Cowen on the EPI report

Well the report has made it to perhaps the most important node in the entire economics blogosphere: Tyler Cowen. He has good thoughts that in a general sense I fully agree with, but I'd make a few additional points (which regular readers should be familiar with by now). I'll reproduce in full:

Via Matt, Hal Salzman, Daniel Kuehn, and Lindsay Lowell suggest there is no shortage because we do not observe significant wage rises for STEM workers. That’s a fact worth knowing and I am happy to praise the study in that regard. But it’s painting the basic worry into too narrow a box with its use of the word “shortage,” interpreted so literally.

The core claim is that STEM sectors will be those which produce the future social increasing returns for the economies which house them. If true (I am not trying to prejudge this), that means we should invest in both more STEM workers and more complementary inputs, whether that be particle colliders, NIH funding, the right broadband infrastructure, legalizing driverless cars, better IP law, tougher schools, or whatever. With the new, additional STEM workers, and the complementary inputs, America will (supposedly) be much better off.

To point out that the current supply of STEM workers stands in proper proportion to the other inputs suggests only that we are at a local optimum, not a global optimum. Similarly, it could have been pointed out that, before the rise of Hyundai, South Korea had just the right number of auto workers (not many) for their factories (also not many). That could have been true enough, but still investing in more auto factories and more auto workers was for Korea a very good path forward.

On top of all that, the report shows a worrying lack of concern about the notion of an economic margin. Even without boosts in the complementary inputs, more STEM workers still can be put to good use, even if there is no “shortage” today.

Here is a related post by Adam Ozimek.

So my research interest is the STEM labor market. There's lots of good work on R&D investments and other elements that go into science and engineering, but my value-added is on the labor market side and I personally think it's fine to talk about shortage claims in that market.

What he's really referring to is similar to what Arrow and Capron called a "social demand shortage": we simply think there ought to be more science done, period.

I agree we have such a social demand shortage, and I think science policy should be decided accordingly.

But the question for me is - exactly where is there a problem in the market provision of this socially optimal level of science? Generally speaking, all of the market failures economists identify that pertain to science and engineering are on the demand side, not the supply-side. Most of what Tyler lists are inputs (supply-side factors). Some are examples of demand (NIH funding, for example).

It seems to me there's no great market failure to speak of in the STEM labor market. It operates fine to meet the level of demand. There's no great market failure in the broadband manufacturing and installation market. The market works fine - it's problems on the demand side that are the hold up. The Super Collider wasn't shut down for supply side reasons. We could build the thing. It was shut down because the demand for it fell through. Why aren't we on Mars today? Not because we don't have the technology - because of the lack of demand.

There are lots of demand-side market failures associated with science that most of you are probably aware of. That's where the emphasis needs to be, IMO (and that includes NIH funding and the public decision to build things like supercolliders that Tyler mentions).

So that's my big-picture policy statement on STEM. Aside from big-picture stuff, though, I'll generally be talking about labor markets. That shouldn't be construed as me thinking that the other stuff is less important.