Recently in general economics Category

A great blog post from John Cochrane.

A good sample of the content:

On reflection, it's amazing that computerizing medical records was part of the ACA and stimulus bills. Why in the world do we need a subsidy for this? My bank computerized records 20 years ago. Why, in fact, do doctors not answer emails, and do they still send you letters by post office, probably the last business to do so, or maybe grudgingly by fax? Why, when you go to the doctor, do you answer the same 20 questions over and over again, and what the heck are they doing trusting your memory to know what your medical history and list of medications are? Well, this is a room full of health policy wonks so you know the answers. They're afraid of being sued. Confidentiality regulations, apparently more stringent than those for your money in the bank. They can't bill email time. Legal and regulatory roadblocks.

So, medical records offer a good parable: rather than look at an obvious pathology, and ask "what about current law and regulation is causing hospitals to avoid the computer revolution that swept banks and airlines 20 years ago," and remove those roadblocks, the government adds a new layer of subsidies and contradictory legal pressure.
from the Deseret News, Tuesday Nov. 20th.

Every time there is a significant natural disaster I eventually hear from someone that there is at least one upside: the disaster will be good for the economy.  And every time I respond, "Wrong!"  Inevitably this supposed economic stimulus is called a "sliver-lining."  To quote on of my favorite demotivational thoughts from Despair.com, "Pessimism: Every dark cloud has a silver lining, but lightning kills hundreds of people each year who are trying to find it."

Natural disasters are bad.  They destroy lives and wealth and that has no upside.  After the disaster is over, people are unambiguously worse off than before and while their quality of life inevitably recovers, on average they are not better off in the long-run for having lived through the disaster.

An excellent case study in rent seeking:

Will Supreme Court answer monks' prayers?

"In the 1960s, Louisiana made it a crime to sell "funeral merchandise" without a funeral director's license. To get one, the monks would have to stop being monks: They would have to earn 30 hours of college credit and apprentice for a year at a licensed funeral home to acquire skills they have no intention of using."

from Glenn Harlan Reynolds column at USA Today, "Katrina on the Hudson"

Then there are the gas shortages. These are primarily the result of storm damage. But they've been made worse by New Jersey Governor Chris Christie's effort -- joined by New York Attorney General Eric Scheiderman -- to crack down on "price gouging." This politics hurts victims. It's elementary economics that holding prices down depresses supply. If you could sell gasoline for $15 a gallon, lots of people would load pickup trucks with gas cans and drive to the storm area, alleviating shortages. (And at that price, people wouldn't buy more than they needed.) If doing that risks arrest, they won't. Political posturing over "gouging" leads to gas lines, further economic disruption and possibly lost lives.

Time to repost the most recent Deseret News article from yesterday.

As many observers expected the U.S. Federal Reserve began a new round of quantitative easing this fall in an attempt to stimulate the economy by increasing the supply of available money.  As I discussed at the beginning of August, there is no fundamental difference between quantitative easing and the Fed's normal open market operations.  In the latter case the Fed buys U.S. Treasury securities on the bond market and in the former case it buys other non-traditional financial assets.  In both cases, however, it pays for these purchases by creating money.

From the Deseret News this last Tuesday.

A few years back I volunteered at an archeological site in Range Creek, Utah.  I learned that archeology is arguably the most interdisciplinary subject in the world.  And I learned that I don't have the eyesight or the tolerance for dust needed to succeed in that field.  I also learned an interesting lesson about the interesting ways that economic thinking can inform our understanding of societies, even ones that leave no written history.

I'm reposting this blog entry because it illustrates nicely the difficulties in dealing with data, and data is key in understanding the economy.  Theory is necessary, but without data to check it's validity... 

Quotable Quote - "Data rarely speak for themselves. There's almost always some folklore, known to initiates, about how data should and should not be used. As the web transforms the availability and use of data, it's essential that the folklore be democratized as much as the raw data themselves."

Niall Ferguson's Mistake Makes the Case for Metadata - August 22, 2012

An interesting article on robotics today and trends for the future.  My introductory economics class this semester will have writing assignment that are partly graded by machine.

Skilled Work, Without the Worker
- August 18, 2012

Minimum Wages

from Tuesday's Deseret News

The current federal minimum wage is seven dollars and twenty-five cents per hour.  For an employee working 40 hours per week for 52 weeks that amounts to an annual before-tax income of  $15,080.  By comparison the official poverty level for a family of two is $15,130 or $23,050 for a family of four.  The minimum wage does not support a high standard of living by any stretch of the imagination.  However, just imagine how bad things would be for workers without the minimum wage.

June 11th, 2012 Deseret News

On June 4th, President Barack Obama delivered a campaign speech at the New Amsterdam Theatre in New York City.  In that speech he noted that his Republican rival in the upcoming election, Mitt Romney, "has a theory of the economy that basically says, if I'm maximizing returns for my investors, for wealthy individuals like myself, then everybody's going to be better off."

We could debate whether this statement accurately reflects Mitt Romney's views on capitalism, but for the sake of this article let's assume it does.  So what?  Is it really that bad to believe that people motivated by self-interest, even selfish and greedy self-interest, can collectively arrive at an efficient and equitable outcome?

Greed and Monopoly

From the Deseret News May 29th:

One of the basic assumptions of economic theory is that people as economic agents make decisions with the goal of becoming as well-off as possible.  Economists call this maximizing utility, where the term utility roughly corresponds to well-being, level of satisfaction, or maybe happiness.  This key assumption seems to reflect human nature, at least as an approximation.

This article comes out in the Deseret News tomorrow morning.

The U.S. economy has been through several rough years, beginning with a severe recession in 2008 and an anemic recovery since.  The economy has actually been growing since June of 2009, but it hasn't felt like it to many Americans.  Jobs have been slow to recover compared to most postwar recessions.  Despite the weakness of the recovery, things are not as bleak as they seem.  The longer the recovery remains weak, the greater the potential for future economic growth.

Why Jobs are Important

from Today's Deseret News:

The U.S. job market is showing signs of improvement if the latest data are accurate.  On Friday the U.S. Bureau of Labor Statistics reported that the unemployment rate has fallen to a three-year low of 8.5%.  Of particular note is that private sector employment was up more than expected in December.  Tall of this could just be a one-month data fluke, but it is also encouraging that the number of new jobless claims has been declining recently as well.

This article, by Rick, came out in the Deseret News on December 20th.

Eyebrows raise when you hear about any interest rate on credit more than 30 percent. If you're discussing payday or title lending, the implied interest rates (in annual percentage rate) can be above 500 percent. Put in those terms, short-term consumer lending markets sound immoral and predatory.

Why Prices are Important

Runway Inflation in Hong Kong: Miners could teach infrastructure planners a thing or two
from the Wall Street Journal, July 14th, 2011

Should the Hong Kong airport be expanded to include a new 3rd runway at a cost of $17.5 billion?  Why not let the market decide?

"...we must figure out how much ... is "enough" over the long term as we also tailor our demand to resource availability at any given moment. This is easy, relatively speaking, for miners and nearly impossible for airport planners because miners have something the planners don't: a market price for their product and for their capital.

"In the airport context, putting a price on capacity would mean fully liberalizing the air traffic market and then auctioning off take-off and landing slots. Hong Kong could adopt a unilateral open-skies policy to welcome any and all comers, and also remove the remaining restrictions on so-called fifth-freedom traffic rights that would allow a carrier from Country A to fly between Hong Kong and Country C. Meanwhile, auction take-off and landing slots to the highest bidders, each slot being valid for some reasonable number of years.

"Then, let the airport operator figure it out. Privatize the Airport Authority (currently a government body), and see if the bond market thinks its expected income from slot sales will be sufficient to cover the capital expense of new capacity. Just like a mining firm."

The price mechanism could be implemented in lots of places that currently it is not.  This is just one good example.

Google Data

A new Google product I just became aware of- Google's public data explorer.  The number of datasets is still limited, but it's a great place to get a graphical depiction of data.  Here are minimum wages around Europe from 1999 to present:



It'd be neat to overlay this with the unemployment data...

Creative Destruction in Song

The Man in Black channels Schumpeter:


It was one year ago today, back on October 14, 2008, when Jason Debacker and I started this blog. The first post on Econosseur.com was entitled, "Who is to blame for the crisis? Supply and demand approach". As of the writing of this post today, we have had 39,069 visitors. Jason and I wanted to thank all of you who have read our commentary, suggested ideas, or given constructive criticism in the comments. We love the forum.

Below are some of the highlights from the last year.
The Nobel Prize in Economics was awarded today to Elinor Ostrom and Oliver Williamson for their contributions to our understanding of the economics of institutions and their governance. It is noteworthy that Ostrom is the first woman to win the Nobel Prize in Economics. Women in economics should be bursting with gratitude (or envy) that Prof. Ostrom has broken the "separating hyperplane" ceiling that has existed for the profession's highest award until today.
You must read Greg Mankiw's post from today entitled, "First-year Grad Student Wins Nobel Prize in Economics!" And please do it in the following order. First read what Mankiw wrote about young Quintus Pfuffnick winning the Nobel Prize in Economics (not really). Then click on the link to the AP story about the Nobel Peace Prize award. Well played, Greg.

Here is a fun little video parody from Reason.tv. (Thanks to Jason for the link.)

Jason and I have always been fans of the great presentation of data and it is an important skill in communicating economics. Good examples that we have discussed on this blog include the Democrats health plan diagram, the averages from the American Time Use Dataset, and the breakdown of the Federal Reserve balance sheet. Jason sent me this link to one of the coolest blogs I have ever seen: InformationIsBeautiful.net. This is an entire blog dedicated to the artful and effective visual presentation of data. Below is a graphic from a post about disease case fatality rates if you wash your hands.

DiseaseFatalityHandwash.png
Finn Kydland was awarded the Nobel Prize in Economics in 2004 with Ed Prescott for their contributions to dynamic macroeconomics. In Kydland's Nobel lecture, he mentioned a truth that every professor of undergraduate macroeconomics has struggled with. "In the past 20 years, the gap between research and textbooks has grown wider and wider." The economic models outlined in undergraduate macroeconomic textbooks have almost no resemblance to the models used in current research, and the difference is the treatment of decisions across time--dynamics.
Tyler Cowen had a nice post in which he commented on an expertly written article--expertly written in every sense of the word--by Preston McAfee on what makes a good editor. I would expand this description to say that this article is extremely beneficial for junior economists on how to write good papers, and how to avoid writing really bad ones. I would recommend reading the whole article to any economist whose job depends on publishing articles in refereed journals, but here are a few of my favorite quotes and nuggets of wisdom from the paper.

...A personal agenda is a bias, and when it matters, will lead to bad decisions. As everyone has biases, this is of course relative; if your reaction is "but it isn't a bias, I'm just right" you have a strong personal agenda.

Why do the poor pay more?

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A good friend (Suzanne Bates) pointed me to this provocative and insightful article in The Washington Post from May 18, 2009 entitled "Poor? Pay Up." The article carefully documents many of the ways in which the poor pay more for the same goods and services that higher income households consume. The clever opening line is, "You have to be rich to be poor."

Chinn on the State of Macro

Menzie Chinn had a great post a week-and-a-half ago addressing the hot topic of the state of macroeconomics. This is something that Jason and I have discussed as well (post 1, post 2, post 3). Chinn has some great analysis of why macro is still very relevant and informative despite many perceived failures in the press. His two main points that jumped out at me were the following:

1) The first dimension on which you should rate any macroeconomic (or any economic) research is "How good is the question?" This is something that was always driven home to me by my macroeconomic professors at the University of Texas. Chinn emphasizes that methodology should follow from the question, not vice versa.

2) "...[T]he supposed failure of macroeconomics is more the failure of macroeconomics as described in the popular press, rather than of the discipline itself...."
Mark Showalter sent me a link to this article in Roll Call last week describing how Democrats blocked House Republicans from mailing the diagram below to their constituents. The diagram below was created by the staff of Rep. Kevin Brady (R-TX) and the Republican staff of the Joint Economic Committee. I thought that this diagram was a funny enough caricature to include on the economic jokes page. However, despite the expansive, complicated, government-private, heavily regulated nature of both current and proposed U.S. health care, ours is probably the most privatized system of all developed countries.

DemHealthPlan.png

A "balanced" diet

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Scott Adams, the author of the Dilbert cartoon, wrote an insightful piece back in 2007 entitled, "On the Other Hand", in which he extolled the skill of economists to deal with cognitive dissonance. In short, economists do not need absolute outcomes. We focus on the delicate balance between costs and benefits.

Roger Cohen had a wonderful op-ed in today's New York Times entitled, "The Meaning of Life," that beautifully illustrates this balance in questions of diet. He uses a prominent study of how diet affects monkeys to make the point that I have been making to my wife for a few years now. Sure I could give up hamburgers and soft drinks. I would probably live longer. But I wouldn't be as happy. The difficult economic problem is to find the exact balance between the costs and the benefits that maximizes two of the things I enjoy--food and longevity.
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 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?
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.

Ford tough, GM rough

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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