Stackelberg Follower

Rent-to-Own

noreply@blogger.com (Andrew) — Tue, 01 Dec 2009 17:42:00 +0000

I received a particularly irritating advertisement in the mail over the weekend: the offer to pay $25 a week for 78 weeks in exchange for this laptop.

25*78 = 1950. That's a really high implied interest rate. In fact, a 91% yearly interest rate would be consistent with exactly *half* the monthly payment on the mortgage of the purchase price from the link above, as computed here.

And people think payday loans are robbery (I'm not conversant on the literature, but my impression seems to be they don't deserve all the bad rap they get). I cannot accept any calibration over discount or interest rates in which this becomes a rational move for anyone and sincerely hope that they don't actually do business on these machines, but the flyer had a whole page dedicated to this 78-month rent-to-own plans.

Elements of Success

noreply@blogger.com (Andrew) — Wed, 25 Nov 2009 18:26:00 +0000

When asked to rate different skills and abilities that contribute to success of graduate students in economics, 51% of grad students at top-15 programs said knowledge of the actual economy was "unimportant".

HT: Economic Logic.

Frustration

noreply@blogger.com (Andrew) — Sat, 07 Nov 2009 02:50:00 +0000

Economists are currently running an experiment that dwarfs the LHC. Well, we're at least observing as the effects of stimulus to play out over the world. Of course, when the LHC gets running, a lot of physicists will update their beliefs about the nature and structure of the world. Five years from now, economists who believed large stimulus was an appropriate response will still mostly believe the same, and the economists who advocated no/little stimulus will still think it's the right move. But doesn't this prevent us from calling economics a science?

Not really. 'Is fiscal policy effective?' is a hypothesis in the same ballpark as 'Is the Standard Model right?', and if I understand correctly that question can't be completely answered by the LHC either, and we don't have anywhere near the controls the physicists do.

I concede we're making progress. For example, I think we at least generally agree now as a profession that there's a fairly significant welfare cost to business cycles because of heterogeneity, but don't hold me too strongly to this - I'm just coming off the tail end of H1N1.

POSTSCRIPT: At least I resisted the temptation to write a 'state of macro' post.

Dynare

noreply@blogger.com (Andrew) — Sat, 24 Oct 2009 20:10:00 +0000

Dynare is an add-on to MATLAB or Octave that permits the solving and analysis of general equilibrium models in an extremely simple fashion - it takes as inputs the first-order conditions and spits out impulse-response functions, correlations and autocorrelations, business cycle volatilities, etc. I use it often as a shortcut instead of having to code the value function iteration/interpolation myself, but it doesn't really let one off the hook from the economics, because one still needs to solve for the Euler equation, the labour-leisure tradeoff, etc.

Just trying to advertise, it should be more well-known than it is.

Backs of Envelopes

noreply@blogger.com (Andrew) — Sat, 24 Oct 2009 17:58:00 +0000

Hey, I haven't done this for awhile.

The NYT has a story today (HT: Free Exchange) on how some people (none of whom are economists) think that supply and demand curves are moot because the world is going to crash and burn in the near future without a systemic focus on moving away oil and while we're at it, we need to rewrite all our macro models because "Neoclassical economics is inconsistent with the laws of thermodynamics." Not quite sure what that means.

Disclosure: Global warming is pretty obviously real and scary. The chemistry/phyiscs are complicated in that nailing down precise numbers is hard, but signing the effect is simple. Period. But that's not this post.

There are a lot of related points made in the article. The main thrust is, I gather, because oil is becoming increasingly costly to extract in terms of the energy required, the effective cost of providing energy for other uses will skyrocket, and when this starts to happen, bad things happen to society, and that modern economic theory doesn't account for this. (Yes, the modern neoclassical model predicts indefinite growth based on continually improving productivity. Do many economists spend their days figuring out what growth will look like in 200 years? No. Are models designed to talk about this sort of very-long-run behaviour? No. Can I write down such a model? Sure. Would anyone, particularly a journal, care? No.)

I am somewhat personally distressed by these predictions, because my future livelihood will probably depend on there being large quantities of undergrads paying to learn about supply and demand curves, which probably won't realize if society collapses. Further, this is not something I've ever talked about in economics courses (another point calling for rewriting the models, according to proponents of this 'biophysical economics'.) Can I explain this rationally? Maybe.

According to wikipedia, (the links all seem good and this is only a blog, not the AER) world energy consumption is 15 terawatts (15 x 10^12 W). The physicists and chemists just cringed, yes. It's easier to work in watts than joules, even though one can't really convert between them properly.

Consider Exxon-Mobil. Following links I again got on wikipedia to the company's financial statement, I find that they produce less than two percent of the world's energy at a cost of $289 billion dollars. That's their cost, not their revenues. Let's assume that the cost profile of world energy production is approximately similar to the cost profile of energy produced by Exxon, which is a conservative assumption - I bet Exxon makes more profit than average, and does so less renewably than lots of other sources.

Next. Google 'solar panels'. Home Depot will provide 200W for $1,179.99$. Let's round this up to $6000 per 1000 watts. These have a 25 year warranty, too. In order to be safe, let's bump the required world energy supply from 15 TW to 40 TW - solar panels aren't going to work at night, clouds, etc. Now, algebra.

Total world expenditure on providing energy is fifty times what it costs Exxon-Mobil to produce 2%: 50*289 billion = 14.5 trillion.

Cost of providing the entire world energy supply with solar power from Home Depot solar panels: (40 x 10^12 / 1000)*($6000) = 40 billion * 6000 = 240 trillion. (This number of solar cells would cover somewhat less than 50,000 square kilometres, judging by the specs on the website, approximately 1/6 of Nevada.)

Annual payment on 240 trillion amortized over 25 years at the current 30 year mortgage rate of about 5.25% = 17.3 trillion.

The difference between 17.3 and 14.4 trillion is huge in magnitude but not that large in percentage, and I think I've made conservative assumptions at most every turn - Exxon can issue debt at less than 5.25%, let alone governments, 40 terawatts is a lot more than 15, etc, etc.

Yes, there are a lot of issues you can take here, keep reading. The point remains: the cost of extracting and using nonrenewables for energy is rapidly approaching the point where we might as well just do everything in a renewable fashion - and yet the cost of supporting such renewable power hasn't caused any societal catacylsms. So why expect one?

POSTSCRIPT: List of assumptions and bias on the gap between 17.3 and 14.4.
1. World energy consumption. If more than 15 TW, increase.
2. Solar capacity versus throughput. If the world needs more than 40TW installed solar capacity to meet the flow demand for power, increase the gap.
3. Exxon produces < 2% in actuality. Decrease the gap.
4. Exxon more (less) costly than world average. Decrease (increase). [Saudia Arabia is probably considerably cheaper than Exxon, but most other oil majors/current renewables projects are probably more expensive. Actual bias could go either way.]
5. Cost of panels increases would increase gap. Actual bias is probably negative: I bet Home Depot would cut you a deal if you wanted to buy several trillion worth. Plus solar technology would improve.
6. Interest rate increases. Would increase gap.

Other issues:
1. Replacing oil-based infrastructure and methods (see: cars) will not be cheap, but cars don't last forever and it doesn't have to happen in one day. The transition will be costly, but we can certainly sustain the steady-state.
2. If it's close, why haven't we seen a change? The gap is still $2.9 billion, which is big money, uncertainty over future GHG regulation, no incentive to take the lead.
3 ???.
4. Me possibly screwing up the algebra by an order of magnitude somewhere.

POST-POSTSCRIPT: Anyone want to calculate the carbon tax that equalizes the cost of renewables and the cost of current world energy production?

Second-year courses

noreply@blogger.com (Andrew) — Tue, 08 Sep 2009 22:23:00 +0000

In the past some people have come here for information about the Rochester Ph.D. program, which I am generally happy to provide. In that spirit, let me list of the fields the department is offering this year. One is required to pass two fields of specialization, which typically consist of two courses and a comprehensive exam taken in the summer. This year, the options are:

Theory I -- William Thomson's two courses
Theory II -- Pick two of Paulo Barelli, Gabor Virag, and John Duggan
International -- Ron Jones, Mark Aguiar (1/2), Alan Stockman (1/2)
Macro -- Jay Hong, William Hawkins (1/2), Yongsung Chang (1/2)
Econometrics -- Sanjog Misra (Simon School), Bin Chen
Labor -- Josh Kinsler, Cateno
Political Economy -- John Duggan, Mark Fey
IO -- Minjae Song (Simon School), Gabor Virag

I'm signed up for Macro/International. I may take IO this semester as well. I will also likely be participating in the Bils/Chang macro reading seminar, which isn't a part of any field.

No midterms at all, but I am on the hook for five or six presentations in the range of 45 minutes per, so there's lots of chances to come hear me speak if you're so inclined. :P

Optimization problems not appearing in AER

noreply@blogger.com (Andrew) — Tue, 19 May 2009 03:01:00 +0000

I was walking from Union Station to the University of Toronto about 8pm this evening, which is apparently when the homeless start settling down for the night on Bay street. I found this very surprising my first time in Toronto a couple of years ago, I wasn't expecting such a visible homeless presence.

However, what I found particularly strange today was that the people who had set up a sleeping spot had uniformly chosen highly visible spots, typically the middle of the sidewalk in front of a major building. It seems to be it would be preferable to find a more secluded spot on a number of fronts: noise, chance of being dislodged by a policeman, but perhaps it reduces the chance of being robbed while sleeping? A form of silent protest?

What variables enter into this optimization problem? Given the repeated nature of the game, it seems unlikely that these people are away from their maxima. Can anyone think of more compelling reasons to sleep directly outside of the TD building instead of in a park?

Links

noreply@blogger.com (Andrew) — Fri, 08 May 2009 18:42:00 +0000

Leading off, solid labour force news. Can I be one of the cool bloggers and say "green shoots" as well?

Freakonomics asks how to optimally divide the rent of a shared house and proposes some rather uneconomic methods, when a Rochester student already figured out this problem for his job market paper. Paper here. (He went to Texas A&M.)

EnvEcon reiterates the point that debating carbon tax versus cap-and-trade isn't that important relative to implementing either over a much-less-desirable policy. I had a New Years' resolution not to nitpick at the differences.

Rats more rational than humans. What you wouldn't expect is that William Easterly starts from there to segue into a warning about the dangers of data mining. I, for one, cannot explain why there should not be a standard algorithm for tackling any econometric problem.

Lessons

noreply@blogger.com (Andrew) — Thu, 07 May 2009 20:21:00 +0000

Okay, because I can talk about this subject with a degree of legitimacy now.

I remember reading some sort of 'guide to graduate study in economics' a year or so ago, written by some people in the UC system. I don't really remember much, except one line. "In grad school, you are judged by the fruit, not the sweat, of your labours." Okay, I'm paraphrasing a little, but that's pretty close. Ir's incredibly true.

Don't stay up until 5am trying to fix your code so the robust standard errors on your weird model match up with the textbook's to the fourth decimal place when the first two already match. It's just not feasible to do everything and remain sane, so setting priorities becomes extremely important. You don't want to become the person who lives out of their office working 90-hour weeks. Memorizing the proof to show that the set of essential finite games under the sup metric is residual is just not worth it.

In particular, a crucial lesson I'm still working on learning is being able to put a wall between economics and leisure. I remain terrible at resolving to take the morning off and put in a decent rest of the day. Often I will just blankly click around the internet until lunch while fretting about what work I have to do, at which point I start an internal debate on whether I've taken any time off. This is not a good way to spend time.

Okay, math. The importance of mathematical preparation decays throughout the first year. There were very few new mathematical techniques introduced in the second semester. (Though the first micro II class was a little freaky when the prof claimed the Riesz representation theorem was "standard off-the-shelf" stuff we should know.) The first term, preparation helps you a lot. Math for economics, mathematical statistics, Bellmann programming. If you've seen them before, it makes a big difference. I can show you my <50% on the mathematical econ midterm early last October for proof.

What is much more important than being exposed to lots of high-level techniques is 'mathematical sophistication'. This gets thrown around a lot and it's hard to define. Conditional on being told "use a second-order expansion here to derive blah blah blah", it's not difficult to mechanically go ahead and solve. But staring at a problem you've never seen before under severe time constraints, the real skill is to recognize that a Taylor expansion is the preferred method of attack. (And since any problem on a final exam has probably not been seen before...)

Yes, this is correlated with exposure to high-level materials, but not perfectly. I don't know how to acquire this talent, and it's not something I'm particularly great at, but it's crucial. Being really comfortable with the material at the level of Rudin is a lot more important than having been in a course that worked through a lot of weird results in functional analysis.

After this, everything else I could talk about becomes a lot less important and/or obvious, if what I said already wasn't. Stay as healthy as possible. Spend as little time thinking about money as possible. Don't be a moron in social situations with your classmates. Try to remember why you're doing it all in the first place.

Why does the NHL prefer Phoenix to Hamilton?

noreply@blogger.com (Andrew) — Thu, 07 May 2009 20:10:00 +0000

Dunno. The court filings say because it "unreasonably restrains competition in violation of the antitrust laws".

Can't say I buy that. Moving a team from a monopoly position in Phoenix to compete with the Leafs hardly sounds anticompetitive. In fact, I have no idea how antitrust laws even come into play here, because it's all the same league. Do the Leafs have that much sway in the overall league?

Presumably the NHL has got to like the fact that a team in Hamilton probably wouldn't lose the $20 million the Coyotes lose. The only thing that I can think of is a continued effort to grow the game south of the border would be helped by the Coyotes staying put. Am I missing something?

Back in the fray

noreply@blogger.com (Andrew) — Mon, 04 May 2009 19:49:00 +0000

Whee, blogging. I haven't done this in awhile. Anyway, I'm finished exams. Summer vacation stretches forward, I have a serious playoff beard, and it would probably kill my grandmother to observe the state of my apartment. Will do some roundup posts of the first year in the near future and get back to econoblogging.

Immigration and Inequality

noreply@blogger.com (Andrew) — Wed, 22 Apr 2009 22:41:00 +0000

David Card, perhaps the preeminent practicing academic economist holding a Canadian passport, was here today to give the annual McKenzie lecture, titled, well, "Immigration and Inequality". Fairly interesting. Basically, it argues that high school dropouts and high school grads with no postsecondary are perfect substitutes to employers, and grouping these categories together makes the education profile of immigrants match up with the education profile of Americans. So you do some econometrics and as that hypothesis suggests, American wage inequality is basically unchanged relative to the counterfactual of no immigration. Ungated working paper here.

However, as the guy sitting to my right with a zillion AERs kept gossiping to me about during the speech, the identification strategy wasn't being bought into all that much. Basically, it revolved around using the past history of immigrants to migrate to ethnic enclaves to IV for the supplies of different skill levels of labour with wages on the left hand side, since presumably immigration responds to economic opportunity, i.e. wages.

Anyway, it was nice to get to a seminar. Hausman gave a talk last Friday that I slipped into as well, extremely authoritative in front of an audience. I hear he's vicious from the audience. Next year should bring a lot more of these things, I'll probably be at all the macro bits. I'll talk about courses for next fall post-exams, which start Monday and end the next Monday.

POSTSCRIPT: No disrespect to David Card, but the most memorable part of the presentation was watching two 20-something graduate students muck with the control panel for the lights unsuccessfully, prompting 90-year-old Lionel McKenzie to come down to the floor and set the lights perfectly in approximately two seconds. Pretty good.

Terrible think tank reports, a neverending series

noreply@blogger.com (Andrew) — Wed, 15 Apr 2009 14:09:00 +0000

Stumbled across a story this morning on the "substantial benefits" Canadians derive from their tax-funded public services. Tracked down the report hoping to get some chuckles out of the cost-benefit methodology. But no, it wasn't that simple. It's also probably a bad sign when the lead author's biography mentions their construction of the "gas gouge meter", something on which I have blogged previously, instead of any professional or educational qualifications, but I digress.

You can look at it if you like, but let me distill it for you: "redistribution is awesome!"

Sure, you can think that the Canadian income distribution is not "fair", whatever that means. However, that's an entirely personal and subjective opinion. The authors probably realized that at some point and figured out that maybe it would be better if they had some numbers to argue their point, e.g. consider the title: "Canada's Quiet Bargain: The benefits of public spending".

Reading that, you'd think the authors would argue that government spending has some benefits, right? This seems like a logical implication. But you'd be wrong. To quote:

[W]e are following the convention in public accounting of valuing public services at their cost. To the extent that public programs are supported by a cost-benefit analysis, our implicit assumption is that the net benefit from public services is zero[.]

Yes, we are starting a study to demonstrate the benefits of public services by assuming that the benefit of public services are zero.

As such, the entire study is nice graphs illustrating that households with lower incomes derive more benefits from public services than the taxes they pay, because in our progressive taxation scheme, the rich pay a disproportionate share of the taxes to fund said services. As such, a majority of Canadians derive (their number is 80%) net benefits from governmental tax-and-spend.

Factually, they're right. But I can do one better. If we collectively decide there's one person nobody really likes, we can drag them out back, lynch them, and redistribute their assets to everyone else. By my calculations, 33,617,546 of 33,617,547 Canadians - that's a whopping 99.999997% - will be better off! Clearly, what a great policy.

The point I'm trying to make here is when economists talk about 'net benefits', they mean 'a potential Pareto improvement', that is after the implementation of policy X, there exists a potential redistribution such that everyone is better off than before the policy. In the report and in my ad absurdium, no such possibility exists, so economists are typically not comfortable using the term 'benefits' to describe the effects of redistribution.

Further, I'm not trying to argue that progressive taxation is a bad thing (I don't think it is at all) or that there aren't lots of legitimate public goods the government should provide (there are), but arguing that we're collectively somehow better off by reallocating the pie is both wrong and short-sighted. Remember, redistribution has costs - see any introductory microeconomic textbook for a primer on the deadweight loss that occurs when taxation distorts incentives, nor are taxes free to collect. So under the assumption that government services are valued at cost, then taxation unambiguously makes us collectively worse off, not better.

Population clock here. Lynching that one guy is probably an even better deal now!

Collateral

noreply@blogger.com (Andrew) — Mon, 13 Apr 2009 19:52:00 +0000

Wrote Geanakoplos: “Who can remember the interest rate that Shylock charged Antonio? But everybody remembers the pound of flesh that Shylock and Antonio agreed upon as collateral."

The post is overall somewhat ignorant on just how much literature there had been out there on the importance of collateral and leverage in real economic effects, one canonical piece that comes to mind is Kiyotaki-Moore (1997) JPE "Credit Cycles", predating anything mentioned in the article. The Kocherlakota piece I mentioned the other day also generates bubbles through collateral-based effects.

Macroeconomists do generate a lot of good ideas, however it's often difficult to tell that they are good until after something blows up. Correct me if I'm wrong (I probably am), but if we accept the housing price bubble was a major contributor to this whole mess (as opposed to the notion that the weird-acronym-finance-jazz would've spontaneously combusted anyway), I'm hard pressed to think of other postwar macro events in developed countries where asset prices and household debt played a large role.

POSTSCRIPT: It's the Merchant of Venice, in case you were wondering.

Updates

noreply@blogger.com (Andrew) — Sat, 11 Apr 2009 18:12:00 +0000

Given that there are only three micro classes left before finals, even I can calculate that blogging has negative expected value. I want to put a post up at Macleans about some of the fraternity hijinks I've seen with the nice weather breaking out, particularly a bunch of drunken guys hitting tennis balls off beer bottles with sand wedges. Security didn't let that go for long, to be fair.

Lost the basketball match to the profs 17-11 in a forty-minute game. Yes, we're collectively that bad - and it's a heck of a lot easier to play defense than offense. Hoping for revenge in volleyball on Tuesday.

Had to read a 2009 working paper for macro, feels good to be that current. Returning to MWG to finish micro, feels like easy street. Metrics remains the letdown, but I'll supplement that with the Wooldridge/Imbens summer course in Toronto before the CEA conference. Just have to grind out three weeks and it's all over. Not that I have anything to do over summer. Not that that's a bad thing.

Tidbits

noreply@blogger.com (Andrew) — Tue, 31 Mar 2009 03:10:00 +0000

From Reason. Good for some chuckles, but not much else:

What would happen if Uncle Sam applied for a loan at his local bank?” What sort of deal could he expect to get on a 30-year, fixed-rate mortgage?
...
The final credit score was an unimpressive 645, or “fair.” The authors’ conclusion: “If Uncle Sam wanted to buy a house, he would get a rate of 7.836% for a 30 Year Fixed rate.” That technically “would put the United States in the subprime category.”

You may have noticed Newfoundland recently abolished interest on student loans; I know a fourth year who just diverted a scholarship from loan repayment towards entertainment purposes on the basis of the decision.

I'm trying to formulate an idea on the equity premium puzzle (or lack thereof, now that long-term bonds performed as well as equities over the last fifty years, though that won't stick, I hope) and the option value of being able to leave the market at any time, but I can't piece the strings together and don't have the time to poke through the literature. I'll write that down for summer.

The flyout went well. Nine people showed up, one more than last year, giving the students a chance to consume wings and beer on the department's dime. What else can one ask for?

Budget 2009

noreply@blogger.com (Andrew) — Thu, 26 Mar 2009 18:13:00 +0000

Here are the budget highlights, here are the actual estimates.

EDIT: And here is the budget thrown into wordle.

Firstly, I highly recommend that you (at least the Newfoundlanders) take the time to poke through the estimates, at least the first 18 pages. They're almost distressingly readable. I don't expect this level of clarity in any financial document, let alone a provincial budget.

This is what oil prices and Ottawa do to Newfoundland:
2008-09 total revenues: $8,069,353,000
2009-10 total revenues: $5,348,371,000 (estimated).

I have no solid knowledge of the ins and outs of the equalization agreements with Ottawa, one practically needs a degree in the subject. But it's a big budgetary hole to fill, which is where the $750m deficit steps in. Of that 5.35 billion or so, 1.26 billion stems from offshore royalties; the budget estimate is $50/bbl.

We paid $146,508,000 into equalization, or approximately $300 per Newfoundlander (but still win in terms of provincial side deals, with triple that coming back from the 1985 Accord).

It will cost $24 million to run the legislature this year - up 20% from last year's $20 million. Should I expect news stories about this? Education spending is also up 20% from last year.

Government is spending a quarter-billion on something called "resource development". Any ideas what that is?

Servicing the debt still costs a half-billion a year, but this has got to be a monumental improvement relative to a few years ago when we had $4billion more in debt and interest rates were considerably higher.

It should be made clear that we're having a party on the back of the oil money. I hope that it doesn't end, but that's unrealistic. It's an excellent party, and we're even being fairly responsible about it by taking some good chunks out of the debt. But the level of spending growth is way, way unsustainable and barring a ton economic development somewhere outside the oil patch, it will eventually come home to roost in the budget. That could easily be twenty years down the road, which is a long time, but I feel like it would be pretty inexcusable to leave the oil patch behind with a provincial debt still on the books.

Fourth-quarter macro

noreply@blogger.com (Andrew) — Thu, 26 Mar 2009 17:15:00 +0000

After a disappointing eight weeks wrangling with business cycle models that were predominately conceptualized before I was born (King/Plosser/Rebelo, Hansen/Rogerson indivisible labour, etc), the final stretch of macro is looking pretty good. Subdivides into labour market frictions, financial frictions, and growth. The latter uses Acemoglu's new textbook, the former two are based on much more modern papers than the business cycles bit. So far we've gone through Mortensen/Pissarides in considerable detail. I enjoy it.

Also, the prospective first-years will be visiting campus tomorrow. I'm looking forward to it. Free food on the department dime, reminder that it will be summer soon, etc.

I promise a post with some content soon~!

Seal hunt economics

noreply@blogger.com (Andrew) — Mon, 23 Mar 2009 19:46:00 +0000

With the seal hunt kicking off this week, I felt like I'd drop in a few facts.

The DFO tallies the value of seal landings. About $8million in 2008, $31million in 2006. It is unclear how this number is calculated. Is this the commercial price? Retail price? Does it include value-added for processed pelts or flipper pie? I suspect that "landed value" means no.

There are claims that it costs the government of Canada a lot of money to oversee the hunt, maintain medical services for sealers, etc. There appear to be no credible references here. A common number thrown around by animal rights groups is that the hunt costs about $20million of government money to run. The DFO maintains it does not subsidize the hunt. There has certainly been no direct subsidy since 2001. There is certainly some government cost associated with the hunt.

Both the DFO as linked and Greenpeace concede that there are no reliable methods of linking changes in seal population to changes in cod stocks.

I will endeavour not to get mixed up in any of the non-economic issues, though it is clear that a large part of the world either derives disutility from the seal hunt, derives utility from decrying the seal hunt, or some convex combination thereof. If it the former, there is a possibility for a Coasian bargain, i.e. the rest of the world pays off Atlantic Canada to stop the hunt/transport the seals somewhere else. If the latter dominates, then it is optimal for the hunt to continue. You may take the fact that no such bargain has ever approached the table as you will.

Feeling small

noreply@blogger.com (Andrew) — Sat, 21 Mar 2009 01:14:00 +0000

It's mildly depressing that the entire economy of Canada ($1.3 trillion) fits inside the US budget deficit ($1.7 trillion USD). It's not even close, there's hundreds of billions left over to chew up half of Africa or Sweden or something.

Makes it really hard to argue for coordinated international fiscal stimulus - if Canada went for a stimulus plan far more ambitious than pretty much anyone is calling for, it would barely constitute a rounding error in the US deficit.

Environmental fact of the day

noreply@blogger.com (Andrew) — Thu, 19 Mar 2009 23:06:00 +0000

Since at least 1307, when King Edward I banned the burning of coal to protect his citizens’ “bodily health,” governments have regulated the release of pollution into the air.

Here's the paper. Upon reading this, I immediately thought that the Romans. must've had something to this effect, but I can't turn up anything on google, and pieces like this suggest there simply may not have been.

Also joined the local NCAA pools that have circulating in the econoblogosphere. I was 97.4 percentile last year, despite having never watched a televised basketball game, mainly by overwhelmingly playing the higher seeds.

I will also be representing the graduate students in basketball as the annual spring sports contests kick off here in Rochester. Profs versus students, basketball, volleyball, soccer, softball, american football. The betting odds are on the professors.

EDIT: We've finally managed to bump wikipedia from the first google result on 'stackelberg follower'! Thanks everyone.

Fair play and monetary policy

noreply@blogger.com (Andrew) — Thu, 19 Mar 2009 17:55:00 +0000

Since the Fed announced it was going to buy a gazillion dollars of bonds, the US dollar is down about 5% against the yen. I assume these events are not uncorrelated, and that Sony et al aren't huge fans of the currency swing.

We've heard pretty much all parties and pundits say that a duel of devaluations should be avoided. What exactly is the precise definition of devaluation, and does this Fed program meet it? It certainly devalued the dollar somewhat, even if that was not the primary or stated goal. Would we get the same currency effects in a country that doesn't function as a safety perch? If not, does that mean these sort of bond buybacks are "fair", since most people can do them without breaking the devaluation code? Are monetary authorities "allowed" to devalue only as a consequence of doing other things to fight the recession?

Gender Disparity in Recessions

noreply@blogger.com (Andrew) — Fri, 13 Mar 2009 14:11:00 +0000

The job numbers were out today, and they weren't good, but they could have been worse. What I found more interesting is the different impact the recession is having on the sexes. (All numbers in percentages.)

From the numbers, it appears that women are having much more luck finding and keeping jobs than their male counterparts. The unemployment rate among adult women is now 5.6%, relative to 7.3% for adult males. (The 24-and-younger numbers drag up the unemployment rate.)

Is this solely a function of the fact that the distribution of genders across industries is not uniform? Probably, but I'd at least want to look at the data from past recessions to see if a pattern holds.

Un-markets in everything? Government beer edition

noreply@blogger.com (Andrew) — Fri, 13 Mar 2009 02:42:00 +0000

For those of you not resident to Canada, each province in Canada regulates the sale of alcohol differently. In New Brunswick, for example, there is a minimum price of $18.67 per 12 cans. However, many parts of New Brunswick are not a long drive from parts of Quebec, where beer can be found for as little as $12.50 per 12 cans.

This has led many thirsty New Brunswickers to drive a little bit more to secure suds at cheaper prices. Now, the government of New Brunswick doesn't like this one bit, because the only place you can buy beer in the province is at NB liquor stores - stores which managed to lose $12 million last year.

Yes, they have a monopoly on alcohol sales, and they still managed to lose money. That takes serious talent.

So, the solution to stop New Brunswickians from giving their money to Quebec convenience stores and government? The government starts to make its own line of beers to sell at the price floor. Duh. Note that competing beers have to apply to government to sell at the minimum price, and can only do so for a limited period of time.

So not only is the government spending the taxpayer dime to make beer (which the government contracts out to Moosehead), but it is forcing other beer makers out of business in the process. How does one possibly defend this policy?

UPDATE: From the government website promoting the new beers:

Why did ANBL choose to create and market its own beer instead of dropping the price of currently available beers?

ANBL has launched Selection Lager and Selection Light to provide New Brunswick consumers with an everyday low-price alternative in the domestic beer category. Our plans include the introduction of cooking and drinking recipes, because suggested use is the best way to grow volume. This way, we can effectively counteract the decline in the domestic beer market in New Brunswick. Simply lowering the price of existing brands would only result in a share battle.

POSTSCRIPT: Note that the government of Newfoundland manufactures Iceberg and Screech products through the Newfoundland and Labrador Liquor Corporation as well! I believe it is unique among Canadian provinces in this regard?

The failure of macroeconomics?

noreply@blogger.com (Andrew) — Wed, 11 Mar 2009 21:31:00 +0000

I assume anyone reading this blog is heavily exposed to the rest of the econoblogosphere, and are thus aware that a lot of really big names have issued serious complaints about the state of modern macroeconomics, which is often described as Chicago, or Minnesota style. If one was to complete the trinity, Rochester would probably be the apt choice. One and a half semesters towards becoming a macroeconomist myself, basically all I've been exposed to is rational, optimizing agents, an economy driven by real shocks - government spending and productivity - so on and so forth. It wasn't until a couple of weeks ago that 'money' appeared.

Basically, what I'm saying is that you could get through a year of macro at Rochester - and then do metrics or micro - hence completing a PhD in economics without every seeing 'money' mentioned, with only a small change in the present curriculum. It appears Dani Rodrik thinks this would be a problem.

Now, I won't pretend to be conversant with the current macroeconomics literature, but let's take Rodrik's word:

The bad news is the world could really use some practical, relevant macroeconomic theory at the moment. Brad DeLong and Paul Krugman are doing a superb job of reminding us of the continued relevance of Keynesian thinking. But they are hampered by the absence of micro-founded models that plausibly deliver the Keynesian remedies they advocate.

I am, however, fairly confident with the theory of supply and demand. Also with the desire of many tenure track economists to receive the accolades of Krugman and others.

So, there appears to be a large demand for these micro-founded models (based on the actions of aggregated rational individuals), but very little in terms of supply, consistent with the belief that a large reward awaits those who can produce. And yet, we don't see these models being produced. I am under the impression that this is because when you try to craft these models, they just don't match the data at all, to paraphrase one of the professors here from the other day.

Note that in real business cycle models you can construct government spending multipliers greater than one, but the ones I've seen have this effect result from the government spending making people feel poorer and having them 'purchase' less leisure as a result. And I don't think that's how Keynesians percieve their stimulus.

Now, perhaps there is some insight out there that can rescue Keynesian models and make them approximate the data to a reasonable degree, or perhaps reconciliation simply isn't possible without seriously changing the definition of Keynesianism. Given the effort that's been exerted, let's assume for the purpose of argument that it's the latter. Can we still advocate Keynesian positions and call ourselves social scientists? Don't think so, but I can't see people giving up, either.

POSTSCRIPT: For the record, I continue to believe that the real side of the crisis is roughly approximated by a destruction of a large chunk of the capital shock. I can't really say anything about the monetary matters.

I also had an interview for a summer RA position the other day, which I failed to secure. Which is probably deserved, since the girl that did get it was running 95%+ in macro I, while nobody else in the class was threatening to break 80%. Still, being approached by a prof for the position makes one feel good.