Monday , October 14 2019
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Timothy Taylor

Timothy Taylor



Articles by Timothy Taylor

The Economics Nobel: Who Might Have Won?

3 days ago

Next Monday the 51th Nobel prize in Economics will be awarded. Allen R. Sanderson and John J. Siegfried offer some perspective on the first 50 years of the economics award and offers some context with the other Nobel prizes in "The Nobel Prize in Economics Turns 50" (American Economist, 2019, 64:2, pp. 167–182). They offer background on the genesis of the prize, how its official name as evolved, and the ages, academic backgrounds, and big idea that spanned several awards.For those interested in more detail about past Nobel prize-winners in economics, I strongly recommend the Nobel website itself. Especially for winners in the last few decades, there is rich infomation about why the prize was given, often with an autobiographical essay from the winner, and of course the address given by

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Foreign Exchange Markets: $6.6 Trillion Per Day

4 days ago

It’s hard to understand at an intuitive level the  difference between millions, billions, and trillions. I sometimes try to describe it this way. One million seconds in the past is about 11 days ago. One billion seconds is 11,000 days, which about 30 years ago. One trillion second is about 30,000 years ago, which would be the time period when early rock-paintings were done, when the main human inventions of the time were the oven, pottery, and twisting fibers to make rope.So the difference between a million and a billion is the difference between what happened the weekend before last, and what happened in 1989. The difference between a billion and a trillion is the difference between how long ago it was that world headlines were about Tiananmen Square demonstrations and the Berlin Wall

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Waste and Worse in US Health Care Spending

5 days ago

About 25% of all US health care spending is wasted, according to an article just published in the Journal of the American Medical Association by William H. Shrank, Teresa L. Rogstad, and Natasha Parekh ("Waste in the US Health Care System Estimated Costs and Potential for Savings," October 7, 2019). They write: 

In this review based on 6 previously identified domains of health care waste, the estimated cost of waste in the US health care system ranged from $760 billion to $935 billion, accounting for approximately 25% of total health care spending …  Computations yielded the following estimated ranges of total annual cost of waste: failure of care delivery, $102.4 billion to $165.7 billion; failure of care coordination, $27.2 billion to $78.2 billion; overtreatment or low-value care,

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The Jobs Problem in India

6 days ago

One of India’s biggest economic challenges is how new jobs are going to be created. Venkatraman Anantha Nageswaran and Gulzar Natarajan explore the issue in "India’s Quest for Jobs: A Policy Agenda" (Carnegie India, September 2019). They write:
The Indian economy is riding the wave of a youth bulge, with two-thirds of the country’s population below age thirty-five. The 2011 census estimated that India’s 10–15 and 10–35 age groups comprise 158 million and 583 million people, respectively. By 2020, India is expected to be the youngest country in the world, with a median age of twenty-nine, compared to thirty-seven for the most populous country, China. In the 2019 general elections, the estimated number of first-time voters was 133 million. Predictably, political parties scrambled to attract

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The Pedagogical Lessons and Tradeoffs of Online Higher Education

6 days ago

The Fall 2019 issue of Daedalus is on the subject "Improving Teaching: Strengthening the College Learning Experience," edited by Sandy Baum and Michael S. McPherson. There’s a lot to digest in the issue, and I’ll list the table of contents below. But I found myself especially interested by the comments on online education in "The Human Factor: The Promise & Limits of Online Education," by Baum and McPherson, as well as in "The Future of Undergraduate Education: Will Differences across Sectors Exacerbate Inequality?" by  Daniel I. Greenstein.It was now seven years ago, back in 2012, that companies like Coursera, Udacity, and edX announced their plans to revolutionize higher education with "massive open online courses," or MOOCs. While the use of online tools has clearly spread, it seems

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Challenges Facing the “Arab Development Model”

10 days ago

Here’s a description of the Arab "social contract" and "development model" according to a recent report by Adel Abdellatif, Paola Pagliani, and Ellen Hsu, "Leaving No One Behind Towards Inclusive Citizenship in Arab Countries" (July 2019). It an Arab Human Development Report
Research Paper, written for the Regional Bureau for Arab States in the UN Development Programme. They write:
The social contract that emerged from and continues to evolve as a result of contesting and bargaining stemmed from the state-building and formation after Arab states won their independence in the 1950s–1970s. The emergence of independent states was associated with a strong nationalistic sentiment and the idea that the state should be the provider and engine of social and economic development. Despite

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The Dispersion of High- and Low-Productivity Firms Within an Industry

11 days ago

If you think about an economy as fairly stable and static, you would expect that any two companies within an industry would be fairly close in terms of productivity. After all, if Company A and Company B are selling similar products, and A has much higher productivity than B, it should drive B out of business. Thus, one might expect that at the end of this process, the competitors we observe within an industry in the real world should be fairly close in productivity level.However, this expectation is dramatically wrong. Within an industry, it is a standard pattern to find a wide dispersion of productivity across firms in the industry. Academic researchers have been familiar with this pattern for at least 15 years. But now (pulse rate accelerates) there is systematic time series data

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Are CLOs the New CDOs?

13 days ago

CDOs, or "collateralized debt obligations," were at the heart of what broke down in the US financial system and helped put the "Great" in the "Great Recession." Is there another financial instrument out there that raises similar concerns? CLOs, or "collateralized loan obligations," have a similar structure and have now reached a similar size to the CDOs circa 2008. How much should we be worried? As I’ve noted in past discussions of the subject, several Fed officials including  Lael Brainerd of the Fed Board of Governors and Robert Kaplan of the Federal Reserve Bank of Dallas (who will rotate on to the membership of the Federal Open Market Committee in 2020) have raised concerns.  Sirio Aramonte and Fernando Avalos offer a nice short discussion of this comparison in "Structured finance

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Trade: The Perils of Overstating Benefits and Costs

13 days ago

A vibrant and healthy economy will be continually in transition, as new technologies arise, leading to new production processes and new products, and consumer preferences shift. In addition, some companies will be managed better or have more motivated and skilled workers, while others will not. Some companies will build reputation and invest in organizational capabilities, and others will not.  International trade is of course one reason for the process of transition.But international trade isn’t the main driver of economic change–and especially not in a country like the United States with a huge internal market. In the world economy, exports and imports–which at the global level are equal to each other because exports from one country must be imports for another country–are both about

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Employment Patterns for Older Americans

16 days ago

Americans are living longer, and also are more likely to be working in their 60s and 70s. The Congressional Budget Office provides an overview of some patterns in "Employment of People Ages 55 to 79" (September 2019). CBO writes:"Between 1970 and the mid-1990s, the share of people ages 55 to 79 who were employed—that is, their employment-to-population ratio—dropped, owing particularly to men’s experiences. In contrast, the increase that began in the mid-1990s and continued until the 2007–2009 recession resulted from increases in the employment of both men and women. During that recession, the employment-to-population ratio for the age group overall fell, and the participation rate stabilized—with the gap indicating increased difficulty in finding work. The ensuing gradual convergence of

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The Charitable Contributions Deduction and Its Historical Evolution

17 days ago

Each year, the Analytical Perspectives volume produced  with the proposed US Budget includes a table of "tax expenditures," which is an estimate of how much various tax deductions, exemptions, and credits reduce federal tax revenues. For example , in 2019 the tax deduction for charitable contributions to education reduced federal tax revenue by $4.1 billion, the parallel deduction for charitable contributions to  health reduced federal tax revenue by $3.9 billion, and the deduction for all other charitable contributions reduced federal tax revenue by $36.6 billion.But why was a deduction for charitable contributions first included in the tax code in 1917? And how has it evolved since then? Nicolas J. Duquette tells the story in  "Founders’ Fortunes and Philanthropy: A History of the U.S.

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Save the Whales, Reduce Atmospheric Carbon

19 days ago

When it comes to holding down the concentrations of atmospheric carbon, I’m willing to consider all sorts of possibilities, but I confess I had never considered whales. Ralph Chami, Thomas Cosimano, Connel Fullenkamp, and Sena Oztosun have written "Nature’s Solution to Climate Change: A strategy to protect whales can limit greenhouse gases and global warming" (Finance & Development, September 2019, related podcast is here).
Here’s how they describe the "whale pump" and the "whale conveyor belt": 
Wherever whales, the largest living things on earth, are found, so are populations of some of the smallest, phytoplankton. These microscopic creatures not only contribute at least 50 percent of all oxygen to our atmosphere, they do so by capturing about 37 billion metric tons of CO2, an

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A Funny Thing Happened on the Way to the Interest Rate Cut

20 days ago

Last week, the Federal Open Market Committee announced that it would "lower the target range for the federal funds rate to 1-3/4 to 2 percent." The previous target range had been from 2 to 2-1/4 percent.As usual, the change raises further questions. Less than a  year ago, a common belief was that the Fed viewed "normalized" interest rates as being in the target range of 3 to 3-1/4%. Starting in 2015, the Fed had been steadily raising the target zone for the federal funds interest rate, reaching as high as a range of 2-1/4 to 2-1/2% in December 2018. But then in July 2019 there was a cut of 1/4%, now there has been another cut of 1/4% and a number of commenters are suggesting that further cuts are likely.So should this succession of interest rate cuts  be viewed as detour on the road to

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Wage Trends: Tell Me How You Want to Measure, and I’ll Give You an Answer

20 days ago

Want to prove that US wages are rising? Want to prove they are falling? Either way, you’ve come to the right place. Actually, the right place is a short essay, "Are wages rising, falling, or stagnating?" by Richard V. Reeves, Christopher Pulliam, and Ashley Schobert (Brookings Institution, September 10, 2019).They point out that when discussing wage patterns, you need to make four choices: time period, measure of inflation, men or women, and average or median. Each of these choices has implications for your answer.Time period. If you choose 1979 as a starting point, you are choosing a year right before the deep double-dip recessions in the first half of 1980 and then from mid-1981 to late 1982. Thus, long-term comparisons starting in 1979 start of with a few years of lousy wage growth,

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Is the US Dollar Fading as the World’s Dominant Currency?

23 days ago

When I’m talking to a public group, it’s surprisingly common for me to get questions about when or whether the US dollar will fade as the world’s dominant currency. Eswar Prasad offers some evidence on this question in "Has the dollar lost ground as thedominant internationalcurrency?" (Brookings Institution, September 2019). Prasad writes: 

Currencies that are prominent in international financial markets play several related but distinct roles—as mediums of exchange, units of account, and stores of value. Oil and other commodity contracts are mostly denominated in U.S. dollars, making it an important unit of account. The dollar is the dominant invoicing currency in international trade transactions, especially if one excludes trade within Europe and European countries’ trade with the rest

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A Road Stop on the Development Journey

25 days ago

Economic development is a journey that has no final destination, at least not this side of utopia. But it can still be useful to take a road stop along the journey, see where we’ve been, and contemplate what comes next. Nancy H. Chau and Ravi Kanbur offer such an overview in their essay "The Past, Present, and Future of Economic Development," which appears in a collection of essays calledTowards a New Enlightenment? A Transcendent Decade (2018, pp. 311-325). It was published by Open Mind, which in turn is a nonprofit run by the Spanish bank BBVA (although it does have a US presence, mainly in the south and west).(In the shade of this parenthesis, I’ll add that if even or especially if your interests run beyond economics, the book may be worth checking out. It includes essays on the status

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When the University of Chicago Dropped Football

27 days ago

There was a time when football was king at the University of Chicago. Their famous coach, Amos Alonzo Stagg, ran the program from 1892 to 1932. His teams were (unofficial, but widely recognized) national champions in 1905 and 1913. His teams won 314 games, which means that even after all these years he ranks 10th for most wins among college football coaches.  Stagg is credited with fundamental innovations to the way we think about football: the "tackling dummy, the huddle, the reverse and man in motion plays, the lateral pass, uniform numbers."But in 1939, in a step that seems to me almost inconceivable for any current university with a big-time football program, the President of the University of Chicago, Robert Maynard Hutchins, shut down the University of Chicago football team.For a

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Classroom vs. Smartphone: One Instructor Surrenders

September 14, 2019

It’s of course possible both to teach and to learn via a video or a book. But there’s an implicit vision many of us share about what happens in a college classroom between a professor and students. It involves how a classroom comes together as a shared experience, as the participants develop both a closeness and an openness with each other. There is an underlying belief that the process of learning through an interwoven reaction and counterreaction, sustained in this shared atmosphere, is part of what matters for an education, not just a a score on a test of pre-specified learning objectives. 

There’s a strong case to be made for the gains from using various forms of information technology to learn (more on that in a moment). But the tradeoff of IT-enabled learning is that this vision

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Is the US Economy Having an Engels’ Pause?

September 13, 2019

Consider a time period of several decades when there is a high level of technological progress, but typical wage levels remain stagnant while profits soar, driving a sharp rise in inequality. In broad-brush terms, this description fits the US economy for the last few decades. But it also fits the economy of the United Kingdom during the first wave of the Industrial Revolution in the first half of the 19th century.Economic historian Robert C. Allen calls this the "Engels’ pause," because Friedrich Engels, writing in books like The Condition of the Working Class in England in 1844, described this confluence of economic patterns. Allen laid out the argument about 10 years ago in "Engels’ pause: Technical change, capital accumulation, and inequality
in the British industrial revolution,"

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Latin America: Missing Firms, Slow Growth, and Inequality

September 11, 2019

The economies of Latin America have gone through a series of different periods in the half-century or so. There was an "import substitution" period back in the 1960s and 1970s, where the idea was that government would direct industrial development in a way that would remove the need for imports from high-income countries. This was followed by the "lost decade" of the 1980s, a period of very high inflation, slow growth, and defaults on government debt. The 1990s was sometimes labeled as at time of economic liberalization or the so-called "Washington consensus." Starting around 2000, there was a "commodity supercycle" when first a global rise in commodity prices led to faster growth across much of Latin America, but then more recently a drop in commodity prices slowed down that growth.Many

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Universal Basic Income–Combined With What Else?

September 10, 2019

The idea of  a "universal basic income" has some immediate attraction. If we can land an astronaut on the moon, etc., etc. But along with other slogans like a guaranteed government job or single payer health insurance, the devil is in the details.Three recent essays offer a useful overview of the choices and tradeoffs. Melissa S. Kearney and Magne Mogstad have written "Universal Basic Income (UBI) as a Policy Response to Current Challenges" for the Aspen Institute Economic Strategy Group (August 23, 2019). Also, the most recent issue of the Annual Review of Economics, published in August 2019, has a three-paper symposium on the universal basic income."Universal Basic Income: Some Theoretical Aspects," by Maitreesh Ghatak and François Maniquet
"Universal Basic Income in the United States

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China and India Build Internal Supply Chains

September 7, 2019

One of the key questions in the escalating US trade disputes with China and other countries is how much the economy of other countries depends on trade. The answer helps to determine how much leverage the US has in trade disputes. Thus, it’s interesting to note that starting about a decade ago, both India and China started reducing their dependence on exports as a source of growth, while doing more to build internal supply chains and relying more on domestic products.A group of authors from McKinsey Global Institute published "Asia’s futureis now" in July 2019, including Oliver Tonby, Jonathan Woetzel, Wonsik Choi, Jeongmin Seong, and Patti Wang. Here’a a figure showing how the reliance of China and India on exports has been falling.

The authors also note:
As consumption rises, more of

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US Multinationals Bring Foreign Earnings Back Home

September 6, 2019

The Tax Cuts and Jobs Act of 2017 largely eliminated taxes on US multinational corporations when they bring profits earned in other countries back to the use. As a result, there has been a dramatic rise in the dividends that U.S. parent companies received from their their foreign affiliates. Sarah A. Atkinson and Jessica McCloskey of the US Census Bureau offer some striking illustrations of this change, alnog with other data on international flows of investment in and out of the US economy,  in "Direct Investment Positions for 2018: Country and Industry Detail," published in the August 2019 Survey of Current Business. For example, here’s a look at "outward direct investment" of US multinationals abroad. In any given year, the amount of outward direct investment can change for several

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Satellite Data Economics, Night Lights, and More

September 4, 2019

Many readers of this blog will have seen this versions of this satellite image many times, but it never fails to astonish me. The dark area outlined in red is North Korea. The rest of the peninsula below, illuminated, is South Korea.
I can quote you various statistics about how the economy of North Korea is estimated at something between $32 billion and $50 billion, with corresponding per capita income of either $1,238 or $1,700. Conversely, South Korea’s GDP is $1,619 billion, with a per capita GDP of $31,362. But at least for me, the contrast between darkness and light provides its own gut-level understanding of how people experience big differences in economic growth.Jiaxiong Yao provides this image and a discussion of the relationship between economic growth and night lights in

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Nonrenewable Resources: The Pattern of Higher Extraction, Falling Prices

September 3, 2019

Here’s an economic puzzle about nonrenewable resources, including energy resources but also minerals. One might expect that the least expensive locations for these resources would be exploited first. Thus, one might expect production costs for such resources to rise over time. If demand for such resources is also rising over time, intuition suggests that this combination should tend to raise prices for nonrenewables.But this intuition is apparently wrong. Output of nonrenewable resources has risen substantially over the long-run, but prices have fallen.  Sean Howard, Gregor Schwerhoff and Martin Stuermer of the Federal Reserve Bank of Dallas discuss possible reasons in "Solving a Puzzle: More Nonrenewable Resources Without Higher Prices" (August 27, 2019). To set the stage, here is a

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Shifting Visions of the Good Job

September 2, 2019

I first published this essay back in August 2015. But it seemed worth revisiting on this Labor Day Holiday.
____________ As the unemployment rate has dropped to 5.5% and less in recent months, the arguments over jobs have shifted from the lack of available jobs to the qualities of the jobs that are available. It’s interesting to me how our social ideas of what constitutes a "good job" have a tendency to shift over time. Joel Mokyr, Chris Vickers, and Nicolas L. Ziebarth illuminate some of these issues in "The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?" which appears in the Summer 2015 issue of the Journal of Economic Perspectives. All articles from JEP going back to the first issue in 1987 are freely available on-line compliments of the

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Marge Piercy on Why Work Matters

September 2, 2019

I sometimes struggle, when teaching about unemployment, to explain just why work matters. It’s straightforward enough to note that elevated unemployment leads to loss of economic output, lower tax payments, and greater need for government welfare benefits. I can refer to evidence on how unemployment is connected to social ills like bankruptcy, divorce, depression, and even suicide. But this listing of consequences, while a necessary part of teaching the economics of unemployment, doesn’t quite touch the human heart of the issue. The poet Marge Piercy, in her 1973 poem "To be of use," gives a more concise and powerful sense of why useful work matters so much."To be of use"The people I love the best
jump into work head first
without dallying in the shallows
and swim off with sure strokes

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Taming the Demon of Work

September 2, 2019

As a meditation for Labor Day, I offer the story of the Benedictine monks of the Monastery of Christ in the Desert in northern New Mexico. They had a booming dot-com start-up in the late 1990s as digital scribes–and then they shut it down because it was interfering with their main purpose in life.Jonathan Malesic tells the story in "Taming the Demon: How Desert Monks Put Work in Its Place" (Commonweal, February 2, 2019). Malesic starts the story this way:
In a remote canyon in northern New Mexico in the mid-1990s, Benedictine monks of the Monastery of Christ in the Desert spent their mornings at a dozen Gateway computers in a room with a dirt floor, creating the internet. A crucifix hung on the wall right above a whiteboard where they sketched out webpages. The monks were doing a

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Daniel Coit Gilman and Twelve Themes for a University

September 1, 2019

The first president of Johns Hopkins University, Daniel Coit Gilman, laid out 12 themes that should govern a university education in his inaugural address of February 22, 1876. Some of the themes are more profound than others, but it’s interesting to consider which of these points would be emphasized by a current college president.
Is, then, anything settled in respect to university education? Much, very much. Can we draw a statement of what is agreed upon? At any rate we can try. The schedule will include twelve points on which there seems to be a general agreement.All sciences are worthy of promotion; or in other words, it is useless to dispute whether literature or science should receive most attention, or whether there is any essential difference between the old and the new

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H.L. Mencken on Capitalism vs. Socialism

August 31, 2019

This characteristically pungent comment is  from H.L. Mencken’s 1956 collection, Minority Report: H.L. Mencken’s Notebooks (Johns Hopkins University Press edition, 1997, p. 264):
The chief difference between free capitalism and State socialism seems to be this: that under the former a man pursues his own advantage openly, frankly and honestly, whereas under the latter he does so hypocritically and under false pretenses.
It can be useful to toss this distinction into discussions of socialism and capitalism. Is the argument for old-style, full-blooded state-based socialism a claim that a change in the economic and political system will lead to preferable outcomes, even though the nature of people remains essentially the same? Or is it an argument that by altering the economic and political

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