General Interest

Category: General Interest

InDirect Effects

A bit more on the potential NFL strike — my friend and colleague, Rodney Paul, is on NPR’s Marketplace talking about the dark days looming for DirecTV if owners and players fail to come to terms on a new labor agreement.

For those of you who don’t follow these sorts of things, DirecTV is a satellite television service that serves as the exclusive provider of the NFL Sunday Ticket, which has beaucoup benefits for the football fan. Specifically, the Sunday Ticket provides access to pretty much every NFL game, allowing for orgiastic quantities of football viewing.

Yet, I find this absolutely astonishing:

regardless of whether or not there is a season, the company (DirecTV) still has to make roughly $1 billion in payments (to the NFL).

Wow!  That seems like a lot of money.  But my guess is that it could have been even more.  To wit, I wonder if they didn’t consider the strike as a possibility, or they negotiated a lower price based on continuing payments to the NFL even in the event of a work stoppage?

Do Natural Disasters Spur Economic Growth?

As I pointed out before, there is some disagreement on this issue.  Will Wilkinson at The Economist helps us out by reviewing some of the evidence himself. And here we go:

By far the boldest claim… is that some disasters can boost GDP by forcing upgrades in technology and infrastructure, and offering the opportunity for critical reappraisal of ingrained modes of economic activity, leading to a higher level of productivity and, eventually, to net gains in growth. They find that this holds for some weather-related disasters, but not for geological disasters. They find persistent, long-run negative effects for geological catastrophe, suggesting any upside from Japan’s earthquake and tsunami is unlikely. The argument of this paper, which is as strong as the disaster-bonus case gets, is a touchstone for a good deal of later research.

Wilkinson also directs us to a review from Binyamin Applebaum in the New York Times.

And there is a rather extensive piece from Ilan Noy over at Econbrowser with this surprising conclusion:

Given the findings described above, one can conclude that the likely indirect impacts of this horrific earthquake/tsunami event on growth in the Japanese economy will be quite minimal. The Japanese government and the Japanese people have access to large amounts of human and financial resources that can be directed toward a rapid and robust reconstruction and rebuilding of the affected region. Neither do we have any evidence to suggest that the earthquake is likely to have any enduring monetary effects.

After reviewing some potential regional impacts, he gets to the elephant in the room:

We still do not know what will be the impact of the enfolding crisis in the various nuclear reactors that have been affected. The analysis above ignored this danger, though the still present devastation in Chernobyl attests to its potentially destructive powers.

Indeed.

Please Forward

Here is your biannual daylight savings message:

Once upon a time, my colleague Paul Fischbeck and I made some quick calculations about the changes in pedestrian risks associated with daylight savings.  They were a lot bigger than we thought they would be. The moral of the story — watch yourself crossing the street, especially when it’s dark outside.

There are some interesting regulatory policy implications of the time change. If you are interested, here are my thoughts posted at the Organizations & Markets blog a few years back.

Horrific Scene in Japan

Indeed, it is just that.  If you have access to the internet or a television, you’ve probably already seen this, but here’s some absolutely astonishing footage from The Guardian.

The internet is also abuzz with discussion of its implications for Japan’s economy.  “Not good” is what jumps to mind for me, but that is evidently not a consensus view.  Here’s Larry Summers:

If you look, this is clearly going to add complexity to Japan’s challenge of economic recovery.  It may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place.

After the Kobe earthquake in 1995 Japan actually gained some economic strength due to the process of reconstruction.

Lynne Kiesling at Knowledge Problem isn’t buying it:

Even my intro macro students, who are studying for next week’s final exam, could tell Dr. Summers that the earthquake and tsunami are a negative productivity shock, shifting the long-run Solow growth curve to the left, and that any rebuilding consumption and investment will shift the aggregate demand curve out in the short run … but those resources have been destroyed and the lives of people have been devastated.

Neither is George Mason economist, Don Boudreaux.

By this logic, Japan should have evacuated people from the buildings and triggered the earthquake and the tsunami sooner. By this logic, they should just blow up empty buildings randomly. By this logic, their $6.3 trillion stimulus spending of the past decades should have helped their economy. By this logic, they should rebuild the buildings with shovels rather than construction equipment. Or using spoons rather than shovels.

Annie Lowery at Slate discusses how it could potentially bankrupt the country (but probably won’t).

And here’s the Chart of the Day:

I guess you can make up your own minds what you care to believe.

Special Meeting for Economics Majors

On the first Wednesday of the Spring Term, the faculty in the Economics Department looks forward to meeting with all students interested in majoring in economics to discuss four topics:

  1. Next year’s class schedule
  2. The two options for meeting the Senior Experience requirement
  3. Upcoming Lawrence Scholars in Business events including the trip to Chicago
  4. Internships
  5. Discovering Kirzner and continuing reading opportunities

Of course, we will provide both food and food for thought.  We look forward to your participation. The pertinent details are as follows:

WHAT:  MEETING FOR ECONOMICS MAJORS

WHEN:  4:30 WEDNESDAY, MARCH 23RD

WHERE: BRIGGS HALL 420

“Nothing is Made in America Anymore.” NOT!

Many leaders including former Intel chief Andrew Grove seem to be convinced that American manufacturing is on the decline.  It certainly has changed.  My two trips to the Kohler plumbing factory, 25 years apart, showed me the change first hand.  In the early 1980s, there were plenty of semi-skilled workers, in a hot, nasty plant slaving 24 hours per day over an open hearth furnace to produce lavatories and toilets.  Now, Kohler produces much more, with more variety, in  clean, much healthier working conditions with far fewer workers.  As Mark Perry in Carpe Diem puts it: “25-30 years ago, U.S. manufacturing was ‘80% brawn and 20% brains,’ and today it’s ‘10% brawn and 90% brains.’  He provides evidence in two key charts.

Perry concludes as follows:

Bottom Line: The decline, demise, and death of America’s manufacturing sector has been greatly exaggerated. America still makes a ton of stuff, and we make more of it now than ever before in history, but we’re able to do it with a fraction of the workers that would have been required in the past. We’re still the world’s leading manufacturing economy by far, thanks to the world-class productivity of American manufacturing workers, the most productive in the world. Instead of bashing China, Korea, and Mexico for competing against our manufacturing sector and exaggerating the decline of our manufacturing sector, Americans should take more pride and celebrate our status as the world’s leading manufacturer.

Cheap! Cheap! Cheap!

Cheap is the title of the “community read” that dozens of students and over a dozen faculty members will be discussing weekly during the first half of next term. Here is the semi-official course advertisement:

A 'Cheap' Shot

Registration is open for the 2011 Community Read! This year we’ll be reading Cheap: The High Cost of Discount Culture, by Ellen Ruppel Shell.  It’s a deep look at the environmental, social, political, economic and human costs of consumerism in the US.  There are nine different sections available, each led by two faculty members from different departments.  The sections are listed as Environmental Studies (ENST) 320 – SEM: CHEAP, which is a 1-unit S/U-only course that will meet for the first half of Spring term.  These are discussion sections, so there are no exams or writing assignments – only lively conversation!***

Professor Gerard is partnering with Professor Maryuri Roca (Chemistry) for a section at 2:30 on Thursdays, and I (Galambos) am co-leading a section at 8:30 on Fridays with Professor Beth De Stasio (Biology). We’d love to have you in our sections.

Based on some book reviews (here’s one), I will have a lot to say about this book, but I promise I’ll try to shut up most of the time. I know one chapter beats up on IKEA pretty badly, and I’m just not sure how I will handle that… Let me just say that other than a couple of chairs, perhaps, all our furniture comes from that wonderful, CHEAP, tastefully Northern European design paradise.

***An earlier version of this post said the book would be available at the Gift Shop.   It turns out that this is not true.  We sincerely apologize for the mix-up.

Is Amazon Going to Give Away Kindles?

The answer is yes.  The only question now is, to whom?

Okay, so that’s not the only question. Another question might be, why on earth would they do that?   Tyler Cowen suggests a durable goods monopoly (what’s a durable goods monopoly?),  while his commenters break into a fascinating discussion on platforms and other possible competitive dimensions.

The graph and some discussion are courtesy of the undoubtedly fine folks over at The Technium.  Though the story is more than a year old, the current superior Kindle is $137 and has been since December.

Okay, so maybe the answer isn’t yes, either.   In fact, in the short term the answer is a resounding no. But the idea that they would bundle them with Amazon Prime membership seems reasonable.

How the Luck of the Irish Ran Out (or Was Given Away?)

In a recent issue of Vanity Fair (of all places),  Michael Lewis (of Moneyball, the Blind Side, and The Big Short fame) describes the rise and fall of the economy of Ireland.  He highlights several major policy mistakes made by those in power for which they were soundly thrashed in the Irish election yesterday.  Lewis’s article details the long list of major errors and thus the deep hole that these policies have made for the Irish people.  You should not be surprised to learn that the main problematic actions were:

1.  Huge lending by Irish banks for the vast expansion of housing and commercial activity

2. Massive foreign borrowing by these banks from other European investors

3. Government guarantee of payment on all the loans made by the Irish banks and thus for the ultimate European bondholders.

This toxic mix will require an incredible commitment of annual revenue (read taxes on the Irish.)  It was inevitable for this house of cards to fall.  How many other “houses of cards” will follow suit?  Put differently, why wasn’t Lewis’s article published in a more widely read and pertinent journal.

A Superior Discussion

Another in a series of notes from the very busy ENSTers — Mike Link and Kate Crowley from Full Circle Superior are speaking on Tuesday, March 1 at 7:30 p.m. in Steitz Hall 102. Here’s a brief description:

Full Circle Superior’s mission is to bring attention, education and research to the Great Lakes and to promote healthy water quality and fresh water conservation now and for future generations. Through the summer of 2010, two retired naturalists and educators, Mike Link and Kate Crowley, successfully circumnavigated Lake Superior along its shoreline on foot! This 1500+ mile journey has taken them through 4 states and provinces, dozens of state, provincial and national parks, and countless communities and special places over the past 5 months. The hikers, assisted by a small support crew, conducted a scientific study of the vegetation, hydrology, ecology and sociology of the lake in collaboration with various research institutions and universities on both sides of the border to build a benchmark body of data on the lake for the study of future generations to come.

See you there.

The Levee Appears to be Drying Up

Today I give to you a couple of visual snapshots of the recorded music industry, along with a lesson on the importance of adjusting for inflation &/or population growth.

Here are the raw numbers that caused something of a hubbub.  Ask yourself — where is the industry at its peak?

So, there are several technology transitions going on here, culminating in a sorry state of affairs for the supply side of the music industry.  One implication is that the introduction of cassette tapes had no real discernible impact on industry revenues, even though people rampantly started taping one anothers vinyl at that point.  (I actually have several boxes of tapes that I recorded from record rentals from That’s Rentertainment.)   Interesting that the Record Labels only began shaking them down when the compact disk market took off).  A second implication is that CDs marked the real heyday for the record labels.

With that in mind, let’s look at these same numbers adjusted for inflation and put in per capita terms:

Completely different picture, isn’t it?

This seems to suggest that (non-prerecorded) cassettes cannibalized vinyl revenues, and it was only the introduction of the superior CD format that resuscitated the industry.

In IO, we are talking about the big challenge of the “New Economy” is often not in creating value, but in capturing it.  Do you think the total value of recorded music is 35% of what it was 15 years ago?  Or, is it more likely that consumer surplus has gone through the roof?  I don’t have any way of answering that question, but I have my doubts about the former proposition.

As per usual, I nicked this from O&M.  And their comment section pointed me to a really excellent analysis of all of this at Business Insider, where I now subscribe to their Chart of the Day!

The Rise and Decline of Cities

Cities are central to economic growth.  The Commission on Growth and Development emphasized the strong relationship between urbanization and economic growth as central to understanding why some countries grow and others do not.

Of course, though urbanization tends to be related to economic growth at the national level,  urban areas rise and decline in prominence and economic vitality.  Some manage to maintain their status by adapting to the changing desires of their customers; others seem wedded to past glories.  In Triumph of the City, a just published book,  Edward Glaeser explains how cities make “us richer, smarter, greener, healthier, and happier.”  But some cities, such as Detroit and New Orleans, seem headed in a downward spiral.  Why?  Can they pull out of this seeming endless abyss?  Ever the optimist, Glaeser, in today’s Economix column, illustrates what went wrong in Detroit and what some community leaders are doing to turn Detroit around.   His answer, detailed in variety of a papers, is become a “skilled city”; that is, one that educates, attracts, and retains skilled people and offers them numerous opportunities to interact, to be innovative, and to start new enterprises.

Whoa, Part II

MADISON, Wis., Feb 19 (Reuters) – Supporters of legislation to reduce public employee union bargaining power and benefits in Wisconsin were far outnumbered by opponents on Saturday, as the two sides shouted competing slogans but did not clash.

Tens of thousands have demonstrated throughout the week against Republican Governor Scott Walker’s proposed legislation, which supporters say is needed to bring spending under control and opponents contend would break the back of state worker unions.

Wisconsin is the flashpoint for a U.S. struggle over efforts to roll back pay, benefits and bargaining rights of government workers. If the majority Republicans prevail, other states could be emboldened to take on the powerful unions.

Megan McCardle at The Atlantic weighs in with a balanced, if not entirely fair piece (fairness, I suppose, depends on where you are in the debate).

For those of you who haven’t been following this, the Republican-led government is set to put in place a new budget that puts the brunt of a “tax increase” on public sector employees to balance the Wisconsin state budget.  Currently, Republicans control the governorship as well as both chambers — the House 57-38 and the Senate 19-14.  Because 20 Senators are necessary for that chamber to vote, the 14 Democrats have effectively “filibustered” by fleeing the state, prolonging the inevitable I suppose.

In the meantime, the delay has allowed for the mass demonstrations down in Madison this week and this weekend. 

UPDATE: Schumpeter Roundtable member, Cecily,  has reported back from the rallies, and informs us that UW business students have never heard of Schumpeter.  Huh?!?

Ms. Cecily has rallied the troops and is taking two buses to Mad town.  She is planning to convene at the Chapel Tuesday at 8 a.m.   If you are interested in heading to Madison, you should check in there tomorrow.

A Question of Consumption? An Analysis of the Relative Effectiveness of Multilateral and Bilateral Aid Receipts

Our recent graduate, Oliver Zornow, has just published his paper entitled “A Question of Consumption? An Analysis of the Relative Effectiveness of Multilateral and Bilateral Aid Receipts” in the Undergraduate Economic Review. Here is the abstract of his paper:

“The literature focusing on the effects of foreign aid on economic growth contains a wide range of conclusions. Despite this lack of consensus, policy makers have been strongly influenced by the work of Burnside and Dollar (2000) (B&D). In addition to their primary conclusion that total aid is linked with growth in a good policy environment, B&D make a claim which is not directly supported by their results. My research is motivated by their claim that multilateral aid is the most effective form of aid. This paper demonstrates that B&D’s data does not support this claim.”

If you’re interested, you can download and read the paper from the journal website:

http://digitalcommons.iwu.edu/uer/vol7/iss1/12/

Congratulations, Oliver!

Whoa!

CAIRO – Egypt’s Hosni Mubarak resigned as president and handed control to the military on Friday after 29 years in power, bowing to a historic 18-day wave of pro-democracy demonstrations by hundreds of thousands. “The people ousted the president,” chanted a crowd of tens of thousands outside his presidential palace in Cairo.

On that note, here’s a couple of interesting things that economists have to say about this situation.  First, Barry Eichengreen tells us “Why Egypt Should Worry China,” and next Dani Rodrick tells us about “The Poverty of Dictatorship.”

Is this a Fukuyama moment?

Well, it’s not clear that Fukuyama thinks so.

AER Top 20

The American Economic Association developed a list of the top 20 “most admirable and important articles” published in the American Economic Review in its 100 years in existence.   I use several of these in class (*) and have read a handful of others.  It would be interesting to know how many of these cross your desk as an undergrad here at LU.

Alchian, Armen A., and Harold Demsetz. 1972. “Production, Information Costs, and Economic Organization.”American Economic Review, 62(5): 777–95.(*Theory of the Firm)

Arrow, Kenneth J. 1963. “Uncertainty and the Welfare Economics of Medical Care.” American Economic Review, 53(5): 941–73.

Cobb, Charles W., and Paul H. Douglas. 1928. “A Theory of Production.” American Economic Review,18(1): 139–65.

Deaton, Angus S., and John Muellbauer. 1980. “An Almost Ideal Demand System.” American Economic Review, 70(3): 312–26.

Diamond, Peter A. 1965. “National Debt in a Neoclassical Growth Model.” American Economic Review, 55(5): 1126–50.

Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production I: Production Efficiency.” American Economic Review, 61(1): 8–27.

Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production II: TaxRules.” American Economic Review, 61(3): 261–78.

Dixit, Avinash K., and Joseph E. Stiglitz. 1977. “Monopolistic Competition and Optimum Product Diversity.” American Economic Review, 67(3): 297–308.

Friedman, Milton. 1968. “The Role of Monetary Policy.” American Economic Review, 58(1): 1–17.

Grossman, Sanford J., and Joseph E. Stiglitz. 1980. “On the Impossibility of Informationally Efficient Markets.” American Economic Review, 70(3): 393–408.

Harris, John R., and Michael P. Todaro. 1970. “Migration, Unemployment and Development: A Two-Sector Analysis.” American Economic Review, 60(1): 126–42.

Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30. (*Micro Theory)

Jorgenson, Dale W. 1963. “Capital Theory and Investment Behavior.” American Economic Review, 53(2): 247–59.

Krueger, Anne O. 1974. “The Political Economy of the Rent-Seeking Society.” American Economic Review, 64(3): 291–303. (*Political Economy of Regulation)

Krugman, Paul. 1980. “Scale Economies, Product Differentiation, and the Pattern of Trade.” American Economic Review, 70(5): 950–59.

Kuznets, Simon. 1955. “Economic Growth and Income Inequality.” American Economic Review, 45(1): 1–28.

Lucas, Robert E., Jr. 1973. “Some International Evidence on Output-Inflation Tradeoffs.” American Economic Review, 63(3): 326–34.

Modigliani, Franco, and Merton H. Miller. 1958. “The Cost of Capital, Corporation Finance and the Theory of Investment.” American Economic Review, 48(3): 261–97.

Mundell, Robert A. 1961. “A Theory of Optimum Currency Areas.” American Economic Review,51(4): 657–65.

Ross, Stephen A. 1973. “The Economic Theory of Agency: The Principal’s Problem.” American Economic Review, 63(2): 134–39. (*I should use this in Economics of the Firm, but I don’t).

Shiller, Robert J. 1981. “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?” American Economic Review, 71(3): 421–36.

Schumpeter Birthday Convocation

Mary Jane Jacob’s convocation lecture, “The Collective Creative Process,” is Tuesday at 11 at the Lawrence Chapel.  Here is the lowdown: 

Jacob is an independent curator known for her innovative, creative and collaborative projects Executive Director of Exhibitions at the Art Institute of Chicago, Jacobs has published many books and articles that examine ways to more fully involve the community into contemporary art by moving art out of “dead” museums and galleries into “living” spaces.  Her work began in the early 1990s with the “Places with a Past” exhibition in Charleston, SC where she collaborated with 23 artists who each set up a public installation in Charleston in an attempt to tell the history of the city.

A scouring of the internet tells me that Jacob’s “name is synonymous with the phrase ‘art as social practice’ or the field of art that is now more widely known as ‘Relational Aesthetics.'”  What that means, I am sure we will find out.

It is perhaps fitting that a faculty convocation celebrating “Innovation through Collaboration” coincides with the birthday of economist Joseph Schumpeter, who certainly needs no introduction on this blog.

But, of course, I am happy to give you one anyway.

Enjoy the Convo!

Jobs (slightly up) and the Unemployment Rate (downward trend)

Last Friday, the Bureau of Labor Statistics reported that the unemployment had fallen to 9.0%, a sizable drop from December’s 9.4% and November’s 9.8%.  The BLS also released the payroll survey which indicated that the number of employed based on the non-farm payroll survey only increased by 36,000 in January.  Such a small increase fails to keep up with trend labor force growth which averages about 125,000 per month (based on a civilian labor force of roughly 150 million that grows at about 1% per year.)

So is this good news or bad news?  Actually, these two results are largely unrelated to one another.  The unemployment rate is derived from a household survey which also revealed that the number of employed people rose by 117,000, that is almost the trend rate.  The payroll survey tends to look at relatively older companies, which typically do not drive employment growth. James Hamilton, in a recent Econbrowser piece, lays out some of the relevant details.  The chart below highlights key labor market patterns.  The relatively low level of labor force participation puts downward pressure on the unemployment rate, which is why that indicator is not particularly informative with regard to the JOBS, JOBS, JOBS agenda. The details will entertain those of you who will take Econ 320 next term.