The Economic Way of Thinking

Five and Ten Year Plans

Scott Beaulier — Wed, 06 Jan 2010 07:22:16 -0500

My colleagues and I are done with several days of interviewing job candidates for a position in Economics at Mercer. One of the things that surprised us a bit was that we got the following question from several candidates: "Where do you see your department in five and ten years?"

Thinking fast, we answered by saying we want our department to be a place that values research, that has a reputation as one of the best market-oriented schools for undergrads, and that serves as a "feeder" school to places like George Mason and West Virginia University for our best students.

When I got home and saw this post, which is titled "Mercer University: A School That Knows Its Economics," from Larry Reed in my e-mail box, I realized I now have a more succinct way of describing our five and ten year plans: we want Mercer be a school that Larry Reed and FEE are still endorsing five and ten years from now. Anything else would just be icing on the cake.

For any parents looking at Mercer because of FEE's endorsement of our program, please seek me out and tell me and the admissions folks that Larry Reed sent ya!

Fannie and Freddie as the Biggest Losers

Dave Prychitko — Mon, 04 Jan 2010 10:35:11 -0500

The two are expected to pay dividends on their taxpayer-financed preferred stock, and how? Through further taxation:

The firms have made clear that they may only be able to pay the preferred dividends they owe taxpayers by borrowing still more money . . . from taxpayers. Said Fannie Mae in its most recent quarterly report: "We expect that, for the foreseeable future, the earnings of the company, if any, will not be sufficient to pay the dividends on the senior preferred stock. As a result, future dividend payments will be effectively funded from equity drawn from the Treasury."
The loss cap is being lifted because the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures. Most of their losses are still coming from subprime and Alt-A mortgage bets made during the boom, but Fannie reported last quarter that loan modifications resulted in $7.7 billion in losses, up from $2.2 billion the previous quarter.
The government wants taxpayers to think that these are profit-seeking companies being nursed back to health, like AIG. But at least AIG is trying to make money. Fan and Fred are now designed to lose money, transferring wealth from renters and homeowners to overextended borrowers.

More here.

Is Osama bin Laden Dead? (And, Does bin Laden Matter?)

Scott Beaulier — Mon, 04 Jan 2010 08:02:00 -0500

While surfing around InTrade to make sense out of when Tiger Woods will return to the PGA (odds are even that he'll return before April 30th of '10), I couldn't help but check on the Osama bin Laden "captured or neutralised" bet. Here's the "captured by March '10" chart:

A price of 5 is basically telling us there's a 5 percent chance of him being caught/neutralised. When the range of time extends to June and September, the odds of him being caught/neutralized rise, which is no surprise. The odds are not only higher when you go out in time, however, they are a lot higher! The September '10 price, for instance, is around 15 (compared to 5 for March).

As I thought a little more about bin Laden, I Googled, "Is Osama bin Laden..." Before finishing my question I came across fill-in words like "Alive," "Dead," "Real," and "the Antichrist." "The Antichrist" links are worth a look, but it was "Dead" that was particularly intriguing to me. I clicked on the first link, which took me here.

After reading the information on the web site above and several other articles, I realize I'm in the "probably dead" camp (here's an expert this past summer saying "probably alive"), but who cares what I think? What I'm more curious about is whether bin Laden being dead or alive matters much in terms of US foreign policy, military resource allocations, etc.

For example, Bin Laden appearing to be alive makes the Pentagon's case for being in Afghanistan stronger. Bin Laden appearing to be alive also helps al-Qaida's propaganda machine, as they can roll out the seemingly healthy old man on important occasions. (Remember the younger looking bin Laden appearing in September, 2007 videos?) "Slam dunk" information indicating that bin Laden is dead, on the other hand, would likely lead to a refocusing of national security priorities.

These are a few effects that immediately come to mind. (I remember a hack on CNBC once saying a bin Laden capture would immediately push the Dow up by 1,000 points. Yeah, right!)

Besides some of the obvious ones that I raised above, what other effects would unambiguous evidence of bin Laden being dead or alive have on US foreign policy, military resource allocation, etc.?

They Say It's Your Birthday...

Scott Beaulier — Sun, 03 Jan 2010 07:45:05 -0500

On this day in 1521, Martin Luther was excommunicated from the Roman Catholic Church. Back in 1892 on this day, J.R.R. Tolkien was born. In 1959, Sarah Palin's state--Alaska--was admitted to the Union as the 49th state.

And, just one year later, EWOT co-blogger and the developer of the blog formerly known as The Austrian Economists, Pete Boettke, was born. Happy Birthday to you, Pete! (Are there any Kirznerian surprise parties awaiting you on this big day???)

To All of My ATL Friends: Brace for an Invasion!

Scott Beaulier — Sat, 02 Jan 2010 10:05:08 -0500

I love running, but I hate hanging out with runners (or at least 99% of the running population). My definition of hell, in fact, is being in Boston around the time of the Boston Marathon. During that weekend, marathoners take over the downtown area, and it's impossible to walk more than 10 feet without hearing people complaining about their nagging injuries or telling war stories about where and how they qualified for Boston. (Our escape from the fray a couple of years ago involved leaving the city and heading to Walden; unfortunately, I could barely walk and enjoy the scenery after getting beat by Lawson earlier that day!)

The same love-hate relationship applies for me and my profession: I love economics and have a few very good economist friends (and I even a few like Rob Garnett, Bob Lawson, and Ben Powell who are runners AND economists), but I'd rather avoid 99% of the people in my discipline. Since economists will be invading Atlanta this weekend for their annual meetings, I'd do almost anything to not be in ATL. But, alas, I will be there making the best of it and seeking out a few of those who are in the other 1%.

For anyone curious about the quirkiness of our profession and wanting a sense of what the meetings are like, here's the Wall Street Journal talking about economists and the AEAs this morning. The article contains a nice discussion of John Maynard Keynes's dinner parties and Milton Friedman's collect calls.

For anyone feeling more optimistic than me about our brethren in economics and thinking I'm not giving our colleagues a fair shake, I encourage you to just spend five minutes each day on this depressing site.

For my ATL friends and family wanting to do something fun on Sunday and Monday: head into downtown Atlanta to for a real spectacle...

Whining About Wine Etiquette

Scott Beaulier — Fri, 01 Jan 2010 06:57:57 -0500

Happy New Year!

Our gracious New Year's Eve hosts know how to put on a party. At their house, the food is always plentiful and diverse. The bar is open all night, and it's a su casa es mi casa/smoke 'em if you got 'em attitude towards beverages. Sports are on the television up until it's time for the always entertaining and awkward Anderson Cooper and Kathy Griffin countdown to the new year. (By the way, here's video of Kathy sneaking in a bad, bad word during the broadcast; no word yet on whether or not there will be regulatory consequences or if her check will have to be forfeited.)

Of course, many people aren't like our New Year's Eve hosts, and many parties involve bringing good wine to a house only to have the host not offer to open it. Since simply asking your host if the wine can be opened is sometimes a violation of social norms, strategies must be pursued to make sure your bottle gets opened. Some thoughts about overcoming this extremely serious coordination problem are below the fold:

(1) Chilled wines and bubblies are far more likely to be opened by your hosts. Of course, many people are not crazy about drinking chilled and bubbly types of wine;

(2) A magnum bottle screams, "Let's drink this together!" to your host. There are many good magnums on the market. A jug signals someone has a problem. And, there are no good jugs on the market;

(3) Going out of your way to talk up why you brought the bottle you did can go either way for you. Sometimes your host will say, "Well, let's crack it open..." Other times, they'll put it in their rack, say something like, "Oh, how nice," and take your signal to mean that you were thinking of them and got them a really nice gift that is to be cherished and preserved;

(4) Size of the get-together is also a mixed bag. Big gatherings make your bottle more anonymous and easy to open, but there may be guardians not wanting to open any more bottles. When n=4, on the other hand, you're left hoping your host has a clue.

Other than implementing some of the above or just being blunt and direct with your host, which at a social will be viewed as anti-social behavior, what other strategies for getting your favorite bottle open am I forgetting?

Assorted Links (Italy Travel Edition)

Scott Beaulier — Thu, 31 Dec 2009 10:02:23 -0500

We're back from a wonderful trip abroad, and here are a few quick thoughts:

(1) Every minute in Rome was worth it; Venice was neat for what it was but not a place I feel the need to return to at any point soon. I'd go back to Rome again and again.

Though, the Guggenheim in Venice had a Prendergast exhibit well worth the price of admission. The exhibit had information on the influence Whistler (one of my favorites) and Cezanne (one of my least favorites) had on Prendergast.

(2) There's a little Italian mom-and-pop restaurant near Stacione Termini in Rome that has to be one of Italy's best kept secrets. It was our first meal in Rome, and we found ourselves returning there several more times. It's named Mergherita something or another (I can't find any receipts and have had little luck on Google), and it's just two blocks from the station.

(3) The Roman Forum blew me away, made me think too much about the brevity of life, and left me wanting to read so much more on the rise and fall of Rome.

Then, when heading home, I read more of Africa: A Biography of the Continent and really got thinking about how short life is in the context of geological time.

(4) On the topic of Africa: A Biography of the Continent, I just passed a section that compares centralized empires like Rome to decentralized, well-functioning city empires. I will blog more about this in the future, but I'm thinking someone from our perspective needs to do some serious research into the Jenne-jeno tribe. (Maybe it's already been done?)

The civilization lasted 1,600 years, and from what John Reader says, they were a voluntary association of people that flourished by specializing and trading in the Niger region.

(5) I travel a lot, and that's been true since well before 09/11. In that time, I've never seen or experienced anything close to the invasion Anemone and I experienced trying to get home yesterday at Heathrow and then again in Atlanta. 3.5 hours of additional screening were added onto our trip (i.e., normal harassment would have got us out of Heathrow two hours sooner and through Atlanta 1.5 hours sooner).

Far more disgusting than the TSA invasion and complete waste of time was the nonsense we heard from people around us all afternoon, such as, "Well, whatever it takes to keep anything bad from happening," and "It's really not that big a deal." Best of all, at the end of our trip, people in front of us were eager to jump into the "whole body imaging technology" machine when we arrived in Atlanta!

Who would have thought kissing your civil liberties good-bye could be so much fun, would be something people would literally run for, and would occur for many without even a momentary pause to consider the inconvenience and immorality of it all???

It Usually Begins with Ayn Rand

Scott Beaulier — Mon, 28 Dec 2009 08:20:00 -0500

Whether you love her or hate her, it usually begins with Ayn Rand (book title by that name here). While reading the intro to Burns's Goddess of the Market, I learned that one of the great libertarian thinkers from an earlier generation, Roy Childs, was disgusted by Rand's atheism. Here's what Heller says:

Sometimes Rand provoked an adverse reaction. The libertarian theorist Roy Childs was so disturbed by The Fountainhead's atheism that he burned the book after finishing it. Childs soon reconsidered and became a serious student and vigorous critic of Rand. Her works launched him, as they did so many others, on an intellectual journey that lasted a lifetime.

If that doesn't pull you into this excellent book, turn to page 105 and see what she says about Hayek. (Spoiler below the fold).

When Hayek spoke about the needs of different people competing for available resources Rand retorted, 'They don't compete for the available resources--they create the resources. Here's the socialist thinking again.' Hayek didn't truly understand either competition or capitalism, she concluded.

Merry Christmas!!!

Scott Beaulier — Fri, 25 Dec 2009 00:01:00 -0500

Merry Christmas, readers! Here's to peace and happiness this holiday season, and to holiday time being less stressful on you than it was for Yellow Dog when she was asked to pose as our reindeer in this pic:

More on the PIGS (or is it PIIGS?)

Scott Beaulier — Thu, 24 Dec 2009 07:59:00 -0500

Here's a recent summary of the European PIGS that are in trouble and how their politicians are responding; this summary added Ireland and its 115% of GDP debt ratio to the list to make Europe's problem one involving big PIIGS.

Here's an article from the popular blog, OANDA, that invokes Milton Friedman in the discussion and asks whether or not the EU is on its way out.