Selasa, 31 Desember 2013

Quick Movie Review

I just saw American Hustle.  Great movie, loosely based on the Abscam investigation.  Much better than Gravity, the other movie I have seen recently that got rave reviews.

Selasa, 24 Desember 2013


For better or worse, Wikipedia is a go-to site for information.  Often it is quite good.  Sometimes it is not.

I happened to notice over my Wikipedia entry this sentence about the student walkout several years ago:

"Mankiw published his class attendance at the end, and it showed more students showed up to class that day than on average class day, as many counter-protested by coming."

This is false.  In fact, I do not even take attendance in ec 10 lectures.  I know anecdotally that some counter-protestors did come to that class (as I noted in this article, the only thing I published about the walkout), but I have no idea of the numbers, and I did not publish anything like class attendance.

If someone could fix that sentence over at Wikipedia, I would appreciate it.  And while you're there, add some (truthful) stuff about me.  Consider it a Christmas present.

Senin, 23 Desember 2013

Returns to Skills Around the World

From a new working paper:
On average, a one-standard- deviation increase in numeracy skills is associated with an 18 percent wage increase among prime-age workers. But this masks considerable heterogeneity across countries. Eight countries, including all Nordic countries, have returns between 12 and 15 percent, while six are above 21 percent with the largest return being 28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures, additional controls, and various subgroups. Intriguingly, returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.

Sabtu, 21 Desember 2013

Meaningless Sentence of the Day

This NY Times story on the middle class's struggle with the new healthcare law is generally pretty good, but this sentence struck me as comically meaningless:
Experts consider health insurance unaffordable once it exceeds 10 percent of annual income.

What the heck does this mean?  The typical American spends more than a third of income on housing.  Does that make housing unaffordable?  Presumably not.  What makes 10 percent the magic threshold for health insurance but not for other categories of crucial spending?  Who are these experts, and what criterion do they use to determine what is affordable?

Probably what the sentence means is that people have become accustomed to spending less than 10 percent of income on health insurance and are unhappy when they have to spend more.  But if healthcare costs keep rising as a share of national income, as many economists believe they will, then we will have to adjust our perceptions of what is affordable.

Addendum: The Times story, particularly the graphic, suggests that the implicit marginal tax rate some people face under the Affordable Care Act subsidies can sometimes exceed 100 percent.  It is hard to believe that the law is so badly written as to have this feature, but that seems to be the implication.

Senin, 16 Desember 2013

On Measuring Changes in Income

To divert attention from the disastrous rollout of his health reform, President Obama has decided to change the national conversation to discuss increasing inequality.  This phenomenon is not new--the trend started about four decades ago--but it is real and important.  In case you are a new reader of this blog, you can find my personal views on the matter in this paper.

This national conversation has generated renewed attention to the highly influential Piketty-Saez data.  It is worth pointing out, therefore, some limitations of these data, which have been stressed by Cornell economist Richard Burkhauser: The data are on tax units rather than households, they do not include many government transfer payments, they are pre-tax rather than post-tax, they do not adjust for changes in household size, and they do not include nontaxable compensation such as employer-provided health insurance.

Does this matter?  Yes!  Here are some numbers from the Burkhauser paper:

1. From 1979 to 2007, median real income as measured by pre-tax, pre-transfer cash income of tax units rose by only 3.2 percent.  That is a paltry amount for such a long period.  You might conclude that middle class incomes have been stagnant. But wait.

2. Households are more important than tax units.  Two married people are one tax unit, whereas a couple shacked up are two tax units.  We would not want to treat the movement from marriage to shacking up as a drop in income.  If we look at households rather than tax units, that meager 3.2 percent rises to a bit more respectable 12.5 percent.

3. Now consider government transfer payments. If we add those in, that 12.5 percent number becomes an even better 15.2 percent.

4. What about taxes? The middle class received some tax cuts during that period.  Factoring taxes in, the 15.2 percent figure rises to 20.2 percent.

5. But not all households are the same size, and the size of households has fallen over time. Adjusting for household size increases that 20.2 percent to 29.3 percent.

6. There is still one thing left: employer-provided health insurance, an important fringe benefit that has grown in importance. Adding an estimate of that into income raises the 29.3 percent figure to 36.7 percent.

So, during this period, has the middle class experienced stagnant real income (a mere 3.2 percent increase) or significant gains (a 36.7 percent increase)?  It depends on which measure of income you look at.  It seems clear to me that the latter measure is more relevant, but the former measure of income often gets more attention than it deserves.

Take this as a cautionary tale.  When people talk about changes in income over time, make sure you know what measure of income they are citing.

Minggu, 15 Desember 2013

A T Shirt for Princeton Students

Princeton University--the ivy league school known for its policy of "grade deflation"--has been experiencing a small outbreak of Meningitis B, for which students are now being vaccinated. Hence, this T shirt:

Sabtu, 14 Desember 2013

Bad News for New PhDs

From The Chronicle of Higher Education:
Economics Ph.D.'s on the academic job market had fewer jobs to apply for in 2013 than a year earlier, according to new data from the American Economic Association. The number of new academic job openings listed with the association fell 6.6 percent, to 1,924, in 2013. However, the number of nonacademic jobs rose slightly, from 856 to 866. Overall the number of new jobs fell 4.3 percent in 2013, to 2,790.

More Selective than Harvard

Jumat, 13 Desember 2013

Answer Sheet

Here are the answers to the Fun Quiz I posted a few days ago:

1.         For 35 years, Bob Barker welcomed those who had "come on down" to this TV game show.

The Price is Right

2.         New Ec10 soap opera starring Luke, Laura, and Francis Edgeworth.

General Equilibrium (or General Equilibrium Hospital)

3.         First U.S. car manufacturer to offer seat belts as an option.


4.         Neurosis shared by bus rides and margarine .

Inferiority Complex

5.         One-word term for one's first apartment.

6.         The result of Atlas's misplacing his celestial sphere.

Deadweight Loss

7.         "Careful!  The Bayeux Tapestry's wall mounts are loose!"

Mural Hazard

8.         Can we use this same phrase for the sensitivity of either crucifix or rosary bead demand to the cost of the crucifix?
Cross Price Elasticity of Demand

9.         Metropolis governed by U-boat captains.
Sub City

10.       Pushpins adorned with benzene rings.

Carbon Tacks

11.       My cousin Vinny is a sports reporter and is always asking coaches at press  conferences, "May-a I-a ________________ you-a on-a that-a?"


12.       Tony Award-winning Miss Saigon actor's hardwood entryway.
Price Floor

13.       Flo's employer.


14.       Red Sox / Yankees:  the most heated one in professional sports.


15.       What we might have when Pamela Ewing's rep is out of control. 

A Principal-Agent Problem
16.       What we've made upon deciding which poem to use in our Super Bowl commercial.

Ad Verse Selection

17.       New Parker Brothers board game fashioned after Laurel & Hardy or Burns & Allen or Rodgers & Hammerstein or Marx & Engels or Masters & Johnson......
18.       If an MP were to suffer a heart attack during David Cameron's question time,  it would be a _____________________________ .

Tragedy of the Commons

19.       The best comedians/comediennes reach the highest point on the  ________________________.

Laugher Curve

20.       Past, Present, or Future Perfect equivalent of the price of our bathroom basin.
Sunk Cost

Kamis, 12 Desember 2013

A Harvard Victory

Congratulations to the Harvard Fed Challenge Team, which recently won the national title.  Here is a picture of the team, together with a soon-to-be-unemployed Harvard alum.

Selasa, 10 Desember 2013

EITC is better than the Minimum Wage

From David Neumark:

Suggesting that federal policy addressing low-wage work and low-income families has somehow failed because the minimum wage has not kept pace with inflation ignores the fact that we have moved away from a focus on the minimum wage — a policy with many flaws — and toward the earned-income tax credit.  We shouldn’t be asking simply how much the real minimum wage has changed, but rather how much the combined income floor generated by the two policies has changed.

To provide an example, the blue line in the figure below shows the wages received by a single adult worker earning the minimum wage and working full time throughout the year. This can be interpreted as the income floor established by the minimum wage. The red line shows the level of family income when the earned-income tax credit for a family with two children is added (all in 2012 dollars). The lower line illustrates the income consequences of the real decline in the minimum wage. But the upper line shows that, because of the sharp increase in the generosity of the earned-income tax credit, the combined effect of the two policies is that the real income of this family is as high or higher than it was in past decades — when the real minimum wage was relatively high — and much higher than it was in most of the intervening years.

Nonetheless, there are important differences between the earned-income tax credit and the minimum wage. The fundamental difference is that the earned-income tax credit aims benefits at low-income families with children, rather than simply low-wage workers. This is in large part its virtue, and it makes a lot more sense than the minimum wage’s focus on low-wage workers. Do we really care if a low-wage teenager in a middle-class family makes an extra dollar an hour?  Economists of all persuasions in the minimum-wage debate agree that mandated wage floors do a bad job of directing benefits to low-income families.  This is confirmed in recent research by my graduate student Sam Lundstrom, calculating who would be affected by increasing the current federal minimum to $8.25 from $7.25.  He finds that only 21.3 percent of the affected workers would be in poor families, while 30.9 percent would be in families with incomes more than three times the poverty line.

Senin, 09 Desember 2013

A Fun Quiz

For the holiday party for ec 10 section leaders, head section leader David Johnson prepared the following "quiz," which he has allowed me to share with blog readers.  The quiz is open book, open internet. The winning team got 18 out of 20. Try your hand at it.  I will post answers in a few days.

Good luck!

Ec 10 -- End of Semester "Quiz"
[Hint:  Each Answer Has a Certain Ec10 "Flavor"]
1.         For 35 years, Bob Barker welcomed those who had "come on down" to this TV game show.

2.         New Ec10 soap opera starring Luke, Laura, and Francis Edgeworth.

3.         First U.S. car manufacturer to offer seat belts as an option.

4.         Neurosis shared by bus rides and margarine .

5.         One-word term for one's first apartment.

6.         The result of Atlas's misplacing his celestial sphere.

7.         "Careful!  The Bayeux Tapestry's wall mounts are loose!"

8.         Can we use this same phrase for the sensitivity of either crucifix or rosary bead demand to the cost of the crucifix?

9.         Metropolis governed by U-boat captains.

10.       Pushpins adorned with benzene rings.

11.       My cousin Vinny is a sports reporter and is always asking coaches at press  conferences, "May-a I-a ________________ you-a on-a that-a?"

12.       Tony Award-winning Miss Saigon actor's hardwood entryway.

13.       Flo's employer.

14.       Red Sox / Yankees:  the most heated one in professional sports.

15.       What we might have when Pamela Ewing's rep is out of control. 
16.       What we've made upon deciding which poem to use in our Super Bowl commercial.

17.       New Parker Brothers board game fashioned after Laurel & Hardy or Burns & Allen or Rodgers & Hammerstein or Marx & Engels or Masters & Johnson......
18.       If an MP were to suffer a heart attack during David Cameron's question time,  it would be a _____________________________ .

 19.       The best comedians/comediennes reach the highest point on the  ________________________.

 20.       Past, Present, or Future Perfect equivalent of the price of our bathroom basin .

SCORE:   _______ ( "correct" answers are worth 1 point each ! )

Jumat, 06 Desember 2013

Two Random Things That Made Me Smile

On New England frugality:
Bostonians still tell the story of the respectable society matron who was crossing the Common one day and ran into an old college chum she hadn’t seen for years. The matron was dismayed to see that her friend was obviously engaged in the world’s oldest profession. “My dear,” she said, “whatever has happened to you?” “Well,” said her friend, “it was either this or dip into capital.”
On a child's view of marriage:
How can a stranger tell if two people are married?
You might have to guess, based on whether they seem to be yelling at the same kids.  - Derrick, age 8

Kamis, 05 Desember 2013

The CEA Fact Checkers Miss One

In his speech yesterday, President Obama said,
Now, we all know the arguments that have been used against a higher minimum wage. Some say it actually hurts low-wage workers -- businesses will be less likely to hire them. But there’s no solid evidence that a higher minimum wage costs jobs.
From my perspective, the last sentence is just incorrect.  There is a lot of work by reputable economists that finds adverse employment effects of a higher minimum wage.  In a poll of top economists, as many say they believe that the adverse employment effect is noticeable as those that say the opposite.

The president could have said there is no completely decisive evidence.  Or, more accurately, he could have said there is mixed evidence. But saying there is no solid evidence is misleading.

Rabu, 04 Desember 2013

Selasa, 03 Desember 2013

Minimum Wage Redux

In his Times column today, Paul Krugman argues in favor of a higher minimum wage, suggesting that the adverse employment effects are trivial. Unfortunately, Paul presents a highly selective review of the literature. For example, this paper is relevant. From its abstract:
"new evidence based on methods that let the data identify the appropriate control groups leads to stronger evidence of disemployment effects, with teen employment elasticities near −0.3. We conclude that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage."
Addendum: This old post by Steve Landsburg on the unfairness of the minimum wage is worth rereading.

Sabtu, 30 November 2013

The Pope's Rhetoric

I see that the pope has decided to weigh in on economic issues:

“Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world,” Francis wrote in the papal statement. “This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacra­lized workings of the prevailing economic system.”

A few reactions:

First, throughout history, free-market capitalism has been a great driver of economic growth, and as my colleague Ben Friedman has written, economic growth has been a great driver of a more moral society.

Second, "trickle-down" is not a theory but a pejorative used by those on the left to describe a viewpoint they oppose.  It is equivalent to those on the right referring to the "soak-the-rich" theories of the left.  It is sad to see the pope using a pejorative, rather than encouraging an open-minded discussion of opposing perspectives.

Third, as far as I know, the pope did not address the tax-exempt status of the church.  I would be eager to hear his views on that issue. Maybe he thinks the tax benefits the church receives do some good when they trickle down.

Rabu, 20 November 2013

On W

Students often ask me what George W. Bush is like as a person.  This story from Dana Perino gives a great sense of what I saw and experienced as well.

Minggu, 17 November 2013

IMF Research Conference

I recently had the pleasure of attending the IMF Annual Research conference (where I was a discussant of a paper by Reifschneider, Wascher, and Wilcox in Session 3). You can watch the conference online here.

Kamis, 14 November 2013

Selasa, 12 November 2013

The Overoptimism of Research Assistants

How long will it take to fix the health exchange website? I have no idea. But thinking about this issue reminded me of a time when I was a grad student, and Larry Summers was an assistant professor. 

Larry told me that his research assistants always vastly underestimated how long any task would take. His rule of thumb: Double the estimate the RA gives, and then move to the next higher time unit.

So, if the RA says the task will take an hour, it will take two days.  If the RA says it will take two days, it will take four weeks.

Senin, 11 November 2013

Is community rating fair?

A large part of the motivation of the Affordable Care Act is to provide insurance to those with pre-existing conditions. Under the law, insurance is offered to everyone at a price based on overall community risk, not the risk estimated by the insurance company based on a person's particular characteristics. That has been deemed "fair" by advocates of the law.

I wonder whether advocates of this view are concerned with other insurance markets.  Teenage drivers pay a lot more for auto insurance. The old pay a lot more for life insurance.  Life insurance companies require health screening before granting a policy. Is this a problem, or the natural and desirable functioning of markets?

In the law, having children has been deemed a pre-existing condition, although it is not quite described as such. Everyone is now expected to buy insurance to pay for pregnancy and maternity care, even those who never intend to have children. The goal is to spread the risk of childbirth among the larger community.

But having children is more a choice than a random act of nature. People who drive a new Porsche pay more for car insurance than those who drive an old Chevy. We consider that fair because which car you drive is a choice.  Why isn't having children viewed in the same way?

I don't know the answer to these questions. But it does seem that fairness in health insurance pricing is being viewed very differently than fairness in pricing other types of insurance.  I wonder why.

Senin, 04 November 2013

The Prescient David Cutler

Via the Washington Post, here is a 2010 memo that my Harvard colleague David Cutler wrote to Larry Summers about the implementation of the Affordable Care Act. Its subject line is "Urgent Need for Changes in Health Reform Implementation."

David concludes: "All in all, the administration has immense decisions to make about transforming health care delivery and coverage. But no one I interact with has confidence that your current personnel and configuration is up to the task."

Selasa, 29 Oktober 2013

Who knew what when?

President Obama is getting heat over his often repeated claim that, under his healthcare reform, "If you like your plan, you can keep it."  It is clear now that for millions of Americans, particularly those who participated in the individual insurance market, that is simply not true.  You can argue that the plan they will get under the Affordable Care Act is better, but it seems undeniable that the President's sales pitch was factually incorrect.

As someone who has previously worked for a President, I am fascinated by how the White House staff let President Obama so consistently and so publicly make a false statement.  Presidential speeches undergo a painstakingly thorough review process. It seems that there are only three possibilities:

1. The White House staff did not know the statement was false.  That is, they did not understand the law the administration was promoting.

2. The White House staff knew the statement was false, but they decided to keep this fact from the President.  That is, they let the President unwittingly lie to the American people.

3. The White House staff knew the statement was false and told the President so, but the President decided to keep saying it anyway.  That is, the President consciously decided to lie to the American people.

These are the only three possibilities I can envision.  None of them reflects particularly well on what has been going on in the White House.

Minggu, 27 Oktober 2013

Fact-checking The Economist

Here is a question for students who are learning about compounding.  What is wrong with the following passage from The Economist magazine?
Investors who bought Treasury bonds in 1946, when yields were around current levels, did not suffer a formal default. But over the following 35 years they lost money in real terms at a rate of 2% a year. The cumulative real loss was 91%. By that standard, Greek creditors, who recently suffered a 50% loss via default, were lucky.
Answer: The second number is inconsistent with the first.  Note that .98^35=.49, so we get only a 51 percent cumulative loss.

In fact, the price level from 1946 to 1981 rose by a factor of about 5, so holding currency with a zero nominal return led to a real loss of only about 80 percent.

Selasa, 22 Oktober 2013

The median voter changes his mind

click on graphic to enlarge

The Government Shutdown

The CEA analyzes its economic impact.

"Say That" nominated for 'Innovation of the Year' in first ever YouTube Music Video Awards

Toro y Moi's video for "Say That" has been nominated for the 'Innovation of the Year' award in the very first YouTube Music Video Awards!

Watch the nomination video below, then share it on Facebook or Twitter to cast your vote. 

New Research on UI

The abstract of a recent NBER working paper (emphasis added):
We exploit a policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed -- the micro effect -- we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively.

Senin, 21 Oktober 2013

Yes, Economics is a Science

Says my Harvard colleague Raj Chetty.

An interesting article, which raises the following questions in my mind: Is the younger generation of economists like Raj skipping some of the big questions of economics because some smaller questions are easier to answer?  If so, is that optimal from the standpoint of society as a whole?

Minggu, 20 Oktober 2013

Videos in 7e

The seventh edition of my favorite textbook will be coming out in January. One of the new features available to users of the electronic version of the book is a group of video introductions to many chapters, featuring the book's all-too-geeky author. You can see the first one below.

Jumat, 18 Oktober 2013

A Trip to Korea

I have spent the past few days at the World Knowledge Forum in Seoul, Korea. While there, I gave a lecture on some of the challenges facing fiscal policy, joined Tyler Cowen in a public discussion of economic inequality, and participated in a panel on the global economic outlook (from which the photo below is taken).

Sabtu, 12 Oktober 2013

On DC Discord

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

All the Way

Last night, I saw Bryan Cranston in All the Way, the new play about Lyndon Johnson and the passage of the Civil Rights Act. It is a powerful play, with terrific acting.  Cranston is as compelling as LBJ as he was as Walter White.

Rabu, 09 Oktober 2013

Obamacare's Finances

Not a pretty picture.

I talk to Bloomberg TV

Limited amount of Campo 7"s left

There are a limited amount of Campo 7"s left in the Carpark Records online store.  Pick up a copy HERE while they last.

Congratulations, Janet

Click on graphic to enlarge.
President Obama has made a great decision in choosing Janet Yellen to chair the Federal Reserve.
The image above, by the way, is one of the illustrations in the next edition of my favorite textbook (which is now in production). When supervising the artist, I had to guess who the next Fed chair would be.  As you can see, I guessed right.

Addendum: Someone asks whether the helicopter in the picture is a reference to the current chairman's somewhat pejorative nickname "Helicopter Ben."  The answer is no, not at all.  I used a helicopter in this interior illustration since the third edition, which predates Bernanke's becoming Fed chair.  Ben has used the helicopter metaphor for monetary policy, but the metaphor is not original to him (or to me).  I would guess it started with Milton Friedman, but I am not entirely sure.

Selasa, 08 Oktober 2013

The Top of My To-read Pile

I am a friend and fan of the University of Chicago's John List.  (I had the pleasure of working with John about a decade ago at the Council of Economic Advisers.)  So at the very top of my pile of books to read is John's new one, with Uri Gneezy, called The Why Axis.

Senin, 07 Oktober 2013

No Risk of Default

My Harvard colleague Martin Feldstein writes me in an email:
The WSJ and FT continue to write about the risk of default, quoting the Treasury, Boehner and others.There really is no need for a default on the debt even if the debt ceiling is not raised later this month. The US government collects enough in taxes each month to finance the interest on the debt, etc. The government may not be able to separate all accounts into "pay" and "no pay" groups but it can certainly identify the interest payments. An inability to borrow would have serious economic consequences if it lasted for any sustained period but it would not have to threaten our credit standing.

Senin, 30 September 2013

Check out Toro y Moi's newly released video for "Rose Quartz" at the following link -->

Kamis, 26 September 2013

Win a pair of custom Vans designed by Chaz

Chaz has designed a pair of limited edition Vans shoes for a giveaway with his upcoming tour dates. We have 100 pairs to give away, plus you'll also receive a pair of tickets to a Toro y Moi show in your area this Fall. Must be a US resident, contest runs until November 17th. Enter below, good luck!

Enter here -->

-- See terms and conditions for full contest details --

Rabu, 25 September 2013

Toro y Moi is featured in the recently released Soundtrack for "Grand Theft Auto V." Click here to read the full article on Pitchfork.

Click here to purchase the Soundtrack on iTunes.

Selasa, 24 September 2013

Some Observations on Minimum Wages

John Cochrane has a nice post on minimum wages.

I was recently discussing the topic of minimum wages with a friend who favors them.  (He is a prominent economist, whose name you would surely recognize, but conversations with friends are off the record).  As justification for his view, he pointed me to this paper by Lee and Saez, called "Optimal minimum wage policy in competitive labor market."

What was notable to me about this paper is the incredibly strong assumptions they need to make their case.  In particular,
Assumption 1. Efficient rationing: Workers who involuntarily lose their low-skilled jobs due to the minimum wage are those with the least surplus from working in the low-skilled sector.
 Later they point out:
Finally, the desirability of the minimum wage hinges again crucially on the “efficient rationing” assumption. Under “uniform rationing”, where unemployment strikes independently of surplus, the minimum wage cannot improve upon the optimal tax allocation, a point formally proven in Lee and Saez (2008). Indeed, with efficient rationing, a minimum wage effectively reveals the marginal workers to the government. Since costs of work are unobservable, this is valuable because it allows the government to sort workers into a more socially (albeit not privately) efficient set of occupations, making the minimum wage desirable. In contrast, with uniform rationing, as unemployment strikes randomly, a minimum wage does not reveal anything about costs of work. As a result, it only creates (privately) inefficient sorting across occupations without revealing anything of value to the government. It is not surprising that minimum wages would not be desirable in this context.
Rather than providing a justification for minimum wages, the paper seems to do just the opposite. It shows that you need implausibly strong assumptions, such as efficient rationing, to make the case.  I cannot see any compelling reason to believe that in the presence of excess supply of workers, the market will somehow manage to efficiently ration the scarce jobs.

Senin, 23 September 2013

Economics Teaching Conference

The 9th Annual Economics Teaching Conference sponsored by the National Economics Teaching Association and Cengage Learning will be in Austin on October 24 and 25. I will be speaking at lunch the first day.

If you would like to register for the conference, you can do so here.

Teaching Monetary Policy

Is the zero lower bound the new normal?

Sabtu, 21 September 2013

The debt ceiling tactic is not unprecedented

The Washington Post reports:
In 1973, when Richard Nixon was president, Democrats in the Senate, including Sen. Edward Kennedy (D-Mass.) and Sen. Walter Mondale (D-Minn.), sought to attach a campaign finance reform bill to the debt ceiling after the Watergate-era revelations about Nixon’s fundraising during the 1972 election. Their efforts were defeated by a filibuster, but it took days of debate and the lawmakers were criticized by commentators (and fellow lawmakers) for using “shotgun” tactics to try to hitch their pet cause to emergency must-pass legislation.... 
One of the most striking examples of a president being forced to accept unrelated legislation on a debt-ceiling bill took place in 1980. The House and Senate repealed a central part of President Jimmy Carter’s energy policy — an oil import fee that was expected to raise the cost of gasoline by 10 cents a gallon. Carter vetoed the bill, even though the United States was close to default, and then the House and Senate overrode his veto by overwhelming numbers (335-34 in the House; 68-10 in the Senate).
Even so, at the present time, I don't think the tactic is going work well for the Republicans.

Kamis, 19 September 2013

Vans Giveaway

Vans + Toro y Moi Shoe Giveaway

Chaz has designed a pair of limited edition Vans shoes for a giveaway with his upcoming tour dates. We have 100 pairs to give away, plus you'll also receive a pair of tickets to a Toro y Moi show in your area this Fall. Must be a US resident, contest runs until November 17th. Enter below, good luck!

Click here to view upcoming shows

Click here for legal terms and conditions related to the contest.

I talk with Larry Kudlow

Selasa, 17 September 2013

Crowd-sourcing an Award

Voting is open for the Economist Educators Best in Class Teaching Award, but only for this week. If you teach economics, you may want to review the finalists and vote. Click here to learn more.

Jumat, 06 September 2013

A Striking Labor Market Fact

John Lott points out the following: "So far this year there have been 848,000 new jobs. Of those, 813,000 are part time jobs.... To put it differently, an incredible 96% of the jobs added this year were part-time jobs."

Update: Here is the CEA take on this general topic.  And this is from the San Francisco Fed.  I found the following chart of interest.

 Part-time employment as a share of total employment for selected groups

This shows that part-time work is notably higher than it has been historically for prime-age workers with little education (no more than a high school degree).  Whether this is just due to a weak labor market or other more structural changes is an open question.

Selasa, 03 September 2013

Ronald Coase has died

Here is the news from the University of Chicago.

Marginal Tax Rates under Obamacare

Back in 2009, I pointed out in a NY Times column that President Obama's healthcare reform would involve substantial increases in implicit marginal tax rates.  I am delighted that Casey Mulligan is now giving the issue some serious attention in two new NBER working papers (here and here).  He reports:
This paper calculates the ACA’s impact on the average reward to working among nonelderly household heads and spouses. The law increases marginal tax rates by an average of five percentage points (of employee compensation), on top of the marginal tax rates that were already present before the it went into effect....Measured in percentage points, the Affordable Care Act will, by 2015, add about twelve times more to average marginal labor income tax rates nationwide than the Massachusetts health reform added to average rates in Massachusetts following its 2006 statewide health reform.

Kamis, 29 Agustus 2013

Repression in China

A professor in China brings this story to my attention:
A renowned professor has confirmed online rumours that his peers will decide whether he will be expelled from China's most eminent university after he made a series of remarks in favour of free speech and constitutional governance. 
Economics professor Xia Yeliang of Peking University was told by his department that his fate would be decided by a faculty vote, he told the South China Morning Post on Monday. 
"They told me it's because of all the things I have said and written," Xia said. "They have threatened me before, but this is the first time they will vote on my expulsion."

My correspondent says that the vote will likely take place in September. He also reports that this is not an isolated incidence.  He writes, "Though you may not be aware, there is a quiet crack down currently under way in China with other professors being removed for similar offenses....I can tell you from my personal experience here, most Chinese faculty at PKU and other elite Chinese institutions having been educated at top schools in the US are appalled but are quite fearful to speak out."

Here are some questions to think about: If a professor at the prominent Peking University is fired for exercising free speech, how should professors in the United States respond?  For example, should American scholars refuse to attend conferences and give talks there?  Is there more we can do?

Minggu, 25 Agustus 2013

Free Bikes and Girls' Education - Update

Last year, I posted a video about some new research on how giving bicycles to girls in a India increased their educational attainment.  Here is an update. (And here is the paper.)

Selasa, 20 Agustus 2013

I am Ray Fair

Or at least we agree on most things, according to this website, which identifies which economist on the IGM Forum your opinions are most similar to.

Sabtu, 10 Agustus 2013

Wisdom from Raghu Rajan

"For economists who actively engage the public, it is hard to influence hearts and minds by qualifying one’s analysis and hedging one’s prescriptions. Better to assert one’s knowledge unequivocally, especially if past academic honors certify one’s claims of expertise. This is not an entirely bad approach if it results in sharper public debate.
"The dark side of such certitude, however, is the way it influences how these economists engage contrary opinions. How do you convince your passionate followers if other, equally credentialed, economists take the opposite view? All too often, the path to easy influence is to impugn the other side’s motives and methods, rather than recognizing and challenging an opposing argument’s points. Instead of fostering public dialogue and educating the public, the public is often left in the dark. And it discourages younger, less credentialed economists from entering the public discourse."


Sabtu, 03 Agustus 2013

Obamacare versus the Faculty

I don't know how widespread this phenomenon is, but I thought I would share an email I received this morning:
I have been teaching multiple sections of economics for four years now at several Colleges and Universities in the State of Indiana. I have also been a frequent user of your texts in the classes that I teach.

With the implementation of the ACA (Affordable Care Act) these institutions are giving notification to their part-time faulty that their individual teaching schedules will now be limited to three sections. At the college this will likely result in the cancellation of 20-25% of the class sections in economics, and I would assume other areas will have a similar result. The students are not fully aware of the situation and many will be surprised that their desire to get a college education is now being impacted by the need to avoid the full implementation of the ACA.

Regardless if you are a Republican or a Democrat I would hope full-time faculty would voice their concern regarding the impact the implementation of the ACA could have on the attainment of higher education for the current student population and upon the lives of the dedicated part-time faculty that have been devoted to serving this student population.

My hope is that if faculty across the nation brought this to the public attention that we as a nation could have a more open and complete dialogue regarding the course we wish to set as a nation.
Update: Another example.

Ec 10 Bleg

As part of our "marketing" effort to get freshmen into ec 10, Harvard's introductory economics course, the ec 10 staff and I are trying to construct a list of famous alums of the course. Here is the list we have put together so far:

Steve Ballmer
Ben Bernanke
Lloyd Blankfein
Ryan Fitzpatrick
Jeremy Lin
Sheryl Sandberg
Eduardo Saverin
Chuck Schumer
Cameron Winklevoss
Tyler Winklevoss
Mark Zuckerberg

If you attended Harvard and have a famous classmate who you are sure took ec 10 (or its predecessor ec 1), please email me the information.

Kamis, 01 Agustus 2013


If you are a member of the American Economic Association, you probably received an email this morning about the election of AEA officers. Please vote. It is your patriotic duty, or something like that.

Information about the candidates is available here.

Rabu, 31 Juli 2013

Stan and His Students

When Stan Fischer was a professor at MIT, he was one of the all-time great advisers to those of us in the process of becoming macroeconomists.  At a recent conference, Stan took a picture with some of his former students.  Here is the snapshot.  How many can you recognize?

Sabtu, 27 Juli 2013

On Au

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

The topic is whether you should invest in gold as part of your portfolio.  After you read the column, you might find the following problem of interest.  It is based on roughly plausible assumptions.

Imagine that you start off with a portfolio of 60 percent stocks and 40 percent bonds.  The returns on stocks, bonds, and gold are uncorrelated.  Stocks earn a higher expected return than bonds.  Bonds and gold earn the same lower expected return, but gold returns are three times as volatile as bond returns, as measured by the standard deviation.  You want to minimize risk, measured by the variance of your portfolio return, without changing the expected return on your portfolio. How much gold should you buy?

I will leave this problem as an exercise for the reader.  But I believe you should be able to come up with a precise numerical answer without resorting to a computer.

Update: Albert Zevelev, a grad student at Penn, posts the correct answer here.

Is Technopessimism Bunk?

Yes, says Joel Mokyr.

Jumat, 26 Juli 2013

A Tale of Two Political Systems

Here is a fascinating TED talk about the Chinese political culture.  It takes about 20 minutes.

Addendum: And here is a thoughtful commentary on the talk.

Kamis, 25 Juli 2013

Geography and Mobility

A former student, M. Daniele Paserman, who is now a professor at Boston University, sends me the following email, which I thought was interesting enough to share (with permission, of course):
I bumped into your blog post on the Great Gatsby curve, and I was happy to see you raise the point about the arbitrariness of imposing geographic boundaries in measuring intergenerational mobility (why should one lump Connecticut and Mississippi together?)

Claudia Olivetti and I raise a similar point in our recent paper on the evolution of intergenerational mobility in the US between the end of the 19th and the beginning of the 20th Century. We measure a large increase in the intergenerational elasticity between the the cohort of children born in the 1850s and those born in the 1910s, but almost all of it can be explained by income divergence across regions. In fact, within the Northeast and the Midwest, the intergenerational elasticity was flat, or maybe even falling (it was rising in the South, though).

Jumat, 19 Juli 2013

The Changing Distribution of Income

Click on graphic to enlarge. 

Mark Perry points out: "Yes, the middle class has been disappearing, but they haven’t fallen into the lower class, they’ve risen into the upper class."

Kamis, 18 Juli 2013

Observations on the Great Gatsby Curve

In recent years, some economists have drawn attention to a correlation that has been dubbed the Great Gatsby curve.  In particular, countries that have more inequality in income also have less economic mobility.  (By the way, the curve seems misnamed: Jay Gatsby lived in a time a great inequality and managed to move from being very poor to being very rich.  But never mind that.)

My own view is that this correlation is not particularly surprising.  Let me give you an analogy to explain why.

Suppose we collected data on various chess clubs (nations).  In every club, we have data on each member's win-loss record over the year (income).  We can then measure the variance of individuals' win-loss records (inequality).  We can also measure how a person's win-loss record in one year predicts his win-loss record in the subsequent year (mobility).

Some clubs have a bunch of players with similar levels of skill at chess.  In this case, everyone would have a win-lose record that is close to each other, and a person's club ranking one year would not have a lot of predictive value for his ranking the next.  That is, we would have small inequality and substantial mobility.

Other clubs are more heterogeneous.  They have some masters and some novices.  The masters have much better records than the novices, and their better records tend to persist year to year.  That is, we would have substantial inequality and little mobility.

If we put all these clubs together in a scatterplot, we would get something close to the Great Gatsby curve.

Notice a corollary: Suppose we combined two clubs, one that with mostly masters and one with mostly novices.  The new combined club would be more heterogeneous and, therefore, would exhibit more inequality and less mobility than either of the clubs separately.

The application of this corollary to the Great Gatsby curve is that if we looked at Europe as a whole, rather than each nation separately, we would find that Europe as a whole has more inequality and less mobility than the individual countries.  That is, Germans are richer on average than Greeks, and that difference in income tends to persist from generation to generation.  When people look at the Great Gatsby curve, they omit this fact, because the nation is the unit of analysis.  But it is not obvious that the political divisions that divide people are the right ones for economic analysis.  We combine the persistently rich Connecticut with the persistently poor Mississippi, so why not combine Germany with Greece?

The bottom line for me that the Great Gatsby curve is a bit interesting, but neither particularly surprising nor suggestive of any specific conclusions or policy recommendations.

Rabu, 10 Juli 2013

The Fed's First 100 Years

I spent today at the NBER's conference celebrating the 100th anniversary of the Federal Reserve. Among the conferences I have attended over the years, this was among the best. You can find the papers presented here.

Selasa, 09 Juli 2013

Who should the next Fed chair be?

A friend points out to me that the monkeys over at Economics Job Market Rumors are voting whether they would prefer Janet Yellen or Larry Summers as the next Fed chair.  Right now, it is close to a tie.

Senin, 08 Juli 2013

Summers on the Corporate Tax

On the issue of corporate tax reform, Larry Summers tries to forge a compromise:
The United States should eliminate the distinction between repatriated and unrepatriated foreign corporate profits for U.S. companies and tax all foreign income (after allowances for taxes paid to other governments) at a fixed rate well below its current corporate rate, perhaps in the range of 15 percent.

Kamis, 04 Juli 2013


Over on his blog, Paul Krugman calls attention to the Cengage bankruptcy.  I am not sure why he thinks this event is noteworthy.  He seems to do so because Cengage is the publisher of my favorite textbook. I suppose it is schadenfreude on Paul's part.

If you are interested in the topic, I suggest you read this article.  The short story is that this is a Chapter 11 bankruptcy (a reorganization), not a Chapter 7 bankruptcy (a liquidation).  These are very different things. In this case, the equity holders are being wiped out, and the debt holders are the new equity holders.  Otherwise, not much is happening.  As the article states:
The transaction is expected to be largely a non-event for others doing business with Cengage. The company has permission from the lenders to keep using cash flow from operations to fund the business, and expects to keep paying vendors, authors’ royalties, and employees on schedule. (Since Cengage has substantial cash balances—a vendor Frequently Asked Questions document estimates the company’s liquidity at approximately $280 million—and expects to generate positive cash flow, it does not need debtor-in-possession financing.) The company plans to keep delivering orders in full, is not planning to renegotiate any customer contracts except as they expire as usual, and is continuing to launch new products.
So if you are a user of my favorite textbook, rest assured that it is business as usual.

Senin, 24 Juni 2013

The Performance of a Lifetime


An excerpt from a new poetry collection on economics:

An Economist

Economists study how society produces and distributes its scarce resources.

An economist pretends to know
Why things are made and how they flow.
He studies men’s biggest woe,
He wants it all, what to forego.

Like a machine with unseen gears
Through greed a solution appears.
By making what men hold most dear
Profits are earned by serving peers.

To boost theirs and the common's gain
Become experts in their domains.
To make one thing well they attain,
Through trade the rest they obtain.

But their profits diverge by much.
Those with great tools earn a whole bunch.
Tools like machines, schooling and such
Boost production so very much.

Focus on Bank Liabilities, Not Bank Assets

John Cochrane has a great column in today's Wall Street Journal on how to create a better banking system.  He says that we should focus on the nature of bank liabilities (demand deposits, in particular) rather than on the riskiness of bank assets.

Back in 1993, in my discussant's comments on an Akerlof-Romer article on the savings and loan crisis, I made a similar argument.  Here is an excerpt of what I then wrote:

Traditional banks are peculiar institutions. Traditional banks have depositors who want short-term, liquid, riskless assets. Yet these deposits are backed by long-term, illiquid, risky loans. This incongruity is fundamental. As we have seen, it cannot be easily fixed by a government policy such as deposit insurance.

There is, however, a simple, market-based solution: mutual funds. Individuals who want truly riskless assets can invest in mutual funds that hold only Treasury bills. Those who are willing to undertake greater risk can invest in mutual funds that hold privately issued CDs, bonds, or equities. Long-term, illiquid loans could be made by finance companies, which would raise funds by issuing equity and bonds. In the world I am describing, all household assets would be perfectly liquid. Preventing bank runs---he original motivation for deposit insurance--would be unnecessary, because changes in demand for various assets would be reflected in market prices.

In essence, the system we have now is one in which finance companies are themselves financed with demand deposits. Yet these finance companies hold assets--long-term bank loans--that are risky and illiquid, much in the same way that fixed capital is risky and liquid. Imagine that the auto industry financed itself with demand deposits. Undoubtedly, self-fulfilling "runs" on GM and Ford would be common, and the auto industry would be highly unstable. Indeed, the auto industry would probably be a major source of macroeconomic instability. The best solution, of course, would not be deposit insurance and regulation of the auto industry, but a change in the way the industry financed itself.