Shiller's Prognosis

Yale economist Bob Shiller says, correctly, that macroeconomists should be humble.

Happy Pi Day!

Fun fact of the day: MIT releases its undergraduate admission decisions at 1:59 pm today.  (That is, at 3.14159).

Choosing a Graduate Program

Now is the time of year when prospective PhD students in economics are deciding which graduate program to attend.  The decision is often hard.  If you are in that position, here are a few recommendations about things to think about:

1. Start with the rankings.  For some recent rankings of economics departments, click here and here and here.  All ranking systems are imperfect, but other things equal, higher is probably better.

2. Talk with the graduate students who are now in the programs you are considering.  Are they happy?

3. Don't make a decision based on a single faculty member.  He or she may leave or turn out to be not quite as wonderful as you now presume.  Look for a department that is strong overall.

4. Don't presume you know your specific research interests and focus just on faculty in that narrow area.  Many students change their mind over their first few years of grad school.

5. Is the location of the school a fun place to live?  Grad school is a long haul, typically 4 to 6 years, which is a significant fraction of your life.  Being a PhD student is hard work, but it should not be a miserable existence.

6. Is the university overall a good place?  It is always more fun being part of a great institution.  Even if the economics department is perfect, if it is an island in a sea of mediocrity, being there will be less satisfying.

7. Are the undergraduates there good students?  At some point as a graduate student, you will (and should) do some teaching, perhaps as a teaching assistant in an undergraduate course.  If the undergraduates are an academically strong group, they will be more intellectually engaged and more rewarding to teach.

8. Don't be distressed if you did not get into your top choice.  What you do in graduate school (or college) is far more important than where you go.  Your personal drive matters more than the ranking of the school you attend.

Update: Readers suggest an additional criterion:

9. Look at the record of recent PhD students.  What fraction who start the program complete a PhD?  What kinds of jobs do they get upon completion?  Are they the kinds of jobs you aspire to?  The placement record will give you an indication of the caliber of students who enter the program, the value-added of the program itself, and how well the department sells its students on the job market.

NPR disses the Pigou Club

It is a rare opportunity when I find myself to the left of National Public Radio.  But sometimes it happens.

A blog reader alerts me to this NPR story, which says:

economists frown on what they call "Pigovian taxes," which are designed not only to raise revenue but put to governments in the position of trying to influence how people shop or behave.

I don't think economists are unanimous about this issue, but I believe most economists favor Pigovian taxes.

Moreover, the NPR story confuses Pigovian taxes with sin taxes.  Pigovian taxes try to correct for negative externalities--that is, the adverse effects of certain behavior on bystanders.  Sin taxes try to correct for behavior that some social planner deems as not sufficiently virtuous.

Click here for previous blog post on sin taxes.

My Visit to Oberlin

I will be talking at Oberlin College tomorrow evening.

The Problem with Deficit Neutrality

Imagine you have a friend who has a budget problem.  Every month he spends more than he earns.  His credit card bills are piling up.  He is clearly on an unsustainable path.  Then one day he comes to you with an idea.

Friend: I am going to take off a few days from work and fly down to Bermuda for a quick vacation.

You: But isn't that expensive?  Won't that just add to your growing debts?

Friend: Yes, it is expensive.  But my plan is deficit-neutral.  I have decided to give up that half-caf, extra-shot caramel macchiato I order at Starbucks twice every day.  I really don't need that expensive drink.  And if I give it up for the next three years, it will pay for my Bermuda trip.

You: Well, then, how are you going to solve the problem of your growing debts?

Friend: I am going to figure that out as soon as I return from Bermuda.

You: But in light of your budget problem, maybe you should give up Starbucks and skip the Bermuda vacation.  Giving up Starbucks could be the easiest way to start balancing your budget.

Friend: You really aren't any fun, are you?

This conversation is meant to illustrate why claims of deficit-neutrality in the healthcare reform bill should not give much comfort to those worried about the U.S. fiscal situation.  Even if you believe that the spending cuts and tax increases in the bill make it deficit-neutral, the legislation will still make solving the problem of the fiscal imbalance harder, because it will use up some of the easier ways to close the shortfall.  The remaining options will be less attractive, making the eventual fiscal adjustment more painful.

A Life in Finance

The great financial economist Eugene Fama offers a retrospective.