The Phillips curve is alive and well

Click on graphic to enlarge.

The Next CBO Director

My friend and former CEA colleague Phill Swagel has been appointed the next director of the Congressional Budget Office. A great choice!

The Fed should monitor wage trends

Minneapolis Fed President Neel Kashkari had a noteworthy op-ed this week, arguing that monetary policymakers should pay more attention to wage trends than they have in the past. Ricardo Reis and I reached a similar conclusion in a paper back in 2003.

Bayes likes Mayor Pete

Who has the best chance of beating Donald Trump? A clue can be found using Bayes Theorem.

Here is the logic. Let A be the event that a candidate wins the general election, and B be the event that a candidate wins his or her party's nomination. Predictit gives us the betting market's view of P(A) and P(B). It is a safe assumption that P(B / A) = 1, that is, a candidate can win only if nominated. We can then use Bayes theorem to compute P(A / B), the probability that the candidate will win the general election conditional on being nominated.

So here are the results for P(A / B) as of now:

Buttigieg 0.80
Biden 0.77
O'Rourke 0.67
Sanders 0.65
Booker 0.60
Yang 0.60
Harris 0.57
Warren 0.44

That is, the betting markets suggest that Mayor Pete would be the strongest candidate if nominated, with Joe Biden close behind. (Of course, these numbers will bounce around as the prices in betting markets change.)

By the way, when I did a similar calculation in 2006, Bayes liked Barack Obama.

Tariffs raise the prices of domestic goods too

There is a nice article in the NY Times about the Trump tariffs imposed on washing machines. It should be useful as a classroom illustration.  This snip-it caught my eye:

It is hardly surprising that the tariffs drove up the price of foreign washers. Perhaps more unexpectedly, they also prompted American manufacturers to raise their prices.

This fact should not be unexpected to anyone to anyone familiar with the textbook analysis of tariffs. When foreign and domestic goods are close substitutes, increases in the price of foreign goods caused by tariffs raise the price of domestic goods. See Chapter 9 of my favorite textbook.

Keep My Love (of the Fed) Alive

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

Today in Ec 10

At noon today, I will be interviewing Larry Summers and Gary Cohn, former directors of the National Economic Council. All members of the Harvard community are welcome to attend. In Sanders Theater in Memorial Hall.

Mayor Pete

David Brooks does a good job explaining why many people--myself included--find Pete Buttigieg the most compelling figure in the race for president right now. Mayor Pete's views are to the left of mine, but at some point, competence is more important than ideology.

Elizabeth Warren Smackdown

Courtesy of Natasha Sarin and Larry Summers. One of the best of Larry's recent op-eds.

Memo to Senate: Just Say No

A couple of weeks ago, I gave a talk at the Federal Reserve Bank of Dallas. I said that, although I am not a fan of President Trump, I have to give him credit for making good appointments to the Fed. I was thinking about people like Jay Powell, Rich Clarida, and Randy Quarles.

Then today the president nominates Stephen Moore to be a Fed governor. Steve is a perfectly amiable guy, but he does not have the intellectual gravitas for this important job. If you doubt it, read his latest book Trumponomics (or my review of it).

It is time for Senators to do their job. Mr. Moore should not be confirmed.

Reflections of a Textbook Author

Click here to read my most recent essay.

Updates: David Henderson and Tim Taylor comment on the piece. And someone starts a reddit discussion of it.

Passing the Baton

Former ec 10 students might be interested in hearing this news.

If you are in North Carolina...

...you can hear me speak on Wednesday of this week. Click here for information.

Econ Theory Summer Camp

Graduate students with an interest in economic theory and/or finance will be interested in this opportunity, run by my colleague Eric Maskin.

A Clue in Today's Jeopardy!

Campbell McConnell

With sadness, I note the passing of economist Campbell McConnell. I never met him, but it is hard not to be impressed. He wrote the first edition his introductory textbook around 1960, and it has been one of the best-sellers ever since. Even today, about 60 years later in its 21st edition, it is the main competitor of my favorite textbook. Here is an old NY Times article about his book, when its main competition was Paul Samuelson's text.

Ec 10 Guest Lecturers

Here are the guest lecturers for ec 10 this semester. How many do you recognize? (Click on image to enlarge.)

Who is the prototypical rich person?

I recommend this op-ed by Emmanuel Saez and Gabriel Zucman. Not because I agree with its recommendation of super high tax rates on the rich, but because it makes clear the perspectives and motives of the Left.

In the standard economic approach to optimal redistribution (such as Okun and Mirrlees), the case for progressive taxation is based on diminishing marginal utility. But that is not the essence of the matter, according to Saez and Zucman. They view rich people as fundamentally undermining democracy. It is more a political argument than an economic one.

Saez and Zucman seem to think that rich people are like Henry Potter, the conniving banker in It's a Wonderful Life. Mr Potter makes his money dishonestly and uses it to control the instruments of the government to further enrich himself and impoverish the lives of those around him.

Another kind of rich person is someone like Taylor Swift. She is fabulously wealthy (net worth > $300 million) but earned that wealth by enhancing the lives of others through great music. As far as I know, she does not have significant political clout.

So are most rich people more like Henry Potter or Taylor Swift? Obviously, they come in both kinds. Unfortunately, we now have a Henry Potter living in the White House. 

But most rich people I know seem more like Taylor Swift. They make their money honestly by providing value to others. And they have less political influence than is often supposed.

Indeed, most rich people I know would have been happy to spend vast sums of money to keep Mr Trump out of the White House. And many tried. The Trump phenomenon is not an argument that the moneyed elites have too much influence on politics. If anything, it is an argument that they have too little.

The Radical Alternative

Users of my principles textbook might enjoy reading this critique of the ten principles in my first chapter.The authors are members of the steering committee of the Union for Radical Political Economics (URPE). 

I don't find their arguments persuasive. In many cases, they are responding to things I did not say but they think I am suggesting. (How else can someone complain about the statement "People face tradeoffs"?) In other cases, their message is, "Things are more complicated." (Of course! But you can't include everything in Chapter 1.) 

But I am surely not the most objective person regarding this. Decide for yourself.

You Can Support Putting a Price on Carbon

If you are an economist and want to support a carbon tax and dividend plan, click here.

Update: Here is a somewhat over-the-top video by a student group backing the plan: