At least five interesting things to start your week (#4)

The racial employment gap, the Dark Ages, the global renewables boom, BlackRock and the housing market, and American state capacity

Well, I skipped the “five interesting things” roundup last week, because there were just so many things happening in the wacky world of geopolitics — Blinken’s China trip, Modi’s America trip, and Prigozhin’s brief and bizarre rebellion in Russia. But in any case, now it’s back to your regularly scheduled programming; last week was a bit slow anyway, but this week we have some fun ones. As usual, if you’re a paid subscriber, please feel free to leave any other interesting links in the comments.

1. The Black-White employment gap has closed!

For as long as the U.S. government has been keeping data, Black Americans have been less likely to have a job than their White counterparts. For the first time in…well, possibly ever, that is no longer true. In March 2023, the Black employment rate exceeded the White employment rate, and in general the two numbers are now just about equal.

This is not to say that America is a land of racial equality — there are still gaps in income, wealth, and so on. But I think we have to regard the closing of the employment gap as a major milestone.

The next question is: Why? Well, one obvious reason is age. The White population is a bit older than the Black population on average, with median ages of 43.7 and 34.6 years, respectively. A younger population means a lower percentage of retirees. (Sadly, I couldn’t find prime-age employment rates by race.) You can see on the graph that although Black employment rates have risen, much of the closing gap has been due to White employment rates falling. Most of that is going to be due to the aging of the White population. But much of it isn’t about age; the Black population has been aging too, and yet Black employment rates are at or near their all-time high.

Another reason is a long period of tight labor markets. You can see that the racial employment gap tends to rise whenever there’s a recession. This is due to the so-called “LIFO” problem (well, so-called since I named it that); lower-wage workers are the first to be fired in a recession and the last to be hired in an expansion. So the fact that we’ve managed to keep the U.S. economy humming without a prolonged downturn since 2012 or so has done a lot to help Black workers close the gap.

There are probably other long-term reasons as well, such as the decline of racial discrimination in hiring since the 1970s. It’s also worth noting that the increase in the Black employment rate is being mostly driven by Black women, rather than men.

In any case, I think this milestone provides a good opportunity to remind people that Black Americans, by and large, are working people. “Black working class” is a phrase I would like to hear used more in our daily discourse.

2. Yes, of course there was a Dark Age in Europe

Most people, if you ask them, will tell you that there was a period of time in Europe called the “Dark Ages”, somewhere between the Roman Empire and the Middle Ages. Some historians, though, argue that this is a misnomer. For example, Eleanor Janega, a guest teacher at the London School of Economics, says there’s “no such thing” as the Dark Ages, and that the term merely refers to a lack of source material from the period:

Is there a time that historians use the term ‘Dark Ages’? Yeah, we do use it to talk about source survival rates. It’s not a term we use as a value judgment, however. We just mean that we don’t have a lot of evidence to go off of.

Janega is so confident in this thesis that she had it written on the posterior area of a pair of her shorts, in a photo she regularly retweets.

Now, I think this is rather humorous, not just because of the photo, but because one would think that if a region suddenly starts producing many fewer written texts, there is probably some underlying economic reason for that — for example, that the region got poorer.

But when I drily pointed this out on Twitter, I drew the ire and scorn of two other historians, Matthew Gabriele of Virginia Tech and David M. Perry (now an independent journalist). Gabriele and Perry wrote a post entitled “You Gotta Do the Reading, Man”. In this post, they demand that I do more in-depth reading about the period before posting funny memes on Twitter, call me racist for assuming that “all civilizations should be defined by widespread literacy” (which by the way I never said and do not assume), and then declare that there are plenty of existing historical sources from the Middle Ages (which seems to conflate two different periods, and also contradicts Janega).

Then Gabriele and Perry go after the eminent economic historian (and my podcast co-host) Brad DeLong. While pointedly refusing to name him or link to his blog, they cite a post of his in which he argues that there was a slowdown in the rate of economic progress during the period we typically call the Dark Ages. They call DeLong an “econobro”, and issue vague broadsides against the “inherent virtue of technological innovation” without addressing any of DeLong’s points. At that point they end their post, apparently content that their work here is done.

But DeLong has done the reading, and in a tartly worded follow-up post, he takes Gabriele and Perry to task for ignoring the vast reams of evidence showing that Western Europe, and probably all of Europe, was much poorer during the period from about 300 through 900 than before or after. For example, Brad posts this graph from Jongman (2007):

Source: Jongman (2007)

As other incisive observers also noted, West Europe’s population also fell substantially during the period we call the Dark Ages.

DeLong and I then discuss the topic at length in our most recent episode of our podcast Hexapodia, which has returned after a long hiatus, and which you can listen to and read a summary of here:

PODCAST: “Hexapodia” is þe Key Insight! XLVIII: The "Late-Antiquity Pause"

All in all, I see every reason to call an era of material poverty a “Dark Age”.

As I see it, Gabriele and Perry have failed to make any sort of a coherent case that economic output is a poor measure of civilization. If you want to argue that how well a society feeds, shelters, and clothes its people is less important than your own subjective judgement about the cultural quality of the books you manage to find from that time period, then you need to make that argument, instead of just sneering at anyone who thinks otherwise.

3. All the other countries are getting on the renewable train too

Even as renewable energy technologies — solar, wind, batteries and EVs — have expanded at an accelerating rate in the U.S., there remains a very strong undercurrent of skepticism on the political right. There’s a counter-narrative that says that these technologies are still uneconomical, and are being implemented only because of massive government subsidies, and that this will wreck our economy unless we return to good old reliable fossil fuels (or mayyyybe nuclear).

That counter-narrative is wrong, and events are rapidly overtaking it. The latest data dump showing just how real the renewable revolution is comes from the Rocky Mountain Institute. So I’m just going to post a few graphs from that report, because they look really pretty.

First, note that the fundamental driver of the renewable revolution is not any sort of government mandate, but cost. Electricity produced by solar and onshore wind is already as cheap as electricity produced by fossil fuels, and offshore wind is getting close. Meanwhile, battery cost for electric vehicles is nearing the same cost as internal combustion engines, though the drop has paused since the pandemic.

Some of this cost decline is certainly due to an increase in subsidies, but most of it is due to scaling effects — as more of these things are deployed, they become cheaper. Subsidies thus produce permanent decreases in costs, not just temporary ones.

Of course, renewable skeptics are always quick to cry “intermittency!” as soon as you point out these cost drops. And yes, without energy storage, solar and wind costs would eventually rise as the percent of electricity produced from solar and wind rises. But as the RMI report shows, battery storage is perhaps the most exponential of the exponential curves — still small in size, but accelerating at an astounding rate.

And as you’d expect from a technological revolution being driven by plunging costs, the renewable boom is very global:

It’s hard to imagine that India, Morocco, Vietnam, and Brazil are all making the same policy mistakes at the same time. A much more plausible explanation is that they just see that the cost of renewables is very low, and act in their own economic best interests.

At this point, to preserve the “renewables are booming because they’re subsidized” narrative, you pretty much have to believe that it’s Chinese subsidies that are driving everything, since — as the RMI report shows — China is way out in front of the renewable transition and is producing massive amounts of solar, batteries, and EVs.

But although China is still massively subsidizing EVs, it has slashed its subsidies on wind and solar in recent years. The cost of these technologies is so competitive on its own that subsidies just aren’t needed anymore. Subsidies for EVs will remain for a while, but eventually those will fall by the wayside as well.

Sorry, skeptics, but the renewable revolution is very very real, and it’s here to stay, and it’s going to make our economy richer, not poorer.

Anyway, one last point. Even the most optimistic forecasters have continually underestimated the speed of the renewable boom:

The RMI report argues that this means renewables are on an S-curve of adoption. That seems like a reasonable conclusion. They also argue that this S-curve will put us much closer to a manageable 1.5C of global warming than to a catastrophic 2.5C. I don’t know how reliable those S-curve forecasts are, but it’s hard too look at a lot of these numbers and not feel a surge of optimism.

4. I guess BlackRock didn’t cause the housing shortage after all

There’s a popular narrative out there that the housing shortage in desirable cities like San Francisco is being exacerbated by financial corporations that swoop in, buy up rental properties, and then jack up rents. This narrative is particularly appealing if you’re a left-NIMBY who doesn’t want to build new housing and who instead wants to blame evil financial corporations for high rents. But even some on the right have picked up the idea too. Housing writers have dutifully debunked this narrative again and again, by pointing out that the corporate buy-to-rent investors are still way way too small to explain a significant fraction of the rent increases big cities have seen in recent years.

Now we’ve got some evidence that BlackRock and its ilk simply don’t seem to raise rents at all. A new paper by Francke, Hans, Korevaar, and van Beckum looks at a case when the Netherlands actually banned the practice of buy-to-let (which is European for buy-to-rent). They found that this ban didn’t lower rents at all. In fact, it raised rents:

The ban effectively reduced investor purchases and increased the share of first-time home-buyers, but did not have a discernible impact on house prices or the likelihood of property sales. The ban did increase rental prices, consistent with reduced rental housing supply. Furthermore, the policy caused a change in neighborhood composition as tenants of investor-purchased properties tend to be younger, have lower incomes, and are more likely to have a migration background.

Here is a good thread by Korevaar explaining the paper’s results in detail.

In other words, when companies were banned from buying housing and renting it out, renters — younger, lower-income workers — moved out, and richer homeowners moved in, causing gentrification. Rentals also became scarcer, which drove rents up. Oops!

So even if BlackRock and similar housing investors become bigger players in the market, they’re unlikely to drive rents up; in fact, they might bring them down, by turning units from owner-occupied housing into rental supply.

The general lesson here is that just because corporations buy something doesn’t mean they’re going to be able to squeeze more money out of everybody. Sometimes, things actually get cheaper! The urge to look for a corporate bogeyman for every negative economic trend is misplaced; when it comes to the housing shortage, local NIMBY homeowners are the folks who are really driving rents higher.

5. It turns out America can build stuff…when it wants to

In my last post, I pushed back against American declinist narratives, but I warned that the country’s biggest Achilles’ heel is our inability to build things. But in the past, I’ve argued that this failure doesn’t come from a lack of state capacity — it comes from a lack of popular will.

Well, the events of the last two weeks in Philadelphia provide some clear support for my argument. After a major highway collapsed, the state government leapt into action. Here’s Matt Yglesias with some background back on June 18th:

The collapse of a section of Interstate 95 in Philadelphia, smack dab in the middle of the densest region of the US, is an obvious disaster for the nation’s transportation network. But the demolition work, which began within hours, is already ahead of schedule, the repair work will be expedited, and a temporary roadway will get cars moving before the repair is fully complete. And all of it is being livestreamed, for anyone who wants to keep an eye on things.

Five days later, Pennsylvania Governor Josh Shapiro, who has been tweeting about the repair effort nonstop, announced victory:

A job that was predicted to take months ended up taking two weeks.

You really need to read Shapiro’s tweets to get the full picture here. A remarkable coalition of stakeholders, including local organizations and the federal government, came together very quickly to fix the highway. Workers — most of them unionized — worked around the clock.

Now, if this were China, it might have gotten done even faster and cheaper. China upgraded a train station in 9 hours, after all. But two weeks to do a highway repair that experts predicted would take months shows that the U.S. still has remarkable reservoirs of state capacity. If we wanted to, we could use that state capacity to build chip fabs, power transmission lines, solar plants, or weaponry to help countries resist the imperial ambitions of China and Russia.

What’s lacking, as Yglesias points out, is the popular will to use that state capacity. We can build; we know how to build. We just don’t want to build. For most projects we insist on cumbersome legalistic regulatory challenges, NIMBY obstructionism, thickets of regulation, and so on. The only reason we didn’t insist on these things for the I-95 repair is because the I-95 repair kept things the same.

I argue that our insistence on keeping things the same is a “stasis subsidy” — a way of making Americans feel more powerful and prosperous by assuring them that the built environment around them will be the same as the one they grew up in. But that feeling is an illusion; in fact, stasis subsidies make America weaker. Maintaining the built environment of the 1970s makes it impossible for the U.S. to embrace the industries, technologies, and infrastructure required to keep us rich in a new century. Stasis subsidies cost too much.

The spectacle of the I-95 repair probably won’t inspire average Americans to give up their stasis subsidies. But what it hopefully will do is to focus the minds of those Americans who do want to build things. It’s not an incompetent government or a unionized labor force that’s keeping us in stasis. It’s NIMBYs, and it always has been. If we’re going to solve the problem, we need to focus on selling the country on a vision of the future, and explicitly attack the idea that the world of 1976 will last forever.

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