Category: Labor Economics

Like During the Great Depression, Wages May Now Be Sticky-Downward

Economists have sometimes claimed that the reason that the labor market did not quickly clear during the Great Depression, was that wages were sticky-downward. The result of sticky-downward wages can be long-term high levels of unemployment.

(p. 7) Much as now, in the Great Depression people were very focused on maintaining a “fair wage” in the face of economic distress. But this led to nationwide resistance to nominal wage cuts for anyone, even when retail prices were falling rapidly.

This appears to have had the unintended result of inducing employers, who could not afford to keep everyone working at their former wages, to lay off many people. The economists Harold L. Cole of the University of Pennsylvania and Lee E. Ohanian, of U.C.L.A., have shown that this may explain some of the extreme duration of Great Depression unemployment.

For the full commentary, see:

Robert J. Shiller. “ECONOMIC VIEW; Looking Back for Clues About What’s Ahead After the Pandemic.” The New York Times, SundayBusiness Section (Sunday, May 31, 2020): 7.

(Note: the online version of the commentary has the date May 29, 2020 and has the title “ECONOMIC VIEW; Why We Can’t Foresee the Pandemic’s Long-Term Effects.”)

The Cole and Ohanian paper mentioned above, is:

Cole, Harold L., and Lee E. Ohanian. “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis.” Journal of Political Economy 112, no. 4 (Aug. 2004): 779–816.

Frustration of a Non-Expert Entrepreneur Inspired the Creation of Square

(p. B6) It was 2009, and Mr. McKelvey—a glassblower, computer scientist and serial entrepreneur—had lost a sale of one of his artworks because he couldn’t accept American Express cards. Though neither he nor Mr. Dorsey, now CEO of Square and Twitter Inc., knew much about the world of credit-card transactions, his frustration inspired the creation of Square’s signature white readers, a technology that would revolutionize payments by allowing anyone to accept a card with a smartphone or tablet.

In his new book, “The Innovation Stack,” Mr. McKelvey uses the story of Square’s early days, and its success in fending off a rival product from Amazon.com Inc., to encourage other potential founders with a dearth of credentials to fix unsolved problems and start novel businesses.

“If you’re going to do something that’s never been done, by definition, you cannot be an expert,” he said. “Take it from a glassblower who started a $30 billion payment company: You don’t have to be.”

. . .

“. . . there are no experts anymore. We’re living in a world without expertise, and that’s the world of the entrepreneur, like it or not.”

For the full interview, see:

Peter Rudegeair, interviewer. “Square’s Co-Founder Sees Openings in Recessions.” The Wall Street Journal (Tuesday, May 26, 2020): B6.

(Note: ellipses, and quotation marks around last two sentences, added.)

(Note: the online version of the television review has the date May 24, 2020, and has the same title “BOSS TALK; Square’s Co-Founder: A Recession Is a Great Time to Start a Company.” The first several paragraphs quoted above are from Pter Rudegeair’s introduction to his interview of Jim McKelvey. The last couple of sentences are from McKelvey’s response to the last question in the interview.)

The book, mentioned above in the introduction to the interview, is:

McKelvey, Jim. The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time. New York: Portfolio, 2020.

The New York Times Advises Its Readers How to Survive the Pandemic

(p. D3) BEST MAIL-ORDER ICE CREAM

Jeni’s Splendid Ice Cream

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For the full story, see:

“The New Essentials: Family Fun.” The New York Times, AtHome Section (Sunday, May 24, 2020): 8.

(Note: all-cap heading, bolds, italics, and absence of period after italics, all in original.)

(Note: after a thorough search, as of 5/25/20, it appears that the New York Times did not post this article online.)

Paul Marks Purged Old Guard in Order to Recruit New Talent for His Vision of Cancer Research

One important question, not addressed in the obituary quoted below, is the extent to which Marks’s vision for cancer research was farsighted and the extent to which it was misguided. Another important related issue is Marks’s role in support of Nixon’s centrally planned war on cancer.

(p. B11) Paul A. Marks, who transformed Memorial Sloan Kettering Cancer Center into one of the world’s leading institutions for research and treatment of cancer, died on April 28 at his home in Manhattan. He was 93.

. . .

Memorial Sloan Kettering today is very different from the institution Dr. Marks joined in 1980 as president and chief executive. It was still reeling from a scientific scandal in the 1970s involving crudely falsified data. It was also behind the times, focused more on surgical interventions than on the developing frontiers of biological science.

“Frankly, it was an institution that really needed surgery from top to bottom, and Marks was the right guy,” James Rothman, chairman of the Yale School of Medicine’s department of cell biology, said in a phone interview.

. . .

The timing was ideal, said Richard Axel, a neuroscientist and molecular biologist in the department of neuroscience at Columbia University Medical Center. Dr. Marks, he said, energized the institution to pursue the alterations in DNA that cause tumors, doing so at the very moment that it was becoming possible “to truly study DNA, to pet it, to clone it, to determine its sequence.”

What followed was a purge of much of the institution’s old guard, with attendant turmoil and alienation for many of those involved. Dr. Marks instituted a tenure system with a tough review process, and dozens of scientists left between 1982 and 1986. A 1987 article about Dr. Marks in The New York Times Magazine noted that “there are researchers who call Marks ‘Caligula,’ ‘Attila the Hun’ or simply ‘the monster.’”

The article described a scene in his laboratory during his Columbia days when Dr. Marks “grabbed a man by the throat and dragged him across a table.” His wife, Joan Marks, then head of graduate programs at Sarah Lawrence College in Bronxville, N.Y., said in the article, “He can be brutal,” adding, “He really doesn’t understand why people don’t work 97 hours a day, and why they don’t care as much as he cares.”

In his memoir, “On the Cancer Frontier: One Man, One Disease, and a Medical Revolution” (2014, with the former Times reporter James Sterngold), Dr. Marks said he had been embarrassed to see the incident recounted in the article. While he didn’t deny that it had happened, he said that he had actually grabbed the man by both arms, not the throat, and shaken him.

For all of the sharpness of his elbows, Dr. Rothman of Yale said, there was also charm. Dr. Marks, he said, “projected at once a kind of a deep warmth and, at the same time, a formidable aspect.”

Dr. Marks was known for a sharp eye in recruiting talent. “He had an uncanny ability to attract these great scientists from all over the nation,” said Joan Massagué, the director of the Sloan Kettering Institute, the institution’s experimental research arm.

For the full obituary, see:

John Schwartz. “Paul Marks, 93, Administrator Who Pushed Memorial Sloan Kettering to Top-Tier Status.” The Wall Street Journal (Thursday, May 7, 2020): B11.

(Note: ellipses added.)

(Note: the online version of the obituary was updated May 6, 2019 and has the title “Paul Marks, Who Pushed Sloan Kettering to Greatness, Dies at 93.”)

Marks’s memoir, mentioned above, is:

Marks, Paul, and James Sterngold. On the Cancer Frontier: One Man, One Disease, and a Medical Revolution. New York, NY: PublicAffairs, 2014.

Engineering the Bar Code “Was Fun!”

(p. A13) If he had followed instructions from his boss, George Laurer might never have succeeded in designing the Universal Product Code.

In 1971, a supervisor at International Business Machines Corp. told the electrical engineer to devise a bar code based on previous models involving circular symbols resembling dart boards. While the boss was on vacation, Mr. Laurer concluded that little circles wouldn’t do, partly because smears of ink left by printing presses could scramble the code. Instead, he and others came up with a row of stripes, whose varying width and spacing conveyed a reliable code.

. . .

. . . , as he noted in the title of his memoir, “Engineering Was Fun!”

For the full obituary, see:

James R. Hagerty. “Bar Code Designer Defied Instructions.” The Wall Street Journal (Saturday, December 14, 2019): A13.

(Note: ellipses added.)

(Note: the online version of the obituary has the date Dec. 12, 2019 and has the title “George Laurer, Defying Instructions, Created Universal Bar Code.”)

Laurer’s memoir, mentioned above, is:

Laurer, George J. Engineering Was Fun! 3rd ed. Morrisville, NC: Lulu.com, 2012.

“Rational for Workers to Prefer a Seller’s Market in Labor”

If we adopt policies to maintain what I call a “robustly redundant labor market,” workers will have no reason to fear harm from free-trade and immigration. The policies that allow robustly redundant labor markets are described in my Openness to Creative Destruction: Sustaining Innovative Dynamism.

(p. C2) Unwilling to admit that the center-left has been largely captured by the managerial elite, many pundits and academics on the left insist that mindless bigotry, rather than class interests, explains the attraction of many working-class voters to populist parties that promise to restrict trade and immigration. But it is just as rational for workers to prefer a seller’s market in labor as it is for employers to prefer a buyer’s market in labor. Blue-collar workers who have abandoned center-left parties for populist movements bring with them the historic suspicion of large-scale immigration that was typical of organized labor for generations.

And as MIT economist David Autor and his colleagues have shown, voters in the U.S. regions hit hardest by Chinese import competition were the most likely to favor Donald Trump or Bernie Sanders in 2016. Strict environmental regulations, which impose few costs on the urban elites, can threaten the livelihoods and lifestyles of workers in the exurban heartlands, like the French yellow vest protesters who rebelled against a tax on diesel fuel intended to mitigate climate change.

For the full commentary, see:

Michael Lind. “Saving Democracy From the Managerial Elite.” The Wall Street Journal (Wednesday, January 11, 2020): C1-C2.

(Note: the online version of the commentary has the date Jan. 10, 2020, and has the same title as the print version.)

Lind’s commentary is related to his book:

Lind, Michael. The New Class War: Saving Democracy from the Managerial Elite. New York: Portfolio, 2020.

The latest version of the paper co-authored by Autor, and mentioned above, is:

Autor, David H., David Dorn, Gordon H. Hanson, and Kaveh Majlesi. “Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure.” Working Paper, Oct. 2019.

My book, mentioned way above, is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

Low Quality Parts from Corrupt Contractors Endanger Russian Sailors in Deep-Diving Subs

(p. A22) OFF THE COAST OF NORWAY — There could hardly have been a more terrifying place to fight a fire than in the belly of the Losharik, a mysterious deep-diving Russian submarine.

. . .

A fire on any submarine may be a mariner’s worst nightmare, but a fire on the Losharik was a threat of another order altogether. The vessel is able to dive far deeper than almost any other sub, but the feats of engineering that allow it do so may have helped seal the fate of the 14 sailors killed in the disaster.

. . .

(p. A23) As for the accident itself, few expressed surprise that a jewel of the Russian submarine fleet might catch fire not very far from its home base — probably in water no more than 1,000 feet deep — leaving most of its crew dead. The Russians, some experts said, seem to have a greater tolerance for risk than the West.

. . .

Mr. Lobner, the former American submarine officer, said “we have nothing except unmanned vehicles” operating at such depths.

Still, while some see an engineering marvel, others see evidence that Russia may be unable to build the kind of sophisticated, autonomous underwater drones the United States appears to rely on.

“They would rather adapt existing systems, modernize them, and try to muddle through,” Mr. Boulègue said. “So, no wonder these things keep exploding,” he said. Mr. Boulègue believes accidents have been far more common than publicly known.

John Pike, director of the think tank GlobalSecurity.org, said the Losharik fire suggested that the Russian military was still contending with some longstanding issues: corrupt contractors, and problems with quality control in manufacturing, spare parts supply chains and maintenance.

“I assume that every other sub in the Russian fleet has similar problems,” Mr. Pike said. “I just think the whole thing is held together with a lot of baling wire and spit.”

For the full story, see:

James Glanz and Thomas Nilsen. “A Deep-Diving Sub, a Deadly Fire And Russia’s Secret Undersea Agenda.” The New York Times (Tuesday, April 21, 2020): A22-A23.

(Note: ellipses added.)

(Note: the online version of the story was updated April 21, 2020, and has the title “A Deep-Diving Sub. A Deadly Fire. And Russia’s Secret Undersea Agenda.”)

Hospitals Punish Workers Who Expose Management Failures

(p. B5) In New York City, the epicenter of the crisis in the United States, every major private hospital system has sent memos in recent weeks ordering workers not to speak with the media, as have some public hospitals.

One system, NYU Langone Medical Center, which has more than 30,000 employees at six inpatient centers, dozens of outpatient facilities and the New York University School of Medicine, sent an email on March 27 [2020] warning that staff members speaking to the media without permission “will be subject to disciplinary action, including termination.” The email was reported earlier by Bloomberg.

Administrators suggested “appropriate” posts on social media instead. “Please share positive and uplifting messages that support your colleagues and our organization,” they said in another email.

Similar lines are being drawn nationwide. A doctor in Washington State was removed from his hospital position after speaking publicly about a shortage of protective equipment and testing; the staffing firm that employs him said he was being reassigned. Nurses in Detroit recently walked off the job to protest critically low staffing after a colleague who had spoken up on the issue was fired.

For the full story, see:

Noam Scheiber and Brian M. Rosenthal. “Nurse Questions Hospital On Safety. He’s Out a Job.” The New York Times (Friday, April 10, 2020): B1 & B5.

(Note: bracketed year added.)

(Note: the online version of the story was updated April 15, 2020, and has the title “Nurses and Doctors Speaking Out on Safety Now Risk Their Job.”)

Data Retrieval Does Not Equal Creativity

(p. F2) Steve Jobs once described personal computing as a “bicycle for the mind.”

His idea that computers can be used as “intelligence amplifiers” that offer an important boost for human creativity is now being given an immediate test in the face of the coronavirus.

In March [2020], a group of artificial intelligence research groups and the National Library of Medicine announced that they had organized the world’s scientific research papers about the virus so the documents, more than 44,000 articles, could be explored in new ways using a machine-learning program designed to help scientists see patterns and find relationships to aid research.

. . .

Jerry Kaplan, an artificial-intelligence researcher who was involved with two of Silicon Valley’s first A.I. companies, Symantec and Teknowledge during the 1980s, pointed out that the new language modeling software was actually just a new type of database retrieval technology, rather than an advance toward any kind of “thinking machine.”

“Creativity is still entirely on the human side,” he said. “All this particular tool is doing is making it possible to get insights that would otherwise take years of study.”

For the full commentary, see:

John Markoff. “You Need A.I. to Spell Creative.” The New York Times (Thursday, April 9, 2020): F2.

(Note: ellipsis, and bracketed year, added.)

(Note: the online version of the commentary has the date April 8, 2020, and has the title “You Can’t Spell Creative Without A.I.”)

87% of American Liberals Support Some Merit-Based Income Differences

In my Openness to Creative Destruction, I claim that most people do not care as much about inequality per se, as they do about unfair inequality. What they care about is the differences in income be roughly related to differences in contribution. I illustrate this by recounting a famous experiment that Frans de Waal conducted with capuchin monkeys. The evidence in the study quoted below, supports my claim.

(p. B3) In 2018, four economists at the Center for Experimental Research on Fairness, Inequality and Rationality at the Norwegian School of Economics conducted a huge experiment — mostly via face-to-face interviews — using the Gallup World Poll. The Norwegian team — Bertil Tungodden, Alexander Cappelen, Ingvild Almas and Erik O. Sorensen — worked with Gallup to survey 65,000 people across 60 countries about their beliefs related to the gaps between the rich and the poor.

Part of the survey was an experiment. Respondents were randomly assigned to different conditions and presented a real-life scenario: Two people were recently hired to independently complete a short assignment; they were both paid, but one was given an additional $6.

In the first group, survey takers were told that the additional $6 was given out randomly. In the second group, they were told the $6 went to the worker who was more productive in completing the assignment. In both cases, respondents were asked how they would divide the additional earnings: whether they would transfer none of it, some of it or all of it to the other worker.

. . .

American conservatives might assume liberals are averse to merit-based compensation. The experiment proves that’s not so. When told the bonus payment was made only to the most productive worker, only 13 percent of the liberals transferred all of the money equally to the less productive worker, which is within the margin of error of the American conservative response (10 percent).

Americans both liberal and conservative were more likely than most people worldwide to accept merit-based income differences. As one of the study’s investigators, Mr. Tungodden, mentioned in his public presentation on the study, people in richer countries were more likely than people in poorer countries to allow merit-based differences. In the rich and more egalitarian country of Norway, 88 percent of respondents transferred the bonus payment equally when told it was allocated by chance, but only 33 percent did so when allocated by merit.

For the full commentary, see:

Jonathan Rothwell. “THE UPSHOT; Think Only Liberals Will Share the Wealth? A Survey May Surprise You.” The New York Times (Friday, February 14, 2020): B3.

(Note: ellipsis added.)

(Note: the online version of the commentary was last updated February 14, 2020, and has the title “THE UPSHOT; Experiment Shows Conservatives More Willing to Share Wealth Than They Say.”)

The soon-to-be-published version of the research discussed above, is:

Almås, Ingvild, Alexander W. Cappelen, and Bertil Tungodden. “Cutthroat Capitalism Versus Cuddly Socialism: Are Americans More Meritocratic and Efficiency-Seeking Than Scandinavians?” Journal of Political Economy (forthcoming 2020).

My book, mentioned above, is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

In Covid-19 Lockdown, Cars Allow a Private Escape from Crowded Noisy Homes

(p. D6) Public spaces are hard to safely navigate, or totally off-limits and, as a result, I haven’t felt this strongly about my car since I was 16 — not just grateful, but deeply attached. Not just attached, but somehow amalgamated.

Every car is a getaway, even when it’s parked.

In my neighborhood, where so many people live in multigenerational homes, parked cars now double as quiet meeting spaces, meditation rooms, listening stations, nap pods, whatever extra spaces we need.

We sip coffee, fight loudly and make out in our cars. We eat snacks and take important phone calls and watch TikTok videos and put the seats way back and just breathe.

I haven’t seen my brother, who lives 15 minutes away from me, in weeks. He uses his tiny car as an office. Never mind that the floor is covered in Cheerios, and the windows are dotted with peeling stickers.

Week Three of lockdown, and it’s a privilege if you can work safely, in isolation, if you can escape momentarily into your car. Even if — especially if — you have nowhere else to go but home.

For the full commentary, see:

Tejal Rao. “Car Culture Has a New Meaning.” The New York Times (Wednesday, April 1, 2020): D6.

(Note: the online version of the commentary has the date March 31, 2020, and has the title “Dining and Driving on the Empty Freeways of Los Angeles.”)