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.