Wednesday, August 31, 2011

Cash for clunkers architect named CEA Chairman

Princeton labor economist Alan Krueger was named as the new Chairman of the Council of Economic Advisors for President Obama. But some of his empirical studies don't quite go along with Mr. Obama's economic plans, particularly with respect to jobless benefits. It seems that Mr. Krueger is more of a "regular economist" in thinking about labor policies, but the real problem for him now is how to reconcile the difference.

Thursday, August 25, 2011

Would stimulus work?

Since the publication of the General Theory by John Maynard Keynes, modern macroeconomics has long been criticized for a lack of strong micro-foundations. Chicago and Austrian school economists, for instance, claimed that there is too much aggregation in the Keynesian perspective which unfortunately ignores the basic drivers behind all economic activities, i.e., human incentives. Without a clear understanding of incentives behind human action and how these incentives interact and properly "aggregate", economic facts could be misinterpreted and wrongly theorized, and policy based on its prescription could be dangerous and disastrous.

In his WSJ op-ed today, Harvard economist Robert Barro revisits this decades-old topic. He firmly supports the view of what he calls "regular economics", where incentives play a central role in shaping overall economic activities.

Professor Barro, once a follower of Keynes, argues in this short essay that Keynesian stimulus transfer programs, such as food stamps, will not lead to an expansion of the overall economy - that one could get back more than one puts in - as Keynesian economists have long believed. The reason why stimulus transfer won't work is two folds. One, these transfers to the people with earnings below designated levels would motivate less work effort by reducing their reward from working; and two, more taxes are needed to finance these transfers. And these added tax burdens may not only reduce the work effort of taxpayers, but also lower overall investment levels since returns after taxes could be diminished. The consequence? The overall GDP pie would be reduced, rather than enlarged.

Although little empirical evidence exists in favor of either school, some scattered evidence could well support the view of "regular economics": an increase in unemployment insurance eligibility to 99 weeks in 2009 would have an adverse effects on unemployment - the fraction of the long-term unemployed (more than 26 weeks) has jumped since 2009 - to over 44% today, whereas the previous peak had been only 26% during the 1982-83 recession. However, as Barro suggests, more empirical evidence of this type is needed to get more reliable conclusions.

Debate could heat up, again (see here).

Sunday, August 21, 2011

I, pencil

...modern version:

Here to (re-)read the famous essay by Leonard Read.

Thursday, August 18, 2011

CNBC classroom

Even for the savviest among the financial professionals, it is challenging to be well versed in each and every complexity contained. CNBC Explains, a new section within, gives users the opportunity to learn more about key economic topics and concepts through original, three-minute videos and text-based transcripts and information pages.

Wednesday, August 17, 2011

Female employees benefit if the boss has a daughter

Empirical studies abound regarding the existence of gender gap in the workplace all over the world, but we still have fairly limited understandings about the possible origins of this wage gap and other gender-related workplace discrimination, and under what circumstances will the gap be widened or reduced. A recent study of Danish workforce suggests an interesting but intuitive answer to fill the void: whether the boss has a daughter.

Using a 12-year panel of Danish workforce data, they found that "conditional on the number of children a CEO already has, the birth of a daughter to a male CEO resulted in an approximately 0.5% reduction of the gender wage gap. The effect was significantly stronger for the first daughter, resulting in a 0.8% reduction of the gender wage gap, compared to a statistically insignificant 0.4% reduction after the birth of a second daughter. In addition, if the first daughter was also the first child, the effect was stronger still, with the gender wage gap decreasing by roughly 2.8%."

Here is the entire abstract:
Drawing on research in sociology and economics suggesting that fathers' gender-related attitudes and behaviors are shaped by the gender of their children, we hypothesize that having daughters prompts male CEOs to implement wage policies that are more equitable to female employees. To test this hypothesis, we use a 12-year panel of Danish workforce data and an empirical specification with CEO-employee fixed effects, creating a quasi-experimental setting whereby the gender of a CEO's child is effectively exogenous. We observe that when a daughter was born to a male CEO, wages paid to the CEO's female employees rose relative to the wages paid to male employees. The effect was stronger for the first daughter, and stronger still if the first daughter was also the first child. The birth of a daughter to a male CEO particularly benefited women who were more educated or who worked for smaller firms. These results have implications for our understanding not only of the origins of discrimination and the gender gap in wages but also of social preferences and the influence of managerial style on firm policies.

Celebrating 20 years of Linux

Here (20 years in 4 minutes), here (South Park version) and here (12 things that wouldn't exist without Linux).

Thursday, August 11, 2011

A Book on Somalia Pirates

Jay Bahadur (blog), a Canadian journalist, has written a book about Somalia pirates, titled "The Pirates of Somalia: Inside Their Hidden World". According to NYTimes Sunday book review:

"Bahadur has gone deep in exploring the causes of this seaborne crime wave, charting its explosive growth and humanizing the brigands who have eluded some of the world’s most powerful navies...Bahadur captures the inner workings of Somali piracy in extraordinary detail. The organizational structure of typical pirate cells, he explains, includes not just attackers, interpreters, accountants and cooks: almost every group also has its supplier of khat, a plant flown into Somalia by the ton every day from Kenya and Ethiopia and chewed for an addictive high. Like low-level urban crack dealers, the pirates at the bottom rung of the hierarchy make barely enough to survive. But, high or low, these brigands practice some peculiar rituals. After receiving his cut of the ransom on the captured ship, one pirate tells Bahadur, each man must toss his mobile phone into the ocean - a precaution to make sure no one can call ahead to his kin to arrange an ambush of his fellow cell members."

Jon Stewart of the Daily Show also interviewed Bahadur this past Tuesday about his endeavor and the writings of the book.

Saturday, August 6, 2011