WWS 307: Readings

Business in America: Too Much of a Good Thing-- What are 2 reasons for why corporate profits have soared?

1. Huge companies have not actually got bigger, but they got more consolidated Warren Buffet extols firms that have a "moat" around them-- a barrier that offers stability and pricing power ⅔ of sectors became more concentrated between 1997 and 2012 The weighted average share of the top 4 firms in each sector has risen from 26% to 32% Concentrated industries in which the top 2 firms control between ⅓ and ⅔ of the market saw their share of revenues rise from 24% to 33% Consolidated firms (with higher market shares) have more lobbying power Business spending on lobbying doubled over the period Rising importance of intangible assets-- patents-- has meant that an ability to manage industry regulators and the challenges of litigation is more valuable than ever Rate of small-company creation is close to its lowest mark since the 1970s Small firms lack the working capital and the lobbying power needed Since 2003 the contribution of foreign firms has been flat at about 6% of private business output 2. Institutional shareholders own multiple firms at once: BlackRock, State Street, and Capital Group own 10-20% of most American companies Could mute competition

Heckman: The American Family in Black and White: A Post-Racial Strategy for Improving Skills to Promote Equality--Why has the 1960s War of Poverty failed?

1960s War on Poverty failed - tried to address too many groups at once, fostering skills of all age groups at all stages of development Schooling makes little difference -- family environment, parenting matters more

Mankiw: Defending the One Percent-- What does the left argue about the contribution of the wealthy to society, and why does Mankiw think this is wrong?

2. Incomes of the rich do not reflect their contributions to society In a competitive labour market, worker's wage equals their marginal revenue product of labour But, many people do not get rich from this: Wall Street executives benefiting from a taxpayer-financed bailout Mankiw: but consider closely held corporations with no principal-agent problem; they still pay their CEOs handsomely, most likely because the value of a good CEO is extraordinarily high

What weakness of the Act does this article touch on?

225 rules across 11 institutions - too many, too scattered

Cramer, Krueger: Disruptive Change in the Taxi Business: The Case of Uber-- What factors contribute to Uber's higher efficiency?

4 factors contribute to higher rates: Uber's more efficient driver-passenger matching technology Uber's larger-scale, which supports faster matches Inefficient taxi regulations Uber's flexible labor supply model and surge pricing, which more closely match supply with demand throughout the day One difference between Uber drivers and taxi drivers is that Uber drivers are not restricted from picking up passengers in 1 particular jurisdiction

Bivens, Mishel: The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes-- What are some solutions proposed?

4. Solutions: Dismantle institutional sources of increased ability to channel rents Reducing the return to rent-seeking by increasing marginal tax rates on exceptionally high income The expansion of the finance sector has imposed large negative externalities on the economy via the increase in systemic risk of markets

Mankiw: Yes,r>g, so what-- According to Mankiw, what kind of tax do we need?

A better way to eliminate disparity is progressive tax (which does not distort intertemporal margin and discourages capital accumulation) We need a progressive tax on consumption (an expenditure tax); we can make it progressive against consumption Don't tax savings, which flows into investment and growth in the economy

Income, Education, Employment, and Poverty-- What is the relationship between education and predicted income?

A bunch of data in this one-- not worth typing up all of it Official poverty thresholds do not vary geographically Total income tax share for the top 1% of income earners has risen from 25.75% in 86 to 39.89% in 2006 Average income tax rate for all taxpayers was 12.6% Average tax rate for the bottom 50% was 3.01% Average tax rate for the bottom 99% was 9.72% Correlation between unemployment rate and level of education is negative The more education people have, the higher their median income

Fed of St Louis: US Income Inequality: It's Not So Bad-- What are the implications of this argument on income redistribution policy?

A wary eye should be cast on policies that aim to shrink the income distribution by redistributing income from the more productive to the less productive simply for the sake of "fairness" Public policy should encourage people to move up the income distribution and not penalize them for having already done so!

Why could the gender wage gap be overstated?

Actual gender wage disparity (wage of male and female for the same labor-force characteristics) is smaller than the raw gender earnings gap (i.e. raw gender wage gap is exaggerated) Wage gap actually reduced in 80s and 90s due to: Progress in women's education attainment Women's gain in work experience The following factors account for ¾ of gender wage gap: Women more likely to temporarily leave career for childbirth, which interrupts promotion opportunities Women more likely to work part time, less likely to work overtime Women may prefer lower-paying jobs with better health benefits/insurance Policymakers need to use adjusted/true gender wage gap, not raw

What is the overall impact of TANF on case load? On poverty rate? On which demographic group was money being spent more?

All in all, money spent on the working poor INCREASED and money paid to the nonworking poor DECREASED Incentives to work should have increased drastically This all occurred during an economic BOOM CHANGES AS A RESULT OF THIS PROGRAM Caseload changes. In the later 1990s, a HUGE drop in caseloads was measured BUT there was actually a caseload rise prior to this drop that people don't acknowledge ALSO caseloads were declining even before 1996 Caseloads dropped in a statistically significant way that can't just be explained by the economy cycles Changes in income and poverty. Among single mother families, poverty seems to have decreased, but not as drastic as would have hoped FAR less than the reduction in caseloads THEREFORE, people must have transitioned from the welfare poor to the working poor

Mankiw: Defending the One Percent-- What does the left argue about the tax system, and why does Mankiw think this is wrong?

Arguments used by the left: 1. The tax system is regressive Warren Buffett says he isn't taxed enough: he only pays 17.7% of his taxable income, whereas his receptionist pays 30% But this ignores the capital gains that Buffett makes, which are already taxed at a corporate level True picture: top fifth pays 23.2% of their taxable income, middle fifth pays 11%, bottom fifth pays 1%; tax code is clearly progressive

Saez: Exploding Wealth Inequality in the US-- What is the U-shape evolution of wealth inequality in the US?

Authors find a way, however, and they find that wealth inequality has followed a U-shaped evolution over the past 100 years Great Depression to 1970s, there was a democratization of wealth The trend then inverted, with total household wealth owned by the top .1% increasing to 22% in 2012 from 7% in the 1970s The top .1% includes 160,000 families with total net assets of more than $20 million in 2012

American Banks Think They're Over-regulated-- In what ways are banks being regulated stringently (after the Great Recession)?

Banks deemed to be "systemically important" are being asked to raise more equity (against their will) to lower their leverage ratio The Fed limits bank's dividends and share repurchases if banks do not have enough capital Banks are not allowed to know the procedures of these stress tests (which are engineered in secret), so they cannot simply rearrange their balance sheets When banks are forced to hold so much capital, their lending capacity is reduced

Brunnermeir: Bubbles, Liquidity, and the Macroeconomy-- So why then do asset price bubbles occur? How does the bubble-riding hypothesis differ from the efficient market hypothesis?

But bubbles do exist: bubble-riding hypothesis A single investor alone cannot bring down a bubble, and the uncertainty of not knowing when the other investors will start trading against the asset means that even rational investors will be anxious about whether he can afford to sell (short) the asset before the bubble bursts Price corrections are delayed and abrupt (like sticky prices), not immediate Small, fundamentally unimportant news can trigger large price swings; large asset price movements not correlated with important news announcements Volatility spikes when bubbles burst

Deaton: A Question of Inequality--What factors would prevent governments from carrying out this function?

But some governments have no interest in redistribution: they want to maintain inequality between rulers and citizens to maintain power (e.g. colonialism) Some nations are poor; don't have capacity to collect income taxes or make transfer payments It is naive to believe that governments and politicians see their purpose as addressing the failures of free-market capitalism

What is the Public Company Accounting Reform Act of 2002, aka Sarbanes Oxley Act?

Called for stricter regulations in response to fraudulent financial practices of public companies like Enron, Worldcom, Xerox, etc. that manipulate/edit their financial statements

Foy: For Women in Finance, an Unlevel Playing Field -- what can differences between men and women in finance NOT be explained by?

Career interruption Productivity differences Adviser experience Stress of the individual firm

Stout: Regulate OTC Derivatives by Deregulating Them-- How did AIG help fuel the credit crisis in the Great Recession?

Cause of credit crisis was uncertainty of AIG's trading losses in credit default swaps AIG was part of a large network of bets and counter-bets with large financial institutions, so when it failed, other institutions also panicked Morgan and Goldman owned a lot of CDS (credit default swaps), many of which were naked (did not come with the underlying asset)

Fed of St Louis: US Income Inequality: It's Not So Bad-- What are the current trends/findings regarding income growth between different quintiles?

Census Bureau says income of wealthier households has been growing faster than the income of poorer households-- the real income of the wealthiest 5% rose by 14% between 1996 and 2006 while the income of the poorest 20% rose by just 6% Income of the wealthiest thus grew 8.1 times that of the income of the poorest 29% in 96 to 8.7 times in 2006 The way the census shows its data-- by what income constitutes the upper end of each quintile-- seems to indicate an increasing income gap or a shrinking middle class But, the common measures of income inequality that are derived from the census statistics exaggerate the degree of income inequality in the US

Currie: Inequality at Birth: Some Causes and Consequences-- What is the influence of air quality and pollution on infant mortality and other outcomes?

Children born to less education and minority mothers are more likely to be exposed to pollution in utero Poor and minority children are more likely to be in poor health at birth, partly because their mothers are less able to provide a healthy fetal environment Cross-sectional differences in ambient pollution are usually correlated with other determinant of fetal health Fetuses exposed to lower levels of pollution may also receive higher quality medical care Clean Air Act and the recession induced sharper reductions in airborne particulates in some counties than in others, and they use this exogenous variation in levels of air pollution at the county-level to identify its effect A one-unit decline in particulates caused by the implementation of the Clean Air Act led to between 5 and 8 fewer infant deaths per 100,000 live births CO exposure increases the risk of death among newborns by 2.5% EZ-Pass toll collection reduces car emission Mothers who live near EZ-Pass tolls produce babies with longer gestation and better birth weight Mothers who live near areas with high release of metal cadmium and toluene have babies with worse birth weights

Hewlett: Executive Women and the Myth of Having It All-- What are some solutions recommended to firms to prevent women from having to face tradeoff between career and family?

Companies should have more meaningful work-life policies Time bank of paid parental leave, three months paid leave Elimination of penalties for career interruptions Sanctioned career breaks with guaranteed return Reduced hour careers with reduced pays during leave Alumni status for former employees - help women stay in the loop of work, maintain professional standing Tax benefits for firms that offer flexitime and the above options Penalize firms that excessively exploit employees for long hours

What is a derivative?

Derivative: a bet on the future performance of an underlying (combination of) asset(s) Derivatives can be used to hedge against risk if investors make bets on assets whose performance are inversely correlated with each other e.g. stock performance of an airline and price of fuel (as one rises, the other falls)

Niederle, Yestrumkas: Gender Differences: the Role of institutions-- What are gender differences explained by?

Differences in uncertainty about completing tasks, differences in attitudes toward certain risks, general uncertainty, men attribute success to ability and failure to luck and women vice versa. also discrimination, time devoted to profession, desire to have children.

Kirkegaard Peterson Institute: Self-Inflicted Wound-- What factors are threatening the competitiveness of the US skilled workforce?

During the Cold War, the US used to be known for its skilled workforce, but now this reputation is being threatened due to the following factors: Aging US baby boomers College graduation rate was 40% for baby boomers (much higher than those in Europe or Japan during Cold War) 2008: first year that baby boomers can retire with pensions Results in loss of high-skilled workers Stagnating US educational attainment US is unique among OECD in this area Tertiary education rate for current day adults is stuck at 40% (so inflow and outflow of skilled workers into the workforce is net 0). Meanwhile, the rest of the world has moved on: Japanese, Koreans, Canadians advancing much faster relative to parent's generation Improving education would take too long - not realistic to address skill shortages now Increasingly restrictive laws on high-skilled immigration Annual quota of H-1B visas capped at 85,000 Half of businesses wanting to hire skilled immigrants are denied this visa >⅓ venture capital-backed tech companies moving outside of US Other OECDs are strict with low-skilled and humanitarian immigration, but try to liberalize immigration laws for skilled workers, e.g. EU blue card proposal for workers to work throughout the EU China luring back scientists/engineers from overseas by offering tax benefits, guaranteed university for children

What are ETFs and what are some factors that have led to its rising popularity?

ETFs (exchange-traded funds) are similar to mutual funds but listed like a stock on a securities market Provide liquidity within the day rather than at the end of each day like Mutual Funds ETFs have become extremely popular among investors in the US and internationally BUT poorly understood The source of popularity comes from two factors: ETFs provide a source of liquidity to retail and institutional investors looking for low cost and highly liquid ways to buy whole indices in a single trade ETFs popular with hedge funds and other traders to mitigate broad-market risks with a single trade They can be shorted to insure against risk For ETF operators, institutions, and brokers

Business in America: Too Much of a Good Thing-- Why does persistently high economic profit violate economic theory?

Economic theory says that in a perfectly competitive market, no firm should be able to maintain positive economic profit in the long run. As soon as economic profit is positive, new firms will enter and absorb it. But an American firm that was very profitable in 2003 had an 83% chance of still being profitable in 2013 American economy is too cozy for incumbents

Brunnermeir: Bubbles, Liquidity, and the Macroeconomy-- What is the efficient market hypothesis?

Efficient market hypothesis says that all public information is incorporated in the price of an asset (i.e. prices will change accordingly to reflect true underlying value); contemporaneous risk measure appropriate captures current risk exposure

What are 2 of the possible ways of reducing this shortage in funding, and what are their impacts?

Eliminating generous early retirement benefits or raising the retirement age by a year would reduce liabilities by no more than 2 to 5 % Reducing cost of living arrangements (COLAs) by 1% would have a somewhat stronger effect, reducing total liabilities by 9 to 11% But even eliminating COLAs completely will still leave state pension plans with some $1.5 trillion less than they need according to the Treasury discounting method While measures may have modest effects on reducing unfunded liabilities, a large share of the unfunded liabilities will remain

Currie: Inequality at Birth: Some Causes and Consequences-- What is intergenerational transmission?

Endowments at birth have been shown to be predictive of adult outcomes and of the outcomes of the next generation Maint point: Inequality begins well before school age and before birth

Business in America: Too Much of a Good Thing-- So where are profits abnormally high?

Examples: Google dominates internet searches for flights and hotels→ Expedia bought 2 of its main rivals over the past 2 years Health-care industry, where aggregate returns on capital as 20-50%; Four of the largest insurance companies are planning to merge into 2 larger firms Rest of profits are found in the technology sector, where Google, Facebook enjoy market shares of 40% or more Exceptions: Firms such as Uber and Airbnb are a rare source of disruption in the economy, competing fiercely with incumbents

What are the time restrictions for TANF? What type of training did States strive for? What strategies were used to get people off welfare?

Five-year maximum time limit. Lifetime limit of 60 months on TANF, but states could: 1) exempt 20% of their caseload from this limit, 2) set shorter limits, 3) continue funding families past 60 months with state funds Welfare-to-work. States define this differently, but many focus on imparting very short-term skills (getting along, interviewing, organizing childcare, job search assistance) and NOT longer-term training, etc. This is part of "work first": getting people working as soon as possible. Diversion. States keeping as many people off of welfare as possible. Implementation of eligibility determination processes, imposed work requirements prior to eligibility (applying for a certain amount of jobs, etc.), short-term cash payment program as an alternative to welfare eligibility Additional stuff. Limits on eligibility for FS, SSI, immigrants on cash welfare (aka they can't get it after 1996), etc.

What is the trend in gender wage gap?

Gender wage gap has declined over the past 30 years

Kaplan: It's the Market: The Broad-Based Rise in the Return to Top Talent-- What is the role of globalisation in income inequality?

Globalization may have contributed to greater scale, but globalization alone cannot drive the increase in inequality at the top levels, given the breadth of the phenomenon across the occupations we study

The European Commission Levies a Huge Fine on Google-- What was Google's defense?

Google says its search service is far less dominant than it appears to be. The Commission did not count Amazon and Ebay as search engines Google also says 2008 changes benefited consumers Weakness in the Commission's case: hard to prove consumer harm Prevailing wisdom used to be that "super-platforms" despite their size, do not unfairly use their market power and thrive because of their unceasing innovation

Deaton: A Question of Inequality-- What is the purpose of government intervention in an otherwise competitive market?

Government intervention is meant to reduce marginal inequality Competitive markets are inefficient in the the sense that in a well-functioning free market it is impossible to make anyone better off without hurting at least one other person Markets do not care who gets what

Golec, Hegde, Vernon: Pharmaceutical Stock Reactions to Price Constraint Threats and Firm Level R&D Spending-- What did the Clinton Administration's Health Security Act of 1993 as a natural experiment show regarding how threats of price constraints affect firm-level of R&D spending?

HSA had significant negative effects on firm stock prices and R&D spending Conservatively, HSA reduced R&D spending by $1.6bn, even though it never became law If it had passed and had many small firms not raised capital just prior to the HSA, the R&D effects could have been much larger

Hewlett: Executive Women and the Myth of Having It All-- What is the relationship between having children and associated earnings?

Having children associated with reduced earnings, even when controlled for marriage, experience, education So why do women want it all (children and career) - because monotonically increasing utility! They're happier having both than having just either

Weil: Capital and Wealth in the 21st century-- What is the disadvantage of this definition of capital?

He only counts wealth in the form of ownership of physical capital-- leaving out many wealth-like things 1. Leaving out human capital as a measure of wealth In the past, wages are compensation for raw manual labor Now, wage is compensation for both manual labor and human capital (skills, training) Because human capital has increased so much over the period Picketty studies, inclusion of this form of wealth would undo his conclusion that the wealth/income ratio has been roughly constant. 2. Leaving out public transfers as a measure of wealth Social Security, Medicare, Medicaid, food stamps Rise of retirement should have impacted the market wealth/income (K/Y) ratio Life cycle wealth several times as large as a year's GDP should have been accumulated Due to the progressive nature of the tax and public pension contribution system, those in the lower part of the distribution of lifetime income see all of the wealth that they would otherwise hold for life cycle reasons displaced by public transfer wealth (while richer individuals do not) Distribution of market wealth is far more skewed than the distribution of market plus transfer wealth

American Banks Think They're Over-regulated-- What is the CHOICE program created by Hensarling?

Hensarling's CHOICE program: If banks promise to maintain a leverage ratio of 10%, they can be exempt from international banking standards, "living wills", and stress tests A failing bank would be of no risk to taxpayers if it has enough equity; only shareholders suffer This is good for small banks, but may be catastrophic for bigger banks Both CHOICE and Dodd-Frank do not address Fannie Mae and Freddie Mac, which distorted the mortgages market

Business in America: Too Much of a Good Thing-- Why can long periods of sustained high profits in the whole economy be considered a sign of sickness?

High profits can deepen inequality Pool of income to be split among employees can be squeezed Consumers might pay too much for goods In a market the size of America's prices should be lower than in other industrialized economies but they are not. Though American companies make ⅕ of their profits abroad, their naughty secret is that their return-on-equity is 40% higher at home Most explanations of America's high profits draw on national-accounts data which show that the fall in the share of output going to workers over the past decade is equivalent to about 60% of the rise in domestic pre-tax profits

Sacerdote: The Nature and Nurture of Economic Outcome-- What was the research question?

Investigates the causal effect of being adopted into a high-socioeconomic status or low-socioeconomic status family on occupational outcomes, educational attainment, marital status, test scores and college selectivity

Jordan: Specialization in Risk Management-- Does the author of this article believe that OTCs should be regulated?

It is better for the market to mete out losses and profits by itself, rather than for the government to impose unilateral rules that socialize the losses and make everyone equitably worse off But OTC markets do generate negative externalities - the payoff of these derivatives do not adequately cover all social costs Private calculations of risks understate true susceptibility of financial contracts to loss

Wilde, Batchelder, Ellwood: The Mommy Track Divides-- What is the relationship between wage divergence and skill in women?

Large divergence in wages of high-skilled women after, but not before, they have children. not the case for low-skilled women. May explain why high-skilled women delay/avoid children

Ananat, Gruber, Levine, Staiger: Abortion and Selection-- What is the influence of abortion legality on children's outcome?

Legalization of abortion may have altered the characteristics and achievement of entire groups of children Authors find consistent evidence of changes in the nature of groups born in the 1970s due to greater access to abortion Unwanted children grew up to be more disadvantaged as adults A child who would have been born if abortion were not available would have been 23-69% more likely to be a single parent, 72-194% more likely to receive welfare, and 12-31% less likely to graduate from college Improved living circumstances experienced by children born after the legalization of abortion had a lasting impact on their life-long prospects

Corak: Income Inequality, Equality of Opportunity, and Intergenerational Mobility-- What are two reasons for why intergenerational mobility is lower in the US than in other countries?

Less upward mobility of the least advantaged is one reason why intergenerational mobility is lower in the US than in other countries to which Americans are often compared Children of top-earning parents are more likely to become top-earnings in their turn Cohort of American children raised since the 1980s, who will reach their prime working years in the coming decade, is likely to experience an average degree of intergenerational income mobility as low-- if not, lower-- than previous cohorts who were raised in an era of less inequality

White House: Occupational Licensing: A Framework for Policymakers-- Why is occupational licensing necessary?

Licensing helps ensure quality of services, protections, clear guidelines around professional development and training

White House: Occupational Licensing: A Framework for Policymakers-- What are some recommendations for licensing best practices?

Limiting requirements to those that address legitimate public health and safety concerns Comprehensive cost-benefit assessments of licensing laws to reduce the number of unnecessary or overly-restrictive licenses Harmonize regulatory requirements across states Ensure that all qualified workers are able to offer services.

Gruber, Milligan, Wise: Social Security, Retirement and Youth Employment -- What is the lump of labor fallacy?

Lump of labour fallacy: the misconception that there is a fixed number of jobs in the labour market. If people are working more and consumption increases, new jobs can always be created. Job creation is a natural result of people working more and producing more. Forcing people to retire destroy jobs. Immigrants bring resources and talent to a labour market; they do not steal jobs! Paying old people to leave the workforce does not increase youth employment rate; in fact, it decreases it and increased youth unemployment There is not a fixed number of jobs into which the young will move into when older workers retire Generous government retirement benefits end up hurting the employment status of younger workers Employment of older and younger workers moves together rather than in opposite directions Six countries with the greatest increase in the employment of older workers saw the largest increase in youth employment and the greatest decrease in youth unemployment

Wellen, Hendel, Shapira: Income Distribution-- How does making education more affordable increase income inequality?

Making education more affordable can increase income inequality "Signaling" role of education: When borrowing for education is difficult, a lack of college education could indicate low ability or high ability but lack of financial means High-ability persons become educated and leave the uneducated pool, driving down the wage for unskilled workers and raising the skill premium

Weil: Capital and Wealth in the 21st century-- What is the advantage of this definition of capital?

Market price capture past value-creating expenditures that are not measured as part of investment in the National Income It incorporates the effects of technological changes, price changes that render past investment more or less productive

Hewlett: Executive Women and the Myth of Having It All-- What are some (3) reasons why very few successful career women in the US have children even if they want to?

Men don't face tradeoff between career and children: successful men can find partners and have children if they want to But ⅓ to ½ of successful career women in the US find it hard to have children even if they want to Reasons Brutal demands of ambitious careers: working long hours prevent women from developing relationships, travelling constantly reduces interaction with partner Firms are exempted from having to pay overtime for professionals and managers Asymmetries of male-female relationships -- professional women find it hard to get married with equally driven men, while professional men can easily find younger, less driven women; ratio of men:women is 1:3 at age 38 Difficulty of having children late

What monetary and fiscal tools were used by the Fed in the recession?

Monetary policy tools that the Fed has: Congress granted the Fed the ability to charge interest on balances/reserves held at the Fed (banks will not want to supply funds to the market at a rate lower than what they can earn risk-free at the Fed) Offering banks different choices of maturities to encourage them to hold balance at the Fed Fiscal policies Fiscal stimulus package

Are women paid less than men for the same work?

Not exactly. females paid less than comparable male peers, but when all job differences are accounted for, the pay gap almost disappears. At the highest level, women do make less.

Business in America: Too Much of a Good Thing-- Future steps?

Nowhere has an alternative approach been articulated Large firms no longer employ all that many people in America New commitment to competition: new firms would invest more, employ more staff, force incumbents to invest more in order to compete

Deaton: A Question of Inequality--How effective is government intervention in reducing inequality in OECDs? In the US?

OECD estimates that across its members, tax and transfer programmes reduce the Gini coefficient of income by a quarter US is somewhat below the average US Congressional Budget Office calculates that there is about a 20% reduction in income dispersion between market and disposable income, attributing to transfers and taxes in a 3:2 ratio

Sacerdote, Deaderick: Consumption Growth Among Low- and Middle-Income Households-- According to Sacerdote, how has the use of CPI-U as a price deflator distorted our view of American living standards?

Observed trend: Consumption by lower and middle-class US families has increased even though wage growth has slowed and income inequality has increased since 1960 But Bruce Sacerdote says that the use of CPI-U (Consumer Price Index for Urban Consumers) as the price-deflator in calculating real wages has understated the growth of inflation-adjusted earnings for these families Living standards of median and below-median households have increased, he says

Hewlett: Executive Women and the Myth of Having It All-- What can and cannot explain the gender wage gap?

Only small portion of wage gap can be explained by discrimination, the rest due to women's inevitable disruption of their career when they take time off for children (but not for men) It is not a women's lack of legal or reproductive rights that causes the gender gap; it is her dual burden Men have not picked up women's traditional roles as quickly as women have been gaining foot in the professional world

Cramer, Krueger: Disruptive Change in the Taxi Business: The Case of Uber-- Outline the current licensing regime for taxi drivers.

Outline the current licensing regime for taxi drivers. Cabs in New York need to get a medallion to be able to operate as a taxi driver. These medallions can be worth up to $1 million, which is the present value of monopoly power of this cab. Taxi drivers have to obtain an occupational license to transport passengers Number of drivers limited by number of medallions that are issued Fares set by regulatory bodies

Jordan: Specialization in Risk Management-- What are OTCs?

Over-the-counter contracts (OTC) Outside the purview of exchange rules Many large dealer banks are counterparties to these OTCs These banks make profit from the bid-ask spread OTC markets don't seem to operate like what the invisible hand predicts - investors regularly make losses, so are they really maximising utility? OTC derivatives cannot be marked to market directly (daily settling of the differences in actual prices and contractual prices by both parties); this does not create good market discipline

Weil: Capital and Wealth in the 21st century-- How does Picketty define "capital"?

Picketty's approach to measurement is that the concepts usually classified as productive capital and wealth can both be measured by a single variable, for which he uses the term capital Picketty defines capital as "the total market value of everything owned by the residents and government of a given country at a given point in time, provided that it can be traded on some market"

Saez: Exploding Wealth Inequality in the US-- What are some solutions to reduce this wealth inequality?

Preferential tax rates on capital income (as opposed to wage income) need to go, because it favors the rich Estate taxes need to be increased; He proposes even more progressive tax and more estate and property tax to tax the rich more. Collect better data on wealth

Heckman: The American Family in Black and White: A Post-Racial Strategy for Improving Skills to Promote Equality--What are some solutions proposed by the article?

Prevention more cost effective than remediation because children are more plastic and flexible to work with; adults are harder to change Culturally sensitive parenting support Supplement disadvantaged families, don't blame them Fund these programs with the private sector -- philanthropy, religious groups Remediation methods that are ineffective: reducing pupil-teacher ratios, job training, criminal rehabilitation, adult literacy programs

Meyer, Sullivan: Winning the War: Poverty from the Great Society to the Great Recession-- What is the role of savings and dissavings?

Previous calculation errors played a part in difference between income and consumption poverty Savings and dissaving do not explain chains in income and consumption poverty

Brunnermeir: Bubbles, Liquidity, and the Macroeconomy-- What causes deflationary pressure?

Price and financial (in)stability Ailing financial system can lead to deflationary pressure If there are no money: productive agents would hold physical capital, and unproductive agents would hold money Banks issue debt and "create" or multiply money supply through leverage But after a negative shock, they cut back on lending and hoard more reserves, reducing the money supply Thus, the value of outside money rises, causing deflationary pressure

Deaton: A Question of Inequality--What is public choice theory?

Public choice theory (study of political behaviour of self-interested agents like voters, politicians), which focuses on incentives to favor wealthy donors over the general population, poses a major challenge to the model of an ideal state fixing a less-than-ideal market Voters choose among candidates whose views coincide with those of the wealthy, because the only successful politicians are those that are backed financially by sponsors It is possible that American democracy has been damaged to a point where it is redistributing up, not down

Business in America: Too Much of a Good Thing-- What is the limitation of just observing profits as a symptom of the economy not being well?

Quantifying the effect of the corporate America's defences is tricky Profits not the whole picture About a quarter of America's abnormal profits are spread across a wide range of sectors As firms become more powerful, those elsewhere on associated chains of consumers and suppliers bulk in response In the past, periods of high and stable profits have ended Hard to identify a mechanism by which profits might fall back to more normal levels Investors and managers continue to place high profit multiples on businesses with "moats"

Heckman: The American Family in Black and White: A Post-Racial Strategy for Improving Skills to Promote Equality-- What factor is primarily responsible for racial gaps in achievement?

Racial gaps in achievement are primarily due to gaps in skills, which emerge early before children enter school Skills include education, on-the-job training, cognitive/personality traits

What regulatory reforms are needed post Recession?

Regulatory reforms need to address the following Stronger capital and liquidity standards for financial firms Consolidated supervision of financial firms Enhanced bankruptcy resolution regime to wind down large firms Enhanced protection for consumers Ensure that the trading and clearing of derivatives are resilient to financial shocks Improved coordination across countries Increased transparency - FOMC posts reports after every session Expand audit authority of Government Accountability Office (GAO) However, it is imperative to maintain monetary independence (Congress should not be able to influence the Fed's policies)

Deaton: A Question of Inequality--When is rent seeking behaviour and why is it problematic?

Rent seeking: the fact or practice of manipulating public policy or economic conditions as a strategy for increasing profits. Problematic because these groups funnel resources upwards, blurring distinction between poor and rich governments Pre-tax income inequality has been higher under Republican presidents Unemployment lower and growth higher under Dems Healthcare inefficient because of lobbying power of pharma companies that try to sell expensive devices/procedures even when people don't really need it

Raj: Behavioural Economics and Public Policy: A Pragmatic Perspective-- In the study comparing Texas and Kansas, what phenomenon emerges among EITC recipients?

Research of impacts of EITC on income, behavior of recipients, etc. Chetty, Friedman and Saez (2010) (aka CFS) Compared Kansas, who has an additional state EITC program that adds an amount to the federal, with Texas, which does not Result: Texas EITC participants tends to bunch around the kink since income falls 40% when moving from it The bunching is a lot less extreme in Kansas, EVEN THOUGH the tax credit offered is higher

Meyer, Sullivan: Winning the War: Poverty from the Great Society to the Great Recession-- The standard of living of which demographic group has improved? Changes to what kind of policies are responsible for this improvement in standard of living?

Results Improvements in standards of living for single parent families, aging individuals Less improvement for married couples Change in tax policy and increases in social security explains large part of this decline in poverty Changes in education have also contributed

Kaplan: Family, Education, and Sources of Wealth among the Richest Americans-- What are the results?

Results Share of F400 individuals who are first generation to run a business increased from 40% in 1982 to 69% in 2011 Share of F400 who grew up wealthy decreased from 60% to 32% Share of F400 who grew up poor remained constant at 20% Share of F400 with college education rose from 77% to 87% Share of F400 who are college dropouts also rose from 6% to 8% Share of F400 without any college degree dropped from 17% to 5% Industries that F400 belong to: retail, restaurants, tech, private finance/equity/hedge funds; real estate and energy no longer popular, finance grew the most Technology has played a more important role in these businesses started by F400

Mankiw: Yes,r>g, so what-- What does this model show about r and g? What is the optimal tax rate if policymakers care about workers/capitalists/inequality?

Results from this model: From (5), r=g/++, so r > g From (1), (2), the measure of income inequality is cw/ck, the higher the ratio, the more egalitarian this economy is What is the optimal tax rate tau? If policymakers maximise consumption of workers, then tau = 0 If policymakers maximise consumption of capitalists, then tau is as negative as possible If policymakers care about inequality, then tau is positive (taxing capital and transferring proceeds to workers)

Stout: Regulate OTC Derivatives by Deregulating Them-- What is a rule-against-differences contract?

Rule against differences contracts: You can trade derivatives on any underlying assets you like, but, in order for it to be legally enforceable: Either party in the transaction must convincingly prove that they hold title to this underlying asset If it's an interest rate swap, then at least one party must be paying or receiving income streams affected by this interest rate

White House: Occupational Licensing: A Framework for Policymakers-- What are the current trends in occupation licensing?

Share of US workers holding an occupational license has grown sharply ¼ of US workers now require a license to do their jobs Share of workers licensed at state level has risen 5-fold since 50s ⅔ of this change stems from increase in # of professions that require a license-- changing composition of workforce 1,100 occupations are regulated in at least 1 state, fewer than 60 regulated in all 50 states Share of licensed workers varies from state to state, ranging from 12%(SC) to 33%(Iowa) State policies, not occupation mix States have different requirements for obtaining license Sometimes license has to be from the state in which you practice 35% of military spouses have jobs that require licenses, 10x more likely to have moved across state lines in the last year than their civilian counterparts May have difficulty acquiring new license each time they move

Saez: Exploding Wealth Inequality in the US-- What is the difference in the trend in wealth for the top .1% and 1%?

Share of wealth held by the top .1% is almost as high as in the 1920s-- the Gatsby era The wealth of the next .9% of families (between the top 1% of .1%) did not increase Total share of wealth of this group actually decreased a little bit over this period Average wealth of bottom 90% now is the same as in 1986 The average wealth for the top 1% more than tripled between 1980 and 2012 Family fortunes of $20 million or more grew much faster than those of only a few millions

Murray: IQ and Income Inequality in a Sample of Sibling Pairs from Advantaged Family Background-- Describe the sibling-pair experimental control approach and how Murray created a statistically utopian society

Sibling selection is an example of matched pair design to eliminate the influence of genetic factors that cannot be observed He manipulated the data to represent a population in which all parents were wed when the child was born and all young children were brought up by both biological parents during their most formative years and also no poverty Utopian sample: 733 pairs of siblings with no divorced parents, no illegitimacy, median income of $64,586 and min income of $30,486 Drastic improvements in the neighborhood, peers, and educational systems which the youths attended Sample in which the incidence of good health care, childhood nutrition, and nurturing home environments are all high compared to the population at large The only difference between the siblings are their test results, which divide them into Cognitive classes Very bright siblings make a lot Bright siblings Dull siblings Very dull siblings make little

Stout: Regulate OTC Derivatives by Deregulating Them-- What are OTCs?

Since derivatives can't legally be enforced for speculation purposes, investors set up their own private markets with their own rules E.g. Chicago Mercantile Mandates membership eligibility criteria, margin requirements These are called over-the-counter derivatives

Heckman: The American Family in Black and White: A Post-Racial Strategy for Improving Skills to Promote Equality--Why has supply of skills been responding slowly to increases in market demand?

Supply of skills has responded slowly to shifts in market demand, esp. For African American 1. Skills needed in life are multifaceted: both "hard" skills (cognition, intellect) and "soft" skills matter 2. Skill formation is dynamic, synergistic - skilled individuals learn and feed off each other, advantages accumulate, young children more adaptable than adults 3. Families are essential for skill building, even from the womb (environmental conditions affect gene expression). Dysfunctional families prevent children from realising their potential. Problematic point made by article: single parent households provide fewer financial and parenting resources for child development Sarah Maclanahan: Great Divide refers to performance gap of children from educated and less educated women Educated women less likely to have children out of wedlock, work more, have fewer children, devote more time to child rearing Less educated women have harsher parenting styles, more susceptible to accidents

Currie: Inequality at Birth: Some Causes and Consequences-- What is epigenetics, and how does it affect the interplay of nature vs nurture?

Switches in DNA can be triggered by environmental factors and changes in the arrangement of the switches can be passed from parents to their offspring Epigenetics offers an elegant theory of how environmental factors can "get under the skin"

Business in America: Too Much of a Good Thing-- What are the three (incorrect) explanations for rising profits?

Technology Globalization Decline in trade-union membership None of these explanations accounts for the persistence of America's profit problem

Weil: Capital and Wealth in the 21st century-- If we were to include these other types of wealth, what would the big picture of income inequality look like?

The constancy of the wealth/income ratio that Picketty proposes is an illusion A broader measure of wealth will look less unequal (more equal) than market wealth The role of inheritance in producing inequality is exaggerated Families with limited investible funds will put all of them into children's human capital, while wealthy households will put the bulk of their investment in non-human forms Conclusion: definition of capital that he uses-- the market value of tradable assets-- is both problematic as a measure of the quantity of physical capital in the economy and incomplete as a measure of wealth Distribution of the new types of wealth that he does not measure is far more equal than, and not perfectly correlated with, wealth that falls into his analysis.

Mankiw: Defending the One Percent-- What is the usual argument for income redistribution?

The usual argument for income redistribution: The rich earn more because they contribute more to society However, because of diminishing marginal utility, they don't get as much value from their last few extra dollars So we should take some of their income away and give it to less productive members of society While this causes the most productive to work less, we need to accept this so that society's utility is increased overall

American Banks Think They're Over-regulated-- What did Thomas Hoenig of the FDIC suggest?

Thomas Hoenig of FDIC Big banks should split commercial and investment banking into separate subsidies that can each apply for bankruptcy not financed by taxpayers' money

Currie: Inequality at Birth: Some Causes and Consequences-- In conclusion, what is the best way to reduce inequality among children?

To ameliorate inequalities among children, we cannot ignore mothers, since what mothers do even before they know they are pregnant may have profound consequences

Why is the derivative market not a positive-sum game?

Unlike a neo-classic economic market, however, trade in a derivative market is not mutually beneficial because there must be winners and losers -- it is a zero-sum game Derivative markets pose a problem because they harm the traders themselves A zero sum game with transaction costs is actually a negative-sum game

Sum, Tobar, McLaughlin, Palma: The Great Divergence: Real Wage Growth of All Workers Versus Finance Workers-- How does the weekly earnings growth of investment bankers compare to that of regular production workers between 2002 - 07?

Wage workers at the bottom experienced a decrease in weekly earnings, those at the top experienced a decrease They gained no economic ground, despite rising labor productivity and increased aggregate employment opportunities during this period BUT, the real shocker is when you look at wage workers vs. Wall Street employees Mean weekly earnings for all US wage and salary workers (not Wall Street) increased $40 2002-2007 For Wall Street peeps including bonuses, it rose $8,028

Median Male Lifetime Income Shows a Downward Trend-- What is the trend for the gender earnings gap?

While the earnings gap between men and women narrowed over time, income inequality has been growing within genders

Do women avoid salary negotiations?

Yep. Men more likely to negotiate even when wages are not explicitly negotiable, BUT women equally as likely as men to negotiate when negotiate is made explicit, if not more.

Foy: For Women in Finance, an Unlevel Playing Field -- How are women punished in finance?

discriminated in pay. 20% more likely to lose job for wrongdoing. make up 25% of the finance workforce and 16% of executive positions. women who leave a firm as 6% less likely to be rehired.

Cramer, Krueger: Disruptive Change in the Taxi Business: The Case of Uber-- In what ways are uberX more efficient than regular taxis?

Compare the efficiencies of Uber by comparing the capacity utilization rate of UberX drivers to that of taxi drivers Capacity utilization is measured by either the fraction of time that drivers have a fare-paying passenger in the car or by the fraction of miles that drivers log in which a passenger is in the car UberX drivers, on average, have a passenger in the care for half the time that they have their app turned on, and this average varies relatively little across cities, probably due to relatively elastic labor supply given the easy of entry and exit of Uber drivers at various times of day Taxi drivers have a passenger in the care an average of anywhere from 30-50% of the time they are working, depending on the city Higher productivity of UberX drivers than taxi drivers when the share of miles driven with a passenger in the care is used to measure capacity utilization Capacity utilization rate is 30% higher for UberX drivers than taxi drivers when measured by time and 50% higher when measured by miles Uber drivers have a substantially higher capacity utilization rate than do taxi drivers in every city except NY, where the rates are similar Taxi drivers work longer shifts than uber drivers Longer shifts-- lower productivity Tendency to work during slow and busy times of the day lowest utilization rate Ignoring fixed costs, if fares are linear, Uber drivers could charge 28% less than taxies and earn the same amount of revenue per hour Occupational licensing is inefficient in this case

Raj: Behavioural Economics and Public Policy: A Pragmatic Perspective-- What would the distribution of earnings look like if the EITC program were not in place? How do people differ before and after having children in terms of their EITC-receiving behaviour?

Comparing earning distribution in low-bunching places (aka not as much information) and high-bunching places (aka more information) More mass around the plateau of earnings in high information places Suggests that people will try to approximate the plateau but may fail to do so... Also compared earning distribution pre-children and post-children in high / low information areas (since individuals w/o children are basically ineligible) Before kids, income distribution is largely the same More income around the plateau post-children in high-information than in low-information, suggesting that people move into this income bracket based on better information CONCLUSION: since EITC is concluded to push people UP TO the plateau from below rather than reduce earnings of individuals, it MUST increase labor supply Esp. in areas of high density / information about the program

What were the costs of Sarbanes Oxley?

Costs of Sarbanes-Oxley Direct costs: increased auditing fees and compliance costs Fixed compliance costs - so smaller firms are disadvantaged But costs are falling over time Indirect costs: lost time/productivity since the firm has to worry about other goals rather than focus on producing; increasing risk aversion of managers Some public companies "go dark": either convert to a private company to have fewer shareholders than needed to be required to register with the SEC

Brunnermeir: Bubbles, Liquidity, and the Macroeconomy-- Why doesn't splitting big risky institutions help to reduce systemic risks?

Covariance Splitting a big, risky institution into smaller parts does not help to reduce systemic risk, because these smaller parts covary with each other

What changes did Sarbanes Oxley bring?

Created quasi-public overseeing body: Public Company Accounting Oversight Board, aims to strengthen rigour of financial auditing Funded directly by public companies rather than accountants, so that its membership is is independent of the auditing/accountancy profession Tighten creation of "special purpose entities" (firms created by public companies used to isolate financial risks), as these can be abused Restricted pro forma accounting: methods that leave out unusual and nonrecurring expenses/transactions Fight theft by enlisting auditors to enforce new disclosure rules that strengthen the incentives for firms to increase spending on financial controls Officers must evaluate and disclose "material weakness" in the firm's control system, which the CEO and CFO must personally testify; need to have internal control department and chief compliance officer Outside auditors must attest to these disclosures (i.e. agree with these judgments) Auditors must be completely transparent in the way they tested these systems Define "material weakness" (section 404): a deficiency with more than a slight chance of causing a material financial misstatement Weaknesses of this definition: Has potential to impose unjustified cost Has no cost-benefit analysis - the cost of eliminating some weaknesses exceed the benefit Auditors must rotate every 5 years with which firm they work with (can't work for the same firm for too long) Protection for employees and whistleblowers who report fraud to auditors Separate outside consulting and accounting

Stout: Regulate OTC Derivatives by Deregulating Them-- How can trading derivatives be, as this article argues, pure speculation?

Derivatives allow risk hedging if you invest in inversely correlated "assets" Buying a firm's bond and also simultaneously a CDS that bets against the firm's creditworthiness (as one's value goes up, the other's goes down) Making a bet with the fire insurance company on the value of your home But if either party doesn't hold any title to the underlying asset, then a derivative is just pure speculation Entering into this bet increases the speculator's risk This promote economic ills such as bubble

White House: Occupational Licensing: A Framework for Policymakers-- What are the inefficiencies of occupational licensing?

Creates substantial costs and often requirements are not in sync with skills needed for job Raise prices of goods and services 3-16%; licensed practitioners operate almost as a monopoly Quality of goods not always improved Restrict employment opportunities, make it more difficult for workers to take their skills across State lines By imposing additional requirements on people seeking to enter licensed professions, licensing can reduce total employment Unlicensed workers earn 10-15% lower wages than licensed workers Make it difficult for immigrants to work in fields where they have valuable experience and training ½ of states, applicants can be denied due to criminal convictions

Brunnermeir: Bubbles, Liquidity, and the Macroeconomy- What are credit bubbles, and what makes them so dangerous?

Credit bubbles (those financed by debts, e.g. housing bubble) are more detrimental than those that aren't (dot com bubble) Shadow banking system relies excessively on short term borrowing Loss spirals for highly leveraged investors: net worth eroded much faster than gross worth, leading to decreased ability to borrow, leading to the need to liquidate their assets, leading to price drops Margin/haircut spiral: when prices drop, lenders are nervous, and so increase the cost of short-term borrowing Vicious cycle: higher margins of borrowing force further de-leveraging and sales of assets, driving prices down further

What is the difference between risk and uncertainty?

Difference between risk and uncertainty: Risk: variance or volatility in outcomes Uncertainty: not knowing the probabilities associated with each event A coin toss is risky but not uncertain - the probabilities are known (0.5), the outcomes are varied Uncertainty allows derivative market to operate If investors disagree on the probability, then some will want to sell, while others will want to buy derivatives, allowing a market equilibrium

Raj: Behavioural Economics and Public Policy: A Pragmatic Perspective-- What characteristics of the recipients do EITC benefits vary by?

EITC depends on: Taxable income Marital status Number of children

Raj: Behavioural Economics and Public Policy: A Pragmatic Perspective-- What is EITC and what are its two main goals?

EITC is the largest cash transfer program in the US EITC attempts to increase labor supply of low-wage workers AND increase their effective wage rate

Glaeser: Disability-- Recession is said to have ended in 2009, but by what measure?

From Nov 2011 to Nov 2012, disabled Americans w/o jobs increased by 1.27 million 8.8 million workers are now receiving disability payments from SS Ratio of non-disabled to disabled receiving SS payments increased from 40:1 to 18:1 in 30 years Although unemployment was not at its highest, unemployed + disabled exceeded the highest unemployment level (that occurred in 1982)

Raj: Behavioural Economics and Public Policy: A Pragmatic Perspective-- How do researchers explain this bunching behaviour? What challenges do self-employed people pose to the study?

Explaining this result? Focusing on self-employment income (easier to manipulate, and driving the majority of the "kink"ing) Studying the bunching around the maximization kink within three digit ZIP codes in the US (i.e. larger areas whose ZIP all start with a certain sequence of #s) Considering those people moving to different areas and whether they engage in bunching after entering an area of higher bunching → due to changes in knowledge about the program Also that people who move to areas of lower bunching do not change their behavior bc they already know about it THIS IS THE CASE! So decision depends on level of knowledge about the program... Problem: we want the result of labor behavior, not of misreporting of wages SO consider only non-self-employed instead This bunching does not occur with these people because workers can't engineer their hours

What are the responses of the Fed to the Recession?

Federal Open Market Committee lowered federal funds rate to historically low range of 0 - 0.25%, increasing access to short-term liquidity, encourage flow of credit Purchases of agency mortgage-backed securities helped lower conforming fixed mortgage rates Term Asset-Backed Securities Loan Facilities helped restart the securitisation markets for consumers and small businesses Supervisory Capital Assessment Program: stress test to ensure financial institutions have enough equity and that they're not too highly leveraged

1996 Welfare Reform: GO

Federal welfare entitlement removed as of 10/1/1996: AFDC replaced with TANF States can reduce payments beginning 7/1/1997, but not below 80% of 1994 level States may deny cash to non-citizens Funds denied to mothers under 18 unless they are in school and living in an adult-supervised setting States may deny added benefits for additional children born to parent on aid 50% work requirement by 2002 States can exempt mothers with a child under 1 Payment without work reduced to 2 consecutive years, and 5 years during a lifetime (states can exempt 20% of people) Work hours or job training: 20 hr/week 1997 and 1998 30 hr/week 2000 with children over 6 States lose 5% of Federal grant if they don't meet work requirements If a woman won't cooperate in identifying the father, her aid can be cut 25% Aid for lesser childhood disabilities is cut SSI cut for noncitizens Slightly expands Federal aid for childcare of recipient's children Some reduction in food aid For able-bodied, non-working recipients without children, receipt of FS is limited to 3 months out of any 3-year period Maximum FS benefit reduced by about 3%

What were the problems in financial regulation before the enactment of Sarbanes-Oxley?

Financial auditors were not stringent enough as gatekeepers, allowing firms to exaggerate growth/profitability Self-regulation was not working - licensed accountants just supervised each other, had no full-time director/inspection authority; no federal agency supervised these auditors Theory of de-professionalisation: auditors were getting worse because of falling audit fees and increasing long term liability risks, which reduced long-term reward for auditing Increased sale of consulting services by auditors, which increases incentive to ignore frauds; Auditors were being paid by managers; accounting and consulting were being done by the same firm Arthur Andersen Analysts and investment banking had conflict of interests in mergers and acquisitions - analysts would say this is a good deal even if they don't believe it Principal-agent problems in executive pay CEOs were only incentivised on their short-term performance, not their long-term performance

Brunnermeir: Bubbles, Liquidity, and the Macroeconomy-- How do financial investors produce negative externalities?

Financial experts exert negative externalities on each other They do not provide adequate capital cushions or a sustainable funding structure It is individually optimal to expose oneself to high leverage and duration mismatch, but not optimal on others

Brunnermeir: Bubbles, Liquidity, and the Macroeconomy-- What is financial friction?

Financial friction Productive agents borrow from less productive ones The economy occasionally enters volatile episodes Financial friction amplify initial shock

Jordan: Specialization in Risk Management-- Why does the author of this article believe that the trading of derivatives is a beneficial financial innovation that stabilises the market and manages risk?

Financial innovations tend to be inherently stabilising, not destabilising Derivatives are innovations in risk management They enhance wealth by allowing comparative advantages to evolve in risk management Excessive government regulation will defeat this comparative advantage Risks are not eliminated; the total amount of risk in an economy stays the same; it simply transfers from one investor to another, converted from one type to another Derivatives don't add more risks inherent to the financial market; they simply allow risks to be borne/allocated/redistributed more efficiently How technology has changed risk management Geographical boundaries are broken down Risks can be simulated without owning any of the actual underlying assets Risks is like a good-- needs to be efficiently allocated among investors In the right hand, risks can promote the formation of new capital, building of new properties, given the right investor and the right management techniques

Jagannathan, Kapoor, Schaumberg: Causes of the Great Recession 2007 - 2009: the Financial System is a Symptom, Not a Disease!-- What is the impact of globalisation on the flow of workers and the redistribution of income?

Globalisation allows labour in developing countries to augment labour in developed ones This increases world's effective labour supply Increased labour supply from overseas should have resulted in developed countries experiencing a decline in their living standards as more manufacturing jobs are outsourced Share of wage and salaries as % of GDP has dropped from 49 to 46 Even though income was redistributed from citizen workers to foreign workers, the share of private consumption remained at 70% of GDP

Does the author of this article think that the trading of derivatives can provide public welfare/good?

If the derivative market hurt individual investors, perhaps there is still a chance that they provide greater public good? Speculative stock trading allows liquid secondary markets Liquid secondary markets promotes capital formation Author disagrees Speculative stock trading is essentially gambling: negative-sum game that erodes the wealth of an average player It may be worse than gambling because the funds are people's livelihoods/life savings

The European Commission Levies a Huge Fine on Google-- What did Google do to get fined by the European Commission?

In 2002, Google launched Froogle, a price-comparison service later renamed Google Shopping In 2008, it made a new version that favoured Google's own comparison-shopping results by giving them prominent placement at the top of its generic search results and demoting links to rival offerings to pages further down Google's market share in Europe exceeds 90%

Glaeser: Disability-- What is the primary hypothesis for this increase in disability?

Primary hypotheses: Work is less attractive Esp in times of recession, people like the steady check Disability is more attractive Changes in the award formulas for recipients → making it more lucrative for poorer workers Reduction in eligibility criteria → movement from specific criteria to a "general consideration of...ability to work" 70% of workers on disability fall into: mental disorders, musculoskeletal system and connective tissue, nervous system and sense organs These explain 80% of the rise in my I disability "Medical gray areas"

Blanton: Pressure on US Government to Expand Subprime Credit Came from Both Mortgage Lenders and Subprime Borrowers-- According to this article, are banks the only party responsible for the rise in popularity of subprime mortgages in the years leading up to the Great Recession?

In the years leading up to the crisis (2002 - 2007), there was a sharp increase in campaign contributions and lobbying activity by the mortgage industry Campaign contributions become a stronger predictor of representative's voting The fraction of a legislator's district that consisted of subprime borrowers became a stronger predictor of voting patterns In other words, there was rising demand for subprime mortgages, and constituents had the voting power to elect officials that would allow these kind of mortgages to proliferate

Hvide, Jones: University Innovation and the Professor's Privilege-- What happened when Norway changed its laws to give University's a major share of the profits from their professor's patents and startups (instead of letting professors themselves keep them)?

Innovation rate halved Researchers compared entrepreneurial activity when university workers retained rights to entrepreneurial activity in the period after the law war changed Found that the percentage of U. researchers who started a new firm in any given year fell from .68 to .22, a 67% decline Startup rate in Norway as a whole increases by 6% Per capita start-up rate for university-based researchers declined 49% Number of patents also fell sharply, 48% Patent quality fell, 25% fewer citations University researchers, not the universities themselves, are important to innovative investments

What were the benefits of Sarbanes Oxley, as argued by this article?

One study found that before the law, there is a correlation between abnormal accounting accruals (earnings not predicted by empirical models) and the importance of an audit client to its auditor. After the law, this correlation disappeared. However: Difficult to quantify and isolate - because there are many other legal and economic changes happening at the same time Even if there is benefit, is there positive net benefit (taking into account the cost of implementation)? But the authors believe that the benefits of Sarbanes-Oxley are real

Business in America: Too Much of a Good Thing-- What can regulators do and not do?

Perhaps antitrust regulators will act, forcing profits down DOJ and FTC But they're busy trying to police the mergers-and-acquisition boom They select cases that set new precedents and argue them in court Of the 15,000 deals between 2005-14, 3% have been subject to close scrutiny 2 limitations: Constitutional: DOJ and FTC's jobs are to police infringements of a well-established and mature body of law through the courts Free of overt political interference and lobbying but it also limits their scope Cannot consider whether the length and security of patents is excessive in an age when intellectual property is important They can only touch upon whether large institutional shareholders with positions in almost all firms can implicitly guide them not to compete head on; or on why small firms seem to be struggling Intellectual: 1980s effect of Chicago school→ efficiency benefits of big mergers should not be dismissed Antitrust guidelines which held that any deal involving a firm with a market share of 35% or more should be considered suspect on principle have been set aside in favor of a more granular approach, which regulators looking ever more closely at the specific effects of a deal

What is PRWORA and what fuelled it?

Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) passed by Bill Clinton with bipartisan support, but remained controversial The law was preceded by dissatisfaction with AFDC by many states → states requesting waivers from AFDC rules in order to have more stringent work requirements for recipients of AFDC

What changes were implemented by the Dood-Frank Act?

Positive impact of the Act: Deem nonbank financial institutions as systemically important, regulate them, and break them up if necessary Requires funeral plans to unwind large institutions, not let taxpayers pay for these cleaning up, let the costs be borne by shareholders and creditors Prevents/limits the federal assistance/bailing out of individual institutions Volcker Rule, which limits proprietary trading investments of large complex financial institutions, preventing them from investing hedge funds/private equity Calls for centralised clearinghouse of derivatives Greater transparency in prices, volumes and exposures Making systemic nonbank firms subject to to tighter scrutiny by the Fed and SEC Creation of Bureau of Consumer Financial Protection - which writes rules concerning consumer financial services

Meyer, Sullivan: Winning the War: Poverty from the Great Society to the Great Recession-- What is the trend of poverty from the 60s to 2010s? What adjustments to calculations of the poverty has this study made?

Poverty rate from the 60s to early 2010s have actually declined, contrary to common consensus This is the result of a few adjustments in making the calculations: Moving from traditional income-based measures of poverty to consumption-based measure Adjusting for bias in price index

Why are ETFs dangerous?

Problem: ETF shares don't represent ownership in all cases Stock is not always there Creation unit: a block of shares in an ETF Explosive short rates → owners of ETF shares outnumber ownership of indices by the operator Since short sellers believe they can create new shares to cover short positions in the future, they don't need to worry about the stock to ETF ratio at the time of selling ETF shares can be serial short → borrowed / resold more than once OR naked short → not borrowed at all Share buyer is unaware his ETF shares were purchased from a short seller and assumes the underlying assets are held Potential for RUNS - assets held by the fund operator are insufficient to meet redemption demands Fractional reserve stock ownership position: index equities held by ETF operator are a fraction of implied ownership in the ETF market The difference in the value is promised in the future by short selling counterparties that post collateral against short positions in the ETF NO transparency of what hedge funds are short, which brokers were holding collateral, and what the composition of the collateral was This is all a problem during panics and extreme conditions and there ARE NO SAFEGUARDS (like FDIC for banks) Stock is not "redeemable" as a mutual fund would be...

Business in America: Too Much of a Good Thing-- What trends do we observe in corporate profits in America?

Profits have risen in most rich countries over the past 10 years, but the increase has been biggest for American firms Fruits of economic growth are being hoarded as concentration of ownership also grows Profits are at near-record highs relative to GDP and free cash flow has grown even more strikingly Return on capital is at near-record levels, too A lot of mergers, allowing merged companies to increase their market shares and cut their costs Investment levels are pretty normal; the problem is that domestic cash flows are so high that they still have pots of cash left over after investment-- about $800bn a year

Does Sarbane-Oxley hurt the ability of US stock exchanges to compete with foreign exchanges?

Public listing goes down, private equity goes up (knocking savers out of the market) To go private, you need to borrow funds to repurchase your shares, and this was helped by low interest rates at the time Article says no More plausible explanations: Foreign exchanges are more liquid, so attracts more investors Dramatic decline in research coverage of US-listed stocks SEC levelled the information playing field between professional analysts and the public - fair disclosure of information to everyone - allow Pareto efficiency, allow savings to flow into real investments Surveys show that only a few percentage of firms decide to list their stocks in foreign exchanges or decide not to go public as a result of Sarbanes-Oxley

American Banks Think They're Over-regulated-- How are small community banks affected by this level of regulation?

Small 'community' banks (with less than $1 bn in assets) are adversely affected compared to larger banks by the fixed cost of compliance, making them less competitive Small banks should be exempted from the Volcker's rule (not allowed to invest/have holdings in hedge funds, not allowed to use deposits insured by taxpayers to engage in risky trading) The threshold of $50 bn for what determines a systemically important bank is too low; banks in this vicinity aren't that important

What legislative/regulatory change is necessary to make the derivative market safer, as argued by this article?

The UK first made all derivatives legally enforceable, and US regulators followed suit to not lose competitive edge This led to terrible failures: bankruptcy of Orange County, CA due to swaps, bankruptcy of Long Term Capital Management hedge fund Unchecked derivative markets can make investors lose large amounts of money very unexpectedly When the market is fueled primarily by speculation, notional values of derivatives far exceed the fundamental value of the underlying assets We need to return to the centuries-old law of rule against difference contract to incentivise investors to be careful about the counterparties that they pick

Glaeser: Disability-- What makes the increase in the proportion of disabled people puzzling?

The disability increase is puzzling Medicine is better Jobs are less dangerous Rates of on-the-job deaths from injury has decreased Alcohol / tobacco use, which leads to disability, has decreased Mortality rates are lower Aging of the baby boomers explains only 15% of the increase in likelihood to collect disability

Raj: Behavioural Economics and Public Policy: A Pragmatic Perspective-- Describe the overall pattern of the graph with EITC benefits on the y-axis and income on the x-axis.

The pattern: Increase linearly with earnings (aka the "phase-in" region) Are constant over a certain range (aka the "plateau") → $8970 for 1 child, $12590 for 2 children You maximize the income at the beginning of this kink Decrease linearly (aka the "phase-out" region)

Kaplan: It's the Market: The Broad-Based Rise in the Return to Top Talent-- What are the weaknesses of the managerial power theory, social norm theory, and marginal tax incentive theory? Which category of factors (1 or 2) is better able to explain inequality?

The results of this study support category 2 more than 1 Weaknesses of managerial power theory: Poor corporate governance is not found in all companies Private company executives, who do not report to a Board of Directors, still receive very high compensation Many rich individuals in the Forbes 400 are not CEOs Weaknesses of social norm theory: While top executive pay has increased, so has the pay of other groups Weaknesses of marginal tax incentive theory: Wealthiest individuals are tech entrepreneurs, who are insensitive to the strength of their bargaining against lower-wage workers Top earners may have actually not kept as much as we think-- top 1% share of wealth has been very stable, and the rise in after-tax wealth of these individuals have not risen much

Jagannathan, Kapoor, Schaumberg: Causes of the Great Recession 2007 - 2009: the Financial System is a Symptom, Not a Disease!-- What is responsible for the illusion that the influx of foreign workers have not affected American's standard of living?

While the US govt and households benefit from cheap credit, US workers in industries lost out (but they don't realize this) The flow of cheap liquidity from abroad fueled the housing bubble, creating the illusion of wealth among households to sustain high levels of consumption, masking the real structural changes that were taking place in the world economy

Ananat, Gruber, Levine, Staiger: Abortion and Selection-- Can the availability of abortion explain the reduction in crime rate?

Crime reduction was not due to differential selection but was primarily due to the fact that there were fewer teens around to commit crime in the years after abortion was made available

Sacerdote, Deaderick: Consumption Growth Among Low- and Middle-Income Households-- What are the technical drawbacks of CPI-U?

CPI-U has drawbacks: Difficulties in the treatment of new goods and the handling of quality changes for goods that evolve over time Inflation measured by the CPI-U is greater than inflation computed using PCE(Personal Consumption Expenditures) price deflator

Currie: Inequality at Birth: Some Causes and Consequences-- What are some evidence to show that differences that appear to be innate may in fact be the product of environmental factors?

1. Maternal smoking, nutrition, and education affect infant birth weight Smoking increases the probability of low birth weight by .018 % on a baseline of .089 (compared to an OLS estimate of .067 percentage points) Among mothers who were HS dropouts and mothers in high poverty counties, the introduction of WIC (better nutrition) reduced the proportion of births that were of lower birth weight by 1 to 2.5% An additional year of college education reduces the incidence of low birth weight by 10% 2. Height is an indicator of early deprivation Health at birth is malleable and reflects the influences of a wide range of individual and social factors Health at birth is a useful predictor of important future outcomes such as earnings, education, and disability

Fed of St Louis: US Income Inequality: It's Not So Bad-- Why is it unreliable to judge income inequality merely by looking at income growth of different quintiles (2 reasons)?

1. Movement of households between quintiles But census statistics show only a snapshot of income distribution in the US at a single point in time Most people's income increases The number of households in each quintile changes, and most households move from one quintile to another at different points in time 58% of households that were in the lowest quintile in 1996 moves to a higher income by 2005 57% of the richest 1% in 1996 were kicked down by 2005 45% of the richest 5% were kicked down by 2005 2. Census statistics do not include the non-cash resources received by lower-income people and tax payments made by the wealthy to fund such transfers When transfers and taxes are considered, the lowest quintile income increases 50% whereas the highest income quintile income drops 7% Lower-income quintile households have less people-- more 1 person households When considering household size along with taxes and transfers, income share of lowest quintile triples and the income share of the highest quintile falls 25%

Bivens, Mishel: The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes-- What does this article argue about the increased wage growth of the top 1% earners?

1. The increase in incomes and wages of the top 1% over the last 3 decades should be interpreted as driven by the creation and/or redistribution of economic rents, not as the market rewarding skills/productivity of these elite individuals 2. This rise in elite income is impeding the growth in living standards for low and moderate-income households 3. Rent-seeking in the top 1% can be reduced by policy

Ananat, Gruber, Levine, Staiger: Abortion and Selection-- What does "selection" refer to in the article?

Children's outcomes may have improved because they were likely to be born into a household in which they were wanted This phenomenon is referred to as "selection"

Case, Lubotsky, Paxson: Economic Status and Health in Childhood: The Origins of the Gradient-- In what ways can household income affect children's health?

1. Wealthier parents may be able to purchase medical care, nutritious foods, and safer environments for their children, and in these and many other ways, income may have a causal effect on children's health 2. Children's health may also be influenced by a variety of parental characteristics-- including both genetic and behavioral factors-- that are correlated with parental income 3. Children from lower-income households with chronic conditions have worse health than do those from higher-income households A family's long-run average income works in part to protect children's health upon the arrival of chronic conditions. The health of children from families with lower incomes erodes faster with age and these children enter adulthood with both lower socioeconomic status and poorer health Poor childhood health results in lower levels of human capital accumulation Having a chronic condition reduces years of education, but it does so less for children with higher incomes The greater adverse effect of having a medical condition for a poorer child grows larger as the child becomes older; adverse health effects of lower permanent income accumulate over children's lives

Corak: Income Inequality, Equality of Opportunity, and Intergenerational Mobility-- What are the three ways in which parents might give their children advantages?

3 categories of circumstances through which parents might give their babies advantages: Networks/connections and social capital Genetics/health Family culture that shapes behavior and other monetary and non-monetary investments

Mankiw: Defending the One Percent-- What does the left argue about the enjoyment of public goods by the rich, and why does Mankiw think this is wrong?

3. The rich benefit from the physical, legal, and social infrastructure that government provides and should contribute to supporting it Obama's benefits principle: if you succeed, it's only because you were building on and benefiting from the successes of those who came before you (and invented the internet, built bridges/roads for you) Mankiw: there is little proof for this, as the value of government infrastructure is hard to quantify; no indication that the rich is enjoying government services in excess of what they pay in taxes

Kaplan: Family, Education, and Sources of Wealth among the Richest Americans-- Conclusion of this article about Mobility Access to education Technology

Conclusions There has been an increase in wealth mobility at the very top; entering the elite no longer requires growing up rich, but some wealth confers an advantage Wealthiest individuals are those with access to education while young, then use skills in most scalable industries Theories of technological change is most consistent with these findings - tech allows skilled individuals to increase their marginal productivity by increasing access to greater assets and capital

Sacerdote: The Nature and Nurture of Economic Outcome--Describe how adoption is a natural experiment

Adoption: natural experiment where children are randomly assigned to different family backgrounds The adoptive family makes extensive written applications and interviews before they are given a child-- they are not allowed to see the group of kids before deciding on which one they want; this eliminates selection bias

Median Male Lifetime Income Shows a Downward Trend-- What is the trend for average lifetime income of men since the 60s? For women?

Average lifetime income of men entering the workforce since the 60s has stagnated or fallen, while those of women have increased steadily Sharp divide in pre and post 1967: ALI increased pre 1967, but fell post '67 Median male income in 1967 was $33,000 and $29,000 in 1983 Median male who turned 25 in 1983 earned $136,400 less in lifetime income than his 1967 counterpart This decline was somewhat offset by an increase in non-wage benefits, primary health insurance, and pension contributions

Median Male Lifetime Income Shows a Downward Trend-- What trend do we observe in the ratio of family incomes before 1970 and after?

Before 1970: falling; after 1970: rising much more quickly Ratio of 95th:20th is higher than that of 80th:20th (much higher, about twice as much)

Hewlett: Executive Women and the Myth of Having It All-- What are societal benefits to women having both children and a successful career without having to sacrifice either?

Benefits to society if a woman can have both babies and a career: Cost to society of losing talented women from the workforce if they want to have babies is reduced Can have effective parents of all income levels Good parents with stable income produce good babies: graduate from college, obey laws, pay taxes

Income Inequality--What are the trends in real wages for those holding postgraduate degrees/college degrees/high school diploma? For which group is real wage increasing the fastest?

Between 1947 and 1974, income growth was fairly even among households in various income groups Since the 70s, real income growth for households at the 95th percentile has grown at a pace nearly 3.5 times that of households at the 20th percentile Income inequality is rising overall Skill-biased technological change has benefited higher-skilled workers, but productivity of low-skilled workers have grown slowly Average real wage has risen 30% for male college graduates and 50% for males with postgraduate degrees since the 60s.

Capitalism and Its Critics: A Modern Marx--Why does Picketty believe that a global tax is necessary?

Book argues that growing wealth concentration is inherent to capitalism and recommends a global tax on wealth as the progressive solution Global tax ensures that rich people can't simply move away to another country/state with lower tax rate (or the Cayman Islands) The rich are mobile Losing high-income taxpayers does not advantage the people who get left behind Picketty proposes an annual levy on capital and punitive 80% tax rate on incomes above $500,000

Mankiw: Yes,r>g, so what-- What are the 3 obstacles to a wealthy person leaving behind wealth for future generations? How does this show that r exceeding g is not that serious?

Consider a wealthy person who wants to make all future generations wealthy too; he faces 3 obstacles 1. The heirs will have to consume some of the wealth e.g. for food, shelter, philanthropic contributions (approximately 3%). If his wealth grows at r, then his heirs' wealth accumulates at rate r - 3 2. Wealth has to be divided among growing number of heirs. If number of descendents growth at 2% per year, then wealth accumulates at rate r - 5 3. Inheritance is taxed; tax erodes dynastic wealth by 2% per year, so wealth accumulates at rate r - 7 Therefore, to obtain the worrisome "endless inegalitarian spiral" or the aristocratic dynasty, r would need to exceed g by 7% each year Current figures: r = 5%, g = 3% (so r does exceed g, but not by 7%) For the "spiral" to happen, g would need to be -2%

Sacerdote: The Nature and Nurture of Economic Outcome--In the experiment with Korean adoptees, which outcomes does median income affect? College attendance, selectivity of college,

Data 1: 300 Korean adoptees placed into US families, aged 0-3 at time of adoption "Explanatory" variables (x-axis): log(income of area where adoptee lives), log(population of area where adoptee lives) Dependent variables (y-axis): adoptee attends college or not, acceptance ratio of college that adoptee attends, whether the college is 2 or 4 years, whether the college needs SAT Math > 500 to get in Results 1: Doubling of median income for the adoptee's hometown associated with 10% decrease in probability of adoptee choosing not to attend college Doubling of median income associated with 1 s.d. Increase in the selectivity of the adoptee's college institution Median income not significantly correlated with percentage of admitted candidates with SAT Math > 500 in the school the adoptee chooses to attend

Mankiw: Yes,r>g, so what-- According to Mankiw, why is Picketty's global tax inefficient?

Equal income is not the same as equal opportunities; Mankiw believes it is better to have unequal opportunities to be rich than equal opportunities to be poor; You don't want a slow capital formation parents should be free to use their resources to help their children Picketty's global tax does not make sense as it would lower everyone's standard of living

Saez: Exploding Wealth Inequality in the US-- What is the erosion of wealth among the middle class and the poor, and what are 2 reasons for this?

Erosion of wealth among middle class and the poor While the share of wealth of the bottom 90% of families did gradually increase from 15% in the 1920s to a peak of 36% in the mid-1980s, it then dramatically declined. By 2-12, the bottom 90% collectively owens only 23% of total US wealth, about as much as in 1940 1. Growing indebtedness of most Americans is the main reason behind the erosion of the wealth share of the bottom 90% of families Average wealth of bottom 90% jumped during the stock market bubble of the late 90s and the housing bubble of the early 2000s Since the housing and financial crises of the 2000s, there has been no recovery in the wealth of the middle class and the poor 2. Combination of higher income inequality and growing disparity in the ability to save for most Americans is fueling the explosion in wealth inequality The top 1% of families save 35% of their income, bottom 90% save about 0. Picketty warns that the democratisation of wealth disparity may be undone if this disparity in saving persists

Female-male soccer players

Female soccer players win more matches and generate more revenue for the US Soccer Federation, but are paid a fraction (40%) of the men's salaries Women's team flies coach, men's team flies first class Even when controlling for age, race, education, marital status, number of children, industry, occupation, location, parental education, there is still a 7% difference in male-female earnings each year after college graduation

Gender Differences in Careers, Education, and Games / Transitions: Career and Family Life Cycles of the Educational Elite-- What are the trends of late marraige/children?

From 70s → 90s, marriage age increased and divorce rate decreased Childbearing age stayed high throughout, higher than national average Participation in professional school stayed higher than national average → did not increase as much: MARKED shift to the MBA → people going into finance and being snaky af Marked gap in gender pay equality Amount of children negatively correlated with kids for women, positively for men Taking time off has decreased somewhat, and the order in amount taken off is MD → PHD → MBA → other graduate degrees (same order for the amount of money LOST adjusted for amount of time taken off) WOMEN in careers with the greatest predictability and the smallest financial penalty for time out have the most children

Weil: Capital and Wealth in the 21st century-- What are Picketty's error in the measurement of wealth?

If capital stock are created using the perpetual inventory method, then the annual growth rate would be much lower than Picketty's prediction Asset price reflects possibilities of future capital confiscations It is difficult to use market valuation to measure the quantity of capital Rent ceilings can reduce market wealth, but doesn't reduce capital

Murray: IQ and Income Inequality in a Sample of Sibling Pairs from Advantaged Family Background-- What did Charles Murray want to research (think "the bell curve"?

In The Bell Curve, some other authors found the independent effect of IQ on a wide variety of social and economic outcomes for members of the National Longitudinal Survey of Youth (NLSY) Research question: how much would the independent effect of IQ on social outcomes be attenuated/diluted by family background variables? With a few exceptions, the fixed effects estimated for AFQT (a cognitive test used in the NLSY) are similar to the standard OLS and logit estimates Independent effect of IQ is robust across methods This guy, Charles Murray, did his own analysis of NLSY siblings

Currie: Inequality at Birth: Some Causes and Consequences-- According to Richard Ely, is the distribution of income a reflection of the distribution of natural abilities endowed at birth?

In calling for reform, Richard Ely rejected the view that poverty simply reflected the distribution of native abilities in the population and was therefore immutable

Saez: Exploding Wealth Inequality in the US-- What is wealth and how is it different from income?

Income inequality has been on the rise in the US, no question. But what about wealth inequality? Wealth is the stock of all assets people own, including their homes, pension saving, and bank accounts, minus all debts Wealth can be self-made out of work and saving but it can also be inherited Hard to measure wealth-- not much data

Fed of St Louis: US Income Inequality: It's Not So Bad-- How does this article argue that inequality can be beneficial?

Income inequality is a byproduct of well-functioning capitalist economy! Individual's earnings are correlated to their productivity! You can't be rich and be lazy! Wealthy people are not more wealthy because they have more money; they are wealthy because they have more productivity!

Kaplan: It's the Market: The Broad-Based Rise in the Return to Top Talent-- What are the two categories of factors that have been responsible for income inequality?

Inequality in pre-tax income has risen substantially in the US since 1980s Categories of factors that has driven inequality Category 1: individuals who obtain rents by distorting the economic system to extract resources in excess of their marginal productivity; theories include: Managerial power: corporate governance has deteriorated in a way that allows top executives to get very high compensations Removal of social norms regarding pay inequality High earners have a greater incentive to extract from lower earners when marginal tax rates are low, because they get to keep a larger share of the returns from this Category 2: factors that alter the marginal productivity of certain types of labour; theories include: Superstars: talented, highly-skilled individuals that take advantage of technological change to increase their productivity and receive higher pay Top earners have scarce and unique talents that give them authority to bargain for skill premium

Corak: Income Inequality, Equality of Opportunity, and Intergenerational Mobility-- How does inequality lowers mobility, and why does this matter?

Inequality lowers mobility because it shapes opportunity, shifting the balance of power irrespective of talent/merit, transmitting these distortions into characteristics valued in the labor market As a society, we're willing to assure a level playing field in access to jobs and education but we're less willing to take steps to offset genetic advantages, and conflicted about what steps might be appropriate in counterbalancing within-family investments

Bertrand, Goldin, Katz: Dynamics of the gender gap for young professionals in the corporate and financial sectors-- Why do MBA's have the hardest time with careers interruptions?

Inherent differences in production technologies / organization of work MBA-oriented careers do not have a large enough contingency of women to justify the adjustment to career breaks There is more career commitment for careers requiring more years of education (i.e. MD, JD) MBA women also have richer husbands → they can LIE DOWN

Case, Lubotsky, Paxson: Economic Status and Health in Childhood: The Origins of the Gradient-- What is the influence of insurance on children's health?

Insurance does not play a crucial role in protecting health upon the arrival of a chronic condition Health in childhood does not appear to be a persistent reflection of health at birth, and a simple genetic model cannot explain the association between health and income

Kaplan: Family, Education, and Sources of Wealth among the Richest Americans-- What three factors determine how an individual accumulates wealth?

Investigated the ways in which Forbes 400 (wealthiest individuals in the US) made their wealth 3 primary factors The extent to which they made money on their own (as opposed to inheriting it) The industrial activities through which wealth was made Educational background of these individuals How these factors changed over time

Median Male Lifetime Income Shows a Downward Trend-- In what way is average lifetime income growth skewed?

Lifetime earnings increased across the 57-67 cohorts, but they rose only for the top 20% of men in the cohorts between 67 and 83 The fact that a substantial fraction of the rise in cross-sectional and lifetime inequality for men can be attributed to a rise in inequality at age 25 has not been emphasized in previous work In the 57 cohort, median lifetime earnings for women were 37% of those for men In the 83 cohort, they were 60% As for men, growth was skewed toward the upper percentiles for the 67-83 cohorts

Mankiw: Yes,r>g, so what-- Why is Mankiw not worried about the accumulation of wealth by capitalists?

Mankiw does not think that the rentier lifestyle of capitalists (esp in Wall Street) is a concern because capitalists earn the value of marginal contribution to the production process, and their accumulation of K enhances productivity and income of workers Mankiw does not believe that income inequality poses a threat to democracy: America's founding fathers were very rich (white) men, the wealthy includes supports of both the right and left wing; reform of electoral system is needed to repair democracy, not growth-depressing tax on capital

Mankiw: Yes,r>g, so what-- Describe Mankiw's model.

Mankiw proposes his own model: consider an economy with working-class workers who consume all the wage they earn (plus some subsidies/transfers from the government), and rich capitalists who just make money from investing in capital that yields a return r cw=w+k: workers consume their wages, plus what is transferred by the government ck=(r--g)nk: rich capitalists consume the return on capital after paying taxes and saving enough r = f'(k): capital earns (yields returns equal to) the marginal product of capital w = f(k) - rk: wage is what is left after capital is compensated g = (r - - ): steady growth rate Cw: consumption of workers Ck: consumption of rich capitalists: W: wage of workers Tau: tax rate R: before-tax rate of return on capital for rich capitalists K: capital stock per worker N: number of workers (nk is capital stock per rich capitalist) f(k): production function for output G: rate of labor-augmenting technological change, steady-state growth rate in Solow model Sigma: capitalists' intertemporal elasticity of substitution Rho: capitalists' rate of time preference

Mankiw: Yes,r>g, so what-- What are Mankiw's belief about the inequality of r and g?

Mankiw's criticisms: R > g is a natural outcome of the steady state in Solow's growth model, as long as the economy does not save so much as this pushes the capital stock K beyond the Golden Rule level; this is Pareto efficient If r < g, then economy has accumulated excessive capital, all generations can be made better off by reducing savings rate

John, McCue: Evolution of the Marriage Earnings Gap for Women-- What are two factors that may explain why married women who work earn less than unmarried women who work?

Married men earn more than single men But married women who work earn less than unmarried women 2 factors: Selection: characteristics related to those who are married and those who are not Specialisation: one spouse invests more heavily in skills rewarded in the labour market (comparative advantage) OLS regression only shows combined effect of changes in earnings from both these factors To isolate effect of selection (earning differences between married and unmarried), need to include fixed effects

Murray: IQ and Income Inequality in a Sample of Sibling Pairs from Advantaged Family Background-- How much difference would it make to income inequality if every child in the country could be afforded the same opportunities?

Not much difference between utopian sample and "everybody else" in terms of incomes when grouped by cognitive class Inequality between these siblings is not responsible for by race, birth order, etc. The sibling data suggest that the current levels of income inequality are likely to persist or, if temporarily reduced, to rebound under any policies short of the Swedish model The income trajectory for low-skill occupations peaks early at a fairly low wage, while the income trajectory for professionals and senior managers peak late at much higher wages Even with utopian sample, return to original level of inequality will be rapid Basically, his point is that inequality exists because of differences in IQ and abilities

Mankiw: Yes,r>g, so what-- Describe Picketty's model, including his definition of r, g and their relationship.

Picketty's model: R: rate of return on private capital G: economy's growth rate R > g: wealth of capitalist class always grows faster than incomes of worker, leading to endless inegalitarian spiral

What is different about the way unions work in the public vs private sector?

Public unions are funded by taxes, don't respond to the same market pressures as private unions Benefits of public pensions are very concentrated, costs are spread across the entire populace (taxpayers' money) Political tension: the public unions vote for the same people who will determine their pensions Short-sighted problem: politicians can promise to raise pensions to win the public's trust, but they don't have to care about the long-term cost burdens of keeping this promise to maintain this level of pension in the future Private unions negotiate with corporate management, who needs to have the company's profit and rate of return in mind (they can't keep raising wages forever, otherwise the company would go under) - there is an economic restriction in the private sector in terms of bargaining power ERISA made sure that employee's benefits have to be funded

Modern American Elites Have Come to Favor Inconspicuous Consumption: What is inconspicuous consumption?

Rich have begun consuming the fruits of "conspicuous production"-- like fair trade coffee They emphasize "inconspicuous consumption" of services like education. This shift threatens to entrench modern elite's privileged position more effectively than the habits of their predecessors ever did Conspicuous consumption: clothes, watches, jewelry, cars, and other socially visible goods The poor devote a larger share of their spending to this kind of consumption Inconspicuous consumption: education, housekeeping, enriching experiences like opera, vacations, etc. Top 10% allocate 4x as much of their spending to school and university than in 1996 This kind of consumption causes children to absorb "cultural capital", allowing their develop the sophistication needed to win admission to selective universities, vastly increasing the odds that they will form the next generation's elite "Aspirational class" is coastal and urban-- NY and LA

Capitalism and Its Critics: A Modern Marx--What has been the trend in income and wealth over the past 300 years? What is special about the 1914-1970 period? Why does the free market system tend to increase the concentration of wealth?

The book contains some marvellous scholarship, but as a guide to action, its deeply flawed 3 big contributions: Picketty documents the evolution of income and wealth over the past 300 years Period between 1914 to 1970s was a historical outlier (where stock of wealth fell dramatically); income inequality and the stock of wealth have been increasing (wealth and income gaps have historically been increasing) Theory of capitalism that explains these facts and offers a prediction of where wealth distribution is heading Free market system has a natural tendency towards increasing the concentration of wealth because the rate of return on property and investments has been consistently higher than the rate of economic growth R fell because of World Wars and Great Depression G increased because of rapid productivity and population growth in 20th century ^kind of problematic bc he makes this theory on extrapolating from the past Offers policy proposals that assume this growing concentration of wealth is not only inevitable but the thing that that matters most He kind of just takes this for granted He presents a poor blueprint for action

Sacerdote, Deaderick: Consumption Growth Among Low- and Middle-Income Households-- What is the final apparent paradox in the article?

The increase in consumption has coincided with a decline in survey-based measures of US optimism about living standards Are people just feeling worse about their economic situations?

Case, Lubotsky, Paxson: Economic Status and Health in Childhood: The Origins of the Gradient-- What is the income gradient of adult health?

The phenomenon that wealthier people have better health and longevity

Sacerdote, Deaderick: Consumption Growth Among Low- and Middle-Income Households-- What findings would be made if we were to use alternative deflators?

Wages show a more positive trend with the PCE than with the CPI-U PCE implies real wages grew .5% a year between 1975 and 2015 CPI-U suggested constant real wages He tries to say standard of living increased by showing that people have more cars now and that people have indoor plumbing now

Rauh, Novy-Marz: State pension system-- What is the current problem with the pension system in terms of interest rates?

When states value their pension systems, they usually use a discount rate of 8% Principles of financial economics say they should use a more conservative discount rate Discount with either taxable state-specific municipal yield curve, which credits states for the possibility that they could default on pension payments, or with a Treasury yield curve, which presents the benefit payments as default-free States estimate their unfunded liabilities at just under $1 trillion Municipal (bond) yield curve estimates at $1.3 trillion, Treasury (bond) curve estimates at $2.5 trillion

Bertrand, Goldin, Katz: Dynamics of the gender gap for young professionals in the corporate and financial sectors-- what happens with the gender gap of U Chicago business school students as time goes on?

Widens. Modest male advantage in training post grad + rising returns to the training. gender differences in career interruptions, growing difference in hours worked weekly.