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Matthew E. Kahn Profile picture
@mattkahn1966
Aug 25, 2019 • 6 tweets • 4 min read • Read on X
Blame Economists for the Mess We’re In nyti.ms/2KUw5bm This book appears to argue that Milton Friedman's ideas caused our current economic challenges. This is an interesting claim that I reject. During my time at @uchicago, I was taught that human capital is the key. 1/2
@UChicago (2/3) Milton Friedman's endorsement of vouchers for K-12 schools and for housing (rather than public schools and public housing) was never implemented. These policies alone could have played a key role in ending poverty and the hyper-segregation of the poor. Next inflation.
@UChicago (3/3) Friedman and Anna Schwartz's work on the causes and consequences of hyperinflation has played a central role in protecting the poor's purchasing power.
wsj.com/articles/SB100…
@UChicago (4/3) At @uchicago, we were taught that skill is produced throughout the life cycle as you choose how much to invest (and society, peers, and parents also invest in you). Wages rise with skill. Early under-investment in children is the core cause of poverty.
@UChicago The policy solution to reducing poverty is investment in early life skill formation heckmanequation.org , strengthening the family, and encouraging the geographic mobility of the poor (MTO). My own work has studied how to pay for this.
ideas.repec.org/p/nbr/nberwo/2…
@UChicago As shown in this video where Milton Friedman discusses the negative income tax, he spent a lot of time thinking about how to improve the quality of life of the less fortunate.

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More from @mattkahn1966

Matthew E. Kahn Profile picture
Dec 17, 2024
Today is a sad day as I have learned of the passing of my friend and @usc_econ colleague University Professor Richard Easterlin. Here is a happy photo of us back in 2018. Dick would have turned 99 in January. He was a highly productive and optimistic economist. A thread. Image
Here is Dick Easterlin's Google Scholar page. He made original contributions to many branches of economics.
scholar.google.com/scholar?hl=en&…
Here is a PNAS paper co-authored by Dick Easterlin that studies the paradox that during a time when China was growing richer that self-reported happiness wasn't rising. Siqi and I argue that this was partially caused by rising pollution in the nation.
pnas.org/doi/10.1073/pn…
Read 6 tweets
Matthew E. Kahn Profile picture
Dec 4, 2024
I will read this paper! Going forward, firms will better adapt to climate shocks if they buy "real options" related to linkages. For example, having some spatial redundancy in supply chains reduces the O-Ring probability of having no inputs to use!! (1/2)
Suppose that a firm relies on one single input supplier that is located in Egypt. If there is a 1% chance this supplier is wiped out, then the buyer may not sweat this. BUT, if climate change raises this risk to 4%, the buyer may now invest in self-protection (2/3).
This is the Climatopolis logic that the young Climate Change Data Science Army ignores. As the climate change challenge grows worse, forward looking people and firms reoptimize! This is the Lucas Critique and the Lucas Critique forms the basis for my adaptation optimism.
Read 5 tweets
Matthew E. Kahn Profile picture
Nov 29, 2024
Very interesting. Old Sherwin Rosen students and fans of hedonics will see an analogy to differentiated product markets and hedonic equilibrium in the cross-section. The marginal consumer sets the price in the hedonic equilibrium. Who is that guy? Why is he "marginal"?
Read Pat Bajari's papers from the 2000s (one is coauthored with me) to see the non-parametric approach for recovering preferences for differentiated products. Disagreement about the direction of interest rates is another example of product differentiation for durables demand!!
Those who are most optimistic that interest rates will be lower in the future will buy a home with an adjustable rate mortgage. This optimism is one's "hidden type". There are many other dimensions of such hedonic heterogeneity.
nber.org/papers/w10278
Read 4 tweets
Matthew E. Kahn Profile picture
Sep 14, 2024
A quick thread as I see another set of excellent economists violate the Lucas Critique. In the next slide, I discuss equation (7) of this paper.
Note that psi_1 and psi_2 are assumed to be constants here. They should be functions that change over time as the economy shifts. For example, cheaper air conditioning flattens these coefficients. This functional form rules out endogenous innovation fueling adaptation! Image
The words; "Lucas" , "Prescott", and "Sargent" do not appear in this paper. On my planet, forward looking households and firms make investments to reduce their risk exposure. This aggregate demand stimulates the next Musk to innovate to create adaptation solutions.
Read 5 tweets
Matthew E. Kahn Profile picture
May 24, 2024
California is a highly desirable place to live but the state builds very little new housing. My friend has co-authored a piece exploring the challenges in building housing in my combative state. In the next tweet, I offer a Coasian solution.
latimes.com/opinion/story/…
Suppose that each jurisdiction in California (such as a Malibu, or a Berkeley) is assigned a property right that it must build X units of new housing. NOW suppose it can trade this right with other jurisdictions. Similar to pollution permit markets, a price will emerge.
In environmental economics, the pollution haven hypothesis posits that the poor nation ends up with all of the world's garbage because richer jurisdictions pay it to take their trash. Would this same dynamic unfold in the California housing permit case?
Read 4 tweets
Matthew E. Kahn Profile picture
May 11, 2024
Thanks for pointing out their important paper! Take a look at equation (3), it rules out comparative advantage as every country is equally affected by the World Temperature shock. See next tweet for a JPE paper about farming that rejects this claim. More in the thread below.
In this age of heterogeneous agent macro, let's allow for some price adjustment and some comparative advantage in the farming sector.
journals.uchicago.edu/doi/abs/10.108…
As the world urbanizes, more and more of our global GNP is air conditioned. Urbanized workers acquire more skill and adapt to new threats. These two forces contribute to an insulated and robust economy that can take the heat.
Read 8 tweets

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