DECEMBER 8 2016

Saleem Bahaj, Jonathan Bridges, Cian O’Neill, Frederic Malherbe, BoE: Making Macroprudential Hay When the Sun Shines. It’s not just what you do; it’s when you do it – many decisions in life have “state contingent” costs and benefits. The payoffs from haymaking depend crucially upon the weather. Putting fodder away for a rainy day can be quick, cheap and prudent when skies are blue. But results may take a soggy and unproductive turn, if poorly timed. The financial climate is similarly important when assessing the costs and benefits of macroprudential policy changes. We argue that it is best to build the countercyclical capital buffer when the macroeconomic sun is shining. We find strong empirical evidence to support our claim.  

Carola Binder, Quantitative Ease: The Future is Uncertain, but So Is the Past. In many macroeconomic models, inflation perceptions should be nearly perfect. After all, inflation statistics are publicly available, and anyone should be able to access them. The Federal Reserve commissioned the Michigan Survey of Consumers Research Center to survey consumers about their perceptions of inflation over the past year and over the past 5- to 10-years, using analogous wording to the questions about inflation expectations. Surprisingly, consumers seem just as uncertain about past inflation, or even more so, as about future inflation.

Lawrence H. Summers, NYT: It’s Time for a Reset. We need to redirect the global economic dialogue to the promotion of “responsible nationalism” rather than on international integration for its own sake. A classic example of a misguided initiative is the effort to promote a bilateral investment treaty between the United States and China. Even in the unlikely event that such a treaty could be negotiated, its effect would be to trade a reduction in America’s ability to control the behavior of Chinese companies in the United States for increased security for American global companies when they locate production facilities or otherwise invest in China. From the point of view of a typical middle-class American voter, the deal is lose-lose.

David Autor et al., NBER: Foreign Competition and Domestic Innovation: Evidence from U.S. Patents. In this paper we empirically examine how rising import competition from China has affected U.S. innovation. We confront two empirical challenges in assessing the impact. We map all U.S. utility patents granted by March 2013 to firm-level data using a novel internet-based matching algorithm that corrects for a preponderance of false negatives when using firm names alone. And we contend with the fact that patenting is highly concentrated in certain product categories and that this concentration has been shifting over time. Accounting for secular trends in innovative activities, we find that the impact of the change in import exposure on the change in patents produced is strongly negative. It remains so once we add an extensive set of further industry- and firm-level controls. Rising import exposure also reduces global employment, global sales, and global R&D expenditure at the firm level. It would appear that a simple mechanism in which greater foreign competition induces U.S. manufacturing firms to contract their operations along multiple margins of activity goes a long way toward explaining the response of U.S. innovation to the China trade shock.

Eduardo Porter, NYT: A Dilemma for Humanity: Stark Inequality or Total War. Mr. Obama has led the most progressive administration since Lyndon B. Johnson’s half a century ago, raising taxes on the rich to expand the safety net for the less fortunate. Still, by the White House’s own account, eight years of trench warfare in Washington trimmed the top 1-percenters’ share, after taxes and transfers, to only 15.4 percent, from 16.6 percent of the nation’s income. So what does this leave us with? Another world war, with or without thermonuclear weapons? Let’s hope not. State collapse looks highly unlikely outside of some bits of sub-Saharan Africa. Revolution? Little chance, given the absence of any powerful ideological challenge to capitalism. “The world of the future is likely to be quite stable and have very high inequality,” Mr. Scheidel told me. Maybe we should just learn to stop worrying and love it.

David Card, Ana Rute Cardoso, Patrick Kline, Microeconomic insights: The gender wage gap: how firms influence women’s pay relative to men. Employers’ pay policies can contribute to the gender wage gap if women are less likely to work at high-paying firms or if women negotiate worse wage bargains then men. Analysing data from Portugal’s labour market, this research finds that differences among firms can explain up to 20% of the gender wage gap. Women tend to be employed at less productive firms that offer lower wages to their employees. Moreover, when women are hired by better-paying firms, their wages rise less than men, possibly because they are less effective negotiators. These findings call for renewed attention to equal pay and fair hiring laws.

Robert French, Philip Oreopoulos, VOX: When behavioural economics meets randomised control trials: Examples from Canadian public policy. Behavioural economics has been playing an increasingly important role in public policy the world over, and Canada is no exception. This column outlines the steps Canada is taking towards incorporating insights from the literature into its policies. It also highlights the emphasis that many agencies in Canada are placing on testing their prospective behavioural interventions through randomised control trials.

Deborah M. Gordon, OECD: Ants, algorithms and complexity without management. The process that generates simple interactions from colony behavior is what computer scientists call a distributed algorithm. No single unit, such as an ant or a router in a data network, knows what all the others are doing and tells them what to do. Instead, interactions between each unit and its local connections add up to the desired outcome. The correspondences between the regulation of collective behaviour and the changing conditions in which it operates might provide insight, and even inspire thinking about policy, in human social systems.  For ants or neurons, the network has no content. Studying natural systems can show us how the rhythm of local interactions creates patterns in the behaviour and development of large groups, and how such feedback evolves in response to a changing world.

DECEMBER 1 2016

Joel Mokyr, Project Syndicate: Is Our Economic Future Behind Us? In fact, pessimism has reigned over economists’ outlooks for centuries. In 1830, the British Whig historian Thomas Macaulay observed that, “[i]n every age, everybody knows that up to his own time, progressive improvement has been taking place; nobody seems to reckon on any improvement in the next generation.” Why, he asked, do people expect “nothing but deterioration”? Soon, Macaulay’s perspective was vindicated by the dawn of the railway age. Transformative advances in steel, chemicals, electricity, and engineering soon followed. When it comes to our technological future, I would expect a similar outcome. Indeed, I would go so far as to say, “We ain’t seen nothin’ yet.” Technological advances will create a tailwind of hurricane-like proportions to the world’s most advanced economies.

Robert J. Shiller, Economic View: Trump, and Great Business Ideas for America. A businessman with a lifetime of experience in management has been elected president of the United States. Donald J. Trump’s administration may be viewed as an experiment — an opportunity to discover whether one particular businessman’s perspective and skills will be assets in governing a nation. A business-oriented president could be helpful in this intellectual world, too, by taking actions like doubling the budget for the National Science Foundation, which was created in 1950 when Harry S. Truman was president, and infusing the National Institutes of Health, the National Endowment for the Arts and the National Endowment for the Humanities with more cash. In the best of outcomes, Mr. Trump will find a way to live up to this opportunity in the coming years, carefully fulfilling a promise to bring in the “best and most serious people” in the business community rather than the most loyal.

Eduardo Porter, NYT: Earth Isn’t Doomed Yet. The Climate Could Survive Trump Policies. It’s certainly possible that a Trump administration will drop the Clean Power Plan and renege on the Paris accord. But as long as it keeps the nation’s nuclear power plants online, continues tax incentives for wind and solar energy and stays out of the way of the shale energy revolution, the U.S. might outperform the commitments that the Obama administration made in Paris. For all his promises to bring back coal jobs in Appalachia, Mr. Trump might be drawn in a different direction by his own objectives of promoting natural gas and achieving energy independence. If he gives those goals high priority, he could well end up pursuing policies that would ultimately lower carbon emissions.

Justin Fox, Bloomberg: From Peak Oil to Peak Oil Demand in Just Nine Years. Simon Henry, the chief financial officer of Royal Dutch Shell, recently predicted a demand peak "between five and 15 years hence.” And as Bloomberg's Javier Blas and Laura Blewitt pointed out last week, even the IEA thinks that demand from passenger cars, long the biggest users of oil, has already peaked. So that's pretty exciting! The peaking of oil demand would mark a major historic turning point.

Ted Nordhaus,  Jessica Lovering, The Breakthrogh: Does Climate Policy Matter? The results as elaborated below have been decidedly mixed. For the most part, emissions signals from climate policies have consistently been overwhelmed by exogenous macro-economic and technological developments. The impact of climate policies has proven difficult to disentangle from other emissions drivers such as population growth, economic expansions and recessions, the collapse of the former Soviet Union, German reunification, the shale revolution in the United States and the shuttering of large nuclear fleets in Japan and Germany, to name just a few prominent factors and examples.

Nouriel Roubini, Project Syndicate: The Taming of Trump. But it is actually more likely that Trump will pursue pragmatic, centrist policies. For starters, Trump is a businessman who relishes the “art of the deal,” so he is by definition more of a pragmatist than a blinkered ideologue. His choice to run as a populist was tactical, and does not necessarily reflect deep-seated beliefs. Indeed, Trump is a wealthy real-estate mogul who has lived his entire life among other rich businessmen. He is a savvy marketer who tapped into the political zeitgeist by pandering to working-class Republicans and “Reagan Democrats,” some of whom may have supported Vermont Senator Bernie Sanders in the Democratic primary. This allowed him to stand out in a crowded field of traditional pro-business, pro-Wall Street, and pro-globalization politicians. Once in office, Trump will throw symbolic red meat to his supporters while reverting to the traditional supply-side, trickle-down economic policies that Republicans have favored for decades.

Andrew Prokop, VOX: Will economic populism lead Democrats to victory? Senate results should make us skeptical. Interestingly enough, in two of those crucial Midwestern states that flipped to Trump, Democratic Senate candidates campaigned on economically populist platforms — but they did notably worse than Hillary Clinton. Russ Feingold underperformed Clinton by 2.4 points in Wisconsin, and Ted Strickland underperformed her by 12.8 points in Ohio. Feingold amassed a populist record of challenging big money and special interests when he was in the Senate, and Strickland harshly condemned trade deals during his campaign against Rob Portman (who served as George W. Bush’s US trade representative).

Kenneth M. Langa, JAMA: A Comparison of the Prevalence of Dementia in the United States in 2000 and 2012. The aging of the US population is expected to lead to a large increase in the number of adults with dementia, but some recent studies in the United States and other high-income countries suggest that the age-specific risk of dementia may have declined over the past 25 years. We used data from the Health and Retirement Study (HRS), a nationally representative, population-based longitudinal survey of individuals in the United States 65 years or older from the 2000. The prevalence of dementia in the United States declined significantly between 2000 and 2012. An increase in educational attainment was associated with some of the decline in dementia prevalence, but the full set of social, behavioral, and medical factors contributing to the decline is still uncertain.

Jessi Hempel, Backchannel: According to Snopes, Fake News Is Not the Problem. But as managing editor of the fact-checking site Snopes, Brooke Binkowski believes Facebook’s perpetuation of phony news is not to blame for our epidemic of misinformation. “It’s not social media that’s the problem,” she says emphatically. The misinformation crisis, according to Binkowski, stems from something more pernicious. In the past, the sources of accurate information were recognizable enough that phony news was relatively easy for a discerning reader to identify and discredit. The problem, Binkowski believes, is that the public has lost faith in the media broadly.

International Number Ones. Every country is the best at something: Even if it’s a bad thing, like murder, child marriages or spam email. The aptly-named Information is Beautiful website has sifted through piles of data from the UN, the CIA, the Guardian and a bunch of other places to compile a world map that awards a gold star to just about every country on the planet.

NOVEMBER 24 2016

Patrick Schneider, BoE: There are two productivity puzzles. Much has been written about the productivity puzzle. But there are actually two puzzles apparent in the data – one in the level that hit at the crisis and the other in the growth rate, which is a more recent phenomenon – and they could be driven by completely different sources. Distinguishing between the two puzzles is important precisely because of these potential differences – if anyone analyses the puzzle as a whole looking for the force driving it, the actual underlying variety will confound our estimates of the relative importance of these drivers.

Thomas Piketty, The Guardian: We must rethink globalization, or Trumpism will prevail. Let it be said at once: Trump’s victory is primarily due to the explosion in economic and geographic inequality in the United States over several decades and the inability of successive governments to deal with this. It is time to change the political discourse on globalization: trade is a good thing, but fair and sustainable development also demands public services, infrastructure, health and education systems. In turn, these themselves demand fair taxation systems. If we fail to deliver these, Trumpism will prevail.

Simen Markussen, Knut Røed, IZA: Leaving Poverty Behind? The Effects of Generous Income Support Paired with Activation. We evaluate a comprehensive activation program in Norway targeted at hard-to-employ social assistance claimants with reduced work capacity. The program offers a combination of tailored rehabilitation, training and job practice, and a generous, stable, and non-meanstested benefit. Its main aims are to mitigate poverty and subsequently promote selfsupporting employment. Our evaluation strategy exploits a geographically staggered program introduction, and the causal effects are identified on the basis of changes in employment prospects that coincide with local program implementation in a way that correlates with the predicted probability of becoming a participant. We find that the program raised employment prospects considerably.

David M. Cutler, Wei Huang, Adriana Lleras-Muney, NBER: Economic Conditions and Mortality: Evidence from 200 Years of Data. Using data covering over 100 birth-cohorts in 32 countries, we examine the short- and long-term effects of economic conditions on mortality. We find that small, but not large, booms increase contemporary mortality. Yet booms from birth to age 25, particularly those during adolescence, lower adult mortality. A simple model can rationalize these findings if economic conditions differentially affect the level and trajectory of both good and bad inputs into health. Indeed, air pollution and alcohol consumption increase in booms. In contrast, booms in adolescence raise adult incomes and improve social relations and mental health, suggesting these mechanisms dominate in the long run.

Justin R. Pierce and Peter K. Schott, FED: Trade Liberalization and Mortality: Evidence from U.S. Counties. We investigate the impact of a large economic shock on mortality. We find that counties more exposed to a plausibly exogenous trade liberalization exhibit higher rates of suicide and related causes of death, concentrated among whites, especially white males. These trends are consistent with our finding that more-exposed counties experience relative declines in manufacturing employment, a sector in which whites and males are disproportionately employed. We also examine other causes of death that might be related to labor market disruption and find both positive and negative relationships. More-exposed counties, for example, exhibit lower rates of fatal heart attacks.

Christopher Chabris, WSJ: Does Chess Make You Smarter? To test the independent effect of playing chess, the Educational Endowment Foundation in the United Kingdom sponsored an experiment last year in which fifth-grade classrooms in 100 schools were randomly chosen either to incorporate chess lessons into their regular schedule or to continue instruction as usual. The students weren’t given IQ tests at the end of the year, but their performance in math, science and reading was evaluated. Those who had studied chess did no better than those who had not. A similar but slightly less rigorous 2011 study in Italy found, however, that adding chess instruction to third-grade classrooms improved the performance of students on math tests.

Lynn Vavreck, NYT: This Election Was Not About the Issues. Blame the Candidates. I compared the content of campaign ads with the content of news articles about two specific topics: candidate traits or characteristics, and the economy or jobs. Both the candidates and news organizations spent more time discussing the candidates’ fitness for office (or lack of it) than they did the nation’s economy. And the imbalance grew more lopsided as the election approached. Using analytic tools provided by Crimson Hexagon, I categorized the campaign news coverage of 23 media outlets. This consisted of four broadcast networks; three cable news networks; National Public Radio and Hugh Hewitt on the radio; two online news sites; and 12 newspapers. I specifically searched for news about Mrs. Clinton’s campaign and her email server or her campaign and WikiLeaks, and several controversies connected to Mr. Trump’s campaign. From this point, 53 percent of the campaign articles mentioning either controversies or the economy discuss Mrs. Clinton’s email, while only 6 percent mention her alongside jobs or the economy. As for Mr. Trump, 31 percent mention his entanglements, while 10 percent mention him related to jobs and the economy.

NOVEMBER 17 2016

Lawrence H. Summers, Summers Blog: A badly designed US stimulus will only hurt the working class. Populist economics will play out differently in the US than in emerging markets. But the results will be no better. All with a stake in the global economy must hope that now, as has happened often in the past, a US president faced with the responsibility of governing preserves the valid core of campaign economic plans while making major adjustments. Not even US presidents with political mandates can repeal the laws of economics.

Olivier Blanchard, PIIE: In Light of the Elections: Recession, Expansion, and Inequality. So, in the end, expansion or recession will depend on the balance between macroeconomic and trade measures. My own guess is the first will dominate, and growth will be sustained, at least for some time. Will it be enough to satisfy those who voted for Donald Trump, worried about their incomes and their futures? I am not so sure. Growth will indeed lift most boats. But many measures will push in the opposite direction. Lower corporate taxes, lower personal taxes on the rich, and financial deregulation will increase the share of output going to capital (this probably explains in part what is happening to the stock market). Tariffs on foreign goods may save some middle class jobs but will destroy others and increase the cost of living for those at the bottom end of the income distribution. Inequality may well go up, not down

Zidong An, IMF:The Evidence that Growth Creates Jobs: A New Look at an Old Relationship. New research from the IMF looks at Okun’s Law and asks, based on the evidence, will growth create jobs? The findings show a striking variation across countries in how employment responds to GDP growth over the course of a year. In some countries, when growth picks up, employment goes up and unemployment falls; in other countries the response is quite muted. A pick-up in growth—through a stimulus to the demand side of the economy, for instance increased government spending on infrastructure—will result in more jobs.

Heather Hurlburt, Project Syndicate:The Myth of the Women’s Vote. It may seem surprising that only 54% of the female electorate voted for Hillary Clinton, the first woman nominated for president by a major party. But while gender is a strong marker for how Americans think about certain issues, it is not the best predictor of how they will vote. It turns out that female candidates do not face a single gender gap, but rather multiple gender gaps.

Stumbling and Mumbling Blog: Is globalization to blame? Donald Trump’s victory is being seen as a backlash against globalization. For me, this poses the question: to what extent is globalization to blame for the decline in many workers’ real incomes? The answer, I suspect, is: not much. These papers by Ann Harrison and colleagues and Jonathan Haskel and colleagues show that it is very hard to link declining US real wages to increased openness to trade. Equally, it is unproven (to say the least) whether increased immigration has contributed to falling wages: George Borjas’s claim that it is has has been sharply challenged.

Binyamin Appelbaum, NYT: A Little-Noticed Fact About Trade: It’s No Longer Rising. The growth of trade among nations is among the most consequential and controversial economic developments of recent decades. Yet despite the noisy debates, which have reached new heights during this presidential campaign, it is a little-noticed fact that trade is no longer rising. The volume of global trade was flat in the first quarter of 2016, then fell by 0.8 percent in the second quarter, according to statisticians in the Netherlands, which happens to keep the best data.

Arthur Turrell, BoE: Power and progress. Energy is the fundamental currency of the physical world, while GDP is the imperfect catch-all measure of economic progress. Across countries, electricity and GDP are very strongly correlated. But which way does the causality go? Studies have found evidence for GDP causing electricity generation, electricity generation causing GDP and for a bi-directional relationship.  For the UK, the evidence suggests that it is a bi-directional dependence, based on a bootstrapped Granger causality test. Given over 85% of the world’s primary energy consumption comes from fossil fuels, countries around the world are either going to have to find new ways to produce power or break the link between GDP and electricity – whichever direction the causality runs.

Tim Gohmann, behavioraleconomics.com: How Donald Trump Won the Election: A Behavioral Economics Explanation. Trump’s campaign execution was a simple yet elegant display of behavioral economics in practice as follows: 1. IDENTIFICATION — make such disparaging remarks about minorities that the core target “see themselves” in the candidate; 2. UTILITY — communicate the most motivating expected campaign result to the core target — a restoration of the value of their labor (and financial status), the cornerstone to making America great again; and 3. LOSS AVERSION — motivate the core target by suggesting that this was their only chance to recover their social and financial status, thereby empowering them to turn out in such record numbers that the opposition was overwhelmed.

NOVEMBER 10 2016

Paul Krugman, NYT: The Economic Fallout. It really does now look like President Trump, and markets are plunging. When might we expect them to recover? Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear. Still, I guess people want an answer: if the question is when markets will recover, a first-pass answer is never.

Lawrence H. Summers, Harvard University: Voters sour on traditional economic policy. It can hardly come as a great surprise that when economic growth falls short year after year and when its beneficiaries are a small subset of the population, electorates turn surly. They lose confidence in traditional policy approaches and their advocates. Looking back at the political traumas of 1968 when there were people in the streets in many countries, it is clear that there was something going on beyond specific issues like Vietnam in the US. In the same way as with Brexit, the rise of Donald Trump and Bernie Sanders, the strength of rightwing nationalists in many European countries, Vladimir Putin’s strength in Russia and the return of Mao worship in China, it is hard to escape the conclusion that the world is seeing a renaissance of populist authoritarianism. It is hard to escape the conclusion that the world is seeing a renaissance of populist authoritarianism.

José Cuesta, Mario Negre, Christoph Lakner, VOX: Know your facts: Poverty numbers. The percentage of people living in extreme poverty around the world has fallen by more than half over the past three decades. But polls show that most people are not only ignorant of this fact, but believe that poverty has increased. This column explores progress towards ending global poverty by 2030, the first of the UN’s Sustainable Development Goals. Poverty figures have fallen around the world since 1990, and there is a broad consensus on the policies needed for further reductions. Eradicating global poverty is achievable, but it is dependent on global and domestic political cooperation.

Nancy Cartwright, Angus Deaton, VOX: The limitations of randomised controlled trials. In recent years, the use of randomised controlled trials has spread from labour market and welfare programme evaluation to other areas of economics, and to other social sciences, perhaps most prominently in development and health economics. This column argues that some of the popularity of such trials rests on misunderstandings about what they are capable of accomplishing, and cautions against simple extrapolations from trials to other contexts.

The National Infrastructure Commission, UK: Call for Evidence. The Commission is a permanent body that “will operate independently, at arm’s length from government, as an executive agency of HM Treasury”. NIC has been established to provide the government with impartial, expert advice on major long-term infrastructure challenges. The Commission is launching a 15 week call for evidence to provide input into the development of its National Infrastructure Assessment. The Commission has identified 28 key questions which it believes will be important to answer in order to understand the main infrastructure challenges facing the country over the coming decades.

Patrick Bennett, Amine Ouazad, VOX: The relationship between job displacement and crime. A substantial body of literature finds significant effects of unemployment rates on crime rates. However, relatively little is known about the direct impact of individual unemployment on individual crime. This column examines the effect of job displacement on crime using 15 years of Danish administrative data. Being subject to a sudden and unexpected mass-layoff is found to increase the probability that an individual commits a crime. However, the findings stress the importance of policies targeting education and income inequality in mitigating crime.

NOVEMBER 3 2016

Ángel Ubide, VOX: The case for an active fiscal policy. The pre-crisis consensus was, and remains, very strong – the business cycle would be managed by monetary policy, while fiscal policy would focus solely on debt sustainability. In a world of zero interest rates, however, fiscal policy has to contribute to supporting aggregate demand and protecting against deflationary risks. This column outlines three ways in which a well-designed expansionary fiscal policy stance can contribute to better economic outcomes.

Stephen Redding, David Weinstein, VOX: What big data tells us about real income growth. Big data stands to transform economic measurement in substantial ways. The volume and precision of data available allows economists to revisit the foundational assumptions underpinning common indexes. This column presents a new empirical methodology that leverages big data to translate nominal numbers into real output or welfare. ‘The unified approach’ nests major price indexes and addresses implicit biases in these measures. An examination with barcode data suggests that standard methods of measuring welfare overstate cost of living increases by ignoring new products and demand shifts.

Melanie Arntz, Terry Gregory, Ulrich Zierahn, OECD: The Risk of Automation for Jobs in OECD Countries. A Comparative Analysis. In recent years, there has been a revival of concerns that automation and digitalisation might after all result in a jobless future. These studies follow an occupation-based approach proposed by Frey and Osborne (2013), i.e. they assume that whole occupations rather than single job-tasks are automated by technology. We estimate the job automatibility of jobs for 21 OECD countries based on a task-based approach. In contrast to other studies, we take into account the heterogeneity of workers’ tasks within occupations. Overall, we find that, on average across the 21 OECD countries, 9 % of jobs are automatable. The threat from technological advances thus seems much less pronounced compared to the occupation-based approach. We further find heterogeneities across OECD countries. For instance, while the share of automatable jobs is 6 % in Korea, the corresponding share is 12 % in Austria. Differences between countries may reflect general differences in workplace organisation, differences in previous investments into automation technologies as well as differences in the education of workers across countries.

OECD Statistics Directorate: Statistical Insights: What does GDP per capita tell us about households’ material well-being? The preferred measure of people’s material well-being is household disposable income per capita, which represents the maximum amount a household can consume without having to reduce its assets or to increase its liabilities. The above-mentioned factors can create significant differences between measures of household disposable income per capita and GDP per capita. The United States for example see its position relative to the OECD average jump by more than 10 percentage points. On the other hand, Norway falls from 1st on a GDP basis to 4th on a household disposable income basis while Ireland drops dramatically. Switzerland also sees falls in its household income vs GDP ranking, partly because of the relatively large number of cross-border workers.

Manudeep Bhuller, Gordon B. Dahl, Katrine V. Løken, Magne Mogstad, University of Chicago: Incarceration, Recidivism and Employment. We construct a panel dataset containing the criminal behavior and labor market outcomes of the entire population, and exploit the random assignment of criminal cases to judges who differ systematically in their stringency in sentencing defendants to prison. Using judge stringency as an instrumental variable, we find that imprisonment discourages further criminal behavior, and that the reduction extends beyond incapacitation. Incarceration decreases the probability an individual will reoffend within 5 years by 27 percentage points, and reduces the number of offenses over this same period by 10 criminal charges. In comparison, OLS shows positive associations between incarceration and subsequent criminal behavior. This sharp contrast suggests the high rates of recidivism among ex-convicts is due to selection, and not a consequence of the experience of being in prison. Exploring factors that may explain the preventive effect of incarceration, we find the decline in crime is driven by individuals who were not working prior to incarceration. Contrary to the widely embraced ‘nothing works’ doctrine, these findings demonstrate that time spent in prison with a focus on rehabilitation can indeed be preventive.

Robert J. Shiller, Times: What’s Behind a Rise in Ethnic Nationalism? Maybe the Economy. It is natural to ask whether something so broad might have a common cause, other than the obvious circumstantial causes like the gradual fading of memories about the horrors of ethnic conflict in World War II or the rise in this century of forms of violent ethnic terrorism. Economics is my specialty, and I think economic factors may explain at least part of the trend.

Pascal Mittermaier, Project Syndicate: How Trees Make Cities Healthier. Heat waves account for more deaths than any other type of weather-related event, killing more than 12,000 people worldwide each year. Making matters worse, cities tend to have higher rates of air pollution, especially fine particulate matter (PM) resulting from the combustion of fossil fuels and biomass, which contributes to up to three million deaths every year. Fortunately, there is a simple step that municipal leaders can take to reduce both extreme heat and air pollution: plant more trees.