NOVEMBER 27 2015

Thomas Klitgaard, Patrick Russo, Fed NY: The Importance of Commodity Prices in Understanding U.S. Import Prices and Inflation. A breakdown by type of good shows that import prices for autos, consumer goods, and capital goods tend not to move much with changes in the dollar as foreign firms choose to keep the prices of their goods stable in the U.S. market. Instead, the connection between import prices and the dollar largely reflects the tendency for commodity prices to fall in dollar terms when the dollar strengthens. As a consequence, the dampening effect of a stronger dollar on U.S. inflation is transmitted much more through falling commodity prices than through cheaper imported cars and consumer goods.

Richard Baldwin et al, VOX: Rebooting the Eurozone: Step 1 – Agreeing a Crisis narrative. The Eurozone needs fixing, but it is impossible to agree upon the steps to be taken without agreement on what went wrong. This column introduces a new CEPR Policy Insight that presents a consensus-narrative of the causes of the EZ Crisis. It was authored by a dozen leading economists from across the spectrum. The consensus narrative is supported by a long and growing list of economists.

Gopi Shah Goda, Shanthi Ramnath, John B. Shoven, Sita Nataraj Slavov, NBER: The Financial Feasibility of Delaying Social Security: Evidence from Administrative Tax Data. Despite the large and growing returns to deferring Social Security benefits, most individuals claim Social Security before the full retirement age, currently age 66. In this paper, we use a panel of administrative tax data on likely primary earners to explore some potential hypotheses of why individuals fail to delay claiming Social Security, including liquidity constraints and private information regarding one’s expected future lifetime. We find that approximately 31-34% of beneficiaries who claim prior to the full retirement age have assets in Individual Retirement Accounts (IRAs) that would fund at least 2 additional years of Social Security benefits, and 24-26% could fund at least 4 years of Social Security deferral with IRA assets alone. Our analysis suggests that these percentages would be considerably higher if other assets were taken into account. We find evidence that those who claim prior to the full retirement age have higher subjective and actual mortality rates than those who claim later, suggesting that private information about expected future lifetimes may influence claiming behavior.

Lisa D. Cook, Trevon D. Logan, John M. Parman, VOX: Black names: Past, present, and future. Much research has gone into trying to establish a connection in the US between having a distinctively black name and disadvantage over a lifetime. This column highlights a striking difference between the historical effects of having a black name and today’s effects. While modern black names show up in modern empirical studies as an albatross around the neck of those possessing them, either because those with such names come from worse socioeconomic conditions or face discrimination later in life, historical black names conveyed a large advantage accumulating over an individual’s lifetime.

Bonnie Brimstone, Institute for Fiscal Studies: Graduates who went to private schools earn more than graduates who did not. Graduates who went to private schools earn substantially more than those who went to state schools. Part of that difference is explained by the fact that, on average, they attend more prestigious universities and study subjects which tend to be more highly rewarded. But even amongst graduates who went to the same university to study the same subject and who left with the same degree class, those who went to private schools still earn 7% more, on average, three and a half years after graduation than their state-educated contemporaries.

Gary Becker Milton Friedman Institute for Research in Economics. Understanding Inequality and What to Do About It. Differing education, environments, interactions drive unequal outcomes, experts say. Income inequality has been growing around the globe in recent decades, with the steepest spikes seen in the United States. Few issues are more gripping than the question of inequality in society, yet we don’t fully understand the mechanisms driving the increase. A recent panel (Thomas Piketty, Steven Durlauf, Kevin Murphy) discussion on the University of Chicago campus brought together experts who have been studying the question for decades to explore the forces driving inequality and possible policy responses.

William G. Gale, Melissa S. Kearney, Peter R. Orszag, Brookings: Would a significant increase in the top income tax rate substantially alter income inequality? The high level of income inequality in the United States is at the forefront of policy attention. This paper focuses on one potential policy response: an increase in the top personal income tax rate. We conduct a simulation analysis using the Tax Policy Center (TPC) microsimulation model to determine how much of a reduction in income inequality would be achieved from increasing the top individual tax rate to as much as 50 percent. We calculate the resulting change in income inequality assuming an explicit redistribution of all new revenue to households in the bottom 20 percent of the income distribution. The resulting effects on overall income inequality are exceedingly modest. That such a sizable increase in top income tax rates leads to such a limited reduction in income inequality speaks to the limitations of this particular approach to addressing the broader challenge. To be sure, our results do not speak to the general desirability of a more progressive tax-and-transfer schedule, just to the fact that even a significant tax increase on high-income households and corresponding transfer to low-income households has a small effect on overall inequality.

Lori Chandler, Big Think: Why We Need Friends Now More Than Ever. In an age obsessed with popularity, where how many friends you have on social media has become a bragging right, one has to stop and wonder: What are the value of friends, and can’t we have too many? Many of us are familiar with Dunbar’s Number, which states that we can only maintain 150 relationships in our minds at any given time in our lives. But many experts say we are better off with a quality-over-quantity attitude, which may come as a relief to those of us who, after the gotta-collect-’em-all approach of our 20s, have entered a phase of wanting fewer, but closer friends.