http://online.wsj.com/article_email/SB10001424052970204488304574431641244584198-lMyQjAxMDA5MDIwODEyNDgyWj.html
So, history teaches us that it was "Tariffs" (Smoot-Hawley ?) that were the final straw that pushed the world into the Great Depression. If, indeed, President Obama feels that the U.S. economy is far enough "out of the woods" from the Great Recession that things are safe, then I guess it's "OK" to drop in a tariff - especially since it will appease some of his union backers. My problem is that "tariff" is almost a synonym for short sighted. As the WSJ Asia points out (copy attached), the 35% tariff will cost the economy 20,000 jobs in the tire distribution and retail sector while "saving" only 1,000 jobs at domestic manufacturing plants. U.S. consumers will pay $330,000 in higher tire prices for each of those 1,000 jobs.
OK class, let's review: President Obama (getting advised by his Chicago Booth School behavioral economists) imposes a 35% tariff on tires imported from China this month. Prices for tires from U.S. wholesalers have already increased 15% to 28% as a result. The only reason those prices have not gone up the full 35% is because the "wholesalers" have some cheaper inventory on hand. Low income Americans will bear the brunt of the pain because Chinese tire makers sell the cheapest tires, retailing for about $50 a piece at the lowest. So, at $70 a piece (nominally), will some people drive a little longer on the tires they have, perhaps out of "thrift" and/or annoyance?
President Obama has done all this for the United Steelworkers because_______. I have difficulty with filling in the blank there. The jobs trade off looks pretty clearly negative so I'm sure there must be something else that I can't see. As the WSJ Asia says, "The reality is that industry margins are so thin and consumer budgets are so tight that even a 35% tariff will hurt the economy. Mr. Obama's first big trade-policy call is turning out to be a very expensive mistake."
And, for the Chicago Booth economic team, WE know about the "Wal-Mart Effect", don't YOU? It goes like this: "For every dollar taken from drivers' pockets at the pump in the form of higher prices ... low cost exports from China and elsewhere have put $1.50 back in the form of cheaper retail goods."
Monday, September 28, 2009
Friday, September 25, 2009
Being "Green"
http://www.nytimes.com/2009/09/25/opinion/25krugman.html?emc=eta1
For those of you who have enjoyed following my posts, I've been away for a while and I want to welcome you back. I've had a hectic start to fall classes and the support programming for this "Blog" broke. So, I'm back now and I'm hopeful that things keep rolling.
Evidently, the "Al Gore Forces" have gotten to Paul Krugman, my "guru" for all things economic. Krugman was kind enough to let us know today that one can fight global warming (gw) cheaply. And, anyone who doesn't want to fight gw is kidding themselves. Could someone ask Paul if it has gotten "warmer" or "cooler" during this decade? I guess the battle against the "Al Gore Forces" is down to George Will and those of us who support him. Well, of course, there is the Copenhagen Consensus (that group of Nobel Prize winning economists, and other experts) that has shown, objectively, that a dollar spent on greening the world would be better spent on hunger, medical care for the poor and other more immediate problems.
The House has already passed a fairly strong cap-and-trade climate bill, the Waxman-Markey act, which would eventually lead to sharp reductions in greenhouse gas emissions. But, the sticking point will be the Senate. Here, after Krugman dispenses with the "deniers" (those who think that gw hasn't been proven) as fools, he wants to let us know that claims of immense economic damage from climate legislation are as bogus, in their own way, as "climate-change denial."
How do we know these things? First, we waste a lot of energy now burning large amounts of coal, oil and gas in ways that don't actually enhance our standard of living (easy to agree here). Second, even deep cuts in greenhouse gas emissions would impose modest costs on the average family (a CBO analysis of the effects of Waxman-Markey estimated a cost to the average family of $160 per year). Once again, easy to agree.
Krugman's bottom line: the claim that climate legislation will kill the economy deserves the same disdain as the claim that global warming is a hoax. The truth about the economics of climate change is that it's relatively easy to be green.
As always, Dr. K is very convincing. Who am I to contradict? But, a thought about cap-and-trade: who would get the "credits" and how would that be administered, and what would be the cost to the taxpayer of government administration? I honestly think that Krugman could make better economic arguments AGAINST cap-and-trade just on the basis of those questions than he has in favor of it. So, thank you Dr. K for letting us know how "cheaply" we can fight gw, but could you get back to us after you've calculated the overhead involved in administering all that carbon trading?
Meantime, life goes on with the EPA banning carbon dioxide and the Copenhagen Consensus suggesting we spend money more effectively someplace else.
For those of you who have enjoyed following my posts, I've been away for a while and I want to welcome you back. I've had a hectic start to fall classes and the support programming for this "Blog" broke. So, I'm back now and I'm hopeful that things keep rolling.
Evidently, the "Al Gore Forces" have gotten to Paul Krugman, my "guru" for all things economic. Krugman was kind enough to let us know today that one can fight global warming (gw) cheaply. And, anyone who doesn't want to fight gw is kidding themselves. Could someone ask Paul if it has gotten "warmer" or "cooler" during this decade? I guess the battle against the "Al Gore Forces" is down to George Will and those of us who support him. Well, of course, there is the Copenhagen Consensus (that group of Nobel Prize winning economists, and other experts) that has shown, objectively, that a dollar spent on greening the world would be better spent on hunger, medical care for the poor and other more immediate problems.
The House has already passed a fairly strong cap-and-trade climate bill, the Waxman-Markey act, which would eventually lead to sharp reductions in greenhouse gas emissions. But, the sticking point will be the Senate. Here, after Krugman dispenses with the "deniers" (those who think that gw hasn't been proven) as fools, he wants to let us know that claims of immense economic damage from climate legislation are as bogus, in their own way, as "climate-change denial."
How do we know these things? First, we waste a lot of energy now burning large amounts of coal, oil and gas in ways that don't actually enhance our standard of living (easy to agree here). Second, even deep cuts in greenhouse gas emissions would impose modest costs on the average family (a CBO analysis of the effects of Waxman-Markey estimated a cost to the average family of $160 per year). Once again, easy to agree.
Krugman's bottom line: the claim that climate legislation will kill the economy deserves the same disdain as the claim that global warming is a hoax. The truth about the economics of climate change is that it's relatively easy to be green.
As always, Dr. K is very convincing. Who am I to contradict? But, a thought about cap-and-trade: who would get the "credits" and how would that be administered, and what would be the cost to the taxpayer of government administration? I honestly think that Krugman could make better economic arguments AGAINST cap-and-trade just on the basis of those questions than he has in favor of it. So, thank you Dr. K for letting us know how "cheaply" we can fight gw, but could you get back to us after you've calculated the overhead involved in administering all that carbon trading?
Meantime, life goes on with the EPA banning carbon dioxide and the Copenhagen Consensus suggesting we spend money more effectively someplace else.
Friday, September 18, 2009
Calculating Lost Output
http://krugman.blogs.nytimes.com/2009/09/15/macro-situation-notes/?emc=eta1
So, what have we lost in GDP since the Great Recession started? Comparing actual GDP since the recession began with what it would have been if the economy had continued growing at its trend (from 1999 to 2007), we're 8% below where we should be (Krugman attached). That translates into lost output at a rate of well over a trillion dollars per year (as well as mass unemployment).
At the risk of suffering the Nouriel Roubini (he of the Great Recession prediction and the consistent "gloom and doom" forecasts) label, a double dip recession could just make all that worse - Krugman's trend lines for the last recession are pictured and they make the point that, once inventory replacement is out of the way, the bulk of the fiscal stimulus won't be there to rescue the economy. His other trend lines on actual versus "trend" simply picture the trillions we are short in GDP growth.
Let's get back to unemployment. It's that nasty "lagging indicator" that most economists feel will average 10% for 2010. Krugman said in a speech overseas this week that the unemployment problem won't be solved until 2011 (ie. start to come down). I therefor surmise that this little mini comeback that we are experiencing (quarterly GDP growth plugging along at 2%) will not be enough to deflect the much larger drag of "underemployment".
Krugman, Buffet and significant others have consistently taken the position that we need MORE stimulus, not LESS. Doesn't a pernicious unemployment rate above 10% prove that point?
So, what have we lost in GDP since the Great Recession started? Comparing actual GDP since the recession began with what it would have been if the economy had continued growing at its trend (from 1999 to 2007), we're 8% below where we should be (Krugman attached). That translates into lost output at a rate of well over a trillion dollars per year (as well as mass unemployment).
At the risk of suffering the Nouriel Roubini (he of the Great Recession prediction and the consistent "gloom and doom" forecasts) label, a double dip recession could just make all that worse - Krugman's trend lines for the last recession are pictured and they make the point that, once inventory replacement is out of the way, the bulk of the fiscal stimulus won't be there to rescue the economy. His other trend lines on actual versus "trend" simply picture the trillions we are short in GDP growth.
Let's get back to unemployment. It's that nasty "lagging indicator" that most economists feel will average 10% for 2010. Krugman said in a speech overseas this week that the unemployment problem won't be solved until 2011 (ie. start to come down). I therefor surmise that this little mini comeback that we are experiencing (quarterly GDP growth plugging along at 2%) will not be enough to deflect the much larger drag of "underemployment".
Krugman, Buffet and significant others have consistently taken the position that we need MORE stimulus, not LESS. Doesn't a pernicious unemployment rate above 10% prove that point?
Wednesday, September 16, 2009
Freshwater Rage
Freshwater Rage
Krugman has weighed in on the response from the Chicago economic team (only one of whom was willing to be identified) to his essay on how the economists got it wrong and I like what he said because it was "cogent" (see attached - and thank you Dale for fixing my blog site so that I can attach articles again!).
Before I add my 2 cents on Krugman's post, I want you to think about the vituperative nature of Cochrane's attack inclusive of three separate comments on Krugman's use of "cartoons." Krugman didn't put the "cartoons" in his article - the NY Times editorial staff did. Cochrane was foolish and hysterical in between showing us all that he knows "economics." Whatever your position on the Chicago team's thoughts, it's a "TKO" for Krugman just on the quality of what he wrote versus the hysterics in between textbook quotes from Cochrane. I frankly also could not believe that Cochrane defended the position that fiscal stimulus is a zero sum game (so, such infrastructure as "bridges" and "roads", and the wages we pay people to build those, adds up to "zero"?). Has this guy ever met a payroll?
On to Krugman: his point that freshwater economists dismissed the work of all Keynesians over the past 30 years with "sneers" strikes me as the truth as I've heard that observation from many others before Krugman. He goes on to talk about "active purges" of competing views - students were not exposed to alternatives. Again, easily believeable. There is a logic to temporary fiscal expansion that the "Chicagos" refuse to see. And, as Krugman says, freshwater macro will get even more insular and people will pay even less attention.
Krugman has weighed in on the response from the Chicago economic team (only one of whom was willing to be identified) to his essay on how the economists got it wrong and I like what he said because it was "cogent" (see attached - and thank you Dale for fixing my blog site so that I can attach articles again!).
Before I add my 2 cents on Krugman's post, I want you to think about the vituperative nature of Cochrane's attack inclusive of three separate comments on Krugman's use of "cartoons." Krugman didn't put the "cartoons" in his article - the NY Times editorial staff did. Cochrane was foolish and hysterical in between showing us all that he knows "economics." Whatever your position on the Chicago team's thoughts, it's a "TKO" for Krugman just on the quality of what he wrote versus the hysterics in between textbook quotes from Cochrane. I frankly also could not believe that Cochrane defended the position that fiscal stimulus is a zero sum game (so, such infrastructure as "bridges" and "roads", and the wages we pay people to build those, adds up to "zero"?). Has this guy ever met a payroll?
On to Krugman: his point that freshwater economists dismissed the work of all Keynesians over the past 30 years with "sneers" strikes me as the truth as I've heard that observation from many others before Krugman. He goes on to talk about "active purges" of competing views - students were not exposed to alternatives. Again, easily believeable. There is a logic to temporary fiscal expansion that the "Chicagos" refuse to see. And, as Krugman says, freshwater macro will get even more insular and people will pay even less attention.
Tuesday, September 15, 2009
Freshwater Economists Return Fire!
While I would like to attach the blog post from the NY Times ("Economix") which clicks to John Cochrane's response to Krugman's article on "Freshwater/Saltwater" economists and how they all got it wrong, alas, the "attachability" feature on my blog site is on strike! So, go to "Economix", 9/11/09, "Freshwater to Saltwater" and click on Cochrane's full text.
Cochrane has responded to Krugman's article as a representative of his colleagues at the University of Chicago Booth School of Business but does not wish to name them for fear of what, reprisals (see his footnote on page 1)? Seriously!
While I have not re-read Krugman's original article (and, I continue to feel it is the finest article he's ever written and a true education for all of us on where economists went wrong), he suggests that the Chicago School economists are going to move from the periphery to the center of economic thought to try to sort all this out. I'm not sure why Cochrane (and his unnamed colleagues) takes offense at this since Krugman is ceding "leadership" to them, but I'm willing to bet it has something to do with egos and taking one's self seriously.
Cochrane's implication that Krugman is saying that everything that has been done in the field of economics since the 1960s is "...a complete waste of time", sounds about right. Evidently Cochrane feels a certain insecurity in that thought. Message to Cochrane: Keynes was right. Deal with it. Also, learn how to spell "Keynesian". If you can't spell it right, you certainly can't write about it.
Krugman's original article and Cochrane's response to it are as good as any course in economics - maybe better. They certainly are making the "dismal science" more interesting.
Parenthetically, I think Cochrane has something against cartoons - he attacks the cartoons in Krugman's article three times! This is troubling. It's almost as bad as his "...you should think Bernie Madoff is a hero" analogy.
Cochrane has responded to Krugman's article as a representative of his colleagues at the University of Chicago Booth School of Business but does not wish to name them for fear of what, reprisals (see his footnote on page 1)? Seriously!
While I have not re-read Krugman's original article (and, I continue to feel it is the finest article he's ever written and a true education for all of us on where economists went wrong), he suggests that the Chicago School economists are going to move from the periphery to the center of economic thought to try to sort all this out. I'm not sure why Cochrane (and his unnamed colleagues) takes offense at this since Krugman is ceding "leadership" to them, but I'm willing to bet it has something to do with egos and taking one's self seriously.
Cochrane's implication that Krugman is saying that everything that has been done in the field of economics since the 1960s is "...a complete waste of time", sounds about right. Evidently Cochrane feels a certain insecurity in that thought. Message to Cochrane: Keynes was right. Deal with it. Also, learn how to spell "Keynesian". If you can't spell it right, you certainly can't write about it.
Krugman's original article and Cochrane's response to it are as good as any course in economics - maybe better. They certainly are making the "dismal science" more interesting.
Parenthetically, I think Cochrane has something against cartoons - he attacks the cartoons in Krugman's article three times! This is troubling. It's almost as bad as his "...you should think Bernie Madoff is a hero" analogy.
Friday, September 11, 2009
Retroactive Economics
http://www.nytimes.com/2009/09/11/opinion/11fri1.html?emc=eta1
http://www.nytimes.com/2009/09/11/business/11bailout.html?emc=eta1
http://online.wsj.com/article_email/SB125259099642699581-lMyQjAxMDI5NTEyMTUxOTEwWj.html
According to the Census Bureau's annual snapshot of living standards, median household income has continued to get worse: adjusted for inflation, it fell 3.6% last year to $50,303 - the steepest drop in 40 years. The poverty rate has continued to climb (now 13.2%) and about 700,000 more people didn't have health insurance in 2008 versus the year before (WSJ 9/11/09, attached: click on the "interactive graphic" within the article to look at the 20 year trends). In Texas, the number of uninsured has crept up to more than 25% of the state population.
As today's NY Times editorial states, the overall number of uninsured rose from 45.7 million in 2007 to 46.3 million in 2008 (NY Times 9/11/09, attached). See our 8/24 post on how those health insurance "numbers" break down.
According to Bruce Meyer, an economist at the University of Chicago, "It's striking how fast and how far the incomes of the typical family have fallen...and things are almost certainly going to get worse." The Census Bureau's report captured only how Americans fared in the first year of the recession, which began in December, 2007 ( economists denied, at the time, that a recession had begun because the U.S. GDP growth rate had NOT gone down for two consecutive quarters - two quarters later, it had gone down so a recession was declared: we call this "Retroactive Economics". It's like "Behavioral Economics", only backwards.). Figures for 2009 will be worse.
Oh, and was that Timothy Geithner testifying before congress (NY Times 9/11/09, attached) this week that the administration is comfortable with backing off some of the stimulus efforts because the economy is "coming back?" So, the lessons of 1937 (when Franklin Roosevelt did that and things got worse) were lost on the understaffed Secretary of the Treasury?
Perhaps the 2.6 million people who were added to the official "poverty level" population last year (earnings under $22,000 for a family of 4) would be interested in discussing this issue with the Obama administration. According to the census, about 54 million people were living under 125% of the poverty line.
So, that pernicious "lagging indicator" (the jobless rate), which will be up in 2010, won't have as much "fiscal stimulus" chasing it if Secretary Geithner takes the actions he told congress he would. If, for the sake of argument, unemployment averages 10% for 2010 (and it will), that would be 2% above the unemployment rate the Obama administration said, when it went to congress for "bailout money", would be the maximum: in other words, the "stimulus" money would keep unemployment from rising above 8% according to Lawrence (don't call me "Larry") Summers and the Obama economic team. So, unemployment is now, or will shortly be, 10% (or more), which is 2% above what the original stimulus proposal was supposed to cap it at. And, we're going to cut back on stimulus spending because we don't need it as much now. I'm guessing this means that there is an economic model someplace that says the way to achieve the number you missed because you didn't spend enough is to spend LESS!
Since I'm not an "economist", I don't have to get all confused with "fuzzy math" and economic models that I'm sure explain the difference between 8% and 10%. Perhaps it has something to do with retroactive observation: sort of like not declaring a recession until we observe two consecutive quarters of negative GDP growth. I'm sure that the economists could explain that old saying about closing the barn door after the horse was already out. It's probably some sort of retroactive deal again.
http://www.nytimes.com/2009/09/11/business/11bailout.html?emc=eta1
http://online.wsj.com/article_email/SB125259099642699581-lMyQjAxMDI5NTEyMTUxOTEwWj.html
According to the Census Bureau's annual snapshot of living standards, median household income has continued to get worse: adjusted for inflation, it fell 3.6% last year to $50,303 - the steepest drop in 40 years. The poverty rate has continued to climb (now 13.2%) and about 700,000 more people didn't have health insurance in 2008 versus the year before (WSJ 9/11/09, attached: click on the "interactive graphic" within the article to look at the 20 year trends). In Texas, the number of uninsured has crept up to more than 25% of the state population.
As today's NY Times editorial states, the overall number of uninsured rose from 45.7 million in 2007 to 46.3 million in 2008 (NY Times 9/11/09, attached). See our 8/24 post on how those health insurance "numbers" break down.
According to Bruce Meyer, an economist at the University of Chicago, "It's striking how fast and how far the incomes of the typical family have fallen...and things are almost certainly going to get worse." The Census Bureau's report captured only how Americans fared in the first year of the recession, which began in December, 2007 ( economists denied, at the time, that a recession had begun because the U.S. GDP growth rate had NOT gone down for two consecutive quarters - two quarters later, it had gone down so a recession was declared: we call this "Retroactive Economics". It's like "Behavioral Economics", only backwards.). Figures for 2009 will be worse.
Oh, and was that Timothy Geithner testifying before congress (NY Times 9/11/09, attached) this week that the administration is comfortable with backing off some of the stimulus efforts because the economy is "coming back?" So, the lessons of 1937 (when Franklin Roosevelt did that and things got worse) were lost on the understaffed Secretary of the Treasury?
Perhaps the 2.6 million people who were added to the official "poverty level" population last year (earnings under $22,000 for a family of 4) would be interested in discussing this issue with the Obama administration. According to the census, about 54 million people were living under 125% of the poverty line.
So, that pernicious "lagging indicator" (the jobless rate), which will be up in 2010, won't have as much "fiscal stimulus" chasing it if Secretary Geithner takes the actions he told congress he would. If, for the sake of argument, unemployment averages 10% for 2010 (and it will), that would be 2% above the unemployment rate the Obama administration said, when it went to congress for "bailout money", would be the maximum: in other words, the "stimulus" money would keep unemployment from rising above 8% according to Lawrence (don't call me "Larry") Summers and the Obama economic team. So, unemployment is now, or will shortly be, 10% (or more), which is 2% above what the original stimulus proposal was supposed to cap it at. And, we're going to cut back on stimulus spending because we don't need it as much now. I'm guessing this means that there is an economic model someplace that says the way to achieve the number you missed because you didn't spend enough is to spend LESS!
Since I'm not an "economist", I don't have to get all confused with "fuzzy math" and economic models that I'm sure explain the difference between 8% and 10%. Perhaps it has something to do with retroactive observation: sort of like not declaring a recession until we observe two consecutive quarters of negative GDP growth. I'm sure that the economists could explain that old saying about closing the barn door after the horse was already out. It's probably some sort of retroactive deal again.
Thursday, September 10, 2009
The Emanuel Principle
http://www.nytimes.com/2009/09/06/business/economy/06view.html?emc=eta1
Alan S. Blinder is a professor of economics and public affairs at Princeton and a former vice chairman of the Federal Reserve. He is also well known for "Blinder's Shift" which involved a well known change in his position on free trade: while he still supports the theory of "comparative advantage" (simply put - trade with large low-wage countries like India and China can make the U.S. richer and more productive while it improves the standard of living of those low wage countries - and all will be richer; eventually), he has discovered that the job losses surrounding "globalization" for the U.S. have the potential to be much larger than he previously thought and he feels strongly that something needs to be done about that. Given the current state of the U.S. economic recovery (weak), and the status of the unemployment rate (high), Blinder's position is understandable and even, perhaps, more urgent.
In any case, Blinder's 9/6 NY Times article on "The Wait for Financial Reform" (attached) refers to President Obama's chief of staff (Rahm Emanuel) enunciating the "Emanuel Principle": you don't ever let a crisis go to waste. So, Emanuel's point was (and is) let's get everything done that we can. And, as we have pointed out here, when you put all your best people on too many things in a crisis situation, what you get is nothing.
So, it's been about a year since the financial crisis hit last September and Blinder characterizes the political indifference toward financial reform as "...somewhere between maddening and tragic." Why?
Blinder sees 5 reasons:
(1) It's yesterday's problem (how soon we forget!)
(2) The overcrowded legislative agenda (budget, health care reform, cap and trade, etc.)
(3) Heavy lobbying on all of the issues major and minor
(4) Bureaucratic infighting (government agencies fighting to keep their "turf", FDIC, etc.)
(5) A lack of focus (it's hard to keep the public engaged in something as complex and boring as financial regulation)
What's needed is a "systemic risk regulator" and the Federal Reserve is the right place for that job. We also need to do something about derivatives markets. Blinder is right about both issues but he's looking for evidence that anything is being done about it. He sees none. I see none. And, we have the Emanuel Principle...
Alan S. Blinder is a professor of economics and public affairs at Princeton and a former vice chairman of the Federal Reserve. He is also well known for "Blinder's Shift" which involved a well known change in his position on free trade: while he still supports the theory of "comparative advantage" (simply put - trade with large low-wage countries like India and China can make the U.S. richer and more productive while it improves the standard of living of those low wage countries - and all will be richer; eventually), he has discovered that the job losses surrounding "globalization" for the U.S. have the potential to be much larger than he previously thought and he feels strongly that something needs to be done about that. Given the current state of the U.S. economic recovery (weak), and the status of the unemployment rate (high), Blinder's position is understandable and even, perhaps, more urgent.
In any case, Blinder's 9/6 NY Times article on "The Wait for Financial Reform" (attached) refers to President Obama's chief of staff (Rahm Emanuel) enunciating the "Emanuel Principle": you don't ever let a crisis go to waste. So, Emanuel's point was (and is) let's get everything done that we can. And, as we have pointed out here, when you put all your best people on too many things in a crisis situation, what you get is nothing.
So, it's been about a year since the financial crisis hit last September and Blinder characterizes the political indifference toward financial reform as "...somewhere between maddening and tragic." Why?
Blinder sees 5 reasons:
(1) It's yesterday's problem (how soon we forget!)
(2) The overcrowded legislative agenda (budget, health care reform, cap and trade, etc.)
(3) Heavy lobbying on all of the issues major and minor
(4) Bureaucratic infighting (government agencies fighting to keep their "turf", FDIC, etc.)
(5) A lack of focus (it's hard to keep the public engaged in something as complex and boring as financial regulation)
What's needed is a "systemic risk regulator" and the Federal Reserve is the right place for that job. We also need to do something about derivatives markets. Blinder is right about both issues but he's looking for evidence that anything is being done about it. He sees none. I see none. And, we have the Emanuel Principle...
Saturday, September 5, 2009
Saltwater Economists
http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?emc=eta1
There is probably a reason why Fox News data shows that Paul Krugman's blog is the most widely read in the world (and yes, Thomas L. Friedman - he of "The World Is Flat" - is number 2). Aside from winning the most recent Economics Nobel, Krugman speaks and writes in terms we can all understand. He will also take on (in any medium - TV, articles, public debates at universities, etc.) any of the pompous, self-important and narrow minded members of his profession that prefer to live in "theory" as opposed to the real world.
Krugman has written an article this week that is scheduled to be published in the Sunday NY Times Magazine this weekend on "How Did Economists Get It So Wrong?" (copy attached). In it, he basically points out that "The Great Recession" was the result not only of lax regulation in Washington and reckless risk-taking on Wall Street but also of "faulty theorizing" in academia. The singular achievement of his article is that he has summarized what happened much more cogently than various books that have already been written about it. It is so good that it will probably be remembered as the greatest article he ever wrote.
Aside from the bottom line of what needs to be done, which we'll get to in a moment, Krugman gives us an insight into the "Saltwater Economists" (mainly in coastal U.S. universities), who have a more or less Keynesian vision of what recessions are all about; and "Freshwater Economists" (mainly at inland schools) who consider that vision nonsense. So, freshwater economists are "purists" who believe that all worthwhile economic analysis starts from the premise that people are "rational" and markets work. Saltwater economists were and are pragmatists. They were willing to deviate from the assumption of perfect markets, adding enough imperfections to accomodate a more or less Keynesian view of recessions: active policy to fight recessions remains desirable. While Krugman doesn't put it this way, it would appear that the saltwater economists had it right because there is no longer any debate about how fiscal stimulus has helped the current economic situation.
What fascinates Krugman is the stance that Alan Greenspan took, based on a general belief that "bubbles just don't happen" (or my favorite: "financial markets are self-regulating"), which was based on no evidence: "...it was an a priori assertion that there simply can't be a bubble in housing." In short, the belief in efficient financial markets "...blinded many if not most economists to the emergence of the biggest financial bubble in history."
To Krugman, economics, as a field, got into trouble because economists were "seduced" by the vision of a perfect, frictionless market system. So, now, "flaws-and-frictions" economics will move from the periphery of economic analysis to the center. And, the best example of this form of economic thought is: the school of thought known as "Behavioral Finance" where investors bear little resemblance to the cool calculators of efficient-market theory - here investors are too subject to herd behavior, to bouts of irrational exuberance and unwarranted panic. Behavioral finance, drawing on the broader movement known as behavioral economics, tries to relate the apparent irrationality of investors to known biases in human cognition, like the tendency to care more about small losses than small gains or the tendency to extrapolate too readliy from small samples.
Given all of this, we have Krugman quoting one of his old favorite lines: "the market can stay irrational longer than you can stay solvent." So, as Krugman goes on, "...economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly." Unlike his profession, Krugman's article approaches perfection.
There is probably a reason why Fox News data shows that Paul Krugman's blog is the most widely read in the world (and yes, Thomas L. Friedman - he of "The World Is Flat" - is number 2). Aside from winning the most recent Economics Nobel, Krugman speaks and writes in terms we can all understand. He will also take on (in any medium - TV, articles, public debates at universities, etc.) any of the pompous, self-important and narrow minded members of his profession that prefer to live in "theory" as opposed to the real world.
Krugman has written an article this week that is scheduled to be published in the Sunday NY Times Magazine this weekend on "How Did Economists Get It So Wrong?" (copy attached). In it, he basically points out that "The Great Recession" was the result not only of lax regulation in Washington and reckless risk-taking on Wall Street but also of "faulty theorizing" in academia. The singular achievement of his article is that he has summarized what happened much more cogently than various books that have already been written about it. It is so good that it will probably be remembered as the greatest article he ever wrote.
Aside from the bottom line of what needs to be done, which we'll get to in a moment, Krugman gives us an insight into the "Saltwater Economists" (mainly in coastal U.S. universities), who have a more or less Keynesian vision of what recessions are all about; and "Freshwater Economists" (mainly at inland schools) who consider that vision nonsense. So, freshwater economists are "purists" who believe that all worthwhile economic analysis starts from the premise that people are "rational" and markets work. Saltwater economists were and are pragmatists. They were willing to deviate from the assumption of perfect markets, adding enough imperfections to accomodate a more or less Keynesian view of recessions: active policy to fight recessions remains desirable. While Krugman doesn't put it this way, it would appear that the saltwater economists had it right because there is no longer any debate about how fiscal stimulus has helped the current economic situation.
What fascinates Krugman is the stance that Alan Greenspan took, based on a general belief that "bubbles just don't happen" (or my favorite: "financial markets are self-regulating"), which was based on no evidence: "...it was an a priori assertion that there simply can't be a bubble in housing." In short, the belief in efficient financial markets "...blinded many if not most economists to the emergence of the biggest financial bubble in history."
To Krugman, economics, as a field, got into trouble because economists were "seduced" by the vision of a perfect, frictionless market system. So, now, "flaws-and-frictions" economics will move from the periphery of economic analysis to the center. And, the best example of this form of economic thought is: the school of thought known as "Behavioral Finance" where investors bear little resemblance to the cool calculators of efficient-market theory - here investors are too subject to herd behavior, to bouts of irrational exuberance and unwarranted panic. Behavioral finance, drawing on the broader movement known as behavioral economics, tries to relate the apparent irrationality of investors to known biases in human cognition, like the tendency to care more about small losses than small gains or the tendency to extrapolate too readliy from small samples.
Given all of this, we have Krugman quoting one of his old favorite lines: "the market can stay irrational longer than you can stay solvent." So, as Krugman goes on, "...economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly." Unlike his profession, Krugman's article approaches perfection.
Tuesday, September 1, 2009
Gen-Y Johnny Can't Read Nonverbal Cues
http://fish.blogs.nytimes.com/2009/08/24/what-should-colleges-teach/?emc=eta1
http://online.wsj.com/article_email/SB10001424052970203863204574348493483201758-lMyQjAxMDA5MDIwODEyNDgyWj.html
I want to do a "shout out", as my son's generation would say, for Stanley Fish who has a blog in the NY Times called "Think Again". He is also most accomplished academically at the highest level at some of the best universities. Stanley's 8/24 blog (attached) starts out, "A few years ago, when I was grading papers for a graduate literature course, I became alarmed at the inability of my students to write a clean English sentence. They could manage about six words and then, almost invariably, the syntax (and everything else) fell apart. I became even more alarmed when I remembered that these same students were instructors in the college's composition program."
It has been my privilege to share my thoughts and my experience with some of the best and brightest of this current generation of college students (graduate and undergraduate) and I want to support Stanley's position that we don't emphasize the ability to write (effectively) enough. Stanley has subsequently been attacked for his position (perhaps by people who think he is being "elitist") and that's too bad because he's right. The best students we have ever had can write but not necessarily cogently. So, even there, we can help (and we have a method for doing that).
My thought on this is that, especially for the best schools, we think that our students are admitted with an ability to do the "basics". While I'm no expert, I think our colleges get students who are, in many cases, quantitatively exceptional and exceptional at "test taking" (SATs, etc.). Writing cogently is not emphasized and that's a shame because that skill is what gets you moving up the ladder no matter what you end up doing - it also forces you to prioritize how you talk about what you are doing because it engages a mental discipline that is not exclusive to "how" you write.
Speaking of "Gen-Y Johnny", as the article we've attached indicates, on September of 2008, Nielsen Mobile announced that teenagers with cellphones each sent and received, on average, 1742 text messages a month. A few months later, that tally was raised to 2,272. They read comments on Facebook, but they don't "read" each others' posture, hand gestures, eye movements, shifts in personal space and other nonverbal - and expressive - behaviors. Basically, this emphasis on social networking puts younger people at a face-to-face disadvantage, if not with themselves, at least with the generations ahead of them.
In the Silicon Valley, some companies have installed the "topless meeting" - in which not only laptops but iPhones and other tools are banned - to combat a new problem: "CONTINUOUS PARTIAL ATTENTION." As these companies have said, it's too easy to check email, stock quotes and Facebook. While a quick log-on may seem, to the user, a harmless break, others in the room receive it as a silent dismissal. It announces: "I'm not interested."
Older employees might well accept such a ban, but younger ones might not understand it. Reading a text message in the middle of a conversation isn't a lapse to them - it's what you do. It has, they assume, no nonverbal meaning to anyone else. It does, of course, but how would they know it?
Lots of folks grumble about the diffidence, self-absorption and general uncommunicativeness of Generation Y. Perhaps, the next time we encounter someone who would rather "text" then talk when talking is the indicated form of communication, we could use that as a "teachable moment."
Last, I believe I saw last week that Utah has now passed a law that texting while driving is the equivalent of driving drunk. If that is, indeed, the case, they are probably right.
http://online.wsj.com/article_email/SB10001424052970203863204574348493483201758-lMyQjAxMDA5MDIwODEyNDgyWj.html
I want to do a "shout out", as my son's generation would say, for Stanley Fish who has a blog in the NY Times called "Think Again". He is also most accomplished academically at the highest level at some of the best universities. Stanley's 8/24 blog (attached) starts out, "A few years ago, when I was grading papers for a graduate literature course, I became alarmed at the inability of my students to write a clean English sentence. They could manage about six words and then, almost invariably, the syntax (and everything else) fell apart. I became even more alarmed when I remembered that these same students were instructors in the college's composition program."
It has been my privilege to share my thoughts and my experience with some of the best and brightest of this current generation of college students (graduate and undergraduate) and I want to support Stanley's position that we don't emphasize the ability to write (effectively) enough. Stanley has subsequently been attacked for his position (perhaps by people who think he is being "elitist") and that's too bad because he's right. The best students we have ever had can write but not necessarily cogently. So, even there, we can help (and we have a method for doing that).
My thought on this is that, especially for the best schools, we think that our students are admitted with an ability to do the "basics". While I'm no expert, I think our colleges get students who are, in many cases, quantitatively exceptional and exceptional at "test taking" (SATs, etc.). Writing cogently is not emphasized and that's a shame because that skill is what gets you moving up the ladder no matter what you end up doing - it also forces you to prioritize how you talk about what you are doing because it engages a mental discipline that is not exclusive to "how" you write.
Speaking of "Gen-Y Johnny", as the article we've attached indicates, on September of 2008, Nielsen Mobile announced that teenagers with cellphones each sent and received, on average, 1742 text messages a month. A few months later, that tally was raised to 2,272. They read comments on Facebook, but they don't "read" each others' posture, hand gestures, eye movements, shifts in personal space and other nonverbal - and expressive - behaviors. Basically, this emphasis on social networking puts younger people at a face-to-face disadvantage, if not with themselves, at least with the generations ahead of them.
In the Silicon Valley, some companies have installed the "topless meeting" - in which not only laptops but iPhones and other tools are banned - to combat a new problem: "CONTINUOUS PARTIAL ATTENTION." As these companies have said, it's too easy to check email, stock quotes and Facebook. While a quick log-on may seem, to the user, a harmless break, others in the room receive it as a silent dismissal. It announces: "I'm not interested."
Older employees might well accept such a ban, but younger ones might not understand it. Reading a text message in the middle of a conversation isn't a lapse to them - it's what you do. It has, they assume, no nonverbal meaning to anyone else. It does, of course, but how would they know it?
Lots of folks grumble about the diffidence, self-absorption and general uncommunicativeness of Generation Y. Perhaps, the next time we encounter someone who would rather "text" then talk when talking is the indicated form of communication, we could use that as a "teachable moment."
Last, I believe I saw last week that Utah has now passed a law that texting while driving is the equivalent of driving drunk. If that is, indeed, the case, they are probably right.
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