conversableeconomist

Going Cashless: Benefits and Costs

There was a time, not all that long ago, when the primary options for making everyday payments were cash and checks. Those times are past. Julian Morris and Ben Sperry discuss the tradeoffs and consequences in “The Cost of Payments: A Review,” (International Center for Law & Economics Working Paper, August 28, 2024). They begin with this anecdote:

Atlanta’s Mercedes-Benz Stadium in 2018 became the first major sports venue in the United States to switch to a fully cashless payment system. At the end of the new payment model’s first year of operations, the stadium reported that wait times had fallen by 20 to 30 seconds and per-capita food and beverage sales had risen by 16%, while saving more than $350,000 in operating expenses.

The decline of cash as an instrument for transactions, mainly counterbalanced by a rise in credit cards, is all over the US economy.

The authors write:

The purpose of this white paper is to summarize the existing literature on the relative costs of cash, other paper-based payments (primarily checks), and electronic payments. In short, the evidence shows that, when all costs and all parties to a transaction are considered, electronic payments (debit cards, credit cards, and mobile payments) are more cost-effective than cash for most transactions. The main reason for this is that electronic payments enable consumers to spend more than they have in their wallet, which results in “ticket lift” for merchants. Card rewards, including cashback and merchant-specific loyalty programs, further increase this ticket lift. In addition, “tap-and-pay” contactless payments can reduce the time it takes to tender payment relative to cash, especially when cash payments are eliminated altogether. This increases throughput, improving the customer experience and reducing labor costs. Finally, electronic payments enable merchants to sell online, including for in-store pickup.

The authors then review in some detail the studies in recent decades on transactions costs from a merchant’s point of view, “ticket lift” of larger purchases, greater speed of payments, and so on. They emphasize that the trend away from cash seems likely to continue:

[T]here has generally been a reduction in the “breakeven” point for electronic payments. This has likely been driven by such innovations as the EMV Chip and contactless payments, which have reduced fraud and tender-time costs, and increased benefits to all parties. … [W]hile innovations in cash management have also reduced the cost of accepting cash in general, the cost of multimodal payment acceptance means that the relative cost of continuing to accept cash has increased, especially in locations where throughput is of the essence, such as ballparks and quick-serve restaurants. This has led some such merchants to drop cash acceptance.

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Everything You Want To Know about Inequality: The IFS Deaton Review

Five years ago, the Institute for Fiscal Studies, with support from the Nuffield Foundation, launched the IFS Deaton Review. It would be difficult to overstate the energy and scope of this effort. As a journal editor, I am frankly awed by it. Two big pieces of output are now available.

First, there is an “Evidence Volume,” with a mixture of 81 (!) chapters, commentaries, articles and reports divided into 18 (!) categories: 1) what’s wrong with inequality; 2) attitudes toward inequality; 3) trends in economic inequality; 4) history of inequality; 5) political inequality; 6) gender; 7) race; 8) immigration; 9) health; 10) geography; 11) families; 12) early childhood; 13) immigration; 14) the labour market; 15) firms; 16) trade and globalization; 17) top income inequality and tax policy; and 18) benefits and public services.

If you’re interested in issues related to inequality, there’s something for you here. But as the advertisements on late-night television say: “Wait, there’s more!” What about “Country Studies” of inequality? In a parallel project to the official IFS Deaton Review, the June 2024 issue of Fiscal Studies has published a 10-paper special issue on “Changing labour market and income inequalities in Europe and North America: a parallel project to the IFS Deaton Review of Inequalities in the 21st century.

I have my personal and professional vanities, but my mother didn’t raise any sons foolish enough to attempt a summary of 90-plus articles in a blog post. So here, I’ll just provide the table of contents for the “Evidence Volume” and for the special issue of Fiscal Studies, with links to the articles, which all seem to be open access.

____________

Evidence Volume

What’s wrong with inequality?

Chapter: What is wrong with inequality? by Debra Satz and Stuart White

Commentary: How inequality undermines institutions  by Eric Posner

Commentary: Unjust inequalities: Is maximin the answer?  by Philippe Van Parijs

Commentary: Relational equality, mutual benefit and social insurance by Robert Sugden

Attitudes to inequality

Chapter: Attitudes to inequalities by Rebecca Benson, Bobby Duffy, Rachel Hesketh and Kirstie Hewlett

Article: Attitudes to inequality: preferences and beliefs by Ingvild Almås, Alexander W. Cappelen, Erik Øiolf Sørensen and Bertil Tungodden

Article: Perceptions and preferences for redistribution by Stefanie Stantcheva

Report: Public perceptions of inequality in the UK: findings from quantitative research

Trends in economic inequality

Chapter: Trends in income and wealth inequalities by Pascale Bourquin, Mike Brewer and Tom Wernham 

Commentary: Income inequality and income poverty in a cross-national perspective by Janet Gornick

Commentary: Getting the measure of inequality by Stephen Jenkins

Commentary: Twenty-five years of income inequality in Britain: the role of wages, household earnings and redistribution by Jonathan Cribb, Robert Joyce and Thomas Wernham

Commentary: Sociological measures of inequality by Paul Lambert

History of inequality

Chapter: Technical change, globalisation and the labour market: British and American experience since 1620 by Bob Allen

Commentary: The history of inequality: the deep-acting ideological and institutional influences by Simon Szreter

Commentary: Beyond technology and wages: power and the history of inequality by Walter Scheidel

Political inequality

Chapter: Political inequality by Ben Ansell and Jane Gingrich

Commentary: Political inequality: reasons for optimism? by Julia Cage

Commentary: Relational inequality in a (deeply) educationally polarised society: feasible strategies in the longer term by Andrew McNeil and David Soskice

Article: Political Equality: What is it and why does it matter? by Pablo Beramendi, Tim Besley and Margaret Levi

Gender

Chapter: Women and men at work by Alison Andrew, Oriana Bandiera, Monica Costa Dias and Camille Landais

Commentary: Gender revolution, evolution or neverlution? by Lynn Prince Cooke

Commentary: Gendered economic inequalities: a social policy perspective by Fran Bennett

Article: The other side of the mountain: women’s employment and earnings over the family cycle by Claudia Goldin, Sari Pekkala Kerr and Claudia Olivetti

Commentary:  Gender, immigration and ethnicity by Alita Nandi and Lucinda Platt

Race

Chapter: Race and ethnic inequalities by Heidi Mirza and Ross Warwick

Commentary: Race/ethnic inequalities in health: moving beyond confusion to focus on fundamental causes by James Nazroo

Commentary: What does sociological research tell us about ethnic inequalities in European labour markets? by Frank van Tubergen

Commentary: Ethnic and racial inequality in the UK: a comment from a German perspective by Claudia Diehl

Immigration

Chapter: Inequality and immigration by Christian Dustmann , Ian Preston and Yannis Kastis

Commentary: What does sociological research tell us about ethnic inequalities in European labour markets? by Frank van Tubergen

Commentary: Immigration and inequality: the role of politics and policies by Dominik Hangartner and Judith Spirig.

Health

Chapter: Health Inequalities by Anne Case and Lucy Kraftman

Commentary: The contribution of adult experiences, multimorbidity and positive psychological well-being to social inequalities in health by Daisy Fancourt and Andrew Steptoe

Commentary: Socio-economic inequality in the distribution of healthcare in the UK by Carol Propper

Commentary: Health and inequality by Janet Currie

Commentary: Race/ethnic inequalities in health: moving beyond confusion to focus on fundamental causes by James Nazroo

Commentary: Inequalities in disability by James Banks, Heidi Karjalainen and Tom Waters

Geography

Chapter: Spatial disparities across labour markets by Henry Overman and Xiaowei Xu

Commentary: Place-based policies and geographical inequalities by Enrico Moretti

Commentary: Geographies of socio-economic inequality by Maarten van Ham, David Manley and Tiit Tammaru

Commentary: Levelling-up economics by Philip McCann

Article: Communities, places and inequality: a reflection by Ash Amin

Families

Chapter: Families and inequalities by Kathleen Kiernan, Sam Crossman and Angus Phimister

Commentary: How families matter for understanding economic inequality by Cezar Santos and Michele Tertilt

Commentary: Intergenerational mobility in the UK by Laura van der Erve, Sonya Krutikova, Lindsey Macmillan and David Sturrock

Early childhood

Chapter: Early childhood inequalities by Sarah Cattan, Emla Fitzsimons, Alissa Goodman, Angus Phimister, George Ploubidis and Jasmin Wertz

Commentary: Individuals as active co-creators of their environments: implications for prevention of inequalities by Essi Viding and Eamon McCrory

Commentary: The role of parenting in child development by Matthias Doepke and Fabrizio Zilbotti

Commentary: Early childhood inequalities: the rocky path from observation to action by Sophie von Stumm

Education

Chapter: Education Inequalities by Christine Farquharson, Sandra McNally and Imran Tahir

Commentary: Measuring and understanding contemporary English educational inequalities by Diane Reay

Commentary: Private schools and inequality by Francis Green

Commentary: Persistent inequality: contemporary inequality in a historical context by Richard Breen

Commentary: Inequality in English post-16 education by Simon Field

The labour market

Chapter: Labour market inequality by Giulia Giupponi and Steve Machin

Commentary: Labour market inequality: a comparative political economy perspective by David R. Howell and Arne L. Kalleberg

Commentary:Labour market inequality in France and in the UK by Pierre Cahuc

Commentary: Monopsony in local labour markets by Alan Manning and Barbara Petrongolo

Article: A task-based approach to inequality by Daron Acemoglu and Pascual Restrepo

Commentary: Public policy and labour market competition by Orley Ashenfelter

Firms

Chapter: Firms and inequality by Jan De Loecker, Tim Obermeier and John Van Reenen

Commentary: Market power and labour market inequality by Jan Eeckhout

Commentary: Competition and industrial policy in the 21st century by Jean Tirole

Commentary: The inclusive entrepreneurial state: collective wealth creation and distribution by Mariana Mazzucato

Commentary: Inequality, firms, ownership and governance by Colin Mayer

Commentary: Innovation and inequalities by Philippe Aghion and Rachel Griffith

Trade and globalisation

Chapter: Trade and inequality in Europe and the US by David Dorn and Peter Levell

Commentary: A primer on trade and inequality by Dani Rodrik

Commentary: Trade and price-index inequality by David Atkin

Top income inequality and tax policy

Chapter: Top income inequality and tax policy by Isaac Delestre, Wojciech Kopczuk, Helen Miller and Kate Smith

Commentary: Top incomes and tax policy by Emmanuel Saez and Gabriel Zucman

Commentary: Measuring and taxing top incomes and wealth by Arun Advani and Andy Summers

Commentary: Discussion of top incomes and tax policy by Owen Zidar

Benefits and public services

Chapter: Benefits and tax credits by Hilary Hoynes, Robert Joyce and Tom Waters 

Commentary: Why has the UK’s social security system become so means-tested? by Nicholas Timmins

Commentary: Living at the sharp end of socio-economic inequality: everyday experiences of poverty and social security receipt by Ruth Patrick

Commentary: Transfers, taxes, and tax credits for those on low incomes: beyond Mirrlees by Robert Moffitt

Commentary: The German transfer system for the working-age population: design, changes and consequences by Jan Brülle and Markus Gangl

Commentary: The Welfare State and Inequality: were the UK reforms of the 1940s a success? by Nicholas Crafts

Commentary: The distribution of public service spending by Kate Ogden and David Phillips

____________________

SPECIAL JUNE 2024 ISSUE OF FISCAL STUDIES

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Interview with Greg Mankiw: New Keynesian Macro, Growth, and Economic Policy

Jon Hartley interviews Greg Mankiw on topics including New Keynesian macroeconomics, growth, and economic policy more broadly at his Capitalism and Freedom website (August 20, 2024, video and transcript available). Here are a few of the comments that caught my eye.

On big models and small models in studying the macroeconomy:

[O]n the issue of micro versus macro, I have long thought that microeconomics has the better answers, but macroeconomists have the better questions. And so I don’t think macroeconomics is ever gonna die because the questions that macroeconomists address are just too important, even if we’re not gonna have the clean, natural experiments that micro people love. …

Let’s flash back to when I was entering the economics profession at the time. There were these big models like the NPS model, the DRI model, these huge macro econometric models that were run by policy institutions and academics and some private firms. And a lot of macroeconomic research was of that sort. And at the time I remember being, at the time I remember being skeptical about a lot of that. And if you go back to the rise of Lucas and the Lucas critique of these models, part of the reception to Lucas critique was all the stagflation and the events of the [19]70s. Part of it was, I think people were getting a little tired of these big models because they were large, non intuitive. They seemed very black boxy, so you didn’t really know what was happening in them. And so I think that people, I think they started losing credibility, in these big models.

I think that a lot of the DSGE [dynamic stochastic general equilibrium] models are suffering from the same fate now, they’re getting large and complicated and lots of equations and you don’t know exactly what’s driving what result. And I do think at some point people are going to get tired of them for that reason.

[I]if you’re an actual practical central banker, you listen to your staff, present the results, but you don’t take it as God’s truth. And a good central banker takes a healthy dose of skepticism. When I was in Washington, I watched Alan Greenspan up close, and I think Alan, more than most, had a deep, healthy skepticism of the macro econometric models.

I should note, by the way, in my own research I tend to focus not on big models that purport to be realistic. But rather smaller models that are more illustrating points than trying to say, this is a real replication of the whole economy. I never really want to go back to those huge models.

We’ll get better at these, but I think macroeconomics is so complicated that actually saying I have a model that really replicates the data, we can take it seriously for policy alternatives. I think that’s, I think it’s a very hard ask.

On endogenous growth theory and the earlier Solow-style growth models:

I think now we’re in a situation where endogenous growth theory has made a big contribution, and I think it coexists happily with sort of more neoclassical models, and both provide insights for different questions, and I think they can coexist. I don’t think we need to sort of throw out one or the other. My most recent publication … was basically putting market power into neoclassical growth models. So I take that as some indication that you can still make progress and get some insights, even with neoclassical growth frameworks.

The sad thing is, I don’t think either set of models give easy policy prescriptions for what poor countries can do. I mean, if you look at Sub Saharan Africa, you can point to a variety of elements they have that prevent them from growing. But saying, this model of endogenous growth, of this model of neoclassical growth, gives me an easy recipe for what Sub Saharan Africa can do to join the developed world.

It doesn’t. It brought you maybe a framework for thinking about those issues, but there’s no easy answers. Or similarly, why is productivity been slower since 1972 than it was before ’72? We don’t think we have any easy answers to that. You can say sort of general things about the importance of institutions, importance of savings and investment.

On the length of the working day at the Council of Economic Advisers:

One thing I’ll say about being Chair of the Council, which I did from 2003 to 2005. And I worked harder those two years than any two years of my life, by far, because the days are long. In the Bush administration, every day started with the 7:30 AM staff meeting in the Roosevelt room, which is the conference room right next to the Oval office. In all my years at Harvard, I’ve been in Harvard almost 40 years, nobody’s ever called a 07:30 AM meeting. While I was at the White House, every day it was at 7:30 AM meeting. It’s not like you take off early at the end of the day, you work long hours at the end of the day too.

So they are very, very long days. I left my family behind in Boston, my wife was a saint and took care of my three small kids. And I basically moved into a hotel just a few blocks from the White House because I knew I wasn’t going to have much time to travel, basically, it was extremely long days. And by the end of two years, when I was required to come back to Harvard or give up my chair, it was not a difficult choice, I was exhausted after two years. So I was happy to come back to academia, where life is much more relaxed.

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Contributive Justice

Today is the Labor Day holiday in the United States. Our jobs are one of the ways in which we contribute to society as a whole. In this spirit, I pass along some thoughts from the 2020 book by Michael Sandel, The Tyranny of Merit. Toward the end of the book (pp. 206-213), he raises the idea of what he calls “contributive justice.” Sandel writes:

Economic concerns are not only about money in one’s pocket; they are also about how one’s role in the economy affects one’s standing in society. Those left behind by four decades of globalization and rising inequality were suffering from more than wage stagnation; they were experiencing what they feared was growing obsolescence. The society in which they lived no longer seemed to need the skills they had to offer. … [C]ontemporary liberals … have been offering working-class and middle-class voters a greater measure of distributive justice–fairer, fuller access to the fruits of economic growth. But what these voters want even more is a greater measure of contributive justice–an opportunity to win the social recognition and esteem that goes with producing what others need and value. …

Sandel suggests that when economists focus on economic output and the distribution of income that results, they are leaving out important aspects of human flourishing. He writes:

People hold various views about what is important in life. We disagree about the meaning of human flourishing. … But all can agree, or so it would seem, that expanding the economic pie is better than shrinking it. Contributive justice, by contrast, is not neutral about human flourishing or the best way to live. From Aristotle to the American republican tradition, from Hegel to Catholic social teaching, theories of contributive justice teach us that we are most fully human when we contribute to the common good and earn the esteem of our fellow citizens for the contributions we make. According to this tradition, the fundamental human need is to be needed by those with whom we share a common life. The dignity of work consists in emphasizing our abilities to answer such needs. …

A political economy concerned only with the size and distribution of GDP undermines the dignity of work and makes for an impoverished civic life. … [P]rogressives largely abandoned the politics of community, patriotism, and dignity of work, and offered instead the rhetoric of rising. … Go to college. Equip yourself to compete and win in the global economy. What you earn will depend on what you learn. You can make it if you try. This was an idealism suited to a global, meritocratic, market-driven age. It flattered the winners and insulted the losers. By 2016, it’s time was up.

Reading Sandel is always fruitful, because of the open and accessible ways in which he raises questions. I find myself nodding in many places, especially in his critique of the long-standing fallacy that that those who succeed in some way must have done so by outstanding merit–and moreover, that this merit can be generalized to other areas. For example, when a top athlete wins a championship or an award, the sportscasters often go in to little tizzy of exultation about how the winner “works harder” than anyone else or is “more competitive” than anyone else. The implication seems to be that the hardest worker and the most competitive person is also the winner. But of course, it’s virtually certain that there are, say, Olympic athletes who worked and competed harder than the winner–but had lower performance on the specific metric of that Olympic event because of difference sin factors like access to coaching and advice, access to financial, family, and social support, or genetics that shape body structure.

Whether it’s athletics or acting or business, success is often linked to certain types of personal merit, but the correlation is imperfect one. Moreover, maximizing performance and even merit in one area of human endeavor can often be associated with near-obsessive behavior, which has tradeoffs in other aspects of human experience. Just because someone is successful in athletics or acting or business, I don’t see any reason to believe that I should care about their opinions about, say, love, marriage and parenting, or about politics.

But while I’m broadly sympathetic to Sandel’s argument, I also confess that he can put my feathers up. For example, is it in fact true that (as Sandel writes) “we are most fully human when we contribute to the common good?” Words like “contribute” and “common good” are doing a lot of work here. If working at a paid job is a contribution to the common good, does this phrase mean that we are all “most fully human” when we are at work? In evaluating such a statement, I would want to know considerably more about who decides what it means to “contribute” and who determines what counts as the “common good,” and the extent to which I am allowed to disagree with the definitions offered by others. My sense is that for a lot of people, a job is just a paycheck, the most important parts of what makes them “fully human” happen outside the workplace–and they prefer it that way. I am not an ancient Greek, nor Hegelian, nor Catholic, so while I’m willing to listen and learn from Aristotle, Hegel, and Catholic social teaching, I’m not expecting to find myself in full alignment with those views.

I agree with Sandel that the dignity of work itself is not given sufficient attention. In the word of the poet Marge Piercy, “to be of use” matters. I occasionally like to quote the Transcendentalist philosopher Ralph Waldo Emerson, who wrote in 1844: “[W]hether thy work be fine or coarse, planting corn, or writing epics, so only it be honest work, done to thine own approbation, it shall earn a reward to the senses as well as to the thought: no matter, how often defeated, you are born to victory. The reward of a thing well done is to have done it.” But notice that Emerson’s view of the dignity of work is not about what Sandel calls “social recognition and esteem.” Instead, Emerson is referring to a person’s direct relationship with “honest work, done to thine own approbation.” When Sandel discusses the “dignity of work,” he is heavily focused on political economy, a somewhat nebulous idea of the “common good,” and the possibilities of “an alternative political project.”

There also seem to me to be hints of inflexibility and stagnancy in Sandel’s themes. Perhaps it’s true that (in Sandel’s words) “a political economy concerned only with the size and distribution of GDP undermines the dignity of work.” I’m willing to consider the proposition, although the word “only” is doing some heavy lifting here. After all, an enormous part of the real-world political economy already involves policy goals beyond size and distribution of GDP. But it might also be equally true that (in my own words) “a political economy concerns only with the dignity of work will undermine the size and distribution of GDP.” As an extreme example, if the United States had taken steps to assure that the “dignity of work” in agriculture was so fully supported 100 years ago that no change was needed, or that the “dignity of work” in manufacturing jobs was fully supported 70 years ago so that no change was needed, the US economy would not have evolved. The “dignity of work” or the idea of “contributive justice” shouldn’t mean that workers can just stay in the same role or industry forever.

But of course, Sandel knows all this. This short essay is only intended to highlight this idea of “contributive justice,” as a point of departure for further discussions. Perhaps the greatest sin on a Labor Day is not to take the time to appreciate all of those working and making contributions, whether paid or unpaid.