In Defense of Ben

Click here to read my column in Sunday's NY Times.

Mark Thoma vs Larry Summers

Mark and Larry discuss whether academic economists should listen more to practitioners.

The discussion is interesting, but unfortunately devoid of much evidence.  Let me note the following fact: If you look at the most influential economics research, you will find that relatively little of it came from interactions between academics and practitioners.  For example, Larry has eight articles on this list of greatest hits (an impressive achievement), but they were all written before his substantial "real world" experiences.

oven mitt hand puppet

A few weeks ago when I was making Monkey and Crocodile finger puppet sets (get your template HERE), I also made this guy:

It was supposed to be a crocodile, but looks more like a demented dragon to me.  I almost considered it a craft fail, but my kids LOVE him ... so there you go.  He'd look more like a crocodile with some eye bumps, I think.  And we'd have to do something about those teeth.  Hmm.

Anyway, I used Melanie's Oven Mitt Pattern from The Crafty Cupboard (a great pattern - I used it often this past Christmas for kitchen-themed gifts).

The green, brown, and orange-red fabrics are all jersey, and the teeth and eyes are made of white felt.  I fused a layer of fusible fleece interfacing to the green jersey and brown to give the body a little more stability.  And obviously, I cut the top pattern piece in half to add those pointy scales up the middle.

He is good for munching monkeys,

and little girls.

Hope you are all having a good week!  We've been playing non-stop with visiting family recently, and I had the sudden realization that I am moving in like two weeks.  Yikes.  Better get to work!  So if I am not around as much at the beginning of August, now you know why.  :)

The Rainbow Fish, Revised

If you are familiar with the classic children's story The Rainbow Fish, you might enjoy this revised version. If you aren't, you might click here first to listen to the story in its original version.

A Question About Tax Incidence

A reader alerts me to this story:

The expiration of the FAA reauthorization on Friday means some aviation taxes are no longer being collected. These include a 7.5 percent sales tax on U.S. air transportation and a 7.5 percent sales tax on the purchase of air miles, said fare watcher FareCompare.com. Additionally, taxes on jet fuel are also reduced.

"Friday evening we adjusted prices so the bottom line price of a ticket remains the same as it was prior to the expiration of federal excise taxes, etc.," [said] American Airlines spokesman Tim Smith.

The reader asks how to reconcile this story with the basic theory of tax incidence, according to which consumers and producers share the burden of taxes.

What a good exam question!  Stop and answer the question yourself before proceeding.  If you need help, click through and read the article.  It provides some clues.

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My answer: It appears that the supply of airline seats is perfectly inelastic.  With inelastic supply, the incidence of the tax falls entirely on producers; conversely, all the benefit of the tax cut is enjoyed by producers.

Is the assumption of inelastic supply realistic?  Not generally, but here the situation might be different.  The story goes on to say:

Neidl also said the benefit to airlines would be minimized if Congress reached a deal soon to resolve the partial FAA shutdown.

"It looks to me like it's going to be very temporary," Neidl said. "So whatever effect it has, it's going to be very minor."

In response to a change that is expected to be very temporary, airlines might be reluctant to adjust the quantity of seats supplied.  That is, the assumption of inelastic supply might not be so bad.

If the tax cut were to persist, however, the larger profit margins would encourage a supply response.  In that case, some of the tax cut, perhaps most of it, would be passed on to consumers.

The Light Bulb Ban

Virginia Postrel is making a lot of sense.

Spending in Disguise

Donald Marron on tax expenditures.

The Subprime Mortgage Crisis

Alternative theories, discussed by Boston Fed economists Chris Foote and Paul Willen. (I am told this article will eventually go behind a paywall, but it will be open access for a couple weeks.)

The European Debt Crisis

As seen by economists Francesco Giavazzi and Anil Kashyap.

serger scraps hair clip

Remember those beautiful serger scraps I posted last week?

The hoarder in me couldn't bear to throw them out right away, so they sat in a pile on my kitchen table for several days.  Late one night while I was baking cake layers, I wound them up as you would make a yarn pom pom (just not quite as dense), tied it off at the center, trimmed up the resulting puff, and hot glued it to a hair clip.  So easy, and it was a perfect match to the rainbow dress (since that's where the scraps came from, of course).

The Always Quotable Larry Summers

A reader alerts me to this interview of Larry Summers on the Charlie Rose show.  He finds this quotation (starting around 21:50) particularly provocative:

Never forget, never forget, and I think it’s very important for Democrats especially to remember this, that if Hitler had not come along, Franklin Roosevelt would have left office in 1941 with an unemployment rate in excess of 15 percent and an economic recovery strategy that had basically failed.

Size Matters

These may be the least expected sentences I have read lately:

This paper explores the link between economic development and penile length.... The GDP maximizing size is around 13.5 centimetres.

Those are from the abstract.  Click here to read the paper.

rainbow birthday party!

Rainbow parties are super fun!  It was totally overboard for a 1-year-old party, but we combined with Ruby's cousin, Violet, and the rainbow theme was so fun, and let's be honest ... I just got carried away.  :)

We had a blast with our rainbow treats and rainbow outfits and rainbow decorations.  It resulted in two very happy birthday girls.

 See the girl's rainbow dresses posted here, and directions to make a lickety-split birthday crown here.

I couldn't have pulled it off without my in-laws ... the sister-in-laws were enthusiastic decorators, and grandma and grandpa were the grill masters, whipping up a delicious BBQ dinner.  Thanks, guys!

The decorations were fairly simple.  We made a streamer canopy inside the shade tent, hung paper lanterns (remember them from my spring Relief Society activity?), and a watch-me-grow birthday banner.  I really liked the rainbow circle garland I saw at Sweet and Lovely Crafts, so I made a smaller version.  The dots were punched out of rainbow colored card stock using a 1-inch scalloped circle punch, and sewn together on the sewing machine.  Easy, peasy.

The bean bag toss was fun for the kids.  There was no formal game or prizes ... it was just out for fun.  I got the idea from born.in.japan, and just ran with it.  If you are in the Santa Barbara area and want a (free) lovingly handmade bean bag toss board, email me!  I have no space to store it.

I also used some toys we already had as entertainment:  a tunnel to climb through, a kid's play parachute, and all the rainbow baby toys I could round up for a little baby zone in the shade.  

There were jars of crayons on the table with cute rainbow coloring pages (courtesy of Style Me Gorgeous) for anyone interested in coloring.

I didn't do an over-the-top dessert table that are so popular these days, but there were plenty of goodies to go around.

My big splurge for the party was this rainbow popcorn, to go into those beautifully cut rainbow popcorn boxes.  I ordered it online from Sakida.  It was tasty, but if I had to do it again, I would have tried to make it myself.  Just be warned - the shipping is atrocious (which I did not know until I received my invoice - ouch).  It sure looked pretty though.

A much bigger hit with the crowd was the layered rainbow jello.   It was kind of beautiful, and delicious!  Get the recipe at Glorious Treats.  I have an aversion to Cool Whip, so I substituted vanilla yogurt and it was really yummy.  Two tablespoons of each layer is just enough to fill a clear 8-ounce plastic cup.

Of course, you can't have a rainbow birthday party without doing THE rainbow cake.

I wanted it to be the real deal, so I went directly to the source - Whisk Kid.  She may or may not have been the first person ever to make a rainbow cake, but she certainly started the internet sensation.  Whisk Kid's cake recipe was the perfect amount for a 6 layer cake.   I used my go-to Wilton Buttercream Icing recipe for the frosting.

The reaction from the party-goers when I cut into this cake made the effort of baking it so worth it.  It tasted great, too!  Ruby was supposed to have her own little cake, but I had a gluten-free baking fail.  So she ended up with gluten free cupcake from Santa Barbara's most delicious bakery, Jeanine's, and she devoured it with gusto.

I sent our little guests away with some gold coins (idea found at the blog, it is what it is) - as you know, there is always gold at the end of a rainbow (party).  Bulk gold coins found at Smart & Final.

As my nephew frequently reminded me, "Jill has gone rainbow crazy!"  It was such a fun day, and while I know Ruby won't remember it when she is older, she can look at pictures of this party and know her mama really loves her.

The Latest from the Standup Economist

Why aren't businesses hiring?

University of Chicago economist Steve Davis suggests some answers.

rainbow birthday dresses

Birthday girls deserve special birthday outfits, don't you think?

Both dresses were made using Lil Blue Boo's Sienna Dress pattern.   Ruby's dress goes red to purple:

 and Violet's dress goes purple to red:

The fabric for the dresses came from t-shirts, and the number is appliqued.  I divided the skirt pattern piece into 4 to make the stripes and didn't add extra seam allowance (dumb, dumb, dumb), so the dresses came out a little short.  Nothing leggings or bloomers can't fix!

We are partying this weekend, so I'll have more to share next week of everything put together.  Hope you are not too sick of rainbows yet.  :)

rainbow bean bag toss

As I was gluing a bazillion 1-inch punched paper rainbow dots to Ruby's bean bag toss board yesterday, I realized about 3/4 of the way through that a similar effect could have been achieved much more easily with some pretty wrapping paper.  Duh.  Motherhood may have melted my brain, but apparently has boosted my patience.

At least bean bags are fast and easy to make!

Reinhart and Rogoff on the Debt Problem

They write:

In our study “Growth in a Time of Debt,” we found relatively little association between public liabilities and growth for debt levels of less than 90 percent of GDP. But burdens above 90 percent are associated with 1 percent lower median growth.

Why there is no budget deal

Keith Hennessey says that the reason Republicans are rejecting the President's budget proposal is that it is distinctly to the left of the one recommended by the bipartisan Bowles-Simpson commission.

Update: Ezra Klein disagrees.

Spending Hidden in the Tax Code

The blue line is total discretionary outlays of the federal government, and the brown line is the sum of tax expenditures.  Both are in constant dollars.  Note that these two categories of spending are about equal in magnitude.  It is just as important to focus on stealth spending implemented through the tax code as on explicit spending.

Source.

Addendum: David Leonhardt has a related article in the Times today.

rainbow popcorn boxes

I've been getting cozy with my Silhouette this week - cut, cut, cut.   About two weeks ago, I went to their digital download store to see if they had a popcorn box shape.  Imagine my surprise when it was the free shape of the week!  How fortuitous. 

I re-sized the template and arranged it so I could fit all the pieces on one page.  Then I cut ... and cut ... and cut ... and started gluing.

This morning I finished my stack:
 

Can't wait to show you what is going inside!  If only the FedEx guy would hurry up.

GSE Fact of the Day

From Peter Wallison:

Edward Pinto (a former chief credit officer of Fannie Mae, and now a colleague at the American Enterprise Institute) presented the evidence to the commission showing that by 2008 half of all mortgages in the U.S. (27 million loans) were subprime or otherwise risky, and that 12 million of these loans were on the books of the GSEs.

rainbows galore

Rainbow birthday party prep is in full swing at my place, so the apartment is looking a little ... colorful (meaning scraps and threads and cardstock covering every inch of space).

Not sure that it is healthy to have a favorite pile of serger scraps, but if it was, this would be mine:

One thing I did to save time (and money) was to use an e-vite to the party.  I've never been a huge fan of them, but am recently converted to Paperless Post.   They have a beautiful selection of letterpressed stationery that you can customize and send out digitally.  It even comes delivered (to your inbox) in an envelope!  How's that for cute.

Paperless Post is not totally free, because you do have to buy "stamps" to send them out, but it is really well-priced.  They gave me a bunch of stamps and coins (used for designer cards and special customizations like an envelope liner) just for signing up, so my e-vite for this party was free.  Can't beat that!  Here's what I chose for the party:

p.s. Paperless Post is not sponsoring this post - I just like them!

Choices for Greece

Tyler Cowen tells us not to expect much happy news.

The Disappointing Recovery

happy birthday, ruby!

My sweet and saucy Ruby turns one year old today.  I can't believe how fast this year has flown by!

One of Ruby's very favorite activities is singing the Monkey and Crocodile song.  She thinks it is hysterical and bops along to the song, giggling and grinning.

For her birthday, I made a set of monkey and crocodile finger puppets, and I'd also like to share the template with you.  Get the monkey and crocodile finger puppet template HERE.

If you are not familiar with the song, here is a copy of the text, as we sing it:

We are doing some light birthday celebrations today, but the big shindig is next weekend when we have family in town.  We are doing a double party for Ruby and her cousin, Violet, complete with a festive rainbow theme.  Lots of details to come later.

Happy birthday, Ruby!  I love you.

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Rogoff on Inequality

Ken suggests that rising inequality may be self-correcting.

I was scooped

...by Scott Sumner.

Fourth of July Playdate Dress

Happy Fourth of July!  If you are celebrating with us here in the U.S., I hope you have barbeques and fireworks on your agenda today. 

Over the weekend, I whipped up the Playdate Dress from Craftiness is Not Optional.  Jess is a blogging all-star and is constantly putting out free tutorials and patterns for super cute girls clothes.

I didn't deviate from Jess's pattern at all, and though it is sized 2T, it was a perfect fit for my behemoth 1 year old.  Ruby isn't quite walking, so I made the dress super short (nothing frustrates her more than getting her knees caught up in a dress) and paired it with some matching zig zag bloomers using Dana's Perfect Diaper Cover tutorial.

It was such an easy sew and looks really cute, so I foresee many more playdate dresses in Ruby's wardrobe.

Just for fun, here's a photo of a neighbor's patriotic dog statue:

Wouldn't it be fun if we all had that level of enthusiasm for the holidays?  :)

A Good Exam Question

Dean Baker endorses and expands upon an idea of Ron Paul's.  I think the idea is crazy, but at least it is crazy in an interesting way.  Here it is, in a nutshell:

1. According to Congressman Paul, to deal with the debt-ceiling impasse, we should tell the Federal Reserve to destroy its vast holding of government bonds.
2. Because the Fed might have planned on selling those bonds in open-market operations to drain the banking system of the currently high level of excess reserves, the Fed should (according to Baker) substantially increase reserve requirements.

This would be a great exam question:  What are the effects of this policy? Who wins and who loses if this proposal is adopted?

STOP READING.  Think about the question yourself for a few minutes.

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DID YOU REALLY ANSWER THE QUESTION?
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Okay.  Here is my answer:

Part 1 is just an accounting gimmick. Since the Fed is really part of the government, the bonds it holds are liabilities the government owes to itself. Destroying the bonds has no direct economic effect. It is just like an increase in the debt ceiling, without any other policy changes attached.

Part 2 is a form of financial repression. Assuming the Fed does not pay market interest rates on those newly required reserves, it is like a tax on bank financing. The initial impact is on those small businesses that rely on banks to raise funds for investment. The policy will therefore impede the financial system's ability to intermediate between savers and investors. As a result, the economy's capital stock will be allocated less efficiently. In the long run, there will be lower growth in productivity and real wages.

Housing Tax Subsidies

Here is something for tax reformers to keep in mind:

Investment in owner-occupied housing faces an effective marginal tax rate of just 3.5 percent. In contrast, investment in the business sector faces an effective tax rate of 25.5 percent. This leads to a tax-induced bias for capital to flow into housing-related uses rather than other types of projects. As a result, businesses are less likely to purchase new equipment and less likely to incorporate new technologies than otherwise might be the case. Less business investment results in lower worker productivity and ultimately lower real wages and living standards. While the housing sector provides employment and has other positive effects on the overall economy and on society, the resources employed in the housing sector displace investment that would otherwise occur in the business sector were it not for the favored tax treatment of housing. The resulting distortion in the allocation of capital likely lowers overall output, because resources are allocated based on tax considerations rather than economic merit. In effect, the United States has chosen as a society to live in larger, debt-financed homes while accepting a lower standard of living in other regards.