Links for July 27, 2016

Labor dynamism and demand. My colleagues Mike Konczal and Marshall Steinbaum have an important new paper out on  the decline in new business starts and in labor mobility. They argue that the data don’t support a story where declining labor-market dynamism is the result of supply-side factors  like occupational licensing. It looks much  more like the result of chronically weak demand for labor, which for whatever reason is not picked up by the conventional unemployment rate.  This is obviously relevant to the potential output question I’m interested in — a slowdown in the rate at which workers move to new firms is a natural channel by which weak demand could reduce labor productivity. It’s also a very interesting story in its own right.

Konczal and Steinbaum:

The decline of entrepreneurship and “business dynamism” has become an accepted fact … Explanations for these trends … broadly fall on the supply side: that increasingly onerous occupational licensing impedes entry into certain protected professions and restricts licensed workers to staying where they are; that the high cost of housing thanks to restrictions on development hampers individuals from moving… But we find that the data reject these supply-side explanations: If there were increased restrictions on changing jobs or starting a business, we would expect those few workers and entrepreneurs who do manage to move to enjoy increased wage gains relative to periods with higher worker flows, and we would expect aggressive hiring by employers with vacancies. … Instead, we see the opposite…

We propose a different organizing principle: Declining business dynamism and labor mobility are features of a slackening labor market … workers lucky enough to have formal employment stay where they are rather than striking out as entrepreneurs …

Also in Roosevelt news, here’s a flattering piece about us in the New York Times Magazine.

 

John Kenneth who? Real World Economics Review polled its subscribers on the most important economics books of the past 100 years. Here’s the top ten. Personally I suspect Debt will have more staying power than Capital in the 21st Century, and I think Minsky’s book John Maynard Keynes is a better statement of his vision than Stabilizing an Unstable Economy, a lot of which is focused on banking-sector developments of the 1970s and 1980s that aren’t of much interest today. But overall it’s a pretty good list. The only one I haven’t read is The Affluent Society. I wonder if anyone under the age of 50 picked that one?

 

Deflating the elephant. Here is a nice catch from David Rosnick. Brank Milanovic has a well-known graph of changes in global income distribution over 1988-2008. What we see is that, while within most countries there has been increased polarization, at the global level the picture is more complicated. Yes, the top of the distribution has gone way up, and the very bottom has gone down. But the big fall has been in the upper-middle of the distribution — between the 80th and 99th percentiles — while most of the lower part has has risen, with the biggest gains coming around the 50th percentile. The decline near the high end is presumably working-class people in rich countries and most people in the former Soviet block —who were still near the top of the global distribution in 1988. A big part of the rise in the lower half is China. A natural question is, how much? — what would the distribution look like without China? Milanovic had suggested that the overall picture is still basically the same. But as Rosnick shows, this isn’t true — if you exclude China, the gains in the lower half are much smaller, and incomes over nearly half the distribution are lower in 2008 than 20 years before. It’s hard to see this as anything but a profoundly negative verdict on the Washington Consensus that has ruled the world over the past generation.

gic_100

By the way, you cannot interpret this — as I at first wrongly did — as meaning that 40 percent of the world’s people have lower incomes than in 1988. It’s less than that. Faster population growth in poor countries would tend to shift the distribution downward even if every individual’s income was rising.

 

Does nuclear math add up? Over at Crooked Timber, there’s been an interesting comments-thread debate between Will Boisvert (known around here for his vigorous defense of nuclear power) and various nuke antis and skeptics. I’m the farthest thing from an expert, I can’t claim to be any kind of arbiter. But personally my sympathies are with Will. One important thing he brings out, which I hadn’t thought about enough until now, is the difference between electricity and most other commodities. Part of the problem is the very large share of fixed costs — as the Crotty-Minsky-Perelman strain of Keynesians have emphasized, capitalism does badly with long lived capital assets. A more distinctive problem is the time dimension — electricity produced at one time is not a good substitute for electricity produced at a different time, even just an hour before or after. Electricity cannot be stored economically at a meaningful scale, nor — given that almost everything in modern civilization uses it — can its consumption be easily shifted in time.  This means that straightforward comparisons of cost per kilowatt — hard enough to produce, given the predominance of fixed  costs — can be misleading. Regardless of costs, intermittent sources — like wind or solar — have to be balanced by sources that can be turned on anytime — which in the absence of nuclear, means fossil fuels.

Do you believe, as I do, that climate change is the great challenge facing humanity in the next generation? Then this is a very strong argument for nuclear power. Whatever its downsides, they are not as bad as boiling the oceans. Still, it’s not a decisive argument. The big other questions are the costs of power storage and of more extensive transmission networks — since when the sun isn’t shining and the wind isn’t blowing in one place, they probably are somewhere else. (I agree with Will that using the price mechanism to force electricity usage to conform to supply from renewables is definitely the wrong answer.) The CT debate doesn’t answer those questions. But it’s still an example of how informative blog debate can be when there are people  both sides with real expertise who are prepared to engage seriously with each other.

 

On other blogs, other wonders. Here is a fascinating post by Laura Tanenbaum on the end of sex-segregated job ads and the false dichotomy between “elite” and “grassroots”  feminism.

This very interesting article by Jose Azar on the extent and economic significance of common ownership of corporate shares deserves a post of its own.

Here’s a nice little think piece from Bloomberg wondering what, if anything, is meant by “the natural rate” of interest. I’m glad to see some skepticism about this concept in the larger conversation. In my mind, the “natural rate” is one of the key patches covering over the disconnect between economic theory and the observable economy.

Bhenn Bhiorach has a funny post on the lengths people will go to to claim that low inflation is really high inflation.

6 thoughts on “Links for July 27, 2016”

  1. “Electricity cannot be stored economically at a meaningful scale, nor — given that almost everything in modern civilization uses it — can its consumption be easily shifted in time.”

    This seems like a very unwarranted assumption. There’s a whole literature (which I’ve mostly been exposed to in the Energy Return on Investment literature) on . In fact our oil/coal/natural gas infrastructure requires a whole set of storage and distribution technologies to function. You can’t compare that fully fleshed out infrastructure to no alternative infrastructure whatsoever.

    There are promising avenues to research energy storage and transportation technologies and if we actually devoted resources to it we could figure out.

    See paper below for example:

    “It is important to stress that the EROI results for PV presented
    here cannot be simply extrapolated to the future. On one hand,
    technological improvements are expected to continue providing
    incremental life cycle energy efficiency gains to the existing PV
    technologies, and even radically more efficient, third-generation
    devices might become available in the long run. On the other
    hand, PV is not a base-load technology, and deploying it on a large
    scale, beyond approximately 20% of grid penetration, may require
    building an extensive energy storage infrastructure (Denholm and
    Margolis, 2006; Lewis, 2007). To date, compressed air energy
    storage (CAES) is the least expensive large-scale option, but
    finding appropriate porous media underground reservoirs is a
    challenge and a conventional CAES plant requires approximately
    3.5 MJ/kWh of additional natural gas to heat the compressed air
    when the latter is released to run a gas turbine (Mason et al.,
    2008). Advanced adiabatic CAES (AA-CAES) might become viable
    in the future, with an anticipated 50% cycle efficiency (Pickard
    et al., 2009); flexible fabric structures anchored to the seabed are
    also being investigated for their potential to be a clean, economically-attractive
    means of energy storage (Pimm and Garvey, 2009).”

    https://drive.google.com/open?id=0B-l20FPzZLryMXpTSkFQNzNNbDg

  2. Thanks for the shout-out Josh.

    Nathan, yes, fossil fuels do need storage infrastructure, but the costs are tiny compared to electricity storage.

    To get a sense of scale, replacing the battery of a Tesla car costs $12,000 or more. The equivalent storage equipment for fossil fuels is a gas tank costing maybe $100. The cost of stock-piling reduced carbon and fissile material is cheaper than electricity storage by orders of magnitude.

    Adiabatic CAES may or may not pan out, but the current diabatic CAES technology is not too good. As your source notes, you need to burn gas to make up the compression energy shed when the compressed air cools in storage.

    That gas burn will give the stored electricity a carbon footprint of about 183 grams per kwh–half as much as the best gas-fired power plants, but 18 times higher than the 10-11 grams per kwh of wind or nuclear.

    The 50 percent cycle efficiency means wasting half the electricity originally generated, so double the cost of the electricity right there before adding in the cost of storage.

    So, kinda dirty and pretty pricey. Short-term storage may find a niche in peaking power, but it’s not the panacea people think it is.

  3. I think Minsky’s JMK book is great too, but I do think Stabilising is the desert island one-book Minsky. It’s only really the opening chapters that are focused on 1970s-80s developments – and I actually think those are still really relevant. They outline the recurring cycle of financial innovation -> crisis -> rescue -> innovative instrument/institution/practice becomes part of the financial furniture with implicit or explicit central bank support. That’s still pretty contemporary.

    Then the rest of the book puts finance in a broader Kaleckian macro context. Not all of that is great, admittedly (not a fan of the inflation chapter, for example), but it gives a vision of the whole capitalist economy, and it is very clearly written.

    1. Fair enough.

      I guess I’m a bit biased in that I think heterodox/lefty econ people put too much emphasis on financial crises, in general and in reading Minsky specifically. So I tend to bend the stick the other way.

      1. I totally agree about over-emphasis on crises. But I think that’s in line with a central message of Stabilising – that the central bank lender-of-last-resort and the big public balance sheet blunt crises and make them less likely to lead to protracted depression. It is out of line with Minsky’s image as the prophet of a coming big crisis.

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