Remembering Milton Friedman

Allen Sanderson reminisces about the great economist.

My New Job

As reported by the Harvard Crimson.

Ben and the Bound

There has been a lot of chatter lately about monetary policy under Ben Bernanke's leadership and how his Fed has dealt with the zero lower bound on interest rates.  One of the more thoughtful analyses of this topic I have seen is this paper by Larry Ball.

The President's Economic Rhetoric

As seen by Jim Capretta (with whom I had the pleasure to work when I was in DC some years ago).

Price Controls in Venezuela

From the NY Times, a great article for teaching Chapter 6 of my favorite textbook.

A Defense of Oil Speculation

From economist Jim Hamilton.

CBO looks at the president's budget

The CBO reports:

CBO estimates that the President’s budgetary proposals would boost overall output initially but reduce it in later years. For the 2013–2017 period, under most of the estimates CBO produced using alternative models and assumptions, the President’s proposals would increase real (inflation-adjusted) output (relative to that under current law) primarily because taxes would be lower than those under current law, and, therefore, people’s disposable income and their demand for goods and services would be greater. Over time, however, the proposals would reduce real output (relative to that under current law) because the deficits would exceed those projected under current law, and the effects of increasing government debt would more than offset the favorable effects of lower marginal tax rates on labor income. When the net impact of those two types of effects would shift from an increase in real output to a decrease would depend on various factors, including the impact of increased aggregate demand on output and the effect of deficits on investment. 

By CBO’s estimate, under the President’s proposals, the nation’s real output during the 2013–2017 period would be, on average, between 0.2 percent lower than the amount under current law and 1.4 percent higher than under current law. For the 2018–2022 period, CBO estimates that the President’s proposals would reduce real output, on average, by between 0.5 percent and 2.2 percent compared with what would occur under current law. 

Confirmation, 26 Years Later

A new paper on cyclical income risk reports the following:

we study the cyclical nature of idiosyncratic shocks, once observable factors are accounted for. Contrary to past research, we find that income shock variances are not countercyclical. However, uncertainty does have a significant countercyclical component, but it comes from the left-skewness increasing during recessions. That is, during recessions, the upper end of the income shock distribution collapses—large upward income movements become less likely—whereas the bottom end expands—large drops in incomes become more likely....Our findings are more in line with the way Mankiw (1986) modeled idiosyncratic shocks. Basically, he showed that one can resolve the equity premium puzzle if idiosyncratic shocks have countercyclical left-skewness—as found in the current paper.

On Market Timing

Click on graphic to enlarge.

The Case for Federalism

Click here to read my column in Sunday's NY Times.

My New Job

As of July 1, I will become the chairman of the Harvard economics department.  I will continue teaching ec 10 and revising my favorite textbooks, but I will have to cut back on my other teaching roles and various professional activities.  In particular, over the next three years, I will blog less and travel less to give talks at other venues.  I will be spending my time trying to make the world's best economics department even better.

Addendum: If you are curious, the current chairman is John Campbell.  Before John was Jim Stock.  Before Jim, Alberto Alesina.

But will he have time to finish his dissertation once he is elected?

Dan Marcin, a economics PhD student at the University of Michigan, is running for Congress.  Here is his website.  Notice that he is a proud member of the Pigou Club.

The Composition of Fiscal Austerity

My Harvard colleague Alberto Alesina and Francesco Giavazzi say it matters.  A lot.

Monitoring the So-called Recovery

Click on graphic to enlarge.

Really, Mr. Chait, Really?

Consider two passages.  First, a definition:

Social Darwinism is a belief, popular in the late Victorian era in England, America, and elsewhere, which states that the strongest or fittest should survive and flourish in society, while the weak and unfit should be allowed to die.

Second, a statement about public policy:

Public goods and Pigovian subsidies lead naturally to a tax system in which higher income individuals pay more in taxes. Surely, those with higher income and greater property benefit more from a governmental system that protects property rights. Moreover, the monetary value attached to other public goods (such as parks and playgrounds) and to positive-externality activities (such as basic research) very likely rises with income as well. Indeed, if the income elasticity of demand for these services exceeds one, as is plausible, a progressive tax system is perfectly consistent with the Just Deserts Theory.

What about transfer payments to the poor? These can be justified along similar lines. As long as people care about others to some degree, antipoverty programs are a type of public good. [Thurow 1971] That is, under this view, the government provides for the poor not simply because their marginal utility is high but because we have interdependent utility functions. Put differently, we would all like to alleviate poverty. But because we would prefer to have someone else pick up the tab, private charity can’t do the job. Government-run antipoverty programs solve the free-rider problem among the altruistic well-to-do.

Now here is the question: Is the person who wrote the second passage a Social Darwinist as defined in the first passage?

I think the answer is pretty clearly NO.  But nonetheless, Jonathan Chait calls me a Social Darwinist, citing as evidence the paper from which the second passage above is taken.  True, he quotes a different passage from that paper, but one would think a prominent journalist like Mr. Chait would read the entire paper and characterize the arguments fully before throwing around a pejorative like "Social Darwinist."

Inflation Risks

As seen by my Harvard colleague Martin Feldstein.

The Best 300 Professors

...according to The Princeton Review.   I cannot judge the reliability of the list, but it is still nice to be included.

Bertrand Competition

The NY Times reports an example from the pizza market.  My favorite line:

Mr. Kumar said he was contemplating checking with a lawyer to see if there might be a city law that somehow prohibits a business from selling pizza at outlandishly cheap prices.

How to teach PPP

Good pedagogical advice from Nick Rowe.  It works, however, only if you have some international students in your class.

Hal White

...has passed away.  He was truly a great econometrician.