Monday, January 31, 2011

Would you call Gary Becker for marital advice?

Sunday, January 30, 2011

A Teachable Moment Wasted

Saturday, January 29, 2011

Tax Justice

Friday, January 28, 2011

NPR reports...

Thursday, January 27, 2011


A couple weeks ago, the recently departed CEA chairwoman Christy Romer wrote a good piece explaining what the President should say in the State of the Union.  Here is what the President in fact said a couple days ago.

Question for class discussion: Did the President do what his former economic adviser recommended?

Tuesday, January 25, 2011

Book Recommendations

Sunday, January 23, 2011

Reflections on Graduate Education

I thought my blog readers might enjoy reading my observations about PhD programs in economics, which are included in some discussant comments I gave at the ASSA meeting earlier this month.  Here they are.

Comments on “Completion Rates and Time-to-Degree in Economics PhD Programs” by Wendy A Stock, John J. Siegfried, and T. Aldrich Finegan

This paper is a contribution to an important line of work. As economists, we often remind policymakers that their decisions should be based on objective, empirical research rather than uninformed supposition. Yet when we are the decision makers, as we are when we run our own educational programs, we often have little data-driven analysis on which to base on our judgments. This kind of research should, over time, lead to a better educational system.

I would like to take note of two facts highlighted in this study and to tentatively discuss what they might mean. The first fact is that it is taking longer for students to earn their PhDs in economics. The second fact is that a sizeable percentage of students who start PhD programs do not finish.

It is tempting to interpret these facts as a sign of educational failure. After all, students enter these graduate programs to earn a PhD. If the successful ones are taking longer to finish, and many others are not getting their degrees at all, then it might seem that we are doing something wrong.

But it is far from obvious that these facts are symptoms of a problem. Perhaps longer times to completion and some amount of dropping out are optimal.

Consider time to completion. There is no doubt that economics is still a young science and there is much we do not know. But there is also no doubt that research is continually adding to our stock of knowledge. Perhaps students are taking longer to earn PhDs because there is more for them to learn. It may well be optimal to spend six rather than five years in graduate school before our profession releases students into the world with our highest level of certification.

Another relevant fact is that most students, when they get their first academic jobs, end up at colleges and universities with lower ranked departments than where they earned their PhDs. Why hurry the process of moving to a less vibrant intellectual environment? It may well be better for the professional development of the candidate to spend an extra year or so in graduate school.

Consider now the fact that many students drop out of graduate school without a PhD in hand. While many of these students are disappointed by this outcome, it is likely that in many cases their choice to drop out is optimal. They entered graduate school without fully knowing what it was like and whether it was a good match for them. After a couple of years, they decided it wasn’t. In light of the inherent uncertainty when choosing a path in life, a bit of experimentation is desirable.

My own life is a case in point. When I left college, I was unsure what career path I wanted to take. I therefore enrolled in two graduate programs—the PhD program in economics at MIT and the law program at Harvard Law School—thinking I might finish both. In the end, however, I dropped out of law school after three semesters. Looking back, the decisions to enter and drop out of law school were the right choices. I started because I thought a legal career might be best path for me, and I stopped when I learned it wasn’t.

The question we face as designers of educational programs is how to structure them in light of the longer times that PhDs take and the fact that some students who start these programs may rationally choose not to complete them. The answer may be to divide current PhD programs into two chunks. The first chunk would be a two-year master’s degree focused on taking advanced courses. The second chunk—appropriate for only a subset of master’s students—would be a research degree culminating in the PhD.

Many programs in effect already do that. But the master’s degree is too often viewed as a consolation prize for a PhD dropout. Perhaps we should instead encourage people to view the master’s degree in economics as a fully respectable terminal degree. Moreover, having finished a master’s degree, PhD candidates would be treated as professionals—more like the most junior faculty and less like the most senior students.

Many students leave college wanting to learn a bit more economics. But a PhD may be more than they want or need for their careers. An expansion of master’s programs in U.S. economics departments may offer many students the stepping stone they need.

Friday, January 21, 2011

Yet Another Ranking

A new ranking of economics departments, based on online voting.  Thanks to Tyler Cowen for the pointer.

Thursday, January 20, 2011

Give me $1 billion to cut the budget deficit

I have a plan to reduce the budget deficit.  The essence of the plan is the federal government writing me a check for $1 billion.  The plan will be financed by $3 billion of tax increases.  According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit.  Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit.  But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

Healthcare reform, its advocates tell us, is fiscal reform.  The healthcare reform bill passed last year increased government spending to cover the uninsured, but it also reduced the budget deficit by increasing various taxes as well.  Because of this bill, the advocates say, the federal government is on a sounder fiscal footing.  Repealing it, they say, would make the budget deficit worse.

So, by that logic, giving me $1 billion is fiscal reform as well.  To be honest, I don't really need the money.  But if I can help promote long-term fiscal sustainability, I am ready to do my part.

Wednesday, January 19, 2011

What would repeal of Obamacare do to the budget deficit?

Tuesday, January 18, 2011

What I've Been Reading

I have spent the past few days in Key Biscayne with my family, temporarily avoiding the dreary winter weather of Boston. My vacation read was The Man Who Invented the Computer: The Biography of John Atanasoff, Digital Pioneer by Jane Smiley. 

The book is not perfect.  The prose is wooden at times (which is surprising, as Smiley is an accomplished novelist), and the description of some of the technical stuff is a bit hard to follow, but the story told is interesting and new (to me, as least).  I gather, however, that Smiley's take on the history is controversial, and I am certainly in no position to judge whether or not she gives Atanasoff more credit than he is due.

Friday, January 14, 2011

An Interview with Burt Malkiel

A good video to show students while teaching about index funds and the efficient markets hypothesis:

Wednesday, January 12, 2011

The Half-Full Glass of Economic Mobility

When people look at data on economic mobility, they see different things.  For example, it is well known that if your father had high income, you are more likely to have high income than if you father had low income.  According to this study (which I found thanks to a pointer by Paul Krugman), the elasticity of son's income with respect to father's income is about 0.5 in the United States.  How do you interpret this fact?

Some people might be tempted to see it as evidence against equality of opportunity.  After all, it shows that it matters where you started.  Rich parents can buy better schools, expensive tutors, fancy summer camps, and all sort of other great stuff for their kids.  How fair is that?

But what strikes me about that 0.5 number is not how large it is but how small it is.  As I understand it, that 0.5 estimate is roughly the correlation between father and son income.  That means that the fraction of variance of son's income explained by father's income--that is, R-squared--is only 0.25.  This last number is sometimes called the "heritability" of a characteristic.

By contrast, the heritability of IQ is usually estimated to be much larger than that.  At least some of the heritability of income must come not from inequality of opportunity but from the genetic transmission of talent.  Other aspects of talent, such as drive, energy, and spunk, might well have a genetic component as well, but they are harder to measure and thus we know less about them.  But the one that has been studied extensively, IQ, seems more heritable than income.

The bottom line: In light of the heritability of talent, it would be shocking if we did not find some significant heritability of income.  And that would be true even if equality of opportunity were perfect.

One further thought: The study cited above points out that economic mobility is greater in some European countries.  That fact does not surprise me, as those are nations with less inequality.  Moving up and down a short ladder is a lot easier than moving up and down a tall one.

For a related previous post and links to a couple relevant studies, click here.  See also this survey of the literature.

Monday, January 10, 2011

On Violent Metaphors

Paul Krugman in today's NY Times:
The point is that there’s room in a democracy for people who ridicule and denounce those who disagree with them; there isn’t any place for eliminationist rhetoric, for suggestions that those on the other side of a debate must be removed from that debate by whatever means necessary.
And it’s the saturation of our political discourse — and especially our airwaves — with eliminationist rhetoric that lies behind the rising tide of violence.
Where’s that toxic rhetoric coming from? Let’s not make a false pretense of balance: it’s coming, overwhelmingly, from the right. It’s hard to imagine a Democratic member of Congress urging constituents to be “armed and dangerous” without being ostracized.
On the other hand, the Wall Street Journal reported back in 2008:
Mobster wisdom tells us never to bring a knife to a gun fight. But what does political wisdom say about bringing a gun to a knife fight?
That’s exactly what Barack Obama said he would do to counter Republican attacks “If they bring a knife to the fight, we bring a gun,” Obama said at a Philadelphia fundraiser Friday night. “Because from what I understand folks in Philly like a good brawl.”
Whatever happened to that Obama guy? Did he get ostracized, as Paul suggests he would?  My view: We should and do condemn people for their crimes, not for their metaphors.

How much unemployment is structural?

Raghu Rajan cites the work of Erik Hurst:
As my colleague Erik Hurst and his co-authors have shown, states that had the largest rise in construction as a share of GDP in 2000-2006 tended to have had the greatest contraction in that industry in 2006-2009. These states also tended to have the largest rise in unemployment rates between 2006 and 2009.
The unemployed comprise not only construction workers, but also ancillary workers, such as real-estate brokers and bankers, as well as all those who work on houses, such as plumbers and electricians. So, the job losses extend far beyond those in the construction industry.
It is hard to believe that any increase in aggregate demand will boost the housing market – which, remember, was buoyed by visions of steady price appreciation that few seem likely to hold today – sufficiently to re-employ all these workers. Hurst estimates that this "structural" unemployment may account for up to three percentage points of total unemployment. In other words, were it not for construction, the US unemployment rate would be 6.5% – a far healthier situation than today.
Update: Erik sends me the following email.
I saw that you linked to Raghu’s writings which described some of my work in progress assessing labor market mismatch and its potential effects on current unemployment rates (joint with Kerwin Charles and Laura Pilossoph). There was, however, an error in Raghu’s assessment of our work. I am emailing Raghu as well. Raghu reported that we are finding that upwards of 3 percentage points of total U.S. unemployment can be explained by structural forces. That is not what we have found. Preliminary back of the envelop calculations suggest that upwards of 3 percentage points of the unemployment rate in high unemployment rate states like Nevada or Arizona may be due to structural forces – not 3 percentage points of total U.S. unemployment. The amount of total U.S. unemployment explained by structural forces will almost certainly be much less. For many states, back of the envelop calculations suggest that structural forces are much less important. I have not yet computed a back of the envelope calculation of the total unemployment rate that potentially can be explained by structural forces. While we are definitely finding results that structural forces are at play, we are not finding that 3 percentage points of the current total U.S. unemployment rate is due to structural forces. As the research evolves, however , our conclusions may change.
I want to stress that the work is still in its early stages. We are in the process of formalizing everything now. We are still a month or so away from having a preliminary version of the paper. I will keep you posted when we have something that we feel comfortable sharing for public consumption.
If you can post this message to your readers, it would be much appreciated. Based on your post, I have received lots of emails about our preliminary (and not yet ready for prime time) work. Hopefully, the correction will help to focus people’s queries and questions accordingly.

What I've Been Reading

Occupying me on the plane rides to and from Denver was the new book Privilege: The Making of an Adolescent Elite at St. Paul's School.  Part memoir, part sociology, it is a fun read.

Thursday, January 06, 2011

Say Hi in Denver

I will be leaving for the Denver ASSA meetings shortly.  If you are a regular blog reader and happen to see me there over the next few days, don't hesitate to introduce yourself and say hello.

Wednesday, January 05, 2011

What does a trillion dollars look like?

Tuesday, January 04, 2011

Another Cost of Hyperinflation

Teachers reported the printing of bank notes from millions to billions and then trillions skewed their pupils' sense of numeracy, making them fail to grasp the realities of numbers.  On one geography field trip, students scoffed at being told granite rocks swept over Zimbabwe by ancient glaciers were 700 million years old. That time frame seemed insignificant.  Back then in 2008, 700 million Zimbabwe dollars bought a loaf of bread.

Commanding Attention

One of the things I have learned over my career is that I am very bad at predicting how much attention something I write will get.

Among my academic writings, my most cited paper is an article coauthored with David Romer and David Weil on the empirics of economic growth.  It has more than six times as many cites in google-scholar as my second most cited paper, an article coauthored with Ricardo Reis proposing the sticky-information Phillips curve.  When I was writing the paper with Romer and Weil, I had no idea it would get so much attention.

Similarly, when I write a column for the New York Times, I am not good at predicting how much it will get people talking.  As a result, I monitor the subsequent blogosphere commentary to judge if the article is a snore (like most things that get published) or if it is commanding attention.  At the very least, I expect my articles to be noteworthy enough that within a few days Brad DeLong will call me a moronic hypocrite.  I hope my articles incite some wider commentary as well, but I never know in advance.

A case in point.  According to the Times ranking, my most recent column is the 4th most blogged-about article that the Times has published in the past week.   I did not expect such as reaction, as the point of the column--an explanation of Republican economic philosophy--did not strike me as particularly novel or controversial.  The lesson, I suppose, is to keep writing what I think needs to be said, without trying to forecast public reaction.

Sunday, January 02, 2011

Natural Resources and the Limits to Growth

The economic growth chapter of my favorite textbook (that is, Chapter 25) has a case study on whether natural resources provide a limit to growth. Instructors might find this article by John Tierney of interest when teaching that chapter.

Saturday, January 01, 2011

Letter to the President

To read my column in Sunday's NY Times, click here.