April 2009 Archives

The State of Macro

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.

More on fiscal multipliers

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.

Marmaduke Likes Economics

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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.

Cookie and Ernie do Bernie

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

The economics of Swoopo

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If you want to be mesmerized by a fascinating auction site, go to Swoopo.com and click on an item that has less than 15 seconds on its countdown clock. Swoopo is what some of my colleagues have recently termed a pay-to-bid auction. You pay $0.75 to bid, and each bid raises the price by $0.15. If the item has been up for auction for more than 24 hours, then a 15-second timer gets reset every time somebody makes a bid. If no one else bids within the 15-second period since your bid, you win the item.

Two of my colleagues, Brennan Platt and Joe Price, along with one of our undergraduate students (Henry Tappen), have written a paper entitled, "Pay-to-bid Auctions," that beautifully lays out the economics of these Swoopo-type auctions.

Kids

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A great paper title from Michele Tertilt and Alice Schoonbroodt; "Who owns Children and Does it Matter?".

It looks like a pretty interesting paper:

Further, we show that the lack of property rights that parents have over children today may indeed lead to inefficiently low fertility levels. This is an interesting break-down of Coase's theorem, and we provide a detailed analysis of the mechanism responsible for the break-down.
Tertilt is very good economist and a prolific researcher in the macroeconomics of family structure.  I've done some RA work in this area myself, and besides being interesting, I think it has great potential to explain some key macroeconomic facts (e.g. What has the dual income household done to household income and wealth inequality?).

More great TV

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Authors

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

  • Jason DeBacker is an Assistant Professor of Economics at Middle Tennessee State University

  • Kerk L. Phillips is an Associate Professor of Economics at Brigham Young University