AUGUST 26 2011

Ryan Avent, Free Exchange Blog: Tail risks. Increased Armageddon odds. The world is not ending, and while a renewed fall into recession across the developed world would be very costly and painful, especially for the unemployed, it probably wouldn't be an unmanageble situation. Growth would probably return fairly quickly, and the march of technological progress would probably go on, improving living standards for most people. Probably. The problem is that a renewed decline into recession increases the small but not insignificant odds of a true disaster—major debt or financial crisis, for instance, or major geopolitical instability. The kind of thing that isn't at all manageable. The situation is analogous to global warming. Given expected increases in global temperature, the world will suffer nasty consequences down the road, that may nonetheless prove manageable. The higher temperatures rise, however, the greater the odds of difficult to predict outcomes—like accelerating feedback loops—that threaten humanity itself.

Stephen King, Independent: Our economic woes show that there is nothing unique about Japan. Over the past few years, policymakers on either side of the Atlantic have repeatedly delivered the same message. Japan's economic stagnation should be seen as a one-off. It wouldn't happen in the West because Japan was, somehow, different. Western economies were more flexible than Japan's, could restructure easily whenever necessary and thus would always avoid any kind of Japanese-style multi-year disappointment. And, even if Western economies were unable to heal on their own accord, policymakers had the cures and were not afraid to use them. This position might best be described as "Western economic arrogance". There was no real attempt to explain why Japan had suffered so much. It was simply assumed that what happened over there couldn't happen over here. Economic outcomes in the Western world have, to date, been far worse than in Japan in the early years of stagnation

Charles Wyplosz, VoxEU: They still don’t get it. The Eurozone crisis is accelerating dangerously, bringing us to the brink of what would be history’s biggest ever financial rout. The spectre of the 1930s, including competitive devaluations and Eurozone break up, is getting dangerously relevant. This revised column argues that last week’s policy changes are not sufficient. Getting ahead of the crisis will require a guarantee for the entire stock of Eurozone debt – either by the ECB, or via some sort of Eurobond scheme.

Daron Acemoglu, Economics by invitation: Unrest is a call to reform.The protesters risking life and limb in Tahrir Square and elsewhere in the Middle East and North Africa to demand political reform may seem a world apart from the yobs setting neighborhoods ablaze and robbing shops in English cities. And they are of course. But there are also parallels. Ignoring these parallels and blaming it all on moral decay will make it much harder for us to understand and address the social challenges posed by millions of disadvantaged youth in European cities.

Tony Wrigley, VoxEU: Opening Pandora’s box: A new look at the industrial revolution. The most fundamental defining feature of the industrial revolution was that it made possible exponential economic growth – growth at a speed that implied the doubling of output every half-century or less. This in turn radically transformed living standards. Each generation came to have a confident expectation that they would be substantially better off than their parents or grandparents. Yet, remarkably, the best informed and most perspicacious of contemporaries were not merely unconscious of the implications of the changes which were taking place about them but firmly dismissed the possibility of such a transformation. The classical economists Adam Smith, Thomas Malthus, and David Ricardo advanced an excellent reason for dismissing the possibility of prolonged growth…The great bulk of the literature about the industrial revolution has been devoted to explaining how it began. This has been to the neglect of the equally important question of why the growth did not grind to a halt as all previous experience suggested was inevitable. It is in this context that the history of energy usage is critical to the understanding of the changes which took place.

Sara Cools Jon H. Fiva Lars J. Kirkebøen, CESifo: Causal Effects of Paternity Leave on Children and Parents.  In this paper we use a parental leave reform directed towards fathers to identify the causal effects of paternity leave on children’s and parents’ outcomes. We document that paternity leave causes fathers to become more important for children’s cognitive skills. School performance at age 16 increases for children whose father is relatively higher educated than the mother. We find no evidence that fathers’ earnings and work hours are affected by paternity leave. Contrary to expectation, mothers’ labor market outcomes are adversely affected by paternity leave. Our findings do therefore not suggest that paternity leave shifts the gender balance at home in a way that increases mothers’ time and/or effort spent at market work.

Nattavudh Powdthavee, IZA: Life Satisfaction and Grandparenthood: Evidence from a Nationwide Survey. This paper tests whether there is a potential payoff to grandparenthood in terms of life satisfaction. Using the new nationwide survey for the UK, which consists of over 5,000 grandparents and 6,000 non-grandparents aged 40 and above, and a flexible multiple-index ordered probit model with varying thresholds, we find that being a grandparent to at least one grandchild is associated positively and statistically significantly with individuals reporting to be very satisfied with life overall. Parents with no grandchildren are no more satisfied with life compared to non-parents of the same age. The findings suggest that even though children may not contribute significantly to parents' satisfaction with life overall, there may well be long-term benefits to having children, provided that our children go on and have children of their own.

Daniel S. Hamermesh, Jason Abrevaya, NBER:  Beauty Is the Promise of Happiness"?We measure the impact of individuals' looks on life satisfaction/happiness.  Using five data sets, from the U.S., Canada, the U.K., and Germany, we construct beauty measures in different ways that allow placing lower bounds on the effects of beauty.  Beauty raises happiness:  A one standard-deviation change in beauty generates about 0.10 standard deviations of additional satisfaction/happiness among men, 0.12 among women.  Accounting for a wide variety of covariates, particularly effects in the labor and marriage markets, including those that might be affected by differences in beauty, the impact among men is more than halved, among women slightly less than halved.