Matthew Yglesias's Blog, page 2436

The Trouble With Change

Ezra Klein reprints an email:

Some of my work is as a primary doctor at a VA primary care clinic in Southeast Michigan. We are totally overwhelmed right now with people who lost their insurance from auto-related layoffs and are using VA eligibility for the first time. It is totally awful. Think about the job prospects for a high-school educated 50-year-old with 32 years experience with one employer welding a single auto part near Detroit.

These are good people who lived and taught their kids with a perspective on life — work hard and stay out of trouble to earn a middle class life — that is now totally wrong. They're essentially unemployable here but sure aren't going to leave friends and family for a job at a Panera in Arizona. I suppose that's the nature of technology and change, but it's pretty brutal in this neighborhood.

This is the central problem with dynamic, growth-oriented market economies. It's really not just something that is "now totally wrong," though the recession is making it a particularly intense problem in Michigan. My mother went to college, worked for years as a graphic designer, and attained middle age in possession of a valuable set of skills related to a period in which "cut and paste" was not a metaphor. Then, quite suddenly, the economic value of those skills was wiped out and her labor market possibilities took a huge negative hit through no fault of her own notwithstanding the fact that she "did everything right."

It's clear if you look at the past 300 years of human history that allowing this process of change to move forward leads to huge increases in average living standards. But the notion that it makes everyone better off or that market outcomes are "fair" is a lie. Hence the need for redistribution in general and, ideally, some kind of active labor market policy for people like these former auto workers.

California Coastal Commission, Gentrification, and Climate Change

Matthew Kahn writes about his research with Jonathan Zasloff on the impact of the California Coastal Commission on gentrification and housing prices. No surprise, it makes for expensive coastal housing:

My favorite story for the new facts we have generated is that the Coastal Boundary Zone represents a commitment device. Rich guys know that if they buy coastal property that guys like me won't be able to build new homes near them without facing huge amounts of red tape. This barrier to entry means that they can live in paradise without having the "middle class" crowd around them. This regulation induced buffer zone is valuable to these folks and this bids up the price of existing homes within the Coastal Boundary Zone. So, the regulation both limits new housing supply and raises local housing demand because the community becomes more exclusive.

The punchline here is that thanks to the moderate weather, coastal Californians tend to have very low carbon emissions compared to the average American. All the improved insulation in the world can't beat a house that just doesn't need to be heated or cooled much. And if the coast were more densely populated, average household emissions would be even lower thanks to shorter and fewer drives.

Egypt

The most important news of the day is clearly out of Egypt, but this is (a) well outside my expertise, and (b) something especially hard for me to keep tabs on while on vacation. So I'll offer a link to my colleague Brian Katulis who's actually knowledgeable about the region and has some tough words about the Obama administration's overall approach to the area:

After stumbling a bit in its initial response to the unrest, the Obama administration has come out strongly in favor of universal rights to free speech and peaceful protest. Now is the time to back up that talk with policy action. America has provided around $60 billion in assistance to Egypt over the past 30 years and it has established deep ties with Egypt's military and intelligence services. In fact, a senior Egyptian military delegation has been visiting the Pentagon this week as the unrest grew in Egypt. Egypt certainly plays an important role in America's fight against global terrorist networks and the efforts to resolve the Arab-Israeli conflict, and our countries have many common interests.

There is a way to navigate all of these issues and shape a more proactive and less reactive policy. As I argued in this policy analysis for the Century Foundation, the United States should seek to use all of its leverage to achieve progress on core security interests while encouraging pragmatic reform. Otherwise, staying the course in a path dependency on current U.S. policy could lead to greater instability. Indeed, there is something to Egyptian opposition figure Mohamed ElBaradei's argument that America's current policy "is really pushing Egypt and pushing the whole Arab world into radicalization with this inept policy of supporting repression." America's influence and leverage is not what it used to be but it can revive its position by changing its policy approach.

Taking the long view, it's clearly not possible for Egypt and other Arab states to be ruled by "pro-American" dictatorships forever so policy that's merely based on prolonging the day of reckoning has some real problems.

Basic Research in a Multipolar World

Kevin Drum writes about the role of government in fostering basic research:

It was the private sector that turned these inventions into multi-billion dollar businesses, but it was government that provided either the basic research, the initial market, or both. Acknowledging this isn't an endorsement of socialism or tyranny or government run amok. It's an acknowledgment of the reality of progress in the modern era. Obama was right to focus our attention on education, technology, and infrastructure in his State of the Union address, because that's the seed corn that will provide long-term productivity growth for America and the world. But with apologies to Bill Clinton, if we're really serious about out-innovating, out-educating, and out-building, this means accepting that the era of big government is far from over. When it comes to basic R&D and the infrastructure to exploit it, it's only just just begun.

I'm kind of pessimistic about this. Basic science and R&D are risky long-term investments with substantial positive externalities. Consequently the private sector funds them at a sub-optimal rate, and the government can do a lot of good by ponying up the cash even if the research goals ("beat Russians to the Moon!") are politicized, arbitrary, or even pointless. But for all the same reasons of externalities and spillovers that lead private firms to under-invest in basic research also apply to most governments. After all, they use the same technology in Canada as we have in the United States and the Bahamas didn't get to be so much richer than China by having better science.

But for about 20-25 years after the end of World War II, the United States of America accounted for a gigantic share of world output. And if you restricted attention to the "free world," our share was even bigger. So there wasn't much possibility of free riding. What's more, fostering catch-up growth in Japan and Western Europe was a key US foreign policy objective, so we were actually happy with free riding. The political economy of the near future looks a good deal different. The leading economies (US, EU, China) will each account for less than a third of total output, meaning most of the benefit of any basic research you fund will flow to foreigners. It's a situation in which the best way to "win the future" may be to let someone else do the hard work.

Fixing Gerrymandering

Jamelle Bouie sticks up for partisan gerrymanders and :

Simply put: If the idea is to have bipartisan comity, then by all means, create evenly split havens for centrist politicians. But if the idea is to accurately represent people and their interests, then I don't see why you wouldn't want heavily gerrymandered districts.

I don't quite think that's right either. The main problem with gerrymandering-whining is that it's super-unclear what it's supposed to solve. Partisan polarization? What about the US Senate? Kay Hagan votes like Jeanne Shaheen, not like Richard Burr. And Shahien doesn't vote like Judd Gregg.

Infofeudalism

John Holbo:

I think the idea that intellectual property is property is too entrenched, at this point, for this to be an effective rhetorical strategy. Furthermore, rhetoric aside, philosophically the real breakthrough would be for people to realize that defending property rights is not tantamount to defending freedom. What strong IP protection generates is not a free market but something more like information feudalism: a market-unfriendly clusterfuck of fiefdoms and inescapably inefficient lord-vassal terms-of-service arrangements that any friend of freedom, in any ordinary sense, ought to look upon with disgust.

Works for me. This was, in fact, part of how late feudal economies worked. The state would raise funds, in part, by selling monopolies of various kinds. The owners of the monopolies would, I'm sure, regard the defense of their privileges as a form of defending their property. But the resulting system wasn't capitalism and it wasn't a progressive triumph against the iniquities of the market either.

The Jobs of The Future

One of the big things that people talk about and agonize over is the idea of "the jobs of the future." The presumption is that many of the things that today are made by Americans will be made by robots or Chinese people tomorrow. Hence fewer people will have jobs making those things and will instead have some other kind of jobs. "The jobs of the future."

This is all correct so far as it goes. But the analysis then tends to assume that future jobs are going to be futuristic jobs, which I think is pretty misleading. Of course in the future some people will have futuristic jobs. But a lot of what's going to happen is that we'll just have more employment in already-extant banal fields that's just aren't amenable to being done by Chinese people or robots. After all "the future" in this sense is a richer world. Right now, some people work as personal trainers. If people were richer, more people would hire personal trainers, and your personal trainer can't live in Shenzhen so this is one of "the jobs of the future." We'll have more cops and security guards. As people get richer, they eat at fancier places where service is more labor-intensive so we'll have more sommeliers and waiters. Not only will there be more old people in the future, but the richer old people of tomorrow will be better cared-for and have more caretakers of various kinds per capita. People will go on more frequent and more ambitious vacations with all the extra commerce that implies.

I suppose standing in front of the US Congress and saying "imagine the extra stuff your family would do if it were 15 percent richer; now imagine some more people providing those services—that's how we'll win the future." But sometimes the truth is a little boring.

The Gentrification Paradox

Why is it that you see so many vacant storefronts in urban areas that are clearly becoming more prosperous? Surely the space would be worth renting out at some price, and just about any non-zero rent would be preferable to owning a vacant storefront.

Lydia DePillis sees a bubble mentality at work:

It's a strange sort of boom. While Nelson at least keeps her store vibrant, other H Street properties sit vacant, in seeming defiance of the corridor's boomtown press. Few properties are for sale. City records show that not much has changed hands in the last few years, which you might expect from a neighborhood in transition. What's going on?

Well, lots of things. Many of the spaces are too small for some businesses. Few could be leased without extensive renovations. But mostly, the scene reflects the same logic Thelma Nelson is using: Hang on as long as possible, because values will keep going up. And if you want to sell, no price is too high.

"People are too unreasonable now. They believe they got a gold mine," says developer Italo Rodriguez of IS Enterprises, which does renovation work on the strip. "People own lots, they are trying to sell the lots, but they are asking astronomic prices."

Perhaps a more economist-y way of putting it is that with this kind of urban real estate you have a very non-generic, non-commodity product. So search costs are high, information is deeply imperfect, and you have a lot of market inefficiency. Thanks to optimism bias on the part of owners, that inefficiency manifests itself as systematic under-pricing and under-occupancy, which is a very bad outcome from a social point of view.

Climate Policy Even a Conservative Can Love

Just kill a lot of people:

Unlike modern day climate change, however, the Mongol invasion cooled the planet, effectively scrubbing around 700 million tons of carbon from the atmosphere. [...] Over the course of the century and a half run of the Mongol Empire, about 22 percent of the world's total land area had been conquered and an estimated 40 million people were slaughtered by the horse-driven, bow-wielding hordes. Depopulation over such a large swathe of land meant that countless numbers of cultivated fields eventually returned to forests.

As an alternative to mass slaughter, imagine the whole planet turned vegetarian leading to a huge decline in the world's population of cows, pigs, chickens, etc. The smaller number of animals would lead to a direct decline in emissions, but more importantly you wouldn't need nearly as much farmland to grow the grain to feed the animals. Then you'd have a lot of reforestation.

Commodity Supply Shocks

To add to yesterday's post about catch-up growth and fall-behind immiseration, one also really needs to consider the fact that climate change is going to pose an ongoing negative shock to our ability to produce agricultural commodities. That doesn't mean that output will actually decline, merely that we need some positive rate of technological and organizational progress just to keep production constant.

Again, this is a problem that ought to be manageable for most of the world's people. But "there's not enough food to eat" is really horrible problem to have, and it's one that's increasingly likely to afflict a substantial minority in poor countries that fail to make rapid economic progress.