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Showing posts from October, 2010

The economics zeitgeist, 31 October 2010

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This week's word cloud from the economics blogs. I generate a new one every Sunday, so please subscribe using RSS or the email box on the right and you'll get a message every week with the new cloud.
The words moving up and down the chart are listed here.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.
I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.
If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Nick Rowe, communicator extraordinaire

As often happens, Nick Rowe has communicated something tricky and difficult to understand in a limpid and revelatory way:
...the main proximate effect of monetary policy on AD is via Tobin's q -- when the price of existing assets rises relative to the marginal cost of producing new assets, firms will move along their MC curves and produce more new assets. Investment increases, in other words, and investment is a component of AD. And when the price of existing assets rises relative to the price of newly-produced consumption goods, both the income (wealth) and substitution effects lead households to increase their demand for newly produced consumption goods, and consumption is also a component of AD.This is such a good explanation of the fundamental mechanism of monetary policy that I virtually had to sit at my computer and applaud.

Greg Random responds in the comments:
Altering the flow and size of money streams changes the relative valuations of different asset classes, throwing the…

F1 versus G20

Loved this headline: Bernanke Beats Schumacher in Korea as Brains Finish First.

I don't really know what else to say about it. I'll post something more intelligent tomorrow.

The economics zeitgeist, 24 October 2010

Image
This week's word cloud from the economics blogs. I generate a new one every Sunday, so please subscribe using RSS or the email box on the right and you'll get a message every week with the new cloud.
The words moving up and down the chart are listed here.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.
I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.
If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Are the British natural Austerians?

Reader Bill Spight writes from the US, pointing to today's Brad Delong article and asking if I think the British psyche has a special tendency towards austerity.

I hadn't read Delong's piece (I find his blog a little too predictable usually, and while I agree with much of what he says, I don't need to re-read the same opinions every day). He is quite right, though, about the Tories' lack of a real economic theory behind their actions.

Osborne obviously has some acquaintance with economic theory - though it may be selective. He understands the idea of crowding-out, the impact of long-term interest rates on private investment, and the idea that monetary policy can sometimes compensate for fiscal policy. But the current cuts are more driven by political ideology than economics. Notably, they fail to understand the difference between public borrowing in an economy with high unemployment and output gaps, and in an economy running at full capacity. This of course is the b…

Misunderstanding nudge

This article from Suzy Dean of the Institute of Ideas utterly misunderstands - or maybe understands, but thoroughly misrepresents - the ideas, application, scope and definition of behavioural economics.

Some choice quotes:
If we consider at the growing influence of ‘nudge theory’ within political circles, the tendency to explain social ills through the individual and widespread hostility towards lower class drinking, we can see that price fixing is symptomatic of the contempt politicians and other elites have for the public and their behaviour....Thaler and Sunstein argue the state can prompt people to behave a certain way by creating a ‘choice architecture’ which enables people to make the right decisions. The government’s ‘Nudge Unit’ has been tasked with public health issues including obesity and alcohol intake.Yet the problem with nudge is evident in the decision to place a minimum cost per unit on alcohol. It skips the debate about whether it is the government’s business in the fi…

The economics zeitgeist, 17 October 2010

Image
This week's word cloud from the economics blogs. I generate a new one every Sunday, so please subscribe using RSS or the email box on the right and you'll get a message every week with the new cloud.
The words moving up and down the chart are listed here. "Nobel" curiously is lower this week than last! Evidently speculation about the result was more interesting than the reality of the actual award.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.
I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.
If anyone would like a copy of the underlying data used to generate these clouds, or if you would like …

Nearly right is all wrong - Austrians again

Another example of how Austrian economics is nearly right but, at the last minute, gets it all wrong.

This article from Peter Boettke on Coordination Problem makes an insightful distinction between order and complexity in two different dimensions. He says:
I often use a 2 x 2 matrix to communicate to students the different schools of thought in economics. The rows reflect the problem situation we are find ourselves in (simple or complex), the columns reflect the outcome of our interactions (order or disorder). Neoclassical economics is found in the simple/order cell; Keynesian and market failure theory is found in the complex/disorder cell; Marxism and critics of economics are found in the simple/disorder cell. What does that leave? The complex/order cell and that is the intellectual home of the Classical economists such as Smith-Say, the Austrian school from Menger to Mises to Kirzner, and the New Institutional school of Alchian, Buchanan, Coase, Demsetz, North, Olson, Ostrom, Smit…

Should we pay for performance?

Tom Powdrill has a question: why do companies think that higher pay leads to better performance?

He's right to point out that there are lots of studies now showing the opposite: higher pay can lead to worse performance. But these are mostly lab studies which don't replicate all the conditions of real life.

To explain why companies might think this, notice that the implicit basis of pay-for-performance is that there is a cost to the worker of doing good work. Otherwise, why would we need to pay them more to do it? So, is it true that workers bear a cost if they do well?

In traditional work, where the quantity of labour largely controls the value of the output, this is certainly true. Digging more coal takes effort and time, hence we might want to compensate the worker for doing so. One can make a similar argument for writing more lines of Java code, though that's more controversial - mainly because more is not necessarily better.

But Tom is talking about management decision…

2010 Nobel Prize: Diamond, Mortensen, Pissarides

The 2010 Nobel Prize in Economics has been awarded to Peter Diamond (MIT), Dale Mortensen (NWU) and Christopher Pissarides (LSE).

Tyler Cowen has written a good concise summary of each prizewinner's work and contribution (linked above). I promised on twitter earlier today to write a post about the application of their research to the 2008-2010 recession.

First I'll mention Diamond's book on behavioural economics, which is one of the respected texts in the field and which I've been meaning to order for a while. Today I finally got around to it. The introduction, available here, gives a very clear and perceptive abstraction of the key contributions of behavioural economics as currently practised. It can be summarised in three departures from the standard model: bounded rationality, bounded willpower and bounded self-interest.

He (and co-author Hannu Vartainen) also reference the psychological process of decision-making as an important part of behavioural analysis, and id…

The economics zeitgeist, 10 October 2010

Image
This week's word cloud from the economics blogs. I generate a new one every Sunday, so please subscribe using RSS or the email box on the right and you'll get a message every week with the new cloud.

I think the aesthetics this week look somehow quite populist. Maybe a New Constructivist art movement is arising based on the desktop publishing style of Eighties environmentalists and Noughties organic farm shops. Any takers?
The words moving up and down the chart are listed here.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.
I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.
If anyone would like a copy of t…

Do Alan Johnson's economic views matter?

Much speculation today about the signal sent by Alan Johnson's appointment as shadow chancellor. Does this mean Miliband has decided to stick with Alastair Darling's policy of halving the deficit in four years? Is it a snub to Ed Balls, designed to avoid a new Blair-Brown style conflict between Labour's leader and (shadow) chancellor?

A search for '"Alan Johnson" economics' mainly shows today's news - neither Google nor Bing seems to allow me to exclude articles from the last 24 hours. Fortunately Bing simply isn't up to date yet, so I can find a few old articles - this speech from last October is typical, being a recital of Labour's standard policy message. The nearest thing to an economic policy statement is his speech saying there's no reason to worry about UK population growth to 70 million; and this item suggesting that the government should nationalise a dock in his constituency to stop it falling into disrepair.

But actually, Alan J…

Strategies for government departments

I've recently been developing the strategy for my own company, so I was interested to see this article by Paul  Mason about the strategy for the UK armed forces.
...three potential military strategies under consideration by the Coalition government...The "Adaptible Britain" scenario sees the UK retain the ability to respond to "generic threats" - retaining an army, airforce and deepwater navy, through conventional warfare. "Vigilant Britain" was code for retaining the big stick of nuclear weapons and a large Navy but with an army capable of only an "occasional foray". "Committed Britain" was code for a focus on power-projection, Afghanistan style.Interesting. But what I found particularly thought-provoking was the following line:
To be able to ask yourself "what kind of country do we want to be in the world" is a nice choice to have: many countries don't have that choice.And notably, neither do many government departmen…

When regressions go wrong...or too right

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Via the excellent Simoleon Sense weekly roundup, I find this link which claims to discover "the single most important question in your life".

The research behind it claims to have found that the answers on a single kindergarten test can predict future income, college attendance, quality of college, college graduation (and while they're at it, a close link between college ranking and future wages).

I don't have the knowledge to challenge their results and I would not want to suggest that there's anything untoward about this research. But one thing makes me really, really puzzled: the results are too good.

Specifically, the regressions show an incredibly close linear fit between rank (or percentile) in the kindergarten test, and absolute salary. And a similarly close fit between rank in the test, and percentage chance of going to college.

The following image not only shows that unrealistically close linear fit, but they also imply an almost constant distribution of…

The economics zeitgeist, 3 October 2010

Image
This week's word cloud from the economics blogs. I generate a new one every Sunday, so please subscribe using RSS or the email box on the right and you'll get a message every week with the new cloud.
The words moving up and down the chart are listed here.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.
I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.
If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.