Econ PhD Beats "Efficient" Market

Time to finally toss the efficient market hypothesis? A Yale (sorry Mankiw, Harvard really ISN'T best at everything) econ PhD has consistently beat the market in terms of rate of return.

"He's made an average 16% annual return over 21 years..."

Wow.

Someone should have taught me THAT brand of economics.

Religious Zealotry, Evil, and Barriers to Economic Growth

Archbishop Francisco Chimoio , who is head of the Mozambique Catholic Church, recently said the following:

"I know of two countries in Europe who are making condoms with (the) virus on purpose, they want to finish with African people as part of their program to colonize the continent. If we are not careful we will finish in one century."

“People must choose what they want between death and I propose to them that (abstinence) is the best way to fight HIV/AIDS.”

(From Reuters)

Of course, the Bishop failed to cite which European countries were supposedly doing this. He also failed to clarify how different condom companies are able to collude to systematically kill off the very population to which part of their revenues are dependent. And of course, the Bishop failed to cite what amazing new technology these companies employ to allow for HIV/AIDS to remain active and alive airborne and outside bodily fluids.

The HIV/AIDS epidemic in Africa is one of the largest barriers to economic growth that that continent faces. Using ones religious viewpoints to spread such 'fear' of using protection is not just disgraceful, it is evil and extremely harmful. It is evil because this Bishop is indirectly a murderer for spreading obvious lies that will kill countless more Africans. It is harmful (beyond the human element) because of the countless more deaths and lower standards of living caused by the indirect effect on economic growth.

Ever want to understand what the heck the Fed is saying?

My attention was drawn to this.

Volatile Gas

I try to answer Mike Moffatt's post regarding the volatility of gas consumption (and hence revenue from taxes) compared to other goods. It appears gas is quite volatile esp. when you look at the mid/late 70s shock period.

I use BEA NIPA table data from their set called "Table 2.3.5. Personal Consumption Expenditures by Major Type of Product" to compute % change. The data is nominal.

I tend to agree with Mike though that this may not be that important in the long run since gas tax revenues are so relatively small. But could it be an issue year-to-year in certain circumstances? I think it could. Thoughts?

There are only 2 things that can cause this relative volatility: volatile changes in quantity consumed, or volatile changes in prices. Since the former is unlikely given the inelasticity of demand, the latter likely makes up most of the volatility. This makes sense theoretically since prices are dependent on behavior of cartels, and supply-chains that are tied to highly volatile conditions (like weather etc)



UPDATE 9/25: Mike correctly points out to me that my above graph doesn't really directly address the question of volatility of revenue of a gas tax since the above is likely mostly price volatility. Since a gas tax, unlike a typical sales tax, is a tax on a set quantity (40C per gallon) as opposed to a % of sales, a more appropriate graph would show the volatility of just quantities, not price changes.



In an attempt to do this, I use BEA's quantity index comparing the same items. Notice gas quantity is not really much more or less volatile than other goods (actually household goods is quite a bit more volatile swinging up and down from slightly negative growth from the previous year to as much as 15% growth). Though the point made above still holds; it is subject to huge spikes (supply shocks etc):

Becker on Rules vs. Discretion in Monetary Policy

Gary Becker provides a one-sided argument in favor of fixed rules governing monetary policy. He doesn't actually mention what rule he is exactly in favor of (inflation targeting, GDP growth targeting, factoring in unemployment...). He just says some rule is better than no rule, and while is arguments in favor of a rule-based monetary system make sense, he fails to mention any of its drawbacks.

Monetary rules are implicitly track long-run targets based on some aspect of NAIRU or whathaveyou. Of course, monetary policy is our government's chief way of tweaking the economy to alter business cycles (speeding up the economy to prevent a bad recession, or slowing it down to prevent runaway inflation). Take that away and all you are left with is politics (government spending and taxes) to tweak the economy. And THAT is a scary thought. Beyond that, taking away a monetary policymaker's discretion to change money supply / set interest rates, takes away the 'fudge' factor and assumes that we can set accurate rules - which may in fact not be the case.

But one would expect a Chicago school economist to be in favor of rules for precisely the above reasons. There is a certain unnatural comfort some economists find in the grand supposedly 'intuitive' assumptions and math models required to use such rules in the real world as opposed to relying on human behavior. There is a comfort in believeing that there are no big short-run market problems.

Sometimes what is comfortable is illusion.

Having said all that, I found Richard Posner's response to Becker a bit more even-handed and thoughtful:

"On the broader issue of rules versus discretion, I doubt that generalization is possible. Rules have great virtues, but they are limited because they are necessarily based on information possessed by the rulemaker when the rule was made. No rulemaker is omniscient. After the rule is promulgated, unforeseen circumstances are likely to arise to which the rule will be maladapted. The inflexibility of rules has to be traded off against the benefits in simplicity, clarity, and ease of compliance and application that rules confer. The tradeoff will not always favor rules."

Mankiw's Manifesto (II)

My response to Mankiws latest gas tax manifesto:

CAFE still isn't perfect, but as the reports on my blog discuss, the revisions to the program help rectify most of the SUV substitution issues. There are many issues that I don't like about the gas tax idea, but one thing I like about CAFE when compared to it is that increasing CAFE stanadards every few years FORCES gradual technological improvement and gas use reduction over time.

A gas tax, as an incentive only, does not force anything. There has been some evidence that car companies are increasingly collaborating and using oligopoly status to create lasting partnerships - both domestically and across borders. And given that for the vast majority of the US geography, consumer substitutes to vehicular transportation and commuting is low, vehicle producers have a good degree of market power and do not have to change its vehicle makeup much at all in response to a gas tax and changes in demand. Partially because, the cost of getting over the instituional hurdles and adopting cleaner technology far exceeds any marginal profit loss of keeping the same technology and makeup. So much of any potential profit loss can be mitigated by passing the buck to consumers, who largely have little choice in the matter. Marginal changes in supply makeup and fuel efficiency will surely occur due to demand changes for gasoline and fuel efficient transporation - but these are likely to be slight (given a politically feasible gas hike dollar value) and likely to effect different sets of the population drastically differently (see other comments). Some of the benefit of those small effects, again, are mitigated by the oligopoly power of the OIL industry.

Beyond that, sometimes, real change doesn't happen unless someone is there to push and prod. It's like a 30 year old who won't leave their parents' house. You can offer to help pay a portion of their rent of an apartment, ...or you can just say, "Hey, you are 30 years old, get out my next month or else I will kick you out." ...The son might not have ever been aware of what existed out in the world if the parents had not forced his eyes open.

Odd Results, interesting discussion

hat tip Mankiw for the post of a study that says a $1 increase in gas prices will likley lead to a 15% reduction in obesity.
The study seems solid to me, though I'm certainly not the foremost expert on any of it.
And yet, I just can't buy the results. It doesn't pass the sniff test. Mike Moffatt agrees.

One thing - the author uses data from a decade and more ago. A paper (see the right side of my blog) on gas price elasticity says that there is evidence in a dramatic decrease in the elasticity of gasoline demand. Obviously the author's results would be sensitive to elasticity changes. ....

Either way, there is a Great discussion about it on Mankiw's blog though. The author even makes a cameo!