Posts Tagged ‘alan blinder’

Dispatches from a runaway American dream

3 August 2010

Edward Luce’s recent Financial Times feature, “The crisis of middle-class America,” is a must-read.  It seems to be excerpted (lots of “. . .”), but it still contains a ton of detail about two seemingly comfortable middle-class families who’ve seen their living standards fall gradually and then, after the 2008 crisis, abruptly.  The piece is mostly a human-interest article, light on statistics and technical explanations, but there is this illuminating quote from Harvard economist Larry Katz:

‘“Think of the American economy as a large apartment block,” says the softly spoken professor. “A century ago – even 30 years ago – it was the object of envy. But in the last generation its character has changed. The penthouses at the top keep getting larger and larger. The apartments in the middle are feeling more and more squeezed and the basement has flooded. To round it off, the elevator is no longer working. That broken elevator is what gets people down the most.”’

Here’s hoping this article is part of a much longer series.  Although the early verdict on the 2000s seems about right — two recessions with a bubble-driven recovery in between — people still tend to view the 1980s and 1990s as Prosperity Decades.  Based on aggregates like rising real GDP and falling unemployment rates, they were, especially the ’90s.   And as the long economic expansion of the Clinton years took hold, the warnings of some economists of a “silent depression” of eroding real wages and disappearing middle-class jobs (especially for non-college-educated workers) became increasingly ignored.  Ditto for the wave of warnings about “downsizing” in the mid-’90s, as eloquently reported by The New York Times (and followed up a decade later in a book by William Baumol, Alan Blinder & Edward Wolff that seems to have gotten far too little attention).

Macroeconomics is the study of economic aggregates, so macroeconomists and the macro debate tend to focus on aggregate statistics, even though the bottom line would seem to be how individual people (be they rich, poor, middle class, black, white, old, young, etc.) are doing.  The debate over the economy’s performance during the 1980s, which inevitably took a partisan cast as a debate over Reaganomics, generally came down to aggregates.  On the pro side, an eight-year economic expansion, falling unemployment, low inflation, a booming stock market, and faster productivity growth than in the 1970s.  On the con side, unemployment and poverty rates that skyrocketed in the early ’80s recession and stayed high for much of the decade, rising inequality, and stagnant median real incomes.   Either way, people looked to aggregates, which left a lot out.  For example, were median incomes stagnant because the incomes of most people were stagnant or because there was a relative increase in the number of poor households even as other people’s incomes rose?  And how much of the decade’s prosperity trickled down to families who were at the bottom and middle rungs on the economic ladder when the decade began?  Based on the standard aggregated data, including the Census data on income percentiles, we don’t know, because we’re not comparing the same people over time.  Reagan defenders and others inclined to ignore the issue of inequality make that excuse again and again:  “It’s not the same people!”  Which is true but raises the question, So why don’t we just study the same people over time?

An ideal study would combine scores of case studies like the ones in the FT article with analysis of longitudinal data on particular families surveyed over time. There are longitudinal data sources out there (e.g., the National Longitudinal Study, the Panel Survey of Income Dynamics), but I confess I haven’t seen whatever macro studies have been done with them.  Seems to me way too much of what we “know” about the macroeconomy is based on aggregates like per-capita GDP and way too little on studies of actual households.  But the only to measure the American dream, I think, is one household (or one person) at a time.

Now here’s something you’ll really like . . . a July 1974 live version of the rock classic that inspired the title of this post:

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Clashing clunkers

7 August 2009

The federal government’s “cash for clunkers” program has been the hot economic news item the past two weeks.  The program is novel, visible, finding lots of takers, and by far the most popular item in the stimulus package.  It is not without its critics, however, on both the economic and environmental fronts.  Let’s review the debate.

The first national “cash for clunkers” proposal, as far as I know, came from the eminent macro/policy economist Alan Blinder in a NYT column about a year ago. Blinder noted that smaller-scale programs had already been implemented in several states and Canadian provinces.  He touted it as a “public policy trifecta”:  (1) It would help the economy at low cost:  he estimated the cost of a good national program at about $20 billion, cheap in comparison with the then-stimulus of $168 billion (not to mention this year’s $787 billion stimulus).  (2) It would do a lot to reduce exhaust pollution, an estimated 75% of which comes from cars over 12 years old. As for the apparent waste of retiring old cars that still have some life in them, he said they could be refitted with new emissions controls and resold, or their scrap metal could be recycled. (3) It would be progressive in its impact, since it’s mostly poor people that drive those old clunkers.

My former graduate macro professor Willem Buiter had a typically hilarious and typically negative response, sarcastically titled “Please torch my car.”

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Blinder on blunders

2 February 2009

Alan Blinder has long been both one of the best policy economists and one of the best writers in the profession, so it’s no surprise that his recent New York Times column, “Six Blunders En Route to a Crisis,” has great pith.   He is fair-minded enough to “omit mistakes that became clear only in hindsight.”  The list, in his words:

wild derivatives, sky-high leverage, a subprime surge, fiddling on foreclosures, letting Lehman go, TARP’s detour.

For quick insights on the current crisis, it’s a great resource.

(Note:  The title I provide is the one from the print edition.  The online edition employs a more prosaic title that does not allude to either Pirandello or Nixon.)