The Debate Burns On

Greg Mankiw challenges my interpretation of Arthur Burns’ legacy. Monetary policy, he points out, affects inflation with a lag. Once you take the lag into account, Burns looks quite bad, since the inflation rate fell a bit during the first year of his term (presumably due to his predecessor’s efforts) and rose dramatically during the year after he left.

At first, my quant hand was pretty much convinced by Greg’s argument. After all, when you run the numbers, it’s quite unambiguous: monetary policy variables have only a slight impact on contemporaneous inflation; most of the impact comes later. But my rational economist hand wasn’t so sure, and in the end, it managed to convince my quant hand that Burns was, as I had originally suggested, more a victim of his predecessor’s excesses than a contributor to runaway inflation.

To illustrate, let’s start with a comment from Greg’s post. Happyjuggler0 writes:

All I'll say to that is that Milton Friedman publicly predicted the stagflation of the 70's before it happened, indeed before the word was even coined. It was a nonexistent phenomenon before then. It is not Dr. Friedman's fault that both Burns and the 70's presidents ignored him. It is not like Friedman was quiet about his views either....

Fair enough, maybe Burns should have paid more attention to what Friedman said. But what I notice is that Friedman made his statements (beginning with his 1968 American Economic Association presidential address) long before Burns took office. If Friedman could already see, two years earlier, that the Fed was losing its credibility, how could that loss of credibility have been Burns’ fault? (That line of reasoning is actually what got me thinking about this question in the first place.)

What’s particularly puzzling is the rapidity with which inflation accelerated during the year after Burns left. The inflation rate rose by almost 3 percentage points within less than a year, and that was with the unemployment rate around 6%, hardly a level one would normally associate with a dramatically overheating economy. The data don’t offer me any obvious clues as to what’s going on, but I would suggest that the credibility of monetary policy under then-current chirman G. William Miller may have had more to do with the problem than excessive ease during Burns’ final year.

If we look at Burns’ overall period of chairmanship, it does not appear that he was, on average, pushing the economy beyond its limit. Consider this blowup of part of a chart that appeared in an earlier post. You can quarrel with my NAIRU methodology, but I don’t think the estimates are very far from the consensus. And what it shows is that, in terms of the employment gap, the weakness during the second half of Burns’ chairmanship roughly compensated for the strength during the first half, whereas during the years before Burns took over, there was a persistent period of inflationary high employment.

The implications of this chart are quite specific, given the coefficients of my Phillips curve. If we assume a 6-month lag in the effect of monetary policy on employment, then the years prior to Burns added 6.4 percentage points to the inflation rate, whereas Burns added only 0.4 percentage points.

The Inflation Conundrum

I’m a two-handed economist today, and the hands are about to come to blows. My “rational economist” hand is waving in the air declaring, “We have every reason to believe that inflation is not an issue over the longer horizon, and only highly risk-averse investors should be buying TIPS.” My “faithful quantitative analyst” hand is pounding the table exclaiming, “The inflation rate is up! Past inflation predicts future inflation! Buy TIPS!!” Blog readers will probably be hearing more from the rational economist hand, because rational economics makes better reading than regression coefficients. Here’s the case:

1. Oil, the biggest contributor to rising prices thus far, is traded in a speculative market. Therefore, its price should be approximately a random walk, perhaps with some slight drift, but certainly it shouldn’t rise rapidly year after year after year. At any particular point in time, our best guess should be that the oil bull market has run its course. (This point is worth a whole post, so I won’t pursue it further now.)

2. Rent, the newcomer on the inflation scene, is being pushed up by rising interest rates. If rates remain high, rents could stabilize at a higher level, but they should eventually stop rising. Considering the dramatic amount of residential construction activity over the last few years, the longer-term fundamentals for rents are probably a bit bearish.

3. Labor, the major component of costs, shows no signs of being a source of inflationary pressure right now. If anything, the labor market is still quite weak. (I know this point is controversial, but personally, even my quant hand is convinced.)

4. Ben Bernanke, as the new kid on the block and facing circumstances that put his inflation-fighting credibility to a dramatic test, has every reason to prefer erring on the hawkish side rather than the dovish side.

5. The dollar, if it comes under severe selling pressure in the near future, is likely to do so only because of a disinflationary downward turn in US economic growth. Under such circumstances, foreign central banks will still have incentives to support the dollar aggressively enough to prevent any inflationary impact in the US. (Of course, given a few years, if, for example, China’s economy starts to boil over and Japan’s phoenix rises convincingly from the ashes, these incentives may disappear. But then see reasons 1-4.)

“Yeah, yeah, yeah,” says the quant hand, “I’m already taking the weak labor market and the tight [so far] Fed into account, and I still say, buy TIPS.” As a devout quant, he (she? la mano) thinks you should never allow mere (“subjective”) verbal arguments to outweigh the recommendation of a quantitative model.

I’m just making sure I don’t hold my hands too close to my face, or I might get caught in the middle of something ugly.

Tariff Revenue

Dean Baker makes a good point about trade: to the extent that trade liberalization comes in the form of tariff reductions, the amount of gain depends critically on how the government makes up the consequent revenue loss. Most likely, it will be made up by some other form of distortionary taxation, so that a tariff reduction merely substitutes one form of distortionary taxation for another. The “gains from trade” will be partly offset by the loss due to the distortionary effect of the new taxes. In principle, the gains could be fully offset, and the trade liberalization could have no net benefit. In practice, I think tariffs are probably quite a bit worse than the next alternative form of taxation, but the point is well taken that conventional estimates of the gains due to trade liberalization are overstated.

Rethinking the Burns Legacy

Arthur Burns, who chaired the Federal Reserve Board of Governors from 1970 to 1978, is commonly held up as an example of a bad little central banker, the kind that parties instead of doing his homework and corrupts the younger kids with his spiked punch. I’ve made my own share of snide insinuations about Burns, but a recent look at the data has made me wonder if he really deserves the level of scorn he has received.

It seems pretty clear that Burns did succumb to political pressure from President Nixon for easy money during the time that Nixon was up for reelection; at the very least, Burns made some large errors in judgment at a time when those errors happened to benefit the man who appointed him. But Burns was certainly not the only central banker to be swayed by politics. In the eyes of history, Nixon turned out to be a particularly bad politician with whom to be associated. But if Burns gave the Republicans a free ride in 1972, they certainly paid for it in 1976.

One particular statistic interests me: for the 12 months ending in February 1970, when Burns began his chairmanship, the CPI inflation rate was 6.3%. For the 12 months ending January 1978, when Burns ended his chairmanship, the rate was 6.7%. On balance, that hardly looks to me like letting inflation get out of hand. Granted, the unemployment rate was considerably higher (6.4% vs. 4.2%), but it would be a stretch to blame Burns for that, considering the role of OPEC, and considering that many economists subsequently began to think 6.4% was, if anything, still too low.

Burns was no saint, but it now looks to me like his problem was largely an inherited one. The former Fed chairman, William McChesney Martin, had already allowed inflation to rise to an uncomfortable level. Martin later acknowledged (to his “everlasting shame”) having given in to political bullying himself. As a matter of personal character, I give Martin a lot of credit for confessing his sin, and perhaps history was right to absolve him and to open to him the pearly gates of that great Open Market in the sky. But just so we have the record straight, it looks like Johnson’s influence on Martin deserves as much blame for the subsequent high inflation rates as does Nixon’s influence on Burns.

Manufacturing Cuteness

From Battlepanda:

I won’t comment on the economics for now, but I like the picture.

Complaining about the MSM

Why are the media giving so much attention to this story about the guys who wanted to attack the Sears Tower? The fact that we have a few terrorist wannabes in this country, no matter how lofty their ambitions might be, doesn’t strike me as deserving the top spot on network news two days in a row. This is a bit like “Franco is still dead,” but it’s really more like “Franco’s third cousin is still dead.” Can we have some real news, please?

Stumbling on Chocolate: Of TV and Tofu

If economists and psychologists are going to collaborate, they really ought to learn more about each other’s discipline. I have in mind the field of happiness research, and my case in point is a statement by psychologist Daniel Gilbert, author of the rapidly climbing bestseller Stumbling on Happiness. I am perhaps a bit unfair, taking an incidental statement out of context, but the topic is interesting in its own right, and this provides a useful point of departure:

…when something makes us happy we are willing to pay a lot for it, which is why the worst Belgian chocolate is more expensive than the best Belgian tofu.

The first part of that statement can hardly be denied (at least by an economist), but the second part I would question. If chocolate and tofu were both produced by monopolists, the chocolate monopolists would indeed be able to charge more than the tofu monopolists, just because people like chocolate better. But I have a hard time believing that “the worst” Belgian chocolate is monopolistically supplied. Surely there must be plenty of very close substitutes, both from other Belgian chocolatiers who make slightly better chocolate and from foreign chocolatiers who make chocolate that is at least almost as good. No matter how much people like chocolate, these competitors would have incentives to keep undercutting one another’s prices until the price came down to the cost of production. And if chocolate cost less to produce than tofu does, then, no matter how much people prefer chocolate, it would cost less than tofu. The reason chocolate is actually more expensive is that it costs more to produce.

This analysis raises the broader question of why good things generally seem to cost more than not-so-good things. I have several answers. First, to a large extent, the premise isn’t even true. Most people, most of the time, would rather watch TV than eat tofu, and yet broadcast TV is essentially free (except for the amortized cost of the TV set) whereas tofu has a nontrivial cost. Second, many good things – for example, the best Belgian chocolate – are in fact supplied monopolistically.

But the main reason, I think, is this: it’s not so much that good things are expensive as that expensive things are good. Gilbert in fact makes this point in his next sentence, but my reasoning is different than his. A basic premise of economics is the idea of diminishing marginal utility: the more you already have of something, the less additional happiness you get from an incremental amount. Things that don’t cost much, we already have plenty of, so an additional unit is not that good. Things that cost a lot, we don’t have much of, so an additional unit is very good. So, for example, why is going to a professional theatrical production better than going to a movie? Of course there are many who will say that the theatre is an inherently better art form, but for most people, I think, the answer is this: going to a play is better because we don’t get to do it as often. In other words, theatre is better than cinema specifically because theatre is more expensive.

Core of Gold

Using Wolfgang Munchau as an example, Mark Thoma criticizes certain commentators for ignoring “theoretical” arguments for using a core inflation index (rather than headline inflation) to guide monetary policy. I agree with Mark, but in the comments section, I expressed skepticism about our ability to make the point effectively given the complexity of the theories involved. Nonetheless, I’m going try. I won’t go into the actual theory, but I’ll try to make the substance of the case in ordinary English. First I bring Mr. Munchau back to the whipping post:

Some private sector economists made the preposterous suggestion that housing should also be excluded from the core index. If you go down this route, you end up with a core inflation index that no longer bears any relationship to reality.

Though I haven’t made such an explicit suggestion, I might broadly be considered one of those economists, so I guess this is personal. But let’s see. If an index that excludes food, energy, and housing (and maybe a few other things) “no longer bears any relationship to reality,” how about an index that excludes everything except gold bullion? If the former already has no relationship to reality, I suppose the latter must have an inverse relationship to reality. And yet it was just such an index that formed the critical anchor for monetary policy from long before the Common Era until as recently as 35 years ago. (Of course they didn’t call it an index; they just called it “gold.”)

The gold standard certainly had its problems. Along with many other economists, I believe it was partly responsible for the Great Depression. But it would be hard to accuse gold standard advocates of being soft on inflation. In fact, the great advantage of the gold standard was that it gave people a reason to have confidence in the long-term value of money. Even if it had no “relationship to reality,” this gold-only price index was apparently sufficient to solve the main problem that motivates monetary policy’s concern with inflation.

OK, let’s try to solve some of the problems with the gold standard. The overall problem is that a single commodity can have dramatic supply and demand shifts, which produce dramatic price swings relative to other items, and as a result, if money is tied to that commodity, we can experience dramatic swings in the money supply, producing events such as the Great Depression. So instead of just using a single commodity, let’s add some more things to the index: maybe clothing, education, entertainment, communication services, vehicles, recreation, medical care, and a few other things. The resulting index may still have no “relationship to reality,” but if it’s reasonably diverse, it should succeed in minimizing the chance of another Great Depression. The price of gold can fluctuate quite dramatically relative to other items, but the price of gold+clothing+entertainment+communications+etc. – while it may not remain perfectly in sync with the overall price level, and indeed (like gold alone) it may even drift over time – isn’t likely to have dramatic swings over periods of a few years.

Now the question is, where do you stop? Are there certain things you might want to avoid adding to the index? There may be many things, but I would suggest 3 broad categories:

1. Items which experience such dramatic price swings that, even as part of a diverse index, their inclusion might increase the risk of depressions. A certain dark, thick, slippery liquid comes to mind.

2. Items which are over-sensitive to monetary policy. The most extreme example would be short-term bonds. If the Fed were to target an index that included short-term bond prices as a significant component, it would never be able to change interest rates, because any change would immediately produce a dramatic change in the index. This same problem exists, to a lesser degree, with most other assets, such as stocks and (of particular importance) houses.

3. Items which react perversely to monetary policy. If tightening monetary policy casues some items in the index to rise in price, this would make monetary policy more volatile than necessary. This category would generally include items that are extremely capital-intensive, but the particular one that comes to mind is housing services – that is, rent.

I guess it’s about time to make a preposterous suggestion about what to exclude from the core CPI.

Glass Price Ceiling?

For a good 20 years (or so it seems) the press has been telling us there is a nursing shortage. I’m still not clear on what a “shortage” means in this context. Sometimes when people use the word “shortage”, they just mean that there is not as much of something as one would have hoped. For example, if someone says there is an “oil shortage” in the US today, they really mean that they wish there were more oil, so we wouldn’t have to pay so much for it. If this meaning applies in the case of nurses, then the rest of this post is irrelevant.

When economists use the term “shortage”, however, they have a specific meaning in mind: the quantity of something demanded exceeds the quantity supplied at the current price (or, in the case of nurses, one might say, at the current wage or salary). In a well-functioning market without artificial constraints, shortages aren’t supposed to happen, or at least they aren’t supposed to last very long (certainly not 20 years). If the quantity demanded exceeds the quantity supplied, suppliers (nurses, for example) will find it in their interest to charge a higher price (in the case of nurses, to hold out for more pay). When the price rises, usually more people will find it in their interest to become suppliers (e.g. nurses), and fewer people will demand the product (e.g. nursing services) at the higher price. (At least one or the other of these things should happen.) Eventually (almost immediately in a well-functioning auction market, maybe a matter of months or even years in a market with sluggish price-setting, but surely never more than a decade!) the quantity supplied will rise, and/or the quantity demanded will fall to the point where they become equal, and there is no more shortage.

Why hasn’t this happened with nurses? Some people point to a bottleneck in nursing schools. Obviously existing nurses have only a certain amount of labor they can (safely) supply, and they may already be “tapped out”; others can’t become nurses without going to nursing school; and nursing schools have a limited number of slots for students. The problem with this argument is it only pushes the shortage into a different market. If there is a shortage of nursing school slots, the same “shortage” arguments should apply. If the nursing shortage pushes up the pay for nurses, then nursing students can afford to borrow more money, and nursing schools can charge more, and it will be profitable for them to expand and for more people to become nursing instructors. Again, it might take some time but – 20 years???

I don’t know the answer, but I have one theory. Feminists have long noted a tendency for typically female occupations to pay less than typically male occupations. Often, economists have good explanations for occupational differentials, but there is troubling evidence that even within occupations, and even within particular jobs, and even when controlling for things like education, years of service, and performance ratings, women are paid less than comparable men. To me, it suggests that there is a sociological component to wage determination. Though in many cases competition and other market forces may squeeze discrimination out of the market, I would suggest that nursing may be one field where this process hasn’t worked. Because nursing is considered a typically female occupation, the idea of paying nurses six figure salaries may be difficult for many employers to swallow. If so, that might explain the persistent shortage.

The Non-Accelerating Inflation Range of Unemployment

Hopefully my last two posts on the subject have made it clear that I am ready, willing, and able to defend the theory of a Non-Accelerating Inflation Rate of Unemployment, not just as “the best of a bad lot” but as a worthwhile theory in and of itself. Having declared victory, I am now getting out. Herewith I renounce the Non-Accelerating Inflation Rate of Unemployment. Le NAIRU est mort.

Vive le NAIRU! As we bury the theory, we need not also bury the acronym. Rather, let me suggest that there is a range of unemployment rates that is compatible with stable inflation: the Non-Accelerating Inflation Range of Unemployment. I’m not sure who coined that phrase, but I associate it with Harvard labor economist James Medoff. (A Google search on the phrase turns up nothing of interest.)

If the unemployment rate goes above the NAIRU range, the inflation rate declines. If it goes below, the inflation rate rises. If it stays within the range, the inflation rate remains the same, except for random changes and responses to external shocks.

It is a theory with which, it seems to me, almost everyone will eventually have to agree. It is proven by thought experiment and historical experience. Even the most ardent “Old Keynesian” or real business cycle advocate will have to acknowledge that, if we push unemployment far enough below the full-employment level, the inflation rate will start to rise fairly rapidly. To put it conversely, an inflationary monetary policy will initially push unemployment below the full-employment level. Some may deny the possibility of pushing unemployment below the full-employment level, but it seems to me that the late 1960s provide an example.

On the other side, even the most ardent Laxtonite advocate of the convex Phillips curve will have to acknowledge that, if we push unemployment high enough, we will get fairly rapid disinflation – or conversely, that there are limits to the unemployment effects of even the most draconian disinflaitonary (or deflationary) policy. The early 1980s would seem to provide an example. I might also cite the rapidity with which deflation materialized during the early 1930s, as well as the relatively small absolute unemployment increase in 1990s Japan.

And there is surely some range of unemployment in the middle that is compatible with stable inflation. Traditional NAIRU people may still claim that the range is degenerate, just a single point, but the experience of the late 1990s makes that claim very difficult to maintain.

What I’m suggesting is a Phillips curve that is convex on the left side and concave on the right side, like the shape depicted below. For extremely low unemployment rates – near zero – we are in hyperinflationary territory. As we consider gradually higher unemployment rates, the inflation rate first falls quickly toward “ordinary high inflation,” then more slowly down to the expected inflation rate, where it essentially remains over a certain range. Subsequently, as we consider gradually higher unemployment rates above the NAIRU, the inflation rate falls slowly, then more quickly, then very quickly into the deflation zone.

Karma

This post will discuss my understanding of the Buddhist concept of karma. It is not an orthodox understanding. As far as I’m concerned, all Buddhist orthodoxies have failed in their attempts to reconcile the doctrine of individual rebirth with the doctrine of no self. (If there is no self, who gets reborn? They all claim to have answers, but none of those answers makes sense to me.) I find it necessary to reject the doctrine of individual rebirth. That is, I reject the idea of rebirth as an event where one specific individual is reborn as another specific individual. None of this Shirley MacLaine crap!

My understanding starts with a thought experiment. Suppose it were possible to upload and download a person’s memories lock, stock, and barrel. I don’t think this will ever be possible technologically, but it should always be a theoretical possibility: memories are just information, so why not upload and download this information? Now consider two people, call them Tom and Mary. Using this upload/download process, switch the information in their brains. When Mary wakes up, she will say something like, “Holy crap! I’ve turned into a chick.” With Tom’s memories, Mary will have no idea that she’s really been Mary all along.

I don’t necessarily expect others to be convinced, but to me, this gedankenexperiment shows that the Buddhists are right about “no self.” Why do I believe I’m the same person that I was ten minutes ago? Because I remember being that person. But memories, the thought experiment tells me, are totally arbitrary. So I’m really not the same person.

If I can’t define myself in terms of memories, how should I define myself? A Buddhist philosopher might say, “Define yourself in terms of consequences.” If what this person did ten minutes ago caused what’s happening to you now, then you are the same person. “I” drank a cup of coffee, so now “I” feel alert.

The obvious “problem” with this idea is that consequences do not go strictly from a single individual to a single individual. For example, I brewed a pot of coffee and poured cups for me and my wife, so now (having drunk it) we both feel alert. But this is only a problem if we let it be one. My suggestion is to accept this new definition of self without reservations: when one person does something, everyone affected by their action becomes, to some extent, that person. “My wife” is now partly me. Everyone who borrows or lends dollars at a floating interest rate is now partly Ben Bernanke.

Once you accept this definition of self, the concept of karma falls right out. No longer do we need some mystical process whereby good and bad karma attach to the individual. It happens by definition. If I do something that benefits people, it benefits me, because I literally become those people. Rebirth also becomes a trivial issue: I am constantly being reborn in the people affected by my actions. In a past life, I was Ben Bernanke.

The NAIRU is 3.9%

The constant term in the Phillips curve specification no longer makes sense when there is a vacancy term included to offset the unemployment term. (See the comments section of my previous post on the subject.) My new specification, and a slight correction to the April 2006 data point, results in a NAIRU of 3.9%. The chart below (click on image for a better picture) shows what has happened to it over time, based on a single Phillips curve fit and a constant-slope Beveridge curve which shifts continuously. The results are surprisingly consistent with actual monetary policy (except over the past year, but lately energy price concerns might outweigh NAIRU concerns).

A Point of Agreement

In an earlier post, I noted that I seem to disagree with Dean Baker more often than I agree. Today, though, he made a point about rent inflation that echoes one I made last month. (Somehow I don’t think either one of us was the first person to think of it, though.)

The NAIRU is 4.3%

One problem with using the NAIRU as a guide to policy is that most analyses do not include a useful theory of how and why the NAIRU shifts over time. By now, everyone acknowledges that it does shift. Otherwise the late 1970s and the late 1990s (as experienced by the US) could not have happened in the same country. Unfortunately, the usual way of dealing with these shifts is to treat them as a purely empirical phenomenon. The problem with that approach is that we don’t find out about the shifts until long after they happen.

Here I will make the bold claim to have a useful theory of NAIRU shifts. It’s not a new theory, really, but it has, in my opinion, gotten a lot less attention than it deserves (and as a result, the whole NAIRU concept has gotten more abuse than it deserves). The idea is that inflationary pressure from the labor market is determined by the relationship between the number of unemployed workers and the number of available jobs. In general, the more jobs there are available, the more inflationary a given level of unemployment will be. If only a few firms want to hire, for example, then most firms will not have occasion to raise wages even if the unemployment rate gets quite low.

The specific relationship between unemployment, job vacancies, and inflation can be estimated empirically by including a job vacancy variable in a standard Phillips curve specification. The Phillips curve results can be combined with information about the Beveridge curve – the inverse relationship between unemployment and job vacancies over the business cycle – to provide an estimate of what unemployment rate is consistent with stable inflation, and voila: the NAIRU!

It so happens I’ve done just that. The whole procedure isn’t very fancy, but I think it provides a sensible first cut. My Phillips curve has no control variables. (It does have a third-order polynomial distributed lag on past inflation and a constraint that the coefficients sum to one – the latter necessary to identify the NAIRU.) The proxy for job vacancies is based on a combination of the Conference Board Help Wanted Index and the Monster Employment Index. (I won’t go into the details of how I combine them, but the Conference Board index usually dominates, because newspapers still have the lion’s share of the want ad market.) I use a purely visual process to ascertain the normal slope of the Beveridge curve, because I don’t have time right now for the fancy econometrics needed to estimate a shifting relationship between two noisy variables. (I assume that all shifts in the Beveridge curve are parallel shifts.) I use monthly data going back to 1953.

As expected, both unemployment and job vacancies are highly significant in the Phillips curve. I took a line through the data point for March 2006 to represent the current position of the Beveridge curve. Conclusion: See the title of this post.

That Which We Call a Rose

In a TCS Daily article, Jeff Miron proposes a set of budget cuts that “every economist should endorse, regardless of party affiliation…Democratic economists, and all other economists, should use their blogs, and their op-eds to highlight the enormous scope for welfare-enhancing cuts in government expenditure.” As a Democratic economist (albeit not an influential one), I hereby do use my blog to endorse Jeff Miron’s proposals. (I’m not so sure about some of the stuff he identifies as “pork”, but I’d go along with those cuts if his proposed farm subsidy cuts were also part of the package.) I make this endorsement specifically as an economist with the “Democratic” tendency to be skeptical about the importance of the disincentive effects associated with high marginal tax rates.

What puzzles me, though, is why Republican economists – who typically argue against high marginal tax rates – would support Miron’s proposals (except perhaps because they are sensible deficit hawks and would support any reasonable proposal to reduce the deficit). The heavy lifting in his list of cuts is done through means testing of government benefit programs – Social Security, Medicare, and higher education subsidies. Economically, this is precisely equivalent to increasing marginal tax rates. Think about it: if richer people were to get the same benefits as they get now but pay those benefits back to the government in the form of higher taxes, wouldn’t that be just like not getting the benefits in the first place? If higher marginal taxes discourage people from saving and investing, won’t they also be discouraged by the prospect that their future income will reduce their Social Security benefits?

Politically, “getting the rich off welfare” may be an easier sell with both parties than “raising taxes.” And there may be some substantive sense in which decreasing the amount of money that passes through government programs constitutes “reducing the size of government.” But as far as economics goes, this proposal looks like a tax increase, walks like a tax increase, and quacks like a tax increase. As I said, I support it.

Buddhism and Economics

…or perhaps I won’t be too busy to post. We can relax the assumption that I would spend some time sleeping this week…


Apropos of my mention of Buddhism in an earlier post, battlepanda asserts:

Instead of focusing on love and hate, for one's friends and enemies respectively, Buddhism focuses on suffering and mercy, which is the alleviation of suffering. It is the only religion I know of that aligns with utilitarian elements

In the light of this, it occurs to me that Buddhism is related to economics. A rational Buddhist is like the hypothetical social planner that economists use to generate social optima in welfare models, because maximizing social welfare is equivalent to maximizing good karma. (That is, the social planner is maximizing his or her own good karma by acting to maximize social welfare. There might be a problem, though, because some interpretations of Buddhism argue that, while good karma is better than bad karma, it’s even better to have no karma at all.)

OK, maybe that’s just an excuse to write about Buddhism in a blog that’s focused on economics. I don’t really need an excuse, but I will be posting about Buddhism occasionally.

Interestingly, the phrase “Buddhism and economics” (in quotation marks) gets 102 results in Google, with apparently only a little bit of redundancy. I haven’t looked at any of them yet.

Practical Tobinism

I have a lot more to say about the NAIRU (and various other topics, believe it or not), but this week I may be too busy applying Tobin’s separation theorem – something else that James Tobin and Greg Mankiw would agree about (but it’s pretty hard for anyone to disagree with a theorem). Since people actually pay me for this kind of thing, I’m beginning to see why Tobin is worth naming a dog after, even if you disagree with him about a lot of things. (My cat and I disagree about a lot of things, too.)

Walking with Keynes

As an alternative to the NAIRU (see these earlier posts and links and explanation), James K. Galbraith argues for an “Old Keynesian” paradigm, in which

full employment was not inherently inflationary; in fact, we saw the greater inflation risk in stagnation itself. In a slowdown, we believe, monopolistic enterprises raise prices in order to try to recover their fixed costs. While on the other hand, full employment production foments ample competition in product markets, high rates of technical change, and declining costs, as businesses seek ways to save on scarce and expensive labor. In other words, productivity growth accelerates because of full employment itself.

I see various difficulties with this point of view. For one thing, slowdowns historically have typically been associated with declining inflation rates, not rising inflation rates. There has been “stagflation,” but generally the “flation” part began before the “stag” part. I don’t doubt that stagnation can cause some firms to raise prices, and that rising interest rates can produce some inflationary feedback, but on balance, tight money (by means, specifically, of the slowdowns it induces) seems to have been a very effective way of reducing the inflation rate. If tight money weren’t the way to do it, one would have to wonder how inflation could possibly be eliminated once it appears.

There is a stronger empirical case to be made, perhaps, for the proposition that booms are not necessarily inflationary. At least there is the salient example of the late 1990s, but even in that case the inflation rate crept upward as the boom moved toward its acme. The rise in inflation rates was more dramatic (though by no means catastrophic) in the more powerful boom of the late 1960s. Generally booms have been associated with moderate but not severe inflation, except in the early (and arguably, again in the late) 1970s when OPEC took advantage of boom conditions by raising oil prices dramatically.

Robert Eisner, whom Galbraith cites as a fellow “Old Keynesian,” argued that booms are in fact not inflationary but slowdowns do have disinflationary effects. In other words, the Phillips curve – the relation between inflation (vertical) and unemployment (horizontal) – is concave, bending downward as it moves to the right. The policy implications are interesting: this view would seem to imply no disadvantage in maintaining a zero interest rate policy during normal conditions. Nonzero interest rates (which would probably end up far from zero) could be reserved for those occasions when inflation (presumably sui generis and unavoidable) needs to be throttled from the system. It’s an intriguing possibility, but one has to be a tad worried about whether the political will to tame such inflations would be forthcoming.

My reading of Keynes’ General Theory, however, suggests an interpretation that is, in some ways, just the opposite. While my Keynes would agree with Eisner’s Keynes that there is a region in which the Phillips curve is fairly flat, my Keynes would say that region is on the right, not on the left. That is, the curve is convex, bending to the right as it moves downward, instead of the other way around.

The policy implications of this view are also interesting: a stimulus policy to raise employment continues to work extremely well up to a point, but then it starts to turn more and more rapidly into an inflationary disaster. This does tend to argue for a “Don’t shoot until you see the whites of their eyes” policy toward inflation, but it also suggests that (1) you want to be cautious about approaching that point and (2) once you get there, you want to make an all-out attack. It also implies that it’s worth devoting a very large amount of resources to finding out just where that inflection point lies. The cost of being wrong in either direction is quite high in terms of either foregone employment or unnecessary inflation.


UPDATE: I should point out that the shape of the Phillips curve (concave, convex, or linear) is a separate issue from whether it has the “accelerationist” property that gives rise to the NAIRU concept. With Eisner's concave Phillips curve, there might still be a NAIRU, but the inflationary cost of going below it would be small, and it would be advantageous to keep unemployment below the NAIRU most of the time and allow a very slow rise in the inflation rate, which could then be brought down again fairly quickly when it started to reach an unacceptable range. The NAIRU idea would not have pleased “my” Keynes, but it is gospel to many contemporary proponents of the convex Phillips curve that I associate with him.

UPDATE2: Added parenthetical links at top.

Told Ya

Suddenly my view that Bernanke is a hawk (and that his inexperience might make him more hawkish) doesn’t look so contrarian.

How do you say NAIRU in Japanese?

Having posted an unpleasant philosophical rant (possibly offensive to conservatives, liberals, Christians, Muslims, Jews, Buddhists, and atheists all at once) as the obligatory non-NAIRU-related post, I now return to the Master of All Topics.

In a comment to a Battlepanda post (acknowledged by Angelica in a subsequent post), I argued that Japan’s experience argues strongly for the pragmatic value of the NAIRU theory:

…if Japan had paid more attention to the unemployment rate, and the fact that it was rising above its historical norm (guesstimated NAIRU), they would have made an earlier and more aggressive policy response to what eventually became deflation, and might have avoided it.

and again:

If you believe in the NAIRU theory, and you observe that unemployment is at or near a historical high, and that the inflation rate is already near zero, then there should be deflation alarms going off all over the place. You should go absolutely wild with the economic stimulus. That was the situation in Japan in 1994-1996, but I don’t think anyone could say they went wild with the stimulus.

I wasn’t sure just how strongly the data supported my contention until I looked, more recently, at the exchange rate series. As Raymond’s dad would say, holy crap! The value of the yen (against the dollar) set a new record high in the exact same month (April 1995) as the Japanese unemployment rate. Was there a shortage of printing presses at the Bank of Japan, or what?

I guess this is what led economist Rudi Dornbusch to say that Japan was shooting itself in the foot. To which Alan Abelson of Barron’s later replied (forecasting a recovery of the dollar, I think) that Japan might shoot itself in the foot, but it wouldn’t shoot itself in the head. Subsequent experience, however, seems to indicate that Japan had already completed its act of economic hari-kari. I think it’s fair to say, if Larry Meyer had been there, it wouldn’t have happened.

The difficulty, though, is that Japan’s Phillips curve has never been very well-behaved, so maybe the Japanese had reason to think that the NAIRU didn’t apply. I tried fitting a “dumb” Phillips curve (i.e., without any control variables) to the pre-1995 Japanese data. While the parameter values look reasonable (and imply that Japan was already far above its NAIRU by mid-1993), the parameters are not statistically significant. In other words, there is so much noise in the Japanese data that you can’t trust the signal. I suspect, though, that a more sophisticated analysis, including controls like, say, oil prices and exchange rates, would result in a much better fit. It’s a shot in the dark, but I wonder if anyone who reads this might know of a better analysis that might have been done (prior to the late 90s, when the Japanese unemployment rate rose well into uncharted territory).

Against Optimism

The toil of all that be
Helps not the primal fault
It rains into the sea
And still the sea is salt

The world is a horrible place. It has always been a horrible place. Barring some huge and unforeseen miracle, it will always be a horrible place. The sooner people realize this, the sooner we can start having realistic political discussions.

Conservatives seem to think that the world is OK – maybe not great, but OK – if only governments would stop screwing things up. To anyone who takes off his or her rose colored glasses for a few minutes (as liberals generally do from time to time, if only to see how conservatives are wrong), this point of view is nonsensical. The world is clearly not OK, and government intervention – while it might cause some harm – cannot seriously be thought a sufficient explanation, given the severity of the world’s not-OK-ness.

Liberals, on the other hand, think that the world’s problems – most of them, or enough of them, anyhow – can be solved. To anyone who thinks through the issues (as conservatives do occasionally, if only to see why liberals are wrong), this point of view is nonsensical. When you try to solve a problem (“you” being a hypothetical political leader with the aid of an inefficient bureaucracy and subject to the usual political motivations), you typically create bigger problems, and you seldom succeed in solving the original problem.

Though I’m rather a social liberal myself, I think the only people who are close to having it right are certain religious conservatives who believe that the fallen state of the world is a punishment for man’s sin and that the only hope of redemption is religious rather than political. In some cases, these are people who do foresee the “huge…miracle” that I earlier described as “unforeseen.”

As for me, Osama Bin Laden has convinced me that religion – Western monotheism, anyhow – is not the right way. And moreover, somehow, I no longer understand how the idea of Original Sin ever made sense to me. (I won’t get into the theological details here.) Maybe I could buy Buddhism (you know, “Life is suffering; there is no self; all is emptiness”), if only these damn American Buddhists would cut their hair and dress like Episcopalians.

(Am I the only person that still reads Housman?)

(Apparently not; Sognaluna does. Jivacandra does. So does St00pidN00bie.)

If not NAIRU then what?

Already, I realize I’m going to have to start spacing out my NAIRU posts, or I’ll have to change the name of this blog to “NAIRU and…” But the NAIRU wars continue, and this is a good time for my first substantive post on the subject.

In my first reply to Angelica (Battlepanda) in the comments to the link above, I conclude:

But eventually, at some point, you will have to raise interest rates. How do you determine that point, and why? Whatever answer you give will imply some theory about the way the world works, and it may or may not be a better theory than the NAIRU. If we don’t know what the theory is, though, we’ll probably never know if it’s a better theory.

Here I will suggest and comment on some possible alternatives, to argue (briefly) why I think they are not sufficient to make the NAIRU theory obsolete:

1. intuition.

First of all, this is a nice trick if you can do it. If you can clone Alan Greenspan ad infinitum, we’ll probably be fine. Otherwise, I’m not so sure. Among ordinary mortals, intuition can be severely clouded, for example, when the man who appointed you is a corrupt megalomaniac who thinks the future of the free world depends on his being reelected.

Second of all, “intuition” really begs the question. “Intuition” means either that you have a theory you don’t know how to express (or can’t explain why you believe), or that you have several theories you are weighing in your mind. In Greenspan’s case it was maybe a little of both. Though Greenspan publicly disavowed the starkest version of the NAIRU theory, there was surely some version of the theory in the witch’s brew of theories that informed his intuitive decisions. And the Fed’s course in the late 90s seems pretty close to optimal (at least if you don’t think they should worry about asset bubbles). If Larry Meyer and his fellow NAIRU advocates hadn’t been there to toss in some eye of newt, the brew might not have had the right effect.

2. downward-sloping long-run Phillips curve

This is the theory that prevailed before the NAIRU unseated it. Personally, I think economists were too hasty to reject it. The inflation of the 1970s provided a strong emotional argument against the old theory, but the inflation had various other contributing causes (e.g., OPEC, a tumultuous labor market, a corrupt megalomaniac working with an intuitive Fed chairman) besides a possibly bad theory that might have distorted policy. But good luck trying to convince just about any other living economist today to resurrect the old Phillips curve! It’s like trying to sell whiskey to a Salvation Army general.

3. privatized monetary policy

The Austrian school argues (IIRC) that we should get rid of the Fed altogether and let banks create their own money, secured by the credibility of their promise to pay in gold (or in something else of value). This is a really bad idea. Don’t even get me started.

4. monetary aggregate targeting

Been there. Done that. The results weren’t pretty. And that was before the last 20 years of financial innovations, which have further softened the links between nominal income and the money supply. Like the downward-sloping long-run Phillips curve, this is an idea that has been tried and rejected, but in this case I agree with the consensus. (By the way, anyone who is familiar with the career of Milton Friedman will see a certain irony in proposing monetary aggregate targeting as an alternative to the NAIRU theory.)

5. real business cycle theory

I doubt that anyone who reads this blog will seriously suggest using this as a primary guide to policy, but I include it because it’s still the most academically respectable alternative to the NAIRU. If anyone does think this is the way to go, I’d be interested to hear details.

6. commodity targeting

This is what supply-siders tend to like, but I notice they tend to change their minds about which commodities to target depending on what policy implications suit their current fancy. I think it’s a very bad idea anyhow. Over the last few years, for example, various commodity prices have been rising rapidly. If our currency were tied to those commodities, we would be contracting the money supply and deflating the rest of the economy. Of course, we could have chosen commodities that don’t happen to be rising now, but then some other day we’ll have the same problem. (And if we’re allowed repeatedly to change which commodities to target, then this is no policy at all.)

7. Taylor rule without an output term

In other words, raise interest rates when the inflation rate goes up, and get more aggressive the more it goes up. I guess this is the most obvious, and the most widely acceptable, alternative.

But it’s a dumb idea. Implicitly, it’s based on a theory that is even dumber than the NAIRU theory: namely, that next year’s inflation rate equals this year’s inflation rate (plus some completely unpredictable random change). The implication is that economists who forecast inflation have been complete failures and should be replaced by someone who just copies a number from one spreadsheet cell to another. That’s just not true: while they haven’t done nearly as well as one might hope, they haven’t completely failed.

There is plenty of information (the unemployment rate being the most obvious example) that can help forecast inflation, and the Fed should take advantage of that information. For Heaven’s sake, if the unemployment rate goes down to 3%, I don’t care if you see any new inflation yet; you’ve gotta raise interest rates! And if it goes up to 9%, I don’t care if you don’t see the inflation rate falling yet; you’ve gotta cut interest rates!

8. any other ideas?

I have some that I like, but that’s for another post. (And I’m really talking about ideas derived from the NAIRU theory, anyhow.)


UPDATE: OK, I was a little unfair to the Taylor rule (7). Obviously there has to be some feedback from monetary policy to inflation; otherwise nothing the Fed did would have any effect. So the implied theory is not quite as degenerate as I suggested. However, it is essentially saying that the process by which monetary policy affects the inflation rate is a “black box,” the contents of which we know nothing about. That’s just silly.

My NAIRU, Right or Wrong… (Prelude)

I think that Keynesian economics can do better than the NAIRU theory, but I also think that, in order to move forward, we need to be able to explain the value of the existing theory. Although I’ve maligned it in the past, today my duty as a Keynesian calls me to defend the NAIRU. Well, maybe I’m not the best soldier, but…how do you load this damn thing, anyway? (We have a lot of friendly fire casualties; it may not always be clear which side I’m on.)

So far we have only a couple of minor battles:

The first battle

The second battle (Read and then click on "Comments")

Also, an earlier skirmish – with a different, better trained but less focused, rebel contingent, previously observed preparing for battle

Unpronounceable?

Everybody says my nom de blog is unpronounceable. First of all, if you can’t pronounce it, just spell it out, and you’ll do just fine. Second of all, if people spent more time on important things like Indo-European paleolinguistics instead of silliness like settling international conflicts and engineering economic growth, they would realize that N can be pronounced as a vowel. Vocalic N is a standard feature in proto-Greek. If only some pre-Homeric bards would read my blog, we’d be off and running.

Immigration, Jobs, and Wages

Like most economists, I favor increased legal immigration to the US. I have to say, though, to my fellow immigration advocates: let’s get our story straight!

Immigration advocates typically make two assertions:

1) Immigrants do jobs that Americans aren’t willing to do, and
2) Immigration has little effect on wages

These statements cannot both be true. Consider what would happen if we got rid of all the immigrants. Somebody would have to do the jobs that the immigrants had been doing. Since, according to statement 1, Americans aren’t willing to do those jobs, we would have to raise the wages dramatically to get Americans to do them (which contradicts statement 2).

Theoretically, the way to get out of this contradiction is to assert that statement 1 is so thoroughly true that there are really no Americans who compete with immigrants in the labor market. If that’s the case, then, even though immigration affects the wages associated with jobs, it doesn’t necessarily affect the wages received by individuals. If we got rid of the immigrants, all the jobs with newly increased wages would be filled by people from other (presumably initially higher paying) jobs, so no individual would necessarily receive a large wage increase.

Logically, that works, but the premise is thoroughly implausible. I can believe that people who compete with immigrants are a small fraction of the population, but I cannot believe that they are an empty (or virtually empty) set.

Of course, you could say, since they’re a small fraction of the population, we don’t care about them. That, first of all, is not a very nice thing to say. But second of all, you have to recognize that, the smaller the fraction, the more dramatic is the harm done to them by immigration. If these immigrant-competers are actually a large fraction of the population, then statement 1 is false, so statement 2 can be true, and we don’t have to worry about them. On the other hand, if they’re a very tiny fraction of the population, then statement 1 is extremely true, which means that statement 2 is extremely false.

If I had to guess (given what I’ve heard about the research), I would say the truth is probably somewhere between statements 1 and 2. That is, there is a small but non-negligible fraction of the native population that is willing to do the jobs that immigrants do (or jobs that functionally substitute for those jobs), and the wages of this fraction are affected significantly but not overwhelmingly by immigration. I have always gone along with the argument that, since immigration helps the immigrants a lot more than it hurts these Americans, it’s still a good idea. Some people say I should be more concerned with my fellow citizens than with foreigners, and this leads to all sorts of contentious discussions about nationalism and the nature of democracy. Perhaps I’ll go into that stuff in another post.

The Naming of Dogs

A difficult matter: Why does Greg Mankiw have a dog named Tobin? In principle, there are two possible reasons:

(A) he wants to honor Tobin by naming a cherished pet after him;
(B) he wants to dishonor Tobin by naming a mere dog after him.

In practice, I’m sure it’s A, for several reasons (any of which would probably be sufficient):

1. The disrespect (to a Nobel laureate, no less) implied by B would be entirely out of character for Greg.

2. Greg used to have a dog named John Maynard Keynes. At the time, his main claim to fame was as one of the leaders of the “new Keynesian” school of macroeconomics, so it’s implausible that he would have wanted to dishonor Keynes. (It’s also implausible that he would have completely reversed his dog-naming policy subsequently.)

3. I was once at a talk by James Tobin, at which Greg asked a question in a tone that clearly indicated he did not regard Tobin as a dog.

(Actually, possibility C is that his wife named the dog, but I will ignore that possibility for now. Possibility D, which I reject out of hand, in part because of 2 above, is that the name refers to a different Tobin and has nothing to do with the famous economist.)

It seems odd to me that Greg would choose James Tobin out of all the possibilities. When I think about the two of them, it seems there are very few things on which they would agree (if Tobin were alive today). OK, “Keynes was a great economist,” and “Certain nominal quantities values are sticky in the short run.” But beyond that, they would probably disagree about which nominal quantities values (wages or prices), why they are sticky, how long they are sticky, whether the stickiness is symmetric, and so on. They would certainly disagree about the policy implications (e.g., active policy vs. fixed rule). Tobin certainly wouldn’t have taken (or been offered) a job in the Bush administration. Would Mankiw have taken (or been offered) a job in the Kennedy administration? Maybe, but it’s a stretch.

Of course, you can still have great admiration for someone with whom you disagree. But my sense is that there is more to it than that. I think that Greg regards James Tobin as his intellectual progenitor, as an earlier worker on the same project. Perhaps rightly so. I’m not sure what the implications are, but there seems to be some great irony to the whole situation.


UPDATE: I didn’t realize Greg posted on this same topic (sort of) today. Maybe there’s something in the air.

UPDATE2: ...and Greg responds (sort of).

UPDATE3: Shame on me for using the word "quantities" to refer to prices and wages. I really have to mind my P's and Q's.

Life Expectancy

By way of Battlepanda:

J. Bradford DeLete

One of the privileges of having my own blog is that I get to re-post the comments that Brad DeLong deletes. As everyone knows, he is quite trigger-happy with that delete button. Well, I can kind of understand: his threads would go on for miles of drivel if he let every Tom, Dick, and Harry post comments. But moi...? For my latest, first some background:

1. Brad attacks a political reporter for making light of Hillary Clinton’s “wonkish” energy proposals. The media should cater instead to careful and concerned readers who really care about her speech.

2. Brad attacks another reporter for not stating prominently enough that global warming skeptics are liars, lunatics, and charlatans. The media should cater to careless and sloppy readers, who will be more influenced by the skeptics’ statements than by the author’s unambiguous but subtle challenges.

3. More of the above: the post on which I commented.

So…

Will the real Brad DeLong please stand up? Is it the one who believes readers are dumb and casual and need to be spoon-fed the truth about global warming? Or is it the one who believes readers are subtle and sophisticated and need to be given more substantive details about Hillary Clinton’s energy proposals?

Oops, I forgot: It’s the one who deletes posts from those who find problems with what he says. I suppose one might be able to avoid this fate by stating the criticisms in unusually diplomatic language, instead of trying to be witty. But isn’t Brad himself the one who is always attacking reporters for being too diplomatic in their criticisms?

My latest comment agrees with something he said, though, so I’m guessing it won’t be deleted. (To be fair, I did make some mildly hostile comments on the first post cited above, and Brad didn’t delete them either. I guess it’s hard to predict.)

Amateur's Luck

According to Jimmy Rogers (quoted in today’s Barron’s), Ben Bernanke is “an amateur with no knowledge of markets.” The article doesn’t make explicit the context of this characterization, but it implies that Jimmy thinks the new chairman’s lack of knowledge of markets will lead to more inflation.

It’s fair enough to point out that Uncle Ben (in contrast, for example, to Alan Greenspan) is a strictly ivory tower guy without much direct “real world” experience. It’s also fair enough to anticipate that this background might in some cases lead Bernanke to make mistakes that Greenspan wouldn’t have made. But I don’t see any reason those mistakes would be biased toward more inflation rather than less. (As I argued in an earlier post, Bernanke’s confidence about the Fed’s ability to deal with deflation should lead him to be more aggressive in combating inflation. That’s a separate issue, though.)

If we look at Greenspan’s time at the Fed, there certainly was some dispute between the ivory tower guys and the real-world-minded chairman. (I get into trouble using the word “guy” to refer to Janet Yellen, though.) The ivory tower people put up a fair amount of resistance to Greenspan’s relatively easy money policy in the mid-to-late 90s. It was the ivory tower people who concerned themselves with the spectre of inflation that Greenspan recognized as a mere phantom. If they had had their way, we almost certainly would have had less inflation (and perhaps deflation) in the late 90s and early 00s.

Possibly, the situation could be different now, but my reading is that it is more extreme in the same direction. Academia has a tradition of regarding the unemployment rate as a critical indicator of inflationary pressure. The “Natural Rate” or “Non-Accelerating Inflation Rate” of Unemployment is a staple of macroeconomics textbooks. Almost anyone who takes this ivory tower view would have to be a little concerned about today’s historically low 4.6% unemployment rate. But other indicators – less popular in academia and on the Fed staff – of labor-market inflationary pressure come in much weaker, indicative of plenty of room to grow without stressing the labor market. For example, help wanted advertising (even if you include the Internet) is still near an all-time low when measured relative to the size of the labor market.

If anything, I would argue, Ben Bernanke will listen to the Fed staff, apply his own ivory tower knowledge, and be induced to tighten more than is necessary. While I share Jimmy’s concern that the bull market in commodities could be a continuing source of inflation, I would point to the present Fed’s tendencies as a counterweight rather than an intensifying factor.

Rolling On About Blogs

Even though Dean Baker and I are both “liberal Democrats” (he more than I, I think, or at least he’s more loyal), I seem to disagree with him more often than I agree with him. Nonetheless, I am quite impressed with his blog. I’m something of an academic snob when it comes to economics blogs: that is, I’m hesitant to “waste my time” on any blog that isn’t written by someone with the title “Professor”. (For example, you’d have a hell of a time getting me to read my own blog – at least until I realized how smart the author is:) However, I find that Dean Baker makes up in provocative thought for what he lacks either in academic credentials or in agreeing with me.

Other non-academic blogs that I like: Economics Unbound (Michael Mandel of Business Week), Brad Setser (international finance; not an easy read, but he clearly knows his stuff better than most), Battlepanda (Angelica Oung, though lately she seems to be leaving it mostly to her co-bloggers). That last one is kind of an outlier in my blog space: as far as I know, Angelica doesn’t even have an advanced degree, much less an academic appointment, but I like her writing, and her perspective seems unique. (I could say that Angelica is my link into the lefty/feminist/youth blogosphere, but she seems rather to the right among the lefties.)

Now that I’ve mentioned the non-academics, I should be true to my snobbery and give the prominent final position to the academics. Brad DeLong and Greg Mankiw are the acknowledged kings, and they provide a nice political counterpoint to each other. Also excellent are Econbrowser (James Hamilton, the energy macroeconomics and time series analysis expert, with Menzie Chinn, who writes mostly about international finance issues), Economist’s View (Mark Thoma, University of Oregon, leaning left but more faithful to economic analysis than many on the left), macroblog (David Altig of the Cleveland Fed and the University of Chicago), and EconLog (Arnold Kling and Bryan Caplan, who lean right/libertarian). [A few others that I have to mention: William Polley (academic; interesting but not prolific); New Economist (academic?? I don’t know, but many of the posts certainly are); Angry Bear (distinctly left-leaning and often more about politics than economics; academic?? Again I don’t know). As for Marginal Revolution (Tyler Cowen and Alex Tabarrok), being a macro guy, I seldom read it, but everyone else seems to.]