What economists learned from top stories of 2013

JANET CURRIE, a professor of economics and public affairs at Princeton University, pointed to a continuing decline in infant mortality rate as one of the most important developments of the last year. Other scholars observed the Federal Reserve's weighing of its bond-buying program, research focused on economic inequality and the Affordable Care Act as highlights of 2013. / COURTESY PRINCETON UNIVERSITY/EILEEN BARROSO
JANET CURRIE, a professor of economics and public affairs at Princeton University, pointed to a continuing decline in infant mortality rate as one of the most important developments of the last year. Other scholars observed the Federal Reserve's weighing of its bond-buying program, research focused on economic inequality and the Affordable Care Act as highlights of 2013. / COURTESY PRINCETON UNIVERSITY/EILEEN BARROSO

In 2013, a graduate student discovered a flaw in a spreadsheet, renewing the debate about austerity and debt. Emerging economies tanked, and Bitcoin boomed. In the U.S., unemployment fell and the Federal Reserve started to scale back its bond-buying program. Research focused on inequality and jobs gap between the highly skilled and everyone else. The Affordable Care Act began.
We asked scholars to identify the most important development or new research of the last year. This is what they came up with:
• Janet Currie, professor of economics and public affairs at Princeton University:
Infant mortality in the U.S. fell 12 percent from 2005 to 2011, according to the Centers for Disease Control. This good news is startling given that inequality grew and unemployment skyrocketed over the same period. How did conditions improve for babies, when they were deteriorating for their parents?
One answer is the safety net. Medicaid pays for about 40 percent of births. Because almost all births are paid for by either public or private insurance, all infants have access to life-saving technologies.
A second strand of the safety net is the Special Supplemental Nutrition Program for Women, Infants and Children, known as WIC. The initial rollout of the program reduced low birth weight and prematurity among children born to less educated women and in counties with high poverty levels. Many studies have shown continuing benefits.
A third strand involves home-visit programs by nurses. Nurses drop in on high-risk, pregnant women before birth and for up to two years afterward. While there is no national initiative, 20 states have created their own programs.
• Susan Athey, professor of economics at Stanford University:
Led by Bitcoin, virtual currency had a breakout year. Exchanges such as Bitstamp and U.S. on-ramps such as Coinbase Inc. gained traction; others, plagued by regulatory challenges, stopped working with U.S. banks (Mt. Gox) or closed (Bitfloor), leaving users unable to retrieve their funds. To become more than a fad for technology enthusiasts, day traders and libertarians, virtual currency needs to find direct utility as a means of transaction.
• Simon Johnson, professor of entrepreneurship at MIT’s Sloan School of Management:
A recent paper in the American Economic Review by David Autor, David Dorn and Gordon Hanson looks at the effects of increasing Chinese manufacturing exports on the U.S.
Using local U.S. labor markets, Autor, Dorn and Hanson examine the effect of the surge in Chinese imports from 1990 to 2007. They estimate that about one-quarter of the decline in manufacturing jobs was due to rising imports.
The findings don’t signal the end of work for people with only a high school education but they indicate that recent increases in inequality are likely to continue.
• Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office:
There are dozens of candidates for the top economic development of 2013 – the Federal Reserve’s “to taper or not to taper” drama; tax increases for the rich; Obamacare’s policies, politics and meltdowns; the huge expansion of the regulatory state; the new opportunities presented by a buoyant energy sector, or federal fiscal follies. All roads, however, lead to an economic recovery that refuses to take flight.
Compared with the typical postwar recovery, gross domestic product has been slow to recover, which has resulted in limited job growth and dismal income growth.
As the economy gradually regains full employment, focus will naturally shift to other policy and economic issues. But in 2013, the biggest development was the stubbornly subpar recovery. • James K. Galbraith, professor at the LBJ School of Public Affairs at the University of Texas at Austin:
The most important economics story of 2013 began with Thomas Herndon’s discovery of errors in a study by Carmen Reinhart and Ken Rogoff claiming a debt-to-GDP threshold for stagnation. Herndon’s work was only the beginning. As the year went on, all the main rationales for budget austerity, deficit hysteria and for cuts to Social Security, Medicare and Medicaid unraveled. As the year ends, the deficit hysterics are almost silent.
• Dani Rodrik, professor of social science at the Institute for Advanced Study in Princeton, N.J.:
This was the year when the emerging-market hype finally came crashing down. Some of it had to do with slowing growth rates, but the central reason was the effect on currencies of the Fed’s talk of tapering. As currencies from India to Brazil plummeted, the reality sank in that much of the recent growth these countries experienced was the product of favorable external developments, in particular, low interest rates in the U.S. and high commodity prices.
• June O’Neill, director of the Center for the Study of Business and Government at Baruch College, former director of the Congressional Budget Office:
Health care expenditures in the U.S. are now close to 18 percent of GDP, even though spending on major government programs slowed over the past few years (as a result of the recession and its toll on state and other spending).
We can only speculate what effect Obamacare will have on the huge health care sector. What seems likely is an increased burden on the federal government. The Medicaid expansion will be funded by the federal government for the next few years for those states that have signed up. •

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