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!