“The Fed already has a rule,” Mr. Bernanke said during a panel discussion at the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy. “It’s committed to hitting a 2% inflation target and aiming for the natural rate of unemployment. These are rules.”
And here are the data showing 33 straight months of consumer prices rising at less than 2%:
A cargo train filled with biofuels crossed the border between the US and Canada 24 times between the 15th of June and the 28th of June 2010; not once did it unload its cargo, yet it still earned millions of dollars…
Each time the loaded train crossed the border the cargo earned its owner a certain amount of Renewable Identification Numbers (RINs), which were awarded by the US EPA to “promote and track production and importation of renewable fuels such as ethanol and biodiesel.” The RINs were supposed to be retired each time the shipment passed the border, but due to a glitch not all of them were. This enabled Bioversal to accumulate over 12 million RINs from the 24 trips, worth between 50 cents and $1 each, which they can then sell on to oil companies that haven’t met the EPA’s renewable fuel requirements.
It’s like a children’s joke: why did the train cross the border? As the man says, if you pay people to do something, you’ll get more of that something.
I wonder if this type of thing goes into the life-cycle analysis of biofuels?
The topic is one that you have probably heard before — “women only make 77 cents for every dollar men make.” Now why would that be? Is it because of discrimination?
Many economists discount the idea that discrimination is the driver, because bigotry is such an expensive vice. Consider the following: Suppose Bigoted Bob’s hires only men and has annual labor costs of $100 million per year. If the difference in male and female earnings is due solely to discrimination, then it should be possible to hire a staff of women who are exactly the same quality and produce exactly the same quality and quantity of output for only $77 million per year. So, it hardly takes benevolence to hire women — simple greed, er, profit maximization will do — the “benevolent” employer can presumably pocket the $23 million in labor savings! In other words, a business that wants to exercise its discriminatory preferences for men over women for whatever reason will have to pay a steep price on the labor market.
So, perhaps it’s some other factors, and this is partly true. If you control for human capital accumulation (education and experience, for example) and industry choice, the gap is less than the largely purported, but there is still a gap of about nine cents on a dollar. In other words, controlling for what we control for, women only make 91 cents for every dollar men make.
Imagine that your brother in law had been drinking too much for 40 years, perpetually on and off the sauce, never really able to give it up. He went through a painful 12 step program and rehab, and finally quits the sauce for 10 years. He threw away all the liquor in the house. Then he loses his job. Is “one more big night out to soothe the pain, and then I’ll really really never do it again” at all a credible plan? That’s exactly what my normally sensible colleagues (see above) are advocating.
My guess is that most of our readership does not have brother-in-laws who have been drinking too much for 40 years, so I will give you something closer to home.
Back when I was in college I had a friend who tended to fall behind a bit in his classes, something like accumulating large piles of debt. At some point, of course, the debt would mount and he would reach a crisis situation, forcing him to face some unpleasant facts. He would then of course have to develop a plan to “restructure” the debt — for instance, does this sound familiar?, getting an extension on a paper, strategically dropping a class, deciding which course he could get by without studying, etc… And, remarkably, once the plan was in place, he would have some sort of celebration even prior to completing any of the work he had to do.
To my knowledge, he had no way of credibly committing to putting the plan in place. What I mean by that, of course, is that he generally didn’t put the plan in place.
I’m not sure whether he ever graduated, but I do know that he has been a very successful entrepreneur. I’m not sure exactly what that does for our analogy.
On a not entirely unrelated note, Kevin “Angus” Grier at the Kids Prefer Cheese blog provides some visual insight in the salubrious effects of European summits on financial markets.
George Schultz and Eric Hanushek write in the Wall Street Journal that the poor performance of US students in mathematics, as evidenced by the OECD’s Programme for International Student Assessment (PISA), is undermining economic growth.
If we accept this level of performance, we will surely find ourselves on a low-growth path.
The chart on the right shows average GDP growth from 1960-2000 on the Y-axis and the PISA score on the X-axis, along with a lovely line fit that appears to show a nice, tight correlation between math and GDP growth. Indeed, by pulling out Canada and the US the authors conclude:
Imagine a school improvement program that made us competitive with Canada in math performance (which means scoring approximately 40 points higher on PISA tests) over the next 20 years. As these Canadian-skill-level students entered the labor force, they would produce a faster-growing economy.
How much faster? The results are stunning. The improvement in GDP over the next 80 years would exceed a present value of $70 trillion. That’s equivalent to an average 20% boost in income for every U.S. worker each year over his or her entire career. This would generate enough revenue to solve easily the U.S. debt problem that is the object of so much current debate.
What’s remarkable about this conclusion, aside from the dubious causality of average test scores and the heroic extrapolations, is that the figure shows that the USA actually has higher GDP growth than Canada. So, if GDP growth is the end goal, I wonder what Canada is doing to become more like us?
Munger is also a frequent guest on Russ Roberts’s EconTalk podcast, an excellent resource for inquisitive minds. (However, I am not sure how accurate the subject lines are there, as I was listening to the discussion of franchising and pretty soon I’m not sure what they were talking about).
Of course, Munger is probably most famous for his role as the limo driver in the Keynes v. Hayek video.