Some big news: the White House has recently announced that the newest member of the Council of Economic Advisers will be my favorite economist, and a long-time friend of this blog, Betsey Stevenson. She’ll be joining Harvard’s Jim Stock and the newly announced CEA Chairman, Jason Furman on the three-member council, which serves as the President’s main source of advice on economic policy.
When I say that I’m thrilled about this news, I’m speaking not just as a dismal scientist, but also as Betsey’s co-author, colleague, co-parent and domestic partner. The CEA has a special role as a bridge between ivory tower academic economists and the levers of public policy. They’re our best hope for ensuring that the sharpest insights of economists can elbow past the political machinations that dominate D.C., and the list of past CEA members reads like a who’s who of the economics profession. And there’s never been a more important time to be working as a labor economist than during a period of mass unemployment.
Honestly, I’m about as proud as an economist is allowed to be.
An interesting approach to economics, from UC Berkeley economists William Fuchs, Brett Green, and David Levine: crowdfunding.
But first, some background, because this is fascinating stuff. The typical household in rural Africa is “off the grid.” With no electricity, such households spend a significant fraction of their income on kerosene for lamps. Yet for about $20, they can buy a solar light, which provides a superior source of light and charges their cell phones. (Yes, cell phone use is common, even in rural households with no electricity; they simply walk to the nearest town and pay to charge their phones.) Given that the light pays for itself in about 6 weeks and lasts for about 3 years, purchasing one seems like a no-brainer. Yet few households have done so. These intrepid economists are trying to figure out why, and want to see whether the barriers to adoption can be overcome in a profitable way. In order to do so, they are running controlled experiments in rural Ugandan villages using various combinations of incentives and financing arrangements.
Following my #lovedata challenge this morning, the first few attempts at explaining love around the world are already trickling in.
But first, the finding that blew my mind. Commenter Renars pointed out that the very data I had plotted—the proportion of people feeling love in a country on a typical day, versus a measure of GDP per capita (a measure of average income)–form a heart-shaped cloud. Really. Take a closer look at it. This may be the most amazing chart I’ve ever drawn.
I’ve spent the last few days crunching data from the largest-ever international survey of love. Specifically, in 2006 and 2007, the Gallup World Poll went to 136 countries around the world and asked people, “Did you experience love for a lot of the day yesterday?” Betsey Stevenson and I report our initial analysis of the data in our latest column. A snippet:
The good news: Ours is a loving world. On a typical day, about 70 percent of people worldwide reported a love-filled day. In the U.S., 81 percent felt love… Across the world as a whole, the widowed and divorced are the least likely to experience love. Married folks feel more of it than singles. People who live together out of wedlock report getting even more love than married spouses… If you’re young and not feeling all that loved this Valentine’s Day, don’t despair: You’re not alone. Young adults are among the least likely to experience love. It gets better with age, ultimately peaking in the mid-30s or mid-40s in most countries before fading again into the twilight years.
Today is the last day on the Mayan calendar, which, according to some, means the world is going to end. This seems about as likely to occur as any economic forecast. And so in preparation, economists on Twitter have been making their end-of-the-world confessions, using the hashtag #EndOfTheWorldEconfessions.
I’ve just gotten back home after a terrific few days at the Brookings Panel on Economic Activity. It’s my favorite gabfest of the year, featuring economic analysis that is both serious research, and also connected to ongoing policy debates. (OK, I’m biased–I’m an editor, and organize the conference along with Berkeley’s David Romer.) And while I think some of you may enjoy slogging your way through the latest papers, others may prefer your summaries simpler and lighter. So I went ahead and recorded a few short videos summarizing the papers. I hope you enjoy!
New data on income inequality in the United States were just released. And they provide a useful teaching moment. The graph below, which comes from the Census Bureau, shows the evolution of the Gini coefficient since 1967. It’s pretty clear that this measure of inequality has been rising pretty much through this whole period.
p>But here’s how the Census Bureau chose to describe these data:
Based on the Gini index, income inequality increased by 1.6 percent between 2010 and 2011; this represents the first time the Gini index has shown an annual increase since 1993, the earliest year available for comparable measures of income inequality.
Say what?
There’s a revolution underway in economics. It’s not due to the financial crisis, but rather something more mundane: Data, and computing power. At least that’s the claim that Betsey Stevenson and I make in our latest Bloomberg View column:
“Consider the stream of data you will create today. Your metro card will record what time you caught the train. Your Web browser will note how you go about your job, and how much you procrastinate. A mid-afternoon purchase at Starbucks will reveal your penchant for lattes and the occasional cookie. Your flow of e-mail traffic will trace out your professional and personal networks.
At the same time, computing power has made it extremely easy and cheap to analyze all the data you produce. An economist with a laptop can, in a matter of seconds, do the kind of number crunching it used to take a roomful of Ph.D.’s weeks to achieve. Just a few decades ago, economists used punch cards to program data analysis for their empirical studies.”
Two weeks ago, Harvard’s Raj Chetty gave a spectacular talk at the National Bureau of Economic Research, about what he called “The Transformative Potential of Administrative Data.” He documented that today’s cutting-edge research is based on crunching newly-available data from the vast databases which underlay our schools, welfare state and tax systems. I’m just as optimistic that new data coming online from the private sector will prove to be just as useful.
If you follow the economic policy debate in the popular press, you would be excused for missing one of our best-kept secrets: There’s remarkable agreement among economists on most policy questions. Unfortunately, this consensus remains obscured by the two laws of punditry: First, for any issue, there’s always at least one idiot willing to claim the spotlight to argue for it; and second, that idiot may sound more respectable if he calls himself an economist.
How then can the quiet consensus compete with these squawking heads? A wonderful innovation run by Brian Barry and Anil Kashyap at the University of Chicago’s Booth School Initial on Global Markets provides one answer: Data. Their “Economic Experts Panel” involves 40 of the leading economists across the US who have agreed to respond on the economic policy question du jour. The panel involves a geographically and ideologically diverse array of leading economists working across different fields. The main thing that unites them is that they are outstanding economists who care about public policy. The most striking result is just how often even this very diverse group of economists agree, even when there’s stark disagreement in Washington.
That observation is the starting point for my latest column with Betsey Stevenson:
President Obama’s personal evolution toward accepting same-sex marriage has certainly made plenty of headlines. But perhaps the bigger—and untold story—is the evolution of marriage itself, and how the generational shift in how we experience marriage underpins rising toward support for same-sex marriage. At least that’s the idea that Betsey Stevenson and I explore in our latest column:
For our grandparents’ generation, marriage was about separate roles, separate spheres and specialization. Gary Becker, an economist at the University of Chicago, won the Nobel Prize partly for describing the family as an economic institution — a bit like a small firm that employs people with different skills to produce both income and a well-run household.
Chances are, you’re going to spend tonight finalizing your taxes, making sure that you ferret every last deduction. And probably pretty pleased to be getting these deductions; but when you dig in a bit deeper, you may not be so sure — at least that’s what Betsey Stevenson and I argue in our latest column.
In fact, tax breaks are no different from either government handouts, or federal mandates, whether evaluated in terms of your finances, the government’s finances, or incentives:
Instead of looking at all the breaks for mortgage interest, health care, retirement savings and so on as deductions, picture the government writing you a check for each item. This equivalence between tax deductions and government spending leads economists to call them “tax expenditures.” Reformers have hit on an even more pointed description: spending through the tax code.
Here’s a splendid diversion if you’re a data nerd, a history buff, or even just like good detective work: Tell the story of the family that lived in your house in 1940.
A bit more background. If you are in the United States, you probably remember participating in the Decennial Census in 2010. These forms are kept confidential for 72 years—roughly an average American’s life span. But this same rule means that today (actually, a couple of days ago), the 1940 Census results became public information. The good folks at the National Archives have scanned all of these census forms, and put them all online. With a bit of work, you should be able to find your house—or if you are in a newer neighborhood, perhaps a neighboring house.
My latest Bloomberg View column with Betsey Stevenson is now online:
Here’s something you don’t often hear an economist admit: We have very little idea where the economy will be next year.
Truth be told, our best guesses just aren’t very good. Government forecasts regularly go awry. Private-sector economists and cutting-edge macroeconomic models do even worse.
Our objective isn’t to beat up economists. Rather, we want to make the point that when we recognize our shortcomings, we’re forced to confront the enormous uncertainty that lies ahead. And appropriate humility about the economy changes how we think about policy.
Like most economists, I spend much of my day analyzing data, distilling it into the perfect charts. And I also like to listen to music, while doing this. The brilliant Elisabeth Fosslien has found a way to combine the two. Yes: Rap Music in Charts. Brilliant! Here’s a chance to test your pop culture knowledge and chart reading skills. (Answers at the bottom.)
My latest Bloomberg View column with Betsey is all about the Tea Party. Well, actually, it’s really about some superb research about the Tea Party, by Andreas Madestam, Daniel Shoag, Stan Veuger and David Yanagizawa-Drott. Their big question: “Do Political Protests Matter? Evidence from the Tea Party.” We know that lots of people turn out to Tea Party rallies. But does it really change anything?
What can Eeyore and Tigger tell us about the current state of monetary policy? A lot. At least that’s the argument that Betsey Stevenson and I make in our new column for Bloomberg View.
The Fed is now engaged in the game of “forward guidance”—they’ve announced that they anticipate keeping interest rates at zero, until late 2014—and hope that it will shape the recovery. But what effects will this announcement have? To figure this out, let’s visit two of the greatest ever Fed Chairmen: Eeyore and Tigger.
Thousands of economics majors head off to industry each year to work as analysts. They’re lured by the promise that they’ll learn a lot, work hard, play hard and get ahead. But is it true? Who better to ask than the brilliant young analyst Elisabeth Fosslien. And as a good young analyst, she’s distilled her portrait of life as an analyst into charts. Having once lived the analyst life—my first job out of college was at the Reserve Bank of Australia, crunching numbers and making charts—all of these resonated with me.
One of the great experiences of my stint in grad school was taking Advanced Macro classes from a fellow who at the time was regarded as a promising young professor at MIT — Daron Acemoglu. It was well worth making the bike trip from Harvard, down Mass. Ave., to learn from him. He is surely the most productive economist alive. And his frequent collaborator Jim Robinson may just be the most interesting political scientist. Their joint research program — figuring out what works and what doesn’t in economic development — involves asking some of the most important questions any social scientist can ask.
You might think that the dismal science has very little to offer on matters of the heart. But I disagree. And so does Elisabeth Fosslien. She’s a brilliant young analyst interested in design, math, and economics. Yes, she’s the sort of person who dressed up as a bear market for Halloween. All this makes her the perfect person for economics-themed data visualization. And so when #FedValentines lit up Twitter last week, she decided to go a step further, and provide the perfect valentine for the economist in your life. Make your selection, below:
Yesterday’s NY Times contained a very flattering (and quite personal!) profile of Betsey Stevenson and me. For me, it was all worth it just to get a great family portrait. (Have you ever tried to get a dog and a toddler to look at the camera at the same time?)
I don’t really have a lot to add, other than to say that I thought the author, Motoko Rich, did a fabulous job. Hopefully it gives folks outside the ivory tower some sense of just what it is that animates the lives of economists. And yes, I admit that reading it, you’ll quickly conclude both that we are passionate about economics, and that we fit the usual stereotypes about academics. And if the article makes it sound like we are crazy about our kid, that’s because we are.
One of the most wonderful things about Twitter is the spontaneous conversations that start around almost anything. And so, inspired by the hilarious #HealthPolicyValentines, I began a new hashtag on Twitter this morning: #FedValentines. Folks are tweeting all sorts of Fed-themed valentine’s wishes. As I write, it’s the second-top trending hashtag in the U.S.
Given that it’s Friday, I figured it worth sharing the fun. Here’s what I came up with:
For years, I have argued that the best way to track what really matters through election season is to follow the political prediction markets. The one difficulty is that these markets aren’t really available to the general public. Sure, the University of Iowa runs a market, but because it’s for research purposes, the maximum bet is set at only $500. And while I track InTrade closely, they’re based in Ireland, and are frowned upon by American regulators. Likewise, Betfair won’t deal with American customers. But all that may be about to change.
I have to admit that it counts as one of the more bizarre requests of my scholarly life. After all, I’m just a straight-laced economist. But in light of the Gingrich affair — (which one? the one involving his wife’s accusation that he asked for an open marriage) — the New York Times Room for Debate section asked Betsey Stevenson and me to give an economist’s perspective on open marriage.
A lot of our political debate boils down to questions about equality of outcomes versus equality of opportunity. But it turns out that they’re pretty closely related. Take a look at the chart below, which is from a terrific recent speech (with charts!) by Alan Krueger:
The horizontal axis shows the Gini coefficient, which is a summary of the degree of income inequality for each country. I think of this as a measure of inequality of outcomes. The United States sits out there on the right, which says that we have high inequality, which I bet that doesn’t surprise you.
Given the confusion about Operation Twist, here’s an explanation.
What is Operation Twist? Basically the Fed can’t reduce short-term interest rates any further—they’re already at zero. So they want to reduce long-term interest rates instead. They do this by buying long-term bonds. When you buy more of something, you raise the price. And when you raise the price of a bond, you lower the interest rate. So what the Fed is doing, is lowering long-term interest rates.
How does the Fed pay for these bonds? With QE1 and QE2, the Fed effectively just printed the money. (They “expanded their balanced sheet.”) Instead, they are selling short-term bonds, and using the proceeds to buy the long-term bonds. Now selling a bunch of short-term bonds will—usually—lower their price, raising short-term interest rates. That’s why people call this “Operation Twist”—it should “twist” the yield curve—lowering long-term interest rates (which is what matters when you buy a house, or when a firm borrows to buy new machinery), but it also raises short-term interest rates.
Raising short-term interest rates is a bug, not a feature. But fortunately, this time, the effect on short-term interest rates will be small. Why? The Fed has already committed to keeping short-term interest rates near zero for the next couple of years. And so given this commitment, the 2-year bond will also be close to zero.
I’m back from my favorite conference of the year—the Brookings Papers on Economic Activity. It was a terrific line-up of papers. And to call the discussion lively would be an understatement. (Full disclosure: David Romer and I are the co-editors.)
While a close reading of technical research papers is my idea of a good time, I’m told not everyone is wired this way. So I went into the studio to record a very simple summary of my thoughts on the papers. You won’t quite get the whole two days of economic policy wonk-ery, but this video is a start:
There’s an argument going around right now that forgiving the country’s student loan debt would have a stimulative effect on the economy. This online petition by Signon.org, an offshoot of Moveon.org, has nearly 300,000 signatures. Its basic argument is this:
Forgiving the student loan debt of all Americans will have an immediate stimulative effect on our economy. With the stroke of the President’s pen, millions of Americans would suddenly have hundreds, or in some cases, thousands of extra dollars in their pockets each and every month with which to spend on ailing sectors of the economy. As consumer spending increases, businesses will begin to hire, jobs will be created and a new era of innovation, entrepreneurship and prosperity will be ushered in for all.
It’s Friday afternoon, and so I’m sure all of us are looking for a break. You know what that means: time for a caption contest! I mean, this picture is really crying out for it, isn’t it? Add your funniest caption in the comments. We’ll crowdsource the voting: Use the thumbs-up button to vote for your favorites. And we’ll make sure to round up some schwag for the winner.
Here are some quick thoughts on President Obama’s jobs plan:
– It’s reasonably big, at about 3% of GDP.
– It’s reasonably front-loaded. Goldman Sachs says it will raise 2012 GDP by about 1.5%–before any multiplier effects. Moody’s chief economist Mark Zandi thinks the effect on 2012 GDP will be about 2%. Expect more estimates in the 1-3% range for 2012; smaller for 2013.
– It’s reasonably well targeted. Unemployment insurance extensions will get spent. Infrastructure money gets spent and also builds stuff. as for the payroll tax: Who knows if it gets spent, but the point is to stimulate hiring, rather than spending.
– It’s reasonably well designed. The biggest problem with a payroll tax is that firms get it even for employees already on the books. But this time, the biggest payroll tax cut is only for firms raising their payrolls. This will yield a much bigger bang-for-each-buck. Early analyses have yet to realize how important this is.
My last weekend in D.C. provided a final chance to enjoy my favorite haunts. And so I found myself walking amongst the memorialized giants of U.S. history: Washington, Lincoln, and now, Martin Luther King. On I walked, through the FDR Memorial, where I stumbled across the chiseled message below. Sure, I had seen it before. But I had forgotten how beautiful it is. And with the President about to announce his new jobs package, and Congress set to (hopefully!) debate these measures, it seems well worth sharing my serendipitous moment with Franklin Delano Roosevelt. A reminder, if you like, of why we care.
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