Will Central Bankers Become Central Planners?

As if fighting inflation, smoothing out the business cycle, and saving the world from economic crises were not enough, central banks are being advised to include another objective in their mission: the purchase and management of stock portfolios...more>>

"Comparative Advantage, Comparative Advantage, Wherefore Art Thou, Oh Comparative Advantage?"

An email suggested looking at this paper by Richard Freeman on globalization and trends in U.S. and worldwide labor markets. It was a good suggestion. This is longer than usual even though I cut quite a bit, but well worth the time it takes to read it:...more>>

"Trust me, I'm an Economist"

Coming soom, to a station near you - Economics TV! Hamish McRae informs us in the Sunday Independent that Tim Harford's new book The undercover Economist is being turned into a television programme: The dismal science gets into our heads

"Trust me, I'm an economist." Really? Well, yes.

One of the great things that has been happening to the study of economics in recent years has been the focus on the micro rather than the macro. We used to worry mainly about the big issues: GDP growth, interest rates, inflation and so on. We still do, of course. But beside that has been a new interest in what economics can tell us about the small things. Why do people behave as they do? What makes people happy? How do we fix the NHS? Actually those do not sound small at all, but they are concerned with the detail of the behaviour of millions of people, rather than the mass of an economy...more>>

The Economic "Self" -- Across Time and Space

For a long time, I've been interested in how economists deal with time preference. Since I began work in the HET, looking at the economics of W. S. Jevons and then other early neoclassical economists, it became clear to me that economists have a hard time dealing with how people treat (their own) consumption over time...more>>

Some Economics of Sight Evolution

Research on how visual neurons work reveals some interesting Marshallian economics.

Sight is obviously of high utility in most situations. However, the amount of resources we spend on sight is constrained by our metabolism...more>>

True Love and the International Marriage Market

Tyler asks his readers to help a 51-year-old American male find a high-quality wife in the international marriage market:

What traits should he look for in a foreign woman? He should avoid countries which lost the Cold War. Avoid women met in hotels or hotel rooms. Avoid countries which generate large amounts of spam. Hepatitis counts as a minus. How about a plus for women who work in agriculture?

I discussed this problem in general terms a while back. Despite obvious advantages, the downside of marrying internationally is that your spouse is unlikely to "love you for yourself":

[T]he fact that people don't want to be married for their money explains some puzzles about the marriage market. For one thing, it explains why people prefer to marry within their social class. If you're rich guy, you would rather marry a rich girl because you know she's not after your money...

An even bigger puzzle we can explain is why men don't exploit the INS marriage loophole far more than they do. By going to the world market, the typical American man could probably use the lure of citizenship and a First World standard of living to find a wife who is better-looking, younger, and less demanding than he could find in the States. Roll your eyes if you must!

But only an idiot wouldn't wonder "Maybe she's just marrying me for the green card and the green." And that's usually enough to overpower the palpable benefits of casting a wider net.

The real solution to Tyler's challenge...more>>

Adam Smith on the Origins of Government

‘What I also understand is that "capitalism" is not an economic system so much as recognition of a fundamental reality: it is the accumulation of "capital" which allows investment, which allows creation.

That such efforts normally fail is simple. That is, it proves very difficult to tell people to "be free" in certain areas but not in others. Sooner or later, they start crossing the regime's red lines!

On the other side I want to argue like here's an Adam Smith quote in it I used. Smith said "civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor." Smith would have railed against giant corporations if he were alive today. They plunder the world and we fight wars for them like in Iraq.’

Comment
Taking a quotation out of context can always cause misunderstandings. It does so in this case. Smith was not outlining the appropriate policies for civil governments for all time and in no sense did he suggest that the appropriate role of government in modern societies was to suppress the poor. Quite the reverse! His entire approach to modern government was for it to cease intervening on behalf of special interests to enrich themselves at the expense of consumers, the majority of whom were among the poor. He saw commercial society as a road to opulence that would spread its benefits to the family of common labourers...more>>

Greg Mankiw's Blog: Milton and Rose Friedman

Greg Mankiw's Blog: Milton and Rose Friedman

Transition Analysis

I have been asked recently to discuss transition analysis. In a post last month I suggested that successful transitions are characterized by (a) creative adaptability, and (b) resiliency in the face of crisis. But in that post I never really addressed how we might approach the study of transition. Professionally, my career started out with a focus on theory, practice and failure of socialism in the former Soviet Union. I earned my PhD in 1989, so transition studies were thrust upon me...more>>

Real Compensation: An Index Number Problem Mankiw and Altig Might Hide

Yes – David does get around to the index number issue. No – I would not banish reporting on both wages and fringes as separate series even if I agree with David that fringe benefit compensation is part of the story...more>>

Greg Mankiw's Blog: Inequality and Stochastic Human Capital

Greg Mankiw's Blog: Inequality and Stochastic Human Capital

Greg Mankiw's Blog: Textbooks and Related Material

Greg Mankiw's Blog: Textbooks and Related Material

Sybil's Star: Rent-Seeking

Sybil's Star: Rent-Seeking

Greg Mankiw's Blog: Market Work vs Home Work

Greg Mankiw's Blog: Market Work vs Home Work

Toward a Reconstruction of Utility and Welfare Economics

It is the contention of this paper that the wake for all welfare economics is premature, and that welfare economics can be reconstructed with the aid of the concept of demonstrated preference. This reconstruction, however, will have no resemblance to either of the "old" or "new" edifices that preceded it. In fact, if Reder's thesis is correct, our proposed resurrection of the patient may be considered by many as more unfortunate than his demise.[56]

Demonstrated preference, as we remember, eliminates hypothetical imaginings about individual value scales. Welfare economics has until now always considered values as hypothetical valuations of hypothetical "social states." But demonstrated preference only treats values as revealed through chosen action...more>>

Allocation, Distribution, Scale, and Depth

One of the important contributions of the ecological economists to the overall economic dialogue has been their emphasis on this notion of economic scale, which they generally define as a measure of the physical volume of matter-energy throughput, or the efficiency with which the economy is using the sources and sinks of the ecosystem. When they introduce the idea of scale, they typically do so in contrast to the more widely accepted ideas of economic allocation and distribution. As they see it, economics must address the perennial questions of allocation, distribution, and scale, seeking the appropriate means via market, state, etc. to the desired ends of efficient allocation, fair distribution, and sustainable scale. (Herman Daly, Beyond Growth, 45-60; Robert Costanza, et.al., Ecological Economics, 80-83) Clearly, there are some value judgments being expressed in the crisp adjectives they choose to define their desired ends, so I will often adopt a more transparently normative, but deliberately ambiguous term like right allocation, right distribution, and right scale...more>>

Social choice and optimal inference

One of the highlights of my graduate school years was the lecture where I learned about Arrow's Impossibility Theorem. It's hard to imagine an question more important to the social sciences that the social choice problem: how can we aggregate individual preferences into a coherent social order? Arrow's answer is that we can't, but that doesn't make the issue less important...more>>

Central banks cannot live by Taylor's rule alone

In a recent post Chris at Stumbling and Mumbling wrote that the Bank of England's Monetary Policy Committee was not 'fit for purpose':

Herein, I think, lies one argument for adopting a Taylor rule. The MPC just can't get the members to make judgment-based decisions.

A rules-based approach to monetary policy is appealing in its simplicity, and the move by many central banks towards inflation targeting can be seen as a partial move from a discretion to rules-based approach. But I don't accept though that something as mechanistic as a Taylor rule (though informative) would work as as effectively as a Monetary Policy Committee. Here's three reasons for my scepticism:...more>>

Greg Mankiw's Blog: "Invisible Hand" author

Greg Mankiw's Blog: "Invisible Hand" author

FDI and productivity

Does foreign direct investment help countryes close the productivity gap - or is it itself attracted by productivity growth? A recent paper by Robert Stehrer and Julia Woerz, Attract FDI! - A Universal Golden Rule? Empirical Evidence for Europe and Asia (PDF), finds the relationship works both ways...more>>

Greg Mankiw's Blog: The Bicycle vs the PDF File

Greg Mankiw's Blog: The Bicycle vs the PDF File

Climate and economic growth

None of us feels much like working in this hot weather. This trivial fact draws attention to an unjustly overlooked factor in the causes of the wealth and poverty of nations - climate.
The fact is that almost all cool countries are rich. And most poor countries are hot. This alone suggests a link between climate and wealth.
For sure, there are exceptions - most obviously, some east Asian countries are hot and rich. But their economic development came after the introduction of air conditioning - which can't be a coincidence...more>>

The Need for New Ideas

Brad DeLong wrote this in May, 2005:

Economists’ New World Order, by J. Bradford DeLong, Project Syndicate: Most academic economics rely on concepts laid down at the beginning of the twentieth century by the British economist Alfred Marshall, who said that “nature does not make leaps.” Yet we economists find ourselves increasingly disturbed by the apparent inadequacy of the neo-Marshallian toolkit that we have built to explain our world...more>>

Greg Mankiw's Blog: Who said this?

Greg Mankiw's Blog: Who said this?

Yes - markets are efficient

Greg Mankiw says what almost all economists have known for years - that, for most practical purposes, stock markets are efficient, in the sense that investors are better off in tracker funds than in actively managed ones.
This is true in the UK as well as US. Figures from Trustnet show that almost two-thirds of actively managed unit trusts have under-performed the best tracker fund.
The facts, then, are clear. Perhaps the most expensive and long-running experiment in history shows that markets are roughly efficient, in that the experts don't beat them...more>>

Reply on Agricultural Subsidies

Good discussion between the commenters, so I can be brief.Inertia plays an important role in politics, but I do not believe that inertia can explain the importance of subsidies to agriculture in rich countries...more>>

"There are Some Core Beliefs That are Wrong in This Administration"

This is an interview with Paul Krugman that took place a little over twelve years ago. It's a reminder that being a Democratic president doesn't save you from Krugman's critical eye. It also has a very familiar ring to it:...more>>

Rent-Seek and You Will Find

The answer is one of the paradoxes of public choice: free money isn't free. In fact, you have to pay for free money twice: first you have to collect the money, out of tax revenues. And then you have to pay for the money again, because all the benefits are dissipated by what economists call "rent-seeking." Let me explain...more

Greg Mankiw's Blog: The Current Acccount vs the Trade Deficit

Greg Mankiw's Blog: The Current Acccount vs the Trade Deficit