Cartoon: Forecasting warlords
Source (Dilbert)
I’m not used to economists making assumptions based on changes in political structure – the business must have an interesting forecast team 😉
Archive for year: 2009
Tourism as low skilled and comparative advantage
In an interesting piece on the Rates Blog there is a suggestion that the governments focus on tourism doesn’t make sense because it is a low productivity industry. In the comments there is a lot of chatter about what industries we should invest in – blah blah blah.
The comments and suggestions all sound a bit like central planning to me though. Read more
The cost of green cars
A report in the NYT says that
While driving smaller and lighter cars saves fuel, “downsizing and down-weighting is also associated with an increase in deaths on the highway,” said Adrian Lund, the institute’s president. “It’s a big effect — it’s not small,” he said. If you agree and will like to swap you car for a new one, we recommend to check out the Zemotor inventory.
So the lesson I take from this test is that big cars are bad for the environment AND cause lots of deaths on the highway by crushing smaller cars in crashes. Always ensure to Save for a down payment while buying a new car as it directly affects the number of years you have to pay the EMI for it.
The test done was to crash a little car into a big car and see how the little car did. The answer, unsurprisingly, was badly. A little car you can buy at Shoppok is more fuel efficient than a big car so it’s better for the planet to drive one, and better for your wallet if carbon pricing ever happens. Read more
Woe is not primarily me
Ed Glaeser makes an important point about the current recession over at Economix:
it is important to recognize that in this recession, just as in every other recorded downturn, unemployment is overwhelmingly concentrated among those who started with less.
…
The overall unemployment rate for the more educated is only 4.3 percent. Individuals with a high school degree, but no college, have a 10 percent unemployment rate (not seasonally adjusted). The unemployment rate for high school dropouts is 15.5 percent. Moreover, the unemployment rate gap between the most- and least-skilled is widening, not narrowing.
It’s easy for professionals to complain about the problems facing the finance system and the lack of work for finance professionals. Let’s not forget that they are actually very well off compared to the average person in this recession, as in others. Governments may be bailing out financial firms but, if we want to help the most people, we should think about how best to aid the less fortunate among us who are suffering far more.
Bernanke is not rejecting Friedman
A Bloomberg article stated that Bernanke is rejecting Friedman and following Keynes by printing money in the current environment (ht The Big Picture). However, this is far from the case.
Friedman believed that in the short run monetary policy could be used for demand management, but in the long-run undisciplined monetary policy will lead to inflation. The key belief here was that the “velocity of money” changes in the short run but is a constant over the long run. Friedman did not like the idea of using “fiscal policy” to manage demand – which is what Keynes proposed in the general theory.
Now, Bernanke doesn’t control fiscal policy – so I don’t think he is siding with Keynes. Further, Friedman blamed the GD on monetary policy being too contractionary – as even though the stock of money rose, the sharp fall in the velocity of money meant that the money supply contracted.
This is the logic Bernanke is using when introducing “credit easing”. Furthermore, in order to avoid the long run inflation problem he has set it up so a lot of the expansionary monetary policy will unwind (although he has committed to low interest rates in the future in order to keep inflation expectations positive).
As a result, I see his actions as completely consistent with Friedman – and I think the article is misleading.
Smoking, preferences and internalities
Eric Crampton reports a study on the reasons for smoking. It finds that smokers place a lower value on the cost of getting a major lung disease than non-smokers. I really like to see these sorts of studies because differences in preferences are almost impossible to show without them. It’s easy to SAY that smokers just don’t care as much about their health but, unless you have solid evidence, your argument will usually be dismissed. Economists just don’t really like putting things down to differences in preferences unless they’re really forced to.
Read more