Tuesday, May 05, 2015

Why I invest in index funds

The NY Times reports:
For investors in hedge funds, like big pension funds, 2014 was not a lucrative year. But for those who managed their money, the pay was spectacular. 
The top 25 hedge fund managers reaped $11.62 billion in compensation in 2014, according to an annual ranking published on Tuesday by Institutional Investor’s Alpha magazine. 
That collective payday came even as hedge funds, once high-octane money makers, returned on average low-single digits. In comparison, the benchmark Standard & Poor’s 500-stock index posted a gain of 13.68 percent last year when reinvested dividends were included.... 
For investors, 2014 was the sixth consecutive year that hedge funds have fallen short of stock market performance, returning only 3 percent on average.

Sunday, May 03, 2015

Where I will be on Monday

Here: 40 years later- The relevance of Okun’s "Equality and Efficiency: The Big Tradeoff"

Monday, April 27, 2015

TPP is a trade agreement

Oddly, Paul Krugman thinks that TPP is not really about trade. CEA Chair Jason Furman, however, writes the following:
The starting point of TPP is the contrast between U.S. tariffs and those of our partner countries. Our trade-weighted average applied tariff rate is 1.4 percent and 70 percent of imports already enter our economy duty free. In contrast, on average, our TPP partners report simple average applied tariffs 1.5 percentage points higher than our equivalent rate. In some TPP countries, average tariffs are up to 4 percentage points higher, though this difference masks considerable industry-specific variation; the United States faces tariffs of up to 30 percent on auto exports to Malaysia and 40 percent on agricultural goods to Vietnam. Many TPP countries also have substantially higher non-tariff barriers, particularly in the area of services trade, where the United States maintains a strong comparative advantage. As a result, TPP will disproportionately decrease foreign barriers to U.S. exports....  
The most comprehensive estimates of the benefits of TPP are those of Peter Petri, Michael Plummer, and Fan Zhai, who employ an 18-sector, 24-region computable general equilibrium model to simulate policy changes in more than twenty different areas including tariffs, non-tariff barriers, and rules governing foreign direct investment. They find that by 2025, TPP would raise U.S. incomes by 0.4 percent per year, the equivalent of $77 billion in 2007 dollars, although the actual estimate could vary somewhat depending on the details of the agreement and alternative modelling assumptions. The European Union has said that the United States would gain a comparable amount from T-TIP. Some have described these totals as small, but I think I would risk losing my license to offer economic advice if I counseled anyone to leave $77 billion lying on the sidewalk each year.

Saturday, April 25, 2015

The Case for Trade

Congratulations, Roland

Roland Fryer has won the John Bates Clark Award.  The past three winners have been Roland Fryer (Harvard faculty), Matthew Gentzkow (Harvard undergrad and PhD), and Raj Chetty (Harvard undergrad, PhD, and faculty).

Saturday, April 18, 2015

Why I favor estate tax repeal

This past week, The House of Representatives passed repeal of the estate tax.  This is a policy change I have long supported, for reasons explained here.

Thursday, April 16, 2015

Advice from Larry Katz

Via Nicholas Kristof:
“A broad liberal arts education is a key pathway to success in the 21st-century economy,” says Lawrence Katz, a labor economist at Harvard. Katz says that the economic return to pure technical skills has flattened, and the highest return now goes to those who combine soft skills — excellence at communicating and working with people — with technical skills.
“So I think a humanities major who also did a lot of computer science, economics, psychology, or other sciences can be quite valuable and have great career flexibility,” Katz said. “But you need both, in my view, to maximize your potential. And an economics major or computer science major or biology or engineering or physics major who takes serious courses in the humanities and history also will be a much more valuable scientist, financial professional, economist, or entrepreneur.”

Saturday, April 11, 2015

Jeff Sachs defends David Cameron


The Sticky-Price Victory

Wednesday, April 08, 2015

A Libertarian Coalition?

Paul Krugman says there aren't enough libertarians in the U.S. to make a libertarian candidate like Rand Paul viable.  I am not so sure about the paucity of libertarians, but even so, I doubt that Rand Paul is the best representative of that group.

Similar to Krugman, I would define a libertarian voter as one who leans left on social issues (such as same-sex marriage) and right on economic issues (such as taxes and regulation). I certainly put myself in that camp, and I don't think I am as lonely as Krugman suggests. I meet lots of students with similar views (though, admittedly, Harvard students are hardly a representative sample of voters).

Nonetheless, I think libertarian candidates face several challenges. In particular, the Republican party has traditionally relied on an uneasy coalition of economic and social conservatives.  A libertarian candidate would need to put together a very different coalition.

Rand Paul does not seem ready to do that.  He has come out opposed to same-sex marriage, for example.  He is unlikely to put together a new coalition with that position.

Many libertarian voters I know (including those students) often vote for Democratic candidates because they weight the social issues more than the economic ones. I usually vote for Republican candidates because I weight the economic issues more than the social ones.

One reason is that I don't view the Democratic Party as a leader on social issues.  Remember that Bill Clinton signed the Defense of Marriage Act.  Barack Obama was against same-sex marriage when he ran for President, and then he "evolved" (aka flip-flopped) on the issue.  On this social issue and many others, our elected leaders are really followers. The leaders are the American people.

Monday, April 06, 2015

Interview with Dani Rodrik


Friday, April 03, 2015

Economics Jokes

Thursday, April 02, 2015

California should raise the price of water

There has been a lot of discussion of the drought in California and the new regulations that the state is putting in place.  But there has been little mention of the obvious (to an economist) solution: Raise the price of water.

This would do more than any set of regulations ever could.  For example, the governor is not going to force people to replace their old toilets with newer, more water-efficient ones.  But a higher price of water would encourage people to do that.  A higher price would also give farmers the right incentive to grow the most water-efficient crops. It would induce entrepreneurs to come up with new water-saving technologies. And so on.

Some may worry about the distributional effects of a higher price of a necessity.  But the revenue from a higher price could be rebated to consumers on a lump-sum basis, making the whole system progressive.  We would end up with more efficiency and more equality.

Generic Economic News


Tuesday, March 31, 2015

Where I am today

Here, in New York City, helping promote economics education.

Monday, March 30, 2015

More Competition

Ben Bernanke has started a blog. Where did he ever come up with that title?

Sunday, March 29, 2015

The Economics of Skyscrapers

A friend points me to this article in The Economist about the economics of skyscrapers.  Lots of good food for thought for micro and macro classes.

Saturday, March 28, 2015

Getting Promoted

Thursday, March 26, 2015

What do Larry Summers, Doug Elmendorf, and Greg Mankiw have in common?

Only one of us won a John Bates Clark Medal.
Only one of us became Director of the Congressional Budget Office.
Only one of us wrote a best-selling textbook.

But all three of us were ec 10 section leaders early in our careers.

Being an ec 10 section leader is one of the best teaching jobs at Harvard. You can revisit the principles of economics, mentor some of the world’s best undergraduates, and hone your speaking skills. In your section, you might even have the next Andrei Shleifer or Ben Bernanke (two well-known ec 10 alums). And believe it or not, we even pay you for this!

If you are a graduate student at Harvard or another Boston-area university and have a strong background in economics, I hope you will consider becoming a section leader in ec 10 next year.  Applications are encouraged from PhD students, law students, and master's students in business and public policy.

If you think you might be interested, please come to one of the information sessions we are holding:

  1. Monday, March 30th at 6 p.m. in Aldrich 109 at the Harvard Business School
  2. Thursday, April 2nd at 6 p.m. in the 3rd floor Littauer lounge of the Harvard Economics Department
  3. Monday, April 6th at 6 p.m. in Taubman 401 at the the Harvard Kennedy School of Government

Wednesday, March 18, 2015

My Spring Break Reading

This week is spring break at Harvard, so I have time to catch up on some pleasure reading. First up is a recent recommendation by a blog reader: The Righteous Mind: Why Good People Are Divided by Politics and Religion by Jonathan Haidt. 

The book is a few years old, but I had not heard of it. It gives readers a lens into the field of moral psychology, together with dashes of philosophy, anthropology, behavioral genetics, political science,  and even some behavioral economics.

It is a great read.  Highly recommended.