Something is endogenous when you don’t know whether it’s a cause or an effect (or both). For example, lots of people note that people who go to college tend to make more money. But how much of this is because college boosts earning power, and how much is because smarter, harder-working, better-connected people tend to go to college in the first place? It’s endogenous.
.. you should ask “What about endogeneity?”
• Marginal versus average
• Present value and discounting
.. Present value means trying to figure out how much some long-term thing is worth today. To find present value, you have to use discounting, which means you have to decide how much less you value things that come far in the future. The more you want things right now, the higher your discount rate is, and the lower the present value of things like college degrees or business investments that take a long time to pay off.
• Conditional versus unconditional
.. If you lived in the Middle Ages and you made it to adulthood, you would probably live well past 35. While conditional life expectancy has increased since then, it hasn’t gone up by nearly as much as the unconditional version — reductions in infant mortality have been the biggest difference.
.. Individually, borrowing and spending money reduces your wealth. But in aggregate, debt doesn’t reduce the value of the whole world’s wealth, since one person’s debt is another person’s asset. When we consider our own lives, it makes sense to think from an individual perspective, but when we discuss government policy, it’s important to think in the aggregate.
some of the most pressing problems in big chunks of the United States may show up in economic data as low employment levels and stagnant wages but are also evident in elevated rates of depression, drug addiction and premature death. In other words, economics is only a piece of a broader, societal problem.
.. “Once economists have the ears of people in Washington, they convince them that the only questions worth asking are the questions that economists are equipped to answer,”
.. while economists tend to view a job as a straightforward exchange of labor for money, a wide body of sociological research shows how tied up work is with a sense of purpose and identity.
.. But what social values can do is say that unemployment isn’t just losing wages, it’s losing dignity and self-respect and a feeling of usefulness and all the things that make human beings happy and able to function.”
.. in the United States, his subjects viewed their ability to land a job as a personal reflection of their self-worth rather than as an arbitrary matter. They therefore took rejection hard, blaming themselves and in many cases giving up looking for work. In contrast, in Israel similar unemployed workers viewed getting a job as more like winning a lottery, and were less discouraged by rejection.
.. the industrial economy offered blue-collar men a sense of identity and purpose that the modern service economy doesn’t.
.. “When no one asks us for advice, there’s no incentive to become a policy field,”
Academic economists have received a demotion. The Trump administration has been filling out its cabinet and, unlike in the Obama administration, the chairman of the Council of Economic Advisers will not be part of it.
.. Instead, they arise from a belief that this move will rob the policy-making process of a particular kind of expertise and, worse, contribute to insularity and bias.
.. But don’t confuse business acumen with economic analytics. You surely wouldn’t conflate the two in one direction: Would you ask an academic economist without business experience to run a company?
.. What would the reduced job opportunities do to people who have made the military their profession? What would happen to the economies of the towns that surround Army bases? What would the fiscal consequences be, such as the cost of early retirement or severance packages that might need to be paid as part of a downsizing?
.. Critics of Mr. Feldstein complained. Lawrence A. Kudlow, who had been chief economist of Office of Management and Budget earlier in the Reagan administration, said of Mr. Feldstein: “There’s always been the suspicion that he’s playing to Harvard, the Charles River crowd, that he’s more interested in protecting his academic integrity than the president’s programs.”
Yes, academics fret about what their peers think, just as other people do. In this case, it’s a good thing. It is important to have someone in the cabinet who is more interested in protecting academic integrity than in protecting business interests or the president’s image.
at the annual conference of economists last weekend in Chicago, the major theme was a sense of anxiety about the incoming Trump administration. This foreboding was evident in roughly equal measure among conservative and liberal economists. But it is in direct contrast with the feelings of small-business owners and Wall Street traders.
.. And partly this reflects Mr. Trump’s appointments. Few of his key economic advisers have any economics training, and the only official who identifies as an economist — Peter Navarro, who earned a Harvard Ph.D. in economics and will head up the newly formed National Trade Council — stands so far outside the mainstream that he endorses few of the key tenets of the profession.
.. Over three days of intense discussions, I didn’t encounter a single economist who expressed optimism that Mr. Trump’s administration would be good for the economy. The optimists were those who thought Mr. Trump would not have the energy to actually implement his agenda; the pessimists’ thoughts veered toward disaster.
.. It also puts economists at odds with the judgments of small-business owners.
.. One possibility is that Mr. Trump remains something of an unknown, and each group is filling in the blanks differently. Small businesses, pleased to see a businessman in the White House, might be tempted to believe the best.
.. Mr. Trump’s anti-regulatory zeal may help businesses but hurt workers; his anti-trade agenda could help sellers but hurt buyers; and his instincts to protect existing jobs may advantage existing businesses at the expense of the next generation of entrepreneurs.
.. Or perhaps the optimism of small-business owners is about what they think is most likely to happen, particularly in the short run. My conversations with economists revealed them to be more focused on the long run, particularly on the risk of really bad outcomes. By this view, the short-term optimism may be well placed, but should be juxtaposed with the possibility of a trade war, a catastrophic economic decision like defaulting on the national debt or a foreign policy disaster.
.. Mr. Trump’s populist pose assigns less value to economic expertise, while also creating the conditions under which it’s most likely to be needed.