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RISK POOLING: Combining the uncertainty of individuals into a calculable risk for large groups. For example, you may or may not contract the flu this year. However, if you're thrown in with 99,999 other people, then health-care types who spend their lives measuring the odds of an illness, can predict that 1 percent of the group, or 1,000 people, will get the flu. The uncertainty is that they probably don't know which 1,000 people, they only know the number afflicted. This little bit of information is what makes risk pooling possible. If the cost is $50 per illness, then an insurance company can insure your 100,000-member group against flu if they collect $50,000 ($50 x 1,000 sick people), or 50 cents per person. By agreeing to pay the cost of each sick person in exchange for the 50 cent payments, the insurance company has effectively pooled the risk of the group.

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NATIONAL BUREAU OF ECONOMIC RESEARCH:

A private, nonprofit, nonpartisan organization established in 1920 that promotes research into, and an understanding of, the workings of the economy. In addition to a relative small in-house staff (a few dozen), the National Bureau of Economic Research (NBER) includes several hundred of the best and the brightest economic professors at major universities as NBER researchers. At last count, a dozen Nobel Prize winners have included the title of NBER researcher on their resumes. The NBER sponsors research on assorted topics, including the development of quantitative economic measures and the analysis of public policies.
The National Bureau of Economic Research is one of the most highly respected economic research organizations in the United States. Since it was founded in 1920, its researchers have been responsible for several major advances in the study of economics, especially the analysis and measurement of business cycles, the methodology for calculating national income and gross production, and the important role money and money demand play in the macroeconomy.

The primary goal of the NBER has always been to sponsor and promote the objective, scientific investigation of economics. It concentrates on four main types of research: (1) the development of statistical measures of the economy, (2) the estimation of quantitative models of human behavior, (3) the analysis of how existing government policies are affecting the economy, and (4) the analysis of how proposed government policies are likely to affect the economy.

A Little Background

The National Bureau of Economic Research was founded in 1920 with the explicit goal of promoting the independent, objective, nonpartisan, nonpolitical, scientific research of economic conditions. During the first two decades of the 1900s, the U.S. economy had been shocked by a series of economic downturns and ongoing debates over issues such as the distribution of income. However, few objective quantitative facts existed to document the problems or to clarify the issues. The NBER was established by a group of business leaders, government officials, and economists, with varied backgrounds and political views, to fill this void.

The NBER emerged as an objective, scientific research organization largely due to the leadership of Wesley C. Mitchell, the original Director of Research and the man who guided the NBER for the first twenty-five years of its existence. Prior to his work with the NBER, Mitchell was a Professor of Economics at Columbia University, specializing in the quantitative analysis of business cycles.

The first research project completed under Mitchell's directorship was a ground breaking quantitative analysis of the structure, composition, and distribution of national income. This particular project was important for several reasons.

  • First, it established the NBER as an objective, scientific research organization. It clearly demonstrated to policy makers, business leaders, and other economists that the NBER was serious about pursuing scientific economic research.

  • Second, it created the standard for future scientific studies of economics. The methods and data used in the quantitative analysis of national income was thoroughly documented for any inquiring mind to peruse.

  • Third, it developed some of the measurement methodology for what later became the National Income and Product Accounts that measure gross domestic product and related income and expenditure components.

  • Fourth, it laid the foundation for the theoretical analysis of macroeconomic phenomena, especially the development of Keynesian economics. It also created the necessary data used to investigate the nuts and bolts that makeup the structure of the macroeconomy.

Business Cycles

While the NBER has had a hand in advances in virtually every facet of economics, it is perhaps best know for its work in the study of business cycles. Extending Mitchell's early work at Columbia University, and prompted by ongoing economic instability in the economy in the early 1920s, the NBER launched what was to become an ongoing investigation into, and documentation of, business cycles.

Among other things, this research led to the creation of the business cycle indicators (leading, coincident, and lagging economic indicators) and the dating of business cycle turning points--peaks and troughs. The NBER remains the "official" designator of "official" business cycle peaks, troughs, expansions, and contractions.

A Distinguished Cast

In addition to Wesley C. Mitchell, a pioneer in the study of business cycles, a complete list of distinguished economists who have been affiliated with the NBER is a lengthy one. Here is an abridged list:
  • Simon Kuznets: A Nobel Prize winner who pioneered work on national income accounting while at the NBER. He also had a hand in ground breaking research in business cycles and economic development.

  • Milton Friedman: Another Nobel Prize winner and major proponent of monetarism who investigated the demand for money and the determinants of consumer spending while affiliated with the NBER.

  • Arthur F. Burns: In addition to his work on business cycles at the NBER, he also spent a little time as Chairman of the Federal Reserve System, President of the NBER, Chairman of the Council of Economic Advisors, President of the American Economic Association, and even U.S. Ambassador to Germany.

  • Martin Feldstein: Another President of the NBER who also served as a Chairman of the Council of Economic Advisors. He is noted for his work on the study of tax policies and the federal deficit.

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NATIONAL BUREAU OF ECONOMIC RESEARCH, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2020. [Accessed: October 27, 2020].


Check Out These Related Terms...

     | Conference Board, The | business cycle indicators | leading economic indicators | coincident economic indicators | lagging economic indicators | Nobel Prize in Economic Sciences |


Or For A Little Background...

     | business cycles | peak | trough | expansion | contraction | business cycle phases | macroeconomics | positive economics | economic science | scientific method | economist |


And For Further Study...

     | demand-driven business cycles | supply-driven business cycles | stabilization policies | political views | Consumer Confidence Index | Index of Consumer Sentiment |


Related Websites (Will Open in New Window)...

     | National Bureau of Economic Research | The Conference Board | Nobel e-Museum |


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