An economics book used in some high schools holds that the Antichrist — a world ruler predicted in the New Testament — will one day control what is bought and sold.
24 Mayıs 2012 Perşembe
You are using the wrong textbook when...
The NY Times reports:
23 Mayıs 2012 Çarşamba
Air conditioners on the rebound
The various cash for clunkers programs during the last recession had two objectives in mind: create aggregate demand (or shift it from good to bad times) and improve the stock of capital. In the case of cars, it was expected that this would lower pollution. Other programs outside of recessions have had the same goal, for example subsidies to replace light bulbs or appliances for more energy efficient ones. But it does not always work out as expected.
Lucas Davis, Alan Fuchs and Paul Gertler look at a recent and large appliance renewal initiative in Mexico. A staggering 1.5 million households changed their refrigerator or air condition units for better ones, with again the goal of reducing electricity consumption. But it seems to have backfired for the AC units. Indeed, they seem to have been so much more efficient that people feel less guilty of running them, increasing the total energy consumption in the process. This is called the rebound effect, which has already been discussed here. And once again, nothing beats taxing energy use instead of subsidizing alternative energy, or alternative energy uses.
Lucas Davis, Alan Fuchs and Paul Gertler look at a recent and large appliance renewal initiative in Mexico. A staggering 1.5 million households changed their refrigerator or air condition units for better ones, with again the goal of reducing electricity consumption. But it seems to have backfired for the AC units. Indeed, they seem to have been so much more efficient that people feel less guilty of running them, increasing the total energy consumption in the process. This is called the rebound effect, which has already been discussed here. And once again, nothing beats taxing energy use instead of subsidizing alternative energy, or alternative energy uses.
Economics Educators Conference
In November, I will be speaking at the annual conference of the Gulf Coast Economics Association, which this year is being held in Orlando, Florida. If you are interested in attending, registration is now open.
22 Mayıs 2012 Salı
The impact of recessions on economist productivity
In recessions, those who have the hardest time finding jobs are those who try for the first time. Facing these difficulties, many decide to pursue their studies in graduate school. From this, one should expect future productivity to be higher in the future, because of the higher level of human capital. But for a given level of human capital, labor productivity should be lower post-recession, because the marginal new graduate is of lower quality.
Michael Boehm and Martin Watzinger look at the performance of PhD economists and find that those who studied or graduated during a recession over-perform the others as measured by publication records. That would not surprise me for those who graduated during tough times, as only the best get jobs. Indeed, the study matches those who graduated with those who are still members of the American Economic Association. Thus, there is some selection bias. But for those who start in a recession, and thus would graduate in "normal" times, given the average length of a recession, this is more surprising. Boehm and Watzinger can justify this with the good old Roy model of reallocation of talent: in a recession, people switch to recession proof sectors, and those who can do this the most easily are those who are about to choose in which sector to work: students. As the number of graduate students slots does not change much, at least in Economics, the quality of those admitted is higher, if the admission officers do their work well. As the publication record many years later shows, they do.
Michael Boehm and Martin Watzinger look at the performance of PhD economists and find that those who studied or graduated during a recession over-perform the others as measured by publication records. That would not surprise me for those who graduated during tough times, as only the best get jobs. Indeed, the study matches those who graduated with those who are still members of the American Economic Association. Thus, there is some selection bias. But for those who start in a recession, and thus would graduate in "normal" times, given the average length of a recession, this is more surprising. Boehm and Watzinger can justify this with the good old Roy model of reallocation of talent: in a recession, people switch to recession proof sectors, and those who can do this the most easily are those who are about to choose in which sector to work: students. As the number of graduate students slots does not change much, at least in Economics, the quality of those admitted is higher, if the admission officers do their work well. As the publication record many years later shows, they do.
21 Mayıs 2012 Pazartesi
Faulty Memories
In watching various news talk shows over the past few weeks, I have seen Democratic partisans make the following argument:
There are two things wrong with this.
First, the premise is incorrect. President Obama wants to raise income tax rates to where they were during the Clinton years. But because he has already raised the payroll tax as part of his healthcare reform (and also expanded the base of this tax to unearned income), the total tax rate under President Obama's proposal would exceed that during the Clinton years. All economists agree that it is the total tax rate that matters.
Second, it is worth remembering that the Clinton boom was in large measure driven by the dot-com bubble, which was coming to an unhappy conclusion during President Clinton's last year in office. (By the way, as I recall, President Bush did not spend as much time blaming his predecessor for bequeathing him a sick economy as President Obama has.) It seems unlikely that President Obama's tax increase will happen to coincide with another technological bubble that will drive the economy forward.
Reasonable people can disagree about the virtues of raising the top tax rate. But it is important to separate valid arguments from political spin based on a faulty recollection of history.
President Obama just wants to return top tax rates to where they where in the 1990s under President Clinton. And that was a great time for the U.S. economy. So one shouldn't be concerned about the impact of higher tax rates.
There are two things wrong with this.
First, the premise is incorrect. President Obama wants to raise income tax rates to where they were during the Clinton years. But because he has already raised the payroll tax as part of his healthcare reform (and also expanded the base of this tax to unearned income), the total tax rate under President Obama's proposal would exceed that during the Clinton years. All economists agree that it is the total tax rate that matters.
Second, it is worth remembering that the Clinton boom was in large measure driven by the dot-com bubble, which was coming to an unhappy conclusion during President Clinton's last year in office. (By the way, as I recall, President Bush did not spend as much time blaming his predecessor for bequeathing him a sick economy as President Obama has.) It seems unlikely that President Obama's tax increase will happen to coincide with another technological bubble that will drive the economy forward.
Reasonable people can disagree about the virtues of raising the top tax rate. But it is important to separate valid arguments from political spin based on a faulty recollection of history.
Predation, labor share and empirical evidence
When you look at national accounts, one striking fact is that the labor income share is remarkably stable in each country. And the average level of this labor income share varies quite dramatically across countries. These differences vanish to a large extend once you allocate proprietor's income (these are business owners) to labor income and capital income, but some differences remain.
Carlos Bethencourt and Fernando Perera-Tallo try to explain these differences. They build a model where workers can choose to produce or predate. If the labor income share is high, they rather produce, if it is low, predating is more interesting. With an increase in productivity, the labor income share increases, and this amplifies the impact on output as fewer people predate. This mechanism can thus make it easier to explain GDP/capita differences across countries from total factor productivity differences.
But for all this to happen, you need an elasticity of substitution between capital and labor in the production function below one, or the labor income share would not change. Empirical evidence for that is not that compelling though (hence the attractiveness of the Cobb-Douglas production function). And if the elasticity is above one, all results are reversed. But assume it is lower than one for a moment. Then it means that any attempt to improve institutions to make predation less rewarding should improve output. That would be anti-corruption campaigns, for example. Yet, I am not convinced that corruption actually lowers output. As I posted before, the empirical literature is not conclusive on this. And that empirical result would be consistent with the elasticity of substitution being close to one, if this model were not to be rejected.
Carlos Bethencourt and Fernando Perera-Tallo try to explain these differences. They build a model where workers can choose to produce or predate. If the labor income share is high, they rather produce, if it is low, predating is more interesting. With an increase in productivity, the labor income share increases, and this amplifies the impact on output as fewer people predate. This mechanism can thus make it easier to explain GDP/capita differences across countries from total factor productivity differences.
But for all this to happen, you need an elasticity of substitution between capital and labor in the production function below one, or the labor income share would not change. Empirical evidence for that is not that compelling though (hence the attractiveness of the Cobb-Douglas production function). And if the elasticity is above one, all results are reversed. But assume it is lower than one for a moment. Then it means that any attempt to improve institutions to make predation less rewarding should improve output. That would be anti-corruption campaigns, for example. Yet, I am not convinced that corruption actually lowers output. As I posted before, the empirical literature is not conclusive on this. And that empirical result would be consistent with the elasticity of substitution being close to one, if this model were not to be rejected.
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24 Mayıs 2012 Perşembe
You are using the wrong textbook when...
The NY Times reports:
An economics book used in some high schools holds that the Antichrist — a world ruler predicted in the New Testament — will one day control what is bought and sold.
23 Mayıs 2012 Çarşamba
Air conditioners on the rebound
The various cash for clunkers programs during the last recession had two objectives in mind: create aggregate demand (or shift it from good to bad times) and improve the stock of capital. In the case of cars, it was expected that this would lower pollution. Other programs outside of recessions have had the same goal, for example subsidies to replace light bulbs or appliances for more energy efficient ones. But it does not always work out as expected.
Lucas Davis, Alan Fuchs and Paul Gertler look at a recent and large appliance renewal initiative in Mexico. A staggering 1.5 million households changed their refrigerator or air condition units for better ones, with again the goal of reducing electricity consumption. But it seems to have backfired for the AC units. Indeed, they seem to have been so much more efficient that people feel less guilty of running them, increasing the total energy consumption in the process. This is called the rebound effect, which has already been discussed here. And once again, nothing beats taxing energy use instead of subsidizing alternative energy, or alternative energy uses.
Lucas Davis, Alan Fuchs and Paul Gertler look at a recent and large appliance renewal initiative in Mexico. A staggering 1.5 million households changed their refrigerator or air condition units for better ones, with again the goal of reducing electricity consumption. But it seems to have backfired for the AC units. Indeed, they seem to have been so much more efficient that people feel less guilty of running them, increasing the total energy consumption in the process. This is called the rebound effect, which has already been discussed here. And once again, nothing beats taxing energy use instead of subsidizing alternative energy, or alternative energy uses.
Economics Educators Conference
In November, I will be speaking at the annual conference of the Gulf Coast Economics Association, which this year is being held in Orlando, Florida. If you are interested in attending, registration is now open.
22 Mayıs 2012 Salı
The impact of recessions on economist productivity
In recessions, those who have the hardest time finding jobs are those who try for the first time. Facing these difficulties, many decide to pursue their studies in graduate school. From this, one should expect future productivity to be higher in the future, because of the higher level of human capital. But for a given level of human capital, labor productivity should be lower post-recession, because the marginal new graduate is of lower quality.
Michael Boehm and Martin Watzinger look at the performance of PhD economists and find that those who studied or graduated during a recession over-perform the others as measured by publication records. That would not surprise me for those who graduated during tough times, as only the best get jobs. Indeed, the study matches those who graduated with those who are still members of the American Economic Association. Thus, there is some selection bias. But for those who start in a recession, and thus would graduate in "normal" times, given the average length of a recession, this is more surprising. Boehm and Watzinger can justify this with the good old Roy model of reallocation of talent: in a recession, people switch to recession proof sectors, and those who can do this the most easily are those who are about to choose in which sector to work: students. As the number of graduate students slots does not change much, at least in Economics, the quality of those admitted is higher, if the admission officers do their work well. As the publication record many years later shows, they do.
Michael Boehm and Martin Watzinger look at the performance of PhD economists and find that those who studied or graduated during a recession over-perform the others as measured by publication records. That would not surprise me for those who graduated during tough times, as only the best get jobs. Indeed, the study matches those who graduated with those who are still members of the American Economic Association. Thus, there is some selection bias. But for those who start in a recession, and thus would graduate in "normal" times, given the average length of a recession, this is more surprising. Boehm and Watzinger can justify this with the good old Roy model of reallocation of talent: in a recession, people switch to recession proof sectors, and those who can do this the most easily are those who are about to choose in which sector to work: students. As the number of graduate students slots does not change much, at least in Economics, the quality of those admitted is higher, if the admission officers do their work well. As the publication record many years later shows, they do.
21 Mayıs 2012 Pazartesi
Faulty Memories
In watching various news talk shows over the past few weeks, I have seen Democratic partisans make the following argument:
There are two things wrong with this.
First, the premise is incorrect. President Obama wants to raise income tax rates to where they were during the Clinton years. But because he has already raised the payroll tax as part of his healthcare reform (and also expanded the base of this tax to unearned income), the total tax rate under President Obama's proposal would exceed that during the Clinton years. All economists agree that it is the total tax rate that matters.
Second, it is worth remembering that the Clinton boom was in large measure driven by the dot-com bubble, which was coming to an unhappy conclusion during President Clinton's last year in office. (By the way, as I recall, President Bush did not spend as much time blaming his predecessor for bequeathing him a sick economy as President Obama has.) It seems unlikely that President Obama's tax increase will happen to coincide with another technological bubble that will drive the economy forward.
Reasonable people can disagree about the virtues of raising the top tax rate. But it is important to separate valid arguments from political spin based on a faulty recollection of history.
President Obama just wants to return top tax rates to where they where in the 1990s under President Clinton. And that was a great time for the U.S. economy. So one shouldn't be concerned about the impact of higher tax rates.
There are two things wrong with this.
First, the premise is incorrect. President Obama wants to raise income tax rates to where they were during the Clinton years. But because he has already raised the payroll tax as part of his healthcare reform (and also expanded the base of this tax to unearned income), the total tax rate under President Obama's proposal would exceed that during the Clinton years. All economists agree that it is the total tax rate that matters.
Second, it is worth remembering that the Clinton boom was in large measure driven by the dot-com bubble, which was coming to an unhappy conclusion during President Clinton's last year in office. (By the way, as I recall, President Bush did not spend as much time blaming his predecessor for bequeathing him a sick economy as President Obama has.) It seems unlikely that President Obama's tax increase will happen to coincide with another technological bubble that will drive the economy forward.
Reasonable people can disagree about the virtues of raising the top tax rate. But it is important to separate valid arguments from political spin based on a faulty recollection of history.
Predation, labor share and empirical evidence
When you look at national accounts, one striking fact is that the labor income share is remarkably stable in each country. And the average level of this labor income share varies quite dramatically across countries. These differences vanish to a large extend once you allocate proprietor's income (these are business owners) to labor income and capital income, but some differences remain.
Carlos Bethencourt and Fernando Perera-Tallo try to explain these differences. They build a model where workers can choose to produce or predate. If the labor income share is high, they rather produce, if it is low, predating is more interesting. With an increase in productivity, the labor income share increases, and this amplifies the impact on output as fewer people predate. This mechanism can thus make it easier to explain GDP/capita differences across countries from total factor productivity differences.
But for all this to happen, you need an elasticity of substitution between capital and labor in the production function below one, or the labor income share would not change. Empirical evidence for that is not that compelling though (hence the attractiveness of the Cobb-Douglas production function). And if the elasticity is above one, all results are reversed. But assume it is lower than one for a moment. Then it means that any attempt to improve institutions to make predation less rewarding should improve output. That would be anti-corruption campaigns, for example. Yet, I am not convinced that corruption actually lowers output. As I posted before, the empirical literature is not conclusive on this. And that empirical result would be consistent with the elasticity of substitution being close to one, if this model were not to be rejected.
Carlos Bethencourt and Fernando Perera-Tallo try to explain these differences. They build a model where workers can choose to produce or predate. If the labor income share is high, they rather produce, if it is low, predating is more interesting. With an increase in productivity, the labor income share increases, and this amplifies the impact on output as fewer people predate. This mechanism can thus make it easier to explain GDP/capita differences across countries from total factor productivity differences.
But for all this to happen, you need an elasticity of substitution between capital and labor in the production function below one, or the labor income share would not change. Empirical evidence for that is not that compelling though (hence the attractiveness of the Cobb-Douglas production function). And if the elasticity is above one, all results are reversed. But assume it is lower than one for a moment. Then it means that any attempt to improve institutions to make predation less rewarding should improve output. That would be anti-corruption campaigns, for example. Yet, I am not convinced that corruption actually lowers output. As I posted before, the empirical literature is not conclusive on this. And that empirical result would be consistent with the elasticity of substitution being close to one, if this model were not to be rejected.
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