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October 10, 2015

Latest Posts from Economist's View

Posted: 10 Oct 2015 12:33 AM PDT
Luigi Zingales:
Is Money Corrupting Research?: The integrity of research and expert opinions in Washington came into question last week, prompting the resignation of Robert Litan ... from his position as a nonresident fellow at the Brookings Institution.
Senator Elizabeth Warren raised the issue of a conflict of interest in Mr. Litan's testimony before a Senate committee... Senator Warren was herself criticized by economists and pundits, on the left and right. ... But at stake is the integrity of the research process and the trust the nation puts in experts, who advise governments and testify in Congress. Our opinions shape government policy and judicial decisions. Even when we are paid to testify..., integrity is expected from us. ...
Yet it is disingenuous for anybody (especially an economist) to believe that reputational incentives do not matter. Had the conclusions not pleased the Capital Group, it would probably have found a more compliant expert. And the reputation of not being "cooperative" would have haunted Mr. Litan's career as a consultant. ...
Reputational ... concerns do not work as well with sealed expert-witness testimony or paid-for policy papers that circulate only in small policy groups. ... A scarier possibility is that reputational incentives do not work because the practice of bending an opinion for money is so widespread as to be the norm. ...
He goes on to suggest some steps to strengthen the reputational incentive.
Posted: 10 Oct 2015 12:24 AM PDT
Katharine Abraham, Steven Davis, and John Haltiwanger:
Don't Starve the BLS: ...why is Congress eyeing further cuts to the Bureau of Labor Statistics budget?Proposed Senate legislation would cut the BLS by another $13 million in 2016, after its real annual spending has already fallen more than 10 percent ($72 million) over the last five years. ...
...we need more and better data to understand our changing economy, not less. Instead of narrowing its data collection, BLS ought to expand it. For starters, it should develop and strengthen programs to help assess the growth of the "gig economy," how global supply chains affect the US economy, and why wage growth remains sluggish despite job vacancy rates at a 15-year high.
Skeptics will ask, why not rely entirely on the private sector to do this work? ... The answer is simple..., no private entity can match government statistical agencies' ability to collect objective data and aggregate them into usable basic statistics. ... those basic statistics, such as basic scientific research, yield highly diverse applications and valuable benefits across our economy and society.
Underfunding the BLS would be a false economy. It would mean basic statistics would be undersupplied, and the quality of economic decision-making would suffer. It may save a few million dollars in the 2016 federal budget, but would ultimately cost us much more.
Posted: 10 Oct 2015 12:06 AM PDT
Posted: 09 Oct 2015 11:04 AM PDT
Some of you might find this interesting:
Resurrecting the Role of the Product Market Wedge in Recessions Mark Bils, Peter J. Klenow, and Benjamin A. Malin: Abstract Employment and hours appear far more cyclical than dictated by the behavior of productivity and consumption. This puzzle has been called "the labor wedge" — a cyclical intratemporal wedge between the marginal product of labor and the marginal rate of substitution of consumption for leisure. The intratemporal wedge can be broken into a product market wedge (price markup) and a labor market wedge (wage markup). Based on the wages of employees, the literature has attributed the intratemporal wedge almost entirely to labor market distortions. Because employee wages may be smoothed versions of the true cyclical price of labor, we instead examine the self-employed and intermediate inputs, respectively. Looking at the past quarter century in the United States, we find that price markup movements are at least as important as wage markup movements — including during the Great Recession and its aftermath. Thus, sticky prices and other forms of countercyclical markups deserve a central place in business cycle research, alongside sticky wages and matching frictions.
Download Full text.
Posted: 09 Oct 2015 09:26 AM PDT
Alan Krueger:
The Minimum Wage: How Much is Too Much?: The federal minimum wage has been stuck at $7.25 an hour since 2009. While Congress has refused to take action, Democratic politicians have been engaged in something of a bidding war to propose raising the minimum wage ever higher: first to $10.10, then to $12, and now some are pushing for $15 an hour. ...
When I started studying the minimum wage 25 years ago,... research that I and others ... conducted convinced me that if the minimum wage is set at a moderate level it does not necessarily reduce employment. ...
Although available research cannot precisely answer these questions, I am confident that a federal minimum wage that rises to around $12 an hour over the next five years or so would not have a meaningful negative effect on United States employment. ...
But $15 an hour is beyond international experience, and could well be counterproductive. ...
Economics is all about understanding trade-offs and risks. The trade-off is likely to become more severe, and the risk greater, if the minimum wage is set beyond the range studied in past research.
Posted: 09 Oct 2015 09:25 AM PDT
Robert Shiller continues to phish for book sales:
Faith in an Unregulated Free Market? Don't Fall for It: Perhaps the most widely admired of all the economic theories taught in our universities is the notion that an unregulated competitive economy is optimal for everyone. ...
The problem is that these ideas are flawed. Along with George A. Akerlof ... I have used behavioral economics to plumb the soundness of these notions. ...
Don't get us wrong: George and I are certainly free-market advocates. In fact, I have argued for years that we need more such markets, like futures markets for single-family home prices or occupational incomes, or markets that would enable us to trade claims on gross domestic product. I've written about these things in this column.
But, at the same time, we both believe that standard economic theory is typically overenthusiastic about unregulated free markets. It usually ignores the fact that, given normal human weaknesses, an unregulated competitive economy will inevitably spawn an immense amount of manipulation and deception. ...
Current economic theory does recognize that if there is an "externality" — say, a business polluting the air in the course of producing the goods it sells — the outcome won't be optimal, and most economists would agree that in such cases we need government intervention.
But the problem of market-incentivized professional manipulation and deception is fundamental, not an externality...

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