Saturday, April 18, 2015

Why I favor estate tax repeal

This past week, The House of Representatives passed repeal of the estate tax.  This is a policy change I have long supported, for reasons explained here.

Thursday, April 16, 2015

Advice from Larry Katz

Via Nicholas Kristof:
“A broad liberal arts education is a key pathway to success in the 21st-century economy,” says Lawrence Katz, a labor economist at Harvard. Katz says that the economic return to pure technical skills has flattened, and the highest return now goes to those who combine soft skills — excellence at communicating and working with people — with technical skills.
“So I think a humanities major who also did a lot of computer science, economics, psychology, or other sciences can be quite valuable and have great career flexibility,” Katz said. “But you need both, in my view, to maximize your potential. And an economics major or computer science major or biology or engineering or physics major who takes serious courses in the humanities and history also will be a much more valuable scientist, financial professional, economist, or entrepreneur.”

Saturday, April 11, 2015

Jeff Sachs defends David Cameron


The Sticky-Price Victory

Wednesday, April 08, 2015

A Libertarian Coalition?

Paul Krugman says there aren't enough libertarians in the U.S. to make a libertarian candidate like Rand Paul viable.  I am not so sure about the paucity of libertarians, but even so, I doubt that Rand Paul is the best representative of that group.

Similar to Krugman, I would define a libertarian voter as one who leans left on social issues (such as same-sex marriage) and right on economic issues (such as taxes and regulation). I certainly put myself in that camp, and I don't think I am as lonely as Krugman suggests. I meet lots of students with similar views (though, admittedly, Harvard students are hardly a representative sample of voters).

Nonetheless, I think libertarian candidates face several challenges. In particular, the Republican party has traditionally relied on an uneasy coalition of economic and social conservatives.  A libertarian candidate would need to put together a very different coalition.

Rand Paul does not seem ready to do that.  He has come out opposed to same-sex marriage, for example.  He is unlikely to put together a new coalition with that position.

Many libertarian voters I know (including those students) often vote for Democratic candidates because they weight the social issues more than the economic ones. I usually vote for Republican candidates because I weight the economic issues more than the social ones.

One reason is that I don't view the Democratic Party as a leader on social issues.  Remember that Bill Clinton signed the Defense of Marriage Act.  Barack Obama was against same-sex marriage when he ran for President, and then he "evolved" (aka flip-flopped) on the issue.  On this social issue and many others, our elected leaders are really followers. The leaders are the American people.

Monday, April 06, 2015

Interview with Dani Rodrik


Friday, April 03, 2015

Economics Jokes

Thursday, April 02, 2015

California should raise the price of water

There has been a lot of discussion of the drought in California and the new regulations that the state is putting in place.  But there has been little mention of the obvious (to an economist) solution: Raise the price of water.

This would do more than any set of regulations ever could.  For example, the governor is not going to force people to replace their old toilets with newer, more water-efficient ones.  But a higher price of water would encourage people to do that.  A higher price would also give farmers the right incentive to grow the most water-efficient crops. It would induce entrepreneurs to come up with new water-saving technologies. And so on.

Some may worry about the distributional effects of a higher price of a necessity.  But the revenue from a higher price could be rebated to consumers on a lump-sum basis, making the whole system progressive.  We would end up with more efficiency and more equality.

Generic Economic News


Tuesday, March 31, 2015

Where I am today

Here, in New York City, helping promote economics education.

Monday, March 30, 2015

More Competition

Ben Bernanke has started a blog. Where did he ever come up with that title?

Sunday, March 29, 2015

The Economics of Skyscrapers

A friend points me to this article in The Economist about the economics of skyscrapers.  Lots of good food for thought for micro and macro classes.

Saturday, March 28, 2015

Getting Promoted

Thursday, March 26, 2015

What do Larry Summers, Doug Elmendorf, and Greg Mankiw have in common?

Only one of us won a John Bates Clark Medal.
Only one of us became Director of the Congressional Budget Office.
Only one of us wrote a best-selling textbook.

But all three of us were ec 10 section leaders early in our careers.

Being an ec 10 section leader is one of the best teaching jobs at Harvard. You can revisit the principles of economics, mentor some of the world’s best undergraduates, and hone your speaking skills. In your section, you might even have the next Andrei Shleifer or Ben Bernanke (two well-known ec 10 alums). And believe it or not, we even pay you for this!

If you are a graduate student at Harvard or another Boston-area university and have a strong background in economics, I hope you will consider becoming a section leader in ec 10 next year.  Applications are encouraged from PhD students, law students, and master's students in business and public policy.

If you think you might be interested, please come to one of the information sessions we are holding:

  1. Monday, March 30th at 6 p.m. in Aldrich 109 at the Harvard Business School
  2. Thursday, April 2nd at 6 p.m. in the 3rd floor Littauer lounge of the Harvard Economics Department
  3. Monday, April 6th at 6 p.m. in Taubman 401 at the the Harvard Kennedy School of Government

Wednesday, March 18, 2015

My Spring Break Reading

This week is spring break at Harvard, so I have time to catch up on some pleasure reading. First up is a recent recommendation by a blog reader: The Righteous Mind: Why Good People Are Divided by Politics and Religion by Jonathan Haidt. 

The book is a few years old, but I had not heard of it. It gives readers a lens into the field of moral psychology, together with dashes of philosophy, anthropology, behavioral genetics, political science,  and even some behavioral economics.

It is a great read.  Highly recommended.

Saturday, March 14, 2015


Happy Pi Day!

Saturday, March 07, 2015

Harvard Pre-Collegiate Economics Challenge

If you teach high school economics, you will most definitely want to click here to learn about a great opportunity for your students.

Thursday, March 05, 2015

An Open Letter

March 5, 2015

The Honorable John Boehner
House of Representatives
Washington, DC 20515

The Honorable Mitchell McConnell
Majority Leader
United States Senate
Washington, DC 20510
The Honorable Nancy Pelosi
Minority Leader
House of Representatives
Washington, DC 20515
The Honorable Harry Reid
Minority Leader
United States Senate
Washington, DC 20510

Dear Mr. Speaker, Mr. Leader, Madam Pelosi, and Senator Reid:
International trade is fundamentally good for the U.S. economy, beneficial to American families over time, and consonant with our domestic priorities. That is why we support the renewal of Trade Promotion Authority (TPA) to make it possible for the United States to reach international agreements with our economic partners in Asia through the Trans-Pacific Partnership (TPP) and in Europe through the Transatlantic Trade and Investment Partnership (TTIP). Trade Promotion Authority provides for an up or down vote on these agreements, without amendments, and thereby encourages our trade partners to put their best offers on the table.
Expanded trade through these agreements will contribute to higher incomes and stronger productivity growth over time in both the United States and other countries.  U.S. businesses will enjoy improved access to overseas markets, while the greater variety of choices and lower prices trade brings will allow household budgets to go further to the benefit of American families.
Trade is beneficial for our society as a whole, but the benefits are unevenly distributed and some people are negatively affected by increased global competition.  The economy-wide benefits resulting from increased trade provide resources to make progress on important social goals, including helping those who are adversely affected.
Increased global economic engagement will enhance U.S. global leadership in line with our values. Indeed, trade agreements signed under both Democratic and Republican Presidents have included provisions to combat corruption and to strengthen environment and labor standards.
It is not desirable for trade agreements to include provisions aimed at so-called currency manipulation. This is because monetary policy affects the value of currencies.  Attempts to penalize countries for supposedly manipulating exchange rates would thus impose constraints on U.S. monetary policy, to the detriment of all Americans.
We believe that agreements to foster greater international trade are in our national economic and security interests, and support a renewal of Trade Promotion Authority.

Alan Greenspan

Charles L. Schultze

Martin Feldstein

Michael J. Boskin

Laura D’Andrea Tyson

Martin N. Baily

R. Glenn Hubbard

N. Gregory Mankiw

Harvey S. Rosen

Ben S. Bernanke

Edward P. Lazear

Christina D. Romer

Austan D. Goolsbee

Alan B. Krueger
The letter writers were chairs of the President’s Council of Economic Advisers under Presidents Gerald Ford, Jimmy Carter, Ronald Reagan, George H.W. Bush, William J. Clinton, George W. Bush, and Barack Obama.

Wednesday, March 04, 2015

The Lee-Rubio Tax Reform

Senators Mike Lee and Marco Rubio announced a bold and attractive tax plan today. I especially appreciate their desire to eliminate the current tax code's bias for debt over equity finance.

No Way to Avoid It

In my column on dynamic scoring, I wrote:
[A]ccurate dynamic scoring requires more information than congressional proposals typically provide. For example, if a member of Congress proposes a tax cut, a key issue in estimating its effect is how future Congresses will respond to the reduced revenue. 
This raises important questions for which we have no easy answers. In the coming years, will these Congresses respond quickly to the revenue shortfall, or will they let budget deficits fester? When they act to close the budget gap, will they increase taxes, or will they cut spending? If they cut spending, will it be on consumption items, such as health care for the elderly, or on growth-promoting investments, such as education for the young? The impact of the initial tax cut depends crucially on the answers to these questions, but budget analysts usually have little to go on but speculation.
On this passage, John Cochrane comments:
Greg also opined on the second round effects, how policy might change economic outcomes which might change future policy. Here I'll go with the old fashioned approach -- let's not go there!

I understand the desire not to go there.  The problem is, you cannot avoid going there. 

Dynamic scoring requires the solution of a general equilibrium model.  To solve a dynamic GE model, you need to specify how the government is going to satisfy its present-value budget constraint. You might be tempted to ask the model what happens if the government cuts taxes and never does anything else. But you won't get very far. The model will tell you that the government has to do something else eventually, and it won't tell you what will happen if the government tries to do something impossible.