The Education of Henry Adams (1905) is an odd book. It’s an autobiography in which the Henry Adams (1838-1918) refers to himself as “Adams” and discusses what “Adams” learned and observed–as if he was writing not about himself, but about a different person.
Adams was a direct descendant of two US presidents–great-grandson of John Adams and the grandson of John Quincy Adams–and thus moved in high levels of society and politics all his life. In many ways, the book is more about looking back at the 19th century from the vantage point of the early 20th century. For example, as an “autobiography” the book has some notable gaps. At one point the author–that is, Adams–skips over 20 years of Adams’s life, a period when he published a nine‐volume History of the Jefferson and Madison Administrations, along with biographies of Albert Gallatin and John Randolph and two novels. As we approach another Election Day here in in the United States, here are some characteristically pithy comments from Adams on how the drive for political power can corrupt judgement.
Those who seek education in the paths of duty are always deceived by the illusion that power in the hands of friends is an advantage to them. As far as Adams could teach experience, he was bound to warn them that he had found it an invariable disaster. Power is poison. Its effect on Presidents had been always tragic, chiefly as an almost insane excitement at first, and a worse reaction afterwards; but also because no mind is so well balanced as to bear the strain of seizing unlimited force without habit or knowledge of it; and finding it disputed with him by hungry packs of wolves and hounds whose lives depend on snatching the carrion. [Theodore] Roosevelt enjoyed a singularly direct nature and honest intent, but he lived naturally in restless agitation that would have worn out most tempers in a month, and his first year of Presidency showed chronic excitement that made a friend tremble. The effect of unlimited power on limited mind is worth noting in Presidents because it must represent the same process in society, and the power of self-control must have limit somewhere in face of the control of the infinite. …
The effect of power and publicity on all men is the aggravation of self, a sort of tumor that ends by killing the victim’s sympathies; a diseased appetite, like a passion for drink or perverted tastes; one can scarcely use expressions too strong to describe the violence of egotism it stimulates.
Positions of power, authority, and prominence can generate extreme egotism. It’s true in the private sector, when a successful business executive starts believing that his or her opinions on all subjects–politics, healthy habits, the meaning of life–must also be true. It’s true for some prominent athletes, movie stars, and musicians. It’s true for some prominent academics. It’s also true for successful politicians, who have a tendency to believe that being elected validates their past and future judgements and their lofty human value in a profound way, rather than just meaning that in choice between flawed alternatives, they were favored by 50% plus one.
I have been the Managing Editor of the Journal of Economic Perspectives since the first issue in Summer 1987. The JEP is published by the American Economic Association, which decided about a decade ago–to my delight–that the journal would be freely available on-line, from the current issue all the way back to the first issue. You can download individual articles or entire issues, and it is available in various e-reader formats, too. Here, I’ll start with the Table of Contents for the just-released Fall 2022 issue, which in the Taylor household is known as issue #142. Below that are abstracts and direct links for all of the papers. I will probably blog more specifically about some of the papers in the few weeks, as well.
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Symposium on Labor Market Institutions
“Is There Any Future for a US Labor Movement?” by Suresh Naidu
A recent flurry of labor movement activity has been driven by younger workers, tight labor markets, and a sympathetic federal government. Nonetheless, US union density remains low, even as unions remain popular. This is because employer opposition and US labor law together imply that workers need to overcome substantial collective action problems at work in order to win union recognition and collective bargaining agreements. These barriers make dense social networks and high levels of social capital at work a prerequisite for unionization. Labor organizing can build this social capital, but faces an uphill battle without policy changes that extend collective bargaining across employers and up the value-chain and make unionization easier. Partnering with labor unions, researchers can study theoretical problems of collective action while also getting a window into what strategies of a renewed labor movement may work.
“Facts and Fantasies about Wage Setting and Collective Bargaining,” by Manudeep Bhuller, Karl Ove Moene, Magne Mogstad and Ola L. Vestad
In this article, we document and discuss salient features of collective bargaining systems in the OECD countries, with the goal of debunking some misconceptions and myths and revitalizing the general interest in wage setting and collective bargaining. We hope that such an interest may help close the gap between how economists tend to model wage setting and how wages are actually set. Canonical models of competitive labor markets, monopsony, and search and matching all assume a decentralized wage setting where individual firms and workers determine wages. In most advanced economies, however, it is common that firms or employer associations bargain with unions over wages, producing collective bargaining systems. We show that the characteristics of these systems vary in important ways across advanced economies, with regards to both the scope and the structure of collective bargaining.
“The German Model of Industrial Relations: Balancing Flexibility and Collective Action,” by Simon Jäger, Shakked Noy and Benjamin Schoefer
We give an overview of the “German model” of industrial relations. We organize our review by focusing on the two pillars of the model: sectoral collective bargaining and firm-level codetermination. Relative to the United States, Germany outsources collective bargaining to the sectoral level, resulting in higher coverage and the avoidance of firm-level distributional conflict. Relative to other European countries, Germany makes it easy for employers to avoid coverage or use flexibility provisions to deviate downwards from collective agreements. The greater flexibility of the German system may reduce unemployment, but may also erode bargaining coverage and increase inequality. Meanwhile, firm-level codetermination through worker board representation and works councils creates cooperative dialogue between employers and workers. Board representation has few direct impacts owing to worker representatives’ minority vote share, but works councils, which hold a range of substantive powers, may be more impactful. Overall, the German model highlights tensions between efficiency-enhancing flexibility and equity-enhancing collective action.
“Danish Flexicurity: Rights and Duties,” by Claus Thustrup Kreiner and Michael Svarer
Denmark is one of the richest countries in the world and achieves this in combination with low inequality, low unemployment, and high-income security. This performance is often attributed to the Danish labor market model characterized by what has become known as flexicurity. This essay describes and evaluates Danish flexicurity. The Danish experience shows that flexicurity in itself, that is, flexible hiring and firing rules for firms combined with high income security for workers, is insufficient for successful outcomes. The flexicurity policy also needs to include comprehensive active labor market programs (ALMPs) with compulsory participation for recipients of unemployment compensation. Denmark spends more on active labor market programs than any other OECD country. We review theory showing how ALMPs can mitigate adverse selection and moral hazard problems associated with high income security and review empirical evidence on the effectiveness of ALMPs from the ongoing Danish policy evaluation, which includes a systematic use of randomized experiments. We also discuss the aptness of flexicurity to meet challenges from globalization, automation, and immigration and the trade-offs that the United States (or other countries) would face in adopting a flexicurity policy.
“Debt Revenue and the Sustainability of Public Debt,” by Ricardo Reis
While public debt has risen in the last two decades, the return that it offers to investors has fallen, especially relative to the return on private investment. This creates a revenue for the government as the supplier of the special services offered by public bonds, which include storage of value, safety, liquidity, and reprieve from repression. The present value of this debt revenue is large relative to the stock of public debt, keeping it sustainable even as the present value of primary balances is zero or negative. It gives rise to different policy tradeoffs than the conventional analysis of primary balances and makes different recommendation on the effects of austerity, the optimal amount of debt, or the spillovers between monetary and fiscal policy.
The fiscal theory states that inflation adjusts so that the real value of government debt equals the present value of real primary surpluses. Monetary policy remains important. The central bank can set an interest rate target, which determines the path of expected inflation, while news about the present value of surpluses drives unexpected inflation. I use fiscal theory to interpret historical episodes, including the rise and fall of inflation in the 1970s and 1980s, the long quiet zero bound of the 2010s, and the reemergence of inflation in 2021, as well as to analyze the gold standard, currency pegs, the ends of hyperinflations, currency crashes, and the success of inflation targets. Going forward, fiscal theory warns that inflation will have to be tamed by coordinated monetary and fiscal policy.
“Emerging Market Sovereign Debt in the Aftermath of the Pandemic,” by Kenneth Rogoff
For emerging markets, fiscal space is a very real constraint that can surface under a variety of circumstances, including rising world interest rates, falling commodity prices, or a global recession. Some emerging markets, and the majority of low-income developing economies, are already in debt distress or default. Near-term, making sure that troubled debtor countries are aware of the full menu of options, including heterodox strategies such as default, is important. Longer-term, a rethink of the Bretton Woods financial institutions to incorporate a greater emphasis on outright grants instead of loans, makes more sense than ever.
“Popular Personal Financial Advice versus the Professors,” by James J. Choi
I survey the advice given by the fifty most popular personal finance books and compare it to the prescriptions of normative academic economic models. Popular advice frequently departs from normative principles derived from economic theory, which should motivate new hypotheses about why households make the financial choices they do, as well as what financial choices households should make. Popular advice is sometimes driven by fallacies, but it tries to take into account the limited willpower individuals have to stick to a financial plan, and its recommended actions are often easily computable by ordinary individuals. I cover advice on savings rates, the advisability of being a wealthy hand-to-mouth consumer, asset allocation, non-mortgage debt management, simultaneous holding of high-interest debt and low-interest savings, and mortgage choices.
“A Linear Panel Model with Heterogeneous Coefficients and Variation in Exposure,” by Liyang Sun and Jesse M. Shapiro
Linear panel models featuring unit and time fixed effects appear in many areas of empirical economics. An active literature studies the interpretation of the ordinary least squares estimator of the model, commonly called the two-way fixed effects (TWFE) estimator, in the presence of unmodeled coefficient heterogeneity. We illustrate some implications for the case where the research design takes advantage of variation across units (say, US states) in exposure to some treatment (say, a policy change). In this case, the TWFE can fail to estimate the average (or even a weighted average) of the units’ coefficients. Under some conditions, there exists no estimator that is guaranteed to estimate even a weighted average. Building on the literature, we note that when there is a unit totally unaffected by treatment, it is possible to estimate an average effect by replacing the TWFE with an average of difference-in-differences estimators.
“Sadie T. M. Alexander: Black Women and a `Taste of Freedom in the Economic World,'” by Nina Banks
The employment history of African American women is notable because of their higher labor force participation rates compared to other women in the US. This essay discusses Sadie T. M. Alexander’s analysis of Black women and work based on her 1930s speeches and writings. Alexander assessed Black women workers’ contribution to Black American living standards and national output. A proponent of women’s gainful employment and economic independence, Alexander’s views on the benefits of industrial employment for women and family life stood in stark contrast to White social welfare reformers who discouraged maternal employment in favor of households with male breadwinners. Alexander criticized the unequal treatment of Black and White women under protective labor law, particularly with respect to domestic servants’ exclusion from New Deal minimum wage and maximum hour protections. The legacy of discriminatory policies continues to affect the economic status of African American women today through racial disparities in social welfare provisions and worker benefits.
Aquatic plants grow in freshwater, coastal marine waters, or open oceans and are the starting point of many food webs. This survey focuses on three such plants: microalgae, seaweeds (or macroalgae), and duckweed (MSD). Although microalgae are a photosynthetic aquatic organism, seaweed and duckweed are aquatic plants. However, for simplicity, we refer to them as aquatic plants. These plants are mostly directly consumed as human food and animal feed; however, they are consumed in much smaller volumes in pharmaceuticals and cosmetics, textiles, biofertilizers/biostimulants, and biopackaging products and applications. MSD have considerable potential to become an essential player in the bioeconomy as a source for plant-based protein and other biochemicals, feedstock for bio-oils and biofuels, a variety of high-value bioproducts, and a viable source for carbon sequestration.
The comparative advantages of MSD are the much higher biomass productivity than that of terrestrial plants (Casoni et al. 2020) while not competing for land or freshwater (Palatnik & Zilberman 2017). Importantly, MSD have higher photosynthetic efficiencies than land-based biomass production and are more efficient in capturing carbon (Packer 2009, Duarte et al. 2017). Moreover, MSD can be cultivated efficiently without antibiotics, fertilizers, and pesticides (Golberg et al. 2020a), and the global MSD biomass cultivation potential can sustain the industry’s rapid growth. For example, the offshore cultivation potential of seaweeds can provide up to a quarter of predicted plant protein demand by 2054 (Lehahn et al. 2016). Roughly 0.3% of the ocean surface would be enough to produce as much biomass as is produced annually in all of global agriculture (Bjerregaard et al. 2016).
Demand for meat, fish, and dairy is soaring, particularly among the rapidly growing middle classes in parts of the developing world (GFI 2021). Producing those products in traditional agriculture uses large amounts of land, water, and pesticides and produces gigatons of greenhouse gases. Commercial fishing may not be sustainable, and overfishing pushes fish populations to become endangered or threatened. Dairy production also creates a range of negative externalities. Thus, MSD cultivation is a double dividend and may significantly address humanity’s primary challenges: food security and climate change.
In 2019 the market for MSD products and applications was worth approximately US$20 billion (FAO 2021). The growing demand for sustainable biobased products and applications can potentially significantly increase the market. Furthermore, carbon pricing might dramatically exacerbate the demand for MSD.
In the context of the global economy, these markets are tiny. An optimist would view this fact as suggesting room for dramatic growth, while pessimist would say that they are small because all this talk of potential benefits is a dramatic overestimate. The authors argue that there is a pathway followed for new agricultural products: it begins with a reliance on harvesting wild products, then shifts to cultivated products, and then shifts further to science-based insights about both cultivation and potential use. For microalgae, seaweeds (“macroalgae”), and duckweed, the shift from harvesting wild products to cultivation is barely underway, and the development of science-based insights about cultivation and use are also at a very early stage. But just to take a few examples, if microalgae can be used as a basis for biofuels, and if seaweed and duckweed could be useful for animal feed, those kinds of applications could dramatically reshape the constraints facing land-based agriculture in the next few decades.
A number of states have decided that it is important for high school students to have a class in economics, in personal finance, or both. The Council for Economic Education does a survey of state rules along these lines once every two years. Here are some results from its most recent “Survey of the States” (May 2022).
Here’s the pattern for high school coursework in economics. It’s easiest to read this graph from top to bottom. Every state, and Washington, DC, has economics in their high school standards broadly understood. However, five states don’t require the standards to be implemented. The standards can often be satisfied by incorporating some economics into a social studies class in, say, government or history. Half the states require that a separate high school economics course be offered, and 21 state require that all students take it. Nine states have standardized testing of the results.
Here’s the parallel figure for a high school course in personal finance. In this case, 47 states include some personal finance in their standards, and 40 require that school districts implement this standard. As the figure shows, 27 states require that high schools offer a personal finance course, but only nine require that students take such a course, while 14 more require that personal finance coursework be integrated into another course. Four states have standardized testing of personal finance concepts.
Given that I work as the managing editor of an academic economics journal, I suppose I should be in favor of continued growth in high school classes in economics and personal finance, but I admit to being a little dubious about both. There’s a real challenge in thinking about what economics should be required as a graduation requirement for every student, and what should be offered as an option to college-bound students. Many high school economics teachers don’t have a strong background of their own in economics, but instead focused on government or history when getting their education credential. Such teachers can be shaky on the difference between teaching the structure of economic reasoning and making economics-related assertions about how history and government work.
Similarly, a personal finance class for 17 year-olds faces some challenges, as well. In my own high school econ class, many years ago, we spent a few periods learning to fill out the one-page 1040EZ form, which came in handy when I had to file taxes on my earnings from Arby’s and a newspaper delivery route. But it didn’t go much deeper. We certainly didn’t get into practical issues like thinking about credit card use, or choices of deductibles and copays in auto or health insurance, or how to think about loans for college or a car, or saving for short-term goals or long-term retirement. As I think back on myself and my classmates as high school students, I’m not sure those subjects would have meant much to us, either.
There’s also the basic problem that high school has a limited number of courses, so adding economics and/or personal finance requirements will necessarily take a bite out of something else. One option is to find a way to combine the two classes. I suspect that it would be quite possible to put together a reasonable required single course for all high school students that combined elements of personal finance and economics. But such a course would, given time constraints, have less economics than a pure economics course and less personal finance than a pure personal finance course–and thus is likely to rattle the cages of current teachers and supporters of these classes.
So yes, I would like to see more high school students graduate with some basic knowledge of economics and personal finance. But I’m very aware that drawing up state-level requirements is relatively easy, and figuring out how it works in actual classrooms is not.
