Slate has a very nice piece on investors buying US Treasury bonds that yield negative interest rates! Now, why on earth would someone buy a bond with a negative interest rate? Though the answer is not complicated, it is more than a sentence explanation, so I will let you read it for yourself. Let me just say, inflation is involved.
For those of you not versed in corporate finance (or “core-fin,” as it’s known), the article provides a good summary of how debt markets work.
Firmly on the coattails of the extraordinary success of the Lawrence Scholars in Business program, the inaugural Lawrence Scholars in Law event kicks off at 5:30 on Wednesday, October 27 in the Hurvis Room of the Warch Campus Center.
Who should attend this session? I would suggest anyone who is thinking about a law career should clear their schedule for this one. Also, anyone who isn’t sure about their own career ambitions might consider poking her head in. Many students these days work for a few years before returning to pursue a law degree. And liberal arts majors generally, and economics majors in particular, have potential to succeed.
The talent on hand for this program is exceptional. We have five successful attorneys, each a partner or a shareholder (what’s the difference? Good question to ask) with a major law firm. And each with a member of the Lawrence University Board of Trustees. They are:
Professor Gerard will also be on hand to moderate.
Please sign up in the Career Center or e-mail careercenter@lawrence.edu to make your intentions known.
You are welcome to bring your dinner to the program. Or, better yet, plan to dine with the five panelists afterwords.
The Schumptoberfest celebration was a smashing success, with at least one of us understanding the Williamson debt-equity financing argument a little better at the end than at the beginning. Thanks to all those who participated, especially Professor Galambos, who took time out from his sabbatical leave to read “100” pages and keep me in line.
As per usual with these events, we received word that there were some items left behind. Here is a partial accounting: a set of dentures, a hearing aid, “a leather whip, a live rabbit, a tuba, a ship in a bottle, 1,450 items of clothing, 770 identity cards, 420 wallets, 366 keys, 330 bags and 320 pairs of glasses, 90 cameras and 90 items of jewellery and watches.”
Thanks to Tom for the tip.
Last year’s Entrepreneurship in the Arts & Society course included An Evening of Baroque Dance and spawned the formation of Lawrence Baroque on campus. Lawrence Baroque is one of many that is inviting you to stop by the Lawrence Chapel Tuesday at 8:30 p.m. to try out some of the new acquisitions from the James Smith Randolph collection of early winds! The invitation is extended to all, from professionals to novices. So stop by if you can spare a major second.
The event is part of the Lawrence University Collective of Early Music (LUCEM) the campus early music initiative at Lawrence, and, in addition to Lawrence Baroque, the Lawrence University Musicology Association, Harmonia, and Alta Capella are also involved.
That’s the title of Monday’s panel in the Hurvis Room of the Warch Campus Center at 6:30, and it should be a corker. Ever since the Supreme Court decided Citizens United v. Federal Election Commission this past January, all you-know-what has broken loose about money in U.S. politics. The president famously called out the court in his State of the Union address, with Justice Alito brazenly mouthing the words, “not true.” And it hasn’t gotten any friendlier from there. Now, that’s entertainment!
Of course, over here in the econ department, we wonder “Why is there so little money in U.S. politics?”
The event will cover a lot of ground, including these Common Cause talking points:
We will welcome panalists from both sides of the aisle, including State Representatives Penny Bernard Schaber (D-Appleton) and Dean Kaufert (R-Neenah), Andrea Kaminski from the League of Women Voters, and Jay Heck of Common Cause in Wisconsin.
Given the number of co-sponsors, I’m guessing there is ample interest. The co-sponsors are: the Lawrence Government Department, the College Republicans, the League of Women Voters of Appleton, League of Women Voters of Wisconsin, the Education Fund, the American Association of University Women – Appleton Branch, and the Wisconsin Alliance for Retired Americans.
I am moderating the event, so I hope to see you there.
Describe the industrial structure and to evaluate the interrelationships between firm size, market structure, and innovation in your assigned industry. You should address the following questions:
Next, determine where you come down on the “Schumpeter hypothesis” in terms of market structure and innovation. Write down a thesis statement and three supporting points to argue for or against Schumpeterian-type arguments. These might include:
We will spend Sunday morning talking about these industries. We will begin by going around and providing a brief description of each industry. After that, each group will state its thesis and then discuss its supporting arguments.
William James Adams, (2006) “Markets: Beer in Germany and the United States,” Journal of Economic Perspectives, 20(1): 189-205
Emek Basker (2007) “The Causes and Consequences of Wal-Mart’s Growth.” Journal of Economic Perspectives, 21(3): 177–198
Kal Raustiala and Christopher Jon Sprigman (2009) “The Piracy Paradox Revisited,” Stanford Law Review, 61(5).
Following up on Chapter VII of Capitalism, Socialism, & Democracy from last time, we move on to some rather more modern treatments of the economics of innovation. We start with Professor Galambos’ and a slightly modified version of the primer he gives to his students in his excellent course, In Pursuit of Innovation (coming this winter).
Galambos wades through some basics of innovation policy and the industrial enlightenment before arriving at the question of allocative efficiency on pages 4 and 5. Again, the conventional treatment is that there is a tradeoff between the promise of monopoly profits and the efficiency properties of competitive industries. And, recall, this is a tradeoff that Schumpeter explicitly rejects.
Continue reading Schumptoberfest Readings: Galambos, Teece, and Blaug
As I sift through material for my environmental economics course (Econ 280) this winter, I have found some very interesting material on the political economy of climate change. Ryan Liazza in the New Yorker walks through the process by which an idea becomes a bill becomes a law — or, in this case, doesn’t become a law. It is difficult to understand environmental economics and policy without knowledge of these tortured dealings, the underlying institutional rules, and that pesky electorate.
Over at the Economix blog, David Leonhardt has been doing yeoman’s work, provides another perspective on the political economics of climate change legislation, looks at what EPA could reasonably do to curb CO2 emission without such enabling legislation, and has a couple of pieces (one here, one here) on so-called clean energy.
I will also use this paper on “carbon geography” to illustrate how economists go about these political economics questions. I don’t think we as economists ever expected serious climate legislation, certainly nothing approaching the types of reductions needed to stabilize atmospheric concentrations.
I
n the second post here, I will simply concentrate on Chapter VII of Capitalism, Socialism, and Democracy, and try to tie together some themes for the weekend. For our purposes, I have numbered the paragraphs 1-13.
As we proceed into this chapter, it is probably useful to keep in mind that at the time of this writing, the national income accounts and measurement of economic output were even more primitive than they are today. So, one question is how did economists in 1942 think about “growth” and “output”?
The null hypothesis is immediately stated in the opening sentence of the chapter — that there is some question that “capitalist reality” stifles economic growth. I take “capitalist reality” to mean the consolidation of firms and increasing concentration of industries as they mature. This is going to get at the essence of a “Schumpeterian Hypothesis,” (see the last sentence of paragraph two for a germination of this idea — “big business may have had more to do with creating that standard of life than keeping it down.” We’ll get to the efficiency implications of this in a bit, but for the moment note that he offers two possible rationales for the antagonism toward large firms. One is the idea that growth occurs despite the “managing bourgeoisie” (that is, monopolists restricting output and jacking prices). The second is that this worked for a while, but it cannot proceed indefinitely.
Continue reading Schumptoberfest Mark VII, The Gales of Creative Destruction
The Wall Street Journal has a piece on whether it is possible to time the market, or whether one should stay in to make sure they are in when the big, tasty gains come along. The story goes that investors should stay in the market because the lion’s share of gains accrue on only a few days. If you missed the ten best days over the past 40 years, for instance, you would miss out on half the total gains during that period (yes, you read that correctly). With that in mind, you’d better be sure to have your stakes on the table when they spin the wheel.
But, there’s a catch. What if you managed to be out of the market on the ten worst days? Well, it turns out that missing the ten worst days would have been even better for your portfolio than being in on the ten best days. Yowza!
This is pretty interesting and all, but the real reason I bring it up is that the hero of the WSJ piece is my graduate school colleague, Javier Estrada. Professor Estrada is the head of the Department of Financial Management at the International School of Management at la Universidad de Navarra (that’s in Pamplona, Spain), a widely published scholar in investment and finance, and the author of a couple of popular finance books. Anyone that finds themselves in Spain should stop in and see him, as he is a genuinely friendly and engaging character. And I never knew he was so well read.
The Roubini Global Economics (RGE) University Program has just launched and is now available to Lawrence University at www.roubini.com. We are one of the first schools to get on board with this program so that is our good luck.
You will need to log in, at which point you can check out the Site Navigation Guide for the University Program (you’ll need to be logged in to see this page). We are quite fortunate to have access to the Roubini research, and I know you will find this useful as you root around in there.
Nouriel Roubini is an economics professor at New York University and something of an iconic figure, known as Dr. Doom. Even The Daily Show taps into Roubini’s notoriety.
So, please check out the resource and let us know what you think. We have surprisingly good access to the RGE University Program, and they are anxious to hear your feedback.
Here’s an interesting fact — a legislator with a degree in political science is more likely to vote to cut research funding for, wait for it, political science. Perhaps they know something?
Here’s from Uscinski and Klofstad.
In October 2009, political scientists learned of a Senate amendment sponsored by Tom Coburn (R-OK) that would eliminate political science funding from the National Science Foundation budget. The American Political Science Association condemned the proposed amendment, and concerned political scientists contacted their senators to urge the amendment’s defeat. On November 5, 2009, the amendment was defeated 36-62 after little debate. This article examines the vote on the Coburn Amendment to understand the role that senators’ personal, constituency, and institutional characteristics played in their votes. Logit analysis reveals that even after controlling for party, several factors significantly predict the vote, including the number of top-tier political science Ph.D. programs in the senator’s state and whether the senator graduated with a bachelor’s degree in political science.
Zing!
Joseph Uscinski and Casey A. Klofstad. 2010. “Who Likes Political Science?: Determinants of Senators’ Votes on the Coburn Amendment”. PS: Political Science and Politics October: 701-706.
This is a first in a series of short posts to guide the Schumptoberfest readings. I included these readings literally to give you an introduction to Schumpeter and the “Schumpeterian Hypotheses.”
These introductory readings shouldn’t take terribly long to read — perhaps an hour. I will carefully go through Chapter VII of Capitalism, Socialism, and Democracy in my next post.
Paul J. McNulty “Austrian Competition,” From The New Palgrave Dictionary of Economics, 2nd edition
The first reading from Paul McNulty on how Austrian economists view competition immediately invokes Schumpeter as a critic of the model of perfect competition. As many of you know, the model of perfect competition that I love and teach in price theory, is essentially an equilibrium construct. That is, we expect to be moving toward a long run competitive equilibrium, where price = average costs for the marginal firm in the industry. (Incidentally, the way that firms compete in the fourth paragraph is largely what Industrial Organization is all about). Schumpeter, in contrast, espouses a “disequilibrium” theory, and argues that competition isn’t about allocative efficiency as much as it’s about, that’s right, creative destruction.
In what I’d have to say is a surprise, Peter Diamond, Dale Mortensen, and Christopher Pissarides picked up this year’s Nobel in economics for their work on search theory in labor markets. That means, for the second year in a row, the Lawrence University prize for picking the winner will roll over to the next year.
Tyler Cowen on Mortensen.
Tyler Cowen on Diamond.
I was chatting with Professor LaRocque on Saturday, and he felt that we were due for some theorists, so here you go.
Though I’m not one to pile onto the United States Postal Service, it is probably worth noting this news item — Postal Union Election Delayed After Ballots Lost in Mail.
Coming on the heels of a post where everyone seems to have an opinion, I would guess that in this case you just have to shake your head and laugh.
So this post isn’t totally bereft of content, I point you to Rick Geddes’ review of postal reform in the Economics Journal Watch.
This essay examines the published views of vital economists regarding postal reform. I define a vital economist as one who has produced scholarly research on this issue, and who has expressed an opinion about the direction reform should take. The ten vital economists surveyed here express surprisingly similar opinions on the proper direction for postal reform. The vast majority advocate some combination of privatization and elimination or relaxation of the delivery monopoly. Those opinions are in stark contrast to the published views of economists who have not carefully examined this issue.
Geddes himself is pretty much the noted expert on the subject, so when he says it’s surprising, it may well be surprising.
Have a good weekend, Lawrentians. Perhaps I’ll see you out at the festivities. Watch out for that Nobel announcement.
The James Dana Memorial Investment Challenge has arrived, and it appears to be an excellent opportuntiy for those so inclined. The details are below, and you have any questions, contact Syed Abbas (syed.k.abbas AT lawrence.edu) for the answers.
Our thanks to Larry Domash, the Lawrence University Investment Group, and Syed for making this happen.
JAMES DANA MEMORIAL INVESTMENT CHALLENGE FOR UNDERCLASSMEN
Larry Domash’81, in collaboration with the Lawrence University Investment Group, is organizing an investment idea competition for underclassmen. Each participant will choose a marketable investment (defined by avaialable market price on a daily basis) which they believe either long or (shor)t has the highest potential return over the next 12 months. Participants will be responsible for completing a write up on the the investment and identifying the daily pricing source by December 20, 2010. Additionally, each particpant wil provide a brief written update as to how the investment is performing and what factors have changed every 2 weeks from January 15 – December 30 2011, this includes when Lawrence is not in session. There here will be 2 winners – the first prize ($2,500.00) will go to the participant which provides the most accurate and articulate bi – weekly update. The second prize ($2,500) will go to the top return over the 12 months ending December 31, 2011.
An information session will be held on October 20th 2010 from 7-8 in the economics “lab,” Briggs 223.
If you don’t make your car payment, can you reasonably expect to drive off the lot with a car? If you don’t pay your doctor, can you reasonably expect him to take care of you next time you are sick? If you don’t pay your $75 for fire protection, will the fire department really stand by and watch while your house burns to the ground?
Well, that’s only approximately what happened in Tennessee this past week.
From the story:
A local neighborhood is furious after firefighters watched as an Obion County, Tennessee, home burned to the ground.
The homeowner, Gene Cranick, said he offered to pay whatever it would take for firefighters to put out the flames, but was told it was too late. They wouldn’t do anything to stop his house from burning.
Each year, Obion County residents must pay $75 if they want fire protection from the city of South Fulton. But the Cranicks did not pay.
Remarkable.
I have yet to talk to anyone who didn’t find this an engaging question. Where does an ordinary guy draw the line?
For those of you without anyone to talk to, these links provide about three hundred sixty five degrees of background and commentary.
The Atlantic Monthly‘s economics blogger, Megan McCardle, reviews Steven Johnson’s “Where Good Ideas Come From” in today’s Wall Street Journal.
Mr. Johnson himself has a big idea, but it’s not a particularly incisive one: He proposes that competition and market forces are less important to innovation than openness and inspiration.
McCardle packs a lot of review into a short space, and it is probably worth thinking about, especially for the Schumptoberfesters…
Yes, I just wrote that.
Some wagering odds have arrived on the scene. UPDATE: And here.
Looks like my picks of Thaler and Shiller are leading the way, followed by Weitzman, Hart, Nordhaus, and Tirole.
This time of year, there are typically grumblings about the lack of sufficient talent to justify a yearly Nobel in economics, but that is certainly an impressive list. Weitzman wrote a paper 30 years ago that still defines the core idea of environmental economics. No one has done more on the empirical cost-benefit modeling of climate change than Nordhaus.
Tirole is a co-author of a standard graduate industrial organization text, as well as several highly-influential pieces on the economics of innovation. This title alone should merit consideration for Tirole — “The Fat Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look.” Is there a more effective title to help teach strategic behavior?
Oliver Hart helped to push agency theory forward, developed a formal theory of the firm that is still being hashed out (in Economics 450 among other places), and probably has substantially expanded our understanding of corporate governance.
It’s probably worth noting that last year’s odds-on favorite, Eugene Fama, is not even among the leaders (UPDATE: The Ladbrokes odds have him 5:1). Not to mention Armen Alchian. No, I don’t think there is an absence of talent.
Of course, I’ll write about Shiller and Thaler next week after they win the prize.
UPDATE: Professor LaRocque has predicted Jeffrey Williamson.
The picks are pouring in for our Second Annual Pick the Economics Nobel Prize contest (see here). The consensus pick around the department seems to be Paul Romer, so we might be dividing up that bag of M&Ms pretty thin if he wins.
Here are some more thoughts today from Tyler Cowen:
- Richard Thaler joint with Robert Schiller.
- Martin Weitzman and William Nordhaus, for their work on environmental economics
- Three prominent econometricians of your choice, bundled.
- Jean Tirole, possibly bundled with Oliver Hart and other game theorists/principle agent theorists. But last year the prize was in a similar field so the chances here have gone down for the time being.
- Doug Diamond, bundled with another theorist or two of financial intermediation, such as John Geanakopolos. Bernanke probably has to wait, although that may militate against the entire idea of such a prize right now.
- Dale Jorgenson plus ???? (Baumol?) for a productivity prize.
Thaler was my original (anomalous?) pick, though yesterday I hedged and went with Shiller. So this might be a case of great minds thinking alike, or of me being brainwashed by reading Marginal Revolution too often.
I like the Marty Weitzman pick better. Economics hasn’t given a prize for global climate change or for environmental work in general, and Weitzman has been a big deal forever for his canonical “prices versus quantities” paper, as well as for some more recent work on the “fat tail.” I’m not so sure about Nordhaus paired with him, however.
Professor Finkler has Paul Romer. I have yet to hear from my other colleagues, who are no doubt strategically plotting their picks as I type here.
