Review of Bernanke et al.

Larry Ball reviews Firefighting by Ben Bernanke, Tim Geithner, and Henry Paulson.

Freshman Seminar 2019

I have written in the past about the freshman seminar I run at Harvard. I am teaching it again this fall, and I thought my blog readers might be interested in my current reading list. I always mix it up a bit to keep it fresh and, to be frank, more fun for me. Here it is:

The Worldly Philosophers, by Robert Heilbroner

Capitalism and Freedom, by Milton Friedman

Equality and Efficiency: The Big Tradeoff, by Arthur Okun

The Haves and the Have-nots, by Branko Milanovic

The Wisdom of Finance, by Mihir Desai

Open: The Progressive Case For Free Trade, Immigration, and Global Capital, by Kimberly Clausing

Priced Out: The Economic and Ethical Costs of American Health Care, by Uwe E. Reinhardt

The Wealth of Religions, by Robert Barro and Rachel McCleary

Scarcity, by Sendhil Mullainathan and Eldar Shafir

Phishing for Phools, by George Akerlof and Robert Shiller

The Myth of the Rational Voter, by Bryan Caplan

Matt's Best Consumer Purchase

Wise Advice from Josh Angrist

Here. Especially useful for young academics.

Movie Recommendation

I saw the movie Yesterday yesterday. It is excellent. The best romantic comedy (an underrated genre, imho) I have seen since The Big Sick.

Not So Fast

Washington Post columnist Robert Samuelson argues "It’s time we tear up our economics textbooks and start over." He uses my book as a prime example. Perhaps not surprisingly, I disagree. My summary of Samuelson's article: Economics textbooks should be more like economics journalism, says an economics journalist.

Mr. Samuelson fails to fully appreciate the difference between journalism and textbook writing. Journalists are always looking for things that are new, for how the world has changed. That's why we call it the news. The editor of the science section of a newspaper would not be interested in a article explaining that Isaac Newton figured out the workings of gravity. Not newsworthy, the editor would say.

Textbook writers, on the other hand, emphasize those things that are true, important, and unknown to the typical reader (an 18 year old college freshman). Newness has little relevance. The lessons of Adam Smith do not apply only to the 18th century, the lessons of David Ricardo do not apply only to the 19th century, and the lessons of John Maynard Keynes do not apply only to the 20th century. They are timeless ideas that may not make good news stories but should be central to introductory economics. Just as Newtonian mechanics should remain central to introductory physics.

Yes, textbooks need to evolve as we learn more and as the world changes. New examples also show students how to apply the classic ideas to the issue of today. (The 9th edition of my principles text, available in about six months, includes a feature discussing social media like Facebook as a common resource.) But it would be a mistake for teachers of introductory economics to focus excessively on today's hot topics at the exclusion of timeless truths.

I had a 6th grade teacher who used to refer to newspapers as a "perishable commodity." That seems right, given their relentless focus on newness. Good textbooks, however, are more like durable goods. They do not go out of date nearly as quickly.

The National Debt Is Still a Problem

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

Bowles and Carlin on Econ 101

Here is a paper by Sam Bowles and Wendy Carlin on teaching introductory economics. It is scheduled to be published in the JEL, along with my essay on textbook writing.

Reading their paper, I learned something about my own text. In footnote 17, they tell us the following:

Standard tools originally developed to compare the complexity of the language in training manuals in the US Navy are used to compare the readability of the textbooks. The result of the Flesch test is that the CORE text is somewhat more complex than Mankiw’s but less so than Krugman-Wells and Samuelson 1948. The tests are based on syllables per word / proportion of multisyllable words, and sentence length. The use of multi-syllable words is virtually the same across the four texts, but Krugman-Wells and Samuelson use longer sentences. The F-K measure’s output is the US grade level needed to comprehend the text, according to which, Samuelson 48 and Krugman-Wells are comprehensible to a 12th grade student, Mankiw to a 10th grader, and CORE to an 11th grader. 

I was pleased to learn this, as I try to write in shorter sentences to make the text more readable. Learning economics is hard enough. So the style of writing should be as accessible as possible.

Addendum: For comparison, according to this source, academic papers are written at about the 12th grade level. Malcolm Gladwell writes at the 9th grade level, F. Scott Fitzgerald at the 8th grade level, Stephen King at the 6th grade level, and Ernest Hemingway at the 4th grade level. It also says that only about 1 in 8 U.S. adults can read at the 12th grade level.

Teaching Intermediate Macro

Click here for a new, brief article of mine about teaching intermediate macroeconomics.

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.