MAY 31 2017

Kevin J. Lansing, San Francisco FED: R-star, Uncertainty, and Monetary Policy. Investors’ demand for safe assets tends to increase when there’s more uncertainty, as in recessions. Consistent with this idea, short-term movements in the natural rate of interest, or r-star, are negatively correlated with an index of macroeconomic uncertainty. This relationship may be relevant for assessing monetary policy. An estimated policy rule that incorporates both r-star and the uncertainty index can largely reproduce the path of the federal funds rate since 1988, except during periods when policy was constrained by the zero lower bound.

Erik Brynjolfsson, Tom M. Mitchell, National Academies of Sciences: Information Technology and the U.S. Workforce: Where Are We and Where Do We Go from Here? A related, but more fundamental, issue is that productivity is neither a measure of technological progress nor welfare. Productivity is based on gross domestic product (GDP), which is in turn a measure of production or output. However, technological progress can increase welfare without increasing output. For instance, if Wikipedia replaces a paper encyclopedia or a free GPS mapping app replaces a stand-alone GPS device, then consumers can be better off even if output is stagnant or declining.

Simon Johnson, Jonathan Ruane, Project Syndicate: Jobs in the Age of Artificial Intelligence: We should not underestimate humans’ abilities to inflict damage on their community, their environment, and even the entire planet. Apocalyptic fiction writers may one day be proved correct. But, for now, we have a powerful new tool for enabling all people to live better lives. We should use it wisely.

Alan J. Auerbach et al. NBER: How the Growing Gap in Life Expectancy May Affect Retirement Benefits and Reforms. Older Americans have experienced dramatic gains in life expectancy in recent decades, but an emerging literature reveals that these gains are accumulating mostly to those at the top of the income distribution. We explore how growing inequality in life expectancy affects lifetime benefits from Social Security, Medicare, and other programs and how this phenomenon interacts with possible program reforms. We first project that life expectancy at age 50 for males in the two highest income quintiles will rise by 7 to 8 years between the 1930 and 1960 birth cohorts, but that the two lowest income quintiles will experience little to no increase over that time period. This divergence in life expectancy will cause the gap between average lifetime program benefits received by men in the highest and lowest quintiles to widen by $130,000 (in $2009) over this period. Finally we simulate the effect of Social Security reforms such as raising the normal retirement age and changing the benefit formula to see whether they mitigate or enhance the reduced progressivity resulting from the widening gap in life expectancy.

Roberto Bonfatti, Kevin O'Rourke, VOX: Growth, import dependence, and war in the context of international trade. Classical models suggest that shifts in the balance of power can lead to conflict, where the established power has the incentive to trigger war to deter the threat to its dominance. This column argues that this changes if international trade is taken into account. Industrialisation requires the import of natural resources, potentially leading a smaller nation to trigger war either against a resource-rich country or the incumbent nation. The model can help explain the US-Japanese conflict of 1941 and Hitler’s invasion of Poland, and has implications for US-Chinese relations today.

Michael Jetter, IZA: Terrorism and the Media: The Effect of US Television Coverage on Al-Qaeda Attacks. Can media coverage of a terrorist organization encourage their execution of further attacks? This paper analyzes the day-to-day news coverage of Al-Qaeda on US television since 9/11 and the group's terrorist strikes. To isolate causality, I use disaster deaths worldwide as an exogenous variation that crowds out Al-Qaeda coverage in an instrumental variable framework. The results suggest a positive and statistically powerful effect of CNN, NBC, CBS, and Fox News coverage on subsequent Al-Qaeda attacks. This result is robust to a battery of alternative estimations, extensions, and placebo regressions. One minute of Al-Qaeda coverage in a 30-minute news segment causes approximately one attack in the upcoming week, equivalent to 4.9 casualties, on average.

Oeindrila Dube, S.P. Harish, NBER: Queens. Are states led by women less prone to conflict than states led by men? We answer this question by examining the effect of female rule on war among European polities over the 15th-20th centuries. We utilize gender of the first born and presence of a female sibling among previous monarchs as instruments for queenly rule. We find that polities led by queens were more likely to engage in war than polities led by kings. Moreover, the tendency of queens to engage as aggressors varied by marital status. Among unmarried monarchs, queens were more likely to be attacked than kings. Among married monarchs, queens were more likely to participate as attackers than kings, and, more likely to fight alongside allies. These results are consistent with an account in which marriages strengthened queenly reigns because married queens were more likely to secure alliances and enlist their spouses to help them rule. Married kings, in contrast, were less inclined to utilize a similar division of labor. These asymmetries, which reflected prevailing gender norms, ultimately enabled queens to pursue more aggressive war policies.