Inventory investment

Today's first look at 2009:Q4 GDP attributed 3.4 percentage points of the 5.7% annualized growth to changes in inventories. This is a good sign; inventory investment is one of the more volatile components of GDP that typically accounts for a large share of its decline during recessions.

It feels strange to conceptualize a reduction in a negative number, namely the net change in inventories, as a source of growth. But that still represents a net increase in investment goods sold to customers rather than either produced and stored by sellers or not produced at all.

David Brooks on populism

For a nice dose of his usual sweeping historical view of U.S. history, read David Brooks's column on populism, elitism, and what he calls the "anti-populism" of Hamilton and Lincoln.

Opinions on Bernanke

Ed Glaeser defends, while Paul Krugman weakly supports. Glaeser's point is that monetary policy is a very blunt instrument for redistributing wealth or gains and losses from risk taking, which is one way to characterize populist or anti-banker sentiments. It seems like Krugman's legitimate beef revolves around the Fed's opposition to consumer protection; it isn't the case at all that the Fed isn't doing what it can to lower unemployment, which is another of his gripes.

Update: Greg Mankiw posted a link to a derivative that allows bets on Bernanke's confirmation. Odds seem to have shifted rapidly against him last week, and more recently in his favor.

Update: On the day Alan Blinder defended him in the Times, Bernanke was confirmed by a final vote of 70-30, with the most no votes in history, ahead of Volcker's previous record of 16 in 1983.

Politics, populism, and central bankers

The Wall St. Journal reports on recent turmoil surrounding Argentina's central bank, which apparently has to do with the Argentine President's plan to use currency reserves to repay debt rather than defend the peso, which was devalued in 2002. Meanwhile, in this country, Ben Bernanke faces opposition to his reappointment as chair, and the Journal article refers to similar issues in Korea and Japan.

Plenty of academic research suggests that central bank independence is associated with lower inflation and better economic performance. But there's less information about the optimal shape of bank bailouts, and there is no practical way to run a real experiment with different central bankers, which might be more convincing to laypeople.

Solow reviews Cassidy's book

Nobelist Robert Solow reviews John Cassidy's new book on "utopian economics" versus "real-world economics," sort of an overview of efficient markets theory and market failures for nonspecialists, with an application to the recent financial panic. A few weeks back, I wrote on Cassidy's piece in the New Yorker on the Chicago school, which I thought was a little too "light-versus-dark," to use some of Solow's terminology.

Solow points out on the last page of his review that some of the very interesting questions raised by recent events go unasked and unanswered. These include why it is that the "real-world" argument seems to have lost out to the "utopian" view even though it's almost by definition more true. "Are we for some reason more receptive to simple answers than to complex ones? Is it that, in the nature of the case, there is more money backing one side than the other? Perhaps the long postwar prosperity provided good growing conditions for conservative political and economic ideology." All interesting food for thought.

Feldstein assesses economic policies

It's hard not to agree uniformly with Martin Feldstein's views on Obama administration economic policies, but there's one thing I think he left out. An attractive element of the health insurance reform bill from an economist's perspective is or was the so-called excise tax on employer-paid plan contributions, a better description of which is a reduction or elimination of the tax preference for health insurance premia over wages. Unless we feel health insurance is under-utilized for those with employer-provider coverage, and I don't think we do, there's no reason to tilt the tax code toward premia and away from wages, as the current system is.

Feldstein also argues that permanent tax cuts are better than temporary tax cuts, and that incentives to replace aging equipment (investment goods) would have brought more bang for the buck. Even a lengthy temporary tax cut on capital goods would probably result in much stimulus. What is somewhat less clear is whether temporary tax cuts on wages or income have much impact on consumption spending.

A bank tax as a retroactive insurance fee

Douglas Diamond and Anil Kashyap make a forceful case for a tax on banks to recoup TARP losses. They propose a tax that is proportional to the size of each bank's bailout, a retroactive fee for insurance that should have been assessed prior to the crisis. A notable difference is that the fee is based on ex post realizations of risk rather than ex ante assessments, like insurance usually is, so it reduces the implicit risk sharing across banks that FDIC insurance would impart, for example.

New economics of marriage

That's the title of a Pew Research Center report released today that examines trends in working, education, marriage, and household income across several decades. What they're referring to is the historic rise of women's education and earnings relative to men. Although there still are wage disparities between the sexes, within the age cohort aged 30-44, women now have more education than men.

This has created significant differences in trend income growth across groups according to marriage patterns. As you might expect, married couples have considerably higher household income than singles, and that gap has been widening over time. An article in the Times titled "More Men Marrying Wealthier Wives discusses all this from a popular-media perspective. The way the title gets it right is that there surely is some selection afoot: married couples today, when divorce is common, are probably a more select group than they were decades ago. One hypothesis that fits the data (and the anecdotes in the Times story) is that marriage has become relatively more common among couples who jointly have high education, and thus high earnings, and less among mismatched couples.

New estimate of early human population size

An article by Huff et al. in the NY Times summarizes research published in the PNAS that examines human genetic history for information about early population size.

The authors' point estimate of the size of the human population 1.3 million years ago is 18,500, with a 95% confidence interval that stretches between 14,500 and 26,000. In fact, this roughly corresponds to the estimate of Harpending et al., published in 1998, of around 10,000. What's remarkable is the comparison in the Huff article of the relative sizes of various primate populations. According to this evidence, early humans were by no means more plentiful, i.e., evolutionarily successful.

Boskin takes out everyone

Michael Boskin spares nobody in a scathing review of statistical shenanigans. My first thought was that he'd take on the "jobs saved or created" numbers of the Obama administration again, and so he does. But not before taking on the French and the Venezuelans for suggesting fast and loose play with standards of national accounting. And the CBO's scoring of the health insurance reform bill gets honorable mention.

One could quibble with how phony statistics are not monopolized by either end of the political spectrum, but that is wholly beside the point. Boskin is absolutely right about how numbers that do lie --- namely those that are cooked up --- only end up reducing popular support for anything couched in quantitative terms.

Monetary Policy and Bubbles

In the WSJ today, David Wessel criticizes the paper prepared by Ben Bernanke and the Fed staff that Bernanke delivered at the AEA earlier this month. The million dollar question everyone wants to know is whether a low federal funds rate stimulates excessive risk taking and bubble formation. Bernanke argues that empirically the answer seems to be, "not much," but Wessel argues (1) that common sense suggests such a role, and (2) that Raghuram Rajan's point about global savings seeking out high returns implicates a low fed funds rate.

Of the two, the second and less emphasized point is something that seems to be more of an open question. Bernanke's paper does a good job of sketching out the empirics of the link between fed funds rate and subprime lending, for example. The role of the global savings glut is something he raises as well in the paper, and Rajan's insight sounds relatively well-taken. When agents have absolutely no idea what the riskiness of securities is, or are seemingly misled by horribly incorrect ratings from Moody's and S&P, it's plausible that a low fed funds rate and low returns on risk-free government bonds would lead toward an asset bubble.

But if that is true, is it (a) the perceptions of or taste for risk, (b) the rating agencies, or (c) the fed funds rate that is responsible? It seems like if either of the first two issues had been fixed, the Fed would be off the hook.

SuperFreakonomics: A Rogue Economist Summarizes

I finally snagged a copy of SuperFreakonomics from the library a number of days ago and recently completed it. I posted earlier on its cute little gibes at macroeconomists, which remind me a lot of how sociologists tease economists in general. My overall impression is that like its predecessor, it's a really fun read.

Fun often includes several other emotions too, of course. Riding a roller coaster, you're likely to feel fear, g-forces, nausea, elation, and disappointment when the ride ends. The book lost me early on with its rather snarky writing style, which I felt like it either lost or I became more accustomed to as I read further. I think Levitt and Dubner are providing a public service in revealing the "hidden side of everything," but too often they overplay the amorality and smarty-pants cards. I would agree that those are more appropriate in a popular book than in academic discourse, however.

The back-and-forth over the global warming chapter to me is just humorous. The geo-engineering efforts of the I.V. to me feel recycled from a New Yorker article on the same topic from 2008. I have no problem with their reemphasizing those ideas to a wider(?) audience. Meanwhile, Brad DeLong and Paul Krugman seem to, or perhaps they're misinterpreting the direction of the chapter as hostile denial.

To me, the best aspect of SuperFreakonomics is that it provides a well-written and accessible summary of a lot of economic research that to ordinary people is likely to sound like it matters. And it's not about unemployment, stock prices, or interest rates. I wholeheartedly recommend this book to anyone interested in a round-up of clever ways to think about the world.

Obesity trends flat?

Today's Times reports a plateau in U.S. obesity rates, based on new studies of NHANES data published in JAMA. The main paper by Flegal et al. reveals differential trends among adults primarily by sex, and another paper by Ogden et al. shows essentially no trends in obesity among children since 1999--2000.

But when I look at the data, I'm much less sanguine about the supposed plateau in adult obesity rates. Based on NHANES data analyzed in a 2006 paper by Ogden et al. and in a 2002 paper by Flegal et al., I see a fairly uninterrupted upward trend in obesity prevalence (BMI >= 30) of about 0.5 percentage point per year. That's including the most recent data point.

The issue, and I agree that it could be important, is that the confidence intervals around the point estimates are apparently overlapping this decade. So one cannot reject with statistical tests the hypothesis that there has been no change in obesity rates. But failure to reject is not the same as finding no increase.

I would agree that there seem to be interesting differences by sex, with women displaying more stability in their distribution of BMI and men showing a clear rightward march. The Times article quotes folks as wondering whether this is indicative of good things to come, since women are typically the food preparers in families. They probably are, but are they also the fast food purchasers?

Calorie postings, self control, and the holidays

Today's Times covers a paper on caloric consumption after a new signage law. Researchers at Stanford obtained high-frequency transactions data from Starbucks around the imposition of the NYC law requiring calories be posted at large chain restaurants. The data revealed that NYC customers reduced their caloric intake when they knew how much they were consuming. Except during the holidays, when presumably good cheer or something else overcame the effects of new knowledge!

More on the soul of macroeconomics

Ironically, the primary foci of an article on macroeconomics in the 1/11/2010 New Yorker are Stephen Posner, a law guy, Eugene Fama, a finance guy, and Gary Becker, a microeconomist extraordinaire. John Cochrane makes what can be considered a cameo appearance, and Robert Lucas has a one line quote, "I don't want to do this."

Far be it from me to suggest there ought to be stark lines between macroeconomists and others, being someone who straddles that fence along with several others, but it's ironic that often those who have the most to say about the future and direction of macroeconomics would not identify themselves as such. That sort of thing also shows up, albeit more briefly, in the new SuperFreakonomics book, which remarks that it is not a book about the financial meltdown of 2008, and "[a]fter recent events, one might wonder if the macroeconomy is the domain of any economist" (page 16).

Posner, Becker, Fama, and others like Richard Thaler, Raghuram Rajan, and James Heckman certainly all have useful things to say. But I can't shake the feeling that many of these "macroeconomics-gets-a-thorough-reexamination" articles fail to pose useful questions with debate and suggested answers. What isn't particularly useful is debating whether the Chicago school approach, with its focus on rational behavior in response to prices and incentives, is right. Of course it is and it isn't. It's one simplified view of a very complex beast, not the alpha and omega and also not dead-wrong.

What's more useful are specific questions about policies before future economic crises and after. And there, the basic issues are (1) where on the scale of interventionist to laissez-faire do you end up, which is probably based on your perception of (2) how much relative market prices reflect relative social marginal utilities, i.e. what they ought to reflect if incentives are "right."

Gaining weight and other domestic blisses

The Times reported on a study of weight gain that finds women gain weight on average over time, but they gain more if they have a partner, and even more if they have a child in addition to a partner. Is happiness blimpss? Or is this all about stress and increased abdominal weight!

Unemployment over the business cycle in the U.S. and Europe

Time will tell whether October's 10.1% unemployment rate in the U.S. was the high water mark or not, but it appears that the unemployment rate in Europe may only be beginning its ascent. While today's measure of December unemployment in the U.S. remained at 10.0%, the Euro-area unemployment rate hit 10.0%, the highest in the decade.

The differences are presumably due to labor market regulations and practices. A Times article reports economists' pointing to French and German plans to restrict worker hours in order to avoid layoffs.

Is it better to spread the pain of recessions more broadly, even if it means delaying (or at worst, prolonging) recovery in the labor market?

Dueling cost forecasts

A new cost forecast by Richard Foster, Chief Actuary of CMS is in the news, this one regarding the health insurance reform bill. This forecast, like his sobering projection of the costs of the prescription drug benefit expansion of Medicare, is less optimistic than its counterpart out of CBO.

One thing that's been puzzling me is how a one-time increase in the tax rate applied to employer-paid health insurance premia could create a reduction in the rate of growth of health spending rather than just a level effect. But given some of the literature I've seen from the union I belong to, which argues that the tax on "Cadillac plans" will slowly grow to cover more individuals, maybe the secret is indeed that the effective tax rate will be rising over time. If that's true, it doesn't suggest cost savings can be long-lived.

Maybe I'm missing the point entirely: rates of growth don't change, but levels of tax revenues and thus fiscal sustainability do.