The Marshes

THE JANUS FACE

The paradoxical outcomes of university-centered economic growth

A recent paper by RICHARD FLORIDA and RUBEN GAETANI takes an empirical look at the role of research universities in anchoring local economies and driving economic growth. The paper examines the density of patenting and financial investment within the internal geographies of specific American cities and argues that knowledge agglomeration exacerbates economic, occupational, and spatial segregation.

“Although universities certainly affect national levels of innovation and growth, research has shown that they tend to affect innovation and growth by operating through more localized channels. The roles played by Stanford University in the rise and economic performance of Silicon Valley and of MIT in the Boston-Cambridge ecosystem are cases in point.

…

Universities constitute a rare, irreproducible asset at the local level. At the same time, it is increasingly clear that the knowledge-economy metros and so-called college towns suffer from relatively high levels of inequality and segregation.”

Set to be released in the October issue of MANAGERIAL & DECISION ECONOMICS, the paper presents a nuanced exploration of agglomeration economies and complicates the use of universities as levers for economic revitalization, job creation, and mutual prosperity.

Link to the working paper.

• As spotlighted in a November newsletter, Lyman Stone discusses national problems with the role of the US higher education system: “The problems we face are: (1) the regional returns to higher education are too localized, (2) the price of higher education is bid up very high, (3) the traditional entrepreneurial player, state governments, is financially strained or unwilling, (4) private entrance is systematically suppressed by unavoidable market features.” Link.
• At CityLab, Richard Florida examined venture-capital invested start-ups and found they disproportionately clustered in metropolitan regions with high-performing universities. Link.
• For a deep dive into the role universities play in economic and spatial development, see Margaret O’Mara’s book on Cold War era “Cities of Knowledge.” Link.

MIRACLE OF COMPOUND TAXATION

SRW considers the macroeconomic effects of a Social Wealth Fund

In a substantial contribution to the Bruenig-SWF discourse, STEVE RANDY WALDMAN looks at funding, scale, political effects, and macroeconomic effects of a social wealth fund for universal basic income.

“I think it fair to say that it would be difficult to sustain the political will to cumulatively impose new taxes on capital holders, every year, year after year after year over a period that might span decades. But the “gimmick” of actually using the proceeds from a single tax, enacted once and continued indefinitely, to purchase capital assets, generates the same effect as this compounding tax schedule in a way that seems natural and inevitable and legitimate under the norms of present-day capitalism. If we accept that other capital holders get to enjoy the miracle of compound returns, why shouldn’t a fund owned in equal shares by all citizens get to enjoy the same? Actually constituting a SWF delivers a regime of effective taxation that, I think it is fair to say, ordinary politics simply could not.

Further, the effective taxes embedded in an actually constituted SWF are efficient, in the usual economic sense of not distorting anyone’s behavior.”

Link to the full post on Interfluidity.

• For more from Steve, a brief thread on Roger Farmer’s arguments that a SWF could function well as a macrostabilizing buyer: “Most obviously, if a SWF’s purpose is to equalize wealth ownership and maximize citizen dividends, it should seek to buy capital assets as cheaply as possible, rather than support their prices. Of course, one of the explicit purposes of Bruenig’s SWF is to allow business and investment decisions to consider a broader public interest than a vulture capitalist would, so you could argue that the SWF paying above the fire-sale prices it has prevented is making a good tradeoff, trading a narrow opportunity for a broad public interest in a stable economy. But that strikes me as a dangerous kind of tradeoff for a public wealth accumulating SWF to try to make.” Link.
• Peter Barnes also recently published a response to Bruenig, approvingly summarizing Bruenig’s funding ideas. Link.
• See last week’s newsletter for more on Bruenig and responses.

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• From Vitalik Buterin, Zoë Hitzig, and Glen Weyl: “Liberal Radicalism: Formal Rules for a Society Neutral Among Communities.” “The concept extends ideas from Quadratic Voting to a funding mechanism for endogenous community formation. Individuals make public goods contributions to projects of value to them. The amount received by the project is (proportional to) the square of the sum of the square roots of contributions received.” Link.
• Andrew Goodman on “Difference-in-Differences with Variation in Treatment Timing.” Link. And link to Goodman’s explanatory Twitter thread and many enthusiastic responses from researchers.
• Arjun Jayadev and J.W. Mason: “Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?” Link.
• New from Google: Dataset search. Link. A Verge article about the project. Link.
• Excellent new paper from Arindrajit Dube, Alan Manning and Suresh Naidu finds evidence of monopsony in wages bunched at round numbers: “We consider two hypotheses—worker left-digit bias and employer optimization frictions—and derive tests to distinguish between the two. Symmetry of the missing mass distribution around the round number suggests that optimization frictions are more important.” Link. For an explanatory post on the paper, read this from Owen Davis.
• “The spread of new products in a networked population is often modeled as an epidemic.” Link.
• “The revival didn’t happen.” A 1999 paper from Black, Kraakman, and Tarassova examines the failings of mass privatizations in Russia. Link.
• An interesting thread by David Kaye on what transparency should mean for social media companies. Link.
• A new NBER paper explores the impact of Chief Diversity Officers on faculty diversity and finds no “significant statistical evidence that growth in diversity for underrepresented racial/ethnic minority groups is affected by the hiring of an executive level diversity officer.” Link.
• On the demise (and possible resurgence) of oligopolistic models of international trade. Link.
• A recent paper by Taylor Carlson looks at interpersonal information transfers. “Participants exposed to social information learned significantly less than participants who were exposed to the full news article. However, consistent with classic theories of opinion leadership, individuals exposed to information from an ideal informant who shares their preferences and is more knowledgeable learned the same objective facts as those who received information from the media.” Link.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: editorial@jainfamilyinstitute.org