Economic Implications of the Immigration Order

The most troubling aspects of President Trump's immigration executive order are the moral and national security implications (the later is outside my area of expertise, but its hard to see how betraying our friends, alienating our allies and handing an easy propaganda victory to our enemies advances the stated goal of protecting America).

The economic implications are pretty bad as well.  Although the order currently applies only to people from seven countries, the spectacle of people who've jumped through all the bureaucratic hurdles to get permission to come to the US being detained and turned away at airports by a sudden, incompetently planned and implemented policy change will no doubt deter many others from wanting to come.

In the short run, making it less attractive to come to the US will hurt our tourism and education exports.  In the longer run, it will harm our productivity by diminishing our universities, science, technology and human capital.

One of Trump's stated economic concerns is the US trade deficit, which was -$499.5 billion in 2016 (2.7% of GDP), according to the BEA's advance estimate.   While the US trade balance is negative in goods (-$770.5 billion) that is partly made up for by a $271.1 billion surplus in services.

According to the ITA, the US had 77.5 million visitors in 2015, and Colorado had 461,000.

Tourism is an important part of US service exports.  2016 figures aren't available yet, but in 2015, according to the BEA, $750.9 billion in service exports included $122.4 billion in "other personal travel" (i.e., non-business travel not related to health or education). 

The order won't only deter tourists; in addition to tourism, education services are another major US export.  According to the Institute of International Education, there were just over 1 million international students enrolled in US colleges and universities last year.  In 2015, the US exported $35.8 billion of education-related travel, which includes tuition paid by international students.

In addition to contributing to US GDP and exports, international students play a vital role in US higher education.  At the undergraduate level, an important part of the experience is learning from one's peers - the presence of international students on our campuses enhances the educational opportunities for everyone.

International graduate students play a significant role in the life of our research universities, particularly in the sciences (and economics!).  The impact of the order was felt immediately by scientists (see also this story).  According to the NSF, international students earn more than half of the doctorates granted in the US in mathematics and computer science and engineering and over one third in physical and earth sciences.

The ability to attract hard-working, talented students from around the world is a source of strength for American university research and one of the reasons US institutions dominate global rankings.  US leadership in many fields also means that many of the faculty in US institutions are immigrants and green card holders.

Technology companies have spoken out about the impact of the immigration order on their workforces, but the impact will be more widespread - according to the NSF, 21% of the US science and engineering workforce is foreign born.

If the grad students, post-docs, scientists and engineers who are so vital to our universities and industries find America a less appealing place to live and work - for example, if they have to worry that if they leave to visit relatives, they risk not being able to get back in - they have other options.  The competition for talent is global, and this hands an advantage to non-US universities and businesses.

America is great, but President Trump's order will make it less so.

Economics is More Than You Think

and it helps you learn how to think....

One of the challenges in teaching economics is that many come to it with incorrect expectations - people seem to view it as akin to accounting or finance.  In a liberal arts setting, the students (and their parents) may believe it is the closest thing they can get to a business major (this paper provides evidence on this point).
This short video from the American Economic Association - "A Career in Economics - It's Much More Than You Think" - does a nice job of correcting some of these misconceptions.

However, I think the video misses one of the main reasons for studying economics: the habits of mind - "critical thinking skills" - it helps students develop (I wrote more about this here).  Most of our students aren't going on to careers in economics, and they will forget many of the specifics, but being able to think coherently about tradeoffs and the linkages between assumptions and conclusions is a lifelong benefit.

So, yes, people who are interested in business should study economics, as should people who are interested in a career in economics (my own advice about that is here), but so should everyone else!

Noah Smith's PhD Advice

Noah Smith's latest Bloomberg column about the pros and cons of going for a PhD is a worthwhile corrective to the increasing tendency to assume "more education is better."  He concludes:

So make no mistake: graduate school is no picnic. Yes, there are modest financial rewards. But unless you’re one of those people who absolutely loves being a scholar, you’re probably going to pay heavy costs in terms of your lifestyle and mental state. These are things I wish I had known about before I did my own Ph.D. Think twice before jumping on the grad school train.

I think "modest" may overstate the financial rewards.  Conditions vary widely by discipline, so its hard to generalize.  My own advice - tailored to economics - is here.

Economics Needs More Women

that's the headline on this Wesleying post by econ major Kerry Nix '16 (and in the post there is a link to a longer report that is well worth reading).

First of all: yes.

Overall, as the report notes, about 25-30-ish percent of Economics students at Wesleyan are female; this is pretty consistent with national averages.  So, its not just us, but that doesn't mean that we can't do some things locally.

My colleagues are an extraordinarily conscientious group of people and I have no doubt that this will get careful consideration.  In the meantime, however, here are a few scattered thoughts on some of the issues raised:

There is quite a bit of concern about whether the atmosphere in classrooms with a relatively large number of students and a lopsided gender ratio is particularly off-putting to women.  I think this is plausible, though this is one of several concerns where it might be helpful to have some survey research to back up (or not!) our anecdotal impressions. 

Many of our classes rely primarily on lecture-based pedagogy; there are some suggestions in the report that other approaches - e.g., in-class problem-solving or inverted classrooms - might be more appealing to female students.

In this regard, at present, I think the situation at Wesleyan is that we're very constrained by class size: our enrollments (and majors) per FTE are among the highest in the university.  While the size of the department has increased slightly, it hasn't remotely kept up with the growth in enrollments.  What that means is that our sections of Econ 110 (our intro class for majors) typically have 40-50 students; sections of the lower-level electives and the core intermediate sequence for majors have enrollment caps of 35 (and are very often at or near this cap); it is only the upper-level electives that could be considered "small," and even these have 25 students per class.  While these numbers don't seem high in the universe of American higher education overall, this is in the context of an institution where 72% of class sections have an enrollment of 19 or fewer and where many of the incoming students have chosen a liberal arts college with the expectation of small classes.

In a large class, it will be inherently less comfortable for most to participate and ask questions and the report suggests this might disproportionately affect female students (though I think it's a concern for everyone).  As instructors, it also limits our pedagogy, and the preponderance of lecturing in economics is partly a reflection of our class sizes.  I have been able to integrate some in-class problem solving in Econ 270 (a lower-level international economics elective) and Econ 110.  In Econ 302 (the core macroeconomics course), I experimented with an inverted classroom in the fall; I think it went quite well, but I happened to have a section with a smaller enrollment - I doubt it will be as successful when (if) I have a more typical enrollment of 35.

Another issue raised is the mathematical intensity of our curriculum and how this might interact with lower levels of mathematical confidence in female students.  As a factual matter, I don't think a confidence differential is warranted; there's no lack of math ability in the women coming into our classes - this is true both relative to men and in an absolute sense.  However, I suppose stereotypes that mathematical stuff is "hard" and "softer" topics are better suited to women are deeply embedded in the broader culture - hopefully fading over time, but not quickly enough.  Overall, I believe the mathematical rigor of our program is a strong suit - Wesleyan is very unusual in utilizing calculus from the outset (Econ 110).  One of the most valuable things that students take away from studying economics is the habits of mind - i.e., a particular type of critical thinking - that come from the discipline imposed by thinking in terms of models, expressed and manipulated in mathematical language.  Moreover, economics as it is practiced is a very mathematical discipline - while some may not like this (and I was a very math-averse economics undergraduate myself at one point) - I think our introductory class more honestly represents what studying economics involves than the more typical style of university "principles" courses which try to minimize using math.

Relatedly, the report discusses concerns about relevance -

Caroline finds disconnectedness between Econ and the real world, saying “it does seem like just learning how to crunch numbers right now, but I think learning...what sort of policy differences you could make if you learned about Econ, and I think that would encourage more people to take Econ.”

I'm not sure this is gender-specific; as an instructor, I need to guide my students through the theory - this is, for most, the hardest part, and where they most need the help of a professor (one of the reasons I majored in economics was that I perceived I needed this as a student).  We're time-constrained in class, but I've tried to use reading assignments to enhance students' sense of how the theory applies.  Over the course of the curriculum, the students learn about how we test theory against data and develop an understanding of how we choose which models (and therefore what simplifications) are appropriate under alternative circumstances.  But this all rests on groundwork we build in the introductory class and I think it is worth thinking about whether there might be changes we could make in its structure that could address some of these concerns.

The report also mentions grades, citing Claudia Goldin's research that women are more likely then men to be put off further study by low grades in introductory classes (summarized in this Washington Post column by Catherine Rampell, which I discussed in an recent post).  Economics does have one of the lowest grade point averages at Wesleyan - our grades are inflated, but less so than those in most other departments.  I think this is a serious issue - this effort at Wellesley to impose common grading standards demonstrated how much grading differentials across departments distort students' choices.  To the extent that women's choices are more affected then men's, grade inflation is a gender equity issue.  However, I think the culprit is not the economics department, but others where the grade inflation has gotten out of control (which I think is an unsurprising symptom of the reliance on student evaluations in promotion and tenure).

Another issue raised by the report is whether men are more likely to be attracted to economics because they believe it suits their vocational goals.  The misperception that an economics major is a proxy for studying business or finance runs deep.  I should write more about this sometime; for now, I'll simply say that this reflects a fundamentally incorrect view of what economics is about.  To the extent that this is disproportionately bringing more male students into economics, they're coming for the wrong reasons and the implication would be that "economics needs fewer men."

There's quite a bit more in the report that is worth thinking about.  Some of the issues are fundamentally about student culture - Wesleyan students seem to mostly be pretty good at maintaining their culture and supporting each other, so I am optimistic that the students can make progress, as well as the faculty.

STEM versus Liberal Education?

In a Washington Post column headlined "Why America's Obsession with STEM Education is Dangerous," Fareed Zakaria writes:

This dismissal of broad-based learning, however, comes from a fundamental misreading of the facts — and puts America on a dangerously narrow path for the future. The United States has led the world in economic dynamism, innovation and entrepreneurship thanks to exactly the kind of teaching we are now told to defenestrate. A broad general education helps foster critical thinking and creativity. Exposure to a variety of fields produces synergy and cross fertilization. Yes, science and technology are crucial components of this education, but so are English and philosophy. When unveiling a new edition of the iPad, Steve Jobs explained that “it’s in Apple’s DNA that technology alone is not enough — that it’s technology married with liberal arts, married with the humanities, that yields us the result that makes our hearts sing.” 

There is much to agree with in the case he makes for liberal education, but the way he (and the Post's headline writers) frame it is problematic.  We don't face a tension between science, engineering and mathematics and liberal education; science and mathematics are part of liberal education, and engineering should be too.

Zakaria is right that liberal education is concerned with "critical thinking and creativity."  To be effectual, these require a set of intellectual tools to understand the world around us.  Liberal education as it is practiced does fairly well through the humanities and social sciences of expanding students' capacities to think about the human and social world.  But the social world is shaped by the physical and biological, the mechanical and computational.  And here I worry we aren't doing such a good job - we seem too ready to declare that we're not "math people" (and, it mostly follows from this, not science or engineering people).  Doing so early in a child's academic life means that they will later find many areas closed off to them.  At the college level, we accommodate this with science for non-scientist courses - every college has its "physics for poets" and "rocks for jocks."   Some of them are likely fantastic classes, but there is a worrying asymmetry - we don't seem to feel a need to offer "poetry for physicists" or "social theory for biologists".  To some extent, this reflects what we're given - too many of our incoming students have already "tracked" away from serious studies in math and science (or turned off to them).  But it raises a question of the seriousness of our commitment to science and math as a real part of liberal education.

The importance of science and math in liberal education is not just in knowing "stuff," or "how stuff works" - though I think knowing stuff, and how it works, is often underrated - but in learning other modes of thought which can extend our mental capacities and give us another perspective.

While Zakaria picked up on our current STEM-mania (much of which is misguided, even on its own terms), and his column's headline puts science and liberal arts in a false opposition, his real target - a narrow vocationalism - is a valid one.  Economic insecurity and the wage premium for college graduates have helped entrench the belief that a college degree is some sort of golden ticket. This is a far too circumscribed view: a good education should enhance one's working life (regardless of how remunerative) - but it should also enrich our lives as citizens and people.  That is, it should help us, as Keynes put it, to "live wisely, agreeably and well."  We would be better able to do this if we took science and math education a little more seriously.

Update (3/31): At Forbes.com, Union College's Chad Orzel has a nice response - "science is essentially human" - to Zakaria's piece.

Economics, Grade Inflation, and Gender

The NSF updates us on the share of economics degrees earned by women:

while the share of female PhD is now up to about one-third, the fraction of undergraduate economics majors has slipped back under 30%.

In a Washington Post column last year, Catherine Rampell argued that the obsession with grades can partially account for the relatively low percentage of women majoring in economics as well as in science, engineering and math fields.  The women don't do worse then the men, but apparently they're more likely to avoid areas where grades are, generally, lower.  She writes:

Claudia Goldin, an economics professor at Harvard, has been examining why so few women major in her field. The majority of new college grads are female, yet women receive only 29 percent of bachelor’s degrees in economics each year.

Goldin looked at how grades awarded in an introductory economics class affected the chance that a student would ultimately major in the subject. She found that the likelihood a woman would major in economics dropped steadily as her grade fell: Women who received a B in Econ 101, for example, were about half as likely as women who received A’s to stick with the discipline. The same discouragement gradient didn’t exist for men. Of Econ 101 students, men who received A’s were about equally as likely as men who received B’s to concentrate in the dismal science. 

One of my ongoing, and largely futile, battles as a college professor is to convince my students that their grades don't matter - or at least, they don't matter nearly as much as the students often think they do.  Alas, obsession with grades is pretty deeply entrenched in young people who've been coached for years to compete to get into college.  This may have gotten worse over time with perceived increases in the competitiveness of admissions (the perception isn't fully accurate: declining acceptance rates are partly due to colleges soliciting more applications to make their numbers look better, as well as the growing ease of applying to large numbers of colleges), as well as increasing anxiety about financial outcomes after college.

Not only does the obsession with grades distract us from the real purpose of learning, the apparent difference between how men and women respond to them contributes a gender gap in fields like economics, which appear less prone to grade inflation (this study from Wellesley provides further evidence on how grade inflation distorts students' choices, though it doesn't consider gender differences).  One could make the case that grade inflation is thus an equity issue.

The better news from the NSF's report is the continued increase in the share of women earning PhDs (though the discipline still faces "leaky pipeline" issues).  I'm not too worried that the decrease in the share of women earning US undergraduate economics degrees will impact graduate education, since US graduate programs draw from a global pool (only about 30% of US PhDs go to Americans).  However, I don't think we should be hopeful that a greater share of female professors will bring more women into undergraduate economics: while a "role model" effect sounds plausible, the empirical evidence does not seem to support it.

Reminder: Your Major is Not Your Career

On twitter, Diana Farrell (Wes '87) points us to a fantastic interactive graphic from Williams math Professor Satyan Davadoss.

What college majors end up in what professions? See this great graphic!. More parents and students need to know. http://t.co/Pi2QpwznE3
— Diana Farrell (@Farrell_Diana) January 21, 2015

The varied paths from all the different majors is an excellent corrective to the widespread misperception that one's major determines one's career.

Economics Navel-Gazing, Curricular Edition

A group of economics students in the UK have undertaken a movement to reform the economics curriculum.  I'm a little surprised that I haven't run into similar sentiments at Wesleyan - I can't decide if I'm disappointed or relieved by this.

The criticisms seem to me to be based on a somewhat unfair caricature of economics and economists, that we're head-in-the-sand apologists for "neoliberalism" who use mathematics as a form of obscurantism and have little useful to say about the "real world," particularly in the wake of the financial crisis.

Some of this may be rooted in the fact that the "economics" articulated by politicians, government officials and the press - what Simon Wren-Lewis has called "mediamacro" - does not reflect the views of most of mainstream academic economics.  In particular the obsession with government budget deficits is not based on textbook economics (I discussed an example of this misconception in a European context a couple of years ago).

Markets are at the heart of economics - this may be where the view that economists are "free market fundamentalists" comes from.  In introducing markets, though, there are really two main points to make:

1. The gains from exchange and specialization possible from voluntary trade (i.e., Adam Smith's "Invisible Hand"), and the ability of markets make to adjustments based to dispersed information about what Hayek called "the particular circumstances of time and place" which would be un-knowable to any central planner.
2. While economists need to make our students aware of the hidden and under-appreciated role markets play in organizing society and in lifting humanity out of subsistence-level poverty, we also devote a considerable amount of attention to how they fail.  In particular, problems of monopoly power, externalities, public goods and asymmetric information are standard subjects for introductory economics courses.  (2a., There are also reasons to be skeptical in practice of the ability of our political system to effectively correct market failures).

We do suffer from an excess of libertarians who mistakenly believe that economic theory validates their views - I usually think of these people as students who stopped listening after they learned about point #1 in first several weeks of their principles courses (or put too much weight on #2a).  But these folks are a minority in economics, though perhaps a vocal enough one that students and other outsiders might believe they are more representative than they really are.

We typically introduce markets with the model of "supply and demand," and the exercise of thinking in terms of models provides much of the lasting value of studying economics.  Working with economic models can sharpen students' logical and critical thinking skills immensely.  As John Cochrane nicely put it recently, "economic models are quantitative parables, not explicit and complete descriptions of reality." The criticism that models are "simplifications" is a cheap one - writing down a set of assumptions in mathematical form and working out the implications (and then testing them against data), is where the insight comes from.  The discipline of doing this cultivates an ability to think intelligently about tradeoffs and hidden costs, and to trace conclusions back to underlying assumptions and consider how changing assumptions lead to different conclusions.  Since models are, by necessity, very stylized descriptions of the world, students of economics must not only learn how to work with them, but also how to judge which simplifications are appropriate for a given circumstance or question.  As Keynes said, "Economics is the science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world."

So I think the core of what we try to do in our introductory economics courses - introducing markets (both their successes and failures), and teaching students how to think in terms of models - is extremely worthwhile.  Of course, this does not cover everything that we possibly would like to do in a course (or in small set of courses).  Much of economics is concerned with the allocation of scarce resources, and the time that our students can spend on a course in a semester (both in and out of the classroom) is very limited, forcing some difficult choices on instructors.  Some of the criticisms made by the UK students seem to be about what we're leaving out, though I think what we're doing in our introductory courses is pretty important, and laying some groundwork in the economic way of thinking will help the students tackle issues like understanding the financial crisis, either in later classes or independently.  While many of the debates in the news are about macroeconomic policy (and as a macroeconomist, I'm happy to see the revival of interest in the topic, even if arises from unfortunate sources), the core microeconomic concepts are very important and not to be skipped.  While it can be exciting to be teaching a subject that is relevant to contemporary events, we should not be seduced into bringing "news" into the classroom in a way that interferes with developing an understanding of the fundamentals.

There is sometimes a bit of a muddle in these navel-gazing discussions, too, between what should be in our undergraduate curriculum and the separate, but not wholly unrelated, issue of our research agenda and graduate curriculum.  I'm not entirely unsympathetic to the calls for "methodological pluralism" though I wouldn't go as far as the UK students would like.  I have argued for graduate study of the history of economic thought, and I have emphasized it in my undergraduate teaching, using it as an organizing principle for my intermediate macroeconomics class (and also making my intro students read some Smith, Hayek, Friedman and Keynes).  As a field, I do think macroeconomics is at a point where we should be open to reconsiderations of some of the standard tools (though I don't think that is ever not the case), and I worry that the "publish or perish" incentives we all face mean that we do too little of that.

Karl Whelan of University College, Dublin has a written nice essay "Teaching Economics 'After the Crash'" with a more detailed response to the UK students' criticisms which is well worth reading.

Fighting the last Methodenstreit

That's a German word that means "method war" and it came to mind reading Simon Wren-Lewis' post last week, "Are New Keynesian DSGE Models a Faustian Bargain?"

The reason they might seem so is the methodological underpinnings of DSGE (Dynamic Stochastic General Equilibrium) models, which are "micro-founded" macroeconomic models derived from the optimizing behavior of individuals (or, often a "representative agent") were brought into macroeconomics by Robert Lucas, Ed Prescott and others who were seeking to overturn "Keynesian" macroeconomics (see, e.g., Lucas and Sargent, 1979, "After Keynesian Macroeconomics").

The first generation of models of this type - "Real Business Cycle" (RBC - where "real" means non-monetary) implied that economic fluctuations could be optimal, and that monetary and fiscal policy were either useless or harmful (this JEP article by Charles Plosser is a good primer).

While these models failed to convince as explanations of economic fluctuations overall (as Larry Summers explained, though they can still be a useful part of the macro toolkit, as Chris House argues), the methods introduced by the RBC theorists have become nearly universal in macroeconomic modelling under the broader moniker "DSGE".  The last couple of decades have shown us that a number of "Keynesian" features, such as "sticky" prices can be incorporated into such models, which then go by the name "New Keynesian."

So the "New Keynesians" are using methods that were introduced by a cohort of macroeconomists that were explicitly anti-Keynesian.  That is, Lucas et al. won the methodological war about how to build macroeconomic models, but their anti-Keynesian view of the economy itself did not prevail.

Wren-Lewis' answer to the question posed in the title of his post is "no." Paul Krugman summarizes and responds:

Wren-Lewis’s answer is no, because New Keynesians were only doing what they would have wanted to do even if there hadn’t been a de facto blockade of the journals against anything without rational-actor microfoundations. He has a point: long before anyone imagined doing anything like real business cycle theory, there had been a steady trend in macro toward grounding ideas in more or less rational behavior. The life-cycle model of consumption, for example, was clearly a step away from the Keynesian ad hoc consumption function toward modeling consumption choices as the result of rational, forward-looking behavior. 

But I think we need to be careful about defining what, exactly, the bargain was. I would agree that being willing to use models with hyperrational, forward-looking agents was a natural step even for Keynesians. The Faustian bargain, however, was the willingness to accept the proposition that only models that were microfounded in that particular sense would be considered acceptable. It’s one thing to accept that models with an Euler condition at their core can sometimes be useful; it’s quite different to restrict your discourse to models with that characteristic, while ruling out everything else.

A couple of things to note here:

Politics: Both the academic sort in terms of who gets hired and what gets published - as Krugman alludes to, some of it was pretty vicious (at least that's my sense - this was all well before my time) and some are still holding grudges - and the political implications of the theory.  In its purest form, RBC theory has some pretty right-wing policy implications (though RBC macroeconomists are not necessarily Republicans), so some view RBC (and, by extension, DSGE) models as cover for a conservative political agenda.

How academia works: Publishing papers requires at least some incremental degree of novelty (i.e., a journal article must make a "contribution to the literature").  While the events of the last six years have underscored the usefulness of the standard textbook Keynesian approach I (and many others) teach our intermediate-level macroeconomics students, as far as publishing it, well, it was done 77 years ago.  While it is useful for policymakers and the economists working in policy institutions, academic economists are going to focus on developing new theory - which hopefully leads to better policy-making, in the long-run at least.  That is, the divide between "scientists" and "engineers" described by Greg Mankiw applies.

For more interesting thoughts on this see: Brad DeLong, Roger Farmer, Steve Williamson's response to the Krugman post quoted above, another post by Krugman.

Some Econ Grad School Advice

Miles Kimball (Michigan) and Noah Smith (a recent Michigan PhD who's at Stony Brook) offer a useful "complete guide to getting into an Economics PhD program."  Michigan's Jeff Smith comments on it.  I generally concur, though like J. Smith, I have a slight disagreement with their emphasis on being a research assistant - I definitely think it can be useful, but programs aren't going to require applicants to have this experience.

My own advice is here.  I haven't updated it in a while, but I don't think much has changed.

When I next revise it, I might add some information from the NSF's survey of earned doctorates.  Of 1124 new PhDs from US institutions in 2011, 656 had definite employment, 90 were going on to postgraduate study, 218 were seeking employment and 23 were "other" (apparently not everyone completed that survey question).  I think that might give a misleadingly negative impression the job market for economists - while it may be that quite a few PhDs weren't employed when they completed the survey, economics PhDs generally are able to get jobs.  Of those with employment, 56.3% were going into academe, 14.9% to government and 16.8% to business, with the rest going to nonprofits (6.6%) and other/unknown (5.5%).  The cohort was 34.4% female and 38.2% were US citizens.  The median age of a PhD was 31.4 and the median time to completion was 7 years.

The American Economic Association also has some useful resources about Econ PhD programs.

The Publishing Game

Although I generally feel quite fortunate to be an academic economist, in my grumpier moods I might complain that the business of getting papers published in academic journals (which is the basis for how we're judged as scholars) can feel like a bit of a game (and frustrating one at that).

Now, it is a game.  The folks at Research Papers in Eonomics (RePEc) propose to bring us a "fantasy league" for armchair department chairs:

The IDEAS fantasy league allows you to pretend you are at the helm of an economics department. Your goal is to improve its ranking relative to other departments in the league. You can do this by trading economists and by choosing which ones to activate in your roster. 

In a blog post, Christian Zimmerman explains that it started as an April fools' joke.  At this point, it is still a proposal.

I would think that those who would play this game would be well-advised that their time might be better spent working on their research papers.  Of course, the same might be said of blogging.

Econ PhD Musings

Holder of a more recent vintage economics PhD than me, Noah Smith says "If you get a PhD, get an economics PhD".  His foremost reason is that job market conditions are much better for economics PhDs than in most other fields.  It's definitely worth a read if you're considering grad school, though I have some friendly amendments to offer:

On the positive side:
The benefits of having a stronger labor market than most other academic disciplines persist beyond the initial job placement.  If you end up in a place that isn't a "good fit", you have a reasonable chance of being able to move.  This is in contrast to some fields where anyone with an academic job must cling desperately to it knowing they have slim chances of finding another one, which makes them vulnerable to jerky administrators etc (fortunately my current institution generally seems to treat people well, even when they don't have to).  Moreover, this means that the tenure process is slightly less terrifying - the economists I know who've been denied tenure have generally landed on their feet.

On the negative side:
Noah neglects to mention that, while the job market for economists is relatively robust, its still a fairly thin one (at least compared to most 'normal' jobs), so, while PhDs generally get jobs, they don't usually have alot of choices.  This means is a problem to have strong preferences about exactly what type of job you want, or where you want to live.

I think he also understates the risk of failure.  Its true that, once you're through the preliminary exams, you're not likely to experience "failure" as a single, discrete event. However, dissertations are a real struggle - even in the best case - and its not uncommon for people to drift away without finishing.

I like Noah's enthusiasm about the potential for "intellectual fulfillment" - and he's right, its pretty great - and rare - to have a job where you have freedom to pursue different ideas and topics with nobody telling you what conclusions to come to.  And its neat to be around people who are are sharp thinkers and/or doing interesting research.  But, that said, academics don't just get to think - they have to have their work validated by publishing, and the process of getting papers published is a real grind, and, on a bad day, can feel like a bit of a game.

Also, he says, "as an econ grad student, you'll have a life. Or a chance at having a life, anyway."  Hmm... depends on what you mean by "life", and certainly not the first year (or really the second, either).

I think the big qualifier is "If you get a PhD" - while conditions for economists are much better than in many other fields, getting a PhD in economics still has a high cost.  Not only does it entail giving up income - both during the grad school years, but also by forgoing more lucrative career options - it also means narrowing the set of career choices (there really is such a thing as being "overqualified," so having a PhD is limiting).  I agree with Noah that the careers available to econ PhDs are generally desirable, but my advice to college juniors and seniors who aren't sure would be to try out working in the "real world" first - it may give you some perspective.

I've posted some general advice about economics grad school here.

Economics Never Sleeps

At the NY Times' Economix blog, Catherine Rampell reports survey results showing that economists are America's fifth most sleep deprived category of workers.

Most Sleep-Deprived
6h57m	Home Health Aides
7h	Lawyer
7h1m	Police Officers
7h2m	Physicians, Paramedics
7h3m	Economists

She seems puzzled by this:

Personally, I would love to know why economists are on this list. Economists in academia, at least,  seem to have flexible schedules that should let them get lots of sleep. Maybe a lot of them are grad students scrambling to publish, publish, publish. Or maybe there are a lot of folks like Larry Summers who prefer allocating more hours for work.

I've never met Larry Summers, but, based on what I've read, I don't think there are a lot of folks like him. 

But the "scrambling to publish, publish, publish" certainly doesn't end in grad school - indeed, that's only the beginning of it.  I really like being an academic, but its not quite so cushy as people seem to think.  However, I'm not sure why that would be worse for economists than other academics - if anything, it should be better for us because our job market is better than in most disciplines.  But it does seem to be the case that economists are disproportionately represented among the faculty I see around the building late at night or on the weekends.  Perhaps economists face a lower opportunity cost of working (i.e., we have lousy social lives).

Or maybe we just love what we do!

However, there doesn't seem to be much variance among occupations.  The least sleep-deprived group is "forest, logging workers" who get 7 hours and 20 minutes of sleep -  that's only about 3 percent more than economists.  As an economist, I wonder if that's a statistically significant difference.

A Professorial Dilemma (RIP, Saab)

Sad news from Trollhättan, the NY Times reports:

The owner of Saab Automobile finally threw in the towel Monday, filing for bankruptcy after hopes of a life-saving investment from Chinese investors collapsed in the face of opposition from General Motors.

This creates a dilemma for those of us who feel a professional obligation to uphold the stereotype of the Swedish-car driving college professor, but believe we are too cool for Volvos.

The Economist's "Schumpeter" column gave a the brand a nice (though slightly premautre) obituary in September.  It is still possible someone will buy the company whole in bankruptcy and restart it, but most reports suggest liquidation is more likely.

The Graduate Curriculum

Macro navel-gazing turns (again) to the graduate curriculum....

Brad DeLong:

The fact is that we need fewer efficient-markets theorists and more people who work on microstructure, limits to arbitrage, and cognitive biases. We need fewer equilibrium business-cycle theorists and more old-fashioned Keynesians and monetarists. We need more monetary historians and historians of economic thought and fewer model-builders. We need more Eichengreens, Shillers, Akerlofs, Reinharts, and Rogoffs – not to mention a Kindleberger, Minsky, or Bagehot.

Yet that is not what economics departments are saying nowadays.

Perhaps I am missing what is really going on. Perhaps economics departments are reorienting themselves after the Great Recession in a way similar to how they reoriented themselves in a monetarist direction after the inflation of the 1970’s. But if I am missing some big change that is taking place, I would like somebody to show it to me.

As if it weren't bad enough that some assistant professors are writing blogs, a Michigan grad student named Noah Smith is blogging, too.  After a description of his first-semester macro class, he says:

This course would probably have given Brad DeLong the following reasons for complaint:

1. It contained very little economic history. Everything was math, mostly DSGE math.
2. It was heavily weighted toward theories driven by supply shocks; demand-based theories were given extremely short shrift.
3. The theories we learned had almost no frictions whatsoever (the two frictions we learned, labor search and menu costs, were not presented as part of a full model of the business cycle). Other than Q-theory, there was nothing whatsoever about finance* (Though we did have one midterm problem, based on the professor's own research, involving an asset price shock! That one really stuck with me.).

At the time I took the course, I didn't yet know enough to have any of these objections... 

Paul Krugman:

[M]odern graduate-level macroeconomics has managed to bury and forget what earlier generations knew, so that what was billed as intellectual progress ended up being, in crucial ways, intellectual regress. 

Hmmm.... yes and no...

Grad school is trying to produce "productive" scholars, good practitioners of what Thomas Kuhn would call "normal science", who generate publications in academic journals.  As such, much of it, especially the first year, is about learning techniques and terminology.  Most of what I remember from my first year is doing alot of algebra - and that's not a bad thing, being at least somewhat good at algebra turns out to be pretty important, as is knowing about things like Kuhn-Tucker conditions, Hamiltonians, and Bellman equations.

In that sense, I don't think economics PhD programs do such a bad job.  My first year graduate course was mostly growth theory and dynamic consumption theory, which were good vehicles for exposing us to the nuts and bolts of macroeconomic models.  What is missing, is a sense of perspective and context.  Contemporary academic models are grounded in "microfoundations" - the optimization problems of forward-looking agents - and, as such are very different from the models taught to undergraduates.  First-year graduate students learn quickly that macroeconomics is very different from what they expected (i.e., its "micro with time subscripts"), but they don't know why.  Time is precious in putting together a course, but I think a prologue which develops the motivation behind contemporary methods - principally the Lucas Critique and rational expectations revolution - would be time well spent (this article by Greg Mankiw is a good place to start).

DeLong and Krugman lament the lingering prominence of the "saltwater" Real Business Cycle (RBC) paradigm, and they have pointed out some startling statements by prominent true believers.  However, there is good reason for nonbelievers to learn these models, as the methods used by them are also at the core of many state-of-the-art New Keynesian models.

If a PhD program can get its students through some growth theory and consumption theory, which come together in the Ramsey-Cass-Koopmans model, and take the small step from there to RBC models in the first year, those students would be well-prepared to study models with frictions and market failures more relevant to current problems in the second year.

Previously, I have also argued for including history of economic thought in the graduate curriculum.  The trick would be to get people to take it seriously.  This would help recover some of the insight that Krugman (rightly) believes have been obscured.  Moreover, this might get students thinking more broadly, which would improve the likelihood that they might actually be in a position to re-think and change existing paradigms, rather than just being "productive" within them.

Raise Greg Mankiw's Taxes, Please!

I should start out by saying that I'm a fan of Greg Mankiw.  He has written some important (and good!) papers that have made influential contributions to both business cycle and growth theory.  Moreover, he is a very good writer - his academic work is enjoyable to read (which is rare!) and he communicates well to a general audience (though sometimes his political biases - which are different from mine - do show through).  I've used several of his papers in classes I've taught, and I've been a (mostly) satisfied user of his intermediate macroeconomics textbook since I began teaching the course as a grad student back in 2003.

In a column for the NY Times, he uses himself as an example of how a change in marginal tax rates could reduce labor supply:

Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. That is simply the miracle of compounding.

Now let’s put taxes into the calculus. First, assuming that the Bush tax cuts expire, I would pay 39.6 percent in federal income taxes on that extra income. Beyond that, the phaseout of deductions adds 1.2 percentage points to my effective marginal tax rate. I also pay Medicare tax, which the recent health care bill is raising to 3.8 percent, starting in 2013. And in Massachusetts, I pay 5.3 percent in state income taxes, part of which I get back as a federal deduction. Putting all those taxes together, that $1,000 of pretax income becomes only $523 of saving.

And that saving no longer earns 8 percent. First, the corporation in which I have invested pays a 35 percent corporate tax on its earnings. So I get only 5.2 percent in dividends and capital gains. Then, on that income, I pay taxes at the federal and state level. As a result, I earn about 4 percent after taxes, and the $523 in saving grows to $1,700 after 30 years.

Then, when my children inherit the money, the estate tax will kick in. The marginal estate tax rate is scheduled to go as high as 55 percent next year, but Congress may reduce it a bit. Most likely, when that $1,700 enters my estate, my kids will get, at most, $1,000 of it.

HERE’S the bottom line: Without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

By contrast, without the tax increases advocated by the Obama administration, the numbers would look quite different. I would face a lower income tax rate, a lower Medicare tax rate, and no deduction phaseout or estate tax. Taking that writing assignment would yield my kids about $2,000. I would have twice the incentive to keep working.

So, if Mankiw's marginal tax rate reverts to its Clinton-era levels as scheduled under current law, when his editor calls to tell him its time for a new edition of his textbook, he would decline?

If we're doing a social cost-benefit analysis of changing Greg Mankiw's marginal taxes, we should account for externalities, positive and negative.  Following Mankiw's lead, I'll use myself as an example, and explain a benefit to reducing Mankiw's labor supply that should be accounted for in his analysis.

I would be better off if he decided the marginal benefit of an cranking out eighth edition was less than the marginal cost, and so would my students.  The churning of textbook editions (and this isn't Mankiw's fault, to be sure) is a real headache to instructors, and helps keep the cost high for students.  Though I'm sure it was well-intentioned (and thoroughly focus-grouped) a number of the changes from the sixth to seventh edition of his textbook made it worse from my point of view.  For example, I rather liked his discussion of New Keynesian and Real Business Cycle theory, which were supplanted by a "dynamic aggregate demand and supply" chapter that I'm not inclined to mess with.  And don't tell me I need my book "updated" for "current events." One of the fun things about teaching macroeconomics is that the world is always giving us interesting new examples to talk about.  But I can handle that quite well without some new "economics in the news" sidebars grafted into the textbook.

However, while the theoretical case that marginal tax rates can change behavior is clear, I'm not convinced, as an empirical matter, that Mankiw's would actually change.  After all, his book was first published in 1992, and he issued new editions in 1994 and 1997 when higher marginal tax rates on high levels of income (and capital gains and estates) were in effect.

Mark Thoma and Brad DeLong suggest some other possible shortcomings in his argument.

So Its Not Too Late

to change my major, after all...

according the e-mail newsletter of the Western Economic Association:link here.

Grad School Advice

From Greg Mankiw. Among other things, he says:

Talk with the graduate students who are now in the programs you are considering. Are they happy?

Hmm.... yes, its definitely a good idea to talk to graduate students before choosing a program, but "happy" might be a bit too much to expect. (And if you do meet graduate students who are "happy," do them a favor and don't report them to the director of graduate studies).

My advice on grad school is here.

Update: Chris Blattman adds to Mankiw's list.

Economics Job Market

Inside Higher Ed reports:

[T]he American Economic Association, which started its annual meeting Sunday, is reporting a drop in new academic jobs listed of 19 percent in the 2009 calendar year. While plenty of new Ph.D. economists seek employment outside of academe, many of the companies that hire them are also facing financial turmoil. The drop in the association's job postings for work outside of academe was even greater: 24 percent.

Bleh.

The College Tour

In the Times, high school senior Lauren Edelson writes of a new cliche on the campus tour:

I was surprised when many top colleges delivered the same pitch. It turns out, they’re all a little bit like Hogwarts — the school for witches and wizards in the “Harry Potter” books and movies. Or at least, that’s what the tour guides kept telling me.

During a Harvard information session, the admissions officer compared the intramural sports competitions there to the Hogwarts House Cup. The tour guide told me that I wouldn’t be able to see the university’s huge freshman dining hall as it was closed for the day, but to just imagine Hogwarts’s Great Hall in its place.

At Dartmouth, a tour guide ushered my group past a large, wood-paneled room filled with comfortable chairs and mentioned the Hogwarts feel it was known for. At another liberal arts college, I heard that students had voted to name four buildings on campus after the four houses in Hogwarts: Gryffindor, Ravenclaw, Hufflepuff and Slytherin. Several colleges let it be known that Emma Watson, the actress who plays Hermione Granger in the movies, had looked into them. I read, in Cornell’s fall 2009 quarterly magazine, that a college admissions counseling Web site had counted Cornell among the five American colleges that have the most in common with Hogwarts.

Hmm... for something different, she should visit Carleton College in Northfield Minnesota, where the tour guide would no doubt highlight the fact that a scene from "Mighty Ducks 3" was filmed in Carleton's Great Hall.