Economics Educators Conference

In November, I will be speaking at the annual conference of the Gulf Coast Economics Association, which this year is being held in Orlando, Florida.  If you are interested in attending, registration is now open.

Are mortgage writedowns the answer?

No, say Ted Gayer and Phill Swagel.

Faulty Memories

In watching various news talk shows over the past few weeks, I have seen Democratic partisans make the following argument:

President Obama just wants to return top tax rates to where they where in the 1990s under President Clinton. And that was a great time for the U.S. economy. So one shouldn't be concerned about the impact of higher tax rates.

There are two things wrong with this. 

First, the premise is incorrect.  President Obama wants to raise income tax rates to where they were during the Clinton years.  But because he has already raised the payroll tax as part of his healthcare reform (and also expanded the base of this tax to unearned income), the total tax rate under President Obama's proposal would exceed that during the Clinton years.  All economists agree that it is the total tax rate that matters.

Second, it is worth remembering that the Clinton boom was in large measure driven by the dot-com bubble, which was coming to an unhappy conclusion during President Clinton's last year in office.  (By the way, as I recall, President Bush did not spend as much time blaming his predecessor for bequeathing him a sick economy as President Obama has.)   It seems unlikely that President Obama's tax increase will happen to coincide with another technological bubble that will drive the economy forward.

Reasonable people can disagree about the virtues of raising the top tax rate.  But it is important to separate valid arguments from political spin based on a faulty recollection of history.

Good News

The Senate confirms Jeremy Stein and Jerome Powell to the Federal Reserve Board.

California Fact of the Day

"A ballot initiative this November would give California a whopping 13.3 percent top marginal rate for state income taxes."

Source.

Geanakoplos on the Leverage Cycle

Yale economist John Geanakoplos discusses his view of the financial crisis. It takes about an hour.

From the Harvard Baseball Team

On Economic Forecasting

Fact of the Day: CEO Pay

Source. 

The relative pay of CEOs skyrocketed during the 1990s and has since fallen by about half.

Eichengreen on the Dollar

Might the greenback lose its special status?

Laura Tyson on the Corporate Tax

She says we should reduce it, financed by a tax increase on dividends and capital gains at the personal level.

True Lessons of the Recession

A wise essay by Raghu Rajan.

On Tax Breaks for Manufacturing

Principle 5

Correlation of the Day

Source.

Remembering Milton Friedman

Allen Sanderson reminisces about the great economist.

My New Job

As reported by the Harvard Crimson.

Ben and the Bound

There has been a lot of chatter lately about monetary policy under Ben Bernanke's leadership and how his Fed has dealt with the zero lower bound on interest rates.  One of the more thoughtful analyses of this topic I have seen is this paper by Larry Ball.

The President's Economic Rhetoric

As seen by Jim Capretta (with whom I had the pleasure to work when I was in DC some years ago).

Price Controls in Venezuela

From the NY Times, a great article for teaching Chapter 6 of my favorite textbook.

A Defense of Oil Speculation

From economist Jim Hamilton.

CBO looks at the president's budget

The CBO reports:

CBO estimates that the President’s budgetary proposals would boost overall output initially but reduce it in later years. For the 2013–2017 period, under most of the estimates CBO produced using alternative models and assumptions, the President’s proposals would increase real (inflation-adjusted) output (relative to that under current law) primarily because taxes would be lower than those under current law, and, therefore, people’s disposable income and their demand for goods and services would be greater. Over time, however, the proposals would reduce real output (relative to that under current law) because the deficits would exceed those projected under current law, and the effects of increasing government debt would more than offset the favorable effects of lower marginal tax rates on labor income. When the net impact of those two types of effects would shift from an increase in real output to a decrease would depend on various factors, including the impact of increased aggregate demand on output and the effect of deficits on investment. 

By CBO’s estimate, under the President’s proposals, the nation’s real output during the 2013–2017 period would be, on average, between 0.2 percent lower than the amount under current law and 1.4 percent higher than under current law. For the 2018–2022 period, CBO estimates that the President’s proposals would reduce real output, on average, by between 0.5 percent and 2.2 percent compared with what would occur under current law. 

Confirmation, 26 Years Later

A new paper on cyclical income risk reports the following:

we study the cyclical nature of idiosyncratic shocks, once observable factors are accounted for. Contrary to past research, we find that income shock variances are not countercyclical. However, uncertainty does have a significant countercyclical component, but it comes from the left-skewness increasing during recessions. That is, during recessions, the upper end of the income shock distribution collapses—large upward income movements become less likely—whereas the bottom end expands—large drops in incomes become more likely....Our findings are more in line with the way Mankiw (1986) modeled idiosyncratic shocks. Basically, he showed that one can resolve the equity premium puzzle if idiosyncratic shocks have countercyclical left-skewness—as found in the current paper.

On Market Timing

Click on graphic to enlarge.

The Case for Federalism

Click here to read my column in Sunday's NY Times.