Archive for September, 2007|Monthly archive page

The Political Economy of War

The Washington Post reports that Saddam Hussain was willing to go into exile just before the invasion for a mere $1 billion.  Assume that Lawrence Lindsey’s $100 billion estimate reflected the administration’s optimistic best guess of the cost of war.  What do you think the administration thought might have been worth more than the $99 billion difference?

Apologies to John Dingell

Doug Henwood tells me that Charles Komanoff and the folks at the 
Carbon Tax Center report that Rep. Dingell's carbon tax bill is both
good and, in their words, "terrific."  Here is a link for the bill.

Unexpected Roads Happily Traveled

Robert C. Merton, winner of The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1997 (sometimes incorrectly known as the Nobel Prize in Economics wrote with what in retrospect might have an ironic ring:

“It was deliciously intense and exciting to have been a part of creating LTCM (Long-Term Capital Management).  For making it possible, I will never be able to adequately express my indebtedness to my extraordinarily talented LTCM colleagues.  The distinctive LTCM experience from the beginning to the present characterizes the theme of the productive interaction of finance theory and finance practice.  Indeed, in a twist on the more familiar version of that theme, the major investment magazine, Institutional Investor characterized the remarkable collection of people at LTCM as “The best finance faculty in the world.”  In long retrospect, unexpected roads happily traveled”.”

Economists vs. Politicians

It isn’t often that I can find examples of the economics profession behaving well, but the Wall Street Journal has chimed in reporting that economists agree that carbon taxes are the way to limit global warming, yet politicians are just as adamant in supporting the cap and trade.  Nobody wants to get blamed for raising taxes.  Rep. John Dingell (Dem, GM; i.e. General Motors) is still supposed to introduce a carbon just to prove how unpopular such a tax might be.

Using Markets to Fight Global Warming

Here is a remarkable step forward in fighting global warming here on the Left Coast.  “The State energy commissioners on Thursday unanimously adopted a proposal that would financially reward or punish California’s largest utilities for their performance on energy-efficiency programs.  Members of the California Public Utilities Commission voted to award up to $450 million over three years to Pacific Gas and Electric Co., Southern California Edison, San Diego Gas & Electric and Southern California Gas Co. if they meet specific goals to trim energy consumption.  While the money would come from approved rate increases, said Commissioner Dian Grueneich, who co-wrote the proposal, the increases would be more than offset by up to $4 billion in reduced energy costs for consumers.”  Follow the dancing money.

How to do Chicago Economics

Here are two discussions about how Chicago teaches economists to do economics. Both Reder and McCloskey say that when the evidence contradicts ideology, stick with the ideology. Continue reading

Prices as Intellectual Property

The magic of the marketplace that Hayek proposed works because prices covey the information necessary to make efficient decisions.  I never believed Hayek, but I never supported intellectual property either.  Here we have Harvard’s bookstore acting as if its retail prices were intellectual property to prevent students from buying “efficiently.” Continue reading

Greenspan on the futility of Economic Foreasting

Dufour, Jeff and Patrick Gavin. 2007. “Alan Greenspan’s a Pessimist on Economists.” Yeas & Nays (11 September).

When you gather together three Nobel prize winners, four former members of the White House’s Council of Economic Advisers, a Congressional Budget Office head and a former treasury secretary, you sure don’t expect them to be told that, well, their life’s work has all been for naught.  But, at a private dinner Friday held at the Washington Club to honor Brookings Institution economist George Perry and Yale’s Bill Brainard (both the retiring editors of the renowned Brookings Panel on Economic Activity), former Federal Reserve Chairman Alan Greenspan told the audience that economists don’t really know anything.

“The one thing that struck me is that, despite the extraordinary sets of articles, insights and analysis by the people in this room and the other colleagues in BPEA, our ability to forecast the business cycle has not improved one iota,” Greenspan said.  “The best models don’t work all that well.” Continue reading

National Bureau of Economic Research. 3

The third article, continues the downward spiral.  There, Alexander Dyck, Adair Morse, and Luigi Zingales in “Who Blows the Whistle on Corporate Fraud?” suggest that government regulators are not very effective in rooting out corporate fraud, and, what is worse, rational expectations of investors are not very active either.  The authors recommend giving more incentives to whistleblowers.  This recommendation certainly must be wrong.  What corporation needs such meddling? The decline in the standards of economics generally upheld by the National Bureau of Economic Research must be reversed.

National Bureau of Economic Research. 2

The second National Bureau of Economic Research article must have slipped in by mistake. There, Pinelopi Koujianou Goldberg and Nina Pavcnik in the article entitled “Distributional Effects of Globalization in Developing Countries.” In what must be a horrendous blunder, they come to the conclusion, “the evidence has provided little support for the conventional wisdom that trade openness in developing countries would favor the less fortunate.” After all, everyone knows that the purpose of expanding trade is an act of generosity, intended only to help the poor.