Sunday, December 30, 2007

Reassurance

Greg Mankiw's assigned homework leaves me confident I'd pass introductory econ at Harvard.

More seriously, I've always found that the course materials provided online by MIT very useful in learning or gauging process. Bizarrely, I find their graduate micro I exam easier than their undergraduate intermediate micro.

NOTE: For some reason, blogger dates posts from the day I start them, not the day I finish them. No, I don't understand, either.

Thursday, December 27, 2007

Climate Change

Let me be honest. I've been following the guys over at the Progressive Economics Forum simply because I wanted to criticize something they've written for awhile. But a recent post on climate change reminded me of something that I find irritating in general.

For some reason, there appears to be a mass aversion to looking at climate change in a reasonable light. Lomborg is bent on attacking any action proposing to remedy it. The linked post is dedicated to the idea of fighting it.

However, it is a fact that any change in global climate confers costs and benefits. Living in Newfoundland, I would say with great certainty that an increased temperature would bring benefits - we spend a lot more on heat and snowclearing than we do on air conditioning and sunscreen. Further, if we accept that being an epsilon away from absolute zero is undesirable, and that anything above 1000 celsius is undesirable, there must be at least one optimum in the middle.

I'm not advocating terraforming (yet), but I think that the debate could use a healthy injection of economic theory, rather than just economic empirics.

Economic Growth

MR links Charles Kenny on economic growth:
In short, the last six years has not changed the basic conclusion that the growth literature has taught us much less about how to get rich than it has about who is already rich. There is nothing particularly new in recent growth theory, but perhaps that is no surprise because there is remarkably little new in growth, either – the rich today are by and large those who were rich yesterday. That there might not be a holy grail of growth policy, however, is no reason for people of economic faith to stop looking, so no doubt the next six years will see another 13,000 articles on the subject to review.

That's fairly pessimistic, I think, but let's grant him his view. Let me quote Robert Lucas on why the next set of 13,000 articles, useless or not, must be written:
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 about anything else.

Sunday, December 23, 2007

Justification?

Some of you may recall my thoughts that we aren't in as bad shape as some would argue.

Econbrowser has some estimates stemming from consumption data indicating that Q4 US GDP growth is going to be decent, namely a 95% confidence interval for 1.6%-4.8%.

Heck, the ABCP market is even coming back. What else do you want?

UPDATE: I wonder if anyone does a similar sort of analysis on how Canadian consumption data translates to GDP. Something I'd look into if I didn't already have a bunch of papers simmering.

Thursday, December 20, 2007

Why We Really Have Christmas

So, I think it's fairly well accepted that people have heterogeneous preferences over income and leisure. Unfortunately, employers probably can't have their entire work force taking random days off all the time to sate their own preferences because it really messes up the office - some days you just need the whole team, or a particular person.

The second-best solution? Official holidays. Solving a labour market dilemma. This is even more convincing in that there's generally an option to work at an increased wage as a nod to those with extreme preferences. We could thus interpret the growth of holidays over time (e.g. the recently-announced Family Day in Ontario) as a natural response for more lesiure as society grows richer in following basic economic theory. Note also that richer provinces have a slight tendency towards more holiday time, as would be expected, though the entire variation in the sample stems from the Atlantic provinces. See Wikipedia.

Unfortunately, holidays are extremely sticky and cannot be adjusted easily for sentimental reasons and substantial menu costs. Otherwise we'd have a unique macroeconomic indicator on our hands.

Computing Time Preference

Under orders to place a scant offering on the altar of public approval by erecting Christmas decorations, a thought came to mind. Could one not calculate the rate of time preference from these activities?

Placing lights consumes electricity, producing GHGs, warming the planet, reducing the probability of a white Christmas (which I'm told is a normal good) in future years. If you know the appropriate conversion between holiday lighting and holiday snow, how much pollution is caused by this additional consumption of electricity, plus if you knew the precise effects of global warming, you'd have arguably the most roundabout measure ever of time preference.

Assuming of course, full information, which never holds.

Monday, December 17, 2007

Concerns, But For A Different Reason

You're probably tired of hearing about me, so I'll actually talk about economics today.

To a certain extent, I think a lot of the hubbub surrounding the subprime mess/crisis/problem is justified. We have yet to see a ton of red ink that is destined to splash on the balance sheets of numerous financial institutions. But I'm not really worried about it.

I don't think it's the prelude to a very long Japan-style housing-led economic malaise as was brought up on Slate a few days ago. Neither do I think it sparks a short-term trickle-down recession brought on by coal replacing the typical Christmas bonus.

Obviously, I don't have the expertise to actually summon up any convincing data on why this is true. Otherwise, I would have another paper to write. For a short answer, though, let's consider the perspective of those involved. Take your average North American central banker, who in recent times has been more than happy to throw kerosene on the economy. Who do they spend more time with? Bond geeks or Wal-Mart customers? Which of these has a bigger impact on the economy in aggregate?

As a first exhibit, consider the Google news search for "november inflation". On the first page, I'm counting American inflation higher than predicted (0.4% rise in the core for the month of November), eurozone inflation higher than predicted (plus separate articles on German, French, Polish, and Finnish inflation - all individually higher than expected), and Chinese inflation higher than expected.

Plus, if we haven't already forgotten, the USA had 4.9% real growth last quarter. Either way, my reading of the cards doesn't spell big trouble.

What I am more concerned about is moral hazard. I don't think the financial world could have asked for a more sympathetic ear from our money-printers. Rate cuts, expanding the definition of acceptable collateral on SPRAs and other repos, etc. Heck, it even seems like there's federal pressure on TD - who hasn't been afflicted by the mess - to cough up a billion for the common good.

What's that line about economists predicting nine of the last three recessions?

POSTSCRIPT: Trying to nail down an honours topic. Right now, looking at an ill-defined intersection somewhere at the corner of endogenous growth, development, and location theory. It would help if the two profs I'd like to work with weren't taking off to Asia for the winter, and the remaining macro guy is teaching too many courses (five and a half!) to supervise.

Sunday, December 16, 2007

Applications

All application forms have been submitted, all GRE scores (long since) mailed, and all transcripts are in the hands of the registrar's office.

Now, we wait. And it only cost me $1064.43.

Friday, December 14, 2007

SSHRC

Rejected in the first round. Didn't even get forwarded to Ottawa.

I guess there's something to the process other than one's transcript.

Wednesday, December 12, 2007

Deferred Exams

One of the other undergraduate teaching assistants is having most of her exams deferred until after Christmas because she broke/sprained/etc her wrist while punching her boyfriend (in a loving manner, apparently).

It was interesting to watch that story be explained to professors, to say the least.

Thankfully, my exams are now over; the break will be devoted to finishing off applications and writing papers.

Tuesday, December 11, 2007

The Budget and Equalization

Some of my first posts provided a bunch of neat graphs about the oil industry in Newfoundland.

This strikes particularly close to home in the wake of today's budget news. The province is now projecting an $882m surplus, which in percentage terms is something like Ottawa running a $50b surplus. Completely on the strength of commodity prices. This is going to cause some real headache for government. Four years ago, striking government workers agreed to a fairly harsh pay deal. Something like 0%/0%/3%/3%? In that neighbourhood. Nurses also. Perhaps some other groups. There is going to be a massive union move to grab hold of some of this.

Plus, it's temporary. We have maybe six years of decent production, and then it falls off a cliff. All Hebron does is make the cliff a little less perilous. But good luck telling that to anyone. Personally, I think denting the debt makes sense, remain amazed the government is willing to use all this cash on such long-term goals, and hope they've got the political capital to stay the course.

We also conceded the equalization fight - kinda - by utilizing the new plan, which counts nonrenewables. The argument does remain from the provincial perspective that there should be another deal on the table, but there's no chance of that ever happening.

News worth keeping on eye on, but there's little to analyze.

Friday, December 7, 2007

LFS Release

I'm torn.

On one hand, I think the Bank is too soft on inflation. On the other hand, with data like this, I could learn to like these rate cuts.

I mean, the numbers look good. Unemployment did tick up to 5.9%, if only on more people entering the labour force. But what's scared me for some time about the string of apparently good jobs data that we're seeing is that the growth is all public sector. For the past year, 88% of job growth has been public sector. That's not what I consider a vibrant economy.

Income Divergence, Preferences, and Externalities

One of the things that always bothered me about Sarkozy - don't get me wrong, I think his economic reforms are a plus - was his declaration that France needed to work more. Always struck me as somewhat wrongheaded.

I mean, there's a real value to leisure. I place a lot of value on it. If you make the assumption, which I think is legitimate, that people of the same nationality have more homogeneous preferences relative to the world population as a whole, this alone implies that in the very long run we should not witness any sort of (beta, I make no claims about sigma) convergence in GDP per capita.

Why this should distress national policymakers, I have little idea. Your citizens are out maximizing their respective utility functions. Placing (more) constraints on this can't be a great idea, can it? I can certainly see an argument for things like "higher GDP translates into more international diplomatic punch/prestige", but I am unsure how much stock I'd put in such things, given how it implies substantial divergence between the positions of decisionmakers and the populace, and such a disagreement should not last in the long run, right? (Voting theory is not my thing, feel free to correct me.) Besides, it may not even be true. Who has more clout, Spain or Russia?

I can see why it would greatly distress global policy wonks. If you subscribe to any theories of learning-by-doing and spillovers, people enjoying wine at 3 on a wednesday afternoon in France is suddenly making the rest of the world worse off. I am unsure if there's a realistic method on how to address this externality - the French probably wouldn't take kindly to being taxed because their preferences are different - or if it even needs to be addressed.

Either way, it seems like there's some space for more literature here.

POSTSCRIPT: Exam season is in full swing. No problems, thank you.

Saturday, December 1, 2007

An Inflation Assertion

I find that Avner Mandelman writes a pretty good columnn for the Globe. However, that's not really saying much, because he writes about investing, a topic about which I know relatively little.

However, he ventures out today with the bold assertion that Canadian inflation is running at 6-8%, and has been doing so consistently for some time. He bases this on examples; dinner at a restaurant, plane tickets to Paris, yogurt.

Since his examples are from the early 80's, and inflation hasn't been 2-3% for all that time, obviously you'd suspect to for these prices to have increased by more than 2-3% annually over 25 years. Plus, these are bad examples - oil prices, increases in demand consistently above the rate of economic growth, etc.

Further, any introductory macro course will probably talk about the inherent upward bias in the CPI, which stems predominately from the availability of substitutes and quality improvements.

Finally, if inflation is really 6-8%, what the heck are the army of statisticians charged with measuring the CPI actually taking into account? While I'm not a big fan of Statscan, they're not incompetent, and aren't just making up prices off the top of their heads.

Now, I was born in late '86, so I certainly can't quote prices from 1982, but the product with the longest track record in my addled mind conforms well to a 2-3% target: Two liters of Pepsi.

POSTSCRIPT: Perhaps more of a concern, he does assert that most people view inflation in the 2-3.5% range - what he ascribes as the common view. I'm becoming increasingly worried that 2% inflation is seen as license for the Bank of Canada to hit the gas. That 2% needs to be lowered to 1%.

POST-POSTSCRIPT: Honestly, I am actually studying for exams. Really.