Female Autonomy and Economic Development

Greater empowerment and autonomy is a worthy goal, in and of itself, for all individuals. In the last few decades, a number of development economists have focused on the more specific question of how improvements in the empowerment of of women–expanded opportunities for education, jobs, health care, and public participation, along with protection from violence–can boost economic development for a country. Siwan Anderson discusses the connections between these multiple dimensions of empowerment in the Innis Lecture on “Unbundling Female Autonomy,” delivered as part of the Canadian Economics Association meetings in June 2022, and now published in the November 2022 issue of the Canadian Journal of Economics.

Here are a few of the themes that caught my eye. Anderson writes:

Female empowerment is a multi-faceted concept that targets: improved female decision-making power in the household, reduction of violence against women, increased market and political opportunities, equal legal rights and dismantling gender-biased customs and norms. Whilst the multi-faceted nature of female empowerment is appreciated by academics and policy-makers alike, it is not well understood how the various dimensions interact and co-evolve with each other, or with society as a whole.

Perhaps the classic argument in this area is that empowered women invest more in children.

[This] step to arguing that relative female empowerment leads to improved economic development seems to rest on the assumption (and accompanying evidence) that women and men have different preferences.7 In particular women want to, ceteris paribus, allocate relatively more of household resources to children’s education and health than will men. Because both of these are crucial determinants of human capital formation and human capital formation is at least a proximate cause of economic development, development will be enhanced by factors that improve female autonomy (or a woman’s outside option) relative to their husbands through the channel of increasing their control over the allocation of household resources.

It follows that finding ways to tip the balance within the household to greater autonomy for women, and greater control over household spending, can have substantial payoffs.

The standard model of household decisions as a bargaining process assumes members have full information and are able to perfectly communicate. However, there is significant empirical and experimental evidence to the contrary. The ability (and willingness) to conceal information appears critical to affecting how resources are allocated. Anderson and Baland (2002) found that rotating savings and credit associations (ROSCAs), ubiquitous in the developing world, were used as way for women to keep savings hidden from their husbands. Women were less willing to access a bank account with an ATM card when it was easy for their husbands to gain access to the card (Schaner 2017). Researchers have found evidence of family pressure and also the capture of women targeted grants (De Mel et al. 2009, Friedson-Ridenour and Peirotti 2019). Relatedly, keeping money hidden from husbands (in bank accounts) was shown to avoid this to some extent (Dupas and Robinson 2013, Fiala 2018). Moreover, in-kind grants (Fafchamps et al. 2014) and mobile money deposits are less likely to be appropriated (Riley 2020).

In turn, the question becomes what factors lead to greater empowerment for women. Broadly speaking, one can discuss evolutionary and revolutionary factors. For example, technological changes that allow capital to substitute for what were traditionally women’s tasks, or allow women greater control over birthrates, can act as evolutionary factors. Revolutionary factors might be events like World War II in the US workplace that changed the opportunities available to women, or movements for no-fault divorce that altered bargaining positions within marriage. But is it possible to enact specific policies that might offer a nudge to greater gender equality? Anderson writes:

One may conjecture that short-term policy interventions would be unlikely to significantly shift strongly embedded societal norms, given that many have persisted for centuries. However, emerging evidence suggests the contrary. For example, reserving seats for female politicians in rural areas of India has helped curtail negative stereotypes about women as local leaders (Beaman et al. 2009). Television programs have been able to alter fertility preferences in multiple settings (Jensen and Oster 2009, La Ferrara et al. 2012). Bursztyn et al. (2020) were able to adjust pre-determined individual Saudi male beliefs regarding the appropriateness of their wives’ labour supply decisions by providing information on actual average male beliefs in their local geographical area. Regular secondary school class discussions, held amongst both boys and girls in India, were able to reshape some female negative attitudes and behaviours (Dhar et al. 2022).

Or in the political sphere:

A set of policies exist that aim to increase female political empowerment. There are 135 countries to date with constitutional, electoral or political party quotas for women. Many developing countries surpass developed ones in this regard. The most direct way to assure female leadership is to reserve political seats for women. Policies that reserve political seats for women, either at the national or sub-national level, are present only in less developed countries, no such policies are imposed in Western industrialized nations. … Rwanda leads the world, with 64% of legislators in national parliament (the lower or single house) being women, followed by Senegal (43%), South Africa (41%), Mozambique (39%), Angola (37%), Tanzania (36%) and Uganda (35%). This is in comparison to other developed countries with significantly lower female representation like Canada (27%) and the United States of America (24%).

Overall, it’s clear that there is a correlation from female empowerment to higher economic development. As Anderson writes: “[T]here is no simple causal link from female empowerment to declining overall poverty. Yet it still remains that gender equality is strongly positively correlated with measures of aggregate economic development (GDP/capita or a poverty head count ratio).” However, the direction of causation probably runs both directions: that is, female empowerment affects economic development, while economic development also affects the extent of female empowerment. Countries develop in different ways, from different starting points. There’s no reason to think that this dual process of female empowerment and economic development will proceed in the same way across countries. Anderson puts it this way:

In Latin America and the Caribbean, substantially rising female labour force participation rates have accompanied fertility decline, female education and the growth of services. The same factors have led to only a moderate increase in female participation in the Middle East and North Africa. And they have led to a decline in South Asia (primarily in India). An interesting hypothesis to explain this variation is the role of social stigma. …

There is no reason, then, to expect that cultural changes in the currently developing world will mimic the paths followed in the West. The heterogeneity in how such norms appear to be changing within the developed world today also suggests that local cultures may persist or change in differing ways under similar economic pressures. Additionally, there are a number of other reasons to be sceptical that the paths followed in the West will be a portend. First, the timing of structural changes is different. Developing countries today experienced expansion of education and growth of the service sector at much lower levels of GDP per capita than when they took off in the West (Jayachandran 2021). Their legal contexts are also markedly different. Today’s developing countries typically inherited the formal legal structures of their former colonists, which tend to be more progressive and favourable to women than the corresponding legal structures that prevailed at comparable levels of development in the West. At the same time, these formal legal structures often coexist in today’s developing countries alongside extremely male-biased forms of customary law. Finally, there does not seem to be a massive shock to married women’s labour supply, comparable to that occasioned by World War II, that could serve as a jolt to gender norms.

 

Peltzman on Stigler on Regulation

Back in 1971, George Stigler (Nobel ’82) published “The Theory of Economic Regulation.” At that time, and indeed, right up to the present, it was common for economists and policymakers to view “regulation” as motivated by a pure and selfless public spirit that searched only for the common good. Stigler instead analyzed regulation in terms of demand and supply of regulations. Sometimes the demand for regulation could be characterized as public-spirited, but other times it could be characterized as its own kind of special interest–like when existing firms support regulations that will kneecap their competitors, or when property-owners use regulations as a tool to block anything from high-density housing to an industrial plant to a wind farm. Sometimes the supply of regulation could be characterized as public spirited, but other times regulations were part of a political process that included backroom deals and political pressures.

Moreover, Stigler pointed out that looking at a regulation when it is first enacted is insufficient. Over time, the industries being regulated will have the strongest incentive to interact with the regulators: with information, through lobbying, even as a source of jobs for those leaving government service. Even if the regulation is originally passed to impose constraints on a certain industry, through a gradual process “regulatory capture,” current members of industry may gradually shift the regulations in a way that supports existing firms–at least relative to costs imposed consumers or impediments to potential competitors.

None of this proves that regulations are bad, of course. But it made a convincing case that regulations should not be presumed good, and instead should be analyzed in terms of costs and benefits, including who ultimately paid the costs and who received the benefits,

I’ve mentioned the intellectual legacy of this article before (for example, see, “Stigler’s Economic Theory of Regulation: The Semicentennial,” April 23, 2021). But the topic is worth revisiting, given that the October 2022 issue of Public Choice has published a symposium, six papers plus an introduction, on “George Stigler’s theory of economic regulation.” I was particular taken by the essay by Sam Peltzman, first a student and then a colleague of Stigler’s, titled “Stigler’s Theory of Economic Regulation After Fifty Years.” (I quote here from a freely available working paper version of the essay.) Peltzman writes:

I will argue that the enduring impact of Stigler, 1971 is more about the framing of a question than about the specific answer. … [T]he Captured Regulator of 1971 is overstated but highly provocative. But without the provocation would we be here commemorating a fiftieth anniversary?

Peltzman points out that at the time Stigler was writing the essay, Stigler often pushed the argument that the possibility of regulation going astray was actually a firm rule that regulation must necessarily go astray. Peltzman tells the story this way:

Stigler gradually abandoned the ineffective regulator under the weight of contrary evidence. But it took some doing. I was his Ph.D. student during that transition. My dissertation topic was the effect of federal insurance of bank deposits on entry into commercial banking (effectively you needed a grant of insurance to start a new bank). For a half year or so I worked on my own, learning about the history, assembling data, running regressions and writing it all up for Stigler’s perusal. I could not avoid the conclusion that the regulation had substantially reduced the rate of entry into banking. He had one comment: “This is fine for preliminary work. Come back in another 6 months with the right answer.” Facts are stubborn. I never could get the right answer, and fortunately for me he
eventually relented.

It’s also worth noting that at the time Stigler is considering these issues in the 1960s, a lot of government regulation was focused on regulation of prices and conditions of entry–in airlines, trucking, railroads, electricity production, occupational licenses, and other areas. It seems plausible to me that when government is setting prices and conditions of entry, the chances of regulatory capture over time may rise. But the 1970s saw the emergence of a different kind of regulatory structure, focused instead on health, safety, and the environment. Peltzman writes:

The capture theory does seem to fit some prominent cases, such as Stigler’s motivating examples of truck regulation and occupational licensure. However, problems not easily covered by the “as a rule” exception surfaced quickly. … We also have 20/20 hindsight of the proliferation of “social regulation” that was underway when Stigler (1971) appeared. Environmental regulation is perhaps the most prominent example. Others include worker safety, the security of their pensions and consumer product safety. By some measures this regulatory expansion was, and remains, historically unprecedented. Typically social regulation cut across many industries. And it was invariably resisted by those industries. On the other side, deregulation of industries like transportation and securities brokerage surfaced in the late 1970s amidst significant industry resistance. Then more recently we get “reverse capture”, where the industry is created by the regulator – as in renewable energy, biofuels and the like. None of these developments seem contemplated by the capture theory.

However, Peltzman also points out that even regulations which may on balance have positive effects on health or safety can still have anticompetitive tradeoffs. The Food and Drug Administration requirements that new drugs be proven safe and effects have high financial and administrative costs, which large and established firms can handle far better than small innovators. The Dodd-Frank financial reforms of 2010 focused on making banks safer by creating a set of rules with high financial and administrative costs, which in turn has led to the exit of many smaller banks.

Thus, Peltzman both insists on the continuing relevance of Stigler’s broader insights, but offers a less absolutist interpretation. Stigler wrote in the 1971 essay, “… as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.” Peltzman offers this reformulation:

The distinction I want to pursue is between the creation (the “acquired” part of Stigler’s famous quote) and the output (design and operation) of regulatory bodies. Even casual history suggests that these often respond to different political forces and interest groups. In particular, the industry often – perhaps mainly – resists the establishment of regulation. The affected industries resisted the consumer reforms of the Progressive Era, the labor reforms of the New Deal and the social regulation of the 1970s. But, once confronted with the reality of the regulation, the industry interest usually plays a prominent role in what these agencies do.

Here’s the Table of Contents for the Public Choice symposium, although a library subscription is required to access the articles. However, the Peltzman article is available as a working paper:

Equity vs. Efficiency–and What Other Tradeoffs?

For at least 50 years, economists have been drawing up models that consider tradeoffs between equity and efficiency. A classic example is that a combination of taxation and redistribution of income by government will improve equity, but on the margin, it can also reduce efficient incentives to work for both the taxed (because they now receive a lower reward for working) and the recipients (who will experience a phase-out of their redistribution benefits as they increase their earnings).

As generations of classroom economists have admonished their students: The existence of a tradeoff doesn’t mean that something is or isn’t worth doing. It just means that, whatever your choice, the tradeoff should be openly specified and acknowledged. The equity/efficiency tradeoff, in particular, will be influenced by the values that people place on equity and efficiency, and economics as a discipline doesn’t have much to say about the what values should be used.

But what about other tradeoffs? Equity is not the only value that might be opposed to a desire for more efficient incentives. Tyler Cowen makes the case in a short essay, “The Dubious Trade-Off That Economists Love to Cite,” subtitled “Many public policies involve choosing between equity and efficiency, but those aren’t the only two principles that deserve consideration” (Washington Post, November 1, 2022). Cowen writes:

I start getting nervous, however, when I see equity given special status. After all, it most often is called “the equity-efficiency trade-off,” not “an equity-efficiency tradeoff,” and it is prominent in mainstream economics textbooks. By simply reiterating a concept, economists are trying to elevate their preferred value over a number of alternatives. They are trying to make economics more pluralistic with respect to values, but in reality they are making it more provincial.

If you poll the American people on their most important values, you will get a diverse set of answers, depending on whom you ask and how the question is worded. Americans will cite values such as individualism, liberty, community, godliness, merit and, yes equity (as they should). Another answer — taking care of their elders, especially if they contributed to the nation in their earlier years — does not always show up in polls, but seems to have a grip on many national policies and people’s minds.

I hear frequently about the equity-efficiency trade-off, but much less about the trade-offs between efficiency and these other values. 

During the pandemic, for example, Cowen points out that a primary conflict was between the value placed individual choice and the efficiency of policies like vaccinations, masks, or shut-downs. When it comes to taxation and redistribution, the public arguments are often not about efficiency costs, but rather about claims involving liberty and beliefs about being rewarded according to some definition of merit. The question of whether or how to alter programs like Social Security and Medicare often touch on equity and incentives, but often quickly turn to value-heavy arguments over society’s obligations to the elderly. In discussions about import restrictions, the focus is often on efficiency gains for the broader economy vs. harms to specific communities. And of course, one could add other values here like environmental preservation.

I suppose one can stretch the idea of equity to cover some of these issues, at least in part. But in doing so, you are really just admitting what we all know: equality, fairness, and justice are complicated in ways that a basic distribution of income or wealth doesn’t fully capture. Looking at equity is a start, but the potential tradeoffs with economic efficiency are multidimensional.

Henry Adams on the Corruptions of Power

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.

Fall 2022 Journal of Economic Perspectives Available Online

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.

Full-Text Access | Supplementary Materials

“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.

Full-Text Access | Supplementary Materials

“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.

Full-Text Access | Supplementary Materials

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.

Full-Text Access | Supplementary Materials

Symposium on the Size of Government Debt

“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.

Full-Text Access | Supplementary Materials

Fiscal Histories,” by John H. Cochrane

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.

Full-Text Access | Supplementary Materials

“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.

Full-Text Access | Supplementary Materials

Articles and Features

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.

Full-Text Access | Supplementary Materials

“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.

Full-Text Access | Supplementary Materials

“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.

Full-Text Access | Supplementary Materials

“Recommendations for Further Reading,” by Timothy Taylor

Full-Text Access | Supplementary Materials

Some Economics of Algae and Duckweed

As the world population rises toward 10 billion, there are hard questions of how to feed everyone, while protecting the environment, and while also having a generally rising standard of living. No single answer is likely to suffice. But Gal Hochman and Ruslana Rachel Palatnik discuss one possible piece of the puzzle in “The Economics of Aquatic Plants: The Case of Algae and Duckweed” (Annual Review of Resource Economics, 14: 555-577). They begin:

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.

High School Economics and Personal Finance Courses

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.

Greenpeace Denounces Plastic Recycling

Greenpeace and its philosophy of “non-violent creative action” in the service of environmentalist goals has inspired a wide range of reactions, but pretty much no one views the organization as a sell-out or a pawn for corporate interests. Thus, it’s intriguing that the organization has recently laid waste to the practicality and benefits of plastics recycling in its recent report, Circular Claims Fall Flat Again (October 24, 2022).

Here’s what Greenpeace has to say (footnotes omitted):

Mechanical and chemical recycling of plastic waste has largely failed and will always fail because plastic waste is: (1) extremely difficult to collect, (2) virtually impossible to sort for recycling, (3) environmentally harmful to reprocess, (4) often made of and contaminated by toxic materials, and (5) not economical to recycle. Paper, cardboard, metal, and glass do not have these problems, which is why they are recycled at much higher rates.

Due to toxicity risks, post-consumer recycled plastic from household waste is not being produced at commercial scale for food-grade uses globally or in the U.S., and likely never will be. While there is limited availability of food-grade PET#1 for beverage bottles only, there are growing toxicity concerns there, too.

As described in a May 2022 OpEd in The Atlantic, “The problem lies not with the concept or process of recycling but with the plastic material itself – it is plastic recycling that does not work.” The high recycling rates of post-consumer paper, cardboard, and metals in the U.S. prove that recycling can be an effective way to reclaim valuable natural material resources. Plastic recycling in particular has failed because the thousands of types of synthetic plastic materials produced are fundamentally not recyclable.

As support for these claims, Greenpeace gathered evidence from 370 “material recovery facilities” across the US in the 2020, and the updated the survey this year. In other words, they aren’t looking at how much plastic was collected with a claim that it could be recycled, but at how much is actually recycled and reused.

The failure of the concept of plastic recycling is finally becoming impossible for the companies and industry associations that promote it – and the nongovernmental organizations (NGOs) that they fund for this purpose – to ignore. After three decades and billions of dollars of taxpayer spending, the excuse offered by the American Chemistry Council (ACC) that plastic recycling is still “in its infancy” can now be seen for the delaying tactic that it is.

Corporate plastic pledge performance reporting does not reflect the failure of plastic recycling because it relies on the theoretical possibility of recycling a plastic item, rather than actual plastic waste processing rates. The reported shares of recyclable, reusable, or compostable plastic packaging used by EMF NPE and U.S. Plastics Pact member companies – 65.3% at the global level and 37% in the U.S. – can hardly be taken at face value when credible estimates show that only 9% of plastic was recycled globally in 201921 and only 5–6% of plastic waste was recycled in the U.S. in 2021.

The Greenpeace argument is definitely not that, with some additional effort, plastic recycling will work. The argument is that given the nature of plastics, recycling plastic will never work.

After more than 30 years, it is time to accept that plastic recycling is a failed concept. Unlike with paper or metals, there are two insurmountable barriers that prevent plastic recycling from ever working at scale: toxicity and economics. Plastic cannot be safely recycled from postconsumer household waste back into new food-grade plastic products. The flood of 400 million tons/year of cheap new plastic production kills the business case for large-scale investment in plastic recycling. And the problem lies not with the concept or process of recycling but with the plastic material itself – it is plastic recycling that does not work.

If one accepts the Greenpeace indictment of plastics recycling, the question becomes what to do next. The Greenpeace solution is to phase out all single-use plastics. I’m not confident that the policy approach can or should be that absolute. But a first step to having that conversation would be a broader acceptance that the efforts at recycling plastics have largely failed.

Reflections on Sources of US Energy Consumed

Amidst all the discussions of how to encourage non-carbon sources of energy, it can be useful to step back and look at the basic patterns of US energy consumption. Here, I draw upon the U.S. Energy Information Administration webpage on “U.S. Energy Facts Explained.”

This figure shows US “primary” energy consumption by source. The attentive reader will notice that “electricity” does not appear as a source of energy. The reason, of course, is that while electricity is used primarily as a mechanism for transmitting power, and sometimes (batteries) for storing power, electricity is not a “source” of power iteself, but instead needs to be generated from a underlying source.

As the figure shows, total US energy consumption levelled off in late 1990s. Use of coal is dramatically down in the last two decades, but use of natural gas has risen correspondingly–so that the sum of coal and natural gas in the figure hasn’t changed much in the last two decades. Petroleum as a source of energy is down about 10% in the last two decades. Nuclear has edged up just a bit in terms of total energy produced since 2000. The quantity of energy produced by renewables has doubled, from about about 6 to 12 quadrillion BTUs.

The category of renewables, however, includes more than wind and solar. Here’s a breakdown for US energy consumption in 2021:

As the figure shows, two-fifths of renewables is biofuels, including ethanol and wood. About one-fifth is hydroelectric dams. The other two-fifths are what a lot of people mean when they refer to renewables: wind, solar, and geothermal. In other words, wind, solar, and geothermal are a little less than 5% of US energy consumption at present.

For those who are mentally relying on solar/wind/geothermal as the primary power sources of the future, these numbers suggest the scale of the challenge. The share of US energy consumption coming from fossil fuels–coal, natural gas, petroleum–was about 85% of the total in 2000, and is now about 79%. The rise in renewables, especially biomass, wind, and solar, explains how this decline in fossil fuels occurred.

But this change has taken two decades. If the US economy is going to consume roughly the same level of energy over time, which is the pattern of the last few decades, then wind/solar/geothermal will need to grow by a multiple of 10 if these sources are to provide half of US energy consumption. A transformation of this scale would require, among other changes, an extraordinary build-out of new power lines from these new sources of energy to where the electricity is needed; an extraordinary rise in mining to provide the materials needed both for solar cells and for the power lines; re-engineering the power grid to be more capable of addressing sources of electricity that can fluctuate; the development of new methods for storage of electricity for when the wind isn’t blowing or the sun isn’t shining; and an extraordinary rise in capabilities to recycle old solar cells and wind turbines when they have reached the end of their cost-effective lifespans.

My own sense is that new technologies will be needed in all of these areas, and others, including use of hydrogen for energy storage, nuclear as an energy sources, probably methods of carbon capture and storage, and methods of conserving on existing energy use.

Here’s a final figure to show some of the complexity of the energy problem. The left-hand panel shows the primary sources of energy. The right-hand panel shows the end-use sectors for energy. Sometimes the source of energy is used directly by a certain sector: for example, the top line shows that 69% of petroleum is used in the transportations sector, where it represents 90% of all the energy used.

In other cases, the primary energy flows through the electricity sector. For example, 37% of natural gas energy goes to electricity, as does 59% of renewable energy, 90% of coal energy, and 100% of nuclear energy. But of the energy flowing into the electricity system, about two-thirds is lost in maintaining the system itself, and only one-third goes back out to end-use sectors. To put it another way, when we build renewable energy sources to feed the electrical grid, only one-third of the electricity produced finds its way to end-users.

The challenge of reducing reliance on fossil fuels isn’t just on the left-hand side of this figure: that is, raising output of renewables in a way that can offset use of fossil fuels. It’s about rethinking and rewiring all the connections between primary energy and end-users in this figure.

Jeremy Siegel on Stocks and the Fed

The first edition of Jeremy Siegel’s highly influential book, Stocks in the Long Run, came out almost 30 years ago in 1994. Now, the sixth edition has been published, and Jeremy Schwartz interviews Siegel (Knowledge at Wharton, “Why Stocks Will Remain Strong in the Long Run,” October 25, 2022). Given that I am becoming used to wincing each time I open up a statement from my retirement account and see how falling stock prices have affected my savings, the interview is at least a productive distraction. Here are some comments from Siegel that caught my eye:

On the long-run returns to stock market investing over time:

[T}he first edition, which came out in May 1994, used data through the end of 1992. The long-term real return (net of inflation, from investing in stocks) 1802 onward was 6.7% in real terms. I updated it till June of this year and it’s 6.7% real — exactly the same as the last 30 years, despite the financial crisis, COVID, and so forth. It’s remarkably durable. We also know returns from investing in stocks are remarkably volatile in the short run. But the durability of the equity premium (or the excess return from stocks over a risk-free rate like a Treasury bond) is quite remarkable.

On the performance of the Federal Reserve in the last two years:

I’ve been calling Jay Powell’s monetary policy the third worst in the 110-year history of the Fed. I may actually raise it to the second worst, but we’ll see what happens. The worst, of course, is the Great Depression, where they let all the banks fail when they were actually formed to prevent exactly that from happening. When the pandemic hit and money supply exploded, I said this is going to cause inflation. You’ve never seen that 25% M2 money supply increase — 1870 onward, there has never been a money supply increase that fast.

I said this is just absolutely crazy. This is going to produce a tremendous amount of inflation. And it did.

I was definitely hawkish [early this year], saying there would be eight increases [of 0.25% each] — that’s 2%. But now they’re talking about 4% by year-end. That’s 16 increases. In the September 2021 meeting … eight of the 16 FOMC (Federal Open Market Committee) members said there was no need to increase rates whatsoever this year. This was when inflation was already heating up; speculation was rampant in all asset markets. Five members said we will need an increase of 125 basis points. And three — the most hawkish — ventured that we might need an increase of 50 basis points by December this year.

Could you be more wrong than that? It’s impossible to be more wrong than that. It amuses me when people [predict the Fed’s actions] as if they have any concept of what they’re going to do in 2023. Clearly, in 2021, they had zero concept of what they were going to do this year.