Sunday, October 26, 2003

Money Monopoly

I had planned a longer post about Friedman's views on the government maintaining a monopoly on the production of money, but for now let me just point to the Dallas fed conference in his honor. Here is Virgina Postrel's blog and reference to her NYT article. And here is an article by Bernanke.

Keywords: ECO301, Money

Thursday, October 16, 2003


Marginal Revolution has a post on corn as the root cause of our current epidemic. The NYT article gives a pretty good background. David M. Cutler, Edward L. Glaeser and Jesse M. Shapiro have looked at this issue and found that most of the recent increase in waist lines can be attributed to an increase in the number of meals eaten, largely due to improvements in technology. It only takes 150 additional calories a day for a 155 lb male to add 10 lbs to his steady state weight. That's not a lot. Awhile back Hal Varian cited other research by Darius Lakdawalla and Tomas Philipson who found most (60%) of the increase can be attributed to our more sedentary lifestyle with the remaining being explained by the increased supply of food. Slightly different conclusions, but very interesting. They motivated me to cut out soda for a bit to see if I could lose weight. The trouble is if you don't count your calories, you tend to replace soda with something else, resulting in the same amount as when I was drinking soda. That's a bad diet. Not only am I not losing weight, I'm not even maximizing my own utility, because I'm consuming my second choice not my first. The solution is to count calories, and do so religiously. If you're interested here is a website that helps calculate BMI, and list suggestion for different calories diets. They even note that underreporting of caloric intake is generally estimated to be between 400 and 900 calories a day, so you should account for that as well. Time to go have some Ben and Jerry's.

Wednesday, October 08, 2003

Unemployment Insurance and Duration

Another intersting article in the recent AER:

Is the Threat of Reemployment Services More Effective Than the Services Themselves? Evidence from Random Assignment in the UI System
Dan A. Black, Jeffrey A. Smith, Mark C. Berger, and Brett J. Noel

We examine the effect of the Worker Profiling and Reemployment Services system. This program “profiles” Unemployment Insurance (UI) claimants to determine their probability of benefit exhaustion and then provides mandatory employment and training services to claimants with high predicted probabilities. Using a unique experimental design, we estimate that the program reduces mean weeks of UI benefit receipt by about 2.2 weeks, reduces mean UI benefits received by about $143, and increases subsequent earnings by over $1,050. Most of the effect results from a sharp increase in early UI exits in the treatment group relative to the control group. (JEL J650)

There are a few interesting items here: In their profiling model they were not allowed to use age, sex, race, ethnicity or veteran status. This may help to explain why they found the impact of treatment varies nonlinearly over different profiled sub groups. They may just have a lot of misclassified people and therfore they can't extract the signal from the noise. The research also suggests that UI prolongs the job search, by lowering the costs of unemployment, and even something as simple as sitting through classes is enough to drive some to get a job.

Monday, October 06, 2003

The Plaza Accord

Recent research has led me to read the Plaza Accord of 1985, where the G-7 finance ministers agreed to some general principles.

Here is the US commitment:

The United States Government is firmly committed to policies designed to: ensure steady non inflationary growth; maximize the role of markets and private sector participation in the economy; reduce the size and role of the government sector; and maintain open markets.

In order to achieve these objectives, the United States Government will:

1. Continue efforts to reduce government expenditures as a share of GNP in order to reduce the fiscal deficit and to free up resources for the private sector.

2. Implement fully the deficit reduction package for fiscal year 1986. This package passed by Congress and approved by the President will not only reduce by over 1 percent of GNP the budget for FY 1986, but lay the basis for further significant reductions in the deficit in subsequent years.

3. Implement revenue-neutral tax reform which will encourage savings, create new work incentives, and increase the efficiency of the economy, thereby fostering non inflationary growth.

4. Conduct monetary policy to provide a financial environment conducive to sustainable growth and continued progress toward price stability.

5. Resist protectionist measures.

To think that people call both the current government and the government of the Plaza Accord conservative. I don't think there is any principle above, that Bush hasn't broken. It's time to start the recall.

I quickly reread the list and realized Bush has little to do with #4, besides making the appointments, so I probably can't claim he's violated that one, or even that it has been violated. Although, he was certainly impatient with the rate cuts in 2001.

Inequality and Growth

From the latest issue of the AER:

Inequality and Growth: Why Differential Fertility Matters
David de la Croix and Matthias Doepke

We develop a new theoretical link between inequality and growth. In our model, fertility and education decisions are interdependent. Poor parents decide to have many children and invest little in education. A mean-preserving spread in the income distribution increases the fertility differential between the rich and the poor, which implies that more weight gets placed on families who provide little education. Consequently, an increase in inequality lowers average education and, therefore, growth. We find that this fertility-differential effect accounts for most of the empirical relationship between inequality and growth. (JEL J13, O40)

This leads to interesting policy proposals, like sterilizing poor people. Only kidding, clearly the source of growth comes from human capital accumulation, so public policy that minimizes the inequality in acquiring human capital would prevent slower growth. This leads to a few interesting ideas, in societies where human capital is very important, regardless of socioeconomic status, like Korea, you would expect income inequality to have a smaller impact on changes in growth rates.