Phrase of the day

Non serviam
Brad De Long paraphrasing Will Wilkinson.

One week to go!

Greg Mankiw links to an article by Swaminathan Aiyar in the Times of India. As he then puts it

If any of my economist friends who are working for Obama wants to defend his positions on ethanol subsidies, tariffs on Chinese goods, the Byrd amendment, etc., shoot me an email, and I will gladly post it for my blog readers. But I am not holding my breath.

This is particularly disturbing in light of this report in Sciencedaily which indicates that, horror of horrors, politicians actually vote as they promise they will:

Candidates’ words generally match their deeds, according to Sulkin. The issues candidates say are priorities in their commercials are likely ones they care about and will take action on through the introduction and co-sponsoring of legislation, she said.

Whether they are vague or specific on an issue doesn’t matter, Sulkin found.

and

When a candidate attacks an opponent on a given issue, however, it does not mean the attacking candidate cares about that issue or will act on it, Sulkin’s research shows. “Negative appeals, appeals that attack the opponent, don’t have much signaling power about what that candidate is going to do,” she said.

I would still hope that Obama wins the election, simply because American politicians tend to have less power in economic matters than they do in matters of war and peace. Under normal circumstances, therefore, it is better to have an economic xenophobe in office, rather than a trigger-happy militarist.

On the other hand, these are hardly normal times. There is great demand for radical action (more Sarbanes-Oxley?), the legislature does tend to give newly-elected Presidents more freedom of action, the Democrats already control both chambers of the Congress, and, thanks to their support of that man in the White House, the Republicans are deservedly on the run. The normal checks and balances which keep Presidents from doing too much harm are mostly absent.  Jeepers!

Explaining things away

A post at the Economist's Free Exchange Blog on "explanations" in the press.

Goodness gracious indeed!

Dr Boli

Ted Briggs

Obituary in the Economist.

TO DIE in a hospital bed was not the end Ted Briggs expected. He thought he had copped it when, at 16 and on Atlantic patrols on HMS Hood in 1939, he looked up to see a black object “as big as a London bus” tumble gently out of the sky and pepper the deck with shrapnel.

Division of labour

Scitechdaily on using atomic nuclei for long-term memory, and electrons for working memory.

How do you isolate a quantum bit from a noisy environment to protect the delicate quantum information, while at the same time allowing it to interact with the outside world so that it can be manipulated and measured?

And

Crucially, the information stored in the nucleus had a lifetime of about 1 and 3/4 seconds, ex-ceeding a recently calculated target for quantum computing in silicon beyond which known error correction techniques could then protect the data for an arbitrarily long period of time.

More Keynes

After this, comes Brad DeLong

The right remedy for the trade cycle is not be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom

People respond to Incentives

Eric Felix Salmon on a study of the brain drain in (from?) Fiji

the brain drain actually caused Fiji to become better educated.

Postscript: Thanks to Gaddeswarup for the correction.

Real pain

The Economist's Free Exchange blog has a post on what lessons we can learn by trawling Wal-Mart's database.

For the first time the company is seeing a paycheck-related spike in purchases of baby formula, suggesting some real teetering out there.

The FT on Keynes

On the contrary, he argued, the economic expansion should be seen as the normal state of affairs and the downturn was an “extraordinary imbecility”

HT: Paul Kedrosky

What are Financial Institutions for?

Steve Randy Waldmann (emphasis added)

Any claim that a financial innovation has achieved a concrete, positive end is a sure sign of disaster, or (in the unfortunate lingo of economics) a distortion. The purpose of a financial system is to solve a collective optimization problem whose solution we cannot guess a priori. If we are very sure that welfare is maximized by vastly expanding the housing stock and making homeowners of people who otherwise might not buy, then the government should just tax to build McMansions, and auction off the oversupply. More generally, one cannot judge a financial system by any particular outcome, because all financial systems make mistakes, and the mistakes always look good while they last. We judge financial systems by the performance of the economies they guide over time.

From this post by Arnold Kling, which also has a nice explanation of the role of equity in promoting truth-telling.

This

I suspect that the main reason we have bad financial institutions is that individuals are irrational. I can well imagine that it is easier to market a Ponzi scheme (suitably dressed up) than an incentive-compatible financial contract. People think they are smarter than they really are. As a result, bad financial institutions satisfy customer demand, just as politicians offering free lunches satisfy voter demand.

is interesting in light of this

They found, for instance, that "individuals who scored in the 12th percentile believed that their general reasoning abilities fell at the 68th percentile". Curiously, even the top students "tended to overestimate" the incompetent ones. But at least they were better at assessing themselves.

Tim Gowers

If the singularity is almost on us, the Internet helps. Imagine, a Field medalist launching a website specifically on lifting the covers of mathematical problem solving. Any number of bright kids will now find a new source of delight.

Politics is not about policy

Bryan Caplan links to a clip of Obama supporters being interviewed. The interviewer attributes McCain's policies to Obama, and the interviewees don't flinch! They support all those policies, because they believe they are Obama's policies. They even support his "choice" of Sarah Palin for Vice-President.

Yet another reason why a Nerd will never be President

Krugman wins Nobel

Has it been a year already? Two years?

As before, the best writeups are on Marginal Revolution.

Alex Tabarrok:

Consider the simplest model (based on Krugman 1979). In this model there are two countries. In each country, consumers have a preference for variety but there is a tradeoff between variety and cost, consumers want variety but since there are economies of scale - a firm's unit costs fall as it produces more - more variety means higher prices. Preferences for variety push in the direction of more variety, economies of scale push in the direction of less. So suppose that without trade country 1 produces varieties A,B,C and country two produces varieties X,Y,Z. In every other respect the countries are identical so there are no traditional comparative advantage reasons for trade.

Nevertheless, if trade is possible it is welfare enhancing. With trade the scale of production can increase which reduces costs and prices. Notice, however, that something interesting happens. The number of world varieties will decrease even as the number of varieties available to each consumer increases. That is, with trade production will concentrate in say A,B,X,Y so each consumer has increased choice even as world variety declines.

And

Krugman (1991) (JSTOR and here) brings increasing returns together with capital and labor migration and transport costs into one model. Krugman's (1991) model has become a workhorse of economic geography and international trade. The model is too complex to explain here but the reasons for that complexity are clear to see - when everything becomes "endogenous" small initial differences can make for big effects. To minimize transport costs, for example, firms want to locate near consumers but consumers want to locate near work! Thus, there are multiple equilibria and at a tipping point the location decisions of a single firm or consumer can snowball into big effects. So Krugman has been a leader in introducing tipping points, network effects and thus the importance of history into international trade as well as into economics more generally.

It is pleasant to see how economists and bloggers, regardless of political preferences, seem to applaud this choice: Mankiw, Brian Caplan, Will Wilkinson, Steve Levitt.

Markets are the cure

Chris Dillow

How would you fancy a week’s unpaid holiday next year? Answers range, I guess, from: “I’d rather not, as I’ve mortgage to pay and it’s a bit of a squeeze” to “good. I need to recharge my batteries and tidy up the garden.” Net, it’s no big deal.

And yet this is what recession means on average; one week’s unpaid holiday a year is equivalent to a 2.2 per cent fall in national income.

The prospect of a fall in GDP of this magnitude is a bad thing only because the pain of recession is concentrated in a few people; recessions see 4% of people lose half their income, not 100% lose 2%.

But minority losses are in principle an insurable event.

Postscript:




Paul Kedrosky on the state of the economy in Pakistan, where they solved the problem of falling share prices by forbidding prices from falling.

It looks more than a little reminiscent of a dying patient hooked up to an EKG. After a few palpitations, the Karachi market has now flat-lined. It has fallen to the 9100 floor -- okay 9182 -- and now sits there, in the uncomfortable the way non-viable markets do. Volumes have collapsed, going from a healthy 186-million shares a day to a comatose million shares a day, a 99.4% decline. It is simply no longer a viable exchange, with companies unable to raise money and investors unable to get liquidity or -- heaven forfend -- buy shares. Nothing. Traders are reduced to sleeping and playing video games.

And

The Karachi Stock Exchange and the Karachi SEC are meeting this weekend to decide whether or not to simply close the exchange for good. At the same time, the "badla" rate, a sort of interest rate at which investors can borrow money, soared to 100% on Friday, making the record-high Libor look positively like a giveaway.

Worse than divorce

An anonymous quote from Paul Kedrosky.

Nobel prize

NPR

The Nobel Prize in chemistry was awarded this week to three scientists working in the United States with a jellyfish protein that glows in the dark. But the scientist who found the gene for that protein, and gave it to the eventual Nobel winners, is no longer working in the field. He now drives a shuttle bus for an auto dealership.

HT: Chance and Necessity

Wise words on the credit crisis

John Kay

However it feels on Wall Street and Canary Wharf, this is not the worst economic crisis since the Great Depression. Today’s problems are not only created by financial markets but largely confined to them. Compared with the wreckage of Europe’s physical infrastructure in the 1940s, or the threats to living standards and social order from oil shortages and accelerating inflation in the 1970s, these perturbations are minor. The greatest threat to the non-financial sector is the effect on business and consumer confidence that comes from apocalyptic headlines

The FT's management blog

Do not spend a moment of your time talking about the financial crisis unless it directly affects you

Postscript: Steve Levitt links to an Op-Ed by Casey Mulligan

The suits and the geeks

Arnold Kling quotes Feynman channeling Thorstein Veblen.

Unquenchable Life

An Adelie penguin on an Iceberg

The Earth From Above

HT: Carl Zimmer

How do we grow?

Entrepreneurs.

Of course, quoted firms invest millions of pounds worth of management time in looking for growth opportunities. But much of this is wasted. As Alex Coad shows, firm growth is “largely a random process.” Nothing much predicts which firms will expand and which won’t - not profits, size, productivity nor even innovation.

Chris Dillow

Words of hope

If the estimated 360,000 square miles (less than 1 percent of the world’s land surface) covered by urban rooftops and pavement were a white or light color, enough sunlight would be reflected back into space to delay climate change by about 11 years, the study shows.

FuturePundit