Brookings Papers on Economic Activity

Spring 2015 Brookings Panel on Economic Activity

The Spring 2015 Brookings Panel on Economic Activity took place March 19-20, 2015 at the Brookings Institution's Falk Auditorium in Washington, DC. The conference agenda is available for download and panels were live-tweeted under the Chatham House rule using hashtag BPEA.

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New research findings at the Spring 2015 BPEA conference by leading academic and government economists include: a cause of growing inequality; the possible outcomes of an early Federal Reserve boost in the interest rates; public sentiment concerning redistributive fiscal plans; the economic welfare impacts of the fracking boom; an assessment of Chinese government-sponsored firms; and the possible consequences of anonymizing big data.

Inequality May Not Grow in the Way Piketty Predicts
Long-Term Rise in Capital Income Driven Mostly by Housing

Existing studies that show an increase in capital’s share of income miss the growing role of depreciation in short-lived capital, in items such as software, says MIT’s Matthew Rognlie in “Deciphering the Fall and Rise in the Net Capital Share.” Rognlie subtracts depreciation in seven large developed economies (the US, Japan, Germany, France, the UK, Italy, and Canada) to get net capital income, and finds that the only long-term rise in capital’s share of income is in housing. Capital income elsewhere in the economy has grown moderately, but it is only recovering from a large fall that lasted from 1948 through the 1970s.

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Fed Raising Interest Rates Too Soon Would be Worse than Waiting Too Long; Could Cause More Severe Economic Consequences
Inflation can be kept in check with higher rates; Moving too soon would leave Fed struggling to revive the economy again

Federal Reserve Bank of Chicago President Charles Evans, one of the five regional Fed bank presidents with a vote on monetary policy decisions this year, with co-authors Jonas Fisher, Francois Gourio and Spencer Krane, point to the inherent uncertainty in the Fed’s forecasts, arguing that the downside of waiting too long to raise rates will be an unwelcome increase in inflation – but can be kept in check with higher interest rates. In contrast, the downside of moving too soon is that Fed may again find itself struggling to revive an economy with interest rates at zero.

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Read Charles Evans's prepared remarks »  

While Inequality has Increased Overall, Support for Redistribution Has Waned Amongst Two Key Groups
Seniors, blacks – historic supporters – becoming less so

Yale’s Vivekinan Ashok, Ilyana Kuziemko of Princeton, and Yale’s Ebonya Washington analyze survey data over several decades on topics such as whether the government should reduce income differences between the rich and the poor and whether they should guarantee jobs and a basic standard of living. Although support for those policies has stayed flat or decreased overall, the authors find there are large differences in how attitudes have evolved among various groups, most notably blacks and the elderly. They then set out to explore different reasons why these two groups exhibit such divergent trends relative to other respondents.

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U.S. Fracking Boom Responsible for 47 Percent Gas Price Drop Compared to What Prices Would Have Been
Well-being of gas consumers improved by $74 billion per year, but environmental economic impacts unknown

In the first estimates of the economic welfare and distributional impacts of the US shale boom, Catherine Hausman of the Ford School of Public Policy at the University of Michigan and Ryan Kellogg of the Department of Economics at the University of Michigan and the National Bureau of Economic Research (NBER) find that the expansion of the natural gas supply has reduced gas prices by $3.45 per 1000 cubic feet, and that the wholesale price reduction has been fully passed on to retail natural gas prices. All types of energy consumers gained from the boom, they find: residential customers at $17 billion per year; commercial at $11 billion; industrial customers at $22 billion; and electric power customers at $25 billion – for a total of $74 billion.

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Chinese Government Transformation of Firms Has Boosted Growth and Increased Productivity in the State Sector
Changes from 1998-2007 account for almost one-quarter of growth in the industrial sector

In “Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China,” Chang-Tai Hsieh and Zheng (Michael) Song, both of the University of Chicago’s Booth School of Business, examine the Chinese industrial revolution over the last two decades, in which the government has privatized or closed small state-owned firms, merged large state-owned firms into large industrial groups under the control of the Chinese state, and created many new and large firms. Overall, these government actions have accounted for 23.2 percent of the aggregate growth in the industrial sector from 1998-2007, the authors find.

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Methods to Protect and Secure “Big Data” May Be Compromising Integrity of Research and Analysis
New paper finds that employing statistical disclosure limitation may corrupt data; not clear to end-users

As the government and private companies increase the amount of data made available for public use (e.g. Census data, employment surveys, medical data), efforts to protect privacy and confidentiality (through statistical disclosure limitation or SDL) can often cause misleading and compromising effects on economic research and analysis, particularly in cases where data properties are unclear for the end-user. Data swapping is a particularly insidious method of SDL and is frequently used by important data aggregators like the Census Bureau, the National Center for Health Statistics and others, which interferes with the results of empirical analysis in ways that few economists and other social scientists are aware of

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