Sabtu, 29 Juni 2013
Jumat, 28 Juni 2013
Economic History at MIT
Peter Temin tells the story in a new paper called The Rise and Fall of Economic History at MIT.
Senin, 24 Juni 2013
EconRhymes
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.
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.
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.
Minggu, 23 Juni 2013
More on the One Percent
If you enjoyed reading my forthcoming JEP paper, you might also enjoy It’s the Market: The Broad-Based Rise in the Return to Top Talent by Steven N. Kaplan and Joshua Rauh, which emphasizes complementary themes. An excerpt:
We believe that the U.S. evidence on income and wealth shares for the top 1 percent is most consistent with a “superstar”-style explanation rooted in the importance of scale and skill-biased technological change. In particular, we interpret the fact that the top 1 percent is spread broadly across a variety of occupations as most consistent with an important role for skill-biased technological change and increased scale. These facts are less consistent with an argument that the gains to the top 1 percent are rooted in greater managerial power or changes in social norms about what managers should earn.
Will summer camp make my kids rich?
Paul Krugman, commenting on my recent article, thinks it is noteworthy that the rich have increased their spending on child enrichment programs. To me, that is not a surprise. The incomes of the rich have risen, and this category of spending, like many others, has a positive income elasticity.
I am a parent of three, and as far as I know, Paul does not have any children. So I have probably spent a lot more on this category than he has. And I can report that much of it is consumption, not investment.
A book I probably should have cited in my article is Judith Harris's The Nurture Assumption. The main thesis of this great book is that, beyond genes, parents matter far less than most people think. Raising three children has made me appreciate Harris's conclusion. It is frustrating how little influence we parents have.
I have a friend whose job it is to advise families of extreme wealth. She is often asked how to raise successful children who know they are going to inherit gobs of money. It is all too common to see kids raised in this environment becoming ne'er do wells. Her advice: Make sure they get a summer job. Rather than spending money on enrichment activities, have them learn what it is like to earn a living.
I am a parent of three, and as far as I know, Paul does not have any children. So I have probably spent a lot more on this category than he has. And I can report that much of it is consumption, not investment.
A book I probably should have cited in my article is Judith Harris's The Nurture Assumption. The main thesis of this great book is that, beyond genes, parents matter far less than most people think. Raising three children has made me appreciate Harris's conclusion. It is frustrating how little influence we parents have.
I have a friend whose job it is to advise families of extreme wealth. She is often asked how to raise successful children who know they are going to inherit gobs of money. It is all too common to see kids raised in this environment becoming ne'er do wells. Her advice: Make sure they get a summer job. Rather than spending money on enrichment activities, have them learn what it is like to earn a living.
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