Comments on economics, mystery fiction, drama, and art.

Tuesday, September 21, 2010

And so the recession ended 15 months ago...

The Business Cycle Dating Committee of the National Bureau of Economic Research announced yesterday that the recession officially ended in June 2009. Can we say anything interesting or useful about that? Not much.

First, what does the announcement mean? Just the the economy bottomed out in June 2009, not that we have had a strong recovery or are even close to where we were before the recession began (December 2007). Total output (Gross Domestic Product) and employment both remain well below the levels they had reache dby the end of 2007. And the unemployment rate remains stubbonrly high.

Second, was this a surprise? Not really. Almost everyone I know, or whose work I know and read, had concluded some time ago that June 2009 was the likely date of the trough of the recession. So in a real sense, this isn't really "news."

Third, what does it tell us about the next 6 to 12 months? Next to nothing. The NBER gave us a little history yesterday, not a forecast.

So everyone should calm down, and take a deep breath. The NBER's announcement is something we could have expected, it does not tell us all is well, and it makes no statement about what to expect.

Wednesday, September 15, 2010

The economics major where I currently teach

Truthfully, it's moribund.

Truthfully, we do not have enough faculty to staff a minimally acceptable economics major.

Here's the situation. We have three full-time economics faculty, teaching 6 courses per year (I ignore summer sessions for the moment); hiring part-time faculty in economics has proved difficult-to-impossible in the recent past. Here are the demands on us:
  1. 10 sections of intro econ per year (required for business majors).
  2. 4 sections of a freshman-level econ history class (newly required for business majors).
  3. 4 sections of statistics per year (required for business majors).
  4. 3 courses in the MBA program per year.

That adds up to 21 of the 18 sections that the three of us teach. Clearly, unless something gives, our ability to offer an appropriate slate of upper-level economics courses [1 section each of intermediate micro and intermediate macro per year; 1 section of money and banking per year (which we generally already do, as business students concentrating in finance tend to take it in fairly large numbers); selections from labor, environmental economics, international/trade/international finance] is, essentially, non-existent. (What usually gives is that some of the stat classes are taught by non-economists right now, but that's still not enough to allow us to teach anything like a reasonable selection of courses--take all the stat classes away, including the MBA stat class, and we still have 16 other courses we're responsible for.)

Or we could hire a fourth economist. Anyone want to guess how likely that is?

So we should probably put the econ major on hiatus. Or find some way to get the courses taught that need to be taught using non-local resources (e.g., on-line offerings from other institutions?). I certainly cannot, with a straight face, encourage anyone to major in economics here.


Monday, September 13, 2010

The present is not like my past

I read today two rants about the state of the university (specifically, but not exclusively, in the US).

One ("In Defence of the Ancien Regime"), at the blog Organizations and Markets, argues that declining standards in universities and a move away from "total...dedicat[ion] basic research" has "...very likely led to a dumbing down of the curriculum in many disciplines and a fall in the requirements for entry."

The other ("Declining By Degree: Will America's universities go the way of its car companies?"), in Schumpeter's blog in The Economist, argues that the problem is, rather, a consequence of spiraling costs (occasioned in part by the construction of luxury dorms and other non-academic facilities), professors who do not teach (spending their time in research), and exploding administrative costs.

Hard to believe that both these crtiques could be true simultaneously. But there they are.

As I've thought about it, I've sort of come to the conclusion that both of these critiques are manifestations of what I think of as "the present is not like my past" syndrome.

Take the O&M blog post. It makes reference to comments by two academics, one written by an emeritus professor of economics at UCLA, the other written by a professor of mathematics at Humboldt University (Germany). Both are probably in their 70s.

Their world has changed dramatically. When they began teaching, universities in the US, and this would have been even more characteristic of German universities, were populated largely by middle-class and upper-middle class, white students. The dominant culture on the campuses reflected the culture of the faculty quite accurately. That is no longer true.

I've also lived through much of that transition, but, for me, it occurred much earlier in my career, and it was a transition that I supported and welcomed. I'm not sure that the generation of the faculty before me was as supportive or as welcoming.

So what I wonder is how much of the discontent one sees in these writings comes from being now in an environment that seems alien, in which the motivations (and often the behavior) of students is strange. In which their values are no longer (necessarily) assumed to be correct by their students, by their colleagues, or by the communities in which they live.

In economics, one of the consequence of the much larger enrollments, especially in introductory courses, means that your students are less likely to be economics majors, less likely to be considering going to grad school in economics. They are there to learn economics instrumentally, for some purpose other than entering the guild of the economists. I suspect that more and more of the students in introductory calculus classes are also there for reasons that are not the same as they were 40 years ago. What may look to these two men like a collapse in standards may simply be an adaptation to the goals of a new set of students, with different interests and concerns.

Is this hard to adapt to? Absolutely. Does it mean the world have been taken over by barbarians, or even that the barbarians are now at the gates and must be opposed with all our strength? I think not.

My interest in the history of higher education actually gives me some perspective here. Many orpfessors opposed the Land Grant Colleges Act (the Morrill Act), passed in 1862. They saw it as debasing the function and purposes of the university. A considerable group of faculty also opposed the GI Bill (and perhaps even more strongly that the Morrill Act was opposed--it established new universities, the gates of existing institutions were not opened to the hordes of the under-prepared).

I may be too little disturbed by the future of US higher education (and I gripe frequently about my own students), but I see no apocalypse around me. I see a world of greater opportunity and potentially greater achievements, open now to many people we would have excluded 20, 40, 60, or 100 years ago. And I think it's wonderful.

Wednesday, September 08, 2010


David Leonhardt's column in today's New York Times is extremely important reading. In essence, he argues that, if the demand for housing is income inelastic, the average price of housing has a fairly long way to fall. Housing expenditures will, in this case, tend to rise more slowly than income; with reasonably price-elastic housing supply, then, the relative price of housing will fall.

On the other hand, if the demand for housing is income-elastic, housing expenditures will tend to rise as a percentage of income. Almost any plausible model of housing supply will likely generate rising relative prices for housing.

As is so often the case, then, we come down to empirics--what are our estimates of the income elasticity of demand for housing? What I found in a quick search of the research literature (here, here, and here) suggests that most of the estimated elasticities are less than 1...suggesting that housing prices are likely to drop further.

Matt Yglesias raises an additional issue, which is that regulatory constraints matter. Regardless of the income elasticity of demand, if housing construction is constrained (minimum lot sizes, maximum density regulations) in some places, then housing prices in those places will tend to rise in relative terms.

So it might depend on where you are, as well.