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Monday, November 30, 2009

The Deadweight Loss of Christmas case you didn't already think some economists were insane or out of touch or missing something fundamental (or fundamentally human) about their's a paper that says we should not buy others' Christmas gifts.

Happy Cyber Monday PS ;)

Homegrown Evidence of the Truths of Minsky's ideas

As discussed before on this blog, long-ignored economist Hyman Minsky discussed cycles of booms and bust as a natural tendency of free market economies. One of the 'phases' of such economies are hyper-risky ponzi scheme financing that eventually lead to booms that bust.

Our most recent example courtesy of my hometown of Indianapolis, IN

Tuesday, November 24, 2009

China's Currency Manipulation

From Prof. Becker:
"The US has little to complain if China wants to hold such high levels of low interest-bearing US government assets in exchange for selling goods cheaply to the US and other countries. China's willingness to save so much reduces the need for Americans and others to save more"

But isn't that exactly the problem? China's willingness to take the place of "saver" in the US economy should (and is) be a bad thing, not a good thing, in the long-run. Sure, on its face it seems great - it allows the US to spend money on things (Chinese things) that it might otherwise not. But it's this free allowance by the Chinese that has partially contributed to the American problem of over-consumption - of houses, of debt in general. Without this allowance, perhaps some of the booming bubbles we've experienced in the last 20 years might not have happened - perhaps recessions could have more easily been avoided.

UPDATE: At least one mainstream economist agrees with me:
"Many economists, myself included, believe that China’s asset-buying spree helped inflate the housing bubble, setting the stage for the global financial crisis. But China’s insistence on keeping the yuan/dollar rate fixed, even when the dollar declines, may be doing even more harm now."

Wednesday, November 18, 2009

No Surprise, Change Happens Sloooowwwww in Indiana

Every time revenue forecasts came out from the State over the past year +, they have been grossly over-estimated. Now, I can understand that a severe recession such as the one were are (were) in can play havoc with forecasting - after all a shock is a shock. However, when you see the writing on the wall, and you fail to, say after the first few times it happens, change your methodology (all at a cost of State worker jobs, pay, etc.), then, in my book, you are just plain idiotic.

Now, finally, after over a year has passed, and my State has consistently way over-forecasted its revenues, it is finally changing its methodologies. The committee overseeing the change says it's working as "hard as possible" to make the changes happen. That's simply not true. Hard work implies a little gumption to take action before the shit hits the fan, not after it starts to drip on everyone's heads.

Tuesday, November 17, 2009

Dumbest call of the week: Belichick or economists

A lot of economists seem to make this aggregation of data mistake and of glorifying results of studies without reading about the underlying assumptions. Levitt and also apparently Prof. Mankiw are apparently applauding the Patriots' for their 'gutsy' fourth down move to go for it on their own 30 yard-line at 4th and 2. They cite a study by Prof. Romer which states that, using historical data, contrary to supposed maximizing behavior, teams are often too conservative on fourth down situations (they punt too much).

Problems abound

First, Romer analyzed 1st quarter attempts, NOT 4th quarter attempts with 2 minutes remaining. Behavior and optimal choices are and should be different in toward the end of a finite game, than early on when one failed risk taking measure might hurt you but not doom you. The risk is substantially greater at the end of the game.

From Romer himself:
"I am implicitly assuming that a team that wants to maximize
its chances of winning should be risk-neutral over points scored. Although
this is clearly not a good assumption late in a game, I show in
Section IV that it is an excellent approximation for the early part. evidence about the impact of points on the probability
of winning suggests that risk neutrality is an excellent approximation
for the early part of the game. Because teams adjust their play late in
the game on the basis of the score, one cannot just look at the distribution
of actual winning margins."

Second, Romer actually used third downs to estimate what 'would have' happened on fourth downs since fourth down attempts are so rarely attempted. The assumption of course is that third down plays and results would be similar to fourth down plays and results, which I don't necessarily agree with.

Finally, the study is analysis which uses simulation estimation, which means it is wholly dependent on the author's underlying assumptions and judgments of behavior - ie. it is inherently subject to bias. It can model behavior of a 'typical' NFL team based on a host of assumptions, but it can not take into account the specific variables in a specific football game (like Colts V. Patiots).

Make no mistake, Bill Belicek made a dumb move.

Thursday, November 12, 2009

The Conservative Idiot

As someone who teaches, and someone who likes economics, and as someone that is gay, I find this more than slightly disturbing:

I could point out the obvious flaws in his argument(s) - though "flaws" are really too weak a word here - academic dishonesty is more like it. Or I could point out the number of obvious economic net benefits of wanting to accept gay "lifestyles" (and by "accept" I mean not having the State treat them/us as third class citizens or to have to live in fear of fellow man) as opposed to just opposing it and hoping the "lifestyle" goes away.

But I won't. I'll just let you read and soak in the fact that I received my B.S. in economics from the same institution that that this Dr. Bert Chapman now teaches.

I guess Purdue lets anybody teach nowadays.