The Unassuming Economist

Will this time be different? https://voxeu.org/article/covid-19-will-raise-inequality-if-past-pandemics-are-guide.  See presentation, which also discusses other factors that could affect the evolution of inequality.

“Reducing movements within countries has been effective in developed economies – averting about 650,000 deaths – but not in developing ones,” according to new research. “Countries that acted fast fared better” and “closing borders has had no appreciable effect, even after 50 days.” The authors studied “various types of lockdowns implemented around the world mitigated the surge in infections and reduced mortality related to the Covid-19, and whether their effectiveness  differed in developing versus developed countries.” Their data cover 184 countries from December 31st 2019 to May 4th 2020, and identifies when lockdowns were adopted, along with confirmed cases and deaths. Link to paper: fast and local.

AI Economist is a new portal devised by Salesforce to develop ‘ a new line of research that studies how to improve economic design using AI with the goal of optimizing productivity and social equality for everyone‘. Interesting piece in the FT on how the AI Economist can help in the Covid recovery.

Excerpts from the Salesforce interview  with the creators of the AI Economist:

“How does the AI Economist work? 

Taxes and subsidies are important tools governments use to reduce inequality and redistribute wealth. However, we still haven’t quite figured out how to implement optimal tax policies for a wide range of social objectives, such as the trade-off between equality and productivity. Economic theory cannot fully model the complexities of the real world, and careful real-world experimentation with taxes is almost impossible. 

Through the AI Economist, we’re bringing reinforcement learning (RL) to tax research for the first time to provide a simulation and data-driven solution to defining optimal taxes for a given socio-economic objective.

The AI Economist uses a collection of AI agents designed to simulate how real people might react to different taxes. In the simulation, each AI agent earns money by collecting and trading resources and building houses. The agents learn to maximize their utility (or happiness) by adjusting their movement, trading, and building behavior. One way to do this is to maximize income while minimizing effort, for example, making as high of an hourly wage as possible.  

Simultaneously, the AI Economist learns to optimize taxes and subsidies to promote global objectives.”

Three leading economists have used a new data set to offer a sneak preview of the impact that COVID-19 has had on the U.S. job market. They estimate that:

“First, job loss has been significantly larger than implied by new unemployment claims: we estimate 20 million lost jobs by April 8th, far more than jobs lost over the entire Great Recession.

Second, many of those losing jobs are not actively looking to find new ones. As a result, we estimate the rise in the unemployment rate over the corresponding period to be surprisingly small, only about 2 percentage points.

Third, participation in the labor force has declined by 7 percentage points, an unparalleled fall that dwarfs the three percentage point cumulative decline that occurred from 2008 to 2016. Early retirement almost fully explains the drop in labor force participation both for those survey participants previously employed and those previously looking for work.”

The paper is by Coibion, Gorodnichenko and Weber.

An editorial in the Financial Times headlined “Virus lays bare the frailty of the social contract” says that recent developments “shine a glaring light on existing inequalities” and that “to demand collective sacrifice you must offer a social contract that benefits everyone.” The FT states: “Radical reforms — reversing the prevailing policy direction of the last four decades — will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix.”

Link to editorial: https://www.ft.com/content/7eff769a-74dd-11ea-95fe-fcd274e920ca