I have been the Managing Editor of the Journal of Economic Perspectives since the first issue in Summer 1987. The JEP is published by the American Economic Association, which decided about a decade ago–to my delight–that the journal would be freely available on-line, from the current issue all the way back to the first issue. You can download individual articles or entire issues, and it is available in various e-reader formats, too. Here, I’ll start with the Table of Contents for the just-released Summer 2022 issue, which in the Taylor household is known as issue #141. Below that are abstracts and direct links for all of the papers. I will probably blog more specifically about some of the papers in the few weeks, as well.
Symposium on Intangible Capital
“Intangible Capital and Modern Economies,” by Carol Corrado, Jonathan Haskel, Cecilia Jona-Lasinio and Massimiliano Iommi
The production of goods and services is central to understanding economies. The textbook description of a firm, typically in agriculture or manufacturing, focuses on its physical “tangible” capital (machines), labor (workers), and the state of “know-how.” Yet real-world firms, such as Apple, Microsoft, and Google, have almost no physical capital. Instead, their main capital assets are “intangible”: software, data, design, reputation, supply-chain expertise, and R&D. We discuss investment in these knowledge-based types of capital: How to measure it; how it affects macroeconomic data on investment, rates of return, and GDP; and how it relates to growth theory and practical growth accounting. We present estimates of productivity in the US and European economies in recent decades including intangibles and discuss why, despite relatively rapid growth in intangible capital and what seems to be a modern technological revolution, productivity growth has slowed since the global financial crisis.
“The Economics of Intangible Capital,” by Nicolas Crouzet, Janice C. Eberly, Andrea L. Eisfeldt and Dimitris Papanikolaou
Intangible assets are a large and growing part of firms’ capital stocks. Intangibles are accumulated via investment–foregoing consumption today for output in the future—but they lack a physical presence. Rather than stopping with this “lack,” we instead focus on the positive properties of intangibles. Specifically, intangibles must be stored, so characteristics of the storage medium have important implications for their value and use. These properties include non-rivalry, allowing the intangible to be used simultaneously in different production streams, and limited excludability, which prevents the firm from capturing all the benefits or rents from the intangible. We develop these ideas in a simple way to illustrate how outcomes such as scalability and distribution of ownership follow. We discuss how intangibles can help to understand important trends in macroeconomics and finance, including productivity, factor shares, inequality, investment and valuation, rents and market power, and firm financing.
“Marketing Investment and Intangible Brand Capital,” by Bart J. Bronnenberg, Jean-Pierre Dubé and Chad Syverson
US companies invested over $500 billion in 2021 in intangible brand capital, over 2% of GDP. During the past decade, US companies have also been growing their internal marketing capabilities, an often overlooked source of human capital. We discuss the private and social benefits of these intangible brand capital stocks. While the private returns to companies are fairly clear, the academic literature has been divided over the social benefits and costs of advertising and promotion, the two key investment vehicles. We also discuss the implications of brand capital for measured productivity.
Symposium on Human Capital
“Four Facts about Human Capital,” by David J. Deming
This paper synthesizes what economists have learned about human capital since Becker (1962) into four stylized facts. First, human capital explains at least one-third of the variation in labor earnings within countries and at least half of the variation across countries. Second, human capital investments have high economic returns throughout childhood and young adulthood. Third, we know how to build foundational skills such as literacy and numeracy, and resources are often the main constraint. Fourth, higher-order skills such as problem-solving and teamwork are increasingly valuable, and the technology for producing these skills is not well understood. We know that investment in education works and that skills matter for earnings, but we do not always know why.
“Measuring Human Capital,” by Katharine G. Abraham and Justine Mallatt
We review the existing literature on the measurement of human capital. Broadly speaking, economists have proposed three approaches to constructing human capital measures—the indicator approach, the cost approach, and the income approach. Studies employing the indicator approach have used single measures such as average years of schooling or indexes of multiple measures. The cost approach values human capital investments based on spending. The income approach values human capital investments by looking forward to the increment to expected future earnings they produce. The latter two approaches have the significant advantage of consistency with national income accounting practices and measures of other types of capital. Measures based on the income approach typically yield far larger estimates of the value of human capital than measures based on the cost approach. We outline possible reasons for this discrepancy and show how changes in assumptions can reconcile estimates based on the two approaches.
Symposium on Inflation Expectations
“Expected and Realized Inflation in Historical Perspective,” by Carola Binder and Rupal Kamdar
This paper provides historical context for the relationship between expected and realized inflation. We begin with a discussion of early theoretical thought about how inflation expectations are formed. Then, we discuss survey- and asset-based measures of inflation expectations and assess their empirical relationship with realized inflation. Expected and realized inflation are strongly correlated over long samples, but over short samples the correlations can weaken. Lastly, to better understand the subtleties of the interaction between expected and realized inflation over short-lived but important events, we provide a narrative account of the relationship during the Great Depression of the 1930s, the Great Inflation of the 1970s, the Great Recession of 2008–2009, and the recent COVID-19 pandemic. These episodes offer compelling evidence of the importance of expectations and policy regime changes in inflation dynamics.
“The Subjective Inflation Expectations of Households and Firms: Measurement, Determinants, and Implications,” by Michael Weber, Francesco D’Acunto, Yuriy Gorodnichenko and Olivier Coibion
Households’ and firms’ subjective inflation expectations play a central role in macroeconomic and intertemporal microeconomic models. We discuss how subjective inflation expectations are measured, the patterns they display, their determinants, and how they shape households’ and firms’ economic choices in the data and help us make sense of the observed heterogeneous reactions to business-cycle shocks and policy interventions. We conclude by highlighting the relevant open questions and why tackling them is important for academic research and policymaking.
Symposium on Methods in Applied Micro
“Blending Theory and Data: A Space Odyssey,” by Dave Donaldson
This article describes methods used in the field of spatial economics that combine insights from economic theory and evidence from data in order to answer counterfactual questions. I outline a general framework that emphasizes three elements: a specific question to be answered, a set of empirical relationships that can be identified from exogeneity assumptions, and a theoretical model that is used to extrapolate from such empirical relationships to the answer that is required. I then illustrate the application of these elements via a series of twelve examples drawn from the fields of international, regional, and urban economics. These applications are chosen to illustrate the various techniques that researchers use to minimize the theoretical assumptions that are needed to traverse the distance between identified empirical patterns and the questions that need to be answered.
“Principles for Combining Descriptive and Model-Based Analysis in Applied Microeconomics Research,” by Neale Mahoney
In this article, I offer guidance on how to combine descriptive and model-based empirical analysis within a paper. Drawing on examples from three recently published applied microeconomics papers, I argue that it is important to create a tight link between the descriptive analysis and the bottom-line deliverable of the model-based analysis, and I try to distill some lessons or principles for doing so. I also offer some thoughts on when a paper should start with descriptive analysis and then proceed to model-based analysis and when alternative structures may be desirable.
“Overreaction and Diagnostic Expectations in Macroeconomics,” by Pedro Bordalo, Nicola Gennaioli and Andrei Shleifer
We present the case for the centrality of overreaction in expectations for addressing important challenges in finance and macroeconomics. First, non-rational expectations by market participants can be measured and modeled in ways that address some of the key challenges posed by the rational expectations revolution, most importantly the idea that economic agents are forward-looking. Second, belief overreaction can account for many long-standing empirical puzzles in macro and finance, which emphasize the extreme volatility and boom-bust dynamics of key time series, such as stock prices, credit, and investment. Third, overreaction relies on psychology and is disciplined by survey data on expectations. This suggests that relaxing the assumption of rational expectations is a promising strategy, helps theory and evidence go together, and promises a unified view of a great deal of data.
“Retrospectives: On the Evolution of the Rules versus Discretion Debate in Monetary Policy,” by Harris Dellas and George S. Tavlas
Episodes of macroeconomic upheaval associated with monetary policy failure have provided the stage for important debates on rules versus discretion. We discuss the main features, results, commonalities, and differences in the debates that emerged after three such episodes. The modern debate was born during the Great Inflation of the 1970s and focused on both rules versus discretion and the properties of alternative rules. The middle debate originated with Henry Simons and the Chicago School during the Great Depression in the 1930s and focuses on policy uncertainty. The earliest systematic debate involved the Currency and Banking Schools in Britain in the 1820s, but, in spite the views of many of its participants and doctrinal historians, it seems to have primarily been about the degree of activism under a single rule—that of the gold standard.
“Recommendations for Further Reading,” by Timothy Taylor