Tuesday, April 07, 2009

Bob Lucas on the fiscal multiplier

"Question: On the one extreme, we have models by people like Mark Zandi at Moody's who say that the fiscal multiplier for the spending initiatives we're discussing are on the order of 1.5. On the other hand, we have people like Robert Barro at Harvard who say there's zero or negative. How would you go about applying the Lucas critique to these types of models to sort of educate us in how we should think about the validity of these models?

LUCAS: Do I need the Lucas critique for -- I'm with Barro is the short answer. (Laughter.) The Moody's model that Christina Romer -- here's what I think happened. It's her first day on the job and somebody says, you've got to come up with a solution to this -- in defense of this fiscal stimulus, which no one told her what it was going to be, and have it by Monday morning.

So she scrambled and came up with these multipliers and now they're kind of -- I don't know. So I don't think anyone really believes. These models have never been discussed or debated in a way that that say -- Ellen McGrattan was talking about the way economists use models this morning. These are kind of schlock economics.

Maybe there is some multiplier out there that we could measure well but that's not what that paper does. I think it's a very naked rationalization for policies that were already, you know, decided on for other reasons. I don't -- I'd like to talk about the Lucas critique but I don't -- I don't think we can -- (chuckles) -- deal with that issue. "

LOL, I wonder if Christy R. got the license plate of that bus as it ran over her. The whole transcript of Lucas' talk is here.

India fact of the day

"The basic marriage rule in Hindu society is that no individual is permitted to marry outside the sub-caste or jati. Social mobility will be severely restricted by this rule because individuals are forced to match within a very narrow pool. Social mobility, as measured by inter-caste marriage, continues to be low in rural India despite the economic changes within and across castes that have taken place over the past decades. Recent surveys in rural and urban India that the authors have conducted indicate that among 25-40 year olds, out-marriage was 7.6% in Mumbai in 2001, 6.2% in South Indian tea plantations in 2003, and 5.8% for the rural Indian population in 16 major states of India in 1999."

This from a fascinating new NBER working paper by Munshi & Rosenzweig.

Fujimori verdict due today

These folks have already made up their minds!

UPDATE!!!!! And they were right in as much as Fujimori was indeed convicted:

"A special tribunal convicted former Peruvian President Alberto Fujimori of murder and kidnapping on Tuesday for death squad activities during his 10-year rule during the 1990s.

"This court declares that all four charges have been proven behind all reasonable doubt," presiding judge Cesar San Martin told a hushed courtroom.

There was no question, he said, that the 70-year-old Fujimori authorized the creation of a military death squad that killed some 50 people.

Fujimori apparently anticipated a guilty verdict. He sat alone taking notes as the verdict was read after a 15-month televised trial.

He faces a maximum of 30 years in prison and the court was expected to issue a sentence later Tuesday after a full reading of the sentence.

Fujimori is the first democratically elected former president to be tried for rights violations in his own country. His lawyers have said he would appeal the verdict."

Monday, April 06, 2009

Oh My God: They Killed Kuttner


The Epitome of Spurtability?


Clark Kellogg just said that UNC is the "Epitome of Spurtability."

What would Angus do?

He would sing this, I think, and make Pluto go out into the hallway.

A weak mind is easily confused

1. Virtually all press reports are calling BHO's visit to Turkey his "first trip to a Muslim country". Is that true? Isn't Turkey a secular democracy, at least in theory? Wouldn't Attaturk be spinning in his grave if he could hear this?

2. If the state of Oklahoma is so homophobic, why does OU have a "Gaylord College"? Heck we even have an organization called the "Gaylord Ambassadors"!

3. Why are grown men trying to play baseball when it's cold and snowy? It was 37 in Cincinnati, 42 in St. Louis and the White Sox home opener was postponed due to snow.

Dear Wacko:

So I got the following email spam, from an address in Zaire:

The saluation, "Dear Wacko", is probably accurate in my case. But I doubt that it is effective for the purpose the spammer has in mind.

Dear Wacko, From Mr. Williams Johnson,Consultant/Agen

Nettie Lee The Undersigned, Mr. Ernest Ansah, Managing Director of Doncan Gold Company Ltd, licensed small scale mining company, with head office in Accra, Ghana, licensed under company code 1963 (Act 179) of the Republic of Ghana. We confirm with full corporate responsibility and legal authority do hereby make this Full Corporate Offer attesting that we have 500 Kilograms of alluvial Gold particles, and we do have the legal authority to sell same as hereinafter reflected, under penalty of perjury our ability to supply the said product. (Alluvial Gold Dust and Bars).
PRODUCT:Gold Dust/Bars QUANTITY: 300/500kg
PURITY: 99.95% or better ASSAY: Final assay to be made by Buyer's choice of refinery,
LOCATION: Ghana West Africa INSPECTION: Ghana West Africa
PACKING: Export Package Boxes/Bars SELLING PRICE: USD$18,500.00/kg Negotiable
PAYMENT: EURO or USD by SWIFT Wire Transfer

Saturday, April 04, 2009

The horror that is Mary Fallin

"For what purpose does the gentlelady from Oklahoma rise?"

"Mr. Speaker, I rise to make an ass of myself"

"The gentlelady is recognized for 5 minutes"

I recently posted about the amazingly ignorant response of many US Representatives about the notion of the dollar being replaced as the major reserve currency in the world. They responded with a resolution calling for a constitutional amendment that would disallow a foreign currency replacing the dollar as LEGAL TENDER in the USA. Oooops!

Anyway Mary Fallin is a co-sponsor of this resolution. It isn't the first weird, nut-jobby deal she's co-sponsored either . Remember Ron Paul's "issue" of how NAFTA was going to create a superhighway across the USA from Mexico to Canada? She co-sponsored the resolution Rep. Virgil Goode introduced against that clear and present danger to the body politic back in 07.

According to ace political blogger Brendan Nyhan, only 12 representatives share the dubious distinction of co-sponsoring both of these gems of legislation and our Mary is one of them. We are so proud!

Here is the full hall of shame:

Michelle Bachmann (R-MN)
Spencer Bachus (R-AL)
Roscoe Bartlett (R-MD)
Paul Broun (R-GA)
John Culberson (R-TX)
Mary Fallin (R-OK)
Virginia Foxx (R-NC)
Trent Franks (R-AZ)
Phil Gingrey (R-GA)
Darrell Issa (R-CA)
Walter Jones (R-NC)
Thaddeus McCotter (R-MI)
Ron Paul (R-TX)
Zach Wamp (R-TN)

People, can this be real?? Zach Wamp?? Thaddeus McCotter??? Roscoe Bartlett?? Is this the US Congress or the Dukes of Hazard??

Remembering Gordon Tullock

I got an email from Pete Boettke asking me for a contribution to a "booklet of fond remembrances" that he is putting together to honor Gordon. Here is my remembrance:

I first met Gordon when, as a new PhD candidate, I went on a job interview at GMU (it helps the story to remember that this was 1984, pre-Google, y’all!). I began my seminar with a discussion of why my topic was interesting/important, and then moved to a literature review. When I finished the review, Gordon raised his hand and asked “Is that it?” I replied that while I had all of my own work yet to talk about, that, yes, that was it for the lit review. To which Gordon said, “Well then we may as well stop the seminar right now because you don’t even know the literature in your own field. You are completely ignoring the most important paper”. Yikes!! About a million thoughts race through my mind and I decide to go humble and see what happens, so I say that I’m very sorry for the omission, and would he please give me the citation to the paper so that I could find it and incorporate it into my work. Gordon’s answer was this: “The paper is in my desk drawer, it was submitted to Public Choice last week”. To which I replied “Man, I am so dumb, of course any good literature review should start in Gordon’s drawers.” I got the job, and Gordon was always a strong (though sarcastic) supporter of me and my work.

Saturday poetry corner

I know we're gonna meet someday in the crumbled financial institutions of this land
There will be tables and chairs
Pony rides and dancing bears
There'll even be a band
'cause listen after the fall there'll be no more countries
No currencies at all
We're gonna live on our wits
Throw away survival kits
Trade butterfly knives for adderal
And that's not all
There will be snacks, there will
There will be snacks!

--Andrew Bird, 2005

Thursday, April 02, 2009

Ward Churchill "wins"

The ex CU Professor "won" his wrongful dismissal case against the University, which after deciding they couldn't directly fire him because of his 9/11 "little Eichmanns" essay, fired him later on some various academic misconduct charges they dug up.

I put won in quotes because Ward was awarded $1 in damages.

Ward said that he didn't ask for money and was happy, but his attorney had asked the jury to send a message via a monetary judgment against the University.

There is another hearing coming to see if Churchill will get his job back.

Is this a great country, or what?

Bling: yer doin' it wrong

at least if you're a devil/vampire cat:

New Keynesian Macro in graphs!

In honor our our current posterboy (Larry Meyer), I am happy to blog about a new NBER working paper by Pierpaolo Benigno titled "New Keynesian Economics: An AS-AD View".

Sadly I can't find an ungated version, so I will quote at length from the introduction:

This work presents a simple New-Keynesian model illustrated by Aggregate Demand (AD) and Aggregate Supply (AS) graphical analysis. In its simplicity, the framework features most of the main characteristics emphasized in the recent literature. The AD and AS equations are derived from an intertemporal model of optimizing behavior by households and firms respectively.

The AD equation is derived from households’ decisions on intertemporal consumption allocation. A standard Euler equation links consumption growth to the real interest rate, implying a negative correlation between prices and consumption. A rise in the current price level increases the real interest rate and induces consumers to postpone consumption. Current consumption falls.

The AS equation derives from the pricing decisions of optimizing firms. In the
long run, prices are totally flexible and output depends only on real structural factors. The equation is vertical. In the short run, however, a fraction of firms keep prices fixed at a predetermined level, implying a positive relationship between other firms’ prices, which are not constrained, and marginal costs, proxied by the output gap. The AS equation is a positively sloped price-output function.

As in Keynesian theory, the model posits some degree of short-run nominal rigidity. Nominal rigidity can be explained by the fact that price setters have some monopoly power, so that they incur only second-order costs when they do not change their prices. In the long run, the model maintains the classical dichotomy between the determination of nominal and real variables, with a vertical AS equation.

The analysis is consistent with the modern central banking practice of targeting
short-term nominal interest rates, not money supply aggregates. The mechanism of transmission of interest rate movements to consumption and output stems from the intertemporal behavior of the consumers. By moving the nominal interest rate, monetary policy affects the real interest rate, hence consumption-saving decisions.

This simple framework allows us to analyze the impact of productivity or mark-up
disturbances on economic activity and to study alternative monetary and fiscal policies. In particular, we can analyze how monetary policy should respond to various shocks. That is, a microfounded model yields a natural objective function that monetary policy could follow in its stabilization role, namely the utility of consumers. This objective is well approximated by a quadratic loss function in which policymakers are penalized, with certain weights, by deviating from a price-stability target and at the same time by the fluctuations of output around the efficient level. In the AS-AD graphical plot, optimal policy simplifies to just an additional curve (labelled IT for “Inflation Targeting”)

seems pretty cool. Here is an interesting tidbit given our current policy debates:

The impact of the fiscal multipliers on output and the output gap can be quantified showing that a short-run increase in public spending has a multiplier less than one on output and a much smaller multiplier on the output gap.


Wednesday, April 01, 2009

Reason #37 to abolish the IMF

Because then we wouldn't have to put up with this foolishness:

"Irrational Exuberance in the Housing Market: Were Evangelicals left behind?" is a 30 page official IMF working paper vetted and approved for distribution by the IMF bureaucracy.

It's just so awesome:

The recent housing bust has reignited interest in psychological theories of speculative excess (Shiller, 2007). I investigate this issue by identifying a segment of the U.S. population— evangelical protestants—that may be less prone to speculative motives, and uncover a significant negative relationship between their population share and house price volatility. Evangelicals’ focus on Biblical prophecy could account for this difference, since it may enable them to interpret otherwise negative events as containing positive news, dampening the response of house prices to shocks. I provide evidence for this channel using a popular
internet measure of “prophetic activity” and a 9/11 event study.

Look, I know college professors write weird papers; I once wrote a piece (with Bob Tollison) titled "Arbitrage in a Basketball Economy"! But we were trying to make an economic point, namely that managerial tenure was tied to performance in the NBA, so probably it was in the "real world" as well. We used the NBA because we thought it was possible to measure managerial performance there (by how shots were allocated).

What is the possible policy implication of this study? That we needed a lot more evangelicals in Las Vegas and Miami and Phoenix? That we should all learn how to speak in tongues? To me the obvious policy implication is that we should ABOLISH THE IMF!!!

Hat tip to LeBron!

Conficker worm victim #1