August 2020

Most people interested in thinking about inequality, will have come across the dry and sarcastic saying from Anatole France that “In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread.” France shows us how the reality of class, economic inequality, makes a mockery of equality before the law because of the different real-life effects of the same law.

Now why is sleeping under bridges bad? Well, presumably, it is bad because it makes you more vulnerable to certain harms: exposure to the cold, or being beaten up by gangs of strangers. We can imagine a kind of objection to Anatole France, albeit a very obviously silly one. It would go like this: the thing we should really be concerned about is the harms that people are exposed to. And when we investigate we find no difference in those harms between rich people who sleep under bridges and poor people who sleep under bridges. (We can assume that a few rich people, inebriated after a night at their club, end up under bridges too). According to the silly objection, what we should concentrate on is the group of people who sleep under bridges: there’s a perfect match between membership of this group and those who suffer the harms, whereas it turns out that lots of poor people, because they never sleep under bridges, are not at risk of such harms.

It is a silly objection, and obviously so. And yet we come across something very similar in form in many arguments about race and class. There are harms reliably associated with low socio-economic status and those harms fall on people regardless of their race. Kerching! – it is claimed – race doesn’t matter in the explanation of those harms! But obviously, if being black increases your relative propensity of being sorted into a poor working-class group that is exposed to such harms, and if being white reduces your relative propensity of being so sorted, then race is actually a big part of the picture. Showing that, of those who are in a category that is strongly pre-selected for by race, harms were not associated with race, does not lead to the valid conclusion that those harms are not associated with race.

The most memorable answer to this question came from science fiction writer Harlan Ellison, who said “Poughkeepsie” (on checking Wikipedia, I learn that he died a couple of years ago).

But in the context of discussions about remote work, I’m interested in the claim that random physical meetings (the archetypal example being corridor or water-cooler encounters with colleagues) are an important source of ideas, and therefore a reason for not working remotely.

This seems to be the kind of topic for which the data will consist mostly of anecdotes and introspection. A marginal improvement is too look over my own list of publications to see if I can identify any where the source arose from some particular interaction.

Looking at my 100 most-cited papers in Google Scholar, most collaborations are the result of planning rather than chance. In pre-Internet days, most of my collaborations started from seminars and conferences I spoke at or attended because the topic was of interest, or else from direct approaches by a colleague, usually in the same department. From the early 1990s onwards, direct approaches mostly came by email, and work has often been done the same way. In several cases, I have written joint papers before ever meeting my co-author(s), though in other cases in-person collaboration with one or two co-authors works better.

More interesting to me, are the cases where the idea has come from blogging. Some notable examples

• My Zombie Economics book. Starting with blog discussions, the idea for a book came from blog commenter Max Sawicky, and was picked up by Seth Ditchik at Princeton UP, who also commissioned Economics in Two Lessons and my current book-in-progress Economic Consequences of the Pandemic
• Cross-disciplinary collaborations with Henry Farrell and LA Paul both arising from my involvement with Crooked Timber
• This paper, which started with a comment on a blog post to the effect that “future generations” are in fact already alive (At least I think that’s how it happened. I could never locate the comment to acknowledge the source.)

It seems to me that that these are much more like the kind of serendipitous links that are supposed to be generated by water coolers.

Of course, academic research is a special kind of work, and I’m much more involved with the Internet than most of my colleagues (or, at least, a few years ahead of the general adoption trend). So, I’d be interested in anecdotes from others and links to actual research, if there is any.

The term “white privilege” has been getting a lot of play and a lot of pushback recently, for example, from Kenan Malik in this piece and there are some parallels in the writing of people like Adolph Reed who want to stress class-based solidarity over race. Often it isn’t clear what the basic objection from “class” leftists to the concept of “white privilege” is. Sometimes the objection seems to be a factual one: that no such thing exists or that insofar as there is something, then it is completely captured by claims about racism, so that the term “white privilege” is redundant. Alternatively, the objection is occasionally strategic or pragmatic: the fight for social justice requires an alliance that crosses racial and other identity boundaries and terms like “white privilege” sow division and make that struggle more difficult. These objections are, though, logically independent of one another: “white privilege” could be real, but invoking it could be damaging to the struggle; or it could be pragmatically useful for justice even if somewhat nebulous and explanatorily empty.

One particular type of argument is to deny that some white people enjoy privilege on the basis of noticing that some groups of white people suffer outcomes that are as bad or worse than non-white people on average or some non-white groups in particular. The claim is then that it is nonsensical to think of these white people as enjoying “white privilege”, or, indeed, any kind of privilege at all. But whatever the truth turns out to be about the explanatory usefulness of “white privilege”, I think these outcome-oriented assessments, sometimes based on slicing and dicing within racial or ethnic groups in ways that create artificial entities out of assemblages of demographic characteristics (white+rural+poor, for example), don’t ground a valid objection because they misconstrue what the privilege claim is about.
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That’s the headline for a piece I just wrote for Independent Australia, looking at a new report from Greenpeace about the harm done by air pollution from coal-fired power, in addition to the climate-destroying effects of CO2 emissions. The report estimates 800 deaths per year, and is, from what I can see, consistent with other studies.

Final para

As a possible recovery from the COVID-19 pandemic comes into sight, it’s time to place human health above the desire to maintain the economic status quo. Australia can and should get off coal by 2030, without harming workers employed in the industry. In doing so, we will be saving both lives and money.

We tested some teaching strategies in a physically distanced classroom today. We filmed the proceedings, but obviously the film isn’t ready yet, so here are some initial thoughts.

First a caveat. The room was great: a room designed for learning. Good acoustics, screens on the walls, comfortable chairs which move easily and silently, and 6 tables each of which would, in normal times, seat 7-8 students. So, the best case scenario (I want to get us into some bad rooms soon).

Here are the rules. Everyone must wear a mask; everyone must remain 6 feet apart at all times, and there was no amplification (not a problem, in fact, in this room — I understand that in other rooms some sort of amplification will be provided). No moving of furniture is allowed, but moving students is, as long as they always at least 6 feet apart.

I’m hesitant about drawing conclusions, especially given how good the room was, but, for what it is worth, our whole team was surprised by just how well it went, and I’m much more optimistic about what my students will experience in the Fall than I was yesterday.

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In a couple of recent posts, I’ve been looking at returns to capital. First, there’s the fact that real returns on long-term (up to 30 year bonds) are now below zero in most countries. I argued that such a situation is inconsistent with the existence of capitalism in the traditional (say, pre-1970s) sense of the term. Then there’s the fact that the biggest contributor to corporate asset values is “intangibles” which is a polite word for monopoly.

An obvious question that arises is: if this is the case, why is the stock market doing so well, holding most of an already high valuation even as the pandemic raises the prospect of a long and deep recession? In one sense, there’s no puzzle at all here. Stocks generally yield higher returns than bonds (this is the “equity premium puzzle” on which I’ve written a lot), but if bonds are paying zero, then investors will be willing to buy stocks with a small (expected) positive return. That implies, for any given expectation of future returns, a higher share price. On this argument, the fact that sharemarket investors have done well in the last ten years or so doesn’t mean that they will do well in the future. Rather, at current stock prices, they will be taking more risk for less return than in the past.

All of this raises more questions about what is going on with corporations. Although corporate profits are increasing at the expense of wages, that masks growing inequality between firms. According to this study from 2017 (abstract over the fold). “Earnings of public firms have become more concentrated – the top 200 firms in profits earn as much as all [other] public firms combined.” Firms are also paying out more in dividends and share buybacks and investing less, implying once again that (at least as regards public markets) the scope for capital investments yielding positive returns has become more limited. I suspect (but haven’t yet got good evidence on this) that a growing share of corporate profits are being captured in privately-held firms (for example, those owned by private equity firms), where there is more scope for various kinds of arbitrage and rent-extraction.

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In a recent post, I pointed out that long-term (30 year) real interest rates on safe (AAA) bonds had fallen to zero, and suggested that this meant the end of capitalism, at least in the sense that the term was understood in classical economics. On the other hand, stock markets have been doing very well. So what is going on? This is a complicated story and I’m still working it out,
An important starting point is the fact that the most profitable companies, particularly tech companies, don’t have all that much in the way of capital assets compared to their market value. What they have is monopoly power, which has been increasing steadily over time. That benefits those who already own and control these firms, but it does not provide new investment opportunities.

I’ll start by looking at price-to-book ratios. Alphabet, which owns Google has a market value five times the book value of its assets https://www.macrotrends.net/stocks/charts/GOOG/alphabet/price-book The ratio is 15 for Microsoft and 21 for Apple. By contrast, for General Motors, the classic 20th century corporation, it’s just under 1.

For the corporate sector as a whole, the comparable measure is Tobin’s q ratio, which has been trending upwards since the late 1970s and is now near the all-time high reached during the dotcom bubble.

The value of companies like Apple, Google and Microsoft is made up primarily of “intangibles”. That term can cover all sorts of things, and is often taken to refer to some special aspect of the firm in question, such as accumulated R&D, tacit knowledge or ‘goodwill’ associated with brands.
R&D is at most a small part of the story. The leading tech companies spend $10 – 20 billion a year each on R&D https://spendmenot.com/top-rd-spenders/, a tiny fraction of market valuations of $1 trillion or more. And feelings towards most of these companies are the opposite of goodwill – more like resentful dependence in most cases.

A simpler explanation is that the main intangible asset held by these companies is monopoly power, arising from network effects, intellectual property, control over natural resources and good old-fashioned predatory conduct.

In this context, the crucial point about intangibles isn’t that they aren’t physical, it’s that they can’t be reproduced by anyone else. No one can sell a Windows or Apple operating system, even if they were willing to invest the effort required to reverse-engineer it. While there are competitors for the Google’s search engine (I recommend DuckDuckGo), there are huge barriers to entry, notably including the fact that the product is ‘free’ or rather supported by advertising for which all consumers pay whether they use Google or not.

There’s a complicated relationship here between the rise of monopoly and the development of the information economy in which the top tech firms operate. Information is the ultimate ‘non-rival’ good. Once generated by one person it can be shared with anyone else without diminishing in value. As the cost of communication has fallen, it’s become possible for everyone in the world to gain access to new information at essentially zero cost.
What this means is that there is very little relationship between the value of information and the ability of corporations to capture value from it. The protocols and languages that make the Internet possible are a public good, created by collaborative effort and made freely available. The information on the Internet is generated by households, business and governments using these protocols. Without these public goods, Google would be worthless. But because advertising can be attached to search results, ownership of a search engine is immensely profitable.

In turn, this means that traditional ideas about capital and investment are largely irrelevant in the information economy. More on this soon, I hope.

With everything going on, we at CT haven’t managed any posts for a few days, so I’m opening a thread for comments on any topic. I’ll try to get comments out of moderation reasonably promptly, but bear in mind that I’m in Australia, near the opposite time of day to most readers.

Below, a review essay on Jacob Hacker and Paul Pierson’s most recent book, “Let Them Eat Tweets: How the Right Rules in an Age of Extreme Inequality.” The essay tries to highlight and explain the political science arguments behind the book, and the kinds of political science research that would be needed to properly build out the agenda that the book implies. [click to continue…]

Ever since I wrote Work for All with Australian MP John Langmore back in 1994, I’ve been pushing the idea that a path to full employment requires an expansion of publicly provided services. For about the same length of time, Bill Mitchell (also an Australian economostO has been putting forward similar (but not identical) proposals. At some point in this process, Bill became one of the advocates of what’s called Modern Monetary Theory, which makes the point that taxes don’t (directly) “fund” public expenditure. Rather, they ensure that the total demand for goods and services (for consumption and investment) don’t exceed the productive capacity of the economy, thereby generating inflation.

This reframing raises the question: does a Job Guarantee require higher taxation? The answer, using MMT reasoning, is “Almost certainly, yes”.