March 2, 2006
Noteworthy Recent NBER Reports
The Economic Costs of the Iraq War: An Appraisal Three Years After the Beginning of the Conflict by Linda Bilmes, Joseph Stiglitz
Abstract: This paper attempts to provide a more complete reckoning of the costs of the Iraq War, using standard economic and accounting/ budgetary frameworks. As of December 30, 2005, total spending for combat and support operations in Iraq is $251bn, and the CBO's estimates put the projected total direct costs at around $500bn. These figures, however, greatly underestimate the War's true costs. We estimate a range of present and future costs, by including expenditures not in the $500bn CBO projection, such as lifetime healthcare and disability payments to returning veterans, replenishment of military hardware, and increased recruitment costs. We then make adjustments to reflect the social costs of the resources deployed, (e.g. reserve pay is less than the opportunity wage and disability pay is less than forgone earnings). Finally, we estimate the effects of the war on the overall performance of the economy. Even taking a conservative approach and assuming all US troops return by 2010, we believe the true costs exceed a trillion dollars. Using the CBO's projection of maintaining troops in Iraq through 2015, the true costs may exceed $2 trillion.
In either case, the cost is much larger than the administration's original estimate of $50-$60bn. The costs estimated do not include those borne by other countries, either directly (military
expenditures) or indirectly (the increased price of oil). Most importantly, we have not included the costs to Iraq, either in terms of destruction of infrastructure or the loss of lives. These would all clearly raise the costs significantly.
Abstract: Some anti-discrimination laws have the perverse effect of harming the very class they were meant to protect. This paper provides evidence that age discrimination laws belong to this perverse class. Prior to the enforcement of the federal law, state laws had little effect on older workers, suggesting that firms either knew little about these laws or did not see them as a threat. After the enforcement of the federal Age Discrimination in Employment Act (ADEA) in 1979, white male workers over the age of 50 in states with age discrimination laws worked between 1 and 1.5 fewer weeks per year than workers in states without laws. These men are also .3 percentage points more likely to be retired and .2 percentage points less likely to be hired. These findings suggest that in an anti-age discrimination environment, firms seek to avoid litigation through means not intended by the legislation -- by not employing older workers in the first place.
A Framework for Assessing Corporate Governance Reform by Benjamin E. Hermalin, Michael S. Weisbach
Abstract: In light of recent corporate scandals, numerous proposals have been introduced for reforming corporate governance. This paper provides a theoretical framework through which to evaluate these reforms. Unlike various ad hoc arguments, this framework recognizes that governance structures arise endogenously in response to the constrained optimization problems faced by the relevant parties. Contract theory provides a set of necessary conditions under which governance reform can be welfare-improving: 1) There is asymmetric information at the time of contracting; or 2) Governance failures impose externalities on third parties; or 3) The state has access to remedies or punishments that are not available to third parties. We provide a series of models that illustrate the importance of these conditions and what can go wrong if they are not met.
The Most Important Works of Art of the Twentieth Century by David W. Galenson
Abstract: A survey of art history textbooks identifies and ranks the eight most important works of the 20th century. The most important painting of the century was Les Demoiselles d'Avignon, executed by Picasso at the age of 26, which began the development of Cubism. Among the other seven works, a collage, an earthwork, and a ready-made all represent new genres that had not existed at the start of the century. All eight works were made by conceptual artists, at a median age of just 32. The results underline the importance of young conceptual innovators, who made radical departures from existing conventions, in the advanced art of the century. Four of the eight works were made by Picasso and Marcel Duchamp, and this highlights the importance of the versatile conceptual innovators who became a prominent feature of twentieth-century art.
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