Rocket Science?

Apparently, the following true statements are much less obvious than I would have thought.

1.  If you give something away for free, the people getting the free thing will like it.

2.  If you take money from other people to pay for the "free" thing, some of them will complain.

3.  The people who once depended on selling the (now free) thing will get hammered.

Is this rocket science?  Apparently so, at least in NY.

Yowser! Michael Lind sure took a lousy Econ 101 class.

Lind has a piece in Salon called Econ 101 is killing America (not making this up). Well, I just got done teaching Econ 101 this summer. Let's see how I did.

Here are some of Lind's claims of the country-killing myths that are taught in Econ 101:

1. All profitable activities are good for the economy.

Not guilty.

We spent a lot of time on externalities and how private and social incentives do not always coincide. We also talked about rent-seeking, lobbying, and the mess our financial sector had become by the 2007 crisis.

2. Monopolies & Oligopolies are always bad because they distort prices.

Not guilty.

We discussed how economies of scale can make monopolies more efficient than a bunch of smaller firms. We had a chapter about Network goods and how the competition is for the market rather than in the market. We talked about how monopolies are often transient and about contestable markets.

3. Low wages are good for the economy.

Not guilty.

We discussed cross-country wage differentials pointing out how productivity differences (from differing amounts of physical and human capital) cause wage differentials on similar-seeming jobs. I pointed out how Mexico should be humiliated instead of bragging about how their wages were becoming lower than China's.

4. Trade is always win-win.

Not guilty.

We talked about the shortcomings of simple models which assume workers are homogeneous, have no preference over job type or location, and don't suffer unemployment or relocation costs when production patterns change.

5. Economics is a science.

Not guilty. Never discussed it one way or the other. Don't see any reason to in principles class.

There are 5 others, but I'ma call it quits for now.

All I can say is Mr. Lind should ask for his money back. Any econ 101 class which argued for the points discussed above is a misleading class that does not well-serve the students.

The Cowen and Tabarrok micro text  I used is really good overall and excellent at dispelling myths 1-3 above, but I must confess a tinge of disappointment on its coverage of trade.

Paul Craig Roberts: The Failure of Laissez Faire

Paul Craig Roberts on his new book.  What do you think?  Was the financial crisis of 2008 caused by deregulation?  Or STUPID regulation?  I vote for B.  PCR votes for A.

You Publish, or I'll Perish

Okay kids, sorry to harsh your mellow.  But I am sick and tired of writing letters of recommendation for promising young scholars who have given me nothing to work with.  I say that I will write the letter, and then I look at the CV and think.....FiretrUCK.  What am I going to do with this?

Academics is a simple business.  If you write every day, three pages or more, you will be successful.  You can be successful other ways, for sure (write one truly brilliant paper every other year, and publish it in Econometrica or AER).  But that's hard.  There is nothing hard about writing three pages per day, every day.  Except that apparently no one, NO ONE does it.

Some facts:

It takes two journal articles per year to get tenure.  Good journals.  Not great journals.  If you can publish in great journals you can get away with fewer publications.  But barring consistent genius, you should assume you need two journal articles per year to rest easy.

To do that, you have to have three papers out at journals at all times.  Four would be better, but never less than three.  Since your articles are going to get turned down 2/3 of the time, that means you need to have only two new papers per year (assuming that your portfolio of "work at journals" turns over once every six months, and each time one of the three gets accepted).  What I mean is that you only have a 1/3 success rate, and you get back two responses each year on your three articles.  Two of them get accepted, and you write two new ones.  You are writing the new ones while the ones out there are being considered by reviewers, for six months.

More after the jump ==>

Helium Markets

This is a strange story.

First, the Congress apparently decided to privatize helium producing "mines" in 1996.  I hadn't realized that the helium industry was a state-owned enterprise in the first place.  Was it really necessary to nationalize the inert gas industry, when we already have an inert Senate?

But, okay, fair enough, we privatized the industry.  But the federal government still sets the price?  According to this article, that's the case.

The problem is that very few new producers have entered the "industry."  That may be because there are not many underground stocks of pressurized pure helium.  But it also may be because THE FREAKIN' FEDERAL GOVERNMENT IS STILL SETTING THE PRICE.

Economics is hard, but it's not THAT hard.

Aaargh! Monetary policy is not "tight"

It is certainly true that the nominal interest rate is not a sufficient statistic for the stance of monetary policy, but a low interest rate is NOT somehow prima facia evidence of tight policy!

Let's take an example of how the nominal rate alone is not enough to infer the stance of policy.  If the interest rate is 10% and inflation is running at 20%, the real interest rate is -10% and policy is not tight. If that same 10% interest rate is paired with a 0% inflation rate, then policy would be very tight indeed (real rate of 10%).

So the nominal rate does not in general accurately guide us to a conclusion about monetary policy.

But now consider our current situation. Inflation is around 2%. The Fed has pushed short term rates to around zero. The short term real rate is negative. 10 year government bonds are yielding around 1.6%, so that 10 year rate is slightly negative. According to the email spam I constantly get, 30 year mortgage rates are something like 3.5%, so the real cost of funds to buy a house is 1.5%. That's not negative, but it is low.

Real interest rates that are negative to very low = monetary policy is not tight!

Could monetary policy be even looser? Maybe.

Would it help? Maybe.

If by QE3 the Fed could get mortgage rates down 50 basis points without raising inflation, making the real cost of funds to buy a house fall to 1% would that solve our economic problems? If the Fed could raise inflation expectations to 3% while somehow keeping nominal rates where they are, would that solve our economic problems?

As LeBron pointed out, the costs of trying and failing don't seem to be so high, so why not give it a try? Just don't expect too much.

And please stop railing about tight monetary policy in the US.

She swallowed the spider to catch the fly

and by "she" I mean Hugo Chavez.

People, gasoline in the oil-rich Bolivarian Republic of Venezuela sells for $0.11 cents per gallon. In neighboring Colombia, it costs over $4.00.

So it's no wonder that those Bolivarian citizens often undertake a fair amount of illegal cross-border arbitrage.

But, nowadays, Venezuela actually has to import a fair amount of gasoline (they can't refine enough for the local market) at market prices.

In other words, they are at the margin, taking a big loss on imported gas that their citizens then "export" to Colombia! The Chavez government is leaking a lot of money to subsidize (a) domestic criminals and (b) Colombian motorists.

Anyway, Chavez has gotten tired of this mess and imposed quantity rationing on people in two states that border Colombia and lean toward the opposition.

Not surprisingly, the locals are extremely upset about this violation of their inalienable right to rip off their government, even though the allowed quantity of gas is 11 gallons, PER DAY (40 for busses).

Wouldn't it just be simpler, fairer, and more environmentally sound to just end or drastically reduce the massive subsidy for gasoline?

How does giving away gasoline make any real sense ( I know people like free gas, but you could just give them cash and drastically reduce the negative environmental externality)?

License to Raise Entry Barriers

Is it plausible that cosmetologists need, on average, 10 times as many days
to fulfill their educational and training requirements (372) than emergency
medical technicians (33), who literally hold lives in their hands? That is
the reality in most states.

Read the rest...

The Grand Game: Inequality Division

The gap between the way I would characterize the events of the last five decades, and how this person characterizes the events of the last five decades.... amazing.

He oscillates between making up facts, misinterpreting facts, and simply ignoring facts altogether. Enjoy.

"A Short History of NeoLiberalism"

D-Bood Deals

Don Boudreaux gives some useful counterpoints to Robert Reich's class war screed.


D-Bood clearly has this right. To review:

1. By most measures, real wages are up slightly since 1976. If anything, these measures understate the actual increase in consumption by a lot. How much did your hipster OWS kid's MacBook Pro cost in 1976? How about his iPad? How about his MP3 player? (Hint: infinity, infinity, infinity). Stuff has gotten WAY better, and cheaper at the same time. Attempts to control for hedonics, quality change, and innovation are notoriously difficult. How would you build Moore's Law into a CPI adjustment, when it implies prices of computer power are constantly falling at a rate of more than 25% per year? But these clearly lead toward understating the effective real wage increase. Even if I only have a minimum wage job, I can save up and buy an iPod. In 1976, I could not.

So, for example, here is the cost of a 1-gig hard drive (picture for RAM same dynamic):

(The vertical scale is not linear, so the fall is even more dramatic. This stuff is nearly free. Enjoy your capitalism!)

Check this RAM chart out. It even freaked me out a little bit, and I'm an optimist already. Wow, does RAM ever get cheap!

2. Health care benefits have soaked up real annual gains of 4% or more, on average. If you include total compensation, not just wages, workers have gotten huge gains. (Of course, this is a problem, but it is a DIFFERENT problem than the one pointed out by Dr. Reich.)

3. It really is absurd that people think wages have not gone up, for John Smith the worker, hired in 1976. He makes a LOT more now (though he may have lost his job, which is a DIFFERENT problem than the one pointed out by Dr. Reich). Wages rise with job tenure, they just do. John Smith makes pretty good money now. The new guy just being hired, sure, he doesn't make much more than John Smith did in 1976, adjusted for inflation. Not sure why that is surprising, or even bad.

(UPDATES:  a.  Joe Thacker is right.  Immigration and women entering the work force are huge factors.  b.  On the video on YouTube, a commenter said something so true and funny I peed myself:  "I agree with this guy but it looks like he took 3 hits of acid before doing the vid."  Yes, friends, it is true that D-Bood is likely to be cast as the psycho-murderer, not the RCMP hero.

Darned Tricky Numbers

Sometimes people wonder what kind of people want to write for the lefty bed-wetting press. Why would such a talented person want to "give" so much of themselves, taking a low salary just so they can speak truth to power? Those guys must be VERY good people....

Or perhaps they are just another idiot who got some fraudulent "______ Studies" major. And so they never learned how to calculate percentages or hold a real job. Now they blame the system for how much their little lefty lives suck.

An example:

Survey: Illegal Corporate Campaign Contributions Up 400%

By Alex Seitz-Wald on Jan 12, 2012 at 6:41 pm

In 2009, just 1 percent of respondents to National Business Ethics Survey — a large industry study funded by major corporations like Walmart — said they had witnessed illegal corporate political donations. This year, that number quadrupled to 4 percent. Management-level employees at large, publicly traded companies were most likely to see the illegal activity, with seven percent of senior managers saying they had witnessed it.

If this guy had not majored in International Relations (at Brown, no less, the home of "Studies Studies"), he would know that this is:

(4-1)/1= 3

3 n.e. 4

But of course the actual numbers don't matter. It's the truthiness of the scare tactic that's important.

A complicating factor is that the Dems got FAR more corporate money than the Repubs in 2008. The problem for the left is not that corporations can give money. The problem is that corporations can give money to Republicans. THAT cannot be allowed.

Nod to Chateau

Scandinavian follies

KPC recently broke the story of Norway's tragic, self-inflicted butter shortage (or as Matt Yglesias would have it, Norway's heroic defense of a diversified economy).

Now let me ask you a question? What do you call buying butter at $35 a pound?

Well in Norway apparently it's a bargain and in Sweden it's a profit opportunity.

Yes people, the marauding Swedes are trying to bring down brave little Norway by smuggling in butter!

Two guys "sneaking" across the border with 550 pounds of butter. In 18 oz. packages. Tragically the article is silent on how exactly these packages were concealed.

The article treats the shortage as somehow exogenous and talks about how it has led to "blackmarket trafficking", like butter was heroin. As we noted before, idiotic trade barriers have produced this bogus "shortage".

Norway: We're not just oil, we're oil and butter! (except when we run out of butter).

Norway: No Dutch disease here, just take a peek at our dairy industry!

Grand Game: U Mass Amherst PERI Edition

I hesitate to put this up, surely it is a satire or hoax. But I think these folks are serious.

They are going to take all that "excess" liquidity, and make the world better.

Starting with the financial collapse and Great Recession of 2008-09, the U.S. economy has been experiencing the most severe and protracted employment crisis since the 1930s Depression. As the employment crisis has proceeded, U.S. commercial banks and large nonfinancial corporations have been building up huge hoards of cash and other liquid assets. This study examines the impact on job creation of mobilizing these excess liquid assets into productive investments within the U.S. economy over the next three years.

Discuss.

(Nod to @milesoftrials )

Fair Trade Kerfuffle

I am on record as being a Fair Trade Skeptic. (I admit that Fair Trade is human- caused, but I am not sure that is melting the polar ice caps).

Interesting article from NYTimes, normally a big Fair Trade cheerleader ("If you want to get laid, support Free Trade! Yay, team!")

Excerpt:

Critics accuse Fair Trade USA of watering down standards, perhaps motivated by the bigger fees to be earned from certifying a higher volume of products. Some sellers of fair trade products fear that small coffee farmers will lose market share to the big plantations and that companies will have an incentive to include only the minimum amount of fair trade ingredients in their products.

“It’s a betrayal,” said Rink Dickinson, president of Equal Exchange, a pioneer importer of fair trade coffee, chocolate, tea and bananas, based in Massachusetts. “They’ve lost their integrity.”

Paul Rice, chief executive of Fair Trade USA, said the fair trade movement was dominated by hard-liners who resisted needed changes. “We’re all debating what do we want fair trade to be as it grows up,” Mr. Rice said. “Do we want it to be small and pure or do we want it to be fair trade for all?”

He dismissed criticism that his group was seeking to increase revenue for its own sake. “The more we grow volume, the more we can increase the impact” of fair trade, he said. In 2010, companies that sell fair trade products paid the group $6.7 million in licensing fees, which are meant to pay the cost of auditing a company’s production to make sure its fair trade claims are accurate.

As part of his efforts to expand the fair trade designation, Mr. Rice is cutting ties between his group and an umbrella organization, Fairtrade International, which coordinates fair trade marketing activities in close to two dozen countries. He said his group paid outsize fees to Fairtrade International — about $1.5 million last year — and received little in return. The international group has also rejected the changes put forth by Mr. Rice.

“The best thing we can do is make sure we’re staying true to the principles that got us to where we are,” said Rob S. Cameron, the chief executive of Fairtrade International. “I’m not going to water those principles down.”

The brouhaha has surprised many companies that sell fair trade products and will soon be forced to take sides. For consumers who pay attention to where their food comes from and how it is produced, the result could be confusion as they try to sort through a proliferation of competing fair trade labels with differing claims.

Heh, heh heh. He said "brew-ha-ah." About Fair Trade coffee. That's funny.

Let's put the future behind us

Look, Greece is toast, Italy is toast. The problem is not temporary or caused by the global crisis. Neither austerity or bailouts will solve it.

The problem is that German monetary policy and Mediterranean governance are not a match made in heaven.

We have seen this situation over and over in Latin America. Countries peg to the dollar and things start out great, but their policies don't match US policies, their economy loses competitiveness, and they have a financial crisis. Argentina was just an extreme case.

It was exceedingly dumb to not put an orderly exit process into the rules of the game when the Euro was created. It was exceedingly dumb for France and Germany to not accept penalties on themselves when they breached the deficit limits set by the stability and growth pact a few years ago. It was exceedingly dumb of investors and bankers to believe that Greece had become a little Germany and loan it so freakin' much money at German interest rate levels.

But above all, it's exceedingly astonishingly dumb to keep kicking this can down the road and putting the PIGS deeper and deeper into a hole.

Default and devaluation will be very ugly. As Tyler has pointed out, Argentina has not become an economic paradise. Yet it is the best chance for the PIGS to recover and start growing again given where we now stand. Even if they got a "good" bailout and some expansionary monetary policy from the ECB (LOL), the structural mismatch between monetary policy and governance would not go away.

Crappy governance requires crappy monetary policy. The theory is that adopting US or German monetary policy will force crappy governance to reform itself. However, we have seen time and time again that the reality is the opposite. Crappy governance will win out and crappy monetary policy will return.

Let's put the future behind us!

First they came for the puppeteers.....

Man oh man oh man. Liberals are so funny. Check out this article from The Nation.

Here's the awesome beginning:

"A few years ago, Joe Therrien, a graduate of the NYC Teaching Fellows program, was working as a full-time drama teacher at a public elementary school in New York City. Frustrated by huge class sizes, sparse resources and a disorganized bureaucracy, he set off to the University of Connecticut to get an MFA in his passion—puppetry. Three years and $35,000 in student loans later, he emerged with degree in hand, and because puppeteers aren’t exactly in high demand, he went looking for work at his old school. The intervening years had been brutal to the city’s school budgets—down about 14 percent on average since 2007. A virtual hiring freeze has been in place since 2009 in most subject areas, arts included, and spending on art supplies in elementary schools crashed by 73 percent between 2006 and 2009. So even though Joe’s old principal was excited to have him back, she just couldn’t afford to hire a new full-time teacher. Instead, he’s working at his old school as a full-time “substitute”; he writes his own curriculum, holds regular classes and does everything a normal teacher does. “But sub pay is about 50 percent of a full-time salaried position,” he says, “so I’m working for half as much as I did four years ago, before grad school, and I don’t have health insurance…. It’s the best-paying job I could find.”Like a lot of the young protesters who have flocked to Occupy Wall Street, Joe had thought that hard work and education would bring, if not class mobility, at least a measure of security (indeed, a master’s degree can boost a New York City teacher’s salary by $10,000 or more). But the past decade of stagnant wages for the 99 percent and million-dollar bonuses for the 1 percent has awakened the kids of the middle class to a national nightmare: the dream that coaxed their parents to meet the demands of work, school, mortgage payments and tuition bills is shattered. Down is the new up."

Yikes! Where to begin. First of all, Joe started the story as "a full time drama teacher" in an NYC elementary school. How can that be a job that taxpayers are paying for? Jeebus help us all. Then Joe, or as I like to call him, the luckiest man in the world, turned into Joe the stupidest man in the world by SPENDING 3 YEARS AND BORROWING $35,0000 TO GET A MASTERS DEGREE IN $%#$$ PUPPETRY!!!!

Now he seems stunned to find out that he has a much much worse job than before.

And the magazine is using his case as it's opening wedge to indict the American economic system.

People, I say the system was failing when this guy was an elementary school drama teacher. Right now the system is working exactly as it should. You take 3 years out of your career path to get an MFA in puppets, you become basically unemployable.

Obviously there are real people with real problems unemployed and struggling due to no fault or error of their own. A 9% unemployment rate with our current social safety net is just not acceptable.

But I have no sympathy for the folks who borrowed a lot of money to go and earn a dumb-ass graduate degree and now find they can't make big money.

If you decide to "pursue your passion" in an un-economic area, don't be surprised when the economic system doesn't value you highly, and don't think that the problem is the system; the problem is you.

Ron Paul loses his Sh*t in the WSJ

Really!

Here is the money quote: "The Fed's quantitative easing programs increased the national debt by trillions of dollars."

Good luck 'splainin' that one away. The article is here.

People, Ron Paul is a gynecologist, not an economist (and it shows).

To crib a phrase from Mungowitz, he's "straight up loony tunes".

Which is why he fits in so well with the rest of the Republican presidential candidates.

The Final Answer: You are BOTH Crazy

There was a bit of a kerfuffle over this comic, by Zach Weiner.

Everyone, including me, was sure that the comic was mocking whoever we were not. Economists laughed that philosophers were so ridiculous, and philosophers thought it funny that economists were so shallow and arrogant. Jacob was sure he knew, for example. But then to be fair a few folks, at least, over here thought that the philosopher was ridiculous.

At KPC we want to KNOW. So I wrote to Zach W himself. And the answer is... you people are ALL crazy. And hilarious. (quotes with permission)

As to the joke: If it went right, hopefully it made fun of both. I actually did a similar treatment of philosophy vs. engineering a while back here:

In that one, hopefully it's clear that the engineer is simplifying in a way that is both informative and problematic. Since Economists are essentially engineers who work with human lives instead of mechanical systems, the perspective is more or less the same.

Curiously, it was popular in both the reddit.com economics forum and the reddit.com philosophy forum. The former thought it was making fun of philosophers for being useless, and the latter thought it was making fun of economists for lacking a sense of profundity.

So yeah, making fun of everyone. Zach Weiner, SMBC

My own conclusion: the Philosophers are not interested in an answer, really. If faced with this real life situation where a decision is required would either respond purely emotionally or else would lie on their backs and kick their little legs in the air, hoping that the problem will go away. Philosophers and grandma both die, because Philosophers aren't interested in answers, only questions.

The Economists would save the Mona Lisa, and spend the rest of their lives trying to forget the haunting screams of the grandma as they carried the Mona Lisa out of the room.

But the problem with policy analysis generally is you don't get to say, "I don't know." You have to do something, you simply must. Philosphers spend all their time wondering if they can get both thumbs up their butt at the same time, or if they have to take turns. Economists spend just a very brief time figuring out "the answer," which is always wrong, and then they pretend they already knew that.

The Cartoon

Nice follow-up by Jacob L. on "the cartoon." on "the cartoon."

Here is my original post. As Jacob L notes, there was a lengthy discussion on FB about it.

The point is that this cartoon is a Rorschach test. I read it as mocking the philosopher. Most people, far and away most in my sample (biased, if anything, toward econophiles) saw the cartoon as mocking economists.

As always, disagreeing with me does NOT make you a bad person. It does, however, make you wrong.

Why Economists are Paid a LOT more than Philosophers

David Deerson sends this link. I laughed. An excerpt, though you need to look at the whole thing. Heh.

It's funny 'cause it's true.

UPDATE: Wow! My philosopher friend Kevin Vallier thinks that this cartoon, above, is making fun of ECONOMISTS! And I have to admit he may be right! To me, this cartoon illustrates why philosophers are useless low-paid parasites, and economists are collossi, bestride the world of academics! Okay, THAT's not right. But seriously, who is this cartoon mocking? To me, it is clearly mocking the philosopher. Since economists can actually answer the ridiculous koans that philosophers think are impossibly deep and unanswerable, the economists don't get to play!

Kevin's response: I think the critique of the economist is that he [the economist] is exceedingly perverse because his model of moral decision-making ignores a whole host of important considerations that any normally functioning human being recognizes. Now, I think the normally functioning human needs a good dose of economic thinking, but I do think that the sort of instrumental, consequentialist reasoning of most economists is woefully inadequate as a complete model of moral reasoning. I *think* lots of economists believe this too, even if they often ignore it, at least stereotypically.

Wow! that is 100% different from my reading of that cartoon. The fact is that an old woman is worth only a small fraction of the Mona Lisa. And I can prove it: the society spends a LOT of money to protect the Mona Lisa, with security and climate control. The old woman has to pay for her own locks on her door, and her own HVAC.