Saturday, March 31, 2012

From My Inbox

I recently received an email with the subject line "musical writers who are fans of economics."  It continues as follows:

Hi Dr. Mankiw,
Thanks for giving a shout to musical theater in your recent post about Smash! My writing partner Leah (an econ major) introduced me to your blog several years ago and I've been a regular reader and huge fan ever since. We develop musicals and license the performance rights to college, high school, and community theatres. We're currently working on an adaptation of It's a Wonderful Life set in the recent recession, and it features some economics-inspired songs that you might get a kick out of. Here are a few you might enjoy:
Potter (a female in our version) and Sam Wainwright reflect on the economy. Inspired by a Rogoff article you linked to: Game We Play
Asleep at his desk, George has a Schumpeterian dream: Steve Jobs
Violet reflects on opportunity costs: Live for Today
Anyway, I want to thank you for contributing so much to my education through your blog and for helping to inspire an interest in economics. Maybe someday I'll write a musical explicitly about economics. "The Dismal Science" would make a great title, don't you think? :)

Friday, March 30, 2012

A Math Puzzler

Courtesy of my older son, Nicholas, who is in the 11th grade, here is a fun question:

What does the function y = x^x look like?

If your answer works only for positive x, you get at most a B-.

Hint: If you want help, click here.

Eric Maskin

...comes home.

Tuesday, March 27, 2012

We're number one!

On Sunday, the United States gets a distinction no nation wants -- the world's highest corporate tax rate.  Japan, which currently has the highest rate in the world -- a 39.8% rate on business income between national and local taxes -- cuts its rate to 36.8% as of April 1. The U.S. rate stands at 39.2% when both federal and state rates are included.

Monday, March 26, 2012

A Guide for Prospective PhD Students

By Rachael Meager, via Joshua Gans.

A TV Recommendation

As regular readers of this blog may have noticed, I am a fan of musical theater.  So I was intrigued when I heard about the new TV show Smash,  which is a drama about the back-story of putting on a musical.  It has not disappointed. Indeed, it has quickly turned into one of my family's favorite shows. 

I do recommend, however, starting the story from the beginning, rather than jumping in the middle.  I have had good luck with streaming TV shows via Amazon.

Sunday, March 25, 2012

Lazy Macroeconomics

I wish I didn't have to do it, but it's time - once again - to stick up for economic science. Krugman has crossed the line (I know it when I see it) here. If it offends you that he offends me, then stop reading. You're not allowed to whine about Krugman-bashing. The guy deserves it, after all.

Here's Krugman's assessment of the state of modern macro: sense is that a lot of younger economists are aware, even if they don’t dare say so, that freshwater macro has been a great embarrassment these past four years, and that liquidity-trap Keynesianism has done very well. This will affect future research; it will, over time, break the stranglehold of decadent Lucasian doctrine on the journals.
How would Krugman have a "sense" for what younger economists are thinking? He has little interaction with them. He does not go to conferences with them; he doesn't read their papers; he spends little time at Princeton. Mostly, he lives in Manhattan and writes a blog. The finger is far from the pulse, I'm afraid.

What is "liquidity-trap Keynesianism?" In case you have not figured that out, it's Hicksian IS/LM. That's been "successful?" How could it be? It's not structural.

What is "decadent Lucasian doctrine," and why the heck is it so decadent? Good questions. You'll have to grill Krugman on that. As far as I can tell, we are all "Lucasians" now, and that includes Krugman, who uses many "Lucasian" principles. Complaining about Lucas is something like complaining about the other Bob - Bob Dylan. The revolution happened long ago, and now everyone loves Bob and his influences are everywhere. Krugman might like it if the Bob "stranglehold" somehow let go of the profession. Too bad, Krugman, that's not happening.

Here are the last two paragraphs of Krugman's post:
And the giggles and whispers thing — in which anything resembling non-microfounded Keynesian analysis was the subject of automatic ridicule — is already, I think, over. Look at Delong/Summers on fiscal policy: the analytical core is, yes, the IS-LM model.

In a better world, Brad and I and our fellow-travelers would have achieved an immediate transformation of both policy and doctrine. We don’t live in that world. But I think we are winning the argument, in ways that will make a difference.
I don't think this is about giggles and whispers any more. We're all guffawing out loud, I'm afraid. I looked at the the DeLong/Summers paper, and you really should not waste time on that piece of trash. The analytical core is, yes, an IS-LM model. Yikes. Again, there are many reasons why we don't want to go there any more, including the ones I articulated here, and here.

In the better world I'm thinking about, we would not have to put up with arrogant loud-mouths like Paul, Brad, and their "fellow-travelers." The world these people envision is one where lazy macroeconomics has free-rein. We would forget everything we have learned in the last 40 years or so. Better still, we could set the way-back machine to 1937. Why fuss with all those bothersome details? IS-LM is so easy - and so right. If you believe that, I have a bridge to sell you.

A Reading for the Pigou Club

From Barron's.

Saturday, March 24, 2012

Macro 8e

The 8th edition of my intermediate macroeconomics text will come out in June, ready for fall classes. 

One significant change in this edition is that some of the existing material has been reorganized. Over the past several years, monetary policymakers at the Federal Reserve have engaged in a variety of unconventional measures to prop up a weak banking system and promote recovery from a deep recession. Understanding these policies requires a strong background in the details of the monetary system. As a result, this edition covers the topic earlier in the book than did previous editions. A complete treatment of the monetary system and the tools of monetary policy can now be found in Chapter 4.

The biggest change in the book, however, is the addition of Chapter 20, “The Financial System: Opportunities and Dangers.” Over the past several years, in the aftermath of the financial crisis and economic downturn of 2008 and 2009, economists have developed a renewed appreciation of the crucial linkages between the financial system and the broader economy. Chapter 20 gives students a deeper look at this topic. It begins by discussing the functions of the financial system. It then discusses the causes and effects of financial crises, as well as the government policies that aim to deal with crises and to prevent future ones.

All the other chapters in the book have been updated to incorporate the latest data and recent events.

If you want more information about the new edition, click here.  To see the new chapter on the financial system, click here.

Thursday, March 22, 2012

The Economics of The Hunger Games

From Matthew Yglesias.  By the way, I have read the book--not for the economics, but because it is my 13-year-old son's favorite novel.

Wednesday, March 21, 2012

Congratulations, Yoram

Yoram Bauman's Principles of Economics, Translated has exceeded 1 million views on YouTube.

Addendum: Here are Yoram's updated grades of how economics textbooks handle climate change:

Tuesday, March 20, 2012

Free Bikes and Girls' Education

A clear application of difs-in-difs methodology.  By the way, Karthik was a grad student at Harvard not long ago.

The sun shines on the Tea Party

Stevenson and Wolfers report the results of an unusual natural experiment:

The Tea Party came into prominence in a series of protests around the country on tax day, April 15, 2009. Sunny skies in some parts of the country encouraged large and boisterous rallies, while in other places rain suppressed the attendance. If the areas that nature randomly selected to have good weather that day subsequently became more conservative, that would suggest the Tea Party had a real impact beyond what would have happened in its absence.

How much of a difference can a rainstorm make? It turns out a lot. At least that’s the message from some striking research by four young scholars spanning the political spectrum -- Andreas Madestam of Bocconi University and Daniel Shoag, Stan Veuger and David Yanagizawa-Drott of Harvard University.

Their research demonstrates that in politics, success begets success. The initial boost from the weather generated substantial momentum. Counties that enjoyed better weather on tax day had more people sign up to become Tea Party organizers, greater donations to an affiliated political action committee, and larger rallies a year later.

A Fiscal Solution

Thanks to the reader who sent this along.

Update: Obviously, this is a joke.  If anyone was truly offended, I express my surprise, and I offer my apology.

Les Mis

On Sunday, my family and I saw Les Miserables, which is touring the United States and is now in Boston.  It is one of my favorite musicals, and I have seen it many times. This revival was particularly fun, however. The staging has been significantly altered from the original production. (The revolving stage is gone, for example.) This change was enough to give the performance a certain freshness that made me feel like I was seeing the play again for the first time.

Once, when I mentioned to one of my Harvard colleagues how much I like Les Mis, he expressed surprise.  He had not seen the play, but based on what he had read, he thought it had a heavy-handed left-wing theme, which he thought I would find off-putting.  From my perspective, while the play has a strongly political setting, it is not really about politics at all.  Instead, it is about the potential and power of personal redemption in the face of adversity.  The theme of the show is summed up in a line from the protagonist Jean Valjean near the end: "To love another person is to see the face of God."  That moves me every time I hear it.

Saturday, March 17, 2012

Question of the Day

The NY Times reports:

Bo Xilai, the brash Communist Party chief of China’s sprawling Chongqing municipality, has been removed from his post....The news, announced Thursday morning in a brief dispatch by the official Xinhua news agency, said that Vice Prime Minister Zhang Dejiang, a North Korean-educated economist, would replace him as Chongqing party secretary.
I wonder: What is economics education like in North Korea?

NPR's David Kestenbaum

... has good taste in textbooks.

On the Taxation of Capital Gains

I kicked off a fun discussion:
  1. My article in the NY Times from a couple weeks ago.
  2. Uwe Reinhardt comments on my article.
  3. Steve Landsburg comments on Uwe's comment.

Friday, March 16, 2012

How to Teach Aggregate Supply Shocks

Nick Rowe has a thoughtful post about his discomfort with teaching shocks to the short-run aggregate supply curve.  Larry Ball and I once pondered this topic, which eventually led to this paper.  Whether we were successful at addressing the issues is a topic I will leave for others, including Nick, to judge.


Now would be as a good a time as any to take stock of current monetary policy, commitments by the FOMC, whether existing policy commitments make sense given our recent inflation experience, and what we might expect for the future.

At this week's FOMC meeting, policy remained essentially unchanged. Recall that, at the January FOMC meeting, the Committee essentially committed to holding the policy rate - the key rate is the interest rate on reserves - at 0.25% through late 2014, at least. Jeff Lacker dissented again on this round, as he did at the January meeting.

The FOMC told us at the January policy round that the inflation rate it cares about is the rate of increase in the raw PCE deflator. At the most recent meeting, the Committee continued to be very optimistic about the future path for the PCE deflator, apparently. From the March 13 policy statement:
The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.
...the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
Further, my guess is that the FOMC thinks that, even if we start to see inflation rates that are somewhat alarming, it that it can control this inflation through the use of "reserve-draining" tools - term deposits and reverse repurchase agreements. The FOMC thinks it can have its cake and eat it too - without selling assets or going back on its "extended period" language. As well, the inflation forecasts the FOMC gave us here are very optimistic - PCE inflation rates of 1.4% to 2% going out to 2014.

So, the key messages from the Fed's current policy stance are:

1. Don't worry about the possibility of more inflation coming from oil price increases, or other commodity price inflation. That's only temporary. Just like last year.
2. We believe in the Phillips curve. Not to worry. Plenty of excess capacity out there.
3. FOMC forecasts tell us that inflation is going to remain well below the inflation target of 2%. Trust the FOMC.
4. Even if inflation starts looking pretty bad, the Fed can control it, without raising the policy rate.

Well, if I were Ben Bernanke, I would now be seriously worried. But I'm not Ben Bernanke, and I can buy TIPS, so I'm not worried, as I'm insured.

What would I be worried about, if I were Ben? After our 1970s experience, and a reading of Atkeson and Ohanian, I'm not sure why anyone thinks of inflation forecasting in terms of Phillips curves. As well, even if I were to swallow the Phillips curve - hook, line, and sinker - there are good reasons to think that there may not be any excess capacity out there. Further, in the data I'm looking at, I see plenty of reasons to think that we are in for more inflation, and one of those reasons has to do with the Fed's wishful thinking about the power of reserve-draining tools.

The first chart shows you what our recent inflation experience is. I'm showing you raw pce inflation, and core pce inflation (year-over-year % rates of change). Though raw pce inflation is coming down, it is currently above the Fed's (now explicit) 2% target. Of course, the Fed takes its dual mandate seriously, but for an inflation rate of 2.5% to 3% to be acceptable, we have to think that we are currently well below capacity. That's not clear.

In terms of conventional monetary aggregates (not including the monetary base - we know why swaps of reserves for T-bills are currently irrelevant), what we see is in the second chart. This would certainly alarm an Old Monetarist. Year-over-year percentage rates of increase in currency, M1, and M2, have been increasing since early 2010. The rate of growth in M2 is close to 20% per annum, and for currency and M1, it is close to 10%. A quantity theorist would not think of those numbers as commensurate with 2% inflation.

Of course, we're not Old Monetarists, are we? A New Monetarist thinks that, under current circumstances (a large stock of excess reserves, and the interest rate on reserves - IROR - determining short nominal rates) the inflation rate is determined by the demand for and supply of the whole gamut of intermediated liquid assets - including Treasury debt of all maturities and asset-backed securities. We can't even measure everything we want to in that respect, including shadow-banking activity. For all we know, there may be a lot of substitution going on between observed and unobserved intermediation activities. Still, the second chart does not make me optimistic about inflation.

What about measures of anticipated inflation? The next chart shows the breakeven rates implicit in 5-year and 10-year Treasury bond yields and TIPS yields. There's nothing much alarming in there, though there has been a modest increase recently in these breakeven rates, which are close to where they were pre-financial crisis. Keep in mind, though, that in early 2007 the fed funds rate was at 5.25%. It's now below 0.25% (with the IROR at 0.25%), so if we really think that we have to adjust downward our notion of current capacity in the US economy, this would tell us that the policy rate should be higher. This reasoning is of course predicated on pre-crisis policy being optimal. That's a leap, but you have to start somewhere.

Finally, I think that, in line with this idea, reverse repos and term deposits at the Fed are irrelevant currently. If quantitative easing (QE) is irrelevant at the margin, reverse repos and term deposits cannot make any difference either, at the margin. If the Fed does enough of those things, of course, that will make a difference. But we're talking about $1.6 trillion worth.

Bottom line: I think some serious inflation is coming, maybe sooner than later. The Fed thinks it can control this with reverse repos and term deposits at the Fed. No way. When will the inflation happen? In line with this post, look out for increases in house prices. The higher house prices will support more credit, both at the consumer level, and in higher-level financial arrangements. The "bubble" will grow, and support the creation of more private liquid assets, which will in turn substitute for publicly-issued liquid assets, causing the price level to rise. The Fed can control the inflation, if they want to, but only if they increase the IROR, which they are loathe to do.

The Price of Parking

This NY Times article gives an update on San Francisco's attempt to set parking prices closer to levels that equilibrate supply and demand.

Tuesday, March 13, 2012

Structure and Microfoundations: What We Learned in the 1970s (and before)

Noah Smith provides a convenient summary of a blogospheric conversation on "microfoundations." This illustrates a key principle, which I think we should all take to heart. If one's goal is to learn macroeconomics, one's time would be much better-spent, say, by spending a year participating in Tom Sargent's NYU macro reading group than by spending a year reading the macro blogospherians.

Some of the ideas in this post can also be found in this extended piece, if you want more detail. The term "microfoundations" comes from the Phelps volume, Microeconomic foundations of employment and inflation theory (1970), which, along with Lucas's 1972 JET paper, represents the watershed in modern macroeconomics. I have never been too fond of the term "microfoundations," as this gives you the impression that the theory is somehow hidden from view - its in the foundation, and the working parts you are seeing are some kind of reduced form. For me, the theory is not just the foundation, but the walls, the roof, the plumbing, the electrical work, etc. A macroeconomic model is a coherent whole built up from all the useful economic theory we have available. The bits and pieces are the preferences, endowments, technology, and information structure, and we tie those bits and pieces together with optimizing behavior and an equilibrium concept.

Optimization is pretty weak. It's just some notion that the people living in the fictional world we have constructed are doing the best they can under the circumstances. The circumstances could be pretty bad, in that these people may not know a lot about what is going on. They may not know things about the people they are supposed to be trading with, and/or they may not be able to observe some aggregate variables, for example. There are many equilibrium concepts - standard competitive equilibrium, Nash equilibrium, pricing using bargaining solutions, competitive search, etc. All that we require from the equilibrium concept is that it coherently yields consistency among the decisions made by individuals.

Why do we do it this way? There are two reasons. First, from the point of view of doing pencil-and-paper economics, we are going to learn a lot more. Given the structure of the model, we can evaluate how changes in the technology affect the trading arrangements among economic agents, and we can evaluate how these changes affect economic welfare in a well-defined way. We can also evaluate the effects of government policies sensibly. We have been explicit about preferences in the model, so we can theoretically determine what optimal policies look like.

Second, from the point of view of practical policy evaluation - what working economists are doing - or should be doing - in the Federal Reserve System and at the U.S. Treasury, we want models that are structurally invariant to the policies that we have constructed the model to evaluate. That's what the Lucas critique is all about, though earlier writers understood what "structure" meant. That's part of what the early work (and later work too) of the Cowles Foundation was about. See in particular the 1947 quote from Koopmans here.

Structural models are useful in other fields of economics as well - not just in macro problems. A lazy econometrician would like the data to do the work for him/her, or to design the perfect experiment that he/she can run to test a particular theory, or to evaluate a particular government policy. But the value of experimental work is debatable, and much experimental work would benefit if more weight were put on the theoretical input. Oftentimes, in any field, and particularly in macroeconomics (where experiments are typically impractical and natural experiments hard to find), researchers and policy evaluators have to invest in serious theoretical and empirical tools in order to make any progress.

But how do we differentiate between what is structural and what is not? That's very subtle. We know that any model is an abstraction, and will therefore be wrong - literally. But the art of building a good model is to make it less wrong on the dimensions we are going to use it for than on the dimensions we will not use it for. Here, we need examples to show how, if we use the structural model, we are going to do "pretty well" in terms of policy evaluation, but taking the astructural approach will give us really stupid policy. The standard example, which Lucas used in his critique paper, is the Phillips curve. Following the astructural approach, I stare at the data, and observe that the unemployment rate and the inflation rate are negatively correlated. I infer that there is a tradeoff between inflation and unemployment - I can get less unemployment if the central bank acts in a way that increases the inflation rate. Central banks in the 1970s actually acted on that advice, in spite of what Milton Friedman had said in 1968, and Lucas had written down in his 1972 structural model. Friedman and Lucas advised that no long-run Phillips curve tradeoff existed, and that exploiting any short-run Phillips curve tradeoff would be the wrong thing to do. Policymakers did not listen, and then had to spend the early 1980s correcting the inflation problem they created in the 1970s.

The Phillips curve example makes Friedman and Lucas look good, but another example makes that pair look bad. Central to Old Monetarism - the Quantity Theory of Money - is the idea that we can define some subset of assets to be "money". Money, according to an Old Monetarist, is the stuff that is used as a medium of exchange, and could include public liabilities (currency and bank reserves) as well as private ones (transactions deposits at financial institutions). Further, Friedman in particular argued that one could find a stable, and simple, demand function for this "money," and estimate its parameters. Lucas does that exercise here, and then uses the estimated money demand function parameters to measure the costs of inflation.

What's wrong with that? The key problem, of course, is that the money demand function is not a structural object. Some central bankers, including Charles Goodhart, figured that out. Goodhart's idea is a bit subtle, but there are more straighforward reasons to think that the parameters we estimate as "money demand" parameters are not structural. First, all assets are to some extent useful in exchange, or as collateral. "Moneyness" is a matter of degree, and it is silly to draw a line between some assets that we call money and others which are not-money. Second, the technology determines how different assets are used in exchange. Financial innovations made asset backed securities very useful as collateral, and in financial market exchange. Those innovations changed the relationships among what we measure as monetary aggregates, inflation, asset prices, and aggregate activity. Third, regulations matter for how assets are used in exchange. Paying interest on reserves matters; paying interest on transactions deposits at banks matters; reserve requirements matter; deposit insurance matters; moral hazard problems and how they are regulated matter.

But how structural do we want to get? More structure in our models means more detail, but more detail increases technical complexity, and we want our models to be simple. The model can't be a literal description of the world, as then it would fail to be a model, which simplifies the world so we can understand it. Nevertheless, economists sometimes pay lip service to structure while writing down models that have astructural features. If you have read Woodford's Interest and Prices, you know that he cares about structure. There are plenty of references in Woodford's book to Lucas's critique paper. But some of Woodford's work looks very astructural. Some New Keynesian analysis is done in linearized models with quadratic loss functions that capture the "preferences" of policymakers. That all looks very astructural 1975, in spite of the excuses that are typically given for taking that type of approach.

Astructural stuff is all around us - habit persistence, adjustment costs, cash-in-advance constraints, money-in-the-utility-function. Sometimes those things can be convenient short-cuts, but they have to make you suspicious. In some cases, they help you fit the data - as Larry Christiano well knows - but are not well-rooted in structure.

One thing we know from long ago is that the structural approach is completely unneceessary if all we want to do is forecast the future paths of macroeconomic variables. At the Minneapolis Fed in the late 1970s and early 1980s, Neil Wallace and Tom Sargent understood the Lucas critique and why structure was important for evaluating alternative economic policies. But no one objected to what Robert Litterman was doing, which was conducting forecasts using an astructural Bayesian Vector Autoregression. Indeed, one could argue that the behemoth Keynesian macroeconometric models developed at the Fed, MIT, and Penn in the 1960s and 1970s, and their modern counterparts are perfectly acceptable forecasting tools, though no one in their right mind would use those models to evaluate policy.

The Limits of Monetary Policy

A thoughtful essay from Brad DeLong.

Sunday, March 11, 2012

Personalized Pages at Google Scholar

I recently learned that Google Scholar lets people set up personalized pages.  You can find mine here.  You can find other economists who have signed up, ordered by total citations, here.  You can learn how to set up your own page by clicking here.

Saturday, March 10, 2012

Larry Kotlikoff runs for president

Really.  As far as I know, he is the first economist to run for president directly from an academic position (rather than running for the House or Senate first, as Phil Gramm did).

Friday, March 9, 2012

Romer on DSGE Models

My favorite macro textbook for upper-level undergraduates and first-year graduate students is Advanced Macroeconomics by David Romer.  I learned recently that his chapter on DSGE models is available as a free sample.  You can read it here in pdf format.

Obama shifts stance on dividend taxes

Alex Brill and Alan Viard write:

In the summer of 2008, the Obama campaign's two top economists proudly proclaimed that their candidate favored a dividend tax rate of 20 percent, "lower than all but five of the last 92 years." Well, that was then. In a sharp break from that campaign stance and the Administration's first three budgets, President Obama is now calling for an all-in dividend tax rate of almost 45 percent, the highest rate in 27 years. The president's about-face bodes ill for the economy.
While the president's proposal raises dividend tax rates only on high-income stockholders, Americans at all income levels will feel the economic impact of the tax hike. Higher dividend taxation will impede the investment that fuels long-run growth, depress stock prices, and weaken incentives for good corporate governance.
The president's proposal would allow the 2003 dividend tax cut to expire for high-income households at the end of the year, pushing the top dividend tax rate up from 15 to 39.6 percent. That's a dramatic increase in its own right. But, other provisions make the true increase even larger. The president also wants to bring back a provision phasing out deductions for high-income taxpayers, which will cause each additional dollar of dividends to trigger 1.2 cents of extra taxes. And, beginning next year, the president's health care law will impose an additional 3.8 percent tax on dividends and other investment income of high-income households. Under the president's proposal, the top all-in dividend tax rate will be 44.6 percent - almost triple today's 15 percent rate.

Wednesday, March 7, 2012

An Award for Economics Educators

The publisher of my favorite textbook is sponsoring an award for economics educators.  If you have a classroom technique that is particularly noteworthy, you might win several thousand dollars and a trip to a teaching conference in Orlando.  Click here for information.

Tuesday, March 6, 2012

What do Larry Summers, Doug Elmendorf, and Greg Mankiw have in common?

Only one of us won a John Bates Clark Medal.
Only one of us is Director of the Congressional Budget Office.
Only one of us wrote a best-selling textbook.

But all three of us were ec 10 section leaders early in our careers.

Being an ec 10 section leader is one of the best teaching jobs at Harvard. You can revisit the principles of economics, mentor some of the world’s best undergraduates, and hone your speaking skills. In your section, you might even have the next Andrei Shleifer or Ben Bernanke (two well-known ec 10 alums). And believe it or not, we even pay you for this!

If you are a graduate student at Harvard or another Boston-area university and have a strong background in economics, I hope you will consider becoming a section leader in ec 10 next year.  Applications are encouraged from PhD students, law students, and master's students in business and public policy.

If you think you might be interested, please come to one of the information sessions we are holding.

Tuesday (tonight) at 6:30 pm in the Littauer 3rd floor lounge.
Wednesday (tomorrow) at 6:30 pm at KSG Taubman 275.

Saturday, March 3, 2012

Taxing Carried Interest

Click here to read my column in Sunday's NY Times.  The piece is an attempt to explain the taxation of carried interest and is more pedagogical than opinionated.  For the truly wonky who want to learn more about this topic, I recommend this article by Alan Viard.

Rogoff reflects on Jeremy Lin

Ken writes:
What amazes me is the public’s blasé acceptance of the salaries of sports stars, compared to its low regard for superstars in business and finance. Half of all NBA players’ annual salaries exceed $2 million, more than five times the threshold for the top 1% of household incomes in the United States. Because long-time superstars like Kobe Bryant earn upwards of $25 million a year, the average annual NBA salary is more than $5 million. Indeed, Lin’s salary, at $800,000, is the NBA’s “minimum wage” for a second-season player. Presumably, Lin will soon be earning much more, and fans will applaud.

Yet many of these same fans would almost surely argue that CEOs of Fortune 500 companies, whose median compensation is around $10 million, are ridiculously overpaid. If a star basketball player reacts a split-second faster than his competitors, no one has a problem with his earning more for every game than five factory workers do in a year. But if, say, a financial trader or a corporate executive is paid a fortune for being a shade faster than competitors, the public suspects that he or she is undeserving or, worse, a thief.

In case you are curious: Yes, Jeremy Lin did take ec 10.