Mankiw...just effing annoys me

This is 'new' to him?
Why am I even surprised by this. I mean...I should expect this complete lack of common sense. The concept of psychological pricing has been researched for decades in marketing, behavioral econ, and psychology literature. The fact that an economist who is suppose to understand how consumers make decisions with prices has little/no knowledge of this kind of research is just so astounding to me - it makes me so pissed off because it just provides that much more evidence that many of our mainstream economists just really don't care about reality, at all.

Change Government, but How?

I agree. But what is the incentive to do so? I've said before that change -real change- is next to impossible in our politics since there is no incentive to do so. What is the incentive for our congress to shoot itself in the foot? Congress doesn't has to change, precisely because it is dysfunctional. Those of us really disgusted have given up voting or caring, and those of us left voting seem to take enjoyment or revel in the partisan cycles. The only one that can truly change the rules of the game is congress, but since congress is the one that created the existing rules, and seems to thrive on it despite so-called public opinion, it seems a rather impossible task, short of outright public protest - which so far has been surprisingly muted.

The Evolution and Stability of Over-confidence

For decades, heterodox economists have respected and studied the power of uncertainty on bubbles and bursts - and finally, after (during?) the Great Recession, the mainstream is paying it the attention it deserves.

Here's the same topic from an evolutionary biological perspective. Take a dash of history, and a healthy chunk of game theory, and you have one interesting read!

Take THAT Rational Agent Theory!

Fed's Twist and Shout - Booed by Investors

We don't presently, and haven't since the early part of the Great Recession, had an interest rate problem (and even then, it was really the spread that was the problem - essentially 'twists' are designed to correct such spreads b/w long term and short term interest rates - but that is really no longer a huge issue as both rates are really low). We have an uncertainty, a political, a labor (not just demand - but structural I believe), an expectations, and a fiscal problem - none of which is going to be resolved anytime soon. And none of which is likely to be significantly affected by such a move. IE - the Fed's new 'twist' may cause a back sprain, but it certainly isn't going to relieve any tension in our markets. My point - Dear America, short of a direct hiring program for our nations unemployed a la FDR (which has its own host of problems and after-effects), the government can do NOTHING but wait. ...(or start really fixing things it can fix, like its politics, fiscal problems....)

How Did Europe Get Into This Mess?

Long answer here.

Short answer: in forming the European Union, it guaranteed each country a common currency and monetary policy (via the European Central Bank)... but in doing so forgot to create a common fiscal policy / manager.

What this means is that politicians in the various European countries can create more and more debt (like Greece) or can remain relatively austere (like Germany) - all individually. But if one or more of them get in-debted 'too much', the monetary authority can't do much to help them without hurting others, and since there is no one fiscal authority, these large deviations can't be prevented in the first place and long-term austerity measures can't be enforced upfront for the good of the bloc.

On a related note, unless they fix that bigger issue in the future, unlike US which has a moral hazard with helping certain industries and groups of people (auto, banks) at the expense of others, Europe actually has a similar moral hazard but pitting country against country - which is a much more scary problem.

Don't Deny Us Gingers, Just Price Us Accordingly

Apparently the supply vastly exceeds the demand for my fellow ginger sperms.

Well, ok, but this is bound to happen, and happen alot, because apparently they don't charge differently for different characteristics...

Oh, they'll charge you more for 'washed' semen (at $125 - whatever the hell that means) versus unwashed ($100) at the cheap level and they'll charge extra for flat profile info, but they don't charge less for redheads and more for those with brown eyes, for example.

If you have an over-supply, basic economics says you should just cut your price (pay redheads less to deposit and charge those who want ginger-sperm less to get it), rather than turn people away at the door!

Link between crime and inflation?

Richard Rosenfeld says yes, a positive one:

"A key mechanism linking inflation to crime is the price of stolen goods," he adds. "Price increases make cheap, stolen goods more attractive and therefore strengthen incentives for those who supply the underground markets with stolen goods. The reverse occurs when inflation is low."

Color me wrong, but I have a hard time buying the fact that today's too-stupid-to-wear-a-mask robbers and killers are really spending that much time thinking about the inflation rate of the economy. I can maybe see this as a factor for certain commodities during potential bubble formation (like Gold for example), but to say total / aggregated crime rates move with inflation seems quite a bit far-fetched to me. Especially, since inflation has been on the up-tick over the past year or so....

Fisher and Debt Deflation

Since I wince a little when I see a heavily politicized New Keynesian talk about Debt Deflation (largely developed by those less rigid post-Keynesians), I thought I'd post something from the man himself.

As an aside, perhaps I shouldn't be worried, but it is a bit scary to see the New Keynesians trying to twist the flashlight of works done years ago by more open-minded and outside the box thinkers. I suppose it could be a good thing when the mainstream recognizes these oft-ignored ideas, but one wonders if they do so only to try to incorporate into their old-school toolbox. Equilibrium, mathematical convergence equations, and Hyman Minsky? Hmmm....just sounds odd to me. But the paper certainly sounds interesting and worth a read.

I will say after perusing a few things I see problems with right off the bat:
1. The paper is mistaken to shrug off ever increasing foreign debt obligations (to China etc) as not being a potential problem.

2. The model seemingly ignores the imperfect relationship between spending and employment, particularly in a globalized economy where spending can lead to more foreign employment.

3. The paper seems to treat fiscal spending as some sort of aggregate value, while failing to recognize the realistic limitations and potential mis-allocation (in an Austrian vein) or just good old long-run waste that might accrue.

4. The authors, and certainly Krugman, don't express any concern for moral hazard (which is really the main point of the argument against fiscal stimulus).

...Lots more stuff they are going to need to answer for....

Permanent Vs. Temporary Tax Cuts, and Take Tax Changes Out of Government Hands

One thing I wish economists would stop teaching is that there is a real difference between temporary and so-called permanent tax cuts.

In a text book where there are no politicians, there are no 'procedures', and there is not concept of dynamic change over time, that may be true: but in reality that is NEVER true.

A President/Congress today could pass a 'permanent' tax cut, only to be wiped out by a future President/Congress

A 'temporary' tax cut today can be extended tomorrow, and then extended the day after that, and so on....

So in reality, due to (political) uncertainy, which textbook economics doesn't consider at all, there is no real difference to a "rational" person between a 'temporary' or 'permanent' tax cut. The only thing that differs is the subjective probability that each individual gives as to whether or not a cut today will exist tomorrow. And that 'probability' is not define-able in any real sense and even if it were, it would be subject to change on an almost daily basis.

I should point out that economists 50 years ago did recognize this distinction, but over time, in the media and in the classroom, I have observed economics teachers 'assume' that just because something is labeled permanent, that the masses will think it is permanent, etc. That is not the case and I think the degree to which that assumption is roughly valid changes over time. In our present time, I would argue that the assumption is not at all a representation of reality, given how divided we are as a nation on issues of taxation and debt, and how uncertain everyone is about the future of our economy.

By the way, this is one reason I don't believe that tax cuts should be used as stimulus in the Keynesian tradition, ever. It just adds to the uncertainty. If I were redesigning the US (which we really need), the first thing I would redesign is congress and the second thing I would redesign is our tax system to make it so that it can never be used as a political or short-term economic 'tool' - in favor of a more static tax system with static rate(s).

Indeed, a major problem is that government has control to change taxes and spending at their whim (and can borrow from the future). If government were limited to just being able to change spending, and have a given long-run tax system, things would be much clearer. Government could spend, for a given level of tax revenue out of their control and in instances where revenue fell short, they would borrow but their future revenues would be completely controlled by the private economy now and into the future. This would provide incentive to government to borrow more efficiently and live within means. Large projects of course could still be financed with borrowing and solvency in the future would depend entirely on the solvency of the private market-driven tax revenues. Why should government be able to control the value of its costs and its revenues. No other entity on Earth can do that.

If it didn't have this duel control, people wouldn't be worried about whether they would be taxed more in the future or not and whether the government would remain solvent; they'd be worried solely about whether or not the government would remain solvent - providing an incentive to people to actually participate in their government.

Technically speaking people would still have to worry about inflation, but discussion of the so-called 'independence' of our central banking system at present, is for another time ;)

Obama Speech Live blog

American Jobs Act

7:13 "Everything in this bill will be paid for"....ok ...when...and by whom and how does that effect the 'stimulus'???

7:15 "Payroll tax cut" ....ok already knew that....tried that...historically low impact on spending and jobs growth.

7:16: Classic "build in America" line...really pulls at your patriotic heartstrings don't it.

7:18: Government will cut red tape to infrastructure projects....this is interesting, but it kind of sounds like an oxymoron.

7:20: Part of money will be to hire public teachers....ok, my question is where and how is it decided where there are 'enough' teachers...the whole idea that you can never have enough teachers is idiotic.

7:21: Another year of unemployment insurance...hot button topic for sure. Doubt this would pass congress.

7:22: Love the calling out of Republicans signing that stupid oath...best line so far.

7:24: Answers where the money comes from. As expected he is going to pay it from the future.

7:27: We need a fairer tax code...yeah...I've seen that movie too. Show me the action.

7:28: I paraphrase: 'We can have our cake and eat it too, but we may need to vomit some of it up later.'

7:31: Cut screen to who I should have voted for....

7:32: I paraphrase: 'Dear businesses, please love me. Patriotism, Amurica, hell yeah!'

7:33: Obama says "America" for 1,323rd time

7:34: I paraphrase: 'Governments wastes money with unecessary regulations, that's why I've spent money to create this new government committee to study ....'

7:36: More "America," "Race to the Top," "Story of America" fluff

7:37: THERE's the Lincoln reference...knew it was gonna be him or Reagan.

7:39: "Could or could not" is not the issue, "should or should not" is the issue.

7:40: "The next election is 14 months away..." Yeah, and I feel like we are damned if we do and damned if do the other.

7:42: Set the stage for the next few months....apparently our government is going to be debating a 'stimulus' that, in the end, won't amount to anything anyway.

Obama Presidency: the Confusing, the Desperate, and the Dead

Update post-speech:
Apparently Obama has upped the ante and the actual bill will be closer to $450B. That still doesn't substantially affect my thoughts below, but just to be accurate....

President Obama, hours from now, will outline his new 'stimulus' plan. The plan, which has already been released as a draft, will amount to a mini-ARRA package (you remember, the first $800B stimulus). The new plan is roughly half payroll tax cuts and unemployment benefits, and half new spending.

This new 'jobs' plan comes mere weeks after Obama, though motivated to do so politically due to the persistence of Republicans, passed a huge 2 Trillion-dollar+ spending cut package just to increase the Federal debt ceiling to account for past spending! So this got me thinking...wait a minute. So we want to decrease spending and then a few weeks later we want to increase spending??? = CONFUSING to the average American

Now, it's difficult to say how much that passed spending cut will amount to year-by-year, but some fellow econ geeks (like these guys) suggest that nearly $200B will be cut by 2013 year-end due to the debt ceiling bill. Meanwhile, Obama is going to propose to increase spending by $300B. You can do the math folks. But, in essence, the $300B, according to some economists (according to Krugman a while back, a $300B stimulus would decrease unemployment by about 1%) the effect on GDP and employment would be negligible. So, you can imagine that a NET $100B will be worthless and a complete waste of time. This is beside the fact that, as I've posted before, spending does not mean employment! Fiscal stimulus on paper is a lot different than fiscal stimulus in practice. Just because the money is spent doesn't mean it will continue to flow through the economy. Our financial system is a bit stronger than 2009, but it's still not up to par. And spending money doesn't happen over night. Often it has to flow through State governments and bureaucracies and then private bureaucracies and pass X number of 'conditions' before the shovel can actually hit the dirt. It's just not an effective economic tool in general.

Obama, as we have all learned, is at his lowest point ever, and what that means is that he is DESPERATE. He will do anything to try to get himself out of this hole that he, with plenty of help from Republicans, has dug himself. He likely, being a good ole' fashion Keynesian, would have preferred a much bigger stimulus, but I'm sure his advisers have suggested that would be political suicide.

All this does not bode well for the man, or his Presidency. Some of this is his own fault: his failure to lead the health debate until it got too far out of hand, his failure to communicate a singular and common message to the people, his lack of prioritization, etc. But much of this too is the fault of our political system in general. Our dichotomy-politics breeds an us versus them environment. It's an environment where some extreme Republicans resort to hate speech and chants of 'socialism', and extreme Democrats resort to similar hate speech (think Andre Carson) and chants of 'idiocy'. It all means that Obama's Presidency is DEAD at this point, and that, barring some real change and hope, our political system itself may not be far behind.