Thursday, March 05, 2015

An Open Letter

March 5, 2015

The Honorable John Boehner
House of Representatives
Washington, DC 20515

The Honorable Mitchell McConnell
Majority Leader
United States Senate
Washington, DC 20510
The Honorable Nancy Pelosi
Minority Leader
House of Representatives
Washington, DC 20515
The Honorable Harry Reid
Minority Leader
United States Senate
Washington, DC 20510

Dear Mr. Speaker, Mr. Leader, Madam Pelosi, and Senator Reid:
International trade is fundamentally good for the U.S. economy, beneficial to American families over time, and consonant with our domestic priorities. That is why we support the renewal of Trade Promotion Authority (TPA) to make it possible for the United States to reach international agreements with our economic partners in Asia through the Trans-Pacific Partnership (TPP) and in Europe through the Transatlantic Trade and Investment Partnership (TTIP). Trade Promotion Authority provides for an up or down vote on these agreements, without amendments, and thereby encourages our trade partners to put their best offers on the table.
Expanded trade through these agreements will contribute to higher incomes and stronger productivity growth over time in both the United States and other countries.  U.S. businesses will enjoy improved access to overseas markets, while the greater variety of choices and lower prices trade brings will allow household budgets to go further to the benefit of American families.
Trade is beneficial for our society as a whole, but the benefits are unevenly distributed and some people are negatively affected by increased global competition.  The economy-wide benefits resulting from increased trade provide resources to make progress on important social goals, including helping those who are adversely affected.
Increased global economic engagement will enhance U.S. global leadership in line with our values. Indeed, trade agreements signed under both Democratic and Republican Presidents have included provisions to combat corruption and to strengthen environment and labor standards.
It is not desirable for trade agreements to include provisions aimed at so-called currency manipulation. This is because monetary policy affects the value of currencies.  Attempts to penalize countries for supposedly manipulating exchange rates would thus impose constraints on U.S. monetary policy, to the detriment of all Americans.
We believe that agreements to foster greater international trade are in our national economic and security interests, and support a renewal of Trade Promotion Authority.

Alan Greenspan

Charles L. Schultze

Martin Feldstein

Michael J. Boskin

Laura D’Andrea Tyson

Martin N. Baily

R. Glenn Hubbard

N. Gregory Mankiw

Harvey S. Rosen

Ben S. Bernanke

Edward P. Lazear

Christina D. Romer

Austan D. Goolsbee

Alan B. Krueger
The letter writers were chairs of the President’s Council of Economic Advisers under Presidents Gerald Ford, Jimmy Carter, Ronald Reagan, George H.W. Bush, William J. Clinton, George W. Bush, and Barack Obama.

Wednesday, March 04, 2015

The Lee-Rubio Tax Reform

Senators Mike Lee and Marco Rubio announced a bold and attractive tax plan today. I especially appreciate their desire to eliminate the current tax code's bias for debt over equity finance.

No Way to Avoid It

In my column on dynamic scoring, I wrote:
[A]ccurate dynamic scoring requires more information than congressional proposals typically provide. For example, if a member of Congress proposes a tax cut, a key issue in estimating its effect is how future Congresses will respond to the reduced revenue. 
This raises important questions for which we have no easy answers. In the coming years, will these Congresses respond quickly to the revenue shortfall, or will they let budget deficits fester? When they act to close the budget gap, will they increase taxes, or will they cut spending? If they cut spending, will it be on consumption items, such as health care for the elderly, or on growth-promoting investments, such as education for the young? The impact of the initial tax cut depends crucially on the answers to these questions, but budget analysts usually have little to go on but speculation.
On this passage, John Cochrane comments:
Greg also opined on the second round effects, how policy might change economic outcomes which might change future policy. Here I'll go with the old fashioned approach -- let's not go there!

I understand the desire not to go there.  The problem is, you cannot avoid going there. 

Dynamic scoring requires the solution of a general equilibrium model.  To solve a dynamic GE model, you need to specify how the government is going to satisfy its present-value budget constraint. You might be tempted to ask the model what happens if the government cuts taxes and never does anything else. But you won't get very far. The model will tell you that the government has to do something else eventually, and it won't tell you what will happen if the government tries to do something impossible.

Saturday, February 28, 2015

On Dynamic Scoring

Click here to read my column in Sunday's New York Times.

Thursday, February 26, 2015

Sentence of the Day

"genetic differences explained roughly 33% of the variations in individual savings rates."

Read more here.

Thursday, February 19, 2015

What matters more--the productivity slowdown or the inequality increase?

The Economic Report of the President was released today.  A friend draws my attention to Table 1-3 on page 34, which presents several historical counterfactuals.  It finds:

1. If productivity growth had not slowed after 1973, the median household would have $30,000 of additional income today.

2. If income inequality had not increased after 1973, the median household would have $9,000 of additional income today.

So, which is the bigger problem? (Of course, neither has an easy solution.)

Tuesday, February 17, 2015

Nobel Prize for Sale

I don't know the story behind this, but apparently a Kuznets heir is selling his Nobel Prize.

Update 2/24: With less than 2 days to go, no one has offered the minimum bid of $150,000.

Update 2/26: Someone offers the minimum bid.

Update 2/27: It goes for $390,848.

Wednesday, February 11, 2015

Goodbye, secular stagnation: This is not the picture of an economy with lots of slack

Friday, February 06, 2015

Good News

The Crimson reports on the good judgment of Harvard students:

Thursday, February 05, 2015

Defending Pete Carroll

Justin Wolfers says that, by the logic of game theory, the losing Superbowl coach does not deserve all the opprobrium he has been getting.  I have been thinking the same thing.

Wednesday, February 04, 2015

Econ Conference for Undergrads

If you are an undergraduate, this conference may be of interest.

Monday, February 02, 2015

Competition and Cooperation

A nice essay by Tim Taylor, very appropriate for introductory students.

The Rise of the Inequality Debate

Professor Lars Syll thinks I made of fool of myself in a previous post when I wondered why we have only recently started discussing income inequality so extensively, even though the increase in inequality occurred mainly between 1980 and 2000.  He writes, "Wonder on which planet Greg has been living the last twenty years."

Of course, we economists have been discussing the topic for a long time. Indeed, I had a whole chapter on income inequality in the first edition of my favorite textbook, which came out about 20 years ago.  But the public has been discussing the topic widely only recently.

To document this fact for Professor Syll, I used the NY Times's very cool chronicle website to generate the chart below. As you can see, the percentage of NYT articles that uses the word "inequality" has increased more than ten-fold in the past few years.  So has the percentage that uses the phrase "income inequality."

By the way, the earlier blip in the use of "inequality" was in 1866, the year of the Civil Rights Act of 1866.  The inequality being discussed then was political, not economic.  The wide discussion of "income inequality" is unprecedented and very recent.

Sunday, February 01, 2015

Economic Theory Summer Camp

Grad students with an interest in economic theory should click here.

History of Economics Summer Camp

Grad students with an interest in the history of economic thought should click here.

Friday, January 30, 2015

Ec 10 Guest Lectures

Above are the seven guest lecturers for ec 10 this spring. How many do you recognize?  A first-class econonerd would recognize them all.

Hint: Their initials are MF, GG, AA, AS, JS, JS, and LS.

Thursday, January 29, 2015

Price Theory Summer Camp

This seems like a great opportunity for econ grad students.

Wednesday, January 28, 2015

The One Percent, Updated

Piketty and Saez have updated their famous one-percent graph to 2013.  It is above. (Click on graphic to enlarge.)

One thing that commentators sometimes fail to notice is that the big increase in the one percent's income share came between 1980 and 2000. Since 2000, it has fluctuated but without much of a trend.  Why, then, are we all talking about income inequality only now? I am not sure. One hypothesis is that we don't worry about inequality when everyone is doing well. Another hypothesis is that we now have a president with a political ideology that sees inequality as especially pernicious.

Tuesday, January 27, 2015

The 2014 Employment Boom

Why did employment grow by about 3 million in 2014?  Here is the answer from a new paper:
We measure the effect of unemployment benefit duration on employment. We exploit the variation induced by the decision of Congress in December 2013 not to reauthorize the unprecedented benefit extensions introduced during the Great Recession. Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states at the beginning of December 2013 were abruptly cut to zero. To achieve identification we use the fact that this policy change was exogenous to cross-sectional differences across U.S. states and we exploit a policy discontinuity at state borders. We find that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.0161 log points. In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut.

Monday, January 26, 2015

Lazear on Wage Stagnation

Eddie writes:
The share of the private workforce employed in the BLS-defined industries “financial activities” and “hospitals” decreased by about 5% between 2010 and 2014. Jobs in these industries pay 29% and 24%, respectively, above the economy mean. Because a smaller share of labor is working those high-wage industries, the typical job in the economy is now lower-paying than in 2010.... 
So what accounts for the relative decline in jobs in high-wage hospitals and finance? One obvious possibility is increased regulation. The Affordable Care Act for hospitals and Dodd-Frank for finance both passed in 2010, the year real wages began to decline.