Wednesday, February 27, 2013

Caplan on Indian's Political Leaning in America

Another very interesting post by EconLog's Bryan Caplan:
Consider Indians.  They are now the highest-income ethnicity in the country - and their Democrat/Republican ratio is roughly 4:1.  Accusing them of voting Democratic out of crude self-interest is plainly absurd.  In terms of values and family structure, moreover, Indians make most Americans look like a bunch of hippies.  Why then do Indians vote like Hispanics?
I'm open to alternative stories, but I think my Respect Motive story fits the facts quite nicely. Indians vote Democratic because they correctly sense that Democrats respect them more.  When the typical Republican see women in saris or statues of Ganesha, or hears about arranged marriages and great Indian restaurants, they react less positively than the typical Democrat does.

Sunday, February 24, 2013

It's a Long Road to the Top (If You Wanna Be a Professor)

According to The Atlantic's Jordan Weissmann:
With tenure relatively rarer than it was 30 years ago, it's fair to assume that an even larger portion of tomorrow's full professors will come from the Ph.D.'s who land academic jobs off the bat. And as we've seen, that group is getting pretty small.

Thursday, February 21, 2013

Continental Europe's Silly Obsession with FTTs

Continental Europe will shoot itself in the foot thanks to its childish obsession with financial transactions taxes. The Economist explains:
"A Bank of Canada analysis of the effect of previous FTTs found that they tend to harm market quality, by increasing volatility, reducing volumes and raising the cost of capital. The early effect of a French equity FTT that was introduced last summer was to hit trading in the shares of smaller firms. Without a co-ordinated global approach, the taxes are also likely to be circumvented by savvier investors, leaving retail investors to pick up the bill. After Sweden levied an FTT in the 1980s, 60% of trading volume in the most actively traded share classes moved to London; the tax was repealed in 1991."

Wednesday, February 20, 2013

Keynesians and Other Snake Oil Peddlers

Economists that despise fiscal discipline - those that believe that the word "austerity" is pejorative - may hysterically scream as much as they want, but one real, obvious, always proven macroeconomic fact is that fiscal discipline eliminates internal and external macroeconomic imbalances, as economists with the IMF used to know, and as exemplified by Latin-American and Asian economies in the 80s and 90s and by European economies now, see these recent news:

Italy Posts First Full-Year Trade Surplus Since 1999

Exports Drive 33.6% Reduction in Spain 2012 Trade Deficit

Greece December Current Account Deficit Narrows Sharply

Monday, February 18, 2013

Another Keynesian Dogma Demystified

Confirmation bias is widespread in social sciences, and economics has plenty of it, as the dogmatic, pro-state and self-interested defense of Keynesian multipliers exemplify so well. Garett Jones gives a good example of research that demolishes prevalent misconceptions:
One problem with estimating the effect of government purchases on the short-run economy is that government spending is responding to the economy in real time: government dollars aren't dropped in randomly, like in a lab experiment. ... It could make government spending look better than it really is: maybe governments are more likely to go on a spending spree when a free-market recovery is "just around the corner" all on its own. ...
The conventional Keynesian (and New Keynesian) story has been that government spending should get more bang for the buck--a bigger multiplier effect--when the spending happens during a deep recession.  A new paper by Owyang, Ramey, Zubairy uses news about changes in future military spending as a kind of natural experiment* to test this idea: [W]e find no evidence that multipliers are greater during periods of high unemployment in the U.S.

Sunday, February 17, 2013

Why the Euro Works, in One Paragraph

Harold James at explains, and the whole text is worth reading:
Solving the question of the German current accounts in the European setting at first appeared to require some sophisticated and ingenious political mechanism that would force French politicians to do more austerity than they would have liked, and Germans less price orthodoxy than they thought they needed. A political mechanism, however, requires continual negotiation and public deliberation that would have been painful given the policy preferences in the two countries (and in those countries that lined up with each one of the Big Two). The increased attraction of monetary union was that it required no such drawn-out political process. Monetary policy followed automatically from a decision to adopt price stability as a goal. The operation of an entirely automatic device would constrain political debate, initiative, and policy choice.

Friday, February 15, 2013

McKinnon on the Fatal Mistakes of the Federal Reserve

According to Ronald McKinnon, and I fully endorse his views:
US officials point to the stagnant US economy as the reason they want to keep domestic interest rates as low as possible—even zero. They must be convinced that this common view is mistaken, and that raising short-term interest rates on dollar assets from zero to modest levels—say 2%—jointly with their peer central banks in developed countries is in America’s own best interests, as well as that of the rest of the world. The longer the Fed’s zero interest rate policy stays in place, the more difficult it becomes to get out of the resulting liquidity trap and restore a more normal flow of financial intermediation within the USA—so as to avoid the perpetual stagnation we now see in Japan, sometimes called “Japanization.”

Wednesday, February 13, 2013

7th Art: Lazy Company (2013)

Lazy Company is a silly French comedy about the invasion of Normandy narrated from the perspective of American combatants. Not exceptional until now, but silly enough to make it fun to watch.

My outsider take: another example of the lasting positive impact of the US WWII campaign in France, despite 70 years of efforts by communists and socialists to denigrate it.

Lazy Company : le générique en HD par OCS

Monday, February 11, 2013

Brazil, Bureaucratic Empire

Brazilian party labels may change, but political attitudes are eternal: a nation captured by politicians and bureaucrats, immersed in historical statism, where "successful entrepreneur" means nothing else than "skillful rent seeker." According to this no-news report from the New York Times:
While civil servants in Europe and the United States have had their pay slashed or jobs eliminated altogether, some public employees in Brazil are pulling down salaries and benefits that put their counterparts in developed countries to shame.
One clerk at a court in Brasília, the capital, earned $226,000 in a year — more than the chief justice of the nation’s Supreme Court. Likewise, São Paulo’s highway department paid one of its engineers $263,000 a year, more than the nation’s president.

Sunday, February 10, 2013

The Coming Credit and Real Estate Twin Crises in Brazil

Lessons not learned, same old mistakes: Brazil reproduces the government missteps that led to the financial crisis of 2007 in the US. According to my friend Adolfo Sachsida in the Washington Post:
President Dilma Rousseff is using federal subsidies and state-bank loans to boost housing after economic expansion slowed for a second year in 2012 and mortgage growth declined. Home price gains are also decelerating after rising 58 percent since 2010. 
“The market is trying to correct itself” and “the government is throwing more money at it to keep it expanding,” said Adolfo Sachsida, an economist in Brasilia at the Institute for Applied Economic Research, a federal government agency that evaluates public policy. “This market employs a lot of people and they want to keep it heated so employment doesn’t drop.” 
Rousseff is pumping more money into the housing market even as interest rates remain at the lowest in Brazil’s history, and annual inflation is running above the central bank’s target for 29 months. As economic growth fell to the slowest pace among major emerging-market economies last year, she nearly doubled spending on Brazil’s plan to build 2 million low-income homes by 2014, a goal made more expensive as preparations for the World Cup being held that year, and the Olympics in 2016 contribute to higher construction costs. 
The amount of home loans outstanding grew 38.2 percent in 2012, down from a pace of 44.5 percent in 2011 and 51.1 percent in 2010, which was the fastest since 1992, according to central bank data. Total credit outstanding increased by 16.2 percent last year.
The government’s measures are helping to sustain prices, setting the stage for a fall once interest rates climb from record lows, according to Sachsida, who co-authored an IPEA report last August that said the government is fostering a real- estate bubble.

Wednesday, February 6, 2013

Anchors Aweigh!

Nominal anchors don't like floaters. The US Treasury is receiving so many A scores that it may soon be at the top of the honorary roll call of "How to create hyperinflation 101":
U.S. to Offer Floating-Rate Notes Within a Year
Hint for the next exam: time to review some ancient lessons on how to "dry the ice."

PS: Fischer & Summers (1989) is a classic on indexation (HT to Larry White).