This most recent New Yorker has a very interesting piece in the "Talk of the Town" section about the influence of African pop music on the King of Pop.  In 1972, Manu Dibango released an album with the song "Soul Makossa".  A decade later, Michael Jackson released "Thriller" on which the second track, "Wanna Be Startin' Somethin'" borrows a few syllables from "Soul Makossa" (Dibango sings "Ma-mako, ma-ma-ssa, mako-makossa" while Jackson sings "Ma ma se, ma ma sa, ma ma coo sa").  In 2007, Rihanna released "Don't Stop the Music", which credits Jackson and closes with the same syllables as "Wanna Be Startin' Somethin'".  Dibango took Jackson and, more recently, Rihanna, to court for copyright infringement.  A settlement was reached with Jackson, but the Rihanna case is ongoing.

All this reminded me of one of my favorite Econ Talk episodes- where Roberts interviews Michele Boldrin.  A key point that Boldrin makes is that while our argument for copyrights is that if musicians are not given the monopoly rents from their copyrighted work, they will not produce- in practice we often give too much protection since the opportunity costs for these musicians is usually quite low.  Would Dibango not have put "Soul Makossa" with the single he wrote for the Comeroon soccer team if he didn't know of the royalties he'd get from a artist who, ten years later, used a similar 10 syllables?
The employment numbers that came out today show that the economy is still in the process of gearing down. The normalized peak plot below shows U.S. employment levels as a percentage of their peak level in the last 14 recessions back to the Great Depression (dark black line). Employment in our current recession (the heavy lime green line) is 4.7% lower than its peak back in December 2007. The only recession that looks like this since the Great Depression is the post WWII reduction in spending in 1945. It looks like the recession still has some room to run. Similar comparisons of GDP and stock prices are in my post from a month ago.

EmpRecessCompGraph09-07.png

Why newborns cry

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BabiesPayStimulus.png
(Thanks to Mary Hokanson for sending me this.)
Anna Schwartz is the author of a book review that came out in this month's (June 2009) Journal of Economic Literature on a recent biography of the economist and Nobel Laureate, Milton Friedman. One of her criticisms of the new Friedman biography is that the author missed one of the most important aspects of Friedman's personality--his style as an economic debater. She says,

For example, Friedman's style as a debater reveals an aspect of his personality. He was always courteous to his opponents in a debate, never attacked ad hominem. He concentrated on weaknesses of the opponent's arguments and invariably emerged as the victor in the debate.

In addition to being a fallacious logical argument, ad hominem attacks are an indicator of the weakness of an argument. Ad hominem attacks reveal that the proponent either (1) does not understand the subject enough to make a sound argument, (2) is advocating a position that cannot be justified by logical reason, or (3) is simply using the debate as a platform to slander his opponent. Reasons (1) and (2) have relevance for judging the validity of the argument, but reason (3) is irrelevant.

SNL on Leverage

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The U.S. CPI numbers came out today (see chart below). A lot of noise was made last week about inflation worries starting to surface in yields from the auctions of U.S. Treasuries. This WSJ piece from last Thursday posited that the higher yields might be signaling inflation in six-to-nine months. Jim Hamilton had a great analysis two weeks ago explaining why we should probably still be more worried about deflation than inflation. I had a post a few months ago debunking some of the inflation rhetoric from the far right. Below is a chart of the core CPI (overall prices minus food and energy) in terms of year-over-year percentage change. We're definitely not in high inflation territory yet.

CPIpctchgyoy2009-06-17.png

Because we don't do well with big numbers, this analogy puts some perspective on things:

The Cleveland Fed has put up a site that shows in glorious graphical detail how the Fed's new policy of quantitative easing has developed and grown over the last eight months. The light orange area in the graphic below represents traditional monetary policy. You can navigate through different date ranges and different detail views using menu bars across the top and left sides of the graph. They also include dowloadable source data, brief explanations of the data, as well as a link to a more detailed article.

Thanks to Mark Showalter for pointing me to this great resource, and thanks to the Cleveland Fed for the most simple, beautiful, and interactive display of economic data that I have seen yet. Here's to central bank transparency!

FedBalanceSheetClev2009-06.png
With bankruptcy plans finally announced for GM today, I thought it would be nice to revisit a previous post. On December 20, 2008, I posted an article entitled, "Ford tough," in which I praised Ford's decision not to accept government bailout money. I said the following:

The proposed auto bailout has been one of the most discouraging pieces of government action since the beginning of our current financial crisis. Ford's decision to stick with the market is one of the silver linings in the ominous clouds of the global recession. Ford does, of course, run the risk of not beeing able to compete in the short-run with GM and Chrysler and their new influx of government cash. But that's not really where the competition is anyway. The real contest is to see which U.S. company will be able to compete with their Japanese counterparts. I think the market will look favorably on Ford's long-run positioning.

Just look at what has happened to the stock prices of Ford and GM since December 20, 2008. The market has spoken.

GMandFord09-05.png
I just saw that Econosseur.com is now on the official list of economics blogs on the American Economics Association's Resources for Economists (RFE) web site. But even better is that our economic jokes page is the first link on the AEAweb page entitled "Neat Stuff".
Back in March, I wrote a piece entitled, "Overall economy not as bad... relatively" in which I graphically compared the current U.S. recession with the previous 13 recessions including the Great Depression. In that post, I concluded that the recession at that time was not the biggest since the Great Depression. This current post presents updated graphics and provides evidence that this is now the biggest U.S. recession since the big one at the beginning of the 1930s.

EmpRecessCompGraph09-05.png
Ran (Rani) Spiegler is a Professor in the Department of Economics at University College London who specializes in game theory and industrial organization. He has a great economics jokes page on his website entitled "Quasi-economics." Most of the links are to satyrical pieces that he has authored. My favorites are "How (not) to write an NSF Grant," a piece about world population per capita, and the Ariel Rubinstein Seminar Comment Generator (ARSECOG). The last paper is particularly funny for anyone who has attended a seminar presentation of an economic theory paper.

(Thanks to Scott Findley for pointing me to this.)
The newest economics blog that I know of is an offering from Donald Marron. I worked for Donald back in the summer of 2002 on the Joint Economic Committee of Congress. The main project I worked on with him was a report entitled, "Understanding the Stock Option Debate," that advocated stock option valuations on corporate balance sheets. Donald has worked as an economist in the highest levels of academia, government, and the private sector. I think Donald has a great understanding of the turbulent confluence of politics and economics, and I look forward to his forthcoming posts and insights.
(Pardon the long post, but this is a topic that I love.) Adding another post to a topic that Jason and I have discussed often both on and off this blog (post 1, post 2), I wanted to post a link to a podcast interview with Ed Leamer on EconTalk. Leamer is a renowned economist in international trade and econometrics. Russ Roberts' interview with Leamer is interesting and insightful, and I recommend it as a good listen. But I finished the podcast feeling very confused. Leamer argues both that current macroeconomics does a terrible job at explaining the data and at having a story to explain the data. This is not an inditement, but rather a good indirect description of the two current ways of approaching macroeconomics.
Val Lambson pointed me to this great video of comedian Louis CK on the Conan O'Brien show on 10/2/08. The economic content of the video is that technology has progressed so quickly in recent years, but our baseline utility (happiness) adjusts almost immediately. One of my favorite lines is, "how quickly the world owes him something he knew existed only 10 seconds ago."

Greg Mankiw posted this SNL video of Timothy Geithner commenting on the outcomes of the Treasury's stress tests of the American banking system.

Greg Mankiw posted this video of Barack Obama doing 16 minutes of comedy at the White House correspondents dinner on May 9, 2009 ("the 10-day anniversary of my first 100 days"). I think he closes with a pretty nice commentary about the American press.

I reported on the AEA humor session back in January. This video contains portions of Yoram Bauman's performance. I was sitting on the front row, just to the right of what the camera frame was showing. Enjoy.

Given the news coverage of health care proposals, I'm posting a list of questions I have about health care and heath economics.   I'd love to hear your answers.

1) If we are worried about health care costs rising relative to GDP, why aren't we worried about iPod costs relative to GDP?  After all, these "costs" have been rising at double digit rates for several years.  Why, at that rate, they are soon to overtake our entire economy.

2) Is there any industry which you could not envision cutting the costs of?  Why don't we cut the cost of SUV's by 1.5% each year?  Why is Obama stopping with just health care?

3) Why doesn't my car insurance pay for oil changes or new brake pads?
The May edition of the International Economic Update from the Globalization and Monetary Policy Institute at the Federal Reserve Bank of Dallas was released on Monday. Two points stand out to me: (1) The global growth forecasts are less optimistic than most U.S. forecasters (e.g., Ben Bernanke), and (2) the ranking of countries by relative size of fiscal stimulus in 2009 puts the U.S. a little further from the top than I expected.

IMFglobalgrowth2009-05.png
It's like Christmas eve... but not.  And "Santa" has been dropping some hints.  Here's a preview of what's coming tomorrow regarding the "Stress Tests".

Despite the leaks, I still expect some market reaction.  Why?  I don't know how to write down a rigorous model of it, but it seems like expectations are perceived differently from certainties, even if the expectations are correct.

The State of Macro

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This morning, I finished an excellent EconTalk episode in which Russ Roberts interviews Ricardo Reis on the topic of what we do and don't know about macroeconomics.  This interview represents one data point in a recent flurry of papers and talks relating to the state of marcoeconomics.  I thought I'd put together a list of these sources here.

Recent papers (in order of my preference):
Recent interviews:

Short the Government

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I've been thinking that a decent investment strategy might be to go short anything the government gets heavily involved in (think housing and banking).  Of course timing is everything here and it's hard to know when the bet will pay off (will health-care fall apart sooner or later?).

Well, I just came across a fund that is taking a like-minded strategy.  The fund is called the Congressional Effect Fund.  The fund's basic strategy is to capture the above average returns on the stock market on those days when Congressmen are on vacation.  A great idea and much easier to implement than my strategy.  The average annualized return to the S&P 500 when congress is in session (1965-2009)? 0.31%.  The average annualized return to the S&P 500 when congress is out of session?  16.15%.

Hat tip to DoL'er (and fellow Georgian) Frank Stephenson.
A while back, I wrote about the relative size of the government spending and tax multipliers.  After spending way too long on IS-LM models in my macro class and thinking some more about fiscal multipliers, I'm now convinced that government spending multipliers can not be as large as the multiplier on tax cuts and think I can more clearly explain why. 
This story blows me away. Last Saturday, the undergraduate students in Val Lambson's upper division game theory course at BYU arrived early for their final. They somehow convinced everyone in the course to not take the exam. So they all received scores of zero. But because the course grading is curved, their grades now depend entirely on the work done up to that point in the course. Thus, by this coordinated action, the students lowered their workload while decreasing the set of assignments upon which to base their grades. What blows my mind is that no one deviated--especially the students who were in the middle of the grade distribution going into the final.

Analyzing this equilibrium is interesting. Let's look at a number of cases.
A great animated map on the employment situation, from Slate.

Thanks to Bart-man for the link.
Thumbnail image for 278982.full.gifThanks to Mrs. D, who's not sure the guys on TV understand economics either, for the pointer.  She found this on the excellent Joe Mathlete Explains Today's Marmaduke blog, which had the following caption for the above cartoon:

Marmaduke creator Brad Anderson has a dim awareness that something significant is going on in the news lately with economics, and he might as well try to write a comic strip about it.


Greg Mankiw posted a link to this study, entitled "The Undergraduate Origins of Ph.D. Economists," by John Siegfried and Wendy Stock at Vanderbilt University. Table 3 on page 25 ranks American Universities in order of which institutions were the undergraduate alma mater of the most Ph.D. economists who received their degrees between 1997 and 2003. Brigham Young University ranks 13th, right behind Yale, Princeton, MIT, Penn, and Maryland. This year we had students accepted to Yale, Princeton, Chicago, Wisconsin, Maryland, UT Austin, Duke, UCSD, UCLA, UCSB, and Washington University-St. Louis. In my biased opinion, they get a pretty good undergraduate economics training at BYU. But it is nice to have another independent appraisal.
I've read a couple excellent articles in the last two days.  First, a piece by Nobel Laureate Vernon Smith and Steven Gjerstad in the Wall Street Journal.  And today, a fine work by Mario Rizzo of NYU. 

Gjerstad and Smith outline how the increase in consumer debt that results from a fall in home prices can lead to huge losses for the financial sector and severe recessions.  They point out how the losses from the stock market couldn't have caused the Great Depression (the timing wasn't right), but how the fall in home prices caused many banks to fail.  They also ask the great question- how did a $10 trillion fall in equity values from the Dot-com bubble not result in financial troubles even close to the levels we've seen after a $3 trillion dollar fail in home values?  Their conclusion is basically that homes are much more leveraged than stocks and thus the financial sector takes huge losses when home values fall.

Thanks to Kerk for sending me this link and to the folks at Jimmy Kimmel for creating it.

Authors

  • Richard W. Evans is an Assistant Professor of Economics at Brigham Young University

  • Jason DeBacker is a Visiting Assistant Professor of Economics at the University of Georgia

Guest Contributors

  • Scott Condie is an Assistant Professor of Economics at Brigham Young University