Knowledge that Transforms

In this essay, I reflect on textbook writing after three decades of participating in the activity. I address the following questions: What perspective should textbooks take? What is the best approach to teaching microeconomics? What is the best approach to teaching macroeconomics? How does the content of the introductory course evolve? How much material should textbooks include? Are textbooks too expensive? How is digital technology changing the market for textbooks? Who should become a textbook author? ( JEL A22)

This paper revisits Friedrich Hayek’s book, The Road to Serfdom, on the seventy-fifth anniversary of its publication. Though the book is well-known, its arguments are often mischaracterized. The paper traces the origins of the book, noting the various people and arguments that Hayek was responding to, and places it in the context of its times. The structure of the book is explored and some common criticisms addressed. Finally, it is shown how, after its publication, the book took on a life of its own. (JEL B25, B31, P11, P16, P21, P26)

The Coase theorem is one of the most influential and controversial ideas to emerge from post–World War II economics. This article examines the theorem’s origins, diffusion, and the wide variety of uses to which it has been put by economists and others over the sixty years since Coase published “The Problem of Social Cost.” Along the way, we explore the ambiguity and controversy surrounding the theorem, develop a Coase theorem that is valid as a proposition in economic logic, and probe the implications of all of this for the use of the Coase theorem going forward. (JEL D23)

Does academic economic research produce material of general scientific value, or do academic economists write only for peers? Is economics scholarship uniquely insular? We address these questions by quantifying interactions between economics and other disciplines. Changes in the influence of economic scholarship are measured here by the frequency with which other disciplines cite papers in economics journals. We document a clear rise in the extramural influence of economic research, while also showing that economics is increasingly likely to reference other social sciences. A breakdown of extramural citations by economics fields shows broad field influence. Differentiating between theoretical and empirical papers classified using machine learning, we see that much of the rise in economics’ extramural influence reflects growth in citations to empirical work. This growth parallels an increase in the share of empirical cites within economics. At the same time, some disciplines that primarily cite economic theory have also recently increased citations of economics scholarship. ( JEL A11, A14)

We make the case for a shift in what students learn in a first economics course, taking as our exemplar Paul Samuelson’s paradigm-setting 1948 text. In the shadow of the Great Depression, Samuelson made Keynesian economics an essential component of what every economics student should know. By contrast, leading textbooks today were written in the glow of the Great Moderation and the tamed cyclical fluctuations in the two decades prior to 2007. Here, using topic modeling, we document Samuelson’s novelty and the evolution of the content of introductory textbooks since, and we put forward three propositions. First, as was the case in the aftermath of the Great Depression, new problems now challenge the content of our introductory courses; these include mounting inequalities, climate change, concerns about the future of work, and financial instability. Second, the tools required to address these problems, including strategic interaction, limited information, principal–agent models, new behavioral foundations, and dynamic processes including instability and path dependence, are available (indeed widely taught in PhD programs). And third, as we will illustrate by reference to a new open access introductory text, a course integrating these tools into a new benchmark model can be accessible, engaging, coherent and, as a result, successfully taught to first-year students. Deployed to address the new problems, following Samuelson’s example, the new benchmark provides the basis for integrating not only micro- and macroeconomics but also the analysis of both market failures and the limits of government interventions. ( JEL A22, D00, E00).

This paper brings together methodological, theoretical, and empirical analysis into the framework of linguistic diversity. It reflects both historical and contemporary research by economists and other social scientists on the impact of language on economic outcomes and public policies. We examine whether and how language influences human thinking (including emotions) and behavior, and analyze the effects of linguistic distances on trade, migrations, financial markets, language learning, and its returns. The quantitative foundations of linguistic diversity, which rely on group identification, linguistic distances as well as fractionalization, polarization, and disenfranchisement indices are discussed in terms of their empirical challenges and uses. We conclude with an analysis of linguistic policies and examine the trade-offs between the development of labor markets and the social costs that they generate in various countries. (JEL N30, Z13)

This paper first documents trends in employment rates and then reviews what is known about the various factors that have been proposed to explain the decline in the overall employment-to-population ratio between 1999 and 2018. Population aging has had a large effect on the overall employment rate over this period, but within-age-group declines in employment among young- and prime-age adults also have played a central role. Among the factors with effects that we can quantify based on existing evidence, labor demand factors, in particular increased import competition from China and the penetration of robots into the labor market, are the most important drivers of observed within-group declines in employment. Labor supply factors, most notably increased participation in disability insurance programs, have played a less important but not inconsequential role. Increases in the real value of state minimum wages and in the share of individuals with prison records also have contributed modestly to the decline in the aggregate employment rate. In addition to the factors whose effects we roughly quantify, we identify a set of potentially important factors about which the evidence does not yet allow us to draw clear conclusions. These include the challenges associated with arranging child care, improvements in leisure technology, changing social norms, increased use of opioids, the growth in occupational licensing, and declining labor market fluidity. Our evidence-driven ranking of factors should be useful for guiding future discussions about the sources of decline in the aggregate employment-to-population ratio and consequently the likely efficacy of alternative policy approaches to increasing employment rates. (JEL E24, J64)

This paper reviews the literature in historical record linkage in the U.S. and examines the performance of widely-used record linking algorithms and common variations in their assumptions. We use two high-quality, hand-linked datasets and one synthetic ground truth to examine the direct effects of linking algorithms on data quality. We find that (1) no algorithm (including hand-linking) consistently produces representative samples; (2) 15 to 37 percent of links chosen by widely-used algorithms are classified as errors by trained human reviewers; and (3) false links are systematically related to baseline sample characteristics, showing that some algorithms may induce systematic measurement error into analyses. A case study shows that the combined effects of (1)-(3) attenuate estimates of the intergenerational income elasticity by up to 20 percent, and common variations in algorithm assumptions result in greater attenuation. As current practice moves to automate linking and increase link rates, these results highlight the important potential consequences of linking errors on inferences with linked data. We conclude with constructive suggestions for reducing linking errors and directions for future research.

As Africa’s role on the global stage is rising, so does the need to understand the shadow of history on the continent’s economy and polity. We discuss recent works that shed light on Africa’s colonial and precolonial legacies. The emerging corpus is remarkably interdisciplinary. Archives, ethnographic materials, georeferenced censuses, surveys, and satellite imagery are some of the sources often combined to test influential conjectures put forward in African historiography. Exploiting within-country variation and employing credible, albeit mostly local, identification techniques, this recent literature has uncovered strong evidence of historical continuity as well as instances of rupture in the evolution of the African economy. The exposition proceeds in reverse chronological order. Starting from the colonial period, which has been linked to almost all of Africa’s postindependence maladies, we first review works that uncover the lasting legacies of colonial investments in infrastructure and human capital and quantify the role of various extractive institutions, such as indirect rule and oppression associated with concessionary agreements. Second, we discuss the long-lasting impact of the “Scramble for Africa,” which led to ethnic partitioning and the creation of artificial modern states. Third, we cover studies on the multifaceted legacy of the slave trades. Fourth, we analyze the contemporary role of various precolonial, ethnic-specific, institutional, and social traits such as political centralization. We conclude by offering some thoughts on what we view as open questions. ( JEL F54, N17, N37, N47, O10, O43)

In this essay I discuss potential outcome and graphical approaches to causality, and their relevance for empirical work in economics. I review some of the work on directed acyclic graphs, including the recent The Book of Why (Pearl and Mackenzie 2018). I also discuss the potential outcome framework developed by Rubin and coauthors (e.g., Rubin 2006), building on work by Neyman (1990 [1923]). I then discuss the relative merits of these approaches for empirical work in economics, focusing on the questions each framework answers well, and why much of the the work in economics is closer in spirit to the potential outcome perspective. (JEL C31, C36, I26)