Actual Economists, Virtual Realities

The economics of video games.

The Price of Fiscal Uncertainty

I have been reading Bob Woodward's new book, The Price of Politics.  It is a detailed recounting of the back-and-forth negotiations among President Obama's White House, the Republican leaders in the House of Representatives, and the major players in the Senate regarding the debt ceiling and long-term fiscal outlook.  The book is primarily an objective narrative, rather than a foaming-at-the-mouth polemic (unlike the over-the-top book The Amateur, which I read over the summer).  Nonetheless, the story Woodward tells does not make this White House look particularly good.

Woodward seems to believe that if we had a President more like Bill Clinton, a fiscal deal could have been struck.  President Obama is described as disdainful of schmoozing with other pols, as mishandling the negotiation process, and as unwilling to move sufficiently toward the political center to get a deal done.  One gets the sense that the Democratic President who signed the 1996 welfare reform would have more easily reached a compromise with House Republicans.

This story brought to my mind recent research by Baker, Bloom, and Davis, which suggests that policy uncertainty has impeded the economic recovery.  If Baker et al. are right that uncertainty depresses the economy, and if Woodward is right that the uncertainty we now face with the upcoming "fiscal cliff" is attributable mostly to the inability of Barack Obama to work with Congress, then the implication is clear: The meagerness of this recovery is not simply a hangover from a financial crisis, but rather a reflection of a fundamental political failure.  The price of politics, indeed.

Surprise Fact of the Day

"Economics undergraduates have been found to be the most promiscuous students on campus."

Source.

Pigou Club Alert

Click here to vote for a carbon tax.

The Taxation of Capital Income

Many economists believe capital income should be taxed at a lower rate than labor income, perhaps even at a zero rate.  Matthew Yglesias explains why.

Economics Teaching Conference

You can still register for the economics teaching conference on November 8 and 9 in Orlando, Florida.  Early bird registration is open until October 10.  Click here for more information.

FYI, I am among the keynote speakers.

Mankiw vs. DeLong and Krugman on the CEA’s Real GDP Forecasts in Early 2009: What Might a Time Series Econometrician Have Said?

This post takes its title from a new article at Econ Journal Watch.  Here is the abstract:

In early 2009, the incoming Obama administration’s Council of Economic Advisers predicted real GDP would rebound strongly from recession levels. In a blog post, Greg Mankiw expressed skepticism. In their blogs, Brad DeLong and Paul Krugman sighed. Of course there would be strong growth, they maintained, because the recovery of employment would mandate it via Okun’s Law. Mankiw challenged Krugman to a bet on the issue, but there was no response. Of course we now have a good idea of the likely outcome, but I posit a hypothetical time series econometrician who, at the time of the blog entries, applies some standard forecasting methods to see whether DeLong and Krugman’s confidence was justified. The econometrician’s conclusion is that Mankiw would likely win the bet and furthermore that a rebound of any significance is unlikely. The econometrician has no idea how DeLong and Krugman could have been so confident in the CEA’s rebound forecast.