Weekend reading links

1. The Economist has a fascinating survey of the harmful effects of occupational licensing in the US. Sample this,

In 1950 one in 20 employed Americans required a licence to work. By 2017 that had risen to 22%... Most studies find that licensing requirements raise wages in a profession by around 10%, probably by making it harder for competitors to set up shop... Forty-one states license makeup artists, as if wielding concealer requires government oversight. Thirteen license bartending; in nine, those who wish to pull pints must first pass an exam... manicurists are licensed everywhere but Connecticut. Louisiana licenses florists... Such examples... are not representative of the broader harm done by licensing, which affects crowds of more highly educated workers... Among those with only a high-school education, 13% are licensed. The figure for those with postgraduate degrees is 45%. More educated workers reap bigger wage gains from licensing. Writing in the Journal of Regulatory Economics in 2017, Morris Kleiner of the University of Minnesota and Evgeny Vorotnikov of Fannie Mae, a government housing agency, found that licensing was associated with wages only 4-5% higher among the lowest earning 30% of workers. Among the highest 30% of earners, the licensing wage boost was 10-24%. Forthcoming research by Mr Kleiner and Evan Soltas, a graduate student at Oxford University, uses different methods and finds no wage boost at the bottom end of the income spectrum, but a substantial boost for higher earners... In particular, licences are more common in legal and health-care occupations than in any other.

2. In the context of assessments of historical figures and events, Livemint invokes John Rawls to offer a three point Rawlsian test,

The first point Rawls made was that the giants of the past had to be understood in the context of their times rather than ours. Any moment in history should then be seen from their point of view rather than ours. It is fundamentally wrong to pass sweeping judgements, with the benefit of perfect hindsight, on people making complicated choices in real time. The next point Rawls made was that any scholar has to strive to offer the ideas of a historical figure in their strongest form. They have to be assessed in the best light possible... Rawls once quoted John Stuart Mill in this respect: “A doctrine is not judged at all until it is judged in its best form.”... The third lesson from Rawls is that one should approach the great figures in history with modesty. “I always assumed that the writers we were studying were always much smarter than I was…. If I saw a mistake in their arguments, I suppose they saw it too and must have dealt with it, but where? So I looked for their way out, not mine.”

3. In the context of the debate surrounding whether macroeconomic theory needs revision or not, Srinivas Thiruvadanthai makes a very valid point that perhaps we need to go back and construct certain stylised facts from real world data. He suggests some which are all contrary to the orthodoxy - demand shortfalls have persistent effects; fiscal policy is effective in recessions; private debt matters enough to cause recessions and worse, whereas public debt matters less so; investments are not very sensitive to interest rate changes, both reductions and increases.

I can add a few more - capital grows faster than national incomes; technology markets converge to monopoly; financial markets cause misallocation of capital and human resources; higher marginal tax rates do not appear to reduce effort or investment decisions etc.

4. This story highlighted the bruising work culture among white collar employees in Amazon. It does appear that the story is even worse with blue-collar workers.

Highlighting the fact that jobs do not translate into higher incomes as well as the features of jobs in the logistics industry, City Lab illustrates with the example of San Bernardino, 60 miles east of Los Angeles, where since establishing base in 2012, Amazon has come to employ more than 15000 full-time workers in 8 fulfilment centres (where goods are stored and packed for shipment) and one sortation centre (where packages are organised by delivery area).

In San Bernardino, the unemployment rate that was as high as 15 percent in 2012 is now 5 percent... Yet in many ways, Amazon has not been a “rare and wonderful” opportunity for San Bernardino. Workers say the warehouse jobs are grueling and high-stress, and that few people are able to stay in them long enough to reap the offered benefits, many of which don’t become available until people have been with the company a year or more. Some of the jobs Amazon creates are seasonal or temporary, thrusting workers into a precarious situation in which they don’t know how many hours they’ll work a week or what their schedule will be... the experience of San Bernardino shows, Amazon can exacerbate the economic problems city leaders had hoped it would solve. The share of people living in poverty in San Bernardino was at 28.1 percent in 2016, the most recent year for which census data is available, compared to 23.4 in 2011, the year before Amazon arrived. The median household income in 2016, at $38,456, is 4 percent lower than it was in 2011... according to a report by the left-leaning group Policy Matters Ohio, one in 10 Amazon employees in Ohio are on food stamps.

This contrast between the labour markets of two eras is striking,  

In 2012, Amazon seemed like a lifesaver. San Bernardino’s unemployment rate was at 15 percent, home values had fallen 57 percent since 2007, and the city, facing a $45 million budget shortfall, would file for bankruptcy in August of that year... The jobs that used to dominate San Bernardino were unionized ones with good benefits, at the Kaiser steel mill, the Santa Fe railroad maintenance yard, and the Norton Air Force Base. Now, jobs like the ones Amazon creates pay less and aren’t unionized, and require multiple members of a household to work, often more than one job.

In terms of the Amazon effect, this is illuminating,

According to available data from the Bureau of Labour Statistics (BLS), warehouse workers in counties where Amazon operates a fulfilment centre earn about $41,000 per year, compared with $45,000 per year in the rest of the country, a difference of nearly 10% (see chart 2). The BLS data also show that in the ten quarters before the opening of a new Amazon centre, local warehouse wages increase by an average of 8%. In the ten quarters after its arrival, they fall by 3%.

The one thing that comes to mind is that this fabulous wealth of the world's richest man has been effectively built on what should arguably constitute "slave labour" in the world's richest country!

5. After having overtaken the US in exports and manufacturing, the final frontier for the Chinese economic march may be the technology sector. 

In some of the cutting-edge areas of technology like artificial intelligence, facial and speech recognition, the Chinese are breathing down the Americans on most parameters.

6. Finally, the graphic below puts the Chinese debt orgy in perspective - in 2009-17 its official and shadow bank lending was more than $20 trillion during 2009-17, whereas US Fed, BoJ, ECB, and BoE together added just $13 trillion in their respective fastest ever balance sheet expansions!

This is truly scary. The only thing that would be of some comfort is the Chinese government's commitment to address the problem and its credibility in terms of translating talk into actions. As a measure of that consider two data points - the crackdown on capital outflows led to it collapsing from $640 bn in 2016 to just $60 bn in 2017; shadow bank lending in January 2018 was the lowest January level since 2009 at just $25 bn, 90% lower than in January 2017. Not too many governments anywhere can pull off such feats.