U.S. GDP slows down...

source: tradingeconomics.com

Highly Recommended: "Commanding Nature by Obeying Her; A Review Essay on Joel Mokyr's Culture of Growth"

From NBER Working Paper 26061: Enrico Spolaore: Commanding Nature by Obeying Her; A Review Essay on Joel Mokyr's Culture of Growth

Abstract:

Why is modern society capable of cumulative innovation? In A Culture of Growth: The Origins of the Modern Economy, Joel Mokyr persuasively argues that sustained technological progress stemmed from a change in cultural beliefs. The change occurred gradually during the seventeenth and eighteenth century and was fostered by an intellectual elite that formed a transnational community and adopted new attitudes toward the creation and diffusion of knowledge, setting the foundation for the ethos of modern science. The book is a significant contribution to the growing literature that links culture and economics. This review discusses Mokyr’s historical analysis in relation to the following questions: What is culture and how should we use it in economics? How can culture explain modern economic growth? Will the culture of growth that caused modern prosperity persist in the future?

This essay is highly recommended. Link here. 

Can higher capital taxes finance infrastructure and diminish inequality?

A new NBER working paper, "Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment," by Linus Mattauch, David Klenert, Joseph E. Stiglitz, and Ottmar Edenhofer 

Abstract:

Wealth inequality is rising in rich countries. Capital taxation used simply to finance redistribution may not be able to counteract this trend, but can increased public investment financed by higher capital taxes? We examine how such a policy affects the distribution of wealth in a setting with distinct wealth groups:  dynastic savers and life-cycle savers. Our main finding is that public investment financed through capital taxes always decreases wealth inequality when the elasticity of substitution between capital and labor is moderately high.  Indeed, for all elasticities of substitution greater than a threshold value, at high enough capital tax rates, dynastic savers disappear in the long run.  Below these rates, both types of households co-exist in equilibrium with life-cycle savers

gaining from the higher capital tax rates.  These results are robust with respect to the different roles of public investment in production. We calibrate our model to OECD economies and find the threshold elasticity to be 0.82.

More here. 

MA Domestic Product State for 1st Quarter 2018: +1.5%; GDP-S: $542.2b

OVERVIEW

• Real gross domestic product (GDP) state increased in 48 states and the District of Columbia in the first quarter of 2018, according to statistics on the geographic breakout of GDP released by the U.S. Bureau of Economic Analysis.
• Real GDP by state growth in the first quarter ranged from 3.6 percent in Washington to -0.6 in North Dakota. See Chart 1 from the BEA. 
• The Massachusetts economy grew by 1.5 percent in the first quarter of 2018. This was below the 1.8 national average of all states and the District of Columbia. It ranked 29th in first quarter growth, nationally. 
•  As a region, the six states of New England grew by 1.5 percent, less than the average of all states (1.8 percent). The Southwest — Texas, New Mexico, Arizona and Oklahoma — grew the largest for Qtr1-2018 at 2.7 as did the Rocky Mountain region --Colorado, Idaho, Montana, Utah and Wyoming. 
• The current dollar size of the Massachusetts GDP by State is $542.2 billion and contributes 2.7 percent of the nation’s GDP. 
• Durable Goods Manufacturing increased 3.2 percent nationally. This is the eighth consecutive quarter of growth for the sector. In Massachusetts, Durable and Non-durable Goods manufacturing contributed 0.17 and 0.13 percentage points to the change in GDP-S, respectively. 

ANALYSIS 

Gross Domestic Product State (GDP-S) is the market value of goods and services produced by labor and property (or capital) in a state. The sum of GDP for all states released this week (1.8 percent for Qtr1-2018) differs from the headline number for national GDP (Qtr1-2018: 2.0 percent) since outputs like military and overseas activity can’t be attributed to any one state. 

Real Estate and Rental and Leasing along with Information sectors were the leading contributors to the increase in real GDP nationally.  

In Massachusetts, Real Estate and Rental and Leasing; Information and Professional, Scientific, & Technical Services were the major contributors to the 1.5 percent growth in Qtr1-2018. (See Table 1 p. 2.) Of these sectors, only the Information sector lost jobs (down 1,100) over a year ago. Meanwhile, Real Estate, Rental and Leasing and Professional Services added, 2,200 and 26,700 new jobs, respectively. 

Thus far, the state’s economy has lagged the 2.6 percent change in growth it saw for 2017. Last year, the state experienced two stellar quarters of growth Qtr1-2017 at 5.1 and Qtr3-2017 at 5.2.  

In the most recent survey, Massachusetts growth lags expansions in other high technology states. How do other high-tech states compare with Massachusetts? The state of Washington grew by 3.6 percent the fastest in the nation, Virginia by 2.4 percent while the Utah economy grew by 3.2 percent. Meanwhile, California slowed to 1.5 percent, Colorado by 3.0 percent; North Carolina grew by 2.1 percent as Minnesota expanded by 1.6 percent. 

PDF Version.

Who Benefits From Productivity Growth?

From a new NBER working paper by Richard Hornbeck, Enrico Moretti,  "Who Benefits From Productivity Growth? Direct and Indirect Effects of Local TFP Growth on Wages, Rents, and Inequality"

Abstract:

We estimate the local and aggregate effects of total factor productivity (TFP) growth on US workers' earnings, housing costs, and purchasing power.  Drawing on four alternative instrumental variables, we consistently find that when a city experiences productivity gains in manufacturing, there are substantial local  increases in employment and average earnings.  For renters, increased earnings are largely offset by increased cost of living; for homeowners, the benefits are substantial. 

Strikingly, local productivity growth reduces local inequality, as it raises earnings of local less-skilled workers more than the earnings of local more-skilled workers.  This is due, in part, to lower geographic mobility of less-skilled workers. 

However, local productivity growth also has important general equilibrium effects through worker mobility.  We estimate that 38% of the overall increase in workers' purchasing power occurs outside cities directly affected by local TFP growth.  The indirect effects on worker earnings are substantially greater for more-skilled workers, due to greater geographic mobility of more-skilled workers, which increases inequality in other cities.  Neglecting these general equilibrium effects would both understate the overall magnitude of benefits from productivity growth and misstate their distributional consequences. 

Overall, US workers benefit substantially from productivity growth.  Summing direct and indirect effects, we find that TFP growth from 1980 to 1990 increased purchasing power for the average US worker by 0.5-0.6% per year from 1980 to 2000.  These gains do not depend on a worker's education; rather, the benefits from productivity growth mainly depend on where workers live.

Gated version of paper is available here. 

What happened to U.S. manufacturing employment?

New Perspectives on the Decline of US Manufacturing Employment by Teresa C. Fort, Justin R. Pierce and Peter K. Schott   

Abstract:

We use relatively unexplored dimensions of US microdata to examine how US manufacturing employment has evolved across industries, firms, establishments, and regions.  We show that these data provide support for both trade- and technology-based explanations of the overall decline of employment over this period, while also highlighting the difficulties of estimating an overall contribution for each mechanism.  Toward that end, we discuss how further analysis of these trends might yield sharper insights. 

A gated copy of the paper is available here. 

Immigration and Entrepreneurship in America

From a new NBER Working Paper by Sari Pekkala Kerr and William R. Kerr titled, "Immigrant Entrepreneurship in America: Evidence from the Survey of Business Owners 2007 & 2012"

Abstract:

We study immigrant entrepreneurship and firm ownership in 2007 and 2012 using the Survey of Business Owners (SBO).  The survival and growth of immigrant-owned businesses over time relative to native-founded companies is evaluated by linking the 2007 SBO to the Longitudinal Business Database (LBD).  We quantify the dependency of the United States as a whole, as well as individual states, on the contributions of immigrant entrepreneurs in terms of firm formation and job creation.  We describe differences in the types of businesses started by immigrants and the quality of jobs created by their firms.  First-generation immigrants create about 25% of new firms in the United States, but this share exceeds 40% in some states.  In addition, Asian and Hispanic second-generation immigrants start about 6% of new firms. Immigrant-owned firms, on average, create fewer jobs than native-owned firms, but much of this is explained by the industry and geographic location of the firms.  Immigrant-owned firms pay comparable wages, conditional on firm traits, to native-owned firms, but are less likely to offer benefits.

The NBER paper is here.

Foreign-born communities in the European Union

You will find more infographics at Statista

Robert J. Gordon's opus: The Rise and Fall of American Growth

Robert Gordon's magisterial work on economic growth has made it to the top of my reading stack. 

He is becoming one of my favorite economists.  

Here's Ed Glaeser's review from the Wall Street Journal.

MR University: Intro to the Solow Model of Economic Growth

A very good introduction to the famous economic growth model.

UPDATED 1/15/18: Even the big boys make mistakes: World Bank to correct "Doing Business" Index

Update from Paul Romer on Doing Business Index.

From the WSJ

The World Bank repeatedly changed the methodology of one of its flagship economic reports over several years in ways it now says were unfair and misleading.

The World Bank’s chief economist, Paul Romer, told The Wall Street Journal on Friday he would correct and recalculate national rankings of business competitiveness in the report called “Doing Business” going back at least four years. 

The revisions could be particularly relevant to Chile, whose standings in the rankings have been especially volatile in recent years and potentially tainted by the political motivations of World Bank staff, Mr. Romer said.

"Financial markets benefit society"

From a new European Central Bank paper by Alexander Popov,  "Evidence on finance and economic growth."

This paper reviews and appraises the body of empirical research on the association between financial markets and economic growth that has accumulated over the past quarter-century. The bulk of the historical evidence suggests that financial development affects economic growth in a positive, monotonic way, yet recent research endeavors have provided useful and important benefits of this conventional wisdom. Moreover, the proliferation of micro-level datasets has enabled researchers to study more precise links between theory and measurement. The paper highlights the mechanisms through which financial markets benefit society, as well as the channels through which finance can slow down long-term growth.

Available here. 

Is life better or worse than 50 years ago?

You will find more statistics at Statista

A new paper: Gender: An Historical Perspective

A new paper by Paola Giuliano
Social attitudes toward women vary significantly across societies. This chapter reviews recent empirical research on various historical determinants of contemporary differences in gender roles and gender gaps across societies, and how these differences are transmitted from parents to children and therefore persist until today. We review work on the historical origin of differences in female labor-force participation, fertility, education, marriage arrangements, competitive attitudes, domestic violence, and other forms of difference in gender norms. Most of the research illustrates that differences in cultural norms regarding gender roles emerge in response to specific historical situations, but tend to persist even after the historical conditions have changed. We also discuss the conditions under which gender norms either tend to be stable or change more quickly.