September 04, 2010
Xi Wang
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Greg Mankiw
Should the Bush tax cuts be extended?
This seems to be the economic policy question of the hour. It might be worth recalling that last month, the Wall Street Journal polled economists about this question. Of those who expressed an opinion, here are the results:
- 6 percent said no, all the tax cuts should be allowed to expire,
- 24 percent said yes, but only for those making less than $250,000 a year,
- 70 percent said that all the tax cuts should be extended.
by Greg Mankiw (noreply@blogger.com) at September 04, 2010 08:59 AM
September 03, 2010
Greg Mankiw
This year's Freshman Seminar
My freshman seminar starts today. Here are the books we are reading this year (in this order):
- The Worldly Philosophers, by Robert Heilbronr
- Reinventing the Bazaar: A Natural History of Markets, by John McMillan
- Thinking Strategically, by Avinash Dixit and Barry Nalebuff
- Capitalism and Freedom, by Milton Friedman
- Equality and Efficiency: The Big Tradeoff, by Arthur Okun
- Nudge, by Richard Thaler and Cass Sunstein
- How the Economy Works, by Roger E.A. Farmer
- The Return of Depression Economics, by Paul Krugman
- The Road to Serfdom, Friedrich Hayek
- The Myth of the Rational Voter, by Bryan Caplan
- The Big Questions, by Steven Landsburg
by Greg Mankiw (noreply@blogger.com) at September 03, 2010 08:44 AM
Counting Small Businesses
From Kevin Hassett and Alan Viard: 
Recently, for example, Vice President Joe Biden harshly rejected House Minority Leader John Boehner's assertion that the hikes would harm small businesses, saying that "he has created this myth that a tax cut for millionaires is actually a tax cut for small business. There aren't 3% of small businesses in America that would qualify for that tax cut."...
In fact, the sound bite about 3% of small businesses, which has been picked up by numerous pundits, is one of the more misleading statements in the long history of economic propaganda.
The 3% figure, which is computed from IRS data, is based on simply counting the number of returns with any pass-through business income. So, if somebody makes a little money selling products on eBay and reports that income on Schedule C of their tax return, they are counted as a small business. The fact that there are millions of people in the lower tax brackets with small amounts of business income may be interesting for some purposes, but it is irrelevant for the assessment of the economic impact of the tax hikes.
The numbers are clear. According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007. That's the number to look at, not the 3%. Would Mrs. Pelosi and Mr. Biden deny that the more successful firms owned by individuals in the top income-tax bracket are disproportionately responsible for investment and job creation?
by Greg Mankiw (noreply@blogger.com) at September 03, 2010 08:40 AM
September 02, 2010
September 01, 2010
IvyGate
At Best they have Tenure
Even though Obama is no longer holding beer summits for a certain Ivy League professor, the Ivy League is brimming with professors who need to start saying, “Do what I say, and not what I do” in lecture once school convenes. This past August: a Columbia grad is kicked out of Starbucks, a Harvard researcher is guilty of [...]
August 31, 2010
Harvard College Democrats
Welcome Class of 2014!
To the Class of 2014: Welcome to Harvard! The Harvard College Democrats have some awesome events planned for you in the coming week to kick off the new semester in style. Here’s the run down:
Wednesday, September 1st from 4pm to 7pm – Be sure to check out the Harvard College Democrats’ table at the Student Activities Fair in the Quad! You’ll be wasting your time at any other table 
Saturday, September 4th from 1pm to 2pm - Come to the Dems’ Get Involved Weekend event in Sever 213. We will do an overview of the organization and discuss ways for you to get involved. Food will be provided, so don’t miss out!
Tuesday, September 7th at 8pm – Come meet past, present and potential members of the Harvard Dems as we kick off the election season with our 2010 Campaign Kick Off in Emerson 105. We will have two very special video messages from two very special Democrats, so you definitely want to be there.
Sunday, September 12th (time TBD) – Join the Dems on our first canvassing trip of the semester as we head up to New Hampshire to knock on doors for Democratic candidates. Our canvassing trips are legendary on this campus, so hop on the cool train while you still can!
Any questions, comments or concerns, don’t hesitate to contact Jason at president@harvarddems.com
Greg Mankiw
An Enlightening Example
Chapter 1 of my favorite textbook talks about how policies can have unintended consequences because of their effects on incentives. One example I use is Sam Peltzman's famous study of seatbelt laws. Here, from The Economist, is another example:
SOLID-STATE lighting, the latest idea to brighten up the world while saving the planet, promises illumination for a fraction of the energy used by incandescent or fluorescent bulbs. A win all round, then: lower electricity bills and...less climate-changing carbon dioxide belching from power stations.
Well, no. Not if history is any guide. Solid-state lamps, which use souped-up versions of the light-emitting diodes that shine from the faces of digital clocks and flash irritatingly on the front panels of audio and video equipment, will indeed make lighting better. But precedent suggests that this will serve merely to increase the demand for light. The consequence may not be just more light for the same amount of energy, but an actual increase in energy consumption.
by Greg Mankiw (noreply@blogger.com) at August 31, 2010 11:54 AM
August 30, 2010
Greg Mankiw
Reinhardt on Efficiency
Princeton's Uwe Reinhardt offers a thoughtful and thought-provoking perspective on economists' use of the concept of efficiency.
I know that Uwe has used my Principles of Micro textbook in his introductory class. So his commentary on "modern textbooks" is, at least to some extent, directed at me. (In particular, I suspect he has chapters 7, 8, and 9 in mind.) Uwe also provides some useful links to handouts he gives to his class.
Update: Steven Landsburg responds.
I know that Uwe has used my Principles of Micro textbook in his introductory class. So his commentary on "modern textbooks" is, at least to some extent, directed at me. (In particular, I suspect he has chapters 7, 8, and 9 in mind.) Uwe also provides some useful links to handouts he gives to his class.
Update: Steven Landsburg responds.
by Greg Mankiw (noreply@blogger.com) at August 30, 2010 11:46 AM
August 29, 2010
Harvard College Democrats
Easing Restrictions on Cuba: A Win-Win Situation
While recently the country has been entrenched in the mosque debate, talk of easing restrictions on Cuba has somewhat flown by the national radar. Still, it’s an idea worth discussing seriously, as it has much more far-reaching implications for citizens of both countries than does talk of the potential mosque.
A New York Daily News article reported that the Obama administration has made plans to ease travel restrictions on the Communist state. Under the Bush administration, travel restrictions to Cuba were tightened successively, and the current administration only plans to return back to Clinton-era travel guidelines, which enabled religious, humanitarian, and academic groups to visit the country much more freely than current rules allow.
Although as yet it’s a political long-shot, the idea of completely lifting the embargo on Cuba is perfectly sensible on various fronts. For one, Americans really want to visit Cuba. According to an Orbitz poll conducted last year, 67% of those surveyed said they favor all Americans having permission to travel to Cuba, and 72% of respondents agreed that allowing free travel would positively impact the lives of the Cuban people.
The whole idea behind the embargo in the first place is to ostensibly punish the Castro regime such that it is forced to move to a more democratic system of governing. Interestingly enough, this Cold War era goal is not anywhere near to coming to fruition. If anything, the embargo has only further isolated Cuba from the outside world. How can a democracy proliferate when the free flow of information is being squelched?
Moreover, it isn’t simply information that Cubans are being denied through the embargo; it’s also food and much-needed medical supplies. General health in Cuba is poor; the rationing system leaves many malnourished, especially men since women and children are given first priority.
Even if we discount humanitarian goals as being too idealistic, lifting the embargo on Cuba would be in everyone’s best interests. Cuba is a resource-rich country, and by allowing free trade with our Caribbean neighbor, the United States stands to benefit substantially.
While the embargo may have made more sense decades ago, now it is simply incomprehensible. There is no denying that the embargo remains a sensitive topic, considering the Cuban-American vote in Florida is a key group to which politicians must often kowtow and appease. In any event, let’s stop fighting fire with fire. In order to be consistent with our country’s democratic, free-market ideals, it’s time that the Obama administration considers further easing sanctions. The recent announcement to ease travel restrictions is a heartening first step in the right direction.
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This guest post is contributed by Lauren Bailey, who writes on the topics of online colleges. She welcomes your comments at her email Id: blauren99@gmail.com.
August 25, 2010
IvyGate
Chiddy Bang Shouts Out to Harvard and Yale
Chiddy Bang announces at 1:17 that he’s “well endowed like Harvard and Yale.” Who knew you could make $42,138,886,000 in alternative hip hop? Wharton students take notice!
August 24, 2010
Matt Welsh
Proposal: The Restaurant Incubator
The problem: Starting a new restaurant is a huge undertaking, requiring the would-be restaurateur to raise a large amount of capital, find a good location, buy furniture, hire staff, get the word out, etc. All of this overhead severely limits risk-taking in the kitchen since it distracts from the mission of creating great food.
My proposal: Apply concepts from technology startup incubators (such as Y Combinator) to the restaurant industry. Give up-and-coming young chefs the opportunity to focus on cooking and creativity, and leverage shared infrastructure to reduce overheads.
I'm a big fan of Top Chef. (See my earlier proposal for a reality TV show for junior computer science faculty -- Top Prof. Bravo should be calling any minute now...) So naturally I see parallels between what the aspiring young chefs on that show are doing and what tech entrepreneurs face when starting a company. The tech industry has found ways to make it much easier for a new idea to get out into the real world, leveraging technologies such as universal Internet access and cloud computing. Why not apply the same ideas to the restaurant industry?
Here's my concept. Open a restaurant called, say, Restaurant Wars, after the popular Top Chef challenge. On a given night, three or four independent chefs each prepare and serve their own menu to the guests. They share a (large) kitchen, some amount of the ingredients, prep staff, wait staff, front of house, perhaps even the wine list. The space, tables, chairs, china, etc. are all owned by the restaurant. Guests can order from any of the chef's menus and are encouraged to provide feedback after the meal.
Get a big-name chef like Tom Colicchio or Ferran Adrià (he needs something new to do, anyway) to serve as in-kitchen mentor for the chefs.
The owners are investing in the future of the participating chefs and take, say, a 15% ownership in any independent restaurant venture that they launch after participating. Chefs spend up to, say, 3 months at Restaurant Wars, ensuring that there is constant turnover and thereby renewed interest from diners.
Of course there are a couple of kinks to work out (one of which is that my wife thinks this is a really dumb idea). The first is that it's hard to serve radically different styles of cuisine side-by-side. It sets up for some odd comparisons. Also, there needs to be a way to manage food costs across the "competing" chefs; if one is cooking with ridiculously expensive ingredients (say, a terrine of abalone served with a civet-cat coffee foam topped with Beluga caviar ) you need a way to limit costs and keep things equitable. Another is whether potential diners would go for a place with so much turnover in the kitchen, although that's the whole idea. Maybe Tom or Ferran can guest chef one night a month to maintain street cred.
If anyone has $20 million lying around and wants to go in with me on this, drop me a line. I'll be happy to help with the cocktail menu.
by Matt Welsh (noreply@blogger.com) at August 24, 2010 06:24 PM
August 23, 2010
Greg Mankiw
Krugman reestimates the Mankiw rule
This graph is motivated by a version of the Taylor rule I once proposed. Paul uses a different sample than I did, so he gets slightly different parameter values. Nonetheless, I think Paul and I agree that this equation provides a reasonable first approximation to what the Fed will and should do in response to macroeconomic conditions.
by Greg Mankiw (noreply@blogger.com) at August 23, 2010 10:36 AM
August 22, 2010
Greg Mankiw
Notes from the Sixth Row
Last week, my friend Phill Swagel attended an event to hear about the future of policy toward housing finance. He sends along the following. (By the way, here is Phill's own proposal for GSE reform.)
Notes from the Sixth Row: The Treasury-HUD GSE Conference
Phillip Swagel
I took away four main points from Tuesday's Treasury-HUD GSE conference:
Hints of reform. Treasury Secretary Timothy Geithner said that the administration supported fundamental GSE reform but with still a government guarantee for housing finance in some form. The GSE portfolios, however, would disappear. None of this is a surprise, but it was still novel—especially in contrast with past policy efforts such as stimulus and healthcare, where the administration allowed the Congress to take the lead on policy formation.
Industry participants love government guarantees. Conference participants from industries involved with the financing and construction of homes assert that no American will ever buy a home again if the government does not provide a full credit guarantee against the financial market consequences of people defaulting on their mortgages. And that guarantee needs a fair (that is, low) price. Bill Gross made some news in calling for full nationalization of housing finance and complete guarantees on mortgage capital. He prefaced this by saying that he was speaking on behalf of public policy and not his firm. Mr. Gross is smart and was exceedingly public-minded during the financial crisis (even, yes, while profiting from some astute investment calls). There is no doubt that he means well. But it’s scary to think about what he might suggest when he speaks for his book of business instead of the public interest.
Blowback from the left. The administration is scared of its own shadow with respect to flak from the left—the White House staffer’s introductory remarks were an awkward ode to inclusion and conference guidelines such as time limits went out the window when advocates of affordable housing subsidies were speaking (As a note, I very much support these subsidies and think that an important element of GSE reform is to make the subsidies more effective. But this still does not mean that the people making that point should have had carte blanche to long-talk while avoiding answering direct questions.) Amidst the long-talking, it turns out that there is good reason for the administration’s trembling. To the limited extent that advocates of affordable/low-income housing participated in the conference, they vehemently opposed scaling back any form of government support, including reducing the activities of the portfolios. It was impossible to tell what the affordable advocates were for other than “more.” The administration’s GSE reform plan could come down on stone tablets from Mt. Sinai – and still be attacked by the advocate community as "not enough." GSE reform thus represents yet another conflict brewing between the administration and its frenemies in the “professional” left. And yet the President's political tactics of late center on demonizing the moderate/responsible Republicans (“privatizers”) with whom he might form a centrist coalition to actually move forward with a housing finance overhaul. GSE reform could be a long ways off—until we have a President who seeks to lead in a bipartisan fashion.
Settle in; this is going to be a long process. Yesterday's conference was a show of attention to the issue but not more. And next on the agenda are several regional conferences—perhaps the hotel and travel spending is a form of stimulus (or better—it’s time for Congress to shut off Treasury’s unlimited authority to spend money through the Office of Financial Stability). The wheels of GSE reform are turning, but the vehicle is moving forward at a crawl.
by Greg Mankiw (noreply@blogger.com) at August 22, 2010 01:16 PM
August 21, 2010
August 20, 2010
August 19, 2010
IvyGate
Freaky Friday – Harvard
On Friday the 13th, Harvard’s Managing Company filed its holdings for the 2nd quarter (ended 6/30/10) to the SEC (Securities Exchange Commission), not to be confused with the Southeastern Conference of college football. A copy of the submitted 13F-HR form can be seen here. When one compares its most recent filings to those reported on [...]
August 18, 2010
Greg Mankiw
What I Learned on My Summer Vacation
As is typical for me during this time of year, I have been on a field trip to study the economy of Nantucket. The chart below shows what I learned: This idyllic island has not escaped the rise and fall in housing prices that the rest of the nation has experienced.
by Greg Mankiw (noreply@blogger.com) at August 18, 2010 04:25 PM
Harvard College Democrats
Why I support the Cordoba Initiative
I still don’t quite understand why what should have been a local issue has become a national debate. The community board approved the community center. District leaders support it. Even the mayor agrees there’s nothing inappropriate. Yet, the debate over whether to build a 13-story Islamic cultural center in lower Manhattan continues, with people purporting to represent 9-11 families leading the charge against it.
Don’t get me wrong – I have nothing but the utmost sympathy for families who lost loved ones on 9-11. It was a great tragedy for our entire nation, but especially New York City. However, I think one of the most important things we can do as New Yorkers – and as Americans – is to clearly state that there is a difference between being a Muslim and being a terrorist. To forget that is to do exactly what the extremists want us to do, as it helps them gain credibility. Also, we can’t forget that Muslim-Americans were also killed on 9-11. What the terrorists were attacking wasn’t Jewish or Christian New Yorkers, but rather the values that New Yorkers of any creed hold dear: our commitment to pluralism and diversity. We can’t give that up.
Imam Rauf, the man behind the plan, so to speak, is Osama’s worst nightmare. The Imam is a moderate muslim and has been involved in the community for decades. He owns a bookstore in the neighborhood where the community center will be built. Rauf shows that you can be a devout muslim and be successfully integrated into a non-muslim, western nation. And breaking news: He’s worked with the FBI on counterterrorism efforts! Madeleine Albright looks up to him! He was welcomed into Democratic and Republican administrations alike.
He is the poster child extremists don’t want other muslims finding out about! The community center he’s building won’t be just for muslims: just like the JCC, it will be for people of all stripes, and help revitalize lower Manhattan.
Imam Rauf on the Cordoba House
And of course, those opposed to the Cordoba house will trot out all sorts of polls about how the majority of Americans doesn’t support building it. But really, that doesn’t matter. Just like I would’ve vote on whether to built a YMCA in Wichita, Kansas, neither should Americans who’ve likely never met a muslim before in their life be deciding whether a community center gets built in a city they’ve probably never visited. The only poll that matters is how Manhattan residents feel, and more Manhattan residents support than oppose the community center, not to mention that this community center will bring over 150 jobs to lower Manhattan at a time when unemployment is still high.
Maybe I’d be more open to hearing the other side if this wasn’t the first time in recent years when there’s been an uproar over a seemingly harmless muslim project. When I was a junior in high school, not too long ago, the Khalil Gibran International Academy, a dual-language English/Arabic public school, was in the middle of such a controversy. It was labeled a madrassa and founding Principal Debbie Almontaser (another moderate muslim and interfaith activist) had her reputation ruined. The highlight of the controversy to me was when she was forced to step down shortly before the school opened, and was replaced by an orthodox Jewish woman who didn’t speak Arabic. That’s the background I’m coming from: it’s hard for me to believe that this is anything but plain old islamophobia.
As a New Yorker, there are some values I remember being taught before I learned the times tables. I remember the potluck lunches in the first grade in my very multicultural school, the different units for different ethnicities in the third, learning Spanish in the fourth and singing “Lift Every Voice and Sing” – the black national anthem – for my fifth grade graduation. To me, it’s unfathomable to oppose the Cordoba house simply on the basis of it containing a mosque. Bring me some real reasons, some real links to evil, not cloaked in lies in fears. Then we’ll talk.
(And of course, I also completely support the building of Bar Van Gogh-Gogh for those muslims who like to bend over outside the mosque as well.)
August 17, 2010
Greg Mankiw
What I've Been Reading
For econonerds, this is a good beach read.
by Greg Mankiw (noreply@blogger.com) at August 17, 2010 04:56 PM
We're number one!
Harvard tops the US News college ranking this year. (FYI, in a few weeks, I will be sending off my first child to school number two.)
by Greg Mankiw (noreply@blogger.com) at August 17, 2010 09:59 AM
August 16, 2010
IvyGate
The Non-Chronicles of Narnia
Dorms fail at being entries into magical worlds, bastions of extra space, and creative fodder for this. However, mahogany wardrobes do. The start of move-in days and orientations is quickly approaching: Brown: August 28 Columbia: August 30 Cornell: August 20 Dartmouth: September 15 Harvard: August 26 Penn: September 2 Princeton: September 11 Yale: August [...]
August 13, 2010
Greg Mankiw
Favorite Family Game
by Greg Mankiw (noreply@blogger.com) at August 13, 2010 08:42 AM
August 12, 2010
Rebecca Rojer
Seeking: a small group of companions to form an email discussion list about the economy.
Dear Readers of My Blog (if any of you even exist, that is),
I’m looking for some company in reading some books about economics and participating in an email discussion about the current state of the global economy. I’ve been having lots of discussions about this topic lately, some wonderfully cathartic and educational, others horribly depressing, and more still immensely frustrating. The root of this frustration is more often a lack of shared vocabulary and historical understanding than it is a lack of shared values, though in few subjects are the two so dramatically intertwined as in economics. Suffice it to say, I’ve found the most productive fruitful conversations to be those in which the participants have read at least some of the same books or articles, even if they vehemently disagree on what they mean.
In a somewhat blind-leading-the-blind experiment, I’ve compiled a list of ten books that might form an initial common ground. Recommendations for this list come from (hopefully less blind) friends, family members, professors, and the books themselves. It is not intended to be a comprehensive overview of a discipline or in any way definitive. I just tried to pick texts which seemed to be in dialogue with each other, and have something valuable to say. Some I’ve read cover to cover, others merely selections, and a couple I’m still waiting to stumble upon in a good used book store. They are listed in chronological order, but I do not propose we read them in that order, or that to join the list you must commit to reading all in their entirety. Instead, the only requirement is that you obtain a few and read them at your leisure. And the list itself? Questions, rants, relevant links, suggested readings, selected passages, apt quotations, critiques: really, whatever the participants desire.
- Adam Smith, The Wealth of Nations (1776)
- Karl Marx, Capital (1867)
- William Graham Sumner, What Social Classes Owe to Each Other (1883)
- Thorstein Veblen, The Theory of Business Enterprise (1904)
- Georg Friedrich Knapp, The State Theory of Money (1924)
- John Maynard Keynes, The General Theory of Employment, Interest and Money (1936)
- John Kenneth Galbraith, The New Industrial State (1967)
- L. Randall Wray, Understanding Modern Money: The Key to Full Employment and Price Stability (1999)
- John Perkins, Confessions of an Economic Hit Man (2004)
- Barry C. Lynn, Cornered: The New Monopoly Capitalism and the Economics of Destruction (2010)
Some ground rules: The list will be hosted either on rrrojer.net or some more convenient non-Google service. The archives will be private but as with all email, assume you are speaking in a public forum. I will take the role of benevolent dictator/curator when it comes to membership, at least for the time being. Wit and humility encouraged; good natured and pointed name calling acceptable; outright hostility and disrespect less so (think Taibi not Limbaugh). The list is meant to be mixed company, meaning people who have studied economics and people who have not (I certainly fall into the latter category), so minimal jargon please. Knowing my peers this will probably have a lefty bent, but free-market fundies most welcome, especially if you turn a good phrase, as well as the unaffiliated. Though many of us are funemployed and have lots of time on our hands, let’s aim for quality over quantity – count to ten before you send kinda deal – so that busy students and professionals are also welcome. I’m hoping for low-volume high-density, but if it becomes too high traffic for your tastes, you can always unsubscribe. I will ban those deemed abusive.
Interested? Send me an email at rebecca@(this site) with a little explanation of why you want in or what book I’ve most egregiously left off the list. If I get a reasonable quorum I’ll set up a list and send you an invite.
Yours in curiosity,
Rebecca
Greg Mankiw
A Challenge to Extreme Keynesians
The key insight of Keynesian economics is that the problem during recessions is inadequate aggregate demand. Taken to the extreme, which some Keynesians do, it says that aggregate demand is the only thing you need to worry about during downturns. Changes in aggregate supply (due to, say, high marginal tax rates or adverse incentives associated unemployment insurance) don't matter, they argue, because employment is being constrained by the low level of aggregate demand.
University of Chicago economist Casey Mulligan offers a challenge to that view. Casey points out that there is a regular surge in teenage employment during the summer months because more teenagers are available to work (that is, the supply of their labor has increased). That is no surprise: It is normal supply and demand in action. But if aggregate demand were the main constraint on employment, this increase in supply should not translate into higher employment during deep recessions such as this one. But it does!
University of Chicago economist Casey Mulligan offers a challenge to that view. Casey points out that there is a regular surge in teenage employment during the summer months because more teenagers are available to work (that is, the supply of their labor has increased). That is no surprise: It is normal supply and demand in action. But if aggregate demand were the main constraint on employment, this increase in supply should not translate into higher employment during deep recessions such as this one. But it does!
Most economists, Keynesians and otherwise, ignore this summer change in employment because we focus on seasonally adjusted data. But as Casey points out, the raw unadjusted data may have something important to teach us.
Casey might want us to take this as evidence against the entire Keynesian worldview. I would not go quite that far, but it surely provides a challenge to extreme Keynesianism. I am reminded of a response I once gave to a reporter who asked whether I was a supply-sider or a Keynesian. "I am neither a supply-side economist nor a demand-side economist," I said. "I am a supply-and-demand economist."
Casey might want us to take this as evidence against the entire Keynesian worldview. I would not go quite that far, but it surely provides a challenge to extreme Keynesianism. I am reminded of a response I once gave to a reporter who asked whether I was a supply-sider or a Keynesian. "I am neither a supply-side economist nor a demand-side economist," I said. "I am a supply-and-demand economist."
by Greg Mankiw (noreply@blogger.com) at August 12, 2010 10:44 AM
