Recommendations for Further Reading

Timothy Taylor is Managing Editor, Journal of Economic Perspectives, based at Macalester College, Saint Paul, Minnesota. He blogs at http://conversableeconomist.blogspot.com.

This section will list readings that may be especially useful to teachers of undergraduate economics, as well as other articles that are of broader cultural interest. In general, with occasional exceptions, the articles chosen will be expository or integrative and not focus on original research. If you write or read an appropriate article, please send a copy of the article (and possibly a few sentences describing it) to Timothy Taylor, preferably by email at taylort@macalester.edu, or c/o Journal of Economic Perspectives, Macalester College, 1600 Grand Ave., Saint Paul, Minnesota, 55105.

Speeches

Alan B. Krueger delivered the 2015 Martin Feldstein Lecture at the National Bureau of Economic Research on the subject "How Tight Is the Labor Market?" "By 2013 short-term unemployment had returned to normal levels. So at that time I argued that if we were going to make further progress in lowering the unemployment rate, it would be because the long-term unemployed either found jobs or left the labor force. . . . Unfortunately, as we will see, the historical pattern in which the long-term unemployed tend to increase their labor force exit rate over the course of the business cycle has reasserted itself during the current recovery . . . Today, the labor force participation rate is nearly 5 percentage points below its peak. Sensible analyses suggest that about half of the 15-year decline in labor force participation is due to predictable demographic changes, particularly the aging of the Baby Boom generation. As for the other half, I think there are two important factors. About half of this remainder (or a quarter of the overall decline) can be accounted for by trends that were taking place before the Great Recession and likely continued after it. For instance, the widespread entrance of women into the workforce that had fueled the great postwar rise in labor force participation in the United States peaked around 2000. . . . In addition, labor force participation of younger workers declined in conjunction with an increase in their school enrollment, which should be a net positive for the economy in the long run. The remaining quarter-or a little over a percentage point—of the overall decline in labor force participation is likely attributable to cyclical factors. I will present evidence suggesting that it's unlikely we'll see much of a recovery for this segment of the population going forward." An edited version of this talk is published in the NBER Digest (2015, number 3, pp. 1-10) at http://www.nber.org/reporter/2015number3/2015number3.pdf. Alternatively, you can watch the talk and access the slides at http://www.nber.org/feldstein_lecture_2015/feldsteinlecture_2015.html

Ben Bernanke gave the Mundell-Fleming Lecture at the IMF's 16th Jacques Polak Annual Research Conference on November 5, 2015, on the subject, "Federal Reserve Policy in an International Context." "I don't think that US trading partners have much basis, either theoretical or empirical, to complain about currency wars being waged by the Fed. US growth during the recent recovery has certainly not been driven by exports, and, as I will explain, the "expenditure-augmenting" effects of US monetary policies (adding to global aggregate demand) tend to offset the "expenditure-switching" effects (adding to demand in one country at the expense of others). . . . Regarding financial stability spillovers: Research has documented the strong co-movement of asset prices, credit growth, and leverage across economies, but only limited progress has been made in determining the degree that this co-movement is in some sense excessive or in documenting the channels through which the putative spillovers operate. . . . I argue that monetary and exchange-rate policies should focus on macroeconomic objectives, with the problem of spillovers being tackled by regulatory and macroprudential measures, possibly including targeted capital controls, and through careful sequencing of market reforms. . . . My short review of the dollar standard suggests that its benefits to the United States and to US trading partners are much better balanced than in the Bretton Woods era, the days of America's "exorbitant privilege." . . . The phrase was coined in 1965 by French finance minister Valéry Giscard d'Estaing to describe the gains to the United States from the central role of the dollar in the Bretton Woods system. . . . [W]e shouldn't be overly exercised over controversies about whether the dollar will retain its pre-eminence, the future of the renminbi as a reserve currency, and so on. These debates are more about symbolism than substance. In purely economic terms, the universal usage of English, say, is far more valuable to the United States than the broad use of the dollar." http://www.imf.org/external/np/res/seminars/2015/arc/pdf/Bernanke.pdf. Video of the lecture is available at http://www.imf.org/external/mmedia/view.aspx?vid=4598935280001.

Rebecca M. Blank discusses "What Drives American Competitiveness?" in her 2015 Daniel Patrick Moynihan Lecture on Social Science and Public Policy. "The U.S. economy is growing more slowly, and the growth that we have experienced is not translating into higher incomes. These problems emerged in the early 2000s, before the Great Recession, and seem to be continuing even as the U.S. economy is close to fully recovered from that economic downturn. Furthermore, the slowdown in productivity suggests that our prospects for future growth are limited . . . Between 1970 and 1999, growth in hours worked was a key factor for total growth, accounting for around 1 percentage point of GDP growth each year. This factor has fallen sharply since 2000, and has actually pulled down growth a small amount in the past 15 years. Growth in labor skills is the smallest factor in GDP growth over this time period. Labor skills showed little growth in the 1970s but have accounted for between 0.3 and 0.4 percentage points of GDP growth in the decades since. The two innovation factors have been important throughout the past 45 years. Capital deepening is the most important factor in every time period, accounting for more than 1 percentage point growth in GDP from 1970 to 1999 and only a little less in the last 15 years. Total Factor Productivity is slightly less important than capital depending in most decades." Annals of the American Academy of Political and Social Science, January 2016, 663, pp. 8-30. A link to view the lecture is available at http://www.aapss.org/the-moynihan-prize.

Volumes

Richard Baldwin and Francesco Giavazzi have edited The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions, which includes their short introduction and 14 short and all readable essays. Here's the capsule summary from the introduction: "The core reality behind virtual every crisis is the rapid unwinding of economic imbalances. ... From the euro's launch and up until the crisis, there were big capital flows from EZ [eurozone] core nations like Germany, France, and the Netherland to EZ periphery nations like Ireland, Portugal, Spain and Greece. A major slice of these were invested in non-traded sectors—housing and government services/consumption. This meant assets were not being created to help pay off in the investment. It also tended to drive up wages and costs in a way that harmed the competitiveness of the receivers' export earnings, thus encouraging further worsening of their current accounts. When the EZ crisis began—triggered ultimately by the Global Crisis—cross-border capital inflows stopped. This ‘sudden stop' in investment financing raised concerns about the viability of banks and, in the case of Greece, even governments themselves. The close links between EZ banks and national governments provided the multiplier that made the crisis systemic. Importantly, the EZ crisis should not be thought of as a sovereign debt crisis. . . . The key was foreign borrowing. Many of the nations that ran current account deficits—and thus were relying of foreign lending—suffered; none of those running current account surpluses were hit." 2015. A VoxEU.org book from the Centre for Economic Policy Research in London. http://www.voxeu.org/sites/default/files/file/reboot_ upload_0.pdf.

The Future of Children has devoted an issue with eight essays to the theme "Marriage and Child Wellbeing Revisited." From the overview by Sara McLanahan and Isabel Sawhill: "Marriage is on the decline. Men and women of the youngest generation are either marrying in their late twenties or not marrying at all. Child- bearing has also been postponed, but not as much as marriage. The result is that a growing proportion of children are born to unmarried parents—roughly 40 percent in recent years, and over 50 percent for children born to women under 30. Many unmarried parents are cohabiting when their child is born. Indeed, almost all of the increase in nonmarital childbearing during the past two decades has occurred to cohabiting rather than single mothers. But cohabiting unions are very unstable, leading us to use the term "fragile families" to describe them. About half of couples who are cohabiting at their child's birth will split by the time the child is five. Many of these young parents will go on to form new relationships and to have additional children with new partners. The consequences of this instability for children are not good. Research increasingly shows that family instability undermines parents' investments in their children, affecting the children's cognitive and social-emotional development in ways that constrain their life chances." Fall 2015, http://www.futureofchildren.org/futureofchildren/publications/journals.

Smorgasbord

The Committee for the Prize in Economic Sciences in Memory of Alfred Nobel explained the choice of its 2015 award in the essay "Angus Deaton: Consumption, Poverty and Welfare." "Over the last three to four decades, the study of consumption has progressed enormously. While many scholars have contributed to this progress, Angus Deaton stands out. . . . His main achievements are three. First, Deaton's research brought the estimation of demand systems—i.e., the quantitative study of consumption choices across different commodities—to a new level of sophistication and generality. The Almost Ideal Demand System that Deaton and John Muellbauer introduced 35 years ago, and its subsequent extensions, remain in wide use today— in academia as well as in practical policy evaluation. Second, Deaton's research on aggregate consumption helped break ground for the microeconometric revolution in the study of consumption and saving over time. He pioneered the analysis of individual dynamic consumption behavior under idiosyncratic uncertainty and liquidity constraints. He devised methods for designing panels from repeated cross-section data, which made it possible to study individual behavior over time, in the absence of true panel data. . . . Third, Deaton spearheaded the use of household survey data in developing countries, especially data on consumption, to measure living standards and poverty. In so doing, Deaton helped transform development economics from a largely theoretical field based on crude macro data, to a field dominated by empirical research based on high-quality micro data." 2015. http:// www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2015/advanced-economicsciences2015.pdf. For a brief and readable overview of this longer paper, see the Committee's "Information for the Public: Consumption, great and small" at http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2015/popular-economicsciences2015.pdf.

The World Trade Organization devotes its World Trade Report 2015 to the theme, "Speeding Up Trade: Benefits and Challenges of Implementing the WTO Trade Facilitation Agreement." "While trade agreements in the past were about "negative" integration—countries lowering tariff and non-tariff barriers—the WTO Trade Facilitation Agreement (TFA) is about positive integration—countries working together to simplify processes, share information, and cooperate on regulatory and policy goals. . . . The TFA represents a landmark achievement for the WTO, with the potential to increase world trade by up to US$ 1 trillion per annum. . . . Based on the available evidence, trade costs remain high. . . . [T]rade costs in developing countries in 2010 were equivalent to applying a 219 per cent ad valorem tariff on international trade. This implies that for each dollar it costs to manufacture a product, another US$ 2.19 will be added in the form of trade costs. Even in high-income countries, trade costs are high, as the same product would face an additional US$ 1.34 in cost." 2015, https://www.wto.org/english/res_e/publications_e/wtr15_e.htm.

A High Level Panel on Humanitarian Cash Transfers, which includes a mixture of academics and those working in development, have produced the report "Doing Cash Differently: How Cash Transfers Can Transform Humanitarian Aid." "Give more unconditional cash transfers. The questions should always be asked: ‘why not cash?' and, ‘if not now, when?'." "[T]he Panel estimates that cash and vouchers together have risen from less than 1% in 2004 to around 6% of total humanitarian spending today . . . If sectors where cash is often less appropriate (health, water and sanitation) and not appropriate at all (mine action, coordination, security) are removed from the equation, then cash and vouchers were roughly 10% of the total." "A consistent theme in research and evaluations is the flexibility of cash transfers, enabling assistance to meet a more diverse array of needs. In the Philippines, for example, people reported using the money for food, building materials, agricultural inputs, health fees, school fees, sharing, debt repayment, clothing, hygiene, fishing equipment and transport. . . . The element of choice is critical. . . . Cash impacts local economies and market recovery by increasing demand and generating positive multiplier effects. In Zimbabwe, every dollar of cash transfers generated $2.59 in income (compared to $1.67 for food aid). It can encourage the recovery of credit markets by enabling repayment of loans." "It usually costs less to get money to people than in-kind assistance because aid agencies do not need to transport and store relief goods. A four-country study comparing cash transfers and food aid found that 18% more people could be assisted at no extra cost if everyone received cash instead of food." "Providing cash does not and should not mean that humanitarian actors lose a focus on a key public good that they are uniquely placed to provide: proximity, presence and bearing witness to the suffering of disaster-affected populations. On the contrary, streamlining aid delivery should allow them more time to focus on exactly that. Giving people cash, therefore, does not imply simply dumping the money and leaving them to fend for themselves. People receiving cash intended to help meet shelter needs may require help to secure land rights, build disaster-resistant housing or manage procurement and contractors. Where people use cash to buy agricultural inputs this can be complemented with extension advice." September 2015, published by the Center for Global Development, http://www.cgdev.org/sites/default/files/HLP-Humanitarian-Cash-Transfers-Report.pdf.

The Council of Economic Advisers summarizes research on unions and wages in an Issue Brief titled "Worker Voice in a Time of Rising Inequality." "The overall effect of unions on the wage distribution depends on both the union wage premium and the types of workers who are unionized. Unionized workers still command a sizable wage premium of up to 25 percent relative to similar nonunionized workers, but that premium has fallen slightly over the past couple of decades. Union membership has also become more representative of the population, with the share of members who are female or college-educated rising quickly. Studies have shown that union wage effects are largest for workers with low levels of observed skills and that unionization can reduce wage inequality among workers partially by increasing wages at the bottom of the distribution and by reducing pay dispersion within unionized firms and industries. Since both the union wage premium and the coverage of low-skilled workers, who receive the highest wage premium, have fallen, unionization's ability to reduce inequality has very likely been limited in recent years." October 2015, https://www.whitehouse.gov/sites/default/files/page/files/worker_voice_issue_brief_cea.pdf.

Irwin Garfinkel and Timothy Smeeding challenge three claims in their essay, "Welfare State Myths and Measurement": 1) "The current American welfare state is unusually small." 2) "The United States has always been a welfare state laggard." 3) "The welfare state undermines productivity and economic growth." They write: "Very reasonable changes in measurement reveal that all three beliefs are untrue." For example, they look at the US welfare state in absolute per capita terms and write: "The United States, as one of the richest nations, could be spending more in absolute terms and less as a percentage of income than other rich nations. . . . Australia, for example, spent a slightly larger proportion of its GDP on SWE [social welfare expenditures] in 2001 than the US ... but its [per capita] GDP then was only a bit above 60% of US GDP. Consequently, US per capita social welfare expenditures are much higher than Australia's. . . . Real per capita social welfare spending in the United States is larger than that in almost all other countries! Even if employer-provided benefits and tax expenditures are excluded, the United States is still the third biggest spender on a per capita basis." Capitalism and Society (vol. 10, no. 1), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2629585.

David Price has an interview with James Poterba. On changes in tax policy research: "One difference is that tax policy discussions and research on the economics of tax policy in the late 1970s and early 1980s were set in an environment with marginal tax rates that were significantly higher than those today. The United States had a top tax rate on capital income of 70 percent until 1981. The top marginal tax rate on earned income in the United States at the federal level was 50 percent until 1986. Today, the top statutory rate is 39.6 percent, although with some add-on taxes, the actual rate can be in the low 40s. We have been through periods when the top rate was as low as 28 percent. There was a lot more concern about the distortions associated with the capital income tax and with taxation in general. . . . We relied primarily on cross-sectional household surveys. It's hard to study how taxation affects behavior when the variation in the tax system is coming in differences in household incomes that place different taxpayers in different tax brackets, because income variation is related to so many other characteristics. Today, by comparison, the field of public finance has moved forward to use large administrative databases from many countries, often including tax returns. It is possible to do a much more refined kind of empirical analysis than when I started." On retirement saving: "The University of Michigan Health and Retirement Study, which is a comprehensive database on older individuals in the United States, begins tracking survey respondents in their mid-50s. It follows them until they die, so the last survey is typically filed about a year before the individual's death. Nearly half of the respondents in the survey turn out to have very low levels of financial assets, under $20,000, as they get close to death. . . . I have been quite interested in how individuals arrive at such low levels of financial assets. Many of those who have very little financial wealth as they approach death also reached retirement age with very little wealth. . . . Only in the top half of the retiree wealth distribution does one start to see substantial amounts of support from private pension plans, and only in the top quarter is there substantial support from private saving outside retirement accounts." Econ Focus, Federal Reserve Bank of Richmond, 2015, Second Quarter, pp. 24-29, https://www.richmondfed.org/publications/research/econ_focus/2015/q2/interview

Discussion Starters

P. J. Held, F. McCormick, A. Ojo and J. P. Roberts present "A Cost-Benefit Analysis of Government Compensation of Kidney Donors." "From 5000 to 10 000 kidney patients die prematurely in the United States each year, and about 100 000 more suffer the debilitating effects of dialysis, because of a shortage of transplant kidneys. To reduce this shortage, many advocate having the government compensate kidney donors. This paper presents a comprehensive cost-benefit analysis of such a change. It considers not only the substantial savings to society because kidney recipients would no longer need expensive dialysis treatments—$1.45 million per kidney recipient—but also estimates the monetary value of the longer and healthier lives that kidney recipients enjoy—about $1.3 million per recipient. These numbers dwarf the proposed $45 000-per-kidney compensation that might be needed to end the kidney shortage and eliminate the kidney transplant waiting list. From the viewpoint of society, the net benefit from saving thousands of lives each year and reducing the suffering of 100 000 more receiving dialysis would be about $46 billion per year, with the benefits exceeding the costs by a factor of 3. In addition, it would save taxpayers about $12 billion each year." American Journal of Transplantation, published online October 16, 2015, at http://onlinelibrary.wiley.com/doi/10.1111/ajt.13490/full. The article can be a useful follow-up to the essay by Gary S. Becker, and Julio Jorge Elías, "Introducing Incentives in the Market for Live and Cadaveric Organ Donations," which appeared in the Summer 2007 issue (pp. 3-24) of this journal.

The McKinsey Global Institute reports on The Power of Parity: How Advancing Women's Equality Can Add $12 Trillion to Global Growth." "We also analyzed an alternative "best-in-region" scenario in which all countries match the rate of improvement of the best-performing country in their region. This would add as much as $12 trillion in annual 2025 GDP, equivalent in size to the current GDP of Japan, Germany, and the United Kingdom combined, or twice the likely growth in global GDP contributed by female workers between 2014 and 2025 in a business-as-usual scenario . . . with the highest relative boost in India and Latin America. . . . Seventy-five percent of the world's total unpaid care is undertaken by women, including the vital tasks that keep households functioning such as child care, caring for the elderly, cooking, and cleaning. However, this contribution is not counted in traditional measures of GDP. Using conservative assumptions, we estimate that unpaid work being undertaken by women today amounts to as much as $10 trillion of output per year, roughly equivalent to 13 percent of global GDP." September 2015. http://www.mckinsey.com/insights/growth/how_advancing_womens_equality_can_add_12_trillion_to_global_growth.



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