Category: Uncategorized

The bottom line

by  Tyler Cowen

Bernanke has given serious thought to the Krugman-Rogoff argument. One obstacle is practical. Fed policy works, in part, by getting the market to do the Fed’s work (if the Fed is buying bonds, traders who want to be on the same side of the markets as the central bank will buy bonds too). But any policy adopted by less than a 7-to-3 majority by the Fed’s Open Market Committee would not be viewed by markets as a credible policy, likely to endure, and Bernanke is not guaranteed to get this margin today. “No central banker would do it,” Mankiw says of raising the inflation target; the political reaction would be too severe. (When Mankiw, a Harvard economist, wrote a column raising the possibility of a higher inflation target, Drew Faust, the university’s president, received letters urging her to fire him.)

That is from Roger Lowenstein’s profile of Ben Bernanke, interesting and excellent throughout.

What is up with the gdp-less recovery?

by  Tyler Cowen in

That is what people are calling it, although I would not use that term.  Jon Hilsenrath has the best overview I have seen, here is one excerpt:

Robert Gordon, a Northwestern University professor who tracks productivity closely, says he sees “clear signs everywhere” that a productivity slowdown is happening. Last year, productivity—measured as the output of workers for every hour they work—grew just 0.4% and has grown at a 0.9% annual rate over the past seven quarters. Productivity did spurt higher in 2009—during this stretch of fear-induced firing—but over a longer stretch it shows additional signs of slowing. Worker productivity has grown at an annual rate of 1.7% since 2004, down from 2.6% growth in the decade before that.

Mr. Gordon agrees with Ms. Romer’s overfiring story. But he says the longer-run threat to productivity shouldn’t be overlooked. “The productivity numbers have been dismal,” he says. That is an explanation this fragile economy can do without and that policy makers shouldn’t ignore.

I don’t myself see an additional short-run fall in productivity (I don’t much trust the short-run statistics in any case), though of course I have been a productivity pessimist more generally.

First and foremost, I see the very latest data as evidence for the Garett Jones hypothesis.  Employers are going back to the idea of investing in workers who build up the future of the company, but who may not produce much output now.

Second, higher exports and moderating health care costs (the latter over the last two years) mean that “real gdp” is higher than traditionally measured gdp; see for instance Matt’s remarks.  This supports Michael Mandel’s view about the importance of offshoring and, presumably, reshoring, to the extent that is going on.  In general we undermeasure the gdp gains of successful export nations, because their outputs tend to have lower percentages of rent-seeking expenditures and more real stuff of value.

Karl Smith has interesting posts on related questions.  Scott Sumner wrote an early and important post on the same topic.  His bottom line was this:

So what are the likely explanations?

1.  Trend growth really is slowing somewhat.

2.  People are leaving the labor force.

3.  RGDP data is measuring “payroll GDP,” not household GDP

Counting benefits does not much change the income stagnation story

by  Tyler Cowen

Lane Kenworthy reports:

A third worry is that the income measure used to calculate median family income is too thin. If a growing portion of GDP has gone to employer benefits, that would help middle-class households, but it wouldn’t show up in these income data.

To address these second and third concerns, we can turn to a more encompassing measure of household income. The data are from the Congressional Budget Office (CBO). The measure includes all sources of cash income. It adds in-kind income (employer-paid health insurance premiums, food stamps, Medicare and Medicaid benefits), employee contributions to 401(k) retirement plans, and employer-paid payroll taxes. Tax payments are subtracted.

We can use average household income in these data as a substitute for GDP per capita. The CBO data set doesn’t tell us the median income, but it provides something quite similar: the average income of households in the middle quintile of the distribution (from the 40th percentile to the 60th). The following chart adds these two series. The story is virtually identical.

He considers some other adjustments too, and this is the final story:

Addendum: Matt Yglesias comments.

Assorted links

by  Tyler Cowen

1. Emily Chamlee-Wright is to be provost and dean at Washington College.

2. NBA geography.

3. A Straussian reading of Tabarrok’s Launching the Innovation Renaissance, by the excellent Eli Dourado; “Launching the Innovation Renaissance represents Alex Tabarrok standing athwart history, yelling “Back up 800 years!””.

4. Guns don’t kill people, cannonballs do.

5. The language that is German, a response to Michael Lewis.

6. Farmer woman carrying dynamite home.

Matt’s new book

by  Tyler Cowen in

As I had predicted, it is very good.  Most of all I like the suggestion that the economy is becoming more Ricardian with higher resource rents.

I am assuming that most of the United States will not follow Matt’s policy prescriptions, which are unpopular with homeowners to say the least.  Which secondary adjustments and rent-seeking losses will result?  If you cannot easily live in Manhattan, next to the stylish people, how will you respond?  One option is to damn them and tune into NASCAR.  Instead you might compete more intensely for their attention and approval.  Write a blog.  Send them ads.  Try to chip away at the privileged status of their attention and capture some of that value for yourself.  Either way cultural polarization seems to increase.

For all their other virtues, lower rents also help satisfy the demand for affiliation.  I know people who are proud just to live in San Francisco and not only because it signals their income and status.  It sounds cool.  At what level of zoning is this consumer surplus maximized?

What is the most serious estimate of how much denser agglomeration — boosted by lower rents — would increase productivity?  I do not take the urban wage premium as the correct measure here, since at the margin the extra worker currently does not move in.  I would like to read a good study of this issue, which I have discussed with Ryan Avent as well.

Is this available improvement a level effect or a rate effect?

If people were the size of ants, without encountering any absurdities of physics or biology, how would the “public choice” of urban building change?  Would urban centers be equally exclusionary?

How much space do we need to live?  Say you have a 3-D printer nanobox which can produce (or obliterate) any output on demand.  Is a studio apartment then enough?  Just print out your bed come 11 p.m., or summon up your kitchen equipment before the dinner party.  How much of the demand for space is for storage and how much is for other motives?  My personal demand for space is highly storage-intensive, but I may be an exception in this regard.

If zoning stays too tight, are there (second best) general negative externalities from storage?

I don’t recall Matt calling for the widespread privatization of government-owned land, but would he agree this is the logical next step?  It’s hardly as important as freeing up more urban and suburban building, but is there any good reason for government to own all that turf?  I don’t think so.  Let’s keep the public works and military facilities and national parks, and sell most of the rest.

Here is Matt’s summary of the book.