Wednesday, September 30, 2009

Say's Law, finance in macro, the elderly, and Pfizer.

Say's Law has gotten a lot of attention recently! Nick Rowe, Robert Waldmann, and David Beckworth. Poor Say, these guys are just piling on. It's not Say's fault he assumed a barter economy! DeLong even invokes Friedman.

Thoma points us to another person talking about the need to take into account financial factors in macroeconomic models. My first reaction is, "Duh," but why haven't I seen any serious attempts to do just that? I've talked about this before. Thoma also provides us with a growing list of people talking about the state of macro. Interesting stuff.

The elderly are the reason why we have a national debt, says Bruce Bartlett. That'll get some people angry. I don't think he's particularly young, either. I wonder if he's banking on the idea that most of the elderly won't be online.

Bad business articles annoy me. Pfizer pays $2.3 billion to settle a lawsuit, but that's less than three weeks of sales. It seems that the author doesn't realize that this is a lot of their sales. He may want to look into how many weeks of profit it'll be. Pfizer's first quarter profit this year was$3.7 billion. That's right, they paid out two months of profit. Ouch.

Sunday, September 27, 2009

Since Dec 2007

The Detroit Lions win their first game since December 2007. Is this a sign the recession is over?

Friday, September 25, 2009

Macro debates, national debt, and media regulation

Quiggin on macro wars. Yes, another one. I find them interesting, though.

Here's a global debt clock. Neat! Check out your country's debt, and compare it to other countries.

Here are some interesting thoughts on media and regulation. I'm not sure that they authors have thoroughly thought out the implications of a corrupt government, though. That might be something that's hard to capture in traditional economic analysis, though.

Yet more thoughts on the current state of macro (pdf). Arguably, I think these may be some of the most compelling thoughts on the future of macro--Kocherlakota talks about the research of relatively young macroeconomists at top universities. I think most of the complaining has been about how "most" macroeconomists view things, and how macroeconomics has affected policy, which are more likely to reflect a slightly older brand of the field. Still, this is a great read.

Thursday, September 24, 2009

Journalists, macro, twitter, and the housing bubble

The market for journalists. I think this has gotten a lot of publicity lately, with newspapers closing down.

Micro-based macro led us astray says John Quiggin. I think it's kind of an extreme statement, though. Macroeconomists have to have many tools, one of which is handy use of micro.

100 best business twitter feeds. For all of you tweeps who like to keep up with business/finance/economics stuff.

When did the housing bubble begin? I think a lot of people agree that low interest rates were a large cause, regardless.

Wednesday, September 23, 2009

The Cash for Clunkers fallacy

Why are there so many people who claim Cash for Clunkers is an example of the broken window fallacy? It's not.

First, like everyone else has started, let's talk about the broken window fallacy. The story goes like this: A guy has a window. Someone throws something through the window, smashing it, and runs away. The guy now has to pay for a new window. Bystanders say, "Well, your window broke and you have to pay for a new one, but at least that money you're going to spend on it goes into the economy." Let's say that the new window costs $100, so now the economy is stimulated by $100. Is this the right way of looking at the situation? Is this an efficient outcome? Was the window being smashed a good thing, overall?

The answer is no. The guy had $100, which he may have spent on something else. Had his window not been shattered, then he would have a window and $100 worth of stuff rather than just a window. The guy would have spent the $100 on something to make him better off rather than being on par. With the window smashed, he now has a window and has effectively lost $100. He is worse off by $100, even though the economy is better off by $100. Had the window not been shattered, he'd be better off by $100, and the economy would still be better off by $100.

The bystanders have fallen into the broken window fallacy. Because the economy gets $100, they have assumed that there is an overal benefit. The argument is also applied to war and natural disasters.

Some opponents of cash for clunkers say that the program is an example of this broken window fallacy. They say that the destruction of cars isn't an overall benefit for anyone, and follows the same logic as the broken window fallacy.

There may or may not be an overall benefit of the cash for clunkers program--that topic is an interesting one, but it's a more complicated issue. It's certainly not an example of the broken window fallacy.

First of all, the destruction in the broken window fallacy refers to mindless destruction. It's a natural disaster, a force majeur, or an act of God, it's not something we choose. In the cash for clunkers program, people give up their cars to be destroyed, and the cars must fulfill certain requirements.

More importantly, in the broken window fallacy, the owner of the window did not want his window broken, because it makes him worse off. In the cash for clunkers program, the owner of the car willingly gives his car to be destroyed because it makes him better off. He effectively trades his car to get a discount on another car of his choice among a selection. If he doesn't want a car from the selection, he doesn't have to give up his car. The car owner makes the decision. He likely would have bought a new car anyways, were the new car cheaper than the original sticker price. The government merely provides the discount.

Why does the government provide the discount? Maybe they believe there's some benefit in carbon emissions, or maybe they want to spur the auto manufacturing industry, or maybe a number of other issues. The important issue is that the program will hopefully provide some effect the government want to attain.

So, is the cash for clunkers program a good program? Well, presumably, the car owners are better off, and the government is better off (having their desired effect come into fruition). Is everyone better off? It's hard to say, there will be some effect in the real economy and there will be some effect in carbon emissions. Were the taxes worth it? That's for someone else to figure out.

Tuesday, September 22, 2009

Inflation, modern macro, monetary policy, and wages

Inflation is low, but still positive. There have been a number of forecasts saying that inflation will stay low for some time--seems like Austrian economists haven't been listening, though.

Robert Waldmann on modern macro.

Sumner on monetary policy. Could the Fed have acted better? Sumner is sometimes wordy, but always worth a read.

A bit on wages from the San Francisco Fed. Wage growth has been stagnating. Hopefully the rise in productivity will turn that around?

Monday, September 21, 2009

The state of macro, choice, Krugman, and five of the greatest equations in Economics

People have been talking about the state of macro for quite some time now. The recent crisis just underline the importance of the discussion.

Chris Blattman points us to an article that talks about inconsistency in choice.

It seems like Krugman inspires a lot of anger sometimes.

Tim Haab tells us about the five greatest equations in Economics (in his opinion). I think this might be more difficult for macro.

Thursday, September 17, 2009

Why we don't care

Fine! I'll bite! William Easterly, we don't care about Afghanistan. It's not that Afghanistan doesn't deserve our care--it likely does. We're just tired.

View Larger Map
We just don't care.

Here's the short story: We're tired of it. We don't know anything about them, and they can't be helped anyways.

After the 9/11 attacks eight years, news for a long time covered the several Arab leads of the culprits. A lot of time and energy was invested in learning about the region, and we were bombarded with pundits, news, even movies trying to explain to us what things are like in the Middle East and how to better understand their mindsets. When we started war in Iraq and Afghanistan some time later, we were bombarded with nightly updates on the situation. Despite all of this, we have learned little, but it's a safe bet that the majority of Americans, asked to describe any of the involved countries or surrounding, would tell you that it's a war-torn place with no progress. Many, I'm sure, mix up Iran and Iraq. Many would lump all the "stans" together. Many would say that we're in (any of) those countries just for the oil. Pakistan isn't any better. What, specifically, is going on in Afghanistan? Few could say. It's just another one of those countries. Certainly, conflict in the Middle East has been going on for centuries.

What's more, we've been bombarded with this sort of thing for over eight years. Multiply information overload over eight years, and no one knows what's going on. How can we be expected to care anymore? Sure they need help--that's partially why we have troops there--but they're just like any other war-torn country that needs our help. We've been "trying to help" for over eight years, and what has come from it? Caring about Afghanistan specifically is a lot to ask.

Compare this with Africa. While parts of Africa are still affected by war, we're pretty insulated from it. There seems to be less war, confined to individual warlords who rape and pillage. That's all. The bigger problem in Africa is poverty, and being cut off from the rest of the world. You can't easily truck goods from sub-Saharan Africa to anywhere important like you can in the Middle East. Africans don't even have roads! Poverty is something we can try to help with. Fighting among your own people? That's your own problem.

The term "sub-Saharan Africa" is probably to specific a term to mean anything to most Americans, actually. Many probably don't even know what it means. Regardless, people have more recently seen progress in Africa. Maybe it can be saved! Jeff Sachs said so in a book! They have cell phones in Africa now, they've become tech-savvy! Angelina Jolie is adopting children from there and helping them, so they must be getting better!

Do you see the difference here? What does Afghanistan have going for it? We barely get photographs showing us how things are in the Middle East, much less any information. And, when we do, we certainly can't distinguish what country it's from (whereas Africa gets lumped into one big area deserving of our help). I'm sure there are other issues too. The significance of cultural differences, the bad stereotype of Arabs, and so on. I don't see Americans caring about Afghanistan any time soon without some large, unexpected shock.

Do you see, Dr. Easterly? Why we don't care about Afghanistan? We should, probably, but it's a really tough situation there, and we can't do anything about it.

Wednesday, September 16, 2009

Tires, Nobel Prize, macro debates, and solar cells.

Garth Brazelton defends the tire tax as a Pigouvian tax. I'd be interested to see if there was any data to show that Chinese tires are significantly less safe than American tires. Since they both presumably have to meet some sort of standard, should we just make tougher standards? If Chinese tires are less safe than American tires, would the tax not apply to safe Chinese tires, or would the tax be repealed when Chinese tire makers improved their tires?

Tyler Cowen starts thinking about the Nobel Prize for Economics. I'm eager to see everyone's thoughts.

Krugman talks about freshwater economists while David Warsh says there isn't as much vitriol as we might think. Warsh links us to an interesting paper that thinks about 1978 macro (link to Thoma).

Solar energy is apparently getting off to a slow start. Overinvestment due to a subsidy combined with a recession led to dropping prices, whic wasn't good for the industry. Does that mean we'll see solar energy picking up again as the world recovers? I've been seeing more articles about solar-powered things anyways, so maybe China is picking up a large degree of the slack from Spain.

Tuesday, September 15, 2009

Happiness, universities, Africa, and income gaps

What makes you happy? And, how much is your happiness worth?

The success rate of universities and their prices are brought to question. Do "better" universities have more of an incentive to graduate their students (who might be in wealthier families or are well-connected)? James Hamilton pointed out that students seem to prefer prestigious research universities. Seems to me that the job market prefers students from prestigious research universities.

As much as Africa is progressing, they don't have very many trade links, and are disconnected from the global economy.

Some money news. Poverty is up, and income is down.

Thursday, September 10, 2009

A model, Africa, well-being, and teaching hours

Let's take a brief break from unemployment news! That stuff is depressing.

How about that supermodel who vowed to stay naked until USAID gets to starving children? I'm not sure what kind of incentive she's going for.

More on development--Africa isn't looking so bad, historically speaking. It's made large gains, though there's a lot more that needs to be made. While this is true and all, I think the reason this sort of thing doesn't get spread very much is for the fear that people will miss the point. Though aid might be working, Africa still needs a lot of help.

Via Thoma, Stiglitz tells us we need a better measure of well-being. Unfortunately, he doesn't provide much insight into the discussion. How about median debt as a percentage of income? Or average savings rate? Any ideas, Joe, are you just going to complain?

A chart of hours taught by teachers around the world. Our teachers are apparently putting in a lot of work!

Wednesday, September 9, 2009

Job search, emotions, and graphs.

The average number of weeks in a job search has slightly dropped. 25 weeks is still six months, though. And, remember this is an average. 50% will find a job sooner, and 50% will find a job later.

Calculated Risks shows us some graphs on the projected unemployment rates compared with actual unemployment rates, and with the diffusion index, which roughly measures how widespread job losses or gains are. Things aren't great, but they're not as bad as they could be or have been.

Emotions and the economy. Interesting article. How much could smiling help the recession?

Job openings are at record lows, and the jobless rate by weeks unemployed. This needs to turn around, and fast! In most of the country it isn't getting worse, I suppose.

Tuesday, September 8, 2009

Google,, unemployment and stocks, wages, and an interactive map

Google has more data to easily peruse through! Mmm, data...

Unemployment is up, but apparently the stock markets like it. 9.7%... after two months almost flat. Who knows where this is going? Will it hit 10%? Still, this is better than the 13% projected earlier in the year by some.

Average hourly wages are up again. Mind you that the unemployment rate for people with less education is higher than for people with more education. Also, retail isn't doing well, still. Lower wage people just can't find work, while experienced workers are being held on to.

Here's a neat interactive map showing foreclosure rates, unemployment rates, and household income. Data's good, but it's even better when it's easy to look through.

Friday, September 4, 2009

Budget gaps, bank regulations, confidence, and forecasts.

The city of Houston needs to make up a $25 million budget gap. There was a budget gap of $103 million, but about $50 million was previously set aside for this sort of situation, with about $28 million more already planned to help try to reach the rest of the gap. $25 million is a lot better than $103 million!

A good, though lengthy, article on bank regulation in the Harvard Magazine.

Consumer confidence seems set to go higher and business confidence is loads better. Seems like consumers are looking at the unemployment rate while businesses are looking at stocks. Go figure.

The OECD predicts growth (or lack thereof) for some countries. Pretty decent news for the US--less so for Canada.

Thursday, September 3, 2009

Oil, government, manufacturing, and low wage workers.

BP found a lot of oil in the Gulf of Mexico. Good news for Houston, and anyone who pays for gas. Though, keep in mind, that this is just a drop in the bucket for worldwide supply, and the oil is harder to get than ever.

The Wall Street Journal actually has an article about government helping the economy.

Growth in manufacturing too? Interesting. Cash for Clunkers may have helped that, but I don't know if it'll hold in the long term.

Low wage workers reportedly are often cheated, as a result getting paid less than the minimum wage. This is widespread, not just affecting undocumented workers.

Wednesday, September 2, 2009

Bailout money, underwear, and good news.

Banks are paying back bailout money, with interest. Sounds like it was a pretty good deal!

Another strange economic indicator: underwear. The worse times are (and, presumably, the less money you have), the more willing you are to wear tattered underclothing. Who's gonna see? Also, people attempt to cut their own hair (with hilarious results).

Some regions are seeing potential growth! Seems a little early to be sure, though. Building contracts are up in the Houston area.

There is now increased productivity. Not a surprise, really. When firms lay people off or slow hiring (as they have been doing), they presumably hold on to more productive people in order to achieve this very effect--higher productivity at proportionally lower costs. This goes hand-in-hand with higher profits, which leads to all sorts of benefits in the economy. Yet another sign that we're in recovery mode.

Tuesday, September 1, 2009

Solar power, education, inflation, and majors

China is really pushing the production of solar panels. Siemens has also invested a lot of money into solar power recently. I've heard people say that oil prices will only go up in the long term, but I wonder if energy prices will actually go down.

Some people talk about why the price of upper education has risen.

As the economy bottoms out, we look more towards inflation. With slow growth, I don't expect inflation to get out of control, though even if that were the case it seems to be a necessary condition for growth in this recovery period.

College students fret about their majors. I thought this has always been a problem for them, especially for liberal arts people.