In a recent opinion piece in the Wall Street Journal, Princeton economist and former vice-chair of the Federal Reserve, Alan Blinder attempts to add constructive insight to the political discussion regarding international trade. Below you will find the Five Big Truth he cited. I encourage you to read the details.
Most job losses are not due to international trade.
Trade is more about efficiency – and hence wages – than about the number of jobs.
Bilateral trade imbalances are inevitable and mostly uninteresting.
Running an overall trade deficit does not make us “losers.”
Trade agreements barely affect a nation’s trade balance.
This fall, Professor Finkler will be offering 421 Investments on Tuesdays 9:50-10:50 and Thursdays from 9:00 to 10:50. For those of you considering taking the course with a Tuesday conflict, this may open an opportunity for you.
It is that time of year where the days get longer, aided by a single leap and bound. This Saturday into Sunday, much of the US will push its clocks forward by one hour. Despite the “Daylight Savings” moniker, there is no actual daylight saved — it just shifts an hour from the morning to the evening. The consequences of this likely will affect whether some people live through the rest of March or not, as I pointed out in the New York Times Room for Debate section a few years ago. My contribution has to do with the changes in pedestrian fatality risks and total fatalities associated with the time change. I also wrote a more general piece for the Appleton Post-Crescent. Below is my semi-annual rehash of a previous post…
So, what does a time change look like? Glad you asked: The figure from the sunshine authority, Gaisma.com, shows daylight patterns for our own Appleton, Wisconsin. Each day starts with midnight at the bottom and goes to the top, and the months go left to right. The blue line is the dawn and the red the dusk.
The switch to DST in March and the switch back to standard time in November are clear — they are the discontinuities (the “breaks”) in the sunrise and sunset curves. Because we “spring ahead” one hour, the sunrise time on Sunday morning will be one hour later than it was on Saturday. An early morning walk that was in that daylight on Saturday will be in the dark on Sunday. To have a sunrise at the same time as Saturday’s, we will have to wait until early April. The opposite happens in the evening. Sunset will be one hour later starting on Sunday. There will be less light in the morning, but more light in the evening.
Light and visibility are extremely important determinants of traffic safety, particularly for pedestrians. Paul Fischbeck and I looked at data from 1999-2005 on fatalities and travel patterns, and determined that the morning risk increases about 30% per mile walked, while the afternoon risk falls close to 80%.
The figure below shows pedestrian fatality risks from 1999-2005. The blue and maroon bars show fatality risks per 100 million miles walked in March and April, respectively. Note that for the 6 a.m. time slot the risks increase about 30%, whereas for the 6 p.m. time slot the risks take a sharp nosedive. At midday the risks stay right about the same (we found no statistically significant difference in risks for that time period). Overall, total pedestrian fatalities decrease in the Spring both because risks fall more in the evening than they rise in the morning, and there are many more people out later in the day.
These data are rather crude in the presentation, as they do not focus specifically on the days leading up to and immediately following the time shifts, which is how researchers typically isolate the effects of the time change.
Bradley W. Bateman, President of Randolph College, Keynesian scholar, and frequent visitor to Lawrence, has a piece up at The Atlantic Monthly today on the surprising religious past of American economics.
A big part of the story is the leadership of Richard T. Ely, an extremely controversial figure who spent more than thirty years of his career at the University of Wisconsin directing the School of Economics, Political Science, and History.
Of course, the religious roots were not long-lived, as President Bateman notes:
It is, of course, hard to recognize this earlier type of economist in today’s profession. Like the university, the discipline of economics was secularized after 1920. Around this time, the discipline of philosophy came to be dominated by logical positivism—essentially, the idea that the scientific method is the only way to arrive at true, factual knowledge—and this school of thought greatly influenced American economists as the landscape of their own discipline was changing. They developed the idea that their new analytical focus was value-free—a premise still taught in most introductory economic textbooks.
But, of course, is not, which is important to recognize.
The study of economics does not seem to require any specialised gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject, at which very few excel! — John Maynard Keynes
I came across this gem at Brad Delong’s website, where he is having a dialog with Paul Krugman about the use of graphs in Econ 101, and specifically whether Production Possibilities and Edgeworth Boxes should be introduced at the introductory level.
This is certainly a conversation we are having on our floor. I think we generally introduce PPFs, but not the Edgeworth Boxes in our introductory courses, and our Econ 300 students get the Ysidro Edgeworth treatment. I guess I’m all ears if you have thoughts on the topic.
As for the more obnoxious point that economics is a seemingly lightweight subject that few are good at, huh. Keynes continues:
The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher-in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future.
That’s from his obituary for Alfred Marshall, author of the incredible Principles of Economics, the profession’s first textbook, and namesake of Marshallian Demand! Truly a pioneer and an intellectual giant, regardless of what Keynes says here.
It’s nice to see someone say something nice about economists, even it if is an economist, and even if it was 90 years ago.
In the past, I’ve often harangued my environmental economics students with the question of why, if we are running out of natural resources, the futures markets don’t project substantial increases in oil prices. After all, a constrained supply should lead to higher prices on the one hand, and the industrialization of China, India, and other countries suggests that world demand will continue to increase (or, at least, it won’t decline substantially). Add together lower supply and higher demand and we should be seeing higher prices.
The scholars at www.Env-Econ.net have a nice overview of the canonical Hotelling Rule that provides some logic for increasing oil prices, along with a potential price trajectory based on marginal production costs.
Yet, anyone looking out in the world today certainly has noticed that oil prices have dropped precipitously. This screen grab from Bloomberg shows that in late 2014 oil prices moved from the $80-100 range to the $40-$60 range for the better part of 2015. Prices have continued to slide, and were just north of $30 as of a few minutes ago.
One of the reasons, I suppose, that there has never been a more interesting time to be an economist is that we can all see remarkable technological advances unfolding in front of us, but no one quite agrees what to make of them. A few years ago, Tyler Cowen published a little e-book, The Great Stagnation, that was widely talked about and reviewed in about a million places. The man-bites-dog angle there was these technological changes have not translated into more robust growth (building on the Solow Paradox, I suppose, that we “can see the computer age everywhere but in the productivity statistics.”)
Since then, we have seen MIT’s techno-optimist Eric Brynjolfsson weigh in with The Race Against the Machine and Northwestern’s Robert Gordon counter with his “headwinds” argument. Specifically, Gordon argues that our most productive days are behind us, and that innovation will be insufficient to enable us to sustain the 2% per capita real growth of the 20th century. If you are so inclined, you can watch Brynjolfsson and Gordon square off in this TED debate.
Certainly, there are plenty of resources to get you thinking about the topic even if you don’t have the book itself. I currently have procured the Mudd’s copy, and will report back my thoughts when I get to it in 2018.
My response, of course, is Who wouldn’t want to hire an economist?. This response was unsatisfying enough that Quora asked Susan Athey, Professor in the Economics of Technology at Stanford’s Graduate School of Business, to address the question. Here is my condensed version of her response.
This is a great time for economists in tech companies—the most interesting firms in Silicon Valley are hiring chief economists as well as economic teams at a very rapid clip….
Each tech company, and each chief economist, is different, but there are several main categories. First are microeconomic issues involved in pricing and product design… Second is corporate strategy… Third is public policy… Fourth, and closely related, are direct legal and regulatory challenges — antitrust/competition policy issues and regulatory investigations.
More junior economists have a wide variety of roles in tech firms. They can take traditional data science roles, be product managers, work in corporate strategy, or on policy teams. They would typically do a lot of empirical work.
I was particularly interested in this nugget about why economists might be particularly valuable in a room full of data:
I have found that economists bring some unique skills to the table. First of all, machine learning or traditional data scientists often don’t have a lot of expertise in using observational data or designing experiments to answer business questions. Did an advertising campaign work? What would have happened if we hadn’t released the low end version of a product? Should we change the auction design? Machine learning is better at prediction, but less at analyzing “counter-factuals,” or what-if questions. (I’m currently doing a lot of research on modifying machine learning methods to make them more suitable for causal inference).
Click through for her complete answer to the original question, along with her insights on Bitcoin, the impacts of machine learning on economic science, the potential benefits of collusion, and some elaboration on her contention that “there has never been a more interesting time to be an economist.”
I was surprised and pleased at the level of interest and quality of discussion surrounding U.S. immigration policy in my public economics course last term. I was reminded of this when I saw one of the most prominent scholars in this area, George Borjas, has revived his LaborEcon blog.
Borjas is noted for, among other things, his work on the wage effects of the Mariel boatlift, when Fidel Castro sent thousands of unskilled Cuban immigrants to the shores of Miami in 1980. In September, he circulated a National Bureau of Economics Research Working paper, “The Wage Impact of the Marielitos: A Reappraisal,” that he describes thusly:
At least in my corner of the universe, it created a disturbance in the force reminiscent of the destruction of Alderaan…
The most important and widely cited such study is a 1990 paper by economist David Card… Standard Econ 101 theory says that a big increase in labor supply should reduce wages for local workers,… [b]ut Card found something startling: the negative impact on native Miamians was negligible. Neither wages nor employment fell by a measurable amount…
But in 2015, George Borjas of Harvard University’s Kennedy School came out with a shocking claim — the celebrated Card result, he declared, was completely wrong…
Now, in relatively short order, Borjas’ startling claim has been effectively debunked…
Narayana Kocherlakota spent three years at the head of the Minneapolis Fed criticizing monetary policy as risking out-of-control inflation and unlikely to help the economy. Then in 2012, he made an about face, telling the New York Times that “a wave of research gradually convinced him that he was wrong.” As a result he became one of the most strident proponents of more monetary stimulus.
Ozimek cites economists who have changed their minds on other matters, including that free trade can lead to job losses in some areas that are both substantial and persistent, that recessions can have permanent negative effects on output, and that standardized tests may well be a good measure of teacher performance.
Definitely worth thinking about his parting shot: “Has a single economics study changed your mind on an important issue?”
The first piece is an interview with Richard Morgenstern on his news study where he retrospectively evaluates the costs and benefits of regulations. Clearly, Morgenstern has been interested in this area for some time, having published “On the Accuracy of Regulatory Cost Estimates” in the Journal of Policy Analysis and Management back in 2000, a stalwart in the ECON 444 course. One of the main takeaways is that this exercise is something that is not regularly done and is surprisingly hard to complete. The forthcoming study Morgenstern talks about evaluates nine policies.
The second piece, as the title suggests, tries to isolate the impact of biofuel mandates on food prices. The US Environmental Protection Agency has a Renewable Fuel Standard (RFS) that requires a certain portion of vehicle fuel to contain “renewable” sources. In practice, this generally means corn ethanol, and as a result the demand for corn is much higher than it would otherwise be (more than 40 percent of US corn is used to produce ethanol).
This is chock full of partial-equilibrium analysis. The increase in the demand for corn should lead to a movement along the supply curve, and a simultaneous decrease in the supply of other substitutes in production. Meanwhile, as world income has gone up and many in developing countries are eating diets more dependent on animal protein. This further increases the demand for cereals for animal feed (for reasons I will let you infer).
Ujjayant Chakravorty has developed a global land use model that isolates the effect of the RFS on food prices and emissions. Here are the key findings:
[I]f there were no biofuel mandates, food prices would increase—by about 15 percent in 2022 compared to the base year 2007. When we superimpose the US and EU biofuel mandates, world food prices go up by 32 percent.
Our results highlight the impact of increased meat and dairy consumption on the projected growth of food prices. Put another way, if diets were kept constant, food prices would actually fall over time without energy regulation. Then, with the biofuel mandates, they would rise by only 7 percent in year 2022.
Ironically, the RFS doesn’t do much for global carbon emissions. Follow this logic:
An important conclusion from our analysis is that under no scenario do we get a major reduction in global carbon emissions. Under the RFS, US emissions fall by about 1 percent; however, that leads to a lowering of global crude oil prices and an increase in oil consumption overseas. Moreover, because of all the new land being farmed, the RFS also causes an increase in carbon emissions. Aggregate global carbon emissions (from both direct burning of fuels and land use changes) increase from 13.4 billion tons of carbon dioxide equivalent to 17.8 billion tons in 2022.
The post title is, of course, from the late, great Jacob Viner, who tells us that it isn’t totally easy to characterize exactly what it is that we economists do. The alive, possibly great Daniel Hamermesh from the University of Texas has been making some headway on cataloging exactly what that is. And, increasingly, it appears that the top journals are featuring more empirical work and less theory.
The 2015 edition of the eponymous Which Famous Economist are you Similar to? interactive tool is now available, and once again — though once again I probably shouldn’t be telling you this — yours truly has been paired with Daren Acemolgu. (Acemoglu, as you possibly know, is the MIT superstar economist who is the subject of theDaren Acemoglu Facts tumblr page, chock full of economist “humor”).
As far as the Which Famous Economist site goes, the data are from the University of Chicago’s IGM Economic Experts Panel, which periodically surveys many economists on issues of the day. The matching is done via principal components, which is somewhat ironic, given principal-component modeling isn’t really part of the economist’s standard canon of quantitative tools.
If you decide to take the poll, I recommend that you leave the questions you haven’t thought about (or don’t know anything about) blank. The authors say that “accuracy” requires at least 20 responses out of the 30 questions.
I’m the red dot, and the arrow points to Professor Acemoglu. Robert Hall and José Scheinkman are the dots closest to mine, and you can read the explanation for why I was not paired with one of them in the figure’s legend.
The site also allows you to highlight where your views differ from the consensus view (I have a higher opinion of my peers’ knowledge of book prices, for example.) It also contains a correlation matrix for each economist in the survey pool — all are positively correlated!