Alan S. Blinder, WSJ: The Case for Optimism on the Economy. The credit markets are healing and net job creation may be only a month or two away. The U.S. economy is digging itself out of a deep hole. You have probably heard a lot of doom and gloom lately, including talk of a jobless recovery, an L-shaped recovery (which means no recovery at all), or even a W—the feared double-dip recession. The Scrooges have a point: There are serious dangers to the nascent recovery. But you've heard all that many times. Let me offer instead, in deliberately one-sided fashion, the case for optimism. It is, after all, the holiday season.
Tito Boeri, Project Syndicate: Saving Europe’s Lost Generation of Workers. Far too many post-mortems of the economic crisis are now being written. They are misleading and dangerous, not only because the crisis in the labor market is not yet over, but also because they contribute to complacency, thereby reducing pressure for reform. The current recession will be truly over only when new cohorts of workers are able to enter the labor market quickly and through the main door.
Morten L. Bech, Elizabeth Klee, NY Fed: The Mechanics of a Graceful Exit: Interest on Reserves and Segmentation in the Federal Funds Market. The results in this paper suggest that a graceful exit is indeed possible. First, our estimates suggest that, even amid high balances, the Federal Reserve can raise the effective federal funds rate when conditions warrant. As shown above, if the Federal Reserve raises the rate paid on excess reserves, the effective rate would move up in tandem according to our model estimates, although the relationship will likely be less than one-to-one due to the segmented nature of the market. Second, if the deviation between the policy rate and the effective rate is deemed to be too large, then our model suggests that the Federal Reserve can raise the effective federal funds rate even further by draining reserve using tools such as reverse repurchase agreements or a term deposit facility.
James Morley, Macroeconomic Advisers’: The great moderation: What caused it and is it over? Contrary to conventional wisdom, the Great Moderation was not a myth. There has been a very real, broad-based decline in U.S. macroeconomic volatility since the mid-1980s. The reduction in volatility does not appear to be primarily the result of better policy or changes in the structural response of the economy to shocks. Instead, the Great Moderation appears to be mostly due to smaller economic shocks (e.g., oil price shocks, productivity shocks, and inventory mistakes). The technological basis for the smaller shocks means that the prognosis for the continuation of the Great Moderation is much better than you might think (Pointer Economist´s view).
Frederic S. Mishkin et al, NBER: How Has the Monetary Transmission Mechanism Evolved Over Time. It is not clear that the magnitude of effect of monetary policy shock on aggregate real activity has changed much, although the effect might be more persistent since the early 1980s. However, there is some of evidence of an evolution in the response of prices and expenditure categories to monetary policy, both in terms of magnitude and timing. Finally, the evolution of the transmission of monetary policy has not been unidirectional: the evidence we uncovered is consistent with a reduced effect of monetary policy on prices and some expenditure categories in the 1980s followed by an increase in the 1990s.
Alain Chaboud et al, US Fed: Rise of the Machines: Algorithmic Trading in the Foreign Exchange Market. We find evidence that algorithmic trades tend to be correlated, suggesting that the algorithmic strategies used in the market are not as diverse as those used by non-algorithmic traders. Despite the apparent correlation of algorithmic trades, there is no evident causal relationship between algorithmic trading and increased exchange rate volatility. If anything, the presence of more algorithmic trading is associated with lower volatility. Third, we show that even though some algorithmic traders appear to restrict their activity in the minute following macroeconomic data releases, algorithmic traders increase their provision of liquidity over the hour following each release. Non-algorithmic order flow accounts for a larger share of the variance in exchange rate returns than does algorithmic order flow.
N. Gregory Mankiw, NYT: Tax Cuts Might Accomplish What Spending Hasn’t. When devising its fiscal package, the Obama administration relied on conventional economic models based in part on ideas of John Maynard Keynes. But various recent studies suggest that conventional wisdom is backward. One piece of evidence comes from Christina D. Romer, the chairwoman of the president’s Council of Economic Advisers. In work with her husband, David H. Romer, written at the University of California, Berkeley, just months before she took her current job, Ms. Romer found that tax policy has a powerful influence on economic activity. In a December 2008 working paper, Andrew Mountford of the University of London and Harald Uhlig of the University of Chicago report that “deficit-financed tax cuts work best among these three scenarios to improve G.D.P.” My Harvard colleagues Alberto Alesina and Silvia Ardagna have recently conducted a comprehensive analysis of the issue. The results are striking. Successful stimulus relies almost entirely on cuts in business and income taxes. Failed stimulus relies mostly on increases in government spending. These studies point toward tax policy as the best fiscal tool to combat recession, particularly tax changes that influence incentives to invest, like an investment tax credit.
Francesco D'Amuri, Juri Marcucci, VoxEU: The predictive power of Google data: New evidence on US unemployment. The demand for up-to-date economic indicators has led researchers to use Google to improve the predictive power of their models. This column presents evidence from the US and Italy that using search trends on Google significantly increases the accuracy of forecasting unemployment.
Beatrice Brunner, Andreas Kuhn, IZA: To Shape the Future: How Labor Market Entry Conditions Affect Individuals' Long-Run Wage Profiles. We study the long-run effects of initial labor market conditions on wages for a large sample of male individuals entering the Austrian labor market between 1978 and 2000. We find a robust negative effect of unfavorable entry conditions on starting wages. This initial effect turns out to be quite persistent and even though wages do catch up later on, large effects on lifetime earnings result. We also show that initial labor market conditions have smaller and less persistent effects for blue-collar workers than for white-collar workers.
Alison Felix, James R. Hines Jr, VoxEU: Corporate taxes and union wages. Painful tax increases will be necessary to restore fiscal balance after exiting the crisis. This column shows that wages are higher in US states with lower corporate income taxes – a reminder that efforts to tax firms more heavily create burdens that will be distributed among stakeholders, including many groups that governments otherwise attempt to help, such as workers.
Dani Rodrik, Project Syndicate: Making Room for China. China’s undervalued currency and huge trade surplus pose great risks to the world economy. They threaten a major protectionist backlash in the United States and Europe; and they undermine the recovery in developing and emerging markets. Left unchecked, they will generate growing acrimony between China and other countries. But the solution is not nearly as simple as some pundits make it out to be. There is a third path, but it would require re-writing the WTO’s rules. If China were allowed a free hand with industrial policies, it could promote manufactures directly while allowing the renminbi to appreciate.
John C. Bluedorn, Akos Valentinyi, Michael Vlassopoulos, VoxEU: Three centuries of climatic variation and the world income distribution. Hot countries tend to be poorer. This column uses the cross-century, cross-country variation in climatic temperatures to estimate the effects of historic temperature upon current incomes. The negative relationship between current temperature and income appears due to temperature variations in the 18th and 19th centuries. That suggests that the consequences of climate change may be felt for a very long time.
Eli Berman, Joseph Felter, Jacob N. Shapiro, NBER: Do working men rebel? Insurgency and unemployment in Iraq and the Philippines. Most aid spending by governments seeking to rebuild social and political order is based on an opportunity-cost theory of distracting potential recruits. The logic is that gainfully employed young men are less likely to participate in political violence, implying a positive correlation between unemployment and violence in places with active insurgencies. We test that prediction on insurgencies in Iraq and the Philippines, using survey data on unemployment and two newly- available measures of insurgency: (1) attacks against government and allied forces; and (2) violence that kills civilians. Contrary to the opportunity-cost theory, we find a robust negative correlation between unemployment and attacks against government and allied forces and no significant relationship between unemployment and the rate of insurgent attacks
that kill civilians.
Rajeev Syal, the Observer: Drug money saved banks in global crisis, claims UN advisor. Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer. Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.
Natasha Gilbert, SciAm: Modellers claim wars are predictable. Seemingly random attacks and a shadowy, mysterious enemy are the hallmarks of insurgent wars, such as those being fought in Afghanistan and Iraq. Many social scientists, as well as the military, hold that, like conventional civil wars, these conflicts can´t be understood without considering local factors such as geography and politics. But a mathematical model published today in Nature suggests that insurgencies have a common underlying pattern that may allow the timing of attacks and the number of casualties to be predicted. Insurgent attacks follow a universal pattern of timing and casualties.
Friday, December 18, 2009
Friday, December 11, 2009
DECEMBER 11 2009
Joshua Aizenman, Nancy Marion, Dartmouth: Using Inflation to Erode the U.S. Public. Projections indicate that the U.S. Federal debt held by the public as a share of GDP may be in the 70- 100 percent range within ten years. In many respects, the temptation to inflate away some of this debt burden is similar to that at the end of World War II. In 1946, the debt ratio was 108.6 percent. Inflation reduced this ratio about 40 percent within a decade. Yet there are some important differences –shorter debt maturities today reduce the temptation to inflate, while the larger share held by foreigners increases it. This paper suggests that when economic growth is stalled, the U.S. debt overhang may trigger an increase in inflation of about 5 percent for several years. This additional inflation would significantly reduce the debt ratio, even with some shortening of debt maturities.
Tim Duy's Fed Watch: Structural and Cyclical. Cyclical and structural forces are at play. But be wary about confusing the two; I fear this to be a particular problem for policymakers. Economic growth is likely to lead to complacency, but such complacency would be ill-advised when the decade's record on nonfarm payrolls leaves the job-generating capacity of the US economy in doubt.
Caroline Baum, Bloomberg: Jobs Lost in Great Recession May Be Gone Forever. There is support in the data for the idea that many of the lost jobs aren’t coming back. In November, a record 55.1 percent of job losses were categorized as permanent, according to the Bureau of Labor Statistics. The average duration of unemployment reached a post-World War II high of 28.5 weeks. And 38.3 percent of the unemployed have been out of work for 27 weeks or more, also a record.
Paul Krugman, NYT: Bernanke’s Unfinished Mission. My back of the envelope calculation says that we need to add around 18 million jobs over the next five years, or 300,000 jobs a month. Someone has to take responsibility for creating a lot of additional jobs. And at this point, that someone almost has to be the Federal Reserve. Joseph Gagnon, a former Fed staffer, basing his analysis on the prior work of Mr. Bernanke, urges the Fed to expand credit by buying a further $2 trillion in assets. High sustained unemployment is a recipe for immense human suffering. If we don’t get unemployment down soon, we’ll be paying the price for a generation. So it’s time for the Fed to lose that complacency, shrug off that fatalism and start lending a hand to job creation.
M S Mohanty, Fabrizio Zampolli, BIS: Government size and macroeconomic stability. This article examines the potential role of government size in explaining differences in output volatility across OECD countries in the context of the latest recession. There is some evidence to suggest that government size as measured by the share of expenditure in GDP has a modest negative association with output volatility. Moreover, this link seems to have weakened further since the mid-1980s. Factors such as trade openness and exposure to terms-of-trade shocks as well as volatility of inflation appear important. Interestingly, the same set of factors seems to matter in explaining the severity of recession in OECD countries.
Moritz Schularick, Alan Taylor, VoxEU: Credit booms go wrong. Are credit bubbles dangerous? This column presents long-run historical data showing that, over the past 140 years, episodes of financial instability were often the result of "credit booms gone wrong". Recent years witnessed an unprecedented expansion in the role of credit in the macroeconomy. It is a mishap of history that – just as credit matters more than ever before – the reigning doctrine gives it no role in central bank policies.
James MacGee, Cleveland Fed: Why Didn’t Canada’s Housing Market Go Bust? Housing markets in the United States and Canada are similar in many respects, but each has fared quite differently since the onset of the financial crisis. A comparison of the two markets suggests that relaxed lending standards likely played a critical role in the U.S. housing bust.
Jon Hilsenrath, WSJ Blog: Academics Spar With Populists Over Fed Audits. A group of academic economists — including several Nobel Prize winners, leaders of respected economic journals and former Fed officials — is dialing up its call for lawmakers to drop plans to subject the Federal Reserve to more scrutiny by the Government Accountability Office, an investigative arm of Congress. In a letter to leaders on the Senate Banking Committee and House Financial Services Committee, the economists say the Ron Paul bill would do “serious harm to the economy.” They warn increased congressional oversight would harm the Fed’s independence and ability to fight inflation.
Lucian Bebchuk, Alma Cohen, Holger Spamann, Harvard: Bankers had cashed in before the music stopped. According to the standard narrative, the meltdown of Bear Stearns and Lehman Brothers largely wiped out the wealth of their top executives. Many – in the media, academia and the financial sector – have used this account to dismiss the view that pay structures caused excessive risk-taking and that reforming such structures is important. That standard narrative, however, turns out to be incorrect.
Atila Abdulkadiroglu el al, NBER: Accountability and Flexibility in Public Schools: Evidence from Boston's Charters and Pilots. Estimates using student assignment lotteries show large and significant test score gains for charter lottery winners in middle and high school. The large positive lottery-based estimates for charter schools are similar to estimates constructed using statistical controls in the same sample, but larger than those using statistical controls in a wider sample of schools.
Alex Bryson, Bernd Frick, Rob Simmons, VoxEU: Wage returns to scarce talent: The case of professional football players. The study of sports is beginning to tell us more and more about the operation of labour markets and incentives. This column looks at football to verify that wages reflect marginal productivity. It shows that two-footedness – the rare ability to use both feet to pass, tackle, and shoot – commands a large wage premium.
Catherine Rampell, Economix NYT: Money Fights Predict Divorce Rates. You know it in your gut, and you’ve seen it in the splintered marriages around you. Finance-related tensions — however you define them — raise the risk of divorce. A new study, by Jeffrey Dew at Utah State University, attempts to quantify that risk. His finding: Couples who reported disagreeing about finance once a week were over 30 percent more likely to get divorced than couples who reported disagreeing about finances a few times a month.
Pierre-André Chiappori, Sonia Oreffice, Climent Quintana-Domeque, IZA: Fatter Attraction: Anthropometric and Socioeconomic Characteristics in the Marriage Market. We construct a matching model on the marriage market along more than one characteristic, where individuals have preferences over physical attractiveness and market and household productivity of potential. Men and women assess each other through an index combining these various attributes. We estimate the trade-offs among these characteristics, finding evidence of compensation between anthropometric and socioeconomic characteristics. An additional unit of husband’s (wife’s) BMI can be compensated by a 0.3%-increase (0.15%-increase) in husband’s (wife’s) average (predicted) wage. Interestingly, these findings suggest that female physical attractiveness plays a larger role in men’s assessment of a woman than male physical attractiveness does for women.
Tim Duy's Fed Watch: Structural and Cyclical. Cyclical and structural forces are at play. But be wary about confusing the two; I fear this to be a particular problem for policymakers. Economic growth is likely to lead to complacency, but such complacency would be ill-advised when the decade's record on nonfarm payrolls leaves the job-generating capacity of the US economy in doubt.
Caroline Baum, Bloomberg: Jobs Lost in Great Recession May Be Gone Forever. There is support in the data for the idea that many of the lost jobs aren’t coming back. In November, a record 55.1 percent of job losses were categorized as permanent, according to the Bureau of Labor Statistics. The average duration of unemployment reached a post-World War II high of 28.5 weeks. And 38.3 percent of the unemployed have been out of work for 27 weeks or more, also a record.
Paul Krugman, NYT: Bernanke’s Unfinished Mission. My back of the envelope calculation says that we need to add around 18 million jobs over the next five years, or 300,000 jobs a month. Someone has to take responsibility for creating a lot of additional jobs. And at this point, that someone almost has to be the Federal Reserve. Joseph Gagnon, a former Fed staffer, basing his analysis on the prior work of Mr. Bernanke, urges the Fed to expand credit by buying a further $2 trillion in assets. High sustained unemployment is a recipe for immense human suffering. If we don’t get unemployment down soon, we’ll be paying the price for a generation. So it’s time for the Fed to lose that complacency, shrug off that fatalism and start lending a hand to job creation.
M S Mohanty, Fabrizio Zampolli, BIS: Government size and macroeconomic stability. This article examines the potential role of government size in explaining differences in output volatility across OECD countries in the context of the latest recession. There is some evidence to suggest that government size as measured by the share of expenditure in GDP has a modest negative association with output volatility. Moreover, this link seems to have weakened further since the mid-1980s. Factors such as trade openness and exposure to terms-of-trade shocks as well as volatility of inflation appear important. Interestingly, the same set of factors seems to matter in explaining the severity of recession in OECD countries.
Moritz Schularick, Alan Taylor, VoxEU: Credit booms go wrong. Are credit bubbles dangerous? This column presents long-run historical data showing that, over the past 140 years, episodes of financial instability were often the result of "credit booms gone wrong". Recent years witnessed an unprecedented expansion in the role of credit in the macroeconomy. It is a mishap of history that – just as credit matters more than ever before – the reigning doctrine gives it no role in central bank policies.
James MacGee, Cleveland Fed: Why Didn’t Canada’s Housing Market Go Bust? Housing markets in the United States and Canada are similar in many respects, but each has fared quite differently since the onset of the financial crisis. A comparison of the two markets suggests that relaxed lending standards likely played a critical role in the U.S. housing bust.
Jon Hilsenrath, WSJ Blog: Academics Spar With Populists Over Fed Audits. A group of academic economists — including several Nobel Prize winners, leaders of respected economic journals and former Fed officials — is dialing up its call for lawmakers to drop plans to subject the Federal Reserve to more scrutiny by the Government Accountability Office, an investigative arm of Congress. In a letter to leaders on the Senate Banking Committee and House Financial Services Committee, the economists say the Ron Paul bill would do “serious harm to the economy.” They warn increased congressional oversight would harm the Fed’s independence and ability to fight inflation.
Lucian Bebchuk, Alma Cohen, Holger Spamann, Harvard: Bankers had cashed in before the music stopped. According to the standard narrative, the meltdown of Bear Stearns and Lehman Brothers largely wiped out the wealth of their top executives. Many – in the media, academia and the financial sector – have used this account to dismiss the view that pay structures caused excessive risk-taking and that reforming such structures is important. That standard narrative, however, turns out to be incorrect.
Atila Abdulkadiroglu el al, NBER: Accountability and Flexibility in Public Schools: Evidence from Boston's Charters and Pilots. Estimates using student assignment lotteries show large and significant test score gains for charter lottery winners in middle and high school. The large positive lottery-based estimates for charter schools are similar to estimates constructed using statistical controls in the same sample, but larger than those using statistical controls in a wider sample of schools.
Alex Bryson, Bernd Frick, Rob Simmons, VoxEU: Wage returns to scarce talent: The case of professional football players. The study of sports is beginning to tell us more and more about the operation of labour markets and incentives. This column looks at football to verify that wages reflect marginal productivity. It shows that two-footedness – the rare ability to use both feet to pass, tackle, and shoot – commands a large wage premium.
Catherine Rampell, Economix NYT: Money Fights Predict Divorce Rates. You know it in your gut, and you’ve seen it in the splintered marriages around you. Finance-related tensions — however you define them — raise the risk of divorce. A new study, by Jeffrey Dew at Utah State University, attempts to quantify that risk. His finding: Couples who reported disagreeing about finance once a week were over 30 percent more likely to get divorced than couples who reported disagreeing about finances a few times a month.
Pierre-André Chiappori, Sonia Oreffice, Climent Quintana-Domeque, IZA: Fatter Attraction: Anthropometric and Socioeconomic Characteristics in the Marriage Market. We construct a matching model on the marriage market along more than one characteristic, where individuals have preferences over physical attractiveness and market and household productivity of potential. Men and women assess each other through an index combining these various attributes. We estimate the trade-offs among these characteristics, finding evidence of compensation between anthropometric and socioeconomic characteristics. An additional unit of husband’s (wife’s) BMI can be compensated by a 0.3%-increase (0.15%-increase) in husband’s (wife’s) average (predicted) wage. Interestingly, these findings suggest that female physical attractiveness plays a larger role in men’s assessment of a woman than male physical attractiveness does for women.
Friday, December 4, 2009
DECEMBER 4 2009
Foreign Policy magazine: Bernanke: Top of Foreign Policy’s 100 Global Thinkers List. Federal Reserve Chairman Ben Bernanke ranks No. 1 in Foreign Policy magazine’s list of top 100 Global Thinkers for preventing Depression 2.0, putting him one notch above President Barack Obama. “The Zen-like chairman of the U.S. Federal Reserve might not have topped the list solely for turning his superb academic career into a blueprint for action, for single-handedly reinventing the role of a central bank, or for preventing the collapse of the U.S. economy. But to have done all of these within the span of a few months is certainly one of the greatest intellectual feats of recent years,” the periodical says.” Nouriel Roubini comes in no. 4 and behavioural economists and White House advisors Cass Sunstein and Richard Thaler no. 8 (pointer WSJ Blog).
Paul De Grauwe, CEPS: The Dilemma of the Dollar Economic Policy. The decline of the dollar against major currencies such as the euro and the Japanese yen has been spectacular. The long-term decline of the dollar appears to be quite surprising especially considering that at least since the early 1990s the US has been seen to produce superior economic results, i.e. a higher productivity growth than most of Europe and Japan with more or less the same rates of inflation. A fast-growing world economy is in need of lots of liquidity. World liquidity must be provided by the world currency, the dollar. The worldwide demand for dollars increases at yearly rates that by far exceed the 5% money supply growth rate that will keep prices in the US approximately stable. The market bets that the US will choose the first way out of the dilemma, i.e. that the US will abandon its commitment to price stability. It is a reasonable bet because the massive supply of dollars is also an extremely attractive privilege for the US authorities, which allows them to finance budget deficits at conditions that no other country can obtain.
Roel Beetsma , Massimo Giuliodori, VoxEU: The macroeconomic costs and benefits of the Economic and Monetary Union. Currency unions strip national governments of a macroeconomic policy instrument. What do they get in return? This column says the European Economic and Monetary Union has eliminated incentives for competitive devaluations and enhanced inflation credibility. But monetary union may necessitate fiscal coordination and discipline.
CBO: Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output as of September 2009. CBO has estimated the law’s impact on employment and economic output using evidence about how previous similar policies have affected the economy and various mathematical models that represent the workings of the economy. On that basis, CBO estimates that in the third quarter of calendar year 2009, an additional 600,000 to 1.6 million people were employed in the United States, and real (inflation-adjusted) gross domestic product (GDP) was 1.2 percent to 3.2 percent higher, than would have been the case in the absence of ARRA.
Gary Becker, Becker-Posner Blog: How to Increase Employment. A frequent suggestion by economists and others is to give employers subsidies for each unemployed person that they hire, but I believe this approach has many problems of implementation. My favorite approach it to try to stimulate the economy by cutting income taxes, especially corporate income taxes and other taxes on capital, both physical and human capital. Such tax cuts will stimulate investments in the economy, and in this way increase the demand for workers.
Bruce D. Meyer, Tax Policy and the Economy, Volume 24, NBER: Chapter 6 The Effects of the EITC and Recent Reforms. The income distribution features of the EITC are quite good. The credit targets resources at those below the poverty line, particularly families with children. It raises more than 4.0 million people above the poverty line and 1.4 million people above half the poverty line. The empirical evidence on labor supply and marriage indicates that the incentives of the EITC are remarkably favorable given the resources transferred. Studies of the effects of the EITC on employment imply that the credit has sharply increased the fraction of single mothers that work.
Jaime de Melo, Jean-Marie Grether, Nicole A. Mathys, VoxEU: Trade, pollution, and the environment: New international evidence. The “pollution haven” view asserts that globalisation draws industries to countries with lax environmental regulation. This column present evidence that that the major polluting industries are not very footloose and that changes in emissions through the relocation of activities are relatively small. The growth of trade itself, however, is likely to contribute to growing emissions associated with transport.
Thomas Klier and Joshua Linn, Chicago Fed: The Price of Gasoline and The Demand for Fuel Economy: Evidence from Monthly New Vehicles Sales Data. This paper uses a unique data set of monthly new vehicle sales by detailed model from 1978-2007. We find a significant demand response, as nearly half of the decline in market share of U.S. manufacturers from 2002-2007 was due to the increase in the price of gasoline. On the other hand, an increase in the gasoline tax would only modestly affect average fuel economy (pointer DB).
Colin Ellis, BoE: Do supermarket prices change from week to week? This paper uses weekly scanner data supplied by Nielsen. Prices change very frequently in supermarkets, with 40% of prices changing each week, and even controlling for ‘temporary’ changes, a quarter of prices change each week. Focusing on monthly observations, rather than weekly ones, overstates the implied stickiness of prices. The range of price changes is very wide, with some very large price cuts and price rises; but despite this, a significant number of price changes are very small. There appears to be little link between the frequency and magnitude of price changes. Prices and volumes move together from week to week. Consumers are fairly price sensitive: volumes change by more than prices (pointer DB).
Andrews, Dan, Jencks, Christopher, Leigh, Andrew, Harvard: Do Rising Top Incomes Lift All Boats? Pooling data for 1905 to 2000, we find no systematic relationship between top income shares and economic growth in a panel of 12 developed nations observed for between 22 and 85 years. After 1960, however, a one percentage point rise in the top decile's income share is associated with a statistically significant 0.12 point rise in GDP growth during the following year. This relationship is not driven by changes in either educational attainment or top tax rates. If the increase in inequality is permanent, the increase in growth appears to be permanent, but it takes 13 years for the cumulative positive effect of faster growth on the mean income of the bottom nine deciles to offset the negative effect of reducing their share of total income.
UK Centre for Measurement of Government Activity Public Service Output: Input and Productivity: Education. The third ONS education productivity article show that productivity was the same in 2008 as in 1996. From 2000 to 2005 productivity fell by 6.8 per cent, an annual average fall of 1.4 per cent. This resulted from a steady rise in the number of pupils attending school, once adjusted for quality, being outstripped by a sharp rise in inputs, mainly through the employment of more school support staff. The failure of higher spending to greatly improve results isn’t a local failure. Erik Hanushek has shown that it’s happened around the world (pointer Stumbling and mumbling blog).
Niall Ferguson, Newsweek: An Empire at Risk. As interest payments eat into the budget, something has to give—and that something is nearly always defense expenditure. According to the CBO, a significant decline in the relative share of national security in the federal budget is already baked into the cake. On the Pentagon’s present plan, defense spending is set to fall from above 4 percent now to 3.2 percent of GDP in 2015 and to 2.6 percent of GDP by 2028. Over the longer run, to my own estimated departure date of 2039, spending on health care rises from 16 percent to 33 percent of GDP. This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force. Which is why voters are right to worry about America’s debt crisis.
Bethany McLean, Vanity Fair: The Bank Job. In this extensive essay, McLean dig deep in the culture of Goldman Sachs. Insiders and outsiders alike have long struggled to define Goldman Sachs’s secret sauce. It’s a blend of impossibly hard work, intense competitiveness, and something that closely approximates teamwork. One of the biggest disconnects on Wall Street today is between the way Goldman Sachs sees itself (they’re the smartest) and the way everyone else sees Goldman (they’re the smartest, greediest, and most dangerous). Further proof of the Goldman’s worldview: the huge amount of money its people will earn this year ($16.7 billion has already been set aside for compensation, which could translate into an average of $700,000 per Goldman employee). You get rage. Ultimately, the big question is this: Do Goldman’s profits signify that good times are coming for the rest of the country? CEO Blankfein professes no doubt. “I’m charged with managing and preserving the franchise for the good of shareholders, and while I don’t want to sound highfalutin, it is also for the good of America,” he says. “I’m up-front about that. I think a strong Goldman Sachs is good for the country.”
Gautam Naik, WSJ: What's on Jim Fallon's Mind? A Family Secret That Has Been Murder to Figure Out. Nature Plays a Prank on a Scientist Looking for Traits of a Killer in His Clan, on the search for a biological basis of violent behavior. To his surprise, Dr. Fallon found that the analysis of his own brain showed he had inherited certain high-risk forms of MAOA and other various aggression-and violence-related genes. "I'm the one who looks most like a serial killer." (pointer Freakonomics Blog).
Paul De Grauwe, CEPS: The Dilemma of the Dollar Economic Policy. The decline of the dollar against major currencies such as the euro and the Japanese yen has been spectacular. The long-term decline of the dollar appears to be quite surprising especially considering that at least since the early 1990s the US has been seen to produce superior economic results, i.e. a higher productivity growth than most of Europe and Japan with more or less the same rates of inflation. A fast-growing world economy is in need of lots of liquidity. World liquidity must be provided by the world currency, the dollar. The worldwide demand for dollars increases at yearly rates that by far exceed the 5% money supply growth rate that will keep prices in the US approximately stable. The market bets that the US will choose the first way out of the dilemma, i.e. that the US will abandon its commitment to price stability. It is a reasonable bet because the massive supply of dollars is also an extremely attractive privilege for the US authorities, which allows them to finance budget deficits at conditions that no other country can obtain.
Roel Beetsma , Massimo Giuliodori, VoxEU: The macroeconomic costs and benefits of the Economic and Monetary Union. Currency unions strip national governments of a macroeconomic policy instrument. What do they get in return? This column says the European Economic and Monetary Union has eliminated incentives for competitive devaluations and enhanced inflation credibility. But monetary union may necessitate fiscal coordination and discipline.
CBO: Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output as of September 2009. CBO has estimated the law’s impact on employment and economic output using evidence about how previous similar policies have affected the economy and various mathematical models that represent the workings of the economy. On that basis, CBO estimates that in the third quarter of calendar year 2009, an additional 600,000 to 1.6 million people were employed in the United States, and real (inflation-adjusted) gross domestic product (GDP) was 1.2 percent to 3.2 percent higher, than would have been the case in the absence of ARRA.
Gary Becker, Becker-Posner Blog: How to Increase Employment. A frequent suggestion by economists and others is to give employers subsidies for each unemployed person that they hire, but I believe this approach has many problems of implementation. My favorite approach it to try to stimulate the economy by cutting income taxes, especially corporate income taxes and other taxes on capital, both physical and human capital. Such tax cuts will stimulate investments in the economy, and in this way increase the demand for workers.
Bruce D. Meyer, Tax Policy and the Economy, Volume 24, NBER: Chapter 6 The Effects of the EITC and Recent Reforms. The income distribution features of the EITC are quite good. The credit targets resources at those below the poverty line, particularly families with children. It raises more than 4.0 million people above the poverty line and 1.4 million people above half the poverty line. The empirical evidence on labor supply and marriage indicates that the incentives of the EITC are remarkably favorable given the resources transferred. Studies of the effects of the EITC on employment imply that the credit has sharply increased the fraction of single mothers that work.
Jaime de Melo, Jean-Marie Grether, Nicole A. Mathys, VoxEU: Trade, pollution, and the environment: New international evidence. The “pollution haven” view asserts that globalisation draws industries to countries with lax environmental regulation. This column present evidence that that the major polluting industries are not very footloose and that changes in emissions through the relocation of activities are relatively small. The growth of trade itself, however, is likely to contribute to growing emissions associated with transport.
Thomas Klier and Joshua Linn, Chicago Fed: The Price of Gasoline and The Demand for Fuel Economy: Evidence from Monthly New Vehicles Sales Data. This paper uses a unique data set of monthly new vehicle sales by detailed model from 1978-2007. We find a significant demand response, as nearly half of the decline in market share of U.S. manufacturers from 2002-2007 was due to the increase in the price of gasoline. On the other hand, an increase in the gasoline tax would only modestly affect average fuel economy (pointer DB).
Colin Ellis, BoE: Do supermarket prices change from week to week? This paper uses weekly scanner data supplied by Nielsen. Prices change very frequently in supermarkets, with 40% of prices changing each week, and even controlling for ‘temporary’ changes, a quarter of prices change each week. Focusing on monthly observations, rather than weekly ones, overstates the implied stickiness of prices. The range of price changes is very wide, with some very large price cuts and price rises; but despite this, a significant number of price changes are very small. There appears to be little link between the frequency and magnitude of price changes. Prices and volumes move together from week to week. Consumers are fairly price sensitive: volumes change by more than prices (pointer DB).
Andrews, Dan, Jencks, Christopher, Leigh, Andrew, Harvard: Do Rising Top Incomes Lift All Boats? Pooling data for 1905 to 2000, we find no systematic relationship between top income shares and economic growth in a panel of 12 developed nations observed for between 22 and 85 years. After 1960, however, a one percentage point rise in the top decile's income share is associated with a statistically significant 0.12 point rise in GDP growth during the following year. This relationship is not driven by changes in either educational attainment or top tax rates. If the increase in inequality is permanent, the increase in growth appears to be permanent, but it takes 13 years for the cumulative positive effect of faster growth on the mean income of the bottom nine deciles to offset the negative effect of reducing their share of total income.
UK Centre for Measurement of Government Activity Public Service Output: Input and Productivity: Education. The third ONS education productivity article show that productivity was the same in 2008 as in 1996. From 2000 to 2005 productivity fell by 6.8 per cent, an annual average fall of 1.4 per cent. This resulted from a steady rise in the number of pupils attending school, once adjusted for quality, being outstripped by a sharp rise in inputs, mainly through the employment of more school support staff. The failure of higher spending to greatly improve results isn’t a local failure. Erik Hanushek has shown that it’s happened around the world (pointer Stumbling and mumbling blog).
Niall Ferguson, Newsweek: An Empire at Risk. As interest payments eat into the budget, something has to give—and that something is nearly always defense expenditure. According to the CBO, a significant decline in the relative share of national security in the federal budget is already baked into the cake. On the Pentagon’s present plan, defense spending is set to fall from above 4 percent now to 3.2 percent of GDP in 2015 and to 2.6 percent of GDP by 2028. Over the longer run, to my own estimated departure date of 2039, spending on health care rises from 16 percent to 33 percent of GDP. This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force. Which is why voters are right to worry about America’s debt crisis.
Bethany McLean, Vanity Fair: The Bank Job. In this extensive essay, McLean dig deep in the culture of Goldman Sachs. Insiders and outsiders alike have long struggled to define Goldman Sachs’s secret sauce. It’s a blend of impossibly hard work, intense competitiveness, and something that closely approximates teamwork. One of the biggest disconnects on Wall Street today is between the way Goldman Sachs sees itself (they’re the smartest) and the way everyone else sees Goldman (they’re the smartest, greediest, and most dangerous). Further proof of the Goldman’s worldview: the huge amount of money its people will earn this year ($16.7 billion has already been set aside for compensation, which could translate into an average of $700,000 per Goldman employee). You get rage. Ultimately, the big question is this: Do Goldman’s profits signify that good times are coming for the rest of the country? CEO Blankfein professes no doubt. “I’m charged with managing and preserving the franchise for the good of shareholders, and while I don’t want to sound highfalutin, it is also for the good of America,” he says. “I’m up-front about that. I think a strong Goldman Sachs is good for the country.”
Gautam Naik, WSJ: What's on Jim Fallon's Mind? A Family Secret That Has Been Murder to Figure Out. Nature Plays a Prank on a Scientist Looking for Traits of a Killer in His Clan, on the search for a biological basis of violent behavior. To his surprise, Dr. Fallon found that the analysis of his own brain showed he had inherited certain high-risk forms of MAOA and other various aggression-and violence-related genes. "I'm the one who looks most like a serial killer." (pointer Freakonomics Blog).
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