Krugman’s blog, 4/11/15

There were two posts on Saturday (none on Sunday).  The first was “Matter Over Mind:”

Way back in 1996, on the 100th anniversary of the New York Times magazine, the Times had a clever idea: they asked a number of people to write essays pretending to look backward a century from the perspective of 2096. Sadly, most of the writers were too uptight and dignified to comply; they wrote blah-blah-the-decades-to-come stuff. But I threw myself in with a little piece titled White Collars Turn Blue. As the title suggested, one theme of the essay was a pushback against the notion that advancing technology would mean ever-growing demand for highly educated workers; I argued that computers would take over many of the cognitive tasks we find difficult, but that human beings would continue to be wanted for jobs that require common sense, including many forms of manual labor.

Or as one friend described it at the time, my thesis was that we’ll always need maids and gardeners.

And it’s happening. I missed this paper by Beaudry, Green, and Sand when it was first circulated, but it’s right on that issue:

[W]e argue that in about the year 2000, the demand for skill (or, more specifically, for cognitive tasks often associated with high educational skill) underwent a reversal. Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers.

An obvious implication is that belief that income inequality is all about, and can be fixed by, education is even more wrong than you thought.

Saturday’s second post was “A Victory Against the Shadows:”

There are two big lessons from GE’s announcement that it is planning to get out of the finance business. First, the much maligned Dodd-Frank financial reform is doing some real good. Second, Republicans have been talking nonsense on the subject. OK, maybe point #2 isn’t really news, but it’s important to understand just what kind of nonsense they’ve been talking.

GE Capital was a quintessential example of the rise of shadow banking. In most important respects it acted like a bank; it created systemic risks very much like a bank; but it was effectively unregulated, and had to be bailed out through ad hoc arrangements that understandably had many people furious about putting taxpayers on the hook for private irresponsibility.

Most economists, I think, believe that the rise of shadow banking had less to do with real advantages of such nonbank banks than it did with regulatory arbitrage — that is, institutions like GE Capital were all about exploiting the lack of adequate oversight. And the general view is that the 2008 crisis came about largely because regulatory evasion had reached the point where an old-fashioned wave of bank runs, albeit wearing somewhat different clothes, was once again possible.

So Dodd-Frank tries to fix the bad incentives by subjecting systemically important financial institutions — SIFIs — to greater oversight, higher capital and liquidity requirements, etc.. And sure enough, what GE is in effect saying is that if we have to compete on a level playing field, if we can’t play the moral hazard game, it’s not worth being in this business. That’s a clear demonstration that reform is having a real effect.

Now, the more or less official GOP line is that the crisis had nothing to do with runaway banks — it was all about Barney Frank somehow forcing poor innocent bankers to make loans to Those People. And the line on the right also asserts that the SIFI designation is actually an invitation to behave badly, that institutions so designated know that they are too big to fail and can start living high on the moral hazard hog.

But as Mike Konczal notes, GE — following in the footsteps of others, notably MetLife — is clearly desperate to get out from under the SIFI designation. It sure looks as if being named a SIFI is indeed what it’s supposed to be, a burden rather than a bonus.

A good day for the reformers.

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