2011

Year: 2011

Calculus Review

For those of you who need a little refresher, tell them the good people on Briggs 2nd sent you.

CTL math tutors will be holding several calculus review sessions designed for students who want to “brush up” on critical skills used in classes including: Calculus II and III as well as various chemistry and physics courses.  Workshops will cover the basics of integrals or derivatives and will be held in Briggs 420 at the following dates/times.  If you have questions, please contact Julie Haurykiewicz, CTL Director.  Thanks!

Derivative Reviews:

Wednesday, September 28 at 9 p.m.

Monday, October 3, at 8:30 p.m.  The integraDerivatives

Integral Reviews:

Thursday, September 29 at 8:00pm
Tuesday, October 4 at 7:00pm

The Piece I’ve Been Expecting about Robert Lucas

The Wall Street Journal has a short profile of Robert Lucas,  one of the most influential macroeconomists of at least the past 20 years (when I picked up my first grad macro text).  Lucas is probably best known for integrating “rational expectations” into macro models (he convinced his wife, at least).  He is also the namesake of the “Lucas Critique”  of using past behavior to predict the future.   Here’s a nice summary of his contributions.

Lucas might sound like someone affiliated with the Chicago School, and indeed, that is the case.  Someone you should know.

Excessive Monetary Easing is Part of the Problem

If short term interest rates drop from .1% to .02% does it generate more economic activity?  If long term rates drop from 3% to 2% (or even 1.7% as with 10 year US Treasury Notes), will people want to borrow more given the current economic environment?  Most readers know my pessimism regarding answers to these questions.  The IMF, in its latest global financial stability report, makes the case quite strongly.  Furthermore, as argued previously and by most “Austrians” since Mises and Hayek, overly cheap capital causes a great deal of mis-allocation of capital.  The Financial Times editorial today summarizes the IMF report.

The IMF’s latest global financial stability report says rightly enough that the eurozone crisis, and the row over the US debt ceiling, sparked an increase in risk aversion. But the IMF worries that exceptionally low interest rates are building a fresh credit problem. They have spurred a hunt for yield which, as widely broadcast, has sent too much capital to emerging markets. When capital is too cheap, it is mis-allocated.

The FT editorial concludes:

Either credit markets see reasons for economic cheer that have eluded everyone else, or low interest rates have sparked another round of irresponsible lending.

Tax them Back to the Stone Age!

Click to Enlarge

Do you think we should increase taxes on the rich?  Most of us do, to the tune of about a 70-30 split in favor of bumping up those taxes.  But what does that mean, exactly?

Reason Online takes up this question by asking people how high someone’s income has to be before they are rich.  Not surprisingly,  the answer depends on who you ask.  If you ask someone with an income less than $50,000, the median response is that $200,000 a year is rich, but even $100,000 seems rich to a significant fraction of that cohort.  On the other hand, if you ask someone who earns between $100,000 and $200,000, the response is that it takes $300,000 before you are rich.

A better survey question might be, should we raise taxes on people with incomes over $200,000?  My guess is you might still get majority support, with substantial defection from those at and round $200,000 a year.

DS-391 On the Road with Hayek, Reminder

Those of you interested in signing up for the group read of The Road to Serfdom need to turn in your registration forms and get your schedules to Professor Galambos or me so we can coordinate a meeting time.  We will likely have our first meeting during the first week in October and cover the first 50 or 60 pages of the book at that time.

If you have any questions, stop by Briggs 2nd for some answers.

Here is our previous post on the group, including some auxiliary and supplementary materials.

Blooming entrepreneurship

If you’d like to find a shining example of an entrepreneur who is a Lawrentian (and an Economics major to boot), I suggest you google Abir Sen. The most recent news item that will show up is this Bloomberg report announcing that WellPoint, the largest insurer, is buying most of Bloom Health, which Abir founded and has been leading as CEO. Before this venture, he co-founded RedBrick Health, another innovative health care company. But wait, there is more. From the Bloom Health website:

Before co-founding RedBrick Health, Abir co-founded Definity Health and was part of the team that invented the Personal Care Account, the predecessor to the Health Savings Account. Abir has also worked as an advisor to Fidelity Investment’s Health and Welfare Business, where he helped launch Fidelity’s benefit consulting business. He began his career at Deloitte Consulting, where he advised large managed care organizations and integrated delivery systems on M&A and turnaround strategies.

Abir has a B.A. in Economics from Lawrence University and an M.B.A. from the Harvard Business School. Other than health care, Abir’s interests include aviation, border collies and U2.

Those of you who have had the chance to meet him on campus know that he is a great guy to talk to. He is a great believer in the liberal arts education, which he has been able to apply to solving problems in the world. If we’re lucky, we might see him on campus again this year, so look for his name on this channel.

Unstandard Oil

Because it's there?

Many of you have probably heard of “peak oil,” the idea that world oil production either has peaked or will soon peak, and it’s all downhill from there.  The implications of this could be that the world economy is crippled by high prices and short supply, or the world economy is not crippled by high prices and short supply.  In either case, most folks I talk with seem to believe we will soon be facing resource constraints.

Well, Daniel Yergin, author of the cinder-block-sized epic The Prize (now in documentary form) is back with his take on peak oil.  The condensed version of his argument — puh-leeze.

In his piece, Yergin goes over the basic storyline of so-called “cornucopian”  economists, such as the late Julian Simon, who claim that human ingenuity is likely to overcome any “natural” resource constraints.  Here’s Yergin on the premiere peak oiler, M. King Hubbert:

Hubbert insisted that price didn’t matter. Economics—the forces of supply and demand—were, he maintained, irrelevant to the finite physical cache of oil in the earth. But why would price—with all the messages that it sends to people about allocating resources and developing new technologies—apply in so many other realms but not in oil and gas production? Activity goes up when prices go up; activity goes down when prices go down. Higher prices stimulate innovation and encourage people to figure out ingenious new ways to increase supply.

Indeed.

New technologies and approaches continue to unlock new resources. Ghana is on its way to significant oil production, and just a few days ago, a major new discovery was announced off the coast of French Guiana, north of Brazil.

As proof for peak oil, its advocates argue that the discovery rate for new oil fields is declining. But this obscures a crucial point: Most of the world’s supply is the result not of discoveries but of additions and extensions in existing fields.

In addition to the WSJ piece, Yergin is back in print with The Quest: Energy, Security and the Remaking of the Modern World. If you are interested in third-party opinions, Steven Hayward has a column in the WSJ, and Steven Levine reviews the book for Foreign Policy.

Talk Like a Pirate Day

It’s Talk Like a Pirate Day over at The Mudd, and elsewhere.

As I told you last year, Peter Leeson has an excellent series of papers on piratical organization, including The Invisible Hook, an economic analysis of piratical organization.  You can also check out the JPE piece it was based on or simply get a flavor from one of its many favorable reviews.

Here’s the gist:

The idea of the invisible hook is that pirates, though they’re criminals, are still driven by their self-interest. So they were driven to build systems of government and social structures that allowed them to better pursue their criminal ends.

Certainly the big eye opener is that classic pirates had democratic governance structures.  I would guess that most organized crime we think of today — including modern-day pirates is more conventionally hierarchical.  Watch for this in Econ 450.

The Health Care Arms Race

Are you a fan of Dr. Seuss?  If so, you must see this new video on health care costs done in the style of the good doctor.  If not, watch it anyway.  It displays what happens when supply drives demand, and demand is fueled by third party funding.  Yes, those of you in Money and Monetary Policy will recognize the OPM principle at work:  people spend Other People’s Money much differently than they do their own.  Another principle is also involved.  The creation of jobs for jobs sake is not sustainable.  “Oh, The Jobs You Create” becomes “Oh, The Debt You Create.”  Enjoy.

The Appletown Coffee Experience

Sports Illustrated‘s Peter King gives a big thumbs up to downtown Appleton:

What a good coffee town Appleton, Wisc., is. In a two-block stretch of downtown on College Avenue (I once had night-before-the-game dinner with Bears linebacker Ron Rivera in an Italian place on this street), there are local espresso places — the trendy and modern Copper Rock, the homey and filled-with-locals Brewed Awakenings — and if those aren’t good enough for you, there’s a Starbucks on the corner. I can’t imagine there’s a better downtown coffee experience in a medium-sized, middle America city.

No mention of Gerardo’s stash on Briggs 2nd.

HT to our wonderful alumni network.

The Center for Teaching and Learning Workshops

Here it comes, our tri-annual message on CTL Workshops:

If you think a Cartesian coordinate is a what you wear to go with your favorite sweater, it might be time for you to bone up on your quantitative skills.  And, right on cue, the CTL if offering a series of quantitative workshops — 90 minutes to a better, more quantitatively adept you.   The topics are basic algebra, graphs, and word problems, and there are two chances for each.

Workshops are in Briggs 420 and run 60 minutes.

Algebra

8:00 PM on Tuesday, September 20th and 6:00 PM on Monday, September 26th

The algebra workshop will cover the following topics:

  • Basic algebraic operations and the law of exponents
  • Binomial multiplication and factorization
  • Important algebraic identities
  • Techniques for solving quadratic and fractional systems of linear equations
  • Basic concepts and identities of trigonometry

Graphs

8:00 PM on Friday, September 23rd and 5:00 PM on Tuesday, September 27th

The graphing workshop will cover the following topics:

  • Graphs of linear equations, quadratic equations, exponential functions, trigonometric functions and more…
  • Significance of slope in various applications
  • Displacement of graphs

Word Problems

6:00 PM on Thursday, September 22nd and 8:00 PM on Wednesday, September 28th

The word problem workshop will cover the following topics:

  • Problem solving strategies useful in working with quantitative concepts
  • How to extract useful information from a problem and how to relate similar problems
  • Hands-on experience working on interesting and challenging word problems

Harry Kraemer’s Visit

I hope that all of you are planning to attend Harry Kraemer’s matriculation convocation address on values and leadership, which takes place at 11:10 on Thursday in the chapel.   Prior to his convo address, Kraemer will be coming to my Money and Monetary Policy course to talk about his view of the state of the US economy.  This will take place at 10 AM in Briggs Hall 225 (or possibly 224) .  All are welcome to join.

Some Friendly Advice

Foreign policy guru Walter Russell Mead reprints an essay full of advice for those returning students, including some thoughts on a liberal education.  Here’s the bullet points:

  1. The real world does not work like school.
  2. Most of your elders (including parents and teachers) know very little about the world into which you are headed.
  3. You are going to have to work much, much harder than you probably expect.
  4. Choosing the right courses is more important than choosing the right college.
  5. Get a traditional liberal education; it is the only thing that will do you any good.
  6. Character counts; so do good habits.

I suggest you take a look at what he has to say, and in particular the discussion of the importance of a liberal education.

Following this advice will be hard; a liberal education is no easy thing to get, and not everybody wants you to have one.  However, in times of rapid change, it is paradoxically more useful to immerse yourself in the basics and the classics than to try to keep up with the latest developments and hottest trends.  You can be almost 100% sure that the hot theories making waves in academia today will be forgotten or superseded in twenty years — but fifty years from now people will still be reading and thinking about the classic texts that have shaped our world.  Use your college years to ground yourself in the basic great books and key ideas and values that will last.

For the same reason, don’t worry too much about getting specific skills at this stage.  You are going to keep learning new skills all your life and you are going to find many of your skills obsolete as time goes on (when I was a kid I was very good at operating something called a mimeograph machine).  What you want to do now is to develop your ability to learn.

He then lays out the elements of what it means to be liberally educated, concluding with this:

[U]nless you are following up on an interest that is already a deep and passionate one, try to take courses taught by great teachers.  The main purpose of an undergraduate education isn’t to polish up your knowledge and finish your learning.  It is to launch you on a lifetime quest for wisdom and understanding.  You want professors who can help you fall in love with new subjects, new ideas, new ways of investigating the world.  The courses that end up mattering the most to you will be the ones that start you on a lifetime of reading and reflection.

That should get you through registration.

The Fall of the Econ Department

Here is our fall schedule, complete with links to brief course descriptions.  We will also be sponsoring a group read this term.

For those of you new to the department, we are offering Econ 100 this term and in the winter, and Econ 120 in the spring.  For the complete Winter and Spring schedules, click here.

Fall 2011

ECON 100  INTRODUCTORY MICROECONOMICS 1:50-03:00 MWF BRIG 223 ● Mr. Galambos

ECON 170  FINANCIAL ACCOUNTING 2:30-04:20 TR BRIG 223 ● Mr. Vaughan

ECON 205 TOPICS-INTERNATIONAL ECONOMICS (G) 3:10-04:20 MWF BRIG 224 ● Ms. Karagyozova

ECON 206 FIELD EXPERIENCE-SIERRA LEONE (G) Arranged ● Ms. Skran, Ms. Karagyozova

ECON 209  WATER, POLITICS, ECON DEVLPMNT (G) 12:30-02:20 TR BRIG 223 ● Mr. Finkler, Mr. Brozek

ECON 211  IN PURSUIT OF INNOVATION (S) 11:10-12:20 MWF BRIG 223 ● Mr. Galambos, Mr. Brandenberger

ECON 300 MICROECONOMIC THEORY 9:50-11:00 MWRF BRIG 223 09:50-11:00 R BRIG 223 ● Mr. Gerard

ECON 420 MONEY AND MONETARY POLICY 9:00-10:50 TR BRIG 217 ● Mr. Finkler

ECON 460 INTERNATIONAL ECONOMICS (G,Q) 9:50-11:00 MWF BRIG 217 ● Ms. Karagyozova

There is no such thing as a law in Economics?

In an anecdote recounted in some economics books, Vilfredo Pareto is giving a presentation, only to be interrupted repeatedly by an indignant Gustav von Schmoller with this provocative question: “But are there laws in economics?” The next day, Pareto, dressed like a beggar, approached Schmoller in the street. We turn to Organizations and Markets for the rest of the story:

“Please, sir,” Pareto said, “can you tell me where I can find a restaurant where you can eat for nothing?” “My dear man,” replied von Schmoller, “there are no such restaurants, but there is a place around the corner where you can have a good meal very cheaply.” “Ah,” said Pareto, laughing triumphantly, “so there are laws in economics!”

Could this be the origin of the famous “law” about free lunches? Not likely, based on a quick look at Wikipedia. The history there, confirmed by Google searches of contemporary books, does raise a different question, though: Had Pareto and Schmoller been at a conference in New Orleans rather than Geneva, would they have had to revise their notions of certain economic laws? Because in that case, Schmoller’s answer would have had to be something like: “Why, in just about any public house you can eat for nothing this time of day! Try the one around the corner, they serve oyster stew! All you need to do is buy a drink for fifteen cents.” If the drinks are not overpriced at 15 cents, is the lunch still free? Some sources suggest that the whole “free lunch” custom was, in fact, a relief program, a socially necessary outcome of high unemployment and poverty. This would merit (and require) more than a superficial Google search, so I’ll leave it as an exercise to the interested reader.

Hurricane Coverage, Better Late than Never

John Whitehead from the Environmental Economics blog lives in North Carolina and has been keeping us up to speed on all sorts of hurricane-related curiosities, from the opportunity costs of evacuation preparation to a supply & demand example to potential stimulative effects (umm) to predictions of hurricane damages (short version: the predictions are wrong).

As a bonus, here’s Professor Michael Munger — also a Carolina denizen —  griping about subsidizing building in hurricane zones.

(And justifiably so, I might add).

“English Too Easy for Hungarians”

That is the title of a WSJ blog piece that describes the latest efforts of the Hungarian government to save the country. I think they are finally on to something. English, they say, is so easy that one can hardly avoid learning it. So, why waste those precious early years on something trivial? Learn French instead, or some other proper language. It seems to me that there are several plausible reasons why they couldn’t go wrong with this policy. 1) The historical record is clear: Any country where English is spoken or was introduced as a language has suffered economically. 2) Clearly, wasting one’s younger years learning an easy language has a negative effect on one’s thinking. I can’t think of a single famous mathematician or scientist or philosopher whose native tongue was/is English. 3) Why learn English, when everybody in the world is doing it? In this new, globalized world, differentiation is the name of the game.

I couldn’t agree more that English is very easy. Not only do all native speakers achieve stunning eloquence by age 12, but even Hungarians master the language by… some age. At least the 10% of the population who speak it… sort of. As this video demonstrates, our (still relatively young) Prime Minister Viktor Orbán can spontaneously switch to English to respond to a question at a press conference. I am glad he didn’t waste his time perfecting his English, but focused on his pre-primeminister studies instead.

Russian used to be very popular compulsory in schools (even in my younger years). I am sure we could still find quite a few Russian teachers who were suddenly out of work 20 years ago. It’s a complicated language, requiring many hours of focused mental effort, and hardly anyone else in Europe speaks it (west of us…). Putting those Russian teachers back to work could be a win-win for everyone.

Review of The Big Short in the JEL

Yale economist Gary Gorton reviews Michael Lewis’s The Big Short and Gregory Zuckerman’s The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History in the latest Journal of Economic Literature.

Here’s how Gorton describes the books:

Their take is that a small band of wacky outsider characters were able to see the coming crash and profit from it, while greedy, corrupt, Wall Street types were not (p. 450).

Indeed, that sounds about right.  Gorton gives the authors credit for telling lively stories and for laying out the mechanics of financial markets that enabled the disaster.  Yet, a major puzzle remains:

[The widespread view is] that subprime vintages prior to 2006 were much safer; it was supported by the data… But, when the crisis came, there was no distinction between pre- and post-2006 vintages. Everything went down in value, including bonds linked to the earlier subprime vintages! Moreover, bonds completely unrelated to subprime risk, like triple-A bonds linked to credit card receivables, auto loans—everything went down in value! (p. 453).

In other words, we still don’t really understand what caused the crisis.

You should get to know the Journal of Economic Literature (JEL).  As the name suggests, the JEL provides literature reviews and book reviews that characterize and evaluate major strands of the economics literature (in addition to classifying pretty much everything in the profession.  Hence the  JEL classification codes).

My brief review of The Big Short is here, and our posts are Michael Lewis’s work are here