David Gerard

Author: David Gerard

iArbitrage Opportunities?

The limited release of the iPhone 6 has Jason Kottke wondering about international arbitrage, what he calls a “black market.” Check out the video.

He links us up to Bloomberg News report on international arbitrageur, Mr. Liu, who is a specialist in matching up international supply and demand:

While the device debuted today in the U.S., Hong Kong, Japan and Australia, there is no release date set for the world’s biggest smartphone market. That creates an opportunity for Liu, who promises two-day delivery of a 16-gigabyte iPhone 6 for 8,000 yuan ($1,303) — almost double the price on Apple’s Hong Kong website.

What a great quote:

“It’s going to be a while before the new iPhone comes to China officially, so if you want it now, you have to pay up… Give me a call if you want one.”

It’s not clear to me where the moral high ground is — why should citizens in western countries have preferential access to these new technologies? Is there really anything wrong with hooking our Chinese brethren up with a phone when they come out, rather than having them wait three months like the last iPhone release? Again, here’s Bloomberg:

The phones are multiband devices that will work anywhere. Yet anyone selling a device on China’s black market breaks at least two laws — the requirements to pay hefty import duties and to only use mobile phones sanctioned for sale by the government.

There it is.

Does Free Trade Raise Prices?

Good question? Seems like something that would make economists snort coffee through their collective noses, but according to today’s Wall Street Journal, the better part of the world holds a contrarian view:

Yikes! That’s kind of depressing, though it dovetails nicely with my discussion of comparative advantage in ECON 300 tomorrow, along with Paul Krugman’s classic piece, “Ricardo’s Difficult Idea.”

My objective in this essay is to try to explain why intellectuals who are interested in economic issues so consistently balk at the concept of comparative advantage. Why do journalists who have a reputation as deep thinkers about world affairs begin squirming in their seats if you try to explain how trade can lead to mutually beneficial specialization? Why is it virtually impossible to get a discussion of comparative advantage, not only onto newspaper op-ed pages, but even into magazines that cheerfully publish long discussions of the work of Jacques Derrida? Why do policy wonks who will happily watch hundreds of hours of talking heads droning on about the global economy refuse to sit still for the ten minutes or so it takes to explain Ricardo?

All good questions, and I buy most of Krugman’s answers:

(ii) [C]omparative advantage is a harder concept than it seems, because like any scientific concept it is actually part of a dense web of linked ideas. A trained economist looks at the simple Ricardian model and sees a story that can be told in a few minutes; but in fact to tell that story so quickly one must presume that one’s audience understands a number of other stories involving how competitive markets work, what determines wages, how the balance of payments adds up, and so on.

(iii) [O]pposition to comparative advantage — like opposition to the theory of evolution — reflects the aversion of many intellectuals to an essentially mathematical way of understanding the world. Both comparative advantage and natural selection are ideas grounded, at base, in mathematical models — simple models that can be stated without actually writing down any equations, but mathematical models all the same.

My emphasis. See you tomorrow.

Intermediate Micro on the Horizon

Undergraduates are not yet like the white queen, willing to believe 6 impossible things before breakfast. — Rakesh Vohra

Not sure what about that quote is so amusing to me.

Professor Vohra is blogging on his re-imagining of the intermediate theory course. I am not certain that I am ready for a wholesale overhaul, but I will be following this one closely.

Advice to Potential Majors

Students interested in a major in Economics should begin with introductory classes in economics and mathematics. The first economics class is ECON 100.*

Students who have taken intro or who have Advanced Placement credit should consider taking 200-level classes based on their own interests (e.g., 200 Development Economics, 205 International Economics, 245 Law & Economics, 280 Environmental Economics).

There are three intermediate theory courses that are offered sequentially each year – ECON 300 Microeconomics in the fall, ECON 380 Econometrics in the winter, ECON 320 in the spring. These courses are most effective when taken sequentially in either the sophomore or junior year. Freshman should not enroll in these courses.

Sophomore year is a good time to take ECON 225 Decision Theory. This is not a required course, but we recommend it for all majors and minors.

The introductory mathematics courses are essential because they are foundational both to intermediate theory courses and to elementary statistics. Calculus (MATH 120 and 130 or MATH 140) is a prerequisite for ECON 300 and ECON 320. ~~Calculus is also a prerequisite for Statistics (MATH 207), and~~ Statistics (MATH 107 or the equivalent) is a prerequisite for ECON 380.

For the purposes of the Economics Department, we believe students should consider MATH 120 and 130 if they are interested in applied problem solving and developing some Excel skills. Students who plan to take math beyond the calculus sequence should take MATH 140. The decision on which calculus to take is probably worth a discussion both with the math and the econ department faculty.

A typical sequence for a student who comes in as an economics major.

Freshman: Introductory Economics (ECON 100), 200-level courses based on student interest, Calculus (MATH 120 and 130 or MATH 140).

Sophomore: Intermediate sequence (ECON 300, 380, 320), 200-level courses based on student interest, Statistics (MATH ~~207~~ 107). ECON 300 and MATH ~~207~~ 107 are offered in the fall.

Junior-Senior: Advanced electives.

This sequence can be pushed back a year for those who decide during their sophomore year to pursue an economics degree.

MINOR: At this point the minor requirements are indeed minor. No significant planning is necessary during the Freshman year to complete this degree, though our recommendations in terms of taking introductory economics and mathematics courses remains the same for majors and minors alike.

Updated Schedule, Redux

This is the amended schedule for 2014-15 as of July 21. The Registrar’s office will incorporate these changes in the next few weeks. The one addition is the 8:30 a.m. econometrics section!!! Development Economics has moved from the fall to the winter.

	FALL TERM
100	INTRO MICRO	Lhost	MWF 1:50-3:00
200	DEVELOPMENT	Staff	MWF 9:50-11
205	INTERNATIONAL ECON	Caruthers	MWF 12:30-1:40
211	IN PURSUIT OF INNOVATION	Galambos, Brandenberger	MWF 11:10
300	MICROECONOMIC THEORY	Gerard	MTWR 8:30-9:40
300	MICROECONOMIC THEORY	Gerard	MTWR 9:50-11
495	MARKETS AND INNOVATION	Galambos, Gerard	MWF 1:50-3:00
500	ADVANCED MICROECONOMICS	Galambos	See Instructor

	WINTER TERM
100	INTRO MICRO	Caruthers	MWF 8:30-9:40
200	DEVELOPMENT	Caruthers	MWF 1:50-3:00
225	DECISION THEORY	Galambos	MWF 12:30-1:40
215	COMPARATIVE ECON SYSTEMS	Galambos	MWF 8:30-9:40
380	ECONOMETRICS	Lhost	MTWF 8:30-9:40
380	ECONOMETRICS	Lhost	MTWF 3:10-4:20
410	ADV GAME THEORY	Galambos	MWF 9:50-11:00
425	ENTREPRENEURIAL VENTURES	Vaughan	MWF 11:10-12:20
444	POLITICAL ECON OF REGULATION	Gerard	TR 9:00-10:50
495	INDIVIDUALITY & COMMUNITY	Wulf	TR 12:30-2:20
601	SENIOR EXPERIENCE: READING	Gerard	T 12:30
602	SENIOR EXPERIENCE: PAPER	Finkler	R 12:30

	SPRING TERM
100	INTRO MICRO	Caruthers	MWF 1:50-3:00
223	QUANTITATIVE DECISION-MAKING	Gerard, Parks	TR 9:00-10:50
245	LAW AND ECONOMICS	Lhost	TR 12:30-2:20
280	ENVIRONMENTAL ECONOMICS	Gerard	TR 12:30-2:20
295	TOP: FINANCE	Vaughan	MWF 12:30-1:40
320	MACROECONOMIC THEORY	Finkler	MTWR 3:10-4:20
460	INTERNATIONAL TRADE	Caruthers	MWF 9:50-11:00
495	APPLIED ECONOMETRICS	Lhost	MWF 3:10-4:20

Legalized It

As some of you may know, a number of states have legalized the sale and use of marijuana for general (that is, non-medicinal) purposes. For your weekend reading pleasure, I give you a theoretical and empirical assessments of what has happened since the votes were counted. First up is EconoMonitor‘s Ed Dolan, who diagnoses the mystery of the missing marijuana in his home state of Washington, complete with some tasty supply & demand diagrams. Dolan sees “government failure in the making”, as overzealous licensing requirements and prohibitive taxes work together to keep the market thin.

A little-ways east, however, the Colorado market has been blossoming, and there are some early empirical assessments of the results (see here for the story and here for the report). Is it not surprising that actual demand is 30-90% higher than the “experts” projected? Tough to say. Paging through the report, I see that 20% of the users account for roughly 70% of total demand, a familiar phenomenon. Taking that a step further, there are approximately 175,000 adults who smoke 21+ times per month, and these folks on average consume more “per time” than the less dedicated users (a lot more, it turns out).

You can see more on economists’ views of drug prohibition and legalization in one of our previous posts.

World Cup Infographic

From the always helpful folks at Deadspin, I give you an infographic with the rundown of the US prospects to advance to the Round of 16. Note that the “Ghana Score Differential” on the top axis is for the Ghana-Portugal game. The first tiebreaker is goal differential, which is what this graphic breaks down. The second tiebreaker is total goals scored over three games (the gold boxes).

Here are the take-home points:

The US are in with a win or a tie.
The US are in with a Ghana-Portugal tie.
Absent that, US fans should probably root for a low-scoring Ghana-Portugal contest, with Portugal as the rooting interest.

Summer Reading

My summer reading is being colored by our new, exciting fall additions. And people named Thomas.

Thomas Schelling, Micromotives and Macrobehavior. This is a new one on the Freshman Studies reading list for the fall and parts of it promise to feature prominently in our instruction as we continue to emphasize the utility of abstract modeling.

Thomas Piketty, Capital in the 21st Century. This is all the rage right now, and even the critical reviews say it’s worth a read. So read it I will!

Glen Greenwald, No Place to Hide. As William Burroughs once said, “Paranoia is just having the right information.” If you’ve ever wondered who General Keith Alexander is, what a FISA court is, or what the whole Edward Snowden thing is all about, Greenwald lays it out for you. I was planning on doing some reading on security regulations, and this seemed like an appropriate preface…

John Mueller and John Stewart, Terror, Security, and Money. This has been on my shelf taunting me for a couple of years. It walks through security regulations and gives a sketch of how benefit-cost analyses are done (or not done). This will make its way into ECON 444 in the Winter, I am certain.

Thomas Pynchon, Inherent Vice. Speaking of paranoia, nobody does it better than Pynchon. This is a quintessential summer read, the SoCal surf-side detective story from an iconic American author. Here’s a taste:

“It’s like Donald and Goofy, right, and they’re out in a life raft, adrift at sea? for what looks like weeks? and what you start noticing after a while, in Donald’s close-ups, is that he has this whisker stubble? like, growing out of his beak? You get the significance of that?”

Ain’t that the truth? This one is coming to a theater near you, so read it before the hype-la.

William Nordhaus, The Climate Casino: Risk, Uncertainty and Economics for a Warming World. A lot of interest on climate change and its effects, so I will probably revisit this one and do a seminar on it with interested students next year. A great book for anyone interested in the nuts-and-bolts of the economics of climate change from the president of the American Economics Association.

Summer Innovation Links: Disruption, Stagnation, and Fame

Clayton Christensen’s well-known theory of disruptive innovation has been applied all over the place, from personal computers to cellular telephones to higher education — he seems to have written about 500 books on the topic. From his perch at the Harvard business school, he has established himself as one of the more influential thinkers on the planet.

Jill Lepore, also from Harvard, has been spreading her influence via her explorations of various academic “literatures” (including this one) for the New Yorker. This week Lepore sets to disrupt the disruptive innovation mojo with a lengthy, critical takedown of Christensen’s prime examples (“easy targets” according to Joshua Gans).

It seems to be making some noise on my RSS feed (do people still have RSS feeds?) along these lines:

Here is Lepore’s NYer piece.
Slate provides the Cliffs Notes.
Lynne Kiesling frames the issues very well; I like this post.
Joshua Gans on Lepore on Christensen.
Peter Klein on Gans on Lepore on Christensen.

I suppose I should offer my thoughts (Gerard on Klein on Gans on Lepore on Christensen) to keep that whole thing rolling, but instead I return to the “stagnation” debate, this time between Northwestern heavyweights, Joel Mokyr and Robert Gordon. If you know a Google trick or two, you can get access to this piece in the Wall Street Journal.

The upshot is that Mokyr thinks innovation is booming, whereas Gordon thinks it isn’t. We’ve seen this before in the Gordon v. Brynjolfsson TED smackdown, and I suspect we will continue to see it going forward.

We get the pointer via the Cheap Talk guys — also from Northwestern — who are somewhat bemused by the WSJ reporter’s assertion that Gordon is “more famous” than Mokyr:

Since when is Bob Gordon more famous than Joel Mokyr? I suppose it depends on the audience you ask – Joel is not known to journalists. But in academic circles, the fame ranking is reversed.

For a summer starter kit, you can learn a lot about how people think about innovation by reading through some of these links.

UPDATE: Christensen responds to Lepore!

World Cup Predictions

analyst

Once again the World Cup is upon us, and once again my friends and colleagues are pumping me for information about who I’m picking. Well,like American coach Jurgen Klinsmann, I am not picking the Americans.

Who then?

Well, I suppose you could do worse than ask a bunch of economists:

Brazil will beat Germany to win soccer’s World Cup and also will score the most goals, according to a survey of economists across 52 countries.

The tournament’s host nation eclipsed Germany and Argentina as the top choice among 171 economists from 139 companies in a Bloomberg News poll published today. The Latin American country is also tipped to find the net the most times, topping Argentina and Spain.

Projections of a sixth World Cup victory for Brazil mesh with bookmaker odds and forecasts based on economic models created by Goldman Sachs Group Inc., UniCredit SpA and Danske Bank A/S. Paddy Power Plc and Ladbrokes Plc both rank Brazil as favorite, at odds of 3/1….

How this survey is newsworthy is an interesting question, I suppose. As I type this, Brazil is down 1-0 to Croatia in the opening match.

Updated Schedule

This is the schedule for 2014-15 that we have submitted to the Registrar. The courses listed as “Staff” will be covered by our incoming assistant professors. UPDATE: ECON 120 in the Spring will be canceled and replaced with ECON 100.

	FALL TERM
100	INTRO MICRO	Staff	MWF 1:50-3:00
200	DEVELOPMENT	Staff	MWF 9:50-11:00
205	INTRO TO INTERNATNL ECON	Staff	MWF 12:30-1:40
211	PURSUIT OF INNOVATION	Galambos, Vaughan	MWF 11:10-12:20
300	MICROECONOMIC THEORY	Gerard	MTWR 8:30-9:40
300	MICROECONOMIC THEORY	Gerard	MTWR 9:50-11
495	MARKETS AND INNOVATION	Galambos, Gerard	MWF 1:50-3:00
500	ADVANCED MICROECONOMICS	Galambos	See Instructor

	WINTER TERM
100	INTRO MICRO	Staff	MWF 8:30-9:40
225	DECISION THEORY	Staff	MWF 12:30-1:40
215	COMPARATIVE ECON SYSTEMS	Galambos	MWF 8:30-9:40
380	ECONOMETRICS	Staff	MTWF 3:10-4:20
410	ADV GAME THEORY	Galambos	MWF 9:50-11:00
425	ENTREPRENEURIAL VENTURES	Vaughan	MWF 11:10-12:20
444	POLITICAL ECON OF REGULATION	Gerard	TR 9:00-10:50
495	INDIVIDUALITY & COMMUNITY	Wulf	TR 12:30-2:20
601	SENIOR EXPERIENCE: READING	Gerard	T 12:30
602	SENIOR EXPERIENCE: PAPER	Finkler	R 12:30

	SPRING TERM
~~120~~ 100	INTRO ~~MACRO~~ MICRO	Staff	MWF 1:50-3:00
223	QUANTITATIVE DECISION-MAKING	Gerard, Parks	TR 9:00-10:50
245	LAW AND ECONOMICS	Staff	TR 12:30-2:20
280	ENVIRONMENTAL ECONOMICS	Gerard	TR 12:30-2:20
295	TOP: FINANCE	Vaughan	MWF 12:30-1:40
320	MACROECONOMIC THEORY	Finkler	MTWR 3:10-4:20
460	INTERNATIONAL TRADE	Staff	MWF 9:50-11:00
495	APPLIED ECONOMETRICS	Staff	MWF 3:10-4:20

Course Cancellations and Adds, Part 2

Here are what we hope are some of the final changes to the 2014-15 schedule. We would appreciate your patience as we clean this up.

Click here for the non-garbled page view.

FALL
ADD	ECON 300: INTERMEDIATE MICRO	MTWR	9:50-11	Gerard
ADD	ECON 200: DEVELOPMENT	MWF	9:50-11	Staff
ADD	ECON 495: TOPICS: MARKETS AND INNOVATION	MWF	1:50-3	Galambos and Gerard
CANCEL	ECON 444			(Moved to Winter)
CANCEL	ECON 500			(Changed to tutorial)


WINTER
ADD	ECON 444: POLITICAL ECONOMY OF REGULATION	TR	9:00-10:50	Gerard
ADD	ECON 215: COMPARATIVE ECONOMIC SYSTEMS	MWF	8:30-9:40	Galambos
CANCEL	ECON 400

Environmental Econ Updates

Here are some quick hits as we wrap up this term’s ENST 151 and ECON 280 courses:

Will shuttering the Keystone pipeline leave a “billion” barrels of oil from tar sand production in the ground? That’s a recent assessment out of Berkeley (blog post).

Speaking of not opening Keystone, what’s with all of these tank car explosions? Tradeoffs, tradeoffs. Yikes.

In other news, should we take a “wait-and-see” approach to climate change? Not according to this recent Brookings piece. Tax, baby, tax!

Or cap, baby, cap. The New York Times shows us how a carbon market works!

And, finally, James Hamilton gives the rundown on resource scarcity and prices for myriad commodities.

Economics Colloquium, Thursday at 4:30 p.m.

Hillary Caruthers, a visiting professor at Berry College, will visit campus Thursday and deliver the next edition of the Economics Colloquium. Professor Caruthers is a recent Ph.D. from the University of Wisconsin-Madison. Her talk will be at 4:30 Thursday in Steitz 102.

“Household Risk Management and Rural to Urban Migration in Indonesia”

Hillary Caruthers

Berry College

ABSTRACT: This paper investigates the role of risk in rural to urban migration decisions using Indonesian household-level panel data. Specifically, I use consumption data and measures of household risk aversion to test whether rural to urban migration is a means of managing risk among uninsured households via the diversification of household income flows. Most previous studies of risk and migration do not analyze the migrant’s choice of destination but instead focus on the relationship between risk aversion and the likelihood of migration; however, if migration is motivated, in part, by household risk management, then the level of risk aversion should impact both the propensity to migrate and the destination of migration. In this paper I generate predictions regarding the relationship between household risk aversion and the economic riskiness of receiving regions and test these predictions using a multinomial logit estimation. Empirical results generally affirm the predictions of the model. Households prefer to send migrants to destinations with lower consumption variability and, as predicted, this preference is stronger among households with higher risk aversion. Also, all households prefer destinations where average consumption is less correlated with home consumption.

You can see a draft of the paper here.

Course Cancellations and Adds, Part 1

We are in the process of juggling our 2014-15 schedule, so please bear with us as this proceeds. Here is the first round of cancellations and adds. It is almost certain that some further sections will be canceled and added in the coming weeks.

Cancel	Fall 2014	421	INVESTMENTS
Cancel	Winter 2015	420	MONEY AND MONETARY POLICY
Cancel	Spring 2015	430	CAPITAL AND GROWTH

ADD	Spring 2015	495	APPLIED ECONOMETRICS

If you have any questions, please see Professor Finkler, Galambos, or Gerard.

Special EconTea: The Nuclear Option

There will be a special Econ Tea on Tuesday, May 20 at 2:30 p.m. in Briggs 217 to discuss this paper:

Joseph Michael Newhard, “The Stock Market Speaks: How Dr. Alchian Learned to Build the Bomb,” Forthcoming in Journal of Corporate Finance.

The paper covers the remarkable story of Armen Alchian’s attempt to figure out the fissile material in nuclear weapons. Here’s Alchian’s telling of the story:

We knew they were developing this H-bomb, but we wanted to know, what’s in it? What’s the fissile material? Well there’s thorium, thallium, beryllium, and something else, and we asked Herman Kahn and he said, ‘Can’t tell you’… I said, ‘I’ll find out’, so I went down to the RAND library and had them get for me the US Government’s Dept. of Commerce Yearbook which has items on every industry by product, so I went through and looked up thorium, who makes it, looked up beryllium, who makes it, looked them all up, took me about 10 minutes to do it, and got them. There were about five companies, five of these things, and then I called Dean Witter… they had the names of the companies also making these things, ‘Look up for me the price of these companies… and here were these four or five stocks going like this, and then about, I think it was September, this was now around October, one of them started to go like that, from $2 to around $10, the rest were going like this, so I thought ‘Well, that’s interesting’… I wrote it up and distributed it around the social science group the next day. I got a phone call from the head of RAND calling me in, nice guy, knew him well, he said ‘Armen, we’ve got to suppress this’… I said ‘Yes, sir’, and I took it and put it away, and that was the first event study. Anyway, it made my reputation among a lot of the engineers at RAND.

You can get an ungated version of the the paper here.

As per usual, the availability of refreshments is subject to estimated demand and prevailing market prices.

Goodness, A Fit!

Tyler Vigen has opened up the world of spurious correlations like no other with his aptly titled website, Spurious Correlation. Whether it’s the remarkably tight relationship between US spending on science, space and technology with suicides by hanging, strangulation and suffocation or a more loosely related relationship between Stanley Cup goals and Suicide by Pesticide (I made that one up myself!), Vigen is Johnny-on-the-Spot with fitting data for no greater purpose than amusement.

Via Kottke, of course.

A Great Leap Forward, Thursday at 4:30

Alexander J. Field from Santa Clara University will be on campus Thursday to deliver a public lecture based on his book, A Great Leap Forward: 1930s Depression and U.S. Economic Growth (Amazon link here).

Professor Field argues that despite the bottoming out of aggregate demand, total factor productivity growth increased faster during the Great Depression than any other decade in U.S. history. My read of the book makes the assertion almost uncontroversial, yet the notion of rapid productivity growth disrupts conventional views on the role of World War II in terms of “getting the US out of the depression,” and also in terms of setting the stage for the post-WWII economic boom. Field makes this case quantitatively, walks through some of the implications, and puts it in historical context, including his thoughts on some recent events. This is very high quality economics and should play very well with economics students and a general audience.

You can read a brief interview with Field on his work in the New York Times.

The talk is Thursday, May 15 at 4:30 p.m. in Wriston Auditorium.

This is the Phi Beta Kappa lecture as part of the Visiting Scholars Series. We are fortunate that the Senior Experience is providing funding to bring Professor Field to campus.

For Whom Does the IPCC ‘Tol’?

I probably have more thoughts on this than I will convey here, but I have seen a number of unusual items related to the economics of climate change. First, a few weeks ago I saw that University of Sussex economist Richard Tol had begged off the Intergovernmental Panel on Climate Change because he disagreed with how the recent IPCC technical report was translated into “journalist speak” in the Summary for Policy Makers (SPM). The SPM takes several thousand pages of technical reports and boils them down to an Executive Summary in the 25-50 page range.

From The Guardian we have this: “Richard Tol told Reuters he disagreed with some findings of the summary to be issued in Japan on 31 March,” and the story follows up with some choice quotes from Professor Tol:

The drafts became too alarmist…. It is pretty damn obvious that there are positive impacts of climate change, even though we are not always allowed to talk about them…. They will adapt. Farmers are not stupid.

Okay, here is a rebuttal from an IPCC co-author.

Of the 19 studies he surveyed only one shows net positive benefits from warming. And it’s the one he wrote,” said Bob Ward, policy and communications director of the Grantham Research Unit on Climate Change and the Environment at the London School of Economics.

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