Tuesday, July 31, 2007

Reading Challenge VI

Today's selection: Buffalo Hunt: International Trade and the Virtual Extinction of the North American Bison.

You can see a powerpoint presentation on the paper here.
Abstract: In the 16th century, North America contained 25-30 million buffalo; by the late 19th century less than 100 remained. While removing the buffalo east of the Mississippi took settlers over 100 years, the remaining 10 to 15 million buffalo on the Great Plains were killed in a punctuated slaughter in a little more than 10 years. I employ theory, data from international trade statistics, and first person accounts to argue that the slaughter on the plains was initiated by a foreign-made innovation and fueled by a foreign demand for industrial leather. Ironically, the ultimate cause of this sad chapter in American environmental history was of European, and not American, origin.

One day, I will find that economics papers do not make me feel horrible about my math skills. I had a 5 on the AP Calc AB exam and straight A's in two more semesters of calculus, two semesters of mathematical economics, two semesters of real analysis, ODE and scattered other math courses, and I still don't feel comfortable with the math contained herein. The perils of being an undergrad. I digress.

Commentary: Before we get to the economics;
...it should be remembered that a seasoned hunter could kill several thousand buffalo a season.

As someone who is more familiar with hunting than the average economist, (gory details will no doubt offend certain readers) this is astounding to me. Getting a solitary moose is, on average, likely a three-day process and a lot of work for two people. Several thousand for a single person in one season? The mind reels.

Basically, the paper consists of two parts. One, a rigorous model showing that (gasp) a positive sustained price shock will cause entry, which causes the "kill function" to increase. This part is, in my view, more or less superfluous to what is essentially an economic history paper.

That leads to the rest of the paper, which is mainly export and shipping statistics. The point is made that likely almost 10 million buffalo (or most of the herd west of the Mississippi) were killed for export. However, I don't think we can blame trade. What we can blame is:

1) Tragedy of the commons. We immediately know we're going to see overexploitation since property rights aren't enforced.
2) An extremely low marginal cost of harvesting skins. Ergo, (1) is exacerbated.
3) The presence of a close substitute, namely cattle leather.

Presumably, without trade, given the extent of the use of cattle for leather in the US (at the beginning of the hunt there were two cows for each bison, from the paper), whatever European innovation allowed the tanning of buffalo would've crossed the ocean, and the buffalo hunt would have been on as a cheap substitute for traditional leather. European trade just compressed the process that much more given a commeasurately larger market for bison.

I guess I'm trying to argue that trade only compressed the slaughter into one decade as opposed to two. Taylor admits as much, saying that buffalo could never have survived in large numbers. But painting the picture that the hunt on the west of the Mississippi would have been gradual, as it had been on the east, would only have happened if buffalo skins could not produce leather. Given that it was discovered how, the hunt was doomed to become a slaughter, regardless of export markets.

Technology, not trade, killed the buffalo.

Globalization and Bison

I am unsure what to make of this:
[A] Canadian researcher has discovered that globalization was the real culprit for the decimation of the U.S. bison herd in the 19th century.
...
...European development of a cheap and easy tanning method after 1870 fuelled that continent's insatiable appetite for bison hides...
...
...the usual suspects are in fact innocent and that this other suspect - international trade - is the guilty party," Prof. Taylor said.
...
The U.S. government, fresh from its bloody civil war, did little to protect its natural resources and fell to the whims of market demand.

Okay, the article concedes that six million of 30 million bison were exported. I remain unconvinced that the market could ruin a resource so thoroughly in a decade, and that the continuing mission of the US Army to destroy plains bison as a way to subjugate native peoples is irrelevant.

The NBER paper is here. Expect an update later today.

GDP Numbers

Statscan delivers the goods. Nothing exciting here.

0.3% growth in May, which gives us 2.5% y/y, and 2.8% annualized over the last quarter. Retail sales were unsurprisingly a large contributor. In contrast to the US, housing is not falling apart - home construction was flat, while resales and non-residential were up.

Yawn. Looks fine, though nothing to write home about.

Monday, July 30, 2007

Zimbabwean Aid

I must've missed this article in The Economist last Friday.

It should not be a surprise that foreign aid going to Zimbabwe is given to NGOs, the UN, etc, given the madhouse run by Mugabe. But!
By Zimbabwean law, all official foreign-currency transactions must go through the central bank. With hyperinflation, a gap of around 10:1 has opened up between the official exchange rate operated by the bank and the true rate reflected in the black market. Were donor agencies fully to comply with this requirement and transact their aid at the official rate, around 90% of the value of their aid would be captured by the central bank...

Faced with this dilemma, most donors...have negotiated special rates with the central bank—usually around the mid-point between the official rate and the black-market rate, though even this implies that the central bank captures around half of official aid.

But Norway's aid agency has gone even farther. Apparently it feels obliged by its principles of good governance to transact all its aid at the official rate, at times inadvertently handing most of its aid to the central bank. As conventional tax revenues to the finance ministry have dwindled in the face of economic collapse, the central bank has increasingly become the locus of government finance, thanks both to its capture of foreign exchange and its printing of money. It must be the world's only central bank that itself imports tractors.

It would be fairly arrogant to assume I can attach value-added over The Economist.

Pure Capitalism

There is nothing more pleasing.
It's a very special number in China - 20080808 - and Zhang Jianyun hopes it's about to pay off.
...
Zhang said he paid 20,000 yuan (C$2,790) for the number. Now he plans to auction it next week - Aug. 8 to be exact - with the bidding starting at 200,000 yuan (C$27,880).

Well, that's a lie. But I certainly do enjoy these stories, as opposed to 'Government seizes phone number to promote Beijing Olympics'.

Conventional Wisdom

Since we're already talking about political economy today, let's mention Galbraith's 'The Affluent Society', which I read earlier this summer, in entirety. The book coined the phrase 'the conventional wisdom'.

The book was a disappointing read, and confirmed by opinion of Mundell as the best Canadian economist of all time. I still have no idea on 'the best Canadian economist who hasn't abandoned Canada'. Suggestions?

Regardless, the phrase 'the conventional wisdom' is ubitiquous in the economic literature. I wonder at the ratio of journal publications that contain the phrase in economics to journal publications that contain the phrase in, say, sociology. I suspect it would be a fairly large number.

However, despite my lack of appreciation for the book, it does serve to remind me of something. The main policy proposal of Galbraith's was 'Cyclically Graduated Compensation', which was so unpopular, it only has three Google hits today. Similarly, very few people embraced the idea that advertisers were to blame for the woes of economic society, and that humanity wasn't capable of dreaming up wants for itself past a certain point.

However, despite the rejection of his arguments, 'the conventional wisdom' survived. As such, I believe that his arguments continue to lurk in the back of a number of minds. In short, never be completely convinced that a defunct argument has no influence, though Keynes has already famously shared this sentiment.

Reading Challenge V

Today's selection: How To Save Globalization From Its Cheerleaders

Commentary: Yes, we again delve into Dr. Rodrik's works, but only because I felt the need to explore political economy, and I may as well stick with growth.

I agree with his thesis that free trade is no longer a unified policy space, to reorient his terminology. The mere fact that a growing legion of people have come to believe that globalization is a sticky subject constitutes strong evidence that it may well be such.

Basically, I think the point is being made that we're getting down to diminishing marginal returns. Accepting that there is a cost to globalization, regardless of how minute (and I am not saying the cost is minute), eventually there must reach a point where the costs and benefits are clashing for supremacy.

Personally, it feels like the world is fairly free for trade right now. I don't feel constrained in my ability to obtain Japanese entertainment, Chilean food, or Russian music. While a more scientific method of judging the extent of trade barriers may not exist, the discussion is being motivated in large part by the feelings of individuals, evidenced at the repeated WTO protests. (I do remain convinced that many people attending such riots are there for the social benefits, though, much as concerts serve as social reinforcement for a different clique.)

I don't think a serious economist exists that wishes for no trade as opposed to the status quo. Most economists, myself included, probably wish for a first-best world where trade occurred as it did in introductory textbooks. Rodrik enjoys hammering at the point that no such world exists.

I am, as always, perpetually cheered by the fact such a discussion takes place. Literature that reacts to the data and not the dogma is in no small part the reason economics can cling to the label of being a science.
Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia's or Egypt's? If so, what exactly? If not, what is it about 'the nature of India' that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them it is hard to think of anything else.

Too true, Dr. Lucas.

University Rankings

For the 16 of you who checked the site over the weekend (I am shocked the number is that high), you may have noticed there were no updates. Given the constraints on my time at work, I require a much lower marginal utility of blogging to blog from HRSDC than I need at home, where my options are much expanded. Ergo, don't expect updates on weekends.

Overcoming Bias (HT: Free Exchange) posts on the apparent irony of universities asking prospective students to choose a college not based on a ranking, but on a gut feeling while these same institutions accept entrants predominately on the basis of SATs, GREs, and prior grades. And of course, once inside, their achievements will be reduced to another grade - a ranking.

One extract from the Washington Post:
. We must encourage students to look inside their hearts and trust their instincts when it comes to choosing a college, not whether parents or friends think a university is cool or prestigious.

Personally, had any university fed me that sort of touchy-feely entrance propaganda, I would have run screaming.

I accept that a ranking cannot convey the entirety of a university. However, we live in a second-best world. Since visiting all potential campuses for a suitable evaluation period is clearly undoable - and we cannot expect anyone trying to evaluate our education to do the same - rankings constitute a useful tool in helping students and others come to decisions on the value of education.

Friday, July 27, 2007

Gov'ment Deadweight

Maybe I'm just more irritated at my coworkers than usual today, but there's nothing better to create a healthy disrespect for government than actually being part of it.

Fact: Government defines 'deadweight loss' differently than do my microeconomics and IO courses. I considered it the degree of economic loss taking place, i.e. the distance from the best possible solution, or the degree of loss a policy creates from the prior staus quo. It deals with the size of the pie.

Government (and not just Canada, but think tanks, other governments) defines it as windfall gains + spending that falls through the cracks, e.g. if government pays someone to attend training classes and they don't show.

Trying to elucidate that these are not the same has not proved easy. I don't particularly care that government has changed the meannig of language: 'deadweight loss' has certainly got a ring to it that I can see many policy wonks loving, but it's not an excuse to ignore economics.

I just hope I'm not completely out of it and am missing some brutally obvious fact that will exile me from the blogosphere in shame.

Reading Challenge IV

Today's selection: A Stochastic Production Frontier Model of the Newfoundland Snow Crab Fishery
Abstract:Since the collapse of the Newfoundland groundfishery in 1992, the snow crab fishery has become Newfoundland’s largest fishery, accounting for approximately half the value of total landings. This study uses trip log data to estimate the production frontier and the technical efficiency of this fishery using a Stochastic Frontier Analysis (SFA) methodology. The analysis is based on over 11,000 observations taken over a five-year period. The technical efficiency of the fishery is estimated to be at a level of fifty percent or less.

Commentary: It's Friday, so none of the obscenely long papers that populate the journals. Page inflation drives me up the wall to no end: Crick and Watson's 1951 article describing the nature of DNA took up three - 3 - pages. Most articles these days are 40 pages to make a small point. But I digress.

So, it's nice to know my econometrics isn't completely atrophied. (My statistics...well, another story). I found I could make sense of most, though I wouldn't want to have to boot up SHAZAM and write the code to estimate it. (SHAZAM 9 doesn't work on my Windows Vista, anyway, so it's a moot point - have to install ubuntu soon.)

Good to see I remember some things. Dummy variable trap, fixed-effects modelling, blah blah blah. Disclosure: The author of this paper was my professor for Econometrics II last term.

The one point I would contend with is not that technical efficiency is determined by 'skipper skill', but by consistent geographic factors. If one's outport has few snow crab - and nothing else to catch - you're likely to keep catching snow crab much less efficiently than people in better areas.

People don't move away from this, because in the Newfoundland fishery, contrary to many other fisheries, people fish to qualify for welfare payments, and not to support themselves outright. Ergo, we have a lower technical efficiency than were one cannot secure such generous handouts, e.g. Hawaii, where people cannot have a career on welfare.

The low efficiency of Malaysia can probably be explained by a more intense tragedy of the commons, since the standard of living is lower, so more people pile in, driving down the efficiency moreso than in OECD countries.

Goldilocks

The Business Conditions Survey illustrates that companies are content, maybe a touch lukewarm in some places about the economy.
..results for employment prospects for the next three months remained unchanged...
...
the balance of opinion [% planning to increase production - % planning to decrease production] stood at +6, unchanged from the previous survey...

I could quote more, but there's little value added. I really still haven't witnessed a recession in my life. I was what, 5, when the last one happened? Things are pretty good.

Thursday, July 26, 2007

To the Store!

A decision handed down by the Copyright Board as recorded in the Ottawa Citizen catches my eye.
The Copyright Board of Canada is again backing a tax on Apple Inc.'s iPod and other MP3 music players that could boost the price of the devices by almost 30 per cent.
...
Opponents have until Aug. 18 to ask for a judicial review of the copyright board's decision or file a Federal Court appeal.

The CPCC lobbies for levies on recordable media to compensate artists for unauthorized copying of their music. The group wants a levy of as much as $75 on an MP3 player with more than 30 gigabytes of memory.

The copyright board will seek public submissions next year on how much the levies should be, a spokesman said.

Well, maybe not quite time to replace my malfuncting iPod Shuffle (with a non-Apple product) quite yet, but I will be keeping tabs on the news.

Reading Challenge III

Optimal Migration: A World Perspective
Abstract: We ask what level of migration would maximize world welfare. We find that skill-neutral policies are never optimal. An egalitarian welfare function induces a policy that entails moving mainly unskilled immigrants into the rich countries, whereas a welfare function skewed highly towards the rich countries induces an optimal policy that entails a brain-drain from the poor countries. For intermediate welfare functions that moderately favor the rich however, it is optimal to have no migration at all.

Commentary: I admit my eyes glazed over at some of the math. Despite two courses in real analysis, two in econometrics, two in mathematical economics, plus discrete, differential equations, and some other math courses, I find I remain continually unsatisfied with my ability to adapt to unfamiliar notation. I was struggling with the first equation.

However, the paper is quite interesting. The abstract summarizes the conclusions well, and I was able to get an intuitive feel fairly easily. To a certain extent, I found the assumptions were predetermining the outcome too much: almost if I could sense the outcome a priori to the model being derived. I stress this comes from pure intuition and no ability to actually critique their efforts in any way.

The results also coincide with Canada's world leadership in point-based immigration, which the paper implies is synonymous with Canada leading the world in exploiting immigration for its own purposes and not as a method to make the whole world better off. This falls in nicely with my own views that government cannot make policy that gives non-citizens equal standing as citizens.

Sadly, I wasn't able to grasp the concepts firmly enough to build them into my continuing inner debate on the merits of population.

Payroll Employment Numbers

Statscan reports briefly on the May numbers. Highlights:

1) Salaried wages up 3% for the first five months of 2007 compared to 2006, up 0.2% in May.
2) Hourly wages up 0.7% in May, but decreasing work hours offsets the gain.
3) No real job creation.

I suspect the big 3% comes partially from the Quebec pay settlement with goverment workers. Nothing overly inflationary or exciting here.

Vacation?

It's summer. While I don't get any vacation days, this destination would certainly be tempting. Short of returning to Rarotonga, anyway.

Who wouldn't want to spend their free time frolicking among the oil sands?

Wednesday, July 25, 2007

Dismal Science

I remain convinced that economists have shucked any continual Malthusian pessimism about our subject of inquiry.

However, the job of that has been handed over to those less economically literate. In response to the strong retail sales/TSX drop/dollar appreciation of yesterday:
Looks like a recession is on the way.
...
It's only a matter of time before everyone gets worried and tightens their spending, driving up inventory that leads to massive layoffs and then next thing you know...
...
start penny saving... interest rates rising fast... looks like another recession coming...
...
it's going to get very ugly indeed...

There is no pleasing some people. I concede that the report (which I blogged on) can be considered inflationary. But my reaction to 'strong consumer spending' is not 'recession'.

Granted, I am cherrypicking (slightly), but it's hard to avoid the irrationality that characterizes the public economic debate:
when will Canadians stand up to the goverment and tell them we are tired of being gouged every time we buy something
...
The weak dollar forces our economy into a mode where we simply export raw materials. A stronger dollar would promote the growth of the industrial sector, perhaps then we can start making goods in Canada for once. It is about time we got out of the practice of mercantalism, we are a "developed" nation.

Stay tuned: Why it is irrational to ever expect an educated public discussion?

Reading Challenge II

Today's selection: Beyond Becker: Training in Imperfect Labour Markets

Commentary: Firstly, I don't like the organization of the paper. The logical flow always seems slighty off, but who am I to criticize?

Definitely written for a policy audience, but I didn't want to bother with the vast literature on training. I admit it's quasi-related to my function in government. Not as interesting as I expected, and partially because it is a literature review, to a certain extent.

Conclusions: Yes, we have an imperfect labour market. Ergo, what we see in real life makes sense. Why? Wage compression. The fact that the conclusions (65%, by word count) are dominated by a call for more research should indicate the value added.

GRE Changes

I'm writing mine in August, but in case anyone is planning their GRE, some minor changes:

A stupidly long link to the changes.

Globalization Poetry

If you follow the comments to Dani Rodrik's blog, you'll notice a user 'paine' has a proclivity for verse:

obviously a rising lira
forex
is not a stable lira forex

the point this really implies

the turk cb
is into
internal price stability
these days
ie
inflation control

this pre empts
the use of monetary policy to hold down the value of the turk lira
for fear of its possible
run away price level
effect

From this post.
Probably not a Nobel in literature, but hey.

Demand for Degrees

This article over at the Wall Street Journal isn't that interesting in and of itself. I would, however, add that applying to more universities is indicative of higher demand, since the applicant is willing to spend more time/money on securing a single spot (since one generally can't attend two universities simultaneously).

However, this sparked a point that I've had floating about for some time: To what extent have student loan programs increased the demand for higher education? Since they obviously have - anyone knows someone who would not have bothered with a degree if government money hadn't been in play - we assume a normal supply curve and start wondering as to how much the price of higher education increased because of student loans.

I haven't found a paper analyzing this, but I'd like to.

Chinese Statistics

As Econbrowser points out, there remains good reason to be curious (and skeptical) of what comes out of Chinese government processes.

I accept that China is growing like no other nation ever seen on the face of the planet. I also attach a much wider confidence interval to estimates from China than I do to pieces of data coming from Statscan or OECD countries in general.
In other words, the process is one big black box.

The one thing I would like answered about China is their peculiar habit of raising interest rates by individual basis points. In North America, you can count on central bank moves being a multiple of 25 - rates go from 4.25, 4.5, 4.75, etc.
...spurred further action by the PBoC; it moved to raise interest rates yet again, to 6.57 percent.

One wonders how they determine that level of precision.

See also this previous post.

Tuesday, July 24, 2007

Reading Challenge

In response to a professor's statement that "everything relevant to economics was in the QJE at one point" (I'm misquoting), I will now be reading one academic economics paper, in entirety, every day. I make no promises about this lasting after classes start up, since I'll be doing predominately math courses.

Today's selection: Industrial Policy for the Twenty-First Century

Commentary: I remain skeptical of such plans, but I do accept this infant industry (or infant cluster) argument to be valid. The framework he proposes for subsidzing innovation and 'self-discovery' of potential improvements may well be useful.

I feel more confident proclaiming that one country or subset practicing this doctrine may be successful, but if everyone did it, would we be collectively better off? Well, that would be competition, no?

Supporting innovation is probably important. I'll concede that government does have a role in promoting technology/development. I have no doubt markets could do it, given time, but I like, in general, the idea.

The key in the successful implementation would be to keep money headed directly towards innovation and development, and strictly away from rent-seeking and consumption. Of course, much, much, much easier said than done. I remain skeptical of government's power to do anything correctly.

I Should Be Reading

More evidence today that we should all spend less time involved in blogs and more time involved with books.

First, Econlog. To summarize:
Rich people read. Books.

Second, the CBC:
Older people who can't read have a greater chance of dying, including from cardiovascular disease, a U.S. study released Monday suggests.

I am strongly biased in favour of books since I grew up in a home that only had two TV channels until I was 16, and read probably a book a day during much of my formative years. I wish I read more books.

Carl Sagan put it eloquently in his 'Cosmos' series. Standing in the New York Public Library, home to 1.7 million volumes, an avid reader would, in a full life, only cover a few short stacks of the massive collection - 0.3% of the library. This not only suggests we should read voraciously, since at that threshold, we are unlikely to encounter substantial diminishing returns (and perhaps even increasing ones, e.g. how moving from one person to two people in a factory likely raises average output), but that we also should be choosy in which books to read.

Book Purchasing

I may have to concede irrationality on this point.

As any reader I have is likely aware, Marginal Revolution is a pretty successful blog.

One of the contributors, Tyler Cowen, has a book published: Discover Your Inner Economist. To promote sales of this tome, he has (i) offered access to a secret blog for those pre-ordering and (ii) offered customized podcasts to those pre-ordering. There may be other promotions, I haven't followed MR closely enough for a sufficiently long period of time to tell.

Either way, this has actually dissuaded me from purchasing the book, and I have resolved to read it at Chapters or some equally tolerant book store. I do not object to the price, but something in me twinges when people start restricting the flow of previously free content in order to compel fans to purchase the real thing.

To invoke another example, one of my favourite webcomics is The Order of the Stick. The author does not offer all comics strips for free on his site. Thus, I downloaded a pirated copy of the strips I could not access for free.

I'm not guaranteeing I would purchase if all content were made free online, but I just don't like splitting the community through 'premium members' or whatnot. Obviously, I may be in the vast minority when I purchase things that are freely given away, but am less likely to purchase those that aren't.

Retail Sales Numbers

Gee, the newswire is hopping today. Statscan reports on some extremely strong retail sales statistics for May.
Retail sales advanced in almost all sectors in May, marking the largest monthly sales increase in almost a decade.
...
Total retail sales rose 2.8% to an estimated $35.0 billion in May.
...
The Quebec public service pay equity settlement was a key factor in May's retail sales. Sales in this province surged 4.9% in May, the strongest monthly sales growth since February 1998. Excluding Quebec, retail sales rose 2.2%.

Now, I'm not particularly used to crunching these kinds of numbers, but this seems pretty optimistic.

More numbers coming on GDP, prices, and employment, plus the Business Conditions Survey, all before the end of the month, so we'll see how it plays.

Facebook Juggernaut

Okay, this is somewhat disturbing:
...in June 2007, 11.4 million Canadians logged onto Facebook, compared with only 343,000 in the same period last year.

Canada overall does continue to grow rapidly for Facebook, at about 4 per cent a week...

So, 34.7% of the country already uses Facebook, and at 4% weekly, we have six months until the entire country is a member.

Disclosure: I am not a member. I do not own a cell phone, either. I cannot fathom why people spend hours 'Facebooking'.

I suspect that 34.7% must be much higher among my demographic, 18-24, as well. Insanity. Social networks, I guess, have a tendency to become more appealing as more people use them.

No Ivy Advantage?

A survey of 270 CFO's says that half of CFOs care not at all about the prestige of one's university when making hiring decisions. (Compared to 15% saying 'very important'.)

I would say this is misleading for a number of people: Graduate students. I suspect this reflects society deeming it okay not to completely have your act together in high school. What someone does at 15 to earn admittance to Harvard isn't as good a predictor of ability/ethic/etc, I imagine, as what one does at age 20 to get into a good graduate school.

The article actually points this out:
In some career fields, such as law, it is typical for premier companies to recruit graduates from top-tier schools, said Claude Balthazard, director of HR excellence at the Human Resources Professionals Association of Ontario.

Law, of course, being a graduate distinction. For further proof, check out the institutions where professors at MIT/Harvard obtained their doctorates in the economics department. Fairly homogeneous.

I don't really have a problem with this. I figure by the time you're halfway through undergrad you're an adult and should be ready to try and excel at the tournament to secure a spot at the best school possible.

What I would like to see is this same question asked to people who make tenure-track hiring decisions at universities instead of CFOs. I suspect 'very important' would become the predominant category.

Monday, July 23, 2007

Youtube Debate

I'm not convinced it has any merit, but still I'll provide commentary.

1) Bill Richardson accuses insurance companies of ripping people off. Let's not go back to the ridiculousness of 'price gouging'.

2) How many women are voting for Clinton because she's a woman? I'm betting a lot. Any polls on this?

3) Why is being black a race, but Hispanic an ethnicity? Is there a difference?

4) Clinton still assuming she's the lock. "When I get inagurated..."

5) $9.50 minimum wage? Hard to believe it was, what, $5.75, only a short while ago. Now that seems like a pretty large macroeconomic shock if it happens.

6) Are women still systematically disadvanted? I really find this tough to believe. I personally think that that the playing field is level.

7) Applause for gay marriage? In SC? Repeatedly? Not what I was expecting. At least Kucinich/Dodd/Richardson/Obama don't want to compel the churches to perform marriages. (Disclosure: atheist author)

8) Hillary's video was horrible.

9) Reading manga during the commercial break. Should be doing GRE prep.

10) Why it is America's responsibility to save Darfur as opposed of the UN? I don't know much about it though, so I'll leave that point there.

11) Gravel asserts America has a responsibility for global governance. Whines about insufficient time.

12) Applause. There's some economics behind the dynamics of applause, though a separate post.

13) The British of ninety years ago would provide compelling testimony as to attempts to establish law in Iraq.

14) Gravel whines again. How Presidential.

15) Universal National Service? Supporting public service? Is there a shortage of people looking for jobs in Washington?

16) I'm going to stop talking about Gravel. Too easy.

17) Anyone, regardless of race/gender/etc is taken seriously when they come with a US Senate seat - of the office of the President.

18) I want a trade question. Maybe I'll submit it to the Republican debate, but I'd have to buy a microphone. Easy cost-benefit there.

19) Dodd is getting more airtime than I expected. As much as Edwards.

20) Theoretically, one could probably get all the troops out in a month. Throw them on airplanes and torch everything left behind. The problem is contractors and whatnot. Though I really can't say.

21) Biden demonstrates his disbelief in the virtues of cost-benefit. No, you do not spend an infinite amount on saving a solitary life.

22) I didn't hear anyone but Dodd and Kucinich comment about their serving family. Not that I personally think it matters, but I do find it interesting. It's a volunteer army, ergo we have to respect people's preferences. Of course, elections are about judging someone's preferences...

23) A global warming question would also be nice.

24) I question the economics behind estimating net job creation from the passing of a tax incentive. Numbers worthless without justification.

25) Okay, I lied. Gravel whines again.

26) I need to learn about No Child Left Behind. Know nothing about it.

27) Anyone who does not take one course in calculus and one semester in statistics (or equivalent) is not prepared for public life.

28) Richardson wants a full arts program? Sculpture? Dance? Insanity.

29) Woah, Anderson didn't know whose kids were in public school.

30) Fixing dropout rates and the pre-university education system in general is obscenely important.

31) Grah, global warming. Finally. But I have a cheesecake date.

The max{profit} Incentive

Gristmill applauds a report stating that it's actually cheaper for companies to adopt a greener way of making chlorine (mercury-free!) than to continue with their current method.

I am eternally skeptical of such reports. If the company wins by changing, well, why haven't they changed? I give the benefit of doubt to industry in cases like this: they know themselves better than a think-tank with an axe. Even if it is a nice axe.

Since some of the plants have shifted already, this is only proof that the companies know about it. Ergo, I can't summon any reasons, aside from 'it costs more' to explain the mercury-using plants.

Finally, advocating compliance legislation to force the switch instead of a more Pigovian solution to the problem? Apparently Mr. Obama agrees.

Chinese Environmentalism, II

Reuters picks up on this article, detailing Beijing's suppression of a report which stated that environmental degradation had cost the Chinese economy $67.7b in 2004 - some 3% of GDP.

I think we'd all agree that clamping down on the facts is not good, but that's not my area of expertise. Rather, 3% of GDP? That is large. To misquote, a few billions here and there are real money. The latest Chinese GDP release was saying 11.9% growth, however, so its not like China is economically shrinking.

Now, some elementary math. IMF estimates for PPP GDP put China at $7598, Canada at $35495. Assuming Canada grows at 2.5% and China maintains 11.9% (unlikely, in my opinion), correcting for that environmental degradation slows convergence by 8.1 years.

Not really a relevant calculation in retrospect. Alternatively, let's put it this way: Over ten years, starting at $1, growing at 11.9% compared to 8.85% (adjusting for environmental degradation) costs you over one-sixth (17.4%) of your total income over the period. Twenty years? Approaching one-half. (43.6%) This is what I would consider substantial.

My cubicle comrade (Chinese citizen, parents both Party members), has concerns about the environment. If it has progressed to that level, maybe action is forthcoming.

The Globe Loves Corn Ethanol

The Globe & Mail has two very supportive articles about the benefits of corn ethanol today.

Ethanol's trickle-down effects may be more helpful than you think
...the overwhelming benefits created by ethanol and other biofuels.

Link: Gristmill doesn't like this article. I probably should have mentioned that it was written by an ethanol exec.

Corn again: Iowa finds salvation
But thanks in large part to new demand from ethanol plants like this one, the price of corn has nearly doubled in the past year alone.

Why is the doubling of prices a good thing?

Now, I have nothing against producing ethanol. I just have a problem with producing ethanol on government subsidies.

Update: They also have a debate scheduled for noon EST, phrased in language much less pro-ethanol. The problem is, however, the eternal one about arguing on the internet. Reading the comments appended to the first article should clarify for those who aren't already nodding (or shaking?) their heads.

Update: Eric Reguly, the reporter taking questions, doesn't like corn-based ethanol, though. It is interesting how 'cellulosic ethanol' keeps getting tossed around, but people have been working on breaking that down cheaply for decades without substantial progress towards making it a cost-effective substitute.

Competition Bureau Fines DuPont

This verdict is somewhat interesting. My IO class finally come to fruition. I can ramble on about the Competition Bureau at length.

Basically, a $4m fine for unspecified talks with unspecifies parties about the price of a certain rubber. Interesting, but details are really required to make it a story.
"During the relevant period, the accused issued price increase announcements and quotations in accordance with these agreements," according to court files. "This resulted in the preventing, limiting or lessening unduly of competition."

Note the use of the word 'unduly'. Basically, all Canadian competition policy revolves around that word, a point made abundantly clear by my IO teacher and the various case files. Ah, law.

P.S. My boss' boss' boss' boss is moving to take up the position of Executive Director at the Competition Policy Review Panel, so these matters are especially interesting right now.

Sunday, July 22, 2007

Corn Volatility

Econbrowser makes a good point about corn-based ethanol that I hadn't previously thought of.
A recent analysis by University of Illinois Professors Darrel Good and Scott Irwin notes that over the last half-century, corn-production shortfalls as big as 30% are not that uncommon. Very inelastic demand means that having a stable, reliable source for fuel is a very high priority for consumers. Having the supply for such a commodity depend on something as volatile as U.S. corn production does not seem like such a brilliant idea.

Now this raises a potentially big problem for the U.S. Congress, and I'm not sure how they're going to solve it. Specifically, the question they might want to be mulling over now is, When the next 20% shortfall comes, at whom will they point the finger of blame?

The only thing I can think of to add is that I would imagine the ethanol industry would use futures to a much greater degree than food industries, and thus the assumption of perfect inelasticity is pretty valid.

Saturday, July 21, 2007

Courses

Registered for fall courses.
(i) Integration and Metric Spaces
(ii) Vector Calculus
(iii) Mathematical Statistics I
(iv) Economic Analysis in Health Care
(v) Advanced Environmental Economics

I'm afraid you won't get much info on the economics courses, were you hungering to find out my plans for september. The math department site is much more comprehensive.

Either way, I've had enough government and summer. Bring on the math and snow!

Score One

Did I not blog about this exact topic several months ago? (Hat tip: Free Exchange)

Okay, I admit I didn't exactly rip into the Harry Potter books as "being full of terrible economics", but there was certainly the implication that authors need to be more concerned about the way magic would rework basic economic assumptions.

I'm glad to know someone else shares my concerns. While I think the Guardian is a little bit too critical of Rowling's work - I don't think it ever tries to take itself as seriously as the Lord of the Rings, for example - I will proudly admit I have tried to start conversations about the economic inconsistencies in Harry Potter. Of course, nobody listened.

We could reiterate a number of those things here, but we won't. After all, we can't suck the fun out of everything.

Postscript: I remain convinced that this is a fascinating topic. My efforts at model-building such situations have yet to come to fruition, though.

Update: Check out the argument over whether the article is legit economics over at Marginal Revolution.

Update: Greg Mankiw is a fan of the books as well.

Post-postscript: I downloaded the leaked version and spent ten hours straining my eyes at the fuzzy print to read it. I finished Friday afternoon. Just so you know.

Friday, July 20, 2007

Marketing the New Finance?

In an interview with the Wall Street Journal, the following remark by the famed Hal Varian caught my eye:
Varian: I think marketing is the new finance. In the 1960s and 1970s [we] got interesting data, and a lot of analytic fire power focused on that data; Bob Merton and Fischer Black, the whole team of people that developed modern finance. So we saw huge gains in understanding performance in the finance industry. I think marketing is in the same place: now we’re getting a lot of really good data, we have tools, we have methods, we have smart people working on it. So my view is the quants are going to move from Wall Street to Madison Avenue.

To me, it sounds interesting, but is hardly believable.

Yes, I accept that you can collect an astounding amount of data on people's preferences and consumption. Further, since preferences are inherently unmeasurable, there must exist a vast market for analysis to tease the observable numbers to get to what really matters. Even better, preferences can change, so we can do trends and all that.

However, are marketing firms really the size of the financial industry? Is there potential for them to become that large? Tellingly, Statscan points out that "finance and insurance" is some 25 times larger than "advertising and related services". I can't see top-end salaries closing the gap with that disparity in size. Varian admits as much:
Varian: There’s this old line about Wall Street, this magic moment in a transaction when the money leaves one person’s hands, and goes to another, if you are there to catch a little as it drops off, you can do very well. I’m not sure if marketing has that same characteristic. We see resumes from hedge fund people. You take a bright quant person, that’s a natural place they want to go. But you burn out or decide you don’t really like it or have a change in ideas. People are motivated by other things.

Frankly, I'm skeptical about other things than money as something to motivate a large number of people.

English Hockey?

The Economist weighs in on the economics of hockey helmets. I am dumbfounded.

I think, however, that something is missing. I am not sure that arguing the majority of NHL players, compromised by the low-skilled, have effected the helmet ban in hopes that it will help close the gap between their more talented peers. Rather, wouldn't the high-skill players be the first to want helmets, on the basis of it extending their careers? Good players are able to consistently make millions each seasons. Less-good players may bounce around between the minors and make much less - wouldn't their incentive be to eliminate helmets and play your guts out at a higher salary and lose a couple years off the career?

Perhaps more importantly, the players were simply told by the managers that television revenues required helmets. I can't see American channels - not that any show hockey much regardless - showing blood and teeth flying on a regular basis.

Thursday, July 19, 2007

Checkers Solved

Researchers at the University of Alberta have found what appears to be a dominant strategy for checkers.

Personally, these kind of things send a little tingle down my spine. I continually wonder what truths might be revealed when computer science and economic theory progress to the point where every transaction in the economy can be analyzed to paint a complete picture of the economy. One faraway future where Taylor rules are beyond obsolete.

MUN

As someone who's seen first-hand a large portion of the lab facilities at Memorial, I can say that this is not uncommon.

This is what happens when government and organized labour get involved. Both have short-sighted horizons. The student union puts pressure on government to freeze the ability of the university to charge a fair price, with the long-run cost of degraded service as the capital wears down. This is irrelevant to the council because they'll be gone in a few years and not have to deal with these issues.

Similarly, governments are all interested in the here and now, and demonstrable benefits now always outweigh nebulous benefits later.

I'm not opposed to government funding of post-secondary education, especially if there's room for choice between schools. Of course, the extent of our public funding has made private schools more or less unable to compete, though deregulation in Ontario and other places should lead to more competition. In Newfoundland, however, MUN is in a classic natural monopoly situation.

Basically, I think the university should be free to charge whatever tuition fees it wants, if we want to ensure quality education. If we want education for all to a degree mill, well, we're doing pretty good.

Wednesday, July 18, 2007

Immigration

I feel like I need to qualify my support for immigration after declaring that the Solow model predicts that a larger population leads to a lower standard of living in my previous post.

One, increasing immigration would be a negligible percentage of the population, ergo a minute wage adjustment.

Two, vast regions of Canada are probably still underpopulated - an increased population would lead to economies of scale in these areas. E.g. when adding labour to a factory floor, each person is presumed to add less and less to output. But what about adding a second person to help the first? Likely the average output would rise.

Three, I approve of cultural spread. My life would be greatly diminished if I did not have access to good ethnic food on a regular basis. Similarly, extending our rights to those less fortunate is also a noble goal.

Basically, what it comes down to is "a reduced population won't hurt most anyone and could help some" (see point two and Newfoundland outports for exceptions) and "an increased population won't hurt most anyone and could help some".

Hrmm. I seem to have talked myself into a corner. I will attempt to resolve this issue. Will keep you posted.

Labour Addiction?

From the Globe:
Census-takers have given Canada less than a decade to kick its economic addiction to labour and find new ways to grow.

I am, shall we say, skeptical.

As economists generally acknowledge, long-term, sustained economic growth, especially in developed countries, comes from productivity gains. This makes sense: If you can produce more in your workday, you obtain the means to consume more. The article acknowledges this:
...the only way improvements in Canada's standard of living can be maintained is through major gains in productivity...

However, the understanding of the concept of productivity proves somewhat limited:
The most obvious solutions are for companies to find ways to prevent employees from retiring early, and for governments to increase immigration.

As we have seen in the Solow model, an increase in the labour force decreases the average standard of living from diminishing marginal returns. Even if this is not accepted, obtaining more labour is not synonymous with increasing productivity: i.e. doing more with the same amount of input.

Again, we see a refusal to acknowledge this concept:
In other words, companies need to increase their output by using relatively less labour, and investing instead in machinery, equipment, technology and labour-saving strategies.

Purchasing more capital for each worker is not how productivity increases, either. Output will rise, to a point (assuming that we're currently below the efficient capital/labour ratio), but this is not a productivity gain: We're doing more with more.

The key word is mentioned: Technology. Productivity stems from more efficient technology, not by substituting more capital for labour. (We are, of course, ignoring points about spillover effects, learning by doing, blah blag blah, but I am skeptical to the extent this can be achieved over the long term, since I have yet to see a cognet argument these are not subject to diminishing marginal returns as well.)

So, economics predicts: Smaller labour force leads to higher standard of living, lower national GDP. This is noted by the economics profession in the article, though not in the Solow context I've been running with:
The natural pressures of pending labour shortages may well shake Canadian companies into becoming more productive, said Peter Dungan, economics professor at the University of Toronto.

Remember, caring about national GDP isn't important. Sustaining that in the face of a shrinking labour force is tough, but ultimately irrelevant compared to the per capita.

I'm hesitant to apply the 'economic abuse' label, but it's tempting. Not a sufficiently flagrant infringement to be carded, though.

World Governance Indicators

The annual roundup of World Governance Indicators was recently released, and they're of interest not simply because I used them in a paper about African growth last term for econometrics.

They're a somewhat controversial worldwide ranking of countries by six aspects of goverance. I personally think they're the best such indicators out there, and seem thorough and accurate. More importantly, the envelope please...

And the winners for most improved are:
Serbia: Voice & Accountability, Government Effectiveness, and Control of Corruption
Angola: Political Stability
Congo, Dem. Rep.: Regulatory Quality
Rwanda: Rule of Law

Conversely, those who are racing to the bottom:
Thailand: Voice & Accountability
Côte d'Ivoire: Political Stability
Zimbabwe: Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption

I am unsure what's happened in Serbia during 2006 to warrant such improvement, but we're all well acquainted with Zimbabwe.

Update: Serbia ratified a new constitution.

Statistically Dubious

The CBC weighs in on the current trade spat between China and the US.
Chinese government inspectors have concluded tires made by a Chinese company that is the subject of a huge U.S. recall meet official U.S. safety standards, news reports said Wednesday.

Officials issued the decision after inspecting the Hangzhou Zhongce Rubber Co. and testing three tires at a government laboratory, China Daily, the Oriental Morning Post and other newspapers reported.

Now, I don't know as much statistics as I should, but I do know that regardless of what distribution you're assuming the tires to come from, a sample size of three is not sufficient to "prove" anything at any level of significance.

Tuesday, July 17, 2007

The Oil Drum

Since we're on the topic of the blogosphere today, let's also mention The Oil Drum.

This is possibly the most inconsistent blog I've ever visited. Notably, the columns by one of the editors, Stuart Staniford, are positively superb reading. Insightful, complex, thorough analyses are common in his postings.

Conversely, most of the other content fails to approach the same grade. I'll concede there's a spectrum, but a number of them are borderline irrational. This post is a good example. (Yes, I concede it's not made by staff, but it was certainly vetted by them.)

It's worth looking at, briefly. The DrumBeat is a fairly good roundup of energy-related news, which is what I check it for, even when it links junk like this.

Radio Zimbabwe?

I just stumbled across a blog dedicated to pointing out the obvious truth that yes, Zimbabwe has major, major government-inspired economic problems.

I'm not saying I won't be updating about Zimbabwe in the future, but this person is dedicated as I will never be.

Also, yesterday's Guardian:
Car dealers said officials were trying to force them to sell vehicles at the official exchange rate, effectively meaning that a car costing £15,000 could be had for £30 by changing money on the blackmarket. The owners of several dealerships have been arrested.

Freakonomics

I will admit that I read Freakonomics. I own a copy. It's fairly good. I even convinced two people to read it. (I even convinced one person to take an economics course once, but unrelated to that book).

My blogroll has been expanding recently (albeit slowly), and I considered adding the Freakonomics blog, but they've made a crucial mistake over there.

There is no longer economic commentary.

Lest we forget, economics is what the book is premised on. Most of the posting is now done by two journalists/lawyers/whatever. When John Bates Clark recipient Steven Levitt posts, it's rarely about economics. Going back some twelve pages (I gave up after that), revealed nothing by the Dr. that I would consider close to 'trenchant economic analysis'.

I concede that I am not in a viable position to legitimately criticize someone who has a decent shot at a Nobel sometime in the future. But I do realize that given Levitt's fame and accordingly expanded set of opportunities, the marginal utility of making incisive blog posts is probably pretty low compared to alternative uses for his time.

Monday, July 16, 2007

Applebee's Buyout

IHOP has purchased Applebee's.

This is a completely unremarkable story, posted only because I never knew either of these companies were publicly offered. That, and because I admit a total addiction to IHOP.

Book Prices, II

You know, I didn't think I'd be returning to the topic, but this article has convinced me otherwise.

Very few US booksellers will be making big money from "Harry Potter and the Deathly Hallows".
...
Indeed, as the competition heats up this week to lure customers, a price war has slashed the retail cost of J.K. Rowling's final installment by 40% to 50% at chains, big-box stores, and online retailers such as Amazon.com. They're selling the books for little more than they paid the publisher.
...
"I don't think [the Harry Potter series] has been the profit center it could have been if the publishing world had tried to keep this a book for booksellers," said Katie O'Laughlin, the shop's owner. "That's a sad thing. This was the one time you had a book that people really wanted."
...
"To me, this whole discounting frenzy is a race to the bottom, a contest to see who can whack prices the most, and it doesn't really bode well for most booksellers." (Ron Hogan)

So, the market works, competition passes the benefits along to the consumers, as the textbooks preach in Econ 101, and people complain? Sigh.

It also provides reinforcement to the theory that the publishers are the ones to blame, not theretailers, if competition is demonstrated to exist to such a degree among retailers. Not really a surprise, since the article reiterates that all US stores are mandated to buy from Scholastic.

I am, however, unsure to the extent one can ever get away from some sort of market power in this realm, since JK Rowling is acting as a monopolist with extremely good barriers to entry in the form of copyright protection.

Friday, July 13, 2007

Optimal Copyright

I have previously blogged about a problem known as dynamic time inconsistency.

This is exemplified in the patent issue. No patents discourages innovation, since inventors have little to no incentive to create. Infinitely long patents prevent society from reaping the full benefit of invention. The optimal policy is to guarantee inventors patent rights until the moment of invention, and then yank out the rug.

This, of course, is not a viable long run strategy. However, a PhD candidate at Cambridge, Rufus Pollock, has
calculated the optimal length of patent protection. 14 years, as it turns out. Obviously, as economics is wont to do, subject to more than a handful of assumptions and estimates of certain parameters.

Still, 14 years, to me, feels a lot better than life+70.

Such calculations also figure into
Schumpeterian growth theory (aka creative destruction), which is something I like.

Yet More

The Economist does the repetitive and necessary job of telling the world that, yes, Zimbabwe has turned into a complete madhouse.

These articles are kinda interesting, just like it's difficult to tear your eyes away from a car accident.


Update: The Economist, in an unrelated article, dips heavily into the Scotch.

Thursday, July 12, 2007

Finland

The Economist reports that Finland is the happiest country on the planet.

Doesn't mesh with
this study, though.

The basic problem with all of these is that you can argue over the methodology until long after everyone surveyed is dead.


How's it go? Finland, Finland, Finland, the country where I want to be...

Book Prices

The CBC reports that the Canadian Booksellers Association is in talks with publishers, generally American, to more accurately reflect exchange rate movements that have seen the Canadian dollar threaten parity (95.2 cents as of last closing) in book prices.

About time. Right now, it's just rents accruing to publishers, who set the prices retailers purchase at. Since books are generally printed at only one publisher, there's a strong degree of market power involved here. I mean, even if the publishers competed with each other, I don't think many consumers would be content if their bookshelves started stocking only the books provided by a certain publisher who was giving the best deal on exchange rates. The store would have a very incomplete selection of titles. The evidence of the publisher's collusion is simply that there is a uniform markup on the Canadian list price, as the CBA representative states. (This is an argument for high book prices in general as well as the high degree of stickiness in adjusting for the fluctuating exchange rate.)

I will concede there are some more palatable reasons for prices not reflecting the gap (lags between printing and retailing, menu costs, etc), but I feel they don't account for it all. Despite the relative cheapness of books (as Carl Sagan pointed out in Cosmos, you can get "the history of Rome for the price of a meal"), I have been hesitant to purchase recently. This might just be a reflection of changing tastes from fiction towards non-fiction, which is more easily accessible through the university library.

Of course, maybe I'm just stingy.

Alberta? Math? Really?

Old news, but I never realized that Alberta was a mathematics powerhouse. In fact, if it were a country, it would have a legitimate claim as world's best, maybe a little less so than Hong Kong.

This statement based on
PISA results, which revolves around 15-year olds. See page 18 for the relevant graphs. Too bad we don't have this kind of data on a historical basis: Growth regressions are calling me, but I'm sure this is a leading indicator.

Wednesday, July 11, 2007

Chinese Environmentalism

Marginal Revolution points out some interesting articles on some of the environmental problems the Chinese have been grappling with.

One of the more illustrative quotes, though something I've heard before:
More than 4,000 rogue mines leach mercury into the soil. An estimated one in five power plants operate illegally—enough to fully power the United Kingdom.

The extent of the problem is rather incomprehensible. Canada only has 776 mines, let alone 4000 illegal ones.

I wish them luck in fixing it.

Seven Economic Wonders

So, given the recent mania over 'Wonders of the World', especially here in Canada, where the CBC has recently been urging Canadians to pick the seven Wonders of Canada, I figured I'd have a stab at coming up with the seven wonders of the economic world. In no particular order:

-
Department of Economics at Chicago
-
Tsukiji fish market
-
eBay
-
The NYSE
-
The Aalsmeer flower auction
-
The worldwide container shipping network
-
The international payments system

NOPEC

I usually agree with Slate, but I don't think this article shows a lot of sophistication.

Basically, it's supporting the notion that the US ought to censure OPEC somehow for their collusion in supporting oil prices. This may have been a legitimate complaint ten years ago, or even five, but no longer. As folks at the Oil Drum would be
happy to argue, this simply is no longer true.

As they point out, Saudi Arabia made several valiant attempts to hold down the price of oil, fully aware that higher prices lead to increased use of substitutes. However, they were unable to sufficiently increase production to stabilize the prices at a lower level. The article makes an extremely convincing argument that Saudi Arabia simply does not have any substantial, long-term amount of excess capacity with which to alleviate our oil demand.

But Saudi Arabia is generally cited as the main source of spare capacity in OPEC. Which would imply (this is not new) that OPEC has effectively lost control of the world oil price. Ergo, attacking OPEC for being a cartel is no longer really valid. It hasn't been suggested, to the best of my knowledge, that their are OPEC nations out there itching to place extra supply on the market and being withheld from doing so.

This is not news. What I find more interesting is how the US intends to enforce a Sherman verdict against OPEC. I am unsure how much "commercial property may be levied upon", since does OPEC own much in the States? Sure, people who profit from OPEC have holdings (e.g. Saudi princes), but I'm fairly sure (though no lawyer) that those could be chased after. Not honouring OPEC-held US treasuries is not really an option. I would also be hesitant about getting really uppity with OPEC, since they, uh, do sell a fair bit of oil. I've heard people talking about how they like that stuff.

Tuesday, July 10, 2007

Same Old, Same Old

Zimbabwe is still run by lunatics.

Zimbabwe's economy was approaching paralysis yesterday as petrol stations across the country ran dry. President Robert Mugabe's regime has ordered all retailers to cut fuel prices by 60 per cent, a move that forces them to sell petrol at a loss. As a result, filling stations across the country have stopped selling altogether...

Blah blah. Surprised anymore? Not really. The only thing surprising is that anyone still lives there. I guess the overland trek to the much-more prosperous Botswana is guarded.

Gresham's Law

In what would no doubt be at least mildly pleasing to my Money & Banking instructor, when I saw this story, the term 'Gresham's Law' was still clanking around somewhere upstairs.
Police in Calcutta ... seized what they said was a huge coin-melting unit which was operating in a run-down shack. The grocer confessed to melting down tens of thousands of Indian coins into razor blades which were then smuggled into Bangladesh, police said. "Our one rupee coin is in fact worth 35 rupees, because we make five to seven blades out of them," the grocer allegedly told the police.

Obviously, I doubt we'll see any Victorian-style corrective action where the money supply dwindles until equilibrium is restored, since notes remain in circulation. Likely, the coins which can be profitably smuggled out will do so and remain out of circulation.

Daily Reckoning points out how Canada is considering giving up the penny because of our inflation (and commodity prices) have made the metal in the penny more valuable than the face value.

Daily is somewhat hysterical over this. Personally, what's the big deal? Does anyone actually worry about returing from the store with $3.80 instead of $3.82? A potentially bigger concern in lower-income India, I admit. As he also points out, many countries have given up the cent piece (I can personally vouch for New Zealand), and I don't recall hearing of any financial crises over those decisions.

Drink Up

This survey finds that a majority of employees of all stripes perceive that having a drink with coworkers outside of office hours improves productivity to some degree.

I would be hesitant to start sponsoring pub crawls for employees. I suspect these numbers stem more from positive associations with drinking rather than actual productivity gains. Though I wouldn't complain if someone wanted to run an experiment.

BCE Protest

Walking in to the less-than-esteemed HRSDC offices this morning, I passed a bunch of disgruntled Bell Canada employees chanting "No Outsourcing!" and similar junk. This is (duh) a reaction to the takeover of Bell by private equity, with Ontario Teachers Pension as the lead. This would be the largest private equity deal ever consummated, not just in Canada, but in the US as well.

I can't say I'm overly impressed on a number of levels. Nobody has a right to have the government protect their jobs in the face of corporate shakeups. Not that such 'outsourcing' has been announced, since the deal has yet to be approved by regulators (but it should be). It's easy to harp on the obvious losses from trade, but difficult to precisely illustrate the gains.

Of course, I would personally be somewhat surprised if outsourcing happened. Staff reductions, perhaps. Though I suppose I should qualify that I'm no business student. I guess we'll stay tuned.

Monday, July 9, 2007

Uniformed Intentions

It's always aggravating when someone starts off "The thing about economics that nobody realizes", or "What really annoys me about people who don't get economics".

This is because the person making the statement generally knows little about economics, regardless of how well educated they may be.

For example, take
this. The author of this story (in which Thomas Jefferson arrives in 2003), has done extensive research, including reading the entirety of Jefferson's voluminous collection of letters, which is thousands of pages and hundreds of missives. Obviously, no small task, and a highly respectable one.

However, he holds on to the (forgivable) misconception that tax cuts raise government revenue (aka. supply-side economics). While it is agreed that the distortionary effects of taxes make it so that a $1 tax cut reduces government income by less than $1, the evidence shows that tax cuts do not boost government income except in extreme circumstances.

Somewhat bizarrely, he also holds that US oil majors control the world price of oil and alter it at whim to keep their stock prices steady. I have not heard this hypothesis previously, but I trust that I don't need to explain that it's not true. Demand? Supply?

This should serve as a warning, elucidated competently in Krugman's
Pop Internationalism: People who aren't economists have a remarkable ability to voice opinions about economics. And such opinions should be taken with much salt.

Canadian Soccer

So, we didn't do so hot at the U-20 World Cup.


What's worse than being the only host team in the entire history of the
FIFA U-20 World Cup to not score a goal? Being the only team in the
tournament to not score a goal!
...
Canada went into the game needing to win by three goals.
The Canadians only had two shots on goal in their first two games.
...
In the end it was slapstick when Canadian 'keeper Asmir Begovic of Edmonton was red carded for handling the ball outside the box. With no substitutes left, midfielder Johnathan Beaulieu-Bourgault had to replace him.

However, this does lead me to predict excellent ticket sales for the newly-incorporated Toronto FC. More than 32,000 people showed up in Edmonton to watch this in the rain, with Canada already having played its first two games miserably. There must be quite a pent-up demand for soccer in these parts.

P.S. I do know it's called 'football', but that just confuses everyone.

Sunday, July 8, 2007

Surprise!

The Irish free-energy device, Orbo, doesn't work.

Hardly shocking news. These people were just a little more delusional than most - ads in magazines, inviting scientists to peer review, etc.

Newton wins this one.

Saturday, July 7, 2007

Live Earth

Live Earth!

I'm hoping for this to spark a movement towards more carbon taxes. Especially since I haven't rode in a car for three months. (and counting!) Pigou club, represent!

Odd. Apparently Al Gore is already a member. Doesn't seem like it, at least from his encouraging people to make changes out of the goodness of their heart, rather than getting them to pay a higher gas tax.

Friday, July 6, 2007

French Universities

The Economist weighs in on the troubles facing French universities.

I must admit I wasn't aware of the difficulties a student had to conquer to find a decent education in France - apparently, you have to leave.

Some of the more bizarre regulations include how universities cannot select students for admission: Anyone who finishes high school at a certain level is guaranteed admission (free tuition!) to their local university - but only their local university. No moving from France to Toulouse to find the
better economics department.

Personally, I would be hard-pressed to dream up a system that would be more prone to stagnation. I really don't think there's any need for governments to be involved in funding education, but given that they will, you might as well at least pass along the money in a rational way.

Three cheers for competition!

Thursday, July 5, 2007

Alternative Employment

EVE Online has hired a full-time Ph.D economist.
I suddenly have new ambition to become so minted.

From
Marginal Revolution.

Price Gouging

This website may be of great use in water-cooler debate among the economically illiterate: http://www.gasgouge.ca/.

However, that would be the sum total of its use. Checking the Canadian Centre for Policy Alternatives (CCPA) -sponsored
report that the website is based on, it not only miscalculates exchange rates (see p.2, para. 6), but does not document the methodology or the numbers used in deriving estimates of "normal" profit margins, to choose the most glaring example, or how an estimate of a 1-cent increase in gas prices for one day translates into a million dollars of "excess profit" for gas companies.

Basically, his report is nonsense. The fact that he has a master's degree in economics from a well-respected university (Wisconsin-Madison) is shocking.

The truth of the matter is that "price gouging" is fiction. Gasoline retailers do not posess the market power to charge more than competitive prices. And even if they were monopolists, they still wouldn't be able to arbitrarily raise prices to "gouge".

More thoughts on "price gouging" at
Econbrowser.

Newfoundland - Educational Powerhouse

Being from Newfoundland and Labrador, I thought this chart was rather striking.


Generally, one doesn't associate NL with educational attainment, but the second-lowest high-school dropout rate in the country has got to be worth a considerable amount, at least in my opinion. Perhaps more striking is the degree of improvement witnessed since 1990, when we were the worst nationally.

I'm not sure what we can attribute this to. The fall of religious-baed public schooling may have contributed. Possibly also the cod moratorium, since the fishery provided a fair number of jobs that didn't require much in terms of education.

Either way, the province is deeply in debt to whatever caused this.

Source: http://www.statcan.ca/english/freepub/81-004-XIE/2006003/backto.htm#f

Reinvention

I doubt anyone has missed my absence from the world-wide web. However, I realize that I need to write more. I'm not sure whether this statement makes economic sense, since I (hope) I'm rational, and thus should have already been writing at an optimal level. Maybe I've discovered some new positive externalities. Who knows.

Regardless, from here on out, economics should continue to be the overriding theme, but expect commentary in other areas as well. Politics, news, business, and perhaps other science. We'll see; stay tuned.