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Who Benefits from Canceling Student Loans?

2 days ago

Student loans are packaged together and then sold as financial securities, just like auto loans and credit card debt and home mortgages. These asset-backed securities pay a return to their investors as the debts are repaid. If outstanding students loans were to be cancelled, then the investors in this securities would probably be bailed out by the federal government–which was closely involved in securitizing these loans in the first place, and does not want to get a reputation for reneging on its debts. If such a debt cancellation happened, how would the benefits be distributed? Adam Looney tackles this question in “Student Loan Forgiveness Is Regressive Whether Measured by Income, Education, or Wealth: Why Only Targeted Debt Relief Policies Can Reduce Injustices in Student Loans”

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Some Economics for Martin Luther King Jr. Day

4 days ago

On November 2, 1983, President Ronald Reagan signed a law establishing a federal holiday for the birthday of Martin Luther King Jr., to be celebrated each year on the third Monday in January. As the legislation that passed Congress said: “such holiday should serve as a time for Americans to reflect on the principles of racial equality and nonviolent social change espoused by Martin Luther King, Jr..” Of course, the case for racial equality stands fundamentally upon principles of justice, with economics playing only a supporting role. But here are a few economics-related thoughts for the day clipped from posts in the previous year at this blog, with more detail and commentary at the links.

1) “Some Economics of Black America” (June 18, 2021)

The McKinsey Global Institute has

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The US Economy as 2022 Begins

7 days ago

The Federal Reserve Bank of New York puts out a monthly publication called “U.S. Economy in a Snapshot,” a compilation of figures and short notes about the most recently available major macroeconomic statistics. As we take a deep breath and head into 2022, it seemed a useful time to consult pass along some these figures as as a way of showing the path of the US economy since the two-month pandemic recession of March and April 2020.

Here’s the path of GDP growth. It has clearly bounced back from the worse of the recession, but it still remains about 2% below the trend-line from before the recession occurred.

Part of the reason why GDP has not rebounded more fully lies in what is being called the “Great Resignation”–that is, people who left the workforce during the pandemic and

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Advice for Academic Writing About Data

7 days ago

As the Managing Editor of an economics journal, I’m always intrigued by advice about what goes into writing a good academic paper. Jon Zelner, Kelly Broen, and Ella August take their whack at this pinata in “A guide to backward paper writing for the data sciences” (Patterns, January 2022). As is usual with these kinds of papers, some of the advice is worthy but dull and very basic. But there are also some insights that resonated with me, and I’ll emphasize those here.

From the introduction:

Academic and applied research in data-intensive fields requires the development of a diverse skillset, of which clear writing and communication are among the most important. However, in our experience, the art of scientific communication is often ignored in the formal training of data

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US Pharmaceuticals: A Bifurcated Market

9 days ago

The US pharmaceutical industry faces two important goals–which conflict with each other. One goal is to provide needed drugs at the lowest possible price. The other is to provide incentives for research and development of new drugs, which requires some form of compensation for the risks of undertaking such efforts. The US patent system allows inventors to have a temporary monopoly on their discovery, so that they can charge higher prices for a time. After the patent expires, it then becomes legal for others to produce generic equivalents. The result is a two-part market for US pharmaceuticals: expensive drugs still under patent and inexpensive generic drugs.

William S. Comanor layout some of the patters in his essay, “Why Are (Some) U.S. Drug Prices So High?” which is subtitled,

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Donating to the Conversable Economist

11 days ago

Last summer, ten years after starting this Conversable Economist blog, I finally put up a link for donations. A number of readers have already responded generously, and I appreciate your support more than I can say. Moving forward, my plan is to remind readers of the donation button about twice a year, and the time has come for such a reminder.

This blog serves many purposes for me. It’s an outlet for stuff in my head, so I don’t have to burden family and friends with an overload of economics. It’s a memory aid, so that I can track down things I read 6 or 12 or 18 months ago with relative ease. It’s a commitment device, forcing me to actually read various reports and articles that I might otherwise skim past. But the honest truth is that without a group of faithful readers, none

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The Fed as Borrower of Last Resort?

11 days ago

Economics textbooks teach that one role of central bank during a financial or economic crisis is to act as a short-term “lender of last resort”: that is, when the financial system is in danger of freezing up in a way that can lead to an expanding vicious circle of defaults–as those who can’t get roll-over loans are unable to repay others, who also can’t roll over their loans, and son on–the central bank makes short-term credit available. When the panic passes, the central bank lender-of-last-resort loans get repaid: indeed, because the central bank was the only one willing and ready to make large-scale loans during the crisis, it can even end up making some money from the interest it charges on these loans. Often some firms will end up going broke in the aftermath of the crisis, but

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What Americans Like about their Health Care

14 days ago

The OECD has just published Health at a Glance 2021, a compendium of health care statistics across the (mostly) high-income countries that make up its membership. Some of the graphs confirm standard reactions to the US health care system: that is, it costs much more than other countries, but the health outcomes for Americans are often no better or worse than in countries that spend less on health care. That said, I was also struck in skimming through the report by several graphs which suggest that, by international standards, Americans have some reasons to like their health care system.

First, here are a few of the standard comparisons. These first two figures show national health care spending as a share of GDP and on a per capita basis. On both measures, the US spends far more

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Putting a Value on Sweat Equity

15 days ago

For a company with shareholders, it’s straightforward to calculate the market value of the firm: just add up the cost of buying all the stock. For a company that is privately owned, calculating the market value is a lot harder. For a bare minimum value, one could add up the value of any physical or intellectual property assets the company owns. But many small private firms are worth a lot more than this minimum value. This additional value lies in the relationships that the company has built over time with supplier, customers, and the community. This extra value is sometimes called “sweat equity,” because it’s the value derived from the efforts of the owner.

Jeff Horwich of the Minneapolis Federal Reserve provides a nice overview of some recent efforts to measure sweat equity in

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How Should Low Interest Rates Alter Our View of Fiscal Policy?

16 days ago

Olivier Blanchard has a new book coming out, titled Fiscal Policy Under Low Interest Rates.  Because it’s the 21st century, a full draft of the book is available at the MIT Press website and you can leave comments and reactions there. The “review period” for comments ends on January 18–which is to say that Blanchard will start doing his final revision of the draft at that time. But the plan is for the draft itself remain online until the final version of the book is published later in 2022.

For a flavor of what’s in the book, Blanchard has written a short essay: “Why low interest rates force us to revisit the scope and role of fiscal policy: 45 takeaways” (Peterson Institute for International Economics, December 21, 2021). As the title implies, it’s a list of 45 takeaways from the

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How Personal Experience Leaves a Mark

17 days ago

Everyone knows there was a Great Depression. The information is readily available. But those who lived through the Great Depression tended to show lasting patterns of behavior–like high rates of saving and low participation in stock markets. Experiencing an event directly is different from knowing about it in other ways. It turns out that these “experience effects” are widespread: for example, related to economic events like experience of high inflation or unemployment. In the next few years, we are likely to find out that there are lasting experience effects from the COVID pandemic, too.

Ulrike Malmendier lays out some of the theory and evidence in her 2020 JEEA-FBBVA Lecture to the European Economic Association, now published as “Exposure, Experience, and Expertise: Why

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When New Immigrants First Go to an American Supermarket

18 days ago

Writer and Poet Roya Hakakian arrived in the United States from Iran in 1985. Her most recent book is A Beginner’s Guide to America: For the Immigrant and the Curious (2021). The most recent issue of Capitalism and Society publishes a short excerpt from the book titled “When New Immigrants First Go to an American Supermarket.” Here, I’ll give an excerpt of that excerpt.

About visiting a US grocery story, Hakakian writes:

In one particular aisle, you find cans of beef, chicken, and fish priced much lower than others you had seen in previous aisles. Pleased with your find, you pile them into your cart. Then you hesitate when you see a picture of a dog or a cat on each can. You remember the feral cats and emaciated dogs that used to roam your streets. They were sometimes hunted,

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Are Subtractions Underrated?

22 days ago

When seeking to justify my career as an editor, I sometimes say that my value-added happens through subtraction: that is, if the final version of the paper as it appears in the Journal of Economic Perspectives makes all the same points, but is 8000 words of text instead of 10,000 words, then I have saved time for readers.  It is fairly standard for me to reduce the lengths of first drafts by 20%, although the trims are sometimes much greater. I once cut a first draft that was over 80 pages to less than 20 pages.

Back in the Dark Ages before word-processing, there was a natural incentive to keep papers short: namely, you (or someone) had to retype each draft. But in a word-processing world, there is a tendency to respond to any given concern by adding either a little or a lot.  The

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If Marooned on a Desert Island With a Pile of Economics Books …

22 days ago

Pretty much every economics major confronts a very similar set of required classes: intro micro, intro macro, intermediate micro, intermediate macro, and econometrics. Some places combine the intro courses, or add a required calculus course, or sometimes a course in accounting. Then econ majors get a few electives and a senior project. When I Iook at those requirements, I find myself thinking that a lot of students come to economics expecting to interact with big policy questions of the day, but until they have survived this gauntlet of required courses, they often don’t get much chance to do so.

This mismatch between what incoming students are hoping and expecting and the requirements of the econ major reminds me of great comment at the start of an edited volume in political

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Shortest Academic Journal Article Ever: On Writer’s Block

24 days ago

The following article was published, as shown, in the Journal of Applied Behavior Analysis in Fall 1974. I discovered it when it was mentioned by Michael S. Weisbach in his recent book The Economist’s Craft: An Introduction to Research, Publishing, and Professional Development.

As the Managing Editor of a professional academic journal, I am strongly committed to putting a lid on the length of articles. I believe that prose which is more crisp is also more easily understood, and that longer articles also tend to be less-read. With that well-known economist sense of humor, I sometimes say that a large part of value-added comes through subtraction. But even for me, this article is a little terse.

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“The Innovation that We Call ‘The Deadline’”

25 days ago

In the “Acknowledgements” to his 2010 collection of essays called Studies on Science and the Innovation Process, Nathan Rosenberg wrote: “[M]y long-standing conviction [is] that the most powerful contributions to the rise in measured economic productivity in the last half of the twentieth century was the innovation that we call “`the deadline.’”

His comment was slightly tongue-in-cheek. Rosenberg (who died in 2015) was a lovely man: I knew him a little and worked with him as an editor on a couple of his papers. However, his many virtues did not include being someone who would reliably meet deadlines. Indeed, in the book acknowledgements he was gracefully thanking those who went out of their way to help him meet the publication deadlines.

According to the Oxford English

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Adam Smith: On the Disposition to Admire the Rich and Neglect the Poor

26 days ago

Adam Smith is often treated in popular discussions as a cardboard cut-out caricature of a fundamentalist believer in the superiority of markets, and nothing more. As anyone who has actually read Smith will tell you, such a belief goes well beyond oversimplification or even parody and into the realm of travesty. Here’s a passage from Smith’s first great work, The Moral Sentiments, published in 1759 (that is, 17 years before The Wealth of Nations), in which he diagnoses and discusses a social ill that has only persisted in the centuries since then. Smith wrote:

This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of

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Charles Dickens on Seeing the Poor

28 days ago

Charles Dickens wrote what has become one of the iconic stories of Christmas day and Christmas spirit in A Christmas Carol. But of course, the experiences of Ebenezer Scrooge are a story, not a piece of reporting. Here’s a piece by Dickens written for the weekly journal Household Words that he edited from 1850 to 1859. It’s from the issue of January 26, 1856, with his first-person reporting on “A Nightly Scene in London.” Poverty in high-income countries is no longer as ghastly as in Victorian England, but for those who take the time to see it in our own time and place, surely it is ghastly enough. Thus, I repeat this post each year on Christmas day.

Economists might also wince just a bit at how Dickens describes the reaction of some economists to poverty, those who Dickens calls

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Charles Dickens on Management and Labor

29 days ago

There’s a sort of parlor game that the economically-minded sometimes play around the Christmas holiday, related to A Christmas Carol, by Charles Dickens. Was Dickens writing his story as an attack on economics, capitalism, and selfishness? After all, his depiction of Ebenezer Scrooge, along with his use of phrases like “decrease the surplus population” and the sarcastic use of “a good man of business” would suggest as much, and a classic example of such an interpretation is here. Or was Dickens just telling a good story with distinct characters? After all, Scrooge is portrayed as an outlier in the business community. The warm portrayal of Mr. Fezziwig certainly opens the possibility that one can be a successful man of business as well as a good employer and a decent human being. And

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Tale of Two Trade Agreements: Better to Be In or Out?

December 23, 2021

Here is a story of two possible Pacific Rim trade agreements. The idea of a trans-Pacific free trade agreement of some kind had been bubbling around since the early 2000s. By 2016, it had turned into the Trans-Pacific Partnership, with 12 countries signed on as members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States. You could think of it as the North American Free Trade Agreement (NAFTA), which has now morphed into the U.S.-Mexico-Canada Agreement, plus four high-income countries (Australia, Japan, New Zealand, Singapore), a couple of Latin American countries (Chile, Peru), and some growth economies in east Asia (Brunei, Malaysia, Vietnam).

The Trans-Pacific Partnership never went into effect because

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Interview with Matthew Slaughter: Globalization and Corporate Leadership

December 20, 2021

Michael Chui of the McKinsey Global Institute served as interlocutor in “Forward Thinking on globalization and the evolving role of corporate leadership in the 21st century with Matthew Slaughter (December 15, 2021, podcast and edited transcript available).  Here are a few comments that jumped out at me.

On the entry of China and India into global markets

If I go back to when I didn’t have any gray hair and I was graduating and finishing at MIT and coming to Dartmouth, a lot of the research on globalization and labor markets was focused on the NAFTA, the North American Free Trade Agreement, the accession of Mexico into the Canada–US free trade agreement that caused so much political activity in the 1992 presidential election. Ross Perot running for president, getting 19.2

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Interview with Edward Glaeser on Urban Evolution

December 18, 2021

David A. Price interviews Edward Glaeser, with the subheading “On urbanization, the future of small towns, and “Yes In My Back Yard” (Econ Focus, Federal Reserve Bank of Richmond, Fourth Quarter 2021, pp. 19-23). Here are a few comments that caught my eye.

On centripetal and centrifugal forces in cities

I see urban growth as almost uniformly a dance between technologies that pull us together and ones that push us apart. Technologies of the 19th century, like the skyscraper — which is really the combination of a steel frame and an elevator — the streetcar, the steam engine, all of these things enabled the growth of 19th century cities. They brought people together. This was a centripetal age.In the mid-20th century, we had technologies that were major jumps forward in

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The Rise in Global Debt

December 16, 2021

Global debt as a share of GDP rose to an all-time high in 2020, according to the latest update of the IMF’s Global Debt Database. Here’s a descriptive figure from a blog post by  Vitor Gaspar, Paulo Medas, and Roberto Perrelli at the IMF showing the overall pattern.

As you can see, global debt jumps from 227% of global GDP in 2019 to 256% in 2020. The authors write:

Borrowing by governments accounted for slightly more than half of the increase, as the global public debt ratio jumped to a record 99 percent of GDP. Private debt from non-financial corporations and households also reached new highs. … Advanced economies and China accounted for more than 90 percent of the $28 trillion debt surge in 2020.

You can also also see in the figure the comparable jump in debt of 20

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Lives Saved from the COVID Vaccination

December 16, 2021

As I have written before, the $18 billion spent on the Operation Warp Speed program to accelerate the development of COVID vaccines may well have the highest benefit-to-cost ratio of any government program that has ever existed. Moreover, the benefits will continue to grow as more people get vaccinated here and around the world, and as future vaccines are developed based on the accumulated knowledge. Over at the Commonwealth Fund, Eric C. Schneider, Arnav Shah, Pratha Sah, Seyed M. Moghadas, Thomas Vilches, and Alison Galvani have updated their model to answer the question: “The U.S. COVID-19 Vaccination Program at One Year: How Many Deaths and Hospitalizations Were Averted?” (December 14, 2021). They write:

The U.S. vaccination program campaign has profoundly altered the

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The Challenge of Africa’s Rising Population

December 15, 2021

The countries of sub-Saharan African have the lowest per capita GDP and the highest birth rates of any region in the world. The December 2021 issue of Finance & Development, from the International Monetary Fund, has a series of short articles on some of the challenges and opportunities. Abebe Aemro Selassie offers an optimistic vision in “The African Century” (pp. 58-61). He writes:

The population of sub-Saharan Africa is projected to double from 1 billion to 2 billion by about 2050. This will account for half of global population growth, with the working-age population growing faster than any other age group. These projections—while not uniform across the continent—should be placed in the context of the opposite trend in advanced economies, which typically see aging populations,

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The Economic Success of East Asia: Industrial Policy or Sound Fundamentals?

December 10, 2021

When it comes down to discussions of whether the United States needs an activist industrial policy to power future economic growth, maybe the most common argument I hear is that other countries like China are doing it, so the US needs to do it as well. “US companies can’t compete against foreign governments” is a common line. Just to be clear, I’m talking here about the kind of industrial policy that goes beyond general policies like supporting competition, education/job training, and and research and development, and instead focuses on government support for certain industries or companies (perhaps with financial subsidies or trade protection).

The modern version of this argument typically focuses on how the US needs to subsidize key industries as a counterbalance to China. But

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The US Treasury Review of Economic Sanctions

December 9, 2021

The use of economic sanctions by the United States has increased tenfold in the last 20 years. Is this because sanctions are working so well as a foreign policy tool? Or is it because imposing economic sanctions feels like a cost-free non-military response when there is a demand to “do something”? The Treasury 2021 Sanctions Review (October 2021) doesn’t seek to answer the big picture questions, but it provide some useful background on the current status of US economic sanctions and what steps could help to make them more effective.

Here’s a figure showing the rise in US use of economic sanctions since 2000 as tallied by the US Treasury’s Office of Foreign Assets Control (OFAC)’s List of Specially Designated Nationals and Blocked Persons:

Here’s a figure showing how the

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Policing: What’s the Function?

December 8, 2021

Economists tend to think of public policy in terms of inputs and outputs: a policy is undertaken and there is a response. One can then evaluate how well the policy worked in terms of costs and benefits. When it comes to police work, the usual assumption has been that the function of police is to reduce crime, and that a higher quantity of police will tend to lead to lower levels of crime.

This approach isn’t exactly wrong, but it is incomplete. If the social goal is to have lower levels of crime, there may be multiple ways of accomplishing that goal along with hiring additional police officers. Policing is more than just the number of officers, but also has to do with how the policing is carried out: for example, are police often on foot or perhaps bicycles, being seen in the

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China’s Growing Role in International Financial Flows

December 3, 2021

Most of the International Debt Statistics 2022 report just published by the the World Bank is region- and country-level tables about types of financial inflows and outflows with a focus on low- and middle-income countries. But the “Overview” essay at the start, which lays out some of the overall patterns, has a section called “China: The Largest Borrower and Lender among Low- and Middle-Income Countries.” The discussion emphasizes China’s decision to become central to international finances of low- and middle-income countries.

There are several kinds of international financial flows: debt, which includes corporate and government debt; foreign direct investment, which is a purchase of an ownership stake of at least 10% in a company; and portfolio investment, which is a purchase

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Lessons from a Half-Century of US Industrial Policies

December 2, 2021

The fundamental idea behind government industrial policy is that the forces of a market economy are not moving, or not moving quickly enough, in a desirable direction. Thus, a shove from the government in form of subsidies, tax breaks, import limitations, research and development support, or other steps to support a particular industry might be needed. There is continual political pressure for such steps, and both the Trump and the Biden administration have pushed for industrial policy in non-identical but often overlapping ways. Set aside for now the philosophical disputes over whether industrial might work, or whether such efforts will be corrupted by politics. Also, set aside arguments over whether industrial policy in the broad-based form of supporting infrastracture for

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