Monday, November 29, 2010

Squeezing the 55-to-64 year olds

The Times reports that Defense Secretary Robert Gates is contemplating cuts to the military's Tricare medical insurance program, only reportedly for retirees who are under 65. The article states that fee hikes would not apply to soldiers on active duty (and presumably their families), nor to military retirees over age 65. That leaves an age range of about 55 to 64, maybe a little wider, given that retirees typically serve 20 years on active duty.

To my knowledge, Tricare for life, the over-65 piece, effectively provides a 100% subsidy of medical care by covering what Medicare does not. To be sure, working military retirees may be a group with greater means and thus more suitable candidates to shoulder the burden of fiscal adjustment. (Yes, you read that correctly; career soldiers typically retire from service and then obtain employment and receive a pension, although their earnings tend to lag those of equivalent nonveterans.)

Monday, November 22, 2010

Monetary policy here and abroad

With all the hullabaloo about the Fed's second round of quantitative easing or QE2 (which Bernanke argues is just monetary policy), recent actions by the People's Bank of China, that nation's central bank, offer some interesting insights into exchange rates and monetary policy.

The Times and the Journal both reported last week's 0.5 percentage point increase in the required reserve ratio for Chinese banks, from 17.5 to 18%, but the two reports offered different analytical perspectives. Both cited a domestic inflation rate of 4.4% in October over the previous year, above the Bank's target of 3%. But the Times report quoted arguments by banking analysts that raising reserve requirements was a way for the People's Bank to obtain more funds it could use to purchase foreign currencies. Tighter monetary policy would tend to appreciate the currency if interest rates rise, especially when the Fed is trying to lower long-term interest rates with its purchases of U.S. government bonds, but currency purchases could offset that.

For all the talk of an undervalued renminbi, it has been rising, at least prior to the crisis in 2008 and again since September.

Thursday, November 18, 2010

Budgets, Taxes, and Spending, Oh My!

The award for the most self-referenced post goes to the Times, whose "Budget Puzzle: You Fix the Budget" online tool has captured a key element of recent media interest: trying to offer concrete ideas about fiscal policy rather than simple blanket statements. Republican Representative Paul Ryan of Wisconsin was one of the first to start talking about specifics, and a bipartisan fiscal commission has recently weighed in. Glenn Hubbard discusses it.

The Budget Puzzle is certainly nifty, but it doesn't do everything economists think is important. In particular, there's no behavioral or welfare response to any changes in taxes or spending. We'd like to know the costs of cutting spending, namely the lost welfare of recipients and market participants, as well as the benefit (the dollars not spent). Same goes for taxes, labor and capital supply, and growth.

Wednesday, November 17, 2010

Clickers for Classroom Critters

Today an article in the Times recounts the use of classroom clickers to engage students in large lectures. I particularly liked how students could foil their use as automatic attendance checks: just give it to your friend to bring in! But kidding aside, they seem like a useful tool to increase participation and learning. I gave Twitter a go this fall and it didn't take, probably because I didn't set up anything specific for students to use it for other than their own questions.

Tuesday, November 16, 2010

Brooks on psychology vs. rules in economics

Today David Brooks writes about psychology, economics, and to what extent we can formulate detailed policies that produced desired macroeconomic results. I think Brooks was talking more about fiscal policy, taxing and spending, as opposed to monetary policy, but his thesis about psychological factors mattering could also apply to the latter.

I think he feels that some of modern macroeconomics, in particular the part that thinks that government spending actually increases national income rather than perfectly crowding out private activities, leads the left-brain wing of the left to advocate such policies. But Brooks feels that the net result can be different because of psychology; people presumably fear higher debt and future taxes, or the uncertainty about them, and reduce or put off their current spending.

Brooks probably has a point about policymakers' poor understanding of this or their poor communication to voters about it, or some mixture of both of those. But like everything in an opinion column, it cuts all kinds of corners, and it caricatures modern and historical macroeconomics.

Keynes, whose writing provide the backbone behind the idea that public spending might be a good idea when the economy is down, was actually really big on such "animal spirits" being important for the macroeconomy. There are also plenty of neoclassical economists who feel that expectations are important, consumers are smart, and that many won't get fooled by spending or tax cuts. But a middle-of-the-road view held by many economists is that fiscal policy is a good idea to try in such hard times, if for no other reason than to offset the effects of budget cuts at the state and local level. The stimulus package seems not to have worked extremely well --- but it probably did work to some extent, especially when combined with the rescue of the financial sector, a great success --- so it would be worth trying something different, like more tax cuts rather than spending. Temporarily extending the Bush tax cuts seems like an attractive option.

The debate over monetary policy now is a little mystifying to me. The Fed is trying to increase the availability of credit any way it can, in order to get investment but especially consumption back on track, but banks and other financial institutions aren't really cooperating. They're hoarding credit, inflation is very low, and there are few signs it is on the rise. Arguably the bigger danger is deflation, which would raise the real costs of borrowing and reduce it even further.

Tuesday, November 2, 2010

Immigration and jobs

Tyler Cowen writes about immigration and its effect on domestic employment in a nice summary piece for the Times. He summarizes much recent work by Giovanni Peri at UC Davis, a solid researcher whom I met while at Berkeley in the 1990s.

Tuesday, September 7, 2010

Orszag and fiscal policy

Peter Orszag, the former CBO and then OMB director, is now a contributing columnist for the NY Times. In his first column, he argues that the across-the-board tax cuts passed during the first term of George W. Bush, which are set to expire, ought to be extended for two years and then allowed to expire.

Monday, August 16, 2010

Aging and tenure

The Times features a Room-For-Debate about hiring on the tenure-track at colleges and universities prompted by a Chronicle of Higher Ed piece that focused more broadly on the macroeconomy's impact on hires and leaves in academia.

I felt like almost all the contributors to the Times piece said the real issue was adjunct or part-time labor being increasingly substituted for tenure-track or full-time labor. Those who didn't took on the issue of whether the tenure system was a good idea or how it could be improved. Few had anything to say about the inflows and outflows per se.

CUNY is experiencing a wave of early retirements this fall, induced by financial incentives. But the majority of them seem to be among staff rather than faculty. What motivates faculty to become emeritus or not?

Friday, August 13, 2010

Mulligan points out that summer still happens

Casey Mulligan's economix blog post asserts that labor supply is an important part of the labor market. That's hard to argue with, but it's also hard to swallow the evidence he offers as a particularly clear-cut reason why the "stimulus law is partly responsible for today’s low employment, precisely because so many of its components have eroded work incentives."

Mulligan show that seasonally unadjusted employment for 16-19 year olds has continued to jump each summer. His graph also shows that while the seasonal summer spike is still there, it too has fallen lower each year along with the rest of the monthly trajectory as the recession has taken its toll. (Or as anti-recessionary policy has created disincentives, if you like.)

I'm not surprised that the recession hasn't halted summers! Or put differently, summer activities. Something tells me that some moms and dads still ship their kids off to summer camp, where some of the workers are ... 16-19 years old. But there are probably fewer parents doing that than normal, because some are now unemployed and can spare the time themselves, or they're cutting camp costs out of their tightened budgets. Camp employment is surely not all of the spike among 16-19 year olds, but I'm not convinced that it's a pure labor supply effect, with idled teens facing a lower price of time (during the school year, the opportunity cost of working is skipping school!). It seems to me that there is probably a seasonal labor demand effect too, tied in to seasonality in preferences.

Greg Mankiw's take is that Mulligan offers a reason to eschew extreme Keynesianism (demand-driven everything) in favor of more of a synthesis view. It's hard to argue with that one, too!

Thursday, August 12, 2010

I was surprised

The Modern Love column in the Times featured an article about the "two body problem" in academia, where both partners are searching for tenure-track jobs simultaneously. I thought for certain that the author and her husband were going to split up in the end, but instead the story took an unexpected turn. I don't want to spoil it.

Academics are just obsessed with themselves, aren't we? But part of me wonders how common it may now be for dual-career spouses outside of academia to choose a two-city arrangement, at least temporarily. Or maybe it's just we academics who are completely out of our minds.

Wednesday, August 11, 2010

NEC, CEA, OMB: The Alphabet Soup of economic policy

The OMB and CEA chairs are leaving, while the NEC chair is staying ... so what in blazes does that all mean?! For the nostalgia factor alone, Keith Hennessey's post on economic policy inside the Executive branch is a fun read, and it's also helpful for thinking about who does what and with how much of a consulting vs. advising role.

Thanks as usual to Greg Mankiw's blog for that cite, and to Ezra Klein's informal poll about the Laffer Curve. That's interesting on several levels, and definitely because it illuminates the different objectives one might have in mind when discussing an "optimal" tax rate. Does that mean, "revenue maximizing," as is typical in discussions of the "Laffer Curve," or does it mean "growth maximizing," which could easily be different?

Monday, August 9, 2010

Money & banking on the brain

I've been prepping Econ 215, Money & Banking, for the fall, and I've got money on the brain even more than usual. The Fed Bank of Atlanta has a nifty "macroblog" with a recent posts about quantity theory, perceived uncertainty in inflation forecasts, and the Fed's policy since the fall of 2008 of paying interest on bank reserves.

Friday, August 6, 2010

Demographic change and grocery stores in Queens

The WSJ reports on grocery stores around Flushing, Queens, where closures have apparently reduced the availability of one type of ethnic cuisine: Caucasian! The article reports that data from the 2008 ACS show nearly equal numbers of Asian Americans and whites in Queens community district 7, north of Queens College. But at least in some parts of Flushing, it's apparently become difficult to find cold cuts and bread on the store shelves.

Romer stands up, neatly pushes in CEA chair

The news out of Washington today is that Christy Romer will step down as CEA chair and return to U.C. Berkeley. She joins Peter Orszag, the outgoing OMB director, as the second economist to leave the cabinet and (presumably, in Orszag's case) return to academia. I bet students and faculty at Berkeley will be very happy to have her and her husband, David Romer, back again. I know from personal experience as a student during the mid to late 1990s that service during Democratic administrations tends to hollow out Evans Hall at U.C. Berkeley!

What an incredible ride it must have been for Christy Romer! Have any other CEA chairs presided over a more volatile period, both in terms of underlying macroeconomic turbulence and in the vicissitudes of the policy response? The same would certainly also be true for Fed Chairman Ben Bernanke if he were to have not been confirmed or had resigned.

Wednesday, August 4, 2010

Geithner cites Blinder and Zandi

Today Tim Geithner opines in the Times about the great recession, the policy response, and the recovery. He cites a recent study by Mark Zandi and Alan Blinder that uses a macromodel of the U.S. economy maintained by Moody's Analytics to divvy up the effects of the fiscal stimulus and the various monetary/financial policies (TARP, quantitative easing).

Their counterfactuals are entirely model-derived and thus subject to the usual criticisms. What's interesting is that they separately parcel out the effects of the fiscal stimulus and the effects of the financial policies, and they find that (1) the sum total effect of both is greater than their parts, and (2) the partial effects of the financial policies were larger than the partial effects of the fiscal policies.

Blinder and Zandi argue that the reinforcing effects of the two policies produce a sum greater than its parts; for example, they offer, housing credits in the fiscal stimulus helped raise housing demand and thus prices, which may have improved the efficacy of financial policies.

If economics-of-scale in policy interventions are indeed operative, then a cost-benefit comparison of fiscal and financial policies is a little messier. Just comparing their individual partial effects to their costs seems to strongly suggest that one was more cost effective. Blinder and Zandi don't seem to highlight this, but I think their results show that financial policies (mostly the TARP) may have raised 2010 GDP by 2.65% (Table 6) at a cost of about $101 billion (Table 9), while fiscal stimulus may have raised 2010 GDP by 1.9% (Table 8) at a cost of about $1 trillion (Table 10).

Tuesday, August 3, 2010

Mankiw in National Affairs

Greg Mankiw contributes a nice article in National Affairs entitled "Crisis Economics" in which he discusses the challenges facing policy advisors. He provides a nice JEP-like overview of the state of the literature on fiscal multipliers.

Monday, August 2, 2010

Optimistic Expectations

Atul Gawande writes about end-of-life medical decision-making, and the view is disturbing at times. And not because the end of life is such a fraught component of the life course.

One of the most shocking issues the article reveals is how doctors tend to overestimate survival probabilities of their terminally ill patients, a result reported by Christakis and Lamont in BMJ. For medicine to be efficiently employed, decision-makers should be well informed. It would be regrettable but perhaps not unsurprising that patients might have little knowledge of the underlying probabilities of outcomes. But if doctors do not have rational expectations either, it seems unlikely that choices can be optimal.

A colleague remarked that maybe patients demand optimism. Another one thought it might be hard for doctors to face their jobs without optimism. But another finding by Christakis and Lamont, that the overoptimism rises with increased knowledge of the patient, does not fit particularly well with either story and suggests instead that doctors may find it (increasingly) costly to be objective with terminally ill patients. Gawande's piece seems consistent with that.

Thursday, July 22, 2010

Gawande on the structure of medicine

The New Yorker's website contains a commencement address by Atul Gawande, he of the two-counties-in-Texas fame. And yes, you'll still feel like a communist when you read what he writes. In a Mayo Clinic kind of way, mind you!

Monday, July 12, 2010

A change in the VA's PTSD compensation rules

Last week the Times reported new VA rules governing eligibility for disability benefit based on post-traumatic stress disorder (PTSD). And a Room-for-Debate blog covered some discussion of the issues.

One of the challenges in understanding compensation programs for veterans is that data are harder to come by than they are for the entire civilian population. There's a vibrant literature on the effects of Social Security's Disability Insurance, by John Bound and others for example. But veteran subsamples in surveys tend to be small, and relatively few questions about VA compensation or utilization are asked.

Wednesday, July 7, 2010

Cheating, technology, and behavior

Yesterday the Times reported on cheating practices, prevalence, and technology in the Internet age. On its second page, the article reviewed a recent NBER working paper on cheating, in which the authors conducted an experiment using a Blackboard-based tutorial on plagiarism as the intervention.

Their results revealed that plagiarism, as detected by the ubiquitous TurnItIn database, was more prevalent among students with lower SAT scores. The authors also found that the intervention worked to reduce plagiarism, implying that students may lack knowledge regarding academic integrity.

Update: a Times Room-for-Debate forum on this topic.

Update 2, another Times article.

Update 3, a post by Stanley Fish on (the lack of?) a cogent moral argument against plagiarism.

Update 4, Stanley Fish again on metaphysics.

Wednesday, June 30, 2010

Glaeser on life expectancy in New York

Ed Glaeser writes about trends in life expectancy in New York City (all of it) versus those for the nation over the last century or so. He cites a New York penalty that declined and reversed by 1940, then increased again to 1990, and then reversed. New Yorkers now enjoy 1.5 more years in period life expectancy at birth than do Americans as a whole. The causes remain rather mysterious; Glaeser reports that mortality rates above age 55 are consistently lower in NYC than elsewhere, but while cancer deaths are less prevalent among New Yorkers, heart disease deaths are not.

Tuesday, June 29, 2010

Times Smackdown on student evals

Stanley Fish, a professor of humanities and law at FIU, argues against student evaluations here and here, and Alan Jacobs seconds him. Ross Douthat sees more rationality and consistency, but also acknowledges the case against that. A few weeks ago, I had blogged about the latter, a new JPE article by Carrell and West.

The main difference of opinion seems to be over whether "good teaching" can be appreciated by students while engaged in learning, or whether students typically can't appreciate it until later, perhaps once learning has either been achieved or operationalized elsewhere.

A passage from today's column by David Brooks is coincidentally related: "Much of what we do in public policy is to try to get people to behave in their own long-term interests — to finish school, get married, avoid gangs, lose weight, save money. Because the soul is so complicated, much of what we do fails." At least in high school and college, the primary objective of education seems to be imparting long-term gains. Brooks argues that trying to do so is difficult because of the complexities of human behavior and motivations.

Friday, June 18, 2010

Rajan on the financial crisis

Yesterday the Freakonomics blog posted an interview with Raghuram Rajan, who pillories the federal government for a second-rate redistribution policy via extending (housing) credit, and Greenspan's Fed for remaining on the sidelines during the growth of the asset bubble.

I think Rajan could take his analysis about housing credit one step further, but it may not be a direction he'd want to take. During the 1990s, fiscal policy was relatively tight, resulting in monotonic reductions in deficits from 1992 and surpluses in 1998 through 2001. Politically, the balance of power produced PAYGO budget caps, welfare reform, and an environment where small, compartmentalized fiscal policies like the lifetime learning tax credit and other carve-outs were the only ones feasible. It seems to me that one could characterize Fannie and Freddie's expansion of credit to low-income home buyers as the same.

It would appear that some of these policies were more harmless than others. But stepping back, would it be right to blame this circuitous path to income redistribution, as called correctly by Rajan, on the overall program of fiscal austerity?

Tuesday, June 15, 2010

Incentivizing healthy behaviors

Yesterday's Room for Debate blog included a discussion of financial incentives for individuals to engage in healthy behaviors, like lose weight, quit smoking, and exercise. Kevin Pho cites two studies, one in JAMA and one in NEJM, but his critique is that the NEJM study on smoking cessation includes a racially homogeneous sample. The other sample is smaller but more diverse.

Arthur Caplan writes about the asymmetries; fast-food providers are completely free to peddle unhealthy food, leaving it to individuals to get it right or wrong on their own. Another option that might place a greater burden on suppliers of unhealthy products would be to tax them rather than subsidize healthy behaviors. We already do this with alcohol and cigarette taxes, of course, but we do not tax fast food.

One of the questions is what kind of behavioral response to expect from taxes or subsidies. One might imagine that people engage in unhealthy behaviors because they are addictive, and their demand for them might be relatively inelastic. Only a very high tax would produce behavioral change. Subsidizing healthy behaviors might be more effective in eliciting a behavioral response because demand might be much more elastic.

Mineral wealth and development

The announcement, apparently by the Pentagon, of significant mineral deposits in Afghanistan, perhaps totaling a trillion dollars in value, was greeted by many with enthusiasm. Compared with Afghanistan's current economy, which is heavily dependent on opium production, this may seem like a real upgrade.

But research suggests that extractive industries may not be good for growth. Sachs and Warner (EER 2001) show that levels of income and rates of growth have both been lower in countries with abundant natural resources. They posit that because such countries tended to have higher prices, their exports, especially in manufacturing, were less competitive, which retarded growth.

The other thought that immediately comes to mind is that natural resource wealth and liberal democracy do not seem to be correlated. But Sachs and Warner point out that liberal democracy is not tightly correlated with growth, however.

Monday, June 14, 2010

Student evaluations and teacher quality

Think teaching at the Air Force Academy might not be rewarding? Think again. Scott Carrell and James West show that it pays off big time in terms of randomized trials in which students are exogenously assigned to instructors. Their research shows that students' evaluations of instructors and their current performance are positively related, while both are negatively related to students' future academic performance!

One interpretation they offer is that less experienced and less qualified professors might be "teaching to the test" more than others, so that current performance is higher but future performance is lower. The authors argue their "results show that student evaluations reward professors who increase achievement in the contemporaneous course being taught, not those who increase deep learning."

Wednesday, June 2, 2010

Happiness and aging

A few days ago the New York Times reported on happiness and aging, based on a recent PNAS paper that examined Gallup survey data on well-being by age. Their results showed U-shaped trajectories of self-assessed well-being throughout the life span.

Tuesday, June 1, 2010

What we don't know can certainly hurt us

Today Ed Glaeser writes about macroeconomic stabilization policies and our relative lack of knowledge about causes and effects, compared to topics in microeconomics.

Glaeser writes, "there are too many moving parts. Times change, so it isn’t obvious that the lessons of the 1930s – not that we can agree on those, either – are applicable today." This is one of the key problems. Underlying conditions can vary so much that it's difficult either to judge the counterfactual, what would happen without intervention, and it's tough to guess how consumers and businesses will respond.

Friday, May 28, 2010

Uwe Reinhardt on naked short-sells

Today a health economist makes a complicated topic in financial economics clearer. Uwe Reinhardt discusses "naked" sales of financial instruments: what they are, why or when they might be good, and why they might be bad.

A naked short sale occurs when a participant sells an asset he or she does not actually own or even yet possess; a traditional short sale requires the participant to actually obtain it "on loan" from another party, in return for a fee and the promise to give it back at a future date, before actually selling it.

Reinhardt points out that short sales, whether naked or not, can be good insofar as they may more rapidly transmit knowledge or perceptions about the quality of investments.

But if enough short-selling occurs, it is also plausible that such bets could simply become self-fulfilling prophecies, unrelated to any particular market fundamental.

Wednesday, May 19, 2010

Esther Duflo in the New Yorker

The May 17 issue of the New Yorker includes an article about Esther Duflo, the winner of the 2010 John Bates Clark Award. Probably the most interesting scientific tidbit concerns her work that suggests microfinance does not unambiguously raise consumption.

Military families, integrated financial services, and banking reform

It turns out that USAA, a company whose goals include providing integrated financial services to military families, feels its business model may be jeopardized by the proposed Volcker Rule in financial regulation reform.

The idea of the Volcker Rule is to keep FDIC insurance of bank deposits from effectively underwriting riskier trading. The idea of the one-stop-shopping that USAA provides, with insurance and banking products offered by a single entity, is to streamline finances, something that is clearly useful for military families grappling with the stresses of deployment and relocation.

Tuesday, May 18, 2010

Several economists weigh in on stuff

Greg Mankiw talks (mostly) fiscal policy, while Christina Romer sees insufficient aggregate demand, Narayana Kocherlakota assesses the state of macroeconomics, Ben Bernanke talks about the economics of happiness, and Ed Glaeser discusses popular agglomeration and Zipf's Law.

Perspectives on immigration

An article in today's Times spotlights generational differences in U.S. perspectives toward immigration. The post-1965 immigration law was certainly a departure from previous statute, and the article describes how birth cohorts appear to have been affected differently by it.

I particularly enjoyed the blurb about Spanish language segments on Sesame Street. I remember those well from the late 1970s!

Sunday, May 16, 2010

To train vocationally or not?

This article in the Times discusses the benefits and costs to students of college education, and asks the perennial question of whether it makes sense for students to aspire and attend. Toward the end, a quote from the president of Northwestern mentions that even those who do not graduate from college are likely to benefit in ways other than increased earnings, which themselves may not sufficiently compensate for the high cost of attending. In particular, education appears to improve health regardless of whether it results in a degree or not.

Thursday, May 13, 2010


The latest from Albany appears to be that courts have blocked the governor's furlough plans for non-essential state workers. An earlier article details the original plan, which is at least on hold if not defunct.

Based on the statistics in that latter article, the furloughs would have resulted in a reduction in the average state worker's paycheck of about $270. This is on the same order of magnitude as the $600-per-household federal tax rebate check in 2001, and the 2008 checks, the latter of which phased out with income. The interesting thing about the furloughs is that those would have increased with income.

Age differences and mortality outcomes in couples

An article by Sven Drefahl has gotten some popular press notice for its provocative results. Having a younger spouse appears to be better for men's longevity but not for women's, while having an older spouse is worse for both sexes.

Friday, April 30, 2010

Euro-skepticism and state budget deficits

Today Paul Krugman writes about the ongoing crisis in the Euro area, and he makes a very good point about its origins not solely deriving from budget deficits. He reiterates his earlier statements about capital inflows into Spain, budget surpluses there, and rising prices in Spain, the last of which is difficult to undo with a common currency.

Something very similar could be said about California and Florida, I think. Especially in the former, the state budget is in complete disarray. But the run-up in real estate prices was largely independent of that and seems likely to have produced a similar problem with prices that are too high.

Monday, April 5, 2010

More on fiscal multipliers

Here's a recent interview with Robert Barro, and he speaks highly of recent work by Valerie Ramey. She finds that measuring the timing of announcements of government (military) spending and the timing of actual spending and activity is pretty important. When you do it right, she finds, the multiplier is at best unity.

Taxes and benefits over the life cycle

UM-Amherst's Nancy Folbre writes about taxes and benefits over the life cycle in the Times economix blog. She uses some data on age-specific taxes and benefits I allocated based on the 2004 NIPA tables and age profiles of utilization from the National Transfer Accounts project. She reports that it takes 17 years past age 21 for the average taxpayer to break even, by repaying governments for the net investments he or she received as a child and adolescent.

Saturday, April 3, 2010

The cost of caring for injured soldiers

Katy Clark of PRI's The World reported on the IOM report on April 2 and interviewed me and several others about the costs of caring for wounded veterans. The podcast MP3 is available as a link off that page.

USA Today's Gregg Zoroya also wrote about the report back on Wednesday.

Wednesday, March 31, 2010

Friday, March 26, 2010

Wednesday, March 17, 2010

Japan on deflation

The quotes in today's article on combating inflation in Japan do not exactly inspire confidence. One can't imagine the ECB or Fed announcing a policy of monetary easing that its own head thinks "would not clear up the cloud hanging over the ... economy" on its own.

Tuesday, March 9, 2010

Munnell and Biggs take on the retiree lobby

In an op-ed on March 7, Alicia Munnell and Andrew Biggs present a pretty compelling case why Social Security beneficiaries do not need an additional $14 billion in compensation for not receiving a COLA. Their two main points are that prices have fallen, so the COLA should indeed be zero rather than positive; and that beneficiaries have not borne the brunt of the financial crisis, while the unemployed have.

A related point is an implicit argument that beneficiaries' marginal propensities to consume out of additional cash is lower than that of the unemployed. I'm not sure what the literature suggests about this relatively fine distinction, but it sounds plausible.

Monday, March 8, 2010

Krugman on the financial crisis in Ireland

Today Paul Krugman discusses the financial crisis in Ireland, a state without Fannie or Freddie Mac and also presumably one without strong consumer protection.

Tuesday, March 2, 2010

Perspectives on mental health

For a truly mind-bending read, try this Times magazine article on efforts to understand depression. Simultaneously, Louis Menand discusses depression and the pharmaceutical industry in the New Yorker.

Obesity and Small Changes

Tara Parker-Pope's health blog in the Times discusses small changes in diet (and exercise), referencing recent commentary in JAMA. The main point is that it's unlikely changing habits by a small amount, like eating one less cookie a day, would have much of an effect on obesity trends. Rather, larger changes more like 5-10 times as weighty (pardon the pun), are on the right scale. I'll be the first to drop my 10-cookie-a-day habit.

Thursday, February 25, 2010

More from Barro on fiscal multipliers

Robert Barro weighs in again on the multiplier, this time in an assessment of the fiscal stimulus package. He thinks it's $600 billion in public spending associated with a $900 billion reduction in the rest of GDP. Hm.

Friday, February 19, 2010

Social change and cohesion

David Brooks discusses distrust of elites, by which he means corporations, government, media ... just about everyone, it would appear. He lists five elements he sees contributing to this feeling despite the more meritocratic bent of the nation: (1) the lack of circumspection in addition to knowledge, since the two are sometimes orthogonal; (2) new social chasms deriving from geographic and matrimonial concentration; (3) backbiting among leaders; (4) shorter time horizons due to the weakening of dynasties; and (5) greater transparency.

What I find particularly interesting is point #2. Is it really the case that we're more geographically concentrated today than we were? Brooks means bankers living outside the communities they're serving. And are marriage patterns really more rigidly defined as a coming together of social equals today?

Krugman on health insurance and individuals' opting out

Citing the WellPoint story in California, today Paul Krugman explains why it might be a problem in insurance markets if people are free to choose whether or not to insure. Anybody who believes his or her probability of an adverse event is temporarily low would find it profitable to drop coverage, leaving the covered pool comprising relatively more people who expect to file claims. In the recession, some Californians have chosen to drop health insurance, so WellPoint has responded by raising premia on those remaining, because they are sicker.

Tuesday, February 16, 2010

Econometrics in Hollywood

Not many details are divulged, but a Vanity Fair piece on a Hollywood executive reveals one of his secrets to be a statistical model of box-office returns. I'm not sure a book titled "Moneymovie" would sell as much as "Moneyball," but you never know.

Brooks on cost of recessions

David Brooks's piece today discusses the wrenching effects of joblessness and provides an overview of the current situation with relatively more men out of work. As he points out, "men are concentrated in industries where employment is declining (manufacturing) or highly cyclical (construction)."

Supply and demand and ... induced demand?

Yesterday an article in the Times profiled new medical schools around the country. Dr. David Goodman at Dartmouth is quoted as pointing out that “When you add more physicians to an area, they just add more services, and their salaries don’t go down anywhere near in proportion to the increased supply.”

It would be interesting to know what that proportion actually is, and I'm no expert in this subfield. Shifting out the supply of doctors along the demand curve should in principal lower doctors' wages, unless the demand curve shifts too, but it clearly depends on the slope/elasticity of demand.

Monday, February 15, 2010

Krugman on the euro crisis

Today Paul Krugman provides a very nice overview of the issues surrounding the current crisis in the euro area. His description of the problem with Spain illustrates the difficulties inherent in relinquishing control over monetary policy when joining a single currency.

Thursday, February 11, 2010

2010 Economic Report of the President

Today the CEA released its 2010 Economic Report of the President. The first three chapters provide a nice overview of recent macroeconomic events, here and abroad. The next chapters cover (4) saving and investment, (5) long-term fiscal imbalances, (6) financial market reform, (7) health care reform, (8) the labor market and education, (9) energy and climate change, and (10) productivity.

Congratulations, CEA fact-checkers of 2010! Your 80-hour weeks are now complete!

Wednesday, February 10, 2010

Sex ratio on college campuses

The Times Sunday Magazine includes an article about a shortage of eligible men on college campuses that's a fun read. Probably the most controversial issue it raises is whether a relative shortage of men that empowers them in the dating market leads to an equilibrium of relationships that are on terms more favorable to men. Some of the academics quoted in the article seem to want to blame the sex ratio for changing the nature of college dating, toward more commitment, since it might seem reasonable for men rather than women to prefer that.

That's a tempting explanation, but I'm not so sure I'm sold. Enrolling in college is certainly costly, but if the college dating market were so much more favorable to men, why wouldn't more men jump in to take advantage of it and correct the sex imbalance? To me, it's also a little telling that one of the anecdotes in the article is about a male in college who laments the "hook-up" culture and has apparently eschewed it.

Tuesday, February 2, 2010

Brooks on aging

Although it's like hiking a switchback, with several abrupt turns in new directions, I enjoyed David Brooks's piece on aging today. He writes about new research suggesting more happiness, more altruism, better life satisfaction, and much productivity past retirement. Then he links it to the looming fiscal issues we confront. Maybe Brooks thought of all this because Eugene Steuerle pointed out that "in 2009, for the first time in American history, every single penny of federal tax revenue went to pay for mandatory spending programs [i.e., mostly transfers to the elderly]."

Monday, February 1, 2010

Volcker and Krugman on banking reform

Yesterday and today, Paul Volcker and then Paul Krugman took turns presenting views on banking reform. Volcker's list of issues to address is a little longer, including some walling off of commercial banking from other, more risky and less publicly insured (i.e., subsidized) activities, and a resolution corporation that could step in and unwind failing institutions, perhaps via a "living will" agreed upon in advance. Krugman's is shorter; he argues that a comparison with Canadian banks suggests to him that the one overt difference, more robust consumer protection, should be the focus of U.S. reforms.

Friday, January 29, 2010

Inventory investment

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

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

Tuesday, January 26, 2010

David Brooks on populism

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

Opinions on Bernanke

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

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

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

Monday, January 25, 2010

Politics, populism, and central bankers

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

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

Friday, January 22, 2010

Solow reviews Cassidy's book

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

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

Feldstein assesses economic policies

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

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

Wednesday, January 20, 2010

A bank tax as a retroactive insurance fee

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

Tuesday, January 19, 2010

New economics of marriage

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

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

Monday, January 18, 2010

New estimate of early human population size

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

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

Thursday, January 14, 2010

Boskin takes out everyone

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

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

Monetary Policy and Bubbles

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

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

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

SuperFreakonomics: A Rogue Economist Summarizes

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

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

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

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

Obesity trends flat?

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

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

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

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

Wednesday, January 13, 2010

Calorie postings, self control, and the holidays

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

Monday, January 11, 2010

More on the soul of macroeconomics

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

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

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

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

Friday, January 8, 2010

Gaining weight and other domestic blisses

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

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

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

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

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

Dueling cost forecasts

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

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

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