Tuesday, July 28, 2015

The Conservative Heart

Click here to read my piece in this coming Sunday's NY Times Book Review.

Friday, July 17, 2015

The Mess in Europe

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

Wednesday, July 08, 2015


Click on graphic to enlarge

Free at Last

I am delighted to report that I am no longer chairman of the Harvard economics department.  My three-year sentence term having been completed, I am happy to turn things over to David Laibson. Condolences Congratulations, David.

Monday, July 06, 2015

Milton Friedman on the Euro

With the problems in Greece now leading the news, this old article by the great Milton Friedman is worth (re)reading.  (Martin Feldstein made similar arguments at the time in this article.)

Friday, July 03, 2015

Best of Enemies

I recently had the pleasure of seeing several films at the Nantucket Film Festival.  My favorite was Best of Enemies, a documentary about the TV debates between William Buckley and Gore Vidal during the 1968 presidential nominating conventions.  It is being released later this month. 

Here is the trailer:


Thursday, July 02, 2015

A Common Error in Pedagogy

I happened to be flipping through another introductory economics textbook. (Yes, some people have the temerity to try to compete with my favorite textbook.) I noticed an error that is, unfortunately, all too common in how introductory economics is taught.  I won't mention which book it is, because I am quite fond of the authors, and because my goal here is not to pick on one particular book but rather to draw attention to a more pervasive problem.

The issue is how one applies welfare economics to understand price controls, such as rent control and minimum-wage laws.

The sin that this book makes is to look at consumer surplus, producer surplus, and deadweight loss as if we were studying the welfare cost of a tax. The cost of a price control, the reader is taught, is the small Harberger triangle between the supply and demand curves.

This reasoning is problematic because it assumes perfect rationing. But rationing under price controls is never perfect. Under rent control, for example, apartments do not automatically go to those who value the apartments the most. The misallocation due to imperfect rationing makes the actual welfare cost of price controls much higher than the standard deadweight loss triangle.

In many cases, economists are deeply skeptical of price controls. If the costs of price controls were similar to those of taxes, I suspect that this skepticism would be substantially less. By applying off-the-shelf welfare analysis to price controls without thinking through the inefficiency of most rationing systems, teachers of introductory economics mislead their students about the effects of these policies.

Addendum: Here is a relevant paper on the topic.

Monday, June 29, 2015

A Primer on the Greek Crisis

Monday, June 22, 2015

David Ricardo and the TPP

Sunday, June 14, 2015

The Export-Import Bank

I just got back from Utah, where I was one of the speakers at a conference that has been dubbed "Club Mitt." One of the other speakers--this one a politician rather than a nerdy academic like me--spoke about the need to reauthorize the Export-Import Bank.  (I won't mention the person's name, since the event is off the record.)  What struck me is how weak the arguments were. 

Three arguments for the Ex-Im Bank were given:

1. It creates jobs.  Of course it does!  If the government were to put the names of all businesses into a hat, pull out a few randomly, and give those a per unit subsidy, those businesses would expand and hire more workers. That would not make it a good policy, however, because the wrong jobs would be created.

2. It returns money to the Treasury.  Really?  If the bank were truly a profitable venture, we could privatize it.  I bet if the government tried to sell off the Ex-Im Bank, it wouldn't get much, if anything at all.  If the Bank's activity were actually profitable, we wouldn't need a government-run bank to do it.

3. Other countries give similar subsidies to their firms. So what? If other nations engage in corporate welfare, that is no reason for the United States to follow suit in the name of a level playing field.  We don't need to import other nations' bad policies.

Maybe there are better arguments for the Export-Import Bank.  But if this is the best advocates of the Bank can do, it shouldn't be reauthorized.

Thursday, June 11, 2015

Congratulations, Doug!

From ec 10 section leader to...(a few other jobs along the way)...to Dean of the Kennedy School.  I am delighted that Doug Elmendorf will be returning to Harvard.

Tuesday, June 09, 2015

The labor market gets tighter

 Click on graphic to enlarge.

Thursday, May 28, 2015

Do you want to win a teaching prize?

If so, click here.

Sunday, May 24, 2015

Claudia Goldin

Saturday, May 23, 2015

The EITC is better than the minimum wage

Sunday, May 17, 2015

Alternatives to the Price System

This article makes the case for social, rather than financial, incentives. I am not convinced, but it should generate an interesting class discussion.

Bill Clinton in Haiti

A few years ago, I had the pleasure of meeting Patrick Moynihan, a Catholic deacon who is the president of The Haitian Project and head of its Louverture Cleary School, in Haiti, for gifted but poor children. Our paths crossed because Patrick was helping to launch a course in introductory economics at the school, and my publisher generously donated copies of my favorite textbook.

Patrick recently sent me a link to his article about the role Bill Clinton has played in Haiti. It is not a pretty picture.

Sunday, May 10, 2015

From Richard Thaler

Tuesday, May 05, 2015

Why I invest in index funds

The NY Times reports:
For investors in hedge funds, like big pension funds, 2014 was not a lucrative year. But for those who managed their money, the pay was spectacular. 
The top 25 hedge fund managers reaped $11.62 billion in compensation in 2014, according to an annual ranking published on Tuesday by Institutional Investor’s Alpha magazine. 
That collective payday came even as hedge funds, once high-octane money makers, returned on average low-single digits. In comparison, the benchmark Standard & Poor’s 500-stock index posted a gain of 13.68 percent last year when reinvested dividends were included.... 
For investors, 2014 was the sixth consecutive year that hedge funds have fallen short of stock market performance, returning only 3 percent on average.

Sunday, May 03, 2015

Where I will be on Monday

Here: 40 years later- The relevance of Okun’s "Equality and Efficiency: The Big Tradeoff"