faulker020

The amazing improvement in the quality of life of the world's poor people should be common knowledge by now. For example, you have the now-famous "elephant graph", by Branko Milanovic, showing recent income growth at various levels of the global income distribution: This graph shows that over the last three decades or so, the global poor and middle class reaped huge gains, the rich-country middle-class stagnated, and the rich-country rich also did quite well for themselves. You also have the poverty data from Max Roser , showing how absolute poverty has absolutely collapsed in the last couple of decades, both in percentage terms and in raw numbers of humans suffering under its lash: This is incredible - nothing short of a miracle. Nothing like this has ever happened before in recorded history. With the plunge in global poverty has come a precipitous drop in global  child mortality  and hunger . The gains have not been even - China has been a stellar outperformer in povert...

John Cochrane wrote a blog post criticizing the Obama administration's new rule extending overtime pay to low-paid salaried employees. Cochrane thinks about overtime in the context of an Econ 101 type model of labor supply and demand. I'm not going to defend the overtime rule, but I think Cochrane's analysis is an example of what I've been calling " 101ism ". One red flag indicating that 101 models are being abused here is that Cochrane applies the same model in two different ways. First, he models overtime pay as a wage floor: Then he alternatively models it as a negative labor demand shock: Well, which is it? A wage floor, or a negative labor demand shock? The former makes wages go up , while the latter makes wages go down , so the answer is clearly important. If using the 101 model gives you two different, contradictory answers, it's a clue that you shouldn't be using the 101 model. In fact, overtime rules are not quite like either wage floors or ...

The argument over " theory vs. evidence " is usually oversimplified and silly, since you need both to understand the world. But there is a sense in which I think evidence really does "beat" theory most of the time, at least in econ. Basically, I think empirical work without much theory is usually more credible than the reverse. To show what I mean, let's take an example. Suppose I was going to try to persuade you that extended unemployment insurance has big negative effects on employment. But suppose I could only show you one academic paper to make my case. Which of these two papers, on its own, would be more convincing? Paper 1: " Optimal unemployment insurance in an equilibrium business-cycle model ", by Kurt Mitman and Stanislav Rabinovitch Abstract: The optimal cyclical behavior of unemployment insurance is characterized in an equilibrium search model with risk-averse workers. Contrary to the current US policy, the path of optimal unemployment be...

Are Jews for Jesus actually Jews? If you ask them, they'll surely say yes. But go ask some other Jews, and you're likely to hear the opposite answer. A similar dynamic tends to prevail with microeconomists and macroeconomists. Here is labor economist Dan Hamermesh on the subject : The economics profession is not in disrepute. Macroeconomics is in disrepute. The micro stuff that people like myself and most of us do has contributed tremendously and continues to contribute. Our thoughts have had enormous influence. It just happens that macroeconomics, firstly, has been done terribly and, secondly, in terms of academic macroeconomics, these guys are absolutely useless, most of them. Ouch. But not too different from lots of other opinions I've head. "I went to a macro conference recently," a distinguished game theorist confided a couple of years back, sounding guilty about the fact. "I couldn't believe what these guys were doing." A decision theorist at M...

Jason McDaniel and Sean McElwee have been doing great work analyzing the political movement behind Donald Trump. For example, they've showed pretty conclusively that Trump support is driven at least in part by what they call "racial resentment" - the notion that the government unfairly helps nonwhites. But "racial resentment" is not the same thing as outright bigotry. Believing that the government unfairly helps black people doesn't necessarily mean you dislike black people. So McDaniel and McElwee did another survey asking about people's attitudes toward various groups. Here's a graph summarizing their basic findings: So, from this graph, I gather: 1. Trump supporters, on average, say they like Blacks, Hispanics, Scientists, Whites, and Police. On average, they say they dislike Muslims, Transgenders, Gays, and Feminists. 2. Trump supporters, on average, say they like Whites a bit more than average, Muslims a lot less, and Transgenders a bit less. ...

The Wall Street Journal has a very interesting interview with Russ Roberts about economics and politicization. Lots of good stuff in there, and one thing I disagree with. Let's go through it piece by piece! 1. Russ complains about politicization of macroeconomic projections: He cites the Congressional Budget Office reports calculating the effect of the stimulus package...The CBO gnomes simply went back to their earlier stimulus prediction and plugged the latest figures into the model. “They had of course forecast the number of jobs that the stimulus would create based on the amount of spending,” Mr. Roberts says. “They just redid the estimate. They just redid the forecast." I wouldn't be quite so hard on the CBO. It's their job to forecast the effect of policy. They have to choose a model in order to do that. And it's their job to evaluate the impact of policy. They have to choose a model to do that . And of course they're going to choose the same model, even ...

I wrote a review of Ben Bernanke's book, The Courage to Act , for the Council on Foreign Relations. Here's an excerpt: Basically, Bernanke wants the world to understand why he did what he did, and in order to understand we have to know everything.   And the book succeeds. Those who are willing to wade through 600 pages of history, and who know something about the economic theories and the political actors involved, will come away from this book thinking that Ben Bernanke is a good guy who did a good job in a tight spot.  But along the way, the book reveals a lot more than that. The most interesting lessons of The Courage to Act are not about Bernanke himself, but about the system in which he operated. The key revelation is that the way that the U.S. deals with macroeconomic challenges, and with monetary policy, is fundamentally flawed. In both academia and in politics, old ideas and prejudices are firmly entrenched, and not even the disasters of crisis and depression were eno...

Very interesting debate over Econ 101, between Michael Strain and James Kwak. Strain attempts to defend Econ 101 from the likes of Paul Krugman and Yours Truly. He especially criticizes my call for more empirics in 101: Critics suggest that introductory textbooks should emphasize empirical studies over these models. There are many problems with this suggestion, not the least of which that economists’ empirical studies don’t agree on many important policy issues. For example, it is ridiculous to suggest that economists have reached consensus that raising the minimum wage won’t reduce employment. Some studies find non-trivial employment losses; others don’t. The debates often hinge on one’s preferred statistical methods. And deciding which methods you prefer is way beyond the scope of an introductory course.  As you might predict, I have some problems with this. First of all, I don't like the idea that if the empirics aren't conclusively settled, we should just teach theories a...

As long as we're on the topic of regulation and growth , check out this post I recently wrote for Bloomberg View : I’m very sympathetic to the idea that regulation holds back growth. It’s easy to look around and find examples of regulations that protect incumbent businesses at the expense of the consumer -- for example, the laws that forbid car companies from selling directly to consumers, creating a vast industry of middlemen. You can also find clear examples of careless bureaucratic overreach and inertia, like the total ban on sonic booms over the U.S. and its territorial water (as opposed to noise limits). These inefficient constraints on perfectly healthy economic activity must reduce the size of our economy by some amount, acting like sand in the gears of productive activity.  The question is how much...If regulation is less harmful than the free-marketers would have us believe, we risk concentrating our attention and effort on a red herring...  [F]ocusing too much on der...

When Bob Lucas, Tom Sargent, and Ed Prescott remade macroeconomics in the 70s and 80s, what they were rebelling against was reduced-form macro. So you think you have a "law" about how GDP affects consumption? You had better be able to justify that with an optimization problem, said Lucas et al. Otherwise, your "law" is liable to break down the minute you try to take advantage of it with government policy. Lots of people are unhappy with what Lucas et al. invented to replace the "old macro". But few would argue that it needed replacing. Identifying correlations in aggregate data really doesn't tell you a lot about what you can accomplish with policy. Because of this, I've always been highly skeptical of John Cochrane's claim that if we simply launched a massive deregulatory effort, it would make us many times richer than we are today. Cochrane typically shows a graph of the World Bank's "ease of doing business" rankings vs. GDP, ...