Joel Kotkin cannot find evidence of a "Back to the City" movement

He puts together a table of suburban and core urban growth based on 2000 and 2010 census data.

MSA                   Core Growth                         Suburban Growth                             Total Growth

Austin	20.4%	56.1%	37.3%
Baltimore	-4.6%	9.9%	6.2%
Chicago	-6.9%	9.0%	3.9%
Dallas-Fort Worth	0.8%	30.2%	23.4%
Houston	7.5%	39.3%	26.1%
Indianapolis	5.0%	28.3%	15.2%
San Antonio	16.0%	43.7%	25.2%
Washington	5.2%	16.8%	15.4%
Total	3.2%	21.7%	15.7%

These are places for which the Census had released data by mid-February. Some of the places for which data has been released since then--St. Louis, Las Vegas and Birmingham--have the same pattern: in all cases suburban growth has outpaced central city growth. St. Louis' population has dropped to its lowest level since 1870.

The results seem particularly surprising for Chicago and Washington, which have had successful redevelopment in their urban cores. But redevelopment can actually reduce density. Gentrification often means that wealthy households rehabilitate mult-family properties into single family homes. This can lead to an increase in wealth in cities, but does not necessary translate into a relative increase in population.

I have long rooted for cities (although I confess that I myself live in an "urban" suburb). But facts are facts, and the facts from the 2010 census at this point do not support the idea of a reversal from suburbanization to urbanization.

From my daughter's blog: Hannah in Paris: Politics or nostalgia? » North by Northwestern

Hannah in Paris: Politics or nostalgia? » North by Northwestern

Property rights and time

When I moved to LA a bit more than two years ago, I bought a dryer.  Last week, the heating element went out.  The good news is that the dryer is still under warranty.  The bad news is that when the repair guy came to my house, he didn't have the part to fix it.  As I result, someone needs to be home a second time for the machine to get repaired.

The store from which I bought the dryer will only tell you what day they will come to do repairs--they won't give you a window of time for the day until the night before.  Consequently, to get a dryer that is under warranty repaired, one might well be required to give up two days. 

Because professors have a lot of flexibility in their jobs, this is not a huge deal for me.  For my wife, however, who is a phycician, this would be a big deal.  It would also be a big deal for any production or service worker who has little to no control over hours worked. 

The appliance store that sold and will repair the dryer has essetially asserted a property right to its customers' time--it is imposing costs that it is not forced to bear.  I am not sure whether it is true that this is happening over larger and larger swaths of the economy, but it sure seems so.  For instance, sometimes when I want to change a plane ticket, I am not allowed to do so on the web.  When I call the airline's number, I am sometimes required to wait on hold for a long time before I can talk to someone.  Now it is possible that the time saved on the web when I use it and the lower cost of airfare makes up for the cost of the dreadful phone service, but I am not sure.

Ryan Avent on Density and Skyscrapers

He writes:

This comparison encourages a lot of people (not necessarily Richard Green) to decide that we don’t need skyscrapers. Defenders of the Washington height limit often fall into this category. But there are two points worth making in response to this. One is that it would be harder to build Paris in America than it would be to build Manhattan. Paris’ tiny streets are more hostile to the automobile than anything in the US, including Manhattan. And Paris has relatively tall buildings over a vast area; it’s easier for me to imagine Washingtonians tolerating 30-story buildings downtown than 10-story buildings in a central neighborhood like Brookland. If you need 10-story buildings in every little Brookland-like neighborhood to generate the same density you achieve with 30-story buildings in a central business district, then you can basically forget about generating high densities in American cities. The NIMBYs are just too strong.


The second point is that Glaeser isn’t directing people to go out and build skyscrapers. He’s not a planner. He’s merely saying that, yes, allowing developers to meet demand with supply will often yield tall buildings, and that’s a good thing. It will increase densities relative to the alternative, supply-limited case, and it will improve affordability relative to the alternative, supply-limited case. People who read Glaeser lauding density and who go on to tout the advantages of Paris get his argument precisely backwards. Because density is good, it’s costly — in terms of the metropolitan economy and affordability — to adopt Parisian limits on growth. Unless your city is one of the architectural jewels of the modern world, and if you live in America it isn’t, you should work very hard to avoid such constraints.

I think the comment about Brookland is very much on point.  At the same time, I can't help but wonder if Washington would be a more attractive and affordable city if it allowed a bunch of six floor buildings almost anywhere, instead of skyscrapers in certain districts.  BTW, I think Washington is close to being one of the architectural jewels of the modern world--its vistas are among its best features.

But now let us consider Los Angeles, another expensive city that has relatively few skyscrapers. Because of regulations arising from seismic concerns, it is very expensive to build steel-framed glass-curtainwall buildings here.   At the same time, while land is expensive in LA, it is nowhere near as expensive as Manhattan.  The combination of high construction costs and (lower) land costs leaves me skeptical about whether high-rise buildings could be economically feasible here.

On the other hand, we should use our land more densely and efficiently here.  Lots of four-to-six story buildings would help.  Maybe narrowing some minor street would help--particularly in the San Fernando Valley and Orange County.

As I said in my original post, high rises are almost certainly the right hammer for very large cities, such as Mumbai, Cairo, Mexico City and Sao [Paulo].  Singapore and Hong Kong have proved that cities that rely on the skyscraper can be beautiful and livable (although affordable is actually still an issue in those places).  But not every city is a nail.

Are Skyscrapers Necessary for Density?

I just read Ed Glaeser's Atlantic piece on skyscrapers (which is excerpted from his new book on cities that I need to read).  I agree with nearly everything he says, particularly about the need for tall buildings in Mumbai, but I also think it is worth mentioning that one can get a lot of density without a lot of skyscrapers.  The municipality of Paris has a residential density of about 54,000 people per square mile; Manhattan has a residential densisity of about 71,000 people per square mile.  Paris has about 1.7 million workers, while Manhattan has about 2.1 million workers.  Yet as Ed notes, Manhattan has lots of skyscrapers, and Paris has few, and almost none outside of Le Defense.  How is this possible?

Let's look at a Google Earth image of Paris from 50,000 feet up:

Now lets's look at Manhattan from the same height:

Notice how at this scale you can see the minor streets of Manhattan pretty clearly, but not the minor streets of Paris?  Paris actually uses its land very efficiently--it does not waste space on streets or setbacks.  As a consequence, while it can be livable (if not affordable) with 3/4 of the denisity of Manhattan and a small fraction of the number of tall buildings of Manhattan.

There is no question that Ed is correct that mega-cities such as Mumbai, Cairo, Mexico City and Sao [Paulo] require skyscrapers to house people adequately and affordably.  But as he also notes, building skyscrapers is a lot more expensive than low-rise buildings.  For many cities, more efficient land-use could go a long way toward making cities more livable, more walkable, and less expensive.

Mark Zandi and Christian DiRitis on the Moral Hazard of a Hybrid Mortgage System

I think they get it right:

One potential weakness of a hybrid system involves moral hazard: If private investors believe the government will bail them out if things go badly, they will take inappropriate risks. Such concerns were illustrated by the recent experience with the two government-sponsored mortgage finance agencies, Fannie Mae and Freddie Mac. These institutions took on too much risk, holding too little capital for the kinds of investments they held in mortgage securities. While their private shareholders were effectively wiped out, bondholders were made whole when the federal government put Fannie and Freddie into conservatorship.

Moral hazard cannot be eliminated in a hybrid model, but it can be significantly mitigated. The system we support would require enough private capital to withstand losses associated with a 25% decline in house prices. Before the crisis, Fannie's and Freddie's capital levels were designed to withstand only a 10% decline. The hybrid system's catastrophic insurance would not kick in until losses reached levels consistent with a 25% price drop, providing significant financial incentive for private investors to make sound lending decisions. 

It is also important to recognize that moral hazard exists even in a fully privatized system. Investors in such a system are likely to assume that in extreme circumstances, the government would still step in, congressional pledges to the contrary notwithstanding. Recent experience has only reinforced this belief, as the government stepped in during the financial crisis to bail out the system. In the hybrid system plan, the government's backstop is explicit and paid for by private investors. 

Mark Thoma on Social Insurance

Mark's postings are reliably good, but today's is especially good:

...There is a need for social insurance. I had hoped this recession would show people that it can happen to anyone, that high moral character is not enough to protect you from the vagaries of the market system. One day a job can be gone, morals or not, savings can evaporate as a result, and all those years of doing the right thing -- putting a little away each month for the future -- provides little protection against financial ruin when there are no jobs to be found.




Don't get me wrong. I think it's good to make people aware of the amount of government services they consume, and that such awareness could help some in getting support for social insurance and other programs. So I'm not saying that making people aware of their own use of these services has no value. But I really do think the key to more widespread support is to make people aware of the need for social insurance, and the fact that insurance -- by it's very nature -- means that those people unlucky enough to need it will often consume more than they put in (just as would be the case under fire insurance if your house burns down), while others will consume less. That's how insurance works and we shouldn't resent those unlucky enough to need it.



The key here is to overcome the belief that the majority of people using these services are "gaming" the system to get handouts they don't deserve. If we are going to successfully defend the social insurance system, it is this belief that must be countered. Of course such behavior goes on, there will always be people who try to take advantage of any system that is put in place (in the public or private sector), but this is not the predominant feature of these programs. The share of "deadbeats" is not large, it is relatively small given all the good such programs do, and that's the message that needs to be delivered. The social benefits clearly exceed the costs of providing these services, but it will be tough to make this case convincingly -- the opposition can always find isolated cases where people take advantage of the system and surround them with negative publicity. This has been a successful strategy, and it will take a concerted effort to counter overcome such efforts.

Four quick points about Fannie-Freddie Reform

(1) Why have an explicit guarantee?  If TARP should have taught us anything, it is that there are implicit guarantees everywhere; it is better to be up-front about the fact that the government does provide backstops in times of crisis.

(2) How to price the guarantee?  Mark Zandi has a good explanation.  The hard part is going to be to keep fees up in times of low defaults.  In the early part of the last decade, Fannie and Freddie were criticized for earning excess profits on their guarantee fees, for the simple reason that defaults on prime mortgages essentially didn't exist in the 1998-2005 period.  Complaining about Fannie-Freddie's g-fees at that time would be akin to complaining the State Farm enjoys excess profits when Florida goes a year without a hurricane.

(3) In the absence of government intervention in the market, the long-term fixed-rate prepayable mortgage will likely go away.  These mortgages are expensive to households, but they also provide a level of certainty that helps households manage risk.  Households are already facing more risk than before (defined benefit pensions, anyone?), so I am not sure it is a good idea to add even more.

(4) I worry about high downpayment requirements.  It is clear that households need to put some of their own money into a house for a mortgage to be safe (gifts and grants don't count).  But while the overall homeownership rate for the US is fine, the substantial gap between whites and minorities, more than 20 percentage points, is not.  Minorities have far less wealth than whites, and across the generations, have had wealth systematically expropriated; minorities have also been discriminated against by the government in credit markets.  Massey and Denton:

In rating the home, the FHA established minimum standards for lot size, setbacks and separation from existing structures that essentially eliminated many inner-city dwellings....in the late 1940s, the FHA recommended the use of application of racially restrictive covenants...per capita mortgage spending was 6.3 times greater [in St. Louis County relative to the city of St. Louis].

I suppose in light of history, direct payments to the heirs of those who have had wealth systematically stripped away makes more sense than trying to close the homeownership gap.  But the latter seems more politically doable than the former.

SIngapore Envy

Tom Friedman rhapsodizes too much about Singapore.  While it is hardly the least free society in the world, the People's Action Party for all intents and purposes has a political monopoly.  Singapore's GINI coefficient is higher than the United States for income, as is its ratio 90th percentile to 10th percentile income.

Nevertheless, every time I pass through the city-state (I just did for the third time), I am awed by its transportation infrastructure: beautifully landscaped expressways, congestion pricing for automobiles, and well-operated bus and trail transit.  Transit is very clean, fast and efficient, and runs frequently.  The trains are often crowded but somehow not too crowded.  Changi airport is a public works project of the sort that once filled American's with pride--it is to airports what Hoover Dam is to, well, dams.  Changi is also profitable.

So when I come home to Los Angeles, I find LAX to be a little embarrassing.  When I use transit from the airport, the Flyaway Bus, I find it to be unreliable and less than spotless.  The process of buying a ticket (at the end of the journey) is cumbersome.  It would be one thing if LA were unusually bad about such things for US cities, but it is not.  The fact that New York is having a hard time getting a second rail tunnel built under the Hudson also reflects America's seeming inability to provide necessary public works.

Homeownership and Social Justice

I am reading and enjoying Simon Johnson and James Kwak's 13 Bankers. Like a lot of recent stuff (including an OECD report), it takes a swipe, if a mild one, at the virtues of homeownership.   If people think homeownershipp is overrated, I can live with that (even if I disagree with it. Where I do have a problem is when people argue that government "pushes" homeownership on people, whether they really want it or not.

I am not sure that the pushing matters that much--it is entirely possible that people, for reasons beyond financial reasons, want to own houses in particular and real estate in general.  Two things stick with me:

(1) I was talking yesterday with a developer here in India who is trying to building market-rate affordable housing.  He faces a number of hurdles, one of which, he said, is "Indians' obsession with homeownership."

(2) Years ago, when I was in Madison, the guy who cut my hair loved to talk about the rental property he owned in Florida.  It would, he said, be the source of his retirement income.  I asked him why he was so undiversified--why he didn't sell his place and put the money in an index fund.  His reply was that he didn't trust Wall Street, and that he needed an investment that he could "touch" as well as control.  I told him his mistrust of Wall Street was misplaced--shows what I knew at the time.

The point is that there is something about real estate that reduces agency problems,  One may not be able to control markets, but one can control the management of real estate that one owns.  I do remember when I left the rental market for the owner market, I was very happy, not because I thought I would make out financially (house prices in Madison had been stagnant for years), but because I disliked my landlord, and was relieved that I would no longer have to write a check to him. 

This is not to say putting people in houses they cannot afford is a good idea, and I have long been dubious of very low downpayment schemes (I do think homeowners who put no equity into their houses are not really owners).  But it is a little too easy for people who own houses (or have the choice to do so) to say it is not important to make the option available to others.  Freedom to some extent means the ability to take control of one's own life, and to avoid agency issues as much as possible. 

I freely confess that this is all supposition based on informal observation.  Some work has been done on how ownership solves some agency issues, but I think it is an understudied phenomenon.  If anyone wants to help me think about how to model such things formally, I would welcome the assistance.

According to an informal vote of Indian School of Business MBAs...

...the cities with the most potential for real estate investment in India are Pune and Ahmedabad. 

How much freedom to choose?

Ed Glaeser argues that the "moral heart of economics" is "freedom" and in particular the "freedom to choose:"

Improvements in welfare occur when there are improvements in utility, and those occur only when an individual gets an option that wasn’t previously available. We typically prove that someone’s welfare has increased when the person has an increased set of choices.

When we make that assumption (which is hotly contested by some people, especially psychologists), we essentially assume that the fundamental objective of public policy is to increase freedom of choice.

I will leave it to others to dispute the notion that more choices are always better than fewer.  But I can't help but think that it is to easy for those of us who are tenured professors to extoll the virtue of free choice, for the simple reason that we get so many, well, choices.  We get to choose what we write, we to a large extent get to choose what we teach inside our classes, and we can piss our deans off and pay fairly little in the way of consequences.  We might not get a raise or we might have to teach a class that we would rather not, but this is all small beer.  We can make an awful lot of choices and still be economically secure.

Now consider the administrative assistant at a corporation who has a boorish boss and a sick kid.   The company she (he) works for has a good health insurance plan, but if she were to leave, she would find herself unable to get coverage at a reasonable price.  Does she really have choice?

Consider the West Virginia coal miner who goes into a dangerous mine every day, and whose life expectancy is shortened with each hour worked underground.  Now consider the fact that the miner grew up in a West Virginia town with a poor school in an environment where going to college was a rare phenomenon.  Does that miner have a choice?

I could go on, but I think the point is fairly clear.  There are times when government intervention could expand the choice set up a large number of people.

Ed does point out how government can improve choice sets, and for that he deserves credit.  But the more fundamental problem is that market economies produce large institutions that have limited markets inside of them, and therefore sometimes have hierarchies that can be as inhospitable to personal liberty as government bureaucracies.  Elinor Ostrom's Nobel win in 2009 shows that the economics profession is beginning to recognize this problem,  but I am not sure Ph.D. students are broadly encouraged to study it.    

Uh-oh

I met with a large developer here in India.  He told me that "rent models," (i.e., discounted cash flow models) don;t work in India--that everyone wants to own property in India, and so India is different.  I remember a Japanese real estate guy telling me the same thing about Japan in the late 1980s.

At least there isn't a lot of leverage here, so the systemic risk of a collapse in prices is lower.  But still....

Mark Thoma passes on terrible news about Maxine Udall, girl economist

To all Maxine Udall Girl Economist Readers

I didn't know who she was, but I felt like I knew her.  She was smart and wise.

Land use regulation and the cost of housing, Indian style

Mumbai is among the densest cities in the world: as a metropolitan area, it is roughly ten times denser than New York (h/t Alain Bertaud).  Yet residential zoning codes typically have FSIs (the equivalent of a floor-area ratio) of between 1 and 1.33.  This compares with typical central business district FSIs of between 5 and 15 in other cities around the world, and there are places in Hong Kong, which is a very attractive city, where it reaches 20.  

So what happens when the most crowded large city in the world forbids intense development?  Prices get very high.  The most expensive parts of Mumbai are more expensive than Manhattan; the least expensive are comparable to the American Midwest, but people's "middle-class" incomes are perhaps 1/8 as large in Mumbai.

A developer I spoke with last night told me that if FSIs were raised to 4 (still low by world standards), prices would fall by about 50 percent.  While this is not an econometrically determined elasticity, it does make a certain amount of sense.  It would be worth at least doing the policy experiment of raising FSI uniformly.

As for services, well, there are already plenty of people using services.  The average person in Mumbai consumes about 30 square meet of residential floor space, so allowing more vertical development might, if anything, alleviate crowding, both inside and out.  

The present value relationship still doesn't work in India

I had students here in Hyderabad gather data on rents, and then we put together a valuation pro forma.  We determined that the present discounted value of flats here is roughly 40 percent of their sale price.

I have been doing this sort of exercise since I first visited south Asia seven years ago, and I get about the same outcome every time.  It is not credit that is driving this market--many people buy property with cash.  People tell stories about "black money" financing property--this is untraceable, and therefore untaxed, money.    But our calculations imply an implicit tax rate of 60 percent--taxes in India are not that high (in fact, other than an eight percent transfer tax, they are fairly similar to the US).

So the story must be about expectations, and indeed, that is the story I hear.  But current yields are well under 3 percent, and if values rise faster than rents, those yields will get even lower.  Something has got to give.  I just have no idea when.

The OECD says imputed rent should be taxed

When homeowners own their property with equity, they get a tax benefit as important as the mortgage interest deduction: the imputed rent they pay to themselves goes untaxed.  To think about how this works, consider two nieghbors who own their houses free and clear.  Suppose the houses are identical, and that the nieghbors swap houses, paying rent to each other.  They now have a tax liability that they would not have had they remained in their houses.  Avoiding this liability is tantamount to a tax expenditure--a benefit to those who own their houses without debt.  The OECD is correct that countries rarely tax imputed rent, and argues that this lack of taxation has tilted investment toward housing to the detriment of more productive uses.  It also argues that the benefits to homeownership are overstated.  I am not sure that this is true (see here and here), but I will leave that for another time.

The question is how does one go about taxing imputed rent?  It is not easy.  One could start by imposing an ad valorem tax on property values (such as a local property tax), but that doesn't tax imputed rent per se, because it does not take into account expected inflation (if one person expects her house to go up in value, and another does not, the rent the first person pays is lower than the second).  Alternatively, one could find comparables in the rental market and attribute rents found there to the owner market.  But owner and rental markets are so segmented that this would be difficult to do.

This has implications for fairness; if we don't know what we are taxing, it is hard to know how much to tax it. 

Amy Chua and the Reflection Problem

I saw Amy Chua speak some years ago (at the World Bank, I think) about her book, World on Fire. She was an excellent, witty and provocative speaker, so much so that I read the book as a result. And while the book was indeed thought-provoking, it was not convincing. Her basic point was that democracies can produce instability: minorities in democracies can amass economic wealth, which in turn leads to resentment, which in turn leads to political scapegoating and instability and all other kinds of bad things. The problem is she never presented to me a convincing counterfactual; she never showed me how a world devoid of democracy would also be devoid of resentment and instability.

As a result of reading World on Fire, I will not read Battle Hymn beyond the excerpt in the Wall Street Journal (although I understand that the excerpt is not representative of the book). If the book is only a memoir, then it is almost certainly fine, but this is not how it is being represented. Instead, it is being characterized as a comparison between "Chinese parenting" and its results and "Western parenting" and its results. Again, this may be unfair to Ms. Chua, but the book has spurred myriad commentary about the virtues and deficiencies of various parenting styles.

What is lost in all of this is how difficult it is to actually draw inferences about the effects of parenting styles on outcomes. Charles Manski calls this "the reflection problem." Here is Manski:

Here is an identification problem from everyday life: Suppose that you observe the almost simultaneous movements of a person and of his image in a mirror. Does the mirror image cause the person's movements, does the image reflect the person's movements, or do the person and image move together in response to a common external stimulus? Empirical observations alone cannot answer this question. Even if you were able to observe innumerable instances in which persons and their mirror images move together, you would not be able to logically deduce the process at work. To reach a conclusion requires that you understand something of optics and of human behavior.

A like inferential problem, which I have called the reflection problem (Manski 1993a), arises if you try to interpret the common observation that individuals belonging to the same group tend to behave similarly. Two hypotheses often advanced to explain this phenomenon are endogenous effects, wherein the propensity of an individual to behave in some way varies with the prevalence of that behavior in the group; and correlated effects, wherein individuals in the same group tend to behave similarly because they face similar environments and have similar individual characteristics.

Similar behavior within groups could stem from endogenous effects (e.g., group members could experience pressure to conform to group norms) or group similarities might reflect correlated effects (e.g., persons with similar characteristics might choose to associate with one another). Empirical observations of the behavior of individuals in groups, even innumerable such observations, cannot per se distinguish between these hypotheses. To draw conclusions requires that empirical evidence be combined with sufficiently strong maintained assumptions about the nature of individual behavior and social interactions.

Why might you care whether observed patterns of behavior are generated by endogenous effects, by correlated effects, or in some other way? A good practical reason is that different processes have differing implications for public policy. For example, understanding how students interact in classrooms is critical to the evaluation of many aspects of educational policy, from ability tracking to class size standards to racial integration programs.

Suppose that, unable to interpret observed patterns of behavior, you seek the expert advice of two social scientists. One, perhaps a sociologist, asserts that pressure to conform to group norms makes the individuals in a group tend to behave similarly. The other, perhaps an economist, asserts that persons with similar characteristics choose to associate with one another. Both assertions are consistent with the empirical evidence. The data alone cannot reveal whether one assertion or the other is correct. Perhaps both are. This is an identification problem.

Whatever one thinks about Ms. Chua's parenting, we have no firm evidence whether her kids' outcomes are a function of Chinese parenting, Chua-specific parenting, or just her kids' endemic talents. It is a serious problem when we forget that.

Some evidence about state government spending multipliers.

Three abstracts. The findings should give the pain caucus some pause.

Daniel Shoag:

The effect of government spending on income and employment is a central unresolved question in macroeconomics.

This paper employs a novel identification strategy to isolate exogenous and unexpected variation in state government spending. State governments manage large defined-benefit pension plans for which they bear the investment risk. Using a newly-collected dataset on the returns and portfolios of these plans, I show that the idiosyncratic component of their returns is a strong predictor of subsequent
state government spending. Instrumenting with this ‘windfall’ component of returns, I find that state government spending has a large positive effect on income and employment. Baseline estimates indicate that each dollar of spending raises in-state income by 2.12, and that 35,000 of spending generates one
additional job. These effects are not due to in-state investment bias, are concentrated in the non-traded sector, and are larger during times of labor force ‘slack.’ Finally, I consider how these results compare with the predictions of a standard macroeconomic model and outline which features in the model are
consistent with the empirical findings.

Nakamura and Steinsson:

We use rich historical data on military procurement spending across U.S. regions to estimate the e ffects of government spending in a monetary union. Aggregate military build-ups and draw-downs have diff erential e ffects across regions. We use this variation to estimate an open economy government spending multiplier of approximately 1.5. Standard closed economy estimates of the government spending multiplier are highly sensitive to how strongly monetary policy \leans against the wind." In contrast, our estimates "diff erence out" these eff ects because diff erent regions in a monetary union share a common monetary policy. This allows us
to better distinguish between alternative business cycle models. We show that our estimates are consistent with a New Keynesian model with GHH preferences. They are consistent with a small closed-economy multiplier when monetary policy is highly responsive (as in the Volcker- Greenspan era) and a substantially larger closed-economy multiplier when interest rates are less responsive (as at the zero lower bound).

Clemens and Miran:

Balanced budget requirements lead to substantial pro-cyclicality in state government spending outside of safety-net programs. At the beginnings of recessions, states tend to experience unexpected deficits. While all states ultimately pay these deficits down, differences in the stringency of their balanced budget requirements dictate the pace at which they adjust. States with strict rules enact large rescissions to their budgets during the years in which adverse shocks occur; states with weak rules make up the difference during the following years. We use this variation to identify the impact of mid-year budget cuts on state income and employment. Our baseline estimates imply i) a state-spending multiplier of 1.7 and ii) that avoiding $25,000 in mid-year cuts preserves one job. These cuts are associated with shifts in the timing of government expenditures rather than differences in total spending over the course of the business cycle. Consequently, our results are informative about the potential gains from smoothing the path of state government spending. They imply that states could reduce the amplitude of business-cycle fluctuations by 15% if they completely smoothed their capital spending and service provision outside of safety-net programs.

ASSA Interviewing Etiquette

Here is a suggestion for freshly-minted Ph.D.'s looking for Assistant Professor jobs: take time to at least glance at the web sites of the places to which you are applying.  Even in academia, people who are hiring you want to know that you have at least a little interest in the place where they work.