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?