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Wednesday, September 29, 2010

On Global Domination

So I recently purchased "Civilization 5" the computer game (and popular series) which pits different civilizations in conquest (military, cultural, technological, economic, etc).  I used to play Civ 2 when I was a kid and loved it - was really quite good at it.  Civ 5 is more difficult, not because it's more difficult to conquer people or because it's difficult to advance new technologies - it's difficult because Civ 5 introduces a radical and in my view wholly unrealistic viewpoint of military conquest.

One of the ways you can win Civ games is to amass large armies (at the expense of culture, technology, etc) and try to take over other civilizations.  I like doing that - it's good for pent up aggression.   Who cares if you are the first civilization to reach space - that's not winning - I want to kick butt for the glory!

But here's the problem in the new game: every time you conquer a city, the 'happiness' level, not just of that city, but of your entire civilization permanently drops (until you spend game-decades building 'happiness' generating things like theaters, Colosseum, etc.).  Meanwhile, your production drops and your growth slows across the board.   You can't build things but you have a big army so you might think you could keep conquering and amassing more people and happiness that way, but the problem is, the more cities you conquer and the more population you add, the less happy your people are, the less you produce, and the less your population grows!

A couple comments from a gaming blog summarizes the problem:

A game where it's better to burn a city to the ground and slaughter the hundreds of thousands of inhabitants so you can replace it with your own settler just doesn't feel very Civ-like to me. It's one of my main complaints about the change to global unhappiness - I can see the citizens of THAT city being unhappy, rioting, refusing to work, etc... but why is it that just because I took over a city, everyone in my empire simultaneously decides to stop having kids?
KevinC is online now  Reply With Quote
Old 09-27-2010, 02:18 PM  #2978

Ironically you can't replace it with your own settler, that's the whole point. You can't actually HAVE anymore people. It's like immigration reform run amok. It's Finland saying "there are too many people for us to govern!" and then slaughtering everyone in Sweden and Russia to the last man, because it's The Only Way.
This doesn't make sense. Typically, the cities you are able to conquer are the cities that are weaker from a technology / economic standpoint. So, you would think that by liberating them from their squalor they might eventually be happy. But ok, maybe it takes a while for them to warm up to you, but that shouldn't affect your entire civilization's unhappiness and production. When Rome conquered the Greeks, sure the people in the Greek region were upset for a time, but they eventually assimilated - and certainly Rome wasn't "unhappy" that they just won new land, new economic resources, glory, etc.
Military conquest has costs and benefits - the costs are obviously the cost of the conquest itself (life and resources) and the temporary localized unrest it creates as well as long-run diplomacy with other countries. But the benefits are new and unique resources, new land, new opportunity and new knowledge. Civ 5 captures all the costs PLUS some costs that are completely unrealistic described above- which means you can't reap the full benefits.

Monday, September 20, 2010

The Recession is Over!

Or is it?   NBER announced today that our recession ended in June 2009.

NBER panelist and the author of the macro text I use in class had this to say:
"At least half of them excoriate us for saying that the recession is over, But we are only saying that things started to get better in June 2009, not that times are good."

My question to Robert Hall would be, "What are these things you speak of?"  If you mean corporate profits and overall GDP, yes.  If you mean base wage levels, benefits, raises, or employment, then I would further ask:

"Can I have some of the dope you are smoking?"

I am one of those that thinks we need to examine how we 'call' recessions and expansions.  Or perhaps we should just stop using the terms altogether.  Just call it like it is: GDP is growing and benefiting some, unemployment is still very high and not really budging and it is hurting others....

The Federal Reserve Bank of Richmond sees huge benefits in maintaining the status quo:
"Recession dates are useful because they combine
a great deal of information into a single variable
reflecting an informed judgment that the economy,
broadly defined, was contracting at a certain point
in time." 

For me, the aggregation of such data points, which by themselves are just aggregates of other disaggregated data, means you lose sight of what's really going on.  You end up not making an informed judgement on the economy, but rather you lose sight of reality - such are the problems with the assumption of aggregation in macroeconomics.

Sunday, September 19, 2010

What Should Have Been Done

My last post was rather bleak.  It paints a picture of our economy that is structurally problematic.  But that doesn't mean government has tools to reduce the structural unemployment problem.  

Monetary policy won't do. Monetary policy has done much to help stabilize the financial sector but it will do nothing substantial to reduce our structural unemployment issues.  

The fiscal stimulus was poorly designed - it's been too bureaucratic, slow, bloated, and not targeted to the problem at hand.  Demand stimulus old-Keyenesian style throws a lot of money at various sectors in the economy that have been previously known to add employment with the increased spending.   As such, much of the stimulus was aimed at a hodge-podge of things: infrastructure, health care, education, tax cuts, unemployment benefits, etc.   IE-the goal was to increase spending and not employment - with the idea that the employment would follow.  And I admit, at the time, I even bought in to this old line a little - I was hopeful.  I was also a sucker.  I'm not anymore. Surely, the stimulus helped a little, but to me the negatives of waste outweigh the nominal employment retention benefits. 

What we should have done with that money is spent the bulk of it on one thing: retooling the workforce.  We should have spent billions on new teachers, temporary work transition programs, partnered with our academic institutions and funded them new monies to create new transitional jobs programs.   That not only would reduce our structural unemployment problem - by speeding up the retooling of our workforce, but it would also invest in the skills of Americans - benefiting the long-run private sector.   Ironically, we instead threw billions out the window while our States' budgets faltered.  As State budgets fail, so do education institutions that receive State funding.

Saturday, September 18, 2010

The trouble of unemployment

In my intro macro class, I teach about unemployment and of course I teach using the severely limited tools of AD-AS model and Keynesian cross etc.... Such models would have students believe that reducing our current cyclical unemployment now at 9.6% is just a factor of 2 things that need to happen:

 *Allowing for inventories to properly readjust and for spending to get back to 'equilibrium' with production.
 *Allowing for prices and wages to properly readjust to allow for supply and demand to get back to 'equilibrium' with respect to 'full' employment of resources

Now, such insights are useful.  We in fact did need to have an inventory realignment (as well as a financial-sector realignment).   And indeed, the state of our financial sector and of our production levels have bounced back to a significant degree.  The second insight regarding prices and wages have taken hold as well.  Prices have stagnated for many quarters, as have wages.

So the question is, why hasn't employment bounced back?  Theory would have us all believe that producers would bounce back as input costs are low and as the economy improves and they would regain hiring.  There are a few flaws in the real world however that make this not a very useful observation:

1.  Producers don't make decisions largely based on present conditions, but rather they make decisions based on future conditions (of profits, of interest, of prices, etc).

2.  Not all recessions are the same:  many of our recent recessions did not require significant shifts in the makeup of our industries.  This recession has meant a complete retooling of our industries (our manufacturing is becoming 'greener', our financial industry is re-making itself, etc).  This retooling means significant increases in structural unemployment which necessarily means we will maintain this rate of unemployment for a significantly long period of time.

Further, this recession has been met with conflicting answers:  the private sector's answer has been to become more conservative, to do more with less, to increase productivity of the average worker while maintaining less workers.  The public sector's answer (our government) has been to spend, and spend some more, in hopes to rejuvenate the economy Keynesian style.   Whenever the public and private sectors act in such diametrically opposed ways, it breeds uncertainty.  Add to this the government's schizophrenic message: let's spend money, but let's cut the deficit, let's create huge housing subsidies, and then let's take it away, let's extend unemployment, let's not extend unemployment.... Uncertainty means perceptions of the future (see point 1 above) will vary widely and all of that contributes to our present situation, where one month things look good (in the labor market and in the housing market) and the next it looks bleak.  Of course, none of this added uncertainty is good for the economy in the short or the long-run.

This brings me to my point(S):
1.  Textbook macro teachings regarding the relationship b/w spending-employment-production should be taken with a grain of salt by students (and teachers that don't point out the numerous assumptions in the models are doing the world a huge dis-service).

2.  The Obama administration has been a huge failure if for the only reason that it has lacked clear decisive message and vision.  I agreed with aspects of the stimulus, but much of it has been a huge failure both in terms of message and in terms of results for reasons I've discussed before.   The administration has helped breed uncertainty which is the last thing we need right now.  (Note:  that's  not to say Republicans would have been any better - they don't really even have any message of their own it seems).  I should caveat this point by saying that I don't think there's  much the government can do about this recession anyway given the structural nature of it, but the fact that he thought he could apply (poorly) old-school Keynesian methods and call it "change" and expect huge results is appalling to me.   I'm just as tired as the next guy of the old Keynesian response of throwing money at problems and hoping it sticks.   It never works.

3.  I don't expect the unemployment rate to budge, now, or much at all even next year.  I suspect we now have a structural unemployment problem that could last years (ie., I suspect our new 'full' employment rate is probably above 7% now).

Monday, September 6, 2010

Obama: The Wizard of Oz President

Obama passed his ARRA stimulus at a tune of nearly $800 billion.   Unemployment skyrocketed beyond most predictions to 10% - where it has roughly hovered now for months.   Now, Obama - on a downward PR spiral, has decided to tell America to close their eyes, click their heels and repeat, "there's no place like hope, there's no place like hope."   Oh, and, take $50 billion and call me in the morning.  

...So let me get this straight, $900 billion didn't do the trick, but an extra $50 billion will make us prosperous again?  Surely our 'academic' President doesn't believe his own nonsense.  He probably figures it's something he can tack on in time for the November elections... and if things do start turning around in the employment department, it's one more thing he can point to....   I can't nevertheless help but feel a little 'talked down' to.  

Can this President do anything right?  Why did I vote for this ninny.  Bush was a complete idiot but at least he had conviction and a decisive goal - Obama just makes a wish upon a star (and by star I mean the US Treasury) and 'hopes' for the best.   I hope that in 2012 the American voters say to him:  "there's no place like home... and that is where we are sending you."