You are currently browsing the monthly archive for May 2010.
…that in this day and age, our President’s stated policy can be “that American farmers should have protection from market disruptions and weather disasters.” That is from the administrations “guiding principles” on the Rural Issues page of WhiteHouse.gov. I’m not surprised that the administration supports this, and every modern president has in one form or another, but that it can still be a stated goal rather than just a regrettable yet politically intractable handout is really unfortunate. We are not a village on the banks of the Amazon river susceptible to supply side famines. What is the justification for this?
If that doesn’t rankle you, here’s another little gem from a Council of Economic Advisors report:
Payments to farmers of specific crops or animal products constituted about 70 percent of all direct farm support in 2008. Of this amount, corn producers received about 29 percent, followed by upland cotton with 25 percent, 15 percent for tobacco, 14 percent for wheat, 7 percent for soybeans, and 5 percent for rice.
Tobacco farmers. Money is taken from you, and given to tobacco farmers. No news here, but these are the kinds of policies we shouldn’t allow ourselves to forget about or be comfortable with.
Rush Limbaugh is being roundly criticized for suggesting that the oil spill is the result of environmental terrorists.
But Rush has arrived at a very different culprit. Here, via WWLTV in Louisiana, is the big guy’s theory as aired on his Thursday show. We’d advise you put on a tinfoil hat before reading it, just to get into the spirit of things.
I want to get back to the timing of the blowing up, the explosion out there in the Gulf of Mexico of this oil rig. Since they’re sending SWAT teams down there now this changes the whole perspective of this. Now, lest we forget, ladies and gentlemen, the carbon tax bill, cap and trade that was scheduled to be announced on Earth Day. I remember that. And then it was postponed for a couple of days later after Earth Day, and then of course immigration has now moved in front of it.
But this bill, the cap-and-trade bill, was strongly criticized by hardcore environmentalist wackos because it supposedly allowed more offshore drilling and nuclear plants, nuclear plant investment. So, since they’re sending SWAT teams down there, folks, since they’re sending SWAT teams to inspect the other rigs, what better way to head off more oil drilling, nuclear plants, than by blowing up a rig? I’m just noting the timing here.
I like to mock wingnutism as much as the next guy but I think Rush has a point here. No, I don’t think it was enviro-terrorism. However, I don’t think that its insane to suspect that it was enviro-terrorism.
I’m guessing they’re buried in Health Care and Education because it doesn’t look like they’re in retail sales. See what I mean:
Up until right before the crash the two tracked each other well. However, at the peak of the housing bubble, when Americans were supposed to be blowing all their money on Plasma TVs and nights out at the Olive Garden, retail sales growth was actually slowing down while Personal Consumption Expenditure continued growing, unabated.
To date Retail Sales have not yet recovered. However PCE is on a tear, breaking through the old peak and setting new highs. What gives?
I have been on GMs case for the last five years at least and have been repeatedly predicting their demise. Even as I supported the auto bailout I argued that the question was not “should GM go out of business” it was “should GM go out of business right now?” I saw their decline as inevitable.
Now it seems that GM is possibly, maybe, hitting its second wind. From CNBC
General Motors posted a 6.4 percent gain in U.S. April sales on Monday, helped by strong demand for newly launched vehicles such as the Chevy Equinox crossover and the Buick LaCrosse sedan.
GM sold 183,997 vehicles in April, up from 173,007 vehicles the same month a year ago when U.S. auto sales were near the bottom of a punishing slump and the automaker was sliding toward bankruptcy.
Sales for GM’s four remaining brands—Chevrolet, Buick, GMC and Cadillac—rose 20 percent from a year earlier to 183,091 vehicles.
My expectations are still not good but they are rapidly improving
According to Gallup Americans are worried about inflation. Should economists be?
Inflation expectations play a role in just about every modern Monetarist or New Keynesian economic model. I am not sure what the Austrians have to say about them. However what counts as “expectations.” If its the man on the street the we should be worried if its the bond market then maybe not so much
The inflation protected ten year treasury note is trading only 2.5 points below the unprotected note. Thus, indicating a market expectation of a 2.5% inflation rate over the next 8 years or so.
My thoughts on the matter are that its market prices that matter. The models may have consumer, worker and firm expectations but my view is that all expectations are made in the financial markets. Consumers buy when they can get credit. Workers work when they can find a job and firms hire when profits are rising and capital is easy to come by.
The typical person does not and does not need to, make long run expectations about economic variables.
A new NBER paper argues yes:
…we investigate whether an individual’s height is associated with criminality. Recent economic studies have uncovered positive associations between height and labor market outcomes, which suggest that taller individuals experience labor market advantages and, therefore, have fewer incentives to turn to crime (Persico et al 2005; Case and Paxson 2008)… This paper finds, consistent with several labor market studies, an inverse relationship between crime and adult stature, even after controlling for several features likely to influence an individual’s decision to select into criminal activity.
Specifically, we find that the hazard of prison entry for individuals in the fifth quintile of stature was 20 to 30 percent lower than for individuals in the first quintile…. Nineteenth-century criminals were short.
Policy implications anyone? Perhaps Mankiw’s taxation of height will gain steam now. I think a subsidy for shortness would get more traction.
I came across this old post from Katja Grace where she provides an argument for smoking bans based on game theory. The basic story is that people like conformity, and there is a coordination problem that the government can fix:
Imagine everyone is doing A. Everyone likes doing B more than doing A, but not as much as they like conformity. There would be a huge gain to a coordinated shift to B, but nobody moves there alone. In some such situations those involved arrange coordination, but often it is impossible. If there are many equilibria like this, and no means to move to better ones, intervention by someone with the power to force a coordinated move could be a great thing.
She provides an example where everyone goes to the same crappy bar because that’s where everyone goes. If any individual person, in her example Roger, decides to go to a better bar, they are worse off since they prefer being around people. But if everyone went to a better bar, they would all be better off than the status quo. Here is the normal form game she uses to model the situation:
Payoffs for Roger in choosing a nightclub
| Roger | |||
| Southpac | Elsewhere | ||
| Everyone else | Southpac | 2 | 1 |
| Elsewhere | 0 | 3 | |
In this game, Southpac is the crappy bar. If Roger, or any individual, goes elsewhere when anyone else is still at Soutpac, their payoff goes from 2 to a 1, so he is worse off. If everyone goes somewhere else though, then the payoff to Roger and everyone else is 3, so they are all better off.
She uses this game to argue that the government could sometimes make everyone better off, for instance in the event of a smoking ban. But I think this doesn’t work as a justification for smoking bans or any bans that attempt to fix coordination problems like this.
The failure of this model is obvious if you consider that once everyone is in the higher payoff equilibrium, there is no incentive to diverge, and the status quo becomes the dominant strategy for everyone. In her example, this means that once everyone goes elsewhere, they never go back to Southpac.
This means that a temporary smoking would suffice to fix the coordination problem. Anything more than that is unnecessary, and it runs the risk that this model is incorrect and you are holding people in a lower payout equilibrium. Thus this model can never justify permanent bans like we see.
This model also offers an easy empirical test which I think intuition suggests it would fail. If you enacted a temporary smoking ban and then removed it, would bars and restaurants revert to smoking or would they stay nonsmoking? If Katja is correct, they should stay nonsmoking. I would bet by and large though this would not be the case.
With education reform I tend to be a fan of what Chester Finn, the editor of Education Next, calls “blowing up the system”. That said, I think Gail Collins criticism of the reforms that Florida tried to pass are worth considering:
Can I digress, people, and say that while it’s important to make teachers accountable, telling them their jobs could hinge on their students’ grades on one test is a terrible idea? The women and men who go into teaching tend, as a group, to be both extremely dedicated and extremely risk-averse. The stability of their profession is a very important part of its draw. You do not want to make this an anything-can-happen occupation, unless you are prepared to compensate them like hedge fund traders.
It may be that we do want to pay teachers like hedge fund traders, but there are 3.5 million teachers in the country right now, and whatever reforms we put into place must consider not only the stock of teachers you want, but the stock you currently have. Given that the job selects for risk aversion, injecting too much employment risk into the job, especially too fast, is probably going to do more harm than good.
