Knowledge that Transforms

Samuel Bowles of Santa Fe Institute and CORE Econ reviews “The Dawn of Everything: A New History of Humanity” by David Graeber and David Wengrow. The Econlit abstract of this book begins: “Presents an interpretation of human history that revises long-held assumptions about the emergence of social inequality and hierarchy, considering the implications of this counternarrative for accounts of the origins of farming, property, cities, democracy, slavery, and civilization itself.”

Information provision experiments allow researchers to test economic theories and answer policy-relevant questions by varying the information set available to respondents. We survey the emerging literature using information provision experiments in economics and discuss applications in macroeconomics, finance, political economy, public economics, labor economics, and health economics. We also discuss design considerations and provide best-practice recommendations on how to (i) measure beliefs; (ii) design the information intervention; (iii) measure belief updating; (iv) deal with potential confounds, such as experimenter demand effects; and (v) recruit respondents using online panels. We finally discuss typical effect sizes and provide sample size recommendations.

We estimate the long-run effects of the 1930s Home Owners Loan Corporation (HOLC) redlining maps by linking children in the full count 1940 census to 1) the universe of Internal Revenue Service (IRS) tax data in 1974 and 1979 and 2) the long form 2000 census. We use two identification strategies to estimate the potential long-run effects of differential access to credit along HOLC boundaries. The first strategy compares cross-boundary differences along HOLC boundaries to a comparison group of boundaries that had statistically similar preexisting differences as the actual boundaries. A second approach only uses boundaries that were least likely to have been chosen by the HOLC based on our statistical model. We find that children living on the lower-graded side of HOLC boundaries had significantly lower levels of educational attainment, reduced income in adulthood, and lived in neighborhoods during adulthood characterized by lower educational attainment, higher poverty rates, and higher rates of single-parent households.

The main finding of Bukodi and Goldthorpe (2019), using social status based on occupation groupings, is that there have not been improvements nor any decline in relative intergenerational mobility in Britain since World War II in terms of social class. Notably, there has not been improvement in the mobility of children from working-class backgrounds relative to other background classes. Importantly, the authors argue strongly that education is not the key determinant of adult success in the labor market. Moreover, improving the educational attainment of children from poor socioeconomic backgrounds does not help improve their labor market performance. This suggests that policies to improve the mobility of children from poor social backgrounds should not include attempts to foster human capital or education policies in general.

In 2015, the World Bank claimed that rich-country private capital could: (i) close the infrastructure services gap in poor countries, (ii) achieve the sustainable development goals, and (iii) make money by moving from “billions to trillions” of investment in poor-country infrastructure. Our framework distinguishes those poor countries in which the Bank’s claim is tenable from those where it is not. For a given poor country, the framework reveals that investing a dollar in infrastructure is efficient if the social rate of return on infrastructure clears two hurdles: (a) the social rate of return on private capital in the poor country, and (b) the social rate of return on private capital in rich countries. Applying the framework to the only comprehensive, cross-country dataset of social rates of return on infrastructure indicates that in 1985 just 7 of 53 poor countries cleared the dual hurdles in both paved roads and electricity.

We describe the empirical relationship between local government boundaries and residential segregation in the United States. First, we study recent changes in the distribution of segregation within and between local governments in all metropolitan areas, using census block data on residential demographics over the period 1990–2020. We find that segregation across local government boundaries explains a substantial share of racial stratification, which has changed only little over the last thirty years. Next, we use spatial regression discontinuity methods to distinguish between household sorting due to neighborhood amenities and public goods provided by local governments. The prevalence of demographic discontinuities at local government boundaries suggest that between-jurisdiction segregation patterns cannot be explained solely by proximity to neighborhood amenities. We discuss implications for policy, showing that both between-jurisdiction segregation and jurisdictional discontinuities can partly explain the correlation between total segregation and racial gaps in educational outcomes.

How will sovereign debt markets evolve in the twenty-first century? We survey how the literature has responded to the eurozone debt crisis, placing “lessons learned” in historical perspective. The crisis featured: (i) the return of debt problems to advanced economies, (ii) a bank–sovereign “doom loop” and the propagation of sovereign risk to households and firms, (iii) rollover problems and self-fulfilling crisis dynamics, (iv) severe debt distress without outright sovereign defaults, (v) large-scale sovereign bailouts from abroad, and (vi) creditor threats to litigate and hold out in a debt restructuring. Many of these characteristics were already present in historical debt crises and are likely to remain relevant in the future. Looking forward, our survey points to a growing role of sovereign bank linkages, legal risks, domestic debt and default, and of official creditors, due to new lenders such as China as well as the increasing dominance of central banks in global debt markets. Questions of debt sustainability and default will remain acute in both developing and advanced economies.

This paper provides a comprehensive survey of existing measures of uncertainty, risk, and volatility, noting their conceptual distinctions. It summarizes how they are constructed, their relative advantages in usage, and their effects on financial market and economic outcomes. The measures are divided into four categories based on the construction methodology: news-based, survey-based, econometric-based, and market-based measures. While heightened uncertainty is typically associated with negative real and financial outcomes, the magnitude of these effects and the interpretation of transmission channels crucially depend on identification considerations.

Participants at the 1963 civil rights march on Washington supported minimum wage laws using arguments of economic justice. Many economists at the time argued against the minimum wage based on efficiency concerns rooted in neoclassical theory. After decades of debate, where does the economics profession stand on the justice and efficiency claims of the minimum wage? We discuss the evolution of the minimum wage literature in economics, focusing on racial justice. We highlight recent empirical papers that overwhelmingly support the position of the marchers on Washington while at the same time showing little to no loss of economic efficiency.

This essay reviews Making Our Neighborhoods, Making Our Selves, in which George C. Galster provides an overview of the literatures on neighborhood formation and neighborhood effects. I see two clear ways that Making Our Neighborhoods will serve as a reference strengthening these literatures. Given the state of the literature on neighborhood effects, which is often still at the stage of testing the existence and magnitude of such effects, the author’s framework for classifying the types of heterogeneity we might observe in neighborhood effects will be a valuable tool for researchers. And since the literature on neighborhood formation approaches the issues from a disparate set of fields, the author’s presentation of individual actors shaping neighborhood dynamics while using ideas of equilibrium, belief formation, equity and efficiency, and unpriced externalities should help unify understanding of the economic approach to neighborhood formation. While the author certainly does not shy away from race, I argue that several parts of the presentation would be clearer if they were tied more directly to racial segregation.