Archive for July, 2010

Didje See that Dean Pertl Article?

Tuesday, July 13th, 2010

Speaking of careers in business, Dean of the Conservatory, Brian Pertl, poses the question, “What on earth could playing a Mozart symphony have to do with leading a budget proposal meeting?”

Plenty is his response at the Entrepreneur The Arts blog.

Coming on the heels of the successful Entrepreneurship in the Arts and Society class this past term, this is a very encouraging message indeed.  And especially so for those of us who believe in the mission and the viability of the liberal arts.

Don’t forget, former Fed Chair Alan Greenspan was a clarinet student at Julliard before dropping out to tour with Stan Getz. Is that why they called him Maestro?

Don’t Feel Like You *Have* To Become a CEO

Sunday, July 11th, 2010

News from the research front that (some) economics majors are going places. To wit, “the share of graduates who were Economics majors who were CEOs in 2004 was greater than that for any other major, including Business Administration and Engineering.”

Here’s the paper, appropriately titled “Economics: A Good Choice of Major for Future CEOs,” and here’s from the abstract:

We find evidence that Economics is a good choice of major for those aspiring to become a CEO. Economics ranked third with 9% of the CEOs of the S&P 500 companies in 2004 being undergraduate Economics majors, behind Business Administration and Engineering majors, each of which accounted for 20% of the CEOs. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major. That is, the share of graduates who were Economics majors who were CEOs in 2004 was greater than that for any other major, including Business Administration and Engineering. The findings also show that a higher percentage of CEOs who were Economics majors subsequently completed a graduate degree – often an MBA – than did their counterparts with Business Administration and Engineering degrees.

I nicked that from Marginal Revolution, and I’m certain there will be plenty of snarky commentary over there about it.

Some other interesting data over there. For example, the total number of business majors is split pretty evenly between males and females, but economics is 70% male. Of course, females now make up 60% of the undergraduate population.

Partial Financial Regulation

Friday, July 9th, 2010

The New Yorker’s James Surowiecki claims the financial reform bill pending in Congress has some real teeth, yet somehow it exempts a major chuck of the consumer credit market — auto dealers.

There are close to eight hundred and fifty billion dollars’ worth of auto loans outstanding in the U.S.—about as much as our total credit-card debt—and car dealers broker about eighty per cent of them. Since the central task of the new consumer financial-protection agency is to oversee the market for consumer credit, which has become something of a cesspool in recent years, it would have been natural for car dealers to fall under its jurisdiction. Instead, the dealers won a special exemption: the agency can’t touch them.

Now that’s an interesting.

Do you buy his explanation for why car dealers succeeded in dodging where others failed? Not everyone agrees.

Henry George Rises from the Dead

Friday, July 9th, 2010

Who is Henry George? you might ask.  A good question.  A simple answer would be a 19th century printer who believed that a single tax on land would be an effective social liberator.  As students of Urban Economics might recall, George argued that rises in land value (as distinct from the structures put on land) come largely from social rather than private investments; thus, such rises should be taxed and used to meet various public purposes.

In today’s Financial Times, Martin Wolf opines that we (at least policy makers in the US and UK)  provide both cheap capital and insufficient taxation on these “unearned” increments in land value.  Furthermore, he believes that such value increments should be taxed if we seek to avoid credit cycles of the sort we have recently experienced.  One might view existent policies as the opposite of  “think global, act local” since the resulting credit booms and busts (based on securitized loan packages sold to an integrated, world financial system) have spread well beyond their their initial homes.  “Freemarketeer” Wolf, acting as a reincarnated “socialist” Henry George, sees the need to halt these land and credit cycles with a land increment tax.

As noted in my comment on Michael Spence’s opinion piece, also in today’s FT,  in the previous LU Econblog entry, it’s not clear to me how political logic will help us to break these destructive cycles.

America Needs a Growth Strategy

Friday, July 9th, 2010

Michael Spence, 2001 Nobel Prize winner and chair of the Commission on Growth Development established by the World Bank, has just authored a sobering editorial on the lack of a growth strategy in the United States.  Students in both Econ 200 and Econ 430 will  have the opportunity to read and discuss the summary report of the Growth Commission this fall.

Spence, similar to Raghu Rajan in the recently published book Fault Lines, argues that America’s social contract is breaking done.  That “contract” married a flexible open economy with the promise of improved living standards for the “motivated and diligent.”   Its foundation based on a stable, growing economy seems very much in question.  Economists debate about what the “New Normal” might look like, but most argue it won’t be as attractive as the old (or at least perceived old) normal.  They differ as to why things are coming undone and what one should do about it, but Spence argues persuasively that without well thought out and implemented policy, “the new normal may be as unpleasant as the journal.”

In my view, this means we must transcend the vacuous discussion that arises from Krugman vs. the Tea Party.  In a world of 30 second sound bites (except for vavuzelas and LeBron James announcements), it’s not clear how we will do so.

LeBron Announces Story Angle Winner

Thursday, July 8th, 2010

And the winner of the award for the most ridiculous angle of the LeBron James media feeding frenzy goes to The Atlantic for this gem:

How LeBron’s Move Helps the Tea Party

Excellent! I like it.

That’s all for now.

Gambling on the Economy

Thursday, July 8th, 2010

I saw an interesting bit over at Bloomberg Businessweek about how to think about the trajectory.  It’s colorful, gangsta-esque title is “Krugman or Paulson: Who You Gonna Bet On?” On the one hand, you have Paul Krugman warning of a depression without very tall cash-on-the-barrelhead government spending monetary outlays.  On the other, you have billionaire Henry Paulson literally putting his money on a recovery:

Paulson’s latest 13f filing with the Securities & Exchange Commission indicates nearly $2.995 billion of Bank of America common stock and $2.052 billion of Citigroup common. Despite healthy advances from their spring 2009 lows, banks may have more room to run, particularly if Paulson is correct in the estimate he made to investors that housing prices will rise as much as 10 percent next year.

Since his initial forays in banks, Paulson has ventured into riskier assets like casino stocks and vacant residential land in the utterly busted Florida and Southern California markets. As a private hedge fund manager, Paulson is not obliged to provide a complete picture of his investments; long positions could be hedged with shorts and derivatives that he does not have to divulge. But nothing in either his statements or reports about what he’s buying suggests he is anything less than upbeat about the economy right now.

I’m not sure that’s a fair comparison, because Paulson is simply betting on certain sectors, some of which benefit handsomely from government policies.  So his bets don’t necessarily represent a “stimulus v. no stimulus” type of comparison.

What is it about people wanting to bet Krugman? Last year, in what New York Magazine hailed as “the nerdiest bet ever,” Greg Mankiw threw down and bet Krugman about the administration’s GDP forecast.

Paul Krugman suggests that my skepticism about the administration’s growth forecast over the next few years is somehow “evil.” Well, Paul, if you are so confident in this forecast, would you like to place a wager on it and take advantage of my wickedness?

Who knew economists could be so catty?

Safety First

Tuesday, July 6th, 2010

“The safer they make the cars, the more risks the driver is willing to take. It’s called the Peltzman effect.” — Some CSI Episode

The basic idea is so simple that it’s hardly controversial.  If you reduce the cost of doing something, you would expect more of it.  The classic Sam Peltzman paper has to do with making cars safer, which reduces the costs (in terms of potential injury or fatality) and hence increases “driver intensity,” as Peltzman puts it.  The startling result is that the behavioral changes completely offset the technological improvements, though this does not have to be so.

This is similar to the “rebound effect,” where improving energy efficiency or fuel economy, for example, causes people to set their thermostats more aggressively or to drive more miles (that is, because the marginal costs go down).

The Peltzman effect has crept into my RSS feed twice in the past week.  From this morning’s Marginal Revolution:

The NHTSA had volunteers drive a test track in cars with automatic lane departure correction, and then interviewed the drivers for their impressions. Although the report does not describe the undoubted look of horror on the examiner’s face while interviewing one female, 20-something subject, it does relay the gist of her comments.

After she praised the ability of the car to self-correct when she drifted from her lane, she noted that she would love to have this feature in her own car. Then, after a night of drinking in the city, she would not have to sleep at a friend’s house before returning to her rural home.

Well, that certainly makes me feel safer.

One of the classic jokes associated with the Peltzman effect is that NHTSA should put a spear extending out of the steering column, making the driver exercise extra caution so as not to be impaled. In that vein, the good folks at Organizations & Markets alerted me to this cartoon:

Pretty funny.

Peltzman is one of the most prominent empirical economists ever.  Certainly, having an “effect” named after you is a pretty big deal.  Some of the more astute of you also recall Peltzman from the Stigler-Peltzman capture theory. Love him or hate him, he is an interesting character.  I recommend this interview at EconTalk.

800 Years of Ineptitude

Sunday, July 4th, 2010

For today’s recommended reading, The New York Times profiles Carmen Reinhart and Kenneth Rogoff, authors of This Time Is Different: Eight Centuries of Financial Folly.

You may recall this title from our summer reading recommendations that we posted a few weeks ago.  You can find a paper approximation of the book here and a summary of its principal findings here.

Both of these economists seem to be pretty interesting characters and the article is a fun read.

Whatever Works

Saturday, July 3rd, 2010

The misery accompanying the U.S. recession / depression manifests itself firstly, I think, through the job market.  There seems to be an increasing perception that policymakers in Washington and at the Fed aren’t taking the unemployment situation seriously enough. Nonetheless, jobs are certainly on the minds of people who have them and, even moreso, people who don’t have them. We learned yesterday that the declining unemployment rate is actually bad news. Why? Well, in order to be counted as unemployed, a person has to be seeking employment, and consequently so-called discouraged workers, people who are no longer looking for work, do not count as unemployed.  And would-be workers are pretty darned discouraged.

This gives us a fundamental measurement problem, how can we determine how bad the employment situation really is?  One common way to tackle it has been to track the total adult population in the workforce.


As you can see, the picture isn’t a pretty one. (more…)

To Spend or Not To Spend…

Friday, July 2nd, 2010

Most economists haven’t really been thinking about this issue, they haven’t really focused on it. It’s not their specialty. Most economists today, they haven’t really been thinking about this kind of multiplier issue… I don’t think most economists are focused on this, or that they’re familiar with the empirical evidence. I don’t think they’ve really worked on the theory. So I don’t know, maybe they have some opinion that they got from graduate school or something. — Robert Barro in The Atlantic Monthly

Even if by accident, you’ve probably noticed that there is an on-going debate on whether a massive government spending campaign is needed to “prime the pump” to stimulate the economy (the Keynesian route), or whether fiscal discipline (austerity) is in order. Last week, most members of the G-20 (but not the US) came down on the side of austerity.

As a trained economist, I know the basic institutional details and understand the basic arguments, but as Barro suggests, I have no great insight on the empirics or which side of the debate is likely to be correct.

Certainly, the primary mouthpiece for the pro-spend crowd is recent Nobel Prize winner, Paul Krugman.  In a recent column, he tears into those who promote “austerity”:

So the next time you hear serious-sounding people explaining the need for fiscal austerity, try to parse their argument. Almost surely, you’ll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good.

Of course, not all economists agree with Krugman’s assessment. In addition to our friend Hayek, Robert Barro is pretty clearly on the austerity side. This interview with Barro is a good place to see a sketch of the battle lines in the debate, and certainly indicates that he and Krugman are not on particularly friendly terms.  This week, Harvard professor Alberto Alesina is getting some press for his advocacy of austerity measures. And, as for the regime uncertainty argument that Krugman caricatures, I would recommend Robert Higgs as the central proponent of that idea.

As for me, I am not sure exactly what I learned in grad school that prepares me to take a side in this debate. What I find interesting is that most people who engage me in a discussion seem to think the Keynsian spending route is the way to go, and many of these folks invoke Krugman on this point as if Krugman is the voice of the profession. As today’s Krugman piece indicates, he seems to think that many in the profession are moving in quite the opposite direction. It’s not clear to me whether this boils down to pre-conceived ideology or not, but that is certainly his claim.

I guess I will leave it at that.

UPDATE: Keynes v. Hayek in print. Commentary here.