More Competition

U Chicago economist John Cochrane is now blogging.

A Half Dozen Short Takes

To bring in the New Year, Sunday's NY Times offers up short pieces by all six economics columnists, including yours truly.

The Burden of the Debt

Paul Krugman has several posts discussing the burden of the national debt.  Some readers have asked me for my take on the topic.  Let me refer them to this old paper I wrote with Larry Ball.  It provides a nontechnical overview.  Even though it is 16 years old, I think it holds up pretty well.

Jeremy Stein to the Fed

President Obama has nominated my Harvard colleague Jeremy Stein to become a Federal Reserve Governor.  This is an excellent choice.  Congratulations, Jeremy!

(The President has also nominated Jerome Powell, whom I do not know.)

How do the rich earn their livings?

Here is an interesting paper that answers the question.  Some highlights from Table 3 about the top 0.1 percent:

• 18 percent are financial professionals.
• 42 percent are executives, managers, or supervisors in nonfinancial businesses. More than half of those are in closely-held (presumably often small) businesses.
• 7 percent are lawyers.
• 6 percent are in medicine.
• 3 percent are in arts, media, or sports.
• Less than 1 percent are professors or scientists.  :(

I win a journalism award

Sort of.  NY Times blogger Gene Marks puts one of my columns on his list of the Best Reads of 2011.

I wish you all a Merry Christmas, and also a New Year full of miracles

Why, who makes much of a miracle?
As to me I know of nothing else but miracles,
Whether I walk the streets of Manhattan,
Or dart my sight over the roofs of houses toward the sky,
Or wade with naked feet along the beach just in the edge of the water,
Or stand under trees in the woods,
Or talk by day with any one I love, or sleep in the bed at night
with any one I love,
Or sit at table at dinner with the rest,
Or look at strangers opposite me riding in the car,
Or watch honey-bees busy around the hive of a summer forenoon,
Or animals feeding in the fields,
Or birds, or the wonderfulness of insects in the air,
Or the wonderfulness of the sundown, or of stars shining so quiet
and bright,
Or the exquisite delicate thin curve of the new moon in spring;
These with the rest, one and all, are to me miracles,
The whole referring, yet each distinct and in its place.

To me every hour of the light and dark is a miracle,
Every cubic inch of space is a miracle,
Every square yard of the surface of the earth is spread with the same,
Every foot of the interior swarms with the same.
To me the sea is a continual miracle,
The fishes that swim--the rocks--the motion of the waves--the
ships with men in them,
What stranger miracles are there?

-- Walt Whitman

The Ron Paul Portfolio

As reported by the Wall Street Journal:

Most members of Congress, like many Americans, hold some real estate, a few bonds or bond mutual funds, some individual stocks and a bundle of stock funds. Give or take a few percentage points, a typical Congressional portfolio might have 10% in cash, 10% in bonds or bond funds, 20% in real estate, and 60% in stocks or stock funds.

But Ron Paul’s portfolio isn’t merely different. It’s shockingly different.

Yes, about 21% of Rep. Paul’s holdings are in real estate and roughly 14% in cash. But he owns no bonds or bond funds and has only 0.1% in stock funds. Furthermore, the stock funds that Rep. Paul does own are all “short,” or make bets against, U.S. stocks. One is a “double inverse” fund that, on a daily basis, goes up twice as much as its stock benchmark goes down.

The remainder of Rep. Paul’s portfolio – fully 64% of his assets – is entirely in gold and silver mining stocks....

At our request, William Bernstein, an investment manager at Efficient Portfolio Advisors in Eastford, Conn., reviewed Rep. Paul’s portfolio as set out in the annual disclosure statement. Mr. Bernstein says he has never seen such an extreme bet on economic catastrophe. ”This portfolio is a half-step away from a cellar-full of canned goods and nine-millimeter rounds,” he says.

The secret is out

Click on image to enlarge.

Lessons from 2011

As seen by Olivier Blanchard.

Holiday Gift Suggestions

If you are looking for gift ideas for that special econonerd in your life, let me suggest a couple of books I recently enjoyed:

1. Grand Pursuit: The Story of Economic Genius by Silvia Nassar.
2. Boomerang: Travels in the New Third World by Michael Lewis.

Both are intelligent, well written, and fun.

A Family Holiday Trip to NYC

I just returned from New York City.  My wife, three kids, and I went down to the city for a couple days, mainly to see the Broadway show How to Succeed in Business Without Really Trying before Daniel Radcliffe and John Larroquette step down from the lead roles.

It was much fun.  Daniel Radcliffe in particular was fantastic.  He provided the Mankiw family much consumer surplus.

Is modern capitalism sustainable?

My Harvard colleague Ken Rogoff gives his answer.

Are economists selfish?

Yoram Bauman takes up the question in a NY Times opinion piece, based on his research.  In essence, he finds that being an economics major and taking classes in economics are negatively correlated with how much students donate to two particular charities: WashPIRG and Affordable Tuition Now.

I agree with Yoram's concluding sentence: "Learning about the shortcomings as well as the successes of free markets is at the heart of any good economics education, and students — especially those who are not destined to major in the field — deserve to hear both sides of the story." 

Yet I am not persuaded by the evidence he gives that economics classes are failing to do that.  Maybe, having heard both sides of the story, the students make better decisions, just not the ones that Yoram appears to approve of!  Perhaps the students were persuaded by this famous insight: "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." 

And no, that is not Gordon Gekko.

Books on Inequality

Recommendations from MIT's Daron Acemoglu.

Shiller on Neuroeconomics

Bob describes the research frontier at the border between economics and brain science.

This Year's Nobel Lectures

From Tom Sargent and Chris Sims. Starts at about the 10:00 mark.

Steve Marglin on Heterodox Economics

This is a talk from a few days ago, as part of the "Occupy Harvard" movement. Steve says a lot of interesting things here, and I agree with more than many in the audience might suppose. A main disagreement I have with Steve is pedagogical. I believe his critiques of mainstream economics should be presented after students have had a standard course like ec 10. That is, I would suggest Steve aim his course at sophomores rather than freshmen. If he did, he could attract a lot of economics majors who had just finished ec 10, rather than nonmajors who are avoiding it.

Coffee and the Age of Reason

Taylor versus Krugman

1. John summarizes a recent Hoover conference on restoring robust economic growth.
2. Paul is annoyed at John.
3. John is annoyed at Paul.

The Education of the One Percent

The case for graduate school:

Apart from their bank accounts, Gallup finds education to be the greatest difference between the wealthiest 1% of Americans and everyone else. The Gallup analysis reveals that 72% of the wealthiest Americans have a college degree, compared with 31% of those in the lower 99 percentiles. Furthermore, nearly half of those in the wealthiest group have postgraduate education, versus 16% of all others.

A Discussion of Inequality

A recording of a recent panel at Harvard's Kennedy School, including my economics department colleagues Larry Katz and Ed Glaeser. It takes over a hour.

Eichengreen on U.S. Fiscal Policy

Barry writes:

Given low interest rates and the still-weak U.S. economy, it will be tempting for the U.S. government to continue running deficits and issuing additional debt. At some point, however, investors will recognize this behavior for the Ponzi scheme it is.

Continue reading here.

15 Years Later

It was fifteen years ago today that Fed Chairman Alan Greenspan gave his famous "irrational exuberance" speech, which suggested that U.S. equities were overvalued. 

Between then and now, on an annualized basis,

• the return on the U.S. stock market has been 5.55 percent.
• the return on the U.S. bond market has been 5.98 percent.

Score that as one point for Alan.

Sargent and Sims

There is a nice profile of the new Nobelists in today's NY Times.  Here is an excerpt for my army of ec 10 teaching fellows (and for teachers of introductory economics everywhere):

Economics, rather than politics, became his life’s work partly because of an inspiring teaching assistant named Jerry Kenley. Fifty years later, sitting in his office at N.Y.U., Mr. Sargent remembers his old T.A.  

“Jerry liked to say, ‘Economics is organized common sense.’ I still think that’s about right,” Mr. Sargent says. Those early classes touched on everything from farm subsidies to taxation. “Wow, it really got me going,” he says.

My View of the Ec 10 Walkout

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

Death to Pennies

A theme I have written on before. Hat tip to Alex Tabarrok.

Is my ideology that obvious?

A perspective on the Ec 10 walkout from Connel Fullenkamp, a former student who now teaches at Duke:

I really don’t think that Professor Mankiw was trying to brainwash his students with any conservative ideology or agenda. I make this statement based on my own experiences.... I was a teaching assistant for Mankiw’s first-year Ph.D. course in macroeconomics for two years, which means that I sat in on his entire course twice.

If there’s any strong ideological undercurrent in Mankiw’s teaching, I would say that it’s Nerdism: the belief that people should listen to, and learn from, nerds.  Because believe me—and I say this with genuine respect and affection—Mankiw is a nerd’s nerd.

The Draghi Deal

If I understand the news coming out of Europe correctly, the new head of the European Central Bank is offering a simple deal: If fiscal policy becomes hawkish, monetary policy will be dovish.  In other words, as government spending is cut to put European governments on a sounder financial footing, monetary policy will do its best to ensure that any adverse impact on aggregate demand is kept to a minimum. 

That seems a sensible compromise, given all the competing risks.  Indeed a similar deal might well make sense for the United States.

My more liberal friends argue, based on Keynesian principles, that we need dovish fiscal policy as well.  They often argue for short-run fiscal expansion coupled with long-run fiscal contraction. The problem is that fiscal policymakers cannot bind their future selves. It is hard to make commitments to future fiscal contraction credible, especially as short-run actions expand the budget deficit.

My more conservative friends argue, based on monetarist principles, that a dovish monetary policy risks future inflation.  In my view, however, there are bigger risks than inflation just now.  They include prolonged high unemployment and meager growth.

So I see Draghi as a fiscal hawk and monetary dove (at least under present circumstances).  I wonder, which U.S. central bankers are in the same camp?

It's all Ben's fault!

Have lunch with me

To current ec 10 students (only):

I will take up to ten students out to lunch after Wednesday's lecture at Yenching, my favorite Chinese restaurant in Harvard Square. Email me if you are interested in joining the group. First come, first served.

Richard Epstein on Inequality

Watch on PBS. See more from PBS NEWSHOUR.

What Milton Friedman might say to the Occupy movement

Some classic clips.  Thanks to Mark Perry for the pointer.

Thanksgiving Shopping Advice

Don't overemphasize local foods. 

And tomorrow, be grateful to the principle of comparative advantage.

Advice for Lost Graduate Students

From Ariel Rubinstein.

Polling Economic Experts

Chapter 2 of my favorite textbook has a table showing various propositions about which economists largely agree.  It is based on the published results from several surveys.  A new project by the IGM Forum is now regularly polling a diverse group of top economists on a variety of policy-related questions.  It is a good way to see whether a professional consensus exists.  You can follow the project by clicking here.

If you are curious, I declined being a member of the panel, mainly because time is scarce.  Moreover, I have various other ways to let my opinions be known.

Straight No Chaser

Last night was date night. My wife and I went to a concert by Straight No Chaser, the a cappella group famous for its rendition of the Twelve Days of Christmas.  The tickets were a gift from our daughter.  Thank you, Catherine.

The concert was terrific! A wonderful mix of music, from traditional holiday songs to Elvis Presley and Lady Gaga. You can find out if they are giving a show near you by clicking here.

The View from Penn (a shameless plug)

My favorite textbook is used at the University of Pennsylvania.  The student newspaper writes:

[Mankiw's] textbook, Principles of Economics, has sold more than one million copies worldwide. It is used in his own class and in Economics 002, Introduction to Macroeconomics, at Penn. The class, taught by Luca Bossi, enrolls about 200 students in the fall semester and 500 in the spring. 

Bossi chose the textbook because he believes it is one of the best introductory macroeconomics texts available in the market. He adds that the material is “clearly explained” and does not contain any partisan slants. 

“I think the fact that Professor Mankiw has advised and still is advising Republican candidates running for office gives the impression to people that he is a conservative in the way he approaches economics,” he said. However, this “is not reflected in the content of the book.”

Ugly Discrmination

Chapter 19 of my favorite textbook has a case study on the economics of beauty, highlighting research by economist Dan Hamermesh.  So I thought some blog readers might enjoy this Daily Show clip featuring Hamermesh and his work on this topic.

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

The British 1 Percent

This figure, via Paul Krugman, shows the income share of the top 1 percent in the United Kingdom.  The broad pattern is very similar to what U.S. data shows.  The figure suggests that the explanation of growing inequality over the past several decades cannot be U.S.-specific but must have broader applicability.

You can generate more plots like this here.  You find a similar U-shaped pattern in Australia, Canada, Ireland, and New Zealand but much less so in France, Germany, Japan, and Sweden. Might the rising share of the top 1 percent be related to the increasing use of English as a global language?

The Long, Sad History of Industrial Policy

Solyndra is only the latest chapter.

Supply-side Policies as a Way to Boost Aggregate Demand

A new paper from the Philadelphia Fed makes an important point:

This paper examines how supply-side policies may play a role in fighting a low aggregate demand that traps an economy at the zero lower bound (ZLB) of nominal interest rates. Future increases in productivity or reductions in mark-ups triggered by supply-side policies generate a wealth effect that pulls current consumption and output up. Since the economy is at the ZLB, increases in the interest rates do not undo this wealth effect, as we will have in the case outside the ZLB. We illustrate this mechanism with a simple two-period New Keynesian model. We discuss possible objections to this set of policies and the relation of supply-side policies with more conventional monetary and fiscal policies.

On Leverage and Financial Regulation

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

A Profile of Daniel Kahneman

By Michael Lewis.

Darkness in Europe

Berkeley economist Barry Eichengreen surveys the situation.

A Profile of OWS

A Harvard colleague recommends this article on Occupy Wall Street.

Input from Cornell

A student defends mainstream economics and endorses my favorite textbook:

Having used Mankiw’s textbook in an Introductory Economics class at Cornell, I can attest to the fact that the book lays a thorough and necessary foundation upon which to continue the study of economics and outlines the basic economic principles through which we understand much of our economy and society.

Why I am waking up so early

I am scheduled to be on Fox and Friends this morning.  The hit will be around 6:50 am, if you are awake, curious, and happened to be near a TV.

Update: Here is the clip.

What would John Maynard Keynes have said about Obamacare?

It is impossible to know, of course, but this passage from an open letter Keynes wrote to FDR in 1933 offers some hints (emphasis added):

You are engaged on a double task, Recovery and Reform;--recovery from the slump and the passage of those business and social reforms which are long overdue. For the first, speed and quick results are essential. The second may be urgent too; but haste will be injurious, and wisdom of long-range purpose is more necessary than immediate achievement. It will be through raising high the prestige of your administration by success in short-range Recovery, that you will have the driving force to accomplish long-range Reform. On the other hand, even wise and necessary Reform may, in some respects, impede and complicate Recovery. For it will upset the confidence of the business world and weaken their existing motives to action, before you have had time to put other motives in their place. It may over-task your bureaucratic machine, which the traditional individualism of the United States and the old "spoils system" have left none too strong. And it will confuse the thought and aim of yourself and your administration by giving you too much to think about all at once.

I know that some people would dismiss this appeal to the "confidence fairy," but clearly Keynes was a big believer in her importance to the short-run business cycle.

Race Against the Machine

MIT economist Erik Brynjolfsson emails me:

I agree with your recent blog post that "the timing suggests that the two trends--the increasing value of education and the rising share of the top 1 percent--may be related." But how are they related?  I think the biggest single factor is the digital revolution, which is boosting the economy and benefitting you, me and Paul Krugman, while leaving many people behind.  The median worker's skills and our institutions aren't keeping up with accelerating technological change.

I discuss this in my very short new ebook (about 20,000 words) with Andrew McAfee called "Race Against the Machine: How the Digital Revolution Accelerates Innovation, Drives Productivity and Irreversibly Transforms Employment and the Economy".  In it, we seek to reconcile the fact that the 2000s has been the best decade since the 1960s for productivity growth, better than the roaring 1990s even. And yet median wages have largely stagnated and employment actually has fallen since 2000. We attribute this in part to the fact that tech. progress is driving productivity even has it leaves many types of workers behind.  In fact, a large group has been made worse off, even as those with education and talent have gained immensely, and opportunities for entrepreneurs are better than ever.  In my judgment, the underlying trends are on track to accelerating in coming years.

Educating Oligarchs

In a couple of recent posts (here and here), Paul Krugman claims that it is just wrong to think that increasing income inequality is largely about education, because much of the income gains have accrued to the very top of the income distribution--the much discussed 1 percent.  Instead, he says, increasing inequality is about the growing influence of oligarchs.

I have been puzzled by Paul's argument.  My initial reaction was that it struck me as a non sequitur.  Even if the income gains are in the top 1 percent, why does that imply that the right story is not about education?

I then realized that Paul is making an implicit assumption--that the return to education is deterministic.  If indeed a year of schooling guaranteed you precisely a 10 percent increase in earnings, then there is no way increasing education by a few years could move you from the middle class to the top 1 percent.

But it may be better to think of the return to education as stochastic.  Education not only increases the average income a person will earn, but it also changes the entire distribution of possible life outcomes.  It does not guarantee that a person will end up in the top 1 percent, but it increases the likelihood.  I have not seen any data on this, but I am willing to bet that the top 1 percent are more educated than the average American; while their education did not ensure their economic success, it played a role.

Let me give you a couple examples.  I am comfortably in the top 1 percent.  I believe that Paul, with his Princeton professorship, regular Times column, speaking fees, and moderately successful textbook, is there as well. I suspect (although cannot prove) that if he and I had stopped our educations after finishing high school, we would not have been anywhere near where we are in the income distribution.  If that is correct, might it be better to think of education as the key rather than focusing on the growing influence of oligarchs?

I am inclined to think that education is important here in part because the large increase in the share of the top 1 percent from the 1970s to the present occurred together with the increase in the rate of return to education during this period documented by labor economists.  It is possible, of course, that the the two phenomena just happened to occur simultaneously.  But the timing suggests that the two trends--the increasing value of education and the rising share of the top 1 percent--may be related.

Addendum: Here is a related old post.

I speak with NPR

Occupy Wall Street comes to Ec 10

The Harvard Crimson has the story.  Ironically, the topic for today's lecture is the distribution of income, including the growing gap between the top 1 percent and the bottom 99 percent.  I am sorry the protesters will miss it.

Updates:

1. The open letter that attacks ec 10.
2. A student comes to ec 10's defense.
3. Here's what happened: About 5 to 10 percent of the class participated in the walk-out. At the same time, some previous ec 10 students came in to sit in the lecture as counter-protesters. The lecture then proceeded as planned.
4. The Crimson offers an editorial on the protest.

The Distributional Effects of the Perry Plan

...as estimated by the Tax Policy Center.

Try This One

Source.

More on a Nominal GDP Target

Christy Romer makes the case for a new framework for monetary policy.  She is kind enough to remind us of this old paper that Bob Hall and I wrote on the topic.  For more on this subject, including further links, click here.

The Impact of Economics Blogs

If this study is right, my providing you with this link will greatly increase its visibility.

My Lecture at Princeton

I gave a lecture at my alma mater last week.  You can watch it by clicking here.  It's a bit over an hour.

The Budget Deficit

A panel discussion at MIT, with Peter Diamond, Jeff Leibman, Deborah Lucas, Robert Solow, and yours truly.  It takes about 90 minutes.

The Rich Get Poorer

Here is a fact that you might not have heard from the Occupy Wall Street crowd: The incomes at the top of the income distribution have fallen substantially over the past few years. 

According to the most recent IRS data, between 2007 and 2009, the 99th percentile income (AGI, not inflation-adjusted) fell from $410,096 to $343,927.  The 99.9th percentile income fell from $2,155,365  to $1,432,890.  During the same period, median income fell from $32,879 to $32,396. 

These recent numbers illustrate the broader phenomenon, discussed in this paper, that high-income households have riskier-than-average incomes.

Fates to Avoid

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

Nordhaus on Energy Economics

A smart friend recommends this article by Yale economist Bill Nordhaus.  The Pigou Club endorses the conclusion:

The need for taxes on energy externalities such as carbon emissions is central to our ability to reduce the harmful side effects of economic growth. It is striking how the political dialogue in the US has ignored a policy that has so many desirable features. Perhaps, in the near future, faced with the deadline of a dire economic situation, negotiators will formulate such a policy. It would generate substantial revenues while bringing so many long-run economic and environmental benefits. Simply put, externality taxes are the best fiscal instrument to employ at this time, in this country, and given the fiscal constraints faced by the US.

After Keynesian Macroeconomics

A reenactment of a famous collaboration, starring Ellen McGrattan as Robert Lucas and Pat Kehoe as Tom Sargent.

The Latest from Merle Hazard

The Distributional Effects of 9-9-9

...as evaluated by the Tax Policy Center.

A Target Path for Nominal GDP

...is a monetary policy endorsed by Goldman Sachs economists.

The Increased Role of the Minimum Wage

I am in the process of revising my intermediate macro book.  As I was updating the section on the minimum wage, I was struck by how much the data has changed over three years.  The minimum wage has a much larger role now than it did three years ago, in large part because of the legislated increase in the minimum wage from $5.15 to $7.25 an hour.  For example, comparing the 2010 data with the 2007 data, one finds the following:

• The percentage of all hourly-paid workers paid at or below the minimum wage rose from 2.3 to 6.0 percent.
• The percentage of part-time workers paid at or below the minimum wage rose from 5 to 14 percent.
• The percentage of teenage workers paid at or below the minimum wage rose from 7 to 25 percent.

Question for class discussion:  In light of what is occurring with the overall economy during this period, how would you evaluate the policy change regarding the minimum wage?

Even leftists believe in property rights

...at least when it comes to their property. 

From one of the recent protests:

Photo by Elizabeth Fama
Click on photo to enlarge.

The Monetary System of the Future?

A friend sends me this photo from some of the recent protests.

The sign says, "1. End Debt-based Fiat currencies. 2. End Fractional Reserve and Compound Interest Banking. 3. End the Fed."

Question for class discussion: What kind of monetary system would satisfy these demands?  What are the pros and cons of this alternative system?

The Nobel Prize

Congratulations to this year's winners of the Nobel Prize in economics: Thomas Sargent and Christopher Sims.  Richly deserved!

Nobel Speculation

Here and here.

A Fun New Search Tool

Google's Ngram Viewer has been around for a while, but I just learned about it, so I thought I would mention it to my blog readers.  This new search tool allows you to track and compare how often words or phrases appear in published books (at least those books in Google's database, which I gather is quite large).  For example, here you can see how often Irving Fisher and John Maynard Keynes are mentioned, and here you can you see how several words associated with my career have risen over time.

Krugman on IS-LM

Paul defends the IS-LM model.  I agree completely!

In some circles, there is now a push to skip the IS-LM model in intermediate macro courses and teach students more modern dynamic macro.  Like Paul, I think that is a mistake.  In my intermediate macro book, I have added a chapter with a dynamic macro model (which one might consider a baby DSGE model).  But students are best equipped to appreciate this model after they understand IS-LM logic.

Updates: Mark Thoma reminds me that I have written on this topic before.  Steve Landsburg weighs in.

Policy Uncertainty

Scott R. Baker, Nicholas Bloom, and Steven J. Davis report:

A major factor behind the weak recovery and gloomy outlook is a climate of policy-induced economic uncertainty. An index we devised shows U.S. policy uncertainty at historically high levels.

Solow on the History of Thought

Bob reviews Sylvia Nasar.

Obama versus Clinton on Tax Policy

One of the common memes about tax policy is that President Obama just wants to return the tax code to where it was during the Clinton years.  The problem is, this is just not true.

This table from the Tax Policy Center is useful in dispelling the myth.  Compare the far left column (Clinton-era tax policy) and the far right column (Obama's proposed tax policy).    It shows the following: Compared to President Clinton, President Obama would cut the effective tax rate by about 2 percentage points for the bottom 99 percent of the population and raise the effective tax rate by about 2 percentage points for the top 1 percent of the population.

You can agree or disagree with that policy choice.  But the facts are clear.  President Obama's policy preferences are more focused on income redistribution (aka "class warfare") than President Clinton's tax policy ever was.

Advice for College Freshmen

Click here.  Produced for Princeton students, but lots of good advice here wherever you are enrolled.

Fantasy Nobel Picks

From NPR.

David Brooks on Mitt Romney

Brooks defends my favorite candidate.  He says that Romney has "the gold standard of adviser teams." 

I presume David did not have in mind that Keynes once called the gold standard a "barbarous relic."

Alan Blinder and Glenn Hubbard agree

A joint op-ed, from a D and an R.

Sin Taxes on College Sports?

The University of Chicago's Allen Sanderson makes the case.

Optimal Stabilization Policy

You can now access the published version of my recent paper with Matthew Weinzierl by clicking here.  A significant change from the working paper version is the addition of thoughtful comments by the discussants Olivier Blanchard and Gauti Eggertsson.

In case you forgot what the paper is about, here is the abstract:

This paper examines the optimal response of monetary and fiscal policy to a decline in aggregate demand. The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short run and flexible in the long run. Policy is evaluated by how well it raises the welfare of the representative household. Although the model has Keynesian features, its policy prescriptions differ significantly from those of textbook Keynesian analysis. Moreover, the model suggests that the commonly used “bang for the buck” calculations are potentially misleading guides for the welfare effects of alternative fiscal policies.

Nobel Prize Pool

Click here to learn how to enter.

The Darwin Economy

A review of Robert Frank's new book.

Principle #4 in Action

In Chapter 1 of my favorite text, we learn that people respond to incentives.  As this story remind us, bureaucrats are people too.

Managers in the Social Security Administration, struggling to handle a skyrocketing number of disability cases, had an unusual request for their workers this week: slow down. 

Social Security judges and employees in Florida, Alabama, Colorado, Georgia, Tennessee, Ohio and Arizona were among those instructed to set aside disability cases this week, with the slowdown allowing managers to boost their performance numbers for the coming fiscal year, which starts Monday. 

Top officials, in a bid to meet goals to win promotions or thousands of dollars in bonuses, directed many employees to refrain from issuing decisions on cases until next week, according to judges and union officials. This likely would delay benefits paid to thousands of Americans with pending applications, many of whom are financially needy and have waited for a government decision for more than a year.

The directive stemmed from a wrinkle in the federal calendar, in which this week fell between the federal government's 2011 and 2012 fiscal years. This happens every five or six years, as officials are allowed to count just 52 weeks in their calendar. Counting this week would make the current fiscal year 53 weeks long. That meant any applications for disability benefits completed between Monday and Friday wouldn't count toward the annual numerical targets set for Social Security judges or field offices.

Left-Digit Bias

Chapter 22 of my favorite textbook discusses various ways in which individual decisionmaking deviates from standard notions of rationality.  Here is a new one to me (from the NBER Digest):

In Heuristic Thinking and Limited Attention in the Car Market (NBER Working Paper No. 17030), authors Nicola Lacetera, Devin Pope, and Justin Sydnor focus on the used car market and ask whether it is affected by consumers exhibiting a heuristic, or short cut, known as left-digit bias: the tendency to focus on the left-most digit of a number while partially ignoring other digits.

Using data that come from wholesale auctions encompassing more than 22 million used car transactions, the authors document significant price drops at each 10,000-mile threshold from 10,000 to 100,000 miles, ranging from about $150 to $200. For example, cars with odometer values between 79,900 and 79,999 miles, on average, are sold for approximately $210 more than cars with odometer values between 80,000 and 80,100 miles, but for only $10 less than cars with odometer readings between 79,800 and 79,899.

Fred Bergsten on Net Exports

In today's NY Times, Fred says government policy should focus more on increasing net exports.  He says a lot of wise things, especially regarding the need for better intellectual property protection abroad.  One part of the article, however, puzzles me.  He writes:

The artificially low value of the renminbi — it is 20 to 30 percent less than what it should be — amounts to a subsidy on Chinese exports and a tariff on imports from the United States and other countries.

Think about this for a moment.  As I discussed in this old Times column, the way China affects the exchange rate is by buying dollars in foreign exchange markets and using them to buy dollar-denominated assets (such as Treasury bonds).  Yet the exact same mechanism is at work whenever any foreigner invests in the United States.  All capital flows into the US raise the value of the dollar in foreign exchange markets and make our exports less competitive.  Does Fred object to all capital flows into the US?  Would he prefer some degree of capital flight from the US because it would lower the value of the dollar and promote exports?  That seems to be the logical implication of what he is saying, but I doubt that's what he intends to suggest.  So I am puzzled.

Robert Shiller on Stock Valuations

Peter Diamond on Stimulus

More Competition

A new economics blog, focusing on the economics of the digital world.

The Harvard guy in the NFL

Moneyball

My family and I saw the movie Moneyball last night.  It is much fun. Besides, I have to love any movie in which a key fact about a major protagonist is that he studied economics.

The movie, however, is fictionalized. In real life, the geek-genius who saved the team studied economics at Harvard. The movie, however, changes the character's name and says he studied at Yale.

Yale?  Seriously? Yale?

A Conversation with Robert Lucas

In today's Wall Street Journal.  Unfortunately, I think you need a subscription for this link to work.  (However, try Googling "Robert Lucas" in Google News, and I understand you can get around the paywall.)

Why I am not very worried about inflation just now

Click on graphic to enlarge.

Several people have asked me in recent days if the Fed's aggressive attempts to get the economy going will lead to galloping inflation to go along with our weak economic growth.  It is possible that this might occur down the road, of course, but I don't see it happening just now.  The slack labor market has kept growth in nominal wages low, and labor represents a large fraction of a typical firm's costs.  A persistent inflation problem is unlikely to develop until labor costs start rising significantly.  Notice in the graph above that the period of stagflation during the 1970s is well apparent in the nominal wage data.  The same thing is not happening now.  This is one reason I think the Fed is on the right track worrying more about the weak economy than about inflationary threats.

Three from National Affairs

1. John Cochrane on inflation and debt.
2. Scott Sumner on monetary policy.
3. Andrew Biggs on means testing.

Kotlikoff on the Corporate Tax

The Boston University economist is not a fan of the corporate income tax.

Nobel Predictions

From Thomson-Reuters.

The Progressivity of the Tax System

With all the rhetoric floating around regarding the "Buffett rule," it might be worth trying extra hard to keep an eye on the facts.  Here is the progressivity of the current tax system, according to the Tax Policy Center.  If you can remember only one fact, make it this one: The middle class (middle quintile) pays 14.1 percent of its income in federal taxes, while the rich (top tenth of one percent of the population) pay 30.4 percent.

Roland Fryer, Genius

Congratulations to my Harvard colleague for winning a MacArthur grant.

The Case for More Quantitative Easing

From Joe Nocera in the NY Times.

20,000,000

That's how many times this this blog has been visited since I started it five years ago.

Taylor on the Fed's Mandate

John wants to end the dual mandate.

The President's New Tax Reform Proposal

You can read about it here. 

Disappointing, in my humble opinion, for reasons I discussed in this Times column. But not to worry: There is no chance it will become law in this congress. The proposal is about politics, not policy.

If the president were serious about tax reform, he would give his full-throated endorsement to the kind of tax reform ideas advanced by the Bowles-Simpson commission that he appointed, as I discussed in this column.

The Problem with Industrial Policy

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Harvard's Kindness Pledge

Virginia Postrel looks at the controversy.

Steve Levitt's Daughter

A moving talk from the Chicago economist.

Hayek and Keynes

An excerpt from Silvia Nasar's new book, The Grand Pursuit: The Story of Economic Genius.

Krugman on Barro

Paul's comment on Robert's latest column confuses me.  Paul shows a graph establishing that the investment share of GDP is procyclical, as if that refutes Robert's viewpoint about what ails the economy.  But that fact is hardly a surprise.  As I put it recently, "the most volatile component of G.D.P. over the business cycle is spending on investment goods."  Moreover, I know Robert well enough, having been his colleague for about a quarter century, to know that he knows the macroeconomic time series as well as anyone.

The problem that Paul glosses over is that correlation does not imply causation.  Paul appears to jump to the conclusion that this correlation establishes that the the business cycle is the driving force behind investment spending.  But it could just as easily be the opposite (or a third factor driving both).  I am completely confused as to why Paul thinks this graph establishes much of anything at all.

I should note, as an aside, that Robert is the second most cited living economist.  That fact does not imply that everything he says is correct. (And indeed Robert and I disagree often in Harvard seminars.)  But it does suggest that one should not be so glib in summarily rejecting his point of view.

We're number one!

Ec 10, that is.

Medium Hairstyles

Medium Hairstyles pictures, latest medium hairstyles, new medium hair styles and more.

Medium Hairstyles

Medium Hairstyles

Medium Hairstyles

Medium Hairstyles

Medium Hairstyles

Fixing Our Sick Economy

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

Update: My Harvard colleague Robert Barro has a related piece in the paper as well.

A Plan for Zero Unemployment

From economist Steve Allen:

There were 14m unemployed workers in August.  The $447b stimulus package could be used to generate a check of almost $32,000 to each and every one of them.  As a condition of receiving that check, they would be asked to work at some organization, for profit or nonprofit, for one year.  These jobs would last just as long as the stimulus package and some of them would no doubt turn into real jobs.  Isn't this a plan everyone could support?

Paul Samuelson on Social Security

A friend calls to my attention this quotation from Paul Samuelson.  It is from a Newsweek column written in 1967, but it has some modern relevance.  Of course, at the time, Samuelson was not focused on the large unfunded liabilities we now face.

The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in -- exceed his payments by more than ten times (or five times counting employer payments)!

How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population.

More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired.

Social Security is squarely based on what has been called the eighth wonder of the world -- compound interest. A growing nation is the greatest Ponzi game ever contrived.

Short hairstyles

Short hairstyles picture gallery Short hair cuts with advice, accessories and a celebrity section.

Short hairstyles,Short hair styles

Short hairstyles,Short hair styles

Short hairstyles,Short hair styles

Short hairstyles,Short hair styles

Short hairstyles,Short hair styles

Short hairstyles,Short hair styles

Short hairstyles,Short hair styles...............

Glamour hairstyles

Beauty & Hair and hairstyles ideas and trends at www.mediumhairstyles2011.blogspot.com

Beauty & Hair and hairstyles ideas and trends at www.mediumhairstyles2011.blogspot.com

Warren Buffett's Taxes, again

I was disappointed to hear the President tonight raise the canard about Warren Buffett's allegedly low tax rate.  The story is, at the very least, deeply misleading.  I addressed the issue several years ago in this column.

Medium Hairstyles 2011

Medium Hairstyles 2011

Austan Goolsbee plays...

Wait, wait, don't tell me.  Very funny.

Economics Teaching Conference

I have mentioned this event before, but organizers tell me there are still a few open slots for this conference at the end of October.  I am among the keynote speakers.

Short hair styles,Short hairstyles

short hair styles,short hairstyles

Short Hair Styles

Short Hair Styles

Short Hair Styles

Short Hair Styles

Short Hair Styles

Short Hair Styles

Short Hair Styles,Short hairstyles, short hairstyles 2011, Medium Hairstyles,Medium hair styles....................

Short Hair Styles 2011

Short Hair Styles 2011

Short Hair Styles 2011

Short Hair Styles 2011

Short Hair Styles 2011

Short Hair Styles 2011

Short Hair Styles 2011

Short Hair Styles 2011

Short Hair Styles 2011