Prof. Lee Ohanian, Professor of Economics at UCLA

Automatic TRANSCRIPT

Welcome to the site of accents. Podcast where we explore emerging ideas from signs policy economics and technology. My name is gill. Eappen we talk with woods leading academics and experts about the recent research or generally of topical interest scientific senses at unstructured conversation with no agenda or preparation be color a wide variety of domains. Red new discoveries are made and new technologies are developed on a daily basis. The most interested in how new ideas affect society and help educate the world how to pursue rewarding and enjoyable life rooted in signs logic at inflammation v seek knowledge without boundaries or constraints and provide unaided content of conversations bit researchers and leaders who low what they do a companion blog to this podcast can be found at scientific sense dot com and displayed guest is available on over a dozen platforms and directly at scientific sense dot net. If you have suggestions for topics guests at other ideas please send up to info at scientific sense dot com and i can be reached at gil at eappen dot info mike. Yesterday's purposely. hyon. Who's professor of economics and director of the macroeconomic research program at ucla. He is also senior fellow at the hoover institution stanford university and associate director of the center for advanced study in economic efficiency at on state university. He likes it to the federal bank of minneapolis and previously said why south Banks flooding central banks at the national science foundation. Velka much ramming yet. Thanks for thanks. So i want to start one. Older people said titled capital skill complementarity and inequality In which you say. The supply in price of skilled labor relative to unskilled labor have changed dramatically over the postwar period. The relative quantity of skill labor has increased substantially and the skill premium which is really of skin. Laborer related to that labor has grown significantly insecure. Eighty people came out in two thousand. I would imagine these things have gotten even more pronounced the last twenty years. I would imagine right. Yes that's correct that. At the time that paper was published there. Were really you know the idea. Increasing inequality and how highly educated people are really moving forward in those without a high level education struggling. That idea was just really starting around the time that wrote this paper of but now it really is is from saturn. Almost everything we see today politically socially and economically yeah and that is an accelerating trend to technology. So there's a lot of talk around artificially and i want to get your perspective on this You know in some sense. Some of the skins labor and this is. I'm just throwing this out for floor insights and debate apps up with some of the kids labor such as. Let's say a counting financial advisory services and so on argue They can all be taken up by a computers and so what they used to think. Think of is also sort of getting obsolete in the cover jeans and yes so the paper has come interesting history. So if it's okay. I'll can get together but both what i think might be going on today. And what what. What was the thesis that paper so You know so back. The nineteen nineties. Labor economists were really puzzled at the skull carries because there was explosion of people of new workers who had received four years of college. So who had a bachelor's degree and with this huge increase in college educated workers their wages. We're going up very rapidly and for those who had not would not gone to college. Their wages were growing very very slowly. So you have this puzzle which is from supply demand perspective the unskilled workers. They're they're quantity. Their numbers are not growing quickly because so many people are getting college. -cation so from a supply. Demand perspective is really a puzzle a labor economist. Kim of this idea of what the call skill biased technological change. That is there is some factored deep within the economy that was expanding the demand for highly educated highly skilled workers and that was not equally affecting those without high levels of education and this appear to be a bit of a one off because previously the history united states as economic as economies grew. It was the rising tide. The lifted all boats so so everyone seemed benefit as knowledge and technology fans but ran than the one thousand nine hundred nineties. This whatever was going on was really helping those with headlines of education but not those who didn't have that access so the paper is about i coming up with a name for what labor economist called. Skill buys tunnel logical. Change and our theory was that it was this rapid development highly powered new capital equipment. That in our eyes were making highly educated people very very productive such as you give somebody with an mba High speed computing advanced software the ability Smartphones all the information technology gums. That we've seen over the years and that really makes them incredibly productive but at the same time some of that you capitalist the place of unskilled workers. So that have the papers capital skill complementarity and inequality said the idea. Was this new capital was complimenting compliment to highly skilled workers but it was a substitute for for unskilled workers. And what we found in. That paper is that Is that that theory cannock house. The data remarkably closely Now kinda come back full circle to to your questions about today. What i'm doing right now with With one of my since ucla and then one of my former students who now works at the federal reserve board. We're re estimating that model using data In the last twenty five years that that was not obviously not available. When we. When i when i and my coffers published that paper two thousand and what we're finding is that there's a little bit less complementarity between this new capital goods and skilled workers meaning that The new capital gains are providing less of a product to the kush to these highly skilled workers. A little bit less while we found before so this consistent with the idea that hey you know this new remark us new remarkable apple goods not only can substitute for us labor less skilled labor but they might be able to substitute somewhat for how the skilled labor as well such as the areas of law. Lana conic as you mentioned with Artificial intelligence so yes. We'll have to watch this. As as as a i continues to grow and And weather that is a substitute for lawyers and physicians and accountants Or whether that frees them up to use their remarkable minds to be able to do different things in which those technologies will be a compliment so remains to be seen. He has an exciting so from technology prospectively. A under two things going on one is you could think of robotics Replacing humans In the low skill area so much of the manufacturing that of talk about a nuts and bolts manufacturing assembly and so on increasingly humans are replaced by robotics. And then on the top end as you said is Is getting into a skilled labor to both end of the spectrum at the as to be affected by emerging technologies. yes exactly gil You know when we think about what's going on with less skilled labor my favorite example is Is what happened with international trade. So you don't have to go back in time to nineteen fifty Though world was coming out of world war two international commerce was just reemerging There about ten thousand people who worked in the ports of new york and new jersey and these were a long term. Might you know big big strong guys with with wales strong backs who and they would walk onto his ship and they pick up a box and then they bring the box off the ship and offload it and and then when the ship was emptied they would pick boxes new boxes up and put them back on the ship and the ship would sail away and that was ten ten ten thousand longshoremen. Were involved in those jobs and today there's maybe instead of ten thousand people working. There's maybe eight hundred people working and every single one is a college grad operating one of those remarkably sophisticated cranes uc that picks up A twenty or thirty thousand pound container and that off the ship and then puts a new container back on the ship. So we've seen a and at the same time. Despite that penfold drop in the number of people working the expansion in international trade. This occurred between thanking fifteen. Today's is increased by a factor of thirty or forty so that's just a remarkable productivity expansion But that was the case of highly skilled workers and machines taking the jobs of low skill. People an app today when we talk about ai you know we there's there's pattern recognition software that can they can look at an mri imaging Or cd scan imaging and at some point. I don't think it's there yet but at some point it'll be able to recognize tumors and abnormalities on in those images maybe as well as a radiologist So then you say well you know why don't we need the radiologist. We can just run these. We can just run the mri through through through through some software and we can get the same reading at a at a tiny fraction. The crossed the beauty of machines is that they don't complain and they can work twenty four hours it'd be actually video Readings at fatigues big. Concern you know in terms of the Humans in that job so we have similar things so lately. I don't know if this is the case Uc hiking jobs affected by us. Sort of see demand taxing sort of lower end jobs. That's robotics believe in depth with the premium to be highest sought. Middle these these but in blurted you type premium function in the future when it's Something i'm gonna work on some point. It's it's a big big endeavor. And i need some people to join me with us. But when we think about technological change in and whether it's is going to substitute for someone or whether it's gonna really compliment someone skills A lot of the literature is destroyed. Take that forgiven. Just a okay. Well here here's a machine that can substitute for an accountant. And here's a machine that can substitute for for a long sherman out strong back. Who can pick up a lot of weight But that technology that the technological changes being directed in some ways and You know when you mention fishing regimes don't complain. You don't need to give him like you know lunch breaks and And were disability payments That that's really what you mentioned. Because in robotics was developed A big chunk of lose to bell back in the early nineteen seven eastern audience street. Because at that time the You know there's actually no competition in among among car producers it was gm and ford chrysler gm kind of you know set. Here's what we're doing and then chrysler and ford followed them in the late ninety six. That was really before honda and nissan and toyota. You know they're there really. Were you know hardly any car. Imports speak and there were always You know very damaging very destructive other strikes where you know half a million people would go would go on strike And it was you know it was obviously bad for the company was you know is bad for the workers as bad so that badge the economy so people jam said you know this. This is getting out of hand We're gonna try. And there's actually a quote from gm executive where where during a strike where he says. We're going to automate away from order as they started developing a robotic arms for you know for example Pink pinning hearts which now is obviously routinely done but this was over fifty years ago. And that's not. The technology just wasn't far enough along so the you know the robots ended up in a string themselves rather than random pain the cars but but from the standpoint of what types of high technologies are developed. They can either substitute or complement workers. you know. There's a reason why there's a reason why people are working on what they work on it. At that time it was very much to try to move away from labor. that was creating problems so Yeah so that's the best fascinating story that that i think needs to be told at a broader level in deeper level. Yeah i know that. Involved with the federal reserve in minneapolis and other other federal banks from mcfaul ac- perspective. What's our current thinking. We know that this happening patchy in different industries who's not uniform obviously But excluding to have a significant effect On jobs on people in general and at and more generally the economy so do cavs some policy direction after observing. What's happening if we look at the skills okay. So if we're going to be labor. Economists for second i will and we take a look at what skills are most valued in the marketplace. Right now. i'm and what the market price of the skills are. There's a big premium on critical thinking a big premium on creativity A big premium on communication skills as we continue to grow into a service sector economy. All those things will continue to be highly valued and the us You know we We haven't done a great job in implementing innovations and you ideas in case you. Twelve education You know back in the day My back into that. Menial fits sixty years ago. You had by far best. K through twelve education system in the world from the standpoint of of standardized testing today were way down on that They're poor countries. We're in which kids do much better in science and math in our kids. So that's something we really have to address And we think a bad critical thinking and logical thinking and the ability to combine imagination with the discipline of structured thanking That's that's hard to do for all of this I mean you do that. I do that but You know for everybody. Some of no matter how good you are. It's always a bit of a struggle and that's something that really can be developed You know early on in childhood so that so we're not doing a good job on that And from national education policy. Point of view i think there are things we can do You know you whether it's You know no child left behind or common core. These policies are are not being effective From the standpoint that you know a small number kids They go on to harvard. Princeton stanford they're remarkably well prepared and then they're bunch of kids who are coming out of There's a story about a year ago. A kid who went through school in san francisco Which has the highest salaries In the country within any city. I'm this whole home to enormous technology presence and the escape graduated from high school with all fs you know. He just kept getting you know pushed through and he gets out of highschool. He has absolutely really no marketable skills. So there's really a haven't had that aspect to education that that we really need defects and i think Even at the top end. I think We can we can do better before you know before covert was. You know there wasn't really all that much change in how we were teaching kids You know in two thousand and in two thousand nineteen versus how we teach him in one thousand nine hundred seventy so I think we can do a lot there to help them. Develop structured thinking logical thinking It's gonna take some policy. Reforms and teachers unions are going have to be more flexible in terms of accommodating future kenya which is your lifetime. Employment that california that can occur after year and a half and also implementing Merit based pay most cases teachers get seniority-based pay and implementing scales that. Take into account the year that you wanna hear really good math teacher science teacher. I mean you've got to pay him well because they have a lot of outside opportunities So the best teachers are incredibly productive valuable and and we should be paying them that way. Yeah so that makes so it's really setting the initial conditions if you missed that Than either you miss a window of fixing data delayed a time is much more expensive. Ed so it is really kinda focusing back on education. Just really briefly. The does some Some different thinking on that for instance The us we have on flexibility in education of liberal arts education vaccination countries than to be sort of prescriptive and heidi focus There's some thinking that that actually doesn't improve innovation and creativity. Do you have a deal that Go to just make sure i understand. Could you just a little liberal more backups. Yeah so. I grew up in india for example as an example So you know bear High school college level education. You're already sort of selecting the The path you're going to go You know whether you're going through engineering medicine or something like that. And so you're specializing early And and the portfolio of subjects or or Ideas that you're going to learn is going to be much less divorce. That's general trend in that. Believe in asian countries better than the us. I think we have more flexibility. And the portfolio of subjects case be tempted. Learn a broader I think Yeah yeah two two different models And and germany germany. The model you just described For example for india would be similar to what was done in germany as some other european countries So i don't know if. I think the jury is still out on On the future consequences of that what There's a sense in which the model you're describing can be very effective I thinking very very effective when we When we have really kind of a good idea of where the where the child is so so you know just using analogy if it's the kind of the case of Hey hey. I'm a vegetarian than you know okay. We know this person's vegetarian. Or hey. I'm a meat eater reno. This person mediator. And i think the challenge is that e- i think you know i mean my view. Is that even for kids. That early on that are really struggling and maybe have really looked. scores It might be just because you know we're not reaching the right way So i've been teaching at the university level. I'm since nineteen ninety. Two of his. You know i've been doing this. Twenty eight years and in that time I learned so much about teaching. And how to get to poke whether they're are college freshman or whether they're hd student work on a dissertation creating new economic knowledge And every year. I do this. I learned more about what it means to reach. Somebody and sometimes you have to do different things to reach people And what. I worry about terms of algae described as It could be remarkably productive for some for some kids but we might really be missing the boat on some other kids And if the standpoint that human beings incredibly complex in the brain is amazing organ that can do nearly enough and a number of things If we can learn more about how to reach different types of kids we might. We might see some breakthroughs of kids that That you know when the lightbulb goes off you know. I think we all have the ability to have the lightbulb gloss. Go off worse and then we can figure out which which direction to go in And sometimes mattress. You'll how do we get the light bulb. Go offer them I think we're still learning how to do that right right. I had to jump into the people which is a different topic. Altogether phillips coons used for forecasting in inflation I remember learning a bunch of scarves strong time but forgotten all about it so tips curve used as an equation that relates the unemployment rate or some other measure of aggregate economic activity to Inflation rate and more specifications of phillips curve equations relate the employment to future changes in the rate of inflation. So this is This is not a tape construct that this is just a is ambulance ovation or what. It's called the phillips curve idea. Start yeah yeah okay so in a nutshell resisting columnists him. A w phillips And and he was he was he was from new zealand And so you're absolutely right. It's a it's not a theoretical concept like like you know the higher the price the less of the good weak demand rather he just family can scatter plot of data that there is an inverse relationship between the unemployment rate and and How fast wages were changing. So that looking at data from the nineteen forties and nineteen fifties. He saw low unemployment existed when the rate of nominal wage change know how fast people salaries you're on up going up measured in dollars When when wages were going fast unemployment was low and and when unemployment is high wages were up slowly So this is purely empirical issue and he became really famous for his fault. Now all the folks curve and I i've been to salt Within federal reserve system for a long time And so back about twenty years ago one of the guys working with in fact A long story short he was encompassed in minneapolis. Said and i was consulting. There is same as antioch and later he joined me at ucla so ucla now restart asking well you know. It's not really in the data to the extent that people think it is so we wrote this paper where we constructed the same scatter plots. We looked at the inflation rate. We didn't look at nominal. Wage changes like philip did because the think-i at morphed into more about just price inflation so reproduce them scatter plots of unemployment and price inflation. We found very little relationship in the data And then what we did was we compare the federal reserve systems forecasts for inflation that were based on this idea of phillips kirk so the fed would say. Hey unemployment is high right now okay. There's very little risk of of a future inflation so that can help us. Guide monetary policy. We can we confront a lot of money or whatever they call it I'm sorry that's a book had great. Yeah the green book forecasts. Yeah yeah and so what we found is we developed a really simple forecasting mile that just said inflation for quarter now is going to be about what it is today so For for people familiar with that it would be such like a random walk model or martingale and You know so. We compared the forecast set. No one in the last we came up with. Were better on average and we also prepared them to some forecasts produced by Jim scotch using He's me Jim stock economists at harvard. mark watson suppressant. They do allow to work on forecasting macroeconomic data and and their forecast for worse as well so So kind of fat you know so so so when we wrote. This paper is really easy paper. Right 'cause there's no complicated models for math in it and so the research director the minneapolis said he goes to the federal open market committee meeting in washington so every six weeks. The federal reserve meets the board of governors in washington. Dc and then the president's and the research directors of the regional feds in the minneapolis. Fed is one of those. They all go there. Meet every six weeks to talk monetary policy so the research director are rolling says. Hey and a joke. Two of my guys have written this paper about inflation. Forecasting the phelps scriven. You know they're they're finding that there's not much to the idea of the folks from the data in the forecast aren't very good so young lady only as he's said just silence going to quote through room and you know so. He presented the statistics and then pretty much every research department and the fed reserve and in the board of governors replicated. What we did which which was easy to do easy to replicate and And so now you know twenty years later you see. In the new york times wall street journal the economist magazine now. You're starting to see a broader critiques about phillips curve forecasting to guide monetary policy but But it hasn't really been in the data for. I mean we. We are papers published twenty years ago almost twenty years ago and we were Data those nearly eight so the yet. Yeah i guess is is is a is a slow moving boat to turn it around but i but they're aware of it But you know those ideas are they day off. It takes help for them to die off. Yeah especially when you put a name on it. It becomes a tool because electoral success. And i guess you know especially in economics people start to use it and And the not looking back from a from a category perspective awesome and so so so what. You're finding the condition of despair but a thing is that The idea of the phillips curve might have fit some set of data early on but it doesn't really sit in your data that we be see at least contemporary sense way. No no the Are important possible. -cation which is if the feds. Thanks that oh if unemployment's high then we can very safely conduct monetary policy that would otherwise increase inflation. But it won't because unemployment is high will view that views not that use ver-very misperceived in in policy-making. You might be dangerous if that if that if that road is taken so yeah so it Yeah but you're absolutely right These these things do diehard in. Yeah once was name is associated with them and people get get locked you know. They kind of get wet to them. It takes a while for these cities to change yet. Did take a quick break. Leave and come back with a little bit about the great depression district of taxes said one of your Data speed versus. Well great. Thank you this is a scientific sense. Podcast providing unscripted conversations bit leading academics and researchers on a variety of topics. If you like to sponsor this podcast please reach out to info. At scientific sense dot com. So you're back You have added a paper This two thousand four new deal policies and persistence of the great depression. It generally reclaim analysis. you say there are two striking aspects of the colori from the depression in the us. The was video bleak and real beaches slow significantly about trend You saved data congress With the neoclassical which critics strong recovery slowed basis. Now is the the government was policy client to do this specifically or this was just an outcome of right things did so i'll just. I'll just try to be really brief. Just take a moment has yet to set the stage about this. So as a as a kid You know my my grandparents said had gone through the great depression. So i had Young silent you know as like any doubt. Hey what was life like. You're young and so forth. And then it they both my grandparents prince on my mom's side. My dad's side. Both just really really struggle economic almost lost their home and lost their jobs and i just thought how could how could something like that happened because it is a complete one off then great depression at twenty five percent unemployment. Well before covid we had. We had like three or four percent on. I just kinda see i thought about. How could that happen. And part of that motivated me to go to get a piece geographical. And when and when i was in grad school and got the stage of writing dissertation i told my advisers head he had. I really liked write a dissertation about the great pressure. I'm really trying to figure that out. And they looked at this and no no no. You don't want your way too risky for young person. Do they said you have tenure can take you can take of big risk So kind of fast. Ford finished my phd at university. Rochester and my first teaching job was as an assistant professor at the university of pennsylvania and which had a great department And then. I was fortunate enough to get an offer to go to university of minnesota which At that time had the best Macroeconomics department of the country. One of my mom my colleagues there was a at prescott and ed received the noble prize In two thousand four. So when i got there. I said you'll ed ed what what's up with the great depression he goes. You know as we need new theory for that just is one so folks. My colleague A good friend. How long have you start thinking about this. And it just young war. We got into it. The more puzzling. Because after nineteen thirty-three ev. Everything looked like we should. We should be having a kind of a rocket ship recovery Usually the farther the goes down the faster at bounces back. And all the all the seats weren't place Productivity growth was very very high the banking sector had been stabilized By a implementing deposit insurance and the sec was born at that time so the financial system was well and we'd and clinical social safety net programs of that time with unemployment insurance and social security was born at that time Bone you'll get the data in the data talk about is the amount of work Number the number of our worked being done in the market divided by the working population. So that's the measure of work to think about total hours of work divided by the working age population valley's lower in eighteen thirty seven and it was in nineteen thirty two years so there was there was really there was no recovery and ours works. We just thought well. Why not you know what you think about people. Want to work you know. They're they're hungry. They wanna pay the rent and they want to buy food for their families and and businesses wanna make process so what standing in the way of that so so the the the papers about something called the national industrial recovery act and was really cool back that it. It was devastating for the economy but from the standpoint of research is really striking because at that time people thought about economics totally differently. A thought competition. What was a bad thing And this policy coca national industrial recovery act was essentially full-scale carla's -ation in collusion of the non-farm us economy and so what this manage you. Was that every industry. And there were over five hundred of them ranging from the women's hosiery industry to autos in the idea was were producers to get together and said crisis the sherman and clayton on entrust acts were banded. Now that those were all about. Hey not supposed to set prices so roosevelt. Fdr and his advisors had this idea that cash of we could just get prices up than we'd have recovery while had prices they. They tried to do that through collusion. So the idea was producers were able to collude and set a high price provided that they raise the wages of their workers. So that was the deal and so that was the policy and today standpoint we say hey you know what implementing monopoly is not a good idea if you want to expand employment and output and then setting wages way above the competitive level Going to limit the number of people you're going to hire because but so they would to really fight deflation that that was a that was. Yeah they were they were. They were trying to fight deflation. They thought if we just kept prices up in wages you know. Hey we'll have a we'll have a great we'll have a great economy and and what what made them what made them think. Bathroom was that They went back to kind of wartime logic. So they thought you know. Hey the the government managed economy during world war one and you know the world war one economies okay so the government can take over mansion economy now during peacetime when we should. We should get a good outcome. So the government's gonna step in and we're going to. We're going to artificially raise prices artificially raise wages in. There is a real confusion about what causes what and sadly this was a disaster for the economy and that millions of people wanted to get work but wages were set way too high and prices were set way too high and at the end of the day. Prices were sufficiently high. The consumers didn't wanna biologics stuff and when consumers want to buy allows us the producers not gonna expand investment or hiring new workers so it was It was economic disaster love and so seems sort of simplistic in the sense that Imagine a fighting deflation by just setting prices at the highest level and then hope that everything is going to fall into. Place seems seems lease. Nibley naive right that that. That's all they were thinking about ninety five percent of it. Yeah yeah they just thought on deflate this deflationist destructive and they and they ended deflation. You know deflate ended after roosevelt took office and there was probably there's about two percent and the price will jumped and there's about two percent inflation after and interestingly enough roselle made a speech in z. Thirty seven. thirty eight where he said he basically said we made a mistake. He said the economies become a cartel system and around that time those policies began changing and about that time we started having recovery around nineteen thirty nine and nineteen forty because we stopped promoting cartels inclusion and once we got to world war two There's this common view that the big increase in government spending is what brought the economy out of the great depression. That had just persisted. Well one until story. Beth that is that roosevelt essentially pull the rug out under from unions then. Ira was all about pushing wages up Guess declared unconstitutional. This popular gets declared unconstitutional thirty miles but it was defacto continued in that. The government didn't pursue any antitrust basically turned a blind eye to collusion in nineteen thirty five and The national labor relations act was upheld that same time and wages jumped even more so we get to nineteen forty to the national labor board comes along and roosevelt has meeting with the heads of all the major unions and they and he and he says you know. We have to expand production. I'd i wanna have a no strike commitment from you and they said sure will do still get collectively bargain. And he said yeah you. Collectively bargain is fine. But i but. I don't wanna i don't wanna see any strikes. They said okay. A problem so about six months later. Bethlehem steel announces a very high wage. Increase with your steelworkers The national war labor board strikes down and said nope no wage increases beyond cost of living and the unions. Come back to roseland. They're really upset and they said we collectively bargain and he said we have course national labor board. I can't i. Can't i can't with recissions armed interesting enough on you. Know kind of cut to the chase by nineteen forty eight. The relationship between wages and productivity Was back to its level that it was a nineteen in the in the nineteen twenties and in the nineteen thirties. Wages relative to productivity. Were super high. So when you mention you know. Isn't this simplistic yeah. It was because what's relevant is the wage relative to worker productivity and policies drove wages relative to productivity about twenty percent above where they should have been as cuss quest. You know we didn't solve the the unemployment problem. Yes oh did it have the thirty seven Disaster time did did those policies have some sort of long-term society. Actually you know. I am thinking You know people who have jobs it. You talk was creating a class system rate high unemployment but those jobs doing a better And collusion cartel like systems so lee losing power capital getting higher returns did did it really have a sort of a clue defect on society yesterday right. It definitely created classes in because those who had jobs. They felt so lucky that they had them because they were they were earning our at the same time there out the window and seeing a line of workers the door saying you know with writing applications this thinking you know for the grace of god for the grace of god. I'm sitting here with a job in those guys don't have them So when we think about any cloudy a horrible time training quality And it was really policy policy-induced and when we think when we sort of be a move forward a out of the war the nineteen fifties. Were time where. There's a lot of economic growth and you know going back to our discussion about About low skill labor and and their economic success thousand time. When if you could have a high school you could. You could be is graduate. Maybe nine behind graduate. But you can have one of these really good jobs in at us deal or gm or ford or union carbide and getting good benefits and getting good salaries And you're able to do that because you face. No competition and then as the war became globalized and trade. Berries came down as suddenly steel has to compete with foreign skill and gm has to compete with honda and toyota Kind of the jig was up and we think about Those were the days when Read i've read some some Some books written by people who lived in pittsburgh when it was. You know it was this. Big steel tanner lifting detroit when that was flourishing. And they would say you know. We kind of knew that this was going to end. It was just too good to be true. And you look at pittsburgh in. It's is a third of is this the third of his former cise and detroit's a third record as former size So this morphed into an economy where we just couldn't sustain the type of compensation that was being delivered to people who who may not have had the education trained to be able to compete in today's world and And we're kind of seeing the reminiscent of that now which is which went wise. I think it's so important to really try to implement a k. Through twelve or forms and try to boost everybody up to get to a point where they can be competitive. The good part of doing bad things that begin done from it. hopefully yes. Exactly yeah we. Yeah we still faced we still face some headwinds in those challenges but But you know for example. One ears seeing has sharon california a felony marshall tuck Campaigned as you know for state school superintendent. She had some really interesting ideas. specialist base. Pay the idea that you pay math teachers really well if it's hard to hire good math. Teacher merit based pay Modest reformed teacher tenure. Continue teacher training Pay premiums to teachers administrators in poor school areas and He came really close to winning. It was interesting to democratic Both people ran for that office for both democrats And tuck had a lot of money. From school reformers Any lost by maybe one percentage point so i think the ideas are starting to get there so yeah i think we are learning for learning. From this yeah. I went to touch on one other paper. The long-term changes legal supply and taxes evidence from oecd countries. Looking at a dasa beta here. Nineteen sixty six two thousand four lord different countries. Have you document. Large differences in trends changes in hours worked at grocery oecd countries between fifty. Six two thousand four so you are. You're equating the change in our do tax crises. Yeah yeah so when. I did this paper And i did this with my former seuss soon. Ucla and Who andrea. Roth was not the fed reserve board in richard rodgers. Sin who jesus cranston we looked at data Across countries in overtime and within countries that are part of the so. The cd is Is it's a group of kind of advanced develop pure countries Organization economic cooperation development So the idea is that they that they tried to. They try to develop policies that are integrative in in you promote economic economic welfare and wellbeing. So this is. Us canada western. Northern europe East asia such as japan and south korea australia new zealand so we looked at data on you know all this large group of countries over time and we to striking patterns one is that Western europe countries germany france northern finland sweden. These were countries. That worked just an enormous amount back. The nineteen fifties and nineteen sixties About one thousand. Four hundred hours kerr adult per year. And that's just remarkable when you take an account forty hours a week for fifty weeks a year two thousand hours and germany. They were working fourteen hundred hours per person per week but a lot of adults are not working. They're in their home taking care of kids or doing other things And then you'll germany. Their hours worked adults fallen thirty. Five or forty percent in the same for france in the same for italy the same for all these european countries and they had enormous increases in tax rates. And then you look at the. Us or canada our new zealand and the amount of hours worked per adult was pretty stable and they didn't have big changes in tax raise. Sweet vaulting vanik mile to try to quantify the importance of changes in taxes and we complimented that with a lot of regressions And what we found is tax. The big increase in taxes that occurred in europe and west a big increase in taxes. I mean attacks rate that went from about twenty eight percent in the nineteen fifties to about fifty percent by the nineteen eighty nine hundred ninety s so big increase in taxes and we found that that could quantitatively count for much The decline in how much market work was being done in europe And we've had some really cool you as a couple of countries decided that. Hey hey we've lost so much work we're going to reform taxes we're gonna reduced tax rates and And then we see late. We see hours worked expanding In those countries in the data and the mall expansion as well and that You know when we first published that young. A lot of people thought it's not it's not taxes young europeans were class. Because you know they they like the good life. They like sitting in cafes or or in a glass of wine You know by the by the san river and And so then. I tell him well no. They used to work even more than us and then the young then. They're just being silenced in the in the summer room so Yeah this is This one of my most highly cited papers Yes todd and a lot of classes because it is provocative And as quantitatively is seems to to do the job so the punchline is that that high tax rates do seem to matter quite a bit and If you if you think about european economies people appointed to problems nickname. That's been around for a long time. It's call euro-sclerosis. You know the that. Those economies are stagnant And they're not growing very fast and their best. People wanna leave Entrepreneurship is low job creation. Slow well in our view taxes are one reason why this case so is it. Is it as simple as Lee that the taxes are higher Becomes essentially more attractive so people don't people just obey from from bloating asian. That's that's exactly right does exactly right. And you know we're measuring market work and what is going on. I think the prime not just not just sitting having having a coffee but they're probably doing kind of under the radar stuff so Fix you're saying and you help me with my accounting books And then you know we kind of say okay. In on that and we avoid the government we avoid the government being are silent partner And that obviously is a huge measurement challenge but But to the best economists who studied that they indicate that yeah. It looks like there's a lot more underground economic activity going on in those european countries Then there's the united states for canada. So i want to finish up with are the latest paper. That just came out tom. Sharing the golden empire state land use restrictions and the us economic slowdown. So so you're looking at new york and california and some of that land use restrictions put on both of these states and how that might affect economic activity. Yeah yeah there's been alive. Interest in the idea that housing prices a become solheim. The united states particularly in areas such as california predicts the california coast New york city. A lot of a lot of commercial helps A lot of economic activity going on some california's includes silicon valley and san francisco and la and san diego and then obviously New york city So this paper uses data on price of housing and how many workers there are out productive those workers. Aren't you state and that did it gets run through an economic model. That spits out. How severe regulations are the et make housing expensive or impede extraction housing and You know what we find. Is that california in new york in particular have imposed very stringent housing regulations. This includes things like zoning. This includes The application a local environmental laws The may not that the people who that people bring lawsuits based on environmental reasons when sometimes vokes lawsuits might have more. Do with know not in my backyard. Or hey if there's going to be a big development down the street from me. I wanna get something out of that And we find that economic activity that if we could roll those regulations back to say what they were in nineteen ninety Or alternatively we look at a counterfactual of rolling those regulations back to what texas does. Texas is relatively unregulated and unrestricted in terms of land. Use and what we find is that it would make. It would make a big difference real. Gdp would be much much higher In california and new york would be much much larger if we did that. Yes so. If i understand his late so you know suppose you know be internalized or and blind mental us and suppose that new york arizona policies are. Let's say for argument's sake optimum from that from that viewpoint it doesn't really matter unless we have a consistent policy across the country right because in states do it The the dow foam is going to be businesses Do some of the state and we will have the same aggregate negative sect. That's exactly perfect economic reason And if we take a little bit more broadly That's also the reason why states should be somewhat consistent in how they try to attract business more broadly Because we don't want to have kind of a beggar beggar-thy-neighbour type policy So that's exactly right. National standards would be the way to go here because Life for example in california We're losing jobs and businesses. They're because it's very costly to do business here not just land relations but also state taxes. tesla just announced. They were leaving. hewlett packard ill which on the founders of silicon valley. Ironically sheila packers leading. And they're they're all gone to texas where You know there's no staying compacts Business regulations low cost of living is low My oldest son is thinking of buying a house Just outside dallas. And you know. He's looking at a four bedroom. Three bath house that that would cost. You know five times as much if he were divide here in california. So that's a great point you make We really need to have national standards in states need to cooperate yet so in conclusion league Is that possible for us. The federal system that we have You know get looking forward. Five years ten years That as you said national policies is only on beating. Squint the sec. The same dignity coolidge institution it s and other other things done by one state or two. It necessarily help because we don't have borders You know. I stayed borders. And so so the chances do effect national policies along these lines. Yeah you asked. A great question is really difficult because we do. Have we have the fifty states and they would have to be a general recognition among those states. That hey you know what the right thing to do is to cooperate. Of course the challenges here in california. The top tax rate is thirteen percent in texas. It's zero so we can dream the dream that this could happen Maybe more realistic dream would be that. The california wakes up and decides that our regulations and taxes and cream land use restrictions are just way too onerous and we need become working petted if And i suspect that probably will happen at some point So i think we can. Maybe hope i think we can hope we can move the needle a little bit I doubt we'll ever be able to kind of get everybody on the same page. I wish we could but But i don't think that's going to happen here. Yeah i i think that's the case The back of this also is sort of tactically shoes like the pandemic that the dealing but the deterrent national policies. Even in the case of a pandemic began defense national policies Began really slow down to spread of the disease. Either but that's exactly right because you know states will rightly point to use. That makes them different so they can say what were we. Don't have the landmass that has or are we have a different industrial mix than delaware and they can point to a lot of individual differences in in what goes on in their states that realistically can lead them to have different preferences for different policies and yes avenue. We had You know some states have larger elderly populations than others and those states suffered more from the pandemic. So yeah is is is definitely a challenge and it would need your very strong and comprehensive leadership at the federal level. I think that habit excellent yet. this has been greatly. thanks so much. Spending time with me. Yours is a pleasure. Thank you for having me really appreciate it. This is a scientific sense. Podcast unscripted conversations bit leading academics and researchers on a variety of topics. If you like to sponsor this podcast please reach out to in full. At scientific sense dot com.

Coming up next