Resiliency of human capital

Ed Glaeser writes about New York City today in the New York Times. Housing prices, as any New Yorker is probably fully aware, haven't fallen as much in NYC as elsewhere, and the city's unemployment rate is still below the national average.

Glaeser attributes this to the bright future that is both caused by as well as expected by New York holders of valuable human capital. Education serves as recession insurance; it also seems to have increased returns in densely populated areas, where social interactions may spur increased innovation.

Divorce and real estate prices

There's nothing like the holidays to accelerate news coverage of divorce! Today it's not celebrity divorce, although apparently J.Lo has something up her sleeve on that front. Rather, the Times reports that divorces are being turned upside-down by the decline in real estate prices.

With huge capital losses on real estate, some couples may find the net economic gains to divorcing have evaporated. These couples must be expecting their assets to rebound in value, of course, or else they feel liquidity constrained. Otherwise, why wait? Presumably labor productivity is if anything lower in a doomed marriage!

How Low Can It Go?

The irony about the nominal federal funds rate being cut to practically zero is that the real rate is still arguably positive, perhaps by a lot, because inflation expectations are probably negative! The Fisher equation shows that i = r + π

In theory, a problem like this could be addressed by a negative nominal interest rate, but could the Fed ever actually get lending banks to pay borrowing banks for funds?

Signal and noise in the job market

I don't know why this is the equilibrium in the economics job market, but employers get upward of 150 applications for one or two tenure-track teaching slots many places. The difficulty of getting any information from picking through them all, in a limited amount of time toward the end of the term, is immense.

No wonder that outcomes in job markets like this can be so random, or that such searches are costly in terms of time and energy for seeker and employer. What a tremendous burden during period of high unemployment such as now!

Education and unemployment

An article in today's New York Times discusses trends in unemployment in New York City. The article begins by stating a pretty unassailable point, that unemployment in the city largely started rising after it had risen elsewhere. Then it discusses the spread of unemployment up the educational spectrum.

The article cites some statistics quoted by Lawrence Mishel, the president of the Economic Policy Institute, that suggest the burden of rising unemployment is higher among the college educated. His numbers are indeed correct: the number of unemployed who are college educated has risen 75% since March 2007, a faster clip than the 62% among all workers 25 and older.

But I think the more appropriate statistics to examine are these groups' unemployment rates. Among the college educated during this period, unemployment has risen from 1.8% to 3.1%, a rise of only 1.3 percentage points. Among all workers 25 and older, unemployment rose form 3.5% to 5.5%, up 2 percentage points. The unemployment rate is the unconditional probability an individual worker will be unemployed, and a smaller rise in that probability suggests greater insulation against recession. The percentage increase in the number of unemployed is a statistic that cannot account for the very different equilibrium frequencies of unemployment among educational groups, which makes it less meaningful.

What form should policy take?

Greg Mankiw thinks monetary policy, if it were able to lower long-term interest rates, might still be able to stimulate private investment. Mankiw also raises the important points that fiscal stimulus will (a) raise the level of public indebtedness and place a heavier tax burden on future generations, and (b) might be more efficiently carried out at the state and local level, where infrastructure investments are typically made during normal circumstances.

Other observers, like Paul Krugman and David Brooks, are arguing more unequivocally for fiscal stimulus through infrastructure investments. Brooks in particular raises the point that state spending on higher education, itself an infrastructure investment, should ideally be targeted given how states typically cut such spending during recessions in order to run balanced budgets.

Much has been written about a deceleration in U.S. educational attainment, although that may mean high school graduation rates rather than college. But if students at the margin could be encouraged through an expansion of state support to complete college degrees, that seems like a very worthy goal with at least three important benefits.

While in school, students would presumably not be looking for work and lowering wages for other workers; their human capital investments would pay off for them in the form of higher wages in the long run; and future tax revenues would be bolstered because of their higher wages and the progressive income tax structure.

Taylor on the macro effects of the 2008 tax rebates

Today John Taylor weighs in on the 2008 income tax rebate plan, with some sobering macroeconomic evidence of little if any consumption effect.

Recessions Can Do Wonders

"Recessions Can Do Wonders For Your Health."

Psychosocial effect of recessions

I don't know the literature that David Brooks is surely drawing from in discussing the nonpecuniary impacts of recessions, but he sure does.

Over at NYU, Dalton Conley has written about the benefits of homeownership along multiple dimensions of human well-being that typically aren't market outcomes. Brooks basically lists the set of things that are likely now to decline among folks who are suffering foreclosures and job loss.

Another sign that Google is our new god

Although it also mentions Yahoo!, an article in the Times yesterday about tracking influenza prevalence using information on Google searches points out how powerful a tool the world's top search engine has become. Google has a public site on flu data.

As Hal Varian points out in a quote, the amazing thing about data on keyword searches is that it can help forecasters track current events far better than extrapolative techniques, which only look backward.

It can't be long before somebody figures out a way to mine Google search data for signs of business cycle inflection points.

Recession and the demand for education

Today's New York Times reports on surging demand for classes at CUNY's community colleges. Ironically, but not atypically, this comes just as state and city officials are cutting CUNY's budget and requesting further cuts. An article yesterday reported the governor's thoughts about balancing the state budget: cut education and health (Medicaid).

Unemployed or "underemployed" workers have clear incentives to obtain additional training; it may add skills that enhance employment prospects. Enrolling or reenrolling in college is also a nice bridge element for a resume that would otherwise have holes. Viewed another way, the opportunity cost of spending the time obtaining skills --- the value of what you could be doing otherwise --- has surely fallen during a recession.

As today's article states, tuition at CUNY is extremely low, at $2,800 and $4,000 per year for community and the senior colleges respectively, and it hasn't risen in 5 years. That isn't to say that an increase in tuition may not dissuade students at the margin from attending, but it suggests that a tuition hike would be in line with the general rise in prices of services over time. Apparently the CUNY Chancellor will recommend precisely such actions to the city and state rather than budget cuts.

There is much talk of the need for fiscal stimulus, with Alan Blinder and Martin Feldstein both calling for federal government spending to ameliorate the effects of rapidly declining consumption spending. On the one hand, perhaps college education is not an area that really needs stimulus, given the countercyclical growth in demand. But it is clear that states saddled by balanced budget amendments are likely to reduce spending rather than raise taxes and fees to cover their deficits. Either one is likely to worsen the economic outlook. Direct federal aid could certainly help.

As a CUNY professor myself, I can assure you that long-overdue infrastructure spending in CUNY --- new, larger, modern classrooms with AV capabilities --- would be an excellent fiscal stimulus with real long-term benefits. At Queens, it is a struggle to lug a projector into my classroom every week!

Friedman on the downside of bank rescues

Yesterday Tom Friedman wrote about the costs associated with the U.S. government taking ownership positions in banks in order to inject capital into the financial system.

There's the financing, an overt cost, but Friedman talks about the implications for risk-taking when government steps in. On the one hand, you might imagine that government ownership would inspire too much risk --- kind of like how Freddie and Fannie, with their assumed government support, extended mortgages too far into the subprime market. But as Friedman points out, another common effect of government ownership is actually to stifle innovation and risk-taking by all but the largest, surest-bet players.

Baseball and ... health care?

Billy Beane, Newt Gingrich, and John Kerry (yes, you read that combination correctly) write today about statistical methods in optimizing health care delivery, like statistical methods in optimizing a baseball team!

As a longtime Oakland A's fan, however, I'm sure I think we should be listening to Billy Beane about putting together a winning health care system. Sorry, Billy! At least you have good company with Gingrich and Kerry!

Anna Schwartz on the crisis

The NBER's own Anna Schwartz weighed in on the credit crunch and Fed policy in the Wall St. Journal. She made the dead-on point that current policymakers are fighting the last credit crunch. The problem has been that there are about as many ideas on how to fight the current crunch as there are economists, and that's a lot.

Views on health and recessions

Yesterday's Times included an article on health during recessions that offered some circumspection about recent research findings in the area.

More from Kashyap and Diamond

More from Doug Diamond and Anil Kashyap on the financial crisis, courtesy of the Freakonomics blog.

More on business cycles and health

Today's New York Times included an article on exercise during economic downturns.

We suspect that job stress is probably higher during economic upturns, when population health actually seems to deteriorate. But ameliorating stress is cited in the article as a reason why during downturns folks at least on Wall Street flock to gyms and yoga classes. These two facts seem at odds insofar as the implicit source of stress is the recession itself; but maybe they aren't at odds if upswing-stresses never get treated with exercise because of time constraints.

The article also cites career counselors who tell unemployed clients to focus on fitness, which is interesting and certainly fits the statistical findings of better health during downturns.

To be sure, the current downturn is also a little different from others in that there has been a massive hit to financial wealth. In a paper I'm currently working on, I model time use, which can include exercise, controlling both for changes in stock prices and for changes in unemployment. As you might expect, the two suggest different things. Higher unemployment can reduce the price of time and incentivize health behaviors that are otherwise viewed as too costly in terms of time. Lower stock prices lower wealth and through a pure income effect can lead to lower purchases of everything, including leisure (and exercise) time.

Food policy, energy policy

Over the weekend, the Times magazine ran a long article that read like an op-ed on food policy. It is clear that efficiency and energy-consciousness in agriculture is on people's minds given the recent run-ups in food prices and energy.

A New Yorker article earlier this year revealed how difficult it is to embrace a particular food policy as being relatively more environmentally friendly. Sometimes growing stuff in one corner of the earth that is best suited to do so, and then shipping some elsewhere in the world, could actually be the "greenest" thing to do, in the sense of minimizing the sum total of costs. Growing locally is not necessarily the most earth-friendly option if the costs or doing so are high. The difficulty arrives in trying to measure the costs.

Market solutions are by no means guaranteed to minimize costs when prices of some things, like environmental quality, are unclear, and when there is significant government involvement in the promotion of certain activities and the impeding of others. Indeed, with as much government interference in agriculture as there is, is there any hope a market-based solution could work?

Long-term growth prospects

On Saturday, David Leonhardt provided a circumspect discussion of the prospects for long-term growth in the U.S.

One of his points, which although not new certainly bears repeating, is that the aging of the U.S. population will create considerable strain on the federal budget over the medium term, mostly through increased Medicare spending.

While this is certainly a challenge, it is most definitely not a challenge unique to the U.S. Among industrialized nations, the U.S. has one of the rosiest demographic futures there is. This is due to our relatively high rates of fertility and immigration, both of which will supply workers to the future economy. Even China, a large developing country, has a much bleaker demographic future owing to the one-child policy, which will place a significant strain on public transfer systems.

In short, while increased U.S. debt in the face of population aging is worrisome in an absolute sense, it is not cause for much alarm in a relative sense. The outlook for U.S. growth remains in pretty good shape because of immigration, fertility, and of course the magic ingredient of innovation.

Adoption and acceptance in Korea

Today's Times has an article about adoption in South Korea that discusses issues of child and family preferences. The article suggests that adoption has traditionally been stigmatized, resulting in many emigrant adoptees. Interestingly, the article almost in passing mentions an increasing premium placed on girls, a stark turnaround relative to other Confucian societies where male children are typically valued as caregivers.

As a share of population growth, adoption is currently quite small. Still, it will be interesting to see whether changing norms about adoption might significantly alter fertility.

Back-of-the-envelope effect of capital taxes

Lee Ohanian provides a look at the possible effects of an increase in the tax on capital proposed by the Obama economic team.

Moving from a 50% marginal tax rate (the sum of a 35% marginal corporate income tax plus the 15% personal income tax rate on capital gains and dividends) to a 55% rate by increasing the overt tax on capital from 15% to 20% is still an increase of 5 percentage points. But relative to the total tax rate, that's an increase of 10%.

The Ramsey model with Cobb-Douglas production and a capital share of 1/3 suggests this would ultimately reduce the level of capital and output along a balanced growth path by 5%, which is nothing to sneeze at.

Unexpected aspects of recessions

Today's Times has an article about how health might improve during economic bad times, something that Chris Ruhm at UNC-Greensboro has been writing about for about a decade. It sounds like an odd finding, but the idea is that unhealthy behavior like smoking and not exercising is associated with being very busy at work.

Some of my own recent work shows that patterns of time use in the U.S. since 2003 suggest that higher unemployment is associated with more and better-quality sleep, and with spending time taking care of adults.

See? The looming recession ain't all bad!

Keepin' it real

Today David Leonhardt at the Times has written a very nice piece on the credit crunch that makes things a little more real. The article leads off with a story passed down to a current professor of economics from his grandfather, who lived through the Great Depression, and who felt similarly about the scoundrels on Wall Street. Before the credit crunch led to the demise of his business.

Tom Friedman offers a similarly clear view. I think we need more journalists teaching economics to high school and college students!

The bailout and perspectives toward risk

When writing about who will pay for the bailout package, Paul Krugman wrote something about something subtle. Not the canard of Chinese financing, which I think people asked him about. Yes, China has financed our twin deficits in the current account and on government balance sheets, but the bailout represents something different than more government spending unfunded by tax increases.

It's risk sharing. When the government buys troubled assets or businesses, it is implicitly making the American public hold risk that previously was privately held. There may also be a subsidy involved, but to the extent the assets retain an uncertain value, we're talking about the assumption of risk.

On its own, this creates bad incentives for those private firms and individuals who originally took on the risk and got bailed out. But when all private savers become scared and uniformly decrease their risk exposure, as is currently happening, every business and individual with "risky" debt --- even credit card balances, basically anything that isn't a U.S. government security --- suffers. Then businesses' employees suffer when they get laid off. Then we all suffer.

One could argue that an (i.e., not the only) appropriate action of government in such times is exactly to take on more risk publicly, when it is newly being avoided by private agents, if we view the latter as suboptimal risk holding engendered by irrational fear. (If we think it's rational, that's another story. But do we think recessions are rational? That's a huge can of worms.)

Still, to many it's the rewarding of negligent risk-taking to which people object. Folks on the left and the right in the House despised the idea of bailing out people who "should have known better."

Stepping away from the financial crisis, does this sound at all familiar? In fact, we have a long history of disagreeing about public assumption of private risk in the U.S.

In another form, it is the debate over public health insurance.

Many of the same people who are upset about publicly assuming risk in the bailout are the same folks who are upset about publicly insuring citizens against risks to health. Not everyone, mind you; the left typically favors such moves, while they do not like the bailout.

And it would be wrong to suggest the two types of risk are more than just a little similar. But some of our nation's core beliefs, about individual responsibility and the scope of government, clearly affect perceptions toward both issues.

Best title ever

Perspectives offered by Robert Shiller are titled most appropriately. Shiller provides a long-term perspective on the lessons of the current financial crisis.

You know you're in trouble when

the far right and the far left work to defeat something the center supports. Although the roll call on the 228-205 House vote that set back the bailout is still unavailable, one suspects it's the forces of the free-marketers on the right and the populists on the left (and the right) joining together to bring it down. Score one for the wings!

My two cents

A friend asked me my thoughts about the bailout package, and I wrote an email book. Then it occurred to me I could post it!

With an extraordinarily complicated problem, it's difficult to express anything in a not-complicated kind of way, or even to come down firmly on one side or another.

But if prodded, I think I come down more firmly than many economists on the side of pro-bailout. It's not crystal clear exactly how deep the problems go with banks and other financial institutions, but I think it's likely right that the nation is facing a once-in-a-century type of financial crisis --- that demands public intervention.

The main argument against the Paulson plan is that it will put taxpayers' money on the line without necessarily undoing or rooting out the bad choices that got us into this mess. I think that's right, but I also think that can be done later, once the crisis has passed. Quickly cutting out the dead wood requires either public ownership of firms, which Republicans would never agree to, or allowing firms to fail, which would destroy the ability of banks to lend to anyone, a collapse of financial markets altogether. Many of us would lose our jobs, and although it wouldn't be permanent, it would be far more costly and painful than lending about $2,333 per person ($700 billion spread over 300 million people) to the markets via the Treasury --- money that we could be paid back, although it's uncertain.

What's been interesting to me is that academic economists have been deeply split on the bailout plan, because it has included basically no structural details. Economists hate the idea of throwing good money after bad, of not structuring something optimally. I'm leery of it too, but I'm dubious that this is the right time to be arguing over details.

The form of the bailout

The price tag of the $700 billion rescue package currently before Congress is generating much interest regarding the conditions of the bailout. The Times's Paul Krugman is just one of the more vociferous advocates, certainly not the only one, of a realignment of the terms toward public ownership of financial institutions, not purchase of their questionably valued assets.

If recent history in Sweden serves as any guide, it certainly suggests public ownership is a feasible solution, at least for a country whose GDP is only about 2% of U.S. GDP and is thus considerably smaller relative to the entire market.

Traditionally, the Republican Party has been relatively more opposed public ownership of market participants, and certainly in normal times such opposition makes a lot of sense. Given the topsy-turvy state of political views about this, however, it is far from clear who, if anyone, may stand in the way of such a move, if it were ever formally suggested. Per Krugman, apparently Christopher Dodd has introduced a competing bill with such provisions.

Why we bail out: Slides on banks and panics

I wrote up a set of slides on the financial crisis of 2008 for my undergraduate macroeconomics class at Queens College this term.

We do we bail out insurance groups and investment banks who bet unwisely? After all, it's our money, right? Read on.

Heady days

The announcement by the U.S. Treasury today that mutual funds can pay a fee to be federally insured against losses for a year is a clear sign of the breadth of the financial crisis.

I have to admit, I started thinking this week about whether to yank my money out of a mutual fund and into an FDIC-insured bank account. Thanks, New York Times! I suppose it could be seen as ironic, but really it's revealing: the Treasury made this move precisely because people like you and I are thinking about doing just that.

A great overview of the crisis by guests on Freakonomics blog

Doug Diamond and Anil Kashyap penned a very thoughtful overview of the financial crisis, where probably the most interesting part is the analysis. The Fed arguably made the right move by not addressing the credit crunch with a (further) lowered federal funds rate, but by some underwriting, a.k.a. bailing out. But what precedents does that set, and what implications are there for behavior of firms like A.I.G. that are far from the Fed's typically regulated client?

Then, it was railroads, not subprime mortgages

I was reading Gotham last night and almost did a double-take after reading the beginning of Chapter 58, which discusses the financial crises of 1873, on which Wikipedia also has a page.

So many aspects of the current financial crisis have counterparts in past crises, this one in particular. That is to say, financial crises are certainly not new. The sad part is that despite all this knowledge, we seem to have remained powerless to stop them.

The collapse in railroad stocks led to a general banking panic and a multi-year recession. Here's a quote from the book (page 1021) attributed to Cornelius Vanderbilt, where if you just replace "railroads" with "subprime mortgages," you'd describe the current situation quite well:

"There are," he argued, "many worthless railroads started in this country without any means to carry them through." To raise money, entrepreneurs had turned to "respectable banking houses in New York, so called," who affixed them with "a kind of moral guarantee of their secureness" and sold the bonds in Europe. But the roads, many of which went "from nowhere to nowhere," soon got into difficulties. "If people will carry on business in this madcap manner," he concluded, "they must run amuck."

Sound off about SmartWork

SmartWork is a new online homework assistant developed by WWNorton to assist in college education. Like Aplia, it provides students flexibility to have a level of interactive learning at the time and place of their choosing, rather than during class or office hours.

The team at Norton has spent many long hours designing SmartWork, and many aspects of the program work well.

How is SmartWork working for you? Tell us what works and doesn't work about SmartWork.

Anemic consumer spending

In spite of the tax rebates that went out in May through mid-July, consumer spending has been pretty weak. Real consumption (PCE) rose 0.3 percent in May, but then fell 0.1 and 0.4 percent in June and July.

Part of the reason real consumption (quantities) is so sluggish is because prices have been racing ahead. The PCE deflator rose 0.4, 0.7, and 0.6 percent in May, June, and July, mostly because of food and energy prices.

Obamanomics and an overview of recent economic trends

This Sunday's Times magazine contains an article about Barack Obama that is arguably more interesting for its historical scope.

It provides an overview of where the nation has been and seems to be heading in terms of typical economic well-being, government policies, and the interaction between the two. I'm not sure I believe the author's assertion that Obama's emerging economic policy perspective is both more liberal and more conservative than his predecessors', depending on how you look at it. Rather, I think it is a synthesis of what we have learned about the macroeconomic impacts of policies, not unlike a prevailing view in any field of study.

Japan and population decline

A Times article today discussed Japan's aging population and the economic strains produced by a shrinking labor force.

The article reports about 1 million foreign workers in Japan, or about 1.5% of a total labor force of about 67 million. By comparison, the U.S. has about 24 million foreign-born workers, or 16% of the U.S. labor force.

If you think immigration politics are brutal here in the U.S., the unease about immigration in Japan is enough to make you wince. The article reports that "no Japanese interviewed welcomed the idea of immigrants [in his or her town] or elsewhere in Japan."

Educational attainment and inequality

Today David Brooks again writes about educational attainment over time in the U.S., and I think I understand why I misunderstood his earlier columns.

The first paragraph in a recent NBER working paper by Jim Heckman says it all: "American society is polarizing. Proportionately more American youth are graduating from college than ever before. At the same time, American-born youth are graduating from high school at lower rates than 40 years ago."

If you take a quick look at the educational attainment statistics, comments like Brooks's earlier remarks about declining attainment just don't seem to hold up. This is what I originally found, but the mistake I made was looking just at college attainment, which is only relevant for about 30% or so of the workforce. Apparently closer inspection reveals this divergence in skills between the bottom and the top that Heckman and Brooks talk about.

Credit crunch affects more than just the housing market

Yesterday an article about evaporating bank loans described exactly why a credit crunch is so dangerous to the macroeconomy. Having felt stung by underperforming real estate loans, banks are restricting credit to businesses and consumers.

A telling statistic: the $99 billion decline in credit from $3.36 trillion last year to $3.27 trillion this year comes close to the amount of stimulus in the tax rebates that Congress injected into the economy this year, a number quoted at about $150 billion.

Who's to Blame?

It's baffling to me why we feel the need to blame something tangible, ideally one or two people, groups, or agencies, for macroeconomic events.

When it's rising gas prices or the declining value of the dollar, we blame speculators who supposedly twist markets in ways they should not be going. In previous decades, we heard officials in developing countries engage in this kind of finger pointing; now we hear it in the U.S. and from members of Congress.

When it's crumbling housing finance, strain on banks, and a recession, as we are seeing today, the blame-game is again in full force. An otherwise thoughtful piece today in the Times on the current macroeconomic crisis argues at the end of the article that we should blame the Federal Reserve for low interest rates during the recession of 2001 that spurred lending.

I'm not sure it's helpful to view macroeconomic events as anybody's fault, because it's precisely the interconnectedness of an entire economy that leads to trouble. And placing blame on the shoulders of a particular subpopulation is not politically healthy for a republic.

Talk of more fiscal stimulus

The Times is reporting talk around Washington of another fiscal stimulus package of an indeterminate character. A second bill could include infrastructure spending, a gas tax holiday, corporate tax cuts, or more personal income tax refunds in the form of checks sent to taxpayers.

Although June figures may indicate something different, I wouldn't say that the May personal income report showed much stimulus during the round of rebate checks. Out of a $600 billion increase in disposable personal income that month, only about $41 billion or 6% was apparently spent.

Zimbabwe's descent into economic and political purgatory

Today Tom Friedman took a break from talking about energy policy (which he has done both very frequently and very well) to talk about the continuing deterioration of conditions in Zimbabwe.

He cites an AP report from May gauging annual inflation at 1,063,572 percent, "based on prices of a basket of basic foodstuffs” presumably measured by reporters, to a level where “a loaf of bread now costs what 12 new cars did a decade ago.”

That's right, inflation of a million percent.

That's a multiplicative increase of 100 million.

Imagine a million dollar bill. Now imagine its purchasing power dropping to that of a penny.

More on rotten jobs and female aspirations

Yesterday in the Times John Tierney wrote an article about sex representation and discrimination in academia, and specifically in federally supported research universities.

The twist on the topic in my earlier blog post in June, where the Atlantic book review article discussed rotten jobs and females understandably opting out of them, is that one might view being a physics research professor as a rather rotten job. Or at least, not preferable. The article cites a study that found no sex differential in entrance into the computer industry once an individual's preferences for "tinkering with inanimate objects" were controlled.

One can certainly question whether these preferences are the product of nature or nurture. Is it possible that preferences are just different at birth between males and females? Or are they "socialized in"?

Lowest-low fertility in the Times magazine

In yesterday's NYT Magazine there was an article about low fertility in Italy and about fertility in developed countries in general. Female aspirations and equality of responsibility for work and family seem like they may be a big part of the equation.

May's issue of the academic journal Demography includes an interesting article about female preferences and childbearing. It suggests moms with greater tolerance for risk also seem to wait later to start having kids.

Tax rebates raise income a lot, consumption a little!

Although the NY Times is putting a more positive spin on it, the news out of the BEA on income and spending in May suggests to me that folks aren't spending their tax rebate checks, at least not yet.

While incomes were up 5.3 percent in May, consumption was up 0.4 percent. Nothing to sneeze at, perhaps, but a fair cry from a large consumption effect for now. We'll see what happens in June and July!

Rising demand among developing countries or among speculators?

Paul Krugman writes about the rising prices of raw materials again today. His perspective is that speculators may be bidding up prices somewhat, but that the rising demand for iron ore, a commodity for which it is hard to buy or sell short, suggests a real increase in demand is at work. In particular, he sees rising demand from developing countries like China.

Ironically, on the same day we see a report on the rising price of scrap metal and the lucrativeness of recycling. Why? Because of demand for raw materials from China and India.

Female work aspirations in a world of rotten jobs

Sandra Tsing Loh has written a very nice book review in The Atlantic that neatly lays out some of the issues surrounding female labor force participation.

One of the key points, although not new to experts in this field, is that so many jobs in the modern economy are just rotten. Faced with the choice of working in a soul-sucking cubicle making money that just pays for nannies and conspicuous consumption versus staying at home with the kids, smart moms may well choose the latter, and that is not necessarily a bad thing for women's empowerment.

Immigration politics depending on age structure?

That's one of the themes in an article in the Times today on immigration in Southern Europe, where populations are generally older than they are elsewhere due to low fertility.

You might call that a "pull" factor, a characteristic of countries like Spain and Italy that pulls in immigrants. Another pull factor might be domestic political progressivity.

There also are "push" factors, characteristics of sending countries and their emigrants. For example, Southern Europe is closer to developing countries where incomes are lower, like the U.S. is close to Mexico. Southern Europe shares languages and cultures with many developing countries. (The reason? Past outmigration of Southern Europeans to those places! And not always in the most peaceable of manners.)

The upbeat tone of this article contrasts distinctly with coverage of the recent tragedies in South Africa, where dozens of immigrants have been killed by bands of angry South Africans.

Saving, Spending, and Age

Today David Brooks writes about profligate consumption (financed by credit card debt as opposed to savings) by the young and financially unsophisticated.

Meanwhile, Boston University's Larry Kotlikoff writes about profligate consumption (financed by government borrowing) by the old and medically needy.

It is interesting that both perspectives should be so different but also so compelling. Credit card debt has grown rapidly in the past decades, and large increases in housing debt among younger households have driven increases in household indebtedness (Dynan and Kohn, 2007). But Kotlikoff is writing about the potentially far more troublesome pattern of rapidly increasing indebtedness of the U.S. government triggered by current and future entitlement spending --- Medicare, mostly, and also Social Security --- on the elderly.

So it's hard to pin down a bad guy here, though we may want to pinpoint somebody or some group whose actions are mucking things up. I think what we can say is that expanded education about the uses and consequences of public and private debt is probably a very good thing in which to invest. Even if it may require that we borrow some money to do it!

Resveratrol, caloric restriction, and aging

I guess I'd rather drink 30 bottles of red wine a day and extend my life with resveratrol rather than restrict my calories by 30%. Go figure!

Actuarial Shenanigans in NY

Actuaries are supposed to provide honest guesses about future cash flows, but according to an article in today's NYTimes, that hasn't always been the case when it comes to NYC pension programs. Apparently an actuary hired by city public employee unions has admitted his work was heavily skewed in favor of finding low future costs for program expansions, and thus akin to "voodoo."

To make matters worse, the article states that once public employees receive a benefit, the New York State Constitution prohibits tampering with it. This creates a far more grave problem that that facing U.S. Social Security, whose benefits are not guaranteed by the U.S. Constitution.

Present Discounted Value and Real Estate

Last week, a writer at the Times described his changing view of buying versus renting by making reference to the "real estate market's version of the price-earnings ratio," or the price of a unit of housing divided by the annual total rent for an equivalent unit.

This is a useful summary measure because in equilibrium, it should be equal to 1 / [1 - 1/(1+i)], where i is the annual (nominal) interest rate on a mortgage. This is because the price of a housing unit should equal the present discounted value of its income stream, a.k.a. its rent. If you own housing, you're "paying yourself" the rent by enjoying it. (Or you could rent it out yourself.)

The math of present discounted value suggests that in equilibrium, the price of housing, P, should be equal to

P = R / [1 - 1/(1+i)]

where R is the annual rent. Or equivalently,

P/R = 1 / [1 - 1/(1+i)]

Suppose i = 7.5%. Then P/R should be about 14.3. Suppose you live in New York and rent at $2000 per month. Then the purchase price of that unit should be about $344,000. If P exceeds that, renting is a better deal.

Sound low? We've assumed that the rent, R, stays the same over time. If R were rising, as it probably is in most markets, say at some rate r, then the equation becomes:

P/R = 1 / [1 - (1+r)/(1+i)]

And you might expect to see a P/R ratio around 19.5 or so. The deductibility of interest payments also lowers the after-tax interest rate you actually pay, to something below i.

Student Loan Ailments

The Times reported today on the credit squeeze faced by borrowing students at colleges further down the food chain, presumably another result of the general credit crunch brought on by the subprime crisis.

Last summer, a similar article discussed huge debt burdens among students who had taken out private loans.

The big question is whether increasing reliance on private bank loans mixed with fluctuations in interest rates, or maybe unfortunate choices brought on by risky or myopic behavior, changes behavior or outcomes. Much research like this working paper by Jesse Rothstein and Cecilia Rouse finds impacts of debt on post-graduation choices. Is there also a matriculation or dropout effect?

More anecdotes on gas prices and transit behavior

Another day, another story about high gas prices inducing changes in economic behavior, whether it's spending less overall on gas or the likely concomitant changes in commuting and other transit behavior.

The unfortunate thing is that by and large it is individuals with relative low income who are reported to have changed their behavior because of the rising relative price of oil. A higher gas tax back when the price was lower would have had the same asymmetric impact, but with a tax the U.S. government could have at least used the tax revenue to compensate the hardest hit.

Were the oil shocks of the 1970s coincident with changes in transit behavior? If yes, were the effects permanent or transitory?

Is education recession insurance?

The CUNY Chancellor states that college experience is "recession insurance" because folks with some college experience are less likely to be unemployed than those without.

I think this observation is based on cross-sectional data: You survey everyone at a point in time, and it turns out that those with more education are less likely to be unemployed.

But that's not really the answer to the relevant question here, which is if you have more education, does that provide protection from becoming unemployed at some future date? Does education lower the probability of becoming rather than being unemployed?

What's the difference between these concepts? Economists categorize unemployment by three types of cause: cyclical, structural, and frictional. The first is what we mean when we talk about a recession. The second and third refer to underlying disincentives or other impediments to working, which are relatively low in the U.S., and the normal churn in a job market where millions of jobs are created and destroyed each year.

It is easy to imagine how education might insulate you against any combination of these three causes, and how it may not insulate against any particular one. Recent research in macroeconomics has identified the difficulty of finding a job as the key motive force behind rising cyclical unemployment during recessions, and not increased layoffs or quits. One would expect that more education should improve the chances of being newly hired, but I'm not sure that's true.

Some cities in population decline

The NY Times reported last week on deaths exceeding births in some U.S. cities, notably Pittsburgh.

Two local friends of mine used to live in Pittsburgh, before emigrating to New York --- where they had a child!

The causes of population decline can frequently be economic in nature, and they probably are in this case. Pittsburgh is not a place where more people die than anywhere else, or where something in the water prevents conception.

Some cities and counties, for example in Florida, deaths exceed births more because of in-migration of the elderly rather than the out-migration of the young.

Fuel costs, mass transit, and obesity

A link on Paul Krugman's blog led me to this NY Times article on increased transit use during a time of rapidly rising gasoline prices.

Some of my recent research has examined public transit usage, walking, obesity, and health care expenditures. To the extent that transit use increases walking and reduces obesity, users save additional money just by being healthier.

Growth, population pressures, and resources

Paul Krugman writes about rising food and energy prices today in his column, and he thinks they are the result of significantly increased worldwide demand that has not yet (and which may never be) matched by an increase in supply. The third possibility he sees is that speculators are just betting, incorrectly, on higher prices. Apparently Warren Buffett believes that to be the main reason for recent price increases.

The reigning expert regarding resource constraints on economic growth is Yale's William Nordhaus. I haven't seen any research recently that suggests rapid world growth, centered in China and to some extent India, will dwindle resources so much to create a significant drag.

An upside to recessions

Drake Bennett at the Boston Globe wrote an overview published yesterday about recent research on the beneficial impacts of recessions for population health.

Although individuals who actually lose their jobs in a recession are probably unambiguously hurt, everyone else probably works less hard. They may also behave healthier, perhaps by smoking and drinking less. Chris Ruhm at UNC Greensboro has spearheaded recent work in this area.

How else might recessions be good? Do folks spend more time with their families?

Rising inequality in health

The NY Times reported this Sunday on trends in health inequalities as revealed by county-level mortality data. The universal pattern that seems to emerge from several different recent papers is that inequalities in life expectancy have risen since 1980.

Nancy Krieger and colleagues say this is new since 1980 and may reflect the redirection of policy under Reagan. Part of the problem concerns interpreting measures of mortality. Proportional differences in mortality rates roughly translate into additive differences in life expectancy, which we tend to perceive as static health inequality. Under this definition, Krieger et al. reveal no change in inequality prior to 1980.

Krugman on banking panics

Paul Krugman is a fabulous macroeconomist and a halfway decent political columnist, and it really shows in his columns in the New York Times. Today he writes about the credit crunch currently underway, and his perspectives are spot-on.

The challenge facing policymakers and markets is to design a regulatory framework that encourages innovation and risk-taking while ensuring transparency. In the case of subprime mortgages, it seems pretty clear that regulators did not do a very good job of the latter. A speech by the Fed's Ed Gramlich in 2004 discusses some of the issues the Fed was grappling with prior to the meltdown.

China's One Child Policy Sticks --- for now

According to the New York Times, China's One Child Policy will remain in place for another decade or so. The population minister, Zhang Weiqin, was quoted as warning a change in the policy "would cause serious problems and add extra pressure on social and economic development.”

As the largest country population-wise, and as a developing country China obviously has some special circumstances. But a universal challenge facing human societies is a declining worker/retiree ratio, which is the natural result of population aging. Under a one-child policy, that pressure is only increased.

To be sure, rapid growth in per capita incomes works to offset that pressure to some degree. Annual growth in income per person in China has averaged about 7 percent, resulting in a doubling every 10 years or a quadrupling or more each generation.

Forecasts suggest slackening in college demand

A NY Times article reveals forecasts of a reduction in the number of public high school graduates beginning around 2009.

This appears to be solely the result of the underlying population projections, which reveal a reduction in the absolute number of 18 year-olds, for example, after 2008.

Equity in health care: how far?

Yesterday's NY Times published an article about access to cancer-treating drugs in Britain's National Health Service (NHS) that really lays bare the challenges faced by public health insurance systems. The article tells of Brits with cancer who are denied access to certain pharmaceutical treatments by the NHS because they are too expensive.

But it doesn't stop there. The NHS funds a set level of care for all Brits, although effective standards can vary by region based on waiting times, etc. The article described how the NHS threatened to withhold payment for any other treatment if the patient purchased the drug of her choice on the open market.

Why? The argument is that the NHS functions by providing equal care to all, period. Apparently that means choosing a particular cost structure for the average Brit and sticking with it --- even though benefits and the valuation of those benefits could vary across individuals, as do income, wealth, and education. It is the latter point that presumably riles up the NHS; folks with more money or knowledge may demand more health care.

Trends in suicide?

U.S. vital statistics have measured suicide and all the other causes of death for quite some time. But physicians are always becoming better at categorizing causes of death, so the classification system is updated every decade or so.

As reported by the Times, data collected using the current ICD-10 system reveal an increase in suicide rates for most age groups under 65 between 1999, the first year of ICD-10 collection, and 2004. Rates among adults 45-54 rose by 20%, from 0.000139 to 0.000166.

Temporal fluctuations in mortality are certainly interesting; there is evidence that many causes of death are more prevalent during economic expansions, for example. Suicide, on the other hand, typically falls during expansions and rises during recessions. This is discussed in a 2005 article by Jose Tapia. Seen in this light, a rise in suicide between 1999 and 2004, two years of relative prosperity, is a little odd.

One wonders whether physicians need time to learn a new cause-of-death coding system.

Idle youths

Yesterday the Times reported on "Islamic fervor" among Egypt's young, who comprise a significantly larger share of Egypt's population than say, American youth. The story is that unemployment and deprivation seem to be linked with a rise in fundamentalist belief.

The article led off with an anecdote about a young man who couldn't raise the funds required by the families for him to marry. For me, this perspective echoes back to Richard Easterlin's relative-income hypothesis of the late 1970s, although whether it is lower income truly in a relative sense that is creating anomie, or just lower income in an absolute sense, is unclear.

What is causing what is, as usual, completely unclear. Many countries that are majority Islamic are also developing countries, with high fertility rates and family sizes. But there are vast differences in unemployment and per capita income, with the Gulf states typically being better off for a variety of reasons.

In the extreme case, of religious fervor resulting in violence or terrorism, Alan Krueger and others have found few links to economic deprivation. I think the story there is more one of political deprivation.

Educational attainment, growth, and demographic change

David Brooks wrote in his column today that

"The percentage of young Americans completing college has been stagnant for a generation. As well-educated boomers retire over the next decades, the quality of the American work force is likely to decline."

I do not think either statement is true. According to data from the Current Population Survey, the percentage of workers aged 25-34 with a college degree has risen from about 24% in the late 1970s to about 30% today. The data do reveal plateaus between about 1975 and 1995 and perhaps another one since 2000, but much intergenerational progress.

Meanwhile, about 30% of workers currently aged 55-64 have college degrees. While the boomers certainly were better educated on average than their predecessors, there is little evidence to support the idea they are any better educated than younger cohorts. Their looming retirement will be challenging, but not because of any impending decline in the average quality of the labor force.

Confidence and credit, 1930-style

Paul Krugman compares the current crisis in lending spurred by the crumbling subprime real estate market to what happened during the Great Depression, minus the photogenic lines of people trying to withdraw their cash from banks.

As he implied, the good news is that this time, the Federal Reserve is actively trying to keep credit from drying up, rather than wring the bad loans out of the system. In 1930 and 31, the big mistake was allowing the entire banking system to pay for the mistakes of a few.

Bush signs fiscal stimulus package

The fiscal stimulus package, which will send you $600 in the mail by May, is officially signed sealed, and delivered. Now the big question is: what will you do with it? Pay off your credit card? Or buy a couple of iPhones?

Immigration and population change

As reported today by the Times, Jeff Passel and D'Vera Cohn wrote a report for the Pew Research Center that revealed a large role for immigration in U.S. population growth to 2050.

The direct effect of immigration on population growth is not particularly large; the flow of new immigrants into the U.S. every year accounts for perhaps one-third of the 1% annual rate of population growth. But new immigrants typically arrive young, with families, and their families tend to be larger than those of the native-born (i.e., immigrants' fertility rates are higher). So Passel and Cohn project immigration will account for 82 percent of the net increase in living U.S. residents, or about 117 million of the 143 million new people we will have by 2050.

This certainly adds perspective. The report also discusses trends in the "dependency" or support ratio --- the number of non-workers per worker. Immigration typically reduces it, meaning that immigrants help pay for Social Security and for kids' education. But the effects of immigration do not appear to be large relative to those of the retirement of the Baby Boom.

Great advice for grad students

I knew Darren Lubotsky when he was a graduate student at UC Berkeley. He has written a very useful, if a little dense, 4-page work on how to be a good graduate student. All of us "wish we'd thought of that" when we were graduate students!

A tough time for the Fed

Yesterday the Federal Reserve cut the federal funds rate by another 0.50%, after a between-meetings cut about week before. The Fed was reacting to a credit crunch and the slackening of economic growth stemming from troubles in the housing market.

But at the same time, overall consumer price inflation was up 4.1 percent in December over a year earlier. While the "core" rate (less food and energy) was up only 2.4 percent, inflation is still clearly a concern. Per the Humphrey/Hawkins legislation, the Fed has twin goals of full employment in addition to price stability, but the latter concern seems to have taken a back seat recently.

This is arguably for good reason. The Fed is probably gambling that inflation will remain tame either because (1) much of the recent surge is due to energy prices, which are unlikely to be affected much by U.S. domestic developments, or (2) the deceleration in aggregate demand we have recently seen should dampen prices anyway.

Keep your fingers crossed! But it probably isn't time to jump to inflation-indexed bonds if you don't own them already.

Military service and health

As discussed by the New York Times, the New England Journal of Medicine published a research article on mild brain trauma among Iraq War veterans and psychiatric symptoms like PTSD.

A colleague of mine, Alair MacLean, studies combat exposure and life outcomes among veterans. The costs of military service are considerable, and I think it is an open question whether the government compensates veterans enough for having borne them.

An inversion of a notorious inequality

In 2006, the Times reported a key finding of Andy Beveridge's group at Queens College, City University of New York, about the black/white income differential in Queens County.

Beveridge found, in the Census Bureau's 2005 American Community Survey, that median household income for African Americans in Queens County was $51,836, nearly even but still surpassing that for whites, $50,960. The median Asian household received $52,998.

The article discusses a number of reasons why this might be true. An unanswered question I'm interested in: does this inversion of the race differential show up in health statistics as well?

Tax rebate details

The Washington Post presented a clear overview of the tax rebate (a.k.a. fiscal stimulus) package agreed upon by House leaders and the White House.

Unlike the 2001 cut, the rebate checks will phase out to zero beginning for individuals above $75,000 and couples above $150,000 in adjusted gross income.

It only sounds insane

Len Burman of the Urban Institute dropped a bomb on the Times op-ed page today. He suggests rolling back the Bush income tax rate cuts a year early, in 2009, rather than in 2010, when they are currently set to expire.

He sounds nuts, but Burman makes a subtle point: if taxpayers expect a higher tax rate in 2009, they will shift some taxable activity, in this case working, into 2008 instead. And that should help stimulate the economy.

Despite what Burman and others have said regarding the 2001 fiscal reform, I doubt this would have as stimulative an effect as a broad-based tax cut that placed rebate checks in the hands of a lot of folks. But it is an interesting, although a completely counterintuitive and probably DOA, proposal.

Child sex preference and development

Back in December, the New York Times reported on the evolution of child sex preference in South Korea. The view advanced was that increased female labor force participation, a necessity of industrial progress, had raised the economic value and social status of girls.

Fiscal stimulus and macro impacts

Events have moved quickly over the past two weeks, and chances of a fiscal stimulus package passing Congress and getting signed by the President look surprisingly good.

Policymakers and their advisors are struggling to settle on the optimal design of the package, and as reported by the NY Times, it's because we don't know exactly what happened in July and August of 2001 when the tax rebate checks were sent out. The events of 9/11 produced basically a coincident shock, and it is tough to disentangle the responses.