Flooding. Recent Iowa floods. In the event of floods should we feel sorry for those who are flooded? those who are nearby but not flooded? If you expect floods in the flood plain, you expect the value of property to be suppressed. The price differential should approximate the difference in losses when floods come. If the differential is too low people will continue to buy the hillside houses. If you have a flood that is not as serious as expected, the people in the flood plain got a benefit and those on the hillside paid too much. So, who you feel sorry for depends on what was anticipated. Suppose we start taxing the people on the hillside and use it to relieve those in the flood plain. Depreciates value of hillside property, more people will want to live in flood plain and will build bigger houses there and stocking them with better furniture; likely to have more newsworthy floods. Often people know that a flood is coming; if they know their damages will be covered by those on the hillside they have less incentive to pack up their belongings. John Stossel reports on buying a house on NJ coast and puzzled to be covered against hurricanes by Federal subsidy even though hurricanes are known to come around. Law of unintended consequences. Benefits of these programs get capitalized and end up helping nobody. Can end up with no gains to the property owners. Anticipated flow of benefits of $20,000 by government would get captured in the value of the properties.
Monday, June 30, 2008
Sunday, June 29, 2008
Many criticize the CPI for excluding food and energy from the market basket. They contend that the PCE, Personal Consumption Expenditures, is a better measurement. I argue that the CPI is older and consumers form rational expectations more accurately with the old, trusty economic barometer. Plus, it takes less time to learn what the CPI means since so many pundits write about it. The CPI might not be perfect, but at least it's consistent.
As one of my idols, John Maynard Keynes, said, "I'd rather be vaguely right than precisely wrong."
As George Box said, "All models are wrong, but some are useful."
Saturday, June 28, 2008
Friday, June 27, 2008
Thursday, June 26, 2008
Wednesday, June 25, 2008
Tuesday, June 24, 2008
Asoka charged his third vizier to attend to the matter as soon as the court returned to the palace. The third vizier charged his second clerk to prepare the necessary letter of authority when the court had returned to the palace. The second clerk wrote a note to the junior archivist asking him to look out the appropriate model of letter from the records.
Years later, when Asoka was old, the Emperor's exasperation with his advisers made him remember the brave and wise young man. He demanded that the young man be produced to give his advice.
A week later a trembling village headman was brought before the Emperor. He said "O Light of this world, I am not the brave young man who faced the tiger; he was my brother. He died in misery two years ago. When he heard your august words of favour, he put aside all other thoughts but service in your court. He gave his small patch of land to me, and set out to live by the charity of others whilst he went about finding out what the needs of the people really are, and forming thoughts on how your august benevolence could best help them. For two monsoons he lived well, because many were aware of your words to him. After the second monsoon and still without word from the palace, I begged him to take back his land and to live the life of a villager until the call came. He refused. He could not be a common villager and at the same time a man with the Imperial promise of an official career. We offered to make him village headman. Of us all he was clearly best fitted for the post. Still he refused; he must wait on the Imperial will. After the third monsoon, men lost patience with him, and he began to starve. When a little money came to him, he spent it on drugs and on wine to enable him to bear the wait. All that was bright about him began to fade. The remnant of a man who died had lost all his wisdom and even his courage."
When the headman looked up, he saw that the good Asoka was weeping, and had torn his embroidered robe."
The devastating results of waiting for very well intentioned and entirely believable official munificence to be delivered have figured in folklore about as long as such promises have been made. The trouble about these promises is their very generosity. It always appears rational to wait another day for the prize rather than do something worthwhile but relatively picayune today.
Monday, June 23, 2008
Sunday, June 22, 2008
Saturday, June 21, 2008
Lou Dobbs is a critic of international trade. He argues that trade takes away jobs from U. S. citizens and exports our national security. Thomas Friedman, The World is Flat, maintains that countries that have a McDonalds will not go to war with each other since they are interdependent. Whatever your viewpoint, you are affected by globalization.
We shouldn’t make fun of rap music. They are one of the few things still made in the United States.
Critics of trade argue that the gains are not evenly distributed and one side gains more. These critics point to China’s trade surplus and the stock pile of U. S. dollars. On the other hand, trading with China was voluntary.
Mom to daughter: Did you share the candy with your brother?
Daughter: Yes. I ate the candy and gave my brother the wrappers.
Husband comes home to see his wife and mom sharing a joke. The wife says, “I just learned that the joke is on me.”
People who lose sleep over globalization are lucky. I lost my job.
Friday, June 20, 2008
A:In order to make weather forecasters look good.
This informative text is from Wikipedia. One important application of the critique is its implication that the historical negative correlation between inflation and unemployment, known as the Phillips Curve, could break down if the monetary authorities attempted to exploit it. Permanently raising inflation in hopes that this would permanently lower unemployment would eventually cause firms' inflation forecasts to rise, altering their employment decisions.For an especially simple example, note that Fort Knox has never been robbed. However, this does not mean the guards can safely be eliminated, since the incentive not to rob Fort Knox depends on the presence of the guards.In other words, with the heavy security that exists at the fort today, criminals are unlikely to attempt a robbery because they know they are unlikely to succeed. But a change in security policy, like eliminating the guards for example, would lead criminals to reappraise the costs and benefits of robbing the fort. So just because there are no robberies under the current policy does not mean this should be expected to continue under all possible policies. Likewise, just because high inflation was associated with low unemployment under early-twentieth-century monetary policy does not mean we should expect high inflation to lead to low unemployment under all alternative monetary policy regimes. Although Goodhart's law has been expressed in a variety of formulations, the essence of the law is that once a social or economic indicator or other surrogate measure is made a target for the purpose of conducting social or economic policy, then it will lose the information content that would qualify it to play such a role.
As I stand near the banks of the flooded Mississippi River, I hear the waves lapping at the banks like a dog lapping water. Gawkers come to the river eyeing the unknown muddy waters. They stare for 5 or 10 minutes then sag their shoulders and walk away. I have loosely construed Goodhart's Law to the flood. Any attempt to control the ecosystem will result in failure.
Thursday, June 19, 2008
If the price of Monkey Grease decreases to 50 cents, then Monk feels wealthier even though he is not. Monk would only need $7.50 to buy the same amount of cleanser as before. The amount he would buy because he feels wealthier is the income effect.
Only economists could theorize that in order to add more to your income you’d have to subtract.
Wednesday, June 18, 2008
When the price is P1, Adrian purchases Q1 and receives a marginal benefit equal to point 1. If the price increases to P2, Adrian will NOT consume Q1 because the marginal cost is greater than the marginal benefit. Adrian will equal benefits with costs at point 2 and reduce is consumption from Q1 to Q2.
Moving to this new equilibrium is what economics predicts. That is, a consumer will seek to maximize his pleasure and avoid pain. This point occurs at point 2 where MB = MC.
In microeconomics, the questions that economists ponder change, but the answer is always “where marginal benefit equals marginal cost.”
Tuesday, June 17, 2008
Sunday, June 15, 2008
Saturday, June 14, 2008
Tuesday, June 10, 2008
Monday, June 09, 2008
Friday, June 06, 2008
The McGraw-Hill website, "See The Math" calculates the income effect with: (dQd/dI)(dI/dP) where I is income, P is price, and Qd is quantity demanded. I say this is wrong since income does not change but is held constant. I cannot, however, figure out what the correct formula should be even using indifference curves.
Will someone supply the correct algebra?
Thursday, June 05, 2008
Wednesday, June 04, 2008
“The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”--Thomas Sowell
Tuesday, June 03, 2008
Monday, June 02, 2008
But of course, they killed one each and come Sunday, they talked the pilot into letting them bring all three dead moose on board. So just after takeoff, the plane stalled and crashed. In the wreckage, one of the economists woke up, looked around and said, "where the hell are we?"