Arnold Kling  

What I've Been Reading

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A Deeper Look at Economic Bias... The Difficult Concept of Evolu...

The September-October issue of The American. The articles have not yet started dribbling from the dead-tree version to the web site. You can leave aside the article that editor Nick Schulz and I contributed, which is an expansion of the billers and players idea. Articles by Charles Murray, Jonathan Yardley, and Ben Casnocha are all good, as are a number of shorter pieces. Heather Wilhelm profiles economist Christian Broda, citing a paper that he wrote with John Romalis which


shows that from 1994 to 2005...Inflation for the richest 10 percent of U.S. households, which tend to spend more on services, was 6 percent higher than inflation for the poorest 10 percent, which tend to spend more on nondurable goods

This offset some of the apparent increase in income inequality over that period.

I suspect that Nick Schulz's editorial judgment is what is making The American a top-notch publication, that held my attention the way that The Atlantic did back when Michael Kelly was editor (the current editor, James Fallows, has a fondness for long, thumb-sucking pieces. Some of Fallows' biggest projects, such as "the American idea" issue, have been utter failures, in my opinion).

Another journal that is being edited to my taste is the Journal of Economic Perspectives, with Andrei Shleifer at the controls. Essentially every piece in the Summer 2008 issue had something of interest for me. Martin Feldstein writes,


It is no longer possible to say, as it was back in the year 2000, that the U.S. current account deficit is sustainable because it is being financed by private investors who are attracted by the productivity and profitability of the U.S. economy. The funds are coming into the U.S. economy now because foreign governments are willint to buy amounts of debt that can finance the U.S. current account deficit.

I have been convinced by Don Boudreaux that one should "lose the we" in talking about the current account deficit. I personally don't owe foreigners any money--my only liabilities are the future taxes I will have to pay to finance my government's deficits. Should I "lose the they" only if foreign private investors are buying our bonds, or should I, like Feldstein, worry about the fact that the buyers are foreign governments?

I have been sent advance copies of three new books.

William Niskanen's Reflections of a Political Economist is a compilation of essays and academic papers. None of them suffers from being out of date. He does the sort of hard-nosed thinking to which I aspire.

Robert C. Ellickson's The Household looks at the household (not quite the same as the family) as an institution. He sees the household as facing many of the same problems as a Coaseian firm, including the choice between internal production and obtaining things from the market (what business school types call the "make or buy" decision. His discussion in chapter 7 of the fundamental economics of owning vs. renting a home emphasizes the role of transaction costs in that decision. In the absence of other distortions (of which there are many in the U.S.), you buy a house because it is less expensive than continuously renegotiating your rental agreement.

Finally, Amar Bhide's The Venturesome Economy was sent in pre-publication form. Bhide combines an economist's interest in questions about globalization and economic growth with a business school professor's use of case studies to inform his thinking.


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COMMENTS (7 to date)

Fact check: James Fallows is not the editor of the Atlantic Monthly. James Bennet is.

http://www.theatlantic.com/a/masthead.mhtml

But I agree with your assessment of the magazine.

You should be reading www.emersoninstitute.org

Here's a paper that says the correction in the current account is already underway:

...there are signs that the correction has already begun. From 1 March 2007 to 1 March 2008 the value of the US dollar declined by nearly 18% against the Canadian dollar, over 16% against the Mexican peso, by nearly 14% against the Euro, and by over 8% against the Chinese yuan. Various trade-weighted exchange rates reported by the IMF show a US dollar decline of 10 to 13% from the first quarter of 2007 to the first quarter of 2008. During this same period US merchandise exports grew 18.4% and merchandise imports grew 12.7%. Some of this growth is the consequence of the commodity boom. But even removing soybeans, corn, and wheat from exports leaves growth in the remaining categories of US exports at a hefty 16.8%. Moreover, if imports of crude oil are taken out, US spending on imports grew by only 5.9%.

Much larger changes than these are needed to bring the US current account into balance. How much more of a dollar decline is needed depends on how adaptable the US economy is at moving resources into the production of goods that are exported or used to replace imports and on how successfully it expands the range of products it can produce and sell abroad.

E. Barandiaran writes:

In order to emphasize DB's point on the irrelevance of US current account deficits, I suggest that you address the problem from the viewpoint of fiscal and trade imbalances at the state level. In particular, you may look at what is going on in California and discuss the conditions under which macroeconomists like Feldstein would recommend "to close" the state economy by limiting capital flows and/or by issuing a California dolar.

spencer writes:

In the CPI services are dominated by two items:
health care and home owners equivalent rent.

I presume this is true of you weighting of the services upper income individuals pay.

So you are saying that because the wealthy pay more for health care and housing the income inequality is not all that severe?

C Stogner writes:

Various trade-weighted exchange rates reported by the IMF show a US dollar decline of 10 to 13% from the first quarter of 2007 to the first quarter of 2008. During this same period US merchandise exports grew 18.4% and merchandise imports grew 12.7%. Some of this growth is the consequence of the commodity boom.

The dollar recently made record lows against the euro, while hitting its lowest level against the Japanese yen since 2005. At the same time, the U.S. dollar index—which measures the greenback against a basket of other currencies—has declined about 4 percent this year and roughly 12 percent since the end of 2006.

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