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.
Wednesday, September 30, 2009
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.
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.
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.
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?
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.
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.
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