Month: August 2008

Feldstein on Fiscal Policy

Martin Feldstein, a proponent of the recent fiscal stimulus, said it didn’t work.

Here are the facts. Tax rebates of $78 billion arrived in the second
quarter of the year. The government’s recent GDP figures show that the
level of consumer outlays only rose by an extra $12 billion, or 15% of
the lost revenue. The rest went into savings, including the paydown of
debt….Although press stories emphasizing that the rebates induced additional
consumer spending were technically correct, they missed the important
point that the spending rise was very small in comparison to the size
of the tax rebates.

It’s a peculiar op-ed, however, as he then goes on to say:

The small rise in spending in response to these tax rebates is similar
to what previous studies of one-time tax cuts found. It also
corresponds to what both basic economic theory and common experience
imply. Although someone who receives a permanent annual salary increase
of $1,000 typically would increase his annual spending by an almost
equally large amount, a $1,000 rise in wealth caused by a share price
increase or a tax rebate would raise spending only gradually over a
number of years.

Right.  But a short-term tax cut is exactly what Feldstein called for in an earlier op-ed.

The poor effects of the Bush tax rebate as fiscal stimulus, however, let Feldstein now attack the Obama plan for a $1000 tax rebate.  Nothing wrong with that – McCain has nothing better however – but what Feldstein doesn’t say is that if you follow the logic of his two op-eds (and this is not something I would necessarily buy into) the conclusion should actually be that fiscal stimulus would work better if it ran through government spending.

The most obnoxious blogger in the world

I read many blogs but there is only one — of the two or three hundred I have sampled — which I find truly obnoxious.  I find the content obnoxious and I find the style obnoxious and I find the blogger obnoxious.  By the way, I don’t think it is a blog which has ever said anything negative about me, at least not that I’m aware of.  And it’s not a blog on the blogroll or a blog I have, as far as I can remember, linked to.   

I never read it regularly in the first place, but I don’t think I can stand to read this blog any more ever again.  Even so, I try to spin theories of how one blog and one blog only can have achieved such a special place in my mind.  It’s not a blog that covers special or unique topics, relative to the other blogs I read and link to.  Is the world not a continuum?

If you are a blogger you can know that the chance I find you obnoxious is very slim indeed.  But not zero.

Or maybe you all think that I just don’t read enough blogs.

Are lead papers in a journal of higher quality?

Maybe not, maybe you just think they are:

Leading papers in a journal’s issue attract, on average, more citations than those that follow.  It is, however, difficult to assess whether they are of better quality (as is often suggested), or whether this happens just because they appear first in an issue. We make use of a natural experiment that was carried out by a journal in which papers are randomly ordered in some issues, while this order is not random in others. We show that leading papers in randomly ordered issues also attract more citations, which casts some doubt on whether, in general, leading papers are of higher quality.

Here is the full paper, courtesy of Pluralist Economics Review.


Here’s Atrios:

I Want A Big Yard In A Walkable Community

But you can’t have it! Or, more
specifically, if everyone has a big yard the community ceases to be
especially walkable. That isn’t to say that you can’t have developments
with yards relatively near to retail, so that there is stuff within
walking distance. You can still have corner shops or similar, but
having sufficient residential density to support significant
neighborhood-serving retail isn’t really compatible with everyone has a
big yard.

Keep your yard!  Just understand the tradeoff.

The Street Porter and the Philosopher

That’s the new book edited by David Levy and Sandra Peart; the subtitle is Conversations on Analytical Egalitarianism, an issue which arises frequently on this blog.  The book offers an excellent dialogue between Buchanan and Warren Samuels, the best essay on Adam Smith’s theory of usury, Deirdre McCloskey on "Sacred Economics," my essay on "Is a Novel a Model?", Crampton and Farrant reinterpreting the socialist calculation debate, and the Rawls-Buchanan correspondence, among other treats.  If you live in the world of "interesting economics," this is definitely a book to pick up.

By the way, Larry Mason wrote a novel which he claims is a model; I haven’t had time to read it yet.  Plus the new novel by Russ Roberts, which illustrates economic concepts, seems to be out now.

A reader’s query about energy markets

DSN asks me:

With all the talk of a
(misguided) windfall profits tax on petroleum producers, I have a related

Based on logic and observation
of input cost and profit trends in various industries, when the cost of raw
materials rise, companies in a competitive market are often not able to pass through
these cost increases and, therefore, may see a decline in profitability.
How then are oil companies able to make huge profits when oil prices rise
significantly.  Is this not a competitive market?  What is the
economic process in oil production, processing, and marketing that allows oil
companies to make record profits when the price of their raw materials is at
historically high levels?

Here’s one source, I am not sure how reliable:

…about two-thirds of Exxon Mobil’s profits come from oil
and natural-gas production outside the United States, with rising
production in Africa, the Middle East and Russia consistently
offsetting declining output in the United States, Canada and Europe.

Mobil said it pumped 7 percent more oil and natural gas than it did
during the same quarter a year earlier.

In other words, Exxon already has paid for a concession in Nigeria and when the oil price is high profits for the company go up.  In that simple model a windfall profits tax leads to less pumping in the short run and even less pumping if people view the tax as temporary.  The tax also means fewer oil concessions in the longer run.  It is also possible — if you take the bargaining solution between Exxon and Nigeria as more or less given — that in the long run the tax redistributes income from the government of Nigeria to the government of the United States.  The less Exxon earns on net, the less it will offer Nigeria for the concession in the first place.

Addendum: Lynne Kiesling comments, worth reading.

Scream it from the rooftops: happiness inequality is declining

There is less happiness inequality today than in the 1970’s or 1980’s. And this has occurred despite large increases in income and consumption inequality. Betsey Stevenson and I spell out these facts in a lot more detail in a new paper, “Happiness Inequality in the United States,” forthcoming in the Journal of Legal Studies.

That’s Justin Wolfers, here is much more.  This is one reason — but not the only reason — why so many moral arguments from the Left fall on deaf ears when it comes to most Americans.  Of course happiness inequality is more fundamental than either income or wealth inequality because we care about outputs, not inputs.

By the way, here is a roof access cage ladder.

How an Economist Thinks

Over the weekend a crew came round my neighborhood offering to paint house numbers on the curb.  Large bold curb numbers, they pointed out, make it easier for emergency service workers to find houses in the dark.  Good argument.  The price was good too.  Then I noticed my neighbors were having their numbers painted.  So of course, I declined.

The Power of Oprah to help Obama

Finally I have something new to report on Barack Obama:

Prior to the 2008 Democratic Presidential Primary, Barack Obama was endorsed by Oprah Winfrey, a celebrity with a proven track record of influencing her fans’ commercial decisions. In this paper, we use geographic differences in subscriptions to O! – The Oprah Magazine and the sale of books Winfrey recommended as part of Oprah’s Book Club to assess whether her endorsement affected the Primary outcomes. We find her endorsement had a positive effect on the votes Obama received, increased the overall voter participation rate, and increased the number of contributions received by Obama. No connection is found between the measures of Oprah’s influence and Obama’s success in previous elections, nor with underlying local political preferences. Our results suggest that Winfrey’s endorsement was responsible for approximately additional 1,000,000 votes for Obama.

That is work by Craig Garthwaite and Tim Moore and here is the full paper.

The nature of ability bias

Remember all those studies showing that people claim they are above-average drivers?  Or above-average at other things they do?  It may not just be self-deception.  Here is the latest:

…we find it easier to consider the favourable evidence for a single
person than we do for a whole group. Consistent with this is the
finding that people tend to be biased when comparing any single
individual, not just themselves, against a group of others.

also the possibility that we’re biased towards the "target" in any
comparison. The "target" is the entity that is being measured up
against some benchmark. Following this logic, if I asked you how good
all other drivers are compared with you (thus making other drivers the
"target" of the comparison and you the benchmark), then this ought to
reduce the bias you’d show towards yourself.

…A new study has tried to get to the bottom of what causes the "above
average effect" by pitching these three explanations against each
other. Zlatan Krizan
and Jerry Suls Dozens asked dozens of undergraduates to list a group of
friends or acquaintances, to take one member of that group and then
compare that individual with the rest of the group on some attribute –
say, generosity.

Of the three factors, our difficulty in seeing the quality of a group, relative to the quality of an individual, seems to be the primary source of bias in the ranking. 

Fortunately, I am better at avoiding that bias than are my readers.