Saturday, June 12, 2010

When life gives you lemons....




Flash vs. Superman

Mungo and I have been friends for a long time. We even competed against each other in Track & Field in high school. Here's a shot of one of our photo finishes:




by the way, I still have those shorts!

Friday, June 11, 2010

Onions

President O sure has 'em!

Consider this. His administration is now demanding that BP pay the salaries of oil workers who are not working because of the Administration's moratorium on deep water drilling!

Really.

You guys remember that classic, close the barn door after the cows are all gone moratorium, right? The one that was "peer reviewed" by a panel of experts?

Ooops. Turns out the moratorium was added to what the experts reviewed ex-post and the experts do not agree with even having a moratorium.

So I guess this all works out, at least on the "two wrongs make a right" theory of justice.

Tyler Cowen is a jelly doughnut

KPC friend Tyler Cowen informs us that he is now somehow living in Berlin with "only five CDs, a Kindle, and a few paperbacks"

5 CDs for Berlin, eh? That's tough. Here is what I hope he has:

Can: Tago Mago
Cluster: Cluster 71
The Notwist: Shrink
Velvet Underground: White Heat / White Light
Lounge Lizards: Voice of Chunk

Now I have to say that I've never been to Berlin, but if I did go, and didn't bring my iPod or anything, I'd be very, very happy to have these 5 CDs. They just fit my image of the place.


Thursday, June 10, 2010

Regulation Competition

Trust and technology: The social foundations of aviation regulation

John Downer
British Journal of Sociology, March 2010, Pages 83-106

Abstract: This paper looks at the dilemmas posed by 'expertise' in high-technology regulation by examining the US Federal Aviation Administration's (FAA) 'type-certification' process, through which they evaluate new designs of civil aircraft. It observes that the FAA delegates a large amount of this work to the manufacturers themselves, and discusses why they do this by invoking arguments from the sociology of science and technology. It suggests that – contrary to popular portrayal – regulators of high technologies face an inevitable epistemic barrier when making technological assessments, which forces them to delegate technical questions to people with more tacit knowledge, and hence to 'regulate' at a distance by evaluating 'trust' rather than 'technology'. It then unravels some of the implications of this and its relation to our theories of regulation and 'regulatory capture'.

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Valuing Incremental Highway Capacity in a Network

Allen Klaiber & Kerry Smith
NBER Working Paper, May 2010

Abstract: The importance of increments to an existing highway system depends upon their contributions to the accessibility provided by the existing network. Nearly 40 years ago, Mohring [1965] suggested this logic for planning optimal highway investment programs. He argued it could be implemented by measuring the quasi-rents generated by specific additions to an existing roadway system. This paper uses a unique set of additions to a loop roadway in metropolitan Phoenix, together with detailed records of housing sales over the past decade, to meet this need. We find that estimated increases in capitalized housing values due to four segments added during this period range from 73 to over 273 million dollars per mile of the roadway addition.

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Consumption tax competition among governments: Evidence from the United
States

Jan Jacobs, Jenny Ligthart & Hendrik Vrijburg
International Tax and Public Finance, June 2010, Pages 271-294

Abstract: The paper contributes to a small but growing literature that estimates tax reaction functions of governments competing with other governments. We analyze consumption tax competition between US states, employing a panel of state-level data for 1977–2003. More specifically, we study the impact of a state’s spatial characteristics (i.e., its size, geographic position, and border length) on the strategic interaction with its neighbors. For this purpose, we calculate for each state an average effective consumption tax rate, which covers both sales and excise taxes. In addition, we pay attention to dynamics by including lagged dependent variables in the tax reaction function. We find overwhelming evidence for strategic interaction among state governments, but only partial support for the effect of spatial characteristics on tax setting. Tax competition seems to have lessened in
the 1990s compared to the early 1980s.

(Nod to Kevin L)

Dirty Pool

Smart pup doesn't want to go into dirty pool

Call Dan Klein!

This is an easy problem to fix, actually.

Just ask Dan Klein.

Soon, I'll be back in Santiago,riding them buses. July 10 - July 28.

Wednesday, June 09, 2010

College Silliness: Report from the Front

RL writes:

Pre-midterm, an ESL student came to me this morning with some questions about some terms she was unsure about.

One was filibuster. She was confused about the definition she found on the internet.

She showed it to me: noun, a male candidate that completely overwhelmes [sic] and defeats his female opponent in the political areana [sic]

I was (understandably, I hope) confused. Then I noticed above the text she had written fillybuster. A harmless typo? Not if you type that into Google. First hit is from "addictionary.com"

Sure enough, according to that website, the definition of fillybuster is
"noun, a male candidate that completely overwhelms and defeats his female opponent in the political arena."

I think I set her straight and showed her what turns up if she spells the word correctly. Perhaps it would have been better if she used wikipedia! On Wikipedia, the definition is clear and correct!

Inflation targeters: yer doing it wrong!

Recent experience has led some people to argue that central bank inflation targets should be raised above their 2% levels in order to better accommodate the problems of monetary policy at the zero interest bound.

Not so fast, say Uribe and Schmitt-Grohe in their new NBER Working Paper, "The Optimal Rate of Inflation" (ungated version available here)

The central goal of this chapter is to investigate the extent to which the observed magnitudes of inflation targets are consistent with the optimal rate of inflation predicted by leading theories of monetary nonneutrality. We find that consistently those theories imply that the optimal rate of inflation ranges from minus the real rate of interest to numbers insignificantly above zero. Our findings suggest that the empirical regularity regarding the size of inflation targets cannot be reconciled with the optimal long-run inflation rates predicted by existing theories. In this sense, the observed inflation objectives of central banks pose a puzzle for monetary theory.

And then there's this:

Furthermore, we argue that the zero bound on nominal interest rates does not represent an impediment for setting inflation targets near or below zero.

A paper on this topic by these authors would obviously be self recommending except that I have read it and am actively recommending it.

Winning ugly

People, is Brad Gilbert somehow coaching both teams in the NBA finals? Aside from the Lakers' performance in game 1, this has been an ugly, tedious series so far.

Last night, Kobe notched 29 points on 29 shots (Can you say "Allan Iverson"? I knew that you could)! The interior passing and moving without the ball that the Lakers showed so well in game 1 continued to be completely absent in game 3. LA had a total of 13 assists for the entire game.

The Cs main scorers, Ray Allen and Paul Pierce were a combined 5-25!

From the three point line the two teams collectively shot 6-33!

The foul parade slowed down slightly with "only" 47 personals assessed.

I can't believe I am saying this, as I am a HUGE NBA fan, but I am probably going to boycott the rest of this series.

Wake me up when the Nets sign Phil Jackson and LeBron!

Tuesday, June 08, 2010

Seatbelt Ad: Persuasion, not coercion



Sweet, and pretty. Also, advocating persuasion rather than coercion in using seatbelts.

Self-Identified Leftists Don't HAVE to be Dumb

Economic illiteracy is not destiny, it's a choice. KPC friend D-Klein has some data.

Me, I'm reminded of LvM:

Scarcely anyone interests himself in social problems without being led to do so by the desire to see reforms enacted. In almost all cases, before anyone begins to study the science, he has already decided on definite reforms that he wants to put through. Only a few have the strength to accept the knowledge that these reforms are impracticable and to draw all the inferences from it. Most men endure the sacrifice of the intellect more easily than the sacrifice of their daydreams. They cannot bear that their utopias should run aground on the unalterable necessities of human existence. What they yearn for is another reality different from the one given in this world. They long for the "leap of humanity out of the realm of necessity and into the realm of freedom." They wish to be free of a universe of whose order they do not approve.

So, it's a conscious choice to decide that the basic laws of economics should be amended. Lefties want to feel good about regulating housing prices. The fact that rent control actually HURTS the poor...well, that's inconvenient, and they just prefer to put their fingers in their ears and sing folk songs from the 1960s, and congratulate themselves on their INTENTIONS, not the actual impacts of the laws they advocate.

If you want to help the poor, but know that your dumb laws actually hurt the poor, you just pretend that the laws aren't really dumb.

Papers to Read

How to reduce unemployment: A new policy proposal

Roger Farmer
Journal of Monetary Economics, forthcoming

Abstract: This paper uses a model with a continuum of equilibrium steady state unemployment rates to explore the effectiveness of fiscal policy. The existence of multiple steady state equilibria is explained by the presence of search and recruiting costs. I use the model to explain the current financial crisis as a shift to a high unemployment equilibrium, induced by the self-fulfilling beliefs of market participants about asset prices. I ask two questions. 1) Can fiscal policy help us out of the crisis? 2) Is there an alternative to fiscal policy that is less costly and more effective? The answer to both questions is yes.

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Estimating the Firm’s Labor Supply Curve in a “New Monopsony” Framework:
Schoolteachers in Missouri

Michael Ransom & David Sims
Journal of Labor Economics, April 2010, Pages 331-355

Abstract: In the context of certain dynamic models, it is possible to infer the elasticity of labor supply to the firm from the elasticity of the quit rate with respect to the wage. Using this property, we estimate the average labor supply elasticity to public school districts in Missouri. We leverage the plausibly exogenous variation in prenegotiated district salary schedules to instrument for actual salary. These estimates imply a labor supply elasticity of about 3.7, suggesting that school districts possess significant market power. The presence of monopsony power in this teacher labor market may be partially explained by its institutional features.

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The Micro-geography of Tax Avoidance: Evidence from Littered Cigarette Packs
in Chicago

David Merriman
American Economic Journal: Economic Policy, May 2010, Pages 61–84

Abstract: The large tax differentials between Chicago and neighboring jurisdictions provide an incentive for cigarette tax avoidance. Data from a random sample of cigarette packs littered in Chicago reveals a startling degree of tax avoidance: three-quarters did not display a Chicago tax stamp. Also, the $2.68 difference between the tax in Chicago and surrounding counties decreases the probability of a local stamp by almost 60 percent, and a one mile increase in distance to the lower-tax state border increases the probability a pack of a local stamp by about one percent. These results are consistent with the predictions of economic theory.

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Build America Bonds

Andrew Ang, Vineer Bhansali & Yuhang Xing
NBER Working Paper, May 2010

Abstract: Build America Bonds (BABs) are a new form of municipal financing introduced in 2009. Investors in BAB municipal bonds receive interest payments that are taxable, but issuers receive a subsidy from the U.S. Treasury. The BAB
program has succeeded in lowering the cost of funding for state and local governments with BAB issuers obtaining finance 54 basis points lower, on average, compared to issuing regular municipal bonds. For institutional investors, BAB issue yields are 116 basis points higher than comparable Treasuries and 88 basis points higher than comparable highly rated corporate bonds. For individual investors, BABs represent poor deals compared to regular municipal bonds. Thus, on average the Federal government subsidy disadvantages individual U.S. taxpayers, who are the main holders of municipal bonds, and benefits new entrants in the municipal bond market.

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Public Provision of Private Goods and Nondistortionary Marginal Tax Rates

Sören Blomquist, Vidar Christiansen & Luca Micheletto
American Economic Journal: Economic Policy, May 2010, Pages 1–27

Abstract: Using an optimal taxation model combined with a previously neglected scheme of public provision of private goods, we show that there is an efficiency
gain if public provision of selected goods replaces market purchases and that efficiency requires marginal income tax rates to be higher than if the goods were purchased in the market. Part of the marginal tax serves the same role as a market price and conveys information about a real social cost of working more hours. It might be that economies with higher marginal tax rates have less severe distortions than economies with lower marginal tax rates.

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Will Governments Fix What Markets Cannot? Overconfidence and the Demand for
Regulation

Patrick Warren & Daniel Wood
Clemson University Working Paper, May 2010

Abstract: Market forces will sometimes "fix" consumer biases through competition that improves the welfare of biased consumers, and sometimes will not. Likewise, government regulation will sometimes fix consumer biases by making exploitative transactions difficult, and sometimes will not. We show that in the case of markets for goods with add-ons (Gabaix and Laibson, 2006) the instances where markets or government will fix biases (in our model, consumer overconfidence about add-on services such as overdraft fees) are correlated. In the same cases where markets are inefficient due to the prevalence of biased consumers, voters will not demand efficiency-enhancing regulations. This is because consumer biases have two effects: they produce deadweight losses, and they redistribute from biased consumers to
less-biased consumers. These distributional consequences can both prevent equilibrium competition by firms from enhancing efficiency and prevent equilibrium policy choices by citizens from regulating away inefficient trade.

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”Unfunded liabilities” and uncertain fiscal financing

Troy Davig, Eric Leeper & Todd Walker
Journal of Monetary Economics, forthcoming

Abstract: A rational expectations framework is developed to study the consequences of alternative means to resolve the “unfunded liabilities” problem — unsustainable exponential growth in federal Social Security, Medicare, and Medicaid spending with no plan to finance it. Resolution requires specifying a probability distribution for how and when monetary and fiscal policies will change as the economy evolves through the 21st century. Beliefs based on that distribution determine the existence of and the nature of equilibrium. We consider policies that in expectation combine reaching a fiscal limit, some distorting taxation, modest inflation, and some reneging
on the government's promised transfers. In the equilibrium, inflation-targeting monetary policy cannot successfully anchor expected inflation. Expectational effects are always present, but need not have large impacts on inflation and interest rates in the short and medium runs.

(Nod to Kevin L)

Travel is Educational



More goodness here.

Mark McGwire: Great American

From Angry Alex:

Elicited a chuckle from Mark McGwire today. I thanked him for all the heat he took regarding steroids. When Congress is focusing on steroids in baseball they aren't trying to pass things like Obamacare. I thanked him for taking one for the average American.

Monday, June 07, 2010

For immediate release: OU gets a new supercomputer


Now my Matlab programs will fly!


Papers to Read

Global effects of fiscal stimulus during the crisis

Charles Freedman, Michael Kumhof, Douglas Laxton, Dirk Muir & Susanna Mursula
Journal of Monetary Economics, forthcoming

Abstract: The IMF's Global Integrated Monetary and Fiscal Model is used to compute short-run multipliers of fiscal stimulus measures and long-run crowding-out effects of higher debt. Multipliers of two-year stimulus range from 0.2 to 2.2 depending on the fiscal instrument, the extent of monetary accommodation and the presence of a financial accelerator mechanism. A permanent 10 percentage point increase in the U.S. debt to GDP ratio raises the U.S. tax burden and world real interest rates in the long run, thereby reducing U.S. and rest of the world output by 0.3 to 0.6 percent and 0.2 to 0.3 percent, respectively.

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Social Welfare Expenditures in the United States and the Nordic Countries: 1900-2003

Price Fishback
NBER Working Paper, May 2010

Abstract: The extent of social expenditures in the U.S. and the Nordic Countries is compared in the early 1900s and again in the early 2000s. The common view that America spends much less on social welfare than the Nordic countries does not survive closer inspection when we consider the differences in the structures of social expenditures. The standard comparison examines gross social expenditures. After adjustments for direct and indirect taxes paid, the net social expenditures in the Nordic countries are much closer to American levels. Inclusion of mandatory and private social expenditures raises the American share of GDP devoted to social expenditures to rank among the middle of the Nordic countries. Per capita net public social expenditures in the U.S. rank behind only Sweden. Add in the private spending, and per capita spending in the U.S. is higher than in all of the Nordic countries. Finally, I document the enormous diversity across time and place in public social expenditures in the U.S. in the early 1900s and circa 1990.

(Tyler has already discussed this one a bit...)

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Capitalism and freedom?

Frederic Pryor
Economic Systems, March 2010, Pages 91-104

Abstract: This essay tests Milton Friedman's conjecture that capitalism is a necessary condition for political freedom. For the decade around 2000 indices of the degree of capitalism and the degree of political freedom are highly correlated and provide plausibility for Friedman's conjecture. In looking at changes over time in the nineteenth century, however, the analysis refutes Friedman's conjecture. These apparently contradictory results are reconciled by showing that both capitalism and freedom are related to such variables as the educational level of the population so that, although not causally tied, they are correlated in a cross-national comparison.

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Is H.A. Simon a theoretician of decentralized planning? A comparison with
F.A. Hayek on planning, market, and organizations

Stefano Fiori
Constitutional Political Economy, June 2010, Pages 145-170

Abstract: Herbert A. Simon acknowledged Friedrich A. Hayek as a founder of the notion of bounded rationality; yet Simon considered Hayek’s perspective incomplete, and, more in general, their views on market mechanisms, planning, and organization exhibit considerable differences. The comparison between these authors sheds light on Simon’s interpretation of planning, which emerges within his theory of organization (and not in traditional debates on socialism). Contrary to Hayek, he maintained that planning, in specific circumstances, is more advantageous than the market; and in both administration and organization, it involves a decentralized structure based on near independent sub-units. Decentralization of decisions also appears in social planning, which evolves through continuous interactions among
planners (i.e., agents and institutions), and it is a process connoted by the absence of “fixed goals”. Finally, Simon defined modern economies more in terms of “organizational economies” than in those of “market economies” and this highlights a further difference with respect to the Austrian economist. This leads to analysis of the nature of organizations as hierarchical and “near-decomposable” structures, which refers to Simon’s theory of complexity and gives an epistemological explanation to the relation between centralization and decentralization.