Ep. 90: Understanding the US net foreign asset position
For decades, the United States enjoyed what some called an exorbitant privilege—the ability to spend more than it earned without accumulating much debt to the rest of the world. But that privilege has ended. In a paper in the American Economic Review, authors Andrew Atkeson, Jonathan Heathcote, and Fabrizio Perri found that the United States started accumulating significant liabilities to foreigners after the Great Recession. The researchers say that a surge in the value of US corporations relative to companies in other countries is the driver of this development. Due to large international capital flows in recent decades, foreign investors now own about 40 percent of US corporate equity, while US investors also hold a large amount of foreign companies in their portfolio. When American companies become more profitable and their stock prices soar, much of the gains flow overseas, without a corresponding flow to US investors from foreign companies, and this erodes the net foreign asset position of the United States. Atkeson recently spoke with Tyler Smith about how to interpret the US net foreign asset position and what its recent swings mean for American households.
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Ep. 89: Measuring US income inequality
US household income has grown significantly, but much of that growth seems to be at the very top of the distribution. Just how much inequality has increased and why it is growing is a topic of debate among economists. Part of the challenge lies in a seemingly basic question: what exactly counts as income? In a paper in the Journal of Economic Perspectives, author Matthieu Gomez disentangles the notions of income that economists frequently use and helps pinpoint what's really behind the rise in inequality. Gomez recently spoke with Tyler Smith about defining income, recent patterns in income inequality, and the best tools for reducing inequality.
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Ep. 88: Understanding international approaches to drug pricing
Drug prices have become a hot-button issue in the United States, with politicians across the spectrum agreeing that American consumers pay too much for prescription medications. But bringing down drug prices raises fundamental economic challenges that affect innovation, access, and healthcare costs worldwide. In a paper in the Journal of Economic Perspectives, author Margaret K. Kyle examines how different countries approach pharmaceutical pricing regulation and the lessons to be learned from international experience. Her work reveals that while the United States does pay significantly higher prices for drugs, the story is more nuanced than a simple comparison suggests. Kyle recently spoke with Tyler Smith about why economists generally support market solutions but make an exception for pharmaceuticals, how "pay-for-performance" contracts and subscription pricing models could bring down costs, and why simple solutions like copying other countries' prices might backfire.
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Ep. 87: The cultural roots of rebellion
Civil conflict has plagued much of Africa, with ethnically diverse countries experiencing particularly high rates of violence. Yet within these nations, patterns vary, leading to questions of why some groups rebel while others do not and why a given group rebels at certain times but not at other times. In a paper in the American Economic Review, author Eleonora Guarnieri untangles the factors that drive groups to rebel against their central government. She shows that when ethnicities become more culturally distant from those in power, their likelihood of engaging in civil conflict increases significantly. Her research suggests that conflicts arise as a result of ethnic favoritism in resource distribution and from fundamental disagreements over the types of public goods that central governments should provide. Guarnieri recently spoke with Tyler Smith about how she estimated the impact of cultural distance on civil conflict, and what her findings may mean for reducing violence across Africa's diverse societies.
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Ep. 86: Reexamining air quality regulations
The Clean Air Act has been an essential tool for reducing air pollution in the United States. But standard estimation methods may overstate its impact, according to a paper in the American Economic Journal: Economic Policy. Authors Lutz Sager and Gregor Singer reexamined the 2005 regulations targeting fine particulate matter (PM2.5) and found that improvements in air quality were closer to a 3 percent reduction in pollutants rather than the 10 percent suggested by conventional methods. However, they also found that the benefits from cleaner air may be larger than previous estimates suggested. Sager and Singer recently spoke with Tyler Smith about methods for properly estimating regulatory impacts that feature time trends and the implications for other measures based on estimates of air quality improvements.
Netherlands