 Professor Pascual Restrepo (pictured) is an MIT economist whose research focuses on the impact of technology on inequality, labor markets, and growth. Along with Daron Acemoglu, he has authored or co-authored some of the most impactful studies that help us make sense of the promises and risks posed by new technology. Listen In the aftermath of a turbulent election, policy analysts and journalists are beginning to turn their attention toward the ambitions of the incoming Biden Administration. We’ll discuss many of these ambitions in next month’s Difference Principle Newsletter, but I first want to draw attention to a key issue that President Biden may face in his term. And that is the issue of labor automation. In this podcast episode, which was recorded prior to the election, we talk with Pascual Restrepo, who is a prominent economist studying the impact of new digital technologies (e.g. artificial intelligence) on inequality. As employers hasten their embrace of labor automation due to COVID social distancing measures, previously abstract discussions about potential automation are now descriptive of reality. Professor Restrepo has coauthored or authored some of the most influential studies that help us make sense of this phenomenon. And in this interview, he discusses how new technologies might exacerbate inequality, promote instability, and eliminate jobs. Check out this podcast to get a quick briefing on what may well be a defining issue for the Biden Administration. You can listen to this interview and subscribe to The Difference Principle on Spotify and on other platforms by clicking this link to the Anchor page Thanks for listening. —Julian
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Here we go. After a quiet Halloween—one where the scariest people were probably those not wearing masks—we’re a couple of days away from the 2020 Election. At this point, I assume you have probably decided who you will vote for. And as a subscriber to a newsletter on inequality in the United States, it likely wouldn’t be too difficult to guess the candidate you support. Given this important moment in American history, I will dedicate space to talking about the coming election. Then I’ll wade into the economy, the recovery, and what I believe is a pivotal moment for US inequality. The month’s “Headline” piece discusses how fear of socialism was a precondition for the rise of twentieth-century fascism in both Germany and Italy. And in the “Inequality Briefing”, we discuss, among a number of topics, Saez and Zucman’s new report on inequality, the impact of this recession on young people, and how to modernize K-12 education in the age of automation. A Country on Edge First, the election. The importance of the outcome of Tuesday’s vote is unmistakable. Last month, this newsletter summarized an Economic Policy Institute report that detailed the ways the Trump Administration pursued policies to the detriment of American workers. This includes, for instance, suspending union elections and green card issuance, undermining job security, and preventing millions from receiving overtime pay. As we near Election Day, it’s worth briefly noting the massive number of issues that are at stake this go around. This includes:
So far, things look up for Biden, in no small part because turnout should be high. Although just 57.1 percent of eligible voters cast ballots in 2016, turnout may well reach record levels this year—the early voting of at least 92 million Americans amounts to 2/3rds of the total number of 2016 voters. And that’s two days before the election. This shift towards a massive number of early voting seems to be considerably driven by young voters, and its effects seem prominent in swing states such as Florida. In Texas, the number of early voters has already surpassed the state’s total number of voters in 2016. Despite this widespread participation, there are three critical areas of concern. First, that the President will not accept the results of the election, as he has indeed hinted at. Second, that the influx in absentee voting will result in a drawn-out and potentially messy path toward declaring an election victor (implicit in this is also the danger that one side falsely claims to have won). And third, that nearly any election outcome may catalyze political violence and unrest. The chance that America will be confronted with one of these democracy-eroding outcomes is not negligible. In preparation for Tuesday, Walmart briefly stated it would pull guns and ammo from its displays (it seems to have since reversed that decision). Washington DC and New York city shops have boarded up in preparation for violence—this appears true in many other cities. And the National Guard Bureau established a new unit of mostly military policemen to help quell unrest. America is clearly on edge. A Pivotal Moment for Inequality Given our understandable fixation on the election, it can be easy to ignore underlying economic developments. Yet the core philosophy of this newsletter is that those underlying economic structures are worth studying to make sense of inequality and our world more generally. This month is no different. First, US GDP growth came roaring back in the third quarter at a 33.1 percent annualized rate of growth. Furthermore, new applications for unemployment benefits have fallen to their lowest levels since the COVID pandemic forced many businesses shut in March. All of this is better than expected. There’s a catch, however. First, the rise in GDP growth has not yet brought the US back to its pre-crisis levels. Second, the economic expansion seems to have started in the second quarter, which is significant because it may indicate that this trend is on the verge of fizzling out amidst a new spike in COVID cases. And third, the new surge of COVID around much of the world and fresh lockdowns in Europe may result in yet another wave of this recession. This time around, things could also be worse. Although it has been widely reported that many American households have made progress in servicing their debt, eight million have fallen into poverty since May and 14.6 million have lost health insurance. And the willingness to support stimulus measures—the thing that almost single-handedly prevented the economy from a free fall and the consequent widespread destruction of livelihoods—has atrophied. That has manifested most perniciously in the halting of a new round of unemployment benefits aid in Congress. The implications of this could also be long-lasting, producing decades of wage stagnation. As the economy attempts a recovery, it’s worth noting China’s experience dealing with a post-crisis country. As China beat back COVID and experienced a relatively strong economic recovery, inequality grew. Higher-income owners were more likely to hold onto their jobs, and the stocks and properties those people disproportionately owned kept growing in value. Meanwhile, lower-income people in China lost work, saw weaker wages, and were more likely to have few assets. So far, the US has done little to avoid repeating this story. And indeed, early trends show a further-widening fissure between America’s rich and poor. As we near Election Day, this is a tale that is both worth remembering and one that will have implications that far outlive either presidential candidate’s time in office. Good luck, America. See you in December. —Julian Announcements
The Headline Thank you to Maanasi Natarajan for the excellent research assistance with these summaries. Fear of Socialism Led to the Rise of Twentieth-Century Fascism in Germany and Italy (Daron Acemoglu, Giuseppe De Feo, Giacomo De Luca, and Gianluca Russo, MIT) Why did fascism take root in Italy and Germany prior to the Second World War? A new study out of MIT suggests that fears about the spread of socialism played a pivotal role in encouraging the rise of the far-right. In this report, the authors look at the impact a boost in support for the Socialist Party played in elevating the Fascist Party, isolating for a number of key variables. To take Italy as our case study, the report finds that a significant number of center-right individuals shifted support to the growing fascist movement because they were afraid of a socialist government. As much as 15 percent of the increase in Fascist Party support from 1919 to 1924 owes itself to this shift. These effects were particularly pronounced in regions that were home to a larger number of elites and members of the urban middle class. The report goes on to argue that Italian Fascism benefited from the perceived threat of socialism in the aftermath of the First World War. Rather than accommodate the demands of the socialists, many landowners and businesses hurled their support behind the far-right. Those areas that were more likely to support socialists were also more likely to have experienced worse World War I casualties, which captures the sense of hardship that drove support for the left. The authors conclude this study by asking an open question about the role that another perceived threat of socialism might play in emboldening the far right through a shift in center-right support, just as it did in Germany and Italy. If nothing else, this study offers a fascinating portrait of the ways in which class-based conflict can shape voting patterns in radical ways. Read. Your Inequality Briefing ~Buiness and Finance~ Dominant companies have not become larger or more productive. (Germán Gutiérrez and Thomas Philippon, NBER) This report offers a counterpoint to the theory of “superstar firms”, whereby technology results in a consolidation of market power among a handful of massive companies. Instead, the authors of this study highlight the stagnation of aggregate productivity growth by more than one-third since 2000. Moreover, contrary to common wisdom, the market share of dominant firms and the value gap between leaders and followers appears not to have increased. In total, the contribution of top firms to aggregate labor productivity has decreased by about 40 percent. The authors conclude by stating that their findings seem to show market share growth occurred between the 1990s and 2000s but has waned since then. This could be a consequence of rising barriers to entry, a lack of competition, or a difficultly generating new ideas. Read ~Education~ Modernizing K-12 education in the age of automation. (Hannah Van Drie, Ember Smith, and Marcus Casey, The Brookings Institution) This study underscores the importance of modernizing K-12 education in order to prepare students for the age of automation and artificial intelligence. The survey of ideas offers a number of proposals to help meet this goal. It includes differentiating learning, improving school technology, teaching students transferable skills, increasing access to skill training for minority groups, emphasizing inclusion alongside technical skills, creating local children’s cabinets in communities to foster better student outcomes, and adopting a system of personal navigation and success planning. Though there are a number of proposals future policymakers should consider, the ideas expressed in this report are united by a common vision: we ought to provide students with skills in creativity, critical thinking, and technological competence and guide them in a rapidly changing world. Read ~Macroeconomy~ Saez and Zucman offer a rebuttal to critics: inequality is still rising. (Emmanuel Saez and Gabriel Zucman, NBER) In this paper, Saez and Zucman examine claims by some researchers that inequality has increased less than previously thought. Many of these studies were widely circulated in publications with an affinity for free-marketerism. In response, Saez and Zucman find no support for the conclusion that inequality growth has slowed and reiterate many of their previous findings on the rise of inequity. They “revise the revisionists” one after another, highlighting, for example, how one report failed to classify certain forms of non-taxable income correctly, resulting in the erroneous statement that such income had been redistributed. For their comprehensive rebuttal, check out the report. Read ~People and Places~ Like previous recessions, this one is hitting young people the hardest. (Elise Gould and Melat Kassa, Economic Policy Institute) Young workers are usually hurt during economic downturns; however, this time things have been particularly bad. This report highlights the high unemployment rates for young people that have been exacerbated by the pandemic. The authors find that young people tend to work in jobs most impacted by social distancing measures, and they are also more likely to be excluded from the CARES act. The implications of this could affect young workers for years to come, in the absence of dramatic inclusive economic growth. To address this, the authors offer up a number of possible solutions, utilizing both monetary and fiscal tools. They also discuss the vital importance of strengthening labor standards and raising the minimum wage. Read Case Study: Access to strong social networks and social mobility varies considerably across race, gender, and income groups. (Camille Busette, Tonya Farrow-Chestnut, Richard V. Reeves, Kwadwo Frimpong, and Hao Sun, The Brookings Institution) This report examines how social capital impacts mobility in Charlotte, North Carolina (a considerably unequal city). By analyzing over 30,000 interpersonal network configurations in the city of Charlotte, evaluating those networks for size, breadth, and strength, the authors compare the robustness of social networks among demographic groups—this includes race, gender, and income. The report finds that information and resources tend to flow within racial groups rather than between them, with Black respondents having access to primarily-Black networks and white respondents having mostly-white networks. White men also tend to benefit from the richest pool of social capital. Black women and, especially, black men have less social capital than white men and white women overall. The white population also tends to get more parental support than the Black population. These disparities have substantive implications for economic mobility in Charlotte, and the authors examine the specific role that segregation in schools and employment have played in perpetuating inequality. The authors conclude by outlined a path for greater inclusion. Read ~Worker Organization~ Legal changes and shifts in corporate practices and have eroded union participation. (Lawrence Mishel, Lynn Rhinehart, and Lane Windham, Economic Policy Institute) It’s well understood that American union participation has been in decline for decades. This report studies this trend by analyzing data from union elections that highlight workers’ abilities to achieve an initial collective bargaining agreement. The report shows that employer anti-union behavior led to a considerable bludgeoning of union membership—participation in elections fell from the 1950s and 1960s from one percent of all workers to 0.17 percent by the late 1970s and early 1980s. Moreover, despite a rise in unfair labor practices, employers were able to defeat unions because labor laws had become heavily tilted against workers and towards employers. Read Here’s What Else You Should Know The perils of meritocracy: For a divided West, income equality matters — but so too does equality of dignity and respect. (Bloomberg) States can pave the way for closing the racial wealth gap. (The Brookings Institution) Proximity doesn’t benefit just big cities—it’s helping rural communities weather the economic crisis too (The Brookings Institution) How to solve the problem of an American teacher shortage. (Economic Policy Institute) Repealing the Affordable Care Act during the Coronavirus Pandemic would be devastating for women’s health and economic security. (American Progress) Barack Obama: An excerpt from his coming book provides a new look at the effort to get the Affordable Care Act passed. (New Yorker) 14.6 million people have lost their health care due to the COVID Recession (Upjohn Institute) Joe Biden’s social security reforms would bring one million people out of poverty in 2021 and cut the poverty rate for adult Social Security beneficiaries over the coming decades by more than half. (Urban Institute) Mapping out how the US tax system should respond to rising inequality (National Bureau for Economic Research) This pandemic may be leading to fewer babies in rich countries and more in poor countries. (The Economist) Climate change is spurring a New Gilded Era—The world is getting hotter, and the divide between rich and poor is getting bigger. (The Atlantic) Thanks for reading. See you in December. That’s a wrap on this edition of “The Difference Principle”. If you enjoyed this newsletter, consider donating to help make sure it continues. Any contribution would be greatly appreciated, and both single and recurring donation options are available. Let me know how I’m doing by using this form to submit any comments or feedback! I welcome any suggestions on ways this newsletter can be a greater tool for readers in the future. You can also email me at julianjacobs6@gmail.com with topics or reports you would like me to cover in the future or to unsubscribe. 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