Posts Tagged ‘ economics ’

"PCT asserts three propositions. First, everyone in the political process -- voters, politicians, government bureaucrats, special interest groups, and the lobbyists who represent them -- are motivated primarily (if not entirely) by self-interest. That is, egoism governs political reality. Second, there is an asymmetry in what participants in the process stand to gain, with special interests often standing to gain a lot while the average taxpayer only a little. And there is a concomitant asymmetry of knowledge. Third, since politicians are not spending their own money, but are using other peoples’ money (OPM), they have no incentive to use resources for the general good." (03/25/12)

"Where do economists draw the line between science and dogma? In most cases, they say something like this: 'A model is scientific if and only if it makes true testable predictions.' Perhaps this is why Arnold was dissatisfied by my brief reply to last week's challenge." (02/27/12)

"The latest wave of financial-market turmoil has been caused in particular by growing investor concern about the financial health of commercial banks, especially banks in the eurozone. It seems that investors have been increasingly losing confidence in banks' ability to live up to their payment obligations under 'normal' market conditions and to generate sufficient profits going forward." (02/22/12)

"There is now a widely held view that the last 10 or 20 or even 40 years have been a time of great stagnation for the average American. Yes, the overall economy has grown, but all or most or nearly all of the gains have gone to the top 1% or top 10% or top 20%. These claims are accompanied by various data that seem to confirm the claim. These claims conflict with casual evidence available to people over a certain age who remember the 1970s or 1980s." (02/16/12)

"A cry heard often today -- both on the west and east sides of the Atlantic -- is that inflation levels are dangerously low. While most central banks target a price inflation level of around 2–3 percent, general price indexes of most Western countries are falling below the lower bound of that target. A fear of deflation -- apoplithorismosphobia, as Mark Thornton calls it -- is setting in." (02/16/12)

"Hill wanted to convince people that smoking caused lung cancer. The available data was not experimental. Instead, it was observational data, where there is a risk of interpreting a coincidence as causation. So, he set forth some criteria to justify the causal inference. A good question would be whether these criteria are satisfied in macroeconomics, where we have observational data to use in trying to determine whether a fiscal stimulus has positive effects. In fact, the criteria are not satisfied very well at all." (02/16/12)

"To a first approximation, housing is fungible. By that, I mean that a given rental unit can be sold to an owner-occupant and a given owner-occupied unit can be rented out. To the extent that housing is fungible, it is nonsense to speak of the rental market and the owner-occupied market as obeying different conditions of supply and demand." (02/12/12)

"What was earth-shattering about the advent of economics, according to Ludwig von Mises, was its unprecedented discovery of regularity in the social realm. Just as Kepler, Galileo, and Newton had discovered that there were immutable laws that regulate the movements of physical bodies, the early economists discovered that there were immutable laws that regulate market phenomena. Key among these discoveries was the realization that prices are not arbitrary numbers that people simply tack on to commodities." (02/10/12)

"A correspondent points me at a blog post with the intriguing title 'Sci-fi needs economists.' Neither of my novels is science fiction, but both of them are speculative fiction -- sf, of which sci-fi is a subset. And both of them reflect, in varying ways, the fact that they were written by an economist. It occurred to me that some readers of this blog might be interested in how." (01/31/12)

"On this particular day a rich tourist from back west is driving thru town. He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night. As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher." (01/30/12)

"As long as inflation and productivity growth are close to trend, or as long as the product of the two is close to trend, the relationship between nominal GDP and employment will be close to trend. This leads me to expect to find that when nominal GDP growth is low, employment growth is also low. You would only not get that if there were a big surge in inflation and/or a big surge in productivity." (01/25/12)

"Recessions, according to Keynes, are a response to the fact that consumers -- for some psychological reasons -- have decided to cut down on their expenditure and raise their savings. For instance, if for some reason people have become less confident about the future, they will cut back on their outlays and hoard more money. So, once an individual spends less, this worsens the situation of some other individual, who in turn also cuts his spending. Consequently, a vicious circle sets in ..." (01/25/12)

"Circling back to Austrian economics, the crisis we are having does resemble the crisis that Austrians were predicting. That is, they thought that money was too easy and that this would result in malinvestment. In his essay on Austrian economics, Yglesias dismisses this because the decline in the economy proved to be so widespread. However, I would argue that the patterns of specialization and trade are so complex and interdependent that the crash in housing could in fact lead to widespread disruptions." (01/15/12)

"The gloating is easy to understand. After all, nominal wage rigidity is the driving assumption of the Keynesian model. Unemployment is just a labor surplus; since wages are the price of labor, the fundamental cause of unemployment has to be excessive wages. .... What's hard to understand, though, is Keynesian neglect of -- if not outright hostility to -- the logical implication of their argument: Wages must fall!" (12/15/11)

"All that is true of capital here is also true of labor. Most Keynesian models also treat labor as an undifferentiated aggregate, speaking of 'the' labor market and 'the' wage rate. Once we look at the microeconomic processes underlying the structure of production, we see that each of these stages has its own labor market." (12/15/11)

"From May 2009 to last month, the U.S. unemployment rate has been at 9 percent or above, the longest period of such high joblessness since the 1930s. Can anything be done? In a television debate on August 14 the Nobel economics laureate Paul Krugman complained that the Federal government had not been imaginative enough." (12/05/11)

"Economics and business reporter David Warsh is getting much attention for suggesting that F. A. Hayek, far from being one of the two most prominent economists of the 1930s -- the other being Keynes -- is rather more like the woman who was thought to have won the Boston marathon in 1980 when in fact she had joined the race, mostly unnoticed, a half-mile from the finish line." (12/09/11)

"The price of money is what you have to give up to get it -- the inverse of the price level. If the price of an apple is fifty cents, the price of a dollar is two apples. The interest rate is the rent on money, measured in money. A change in the price of money affects both the money you are renting and the money you are paying as rent, leaving the ratio of the two unchanged." (11/25/11)

"The market economy involves peaceful cooperation. The division of labor cannot function effectively amidst a war. Warfare among primitive tribes did not suffer this drawback because the warring parties had not been engaged in trade before the hostilities. Thus they engaged in total war. Things were different in Europe (before the French Revolution) when military, financial, and political circumstances produced limited warfare." (11/16/11)

"The mainstream economists’ foremost model describes 'perfect competition.' It shows how, under particular assumptions, markets will produce ideal results: Resources will all be allocated to their highest valued use, prices of goods will reflect marginal costs of production, and producers, knowing exactly what goods consumers want, will produce them at minimum average total costs." (11/17/11)

"Yes, it's conceivable for new production methods to suddenly drive millions of workers' productivity down to zero. But why on earth should we believe that this has occurred? This is an extraordinary claim requiring extraordinary evidence. If lots (say 25%) of old economy firms saw their revenues fall by 80% I might believe it. If wages fell 50% and the unemployment rate didn't budge, I might believe it. All I've seen this recession, however, is that nominal GDP sharply fell, and real GDP fell almost proportionally. That's how recessions in low-inflation economies usually work." (11/15/11)

"Imagine a mid level supermarket, say, a Waitrose. Imagine then that a cheapy cheapy place opens next door, say an Iceland or a Lidl. Imagining? Good, now, what happens to the prices in the Waitrose? Do they rise or fall? Ah, yes, we've our old correct answer in economics again, 'it depends.'" (11/13/11)