The Path Ahead on Climate Change

Click here to read an article in today's NY Times that I coauthored with Martin Feldstein and Ted Halstead.

Macro/Finance Summer Camp

Grad students and young faculty with interests in macro and finance should consider this opportunity.

Policy Summer Camps

Undergraduates with interests in public policy should consider this opportunity and this one as well.

Econ Theory Summer Camp

Graduate students with an interest in economic theory may be interested in considering this opportunity.

Good News at Harvard College

The Crimson reports:

Economics 10b: “Principles of Economics” is the most popular course in the Faculty of Arts and Sciences for the fourth consecutive spring, beating out the second-largest class—Life Sciences 1b: “An Integrated Introduction to the Life Sciences: Genetics, Genomics, and Evolution”—by a hefty margin of about 150 students.

Worthwhile Canadian Initiative

My friend Joshua Gans alerts me to the following:

The Rotman School of Management, University of Toronto is offering to help scholars and students impacted on by the new US immigration restrictions. We would like to hear from anyone who: 

- Can no longer return to the US to continue their academic position or studies in a business, economics or related areas 

- Students who have missed application deadlines for University of Toronto degree programs in business, economics or related areas but are concerned they will not be able to undertake studies in the US anymore 

- Students and scholars who are facing temporary disruptions as a result of the new policies who may need a place in North America to continue their academic work.

More information can be found here.

The Demise of the CEA?

This is not good news:

CEA DOA?… MM hears there’s a chance Trump will simply pass on filling the CEA Chair job that at one point appeared to be going to Larry Kudlow. Trump could decide to just stick with Gary Cohn and the National Economic Council and skip over the more academically-inclined CEA. Not a done deal at all but the chatter is out there.

Let's hope the rumor is unfounded.

A Three-Point Tax Reform

Consider the following tax reform:

1. Impose a retail sales tax on consumer goods and services, both domestic and imported.
2. Use some of the proceeds from the tax to repeal the corporate income tax.
3. Use the rest of the proceeds from the tax to significantly cut the payroll tax.

Before moving on, ask yourself: Do you like this plan?

As I understand it, this plan is, in effect, what the Republicans in Congress are proposing.

Note the words "in effect."  There are a few differences, which are more important administratively than in their economic effect. One is that the consumption tax is not collected at the retail level but rather along the chain of production (much like a value-added tax). Once this is done, you need border adjustments to ensure the tax is really like a retail sales tax: imports must be taxed, and exports have to get a rebate. In addition, the payroll tax is not cut but rather firms get a deduction for labor payments, but that deduction is much the same as a payroll tax cut.

Personally, I like the three-point plan listed above, and I therefore like the reform proposal being discussed in Congress. A lot of confusion about things like border adjustments might disappear if commentators realized that what is being discussed is largely equivalent to this three-point plan.

Addendum: I don't think it is quite right to say, as Paul Krugman does, that this plan is a shift from taxing profits to taxing consumers. That ignores part 3 of the three-point plan.  It is more accurate to say it is a shift from taxing profits to taxing consumed profits. Moreover, I think the reform would promote economic growth and rising living standards. A large literature suggests that taxing consumption is preferred to taxing income, especially capital income. So a shift from a profits tax to a consumed profits tax is a step in the right direction.

The Euclidean Index

Motty Perry and Philip J. Reny propose a way to rank economists by citations (published AER September 2016), and now RePEc implements it here.

You are not entitled to your own facts

Readers of this blog will surely want to know about a new website: econofact.org, a "non-partisan publication designed to bring key facts and incisive analysis to the national debate on economic and social policies. It is written by leading academic economists from across the country who belong to the EconoFact Network, and published by the Edward R. Murrow Center for a Digital World at The Fletcher School at Tufts University."

Check it out.

Careless Headline Writing

I have noticed over the years that headline writers often try to make stories more sensational than they really are. This one at Yahoo News and Time, however, got me chuckling. The story tells us:

The gap between the super-rich and the poorest half of the global population is starker than previously thought, with just eight men, including Bill Gates and Michael Bloomberg, owning as much wealth as 3.6 billion people.

That fact is not really surprising, as many people live hand-to-mouth with hardly any accumulated wealth at all. But the headline makes a stronger claim:

Half of the World’s Wealth Is In the Hands of Just Eight Men

Of course, this conclusion does not follow from the fact reported in the story and is not even close to being true.

History of Econ Summer Camp

Graduate students with an interest in the history of economic thought should consider this opportunity.

Challenges Facing the New President

You can watch the AEA session I chaired by clicking here.

Parting Words

Here is the exit memo from CEA chair Jason Furman.

Me at the ASSA

If you want to see me at the upcoming ASSA meeting in Chicago, here is some relevant information.

I will be chairing a session on “Economic Issues Facing the New President,” with talks from Jason Furman (Council of Economic Advisers), Glenn Hubbard (Columbia University), Alan Krueger (Princeton University), and John Taylor (Stanford University). The session is on Saturday, January 7, starting at 10:15 am in the Hyatt Regency Chicago, Grand Ballroom AB.

I will also be introducing the new edition (the 8^th) of my Principles text, which has just published. You can meet me at the Cengage booth from 3 to 4 pm on Friday, 2 to 2:30 pm on Saturday, and 9 to 9:30 am on Sunday. Feel free to stop by and say hello.

Why Y?

A professor emails me:

My students have the pleasure to use your economics textbook. I have one question: where the symbol "Y" for GDP comes from? All the others, we could detect, such as NX , NCO, etc. My students are curious, and I could not give them a good answer.

My unsatisfying response:

To be honest, I don't know. It is an old convention to use Y to denote real GDP, and I am just following that. But I don't know where or why the convention began.

If anyone knows the history and reason for this notation, please email me.

Update 1: Several people email me that the usage goes back to the early Keynesians, which is certainly true. Others suggest that Y is the generic dependent variable, as in y=f(x), which seems an unlikely explanation to me. Still others point out that I is already used for investment, which is true but does not explain the choice of Y for income and output. Some say Y stands for "yield," which seems a useful mnemonic, but I have never seen that word used to describe GDP in a standard published source. So I still don't have a fully satisfying answer.

Update 2: One person writes:

I thought it was well understood that 'Y' is the symbol for real GDP because it is short for "Income" as in "National Income."  Since 'I' is already used for other macroeconomic variables, we use the letter that is phonemically or orthographically related to 'I,' namely 'Y' (which is known in languages like French and Spanish as "Greek i").

Maybe this is the right answer, but one thing I am sure of is that this is not "well understood," at least not by readers of this blog, judging from the many other emails I received.

Update 3: A Harvard student looks at the history:

The earliest reference to GDP as "Y" I could find is Kalecki 1937. The first articles to formalize the IS-LM model (Hicks 1937, Harrod 1937, Meade 1937) all seem to refer to national income as "I" (for income), and Cobb Douglas (1928) calls it "P" (for production). I'd be curious to see if anyone can find an earlier reference to "Y" than Kalecki 1937. It appears there as Y=f(I) (income as a function of investment), which seems like a vote in favor of the y=f(x) argument (but I agree that's not a very satisfying explanation). 

Update 4: A reader directs me to an old letter from Keynes to Hicks (dated March 31, 1937). Keynes writes:

“On one point of detail. I regret that you use the symbol I for Income. One has to choose, of course, between using it for income or investment. But after trying both, I believe it is easier to use Y for income and I for investment.”

A Possible Victory for Alan Auerbach

Tax policy is moving in fascinating directions.

You can read more about the Auerbach proposal here and here.

Manly Men in Girly Jobs

An insightful column from Betsey Stevenson.

From the Harvard Skit Party

Harvard Econ G4 Skit 2016 - "Rise Up" (A Hamilton Parody) from Econ Skits on Vimeo.
Also another entry here.

Summers on the Carrier Deal

Interesting observations from Larry. A tidbit:

Some of the worst abuses of power are not those that leaders inflict on their people. They are the acts that the people demand from their leaders.

Addendum: Also see Keith Hennessey on the topic.