The demand for economists is surging

Source.  Click on graphic to enlarge.

Humor at the ASSA

I will miss the ASSA meetings this year. But I want to give a shout out to the AEA Humor Session. It will be on Monday January 4, 2016, from 8 to 9:30 pm in room "Imperial A" of the Hilton Union Square in San Francisco. The humor session is one of the only parts of the American Economic Association annual meeting that is free and open to the public!

Trump's Tax Plan

An analysis from the Tax Policy Center.

Pigou Club News

Back in September I wrote a column about the effort in Washington state to enact a carbon tax.  Interested readers can learn how things are going there by reading this post by my friend Yoram Bauman.

The High Cost of Higher Ed

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

Elmendorf Unleashed

Brookings has released twelve short videos of Doug Elmendorf, former CBO director and incoming Kennedy School dean, answering key questions about economic policy.

Job Losses and the Minimum Wage

David Neumark has a nice piece in the Wall Street Journal about the minimum wage.

"the Saudi Arabia of maple syrup"

A former student sends along this amusing story about Quebec's cartelization of the maple syrup market.

Jeb's Tax Plan

An analysis from the Tax Policy Center.

Understanding Trump

This passage from Ross Douthat caught my eye:

Writing for Slate last week, Jamelle Bouie argued that Trumpism, however ideologically inchoate, manifests at least seven of the hallmarks of fascism identified by the Italian polymath Umberto Eco. They include: a cult of action, a celebration of aggressive masculinity, an intolerance of criticism, a fear of difference and outsiders, a pitch to the frustrations of the lower middle class, an intense nationalism and resentment at national humiliation, and a “popular elitism” that promises every citizen that they’re part of “the best people of the world.” Does this sound like Trump? Well, yes, it rather does.

Sad News from Harvard Square

Yenching Shutters Doors After 40 Years.

I have been a patron of this restaurant since I arrived in Cambridge as a student in 1980 and, over the years. have taken hundreds of students here for lunch.  For me, this is the end of an era.

Grad School Recommendations

Here is a guest post from NYU economist David Backus.

I should probably get over this, but I just went through something like the following twenty times:  

* Click on link in email.
* If you failed to log out the previous time, you need to close your browser and start again.
* Login.
* Set new pw:  type old pw, new pw twice.
* Check to agree to terms and conditions.
* Enter contact information, including email address which, of course, they know, because they sent you an email.
* Complete drop-down menu of questions.
* Upload letter.
* Enter name and date — which, of course, they know.
* Submit.  
* Are you sure?  

Don’t get me wrong, I’m happy to write letters for my students.  But is this the best we can do?  

As faculty, we’re not often asked about the software system used by our admissions offices, they’re imposed on us by our staff.  But David Romer has a great idea for fighting back.  His letters include the following:   

I have a firm policy of never providing numerical ratings or filling in boxes on letters of recommendation for graduate study.  When possible, I simply leave the boxes blank. If on-line forms do not allow questions to be skipped, I check “Not Applicable” (or equivalent, such as “Insufficient Information to Judge”) in all cases.  If I am forced to provide ratings, I provide the highest possible one in all cases.  These are blanket policies; thus my answers provide no information about the candidate.  

Why don’t we all do the same?  It won’t change anything, but we’ll have a little fun as we click through the radio buttons. 

Econ Conference for Undergrads

Information here.

A Reading for the Pigou Club

Toward a Pigouvian State by Jonathan Masur and Eric Posner in the University of Pennsylvania Law Review.

Debating Introductory Econ

Noah Smith takes the standard course to task.  David Henderson says, not so fast.

Expunge Woodrow?

I have been following the debate at my alma mater about Woodrow Wilson.  Here are two good pieces for and against removing his name from its current place of prominence.

The Birth of Economic Theory

Source.  Thanks to Laura M. for the pointer.

Regulatory Complexity

I enjoyed reading these remarks from University of Chicago economist Steve Davis.  The chart below, taken from Davis, is particularly striking.

What I've been watching

A student recommended to me the direct-to-Netflix TV show Narcos.  It is a docudrama about the Colombian drug kingpin Pablo Escobar.  I just finished the first season of ten episodes, and it is indeed very good.

Next up: The direct-to-Amazon show The Man in the High Castle, which will be released shortly.

Obamacare as Redistribution

When students ask me about the Affordable Care Act, I often say that the policy was motivated as much by the desire to redistribute income as it was to reform the health care system. I recently ran across the following chart from Brookings economists Henry Aaron and Gary Burtless that shows the degree of redistribution that the act entails.

Where I'll be this week

On Friday I will be speaking at this Economics Teaching Conference.

Presidential Probabilities

Now that Intrade is gone, here is one place to see who is ahead based on betting odds.

Update: A friend emails me:

It's clear from the numbers that this market doesn't expect a credible third-party candidate.  Interestingly, this means that the reported unconditional probability of becoming president (the third column) is the product of the reported probability of winning a party nomination (one of the first two columns) and the implied conditional probability.

Clinton's implied probability of getting elected conditional on winning the Democratic nomination is 60.3%.  That means that, "on average," the Republican nominee has a 39.7% chance of winning.  The market's view of the relative strengths of the Republican candidates can then be seen by comparing their implied conditional probabilities to this 39.7% figure: 

Rubio    41.9%

Trump   42.0%
Bush      55.4%
Carson  38.8%
Cruz      36.6%

Cochrane on Economic Growth

John describes his agenda for the next president.

Keep the Cadillac Tax

Click here to read a piece I co-authored with Larry Summers, which is coming out in Sunday's New York Times.

American Obesity

Critics of the U.S. health care system often say things like, "The United States spends more money than anyone else on health care but some other nations have better life expectancy." The next time someone starts making statements like that, keep in mind this chart.  It is a useful reminder that differences in health outcomes depend on a lot more than differences in the system for delivering medical care.

Source. Click on graphic to enlarge.

The Case for a Carbon Tax

An interview with the author of my favorite textbook.

A Feature, Not a Bug

A few weeks ago, a poll asked people what were the first words that they thought of when they heard the names of the various presidential candidates.  For Hillary Clinton, "liar" and "untrustworthy" ranked high.  Many commentators saw this result as a problem for her.

I bring this up now because Clinton just came out against the TPP trade deal, even though the Obama administration strongly favors it and Clinton previously favored it.  I don't know of any poll of economists on TPP, but an overwhelming majority of the profession agrees that "Past major trade deals have benefited most Americans."  I would guess that TPP would also poll well among economists.  FYI, here is CEA chair Jason Furman singing the praises of TPP, and here is an open letter from a sizeable group of past CEA chairs.

So, will those economists who like Clinton start to turn against her?  I doubt it.  My guess is that most of them don't believe what she is now saying.  They expect that once she moves back into the White House, she will return to the moderate view of trade deals that her husband championed.  In other words, they are counting on her being untrustworthy.  If they had reason to doubt her mendacity, then they would start to worry.

Olivier Blanchard

A profile (though I doubt the headline applies to readers of this blog).

What I am doing today

Today, I am wearing my political theory hat.  If you happen to be a student at Brown, you can find me here.

Hillary's Plan for Pharmaceuticals

Maybe good politics, but not good economics, says Megan McArdle.

Nobel Predictions

Thomson Reuters points to Blundell, List, and Manski.

Feel-the-Bern Fiscal Policy

From the Wall Street Journal (news article, not editorial page):

Sen. Bernie Sanders, whose liberal call to action has propelled his long-shot presidential campaign, is proposing an array of new programs that would amount to the largest peacetime expansion of government in modern American history. In all, he backs at least $18 trillion in new spending over a decade, according to a tally by The Wall Street Journal....To pay for it, Mr. Sanders, a Vermont independent running for the Democratic nomination, has so far detailed tax increases that could bring in as much as $6.5 trillion over 10 years, according to his staff.

What to do when the natural rate of interest declines

Increase the inflation target, according to this new paper, which uses the dynamic model of aggregate demand and aggregate supply from my favorite intermediate macroeconomics textbook.

Twelve reasons to like Jeb’s tax plan

Jeb Bush has released a tax plan.  Here are some elements of it that I find attractive:

1. It lowers the top rate on personal income to 28 percent, the same rate as the bipartisan 1986 tax reform.
2. It broadens the base by capping the use of itemized deductions.
3. It eliminates the deductibility of state and local taxes, so low-tax states and towns no longer subsidize high-tax ones.
4. It maintains the deductibility of charitable giving, encouraging private solutions to social problems.
5. It reforms the tax treatment of secondary earners and seniors, who are more responsive to tax incentives than primary earners.
6. It eliminates the stealth marginal tax rates from PEP and Pease.
7. It eliminates the estate tax, so the tax system no longer penalizes those who want to help their children and grandchildren.
8. It lowers the corporate tax rate to be close to international norms.
9. It moves from a global to a territorial tax system, like most other nations have.
10. It eliminates the deductibility of interest expenses, putting debt finance and equity finance on a more level planning field.
11. It includes full expensing of investment expenditure, moving the system toward a consumption-based tax.
12. It expands the earned income tax credit for childless taxpayers, strengthening the social safety net.

Here is an assessment of the plan by John Cogan, Martin Feldstein, Glenn Hubbard, and Kevin Warsh.

More Competition

Larry Summers is now blogging.

The Path to a Carbon Tax

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

The Game Theory of Heroism

From the NY Times.

A Career in Economics

A career in Economics...it's much more than you think from American Economic Association on Vimeo.

Aargh!!!....Overtaken

 

Source

Now I know how Jeb Bush feels.

An Unlikely Sentence

"Blanchard, Mankiw, and Romer are all in the Wu-Tang Clan."

From Dietz Vollrath, an economics professor at the University of Houston, in his Hip-Hop History of Macro.

Textbooks are a bargain

Compared with Harvard tuition, that is, according to Irwin Collier:

Excerpts from the Harvard Catalogue for 1874-75 with principal texts.... Incidentally, one finds that annual fees for a full course load at Harvard ran $120/year and a copy of John Stuart Mill’s Principles cost $2.50. Cf. today’s Amazon.com price for N. Gregory Mankiw’s Economics which is $284.16. If tuition relative to the price of textbooks had remained unchanged (and the quality change of the Mankiw textbook relative to Mill’s textbook(!) were equal to the quality change of the Harvard undergraduate education today compared to that of 1874-75(!!)), Harvard tuition would only be about $13,600/year today instead of $45,278.

In other words, over the past 140 years, textbook prices have risen only 114-fold, whereas Harvard tuition has risen 377-fold. 

Over this period, the CPI has risen 22-fold. So the real price of textbooks has increased about 5-fold, or a bit more than 1 percent per year.

At least someone is beating The Donald

From Amazon: 

Letter from Greece

Who's been advising Greece?

Bloodline

If you are looking for a new binge-worthy TV drama (and you have already seen The Affair from last year, the best recent TV show), let me recommend Bloodline.  Set in the Florida keys, it is the story of a seemingly successful but actually dysfunctional family and what happens when the black-sheep son returns.  The full first season was released by Netflix just a few months ago.

How Not to Pass a Carbon Tax

As long-time readers of this blog know, I have long advocated greater use of Pigovian taxes, such as taxes on carbon emissions. Such taxes can correct incentives by aligning private and social costs, and the revenue from such taxes can be used to reduce other, distortionary taxes.

Skeptics of Pigovian taxes on the right sometimes argue that such taxes are good in principle but in practice the left will co-opt them and, rather than using the revenue to reduce other taxes, will use it to fund ever larger government.

Sadly, that point of view is getting some support in Washington state.  The headline above from The Seattle Times reads 'Green' alliance opposes petition to tax carbon.  Why the opposition?  Because the ballot measure is revenue-neutral. Some environmentalists want to use the revenue from the proposed carbon tax to increase spending instead.

I believe that a carbon tax could someday win bipartisan support.  But before it does so, those on the left will need to convince those on the right that the tax would be a tax shift, not a tax increase.  The carbon tax needs to be evaluated on its own merits and should not be a stalking horse for a broader, big-government agenda.

Update: Responding to my post, John Whitehead writes, "The standard textbook treatment of a Pigouvian tax is agnostic on what happens to the revenue."

He is right, of course. So let me clarify. I was trying to make a point not about textbook economics but about practical politics.  Here are two propositions:

1. The tax system should be shifted in a Pigovian direction.
2. Government should be larger.

These are largely unrelated claims. Logically, one can believe both, neither, or only one of them.  In my view, it much easier to make the case to many voters, especially those on the right, for proposition 1 than for proposition 2.  As a result, if you strongly believe in proposition 1 and are trying to put together a coalition to make it happen, marrying it to proposition 2 is not the best move.

Milton Friedman on Politics

From this collection of Milton Friedman quotations, here is one I had not heard before:

“I do not believe that the solution to our problem is simply to elect the right people. The important thing is to establish a political climate of opinion which will make it politically profitable for the wrong people to do the right thing. Unless it is politically profitable for the wrong people to do the right thing, the right people will not do the right thing either, or if they try, they will shortly be out of office.”

Real Wages and Labor Productivity

A common meme is that workers aren't benefiting from productivity growth.  Robert Lawrence says, not so fast.  You can watch a video of him explaining this here.

Are US Middle-Class Incomes Stagnating?

No, says Marty Feldstein.  I made similar points in this old post.  According to the IGM Panel, most economists agree.

How I spent my day

The Conservative Heart

Click here to read my piece in this coming Sunday's NY Times Book Review.

The Mess in Europe

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

:)

Click on graphic to enlarge

Free at Last

I am delighted to report that I am no longer chairman of the Harvard economics department.  My three-year sentence term having been completed, I am happy to turn things over to David Laibson. Condolences Congratulations, David.

Milton Friedman on the Euro

With the problems in Greece now leading the news, this old article by the great Milton Friedman is worth (re)reading.  (Martin Feldstein made similar arguments at the time in this article.)

Best of Enemies

I recently had the pleasure of seeing several films at the Nantucket Film Festival.  My favorite was Best of Enemies, a documentary about the TV debates between William Buckley and Gore Vidal during the 1968 presidential nominating conventions.  It is being released later this month. 

Here is the trailer:

 

A Common Error in Pedagogy

I happened to be flipping through another introductory economics textbook. (Yes, some people have the temerity to try to compete with my favorite textbook.) I noticed an error that is, unfortunately, all too common in how introductory economics is taught.  I won't mention which book it is, because I am quite fond of the authors, and because my goal here is not to pick on one particular book but rather to draw attention to a more pervasive problem.

The issue is how one applies welfare economics to understand price controls, such as rent control and minimum-wage laws.

The sin that this book makes is to look at consumer surplus, producer surplus, and deadweight loss as if we were studying the welfare cost of a tax. The cost of a price control, the reader is taught, is the small Harberger triangle between the supply and demand curves.

This reasoning is problematic because it assumes perfect rationing. But rationing under price controls is never perfect. Under rent control, for example, apartments do not automatically go to those who value the apartments the most. The misallocation due to imperfect rationing makes the actual welfare cost of price controls much higher than the standard deadweight loss triangle.

In many cases, economists are deeply skeptical of price controls. If the costs of price controls were similar to those of taxes, I suspect that this skepticism would be substantially less. By applying off-the-shelf welfare analysis to price controls without thinking through the inefficiency of most rationing systems, teachers of introductory economics mislead their students about the effects of these policies.

Addendum: Here is a relevant paper on the topic.

A Primer on the Greek Crisis

My friend Anil Kashyap summarizes what's been happening.

David Ricardo and the TPP

A great read from Roger Lowenstein.

The Export-Import Bank

I just got back from Utah, where I was one of the speakers at a conference that has been dubbed "Club Mitt." One of the other speakers--this one a politician rather than a nerdy academic like me--spoke about the need to reauthorize the Export-Import Bank.  (I won't mention the person's name, since the event is off the record.)  What struck me is how weak the arguments were. 

Three arguments for the Ex-Im Bank were given:

1. It creates jobs.  Of course it does!  If the government were to put the names of all businesses into a hat, pull out a few randomly, and give those a per unit subsidy, those businesses would expand and hire more workers. That would not make it a good policy, however, because the wrong jobs would be created.

2. It returns money to the Treasury.  Really?  If the bank were truly a profitable venture, we could privatize it.  I bet if the government tried to sell off the Ex-Im Bank, it wouldn't get much, if anything at all.  If the Bank's activity were actually profitable, we wouldn't need a government-run bank to do it.

3. Other countries give similar subsidies to their firms. So what? If other nations engage in corporate welfare, that is no reason for the United States to follow suit in the name of a level playing field.  We don't need to import other nations' bad policies.

Maybe there are better arguments for the Export-Import Bank.  But if this is the best advocates of the Bank can do, it shouldn't be reauthorized.

Congratulations, Doug!

From ec 10 section leader to...(a few other jobs along the way)...to Dean of the Kennedy School.  I am delighted that Doug Elmendorf will be returning to Harvard.

The labor market gets tighter

 Click on graphic to enlarge.

Do you want to win a teaching prize?

If so, click here.

Claudia Goldin

An interview with my Harvard colleague.

The EITC is better than the minimum wage

Warren Buffett has a great article in the Wall Street Journal.

Alternatives to the Price System

This article makes the case for social, rather than financial, incentives. I am not convinced, but it should generate an interesting class discussion.

Bill Clinton in Haiti

A few years ago, I had the pleasure of meeting Patrick Moynihan, a Catholic deacon who is the president of The Haitian Project and head of its Louverture Cleary School, in Haiti, for gifted but poor children. Our paths crossed because Patrick was helping to launch a course in introductory economics at the school, and my publisher generously donated copies of my favorite textbook.

Patrick recently sent me a link to his article about the role Bill Clinton has played in Haiti. It is not a pretty picture.

From Richard Thaler

A great article in today's NY Times.

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.

Where I will be on Monday

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

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.

The Case for Trade

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

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).

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.

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.”

Jeff Sachs defends David Cameron

Here.

The Sticky-Price Victory

Noah Smith on "What causes recessions?"

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.

Interview with Dani Rodrik

Here.

Economics Jokes

From Planet Money.

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

HT:MR.

Where I am today

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

More Competition

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

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.

Getting Promoted

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
   

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.

3-14-15

Happy Pi Day!

Harvard Pre-Collegiate Economics Challenge

If you teach high school economics, you will most definitely want to click here to learn about a great opportunity for your students.

An Open Letter

March 5, 2015

The Honorable John Boehner

Speaker
House of Representatives
Washington, DC 20515

The Honorable Mitchell McConnell
Majority Leader
United States Senate
Washington, DC 20510
 
The Honorable Nancy Pelosi
Minority Leader
House of Representatives
Washington, DC 20515
 
The Honorable Harry Reid
Minority Leader
United States Senate
Washington, DC 20510

Dear Mr. Speaker, Mr. Leader, Madam Pelosi, and Senator Reid:

International trade is fundamentally good for the U.S. economy, beneficial to American families over time, and consonant with our domestic priorities. That is why we support the renewal of Trade Promotion Authority (TPA) to make it possible for the United States to reach international agreements with our economic partners in Asia through the Trans-Pacific Partnership (TPP) and in Europe through the Transatlantic Trade and Investment Partnership (TTIP). Trade Promotion Authority provides for an up or down vote on these agreements, without amendments, and thereby encourages our trade partners to put their best offers on the table.

Expanded trade through these agreements will contribute to higher incomes and stronger productivity growth over time in both the United States and other countries.  U.S. businesses will enjoy improved access to overseas markets, while the greater variety of choices and lower prices trade brings will allow household budgets to go further to the benefit of American families.

Trade is beneficial for our society as a whole, but the benefits are unevenly distributed and some people are negatively affected by increased global competition.  The economy-wide benefits resulting from increased trade provide resources to make progress on important social goals, including helping those who are adversely affected.

Increased global economic engagement will enhance U.S. global leadership in line with our values. Indeed, trade agreements signed under both Democratic and Republican Presidents have included provisions to combat corruption and to strengthen environment and labor standards.

It is not desirable for trade agreements to include provisions aimed at so-called currency manipulation. This is because monetary policy affects the value of currencies.  Attempts to penalize countries for supposedly manipulating exchange rates would thus impose constraints on U.S. monetary policy, to the detriment of all Americans.

We believe that agreements to foster greater international trade are in our national economic and security interests, and support a renewal of Trade Promotion Authority.

Alan Greenspan

Charles L. Schultze

Martin Feldstein

Michael J. Boskin

Laura D’Andrea Tyson

Martin N. Baily

R. Glenn Hubbard

N. Gregory Mankiw

Harvey S. Rosen

Ben S. Bernanke

Edward P. Lazear

Christina D. Romer

Austan D. Goolsbee

Alan B. Krueger

 

The letter writers were chairs of the President’s Council of Economic Advisers under Presidents Gerald Ford, Jimmy Carter, Ronald Reagan, George H.W. Bush, William J. Clinton, George W. Bush, and Barack Obama.

The Lee-Rubio Tax Reform

Senators Mike Lee and Marco Rubio announced a bold and attractive tax plan today. I especially appreciate their desire to eliminate the current tax code's bias for debt over equity finance.

No Way to Avoid It

In my column on dynamic scoring, I wrote:

[A]ccurate dynamic scoring requires more information than congressional proposals typically provide. For example, if a member of Congress proposes a tax cut, a key issue in estimating its effect is how future Congresses will respond to the reduced revenue. 

This raises important questions for which we have no easy answers. In the coming years, will these Congresses respond quickly to the revenue shortfall, or will they let budget deficits fester? When they act to close the budget gap, will they increase taxes, or will they cut spending? If they cut spending, will it be on consumption items, such as health care for the elderly, or on growth-promoting investments, such as education for the young? The impact of the initial tax cut depends crucially on the answers to these questions, but budget analysts usually have little to go on but speculation.

On this passage, John Cochrane comments:

Greg also opined on the second round effects, how policy might change economic outcomes which might change future policy. Here I'll go with the old fashioned approach -- let's not go there!

I understand the desire not to go there.  The problem is, you cannot avoid going there. 

Dynamic scoring requires the solution of a general equilibrium model.  To solve a dynamic GE model, you need to specify how the government is going to satisfy its present-value budget constraint. You might be tempted to ask the model what happens if the government cuts taxes and never does anything else. But you won't get very far. The model will tell you that the government has to do something else eventually, and it won't tell you what will happen if the government tries to do something impossible.

On Dynamic Scoring

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

Sentence of the Day

"genetic differences explained roughly 33% of the variations in individual savings rates."

Read more here.

What matters more--the productivity slowdown or the inequality increase?

The Economic Report of the President was released today.  A friend draws my attention to Table 1-3 on page 34, which presents several historical counterfactuals.  It finds:

1. If productivity growth had not slowed after 1973, the median household would have $30,000 of additional income today.

2. If income inequality had not increased after 1973, the median household would have $9,000 of additional income today.

So, which is the bigger problem? (Of course, neither has an easy solution.)

Nobel Prize for Sale

I don't know the story behind this, but apparently a Kuznets heir is selling his Nobel Prize.

Update 2/24: With less than 2 days to go, no one has offered the minimum bid of $150,000.

Update 2/26: Someone offers the minimum bid.

Update 2/27: It goes for $390,848.

Goodbye, secular stagnation: This is not the picture of an economy with lots of slack

Good News

The Crimson reports on the good judgment of Harvard students:

Defending Pete Carroll

Justin Wolfers says that, by the logic of game theory, the losing Superbowl coach does not deserve all the opprobrium he has been getting.  I have been thinking the same thing.

Econ Conference for Undergrads

If you are an undergraduate, this conference may be of interest.

Competition and Cooperation

A nice essay by Tim Taylor, very appropriate for introductory students.

The Rise of the Inequality Debate

Professor Lars Syll thinks I made of fool of myself in a previous post when I wondered why we have only recently started discussing income inequality so extensively, even though the increase in inequality occurred mainly between 1980 and 2000.  He writes, "Wonder on which planet Greg has been living the last twenty years."

Of course, we economists have been discussing the topic for a long time. Indeed, I had a whole chapter on income inequality in the first edition of my favorite textbook, which came out about 20 years ago.  But the public has been discussing the topic widely only recently.

To document this fact for Professor Syll, I used the NY Times's very cool chronicle website to generate the chart below. As you can see, the percentage of NYT articles that uses the word "inequality" has increased more than ten-fold in the past few years.  So has the percentage that uses the phrase "income inequality."

By the way, the earlier blip in the use of "inequality" was in 1866, the year of the Civil Rights Act of 1866.  The inequality being discussed then was political, not economic.  The wide discussion of "income inequality" is unprecedented and very recent.

Economic Theory Summer Camp

Grad students with an interest in economic theory should click here.

History of Economics Summer Camp

Grad students with an interest in the history of economic thought should click here.

Ec 10 Guest Lectures

Above are the seven guest lecturers for ec 10 this spring. How many do you recognize?  A first-class econonerd would recognize them all.

Hint: Their initials are MF, GG, AA, AS, JS, JS, and LS.

Price Theory Summer Camp

This seems like a great opportunity for econ grad students.

The One Percent, Updated

Piketty and Saez have updated their famous one-percent graph to 2013.  It is above. (Click on graphic to enlarge.)

One thing that commentators sometimes fail to notice is that the big increase in the one percent's income share came between 1980 and 2000. Since 2000, it has fluctuated but without much of a trend.  Why, then, are we all talking about income inequality only now? I am not sure. One hypothesis is that we don't worry about inequality when everyone is doing well. Another hypothesis is that we now have a president with a political ideology that sees inequality as especially pernicious.

The 2014 Employment Boom

Why did employment grow by about 3 million in 2014?  Here is the answer from a new paper:

We measure the effect of unemployment benefit duration on employment. We exploit the variation induced by the decision of Congress in December 2013 not to reauthorize the unprecedented benefit extensions introduced during the Great Recession. Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states at the beginning of December 2013 were abruptly cut to zero. To achieve identification we use the fact that this policy change was exogenous to cross-sectional differences across U.S. states and we exploit a policy discontinuity at state borders. We find that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.0161 log points. In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut.

Lazear on Wage Stagnation

Eddie writes:

The share of the private workforce employed in the BLS-defined industries “financial activities” and “hospitals” decreased by about 5% between 2010 and 2014. Jobs in these industries pay 29% and 24%, respectively, above the economy mean. Because a smaller share of labor is working those high-wage industries, the typical job in the economy is now lower-paying than in 2010.... 

So what accounts for the relative decline in jobs in high-wage hospitals and finance? One obvious possibility is increased regulation. The Affordable Care Act for hospitals and Dodd-Frank for finance both passed in 2010, the year real wages began to decline.

The Rise of Economists

Justin Wolfers documents:

in recent years around one in 100 [New York Times] articles mentions the term “economist,” ....Far fewer articles mention the terms historian or psychologist, while sociologists, anthropologists and demographers rarely rate a mention.

The most fiscally responsible country

As seen by Larry Kotlikoff.

What good are economists?

Bob Shiller gives a nice answer.

Leave the laptop in your dorm

I have long been skeptical about students using laptops in class to take notes. I had the sense that their brains were less engaged and that they were acting more like stenographers than students.  But I was not entirely sure my hunch was right. 

According to research described in this article, it was.

News from Amazon

Here are a few screen shots taken from Amazon today.

To users of my favorite textbooks: Thank you!  Have a great semester.

The New Economics of the Left

According to this article, some members of the Democratic party are moving from mainstream to heterodox economic theory. If Bernie Sanders runs for the Democratic presidential nomination, as now appears likely, this development should keep things entertaining for us econonerds.

Jeff Sachs on Paul Krugman

Here.

An Odd Question

Those who attended either of the sessions I was involved with at the ASSA meeting know that the audience included some hecklers.  During the first session, I was the target. During the second, Larry Summers was. (At one point, the moderator Bob Hall threatened to call security.)  Here is a Washington Post article about the hecklers.

After the first session was over, one of the hecklers came up to me and asked, "How much money have the Koch brothers paid you?"  My answer, of course, was "not a penny."

I don't find it odd that people disagree with me. I am always open to the possibility that I am wrong about lots of things, and I much enjoy talking with students and colleagues who have views different from mine. But I do find it odd that people who disagree with me are sometimes quick to question my sincerity. If I am wrong, it is sincere wrong-headedness, not the result of being on some plutocrat's payroll, as some on the left want to believe.

The hecklers probably limit their own effectiveness by questioning the motives of those who disagree with them. I have found that to convince other people, it is usually best not to assume your own moral superiority but rather to talk with them as equals who just happen to have a different point of view.

Me at the ASSA Meeting

I have a busy few days at the upcoming ASSA meeting in Boston.  For those interested, I will be involved in the following public events:

Jan 03, 2015 8:00 am, Sheraton Boston, Independence Ballroom
American Economic Association

A Discussion of Thomas Piketty's "Capital in the 21st Century" (D3)

 

Presiding: N. Gregory Mankiw (Harvard University)

 

Capital and Wealth in the 21st Century

David N. Weil (Brown University)

[Download Preview]

TBD

 

Capital Taxation in the 21st Century

Alan J. Auerbach (University of California-Berkeley)

Kevin Hassett (American Enterprise Institute)

[Download Preview]

TBD

 

Yes, r>g. So what?

N. Gregory Mankiw (Harvard University)

[Download Preview]

Piketty argues that r>g is the “the central contradiction of capitalism” and that it will lead to an “endless inegalitarian spiral.” As a result, he argues for a new global tax on capital. In this brief essay, I explain why I am not persuaded by either his prediction or his prescription.

 

About Capital in the 21st century

Thomas Piketty (Paris School of Economics)

[Download Preview]

TBD

Jan 03, 2015 2:30 pm, Sheraton Boston, Independence Ballroom
American Economic Association

The Economics of Secular Stagnation (A1)

 

Presiding: Robert E. Hall (Stanford University)

 

Secular Stagnation: A Supply Side View

Robert Gordon (Northwestern University)

TBD

 

Secular Stagnation: A Demand Side View

Lawrence H. Summers (Harvard University)

TBD

 

Does History Lend Any Support to the Secular Stagnation Hypothesis?

Barry Eichengreen (University of California-Berkeley)

[Download Preview]

TBD

 

Discussants:

Robert E. Hall (Stanford University)

William Nordhaus (Yale University)

N. Gregory Mankiw (Harvard University)