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Friday, July 20, 2007

FRBSF: What We Do and Don't Know about the Term Premium

Eric Swanson of the San Francisco Fed outlines what we know, and what we still need to find out, about the term premium ("the excess yield that investors require to commit to holding a long-term bond instead of a series of shorter-term bonds"). A conclusion is that due to uncertainty in measuring the term premium, the extent to which movements in long-term interest rates can be attributed to a variation in the term premium, a popular explanation for recent changes, is difficult to determine:

What We Do and Don't Know about the Term Premium, by Eric Swanson, FRBSF Economic Letter: From January 2000 through this past June, the 10-year U.S. Treasury bond yield has moved over a wide range, falling from 6.8% in early 2000 to 3.1% in June 2003 and rising back to over 5% more recently. The interest rate on 30-year fixed-rate mortgages has similarly varied from a high of 8.6% in 2000 to a low of 5.2% in June 2003 and back to about 6.75% more recently. These fluctuations translate into huge variation in the debt financing costs of the U.S. government and in the prospective monthly mortgage payments of U.S. homebuyers.

What caused these large fluctuations? In July 2005, Alan Greenspan, then Chairman of the Federal Reserve Board, reported to Congress that "a significant portion of the sharp decline in [long-term interest rates] over the past year appears to have resulted from a fall in term premiums" (Greenspan 2005). While this is not the only possible explanation for movements in long-term interest rates, the term premium is nonetheless an important component of these rates. Thus, understanding long-term interest rate fluctuations requires one to understand what the term premium is and how it may change over time.

Continue reading "FRBSF: What We Do and Don't Know about the Term Premium" »

    Posted by on Friday, July 20, 2007 at 03:24 PM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (5) 

    "Gender Roles and Technological Progress"

    This paper looks at reasons for changes in the labor force participation of women since 1920 and suggests that advances in medical technology played a key role. It also discusses factors that have caused gender differences in the workplace. An implication of the research discussed in the paper is that compelling fathers to take maternal leave as is done in Sweden can reduce gender discrimination in the workforce:

    Gender roles and technological progress, by Stefania Albanesi and Claudia Olivetti, Vox EU: Married women are working more in the US. Indeed the rise is so dramatic that it constitutes one of the most notable economic phenomena of the twentieth century in the US. The trend is particular prominent for women with young children. ...

    The explanations for these changes in women’s working lives are as diverse as its implications. Everything from women’s liberation and invention of the vacuum cleaner has been cited as causes. Our recent research suggests that progress in medical technologies related to motherhood played a critical role...

    Continue reading ""Gender Roles and Technological Progress"" »

      Posted by on Friday, July 20, 2007 at 12:06 PM in Economics, Social Insurance, Unemployment | Permalink  TrackBack (0)  Comments (2) 

      Paul Krugman: All the President’s Enablers

      Paul Krugman takes a look at both the passive and the active enablers of President Bush:

      All the President’s Enablers, by Paul Krugman, Commentary, NY Times: In a coordinated public relations offensive, the White House is using reliably friendly pundits — amazingly, they still exist — to put out the word that President Bush is as upbeat and confident as ever. It might even be true.

      What I don’t understand is why we’re supposed to consider Mr. Bush’s continuing confidence a good thing.

      Remember, Mr. Bush was confident six years ago when he promised to bring in Osama, dead or alive. He was confident four years ago, when he told the insurgents to bring it on. He was confident two years ago, when he told Brownie that he was doing a heckuva job.

      Now Iraq is a bloody quagmire, Afghanistan is deteriorating and the Bush administration’s own National Intelligence Estimate admits, in effect, that thanks to Mr. Bush’s poor leadership America is losing the struggle with Al Qaeda. Yet Mr. Bush remains confident.

      Sorry, but that’s not reassuring; it’s terrifying. It doesn’t demonstrate Mr. Bush’s strength of character; it shows that he has lost touch with reality. ...

      Mr. Bush ... still has plenty of enablers — people who understand the folly of his actions, but refuse to do anything to stop him.

      This week’s prime example is Senator Richard Lugar of Indiana, who made headlines a few weeks ago with a speech declaring that “our course in Iraq has lost contact with our vital national security interests.” Mr. Lugar is a smart, sensible man. He once acted courageously..., persuading a reluctant Ronald Reagan to stop supporting Ferdinand Marcos ... after a stolen election.

      Yet that political courage was nowhere in evidence when Senate Democrats tried to get a vote on a measure that would have forced a course change in Iraq... Mr. Lugar, along with several other Republicans who have expressed doubts about the war, voted against cutting off debate...

      Thanks to that vote, nothing will happen until Gen. David Petraeus ... delivers his report in September. But don’t expect too much.., the general’s history suggests that he’s another smart, sensible enabler.

      I don’t know why the op-ed article that General Petraeus published in The Washington Post on Sept. 26, 2004, hasn’t gotten more attention. After all, it puts to rest any notion that the general stands above politics: I don’t think it’s standard practice for serving military officers to publish opinion pieces that are strikingly helpful to an incumbent, six weeks before a national election.

      In the article, General Petraeus told us that “Iraqi leaders are stepping forward, leading their country and their security forces courageously.” And those security forces were doing just fine: their leaders “are displaying courage and resilience” and “momentum has gathered in recent months.”

      In other words, General Petraeus, without saying anything falsifiable, conveyed the totally misleading impression, highly convenient for his political masters, that victory was just around the corner. And the best guess has to be that he’ll do the same thing three years later.

      You know, at this point I think we need to stop blaming Mr. Bush for the mess we’re in. He is what he always was, and everyone except a hard core of equally delusional loyalists knows it.

      Yet Mr. Bush keeps doing damage because many people who understand how his folly is endangering the nation’s security still refuse, out of political caution and careerism, to do anything about it.

      Previous (7/16) column: Paul Krugman: The Waiting Game
      Next (7/23) column: Paul Krugman: The French Connections

        Posted by on Friday, July 20, 2007 at 12:33 AM in Economics, Iraq and Afghanistan, Politics | Permalink  TrackBack (0)  Comments (71) 

        Margins of Victory?

        This is something I've been wondering about. It probably has an easy and obvious answer that I'm overlooking, or an answer that is well known, but I'll risk looking silly and ask anyway.

        Suppose you are at the phase in a presidential campaign where the primaries have ended, and it's down to two candidates.

        How do you get more votes, is it best to move people across the line in the middle, i.e. by capturing the undecideds, the independents, the cross-over votes, etc.? These are people who will vote in any case, it's only a matter of who they vote for. Or is it better to draw new voters to the polls, people who wouldn't have voted otherwise but are likely to vote for you if you can get them to show up?

        If the goal is to move the middle, then a mild, centrist message would seem to be best. If both candidates pursued such a strategy, wouldn't it make for a relatively mild campaign, at least in comparison to a campaign where the goal is to draw people to the polls? However, when the goal is to motivate people to vote who wouldn't do so otherwise, it seems that a much shriller, polarized, vicious campaign would result (that sounds familiar).

        I have in mind that the goals are often at odds, i.e. emphasizing issues that would draw voters of your political affiliation to the polls might lose voters in the middle, while targeting the middle may cause some voters at the extremes to become disenchanted and stay home.

        In some cases it would be possible to do both, i.e. move the middle and excite people enough to draw them to the polls and vote for you. Other strategies could either bring in new voters without changing the middle, at least not enough to matter, or the reverse, move the middle without costing votes on the fringe. Some politicians are able to use language skillfully (or deceptively) along these dimensions, i.e. excite the fringes to the polls with coded language that leaves the middle relatively unaffected, or appease the middle without losing the fringe.

        Policy positions that have these characteristics are easy, there are benefits but few if any costs, so they should be adopted (examples?). But often, it seems to me, the goals are at odds. So I'm wondering, which margin is most active, i.e. which margin is most responsive to targeted messages and thus produces the most benefits, the middle or the fringe?

        As I noted above, my thoughts are not well-formed on this. Is there an obvious answer to which margin is most productive? Or should I be thinking about this in some other way?

          Posted by on Friday, July 20, 2007 at 12:15 AM in Economics, Politics | Permalink  TrackBack (0)  Comments (16) 

          Tim Duy: Fall Turbulence Ahead?

          Tim Duy has his latest Fed Watch:

          Fall Turbulence Ahead?, by Tom Duy: I admit that I have found Fed watching a bit tedious since Bernanke & Co. settled into a steady path last year. Caroline Baum summarizes the situation succinctly:

          Dissecting the Fed's post-meeting statements in the hope of finding signs of a shift to a more neutral stance has been fruitless. Despite a word change here or there or a shift in emphasis, the Fed remains firmly in the camp that the risks lie with the failure of inflation to moderate.

          I doubt, however, that the situation is quite as dire as Baum suggests:

          Fed watchers, a cottage industry for whom real transparency under Fed chief Ben Bernanke has meant greater obsolescence…

          I hesitate to believe Bernanke’s transparency is the driving force behind this supposed “obsolescence.” Instead, it is the stubborn unwillingness of the US economy to break under the weight of the latest shock, whatever it may be. The mix of growth and inflation suggested that steady policy is appropriate, and the Fed has followed suit. Still, for almost two years, since Hurricane Katrina, we have been going through the same dance – the US economy experiences a shock, a warning call is raised demanding a rate cut, the Fed, looking through the shock, fails to oblige, economic activity does not collapse, market participants reevaluate and move back to the Fed. An example from the minutes:

          Continue reading "Tim Duy: Fall Turbulence Ahead?" »

            Posted by on Friday, July 20, 2007 at 12:12 AM in Economics, Fed Watch, Monetary Policy | Permalink  TrackBack (0)  Comments (3) 

            links for 2007-07-20

              Posted by on Friday, July 20, 2007 at 12:06 AM in Links | Permalink  TrackBack (0)  Comments (0) 

              Thursday, July 19, 2007

              "Rediscovering Intelligent Design"

              Interesting question. Does anyone know the answer?:

              Rediscovering Intelligent Design Posted, by Kieran Healy: Here is a likely poorly-specified question for biologists... The premise is unlikely (something that kills people—all people—but leaves the rest of the world standing) but intriguing. ...

              I wondered, what if, long, long after our disappearance, some other species arose on earth at least as intelligent as us and eventually started doing evolutionary and molecular biology. Let’s say they have a working theory of evolution much like our own. Now say for the sake of argument that a bunch of transgenic organisms produced by humans have survived and prospered in the interim. So our future biologists find things like a bacteria that produces insulin, or a plant that secretes insecticide, or rice that is high in beta carotene, or more exotic stuff as needed.[1]

              I’m wondering, would such organisms even present themselves as empirical anomalies? (That is, how much would you have to know about genomes and evolution for them to seem odd?) And if they did seem odd, how would they be explained? That is, would the evidence of their intelligent design by a previous, now-extinct species be clear? ... Would some Arthropod-staffed functional-equivalent of the Discovery Institute point its claw at some of these organisms, saying they were anomalies that could only be explained by the intervention of a divine intelligence? Would Charles Crustacean find a story that could account for their evolution by natural selection? I’m particularly interested in whether the artificial provenance of transgenic organisms would be clear on internal evidence alone. I don’t know anything about this stuff, so probably the answer is “Yes” for reasons obvious to experts. But if it weren’t …

              Here's the uninformed answer of an economist. I don't think they could tell because if the organism had anomalous traits, they would be genetically selected out over time and thus would not even be observable in the future. Making insulin is a waste of energy if it provides no benefit to the organism.

              If they weren't anomalous and provided some sort of competitive advantage, then it would appear to be an evolved trait. The key is that the organism's genetic structure would not be static over time, but instead would evolve in response to its environment. If such evolution wipes out all traces of anything that looks (and is) anomalous in the environment the organism lives, then there will be no way to detect prior design. A counter argument is that there may be dependence on initial conditions, i.e. even though the organism evolves over time, the paths it can follow are set by its initial genetic structure and hence anomalies can still be identified later (traces of insulin making are still evident). Which means all I've done is re-ask the question - are initial conditions detectable later - not answer it.

              Okay, I've thrashed around enough. Anyone know the real answer?

                Posted by on Thursday, July 19, 2007 at 01:26 PM in Religion, Science | Permalink  TrackBack (0)  Comments (29) 

                Why the Fed Looks at Measures of Core Inflation

                David Altig and I, and others as well, have been making the point that the Fed does not look at measures of core inflation because they measure the current cost of living for a typical consumer, they don't, the reason for focusing on core inflation is that these measures provides a better prediction of future inflation than non-core measures (e.g., see Should the Fed Focus on Core Inflation or Headline Inflation?, Which Measure of Inflation is Best for Monetary Policy?, and Trimming to the Core of the Matter, or, from David Altig, Why We Focus On Core Inflation, and Why We Focus On Core Inflation II for a few examples).

                Most recently from David, he points out that the Fed believes the trimmed mean personal consumption expenditures measure (PCE), with the trim point set at 16%, is the best measure to use to forecast future inflation, better than CPI less food and energy for example:

                Better, Not Best, by David Altig: In and of itself, the report on consumer price inflation in June wasn't bad. ... Except for the CPI less food and energy -- a measure of core inflation that I would invite you to jettison in favor of the trimmed-mean -- developments on the inflation front appear to be improving...

                Continue reading "Why the Fed Looks at Measures of Core Inflation" »

                  Posted by on Thursday, July 19, 2007 at 11:34 AM in Economics, Inflation, Monetary Policy | Permalink  TrackBack (0)  Comments (10) 

                  "Trade and Child Labor"

                  Does increased international trade with low-income countries influence how much work is performed by children living in those countries?:

                  Trade and child labour, by Eric Edmonds Nina Pavcnik, Vox EU: Iqbal Masih was born in 1982 near Lahore Pakistan. At age four, Iqbal began working a carpet loom for at least 12 hours a day, six days a week. His parents received an advance on his wages, so Iqbal was bonded to his employer. Iqbal could not leave, and his employer chained him to his loom in order to make sure he did not run away. At age 10, Iqbal escaped. His physical stature at age 10 was roughly that of a six year old boy, and he reported years of hunger and physical abuse.1

                  Understandably, consumers in wealthy countries are concerned about their own complicity in stories like that of Iqbal's and other children involved in the manufacture of carpets, surgical instruments, soccer balls, clothing, and other goods produced for export from low income countries. The pervasiveness of working children in poor countries magnifies these concerns. An estimated 191 million or 16 percent of children aged 5-14 in the world work today.2 Very few of these children work directly in the manufacture of products for export. Most are engaged in agriculture or their family business, often working by their parents' side. Does international trade influence whether these children work?

                  Continue reading ""Trade and Child Labor"" »

                    Posted by on Thursday, July 19, 2007 at 03:24 AM in Economics, International Trade | Permalink  TrackBack (0)  Comments (11) 

                    "Sources of Lifetime Inequality"

                    This NBER Working Paper by Mark Huggett, Gustavo Ventura, and Amir Yaron assesses the relative importance luck and initial conditions in explaining inequality, and asks which type of initial condition, human capital, learning ability, or financial wealth best explains later dispersion in individual earnings. The paper finds that 60% or more of the variation across individuals is due to initial conditions rather than shocks that hit agents during their lifetimes (i.e. good or bad luck), and that among the initial conditions, variation in human capital is the most important factor.

                    As noted in the conclusions, because the evaluation of initial conditions is conducted at age 20, "pushing back the age at which lifetime inequality is evaluated will raise the issue of the importance of one's family more directly than is pursued here. The importance of one's family and one's environment up to age 20 is not modeled in our work..." But however that turns out, an implication of this work is that we need to do all that we can to ensure that disadvantaged children, all children, are able to build up the human capital they will need to be competitive at age 20 and beyond:

                    Sources of Lifetime Inequality, by Mark Huggett, Gustavo Ventura, and Amir Yaron, NBER WP 13224, July 2007 [open link]:
                    1 Introduction To what degree is lifetime inequality due to differences across people established early in life as opposed to differences in luck experienced over the lifetime? Among initial conditions, individual differences established early in life, which ones are the most important? A convincing answer to these questions is of fundamental importance. First, and most simply, an answer serves to contrast the potential importance of the myriad policies directed at modifying or at providing insurance for initial conditions (e.g. public education) against those directed at shocks over the lifetime (e.g., unemployment insurance programs). Second, a discussion of lifetime inequality cannot go too far before discussing which type of initial condition is the most critical for determining how one fares in life. Third, a useful framework for answering these questions should also be central in the analysis of a wide range of policies considered in macroeconomics, public finance and labor economics.

                    Continue reading ""Sources of Lifetime Inequality"" »

                      Posted by on Thursday, July 19, 2007 at 12:24 AM in Economics, Income Distribution, Universities | Permalink  TrackBack (0)  Comments (25) 

                      Robber Barons

                      Not too long ago, someone told me that he wasn't sure how to make the material in his archives available when related topics come up, say, for example, the super-wealthy. There are a lot of good things in his archives:

                      Robber Barons, by J. Bradford DeLong, 1998: I. Introduction "Robber Barons": that was what U.S. political and economic commentator Matthew Josephson (1934) called the economic princes of his own day. Today we call them "billionaires." Our capitalist economy--any capitalist economy--throws up such enormous concentrations of wealth: those lucky enough to be in the right place at the right time, driven and smart enough to see particular economic opportunities and seize them, foresighted enough to have gathered a large share of the equity of a highly-profitable enterprise into their hands, and well-connected enough to fend off political attempts to curb their wealth (or well-connected enough to make political favors the foundation of their wealth).

                      Matthew Josephson called them "Robber Barons". He wanted readers to think back to their European history classes, back to thugs with spears on horses who did nothing save fight each other and loot merchant caravans that passed under the walls of their castles. He judged that their wealth was in no sense of their own creation, but was like a tax levied upon the productive workers and craftsmen of the American economy. Many others agreed: President Theodore Roosevelt--the Republican Roosevelt, president in the first decade of this century--spoke of the "malefactors of great wealth" and embraced a public, political role for the government in "anti-trust": controlling, curbing, and breaking up large private concentrations of economic power.

                      Their defenders--many bought and paid for, a few not--painted a different picture: the billionaires were examples of how America was a society of untrammeled opportunity, where people could rise to great heights of wealth and achievement on their industry and skill alone; they were public benefactors who built up their profitable enterprises out of a sense of obligation to the consumer; they were well-loved philanthropists; they were "industrial statesmen."

                      Over the past century and a half the American economy has been at times relatively open to, and at times closed to the ascension of "billionaires." Becoming a "billionaire" has never been "easy." But it was next to impossible before 1870, or between 1929 and 1980. And at other times--between 1870 and 1929, or since 1980--there has been something about the American economy that opened roads to the accumulation of great wealth that were at other times closed.

                      Does it matter whether an economy is open to the accumulation of extraordinary amounts of private wealth? When the economy is more friendly to the creation of billionaires, is economic growth faster? Or slower? And what role does politics play? Are political forces generally hostile to great fortunes, or are they generally in partnership? And when the political system turns out to be corrupt--to serve as a committee for extracting wealth from the people and putting it into the pockets of the politically well-connected super-rich--what is to be done about it? What can be done to curb explicit and implicit corruption without also reducing the pressure in the engine of capital accumulation and economic growth?

                      These are big questions. This essay makes only a start at answering them.

                      Continue reading "Robber Barons" »

                        Posted by on Thursday, July 19, 2007 at 12:15 AM in Economics, Income Distribution, Market Failure | Permalink  TrackBack (0)  Comments (26) 

                        links for 2007-07-19

                          Posted by on Thursday, July 19, 2007 at 12:06 AM in Links | Permalink  TrackBack (0)  Comments (3) 

                          Wednesday, July 18, 2007

                          Fixing the Dents in the Neoclassical Model

                          Free Exchange, the blog at The Economist, has a nice find and write-up:

                          Un-Endowing the Endowment Effect, by Economist.com: Let's say you agree to participate in an economics experiment. You show up at the lab ... and are randomly assigned to a specific group. You are then given a coffee mug. Finally, you’re asked if you’d like to trade the coffee mug for a candy bar. If you’re like most ... participants..., you probably don’t trade, but stick with what you’ve got. And perhaps it really is an awfully nice coffee mug, so you've made the right decision. Yet something perplexes economists. When the experiment is repeated with the other group, where the candy bar is the endowed good, most of them keep the sweet instead of taking home the mug.

                          And that, according to the behavioral economists like Nobel laureate Daniel Kahneman and University of Chicago’s Richard Thaler, is a direct challenge to the deep premises of neoclassical economics. Since the goods were randomly distributed, neoclassical theory predicts that there should have been much more trading than there actually was. Thus the concept of the “endowment effect” was born. It seemed to explain a whole host of other exchange asymmetries, too, such as why people often require a higher price to sell a good than they would ... pay to buy it.

                          The theory is that everyone in the experiment was acting on ... “loss aversion”..., which causes us to worry more about losses than equivalently sized gains. Parting with an endowed good is perceived as a loss greater than the potential gain from acquiring another good of putatively equal value.

                          Now a new paper ... forthcoming ...[in] the American Economic Review argues that this asymmetry might not be as formidable as it seems. The paper is based on experiments conducted by Charles Plott of Cal-Tech ..., and Kathryn Zeiler of the Georgetown University Law Center. (A working paper version is available here.)

                          Plott and Zeiler thought that perhaps traditional signaling theory could help explain the results of those previous experiments. For instance, when the endowed good was handed to the experiment participant, they were usually told, “I’m giving you the mug. It is a gift. You own it. It is yours.” But what if that signaled a certain level of value to you as the recipient of the mug? You don’t know if that candy bar is any good, but the chap who handed you mug seemed really insistent that you should hold onto it.

                          So, Plott and Zeiler simply told the participants: “The mug is yours. You own it.” They also adjusted for other possible factors. ...[T]hey had students signal their decision to trade (or not) by anonymously marking a card, rather than raising their hands in the midst of a crowd. And the participants got to inspect the other good, without giving up the one they had, before they made their choice.

                          The result? The exchange asymmetries disappeared. ...

                            Posted by on Wednesday, July 18, 2007 at 05:04 PM in Economics, Science | Permalink  TrackBack (0)  Comments (14) 

                            Benjamin Friedman, James Galbraith, and Allan Meltzer on the Problems with Inflation Targeting

                            The purpose of this is mainly so that I have a searchable archive of this material, I doubt it will be of that much interest generally. It's three statements on monetary policy by Benjamin Friedman, James Galbraith, and Allan Meltzer, and a video of the hearing so the post is quite long.

                            But for those who might be interested, I have been an advocate of inflation targeting, as are many members of the FOMC, and the papers by Galbraith and Friedman present some contrary views on the use of inflation targeting to guide monetary policy. The papers are from testimony each gave before the House Committee on Financial Services in preparation for Ben Bernanke's appearance before the committee today. The continuation page has a YouTube video of the hearing followed by the three statements:

                            Continue reading "Benjamin Friedman, James Galbraith, and Allan Meltzer on the Problems with Inflation Targeting" »

                              Posted by on Wednesday, July 18, 2007 at 04:14 PM in Economics, Inflation, Monetary Policy | Permalink  TrackBack (0)  Comments (6) 

                              Economics Columnists at the New York Times

                              While promoting his new role as a columnist for the New York Times, Greg Mankiw asks a question:

                              Economics at the NY Times, by Greg Mankiw: At the end of his column today, David Leonhardt reports:

                              If you read Sunday’s business section, you probably noticed that Gregory Mankiw, the Harvard economist, blogger and Republican policy adviser, wrote the Economic View column. His debut as a regular contributor is the start of some changes in our economics coverage.

                              The View column will now be written by a rotating panel of outside economists. Besides Mr. Mankiw, it will include Alan Blinder, Judith Chevalier, Robert Shiller and Lester Thurow, as well as three of the economists who have been writing the Economic Scene column on Thursdays: Austan Goolsbee, Tyler Cowen and Robert Frank. (The fourth member of the Scene rotation, Hal R. Varian, is leaving to concentrate on his new role as Google’s chief economist.)

                              They are a stellar group, and they will use the column to examine everything from big policy questions to the economics of everyday life. By moving the economists to Sunday, when our section isn’t filled with news, we think we can give their writing more attention.

                              ...Is this a "fair and balanced" group? In particular, ... if you count the number of these eight economists who lean left and the number who lean right, perhaps leaving out a few without any particular political viewpoint, what ratio do you get?...

                              To which Dani Rodrik esponds:

                              New economics columnists at NYT, by Dani Rodrik: Via Greg Mankiw, I learn of a new group of rotating economists who will be writing columns for the New York Times. ... With one glaring exception (you guess which one...), I think this is an absolutely terrific group. ...

                              But I am puzzled somewhat by the assignment Greg gives his readers:

                              First, if you count the number of these eight economists who lean left and the number who lean right, perhaps leaving out a few without any particular political viewpoint, what ratio do you get?

                              I do not quite understand the preoccupation with the political orientation of these economists. Is Greg implying that he and his fellow commentator-economists filter their views on economic matters through an ideological prism?

                              Since nobody else has done so, let me say that I will miss Hal Varian who, as noted above, is leaving the columnist rotation to serve as chief economist for Google.

                              My comment is this. I would like to see more economists in the rotation like Hal. When you read his columns, it is very difficult to detect his political orientation - I read them all and I couldn't tell you for sure which political party he belongs to.

                              Hal is a microeconomist, something those of us who used his book in graduate school won't forget easily. With Hal leaving, the rotation is losing an excellent microeconomist, someone who can write knowledgably about issues such as patents and copyrights, information economics, insurance markets, energy markets, market regulation, anti-trust issues, and all sorts of other important topics. There is a bit of a tilt toward macroeconomics in the list, but I'm glad to see that microeconomics is represented. There are a lot of important microeconomic policy issues that sometimes get overlooked in the public discussion, anti-trust issues are one example, and Hal was one of the few columnists consistently addressing issues in the microeconomic arena.

                                Posted by on Wednesday, July 18, 2007 at 10:26 AM in Economics, Macroeconomics, Press | Permalink  TrackBack (0)  Comments (27) 

                                "The Rise and Decline of Unions"

                                Michael Wachter of the University of Pennsylvania Law School explains the rise and decline in union membership in the US:

                                The Rise and Decline of Unions, by Michael Wachter, Commentary, washingtonpost.com: Union membership ... has been in unrelenting decline for nearly half a century. There is a single cause for this decline: the United States' change from a corporatist-regulated economy to an economy based on free competition. ...

                                Following the Great Depression's onset, many key policy debates about antitrust, labor and corporate governance were decided in favor of corporatism over free competition. The ... New Deal's National Industrial Recovery Act (NIRA) offered industrial firms a deal: They could legally act in concert with each other to halt what had become cut-throat price competition in the wake of the Depression, but the firms would have to share the profits of the supra-competitive, "fair" prices with their unionized workers in the form of supra-competitive, "fair" wages. This merged corporate interests with labor interests, and enabled firms to engage in cartel behavior without fear of antitrust litigation.

                                NIRA got off to a fast start, but ... the Supreme Court ultimately ruled the arrangement unconstitutional. Undaunted, the New Dealers tried to resurrect elements of corporatism in the National Labor Relations Act (NLRA). But the NLRA only carried over the labor policy elements of NIRA while abandoning its corporate and antitrust elements. Labor law thus lost its critical supports of corporate and antitrust policies. However, New Dealers also turned to industry-specific regulatory mechanisms -- for example, the Motor Carrier Act of 1935, and the Civil Aeronautics Act of 1938 -- that controlled the entry of new firms and the exit of existing firms in specific industries. To assure these regulated firms' profitability, prices were set administratively.... This prevented profit-threatening price competition that might jeopardize the ability of firms to pay unionized wage rates. These regulated sectors became the most strongly unionized, with the highest union wage premiums.

                                Under New Deal corporatism, union membership increased... By 1945, union density reached its peak level of 34 percent. ...

                                The subsequent 46 years have seen that density decline slowly to pre-NIRA levels. Why the decline, and why has it been so slow? The simple answer is that it has taken a long, drawn-out process to dismantle the U.S. corporatist economy. Various economic controls remained popular through the 1960s, industry-specific regulation from the New Deal was not significantly rolled back until the 1980s, and -- most fundamentally -- policymakers had to transition ... from the belief that society benefits from corporatism to the belief that society benefits from competition between suppliers of goods and services, including labor.

                                Unions still bargain for a fair wage, but antitrust or industrial regulation no longer provides for above-competitive prices to pay those above-market wages. The unraveling of the coherent corporatist theory, a theory combining corporate, labor and antitrust elements, leaves unions alone. Unions are a corporatist institution; they do not prosper in a competitive economy. If my analysis is correct, then no change in labor law or labor market policies, absent changes in overall industrial policy, will allow unions to become the mass movement they were in 1945.

                                Unions may be able to prosper as a niche movement in the government sector, which is the sole remaining noncompetitive sector, and in sectors where individual firms or industries take advantage of either uninformed or immobile workers to enforce below-competitive pay packages. ... In those cases where individual firms exercise exploitative power to set wages below competitive levels, ... beneficial results emerge [and] unions can and should improve the functioning of labor markets.

                                If any economic historians want to weigh in, please do, this isn't my main area, but this makes it sound like the Motor Carriers Act and the Civil Aeronautics Act were enacted on behalf of labor, i.e. the main reason for the acts was to guarantee high union wages. I thought the reason for the Civil Aeronautics Act was a concern over airline safety that came out of the barnstorming days of the 1920s, and from problems in the airmail system. The belief was that the development of the airline system required some type of safety regulation. Later as the agency split into two parts, it also became concerned with economic regulation.

                                I also thought the Motor Carriers Act grew out of problems between farmers and rail carriers (the Grange movement is part of this) with farmers charging that rail carriers were exploiting their market power, and that the regulatory powers over motor carriers increased over time, and then were largely reversed in the 1980s.

                                These regulations were controversial when they were enacted (and they are still are controversial today), the same free market versus government intervention battles we see today occurred at the time, and some people argue that the change was motivated, in part, by regulatory capture. We won't settle the government intervention debate here, but the point is that the regulations weren't explicitly for the purpose of maintaining high union wages, though the acts did provide the means to use regulation to promote stable and profitable firms in these industries.

                                Another part of the article makes it sound as though the dismantling of the corporatist economy in favor of a free-market approach that began in the 1980s came about due to enlightened policymakers suddenly realizing the benefits of free markets:

                                Various economic controls remained popular through the 1960s, industry-specific regulation from the New Deal was not significantly rolled back until the 1980s, and -- most fundamentally -- policymakers had to transition ... from the belief that society benefits from corporatism to the belief that society benefits from competition

                                But this leaves out an important reason for the change in policy and the change in industrial structure, the increase in global competition, and it does not note that many of the restrictive bargains between unions and firms were due to an implicit social contract rather than explicit policies and regulations that could be changed by policymakers.

                                Globalization is an important driving force behind the explicit changes in policy in recent decades, and globalization also contributed to the deterioration in the implicit social contract. Globalization gave firms the arguments they needed to persuade policymakers to eliminate New Deal type policies, and it gave firms a justification for breaking the implicit social contract with labor.

                                Free market ideas weren't new or suddenly discovered by policymakers in the 1980s - the ideas were there all along - but the ideas didn't began to resonate until there was a notable increase in global competition. It's interesting that the same forces, those of globalization, are now causing ideas that run in opposition to the view that unrestricted market are always best to gain a foothold in policy circles.

                                In comments, Don Brown adds:

                                In my view, the Civil Aeronautics Act was just one piece of the puzzle that the government started putting together well before 1938.  The objective was to build a viable air transportation industry and enhance the national security of the United States.  The start of the aviation industry was much like it is today -- destructive competition wouldn’t allow a company to become stable enough to ensure the public’s safety.  Before and after airline regulation the civil regulations were the maximum safety level that companies could afford to maintain.  During airline regulation they were the minimum.

                                Perhaps the most empirical evidence to refute Mr. Wachter’s theory is that Airline Deregulation was championed by Sen. Edward Kennedy.  I seriously doubt that Sen. Kennedy’s aim was to harm unions -- much less the entire industry.  Yet that has been the consequences.  The airlines have faired no better than their unions. 

                                Another concern in the early years was the ability to comply with numerous regulatory bodies.  The airlines couldn’t follow 50 sets of state air regulations (much less city and county regulations.)  They asked for (and got) one set of Federal Air Regulations.

                                As to the national security implications, prior to WWI, warfare was two dimensional -- land and sea.  Aviation added a third dimension.  From the history I’ve read, FDR explicitly recognized this and the consequences it would have in WWII.  History has proven him correct.  Pearl Harbor, Midway, Hiroshima.  In virtually every military engagement the U.S. has been in -- up to and including today -- airpower has been the overwhelming factor.  FDR simply steered the government towards a policy that would ensure a vibrant aviation industry.  Unions may have factored into his equations but they were a secondary concern.

                                  Posted by on Wednesday, July 18, 2007 at 12:24 AM in Economics, Market Failure, Regulation, Social Insurance | Permalink  TrackBack (0)  Comments (64) 

                                  Is the World "Awash with Liquidity"?

                                  Robert Shiller tries to understand what the current widespread use of the phrase "the world is awash with liquidity" signifies, and he concludes it may reflect worrisome market psychology:

                                  'Awash in liquidity' suggests bubbly market, by Robert J. Shiller, Project Syndicate: We increasingly hear that "the world is awash with liquidity," and that this justifies expecting asset prices to continue rising. But what does such liquidity mean, and is there really reason to expect that it will sustain further increases in stock and real estate prices? ...

                                  Traditionally, "awash with liquidity" would suggest that the world's central banks are expanding the money supply too much... But if that were the problem, one would cause all prices - including, say, clothing and haircuts - to rise. That is what ... Federal Reserve Chairman Arthur Burns meant when he said that the United States was "awash with liquidity" in 1971, a period when the concern was general inflation.

                                  But the recent popular use of the term "awash with liquidity" dates to 2005, a time when many central banks were tightening monetary policy. In the US, the Fed was sharply raising rates. Central banks worldwide clearly have been behaving quite responsibly with regard to general inflation since 2005. ... So it is something of a puzzle why people started using the term so much in 2005. ...

                                  Another interpretation is that people are saving a great deal, and that all this money is chasing investment assets, bidding up prices. Current Fed Chairman Ben Bernanke raised this idea a few years ago, alleging a world "saving glut."

                                  But, once again, the data do not bear this out. The IMF's world saving rate has maintained a fairly consistent downward trend since the early 1970s... True, savings rates in emerging markets and oil-rich countries have been increasing since 1970, and especially in the last few years, but this has been offset by declining saving rates in advanced countries.

                                  Another interpretation is that "awash with liquidity" merely means that interest rates are low. But interest rates have been increasing around the world since 2003. Hardly anyone was saying the world was "awash with liquidity" in 2003. The use of the term has grown in parallel with rising, not falling, interest rates.

                                  Yet another theory is that changes in our ways of handling risk have reduced risk premia. ... But this is really a theory about risk management for certain kinds of products, not "liquidity" per se. ...

                                  The term "awash with liquidity" was last in vogue just before the US stock market crash of October 19, 1987, the biggest one-day price drop in world history.

                                  The reasons for that crash are complex, but, as I discovered in my questionnaire survey a week later, it would appear that people ultimately did not trust the market's level. As a result, they were interested in strategies ... that would allow them to exit the market fast.

                                  The term "awash with liquidity" was also used often in 1999 and 2000, before the major peak in the stock market. So its popular use seems not to reflect anything we can put our finger on, but instead a general feeling that markets are bubbly and a lack of confidence in their levels.

                                  Under this interpretation, the term's popularity is a source of concern: it may indicate a market psychology that could lead to downward volatility in prices.

                                    Posted by on Wednesday, July 18, 2007 at 12:15 AM in Economics, Financial System | Permalink  TrackBack (0)  Comments (17) 

                                    links for 2007-07-18

                                      Posted by on Wednesday, July 18, 2007 at 12:06 AM in Links | Permalink  TrackBack (0)  Comments (1) 

                                      Tuesday, July 17, 2007

                                      Keeping the Tax Rate Constant Can More Than Pay for Itself!

                                      I've been a critic of the "tax cuts pay for themselves" school of thought since there's no evidence the economy is currently or has ever been in a position where that could happen, so let me discuss this a little further and allow for the possibility of a situation (even now) where a reduction in taxes could, in fact, pay for itself.

                                      When taxes are cut, there are two separate things that happen that get confused in discussions of this topic. First, and obviously, there is a change in disposable income and this can generate economic effects. Second, there can be a reduction in the economic distortions induced by taxes, and reducing these distortions can generate higher economic growth. Thus, this second effect is the change in economic efficiency from the change in taxes.

                                      The efficiency effect means that keeping taxes constant can increase tax revenue, and it's easy to see how. Suppose, as in the US, there is an income tax and without changing anyone's net tax burden at all (all things considered), it is replaced by a consumption tax. Since in general consumption taxes are more efficient than income taxes, output can increase without changing overall taxes one bit just by restructuring where they are levied (or choose your own favorite example of an efficiency enhancing shift in taxes, this is just an example).

                                      This can easily generate Laffer curve type results. Suppose that in the example above, everything is the same except that after the consumption taxes are levied to replace the income taxes, overall taxes are reduced by one dollar. Because of the increase in efficiency, which could be large under the right conditions, it would look like this one dollar reduction in taxes causes amazing output effects. E.g. suppose output went up by a mere million dollars from the increase in efficiency, not much in the overall US economy. With a tax rate of 25%, the result would be a $250,000 increase in taxes from a $1 tax cut. This would appear to be quite amazing if it was attributed solely to the $1 change in after tax income rather than to the change in efficiency. Note, however, there is nothing special in this example about the tax reduction. Just as easily we could have overall taxes increase by $1 in the example and then it would look like increasing taxes increases economic activity. This means that even if a tax cut did pay for itself, which they don't, we need to be careful abut what the increase in revenue is attributed to.

                                      An implication of this is that it is not necessary to reduce taxes on the wealthy, i.e. produce an increase in their take-home pay, to produce revenue enhancing effects from changes in tax policy. Simply changing where and how the taxes are levied can potentially produce much stronger effects. Since there is little evidence that tax cuts on the wealthy stimulate substantial additional effort or any additional economic activity, before we cut taxes to try to increase economic growth we ought to make sure that our taxes are levied and collected as efficiently as possible first, and that can involve restructuring how taxes are collected within income classes, i.e. trading one kind of tax for another, and other types of changes (I am setting aside equity considerations in this discussion, but there may be efficiency-equity tradeoffs to consider).

                                      Continuing with this point, Stephen Gordon at Worthwhile Canadian Initiative has comments on a recent Romer and Romer paper looking at tax changes and economic growth. Given recent events around here, I am going to send you to his site instead of presenting his comments here:

                                      Why doesn't the US have a consumption tax?, by Stephen Gordon

                                      Update: I didn't mean to limit the discussion to consumption versus other types of taxes at all, restructuring taxes within income classes is more what I had in mind here, but I just noticed that Greg Mankiw discusses the question "If a government reduces a payroll tax and raises a consumption tax, how does the tax shift affect the economy?" and gives a "tentative" answer to the question. One issue that comes up is fraud under VAT taxes. If you are interested in that issue, see this five part series from Richard Baldwin at Vox EU on VAT fraud.

                                        Posted by on Tuesday, July 17, 2007 at 04:14 PM in Budget Deficit, Economics, Policy, Politics, Taxes | Permalink  TrackBack (0)  Comments (17) 

                                        David Altig Named Research Director of the FRB of Atlanta

                                        David Altig and I differ politically, but even so we almost always agree on issues involving monetary policy (which makes him very smart). The Atlanta Fed made a great choice. Congratulations David:

                                        Economics Blogger Gets Senior Fed Job, by Greg Io, WSJ Econ Blog:  Economics blogging can be good for your career. David Altig, author of the Macroblog has just been named research director of the Federal Reserve Bank of Atlanta. ... His blog postings reflect a mainstream Fed view on key macroeconomic questions of the day.

                                        In an interview, Mr. Altig said he doesn’t know if the blog will continue in his new job. “I‘ve been at it for a while, and I enjoy it but I have to take the lay of the land there and see whether my responsibilities are consistent with keeping it up or not.” ...

                                        As research director, Mr. Altig will attend Federal Open Market Committee meetings with his president, Dennis Lockhart. ...

                                          Posted by on Tuesday, July 17, 2007 at 02:07 PM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (1) 

                                          Kenneth Rogoff: US Will Learn Deficits Do Matter

                                          Ken Rogoff says we will learn, soon enough, that budget deficits are not to be taken lightly:

                                          Kenneth Rogoff: US will learn deficits do matter: The Bush administration was beside itself with glee ... when it announced that the fiscal year 2007 federal deficit was set to fall to just over $200bn, or 1.5 per cent of US gross domestic product ..., less than half what it was in 2004.

                                          Publicly, some Democrats are still condemning Bush II profligacy and preaching a return to Clinton I fiscal conservatism. Privately, though, many are starting to question why a 2008 Democratic president should bother improving the government’s balance sheet if the end result is just a bigger pot for a future Republican president to lavish on his or her friends. Certainly the 2000s ... seem to have thrown cold water on the notion that sustained US budget deficits will automatically lead to high interest rates and low growth. Or have they?

                                          First, the good news. Explosive financial globalisation has made US federal budget policy far less important as a determinant of global real interest rates. ...

                                          And let us give credit where credit is due. The Bush administration’s decision to borrow massively, over a period where global long-term interest rates fell massively, was not a bad market call. ... One can question whether the Bush administration should have skewed tax cuts towards the wealthiest Americans... One can complain how money was thrown away on the catastrophic invasion of Iraq. But the Bush deficits have not been the short-term growth disaster that some predicted.

                                          Of course, ...[the] Bush administration ... probably did not envision hitting up China, Saudi Arabia and Russia for money. Instead, the political types were seduced by the misguided belief that if the government cut marginal tax rates, the economy would grow so much that total tax revenues would actually rise.

                                          Unfortunately, ... the ... “Laffer” curve ... effect was hardly big enough to keep this decade’s US federal budget from going deep into the red. Remember, too, that the $200bn figure ... incorporates the surplus on Social Security. Without this accounting gimmick (which the Bush administration did not invent) the projected 2007 deficit would be more than twice as large.

                                          Both the Organisation for Economic Co-operation and Development and the International Monetary Fund have argued that US deficit policy is much more damaging than it seems. The US ought to be racking up big surpluses in preparation for impending old-age retirements and rising medical costs. ...

                                          It is well understood that the Social Security pensions system can be fixed by indexing the retirement age to life expectancy and by modestly raising taxes. Medical care involves far trickier challenges...

                                          [If] countries ... cannot resolve ... intergenerational frictions ...,[the] result will be paralysis, with huge potential implications for interest rates, inflation rates and growth. But this need not occur... Perhaps, [this] ... will simply bring forward the necessary conversations on pensions and medical spending. Of course, [it] might also bring forward a catastrophically divisive debate.

                                          If there is a shorter-term Achilles heel to ... deficit policies, it is dependence on foreign financing. ... Incredibly, US borrowing accounts for roughly two-thirds of total net saving of all the world’s surplus countries. Although rebalancing of the world economy is likely to help ... somewhat this year, the global and US economies remain quite vulnerable to a scenario that forces faster rebalancing. ...

                                          Here’s betting that the next US president, Democrat or Republican, is not going to end up going too far towards restoring fiscal prudence. Unfortunately, continuing this approach will eventually bring a shipwreck... The US government’s big shift into the red may have been fortuitously timed, but eventually, the deficits will matter.

                                            Posted by on Tuesday, July 17, 2007 at 01:17 PM in Budget Deficit, Economics, Politics, Taxes | Permalink  TrackBack (0)  Comments (7) 

                                            links for 2007-07-17

                                              Posted by on Tuesday, July 17, 2007 at 03:30 AM in Links | Permalink  TrackBack (0)  Comments (0) 

                                              "Government Will Have To Be Rebuilt"

                                              Jamie Galbraith is not taking any prisoners in his review of two books, Consumed by political theorist Benjamin Barber and Deep Economy: The Wealth of Communities and the Durable Future by environmentalist Bill McKibben:

                                              The Sins of Affluence, by James K. Galbraith, Washington Monthly: Overwritten does not begin to describe Consumed, in which Benjamin Barber takes aim at kid culture, mass market juvenilia, and the infantilization of just about everything in American life. A political theorist ... at the University of Maryland, ...[Barger is the] author of sixteen books, including the best-selling Jihad vs. McWorld.... Barber is determined that Paradise has been Lost. ...

                                              Consumed is..., to some degree, an instance of the problem it describes. Barber serves up some of the longest sentences since Proust, yet underneath is largely a simple moral tale, an allegory not more complicated than, say, social Darwinism or Horatio Alger.

                                              Infantilization exists, of course. Dumbing down is big business. In a rare moment of syntactic simplicity, Barber gives the basic contours of the culture: “EASY over HARD, SIMPLE over COMPLEX, and FAST over SLOW.” The stages of capitalism reproduce the stages of physical and psychological development, except in reverse. We are trapped in a world dominated by the reduction of physical and cultural artifacts to the tastes and capacities of children. Fast food, fast sports, cheap love, shout-fest politics. No one with cable television could disagree.

                                              And there are pleasures to be found in this relentless, one-message book. ... But you have to search for these gems, buried as they are in a vast bog of pop sociology and commonplace erudition.... One gets the picture very quickly: Standards have fallen. Yes! We know!

                                              The question is, what are we going to do about it? ... Almost fifty years ago, in The Affluent Society, my father wrote about this problem, which he defined as “private affluence and public squalor.” His solution was “social balance”: public goods, including schools and parks and libraries and higher culture. Liberalism stood ... against corporate dominance, business thinking, and commercial culture. And it was backed by the power of trade unions, of churches, and of the educational and scientific estate.

                                              Barber offers no similar recourse. Everything he would do, he would do through markets, not against them or by bringing them under control. He speaks mainly of the “slow food” movement, of Hernando de Soto’s property-rights-for-the-poor and of the Grameen Bank’s micro-lending programs, each of these ... presupposing that markets can be as much a force for good in principle as they are presently a force for ill in practice. ... The New Deal and the Great Society are not Barber’s antecedents. He seeks merely the willed capacity to conduct one’s own life beyond the reach of mass culture, and offers the wishful thought that sensible people, each acting alone, will somehow manage to do just that. Good luck. ...

                                              Environmentalist Bill McKibben is a better, shorter writer, and in Deep Economy: The Wealth of Communities and the Durable Future he shows himself to be an adept critic of capitalism writ large. That is because McKibben, unlike Barber, drills into the fundamental question of the planet’s physical limits. (The term “climate change” does not appear in Consumed...) For as McKibben points out, the carbon blanket—a “mirror image in the sky” of every drop of oil, every ton of coal ever burned—will change everything, and quite soon.

                                              So what comes next?

                                              Continue reading ""Government Will Have To Be Rebuilt"" »

                                                Posted by on Tuesday, July 17, 2007 at 01:08 AM in Economics, Politics | Permalink  TrackBack (0)  Comments (32) 

                                                Monday, July 16, 2007

                                                Why Didn't He Just Quit?

                                                I am going to leave my usual realm, so I may be on shaky ground. It was recently revealed that:

                                                [T]he Bush administration’s relentless manipulation of scientific views to fit its political and ideological agenda ...[and] the sheer breadth of interference [were] described by the former surgeon general, Dr. Richard Carmona.

                                                The official job description calls for the surgeon general to serve as “America’s chief health educator.” But the Bush administration instead tried to turn Dr. Carmona into a propagandist and political cheerleader, and when he refused to go along, it stopped him from speaking at all on a host of essential health issues. ...

                                                Other disturbing improprieties included an order that Dr. Carmona insert President Bush’s name at least three times on every page of his speeches, requests that he make political speeches on behalf of Republican candidates and an admonition not to speak to a group affiliated with the Special Olympics because of the charity’s longtime association with the Kennedy family. ...

                                                And they note:

                                                What to do about such interference needs to be high on the agenda... [O]versight committees in the House and the Senate must look for ways to protect the position from future political interference...

                                                One solution I've heard is the "why didn't he just quit" answer. I'm not sure it's that simple.

                                                The administration used a heavy-handed means of getting their way. Here's how it worked. First, put people in positions of high authority who are relatively inexperienced and new to the big stage. It can be patronage, but the important thing is that they don't come to the position as a known quantity with an established reputation.

                                                Second, start bullying them politically. The key to making this work is to have a "slime machine" at your disposal, a means of discrediting anyone who dares cross you. Just to make sure everyone gets the message, it's helpful if you can trash someone who actually has a reputation early in the administration, and to continue to make it clear the the consequences of disloyalty are to be ex-communicated and have your reputation tarnished or destroyed.

                                                Someone like Colin Powell has the reputation, the press contacts, his own outlets where he can be heard, and I do expect someone with his prior experience and reputation to stand up to the pressure or quit, even though he chose to play good soldier instead.

                                                But should we expect someone like Dr. Carmona to have the courage to resign when asked to cross-lines he is uncomfortable crossing? Yes, at some point we should, but I think a person can be pushed pretty far - I think that you might be pushed farther than you realize under such intense pressure and with the "slime machine" threat hanging in the background. Thus, I can't conclude that these choices were free of duress. Though I can't completely absolve someone in Dr. Carmona's position of responsibility, it would be tough to risk having your career potentially ruined, etc., because you won't be a "team player." And given how well the right has taken care of its own when they do play along, it's likely that monetary incentives are at play as well.

                                                As someone in the blogoshpere rightly reminds us, the Cossacks work for the czar, and I think that's worth remembering here, especially when the czar has an effective enforcement mechanism at his disposal. There was heavy pressure from above, but their authority comes from the czar himself.

                                                I'm curious it hear who you think should be held accountable, and how accountability should be enforced. Should we expect someone like Dr. Carmona to quit instead of going along? What's the answer?

                                                  Posted by on Monday, July 16, 2007 at 08:10 PM in Politics | Permalink  TrackBack (0)  Comments (22) 

                                                  Should We be Happy with Research on Happiness?

                                                  What does research on happiness tell us?:

                                                  Don’t ask the state for happiness, by Helen Johns and Paul Ormerod, Commentary, Financial Times: The idea that government policy should be focused more explicitly on promoting happiness has been gaining support. Proponents of this view argue that happiness indicators, based on surveys that purport to measure how happy people feel, have stagnated over decades. An important reason is that governments have aimed to maximise ... gross national product, rather than a more holistic indicator of welfare based on happiness.

                                                  This premise is clearly false. Politicians have always sought to achieve many things that are not designed to increase GNP. The most recent public service agreements on the British Treasury website, for example, spell out government commitments to ... increase participation in the arts...

                                                  A decades-long flat happiness trend could be showing that government policies in general fail... But this would be a depressing conclusion. Instead, happiness advocates make a scapegoat out of GNP and argue that economic growth is irrelevant or detrimental to happiness.

                                                  The alternative view is that the happiness data over time contain little or no genuine information. ... Indeed, they show no correlation with a whole range of factors that might reasonably be thought to improve well-being, such as a massive increase in leisure time, a tendency to live longer and a decline in gender inequality.

                                                  Income inequality is often claimed to be a strong determinant of happiness, and this “fact” used to argue for more progressive taxation. Yet we do not see any change in recorded happiness when inequality goes up or down. ...

                                                  Government attempts to increase measured happiness, rather than making life better for us, may well do the opposite: create arbitrary objectives that divert civil service energies from core responsibilities; give many people the message that happiness emanates from national policy rather than our own efforts; and create pressure for government to appear to increase an indicator that has never before shifted systematically in response to any policy or socioeconomic change. These are exactly the mistakes of the target-driven mentality that now pervades the British public sector. ...

                                                  More sinisterly, the happiness view of the world has tendencies that are inherently anti-democratic. The expert with his or her clipboard and regressions knows better than ordinary people themselves what makes them happy. So local democratic or individual decisions can be overridden with a clean conscience. ...

                                                  Government does not fail because it does not measure happiness; it fails when its energies are misdirected on the basis of poor quality information.

                                                  Should these data be used to draw conclusions such as government intervention may not improve well-being and may actually make things worse? John Quiggin at Crooked Timber has written about the data used to make these assessments:

                                                  What’s wrong with happiness measurement?, by by John Quiggin, Crooked Timber: ...For those who came in late, and probably didn’t imagine economists ever thought about happiness, the crucial finding is that “Cross country data shows pretty consistently that on average happiness increases with income, but at a certain point diminishing returns set in. In the developed world, people are not on average happier than they were in the 1960s.”

                                                  The data that supports this consists of surveys that ask people to rate their happiness on a scale, typically from 1 to 10. Within any given society, happiness tends to rise with all the obvious variables: income, health, family relationships and so on. But between societies, or in Western societies like Australia over time, there’s not much difference even though both income and health (life expectancy, for example) have improved pretty steadily for a long time.

                                                  I’ve long argued that these questions can’t really tell us anything, and an example given by Don Arthur gives me the chance to put it better than I’ve done before, I hope.

                                                  Suppose you wanted to establish whether children’s height increased with age, but you couldn’t measure height directly.

                                                  One way to respond to this problem would be to interview groups of children in different classes at school, and asked them the question Don suggests “On a scale of 1 to 10, how tall are you?”. My guess is that the data would look pretty much like reported data on the relationship between happiness and income.

                                                  That is, within the groups, you’d find that kids who were old relative to their classmates tended to be report higher numbers than those who were young relative to their classmates (for the obvious reason that, on average, the older ones would in fact be taller than their classmates).

                                                  But, for all groups, I suspect you’d find that the median response was something like 7. Even though average age is higher for higher classes, average reported height would not change (or not change much).

                                                  So you’d reach the conclusion that height was a subjective construct depending on relative, rather than absolute, age. If you wanted, you could establish some sort of metaphorical link between being old relative to your classmates and being “looked up to”.

                                                  But in reality, height does increase with (absolute) age and the problem is with the scaling of the question. A question of this kind can only give relative answers.

                                                    Posted by on Monday, July 16, 2007 at 04:23 PM in Economics, Policy | Permalink  TrackBack (0)  Comments (28) 

                                                    Changes in the Aggressiveness of Monetary Policy Toward Inflation

                                                    This post looks at how the coefficient measuring the aggressiveness of the Fed toward inflation has changed over time (non-technical summary after the graph). The model used is a version of the Taylor rule:


                                                    where i is the federal funds rate, y "tilde" is the percentage deviation from potential output (from the CBO), π is the year over year inflation rate, and w is the error term that captures monetary policy shocks. All the variable definitions follow the original Taylor paper, though the presence of the lagged federal funds rate on the right-hand side of the equation (for "smoothness" or other reasons) makes the model different from Taylor's. In fact, due to the presence of the lagged interest rate terms, it is necessary to transform the coefficients as follows (I'll leave the details about why aside):


                                                    Here is a graph of the coefficient in the middle, i.e. the value of the coefficient measuring the Fed's response to inflation. The graph is constructed using rolling regressions. That is, first the model is estimated using quarterly data from 1960:2 through 1974:2 (the first fifteen years) and the coefficient on the inflation term in the estimated policy rule is saved. Then, one observation is added to the end of the data set, the estimation is conducted over the range 1960:2 through 1974:3, and the new estimate of the inflation coefficient is saved. This is repeated, i.e. at each step in the process one observation is added to the end of the data set and the estimated coefficient is saved, until the model is estimated for the full sample, 1960:2 through 2006:2. [The sample ends in 2006:2 because this is from a paper I am preparing for resubmission and that is the sample used in the paper. Also, if you roll the start point forward as well, i.e. roll a window through the data, you see a noisier version of the same basic result, and the extra variability does cause some of the estimates after 1980 to fall below 1.0 (even more fall below 1.0 with a smaller window). As you would expect, smaller windows, e.g. 10 years instead of 15, increases the variation in the estimates. Both procedures, rolling a window or just rolling the endpoint, have their good and bad points, the rolling endpoint results shown below duplicate what econometricians would have estimated at each point in time using these data, though see the note below on using revised versus real-time data. Update: Here's a graph showing a 20 year window rolled through the data. A window size of 20 years is used because smaller windows produce so much volatility in the estimates that it's hard to see much of a pattern.] Here's the graph:


                                                    Notice how, prior to around 1980, the coefficient on inflation is less than one, then it increases to a value larger than one thereafter.

                                                    Why should we care? There is more to say than this, but here are a three reasons these results are of interest:

                                                    1. In many modern New Keynesian models, there is a problem known as indeterminacy that arises when the inflation coefficient is less than one. If the Fed does not pursue an aggressive response to inflation - one that is more than one-to-one with any uptick in the inflation rate - indeterminacy can arise in the model (i.e. if the inflation rate increases by 1%, the ff must be increased by more than 1% to avoid this problem).

                                                    Indeterminacy is often used to explain the problems we had with inflation and output in the 1970s after the oil price shocks, and the lack of problems in the more recent oil price shock episodes. It is the aggressive response to inflation after 1980 that makes the difference.

                                                    [One note about these results. If you use revised data to do the estimation, you get the results shown in the graph. However, if you follow Orphanides and use real-time data, i.e. the unrevised data actually available to policymakers when they were making decisions, the evidence for a break in the coefficient around 1980 is weakened or vanishes altogether. Which data to use is controversial, and perhaps something we can take up another time.]

                                                    2. One of the puzzles in macroeconomics is explaining the Great Moderation, i.e. the fall in output variability and the decline in the inflation rate in the mid 1980s (see the bottom of this post for a list of reasons that have been suggested to explain the Great Moderation). This graph suggests that one reason was better policy, i.e. the increase in the inflation coefficient in the early 1980s led to the subsequent moderation in inflation and output.

                                                    This graph also helps to understand why finding the source of the Great Moderation is so hard. This parameter can be used to argue that the change in volatility was due to better monetary policy, but there are other changes such as the use of computer technology that occur simultaneously, and since all of these changes occur at roughly the same time, i.e. in the early 1980s, sorting one cause from the other is very difficult.

                                                    3. The increase in the inflation parameter toward the end of the sample is something I hadn't seen before constructing this graph. This implies that somewhere around 2001 the Fed began responding more aggressively to inflation and this continued through 2003 when the coefficient reached a new peak, then declined slightly through the end of the sample. But currently the parameter, which measures how aggressive the Fed is when inflation hits the economy, is higher than it has been in recent decades indicating a stronger stance toward inflation than has been typical.

                                                    Update: There is more discussion in comments that I probably should have included about how to interpret these results.

                                                      Posted by on Monday, July 16, 2007 at 11:01 AM in Economics, Inflation, Monetary Policy | Permalink  TrackBack (0)  Comments (12) 

                                                      links for 2007-07-16

                                                        Posted by on Monday, July 16, 2007 at 12:20 AM in Links | Permalink  TrackBack (0)  Comments (0) 

                                                        Paul Krugman: The Waiting Game

                                                        Paul Krugman straightens out some of the misleading claims made about health care waiting times, access to care, and other issues in comparisons of the U.S. to countries with universal health coverage:

                                                        The Waiting Game, by Paul Krugman, Commentary, NY Times [Full column]: Being without health insurance is no big deal. Just ask President Bush. “I mean, people have access to health care in America,” he said last week. “After all, you just go to an emergency room.”

                                                        This is what you might call callousness with consequences. The White House has announced that Mr. Bush will veto a bipartisan plan that would extend health insurance ... to an estimated 4.1 million currently uninsured children. After all, it’s not as if those kids really need insurance — they can just go to emergency rooms, right?...

                                                        Mr. Bush['s] ... willful ignorance here is part of a larger picture: by and large, opponents of universal health care paint a glowing portrait of the American system that bears as little resemblance to reality as the scare stories they tell about health care in France, Britain, and Canada.

                                                        The claim that the uninsured can get all the care they need in emergency rooms is just the beginning. Beyond that is the myth that Americans ... lucky enough to have insurance never face long waits...

                                                        Actually, the persistence of that myth puzzles me. ...Fred Thompson ... declared recently that “the poorest Americans are getting far better service” than Canadians or the British... [H]ow can they get away with pretending that insured Americans always get prompt care...?

                                                        A recent article in Business Week put it bluntly: “In reality,... the American people are already waiting as long or longer than patients living with universal health-care systems.”...

                                                        [T]he Commonwealth Fund found that America ranks near the bottom among advanced countries in terms of how hard it is to get medical attention on short notice... [and] is the worst place ... if you need care after hours or on a weekend.

                                                        We look better when it comes to seeing a specialist or receiving elective surgery. But Germany outperforms us even on those measures...

                                                        In Canada and Britain, delays are caused by doctors trying to devote limited medical resources to the most urgent cases. In the United States, they’re often caused by insurance companies trying to save money.

                                                        This can lead to ordeals like the one recently described by Mark Kleiman, a professor at U.C.L.A., who nearly died of cancer because his insurer kept delaying approval for a necessary biopsy. ... [T]here’s no question that some Americans who seemingly have good insurance nonetheless die because insurers are trying to hold down their “medical losses” — the industry term for actually having to pay for care.

                                                        On the other hand, it’s true that Americans get hip replacements faster than Canadians. But there’s a funny thing about that example, which is used constantly as an argument for the superiority of private health insurance over a government-run system: the large majority of hip replacements in the United States are paid for by, um, Medicare.

                                                        That’s right: the hip-replacement gap is actually a comparison of two government health insurance systems. American Medicare has shorter waits than Canadian Medicare (yes, that’s what they call their system) because it has more lavish funding — end of story. The alleged virtues of private insurance have nothing to do with it.

                                                        The bottom line is that the opponents of universal health care appear to have run out of honest arguments. All they have left are fantasies: horror fiction about health care in other countries, and fairy tales about health care here in America.

                                                        Previous (7/13) column: Paul Krugman: An Unjustified Privilege
                                                        Next (7/20) column: Paul Krugman: All the President’s Enablers

                                                          Posted by on Monday, July 16, 2007 at 12:15 AM in Economics, Health Care, Politics | Permalink  TrackBack (0)  Comments (101) 

                                                          Using Economics as an Ally in Afghanistan

                                                          Perhaps there is an opportunity to use an opium licensing system as an ally in the war and reconstruction effort in Afghanistan. This seems like an idea worth exploring further:

                                                          Winning with opium in Afghanistan, by Raymond Kendall and Norine MacDonald, Project Syndicate: Despite considerable effort ... since 2001 to eliminate the Taliban and al-Qaida, the insurgency in the south of the country has gathered momentum at breakneck speed in recent months. Our field research shows that we are not winning the campaign for the hearts and minds of the Afghan people — the Taliban are. ...

                                                          The aggressive United States-led counter-narcotics policy of crop eradication has failed to win the support of Afghans, because it has triggered a chain reaction of poverty and violence in which poor farmers, with their only livelihood destroyed, are unable to feed their families. This has been exacerbated by the failure to provide even the most basic aid and development in the country's poorest areas.

                                                          At the same time, communities have been torn apart as a result of bombing campaigns, which have destroyed the very homes we came to protect. This, in addition to four years of drought, has forced entire families to leave their villages for makeshift internal refugee camps.

                                                          You do not win people over by bombing them, but by helping them. The Taliban have exploited the failures of the international community in extremely effective anti-Western propaganda...

                                                          Eradication will never be successful in Afghanistan, because it destroys the single crop that will grow in the south's harsh climate — and thus serves as the main source of income to millions of people. So a new, long-term, economically sustainable solution is urgently needed ... in order to achieve the support of the deeply impoverished rural population.

                                                          As a way to address this dilemma, the Senlis Council is proposing ... scientific pilot projects to research an opium licensing system..., which would be a core component of the economic reconstruction process. A system in which poppies are cultivated under license for the production of pain-killing medicines such as morphine and codeine would allow farmers to pursue their traditional livelihood and way of life, and, more importantly, to feed themselves and their families. There is a global shortage of morphine and codeine, particularly in underdeveloped countries, where these vital medicines are often in short supply, if not completely unavailable.

                                                          Not only would poppy licensing address the poverty and hunger crises that have engulfed the south of Afghanistan; it also would stabilize existing local structures, giving communities a reason to support President Hamid Karzai's government and the international community. ...

                                                          But for such a system to be successful, the poverty in the south of the country must first be our top priority. According to the World Food Program, 70 percent of the population lack food security. An immediate injection of emergency food and medical aid is urgently needed...

                                                          Only then could a new, long-term development strategy in Afghanistan ... be implemented. Licensing the opium crop would be a realistic and pragmatic cornerstone of that strategy's success.

                                                            Posted by on Monday, July 16, 2007 at 12:09 AM in Economics, Policy | Permalink  TrackBack (1)  Comments (9) 

                                                            Brendan Nyhan: Greg Mankiw and Tax Cut Rhetoric

                                                            Since Laffer curves have come up a lot recently, i.e. the idea that if we cut taxes it will pay for itself - a notion thoroughly discarded by recent research from the CBO and others - and since the political issue has been raised by Brad DeLong:

                                                            PGL and Mark Thoma on Greg Mankiw, by Brad DeLong:  ...Greg [Mankiw] is deciding whether he wants to be an economist or a politician. I fear he is making the wrong choice...

                                                            Let me pass along something I was made aware of by email that weighs in on the political question. This is Brendan Nyhan:

                                                            Greg Mankiw and tax cut rhetoric, by Brendan Nyhan: I'm quoted in a Harvard Crimson story on Greg Mankiw, the Harvard economics professor and former Bush administration economist:

                                                            N. Gregory Mankiw is not unfamiliar with the demands that come with being one of the foremost economists in the country.

                                                            After all, the Beren Professor of Economics survived a stint in the very public domain of Washington politics, serving as the Chairman of the Council of Economic Advisors from 2003 to 2005. But now, he's facing a new and perhaps even more public challenge - the wrath of online bloggers.

                                                            Several professors and economists have called on Mankiw to explain what they see as his changing views on tax cuts from before he began advising President George W. Bush to when he served as Bush's top economic advisor.

                                                            According to an online blog post by Jared Bernstein of the Economic Policy Institute, Mankiw had previously criticized certain supply-side arguments - namely, that lowering tax rates could actually generate more tax revenue - and then reversed his opinion while working in Washington.

                                                            But Mankiw said that he never made such a policy switch.

                                                            "[Bernstein] made a claim that I'd been inconsistent about the tax cuts and I don't think I had been," Mankiw said. "Being opposed to a tax cut as a policy and being critical of an argument for tax cuts are two different things." ...

                                                            Brendan J. Nyhan, a political science graduate student at Duke University and frequent blogger, points out that while Mankiw said he was "skeptical"of the claim that tax cuts could pay for themselves during his Senate confirmation hearing, Mankiw also denied that the administration had used "self-financing" arguments.

                                                            Nyhan then lists on his blog specific quotes from then-Press Secretary Ari Fleis[c]her, Vice President Dick Cheney, and President Bush, all of whom said in the early months of 2003 that the tax cuts would lead to more tax revenue.

                                                            "Mankiw failed to get the Bush administration to say things that were accurate about the effects of tax cuts on revenue and other economic issues," Nyhan said. "That Mankiw is unwilling to acknowledge that the Bush administration made these claims is exemplary of White House experts who are unwilling to publicly contradict their bosses in the administration."

                                                            J. Bradford Delong '82, a prominent economist at UC Berkeley, also weighed in on the debate on his blog, questioning whether it is "worth the sacrifice of the economics profession's outside credibility and the further confusion of the public that is entailed when good economists defend bad policies on the outside that they are working to change on the inside." ...

                                                            Mankiw announced in late 2006 that he had signed on as an advisor to the presidential campaign of former Massachusetts Gov. Mitt Romney, and the Republican candidate seems to be employing these very same supply-side arguments.

                                                            "If you lower taxes enough, you create more growth," Romney said in a video excerpt on his Web site from a closed-door presentation he made to the Club for Growth, a political organization that favors low taxes, in March 2007.

                                                            "And if you create growth, you get more jobs," Romney continued. "You get more jobs, more people are paying taxes. You get more taxes paid, the government has more money by charging lower tax rates"

                                                            It would appear that this is the very same argument for taxes that Mankiw has said he opposed.

                                                            Nyhan said that economists with ties to politicians need to be more honest with the public regarding their actual views, whether or not they clash with the prominent figures they're advising.

                                                            "We need to drive this idea out of the mainstream, because it is not accurate," Nyhan said.

                                                            Here are the links that are referenced in the piece:

                                                            -My Spinsanity piece on Mankiw's confirmation hearing claim
                                                            -The full timeline of Bush administration officials suggesting that tax cuts increase revenue
                                                            -The Romney video in which he states that tax cuts increase revenue (click on "On the Issues" then select "On Fighting for Lower Taxes")

                                                            It's especially sad to see that Romney -- who Mankiw advises -- is making these claims. After John McCain started saying that tax cuts increase revenue, Mankiw badmouthed McCain on his blog:

                                                            Senator McCain tells the National Review:

                                                            Tax cuts, starting with Kennedy, as we all know, increase revenues.

                                                            The interviewer, however, did not ask the natural follow-up questions:

                                                            1. If you think the 2001 and 2003 tax cuts increased revenue, why did you vote against them?

                                                            2. If you think tax cuts increase revenue, why advocate spending restraint? Can't we pay for new spending programs with more tax cuts?

                                                            I doubt that, in fact, Senator McCain believes we are on the wrong side of the Laffer curve. But unfortunately, fealty to the most extreme supply-side views is de rigeur in some segments of the Republican party.

                                                            It's a strange point for Mankiw to make. He has failed to acknowledge publicly that the Bush administration makes the same exact claims. In addition, I noted the apparent implication that Romney, whose [campaign] Mankiw had recently joined as an adviser, would not make similar claims. Judging by the quote above, however, the former Massachusetts governor is following McCain and Rudy Giuliani down the rabbit hole. Will Mankiw passively endorse this rhetoric again?

                                                              Posted by on Monday, July 16, 2007 at 12:06 AM in Budget Deficit, Economics, Policy, Politics, Taxes | Permalink  TrackBack (0)  Comments (10) 

                                                              Sunday, July 15, 2007

                                                              links for 2007-07-15

                                                                Posted by on Sunday, July 15, 2007 at 12:19 AM in Links | Permalink  TrackBack (0)  Comments (0) 

                                                                Principles of Taxation: What is a Fair tax?

                                                                Greg Mankiw on fair taxes, with comments at the end:

                                                                Fair Taxes? Depends What You Mean by 'Fair', by Greg Mankiw, Economic View, NY Times: Do the rich pay their fair share in taxes? This is likely to become a defining question during the presidential campaign.

                                                                At a recent fund-raiser for Hillary Clinton, ... Warren E. Buffett said that rich guys like him weren’t paying enough. Mr. Buffett asserted that his taxes last year equaled only 17.7 percent of his taxable income, compared with about 30 percent for his receptionist. ... These claims are enough to get populist juices flowing. The problem with them is that they don’t hold up under close examination.

                                                                The best source for objective data on the distribution of the tax burden is the Congressional Budget Office. ... The C.B.O.’s most recent calculations of federal tax rates show a highly progressive system. ... The poorest fifth of the population, with average annual income of $15,400, pays only 4.5 percent of its income in federal taxes. The middle fifth, with income of $56,200, pays 13.9 percent. And the top fifth, with income of $207,200, pays 25.1 percent.

                                                                At the very top of the income distribution, the C.B.O. reports even higher tax rates. The richest 1 percent has average income of $1,259,700 and forks over 31.1 percent of its income to the federal government.

                                                                One might wonder how Mr. Buffett gets away with a tax rate of only 17.7 percent, while a typical millionaire is paying so much more. Most likely, part of the answer is that Mr. Buffett’s income is made up largely of dividends and capital gains, which are taxed at only 15 percent. By contrast, many other top earners pay the maximum ordinary income tax rate of 35 percent on their salaries, bonuses and business income.

                                                                The distinction is crucial for understanding how much the rich pay. Indeed, the share of top incomes coming from capital is much lower now than it has been historically. ... If your image of the typical rich person is someone who collects interest and dividend checks and spends long afternoons relaxing on his yacht, you are decades out of date. The leisure class has been replaced by the working rich. ...

                                                                None of these calculations, however, say whether the rich are paying their fair share. Fairness is not an economic concept. If you want to talk fairness, you have to leave the department of economics and head over to philosophy.

                                                                Continue reading "Principles of Taxation: What is a Fair tax?" »

                                                                  Posted by on Sunday, July 15, 2007 at 12:15 AM in Economics, Politics, Taxes | Permalink  TrackBack (0)  Comments (72) 

                                                                  Do We Need a Vacation?

                                                                  One of the many reasons GDP is an imperfect measure of a nation's well-being, and therefore potentially misleading when used to make cross-country comparisons, is that it places no value on leisure. Here's Ezra Klein:

                                                                  Land of the overworked and tired, by Ezra Klein, Commentary, LA Times: ...A recent report by Rebecca Ray and John Schmitt of the Center for Economic and Policy Research suggests that ... "The United States ... is the only advanced economy in the world that does not guarantee its workers paid vacation." Take notice of that word "only." Every other advanced economy offers a government guarantee of paid vacation to its workforce. Britain assures its workforce of 20 days of guaranteed, compensated leave. Germany gives 24. And France gives, yes, 30.

                                                                  We guarantee zero. ... That's why one out of 10 full-time American employees, and more than six out of 10 part-time employees, get no vacation. And even among workers with paid vacation benefits, the average number of days enjoyed is a mere 12..., ... just over a third of what the French are guaranteed. ...

                                                                  Of all these countries, the United States is, by far, the richest. And you would think that, as our wealth grew and our productivity increased, a certain amount of our resources would go into ... leisure...

                                                                  But instead, the exact opposite has happened. The average American man today works 100 more hours a year than ... in the 1970s, according to Cornell University economist Robert Frank. That's 2 1/2 weeks of added labor. The average woman works 200 more hours... And those hours are coming from somewhere: from time with our kids, our friends, our spouses, even our ... sleep...

                                                                  This would all be fine if it were what we wanted. But ... economists have given individuals sets of choices pitting leisure against goods. Leisure doesn't always win out, but it is certainly competitive. Yet we're pumping ever more hours into work, seeking ever-higher incomes to fund ever-greater consumption. Why?

                                                                  Continue reading "Do We Need a Vacation?" »

                                                                    Posted by on Sunday, July 15, 2007 at 12:06 AM in Economics, Social Insurance | Permalink  TrackBack (0)  Comments (43) 

                                                                    Saturday, July 14, 2007

                                                                    It is Outlandish

                                                                    [Note: There are five updates - including additional rebuttals to the posts at The Economist's blog from others - at the end of this post.]

                                                                    The Economist blog, Free Exchange, criticizes me in a post called "Outlandish," but it's based on a false assumption about who said what.

                                                                    We need to go back a bit. On June 27, I posted something from Stephen Gordon's site, a graph along with a sentence of two he had written about it. No comments of my own, just the graph, Stephen's comments, a link to the original, and the title "Social Spending and GDP per Capita" which is fairly neutral.

                                                                    Free Exchange responded by implying the comments were mine, and though I could have been clearer about who said what than simply using the standard blockquoting to indicate the comments weren't mine, just a minute or two of investigation back to the original would have revealed that the implication in their post "Trompe l'oeil" that those are my comments is wrong. Stephen Gordon made it very clear in comments on the post at Free Exchange that he was the author of the graph as he defended it.

                                                                    Today, in their post "Outlandish" they say I should be embarrassed for:

                                                                    what seemed like an embarassing error on his part*

                                                                    * To wit, illustrating a point with a graph which on not-particularly-careful examination shows exactly the opposite of what he was claiming

                                                                    But, of course, I never claimed anything at all, and as I noted Stephen has defended the graph so whether it shows the opposite or not is open for debate. They also say I implied "that since we are a classical liberal paper, we endorse the Wall Street Journal's supply-sidism" when I can find nothing in my post that does anything of the sort. My point was about outliers.

                                                                    As I said in comments over there, if anyone ought to be embarrassed by all of this, it is Free Exchange, not me. I think in the rest of their post they defend throwing out Norway as an outlier to support their contention about the graph, but to be honest I just skimmed it since there was no reason to believe that the quality of the post would be any better and hence no good reason to read carefully any further.

                                                                    Continue reading "It is Outlandish" »

                                                                      Posted by on Saturday, July 14, 2007 at 05:40 PM in Economics | Permalink  TrackBack (1)  Comments (29) 

                                                                      Church Attendance and Supply-Side Economics

                                                                      When did supply-side economics come to mean breaking up monopolies to increase competition? I don't know whether increasing competition among churches increases membership or not, and the fact that religion is involved here is coincidental, but this is not supply-side economics as claimed in the article. This is nothing more than the standard result that increasing competition improves market outcomes:

                                                                      In Europe, God Is (Not) Dead, by Andrew Higgins, WSJ (free): ...After decades of secularization, religion in Europe has slowed its slide toward what had seemed inevitable oblivion. There are even nascent signs of a modest comeback. Most church pews are still empty. But belief in heaven, hell and concepts such as the soul has risen in parts of Europe, especially among the young...

                                                                      God's tentative return to Europe has scholars and theologians debating a hot question: Why? Part of the reason, pretty much everyone agrees, is an influx of devout immigrants. ... At the same time, anxiety over immigration, globalization and cutbacks to social-welfare systems has eroded people's contentment in the here-and-now, prodding some to seek firmer ground in the spiritual.

                                                                      Some scholars and Christian activists, however, are pushing a more controversial explanation: the laws of economics. As centuries-old churches long favored by the state lose their monopoly grip, Europe's highly regulated market for religion is opening up to leaner, more-aggressive religious "firms." The result, they say, is a supply-side stimulus to faith.

                                                                      "Monopoly churches get lazy," says Eva Hamberg, a professor at Lund University's Centre for Theology and Religious Studies and co-author of academic articles that, based on Swedish data, suggest a correlation between an increase in religious competition and a rise in church-going..."

                                                                      Upstarts are now plugging new spiritual services across Europe, from U.S.-influenced evangelical churches to a Christian sect that uses a hallucinogenic herbal brew as a stand-in for sacramental wine. Niklas Piensoho, chief preacher at Stockholm's biggest Pentecostal church, says even sometimes oddball, quasi-religious fads "tell me you can sell spirituality." His own career suggests that a free market in faith is taking root. ...

                                                                      The enemy of faith, say the supply-siders, is not modernity but state-regulated markets that shield big, established churches from competition. In America, where church and state stand apart, more than 50% of the population worships at least once a month. In Europe, where the state has often supported -- but also controlled -- the church with money and favors, the rate in many countries is 20% or less.

                                                                      Continue reading "Church Attendance and Supply-Side Economics" »

                                                                        Posted by on Saturday, July 14, 2007 at 11:43 AM in Economics, Regulation, Religion, Taxes | Permalink  TrackBack (1)  Comments (23) 

                                                                        Privatizing Morality

                                                                        Can we get an Attorney General who actually understands and respects the Constitution?:

                                                                        Outsourcing Justice? That's Obscene., by Stephen Bates, Commentary, Washington Post: Privatization is all the rage these days. ... But it's hard to top this step by Attorney General Alberto R. Gonzales: His Justice Department has put a privatized eye on American morality.

                                                                        Let's say you happen upon an obscene Web site and want to report it to the feds. You go to the Justice Department Web site to ... a section titled "What Citizens Can Do About Obscenity." But instead of letting you tip off the authorities, the site directs you elsewhere -- to the privately run ObscenityCrimes.org, which offers an online form to fill out.

                                                                        That's your sole option for filing a complaint online -- and it has been this way since 2004... A congressional earmark awarded the site's operators $147,996 in 2005...

                                                                        Once you've filed your report, it is reviewed by "a team of two seasoned investigators"... If they find merit to your allegations, the investigators will "conduct a thorough review," prepare a report and forward it to the Justice Department and your U.S. attorney. Sounds pretty official -- and yet, as you leave the Justice site, a disclaimer pops up saying that the department "does not endorse the organizations or views" of ObscenityCrimes.org and "takes no responsibility for, and exercises no control over . . . the accuracy" or "legality of the material contained on this site."

                                                                        In principle, I'm all for public-private partnerships. But as Justice's hand-wringing disclaimer suggests, this one goes too far. To start with, the Constitution requires the administration to "take care that the laws be faithfully executed." At a minimum, shouldn't that entail receiving and investigating citizens' allegations of crimes and not outsourcing those tasks to a private group? It's even dicier when citizens allege what are essentially speech crimes, and worse still when outside investigators seem to place the Bible above the Constitution. That toxic combination makes a mockery of the First Amendment -- chilling freedom of expression even as it erodes the separation of church and state.

                                                                        The Web site is run by Morality in Media Inc., an "interfaith organization" that has battled pornography, profanity and blasphemy since 1962. It aims to "rid the world of pornography" -- most of which is constitutionally protected. ... According to Morality in Media, ... even Cosmopolitan is nothing short of pornographic. ...

                                                                        Continue reading "Privatizing Morality" »

                                                                          Posted by on Saturday, July 14, 2007 at 09:36 AM in Economics, Politics | Permalink  TrackBack (0)  Comments (7) 

                                                                          links for 2007-07-14

                                                                            Posted by on Saturday, July 14, 2007 at 12:24 AM in Links | Permalink  TrackBack (0)  Comments (0) 

                                                                            FRBSF: The Current Economy and the Economic Outlook

                                                                            Glenn Rudebusch of the Federal Reserve Bank of San Francisco with his view on the current economy and the economic outlook:

                                                                            FedViews, by Glenn Rudebusch, Federal Reserve Bank of San Francisco: The FOMC statement released after the June meeting provides a useful summary of the recent past data on economic growth and inflation and the current outlook. Some key phrases from that statement are “Economic growth appears to have been moderate during the first half of this year…The economy seems likely to continue to expand at a moderate pace over coming quarters…sustained moderation in inflation pressures has yet to be convincingly demonstrated…the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected.” This wording suggests that the FOMC anticipates a soft landing with a slow convergence to trend growth and low inflation. (It also suggests the need for a thesaurus.)

                                                                            Continue reading "FRBSF: The Current Economy and the Economic Outlook" »

                                                                              Posted by on Saturday, July 14, 2007 at 12:15 AM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (1) 

                                                                              Friday, July 13, 2007

                                                                              "Katrina Evacuees Teach Us Something about Poverty and Place"

                                                                              Jacob Vigdor, writing at Vox EU, asks:

                                                                              Should governments help residents of depressed regions move towards more prosperous areas? Evidence from Katrina evacuees suggests that such efforts are likely to fail. The fortunes of long-term evacuees are almost completely unrelated to the characteristics of the cities to which they relocated.

                                                                              Here's his analysis:

                                                                              What it means to miss New Orleans: Katrina evacuees teach us something about poverty and place, by Jacob Vigdor, VoxEU: In virtually every developed nation, there exist cities that have lost their economic rationale for existence. The most successful of these will reinvent themselves, as have many former industrial cities now reborn as centers of commerce and service industries. Others become centers of relative deprivation, islands of poverty in a sea of affluence. These cities often depopulate rapidly, but in most cases some citizens remain, held in place by strong family or cultural ties, by their inability to finance moving costs, or by programmes of redistribution, targeted toward themselves or their region. These redistributive programmes are in many cases quite costly, and are frequently criticised as an ineffective means of improving the living standards of those who live in regions of concentrated poverty.

                                                                              Should governments help residents of depressed regions move towards more prosperous areas? This is an empirical question. Relocation could benefit relocated individuals by placing them in closer proximity to employment opportunities. Relocation might also entail significant costs, however, particularly for groups that rely heavily on social networks to find jobs.

                                                                              Continue reading ""Katrina Evacuees Teach Us Something about Poverty and Place"" »

                                                                                Posted by on Friday, July 13, 2007 at 04:23 PM in Economics, Social Insurance | Permalink  TrackBack (0)  Comments (19) 

                                                                                Evidence That Inflation Expectations are Rising

                                                                                Greg Ip, on the excellent Wall Street Journal economics blog, notes evidence that inflation expectations are tipping upward:

                                                                                Inflation Expectations Rise, by Greg Ip, Real-Time Economics: Just days after Federal Reserve Chairman Ben Bernanke spoke at length on the importance of inflation expectations comes new evidence that they’re rising.

                                                                                The University of Michigan said consumers’ median expectation for inflation ... over the next 5 to 10 years, which the Fed considers ... important, rose to 3.1% in the first half of July, from 2.9% in June.

                                                                                The Fed likely won’t put too much weight on that since it remains in the range of the last year. On the other hand, there has been a noticeable upward drift over recent years: the long-term expectation has averaged 3% in the last 12 months, compared to 2.8% in the 12 months ended in July, 2005.

                                                                                That also happens to have been a period in which rising energy prices have led to headline inflation running ahead of core inflation... In spite of that, Mr. Bernanke argued this wasn’t a “persistent inflation.” Still, Mr. Bernanke did allow that while “inflation expectations seem much better anchored today than they were a few decades ago, they appear to remain imperfectly anchored.”

                                                                                This is unrelated, but I've been meaning to note that the St. Louis Fed has added lots of new regional data to it public database, FRED (Federal Reserve Economic Data):

                                                                                FRED Debuts 11,000 New Data Series: More than 11,000 data series have been added to the FRED regional category, including labor force and unemployment rate time series for every state, county and metropolitan statistical area in the United States

                                                                                  Posted by on Friday, July 13, 2007 at 03:24 PM in Economics, Inflation, Monetary Policy | Permalink  TrackBack (0)  Comments (1) 

                                                                                  FRB Richmond: Do Nicotine Replacement Therapy Ads Encourage Smoking?

                                                                                  Vanessa Sumo of the Richmond Fed looks at research on the relationship between smoking and advertising for nicotine replacement products:

                                                                                  Ad Intervention, FRB Richmond, Region Focus, By Vanessa Sumo: Next Safety, a West Jefferson, N.C., company that specializes in high-tech respirators, recently introduced a handheld nicotine inhaling device that promises to help smokers kick the habit. About the size of a pack of cigarettes (but more closely resembling an iPod), the device is said to deliver nicotine into the bloodstream and to the brain more effectively than a cigarette can. So, smokers trying to quit can still get the nicotine fix that they crave, but without the dangerous effects of smoking tobacco.

                                                                                  Next Safety's pulmonary drug delivery device is one of many smoking cessation products available that aim to make it easier for people to quit. Most work by delivering nicotine — the addictive substance in tobacco — through a variety of methods such as inhalers, sprays, gums, and patches. A Surgeon General's report in 2000 said that there is "strong and consistent" evidence that such treatments can help people quit.

                                                                                  But what if the very existence of such products — publicized to the masses via advertising campaigns — actually causes some smokers to prolong the habit? A new study suggests that young smokers in particular can get the "wrong" message from ads promoting smoking cessation products because they may give the impression that quitting can be achieved easily. This is consistent with earlier research, which finds that people may become less careful about keeping a healthy lifestyle when, through advertising, they learn about a new drug treatment that can, for instance, treat high blood pressure or cholesterol. In other words, why exercise today when you can take a pill tomorrow?

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                                                                                    Posted by on Friday, July 13, 2007 at 03:15 PM in Academic Papers, Economics | Permalink  TrackBack (0)  Comments (8) 

                                                                                    links for 2007-07-13

                                                                                      Posted by on Friday, July 13, 2007 at 12:20 AM in Links | Permalink  TrackBack (0)  Comments (2) 

                                                                                      Paul Krugman: An Unjustified Privilege

                                                                                      Paul Krugman urges Democrats to close the loophole that allows Warren Buffet to be taxed at 17.7 percent while his receptionist is taxed at around 30 percent:

                                                                                      An Unjustified Privilege, by Paul Krugman, Commentary, NY Times: During the 2000 presidential campaign, Ralph Nader mocked politicians of both parties as “Republicrats,” equally subservient to corporations and the wealthy. It was nonsense, of course: the modern G.O.P. is so devoted to the cause of making the rich richer that it makes even the most business-friendly Democrats look like F.D.R.

                                                                                      But right now, as I watch Senate Democrats waffle over what should be a clear issue of justice and sound tax policy..., I’m starting to feel that Mr. Nader wasn’t all wrong.

                                                                                      What’s at stake here is a proposal by House Democrats to tax “carried interest” as regular income. This would close a tax loophole that ... basically lets fund managers take a large part of the fees they earn ... and redefine those fees, for tax purposes, as capital gains.

                                                                                      The effect of this redefinition is that income that should be considered ... ordinary income taxed at a 35 percent rate is treated as capital gains, taxed at only 15 percent instead. So fund managers get to pay a low tax rate that is supposed to provide incentives to risk-taking investors, even though they aren’t investors and they aren’t taking risks.

                                                                                      For example, the typical hedge-fund manager ... gets a fee equal to 2 percent of the funds under management, plus 20 percent of whatever his fund earns. It’s not exactly straight salary, but none of this income comes from putting his own wealth at risk. Except for the fact that he might make a billion dollars a year, he resembles a waitress whose income depends on a mix of wages and tips, or a salesman who lives on a mix of salary and commissions, more than he resembles an entrepreneur who sinks his life savings into a new business. ...

                                                                                      There’s a larger question one could ask: should we even be giving preferential tax treatment to true capital gains? I’d say no, because there’s very little evidence that taxing capital gains as ordinary income would actually hurt the economy. ...

                                                                                      But even those who ... think the special treatment of capital gains is justified, should be able to agree that treating the income of fund managers differently from ... everyone else who works for a living makes no sense. And that’s why it’s very disheartening to read that prominent Democratic senators are taking seriously the claims of fund managers that making them pay taxes like regular people would discourage risk-taking.

                                                                                      The immediate response should be: what risk-taking? ...

                                                                                      Look, this isn’t about envy, about punishing success. ... [C]losing the carried interest loophole should be a simple question of fairness: other Americans also earn their pay, but they don’t get special tax breaks. Plus, we’re talking about a lot of lost revenue due to that loophole — revenue that could, for example, be paying for the health care of tens if not hundreds of thousands of children.

                                                                                      And since we’re living in the real world of politics, there’s also the Republicrat issue: the hesitation of the Senate Democrats is terrible for the party’s image. It conveys the impression that they’re as beholden to hedge funds, one of the few types of businesses whose campaign contributions strongly favor Democrats, as Republicans are to the oil and drug industries.

                                                                                      So here’s a plea to Democratic senators on the fence: do the right thing and close this unjustified tax loophole.

                                                                                      Previous (7/9) column: Paul Krugman: Health Care Terror
                                                                                      Next (7/16) column: Paul Krugman: The Waiting Game

                                                                                        Posted by on Friday, July 13, 2007 at 12:15 AM in Economics, Politics, Taxes | Permalink  TrackBack (0)  Comments (72) 

                                                                                        Yet Again, Tax Cuts Do Not Pay for Themselves

                                                                                        The Wall Street Journal says Kevin Hassett has discovered the Laffer curve, but I think these data might say something else. Here's the picture from the editorial where they are making their usual plea for more tax cuts:


                                                                                        The blue line is supposed to be the Laffer curve, but this is far from compelling. Since it looks like all that's been done here is to draw a line through an outlier, Norway (an outlier that in other contexts we are told to ignore because it is an outlier, e.g. see below), and since this is clearly not the best fitting line to these data, here's another possibility:


                                                                                        I haven't actually run the regression, but it looks clear to me that revenues rise with tax rates, and the fit also looks better than in the first graph. Toss out Norway, and the fit looks even better (and to quote The Economist blog on this point, "Throwing out Norway...").

                                                                                        I know how much supply-siders want to find a Laffer curve, they've become frustrated going this long without success. But if they really think one exists they'll need to keep looking because they haven't found it yet. [Update: Max has estimates.][Update: Response(s) to a post at The Economist's blog,  Free Exchange.]

                                                                                          Posted by on Friday, July 13, 2007 at 12:06 AM in Budget Deficit, Economics, Taxes | Permalink  TrackBack (9)  Comments (104) 

                                                                                          Thursday, July 12, 2007

                                                                                          Tim Duy: Some Thoughts on the Trade Deficit

                                                                                          Tim Duy discusses how reducing the trade deficit might impact workers:

                                                                                          Some Thoughts on the Trade Deficit, by Tim Duy: I can’t stop thinking about a recent piece by Brad DeLong on the Clinton/Obama support of punitive duties on China and the ensuing comments. DeLong writes:

                                                                                          Of course, then the candidates will be attacking US consumers (who will pay higher prices for imports), workers in the construction industry, US borrowers (who will then pay higher interest rates to domestic and foreign creditors), and US homeowners (who will see the higher interest rates push down housing prices and reduce their equity). The net short-run effect is surely a minus--it's not as though we desperately need to swap construction jobs for manufacturing jobs right now, and we surely don't need a more-rapid decline in housing prices right now.

                                                                                          Lifted from the comments, James Galbraith agrees:

                                                                                          Good for you. One might add: not a single job will return to the U.S. if China revalues. Firms in China will either adjust their prices, or if their profits are too badly squeezed, it's off to Vietnam they go.

                                                                                          This point, however, elicits some ire from the crowd. Brad Setser responds:

                                                                                          "Not a single job will return" -- wow, i thought most economists thought exchange rates had an impact on trade....

                                                                                          To which Dean Baker adds:

                                                                                          By the way, I love the idea that relative prices don't affect demand. Economists usually don't say such things except when they want to argue about trade.

                                                                                          I don’t think that any economist really believes that relative prices do not affect demand. The issue of demand itself, however, is not truly the end game of those pushing for RMB revaluation.  What is the end game?

                                                                                          Continue reading "Tim Duy: Some Thoughts on the Trade Deficit" »

                                                                                            Posted by on Thursday, July 12, 2007 at 03:24 PM in Economics, International Trade, Unemployment | Permalink  TrackBack (0)  Comments (42) 

                                                                                            FRB Dallas: The Yield Curve is Better at Predicting Slumps in the Durable Goods Sector Than at Predicting Recessions

                                                                                            Evan Koenig of the Dallas Fed with the national economic outlook, comments about the usefulness of the yield curve as a predictor of recessions, the purchases–product price ratio, and the strength of consumer spending going forward:

                                                                                            National Economic Update, The Yield Curve: Better at Predicting Slumps in the Durable Goods Sector Than at Predicting Recessions, by Evan F. Koenig, FEB Dallas: The yield curve has been a powerful, but imperfect, predictor of recessions over the past 50 years. It's done a better job of predicting declines in durable-goods purchases by households and firms. In Chart 1, the slope of the yield curve—measured by the difference between the 10-year and one-year U.S. Treasury yields—is shown in blue; the contribution to GDP growth from investment and household durable-goods purchases is shown in red; and recessions are indicated by shaded bars. Note that every slump in durable-goods purchases has been preceded by a negatively sloped yield curve, and every negatively sloped yield curve yield—including the most recent—has been followed by a slump in durables purchases. Usually, the durables slump is severe enough to trigger a recession. The notable exception occurs in 1967, when other components of spending remained strong enough to offset the negative contribution to GDP growth from durable goods.

                                                                                            Continue reading "FRB Dallas: The Yield Curve is Better at Predicting Slumps in the Durable Goods Sector Than at Predicting Recessions" »

                                                                                              Posted by on Thursday, July 12, 2007 at 11:52 AM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (2) 

                                                                                              Bruce Bartlett: Changing World of Commentary

                                                                                              [I meant to note this yesterday, but somehow didn't get it posted.] Bruce Bartlett announces a change. This is his last weekly column:

                                                                                              Changing world of commentary, by Bruce Bartlett, Washington Times:  - About 12 years ago, I got a call from Tom Bray, then editorial page editor of the Detroit News. I had known him since the early 1980s, when he was an editor of the editorial page of the Wall Street Journal, where I had written many articles. Tom asked if I would be interested in writing a column for the News and I agreed. Subsequently, I offered my column to The Washington Times and eventually it was picked up by Creators Syndicate for national distribution.

                                                                                              Continue reading "Bruce Bartlett: Changing World of Commentary" »

                                                                                                Posted by on Thursday, July 12, 2007 at 10:53 AM in Economics, Press | Permalink  TrackBack (0)  Comments (12) 

                                                                                                links for 2007-07-12

                                                                                                  Posted by on Thursday, July 12, 2007 at 02:34 AM in Links | Permalink  TrackBack (0)  Comments (0) 

                                                                                                  "Myths of the War on Terrorism"

                                                                                                  Questions about the war on terror:

                                                                                                  Myths of the War on Terrorism, by Steve Chapman, Creators Syndicate: For anyone who has grown complacent about the danger of terrorism, the incidents in London and Glasgow were supposed to provide a jolt of reality. ... Here was proof that the jihadists are still out there, ready to strike...

                                                                                                  But ... intent and ability are not the same thing. Though, al Qaeda may -- emphasize "may" -- still have the capacity to mount the occasional major operation, that doesn't mean terrorism should be treated as an omnipresent, existential threat.

                                                                                                  Continue reading ""Myths of the War on Terrorism"" »

                                                                                                    Posted by on Thursday, July 12, 2007 at 01:17 AM in Iraq and Afghanistan, Terrorism | Permalink  TrackBack (0)  Comments (5) 

                                                                                                    Auditing the Way to Prosperity

                                                                                                    Tyler Cowen discusses using voluntary audits to reduce corruption problems in resource-rich developing countries:

                                                                                                    A Way for Resource-Rich Countries to Audit Their Way Out of Corruption, by Tyler Cowen, Economic Scene, New York Times: It is unfortunate that economists have to debate whether natural resources are a blessing or a curse for a developing nation. Minerals, diamonds or oil may appear to represent automatic wealth but resource-rich countries usually become mired in corruption. ...

                                                                                                    The solution is to make these governments more accountable in spending their money, but how can that be done? Paul Collier ... at Oxford University, has a new and potentially powerful idea. In his recently published book, “The Bottom Billion...”..., Professor Collier favors an international charter — ... guidelines that countries can voluntarily adopt — to give transparency in spending wealth from natural resources. A country would pledge to have formal audits... Imagine PricewaterhouseCoopers auditing the copper revenues of Zambia and issuing a public report.

                                                                                                    Professor Collier’s proposal at first glance seems toothless... Yet citizens could pressure their government to follow such a charter, and the ... charter would create a focus for political opposition... Foreign corporations would bring further pressures to heed the charter. ...

                                                                                                    In the optimistic case, a few poor countries start abiding by the charter. Those countries prosper and attract more investment and status in the international community. The pressure to adopt the charter would then spread. ...

                                                                                                    The British government has already made one start toward a natural resources charter with its Extractive Industries Transparency Initiative, begun in 2002. The World Bank has supported this idea... Even more promising is that Nigeria, one of the most corrupt countries, enacted a revenue transparency provision into law, as of May 28. ...

                                                                                                    In general, transparency can improve governance. ... Simply sending more foreign aid backfires when leaders are corrupt and governance is bad. And Western governments are not willing to send enough aid to make a big difference. Revenue transparency is not an immediate fix, but it would increase the productivity of both Western aid and Western trade. Workable development ideas are hard to find, but Professor Collier may have identified the next frontier for positive change.

                                                                                                      Posted by on Thursday, July 12, 2007 at 12:24 AM in Economics, Policy | Permalink  TrackBack (0)  Comments (7)