Friday, February 27, 2009

Conference Circuit

The Canadian Economics Association is offering a three-day summer course on panel data, taught by Wooldridge and Imbens. You may have heard of these people. If not, suffice it so say they're at the top of the pyramid. It will be held just before the yearly conference in Toronto.

Anyway, I was about to register for it when I noticed the tuition refund is not made available to students studying outside of Canada, which increases the price by a factor of ten. Now I'm no longer sure it's worth it for me, but any other Canadian doctoral students who aren't that far removed from Toronto should check it out.

Oh, and if you'll be at the conference or the course, post!

Thursday, February 26, 2009

Net Neutrality, Again

For some reason the BC government has felt the need to publish something talking about net neutrality; sample article here. Excerpt:
Net neutrality also depends heavily on investment in robust and scalable network infrastructure. However, “aggressive traffic shaping” practices contributes little to network infrastructure investment and only leads to a short-term false sense of security that existing and legacy networks can be squeezed to meet future capacity requirements. Further, the use of aggressive traffic shaping practices potentially defers what should be ongoing network upgrade practices thus potentially leading to the need for massive network investments in the future.

Woo, wasn't that fun to read. And another group of people step up and completely miss the point. Net neutrality isn't about some "right" to have unlimited connectivity to the internet, just like there's no "right" to have phone companies provide you an option for unlimited text messages for a flat fee.

Also, how come the government has a better business plan for the telecom industry than the telecom industry? I suspect ISPs everywhere have a pretty good idea that network traffic will continue to increase, and that consumers will head towards the best deals. Give me a reason why they're all so collectively short-sighted as to ignore the need for "potentially massive network investments in the future" to satisfy demand.

Net neutrality is simply this: if you pay the ISP for so many bits, they treat whatever bits you send them identically. If you pay for so many bits with a bunch of conditions in the contract, prepare for traffic shaping. If you want a superior level of service that lets you run torrents fill speed at peak hours, relative to one that pushes it to 4am, pay for it.

Basically, this entire debate results from a lack of clear understanding on the property rights. Either the contract with your ISP says that traffic shaping is part of the deal or that it isn't. There is nothing else.

Wednesday, February 25, 2009

What Will Recovery Look Like?

Everyone seems to be predicting this recession will end at some point in the future and we'll get back to growth as usual. I would agree with this. I would, however, also like to know when, exactly, we'll know when things have turned the corner, since it seems with every month that passes, the forecasts for recovery get pushed back another month.

The TED spread is back under control, but that doesn't seem to have changed much, despite how many people were pointing to its height at the first unravellings as indicative of the problem.

We could maybe look at metrics of credit availability, but they aren't exactly showing a ton of movement, particularly when you factor in falling prices. Credit kept growing well into the recession, too, so wouldn't it be a lagging indicator?

As a partial explanation for this (by which I mean more questions), we could think of this mess as two recessions, one from the bad housing market, and an overlapping one from the financial mess. So the credit only follows the second. Really, a lot of the aggregate variables that I wouldn't expect to lag kept following the trend until a fair few months into the recession as defined by the NBER.

I don't think anyone expects government spending to lead the recovery. At least, I hope there's some consensus that ramping up government spending to the point where it brings GDP back to where it would be if 2% per-capita growth continued would not constitute recovery without some serious accompanying enthusiasm from the private sector.

So what do we look at to see that things are getting better? The best indicator I can think of is world trade volume, maybe? Unemployment is too late, same for GDP.

Anyway, I don't have any good answers.

POSTSCRIPT: The St. Louis Fed now maintains a specific data series detailing how much credit has been extended to AIG. Does this mean when the series falls that AIG has just actually used that money?

Tuesday, February 24, 2009

Hard to Take Seriously?

The Globe interviews Harvard economic historian Niall Ferguson on the financial mess.
It's a sign you've made it when you get to make up words like "Chimerica" and people don't laugh. No, really, read it. He says 'Chimerica' repeatedly.

Yes, we're all willing to admit that there are serious global imbalances between saver and debtor countries. But academic scholarship on the fiscal crisis should not revolve around patenting sound bites. The only definition of 'Chimerica' we get is 'the fusion of America and China', which is trite, to say the least, and in my eyes really detracts from whatever points he's making, many of which I agree with.

The resident Rochester economic historian is coincidentally on leave at Harvard this term. I've heard Rochester has also extended an offer to Pricila Maziero, of Minnesota, for a junior faculty position. There may be other offers out I'm not cognizant of.

Happy Birthday

Two years! Thanks all. I was going to put something long here, but I'm lazy.

Monday, February 23, 2009

The State of Rochester

For the first time since 1929, the 'Best Picture' award went to a movie not shot using Kodak film.

Kodak, of course, being a local firm, having endowed a chair of economics at UoR, and the Eastman name is plastered liberally over campus. The university owes Kodak a lot.

Speaking of Rochester, admits should come out Thursday-Friday. And on the subject of admissions, let me quote John List:
Let me be clear: the applicant pool is deeper and stronger at every one of the important deciles this year compared to the previous two years that I have done admissions and aid. Add to this the fact that our funding here at UC is much tighter than in past years--even though we argued for that not to happen--and I am getting the feeling that this year will go down as one of the most difficult for candidates in years. Maybe ever.

Saturday, February 21, 2009

Simple Bailout Math

GM and Chrysler are back looking for 9 billion and change.

Now, the CAW website says 'over 250,00 members'. Wikipedia says 265,00, but that includes industries like health care, which for some reason are represented by the CAW. Can you see where I'm going with this?

9 billion / 250,000 = $36,000. (If there's some change left over, give it to Ford, they seem to have a better idea of what's going on.)

Note that this lower bound is way south of the infimum, since it assumes that without the bailout everyone currently employed and represented by the CAW will be laid off, while the bailout will maintain current levels of employment at GM/Chrysler, neither of which are realistic scenarios, e.g. Chrysler has already committed to laying off 13,000, reducing it's Canadian workforce to 7,000. It wants 2.7 billion.

2.7 billion / 7000 = $385,714.29.

These jobs are getting pretty expensive. I remember back when I took cost-benefit analysis, when payments to labour input went in the cost column. The times change. And no, there are no valid arguments along the lines of 'but if the automakers go, so does x,y,z', because the government could spend the money somewhere else and presumably realize the same multiplier effects in the opposite direction.

If this goes through, we should lobby for a bailout of econobloggers.

Wednesday, February 18, 2009

Homegrown stimulus

Danny announces $800m stimulus package.

On a per-capita basis, that's about $52 billion from the Canadian federal government.

I remain unsure that the most heavily-indebted province in Canada should be doing this, particularly given that regardless of what we'd like to believe, oil is not a renewable resource, oil prices are in the tank, and that the prospects for more oil post-Hebron look bleak. All of that plus my inherent skepticism about stimulus.

The deficit will be remarkable, too. I think we were already in the red pre-stimulus, so easily a billion dollars for 2009, probably more. Imagine if Harper tried to run a $75-100 billion deficit.

Sunday, February 15, 2009

DRM

I've been a subscriber to slashdot for about a year. I hold no pretensions of being a techie, but the news is interesting, sometimes. However, it's a little frustrating how blind they are when it comes to anything they love, e.g. the internet, free and open source software, etc. For example, there's a post up today implying how great it would be if some federal authority stepped in and banned DRM.

This is, of course, wrongheaded. If you do not want a product that contains DRM, do not purchase it. Problem solved...well, not really, because then we have piracy issues and perhaps the intellectual property gives one firm a monopoly. But you can see how the market has been able to work toward the non-DRM solution, see for example the plethora of online music retailers where DRM-free tracks are available. It's still a very messy subject, but it's a very new market, too.

A closely related debate is the net neutrality bit, which I've blogged about repeatedly. Not that this is the only sphere where this sort of thing crops up.

EDIT: Today I learned that the city of Rochester has an 11pm curfew for "being on the streets" for youth under 16. Huh.

Friday, February 13, 2009

It's Nice to be a Monopoly

Passengers flying out of Toronto Pearson International Airport will see their fees go up 25 per cent as Canada's largest air transport hub reacts to a reduction in the number of travellers.

The Greater Toronto Airports Authority, Pearson's not-for-profit manager, said Friday that its airport improvement fee will increase to $25 per departing passenger on June 1, up from $20.

Article. How many other businesses can get away with raising prices during a downturn? Please, no 'more than have had a good experience going through Pearson' comments.

Thursday, February 12, 2009

n-th Order Effects of Fiscal Stimulus

1. Pass fiscal stimulus.
2. Issue debt.
3. Create devaluation expectations. This is perhaps the most persuasive evidence for US dollar devaluation I've yet seen.
4. Consumers, expecting devaluation, buy imports today.
5. Fiscal stimulus less effective than planned.

I would be the first to concede that this is probably not a big deal, and is mostly an excuse to pass along that link I got from Free Exchange. However, I have personally made one or two small decisions I would not have made for a couple of months was I not expecting the US dollar to head somewhat south.

EDIT: I find it amusing to no end that about an hour after I wrote this, the greenback had a half-decent rally.

POSTSCRIPT: Does it ever bother game theorists that they can get different results for the same auction when they only permit bids in cents as opposed to in real numbers?

Wednesday, February 11, 2009

Record Setting

December marks Canada's first monthly merchandise trade deficit since March 1976.

In a weird way, we're in the same boat in the Chinese - the US is unwinding its imbalances with both of us.

UPDATE: How does this make sense?
"As if markets needed more evidence that global trade is collapsing fast enough to spark growing worries regarding protectionist sentiments," said economists at Scotia Capital Markets Inc. "But we got it via evidence of a weaker than expected trade picture in Canada and the U.S."

I would have thought that 'no global trade' is an almost perfect substitute for protectionism.

Monday, February 9, 2009

Dumb Report of the Day

The Heart and Stroke foundation advocates national regulation of prices on healthy food. Hopefully you have some instincts as to why this would not be a good idea. The actual report and survey cited are not presented on the web page. I want to quote one particular excerpt:
"Many provincial governments regulate the price of alcohol across provinces, but healthy food is subject to significant price variations from one community to the next," said foundation spokesman Stephen Samis.

"You have to wonder why we control the price of alcohol but allow such price inconsistencies for healthy food -- and not just in remote regions of the country -- but even between larger metropolitan areas."

We control the price of alcohol so the government can establish a price floor and extract rent from the marketplace and to deter consumption. Somehow I don't think Heart and Stroke is hoping for less consumption. It should be blatantly obvious that the cost of supplying fresh produce to St. John's in February is not the same as that of Vancouver. Kind of a waste to type more, except that the Heart and Stroke people probably imagine themselves the national arbiters of what constitutes healthy - they already get paid by anyone who wants to earn the Heart and Stroke seal of approval to place on their product.

Sunday, February 8, 2009

JET

Dear editors of the Journal of Economic Theory: Please stop using that (admittedly distinctive) green ink on the covers that comes off on the hands. Surely we can find a printing method which doesn't leave bright green fingerprints everywhere.

Saturday, February 7, 2009

Rochester

Given some of the unwarranted bashing of Rochester over at the econjobrumours board, I feel compelled to say that if anyone looking around at what programs to apply to or with an admission in hand (expect them soon) would like information on the program, I'm more than happy to talk to you. Send me an email. No, we're probably not top-20 in terms of research output anymore. Yes, many people don't like the weather (some love it), and it kinda is in the middle of nowhere. Relatively speaking, I guess. St. John's way moreso, of course.

But there are lots of good things going on here.

Friday, February 6, 2009

Pessimism

Via the Globe: Loonie plunges on jobs report. To quote one analyst:
“So it's way worse than expected ... and, not surprisingly, the loonie tanked this morning after the release of the jobs report.”

And yet, the fact that the market rallied 1.5% right from the opening bell - one hour after the data was out - seems to have escaped the article.

How can you argue that the loonie is tanking versus the USD because of unexpectedly bad job numbers - and they were bad, no doubt - but the market is rallying? I find it hard to believe that stock traders have completely different expectations relative to currency traders.

A more likely story is that job numbers in Canada and the US both beat expectations, but the US ones by a greater margin? Or maybe they didn't beat expectations, but the markets had risk aversion priced in?

Either way, I don't know what to conclude except the Globe likes publishing negative news.

Thursday, February 5, 2009

Odd Claims

Well, if true sales (GDP) are really 7 to 10 per cent lower than reported, 7 to 10 per cent of the workers must be cut...

Excerpted from a globe column by Avner Mandelman, who then takes this to mean we should expect 13% unemployment in the near future.

Is there such a law? Of course not. The postwar evidence suggests that 1% of underemployment means 2.5% less GDP, a stylized fact termed Okun's Law, which Krugman posts about twice a day.

So even if we grant the guy the upper bound of his numbers and the generous end of the Okun observation, you wouldn't expect more than 5% NAIRU + [10 x 2 = 5%] = 10% US unemployment. But overstating GDP by 10% would probably be twice of what I could be persuaded to believe (I specifically take issue with his methodology of reducing the world to a company by arguing governments provide much more stability than boards of directors, whether or not that imposes longer term costs is another issue) and there are large swaths of the blogosphere who have yet to acknowledge in any way, shape or form that potential GDP might have suffered from financial and housing shenanigans.

Then again, it's already 7.2%, and after tomorrow's numbers, 10% might not be that far away.

Wednesday, February 4, 2009

Debt Financing

For some reason, short-term Treasuries have had their yields bid up a fair bit (relative to the last couple of months) in recent days.


Canada had to painfully grapple with a debt problem twenty years ago. I don't think we've ever fully acknowledged the possibility that without the low interest rates of the '90 recession and the bravery of the Liberal government in balancing the budget following that episode, Canada could well have gone banana republic, Argentina-style.

I'm not claiming that the US today is anywhere near the levels of debt that will cause that system to break - if it ever did, this current mess would certainly look like peanuts, though. Japan currently carries a much bigger public debt and yet the yen has probably been the strongest currency in the world over the past four-six months and has nowhere near the reserve status the dollar enjoys, i.e. there are no countries out there making trillion-dollar bets on the continued strength of the yen, while China has been doing just that for the dollar.

Still, with stimulus factored in, the US is looking at running a deficit of $2 trillion this year. For purposes of comparison, the Canadian GDP is about 1.3 trillion. The entire US defence budget is 1 trillion and a little change. Even absent stimulus, there's still a chronic structural deficit problem here.

However, I don't know if their politics are equipped to deal with it. I get a lot more exposure to American political machinations these days, and there's certainly a lot to be said for having strong leaders in the House, like we do. Don't laugh, I'm being serious. Imagine if every time a new law was proposed, the sponsoring member had to go around to each member individually and earn their vote through some addition to the bill. From what I gather, that's basically what happens. Conversely, in Canada, there remains some party unity, which is apparently a great thing in passing reasonable legislation.

Anyway, the public-debt-to-GDP ratio is still only kicking around the low 40%'s down here, but it will probably hit 50% this year. Eventually, something will give, and we'll probably be all around to see it. Frankly, I'd bet on devaluation over the strict fiscal measures we went for.

Tuesday, February 3, 2009

Crucial Pedagogy

We covered Nash's Theorem today, via the original proof and a modern proof.

I can now say with utmost authority that the scene in A Beautiful Mind where he proposes a flirting strategy to his fellow doctoral students is not a Nash equilibrium.

Linkfest

The blogosphere was loaded with good material today. I apologize if I miss any hat-tips.

Study concludes gas price regulation has increased retail margins on gasoline. Atlantic Canada specific. The conclusion is drawn by comparing sample average before and after regulation, unfortunately they do not even run the simple margin = constant + regulation_dummy regression. Test statistics are probably not computable from autocorrelation, but the result is probably still right; they quote other literature. The other thing I would be concerned about is that transport costs have probably risen over time, in accordance with the price of gas, and that is not controlled for, and since the reported margin is the NYC spot price versus St. John's retail, that would make a difference. Study here. It remains depressing how you can run a think tank publishing studies I wouldn't have been able to get away with in second-year econ courses.

Ridiculously sized numbers about the US deficit.

Data point on how much extra the Buy American provision can cost.

Nobody knows how many people work at the USDA, from the A Stitch in Haste, who also has a good post on bank lending.

A big debate on CEO wages at the Globe. Two hundred comments and change and I've yet to see anyone make the distinction that the wage more closely approximates the marginal, rather than the average, product of labour. I've recently wondered if the number of decisions made per day is a good measure of the marginal product.

At some point, I need to swear off reading the comments on the Globe and cbc.ca. It's not that I get angry; it's more of a sad frustration, coupled with the disbelief that the electorate really believes the ideas that show up there.