The Palgrave Econolog seems to have been frozen since June 16. I shouldn't complain, since this blog is also frozen as ranked 8th out of 456 economics and finance blogs, which is really good, and better than we've ever been, I think.
But I do wish the Palgrave would re-start, even if it does mean we slip in the rankings. It's a good place to find out what other bloggers are talking about, and see who has linked to us recently. Plus, that ranking, as a sort of citation count of links from other blogs, is one of the few ways we have of measuring our impact. Citation counts are flawed of course (they might be linking to me just to say how wrong I am), but I don't think they are any more flawed for blogs than for journal articles.
It's a very old argument, and there's some truth in it. Financial crises and recessions are caused by a loss of confidence. And policies that might normally help end the recession might actually make things worse, if they worsen confidence.
Confidence in what?
The problem right now is that there is too much confidence: in money, and perhaps in government bonds too. And too little confidence in real investment, and perhaps in corporate bonds and shares too. Everybody wants to hold money, and government bonds. Nobody wants to spend money on real investment and on the corporate bonds and shares that finance real investment.
If you accept that diagnosis, then you want policies that worsen confidence in money, and perhaps in government bonds too. And if you worsen confidence in money, so that people try to get rid of it, and spend it, that should increase confidence in real investment, because firms will be able to sell the extra goods produced by that investment.
On the streets of Palm Springs, the stores have mister systems, spraying passers by - or an empty sidewalk - with a fine mist. Lurid green lawns are watered in the heat of the day, excess water running off onto the road. None of the hotels we've stayed at - not the Santa Monica eco-friendly boutique, not the New York Times recommended desert resort - have had Australian-style two-flush toilets or low-flow showerheads. The fountains in Palm Springs reminded my husband of Soviet-era Armenia, where free-flowing water symbolized the power of communism.
The title is a nod to Hayek's famous essay "The use of knowledge in society".
I think that essay is the best thing Hayek ever wrote. But I don't really know that, because I haven't read everything Hayek ever wrote. Possibly nobody has read everything Hayek ever wrote (except Hayek, but he's dead). But there will be people reading this who have read more Hayek than me. Or just different things that Hayek wrote than me. And if you put together all the different things Hayek wrote that different people reading this have read, it will be more Hayek than I have read, and probably more than than any single one of those individuals has read. So if I've missed some even better writing by Hayek, I will be sure to hear about it in the comments. Or perhaps another blogger will post and say "Nick, you're wrong, you've missed...".
Which illustrates my point here, and Hayek's point in that essay. Individually, each of us knows little. But we know different things. The problem in society is to bring individuals' disparate knowledge together. Hayek's point is that a price system is a good way to bring disparate knowledge together. My point is that blogging is a good way to bring disparate knowledge together.
Universal Studios sells regular passes and 'front of the line' passes. The front of the line passes allow the passholder to go through a special gate and wait in a special 'front of the line' queue.
Buying a front of the line pass is rational if:
price of front of the line pass - price of regular pass < value of time*time saved.
I did the calculations and bought the passes.
Suppose workers differ in quality, where "quality" is defined as "quality in the eyes of potential employers". In equilibrium there will be an equilibrium relationship between the distribution of wages and quality. Higher quality workers will get higher wages.
Start in equilibrium. Now assume a fall in demand for all types of labour. If wages are flexible, the whole curve of wages against quality will shift down, with no obvious effect on unemployment, or on relative unemployment rates for different qualities of labour.
But if wages are sticky, what happens? Firms will cut employment, and some workers will become unemployed. There will be an excess supply of labour for all jobs. If any employer does have a job opening (and some will) he will hire the highest quality worker in the queue. So higher quality workers will tend to get re-hired (though at lower wages than they earned previously, and working alongside lower quality workers). And lower quality workers will tend to remain unemployed.
In a recession, a bigger increase in unemployment rates for lower quality workers is exactly what we would expect from sticky wages. It's an observation that confirms the theory of sticky wages.
I'm just back from visiting the Getty Villa and I don't know what to make of it.
On the one hand, this is a model of what can be achieved through private philanthropy. J. Paul Getty built the villa to house his collection of Greek and Roman antiquities. The building, grounds, and setting are gorgeous, the antiquities truly impressive, the staff friendly and helpful and - best of all - due to Getty's generosity, admission is free.
The G7 are meeting in Huntsville this weekend, about an hour's drive up Highway 11 from my home town. There's been a certain amount of pre-summit jockeying about what would be on the agenda, but it's hard to see how there's going to be a consensus on the issue of the fiscal 'exit strategy' back toward balanced budgets. Here's why (data are quarterly, taken from the OECD):
As far as the US is concerned, an exit strategy has to be conditional on exiting the recession. And they're a long, long way away from that stage.
The typical Canadian mortgage matures in 5 years or less. Why can't Canadians get (say) 30 year mortgages? I used to think that the answer was "inflation", or "inflation uncertainty". Now I don't. Now I think the answer is "Section 10 of the Canada Interest Act". Which we should abolish.
Why can Americans get 30 year mortgages? I used to think the answer was "some sort of implicit subsidy by Fanny and Freddy". Now I'm not so sure.
This post is mostly about Canada. But it has implications for Americans. On reading US comments and responses to my previous post, I get the impression that there's a general assumption that the US 30 year mortgage only exists because of government support. I'm not sure that's right. Or rather, it may depend on what sort of 30 year mortgage we are talking about.
I'm fighting my annual summer cold this week, so I thought I'd do a bit of a lighter topic today.
About a month ago I saw an interview on TVO with Michael Lerner who played gambler Arnold Rothstein in one of my all-time favourite movies Eight Men Out. Lerner made the claim that Eight Men Out is essentially a "communist movie" as the workers (the White Sox players) are cheated out of what is rightfully theirs my greedy capitalist owner Charles Comiskey and decide to strike back. I didn't see the movie quite the same way - nobody comes out of that movie smelling too great other than Buck Weaver (played by John Cusack). But since Lerner did star in the movie, I'm willing to adopt his intepretation.
It got me to thinking, though: What other Hollywood (or Canadian) movies could be interpreted with a straight-face to have anti-capitalist or pro-communist themes, regardless of the intent of the writers and director. Or put differently:
Suppose you are an advisor to Kim Jong-il and he has asked you to recommend a number of Western movies that he will allow North Koreans to see. Given that these movies should be able to be intepreted has having anti-capitalist or pro-communist themes, which movies would you recommend?I will list my three picks in a comment tonight. Would love to hear yours!
The Onion has just run a piece imagining the thoughts of suicidal blue whales:
Claiming that their miserable lives had become too depressing to endure, the world's remaining blue whales surfaced Monday and desperately pleaded with environmentalists to immediately cease all conservation efforts so the species could "just be done with it and finally go extinct."
Americans aren't really insular, like the English. But they live in a very big country, and that can have the same effect. If there's something peculiar about the US, Americans sometimes won't realise how peculiar it is. US mortgages are peculiar. "Weird" is a better term.
Patrick Lawler, as described by James Hagerty, has tried to explain to Americans that their 30-year fixed rate mortgages aren't 30-year fixed rate mortgages, and that they are weird, stupid, and dangerous. He failed, perhaps because he ran out of time. Richard Green didn't get his point (H/T Mark Thoma). So I'm going to try.
It's Principle #1 of Greg Mankiw's Intro text's Ten Principles of Economics: "People Face Tradeoffs". Why? Why do economists always make this assumption? Why does having more of one good thing always have to mean having less of another good thing? Is this some fact of nature? Is Nature such a meanie that she can't ever let us have more of something we want without feeling she has to take away from us something else that we want? Why do economists have such a pessimistic, not to say anthropomorphic, view of nature?
And what about the examples that seem to contradict this Principle of Economics? Fuel injection gives more power than carburetors, and better fuel economy!
I made the same assumption of tradeoffs in my last post. I just assumed, without any argument whatsoever, that it cost more to build stuff that lasts longer. So there's a tradeoff between cheap to build (which we want) and longevity (which we want). Why? Maybe, when big trees are cheap and saws are expensive, it's actually cheaper to build a barn using big beams, rather than sawing them up. So a cheaper barn will also last longer.
Was old stuff built to last longer than new stuff? If so, why?
This is not a serious post. I enjoy (economic) history, and think it's important. But I'm really bad at it. History is the only subject I failed in school (too much stuff to remember). But my mind is still stuck on thinking about barns and other old buildings after spending last week at the family's farm in England. A lot of the older stuff (200 to 500 years old) still looks good for a few more centuries. The newer stuff is in worse shape.
I'm trying to make sense of this. Here are some random thoughts.
From a widely cited Paul Krugman piece:
Unless one defines partly as barely, there are some problems with this version of history:
Yep, you can have fiscal austerity without contraction if you have a massive devaluation against your main trading partner. So we can have austerity without a new depression as long as all the world’s major economies devalue against … oh, wait.
And monetary policy, of course, wasn’t up against the zero lower bound, so the Bank of Canada could and did offset fiscal austerity with looser monetary policy (which partly explains the drop in the loonie.)
It would appear that there is a significant constituency in both the US and in Europe agitating for immediate efforts to reduce their respective governments' deficits, and some are pointing to the Canadian experience of the 1990s. If Canada could make the swift transition from decades of large and chronic deficits to being the poster child of fiscal rectitude with no apparent ill effects, then why can't everyone else?
The answer is that Europe and the US in 2010 is not Canada in 1995, in pretty much every way that matters.
My sister, Rachel Goddyn, believes that expanding female job opportunities have led to a decline in the quality of elementary and high school teachers.
My own family is a case in point. Our grandmother was a kindergarten teacher. My sister Alice and I both teach at universities -- something that would have been unimaginable for our mother or grandmother.
I disagree with Rachel about declining teacher quality. But there are studies out there suggesting she is right. Marigee Bacolod, using US data, has found that the standardized test scores of women going into teaching fell between 1960 and 1990, as did the quality of their undergraduate institutions.
There is a tribe in the Amazon whose members can only count to five. Any amount greater than five is simply "many." We're surrounded by numbers in the millions (executive salaries), billions (Canadian government debt), and trillions (US government debt). But how much better are we than Amazon tribespeople in understanding what these amounts mean?
Most Canadian seniors are guaranteed an income above the poverty line by Old Age Security, Guaranteed Income Supplement and the Canada Pension Plan. Seniors are less likely to be poor than children or adults under 65 - with one exception. Mike Veall has found that 71 percent of recent immigrants aged 66 and older have incomes below the poverty line. Although recent immigrants were just 2 percent of the 66 and over age group, they constituted 20 percent of those in poverty (2004 numbers based on tax return data).