Leaders in policy, business and research gather for SIEPR Summit
The 2016 SIEPR Economic Summit brought together some of the biggest names in academia, business and policy to discuss today’s most pressing economic issues.
The daylong event showcased a wide range of perspectives and sparked debate on education reform, income inequality, renewable energy and worker productivity. And without going out of bounds at an economic conference, the Golden State Warriors’ Joe Lacob and the Los Angeles Clippers’ Steve Ballmer (pictured right), shared their insights as rival owners of two of the hottest teams in the NBA.
Four additional sessions addressed immigration, transportation, health care and the housing market.
You’ll find highlights — and opportunities to watch recordings of the sessions — below.
Challenges and Opportunities for Education Reform
"Your chance of achieving the American dream is almost two times higher if you're living in Canada," deadpanned SIEPR Senior Fellow Raj Chetty, as he opened a discussion on education's role in improving upward mobility for the country's poorest children.
Chetty’s research set the context for what became a robust panel discussion on education reform and addressed the touchy topics of teacher tenure, education funding and housing vouchers.
Joining him on the panel were Wendy Kopp, the founder of Teach for America, and Russlynn Ali, the chief executive officer at the XQ Initiative. Susanna Loeb, a professor at Stanford Graduate School of Education and a SIEPR senior fellow, moderated.
Chetty began with his findings about neighborhoods, inequality and mobility. He said a low-income child in the U.S. has, on average, a 7.5 percent chance of becoming a high earning adult compared to a 14 percent chance in Canada.
Odds improve, however, in places with less segregation, a larger middle class, more stable families and better schools.
The panel zeroed in on reducing inequality through schools. Chetty noted that improving teacher quality also improves earnings. An individual's lifetime earnings, he said, increases by about $50,000 when he or she has a great elementary teacher.
"These data," said Ali, "ought to spur a sense of urgency and action with policy leaders." Chetty's research, she continued, make it clear that reducing inequality is not just a moral argument but an economic one.
Kopp advocated for strong leaders.
"With the right leadership, we can move the needle on inequality," she said.
Loeb directed the conversation to best (and worst) policy practices, characteristics in neighborhoods that affect outcomes, and what Stanford students could do, either in careers or with research, to help close achievement and opportunity gaps. "Service," said Ali. She and Kopp encouraged students to get involved with communities and to help empower individuals in those communities.
Two Perspectives on Income Inequality in the U.S.
Both the political right and left now view the nation’s growing income gap as a fundamental threat to economic progress and democracy. But that’s where the agreement ends – among politicians as well as economists. David Autor from MIT and Harvard’s Gregory Mankiw were deeply divided over the causes of inequality and what to do about it during a panel discussion moderated by Mark Duggan, the Trione Director of SIEPR.
Autor and Mankiw painted stark pictures of a polarized socioeconomic landscape. Mankiw cited data showing income gains since 1973 have been concentrated at the top of the scale, while real incomes have fallen for the bottom 20 percent. Autor noted that, since 1980, incomes of college graduates have risen 40 percent or more, while incomes of those who went no further than high school plunged 20 percent. And the economic ladder is getting harder to climb. Children increasingly have incomes similar to those of their parents, Autor said.
What explains this trend?
“The biggest driver of inequality is the labor market, the falling real earnings of lower-income Americans,” Autor argued, citing such factors as the loss of manufacturing jobs to foreign competitors. This economic squeeze has far-reaching social effects, such as declining marriage rates and rising out-of-wedlock pregnancies.
“Men don’t earn enough to be worth marrying,” Autor said.
Mankiw countered that prime responsibility for the widening gap lies with schools that are failing to provide students the technological skills needed for higher-paying jobs.
“The most important thing to reverse inequality is to focus more on education,” he said. The two economists disagreed sharply on policy responses. Autor noted that countries such as Denmark and Canada have tax and spending policies that reduce inequality, without significant losses of economic efficiency.
“Many other countries have handled this better than we have,” he said.
For his part, Mankiw criticized policies he believes treat the symptoms of inequality at the cost of slower economic growth. “We should not kill the golden goose as we try to get a few more golden eggs,” he said.
The Impact of Policy and Market Forces on Renewable Energy
Since the dawn of the electric age, people have received the energy to light their homes from local utilities. Now, amid climate change and the rise of renewable energy, some customers are turning into sellers by supplying the electric grid with excess power they generate from the sun.
The third session of the SIEPR Economic Summit examined this from the opposing perspectives of a senior electric utility executive and the founder and CEO of the nation’s largest solar power provider. The session — moderated by SIEPR Senior Fellow Frank Wolak — turned into a debate over the nature of the grid and the economics of electricity as renewables replace fossil fuels.
Geisha Williams, president for electricity at Pacific Gas and Electric Co., argued that solar customers who sell excess power aren’t paying their fair share for the services they get from the grid. Instead, they’re shifting costs to non-solar ratepayers, including many lower-income households that can’t afford solar systems.
“The grid is critical for solar power to work, so solar customers and companies must help pay,” she said. Solar City CEO Lyndon Rive called PG&E’s position self-serving since the utility owns the grid. He maintained that solar power lowers overall costs. Rive added that less-affluent households are the solar industry’s fastest growing segment.
“Solar provides a net benefit to all ratepayers,” he said.
Williams and Rive agreed that the role of the grid becomes more critical as decentralized power generation — known as distributed energy — takes hold. As power sources multiply, directing electricity from source to users becomes increasingly complex. And the scale of this transformation is about to take a big leap as electricity storage technology improves, allowing utilities to keep renewable energy stockpiled in the grid until needed.
“Storage is a linchpin,” Williams said.
Holding Court on NBA Economics
The owners of two of basketball’s most successful franchises transferred their rivalry from the court to the conference room at the SIEPR Summit as they spoke about the business side of the NBA. The discussion was an occasion for some good-natured trash talk as the Golden State Warrior’s Joe Lacob and the Los Angeles Clippers’ Steve Ballmer alternately complimented each other’s management skill and vowed to humble the other on game day.
Playing the Warriors, “we haven't won the first three, so we're going to win the fourth!” Ballmer declared.
The two made it clear that NBA team ownership is no ordinary business. It’s an enterprise in which return on investment is measured as much by whether you’re having a good time as by the bottom line.
“We’re here to have fun,” said Lacob, whose team won the NBA championship last year and has dazzled the league with its dominant performance this year. “I do believe the NBA is a hell of investment, but it’s not the reason I did it.” As for owning the NBA’s best team, “You can’t have more fun than this!”
For his part, Ballmer admitted he won’t see a profit on the $2 billion he spent for the Clippers. “Will I make money on it? No, but my heirs will,” he said. “And the Ballmer family doesn’t live less well as a consequence.”
The two were celebrated tech sector businesspeople, Lacob as a venture capitalist and Ballmer as Microsoft CEO. Management principles they learned in business serve them well now, they stressed, despite the unique nature of sports ownership.
“It’s mostly about setting a vision, as it is for any company, setting goals, and hiring the very best people,” Lacob said.
Still, the public visibility of a technology master of the universe doesn’t come near what it is for the owner of a professional sports team.
“Sports is the most accountable thing I’ve ever been associated with,” Ballmer said. “Everybody grades everything you do.”
“And everybody thinks they can do it better than you,” Lacob added.
Just like in business, much of team ownership involves analyzing data and judging people. Sports data analytics has gotten a lot of attention in recent years, especially in trading or drafting players. But data are less important than choosing talented players with the right personalities.
“It doesn't just matter how well your players shoot and how well they pass. It matters whether they fit into team culture,” Lacob said. “It’s the secret sauce. We can crunch numbers all we want, but how do these pieces fit together?”
Lacob and Ballmer both left dream jobs when they were relatively young. But that doesn’t mean they’ll move on from basketball if another opportunity comes along.
“I’m not planning on selling and he’s not planning on selling,” Lacob said.
Ballmer put it another way: “I have my exit strategy figured out—when I die, I exit!”
Is the Productivity Slowdown for Real?
Economists have been sounding warnings recently about slowing U.S. productivity gains. Over the past decade, the quantity of goods and services produced for each hour of work expanded at a snail’s pace compared with previous periods. That’s potentially a big problem that could hold back gains in wages, living standards, and overall economic growth.
But is the slowdown genuine? Or is it an illusion stemming from the difficulty measuring productivity during a period of rapid technological change? Google Chief Economist Hal Varian and Stanford economist Nicholas Bloom made the case that there’s nothing wrong with U.S. productivity now despite data indicating growth has slowed. Their panel discussion was moderated by SIEPR board member Steve Kohlhagen.
Varian talked about photography to illustrate why new technology doesn’t show up in productivity statistics. In 2000, photos cost about 50 cents each to produce and 80 billion photos were developed worldwide. Flash forward to 2015 and the number of photos may have reached as high as one trillion—except almost all those photos were digital and cost nothing. As a result, they didn’t count as economic production and didn’t show up in the productivity statistics.
“The whole photo industry looks like terrible disaster until you recognize that it’s all built into the smart phone,” Varian said.
Bloom went a step further, questioning whether the data actually show a slowing productivity trend. It is true productivity gains fell during the late 2000s, but that reflected a deep recession, when output typically falls faster than hours worked. Looked at quarter by quarter, productivity has been moving up and down in a seemingly random fashion.
“There really isn’t an obvious trend,” Bloom said. More worrisome, he contended, is that since around 1980, the average family has gained little from productivity growth.
Productivity has almost doubled during that period, but real median family income has scarcely moved at all. “The true villain is inequality,” Bloom said.
The Keynote: State of the Global Economy
In his keynote speech at the 13th SIEPR Economic Summit, the former president of the European Central Bank offered sobering words about the current state of the global economy, but reasons for optimism about the future.
“We are experiencing a period of disappointing growth and the threat of deflation is very serious,” said Jean-Claude Trichet, who directed European monetary policy from 2003 to 2011. “That doesn’t mean recession, but there is a danger of the reemergence of secular stagnation like that of the 1930s.”
On the positive side, Trichet cited several areas of strength that give hope growth will accelerate in the medium term, starting with the extraordinarily aggressive policies adopted by the developed world’s leading central banks.
“They have all embarked on unconventional measures with a great degree of creativity,” he said. The danger of renewed economic crisis would be much more acute “if they were not delivering extraordinary accommodative polices.”
The explosive spread of digital technology is also giving momentum to the global economy.
"Productivity progress in my own intuition is gigantic when I see what I can do with my iPhone,”
he said. “We live in a world of marvels, but also a world of high risks.”
Among the threats on the horizon are the possibilities of a hard economic landing in China; persistent low oil price that create problems for monetary policy; and renewed crises in financial markets, particularly if Britain chooses to leave the European Union. The lesson of the 2008 financial crisis is that “contagion at the global level can take place in a matter of a half a day,” he warned.
Trichet stressed the danger that inflation could stay below the 2 percent target of the major central banks for a long time, undermining incentives to borrow and invest.
“It’s a measure of the real difficulty we have today in the advanced economies,” he said.
Low prices for oil and other commodities are pushing inflation down, but the fundamental explanation for subdued prices is the diminished bargaining power of labor.
“We should not be surprised that inflation is very low. Labor costs are not dynamic,” Trichet said. He added that the political frustration of unskilled worker, visible throughout the developed world, is connected with persistent low levels of inflation.
In response to weak growth and deflationary threats, the developed world’s four leading central banks—the European Central Bank, the Federal Reserve, the Bank of England, and the Bank of Japan—have adopted converging monetary policies, Trichet noted. They are building their holdings of financial assets to stimulate growth, a practice known as quantitative easing; sending clearer signals about future policy moves; stepping up surveillance of the financial system; and using an explicit 2 percent inflation target.
Trichet became president of the European Central bank shortly after Europe’s common currency, the euro, was introduced. Since then, the currency has had a rough ride, especially during the sovereign debt crisis, when Greece came close to abandoning it.
“A lot of observers were considering the euro would evaporate and disappear,” Trichet noted. “But the euro came through the crisis and has held up remarkably well.”