Results for “from the rooftops”
74 found

Is happiness inequality falling?

It seems so, at least subject to the usual caveats about happiness studies:

In spite of the great U-turn that saw income inequality rise in Western countries in the 1980s, happiness inequality has fallen in countries that have experienced income growth (but not in those that did not). Modern growth has reduced the share of both the “very unhappy” and the “perfectly happy”. Lower happiness inequality is found both between and within countries, and between and within individuals. Our cross-country regression results argue that the extension of various public goods helps to explain this greater happiness homogeneity. This new stylised fact arguably comes as a bonus to the Easterlin paradox, offering a somewhat brighter perspective for developing countries.

That is from a new paper by Clark AE1, Flèche S2, Senik C3. via Neuroskeptic.  In other words, for the variable that really matters for welfarism, inequality is down not up.  Shout it from the rooftops…

Best estimates are that American debt cannot be fixed with taxes on capital

D’Erasmo, Mendoza, and Zhang have a new NBER working paper on this question.  It is the most serious and scientific approach to American debt sustainability I have seen, ever.  Here are two key sentences:

The dynamic Laffer curves for these taxes [capital taxes in the U.S., labor taxes in Europe] peak below the level required to make the higher post-2008 debts sustainable.

And:

The results of the applications of the empirical and structural approaches paint a bleak picture of the prospects for fiscal adjustment in advanced economies to restore fiscal solvency and make the post-2008 surge in public debt ratios sustainable.

One point the authors emphasize is that, unlike after earlier episodes of American debt binges, America today has not reestablished a comparable primary surplus.  The authors suggest taxes on labor or consumption can restore fiscal solvency, but higher taxes on capital won’t work, given dynamic and Laffer curve considerations.  They do not devote comparable attention to changes in the trajectory of government spending.

It is wrong to call this “science” outright, but it is the closest to science we have on these questions.  There is a possibly different ungated copy here (pdf).

And along related lines, consider this new Brookings study of boosting the top tax rate to fifty percent, by Gale, Kearney, and Orszag:

We calculate the resulting change in income inequality assuming an explicit redistribution of all new revenue to households in the bottom 20 percent of the income distribution. The resulting effects on overall income inequality are exceedingly modest.

You will not hear everyone shouting that one from the rooftops.  And of course it does not all get redistributed to the bottom twenty percent, believe it or not.

Are pharmaceutical drug prices too high?

Hillary Clinton has proposed a new plan to bring down prescription drug prices, but so far the reception is cool.  Here is one comment:

But when I ran it by some health economists and other health policy experts, several strongly disliked the idea because it misunderstands the diversity of companies in the pharmaceutical industry. They say it would create perverse incentives that could raise instead of lower the costs of developing new drugs.

“This is an astonishingly naïve approach,” said Amitabh Chandra, a professor of public policy at Harvard University, in an email. He argues that the plan could encourage wasteful research spending without necessarily doing much about the prices charged for medications.

That is from Margot Sanger-Katz at the NYT, not the Heritage Foundation.

I would stress a different point, and this concerns pharmaceutical prices more generally, not just the Clinton plan.  Higher prices induce more innovation, and those innovations benefit patients in many countries.  Note that connection is true even if you think most innovations come from universities or the NIH rather than being hatched Big Pharma.  There is still a pot at the end of the rainbow for the significant innovators in this process.

OK, so how much does innovation go down if prices go down?

Here is an earlier post by Alex on Frank Lichtenberg’s estimation: “Thus, price controls or other restrictions that reduce prices are almost certainly a bad idea.”

Here is another earlier post by Alex, citing Megan, noting that Apple spends three cents of every dollar on R&D, and other inconvenient facts and that was from 2009.

If the advocate of lower drug prices does not have clear quantitative evidence for a conclusion of “lowering drug prices will not harm innovation very much,” commit the analysis to the flames, for it harbors nothing but sophistry and illusion.  And while agnosticism about elasticities might weaken the argument for keeping prices high, that’s not an argument for lowering prices, that is an argument for agnosticism.

This same point applies to most commentaries on TPP I might add, and intellectual property analysis.  Write it on the bathroom wall: “Without an elasticity, there is no answer.”  And scream it from the rooftops while you are at it.

The taxation of superstars

Here is yet another NBER Working Paper to shout from the rooftops:

How are optimal taxes affected by the presence of superstar phenomena at the top of the earnings distribution? To answer this question, we extend the Mirrlees model to incorporate an assignment problem in the labor market that generates superstar effects. Perhaps surprisingly, rather than providing a rationale for higher taxes, we show that superstar effects provides a force for lower marginal taxes, conditional on the observed distribution of earnings. Superstar effects make the earnings schedule convex, which increases the responsiveness of individual earnings to tax changes. We show that various common elasticity measures are not sufficient statistics and must be adjusted upwards in optimal tax formulas. Finally, we study a comparative static that does not keep the observed earnings distribution fixed: when superstar technologies are introduced, inequality increases but we obtain a neutrality result, finding tax rates at the top unaltered.

That is from Florian Scheuer and Iván Werning.

Did Iceland reject fiscal austerity?

Scott Sumner serves up the appropriate links.  He cites Mark Sadowski, who tells us:

…Iceland’s general government budget ran a surplus equal to 1.8% of GDP in 2014, or a change in fiscal stance since 2009 equal to 11.5% of GDP. This can be found on Table A1 of the April 2015 IMF fiscal Monitor.

…Table A3 shows that Iceland’s general government cyclically adjusted balance rose from a deficit of 10.0% of potential GDP in 2009 to a surplus of 2.7% of potential GDP in 2014, or a change of 12.7% of potential GDP…

But even this tends to understate the amount of fiscal austerity that Iceland has engaged in. This is because it includes the increase in spending attributable to rising interest payments on the national debt. To get a proper idea of the amount of fiscal austerity that Iceland has engaged in (i.e. cuts in direct spending and increases in taxes) one has to look at the general government cyclically adjusted primary balance which can be found in Table A4.  Iceland’s general government cyclically adjusted primary balance rose from a deficit of 6.9% of potential GDP in 2009 to a surplus of 6.2% of potential GDP in 2014, or a change of 13.1% of potential GDP.

…By this standard Iceland has done about 30% more austerity than Ireland, over double that of the UK, roughly two and a half times as much as the US, and approximately five and a half times as much as Latvia. The only country that has done more fiscal austerity is Greece.

None of this should come as a surprise. When nearly all the other OECD members were busy implementing fiscal stimuli in early 2009, Iceland (joined only by Ireland) was engaged in a massive fiscal consolidation.

Scream it from the rooftops: massive fiscal austerity in Iceland.  (Or should that be something like “gegnheill ríkisfjármálum austerity á Íslandi!”)  There is plenty more detail and argumentation in Mark’s post.  Here is my previous post on Iceland.

The reckoning hour is near…

The problem is that Mr. Tsipras has not convinced his creditors that he is serious about reform or that his team is remotely on top of the detail. He needs a game-changer. This should, indeed, be a rupture — but with his left faction, not his creditors.

That is from Hugo Dixon, file it under “Scream it From the Rooftops.”  You will note, by the way, that the far-left faction accounts for 30 to 40 of the 149 coalition seats in the Greek parliament, so such an action would not be easy.  It is still not too late, however, if only…

How effective is the minimum wage at supporting the poor?

The highly esteemed and extremely proficient Thomas MaCurdy has a new piece in the JPE (jstor) on exactly that question.  The news does not surprise me:

This study investigated the antipoverty efficacy of minimum wage policies.  Proponents of these policies contend that employment impacts are negligible and suggest that consumers pay for higher labor costs through imperceptible increases in goods prices.  Adopting this empirical scenario, the analysis demonstrates that an increase in the national minimum wage produces a value-added tax effect on consumer prices that is more regressive than a typical state sales tax and allocates benefits as higher earnings nearly evenly across the income distribution.  These income-transfer outcomes sharply contradict portraying an increase in the minimum wage as an antipoverty initiative.

MaCurdy also writes:

About 35 percent of the total increase in after-tax benefits goes to families with income less than two times the poverty threshold, a common definition of the working poor or near-poor; nearly 13 percent goes to families principally supported by low-wage workers defined as earning wages at or below 117 percent…of the new 1996 minimum wage; and only about 14 percent goes to families with children on welfare.

Unlike most public income support programs, increased earnings from the minimum wage are taxable.  Over 25 percent of the increased earnings are collected back as income and payroll taxes…Even after taxes, 27.6 percent of increased earnings go to families in the top 40 percent of the income distribution.

File under “Scream it From the Rooftops!”  I do not see an ungated copy, but here is an earlier 2000 paper (pdf) by MaCurdy, with O’Brien-Strain, with broadly similar conclusions.

From that same JPE issue, cream skimming effects seem to be pretty small when it comes to school choice.

Geoengineering

David Keith, a climate scientist at Harvard University, and author of  A Case for Climate Engineering, is interviewed at re/code.

There’s no question it reduces the global average temperatures; even the people who hate it agree you could reduce average global temperatures. The question is: How does it do on a regional basis?

By far the single most important thing to look at on a region-by-region basis is the impact on rainfall and temperature.

And the answer is, it works a lot better than I expected. It’s really stunning.

A lot of us thought that, in fact, geoengineering would do a lousy job on a regional basis — and there’s lots of talk on the inequalities — but in fact, when you actually look at the climate models, the results show they’re strikingly even.

Now, it’s not perfect and there are some things it won’t do. Turning down the sun does nothing for ocean acidification.

But it looks like it can cut, like, 80 percent of the total variation in climate, which is really stunning.

In some ways we should be singing it from the rooftops. But the scientific community is so painfully scared of talking about it. These papers come out, and people find the best ways to say, well, it sort of works, but it’s really awful.

The fact is, people really appear to have found a way to significantly reduce the climate risk — by more than half, which is a big deal.

Hat tip: Mark Frazier.

*The Impossible Exile: Stefan Zweig at the End of the World*

That is the new and truly excellent book by George Prochnik, think of it as a selective biography focused on themes of exile, perversion, Brazil, and suicide.  Excerpt:

Martin Gumpert shared Zweig’s sense of depletion amid New York’s incessant activity, likening the exhaustion that befell almost every newcomer to a “magic spell.”  When Bruno Walter first arrived in New York, the heat of his hotel room drove him out onto the street though it was still before dawn.  On his initial promenade down Manhattan’s avenues, he imagined “wit a shudder of horror” that he was “walking at the bottom of immensely deep rocky canyons.”  As the sun rose, his eyes caught sight of an enormous billboard on top of a building displaying the words “U.S. Tires.”  In a daze he thought to himself, “Yes, it does — true enough — but why is this fact being advertised to me from the rooftops?”

And:

Even New York rain, Camus observed after his own first encounter with the city in the mid-1940s, was “a rain of exile.  Abundant, viscous, and dense; it pours down tirelessly between the high cubes of cement into avenues plunged suddenly into the darkness of a well…I am out of my depth when I think of New York,” he acknowledged.  Camus wrote of wrestling with “the excessive luxury and bad taste” of New York, but also with “the subway that reminds you of Sing Sing prison” and “ads filled with clouds of smiles proclaiming from every wall that life is not tragic.”

This is one of my favorite books of the year so far.  (You will find here an interesting review.)  And Zweig’s own The World of Yesterday is one of my favorite books period.

Sentences to ponder (the IMF on fiscal policy and multipliers)

For the countries where the full data is available on the IMF website, the results lose statistical significance if Greece and Germany are excluded.

Moreover, the IMF results are presented as general but are limited to the specific time period chosen. The 2010 forecasts of deficits are not good predictors of errors in growth forecasts for 2010 or 2011 when the years are analysed individually. Its 2011 forecasts are not good predictors of anything.

Economists contacted by the FT worried about the robustness of the techniques used. Jonathan Portes, director of the UK’s National Institute of Economic and Social Research, worried that cross-country studies with small samples never prove anything, even though he strongly believes multipliers are large.

I suspect that FT blog post is not one which will be shouted by many from the rooftops.  Multiple hat tips are expressed here.

Assorted links

1. Is this a golden age for inventors?  And what is the asteroid-mining business plan?

2. Is this a golden age of Hunger Games econometrics?

3. Should gamblers be made to stand?

4. “The fundamental question is: “Why is government’s share of the voluntary donations market so damn small?” “, more hereFurthermore “There are plenty of redistributionist goals which do not require concerted collective action or threshold levels of contribution.”

5. Shout it from the rooftops! (some results about auction pricing)

A message for all our readers in the United Kingdom

From Scott Sumner, but endorsed by me in full:

Take the current situation in the UK.  If I’m not mistaken, the British political system is different from that in America.  British governments are basically elected dictatorships, with no checks and balances.  Even though the Bank of England is independent, the government can give it whatever mandate it likes.  If I’m right then both fiscal and monetary policy are technically under the control of the Cameron government.

So I read the UK austerity critics as saying:

“Because you guys are too stupid to raise your inflation target to 3%, or to switch over to NGDP targeting, fiscal austerity will fail.  We believe the solution is not to be less stupid about monetary policy, but rather to run up every larger public debts.”

Is that right?  Is that what critics are doing?

Some will argue that my views are naive, that Cameron would be savagely attacked for a desperate attempt to print money as a way of overcoming the failures of his coalition government.  Yes, but by whom?  Would this criticism come from Ed Balls?  Perhaps, but in that case he would essentially be saying:

“It’s outrageous that the Cameron government is trying to use monetary stimulus to raise inflation from 2% to 3%, whereas they should be using fiscal stimulus to raise inflation from 2% to 3%.”

I’m sorry to have to repeat this over and over again, but what 99% of pundits on both sides of the Atlantic are treating as a debate about “stimulus” and “austerity” is actually a debate about stupidity.  I’m not saying the pundits are stupid (Krugman certainly understands what I’m saying) but rather they are addressing their audience as if the audience was stupid.

Don’t talk down to Cameron and Osborne!  Don’t say “austerity will fail.”  Say “austerity will work, but only if the BOE becomes much more aggressive, otherwise it will fail.”  That sort of advice would be USEFUL.  Instead we are getting a bunch of pundits getting ego boosts because they can say “I told you so.”

Scream it from the rooftops!

Questions that are rarely asked

From Arnold Kling (and the graph is from Karl Smith):

I challenge any supporter of the sticky-wage story (Bryan? Scott?) to write a 500-word essay explaining how this graph does not contradict their view. If employment fluctuations consisted of movements along an aggregate labor demand schedule, then employment should be at an all-time high right now.

My view is “sticky nominal wages for some, negative AD shock, ongoing stagnation and thus low job creation, and the progress we have is in some sectors immense but typically labor-saving rather than job-creating, all topped off with a liquidity shock-induced revelation that two percent of the previous work force was ZMP.”  (Try screaming that from the rooftops.)  I read the above graph as consistent with that mixed and moderate view.  As Arnold notes, it’s harder to square with an AD-only view.  If I wanted to push back a bit on Arnold’s take, and save some room for AD stories, I would cite the “Apple Fact of the Day,” and also note that stock prices have not responded nearly as well as have measured corporate profits.  Still, we economists are not taking this graph seriously enough.

Addendum: Arnold Kling responds to responses.

The newest and best data on income inequality

The paper is by Bakija, Cole, and Heim, find it here.

There is much to say about this paper, but first of all the Kaplan and Rauh work, which I have cited several times, seems to offer incorrect estimates of the professions of the higher earners.  Here is the authors' corrective chart: Kaplan 

Here is a summary of their broader results:

Our findings suggest that the incomes of executives, managers, supervisors, and financial professionals can account for 60 percent of the increase in the share of national income going to the top percentile of the income distribution between 1979 and 2005. We also demonstrate significant heterogeneity in income growth across and within occupations among people in the top percentile of the income distribution, suggesting that factors that changed in the same way over time for all high income people are probably not the main cause of increasing inequality at the top. The incomes of executives, managers, financial professionals, and technology professionals who are in the top 0.1 percent of the income distribution are found to be very sensitive to stock market fluctuations. Most of our evidence suggests that financial market asset prices, corporate governance, entrepreneurship, and income shifting across corporate and personal tax bases may be especially important in explaining the dramatic rise in top income shares.

I would reword this as a) "it's complicated," and b) "a lot of them made the money in capital markets."  It does remain the case that top incomes in finance rose by far most rapidly.

In this very careful and rigorous paper, here is a "scream it from the rooftops" result:

…we find that a one percent increase in the net of tax share is associated with an 0.7 percent reduction in incomes earned by people in the top 0.1 percent of the income distribution, which would imply that if we were to raise top marginal tax rates further on these taxpayers, the increase in deadweight loss would be substantially larger than the increase in revenue raised [emphasis added]. However, we find essentially no evidence at all of any responsiveness of people below the top 0.1 percent…

Better stock up on those cough drops.

For the pointer I thank Adam Looney.

How uncertainty reduces investment

Brad DeLong writes (do read his entire post on my post, it is too long to excerpt; also read the comments on his post):

In this environment, an increase in uncertainty–a mean-preserving spreading-out of ex ante investment project return distributions–causes a greater share of investment projects to fail to make the 1/β guaranteed gross-rate-of-return hurdle. So production of investment goods falls…

…and production of consumption goods rises, as labor is redirected.

There is no employment-reducing fall that I can see in aggregate supply in response to an increase in uncertainty. Yes, there is a structural readjustment as investment-goods industries shed labor and consumption-goods industries gain labor. But this is no more a fall in aggregate supply that leaves an extra 5% of the labor force with nothing productive to do than there was a fall in aggregate supply earlier, when perceived uncertainty fell and labor moved into investment-goods production–remember, back when financial engineering guaranteed by S&P and Moody's offered a way to create more of the AAA assets that the representative worker wanted to hold. There is a fall in aggregate supply in the sense that the value added by investment projects falls–but that fall shouldn't have implications for employment.

I think Brad is assuming I've fallen into the "Paul Krugman is right and Austrian Business Cycle theory is wrong" trap, but it's a different story.  I have in mind a model of costly-to-reverse investment where many entrepreneurs decide to wait.  It's also the case that producing consumption goods can be risky, even non-durable consumption goods: look at the decline in the number of luxury food items in a Whole Foods over the last few years.  Brad may not be convinced, but there's no logical problem in the story.

Here is one of the empirical pieces on how uncertainty reduces investment and yes RW this is also a negative supply shock, as it makes extant resources less productive, at least for the time being.  Here are more papers in the area.  Here is one recent relevant model or see the papers of Robert Pindyck.  Again, I don't wish to push "uncertainty" as the only story, it's rather the simplest means of seeing that it's not all just about weak aggregate demand.

Scott Sumner likes to scream from the rooftops about how Bernanke has forgotten his previous work on monetary economics.  I like to note that there is more than one — indeed more than two — Ben Bernankes.  He wrote his MIT dissertation on uncertainty and irreversible investment.  One of the Ben Bernankes I follow is in part a real business cycle theorist.

Brad also writes:

…the cost of borrowing for the government has fallen–the market value troday of future cash tax flow earmarked for debt repayment has gone way, way up–therefore we should dedicate more future cash flow to debt repayment by borrowing more. There is no "but even." Expansionary fiscal policy is a good idea.

I'll blog more on that soon, in a separate post.  For the time being I'll repeat my point that the monetary authority moves last anyway, so it's ultimately a matter of monetary rather than fiscal policy, whether we like that fact or not.