Confidence Men

Brad de Long reviews Confidence Men;

Since the spring of 2009 I have became more and more alarmed by the economic policy choices made by the Obama administration. A new administration needs to (1) forecast what is most likely to happen, and (2) design and implement policies that will deal with what is likely to happen, The Obama administration did that. I think that some of its initial policies were wrong, but given the press of events I would give the administration moderately high marks for the policies it designed and implemented up through, say, April 2009.

Thereafter, however, things to me seemed to gradually fall apart. An administration has a third task it needs to carry out: (3) think hard about the risks--what if the administration has misjudged the situation? what if more things go wrong?--figure out what it needs to do to buy insurance against those risks, and do those things as well.
It needs to ask itself:

• What if we are wrong in our estimation of the situation--what might the world then look like three years from now? 

• What if more things go wrong in the next year or two--what might the world then look like three years from now?
• In those possible scenarios, what will we wish then that we had done today to prepare the way for dealing with the situation?
  
  ....

Why Obama chose the policies he did, why Geithner and Orszag and company were so optimistic in 2009, why the Reconciliation process was not teed up for emergency expansionary fiscal policy action if it turned out to be necessary, why Fannie and Freddie were not teed up for emergency mortgage action if it turned out to be necessary, why the administration turned so decisively away from unemployment and toward long-term deficit reduction in early 2010, why Summers and Romer did not wipe the floor with Geithner and Orszag in the long twilight bureaucratic struggle when NEC collegiality broke down, and why Bernanke forgot about the employment and output part of the Federal Reserve's dual mandate - these are all questions that I would dearly love to know the answers to.

Two and a half years ago I would have given long odds that Ron Suskind's book would provide me with a lot of the answers to these questions.

It does not.

Alan Krueger to replace Austan Goolsbee

Mr. Krueger has been on Princeton's faculty since 1987, the year he earned his Ph.D. in economics from Harvard University. He did a stint as chief economist at the Labor Department during the Clinton administration.

The work he has done in academia ranges from attempts to explain why job growth wasn't stronger during the 2000s, to findings that increases in the minimum wage don't depress employment, to a work showing that terrorists often come from middle-class—and often college-educated—backgrounds.

While at Treasury, Mr. Krueger worked on analyses of a variety of programs, including tax incentives to encourage employers to hire the employed, the "cash for clunkers" initiative to jump-start auto purchases and Build America taxable municipal bonds.

Treasury Secretary Timothy Geithner, through a spokeswoman, said that "given his expertise in labor economics, he is precisely the right choice to lead the CEA at this moment in history."

Martin Feldstein, who was CEA chairman in the Reagan White House, praised the choice. "His experience at the Treasury will give him a running start in his new job," he said. "Alan is an expert in labor-market problems, taxation and the economics of terrorism. I hope the president listens to him."

-Labor Economist to Fill Key Post

Leon Levy Lecture - The Lot of the Unemployed

A closer look at Alan Krueger’s academic work;

The minimum wage: Krueger might be most famous for the paper he did with David Card back in 1992 showing that an increase in the minimum wage doesn’t always increase unemployment, as most economists had long believed. Krueger and Card compared fast-food restaurants in New Jersey and western Pennsylvania and found that New Jersey, which had hiked its minimum wage from $4.25 to $5.05, didn’t lose jobs as expected. In fact, in some conditions, an increase in the minimum wage can actually boost employment. As Robert Waldmann explains, “Their logic is basically that firms can choose to pay a low wage and have a high quit rate and take a long time to fill vacancies or pay a high wage and have fewer quits and fill vacancies more quickly.” That said, Waldmann adds, this research doesn’t appear to be relevant to current labor-market conditions.

Unemployment: In 2011, Krueger and Andreas Muller conducted a survey of 6,025 unemployed workers and found a couple of interesting things. One, “the amount of time devoted to job search declines sharply over the spell of unemployment.” Second, out-of-work job-seekers tend to be picky: The minimum wage a worker will accept tends to be pretty close to the wage of his previous job, and it doesn’t drop very much over time, even if he stays unemployed.

Krueger to CEA

Doing Economic Theory in Practice

A book that Olivier Blanchard wishes he had written should be a must read for economic policy students;

To give a sense of what they do, I shall take one example, the creation or reform of fiscal frameworks like the European Stability and Growth Pact (SGP). To come to an intelligent set of recommendations, think of all the elements you need to put together:

•You need to understand what sustainability means in theory and in practice, what the costs of not abiding by it are, and how to assess it. When does a debt-to-GDP ratio become truly excessive? What happens then? How fast can you reach that threshold? How fast can you move away from it?
•You need to understand the long-term effects of deficits and debt on output and its composition. How do deficits and debt affect output in the medium and the long run? How do they affect the interest rate, the net foreign debt position, the capital stock? What is the cost in terms of lost consumption in the future? Which generations gain, which generations lose?
•You need to understand the short-term effects of deficits, and how counter-cyclical fiscal policy can help in the short run. Do deficits affect activity in the same way, whether they come from tax cuts or spending increases? How important are expectation effects? Can the anticipation of large deficits in the future lead to a decrease in consumption and investment, and a decrease in output today? When is this more likely to happen?
•You need to understand the macroeconomic costs of decreased policy flexibility. Are constraints on deficits and debt consistent with an appropriate response of fiscal policy to shocks? What explains sustained divergences within the euro area during the first ten years? Were such divergences avoidable? Then you should determine whether and to what extent fiscal policy is the right tool to deal with country-specific shocks and to what extent it can (should) substitute for the lack of an independent monetary policy. Finally, you need to figure out how much policy space is left to governments after they have fought the great recession and rescued their banks.
•You need to think about how to define the rules in practice. How should debt be defined? How should implicit liabilities, coming from social security and other promises to future generations, be treated? If rules are defined in terms of deficits and debt, what are the most appropriate definitions of the two concepts for the question at hand? How should rules deal with privatization revenues? Should rules apply to gross debt or to net debt? Should the budget be separated between a current account and a capital account? Should the deficit rules apply only to the government current account? Can rules be enforced by politicians or do we need to set up independent committees?
•You need to think about political economy issues. Why are rules needed in the first place? To protect people from their governments, or to protect the governments from themselves? How can a particular set of rules be manipulated or distorted by a national government? How will sanctions against a misbehaving government be imposed? Will these sanctions be credible ex ante? Is international coordination, such as in the G-20 framework, an asset or a diversion from every government’s duties?

To answer these questions, you need many conceptual tools. Among them: a dynamic general equilibrium model with overlapping generations; a model of short-run fluctuations with careful treatment of expectations; political economy models to think about the case for rules; agency models to help you think about the design of specific rules. In each case, with the guidance of theory, you need to look at the evidence, so as to get a sense of which theoretical arguments are more relevant. This is not easy to do. Courses will typically give you the theoretical tools, without much motivation, and let you use them on your own, without much practical training. This is not what this book does. It motivates the use of the tools, gives you the tools, and shows you how they can be used.

Middle East Fact of the Day- A message to Dictators and Politicians

Changes in citizens’ perceived well-being merit close attention as they provide clear messages to government which may not be obvious using traditional measures of progress.

Wellbeing in Egypt and Tunisia decreased significantly over the past few years, even as GDP increased. In Egypt, where demonstrations have prompted President Hosni Mubarak to give up power after elections this fall, the percentage of people "thriving" fell by 18 percentage points since 2005. In Tunisia, where mass protests toppled the country's government last month, the percentage of people Gallup classifies as thriving fell 10 points since 2008

Related:
Understanding How Gallup Uses the Cantril Scale

The Cantril Self-Anchoring Scale, developed by pioneering social researcher Dr. Hadley Cantril, consists of the following:
Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top.
The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you.
On which step of the ladder would you say you personally feel you stand at this time? (ladder-present)
On which step do you think you will stand about five years from now? (ladder-future)

Crazy Book Pricing- Decline to Fall: The Making of British Macro-economic Policy

Decline to Fall: The Making of British Macro-economic Policy and the 1976 IMF Crisis-Douglas Wass

Kindle edition costs USD 80
Hardcover on Amazon- USD 125

Related:
A review of the book from F&D;

In the subsequent discussions between U.K. and IMF officials, the main issues were fiscal adjustment and the exchange rate. Particularly on fiscal adjustment, according to Wass, it became clear in the technical discussions that "there could be no meeting of minds on the logic," because the British officials viewed the IMF's financial programming approach as inapplicable to their economy. The officials were skeptical about the basis for targets for monetary growth, and about the assumed links between the fiscal balance and domestic credit expansion in an economy with an advanced financial system. However, the IMF had more of a meeting of minds with Chancellor Denis Healey, who agreed that monetary expansion on existing fiscal policies was likely to fuel inflation, although he disputed the scale of the adjustment that the IMF sought. Differences were eventually narrowed, partly by the IMF's agreeing to the authorities' commitment to fiscal measures to be taken only if growth in the second year of the program exceeded a certain rate.

iSimulate

Some cool new stuff from the World Bank.


iSimulate is a platform for performing collaborative economic simulations across the Internet.

ADePT
ADePT was developed to automate and standardize the production of analytical reports. ADePT uses the micro-level data from various types of surveys, such as Household Budget Surveys, Demographic and Health Surveys, Labor Force surveys and others to produce rich sets of tables and graphs for a particular area of economic research.

PovcalNet
PovcalNet is an interactive computational tool that allows you to replicate the calculations made by the World Bank's researchers in estimating the extent of absolute poverty in the world

Cyprus Economy Watch

IMF releases Article IV review of Cyprus;
Background. Economic conditions have stabilized, and the economy is projected to bottom out in 2010, giving way to a mild recovery in 2011 followed by stronger growth. However, global financial risks remain elevated and muted growth prospects in trading partners weigh on the outlook. The government has taken steps to stabilize the fiscal deficit, but further measures will be needed to reach the official deficit target for 2012 of 3 percent of GDP.

Challenges and staff views. The foremost policy challenge is to achieve the official fiscal consolidation targets so as to put debt ratios on a declining path and provide more space to guard against risks to the financial sector. Further old-age pension reform is also essential. Preserving financial sector stability through early detection of risks remains a top priority in light of the difficult economic and financial environment, and the supervision of cooperative credit societies needs to be strengthened as a matter of urgency. Structural reforms are needed to preserve competitiveness and enhance medium-term growth.

Authorities’ views. The government largely shared the staff’s assessment, while projecting growth to turn positive as soon as 2010 and being more confident that the fiscal targets can be met through general spending restraint and with less focus on the public payroll. The Central Bank of Cyprus (CBC) expressed confidence in the ability of banks to withstand pressures, and this is supported by stress test results. Moving to a single independent supervisor for all credit institutions—a much desirable objective—is not on the political
agenda, but strengthening the supervision of cooperative credit societies seems feasible.

Another book on applied economic policy

Uganda's Economic Reforms -Insider Accounts

Economic Policy Book Recommendation

Windows of Opportunity: Memoirs of an Economic Adviser by K S Krishnaswamy

Broadband and Growth

The World Bank has found that in low- and middle-income countries every 10 percentage point increase in broadband penetration accelerates economic growth by 1.38 percentage points—more than in high-income countries and more than for other telecommunications services (Figure 1).16 In a similar study, McKinsey & Company estimates that ―a 10 percent increase in broadband household penetration delivers a boost to a country‘s GDP that ranges from 0.1 percent to 1.4 percent. Booz & Company found that ―10 percent higher broadband penetration in a specific year is correlated to 1.5 percent greater labor productivity growth over the following five years.Booz also suggests that ―countries in the top tier of broadband penetration have exhibited 2 percent higher GDP growth than countries in the bottom tier. These studies are the latest in the already extensive work estimating broadband‘s economic impact.

Developing other elements of the broadband ecosystem also provides economic benefits. For example, the growth of Internet-related services and applications has created jobs and led to the creation of new businesses. For example, in November 2009 Google had a market capitalization of $168 billion and employed 19,000 people in 20 countries. China‘s leading Internet search engine, Baidu.com, has a market capitalization of more than $14 billion and over 6,000 employees, and in 2008 had revenues of $460 million.

Developers have also been extremely active in creating applications for various handsets. Annual sales of applications for Apple‘s iPhone exceed $2.4 billion, as well as stimulating additional hardware sales. Thus broadband creates significant economic opportunities for users, service providers, application developers, and network operators alike. McKinsey estimates that ―bringing broadband penetration levels in emerging markets to today‘s Western European levels could potentially add US$300–420 billion in GDP and generate 10–14 million jobs.

-Building broadband: Strategies and policies for the developing world

Country Economic Updates

Malaysia;

the Malaysian economy is projected to grow again at 4.1 percent in 2010, following a contraction of 2.3 percent in 2009.

The Malaysia Economic Monitor calls attention to four key policy thrusts to meet this challenge:
* Promoting further specialization of the economy
* Improving the skills base of the labor force
* Making growth more inclusive
* Bolstering public finances

Philippines;

Real GDP growth is projected to reach 3.5 percent in 2010 and 3.8 percent in 2011.Our analysis shows that, so far, the size and pace of the peak-to-trough and the projected recovery in 2010 is closely aligned with past recessions in the Philippines. However, unless reforms address long-standing growth bottlenecks, the recovery’s shape over the medium-term will move from V to \/¯¯ , i.e., stabilize at a lower equilibrium growth rate.

Assorted Podcasts

What's wrong with macro-economics-Paul Omerod

New economics- Arnold Kling

State Building in Afghanistan: and Lessons from Seventeenth Century France


The Invention of the Jewish People

Professor Shlomo Sand has triggered a debate with his new book which argues that one of the founding myths of Israel - the exile and return of the Jews from their ancestral land - is a myth.

Why was Christmas banned for almost 20 years in England

A.C. Grayling - A Very Public Philosopher

A.C. Grayling, one of Britain's foremost philosophers and public intellectuals. An extraordinarily wide-ranging writer, Grayling has written plays, he's written works of technical philosophy and he's written about great philosophers: including books on Berkeley, Russell and Wittgenstein and a biography of René Descartes More recently, he's turned his attention to historical topics, with a book on the Allied bombing of civilians in WWII, and that's one of the issues that we discuss with him today: what is the role of the philosopher in assessing the moral validity of the Allies' prosecution of the war against barbarism?

The liar's paradox and other philosophical absurdities

The man who taught Darwin beetles

The parable of the wise ones

Religion and Pluralism in a Divided World
Speaker: Anwar Ibrahim

Studying Islam across times and place: how to compare?
Speaker: Professor John Bowen

Beyond Copenhagen- Lord Stern

Public hospitals - reform overseas

Thailand's democracy

The tale of two cities
Over the past ten years Australian cities and towns have faced water shortages and water restrictions, yet Singapore, which once imported 80 per cent of its water, has become self sufficient. Are there any lessons Australian cities can learn from Singapore?

Babies at risk?
Figures show that the number of babies taken from mothers at birth is rising dramatically, particularly in NSW. Judgments must err on the side of child safety, but there's concerns some babies are taken needlessly. One couple is suing for $18 million.

Mahatma Gandhi: from lawyer to national liberator

The crime gene
Convicted murderer Abdulmalek Bayout recently made legal history when a court in Italy reduced his sentence because it accepted that Bayout was genetically predisposed to being aggressive and violent! Controversial...well it gets worse...the so-called crime gene is more prevalent in some racial groups than others!

The Debate on the International Monetary System

Keynes’ original proposal envisaged a global bank (the International Clearing Union or ICU), which would issue its own currency (bancor), based on the value of 30 representative commodities including gold, exchangeable against national currencies at fixed rates. All trade accounts would be measured in bancor, while each country would maintain a bancor account vis-à-vis the ICU (expected to be balanced within a small margin), and also have an overdraft allowance vis-à-vis the ICU. When countries experienced large trade deficits (more than half of the bancor overdraft allowance), they would pay interest on their accounts, undergo economic adjustments (possibly also capital controls) and devalue their currencies. Conversely, countries with large trade surpluses would also be subject to a similar charge and required to appreciate their exchange rates. This mechanism would bring in a smooth symmetry of adjustments across countries and avoid global imbalances.

Interesting new staff position paper from the Fund.

Colbert's word on the Dow

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
The Word - Fine Line
comedycentral.com
Colbert Report Full Episodes Political Humor NASA Name Contest

Frederic Mishkin on the Makings of a "Classic" Crisis