Greg Mankiw's Blog

Dear Professor Mankiw,

I prepared a graph which I think nicely illustrates the simple point you made in your blogpost on the spurious association between SES and test scores. The graph is attached. The dataset is comprised of a large sample of men born in Sweden between 1955 and 1970 who took an IQ test at conscription, at the age of 18. Income is measured as the biological father's income in the 1970 census.

The red line is the average measured IQ of the non-adoptees, plotted against the biological father's income decile. The blue line shows the same relationship for adoptees and their biological fathers. The patterns are remarkably similar,even though the biological fathers of adoptees did not raise these children.The fact that the biological father's income is almost an equally strong predictor of a child's test scores even when the biological father was not present in the household clearly suggests that most of the association between income and test scores does indeed arise because of omitted variable bias. Of course, an important caveat here is that it is quite likely that non-random assignment of adoptees may explain some of the similarity between the two lines.

I hope you find this useful.

Best wishes,
David Cesarini

The nation would be forced to borrow more than $9 trillion over the next decade under President Obama's policies, the White House acknowledged late Friday, bringing their long-term budget forecast in line with independent estimates.

The new projections add approximately $2 trillion to budget deficits through 2019. Earlier this year, the administration had predicted that Obama's policies would require the government to spend $7.108 trillion more than it collects in tax revenue over the next decade.

An administration official, speaking on the condition of anonymity because the report will not be formally released until Tuesday, said the change is due primarily to updated projections of economic growth that are far less rosy than data used when the White House released its first long-term budget outlook in February.

In the three decades after World War II, when the incomes of the rich grew more slowly than those of the middle class, the top marginal rate ranged from 70 to 91 percent. Mr. Piketty, one of the economists who analyzed the I.R.S. data, argues that these high rates did not affect merely post-tax income. They also helped hold down the pretax incomes of the wealthy, he says, by giving them less incentive to make many millions of dollars.

Not for the first time, as an elected official, I envy economists. Economists have available to them, in an analytical approach, the counterfactual. Economists can explain that a given decision was the best one that could be made, because they can show what would have happened in the counterfactual situation. They can contrast what happened to what would have happened. No one has ever gotten reelected where the bumper sticker said, "It would have been worse without me." You probably can get tenure with that. But you can't win office.

The historical evidence is worrisome, however. The IMF’s forthcoming World Economic Outlook presents evidence from 88 banking crises over the past four decades in a wide range of countries. While there is large variation across countries, the conclusion is that, on average, output does not go back to its old trend path, but remains permanently below it. The possible good news is that the trend itself appears to be unaffected: on average, crises permanently decrease the level of output, but not its growth rate. So, if past is prologue, the world economy likely will return to its past growth rate. But, especially in advanced countries, the period of above-average growth, characteristic of normal recoveries, may be short-lived or nonexistent.

California's fiscal crisis is giving Tom Campbell, an ex-congressman with few resources, a fighting chance to become the state's next governor....Democrats scorn his ideas for permanent cuts to welfare and social services in lieu of one-time fixes, while Republicans strongly oppose his proposal for a steep increase in the state's gasoline tax....Armed with a University of Chicago doctorate in economics and a Harvard Law School degree, he represented Silicon Valley for five terms in the U.S. House, served as business-school dean at the University of California, Berkeley, and also as the state's finance director under Gov. Arnold Schwarzenegger.

For Russians, "ekonomicheski krisis" with its conceptual, foreign sounding roots conjures up half-Marxist, half-Mankiw notions gleaned from university cheat sheets.

Within a few years, western governments will have to sharply raise taxes, inflate, partially default, or some combination of all three.

Cap-and-Trade's Unlikely Critics: Its Creators

Economists Behind Original Concept Question the System's Large-Scale Usefulness, and Recommend Emissions Taxes Instead

In the 1960s, a University of Wisconsin graduate student named Thomas Crocker came up with a novel solution for environmental problems: cap emissions of pollutants and then let firms trade permits that allow them to pollute within those limits.

Now legislation using cap-and-trade to limit greenhouse gases is working its way through Congress and could become the law of the land. But Mr. Crocker and other pioneers of the concept are doubtful about its chances of success. They aren't abandoning efforts to curb emissions. But they are tiptoeing away from an idea they devised decades ago, doubting it can work on the grand scale now envisioned.

"I'm skeptical that cap-and-trade is the most effective way to go about regulating carbon," says Mr. Crocker, 73 years old, a retired economist in Centennial, Wyo. He says he prefers an outright tax on emissions because it would be easier to enforce and provide needed flexibility to deal with the problem....

Mr. Crocker, who went on to become a professor at the University of Wyoming, is one of two economists who dreamed up cap-and-trade in the 1960s. The other, John Dales, who died in 2007, was also a skeptic of using the idea to tame global warning.

the evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall.

In the last few years, I have had the opportunity to compare the human and veterinary health services of Great Britain, and on the whole it is better to be a dog.

As a British dog, you get to choose (through an intermediary, I admit) your veterinarian. If you don’t like him, you can pick up your leash and go elsewhere, that very day if necessary. Any vet will see you straight away, there is no delay in such investigations as you may need, and treatment is immediate. There are no waiting lists for dogs, no operations postponed because something more important has come up, no appalling stories of dogs being made to wait for years because other dogs—or hamsters—come first.

The conditions in which you receive your treatment are much more pleasant than British humans have to endure. For one thing, there is no bureaucracy to be negotiated with the skill of a white-water canoeist; above all, the atmosphere is different. There is no tension, no feeling that one more patient will bring the whole system to the point of collapse, and all the staff go off with nervous breakdowns. In the waiting rooms, a perfect calm reigns; the patients’ relatives are not on the verge of hysteria, and do not suspect that the system is cheating their loved one, for economic reasons, of the treatment which he needs. The relatives are united by their concern for the welfare of each other’s loved one. They are not terrified that someone is getting more out of the system than they.

The latter is the fear that also haunts Americans, at least those Americans who think of justice as equality in actual, tangible benefits. That is the ideological driving force of health-care reform in America. Without manifest and undeniable inequalities, the whole question would generate no passion, only dull technical proposals and counterproposals, reported sporadically on the inside pages of newspapers. I have never seen an article on the way veterinary services are arranged in Britain: it is simply not a question.

Nevertheless, there is one drawback to the superior care British dogs receive by comparison with that of British humans: they have to pay for it, there and then. By contrast, British humans receive health care that is free at the point of delivery.

New construction averaged over 200 houses per year until the slowdown started in 2006, providing a high level of income and steady year-round employment in the construction trades.... In 2007 the annual rate was slower than in recent years, at 127. The construction slowdown continued in 2008, with just 64 new homes, the lowest number since building permits were first required in 1972. Thus far in 2009 the rate is less than half that of last year, with 12 permits issued through June.

“I keep saying that the sexy job in the next 10 years will be statisticians,” said Hal Varian, chief economist at Google. “And I’m not kidding.”

But the fact that he mistakes his ignorance for a fact about the universe makes me wonder if pharmacoeconomics is what my college boyfriend's roommate used to do with a few grams of cocaine and a copy of Mankiw's Principles.

There is a huge partisan gap on perceptions of the U.S. health care system. Seven-out-of-10 Republicans rate it as good or excellent, but only one-of-four Democrats agree. Among those not affiliated with either major political party, 53% rate the current system as good or excellent while just 18% say it’s poor.

Over the past few months, as the health care reform debate has raged, confidence in the current system has increased significantly among Republicans and unaffiliated voters. There has been little change among Democrats.

Just 28% say they are willing to pay higher taxes so that all Americans can have health insurance. Sixty percent (60%) are opposed. Those figures are little changed since May.

Recent polling has shown that cost, not universal coverage, is the top concern about health care.

Sen. Bob Corker came out swinging against the climate bill that the House passed in June.

“I didn’t think it was possible, but the Waxman-Markey climate bill appears to be even more problematic than the climate bill that tanked in the Senate last spring,” he said, referring to the Lieberman-Warner bill that he voted against in 2008. “I don’t know of many special interests that don’t receive a pay-off in this [Waxman-Markey] legislation, and if it comes to the Senate floor in this form, I’ll vote against it.”...

Lately Corker has been insisting that he won’t accept anything short of a climate plan that auctions 100 percent of pollution permits and returns the money directly to Americans, and his preferred approach would be a carbon tax.

The prevalence of obesity rose 37% between 1998 and 2006....Obese people spent 42% more than people of normal weight on medical costs in 2006.

Americans are also more likely to be obese, leading to heart disease and other medical problems. Among Americans, 31 percent of men and 33 percent of women have a body mass index of at least 30, a definition of obesity, versus 17 percent of men and 19 percent of women in Canada. Japan, which has the longest life expectancy among major nations, has obesity rates of about 3 percent.

The causes of American obesity are not fully understood, but they involve lifestyle choices we make every day, as well as our system of food delivery. Research by the Harvard economists David Cutler, Ed Glaeser and Jesse Shapiro concludes that America’s growing obesity problem is largely attributable to our economy’s ability to supply high-calorie foods cheaply. Lower prices increase food consumption, sometimes beyond the point of optimal health.