Many countries, many immigrants, many without documents

Yesterday the Times reported on immigration stories belonging to Chinese Americans, on the occasion of the reopening of the Museum of Chinese in America. The reporter points out that undocumented or illegal immigration is hardly a recent phenomenon.

Christina Romer on the crisis

A very helpful overview and update of the financial crisis and the state of the economy is offered by CEA chair Christina Romer.

Taylor and a stimulus follow-up

Last week, John Taylor and friends authored a piece in the Wall St. Journal that updated their earlier discussion, which I blogged about here.

A 2009 paper by Matthew Shapiro and Joel Slemrod describes how the 2008 tax cuts seemed to offer low "bang for the buck." I particularly like their Table 2, which lists the percentage responses to their survey question about spending the tax rebate. The marginal propensity to consume rises with age, which is consistent with what the life cycle model predicts.

Preston and Ho on U.S. mortality and health care

The Times just wrote up a summary of a recent NBER working paper by Sam Preston and Jessica Ho that compares mortality and life expectancy in the U.S. to their levels in other industrialized countries. In particular, the authors examine progress against mortality from (breast and prostate) cancers that are not associated with behavioral factors. They find the U.S. has made better progress against those causes of death than have other countries, progress that can only be attributed to the quality of the health care delivery system. Their conclusion is that our health care system on average produces high quality care, as measured by preventable mortality.

The great recession and female labor force participation

On Friday the Times ran a story about women who are reentering the labor force, typically having been stay-at-home moms, because of spousal unemployment, losses in asset values, or just plain worry. Today, Sunday, Maureen Dowd writes about the long-term downward trend in female happiness coinciding with greater access to careers, quoting Penn economist Betsey Stevenson. A nice coincidence; it's probably not very easy, or happiness-inducing, to be the economic insurance policy of the household!

Another post on the state of macroeconomics

The part of David K. Levine's rebuttal to Paul Krugman I liked the best was the analogy between shocks to markets and the inherent randomness in the movement of physical particles. I think it's more controversial that Levine implies; markets are full of people, who make choices. Particles, as far as we know, don't.

Maybe part of the problem some of us have with markets is that we think people ought to do the right thing because, after all, we are moral creatures. We are capable of understanding the consequences of our actions.

This way lies the road to political economic philosophy! If that's what it's called. Don't ask me, I'm just an economist.

Investing in human capital vs. saving for retirement

The Wall Street Journal's Steve Yoder writes about saving and educational debt in a piece that is probably most interesting for its laying bare of generational perspectives on thrift.

Yoder thinks his son should take out student loans to finance college, while he invests his earnings from co-appearing in the WSJ in a retirement savings account. There is absolutely no mention of relative rates of return or liquidity concerns, only the value of savings and thrift.

To be sure, the interest rate on federal student loans is quite low. You could arbitrage a gain pretty easily with just a money market mutual fund. Then again, that kind of behavior is what got so many people into trouble with real estate: borrowing to invest when you could avoid it. But I admit that the conditions are quite different, with a lot less risk.

But private loans are not cheap. And federal student loans are supposed to be means-tested. One could make a pretty good case that the taxpayer shouldn't be subsidizing his son's education so that the son can earn money in stocks and bonds, even if it is for his future retirement.

Life-cycle events and housing demand

The most interesting thing I saw in a recent article on tips for first-time homebuyers was an acknowledgement, in the third point, "Bow to the unknowns," about upcoming life-cycle events that may be financial game-changers. For example, childbearing and the desire to keep one parent at home rather than working. Another is the possibility of career change or long-term unemployment. Investing in housing is reversible, but it is not without cost, and it ideally requires a fairly long-range and accurate forecast of income and housing consumption needs.

Defining monetarism

In the course of reading about Paul Krugman and his recent NYT Magazine piece, I decided to Google for his 2007 New York Review of Books piece on Milton Friedman, which has a link to the reply from Anna Schwartz and Edward Nelson.

It seems like part of the acrimony concerns defining what monetarism is or was, and I'm still confused. I think Krugman thinks monetarism is a rejection of the notion (which we teach in college-level macroeconomics today) that the central bank can fight inflation or recessions by changing the real interest rate. I guess I'm not so sure that's clear. Friedman and Schwartz clearly stated that the Fed worsened deflation and the Great Depression through monetary policy. I can't imagine they could have felt that somehow monetary policy only worked in one direction and not the other; but it's clear that anybody can have an opinion about when it's prudent to try.

In the Fall of 2008, Anna Schwartz spoke at the CUNY Graduate Center about the financial crisis, and she argued that monetary policy should be allowed to work. (She also thought the Fed was fighting "the last recession" and not the current one, which is pretty hard to disagree with but also not all that constructive.) I blogged about her interview last year in the Wall St. Journal here.

Another acrimonious element seems to resolve around distortions, in the sense of being disingenuous about research in the defense of a particular viewpoint, and not market distortions, but the latter pun is apt. On this front, it's hard to avoid the perspective that Paul Krugman's pot is calling Friedman's kettle black.

Measuring the downturn

Greg Mankiw has two posts about measuring the severity of the downturn that are quite interesting. Read the first one here and the follow-up here.

The well-being index

Before reading a recent Times economix blog post, I wasn't aware that Gallup has measured a Well-Being Index via telephone interview for some 20 months now.

The blog post wonders why folks aged 45-64 are consistently the least happy. To me, the more startling bivariate cut of the data is by monthly income, shown halfway down this page, although it may essentially reflect the same dynamic since income and age are tightly correlated. People earning $3,000-$3,999, or between $36K and $48K per year, are the least happy, less well off than those below them on the income distribution.

What could be going on is that monthly income measures only earnings and not transfer payments and in-kind transfers like food stamps. There has been much discussion recently about how the Census Bureau calculates poverty. But if income includes all these measures, maybe what we're seeing is the same effect of age.

Upon further look, I think the Gallup graphic is wrong, if the data in this release are correct. There, I see a monotonic relationship between income and well-being.

From the release: the Gallup-Healthways well-being index is "is comprised of six sub-indices: Life Evaluation, Emotional Health, Physical Health, Healthy Behavior, Work Environment and Basic Access. The Life Evaluation Sub-Index is partially based on the Cantril Self-Anchoring Striving Scale and combines the evaluation of one’s present life situation with one’s anticipated life situation five years from now. The Emotional Health Sub-Index is primarily a composite of respondents’ daily experiences, asking respondents to think about how they felt yesterday along nine dimensions. The Physical Health Sub-Index is comprised of questions related to: Body Mass Index, disease burden, sick days, physical pain, daily energy, history of disease and daily health experiences. The Healthy Behavior Sub-Index includes items measuring life style habits with established relationships to health outcomes. The Work Environment Sub-Index surveys workers on several factors to gauge their feelings and perceptions about their work environment. The Basic Access Sub-Index is based on thirteen items measuring resident’s access to food, shelter, healthcare and a safe and satisfying place to live."

That is, it does not specifically measure income, although individuals may be responding based on their income.

How does the demand for health rise with income?

A few days ago Greg Mankiw posted links on his blog to Robert Fogel's recent piece in The American on health care, and Daron Acemoglu's two cents about it. I think Mankiw hit the nail on the head with the confounding role of technological change in the income elasticity. It is definitely an issue of whether we're talking about the long-term, in which technology is changing, or cross-section, in which it isn't, and Fogel and others clearly mean the former.

But the former is arguably what's more relevant if we're concerned about the long-term sustainability of our system of health insurance and health care, using the rising share of health spending in GDP over time as our main indicator. In the first brush anyway, we're less concerned about how much more money is spent on health care by rich as opposed to poor consumers, although that is also an interesting paper.

Acemoglu and co's paper is great in that it totally takes the bait laid by Hall and Jones (QJE, 2007) about microstudies that could shed light on the income elasticity of life extension --- and upends the result. But the inconsistent results remind me of the very similar disagreement in the empirical literature about the income elasticity of the value of a statistical life, which also seems to break along longitudinal vs. cross-sectional lines. (Acemoglu et al. have 2 decades of data, but even that may be relatively short.) Viscusi and Aldy (J Risk Uncertainty, 2003) effectively examine a global cross section of countries after 1970; Costa and Kahn (J Risk Uncertainty, 2004) look at four decades of data in the U.S. The former believe the income elasticity is less than 1; the latter believe it's greater than 1.

I work in a related area, and the latest I heard from Chad Jones about this issue is that their model requires the elasticity of intertemporal substitution, which governs how "luxury" a good life extension is relative to consumption, needs to be less than one for there to be demand-driven growth in the health share of GDP, to paraphrase Fogel. In other words, for the longitudinal evidence and theory to be right.

Obama on (lifelong) education

President Obama's speech on education contains elements that are relevant for everyone, not just elementary and secondary school kids. His point about letting failures teach us is the most universal.

Hurting the few to help the many

Today's Times reports on eminent domain and the 2nd Ave Subway in Manhattan, which will displace renters and maybe some property owners (they weren't mentioned in the article). The article illustrates a not-uncommon theme in public policy: change that is expected to be beneficial to many may be very costly to a few.

I'm thinking of trade policy, Social Security reform, and so on, but the best example is probably trade or industrial policy. Workers (and capital) displaced by trade suffer greatly, while consumers benefit.

Another parallel is that as an outside observer it's often hard to sympathize with the afflicted. The renting deals cited in the article, the most egregious being $1,120 a month for 5 rooms, sound like a real public policy boondoggle. A similar feeling was pervasive when the bailouts of Detroit automakers (and their unionized workers) were being discussed in December 2008. The public was stunned by the sweetheart deals the unions had originally had with the automakers.

Krugman on the state of macroeconomics

Paul Krugman provides an overview of the current state of macroeconomics in the Times magazine. A lot of this is really great, but I think it oversells the differences between the Chicago guys and the Berkeley/Harvard people. Controversy, even when it's a little overstated, makes for great journalism!

UPDATE 9/11/2009:

Check out what John Cochrane (in a direct response) and Barry Eichengreen (in an earlier piece) have to say courtesy of Greg Mankiw's blog.