Sunday, December 5, 2010

Greg Mankiw on Unemployment Insurance

His view is close to mine.  When I spoke to the reporter on Monday about this issue, I told her I didn't know what the right amount of time for unemployment insurance was and that both the pro- and anti- arguments have merit.

I also mentioned that those who failed to see both sides likely have a political agenda driving their views.  Mankiw, of course, says this much more eloquently than I do.

My Agnosticism about UI (by Greg Mankiw)

A few readers have asked me to opine on the current debate over the extension of unemployment insurance benefits. I have avoided commenting on the topic because I am ambivalent on the issue, largely because I am agnostic about what economists know about optimal UI. But perhaps it would be useful to explain my agnosticism.

UI has pros and cons. The pros are that it reduces households' income uncertainty and that it props up aggregate demand when the economy goes into a downturn. The cons are that it has a budgetary cost (and thus, other things equal, means higher tax rates now or later) and that it reduces the job search efforts of the unemployed. To me, all these pros and cons seem significant. I have yet to see a compelling quantitative analysis of the pros and cons that informs me about how generous the optimal system would be.

So when I hear economists advocate the extension of UI to 99 weeks, I am tempted to ask, would you also favor a further extension to 199 weeks, or 299 weeks, or 1099 weeks? If 99 weeks is better than 26 weeks, but 199 is too much, how do you know?

It is plausible to me that UI benefits should last longer when the economy is weak. The need for increased aggregate demand is greater, and the impact on job search may be weaker. But this conclusion is hardly enough to tell us whether 99 weeks is too much, too little, or about right. It is also conceivable that the amount of UI offered in normal times is higher than optimal and that a further extension would move us farther from what is desirable.
I should note, by the way, that economists who strongly favor the extension of UI benefits, such as those who signed this letter, also tend to favor more income redistribution in general. I suspect, therefore, that the foundation of their support comes not from having weighed the specific pros and cons of UI per se, but rather from a more general desire to "spread the wealth around." That issue is, as I tell my students, more a matter of political philosophy than it is of economics.

Tuesday, November 30, 2010

Quoted in two articles in the Daily Item

Quoted here and here

The Daily Item, Sunbury, PA

November 30, 2010

Worker has request for Santa: a job

133,000 Pennsylvanians to lose aid as federal programs expire

By Evamarie Socha

The Daily Item

— SHAMOKIN — The only hunting David Bidding was doing Monday was job hunting, the Shamokin man said with a slight laugh while filling out paperwork at the Northumberland County CareerLink office.

Smart move: About 133,000 Pennsylvanians will be cut off prematurely from supplemental unemployment benefits in December after federally funded programs run out today, based on U.S. Labor Department data from the National Employment Law Project.

Federal benefits run up to 53 weeks and begin after state unemployment compensation ends, usually at 26 weeks.

After December and the initial cut, more than 1 million more people per month will fall off the rolls. By April, unless the employment picture improves, 6 million workers will be without federal benefits.

"These are people who will see their unemployment end ... where it wouldn't have if Congress had acted" to extend the benefits, said George Wentworth, senior staff attorney with the employment law project, based in New York.

Meanwhile, U.S. Sen. Bob Casey, D-Pa., announced Monday that he will hold a conference call today to discuss the need to preserve unemployment insurance as well as tax cuts.

"Without action, unemployment benefits for workers who lost their jobs through no fault of their own will begin to expire," Casey said in a statement. His office estimates about 83,000 Pennsylvanians would be left "without vital support to help them keep food on the table and pay their bills next month."

The U.S. House of Representatives failed to pass a $12.5 billion bill Nov. 18, after a vote of 258-154 fell short of the needed two-thirds approval. This means about 2 million people nationwide will lose their benefits after today.

The news that federal unemployment benefits likely will end today wasn't what Bidding wanted to hear.

"At this point, anything is a hit," said the 36-year-old who has been out of work for about two years since losing his job when Fleetwood Motor Homes left Paxinos in December 2008.

The national unemployment rate is near 10 percent, according to the Labor Department.

The federal Emergency Unemployment Compensation program began in July 2008, adding 13 more weeks of benefits to those out of work whose state benefits ran out. At the time, unemployment nationwide was about 6 percent.

As the recession deepened and the national unemployment rate kept rising, Congress passed legislation several times to increase the number of weeks for benefits.

Wentworth said that because of how the law works, the phase-out is graduated in two categories:

n"‰Workers who are exhausting their 26 weeks of state benefits. They will not get federal help at all. "People who got their last regular state check last week don't have a program to go on to if Congress doesn't reauthorize the law," Wentworth said.

n For those on federal extensions, there is a four-tier system that potentially could carry them for 53 weeks. Under the law, these people will "collect the balance of whatever entitlement tier they're on" and that is that, he said.

For instance, someone on the first tier is eligible for 20 weeks of benefits. If that person is on week 10 of 20, he'd get 10 more weeks of benefits and then be cut off, Wentworth said.

The extended benefits program in Pennsylvania also will end, Wentworth said, and that will be a hard stop. Basically, the state will stop that program after the last check is cut Saturday.

Thirty-five states operate the extended benefits program, which gives an additional 13 to 20 weeks of unemployment compensation beyond the EUC program. Extended benefits are normally funded half by the federal government and half by the state.

Under the Recovery Act, Congress authorized full federal funding of the extended benefits program, but when that authority expires today, most states will stop operating it.

Wentworth said that according to his group's projections, come today, 22,000 people in Pennsylvania will exhaust their benefits. In December, another 58,000 will be in that spot.

How it came to this has been a politically contentious issue about paying for the program, which cost about $5 billion per month, Wentworth said.

"But historically, whenever national unemployment has been high, Congress has enacted these additional federal benefits," doing so eight times since the 1950s, he said.

"They've always done it as emergency spending, which means they didn't look to have corresponding offsets in the budget; the idea is you have an economic emergency and it's a stimulus. You want to get money into the economy to mute the impact of the stimulus funding. That seems to be what the debate is about now."

But there may be a better employment outlook ahead, said Matt Rousu, associate professor of economics at Susquehanna University, Selinsgrove. He feels in the next six months to a year, the unemployment rate should drop some.

"Firms have money to spend," he said. "A lot of the reason businesses weren't hiring was the uncertainly about what new laws are passed," such as the health care bill and tax cuts and how those would affect business.

Rousu said that with the Republicans holding the majority in Congress, fewer things will be passed. "It's the sweeping legislation where people don't know what's in it (that scares business)," he said. "I expect we'll see much less of that."

The debate, however, doesn't matter much to Bidding, who said he's interested in any kind of work available to him now.

"When you go from lower from what you were getting to making nothing, what are you supposed to do?" he asked.

November 30, 2010

National debt is big concern, prof says

By Evamarie Socha

The Daily Item

— How long is too long to collect unemployment benefits?

That seems to be the question surrounding the latest debate over extending unemployment compensation. Although Congress has prolonged the aid four times in the past year — most recently in July at $34 billion — paying these benefits has become an ethics issue as well as a political one.

"It's kind of the same argument as last time: the benefits and the drawbacks" to extending the benefits, Matt Rousu, associate professor of economics at Susquehanna University, Selinsgrove, said Monday.

"Reasons you would oppose the extension are you think it gives bad incentives, that people wouldn't look as hard for jobs," he said. "The other is the cost. If we do this, it adds to our debts. We're at a time in this country where everyone seems much more concerned for national debt."

The drawbacks, Rousu said, are that a family who loses the funding also won't have as much money, and therefore will have fewer purchasing opportunities, so the economy is not stimulated.

Congress' timing in ending the funding surprises George Wentworth, senior staff attorney with the National Employment Law Project, an employment advocacy group in New York.

"Congress has had eight programs in 50 years and has never cut one of these when unemployment was this high," he said, noting it cut funding once before when unemployment was at 7.2 percent in 1985.

But unemployment wasn't as long then, either. Long-term unemployment today averages 27 weeks, a record, Wentworth said. More than 42 percent of the unemployed have been jobless more than six months, and close to 23 percent have been out of work a year or more.

Thursday, November 4, 2010

Radio Interview

I was a guest on the "On the Mark" radio show today.

You can hear the interview at  This link will have my interview until 11/11/2010.  I have an MP3 of the file if you want it after this date (send me an email).

Tuesday, November 2, 2010

My plea to the uninformed ...

If you are not informed on the issues and don’t know what the candidates stand for, please DO NOT go vote today. Some people will try to make you feel guilty for not voting. Not me. I think all educated voters should thank those who are uninformed yet make the responsible choice of not voting.


Monday, November 1, 2010

I will be on "On the Mark" Thursday

I will be on the "On the Mark" show on WKOK radio Thursday morning at about 9:15 AM.

We are slated to discuss the election, the economy, and my poker adventures this summer.

You can listen here.

Saturday, October 30, 2010

Story on lawyers

Here is an interesting story on lawyers. Law schools are churning out so many that there is a glut in supply.

This raises an interesting question: Are additional lawyers adding or decreasing to the value of society? Certainly some minimum number of lawyers is necessary to help keep the rule of law in our country. However, we seem to be well beyond that point in the US. Additional lawyers can detract from the value of society by being too litigious - increasing costs to the rest of society because of increased prices for products (because higher insurance prices are passed to consumers). On the extreme, professions that add little value to society are professional gamblers, lobbyists, and political consultants. There is nothing these folks do to add to society based on their profession: they take money from other gamblers, spend their time trying to get laws passed that helps their constituents, or try to get their candidate elected (likely battling a political consultant of an opposing candidate).

The most disturbing line in the story to me is here: "That has caused some concern among lawyers who think the accrediting organization, the American Bar Association, is doing the profession a disservice by approving so many new schools. (Contrast that with medical schools. They come with much higher startup costs and tend not to be money-makers. Relatively few students get medical degrees every year, and demand far outstrips supply.)"

Doctors do add value to society. In addition to their earning a large income, they help people daily by providing medical care. Most jobs add value to society - construction workers, teachers, fast food workers, etc. all make others better off while simultaneously earning incomes. Personally, it is discouraging when I see so many incoming freshman indicate they want to go to law school.

I would be curious to see an index of the social value of various professions - but I am not sure one exists.

Wednesday, September 29, 2010

Marcellus Shale Debate

Here are a couple links - here is another

The PA state house just passed a bill mandating a tax on drilling. There are some who think drilling for gas in Marcellus Shale indicates the end of the world as we know it. While others want this industry completely left alone.

This is an interesting issue from an economist's point of view. The issue with drilling in Marcellus Shale with gas have both the political left and the political right using economic logic to support their views. Sometimes - both groups use economic logic correctly, which is quite rare.

How the left might use economic logic to defend their point: "Drilling for gas in Marcellus shale potentially creates externalities. With unknown pollution effects, if something goes wrong everybody is going to have to pay (in terms of dirty water or other contamination) for the oil companies drilling. Therefore, this drilling should be taxed to correctly account for the externality."

This is a perfectly sound argument. Those (who are farther on the left) who call for a ban are not using sound economic logic unless they think the damages are so horrifically bad that there is no way a price could be put on them. This is unlikely.

How the right might use economic logic to defend their point: "Drilling for Marcellus Shale accomplishes two great things for our state and country simultaneous: it provides jobs and it reduces or dependence on foreign energy sources. We absolutely need this drilling now, during a recession, to provide jobs to our region."

Again, this is a perfectly sound argument. Those (who are farther on the right) who call for no taxes, however, don't have as strong of an economic argument. Some claim that it will kill the industry, but given other states impose taxes on gas extraction, this won't happen unless taxes are too large.

To call for no taxes means you should have one of two positions: The first would say there is no potential for a negative externality (side-effect). To argue for no taxes, you would have to be supremely confident that no spills would happen that would damage the environment (which would be pretty silly given recent history). The second potential argument for no taxes is thinking of it like an economic stimulus. Lower taxes during a recession can help spur growth -but since the state of PA must (by law) have a balanced budget - more taxes here means lower taxes elsewhere, so this type of tax decrease would have to be offset by a tax increase elsewhere. Hence, this second argument isn't sound.

Most economists would agree that there should be drilling with a tax in place. The amount of the tax is of tremendous importance - too much would essentially ban drilling, and too little wouldn't compensate for the negative externalities.

The state senate now takes up the matter - where the size of the tax will be a crucial issue.

Saturday, September 4, 2010

Cash for Clunkers revisited

By Jeff Jacoby in the Boston Globe

We discussed here why this policy was so horrible last year. We should not forget how skilled our government can be at making policies that are backwards and have unintended consequences.

Cash for Clunkers has helped lead to an increase in the price of a used car. From the article:

"... the supply of used cars is artificially low, because your Uncle Sam decided last year to destroy hundreds of thousands of perfectly good automobiles as part of its hare-brained Car Allowance Rebate System — or, as most of us called it, Cash for Clunkers. That was the program under which the government paid consumers up to $4,500 when they traded in an old car and bought a new one with better gas mileage. The traded-in cars — which had to be in drivable condition to qualify for the rebate — were then demolished: Dealers were required to chemically wreck each car’s engine ..."

Thursday, September 2, 2010

Insight into local economy woes

Nationally, the economy is growing slower than expected, and the local economy is no different.

I had the opportunity to talk with an owner of a business in the Susquehanna Valley recently, and his comments were enlightening. He said:

"I could really use one or two more employees. We are struggling to keep up (with our business). But with the new health care laws I am holding out for a while. We have no idea what the government will force us to do with this law."

I had always thought 2010 was the year the economy would start to slowly pick up. It appears it is getting better, but economic performance hasn't improved at the rate I was expecting. I must admit that I neglected to think of the burden that the changing laws has on the economic performance. With this massive health care bill and other 1000+ page bills being passed that our local congressman isn't even reading, firms are understandably cautious right now.

I would be curious to see a formal study on this - but my guess is that if there was no health care bill - our unemployment rate probably would be 0.2-0.6 percentage points lower.

Tuesday, August 24, 2010

Reading list for Political Economic Thought

I am on sabbatical this fall, but reading plenty of books to prepare for a new course I am teaching in the spring - Political Economic Thought. In this class we will be reading books from economists and others writing about the economy. The writers have perspectives that vary from liberal to conservative.

Here is the tentative reading list:

Marx - The Communist Manifesto
Krugman - The Return of Depression Economics
Stiglitz - Freefall
Stiglitz, Sen, and Fitoussi - Mismeasuring our Lives: Why GDP doesn't measure up.
Thaler and Sunstein - Nudge
Sowell - The Quest for Cosmic Justice
Friedman - Capitalism and Freidman
Sowell - The Housing Boom and Bust
Miron - Libertarianism from A to Z

This could change slightly as we approach January.

As we progress through the course - I will be posting some discussion questions/topics for each book, along with some thoughts on each book.

Wednesday, July 21, 2010

quoted in the Daily Item

I was quoted in a short write-up on unemployment benefits. I presented both the pros and cons of unemployment benefits, without injecting my opinion. For those unfamiliar with principles of economics classes, this is stressed - there are positive views (facts) and normative views (opinions one derives based on facts along with your own value system).

The other economist quoted, Dr. Moohr, clearly didn't seek to share the pros and cons of extending unemployment benefits, just his reasoning for why he wanted these benefits extended. He dodged the issue of whether the government should be adding to our debt by claiming the payments will happen regardless. Also, this is a rare instance where you will hear an economist try to claim that incentives don't matter. The heart of economic analysis (and one of Greg Mankiw's 10 principles of economics) is that people respond to incentives.
As coincidence would have it, two weeks ago I spoke with a friend who had been laid off by his company for lack of demand, but he was called back to work. I was very excited for him and saying congratulations and that it must be a big relief to be back at work. He said not really - because he was enjoying the time off with his unemployment benefits.

Tuesday, July 20, 2010

Another tourney win

I won a seat to a $2400 tourney at Turning Stone casino in NY - about 4 hours north of where I live.
Will be playing starting August 14th. GL me!

The Value of Expensive Colleges

A recent study examined the "value" of colleges. Our local newspaper covered the story, saying:

Tuition last year at Bucknell University in Lewisburg was $40,594. ...

The university may have one of the highest tuition rates in the Valley, but it also ranked No. 2 recently among all liberal arts institutions with its graduates obtaining the highest mid-career salaries — an average of $115,000 a year. The average starting salary is $56,100.

The story, and a sidebar that accompanied the print version of the newspaper, essentially went on to say that despite the fact that Bucknell (and to a lesser extent, Susquehanna) was so expensive, it is a great value because the starting salaries of Bucknell (Susquehanna) graduates are so much higher than average.

This report and story are an excellent example of people not thinking through issues before releasing a study. Bucknell is an extremely prestigious school. It's students, on average, will be much more intelligent than your average college student and also come from much wealthier families than your average college student. These two factor's play a huge role into determining lifetime earnings. Of course Bucknell students will have higher average salaries, but to credit the institution with adding value to these students is off-the-mark. In fact, a study several years ago found that students who got accepted to Harvard but went elsewhere did just as well as those who attended Harvard.

As an educator at a private college, I am biased towards these institutions. I see first hand the opportunities our students, especially our good students, can get upon graduation. I also know that this is an amazing environment for a student to spend his or her college years. But to credit the increase in salaries to the institution is crazy. Perhaps a small part of the starting salary differences could be from a college, but smarter kids going into college will make more money upon graduation - regardless of where they attend college.

Tuesday, July 6, 2010

Full trip report from World Series of Poker

Here is a link to the full trip report from my WSOP event this year.

Warning - all sorts of poker lingo.

Friday, July 2, 2010

Applying game theory to political campaigns

For much of the past 7-8 months, I helped a local candidate for congress run for office. It was a wonderful opportunity to take the game theory principles I teach and attempt to apply them to the real world. In the end, my candidate lost, getting a very respectable 28% of the vote in a 3-person race despite being outspent by both of the other candidates (and by over 4-1 by the winner).

Some very practical things I learned out on the campaign trail:

1. Staying on message is crucial. The campaign is a fight for ideas. The candidate I supported did well despite the money disadvantage because he was always going back to the 3-4 key points that he wanted voters to remember. Most voters won’t have time to concern themselves with dozens of policy positions so will make their choice based on a few issues.

2. These key points should simultaneously:

a. Point out strengths of the candidate.

b. Imply weaknesses of the other candidates.

c. Be general enough that a majority of voters will look at these favorably.

3. If you are a candidate, being a “full time” candidate (i.e., not having a day job) is a big benefit.

4. Having full time help to coordinate volunteers/support is crucial in a big district.

5. Personalized phone calls are huge. They are time consuming, but huge. We did personalized phone calls to several counties – mostly around the home district. We did great there. We also made calls to individuals in one smaller outlying county, and it probably gained several extra percentage points of the vote. Getting volunteers early is crucial.

Overall, it was really a great experience for my first dip into politics. It helped that I worked for a really great person who was running, so my time wasn’t just an academic exercise: I also felt like I was doing a service to society by helping out this candidate.

Friday, June 25, 2010

Cashed in the World Series of Poker

I finished 207/2300+ to finish in the money at the WSOP.

Part 1 of my trip report can be found here . Warning - plenty of poker jargon here.

Tuesday, May 25, 2010

Will be "On the Mark" on Thursday, times TBA


I will be On the Mark on WKOK radio this Thursday, May 27th - time TBA.

For those who follow my poker exploits, I will be playing in the World Series of Poker this summer. I will be playing Event #30, the $1500 NL Holdem event on Wednesday, June 16th. I will be updating my progress on my twitter account - name is PokerElmo on twitter.

I was involved in a political campaign the past few months, which is part of the reason for the lack of recent posts. I will post my thoughts on my experience soon.

Tuesday, February 2, 2010

More on econ books

I have been reading quite a few books recently. Here are my thoughts for both students and non-students who are looking for economics (or non-economics) related readings:

1. Game Change. An outstanding book. Not really related to economics, but a student of game theory should find this book fascinating, as the campaign is basically one long sequential game. The authors do a good job of explaining all the moves in the campaign, and all the little things that become big things.

2. The Return of Depression Economics. (Krugman). A very good book. Krugman, in his NYT articles, ceases to be an economist. He is instead, in my opinion, a hack for the democratic party. You can see this as his policy recommendations shift over time to represent the current views of the party and by his hatred for republicans and ideas generated by republicans. It is quite disgusting, really, to think about the hatred he harbors. This book, however, is Krugman the economist. He does a great job describing how crises evolved in various countries with great clarity.

3. Superfreakonomics. (Dubner and Levitt). A horrible book. As you may remember, I loved the first book. In freakonomics, the authors told neat stories of how names were chosen, cheating on tests, and drugs based on their research. In this book, they think they have solved all the world's problems. Their arrogance is pretty appalling. In one section, I have significant expertise. The discuss field experiments and laboratory experiments - and I have conducted both. The discuss a problem with inflated giving in a game called the dictator game and how field experiments solved them. However, a 2002 American Economic Review article by Cherry et al. already solved that problem within laboratory experiments (7 years prior to this book being released). That is like the authors today saying they have just solved the problem of smallpox in the US - a disease that has been eradicated for decades. Their (knowingly?) ignoring these facts makes me think lightly of everything else in this book. I simply cannot believe anything they write. If I had to nominate a worst book of the decade that I read - this would be it.

Non-Econ related books that I have read recently:

Doyle Brunson's autobiography: Outstanding, at least if you like poker.

Lee Child's books. I have read two now - and both are outstanding. The first I read was Echo Burning after my brother Mark recommended it to me and let me borrow his copy. From there, I bought his first book about Jack Reacher called Killing Floor. I will likely read more of Child's books.

Currently reading Justice: What's the Right Thing to Do by Mandel and about to start Mike Matasow's autobiography.