SEPTEMBER 29 2016

Ben Bernanke, Brookings: Modifying the Fed’s policy framework: Does a higher inflation target beat negative interest rates? It would be extremely helpful if central banks could count on other policymakers, particularly fiscal policymakers, to take on some of the burden of stabilizing the economy during the next recession. Since that can’t be assured, and since the current low-interest-rate environment may persist, there are good reasons for the Fed and other central bankers to consider changes in their policy frameworks. The option of raising the inflation target should be part of that discussion. But, as I have argued in this post, it is premature to rule out alternative or potentially complementary approaches, including the possibility of using negative interest rates.

Larry Summers, FT: Building the case for greater infrastructure investment. The case for infrastructure investment has been strong for a long time, but it gets stronger with each passing year, as government borrowing costs decline and ongoing neglect raises the return on incremental spending increases. As it becomes clearer that growth will not return to pre-financial-crisis levels on its own, the urgency of policy action rises. Just as the infrastructure failure at Chernobyl was a sign of malaise in the Soviet Union’s last years, profound questions about America’s future are raised by collapsing bridges, children losing IQ points because of lead in water and an air traffic control system that does not use GPS technology.

 

John Lewis, BoE: Robot Macroeconomics: What can theory and several centuries of economic history teach us? On the plus side, if you are worried about secular stagnation then robots offer you a couple of reasons to be cheerful.   First up, if robotisation does constitute a major productivity gain that raises the marginal productivity of capital, then this should push up on long run-equilibrium real rates, and hence ease fears of secular stagnation.  Second, whilst economic theory usually assumes that technological growth means capital is just costlessly melted down and made into newer, more productive machines, in practice, some innovations might require scrapping of old capital, and hence a wave of new investment.

Robert Rich, Joseph Tracy, Ellen Fu; NY FED: U.S. Real Wage Growth: Slowing Down With Age. Life-cycle pattern of real wage growth is characterized by high growth early in a worker’s career, little to no growth in mid-career, and negative growth as workers near retirement. A growing fraction of the U.S. adult population is transitioning into the flat to negative real wage growth phases of their careers. Here, we turn our attention to estimating the effect of this demographic shift on the economy-wide average real wage growth rate. Our analysis shows that this economy-wide average real wage growth rate has declined by a third since the mid-1980s.

The National Academies of Science: The Economic and Fiscal Consequences of Immigration. The number of immigrants living in the United States increased by more than 70 percent—from 24.5 million (about 9 percent of the population) in 1995 to 42.3 million (about 13 percent of the population) in 2014. One set of headline questions concerns the economy, specifically jobs and wages. Other questions arise about taxes and public spending. The literature on employment impacts finds little evidence that immigration significantly affects the overall employment levels of native-born workers. However, recent research finds that immigration reduces the number of hours worked by native teens. There is some evidence that recent immigrants reduce the employment rate of prior immigrants. Cross-sectional data from 1994-2013 reveal that, at any given age, the net fiscal contribution of adults in the first generation (and not including costs or benefits generated by their dependents) was on average consistently less favorable than that of the second and third-plus generations. Viewed over a long time horizon (75 years in our estimates), the fiscal impacts of immigrants are generally positive at the federal level and negative at the state and local levels.

Robert J. Shiller, NYT: Today’s Inequality Could Easily Become Tomorrow’s Catastrophe.  Truly extreme gaps in income and wealth could arise from many causes. Consider just a few: Innovations in robotics and artificial intelligence, which are already making many jobs uncompetitive, could lead us into a world in which basic work with decent pay becomes impossible to find. An environmental disaster like global warming, pollution or disease could sharply reduce the ability of people of ordinary means to live in specific regions or entire countries.

The Economist: Post-truth politics. Art of the lie. That politicians sometimes peddle lies is not news. But post-truth politics is more than just an invention of whingeing elites who have been outflanked. The term picks out the heart of what is new: that truth is not falsified, or contested, but of secondary importance. Once, the purpose of political lying was to create a false view of the world. The lies of men like Mr Trump do not work like that. They are not intended to convince the elites, whom their target voters neither trust nor like, but to reinforce prejudices. Feelings, not facts, are what matter in this sort of campaigning.

Daily Mail: The police dog that can sniff out child porn. Dog named Ruger can detect a chemical found on flash drives or SD cards. This allows him to sniff out stashes of electronics to bust pedophiles. The dogs are trained by isolating the odor specific to these devices. Soon, he will join the K9 unit to sniff out pedophiles for the Internet Crimes Against Children Task Force.

SEPTEMBER 15 2015

Martin Wolf, FT: Monetary policy in a low-rate world. The first concerns what to do now. Above, I assumed that rates will have risen substantially, before the next recession. Yet this is far more likely if the economy is allowed to build up a substantial head of steam. Premature rises in interest rates might trigger a sharper slowdown than people expect and put central banks in the worst possible situation: tackling recession when rates remain extremely low. For this reason, as Fed governor Lael Brainard argues, “the costs to the economy of greater-than-expected strength in demand are likely to be lower than the costs of significant unexpected weakness”. The riskier policy is tightening policy too soon, not too late (Vi är många som inte har tillgång till ledande internationella tidningar, inte ens på jobbet, här ett tips: Kopiera titeln och sök i Google, klicka länken och ofta kan artikeln läsas utanför ”paywall”).

Robert J. Samuelson, Washington Post: Are aging and the economic slowdown linked? An aging United States reduces the economy’s growth — big time. That’s the startling conclusion of a new academic study, and if it withstands scholarly scrutiny, it could transform our national political and economic debate. We’ve known for decades, of course, that the retirement of the huge baby-boom generation — coupled with low birthrates — would make the United States an older society. But the study goes a giant step further, claiming that the very fact that the United States is an aging society weakens economic growth. “The fraction of the United States population age 60 or over will increase by 21 percent between 2010 and 2020,” says the study.

George J. Borjas, Joan Monras, Harvard: The Labor Market Consequences of Refugee Supply Shocks. This paper revisits four historical refugee shocks to document their labor market impact. We use a common empirical approach, derived from factor demand theory, and publicly available data to measure the impact of these shocks. Despite the differences in the political forces that motivated the various flows, and in economic conditions across receiving countries, the evidence reveals a common thread that confirms key insights of the canonical model of a competitive labor market: Exogenous supply shocks adversely affect the labor market opportunities of competing natives in the receiving countries, and often have a favorable impact on complementary workers. In short, refugee flows can have large distributional consequences.

Neil Irwin, NYT: The Economic Expansion Is Helping the Middle Class, Finally. For years, the standard knock on this economic expansion has been twofold: Growth has been slow, and big businesses and wealthy investors have been its major beneficiaries, rather than middle-class wage earners. And it has been a fair criticism. At least until recently. The most decisive evidence of improving fortunes is found in new census data released Tuesday showing that median household income rose a whopping 5.2 percent in 2015, to around $56,500. According to that data, incomes rose for black families, white families, Hispanic families and Asian-American families. It rose for young people and in households headed by middle-aged adults and older people. In short, the improvement was across the board to a remarkable degree.

Peter Cohen, Robert Hahn, Jonathan Hall, Steven Levitt, Robert Metcalfe, NBER: Using Big Data to Estimate Consumer Surplus: The Case of Uber. Estimating consumer surplus is challenging because it requires identification of the entire demand curve. We rely on Uber’s “surge” pricing algorithm and the richness of its individual level data to first estimate demand elasticities at several points along the demand curve. We then use these elasticity estimates to estimate consumer surplus. Using almost 50 million individual-level observations and a regression discontinuity design, we estimate that in 2015 the UberX service generated about $2.9 billion in consumer surplus in the four U.S. cities included in our analysis. For each dollar spent by consumers, about $1.60 of consumer surplus is generated. Back-of-the-envelope calculations suggest that the overall consumer surplus generated by the UberX service in the United States in 2015 was $6.8 billion.

Robert H. Frank, The Atlantic: Why Luck Matters More Than You Might Think. I have discovered that chance plays a far larger role in life outcomes than most people realize. And yet, the luckiest among us appear especially unlikely to appreciate our good fortune. People in higher income brackets are much more likely than those with lower incomes to say that individuals get rich primarily because they work hard. Other surveys bear this out: Wealthy people overwhelmingly attribute their own success to hard work rather than to factors like luck or being in the right place at the right time. When people see themselves as self-made, they tend to be less generous and public-spirited.

Stijn Baert, Simon Amez, IZA: No Better Moment to Score a Goal than Just Before Half Time? A Soccer Myth Statistically Tested. We test the soccer myth suggesting that a particularly good moment to score a goal is just before half time. To this end, rich data on 1,179 games played in the UEFA Champions League and UEFA Europa League are analysed. In contrast to the myth, we find that, conditional on the goal difference and other game characteristics at half time, the final goal difference at the advantage of the home team is 0.520 goals lower in case of a goal just before half time by this team. We show that this finding relates to this team's lower probability of scoring a goal during the second half.

SEPTEMBER 8 2016

Michael Spence, Project Syndicate: How to Fight Secular Stagnation. Much of the world, especially the advanced economies, has been mired in a pattern of slow and declining GDP growth in recent years, causing many to wonder whether this is becoming a semi-permanent condition – so-called “secular stagnation.” The answer is probably yes, but the question lacks precision, and thus has limited utility. There are, after all, different types of forces that could be suppressing growth, not all of which are beyond our control.

Antonio Fatás, Lawrence H. Summers, NBER:The Permanent Effects of Fiscal Consolidations. The global financial crisis has permanently lowered the path of GDP in all advanced economies. At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Our results provide support for the presence of strong hysteresis effects of fiscal policy. The large size of the effects points in the direction of self-defeating fiscal consolidations as suggested by DeLong and Summers (2012). Attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their long-term negative impact on output.

Thorvaldur Gylfason, VOX: Economic performance in two dimensions: How Europe beats the US. One-dimensional indicators such as GNI per capita are known to be flawed measures of wellbeing. The Human Development Index (HDI) introduced dimensions of health and education alongside income. This column argues that an HDI adjusted for inequality and hours worked gives deeper insight into a country's economic standing. Using this composite measure, the US falls from first to seventh among G8 countries.

Eric D. Gould, Alexander Hijzen, IMF: Growing Apart, Losing Trust? The Impact of Inequality on Social Capital. There is a widespread perception that trust and social capital have declined in United States as well as other advanced economies, while income inequality has tended to increase. While previous research has noted that measured trust declines as individuals become less similar to one another, this paper examines whether the downward trend in social capital is responding to the increasing gaps in income. The analysis uses data from the American National Election Survey (ANES) for the United States, and the European Social Survey (ESS) for Europe. The results provide robust evidence that overall inequality lowers an individual’s sense of trust in others in the United States as well as in other advanced economies. These effects mainly stem from residual inequality, which may be more closely associated with the notion of fairness, as well as inequality in the bottom of the distribution. Since trust has been linked to economic growth and development in the existing literature, these findings suggest an important, indirect way through which inequality affects macro-economic performance.

Seth Gershenson, Michael S. Hayes, IZA: Short-Run Externalities of Civic Unrest: Evidence from Ferguson, Missouri. We document externalities of the civic unrest experienced in Ferguson, MO following the police shooting of an unarmed black teenager. Difference-in-differences and synthetic control method estimates compare Ferguson-area schools to neighboring schools in the greater St. Louis area and find that the unrest led to statistically significant, arguably causal declines in students' math and reading achievement. Attendance is one mechanism through which this effect operated, as chronic absence increased by five percent in Ferguson-area schools. Impacts were concentrated in elementary schools and at the bottom of the achievement distribution and spilled over into majority black schools throughout the area.

Noah Smith, Bloomberg: Data Geeks Are Taking Over Economics. So in recent years, many economists have been turning to an alternative approach and chucking theory out the window entirely. Instead of a complicated model about optimization and utility functions and blah blah blah, just look for a case where some kind of random change in the economy -- a so-called natural experiment -- offers a window into some important question. For example, you could study a random influx of refugees to answer the question of how immigration affects local labor markets. You don’t need a complicated theory of how workers and companies behave -- all you need is a simple linear model of how X affects Y. And so far, the revolution is winning. As economists Matthew Panhans and John Singleton document in a recent paper, quasi-experimental techniques are an increasingly large piece of academic publishing.

SEPTEMBER 2 2016

Shekhar Aiyar, Christian Ebeke, Xiaobo Shao, IMF: The Euro Area Workforce is Aging, Costing Growth. The euro area’s population is expected to grow significantly older over the next couple of decades. This has two components. First, the number of retirees is set to grow compared to the people of working age (15–64) in the region. Second, and much less examined, the average age of people within the labor force will rise: the share of workers aged 55–64 is forecast to increase by a third, from 15 percent to 20 percent, over the next two decades. Aging will take a considerable toll on productivity growth over the medium- to long-term. Average total factor productivity growth in the euro area is forecast to be around 0.8 percent per year. This could be higher by a quarter—that is to say, total factor productivity could increase to about one percent per year—if we shut down the effect of workforce aging. The burden of workforce aging will fall unequally across euro area member states. Worryingly, some of the largest adverse effects on productivity will fall on countries that can least afford it, such as Greece, Spain, Portugal, and Italy.

David Halpern, BoE: It’s time to bring more realistic models of human behaviour into economic policy and regulation. Behaviour science has had major impacts on policy in recent years. Introducing a more realistic model of human behaviour – to replace the ‘rational’ utility-maximizer – has enabled policymakers to boost savings; increase tax payments; encourage healthier choices; reduce energy consumption; boost educational attendance; reduce crime; and increase charitable giving. But there remain important areas where its potential has yet to be realised, including macroeconomic policy and large areas of regulatory practice. Businesses, consumers, and even regulators are subject to similar systematic biases to other humans. These include overconfidence; being overly influenced by what others are doing; and being influenced by irrelevant information. The good news is that behavioural science offers the prospect of helping regulators address some of their most pressing issues. This includes: anticipating and addressing ‘animal spirits’ that drive bubbles or sentiment-driven slowdowns; reducing corrupt market practices; and encouraging financial products that are comprehensible to humans.

Rasmus Landersø, James J. Heckman, NBER: The Scandinavian Fantasy: The Sources of Intergenerational Mobility in Denmark and the U.S. This paper examines the sources of differences in social mobility between the U.S. and Denmark. Measured by income mobility, Denmark is a more mobile society, but not when measured by educational mobility. There are pronounced nonlinearities in income and educational mobility in both countries. Greater Danish income mobility is largely a consequence of redistributional tax, transfer, and wage compression policies. While Danish social policies for children produce more favorable cognitive test scores for disadvantaged children, these do not translate into more favorable educational outcomes, partly because of disincentives to acquire education arising from the redistributional policies that increase income mobility.

Jeff Gou, Washington Post: The clearest proof yet that your job is killing you. For decades now, the modern worker has been urged to slow down, chill out, de-stress. Doctors link long shifts and on-the-job anxiety to high blood pressure, heart disease, depression and stroke. Yet, so far, the connection between job strain and bad health has mostly been correlational. Recently, economists at Purdue and the University of Copenhagen made a clever attempt to clear up the question. They looked at Danish manufacturing companies where overseas sales increased unexpectedly because of changes in foreign demand or transportation costs between 1996 and 2006. These constituted a set of natural experiments. At firms where exports spiked, there was suddenly a lot more work to do, a lot more things to sell. Researchers found that women at companies where there was an export boom were subsequently more likely to be treated for severe depression, and more likely to take prescription medication for heart attack or stroke. For both men and women, there was also an increase in severe on-the-job injuries.

Roland G. Fryer, Jr, NBER: An Empirical Analysis of Racial Differences in Police Use of Force. This paper explores racial differences in police use of force. On non-lethal uses of force, blacks and Hispanics are more than fifty percent more likely to experience some form of force in interactions with police. Adding controls that account for important context and civilian behavior reduces, but cannot fully explain, these disparities. On the most extreme use of force – officer-involved shootings – we find no racial differences in either the raw data or when contextual factors are taken into account. We argue that the patterns in the data are consistent with a model in which police officers are utility maximizers, a fraction of which have a preference for discrimination, who incur relatively high expected costs of officer-involved shootings.

Bjorn Lomborg, US Today: Organic food is great business, but a bad investment. An organic label sends our skepticism and good sense out the window. Consumers in one study were given two sets of absolutely identical food items, with one set marked “organic” and one not. They declared the food they believed to be “organic” to be lower in calories and more nutritious, and were willing to pay 16% to 23% more. It’s called the “health halo” effect. Organic food has become the fastest-growing sector of the U.S. food industry, with sales that increase by double digits annually. But organics are not better for your health, worse for nature and the planet, and terrible for the world’s poor. What it boils down to is the world’s richest people spending their cash to support less efficient farming practices, to feel better about their choices.

AUGUST 25 2016

Yuliya Demyanyk et al., Cleveland FED: Does Fiscal Stimulus Work When Recessions Are Caused by Too Much Private Debt? We argue that fiscal stimulus funded by public debt is effective for increasing economic activity and employment even in recessions that are caused by overborrowing in the private sector. We analyze the impact of government spending on local economies between 2007 and 2009 and find evidence that the fiscal multiplier is higher in geographical areas characterized by higher individual household debt. The higher multiplier in those areas might be attributed to a direct increase in both household consumption and local economic slack.

George J. Borjas, The Politico: The Case for Extreme Immigrant Vetting. It’s a practice as American as apple pie—and for good reason. In his major foreign policy speech earlier this week, Donald Trump explained how he would expand the “ideological” vetting of immigrants who want to come to the United States. “The time is overdue to develop a new screening test for the threats we face today,” he said. “I call it extreme vetting. As with practically all of Trump’s policy statements, the over-the-top commentary came swiftly. Over at the Washington Post an opinionator opined that Trump’s ideas were crazier than crazy. At MSNBC a commentator commented that “this is the single most un-American thing I have ever heard in my life.” If all those pundits had bothered to do just a couple of minutes of googling before reacting, they would have discovered that immigrant vetting, and even extreme immigrant vetting, has a very long tradition in American history. Since before the founding even, U.S. policies about whom the country chooses to welcome and reject have changed in response to changing conditions. As early as 1645, the Massachusetts Bay Colony prohibited the entry of poor or indigent persons. By the early 20th century, the country was filtering out people who had “undesirable” traits, such as epileptics, alcoholics and polygamists.

Emily Breza, Supreet Kaur, Yogita Shamdasani, NBER: The Morale Effects of Pay Inequality. The idea that worker utility is affected by co-worker wages has potentially broad labor market implications. In a month-long experiment with Indian manufacturing workers, we randomize whether co-workers within production units receive the same flat daily wage or different wages (according to baseline productivity rank). For a given absolute wage, pay inequality reduces output and attendance by 0.24 standard deviations and 12%, respectively. These effects strengthen in later weeks. Pay disparity also lowers co-workers’ ability to cooperate in their self-interest. However, when workers can clearly observe productivity differences, pay inequality has no discernible effect on output, attendance, or group cohesion.

Stefan Pichler, Nicolas R. Ziebarth, NBER: The Pros and Cons of Sick Pay Schemes: Testing for Contagious Presenteeism and Noncontagious Absenteeism Behavior. This paper provides an analytical framework and uses data from the US and Germany to test for the existence of contagious presenteeism and negative externalities in sickness insurance schemes. The first part exploits high-frequency Google Flu data and the staggered implementation of U.S. sick leave reforms to show in a reduced-from framework that population-level influenza-like disease rates decrease after employees gain access to paid sick leave. Next, a simple theoretical framework provides evidence on the underlying behavioral mechanisms. The model theoretically decomposes overall behavioral labor supply adjustments ('moral hazard') into contagious presenteeism and noncontagious absenteeism behavior and derives testable conditions. The last part illustrates how to implement the model exploiting German sick pay reforms and administrative industry-level data on certified sick leave by diagnoses. It finds that the labor supply elasticity for contagious diseases is significantly smaller than for noncontagious diseases. Under the identifying assumptions of the model, in addition to the evidence from the U.S., this finding provides indirect evidence for the existence of contagious presenteeism.

Jonathan T. Rothwell, Gallup: Explaining Nationalist Political Views: The Case of Donald Trump. The 2016 US presidential nominee Donald Trump has broken with the policies of previous Republican Party presidents on trade, immigration, and war, in favor of a more nationalist and populist platform. Using detailed Gallup survey data for a large number of American adults, I analyze the individual and geographic factors that predict a higher probability of viewing Trump favorably and contrast the results with those found for other candidates. The results show mixed evidence that economic distress has motivated Trump support. His supporters are less educated and more likely to work in blue collar occupations, but they earn relative high household incomes, and living in areas more exposed to trade or immigration does not increase Trump support. There is stronger evidence that racial isolation and less strictly economic measures of social status, namely health and intergenerational mobility, are robustly predictive of more favorable views toward Trump, and these factors predict support for him but not other Republican presidential candidates.

Melvin Sanicas, Project Syndicate: Vaccines for an Aging Population. Thanks to child immunization programs, fewer children die each year from vaccine-preventable diseases. A similar, concentrated effort is now needed to produce similar benefits for adults, especially the elderly. By viewing vaccination as a lifelong priority, we can help people remain active and productive for as long as possible, benefiting them, their communities, and the world.

 

JUNE 23 2016

Greg Kaplan, Sam Schulhofer-Wohl, NBER: Inflation at the Household Level. We use scanner data to estimate inflation rates at the household level. Households' inflation rates are remarkably heterogeneous, with an interquartile range that varies between 6.2 and 9.0 percentage points on an annual basis. Most of the heterogeneity comes not from variation in broadly defined consumption bundles but from variation in prices paid for the same types of goods — a source of variation that previous research has not measured. The entire distribution of household inflation rates shifts in parallel with aggregate inflation. Deviations from aggregate inflation exhibit only slightly negative serial correlation within each household over time, implying that the difference between a household's price level and the aggregate price level is persistent. Together, the large cross-sectional dispersion and low serial correlation of household-level inflation rates mean that almost all of the variability in a household's inflation rate over time comes from variability in household-level prices relative to average prices for the same goods, not from variability in the aggregate inflation rate. We provide a characterization of the stochastic process for household inflation that can be used to calibrate models of household decisions.

Wolfgang Keller, Hâle Utar, NBER:International Trade and Job Polarization: Evidence at the Worker-Level. This paper examines the role of international trade for job polarization, the phenomenon in which employment for high- and low-wage occupations increases but mid-wage occupations decline. With employer-employee matched data on virtually all workers and firms in Denmark between 1999 and 2009, we use instrumental-variables techniques and a quasi-natural experiment to show that import competition is a major cause of job polarization. Import competition with China accounts for about 17% of the aggregate decline in mid-wage employment. Many mid-skill workers are pushed into low-wage service jobs while others move into high-wage jobs. The direction of movement, up or down, turns on the skill focus of workers’ education. Workers with vocational training for a service occupation can avoid moving into low-wage service jobs, and among them workers with information-technology education are far more likely to move into high-wage jobs than other workers.

Angus Deaton, Project Syndicate: Rethinking Robin Hood. Huge strides have undoubtedly been made in reducing global poverty, more through growth and globalization than through aid from abroad. While impressive and wholly welcome, poverty reduction has not come without a cost. The globalization that has rescued so many in poor countries has harmed some people in rich countries, as factories and jobs migrated to where labor is cheaper. This seemed to be an ethically acceptable price to pay, because those who were losing were already so much wealthier (and healthier) than those who were gaining. Globalization is less splendid for those who not only don’t reap its benefits, but suffer from its impact. We have long known that less-educated and lower-income Americans, for example, have seen little economic gain for four decades, and that the bottom end of the US labor market can be a brutal environment. But just how badly are these Americans suffering from globalization? Are they much better off than the Asians now working in the factories that used to be in their hometowns?

Jonas Helgertz, Kirk Scott, Christopher D. Smith,  IZA: Parents’ years in Sweden and children’s educational performance. This paper assesses the intergenerational effect of immigrant parents’ incorporation experiences, measured as time in Sweden, on the educational performance of their children, using full Swedish population registry data for 22 cohorts. Employing family fixed-effects, we examine final course grades and national standardized test scores in Swedish and math by parents’ country of origin. Results show a positive effect of parents’ time in Sweden on their children’s performance in Swedish, but not for math performance. These results demonstrate the importance of parents’ linguistic acculturation on their children’s educational performance.

OECD: Equations and Inequalities - Making Mathematics Accessible to All. More than ever, students need to engage with mathematical concepts, think quantitatively and analytically, and communicate using mathematics. All these skills are central to a young person’s preparedness to tackle problems that arise at work and in life beyond the classroom. But the reality is that many students are not familiar with basic mathematics concepts and, at school, only practice routine tasks that do not improve their ability to think quantitatively and solve real-life, complex problems. One way forward is to ensure that all students spend more “engaged” time learning core mathematics concepts and solving challenging mathematics tasks. The opportunity to learn mathematics content – the time students spend learning mathematics topics and practising maths tasks at school – can accurately predict mathematics literacy. Differences in students’ familiarity with mathematics concepts explain a substantial share of performance disparities in PISA between socio-economically advantaged and disadvantaged students. Widening access to mathematics content can raise average levels of achievement and, at the same time, reduce inequalities in education and in society at large.

Valerie Wilson, EPI: People of color will be a majority of the American working class in 2032. This estimate, based on long-term labor force projections from the Bureau of Labor Statistics and trends in college completion by race and ethnicity, is 11 years sooner than the Census Bureau projection for the overall U.S. population, which becomes “majority-minority” in 2043. Wage stagnation is a universal problem for the working class, regardless of race, ethnicity, or gender. This is an area of immense common ground, because in order to deal with class inequality (a cause of wage stagnation), we have to deal with racial disparities. At the same time, reducing racial inequality means also addressing class inequality.

 

JUNE 17 2016

Lawrence H. Summers: The economic consequences of a Trump win would be severe. What I find surprising is that US and global markets and financial policymakers seem much less sensitive to “Trump risk” than they are to “Brexit risk”. Options markets suggest only modestly elevated volatility in the period leading up to the presidential election. While every Fed watcher comments on the implications of Brexit for the central bank, few, if any, comment on the possible consequences of a victory for Mr Trump in November. Yet, as great as the risks of Brexit are to the British economy, I believe the risks to the US and global economies of Mr Trump’s election as president are far greater. If he is elected, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States.

Chad Syverson, NBER: Challenges to Mismeasurement Explanations for the U.S. Productivity Slowdown. Labor productivity in the United States—defined as total output divided by total hours of labor—has been increasing for over a century and continues to increase today. However, its growth rate has fallen. One explanation for this phenomenon focuses on measurement difficulties, in particular the possibility that current tools for measuring economic growth do not fully capture recent advances in the goods and services associated with digital communications technology. Mismeasurement of the prices and quantities of digital goods and services cannot account for the decline in the growth of labor productivity.

Torben M. Andersen, Silvia Migali, IZA: Migrant Workers and the Welfare State. There is wide concern that migration flows may undermine the financial viability of generous welfare arrangements. The discussion focuses on welfare arrangements as attractors of migrants, suggesting that the issue does not pertain to migrant workers. However, this overlooks how welfare arrangements affect return-migration in case of social events like job loss. Importantly, migrants are shown to be self-selected in a way affecting both migration and return-migration. Two migration regimes prevail. In one, with relatively low benefits, unemployed workers return, while in the other some stay. Importantly, the stay or return migration decision is more sensitive to welfare generosity than the migration decision.

Umut Özek, David N. Figlio, NBER: Cross-Generational Differences in Educational Outcomes in the Second Great Wave of Immigration. We make use of a new data source – matched birth records and longitudinal student records in Florida – to study the degree to which student outcomes differ across successive immigrant generations. We find evidence suggesting that early-arriving first generation immigrants perform better than do second generation immigrants, and second generation immigrants perform better than third generation immigrants. Among first generation immigrants, the earlier the arrival, the better the students tend to perform. These patterns of findings hold for both Asian and Hispanic students, and suggest a general pattern of successively reduced achievement – beyond a transitional period for recent immigrants – in the generations following the generation that immigrated to the United States.

Bjørn Lomborg, Project Syndicate: The Evidence on Education Reforms. It is almost universally agreed that more education is good for society. But it turns out that some popular educational policies achieve very little, while others that are often overlooked can make a huge difference. Whether for Bangladesh or elsewhere, the real lessons to be taken away from this research is that we need to look past trendy policies like adding technology to classrooms. The key to educational progress is to focus on interventions backed by credible scientific evidence.

Chenkai Wu, Michelle C Odden, Gwenith G Fisher, Robert S Stawski, JECH: Association of retirement age with mortality: a population-based longitudinal study among older adults in the USA. On the basis of the Health and Retirement Study, 2956 participants who were working at baseline (1992) and completely retired during the follow-up period from 1992 to 2010 were included. Healthy retirees (n=1934) were defined as individuals who self-reported health was not an important reason to retire. Over the study period, 234 healthy and 262 unhealthy retirees died. Among healthy retirees, a 1-year older age at retirement was associated with an 11% lower risk of all-cause mortality (95% CI 8% to 15%), independent of a wide range of sociodemographic, lifestyle and health confounders. Similarly, unhealthy retirees (n=1022) had a lower all-cause mortality risk when retiring later (HR 0.91, 95% CI 0.88 to 0.94). None of the sociodemographic factors were found to modify the association of retirement age with all-cause mortality.

Efraim Benmelech, Esteban F. Klor, NBER: What Explains the Flow of Foreign Fighters to ISIS? This paper provides the first systematic analysis of the link between economic, political, and social conditions and the global phenomenon of ISIS foreign fighters. We find that poor economic conditions do not drive participation in ISIS. In contrast, the number of ISIS foreign fighters is positively correlated with a country's GDP per capita and Human Development Index (HDI). In fact, many foreign fighters originate from countries with high levels of economic development, low income inequality, and highly developed political institutions. Other factors that explain the number of ISIS foreign fighters are the size of a country's Muslim population and its ethnic homogeneity. Although we cannot directly determine why people join ISIS, our results suggest that the flow of foreign fighters to ISIS is driven not by economic or political conditions but rather by ideology and the difficulty of assimilation into homogeneous Western countries.

JUNE 10 2016

Gauti B. Eggertsson, Neil R. Mehrotra, Sanjay R. Singh, Lawrence H. Summers, NBER: A Contagious Malady? Open Economy Dimensions of Secular Stagnation. Conditions of secular stagnation - low interest rates, below target inflation, and sluggish output growth - characterize much of the global economy. We consider an overlapping generations, open economy model of secular stagnation, and examine the effect of capital flows on the transmission of stagnation. In a world with a low natural rate of interest, greater capital integration transmits recessions across countries as opposed to lower interest rates. In a global secular stagnation, expansionary fiscal policy carries positive spillovers implying gains from coordination, and fiscal policy is self-financing. Expansionary monetary policy, by contrast, is beggar-thy-neighbor with output gains in one country coming at the expense of the other. Similarly, we find that competitiveness policies including structural labor market reforms or neomercantilist trade policies are also beggar-thy-neighbor in a global secular stagnation.

Mikhail Golosov, Guido Menzio, Princeton University. Agency Business Cycles. We propose a new business cycle theory. Firms need to randomize over firing or keeping workers who have performed poorly in the past, in order to give them an ex-ante incentive to exert effort. Firms have an incentive to coordinate the outcome of their randomizations, as coordination allows them to load the firing probability on states of the world in which it is costlier for workers to become unemployed and, hence, allows them to reduce overall agency costs. In the unique equilibrium, firms use a sunspot to coordinate the randomization outcomes and the economy experiences endogenous and stochastic aggregate fluctuations.

Nicola Fuchs-Schündeln, Paolo Masella, VOX: Long-Lasting effects of socialist education: Evidence from the German Democratic Republic. There are strong links between the nature of education in a country and its political institutions, and an individual’s education can impact their lifetime labour market choices. This column examines how being educated under a socialist regime impacts individuals in a free labour market. Using data on students from East and West Germany in the 1970s, it finds that a socialist regime education led to a larger spread in labour market outcomes – more of these individuals were not employed, but conditional on being employed, had higher wages and a higher probability of achieving a professional status in the East.

Iliev R., Axelrod R., PubMed.gov:Does Causality Matter More Now? Increase in the Proportion of Causal Language in English Texts. The vast majority of the work on culture and cognition has focused on cross-cultural comparisons, largely ignoring the dynamic aspects of culture. In this article, we provide a diachronic analysis of causal cognition over time. We hypothesized that the increased role of education, science, and technology in Western societies should be accompanied by greater attention to causal connections. To test this hypothesis, we compared word frequencies in English texts from different time periods and found an increase in the use of causal language of about 40% over the past two centuries. The observed increase was not attributable to general language effects or to changing semantics of causal words. We also found that there was a consistent difference between the 19th and the 20th centuries, and that the increase happened mainly in the 20th century.

Ivan G. Lopez Cruz, Sebastian Galiani, Gustavo Torrens, VOX: Stirring up a hornets’ nest: Geographic distribution of crime. A large empirical literature has revealed the effects of preventative and punitive measures on crime. This column examines the effects of police deployment strategies, comparing geographically concentrated protection with evenly dispersed protection across a city. The results suggests that when considering changes in the geographic distribution of police forces, we should take into account the effects on house prices and on reallocation of the population, as well as the overall effect on crime in the entire city.

Tim Harford, The Undercover Economist, The odds are you won’t know when to quit. Do we tend to quit too soon or quit too late? Are we too stubborn or not determined enough? There has been much excitement recently around the idea of “grit” — a personality trait representing commitment to and enthusiasm for long-term goals, championed by psychologist Angela Duckworth. She argues, plausibly, that grit is more important than talent in predicting a successful life. The idea is appealing in principle but one must ask what Duckworth’s brief “grit” questionnaire is really measuring. While Duckworth’s work suggests that perseverance is vital, other psychological research suggests that we sometimes persevere when we should not. Nobel laureate Daniel Kahneman, with the late Amos Tversky, discovered a tendency called “loss aversion”. Loss aversion is a disproportionate dislike of losses relative to gains, and it can lead us to cling on pig-headedly to bad decisions because we hate to stop playing when we’re behind.

JUNE 2 2016

Atif Mian, Amir Sufi, NBER: Who Bears the Cost of Recessions? The Role of House Prices and Household Debt. This chapter reviews empirical estimates of differential income and consumption growth across individuals during recessions. Most existing studies examine the variation in income and consumption growth across individuals by sorting on ex ante or contemporaneous income or consumption levels. We build on this literature by showing that differential shocks to household net worth coming from elevated household debt and the collapse in house prices play an underappreciated role. Using zip codes in the United States as the unit of analysis, we show that the decline in numerous measures of consumption during the Great Recession was much larger in zip codes that experienced a sharp decline in housing net worth. In the years prior to the recession, these same zip codes saw high house price growth, a substantial expansion of debt by homeowners, and high consumption growth. We discuss what models seem most consistent with this striking pattern in the data, and we highlight the increasing body of macroeconomic evidence on the link between household debt and business cycles. Our main conclusion is that housing and household debt should play a larger role in models exploring the importance of household heterogeneity on macroeconomic outcomes and policies.

Roger Backhouse, Beatrice Cherrier, University of Birmingham: 'It's Computerization, Stupid!' The Spread of Computers and the Changing Roles of Theoretical and Applied Economics. This paper challenges the widely held notion that the developments in computing are sufficient to explain the recent turn to applied economics. Developments in computer hardware were undoubtedly important. Yet, economists' appropriation of the new techniques allowed by computerization were highly selective, and influenced by the development of software and ties with other scientific communities, by the availability of business and governmental data, by salesmanship to policy-makers, and by how epistemologically acceptable these approaches were made to other economists. In particular, theoretical work was not be transformed by computers the way it was in physics or biology. We conjecture that the most profound effect of the increased availability of computers may have been to challenge the demarcation between theory and applied work.

Tomi Kyyrä, Juha Tuomala, IZA: Does Experience Rating Reduce Disability Inflow? This study explores whether the experience rating of employers’ disability insurance premiums affects the inflow of older employees to disability benefits in Finland. To identify the causal effect of experience rating, we exploit a pension reform that extended the coverage of the experience-rated premiums. The results show that a new disability benefit claim can cause substantial cost to the former employer through an increased premium. Nonetheless, we find no evidence of the significant effects of experience rating on the disability inflow. The lack of the behavioral effects may be due to the complexity of experience rating calculations and/or limited employer awareness.

Scott E. Carrell, Mark Hoekstra, Elira Kuka, NBER: The Long-Run Effects of Disruptive Peers. A large and growing literature has documented the importance of peer effects in education. However, there is relatively little evidence on the long-run educational and labor market consequences of childhood peers. We examine this question by linking administrative data on elementary school students to subsequent test scores, college attendance and completion, and earnings. To distinguish the effect of peers from confounding factors, we exploit the population variation in the proportion of children from families linked to domestic violence, who were shown by Carrell and Hoekstra (2010, 2012) to disrupt contemporaneous behavior and learning. Results show that exposure to a disruptive peer in classes of 25 during elementary school reduces earnings at age 26 by 3 to 4 percent. We estimate that differential exposure to children linked to domestic violence explains 5 to 6 percent of the rich-poor earnings gap in our data, and that removing one disruptive peer from a classroom for one year would raise the present discounted value of classmates' future earnings by $100,000.

Mark Leonard, Project Syndicate: Last Man Standing. Much of modern geopolitics seems to be following the plot from Game of Thrones, with many countries under so much political and economic stress that their only hope is that their rivals collapse before they do. So their governments cling to power while exploiting rivals’ internal weaknesses. Russian President Vladimir Putin is the prime example. His recent campaigns in Syria and Ukraine may look like the actions of a geopolitical buccaneer. But the root of his adventurism is domestic weakness. Russia’s annexation of Crimea, for example, was in large part an attempt to provide Putin’s regime with renewed legitimacy following a winter of discontent, during which demonstrators took to the streets to protest his return to the presidency.

Greg Ip WSJ: It’s Not the Economy, Stupid. Social disarray or cohesion are not always driven by economic ups and downs, as the 1960s attest. Economics cannot really explain why rapid growth in living standards coincided with so much political upheaval, just as it cannot explain why long periods of stagnation, as Japan has endured since the 1990s, are met with relative equanimity. Economics can’t explain why Britons may leave the European Union when the preponderance of evidence is that membership has made them richer. There is no way to predict the effect of so many different forces on the political choices that voters make. And even if there were, you would probably still not predict the rise of Mr. Trump, who got where he is by breaking every rule of conventional political and economic wisdom. Ultimately, the best explanation may be that he isn’t the product of larger economic forces: he’s the product of Donald Trump.

Eileen Moery, Robert J. Calin-Jageman, Social Psychological and Personality Science (2016): Direct and Conceptual Replications of Eskine (2013). Organic Food Exposure Has Little to No Effect on Moral Judgments and Prosocial Behavior. Is there a dark side to organic food? Eskine reported that participants exposed to organic food became much more morally judgmental and much less prosocial relative to participants exposed to neutral or comfort foods. This research sparked tremendous media interest, but was based on one experiment with a small sample size. We report three attempts to replicate Eskine using samples conferring high power, preregistered analysis plans, and original materials. Across two direct replications and an online conceptual replication, we found that organic food exposure has little to no effect on moral. Mere exposure to organic food is probably not sufficient to substantially change moral behavior.

Barry Ritholtz, The Bic Picture: 10 Cognitive Biases That Affect Your Everyday Decisions. Bandwagon effect, Availability Heuristic….

MAY 6 2016

Kishore Mahbubani, Lawrence H. Summers, Foreign Affairs: The Fusion of Civilizations. The Case for Global Optimism. To put it simply, the great world civilizations, which used to have detached and separate identities, now have increasingly overlapping areas of commonality. Most people around the world now have the same aspirations as the Western middle classes: they want their children to get good educations, land good jobs, and live happy, productive lives as members of stable, peaceful communities. Instead of feeling depressed, the West should be celebrating its phenomenal success at injecting the key elements of its worldview into other great civilizations.

Ghazala Azmat et al. IZA: What You Don't Know... Can't Hurt You? A Field Experiment on Relative Performance Feedback in Higher Education. This paper studies the effect of providing feedback to college students on their position in the grade distribution by using a randomized control experiment. This information was updated every six months during a three-year period. In the absence of treatment, students' underestimate their position in the grade distribution. The treatment significantly improves the students' self-assessment. We find that treated students experience a significant decrease in their educational performance, as measured by their accumulated GPA and number of exams passed, and a significant improvement in their self-reported satisfaction, as measured by survey responses obtained after information is provided but before students take their exams. Those effects, however, are short lived, as students catch up in subsequent periods. Moreover, the negative effect on performance is driven by those students who underestimate their position in the absence of feedback. Those students who overestimate initially their position, if anything, respond positively.

Indivar Dutta-Gupta et al., Georgetown Center on Poverty and Inequality: Lessons Learned From 40 Years of Subsidized Employment Programs. Subsidized employment programs have a wide range of potential benefits. First, these programs provide an important source of income to participating workers. Second, a number of experimentally-evaluated subsidized employment programs have successfully raised earnings and employment, with some programs providing lasting labor market impacts.4 Such programs have also decreased family public benefit receipt, raised school outcomes among the children of workers, boosted workers’ school completion, lowered criminal justice system involvement among both workers and their children, improved psychological well-being, and reduced longer-term poverty. There may be additional positive effects, such as increased child support.

Jutta Viinikainen et al., IZA: Born Entrepreneur? Adolescents' Personality Characteristics and Self-Employment in Adulthood. Is there an entrepreneurial personality and does it appear early in life? We provide a new answer on this question by using the so-called Type A behavior traits (Aggression, Leadership, Responsibility, and Eagerness-Energy), measured in childhood and adolescence, and examining their relationship to self-employment propensity in adulthood. Using data from the Young Finns Study linked to the Finnish Longitudinal Employer-Employee Data and the Longitudinal Population Census of Statistics, our results show that the early-life Leadership-dimension is significantly associated with a higher likelihood 1) of becoming self-employed later in life and 2) of being more successful as an entrepreneur, as approximated by sales. Our results also reinforce the prior evidence on the intergenerational transmission of entrepreneurship.

David Andolfatto: How old were the inventors of major inventions? I came across this fun column the other day listing a number of Famous Inventions, like the airplane, the camera, electricity, the car, etc, along with their inventors. A thought crossed my mind: how old were these inventors when they invented these inventions? Were they young like Marconi, who invented the radio in his early 20s? Or were they old like Gutenberg, who invented the printing press in his early 50s? In short, is there an age demographic that is responsible for producing major innovations? I have to admit, I was a little surprised--the median age is 40 (I was expecting younger).

Dan Nixon, BoE: Less is more: what does mindfulness mean for economics? Economic theory generally assumes that more consumption means greater happiness. This post puts forward an alternative, “less is more” perspective based around the concept of mindfulness. It argues that we may achieve greater happiness by seeking to simplify our desires, rather than satisfy them. The result – less consumption but greater wellbeing – could be especially important for debates around secular stagnation and ecological sustainability.

Holger Kirchmann, Lars Bergström,Thomas Kätterer, Rune Andersson, Fri tanke (2014): Den ekologiska drömmen. Myter och sanningar om ekologisk odling. Föreställningar om att ekologisk odling är klimatsmart och ger bättre livsmedel är felaktiga. Hundra procent ekologisk odling skulle vara en katastrof för framtida livsmedelsförsörjning och innebär större belastning på miljön till en hög kostnad. Konsumenterna får varken bättre livsmedel eller en bättre miljö om de köper ekologiskt odlad mat. Ekologiska livsmedel är inte giftfria. Ekomaten är inte heller nyttigare än konventionellt odlad mat. Ökad ekologisk odling försämrar allvarligt livsmedelsförsörjningen, både i Sverige och globalt. Ekoodling ger inte ett lägre utsläpp av näringsämnen till yt- och grundvatten. Ekoodling är inte klimatsmart.