Minneapolis Federal Reserve

The Federal Reserve Bank of Minneapolis said Narayana Kocherlakota will succeed Gary Stern as the bank’s president and chief executive.

Kocherlakota is currently a professor of economics at the University of Minnesota, and has worked as a consultant for the Minneapolis Fed. Kocherlakota entered Princeton University at age 15 and he received his Ph.D. in economics from the University of Chicago in 1987 on the topic of pricing financial assets, incorporating new kinds of consumer preferences and analyzing how risky payoffs influence attitudes.

He has big shoes to fill, succeeding Stern, the Fed’s resident expert on the too-big-to-fail problem. Stern literally wrote the book on the issue. He retired from the Minneapolis Fed on Sept. 1.

Kocherlakota begins his new job Oct. 8.

Here is the story source.

Alchian on Golf, Capitalism and Socialism

I recently happened upon a great essay by Armen Alchian on Golf, Capitalism, and Socialism. The piece was written in 1977 so you will find references to the communist bloc that may seem out of place.

A puzzle has been solved. Despite their intense interest in sports, no golf courses exist in the Socialist-Communist bloc. Why is golf solely in capitalist societies? Because it is not merely a sport. It is an activity, a lifestyle, a behavior, a manifestation of the essential human spirit. Golf’s ethic, principles, rules and procedures of play are totally capitalistic. They are antithetical to socialism. Golf requires self-reliance, independence, responsibility, integrity and trust. No extenuation is granted misfortune, mistake or incompetence. No second change. Like life, it is often unfair and unjust, with uninsurable risks. More than any other sport, golf exploits the whole capitalist spirit.

Here is the whole essay, its worth a read.

Back from the Brink

Christina Romer, the current chair of the Council of Economic Advisers, concludes her paper Back from the Brink this way:

There is no question that the economic crisis that began in earnest last fall has been unlike any since the Great Depression. As I have described today, the key reason that we begin this fall with a sense of hope rather than dread of a second Great Depression is because the policy response in 2008 and 2009 has been fast, bold, and effective.

But, now is not the time for a victory lap. To turn that sense of hope into reality for the millions of Americans without a job will require continued vigilance and the courage to stick with programs that are working until their work is truly done. And, to turn the pain of the last year into more than just a bad memory, we have to use it to spur fundamental improvements in our regulatory structure. Only by building a new regulatory framework for the twenty-first century can we help ensure that our children and grandchildren will not have to walk their economies back from the brink, as we have had to do this past frightful year.

Economic Myth Busters - Immigration

Minneapolis Federal Reserve economist Toby Madden turns his myth busters series toward the issue of immigration. Click here to read the article.

You often hear this myth: "Immigration is bad for native-born workers”

Madden responds: "...this myth stems from the idea that the number of jobs in America is fixed, and every job taken by an immigrant reduces the total number of available jobs, always to the detriment of native-born workers. This overlooks some valuable economic contributions from immigration on both the supply of and demand for labor.

That’s not to say immigration has no downside. Setting aside the controversy of legal versus illegal immigration, both economic theory and practical evidence suggest that immigration does affect native-born workers. When an individual immigrates to the United States, native-born workers face additional competition for available jobs and may find it harder to get a job. The increase in regional labor may also drive wages down by a marginal amount.

Most immigrants take low-skill jobs; thus, the burden of displacement and lower wages falls disproportionately on low-skilled, minimally educated workers. However, most economists find very modest impacts on wage levels: A 2008 National Bureau of Economic Research study estimated that the positive immigration effect on wages of U.S.-born workers with at least a high school degree offsets the small negative effect on wages of U.S.-born workers with no high school degree.

Economists also see supply-side benefits from immigration. For starters, increased labor competition, and any dampening effects on compensation, helps employers spend less time and money filling labor needs. Increased labor competition also provides incentives for native-born workers to improve their skills through additional education or other training. Such an outcome is good for native workers, who should see their wages increase, as well as employers, who benefit from a higher-skilled workforce.

Equally important, and often overlooked by opponents in this debate, are the positive, demand-side effects of immigration. Immigrants spend money on food, shelter, and other goods and services. This spending raises the overall level of economic activity in the community, leading employers to create more jobs in response to increased demand. There is some empirical evidence that immigrants create more jobs than they fill—thereby increasing overall employment.

Meanwhile, changes stemming from increased demand accrue to a wide swath of participants in the economy. In 1997 the National Research Council estimated that immigrant labor conferred net benefits of anywhere from $1 billion to $10 billion per year on the native-born population. Immigrant workers contribute taxes to governments at all levels. Studies suggest that the majority of foreign-born laborers will generate more in tax revenue than they generate in public costs through the use of social programs.

Part of the net public benefit stems from more taxpayers shouldering the cost of government, whether it be for interest payments on national debt or for public goods and services; without immigrants, who generate most of the population growth in the United States today, costs per taxpayer would be higher. However, costs may be concentrated in the short run and borne by specific local governments. For example, education expenses are shouldered by local school districts with high numbers of immigrants, while benefits (including returns from that education) are often more dispersed over time and geography."

Larry Summers on Keynes, Smith, and Schumpeter

Larry Summers takes to the White House blog to tout the administration’s economic policies.

“During the past two years, the ideas propounded by John Maynard Keynes have assumed greater importance than most people would have thought in the previous generation. As Keynes famously observed, during those rare times of deep financial and economic crisis, when the “invisible hand” Adam Smith talked about has temporarily ceased to function, there is a more urgent need for government to play an active role in restoring markets to their healthy function. The wisdom of Keynesian policies has been confirmed by the performance of the economy over the past year. After the collapse of Lehman Brothers last September, government policy moved in a strongly activist direction. As a result of those policies, our outlook today has shifted from rescue to recovery, from worrying about the very real prospect of depression to thinking about what kind of an expansion we want to have. An important aspect of any economic expansion is the role innovation plays as an engine of economic growth. In this regard, the most important economist of the twenty-first century might actually turn out to be not Smith or Keynes, but Joseph Schumpeter. One of Schumpeter’s most important contributions was the emphasis he placed on the tremendous power of innovation and entrepreneurial initiative to drive growth through a process he famously characterized as “creative destruction.” His work captured not only an economic truth, but also the particular source of America’s strength and dynamism.”

Scarcity of Healthcare Resources

The healthcare debate has so many angles and issues that it is difficult to grasp. I have recently been reading Easterly's The White Man's Burden about economic development. I have been thinking that the current debate has been dominated by those that Easterly calls planners and not the searches. In this case, planners fail because they lack the information necessary to reform an industry as large and as important as healthcare.

Mankiw has been thinking about healthcare too. Click here to see his NYT article.

Protectionism Revisited

A classic tit-for-tat trade situation seems to be developing. Lets hope the Obama administration decides to re-embrace free trade. For an update click here.

President Obama approved the tariffs Friday to slow the rapid growth of U.S. imports of Chinese-made tires that have been blamed for the loss of thousands of American jobs. That drew an accusation of trade protectionism from Beijing.

Yao's statement called on other governments to oppose protectionism.

The White House says Obama acted under a provision in the U.S.-Chinese agreement on Beijing's WTO membership that allows Washington to slow the rise of Chinese imports to allow American industry to adjust.

Obama's order Friday raised tariffs for three years on Chinese tires — by 35% the first year, 30% the second and 25% the third.