Wednesday, December 23, 2009

Brooks on endogenous growth

David Brooks provides a nice summary of "new" growth theory and the macroeconomics of innovation in his column, drawing from Paul Romer's work as well as several others. Romer's quote on the trend in the average age of NIH grantees, now 50 instead of 35 in earlier periods, was interesting.

A 2006 article in Science by the NIH Directory Elias Zerhouni implicitly pointed out another trend, in addition to the rising age at which scientists receive a first independent NIH award. The average age at starting a tenure-track faculty position was 38 in the data he examined, surely higher than in earlier periods. Lengthier training periods might explain part of the increase in average grantee age.

Monday, December 7, 2009

Nobel laureates on women in academia

Two of the three winners of the Nobel Prize in medicine this year, Elizabeth Blackburn and Carol Greider, urged changes in academic career structures that fit the changing realities of women's work and family needs. My favorite quote, which I think is absolutely right: "You can do really good research when you are doing it part-time."

Monday, November 23, 2009

Brooks on health care and institutions

There are at least two things to appreciate about David Brooks's column today. One is that it discusses the efficiency/equity tradeoff implicit in social safety nets. Nothing's for free, but that's not to say that costly things have no value.

The second point is that he argues that "over the years, Americans decided they wanted a little more safety and security. This is what happens as nations grow wealthier; they use money to buy civilization."

Political scientists and economists see this connection between economic growth and institutions in completely opposite ways. Economists think institutions precede and create growth; political scientists believe the reverse. As Gary King once said, what you think is exogenous curiously tends to depend on your discipline. In fact it should depend on inherent statistical properties!

Gail Collins on the details

For an academic perspective on the changing roles of women in U.S. Society, check out Claudia Goldin's work. As reviewed in the Times, the new book from Gail Collins, When Everything Changed: The Amazing Journey of American Women From 1960 to the Present, presents many of the details to the story that scholarly works are sure to leave out. Collins "aims to tell social history 'by combining the public drama of the era with the memories of regular women who lived through it all.'” (How's that for a quotation of a quotation!)

Acemoglu on institutions in Esquire

Daron Acemoglu outlines the case for institutions in determined economic well-being. To me, the biggest revelation is his call for U.S. foreign policy to punish kleptocracies and repressive dictatorships in order to foster growth.

New work on fiscal adjustments

Alberto Alesina and Silvia Ardagna offer a new look at fiscal adjustment --- namely, raising taxes or cutting spending in order to achieve it --- and GDP effects among OECD countries. This is related to the question about the size of fiscal multipliers, but the samples are likely to be quite different. You'd never in your right mind conduct fiscal adjustment to lower a deficit during a contraction ... or would you?

In the paper, which is forthcoming in Tax Policy and the Economy, Alesina and Ardagna find that cutting spending is less harmful than raising taxes, and reflexively, tax cuts are better for GDP than spending increases. I don't think they are able to measure the (perceived) degree of permanence of these policies, which presumably would matter for life-cycle consumers.

Wednesday, November 18, 2009

Top college professor

A few days ago the Journal reported on the Cherry Teaching Award, which has nothing to do with fruit and everything to do with teaching. The article discusses the tension between teaching and research or other service at the collegiate level.

It also profiles 3 candidates for the Cherry award this year. Elliott West is 64, Edward Burger is 45, and Roger Rosenblatt is 69. See a pattern?

Tuesday, November 17, 2009

Way to go!

CBO Director Doug Elmendorf is profiled in the Times. "A good CBO director is respected but not loved by Congress."

Monday, November 16, 2009

Sahm et al. on the 2008 tax rebate

Claudia Sahm, Matthew Shapiro, and Joel Slemrod argue that micro-level survey results suggest people spent a third of their tax rebate checks. Their bottom line: "Absent the rebate, the sharp decline in spending that is evident in aggregate data beginning in the third quarter of 2008 would have started in the second quarter, prior to the financial crisis of the fall."

This stands in stark contrast to the perspective offered a year ago by John Taylor, who pointed out the complete lack of evidence in aggregate data of any consumption effect.

This reminds me of the back-and-forth over the Administration's "jobs created or saved" measure derived from surveys, criticized recently by Ed Lazear. If something doesn't show up in macroeconomic data, maybe it isn't there and maybe it is. What's the counterfactual? If it's a survey of intentions or actual outcomes, are the data good?

Thursday, November 12, 2009

Unemployment and family economics

The Times and the Wall St. Journal have one article each on how higher unemployment is affecting family economics.

The Times article discusses the psychological stress felt by families with unemployed fathers especially, with mothers who may also be unemployed. But the thinking is that it's harder on dads to be unemployed, while moms seem to have an easier time dealing with the fluidity.

The Journal article discusses evidence of more moms going back to work now that dads' employment is considerably lower.

Monday, November 9, 2009

Feldstein on incentives in health insurance reform

Martin Feldstein weighs in on the potential for shenanigans by profit-maximizing individuals faced with the proposed new health insurance system. He thinks they're likely, because the penalties are so low relative to the gains of not purchasing health insurance, which presumably would no longer be penalized by denied coverage (for pre-existing conditions).

Economists are paranoid, aren't we? But you can't argue with the numbers.

Friday, November 6, 2009

High infant mortality and premature births in the U.S.

The headline to this Times story from Tuesday concerning a recent CDC report on U.S. infant mortality in comparative perspective summarizes the main finding: because 1 in 8 U.S. births were preterm, compared to 1 in 18 in Ireland or Finland, and preterm babies have higher mortality rates, the excess rate of premature births accounts for a third of the U.S. infant mortality rate.

The report points out that preterm babies in the U.S. actually have lower mortality rates than they do elsewhere. But the problem is that preterm mortality is enough higher than full-term mortality for the difference in the carrying-to-term propensity to more than offset this advantage.

The Times article discusses some reasons why rates of being born premature are higher in the U.S., which is apparently the crucial issue. The lead author of the CDC study was quoted as saying, “Fifteen or 20 years ago, if a woman had high blood pressure or diabetes, she would be put in the hospital, and they would try to wait it out. It was called expectant management. Now I think there’s more of a tendency to take the baby out early if there’s any question at all.”

This sounds like poor adult (mother's) health driving poor child health. There were other potential reasons cited too, however.

Tuesday, November 3, 2009

Implicit marginal tax rates in new health insurance coverage

Greg Mankiw points out high implicit marginal tax rates associated with health insurance reform as currently proposed. Insurance subsidies for low-income families phase out with income, meaning that as income rises, it is taxed away either implicitly through a reduction in health insurance subsidies or explicitly through payroll and income taxes.

The income levels he cites are not low: $54,000 for a family of four. The Earned Income Tax Credit also has a phaseout, but at a somewhat lower level of income, something like $35K - $40K or so.

Brooks on the mating market

David Brooks writes about the New York Mag sex diaries, technology, and behavioral reactions of young singles today to the lack of courtship structure. Things like texting a "backup" when on a date with somebody else. My favorite quote: "Social life comes to resemble economics, with people enmeshed in blizzards of supply and demand signals amidst a universe of potential partners."

I wonder what Gary Becker would have to say about this. Economists typically believe more information is better, but then you toss in the part about atrophying social mores and constraints, and it's not clear what the result is.

Monday, November 2, 2009

Roundtable on stimulus effects

Here's another article containing several perspectives on whether the fiscal stimulus plan is functioning. To elaborate on one of Simon Johnson's points, the U.S. has automatic fiscal stabilizers in place --- taxes fall with the economy, and some spending rises --- but typically only at the federal rather than state and local level. I wonder how much bang-for-the-buck from stimulus spending has come from "saving" educational jobs and spending programs. It would seem that's one of the most vulnerable elements during downturns, given states' balanced budget amendments.

Many are talking about the tenuousness of consumer demand, given that Cash for Clunkers appears to have shifted demand in addition possibly to increasing it above what it would have been. This is based on Friday's personal income release.

Lazear on stimulus accounting

CEA alum Ed Lazear points out the problems with the government's "jobs created" measure derived from the survey of funds recipients, available on First, it's self-reported. But we also measure unemployment using self-reports, from individual workers in the Current Population Survey.

A second point is that the self-reported measure is a gross rather than net measure. If a job was "created" by poaching an employee from another firm or agency, the net effect is zero even when its gross effect, as would be reported by the poaching agency, is positive.

Lazear also cites the lagging nature of employment, which is certainly true. But he doesn't present a solution to the difficult problem of trying to assess the marginal effects of the stimulus package, a task that requires a counterfactual. Wouldn't it be nice if we'd had two economies rather than one, and to compare one with the stimulus to one without? Pre-stimulus forecasts are not a valid baseline because they are of poor quality. (Nobody knows how to forecast the length of a recession, let alone an impending one.)

Thursday, October 29, 2009

Menand on Ph.D "guilds"

Harvard professor and New Yorker contributor Louis Menand has a new book out in January, The Marketplace of Ideas, in which he examines the U.S. university system. A very interesting, if unfortunately a little scattershot, series of excerpts appeared in the November Harvard Magazine.

On thing I think Menand totally missed, at least in the excerpt and perhaps not in the book itself, is the question about Ph.D training and professorial jobs on the one hand, and women, childbearing, and family work/life balance on the other. He writes about the rise in competition for academic jobs due to overproduction of Ph.D's, and about the rise in median time-to-degree. But he doesn't discuss the interplay with the life cycle especially as regards family formation.

One could make an argument that a lengthy time-to-degree setup is actually preferable for some scholars who wish to have children during training. The alternatives would be either not getting a degree, not having children, having them before the degree, or having them afterward, possibly during the stresses of a tenure-track position. I don't mean to suggest that this argument must be correct, but it deserves some thought.

Fairly late in the excerpts, Menand acknowledges that graduate students are an important part of the academic labor force. If tenure is important for preserving academic freedom, labor with relatively more flexibility is surely an even more attractive element.

And as a posted comment at the bottom of the excerpt points out, the physical sciences are really very different than the humanities and social sciences in their industrial structure. Postdocs in physical science are extremely common; I think median time-to-degree is thus a bit misleading when compared between physical and social sciences, for example. Lab work and dissertations that flow from a directed lab are also very common. And grad students in physical sciences not only teach, they also produce research, sort of a "double-whammy" incentivizing the professoriate toward keeping them around practically as indentured servants.

Wednesday, October 28, 2009

"Grandma plays favorites"

Molly Fox and a group of coauthors recently published a paper on grandmothers and child survival that shows improved survivorship among children with more of the grandmother's genetic material. The idea then is that grandmothers with "longevity genes" (not "grandma jeans") pass along their habit of being long-lived to their (paternal, it turns out) granddaughters. Hence a yet-clearer evolutionary argument for long life past menopause.

The authors examine girls' and boys' mortality based on the presence of maternal or paternal grandmothers, and they pose the idea that differences in the inheritability of the X chromosome across sexes of grandkids and paternal/maternal sides ought to be interesting. At the top of this post is their neat Figure 1 that traces the heritability of genes.

They find higher mortality among boys with a paternal grandmother present compared to those with a maternal grandmother present, and that the presence of a paternal grandmother was statistically significantly better for girls than boys.

I was shocked that they had data that could inform this. I also wondered whether there are omitted variables. Is it just random whether a paternal or maternal grandmother is present, or whether one is present at all? Or is it connected to low SES or poor health somehow?

High demand for community colleges

The six community colleges in CUNY are said to have experienced a 9 percent increase in enrollments according to this Times article. The article also profiles a community college in Boston that offers a class starting at 11:45pm and ending at 2:30am. And here I thought a 5-8pm class was rough!

Executive compensation and the propeller heads

David Brooks makes a fundamentally good point: that government must think it's really, really smart if it believes it can "fix" compensation packages on Wall St. to what they should be, without creating perverse incentives of some kind in the process. I particularly liked his citation of the cap on executive compensation several decades ago that unintentionally resulted in companies' increasing the bonuses and clustering at the cap.

But it also seems like the compensation system in the financial industry is contributing to the problem of excess risk taking and moral hazard. We ought to decide as a country whether it's in our best interest for us to subsidize the habits of Wall St. in allocating capital too riskily and then requiring public bailout funds to clean up the mess. If it is, maybe things are OK as they are. If we think folks on Wall St. are behaving too riskily, it's fairly clear that something has to be done about compensation packages that have only upside risk, and no downside risk. In the current system, the latter is borne by the public. Again, maybe that's optimal in some sense, or at least a preferred setup. But I don't think that's at all clear.

Thursday, October 22, 2009

CEA Chair Romer on the crisis

Another update from CEA Chair Christina Romer on the Great Recession, this time from JEC testimony.

Monday, October 19, 2009

Uncertainty about climate change in a macro model

Recently, Paul Krugman and others have begun discussing optimal policies in light of climate change; apparently the forthcoming sequel to Freakonomics discusses this issue too.

Krugman points to a paper by Martin Weitzman published earlier this year in RESTAT that revisits the issues raised by the Stern review and William Nordhaus and others. Weitzman's clever point is that uncertainty in future outcomes reduces the moderating effect of time discounting on future costs, raising costs of inaction relative to benefits.

Saturday, October 10, 2009

Personal finance woes and the subprime crisis

An excellent article in today's WSJ chronicles the struggles of a low-income worker with $36,000 in debt, $26,000 of which is student loan debt. The article also surveys the statistical picture we have of trends in debt among income groups before the subprime collapse, which seem like clear harbingers now.

When I was in Washington in 1999, I'd hear that similar concerns about the sustainability of debt among low-income households were apparently raised by President Clinton, who'd had a gut feeling about it. At the time, the statistics did not seem to suggest there was imminent danger. Indeed, the bursting of the Internet bubble in 2001 was not caused by nor did it destroy the finances of low-income households. This time, the story was clearly different.

An issue today is the "game theory" of debt for low-income folks. The article reports that the worker in question refuses to agree to debt relief (by paying off a large portion of the debt now in return for forgiveness) because of its long-term effect on her credit score. On the other side, credit card companies have been raising interest rates on balances because of the fear of rising default rates. But rising interest rates are a self-fulfilling prophecy of increased default.

Monday, October 5, 2009

Barro on fiscal multipliers

Robert Barro describes his recent NBER Working Paper 15369 with Charles Redlick on fiscal multipliers in the Wall St. Journal. They're pessimistic about spending, less so about taxes, but they also seem to think the evidence on tax changes, from the recent paper by the Romers, is less clear.

Fear and the flu

Michael Specter summarizes anxiety about H1N1 and the vaccine in this week's New Yorker. I was three years old by the end of 1976, when a swine flu outbreak among troops at Fort Dix prompted the Ford Administration to initiate a mass vaccination program.

A 2006 article discusses the CDC's perspectives and lessons learned from the 1976 swine flu.

I was talking to an epidemiologist friend recently about public perceptions of the state of the macroeconomics. I said it was about what would be the public perception of the state of epidemiology if H1N1 were to kill 10% of the population. But I messed it up: I should have said 5%, or the rise in the unemployment rate rather than its current level.

Friday, October 2, 2009

More on multipliers

Paul Krugman blogs about fiscal multipliers, citing some new work on the topic by Ilzetzki, Mendoza, and Vegh. They have a new dataset with quarterly observations on GDP for 20 advanced and 25 developing countries, and I think they use a VAR with an identifying restriction suggested by Blanchard and Perotti.

Their bottom line seems to be that the size of the fiscal multiplier really depends on characteristics of the particular economy. Small, open economies with flexible exchange rates have a very low multiplier, as do heavily indebted countries. Contrary to what Krugman suggests, Ilzetzki and co. find that the post-1980 U.S. (in other words, after the Volcker disinflation and the commitment to price stability and flexible exchange rates) has a pretty low fiscal multiplier, around 0.3 or 0.4.

Wednesday, September 30, 2009

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.

Thursday, September 24, 2009

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.

Wednesday, September 23, 2009

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.

Sunday, September 20, 2009

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!

Friday, September 18, 2009

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.

Monday, September 14, 2009

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.

Friday, September 11, 2009

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.

Wednesday, September 9, 2009

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.

Tuesday, September 8, 2009

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.

Friday, September 4, 2009

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.

Monday, August 17, 2009

End-of-life taking center stage ... because ...

Today Ross Douthat presents a very thoughtful look at the debate over health insurance reform, pointing out that scaring Medicare beneficiaries with dire warnings of rationing at the end of life is an extremely effectively political tool. Also a dangerous and potentially disastrous one. He underscores the well-known point that entitlement spending is going to soar in future decades, and the financing burden simply cannot be addressed without reassessing how Medicare funds are spent.

It takes a strong voice to shout in the wilderness, especially when the party whose current methods you're impugning is your own. Unfortunately it seems that Democratic monopolization of "Rubinomics" (which Paul Krugman recently dissed) is correlated with Republican monopolization of a high spending, low taxes road to fiscal oblivion.

Sunday, August 16, 2009

Obesity, health costs, and taxes

The Times's David Leonhardt writes about obesity, health costs, wages, and taxation. It seems hard to believe his statistics on the real price inflation of healthy foods over time versus the deflation of the price of soda, but I'll believe his fact-checker. (I would have imagined both probably were falling; maybe the issue is a transitory uptick in the former muddies the comparison.) But he certainly makes a nice case for a tax on obesity-inspiring food products like soda, given how the tobacco tax is typically used these days.

Saturday, August 8, 2009

Fertility and economic cycles

An article in the Times discusses fertility during the recession, finding that it may have fallen. In theory, there are two competing effects that may be countervailing. For any couple, the recession probably brought about a drop in the male's income, which should translate into a pure negative income effect on optimal family size, reducing it. But the female's market earnings probably also fell, which has an ambiguous effect. Kids cost the mom's time in addition to costing money, and it isn't immediately clear which way the effect should naturally wash out.

Thursday, August 6, 2009

Recent trends in high-income fertility

Today's issue of Nature includes an article showing a reversal in trend fertility for high-development countries around something like 1990. A Times commentary is here. And my advisor/collaborator Shripad Tuljapurkar has a commentary piece in the same issue of Nature.

The latter points out that the effect on the world total fertility rate is circumscribed. One of the concerns is whether human population growth may not be in fact heading toward a stable 9 billion. "Stable" and "9 billion" sound like conflicting concepts, don't they!

Wednesday, August 5, 2009

Statisticians are cool?

Part of the issue must be that data analysis can largely be complete drudgery, but I also buy into the notion that statisticians may be increasingly in high demand as Hal Varian, quoted as the chief economists at Google, seems to believe. We have certainly seen a revolution in the availability and breadth of public microdata, and Google has a boatload more stuff, public and not. But grad students should probably still keep in mind that the trick is to have the vision in addition to the skills: be able to develop the ideas that specify what questions to ask with the data, not just be able to use the data convincingly.

I've probably just self-identified with that remark, but so be it!

Tuesday, August 4, 2009

Recessions and shocks to wages

My friend Till von Wachter is quoted discussing his research on the long-term effects of mass layoffs on earnings in this NYT article. Scary stuff indeed. If you manage to avoid getting laid off by leaving work voluntarily, which is something high-education, high-earnings workers might be able to do, would the shock be less persistent perhaps?

Tuesday, July 28, 2009

Health insurance and the free market

Martin Feldstein discusses health insurance reform. He, like Greg Mankiw, who cited this link on his blog, lay out the cases for private insurance markets in health care pretty nicely.

Friday, July 17, 2009

A bioethicist on the value of life and health insurance systems

This week's Times magazine features a wide-ranging discussion by a Princeton bioethicist on the value of the life and what changes it, health care rationing, and health insurance systems. The title gives away the perspective of the author, but adding an extra flourish makes the point a little better. Like the famous quote about democracy, one can say that social justice is worst served by a system that rations health care, except for all the other systems.

Interpreting UK marriage and divorce statistics

The Economist weighs in on trends in English marriage and divorce, pointing out that divorce rates have been declining recently. Based on their graphic, I would say, "slightly declining or treading water." Although marriage rates have declined, then, their point is that maybe the unions that are formed are actually stronger on average due to a selection effect.

Fair enough. And I think it might be true that never getting married rather than getting married and then divorced could be less painful and therefore preferable. But I'm not sure that's really clear.

Brooks on Obama and community colleges

Today David Brooks clarifies what was muddy to me about the president's new $12 billion plan for community colleges.

I'm no expert on retention policies in community colleges, and the way Brooks frames it, maybe nobody is or even can be, given the dearth of good tracking data. But the idea that while low tuition is probably pretty important, the biggest bang-for-the-buck vis-a-vis graduation is in policies that are more adaptive to students' needs really resonates. The $12 billion is apparently directed primarily toward trying to develop such policies and programs.

One sees vast heterogeneity in students' abilities probably at every stage of education. I certainly see it among undergrads at Queens College and among Ph.D's at the Grad Center. Some are so sharp they seem more in command of the material than the instructors, me included! Some appear to be in dire need of assistance. A vast middle doesn't give off much of a vibe either way. Community colleges are a natural place to really try to improve outcomes; high schools might be even better. Four-year colleges probably need something too. As to which provides a more fluid environment to try new things, again, I'm no expert.

Health care for pets and humans, and what it reveals

With thanks to a heads-up post on Greg Mankiw's blog, here's a posting on the AEI blog that discusses levels and rates of growth of U.S. health care spending --- on pets and on humans.

It's a brilliant comparison. There's health insurance for pets too, but I don't think there's any government insurance. And there's definitely no tax break for employer-subsidized health insurance for pets! At first brush at least, you would expect the market for health care for pets to be fairly free functioning, with prices more reflective of marginal utilities or marginal productivities of health care than in the case of human health care.

What you see is, if anything, more rapid growth in health care spending on pets than on people, but the level is significantly lower. Andrew Biggs thinks this might be a reason to focus on the level of U.S. (human) health care and not care so much about the growth rate. A rationale might be that the latter seems to be more a product of underlying forces like the growth in incomes and health technology.

Thursday, July 16, 2009

New results on VA diagnoses of OEF/OIF mental health disorders

The Times reports on a forthcoming article in the Am J Pub Health on VA diagnoses of mental health ailments among veterans of Afghanistan and Iraq. Although the statistic is conditional on having entered the VA for treatment, the central finding, that 37 percent of that group received diagnoses of mental health conditions, is eye-opening.

Via a telephone survey of about 2,000 OEF/OIF vets, RAND has estimated the percentage across all veterans whether they seek VA care or not to be a little lower, 30.7 percent. I calculated that as one minus the share with no condition, which is 69.7 percent, in Table 4.4 of The Invisible Wounds of War.

That more troops are surviving their injuries is a good thing. But their mental health injuries from the trauma of combat exposure will likely only increase in prevalence as a result. Still, a positive light in which to potentially view at least the VA statistic is that at least this 30-40 percent has been diagnosed and is hopefully receiving care. As with mental health in the civilian sector, mental health concerns among the military carry the pernicious effects of stigma, which make them that much worse than physical injuries.

More on caloric restriction and longevity

The Science article about caloric restriction and longevity in rhesus monkeys triggered a funny column by Roger Cohen pointing out that quality of life matters in addition to quantity.

Suppose the mechanism through which caloric restriction extends life is by diminishing reproductive behavior and the energy allotments it requires. Try pitching that to the public, especially to anybody who enjoys Viagra.

What a good economist should be doing

The Times reports how CBO directory Doug Elmendorf isn't telling Congress what it wants to hear about its draft health care bills. There is nothing in the bills that will decelerate health care spending; rather, they increase it by expanding coverage. While the latter is a noble pursuit, it doesn't come free.

Doug should be proud of being such a cantankerous economist. From a scientific perspective, the best advice for policymakers is the truth, not cheerleading. I just hope he hasn't ticked off enough people on both sides of the aisle to jeopardize his reappointment. Or alternatively, I hope that he's ticked off both sets just enough to appear completely neutral.

This all stands in contrast to the maelstrom of finger-pointing regarding the estimates of Medicare Part D, the new prescription drug expansion, back in 2003 and 2004. That primarily involved the executive branch and not the CBO, which is independent. Because CBO typically takes administration estimates as at least a starting point, however, I bet some of the withheld information ultimately may have biased their estimates then too, however unintentionally.

Saturday, July 11, 2009

Obama on growth and institutions in Africa

Technically, Obama didn't address questions of growth per se, but he did talk about the role of institutions, like the protection of property rights and a government free of corruption, as covered in articles here and here.

The sticky part might be that current institutions are indeed a legacy of earlier colonial interventions. One can only imagine how difficult government and political reform is in developing countries, when for example the citizens of California can't seem to get it done either.

Thursday, July 9, 2009

The tax exemption on health insurance compensation

In the NEJM, Jon Gruber lays out the case for ending the tax exemption on employer-provided health insurance subsidies, as a method of helping pay for expanded insurance coverage. To economists, at least on the most basic level, before you start thinking about employers dropping insurance altogether, this qualifies as a no-brainer. Tax exemptions are subsidies that encourage more spending. Everybody grouses about out-of-control health care costs; this would clearly qualify as a "two-for-one" kind of policy, by reducing demand.

The problem is that nobody ever thinks quantity demanded is the culprit in rising costs. I would agree that it's not necessarily clear that it is, but neither is it clear why the free-market level ought to be insufficiently high that we should subsidize it.

(Rural) roads vs. tax cuts

Today Ed Lazear writes about how the sluggish pace of stimulus spending here compares with the very rapid diffusion of tax rebates in 2008 (and in 2001).

Separately, the New York Times gripes about stimulus money being spent on rural roads rather than on cities. I'm no expert on the bang-for-the-buck differences between dollars spent on rural highways and bridges versus urban bridges. I get that the stream of consumption from a public investment of a given size ought to be larger in a denser area, other things equal. But rural roads also facilitate transportation of goods between cities. A new rural construction job and a new urban construction job probably has similar effects on the economy.

Finally, the political economy of doling out stimulus money doesn't seem all that obvious to me. If spending bills originate in legislatures where representation is proportional, like in the U.S. House for example, why should rural areas be disproportionately favored? Maybe the story is one about voting blocs, where all urban representatives are fairly monolithic in their voting behavior.

Still, Ed Glaeser makes some good points about the goofy political economy of mass transit money.

It's hard not to agree with Lazear and others that tax cuts are just easier in that they avoid all this and leave it up to consumers where to spend or invest funds. But it's also easy to imagine that public goods would be suboptimally provided in such a private market scenario, where there can be free-riding.

Tuesday, July 7, 2009

Stimulus spending in France

Yesterday the Times reported on stimulus spending in France, said to be $37 billion in total, three quarters to be spent this year, mostly on shovel-ready construction projects. Reading the article, it sounds like they're exclusively investing in historical structures that produce income flows from tourism.

French GDP is perhaps $2 trillion per year, so two thirds of a $37 billion stimulus would be about 1.4% of GDP. This compares with $787 billion spread over several years in a U.S. economy of $14 trillion. This article and other reports have discussed the slower rate of stimulus spending in the U.S. Assuming the $787 is spread equally in thirds across 2009-2011, it would represent about 1.8% of GDP each year.

These are relatively large numbers, and they assume the multiplier is one. That's probably a reasonable number, although Robert Barro thinks it's maybe even a little too high.

Monday, July 6, 2009

David Weil on health and growth

Last month, Brown University economist David Weil posted some thoughts about health and economic growth that summarized some recent findings in the subfield. Because improved population health can also increase population size, it isn't immediately clear that policies targeting health are really such a two-for-one kind of special, hopefully improving well-being and macroeconomic performance simultaneously. An article last year in The Economist summarized some of this research.

But Weil also points out that economists have measured the economic valuation of longevity gains themselves, completely separate from the value in increased incomes, as being extremely large. Even if health improvements didn't accelerate growth, they surely would bring enormous benefits on their own.

Textbook renting

Yesterday the Times reported on a textbook rental company that operates over the Internet at As of today, they're advertising the textbook for my Queens College Econ 206 class for a little over $30, and the textbook for my Grad Center Econ 71100 class for a little under $30.

As of today, list prices on Amazon for both of those are a little over $110 new or around $40 used, and a little under $50. The publisher also offers an eBook version of the former for $59.

Comparing these prices, one immediately recognizes the value to students of a smoothly operating market for used books.

Evolutionary origins of music

An article in the WSJ a few days ago gathered some interesting perspectives about the origins of music appreciation in humans, on the occasion of archaeologists' discovering 35,000 year-old flutes. The Journal article quotes cognitive archaeologist Steven Mithen talking about the social uses of music, either to express unity or emotions, or potentially in coordinating stone-age construction or toolmaking.

Tuesday, June 30, 2009

Interview with Kevin Murphy

In a wide-ranging interview, Kevin Murphy talks about rational addiction, the value of longevity gains, and gives us a glimpse of some future work he and Gary Becker might eventually deliver: thinking about trends in fertility in advanced countries.

Lowest-low fertility, like the total fertility rate of around 1.3 births per woman in Japan, is something that demographers have tried to understand for quite some time. The demographic transition experienced by developing countries with high fertility is much better understood.

Sunday, June 28, 2009

R&D Grants: Balancing risk and return

Today's paper includes an article about grant money in cancer research and other research areas funded by the National Institutes of Health. It focuses on the process of awarding grant money, which is done based on the result of peer review of applications, in a process similar to that found in academic publication.

I'd bet that while every scientist you might talk to would agree that the system has flaws, they would probably also agree that it's difficult to imagine what a better system would look like. Highly innovative research is likely to also be risky, and peer review is bound to have a hard time with such proposals. On top of that, the NIH is charged with coming up with the "best" way of spending federal tax revenues, not exactly an uncontroversial activity. Politically speaking, private foundations can afford to take much bigger risks, even if from a functional point of view one might argue that the risk tolerance of the nation as a whole ought to be at least as great as across any subgroup.

Friday, June 26, 2009

The economics of textbooks

Our union president at CUNY emailed us to inquire about our opinions regarding the latest efforts in the Senate to lower the cost of textbooks for college students, this time by providing grants to faculty who write them. At issue would be the copyright; if you write a textbook paid for the public, should it become a public good? This issue was discussed last fall in an article in the Times.

And now I can't stop thinking about the economics of the textbook market. There's an interesting NBER paper recently on the demand side of the market that finds students are quite rational and forward-looking when it comes to purchasing decisions. They'll make educated guesses about publishers' new editions and buy only those textbooks that are likely to hold much of their value. This certainly fits my own perceptions of the extremely economical students at Queens College. They even dealt in second-hand course readers!

An interesting issue in the textbook market --- on the supply side --- is the incentive for creating a quality product. I think these parameters are debatable, but one could argue that key qualities in a textbook are:

  • that it has been updated relatively recently to reflect the current state of knowledge

  • that it is easy for the instructor to adopt; perhaps it is an updated version of a textbook already in use!

  • that it is paired with an online course homework system

  • (The last is probably the most discipline-specific. At teaching colleges in economics, online homework grading such as provided for specific textbooks by Aplia is becoming an absolute necessity due to class sizes and the lack of graduate student course assistants.)

    The problem is that writing or updating a textbook is very costly to an academic in terms of lost time. But by and large, the academic marketplace does not reward professors for writing textbooks in the form of career advancement or prestige; instead, they're rewarded for publishing scientific articles (or books). This is where textbook publishers come in. They're intermediaries that polish up the product, mark up its price, and compensate professors for writing and updating textbooks.

    It is surely no coincidence that two of the professors committed to open-source textbooks in the Times article are already full professors at prestigious universities. Although that's arguably exactly who you want to write textbooks --- established members of the field --- my point is that they don't have to worry as much about the opportunity cost of writing and updating textbooks that bring scant returns in other senses.

    Another issue laid clear in that article is the large difference between fast-moving sciences in technology and relatively slow-moving sciences like history and economics, where textbook obsolescence is less of a huge issue. In the case of the former, forces seem to favor open-source publishing, maybe because it can respond so much quicker. But maybe also because there's more money in the industry!

    Saturday, June 20, 2009

    Portfolio choice and aging in a down economy

    Today's Times includes an article about investment strategies for folks nearing retirement now that the stock market has been down for several years. My favorite quote is from one of the investment advisors, who says, “One of my rules is don’t do something. Just stand there.” This is the often-heard 'buy and hold' advice based on stocks' good performance in the long run.

    Another theme permeating the article is reductions in risk-taking through age, and the advisors phrase it in terms either of increasing aversion to risk or mean reversion in stock returns. But theoretically speaking, if you have Social Security and you're spending down your financial assets, you should actually go riskier as you age, because you can never "cash out" of Social Security, and it's basically risk-free in the short to medium run.

    But do investment advisors see an increasingly select type of client through age? In other words, if you're comfortable with your investments, you won't get advice. If you're worried, you will. Can this help explain traditional investment advice about portfolio choice?

    Thursday, June 18, 2009

    Freedom, democracy, and Coke

    One of my favorite and most memorable New Yorker reads is a book review of A History of the World in 6 Glasses. It's not just Coke that has caffeine and gets us to socialize, of course, and it's not just caffeine that does it. Ben Franklin famously said that wine is the proof of divine adoration, but I'd put in a vote for the coffee bean and tea leaf too.

    Another favorite of mine is the one on Dogfish Brewing, a somewhat less philosophical read but at least as entertaining. It opens with a recounting of how all kinds of mammals seem to love alcohol, as evidenced by rampaging drunk (beer thieving) elephants. The quote at the very end by Patrick McGovern at Penn about alcohol's unique effects on mammalian brains, namely to stimulate at first, is particularly interesting.

    Had we all remained hunter/gatherers and were there no Neolithic Revolution, no agriculture, and no brewing of caffeinated or alcoholic beverages, would we ever have come up with as many great ideas? Or as many stupid ones?

    Credit (crunch) where credit is due

    I just wish the ode to Ben Bernanke appearing in this (bi)week's New York Magazine hadn't been penned by Jim Cramer, he of the Daily Show shame. But otherwise I'd have to agree with the assessment of Bernanke's adroit stewardship. From an economist's perspective, what is really striking is the de facto complete reversal in central banking from opacity to transparency over the past decade or two.

    Nobody has a monopoly on anti-immigrant sentiment

    According to a Times article today, some native Oregonians express the same disdain for Californian immigrants, and the same concerns about those mostly white immigrants taking jobs and causing traffic congestion that one often hears from groups opposed to international immigration. While anti-immigration sentiments could be driven at least in part by racism, this indicates how people can "improvise" when that isn't an issue!

    Sunday, June 14, 2009

    Child sex preference in the U.S.

    Today's Times contains an article on a 2008 study of the sex ratio among U.S.-born Asian American children in the 2000 Census by Doug Almond and Lena Edlund. Birth order was important; they found the sex ratio of the first child looked to be distributed about 50-50. It was the sex of the second child and on that appeared to reflect an abnormal male bias.

    Thursday, June 11, 2009

    Off-center advice for graduates

    Yesterday David Brooks and Gail Collins engaged in a very insightful back-and-forth about useful advice for high school graduates. Brooks wonders why Oprah and Dr. Phil seem to have cornered the market on information regarding how to meet "life's vital needs." I'd add another name to the list, Suze Orman, although I'm not sure that stable personal finances are quite the same provider of happiness as marriage and friendships. But they certainly require impulse control, which Brooks and Collins also talk about. And I'm sure that unstable personal finances are a source of unhappiness.

    Collins seems to take aim squarely at the drive to get into expensive, prestigious colleges. I absolutely agree that circumspection is required; research shows, that earnings outcomes aren't appreciably better at a more prestigious college given a fixed quality of applicant. If that is true, then it follows that it isn't worth taking on student loan debt just for the privilege of attending a more prestigious university.

    Wednesday, June 10, 2009

    Bleak fiscal futures

    David Leonhardt writes about massive deficits and debt today, citing some comments and new work by UC Berkeley's Alan Auerbach and William Gale. As those authors are quick to point out, they have been warning about looming fiscal imbalances for some time. What is particularly shocking is recent developments in the credit default swap market: a rise is the implicit/perceived probability of default by the U.S. government from 1 to 6 percent.

    Marriage and sleep

    File this under the "duh!" category: research suggests relationship issues reduce the quality of sleep, and poor quality of sleep reduces relationship issues. This is an example of the famous "sleep fights" made famous in my circles by a couple that, er, wasn't immune to relationship issues.

    The other remark is that married women seem to have better-quality sleep than those who are never married, widowed, etc. You would think the latter comparison would be best made between currently married women and widows several years after the widowing, with the hope that ideally the widowing death would have been basically random and not long-lasting in its inducing of insomnia. Maybe never-married people don't get married because they can't sleep!

    Politics intrude: Regional variations in health spending II

    An article on June 8 discussed political reactions to the New Yorker piece I blogged about last week. Apparently the article got the attention of White House policymakers.

    It is absolutely right that the Dartmouth Health Atlas research to which many folks (not the article so much) refer doesn't yet offer a positive result. All it points out is that there are vast differences between cities, counties, and states in Medicare spending. Gawande offers a suggestion about what he thinks may be driving it: the profitability to individual doctors of running more tests and getting reimbursed.

    It seems to me that vast harm could descend from policies that seek to level the spending field while not attacking root-level reasons. Suppose we capped Medicare payments. If it's an annual cap, it's clear that profit-seeking doctors would just accelerate their procedures and claims to be the first to be reimbursed. Same probably for a monthly cap. If it's a per-hospital cap, that sounds more watertight, but it wouldn't prevent doctors from closing up shop and moving elsewhere, presumably under the radar once again.

    If it's an evidence-based cap with data on initial underlying health conditions and outcomes, that would seem like a better solution. Sicker populations ought to get more spending and would under such a system. (This leaves aside the sticky question of whether you're maximizing life years, in which case you might not necessarily want to spend more on the sick, or pursuing social justice.) But the data and reporting requirements for such a cap would be large, and there's no guarantee doctors and hospitals would report it accurately.

    Tuesday, June 9, 2009

    Macroeconomics and politics in Iran

    Today's New York Times includes an article reporting on the macroeconomic conditions in Iran, which are mixed. Back in February, the New Yorker ran an article about economics in Iran.

    As forecast by the IMF, Iranian GDP growth in 2009 sounds relatively high at 3.2 percent. But population growth is around 1.5 percent, dragging per capita income growth down to 1.7.

    Inflation has been a larger concern for some time. The Iranian Central Bank reports CPI inflation running 15.5% over a year earlier. I think the Times article cites the difference between annual averages in (roughly) 2007 and 2008, which is a figure more like 25.4%, up from 18.4% the previous year.

    The last time inflation approached 20% was in the U.S. was in early 1947.

    Monday, June 8, 2009

    An update on Sen's "missing women"

    A recent article cites a new study by Siwan Anderson and Debraj Ray on missing women around the world, following in the footsteps of Amartya Sen, who famously remarked about the trend back in the 1990s.

    The "economics" of sports concussions

    Yesterday's Times included an article about sports concussions among people under age 18 that highlighted the behavioral economics of the condition. While a majority of neurologists recommended strict rules that prohibit the return of athletes to the playing field following a concussion, a minority of them pointed out that such rules also encapsulate a perverse incentive for the athlete, namely not to report or admit having a concussion so as to avoid benching.

    An additional likelihood is that an athlete suffering a concussion would probably be a little less capable of rational thought, but I imagine that would only increase the chance that he or she would decide to conceal the condition when possible.

    Wednesday, June 3, 2009

    Macroeconomics in theory vs. practice

    Greg Mankiw writes about business school vs. econ department macroeconomists in response to a question from David Brooks, while Steve Levitt criticizes the subdiscipline for choosing to take the mathematical route toward understanding the macroeconomy, when it isn't apparent that's the best way.

    It's always seemed a little strange to me how theoretical microeconomics gets its own field in Ph.D studies, sometimes just called "theory," while there are many more applied micro fields. In macro, you have both types of folks crushed together all under one tent. It's arguably much more difficult to do either job well in macro anyway; Levitt points out that there's just less macro data (which is probably why a lot of "macro" folks actually use individual-level data these days), and the whole economy is a lot harder to model theoretically than just a part of it.

    Several years ago, Greg Mankiw wrote a very nice piece in the J. Econ Perspectives about the dual roles or two types of macroeconomist, discussing along the way how they came to be quite so distinct.

    I'd like to see a renaming of "macroeconomics" in which we are clearer about what we often really mean: "banks, money, and fiscal policy" or something similar. There are macroeconomists in all kind of other subfields whose research is less directly relevant for macroeconomic policy per se. Like health and demography, just to take a totally random example.

    Monday, June 1, 2009

    Another look at the sources of health care cost increases

    I guarantee you'll feel more like a communist --- and I mean that in a good way --- after you read Atul Gawande's latest piece in the New Yorker. He argues that patterns of considerably higher medical costs and higher rates of cost inflation in one Texas border county as compared with a neighboring county suggest that the economic motivation of hospitals and doctors are key.

    Some usual suspects, at least that produce higher cost levels but not necessarily growth rates, are sicker populations and differences in medical training. The latter is kind of what Gawande is talking about, because he cites the Mayo clinic and other organizations that put physicians on salaries and then "team-heal" their patients, which is similar to the style of practice one would learn in medical school. This in contrasted with the model in which physicians order procedures and tests for patients and then pocket whatever Medicare or insurance reimburses themselves individually --- what Gawande believes is driving higher costs in one border county.

    It's hard to believe the problem would be attributable to just one element of caregiving, but Gawande makes a pretty impressive case for it. What I found interesting was his vignette about how his own (New England) training was for more cautious, perhaps unfoundedly so, medicine than what he and his family received while on vacation in another part of the country. He didn't really address how important that might be, and one certainly suspects that it might be important for high-cost but also probably low-profit areas like New York City.

    Friday, May 29, 2009

    Chile and the permanent income hypothesis

    The efforts of Andrés Velasco, a Columbia-educated Ph.D economist who is currently the finance minister of Chile, to smooth out the economic impacts of cyclical fluctuations in copper prices are profiled in the WSJ. Because copper has been a key Chilean export, spikes in its price can fatten wallets a lot very quickly. With a wallet full of cash, what do you do?

    The quote that sums it up best: "If you get some extra money, you will ask, 'Will I have this again next year?' If not you say, 'Well, I'll save part of it.'" Welcome to the world of the permanent income hypothesis!

    Tuesday, May 26, 2009

    Trends in happiness by sex

    Leave it to Ross Douthat, the Times's newest contestant on the Replace William Safire show, to write about a new NBER paper by Betsey Stevenson and Justin Wolfers that reveals disturbing trends in subjective happiness by sex.

    The authors document that female happiness appears to have declined in absolute terms and also relative to that of men in the U.S. since 1970, and the decline relative to men during that period is also found in Europe. This is striking in light of how many measures of gender equality have improved, although as Douthat points out, objective measures are quite different from expectations, aspirations, or perceptions of glass ceilings and progress in breaking them down. It is particularly interesting that the U.S. trend does not seem to be confined to those hardest-hit by the stresses of work and family, single moms.

    A relative decline is plenty for policy implications. But what's also intriguing is that the researchers find very different trends in male happiness in different countries. An outlier in their study is western Germany, where men and women reported equal deteriorations in happiness, thus no change in the sex gap in happiness.

    Monday, May 25, 2009

    Krugman on California

    Last week's failed ballot propositions in California set off Paul Krugman, who weighs in with a nice overview of the budget mess, sprinkled with his usual doomsday scenarios about political polarization (which somehow ends up always being the fault of the right).

    Separately, Arnold Schwarzenegger laid out a few clear points about why the budget process seems to be hopelessly broken, then apparently closes with a reluctance to revisit Proposition 13 and the caps on property taxes. Krugman points out that Prop 13, which basically froze property tax assessments and thus keeps taxes low on established homeowners, makes the budget extremely sensitive to the income tax, which fluctuates a lot.

    A stable revenue stream for investments like human capital and probably state infrastructure would seem to be much preferred to an unstable one. One wonders how much human capital flows into California from locations where it is presumably financed more steadily.

    Saturday, May 23, 2009

    What a good job looks like

    Matthew Crawford, an author and motorcycle mechanic who holds a Ph.D in political philosophy, provides an interesting perspective on the quality of work. He contrasts the Dilbert-like drone life in a cubical, or in middle management, versus motorcycle maintenance. I'm not sure what's up with the ubiquity of motorcycle repair as a metaphor for everyone good, but the author certainly has a point.

    It would be a huge mistake to view education that does not explicitly lead to something like motorcycle repair as bad training or a waste. Dr. Crawford himself is an example of someone who earned a lot of education and ultimately found his way.

    Friday, May 22, 2009

    Personal finance for college students

    Today's Times features a great article on personal finance tips from a recent college graduate (who majored in financial planning). My personal favorite header in that article, given the ongoing financial crisis: Don't Buy a Home.

    Thursday, May 21, 2009

    Psychology and the recession

    Today Harvard's Daniel Gilbert writes about the psychological costs of uncertainty, whether they stem from the recession and the unknown risk of individual unemployment, or from getting a random stronger shock, even when you're wired to get a small shock no matter what.

    This contrasts with the literature that reveals short-run improvements in population health associated with the business cycle. If I remember correctly, however, suicides are countercyclical, increasing during downturns, suggesting that at least some component of mental health is similarly depressed when the economy goes sour.

    Tuesday, May 19, 2009

    New text on mortality forecasting

    Demographic Forecasting is a nifty new book by Federico Girosi and Gary King that describes ways to forecast mortality when time series data are, as the authors describe, "noisy and sparse." In other words, they have pioneered a smart technique for getting a handle on mortality in developing countries, where data series tend to be rare and lower-quality.

    What is a little surprising, given the specificity of the title, but less so when you consider who the authors are, is that the statistical methodology they suggest is much more broadly applicable, basically in any social science setting where researchers have priors about the variable they're modeling but doubts about the data quality. For example, the authors reveal, comparative political science, where "standard" metrics might take on vastly different qualitative meanings across political boundaries.

    Thursday, May 14, 2009

    A personal view of what went wrong with morgages

    This weekend's NYT Magazine features a personal account of easy credit, then subsequent trials and tribulations with mortgage lending by an solidly middle-class economics reporter.

    Required reading for a personal finance module in a macroeconomics course?

    Wednesday, May 13, 2009

    Life course heterogeneity

    David Brooks writes about the Study of Adult Development or the "Grant Study" of a Harvard College cohort, which is also profiled in depth in the Atlantic.

    Today I had a discussion about this article with a biologist friend of mine, and we had two fairly different and equally valid interpretations of it. On the one hand, the study seems to provide a wealth of examples of how much innate uncertainty there seems to be in life, impinging differently upon individuals no matter how similar they may appear to be. On the other hand, one wonders how much unobserved heterogeneity there is among Harvard alumni of a particular cohort. As Brooks points out, for example, many of them had skeletons in the family closet, so to speak, as did the primary researcher in charge of the project.

    What is the best design for research and policy? Identifying the background characteristics that can lead to adult outcomes, or the shocks that produce them, or figuring out what helps adults weather them best?

    Sunday, May 10, 2009

    New Yorker on neuroscience: amputee pain, creativity

    Last week's New Yorker includes an article on neuroscience that is interesting in at least two regards.

    One topic discussed is the plasticity of the brain over time, and how amputated limbs, which are a burden borne particularly by veterans, can over time be associated with very real pain in the phantom appendage. Surprisingly, a treatment that seems to work, according to a 2007 letter in the New England Journal of Medicine, is with "mirror therapy," which fools the brain into seeing the missing appendage and realizing the pain isn't really there. This echoes back to Atul Gawande's haunting New Yorker piece last year, "The Itch."

    Another topic discussed by the subject of the article, UCSD's Dr. Ramachandran, is the origin of at least one kind of creative genius, that of coming up with a really good metaphor, connecting different types of reasoning and perception. He guessed that it might be due to physical intra-brain connections that could be somewhat hereditary or mutative.

    U.S. saving rates on the rise

    Today's paper discusses rising household saving rates in response to the recession and financial crisis. How high will it go? What are the implications for GDP growth, if any?

    Solow/Ramsey model, anyone?

    Saturday, May 9, 2009

    NYT on the Credit Crisis

    Thanks to Greg Mankiw for posting the link to the New York Times's overview of the 2008 credit crisis.

    David Brooks raises awareness, maybe so do charter schools

    David Brooks writes about a study by Harvard economists Will Dobbie and Roland Fryer on the effectiveness of Harlem Children's Zone schools. Harsh as it may sound, the fact that some charter schools were filled by random lottery assignment makes assessing the effect of the schools much more plausible.

    The authors compare educational outcomes among lottery winners to lottery losers, which means they're conditioning on having wanted to enter the school to begin with. They also pursue an instrumental variables strategy on a broader set of kids, with a geographic instrument that's meant to measure outreach or "pitching" of the school, which is an interesting notion.

    Can motivation be instilled or does it have to be home-grown within kids? I think they're saying it can be the former.

    Friday, May 1, 2009

    The origins of creative innovation

    Today David Brooks writes about "the modern view of genius," or rather his view of it, which is that creativity can derive from hard work and dedication rather than from an inherent gift.

    The implications are frankly rather reassuring in a way: if you work hard, you will "get it." I doubt this is exactly what he meant, but it's a fair reading of the piece. To be sure, Brooks also writes about patience and delayed gratification, things that economists would call preferences, and perhaps what's really going on is that some people are naturally gifted with patience. But like a good social conservative, Brooks also points out the roles of parents in fostering the hard work.

    It would be a mistake to argue that because inherent gifts are so important, we shouldn't care about interventions that increase hard work and patience. But I find this "modern view" unconvincing. There are many routes to creative productivity, and not all of them are 99% perspiration. The work of David Galenson and others in identifying different creative processes of great artists and thinkers is instructive here.

    Tuesday, April 28, 2009

    Orszag on health cost containment

    It's an issue that from the outside has appeared to have practically been buried amid other event, but this week's New Yorker gets OMB director Peter Orszag to talk about health insurance reform.

    His chief perspective appears to be that the lack of much cross-sectional correlation between health spending and health outcomes in the U.S., as reported by the Dartmouth Atlas of Health Care, is evidence of suboptimal decision making or waste. In other words, if the more bucks you spend doesn't get you more of a bang, it's evidence you shouldn't have spent them. Not an unreasonable assertion to be sure, but also not one that is likely to go over easily with folks unaccustomed to the relatively raw logic of economic thinking.

    Friday, April 3, 2009

    Moms, infants, choices, and our knowledge

    Judith Warner writes about breast feeding today in the Times, and she makes the important point that much of our knowledge about what matters for infant outcomes is circumscribed.

    Informed consent from infants to participate in a scientific study, in which there are control and treatment groups, is inconceivable. We'll often never really know what a particular treatment in isolation really does to kids, because it would be unethical to find out.

    I remember when the question of breast feeding came up among a group of health economists some time ago. While the prevailing wisdom seems to be that it's good, none of us knew of any science that could really sell anybody on it.

    In terms of social welfare, a troubling aspect indeed is that breast feeding is much more costly for low-income moms. It would be nice to know the benefits with some degree of certainty.

    Wednesday, April 1, 2009

    Feel like moving for tax reasons?

    It's only updated with state tax data through 2006, but the NBER's TAXSIM can still give you some insight about income tax rates you'll pay in different states. Gotta love that 3%+ New York City income tax!

    Friday, March 27, 2009

    Krugman on financial risk-taking

    Today Paul Krugman points out a subtle point regarding improvements in financial markets' ability to diversify risk, through things like credit default swaps, etc. While hedging is often touting as spreading risk more evenly and reducing exposure, in fact it can also induce behavioral change. Namely toward more financial risk-taking, which may appear to be cheaper.

    It's not clear to me that high-flying finance is anywhere near a thing of the past, as I think his column suggests. But I would agree that the events of the past several years certainly call for a reassessment of how we measure and manage risk.

    Thursday, March 26, 2009

    Proximity to fast food and obesity

    Today's Times reported on a new NBER working paper that finds increased obesity caused by the presence of fast food restaurants.

    Currie et al. focus on 9th graders and moms, and what's great is that the effects of geographic proximity are indeed estimated stronger for 9th graders than for moms. You'd think that having fast food within your zip code, as opposed to just a little further away, might not matter a lot for folks with cars, and apparently that's somewhat true.

    But if you're walking to the fast food restaurant, aren't you reversing some of the obesity effects? The issue is what's the treatment and control; if there are fewer fast food joints around, presumably those who would be walking to them would instead be walking to obtain healthier food alternatives in the counterfactual. But I wonder where 9th graders would otherwise be going than to fast food. Their counterfactual may be eating lunch at school, but then again, maybe 9th graders aren't allowed off campus and what we're really talking about is after-school eating and possibly dinners.

    Looking at the study, you might also raise your eyebrows at the definition of what's fast food and why that matters. Are meals really healthier at IHOP and Applebee's than at McDonald's? But the story is more about calories per dollar, which is far higher at McDonald's.

    Wednesday, March 25, 2009

    Philanthropic giving, age, and immigration

    Today's New York Times reports CUNY reached $1.2 billion in fund-raising three years ahead of schedule, which is described as a remarkable accomplishment for a "public system that historically attracted immigrants and working-class students."

    One recent paper on the charitable giving of immigrants confirms that immigrant status tends to be associated with lower probabilities and levels of giving, but that once you control for wealth and other characteristics, the effect basically vanishes.

    Although City University is a relatively old institution, parts of it are quite young. Queens College dates from 1937, while City, Hunter, Baruch, and Brooklyn are older. With considerable growth in the system after World War II, is it a surprise that charitable donations might not have picked up steam until a point where graduates were old enough to afford it?

    Sunday, March 8, 2009

    Employer-sponsored default saving plans

    Several days ago the Times ran an article about plans for universal tax-free savings accounts as mentioned by President Obama in February. It highlights the importance of having the default choice be to set up a savings account, which is a lesson from behavioral finance.

    For those of us who switch employment frequently, however, it's a huge pain to keep track of all these accounts. Sometimes it's next to impossible to convince investment management companies even to give you access to your account in order to consolidate them. The article discusses that problem as well, and it's hard to know what a reasonable solution might be.

    Sunday, March 1, 2009

    Neat graphic on the sex gap in wages

    Today a graphic in the Times plots weekly median wages for men and women by occupation. It reveals broad but also heterogeneous inequality in earnings.

    Professors and postsecondary teachers, my group, is at male weekly earnings = $1,250 and female weekly earnings = a little less than $1,000. There is vast heterogeneity within that occupational group, which includes tenured, tenure-track, and adjunct professors, stepping from highest rank to lowest. Rank and earnings are correlated, as are rank and sex and probably rank and job flexibility.

    A graphic like this is interesting, but it is hard to know the takeaway message other than the fact that wage inequality is broad-based across occupations or industries.

    France did that too, and we laughed

    Today's Times has an article about reductions in the workweek, and in work intensity more generally, that may be a result of the downturn. An interesting nugget is that Kellogg reduced weekly hours to 30 during the Great Depression.

    Among those still employed, work intensity typically falls anyway during recessions. It's surely one of the reasons why population health temporarily improves during economic bad times. I think much of the reduction in hours probably occurs among salaried workers and people who usually work overtime. Mandating a reduced workweek, as apparently Kellogg did, is the kind of thing that the entire OECD chastised France for doing back in the late 1990s.

    Friday, February 27, 2009

    Long-term fiscal pressures and the first Obama budget

    As Paul Krugman and David Brooks write today in the Times, the Obama budget doesn't come close to grappling with the long-term budget issues on the table. Public enemy number one is Medicare, and I agree that sounds odd and almost heartless.

    Obama's director of the OMB is the able Peter Orszag, who as director of the Congressional Budget Office prior to joining the administration helped focus that bureau's public statements on the long-run sustainability of Medicare and other health care spending like Medicaid. As a scholar at Brookings prior to that, Orszag was similarly in the business of full-press academic responsibility vis-a-vis budget priorities.

    You can't fault the President or any aides for not tackling those weighty issues right this second, in the middle of the largest recession since at least 1982. But as Krugman and Brooks remind us, there is plenty remaining on the table.

    Monday, February 23, 2009

    Sex and investing in Japan

    The Financial Times recently reported on the historically female role of managing household finances in Japan. Part of the article traces that role back to the historical division of labor during the Edo or Shogunate period, at least among the aristocracy. Granted, lower classes probably didn't have much surplus wealth to invest.

    But the article is really about how low Japanese interest rates early this decade, as a result of the "lost decade" and the attempts to stimulate the economy through monetary policy, may have led to a situation where "a culture of saving underwent a significant behavioural change, making ... frugal savers into bold, courageous investors."

    That kind of thing can sweep up members of either sex, of any age, and so on and so on. The article delves much less into why this might be specially interesting in Japan, other than how it reports the hot water housewives had gotten into with their financially oblivious husbands.

    Risk tolerance does vary by sex, however, and one would thing that all things equal, having the purse strings controlled by women probably dampened the irrational exuberance that otherwise would have raged.

    Dads and daughters

    It's like a Lifetime movie, and I love it! A Times article echoes an interesting paper on the increasing strength of the intergenerational transmission of skills from fathers to daughters.

    Friday, February 20, 2009

    Populist indignation and the collective good

    Today David Brooks lays out some arguments on either side of the debate about what we might call "microeconomic stabilization," namely writing down or reorganizing debt for some of the population but not for the rest. The asymmetry is not very palatable to anyone who believes in basic fairness and responsibility, and that probably includes most Americans.

    The fact is that macroeconomic stabilization policies also have asymmetric effects. When interest rates are lowered in hopes of stimulating investment, savers lose while borrowers win (and there are also substitution effects that can change behavior). I don't think this aspect of macroeconomics is frequently taught to college undergraduates, let alone whether it is broadly understood.

    Brooks (and many others) have good points about how micro stabilization can reward bad decisions, creating moral hazard that will put future decisions off kilter, and how that just flat-out doesn't seem fair. But Brooks also puts the basic argument for stabilization quite well in his last paragraph: "The nation’s economy is not just the sum of its individuals. It is an interwoven context that we all share. To stabilize that communal landscape, sometimes you have to shower money upon those who have been foolish or self-indulgent. The greedy idiots may be greedy idiots, but they are our countrymen. And at some level, we’re all in this together. If their lives don’t stabilize, then our lives don’t stabilize."

    Thursday, February 19, 2009

    College grades and class size

    Today Greg Mankiw writes about undergraduates' course satisfaction highly correlated with class size in the Harvard economics department, while the Times reports on students' and professors' differing perspectives and expectations regarding grades.

    The latter article focuses on students' beliefs regarding hard work and whether it is enough to earn a high grade. I'm fond of telling undergraduate advisees about my own experience as an undergraduate, when I earned a solid "C" in introductory computer science. Notice my verb choice. I worked extremely hard, but I also knew I wasn't a particularly good computer scientist. One of our challenges as college educators, it seems to me, is to motivate students to continue striving to learn even when it is clearly difficult and thus will not result in particularly high grades.