Saturday, September 22, 2012

Europe's payroll taxes

The Wall Street Journal made this nice graph on Saturday.

Forget "who bears," it's the totals here that are mind-boggling. In most countries, if you add up the "employer" and "employee" contributions, you get between 30 and 40%. So, if a worker produces 100 euros worth of output, 30-40 euros immediately go to the government. And there is an additional 20%+  VAT when the worker goes to buy something. So, right out of the gate, we have a 50-60% wedge between working and the fruits of labor. Income taxes, corporate taxes and property, excise, and other taxes are all on top of that! It's a wonder anyone in Europe bothers to work at all.

(I haven't looked in to the numbers, but I presume the European numbers include financing of their health systems, and the US number does not. Don't feel so cheeky.) 

Thursday, September 20, 2012

Two views of debt and stagnation

Two new papers on economic stagnation in periods of high government debt (i.e. now) are making a splash: 

Public Debt Overhangs by Carmen  Reinhart,Vincent Reinhart and Ken Rogoff
The Output Effect of Fiscal Consolidations by Alberto Alesina, Carlo Favero and Francesco Giavazzi

This review is mostly about the former, with a little mention of the latter (maybe I'll get back to that later)

Sunday, September 16, 2012

Sargent and interest-rate options

By now, you've probably seen Tom Sargent's great Ally Bank TV spot.

But, were I to needle Tom just a bit, I might ask, "Tom, the Ally Bank CD allows you the option of raising your CD rate once over its two-year life. Can you explain when to optimally exercise that option?''  Or (second beer), "Tom, to what portfolio optimization question is the answer, combine a two-year CD with an American option to raise the rate once?  You must have some great robust-control result here about parameter uncertainty in dynamic interest-rate models."

Tuesday, September 11, 2012

Unraveling the Mysteries of Money

Harald Uhlig and I did a fun interview run by Gideon Magnus (Chicago PhD) at Morningstar. We talk about the foundations of money, fiscal theory, monetary policy, European debt problems, etc. Gideon framed it well, and Harald is really sharp. Somebody combed my hair. A cleaned up version of the interview appeared in the Morningstar Advisor Magazine (html) (A prettier pdf)

A link in case the video doesn't work or doesn't embed well (if you see "server application unavailable" the link usually still works), or if you want the original source.

The video starts a little abruptly, as it left out Gideon's thoughtful introduction (it's in the Magazine) and framing question:
Gideon Magnus: I want to discuss the value of money and the idea that money is valued similarly to any other asset. Are there really assets backing money? If so, what are they? John, please explain.

Monday, September 10, 2012

How not to blow it with phase-outs

Today's Wall Street Journal article, How Not to Blow It With Financial Aid, appparently about financing college education, has important lessons for the ongoing grand fiscal debate.

The article is about college financial aid, especially federally funded, and unwittingly exposes the atrocious incentives of the system.
"Every $10,000 reduction in income is going to improve your aid eligibility by [about] $3,000" if you have one child in college..

Wednesday, September 5, 2012

Bad Hair Day

A short interview by Betty Liu on Bloomberg TV: (if that doesn't work a link). The ECB's big bond buying program, how "sterilizing" won't solve everything, and discussion of the WSJ Oped on the future of the Fed

Tuesday, September 4, 2012

Woodford at Jackson Hole

Mike Woodford's Jackson Hole paper is making a big buzz, and for good reasons. Readers of this blog may be surprised to learn that I agree with about 99% of it. (Right up to the "and hence this is what we should do" part, basically!)

Any student of economics should read this paper. Mike lays out in clear if not always concise prose, and remarkably few equations, the central ideas of modern monetary economics, on all sides, along with important evidence.

Mike's central question is this: how can the Fed "stimulate," now that interest rates are effectively zero, and given that (as Mike reviews), "quantiative easing" seems extremely weak if not completely powerless? He comes up with two answers: (Hint: starting with the conclusions on p. 82 is a good way to read this paper!)

Monday, September 3, 2012

CBO and fiscal cliff, again

I turned last week's CBO post into an Op-Ed for Bloomberg. This version is better.

Last month, the Congressional Budget Office released a report warning that the “fiscal cliff” would cause a new recession. It came to the right conclusion for all the wrong reasons.

Reasons matter. A policy response crafted to satisfy the CBO’s analysis would hurt the economy. Reports such as this one would be much more useful if the agencies that publish them were more transparent about the calculations, and explained the logic of their models.

Saturday, September 1, 2012


This has nothing to do with economics or finance, but it's way cooler...If you or your teenage children are into young-adult fiction.

My wife  Beth's young adult novel, Monstrous Beauty, published by Farrar, Straus and Giroux, will be released September 4.

Fierce, seductive mermaid Syrenka falls in love with Ezra, a young naturalist. When she abandons her life underwater for a chance at happiness on land, she is unaware that this decision comes with horrific and deadly consequences. Almost one hundred forty years later, seventeen-year-old Hester meets a mysterious stranger named Ezra and feels overwhelmingly, inexplicably drawn to him. For generations, love has resulted in death for the women in her family. Is it an undiagnosed genetic defect . . . or a curse? With Ezra’s help, Hester investigates her family’s strange, sad history. The answers she seeks are waiting in the graveyard, the crypt, and at the bottom of the ocean—but powerful forces will do anything to keep her from uncovering her connection to Syrenka and to the tragedy of so long ago.

There will be a launch party at 57th street books in Chicago, Tues. Sept. 4, at 6 PM. A second larger coming out will happen at the Plimoth Plantation, Plymouth MA (the book is set in Plymouth, and partly on the plantation) Sept. 7, at 5 pm, information here.

Then Beth will be off on Macmillan's Fierce Reads Tour with three other YA authors.
  • September 18: Changing Hands Bookstore, Pheonix
  • September 19: Tattered Cover, Denver
  • September 20: Left Bank Books, St. Louis
  • September 21: Joseph-Beth Booksellers, Cincinatti
  • September 22: Next Chapter Bookshop, Milwaukee
  • September 23: Malaprop’s Bookstore, Asheville 
For a taste of Beth's mermaid lore, try the extra short story "Men Who Wish to Drown" on, (cover art to the left).

Monstrous beauty at Amazon and the publisher's website 
Visit Beth at her blog and on Twitter

(My plot suggestion, "Syrenka, Libertarian Mermaid" went nowhere. I guess I'd better keep my day job!)