Merton Finkler

Author: Merton Finkler

Standup Economist to Visit Lawrence

Students in economics will have two opportunities next Monday to hear and interact with Yoram Bauman, self-styled standup economist, who specializes in not only making the complex accessible but also humorous.

Students in Econ 280 and Econ 320 will hold a joint session on Monday morning at 9:50 in Science Hall 102.  Other students are welcome to attend.  Bauman will discuss Paul Krugman’s recent article ( here ) in the New York Times Magazine entitled “Building a Green Economy.”

Bauman will also be the second speaker in the Povolny Lecture Series on The Climate for Climate Change.  His talk is entitled “Comedy, Economics, and Climate Change” and will take place in the Wriston Auditorium at 7:30 PM next Monday.

To get a snippet of his style or to see excerpts from his new Cartoon Introduction to Economics go here.

Health Insurance Reform, Massachusetts Style

In 2006, Massachusetts (with Mitt Romney as Governor) passed a health reform law that shares many of the features of the U.S. reforms recently passed in Congress and signed by President Obama.  The op-ed piece linked below suggests that when “market failure” meets “regulatory failure” the results will be ugly.

Come to Econ Tea on Monday to discuss this topic.

  1. Asymmetric information and poor incentives cause private markets to work poorly.
  2. Collectivized markets (and strict regulation) poorly serve the public when there exists a wide range of preferences.
  3. Exchanges (which Alain Enthoven once called managed competition) “can” work but only if they don’t fall into the traps provided by 1 and 2 above.

We’re doomed!

http://seminal.firedoglake.com/diary/39434

Bubble, Bubble, Toil and Trouble

This comment follows directly on Professor Gerard’s observations about the difficulties political structures have in reducing governmental debt.  Ken Rogoff, fresh off his appropriately well received recent book with Carmen Reinhardt entitled This Time is Different: Eight Centuries of Financial Folly, opines in Wednesday’s Financial Times that “Bubbles lurk in government debt.”  (Follow the link below.) He argues, persuasively in my view, that “conventional economic theory can rationalize bubbles” and that Reinhardt and he observe that large increases in both leverage (debt) and asset prices often “implode if confidence fades,” which inevitably it will.  Losses in the equity market fall directly (and often quickly) on the equity holders.  Losses in the debt market, however, generate long, drawn out negotiations about who should bear the losses.  Opportunities for shifting these losses from the politically strong to the politically weak abound, for governmental debt (and off-budget guarantees), which lacks sufficient transparency until its too late.

http://www.ft.com/cms/s/0/f22a3704-4248-11df-9ac4-00144feabdc0.html

Ambassador Mulford Speaks on International Finance

Former Ambassador to India and US Under Secretary of Treasury David Mulford ’59 will be on campus next Tuesday, April 13th , and students will have two major opportunities for interaction:

1:30 p.m. Presentation to Campus Community: “The ongoing economic and financial crisis in the major industrial countries and the effect this continues to have on the global economy” followed by Q&A Cinema, Warch Campus Center

4:30 p.m. Economics Club: Dr. Mulford will talk about current risks in the global economy and how one might hedge against them.

Briggs Hall 217

Among other positions, Mulford has served in the following capacities:

United States Ambassador to India — 2004 to 2009

Chairman International of Credit Suisse First Boston — 1992 to 2003

Under Secretary and Assistant Secretary of the U.S Treasury for International Affairs – 1984 to 1992

Chief consultant to the Saudi Arabian Monetary Agency 1974 to 1983

Greg Mankiw on CBO Scoring

The Congressional Budget Office is designated as the official scorekeeper for budgetary proposals.  It recently posited that the health insurance reform bill, passed by Congress and signed by the President, would reduce the Federal budget deficit over a 10 year.  Many economists, including Greg Mankiw and yours truly, beg to differ.  See the entry from Mankiw’s blog included below.  Don’t miss the warning label!

A Warning about CBO Scoring

There has been a lot of talk lately about the CBO scoring of the health bill.  Here is one thing people should understand about their numbers: When they estimate the budget impact of a bill like this, they assume the path of GDP is unchanged.

Recall that the bill raises taxes substantially.  Some of these tax hikes are the explicit tax increases on capital income to pay for the insurance subsidies.  Some of these tax hikes are the implicit marginal rate increases from the phase-out of the insurance subsidies as a person’s income rises.  Both of these would be expected to reduce GDP growth.

Indeed, to be very wonkish about it, these tax changes could have especially large GDP effects.  Some people like to argue that taxes have small GDP effects because income and substitution effects offset each other.  But if you give someone a subsidy and then phase it out, both the income and substitution effects work in the direction of reducing work effort.

Why does CBO assume no change in GDP?  It is not because the CBO staffers necessarily believe that result.  Rather, it is just one of the conventions of budget scoring.  Their estimates should come with a warning label:

Michael Burry Saw the Financial Crisis Coming. Why didn’t the Fed?

Michael Lewis in his recently released book The Big Short highlighted several investors who anticipated the financial crisis and took actions to gain from it.  One of them, Michael Burry was featured on a recent edition of 60 Minutes.  In Sunday’s New York Times,  Burry lays out the case.

Op-Ed Contributor – I Saw the Crisis Coming. Why Didn’t the Fed? – NYTimes.com

//

April 4, 2010
Op-Ed Contributor

I Saw the Crisis Coming. Why Didn’t the Fed?

By MICHAEL J. BURRY

Cupertino, Calif.

ALAN GREENSPAN, the former chairman of the Federal Reserve, proclaimed last month that no one could have predicted the housing bubble. “Everybody missed it,” he said, “academia, the Federal Reserve, all regulators.”

But that is not how I remember it. Back in 2005 and 2006, I argued as forcefully as I could, in letters to clients of my investment firm, Scion Capital, that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy. My prediction was based on my research into the residential mortgage market and mortgage-backed securities. After studying the regulatory filings related to those securities, I waited for the lenders to offer the most risky mortgages conceivable to the least qualified buyers. I knew that would mark the beginning of the end of the housing bubble; it would mean that prices had risen — with the expansion of easy mortgage lending — as high as they could go. Continue reading Michael Burry Saw the Financial Crisis Coming. Why didn’t the Fed?

Schumpeter and Business Cycles

In the paragraphs below, I attempt to both summarize McGraw’s description of Schumpeter’s contribution to business cycles and add a few comments  as to where his reasoning might help us interpret a post 1950 world.

For many years, Schumpeter focused his scholarly attention on understanding the ups and downs in the economy known as business cycles.  He viewed these ups and downs as part and parcel of the dynamics of capitalism, which could not be understood without paying specific attention to the institutions through which capital flowed.  The two volume 1,095 page magnum opus entitled Business Cycles captures Schumpeter’s look into virtually every nook and cranny of the dynamics of capitalism in the U.S., the U.K. and Germany.  Although he apparently left few stones unturned in this voluminous study, many reviewers concluded that he was not very successful in distinguishing between the forest (of cyclical dynamics) and the trees (of specific institutions in particular countries.)

One Schumpeterian conclusion, however, did come through with incredible clarity: “…theoretical equipment, if uncomplemented by a thorough grounding in the history of the economic process, is worse than no theory at all (254).”  Although Schumpeter would approve of the mathematical precision that modern economics has sought as well as of the empirical confirmation or rejection offered by econometric techniques, he would be aghast at economic analysis without either capitalists or entrepreneurs.  For him, both economic growth and business cycles – which must be closely linked in the study of capitalism – required the entrepreneur as innovator whether it be through new processes (including physical and virtual factories), new forms of organization (such as corporations and partnerships) and new forms of financing (including well developed bond markets, seller financed purchases, and a vibrant market for venture capital.) Continue reading Schumpeter and Business Cycles

Economic Impact of Badger State Games on the Fox Cities: Are you interested?

Wisconsin Sports Development Corporation has an opportunity for a student or class to gain real-world experience in conducting an economic impact survey of the 2010 Badger State Summer Games held in the Fox Cities during the weekends of June 18-20 and June 25-27.

Wisconsin Sports Development Corporation (WSDC) is a nonprofit 501(c)(3) charitable organization devoted to fostering participation, competition and memorable experiences through our events and programs that promote health, active lifestyles and a sense of community.  WSDC’s marquee event is the Badger State Games.  The philosophy of the Badger State Games is that everyone plays regardless of age or ability. The Games embody the values of participation and good sportsmanship. BSG is Wisconsin’s only Olympic-style sports festival and is truly a grassroots organization that relies on the dedication of thousands of volunteers and the support of corporate partners.

WSDC wishes to ascertain the economic impact the Badger State Games has on the Fox Cities area.  In order to do this the following steps will need to be accomplished (see attachments):

  1. Review past processes, tools, timelines and reports
  2. Revise, update or create new processes and tools
  3. Create a timeline for implementation
  4. Recruit and train volunteer staff as needed to implement the study
  5. Collect and analyze appropriate data
  6. Prepare reports and deliver presentations to various stakeholders – eg: BSG staff, board of directors, funding sources, and other constituents.

See Professor Finkler if this project intrigues you.

Can Cities Shrink Their Way Back to Greatness?

In a recent NYTimes Economix blog entry, Edward Glaeser argues that we should watch Detroit under mayor David Bing and see if the answer is yes.  Bing, former NBA all-star guard, has formulated a plan to downsize Detroit; that is, identify policies that will help Detroit generate a sustainable comparative advantage by reducing and removing those policies that are destructive.  It’s an intriguing and very politically challenging idea.  See what you think.

http://economix.blogs.nytimes.com/2010/03/16/shrinking-detroit-back-to-greatness/

Hidden in Plain Sight

Last week’s report by Lawrence Alum Anton Valukas on Lehman Brothers reveals that the actions taken by Lehman were assumed to be legitimate and above board. Transparency was evident. But as Andrew Ross Sorkin opines in the linked New York Times story below,  which matches Michael Lewis’s view, the incentives were wrong, and regulators did not look in the obvious places.

http://www.nytimes.com/2010/03/16/business/16sorkin.html?adxnnl=1&ref=business&adxnnlx=1268751826-n8L9ylXvRETjzarAOCJirg

Why Close Reading is Important

In the opinion piece below, Alan Blinder explains why it is critical to carefully read documents, especially if they involve legislation and even more importantly if they affect the Federal Reserve Bank.

Alan Blinder – Opinion piece on PBS
January 2010 “The Future of the Federal Reserve”

Do you ever get the feeling that this country is over-lawyered? Well, here’s another example.

Ron Paul, the libertarian congressman who wants to abolish the Federal Reserve, has long promoted a first step in that direction. The so- called Paul bill would subject the Fed’s monetary policy decisions to GAO audits. Like most economists, I find the idea, well, appalling.

But I breathed a sigh of relief when a modified version was appended to the House’s financial reform bill late last year. The Paul-Grayson amendment added what I thought was an important clause. Let me read it to you.

“Nothing in this subsection shall be construed as interference in or dictation of monetary policy to the Federal Reserve System by the Congress or the GAO.”

That sounds like a strong affirmation of the Fed’s independence, right? I certainly read it that way and so did my students. Then I talked to a lawyer.

So put on your lawyers glasses and read it again. Nothing in this subsection shall be construed as interference and so on.

Read literally, the sentence does not instruct Congress to keep its nose out of monetary policy. Instead, it asserts that the proposed law does not interfere with monetary policy even if you think it does. Orwell’s big brother would have been proud. He gave us war is peace, freedom is slavery. Now the House thought police give us interference is not interference.

Ladies and gentlemen of the House, could we please fix this?

Summer Internship Opportunities

Act quickly if you wish to take advantage of the internships indicated below.

Summer Internship in Washington D.C: Still accepting applications
Sweet, Stephen [Stephen.Sweet@cgkfoundation.org]
Sent: Thursday, March 11, 2010 8:12 PM
To:
Merton D. Finkler
Attachments:

Dr. Finkler,

I wanted to alert you that several great (and unexpected) internship positions have just became available in this summer’s Koch Internship Program, so we are going to continue accepting applications from interested candidates for a few more days. Please let your students know that this paid opportunity ($13.00/hr) is still available for those who are interested in gaining valuable professional experience in an organization that advocates free-market principles. Candidates who want to be considered for the program have until March 17th to submit their application materials. I will be available to answer any questions about the internship, so feel free to circulate my contact information.

Thank you!

Steve

Stephen Sweet
Program Coordinator, Marketing and Recruiting
Charles G. Koch Charitable Foundation
www.cgkfoundation.org
Ph: 202.215.7491

Fast Growing Young Firms Dominate New Employment

A study released today by the Kauffman Foundation documents the significant influence young companies have on employment growth in the United States.  Companies that are less than five years old and employ between 50 and 250 employees are likely to make the largest contribution to both economic output and job growth.  Check out the press release, or better yet,  read the report.

http://www.kauffman.org/newsroom/high-growth-firms-account-for-disproportionate-share-of-job-creation-according-to-kauffman-foundation-study.aspx

Free Market Environmentalism

If you are interested in how economists make extensive use of markets to address environmental questions, you might be interested in attending the one week symposium in June put on by PERC (Policy and Environmental Research Center.) Furthermore, PERC provides funding to cover the costs of the program and a portion of the travel expenses to Montana. Last year, Tam Dao attended and really enjoyed it.

http://www.perc.org/enviroprog/students/fme/basics.php

Koch Summer Internship Opportunity

2010 Summer Internship Opportunity

Are you interested in a paid internship that will give you the opportunity to gain valuable work experience in Washington, D.C.? Applications are now being accepted for the Koch Internship Program.

The Koch Internship Program is a paid opportunity for young professionals with an interest in free-market ideas to gain the tools to be more effective advocates for liberty. The program seeks to engage interns through substantive roles within think tanks, policy institutes, and grassroots organizations. In addition to the professional experience, interns also are challenged through weekly seminar-style management training. Internship roles include: policy research & analysis, marketing & communications, grassroots education, and donor relations. Summer interns earn $13.00 an hour.

Interns who participate in KIP should expect to:

* Deepen their understanding of free-market ideas;

* Develop professional skills;

* Explore opportunities to advance liberty throughout their careers;

* Build a network of like-minded colleagues, through interactions with speakers, staff, and other interns;

* Be challenged through the semester!

The application deadline for the Koch Internship Program is March 1, 2010. For complete program information please visit our website www.cgkfoundation.com.