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Volume 18, Number 2, Spring 2004
Lecture
Distinguished Lecture on Economics in Government: Lessons from Past Productivity Booms by Roger W. Ferguson Jr. and William L. Wascher
A number of observers argue that the present era of robust trend productivity growth will soon come to an end. Others contend that the potential gains to productivity from the technological advances associated with the computer revolution are far from complete. In assessing the likelihood of these alternative outcomes, one should recognize that periods of strong trend productivity growth, although perhaps novel to many of us, are not new to the U.S. economy. In particular, three earlier periods of strong trend productivity growth stand out from the historical record as especially worthy of further scrutiny for the lessons they may offer regarding the current episode: the late 1800s from roughly the end of the Civil War to around 1890; the decade or so between the end of World War I and the onset of the Great Depression; and the period from about 1950 to the early 1970s.
Symposium: Consumer Confidence
Consumer Confidence and Consumer Spending by Sydney C. Ludvigson
Despite the widespread attention given to surveys of consumer confidence, the mechanisms by which household attitudes influence the real economy are less well understood. This paper begins with an overview of how consumer confidence is measured and reported. It then evaluates the relationship between consumer attitudes and the real economy. The evidence suggests that popular survey measures contain some information about future aggregate consumer expenditure growth. However, much of that information is found in other economic and financial indicators, and the independent information provided by consumer confidence predicts a relatively modest amount of additional variation in future consumer spending.
How Should We Measure Consumer Confidence? by Jeff Dominitz and Charles F. Manski
Research on consumer confidence has mainly sought to evaluate the power of available data to predict economic outcomes. In contrast, this article considers how best to measure consumer confidence. We analyze the responses to eight questions that have appeared recently on the Michigan Survey of Consumers; four elicit expectations in the traditional qualitative manner and four use a newer "percent chance" format. Examination of the responses suggests three implications. It makes more sense to ask for expectations of events directly relevant to individual economic decisions than for predictions of general business conditions. Surveys should shift away from qualitative questions in favor of ones eliciting subjective probability judgments. While aggregating responses into an index of consumer confidence may provide simple summary statistics, results should also be presented on a question-by-question basis for different subgroups of the population.
Symposium: Latin America's Growth Record
Latin America's Growth and Equity Frustrations During Structural Reforms by José Antonio Ocampo
This paper argues that Latin America's market-oriented reforms, together with increased monetary and fiscal discipline, were successful in bringing down inflation, inducing export growth and diversification, and attracting foreign direct investment. Nonetheless, economic growth was frustratingly slow. Pro-cyclical macroeconomic policies generated, in turn, strong business cycles in the face of unstable access to international capital markets. Higher productivity in leading firms and sectors failed to spread throughout the economy and led to increasing productive sector dualism. Furthermore, despite the democratic dividend reflected in increased social spending and coverage of social services, weak economic performance and additional distributive tensions led to disappointing results in terms of employment generation and poverty reduction. Overcoming these frustrating outcomes would require counter-cyclical macroeconomic policies, open-economy productive development strategies and mainstreaming social objectives into economic policies.
Latin America since the 1990s: Rising from the Sickbed? by Arminio Fraga
The first section of this paper compares Latin America's economic performance in the 1990s with the 1980s and finds definite macroeconomic and social progress during the decade. The following section considers the policy performance of the region during the 1990s and finds that, on a country-by-country basis, the nations of Latin America that were more active in carrying out Washington Consensus reforms also experienced better economic performance. The final section will argue that rather than seeking to reverse the economic reforms that have been carried out, Latin American nations should be thinking about how to extend and complement the existing reforms.
Symposium: Event Markets
Prediction Markets by Justin Wolfers and Eric Zitzewitz
We analyze the extent to which simple markets can be used to aggregate disperse information into efficient forecasts of uncertain future events. Drawing together data from a range of prediction contexts, we show that market-generated forecasts are typically fairly accurate, and that they outperform most moderately sophisticated benchmarks. Carefully designed contracts can yield insight into the market's expectations about probabilities, means and medians, and also uncertainty about these parameters. Moreover, conditional markets can effectively reveal the market's beliefs about regression coefficients, although we still have the usual problem of disentangling correlation from causation. We discuss a number of market design issues and highlight domains in which prediction markets are most likely to be useful.
Historical Presidential Betting Markets by Paul W. Rhode and Koleman S. Strumpf
This paper analyzes the large and often well-organized markets for betting on U.S. presidential elections that operated between 1868 and 1940. Four main points are addressed. First, we show that the market did a remarkable job forecasting elections in an era before scientific polling. Second, the market was fairly efficient, despite the limited information of participants and active attempts to manipulate the odds. Third, we argue political betting markets disappeared largely because of the rise of scientific polls and the increasing availability of other forms of gambling. Finally, we discuss lessons this experience provides for the present.
Articles
Making a Name: Women's Surnames at Marriage and Beyond by Claudia Goldin and Maria Shim
This paper tracks the fraction of college graduate women who kept their surnames upon marriage and after childbirth and explores some of the correlates of surname retention. Data from the New York Times, Harvard College alumni books, and Massachusetts birth records are used. Surname retention at marriage greatly increased from 1975 to about 1985 although Massachusetts birth records and the Harvard data show a decrease in the fraction keeping their surnames beginning around the early 1990s. The observable characteristics of importance in surname retention are those revealing that the bride has already "made a name" for herself.
Manager-Investor Conflicts in Mutual Funds by Paul G. Mahoney
Half of all of U.S. households own shares in one or more mutual funds, either directly or through personal or employer-sponsored retirement accounts. This article describes the structure and regulation of mutual funds and the resulting incentives facing those who make decisions for the funds. After providing some basic institutional details, it focuses on the cash flows from mutual fund investors to fund managers, brokers, and other third parties and the associated conflicts of interest. The article concludes with a summary of recent legal proceedings against mutual fund managers and brokers based on improper trading practices and regulatory proposals to curb those practices.
Asbestos and the Future of Mass Torts by Michelle J. White
Asbestos was once referred to as a 'miracle mineral' for its ability to withstand heat and it was used in thousands of products. But exposure to asbestos causes cancer and other diseases. As of the beginning of 2001, 600,000 individuals had filed lawsuits for asbestos-related diseases against more than 6,000 defendants. 85 firms have filed for bankruptcy due to asbestos liabilities and several insurers have failed or are in financial distress. More than $54 billion has been spent on the litigation - higher than any other mass tort. Estimates of the eventual cost of asbestos litigation range from $200 to $265 billion. The paper examines the history of asbestos regulation and asbestos liability and argues that it was liability rather than regulation that eventually caused producers to eliminate asbestos from most products by the late 1970s. But despite the disappearance of asbestos products from the marketplace, asbestos litigation continued to grow. Plaintiffs' lawyers used forum-shopping to select the most favorable state courts techniques for mass processing of claims, and substituted new defendants when old ones went bankrupt. Because representing asbestos victims was extremely profitable, lawyers had an incentive to seek out large numbers of additional plaintiffs, including many claimants who were not harmed by asbestos exposure. The paper contrasts asbestos litigation to other mass torts involving personal injury and concludes that asbestos was unique in a number of ways, so that future mass torts are unlikely to be as big. However new legal innovations developed for asbestos are likely to make future mass torts larger and more expensive. I explore two mechanisms - bankruptcies and class action settlements - that the legal system has developed to resolve mass torts and show that neither has worked for asbestos litigation. The first, bankruptcy by individual asbestos defendants, exacerbates the litigation by spreading it to non-bankrupt defendants. The second, a class action settlement, is impractical for asbestos litigation because of the large number of defendants. As a result, Congressional legislation is needed and the paper discusses the compensation fund approach that Congress is currently considering.
State Budget Deficit Dynamics and the California Debacle by Steven M. Sheffrin
This paper analyzes the recent experience with state budget deficits in the United States, with an in-depth analysis of the California experience. Compared to prior recessions, states were slower to make adjustments in taxes and spending this time. The paper explores a variety of reasons for this difference including changes in the legal, political, and institutional environments, the unusual increase in capital gains revenue during the boom preceding the recession, and the inherent difficulties in forecasting revenues, particularly those derived from capital income. As the case study from California illustrates, states made long term commitments from temporary revenue sources and were required to make budgetary decisions in the face of very incomplete information about current and projected tax receipts.
Prospects in the Academic Labor Market for Economists by Ronald G. Ehrenberg
This paper discussed what the academic labor market for economists is likely to look like in the years ahead. After tracing out trends in PhD production of new economists, including the increasing share of new PhDs who are foreign residents, it presents new evidence on the growing use of part-time and full-time non tenure-track faculty in U.S. economics departments, the growing salary differentials between economists employed at private and public doctoral universities, and how economists' salaries have changed relative to those of faculty in other disciplines.
Policy Watch: Trade Adjustment Assistance by Katherine Baicker and M. Marit Rehavi
The Trade Adjustment Assistance Reform Act of 2002 profoundly changed the nature and scope of U.S. policy for addressing dislocations of workers caused by trade. Although the program covers only a small (and peculiarly selected) fraction of the unemployed, these changes affect the incentives faced by many workers and may have far-reaching consequences in health and labor markets.
Retrospectives: How Joan Robinson and B. L. Hallward Named Monopsony by Robert J. Thornton
The term "monopsony" was introduced by Joan Robinson in her 1932 classic The Economics of Imperfect Competition, although she gives credit to classics scholar B.L. Hallward of Cambridge for the actual coining of the term. Even though the term has become widely accepted by economists, its literal meaning is more idiosyncratic than simply "one buyer" of a commodity or service. In this paper I discuss the etymology of the term monopsony and suggest several other words that would seem to be more appropriate for describing this market phenomenon.
Features
Recommendations for Further Reading
Comments
Notes