Friday, September 28, 2012

Curiosity Finds Evidence of an Ancient Riverbed on Mars

Here is the astonishing photographic evidence:

Larry White on Market Monetarism

Larry White disagrees with market monetarists like Scott Sumner and suggests that the economic problems faced by the US today (and I'd say that the same applies to many advanced economies) won't be cured with "nominal aspirins":
The nominal-problems-only diagnosis ignores real malinvestments during the housing boom that have permanently lowered our potential real GDP path. It also ignores the possibility that the “natural” rate of unemployment has been hiked by the extension of unemployment benefits. And it ignores the depressing effect of increased regime uncertainty. To prefer 5% to the current 4% nominal GDP growth going forward, and a fortiori to ask for a burst of money creation to get us back to the previous 5% bubble path, is to ask for chronically higher monetary expansion and inflation that will do more harm than good.

Wednesday, September 26, 2012

Hamilton on China's Demographic Transition

Malinvestimentghost cities and condos, combined with an inevitable rise of the dependency ratio is a state-engineered recipe for trouble:
And China has more 45- to 50-year-olds today than it has 5- to 10-year olds. That means that in another decade or so, the number of people retiring will be greater than the number of new young people coming into the labor force. For the last ten years, the number of new 20-year-olds was greater in each succeeding year. For the next ten years, the number of new 20-year-olds is going to be fewer in each succeeding year.

Forgotten Monetary Lessons from Zatoichi the Blind Swordsman

In Zatoichi Meets Yojimbo, Zatoichi asks the rich merchant:
"People have been concerned about the quality of the currency. What do you think?"
Merchant: "For a merchant like me, the quality of the currency is crucial."
Zatoichi: "And what do you think of the the current currency?"
Merchant: "Not good, really. When its quality lowers, prices rise."
Zatoichi: "And when prices rise, the poor become even poorer... Am I right?"
Merchant: "Absolutely, you know things."
Zatoichi: "[Laughing] No, not really..."

Imagine (There's No YouTube)

Gangnam Style!

Sunday, September 23, 2012

Why Does France Reject Multiculturalism?

Because Reason (La Raison), despite repeated assaults, remains deeply rooted and central in its republican traditions (below, Liberty armed with the Scepter of Reason blasts Ignorance and Fanaticism, drawing by Boizot, engraving by Chapuy).
La Liberté armée du Sceptre de la Raison foudroye l'Ignorance et le Fanatisme

Friday, September 21, 2012

Pascal Salin on Fiscal Hells

Pascal Salin, former president of the Mont Pelerin Society:
"Fiscal paradises only exist because of fiscal hells" ("s’il y a des paradis fiscaux, c’est qu’il y a des enfers fiscaux").

Thursday, September 20, 2012

Paul Samuelson, the Gullible and Unrepentant Socialist


In a recent paper, historians of economic thought David M. Levy and Sandra J. Peart show that [Paul] Samuelson and other American economics textbook authors of the 1960s and 1970s kept forecasting rapid Soviet growth through their books’ successive editions, even while their own updated numbers clearly showed that the growth forecasts in previous editions had been too high.  In the seven editions of his textbook published from 1961 to 1980, Samuelson kept including a chart indicating that Soviet output was growing faster that U.S. output, and predicting a catch-up in about twenty-five years.  He repeatedly had to move the predicted catch-up date forward from the previous edition because the gap had never actually begun to close.  In several editions he blamed low realized Soviet growth on bad weather.  As late as the 1989 edition, he and coauthor William Nordhaus wrote: “The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.

Sunday, September 16, 2012

The Law of Unintended Consequences: Alive and Well in Spain

A new university promotion system in Spain exemplifies Bastiat's lessons:
To reduce favouritism in university promotions, Spain recently introduced a centralised system with random assignment of evaluators. This column presents evidence from a unique data set showing that favouritism still matters. Prior connections between candidates and evaluators have a dramatic impact on promotion. The net result is that outcomes are more random and candidates with many connections and from large universities benefit the most.

Saturday, September 15, 2012

Falling Fertility Rates in the Americas

One of the most persistent public misconceptions of our era is the notion that countries with the largest populations in the Americas (such as the US and Brazil) enjoy solid population growth while major European countries' populations have been collapsing. The Economist throws some welcome light on the subject:
So it comes as something of a shock to discover that in 2011 America’s fertility rate was below replacement level, and below that of some large European countries (see chart). The American rate is now 1.9 and falling. France’s is 2.0 and stable. The rate in England and Wales is 2.0 and rising slightly.
By the way, the differences in fertility rates among immigrant and nonimmigrant families in France is not as high as imagined by most people outside of France.

Brazil's total fertility rate (TFR), like America's, has also been falling very fast, down to 2.2 in 2011. Most estimates indicate that it will continue to fall significantly during the next decades.

Wednesday, September 12, 2012

The Foolishness of New-Keynesianism According to Garett Jones

Garett Jones makes mainstream new-Keynesian macroeconomists and central bankers look like idiot savants with this bright observation about one of the main failures of modern applied macro:
Any force strong enough to fight against the power of prices should be a strong force indeed, strong enough for all to see. But when economists talk about the "frictions" that keep gluts alive, we usually talk about "sticky prices" and "sticky wages" and cultural norms and public sector unions and a few other forces. Strong forces, yes, and forces I believe in, but stronger than creative destruction and supply and demand? For years on end?

Here's my favorite friction, one that exists by force of contract, not because of worker sociology: Debt. Debt in the household, debt in the firm, and--for state and local governments at least--government debt. Irving Fisher beheld debt destroying a deflating economy, and he wrote an excellent paper about it in Econometrica v.1 back in 1933--a theory of depressions better than anything I've seen in Keynes's General Theory.

Monday, September 10, 2012

Biggs and Mayer: How Central Banks Created the Crisis

Modern central banks love bubbles, as they explain in a VoxEU.org article:
Growth in line with potential was associated with an ever increasing debt-to-GDP ratio. What might have appeared to have been a sustainable growth path from an output gap perspective was a growth path that gave rise to unsustainable debt dynamics. In short, the application of the Taylor Rule by the US Federal Reserve would have paved the way towards excessive debt accumulation, financial instability, and the subsequent financial crisis.