Econ Summer Camp

Grad students with an interest in the history of economic thought might want to consider this summer program.

Should health insurance be required to cover birth control?

A smart op-ed from U Chicago's John Cochrane.

Five Books on Public Finance

Recommendations from MIT's Jonathan Gruber.

Transitioning from Communism

Seven lessons from my Harvard colleague Andrei Shleifer.

Do Manufacturers Need Special Treatment?

No, says Christy Romer in today's NY Times.  I agree.

Good News (both for job seekers and for one person trying to hold onto his job)

Good news today about employment.  The 243,000 increase in jobs is a very solid number.  The graph below shows how the prices at Intrade reacted when the news was released at 8:30 am.  President Obama's probability of being reelected rose by about 2 percentage points.  Click on the graphic to enlarge.

We're number 1!

Ec 10 is still the largest course at Harvard.

Are federal government workers overpaid?

Yes, says CBO:

Differences in total compensation—the sum of wages and benefits—between federal and private-sector employees varied according to workers' education level.

• Federal civilian employees with no more than a high school education averaged 36 percent higher total compensation than similar private-sector employees.
• Federal workers whose education culminated in a bachelor's degree averaged 15 percent higher total compensation than their private-sector counterparts.
• Federal employees with a professional degree or doctorate received 18 percent lower total compensation than their private-sector counterparts, on average.

Overall, the federal government paid 16 percent more in total compensation than it would have if average compensation had been comparable with that in the private sector, after accounting for certain observable characteristics of workers.

How much would a Buffett Tax raise?

Robert Samuelson has the numbers:

Obama’s still-vague Buffett Tax would apparently impose a minimum 30 percent tax rate on incomes exceeding $1 million....In September, the Congressional Budget Office estimated the 10-year deficit at $8.5 trillion. The nonpartisan Tax Foundation estimates that a Buffett Tax might now raise $40 billion annually. Citizens for Tax Justice, a liberal group, estimates $50 billion. With economic growth, the 10-year total might optimistically be $600 billion to $700 billion. It would be a tiny help; that’s all.

Support from Anonymous

I don't know who this blogger is, but his or her first post is called "Mankiw is right. Buffett is wrong."  And he or she puts the argument well (although I may not be objective here).

For High School Teachers and Students

The Harvard Pre-Collegiate Economics Challenge is a competition for high school students studying AP economics.   It is run by Harvard undergraduates and features one of my favorite economists as a guest speaker.  This year it will be held on Saturday, March 31, 2012 from 9 am to 5 pm.

If you are interested in more information about this event, click here.

Two Reactions to the SOTU

1. Last night President Obama continued his misleading claims about Warren Buffett's tax rate.  David Leonhardt recalls that I rebutted those claims several years ago. 

David usefully asks for a response to my rebuttal from the Center on Budget and Policy Priorities, a liberal-leaning research group in Washington. Chuck Marr, the center’s director of federal tax policy, emailed David back.  Click through the link above, and read carefully what Mr Marr has to say.  Does it respond to my arguments?  No, not at all.  Mr Marr just changes the subject.  He follows the age-old advice for politicians: Don't answer the question they asked, answer the question you wish they had asked.  This might work for some voters, but I am sure it won't for the careful analysts who read this blog.  One might reasonably take Mr Marr's non-response as an admission that President Obama's claims about the taxes of Mr Buffett and his secretary don't hold up under closer examination.

2. I was disappointed, and even a bit surprised, that the President adopted the xenophobic approach to outsourcing and international trade.  Usually, on issues of international trade, the President plays the role of grown-up and leaves it up to Congress to gin up populist ire.  That is true of both parties.  Recall that President Clinton pushed NAFTA through.

When President Obama bragged that his administration had substantially increased trade cases against China compared with his predecessor, it made me proud to be one of President Bush's advisers.  (Not that the Bush administration was perfect on trade issues.  It is just good to know we were better.)  These trade cases include such things as anti-dumping claims, which in many cases are just the modern face of protectionism.  Phill Swagel and I wrote about anti-dumping laws here.

At least I am consistent

Here is the memo that Larry Summers sent to President Obama when the 2009 stimulus package was being debated. It was originally confidential, but somehow it has recently been made public and is now going viral.

I make a brief cameo appearance on page 11: "Greg Mankiw is the only economist we have consulted with who refused to name a number and was generally skeptical about stimulus." I explained my skepticism here. Of course, the fact that I was "the only economist" expressing skepticism reflects the range of economists that Team Obama chose to consult.

How to Reform the Tax System

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

Penn World Table Bleg

I need some help from the growth empiricists out there.  If you aren't one of them, stop reading.  Continuing will be a waste of your time.

For researchers studying economic growth, one of the standard resources for cross-country data has been the Penn World Table.  My 1992 paper with David Romer and David Weil (my most cited paper by a large margin) used this resource, as have numerous other papers in this literature.  In my intermediate macro book, I present a couple of figures presenting some of these data.

Here's the problem: It seems that the data have changed substantially in the most recent revision, and I cannot figure out why.

My intermediate macro text shows a scatterplot of per capita income and the investment share of GDP.  These two variables are strongly positively correlated.  When revising this figure with the newest data, I found that the correlation declines substantially (though is still positive).  When I looked into the source of the change, I found that the historical estimates of the investment share of GDP have changed, in some some cases by a lot.

Let me give you an example.  Take the investment share for Ghana in the year 2000.  According to version 6.2 of the data, the investment share was about 5 percent.  In version 7.0, it was about 21 percent.  This is one of the larger changes I have found, but it is not the only country for which there are sizable changes in the reported investment share of GDP.

I understand that the changes may be related to new information about the relative price of investment goods.  But the changes seem too large to be explained so easily, although perhaps I am wrong about this.  If anyone can shed light on the matter, I would be greatly appreciative.  Send me an email if you can help.
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Update: I have not yet fully figured this out, but readers have sent me some useful links.  If you are interested, click here, here, and here.

Mitt Romney and His Economic Advisers

An article in the National Journal.

A Conference for Undergrads

In international economics.

On SOPA

Several readers have asked me my opinion of SOPA, the Stop Online Piracy Act.  I fear that in this case, the devil is in the details, so I find it hard to reach a strong view.  But I have been disturbed by the relatively knee-jerk reaction of the anti-SOPA crowd.  This is a hard issue, and when someone makes it sound easy, I feel like they haven't thought it through very thoroughly.

The anti-SOPA crowd argues that this is a matter of basic liberty.  But it's not.  In a free society, you don't have the freedom to steal your neighbor's property.  And that should include intellectual property.  Moreover, it is the function of the state to enforce those rights.  We don't leave it up to civil litigation to protect property rights (although that is part of the solution).  We give the state substantial powers to stop theft.  Just as owners of tangible personal property have good cause to call for a police force and a system of criminal courts, owners of intellectual property have good cause to ask the state to stop those who would infringe on their rights.

This is an important economic issue for the United States.  We are large producers of intellectual property: movies, novels, software, video games, TV shows, and even economics textbooks.  If offshore websites find a way to distribute this intellectual property without paying for it, it is as if organized crime were stealing merchandise from a manufacturing firm at the loading dock.  It is neither efficient nor equitable. 

Maybe SOPA goes too far.  As I said, I am not knowledgeable enough about the details to judge.  But we need something along these lines.  Believers in free enterprise, property rights, and economic liberty should be among the most vocal advocates of laws to stop intellectual piracy.

Five Observations about Progressivity

There has been a lot of discussion recently about tax progressivity.  A few observations on the topic:

1. The U.S. personal income tax is generally progressive, and substantially so.  Click here to see the numbers.  The average tax rate for tax returns with over $1 million in income is 25 percent.  The average tax rate for returns with income between $50,000 and $75,000 is 7 percent.

2. It is arguably better to use an average tax rate that is all-inclusive.  That is, we should include not only personal income taxes but also payroll and corporate income taxes.  CBO analysts regularly do that.  They find a substantially progressive tax system, as I have pointed out before.

3. If we added transfer payments (which are essentially negative taxes), we would find an even more progressive fiscal system.  Those data are harder to come by, as data on transfers are rarely integrated with data on taxes.

4. It make little sense to aggregate payroll taxes with personal income taxes and ignore corporate income taxes.  A corollary: Paul Krugman should be more careful when reproducing graphs from partisan think tanks.

5. All of these calculations are static.  They ignore the general-equilibrium effects that arise as the true burden of taxation is shifted by behavioral responses.  In essence, these calculations are made under the implicit assumption that factors of production are supplied inelastically, so the tax stays where legislators put it.  Of course, that assumption is implausible, especially in the long run.  True general-equilibrium tax incidence is very hard, and as far as I know, reliable estimates on it are not readily available.

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Update: Oddly, rather than admitting an oversight, Paul Krugman continues with the same misleading claims in his column in Friday's paper.  Even more oddly, at his blog, he uses the tax-shift argument (my point 5 above) to justify the exclusion of the corporate tax.  Of course, tax shifting because of behavioral responses applies to all taxes, not just corporate taxes.  The implication of tax-shifting is not that one should just ignore corporate taxes, as Paul chooses to do, but rather that all static analyses of the distribution of the tax burden should be taken with a grain or two of salt.

Should I put this award on my CV?

Peter Wirzbicki reports:

I just got back from Chicago, where, along with attending the American Historical Association, I participated in a series of protests held by Occupy Chicago, along with CACHE (Coalition Against Corporatization of Higher Education) that targeted the American Economics Association (AEA). It's not everyday that the worlds of street protests and academic conferences blend so well. But then again, part of the point was to “puncture the bubble” that academic economists live in.

The protesters gave out “alternative” awards for Most Conflict of Interests (Columbia’s Glenn Hubbard), Intellectual Narrowness (Harvard’s Greg Mankiw), and top prize, the “Toxic Waste of Space Award” (Harvard/Obama administration’s Larry Summers). Other than a brief yelling match that one protester got in with a professor, the tone was light and fun. Protesters “accepted” awards acting as Mankiw, Hubbard, and Summers (who reminded us how much smarter he was than us) and served “Rahmon” noodles, in honor of the Chicagoans impoverished by Rahm Emmanuel’s neoliberal policies. Overall a lot of fun, albeit fun that might have gone over the heads of the random shoppers on Michigan Ave.

Home for the Holidays

From a University of Minnesota graduate student: