Arithmetically, the U.S. economy is depressed because residential construction and government purchases are well below previously-expected trend levels…
Compared to other developed countries, the US ranks high on income inequality and low on social mobility. This could be particularly concerning if such a trend is self-perpetuating. In this column, the authors argue that there is a causal relationship between income inequality and high school dropout rates among disadvantaged youth. In particular, moving from a low-inequality to a high-inequality state increases the likelihood that a male student from a low socioeconomic status drops out of high school by 4.1 percentage points. The lack of opportunity for disadvantaged students, therefore, may be self-perpetuating.
Figure 1. The Great Gatsby curve in the US
The successful occupations, by this measure, shared certain characteristics: People who practiced them needed complex communication skills and expert knowledge. Such skills included an ability to convey “not just information but a particular interpretation of information.” They said that expert knowledge was broad, deep and practical, allowing the solution of “uncharted problems.”
In a separate May 5 statement, Prof. Sean D. Kelly, chairman of the General Education Review Committee, said a Harvard education should give students “an art of living in the world.”
Many of these issues have arisen in my own academic life. My teaching has changed over the decades. I try to make it more useful in confronting issues of creativity and morality in the work world.
As cities around the country, including Los Angeles, New York, Chicago, and Seattle, pass or propose legislation to substantially increase the minimum wage for workers, debate has raged over the potential economic, social, and fiscal impact. Here are some of the pros and cons of raising the minimum wage:
PROS
- Lifts workers out of poverty to brink of poverty
- One less thing to feel shitty about when leaving Chick-fil-A
- Shorter lines at pawn shops
- Higher morale among workers who aren’t casualties of cost-cutting layoffs
- Gets picketers out of pathway to Big Mac
CONS
- Bargain compared to cost of creating actual social safety net
- Workers will grow complacent and lazy if they can afford basic human needs
- Still just as insulting that your boss pays you lowest amount he or she legally allowed to
- Awkwardness of being served by cashiers wearing top hats and monocles
- 16-year-old cashier set to live like fucking king for rest of summer
- Employee benefits like paid vacation, gym membership, and yoga sessions could be slashed for thousands of line cooks and convenience store clerks
- Increases expense of exploiting workers
Nearly every person I’ve ever met has self-professed bad habits they feel unable to control. Maybe it’s not even an addiction, just something simple like using your phone too much or watching too much television.Do you have any bad habits? Could you follow the advice in the article to change them?
H) LESS
Mimi and Alex (Ikonn) were working 80-100 hour weeks. They had the money in the bank. They had achieved their goals. They loved what they were doing but when you hit a lifelong goal you start to ask, "is that it?"
They got depressed.
Goals are a myth. Our ancestors for 200,000 years didn't have goals. Every day started from scratch: hunt, forage, eat, sex, sleep, wake up to a new day.
Then we were told to find our "goals". And now everyone asks, "I'm 17 years old and feel like I've accomplished nothing in life. What should I do?"
Learning to find happiness with less is true wealth. Claudia and I recently got rid of most of our belongings, for instance. Then we started canceling most meetings that I had set up. Sometimes it was hard. I had agreed to an event and then I would cancel.
Ultimately we are the sum of our experiences and not the sum of our belongings. There is nothing wrong with making money but it is only one small part of living a life of comfort, of compassion, of calm.
The star student of Houston High School in Memphis, Tennessee, scored entry into all eight of America's prestigious Ivy League schools. Nelson was certainly qualified, graduating with a 4.58 weighted GPA, a 2260 out of 2400 SAT score and 15 AP classes. He was also a national merit scholar and president of his high school class, Business Insider reports, along with being a state-recognized alto saxophone player.
Nelson, however, decided to forgo the big-name schools in favor of the University of Alabama. The reason, he said, came down to cost.
Loans. Stories like Nelson's are becoming more common as America's most prestigious schools continue to grow financially out of reach for more and more students. Over the last 40 years, college expenses have been rising at a breathtaking pace. Since 1978, college costs have skyrocketed more than 1,100%. Today, the ten most expensive colleges in the United States all cost more than $60,000 a year. Predictably too, student loan debt has been growing in America every year since at least 1992, reaching more than $35,000 per average borrower in 2014.
The ballooning costs add further weight to questions about the relative value of attending other prestigious academic institutions. In a host of other metrics measured by the data company PayScale, less well-known colleges like the Oregon Institute of Technology and Brigham Young University performed better than Harvard and Yale in their return on investment to students.
There are many lessons that can be drawn from Mlodinow’s article, but there’s one in particular I want to highlight here: we need to rethink creativity.
In an economy where creativity is becoming both more important and complicated, I suspect we need to abandon the old ways of thinking about this type of thinking, with its conference room brainstorming sessions and markers on butcher paper, and instead discover what scientists knew along: creativity is hard, highly skilled work that is often quite unromantic in its execution, but is ultimately a source of deeper satisfaction than any short-lived eureka moment could ever deliver.
Consider the relationship between the monetary base — bank reserves plus currency in circulation — and the price level. Normal equilibrium macro models say that there should be a proportional relationship — increase the monetary base by 400 percent, and the price level should also rise by 400 percent. And the historical record seems to confirm this idea. Back in 2008-2009 a lot of people were passing around charts like this one, which shows annual rates of money base growth and consumer prices over the period from 1980-2007:
It seemed totally obvious to many people that with the Fed adding to the monetary base at breakneck speed, high inflation just had to be around the corner. That’s what history told us, right?
Except that those who knew their Hicks declared that this time was different, that in a liquidity trap the rise in the monetary base wouldn’t be inflationary at all (and that the relevant history was from Japan since the 1990s and from the 1930s, which seemed to confirm this claim). And so it proved, as shown by the red marker down at the bottom.
What is the Federal Reserve?
The Fed, as it is often called, is the nation's central bank. It controls the supply of money in the U.S. economy. The $20 bill in your wallet can be used to buy things because the Fed says so (Look! It even says "Federal Reserve Note" at the top).
The Fed also regulates thousands of private banks around the country and is ready to make emergency loans to them if they temporarily run short of cash. And it manages the technical plumbing that ensures that banks have plenty of money on hand to fill up their cash machines and makes sure that when your employer tries to electronically transfer your paycheck every other Friday, the money shows up in your checking account.
The Federal Reserve System includes the Board of Governors, based on Constitution Avenue in Washington, and a dozen reserve banks based around the country, plus 20 smaller branch locations. It’s pretty huge: The Federal Reserve System has around 20,000 employees and $2.3 billion worth of real estate. It had $3.7 trillion on its books at last count.
How powerful is the Fed chair, really? No, seriously, I want a ranking.
Oh, you want power rankings? I’d put the Fed chair at the second most powerful person in the United States. The president comes first. But consider the alternatives for the No. 2 slot: The vice president’s only formal power is to break ties in the Senate; the president can choose to ignore and marginalize him. High Cabinet officials like the secretaries of state and defense take their orders from, and serve at the pleasure of, the president. Similarly, you could make a case for White House chief of staff, but that position is basically a vessel for carrying out the president's wishes. The chief justice of the Supreme Court is both powerful and independent, but is much more likely to be outvoted by peers than is the Fed chair.
... culture matters. And I am not talking about walking single-file lines. I am talking about holding students to high expectations for behavior and having rewards and consequences for every positive and negative behavior we don't tolerate, without excuses. This is even more important if you are building for open-learning environments. We needed to prioritize this so learning could happen.
Now suppose Mike goes to Greg Mankiw and asks: "Dr. Mankiw, why is it right and just that it took me 4% of my entire lifespan to buy this car, with all my heroic efforts and harsh self-denial, when it took that Brad CEO guy less than a day? I put in every bit as much effort as he does, day after day. Why does he deserve to get things with so much less effort than I put in?"
Dr. Mankiw responds:
I am more persuaded by the thesis advanced by Claudia Goldin and Lawrence Katz (2008) in their book The Race between Education and Technology. Goldin and Katz argue that skillbiased technological change continually increases the demand for skilled labor. By itself, this force tends to increase the earnings gap between skilled and unskilled workers, thereby increasing inequality...The story of rising inequality, therefore, is not primarily about politics and rent-seeking but rather about supply and demand...
If Goldin and Katz are right that the broad changes in inequality have driven by the interaction between technology and education...then it would seem an unlikely coincidence that the parallel changes at the top have been driven by something entirely different. Rather, it seems that changes in technology have allowed a small number of highly educated and exceptionally talented individuals to command superstar incomes in ways that were not possible a generation ago.
"OK," Mike says. "But why, then, is Brad CEO so much more productive than I am? Where does his $30 million productivity come from?"
Dr. Mankiw responds:
[T]he intergenerational transmission of income has many causes beyond unequal opportunity. In particular, parents and children share genes, a fact that would lead to intergenerational persistence in income even in a world of equal opportunities. IQ, for example, has been widely studied, and it has a large degree of heritability. Smart parents are more likely to have smart children, and their greater intelligence will be reflected, on average, in higher incomes. Of course, IQ is only one dimension of talent, but it is easy to believe that other dimensions, such as self-control, ability to focus, and interpersonal skills, have a degree of genetic heritability as well.
"So let me get this straight," Mike says. "Brad deserves to be so much richer than me because of ability he was born with? People who are lucky enough to be born with high skills deserve to be able to get a Civic in half a day, while people who were born with fewer skills deserve to have to slave away for years if they want a Civic?"
Among college graduates in 1971, there were about two business majors for each English major. Now there are seven times as many. (I was a political science major; if I were doing it over, I’d be an economics major with a foot in the humanities.)
“A broad liberal arts education is a key pathway to success in the 21st-century economy,” says Lawrence Katz, a labor economist at Harvard. Katz says that the economic return to pure technical skills has flattened, and the highest return now goes to those who combine soft skills — excellence at communicating and working with people — with technical skills.
“So I think a humanities major who also did a lot of computer science, economics, psychology, or other sciences can be quite valuable and have great career flexibility,” Katz said. “But you need both, in my view, to maximize your potential. And an economics major or computer science major or biology or engineering or physics major who takes serious courses in the humanities and history also will be a much more valuable scientist, financial professional, economist, or entrepreneur.”
My second reason: We need people conversant with the humanities to help reach wise public policy decisions, even about the sciences. Technology companies must constantly weigh ethical decisions: Where should Facebook set its privacy defaults, and should it tolerate glimpses of nudity? Should Twitter close accounts that seem sympathetic to terrorists? How should Google handle sex and violence, or defamatory articles?
To weigh these issues, regulators should be informed by first-rate science, but also by first-rate humanism.
John Adams had it right when he wrote to his wife, Abigail, in 1780: “I must study Politicks and War that my sons may have liberty to study Mathematicks and Philosophy. My sons ought to study Mathematicks and Philosophy, Geography, natural History and Naval Architecture, navigation, Commerce and Agriculture, in order to give their Children a right to study Painting, Poetry, Musick, Architecture, Statuary, Tapestry and Porcelaine.”
So how did Krugman know growth would be slow? He didn't (I hope) put his trust inReinhart and Rogoff's assertion that growth is always slow after financial crises. Maybe he just assumed that the underlying drivers of aggregate demand are sluggish, but I think Paulson's team could have done that just as easily.Economics can often use history as good source of data and prediction. Thomas Piketty's work has done similar work in turning to history for a broader perspective. This is why he considers himself much more a social scientist than anything else.
No, I think Krugman's real secret weapon is something else: Like Voltron before him, he's borrowing heavily from Japan.
But there are two big reasons why the TPP is different.
First, past deals to liberalize trade -- such as the entry of China into the World Trade Organization in 2000 -- were focused on trade with developing countries. These countries, including China, have a lot of labor and not much capital in the form of roads, buildings and machines. When we open up trade with them, the global supply of labor becomes more abundant, and hence less valuable -- American workers end up competing with overseas workers who can do half the job for a tenth of the price. This is known as factor price equalization. It tends to drive wages down, killing good blue-collar jobs in areas such as manufacturing that can be easily outsourced.
The TPP is different. It’s mostly about trade with Japan and South Korea, which has asked to join the pact. These are rich countries, with tons of capital and very high labor costs. In fact, Japan’s labor costs are so high that Japanese auto manufacturers now build a lot of factories in the U.S. American workers are not going to lose out to the Japanese and South Koreans.
Yes, TPP might include a few poor countries, such as Indonesia, which has expressed interest in joining the accord. But compared with China, those countries are small potatoes. Very few manufacturing jobs will be lost to low-productivity Indonesia that haven't already been lost to medium-productivity China.
The second reason TPP isn't like past trade deals is the intellectual property protection. These provisions have had libertarians up in arms -- Rand Paul, for example, has joined the TPP opposition. Democrats who don’t like the direction libertarians have taken our country since 1980 should think twice before getting on the bandwagon with their old adversaries on economic issues.
There is one type of activity that is very hard for U.S. companies to send offshore: innovation. But when Asian countries can just ignore U.S. patents, innovation becomes less profitable. Stronger international IP protection will help U.S. companies export more, which makes them hire more American workers, which increases the amount that those workers spend on the local economy. Yes, there are many problems with the U.S.’s intellectual property laws. But international harmonization of IP wouldn't exacerbate these problems.
3. This was a form of fiscal policy, to stimulate the economy in slow times, by employing craftsmen.
4. The guild of said craftsmen was an influential interest group.He is just having some fun, but it is theoretically sound. You could use the same economic reasoning to explain other grand works like the pyramids of Egypt.
Here is another change that might be a broader sign of a pending reset: A heavy burden of adjustment in the overall labor market is being borne by the young. Wages for the typical graduate of a four-year college have dropped more than 7 percent since 2000, and the labor force participation rate of the young has been falling. One consequence is that young people are living at home longer and receiving more aid from their parents. They also seem to be less interested in buying their own homes.
…Earning a lower wage in earlier years is predictive of lower wages through the rest of one’s career. While we are seeing economic problems for the relatively young, they will eventually become dominant earners in the economy and the major force behind broader statistics.
...The debate over the economy these days isn’t just about income inequality and what should or should not be done about it. Perhaps the most crucial issue is whether economies will return to normal conditions of steady growth, or whether we are witnessing a fundamental transformation, unveiled in bits and pieces. Nominations for the nature of that transformation include a “robot economy,” a new political economy where elites have too much power or, perhaps, a new global economy where the United States no longer holds such a dominant position, to the detriment of American firms and workers.
"We go through our day judging our experiences, other people, ourselves: this is good, this is bad. If all goes well, most of it will be good, but more than we realize, we dislike certain experiences, things about people, about ourselves.
These sensations are just phenomena in the world, happening without any good or bad intention, just happening. They aren’t happening “to” us, nor are they there “for” us. They just happen, without thinking about us as the center of the universe.
What I’ve noticed, when I experience anger, frustration, disappointment … is that I am judging my experiences (and others, and myself) based on whether they are what I want, whether they are good for me or not. But why am I at the center of the universe? What about the other person? What about the rest of the universe? If I drop away my self-centeredness, I no longer have reason for frustration. The experiences are just happening, and have nothing to do with me. They are neither good nor bad, they’re just happening."This skill to notice when you are judging a situation and feeling negative emotions because of your expectations is one of the most useful emotional management tools I've learned about over the years. In more colloquial terms, "Things happen." It doesn't have to be personal.
"The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank’s discount window.
The Fed’s Discount Rate is an administered rate set by the Federal Reserve Banks, rather than a market rate of interest. Use of the Fed’s discount window soared in late 2007 and 2008, as financial conditions deteriorated sharply and the Federal Reserve took steps to provide liquidity to the financial system. Discount window borrowing soared to a record $111 billion at the height of the global financial crisis in October 2008, while the Federal Reserve’s board of governors set the discount rate at a post-WW II low of 0.5% on Dec. 16, 2008."EXPLANATION of 'Discount Window'
"The discount window is an instrument of monetary policy (usually controlled by central banks) that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions. The term originated with the practice of sending a bank representative to a reserve bank teller window when a bank needed to borrow money.[1]
The interest rate charged on such loans by a central bank is called the discount rate, base rate, or repo rate, and is separate and distinct from the prime rate. It is also not the same thing as the federal funds rate and its equivalents in other currencies, which determine the rate at which banks lend money to each other. In recent years, the discount rate has been approximately a percentage point above the federal funds rate (see Lombard credit). Because of this, it is a relatively unimportant factor in the control of the money supply and is only taken advantage of at large volume during emergencies."
"It’s exciting to see randomized trials, measurement and data science applied to philanthropy. Groups like GiveDirectly, GiveWell and The Center for Effective Altruism are creating a new culture of giving, they are making Nerd Altruism cool. We have a long way to go but it says something when billionaires are mocked for giving millions to Yale. In contrast, entrepreneurs like Dustin Moskovitz, Elon Musk and Bill Gates are making it cool to evaluate charities with the same rigor that business people use to evaluate business investments."
"So, unfriending. Is it okay? Well, the view that I have arrived at today is that openly supporting a political party that—in the name of austerity—withdraws support from the poor, the sick, the foreign, and the unemployed while rewarding those in society who are least in need of reward, that sells off our profitable public goods to private companies while keeping the loss-making ones in the public domain, that boasts about cleaning up the economy while creating more new debt than every Labour government combined, that wants to scrap the Human Rights Act and (via the TTIP) hand sovereignty over some of our most important public institutions to big business—to express one’s support for a political party that does these things is as objectionable as expressing racist, sexist, or homophobic views. Racism, sexism, and homophobia are not simply misguided views like any other; views that we can hope to change through reasoned debate (although we can try to do that). They are offensive views. They are views that lose you friends and respect—and the fact that they are socially unacceptable views helps discourage people from holding (or at least expressing) them, even where reasoned debate fails. Sometimes the stick is more effective than the carrot.
For these reasons, I’m tired of reasoned debate about politics—at least for a day or two. I don’t want to be friends with racists, sexists, or homophobes. And I don’t want to be friends with Conservatives either."Feel free to share any thoughts, feelings, or reactions in the comments!
"A lot has been written about Warren in the half-century since he took the reins at Berkshire. But I think the most interesting and insightful stuff is what Warren writes himself. Every year before the annual meeting, he puts together a letter to Berkshire’s shareholders in which he talks very honestly about what’s going well and what isn’t. He also reflects on investing and the economy more broadly. If you want to be as smart about business as Warren is—and who doesn’t?—you can’t beat those letters.
In this year’s letter, Warren takes a special look at the company’s past, present, and future. I cannot recommend it highly enough. It is the best and most important thing he has ever written. Warren’s partner, Charlie Munger, wrote his own letter and it is also excellent.
Warren and I took a break from the weekend’s events to spend a few minutes talking about his rules for smart investing, how he learned to explain complicated financial dealings so clearly, and how he got me into bridge and golf:"
| Liability Type | Requirement | |
|---|---|---|
| % of liabilities | Effective date | |
| Net transaction accounts 1 | ||
| $0 to $14.5 million2 | 0 | 1-22-15 |
| More than $14.5 million to $103.6 million3 | 3 | 1-22-15 |
| More than $103.6 million | 10 | 1-22-15 |
| Nonpersonal time deposits | 0 | 12-27-90 |
| Eurocurrency liabilities | 0 | 12-27-90 |
"Singapore's monetary regulator announced Friday that it's censuring at least 20 banks for trying to rig benchmark interest rates and ordered them to set aside hefty reserves. The Monetary Authority of Singapore also said it had identified 133 traders that participated in the manipulation and that some of them will be investigated by the country’s white collar crimes unit."What are the effects of a move like this? How does it change the supply of money?
"In the eyes of an economist, my students were “misbehaving.” By that I mean that their behavior was inconsistent with the idealized model at the heart of much of economics. Rationally, no one should be happier about a score of 96 out of 137 (70 percent) than 72 out of 100, but my students were. And by realizing this, I was able to set the kind of exam I wanted but still keep the students from grumbling.
This illustrates an important problem with traditional economic theory. Economists discount any factors that would not influence the thinking of a rational person. These things are supposedly irrelevant. But unfortunately for the theory, many supposedly irrelevant factors do matter.
Economists create this problem with their insistence on studying mythical creatures often known as Homo economicus. I prefer to call them “Econs”— highly intelligent beings that are capable of making the most complex of calculations but are totally lacking in emotions. Think of Mr. Spock in “Star Trek.” In a world of Econs, many things would in fact be irrelevant."
Carroll and his co-authors find an aggregate MPC, or average MPC for all households, ranging between 0.2 and 0.4. Their estimate is on the high end of other estimates. Their results mean, to return to the question posed above, if I gave you $10, you’d spend between $2 and $4.
Not everyone would spend these extra bucks the same way, of course, because not everyone has the same marginal propensity to consume. The authors find a wide dispersion in the MPC across the wealth distribution. For the most part, less wealthy households have much higher MPCs than wealthier households. But the economists find that the ratio between wealth and income is the key determinant of the MPC.
There are actually quite a few households in their model that have a fair amount of wealth, but a low wealth-to-income ratio, which in turn results in a high marginal propensity to consume. These households may be the “wealthy hand-to-mouth” that economist Greg Kaplan and Justin Weidner, both of Princeton University, and Giovanni L. Violante, of New York University, have written about. In contrast, a household that has a lot of liquid assets, such as investments in the stock market they could easily withdraw, tend to have a much lower MPC.
So what’s the actual real world importance of estimating marginal propensities to consume? Knowing which households are the most likely to spend an extra dollar can help make fiscal policy more effective. According to Carroll and his co-authors, any fiscal stimulus targeted toward individuals in the bottom half of the wealth distribution would be 2 to 3 times more effective than just a blanket stimulus.
