Friday, August 28, 2015

A Career in Economics

Monday, August 24, 2015




Now I know how Jeb Bush feels.

Friday, August 21, 2015

An Unlikely Sentence

"Blanchard, Mankiw, and Romer are all in the Wu-Tang Clan."

From Dietz Vollrath, an economics professor at the University of Houston, in his Hip-Hop History of Macro.

Wednesday, August 19, 2015

Textbooks are a bargain

Compared with Harvard tuition, that is, according to Irwin Collier:
Excerpts from the Harvard Catalogue for 1874-75 with principal texts.... Incidentally, one finds that annual fees for a full course load at Harvard ran $120/year and a copy of John Stuart Mill’s Principles cost $2.50. Cf. today’s price for N. Gregory Mankiw’s Economics which is $284.16. If tuition relative to the price of textbooks had remained unchanged (and the quality change of the Mankiw textbook relative to Mill’s textbook(!) were equal to the quality change of the Harvard undergraduate education today compared to that of 1874-75(!!)), Harvard tuition would only be about $13,600/year today instead of $45,278.

In other words, over the past 140 years, textbook prices have risen only 114-fold, whereas Harvard tuition has risen 377-fold. 

Over this period, the CPI has risen 22-fold. So the real price of textbooks has increased about 5-fold, or a bit more than 1 percent per year.

Wednesday, August 12, 2015

At least someone is beating The Donald

From Amazon

Tuesday, August 11, 2015

Letter from Greece

Thursday, August 06, 2015


If you are looking for a new binge-worthy TV drama (and you have already seen The Affair from last year, the best recent TV show), let me recommend Bloodline.  Set in the Florida keys, it is the story of a seemingly successful but actually dysfunctional family and what happens when the black-sheep son returns.  The full first season was released by Netflix just a few months ago.

Monday, August 03, 2015

How Not to Pass a Carbon Tax

As long-time readers of this blog know, I have long advocated greater use of Pigovian taxes, such as taxes on carbon emissions. Such taxes can correct incentives by aligning private and social costs, and the revenue from such taxes can be used to reduce other, distortionary taxes.

Skeptics of Pigovian taxes on the right sometimes argue that such taxes are good in principle but in practice the left will co-opt them and, rather than using the revenue to reduce other taxes, will use it to fund ever larger government.

Sadly, that point of view is getting some support in Washington state.  The headline above from The Seattle Times reads 'Green' alliance opposes petition to tax carbon.  Why the opposition?  Because the ballot measure is revenue-neutral. Some environmentalists want to use the revenue from the proposed carbon tax to increase spending instead.

I believe that a carbon tax could someday win bipartisan support.  But before it does so, those on the left will need to convince those on the right that the tax would be a tax shift, not a tax increase.  The carbon tax needs to be evaluated on its own merits and should not be a stalking horse for a broader, big-government agenda.

Update: Responding to my post, John Whitehead writes, "The standard textbook treatment of a Pigouvian tax is agnostic on what happens to the revenue."

He is right, of course. So let me clarify. I was trying to make a point not about textbook economics but about practical politics.  Here are two propositions:

1. The tax system should be shifted in a Pigovian direction.
2. Government should be larger.

These are largely unrelated claims. Logically, one can believe both, neither, or only one of them.  In my view, it much easier to make the case to many voters, especially those on the right, for proposition 1 than for proposition 2.  As a result, if you strongly believe in proposition 1 and are trying to put together a coalition to make it happen, marrying it to proposition 2 is not the best move.

Milton Friedman on Politics

From this collection of Milton Friedman quotations, here is one I had not heard before:

“I do not believe that the solution to our problem is simply to elect the right people. The important thing is to establish a political climate of opinion which will make it politically profitable for the wrong people to do the right thing. Unless it is politically profitable for the wrong people to do the right thing, the right people will not do the right thing either, or if they try, they will shortly be out of office.”

Saturday, August 01, 2015

Real Wages and Labor Productivity

A common meme is that workers aren't benefiting from productivity growth.  Robert Lawrence says, not so fast.  You can watch a video of him explaining this here.

Are US Middle-Class Incomes Stagnating?

No, says Marty Feldstein.  I made similar points in this old post.  According to the IGM Panel, most economists agree.

Friday, July 31, 2015

How I spent my day

Tuesday, July 28, 2015

The Conservative Heart

Click here to read my piece in this coming Sunday's NY Times Book Review.

Friday, July 17, 2015

The Mess in Europe

Click here to read my column in Sunday's NY Times.

Wednesday, July 08, 2015


Click on graphic to enlarge

Free at Last

I am delighted to report that I am no longer chairman of the Harvard economics department.  My three-year sentence term having been completed, I am happy to turn things over to David Laibson. Condolences Congratulations, David.

Monday, July 06, 2015

Milton Friedman on the Euro

With the problems in Greece now leading the news, this old article by the great Milton Friedman is worth (re)reading.  (Martin Feldstein made similar arguments at the time in this article.)

Friday, July 03, 2015

Best of Enemies

I recently had the pleasure of seeing several films at the Nantucket Film Festival.  My favorite was Best of Enemies, a documentary about the TV debates between William Buckley and Gore Vidal during the 1968 presidential nominating conventions.  It is being released later this month. 

Here is the trailer:


Thursday, July 02, 2015

A Common Error in Pedagogy

I happened to be flipping through another introductory economics textbook. (Yes, some people have the temerity to try to compete with my favorite textbook.) I noticed an error that is, unfortunately, all too common in how introductory economics is taught.  I won't mention which book it is, because I am quite fond of the authors, and because my goal here is not to pick on one particular book but rather to draw attention to a more pervasive problem.

The issue is how one applies welfare economics to understand price controls, such as rent control and minimum-wage laws.

The sin that this book makes is to look at consumer surplus, producer surplus, and deadweight loss as if we were studying the welfare cost of a tax. The cost of a price control, the reader is taught, is the small Harberger triangle between the supply and demand curves.

This reasoning is problematic because it assumes perfect rationing. But rationing under price controls is never perfect. Under rent control, for example, apartments do not automatically go to those who value the apartments the most. The misallocation due to imperfect rationing makes the actual welfare cost of price controls much higher than the standard deadweight loss triangle.

In many cases, economists are deeply skeptical of price controls. If the costs of price controls were similar to those of taxes, I suspect that this skepticism would be substantially less. By applying off-the-shelf welfare analysis to price controls without thinking through the inefficiency of most rationing systems, teachers of introductory economics mislead their students about the effects of these policies.

Addendum: Here is a relevant paper on the topic.

Monday, June 29, 2015

A Primer on the Greek Crisis