Continue reading Keynes v. Hayek Rap.
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After getting a B.A. in economics from BYU in 1998, I went to work for Thredgold Economic Associates for two-and-a-half years. Jeff Thredgold took an unconventional route to becoming a Chief Economist for major banks. He came up as a bond portfolio manager. As such, I always felt like he had very good intuition for what was happening in markets on a day-to-day basis.
One of Jeff's most insightful arguments is one that he has been making for as long as I've known him. In this week's issue of his weekly economic newsletter, The TEA Leaf, Jeff drives the point home, yet again, in compelling fashion.
One of Jeff's most insightful arguments is one that he has been making for as long as I've known him. In this week's issue of his weekly economic newsletter, The TEA Leaf, Jeff drives the point home, yet again, in compelling fashion.
"What [Ron] Paul and other Fed critics don't understand is that the Federal Reserve has an overseer...something or someone IT has to answer to. That something is the American bond market."
Continue reading Overseer of the Federal Reserve: the bond market.
Dan Hamermesh is currently visiting BYU as an invited seminar speaker. I was showing him my picture of the normalized peak plot of employment in the last 14 recessions, and he told me about another labor fact from this recession that astounded me. Look at the picture below of average duration of unemployment in the U.S. since 1947. The average unemployment duration for everyone who said they were unemployed in August 2009 was 25 weeks (nearly 6 months). Compare that to the average of about 15 weeks between 1976 and 1992. This is the 60-year record in the U.S.
Continue reading Unemployment duration: 60-year high.
My 9-year-old son showed me this today, and we laughed our heads off together.
The most recent winner of the Nobel Prize in Economics and New York Times columnist, Paul Krugman, had an eight-page article a week-and-a-half ago in the New York Times magazine entitled, "How Did Economists Get It So Wrong?" In short (and in its best light), his article was a broad critique of macroeconomics of the last three decades and a call to a return of the macroeconomics of the early 1970s. One of my favorite economists, John Cochrane, who we have cited multiple times on this blog for his biting rebuttals to poorly argued attacks (post 1, post 2), issued another instant classic in his response to Paul Krugman's article. Below are some of the highlights.
Continue reading Critique of Krugman: Cochrane shines again.
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.
Continue reading Finn Kydland on macroeconomic textbooks and dynamics.
Greg Mankiw posted this video sketch yesterday from The Daily Show on a major signal that the housing market has not yet stabilized. Hilarious! My favorite part is when Robert Shiller starts giving advice on how Geithner should redecorate his bathroom.
| The Daily Show With Jon Stewart | Mon - Thurs 11p / 10c | |||
| Home Crisis Investigation | ||||
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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...."
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...."
The Consumer Price Index (CPI) numbers for June were released today, and the initial press was that inflation was higher than expected. The inflation hawks would point to today's numbers as an indication that the massive injections of money by the Federal Reserve and Congress are starting to increase prices toward the great inflation they have been predicting. But don't go there so fast. Headline CPI inflation increased by 0.7% in June, the highest monthly increase since June 2008. However take a look at the figure below of the headline CPI percent change over the last 12 months.
Continue reading Don't put your inflation knickers on yet.
My son found this for me in today's Sunday comics.
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.
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!
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!
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:
Just look at what has happened to the stock prices of Ford and GM since December 20, 2008. The market has spoken.
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.
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.
Continue reading Relative size of the U.S. recession now.
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.
Continue reading Leamer and the state of macro.
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.
Continue reading International Economic Update: Dallas Fed.
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 papers (in order of my preference):
- New Keynesian Models: Not Yet Useful for Policy Analysis (by Chari, Kehoe, and McGrattan)
- Convergence in Macroeconomics: Elements of a New Synthesis (by Woodford)
- The State of Macro (by Blanchard)
- Russ Roberts and Ricardo Reis (New Keynesians vs. New Monterists, why we know a lot about monetary policy, but not fiscal policy)
- Russ Roberts and Don Boudreaux (the imporatance of microfoundations in macroeconomics, where Austrian Business Cycle theory has gone)
- Tom Keene and Robert Lucas and Ed Prescott (mp3) (the development of macro theory, the importance of microfoundations)
Continue reading The State of Macro.
A great paper title from Michele Tertilt and Alice Schoonbroodt; "Who owns Children and Does it Matter?".
It looks like a pretty interesting paper:
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?).
I'm fixing to start a section on stabilization policy in intermediate macroeconomics. As part of the discussion, I wanted to include a statistic I heard from a buddy of mine recently: the Sharpe ratio for the US economy was higher before the Fed was created than afterward. One could look only at GDP growth, but the Sharpe ratio (the ratio of the average rate of return and the standard deviation of the return) gives a measure of the return per unit of volatility. Since people like more stuff (higher GDP) and also like to consumption smooth, this is metric provides a good measure of how well economic policy is doing.
He pointed me to some historical data and where I could verify his claim. Sure enough, one finds a pre-1913 Sharpe of 1.13 (growth of 4.2% per year, with a standard deviation of 3.7%) and a post-1913 Sharpe of 0.67 (growth of 3.4% and a standard deviation of 5.1%). Plotted below is a 20-year moving average of the Sharpe Ratio:
He pointed me to some historical data and where I could verify his claim. Sure enough, one finds a pre-1913 Sharpe of 1.13 (growth of 4.2% per year, with a standard deviation of 3.7%) and a post-1913 Sharpe of 0.67 (growth of 3.4% and a standard deviation of 5.1%). Plotted below is a 20-year moving average of the Sharpe Ratio:
Continue reading Active versus Passive Economic Policy.
I spoke two nights ago at a meeting of the Timp Valley (Utah County) chapter of the International Association of Administrative Professionals (IAAP). In preparing for the presentation, I gathered some information on the Utah economy. I was surprised to see how well Utah is doing relative to the rest of the country.
Continue reading Utah doing pretty well... relatively.
The following three graphs brought me to the conclusion that changed my perspective on the relative size of our current recession in the United States. You often hear that the current recession is the most severe since the Great Depression. However, when you actually go to the data, that is only the case if you look exclusively at the financial sector.
Continue reading Overall economy not as bad... relatively.
I couldn't resist posting and responding to this Glenn Beck video (1/29/09) because I know that he has been advised by multiple parties against the arguments that he is pushing. We all should have reason to be worried about the economy, but not for the reasons Beck is trumpeting.
Continue reading Sorting out inflation risks: debunking Beck.
The New York Times ran an editorial today entitled, "When Will the Recession Be Over?" that surveyed 11 experts about their forecasts of when the recession would end. This is the first mainstream compilation of forecasts that I have felt was realistic.
Continue reading Finally, some forecasts I can swallow.
The only significant policy difference between the current period of global recession and the Great Depression is monetary policy and financial market intervention. The government spending part is looking like it will be the same. The annual deficit is projected to rise from its current 2008 level of just under 3% of GDP to potentially 10% of GDP in 2009. However, this rise in the deficit is also similar to the early 1980s and 2000. (The big blip is World War II.)
Continue reading Only difference from Great Depression is monetary policy and TARP.
Back in October 2008, I was a member of a panel discussion hosted by the BYU Economics Department that was tasked with explaining different aspects of the financial crisis up to that point and answering questions from the audience. Each member of the panel, myself included, supported the government's role in bailing out U.S. banks and financial companies citing the systemic role they play in the world economy (see my post 1 and post 2). However, since the crisis began in October 2008, two of my colleagues have consistently made what I see as the only good argument against the TARP financial bailout program--the slippery slope costs will outweigh the systemic risk reduction benefits.
Continue reading Slippery slope argument against the TARP.
As I wrapped up a chapter on labor markets today, a student asked what the labor market in China was like. I couldn't give her precise numbers regarding the unemployment rate, so had to look back on some work that students of mine did last semester when they wrote about the macroeconomic experiences of different countries. Here is a graph of the official rate of unemployment in China:
Continue reading Unemployment in China.
John Cochrane had the following great quote in his insightful article, "Fiscal Stimulus, Fiscal Inflation or Fiscal Fallacies?"
"Others say that we should have a fiscal stimulus to 'give people confidence,' even if we have neither theory nor evidence that it will work. This astonishingly paternalistic argument was tried once with the TARP. Nobody could say how it would work in any way that made sense, but it was supposed to be important do to something grand to give people 'confidence.' You see how that worked out. Public prayer would work better and cost a lot less."
We have commented before on John Cochrane's uncanny ability to deliver biting rebuttals when challenged.
(Thanks to Mark Showalter for sending me this.)
"Others say that we should have a fiscal stimulus to 'give people confidence,' even if we have neither theory nor evidence that it will work. This astonishingly paternalistic argument was tried once with the TARP. Nobody could say how it would work in any way that made sense, but it was supposed to be important do to something grand to give people 'confidence.' You see how that worked out. Public prayer would work better and cost a lot less."
We have commented before on John Cochrane's uncanny ability to deliver biting rebuttals when challenged.
(Thanks to Mark Showalter for sending me this.)
The Wall Street Journal ran a story yesterday entitled, "Central Banks are Creatures of Financial Crises" in which Justin Lahart showed a graphic that has been popping up from time-to-time over the last four months. It is a picture of the DJIA today mapped on top of the DJIA from the Great Depression with the peak levels lined up and normalized to 1. The story goes that the current downturn in stock prices looks a lot like the Great Depression, therefore we are at risk of a depression in the current crisis. I thought this might be the fallacy of cum hoc ergo propter hoc in that the Dow probably drops like it has currently in all recessions (including the Great Depression). But the graph below has changed my mind.
Continue reading Stocks are looking scarier than I thought.
I'm teaching intermediate macro this semester using Mankiw's intermediate text. I try to start each day talking about the day's macroeconomic news as it relates to the subject we are talking about in class that day.
In case anyone is interested, I post links to the new articles or blog entries here. I'll be covering all chapters of the Mankiw text, 1-19, this semester. To follow along, the syllabus is available here.
Last semester I taught a principles class using using an in-progress textbook by Russell Cooper and Andrew John. While the students weren't crazy about a book that wasn't in print, I really liked how the material was presented. Using a macro standard this semester (while a clearly written book), has only increased my appreciation for the question-driven motivation of the Cooper-John book (as opposed to the model-driven motivation of standard econ texts).
In case anyone is interested, I post links to the new articles or blog entries here. I'll be covering all chapters of the Mankiw text, 1-19, this semester. To follow along, the syllabus is available here.
Last semester I taught a principles class using using an in-progress textbook by Russell Cooper and Andrew John. While the students weren't crazy about a book that wasn't in print, I really liked how the material was presented. Using a macro standard this semester (while a clearly written book), has only increased my appreciation for the question-driven motivation of the Cooper-John book (as opposed to the model-driven motivation of standard econ texts).
Authors
- Richard W. Evans is an Assistant Professor of Economics at Brigham Young University
- Jason DeBacker is a Washington, D.C. economist.