S7 Ep3: Young economists: Paris 2023

Episode Summary

Executive Summary: In this VoxTalks Economics episode recorded at the CEPR Paris Symposium 2023, three early-career economists present their research. Arnold Dieb shows that government-funded R&D generates larger productivity spillovers than private R&D, explaining one-third of the US TFP slowdown. Yasmin van der Straten models how climate change adaptation interacts with housing and labor markets, worsening inequality. Margot Belgues analyzes how politicians use 'red herrings' to distract voters, finding that media attention can discipline good politicians but polarization may undermine this effect.

Main Topics: Government-funded R&D spillovers and productivity: Arnold Dieb's research on how public R&D (e.g., from NIH, NASA) generates larger and more basic innovations than private R&D, boosting firm productivity and aggregate growth. Climate change adaptation and inequality: Yasmin van der Straten's model of how floods destroy housing and capital, leading to rising income and wealth inequality, especially for credit-constrained households who underinvest in adaptation. Red herrings in politics: Margot Belgues's game-theoretic model of how politicians use entertaining but irrelevant tales to distract voters, and how media attention and polarization affect the success of this tactic. Advice for PhD students: The researchers share lessons learned: focus on fewer projects, embrace the creative process, and avoid rushing for short-term outputs.

Key Arguments: Government-funded R&D is more basic, impactful, and generates more spillovers than private R&D because researchers have more freedom to explore. A 1% increase in public R&D spillovers raises firm productivity by 0.17%, and public spillovers are 2-3 times more impactful than private ones. The decline in public R&D explains one-third of the US TFP deceleration from the 1960s to present. Climate change destroys housing and physical capital, lowering wages for low-skilled workers and increasing borrowing costs, widening inequality. Credit-constrained households underinvest in adaptation because they prioritize housing consumption, amplifying wealth inequality over time. Red herrings work when voters are inattentive but not naive, and when good politicians also sometimes tell tales, making it hard to distinguish them from bad politicians. High media attention to tales can discipline good politicians into silence, enabling perfect screening, but polarization can undermine this effect.

Data Points: Productivity increase from public R&D spillovers: 0.17% - A 1% increase in public R&D spillovers raises productivity of firms benefiting from them. Relative impact of public vs private R&D spillovers: 2-3 times more impactful - Public R&D spillovers are two to three times more impactful than private R&D spillovers on firm productivity. Share of US TFP deceleration explained by decline in public R&D: one-third - The decline in publicly funded R&D accounts for one-third of the deceleration in total factor productivity in the US from the 1960s to present. Examples of government-funded R&D: Nuclear technology (1950s), lithium-ion batteries (1970s), NIH pox virus modification for cancer treatment - Arnold cites these as spectacular examples of government-funded R&D that led to civilian use.

Pivotal Quotes: "Government-funded R&D tends to be very different from privately funded R&D. It tends to be more basic, it tends to be more impactful, and it also tends to generate more spillovers." — Arnold Dieb: Explaining the key finding of his research on public R&D and productivity. "Constrained households have an incentive to spend resources not on adaptation, which will benefit them tomorrow, but rather on housing capital because they're below the optimal level of housing consumption." — Yasmin van der Straten: Describing the mechanism that amplifies wealth inequality under climate change. "If good politicians who don't have anything to hide but simply like telling jokes, tell tales from time to time, then essentially it's going to be very difficult to tell apart good and bad politicians." — Margot Belgues: Explaining why red herrings can be effective even when voters are rational.

Implications: The research highlights the critical role of public R&D for long-term growth, the need for targeted adaptation policies to prevent climate-driven inequality, and the importance of media vigilance to counteract political distraction tactics. Policymakers should consider these dynamics when designing innovation, climate, and media regulation.