An Enlightening Example

Chapter 1 of my favorite textbook talks about how policies can have unintended consequences because of their effects on incentives.  One example I use is Sam Peltzman's famous study of seatbelt laws.  Here, from The Economist, is another example:

SOLID-STATE lighting, the latest idea to brighten up the world while saving the planet, promises illumination for a fraction of the energy used by incandescent or fluorescent bulbs. A win all round, then: lower electricity bills and...less climate-changing carbon dioxide belching from power stations.

Well, no. Not if history is any guide. Solid-state lamps, which use souped-up versions of the light-emitting diodes that shine from the faces of digital clocks and flash irritatingly on the front panels of audio and video equipment, will indeed make lighting better. But precedent suggests that this will serve merely to increase the demand for light. The consequence may not be just more light for the same amount of energy, but an actual increase in energy consumption.

baby jean skirt - guest tutorial at kojo designs

I sewed!  Finally!  Check out my newest tutorial for a baby jean skirt over at kojodesigns today.

It looks so cute on Ruby, I made her three.  It's a fast project!

Then I spent the rest of the weekend kissing these cheeks:

Barro on Unemployment Insurance

Harvard's Robert Barro says the recent expansion of UI explains the persistently high unemployment rate.

Reinhardt on Efficiency

Princeton's Uwe Reinhardt offers a thoughtful and thought-provoking perspective on economists' use of the concept of efficiency.

I know that Uwe has used my Principles of Micro textbook in his introductory class.  So his commentary on "modern textbooks" is, at least to some extent, directed at me. (In particular, I suspect he has chapters 7, 8, and 9 in mind.)  Uwe also provides some useful links to handouts he gives to his class.

Update: Steven Landsburg responds.

smiles and wheat

 Sorry friends, no new project today.  Soon!  In the meantime, look who's smiling!  :)

On a related note ... can anyone recommend some awesome gluten-free recipes?  Someone seems to have a wheat allergy, and mama needs a cookie.  Help!

The Latest from Merle Hazard

Krugman reestimates the Mankiw rule

This scatterplot is from Paul Krugman.  x is the core inflation rate minus the unemployment rate.  y is the federal funds rate.  It uses data from 1988 to 2008.

This graph is motivated by a version of the Taylor rule I once proposed.  Paul uses a different sample than I did, so he gets slightly different parameter values.  Nonetheless, I think Paul and I agree that this equation provides a reasonable first approximation to what the Fed will and should do in response to macroeconomic conditions.

Notes from the Sixth Row

Last week, my friend Phill Swagel attended an event to hear about the future of policy toward housing finance.  He sends along the following.  (By the way, here is Phill's own proposal for GSE reform.)

Notes from the Sixth Row: The Treasury-HUD GSE Conference

Phillip Swagel

I took away four main points from Tuesday's Treasury-HUD GSE conference:

Hints of reform. Treasury Secretary Timothy Geithner said that the administration supported fundamental GSE reform but with still a government guarantee for housing finance in some form. The GSE portfolios, however, would disappear. None of this is a surprise, but it was still novel—especially in contrast with past policy efforts such as stimulus and healthcare, where the administration allowed the Congress to take the lead on policy formation.

Industry participants love government guarantees. Conference participants from industries involved with the financing and construction of homes assert that no American will ever buy a home again if the government does not provide a full credit guarantee against the financial market consequences of people defaulting on their mortgages. And that guarantee needs a fair (that is, low) price. Bill Gross made some news in calling for full nationalization of housing finance and complete guarantees on mortgage capital. He prefaced this by saying that he was speaking on behalf of public policy and not his firm. Mr. Gross is smart and was exceedingly public-minded during the financial crisis (even, yes, while profiting from some astute investment calls). There is no doubt that he means well. But it’s scary to think about what he might suggest when he speaks for his book of business instead of the public interest.

Blowback from the left. The administration is scared of its own shadow with respect to flak from the left—the White House staffer’s introductory remarks were an awkward ode to inclusion and conference guidelines such as time limits went out the window when advocates of affordable housing subsidies were speaking (As a note, I very much support these subsidies and think that an important element of GSE reform is to make the subsidies more effective. But this still does not mean that the people making that point should have had carte blanche to long-talk while avoiding answering direct questions.) Amidst the long-talking, it turns out that there is good reason for the administration’s trembling. To the limited extent that advocates of affordable/low-income housing participated in the conference, they vehemently opposed scaling back any form of government support, including reducing the activities of the portfolios. It was impossible to tell what the affordable advocates were for other than “more.” The administration’s GSE reform plan could come down on stone tablets from Mt. Sinai – and still be attacked by the advocate community as "not enough." GSE reform thus represents yet another conflict brewing between the administration and its frenemies in the “professional” left. And yet the President's political tactics of late center on demonizing the moderate/responsible Republicans (“privatizers”) with whom he might form a centrist coalition to actually move forward with a housing finance overhaul. GSE reform could be a long ways off—until we have a President who seeks to lead in a bipartisan fashion.

Settle in; this is going to be a long process. Yesterday's conference was a show of attention to the issue but not more. And next on the agenda are several regional conferences—perhaps the hotel and travel spending is a form of stimulus (or better—it’s time for Congress to shut off Treasury’s unlimited authority to spend money through the Office of Financial Stability). The wheels of GSE reform are turning, but the vehicle is moving forward at a crawl.

CBO's Latest Projection

Source

Amazon Bestsellers

In Microeconomics and Macroeconomics.

What I Learned on My Summer Vacation

As is typical for me during this time of year, I have been on a field trip to study the economy of Nantucket.  The chart below shows what I learned: This idyllic island has not escaped the rise and fall in housing prices that the rest of the nation has experienced.

Source.

What I've Been Reading

Sebastian Mallaby's history of hedge funds is well written, smart, and balanced. 

For econonerds, this is a good beach read.

We're number one!

Harvard tops the US News college ranking this year.  (FYI, in a few weeks, I will be sending off my first child to school number two.)

simple headband

This is about all I can manage to sew these days ... a few hand stitches to make an easy headband.  I unpacked the sewing machine over the weekend to give me some motivation, but for some reason, crafting after midnight doesn't have the allure that it used to.  Bare with me!

Favorite Family Game

A tip for parents.  My favorite family game: Quiddler. It is fun for all ages (as long as your kids have started to read), it doesn't go on forever (like Monopoly), and it is a bit educational (bring a dictionary along).

A Challenge to Extreme Keynesians

The key insight of Keynesian economics is that the problem during recessions is inadequate aggregate demand.  Taken to the extreme, which some Keynesians do, it says that aggregate demand is the only thing you need to worry about during downturns.  Changes in aggregate supply (due to, say, high marginal tax rates or adverse incentives associated unemployment insurance) don't matter, they argue, because employment is being constrained by the low level of aggregate demand.

University of Chicago economist Casey Mulligan offers a challenge to that view.  Casey points out that there is a regular surge in teenage employment during the summer months because more teenagers are available to work (that is, the supply of their labor has increased).  That is no surprise: It is normal supply and demand in action.  But if aggregate demand were the main constraint on employment, this increase in supply should not translate into higher employment during deep recessions such as this one.  But it does!

Most economists, Keynesians and otherwise, ignore this summer change in employment because we focus on seasonally adjusted data.  But as Casey points out, the raw unadjusted data may have something important to teach us.

Casey might want us to take this as evidence against the entire Keynesian worldview.  I would not go quite that far, but it surely provides a challenge to extreme Keynesianism.  I am reminded of a response I once gave to a reporter who asked whether I was a supply-sider or a Keynesian.  "I am neither a supply-side economist nor a demand-side economist," I said.  "I am a supply-and-demand economist."

alphabet flashcards

Oscar is starting to learn his letters ... only I can't take credit for it, because he is learning them from a program called Super Why! on PBS.  In the spirit of back-to-school, and because I'd rather be teaching him the alphabet myself, I made some alphabet flashcards.

I made the cards in Powerpoint using the cutest clip art I could find, and a few simple images I made myself (like the balloon and  kite).

UPDATE:  I don't have a secret source for the clip art - it was all from the basic library that comes with Microsoft Office.  You can also download their clip art for free online.

There are two cards for each letter (I wanted to capture all the long/short, hard/soft letter sounds), so I plan to put the matching letter cards back to back, have them laminated, and loop them on a metal ring.  I think I'll make flashcards for colors and numbers as well.

Get your own free copy HERE.  Enjoy!

Where does the Laffer curve bend?

An informal survey.

The White House Policy Process

Chapter 2 of my favorite textbook describes how economists play a role in the making of public policy.  If students want a more detailed description of the White House policy process, a good place to look is this recent post by Keith Hennessey.

Silhouette Winner

Jennipher - you are my Silhouette SD giveaway winner!  Please email me your contact information to homemadebyjill@gmail.com.  If I do not hear from you by Friday, August 13, I'll select a new winner.

Thanks to everyone who entered!  I was blown away by the number of entries.  I just wish I had more machines to give away.

If you can't live without a Silhouette, don't forget about the great promos available to you - the best deal is still active until midnight tonight, and the other good promo is active from August 10-14.

1) Truly Amazing promo - Purchase a Silhouette online by midnight, August 9th and enter the code homemade and you'll receive:

- $50 off the Silhouette Craft Cutter

- 2 rolls of vinyl (Valued at $15.98)

- 1 roll of transfer tape (Valued at $7.99)

- Scraper (Valued at $6.99)

- Home Décor CD (Valued at $50)

- $10 Gift Card to the Silhouette Download Store

- Cutting Blade

- 2 Cutting Mats

All for $249.99

A Savings of $130.96

Just think of how much you’ll save on gift giving this year!

2) Still really great promo - Purchase a Silhouette online between August 10 and midnight, August 14th and enter the code homemade and you'll receive:

$50 off (receive for $249.99)

2 rolls of Heat transfer ($29.89 value)

$10 Gift Card to the Silhouette Download Store

Cutting Blade

2 Cutting Mats

All for $249.99

A savings of $79.98

A Wise Passage

From Paul Seabright, via Peter Gordon:

Politicians are in charge of the modern economy in much the same way as a sailor is in charge of a small boat in a storm. The consequences of their losing control completely may be catastrophic (as civil war and hyperinflation in parts of the former Soviet empire have recently reminded us), but even while they keep afloat, their influence over the course of events is tiny in comparison with that of the storm around them. We who are their passengers may focus our hopes and fears upon them, and express profound gratitude toward them if we reach harbor safely, but that is chiefly because it seems pointless to thank the storm. (p. 25)

How is Medicare doing?

Worse than official projections suggest:

Administration officials can always be counted on to praise President Obama's health care law. But Rick Foster, the chief actuary of Medicare, offers an unvarnished assessment of how the new law affects 47 million Medicare recipients, as well as the federal deficit.

"There is a strong likelihood that the cost projections in the new trustees report under current law understate the actual future cost that Medicare will face. A strong likelihood," he says. "I've gone so far as to say that I don't think it's a reasonable projection of what will really happen." Rick Foster made a rare public appearance at the American Enterprise Institute Friday to discuss the latest projections of Medicare which are required by law.

The single greatest uncertainty in the projections are the cuts to Medicare that the administration is counting on to pay for new benefits.The Obama plan assumes health care can accomplish the same kinds of increased efficiency, or productivity improvements, usually seen on production lines -- like manufacturing cars. But few analysts believe that is possible. Joe Antos, a scholar at AEI, says, "they're productivity improvements if productivity happens. If productivity doesn't happen, they're still cuts."

And Foster adds that, "every single expert we talked [to] has told us they did not think these productivity adjustments were viable. They thought they just would not work."

sprucing up the pantry with vinyl

If you are looking for the Silhouette giveaway, click here.

I experimented with vinyl on my Silhouette yesterday by giving my pantry a little facelift. 

First, I added labels to the plastic containers that store my baking ingredients.  Then I added a little conversion chart to the inside of my cupboard door for measurements I am always forgetting. 

I've never cut vinyl before, and I was so pleased with how easy it was to cut and apply.  I'm tempted to add a little vinyl design to my refrigerator door as well (and am doing my best to not get carried away and vinyl everything).

Want to see a clever way to use vinyl to make custom artwork?  Vanessa at V & Co. has also been posting about Silhouette this week, and I love how she used it on canvas.

The Silhouette Giveaway here ends tonight at midnight, so don't forget to enter if you haven't already.  I'll be choosing a random winner over the weekend and will announce who the lucky person is on Monday!

On Congressman Paul Ryan

Princeton's Paul Krugman plays offense. 
Brookings's Ted Gayer plays defense.

Christy Romer Steps Down

CEA Chair Christy Romer is leaving the White House.

From my own experience in that job, I know she must be experiencing mixed emotions.  On the one hand,  it is an exhilarating experience to be a member of a White House team, a part of history, and the leader of a staff of smart, hard-working economists at the CEA.  On the other hand, in jobs like this, one loses a great deal of autonomy.  People who choose academia as a career often do so because they enjoy the personal and intellectual freedom it offers.  Having spent two years without it, I appreciate that freedom all the more.  I bet Christy will feel the same, after she recovers from Beltway decompression.

President Obama's Pro-Union Stance

Nobelist Gary Becker concludes:

Are the Democratic-controlled Congress and President Obama very much pro union? Unquestionably. Do the economic effects of unions on the welfare of workers as a whole justify that union bias? No. Has their pro-union orientation seriously retarded the recovery from the recession? Probably....The real threat to a robust recovery on the labor side has come from employer and entrepreneurial fears that once the economic environment improves, a Democratic Congress and administration will pass pro-union and other pro-worker legislation that will raise the cost of doing business and cut profits. In this way the obvious pro-union-pro-worker bias of the present government has contributed to a slower recovery, especially in labor markets.

impromptu baby celebration

If you are looking for the Silhouette giveaway, click here.

This morning I hosted a little surprise baby celebration.  A friend of mine is due with baby #2 in just two short weeks and doesn't want a baby shower ... but that doesn't mean we shouldn't celebrate (plus it gave me an excuse to really take my new Silhouette out for a whirl).  Last night I made a few quick decorations, gathered yummy treats, and was all set to party at today's playgroup.

I purchased the cupcake wrapper and elephant templates at the Silhouette digital store, and the pennant banner was made using free images.  Since I used only materials I had on hand, all of the decorations cost me less than $2.  That's reason enough to party.

The trouble with surprise parties, though, is that the guest of honor is pretty clueless.  So when the mama-to-be didn't join us for playgroup because her toddler had a runny nose, it was a real bummer.  I won't be deterred ... it is all getting boxed up to drop off post-naptime.

Some of the other playgroup mama's and I whipped up a few onesies and baby tees as a gift, using the heat transfer material (I love that stuff!).  Recognize the birds from my blog banner?  I imported images from Picnik right into the Silhouette software.  So handy!  Hmmm ... now Ruby is going to need a Homemade by Jill onesie.

Rogoff on the Current Policy Challenge

Ken says we should focus on productivity and aggregate supply, not just aggregate demand.

my new love: silhouette craft cutter (GIVEAWAY CLOSED)

I told you this was big ...

A couple weeks ago I was shipped a Silhouette SD Craft Cutter to test out ... with the understanding that if I didn't like it, I could send it right on back with no obligation.  I couldn't resist!  And, um ... I'm keeping the Silhouette, thank-you-very-much.

I've always been under the impression that craft cutters were for the scrapbooking set only.  So while I can see how this product would definitely appeal to scrapbookers, the Silhouette is made for anyone who loves to craft.  If you like to make personalized gifts, home decor, DIY clothing, or just awesome stuff in general, this is the tool for you.  This slim little beauty can cut paper, cardstock, vinyl, and heat transfer material.  I don't know how I crafted without it!  Ok, that is a little over-dramatic, but the point is, I really love it.

The Silhouette hooks right up to your computer so you don't need a bunch of cartridges or extra tools.  You can download literally thousands of images from their online store for a very reasonable price, or simply create your own using the included software. In my mind, this is its best feature, for paper cutting alone - it is like having an unlimited source of paper punches in every shape and size imaginable.

I can't wait to use it for ...

The Silhouette is awesome for paper party crafts - it has templates for favor boxes, cupcake wrappers, table tent cards, cake stencils(!) ... you name it. With a click of a few buttons, you could easily (and quickly) create an entire party theme and decorations (and later this week, I'll show you how).

Of course, the first thing I had to try was the heat transfer.  I couldn't resist decorating a few onesies for the baby.  For the pink onesie, I created my own image using a free graphic and font that came with the machine's software (there is a whole image and font library built in).  For the white onesie, I downloaded the flower graphic (detailed flower 1 by Sweet Afton)  from the online store.

If you want to see even more examples of what this amazing little machine can do, just check out the Silhouette website or blog. 

So, are you ready for the giveaway?  You can win:

A Silhouette Machine  

(a $299.99 value)

And it includes...

• Silhouette machine
• Software for Windows XP/Vista
• Power cable, USB cable
• 2 Cutting mats (one for thick media, one for thin media)
• One cutting blade
• $10 gift card to the Silhouette Online Store

This giveaway is now closed!  Thanks for entering!

You know you want it!  Let's keep things simple ... there is only ONE way to enter.  Visit the Silhouette website and take a look around.  Then come back and leave a comment on this post by August 7th telling me how you'd use your new favorite craft tool (as if you could pick just one project).   The winner will be randomly selected on August 8th.  This giveaway is available only to U.S. residents (sorry!).  The only rules: one entry per person and you have to leave me some way to contact you - anonymous comments will be ignored.

Silhouette is also offering a couple of fantastic promos to my readers!

1) Truly Amazing promo - Purchase a Silhouette online by midnight, August 9th and enter the code homemade and you'll receive:

- $50 off the Silhouette Craft Cutter

- 2 rolls of vinyl (Valued at $15.98)

- 1 roll of transfer tape (Valued at $7.99)

- Scraper (Valued at $6.99)

- Home Décor CD (Valued at $50)

- $10 Gift Card to the Silhouette Download Store

- Cutting Blade

- 2 Cutting Mats

All for $249.99

A Savings of $130.96

Just think of how much you’ll save on gift giving this year!

2) Still really great promo - Purchase a Silhouette online between August 10 and midnight, August 14th and enter the code homemade and you'll receive:

$50 off (receive for $249.99)

2 rolls of Heat transfer ($29.89 value)

$10 Gift Card to the Silhouette Download Store

Cutting Blade

2 Cutting Mats

All for $249.99

A savings of $79.98