The new book by economist Thomas Piketty, "Capital in the Twenty-First Century" is a runaway hit, perched at the top of Amazon.com's bestsellers chart and temporarily sold out on the Web site.
The book has sold about 48,000 hardcover copies and 8,000 to 9,000 e-book versions, according to Susan Donnelly, sales and marketing director at Harvard University Press, the publisher behind the English-language version of the book. (The book was written originally in French and released there last year.)
Mitt Romney, take out your wallet.
After decades of serving as the hard hand of global capitalism, the International Monetary Fund has taken another step in a tone-softening campaign that has already seen it shift gears in favor of letting developing countries control flows of private capital (once an ideological no-no) and acknowledging that it has been too harsh in some of the budget cutting it has doled out.
Lord Grantham may think he can take arms against the slings and arrows of 1920s Britain that threaten Downton Abbey and its outrageous fortune, but he faces a mighty adversary: the immutable laws of economics.
When Mrs. Patmore tussles with the new mixer, or Grantham frets over “death taxes,” or “poor Molesley” loses his post and resorts to patching up the pavement, Downton Abbey is paying homage to economic forces that transcend early 20th-century Britain and apply just as neatly to the 21st-century world.
The Federal Reserve's decision Wednesday to keep scaling back its stimulus underscored just how high the bar is for the central bank to budge from its plans for winding down the program this year.
The worst week for the S&P 500 in over a year? Not gonna do it. The sharpest decline in emerging market currencies in five years? Nope. The weakest month of job creation since January 2011? Still, no.
For a long time, like many elite academic fields, the world of PhD economists was almost exclusively a boys club -- back in 1970, only 5 percent graduated by U.S. universities were female U.S. citizens. That gradually started changing, though, and the proportion reached a high of 16 percent in the mid-1990s.
In January 1993, Joel Waldfogel asked 86 undergraduate students whether they liked their Christmas gifts. But Waldfogel is an economist, so he phrased the question more precisely, asking them how much they would have paid to buy those items for themselves.
The results were grim, at least for the gift-givers: The students estimated that their gifts had cost $438.20 -- but they said the most they would have been willing to pay for them was $313.40. Two months later, Waldfogel rounded up 58 more students and asked them how much cash it would have taken to make them “indifferent between the gift and the cash.” These students estimated that their holiday gifts had cost $508.90 on average. But they would have been just as happy with $462.10 in cash.
Benjamin Radcliff is a professor of political science at the University of Notre Dame. His current research focuses on how public policy affects human happiness. His recent book, "The Political Economy of Human Happiness," argues that generous welfare states and strong labor market protections produce happier citizens than do more laissez-faire policies. We spoke on the phone Thursday afternoon; a lightly edited transcript follows.
“The world has changed, the syllabus hasn't.” That’s the motto of the Post-Crash Economics Society, a group of students at the University of Manchester who demand reforms to the way undergraduate economics is taught in light of the worldwide economic crisis. Similar activism is occurring in other elite undergraduate institutions: There was the well-publicized Open Letter to Greg Mankiw from students in the introductory economics class at Harvard, during the height of the Occupy movement. Meanwhile, institutions like the Institute for New Economic Thinking (INET) are getting involved by launching a pilot program to revamp the undergraduate economics curriculum.
It happens every year. It's not that you resolve to be virtuous on Thanksgiving, just reasonable. Two plates of food, and no more. One piece of pie, and that's enough. But when you're sitting at that table, staring at that food, there is no more self-control. No more reasonable. You stop when you can hardly breathe.
The Walt Disney Co. is an iconic media and entertainment brand. It owns some of the world's best-known and beloved characters, film franchises, television channels and theme parks. And it reported earnings Thursday that give a surprising (or perhaps not-so-surprising) window into the forces buffeting all media industries.
The U.S. Fish and Wildlife Service has declared that it will destroy six tons of confiscated African elephant ivory next week — a stockpile amassed over 25 years. The aim is to deter ivory poachers, who have been killing record numbers of elephants in recent years.
"We want to send a clear message that the United States will not tolerate ivory trafficking and the toll it is taking on elephant populations, particularly in Africa," the agency said in a statement.
When the Obama administration first proposed its "cash for clunkers" plan in 2009, the reaction was generally favorable. Congress would spend $2.85 billion to encourage drivers to swap their old gas-guzzlers for newer, more fuel-efficient cars.
The program had something for everyone: It would lend a hand to the ailing U.S. auto industry. It would tamp down on oil consumption. And, once launched, the program proved so popular with consumers that it burned through $1 billion in its first five days. Sure, a few critics argued that the program wouldn't be very cost-effective, but no one was really listening.
Forty-five House Republicans have consistently pushed their caucus into high-stakes clashes with President Obama over the past few years -- most recently in the government shutdown, but also during the fiscal cliff and the 2011 debt ceiling standoff. As I report in The Post today, those 45 districts are faring really poorly in the recovery.
A quick quiz on income inequality:
Wages are flat here at the Washington Post because a) we do a bad job, b) Jeff Bezos is worth $23 billion, c) we work in a business where technology has severed the link between the product and money.
In a perfectly equal world where everyone can choose their job and everyone gets paid the same, there would be a) too many rock stars, b) not enough garbage collectors, c) all of the above.
Here's a fascinating visualization of how inequality in the United States has evolved over the years. Red means lower inequality within a state, green means higher inequality:
The map was created by John Voorheis, a graduate student at the University of Oregon, and was passed along by Mark Thoma of Economist's View. More specifically, the map shows the change in Gini coefficients — a measure of income inequality — within states over time.
There’s a famous joke about a dairy farmer who, hoping to increase milk production, seeks the help of a theoretical physicist at the local university. After carefully studying the problem, the physicist tells the farmer, “I have a solution, but it only works if we assume a spherical cow.”
Physicists frequently make simplified assumptions to help them understand the world. Masses are spherical, motion is frictionless, and surfaces are infinitely large. Everyone knows these assumptions are unrealistic, but they are necessary to tease out the fundamental principles that make the world work.
Ronald Coase, who helped found the field of law and economics and won the 1991 Nobel Memorial Prize in Economic Sciences, died yesterday at age 102. Coase was an active scholar from the 1930s up until his death, releasing a book and launching a new academic journal just last year. His work over those eight decades is impossible to summarize adequately, but these five papers give a good taste of the problems with which he concerned himself and the way he approached them.
Should Washington, D.C. try to host the Olympics in 2024? One group, the aptly-named “DC 2024,” sure thinks so, and announced Tuesday that it would explore a potential bid. But what do economists think? Is it a bad idea for cities to host the Olympics?
“My basic takeaway for any city considering a bid for the Olympics is to run away like crazy,” says Victor Matheson, a professor of economics at College of the Holy Cross. His research suggests that cities end up spending a ton and get little economic benefit from hosting “mega-sports events.”
Brian Eno once quipped that even though The Velvet Underground & Nico album sold around 30,000 copies in its first five years, every single one of those 30,000 people started a band. The IGM Economic Experts Panel is like the The Velvet Underground & Nico of economics sites: I'm sure very few people read it, but pretty much all of us who do read it write for other economics blogs.
A torturous summer for the oft-tormented fans of British soccer power Arsenal came to a head on Saturday. Several players went down with injuries, one was sent off with a red card and the team lost, at home, 3-1, to a club that finished well below it in the standings last year. The fans responded with an entirely appropriate chant, directed straight at team management: "Spend some f--ing money."
This morning's Wall Street Journal contains a telling indicator of the state of inequality in America: The salad dressing market. Low-income consumers are switching to private-label brands to save money. But at the same time, fresh and organic premium dressings are also growing at two to three times the rate of regular dressings. Middle class brands, like those marketed by Kraft Foods and the giant Unilever, are feeling the squeeze.
For years now, economists have struggled with a confusing piece of data: Salaried workers tend to make more than those who are self-employed, which doesn't square with our perception of entrepreneurs as risk-takers who put everything on the line for considerable economic returns. That category sweeps titans of industry like Bill Gates --innovators who create growth and more jobs -- in with your average hot dog vendor. While the instincts and work ethic may be similar, the range of economic success is enormous.
Thanks to medical advances like Caesarian sections and induced labor, women finally have a small degree of control over when they give birth. And where there are humans making choices, there are public finance economists asking how tax incentives influence them.
So it shouldn't be too surprising that Williams's Sara LaLumia, the University of Chicago's James Sallee and the Treasury Department's Nicholas Turner took it upon themselves to figure out if policies like the Child Tax Credit (CTC), the dependent exemption and the Earned Income Tax Credit (EITC, which is more generous for families with more children) are pushing mothers with due dates in January to move their children's births forward, so as to reap another year of tax benefits.
It's been nearly two years since Occupy Wall Street took over Zuccotti Park, and the academic establishment is still chewing through questions it raised about how to understand the 1 percent in America. In particular, how did they get so darn rich? And what would happen if we took some of their money away?
President Obama may or may not have been subconsciously tipping his hand on the race to be the next Fed chair when he referred to Fed vice chair Janet Yellen — widely considered a leading contender for the top job — as "Mr. Yellen." But this is as good an occasion as any to point out that the real Mr. Yellen — Ms. Yellen's husband, George Akerlof — is actually a pretty interesting guy, and a very accomplished academic economist in his own right.
Since the 2012 campaign, President Obama has been talking up an economic philosophy he calls "middle-out" — the idea that the stronger the middle class is, the better the economy grows. Today he'll put that idea at the center of what the White House is billing as the kickoff in a series of speeches meant to refocus Washington on the still-tepid recovery.
Last week saw the end of an ambitious experiment: Panera Bread's pay-what-you-want turkey chili, which the sandwich chain started offering at 48 St. Louis-area stores to raise awareness of food insecurity and offer meals to the needy. Customers could pay the $5.89 "suggested" price, or more or less, or nothing. After an initial burst of interest in March, company executives said that customers just stopped realizing the option existed, and they pulled the option for "retooling."
If you really wanted to distill the ongoing crisis in Egypt down to a single chart, you could do worse than this one:
In an interview last week, economist Caroline Freund explained that Egypt simply hasn't been growing quickly enough to produce jobs for everyone. Youth unemployment has soared to more than 25 percent—and that was before the 2011 revolution that toppled Hosni Mubarak. Here was a key part of our talk:
Caroline Freund is a senior fellow at the Peterson Institute for International Economics and former chief economist for the Middle East and North Africa at the World Bank. We spoke by phone Wednesday about the massive protests in Egypt right now — and how the country's ailing economy is at the heart of political unrest.
big plates are like a "take it or leave it" cable contract, and small plates are like the a'la carte cable pricing schemes.
It's a clarifying analogy, but as much about cable packages as about entrees.
Well that was something. On a day when there is already a strange hothouse atmosphere around the Federal Reserve's policy statement and chairman Ben Bernanke's afternoon news conference, there was a long, often tense exchange on CNBC between Rick Santelli, the network's sometimes-bombastic correspondent (recall that it was one of his rants that launched the tea party movement), and Jon Hilsenrath, chief economic correspondent at The Wall Street Journal.
Are the seeds of a new, and more sustainable, boom in the world's emerging markets being planted? A survey from global bank HSBC argues so, and that this growth may be a healthier type than in the not-too-distant past by helping the world economy come into better balance.
Central banks in places like Turkey, Poland and South Korea have been cutting interest rates. Inflation across the developing world is tame. Wages in those nations are rising, but so far they're pushing corporate profits down, rather than consumer prices up. The boost in salaries means the countries can rely more on local demand for economic growth, precisely the sort of "rebalancing" -- relying less on U.S. consumption -- that officials have hoped would take root around the world.
Why are some capital cities more corrupt than others? Two recent economic working papers offer a novel theory — geography might be to blame. In particular, capitals that are more isolated from the rest of the state or country tend to be more corrupt.
The first NBER paper, written by Filipe R. Campante of Harvard Kennedy School and Quoc-Anh Do of Singapore Management University looks at state capitals in the United States and finds that "isolated capital cities are robustly associated with greater levels of corruption."
The chatter across the world of financial journalism over the last few days has been the story of Bloomberg reporters accessing information about subscribers of the firm's financial data service that those customers thought should remain secret. The episode contains some important lessons for how the media business is evolving.
John Maynard Keynes was right about the future. But he was wrong about how we'd be spending it.
"In the long run," Keynes famously wrote, "we are all dead." I rate that claim true. But it actually has little to do with Keynes's views on the subject.
Keynes was criticizing his colleagues in the economics profession who minimized the import of deep recessions -- and what governments could do to prevent and shorten them -- by promising that wounded economies, if given enough time, eventually return to health. "Economists set themselves too easy, too useless a task if, in tempestuous seasons, they can only tell us that when the storm is long past the ocean is flat again," he continued.
Last week, we asked you to submit any burning questions you had for us. This week, we try to answer. Topics include the economics of blue-state secession, the recent apparent slowdown in global warming, boxers vs. briefs, a counterfactual history of Henry A. Wallace, and which Avengers character each of us would be.
Let's file this under "not conclusive, but certainly fascinating." Real Time Economics's Brenda Cronin points to a new discussion paper (pdf) arguing that Internet access is halting the drop in marriage rates among young people.
Yes, the Internet. In fact, the study notes, marriage rates are between 13 percent and 30 percent higher than they'd be without the advent of broadband technology.
The Great Reinhart-Rogoff War of 2013 rages on today with a brand new Reinhart-Rogoff salvo on the New York Times op-ed page and a brand new Reinhart-Rogoff rebuttal by New York Times op-ed columnist Paul Krugman.
I want to try to broker some peace.
It's true that Reinhart and Rogoff's initial paper was technically flawed. And it's also true that Reinhart and Rogoff were happy to be feted as tribunes of austerity even as their paper made more careful claims. But the debate between them and their detractors has covered up the more important fissures that separate both them and their detractors from the Republicans in Congress.
Neil Irwin and Brad Plumer discuss that much-criticized Reinhart-Rogoff paper, what it says about the world's fixation on debt, and whether we should place less faith in economic studies:
Here's the other post we discuss in Wonktalk: Why do people hate deficits?
*Update and correction : In the Wonktalk, I mentioned that the Reinhart-Rogoff study in question was "peer-reviewed" — that's actually incorrect. I thought the paper had been published in American Economic Review, which is peer-reviewed. But it had been published in American Economic Review: Papers and Proceedings, which is not. --Brad
So here's some bad news: The rise in wealth inequality? It's permanent.
"Permanent," here, is a technical term. The other option would be "transitory." If the inequality we were seeing was merely transitory, it would mean that in any given year, sure, inequality is really high, but five years down the line, the families at the bottom of the income distribution might have moved to the top, or vice versa.
In July of 1944, as the end of World War II started to come into sight, financial leaders from around the world gathered at the Mt. Washington Hotel in Bretton Woods, N.H. There, they hammered out what would be the post-war global monetary system, agreed to create the International Monetary Fund and World Bank, and generally established the world economic order that has shaped the global economy ever since.
Good economists are great storytellers. They sculpt narratives with squiggly graphs and crowded charts. Like a novel, a good economic forecast has action and characters and, in the end, helps you make a little better sense of the world.
Unless it turns out to be wrong.
Consider the dominant story that economic forecasters have been telling you for years now: The U.S. economy just can't catch a break. It has been poised time and again to rocket back to a growth rate that would recapture all the ground lost in the Great Recession, while delivering big job gains. But every time, some outside event scuttles things. The euro crisis flares up. A Japanese tsunami scrambles global supply chains. Lawmakers play chicken with the federal debt limit.
If you have a 401K plan or any one of a number of widely held investment accounts, Fitch Ratings has great news: You're once again exposed to the travails of the euro zone.
U.S. money market funds the large pools of cash used as a play-it-safe investment and money management tool are once again plowing into the euro zone, particularly French banks. Euro-zone holdings of the 10 largest U.S. money market funds have nearly doubled since hitting a low last summer, when a euro-zone breakup seemed not only possible but, to some, likely.
The IGM Forum, which is run by the University of Chicago's Booth School of Business, polled top economists on the minimum wage. The first question they asked was whether raising the minimum wage could make it harder for some low-wage workers to find jobs. The responses were mixed, as the following chart shows.
The second question was whether they thought increasing the minimum wage was worth it given the possible downsides. They do.
Full results, with further commentary from the polled economists, here.
One of the main tasks of any modern government is to oversee a country's economy. And yet, a great many nations are run by people with little or no economic expertise. Why is that?
Mark Hallerberg and Joachim Wehner have an interesting new paper trying to figure out "why governments sometimes appoint economic policymakers with economics training but often do not." By studying the qualifications of more than 1,200 prime ministers, presidents, finance ministers, and central bankers in various democracies since the 1970s, they uncovered a few key patterns.
Every August, central bankers from across the globe, who collectively pull the levers of the world economy, descend on Grand Teton National Park in Wyoming. They enjoy a symposium of big economic ideas and strenuous afternoon hikes. At one of their dinners a few years ago, Federal Reserve Chairman Ben S. Bernanke looked around at some fellow titans of finance.
Monopoly is America's defining board game. Battleship, no doubt, has its defenders, but it is too much a game of luck. Risk? Albania is way too important.
But Monopoly lays it bare. Where else will Grandma grind down the grandkids until they land where she wants them to? Or a spouse read deep into the rules to ensure the tax treatment of mortgaged property? It is raw capitalism, in boardgame form.
People — journalists in particular — have a tendency to label economists as liberal, or conservative, or libertarian, much as they would elected officials or political pundits. In some limited sense, this is fair enough. Economists are humans with political opinions just like anybody else. But people typically mean something more than this — that economists' actual research is indicative of political values they hold.
The University of Chicago's Gary Becker and Kevin Murphy, who generally lean right on matters of public finance, made some waves by calling for the full decriminalization of drugs in the Wall Street Journal . They don't want to just, say, decriminalize the use of marijuana while still banning its sale, as Massachusetts does. They want to decriminalize the sale and use of heroin, and meth, and crack, and other hard drugs.
Most of us know the type: the friend who complains about the horribly long hours he’s been pulling at work lately.
Federal data suggests that friend isn’t quite telling the truth.
The New York Times’ Catherine Rampell flags this Bureau of Labor Statistics report that explores the gap between how much people think they work and how much they actually work. It finds that, on average, Americans overestimate how much time they spend toiling away in a cubicle by 5 percent to 10 percent.
The most difficult question in any election — but particularly in this election — is “compared to what?”
For instance: The recovery has been slow and painful compared to what we’d expect following a normal recession. But this wasn’t a normal recession. This was a global financial meltdown. So when asking whether our economic policymakers have done a good job, we need to ask, compared to what?
Stanford’s Al Roth and UCLA’s Lloyd Shapley are this year’s Nobel laureates in economics (okay, The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel recipients, technically). While notable within their field, they’re hardly household names. But their work is hugely relevant to policymaking, especially in fields that one doesn’t think of as economic in nature. Here’s what you need to know about each of them.
It’s worth taking a closer peek at what’s been happening lately in Iran, where U.S. sanctions are biting down and inflicting a vicious bout of hyperinflation on the country. This is obviously a foreign policy story—and, for those who live in Iran, an absolutely miserable situation. But it’s an economic policy story as well.
David Leonhardt’s critique of “Obamanomics” is worth reading. I agree with almost all of it. And yet, I think it also functions as something of a critique of the critiques of “Obamanomics.”
Leonhardt’s argument — which is similar to my argument in “Could This Time Have Been Different?” — is, basically, that the Obama administration wasn’t sufficiently quick in recognizing that we were in a prolonged slump rather than an unusually severe recession. This is, by now, something close to conventional wisdom.
When economists talk about boosting productivity, they usually talk about increasing the adoption of new technologies and optimizing workflows. Japanese researchers, however, have come up with a very offbeat approach: Showing workers lots of pictures of adorable, fuzzy, baby animals.
A team of researchers at Hiroshima University recently conducted a study where they showed university students pictures of baby animals before completing various tasks. What they found, in research published today, was that those who saw the baby animal pictures did more productive work after seeing those photographs – even more than those who saw a picture of an adult animal or a pleasant food.
Can Congress or the Federal Reserve fix the economy by buying stuff? Keynesians say yes: Government spending gives people in the private sector more money to spend, which helps businesses and creates jobs. Same deal when the Fed buys up bonds or commits to keep interest rates low. Keynes critics, however, say no: Government spending and Fed action just drive up inflation and make the situation worse than it was before.
The Brookings Papers on Economic Activity are a twice-annual series meant to bridge the gap between purely academic research and work that applies more directly to public policy. So the fall papers’ release today is kind of a Wonkblog holiday. We’ll be tackling some of them in depth, but for now, here are this year’s papers, and what they say.
Ever since the financial crisis first hit, it hasn’t been hard to find people warning that Federal Reserve Chairman Ben Bernanke is about to trigger a raging bout of hyperinflation in the United States through his efforts to inject money into the economy. Bernanke himself has even had to address the issue in a press conference, saying that “hyperinflation is not going to happen.”
For almost a decade after the euro was introduced in 1999, the 17-member currency union enjoyed the benefits. Those in “peripheral” countries like Spain and Portugal were able to borrow money more cheaply to buy goods and build houses. Germany was able to export more stuff to the rest of the continent. Sure, once the financial crisis hit, the awkward structure of the euro zone turned out to be utterly calamitous. But for a spell, the good times were quite good.
Two of Mitt Romney’s key economic advisers, Kevin Hasset and Glenn Hubbard, have an op-ed in this morning’s Washington Post making the case that the Obama recovery has been slower than the recession can explain and that Obama’s policies were the reason.
The first part of the op-ed reprises the argument from an earlier paper Hasset and Hubbard released on behalf of the Romney campaign: While financial crises might lead to slow recoveries internationally, they don’t lead to slow recoveries in the United States. Again, the citation goes to ”an extensive study of recessions in the United States” by Michael Bordo of Rutgers University and Joseph Haubrich of the Federal Reserve Bank of Cleveland, which found that the recovery from this recession has been unusually slow.
Who can resist an academic paper with a title like ”The Economics of Spam”? Writing in the Journal of Economic Perspectives, Justin M. Rao and David H. Reiley take an in-depth look at the flood of spam e-mails in our inbox. Some findings:
— “Every day about 100 billion emails are sent to email addresses around the world. In 2010 an estimated 88 percent of this worldwide traffic was spam.”
On Tuesday, the Romney campaign responded to the fire it’s taking from economic analysts by unleashing some artillery of their own. They released a paper by four decorated economists associated with the campaign — Glenn Hubbard, Greg Mankiw, John Taylor, and Kevin Hassett — that tried to lend some empirical backing to “The Romney Program for Economic Recovery, Growth, and Jobs.”
This post has been updated to clarify aspects of Oh and Reis’ paper
“The negative effect of the administration’s ‘stimulus’ policies has been documented in a number of empirical studies,” write economists Glenn Hubbard, Greg Mankiw, John Taylor and Kevin Hassett in a paper released by the Romney campaign. But the paper only mentions two studies, and one of them, by Amir Sufi and Atif Mian, is about Cash for Clunkers, a tiny subprogram of the stimulus.
Everything we thought we knew about the recovery was wrong. Or, at least, it was a little off. On Friday, the Bureau of Economic Analysis published its annual revisions (pdf) to the GDP figures for the past four years, based on fuller data. Here’s a chart showing the changes:
A few notable points emerge. For one, the economic contraction in 2009 has been revised so as to be slightly less severe than estimated last year. (Though it’s worth noting that the recession in 2008 and 2009 was much, much deeper than the available economic data suggested at the time.) As the Wall Street Journal’s Neil Shah observes, this seems to be because government was doing more to hold up the deteriorating economy than previously thought.
Yesterday I pointed out that top Romney policy adviser Glenn Hubbard’s support for a less valuable dollar flies in the face of Republican conventional wisdom on the matter. And that’s hardly the only issue where Hubbard, Harvard professor Greg Mankiw, former representative Vin Weber and former senator Jim Talent — who together make up Romney’s economic brain trust — diverge from commonly held Republican positions.
Before 1980, few academics in the United States gave much thought to the idea of economic inequality. It just wasn’t a glaring concern. But in the last 30 years, the incomes of the nation’s wealthiest 1 percent have surged, and more and more economists have been paying attention.
Yet there’s still plenty about economic inequality that’s not well understood. What’s actually driving the gap between the richest and poorest? Does it hurt economic growth, or is it largely benign? Should it be reversed? Can it be reversed? Surprisingly, there’s little consensus on how to answer these questions — in part because good data on the topic is hard to come by.
In his fascinating new book, “Inequality and Instability,” James K. Galbraith, an economics professor at the University of Texas at Austin, takes a more detailed look at inequality by assembling a wealth of new data on the phenomenon. Among other things, he finds that economic inequality has been rising in roughly similar ways around the world since 1980. And this rise appears to be driven, in large part, by the financial sector — and the changes that modern finance has forced in the global economy. We talked by phone recently about his book.
The industrial countries have a choice. They can act as if all is well except that their consumers are in a funk and so what John Maynard Keynes called “animal spirits” must be revived through stimulus measures. Or they can treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades and thus put themselves in a better position to take advantage of coming opportunities.
I call this “false choice policymaking.” We can focus on the long-term or we can focus on the short-term. Rajan never explains why we have to choose one or the other. What if he had written this paragraph instead?
Steve Waldman is tired of seeing economists spend their time debating differences rather than emphasizing commonalities. “When I think about these three groups, I don’t think, Highlander-style, ‘There can be only one!’ I think ‘Cool! Let’s put these ideas together.’” Here’s his recommendation:
One nice thing about a monetarist / saltwater / post-Keynesian synthesis, the thing that has me most excited, is that it would be perfectly possible to give our nouveau central bank a mandate that explicitly includes restraint of private-sector leverage in addition to an NGDP target. I think that the post-Keynesians are right to identify financial fragility as a first-order macro concern. On its own, NGDP path targeting would help “mop up” after financial fragility and collapse, because it weds depressions to inflations, engineering wealth transfers from creditors to debtors when things go wrong. But we’d rather avoid the whole cycle of fragility, insolvency, and inflation, if we can.
Let’s try to make this as simple as possible. Money comes into the federal government through taxes and bonds. The vast majority of it is then spent on old-people programs, poor-people programs, and defense.
Mitt Romney is promising that taxes will go down, defense spending will go up, and old-people programs won’t change for this generation of retirees. So three of his four options for deficit reduction — taxes, old-people programs, and defense — are now either contributing to the deficit or are off-limits for the next decade.
Romney is also promising that he will pay for his tax cuts, pay for his defense spending, and reduce total federal spending by more than $6 trillion over the next 10 years. But the only big pot of money left to him is poor-people programs. So, by simple process of elimination, poor-people programs will have to be cut dramatically. There’s no other way to make those numbers work.
I spent some of the morning watching the webcast of the event the Committee for a Responsible Federal Budget put on to promote their paper testing the fiscal responsibility of the various GOP presidential candidate’s plans. Alice Rivlin — who is truly the budget wonk’s budget wonk — made a number of good points, as she always does. But she also made one comment worth challenging.
The latest Chicago Booth poll of economists focuses on the 2009 stimulus. The first question asked whether the stimulus increased employment by the end of 2010. Eighty percent of the polled economists agreed. Four percent disagreed. Two percent were uncertain.
The second question asked whether, over the long run, the benefits would outweigh the long-term costs (like paying down the extra debt). Forty-six percent agreed. Twelve percent disagreed. Twenty-seven percent were uncertain.
The remainder in each case came from economists who didn’t answer the question. Brad DeLong is encouraged.
Related: The stimulus bill, three years later.
About 11 years ago, James K. “Jamie” Galbraith recalls, hundreds of his fellow economists laughed at him. To his face. In the White House.
It was April 2000, and Galbraith had been invited by President Bill Clinton to speak on a panel about the budget surplus. Galbraith was a logical choice. A public policy professor at the University of Texas and former head economist for the Joint Economic Committee, he wrote frequently for the press and testified before Congress.
In a post aimed at economist Paul Krugman, Tyler Cowen writes that “it is a bit of an embarrassment for many commentators that the (admittedly weak) recovery is coming right after the end of the fiscal stimulus.” I don’t understand this, for at least three reasons:
- What makes this recovery different from previous recoveries? Cowen appears to believe we have turned the corner. I hope he’s right. But the economy has added an average of 178,000 jobs per month over the last four months. During the first four months of 2011, the economy added an average of 206,000 jobs per month. Perhaps the next four months will look like January (243,000 jobs) rather than October (112,000 jobs), but we have been through longer stretches of robust jobs growth than this one. It seems early for sweeping claims about what the recovery has proven.
On Friday morning, Alan Krueger, the Princeton economist who is on leave serving as chairman of the White House Council of Economic Advisers, gave a speech at the Center for American Progress on the causes and consequences of inequality. Excerpts here, full speech here. On Thursday night, I spoke with Krueger about the speech, his past as an inequality skeptic, and Rep. Paul Ryan’s allegation that the Obama administration is looking for “equality of outcomes.” A lightly edited transcript follows.
Every estimate you’ve heard of who is being helped and who is being hurt by the tax cuts proposed by the various Republican presidential campaign is telling you, at best, only half the story. And that’s because these estimates only look at one side of the ledger: who gets the tax cuts. But there’s another side to the ledger: Who pays for them, and how? That side is at least as important as who gets the tax cuts, but it’s almost always ignored.
Most of the estimates so far have come from the nonpartisan Tax Policy Center. But Donald Marron, co-director of the TPC, is happy to admit the blind spot in their models. “In a perfect world, you would do a distributional analysis of all federal policies, integrating the spending and tax side. If you do just the tax side, you’re missing a whole lot.”
William Gale, the TPC’s other director, agrees. “One doesn’t know the full distribution of the net benefits or burdens of a tax cut until you know how it is financed.”
There is a branch of economics known as game theory, which tries to figure out how various “players” in a market maximize their welfare based on the expected behavior of other “players,” all of whom are doing the very same thing.
One of the earliest game theorists was the mathematician John Forbes Nash, who was the subject of the book and subsequent movie, “A Beautiful Mind.” In game theory, a Nash equilibrium is that point where no player has anything to gain by unilaterally making a change in his own strategy. The game, in effect, has been played out to a draw.
These days, Washington is stuck in a nasty Nash equilibrium. The two dominant parties -- the anti-tax, anti-regulation, anti-government wing of the Republican Party, and the raise-taxes-on-the-rich-but-don’t-touch-my-entitlement wing of the Democratic Party -- have fought each other to stalemate. Every few weeks or so, some event or deadline comes along that appears to hold out the prospect that one side or the other might prevail and thereby break the deadlock. But, in the end, nothing really gets resolved, nobody wins and the stalemate continues.
There was, as you recall, the threatened government shutdown last December, followed by the debt ceiling fight in the spring, which led to the supercommittee failure this fall, which gave rise to another threat of government shutdown last week, while postponing until March 1 the battle royale over a further extension of a temporary payroll tax cut. Anyone who believes that these dramatic showdowns will actually resolve anything of significance might also want to rush right out to the mall and let Santa know which color mink you would like for Christmas.
On first read, I thought Jared Bernstein’s essay rethinking debt was a bit simplistic. There’s nothing really new there. Which, on further reflection, is exactly the point. We don’t need a new understanding of debt. We just need an understanding of debt.
Bernstein doesn’t put it quite like this, but the basic problem with Washington’s conversation over debt is we’ve taken a fiscal tool and recast it as a moral sin. Head over to Mitt Romney’s Web site and look at what it says across the top: “We have a moral responsibility not to spend more than we take in.” Really? Why? And over what time frame?
Maybe you’ve noticed that companies that are already at the top of their industries have become rather brazen about trying to increase their profits and share prices by buying up their nearest competitors.
Who can blame them? For years now, the courts and regulators have
turned a blind eye as industry after industry consolidates into two or three dominant firms. And for years, fee-driven corporate lawyers and investment bankers have been knocking on boardroom doors peddling the notion that they can win approval for any merger just by divesting a subsidiary or two or establishing some fictitious “Chinese wall” to prevent one division from knowing what the other is doing. (Alas, we’re even importing our metaphors from China!)
That “anything goes” mentality took a hit recently when the Justice Department dared to challenge the purchase of T-Mobile by AT&T. Now its stepsister, the Federal Trade Commission, has the opportunity to definitively usher in a new era in antitrust by blocking the $29 billion merger between Express Scripts and Medco, two of the biggest pharmacy benefit managers -- the companies that handle the prescription drug portion of your health insurance.
I wrote this two years ago, when I was doing a column for the Post’s food section. But it’s as relevant today as it was then. Happy Thanksgiving!
It happens every year. It’s not that you resolve to be virtuous on Thanksgiving, just reasonable. Two plates of food, and no more. One piece of pie, and that’s enough. But when you’re sitting at that table, staring at that food, there is no more self-control. No more reasonable. You stop when you can hardly breathe.
Or maybe I’m projecting. This column, however, will not be about exercising self-control at the table. It’s Thanksgiving! Rather, this column will be about something far more powerful: exercising some economic principles.
For a long time, economists operated under the “rational actor model.” Human beings were thought to be rational creatures who correctly weighed costs and benefits and calculated the best choices for themselves. Then some economists met some human beings and realized we don’t really work like that. The result has been the rise of “behavioral economics,” which attempts to build the responses of actual human beings into its models.
MIT economist Dan Ariely is a pioneer in the field. His bestselling book “Predictably Irrational” is as good an introduction to the discipline as you’ll find. Human beings, he argues, aren’t just irrational: They are irrational in predictable ways and in predictable circumstances. That means we can plan for that irrationality beforehand, when we’re still feeling rational.
I asked Ariely how he would set up his Thanksgiving feast to limit overeating without having to exercise self-control. His answer was to construct the “architecture” of the meal beforehand. Create conditions that guide people toward good choices, or even use their irrationality to your benefit.
”Move to chopsticks!” he exclaimed, making bites smaller and harder to take. If the chopsticks are a bit extreme, smaller plates and utensils might work the same way. Study after study shows that people eat more when they have more in front of them. It’s one of our predictable irrationalities: We judge portions by how much is left rather than how full we feel. Smaller portions lead us to eat less, even if we can refill the plate.
One of the more unexpected moments in Tuesday night’s Republican presidential debate came when Rick Santorum suggested that Europe might do better than the United States in some regards. “I just read a recent study,” he said, “that income mobility from the bottom two quintiles up into the middle income is actually greater in Europe than it is in America today.”
Santorum seemed to be implying that this was a new phenomenon, but it predates the current economic slump. Although polls show that Americans have long been more optimistic than Europeans about their chances of getting ahead in life, it’s not necessarily true. The Economic Mobility Project, run by the Pew Charitable Trusts, has been documenting this phenomenon for some time. Here’s a 2007 report by Julia Isaacs of the Brookings Institution pointing out that a person’s economic fortunes are much more tied to his parents in the United States than they are in Europe:
“None of the central banks foresaw the financial crisis, none of them foresaw the weakness of the recovery, and none of them had the right policy prescriptions. This lack of ability to predict big shocks and their aftermath is a central flaw of the Sargent-Sims approach. Sargent is well known for his work on rational expectations, which has a tough time with “irrational” booms and busts. And Sims’s work on “vector autoregressions” has a difficult time anticipating sudden shifts in regime, such as the shift from the Great Moderation to the today’s incredible volatility. ... While I’m sure Sargent and Sims deserve their award, the timing makes the economics profession feel out of touch and irrelevant.” — Michael Mandel is not impressed with the new Nobel laureates in economics.
The Nobel economics prize was awarded this morning to two Americans, Thomas J. Sargent of New York University and Christopher A. Sims of Princeton University, for their work in devising methods to assess how policy changes affect the economy. A few links for further reading below.
The best place to start is the Nobel Prize site, which has a lucid breakdown of the work of the prize winners: “Sargent’s awarded research concerns methods that utilize historical data to understand how systematic changes in economic policy affect the economy over time. Sims’s awarded research [focuses] on distinguishing between unexpected changes in variables, such as the price of oil or the interest rate, and expected changes, in order to trace their effects on important macroeconomic variables.”
Robert Frank is an economist at Cornell University and author, most recently, of “The Darwin Economy: Liberty, Competition and the Common Good,” which argues that in a time of austerity, the best way to cut budget deficits is to focus our cuts on the spending we do to compete with one another rather than the spending that actually makes our lives better. You can read a short version of the argument here. We spoke about the book Friday, and an edited transcript of our conversation follows.
Ezra Klein: As a longtime Robert Frank fan, this book, it seems to me, is a new way of making a point you’ve been making since at least “Winner-Take-All Society” and “Luxury Fever”about how decisions that are economically rational for individuals can make all of us collectively worse off. In this case, the metaphor is evolution.
Robert Frank: It’s exactly that. Sometimes collective and individual interests coincide, as when keen eyesight develops in one hawk and then moves to the rest of the species. That’s analogous to product-design innovation in the free market. It originally benefits the individual that introduces it but as it spreads it benefits everybody. The story doesn’t end there, though.
Matt Yglesias dings me for recommending the conclusion to David Brooks’s recent column, which reads, in part, “many voters seem to think that government has the power to protect them from the consequences of their sins. Then they get angry and cynical when it turns out that it can’t.”
I deserve the hit. Like Matt, I don’t believe recessions are about sins, and suggesting otherwise confuses the issue severely.