Digital currencies, distressed places, and immigration
Jonathan Portes has edited a collection of nine essays about The Economics of Brexit: What Have We Learned? (Center for Economic Policy Research, June 2022, https://cepr.org/publications/books-and-reports/economics-brexit-what-have-we-learned). From the overview by Portes:
"However, as [Theimo] Fetzer points out, aggregate impacts are not the whole story by any means. His analysis suggests not only that the costs of Brexit are very unevenly distributed, but that, perhaps paradoxically, those areas that voted most heavily for Brexit are the worst affected, while London has escaped largely unscathed, at least so far." Portes also describes his own research: "I describe the new system, which does indeed represent a very significant tightening of controls on EU migration compared to free movement. . . . However, compared to the current system—and in contrast to earlier predictions—the new proposals represent a considerable liberalisation for non-EU migrants, with lower salary and skill thresholds and no overall cap on numbers. This implies that about half of all full-time jobs in the UK labour market could in principle qualify an applicant for a visa. This represents a very substantial increase—perhaps a doubling compared to the previous system—and also makes the new system considerably more liberal with respect to non-European migrants than that of most EU member states, which typically apply much more restrictive (de facto and/or de jure) skill or salary thresholds, and often enforce a resident labour market test. . . . So, the new system does not represent an unequivocal tightening of immigration controls . . ."
David Autor discusses "The labor market impacts of technological change: From unbridled enthusiasm to qualified optimism to vast uncertainty" (one of four essays in An Inclusive Future? Technology, New Dynamics, and Policy Challenges, edited by Zia Qureshi, Brookings Institution, May 2022, https://www.brookings.edu/research/an-inclusive-future-technology-new-dynamics-and-policy-challenges/).
"[W]hat is the role of technology—digital or otherwise—in determining wages and shaping wage inequality? The answer is not obvious, and the successive evolution of thinking on this topic reflects the subtlety of the question. I present four answers below, corresponding to four strands of thinking on this topic, and discuss the distinct implications of each. I refer to these four paradigms as the education race, the task polarization model, the automation-reinstatement race, and the era of Artificial Intelligence uncertainty. The nuance of economic understanding has improved across each of these epochs. Yet, traditional economic optimism about the beneficent effects of technology for productivity and welfare has eroded as understanding has advanced. Given this intellectual trajectory, it would be natural to forecast an even darker horizon ahead. I refrain from doing that, however, because forecasting the ‘consequences’ of technological change treats the future as a fate to be divined rather than an expedition to be undertaken."
He also estimates: "[M]ore than 60 percent of employment in 2018 was found in job titles that did not exist in 1940 . . . The introduction of new work, however, is not uniform across skill groups. Between 1940 and 1980, most new work that employed non-college workers was found in construction, transportation, production, clerical, and sales jobs—which are squarely middle-skill occupations. In the subsequent four decades (1980–2018), however, the locus of new work creation for non-college workers shifted away from these middle-tier occupations and towards traditionally lower-paid personal services. Conversely, new work creation employing college-educated workers became increasingly concentrated in professional, technical, and managerial occupations."
Richard Baldwin discusses "Globotics and macroeconomics: Globalisation and automation of the service sector" (presented at the ECB Forum on Central Banking 2022, June 27–29, https://www.ecb.europa.eu/pub/conferences/html/20220627_ecb_forum_on_central_banking.en.html, where videos of presentations and comments are included).
"In a nutshell, digital technology (digitech) is rapidly exposing services that were previously non-tradeable to the opportunities and challenges of globalisation. . . . Simultaneously, digitech is introducing automation to services that were previously non-automatable. 'White-collar robots' is one name for the automating algorithms—things like Robotic Process Automation (RPA), virtual assistants, chatbots, and sophisticated AI packages like IBM's Watson. . . . To stress that both the globalisation and robotisation of service jobs are happening at the same time—and are driven by the same technologies—I created the ugly, but hopefully memorable word 'globotics' in my 2019 book on the subject. In my view, globotics will improve lives in the long run but the transition could be rough. . . . Services are hard to tax at the border, so most barriers arise from domestic regulation (OECD 2020). Much of this regulation, however, concerns 'final' services, not 'intermediate' services. Regulations, restrictions, and controls typically apply only to transactions between the final service seller and the final service buyer. The service tasks that are inputs to these final services are—by contrast—much less regulated. For example, while there are strict rules for selling accounting services in the US, there are few rules concerning the qualifications of the service workers that do the paperwork behind the provision of such accounting services. A US accountant can employ pretty much anybody to tally up a client's travel expenses and collate them with expense receipts. The quality control burden falls on the sellers of the final service, not government regulators. . . . [D]igitech is rapidly lowering the technological barriers to trade in intermediate services. These two facts mean that service-trade barriers are falling radically faster than goods-trade barriers and likely to continue doing so for the foreseeable future. . . . [E]xport capacity in emerging markets is not as great a limiting factor in services as it is in goods since every nation has a workforce that is already producing intermediate-service tasks. All emerging market economies have bookkeepers, forensic accountants, CV screeners, administrative assistants, online client help staff, graphic designers, copyeditors, personal assistants, travel agents, software engineers, lawyers who can check contracts, financial analysts who can write reports, etc. There is no need to develop whole new sectors, build factories, or develop farms or mines. This fact is the basis of a broad re-evaluation of development pathways for emerging markets . . .”
Darrell Duffie and Elizabeth Economy have edited Digital Currencies: The US, China, and the World at a Crossroads, based on the discussions of a task force convened at the Hoover Institution at Stanford University (March 2022, https://www.hoover.org/research/digital-currencies-us-china-and-world-crossroads).
"Central bank digital currencies (CBDCs) have taken flight globally. More than ninety central banks are researching, piloting, or deploying CBDCs. Several are already testing cross-border transactions. Among the countries exploring CBDCs, China occupies a particularly important position. It is the first major country to deploy a CBDC widely within its own economy, and its central bank is dominant among those participating in a cross-border payments development project under the auspices of the Bank for International Settlements. China's emergence as a first mover in this space gives Beijing a significant opportunity to cement its international leadership of payments technology innovation and adoption, to set economic norms and technical standards that align with its authoritarian governance system, and to increase its ability to undercut the traditional dominance of the US dollar as a source of geoeconomic and strategic influence."
Distressed Labor Markets
Timothy J. Bartik offers some thoughts in "How State Governments Can Target Job Opportunities to Distressed Places" (Upjohn Institute Technical Report No. 22‐044, June 2022, https://research.upjohn.org/up_technicalreports/44/). There's also an overview in Employment Research Newsletter from the Upjohn Institute for Employment Research (August 2022, https://research.upjohn.org/empl_research/vol29/iss3/1). From the newsletter:
"Distressed places, which have low employment to-population ratios (employment rates), are a big problem in America. . . . About two-fifths of all Americans live in local labor markets whose employment rate for prime-age workers (ages 25–54) is more than 5 percentage points below full employment. For neighborhoods, about one-fifth of all Americans live in census tracts whose prime-age employment rate is more than 5 percentage points below their local labor market's average. These low employment rates are linked to major social problems: substance abuse, crime, and family stress. . . . Local job creation is most cost-effectively accomplished by providing businesses with 'customized services' such as infrastructure, customized job training, and business advice programs—including manufacturing extension services. Such customized services have less than one-third the cost-per-job-created of business tax incentives. In contrast, in a distressed neighborhood, more neighborhood jobs will not much help the neighborhood's residents, as most neighborhood jobs are not held by residents. Residents of distressed neighborhoods can best be helped by services to increase job access, including better transportation, job training, and child care. . . . Total annual costs for all states would come to $30 billion annually—$21 billion for local labor markets and $9 billion for neighborhoods. This $30 billion cost is affordable, as it is less than 3 percent of overall state taxes. Many states could cover the required costs by replacing their business tax incentives."
Cityscape, from the US Department of Housing and Urban Development, published an 11-paper symposium about "An Evaluation of the Impact and Potential of Opportunity Zones" (2022, 24: 1, https://www.huduser.gov/portal/periodicals/cityscape.html). In his introduction, Daniel Marcin writes:
"Opportunity Zones allow investors with capital gains to reinvest that money into Qualified Opportunity Funds (QOF), which then invest in OZs. Doing so has three main benefits. 1. The capital gains tax due on the original investment sale is deferred until the sale of the QOF investment or the end of 2026, whichever comes first. 2. If the investor holds the QOF investment for 5 years, the cost basis of the investment is increased by 10 percent. If held for 7 years, or 2 additional years, the cost basis increases by an additional 5 percent. 3. If the QOF investment is held for 10 years, then no tax is due on any gains on the OZ investment (IRS, 2021a)." In their essay, Blake Christian and Hank Berkowitz argue: "The federal OZ program is arguably one of the most flexible, impactful, and bipartisan tax programs for helping disadvantaged communities in half a century." They cite estimates that $75 billion had been invested in the opportunity zone program by the end of 2020.
Interviews with Economists
Noah Smith presents an "Interview: Leah Boustan, economist," with the subtitle, "In which we talk all about immigration" (Noahopinion, July 17, 2022, https://noahpinion.substack.com/p/interview-leah-boustan-economist).
"Americans vastly overestimate how many immigrants are in the country today. According to a survey conducted by Stefanie Stantcheva and her co-authors, Americans guess that 36 percent of the country is born abroad, whereas the real number is 14 percent. So, this misconception gives rise to fears that we are in an 'immigration crisis' or that we have a 'flood' of immigrants coming to our shores. In reality, the immigrant share of the population today (14 percent) only just reached the same level as it was during the Ellis Island period for over 50 years! After this, I would say that the second biggest misconception is that immigrants nowadays are faring more poorly in the economy and are less likely to become American than immigrants 100 years ago. . . . We find that Mexican immigrants and their children achieve a substantial amount of integration, both economically and culturally. . . . [T]he pattern . . . whereby the kids of poor and working-class immigrants do better than their American counterparts, is true both today and in the past. The children of poor Irish or Italian immigrant parents outperformed the children of poor US-born parents in the early 20th century; the same is true of the children of immigrants today. We are able to delve into the reasons for this immigrant advantage in the past in great detail, and we find that the single most important factor is geography. Immigrants tended to settle in dynamic cities that provided opportunities both for themselves and for their kids. . . . Geography still matters a lot today, but not as much as in the past. Instead, we suspect that educational differences between groups matter today. Think about a Chinese or Indian immigrant who doesn’t earn very much, say working in a restaurant or a hotel or in childcare. In some cases, the immigrant him or herself arrived in the US with an education—even a college degree—but has a hard time finding work in their chosen profession. Despite the fact that these immigrant families do not have many financial resources, they can pass along educational advantages to their children."
David A. Price interviews Stephanie Schmitt-Grohé in the most recent issue of Econ Focus (Federal Reserve Bank of Richmond, Third Quarter 2022, pp. 24–28, https://www.richmondfed.org/publications/research/econ_focus/2022/q3_interview). In describing recent research with Martín Uribe, she says:
"We wanted to answer the question that I think everybody is interested in: Is this inflation hike temporary or permanent? Our idea was that during the postwar period—since 1955, say—the only big inflation was the inflation of the 1970s. . . . So we said, since the current inflation is unprecedented in the postwar period, what will we see if we just go further back in history? Because we wanted to go back in history, we used the database of Òscar Jordà, Moritz Schularick, and Alan Taylor, which goes back to 1870. . . . We found that if we estimate the model since 1955, which is what most people do when they talk about cyclical fluctuations—actually, many people only start in the 1990s or look at the last 30 or 40 years, the so-called Great Moderation period—the model is led to interpret the entire current increase in inflation as permanent. But if the model is given the chance to look back further in time, where we had more episodes of a short-lived and large inflation spike, the interpretation is that only 1 or 2 percent of the current increase in inflation is of a more permanent nature. An example to look at is the Spanish Influenza of 1918 in the United States. That was also a period of an inflation spike, but inflation had started already a year or two before the influenza pandemic. There were similarities to now, namely a pandemic and high inflation. There was a small increase in the permanent component of inflation during the years around the influenza pandemic, but the majority of it was transitory."
Shruti Rajagopalan conducts a wide-ranging two-part interview with Lant Pritchett (Discourse, "Ideas of India," first part published on March 17, 2022, https://www.discoursemagazine.com/economics/2022/03/17/ideas-of-india-where-did-development-economics-go-wrong/; second part on June 9, 2022, https://www.discoursemagazine.com/culture-and-society/2022/06/09/ideas-of-india-reforming-development-economics/).
"[M]ost of the way the regime for mobility of persons around the world has worked since the 1920s is that people who are allowed to work in a country are either citizens or on a path of citizenship in the country. I'm actually a big advocate of separating those two things and saying the needs of U.S. or Germany or France for labor are not being met. Because if the only way in which a person can come and work in France—to take care of the elderly or perform relatively low-skilled services—is by allowing that person to become a French citizen, the political consensus is no. We'll prefer not having the service. . . . My big thing is if we actually had rotational mobility, in which people could come and perform the labor services but not necessarily instantaneously be on the path to citizenship, this could be a big thing that would be a win-win-win. It would be a win for the countries that need the labor. It would be a win for the workers that move. It would be a win for the sending countries. . . . Doesn't sound like the world's getting friendlier to open borders. That said, the needs for this labor are going to get so huge, in my view, that there needs to be some intermediate solution. I think a well-regulated industry that does rotational mobility is a massive, massive opportunity."
Pritchett is also asked: "What is the role of an economist?" He answered: "I don’t really teach undergraduates very often, but I was invited to give the opening lecture to a development economics course of undergraduates. My take was that economics is the social science of love. It’s the truly loving social science, and what I meant—and they were, of course, like, 'What? Economics and love? That’s crazy.' But think about what economists do. We take individuals—objective functions are objective functions. We don't start with any premise about what would be good for society or good for X or good for Y. But I think economists, when they're doing it right, they start from, what is it that people want to accomplish with their lives? Okay. Let's think about what the actual outcomes are. Let's think about modalities at the society, political, market level that would facilitate individuals achieving their objectives more or less. And what could be a better description of love than 'I'm going to take—what you want is what I want for you, and I’m going to help you achieve that.' Economics is the loving social science, is my take on what economists do best."
Harry Anthony Patrinos, Emiliana Vegas, Rohan Carter-Rau provide a summary of the evidence in "An Analysis of COVID-19 Student Learning Loss" (May 2022, World Bank Policy Research Working Paper 10033, https://documents1.worldbank.org/curated/en/099720405042223104/pdf/IDU00f3f0ca808cde0497e0b88c01fa07f15bef0.pdf).
"Our final database consists of 35 robust studies and reports documenting learning loss, representing data from 20 countries . . . Most studies (32) find evidence of learning loss. Of the 35 studies reporting learning loss, 27 reported findings in a comparable effect size format. . . . The average learning loss across these studies is 0.17 standard deviation—which equates to over half a school year of learning loss."
Cynthia R. Greenlee tells the story of how Samuel Rumph developed and marketed the Elberta peach starting in 1875 in "Reinventing the Peach, the Pimento, and Regional Identity" (Issues in Science and Technology, Summer 2022, https://issues.org/reinventing-peach-pimento-regional-identity-georgia-greenlee).
"Just how Rumph begat this new peach is uncertain. It was succulent and bright yellow with red markings. Its pit came out easily, and its fruit matured early in the season. That timing and its firmness were boons, and the trees yielded their large, handsome fruit prolifically. As historian Thomas Okie wrote in his rigorous and compelling study of how the peach became a Georgia icon, Rumph had produced the 'industrial peach,' a reliable producer that was reasonably good to eat, relatively resistant to pests and diseases, amenable to growing in different climes and soil, and easily transportable. As a pioneer of what would eventually become agribusiness, Rumph considered the whole peach, from grafting to delivery, and intervened at various stages in the supply chain. First, he bred the peach that took the world by storm. Then, as a member of the Georgia State Horticultural Society's committee on packing and shipping peaches, Rumph devoted himself to studying how to send peaches around the country. . . . In an effort to make shipping a precise science rather than a gamble, Rumph created a slatted crate that could be stacked and wheeled, founding the Elberta Crate Company. His unpatented invention spawned industrywide imitation, and he went on to invent a refrigerated railway car—also unpatented—that was widely used by fruit growers thereafter. . . . Railroads were booming across the South, buoyed by ample northern investment. And peach growers’ earnings—and nurserymen’s active involvement in politics—determined where railroads would go and stop."
Robert Schultz and Anna Stansbury provide some facts about "Socioeconomic Diversity of Economics PhDs" (March 2022, Peterson Institute for International Economics, WP-22-4, https://www.piie.com/sites/default/files/documents/wp22-4.pdf).
"In this paper, we use data from the National Science Foundation's Survey of Earned Doctorates (SED), an annual census of all individuals who receive a research doctorate from an accredited US institution in a given academic year, to examine the socioeconomic background of economics PhD recipients in the United States and compare it with that of PhD recipients in other disciplines. . . . Our analysis of the SED data shows that economics is even more unrepresentative by socioeconomic background than the average PhD field. Among US-born PhD recipients over 2010–18, 65 percent of economics PhD recipients had at least one parent with a graduate degree, compared with 50 percent across all PhD fields (and 29 percent for the population of US-born BA recipients over the same period). At the other end of the spectrum, only 14 percent of US-born economics PhD recipients in 2010–18 were first-generation college graduates, compared with 26 percent across all PhD fields (and 44 percent among all US-born BA recipients). This makes economics the least socioeconomically diverse of any major field for US-born PhD recipients. And its socioeconomic diversity appears to have worsened over time: while economics has consistently been less socioeconomically diverse than both the other social sciences and the biological and physical sciences, since 2000 it has also diverged from mathematics and computer science, the other two least socioeconomically diverse large PhD fields."