SEPTEMBER 21 2009

Jacob Gyntelberg et al, BIS: Overview: cautious optimism on gradual recovery. Generally, markets continued to show signs of normalising, as risk tolerance edged further upwards and risk premia receded. In interbank money markets, key spreads narrowed to levels not seen since the beginning of 2008, and in some cases even further. Improvements were also visible in creditmarkets, although important segments continued to rely on central bank support.

Economist View: After Krugman. What's Wrong with Macroeconomics? Some recent contributions.

John H. Cochrane, University of Chicago: How did Paul Krugman get it so Wrong? Many friends and colleagues have asked me what I think of Paul Krugman’s New York Times Magazine article, “How did Economists get it so wrong?” Most of all, it’s sad. Imagine this weren’t economics for a moment. Imagine this were a respected scientist turned popular writer, who says, most basically, that everything everyone has done in his field since the mid 1960s is a complete waste of time. Everything that fills its academic journals, is taught in its PhD programs, presented at its conferences, summarized in its graduate textbooks, and rewarded with the accolades a profession can bestow, including multiple Nobel prizes, is totally wrong. If a scientist, he might be an AIDS-HIV disbeliever, a creationist, a stalwart that maybe continents don’t move after all.

Robert E. Hall, Stanford University: By How Much Does GDP Rise If the Government Buys More Output? During World War II and the Korean War, real GDP grew by about half the amount of the increase in government purchases. With allowance for other factors holding back GDP growth during those wars, the multiplier linking government purchases to GDP may be in the range of 0.7 to 1.0. New Keynesian macro models have purchases multipliers in that range as well. . On the other hand, neoclassical models have a much lower multiplier, because they predict that consumption falls when purchases rise.

Anthony Faiola, Washington Post: World's Wealthy Pay a Price In Crisis. Hobbled by soaring debt and ballooning public spending amid the global financial crisis, the British government is joining others around the globe in tapping the wealthy to cover massive shortfalls. Observers say it is part of a far broader campaign in the wake of the Great Recession -- including curbs on bankers' pay and a rigorous global hunt for tax cheats from Switzerland to Singapore -- that is suddenly putting the world's wealthy on notice.

William Congdon et al, NBER: Behavioral Economics and Tax Policy. Behavioral economics is changing our understanding of how economic policy operates, including tax policy. In this paper, we consider how it changes our understanding of the welfare consequences of taxation, the relative desirability of using the tax system as a platform for policy implementation, and the role of taxes as an element of policy design.

Neil Gandal, VoxEU: Obesity and price sensitivity at the supermarket. Is increasing obesity due to changes in relative food prices? High-energy density foods are less expensive per calorie than fresh fruits and vegetables. Using data from Israel, this column shows that price sensitivity has a significant impact on obesity. In fact, price sensitivity may be more crucial than income.

Kelly D. Brownell, NEJM: The Public Health and Economic Benefits of Taxing Sugar-Sweetened Beverages. The US federal government, a number of states and cities, and some countries (e.g., Mexico) are considering levying taxes on sugar-sweetened beverages. The reasons to proceed are compelling. The science base linking the consumption of sugar-sweetened beverages to the risk of chronic diseases is clear. Escalating health care costs and the rising burden of diseases related to poor diet create an urgent need for solutions, thus justifying government's right to recoup costs. As with any public health intervention, the precise effect of a tax cannot be known until it is implemented and studied, but research to date suggests that a tax on sugar-sweetened beverages would have strong positive effects on reducing consumption. In addition, the tax has the potential to generate substantial revenue to prevent obesity and address other external costs resulting from the consumption of sugar-sweetened beverages, as well as to fund other health-related programs.

Robert N. Stavins et al, Harvard: Too Good to Be True? An Examination of Three Economic Assessments of California Climate Change Policy. California studies substantially underestimate the cost of meeting California’s 2020 target. They underestimate costs by omitting important components of the costs of emission reduction efforts, and by overestimating offsetting savings that some of those efforts yield through improved energy efficiency. In some cases, the studies focus on the costs of particular actions to reduce emissions, but fail to consider the effectiveness and costs of policies that would be necessary to bring about such actions.


Ran Abramitzky Leah Platt Boustan, Katherine Eriksson, Stanford University, UCLA: Europe’s tired, poor, huddled masses: Self-selection and economic outcomes in the age of mass migration. We construct a novel data set of Norway-to-US migrants and their brothers. Because brothers share a family environment, the earnings of brothers who remained in Norway provide our best estimate for what migrants’ earnings would have been had they not migrated. A naive comparison of all Norwegian-born men residing in Norway and the US produces returns to migration of 93 percent for those leaving rural areas and 42 percent for those leaving urban areas. Larger within-brother estimates of the returns to migration from urban areas suggest a process of negative selection.

The Economists Global frightening Debt Watch.

Tim Harford: The Economist’s Guide to Happiness. Spend less time with your children. Don’t underestimate the benefits of a divorce. Never serve dog food at a dinner party. These are some of the unexpected revelations to have emerged from an unlikely combination: happiness, and economists.