In the last few years, I have evolved a habit for that time in August when I head off for vacation and other end-of-summer plans. I leave behind a series of scheduled daily posts about topics in economics, academia, and writing or editing that are usually based on historical essays and writings which caught my eye at some point. This year, I’ll start with some thoughts about the 1885 address given by Alfred Marshall, " The present position of economics. An inaugural lecture given in the Senate House at Cambridge, 24 February, 1885."The occasion for the lecture was that Henry Fawcett, the previous Professor of Political Economy at Cambridge University, had died, and Marshall was his successor in the position. The lecture is notable for many lovely turns of phase. As one example, it’s theRead More »
Articles by Timothy Taylor
All goods and service have both a cost of production and a price paid by the consumer. If government wishes to do so, it can raise revenues through taxing or borrowing to pay for the cost of production for certain goods and services, and thus allow the consumer to receive the good or service for "free." Many high-income countries around the world subsidize part or most of the cost of higher education in this way.
A choice to make a good or service "free" to consumers has various tradeoffs. It makes the good or service easier to consume for those who could not otherwise afford it. It creates a need for higher government taxes or borrowing. Perhaps more subtle effects are that changing the nature of who pays will also tend to change the quality of the service. In the case of higherRead More »
A couple of weeks ago, US Treasury Secretary Steven Mnuchin announced his finding that China was manipulating its currency to keep it unfairly low, and further announced that he would be taking the issue up with the International Monetary Fund. I offered some of my own views on this announcement when it happened. But what’s interesting here is not what I think, or even what Mnuchin thinks, but what the IMF thinks.Fortuitously, the IMF just published its 2019 External Sector Report: The Dynamics of External Adjustment (July 2019). As the title implies, it’s about trade surpluses and deficits all over the world, not just the US and China. But it has some content that gives a sense of how it is likely to respond to Mnuchin’s importuning. Here’s an overall comment:
The IMF’s multilateral
Jurisdictions around the world have been implementing taxes on sugar-sweetened beverages. Here’s a map.
Hunt Allcott, Benjamin B. Lockwood, and Dmitry Taubinsky focus on studies of the eight US jurisdictions that have adopted such a tax, along with the broader literature on causes and costs of obesity, in "Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence" in the just-released Summer 2019 Journal of Economic Perspectives. (Full disclosure: I’m the managing editor of JEP, and thus predisposed to believe that the articles are of high quality and widespread interest.) Here’s their table of the US jurisdictions that have imposed a tax on sugar-sweetened beverages.
Making the case for (or against) a tax on sugar-sweetened beverage requires addressing aRead More »
The United States, like most places, an ambivalent view of big business. When big firms are making high profits, we are concerned that they are out-of-control and exploitative. If big firms are is performing poorly, with losses and layoffs, we argue over how or whether to rescue them. (Remember the auto company bailouts in 2009?) Might it be possible to strike a more lasting balance?For example, here’s one possible combination of policies. Corporate bigness is fine by itself, and will not be prosecuted. However, the biggest firms will be sharply limited in their ability to acquire other companies. In addition, they may face limitations on their ability to participate in politics, as well as compulsory licensing of their key patents. In one famous case in 1956, the Bell System was requiredRead More »
Uwe Reinhardt had the remarkable skill that even when he was discussing a subject where you felt that you already knew a lot, he offered the kinds of live-wire facts and metaphors, insights and opinions, which informed and challenged–and often entertained as well. Reinhardt died in died in November 2017. His final book has just been published: Priced Out: The Economic and Ethical Costs of American Health Care. For a flavor of the book and Reinhardt’s style, the Milken Institute Review has published an excerpt from the book in the its Third Quarter 2019 issue.
Reinhardt tackles the question of explaining high US health care costs–that is, per capita US spending on health care is roughly double the average for other high-income countries. Here’s a flavor of Reinhardt’s take on fourRead More »
There’s a long-standing controversy over whether those who donate a kidney should be able to be paid for doing so. Whatever one’s view of whether the seller of a kidney should get a positive price for doing so, it’s worth considering that under traditional rules, the donor of a kidney in efect receives a negative price for doing so. That is, the donor of a kidney faces a variety of costs–both explicit (travel, hotel) and implicit (time off from work, physical discomfort). Even many those who feel that a kidney donors should not be paid for the act of donating itself seem willing to consider the possibility that donors should be reimbursed for expenses.The Trump administration just signed an executive order which would expand the ability of the National Living Donor Assistance Center toRead More »
One of those things that "everyone knows" is that continued technological progress is vital to the continued success of the US economy, not just in terms of GDP growth (although that matters) but also for major social issues like providing quality health care and education in a cost-effective manner, addressing environmental dangers including climate change, and in other ways. Another thing that "everyone knows" is that research and development spending is an important part of generating new technology. But total US spending on R&D as a share of GDP has been nearly flat for decades, and government spending on R&D as a share of GDP has declined over time.Here’s a figure on funding sources for US R&D from the Science and Engineering Indicators 2018. The top line shows the rise in R&DRead More »
Treasury Secretary Steve Mnuchin has "determined that China is a Currency Manipulator" (with capital letters in the press release) The overall claim is that one major reason for China large trade surpluses is that China is keeping is exchange rate too low. This low exchange rate makes China’s exports cheaper to the rest of the world, while also making foreign products more expensive in China, thus creating China’s trade surplus.The claim is not particularly plausible. Indeed, a cynic might point out that if currency manipulation was the main trade problem all along then, then Trump has been wasting time by playing around with tariffs since early 2018. For perspective on the exchange rate issue, let’s start with the Chinese yuan/US dollar exchange rate in the last 30 years.
Up to aboutRead More »
A group of recent research studies have argued that "markups" are on the rise. As one of several prominent examples, a study by Jan De Loecker, Jan Eeckhout, and Gabriel Unger, called "The Rise of Market Power
and the Macroeconomic Implications" presents calculations suggesting that the average markup for a US firm rose from 1.21 in
1980 to 1.61 in 2016 (here’s a working paper version from Eeckhout’s website dated November 22, 2018). The Summer 2019 issue of the Journal of Economic Perspectives discusses the strengths and weaknesses of this evidence in a three-paper symposium:"Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence," by Susanto Basu
"Macroeconomics and Market Power: Context, Implications, and Open Questions," by Chad Syverson
For the later decades of the 20th century, the most common source of data for economic studies was government surveys and statisticians. There are household surveys like the Current Population Survey, the Survey of Income and Program Participation, the Consumer Expenditure Survey, the National Health Interview Survey, the Consumer Expenditure Survey, and the General Social Survey. There were government workers collecting data on prices at stores as input to measures of inflation like the Consumer Price Index. There were business surveys, like the Economic Census, the Retail Trade Survey, an Annual Survey of Manufactures, the Residential Finance Survey, and others. Branches of government like the Department of Energy, the Department of Agriculture, and the Health Care FinancingRead More »
I was hired back in 1986 to be the Managing Editor for a new academic economics journal, at the time unnamed, but which soon launched as the Journal of Economic Perspectives. The JEP is published by the American Economic Association, which back in 2011 decided–to my delight–that it would be freely available on-line, from the current issue back to the first issue. You can download it various e-reader formats, too. Here, I’ll start with the Table of Contents for the just-released Summer 2019 issue, which in the Taylor household is known as issue #129. Below that are abstracts and direct links for all of the papers. I may blog more specifically about some of the papers in the next week or two, as well.
Symposium on Markups
"Are Price-Cost Markups Rising in the UnitedRead More »
If a metropolitan area was to alter its system of permits and rules in a way that enabled a substantial expansion in the quantity of housing being built, would this step help to make housing more affordable for those with lower and moderate income levels?
Two answers are hypothetically possible here. One answer points out that new market-driven housing construction will tend to be higher-priced, and therefore that in it offers no near- or middle-term assistance to people struggling with housing affordability. The other answer readily admits that new market-driving housing construction will tend to be higher-priced, but argues that an overall rise in the quantity of housing supplied will affect prices across the entire housing market, not just one part of it.
The underlyingRead More »
China’s Ministry of Finance recently announced a new "debt sustainability framework" for the Belt and Road Initiative–the plan that China announced in 2013 for supporting construction of overland and overseas transportation infrastructure that would build closer links from China across Asia, and reaching to Africa, the Middle East and Europe.There’s often a strong theoretical case for lending money to build more infrastructure in low-income countries. International lenders ranging from government and private debt markets to organizations like the World Bank and regional development banks have lists of rules and standards to try to assure that such projects work out. The problem for China is that many of its Belt and Road Initiative projects were previously discouraged or turned down byRead More »
India’s economy doesn’t get nearly as much attention as China’s. Both economies have a similar involvement in international trade: for example, they both export 19-20% of their GDP. But the US imports about ten times as much from China as from India, and there is a dimension of geopolitical competition with regard to China that isn’t present with India.But India has a population of 1.3 billion, and will surpass China as the most populous country in the world in the next few years. India has the world’s eighth-largest GDP now, but plausible growth projections suggest that it will almost certainly be in the top three–with China and the United States–in a couple of decades. In addition, India is full of economic, demographic, and policy changes, many of which vary across the states ofRead More »
It is odd but true that the US Patent and Trademark Office has in the past been willing to grant patents for inventions that did not actually exist. Janet Freilich and Lisa Larrimore Ouellette discuss this policy in "Science fiction: Fictitious experiments in patents: Prophetic examples may unnecessarily distort understanding," published in Science magazine (June 14, 2019, pp. 1036-1037). For a fuller discussion, see the "Prophetic Patents" working paper by Freilich, available at SSRn (June 25, 2018).Freilich and Ouellette write:
"Although it may surprise scientists, one can receive a patent in many jurisdictions without implementing an invention in practice and demonstrating that it works as expected. Instead, inventors applying for patents are allowed to include predicted experimental
It seems clear that China’s government and firms have been aggressive in their pursuit of intellectual property from firms in other countries. Sometimes this aggressiveness comes from government rules that if a foreign firm wished to sell or produce in China, it needs to have a Chinese firm as a partner and to share technology with that firm. There are also widespread allegations of technology theft. I once chatted with a group of California tech executives who did business in China, and they all said that if they take a computer or a phone to China, they only take one where the memory has been previously wiped clean.Measuring the total amount of technology transfer to China is, in its nature, hard to do. But one approach is to look at royalty payments from China to outside firms. AnaRead More »
How much money do major universities and colleges have in their endowments? How are they investing the money? What returns are they earning? The National Association of College and University Business Officers does a survey of these questions each year, and here are some results for 2018.
Here’s a list of the 40 largest endowments for institutions of higher education. Harvard tops the list. It should be noted that these total endowments don’t adjust for number of students. For example, the University of Richmond, which is #40 on this list, has an endowment of $686,000 per student, while the University of Pennsylvania, #7 on this list, has an endowment of $602,000 per student. Princeton has the highest endowment per student at $3.1 million.
How concentrated are endowments among the bigRead More »
Discussions of antitrust and the FAGA companies–that is, Facebook, Amazon, Google, and Apple–often sound like a person with a hammer who just wants to hit something. Here’s Peggy Noonan writing in the Wall Street Journal (June 6, 2019):
But the mood in America is anti-big-tech. Everyone knows they’re too powerful, too arrogant, loom too large in public life. … Here’s what they [Congress] should be thinking: Break them up. Break them in two, in three; regulate them. Declare them to be what they’ve so successfully become: once a pleasure, now a utility. It all depends on Congress, which has been too stupid to move in the past and is too stupid to move competently now. That’s what’s slowed those of us who want reform, knowing how badly they’d do it. Yet now I find myself thinking: I
David Price interviews Enrico Moretti in Econ Focus, a publication of the Federal Reserve Bank of Richmond (First Quarter 2019, pp. 18-23). From the intro to the interview:
Geographic differences in economic well-being, it seems, have become increasingly salient in American policy and political conversation. These differences are a longtime concern of University of California, Berkeley economist Enrico Moretti. In his research, he has found that the sorting of highly educated Americans — and high-paying jobs requiring a lot of education — into certain communities has led to other communities falling behind. … Moretti’s interest in American geographical sorting began during his days as a Ph.D. student at Berkeley, where he arrived after his undergraduate education in his native Milan. At
Trivia question: If measuring by volume, what mined product is the largest? The answer is "sand and gravel," sometimes known in the geology business as "aggregates." In particular, aggregates are used for concrete and asphalt, and demand for these products from China and other emerging markets has skyrocketed. Sand is also used as part of hydraulic fracturing, so in the United States demand from that source has surged as well. And sand and gravel are also widely used for purposes ranging from land reclamation and water treatment to industrial production of electronics, cosmetics and glass.
Sand and gravel are being mined at an exceptionally rapid rate. There is strong anecdotal evidence of that environmental harms are occurring in some locations, and that more locations are threatened,Read More »
Among economists, it’s sometimes known as the "annuities puzzle": Why don’t people buy annuities as frequently as one might expect?In May 2019, Brookings and the Kellogg Business School Public-Private Initiative held a conference on the subject of “Retirement Policy and Annuitization: A View from the Experts.” Three papers from that conference are available: "Can annuities become a bigger contributor to retirement security?" by Martin Neil Baily Brookings and Benjamin H. Harris (June 2019); "Automatic enrollment in 401(k) annuities: Boosting retiree lifetime income," Vanya Horneff, Raimond Maurer, and Olivia S. Mitchell (June 2019); and "Using behavioral insights to increase annuitization rates: The role of framing and anchoring," by Abigail Hurwitz (June 2019).
An annuity involvesRead More »
China’s economy is simultaneously huge in absolute size and lagging far behind the world leaders on a per person basis. According to World Bank data, China’s GDP (measuring in current US dollars) is
$13.6 trillion, roughly triple the size of Germany or Japan, but still in second place among countries of the world behind the US GDP of $20.4 trillion. However, measured by per capita GDP, the World Bank data shows that China is at $9,770, just one-sixth of the US level of $62,641.Any evaluation of China’s economy finds itself bouncing back and forth between the enormous size that has already been achieved and the possibility of so much more growth and change in the future. This pattern keeps recurring in "China and the world: Inside the dynamics of a changing relationship," written by the
The Harvard Data Science Review has just published its first issue. Many of us in economics are cousins of burgeoning data science field, and will find it of interest. As one example, Harvard provost (and economist) Alan Garber offers a broad-based essay on "Data Science: What the Educated Citizen Needs to Know." Others may be more intrigued by the efforts of Mark Glickman, Jason Brown, and Ryan Song to use a machine learning approach to figure out whether Lennon or McCartney is more likely to have authored certain songs by the Beatles that are officially attributed to both, in "(A) Data in the Life: Authorship Attribution in Lennon-McCartney Songs."
But my attention was especially caught by an essay by Michael I. Jordan called "Artificial Intelligence—The Revolution Hasn’t HappenedRead More »
No proposal to raise the minimum wage can be evaluated without asking "how fast and by how much?" The Congressional Budget Office offers an evaluation of three alternatives in "The Effects on Employment and Family Income of Increasing the Federal Minimum Wage" (July 2019). CBO considers three proposals: "The options would raise the minimum wage to $15, $12, and $10, respectively, in six steps between January 1, 2020, and January 1, 2025. Under the $15 option, the minimum wage would then be indexed to median hourly wages; under the $12 and $10 options, it would not." (There are some other complexities involving possible subminimum wages for teenage workers, tipped worker, and disables workers, which I won’t discuss here.)One way to understand the result is to compare these proposals withRead More »
"For decades, US multinational corporations (MNCs) conducted nearly all their research and development (R&D) within the United States. Their focus on R&D at home helped establish the United States as the unrivaled leader of innovation and technology advances in the world economy. Since the late 1990s, however, the amount of R&D conducted overseas by US MNCs has grown nearly fourfold and its geographic distribution has expanded from a few advanced industrial countries (such as Germany, Japan, and Canada) to many parts of the developing world …"Lee G. Branstetter, Britta Glennon, andJ. Bradford Jensen discuss this shift in "The Rise of Global Innovation by US Multinationals Poses Risks and Opportunities" (June 2019, Peterson Institute for International Economics, Policy BriefRead More »
Mark Twain wrote an essay back in 1905 called "The Czar’s Soliloquy" (North American Review, Vol. 180.No. DLXXX). The essay was triggered by a sentence in the London Times, reporting: "After the Czar’s morning bath it is his habit to meditate an hour before dressing himself." Twain imagined that the Czar, standing naked in front of a mirror, was for a few moments honest with himself about the injustices and cruelties that he had allowed and perpetrated, and hoped for a better future. Imagining the Czar’s words to himself, Twain wrote:
There are twenty-five million families in Russia. There is a man-child at every mother’s knee. If these were twenty-five million patriotic mothers, they would teach these man-children daily, saying : "Remember this, take it to heart, live by it, die for it
The phrase “the American Dream” was coined by a Pulitzer prize-winning historian named James Truslow Adams in his 1931 book The Epic of America. Truslow described the American Dream in this way (pp. 415-416):
But there has been also the American dream, that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they
George Washington’s Farewell Address in 1796 is perhaps best-remembered today for his advice: "’Tis our true policy to steer clear of permanent Alliances, with any portion of the foreign World." But on this Fourth of July, I felt moved to remember and to reconsider Washington’s warnings about how political parties set up false alarms, misrepresent others, agitate the community, and can even lead to foreign influence and corruption.As a sampler, Washington said:"One of the expedients of Party to acquire influence, within particular districts, is to misrepresent the opinions & aims of other Districts."
"The alternate domination of one faction over another, sharpened by the spirit of revenge natural to party dissention, which in different ages & countries has perpetrated the most horrid
In my experience, complaints about the system of health care finance over the years almost always began with the lack of universal health insurance coverage, and how many tens of millions of Americans lacked health insurance. Then, somewhat later in the conversation, the high per capita costs of US health care spending might or might not come up.The Patient Protection and Affordable Care Act of 2010 was a reflection of these priorities. The strength of the legislation was that it increased federal spending by over $110 billion per year to cover an expansion of health insurance for about 22 million people. But in terms of controlling healthc are costs, not much happened. US health care spending was 8/9% of GDP in 1980, 13.4% of GDP in 2000, 17.3% of GDP in 2010 when the legislation passed,Read More »