Tag: Faculty

Some economic observers continue to warn about signs of a potential U.S. recession. Glenn MacDonald, John M. Olin Distinguished Professor of Economics and Strategy at the Olin Business School at Washington University in St. Louis, says many signs aren’t particularly reliable — but do keep an eye on housing starts.

MacDonald sat down to discuss signs of a recession and whether he foresees one anytime soon. He doesn’t, but he cautions that history shows it’s not a question of if but when.

Where do recessions come from?

Much like earthquakes, we know a great deal about business cycles, but we don’t really know how to predict their arrival. Sometimes we can tell ourselves a story after the fact. But we don’t know whether those stories are correct.

People might blame the previous recession on the financial crisis?

The weakening housing market in 2006 precipitated the financial crisis; GDP growth was already shrinking when the housing market weakened. It’s not that the financial crisis caused the weakening housing market. It’s the other way around.


There are plenty of candidates for the cause of the most recent recession, including the high and rising level of government debt. But economics isn’t like physics, where there are certain rules that apply because, for example, the speed of light is a certain number. However, empirically, around the world, when government debt reaches something like a whole year’s GDP — that’s a noteworthy point. And the U.S. was getting there at that time, which many saw as a great cause for concern. The debt-GDP ratio has remained high, and, so far, the more frightening scenarios have not transpired.

One thing thought to predict recessions is an inverted yield curve, like occurred earlier this year, right?

Statistically there is a correlation between yield curve inversions and eventual onset of recessions. However, the connection between them is quite loose and difficult to employ to predict recessions confidently. For example, the yield curve was inverted for much of 2019 — suggesting a recession might be coming. But it is no longer inverted — suggesting the opposite.

When you see housing starts tailing off, that does tend to be a sign of trouble. And the reason for that is simply that the trouble has already started, as in 2006. So you are not really predicting a recession as much as noticing it early.

How are housing starts doing?

They were really, really strong in September. They’re not going as fast as they were going. But they’re still going.

We’re experiencing a long expansion. Should we be worried?

In a business cycle, proceeding from a trough to a peak is an “expansion.” On average in the postwar, US expansions been about five years long. So when people look at this 10-year expansion that we’ve just completed, they think it’s really long. But there is a lot of variability in expansion length. For example, the expansion that started right around 1990 also lasted 10 years.

Recognizing this variability in expansion length, the data suggest that the bulk of expansions would be less than 10 years in duration. So if you said, “It’s kind of like we’re almost overdue for a recession,” that would be consistent with the facts. But that idea is based on just 11 recessions and an economy that has changed drastically since the post war, so making confident predictions about such a rare event is impossible.

If Philadelphia’s soda tax is any indication, local soda taxes don’t work as well as policymakers intend.

Olin’s Song Yao, associate professor of marketing, and two other researchers studied the effects of Philadelphia’s soda tax, which took effect in January 2017.

Several US cities have enacted soda taxes to raise revenue and fight obesity among their citizens. Berkeley, California, was the first, but Philly was the first big city to adopt one. It uses the revenue to fund schools and improve parks, recreation centers and libraries.

The city’s 1.5-cents-an-ounce tax led to a 34% price increase for soda. And soda sales in Philadelphia dropped sharply—by 46%, according to the working paper “The Impact of Soda Taxes: Pass-through, Tax Avoidance, and Nutritional Effects.”

Song Yao

But here’s the catch: Soda sales at stores just outside the city increased dramatically. Apparently, a lot of people leave Philly to buy their soda elsewhere.

“The cross-shopping outside the city offset more than half of the reduction” of soda sales in the city, Yao said. So the net reduction in sugary drinks consumption is only 22%, he pointed out.

The reduction in calories and sugar people consumed because of the tax is even smaller; 16% and 15%, respectively. “The health impact is mediocre at best,” Yao said.  

The tax also imposes a disproportionate burden on low-income people, he said. “Access to transportation is more difficult for low-income households, so they engage in less cross-shopping and end up paying more inside the city.”

So far, NPRMarketWatchNational Review and The Washington Post have reported on the findings.

Policy lessons

The findings in Philadelphia provide policy lessons on how to design soda taxes or other types of “sin” taxes, according to the paper by Yao, Stephan Seiler of the University of California in Los Angeles, and Anna Tuchman of Northwestern University.

“If taxes are localized (as is the case for all current soda taxes), high tax rates will be sub-optimal for generating revenue because they lead to cross-shopping, which reduces the tax base,” they write.

“A larger geographic coverage will make cross-shopping more difficult and therefore generate greater tax revenue.”

Dean Mark Taylor is definitely doing his part to contribute to Olin’s strategic priority to build a stronger and broader reputation for research with impact.

According to the latest from Research Papers in Economics (RePEc), Taylor is the third most influential researcher in international finance in the world. In addition, the dean is in the top 10 of international finance researchers globally in terms of research citations, according to Google Scholar.

RePEc is a collaborative effort of hundreds of volunteers in 101 countries to enhance the dissemination of research in economics and related sciences. 

Taylor has long been one of the most highly cited financial economists. His research on exchange rates and international financial markets has been published extensively in many of the world’s leading academic and practitioner journals. He is also the author or co-author of a number of books, including two of the leading European textbooks in economics and macroeconomics. 

Domestic violence and illicit drug use plummeted among women who realized they could live decades longer than they’d expected because of a new HIV treatment, according to a new study.

The introduction of the medical treatment, Highly Active Anti-Retroviral Therapy, dramatically improved the health and longevity of HIV-positive women in the study.

The women’s lives subsequently improved dramatically in two other ways: They experienced 15% less domestic violence, and their drug abuse plunged by 15-20%.

That’s according to “Health, Human Capital and Domestic Violence,” forthcoming in the Journal of Human Resources. It’s the first study to show that interventions that improve women’s health and longevity can reduce both domestic violence and illicit drug use, the authors say.

The women’s improvement also could lead to increased labor market productivity, the authors point out.

“Innovations in healthcare can have indirect effects on things that you may not immediately expect,” said coauthor Barton H. Hamilton, Olin’s Robert Brookings Smith Distinguished Professor of Economics, Management and Entrepreneurship. Innovations in healthcare are among his research interests.

Hamilton and Robert A. Pollak, Olin’s Hernreich Distinguished Professor of Economics, collaborated with four other authors on the research: Nicholas W. Papageorge of Johns Hopkins University, Gwyn C. Pauley of the University of Wisconsin–Madison, Mardge Cohen of Rush University and Tracey E. Wilson of the State University of New York.

‘A lot more health capital’

Participants in the study were recruited from HIV primary care clinics, hospital-based programs, research programs, community outreach sites, women’s support groups, drug rehabilitation programs, HIV testing sites and referrals from enrolled participants. The study began in 1994, and a second cohort was added to the sample in 2001-2002.

“Suppose all of a sudden somebody tells you that you’re going to live for another 30 years instead of expecting that you’ll die in the next five years? What are you going to do?” Hamilton asks.

“Now, all of a sudden, you have a lot more health capital than you ever thought you had. And how does that affect the kind of decisions and investments you make?”

One might be to get out of an abusive relationship. Another: to stop using cocaine, heroin and other drugs.

Relying on surveys and a series of robustness checks, the research focused on women who were HIV-positive but not yet symptomatic. For the women, the treatment known as HAART had no immediate impact on symptoms. But it did improve their expected health and lengthened their expected lifetimes.

“This incentivized them to make costly upfront investments with future payoffs,” Hamilton said. “We treat the avoidance of domestic violence, including leaving an abusive relationship, as such an investment.”

The cost of domestic violence

The annual cost of domestic violence—including direct medical expenditures and losses to productivity—is estimated at $5.8 billion. The authors point out that $5.8 billion is probably “a gross under-estimation” because it does not include costs to the justice system or social services.

“We view health as a form of human capital that not only increases longevity, but also improves the quality of life and increases labor market productivity,” Hamilton said.

The researchers used data from a longitudinal study, the Women’s Intra-Agency HIV Study, which provided rich information on health, sociodemographic characteristics, domestic violence and illicit drug use.

Improving their options

HAART enhanced the women’s expected well-being and economic resources, such as income, improving their options outside of violent partnerships.

Following similar logic, the researchers assessed the effect of HAART on another investment with upfront costs and future payoffs: reducing the use of illicit drugs. Upfront costs include withdrawal symptoms and depression, while benefits include better future health and fewer barriers to employment.

“In economics, we don’t have too many situations where we can study such a big shock—in the sense of now you’re going to get an extra 30 years of life,” Hamilton said.

HAART transformed HIV infection from a virtual death sentence into a manageable, chronic condition, reducing mortality rates by more than 80% within two years of its introduction.

“What we saw was a pretty drastic change in incentives,” the biggest one being a chance for a longer life, Hamilton said. “And, as a consequence, we saw a pretty significant response.”

P. Konstantina Kiousis
P. Konstantina Kiousis

Konstantina Kiousis, senior lecturer in business management, was named one of Poets & Quants for Undergrads Favorite Professors of Business Majors.

Kiousis was nominated by Andrew Bower, her former student and teaching assistant, for “her passion for business strategy and care for her students.” Bower testified to her dedication to keeping lectures current in order to promote critical thinking among her students.

According to Bowen, her attitude with TAs promotes a “familial culture,” which leads to mentorship opportunities between juniors and seniors.

“While it may sound cliché, Dr. K truly changes lives each semester,” said Bowen.

The 11 professors were nominated by Poet & Quant’s list of the Best and Brightest Undergrad Business Majors of 2019. The educators were praised for ability to leave lessons that resonate for a lifetime, both inside and outside the classroom. These professors have the “it” factor: “comfortable in their own skin and able to seamlessly adapt to whatever their students need.”

Jackson Nickerson

For only the second time in the organization’s history, the Strategic Management Society has bestowed its educational impact award—this time, on WashU Olin’s Jackson Nickerson.

The society, established to “promote and encourage superior research and practice” in the field of strategic management, will formally present the award to Nickerson at its annual conference in Minneapolis this weekend. Nickerson is a non-resident senior fellow in government studies at the Brookings Institution and Olin’s Frahm Family Professor of Organization and Strategy.

“Jackson has made seminal contributions to management education for graduate students, executives, and government leaders,” the organization reported on its website. “He has been an inspiring and insightful teacher for more than 20 years. He has also authored more than 40 case studies, and he has been a true innovator in pedagogy, with some ground-breaking ideas about how to teach strategy to executives and government leaders.”

Lamar Pierce, professor of organization and strategy and associate dean for the Olin-Brookings Partnership, nominated Nickerson for the award, paying particular attention to his work as an instructor at Brookings and his influence on public sector leaders in Washington, DC.

“We estimate that, over the past decade, more than 15,000 students have attended onsite and open enrollment courses at Brookings in the programs that Jackson launched,” Pierce wrote. “I have no doubt that his impact on the federal government has been in the hundreds of millions of dollars.”

Pierce also commented on Nickerson’s influence and mentorship on junior faculty, noting that Nickerson “pulled me off of the academic scrap heap and gave me a job when no one else would.”

The ‘right’ questions

Daniel Elfenbein, associate professor of strategy at Olin, will introduce Nickerson at the ceremony and also nominated his colleague in a two-page letter, commenting that Nickerson’s curriculum and research “helped transform student outcomes” at the business school.

“I had several opportunities to be involved in courses taught by Dr. Nickerson as part of a custom-designed program for senior executives in Virginia,” said former student Sabrina C. Clark, director of VA Voluntary Service at the Veterans Administration in DC. “Jackson’s model for asking the ‘right’ questions to arrive at ‘right’ solutions is still powerfully resonant and relevant. Without a doubt, that single nugget changed the trajectory of my career.”

Another former student, Tim Keasling, deputy director of intelligence for the Army National Guard, recalled taking a class in which he and the professor had slightly different goals: “My goal was to pass the class,” Keasling recalled. “Professor Nickerson’s objective was for me to get my paper published. I passed the course and had my paper published!”