Winter 2023 Journal of Economic Perspectives Free Online

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 Winter 2023 issue, which in the Taylor household is known as issue #143. 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: Trade Sanctions and International Relations

“Economic Sanctions: Evolution, Consequences, and Challenges,” by T. Clifton Morgan, Constantinos Syropoulos and Yoto V. Yotov

Taking an interdisciplinary perspective, we examine the evolution of economic sanctions in the post-World War II era and reflect on the lessons that could be drawn from their features and patterns of use. We observe that, during this time, there has been a remarkable increase in the use of sanctions as an instrument of foreign policy. We classify this period into four ‘eras’ and discuss, in this context, how the evolution of sanctions may be linked to salient features of the contemporaneous international political and economic orders. Our review of the related literatures in economics and political science suggests, among other things, that our understanding of sanction processes could be significantly advanced by marrying these perspectives. We conclude by identifying several questions and challenges, and by discussing how interdisciplinary research could address them.Full-Text Access | Supplementary Materials

“Financial Sanctions, SWIFT, and the Architecture of the International Payment System,” by Marco Cipriani, Linda S. Goldberg and Gabriele La Spada

Financial sanctions, alongside economic sanctions, are components of the toolkit used by governments as part of international diplomacy. The use of sanctions, especially financial, has increased over the last 70 years. Financial sanctions have been particularly important whenever the goals of the sanctioning countries were related to democracy and human rights. Financial sanctions restrict entities—countries, businesses, or even individuals—from purchasing or selling financial assets, or from accessing custodial or other financial services. They can be imposed on a sanctioned entity’s ability to access the infrastructures that are in place to execute international payments, irrespective of whether such payments underpin financial or real activity. This article explains how financial sanctions can be designed to limit access to the international payment system and, in particular, the SWIFT network, and provides some recent examples.

Full-Text Access | Supplementary Materials

Symposium: Monetary Policy

“Monetary Policy When the Central Bank Shapes Financial-Market Sentiment,” by Anil K Kashyap and Jeremy C. Stein

Recent research has found that monetary policy works in part by influencing the risk premiums on both traded financial-market securities and intermediated loans. Research has also shown that when risk premiums are compressed, there is an increased likelihood of a reversal that damages the credit-supply mechanism and the real economy. Together these effects create an intertemporal tradeoff for monetary policy, as stimulating the economy today can sow the seeds of a future downturn that might be difficult to offset. We draw out some implications of this tradeoff for the conduct of monetary policy.

Full-Text Access | Supplementary Materials

“Risk Appetite and the Risk-Taking Channel of Monetary Policy,” by Michael D. Bauer, Ben S. Bernanke and Eric Milstein

Monetary policy affects financial markets and the broader economy in part by changing the risk appetite of investors. This article provides new evidence for this so-called risk-taking channel of monetary policy by revisiting and extending event-study analysis of Federal Open Market Committee announcements. We document significant effects of unexpected monetary policy changes on risk indicators drawn from equity, fixed-income, credit, and foreign exchange markets. We develop a new index of risk appetite based on the common component of these indicators. Surprise monetary easing leads to strong and persistent increases in our index, and vice versa for tightening surprises, consistent with the view that monetary policy affects asset prices in large part through its effects on risk appetite. We discuss the implications of the risk-taking channel for monetary policy transmission, optimal monetary policy, and financial stability.

Full-Text Access | Supplementary Materials

(6) Landings, Soft and Hard: The Federal Reserve, 1965–2022

Alan S. Blinder

“Soft landings,” that is, cases in which the central bank tightens monetary policy to fight inflation but does not cause a recession (which would be a “hard landing”), are thought to be difficult to achieve and extremely rare. According to the conventional wisdom, the Federal Reserve has managed to achieve only one soft landing in the past 60 years—in 1994–1995. This paper studies the eleven episodes of monetary policy tightening by the Fed since 1965, and concludes that the central bank has a better record than that—that as long as the criteria for softness are not too stringent, and Fed was actually trying to land the economy softly, the Fed has succeeded several times. Achieving a soft landing, however, requires both skill in managing monetary policy and the absence of adverse external shocks.

Full-Text Access | Supplementary Materials

(7) Monetary Policy and Inequality

Alisdair McKay and Christian K. Wolf

We ask three questions about the connection between monetary policy and inequality. First, does monetary policy affect inequality? While different households respond to changes in monetary policy for different reasons, we argue that the overall consumption effects are relatively evenly distributed across households. Second, does household heterogeneity change our understanding of monetary policy transmission? A more careful account of microeconomic consumption behavior materially alters our understanding of transmission channels, but has rather limited effect on our general view of the aggregate effects of monetary policy. Third, does inequality affect the optimal conduct of monetary policy? Since monetary policy is a rather blunt distributional tool, we argue that even a central bank with an explicit distributional mandate would not deviate much from conventional policy prescriptions.

Full-Text Access | Supplementary Materials

Symposium: Hispanic Americans

“Unraveling the Hispanic Health Paradox,” by José Fernandez, Mónica García-Pérez and Sandra Orozco-Aleman

In 2019, Hispanics in the US had a life expectancy advantage of 3.0 years and 7.1 years over non-Hispanic Whites and non-Hispanic Blacks, respectively, despite having real-household income values 26 percentage points lower than Non-Hispanic White households. Hispanics appear to have equal or even better health outcomes relative to non-Hispanic Whites across various health measures. This is known as the Hispanic health paradox. This paper underscores the importance of disaggregating Hispanics by ancestry and age profile when discussing the paradox across key health outcomes. It also provides an overview of the leading explanations, such as the salmon bias and the healthy immigrant effect. Further, it highlights the role of healthcare access and usage in this discussion. Ignoring these sources of bias have important consequences for how morbidity and mortality among Hispanics are measured within widely used national datasets.

Full-Text Access | Supplementary Materials

“Hispanic Americans in the Labor Market: Patterns over Time and across Generations,” by Francisca M. Antman, Brian Duncan and Stephen J. Trejo

This article reviews evidence on the labor market performance of Hispanics in the United States, with a particular focus on the US-born segment of this population. After discussing critical issues that arise in the US data sources commonly used to study Hispanics, we document how Hispanics currently compare with other Americans in terms of education, earnings, and labor supply, and then we discuss long-term trends in these outcomes. Relative to non-Hispanic Whites, US-born Hispanics from most national origin groups possess sizeable deficits in earnings, which in large part reflect corresponding educational deficits. Over time, rates of high school completion by US-born Hispanics have almost converged to those of non-Hispanic Whites, but the large Hispanic deficits in college completion have instead widened. Finally, from the perspective of immigrant generations, Hispanics experience substantial improvements in education and earnings between first-generation immigrants and the second-generation consisting of the US-born children of immigrants. Continued progress beyond the second generation is obscured by measurement issues arising from high rates of Hispanic intermarriage and the fact that later-generation descendants of Hispanic immigrants often do not self-identify as Hispanic when they come from families with mixed ethnic origins.

Full-Text Access | Supplementary Materials

“US Immigration from Latin America in Historical Perspective,” by Gordon Hanson, Pia Orrenius and Madeline Zavodny

The share of US residents who were born in Latin America and the Caribbean plateaued recently, after a half century of rapid growth. Our review of the evidence on the US immigration wave from the region suggests that it bears many similarities to the major immigration waves of the nineteenth and early twentieth centuries, that the demographic and economic forces behind Latin American migrant inflows appear to have weakened across most sending countries, and that a continued slowdown of immigration from Latin America post-pandemic has the potential to disrupt labor-intensive sectors in many US regional labor markets.

Full-Text Access | Supplementary Materials


Oleg Itskhoki: 2022 John Bates Clark Medalist,” by Andrew Atkeson and Gita Gopinath

The 2022 John Bates Clark Medal of the American Economic Association was awarded to Oleg Itskhoki, Professor of Economics at the University of California, Los Angeles for his path breaking contributions in international economics. This article summarizes Oleg Itskhoki’s work and places it in the context of the broader literature and emphasizes how it has shed new light on a number of long-standing puzzles regarding the behavior of exchange rates and international relative prices more generally and their connection to macroeconomic fluctuations and government’s choices of monetary and fiscal policies.

Full-Text Access | Supplementary Materials

“Recommendations for Further Reading,” by Timothy Taylor

Full-Text Access | Supplementary Materials

Biologics and Biosimilars: A Test for Intellectual Property

The fundamental tradeoff of intellectual property rights–like patents and copyrights–is that the inventor gets a government-protected monopoly for a period of time, as an incentive for innovation, but then the innovation passes into the public domain. For example, this is the moment when generic equivalents of pharmaceuticals can start competing with brand-name drugs.

The period when a lucrative invention shifts into the public domain is primed for politics and strategy, as the incumbent firm tries to hold on to its leading competitive position. In one famous example, the US Congress passed in 1998 what became known as the “Mickey Mouse Protection Act,” which extended copyright protection for Mickey and many lesser-known creations to last for 95 years–an extension of 21 years from the previous rule. A few decades ago, when generic drugs started to take over from previously patented drugs, there was a storm of litigation and antitrust action around questions like whether generics had to go through similar testing for safely and efficacy by the Food and Drug Administration, and how to judge whether a generic drug was the same–or perhaps just a little different–than the previously patented drug.

Now, 91% of US prescriptions are for generic drugs. By one estimate, this saves over $370 billion per year for US health care consumers. But almost all of those generic drugs are “small molecule” drugs, which essentially means that they are created by chemistry. Starting a couple of decades ago, a new wave of “biologic” drugs arrived. These begin by isolating certain components from humans, animals, or microorganisms, and then growing them through biotechnology or related techniques. They include “vaccines, blood and blood components, allergenics, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins.” As one example, the COVID vaccines are biologics. The highest-revenue prescription drug of all time, AbbVie’s Humira–an injectable treatment for autoimmune conditions like rheumatoid arthritis–is a biologic. It can cost some patients $70,000 per year.

A number of biosimilars are remarkable advances in health care, and bring substantial benefits to patients. Many of them also have very high prices. Indeed, the rough estimates seem to be that biologics account for 2% of US prescriptions for drugs, but 40% of total spending on prescription drugs. Of the top 10 prescription drugs in the US in 2021 by revenue, seven are biologics–including two versions of the COVID vaccine. Industry projections are that in a few years, annual revenues from biologics will exceed those for small-molecule drugs by $100 billion per year or more. Again, part of the reason is that so many small-molecule drugs are now available in generic form, while many leading biologics are still on patent. Humira is just about to go off patent this year.

The generic equivalents for biologic drugs are called “biosimilars,” because the chemistry of these (“large molecule”) biologics often isn’t easy to define. They are often hard to manufacture, and susceptible to heat or contamination. As a result, the producers of the original biologics often obtain patents not just on a therapeutic molecule, but on a variety of manufacturing techniques, each of which produced slightly different chemical outcomes that can be patented as well.

For example, the AbbVie patent on adalimumab, the key ingredient in Humira, actually expired back in 2016. But given new manufacturing techniques and variations on the original formulation, AbbVie has actually obtained more than 100 patents related to Humira. In the antitrust biz, this is sometimes called a “patent thicket”–a term which refers to an ever-evolving body of patents, with old ones expiring and new ones coming into play, thus blocking new competition on an ongoing basis.

Back in 2010, the Biologics Price Competition and Innovation Act became law, with the goal of defining a path for biosimilar drugs to replace the original brand-name biologics, as patents expire, in the same say that generics have replaced so many small-molecule drugs in the last couple of decades. The law is based on language about whether the biosimilar is “highly similar” to the original, with no “clinically meaningful differences.” But of course, terms like “highly similar” and “meaningful differences” are basically catnip for lawyers, especially when billions of dollars of sales are at stake.

I don’t have any deep insights into how to write the rules governing when rules governing when biosimilars can replace the original biologics. I readily acknowledge that there are some hard questions here, because we aren’t dealing with precise chemistry and small molecule drugs in this situation. There are legitimate questions about biosimilars being produced in safe ways.

But the overall goal here seems fairly clear: when patent protection expires, reasonably easy entry should be possible. If the rules for new biosimilars require extensive re-testing and long-term tests on patients, it will be much harder for biosimilars to gain a foothold. In some cases, makers of the original brand-name biologics also managed to sign exclusive deals with health care providers, where the providers agreed to use only the original biologic and to shun biosimilars. There are now 22 biosimilars approved for patients, with another seven scheduled to launch this year. But there have been essays in medical journals for several years now lamenting the slow pace at which biosimilars have been approved.

At present, Humira is the biggest test. At least eight other drug companies have plans to launch biosimilars. But along with the patent thicket that AbbVie has constructed around Humira, AbbVie is introducing two new biologics with similar effects, different active ingredients–and patent protection. Under current rules, a pharmacist can swap in a generic drug for a brand-name without needing a new prescription, but for biologics, a new prescription naming the biosimilar drug is needed. In some ways, the question of whether biosimilar competitors for Humira can become established in the market is a test case for the biosimilar industry as a whole, in the sense that it will affect whether firms see the biosimilar market as worth pursuing. But one big health care system is apparently ready to switch: “David Chen, who directs specialty drug use for Kaiser Permanente, said the insurer plans to stop covering Humira by the end of 2023. He expects at least 90 percent of patients to switch to the biosimilar alternative, and said Kaiser should save hundreds of millions of dollars a year.”

A golden opportunity for a beleaguered biosimilars market” (Tradeoffs, January 26, 2023).

Retirement Ages: Some International Comparisons

At what age does the average person retire in high-income countries? How long is the average period of retirement? The OECD collects this information. Here’s a trimmed down table with a selection of countries.

You can see from the first two columns of data that the average age of labor market exit for US men and women is a shade under 65 years. This is lower than Japan and Korea, and interestingly, lower than Sweden as well. The countries with the earliest average ages of labor market exit seem to be France, Spain and Greece at less than 61 years, with Italy also on the low side.

The last two columns of data show expected years in retirement. For the United States, this is 18.6 years for men and 21.3 years for women, mostly reflecting the longer average life expectancies for women. The shortest expected retirements are in Japan and Korea. Interestingly, Sweden has a later average age of retirement than the US but also a longer expected retirement–which is possible because of longer life expectancies in Sweden. The longest retirement periods seem to be in the countries with the lowest retirement ages, like France, Greece, and Spain, where it is common for men to have 23 years in retirement and women 27 years.

Over time, the average age of retirement in the US has followed a U-shaped pattern over last 50 years, first dropping by about three year and then rising back close to the earlier level. For men, the OECD data shows that average age of retirement for men was 65.5 years in 1970, 63.8 years in 1980, 62.4 years in 1990, 62.5 years in 2000, 62.9 years in 2010, and then 64.9 years in 2020. For the expected time in retirement, the US follows shows a substantial rise from 1970 up through 2012, but a gradual decline since then. For men, the OECD data shows 12.8 years of expected retirement in 1970, 15.0 years in 1980, 17.0 years in 1990, 18.2 years in 2000, 19.6 years in 2010, and then–after peaking at 20.1 years of expected years of retirement in 2012–a gradual decline to 18.6 expected years of retirement in 2020.

In a big-picture sense, this is consistent with a long-term pattern of US men over age 65 decreasing their labor force participation in the long run, but with an upward shift in labor market participation in the last 20 years or so. From the Our World in Data website:

Given that the US has a relatively late age of expected retirement and relatively short period of expected retirement, one might expect that the US Social Security system of government pensions would be in relatively good financial shape compared to some other countries, but this doesn’t seem to be correct. Consider this table from the Mercer CFA Institute Global Pension Index 2022, which ranks pension systems across 44 countries for adequacy, sustainability, and integrity. (“Integrity” refers to a combination of issues related to regulation, governance, protection, communication, and operating costs.) The US system does fairly well for adequacy, but not so well on the other measures. Of the countries listed above, Netherlands and Denmark are thought to be grade A systems. The US overall category with countries like France and Spain. Those countries rank higher than the US on “adequacy” of benefits, with their lower retirement ages and longer expected periods of retirement, but rank lower than the US on the financial “sustainability” of the benefits.

As the US deals with the financial consequences of an aging population, it seems appropriate that part of the answer will involve people working longer on average. But other parts of the answer will also involve additional financing for the system as a whole and additional support for the elderly poor.