曼昆/Greg Mankiw's Blog

High-speed Trains to Nowhere

Thu, 02 Jul 2009 16:00:00 GMT

Harvard economist Ed Glaeser on transportation policy.

CBO and I agree

Thu, 02 Jul 2009 16:00:00 GMT

In my recent Times article on the possibility of a public option, I wrote

An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.

But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

The CBO is thinking along similar lines. In its most recent letter on heath reform plans, it says

The new draft also includes provisions regarding a “public plan,” but those provisions did not have a substantial effect on the cost or enrollment projections, largely because the public plan would pay providers of health care at rates comparable to privately
negotiated rates—and thus was not projected to have premiums lower than those charged by private insurance plans in the exchanges.

Unemployment Update

Wed, 01 Jul 2009 16:00:00 GMT

Source of graph. Click here for a discussion of it.

Old Speeches, New Policies

Wed, 01 Jul 2009 16:00:00 GMT

For academics, it always a delight when some old, obscure thing we've written suddenly gets noticed. So I was pleased when econoblogger Mark Thoma decided to draw attention yesterday to a speech I gave six years ago (pdf version) to the National Association of Business Economists. I had not looked at that speech in years, but looking back at it today, I think that it holds up pretty well. So, please, feel free to follow the link and read the whole thing.

The part of the speech that Mark highlights on his blog is the defense of running budget deficits during a recession. I am a bit puzzled about why Mark picked up that piece, however. Mark seems to be suggesting that my speech can somehow be construed as a defense of Obama fiscal policy. Yet I don't think that aspect of current economic policy is controversial. As I wrote in the NY Times in March of this year, "Few economists would blame either the Bush administration or the Obama administration for running budget deficits during an economic downturn."

The controversial part of current fiscal policy are, first, the relative reliance on spending hikes versus tax cuts as short-run stimulus and, second, the long-term picture. On the short-run issue, I explained my preferences here. On the long-run issue, the apparent willingness of the congressional leadership to give away most of the allowances under a cap-and-trade system for carbon is the most recent symptom suggesting either a lack of concern about the long-term fiscal imbalance or a willingness to allow distortionary taxes to rise significantly in the future to close the fiscal gap.

Protectionism: A New Twist

Wed, 01 Jul 2009 16:00:00 GMT

More Competition, More Attentive Parents

Tue, 30 Jun 2009 16:00:00 GMT

Intriguing new research from UCSD economists Garey and Valerie Ramey (via Dan Hamermesh) shows that parents respond to the incentives:

After three decades of decline, the amount of time spent by parents on childcare in the U.S. began to rise dramatically in the mid-1990s. Moreover, the rise in childcare time was particularly pronounced among college-educated parents. Why would highly educated parents increase the amount of time they allocate to childcare at the same time that their own market returns have skyrocketed? After finding no empirical support for standard explanations, such as selection or income effects, we offer a new explanation. We argue that increased competition for college admissions may be an important source of these trends. The number of college-bound students has surged in recent years, coincident with the rise in time spent on childcare. The resulting "cohort crowding" has led parents to compete more aggressively for college slots by spending increasing amounts of time on college preparation.

Cooley on the Beleaguered Middle-class

Tue, 30 Jun 2009 16:00:00 GMT

The NYU economist looks at the data: Read both Part I and Part II.

This makes my day

Mon, 29 Jun 2009 16:00:00 GMT

Milton Friedman has long been one of my role models. So I was delighted to read that, according to BYU econ prof Richard Evans, at least in one small way, I have managed to emulate him.

Split Opinion

Mon, 29 Jun 2009 16:00:00 GMT

...about the proposed health reforms:

A new Rasmussen Reports national telephone survey finds that 50% of U.S. voters at least somewhat favor the Democrats’ health care reform plan, while 45% are at least somewhat opposed.

While the overall numbers favor the plan, those with strong opinions tilt the other way. Twenty-four percent (24%) strongly favor the plan, but 34% are strongly opposed....

Among all voters, just 12% think their health care coverage will get better if the plan is passed while 37% expect it will worsen. Thirty-seven percent (37%) expect their coverage to stay about the same if the plan proposed by the president and congressional Democrats becomes law.

A Missed Opportunity

Sun, 28 Jun 2009 16:00:00 GMT

From Donald Marron:

On Friday, the House of Representatives passed its climate change bill by a slim margin. The bill’s key feature is a cap-and-trade system for greenhouse gases. That system would set national emission limits and would require affected emitters to own permits (called allowances) to cover their emissions.

The number one thing you should know about this bill is that the allowances are worth big money: almost $1 trillion over the next decade, according to the Congressional Budget Office, and more in subsequent decades.

There are many good things the government could do with that kind of money. Perhaps reduce out-of-control deficits? Or pay for expanding health coverage? Or maybe, as many economists have suggested, reduce payroll taxes and corporate income taxes to offset the macroeconomic costs of limiting greenhouse gases?

Choosing among those options would be a worthy policy debate. Except for one thing: the House bill would give away most of the allowances for free. And it spends virtually all the revenue that comes from allowance auctions.

As a result, the budget hawks, health expanders, and pro-growth forces have only crumbs to bargain over. From a budgeteer’s perspective, the House bill is a disaster....

Economists have spent decades demonstrating the potential benefits of using environmental taxes to help finance the government (and make no mistake, a cap-and-trade system is a tax; the Congressional Budget Office, much to its credit, even scores it that way). But that economic logic works only when a substantial fraction of the revenues are used to improve fiscal policy — e.g., reducing deficits or reducing distortions from the tax system. The House bill does neither.

Donald is right. The Pigou Club is not happy.

Interview with Kevin Murphy

Sun, 28 Jun 2009 16:00:00 GMT

Click here.

The Arbiter of Ignorance

Sun, 28 Jun 2009 16:00:00 GMT

In a brief blog post on healthcare, Paul Krugman says that George Will and I are "either remarkably ignorant or simply disingenuous." I cannot speak for George, but I can attest that I am completely ingenuous. So I suppose I must be remarkably ignorant.

There is a lot of that going around lately. In an earlier post on the state of macroeconomics, Paul says, "Brad DeLong and I have been sort of tag-teaming the Great Ignorance which seems to have overtaken much of the economics profession."

What is going through Paul's head as he writes these posts? I suspect three things:

1. On the issue of macroeconomics, I think I understand Paul's point of view. He accepts the 1970-vintage Keynesian economics he first learned from, say, Jim Tobin when Paul was an undergraduate at Yale. Like Tobin and Bob Solow, one of his teachers at MIT, Paul thinks a lot of modern macroeconomics was an unfortunate turn in the wrong direction. In this old paper (published version), I tell the story of modern macro and describe how many old Keynesians such as Solow were more likely to denigrate modern macroeconomics than to engage it intellectually. Paul is following in that tradition.

2. On the issue of health care, I also think I understand Paul's point of view. He would like a single-payer system, and he views a public option as a Trojan horse to achieve that goal. In my column, I wrote, "for those who see single-payer as the ideal, a public option that uses taxpayer funds to tilt the playing field may be an attractive second best. If the subsidies are big enough, over time more and more consumers will be induced to switch." Paul was one of the people I had in mind (see this old post of his).

In his latest post, Paul writes, "the standard competitive market model just doesn’t work for health care: adverse selection and moral hazard are so central to the enterprise that nobody, nobody expects free-market principles to be enough."

In my view, these comments are just off point. The Obama administration says it wants a public insurance plan that will compete on a level playing field with private plans (that is, without taxpayer subsidies). Is there any cogent economic analysis that suggests that such a policy addresses problems of adverse selection and moral hazard? None that I know. If it has to stand on its own financially, the public plan has no special advantage in addressing these issues.

In any event, it is not like the only alternatives available to us are a government-run health insurance plan or unregulated laissez faire. The most intriguing proposal in the current policy debate is the Wyden-Bennett bill (see this David Brooks column or this letter from CBO on the proposed legislation). That seems to be the best hope for truly bipartisan healthcare reform. At this point, given the legislative strategy of Congressional leadership, the hope is slim at best.

3. On the issue of tone, I again think I understand Paul's point of view. He likely believes that civility is overrated. He seems to think that in the blogosphere, and perhaps in the public debate more generally, you score points simply by insulting your intellectual adversaries. Sadly, I am afraid he may be right.

Harvard's Troubles

Sat, 27 Jun 2009 16:00:00 GMT

As seen by the Times (UK).

My Take on the Public Option

Fri, 26 Jun 2009 16:00:00 GMT

Click here to read my article in tomorrow's NY Times.

A Dose of Ennui

Fri, 26 Jun 2009 16:00:00 GMT

I have a soft spot for novels about adolescent ennui. Not that I was a particularly disaffected teenager. Quite the contrary. But I am sometimes a disaffected adult, so I still easily relate to this genre of fiction. Last year, I reread Catcher in the Rye and enjoyed it more than I did when I first read it in high school.

All this is a prelude to a recommendation. My wife (who reads about twenty times as much fiction as I do) recently suggested that I read a short novel called Someday This Pain Will Be Useful to You by Peter Cameron. And she was right: It is indeed very good, so I am passing along the suggestion.

The Public Option

Thu, 25 Jun 2009 16:00:00 GMT

Pro and Con.

The Ugly Cap-and-Trade Bill

Thu, 25 Jun 2009 16:00:00 GMT

Analysis from economists Alan Viard and Ted Gayer.

Was Keynes really a savvy investor?

Thu, 25 Jun 2009 16:00:00 GMT

An excerpt from Scott Sumner's thought-provoking blog:

See what you make of this:

“In early 1920, he [Keynes] set up a syndicate, with his brother, some of the Bloomsbury circle, and a financier friend from the City of London. By the end of April 1920, they had made a further $80,000. Then suddenly, in the space of 4 weeks, a spasm of optimism about Germany briefly drove the declining currencies back up, wiping out their entire capital. Keynes found himself on the verge of bankruptcy and had to be bailed out by his tolerant father. Nevertheless, propped up by his indulgent family and by a loan from the coolly acute financier Sir Ernest Cassel, he persevered in his speculation”

Translation, without help from his rich daddy and rich friends, this cocky, arrogant, smart-aleck would have fallen on his face, ended up digging ditches somewhere and we would never have heard of him. But he did have a rich daddy, who bailed him
out....
Don’t anyone write in and tell me that Keynes made lots of other good investments, because if you’ve got a rich backstop, none of that matters.

Here’s what I’d do if Bill Gates was willing to lend me $3.57 billion dollars for a day: I’d go to Vegas and put $5 million on numbers 1 through 34 on the roulette wheel. The odds are roughly 90% I’d win. If I did so, I’d win $180 million on a bet of $170 million. I repay the $3.57 billion and pocket my $10 million dollars and be rich for the rest of my life, clipping coupons. If numbers 35, 36, 0, or 00 came up I’d bet again, this time $100 million on each number 1 through 34. If I won, I’d receive $3.6 billion, repay Gates, and have $30 million dollars to spend for the rest of my life. The odds are nearly 99% that I’d win one of these two bets. Of course if both failed, I’d be in big trouble. But that’s not very likely is it?

What’s the point? If you have a rich backstop it’s relatively easy to come up with investment strategies that will usually (not always) make you look like a genius. From now on I will never believe anyone who tells me that Keynes was a great investor.

Does this matter? It shouldn’t, but unfortunately it does. If his investment reputation was like Fisher’s (calling stocks fairly priced in 1929) nobody would take seriously his Chapter 12 in the General Theory where he tries to shoot down the efficient market hypothesis.

Posner on Financial Reform

Wed, 24 Jun 2009 16:00:00 GMT

Judge Posner is not impressed.

Cutler on Healthcare Costs

Wed, 24 Jun 2009 16:00:00 GMT

My Harvard colleague David Cutler has been a healthcare adviser to President Obama. Click here to read how he and coauthor Melinda Beeuwkes Buntin believe healthcare costs can be contained.