and entrepreneurship. The drop in the number of less-skilled immigrants can be contributing to the current shortages in several industries in which they had been highly represented. In light of this, the government should make an effort this year to facilitate the processing of non-immigrant and immigrant visas to avoid further reducing the number of immigrants and the resulting negative economic consequences.

Sasser Modestino tracks the three waves of American drug deaths, "...During 2019, before the onset of the pandemic, 70,630 individuals died from a drug overdose — six times greater than the number in 1999, with opioids involved in 70% of the deaths....With the onset of the COVID pandemic, the combination of increased stress, reduced access to care, and greater prevalence of more lethal drugs led to a record number of93,000 drug deaths in 2020 with roughly 69,000 from opioids. Although opioid overdose-related death rates among non-Hispanic whites have typically exceeded that of other groups, rates among Blacks have risen more steeply in recent years, a trend that preliminary data indicates may have accelerated during the pandemic. And monthly state data indicates that overdose rates remained elevated in 2021....The rise in opioid overdose deaths occurred in three distinct waves arising initially from prescription opioids such as OxyContin, then switching to illegal opioids such as heroin, and finally moving to synthetic opioids — primarily fentanyl...."

Alicia Sasser Modestino, "How Opioid Overdoses Reached Crisis Levels," Econofact, November 19, 2022, https://econofact.org/how-opioid-overdoses-reached-crisis-levels

How Opioid Overdoses Reached Crisis Levels

More than 90,000 people died of a drug overdose in the U.S. during 2020 — a 30 percent increase over the prior year — and the 12-month death toll hit over 100,000 deaths if you focus on the first 12 months of the pandemic, between April 2020 and April 2021. Drug overdose deaths had been on the rise for two decades in the United States before the pandemic spike. But the problem has been evolving in nature. The opioid crisis started with over-prescribing of prescription painkillers and has since shifted to more dangerous and illegal substances including heroin and fentanyl. Recent restrictions on prescribing and greater use of prescription drug monitoring programs have sought to reduce the supply of opioids while increased funding for substance abuse treatment has focused on decreasing demand. Although neither approach has been proven effective on its own, a multipronged approach appears to offer the most hope.

The Facts:

Increasing drug overdose deaths in the United States have largely been driven by opioids. During 2019, before the onset of the pandemic, 70,630 individuals died from a drug overdose — six times greater than the number in 1999, with opioids involved in 70% of the deaths. The annual death toll from opioids was higher than the number of Americans killed by HIV AIDS or guns in any single year. Drug overdose rates have been higher and rising more rapidly among men over the past two decades and more recently among those aged 25 to 34 years. With the onset of the COVID pandemic, the combination of increased stress, reduced access to care, and greater prevalence of more lethal drugs led to a record number of 93,000 drug deaths in 2020 with roughly 69,000 from opioids. Although opioid overdose-related death rates among non-Hispanic whites have typically exceeded that of other groups, rates among Blacks have risen more steeply in recent years, a trend that preliminary data indicates may have accelerated during the pandemic. And monthly state data indicates that overdose rates remained elevated in 2021.

The rise in opioid overdose deaths occurred in three distinct waves arising initially from prescription opioids such as OxyContin, then switching to illegal opioids such as heroin, and finally moving to synthetic opioids — primarily fentanyl. The first wave began in the 1990s with increased prescribing of opioids, such as OxyContin for the medical management of pain. The most commonly misused prescription opioids were Hydrocodone (such as Vicodin®), Oxycodone (such as OxyContin®), and Codeine. Since 2010, the death rate from prescription opioids leveled off at around 5 deaths per 100,000 (see chart). The slowdown in the mortality rate coincided with decreases in the amount of opioids prescribed in the U.S., attributed to both growing awareness of the risks associated with prescription opioids as well as to state-level policies aimed to reduce over-prescribing. Yet as prescription opioid deaths plateaued, a second wave of the opioid crisis began in 2010 with rapid increases in overdose deaths involving heroin. There is evidence of substantial connection between prescription opioid abuse and heroin use. In a sample of heroin users in a treatment program, 75% of those who began opioid abuse after 2000 reported that their first regular opioid was a prescription drug and that heroin often is more readily accessible, less expensive, and offers a more potent high than prescription opioids. As of 2016, the death rate for heroin also began to level off at around 5 deaths per 100,000. However, even before the rate of heroin deaths slowed, a third wave began in 2013, with significant increases in overdose deaths involving synthetic opioids - particularly illicitly manufactured fentanyl, which is 50 to 100 times more potent than morphine. Illicit fentanyl can be found in combination with heroin, counterfeit pills, and cocaine—making it much more lethal as it is difficult for users to determine the dosage. As of 2019, the death rate due to illicit fentanyl was 11.4 per 100,000 and still rising.

One response to the growing addiction crisis has centered on efforts to restrict the supply of prescription opioids. Many states have passed laws limiting opioid prescribing for acute pain in first-time opioid users to a 7-day supply or shorter (see here). However, the effectiveness of these restrictions on reducing the risk of opioid dependence or mortality is unclear. The Centers for Disease Control and Prevention warns that the risk of long-term opioid use increases with each additional day of taking the pills — starting with the third day. Another strategy aiming to reduce the abuse of prescription opioids relies on Prescription Drug Monitoring Programs, which make it more difficult for people to receive prescription opioids from a physician by allowing physicians to view the prescribing history of a given patient. These programs are intended to limit “doctor shopping,” or the practice of visiting several doctors in order to receive a high quantity of prescription opioids. There is recent evidence that monitoring programs that require physicians to check the database on all cases — not just those that are suspicious — reduce indicators of opioid abuse. However, restrictions on prescribing that make it more difficult for people to access opioids from legal channels might have unintended consequences if, for example, it induces people to seek illicit opioids on the black market, which often increases the likelihood of an overdose.

The number of opioid prescriptions in the U.S. has declined markedly. However, the dispensing rate varies greatly by location and by provider and remains very high in areas of the country. The overall opioid-prescribing rate in the United States has declined from a peak of about 81 opioid prescriptions written for every 100 Americans in 2012 to about 43 per 100 in 2020 (see here). But prescription rates vary greatly. Prescribing of opioids per capita is significantly higher in rural versus urban counties and in places that experience higher rates of “deaths of despair”— deaths related to opioid overdose, alcohol abuse, and suicide — as well as higher rates of unemployment and lower rate of insurance coverage. In addition, prescribing rates are higher where there are more dentists and primary care physicians per capita. And, research shows that emergency room patients treated by physicians who prescribe opioids more often are at greater risk for long-term opioid use even after a single prescription than those who see less-frequent prescribers.

With continued over-prescribing, the likelihood that opioid medications are diverted from the primary patient to secondary users is quite high. The 2018 National Survey on Drug Use and Health found that more than half (51.3 percent) of people who misused pain relievers in the past year obtained the last pain reliever from a friend or relative. Preliminary findings from a Massachusetts pilot program that encourages patients to return unused opioid prescription medication indicate that patients who return unused medication typically return at least half of the pills that they had been prescribed. This finding suggests that physicians may still be prescribing more medication than is necessary even when an opioid is warranted.

Policy responses on the demand side largely include various types of addiction treatment, including the use of medication-assisted therapies. Access to substance abuse treatment in the U.S. has been limited and many counties with relatively high drug-induced death rates do not have a single stand-alone substance use treatment facility. Medication-assisted therapies involve drugs that can satisfy opioid dependence without producing the same euphoric effect as heroin, such as methadone and buprenorphine. Evidence suggests that increased access to these treatment opioids is associated with decreased overdose deaths. One Massachusetts study found that treating opioid overdose survivors with buprenorphine or methadone was linked to a 40% to 60% drop in mortality 1 year later (see here). Yet, sufficient adherence to these medication-assisted therapies is often very low. For example, the minimum recommended duration for buprenorphine/naloxone treatment (also known as Suboxone) is one year or more. Yet studies indicate that 25 to 30 percent of patients discontinue treatment within the first month and 50 percent or more of patients discontinue within 6 months. Moreover, the number of providers that can prescribe these medications is restricted. However, new federal guidelines released in April 2021 will reduce regulatory hurdles to allow far more medical practitioners — such as nurse practitioners and physician assistants — to prescribe buprenorphine in treating opioid use disorder, potentially increasing access particularly in rural areas where there are few physician prescribers. And Medicaid expansions have improved coverage and medication-assisted therapy access for substance-abuse patients.

What this Means:

The economic burden of opioid abuse is vast, including healthcare costs, addiction treatment, lost productivity, and policing and imprisonment. This is on top of the incalculable costs from the loss of life and broken families that are associated with the opioid abuse crisis. Yet there is no silver bullet that can fix the current situation. Efforts to rein in the supply of prescription opioids often have unintended consequences such as driving current users to seek out more dangerous drugs such as heroin and fentanyl. Efforts to reduce demand through addiction treatment are costly and prolonged. Like most complex social problems, the solution to the opioid crisis has to be a multipronged approach. We need to simultaneously pursue preventive measures that decrease the initial prescribing of opioids in favor of alternatives to pain management while maintaining their use for those with chronic pain. These approaches need to be balanced with ensuring that patients suffering from opioid use disorder have access to the most effective forms of treatment as well as harm reduction methods such as safe/supervised injection sites and naloxone to prevent as many overdose deaths as possible. Without continued and coordinated action, we risk reducing access to substance-use treatment just as our opioid-related care needs are at their peak.

Noah Smith makes the case that technology has already bent the curve on climate change, "...it seems easily possible to imagine a future where we don’t just muddle along with business-as-usual, but in which we do address the threat of climate change with only mild disruptions of our current way of life. The biggest reason is the advance of technology. Renewable energy, energy storage, electric vehicles, and other green technologies have gotten so good, and so cheap, so quickly, that the economic incentives now favor decarbonization. And this is not just theory. Recent data revisions from the Global Carbon Project show that total annual global carbon emissions — including from both fossil fuel use and land use changes — were approximately flat between 2011 and 2021: Global annual emissions from electric power alone, meanwhile, peaked in 2018....Now, annual emissions represent the total amount of carbon we add to the atmosphere each year, so the carbon in the air is still going up (and there’s also methane to think about). But the fact that a decade of rapid global economic growth wasn’t accompanied by any increase in global carbon emissions is a very good sign; as technology continues to improve, we should start to see big drops in annual emissions....Meanwhile, renewables are getting so cheap that even countries like China and India, who are loath to sacrifice even a tiny bit of economic growth for the sake of the global environment, are now making net-zero emissions pledges (China by 2060, India by 2070). These pledges aren’t binding yet, but the time frames fit very well with the scenario where we hold global warming to 2ºC. So the window on climate change is narrowing. The rosy scenario has probably been missed, but the super-pessimistic scenarios are looking much less likely...."

Noah Smith, "Do we stand at the precipice of radical change?," Noahpinion, January 27, 2022, https://noahpinion.substack.com/p/do-we-stand-at-the-precipice-of-radical

Do we stand at the precipice of radical change?

If unrest in America has peaked, you wouldn’t know it from people’s tweets. World War 3, civil war, and apocalyptic climate change are the standard topics of discussion now. Saying that “democracy is dying” and members of the opposite party “literally want to kill you” is de rigueur when discussing electoral politics. On Signal, friends ask me in hushed tones whether they should stockpile food or move out of the country.

Perhaps no tweet so perfectly sums up the vibe on social media as this one:

It’s understandable that Americans would feel this way right now. We’re in the middle of a pandemic that has probably killed a million of our people and is still killing thousands a day. A year and a half ago we had the largest protests the country has ever seen, and a year ago we had what was arguably our country’s first real coup attempt. Violent crime is high and rising, with every day bringing lurid reports of new atrocities. Russia is on the verge of invading Ukraine, while China menaces Taiwan, India, and Japan. And over it all looms the menacing shadow of climate change, as wildfires, hurricanes, and extreme heat events become commonplace.

At such a time, it’s reasonable to deal with the darkness of the present by reaching for radical hope. For many young people, this means some flavor of socialism — a pastoralist degrowth that will stop the runaway train of progress, or a futuristic “luxury space communism” that will solve climate change while delivering techno-prosperity for all. This utopianism reminds me of the character Lauren Olamina in the novel Parable of the Sower, who deals with the trauma of her collapsing society by declaring that humanity must spread throughout the stars.

“Socialism or barbarism” — is it so crazy to think this is the choice we face? In the 20th century we had both. William Butler Yeats wrote “The Second Coming” in 1919, and his words proved more prophecy than hysteria. In the decades that followed, Yeats’ “rough beast” was indeed born — the global economy collapsed, a world war claimed 60 million lives, and ideological nightmare regimes sprung up and killed tens of millions more (often in the name of socialism!). And yet during those decades we also saw the social-democratic West achieve heights of prosperity and freedom hitherto unimagined, while inequality and poverty plummeted; meanwhile, the world freed itself from the yoke of European colonialism. It was an age when grandiose fantasies and grotesque nightmares came true.

So it’s not impossible that we stand at a similar precipice now, a century later. But it’s also worth remembering a very different time, when it also seemed to many that the world stood on the edge of disaster, but we ended up muddling through. That would be the late 20th century.

1965-1994 was crazy, but we muddled through

“And as you tread the halls of sanity/ You feel so glad to be/ Unable to go beyond” — E.L.O.

Most Americans are now too young to remember, but in the early 1970s domestic terrorist attacks became so commonplace that they were practically ignored — over a year and a half during 1971 and 1972, the FBI counted over 2500 bombings in the U.S. Most of these attacks didn’t kill anyone — they were just bombs that blew up empty buildings. But imagine the hysteria if this was happening multiple times a day in 2022! Two left-wing radicals tried to kill President Gerald Ford within a three-week period in 1976!

And people were dying. In the late 60s and 70s, the murder rate — always much higher in the U.S. than in other rich countries — spiked to levels not seen since the 19th century, and stayed high until the late 90s:

And a substantial amount of this violence was racially or religiously motivated. In the late 1980s, hate crime referrals to the FBI were almost 10 times as high as in the late 2010s. Data aren’t available before that.

Protests and riots were a fact of life during these years as well. The late 60s and early 70s didn’t see any single week of protesting as intense as the first two weeks of the George Floyd protests, but the nationwide protest campaign against the Vietnam War went on far longer and almost certainly ultimately involved many more person-hours. The riots of the late 60s and early 70s resulted in far more deaths than the Floyd protests; even the single-city riot in L.A. in 1992 killed far more than all of the Floyd protests combined. (Let’s not forget that George H.W. Bush sent the U.S. Marines to suppress the L.A. riots — something Trump never managed to convince his generals to agree to in 2020.)

Even the 1990s, which we now remember as a time of social tranquility, were pretty wild. Parable of the Sower came out in 1993! It was 1994 when a right-wing terrorist blew up a building and killed more people than any other terrorist attack on U.S. soil other than 9/11. Just an hour down the road from where I grew up, the FBI and the ATF put a cult under siege, and 86 people ended up dying. In 1996, the Atlanta Olympics that was supposed to symbolize the post-Cold War triumph of peace and democracy was bombed by a right-wing terrorist.

The three decades from the mid-60s to the mid-90s were, simply put, a time of violence and madness. And let’s not forget the economic catastrophe of the late 70s stagflation, the wage stagnation between roughly 1973 and 1993, or the double-digit unemployment rates of the early 80s.

And as for looming catastrophes, eco-dystopias were already starting to appear in the 70s, but the true Sword of Damocles was nuclear war. Tens of thousands of Soviet tanks stood ready to roll into the Fulda Gap at any moment. By the late 80s, the U.S. and USSR were facing each other with over 60,000 nuclear weapons, many on hair-trigger alert.

And yet in the end, what happened? Armageddon didn’t happen. There was no global socialist revolution or fascist reaction; instead, most countries just liberalized and democratized in the 80s and 90s. Milquetoast neoliberalism became the dominant philosophy of how to organize a society. Terrorist attacks guttered to a low background hum, as did riots and violent crime. By the turn of the millennium, the idea of overthrowing the U.S. government seemed like a joke.

In other words, we muddled through. Life puttered along. The horrors of the early 20th century saw a few echoes in the late part of the century (Cambodia’s killing fields, China’s Cultural Revolution), but overall, the nightmares of the earlier decades were remembered and were not repeated. Americans generally remember the 70s as a time of social and political exhaustion, the 80s as a time of silliness and consumerist distractions, and the 90s as a golden age.

So while it’s possible that the 21st century might repeat or even exceed the horrors and wonders of 100 years ago, it’s equally possible that things might putter along like they did 50 years ago.

BUT, say the people who cry “socialism or barbarism”. BUT. Now, unlike in the 80s and 90s, climate change is finally beginning to bite. And this changes everything, because even if racial and partisan unrest fade, and World War 3 never materializes, ecological disaster means that muddling through is no longer an option.

Does climate change change everything?

The people who still deny either the existence, the cause, or the importance of climate change are divorced from reality. This thing isn’t coming; it’s here, now. Anyone who now trembles at the return of the annual “fire season” in the former paradise known as California understands both the imminence of the threat, and how it can manifest in unexpected ways:

Of course, it’s not just wildfires in California. It’s heat domes in Portland and Seattle. It’s eroding home values on the East Coast. It’s increased flooding along rivers and crop destruction in the Northeast and Midwest. It’s intensified hurricanes along the Gulf Coast and drought in the Southwest and in the Plains and Upper Midwest. And this is just the beginning.

What’s more, the world has probably now passed the point where concerted action could prevent major impacts from climate change. Holding the world to the 1.5ºC widely touted as the level necessary to prevent major global impact now seems like an impossible goal, as it would require immediate and drastic changes to the world economy over the next two decades.

To socialists, this really changes everything as far as global governance and the organization of society are concerned. Incrementalism has failed, and the only chance at stopping global catastrophe is the radical recreation of human economies and societies along socialist lines. Just what this would look like — a pastoralist future of degrowth, the “fully automated luxury communism” of the Green New Dealers, or something more authoritarian, is a topic of hot debate on the Left. But nowhere is the option of muddling through given serious consideration — one way or another, it’s asserted, climate change will demolish the society we live in now.

And yet to me, it seems easily possible to imagine a future where we don’t just muddle along with business-as-usual, but in which we do address the threat of climate change with only mild disruptions of our current way of life. The biggest reason is the advance of technology. Renewable energy, energy storage, electric vehicles, and other green technologies have gotten so good, and so cheap, so quickly, that the economic incentives now favor decarbonization.

And this is not just theory. Recent data revisions from the Global Carbon Project show that total annual global carbon emissions — including from both fossil fuel use and land use changes — were approximately flat between 2011 and 2021:

Now, annual emissions represent the total amount of carbon we add to the atmosphere each year, so the carbon in the air is still going up (and there’s also methane to think about). But the fact that a decade of rapid global economic growth wasn’t accompanied by any increase in global carbon emissions is a very good sign; as technology continues to improve, we should start to see big drops in annual emissions.

Now, technological improvement by itself is probably not enough to avert extreme outcomes from warming. But concerted government policy — by democratically elected governments in capitalist countries — can make a really big difference. The UK passed a climate change bill in 2008 that created a legally binding emissions target. As a result, the country began a rapid and sustained switch from fossil fuels to renewable power:

Meanwhile, renewables are getting so cheap that even countries like China and India, who are loath to sacrifice even a tiny bit of economic growth for the sake of the global environment, are now making net-zero emissions pledges (China by 2060, India by 2070). These pledges aren’t binding yet, but the time frames fit very well with the scenario where we hold global warming to 2ºC.

So the window on climate change is narrowing. The rosy scenario has probably been missed, but the super-pessimistic scenarios are looking much less likely. In this thread, Ramez Naam looks at the recent data and concludes that the optimistic scenario is now 2ºC and the pessimistic scenario is probably 2.5ºC.

But this doesn’t mean that climate change will force us to reorganize either society or our economy in radical or unprecedented ways. The UK’s experience shows that we can keep our social-democratic capitalist mixed economies and our modern democratic governments (or in China’s case, its modern autocratic government) and still do what’s necessary to avoid catastrophe by 2070 or so.

Stay mad, stay scared, stay hopeful

Anyway, back to the topic of our current unrest. Despite continuing eruptions of anger at school board meetings and such, I’ve seen some signs that unrest is peaking. Mass protests have largely died down, and — for better or worse — big policy changes in things like policing don’t look like they’re on the table. Meanwhile, public interest in alternative ideologies like socialism seems to be falling:

But that doesn’t mean the big fuss is over and we should all go back to sleep. First of all, as Peter Turchin’s theory of unrest stresses, the biggest factor suppressing unrest is when moderates believe that society will fragment unless they bestir themselves to restore order. In other words, we won’t go back to normal unless normal people stay scared and mad for a long time. Again, recall that Parable of the Sower was published in 1993.

And by the same token, it would be premature for us to abandon the impulse toward positive social transformation. The Climate Left may have no chance of ending capitalism, but they’ve inspired lots of center-left businesspeople, scientists, and policymakers to take climate change more seriously — which, ultimately, is what will contain climate change’s effects. And there are plenty of other problems in our society that will need big pushes in order to fix — our broken health care system, our ruinously high construction costs, and so on.

So while I want to reassure you, I only want to reassure you a little bit. America’s great strength is that we freak out about everything, thus bestirring ourselves to early action when other countries might have let problems fester too long. If all goes well, 20 years from now we’ll look back on the 2020s as when society started to become sane again and we started to rebuild after a decade of chaos and rage. But let’s not get ahead of ourselves.

"...The wind is up in China. Last year the countryChinaconnected 17 gigawatts (GW) of offshore-wind capacity to its electricity grid, according to its National Energy Agency, meaning it can now produce up to 26 GW of its power in this way. Such scale and speed is unprecedented: between 2015 and 2020 the rest of the world, collectively, added just over 14GW, according to data from the International Renewable Energy Agency.In 2019, with 8GW of capacity, Britain was the world’s largest offshore-wind producer. China’s global share is now almost half of the 54GW of offshore wind-power capacity globally....China’s embrace of green power cannot disguise its continued reliance on the dirty sort, particularly coal, the biggest source of greenhouse gases globally. Coal use is declining in most of the world but in China it accounts for 60% of energy production—and will remain a big power source in years to come. In 2020 China commissioned 38.4GW of coal-power plants, offsetting the amount idled elsewhere. Without moving away from coal, China’s talk of net-zero—it says its emissions will peak before 2030 and reach net-zero by 2060—is so much hot air...."

Economist Staff, "China now has nearly half of the world’s offshore wind capacity,"The Economist, January 27, 2022, https://www.economist.com/graphic-detail/2022/01/27/china-now-has-nearly-half-of-the-worlds-offshore-wind-capacity

The wind is up in China. Last year the country connected 17 gigawatts (GW) of offshore-wind capacity to its electricity grid, according to its National Energy Agency, meaning it can now produce up to 26 GW of its power in this way. Such scale and speed is unprecedented: between 2015 and 2020 the rest of the world, collectively, added just over 14GW, according to data from the International Renewable Energy Agency. In 2019, with 8GW of capacity, Britain was the world’s largest offshore-wind producer. China’s global share is now almost half of the 54GW of offshore wind-power capacity globally. (Though the world needs a lot more wind-powered energy yet.)

China’s government sees wind power as a means of reducing air pollution and maintaining energy security. As well as being the world leader in wind power (both on- and offshore), it also leads on solar power. Other countries aren’t keeping up. The International Energy Agency, a global forecaster, estimates that the world—minus China—added only an extra 2.5GW of offshore wind power in 2021. The Biden administration has set a target of 30GW of offshore-wind capacity by 2030, but has only recently approved its first big project (which will provide just 800 megawatts). Britain and Germany have similar ambitions, though they are starting from a significantly higher base.

China’s embrace of green power cannot disguise its continued reliance on the dirty sort, particularly coal, the biggest source of greenhouse gases globally. Coal use is declining in most of the world but in China it accounts for 60% of energy production—and will remain a big power source in years to come. In 2020 China commissioned 38.4GW of coal-power plants, offsetting the amount idled elsewhere. Without moving away from coal, China’s talk of net-zero—it says its emissions will peak before 2030 and reach net-zero by 2060—is so much hot air.

Paul Krugman, "Inflation and the Power of Narrative," Krugman Wonks Out, January 25, 2022, https://www.nytimes.com/2022/01/25/opinion/inflation-economy.html

Inflation and the Power of Narrative

President Biden had what I’d call a human moment yesterday. After a Fox News correspondent shouted out a question about whether inflation would be a political liability, Biden could be heard muttering: “No, it’s a great asset. More inflation. What a stupid son of a bitch.” Seriously, can you blame him?

But why is inflation proving to be so much of a political liability? The idea that Americans are down on the economy because price increases have outstripped wage growth has hardened into conventional wisdom. And there’s obviously something to that. But the political reaction is disproportionate to the actual decline in real wages, and I’d argue that journalists are missing a large part of the story if they fail to realize that.

Let’s talk about the long view of wages and prices.

Here’s the annual rate of change in real wages — the rate of wage increase minus the rate of inflation — for blue-collar workers since the late 1970s:

What about our current situation? The most commonly used wage numbers have been screwy during the pandemic, because of compositional effects. For example, average wages shot up in 2020, not because workers were getting big raises, but because low-wage workers were laid off in disproportionate numbers. So we need to look at estimates that are supposed to correct for these compositional effects, like the Atlanta Fed’s wage tracker:

Still, there’s no question that inflation has outstripped wages over the past year. On the other hand, inflation was low in 2020, measured both by the Consumer Price Index and by the Fed’s preferred measure, the personal consumption expenditure deflator:

This time, however, consumer sentiment is extremely negative — almost as negative as it was in the late 1970s, when real wages were really plunging and unemployment was rapidly rising:

A lot of this is partisanship. Democrats and Republicans used to have similar assessments of the economy, whoever was president. Now Republicans assess the economy as worse than it was in June 1980, when inflation was 14 percent and real wages were falling 6 percent a year.

Some of it also has to involve the way the media cover the economy. I know journalists hate hearing this, but if the way we report on events doesn’t affect public perceptions, what is the point of what we’re doing? And somehow Biden’s inflation, not Biden’s jobs boom, has come to dominate news coverage.

I’m not arguing that inflation isn’t a problem, nor am I doing a Phil Gramm and calling America a “nation of whiners.” I am saying that the remarkably negative public reaction to what by historical standards would at worst be considered mixed news is an important story in itself and deserves both some coverage and, perhaps, self-reflection on the part of those reporting on the subject.

Paul Krugman on what's happening with real wages, acceleration in compensation hasn’t yet offset inflation, on a two years basis wages are likely down, "...The most commonly used wage numbers have been screwy during the pandemic, because of compositional effects. For example, average wages shot up in 2020, not because workers were getting big raises, but because low-wage workers were laid off in disproportionate numbers. So we need to look at estimates that are supposed to correct for these compositional effects, like the Atlanta Fed’s wage tracker: This tracker shows a sharp acceleration in wages; so does the official Employment Cost Index, although this index hasn’t yet been updated to reflect the past few months. Still, there’s no question that inflation has outstripped wages over the past year. On the other hand, inflation was low in 2020, measured both by the Consumer Price Index and by the Fed’s preferred measure, the personal consumption expenditure deflator: So real wages rose last year. On a two-year basis, they’re probably down, but not by a lot...."

Intuitive NBER finds a relationship btw high earning husbands and well educated women’s propensity to work“…The entry of married women into the labor force and the rise in women’s relative wages are amongst the most notable economic developments of the twentieth century. The growth in these indicators was particularly pronounced in the 1970s and 1980s, but it stalled since the early 1990s, especially for college graduates. In this paper, we argue that the discontinued growth in female labor supply and wages since the 1990s is a consequence of growing inequality. Our hypothesis is that the growth in top incomes for men generated a negative income effect on the labor supply of their spouses, which reduced their participation and wages. We show that the slowdown in participation and wage growth was concentrated among women married to highly educated and high income husbands, whose earnings grew dramatically over this period. We then develop a model of household labor supply with returns to experience that qualitatively reproduces this effect. A calibrated version of the model can account for a large fraction of the decline relative to trend in married women’s participation in 1995-2005 particularly for college women. The model can also account for the rise in the gender wage gap for college graduates relative to trend in the same period…”

The basic story“…The entry of married women into the labor force and the rise in women’s relative earnings are amongst the most notable economic phenomena of the twentieth century (Goldin (2006)). These trends were particularly pronounced in the 1970s and 1980s, when full-year participation of married women grew from 38% in 1975 to a peak of 60% in 1996 and the male to female ratio in hourly wages dropped from 1.60 to 1.34. Since then, these indicators have stalled, as shown in figure 1. Moreover, this development is particularly pronounced for highly educated women. The labor force participation of married women with college degree and the gender wage gap of college workers saw no improvement since the early 1990s until the Great Recession. These observations are puzzling in light of the continued rise in women’s educational attainment relative to men and their entry into professional high-earning occupations…. We document a break in the trend for the labor force participation rate of married women in the early 1990s. The rate of labor force participation of married women increased by about 2 percentage points per year in the post war period up until this point, with a stronger growth for women with a college degree, converging rapidly to the participation rate of single women in the same education group. This convergence stopped in the early 1990s. The labor force participation rate for single women with less than college was approximately 5 percentage points higher than for married women in this education group in 1993-2007, whereas for women with college degree, the participation rate for single women remained 10 percentage points higher than for married women over the same period. The gap in labor force participation rate between single and married women dropped slightly during the Great Recession, mainly due to a decline in the participation rate of single women, and there was no further convergence after 2012, as the economy recovered. We then examine labor supply and wages of married women by their own and their husbands’ education, as well as their husbands’ income. We find that the decline in the growth of labor force participation of married women is primarily concentrated among those with a college husband and is positively related to husband’s income. Due to positive assortative matching, this channel disproportionally affected women with a college degree. Turning to wages, we find that the growth in top incomes for married men is associated with an increase in the skill premium for this group, whereas there was no comparable increase of the skill premium for married women. We also show that there was no difference in the skill premium by gender for single workers. To reinforce this observation, we examine the evolution of the gender wage gap by educational attainment for married workers. We find that the gender wage gap completely stopped converging for workers with a college degree in the early 1990s, though it declined somewhat after the Great Recession. For non-college workers, the gender wage gap continued closing until the early 2000s, even if the participation of married high school women was also flat over this period….”

This phenomenon accounts for 1/3 of gender wage gap (relative to trend) among college graduates, “…We calibrate the model to match key empirical moments in 1980, such as the distribution of household income and spousal earnings and wives’ labor force participation by household type. We conduct experiments to gauge the quantitative relevance of our hypothesis. Specifically, we increase the exogenous common component of the skill premium to match the observed rise in the male skill premium in the data in the 1990s. Our findings suggest that the rise in the skill premium can account for more than half of the decline relative to trend in married women’s participation in 1995-2005, and more than two thirds of the decline for college women. The model can also account for one third of the rise in the gender wage gap for college graduates relative to trend in the same period….”

The supporting Evidence

“…Figure 2 illustrates the joint evolution of labor force participation for married women and the gender wage gap by educational attainment.As shown in Panel (A), the labor force participation of married women with a college degree has mostly stalled since the early 1990s, with a small transitory increase for college workers during the Great Recession. For high school women, the growth in participation drops substantially starting in the early 1990s, but is still mostly positive. High school women also experience a temporary surge in participation during the Great Recession, after which their participation declines. Albanesi (2019) shows that female labor supply displays a strong countercyclical component, interpreted as resulting from household insurance against the risk of earnings loss of their male partners, who are more sensitive to business cycle risk. Ellieroth (2019) finds that temporary rise in female labor force participation during recessions results from a decline in the employment to non-participation flow of married women. We focus most of our analysis on the years previous to the Great Recession, to avoid the effect of this major cyclical event. Turning to the gender wage gap, measured as the male to female ratio of hourly earnings, Panel (A) shows that for college workers it decreased rapidly until 1992 and it stalled during the 1990s and early 2000s, only reaching values lower than those in 1992 after the Great Recession. A similar but less stark pattern occurred for high school workers, as shown in Panel (B). As shown in figure 3, panel (A), the flattening of labor force participation starting in the early 1990s is limited to married women. Participation of single women has been mostly stable throughout the sample period. Panel (B) shows the labor force participation rates of married women by age groups. One striking observation from these figures is that prime age married women have lower participation rates than older women, suggesting that the aging of the population is not related to this phenomenon…”

“..We first consider changes in fertility. Women with children are less likely to participate in the labor force, and hence increases in fertility could reduce labor force participation of married women. However, we can rule out this explanation as the only cause of the observed behavior of female labor force participation. As shown in figure 9, the decline in the growth rate of labor force participation was similar for women with and without children. Most importantly, the evolution in the labor force participation of married women depends on the characteristics of their spouse, since the decline in the rate of growth of participation was largest for women married to men in the 90th percentile of the earnings distribution, followed by those married to men in the 50thpercentile and in the 10th percentile. We conclude from this pattern that changes in fertility are not the main driving force behind the observed change in participation trends….”

FRBNY research suggests "Superstar" real estate is safe, "...We study long-term returns on residential real estate in twenty-seven “superstar” cities in fifteen countries over 150 years. We find that total returns in superstar cities are close to 100 basis points lower per year than in the rest of the country. House prices tend to grow faster in the superstars, but rent returns are substantially greater outside the big agglomerations, resulting in higher long-run total returns.The excess returns outside the superstars can be rationalized as a compensation for risk, especially for higher covariance with income growth and lower liquidity. Superstar real estate is comparatively safe...."

Core finding, ".... Our central finding is that, over the long-run, superstar cities have witnessed lower total returns on residential real estate than other parts of the same country. With 5.75 log points per year, average total returns have been smaller compared to the national average of 6.68 log points. In other words, an investment in superstar cities comes with a negative return premium of approximately 90 basis points annually relative to national returns (including the superstars) and about 100 basis points lower than the rest of the country (excluding the superstars).These return differences are a robust feature of the data across countries and time periods, and statistically highly significant. A negative return premium of around 1 percentage point accumulates to substantial return differences in the long run. For instance, an investment in the superstar portfolio earned only about half the cumulative return than the national portfolio over the past 70 years..... We confirm that house price appreciation tends to be higher in superstar cities than in the rest of the country. Over the long run, we estimate an average annual difference of up to 60 basis points annually between our 27 superstars and other parts of the country (albeit with mixed statistical significance).At the same time, rent returns are considerably higher outside the large cities. Our point estimate puts the mean rent return differential at 160 basis points per annum. The differences in rent-price ratios exceed the differences in capital gains in the long run and lead to lower total housing returns…”

Why would this be the case, "...Why are housing returns persistently lower in large cities when compared to the rest of the economy?Our key finding can be rationalized in a standard asset pricing framework where excess returns are a compensation for risk. Observable long-run return differences between different assets must be attributable to differences in risk, or to violations of standard assumptions (such as persistent behavioral biases in expectations). Suppose that everything that makes a national superstar city - its diversified economy, its large market, its amenities, the international demand - also makes it a safer place as an investment. A consequence would be that the present value of future housing services will be subject to less risk so that buyers are willing to pay a higher price and accept a lower return for housing investments in large agglomerations. In turn, higher returns outside the superstars would be a compensation for higher risk. For remote locations to attract capital, they have to offer higher returns..."
Evidence

"... The left-hand panel of Figure 4 shows average log housing returns for the full time period and the right-hand panel for the period post 1950. City-level total housing returns have been in the four to six log point range per year, with some differences across the cities in our sample. Toronto, Amsterdam, Gothenburg, Tokyo and Sydney are the cities with the highest long-run returns. The panel on the right shows that housing returns have been higher in the post 1950 period and reached about 6 log points...."

Francisco Amaral, Martin Dohmen, Sebastian Kohl, and Moritz Schularick, "Superstar Returns," Federal Reserve Bank Of New York, December 2021, https://www.newyorkfed.org/research/staff_reports/sr999