Concrete Economics

1. Concrete Economics J. Bradford DeLong U.C. Berkeley, NBER, and WCEG key: https://www.icloud.com/keynote/0I2SB2-tcQAkpmkcNrPwIyNCA#2017-03-11_DeLong-Cohen_Concrete_Economics html: http://www.bradford-delong.com/2016/11/concrete-economics-presentation-slides-short-present-focused-talk.html

2. There have been some odd things going on in the American economy Financialization: +4% of GDP Health care (admin plus specialists): + 6% Overclass: +4% Sub-overclass: +3% 17% extra of GDP devoted to activities that… seem to have little direct connection to enhancing societal well-being Slower (than previously anticipated) overall growth Since 1980…

3. Financial assets: from 3 yrs GDP to 4.5 yrs GDP “Fees”: 1.3%/yr to 2%/yr NAV Total: from 4% to 9% of GDP Is corporate control any better? Is allocation of capital any better? That’s 5% of what might have been equitably-distributed growth skimmed off the top—for no purpose Financialization

4. Large gap has emerged since 1980 Preserve a place for private insurance companies in the system Encourage the growth of for-profit hospitals in the system Specialist seizure of control of CMS? Where is the Hayekian knowledge aggregation? That’s 6% skimmed largely off the top—for no purpose Health Care

5. Top 0.01% 14K tax units $750B/yr $53M/yr average We’re paying them an awful lot “Superstars”? “Tournaments”? Jamie Dimon? Steve Jobs vs. George Eastman? The Overclass

6. Top 0.1% $1.5T/yr 140K tax units $11M/yr avg Ex-0.01% $750B/yr 125K tax units $6M/yr avg “Superstars” somewhat more plausible… For some of it… Add in the Sub-Overclass

7. Stopped subsidizing higher education as massively in the early 1970s Big rapid effects on education College premium goes from 30% to 90% With little visible supply-side response Lots of people who should be going to college, aren’t Race Between Education and Technology

8. Communities of engineering practice… Lowell, Detroit, Silicon Valley… For the U.S., really ought to be the case that S > I Why is a strong dollar always in America’s interest? Worries about rent-seeking and “industrial policy” But Dutch Disease is worst possible “industrial policy”… And on the Other Side…

9. Government Has Put Its Thumb on the Scale • Since 1980: follow-ons from Alfred Kahn’s two big successes: • Dismantling the ICC • Late 1970s airline deregulation • Since 1980: • Need more market incentives for our rich… • Need to keep medicine from becoming “socialized”… • Need deregulation of finance—401Ks, competition in investment banking, etc. • Need mass incarceration • Need government’s nose out of the picture—never mind whether the economy is “Smithian” or not… • All of these don’t really look like they were encouraging the proper industries of the future…

10. Before 1600, no such thing as a market economy Ownership of land all tied up with jurisdiction “Seisin” Low, middle, and high justice Tight guild regulation of quality and access “Provision” Then commodities become “Smithian” Get rule of law, get standardization, get non-Malthusian economy Rivalry Excludability No “externalities” Now we are moving into a world in which things aren’t as “Smithian” anymore But it was never wholly Smithian A Digression on “Smithian” Economies

11. Seven eras: Eisenhower FDR TR Post-Civil War: homesteads, railroads, land-grant universities Hamiltonian system Hamilton himself Settler colonies… Where and why did we go so wrong? Before 1980? America Was Much More Pragmatic…

12. The Long Age of Ike is a splendid example of America’s recurrent history of government using whatever means it can muster that fit: Changing laws and regulations Extending wherewithal: Cash Tax advantages Risk-reducing insurance To enable huge investments To support invention and research To support technological development applications To open new economic spaces And then entrepreneurial energy rushes in Let’s Talk About the Long Age of Ike

13. Race Topeka Little Rock White flight and suburbanization Gender Sandra Day O’Connor, graduated Stanford Law School 1952: “At least forty law firms refused to interview her for a position as an attorney because she was a woman. She eventually found employment as a deputy county attorney in San Mateo, California, after she offered to work for no salary and without an office, sharing space with a secretary…” Ideology America's Retreat From Victory, The Story of George C. Marshall by Senator Joe McCarthy Not a Paradise

14. “Growing Together”

15. Components of the Age • The American Dream • Two decades during which progress had largely been “on hold”… • The technologies were already out there—now everybody was going to get them • The institutions were already there—they just needed to be solidified and maintained • Protect the Dream • The ideological challenge • Make America a success • Make America’s allies a success • The military challenge • The Cold War military • The next generations of military technology • spin-offs • The Endless Frontier • Science and technology as the business of government • The defense angle

16. Federal spending: 3.5% of GDP in 1931 —> 18% of GDP in 1957 Federal deficits less than 1% of GDP over 1951-1970 Debt/GDP ratio falling at 3%-points per year 1951-1970 No desire for tax cuts for the rich Or other measures to reconcentrate income distribution CEO pay 30x median firm worker (not 300) (But slowdown in intergenerational mobility) Government commitment to maintain full employment in recession: “give Arthur Burns the baton” Social security Unemployment insurance Labor laws Farm programs Loan programs and suburbanization—much desired, but in retrospect… The New Deal Order

17. Solidifying the New Deal Order • Dwight David Eisenhower to Edgar Eisenhower, 1954: • “The Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it … If a rule of reason is not applied in this effort, we will lose everything.… Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt (you possibly know his background), a few other Texas oil millionaires, and an occasional politician or businessman from other areas. Their number is negligible and they are stupid…”

18. Still not completely clear to me why the U.S. fought the Cold War Isolationism ruled after WWI Isolationism seemed strong after WWII But Republican Party split: isolationists and anti-commies Korean War and NSC-68 Eisenhower R&D and public investment fueled by the Cold War… 10% of GDP in the Cold War military—plus the space race A powerful role in maintaining full employment And a powerful pro-south regional policy too The National Defense Interstate Highway System The Cold War

19. Growth and the Cold War • The Cold War and space race played a powerful role in pushing technological advance • Information technology • Aerospace • Advanced materials… • But also: • Venture capital: Route 128/Silicon Valley • DARPA • “Military planners were not blind to the great value these technologies might hold for the civilian economy, though like everybody else, they had no idea of just how huge some of them would become. So where they felt it to be appropriate, they would organize transfers out to the civilian economy. Very soon they even had a word for the process: spin-off. The result was a big-budget, dual-use success…”

20. Research and Development • R&D given special push by the Cold War… • Semiconductors-SAGE • But lots more too: • NIH • NSF • The GI Bill • The major build-out of the state universities—and not just state- and community college-level teaching colleges, research universities. • Bell Labs/IBM/Xerox PARC