Friday, October 31, 2008
WSJ on the new swap agreements between the Fed and the Central Banks of Brazil, Mexico, South Korea and Singapore.
WSJ: recovery only in the second half of 2009.
WSJ: the economy is slow, but it's hard to say if it's officially a recession.
WSJ: McCain uses Biden against Obama.
The Economist on Mexico's government war on the drug cartels.
The Economist on the Fed's rate cut and fiscal policy.
Mankiw on how some people in India see the US presidential election.
Hamilton on the risk of deflation.
Hamilton on the weak performance of the GDP and his work with Chauvet. Notice that despite the negative growth in the third quarter, the scenario is for now far from being catastrophic.
Boudreaux: is Obama a socialist?
Thursday, October 30, 2008
The first video shows the original French version with subtitles in Portuguese, and the second video shows the English version, both sung by Gabin.
Zimbabwe's inflation rate has recently hit more than 231 million % per year! This is what a real monetary crisis looks like:
(1) A restaurant check of more than 1 billion dollars!
(2) Here's how restaurant checks are settled:
(3) Only a few months later, three eggs cost 100 billion dollars...
Other pictures are available here.
WSJ: McCain accuses the LA Times of holding back Obama's video.
WSJ: Calabresi on Obama's "redistribution" Constitution.
The Economist on its presidential endorsements in previous elections.
The Economist on McCain's (small) chances of winning.
The Economist on house prices that keep dropping.
The Economist: Iceland goes to the IMF.
Forbes on the road to Euro-taxes (HT Oliver).
Mankiw on the shared application mortgage (SAM) solution to foreclosures.
Eberstadt on the demographic problems in Russia.
Caplan on DeLong going ballistic.
Perry on the culture of government dependency.
Wednesday, October 29, 2008
It can be easily confirmed here that the new list of main speakers doesn't show his name anymore:
...This post by Costa however has the old list, which showed his name:
James Powell (University of California, Berkeley)
Matthew Rabin (University of California Berkeley)
Rohini Pande (Harvard U)
Edward Prescott (Arizona State U and FED Minneapolis)
Matthew Rabin (UC Berkeley)
Well, it's clear that, whatever may be the reason, he'll not attend the conference anymore.
Tuesday, October 28, 2008
WSJ on the Fed's coming interest rate cut.
WSJ: Laffer on the end of the age of prosperity.
Becker and Posner on the Milton Friedman Institute.
Mankiw on promoting Bernanke's classic book on the Great Depression.
Mankiw: Summers on the now gone wealth gains by the superrich.
Perry: dollar hits a 30-month high.
Constantino on the Latin-American patrimonialist political heritage and how it hinders regional development (in Portuguese).
Monday, October 27, 2008
Mr Greenspan foresaw the problems in Senate testimony as early as April 2005, says Mr Orphanides, highlighting the then-Fed chairman’s warning that: “We at the Federal Reserve remain concerned about the growth and magnitude of the mortgage portfolios of the GSEs, which concentrate interest rate risk and prepayment risk at these two institutions and makes our financial system dependent on their ability to manage these risks. … To fend off possible future systemic difficulties, which we assess as likely if GSE expansion continues unabated, preventive actions are required sooner rather than later.”
But, Mr. Orphanides says, “warnings of the problem were not heeded, and the systemic failure that had been a source of concern at the Federal Reserve materialized.”
In his analysis, Orphanides cites this paper by Calomiris.
WSJ on health care wishful thinking.
WSJ on the effect of the crisis on inequality of wealth.
WSJ on the candidates and your money.
WSJ on how Obama's advisers were once supporters of McCain's health care principles.
WSJ: economists find evidence that DST (daylight savings time) not only is an annoyance but also increases residential electricity demand and pollution.
The Economist on the stock market slump.
Mankiw on economists' sins.
Mankiw explains why Obama's tax policies will make him wish to work less.
Mankiw on the Great Depression.
Kling explains the strength of the dollar (tallest among pygmies).
Caplan on The Onion, Bush and Harding.
Perry: foreclosures drop without AZ, CA, FL and NV.
Somin on Ayers' sudden love for property rights (HT Shikida).
Sorman on Argentina's collective suicide (in French).
Sorman on Sarkozy's "reform capitalism" rhetoric.
Beautiful Audrey Hepburn convincingly plays a blind woman that's involuntarily caught into an elaborate game played by thugs looking for a heroin filled doll. The movie is full of twists and turns that will please fans of Hitchcockian thrillers.
In the trailer below, notice the droll warning about smoking during the movie!
Friday, October 24, 2008
The nitrogen contained in our genes, the calcium in our teeth, the iron in our blood and the carbon in our apple pie were made in the cosmic kitchen that is the star. Our bodies are made up of the particles that constitute the stars. Indeed, in a very profound sense we are children of the stars.
WSJ: Rove on politics and Obama's tax plan.
WSJ on lawmakers and loans.
WSJ on Greenspan grilling.
WSJ on Greenspan's mea culpa.
The Economist on the troubles with emerging markets.
The Economist on China and the crisis.
Miron defends libertarianism from opportunistic attackers (HT Selva Brasilis).
Mankiw: Helicopter Ben to the rescue!
Caplan on Hoover's bizarre statements.
Freakonomics on the decriminalization of prostitution.
Roberts on Waxman and the ghost of Milton Friedman (a Halloween tale).
Roberts on Greenspan the penitent.
Everett was the creator of the many-worlds interpretation (MWI) of quantum mechanics, a multiverse (parallel universes) theory.
The show does a great job explaining the quantum physics paradoxes that lead to the theory, although it could have been clearer about its drawbacks, especially its bizarre implications to probability theory.
The demonstrations of the duality of matter experiment and of the Schrödinger's cat thought experiment were well done. Multiverses stories are very popular in sci-fi shows, such as in the Star Trek episode "Mirror, Mirror."
The NOVA episode can be watched online (divided in parts) on YouTube. Here's the preview:
Thursday, October 23, 2008
WSJ: Holtz-Eakin and Goolsbee clash on candidates tax plans.
WSJ on the problems with polls.
WSJ: Fed's balance sheet accumulates junk.
The Economist on the Democratic majority in Congress.
The Economist: US, champion of corporate income tax rates.
The Economist on reactions to the crisis in Asia.
Samuelson: are young voters being played for chumps? (HT Mankiw)
Mankiw on Rawls, Nozick and Joe the plumber.
Kling on economists that think they know it all.
Dubner on academic research on the crisis.
Wednesday, October 22, 2008
We postulated that, as a result of elastic labor supply and increasing labor productivity, China's exports lead to higher oil prices and at the same time are less affected by higher oil prices than the exports of China's competitors, meaning that China increases its competitive edge when the price of oil increases.
If the predictions of the model are correct, China's exports could fall more strongly than its competitors' exports during a world recession that is accompanied by falling oil prices, causing further reductions in oil prices. In other words, China's competitive advantage could be reduced when the price of oil falls.
This post by Smith indicates that our article's predictions may be validated soon:
One factor that the oil bulls have repeatedly invoked is demand from China. The figure I have seen oft cited is that Chinese demand will continue to rise at 7.8% per annum. ...
Chinese GDP growth and energy demand has fallen off even though exports are still robust. Thus a fall in exports will lead to a further reduction in growth and energy use. And the growth lever that Ting cites, 5%, is already below the 7%+ that was assumed until recently for China.
WSJ on the messy state of the real estate market in California.
WSJ: now the problem with credit cards.
WSJ: economist Rubin argues that Obama is dangerous to economic freedom (Caplan hopes he isn't).
WSJ: China's economic pain is worse than most expected (not to my surprise).
WSJ on high school dropout city champions.
WSJ on why performance reviews stink (and I concur).
WSJ: "Bernanke endorses Obama" by supporting his fiscal stimulus plan.
The Chronicle of Higher Education on college dropouts (HT Selva Brasilis).
Mankiw: fewer and fewer people are paying income tax.
Tabarrok and Levitt on Heckman's bizarre behavior.
Caplan on messianism.
Selgin on "Planet of the Apes" and the bailout (HT Boudreaux).
Perry: dollar keeps climbing.
Sorman on IMF's Strauss Kahn scandal (in French).
José Piñera, a former Chilean cabinet minister who pioneered the privatized pension system and has served as a consultant to many other countries that have implemented it, called the nationalization proposal "just another step in Argentina's 100-year 'road to underdevelopment.'"
Tuesday, October 21, 2008
WSJ: Fed's Kroszner says better risk management is needed.
The Economist and the economic slowdown in China.
The Economist on TIPS - Treasury Inflation-Protected Securities.
Mankiw on Clinton's 1993 bactracking on tax cuts for the middle class (when reality weighs in).
Hamilton: recession is knocking at the door.
Hamilton: will we bailout commodity speculators too?
Monday, October 20, 2008
I think he's wrong. I believe all efforts should have been directed to banks that are in good financial shape so they stay in good financial shape. There are many banks that behaved in a conservative manner and would qualify for that kind of decontamination.
That would have avoided a domino effect while reducing asymmetric information and moral hazard problems. Easier said than done, but surely the principle that should have been at the core of any government plan.
I don't believe it's good health policy to hide the effects of a highly contagious disease and let the carriers wander around the healthy. We don't save the flotilla by tying all smaller boats to the Titanic while it's sinking.
PS: Kling makes a similar point in this post.
WSJ: Hollywood faces economic difficulties.
WSJ on governmental interference in bank's operations.
The Economist on presidential polls.
The Economist on the presidential debate.
Becker and Posner: is the goose that laid the golden eggs wounded?
Mankiw on Obama's health plan.
Tabarrok on broker's with hands on their faces.
Kling on Cowen and Black.
Wolfers on economic gangsters.
Boudreaux: another example of economic illiteracy.
PS: Mankiw and White agree that those are wise advices.
[The credit market distrubance] is not due to a lack of money available to lend, Ms. Schwartz says, but to a lack of faith in the ability of borrowers to repay their debts. "The Fed," she argues, "has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that [uncertainty] that the balance sheets of financial firms are credible."
Ms. Schwartz argues [that] ... by keeping otherwise insolvent banks afloat, the Federal Reserve and the Treasury have actually prolonged the crisis. "They should not be recapitalizing firms that should be shut down."
Rather, "firms that made wrong decisions should fail," she says bluntly. "You shouldn't rescue them. ...
Instead, we've been hearing for most of the past year about "systemic risk" -- the notion that allowing one firm to fail will cause a cascade that will take down otherwise healthy companies in its wake.
Ms. Schwartz doesn't buy it. "It's very easy when you're a market participant," she notes with a smile, "to claim that you shouldn't shut down a firm that's in really bad straits because everybody else who has lent to it will be injured. Well, if they lent to a firm that they knew was pretty rocky, that's their responsibility. And if they have to be denied repayment of their loans, well, they wished it on themselves. The [government] doesn't have to save them. ... Why should they be worried about the creditors? Creditors are no more worthy of being rescued than ordinary people, who are really innocent of what's been going on."
It takes real guts to let a large, powerful institution go down. But the alternative -- the current credit freeze -- is worse, Ms. Schwartz argues.
... Today's crisis isn't a replay of the problem in the 1930s, but our central bankers have responded by using the tools they should have used then. They are fighting the last war. The result, she argues, has been failure. "I don't see that they've achieved what they should have been trying to achieve. So my verdict on this present Fed leadership is that they have not really done their job."
I noticed however that the research created a storm in the green blogosphere. There are so many paranoid posts on the topic that I'll just suggest browsing through this Google search.
Many among the posts that I've read show lack of understanding of basic concepts such as the difference between radiating heat and convection heat.
Although the people who wrote the posts demonstrate lack of expertise in physical and economic phenomena, they truly believe that they have something to say about environmental issues. Another example of Caplanian political irrationality?
Saturday, October 18, 2008
This product by Walmart, ING DIRECT and ShareBuilder appears to have brought access fees and investment requirements to surprisingly low levels (HT Faria).
Could it be a good way to build tiny portfolios when tax-advantaged options (401(k)s, 529s, IRAs, ESAs) are not available, convenient or relevant?
Disclaimer: this is not an endorsement. Investing in stocks is risky. There's no guarantee of positive returns. Make sure that you know your financial goals and the best ways to achieve them before investing.
Friday, October 17, 2008
In 1820, about ten years before Alexis de Tocqueville made his famous visit to America, a spectacular event took place, though nobody could have known it at the time: U.S. per-capita income overtook that of Western Europe. This stunning fact was revealed only last year, in a new study by the Organisation for Economic Co-operation and Development. The study, conducted by renowned economist Angus Maddison, also showed that the U.S. economy had remained the world leader ever since 1820. ... Prior to the study, American economic preeminence was widely believed to date to 1904. ...
How did a rather small nation, which had no more natural resources than Europe and little in the way of trading activity, overtake Europe economically in 1820? ... The true reason for the American economy’s takeoff was the focus of Tocqueville’s visit: democracy itself. ...
“The American entrepreneur has a passion for the market,” says Keith Blakely, founder and CEO of Nanodynamics, a pioneer in the revolutionary field of nanotechnology. While European fundamental research can sometimes be superior, American innovation is usually first to market. In the American vision, an idea is good only when the market buys it. Again, it’s a democratic view of the purpose of innovation. This explains the unique relationship in the United States between universities and business. ...
Beyond the democratic principle, another engine is at work within these companies, one that existed on a much smaller scale in the early nineteenth century: what Harvard economist Joseph Schumpeter dubbed “creative destruction” in 1942. Schumpeter meant that the new constantly replaces the old and that the
market reallocates resources accordingly. ...
Finally, there is American cultural diversity. ... “A German company is ahead of us in the market,” admits Caine Finnerty, the Nanodynamics fuel-cell expert and a former Englishman. “But we’ll eventually take over while we tackle the subject from all cultural angles with our cosmopolitan team.”
WSJ on Fed bluntness.
WSJ on who's getting the vote of the rich (HT Mankiw).
Mankiw shows the strong correlation (probably not spurious) between the volatility index VIX and Obama's Intrade probability of winning.
Tabarrok: DeLong on Bush.
Cowen on the toilet revolution.
Caplan on subprime education.
Caplan on gas delivery.
Boez ridicules opportunistic comparisons between capitalism and communism (HT Boudreaux).
Boudreaux on Stossel's "Pollitically Incorrect Guide to Politics."
This universal pattern suggests that the phenomenon is inherent to the political process.
MSN Autos has a page that allows you to compare gas prices in your neighborhood. Here's the situation in East Duluth today:
Thursday, October 16, 2008
iBanknet.com is an interactive media property with a focus on Financial Institutions. Each quarter from public regulatory filings dispersed across Federal Banking Agencies, we collect, generate interactive data, and then publish internet-ready content about Banks, Domestic Financial and Bank Holding Companies, Thrifts and Credit Unions.
WSJ: forecasts for 3rd quarter GDP showing slight recession.
WSJ: the G8 statement on the financial crisis.
WSJ on Bernanke's speech at the Economic Club of New York.
The Economist on the bailout plan.
The Economist: the effects of the crisis on the heavy industry.
The Economist on the 2008 Nobel Prize in Economics.
The Economist on Wall Street Gekkos.
Hamilton on some encouraging good news about the economy.
Cowen on the importance of economic blogs and on experimental vs. behavioral economics.
Kling on the political economy of the bailout.
Kling on misunderstanding regulation.
Dubner on pirates now and then.
McArdle on how Krugman's predicitions about recessions are almost always off the mark.
McArdle on financial regulation.
Perry on the usual economic nonsense that we get from the press.
Gawker on NYU's Nouriel "Dr. Doom" Roubini's "work hard, party hard" persona (HT Cowen).
Boudreaux also criticizes the same uneducated stereotypes:
Elevated financing costs will slow growth. In the Great Depression, one-third of the U.S. banks failed, and the unemployment rate got to 25 percent. The economy is going to be in for a rough period, but the policy actions taken over the last week are going to prevent this type of collapse.
Finally, some journalists find it strange that we and many of our colleagues at the University of Chicago have been advocating bold government action to stop the collapse of the banking industry. We suspect that some of these people would be surprised to learn that Milton Friedman blamed timid and wrong-headed government policy for causing the Great Depression. Friedman was more concerned about monetary policy actions, but he and Anna Schwartz also gave “a prominent place in the sequence during the contraction to successive waves of [bank] failures.”
The importance of preventing a banking-sector implosion has long been appreciated not only at Chicago, but also at other leading business schools and economics departments. This is why there has been such strong support for the equity injections from economists with very different political philosophies. It is too early to tell if the enthusiasm will fade once the details become known of how the administration plan is being implemented.
Milton Friedman championed not unfettered markets, but markets fettered by competition and consumer sovereignty rather than by political diktats. Friedman understood that fetters imposed by government are neither the only nor the best means of keeping markets working well. Indeed, far too often - as Friedman knew - fetters imposed by government turn in practice into crowbars that businesses use to break free of the competitive shackles that oblige them to behave prudently and fairly.
Wednesday, October 15, 2008
WSJ: academic economists say latest changes in the bailout plan are positive. Many challenges remain however. Cochrane thinks it could be much better.
WSJ on Obama and Acorn.
WSJ on high heels.
WSJ: car-finance firms want to be part of the bailout too.
Forbes: no more Vegas on Wall Street (HT Oliver).
Mankiw on silly exercises regarding the effects on the economy of government's party affiliation.
Tabarrok: telepathy is becoming a reality (welcome to Xavier's world).
Cowen on the absence of good economics in the latest version of Obama's economic plan.
Perry: total loans and leases of commercial banks keep rising. Credit crunch, where?
Le Point: the French bailout plan (in French).
Sorman criticizes Gordon Brown's cartelization of British banks - and Krugman for supporting it (in French).
Tuesday, October 14, 2008
Some mixed or negative commentary from fellow economists:
My take: Krugman's contributions to the science of economics as a scholar are extremely important and deserved to win the Nobel. I have taught them in my courses many times.
I ignore however his post-scholar work as a journalist. He didn't win a Nobel for writing articles for a newspaper.
WSJ on Dow's all-time record gain.
WSJ: Kimmitt on the risks of protectionism.
WSJ: Kansas City Fed's Hoenig says financial institutions need to do their part.
WSJ on Kashkari's update on the bailout plan.
WSJ: Treasury to buy stakes in banks.
Posner and Becker on ignoring signs of a coming crisis.
Cowen: the world didn't end.
Cowen on the Treasury as a compulsory shareholder.
Kling proposes a "Bank Telethon": lend a hand and help a banker.
Dubner on campaign money and the media.
Monday, October 13, 2008
You may or may not have noticed, but campus doesn't look very pretty in certain parts. Cigarette butts cover the ground in areas where smokers go to smoke, because there's nowhere to dispose of their butts.
I know that in theory people aren't supposed to be smoking here in the first place, but let's face it. Addiction is a strong thing, and people aren't going to quit if they don't want to. That being said, smokers are going to smoke whether or not there's a rule forbidding them to do so. All this smoking ban has really done is to make some campus employees' jobs more difficult because they have to pick up after people who have nowhere to throw their butts away.
... The purpose of making public buildings, and the average 25-foot area surrounding entrances and windows, smoke-free was due to health concerns associated with second-hand smoke.
I am in full support of this idea. However, when you look past the health concern, a person does, in the state of Minnesota, have the right to smoke. After all, it isn't illegal to use tobacco. If the University wants to create designated smoking areas, I certainly won't argue against it. However, making the entire campus smoke-free just doesn't make sense.
Each is the proper guardian of his own health, whether bodily, or mental or spiritual. Mankind are greater gainers by suffering each other to live as seems good to themselves, than by compelling each to live as seems good to the rest.
Mankiw on the list of economists against Obama.
Mankiw on auctioning bank capital.
Mankiw on the new edition of his textbook.
Cowen on the lack of negative results in alternative medicine journals.
Kling criticizes academic economists.
Kling: Vernon Smith on the bailout.
Dubner on a new online music pricing strategy.
Ayres on what caused the financial crisis.
Sunday, October 12, 2008
I've been expecting something similar to be observed during this crisis, given the state of economic chaos portrayed in the news. Reality insists however on showing me a much rosier face.
I'll give a few recent examples. I asked the regional Midwest bank with which I have an account to double one of my credit lines a couple of days ago. The request was approved in less than three minutes. I also know that this bank is in great financial shape.
I went with my family to dine out at one of our favorite restaurants on Saturday, and there was a one hour waiting time to be seated.
Price of gas, heating, international traveling and interest rates are down, so we're having some unexpected budgetary relief.
What kind of crisis is this?
I don't believe that the bailout plan has anything to do with it. It's too soon for it to have produced any real effect on the economy, and for sure it didn't have any positive effect on expectations.
Yes, I know that crackheads, ex-cons and real estate gamblers have lost their credit lines. I know that overpaid yuppies in Wall Street are sweating blood. I know that some CEOs have been able to avoid deserved market discipline with the help of the taxpayer. I know that my retirement accounts are taking a beating. I know that it may get worse before it gets better.
It appears to me however that Mulligan has hit the bull's-eye in this NYT article (HT Mankiw):
Bear with me. I know that most everyone has been saying for a couple of weeks that something has to be done; a banking crisis could quickly become a wider crisis, pulling the rest of us down. For this reason, the Wall Street bailout is supposed to be better than no plan at all.
Too bad this line of thinking is seriously flawed. The non-financial sectors of our economy will not suffer much from even a prolonged banking crisis, because the general economic importance of banks has been highly exaggerated. ...
So, if you are not employed by the financial industry (94 percent of you are not), don’t worry. The current unemployment rate of 6.1 percent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 percent.
WSJ on the question of incentive pay.
WSJ: where are all the World Bank protestors this year?
FOX: World Bank raided by hackers.
Chinn: campaign economic advisers debate at the University of Wisconsin - Madison.
Stephenson on small business taxation and the problem with Obama's tax plan.
Boudreaux on the true mystery behind the Great Depression.
Levitt on exagerated claims about the current crisis.
Sorman on how McCain will lose the election for not having opposed the bailout plan (in French).
Saturday, October 11, 2008
Academic economists came out with much wiser proposals, in the hope that government will be hearing. Here is an interesting idea by Mankiw, which would preserve the role of free enterprise in the system and avoid the dangers of government failure:
Many economists believed that the heart of the government's initial plan to pay $700 billion for toxic assets was aimed at the wrong target. Purchasing mortgage securities from banks wouldn't do anything to kick-start lending and get credit flowing again, they said. Rather, banks would use the proceeds they got from the Treasury to pay off debtors, and those debtors would use the proceeds to buy safe assets.
... Other hitches in the original plan include coming up with a price for mortgage securities that is above the "fire sale" level they would draw on the open market, but not so high that taxpayers end up getting taken for a ride.
And here is DeLong on how to stimulate the economy:
The economists came from different schools of thought and varying political stripes but all agreed that recapitalizing banks was a key initiative. ...
Harvard University economist Gregory Mankiw, former chairman of the Council Economic Advisors under President George W. Bush, suggested that the government could set up a recapitalization plan that works like a matching grant. If a financial institution attracted new capital from private investors, it would be able to access an equal amount of government capital.
"The private sector rather than the government would weed out the zombie firms," he wrote on his blog. "The private sector rather than the government would set the price. And the private sector rather than the government would exercise corporate control."
A final step toward stabilizing the economy would be a large economic stimulus plan, said Berkeley economist Brad DeLong. He suggests that in the U.S. this could be two-tiered, with half the stimulus going toward a tax rebate and the other half dedicated to infrastructure spending.
Mr. DeLong said he is encouraged by how quickly economists' thoughts on the crisis have made it into the public sphere.
WSJ: McCain calls for suspension of forced sale rule on retirement accounts.
The Economist: IMF says the global recession is coming.
The Economist on the markets' downturn.
The Economist on kids, junk food, video games and TV.
The Economist on how ex-communist countries should stop aiming for the lowest Western moral standards.
Mankiw on Blanchard and the lessons from the Great Depression.
Boudreaux on why he's not inviting some politicians to talk about economics in his Department.
Friday, October 10, 2008
WSJ on the Dow under 9000.
WSJ on the candidates to the Nobel Prize in Economics.
WSJ: Rove on the election.
WSJ on Schwarzenegger and California.
The Economist on the synchronized rate cut by world Central Banks.
The Economist on the crisis around the world.
The Economist on the bailout of banks in the UK.
Cowen on the problem with partially nationalized banks.
Cowen on goods with countercyclical demand.
Cowen on the candidates to the Nobel Prize in Economics.
Boudreux: should we redistribute wealth, then why not redistribute power too?
Perry on the rising incomes since 2001.
Perry: top 1% of taxpayers pay more federal income taxes (in value) than entire bottom 95%.
Dr Ioannidis based his earlier argument about incorrect research partly on a study of 49 papers in leading journals that had been cited by more than 1,000 other scientists. They were, in other words, well-regarded research. But he found that, within only a few years, almost a third of the papers had been refuted by other studies. ...In a more recent article he and his coauthors argue that research published in trendy fields and top journals appears to be more prone to error:
... Dr Ioannidis and his colleagues argue that the reputations of the journals are pumped up by an artificial scarcity of the kind that keeps diamonds expensive. And such a scarcity, they suggest, can make it more likely that the leading journals will publish dramatic, but what may ultimately turn out to be incorrect, research. ...
The group’s more general argument is that scientific research is so difficult—the sample sizes must be big and the analysis rigorous—that most research may end up being wrong. And the “hotter” the field, the greater the competition is and the more likely it is that published research in top journals could be wrong.
Thursday, October 9, 2008
WSJ on the next Fed rate cut.
WSJ on the radical course change of the ECB.
Mankiw on the recapitalization of the financial system.
Dubner on the book "The Price of Everything" by Roberts.
Caplan criticizes Congressman Frank.
Kling on the awful presidential debate, a festival of economic obscurantism.
Perry on the silliness of the "energy independence" mantra. Why not to become "banana independent" too?
Perry: should we give a medal to speculators for decreasing gas prices? Or should we blame them?
Stephenson on how the bailout plan is "reverse Darwinism."
President Bush argued that the passage of the Treasury rescue plan was necessary to prevent the U.S. from entering a severe downturn. Yesterday, the Federal Reserve announced it will begin buying commercial paper ... Unfortunately, [these measures] have created considerable fear about the underlying strength of the U.S. economy. This panic has roiled stock markets and led to comparisons between today's crisis and the Great Depression of the 1930s. ... This is based on the very common misperception that the banking crises of the 1930s helped turn a garden variety recession into the Great Depression.
Banking panics did not create the Great Depression, nor did the elimination of panics via the introduction of deposit insurance generate economic recovery. The first banking crisis of any national significance didn't occur until the fall of 1931. ... However, the Great Depression was already "great" at this point -- industrial production and employment had fallen by more than 35%. The genesis of the Great Depression was not a banking crisis.
There are many historical precedents of bad policies following crises. The worst case was after the stock-market crash in October 1929, which produced a truly perfect storm of bad policies. Tax rates rose, tariffs rose (reflecting special interest groups attempting to insulate domestic producers from foreign competition), and both Presidents Herbert Hoover and Franklin Roosevelt strongly promoted industry-labor cartels that were designed to stifle domestic competition.
In the absence of these policies, the Great Depression would almost certainly have been like every other U.S. recession -- short-lived and relatively mild. Normal recovery didn't begin until the most onerous of these policies were reversed, a process that didn't begin until the end of the 1930s when antitrust activity was resumed, and during World War II when the National War Labor Board reduced union bargaining power by limiting negotiated wage increases to cost-of-living adjustments only.
We should encourage the immigration of prime-age individuals. ... Increasing immigration would increase the demand for housing and raise home prices. And note that the benefit would be immediate. Home prices -- and the value of subprime obligations -- would rise in anticipation of a higher population base. The U.S. particularly needs highly skilled workers. These workers not only would purchase homes, but would generate higher living standards for all Americans.
Wednesday, October 8, 2008
WSJ on the fall of the Dow.
WSJ: as the economy goes down, Obama goes up.
WSJ: Americans borrow less. Is this good or bad news?
Roberts thinks about not voting this time.
Roberts on how the bailout plan gives money to GM.
Stephenson: Bernanke acknowledges stagflation.
Perry: Liebowitz article on the causes of the mortgage meltdown.
Sachsida explains the latest case of abuse of executive power in Brazil (in Portuguese).
... On the heels of nearly a year of stress in credit markets, investors’ and creditors’ concerns about funding and credit risks at financial firms intensified over the summer as mortgage-related assets deteriorated further, economic growth slowed, and uncertainty about the economic outlook increased. As investors and creditors lost confidence in the ability of certain firms to meet their obligations, their access to capital markets as well as to short-term funding markets became increasingly impaired and their stock prices fell sharply. ...
The Federal Reserve believes that, whenever possible, such difficulties should be addressed through private-sector arrangements ... Government assistance should be provided with the greatest reluctance and only when the stability of the financial system, and thus the health of the broader economy, is at risk. In those cases when financial stability is threatened, however, intervention to protect the public interest may well be justified.
Fannie Mae and Freddie Mac present cases in point. The Federal Reserve had long warned about the systemic risks posed by these companies’ large portfolios of mortgages and mortgage-backed securities, as well as the problems arising from the conflict between shareholders’ objectives and the government’s goals for the two firms. ...
... Equity prices have fallen sharply, the cost of short-term credit, where such credit has been available, has spiked, and liquidity has dried up in many markets. ... At the same time, a marked increase in the demand for safe assets–a flight to quality and liquidity–resulted in a further drop in the value of mortgage-related assets and sent the yield on Treasury bills down to a few hundredths of a percent.
All told, economic activity is likely to be subdued during the remainder of this year and into next year. The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risks to growth. To support growth and reduce the downside risks, continued efforts to stabilize the financial markets are essential. The Federal Reserve will continue to use the tools at its disposal to improve market functioning and liquidity.
Inflation has been elevated ... . However, more recently, the prices of oil and other commodities, while remaining quite volatile, have fallen from their peaks, and prices of imports show signs of decelerating. ... Still, the inflation outlook remains highly uncertain, in part because of the extraordinary volatility of commodity prices. We will need to continue to monitor price developments closely.
Overall, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased. At the same time, the outlook for inflation has improved somewhat, though it remains uncertain. In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate.
... The Secretary of the Treasury, with the support of the Federal Reserve, went to the Congress to ask for a substantial program aimed at stabilizing our financial markets. ... Notably, the legislation establishes a new Troubled Asset Relief Program, or TARP, under which the Treasury is authorized to purchase as much as $700billion of troubled mortgages, mortgage-related securities, and other financial instruments from financial firms that are regulated under U.S. law and have significant operations in the United States. The act also raises the limit on deposit insurance at banks and credit unions from $100,000 to $250,000 per account, a step that should reinforce depositors’ confidence in the security of their funds and thus help to stabilize depository institutions. And, as I mentioned, the act provides the Federal Reserve the authority to pay interest on reserves, which will allow us to better manage the federal funds rate as we provide liquidity to the markets. We will begin exercising that authority this week.
... I believe that the bold actions taken by the Congress, the Treasury, the Federal Reserve, and other agencies, together with the natural recuperative powers of the financial markets, will lay the groundwork for financial and economic recovery.
Tuesday, October 7, 2008
WSJ on Biden's gaffes.
WSJ: Fed tries to resolve Wachovia dispute.
Washington Post: Mallaby on deregulation (HT Mankiw).
The Economist on banking troubles in Europe.
The Economist on the financial problems in Hong Kong.
The Economist on the TARP.
The Economist on the real side of the economy.
Becker on government equity in private companies.
Posner on equities, pay caps, etc.
Cowen on the effects of free markets on moral character.
Kling on Harvard graduates, intellectual arrogance, and playing with other people's money.
Dubner asks: is voting dangerous for your health?
McArdle on mark-to-market accounting.