Rental housing, millenials, and Friedman
The National Science Foundation has published its biennial report The State of U.S. Science and Engineering 2020.
Among individual countries, the United States was the largest R&D performer in 2017, followed by China, whose R&D spending now exceeds that of the EU. Together, the United States (25%) and China (23%) accounted for nearly half of the estimated global R&D total in 2017. Japan (8%) and Germany (6%) are next, followed by South Korea (4%). France, India, the United Kingdom, Russia, Brazil, Taiwan, Italy, Canada, Spain, Turkey, and Australia account for about 1%–3% each of the global total.
Foreign-born workers—ranging from long-term U.S. residents with strong roots in the United States to more recent immigrants—account for 30% of workers in S&E occupations. The number and proportion of the S&E workforce that are foreign born has grown. In many of the broad S&E occupational categories, the higher the degree level, the greater the proportion of the workforce who are foreign born. More than one-half of doctorate holders in engineering and in computer science and mathematics occupations are foreign born. A substantial percentage of Americans also think science makes life change too fast (49%).
The National Science Foundation (2020)
The Joint Center for Housing Studies of Harvard University discusses “America’s Rental Housing 2020”.
[R]entership rates for all age groups under 65 are still historically high. . . . [T]he number of high-income renters continued to climb. . . . In fact, households with real incomes of at least $75,000 accounted for over three-quarters of the growth in renters (3.2 million) from 2010 to 2018, while the number earning less than $30,000 fell by nearly 1 million. . . . This represents a sharp reversal of trends in the 2000s, when low-income households drove 93 percent of renter growth and the number of high-income households declined by 160,000. This shift has significantly altered the profile of the typical renter household. When rentership rates hit bottom in 2004 during the homeownership boom, 18 percent of renters earned $75,000 or more and 42 percent earned less than $30,000. By 2018, this disparity had narrowed considerably, with high-income households accounting for 23 percent of renters and low-income households for 38 percent. . . . [F]rom the homeownership peak in 2004 to 2018, the number of married couples with children that owned homes fell by 2.7 million, while the number renting rose by 680,000. . . . Ownership of rental housing shifted noticeably between 2001 and 2015, with institutional owners such as LLCs, LLPs, and REITs accounting for a growing share of the stock. Meanwhile, individual ownership fell across rental properties of all sizes, but especially among buildings with 5–24 units.
The Joint Center for Housing Studies (2020)
S. Çelik, G. Demirtas¸ and M. Isaksson review “Corporate Bond Market Trends, Emerging Risks and Monetary Policy”.
By the end of 2019, the global outstanding stock of non-financial corporate bonds reached an all-time high of USD 13.5 trillion in real terms. . . . [I]n comparison with previous credit cycles, today’s stock of outstanding corporate bonds has lower overall rating quality, higher payback requirements, longer maturities and inferior investor protection. In every year since 2010, around 20% of the total amount of all bond issues has been non-investment grade and in 2019 the portion reached 25%. This is the longest period since 1980 that the portion of non-investment grade issuance has remained so high, indicating that default rates in a future downturn are likely to be higher than in previous credit cycles. As of December 2019, non-financial companies worldwide need to repay or refinance an unprecedented USD 1.3 trillion within on year, USD 2.9 trillion within 2 years and USD 4.4 trillion within 3 years. The amount due within 3 years represents a record 32.4% of the total outstanding amount.
Çelik, Demirtas, and Isaksson (2020)
John P. McGowan and Ed Nosal wrote “How Did the Fed Funds Market Change When Excess Reserves Were Abundant?”.
Prior to the 2007 financial crisis, trading in the fed funds market was dominated by banks. Banks managed the balances—or reserves—of their Federal Reserve accounts by buying these balances from, or selling them to, each other. . . . The amount of excess reserves in the banking system—total reserves minus total required reserves—was very small and banks actively traded fed funds in order to keep their reserves close to the required amount. . . . In the post-crisis abundant excess reserves environment, the amount of bank-to-bank lending in the fed funds market was quite small. Instead, lending in the fed funds market became dominated by the Federal Home Loan Banks (FHLBs). These institutions have accounts at the Fed, which allows them to trade fed funds, but they are ineligible to receive IOER [interest on excess reserves] compensation. . . . As a result, FHLB balances behave in a manner similar to that of other non-reserve account holders at the Fed, such as the foreign repo pool or the Treasury General Account. . . . The rationale for borrowing in the federal funds market also changed during the abundant reserves period. Such borrowing became dominated by foreign banking organizations (FBOs), which used the market as a source of funding and arbitrage profit. . . . As such, the fed funds market was not typically used to make adjustments to banks’ reserve holdings vis-à-vis their required holdings since reserve holdings far exceeded what was required.
McGowan and Nosal (2020)
Shelly Lundberg has edited Women in Economics, which contains an introduction and 18 short essays. Some chapters in the book offer a condensed version of arguments made at greater length in the “Symposium on Women in Economics” in the Winter 2019 issue of this journal. From Lundberg’s "Introduction":
The representation of women in academic economics in the United States grew substantially during the 1970s and 1980s in the wake of a wave of feminist activism throughout the academy. . . . [T]hat progress stalled in the ensuing decades, with the share of female assistant professors and PhD students remaining roughly constant since the mid-2000s. . . . [I]n Europe. . .as in the US, the representation of women falls from about 40% at the entry level to 22% among full professors and that a cohort effect alone cannot explain this change. . . . [E]conomics research papers written by women appear to be held to higher standards in the publishing process than papers written by men. As in several other professions (medicine, real estate, law), there appears to be a quality/quantity trade-off, with female economists producing less output of higher quality than equivalent men. . . . [I]n the findings of their study of gender differences in the collaborative networks of economists, . . . women work with a smaller network of distinct co-authors than men and tend to collaborate repeatedly with the same co-authors and their co-authors’ collaborators, constructing a tighter network. Since larger networks are associated with higher levels of research output, these patterns may disadvantage women.
The BIS Quarterly Review offers a seven-paper symposium about global exchange rate markets. From the overview essay by Philip Wooldridge:
FX and OTC derivatives markets saw a marked pickup in trading between the 2016 and 2019 surveys. Following a dip in 2016, FX trading returned to its long-term upward trend, rising to $6.6 trillion per day in April 2019. . . . The trading of short-term instruments grew faster than that of long-term instruments. . . . [T]he trading of FX swaps, which is concentrated in maturities of less than a week, rose from $2.4 trillion in April 2016 to $3.2 trillion in April 2019 and accounted for most of the overall increase in FX trading. . . . In FX markets, London, New York, Singapore and Hong Kong SAR increased their collective share of global trading to 75% in April 2019, up from 71% in 2016 and 65% in 2010. Trading in OTC interest rate derivatives markets was also increasingly concentrated in a few financial centres, especially London. . . . [I]t is more cost-effective to centralise counterparty and credit relationships, or technical and legal infrastructures, in a handful of hubs than to spread them across many countries. The faster pace of trading also increased the advantages of locating traders’ IT systems physically close to those of the platforms on which they trade.
Bank for International Settlements (2019)
The Journal of the American Planning Association offers two viewpoint articles advocating the abolition of single-family zoning, along with seven short commentaries and then two rejoinders. Here’s a metaphor from Michael Manville, Paavo Monkkonen and Michael Lens in their essay, “It’s Time to End Single-Family Zoning”:
Suppose that, for your wellbeing, you need regular access to only a small amount of expensive medicine. One day you go to the pharmacy and learn the government has implemented a new rationing system strictly limiting the number of sales that can occur in small doses. Because many people, like you, only need small doses, the new rule results in few small doses being available. Plenty of medicine is available—you can see it over the counter—but the pharmacist can only sell it in large quantities. So you are stuck. If you want your medicine, you must buy more than you need, at a price higher than you can afford. This new rationing system is also strictly enforced. Not only must you buy in large quantities, but you cannot divide up your ration afterward and sell your extra doses to others who might need and value them. Most people, we suspect, would consider such a rationing system unjust and inefficient. It would force a large number of people to spend and consume more than they otherwise would, subsidize the smaller number of people who want and can afford large doses, and keep some people from getting medicine at all. Fortunately, the United States does not allocate medicine in this bizarre manner. But it does ration urban land this way.
Manville, Monkkonen, and Lens (2020)
Pathways magazine has devoted a special issue of short essays about the “Millenial Dilemma,” concerning those in the age bracket from 23 to 38. Michael Hout argues:
American men and women born since 1980—the millennials—have been less upwardly mobile than previous generations of Americans. The growth of white-collar and professional employment resulted in relatively high occupational status for the parents of millennials. Because that transition raised parents’ status, it set a higher target for millennials to hit.
Florencia Torche and Amy L. Johnson posit:
Millennials with no more than a high school diploma have much lower earnings in early adulthood than prior generations.
Darrick Hamilton and Christopher Famighetti state:
Young millennials have lower rates of homeownership than Generation X, baby boomers, and the Silent Generation at comparable ages. We have to reach back to a generation born nearly a century ago—the Greatest Generation—to find homeownership rates lower than those found today among millennials. The racial gap in young-adult homeownership is larger for millennials than for any generation in the past century.
Kim A. Weeden points out:
The gender segregation of occupations is less pronounced among millennials than among any other generation in recent U.S. history. By contrast, millennials are experiencing just as much racial and ethnic occupational segregation as prior generations, even though millennials are less tolerant of overt expressions of racism.
Pathways magazine (2020)
Future of Children contains a seven-paper symposium on the theme of “Universal Approaches to Promoting Healthy Development”. From the introductory essay by Deborah Daro, Kenneth A. Dodge, and Ron Haskins:
If we saw children in a canoe heading for a waterfall, we wouldn’t be content to wait at the bottom and mend their wounds after they crash; instead, we would climb to the top of the falls and try to stop them from going over the edge in the first place. Similarly, we must begin earlier in children’s lives and come equipped to identify family needs and offer assistance in a timely fashion before problems surface. . . . [T]he programs described in this issue suggest that building the infrastructure to support a universal approach involves three important steps. The first is a mechanism that allows all families in a community to be assessed and to receive advice from qualified professionals about how to ensure the healthy development of their children. Second, when giving advice, these professionals must recommend specific prevention or treatment services that are available and accessible in the local community—and, often, help parents gain access to and pay for the services. Third, programs need a way to track families’ developmental and other issues, the services they seek and receive, and the results of those services. . . . [W]e are guided by growing evidence that well-crafted and carefully implemented prevention strategies can significantly improve parental capacity and child safety while also enhancing child development.
Daro, Dodge, and Haskins (2020)
Jessie Romero has an interview with Janice Eberly in Econ Focus:
We’re familiar with investments in physical capital, by which I mean property, plant, and equipment — the things most people would recognize as capital. That’s tangible capital. But today we also have intangible capital—the investments you can’t touch, such as software and intellectual property. You can expand the definition to include things like worker skills that are specific to the firm; when a firm invests in its employees, it’s also developing its capital in some broad sense. . . . These types of investments are increasingly important: Intangible capital is the fastest-growing part of investment. It also seems to be playing a greater role in the success of firms. Not only is intangible capital a larger and larger share of investment overall, but it’s also especially important for the firms that end up being the leading firms in their industries. Amazon’s business is built on intangible capital; Walmart’s logistics technology is all intangible capital. . . . Historically, we thought technological change was embodied in tangible capital. . . . So the question is whether physical capital is embodying technological change in the way that it used to. Is the technological change actually in the intangible capital? . . . Just like job growth has shifted toward the service jobs you can’t send overseas, investment has shifted toward the industries where you can’t offshore the capital and away from the durable goods and manufacturing industries.
Federal Reserve Bank of Richmond (2019)
Tyler Cowen conducts one of his Conversations with Tyler, “Daron Acemoglu on the Struggle Between State and Society”:
[I]t turns out that there’s one surefire predictor of when a country democratizes — it’s economic crisis. Dictatorships don’t go often because they decide, well, citizens should rule themselves. They collapse, and they collapse more likely in the midst of severe economic recessions. . . . So when a country democratizes, for another three or four years, it takes time for it to get out of the crisis. Then it starts a much faster growth process. It’s not going to make Nigeria turn into Switzerland, but a country that democratizes adds about 20 to 25 percent more to its GDP per capita. . . . [O]ne of the most important mechanisms for that seems to be that when you democratize, you tax more, so the taxation, the budgets go up. And you spend more, especially on education and health, so the health of the population improves. Child mortality is one of the things that improves very fast. Primary and secondary enrollment improves a little bit more slowly, but it improves very steadily.
Stephen E. Landsburg has written The Essential Milton Friedman. It’s a free e-book, 73 pages long, with highly readable nonspecialist overview of many of Friedman’s most prominent ideas.
Milton Friedman was one of the most influential economists of all time. He revolutionized the way economists think about consumption, about money, about stabilization policy, and about unemployment. . . . In several cases, Friedman’s methods inspired the creation of entire new subfields including the economic analysis of law, the quantitative approach to economic history, the economics of crime and punishment, the economics of family relationships, and the economic approach to finance. . . . And he influenced policymakers. In the United States, he helped to end the military draft, to broaden educational choice, and to change the regulatory climate. Worldwide, almost all central banks now follow policies that are grounded in Friedman’s insights and recommendations.
Jeff Cockrell inquires “Does America Have an Antitrust Problem?” This article reflects themes in the “Symposium on Markups” and “Symposium on Issues in Antitrust” from the Summer 2019 issue of this journal.
‘Concentration isn’t a good barometer of the extent of competition in the market,’ says Chicago Booth’s Chad Syverson. ‘It’s not just a noisy barometer; we don’t even know what direction the needle is pointing. There are cases where, clearly, things happen in a market to make it more competitive, and concentration goes up.’ Consider a market in which customers face high switching costs, or barriers from moving from one seller to another. The mobile-phone market prior to the advent of number portability, or the right to take your phone number with you when switching carriers, was a good example: the inconvenience of transitioning to a new phone number imposed a high cost on those who wanted to leave their provider for a new one. If switching costs come down, the market becomes more competitive, but at the same time, many inferior suppliers will lose market share or go out of business as their customers abandon them for better options, resulting in higher concentration. . . . ‘The issue is, what’s the criterion that you use to declare something as noncompetitive in a way that’s easily comparable across industries?’ Syverson says. Some have suggested that size—measured by total asset value, for instance—could be such a criterion, but ‘I think that is just taking a hatchet to a birthday cake,’ he says. ‘It’s ridiculously blunt.’
In “No More Californias,” Kyle Mangum writes, “As American mobility declines, some wonder if we’ve lost our pioneer spirit. A closer look at the data suggests that the situation is less dire—and more complicated—than it at first appears”:
There are two perspectives on this question. One is that the expansion of population across the continent was simply a phase in the life cycle of American development. . . . Maybe there was nothing uniquely American about high mobility (besides, perhaps, open land) and no reason to desire it now. The wagons reached the coast, and there were no more Californias to settle. In this case, there is no problem for policy to fix. The second perspective is that population change is unduly restricted by policy failures that create congestion in desirable, productive places. Regulations that make it hard to build new homes increase costs and prevent cities, especially those offering high incomes or many amenities, from adding new residents. Suboptimal urban planning could lead cities to be overly congested and below capacity. . . . These two perspectives are not mutually exclusive, and the reality likely combines the two. The regional transition is mostly complete (subject to the caveat that there is always potential for new shocks), and the new trend in population growth is in the expansion of existing cities (especially those away from the coasts) across various regions. This should assuage the fears raised by the interregional migration decline, and there is really no clear role for policy here anyway. The real question is whether this natural new phase of population growth is producing the optimal distribution of population across cities, especially across cities within each region.
For those on the lookout for some good news about what economists have done, Michael Kremer, Jonathan D. Levin, and Christopher M. Snyder offer Advance Market Commitments: Insights from Theory and Experience. Back in the Fall 2002 issue of this journal, Kremer was already making arguments for advance market commitments in “Pharmaceuticals and the Developing World”.
Ten years ago, donors committed $1.5 billion to a pilot Advance Market Commitment (AMC) to help purchase pneumococcal vaccine for low-income countries. The AMC aimed to encourage the development of such vaccines, ensure distribution to children in low-income countries, and pilot the AMC mechanism for possible future use. Three vaccines have been developed and more than 150 million children immunized, saving an estimated 700,000 lives. This paper reviews the economic logic behind AMCs, the experience with the pilot, and key issues for future AMCs.
Kremer, Levin, and Snyder (2020)