Planet Harvard

by Greg Mankiw (noreply@blogger.com) at July 04, 2009 08:03 AM

Harvard economist Ed Glaeser on transportation policy.

by Greg Mankiw (noreply@blogger.com) at July 03, 2009 09:13 AM

For academics, it always a delight when some old, obscure thing we've written suddenly gets noticed. So I was pleased when econoblogger Mark Thoma decided to draw attention yesterday to a speech I gave six years ago (pdf version) to the National Association of Business Economists. I had not looked at that speech in years, but looking back at it today, I think that it holds up pretty well. So, please, feel free to follow the link and read the whole thing.

The part of the speech that Mark highlights on his blog is the defense of running budget deficits during a recession. I am a bit puzzled about why Mark picked up that piece, however. Mark seems to be suggesting that my speech can somehow be construed as a defense of Obama fiscal policy. Yet I don't think that aspect of current economic policy is controversial. As I wrote in the NY Times in March of this year, "Few economists would blame either the Bush administration or the Obama administration for running budget deficits during an economic downturn."

The controversial parts of current fiscal policy are, first, the relative reliance on spending hikes versus tax cuts as short-run stimulus and, second, the long-term picture. On the short-run issue, I explained my preferences here. On the long-run issue, the apparent willingness of the congressional leadership to give away most of the allowances under a cap-and-trade system for carbon is the most recent symptom suggesting either a lack of concern about the long-term fiscal imbalance or a willingness to allow distortionary taxes to rise significantly in the future to close the fiscal gap.

by Greg Mankiw (noreply@blogger.com) at July 03, 2009 05:56 AM

In my recent Times article on the possibility of a public option, I wrote

An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.

But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

The CBO is thinking along similar lines. In its most recent letter on heath reform plans, it says

The new draft also includes provisions regarding a “public plan,” but those provisions did not have a substantial effect on the cost or enrollment projections, largely because the public plan would pay providers of health care at rates comparable to privately
negotiated rates—and thus was not projected to have premiums lower than those charged by private insurance plans in the exchanges.

by Greg Mankiw (noreply@blogger.com) at July 03, 2009 05:40 AM

by Greg Mankiw (noreply@blogger.com) at July 02, 2009 10:34 PM

by Greg Mankiw (noreply@blogger.com) at July 02, 2009 10:59 AM

With my spotty internet connection (Bolivian internet cafes are infamous for their poor quality internet),  I´m not sure how much virtual celebrating I will get to do in this blog before unknown powers kick me off.  For now, I present you all with this great bit of news to make your day: the NY Times editorial entitled Än Advocate for Women.¨

After years of this idea being thrown around in some form or another, President Obama has decided to take a step toward combating violence against women by creating a  new advisory  post in the White House.  Lynn Rosenthal is an excellent choice for White House Advisor to the President on Women´s issues.  Her career as Director of the National Network to End Domestic Violence is nearly spotless, and she is praised by many who work in the field of nonviolence.

I am especially pleased that this new post has been created at such a crucial time for the economy and for women in the U.S.  Whenever unemployment rises, trends in violence increase, especially domestic violence cases.  Furthermore, the American Institute on Domestic Violence estimates that the cost of health-related violence against women caused by rape and domestic violence exceeds $5.8 billion, not including  the high costs of incarcenation. Placing more emphasis on this important issue during times of budget tightening will save taxpayers money while improving violence  prevention and response.

I hope that with this new position, domestic violence will receive more attention in the United States, and that programs for prevention, in addition to those for response , will receive greater funding.  By spending a little more on programs to combat violence, much more can be saved by avoiding the expenses of police response and incarceration.

by Danielle Gram at July 01, 2009 07:47 PM

Hi kids, long time no blog! In part due to lack of planning but mostly due to morbid curiosity, I decided to stay in Boston for Independence Day, because I figured experiencing the rabid patriotism of this historic town might make up for the total lack of fireworks I enjoyed last year in London surrounded by Redcoats. What better way to celebrate the nation’s birth than to don a Revolutionary War reenactment costume and promote the most patriotic duty of all … um, self-pleasure?

This holiday, one lucky reader will receive the Womolia Heat ($99.95) from Emotional Bliss, a line of intimate massagers developed and manufactured in the U.K. The Womolia is the only vibrator on the market that heats up when used and warms to the speed and frequency selected. Rechargable (so you can forget batteries) and curved for comfort, the Womolia also contains a unique antibacterial agent that sterilizes the massager after it is wiped with water.

To enter, comment on this entry with the best (worst?) catcalling story you can tell in under 600 words. (If you need an example, I recently blogged about an incident that led to me kicking a guy’s BMW in retaliation for some lewd remarks.) I’ll select one of the respondents at random as the winner of the Womolia. Enter by July 10th at 11:59 EST to win!

by Elle at July 01, 2009 07:36 PM

Intriguing new research from UCSD economists Garey and Valerie Ramey (via Dan Hamermesh) shows that parents respond to the incentives:

After three decades of decline, the amount of time spent by parents on childcare in the U.S. began to rise dramatically in the mid-1990s. Moreover, the rise in childcare time was particularly pronounced among college-educated parents. Why would highly educated parents increase the amount of time they allocate to childcare at the same time that their own market returns have skyrocketed? After finding no empirical support for standard explanations, such as selection or income effects, we offer a new explanation. We argue that increased competition for college admissions may be an important source of these trends. The number of college-bound students has surged in recent years, coincident with the rise in time spent on childcare. The resulting "cohort crowding" has led parents to compete more aggressively for college slots by spending increasing amounts of time on college preparation.

by Greg Mankiw (noreply@blogger.com) at July 01, 2009 04:00 PM

• Columbia: Lerner Hall will no longer be open 24/7 due to the economy, but you can still look inside anytime from anywhere
• Cornell: Former Cornell star goalie Dave McKee has been charged with rape in southern California, Kobe Bryant not returning his calls
• Dartmouth: The reign of Jim Yong Kim begins today
• Harvard: Annenberg Dining Hall’s card-swiper–the most popular person on any college campus–has been laid off
• Harvard: Twenty library staffers laid off
• Harvard: Eighteen Kennedy school staffers laid off
• Harvard: Forty subcontracted janitors laid off
• Penn: Basketball player Harrison Gaines decides to leave the Quakers and transfer to the UC-Riverside Highlanders, saying “in the end, there can be only one”
• Penn: University has the fourth most illegal downloading violations in the country, most of which are Transformers 2 bootlegs 
• Yale: Supreme Court rules in favor of New Haven firefighters, finally giving white people their shining moment

by Max Wasserman at July 01, 2009 01:00 PM

The NYU economist looks at the data: Read both Part I and Part II.

by Greg Mankiw (noreply@blogger.com) at July 01, 2009 10:45 AM

An excerpt from Scott Sumner's thought-provoking blog:

I got to thinking about this issue last night while reading The Lords of Finance (which by the way is a fine book so far, despite one little point I will nit pick.) See what you make of this:

“In early 1920, he [Keynes] set up a syndicate, with his brother, some of the Bloomsbury circle, and a financier friend from the City of London. By the end of April 1920, they had made a further $80,000. Then suddenly, in the space of 4 weeks, a spasm of optimism about Germany briefly drove the declining currencies back up, wiping out their entire capital. Keynes found himself on the verge of bankruptcy and had to be bailed out by his tolerant father. Nevertheless, propped up by his indulgent family and by a loan from the coolly acute financier Sir Ernest Cassel, he persevered in his speculation”

Translation, without help from his rich daddy and rich friends, this cocky, arrogant, smart-aleck would have fallen on his face, ended up digging ditches somewhere and we would never have heard of him. But he did have a rich daddy, who bailed him
out....

Don’t anyone write in and tell me that Keynes made lots of other good investments, because if you’ve got a rich backstop, none of that matters.

Here’s what I’d do if Bill Gates was willing to lend me $3.57 billion dollars for a day: I’d go to Vegas and put $5 million on numbers 1 through 34 on the roulette wheel. The odds are roughly 90% I’d win. If I did so, I’d win $180 million on a bet of $170 million. I repay the $3.57 billion and pocket my $10 million dollars and be rich for the rest of my life, clipping coupons. If numbers 35, 36, 0, or 00 came up I’d bet again, this time $100 million on each number 1 through 34. If I won, I’d receive $3.6 billion, repay Gates, and have $30 million dollars to spend for the rest of my life. The odds are nearly 99% that I’d win one of these two bets. Of course if both failed, I’d be in big trouble. But that’s not very likely is it?

What’s the point? If you have a rich backstop it’s relatively easy to come up with investment strategies that will usually (not always) make you look like a genius. From now on I will never believe anyone who tells me that Keynes was a great investor.

Does this matter? It shouldn’t, but unfortunately it does. If his investment reputation was like Fisher’s (calling stocks fairly priced in 1929) nobody would take seriously his Chapter 12 in the General Theory where he tries to shoot down the efficient market hypothesis.

---

Update from Greg: Because of the formatting, some readers mistakenly thought I wrote part of what appears above. To be clear: It is all taken from Scott's blog. Sorry for the confusion.

by Greg Mankiw (noreply@blogger.com) at June 30, 2009 07:22 PM

Milton Friedman has long been one of my role models. So I was delighted to read that, according to BYU econ prof Richard Evans, at least in one small way, I have managed to emulate him.

by Greg Mankiw (noreply@blogger.com) at June 30, 2009 05:36 PM

...about the proposed health reforms:

A new Rasmussen Reports national telephone survey finds that 50% of U.S. voters at least somewhat favor the Democrats’ health care reform plan, while 45% are at least somewhat opposed.

While the overall numbers favor the plan, those with strong opinions tilt the other way. Twenty-four percent (24%) strongly favor the plan, but 34% are strongly opposed....

Among all voters, just 12% think their health care coverage will get better if the plan is passed while 37% expect it will worsen. Thirty-seven percent (37%) expect their coverage to stay about the same if the plan proposed by the president and congressional Democrats becomes law.

by Greg Mankiw (noreply@blogger.com) at June 30, 2009 03:25 PM

From Donald Marron:

On Friday, the House of Representatives passed its climate change bill by a slim margin. The bill’s key feature is a cap-and-trade system for greenhouse gases. That system would set national emission limits and would require affected emitters to own permits (called allowances) to cover their emissions.

The number one thing you should know about this bill is that the allowances are worth big money: almost $1 trillion over the next decade, according to the Congressional Budget Office, and more in subsequent decades.

There are many good things the government could do with that kind of money. Perhaps reduce out-of-control deficits? Or pay for expanding health coverage? Or maybe, as many economists have suggested, reduce payroll taxes and corporate income taxes to offset the macroeconomic costs of limiting greenhouse gases?

Choosing among those options would be a worthy policy debate. Except for one thing: the House bill would give away most of the allowances for free. And it spends virtually all the revenue that comes from allowance auctions.

As a result, the budget hawks, health expanders, and pro-growth forces have only crumbs to bargain over. From a budgeteer’s perspective, the House bill is a disaster....

Economists have spent decades demonstrating the potential benefits of using environmental taxes to help finance the government (and make no mistake, a cap-and-trade system is a tax; the Congressional Budget Office, much to its credit, even scores it that way). But that economic logic works only when a substantial fraction of the revenues are used to improve fiscal policy — e.g., reducing deficits or reducing distortions from the tax system. The House bill does neither.

Donald is right. The Pigou Club is not happy.

by Greg Mankiw (noreply@blogger.com) at June 30, 2009 06:50 AM

In a brief blog post on healthcare, Paul Krugman says that George Will and I are "either remarkably ignorant or simply disingenuous." I cannot speak for George, but I can attest that I am completely ingenuous. So I suppose I must be remarkably ignorant.

There is a lot of that going around lately. In an earlier post on the state of macroeconomics, Paul says, "Brad DeLong and I have been sort of tag-teaming the Great Ignorance which seems to have overtaken much of the economics profession."

What is going through Paul's head as he writes these posts? I suspect three things:

1. On the issue of macroeconomics, I think I understand Paul's point of view. He accepts the 1970-vintage Keynesian economics he first learned from, say, Jim Tobin when Paul was an undergraduate at Yale. Like Tobin and Bob Solow, one of his teachers at MIT, Paul thinks a lot of modern macroeconomics was an unfortunate turn in the wrong direction. In this old paper (published version), I tell the story of modern macro and describe how many old Keynesians were more likely to denigrate modern macroeconomics than to engage it intellectually. Paul is following in that tradition.

2. On the issue of health care, I also think I understand Paul's point of view. He would like a single-payer system, and he views a public option as a Trojan horse to achieve that goal. In my column, I wrote, "for those who see single-payer as the ideal, a public option that uses taxpayer funds to tilt the playing field may be an attractive second best. If the subsidies are big enough, over time more and more consumers will be induced to switch." Paul was one of the people I had in mind (see this old post of his).

In his latest post, Paul writes, "the standard competitive market model just doesn’t work for health care: adverse selection and moral hazard are so central to the enterprise that nobody, nobody expects free-market principles to be enough."

In my view, these comments are just off point. The Obama administration says it wants a public insurance plan that will compete on a level playing field with private plans (that is, without taxpayer subsidies). Is there any cogent economic analysis that suggests that such a policy addresses problems of adverse selection and moral hazard? None that I know. If it has to stand on its own financially, the public plan has no special advantage in addressing these issues.

In any event, it is not like the only alternatives available to us are a government-run health insurance plan or unregulated laissez faire. The most intriguing proposal in the current policy debate is the Wyden-Bennett bill (see this David Brooks column or this letter from CBO on the proposed legislation). That seems to be the best hope for truly bipartisan healthcare reform. At this point, given the legislative strategy of Congressional leadership, the hope is slim at best.

3. On the issue of tone, I again think I understand Paul's point of view. He likely believes that civility is overrated. He seems to think that in the blogosphere, and perhaps in the public debate more generally, you score points simply by insulting your intellectual adversaries. Sadly, I am afraid he may be right.

by Greg Mankiw (noreply@blogger.com) at June 30, 2009 06:46 AM

This is Louis Leblanc. He’s from Kirkland, Quebec. Last season, he played for the Omaha Lancers of the USHL. On Friday, he was selected by the Montreal Canadiens in the first round of the NHL Draft. That made thousands of Québécois very happy and subsequently irritating. But Leblanc isn’t going to suit up for the Habs just yet because next year he’ll be attending Harvard University and playing for the Crimson men’s ice hockey team.

Congratulations Louis Leblanc. By being a French-Canadian hockey phenom and a Harvard student, you are officially the most loathsome hockey player ever.

by Max Wasserman at June 29, 2009 07:30 PM

by Greg Mankiw (noreply@blogger.com) at June 29, 2009 11:47 AM

Now for something a little different:

According to an Associated Press analysis, of the 116 banks that received $188 billion of taxpayer money last year, the average paid to each of the banks' top executives was $2.6 million in salary, bonuses, and benefits.

For someone who makes Federal minimum wage (which will soon be $7.25 an hour, so let's use that number) and works 40 hours a week, for fifty-two weeks a year, for every year between age 18-65, they will make a grand total of $708,760 IN THEIR LIFETIME.

That's 27% of what the executives made last year alone, and the executives couldn't even do their jobs right.


To quote Mr. Barney Frank: "Most of us sign on to do jobs and we do them best we can. We're told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!"


America has a huge poverty problem, and either our priorities in this bailout are clearly misplaced, or the wealthy are bilking us taxpayers for all they can get their hands on. Or both.

by The Mirrorball Man (noreply@blogger.com) at June 29, 2009 10:18 AM

As seen by the Times (UK).

by Greg Mankiw (noreply@blogger.com) at June 28, 2009 10:38 AM

by Paloma Zepeda at June 28, 2009 03:28 AM

by Paloma Zepeda at June 28, 2009 03:27 AM

I have a soft spot for novels about adolescent ennui. Not that I was a particularly disaffected teenager. Quite the contrary. But I am sometimes a disaffected adult, so I still easily relate to this genre of fiction. Last year, I reread Catcher in the Rye and enjoyed it more than I did when I first read it in high school.

by Greg Mankiw (noreply@blogger.com) at June 27, 2009 04:39 PM

by Greg Mankiw (noreply@blogger.com) at June 27, 2009 04:38 PM

Professors in the Ivy League apparently are somewhat aware of the problems facing academia. You usually don’t see them doing anything about it other than whining at conferences and writing editorial columns in the New York Times. Tenure is a great thing, sort of like being emperor of Rome while it burns down. No one’s gonna stop your fiddling (or publishing).

Francis McLellan, a Brown Ph.D. and Princeton’s former head Russian language instructor, evidently had a different experience as a senior lecturer than the professors did. Lecturers are to Princeton what migrant laborers are to, well, Princeton. And it seems as if four years of teaching elementary language made giving up women, possessions, and meat an attractive option for McLellan. In January he was tonsured Iosaf, a hieromonk in the Russian Orthodox Church. Now he’s archimandrite of the Russian Ecclesiastical Mission in Jerusalem, a city just slightly less dangerous than Cambridge. Sexy monk results after the jump.

Admittedly not much has changed: professor beard easily became a monk beard, one funny hat got traded for another funnier hat, and his ugly brown robes were replaced by more staid black. On the plus side Iosaf now has a fancy cross and the equivalent of tenure because I’m not really sure how you fire a monk–aside from actually setting fire to him.

More impressive about all of this is McLellan is in position to be the Ivy League’s first ever Russian Orthodox bishop after only six months in the priesthood. According to multiple sources (and Wikipedia!) Russian Orthodox bishops are frequently selected from the archimandrite ranks, especially the heads of the Jerusalem mission. This should be celebrated by other grad students, but they’ll likely use this as more motivation to get out while they still can–epecially the engineering students as they’re already essentially celibate.

by Michael E van Landingham at June 26, 2009 07:04 PM

Analysis from economists Alan Viard and Ted Gayer.

by Greg Mankiw (noreply@blogger.com) at June 26, 2009 11:16 AM

Pro and Con.

by Greg Mankiw (noreply@blogger.com) at June 26, 2009 09:06 AM

Judge Posner is not impressed.

by Greg Mankiw (noreply@blogger.com) at June 25, 2009 11:19 AM

Source of the graph.

Although the United States now has relatively fewer physicians per 1,000 population than the OECD median, its total national spending on physicians as a percentage of GDP is double the OECD median (2.9 percent in 1999, compared with an OECD median of 1.3 percent). U.S. physician spending peaked in 1991–1992 at 3.0 percent after steadily rising from 1.7 percent in 1980. Since 1992 spending has more or less hovered around 3 percent. OECD median spending has been mostly flat over the entire period, hovering between 1.1 and 1.4 percent of total spending. As a dollar amount, U.S. per capita spending for physician services was the highest in the OECD in 1999: $988, compared with an OECD median of $342. Physician services accounted for 22.7 percent of total U.S. health spending in 1999, compared with 15.2 percent in the median OECD country.

Physicians’ incomes are much higher in the United States than they are in other OECD countries. In 1996, the most recent year for which data are available for multiple countries, the average U.S. physician income was $199,000. The comparable OECD median physician income was $70,324. The ratio of the average income of U.S. physicians to average employee compensation for the United States as a whole was about 5.5. Germany’s was the next highest, at only 3.4; Canada, 3.2; Australia, 2.2; Switzerland, 2.1; France, 1.9; Sweden, 1.5; and the United Kingdom, 1.4.

One can think of several reasons why physician compensation in the United States is relatively more generous than elsewhere. First, physicians in most other nations face a powerful single buyer (monopsony) for health services. As the McKinsey Global Institute and Mark Pauly have shown, market power (or regulation) translates into relatively lower prices for health services, including the services of physicians. Second, U.S. physicians must make a larger financial investment in their education than their counter parts in many other countries do; they must recover the debt they incur as part of the educational process. Third, the incomes of highly skilled health care workers—notably physicians—are determined partly with reference to the incomes that equally able and skilled professionals can earn elsewhere in the economy. Because the U.S. distribution of earned income for all occupations is wider than it is in most other OECD countries, the relatively high incomes offered skil led professionals in the United States may well have served to pull up the incomes of American physicians relative to the incomes of their peers abroad.

Based on this reading, and in particular on the three hypotheses outlined in their last paragraph, here are some questions for class discussion:

On the issue of monopsony power: Explain how a large government healthcare plan (a "single payer" being the extreme case) could potentially reduce the wages of healthcare workers and thereby national healthcare costs. What are the similarities and differences between this solution to high healthcare costs and a targeted income tax surcharge levied only on healthcare providers (the revenue from which is rebated to all taxpayers)? Are the policies you considered above efficient, using the economist's standard definition of efficiency? Are they equitable, as judged by your own notion of fairness? In your opinion, does your analysis argues for or against a government-run healthcare plan?


---

by Greg Mankiw (noreply@blogger.com) at June 25, 2009 11:11 AM

My Harvard colleague David Cutler has been a healthcare adviser to President Obama. Click here to read how he and coauthor Melinda Beeuwkes Buntin believe healthcare costs can be contained.

by Greg Mankiw (noreply@blogger.com) at June 25, 2009 10:04 AM