Monday, July 21, 2014

What makes a good economist?

Monday, July 14, 2014

Commodity Money

Sunday, July 06, 2014

Some ACA Readings

Monday, June 30, 2014


Sorry that I have been out of touch with regular blog readers.  I have moved to Nantucket for the summer, and the weather here has been too great to spend much time in front of a keyboard.  (The three best reasons to be a professor: June, July, and August.)

The past few days I have been attending the Nantucket Film Festival.  I have had a chance to see some great movies before they are in general release.  Two are worth mentioning: Arlo and Julie, a small quirky comedy/mystery that is a bit Woody Allen-esque. Also, Happiness, a documentary about a boy and his family in Bhutan. 

This morning I am off to see Begin Again, which won the award for Best of Festival.

Monday, June 23, 2014

The Saddest Chart I've Seen Today

Saturday, June 21, 2014

On Inherited Wealth

How much has the Affordable Care Act reduced potential GDP?

The Affordable Care Act added "about six percentage points to the marginal tax rate faced, on average, by workers in the economy."  So estimates the University of Chicago economist Casey Mulligan

Given that labor income was already taxed by income and payroll taxes, that figure indicates the return to working fell by about 10 percent. If we apply a plausible aggregate labor supply elasticity of 0.5, this in turn suggests a decline in labor supply of about 5 percent. In the long run, as the capital stock adjusts, a fall in labor supply leads to a proportionate fall in output. So we end up with a 5 percent fall in long-run potential output.

That calculation is very, very rough, but it does indicate that the ACA could well be a significant reason why the economy is not returning to its old growth path.

Update: Casey emails me that he believes the GDP effect will be smaller than this (about 2 percent or a bit more) because the impact on less skilled workers is greater than that on more skilled workers.  As a result, the mix of skills will change, and GDP will fall by less than total hours worked.

Friday, June 13, 2014

Almost back to (the new) normal?

Torsten Slok of Deutsche Bank Research sends along the above graphic.  At face value, it indicates the labor market is almost back to normal. If so, this fact suggests that the Fed may soon need to back off its policy of near zero interest rates, and that the slow pace of economic growth experienced in recent years reflects slow growth in potential due to adverse structural forces rather than inadequate aggregate demand.

Wednesday, June 11, 2014


Tuesday, June 10, 2014

Retire the Penny

My long-time readers know that I have long favored getting rid of the penny.  If you agree, you can now let the White House know via this petition.

Saturday, June 07, 2014

A Wonderfully Amusing Student Talk, from Princeton University Class Day 2014

Friday, June 06, 2014

From the Harvard Class of 2009

A video for their 5th year reunion, featuring a couple of econ profs.

Thursday, June 05, 2014

Inequality in the UK

Friday, May 30, 2014

Christopher Pissarides

Wednesday, May 28, 2014

More Piketty Readings

Friday, May 23, 2014

The FT takes on Piketty

The Financial Times headline: Piketty findings undercut by errors.
Update: Piketty responds to the FT.

David Autor on Inequality

From a recent interview of the MIT economist (discussing this article):
Q. You are focused on inequality among the so-called “99 percent,” not between the 1 percent and the 99 percent. Why?
A. There’s a real national debate about the significance and causes of inequality. This public debate is dominated by the discussion of the top 1 percent. And the top 1 percent is important, but focusing on the top 1 percent conveys the message that the game is all rigged, that if you’re not in the elite stratum, there’s nothing to shoot for. And that’s just not the case. The growth of skill differentials among the other 99 percent is arguably even more consequential than the rise of the 1 percent for the welfare of most citizens. 
Here’s a concrete way to see it: The earnings gap between the median college-educated two-income family and the median high school-educated two-income family rose by $28,000 between 1979 and 2012. This [shift] — which excludes the top 1 percent, since we’re focusing on medians — is four times as large as the redistribution that has taken place from the bottom 99 percent to the top 1 percent of households in the same period.

Improving Econ 101

Noah Smith says introductory economics needs to be more empirical. I understand his argument, and have some sympathy with it, but I wonder if the substantial change he seems to be proposing is practical.  Economists usually do empirical work with statistical tools that most college freshmen have not yet learned. 

We teachers of introductory economics can and should explain where and why economists disagree. That is part of helping students develop their critical thinking skills.  But I doubt students are in a position to try to evaluate the competing empirical work that shapes the differing views.

In the end, introductory economics is just that: an introduction to the economist's way of thinking.  That means giving students basic concepts--comparative advantage, supply and demand, market efficiency and market failure--that will make them more perceptive readers of the newspaper.

In Inequality Back to the 1920s Level?

Not really, says Gary Burtless, though some pundits would have you think otherwise.

Thursday, May 22, 2014

A Defense of High Frequency Traders

By Cliff Asness et al.  Very cogent, in my view.  The bottom line:
In summary, we don't believe HFT profits are excessive or excessively consistent. We censure illegal front running as strongly as anyone, but it has near nothing to do with HFT per se. Canceling orders in the process of providing liquidity is key to any sort of market making, whether HFT or not. We support the right of HFTs, or anyone, to try to guess the direction of the market, using order flow or any other public information. We not only support the right, we celebrate the successful exercise of that right as it adds to public welfare by making markets more efficient and lowering the cost of investing. Lastly, we believe markets are "rigged" in favor of, not against, retail investors.