Disincentives from Health Reform

Here is my column in tomorrow's NY Times about the marginal tax rates implicit in the health reform bill making its ways through Congress. Let me add a few additional observations on the topic.

1. Here are the CBO numbers on which the article is based. Unfortunately, the Times did not run the table of implicit marginal tax rates that I gave them based on the CBO numbers. But the example I used in the piece (an implicit tax rate of 23 percent) is representative. For lower income levels, the implicit marginal tax rate is even higher. Between $42,000 and $54,000, the implicit marginal tax rate from health reform is 34 percent.

2. When CBO estimates the budgetary cost of such bills, it holds GDP constant. If you think (as I do) that large increases in marginal tax rates tend to depress labor effort and thus GDP, then you should be wary of claims based on CBO scores that the health reform bill is deficit neutral. Lower GDP will mean lower tax revenue and thus a larger budget deficit.

3. How much do people respond to tax rates? Economists differ in their answer to this question. The latest thinking on this topic, by my Harvard colleague Raj Chetty, indicates that the elasticity of taxable income with respect to (1-tax rate) is about one half. So, for example, if a person starts with a marginal tax rate t of 0.3 and health reform raises it to 0.5, the percentage change in 1-t, using the midpoint method, is .2/.6, or 33 percent. With an elasticity of one half, his taxable income will fall by 17 percent. Thus, the economic impacts from these implicit tax hikes are sizable.

4. In my Times piece, I wrote, "None of this necessarily means that health reform is not worth doing. President Obama’s push for reform is premised on the belief that access to good health care should be a right of all Americans — a proposition better judged by political philosophers than economists. But we should not forget the cost of translating that noble aspiration into practical policy."

This passage may seem a bit passive-aggressive, as I appear to be criticizing the bill without really taking a stand. My aim, however, is to emphasize that economics alone cannot settle the debate.

Behind the healthcare debate is the classic tradeoff between equality and efficiency. Consider the following question, which is not about healthcare per se: Would you favor a substantial increase in marginal tax rates for millions of middle and upper income Americans to provide more resources for those toward the bottom of the economic ladder?

Your answer to this question cannot be determined by positive economics without adding in some normative judgments. But your answer should strongly influence your view of the health reform bill. The bill moves us closer to much of Western Europe by favoring equality and paying the price of reduced efficiency from much higher marginal tax rates.

That may be a policy choice Americans want to make. But before buying the merchandise being offered by Congress, I hope we all take a close look at the price tag.

How well known are economists?

Thanks to Tyler Cowen for the pointer.

Average Marginal Tax Rate

From Barro and Redlick.

Is Amazon predatory?

Chapter 17 of my favorite textbook has a section on controversies over antitrust policy, including a discussion of predatory pricing. This topic is in the news again: The American Booksellers Association says Amazon, Wal-Mart, and Target "are using these predatory pricing practices to attempt to win control of the market for hardcover bestsellers" and that this behavior "is damaging to the book industry and harmful to consumers."

Read more about the case here and here.

The so-called predatory price cuts have not spilled over to the sale of textbooks. Is that good news for students (as the Booksellers' argument suggests) or bad news?

More Competition

Steve Landsburg is blogging.

The Value of Human (?) Capital

A fun story from NPR about how monkeys value skills, as long as those skills are in scarce supply.

Is the efficient markets hypothesis kaput?

No, says Wharton economist Jeremy Siegel.

Economics Rap

I have previously alerted readers to the rap version of Ten Principles of Economics. If you liked that, you might enjoy this as well.

A Tribute to John Meyer

From Ed Glaeser.

From the CEA Chair

Health Care Reform and the Budget Deficit.

The Public Plan, Again

The possibility of including a public plan in the health reform bill is on the table again. Here are a few viewpoints on the topic: Robert Samuelson, Paul Krugman, Richard Thaler, and me.

The Big Tradeoff

A Question for Class Discussion

Here is a question I will be asking my freshman seminar this week:

You are a utilitarian social planner. You have a limited number of H1N1 vaccines. How do you allocate them? Do you (A) give them to specific groups, such as high-risk populations, or (B) sell them to the highest bidder and rebate the revenue lump-sum to everyone? If you choose (A), do you allow those individuals allocated the vaccine to sell their dose to someone else? Be sure to specify the economic environment as carefully as possible. And remember: Your goal is to maximize total utility.

More Blogging?

One of my more prominent blog readers was at Harvard recently, giving an off-the-record talk to some students. He told them that he found reading my views useful and said that I should blog more often. A couple students in the audience did indeed pass along the message, as requested.

Sorry to disappoint, but more frequent blogging is not in my future. I have a full life: classes to teach, students to advise, articles to write, textbooks to revise, kids to raise, and a wife who still enjoys spending time with me (within limits).

I will continue to use this site to pass along links for articles of interest, weigh in when I have something to get off my chest, and flog my favorite textbook. But I am too busy with other things to produce the voluminous output of some of my more prolific colleagues in the blogosphere.

Or maybe I am just too lazy.

Cowen on Insurance Mandates

Tyler in today's Times.

A Defense of Insider Trading

From GMU economist Donald Boudreaux.

How Harvard Economists Invest

From today's Crimson.

Intellectual Property Factoid

The long arm of copyright:

Royalties from The Great Gatsby totaled only $8,397 during Fitzgerald’s lifetime. Today Gatsby is read in nearly every high school and college and regularly produces $500,000 a year in Scottie’s trust for her children.

FYI, Scottie is Fitzgerald's daughter.

Source.



Update: A reader points out that many economists are skeptical of such long copyrights.

From the CEA Chair

Testimony on the Economic Outlook.

Blog Map

If you are a blog reader who teaches introductory economics using my favorite textbook, you might be interested in checking out the blog map, which has just been updated in response to user feedback.

Here is how it works. Go to the blog map and click on the chapter you are teaching. The blog map will give you a list of recent blog posts related to the material in that chapter. If that is not enough for you, click on "Archived Posts" and you will get even more. You can use this resources to find recent examples in the news to help spark class discussion.

The chapter numbers refer to the complete version of my text, Principles of Economics. If you are using one of the versions of the book with only a subset of the chapters, the chapter numbers may be different, but the chapter titles are the same. So you should not have much trouble finding what you need.

More Shots in the Trade War

I have been following the rising tension between the United States and China on international trade. Here is the latest:

China Set to Impose New Tariffs on Nylon

China's Ministry of Commerce has made a preliminary ruling to impose tariffs of as much as 36% on certain nylon imports from the U.S., saying the imports have damaged the domestic industry....The move is the latest in a series of Sino-U.S. trade disputes after the Obama administration said in September that it would impose duties of between 25% and 35% on imports of tires from China for the next three years. China followed that decision with probes of potential antidumping measures on U.S. auto parts and chicken.

More on Superfreakonomics

Most people who know Yoram Bauman think of him as the funniest economist around. But he is also very knowledgeable about the issue of climate change, and unlike some economist-bloggers, he is not a bomb thrower.

So when he says he is disappointed in the Freakonomists' chapter on climate change, it is worth taking seriously. See his analysis here. See his correspondence with Steve Levitt here.

Is the fiscal stimulus really "temporary"?

Brill and Roden's answer:

The "American Recovery and Reinvestment Act of 2009" (ARRA), was rushed through Congress on the grounds that fast-acting and temporary measures were needed to counteract the recession....However, many of the provisions in the stimulus will not be temporary....All told, the Obama administration's budget seeks to make at least 37% of ARRA's spending and tax cuts permanent.

Alan Blinder versus SNL

First, Saturday Night Live:



And then: A rebuttal from Princeton economist Alan Blinder.

China's Dollar Problem

Commentary from my Harvard colleague Ken Rogoff.

Battle of the Clark Medalists

Krugman vs Levitt

Update: More Krugman and More Levitt

Davis on Job Creation

Four ideas to promote job creation from the University of Chicago economist Steve Davis.

Maskin on the Financial Crisis

My erstwhile Harvard colleague Eric Maskin offers his perspective and a reading list.

The Value Added Tax

There has been a lot of talk lately about the possibility of a value-added tax, or VAT. See, for example, this article by Henry Aaron and Isabel Sawhill in yesterday's Washington Post. So I thought readers of this blog might be interested in my views of this policy proposal.

From a strictly economic standpoint, a VAT is great. It is essentially a flat consumption tax, like the so-called FairTax, but implemented in a way to reduce compliance problems. Because it is collected in stages along the chain of production, rather than all at the retail level, tax evasion is more difficult.

If you look at the economic effects, a VAT is similar to the Hall-Rabushka Flat Tax, which many economists love. Essentially, the main difference between a VAT and the flat tax as developed by Hall and Rabushka is that firms get to deduct wages as a cost under a flat tax, but then those wages are taxed at the household level. Other than this minor change of shifting the responsibility for the tax on wage income from the firm to the household, the Hall-Rabushka flat tax and VAT have identical economic effects. (There is also an exclusion for the first X thousands of dollars of wage income under Hall-Rabushka, making it progressive in average tax rates, but the same result can be accomplished with a VAT as well by rebating some of the revenue via a demogrant.)

My bottom line: If I could replace our current tax system (including the personal income tax, corporate income tax, payroll tax, and estate tax) with a VAT, I would gladly do it.

Why do some conservatives hate the VAT? For political reasons. They fear it would be a new tax, hidden from many voters, used to expand government. They fear that rather than replacing our existing tax system, a VAT would add to it. Indeed, that is precisely what Aaron and Sawhill are proposing.

Which brings us to Europe. Many European countries have both a VAT and a large government. But here is the hard question: which is cause and which is effect? Did the VAT cause government to become large, as VAT-opponents fear? Or did Europeans adopt large governments and then, needing to finance it, look for a relatively efficient way to raise a lot of revenue? I am inclined toward the latter hypothesis, but I will be the first to admit that it is not entirely clear which way causation runs here.

Paul Romer on Elinor Ostrom

The endogenous growth theorist praises the newest Nobel laureate.

The Incidence of the Cadillac Tax

I have written previously about the tax on so-called Cadillac health plans. Bottom line: It is a reasonable policy from the standpoint of economic efficiency, but it very clearly breaks President Obama's "read my lips, no new taxes unless you're rich" campaign pledge.

Today, Kevin Hassett looks the numbers on the incidence of this new tax:

Senator Orrin Hatch, Republican of Utah, asked the Joint Committee on Taxation to perform the distributional analysis nobody else would. The committee's analysis was provided to him in a letter dated Sept. 17. I received a copy a week later.

The report focused on the main revenue-raising step of the Baucus plan, an excise tax on high-cost insurance plans. At the time of the analysis, the Baucus plan held that if you have an insurance plan with a high premium (exceeding $8,000 per individual or $21,000 per family), your insurance company would pay a tax of 35 cents for every dollar that your plan exceeds the threshold.

The goal of the tax is to raise revenue to cover the uninsured and to discourage these so-called gold-plated plans, which some say encourage excessive medical care.

Ostensibly the excise tax is a tax on insurers. But as with other excise taxes (gasoline, cigarettes), the cost would undoubtedly be passed on to the consumer, in the form of more expensive insurance. Or firms might stop offering generous plans and increase wages commensurately, which would also increase tax revenue.

The analysis by the Joint Committee on Taxation concluded that tax payments would indeed rise. And it found that the middle class would be stuck with the tab.

The report projected that the excise tax would raise about $52 billion in 2019. Of that, about $8.9 billion would come from taxpayers with incomes of less than $50,000; about $19.4 billion from taxpayers with incomes between $50,000 and $100,000; and about $17.4 billion from taxpayers with incomes between $100,000 and $200,000.

Add those up, and you see that about 87 percent of the revenue in the original Baucus proposal to finance Obamacare would come from individuals with incomes of less than $200,000.

Baucus and the Senate committee have since upped the proposed tax to 40 percent, and the trigger thresholds to $9,850 and $26,000, tweaks that shouldn't change the basic thrust of the story....

The remarkable thing is that this revenue comes from low- and middle-income people who already have insurance. Many members of organized labor have these "gold-plated" plans. And they would be worse off, not better, because of Obamacare.

Pigovian Question of the Day

Tyler Cowen cites this research finding: "Our estimates imply that every death of a helmetless motorcyclist prevents or delays as many as 0.33 deaths among individuals on organ transplant waiting lists."

And then asks: "So should we mandate or tax the use of such helmets?"

Naked Self-promotion

From an article in The Harvard Crimson.

The Envelope, Please

This year's Nobel Prize in Economics goes to Elinor Ostrom and Oliver Williamson.

Congratulations to both of the new laureates.

Update: Michael Spence does a nice job describing their contributions.

Nobel Update

As many of you have no doubt heard by now, Quintus Pfuffnick has turned down the Nobel Prize in Economics. (The prize ceremony conflicts with one of his final exams.) Tomorrow we will find out who his replacement will be. Here is the betting in the Nobel pool at Harvard:

Robert Barro -10%
John Taylor - 8%
Paul Milgrom - 8%
Jean Tirole - 6%
Oliver Williamson - 6%
Martin Weitzman - 6%
Eugene Fama - 5%
Richard Thaler - 5%
Lars Hansen - 4%
Paul Romer - 4%

Marginal Tax Rates from Health Reform

CBO has just released some new tables that demonstrate the increase in marginal tax rates inherent in the Baucus healthcare reform bill. CBO doesn't directly show the marginal tax rates, but, if I am interpreting the tables correctly, a little bit of arithmetic gets you from CBO numbers to marginal tax rates pretty fast. These figures apply to workers buying their health insurance on the newly created exchanges with the newly offered subsidies.

According to CBO, a family of four making $54,000 would pay $4,800 for health insurance. The rest of the premium would come from government subsidies. If the family's income rises to $66,000, the subsidy falls, and the cost of health insurance rises to $7,600. In other words, earning an additional $12,000 requires the family to pay an additional $2,800. The implicit marginal tax rate is $2,800/$12,000, or 23 percent.

Similarly, a single person earning $26,500 would pay $2,300 for health insurance, but if his income rises to $32,400, his premium rises to $3,700. This yields an implicit marginal rate rate of 24 percent.

You get somewhat different numbers at other income levels. Typically, however, the implicit marginal tax rates are around 20 percent. Those figures for marginal tax rates are, of course, added on top of those already imposed by existing income and payroll taxes.

CBO addressed this issue in a policy brief back in July. They wrote:

Subsidies for health insurance coverage can affect people’s decisions about whether and how much to work. A subsidy can be provided through the transfer system (possibly as a voucher) or through the tax system (as an exclusion from income, a tax deduction, or a tax credit). A subsidy represents an increase in income, and some recipients may respond by working fewer hours (and thus offsetting part of the increase in subsidy income with a reduction in wage income).

To limit costs, subsidies are typically phased out as a beneficiary’s income rises. Over the phase-out range, a worker receives less compensation for each additional hour worked, because each dollar earned reduces the subsidy. That effect, known as an “implicit tax,” can lead people to work fewer hours than they otherwise would, in the same way that income and payroll tax rates do. Most empirical studies conclude that increases in marginal tax rates generally reduce the number of hours worked, particularly among secondary earners (typically, the spouse of the main earner in a family). Higher tax rates also reduce people’s incentive to raise their income in other ways,such as working harder in the hope of winning raises; accepting new positions or responsibilities with higher compensation; or investing in their future earning capacity through education, training, or other means....

New subsidies might be created to cover the costs of private health insurance, and they could be gradually reduced over a specified income range in a variety of ways—with different implications for marginal tax rates and work incentives. Those subsidies could be gradually reduced at a uniform rate, causing implicit marginal tax rates to rise by the same amount for all recipients in the phase-out range. For example, a proposal might provide families whose income was at the federal poverty level (roughly $23,000 for a family of four in 2013, the year in which many proposals would take effect) with fully subsidized health insurance valued at $15,000. That subsidy might be gradually reduced as income increased, and families whose income was above 400 percent of the poverty level ($92,000) might be ineligible for any subsidy. In that case, marginal tax rates would go up by about 22 percentage points for all families whose income was between 100 percent and 400 percent of the poverty level.

This passage seems to have anticipated the basic structure of the Baucus bill.

I should note that CBO does not fully incorporate the effects of these higher marginal tax rates in their cost estimates. If taxpayers respond to these new incentives by, say, working less, GDP and tax revenue from income and payroll taxes will decline. By the conventions of budget scoring, CBO ignores these macroeconomic changes. By contrast, households facing increases in marginal tax rates of 20 percentage points will not ignore them. This means that the healthcare reform bill will likely have a more adverse budgetary impact than CBO estimates.

First-Year Grad Student Wins Nobel Prize in Economics!

From the Associated Press (with some light editing):

Pfuffnick's Nobel Economics Prize triumph hailed by many

LONDON — The surprise choice of first-year graduate student Quintus Pfuffnick for the Nobel Prize in Economics drew praise from much of the world Friday even as many pointed out the youthful economist has not yet published anything in scholarly journals.

The new PhD candidate was hailed for his willingness to tackle difficult problems, his commitment to improving the economic system, and his goal of bringing efficiency and equality into harmony.

Professor Paul Krugman of Princeton, who won the prize in 2008, said Pfuffnick's award shows great things are expected from him in the coming years.

"In a way, it's an award coming near the beginning of the first year in grad school of a relatively young economist that anticipates an even greater contribution towards making our economy a better place for all," he said. "It is an award that speaks to the promise of Mr Pfuffnick's message of hope."

He said the prize is a "wonderful recognition of Pfuffnick's essay in his grad school application."

A Cautionary Tale

In light of the increased discussion about a tax credit for new hiring, this old article by Emil Sunley about the Carter-era New Jobs Tax Credit is worth a read.

Feldstein on Healthcare Reform

My Harvard colleague Martin Feldstein offers his own reform plan.

Nobel Odds

Here are the odds offered at Ladbrokes, the UK-based gambling company, for some candidates for this year's Nobel prize in economics:

Eugene Fama 2/1
Paul Romer 4/1
Ernst Fehr 6/1
Kenneth R. French 6/1
William Nordhaus 6/1
Robert Barro 7/1
Matthew J Rabin 8/1
Jean Tirole 9/1
Martin Weitzman 9/1
Chris Pissarides 10/1
Dale T Mortensen 10/1
Xavier Sala-i-Martin 10/1
Avinash Dixit 14/1
Jagdish N. Bhagwati 14/1
Robert Schiller [sic] 14/1
William Baumol 16/1
Martin S. Feldstein 20/1
Christopher Sims 25/1
Lars P. Hansen 25/1
Nancy Stokey 25/1
Peter A Diamond 25/1
Thomas J. Sargent 25/1
Dale Jorgenson 33/1
Paul Milgrom 33/1
Oliver Hart 40/1
Bengt R Holmstrom 50/1
Elhanan Helpman 50/1
Ellinor Ostrom 50/1
Gene M Grossman 50/1
Karl-Goran Maler 50/1
Oliver Williamson 50/1
Robert B Wilson 50/1

A 70-percent Marginal Tax Rate

Jim Capretta looks at the Baucus healthcare bill and concludes that, because the subsidies phase out as income rises, it imposes an effective marginal tax rate on income of about 30 percent for many families. Add that figure to the income tax, the payroll tax, and the phase-out of the EITC and "the effective, implicit tax rate for workers between 100 and 200 percent of the federal poverty line would quickly approach 70 percent — not even counting food stamps and housing vouchers."

Indeed, Jim seems to understate matters, as he includes only the employee half of the payroll tax. Including both the employee and employer halves, as economic theory says is appropriate, appears to give a marginal tax rate closer to 80 percent. And, of course, many states impose income and sales taxes as well, and these would further raise the overall marginal tax rate.

Jim was doing a rough back-of-the-envelope calculation. I hope some Congressman asks CBO to do a more thorough analysis of the issue. Given all the income-linked programs already in existence and now being contemplated, what would effective marginal tax rates be for typical families? This is surely a question that needs answering before Congress can cast an intelligent vote on the healthcare bill.

Update: Reader Josh Barro emails me an astute observation:

To calculate the effect of employer-paid FICA on marginal income tax rates, shouldn't the employer FICA tax be added to both the numerator and the denominator of the rate calculation? That is, if the marginal rate before accounting for employer FICA is .7, the rate after adjustment would be .7765/1.0765 = .721, not close to .8.

Yes, indeed. I stand corrected. Add a bit for state and local taxes and 75 percent looks like a good guess for the effective marginal tax rate. But what we really need is some expert staff to get the numbers right. Are you listening, CBO?

A Tax Credit for New Hiring?

The New York Times reports that the some of our leaders in DC are considering a tax credit for companies that create new jobs. This is one of those ideas that pops up regularly when the economy is in recession. The devil is in the details, however, and the more one studies those details, the less attractive the proposal looks.

Some time ago, I suggested a cut in the payroll tax as a fiscal stimulus. Part of the motivation was to cut the cost of labor to firms, thus encouraging them to hire. Some might point out, correctly, that much of this tax cut would be inframarginal--that is, it would apply to workers who already have jobs. Why not get more bang for your buck by targeting marginal jobs?

Sounds good at first. The problem is, how do you define a marginal job? You cannot simply say "new hires." In that case, company A fires Peter and hires Paul. Company B fires Paul and hires Peter. That kind of employment churn is, presumably, not what we are trying to encourage.

Usually, these proposals measure marginal jobs by comparing employment to some base year. Thus, a company gets a tax credit for employment that exceeds, say, 90 percent of employment in 2007. But then, the incentive goes mainly to companies in regions and industries that have been expanding or shrinking only slightly. Those regions and industries that have been deeply contracting do not have an incentive for marginal hires, because their employment levels are now well below the base levels. The playing field is tilted against those regions and industries that have been hit hardest--a result that seems to diminish both equality and efficiency.

Also, how do you handle newly formed companies? Government should not penalize start-ups by subsidizing only employment by their incumbent competitors. But if new companies get the hiring credit, then existing companies are incentivized to create new wholly-owned subsidiaries in order to qualify for the tax break (while contracting employment in the parent company). Similarly, they are incentivized to outsource work to start-ups that get the credit.

The bottom line: The attempt to try to identify marginal jobs in order to give them a better tax treatment than existing jobs creates a range of unintended consequences. In designing tax policy, the KISS principle is a good rule of thumb.

David Brooks at His Best

Today's column is a must read.

Larry and the Team

A New Yorker profile of Larry Summers and the Obama economic team.

A Victory for Mundell-Fleming

The multiplier estimates above are from new research by Ethan Ilzetzki, Enrique G. Mendoza, and Carlos A. Vegh. They imply that the effects of fiscal policy depend crucially on whether the exchange rate is fixed or floating (flex), precisely as predicted by the Mundell-Fleming model.

Don't remember Mundell-Fleming? For a review, see my favorite intermediate macro textbook.

Medicare and Freedom

Today, over at the NY Times, Paul Krugman writes:

the modern G.O.P. considers itself the party of Ronald Reagan — and Reagan was a fierce opponent of Medicare’s creation, warning that it would destroy American freedom. (Honest.)

Pretty silly of old Ronald, wasn't it? Well, also today, over at the Wall Street Journal, three past presidents of the American Medical Association write:

the right of patients to privately contract with physicians to ensure they have the medical care they want, without penalty—regardless of what the government pays—must be recognized and protected. Today, if a doctor wants to bill a patient for additional payment over the Medicare reimbursement, he has to withdraw from Medicare entirely for two years. A patient who agrees with this arrangement can't receive any Medicare money for that service, either.

So, if you include the right to sign mutually advantageous contracts and engage in the gains from trade as part of "freedom," then President Reagan was not so far off the mark.

The problem, it seems, is that Medicare sometimes tries to push the prices of medical services below their equilibrium levels (a phenomenon that will likely get more severe with the Medicare cuts being envisioned in the pending healthcare reform bills). Such price controls naturally lead to private attempts to circumvent them, which in turn lead to regulations to prevent that behavior. These new regulations cannot help but impinge on economic freedoms.

Kocherlakota to the Fed

As has been reported, Narayana Kocherlakota is the new President of the Federal Reserve Bank of Minneapolis. A few observations:

1. Bob Lucas told the Wall Street Journal, "He's probably the most abstract thinker ever to head a Federal Reserve bank." That is true and, indeed, an understatement. It is almost like Albert Einstein was hired to be CEO of General Electric.

2. Narayana has done some very interesting research. My favorite is his work on dynamic optimal taxation. But very little of his work is relevant to the day-to-day concerns of central bankers. If Fed watchers want to figure out his views about monetary policy, they will have a hard time finding much in his written work.

3. Why did he want this job? Unlike Ben Bernanke, who had written extensively in applied macroeconomics, Narayana is not pursuing a path that seems natural in light of his past work. I suspect his interest in the job was in part based on a desire for a major change in career path, such as when Michael Spence or Hugo Sonnenschein made the shift from economic theory into university administration. I wonder how much Narayana will enjoy the typical responsibilities of a Federal Reserve Bank President, such as talking about the latest data on local economic conditions with the Minnetonka Chamber of Commerce.

4. Given his unusual background (unusual, that is, for a Bank President), I look forward to hearing Narayana in a few years, after he has had a chance to reflect on the interaction between macroeconomic theory of the sort practiced at the University of Minnesota and the conduct of macroeconomic policy. Is Minnesota-style theory more useful for policymaking than it is usually given credit for in policy circles? If so, how? If not, should it move in new direction? Narayana is now in a position to be a credible messenger between two distant islands within the economics profession. It will be noteworthy to see what messages he chooses to convey.

5. Narayana is very smart and, by all reports, a very nice guy. I wish him luck in his new job.

Unemployment Update

Click here for my interpretation of the graph.

Austan Goolsbee

Barro on Multipliers

My Harvard colleague summarizes his latest research.