East Boston Economics: January 2018

Wednesday, January 31, 2018

ADP for January 2018: +234,000 private sector jobs

The latest from ADP payroll report for January 2018

Tuesday, January 30, 2018

Archived articles on note

Margo on Clark, _A Farewell to Alms: A Brief Economic History of the World_

Environmental Capital - WSJ.com : Mighty Wind: How Long Will Economics Work in Favor of Clean Energy?

Game theory explains dinner-party dates. - By Mark Gimein - Slate Magazine

The Volokh Conspiracy » Blog Archive » How Does Cost-Benefit Analysis Draw Lines in the Sand?

The Myth of Financial Deregulation: Government action caused the economic crisis, not the free market. - Reason Magazine

Making and breaking tax systems geary lecture 2012 - LSE Research Online

The Crier Curve: An Engineer's Look at the Laffer Curve

Greg Mankiw's Blog: Spending and Tax Multipliers

All Infrastructure Spending Is Not Created Equally: Randomly pouring billions of dollars into roads won't fix America's gridlocked transportation system - Reason Magazine

Book Lover: A Good Editor Is Hard to Find - WSJ.com Mario Rizzo: A Microeconomist’s Protest.

The late Murray Rothbard on Karl Polanyi: Down With Primitivism: A Thorough Critique of Polanyi

Professor Scott Sumner on The Great Danes.

Peter Leeson on Why Failure is Valuable. What Are Economic Models Good For? - Hit What Occupy Wall Street Gets Wrong About Inequality | Foreign Affairs

Data hubris?

Every five minutes a satellite captures images of China’s biggest cities from space. Thousands of miles away in California, a computer looks at the shadows of the buildings in the images and draws a conclusion: China’s real estate boom is slowing. 21 Economic Models Explained « Organizations and Markets “Your fishtank is not a goldmine.”

Hat tip: Knowledge Problem A little lesson in economics.

Glenn Harlan Reynolds:

The United States Code -- containing federal statutory law -- is more than 50,000 pages long and comprises 40 volumes. The Code of Federal Regulations, which indexes administrative rules, is 161,117 pages long and composes 226 volumes.

No one on Earth understands them all, and the potential interaction among all the different rules would choke a supercomputer. This means, of course, that when Congress changes the law, it not only can't be aware of all the real-world complications it's producing, it can't even understand the legal and regulatory implications of what it's doing.

There's good news and bad news in that. The bad news is obvious: We're governed not just by people who do screw up constantly, but by people who can't help but screw up constantly. So long as the government is this large and overweening, no amount of effort at securing smarter people or "better" rules will do any good: Incompetence is built into the system.

The good news is less obvious, but just as important: While we rightly fear a too-powerful government, this regulatory knowledge problem will ensure plenty of public stumbles and embarrassments, helping to remind people that those who seek to rule us really don't know what they're doing.

Walter Williams explains "free"

I might be embarrassed to explain common economics to people who believe things should be "free" but I'll let Walter Williams explain it for the great unwashed.

"...Politicians talk about "free education," "free medicine" or "free housing," but that's nonsense. Resources are required to produce each of them. Of course, some people received these goods at a zero price, but that doesn't mean they didn't cost someone, usually a taxpayer, something.

Now as the to the minimum wage, another mythological free lunch. Liberals hope that by raising the minimum wage we won't hear the tree drop in the forest. That the natural labor market distortion will be lost in the noise of economic growth. This is good example of busting that myth.

Supply curves slope up

A debate which comes first markets or democracy?

The WSJ's ECONOBLOG asks the following:

But what exactly do we know about the relationship between democracy and economic growth? Economies of less-than-democratic nations such as China have surged in recent years. Does a country's brightening economic picture boost the chance democracy may eventually blossom? Or is it the other way around? Are democratic institutions a key component of long-term economic growth? And what's the role of education?

Two very sharp economists, Daron Acemoglu of the Massachusetts Institute of Technology and Ed Glaeser of Harvard University, attempt to answer these questions.

This may be a gated (subscription only).

Anthony de Jasay, Economics Textbooks, Teaching to Despise: Library of Economics and Liberty:

"Back to the textbooks, then, that seem destined to remain tendentious as long as teachers feel wronged by the existing order of things. I have argued here before that people in the Northern half of Europe have an innate understanding of the most basic economic verities, including how wealth is created and what the state can and cannot do, while in the Southern, Latin and Catholic half there is a gut feeling against enterprise and profit and a thick fog of confusion about how an economy works. Most present-day teaching upsets the natural understanding and makes the confusion worse."

Alex Tabarrok at Marginal Revolution, one of my favorite blogs (and not just econ blogs) thinks he's found an example of bad reporting on economics. It seems that one Washington Post reporter, writing about Wal-Mart's decision to undermine co-payments by selling "nearly 300 generic drugs for $4 per prescription" is bad news.

Kathleen Day's article in the Washington Post on Wal-Mart's plan to offer a $4 price for many generic pharmaceuticals is a classic example, practically a caricature, of anti-market, anti-big-business bias. Here with emphases added are some choice quotes from the front page article:

Retailing giant Wal-Mart Stores Inc., known for forcing prices down to dominate nearly every market it enters, said yesterday that it would sell nearly 300 generic drugs for $4 per prescription...

Using its might as the nation's largest retailer and its legendary ability to force suppliers to cut prices to the bone, the company will begin the $4 price program in its 65 stores in the Tampa area today... ...the program has the potential to transform the $230 billion prescription-drug business the way Wal-Mart has transformed other industries, including groceries and toys, where its aggressive pricing has forced some competitors out of business and allowed it to dominate entire categories of merchandise.

In the entire article there is not a single positive mention from the reporter of consumer benefits or Wal-Mart productivity. It's not until inside the fold that you even get a hint of consumer benefits and then it's in the context of an absurdly biased attack on Wal-Mart.

Do Americans "save" enough. It depends on how you count. Robert Samuelson explains.

... economic statistics also distort what's happened. The outlook isn't as dire as the zero personal savings rate implies. One common error is to confuse personal with national savings. Along with consumers, businesses and governments can save, too. In 2004 companies saved about $1.4 trillion in retained profits and depreciation allowances. If you own stock, your companies are saving for you. But federal budget deficits, a form of dis-saving, erase some of that. The overall result: Although our national savings rate has declined, it's nowhere near zero.

The personal savings rate is derived by subtracting Americans' total consumption spending from their total after-tax income (i.e. "disposable income''). By definition, the rest is "saving." In 1984 the personal savings rate -- savings as a share of disposable income -- was 10.8 percent. It's drifted down ever since. It was 4.6 percent in 1995 and 1.8 percent in 2004. It hit zero in June.

These low figures are not inconsistent with huge 401(k) and IRA contributions. Suppose you put $4,000 into a 401(k) account. You think you've "saved." But then you borrow $4,000 to go to Vegas or pay college tuition. Now your savings rate is zero. Ditto if you'd sold $4,000 of stock. Borrowings and stock sales offset much retirement saving.

The trouble with the official savings rate is that it excludes some items that people intuitively count as savings, notes Susan Sterne of Economic Analysis Associates. A big omission is the capital gains -- aka profits -- on housing or stocks, both realized (if you sell) or on paper (if you don't). If your home or stocks increase $10,000, you may feel comfortable borrowing $4,000 to spend. You've still got an extra $6,000 in savings. But the savings statistics ignore these value changes; all they show is that you've saved less by spending another $4,000.

Why Do Americans Work More Than Europeans?

By EDWARD C. PRESCOTT

October 21, 2004; Page A18

Last week, The Wall Street Journal published a story describing a new method of measuring a nation's progress "gross national happiness (1)."

Maybe it's because we're nearing the end of an election season, but one hopes that this indicator does not catch on. Of all the promises that candidates find themselves making, and of all the problems they pledge to fix, one shudders at the notion of pledges to make us happier. The mind reels at the thought of the ill-conceived policies that would be concocted if the stated goal were to increase gross national happiness. It's hard enough to make everybody more prosperous, educated and healthy, but imagine if the government was responsible for keeping you in a good mood. And just think about the data problems.

I mention this not to poke fun at the idea of happiness. Indeed, our Constitution, in its elegant wisdom, allows for individuals to pursue happiness. But individual pursuit is far different from the aggregate management of happiness. This point is at the core of how we should think about many government policies, especially tax policy, which is the subject of this essay.

Let's begin by considering a commonly held view which says that labor supply is not affected by tax rates. This idea holds that labor participation would remain steady when tax rates are either raised or lowered. If you are a policy maker and you subscribe to this, then you can confidently increase marginal tax rates as high as you like to attain the revenues you desire. Not only that, but you can move those tax rates up and down whenever you like and blithely assume that this will have no effect on output.

But economic theory and data have come together to prove this notion wrong, and we have many different laboratories -- or countries -- in which we can view live experiments. The most useful comparison is between the U.S. and the countries of Europe, because these economies share traits; but the data also hold when we consider other countries (more on those later).

This issue is encapsulated in one question that is currently puzzling policy makers: Why do Americans work so much more than Europeans? The answer is important because it suggests policy proposals that will improve European standards of living (which should give a boost to its gross national happiness, by the way). However, an incorrect answer to that question will result in policies that will only exacerbate Europe's problems and could have implications for other countries that are looking for best practices.

Here's a startling fact: Based on labor market statistics from the Organization for Economic Cooperation and Development, Americans aged 15-64, on a per-person basis, work 50% more than the French. Comparisons between Americans and Germans or Italians are similar. What's going on here? What can possibly account for these large differences in labor supply? It turns out that the answer is not related to cultural differences or institutional factors like unemployment benefits, but that marginal tax rates explain virtually all of this difference. I admit that when I first conducted this analysis I was surprised by this finding, because I fully expected that institutional constraints are playing a bigger role. But this is not the case. (Citations and more complete data can be found in my paper, at www.minneapolisfed.org (2)

Let's take another look at the data. According to the OECD, from 1970-74 France's labor supply exceeded that of the U.S. Also, a review of other industrialized countries shows that their labor supplies either exceeded or were comparable to the U.S. during this period. Jump ahead two decades and you will find that France's labor supply dropped significantly (as did others), and that some countries improved and stayed in line with the U.S. Controlling for other factors, what stands out in these cross-country comparisons is that when European countries and U.S. tax rates are comparable, labor supplies are comparable.

And this insight doesn't just apply to Western industrialized economies. A review of Japanese and Chilean data reveals the same result. This is an important point because some critics of this analysis have suggested that cultural differences explain the difference between European and American labor supplies. The French, for example, prefer leisure more than do Americans or, on the other side of the coin, that Americans like to work more. This is silliness.

Again, I would point you to the data which show that when the French and others were taxed at rates similar to Americans, they supplied roughly the same amount of labor. Other research has shown that at the aggregate level, where idiosyncratic preference differences are averaged out, people are remarkably similar across countries. Further, a recent study has shown that Germans and Americans spend the same amount of time working, but the proportion of taxable market time vs. nontaxable homework time is different. In other words, Germans work just as much, but more of their work is not captured in the taxable market.

I would add another data set for certain countries, especially Italy, and that is nontaxable market time or the underground economy. Many Italians, for example, aren't necessarily working any less than Americans -- they are simply not being taxed for some of their labor. Indeed, the Italian government increases its measured output by nearly 25% to capture the output of the underground sector.

Change the tax laws and you will notice a change in behavior: These people won't start working more, they will simply engage in more taxable market labor, and will produce more per hour worked.

This analysis has important implications for policy -- and not just for Europeans, but for the U.S. as well. For example, much has been made during this election season about whether the current administration's tax cuts were good or bad for the economy, but that is more a political question than a policy consideration and it misses the point. The real issue is about whether it is better to tweak the economy with short-lived stimulus plans or to establish an efficient tax system with low tax rates that do not change with the political climate.

What does this mean for U.S. tax policy? It means that we should stop focusing our attention on the recent tax cuts and, instead, start thinking about tax rates. And that means that we should roll back the 1993 tax rate increases and re-establish those from the 1986 Tax Reform Act. Just as they did in the late 1980s, and just as they would in Europe, these lower rates would increase the labor supply, output would grow and tax revenues would increase.

Now, might there be a small increase in debt as we move to a better tax system? Sure, but remember that the most important measure of debt is privately owned government debt as a percent of gross national income, which has been flat over the past three years. Also, there is a sure-fire way to handle this increase in debt, and that would be to cut expenditures. Actually, there is another way to handle it, and that would be to pray to the Gods for another high-tech boom and the debt would go "poof," and we'll praise whoever is president for being fiscally responsible.

Some say that the 1993 tax-rate hike was responsible for erasing this country's debt problems because it increased government revenues. This is false. The ratio of U.S. debt to gross national income continued to increase in the years following those rate hikes and did not fall until the fortuitous boom that occurred in the late '90s. The high-tech boom meant that people worked more, output increased, incomes climbed and tax revenues followed suit. You cannot tax your way to that sort of prosperity. Imagine the outcome of the late-'90s boom if tax rates had been lower. And by the way, lower tax rates are good for all taxpayers. We're barking up the wrong tree if we think that "taxing the rich" will solve all our problems. You know who these rich people are? They're often families with two professional wage-earners. If you tax that family too much, one wage-earner will drop out, and that's not only bad for the income of that family but also for the output of the whole economy -- and will result in lower tax revenues.

Also, we need to get away from thinking of the rich as some sort of permanent class. Many of the individuals who show up on annual millionaire lists, for example, are people who happened to have a good year and who may never appear on that list again. Consider people who worked hard for many years and built a successful business that finally goes public. The big capital gain they realize that year is really compensation for the uncompensated effort they put into building the business. They should not be penalized for their vision and tenacity. If we establish rules that punish the winners, entrepreneurs will take fewer risks and we will have less innovation, less output, less job growth. The whole economy suffers under such a scenario -- not just those few individuals who are taxed at a higher rate. And this doesn't just involve the Googles and Apples and Microsofts, but countless other companies that start small and end up making large contributions to the economy.

The important thing to remember is that the labor supply is not fixed. People, be they European or American, respond to taxes on their income. Just one more example: In 1998, Spain flattened its tax rates in similar fashion to the U.S. rate cuts of 1986, and the Spanish labor supply increased by 12%. In addition, Spanish tax revenues also increased by a few percent.

And that brings us back to our framing question about the labor supplies of the U.S. and Europe: The bottom line is that a thorough analysis of historical data in the U.S. and Europe indicates that, given similar incentives, people make similar choices about labor and leisure. Free European workers from their tax bondage and you will see an increase in gross domestic product (oh, and you might see a pretty significant increase in gross national happiness, too). The same holds true for Americans.

Mr. Prescott is co-winner of the 2004 Nobel Prize in Economics, senior monetary adviser at the Federal Reserve Bank of Minneapolis and professor of economics at Arizona State University.

URL for this article:http://online.wsj.com/article/0,,SB109830788286551061,00.html
Hyperlinks in this Article:(1) http://online.wsj.com/article/0,,SB109716629151639303,00.html (2) http://www.minneapolisfed.org

Course Video #6: Léon Walras and General Equilibrium Theory from Professor Lynne Kiesling on Vimeo.

Course Video #5: The marginal revolution and Carl Menger

Course Video #4: History of economic thought course video: John Stuart Mill
Course Video #3: David Ricardo on rent and on trade
Course Video #2: Adam Smith’s Wealth of Nations
Course Video #1: Smith’s Theory of Moral Sentiments

Selected readings in Economics

Edward C Prescott, "Why Do Americans Work So Much More than Europeans?"

Fabian Christandl, Detlef Fetchenhauer, How laypeople and experts mis-perceive the effect of economic growth

Understanding Say's Law of Markets Steve Horwitz

Douglass North Nobel Prize Lecture December 9, 1993

Paul Rubin Folk Economics

Paul Volcker "Vision with Execution is Hallucination" (February 7, 2014)

Peter Klein's review of Mirowski's Against Mechanism: Protecting Economics from Science Summer 1990 Austrian Economics Newsletter

David Friedman Price Theory an Intermediate Text Chapter 2

Six ways to separate lies from statistics Stevenson and Wolfers May 1, 2013

Gentzhow Shapiro: RA Manual Notes on writing code & Code and Data

On polling: The "Margin of Error" for differences in polls Charles H. Franklin Rev. February 9, 2007

Anthony Randazzo February 26 2013 Ahead of the Curve Issue No. 14

Raj Chetty "Yes Economics is a Science." New York Times October 20, 2013

Ralph Raico "Was Keynes a Liberal " Fall 2008 Independent Review

Robert J. Gordon's opus: The Rise and Fall of American Growth

Robert Gordon's magisterial work on economic growth has made it to the top of my reading stack.

He is becoming one of my favorite economists.

Here's Ed Glaeser's review from the Wall Street Journal.

Sunday, January 28, 2018

Implications of Medicaid Financing Reform for State Government Budgets

America’s Great Depression and Austrian Business Cycle Theory - Foundation for Economic Education - Working for a free and prosperous world

Why we need a dating app that understands Nash’s equilibrium

Exodus Starts: Millennials Ditch City Life | Zero Hedge

Richard Florida Is Sorry

Emerging Themes Reshaping the Energy Landscape | World Economic Forum

Boston’s Tax Rate Set for FY18 – Boston Municipal Research Bureau

wp334

Microsoft Word - FHSW 2017.03.10 JS JGF BH JGF fixed equation.docx

Banks Set to Profit From Tax Cuts and Rate Hikes | Investopedia

Federal Reserve Bank of San Francisco | Stock Market Valuation and the Macroeconomy

Labor Supply and the Value of Non-Work Time: Experimental Estimates from the Field

Fear of stagnation? A review on growth imperatives

Does Data Confution Equal Forecast Confusion? | St. Louis Fed

Industrial Development and Long-Run Prosperity

Valuing Government Obligations When Markets are Incomplete

Shopping for Lower Sales Tax Rates - PDF

Technological Progress, Labour Productivity and Economic Growth: Disentangling the Negative and Positive Effects

Where is technology taking the economy? | McKinsey & Company

Four global economic trends we need to take seriously | World Economic Forum

Why Some Times Are Different: Macroeconomic Policy and the Aftermath of Financial Crises

Yes, Economics Is a Science - The New York Times

Op-ed: The Conservative Inequality Paradox - Niskanen Center

Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities

The Rate of Return on Everything, 1870-2015

Home Is Where the Market Is | Hoover Institution

Applied Mainline Economics

Search Engines and Data Retention: Implications for Privacy and Antitrust

Why Sacrifices by the Rich Won't Fix Social Welfare

Urban Revival in America, 2000 to 2010

Demystifying the Destination-Based Cash-Flow Tax

Home Is Where the Market Is | Hoover Institution

Our Miserable 21st Century | commentary

Trump’s Bait and Switch: Job Creation in the Midst of Welfare State Sabotage | Levy Economics Institute

The liberal siren song on Silicon Valley – Financial Times – Medium

Cognitive Biases Afflict Government "Nudgers" Too - Foundation for Economic Education - Working for a free and prosperous world

American Economic Association

Growth is getting hard from intensive competition, consolidation, and saturation at andrewchen

Mathematics of Predicting Growth | NIELSEN | Turkish Economic Review

Doomed to Repeat It: The Long History of America’s Protectionist Failures | Cato Institute

Critical Thinking Doesn't Mean What Most People Think - Foundation for Economic Education - Working for a free and prosperous world

The Never Ending Battle of Ideas Between Capitalism and Socialism: New at Reason - Hit & Run : Reason.com

Saturday, January 27, 2018

Various articles of interest from an old blog post

Plenty of good material from the most recent issue of the eminently readable Journal of Economic Perspectives.

"The Macroeconomist as Scientist and Engineer" by Greg Mankiw is a good survey.

Also a must-read is a pretty tough critique of residential recycling by Thomas C. Kinnaman.

And a very scholarly look at "What Has Mattered to Economics Since 1970" in which the authors E. Han Kim, Adair Morse and Luigi Zingales compile a very impressive list of the most cited journal articles in the field.

Meanwhile over at Cato, I had the opportunity to spend a train ride home reading Sallie James's new policy brief, "Milking the Customers: The High Cost of U.S. Dairy Policies." The paper confirms what every free trader knows U.S price supports and other farm subsidies are a crime against the poor.

The new Cato Journal has two great articles (scroll halfway down). William Niskanen casts doubt on Milton Friedman's "starve the beast approach" to limiting Leviathan (government)while Jerry H. Tempelman is less pessimistic.

Niskanen also has a review of James Buchanan's new book, Why I, Too, Am Not a Conservative: The Normative Vision of Classical Liberalism.
And who knew? Naples as a fashion capital! Michael Ledeen reports.

Studies in Sate and Local Public Finance

EconPapers: Studies in State and Local Public Finance

Mirrless Review by Martin Felstein

https://www.aeaweb.org/articles?id=10.1257/jel.50.3.781

Mirrless Review by Mart

Most research is false

http://www.biostat.jhsph.edu/courses/bio622/misc/Ioannidis.false%20findings%20PLoS.2005.pdf

Tax Expenditures, the Size and Efficiency of Government, and Implications for Budget Reform

Tax Expenditures, the Size and Efficiency of Government, and Implications for Budget Reform

http://www.nber.org/chapters/c12563.pdf

Caplan: Why I am not an Austrian economist

I consider this piece by Bryan Caplan a classic.

"I do not deny that Austrian economists have made valuable contributions to economics. Rather, as the sequel will argue, I maintain that:

(a) The effort to rebuild economics along foundations substantially different from those of modern neoclassical economics fails.
(b) Austrian economists have often misunderstood modern neoclassical economics, causing them to overstate their differences with it.
(c) Several of the most important Austrian claims are false, or at least overstated.
(d) Modern neoclassical economics has made a number of important discoveries which Austrian economists for the most part have not appreciated."

Read the whole thing.

Katie Sobczyk Player: The impact of personal income tax rates on the employment decisions of small business

Abstract

Small businesses file taxes in accordance with the personal income tax code because they are considered flow-through entities. Thus, personal income tax reforms directly affect the incentives small business owners face regarding employment and operations. I use the changes in personal income-tax rates during the 1993 and 2001-2003 reforms and micro-level data to estimate the effect of statutory tax-rate changes on small-business employment decisions. I add two contributions to the current literature: first, I allow for intertemporal tax planning and secondly, I allow the firm's decision to employ labor to be correlated with the firm's wage bill decision. Estimation of a Heckman selection model for wage bills shows that the probability that a business will employ labor is 1.18 % higher when current tax rates increase by one percentage point and 0.70 % lower when future rates are expected to increase by one percentage point. Among firms that already employ labor, the median wage bill elasticity with respect to current tax rates is-0.64. These estimates are larger than those reported in previous research because my model includes future taxes and allows for correlation between the firm’s employment and wage bill decisions. Omitting the intertemporal tax responses biases the estimates of previous researchers upwards, whereas assuming the two firm decisions are independent biases estimates towards zero

From Vertical and Horizontal Redistributions from a Carbon Tax and Rebate by Julie Anne Cronin, Don Fullerton, Steven E. Sexton

From Vertical and Horizontal Redistributions from a Carbon Tax and Rebate by Julie Anne Cronin, Don Fullerton, Steven E. Sexton

Abstract: Because electricity is a higher fraction of spending for those with low income, carbon taxes are believed to be regressive. Many argue, however, that their revenues can be used to offset the regressivity. We assess these claims by employing data on 322,000 families in the U.S. Treasury's Distribution Model to study vertical redistributions between rich and poor, as well as horizontal redistributions among families with common incomes but heterogeneous energy intensity of consumption (different home heating and cooling demands). Accounting for the statutory indexing of transfers, and measuring impacts on annual consumption as a proxy for permanent income, we find that the carbon tax burden is progressive, rising across deciles as a fraction of consumption. The rebate of revenue via transfers makes it even more progressive. In every decile, the standard deviation of the change in consumption as a fraction of consumption varies around 1% or 2% and is larger than the average burden (about 0.7%). When existing transfer programs are used to rebate revenue, the tax and rebate together increase that variation to more than 3% within each decile. The average family in the poorest decile gets a net tax cut of about 1% of consumption, but 44% of them get a net tax increase. Relative to no rebate, every type of rebate we consider increases this variation within most deciles.


Link: NBER #23250

Resources

http://www.niemanwatchdog.org/index.cfm?fuseaction=background.view&backgroundid=0094

see also
http://www.niemanwatchdog.org/index.cfm?fuseaction=background.view&backgroundid=0093

Brookings Economic Studies: Effects of Income Tax Changes on Economic Growth

ABSTRACT

This paper examines how changes to the individual income tax affect long-term economic growth. The structure and financing of a tax change are critical to achieving economic growth. Tax rate cuts may encourage individuals to work, save, and invest, but if the tax cuts are not financed by immediate spending cuts, they will likely also result in an increased federal budget deficit, which in the long-term will reduce national saving and raise interest rates. The net impact on growth is uncertain, but many estimates suggest it is either small or negative. Base-broadening measures can eliminate the effect of tax rate cuts on budget deficits, but at the same time, they reduce the impact on labor supply, saving, and investment and thus reduce the direct impact on growth. They may also reallocate resources across sectors toward their highest-value economic use, resulting in increased efficiency and potentially raising the overall size of the economy. Results in the literature suggest that not all tax changes will have the same impact on growth. Reforms that improve incentives, reduce existing distortionary subsidies, avoid windfall gains, and avoid deficit financing will have more auspicious effects on the long-term size of the economy, but may also create trade-offs between equity and efficiency.

On my reading pile: Peter J. Boettke & Liya Palagashvili: The Comparative Political Economy of a Crisis

From the abstract:

During times of economic crises, the public policy response is to abandon basic economic thinking and engage in ‘emergency economic’ policies. We explore how the current financial crisis was in part caused by previous emergency economic measures. We then investigate the theoretical limitations of emergency economic responses. We argue that these responses fail to take into consideration the practical conditions of politics, and thereby making them unsuitable to remedy the problems of a crisis. Lastly, we provide a preliminary analysis of the consequences resulting from emergency economic policies initiated in response to the 2008 financial crisis.

The Rise and Decline of General Laws of Capitalism - Journal of Economic PerspectivesVolume 29 Number 1Winter 2015Pages 328 The Rise and Decline of

Why has regional income convergence in the U.S. declined? - ScienceDirect

IMF Report Predicts Slow Productivity Growth in Years to Come | Reason Foundation

The War on Work—and How to End It | City Journal

The Employment Effects of Minimum Wages: Some Questions We Need to Answer

Technology versus the Distribution of Workers in Aggregate Productivity

"Too Simple" Energy-Economy Models Give Misleading Answers | Zero Hedge

The Tax Elasticity of Capital Gains Realizations: Evidence from a Panel of Taxpayers

Microsoft Word - FHSW.05.02.2017 post-conf draft_Final.docx

18-022_b618d193-9486-4de3-abc4-232e1baecbeb.pdf

Jim Grant: "Markets Trust Too Much In The Presence Of Central Banks" | Zero Hedge

The Grumpy Economist: Eight Heresies of Monetary Policy

The Productivity Slowdown and the Declining Labor Share: A Neoclassical Exploration

Federal Reserve Bank of San Francisco | Has the Wage Phillips Curve Gone Dormant?

Federal Reserve Bank of San Francisco | Changes in Labor Participation and Household Income

Federal Reserve Bank of San Francisco | Changes in Labor Participation and Household Income

Abstract

The percentage of people active in the labor force has dropped substantially over the past 15 years. Part of this decline appears to be the result of secular factors like the aging of the workforce. However, the participation rate among people in their prime working years—ages 25 to 54—has also fallen. Recent research suggests this decline among prime-age workers can be attributed in large part to lower participation from among the higher-income half of U.S. households.

Albert Edwards: "What On Earth Is Going On With US Wages" | Zero Hedge

Federal Reserve Bank of San Francisco | Disappointing Facts about the Black-White Wage Gap

Sumner_FiscalMultiplier_MOP_090313.pdf

A Research Note: Long-Term Changes in Labor Supply and Taxes: Evidence from OECD Countries, 1956-2004

Long-Term Changes in Labor Supply and Taxes: Evidence from OECD Countries, 1956-2004 an NBER paper by Lee Ohanian, Andrea Raffo, Richard Rogerson

Abstract:

We document large differences in trend changes in hours worked across OECD countries over the period 1956-2004. We then assess the extent to which these changes are consistent with the intratemporal first order condition from the neoclassical growth model. We find large and trending deviations from this condition, and that the model can account for virtually none of the changes in hours worked. We then extend the model to incorporate observed changes in taxes. Our findings suggest that taxes can account for much of the variation in hours worked both over time and across countries.

Later published as Ohanian, Lee & Raffo, Andrea & Rogerson, Richard, 2008. "Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956-2004," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1353-1362, November.

https://www.sciencedirect.com/science/article/pii/S0304393208001402

-toward-fundamental-tax-reform-chapter-8_131043249268.pdf

saez-slemrod-giertzJEL12.pdf

The Tax Elasticity of Capital Gains in the 21st century

Effects of Taxes on Economic Behavior

End the phony Social Cost of Carbon | Watts Up With That?

Dissent on Keynes: A Critical Appraisal of Keynesian Economics - Mark Skousen ed. | Keynesian Economics | John Maynard Keynes

Using Private Sector “Big Data” as an Economic Indicator: The Case of Construction Spending - Federal Reserve Bank of Chicago

The politics of mate choice

From John R. Alford, Peter K Hateme, John R. Hibbing, Nicholas G. Martin, Lindon J. Eaves

Abstract:

Recent research has found a surprising degree of homogeneity in the personal political communication network of individuals but this work has focused largely on the tendency to sort into likeminded social, workplace, and residential political contexts. We extend this line of research into one of the most fundamental and consequential of political interactions—that between sexual mates. Using data on thousands of spouse pairs in the United States, we investigate the degree of concordance among mates on a variety of traits. Our findings show that physical and personality traits display only weakly positive and frequently insignificant correlations across spouses. Conversely, political attitudes display interspousal correlations that are among the strongest of all social and biometric traits. Further, it appears the political similarity of spouses derives in part from initial mate choice rather than persuasion and accommodation over the life of the relationship.

Wednesday, January 24, 2018

Various papers

7.  What Was the Industrial Revolution?
by Robert E. Lucas, Jr. #23547 (EFG)
http://papers.nber.org/papers/w23547?utm_campaign=ntw&utm_medium=email&utm_source=ntw

9.  The Disappointing Recovery of Output after 2009
by John G. Fernald, Robert E. Hall, James H. Stock, Mark W. Watson #23543 (EFG LS)
http://papers.nber.org/papers/w23543?utm_campaign=ntw&utm_medium=email&utm_source=ntw


7.  What Was the Industrial Revolution?
by Robert E. Lucas, Jr.  -  #23547 (EFG)

Abstract:

At some point in the first half of the 19th century per capita GDP in
the United Kingdom and the United States began to grow at something
like one to two percent per year and have continued to do so up to
the present.  Now incomes in many economies routinely grow at 2
percent per year and some grow at much higher "catch-up" rates. 
These events surely represent a historical watershed, separating a
traditional world in which incomes of ordinary working people
remained low and fairly stable over the centuries from a modern world
where incomes increase for every new generation.  This paper uses
Gary Becker's theory of a "quantity/quality trade-off," consistent
both with Malthusian population dynamics (quantity) and with
demographic transition (quality), to identify a limited set of forces
that were central to this revolution.

http://papers.nber.org/papers/w23547?utm_campaign=ntw&utm_medium=email&utm_source=ntw



9.  The Disappointing Recovery of Output after 2009
by John G. Fernald, Robert E. Hall, James H. Stock, Mark W. Watson  -  #23543 (EFG LS)

Abstract:

U.S. output has expanded only slowly since the recession trough in
2009, even though the unemployment rate has essentially returned to a
pre-crisis, normal level.  We use a growth-accounting decomposition
to explore explanations for the output shortfall, giving full
treatment to cyclical effects that, given the depth of the recession,
should have implied unusually fast growth.  We find that the growth
shortfall has almost entirely reflected two factors:  the slow growth
of total factor productivity, and the decline in labor force
participation. Both factors reflect powerful adverse forces that are
largely unrelated to the financial crisis and recession--and that
were in play before the recession.

http://papers.nber.org/papers/w23543?utm_campaign=ntw&utm_medium=email&utm_source=ntw

Morningside Hill: The US Jobs Market Much worse than the official data

From May 2017, Morningside Hill:

The US jobs market has been described as the backbone of the recovery – 82 months of continuous jobs growth with unemployment hitting 4.5% – the lowest since 2007. However, the perceived strength in jobs creation is at odds with other economic indicators. President Trump ran on a campaign that repeatedly touted “jobs, jobs, jobs.” His emphasis on jobs creation and bringing employment back to America struck a chord with voters. Trump’s election in itself contradicts the popular narrative that the US jobs market is tight and robust. Wages, disposable income and real earnings growth along with low productivity and overall slow economic growth all challenge the BLS’s jobs numbers and thus Wall Street’s perception that the jobs market is tight.

NBER Working Paper: Do Americans Want to Tax Capital? Evidence from Online Surveys

"Do Americans Want to Tax Capital? Evidence from Online Surveys," by Raymond Fisman, Keith Gladstone, Ilyana Kuziemko and Suresh Naidu

Abstract:

A vast theoretical literature in public finance has studied the question of the desirability of capital taxation.  Distinct from questions of the optimality of taxing wealth is whether it is politically feasible.  We provide, to our knowledge, the firstinvestigation of individuals' preferences over jointly taxing income and wealth, via a survey on Amazon's Mechanical Turk.  We provide subjects with a set of hypothetical individuals' incomes and wealth and elicit subjects' preferred (absolute) tax bill for these individuals.  Our method allows us to unobtrusively map both income earned and accumulated wealth into desired tax levels.  Our regression results yield roughly linear desired tax rates on income of about 14 percent.  Respondents' suggested tax rates indicate positive desired wealth taxation.  When we distinguish between sources of wealth we find that, in line with recent theoretical arguments, subjects' implied tax rate on wealth is three percent when the source of wealth is inheritance, far higher than the 0.8 percent rate when wealth is from savings.  We show these tax rates are consistent with reasonable parameterizations of recent theoretical optimal wealth tax formulae.

Tuesday, January 23, 2018

Trade does not increase income inequality

A recent IMF paper by Diego A. Cerdeiro and Andras Komaromi "Trade and Income in the Long Run: Are There Really Gains, and Are They Widely Shared?" tackles big questions about income and income inequality related to trade.

Abstract

In the cross-section of countries, there is a strong positive correlation between trade and income, and a negative relationship between trade and inequality. Does this reflect a causal relationship? We adopt the Frankel and Romer (1999) identification strategy and exploit countries' exogenous geographic characteristics to estimate the causal effect of trade on income and inequality. Our cross-country estimates for trade's impact on real income are consistently positive and significant over time. At the same time, we do not find any statistical evidence that more trade increases aggregate measures of income inequality. Heeding previous concerns in the literature (e.g. Rodriguez and Rodrik, 2001; Rodrik, Subramanian and Trebbi, 2004), we carefully analyze the validity of our geography-based instrument, and confirm that the IV estimates for the impact of trade are not driven by other direct or indirect effects of geography through non-trade channels.

Friday, January 19, 2018

Research Note on the December 2017 Massachusetts Employment Situation

December 2017 Report: U-Rate: 3.5%; Jobs: 63,000 YoY

OVERVIEW

According to the Executive Office of Labor and Workforce Development, the state’s total unemployment rate dropped to 3.5 percent in December from 3.6 percent in November.
The state lost 500 jobs in the month.
The state's labor force participation decreased one-tenth of a percentage point to 65.3 percent over the month. Compared to December 2016, the LFP rate over the year has increased by 0.7 percentage point.
Construction gained 1,600 (+1.0%) jobs over the month and Manufacturing added 800 (+0.3%) jobs; Leisure and Hospitality gained 500 jobs (+0.1%); Financial Activities added 400 (+0.2%) jobs.
Professional, Scientific and Business Services lost 1,000 (-0.2%) while Education and Health Services lost 1,000 (-0.1%)
Other Services lost 200 (-0.1%) jobs over the month; Trade, Transportation and Utilities lost 500 (-0.1%) and Information lost 700 (-0.8%) and Government lost 100 jobs.
The November jobs number was revised from the originally reported 6,700 to 7,800 jobs.

ANALYSIS

The December unemployment rate was six-tenths of a percentage point lower than the national rate of 4.1 percent reported by the Bureau of Labor Statistics. The largest private sector percentage job gains over the year were in Construction, Manufacturing, Financial Activities and Leisure and Hospitality.

“While much of these [year over year] job gains continue to be in sectors like Professional, Business, and Scientific Services, Manufacturing posted a preliminary 2,800 over the year job gain, the first over the year over job gain in that sector in 18 years," Labor and Workforce Development Secretary Rosalin Acosta said in yesterday's statement.

Over the last decade, Manufacturing has lost 43,100 jobs. (See table.) However, if we were to rank wages in the sectors with employment growth sectors such as Management and Professional Services, we find that manufacturing wages would rank 3rd (with $1,625 per week) and significantly higher than the private sector average of $1,273.

The state’s high-tech manufacturing may account for the high wages in an overall shrinking sector — highlighting how output increases with fewer workers. Weekly wages in the management subsector are nearly double when compared to all private industries.

Wednesday, January 17, 2018

No surprise: Sales of desktop computers decline

Infographic: Global PC Market Shrinks to Decade Low | Statista

You will find more statistics at Statista

The latest Beige Book: Most firms retain positive outlook in New England

The Federal Reserve Bank of Boston contribution to the latest Beige Book

Business activity expanded modestly in the First District as 2017 came to a close. Most contacted retailers, manufacturers, and software and information technology (IT) services firms saw revenues increase, although a minority reported flat to slight declines in revenues or sales from a year earlier. Among responding retailers, online sales performed better than in-store sales. Revenue increases among software and IT services firms were strong, ranging from 10 percent to 20 percent year over year. Commercial and residential real estate markets continued much as in the last report, with commercial rents and residential prices increasing in general, while sales were mixed. Labor markets continued to be tight and difficulty in hiring workers has constrained expansion for some firms. Few contacts mentioned price changes. Most responding firms in the region retained a positive outlook for their business.

Tuesday, January 16, 2018

The Solow Model and the Steady State

MR University: Intro to the Solow Model of Economic Growth

A very good introduction to the famous economic growth model.

Monday, January 15, 2018

More on the automated economy from NBER

From a new NBER working paper, "Artificial Intelligence, Automation and Work," by Daron Acemoglu and Pascual Restrepo.

Abstract:

We summarize a framework for the study of the implications of automation and AI on the demand for labor, wages, and employment. Our task-based framework emphasizes the displacement effect that automation creates as machines and AI replace labor in tasks that it used to perform. This displacement effect tends to reduce the demand for labor and wages. But it is counteracted by a productivity effect, resulting from the cost savings generated by automation, which increase the demand for labor in non-automated tasks. The productivity effect is complemented by additional capital accumulation and the deepening of automation (improvements of existing machinery), both of which further increase the demand for labor. These countervailing effects are incomplete. Even when they are strong, automation increases output per worker more than wages and reduce the share of labor in national income. The more powerful countervailing force against automation is the creation of new labor-intensive tasks, which reinstates labor in new activities and tends to increase the labor share to counterbalance the impact of automation. Our framework also highlights the constraints and imperfections that slow down the adjustment of the economy and the labor market to automation and weaken the resulting productivity gains from this transformation: a mismatch between the skill requirements of new technologies, and the possibility that automation is being introduced at an excessive rate, possibly at the expense of other productivity-enhancing technologies.

"The estimates suggest that the shift to Internet sales substantially increased both seller profits and consumer surplus."

The finding from a new NBER working paper by Glenn Ellison and Sara Fisher Ellison titled, "Match Quality, Search, and the Internet Market for Used Book."

Abstract:

This paper examines the effect of the Internet on markets in which match-quality is important, including an analysis of the market for used books. A model in which sellers of unusual objects wait for high-value buyers to arrive brings out match quality and competition effects through which improved search technologies may increase both price dispersion and social welfare. A reduced-form empirical analysis finds support for a number of more nuanced predictions of the model in the context of the used book market, exploiting both cross-sectional differences across books and time-series differences in the wake of Amazon's acquisition and incorporation of a large used book marketplace. The paper develops a framework for structural estimation of a model based on the theory. The estimates suggest that the shift to Internet sales substantially increased both seller profits and consumer surplus.

Sunday, January 14, 2018

Another China Shock: Economists: "When work disappears"

Another formidable paper by the noted economist David Autor, David Dorn and Gordon Hanson: "When Work Disappears: Manufacturing Decline and the Falling Marriage Market Value of Young Men."

Abstract:

We exploit the gender-specific components of large-scale labor demand shocks stemming from rising international manufacturing competition to test how shifts in the relative economic stature of young men versus young women affected marriage, fertility and children’s living circumstances during 1990-2014. On average, trade shocks differentially reduce employment and earnings, raise the prevalence of idleness, and elevate premature mortality among young males. Consistent with Becker’s model of household specialization, shocks to male relative stature reduce marriage and fertility. Consistent with sociological accounts, these shocks raise the share of mothers who are unwed and share of children living in below-poverty, single-headed households.

Hat tip to David Warsh over at Economic Principals.

Saturday, January 13, 2018

UPDATED 1/15/18: Even the big boys make mistakes: World Bank to correct "Doing Business" Index

Update from Paul Romer on Doing Business Index.

From the WSJ

The World Bank repeatedly changed the methodology of one of its flagship economic reports over several years in ways it now says were unfair and misleading.

The World Bank’s chief economist, Paul Romer, told The Wall Street Journal on Friday he would correct and recalculate national rankings of business competitiveness in the report called “Doing Business” going back at least four years.

The revisions could be particularly relevant to Chile, whose standings in the rankings have been especially volatile in recent years and potentially tainted by the political motivations of World Bank staff, Mr. Romer said.

Friday, January 12, 2018

Americans' Optimism About Job Market Hit Record High in 2017

According to Gallup:

56% viewed job market positively in 2017, up from 42% in 2016
Confidence in job market buoyed by Republicans since Trump's inauguration
40% of unemployed adults seeking jobs rated job market as good

Read the entire article here.

Thursday, January 11, 2018

Good question from LifeHacker: "Why the Dow Jones Breaking Records Isn't Helping Your Bottom Line"

Why the Dow Jones Breaking Records Isn't Helping Your Bottom Line

To put it in perspective: just 52 percent of American adults owned stocks in 2016, according to Gallup. And as you may have guessed, that stock ownership is not evenly distributed among income groups: The Federal Reserve reports that 93.6 percent of families earning a median salary of $251,500 (the top 10 percent of wage earners) owned stock in 2016, while less than 40 percent of families earning up to a median salary of $54,100 did (0 to 50th percentile). Separately, an economist from New York University found that the top 20 percent of earners owned 92 percent of the stocks in 2013. So celebrating record highs for an arbitrary measure that almost half of adults don’t benefit from doesn’t make a ton of sense.

What’s a better measurement for the average worker? I’d posit employment, wages and debt. And here’s the thing. If you don’t have a job at all, you’re likely less concerned with whether the Dow is at 21,000 or 25,000 than when you’ll get your next paycheck. The unemployment rate is at a 17-year low, but economists worry that job growth may begin to slow. Then there’s wages, which are low, and our debt, which keeps increasing*—according to the Federal Reserve, consumer credit card balances are at a new all-time high of $1.0227 trillion, which should give the Dow enthusiasts pause. (*Actually, the Fed recently found we’re slightly less indebted overall because we’re not buying houses, which isn’t exactly a silver lining). Are you really celebrating the Dow’s new watermark if you have over $25,000 in student loan debt?

In migration in the United States, the latest data

Infographic: Good-bye in Wyoming, Welcome to Idaho | Statista