Must- and Should-Reads: May 22, 2017

Posted on by Brad DeLong

Interesting Reads:

Must-Read: Noah Smith: The NIMBY Challenge

Posted on by Brad DeLong

Must-Read I disagree with Noah Smith: reading Phil Price convinced me that Phil Price is an idiot, that for many, many people NIMBYism is not a “flawed but serious package of ideas” but rather “simple ignorance”—or, perhaps, rather, very hard work to remain ignorant, in a way that is supportive of the “selfishness of incumbent homeowners trying to feather their own nests… [and] white people trying to exclude poor minorities from their communities while still appearing liberal…”

What was Andrew Gelman thinking in giving him his microphone?

Noah Smith: The NIMBY Challenge: “NIMBY theorists like [Phil] Price… should do the following thought experiment… http://noahpinionblog.blogspot.com/2017/05/the-nimby-challenge.html

…Imagine destroying a bunch of luxury apartments in SF. Just find the most expensive apartment buildings you can and demolish them.  What would happen to rents in SF if you did this? Would rents fall? Would rich people decide that SF hates them, and head for Seattle or the East Bay or Austin? Maybe. But maybe they would stay in SF, and go bid high prices for apartments currently occupied by the beleaguered working class. The landlords of those apartments, smelling profit, would find a way around anti-eviction laws, kick out the working-class people, and rent to the recently displaced rich. Those newly-displaced working-class people, having nowhere to live in SF, would move out of the city themselves, incurring all the costs and disruptions and stress of doing so. 

If you think that demolishing luxury apartments would have this latter result, then you should also think that building more luxury apartments would do the opposite. Price should think long and hard about what would happen if SF started demolishing luxury apartments….

I think Price’s posts have the following lessons for YIMBYs:

  1. Econ 101 supply-and-demand theory is helpful… but don’t rely on it exclusively… use a mix of data, simple theory, thought experiments, and references to more complex theories.
  2. Always remind people that the price of an apartment… doesn’t come built into its walls and floors.
  3. Remind NIMBYs to think about the effect of new housing on whole regions, states, and the country itself, instead of just on one city or one neighborhood. If NIMBYs say they only care about one city or neighborhood, ask them why.
  4. Ask NIMBYs what they think would be the result of destroying rich people’s current residences.
  5. Acknowledge that induced demand is a real thing, and think seriously about how new housing supply within a city changes the location decisions of people not currently living in that city.
  6. NIMBYs care about the character of a city, so it’s good to be able to paint a positive, enticing picture of what a city would look and feel like with more development….

The YIMBY viewpoint has the weight of evidence and theory on its side. But the NIMBY challenge is not one of simple ignorance. Nor is it purely driven by the selfishness of incumbent homeowners trying to feather their own nests, or by white people trying to exclude poor minorities from their communities while still appearing liberal (two allegations I often hear). NIMBYism is a flawed but serious package of ideas, deserving of serious argument.

Should-Read: Larry Summers: 5 Suggestions for Avoiding Another Banking Collapse

Posted on by Brad DeLong

Should-Read: Larry Summers: 5 Suggestions for Avoiding Another Banking Collapse: “First, it is essential to take a dynamic view of capital…

…Second, a crucial challenge… is assuring prompt responses to deteriorating conditions that do not set off vicious cycles. Markets were sending clear signals of major problems in the financial sector well in advance of the events of the fall of 2008 but the regulatory community did not even limit bank dividend payouts, even after the experience at Bear Stearns, which had been deemed “very well capitalized” even as it was failing. Current experiences in Europe where some institutions have a price-to-book ratio of barely 0.35 and have not yet been forced to raise capital are not encouraging about lessons learned….

Third, regulators need to be attentive to franchise value…. Regulatory costs are an especially large issue for smaller banks…. Fourth, bankers may be more right in their concerns about increased costs of capital and its effect on lending than economists usually suggest…. Fifth, it is high time we move beyond a sterile debate between more and less regulation. No one who is reasonable can doubt that inadequate regulation contributed to what happened in 2008 or suppose that market discipline is sufficient…. At the same time, not all regulatory expansions are desirable…

Will the Trump administration double-count its magic asterisk?

Posted on by Austin Clemens

Press reports indicate that President Donald Trump’s budget, scheduled for release tomorrow, will assert that administration policies can deliver a balanced budget in 10 years by combining sharp cuts to anti-poverty and safety net programs with growth from unspecified or minimally detailed tax and regulatory reforms. According to these reports, the forthcoming budget assumes that the rate of economic growth will reach 3 percent by 2021. In contrast, the Congressional Budget Office projects a growth rate of 1.9 percent for the same year.

Assuming large growth effects from policies that have yet to be specified in detail certainly qualifies as fantasy budgeting or, in Washington terms, a magic asterisk. But what’s even more striking about the anticipated budget plan is the expected assertion that revenue-neutral tax reform will contribute to deficit reduction. Administration officials and congressional Republicans have been explicit that they plan to credit the revenue feedback from any growth delivered by tax reform against the cost of tax reform. Yet counting the revenue feedback from growth in assessing whether a tax reform proposal increases or decreases revenues means that there is no additional revenue to reduce the deficit below the level that would be realized under current law.

In short, the Trump administration seems prepared to double-count the gains from its magic asterisk.

A back-of-the-envelope calculation suggests that the assumed growth rates could add $2 trillion to revenues relative to the CBO’s current-law baseline. Thus, a budget that purports to achieve balance predicated on this growth could be short by well more than $1 trillion—even if the growth projections were realized—by failing to recognize that the revenues from tax-reform-induced growth are going to be used to offset the cost of that reform. (The exact overstatement of revenues would depend on how much growth is attributed to tax reform and how much growth is attributed to other policies in justifying the economic assumptions.)

This estimate of the overstatement of revenues would be conservative even if large growth effects were realized, as it ignores both the implausibility of the administration’s growth forecasts and the large revenue losses that would result from the tax reform plans that the Trump campaign and the administration have put forth previously. The Tax Policy Center, for example, estimated that then-candidate Trump’s plan would cost $6 trillion while delivering less than $200 billion in revenue feedback from growth in the first decade of its implementation—before ultimately harming growth in the long run by running up the debt and thus reducing investment. These estimates suggest that the administration’s budget documents could be understating deficits by well more than $6 trillion relative to the actual impact of its policies.

Even by the standards of the federal budget, which operates at a scale that is sometimes difficult to comprehend, these numbers are large. If only $1 trillion is attributable to double-counting the gains from tax reform, that’s still more than the savings that the American Heath Care Act realizes by taking health insurance away from 14 million Americans through Medicaid cuts. Moreover, the CBO’s most recent deficit projections under current law total $9 trillion for the next 10 years. Assuming the administration will achieve balance by the 10th year but not before, the Tax Policy Center’s estimates of the Trump tax plan suggest that the president and his economic policy team could be claiming to reach balance while actually making the 10-year deficit outlook worse—even with harsh cuts to anti-poverty programs and policies that sharply reduce the number of Americans with health insurance.

How will it be apparent that the administration is not merely assuming implausible growth from its policies but actually double-counting those same growth projections? Traditionally, the president’s budget is presented on a set of post-policy economic assumptions. That is, the economic assumptions underlying the budget assume the enactment of the president’s policies. Judged against this set of economic assumptions, a revenue-neutral tax plan with implausible growth effects, such as those previously promised by the administration, should appear as a large tax cut, measured in the low trillions of dollars. Since the administration is pointing to tax reform as a justification for the rosy economic assumptions, this is the most likely approach—and the most likely criteria by which the budget should be judged.

While the traditional approach to budgeting includes the impact of proposed policies in setting the economic assumptions, there is an alternative approach that would be more consistent with the administration’s rhetoric on tax reform. In fact, the Obama administration used this approach when it counted deficit reduction resulting from economic growth generated by certain elements of immigration reform as a policy impact in its budgets. Under this alternative approach, the economic effects of a policy change are ignored when setting the economic assumptions. But by ignoring the growth impacts when setting the economic assumptions, those growth impacts can be included in the budget estimate for the proposal without double-counting the gains.

Thus, while the CBO concluded in 2013 that immigration reform would add 3.3 percent to gross domestic product 10 years after enactment, the economic assumptions underlying the last budget submitted by the Obama administration incorporated growth of only 0.7 percent attributable to immigration reform in its economic assumptions. The difference between 0.7 percent and 3.3 percent reflected the growth that had been included in estimating the budgetary impact of the proposed immigration reform. Critically, if the Trump administration takes this second course in estimating the impact of tax reform on the budget, then budget documents would appropriately show no impact of tax reform on revenues—but the administration would then need to justify its economic assumptions without reference to tax reform.

The analysis above takes administration officials’ previous public statements as informative about the direction of policy. Another option would be to recognize the budget as a statement of administration policy that supersedes those previous statements. Under this view, including the growth impacts of tax reform in setting the economic assumptions for the budget while showing no revenue impact of tax reform would amount to a statement that the administration now believes tax reform should be revenue-neutral based on conventional scoring—excluding impacts on growth—and any gains from growth should thus be used to reduce the deficit.

Recognizing the long-term fiscal challenges the country faces, this approach would be a wise policy choice on the part of the new administration. And in combination with Treasury Secretary Steven Mnuchin’s previous statements ruling out a tax cut for the upper class—the so-called Mnuchin rule—this addendum would provide a solid foundation for real tax reform. Yet it is unlikely that this is the course the administration intends to pursue.

So when the administration presents the budget tomorrow, watch not only for rosy economic assumptions to improve the deficit outlook but also for double-counting of the benefits of those economic assumptions. If the administration does in fact double-count the benefits, then recognize and understand the implied policy content of that choice. And if the administration tries to justify its harsh cuts to anti-poverty and safety net programs on the basis of clear-eyed fiscal accounting, then remember that these same officials are anything but clear-eyed when it comes to accounting for their plans for tax reform.

Must-Read: Chang-Tai Hsieh and Enrico Moretti: Housing Constraints and Spatial Misallocation

Posted on by Brad DeLong

Must-Read: Chang-Tai Hsieh and Enrico Moretti: Housing Constraints and
Spatial Misallocation: “We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs… http://eml.berkeley.edu//~moretti/growth.pdf

…Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009…

Should-Read: Fabio Ghironi: On Twitter: to @MESandbu

Posted on by Brad DeLong

Should-Read: Fabio Ghironi: On Twitter: to @MESandbu: “Some readings and thoughts on Macron’s plans and macro policy in the euro area… https://twitter.com/FabioGhironi/status/865695595566030848

…@MESandbu on possible costs from quest for euro-level substitutes for natl policy: https://amp.ft.com/content/a94cad66-3569-11e7-bce4-9023f8c0fd2e Here’s what @MESandbu thinks Macron should focus on: https://amp.ft.com/content/203e4e1a-357f-11e7-bce4-9023f8c0fd2e FT View: This could be good time to pursue badly needed reform of the banking system: https://www.ft.com/content/c6c824c8-3637-11e7-99bd-13beb0903fa3.

I agree w much in these articles, but I also think that Macron’s push for more fiscal policy coordination/fiscal union is very important. Policymakers across EU should move away from notion that, if countries followed its rules, SGP would accomplish fiscal coordination. The SGP is not coordination. It is a set of constraints over and above those subject to which optimal coordination should be pursued. I wrote a few thoughts on this last July here: http://faculty.washington.edu/ghiro/GhiroStraightjacketsVsCoordination0716.pdf

Bottom line: the SGP is suboptimal; it is unenforceable, as Germany itself contributed to showing; and it should be ditched. Policymakers should also move away from the notion that fiscal policy harmonization should necessarily be pursued. Asymmetric shocks across EZ countries are bound to make differences in fiscal policies the optimal outcome under desirable coordination! Finally, policymakers (& analysts) should also move away from the notion that fiscal union should always & only mean a transfer union….

My hope is conversation wd help understanding that true fiscal coordination/union involves more than transfer union. In that sense, I think talking about EZ finance minister can help bc it naturally leads to the question of the role of this minister, which I hope wd lead to discussion of coordination beyond transfers. And even if that’s not accomplished, I think clarity wd be valuable…

Should-Read: Jim Acosta: On Twitter: “Talked to a former Trump campaign staffer…

Posted on by Brad DeLong

Should-Read: Jim Acosta: On Twitter: “Talked to a former Trump campaign staffer: who has hired attorney in Russia probe and feels Trump himself should help pay for legal costs… https://twitter.com/Acosta/status/865762200757170176

…A few thoughts from this staffer:

In many ways, the Trump Associates are the real victims here. The world going after them and Trump leaving them abandoned on the battlefield. Yet many lives will be ruined in the process. At a minimum political careers dead and damaged ability to work in DC… (WH not commenting)

Posted in Uncategorized

Should-Read: John Gruber: Announcing JSON Feed

Posted on by Brad DeLong

Should-Read: John Gruber: Announcing JSON Feed https://jsonfeed.org/version/1: “Brent Simmons and Manton Reece… https://daringfireball.net/linked/2017/05/17/json-feed

…We—Manton Reece and Brent Simmons—have noticed that JSON has become the developers’ choice for APIs, and that developers will often go out of their way to avoid XML. JSON is simpler to read and write, and it’s less prone to bugs. So we developed JSON Feed, a format similar to RSS and Atom but in JSON. It reflects the lessons learned from our years of work reading and publishing feeds.

I think this is a great idea, and a good spec…. Daring Fireball has a JSON Feed. I’ve got a good feeling about this project—the same sort of feeling I had about Markdown back in the day…

Posted in Uncategorized

Must-Attend: Berkeley Behaviorial Economics Initiative: Celebration of 30 Years of Behavioral Economics at Berkeley

Posted on by Brad DeLong

Must-Attend: But, alas!, I will not—I have to miss it. It is really a shame…

Berkeley Behaviorial Economics Initiative: Celebration of 30 Years of Behavioral Economics at Berkeley: May 20, 2017 :: Wells Fargo Room at U.C. Berkeley:

  • 12:00 noon: Lunch On Site in Haas Courtyard, with Gelato on the cone from Caravaggio Gelato
  • 1:00 PM: Introduction: Carla Hesse (Dean of Social Sciences, Berkeley)
  • 1:10 PM: Behavioral Economics On the Field: Farhan Zaidi (General Manager, LA Dodgers), introduced by Stefano DellaVigna (Co-Director of Behavioral Initiative)
  • 2:00 PM: Back to 1987: Some Ideas for the Future: George Akerlof and Daniel Kahneman (Instructors of 1987 PhD Class in Berkeley on “Psychology and Economics”)
  • 3:00 PM: Becoming Behavioral Economists at Berkeley: Saurabh Bhargava (CMU), Zack Grossman (UCSB), Devin Pope (University of Chicago), Gautam Rao (Harvard), Paige Skiba (Vanderbilt), Justin Sydnor (University of Wisconsin)
  • 3:30 PM: Coffee Break
  • 4:00 PM: Roundtable on Behavioral Economics in Berkeley: The Past and the Next 30 Years Matthew Rabin (Harvard). “Behavioral Models for the Future”
  • 4:20 PM: Roundtable: Five-Minute Takes: “Witnessing the Rise”: Daniel McFadden (Berkeley), Hal Varian (Berkeley and Google); “Training in Behavioral in the Early Years”: Gary Charness (UCSB), Ted O’Donoghue (Cornell), Terry Odean (Berkeley); “Behavioral Faculty at Berkeley”: Shachar Kariv (Berkeley), Botond Koszegi (CEU)
  • 5:00 PM: Round Table: Open Discussion
  • 5:35 PM: Closing Reflections: Rich Lyons (Dean of Berkeley Haas)

Economics 296 and Psychology 290Q :: Spring 1987

University of California :: Professors Akerlof and Kahneman :: Departments of Economics and Psychology

1. Violations of Assumptions of Economic Theory

  • W. Bazerman: JUDGMENT IN MANAGERIAL DECISION-MAKING (Wiley, 1986), chs. 1-3, pp. 1-66.

2. Situations in Which Violations Make No Difference

  • M. Miller and F. Modigliania: The Cost of Capital, Corporation Finance, and the Theory of Investment: AMERICAN ECONOMIC REVIEW (June 1958), pp. 261-97.
  • G. Becker: THE ECONOMICS OF DISCRIMINATION, Introduction, chs. 1-3, pp. 1-54.
  • R. Nisbett and L. Ross: HUMAN INFERENCE: STRATEGIES AND SHORTCOMINGS OF SOCIAL JUDGMENT, chs 11.

3. Models Where Violations of Assumptions Make a Difference

  • S. Salop and J. Stiglitz: Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion: REVIEW OF ECONOMIC STUDIES (1977) pp. 493-510.
  • G. Akerlof and W. Dickens: The Economic Consequence of Cognitive Dissonance: AMERICAN ECONOMIC REVIEW 72 (June 1982), pp. 307-19.
  • J. Haltiwanger and M. Waldman: Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity: AMERICAN ECONOMIC REVIEW (June 1985), pp. 326-40.
  • T. Russell and R. Thaler: The Relevance of Quasi-Rationality in Competitive Markets: AMERICAN ECONOMIC REVIEW (December 1985), pp. 1071-82.

4. Near Rationality Theory

  • G. Akerlof and J. Yellen: A Near Rational Model of the Business Cycle with Wage and Price Inertia: AMERICAN ECONOMIC REVIEW
  • G. Akerlof and J. Yellen: Can Small Deviations from Rationality Make Significant Differences to Economic Equilibrium?: QUARTERLY JOURNAL OF ECONOMICS (September 1985), pp. 708-820.
  • G. Akerlof and J. Yellen: A Dynamic Envelope Theorem (1986).

5. Detailed Discussion of Assumptions

  • Bazerman, chs. 6-9, pp. 67-169.
  • A. Tversky and D. Kahneman: Rational Choice and the Framing of Decision: JOURNAL OF BUSINESS (October 1986), pt. 2,= pp. S251-76.
  • D. Kahneman and A. Tversky: Prospect Theory: An Analysis of Decision Under Risk: ECONOMETRICA (March 1979), pp. 263-91.
  • H. Arkes and C. Blumer: The Psychology of Sunk Cost: ORGANIZATIONAL BEHAVIOR AND HUMAN DECISION (1985), pp, 124-40.
  • R. Thaler: Toward a Positive Theory of Consumer Choice: JOURNAL OF ECONOMIC BEHAVIOR AND ORGANIZATION (March 1980), pp. 39-60.
  • E. Hoffman and M. Spitzer: The Coase Theorem: Some Experimental Tests: JOURNAL OF LAW AN ECONOMICS (1982), pp. 73-98.
  • D. Kahneman, J. Knetsch, and R. Thaler: Fairness and the Assumptions of Economics: JOURNAL OF BUSINESS (October 1986), pt. 2 pp. S285-300.
  • J. Knetsch and Sinden: Willingness to Pay and Compensation Demanded: QUARTERLY JOURNAL OF ECONOMICS (August 1984), pp. 507-21.
  • J. Kagel and D. Levin: The Winner’s Curse and Public Information in Common Value Auctions: AMERICAN ECONOMIC REVIEW (December 1986), pp. 894-921.
  • R. Bishop and T. Heberlein: Measuring Values of Extra-Market Goods: Are Indirect Measures Biased?: AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS (1979), pp. 926-30.
  • B. McNeil, S. Parker, H.. Sox, and A. Tversky: On the Elicitation of Preferences for Alternative Therapies: NEW ENGLAND JOURNAL OF MEDICINE no. 306 (1982), pp 1259-62.

6. Applications to Markets

  • R. Frank: Are Workers Paid Their Marginal Products?: AMERICAN ECONOMIC REVIEW (September 1984), pp. 549-71.
  • D Kahneman, J. Knetsh, and R. Thaler: Fairness as a Constraint on Profit Seeking: Entitlements in the Market: AMERICAN ECONOMIC REVIEW (September 1986), pp. 728-41.
  • G. Akerlof: Labor Contracts as Partial Gift Exchange: QUARTERLY JOURNAL OF ECONOMICS (November 1982), pp. 543-69.
  • M. Weitzman: The Simple Macroeconomics of Profit Sharing: AMERICAN ECONOMIC REVIEW (December 1985), pp. 937-53.
  • R. Shiller: Stock Prices and Social Dynamics: BROOKINGS PAPERS ON ECONOMIC ACTIVITY 1984:2 (1984), pp. 457-510.
  • W. De Bondt and R. Thaler: Does the Stock Market Overreact?: JOURNAL OF FINANCE (July 1985), pp. 793-808.
  • K. Arrow: Risk Perception in Psychology and Economics: ECONOMIC ENQUIRY (1982), pp. 1-9.

Weekend reading: “mind the gap” edition

Posted on by Bridget Ansel

Equitable Growth round-up

Research has documented how the gender pay gap widens over a lifetime, but where does it come from? Is it because men are more likely to get promoted or secure higher wages? Or do men go out and finds jobs at a higher rate, and secure better salaries when they do? New research digs into these questions.

Nick Bunker takes a look at the mortgage interest deduction, the benefits of which flow disproportionately to those near the top of the income spectrum.

Despite the growing interest from policymakers, the data show that the online gig economy may not be as big as many people think. But there should be concern about the rise of other types of “alternative work arrangements” created by companies’ increasing contracting out labor.

As central bankers prepare to reduce the amount of assets held by the Federal Reserve in an attempt to “normalize” monetary policy, Nick Bunker argues that a return to normalcy might not be the best option.

Links from around the web

As manufacturing jobs have vanished in many regions within the United States, Alana Semuels reports that a growing number of men are turning towards jobs that are traditionally dominated by women, especially within the healthcare sector. [the atlantic]

Despite a growing use of seemingly productivity-enhancing technologies, the U.S. has experienced a slowdown in productivity growth in recent years. Noah Smith argues that it’s possible that we actually are getting things done in a more efficient manner—but are using the extra time to goof off at work. [bloomberg view]

Tanvi Misra writes about new research finding that between 1880 and 2010, black Americans had much lower rates of upward mobility compared to their white counterparts that started from the same economic position. [city lab]

Even with an improved economy and a stronger housing market, homeowners are moving less. Conor Dougherty looks at how a steady rise in interest rates are deterring people from buying new homes, which could have an impact throughout the economy. [new york times]

The rich are living longer than the poor, which has implications beyond our physical well-being. Michael Hiltzik writes about how the growing disparities in life expectancy is making Social Security less progressive: Originally designed to help lower-income Americans, Social Security is now paying higher-income Americans more than those that are less well-off. [los angeles times]

Friday figure

From “The importance of raising the minimum wage to boost broad-based U.S. economic growth.”