Friday, August 31, 2007

Sayonara and Goodbye

I am flicking the switch on the lights.
While I won't forgive you, HRSDC LMP, for your ignorance of deadweight loss and standard deviation, it remains a good summer.

P.S. I was offered a job next summer. I could even bridge in as a full time employee making $46,000 annually, were I so inclined. I'll probably decline. C'mon, PhD.

No Beer?!

Zimbabwe doesn't even have any beer left: (HT: theOilDrum)
“I regard the shortage of beer as the most obvious sign of a very serious malaise,” said a local teacher.
The teacher said he did not remember there ever being a shortage of beer in Zimbabwe and that this was a sign that things had gone desperately wrong in the country.
A quart, or 750ml, of lager beer costs 60,000 Zimbabwe dollars, ZWD, (4 US dollars) at retail outlets, but is now going for a minimum 200,000 ZWD on the parallel market.
People are burning millions of dollars worth of scarce fuel driving around looking for beers. We are drinking anything that is available. You tell me, what is normal about that? To me, this shortage of beers is just a sign that everything around us is crumbling.

You deprive people of their alcohol, and they get antsy. Typically, beer is one of the last things to go. Let's hope it presages the end.

Thursday, August 30, 2007


The former torrent of blog posts has now slowed to a trickle as the end of summer approaches. I am flying back to St. John's on Saturday morning after finishing up with HRSDC. This will likely signal a hiatus of any substantive content - maybe I'll post from the airport or something, if some phenomena strikes my fancy.

From here on out, I suspect that posts will return to having substantially more value-added, though there will be fewer posts overall. I don't have the time nor the credentials to compete for readership, but I didn't want to do that, in any case.

Expect topics to shift towards my honors thesis and struggle to get accepted into a Ph.D program.


Wednesday, August 29, 2007

Quotation of the Day

From this IMF paper: (HT: I forget.)
Zimbabwe’s flow of realized central bank quasi-fiscal losses are estimated to have amounted to 75 percent of GDP in 2006.

That is, uh, quite a substantial amount of money being printed.

EDIT: Dani Rodrik has a typically excellent post on export regulations.

Tuesday, August 28, 2007

Chinese Academics - Can This Be True?

Okay, I don't know if I can swallow this. Mentioned offhandedly at the end of a CBC article, without source:
A Ministry of Science study of 180 PhD candidates in China also published last year found 60 per cent admitted to plagiarizing and the same percentage admitted to taking bribes to have their work published.

The source seems to be in Mandarin, but the study appears to be legit; it's turned up in a number of other places.

I don't think I can fully absorb the ramifications of such an ethos in a single sitting. Just wow.

Bizarre Politics

To quote:
Federal Liberal Leader Stephane Dion kicks off a three-day caucus strategy session today by meeting with Newfoundland and Labrador Premier Danny Williams.

Dion says he wants to hear the Tory premier's suggestions on how to best unseat the prime minister as the fall session of Parliament nears.

Uh-huh. This Confederation has its problems. One wonders if Vilsack and Huckabee get together to plot about winning the Republican nomination - and if they do, do they issue a press release?


This is my first experience with this particular brand of grotesque: Being informed by the news media that a former friend was stabbed while he was working as a security guard. I don't know him that well, but we played on the same soccer team, and I was invited to his house to spend the night. Grade 8, I think. We haven't kept in touch.

Productivity in North America

Statscan releases a new study analyzing the growth in labour productivity in Canada and the US.

To my interpretation, it says that the US has grown much faster than Canada, because Canadian growth is based on capital intensity (which to my mind, isn't labour productivity growth at all), while the US has relied more strongly on MFP, which is "real" productivity growth.

Continuing the reading of the paper, maybe it's just better to dismiss it outright. E.g. the assertion that Canadian real GDP growth was 3.8% annually over the last ten years... That seems, uh, excessive?

ANECDOTE: Nobody knows whether 'Statistics Canada' is supposed to be abbreviated 'Statcan' or 'Statscan'. Both and are valid site addresses, and whichever one you pick initially will remain with you throughout the entirety of your site visit. How is this dilemma to be resolved?

Monday, August 27, 2007

Advertising Experiment, II

We have breaking news:

Yes, two clicks and 361 page impressions have yielded $0.64.
Taking this blog's counter as directly comparable to MR's, we suddenly find that Mr. Cowen and Mr. Tabarrok would have earned some $12,600 from their blogging endeavours. No idea if their click-through is better or worse than mine, though.

Regardless, a solitary click on a Google AdSense ad on this Pagerank 0 site is worth $0.30, or thereabouts. Obviously, I'm taking this from a very small sample (n=2). I will continue to report on how much clicks earn as my sample size evolves.

POSTSCRIPT: I apologize for the picture quality, but I am working with very limited tools here. A million hours in MS Paint?

ADDENDUM: I have found out through my own research that posting one's click-through rates is against the AdSense terms of service, though disclosing my payments is not. As such, I will cease posting my clickthrough rates, but will continue to report on how much a click earns. I am not interpreting this as in violation of the AdSense terms, because they keep track of page impressions differently than does SiteMeter or ClustrMaps, and I will henceforth keep the Google number confidential.

Somewhat creepily, it's also against the terms of service to keep track of how much you earn on a day-by-day basis. This actually scares me a little. The built-in adsense functionality only lets one see earnings for the current day, yesterday, past week, this month to date, last month, and all time. Thus, an RSS feed that reports and stores your daily earnings is actually violating the AdSense agreement. I cannot think of an honest reason to prohibit this.

EDIT: I have changed the original blog entry to conform to Google's policy about encouraging clicks in any way, shape, or form. I have also dropped the fourth content ad that had temporarily found residence.

CONCLUSION: AdSense is almost like the Inquisition. Please don't sue me! *sob*

Remember Your Druidic Catchecism

Lest we forget, there is seasonality in everything.
Babies born in the summer months have a greater chance of being nearsighted and requiring glasses than those born in the winter, a new study has found.

Albertan THAI

The Oil Drum has an excellent post on the potential for utilizing a process known as Toe-to-Heel Air Injection (THAI) to extract oil from low-API sources, such as the Albertan oil/tar sands. Apparently, they've had some test wells going for over a year, so it's not entirely speculative at this point.

I'd explain it, but they have such nice pictures, it would be folly for me to create value added. There were two points I found quite interesting, though.

1) Reduced water usage. Once the THAI process gets up and running, it is self-sustaining in terms of water. I don't know what this means in terms of groundwater depletion, but since the Athabasca is already quite strained, this could potentially mean a lot.

2) Mining oil sands is really dirty. THAI proposes to burn 10% of the oil in place during extraction, and even this would reduce greenhouse gas emissions by 50% over the current process.

Either way, if this revolutionizes Fort Mac or not, the science is still interesting. I remember when I had a chemistry scholarship and a lab coat instead of MWG.

End of an Era

US Steel agrees to purchase Stelco.

So ends 104 years of Canadian-owned steel industry in Hamilton. I am not particularly aggrieved, but I can understand why some in Hamilton may well be.

The outlook wasn't brilliant for the Steeltown crew that day;
The score stood six to four, with but one industry still in play,
And then when Dofasco sold to Arcelor, evoking P&G,
A sickly silence fell upon those working for Canad'n Steel.

Give me a break, I'm not a poet.

Sunday, August 26, 2007

Totally Unrelated to Economics, I

Perhaps the first installment of a Sunday series? Who knows. Let's run down the week. Feel free to ignore these if you're just here for economics.

1) Link: Walkscore. I feel safe in posting my address, since I'm only here for five more days and would be glad of company in any case. Regardless, this free, no-registration-required service provides a 'walkability measure' of your living situation. The idea is that it can aid prospective homebuyers, but as The Oil Drum points out, it could be definitely viewed in the context of energy.

2) I have been reading A Tale of Two Cities and as mentioned previously, Sherlock Holmes. Also, if you count webcomics.

3) I have been watching Mahou Sensei Negima and Great Teacher Onizuka.

4) I have been playing La Pucelle: Tactics and Grandia III.

5) numRuns = 2; numPepsi = 5.

6) No new adds to the aggregator.

Friday, August 24, 2007

Yet More Budget Surplus

Today's Fiscal Monitor points out that regardless of how hard we try, the Canadian economy/tax system refuses to generate a budget deficit.

For the first quarter of fiscal 2007-08, the budget surplus is already standing at $6.4bn. That's substantial, and in spite of the fact that program expenditure was up 7.6% relative to last year's first fiscal quarter.

I'm starting to become seriously concerned that politicians are starting to look at the budget as the well that never runs dry. The NDP already does. Just because we're doing well isn't reason not to attack the budget directly through fewer taxes and judicious cuts where needed. This isn't a call for a spending freeze or anything, but the budget is constantly evolving, and should be added to and pruned on a regular basis. I am forced to think that the succession of large surpluses created over the last few years, the idea of monitoring the budget for waste is increasingly scarce.

Also, the projection for GDP inflation jumped from 2.7% from 1.5%! That is, um, large. Especially since the 1.5% number is only three months old. I would like to know the determinants of this change, but 1.5% is obviously too low. 2.7% is worringly high, though. Real growth also earned a nudge from 2.3% to 2.5%.

The AC/DC Affair

The controversy stems from this paper by a U Calgary economist about isolating differences in efficiency gains arising from listening to music from each of the band's main singers.

I was actually pointed to this paper by Marginal Revolution, who got it from the same source as Levitt, but it's clearly a joke. The 'paper' is about three-and-a-half pages text. It wasn't published, and nowhere does it suggest it will be published. However, Levitt, famed for being unconventional and humourous about economics, promptly starts bashing the author for being unconventional and humourous about economics.

Oh my. He did subsequently apologize (kinda). The answer to Levitt's query about why he did the experiment? He didn't. It was done by a grad student who subsequently quit the program.

Hat tip: Worthwhile Canadian Initiative
Disclosure: I have never listened to an AC/DC song of my own volition.

Thursday, August 23, 2007

A Few Data Points

In answer to the plea I issued, Statscan gives us some interesting things to take note of.

1) Estimates for the upcoming harvest show that Canadian farmers are partially on the ethanol bandwagon, with grain corn production up some 17.6% over 2006. Oats are also up, collectivelly squeezing down anticipated grain harvests. I can't explain the oats. Perhaps it's what American farmers are planting less of?

2) The Canadian vehicle fleet showed mild improvements in fuel efficiency for 2006, about 1%. This effect was rubbed out by a 3% increase in miles driven. For all the whining about high gas prices, people certainly aren't that concerned.

3) Operating profits are flat at Canadian business for the quarter, but remain at record highs. Yawn.

4) Econbrowser has the valuable insight that just because the Fed says it will defend 5.25%, doesn't mean it actually will. Apparently they have quite a lot of leeway in deviating from target. I learned something. The Bank of Canada does not appear to be using the same tactics as the Fed, the overnight rate is precisely 4.50%, at least according to their website.

Also, if you haven't yet, I highly suggest checking out the post on the signing of the Hebron deal.

Standing and Cost-Benefit

Digression: When did 'cost-benefit analysis' become 'benefit-cost analysis'? The former term is the one with the weight of tradition, but the latter is starting to predominate. Are we economists trying to shuck the label of 'the dismal science' by emphasizing benefits?

Okay, Free Exchange poses the following query:
However, given the extremely high marginal value of money for low-skilled workers in less developed country, and the relatively high standard of living of even very poor people in highly developed countries, might not the redistribution of opportunities for lower-skilled workers create larger overall welfare gains than the redistribution of higher-skilled opportunities? If so, then why should we worry especially about lower-skilled outsourcing? It seems that we shouldn't—unless it is permissible to favor the welfare of our domestic low-skilled laborers over the welfare of even less-privileged foreign workers.

Is it?

Yes, it is entirely permissible for a national government to sacrifice worldwide welfare gains in order to favour their own citizens. In fact, if they weren't doing that, I would be irritated and vote for someone else. People who are not citizens have extremely limited or no standing in terms of CBA, and I agree with that.

Wednesday, August 22, 2007

Elementary, My Dear Watson

Allow me to quote liberally from last night's reading:
"...Have you yesterday's Times, Watson?"
"It is here in the corner."
"Might I trouble you for it-the inside page, please, with the leading articles?" He glanced swiftly over it, running his eyes up and down the columns. "Capital article this on free trade. Permit me to give you an extract from it.

You may be cajoled into imagining that your own special trade or your own industry will be encouraged by a protective tariff, but it stands to reason that such legislation must in the long run keep away wealth from the country, diminish the value of our imports, and lower the general conditions of life on this island.

"What do you think of that, Watson?" cried Holmes in high glee, rubbing his hands together with satisfaction. Don't you think that is an admirable sentiment?"

Not bad, Sherlock.

Hebron Deal Inked!

There will probably be an update following the press conference at 12 NST, but right now the Globe is already talking about the deal in vague terms.
The deal will allow the province to earn a 4.9-per-cent equity stake in the project, and has a royalty regime that will ensure the province earns a greater share of the proceeds from oil production than it has from existing offshore projects, sources said last night.

In the last set of negotiations, Mr. Williams et al had three main objectives:
1) A better royalty regime than the standard currently on the books.
2) A 'super-royalty' that kicked in at high oil prices.
3) An equity share.

It seems like we have (1), maybe (2), and that we're going to have to pay for (3). The latter is big, because the current government wants to reorganize Newfoundland & Labrador Hydro into what is essentially a national energy company, something I have mixed feelings on rationally, but gives me warm fuzzies.

I think my demarcation line is right about here. I don't want a government-controlled company actually operating and developing an oilfield. But I get along just fine with equity profits, the accompanying risk, and no management say. Press conference will be interesting.

One of these days, Danny is going to be made a saint. Back when Joey Smallwood brought Newfoundland into Confederation, securing the almighty baby bonus, stories were told of how his picture was displayed in private homes. It went that most homes would have three pictures on the wall: the Queen of England, Jesus, and Joey. Joey would be on top, above the other two.

Time's moved on too much for Danny to receive the same, but one wonders what the province will do for him.

UPDATE: We have project details. Here's the generic royalty regime. Here's what Hebron looks like:

1) A basic ad valorem royalty on the value of production (not profits, this is before costs) that slides from 1% to 7.5%, depending on the amount of barrels recovered and how profitable the extraction is.

2) Once that basic royalty is taken out and the other costs are taken out, the province gets 4.9% of profit from its equity share.

3) As long as oil stays above $50 (presumably for West Texas Intermediate in $USD, given the companies involved), the province will get another 6.5% of the profit.

4) Once Hebron hits the first payout (a rate of return of 5% plus the 10-year Canadian bond rate), the province gets another 10% of the net profit.

5) Once Hebron hits the second payout (if it ever does, a rate of return of 15% plus the 10-year Canadian bond rate), the province gets another 10% of the net profit.

This is something like $16 billion for the province in today's dollars (@ $70/barrel in today's prices), but it won't start coming in to the treasury until probably 2014. Plus another $7 billion for Canada. In other words, more than $30,000 for every Newfoundlander currently residing in the province. Not too shabby. Plus we're not counting the benefits of job creation (the platform may well be constructed locally, which would be another $7billion+ to build), and the general momentum this creates for the oil services industry. In fact, signing the deal makes future exploration more likely, though still not very promising.

Danny has won the money for a mandate. I am anxious to see what can be done.

EDIT: It looks like the equity share will cost the province $110m up front. Source.

ADDENDUM: From CNN, of all places:
There will also be a "slight postponement" of royalty payouts from the consortium, who have dropped their demands for tax breaks, Williams added, but declined to clarify further. He also declined to comment when asked which of the project partners had to surrender part of their share to contribute to the province's 4.9% stake.

Well, the latter will be found out soon enough, but this 'slight postponement' is interesting. I wonder what it means...

Tuesday, August 21, 2007

On Welfare

A comic!

Now, the first two questions that arose were:
1) Is this still valid considering the costs that would be involved in determining a socially optimal seating arrangement?
2) What sort of social welfare function is he using, and by what standard can current seating patterns be considered non-optimal until he can demonstrate that his social welfare function of choice conforms to the utility curves of those in attendance?

On GenCon

Since Bryan Caplan has broken the ice by admitting he was at GenCon, I may as well post on the economics of 4e.

Warning: Most sane people will require context outside of this text to understand the discussion.

So, the big announcement at GenCon was that Wizards of the Coast (WoTC) said that Dungeons & Dragons 4th edition (4e) was going to start hitting shelves in May 2008. For those of you who aren't familiar with the D&D product cycle, let me explain:

Each new edition of the game starts off with three core books to purchase. After these come a procession of optional tomes, from which a gamer can pick and choose according to their interests in the game.

So, it comes that over the lifespan of each edition, one accumulates a store of revelant texts. However, these books become obsolete and fairly useless once the new edition is launched. Obviously, one can refuse to 'upgrade' to the next edition, but this curtails the ability to participate in the game fully, since official events (such as GenCon) are run using the most recent rules, that game stores will only support events using the most recent rules, that it's difficult to introduce people to the game using outdated rules, and that support for the old edition will cease - no new products, errata, etc.

Since the announcing of a new edition thus entails a loss for current gamers, it's generally met with scorn, as was the case this time around, on a variety of internet locales and at the announcement itself. However, it's also the case that gamers will stop buying product from the current edition (3.5e) once the new edition (4e) is announced.

Disclosure: I am fairly heavily invested in the current edition, and have received the announcement with less than good spirits.

So, WoTC faces a complex constrained optimization problem. They would like to roll out new editions frequently, but this tends to irritate people who play the game, hampering sales of the new edition. Similarly, they can't announce the new edition far in advance, else people will stop buying current product. But being unable to announce the new edition prevents all sorts of good things, such as openly consulting with people who play the game on what they think needs fixing.

Frankly, I would love to know if they have any sort of quantitative process for resolving these conflicting tensions. It would personally make me happy if they do. The process seems similar to that of deriving an optimal copyright term, and certainly bears many similarities to problems concerning dynamic time inconsistency and game theory.

Given the current economic rage over the economics of massively multiplayer games, maybe I'll try to figure out a model for the situation faced by WoTC.

P.S. From Robin Hanson:
...we have too few nerds, and all else equal we should want to subsidize nerds, to get more of them.

On Corn

I'm sure that anyone reading this has heard stories about corn prices being driven up by the ethanol industry. I'm sure pretty much anyone understands just how much corn gets used: to feed livestock, cornstarch, corn syrup, etc, etc. Heck, some people even burn corn for heat, according to Wikipedia.

Diclosure: I am not a farmer, but my family does have about a twentieth of an acre under cultivation. Predominately beets.

I just don't understand corn. I purchased some at the local supermarket Sunday. Six cobs for a dollar. As always, I was struck by the waste generated. Between the a priori removal of the husk and the ex post disposal of the cob, no more than a third of the maize is actually edible. And that's by volume, I'm sure it's less by weight. Corn isn't even that filling.

Now, I get that corn is a big product. The world produces hundreds of millions of tons of the stuff. But I just can't fathom how such an inefficient product has become such a staple. I mean, beets, in which I have some specialty, are 100% edible. 95% if you don't like the greens. So what does the market know that I don't?

1) Corn subsidies? I reject this based on them fact that native Americans were growing corn as a staple crop.
2) Land use. Are corn plants easy on the soil? Do they require less nitrogen or phosphorous? Is the way they grow (i.e. straight up) what makes it profitable? This is starting to lead somewhere, I think.

I'll concede I don't know enough about agriculture to answer this definitively. But every time I stare at corn, I can't help but think 'inefficiency'.

CPI/Retail Data

You know, one of these days, I have faith that I will strike upon interesting data from Statcan (or is it Statscan?). Today is not that day.

1) A bland inflation report comes out, putting the y/y CPI increase at 2.2% and the core CPI at 2.3%. Most of that is increase in housing costs, either through increases in home prices or increases in mortgage rates. Interestingly, inflation in food has substantially moderated, from 4.1% y/y in February to 2.8% in July, but I suspect this could be highly seasonal, and I'm not seeing any word on a seasonal adjustment.

2) After last month's monster increase in retail sales, it's no surprise that they fell off by 0.9% in June. The 3-month advance in retail is still the largest in six years.

Nothing particularly interesting or worrisome.

Monday, August 20, 2007

On the SPP

While I was reading Mr. Cowen's book over the weekend at the Chapters on Rideau Street, I paused in the middle of the sixth chapter to detachedly watch the 'I hate America' march go by. For those of you who weren't aware Canada had such protests, well, you're now informed. As for why it was passing a bookstore, Parliament Hill is the next block over.

I saw signs which denounced:
1) Mr. Bush personally
2) Republicans in general
3) American health care
5) The Iraq situation
6) The Afghanistan situation
7) The American electoral system
8) probably some I'm forgetting
9) The SPP

If you're not Canadian, you probably have little idea what the SPP, or the Security and Prosperity Partnership of North America is. I admit I had to google to get the acronym, but I was well aware how it is portrayed: The leaders of Canada, Mexico, and the US sit down and conspire on how to meld us into one large country.

This view of the SPP is apparently taken seriously in Ottawa; it never gained such traction in St. John's. Now, while I generally view most all protests as a chance simply to have an enjoyable scuffle with police, or try to impress a certain activist someone you've been trying to ask out, I suspect Ottawa is unique in its loathing of the alleged SPP goal of some sort of grand merge.

Ottawa is a government town, plain and simple, and people here live in absolute fear of anything that will upset the unending supply of cushy jobs. Obviously, a North American union could not be based out of Ottawa (my bet would be a new town constructed from scratch around Rugby, North Dakota), which causes the civil servants here no end of nightmares.

Basically there's nothing to it except the chance for three intertwined nations to sit down and discuss a few mutual priorities. Hardly cause for paranoia.

On Busking

This is a dilemma that has concerned me ever since one of my friends dropped out of university, bought a fifth unicycle, and learned how to juggle.

How much do people pay buskers/street performers?

You're not technically obliged to give anything, and I generally don't, being a student with potential impending costs in the form of a zillion more years of formal education. However, I saw the very end of a performance (outside the Bank of Canada no less) last week, in which the errant collected, easily, a few hundred dollars from maybe 80 viewers.

I am also convinced that people give to buskers not only because they value the performace, but because they want to support such talent, or don't want to seem a skinflint to their companion(s).

Either way, it'd be nice to see a model for how these people rake it in.

Sunday, August 19, 2007

Discover Your Inner Economist

There is very little of Tyler Cowen's Inner Economist in me.

I just returned from Chapters, where I read, in one sitting, without the short cappucino advocated by Tim Harford, Mr. Cowen's (I shouldn't call him Dr., according to this book) lastest literary offering.

It's okay. Too much pyschology, too little economics for my tastes, but what else would one expect from GMU? Basically, it's a self-help guide for people who aren't me.

A couple of the assumptions that I couldn't relate with were that time spent with others was more conducive to happiness, that one has a desire to give to charity,

I also missed the memo on when MR became the world's foremost economics blog.

I didn't get much out of it, frankly. A couple of interesting points. The advice on ethnic dining would have been better if St. John's wasn't pretty much a washout for that. Ottawa is little better, to my chagrin - outside of two places in Chinatown. But having been to Vancouver dulls that experience.

The only other thing I can recall is the discussion on signaling, which is something I've discoursed upon at length, though verbally, and not in terms of the blog. It's something that I don't like, but Cowen makes an okay argument that it is necessary. I don't buy it, but the whole subject is more philosophical than anything that can be argued logically.

Anyway, worth reading, not exceptional.

Friday, August 17, 2007

GRE Results

800 Quantative.
770 Verbal.
Analytical Writing to come.

Over and out.

Thursday, August 16, 2007


Okay, I don't understand this:

I mean, the housing data for the US comes out poorly, the US market is one leading this whole credit story, but the TSX is what gets nailed coming out of the block?

I suppose since I never took a business course, it's not really my call, but I just don't understand stock markets.

Venezuela Roars Downhill

The Globe article focuses on Chavez's attempts to eliminate the constitutional limit on how long he can 'serve', but more interestingly:
Mr. Chavez also proposed ending autonomy of Venezuela's central bank, which would give him access to billions of dollars from the banks reserves...

Perhaps more importantly, you also gain the ability to print money. How's that saying go? With great power comes great responsibility.

Frankly, I don't think that Chavez has that kinda control. Venezuela is heading directly towards Mugabeland+oil, as exemplified by this blogger.

I wonder how long oil can prop him up. A while, likely, though less if he keeps scaring off oil companies and ensures adequate investment in refineries instead of using all the profits to glorify his brand of socialism. He can certainly afford some more of these, though:
...two-storey-tall inflatable figure of Mr. Chavez.

Wednesday, August 15, 2007

There Are Economists At Sony!

From Kotaku:
"In terms of the number of pints of beer you have to forego to get a PS3 it's really just the same as the number of pints of beer you had to forego to get a PS1 back in 1995".

They're quoting an employee of Sony, but that sounds exactly like it came from a microeconomics text about relative prices and opportunity cost. Exactly.

Glad to see economists can contribute value-added, even in such areas as marketing the PS3.

Breaking News!

That's right. One cent. One wonders what this implies about my sunk costs, externalities, marginal costs, value of my time, etc. It is, however, a superb demonstration of how constraints affect actions and hence utility.

The Hit Parade Continues

Mattel launches another recall.

However, they don't understand economics:
Mattel does not put a price tag on safety...Mattel Southeast Asia Pt Ltd. said in an e-mailed response to questions.

Let us hope for this continuing recall not to spark more protectionist hand-wringing. The market is taking care of this much more quickly and efficiently than regulation ever could.

Personally, can't say I ever look at labels for stuff. Likely because what we import is already mindbogglingly safe. As long as people are willing to pay for safe, this is not a problem. It becomes a problem when people start believing in a right to cheap quality consumer goods.

Corn Ethanol Redux

Now, I may not have made myself perfectly clear before, but I just don't like government subsidies of ethanol, because they make no sense.

Robert Rapier at the Oil Drum makes the point that ethanol is not any sort of energy solution more forcefully than I ever have, but he's right.

Given that it is unanimous - across the board, 100% - that consuming energy has a cost that is not fully borne by the user (negative externality) in terms of greenhouse gases, oil money to Nigeria, miscellaneous pollution, etc, etc, etc, etc, let's hit up that carbon/energy tax already. Please?

Tuesday, August 14, 2007


I am writing my GRE on Friday, so don't expect a frenetic pace of blogging this week. Likely the reading challenge will also lapse today. I'm sure you're all broken up.

(Poor) Magic of GMU?

It seems that the cadre of bloggers from GMU have some sort of Harry Potter reading club, as Marginal Revolution and Overcoming Bias both post about Book 7 today.

Frankly, I'm not very impressed with their reading speed, which I believe Tyler is making a jab at. Do we know if he's finished the book?

Canadian Credit Casualties

It seems despite my declaration that the subprime mess is not spilling over into the real economy was premature. Although we're not seeing problems in housing prices, we are now seeing problems in other areas:
...Toronto-based Coventree reported yesterday that "unfavourable conditions" in credit markets meant it could not find investors for $250-million of asset-backed loans that came due yesterday. The move knocked backed (sic) Coventree's stock price by 34 per cent.

I don't think there's anything fundamentally wrong with Coventree's holdings. According to the article, they are predominately commercial paper of the highest class. They're more a casualty of the fact that people don't want to lend their money right now, rather than some sort of actual quality problem with their debt. In my opinion anyway.

It'll be interesting to see if any other Canadian debt chefs (is this an original phrase?) are beat up. Maybe I'll drowsily open one eye to this situation.

Monday, August 13, 2007

Reading Challenge XV

I haven't found any blog-worthy news this morning, so we'll segue directly to the daily paper.

Today's selection: Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance from the Dismal Science. (abstract free, full pdf $$. I accessed it through BusinessSourceComplete.)
Abstract: One expects people with graduate training in economics to have a deeper understanding of economic processes and reasoning than people without such training. However, as others have noted over the past 25 years, modern graduate education may emphasize mathematics and technique to the detriment of economic reasoning. One of the most important contributions economics has to offer as a discipline is the understanding of opportunity cost and how to apply this concept to all forms of decision making.

We examine how PhD economists answer an introductory economics textbook question that requires identifying the relevant opportunity cost of an action. The results are not consistent with our expectation that graduate training leads to a deeper understanding of the concept. We explore the implications of our results for the relevance of economists in policy, research, and teaching.

Commentary: Unlike most abstracts, this one doesn't give away the goods up front. The entire paper needs to be read to get an idea what's going on. Luckily, I will distill it for you: the following question was presented exactly as follows to 199 Ph.D economists and Ph.D students in economics at a conference. They were asked to choose the correct answer to this question:

Please Circle the Best Answer to the Following Question:
You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity costof seeing Eric Clapton?

A. $0
B. $10
C. $40
D. $50

Now, some other tidbits. The average respondent took five minutes to answer the question, which is considerably more than would be alloted on a university exam. 61% of those polled had taught an introductory economics course at the university level. 45% were from top-30 economics departments.

The question is taken directly from p.4 of Frank and Bernanke's 2001 Introduction to Microeconomics.

Here are the responses:
A. $0       25.1%
B. $10      21.6%
C. $40      25.6%
D. $50      27.6%

So, at best, 72.4% of these Ph.D. economists were wrong. At worst, 78.4% were wrong. On a question taken from the fourth page of an introductory text.

I hope you've made a selection by now.
The answer is B, $10. I hope I don't have to explain why.

Disclosure: I got it right. I guess my 93% in introductory micro was worth something, even if it was taught by someone without graduate training in economics.

Sunday, August 12, 2007

Sidebar Ads

In an attempt to figure out why tenured professors with book royalties still have sidebar ads on their blogs, I placed a few ads on this humble site, which you may have noticed.

Total earnings accrued come to $0.00. Nil, if you don't like numbers. Hrmm.

That's through 169 page impressions. Let's be generous and say that $0.00 is really $0.049999..., which implies that a site that gets, say, 1000 times more hits than I do (e.g. 100,000 a week or so), would be making $5 every week.

Clearly, either I'm missing something, or the marginal cost of these ads is pretty low. I will keep you updated on the first cent I make and if I have any relevations on the issue.

Friday, August 10, 2007

Hebron Restart?

Okay, this is big news if you live in Newfoundland.
Newfoundland and Labrador Premier Danny Williams confirmed Thursday that formal talks have restarted for the proposed offshore Hebron oilfield, Canadian media reported Friday.

As some of you may recall:
Negotiations stalled last year after Williams insisted on a 4.9% equity stake in the project, along with a higher royalty rate for the province. The consortium had been seeking tax breaks, and in April 2006, Hebron operator Chevron Canada Ltd. disbanded its project team.

I have posted about Hebron in the past. I highly suggest checking them out, I think there's value-added in those posts, unlike what usually comes across here.

Regardless, if Danny pulls this off, we will institute him as king. Seriously.

Reading Challenge XIV

Today's selection: Is This Your Final(s) Answer?
Abstract: This paper reports on the form in which Oxford Finals questions are posed. It criticizes the apparent lack of originality and provides both theoretical and empirical estimates to support this finding. We propose a number of solutions which, if adopted, will substantially improve examination performance and unambiguously raise welfare.

Conceded. Frivolous.

Regardless, that does not stop me from plowing on.

Commentary: I am not as pessimistic as the authors of this tract. E.g. whereas they state "as the level of understanding (sic) in paper i for student j is not observable to the examiner", I would contend that it largely is.

I also demand a more realistic modeling of costs. I would argue on the supply side that creative questions demand more time in creation, but also in correction. Further, students are likely to respond positively to a certain degree of creativity in questions, but at some unknown point student performance is negatively correlated with increasingly creative questions.

We will abstract from potential spillover effects, in that a student exposed to creative questions in principles courses may well be enchanted by subject and continue further studies in economics. Whether this is a positive or negative spillover is unknown, but the presence of such an externality would have obvious effects on optimal behaviour.

This is not to take issue with the author's thrust, as I fully support the call for more creative examinations, but that a more careful modeling of the situation would resolve Dilemma 1 by permitting proof of Lemma 1.

P.S. The best exam question I ever received was in monetary theory, when asked to "describe the effects of Canada-US monetary union", which had never been explicitly addressed during the course. I suspect I spent a highly disproportionate amount of time in answer relative to the weight of the query (12%).


As I sit in my government office, I am once again reminded that I have no possible way to justify the meagre salary I command. Even when I am doing work, and not blogging.
It now takes [GM] an average of 32.36 man-hours to build a vehicle, just 2.4 more than Toyota.

Who feels like they create a car's worth of value every week? (Yes, obviously disregarding capital here, but still). I am boggled.

Labour Force Data


More evidence that Canada is doing just fine, thanks.
1) Economy added 36,000 11,300 (seasonally-adjusted) jobs in June.
2) Manufacturing staged a rebound, adding 20,000 positions. Construction hiring was also 2600 people.
3) Unemployment rate nudged down to a 33-year low of 6.0%.

UPDATE: The Globe takes issue with my numbers, saying a gain of only 11,300 jobs. My original estimate of 36,000 was me being a complete moron hasty and looking at the increase in population, not employment.

Thursday, August 9, 2007

Reading Challenge XIII

Today's selection: Frequently Asked Questions (From the 4th IPCC Assessment Report.

Hardly economics, I know, but without variation, one starves.

Commentary: Not as complex a document as I would have liked. I would have preferred 'this is why the adjustment for urban heat island effects is correct' as opposed to 'urban heat island effects have been compensated for'. However, it still does a pretty good job of answering any basic questions one might have about climate change. There are also a lot of punchy graphs, if you're into that kinda thing.

Some interesting points:
1) The night has been warming considerably more rapidly than the day in recent years.

2) While sea ice in the Northern Hemisphere has been well below historical values recently, Southern Hemisphere sea ice has increased.

3) Thermal expansion of ocean water is an equally important contributor to sea level rise as is the melting of ice.

4) Cement manufacture is a staggeringly large contribution to CO2 output. Enough so to be listed alongside fossil fuel combustion as the two major CO2 sources.

5) It is possible to identify human-produced CO2 in the atmosphere as opposed to the natural variety, ours being characterized by more C-13 and less C-14.

6) The methane concentration has stabilized in the atmosphere for the last two decades.

7) A volcanic forcing can drop the global mean temperature by half a degree celsius.

8) We can have much more confidence in climate models than in economic models.

9) Mr. Gore's potential "turning off" of the Gulf Stream is not likely.
Catastrophic scenarios suggesting the beginning of an ice age triggered by a shutdown of the MOC are thus mere speculations, and no climate model has produced such an outcome. In fact, the processes leading to an ice age are sufficiently well understood and so completely different from those discussed here, that we can confidently exclude this scenario.

10) However, unsure about West Antartica or Greenland breaking up:
Ice sheet models are only beginning to capture such small-scale dynamical processes that involve complicated interactions with the glacier bed and the ocean at the perimeter of the ice sheet.

11) Since CO2 does not break up in the atmosphere like methane or nitrous oxides, immediately halving CO2 emissions would stabilize CO2 concentration for less than a decade, at which point it would start increasing again.

Well, I guess that chemistry scholarship I won had some use, even if I did jump ship for economics. Of course, the only reason I'm an economist, not a chemist, is because I didn't win another chemistry scholarship to go to England for two weeks. Figured there was less competition in economics.

Canadian Housing

Frankly, I just don't get all the hype over subprime meltdowns and housing prices. Okay, I can look at it and objectively understand the concern, but it doesn't, at all, draw my interest. Regardless, the American mess is not spilling over to Canada.

Edmonton and Calgary prices have both flattened out, the runup in prices there seems to have pretty much ran itself out, up 0.5% and 0.8% monthly, respectively. The Prairies are a bit frothy; Saskatoon is up 8.8% m/m, and Winnipeg 5.2% m/m, but everywhere else is flat: Canada as a whole up 0.7% m/m.


I Wish For Second-Best

The provincial premiers of Canada are a unique body in that I am unaware of any other organization that spends so much time squabbling. This has recently been detrimental to Newfoundland, since many Canadians outside the province have turned a deaf ear to our premier's repeated demands to Ottawa for more oil money/equalization/etc. I, and the rest of the province, do faithfully love him, however. But I digress.

Sadly, carbon taxes are not on the menu for provinces:
The Ontario government is willing to consider tough California tailpipe emission standards, but only if they are imposed nationwide, Premier Dalton McGuinty says.
Sources close to Alberta Premier Ed Stelmach say he is prepared to support the low-emission standard and use it as "a bargaining chip" to get McGuinty to back off Ontario's demand for a national cap for industrial carbon emitters and a credit-trading system.
Quebec Premier Jean Charest said he is firmly in the camp of the "cap and trade" provinces, and while he insisted that his province will not dictate terms to Alberta, he hopes this week's conference will create a critical mass of support that will force Alberta, the federal government and other detractors to get with the consensus.

I wish we had second-best politicians, but that would be extremely charitable. Alas. One can dream.

I do accept that Pigovian taxes are not always the best route. They are, however, always the first option to look at, and in this case, the best option, period. Of course, we really need a global carbon tax, but I remain happy to take all bets from people who believe such a scheme is going to happen in the next 50 years.

Wednesday, August 8, 2007

Reading Challenge XII

Today's selection: Understanding Global Imbalances

Commentary: Well, I didn't previously understand global imbalances. In fact, I really understand very little about trade, monetary policy, securities, or even savings and investment. After reading this paper, I feel like my understanding has not improved.

I'm fairly sure it's not complete, there's no abstract, and I couldn't tell you what the thesis was, though it's basically arguing that demographic reasons constitute a fine explanation for the US current account deficit, and these demographics mean the deficit is sustainable.

Since I can't formulate a cognet position on said deficit, I'm not really qualified to dissect the paper, but it certainly didn't convince me.

Digression: Of course, maybe I'm just depressed. I was looking around in my continuing task to gather information relevant to graduate admissions and stumbled upon Cornell's test for mathematical proficiency. Basically, passing it out of math camp allows one to skip a mathematical economics course in first-year Ph.D. studies. I could not pass it. In fact, I do not feel confident in answering any part of any question therein. (My mathematical economics teacher would crucify me, especially after giving me good marks twice. Not to mention those nine math courses I took.)

Conclusion: Studying for the GRE rots one's brain, and I may have to admit that I need to do an M.A. first.

Language and Copyright

I have little empathy for such arrests:
A young wizard of translation, who posted his own French version of the latest Harry Potter book online, has been detained and questioned by French police.
But Parisian-based publishing house Gallimard won't have its official translation into French bookstores until Oct. 26. Official Harry Potter translator Jean-Francois Menard has not yet finished work on the book, titled in French Harry Potter et les reliques de la mort.

Let's abstract from the fact the kid is 16. Harry Potter was released. Harry Potter is in the open. You went nuts over the secrecy, and released it to much fanfare. If you don't bother releasing anything but the English version, hence excluding the vast majority of the world's population from arguably the most-anticipated book release ever, do you expect people to peaceably wait a few months?

Of course, this doesn't say anything about whether such unsanctioned translations are morally upstanding. I would argue they are. If the market doesn't provide me with an option to obtain desired goods, I should not be forced to wait until the market gets around to it. In fact, prohibiting people from seeking unofficial translations lessens the incentive for the authority behind producing the translation to actually get it done well in a timely manner.

Clearly, there is no rationale for permitting the continuing distribution of unofficial translations once the French copy is available in stores, but until that point arrives, I only encourage the initiative of someone who would go to the trouble to translate for people who would likely be willing to spend the money, if only they had the option.

Disclosure: I currently have over 300 gigabytes of foreign-language media on various storage devices that I did not pay for, which was uniformly unavailable for purchase at time of downloading.

France By A Hair!

The Economist (I feel bad for using them as a source so often) provides us with the following:

Hrmm. Not exactly the conventional wisdom. Though one would expect diminishing returns to kick in for those who have longer hours, so perhaps a more apt comparison (if impossible to calculate), would be productivity over a 35-hour work week.

One thing that does bother me in all the income literature is how no allowance is made for the value of leisure time. Even if a French worker is equally productive as an American worker, if the former chooses to consume more leisure, they do make less money, but they're happier than if they worked the extra hours. Having such a choice is a desirable thing, and let's not rail against people's utility functions.

Tuesday, August 7, 2007

Again Foreign Aid

A columnist for everyone's favourite weekly reports from Papau New Guinea about the effectiveness of foreign aid:
On recent visits to Phnom Penh and Dili, the capitals of Cambodia and Timor-Leste respectively, one of the most impressive sights was the swarm of white four-wheel drives—emblazoned with the logos of every United Nations body, donor agency and charity imaginable—that clog the streets.
The UN’s $170m annual budget for Timor-Leste is equivalent to about half the country’s non-oil gross domestic product. And that is before counting the substantial spending by countless other donor agencies or the cost of the Australian-led peacekeeping force there. The $690m that donors are promising to Cambodia in the coming year is more than its government collects in tax revenues.
The sheer number of foreign-funded development projects, and the bureaucracy involved in dealing with their sponsors, overwhelm these poor countries’ ramshackle governments.
The latest version of these figures shows, for example, that despite all the aid it has received, Papua New Guinea’s HDI has worsened from 0.53 in 2000 to 0.523 in 2004 (compared with 0.965 for Norway, the highest scorer).
Cambodia’s HDI has improved from 0.536 in 1995 to 0.583 in 2004. This is good but perhaps one might have expected better, after nine years of being love-bombed with aid.

I am fully in the camp that aid does not constitute any means to promote sustainable growth. I have not quite reached the opinions of Easterly, but I sympathize with his views more than most, I suspect.

Xbox 360 Price Cut

See here:
Microsoft has slashed the price of the Xbox 360 games console by $50 (£25) in a bid to compete with fierce competition from the Nintendo Wii and the Sony Playstation 3.

I have yet to see as good an example of how the benefits of competition come about - benefits that can accrue with only a few companies.

I concede Robin Hanson et al would castigate me for this example, though.

UPDATE: Kotaku informs me that Canadians will see a $100 price drop, not $50, because of exchange rates! Hrmm, I've been talking about stuff like that. Gee, maybe I will get an Xbox.

Reading Challenge XI

And now think tanks. We have not previously been here. I do not intend to go back.

Better Late Than Never: Towards A Systematic Review of Canada's Monetary Policy Regime

Commentary: This piece basically argues that since we achieved stable 2% inflation with relative ease, why not be more ambitious and target price stability, i.e. the time path of prices? While I think this bears consideration, the paper presents no compelling arguments other than saying it's possible.

I think it would be universally agreed that targeting a 1% rise in the CPI every year, and adjusting policy to compensate for prior results (e.g. if inflation runs at 1.5% for a quarter, don't bring it back to 1%, bring it down to 0.5% to even it out) has obvious if probably small benefits. The paper just needs to make the case that the central bank has that level of precision in its arsenal, and more importantly, that the increased interest rate volatility I suspect would be necessitated would not cause problems.

Estimating the Effect of the Canadian Government's Greenhouse Gas Policies

Commentary: The CD Howe Institute confirms its membership in the Pigou Club. There is also a nice graph detailing Canadian GHG emissions, the impact of various policies, and several targets that had been established (and were uniformly missed).

Everything else is not worth reading, because all their results are attributed to the CIMS model without any commentary on just how the model works. The website does not provide such detail either, and while I may not have read it if the minuitae were posted, posting something implies confidence.

Kill the Penny

The CBC:
Adjusted for inflation, one cent in 1870 (the earliest date such data is available) had the same purchasing power as 27 cents in 2005.

If 19th-century Canadians got along fine without half- or quarter-cent coins, do we need pennies or even nickels now?

No, we do not.

Oil Strikes?

From the Financial Post:
[F]ive large construction unions have been given strike mandates by their members and can walk out at any time. Another two are getting close to that position. Some 30,000 workers could be involved. They are turning down pay increases that would make most Canadians cringe with envy: 24% over four years, topping up salaries that often exceed $100,000 a year. (A pipefitter or a welder earns basic pay of $44.91 an hour).
...the 24% increase offered by the oil companies barely keeps up with the province's inflation.

Actually, Alberta's inflation is currently at 6.3% annually, but CPI bias, etc, etc.

I suspect a PR problem could be brewing here. For reasons I don't really get, people still whine about gas prices. You tell Ontarians that Albertans are turning down 6% annual pay raises? Maybe we'll see another National Energy Program yet.

Monday, August 6, 2007

Political Exchange

From the CBC:
Finance Minister Jim Flaherty says he is frustrated that Canadians are paying too much for imported goods and has told business leaders the government expects them to pass along savings from the higher Canadian dollar.
The BMO report found magazines are between 10 and 23 per cent more costly in Canada than they should be. Other overpriced goods included foreign automobiles, cameras and books.

Have I not previously discussed exchange rates and books? I have!

Of course, it's not government's role to step in and scream at business about passing on these savings. But I certainly appreciate the sentiment.

Reading Challenge X

Okay, sparked by Greg Mankiw, I read this study ($$) on personality types and performance in introductory economics. (Abstract here.)
Abstract: This paper explores the relationship between student's personality types, as measured by the Myers-Briggs Personality Type Indicator, and their performance in introductory economics.

We find that students with the personality types ENTP, ESTP, and ENFP do significantly worse in Principles of Macroeconomics than identical students with the personality type ISTJ. We also find that introverted students earn significantly better grades than identical extroverted students. When we include the temperament variables described in the work of Kiersey and Bates (1984) in our model, we find that NT and NF students perform significantly worse in Principles of Macroeconomics than their SJ counterparts. We also find that a student whose temperament type matches the class instructor's temperament does significantly better in the class than a student whose temperament type does not match the instructor's.

We believe this provides evidence of the importance of matching a student's learning style with a professor's teaching style. In conclusion, we discuss many options for improving instruction in the introductory economics course by offering a variety of different teaching and grading strategies that will better accommodate our students' diverse personality types and learning styles.

Commentary: Another overlong abstract. Moving on.

The crucial thing to know about this study is that it is based on 119 students and 3 professors. As such, I would be extremely hesitant to generalize their results to any degree. Were, of course, I not already extremely dubious of the concept of slotting people in to certain personality types. I was also disappointed not to remember just how ordered probit extracts those gains compared to simple probit.

Regardless, according to the study, the person who aces macro 101 has preferences as follows: introversion, not extroversion; sensing, not intuition; thinking, not feeling; and judgement, not perception. Or, in the shorthand, ISTJ.

As the authors point out, an introductory course is not quite equivalent to plowing through, say, Romer, in the last undergrad macro course. As such, ISTJ may not be optimal for an economist.

Disclosure: I am an INTJ, impliying I prefer intuition, not sensing, in comparison to ISTJ.


I suspect that this has already been seen by anyone who checks this space, but since I generally don't keep current with the blogosphere over the weekend and for a large part of Friday (especially this weekend while watching Lucky Star), a lot of news slips past.

Greg Mankiw on the Sociology of Economics.

At this point, I checked the rest of my blogroll and found nothing. Apparently it was a slow weekend, or maybe economists actually have hobbies. I will refrain from comment until I read the paper associated.

Friday, August 3, 2007

Reading Challenge IX

Ooh, a third roman numeral!

Today's selection: Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts
Abstract: Expanding credit access is a key ingredient of development strategies worldwide. Microfinance practitioners, policymakers, and donors have ambitious goals for expanding access, and seek efficient methods for implementing and evaluating expansion. There is less consensus on the role of consumer credit in expansion initiatives. Some microfinance institutions are moving beyond entrepreneurial credit and offering consumer loans. But many practitioners and policymakers are skeptical about “unproductive” lending. These concerns are fueled by academic work highlighting behavioral biases that may induce consumers to overborrow.

We estimate the impacts of a consumer credit supply expansion using a field experiment and follow-up data collection. A South African lender relaxed its risk assessment criteria by encouraging its loan officers to approve randomly selected marginal rejected applications. We estimate the resulting impacts using new survey data on applicant households and administrative data on loan repayment, as well as public credit reports one and two years later.

We find that the marginal loans produced significant benefits for borrowers across a wide range economic and well-being outcomes. We also find some evidence that the marginal loans were profitable for the Lender. The results suggest that consumer credit expansions can be welfare-improving.

Commentary: That abstract is a tad long, methinks. It also summarizes the paper nicely. This paper is also my first foray into the experimental genre. (Disclaimer: I know nothing about experiments or experimental design.)

The one other thing I found interesting was the gender split along post-loan consumption differences. Men who borrowed were extremely likely (p < 0.01) to increase their consumption in the medium run, while there was no significant impact for women.

Explanations? Sadly, the uses of the loan weren't broken down by gender, so no way to really speculate.

This Clashes

Despite Statscan saying the other day that professorial salaries were peachy, the new blog (HT: Marginal Revolution) of an LSE professor incorporates Google AdSense.

Given that I doubt it's a serious stab at an earnings supplement, why is it there? Most blogs don't have ads.
1) Blogger makes it sufficiently easy to implement that it's still worth it.
2) Curiousity over just how much those ads bring in.
3) 'Maver-econ' implies the author should be an iconoclast?

Monopoly Means Lower Prices?

Okay, this one requires some explaining.
Barley prices dropped more than 20 per cent yesterday, down from recent record highs after a court ruling dashed the federal government's plan to strip the Canadian Wheat Board of its monopoly over the grain.
But a vote in Parliament seems unlikely. The opposition parties had all voiced concerns about creating a dual-marketing system, which some say would effectively kill the wheat board and weaken Canada's marketing muscle.

So, the opposition parties think that allowing the farmers the choice between selling to the Wheat Board and taking whatever price results and selling their crops themselves will kill the Wheat Board. Isn't this de facto proof that farmers don't want the Wheat Board?

Presumably that means farmers would be better off by themselves, in turn reducing the need for farm subsidies. So, this deregulation would expand individual choice, make farmers richer, reduce government spending obligations, and opposition parties are complaining?

Note: this backgrounder shows how, in a vote, 48.4% of farmers voted to permit a choice between private sales and the Wheat Board, while 13.8% voted for the complete abolishment.

This cannot be the full story. Why would the price of barley fall on the news that a monopoly would be broken up? My only conclusion is that the Wheat Board, which I imagine has a degree of market power on the world stage, does not make use of such and instead sells at lower prices (or makes poor use of futures and whatnot) than do independent farmers. The government then partially fills the gap with subsidies. I would also bet inequality in the distribution of subisides accounts for a large part of the 38% of farmers who want to maintain the status quo, but as I am not conversant in the allocation of farm subisidies, I will not make firm conclusions.

I concede that the democratic process requires a vote in the House. However, it is ridiculous that the opposition opposes this kind of motion. I wait anxiously for 'Barley Freedom Day', but given how the board of directors of the Wheat Board is required to sign onto changes that would drastically reduce their number and influence, I can't see it happening.

Patting the Shark

The Economist mentions a study in which a South African payday lender is encouraged to extend credit to a number of marginal applicants who had previously been rejected. The results are rather positive.
...those reconsidered for a loan seemed to prosper. Six to twelve months later, they were less likely to go hungry, and their chances of being in poverty fell by 19%. Not coincidentally, they were also more likely to have kept their jobs, perhaps because the credit helped them to overcome emergencies that might otherwise have forced them to abandon their posts.

This surprised me. I will admit that I previously held that most payday lenders are out stealing money from those who don't understand Einstein's second most powerful force. Alex Tabarrok would label me a 'credit snob'.

Apparently, this view may be subject to review. Clearly, one study halfway around the world is not enough to constitute proof, but all information should be collected.

Friedman Would Approve, II

Following the Japanese delivery of helicopter money recently, the US government leapt into the arena to compete.
Armoured car spills 32,000 quarters during trip spanning 2 Wisconsin counties...
Eight-hundred dollars of loose quarters was found late last month in the Madison area and $3,200 in Jefferson County the next day.

From the CBC.

Thursday, August 2, 2007

Reading Challenge VIII

A short one today. The energies to blog aren't here, and there was a long lunch meet with the Deputy Minister. (That sounds like my position is more than it is. I assure you it's not.)

Today's selection: The International Trade Regime in Fish Products.

Digression: It's hard to convince people your economics program has merit when only one professor maintains a web page with posted research.

Commentary: As a Newfoundlander, I have some sort of innate duty to learn about the fishery. This paper (political economy-esque) contributes.

The basic thrust is "this is what the huge subsidies in the fishery do" (in basic terms, there's no fancy assignation of numbers) and "here's Canada's stand on fishery trade".

A little disappointed with this. It's dated, too.


Statscan releases the lastest data on academic salaries.

This was quite interesting, since it's broken down by university. The median full professor without senior administrative duties (not including medical/dental fields) earns $102,300 annually. However, this qualification is more difficult to reach at MUN than a lot of places, I think. Most departments are only about 1/3 full professors.

Memorial is actually pretty competitive salary-wise, especially when you consider the cost of living in Newfoundland.

Not Quite Newton

Dr. Mankiw:
Economists recognize that a cap-and-trade system is equivalent to a tax on carbon emissions with the tax revenue rebated to existing carbon emitters, such as energy companies. That is,

Cap-and-trade = Carbon tax + Corporate welfare.

I would personally love some sort of household cap-and-trade because since April 20th, my vehicular carbon emissions consist of one bus ride, zero taxis, and zero private cars. I have walked everywhere else. My electric bill is low. I'd probably make a mint.

However, I do acknowledge that a carbon tax is a much superior economic option.

Wednesday, August 1, 2007


Before I leave:
"My favourite ticketing system was in Mumbai, India," Kim enthuses. "No one actually buys a ticket, but you can buy 'ticket insurance' from private entrepreneurs who work at the entrance of the station. The 'ticket insurance' is about half the price of a regular rail ticket. It gives you a guarantee that, in the extraordinary event that you are booked by a railways inspector for taking a free ride, your fine will be paid. A relative was once booked and the ticket insurer paid the fine exactly as promised."

Courtesy of Marginal Revolution.
Original article here.

The question is, how much is the fine relative to the ticket, and how this possibly constitutes optimal behaviour.

Reading Challenge VII

Today's selection: A Contribution to the Theory of Economic Growth. ($$)

Classic! Solow is as good as ever, and the math is easily followable. I admit to already being familiar with this work. I suspect anyone who shows up here will be as well.

One of the anachronisms of this paper (it is, after all, 51 years old), is the working out of examples within the main text. The Harrod-Domar one is worthwhile, since its knife-edge property was the apparent motivation for this rebuttal, but Solow also works out the solution for Cobb-Douglas and a CES-ish production functions. Clearly, the publishing of the CES function in 1961 was not a big a leap as I had been previously led to believe.

I was also taken aback by the large section devoted to the time path of wages and interest rates. The Fisher equation is referred to without calling it as such. I wonder when it was named? The fact that the depreciation of capital doesn't show up here was also surprising, especially given all the extensions to the model he elucidates are possible. I guess someone squeezed it in later.

Also, these graphs are remarkably well-done since Solow certainly did not have the benefit of latex.

In retrospect, Harrod now looks a little silly. Back then, it may have been a little silly to build a growth model that was all straight lines and equilibria and no Great Depressions.

Friedman Would Approve

Let me quote Free Exchange:
Has Japan's central bank engineered a literal helicopter drop? From AFP:

On Wednesday, bills worth 960,000 yen [(~$8500 CAD)] were inexplicably seen "falling" in front of a convenience store.

"We can just say the money came from the skies," a puzzled police official said. "There were other passers-by outside and customers in the store but the incident caused no confusion," he said.

Can money from the sky bump the Japanese out of their liquidity trap? Not if they don't pick it up! For some, it is just too creepy. "People thought it was too eerie to touch", AFP reports. And many of those willing to handle the loot have dutifully returned it to the police. It's okay, people. Just spend it.

Protectionism, Now and Then

Okay, logic time.

Marginal Revolution alerts me through EconLog about a Club for Growth petition sparked by the possibility Congress might be dumb enough to actually pass a bill to initiate trade conflict with China.

Now, there's all sort of commentary out there already, and I agree with it. This is not a good plan. Some 1028 economists have signed this petition against in remembrance of the 1028 that signed a 1930 petition against Smoot-Hawley. What's interesting is to visit the Club for Growth link and look at the 1930 petition, when Missouri was apparently a top US university, and Harvard certainly isn't considered #1.

Note: It is disingenious for the Club for Growth to assert that Smoot-Hawley caused the Great Depression. It may have contributed substantially, but that is far from proven and detracts from the issue. Nobody is suggesting another depression if one of these bills passes.