Why Nations Fail
One of the great experiences of my stint in grad school was taking Advanced Macro classes from a fellow who at the time was regarded as a promising young professor at MIT – Daron Acemoglu. It was well worth making the bike trip from Harvard, down Mass. Ave., to learn from him. He is surely the most productive economist alive. And his frequent collaborator Jim Robinson may just be the most interesting political scientist. Their joint research program — figuring out what works and what doesn’t in economic development — involves asking some of the most important questions any social scientist can ask. Read More »
Happy Valentine’s Day: Economist Edition
You might think that the dismal science has very little to offer on matters of the heart. But I disagree. And so does Elisabeth Fosslien. She’s a brilliant young analyst interested in design, math, and economics. Yes, she’s the sort of person who dressed up as a bear market for Halloween. All this makes her the perfect person for economics-themed data visualization. And so when #FedValentines lit up Twitter last week, she decided to go a step further, and provide the perfect valentine for the economist in your life. Make your selection, below: Read More »
It’s the Economy, Honey
Yesterday’s NY Times contained a very flattering (and quite personal!) profile of Betsey Stevenson and me. For me, it was all worth it just to get a great family portrait. (Have you ever tried to get a dog and a toddler to look at the camera at the same time?)
I don’t really have a lot to add, other than to say that I thought the author, Motoko Rich, did a fabulous job. Hopefully it gives folks outside the ivory tower some sense of just what it is that animates the lives of economists. And yes, I admit that reading it, you’ll quickly conclude both that we are passionate about economics, and that we fit the usual stereotypes about academics. And if the article makes it sound like we are crazy about our kid, that’s because we are. Read More »
What Does Your Fed Valentine Say?
One of the most wonderful things about Twitter is the spontaneous conversations that start around almost anything. And so, inspired by the hilarious #HealthPolicyValentines, I began a new hashtag on Twitter this morning: #FedValentines. Folks are tweeting all sorts of Fed-themed valentine’s wishes. As I write, it’s the second-top trending hashtag in the U.S.
Given that it’s Friday, I figured it worth sharing the fun. Here’s what I came up with: Read More »
The Politics of Political Prediction Markets
For years, I have argued that the best way to track what really matters through election season is to follow the political prediction markets. The one difficulty is that these markets aren’t really available to the general public. Sure, the University of Iowa runs a market, but because it’s for research purposes, the maximum bet is set at only $500. And while I track InTrade closely, they’re based in Ireland, and are frowned upon by American regulators. Likewise, Betfair won’t deal with American customers. But all that may be about to change. Read More »
Economics and Open Marriage
I have to admit that it counts as one of the more bizarre requests of my scholarly life. After all, I’m just a straight-laced economist. But in light of the Gingrich affair — (which one? the one involving his wife’s accusation that he asked for an open marriage) — the New York Times Room for Debate section asked Betsey Stevenson and me to give an economist’s perspective on open marriage. Read More »
Operation Twist 101
Given the confusion about Operation Twist, here’s an explanation.
What is Operation Twist? Basically the Fed can’t reduce short-term interest rates any further—they’re already at zero. So they want to reduce long-term interest rates instead. They do this by buying long-term bonds. When you buy more of something, you raise the price. And when you raise the price of a bond, you lower the interest rate. So what the Fed is doing, is lowering long-term interest rates.
How does the Fed pay for these bonds? With QE1 and QE2, the Fed effectively just printed the money. (They “expanded their balanced sheet.”) Instead, they are selling short-term bonds, and using the proceeds to buy the long-term bonds. Now selling a bunch of short-term bonds will—usually—lower their price, raising short-term interest rates. That’s why people call this “Operation Twist”—it should “twist” the yield curve—lowering long-term interest rates (which is what matters when you buy a house, or when a firm borrows to buy new machinery), but it also raises short-term interest rates.
Raising short-term interest rates is a bug, not a feature. But fortunately, this time, the effect on short-term interest rates will be small. Why? The Fed has already committed to keeping short-term interest rates near zero for the next couple of years. And so given this commitment, the 2-year bond will also be close to zero. Read More »
and 
. You can also watch it on 