May 29, 2009
It's kind of a non-academic literature review of economic papers that are very famous and everybody knows. Maybe it's a good book that was just not written for economic students. So, if you are unfamiliar with the topics he approaches, the book might be adequate. It's easier to read than any other similar book I've read.
May 28, 2009
While at this conference, I saw some quite interesting presentations on the recent developments in protectionist measures. However, one of the most striking statements I heard was only indirectly related to the conference’s topic. The argument was roughly the following:
Development agencies have to be risk averse when conducting their business since they use taxpayers’ money. Hence, developing countries which receive the donations form these agencies are subject to very stringent rules in the way they make use of the money. But if developing countries are not allowed to make mistakes throughout their development process the whole idea of development is put ad absurdum. It is only through trial and error and learning that countries can find their particular way to develop.
Now this seems like a well informed critique about the whole way that development aid is organized in most Western countries. But it comes even better: The argument was made by Pierre Jacquet, director and chief economist of the French Development Agency!
Maybe I should have asked him to give his money to the RDB!
May 27, 2009
Romeo's Love (dR/dT)= Theta * Juliet's current love (J)
Juliet's Love (dJ/dT)= -Gamma * Romeo's current love (R)
The article explains vary well what are the assumptions, but let me repeat them in common words: when Romeo is an assh*** Juliet finds him attractive, while Romeo loves Juliet when she cooks for him...
So given this description of their love, how does their love evolve through time? The answer is in the article, but here is the graphical answer:
Note the oscillation are the same by assumptions, just to be politically correct...
They both love each other one quarter of the time, all the rest is spent mumbling and thinking about...but this is just the prediction of a theoretical model. The world is different from that, but the model can be augmented to make it more realistic, as described in the article. But it's striking how the law of maths come appropriate even when talking about love and hate. As Einstein told us, the puzzle remains "How can it be that mathematics, being after all a product of human thought which is independent of experience, is so admirably appropriate to the objects of reality?"
May 26, 2009
Nuhu Ribadu, former head of the Economic and Financial Crimes Commission of Nigeria, imperiled himself by charging a powerful state governor with corruption. Now in exile in the U.S., he talks about the misuse of authority and the continued need for foreign aid in Africa Read the interview.
May 25, 2009
And now we have Dambisa Moyo as the new one million dollar baby in the ring!
Few debates in economics are as hot (and get as personal) as this one.
Jeffrey Sachs, here
"Bangladesh and Cambodia pay average tariffs of over 15% because their exports are concentrated in apparel. In dollar terms, they pay as much in tariffs as do France and the UK on a fifteen-fold larger value of imports. Indeed, the $850 million in import duties that these countries jointly paid to the US in 2006 dwarfs the $120 million that they received in foreign aid."
Kimberlery Ann Elliott, here
May 24, 2009
This is from False Economy, which I am currently reading.
May 23, 2009
I cannot help but wonder why no parralel is done with the oil industry. Is it not advocated that oil rich countries with no expertise should let experienced foreign companies run their business, with proper contracts? Isn’t is what is advocated to Venezuela or Nigeria, for example? Why would the same principle not be applied to agricultural ressources?
And why would this be more colonialist than Paul Romer’s new development strategy, by which developing countries could invite experienced governments such as Canada or Finland to “own” and manage some of their cities. Over time, as with Hong Kong, the new cities are turned over to the host country.
Land deals, as diamonds, foreign aid or oil, can be a blessing as much as a curse.
May 20, 2009
So, they first calculate this trade-off parameter and then regress it on a bunch of political and society indicators and find that checks and balances embedded in the decision making process cause more welfare minded governments and so do more informed voters, as measured by literacy and the degree of urbanization. More interstingly, the more ideologically attached are voters to parties and the greater the productivity of the media in influencing uninformed voters, the less weight governments put on social welfare when making trade policy.
JD is skeptical and explains why here. I still find it intersting that the Spearman rank correlation between Transparency International Corruption Perception Index and an index built from import demand elasticities and output-to-import ratios is 0.67!
May 17, 2009
May 16, 2009
Let’s start with the easier stuff. There is a good article by Gregory Clark. Dismal scientists: how the crash is reshaping economics
I myself was so confident of the consensus of the end of the business cycle that I persuaded by wife after the collapse of Lehman Brothers to invest all her retirement savings in the stock market, confident that the Fed would soon make things right and we could profit from the panic of a gullible public. The line "Where is my money, idiot?" is her's.Don't think needs any comment.
The debate about the bank bailout, and the stimulus package, has all revolved around issues that are entirely at the level of Econ 1. What is the multiplier from government spending? Does government spending crowd out private spending? How quickly can you increase government spending? If you got a A in college in Econ 1 you are an expert in this debate: fully an equal of Summers and Geithner.I don't think he is right on this one. Show me an Econ 1 course where bank bailouts are discussed. In general I would say there is a consensus that bailing out a private company is wrong, or at least the way it was done. The debate "to bail out or not to bail out" is a political rather than economical one. Nothing has CHANGEd about politicians.
I actually thing, that unlike during the Great Depression times, now there is a consensus (with the exception of few lunatics at the Mises Institute) that rates need to be cut, and public spending increased (both temporarily). That is already some progress.
The debate is then on far more sophisticated topics than Clark claims. I went to a lecture by L. Smaghi (Member of Executive board of the ECB) last month where he gave an overview of unconventional monetary policy (all that he talked about ECB implemented few weeks later). Actually we've gone a long way just from cutting the interest rates.
To conclude, if the debate seemed too simple it was because it was a political rather than an economical debate. Trust me, your 1st year BA student, even if he had an A++ in an Econ 1 class, would be lost during the lecture on unconventional monetary policy.
Then there is a great article by DeLong Progress in Macroeconomics? He is summarizing arguments for and against the idea that macroeconomics did make a progress. Blanchard is the optimist whereas Krugman, Clark, Akerlof, Shiller, Quiggin, and DeLong are the pessimists.
The economics of the textbooks seeks to minimize as much as possible departures from pure economic motivation and from rationality.... [E]ach of us has spent a good portion of his life writing in this tradition. The [self-interest and rational foresight-based] economics of Adam Smith is well understood. Explanations in terms of small deviations from Smith’s ideal system are thus clear because they are posed within a framework that is already very well understood. But that does not mean that these small deviations from Smith’s system describe how the economy actually works.... In our view, economic theory should be derived not from the minimal deviations from the system of Adam Smith but rather from the deviations [from competitive markets, self-interested motivation, and rational foresight] that actually do occur...I am sure a lot of the "after crisis" research is going to be unconventional from today's point of view. Probably a lot of it in the direction Akerlof and Schiller suggest. So if you are in the right age and considering a PhD in Econ I think the period shortly after the crisis will be a great time. "The old theory has flaws let's come up with something new..." Your thesis supervisor is more likely listen to your ideas about "rewriting economics".
Then there is an older article by Paul Krugman: A Dark Age of macroeconomics (wonkish) .
I think his analysis is right. The conclusion (or maybe explanation rather than conclusion) is a bit hysterical. He is saying (as the title "hints") that we are living in a dark age of macroeconomics.
The answer, I think, is that we’re living in a Dark Age of macroeconomics. Remember, what defined the Dark Ages wasn’t the fact that they were primitive — the Bronze Age was primitive, too. What made the Dark Ages dark was the fact that so much knowledge had been lost, that so much known to the Greeks and Romans had been forgotten by the barbarian kingdoms that followed.I wouldn't say that we are living in a dark age of macroeconomics, just because two guys argued (with bad arguments) against fiscal expansion. The "old" knowledge might be partially forgotten, but unlike in the dark ages books (and people - macroeconomists with different opinions) are not being burned. I think Krugman is obsessed with fiscal policy in a same way that Fama and Cochrane are obsessed with minimal government (small government is great, but not in the time of crisis). Obsession is dangerous, especially in the crisis times. There was a good article on vox by Keiichiro Kobayashi criticizing the "fiscal policy obsession" Fiscal policy again? A rebuttal to Mr Krugman.
Finally there is Eichengren's piece. The Last Temptation of Risk.
One interpretation, understandably popular given our current plight, is that the basic economic theory informing the actions of central bankers and regulators was fatally flawed. The only course left is to throw it out and start over. But another view, considerably closer to the truth, is that the problem lay not so much with the poverty of the underlying theory as with selective reading of it—a selective reading shaped by the social milieu. That social milieu encouraged financial decision makers to cherry-pick the theories that supported excessive risk taking.
the belief that risk and return could be reduced to a set of equations specified by an MBA and solved by a machine.I like Eichengreen's article. I think it's well balanced and he is not overly critical of the profession (Very critical of MBA's though :-) )
...The consumers of economic theory, not surprisingly, tended to pick and choose those elements of that rich literature that best supported their self-serving actions. Equally reprehensibly, the producers of that theory, benefiting in ways both pecuniary and psychic, showed disturbingly little tendency to object...
So it's not a dark age after all.
May 14, 2009
However, jumping from tree to tree is not about concentrating vertically and adding value to your product, its about spreading horizontally. He warns against the case of Chile, which would be in trouble if its salmon export markets collapsed. He gives the example of Nokia to explain how it came from the horizontal spreading of capabilities. Funny thing is that these are the two examples of Ha-Joon Chang. He must have read that book! He also gave the example of aspargus in Peru...he must have been reading False Economy...he also gave the example of MYC4...he must have been reading Rigotnomics...
On an online forum they are discussing trade policy questions and getting their hands dirty by making specific policy recommendations. Rodrik, for example suggested that the US could only gain from further liberalization in agriculture and on visa restirctions of high-skilled foreigners. Ann Harrison went as far as saying that a wise policy for the US government would be to encourage offshoring in wealthy countries (which raises US manufacturing employment) and to discourage offshoring in low income countries! James Harrigan didn't agree at all. Gene Grossman wants free trade and to focus on home policies such as a social safety net for displaced workers.
This is how economic policy should be done.
May 12, 2009
May 10, 2009
May 9, 2009
Here is how it would work for France, for example. The french government gives aid money to Gabon. Bongo takes his share and so do French foreign aid workers. But international lawyers (working for the french government) want their share too so they start investigating the case but will want more rents so will always have an interest in foreign aid corruption. The business of aid continues, everybody gets his share, except African entrepreneurs. Perfect!
Giving foreign aid to corrupt government is a bad idea, end of story.
May 7, 2009
"There are at least three ways to remove the zero lower bound that are feasible: abolish currency, tax currency and ensure that currency is not the numéraire. Taxing currency may be awkward and intrusive, but abolishing currency is not just easy (just do it) but also has considerable advantages as a blow against criminality and terrorism [and was suggested by Rigotnomics a while ago]. Unbundling currency and numéraire is something that can be done over the weekend.
I really don’t understand why central banks are not aggressively pursuing options for removing the zero lower bound. It is that they love the seigniorage so much? But they retain seigniorage revenue from currency issuance in the rallod economy. Is it hidebound conservatism and lack of imagination. Quite possibly. But if so, this is a costly mistake. Central banks should act to remove the zero lower bound on nominal interest rates now."
And to foreigners in developing countries and emerging markets with high-inflation-prone monetary systems, for whom the disappearance of the $US notes and the euro notes could be a setback, as these provide welcome stores of value when domestic inflation rages., he says:
"I feel your pain, but this is the time to replace exit with voice. Go and create a polity that will support a government that does not abuse the printing presses"!
May 6, 2009
Roland Fryer (by Michelle Rhee) (on Rigotnomics here and by Levitt here)
Dambisa Moyo (by Wolfowitz) (on Rigotnomics here)
Nouriel Roubini (by Krugman) (on Rigotnomics here)
Paul Krugman (by Mark Zandi) (on Rigotnomics here)
May 5, 2009
Here are a few definitions of economics (in chronological order):
Jean-Baptiste Say (1803): the science that treats the production, distribution, and consumption of wealth.
John Stuart Mill (1844): the science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.
I guess following that definition the pursuit of altruism or fairness motives could not be studied in economics…unless you make them appear as a long-run income maximisation strategy.
Alfred Marshall (1890): a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing. . . . Thus it is on the one side a study of wealth; and on the other, and more important side, a part of the study of man.
Lionel Robbins (1932): “the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”
Milton Friedman (1940’s): the science of how a particular society solves its economic problems, where an economic problem exists whenever scarce means are used to satisfy alternative ends”
Campbell McConnell (1960): the social science concerned with the problem of using or administering scarce resources (the means of producing) so as to attain the greatest or maximum fulfilment of our unlimited wants (the goal of producing).
Gary Becker (1976): the combined assumptions of maximizing behaviour, market equilibrium, and stable preferences, used relentlessly and unflinchingly, form the heart of the economic approach as I see it.
Ronald Coase (1977) the study of the social institutions that bind together the economic system which includes firms, input and output markets, and the banking system
(David Colander, 2006): the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society.
As the authors write, “at a time when economists are tackling subjects as diverse as growth, auctions, crime, and religion with a methodological toolkit that includes real analysis, econometrics, laboratory experiments, and historical case studies, and when they are debating the explanatory roles of rationality and behavioural norms, any concise definition of economics is likely to be inadequate.”
May 4, 2009
I admit it, I was browsing the AER. I also found another interesting paper, Democracy and Foreign Education, that shows that foreign-educated individuals promote democracy in their home country, but only if the foreign education is acquired in democratic countries. I had always wondered if all these people that go get brainwashed in the US embraced the US mentality or if it had the opposite effect of frustration and complete rejection. Seems like it works a bit.
On Thursday we have a special class on spatial econometrics given by Peter Egger and finally on Friday we have a conference on regionalism, which will last all day and include lunch, and will bring together most of the big names in the field to our school.
But it even spills over to next week when Kyle Bagwell will give a special class on subsidies and trade in imperfectly competitive markets at the WTO. We are spoiled.
When it comes to studying international trade economics, Geneva seems like the right place.
May 2, 2009
Enough with this shit. It is easy to tackle. Patrol the lake walk, patrol the train station. The Geneva police seems to me like the most incompetent in the world.