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Archive for the ‘Economics’ Category

Math in Economics

September 5th, 2013 No comments

I just posted this over at Volokh Conspiracy as a comment on Professor Coase’s dismay at the road economics has taken:

Coase could be nonmathematical because he was a genius. Ordinary economists aren’t smart enough; they need calculus. Ordinary people are still less intelligent, and they can’t do economic research at all. It’s like building a bridge. A genius can wing it; ordinary engineers need to use some physics; ordinary people will end up swimming.

Categories: Economics, thinking Tags:

Boring Predictions Are the Important Ones

August 27th, 2013 No comments

Steve Sailer in “The world’s most boring insight, again,” on complaints that economics doesn’t make useful predictions (my boldface):

On August 15, 1971, President Richard Nixon announced a freeze on all wages and prices in America for three months. From the perspective of 2013, this sounds like I’m making it up. But it really happened and was popular at the time. Milton Friedman was the loudest voice predicting it would turn out to be a bad idea (which it did).

Read more…

Categories: Economics, Sailer, thinking Tags:

Are 17% of Singaporean Households Millionaires?

August 25th, 2013 No comments

This table from The Money Illusion blog is astonishing. I still can’t believe it really. But I’ll ask about it:

Categories: Countries, Economics, elitism Tags:

“Exclusive Dealing: Before Bork, and Beyond”

August 15th, 2013 No comments

Mark Ramseyer and I have just posted a draft of a paper on monopoly law: “Exclusive Dealing: Before Bork, and Beyond”. Comments are welcomed. Here’s the abstract: Read more…

Categories: a.research, Antitrust, game theory, monopoly Tags:

The Meaning of “Value” for Gift and Estate Tax Donee Limitation in Tax Code 26 U.S.C. § 6324(B): An Amicus Brief for Marshall v. Commissioner

August 14th, 2013 No comments

I’ve posted a new draft of The Meaning of “Value” for Gift and Estate Tax Donee Limitation in Tax Code 26 U.S.C. § 6324(B): An Amicus Brief for Marshall v. Commissioner and submitted the brief. I wonder if I should try to make a law review article out of this? The topic would be how “value” is used in law. Here’s the abstract: Read more…

Categories: a.research, discounting, taxes Tags:

How To Deal with a Powerful Oppressor: Frederick Douglass’s Story of Nelly

August 6th, 2013 No comments

From Frederick Douglass, My Bondage and My Freedom (1855):

There is no doubt that Nelly felt herself superior, in some respects, to the slaves around her. She was a wife and a mother; her husband was a valued and favorite slave. Besides, he was one of the first hands on board of the sloop, and the sloop hands — since they had to represent the plantation abroad — were generally treated tenderly. The overseer never was allowed to whip Harry; why then should he be allowed to whip Harry’s wife? Thoughts of this kind, no doubt, influenced her; but, for whatever reason, she nobly resisted, and, unlike most of the slaves, seemed determined to make her whipping cost Mr. Sevier as much as possible. Read more…

Categories: game theory, history, quotations Tags:

I Want Comment Triage Software

July 23rd, 2013 No comments

Nobody comments here, so it’s not a personal need, but I want to see comments on blogs and articles organized differently. First I’ll say what I want to see, and then I’ll explain why.

Each comment will be directed to one of four triage categories. These will not be the traditional “Doesn’t need treatment now”, “Needs help”, and “Too hard to help–let him die” categories. Rather, they will be: Read more…

Stock Market Returns and Risk: Returns from Various Years until 2013

July 23rd, 2013 1 comment

I’ve posted as a blog permanent “page”, a memo on “Stock Market Returns and Risk: Returns from Various Years until 2013.” I’ll repeat it here as a blog post.

This is a memo I wrote for the directors of Bloomington’s Lighthouse Christian Academy to aid them in thinking about whether it was worth putting capital account funds into the stock market, which has higher returns but also might result in a loss. It is useful for anyone wanting to know the average return on the stock market.

June 19, 2013
What investment is prudent for LCA?

Suppose LCA had $100,000 in a given year and had invested it in the S+P 500, 500 very big companies’ stock, until May 2013. What would have become of it? What would be its annual return?

S+P returns (dividends reinvested) from the given year until 2013, annualized and total, May to May:

1963: 9.7%
1973: 10.3
1983: 10.6
1993: 8.7
Read more…

Categories: decisionmaking, discounting, finance, g406 Tags:

Immigration— The Congressional Budget Office Report (CBO on S.744)

June 21st, 2013 8 comments

I will post my little paper on the effects of immigration later today. In preparation for that, I downloaded the CBO report on the Senate bill. I find it unimpressive, except for the clarity of its writing style, which I do commend. Some notes:

1. The analysis assumes that immigration will raise total factor productivity. It alludes to increased specialization because of increased size of the economy, and increased innovation because of having extra high-skilled immigrants. Both are highly speculative. Yes, more Hyderabad programmers will increase innovation; that’s why the billionaires support the bill (they profit from those innovations— which is fine). But it’s dangerous to allow a fudge factor like “increased productivity from innovation” into an estimate— it can drive too much. It would be good to see these estimate with zero change in TFP.

2. I didn’t see anywhere how many of these immigrants are supposed to be high-skilled. I suspect that’s because it’s embarassingly small. If the report came out and said that we’d be adding 9.5 million low-skilled workers and .5 million high-skilled workers and productivity was going to rise as a result, people would laugh. Read more…

Categories: Economics, immigration Tags:

Faculty Pay Cut at the University of Illinois

January 6th, 2010 No comments

This is an interesting way to cut 2010 salaries:

Faculty and academic professional staff will take four furlough days – a temporary leave of absence without pay – between the four pay dates of Feb. 16 and May 16. Monthly pay will be reduced by one day for each of the four payroll periods.

Maybe nominal wages are not so rigid after all, at least for people not paid by hour.

Categories: Economics, research Tags:

Rose Friedman

December 23rd, 2009 No comments

Somehow I hadn’t realized that Rose Friedman died this fall. John Taylor has a good one-page note on her and “TV Ears”. She sounds like such a fun person to know.

Categories: economists Tags:

Dealing with Reporters on a Regular Basis

December 10th, 2009 No comments

Via Sailer, “The Michael Jordan/Tiger Woods Model: Why It Will Never Work With The Media,” . The title has it wrong, but the article is good. The strategy is to intimidate reporters and cut off access to any reporter who ever prints anything critical. The drawback is that if the athlete’s stock ever falls (e.g. Tiger Wood’s), even the hitherto friendly reporters hate him and have repressed stories to tell. The tradeoff can be worth it, though.

Categories: game theory, media, reputation Tags:

Flower Dutch Auction Clocks

October 14th, 2009 No comments
A Clock
The Room

I found these pictures of a Dutch auction at http://www.flower-wholesale.com/hannsvba/klok.html, which tells how you can go and visit such an auction in Aalsmeer. The best YouTube video of it I found is here.

Categories: auctions, game theory Tags:

Game Theory Notes on Subgame Perfectness and the Centipede Game

September 30th, 2009 No comments

I’ve just written up notes for my game theory class on a paradox of
sequential rationality
and on

the Centipede Game
.

Categories: game theory Tags:

Phelps on Capitalism and Innovation

September 25th, 2009 No comments

Nobel laureate Edmund Phelps has an interesting essay, “Economic Justice and the Spirit of Innovation,” in the October 2009 First Things.

The issue of morality in economics is neither the fairness of income distribution nor the stability of financial systems. It is how human institutions can be shaped to correspond to human nature—to man’s nature as an innovator….

Prosperity and the development of the human spirit are linked in the dynamism of the economy. The dynamism of the American economy over the past two hundred years was strong, and that helps to explain why prosperity was high both in the sense of high employment and the sense of a high degree of personal satisfaction compared to that in other countries….

That is the positive moral content of economics—to realize an anthropology that starts with innovative human nature: homo innovaticus, not homo economicus. Existing economics has a negative moral content in that it treats economic factors as though they were pieces on a game board rather than human beings who learn, discover, and innovate. Politicians play the same game, channeling resources from one activity or social group to another without considering the effect on the creativity and judgment exercised within the economy and thus the deep rewards the economy imparts or fails to impart….

Even now, in the midst of an economic downturn, there are signs of vitality that weren’t present in the 1950s. There is exuberance, however irrational, in the banking system, and some originality here and there in hedge funds and private equity, and still some inventiveness in Silicon Valley. Although they may have caused more problems than they were worth, the exotic, new financial instruments showed that America is still the world’s leader in invention. They reflect America’s capacity to create. Unfortunately, the markets were unsophisticated and set mistaken asset prices.

Categories: Economics, research Tags:

Dynamic Pricing for Hockey Tickets

September 16th, 2009 No comments

Via Marginal Revolution, a news story tells of daily-changing prices for hockey games:

Similar to airline pricing, the best prices are often found early. Dynamic pricing will provide fans with great prices starting from the initial on-sale on Sept. 12. The upper level single-game ticket prices can go up or down based on a variety of factors, including league standings, opposing team, star players, day of the week, and real time supply and demand. Dynamic pricing for upper level tickets will continue all season. Fans will be able to check out the current prices at any time at DallasStars.com.

Categories: Economics Tags:

The Blue-Eyed Islander Puzzle

September 5th, 2009 No comments

Here is a well-known puzzle that I will probably be teaching next week. An island starts with 2 blue-eyed people and 48 green-eyed, but the people do not know these numbers. If a person ever decides his eyes are blue, he must leave the island at dawn the next day. There are no mirrors and people may not talk about eye color, but they see each others’ faces.

What will happen? — nobody leaves.

Now an outsider comes to the island and says, “At least one of you has blue eyes”.

The next dawn, nobody leaves, but on the second dawn, both blue-eyed people leave.

The reason: Both blue-eyed people realize there are either 1 or 2 blue-eyed people. When nobody leaves on the first dawn, each realizes that there must be 2– and he is one of them.

Categories: game theory Tags:

Saul Alinsky: Rules for Radicals

July 5th, 2009 No comments

Saul Alinsky’s Rules for Radicals, via a Canadian site: (I have boldfaced the most noteworthy)

Rule 1: Power is not only what you have, but what an opponent thinks you have. If your organization is small, hide your numbers in the dark and raise a din that will make everyone think you have many more people than you do.

Rule 2: Never go outside the experience of your people.
The result is confusion, fear, and retreat.

Rule 3: Whenever possible, go outside the experience of an opponent. Here you want to cause confusion, fear, and retreat.

Rule 4: Make opponents live up to their own book of rules. “You can kill them with this, for they can no more obey their own rules than the Christian church can live up to Christianity.”

Rule 5: Ridicule is man’s most potent weapon. It’s hard to counterattack ridicule, and it infuriates the opposition, which then reacts to your advantage.

Rule 6: A good tactic is one your people enjoy. “If your people aren’t having a ball doing it, there is something very wrong with the tactic.”

Rule 7: A tactic that drags on for too long becomes a drag. Commitment may become ritualistic as people turn to other issues.

Rule 8: Keep the pressure on. Use different tactics and actions and use all events of the period for your purpose. “The major premise for tactics is the development of operations that will maintain a constant pressure upon the opposition. It is this that will cause the opposition to react to your advantage.”

Rule 9: The threat is more terrifying than the thing itself. When Alinsky leaked word that large numbers of poor people were going to tie up the washrooms of O’Hare Airport, Chicago city authorities quickly agreed to act on a longstanding commitment to a ghetto organization. They imagined the mayhem as thousands of passengers poured off airplanes to discover every washroom occupied. Then they imagined the international embarrassment and the damage to the city’s reputation.

Rule 10: The price of a successful attack is a constructive alternative. Avoid being trapped by an opponent or an interviewer who says, “Okay, what would you do?”

Rule 11: Pick the target, freeze it, personalize it, polarize it. Don’t try to attack abstract corporations or bureaucracies. Identify a responsible individual. Ignore attempts to shift or spread the blame.

According to Alinsky, the main job of the organizer is to bait an opponent into reacting. “The enemy properly goaded and guided in his reaction will be your major strength.”

Some quotes:

We had to construct experience for our students. Most people do not accumulate a body of experience. Most people go through life undergoing a series of happenings, which pass through their systems undigested. Happenings become experiences when they are digested, when they are reflected on, related to general patterns, and synthesized. (p. 68)

That idea is important. It explains the rate at which people gain wisdom– or remain as foolish as they were in their youth. People who analyze when young will gain on their non-analytic friends, so we would expect ability and income gaps to rise with age.

Most people have gone to church and mouthed Christian doctrines, and yet this is really not part of their experience because they haven’t lived it. Their church experience has been purely a ritualistic decoration…

[Of someone who found God and tried giving away his money to bums.] Our friend attempting to emulate Christian life and emulate St. Francis of Assisi found that he could only do so forty minutes before being arrested by a Christian police officer, driven to Bellevue Hospital by a Christian ambulance doctor, and pronounced non compos mentis by a Christian psychiatrist. Christianity is beyond the experience of a Christian-professing-but-not-practicing population. …

I’ve been asked, for example, why I never talk to a Catholic priest or a Protestant minister or a rabbi in terms of the Judaeo-Christian ethic or the Ten Commandments or the Sermon on the Mount. I never talk in those terms. Instead, I approach them on the basis of their own self-interest, the welfare of their Church, even its physical property.

If I approached them in a moralistic way it would be outside their experience, because Christianity and Judaeo-Christianity are outside of the experience of organized religion. … The moment I walked out they’d call their secretaries in and say, “If that screwball ever shows up again, tell him I’m out.”

Communication for persuasion, as in negotiation, is more than entering the area of another person’s experience. It is getting a fix on his main value or goal and holding your course on that target. (p. 89)

This last passage is a devastating criticism of Christianity in America. Alinsky would have applied his rule of making people play by their own rules if he thought it would work. He didn’t, with Christian pastors. He doubts they can even conceive of genuine Christianity.

Categories: game theory, living, teaching, thinking Tags:

Wilson, Harding, and How to Use Deep Pockets to Look Like a Financial Genius

June 27th, 2009 No comments

Scott Sumner has a good blog entry on two subjects:

1. Why Wilson was a rotten President and Harding was a good one.

2. How to have a 99% chance of seeming to be a financial genius like Keynes. The secret is to do double-or-nothing trades for long enough, and to have deep pockets. The 1% chance is that you lose everything, though.

Categories: finance, harding, history, wilson Tags:

The Dollar As an International Currency

May 4th, 2009 No comments

I predict that the U.S. will have high and variable inflation in a few years. That makes standard U.S. government a risky investment. We are worried that the Chinese and others will bail out of it. Yet I think we can retain the benefits of being able to sell our debt to foreigners and Americans. We just need to delink the function of store of value from the function of medium of exchange. Here are three ways:

1. Issue more inflation-indexed bonds. We already have some. Foreigners, especially, should want them.

2. Issue bonds denominated in dollars but whose interest payments are in dollars equal to a fixed number of Swiss francs.

3. Issue bonds indexed not to inflation generally, but to a small basket of goods with stable relative prices. I am thinking of Hall’s “plywood standard”. This avoids the risk of the U.S. government changing the CPI or other ordinary price index.

Categories: Economics Tags:

Marxists Obituarized Admiringly: Andrew Glyn

April 30th, 2009 No comments

(April 30–revised, see below)
From National Review:

Andrew Glyn is not a household name, and until I read his obituary yesterday in The Times of London I had never heard of him. But what an illuminating document that obituary proves to be, a perfect little insight into the age. The opening sentence informs that Glyn “was one of Britain’s most prominent Marxist economists who produced searching critiques of capitalism,” going on to salute him as “one of the finest of Oxford dons.”… Think of the abuse of privilege. Think of the false pretences. Think of the damage he did spouting rubbish year after year to students who would be expected to parrot it back to him. To one student, he is supposed to have said, “the three greatest men who ever lived were Lenin, Trotsky and Charlie Parker,” – a sentence that the obituary writer hilariously links to “his depth of knowledge.” Some of the unfortunate students will have recovered freedom to think for themselves, but some will be permanently damaged. The obituary writer does in the end concede that Glyn “will to some extent be deemed to have backed the wrong ideological horse” — that “to some extent” is a qualification that goes so far beyond hilarious that it is almost majestic.

Dr. Stern writes in an AER article:

This is dedicated to my close friend,
distinctive and distinguished economist and fine man,
Andrew Glyn, who died on December 22, 2007, and whose
funeral took place in Oxford, UK, on the same day as the
Ely Lecture, January 4, 2008.

I decided to delete my strong comments on Dr. Glyn. I don’t believe in De mortuis nil nisi bonum,
but I don’t know why he was divorced. I am skeptical, though, of how good and kind a person is if I then discover that he is divorced. Lots of people are charming when being charming has low cost and aids their social position, but cheat on their wives, molest their children, and neglect their parents.

I also think it is important not to praise someone as a good teacher when he teaches pernicious rubbish, even if he teaches it persuasively. A person can be nice and still be a Leninist, just as he can be nice and still be a Nazi. The comparison is by no means too strong. In fact, there is much more excuse for someone who was a Nazi in the 1930s than a Leninist in the 1980s. In the 1930’s the Nazis were thuggish and autocratic, but the horrors of WW 2 and the Holocaust were still to come. By now the excesses of Communism– not just the political murders, but the millions killed by collectivization– are well known. In fact, even by 1922 the crimes of Lenin and Trotsky were well known. I can understand why Communists would praise Dr. Glyn, but those of us who fall into one of the categories of people his heroes liked to kill shouldn’t praise him.

Categories: economists, liberals, universities Tags:

Filling In Potholes Yourself

April 10th, 2009 No comments

From the Chicago Tribune via Taranto at the WSJ:

Do you have gaping potholes on your street and feel the city is not fixing them quickly enough? How about patching them yourself?

That’s what a group of residents on Chicago’s West Side did Wednesday. Members of the South Austin Coalition bought eight bags of a pavement mix for about $100 and used shovels, rakes and a 250-pound push roller to fill 15 holes on the 4800 block of West Van Buren Street….

For starters, it’s not safe for people to work in the street without taking safety measures like putting up orange cones to warn traffic, said Brian Steele, a spokesman for the Chicago Department of Transportation. Secondly, city crews are trained in the art of filling potholes—cleaning them out, pouring in the asphalt mix, making it compact and then rolling the patch with mechanical rollers, not the kind you can push.

The driveway mixture the group used in this case may have only cost a little more than $10 for a 50-pound bag, but the city says the $100-per-ton of high performance cold patch it purchases is worth it.

Piracy

April 9th, 2009 No comments

On the radio I heard NPR interview Gen. Tom Wilkerson on piracy in the Indiana Ocean. Somali pirates just attacked a U.S.-flag cargo vessel. The crew disabled the ship, and the captain volunteered to go away with the pirates as a hostage. He is now in a little boat with 4 pirates, closely watched by the US Navy.

Gen. Wilkerson pointed out that navy patrols aren’t going to stop this in advance– we don’t know which ships pirates are in till they attack. He said we should go after their land bases.

Every officer in the armed forces needs to read Schelling’s Strategy of Conflict. The solution here is game theory. Here are some possibilities:

1. Tell the pirates that unless they the hostage remains alive they will all be killed, but otherwise their lives will be spared. Then attack them. See if they kill the hostage then or not. Tell them in the initial offer that even if they do not surrender the hostage, so long as nobody shoots him while the US is attacking, their lives will be spared. (By the way: if you think international law doesn’t apply to piracy, that means we are free to torture or kill pirates without trial. Traditional international law explicitly allowed their summary execution, at least.)

2. Surround the pirate boat and don’t let them land anywhere. They will run out of water. When they are all unconscious, capture them.

If either policy is followed, and if it is made clear that any US-Flag ship attack will fail in this way, then piracy against US vessels will cease, without any need for naval patrols or attack on Somali bases. We could, if we wanted, extend the protection to foreign ships too, perhaps for a large payment.

Categories: game theory Tags:

The Amazing Waste from Turning Off Computers Each Night

March 30th, 2009 1 comment

I saw an article that illustrates why it’s good for me to teach students about economic cost as opposed to raw accounting cost:

I leave my laptop running overnight because I know it’ll take five minutes or more to get things going in the morning — not just booting up, but launching the various apps I start the day with, downloading my overnight email, filtering out the spam, and otherwise “getting settled.”

But all the power wasted while computers are sitting idle overnight adds up, and one study has finally tried to measure it. The tally: An estimated $2.8 billion wasted on excess energy costs each year in the U.S. alone….

The full report is available for download here (scroll down to “PC Energy Report US 2009″)….

If you run a company with 1,000 PCs left on overnight, you can save about $28,000 a year if they are turned off after hours. That’s not chump change.

One advantage of the economic way of thinking is that it makes one think of a question here. Why are companies so stupid as to not mandate that their employees turn off computers, if companies could save so much money? The economist naturally wonders if there is something that high-paid corporate executives know that the journalist is missing.

Let’s do the full calculation. 1000 PCs * 5 minutes of employee time * 200 days per year * $60/hour or $1/minute = $1 million/year saving from leaving the computer on all night. That compares with $28,000 in energy savings costs.

You can adjust my numbers if you think they’re wrong. Suppose its only 1 minute of employee time that it takes them to boot up, 100 days per year that they work, and $6/hour that your company pays them. Then the benefit in labor costs from leaving on the computers is only $100,000 per year, a mere four times the extra cost in electricity.

The US Federal Deficit

March 25th, 2009 No comments

Heritage, via, Instapundit.

Categories: Economics, g406, stimulus Tags:

Hardware Design

March 19th, 2009 No comments

Think about USB ports. My Dell, and most computers, have the USB port located in a really stupid place. It’s in front now, but in a dark corner under a cover and at a weird angle. The USB interface itself is stupidly designed. It isn’t clear which way is up and which is down. The shape should have been made asymmetric to make that obvious.

I think of these are really obvious mistakes, and I could have avoided them with ten minutes thought, max, if I were in charge. But Dell and the USB standards committee must not be composed entirely of morons. Engineers do need a certain minimal intelligence. They even need a very little bit of imagination. Apparently not much. But this shows why it is worth paying such enormous fees to CEO’s. Ordinary people simply can’t think. It’s worth having one person with brains and authority both, who can look at something for five minutes and see something that the engineers couldn’t find in a year of looking.

Categories: CEOs, Economics, thinking Tags:

Thoughts on Macro

March 19th, 2009 No comments

Slowly, the recession and crisis are starting to become clearer. Here I’ll jot down some thoughts.

1. Why have I thought that Keynesianism had any chance of being correct? I can’t think of good theoretical foundations and there isn’t good empirical evidence. Sticky wages and prices really isn’t enough. There isn’t a simple model of the kind that I always require in microeconomics, or a simple story. But since I haven’t thought about it hard for 20 years, maybe I should now, since I have learned a lot about modelling and about the economy.

2. I’m coming to think there wouldn’t have been much of a recession except for changed expectations around October 2008. Part of the financial sector was in desperate shape, but it looks to me as if all the investment banks and big banks were in desperate shape, plus some speculative banks and companies like GM and GE, but no small banks outside of Nevada and such places. I’ve come to doubt even TARP I. Was it just that Secy. Paulsen thought that if New York banks fell, so must the world? That’s false.

3. Have we been hoodwinked by the Establishment? I suspect the rest of America has just directed billions of dollars to help New York. And not even all of New York. Not Wall Street– just the banks.

Categories: Economics, recession, stimulus Tags:

It’s Hard to Estimate Russian GDP

March 18th, 2009 No comments

Marginal Revolution gives some evidence on why I am skeptical that Russian GDP went down after reforms:


Andrew Gelman has a simple question, What is Russia's GDP per capita?  Fortunately this information is easy to find on the web.  As Gelman reports, the answer is:

   1. $7,600 (World Bank 2007)
   2. $9,100 (World Bank 2007)
   3. $14,700 (PPP adjusted, World Bank 2007)
   4. $4,500 (World Bank 2006)
   5. $7600 or $14,400 (gross national income: "Atlas method" or "purchasing power parity," World Bank 2007)
   6. $12,600 (IMF 2008), $9,100 (World Bank 2007), or $12,500 (CIA 2008)
   7. $2,637 in 2000 US dollars (World Bank 2007); that's $3,200 in 2007 dollars
   8. $2,621 (World Bank 2006) or $8,600 (IMF)

Categories: Economics Tags:

Saturday_Night_Live’s Geithner Video

March 9th, 2009 No comments

The Saturday Night Live Geithner save-the-economy-plan video is very good.

Categories: Economics, humor, politics Tags:

The Iceland Bubble

March 4th, 2009 No comments

Michael Lewis has a great Vanity Fair article on the Icelandic Banking Bubble. It is good analysis and good sociology and fun to read. I was looking for something in particular, and I think I found it:

You didn’t need to be Icelandic to join the cult of the Icelandic banker. German banks put $21 billion into Icelandic banks. The Netherlands gave them $305 million, and Sweden kicked in $400 million. U.K. investors, lured by the eye-popping 14 percent annual returns, forked over $30 billion—$28 billion from companies and individuals and the rest from pension funds, hospitals, universities, and other public institutions. Oxford University alone lost $50 million.

I suspect this bubble was not a disaster for Iceland at all, any more than the investment banking bubble was a disaster for Wall Street. It looks as if Iceland sucked in, or perhaps I should say suckered in, billions of foreign dollars, spent a lot of it on cars and houses, and gambled away the rest. The result: a lot of rich Icelanders, a few bankrupt banks, and a lot of foreigners who are poorer but probably not wiser.

Do You Need a College Degree

March 4th, 2009 No comments

Someone at the NR blog notes that the military hires people without college degrees and gives them harder, more technical jobs than the private sector gives to college graduates.

Categories: Economics, education, universities Tags:

Pro-Monopoly Economists

March 1st, 2009 2 comments

As Prof. Mankiw notes, it’s strange to see well-known economists supporting the bill in Congress to eliminate the secret ballot in union elections, allowing instead for the union organizers to pressure workers to sign cards publicly that the organizers then collect and turn in. I wonder if those economists would also oppose the secret ballot in Congressional elections?

As Prof. Mankiw notes, unions are cartels of labors, so a second question is why economists like those cartels. Unions get a special exemption from anti-trust laws, but they are just monopoly sellers of labor. They aren’t even cartels that redistribute income from rich to poor— they do the opposite. Unionized workers are, I think, on average richer than the average person, so when they get higher wages by restricting the amount of labor hired those workers who lose their jobs in the industry end up with lower wages, and also end up paying the higher prices for things such as cars that the unions produce.

Anyway, here are the economists who signed the open letter that I’ve heard of in a scholarly context:

Katharine Abraham, University of Maryland
Philippe Aghion, Massachusetts Institute of Technology
Kenneth Arrow, Stanford University
Jagdish Bhagwati, Columbia University
Rebecca Blank, Brookings Institution
Joseph Blasi, Rutgers University
Alan S. Blinder, Princeton University
William A. Darity, Duke University
Brad DeLong, University of California/Berkeley
John DiNardo, University of Michigan
Henry Farber, Princeton University
Robert H. Frank, Cornell University
Richard Freeman, Harvard University
James K. Galbraith, University of Texas
Robert J. Gordon, Northwestern University
Lawrence Katz, Harvard University
Dani Rodrik, Harvard University
Jeffrey D. Sachs, Columbia University
Robert M. Solow, Massachusetts Institute of Technology
Joseph E. Stiglitz, Columbia University
Peter Temin, Massachusetts Institute of Technology
Lester C. Thurow, Massachusetts Institute of Technology
David Weil, Boston University
 
Categories: economists, liberals, monopoly, unions Tags:

My Co-Authors

February 24th, 2009 No comments

After going to Ian Ayres’s excellent 50th Birthday
Co-Authors Conference
I
decided to count up my own co-authors. Stars indicate that what we’ve
written is not yet published (and maybe never will be). I don’t
include co-editors.

  1. Michael Alexeev
  2. *Maria Arbatskaya
  3. Ian Ayres
  4. F. H. Buckley
  5. *Luis Fernandez
  6. *Barick Chung
  7. *Christopher Connell
  8. Kenneth Dau-Schmidt
  9. *Richmond Harbaugh
  10. David Hirshleifer
  11. Jack Hirshleifer
  12. Maarten Janssen
  13. Thomas P. Lyon
  14. Richard McAdams
  15. * Kaushik Mukhopadhaya
  16. Robert Heidt
  17. Emmanuel Petrakis
  18. Ivan Png
  19. Richard Posner
  20. Manu Raghav
  21. J. Mark Ramseyer
  22. Timothy Perri
  23. Minoru Nakazato
  24. Santanu Roy
  25. Jeffrey Stake
  26. John Wiley
  27. *David Myatt
  28. *Young-Ro Yoon
  29. Todd Zenger
  30. Mark Zupan

Ian is up to 51, I think, with about 30 at the conference and 15 presenting papers there.

French Preface

February 16th, 2009 No comments

I finally got round to scanning in the 688K Francis Bismans preface to the French edition of Games and Information. It’s actually a 14 page essay.

Categories: game theory, research Tags:

The Budget Deficit

February 16th, 2009 No comments

The budget deficit:

Categories: Economics, stimulus Tags:

Posner and Judicial Writing

February 12th, 2009 No comments

It seems that Judge Posner is having a good influence on judicial writing. The 7th Circuit Lott v. Levitt opinion (via Volokh Con.) written by Evans with Ripple and Sykes signing on, is clear, pleasant, and uses contractions, even in an opinion whose subject is the fine detail of choice of law and writing pleadings:

The principle of waiver is designed to
prohibit this very type of gamesmanship—Lott is not
entitled to get a free peek at how his dispute will shake out
under Illinois law and, when things don’t go his way, ask
for a mulligan under the laws of a different jurisdiction. In
law (actually in love and most everything else in life),
timing is often everything. The time for Lott to ask for
the application of Virginia law had passed—the train
had left the station.

Categories: economists, international law, writing Tags:

Krugman, Barro, and Crook

February 11th, 2009 1 comment

Clive Crook wrote an FT column
about economists blogging, citing Barro and Krugman as examples of economists who went to extremes. Part was this:

I had thought they would at least agree that raising trade barriers at a time like this must be a bad idea. Then I read Paul Krugman, Nobel laureate, Princeton professor, and New York Times columnist, explain that raising tariffs – though perhaps unwise for other reasons – “can make the world better off”. “There is a short-run case for protectionism,” he went on, “and that case will increase in force if we don’t have an effective economic recovery programme.” What are his readers to make of this? Are all the economists who say otherwise just wrong?

This impression of disarray – that economics has nothing clear to say on these questions – is not the fault of economics as such. It is a mostly false impression created by some of its leading public intellectuals, Mr Krugman among them.

Economics outside the academy has become the continuation of politics by other means. If you wish to know what Mr Krugman thinks on any policy question, do not read his scholarly writings; see which policies are advocated by the progressive wing of the Democratic party. Mr Krugman agrees with liberal Democrats about most things, and for the rest gives as much cover as the discipline of economics can provide – which, given its scientific limitations, is plenty. He does this even on matters where, if his scholarly work is any guide, the economics is firmly against his allies. Liberal Democrats are protectionists. Mr Krugman is not, but politics comes first.

The syndrome affects economists on the right as much as on the left. Just as there is a consensus among economists that protectionism should be opposed, most economists believe that a powerful fiscal stimulus is both possible and desirable in present circumstances, and that the best stimulus would include big increases in public spending. Yet recently, Robert Barro, a scholar with conservative sympathies, wrote in the Wall Street Journal that this view was an appeal to “magic”.

The problem is not that Mr Krugman questions the consensus on trade (if indeed he does), or that Mr Barro questions the consensus on fiscal policy (as he certainly does). It is that both set the consensus aside so carelessly. In doing so, these stars of the profession destroy the credibility of their own discipline. Mr Krugman gives liberals the economics they want. Mr Barro gives conservatives the same service. They narrow or deny the common ground. Why does this matter? Because the views of readers inclined to one side or the other are further polarised; and in the middle, those of no decided allegiance conclude that economics is bunk.

What is interesting is not that article (which is wrong on Barro, I think), but the responses of Professors Krugman and Barro. Mr. Crook displays the correspondence in The Atlantic. Barro and Crook had a polite exchange of emails discussing their disagreements. Krugman said,

Clive used to be a reasonable guy; in his mind he probably still is a reasonable guy. But he has misunderstood what it means to be reasonable. He now apparently believes that it means declaring, in all circumstances, that Democrats and Republicans are equally in the wrong, even if the Democrats are talking Econ 101 and the Republicans are being led by the crazy 36.


And it means hysterical attacks on yours truly for actually taking sides in this debate
, with the ostensible basis for the denunciation being a wonkish blog post — it says so in the title — in which I acknowledge that there is a potential short-run argument for protectionism, while making it clear that I’m not in favor of acting on that argument. He doesn’t actually take on my argument; he just insists that the only reason I might possibly have said anything like this is partisan bias, as opposed to an attempt to be intellectually honest.

That’s interesting in itself. But now let us proceed to Paul Krugman’s argument for protectionism.

Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes. And I do think it’s important to be honest about the second yes.

So Krugman not only thinks that there is an economic case for buy-American, but that it’s important to stress it. And while we should “be upset” about the buy-American policy, that’s just an emotional response– the “economic case” is in favor of it.

The economic case against protectionism is that it distorts incentives: each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods. And under normal conditions that’s the end of the story.

But these are not normal conditions. We’re in the midst of a global slump, with governments everywhere having trouble coming up with an effective response.

Okay– so the economic case against protectionism is not determinative here– we are in a special situation.

And one part of the problem facing the world is that there are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports — but you don’t share in my addition to government debt. As I explained a while back, this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole.

And this in turn means that if macro policy isn’t coordinated internationally — and it isn’t — we’ll tend to end up with too little fiscal stimulus, everywhere.

Now ask, how would this change if each country adopted protectionist measures that “contained” the effects of fiscal expansion within its domestic economy? Then everyone would adopt a more expansionary policy — and the world would get closer to full employment than it would have otherwise. Yes, trade would be more distorted, which is a cost; but the distortion caused by a severely underemployed world economy would be reduced. And as the late James Tobin liked to say, it takes a lot of Harberger triangles to fill an Okun gap.

Let’s be clear: this isn’t an argument for beggaring thy neighbor, it’s an argument that protectionism can make the world as a whole better off. It’s a second-best argument — coordinated policy is the first-best answer. But it needs to be taken seriously.

Let me restate his argument. Every country needs fiscal stimulus because of the recession, and that’s the most important thing. But countries won’t enact fiscal stimulus unless they can be protectionist too, because they’re selfish. So, since protectionism isn’t as bad as lack of government spending, it’s worth having trade barriers so as to get the government spending.

This is, actually, saying that beggar-thy-neighbor policies are a good thing. He is saying that if every country tries to beggar every other by buy-domestic policies, they’ll all be better off in the end than if they didn’t. He’d prefer having the same amount of government spending without the buy-domestic policies, but he doesn’t think that’s possible politically.

After a couple more paragraphs saying that we have to consider the political economy, we come to his bottom line:

But there is a short-run case for protectionism — and that case will increase in force if we don’t have an effective economic recovery program.

His argument has three problems (aside from its premise that the stimulus package is a good thing and should pass). First, it’s not plausible that the stimulus package will shrink much if it is less protectionist, and his argument depends on there being enough shrinkage to counteract the bad allocative effect of protectionism. Second, if we’re talking political economy, we should bring in the fact that allowing protectionism into a stimulus bill will result in it being more distorted to serve special interests rather than having the single objective of serving the public interest of Keynesian stimulus. Third, an economist should start by making the economic arguments clear, rather than mingling them with the politicking, compromise, and buying-off-of-interests arguments. Politics requires compromise, but an op-ed piece does not. In fact, even in politics, you start off the bargaining by taking your preferred position– you don’t start by offering your opponent something halfway towards his position. In fact, you might want to start with something more extreme than your preferred position.

In this particular case, of course, the buy-American provisions weren’t in there to garner moderate and conservative support for a bill that wouldn’t pass otherwise– they were an actual hindrance towards compromise. Krugman’s got it exactly backwards– the buy-American was bad economics *and* bad politics.

Note what Greg Mankiw says,

Matthew Yglesias says that my stimulus proposal is “a pretty good idea” but also says “it’s wildly impractical” because it is “so outside the ballpark of what congress is prepared to consider.”

Let me reply by quoting Milton Friedman:

The role of the economist in discussions of public policy seems to me to be to prescribe what should be done in light of what can be done, politics aside, and not to predict what is “politically feasible” and then to recommend it.

A Metaphor to Derail the Stimulus?

January 31st, 2009 No comments

Where Nations Go to Die is Mark Steyn at his finest. Read the whole thing, but here is the most exquisite part:

The more interviews Speaker Pelosi gives explaining how vital the STD industry is to restarting the U.S. economy, the more I find myself hearing “syphilis” every time she says “stimulus.” In late September, America was showing the first signs of “primary stimulus”—a few billion lesions popping up on the rarely glimpsed naughty bits of the economy: the subprime mortgage racket, the leverage kings. Now, the condition has metastasized in a mere four months into the advanced stages of “tertiary stimulus,” with trillions of hideous, ever more inflamed pustules sprouting in every nook and cranny as the central nervous system of the body politic crumbles into total insanity—until it seems entirely normal for the second-in-line of presidential succession to be on TV gibbering away about how vital the federalization of condom distribution is to economic recovery.

The Nietzschean Democratic Party!

Categories: Economics, humor, poetry, stimulus, writing Tags:

Keynesian Stimulus Grand Links Accumulator

January 30th, 2009 No comments

I think a link page for the stimulus would be useful, so here it is. I’ll update this as links accumulate. What I’d like to pin down here is economists of at least some name for research— which for me, practically here, just means that I’ve heard of them— who I conclude would prefer no stimulus bill at all to the stimulus bill that Congress has passed. I have not included the many economists who have written ambiguously that stimulus might well be appropriate, or that if we are going to have a stimulus it ought to be tax cuts rather than spending, or that a properly designed stimulus is just what we need, since that is not at all the same as saying that they support a bill similar to what Congress has come up with. Government failure is half the applicable theory here, and a lot of economists seem to go out of their way to avoid talking about the real world stimulus bills.

Please excuse me, anyone, if I’ve mischaracterized you here. I’d be happy to have a definite statement putting you as PRO, CON, or Undecided. Just email me at erasmuse@Indiana.edu. Also, please excuse my not including you if you are a Cato signer I left off. I’m including only a few people on the lists below whom I’ve not heard of via academia and scholarship. Thus, for example, Bruce Bartlett and Megan McCardle don’t count. And of course Administration officials don’t count, so I haven’t bothered to look for the views of Christina Romer or Lawrence Summers.

In an earlier posting of this webpage, I remarked on how few pro-stimulus economists I had found. Then I found the January 27 CAPAF letter, which evens things up considerably. It’s still true that I haven’t found much web or journalism presence of economists saying they support the stimulus. Link suggestions for them are welcomed.

Economists on the Stimulus:

  • For the stimulus:
    1. Menzie Chinn, Wisconsin

    2. A collection of lots of Brad DeLong posts, mostly reacting to other economists (January 2009)
    3. Robert Frank, Cornell
    4. Paul Krugman: January 19, 2009,
      Getting fiscal
      , Nobel laureate in international trade.

    5. Jeff Sachs, Columbia University, in the Huffington Post.

    6. Joseph Stiglitz, Nobel laureate in information economics.

    7. Janet Yellen, Berkeley.

    8. Many people signed a January 27 2009 CAPAF letter in favor of the Recovery and Reinvestment Act of 2009. Here I list only those I’ve heard of via academic channels whom I don’t list elsewhere on this webpage. There are dozens of others on the list.
      1. Kenneth Arrow, Nobel;
        Lawrence Klein, Nobel;

        Eric Maskin, Nobel;

        Daniel McFadden, Nobel;

        Paul Samuelson, Nobel MIT;

        Robert Solow, Nobel MIT;

        Franklin Fisher, MIT;

        Laura Tyson;

        Sandeep Baldiga, Northwestern;

        William Baumol, Princeton;

        Peter Berck, Berkeley;

        Michael Bernstein, Tulane;

        Rebecca Blank;

        Guillermo Calvo;

        Paul Davidson;

        Hadi Esfahani, Illinois;
        Marianne Ferber, Illinois;

        Michael Intriligator, UCLA;

        Lawrence Katz, Harvard;

        David I. Levine, Berkeley (not the Wash. U. one who is anti-) ;

        Richard Murnane, Harvard;

        John Roemer, Yale;

        T. Paul Schultz, Yale;

        Sherrill Shaffer, Wyoming;

        Mark Thoma, Oregon;

    9. A November 19, 2008 open letter supporting a particular kind of stimulus bill was signed by many economists, including George Akerlof, Paul David, Sanford Jacoby, Gavin Wright, Gary Burtless, Peter Diamond, Laurence Kotlikoff, Julie Nelson, Peter Temin, Ann Markusen, and Susan Helper. It advocated a quick $400 billion bill with 4 specific kinds of spending. Quite possibly those people favor the actual bill that passed, but there are lots of people who would support ideal bills but oppose the actual bill, so I’m not listing them.
  • Against:
    1. Gary Professor Becker (Chicago, Nobel Laureate, labor economics, Jan. 11).
    2. Professor Robert Barro, Harvard. Also this interview.
    3. Willem Buiter, with close attention to who would buy US debt.
    4. John Cochrane (Chicago, Jan. 29)
    5. Tyler Cowen on lack of empirical support(December).
    6. Professor Eugene Fama (Chicago, January 29)
    7. Professor Martin Feldstein (Harvard,January 30). Keynesian, but against.

    8. David Friedman, blog post.

    9. Kevin Hassett (AEI)
    10. Robert Higgs, newspaper op-ed.
    11. David Henderson
    12. Robert A. Lucas (Chicago, Nobel laureate in macro)
    13. Kevin Murphy, Chicago, WSJ with Becker.
    14. Eric Rasmusen, Keynesianism and NewMajority.com.
    15. Russell Roberts, Wash. U. , blog.
    16. A Cato Ad against stimulus was signed by me and lots of people. Here I list only those I’ve heard of via academic channels whom I don’t list elsewhere on this webpage. There are dozens of others on the list.
      1. Mark Bils, Univ. of Rochester;

      2. Bruce Benson, Florida State University;

        Michele Boldrin, Washington University in St. Louis;

        Donald Boudreaux, George Mason University;

        James Buchanan, Nobel laureate;

        Bryan Caplan, George Mason University;

        Barry Chiswick, Univ. of Illinois at Chicago;

        Lloyd Cohen, George Mason University, email;

        Daniel Feenberg, National Bureau of Economic Research;

        Kenneth Elzinga, Univ. of Virginia;
        Paul Evans, Ohio State University;

        John Garen, Univ. of Kentucky (pdf essay);

        Michael Gibbs, Univ. of Chicago;

        Earl Grinols, Baylor University;

        Ronald Heiner, George Mason University;

        Jason Johnston, Univ. of Pennsylvania;
        Boyan Jovanovic, New York University;
        Jonathan Karpoff, Univ. of Washington;

        Nicholas Kiefer, Cornell University;
        Daniel Klein, George Mason University;

        Deepak Lal, UCLA;

        David Levine, Washington University in St. Louis;

        Stan Liebowitz, Univ. of Texas at Dallas;

        John Lott, Jr., Univ. of Maryland ($8,700 cost per taxpayer);

        Henry Manne, George Mason University;

        John Matsusaka, Univ. of Southern California;

        Tim Muris, George Mason University;

        David Mustard, Univ. of Georgia;

        Deirdre McCloskey, Univ. of Illinois, Chicago;

        Allan Meltzer, Carnegie Mellon University;

        James Miller III, George Mason University;

        Michael Munger, Duke University;

        Kevin Murphy, Univ. of Southern California (not the Chicago one);

        Richard Muth, Emory University;

        William Niskanen, Cato;

        Sam Peltzman, Univ. of Chicago;

        William Poole, Univ. of Delaware;

        Edward Prescott, Nobel laureate;

        Timothy Perri, Appalachian State University;

        Mario Rizzo, New York University;

        Richard Roll, Univ. of California, Los Angeles;

        Charles Rowley, George Mason University;

        Ronald Schmidt, Univ. of Rochester;

        Thomas Saving, Texas A&M University;

        Eric Schansberg, Indiana University Southeast;

        Avanidhar Subrahmanyam, UCLA;

        William Shughart II, Univ. of Mississippi (op-ed);
        James Smith, Western Carolina University;

        Vernon Smith, Nobel laureate;

        Richard Wagner, George Mason University;

        Lawrence White, Univ. of Missouri at St. Louis;

        Walter Williams, George Mason University;

    17. From the Boehner list: or blog page:
      1. James Kahn, New York University
      2. John Seater
        NC State Univ.

      3. Alan Stockman Rochester
      4. Jeff Miron, Harvard (CNN comments)
      5. David Laband, Auburn.
    18. The
      September 2008 letter on the Paulsen bank
      bailout doesn’t count, because it’s about a different issue. Whether
      someone supports spending billions on the banking system is quite
      different from whether they support spending billions for a fiscal
      stimulus.
  • I can’t figure out whether they’re for or against:
    1. Edward Glaeser. Seems to be for some kind of stimulus, but criticizes the kind actually passed.
    2. N. Gregory Mankiw, (New York Times, Jan 10). But see at Prof. DeLong’s weblog. I should email him.
    3. Alan Viard, AEI. But see here too.

Note that TARP I, TARP II, and the stimulus bill are three separate policies, and a given economist may have any combination of views on them and be consistent in his economic outlook. I supported TARP I and oppose TARP II and the stimulus bill, for example. The list above is just about the stimulus bill.

  • World War 2: Professor
    Cowen:
    Did World War II end the Great Depression?; Professor Paul Krugman,January 23, 2009,
    Spending in wartime,
    Professor Cowen on Barro and Krugman and
    Rasmusen on World War II as a test of Keynesian stimulus and Professor Robert Barro, Harvard (WW 2; and

    “Lessons from the Great Depression
    for Economic Recovery in 2009,”
    Christina D. Romer, Brookings Institution presentation,

    http://www.brookings.edu/~/media/Files/events/2009/0309_lessons/0309_lessons_romer.pdf

    (March 9, 2009).; Thomas Sowell’s end-of-New-Deal theory.


    Other:

  • Categories: Economics, Keynes, stimulus Tags: