Greg Mankiw's Blog

Spreading the Word

noreply@blogger.com (Greg Mankiw) — Sat, 07 Nov 2009 13:53:00 +0000

My favorite introductory economics textbook comes in many variants. For American students, there are five versions, each with a different subset of chapters, so every instructor can find one that best suits his or her course. Students abroad can use one of these or choose among various editions that have been tailored to particular regional institutions and languages. Yesterday, I learned about two new members of the line-up: the French Canadian editions, available for both micro and macro.

Environmentalism vs Homeownership

noreply@blogger.com (Greg Mankiw) — Thu, 05 Nov 2009 13:01:00 +0000

My Harvard colleague Ed Glaeser looks at the negative externalities from suburban sprawl.

Assuming a Can Opener

noreply@blogger.com (Greg Mankiw) — Wed, 04 Nov 2009 09:39:00 +0000

I have previously expressed skepticism about projected Medicare spending assumed in the health reform effort making its way through Congress. If reductions in spending don't materialize as Congress now posits, health reform will not turn out to be deficit neutral but will, instead, add to the large fiscal gap we are bequeathing to future generations. In a recent letter, CBO gives some numbers about projected Medicare spending that shows how wildly unrealistic it is:

The bill would put into effect (or leave in effect) a number of procedures that might be difficult to maintain over a long period of time. It would leave in place the 21 percent reduction in the payment rates for physicians currently scheduled for 2010. At the same time, the bill includes a number of provisions that would constrain payment rates for other providers of Medicare services. In particular, increases in payment rates for many providers would be held below the rate of inflation (in expectation of ongoing productivity improvements in the delivery of health care). Based on the extrapolation described above, CBO expects that Medicare spending under the bill would increase at an average annual rate of roughly 6 percent during the next two decades—well below the roughly 8 percent annual growth rate of the past two decades, despite a growing number of Medicare beneficiaries as the baby-boom generation retires.

Thanks to the blog reader who drew this passage to my attention.

Counting Jobs

noreply@blogger.com (Greg Mankiw) — Wed, 04 Nov 2009 09:01:00 +0000

How to create or save 9 jobs for $889,

An amusing story about how government statistics are not always completely reliable.

Taking out the Trash

noreply@blogger.com (Greg Mankiw) — Tue, 03 Nov 2009 02:18:00 +0000

I don't usually respond to illogical cheap shots from around the blogosphere (life is too short). But when the cheap shot comes from a Nobel prize winner in economics, I will make an exception.

Paul Krugman says I should be ashamed of myself for calling into question Obama administration estimates of how many jobs have been "created or saved." Here is what Paul writes on his blog:

The Obama administration’s “jobs created or saved” is just a way of saying “other things equal” in non-economese. Of course it makes sense to ask how many more people are working than would have been the case without a given policy — and every administration makes assertions along those lines. During the 2001 recession and its aftermath, how many times did the Bush administration claim that the recession would have been worse without its tax cuts? And while many of us quarreled with that claim, I don’t think I ever argued that other-things-equal arguments are nonsense on their face.

Yet Paul is rebutting claims I did not make, and he is giving Team Obama more credit on this question than it is due. Here is what I wrote on the topic last February:

The 4 million job number is a counterfactual policy simulation of what the stimulus will do based on a particular model of the economy. As such, I have no objection to someone citing it in a policy discussion. In fact, macroeconomists use models to generate figures like this all the time. I have even done it myself.
But as an answer to the question "how can the American people gauge whether or not your programs are working?... What metric should they use?", citing the 4 million job figure is a non sequitur, or more likely a diversion. A metric has to be measurable, and the actual number of jobs "created or saved" by the policy will never be measurable from any data source.

That is, I do not object to claims such as,

A: "Based on our models of the economy, we believe there would be X million fewer jobs today without the stimulus."

But it is absurd to suggest that you can say,

B: "We have measured how many jobs the stimulus has saved or created, and the number is X."

Economists are capable of making statements such as A, but it is beyond our ken to make statements such as B. Statement B is,of course, much stronger than statement A, as it purports to be based on data rather than on models. Unfortunately, we are hearing statements like B much too often from administration officials. A good example is here, where can you "learn" that 110,185.36 jobs have been created or saved in California alone.

Disincentives from Reform: House Edition

noreply@blogger.com (Greg Mankiw) — Mon, 02 Nov 2009 21:45:00 +0000

In my Sunday Times column, I discussed the marginal tax rates implicit in the Senate Finance Committee version of the health reform bill. CBO has just released some numbers on the version of health reform being considered in the House of Representatives.

The bottom line: The implicit marginal tax rates are even higher in the House bill.

If you are interested in a more specific comparison, here is what I wrote about the Senate Finance bill on Sunday, with the new numbers for the House bill added in brackets:

A family of four with an income, say, of $54,000 would pay $9,900 [$6,200] for healthcare. That covers only about half [a third] the actual cost. Uncle Sam would pick up the rest.
Now suppose that the same family earns an additional $12,000 by, for example, having the primary earner work overtime or sending a secondary worker into the labor force. In that case, the federal subsidy shrinks, so the family’s cost of health care rises to $12,700 [$10,000].
In other words, $2,800 [$3,800] of the $12,000 of extra income, or 23 [32] percent, would be effectively taxed away by the government’s new health care system.

And remember: This implicit marginal tax hike of 32 percent is added on top of the explicit marginal tax rate the family already faces from income and payroll taxes.

Government Motors: Update

noreply@blogger.com (Greg Mankiw) — Mon, 02 Nov 2009 13:47:00 +0000

President Obama's plan:

What we are not doing -- what I have no interest in doing -- is running GM. GM will be run by a private board of directors and management team with a track record in American manufacturing that reflects a commitment to innovation and quality. They -- and not the government -- will call the shots and make the decisions about how to turn this company around.

So how is that working out for you, Mr President?

In May, even before the government's ownership became official, lawmakers erupted when GM disclosed it planned to produce a new subcompact car at its factories in China. Under congressional pressure, GM dropped those plans and promised instead to retool an existing U.S. facility in Michigan, Wisconsin or Tennessee for the new model.
Lawmakers from those states demanded and received high-level meetings in Washington to quiz GM on the criteria for site selection and to tout their states. GM in the end picked a site in Michigan.
That same month, GM dealer Pete Lopez in Spencer, W.Va., received notice that GM was giving him just over a year to shut down his Chevy, Pontiac and Buick dealership, which he'd acquired two years earlier. GM's move to shutter more than 1,300 dealerships -- about one-quarter of its network -- was central to its restructuring because it cleared out underperforming showrooms and brought the network more in line with its shrunken sales.
With an assist from his mayor, Mr. Lopez took his complaint straight to one of his state's senators, Jay Rockefeller, the Democratic chairman of the powerful Commerce
Committee.
Sen. Rockefeller sent a letter to GM headquarters on Mr. Lopez's behalf, according to a staff aide. He arranged for Mr. Lopez to come testify before a Senate panel in early June, alongside GM Chief Executive Frederick "Fritz" Henderson. The senator introduced the two men, giving Mr. Lopez a chance to make a personal pitch.
"He couldn't have been nicer," Mr. Lopez said of the GM CEO. "He said to me, 'We've made some quick decisions and now we're going to look it all over again.' "
The GM chief executive put Mr. Lopez in touch with Mark LaNeve, then the company's top official for North American sales. The dealer received a response on the last Saturday in June while fishing on a lake near his house.
"Mr. LaNeve called and said, 'I've got some good news for you. We're going to save your dealership,' " Mr. Lopez recalls. He says he owes it all to Sen. Rockefeller.

Disincentives from Health Reform

noreply@blogger.com (Greg Mankiw) — Sat, 31 Oct 2009 21:14:00 +0000

Here is my column in tomorrow's NY Times about the marginal tax rates implicit in the health reform bill making its ways through Congress. Let me add a few additional observations on the topic.

1. Here are the CBO numbers on which the article is based. Unfortunately, the Times did not run the table of implicit marginal tax rates that I gave them based on the CBO numbers. But the example I used in the piece (an implicit tax rate of 23 percent) is representative. For lower income levels, the implicit marginal tax rate is even higher. Between $42,000 and $54,000, the implicit marginal tax rate from health reform is 34 percent.

2. When CBO estimates the budgetary cost of such bills, it holds GDP constant. If you think (as I do) that large increases in marginal tax rates tend to depress labor effort and thus GDP, then you should be wary of claims based on CBO scores that the health reform bill is deficit neutral. Lower GDP will mean lower tax revenue and thus a larger budget deficit.

3. How much do people respond to tax rates? Economists differ in their answer to this question. The latest thinking on this topic, by my Harvard colleague Raj Chetty, indicates that the elasticity of taxable income with respect to (1-tax rate) is about one half. So, for example, if a person starts with a marginal tax rate t of 0.3 and health reform raises it to 0.5, the percentage change in 1-t, using the midpoint method, is .2/.6, or 33 percent. With an elasticity of one half, his taxable income will fall by 17 percent. Thus, the economic impacts from these implicit tax hikes are sizable.

4. In my Times piece, I wrote, "None of this necessarily means that health reform is not worth doing. President Obama’s push for reform is premised on the belief that access to good health care should be a right of all Americans — a proposition better judged by political philosophers than economists. But we should not forget the cost of translating that noble aspiration into practical policy."

This passage may seem a bit passive-aggressive, as I appear to be criticizing the bill without really taking a stand. My aim, however, is to emphasize that economics alone cannot settle the debate.

Behind the healthcare debate is the classic tradeoff between equality and efficiency. Consider the following question, which is not about healthcare per se: Would you favor a substantial increase in marginal tax rates for millions of middle and upper income Americans to provide more resources for those toward the bottom of the economic ladder?

Your answer to this question cannot be determined by positive economics without adding in some normative judgments. But your answer should strongly influence your view of the health reform bill. The bill moves us closer to much of Western Europe by favoring equality and paying the price of reduced efficiency from much higher marginal tax rates.

That may be a policy choice Americans want to make. But before buying the merchandise being offered by Congress, I hope we all take a close look at the price tag.

How well known are economists?

noreply@blogger.com (Greg Mankiw) — Sat, 31 Oct 2009 19:34:00 +0000

Thanks to Tyler Cowen for the pointer.

Average Marginal Tax Rate

noreply@blogger.com (Greg Mankiw) — Fri, 30 Oct 2009 10:37:00 +0000

From Barro and Redlick.

Is Amazon predatory?

noreply@blogger.com (Greg Mankiw) — Thu, 29 Oct 2009 13:02:00 +0000

Chapter 17 of my favorite textbook has a section on controversies over antitrust policy, including a discussion of predatory pricing. This topic is in the news again: The American Booksellers Association says Amazon, Wal-Mart, and Target "are using these predatory pricing practices to attempt to win control of the market for hardcover bestsellers" and that this behavior "is damaging to the book industry and harmful to consumers."

Read more about the case here and here.

The so-called predatory price cuts have not spilled over to the sale of textbooks. Is that good news for students (as the Booksellers' argument suggests) or bad news?

More Competition

noreply@blogger.com (Greg Mankiw) — Thu, 29 Oct 2009 12:42:00 +0000

Steve Landsburg is blogging.

The Value of Human (?) Capital

noreply@blogger.com (Greg Mankiw) — Wed, 28 Oct 2009 15:01:00 +0000

A fun story from NPR about how monkeys value skills, as long as those skills are in scarce supply.

Is the efficient markets hypothesis kaput?

noreply@blogger.com (Greg Mankiw) — Wed, 28 Oct 2009 13:31:00 +0000

No, says Wharton economist Jeremy Siegel.

Economics Rap

noreply@blogger.com (Greg Mankiw) — Tue, 27 Oct 2009 13:32:00 +0000

I have previously alerted readers to the rap version of Ten Principles of Economics. If you liked that, you might enjoy this as well.

A Tribute to John Meyer

noreply@blogger.com (Greg Mankiw) — Tue, 27 Oct 2009 12:56:00 +0000

From Ed Glaeser.

From the CEA Chair

noreply@blogger.com (Greg Mankiw) — Tue, 27 Oct 2009 09:20:00 +0000

Health Care Reform and the Budget Deficit.

The Public Plan, Again

noreply@blogger.com (Greg Mankiw) — Mon, 26 Oct 2009 16:05:00 +0000

The possibility of including a public plan in the health reform bill is on the table again. Here are a few viewpoints on the topic: Robert Samuelson, Paul Krugman, Richard Thaler, and me.

The Big Tradeoff

noreply@blogger.com (Greg Mankiw) — Mon, 26 Oct 2009 11:00:00 +0000

A Question for Class Discussion

noreply@blogger.com (Greg Mankiw) — Sun, 25 Oct 2009 20:23:00 +0000

Here is a question I will be asking my freshman seminar this week:

You are a utilitarian social planner. You have a limited number of H1N1 vaccines. How do you allocate them? Do you (A) give them to specific groups, such as high-risk populations, or (B) sell them to the highest bidder and rebate the revenue lump-sum to everyone? If you choose (A), do you allow those individuals allocated the vaccine to sell their dose to someone else? Be sure to specify the economic environment as carefully as possible. And remember: Your goal is to maximize total utility.

More Blogging?

noreply@blogger.com (Greg Mankiw) — Sun, 25 Oct 2009 09:39:00 +0000

One of my more prominent blog readers was at Harvard recently, giving an off-the-record talk to some students. He told them that he found reading my views useful and said that I should blog more often. A couple students in the audience did indeed pass along the message, as requested.

Sorry to disappoint, but more frequent blogging is not in my future. I have a full life: classes to teach, students to advise, articles to write, textbooks to revise, kids to raise, and a wife who still enjoys spending time with me (within limits).

I will continue to use this site to pass along links for articles of interest, weigh in when I have something to get off my chest, and flog my favorite textbook. But I am too busy with other things to produce the voluminous output of some of my more prolific colleagues in the blogosphere.

Or maybe I am just too lazy.

Cowen on Insurance Mandates

noreply@blogger.com (Greg Mankiw) — Sun, 25 Oct 2009 07:20:00 +0000

Tyler in today's Times.

A Defense of Insider Trading

noreply@blogger.com (Greg Mankiw) — Sat, 24 Oct 2009 10:49:00 +0000

From GMU economist Donald Boudreaux.

How Harvard Economists Invest

noreply@blogger.com (Greg Mankiw) — Fri, 23 Oct 2009 09:38:00 +0000

From today's Crimson.

Intellectual Property Factoid

noreply@blogger.com (Greg Mankiw) — Fri, 23 Oct 2009 01:50:00 +0000

The long arm of copyright:

Royalties from The Great Gatsby totaled only $8,397 during Fitzgerald’s lifetime. Today Gatsby is read in nearly every high school and college and regularly produces $500,000 a year in Scottie’s trust for her children.

FYI, Scottie is Fitzgerald's daughter.
Source.

Update: A reader points out that many economists are skeptical of such long copyrights.