Wednesday, April 23, 2014

Solow on Piketty

Sunday, April 20, 2014

Transitory Income and the One Percent

From today's NY Times:
Thomas A. Hirschl of Cornell and I [Mark Rank of Wash U] looked at 44 years of longitudinal data regarding individuals from ages 25 to 60 to see what percentage of the American population would experience these different levels of affluence during their lives. The results were striking. 
It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.... 
It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60).... 
Rather than talking about the 1 percent and the 99 percent as if they were forever fixed, it would make much more sense to talk about the fact that Americans are likely to be exposed to both prosperity and poverty during their lives, and to shape our policies accordingly. As such, we have much more in common with one another than we dare to realize.

Wednesday, April 16, 2014

Sometimes it's better to split the baby

This story about the Census Bureau is amazing to me: The Census is changing its annual survey about health insurance.  As a result, the new data will not be comparable to the old, making it much harder to gauge the effects of the Affordable Care Act.

Is this a White House conspiracy to hide the effects of the law, as some have suggested?  Maybe, but probably not. I have a lot of respect for the government data producers, so I am giving them the benefit of the doubt.

Yet I don't see why the Bureau needs to make such a sudden change.  Why not, for a few years, give half the sample the old questionnaire and half the new one?  This procedure would provide a basis for eventually splicing together the old and new time series.

Tuesday, April 15, 2014

The most fun event the Harvard economics department has sponsored since Kuznets did his song and dance number in drag

How to Give an Applied Micro Talk

Friday, April 11, 2014

Next time you hear someone advocate for single-payer healthcare, remember this

From the NY Times:
Two Florida doctors who received the nation’s highest Medicare reimbursements in 2012 are both major contributors to Democratic Party causes, and they have turned to the political system in recent years to defend themselves against suspicions that they may have submitted fraudulent or excessive charges to the federal government.... 
Topping the list is Dr. Salomon E. Melgen, 59, an ophthalmologist from North Palm Beach, Fla., who received $21 million in Medicare reimbursements in 2012 alone....  
Dr. Melgen’s firm donated more than $700,000 to Majority PAC, a super PAC run by former aides to the Senate majority leader, Harry Reid, Democrat of Nevada. The super PAC then spent $600,000 to help re-elect Senator Robert Menendez, Democrat of New Jersey, who is a close friend of Dr. Melgen’s. Last year, Mr. Menendez himself became a target of investigation after the senator intervened on behalf of Dr. Melgen with federal officials and took flights on his private jet.

Wednesday, April 09, 2014

Sentence of the Day

For Deacon Patrick Moynihan, Head of LCS [Louverture Cleary School], the importance of teaching economics in Haiti is clear, “After theology—economics is the most important science to study because the two things that impact everyone are God and the market.”
Here is the source.

Monday, April 07, 2014

Teaching the Liquidity Trap

Users of my favorite intermediate macro textbook will be familiar with the dynamic model of aggregate demand and aggregate supply, which I first put into the book in the 7th edition. That new chapter shows the student how to incorporate a standard Taylor rule into business-cycle theory, as well as how to trace the dynamic response of the economy to various shocks. Instructors who teach that chapter might be interested in this new paper, which shows how to incorporate the zero lower bound into the model.

Barack Obama and Jeb Bush on Immigration

Immigration reform remains one of the great challenges facing our nation, and unfortunately, the policies of the current president fail to match his rhetoric.  In today's NY Times:
With the Obama administration deporting illegal immigrants at a record pace, the president has said the government is going after “criminals, gang bangers, people who are hurting the community, not after students, not after folks who are here just because they’re trying to figure out how to feed their families.” 
But a New York Times analysis of internal government records shows that since President Obama took office, two-thirds of the nearly two million deportation cases involve people who had committed minor infractions, including traffic violations, or had no criminal record at all. Twenty percent — or about 394,000 — of the cases involved people convicted of serious crimes, including drug-related offenses, the records show.... 
Mr. Obama came to office promising comprehensive immigration reform, but lacking sufficient support, the administration took steps it portrayed as narrowing the focus of enforcement efforts on serious criminals. Yet the records show that the enforcement net actually grew, picking up more and more immigrants with minor or no criminal records.
Will the next President do better?  There is reason to hope.  In today's Wall Street Journal:
Former Florida Gov. Jeb Bush said Sunday that he would make up his mind this year on whether to run for president, and waded into the immigration debate by describing the actions of many who come to the U.S. illegally as an "act of love."... 
"Someone who comes to our country because they couldn't come legally…yes, they broke the law but it's not a felony. It's an act of love. It's an act of commitment to your family. I honestly think that that is a different kind of crime," he said.

Tuesday, April 01, 2014

Sweet Home Alabama

Over the next few days, I will be visiting a couple colleges in Alabama.  If you happen to be in the area, you might be interested to know that I am giving a public lecture at Troy University on April 3.  You can find information about it here.

Update: A few photos of the event.

Announcement

As chairman of the Harvard economics department, I am delighted to announce the merger of the Harvard and MIT economics departments. After consulting with the department chairs, the Presidents of Harvard and MIT have concluded that the synergies were too great for the departments to operate separately, only two miles apart, as we have for many years. As a result, a new building is to be built at 950 Mass Ave, between the schools and near the NBER, that will house both departments as a new single entity. The faculty will teach courses open to undergraduates at both schools. The PhD programs will be completely merged to create a single, unified program. This development is considered a pilot project, which, if successful, could lead to a complete merger of Harvard and MIT in the future.

To learn more about this exciting development, click here.

Monday, March 31, 2014

Some Surprising Facts about Income Growth and Inequality

From Brookings's Gary Burtless.  A few very nice graphs here, based on CBO data.

Sunday, March 30, 2014

A Random Snapshot

I have been shooting a series of short videos to serve as chapter introductions for my favorite textbook.  These will be available to those using the electronic version of the book, a rapidly increasing share of the market.  Just for fun, here is a snapshot from yesterday's video shoot.

Word of the Day

Bulverism.

I had never heard this word, but a correspondent recently drew my attention to it.  Coined by C.S. Lewis, it is a type of argumentation where you assume your opponent is incorrect then quickly move to explain the causes of his folly. Of course, it is not valid as a matter of logic, but it is unfortunately all too common.

Here is C.S. Lewis:
In other words, you must show that a man is wrong before you start explaining why he is wrong. The modern method [Note: This essay was written in 1941.] is to assume without discussion that he is wrong and then distract his attention from this (the only real issue) by busily explaining how he became to be so silly. In the course of the last fifteen years I have found this vice so common that I have had to invent a name for it. I call it “Bulverism.” Some day I am going the write the biography of its imaginary inventor, Ezekiel Bulver, whose destiny was determined at the age of five when he heard his mother say to his father - who had been maintaining that two sides of a triangle were together greater than the third - “Oh, you say that because you are a man.” “At that moment,” E. Bulver assures us, “there flashed across my opening mind the great truth that refutation is no necessary part of argument. Assume your opponent is wrong, and then explain his error, and the world will be at your feet. Attempt to prove that he is wrong or (worse still) try to find out whether he is wrong or right, and the national dynamism of our age will thrust you to the wall.” That is how Bulver became one of the makers of the Twentieth Century.

Friday, March 28, 2014

The Growth of Pass-Through Entities

Over the past few decades, there has been an amazing shift in how businesses are taxed.  See the figure below, which is from CBO.  Businesses are more and more taxed as pass-through entities, where the income shows up on personal tax returns rather than on corporate returns.  (Here is an article discussing how the mutual giant Fidelity recently switched from one form to the other.)

This phenomenon complicates the interpretation of tax return data.  For example, when one looks at the growth of the 1 percent, or the 0.1 percent, in the Piketty-Saez data, that growth is likely exaggerated because some income is merely being shifted from corporate returns. I don't know how much.  If someone has already quantified the magnitude of this effect, please email me the answer. If not, someone should write that paper.

Click on graphic to enlarge.

Too Little Faith in People, Tax Policy Edition

Paul Krugman responds to my post about a recent column of his.  He is correct that not all economists agree that low capital taxation is desirable; he appropriately cites Diamond and Saez, who are on the high-capital-tax side of this debate. FYI, here is another recent paper, written in part as a response to Diamond and Saez, which finds that optimal rates of capital taxation, while positive, are quite low.

But that is not really the issue. If Paul had said "reasonable economists disagree, here are the arguments, and here is why I tend to favor one side rather than the other" I would not have objected.  Instead, in his original column, he wrote as if there were no reasonable arguments for the policy pursued by the Bush administration, and he attributed the most vile motives to those who advanced the policy.

This episode illustrates a fundamental difference between Paul and me.  I try not to assume the worst in other people, just because they disagree with me.

Wednesday, March 26, 2014

Markets in Everything

Monday, March 24, 2014

Not Class Warfare, Optimal Taxation

Today's column by Paul Krugman is classic Paul: It takes a policy favored by the right, attributes the most vile motives to those who advance the policy, and ignores all the reasonable arguments in favor of it.

In this case, the issue is the reduction in capital taxes during the George W. Bush administration.  Paul says that the goal here was "defending the oligarchy's interests."

Really? As Paul well knows, there is a large literature in economics suggesting that an optimal tax system imposes much lower taxes on capital income than on wage income (or consumption).  I can personally attest that President Bush's economic advisers were well aware of this literature.

Note that when Barack Obama ran for President in 2008, he campaigned on only a small increase in the tax rate on dividends and capital gains.  He did not suggest raising the rate on this income to the rate on ordinary income.  Is this because Barack Obama also favors the oligarchy, or is it because his advisers also understood the case against high capital taxation?

Saturday, March 22, 2014

The Economist as Philosopher

Click here to read my column in Sunday's NY Times.

Thursday, March 20, 2014

Measuring Slack in the Phillips Curve

According to a new paper coauthored by Alan Krueger, the short-term unemployment rate works better than the standard unemployment rate in explaining changes in inflation, and according to this measure, the economy was about at its NAIRU in 2013.  This finding is related to issues I discussed in a recent Times column.  Here is a relevant graph from the Krueger paper.