Paul Krugman may be right

When I was young, Paul Krugman was one of my favorite economists, and I would try to read everything he wrote (which was a lot!). At some point, however, roughly coinciding with his becoming a regular New York Times columnist, he switched from writing as an economist to writing more as a political pundit. I then lost interest. His political commentary struck me as repetitive and slightly unhinged: "Conservatives are stupid, conservatives are evil, yada, yada, yada."

Yet his column in yesterday's paper caught my eye. It's titled "Is the Fed braking too hard?" I have been pondering this question myself, and my instincts tell me the answer may be yes. Paul makes the case well.

Anyway, I am here to recommend the Krugman column, which is something I did not expect myself to be saying.

Update: David Papell and Ruxandra Prodan reach a similar conclusion about current monetary policy.

Surprising Fact about Inequality

"Europe's lower inequality levels cannot be explained by more equalizing tax and transfer systems. After accounting for indirect taxes and in-kind transfers, the US redistributes a greater share of national income to low-income groups than any European country."

• From a new paper by Thomas Blanchet, Lucas Chancel, and Amory Gethin

Econ Teaching Conference

I will be speaking at he 18^th Annual Economics Teaching Conference sponsored by the National Economics Teaching Association (NETA) and Cengage, to be held Thursday evening the 27^th and Friday the 28^th of October in Atlanta. For more information, click here. Space is limited, so if you are interested, register early.

Noteworthy research on recent inflation

This paper from the Bank of England is interesting. A tidbit:

Inflation rates across firms have become more dispersed and skewed since the start of the pandemic. We find that average price inflation is positively correlated with the dispersion and skewness of the distribution.

The Inflation Impact of the Inflation Reduction Act

According to CBO:

In calendar year 2022, enacting the bill would have a negligible effect on inflation, in CBO’s assessment. In calendar year 2023, inflation would probably be between 0.1 percentage point lower and 0.1 percentage point higher under the bill than it would be under current law.

Piketty in Brief

I just read Thomas Piketty's latest book, A Brief History of Equality. It is the best window into Piketty's thinking to date in part because it is, unlike his previous books, mercifully short (244 pages, not counting the appendix).

Of course, Piketty's thinking is very different from mine. Words like supply, demand, comparative advantage, and the mutual gains from trade are almost entirely absent from his book. Instead, we hear a lot about political power and exploitation of the weak by the strong. In Piketty's worldview, the standard undergraduate textbook in economics is largely a non sequitur. So is Adam Smith's The Wealth of Nations.

This new book purports to summarize the key points of the massive volumes that Piketty has previously written. What I found most interesting, therefore, was what was not included. Piketty does not mention "the central contradiction of capitalism," to use the phrase from his book Capital in the 21st Century. In that earlier book, we were told that r>g leads to an "endless inegalitarian spiral." For reasons I explained here, I always thought that this claim was absurd.

Why is this major theme from the earlier book omitted in this new one? Has Piketty tacitly recanted? It is hard to say.

The Parent Trap

I just finished reading The Parent Trap: How to Stop Overloading Parents and Fix Our Inequality Crisis by Nate Hilger. Some years ago, Nate was a Harvard student, who I knew only slightly, and he was nice enough to send me a copy. I can report that it is terrific--smartly argued and very well written. The basic theme is that society needs to do more to help children build skills outside of the normal school day.

I balked at the last chapter, which seems to suggest that if you don't agree with the foregoing arguments, you are either ignorant or racist. Of course, Nate says that more diplomatically than I just did, but that is what I took away from it. Before that, however, the book drew me in and was largely persuasive. It deserves to be widely read.

Three Reasons Why a Gas Tax Holiday is a Bad Idea

News reports say the President Biden may propose a temporary reduction in the gasoline tax, and Secretary Yellen over the weekend said the idea is "worth considering." I would say the idea is worth rejecting, for three reasons.

1. Putting more money in peoples' pockets with any kind of tax cut would increase aggregate demand. It would thereby undermine the Fed's program to get inflation under control.
2. The incidence of the tax cut would fall partly on producers rather than consumers, depending on the elasticities of supply and demand. If it is true that refiners are near capacity, as reports suggest, then supply is relatively inelastic. That means the tax reduction would mainly benefit producers.
3. Given all the externalities associated with driving (climate change, congestion, accidents), the existing gasoline tax is below the optimal Pigovian level. Reducing it would move the tax system in a less efficient direction, That is, it would encourage people to drive more, exacerbating the negative externalities.

Take Me Out

I am so happy that my college roommate's play Take Me Out just won the Tony Award for Best Revival of a Play. Congratulations, Richard!

Market Power in Neoclassical Growth Models

My paper with the above title, coauthored with Larry Ball, is now forthcoming in The Review of Economic Studies. You can find the revised version by clicking here.

An Inflation Puzzle

A common story about the recent inflation surge in the United States--especially among members of Team Transitory--is that the surge is largely due to global supply shocks, such as rising energy prices, chip shortages, and various bottlenecks in the wake of the worldwide pandemic. Why then do we not see a similar inflation surge in Japan? There, inflation is running at about the same rate as it was pre-pandemic. See below. (Click on image to enlarge.) I am puzzled.

My Latest

Click here to read my new working paper, Government Debt and Capital Accumulation in an Era of Low Interest Rates.

Webinar Tomorrow

Tomorrow, I will be giving a webinar on the 40-year decline in real interest rates. If you are interested, click here.

Government Debt and Capital Accumulation in an Era of Low Interest Rates

I spoke at a Brookings panel today on the topic in the title of this post. Here you can watch my presentation. I am the first speaker.

 

Mr. Pigou, Meet Mr. Putin

Harvard's Ricardo Hausmann says a large tax on energy imports from Russia is a policy worth considering, perhaps better than an embargo.

A Great Question

 ...from Jon Steinsson:

Imagine going 3 years back in time and asking any Fed official what they would do if CPI inflation was 7.9% (and core CPI inflation 6.4%).

Does "We will raise rates by 25bp" sound plausible?

Could add to the question: And the unemployment rate is 3.8 percent.

Links Regarding Ukraine

 1. A powerful speech by Ukraine's president.

2. A heartfelt plea from economist Yuriy Gorodnichenko.

My Heart is Breaking

I was born in New Jersey, grew up in New Jersey, and have spent most of adult life in Massachusetts, but I have always felt a kinship with Ukraine. All four of my grandparents were born there. They left as teenagers early in the 20th century, before World War I and the Russian Revolution made a return to their homeland untenable. 

I grew up attending a Ukrainian Orthodox Church. Every week, we would pray for a free Ukraine, independent of the Soviet Union. As a snarky, know-it-all teenager, I rolled my eyes, thinking the idea preposterous.

My family celebrated Ukrainian Christmas on January 7 every year. We ate Ukrainian food.  My parents sent me to Ukrainian School to learn the language (though the effort was unsuccessful, as I have never been a good student of languages). At Easter, my family made Pysanky, Ukrainian Easter Eggs. Below is a picture of a bowl of these eggs that to this day sit in my home study. 

I have visited Ukraine only once, when my intermediate macroeconomics textbook was translated in Ukrainian and I was invited to give a series of lectures. I took my mother on the trip. She was then in her 60s, and she was visiting the land of her parents' birth for the first and only time. The two of us spent about 10 days there, mostly in Kyiv.

As I have watched recent events unfold, I cannot help but feel endless sadness. I am sure that I have distant relatives there. When I was a child, my grandmother corresponded with her family in Ukraine. This occurred during the days of the Soviet Union, and she would send them blankets and other basic supplies. Never money, because she feared it would never make it. After she died, this connection to our relatives was lost to history.

I will not comment on the Biden administration response to this crisis. I have no expertise in foreign policy, and I know that the tradeoffs involved are too complex for me to fully comprehend. But I pray that our leaders have the courage and wherewithal to do the right thing. For the long haul. For humanity.

An Upcoming Interview

On March 3, I will be interviewed by my old friend Linda Ghent. Click here if you are interested in attending this virtual event.

Econ Theory Summer Camp

Graduate students with an interest in economic theory and/or international trade should look into this opportunity, run by my colleague Eric Maskin.