Sunday, April 26, 2015

Good News for Students!

I had to go up to Orem on short notice late Friday afternoon.

I promised that anything I posted on this blog by midnight Friday would be tested on the exam, and it will be.

But, nothing I post after this will be on the last exam for the Spring 2015 class.

This actually is a rather large pile of stuff, going back to the start of the grading overload I entered the week of March 30 — perhaps about a dozen new posts.

I will be writing those up over the next couple of days. Read them if you like: they’re all amazing bits of macro insight Winking smile, expressed clearly Confused smileand conciselyCrying face, and sprinkled with scintillating wit and charm.Sarcastic smile

Friday, April 24, 2015

The Social Progress Index (Not Required)

Trying to measure well-being with something other than real GDP per capita is a good thing.

Doing it well though? I’m not sure how well we do at that.

One of the most famous alternative measures is the Social Progress Index created by Social Progress Imperative. Go play with it: they have fun, interactive tools, for slicing and dicing their data. This was started out by Michael Porter (yes, that Michael Porter from your management classes).

But these things bug me. I am sure some of this is some natural American Chauvinism.

But I also wonder about why they choose the data series they do, and why they weight them the way they do.

For example, the U.S. ranks 35th in freedom of the press, a step lower than Romania. Who are they kidding with this nonsense?

As an economist, my biases are towards accepting what people do (rather than what they say or believe) as indicative of how they’re doing. And I really frown upon it when experts assert that individuals decisions are somehow incorrect because they’ve voluntarily chosen something that the experts might not.

So, for me, something like immigration is a good sign, and emigration is a bad sign. On this count, America’s doing pretty well.

And, of course, in the news this week has been the sinking of a ship overloaded with migrants, heading to Italy. Italy ranks even further down the Social Progress Index than the U.S. does.

At a minimum, I’d be happier if this sort of thing was also included in the Social Progress Index. Oh … and how about including the money expended by rich countries to rescue these migrants: Italy actually scaled back a huge rescue program and still spends more money than other countries on this. Shouldn’t that get credit somewhere?

What’s the Job and Pay Outlook?

Here’s a complex, but really interesting view of the changing U.S. labor market:

There’s a ton of information here.

Bluer is more jobs, while redder is fewer jobs. The 6 recessions of the last 40 years really stand out (although it’s still tough to separate 1980 from 1981-2 recessions). This chart also emphasizes that in terms of job losses, the Great Recession was pretty bad (red). You can also see the pervasively weak job growth of this expansion by the whiteness on the right hand side.

The “wedges” going left to right show the relative size of different industries: professional and business services, and healthcare and education are now the largest. Most of that is from strong growth through the 80’s and 90’s — although relatively speaking, growth is currently strong in professional and business services. Manufacturing has, of course, declined.

Going top to bottom shows industries by the average wage. Manufacturing (two categories actually) and construction are not on the top; but they are the ones closest to the top that have seen the biggest declines. And food service has definitely grown, but it’s pretty clear that the story that our economy is dominated by lowly paid burger flippers is an urban myth.

This was drawn from “Slowing Job Growth Tests Economy” in the April 3 issue of The Wall Street Journal.

If you like this sort of thing, you should definitely click through the linked image in the article entitled “Job Sectors: Winners and Losers”, which takes you to a page with several more interactive charts. Very cool.

The Real Minimum Wage

Just a quick chart showing the dates and levels of the nominal wage, and how that was affected by inflation:

I think this chart partially supports a claim I’ve made in class: that if you like the idea of raising the minimum wage occasionally, this might not be a bad time because it isn’t that high in real terms (and because if the country swings conservative in 2016, inflation will slide the real minimum wage much further downhill to the right).

Drawn from "McDonald’s Joins Trend in Raising Pay" in the April 1 issue of The Wall Street Journal (the full article is not required).

Don’t Believe the Myth

Most people believe that that America has less social programs than other developed countries.

This is a myth. We are about average.

But the myth can be, and is, supported with hard data. This is one of those cases where you can be mislead into believing something that’s false with selective use of the data.

The reason this comes about is that other countries support their social programs more with spending, while the U.S. supports them relatively more with tax breaks.

In order to get the full picture you have to look at both. But many people just focus on the spending part, which makes the U.S. look … cheap.

This is covered in Eduardo Porter’s March 31 column in The New York Times entitled “The False Hope of a Limited Government, Based On Tax Breaks”. The article looks at what are called “tax expenditures”. These are basically tax deductions, often given to promote desirable private behavior. But they are also a substitute for actual public expenditures: give people a break if they pay for something themselves, rather than having the government spend the money to provide it for them.

The biggest tax expenditure for households is the mortgage interest deduction, which encourages private home ownership. The biggest tax expenditure for firms is that ability to write off employee healthcare expenses as a cost.

My opinion is that the author is solidly progressive. So it’s a big deal for him to say that while political constraints limit the size of the U.S. government more or less explicitly, we’ve got this system of stealth government through tax expenditures that implicitly broadens our government:

Such spending through the tax code not only offered the false promise of smaller government. Its most insidious effect was to hide what the government does and, notably, to shield from political debate which people it benefits most. That is clearly not those of middle and low income, who don’t earn enough to qualify for many tax deductions and often don’t even claim them.

You can see his progressiveness in the (correct) position that most of the benefits of tax expenditures go to the rich.

Check out the chart (sorry, I had to do a screen capture of a small image, and then scale it up to fit):

15-04-01, NYT, Spending and Tax Expenditures

The large gray bar is what people see when they focus on spending only. The darker bar is what is spent after accounting for some tax expenditures.* When using the dark bar, America is actually just above the OECD average.

* The excluded tax expenditures — the mortgage interest deduction, and public spending in education — are pretty big too, and would tend to make the U.S. government look relatively larger.

Don't Blame Germany (Not Required)

(This is not required because I think you've heard enough about Greece this semester).

Two huge names in academic international finance, Jeremy Bulow and Kenneth Rogoff, chimed in on Greece with an op-ed in the April 17 issue The Wall Street Journal entitled "Don't Blame Germany for Greece's Profligacy".
In the court of world opinion, a large majority seems to believe that even if the Greeks may have been a tad fiscally irresponsible, it is the Germans who have driven Greece into depression through cruel insistence on austerity and debt repayments.
This populist narrative misses the essence of the problem ...
I would not describe either one of the authors as conservatives. These are firm liberal/progressives saying we shouldn't be sympathetic to the underdog in this case.
Let’s first dispense with the “it’s all German-led austerity” nonsense. ... In 2009, fueled by a three-year jump in government spending to 54% of gross domestic product from 45%, the Greek government was running a primary deficit equal to 10% of its GDP, according to IMF estimates. In other words, new borrowing equaled all principal and interest due, plus an extra 10% of GDP. When major accounting fraud was reported, private lending to the Greek government stopped ...
But Greece has already taken advantage of others:
Sober observers realize that further debt write-downs are both desirable and inevitable. But don’t blame today’s austerity on tough repayment terms that have never been, and probably never will be, implemented. Already the EU’s current bailout terms include no principal or net interest until 2020. Greece has enjoyed a much smoother cushion than say, the Asian financial crisis countries in the late 1990s. [emphasis added]
And, I think I've gotten across many points this semester whose tone is echoed in the article:
Eurozone leaders would like to portray the Greek crisis as unique, but in many respects it is merely extreme.
In a lot of case, what we need to do is redefine normal to include more unusual behavior than we'd care to.

Thursday, April 23, 2015

What Do Economists Do at Google?

This in on Quora. Follow this link, but only the response from Hal Varian is required.

Varian wrote the text that I used for Micro I and II in my Ph.D. program. I still refer to it, and have used it to supplement what I’m doing in that ECON 4900 class that meets in the computer lab before Price’s Stata class.