Advice for Young Economists

Economists for Hassett

An open letter supporting Kevin Hassett's nomination as CEA chair.

On Taxes and Deficits

Click here to read my column in Sunday's New York Times.

A New Mankiw Publication

This one I am particularly proud of, though I cannot claim to fully understand it.

Why people prefer unequal societies

A friend points out that this paper is related to some themes I have written about.  The abstract (emphasis added):

There is immense concern about economic inequality, both among the scholarly community and in the general public, and many insist that equality is an important social goal. However, when people are asked about the ideal distribution of wealth in their country, they actually prefer unequal societies. We suggest that these two phenomena can be reconciled by noticing that, despite appearances to the contrary, there is no evidence that people are bothered by economic inequality itself. Rather, they are bothered by something that is often confounded with inequality: economic unfairness. Drawing upon laboratory studies, cross-cultural research, and experiments with babies and young children, we argue that humans naturally favour fair distributions, not equal ones, and that when fairness and equality clash, people prefer fair inequality over unfair equality. Both psychological research and decisions by policymakers would benefit from more clearly distinguishing inequality from unfairness.

Adverse Selection in Practice

This article about genetic testing presents a great example of adverse selection:

Pat Reilly had good reason to worry about Alzheimer’s disease: Her mother had it, and she saw firsthand the havoc it could wreak on a family, much of it financial. 

So Ms. Reilly, 77, a retired social worker in Ann Arbor, Mich., applied for a long-term care insurance policy. Wary of enrolling people at risk for dementia, the insurance company tested her memory three times before issuing the policy. 

But Ms. Reilly knew something the insurer did not: She has inherited the ApoE4 gene, which increases the lifetime risk of developing Alzheimer’s. “I decided I’d best get long-term care insurance,” she said.

How Best to Tax Business

Click here to read my column in Sunday's NY Times.

How Not to Promote Education

Today's column by David Brooks is excellent.

A Proposed Regulation

The story about United dragging a passenger off an overbooked plane highlights how crazy the current system is.  I would not go so far as to say that airlines should never overbook, but it seems that when they overbook, they should fully bear the consequences. They should be required to keep raising the offered compensation until they get volunteers to give up their seats. If $800 does not work, then try $1600 or $8000.  I am sure volunteers will appear as the price rises.

This alternative system would have three benefits:

1. Those who can delay their travel at least cost will be the first to give up their seats so the allocation of available seats will be efficient. 
2. Those who are delayed will be compensated so won't feel harmed.
3. The airlines will face better incentives when deciding how much to overbook. 

Is something wrong with macro?

A thought-provoking essay by Ricardo Reis.

The Rich Aren't Getting Richer

This  paper by Fatih Guvenen and Greg Kaplan is worth a read by anyone interested in inequality trends.  An important excerpt:

Since 2000, different measures of top income inequality have exhibited very different trends. Top income shares based on measures of total income show a continued rise, whereas top income shares based on wage and salary income show no increase in inequality post-2000. The most important difference between these two measures of income is the income that accrues to S-corporations.... 

But interpreting trends in the S-corporation component is extremely difficult. Feenberg and Poterba (1993), Gordon and Slemrod (2002), and Cooper et al. (2016) warn that much of the recent increase in S-corporation income is income that previously accrued to C-corporations. Such income is not “new” income earned by top earners but is simply income that was previously labeled as corporate income rather than household income.

My Conversation with Bill Kristol

Here.  It is a bit over an hour.

The Myth of Stagnant Income

This paper by Bruce Sacerdote is worth noting:

Despite the large increase in U.S. income inequality, consumption for families at the 25th and 50th percentiles of income has grown steadily over the time period 1960-2015. The number of cars per household with below median income has doubled since 1980 and the number of bedrooms per household has grown 10 percent despite decreases in household size. The finding of zero growth in American real wages since the 1970s is driven in part by the choice of the CPI-U as the price deflator; small biases in any price deflator compound over long periods of time. Using a different deflator such as the Personal Consumption Expenditures index (PCE) yields modest growth in real wages and in median household incomes throughout the time period. Accounting for the Hamilton (1998) and Costa (2001) estimates of CPI bias yields estimated wage growth of 1 percent per year during 1975-2015. Meaningful growth in consumption for below median income families has occurred even in a prolonged period of increasing income inequality, increasing consumption inequality and a decreasing share of national income accruing to labor. 

How the heck did they choose that name?

If anyone knows why this GPS car tracker has the name it does, please let me know.

Economics Teaching Workship

I will be speaking at the University of Kentucky Economics Teaching Workshop on April 22.  If you are interested in more information, click here.

A Guide to the GOP Tax Plan

Tax policy nerds will enjoy this detailed and thoughtful discussion of the proposed Brady-Ryan tax reforms by University of Chicago law professor David Weisbach.

Econ 101 for Potus 45

Click here to read my column in Sunday's NY Times.

An Odds-On Bet

According to the betting odds over at Ladbrokes, President Trump is more likely to resign or be impeached than he is to serve a full term.

Swagel on Tax Reform

My old friend Phill Swagel has good things to say about the Brady-Ryan tax reform.

Three Cheers for Kevin Hassett

Numerous news reports suggest that President Trump will tap Kevin Hassett to chair the Council of Economic Advisers.  This would be an excellent choice.  Here is an overview of Kevin's perspectives on economic policy, and here is my old review of his book Dow 36,000.