The Unassuming Economist

From the latest issue of the Journal of Economic Perspectives by Solomon Hsiang and Robert E. Kopp:

“Humans have engaged in large-scale transformation of natural systems for millennia. Stone Age hunting technologies led to extinctions of large mammals; agricultural revolutions transformed forests into farmlands; pursuit of minerals has carved the earth’s surface; dams and reservoirs now manipulate the flow of almost all rivers; and synthetic fertilizers now flood the nitrogen cycle. But among these transformations, the restructuring of the global carbon cycle and the accompanying alteration of the climate stands apart in its sheer scale, complexity, and economic significance. Essentially all humans that have ever lived contributed, in their own small ways, to reshaping this planetary-scale system. Thousands of years of forest clearance may have added hundreds of billions of tons of carbon to the atmosphere. In the industrial era, every home lit by a coal or natural gas-fired power plant and every petroleum-powered train, plane, and motor vehicle has contributed to the net accumulation of carbon dioxide in the atmosphere. The average human contributes about 5 tonnes of carbon dioxide (CO2) every year (Le Quéré et al. 2018), about a quarter of which will remain in the atmosphere for well over a millennium (Archer et al. 2009).

(…)

The goal of this article is to provide a brief introduction to the physical science of climate change, aimed towards economists. We begin by describing the physics that controls global climate, how scientists measure and model the climate system, and the magnitude of human-caused emissions of carbon dioxide. We then summarize many of the climatic changes of interest to economists that have been documented and that are projected in the future. We conclude by highlighting some key areas in which economists are in a unique position to help
climate science advance. An important message from this final section, which we believe is deeply underappreciated among economists and thus highlight here, is that all climate change forecasts rely heavily and directly on economic forecasts for the world. On timescales of a half-century or longer, the largest source of uncertainty in climate science is not physics, but economics (Hawkins and Sutton 2009).”

From a new post by Timothy Taylor:

“I was hired back in 1986 to be the Managing Editor for a new academic economics journal, at the time unnamed, but which soon launched as the Journal of Economic Perspectives. The JEP is published by the American Economic Association, which back in 2011 decided–to my delight–that it would be freely available on-line, from the current issue back to the first issue. Here, I’ll start with Table of Contents for the just-released Fall 2018 issue, which in the Taylor household is known as issue #126. Below that are abstracts and direct links for all of the papers. I may blog more specifically about some of the papers in the next week or two, as well.”

A new OCP Policy Center policy brief shows that “downward trend of employment in manufacturing in Morocco is due primarily to labor productivity improvement and that the increased deficit in manufacturing trade also plays an important role. While recognizing the crucial importance of a vibrant manufacturing sector in Morocco, this brief argues that Morocco cannot rely primarily on manufactures to “pull” labor out of agriculture. To provide more jobs, Moroccan policies should pay more attention to sectors which employ large numbers of people and where employment is expanding as a result of the ongoing structural transformation of the Moroccan economy.”

From a new Bloomberg Opinion article by Minouche Shafik:

“We are living in an age of insecurity, with the values of the global liberal order under fire despite the progress they’ve delivered for the vast majority of people. The rise of populism in politics, fears over slowing economic progress in advanced economies, and worsening prospects for future generations, as well as mounting evidence of declining subjective well-being and trust in many countries, are all expressions of this. Those who don’t feel they’ve benefited from the current order are understandably agitating to change it.

This backlash against “globalization” reflects a failure of our social contract — the mechanisms through which we share risks and offset, to some extent, the impact of luck on life chances. This is embodied in our welfare states, which define the rights and obligations of citizenship; the payment of taxes in exchange for public goods; and the way in which we look after the young, the old, the infirm and those who have fallen on hard times. While globalization increased the total pie, our social contract has done a poor job of sharing the benefits. We need to rethink that contract if we are to provide people with a greater sense of security and better economic prospects.

Central to this task are measures to ensure our economies are fairer. While globalization has meant the world has become more equal between nations — with many poor countries having seen huge progress in recent decades — it’s also exacerbated inequalities within advanced economies particularly.

To combat this over the medium term, “pre-distribution” policies such as investments in education and infrastructure will be key. In the short run, however, redistribution also needs to play a part, especially as labor markets reward the highly skilled more and more. Tax reforms in advanced economies over the last 20 years have become less progressive; this needs to be reversed. Wealth inequality has grown even more than income inequality, so taxes on wealth such as land and real estate should be considered.

We also need to counter the large increase in the share of total income that’s gone to capital relative to labor. Capital is highly mobile and can evade taxation through the use of havens and various “tax-efficient” arrangements. International agreement on ways to close such loopholes and tax economic activity where it takes place would go a long way toward making the world economy fairer.

That needs to be complemented by giving citizens more time to adjust to the competitive pressures and technological changes that globalization brings. Mechanisms are needed to give workers more bargaining power — including stronger trade unions, and the use of profit-sharing schemes or cooperatives.

There also needs to be a floor on incomes to ensure everyone can enjoy a reasonable standard of living even if their wages are low. Rather than the much discussed universal basic income, better solutions could include wage subsidies, earned-income tax credits or higher minimum wages, combined with better access to services such as education, health and other public goods.

We also need to reassure citizens about their economic futures even as the societies around them age and their workplaces are automated. Demographic changes mean that many of us who are fit enough will have to work longer. Linking retirement ages explicitly to life expectancy (as the Netherlands has done) would help tailor expectations to this new reality.

Re-skilling over one’s lifetime will also become ever more important, and governments will have to invest substantial resources in the task, as Denmark does, since employers will have weak incentives to do so when employee turnover is rising. In fact, workers should be given a financial entitlement to invest in their own skills so they can retool and be able to continue to support themselves throughout their lives.

Automation will transform labor markets regardless. While eventually new jobs will emerge, workers need to be supported during this transition. We should use gains in productivity as an opportunity to eliminate aspects of jobs that are routine and repetitive and replace them with more meaningful work and leisure. As countries get richer, people work fewer hours. Giving part-time and temporary workers (who tend to be lower-skilled and lower-paid) more rights to pensions, paid leave and training has worked out well for countries such as Denmark, Germany and the Netherlands.

Some new social contract along these lines is essential to sustain political support for open economies and societies. These issues are deeply rooted in history and values, so every country will make different choices on the balance of responsibilities between the individual, the state and the market. But the conversation needs to be had — and soon — if we are to restore a sense of security and hope in our societies.”

On cross-country:

• 500 Years of Urban Rents, Housing Quality and Affordability – Research Gate

On the US:

• Seventh annual AEI-CRN conference on housing markets and finance: Supply, demand, and pro-cyclical forces – American Enterprise Institute
• Lynn Fisher on affordable housing and US housing markets – American Enterprise Institute
• Changes in Supply and Demand at Various Segments of the Rental Market: How Do They Match Up? – Harvard Joint Center for Housing Studies
• Creepin’ it Real: Haunted Neighborhoods and Their Home Values – Trulia
• American Abodes: Where International House Hunters are Searching for Homes – Trulia
• Why there’s no bubble in the US housing market – AsianInvestor
• Intergenerational Homeownership – Urban Institute
• Mortgage Rates Are Pushing U.S. Homes Out of Reach – Bloomberg
• How Airbnb’s Tech Is Impacting People’s Fundamental Human Rights – Forbes
• No, rent control doesn’t always reduce the supply of housing – Los Angeles Times
• Rent Control Returns: Thoughts and Evidence – Conversable Economist

On other countries:

• [China] Local capital scarcity and industrial decline caused by China’s real estate booms – VOX
• [Greece] Seeking a bargain, and taste of the good life, Chinese buy Greek homes – Reuters
• [Singapore] Singapore’s Public Housing, Envy of World, Hits Rough Patch – Bloomberg
• [Spain] Little Caracas, el barrio de lujo que se ha instalado en el centro de Madrid – GQ
• [United Kingdom] Curtain comes down on Help to Buy – Financial Times

Photo by Aliis Sinisalu