Results for “Larry Summers”
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The economic policy of Elizabeth Warren

Jerry Taylor has made some positive noises about her on Twitter lately, as had Will Wilkinson in earlier times.  I genuinely do not see the appeal here, not even for Democrats.  Let’s do a quick survey of some of her core views:

1. She wants to ban fracking through executive order.  This would enrich Russia and Saudi Arabia, harm the American economy ($3.5 trillion stock market gains from fracking), make our energy supply less green, and make our foreign policy more dependent on bad regimes and the Middle East.  It is perhaps the single worst policy idea I have heard this last year, and some of the worst possible politics for beating Trump in states such as Pennsylvania.

2. Her private equity plan.  Making private equity managers personally responsible for the debts of the companies they acquire probably would crush the sector.  The economic evidence on private equity is mostly quite positive.  Maybe she would eliminate the worst features of her plan, but can you imagine her saying on open camera that private equity is mostly good for the American economy?  I can’t.

3. Her farm plan.  It seems to be more nationalistic and protectionist and also more permanent than Trump’s, read here.

4. Her tax plan I: Some of the wealthy would see marginal rates above 100 percent.

5. Her tax plan II: Her proposed wealth tax would over time lead to rates of taxation on capital gains of at least 60 to 70 percent, much higher than any wealthy country ever has succeeded with.  And frankly no one has come close to rebutting the devastating critique from Larry Summers.

6. Student debt forgiveness:  The data-driven people I know on the left all admit this is welfare for the relatively well-off, rather than a truly egalitarian approach to poverty and opportunity.  Cost is estimated at $1.6 trillion, by the way (is trillion the new billion?).  Furthermore, what are the long-run effects on the higher education sector?  Do banks lend like crazy next time around, expecting to be bailed out by the government?  Or do banks cut back their lending, fearing a haircut on bailout number two?  I am genuinely not sure, but thinking the question through does not reassure me.

7. College free for all: Would wreck the relatively high quality of America’s state-run colleges and universities, which cover about 78 percent of all U.S. students and are the envy of other countries worldwide and furthermore a major source of American soft power.  Makes sense only if you are a Caplanian on higher ed., and furthermore like student debt forgiveness this plan isn’t that egalitarian, as many of the neediest don’t finish high school, do not wish to start college, cannot finish college, or already reject near-free local options for higher education, typically involving community colleges.

8. Health care policy: Her various takes on this, including the $52 trillion plan, are better thought of as (vacillating) political strategy than policy per se.  In any case, no matter what your view on health care policy she has botched it, and several other Dem candidates have a better track record in this area.  Even Paul Krugman insists that the Democrats should move away from single-payer purity.  It is hard to give her net positive points on this one, again no matter what your policy views on health care, or even no matter what her views may happen to be on a particular day.

All of my analysis, I should note, can be derived internal to Democratic Party economics, and it does not require any dose of libertarianism.

9. Breaking up the Big Tech companies: I am strongly opposed to this, and I view it as yet another attack/destruction on a leading and innovative American sector.  I will say this, though: unlike the rest of the list above, I know smart economists (and tech experts) who favor some version of the policy.  Still, I don’t see why Jerry and Will should like this promise so much.

Those are some pretty major sectors of the U.S. economy, it is not like making a few random mistakes with the regulation of toothpicks.  In fact they are the major sectors of the U.S. economy, and each and every one of them would take a big hit.

More generally, she seems to be a fan of instituting policies through executive order, a big minus in my view and probably for Jerry and Will as well?  Villainization and polarization are consistent themes in her rhetoric, and at this point it doesn’t seem her chances for either the nomination, or beating Trump, are strong in fact her conditional chance of victory is well below that of the other major Dem candidates.  So what really are you getting for all of these outbursts?

When I add all that up, she seems to have the worst economic and political policies of any candidate in my adult lifetime, with the possible exception of Bernie Sanders (whose views are often less detailed).

I do readily admit this: Warren is a genius at exciting the egalitarian and anti-business mood affiliation of our coastal media and academic elites.

If you would like to read defenses of Warren, here is Ezra Klein and here is Henry Farrell.  I think they both plausibly point to parts of the Warren program that might be good (more good for them than for me I should add, but still I can grasp the other arguments on her behalf).  They don’t much respond to the point that on #1-8, and possibly #1-9, she has the worst economic and political policies of any candidate in my adult lifetime.

For Jerry and Will, I just don’t see the attraction at all.

That said, on her foreign policy, which I have not spent much time with, she might be better, so of course you should consider the whole picture.  And quite possibly there are other candidates who, for other reasons, are worse yet, not hard to think of some.  Or you might wish to see a woman president.  Or you might think she would stir up “good discourse” on the issues you care about.  And I fully understand that most of the Warren agenda would not pass.

So I’m not trying to talk you out of supporting her!  Still, I would like to design and put into the public domain a small emoji, one that you could add to the bottom of your columns and tweets.  It would stand in for: “Yes I support her, but she has the worst proposed economic policies of any candidate in the adult lifetime of Tyler Cowen.”

Wojciech Kopczuk on wealth taxation

His comment on Saez and Zucman is one of the best pieces of policy economics I have read in the last few years.  Many of the main arguments have been debated on Twitter, or expressed by Larry Summers, so here I will stick with a few side points that have not received full attention.

First, if you hate monopoly rents, excess IP income, and the like, you should not be in love with a wealth tax, at least not in the steady state!  A wealth tax hits the base and the safe rate of return as well.  Ideally the anti-monopoly crowd should most of all favor higher taxes on net income.  Not taxes on wealth.

Second, a wealth tax will encourage the shifting of much more production into non-profit institutions, or perhaps even into nationalizations of industry.  Lots of hospitals would switch back to the not-for-profit form, not obviously a beneficial development in my view.

As a side note, many more non-profits would hire famous musical acts to play at their donor galas.  The quality of champagne and cheese at those events will rise too.  There would be much more pressure on non-profits to create private (non-taxed) benefits for their donors.  I predict government regulation of non-profits would end up rising considerably as well, and not for the better.

Privatizing government assets such as land or spectrum would become more difficult — people would buy only at much lower prices.  So the wealth tax is a recipe for greater statism in more ways than one.

Third, under a wealth tax Jeff Bezos would have lost de facto control over Amazon some time ago.

Those are my words rather than Kopfczuk’s, do read his entire paper.

I would add one final point.  I think we are at the margin where advocacy of a wealth tax is more of a performative exercise — “we hadn’t poked rich people in the eye with this rhetorical needle yet, therefore I won’t really speak against it” — than any kind of substantive analytic debate.

Abhijit Banerjee reminiscenses

Abhijit and I were in the same first year class at Harvard, and I have two especially strong memories of him from that time.

First, he was always willing to help out those who were not as advanced in the class work as he was.  Furthermore, that was literally everyone else.  He was very generous with his time.

Second, when it came to the first-year Macro final (I don’t mean the comprehensive exams), Andy Abel wrote a problem with dynamic programming, which was Andy’s main research area at the time.  Abhijit showed that the supposed correct answer was in fact wrong, that the equilibrium upon testing was degenerate, and he re-solved the problem correctly, finding some multiple equilibria if I recall correctly, all more than what Abel had seen and Abel wrote the problem.  Abhijit got an A+ (Abel, to his credit, was not shy about reporting this).

One of my favorite Abhijit papers is “On Frequent Flyer Programs and other Loyalty-Inducing Economic Arrangements,” with Larry Summers.  I believe it was published QJE 1987, but somehow the jstor link does not show up from google searches.  This was one of the first papers to show how consumer loyalty programs could segment the market and have collusive effects.

Another favorite Abjihit paper of mine is his job market paper, “The Economics of Rumours,” later published in ReStud 1993.  Have you ever wondered “if this rumor is true, why haven’t I heard it before?”  Abhijit works through the logic of the model on that one, in a scintillating performance.  It turns out this paper is now highly relevant for analyzing information transmission through social media.

Abhijit is the clearest case I know of a brilliant theorist who decided the future was with empirical work — he was right.  Nonetheless his early theory papers are still worthy of attention.  When Abhijit went on the job market, his letter writers suggested he might someday win a Nobel Prize, so strong were his talents.  They were right, but I suspect they had no idea for what the prize in fact would turn out to be.

Friday assorted links

1. A pianist’s tips on how to practice (“avoid flow.”)

2. New results on the sheepskin effect.

3. “Federal fraud indictment: KU professor secretly worked for Chinese university.

4. “Fidel Castro’s crocodile bites man at aquarium party.

5. On turning 40 with an ancient heart.

6. Eric Weinstein podcast with Timur Kuran.

7. Why is there a Braille message on my e-scooter?

8. Long Larry Summers thread on macro.

How I practice at what I do

Following up on my post a few days ago, about the value of deliberate practice for knowledge workers, a number of you asked me what form my practice takes.  A few of you were skeptical, but it is long since established that practice improves both your writing and your memory, so surely it can do much more than that for your thinking.  Here is a partial list of some of my intellectual practice strategies:

1. I write every day.  I also write to relax.

2. Much of my writing time is devoted to laying out points of view which are not my own.  I recommend this for most of you.

3. I do serious reading every day.

4. After a talk, Q&A session, podcast — whatever — I review what I thought were my weaker answers or interventions and think about how I could improve them.  I rehearse in my mind what I should have said.  Larry Summers does something similar.

5. I spent an enormous amount of time and energy trying to crack cultural codes.  I view this as a comparative advantage, and one which few other people in my fields are trying to replicate.  For one thing, it makes me useful in a wide variety of situations where I have little background knowledge.  This also helps me invest in skills which will age relatively well, as I age.  For me, this is perhaps the most importantly novel item on this list.

6. I listen often to highly complex music, partly because I enjoy it but also in the (silly?) hope that it will forestall mental laziness.

7. I have regular interactions with very smart people who will challenge me and be very willing to disagree, including “GMU lunch.”

8. Every day I ask myself “what did I learn today?”, a question I picked up from Amihai Glazer.  I feel bad if I don’t have a clear answer, while recognizing the days without a clear answer are often the days where I am learning the most (at least in the equilibrium where I am asking myself this question).

9. One factor behind my choice of friends is what kind of approbational sway they will exercise over me.  You should want to hang around people who are good influences, including on your mental abilities.  Peer effects really are quite strong.

10. I watch very little television.  And no drugs and no alcohol should go without saying.

11. In addition to being a “product” in its own right, I also consider doing Conversations with Tyler — with many of the very smartest people out there — to be a form of practice.  It is a practice for speed, accuracy in understanding written writings, and the ability to crack the cultural codes of my guests.

12. I teach — a big one.

Physical exercise is a realm all of its own, and that is good for your mind too.  For me it is basketball, tennis, exercise bike, sometimes light weights, swimming if I am at a decent hotel with a pool.  My plan is to do more of this.

Here are a few things I don’t do:

Taking notes is a favorite with some people I know, though my penmanship and coordination and also typing are too problematic for that.

I also don’t review video or recordings of myself, for fear that will make me too self-conscious.  For many people that is probably a good idea, however.

I don’t spend time trying to improve my memory, which is either very bad or very good, depending on the kind of problem facing me.  (If I need to remember to do something, I require a visual cue, sometimes a pile on the floor, and that creates a bit of a mess.  But it works — spatial organization is information!)

I’ve never practiced trying to type on a small screen, though probably I should.

I’ll close by repeating the end of my previous post:

Recently, one of my favorite questions to bug people with has been “What is it you do to train that is comparable to a pianist practicing scales?”  If you don’t know the answer to that one, maybe you are doing something wrong or not doing enough. Or maybe you are (optimally?) not very ambitious?

Better training has brought big improvements to the quality of athletics and also chess, and many of those advances are quite recent — when is the intellectual world going to follow suit?  When are you going to follow suit?

RIP, Martin Feldstein

In addition to being a great economist, Marty was an institution builder.  He was the early driving force behind the rise of the NBER, he led the development of empirical public finance as a respected field, and also very early on he pushed health care economics, both through his leadership at the NBER and through his own work and mentorship.  He always was reaching out to help others, and Larry Summers, Jim Poterba, David Cutler, Raj Chetty, and Jason Furman were some of those he mentored.  The economics of art museums was yet another topic he had a real interest in, and stimulated research in.

Marty also was one of my oral examiners at Harvard, and he asked only excellent questions.  I thank him for judging my answers to be good enough.

Excess seniority as one problem with American science

The current grant opportunities for starting a new independent research career in academia have not only become increasingly unavailable to young scientists and engineers, but are also disastrously risk-averse. At the NIH, the proportion of all grant funds awarded to scientists under the age of 36 fell from 5.6% in 1980 to 1.5% in 2017. One might ask the rhetorical question: How successful would Silicon Valley be if nearly 99% of all investments were awarded to scientists and engineers age 36 years or older, along with a strong bias toward funding only safe, nonrisky projects? Similarly, at the U.S. Department of Energy and its National Laboratories, high-risk, high-reward research and development has been severely limited by extreme volatility in research funding and by very limited discretionary funding at the laboratory level.

That is by Bruce Alberts and Ventakesh Narayanamurti, via Larry Summers.

How much would a wealth tax raise?

From Larry Summers and Natasha Sarin:

We reasoned as follows: The existing estate tax is a wealth tax levied at the time of death. If 2 percent of wealthy families experience a death and intergenerational transfer (rather than a spousal transfer) each year, then the current 40 percent estate tax should roughly be the equivalent of a wealth tax of 40 percent multiplied by 2 percent — or a 0.8 percent wealth tax — assuming equivalent definitions of wealth and the same threshold for taxation. Since most wealth is held by fairly elderly people, and the mortality rate of 70-year-olds is above 2 percent, we suspect that 2 percent mortality is a conservative estimate. So the actual wealth-tax equivalent of the estate tax is likely greater than 0.8 percent.

The IRS reports that for 2017, the most recent year for which data is available, the estate tax raised around $10 billion from estates over $50 million — and this included tax collected on the first $50 million of estate tax value, so it overestimates the conceptually appropriate figure. Therefore, if this is what the revenue yield would be from a 0.8 percent wealth tax, the implication is that a 2 percent wealth tax would raise a total of $25 billion. That’s around one-eighth of the Saez and Zucman estimate.

There is much more of interest at the link.

Assorted Tuesday links

1. Old Paul Romer talk, which even presents the Nordhaus graph on the price of light, see for instance 5:45.  Via Kari Kohn.

2. New criticism of charter cities, and Mark Lutter’s response.

3. Lambda School.

4. Larry Summers road trip.  Or try this link.

5. How Ray Fair is modeling running, and aging (NYT).

6. Why is the William Nordhaus optimal carbon tax so modest?  And A Fine Theorem on Romer and Nordhaus.

Monday assorted links

1. “…the values of more extreme (left-wing or right-wing) supporters are usually more heterogeneous than those with more moderate views.

2. New results on anti-discrimination statements (The Economist).

3. The Emperor of Japan still publishes (even though he has tenure).  He also usually gets his name first.

4. New economics discussion forum set up by AEA, first question from Olivier Blanchard.  In the comments you will find Jeremy Stein, Claudio Borio, Ricardo Cabellero, and Larry Summers, kind of like the MR comments section.

5. Has the abc conjecture been proven?

6. “Pursuit of T5 [top 5 joiurnal] publications has become the obsession of the next generation of economists. However, the T5 screen is far from reliable. A substantial share of influential publications appear in non-T5 outlets. Reliance on the T5 to screen talent incentivizes careerism over creativity.”  Link here.

7. Details on the new NAFTA.

Kenneth Arrow says

1. The family of development economist Hollis Chenery owned the race horse Secretariat (!, related sources).

2. The opposition to putting the Reagan Library at Hoover and Stanford came from NIMBY considerations, not ideology.

3. The historian of Germany Gordon Craig was the greatest lecturer Arrow ever heard [TC: I can’t find any of him on YouTube.]

4. Arrow: “Well, I do remember an awful lot, and it’s not photographic memory.  I don’t remember the page exactly.  I read things in some order, and they come back, but I can’t explain how or why it happens.

…I think it’s just a desire to understand.  I just enjoy learning things.  Learning.  I don’t mean…I like to systematize, not just memorize.  To put them together.  I have this characteristic, even when I was young.  I treat everything like it was geography; in my mind I’d try to put the things on a map.  When I was reading history I’d try to make up genealogical tables, of the kings of England or something.  So I had this tendency to try to systematize things, to try and understand remote sounding things.”

5. His advice for Larry Summers [his nephew]: “Err on the side of too much regulation.”

6. Arrow once spent six months on the Council of Economic Advisors.  His two major effects may have been to veto an American version of the SST and to help veto the digging of a second Panama Canal.

Those are all from the frank interviews with Arrow in On Ethics and Economics: Conversations with Kenneth J. Arrow, by Arrow of course and also by Kristen Renwick Monroe and Nicholas Monroe Lampros.  Interesting throughout.

Is Piketty’s Data Reliable?

When Thomas Piketty’s Capital in the Twenty-First Century first appeared many economists demurred on the theory but heaped praise on the empirical work. “Even if none of Piketty’s theories stands up,” Larry Summers argued, his “deeply grounded” and “painstaking empirical research” was “a Nobel Prize-worthy contribution”.

Theory is easier to evaluate than empirical work, however, and Phillip Magness and Robert Murphy were among the few authors to actually take a close look at Piketty’s data and they came to a different conclusion:

We find evidence of pervasive errors of historical fact, opaque methodological choices, and the cherry-picking of sources to construct favorable patterns from ambiguous data.

Magness and Murphy, however, could be dismissed as economic history outsiders with an ax to grind. Moreover, their paper was published in an obscure libertarian-oriented journal. (Chris Giles and Ferdinando Giugliano writing in the FT also pointed to errors but they could be dismissed as journalists.) The Magness and Murphy conclusions, however, have now been verified (and then some) by a respected figure in economic history, Richard Sutch.

I have never read an abstract quite like the one to Sutch’s paper, The One-Percent across Two Centuries: A Replication of Thomas Piketty’s Data on the Distribution of Wealth for the United States (earlier wp version):

This exercise reproduces and assesses the historical time series on the top shares of the wealth distribution for the United States presented by Thomas Piketty in Capital in
the Twenty-First Century….Here I examine Piketty’s US data for the period 1810 to 2010 for the top 10 percent and the top 1 percent of the wealth distribution. I conclude that Piketty’s data for the wealth share of the top 10 percent for the period 1870 to 1970 are unreliable.
The values he reported are manufactured from the observations for the top 1 percent inflated by a constant 36 percentage points. Piketty’s data for the top 1 percent of the distribution for the nineteenth century (1810–1910) are also unreliable. They are based
on a single mid-century observation that provides no guidance about the antebellum trend and only tenuous information about the trend in inequality during the Gilded Age. The values Piketty reported for the twentieth century (1910–2010) are based on more
solid ground, but have the disadvantage of muting the marked rise of inequality during the Roaring Twenties and the decline associated with the Great Depression. This article offers an alternative picture of the trend in inequality based on newly available data and a reanalysis of the 1870 Census of Wealth. This article does not question Piketty’s integrity.

You know it’s bad when a disclaimer like that is necessary. In the body, Sutch is even stronger. He concludes:

Very little of value can be salvaged from Piketty’s treatment of data from the nineteenth century. The user is provided with no reliable information on the antebellum trends in the wealth share and is even left uncertain about the trend for the top 10 percent during
the Gilded Age (1870–1916). This is noteworthy because Piketty spends the bulk of his attention devoted to America discussing the nineteenth-century trends (Piketty 2014: 347–50).

The heavily manipulated twentieth-century data for the top 1 percent share, the lack of empirical support for the top 10 percent share, the lack of clarity about the procedures used to harmonize and average the data, the insufficient documentation, and the spreadsheet errors are more than annoying. Together they create a misleading picture of the dynamics of wealth inequality. They obliterate the intradecade movements essential to an understanding of the impact of political and financial-market shocks on inequality. Piketty’s estimates offer no help to those who wish to understand the impact of inequality on “the way economic, social, and political actors view what is just and what is not” (Piketty 2014: 20).

One of the reasons Piketty’s book received such acclaim is that it fed into concerns about rising inequality and it’s important to note that Sutch is not claiming that inequality hasn’t risen. Indeed, in some cases, Sutch argues that it has risen more than Piketty claims. Sutch is rather a journeyman of economic history upset not about Piketty’s conclusions but about the methods Piketty used to reach those conclusions.