What caught my eye

1. How the government exaggerates the cost of education, by David Leonhardt at the New York Times.

But it turns out the government’s measure is deeply misleading.
For years, that measure was based on the list prices that colleges published in their brochures, rather than the actual amount students and their families paid. The government ignored financial-aid grants. Effectively, the measure tracked the price of college for rich families, many of whom were not eligible for scholarships, but exaggerated the price – and price increases – for everyone from the upper middle class to the poor.
[...]
Fortunately, the government isn’t the only organization that collects data on college tuition over time. The College Board also does, and it publishes different indexes on published tuition and net-price tuition, separately for public and private colleges. (Only scholarship grants are considered in the net-price calculation. Loans, appropriately, are treated as part of the tuition that families are really paying.)
Net tuition and fees at private four-year colleges have risen 22 percent since 1992, the College Board says, and the increase has been 60 percent at public four-year colleges. Community-college tuition has declined, because aid grants have outpaced published tuition. These numbers are obviously quite different from the government’s index showing a 107 percent increase.

The more challenging question is: Given the changes that we're about to see in how higher education is provided (online classes), how much will college cost in 20 years? (Hat tip to my wife, to whom I can't give a confident answer when she asks: "How much do we need to save for our [8-month-old] son's college?")

2. A measure of global systemic financial risk, from NYU Stern's V-lab, via Econbrowser, and a chart for China:

3. The U.S. can't inflate away its public debt, probably. From a recent paper by Jens Hilscher, Alon Raviv, and Ricardo Reis: Inflating away the public debt? An empirical assessment. [Ungated version.]

Abstract: We propose and implement a method that provides quantitative estimates of the extent to which higher- than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for inflation at different horizons. The estimates suggest that it is unlikely that inflation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead inflation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.

4. Valuing non-US equities: claims about the CAPE (cyclically-adjusted price-earnings) ratio, by Andrew Smithers. Part I. Part II.

5. The dark side of the Italian tomato. Also in French and Spanish.

Italy, the third largest agricultural producer after France and Germany, vies with Spain for first place in the production of vegetables. In the past 10 years, Italy has produced an average of 6 million tonnes of tomatoes per year (FAOSTAT). According to FAO, the exportation of concentrated Italian tomatoes was facilitated in 2001 by a reimbursement by the EU of 45 euros ($61) for every tonne of product exported (FAO). But that’s not all. Overall, according to Oxfam, the EU subsidises tomato production to the tune of approximately 34.5 euros ($47) per tonne, a subsidy that covers 65% of the market price of the final product (Oxfam). But who in Brussels is aware of the paradox of subsidising an export product that dumps on local produce in Africa? 

The European Union subsidizes local production of farm products, which puts Africans out of work in their home countries, which drives them to migrate to Europe, lowering wages in Europe. In the end, the tomato pickers might enjoy the same expected utility in Africa than in Europe, after cost and quality of living are accounted for. European producers win, African producers go out of business.

One might argue the subsidies are a net positive if tomato production is more efficient in Europe than in Africa. But if that were the case, then why would European production need to be subsidized? Leaving aside that, what's the effect of European subsidies? European farmers win, the impact on everybody else is uncertain, at best.

What caught my eye

1. Brazilians turn against the canarinha (for now).

2. Bad dreams about Russia, China, and World War.

3. What do cancer and unemployment have in common?

4. NBER papers: phasing out paper currency, and permanent changes to monetary policy.

1. "I want Brazil to lose," says a Brazilian. I seldom hear good things about the World Cup, which makes me think the event will be a positive surprise. (By the way, remember the comments in the months prior to London's Olympics?)

2. Russia strengthening ties to China. Perhaps it's WWI centennial fever, but I can't erase from my mind the idea of a China-Russia military alliance, against the "oppression," "bullying," etc. from the U.S.-Western Europe-Japan trio. Articles like this, on China supposedly following Japan's prewar blueprint, don't help put me at ease.

3. The odds of developing certain cancers decline with age, just like the odds of escaping unemployment decline with the length of the jobless spell, by Jim Hamilton.

4. Two papers from this week's NBER crop:

4.1 Costs and benefits to phasing out paper currency, by Kenneth Rogoff.

Despite advances in transactions technologies, paper currency still constitutes a notable percentage of the money supply in most countries.  For example, it constitutes roughly 10% of the US Federal Reserve's main monetary aggregate, M2.  Yet, it has important drawbacks. First, it can help facilitate activity in the underground (tax-evading) and illegal economy. Second, its existence creates the artifact of the zero bound on the nominal interest rate.  On the other hand, the enduring popularity of paper currency generates many benefits, including substantial seigniorage revenue.  This paper explores some of the issues associated with phasing out paper currency, especially large-denomination notes.

4.2 Has the financial crisis permanently changed the practice of monetary policy?, by Benjamin Friedman.

I argue in this paper that one of the two forms of hitherto unconventional monetary policy that many central banks have implemented in response to the 2007 financial crisis - large-scale asset purchases, or to put the matter more generically, use of the central bank's balance sheet as a distinct tool of monetary policy -is likely to become part of the standard toolkit of monetary policymaking in normal times as well.  As intended, these purchases have lowered long-term interest rates relative to short-term rates, and lowered interest rates on more-risky compared to less-risky obligations.  Moreover, their introduction fills a conceptual vacuum that has long stood at the heart of monetary policy analysis and implementation. By contrast, forward guidance on the future trajectory of monetary policy has been less successful.  Public statements by central banks about their actions and intentions will no doubt continue, but transparency for the sake of transparency is not the same as the deliberate attempt to shape market expectations for purposes of achieving specific monetary policy objectives. Finally, there is a conceptual component to all this as well.  In contrast to the last century or more of monetary theory, which has focused on central banks' liabilities, the basis for the effectiveness of central bank asset purchases turns on the role of the asset side of the central bank's balance sheet. The implications for monetary theory are profound.