Thursday, March 21, 2019

The Remarkable Renaissance in US Fossil Fuel Production

M. King Hubbert was a big-name geologist who worked much of his career for Shell oil. Back in the 1970s, when OPEC taught the US that the price of oil was set in global markets, discussions of US energy production often began with the "Hubbert curve," based on a 1956 paper in which Hubbert predicted with considerable accuracy that US oil production would peak around 1970. The  2019 Economic Report of the President devotes a chapter to energy policy, and offers a reminder what happened with Hubbert's curve.

The red line shows Hubbert's predicted oil production curve from 1956. The blue line shows actual US oil production in the lower 48 states. At the time of Hubbert's death in 1989, his forecast looked spot-on. Even by around 2010, his forecast looked pretty good. But for those of us who had built up a habit since the 1970s of looking at US oil production relative to Hubbert's prediction, the last decade has been a dramatic shock. .

Indeed, domestic US oil production now outstrips that of the previous world leaders: Saudi Arabia and Russia.

The surge in US fossil fuel production is about natural gas as well as oil. Here's a figure which combines output of all US fossil fuel production, measured by its energy content. You can see that it's (very) roughly constant from the 1980s up through about 2010, and then everything changes.

Many Americans are ambivalent about fossil fuel production. We demonstrate our affection for it by driving cars, riding in airplanes, and consuming products that are shipped over US transportation networks and produced with fossil fuels (for many of us, including electricity). People who live in  parts of the country that are active in fossil fuel production often like the jobs and the positive effects on the local economy. On the other side, many of us worry both about environmental costs of energy production and use, and how they might be reduced.

Big picture, the US economy has been using less energy to produce each $1 of GDP over time, as have other high-income economies like those of western Europe.
My guess is that the higher energy consumption per unit of output in the US economy is partly because the US is a big and sprawling country, so transportation costs are higher, but also that many European countries impose considerably higher taxes on energy use than the US, which tends to hold down consumption.

The US could certainly set a better example for other countries in making efforts to reduce carbon emissions. But that said, it's also worth noting that US emissions of carbon dioxide have been essentially flat for the last quarter-century. More broadly, North America is 18% of global carbon emissions, Europe is 12%, and the Asia-Pacific region is 48%.  Attempts to address global carbon emissions that don't have a heavy emphasis on the Asia Pacific region are missing the bulk of the problem.

Overall, it seems to me that the sudden growth  of the US energy sector has been a positive force. No, it doesn't mean that the US is exempt from global price movements in energy prices. As the US economy has started to ramp up energy exports, it will continue to be clear that energy prices are set in global markets. But the sharp drop in energy imports has helped to keep the US trade deficit lower than it would otherwise have been. The growing energy sector has been a source of US jobs and output. The shift from coal to natural gas as a source of energy has helped to hold down US carbon dioxide emissions. Moreover, domestically-produced US energy is happening in a country which has, by world standards, relatively tight environmental rules on such activities.

Wednesday, March 20, 2019

Wealth, Consumption, and Income: Patterns Since 1950

Many of us who watch the economy are slaves to what's changing in the relatively short-term, but it can be useful to anchor oneself in patterns over longer periods. Here's a graph from the 2019 Economic Report of the President which relates wealth and consumption to levels of disposable income over time.
The red line shows that total wealth has typically equal to about six years of total personal income in the US economy: a little lower in the 1970s, and  a little higher in recent years at the peak of the dot-com boom in the late 1990s, the housing boom around 2006, and the present.

The blue line shows that total consumption is typically equal to about .9 of total personal income, although it was up to about .95 before the Great Recession, and still looks a shade higher than was typical from the 1950s through the 1980s.

Total stock market wealth and total housing wealth were each typically roughly equal to disposable income from the 1950s up through the mid-1990s, although stock market wealth was higher in the 1960s and housing wealth was higher in the 1980s. Housing wealth is now at about that same long-run average, roughly equal to disposable income. However, stock market wealth has been nudging up toward being twice as high as total disposable income in the late 1990s, round 2007, and at present .

A figure like this one runs some danger of exaggerating the stability of the economy. Even small  movements in these lines over a year or a few years represent big changes for many households.

What jumps out at me is the rise in long-term stock market wealth relative to income since the late 1990s. That's what is driving total wealth above its long-run average. And it's probably part of what what is causing consumption levels relative to income to be higher as well. That relatively higher level of stock market wealth is propping up a lot of retirement accounts for both current and future retirees--including my own.

Reentry from Out of the Labor Market

Each year, the White House Council of Economic Advisers published the Economic Report of the President, which can be thought of as a loyalist's view of the current economic situation. For example, if you are interested in a rock-ribbed defense of the Tax Cuts and Jobs Act passed in December 2017 or of the deregulatory policies of the Trump administration looks like, then Chapters 1 and 2 of the 2019 report are for you. Of course, some people will read these chapters with the intention of citing the evidence in support of the Trump administration, while others will be planning to use the chapters for intellectual target practice. The report will prove useful for both purposes.

Here, I'll focus on some pieces of the 2019 Economic Report of the President that focus more on underlying economic patterns, rather than on policy advocacy.  For example, some interesting patterns have emerged in what it means to be "out of the labor market."

Economists have an ongoing problem when looking at unemployment. Some people don't have a job and are actively looking for one. They are counted as "unemployed." Some people don't have a job and aren't looking for one. They are not included in the officially "unemployed," but instead are "out of the labor force." In some cases, those who are not looking for a job are really not looking--like someone who has firmly entered retirement. But in other cases, some of those not looking for a job might still take one, if a job was on offer.

This issue came up a lot in the years after the Great Recession. The official unemployment rate topped out in October 2009 at 10%. But as the unemployment rate gradually declined, the "labor force participation" rate also fell--which means that the share of Americans who were out of the labor force and not looking for a job was rising.You can see this pattern in the blue line below.
There were some natural reasons for the labor force participation rate to start declining after about 2010. In particular, the leading edge of the "baby boom" generation, which started in 1945, turned 65 in 2010, so it had long been expected that labor force participation rates would start falling with their retirements.

Notice that the fall in labor force participation rates levelled off late in 2013. Lower unemployment rates since that time cannot be due to declining labor force participation. Or an alternative way to look at the labor market is to focus on employment-to-population--that is, just ignore the issue of whether those who lack jobs are looking for work (and thus "in the labor force") or not looking for work (and thus "out of the labor force"). At about the same time in 2013 when the drop in the labor force participation rate leveled out, the red line shows that the employment-to-population ratio started rising.

What especially interesting is that many of those taking jobs in the last few years were not being counted as among the "unemployed." Instead, they were in that category of "out of the labor force"--that is, without a job but not looking for work. However, as jobs became more available, they have proved willing to take jobs. Here's a graph showing the share of adults starting work who were previously "out of the labor force" rather than officially "unemployed."
A couple of things are striking about this figure.

1) Going back more than 25 years, it's consistently true that more than half of those starting work were not counted as "unemployed," but instead were "out of the labor force." In other words, the number of officially "unemployed" is not a great measure of the number of people actually willing to work, if a suitable job is available.

2) The ratio is at its  highest level since the start of this data in 1990. Presumably this is because when the official unemployment rate is so low (4% or less since March 2018), firms that want to hire are needing to go after those who the official labor market statistics treated as "not in the labor force."

Tuesday, March 19, 2019

Alternatives to the Four-Year College Track for Everyone Else

As the US goes through one of its periodic paroxysms over how the small minority of high school graduates who attend a selective four-year undergraduate college is chosen, it's worth taking a moment to remember everyone else.  US high schools graduate about 3.6 million students each year. That's a big group, with a wide array of abilities, preparation, and interests. For a substantial number of them, high school was not an especially rewarding academic experience, and no matter what they are told by their college-educated teachers and college-educated counselors, the idea of signing up for a few more years of academic courses is not very enticing.

Oren Cass has written a short essay about this group, "How the Other Half Learns: Reorienting an Education System That Fails Most Students" (Manhattan Institute, August 2018). Here are a couple  of points that caught my eye. 

One study looked back at the students who graduated from high school in 2003, and how the education system had treated them six years later. The data is obviously a few years old, but the overall patterns don't seem to have changed much. For example, about 70% of high school grads enrolled in college in 2003, and about 70% did so in 2016, too.  

Of the 70% who started off to college in 2003, about two-thirds went to a four-year school and one-third to a two years school. Six years later, by 2009, fewer than half of those who started off to college in 2003 had a degree. 

Cass calculates the proportions this way: 
Consider a cohort of 100 students arriving in the ninth grade:
  • Of the 100, 18 of them won’t graduate on time from high school 
  • Of the 82 who do graduate, 25 won’t enroll in higher education
  • Of the 57 who do enroll, 29 won’t earn even an associate’s degree after six years
  • Of the 28 who do graduate, 12 will land in jobs that do not require a degree 
  • Only 16 will successfully navigate the high school to college to career pipeline—the current aim of the education system.
Of course, these problems are fairly well-known. I've written here about "The Problem of College Completion Rates" (June 29, 2018), and about "Some Proposals for Improving Work, Wages and Skills for Americans" (February 19, 2019) like a dramatic expansion of community colleges. But my sense is that the issue here runs deeper. Cass offers one way of thinking about alternatives. 

Of course, this alternative track does require students to make some choices in about 11th grade, but frankly, that doesn't worry me too much. By 10th grade, a lot of students have a fairly good grip on where they stand academically. And if a student chooses a career and technical education track, but decides after a couple of years to give college a try, that's of course just fine. 

The bigger hurdle, it seems to me, is that the alternative vision requires a group of employers who are willing to restructure their organizations in a way that will enable a steady stream of 18-20 year-olds to enter a subsidized work program every year. Moreover, these employers need to treat these young workers not just as an unskilled pair of hands, but to think about what kinds of training and certification these young workers should be attaining during this time. Most US employers are not used to thinking of themselves in these roles. 

But it seems to me that a substantial share of the 3.6 million high school graduates each year might prefer something like Cass's "alternative pathway" to a four-year college degree. As the figure illustrates, society would not be investing less in these young adults--it would just be investing differently. Like a lot of people who ended up working in academia, I went off to college eager and enthusiastic about doing things like reading Adam Smith and Plato, and writing papers about topics like the international law ramifications of the UK-Icelandic cod fishery disputes of the 1970s. But I have noticed over time that not everyone shares my enthusiasms. The US needs alternative paths to good jobs at good wages that don't just involve telling all of the 3.6 million high school graduates  they need to keep going to school.  

Monday, March 18, 2019

Paul Cheshire: "Cities are the Most Welfare Enhancing Human Innovation In History"

Hites Ahir interviews Paul Cheshire in the March 2019 issue of his Housing Watch Newsletter (interview here, full newsletter here). Here are a few of Cheshire's comments that caught my eye:

The Economic Gains from Cities
"There are many types of agglomeration economies in consumption and we really know very little about them still but my assessment is that cities are the most welfare enhancing human innovation in history: they empowered the division of labour, the invention of money, trade and technical inventions like the wheel – let alone government, the arts or culture."
Why Land is Regaining Importance in Economic Analysis
"Classical economists devoted far more effort to trying to understand the returns to land than they did to labour or capital: it was both the most important asset and the most important factor of production. When Adam Smith was writing only about 12 percent of Europe’s population lived in cities and even in the most industrialised country, Britain, the value of agricultural land was about 3 times that of annual GDP. But as the value of other assets increased, interest in land diminished so that by about 1970 really only agricultural economists and a few urban economists were interested in it: and they did not talk to each other. But by 2010 residential property, mostly the land on which houses sat, was worth three times as much as British GDP. By the end of 2013 houses accounted for 61 percent of the UK’s net worth: up from 49 percent 20 years ago. Land, now urban land, is valuable, so there is renewed interest."
Urban Policy Often Misses the Problems of the Modern City
"Luckily cities are so resilient because urban policy is generally so bad! ... Policy has been dominated by physical and design ways of thinking: great for building those fantastic innovations of the 19th Century – sewers or water supply. But not useful for facilitating urban growth and offsetting for the costs of city size. We know cities keep on getting more productive the bigger they are but some costs – the price of space, congestion, for example – also increase with city size. So urban policy should offset for those costs. Instead it mainly increases them. Popular policies of densification and containment restrict the supply of space, increasing its price as cities grow so we forego socially valuable agglomeration economies. Another popular policy – height restrictions – reduces gains from ‘vertical’ agglomeration economies."

Friday, March 15, 2019

Some Peculiarities of Labor Markets: Is Antitrust an Answer?

Labor markets are in some ways fundamentally different from markets for goods and services. A job is a relationship, but in general, the worker needs the relationship to begin and to last more than the employer does/ John Bates Clark , probably the most eminent American economist of his time, put it this way in his 1907 book, Essentials of Economic Theory
"In the making of the wages contract the individual laborer is at a disadvantage. He has something which he must sell and which his employer is not obliged to take, since he [that is, the employer] can reject single men with impunity. ... A period of idleness may increase this disability to any extent. The vender of anything which must be sold at once is like a starving man pawning his coat—he must take whatever is offered."
In the last few years, an idea has emerged that the same government agencies that are supposed to be concerned about monopoly power--that is, when dominant firms in an industry can take advantage of the lack of competition to raise the prices paid by consumers--should also be concerned about "monopsony" power--that is, when dominant firms in an industry can take advantage of the lack of competition to reduce the wages paid to workers. Eric A. Posner, Glen Weyl and Suresh Naidu offer a useful overview of this line of thought in "Antitrust Remedies for Labor Market Power," published in the Harvard Law Review. (132 Harv. L. Rev. 536, December 2018). My own sense is that their discussion of the power imbalance in labor markets is fully persuasive, but it also seems to me that antitrust is at most a very partial and incomplete way of addressing these issues. 

Here's a nice explanation from Posner, Weyl, and Naidu of why workers have reason to feel vulnerable to the monopsony power of employers in labor markets (footnotes omitted):

But there is reason to believe that labor markets are more vulnerable to monopsony than products markets are to monopoly, thanks to a different literature in economics. This literature, for which Professors Lloyd Shapley and Alvin Roth were awarded the Nobel Prize, emphasizes the importance of matching for labor markets.The key point is that in labor markets, unlike in product markets, the preferences of both sides of the market affect whether a transaction is desirable. 
Compare buying a car in the product market and searching for a job. Both are important, high-stakes choices that are taken with care. However, there is a crucial difference. In a car sale, only the buyer cares about the identity, nature, and features of the product in question — the car. The seller cares nothing about the buyer or (in most cases) what the buyer plans do with the car. In employment, the employer cares about the identity and characteristics of the employee and the employee cares about the identity and characteristics of the employer. Complexity runs in both directions rather than in one. Employers search for employees who are not just qualified, but also who possess skills and personality that are a good match to the culture and needs of that employer. At the same time, employees are looking for an employer with a workplace and working conditions that are a good match for their needs, preferences, and family situation. Only when these two sets of preferences and requirements “match” will a hire be made. 
This two-sided differentiation is why low-skill workers may be as or even more vulnerable to monopsony than high-skill workers, despite possibly being less differentiated for employers. Low-skill workers may have less access to transportation, well-situated housing markets, child care options, and job information, and be more dependent on local, informal networks, all of which make jobs less substitutable and employers more differentiated. 
This dual set of relevant preferences means that labor markets are doubly differentiated by the idiosyncratic preferences of both employers and workers. In some sense this dual set of preferences “squares” the differentiation that exists in product markets, naturally making labor markets thinner than product markets. This relative thinness means that the cost of entering a transaction — in relation to the gains from trade — is on average greater in employment markets than in product markets because people are not as interchangeable as goods. 
These matching frictions both cause and reinforce the typically long-term nature of employment relationships compared to most product purchases, leading to significant lock-in within employment relationships. They are also reinforced by the more geographically constrained nature of labor markets. In our increasingly digital and globalized world, products are easily shipped around the country and world; people are not. While traveling is easier than in the past, and telecommuting has become more common, labor markets remain extremely local while most product markets are regional, national, or even global.Most jobs still require physical proximity to the employer, greatly narrowing the geographic scope of most labor markets, given that many workers are not willing to move away from family to take a job. Two-income families further complicate these issues because each spouse must find a job in the area in which the other can, further narrowing labor markets. Together these factors naturally make labor markets highly vulnerable to monopsony power, much more vulnerable than most product markets are to monopoly power.
To what extent might antitrust be a remedy for these kinds of issues? There are certainly situations where it seems appropriate. For example,  the authors discuss "the revelation that high-profile Silicon Valley tech firms, including Apple and Google, entered nopoaching agreements, in which they agreed not to hire each other’s employees. This type of horizontal agreement is a clear violation of the
Sherman Act. The firms settled with the government [in 2018], but the casual way in which such major firms, with sophisticated legal staffs, engaged in such a blatant violation of the law appears to have alarmed antitrust authorities. The government subsequently issued guidelines to human resources offices warning them that even implicit agreements not to poach competitors’ employees are illegal." 

Another set of examples involve the growth of "non-compete" agreements, in which a worker is required to sign an agreement to not to work for a competing firm for some period of time (for additional discussion, see "The Economics of Noncompete Agreements," April 19, 2016). It's also true that about 25% of the US workforce is now in jobs that require a government license, and these licenses often appear to be at least as much about limiting competition in a certain area of the labor market--for example, blocking movement across state lines-- as ensuring quality and information for consumers
One can also imagine that standard merger investigations might take labor market effects into account. For example, say that three hospitals in a local area propose a merger. The standard analysis would look at the reduction in competition that is likely to occur, along with the possibility of higher prices for consumers, and then balance that against whether the merger is likely to produce efficiency gains or synergies that would benefit consumers. This analysis might also take into account not just effects on consumers, but whether the monopsony power of the merged hospitals might push down labor wages in that local market.

But at least for me, it's not clear that there are a lot of standard merger cases, focused on product market competition and effects on consumers, where including the labor market effects would alter the outcome. Perhaps more to the point, conventional antitrust doesn't seem likely to do much at all about the deeper pecularities of labor markets, like the issues pointed out above of two-sided differentiation, moving costs, two-earner couples looking for a job in the same place, and so on.

Perhaps one answer is to expand our notion of how the competition authorities might address the issue of labor market power of large employers. The authors write in a somewhat speculative tone:
Our present business landscape exhibits a number of extremely powerful employers as a result of the neglect of mergers and other anticompetitive behavior in labor markets. While a more detailed examination would be needed to draw any firm conclusions, antitrust investigations into massive employers (such as Compass Group, Accenture, Amazon, Uber, and Walmart), as well as platform-based firms that receive vast flows of valuable data services without any compensation (such as Facebook and Google), seem warranted. It may be that some of these firms have achieved such powerful monopsonies that they should be broken up.
Again, the argument here is not that consumers would benefits from breaking up these firms, but that it should be considered on behalf of workers, with the belief that if these firms operated with more competitors, they would need to pay higher wages. I'm open to more evidence on this point, but I'm unpersuaded by the existing evidence. It seems to me that the more direct approach to addressing the generalized power imbalance against workers is to pursue various "active labor market policies" that provide assistance with job search, relocation, and retraining, as well as doing whatever we can to run a "high pressure" economy where unemployment rates are low, so that workers are both in demand and have some plausible alternative options if they want or need to switch employers.

Postscript: For a discussion of how an economist and a classics scholar came up with teh terminology of "monopsony" back in 1933, see Thornton, Robert, J. 2004. "Retrospectives: How Joan Robinson and B. L. Hallward Named Monopsony." Journal of Economic Perspectives, 18 (2): 257-261.)

Thursday, March 14, 2019

Greg Mankiw on Textbooks, and Some Reactions

Greg Mankiw is the author of two leading undergraduate economics textbooks: one for the introductory principles of economics course and the other for intermediate macro. At his blog, he linked an essay he has just written, "Reflections of a Textbook Author" (March 6, 2019).  Those teaching or taking either principles or intermediate macro will find it of interest, as well as those who have contemplated writing a textbook of their own.

I've had experiences to build up some views about intro economics pedagogy over the years. I've been involved in several introductory textbooks: first as a commenter and editor for the first edition of the introductory Economics textbook by Joseph Stiglitz published in 1993, and more recently as the authors of my own Principles of Economics textbook (first edition published in 2008, and of course I commend the most recent high-quality and affordable edition to your attention), which was used in a  revised, shortened, and reorganized form as the backbone for the freely downloadable Principles of Economics book available through OpenStax. I've taught intro econ at Stanford and the University of Minnesota. I've also done some non-textbook, non-classroom introductions to economics. For example, back in the mid-1990s I recorded the first edition of an Economics course, explaining terminology and trends without graphs, for the Teaching Company back in 1995--the most recent edition is here. Those lectures became the basis for my 2012 book The Instant Economist. Last year, I did a series of 90 podcasts, 15 minutes each, for the Chinese company Ximalaya, explaining intro economics terms in a nontechnical way with examples and context from China's economy.

Here, I'll pass along a few thoughts from Mankiw's essay that caught my eye, with some reactions of my own, but Greg is a lovely and insightful writer, so there's lots more at the essay itself.

Principles Instructor as Ambassador
"Just as ambassadors are supposed to faithfully represent the perspective of their nations, the instructor in an introductory course (and intermediate courses as well) should faithfully represent the views shared by the majority of professional economists. ... This perspective of instructor as ambassador raises the question of what instructors should do if they hold views far from the mainstream of the economics profession. If you are an Austrian or Marxist economist, for example, what should you do if asked to teach an introductory course? In my view, there are only two responsible courses of action. One is to sublimate your own views and spend most of the course teaching what the mainstream believes, even if you disagree with it. Because many introductory students will take only one or two courses in economics throughout their educations, it would be pedagogical malpractice, in my judgment, to focus on an idiosyncratic minority viewpoint. The other responsible course of action is to avoid teaching introductory (and even intermediate) courses entirely." 
I very much agree with this sentiment. But I'd also add that there should be some room, at least at larger universities, for some nonstandard overviews of economics. For example, many schools have  freshman seminars taught by regular faculty that focus on writing, but with content specific to the professor. Or departments could offer some intro-level courses, without prerequisites, that aren't the standard course. One would probably need to specify that these alternative courses would not be a good preparation for intermediate micro and intermediate macro to follow. But carving out and preserving some room for experimentation at the intro level seems potentially useful.

From Supply and Demand to Consumer and Producer Surplus
"Haven’t supply and demand always been at the center of the introductory course? Surprisingly, no. The first edition of Paul Samuelson's great text, published in 1948 and 608 pages long, did not introduce supply and demand curves until page 447. That is in part because Samuelson, writing in the shadow of the Great Depression, began his book by emphasizing Keynesian macroeconomics. As the book was revised over many editions, standard microeconomic tools became more prominent. But even today, many introductory courses do not develop the framework of supply and demand as fully as they should. In particular, welfare economics is sometimes not given sufficient coverage. The basic tools of welfare economics are consumer surplus and producer surplus, which are natural extensions of supply and demand."
Pretty much all modern intro textbooks are the intellectual children of Samuelson's 1948 text, just revised and updated in various ways. My understanding is that if you go back before that textbook, it was common for intro economics courses to have almost no graphs at all--whether supply-and-demand or otherwise. Following Samuelson, it was also standard to do macro before micro, which seemed based on the assumption that macro had more of a connection to current events and would be an easier way to hook intro students into the subject.

I confess that I'm more dubious than Mankiw when it comes to bringing consumer and producer surplus into the intro class. In my experience, triangular areas under curves are hard for a lot of intro students, and I'm not sure the payoff is very high for the intro student--which is most of them--who aren't ever going to take another econ class. In the great struggle over what to include and what to leave out, I'd put less emphasis on on this topic than Mankiw--and I wouldn't quarrel with an instructor who decided just to leave it out.

Including Too Much?
"For many years, Otto Eckstein ran the introductory course at Harvard. Unfortunately, I never met him as he passed away just before I joined the faculty. But I have heard one of his aphorisms. Apparently, Otto often told section leaders, `The less you teach them, the more they learn.' What I believe he meant by this is that instructors should avoid overwhelming introductory students with too much information all at once. ... As economists, we teach our students about scarcity. As instructors and textbook authors, we should remember that student time is a scarce resource. We must avoid making our courses encyclopedic. That means taking out all of the easily ignored details and stressing the big ideas. The main goal of the introductory course is not to produce future economists but to produce well-informed citizens. Any topic that a person does not need to understand to intelligently follow the news is a plausible candidate for omission. One risk when simplifying matters for students is oversimplification, losing too much of the nuance that economists bring to an issue. But given the difficulty some students have learning basic economics, it is a bigger risk to overcomplicate the analysis early in the course."
In writing a book, there are ongoing pressures to add more. Every reader has a pet topic, or a pet example, or a pet caveat, that would only take another page. A standard response is to write a textbook with the idea that certain chapters will be "core," while other instructors can be dropped by professors if they prefer. In my own textbook, for example, there is a chapter on imperfect information and insurance, and another chapter on financial markets, which can be dropped. In one of the macro chapters, I include the Keynesian cross diagram for teaching about macro in the short-run, but I place it as the second half of a chapter so that it can be smoothly omitted if a professor desires.

While the individual choices about what to include are usually defensible, it  seems fair to me to ask whether the current intro model--whether Mankiw's book or my own--is actually aimed at producing well-informed citizens rather than prepping students for the intermediate micro and macro courses that typically follow in the undergrad econ major. As someone who took intro econ awhile back about their memory of the course, and you're likely to get a wry smile and a memory of how there were a bunch of graphical exercises to solve. It's not obvious to me that someone who has taken the standard intro class would have been in a substantially improved position "to intelligently follow the news" about, say, the causes of the Great Recession, or what happens when the policy interest rate targetted by the Federal Reserve went to near-zero, or the arguments about the Patient Protection and Affordable Care Act and the Dodd-Frank bill passed in 2010, or the current arguments over China's economic growth or the Tax Cuts and Jobs Act passed in 2017. It's not clear to me that the standard intro class empowers students to know where and how to look up data and mainstream argument on these subjects and others, either.

Everyone has worried for a long time about the intro course including too much, but at the end of the day, we keep ramming stuff into it.  I'm not sure the current balance is right.

Free textbooks?
"One possibility is to have the fixed costs of production paid by a foundation grant (I am looking at you, Bill Gates) and then make the digital book freely available. This is similar to the common suggestion that newspapers like The New York Times should move from for-profit to non-profit status and then be supported by charitable donors, much like National Public Radio. Yet I am skeptical that this reform would improve on the status quo of the textbook market. After all, the current for-profit educational publishers are not that profitable, and there is no reason to think that a non-profit entity would find cost savings that have eluded existing publishers. I am afraid that the only way to substantially cut costs would be to reduce quality, which would not be in the students’ interests."
OpenStax is an organization that makes digital books freely available for a wide range of college courses, including the Economics book in which I played a role. It is indeed  partly funded by the Gates Foundation.  Mankiw suggests that "free" books may have an undesirable quality tradeoff.

Quality is often in the eye (and the wallet) of the beholder. But the idea behind OpenStax is that a lot of intro books across a lot of subjects are pretty similar: say, think about the likely similarities between intro textbooks in algebra, statistics, accounting, chemistry, and physics.  If instructors for intro econ should be ambassadors representing the common wisdom, books which do this will have a lot of overlap, too. Personally, I prefer my textbook from Textbook Media to the revised, reworked, reorganized, and shortened version that became the OpenStax book. But other instructors may disagree, or may just feel that "free" is worth it.

The bigger quality tradeoff with free books is about the ancillary materials that accompany a book: banks of multiple choice questions that can be organized into quizzes and tests, with machine-scoring; problem sets; slides and videos for the classroom; animated graphics; text-to-audio for those who learn better by listening; structured economic markets and exercises that can be "played" by students, and then mined for underlying lessons; and more. Some ancillaries have been created for the OpenStax free books, but for-profit publishers invest a lot into these ancillaries, and into making sure they function together in a coordinated way. I suspect that that the quality tradeoffs between free and priced textbooks are mild, compared to the quality tradeoffs between ancillary materials for the books.

How Much Do You Like the Act of Writing and Revising?
"If you are thinking about writing a textbook, the most important question to ask yourself is: Do you enjoy the process of writing and revising (and revising and revising and…)? Not just tolerate it, but really enjoy it? ... I actually enjoy the triennial revisions of my textbooks, not only because they allow me to update my texts for the ever-changing world but also because they give me the chance to go through the manuscript and tinker some more. I can change `the curve is upward sloping' to “`he curve slopes upward,' saving one word and two syllables! If that edit does not strike you as a life-affirming victory, you are not a writer at heart."
This comment reminded me of a couple of others. One was from an economist friend of mine who had serious talks with a publisher about writing a textbook and walked right up to the edge of a sizeable advance payment--before deciding not to go through with it. He told me that in looking the reality of a textbook project in the face: "I discovered that there's a big difference between wanting to write a book and wanting to have written a book."

The other is to emphasize that for most of us, good expository writing involves a lot of rewriting. When someone says that the explanations in my textbook are smooth and fluent and easy-to-follow, I always think: "Well, after about the 6th or 10th revision, it became a lot more clear." I remember the advice of "John Kenneth Galbraith on Writing, Inspiration, and Simplicity" (August 25, 2015). Galbraith, who was one of the truly fine prose stylists in economics, wrote: 
"The best place to write is by yourself, because writing becomes an escape from the terrible boredom of your own personality. It's the reason that for years I've favored Switzerland, where I look at the telephone and yearn to hear it ring. ... There may be inspired writers for whom the first draft is just right. But anyone who is not certifiably a Milton had better assume that the first draft is a very primitive thing. The reason is simple: Writing is difficult work. Ralph Paine, who managed Fortune in my time, used to say that anyone who said writing was easy was either a bad writer or an unregenerate liar. Thinking, as Voltaire avowed, is also a very tedious thing which men—or women—will do anything to avoid. So all first drafts are deeply flawed by the need to combine composition with thought. Each later draft is less demanding in this regard. Hence the writing can be better."