The Economic Way of Thinking

Rational Stereotyping?

My eyes, they are a bleeding because I recently finished grading a new record mountain of exams and quizzes.  While grading I noticed something: Students with good penmanship and clean graphs tended to outperform others.  (In what follows, let's assume I grade fairly and don't just reward legible essays with higher marks).   

That got me thinking about two things.  First, if what I'm observing is not the result of randomness, why are neat writers getting stronger grades on my exams?  Have they always been conscientious students who think neatness matters at the margin?  Is penmanship something easy for talented students to pick up at a young age, which means I'm actually picking up talent?  Or, is there some kind of special link between penmanship and performance on my econ exams?

Second, if there is a penmanship and strong exam performance correlation in econ more generally, what does that say about me, Mr. Illegible?!  Exhibits of sloppy whiteboards to support this latter point are coming soon...

Why I (Sometimes) Love Conservatives

My friend, Erick Erickson, who is one of the principal instigators of the popular blog Redstate.com and a voice of reason on Macon City Council has a great op-ed in this morning's Macon Telegraph.  In it, Erick explains that tax revolts in the early 1970s, which were similar to modern day tea parties, preceded the supply-side revolution.  In defense of the tea party movement he writes:

We should not look at the tea party movement and the voices surrounding it as shrieking voices of populist sentiment devoid of substance. They give voice to the instinctual level, or gut, of the conservative conscience. What we see across the country are more and more people standing up and realizing the direction we are headed is wrong. They are unorganized. They are unfocused. But they do not lack a “connection to a concrete ideology,” they just are not skilled or trained in that ideology.

Before recommending Henry Hazlitt's Economics in One Lesson in his conclusion, Erick finds a way to work in plugs for Bernard Bailyn, Milton Friedman, and F.A. Hayek. 

Great work, Erick!

Have I Become A Twit?

Anybody interested in following me on Twitter?

The Allure of Economics

It is a subject that seduces.  Karen Horn one of the most insightful economic commentators in the world explains.

HT: Dan Smith

Would The Legalization Of Marijuana Stimulate The Economy?

There's a long list of economists, including Nobel Laureates George Akerlof, Milton Friedman, and Vernon Smith, who have signed a petition against the prohibition of marijuana.  An excerpt:

marijuana legalization -- replacing prohibition with a system of taxation and regulation -- would save $7.7 billion per year in state and federal expenditures on prohibition enforcement and produce tax revenues of at least $2.4 billion annually if marijuana were taxed like most consumer goods. If, however, marijuana were taxed similarly to alcohol or tobacco, it might generate as much as $6.2 billion annually. 

This comes at a time when popular opinion (see Bill Maher's interview with Ron Paul, for example) is starting to favor legalization to provide a source of tax revenues for the government's stimulus package. 

Whether you are for repeal or not, my question is:  would it stimulate the economy and help us get out of the crisis? 

Books On My Desk This Friday Morning

* Karl Marx, Grundrisse

* A.J. Polan, Lenin and the End of Politics

* Andre Gorz, Farewell to the Working Class

* Andre Gorz, Paths to Liberation

* Mihailo Markovic, From Affluence to Praxis

My, What A Difference 10 Years Makes

10 years ago folks popped champagne on the floor of the New York Stock Exchange as Dow 10,000 was reached for the first time.  According to yesterday's WSJ, the Dow crossed through 10,000 two days ago for the 25th time since March of 1999.

I can remember sitting in co-blogger Dave's Intermediate Macro class in the winter/spring of 1999 and him saying things in passing about the volatility as the Dow neared 10,000 and the absurdity of the "new economy" idea.  At that time, many of his students believed they had a future in day trading (seriously!). 

10 years later I find myself killing my Int. Macro students with IS-LM and saying things like, "I've never heard of a tree growing straight up to heaven," when describing the Dow's move from its March 2009 bottom. 

The NABE And "Most Economists"

One of my outstanding students from the past, Jason, e-mailed me this story about 80% of economists thinking the recession is over.  In the subject line of the e-mail, Jason asked me, "Is this really true?"  I told him I'd reply by blogging about it.  Here goes...

This Is Your Democracy

I couldn't have said it any better: Bob Higgs on hatred as the basis of party politics.

Can U Help Me?

Actually, can u help my wife, Anemone? 

In her "First Year Seminar" class this week she's aiming to justify writing by addressing two of the age-old questions in the heads of many college freshmen (expressed in text message form, which is becoming an all too common form of technical writing): (1) Y r we doing this?  (2) When m i ever going 2 use this?

Or, to put the above in the sometimes straightforward language of Economese, she's trying to explain the benefits and costs of writing well.  So, readers, what are the benefits and costs--both monetary and otherwise--of being a better writer?

Income Tax and Free Trade

Phillip Magness's hypothesis is that the reason why the income tax was passed in the US was because of the powerful interest groups for free trade that were able to outcompete in politics the previous dominant interest groups in favor of protectionism.  What do you think?

Phillip is a very talented student at GMU's School of Public Policy. I was a late addition to his PhD thesis committee -- From Tariffs to the Income Tax.  He successfully defensed his thesis this morning.  This work is a full blown book, and is as well researched and well written as any thesis that I have read.  In addition to his book manuscript (over 300pp), Phillip has been able to publish several papers in political economy and history journals.

Check out his work, and if you are looking for faculty in public policy or economic history, Phillip Magness deserves a serious look.

Anatomy Of A Crisis

Most economists and policymakers looking for crises similar to the 2008 financial crisis have looked back to America's Great Depression for lessons on what was done then and what should be done now.  As long as the interpretations of the past are correct, studying events like the Great Depression to better understand the present makes good sense.  Our studies shouldn't be limited solely to the Depression, however, if other crises provide information to us as well.

For example, the Asian financial crisis of 1998 is one such crisis that seems to have largely been ignored by policymakers rushing to call 2008 the 21st century Great Depression.  In 1997-1998, banks in Latin and South America, the former Soviet Union, and East Asia were highly leveraged; the banks were also lacking transparency and were tangled up in complicated assets.  Like the US in the early 2000s through 2008, consumption and government spending in many of the countries affected by the "contagion" was deemed "too high" by experts and many warning signs were present in advance of the crisis.     

Instead of recommending easy money and fiscal stimulus, Western policymakers responded to the crisis by recommending transparent banking, controlled government spending, and higher interest rates.  In other words, the recommendations for Asia was for tighter restraints on monetary and fiscal policy--the exact opposite of what has been recommended this time around.  For people interested, here's a time-line of the 1997-99 events produced by Frontline.  Here is a list of the policy positions taken by major players involved in the crisis.

The easy way to dismiss comparisons of the Asian crisis to the present is to say (1) the scale of the crisis is much larger this time; and (2) the crisis originated in a big country (i.e., the US).  When you look more closely at the past, however, the similarities of the Asian financial crisis to the present are striking and cause one to wonder about the wild divergence in policy recommendations by experts then compared to now.   

Ostrom and Williamson

As most readers are probably aware by now, the unexpected winners of this year's Nobel Prize in Economics are Elinor Ostrom and Oliver Williamson.  Very, very surprising choices, but very good choices.  Here's the WSJ write-up on the two.  Here's CNN.  Here's Alex at MR. 

Ostrom is the first female winner, and her work seems to be the focus of many of the initial discussions.  Williamson is also a deserving recipient; though, I would have rather seen him win it with Alchian and Demsetz. 

Ostrom has been an extremely influential economist for many connected to George Mason and the Mercatus Center.  Several years back, she and Vincent were honored at a Mercatus event.  I think of a lot of Chris Coyne's work as a dangerous blend of Ostrom and...Pete Boettke!

Two sourpuss points: (1) Ostrom winning greatly reduces Tullock's chances because the award is for non-market work and Tullock's best chance involved a shared prize with Anne Krueger; (2) I fear the media will completely miss the point when it comes to interpreting Ostrom's work. 

In her case studies, Ostrom is ultimately saying that context matters and we must exercise humility when attempting to reform or improve the efficiency of the commons.  She is saying "Do No Harm!"  She is definitely not saying individual, private solutions fail.  In the media's rush to simplify, however, it's easy to imagine them saying things like, "Ostrom tells us that individual, private solutions are inferior to community solutions..."  Again, that's not the message to be taken from her work.

Putting my concerns aside for today, though, these are great choices.  Congrats to both! 

"Because The CBO Says So..."

Back in late August, Dean Baker of the Center for Economic Policy and Research (CEPR) wrote a nice piece on how politicians shouldn't irresponsibly follow the Congressional Budget Office's (CBO) forecasts.  In the piece, Baker recalls some of the more recent CBO mistakes, and he says politicians continue to fall back on the CBO's flawed forecasts because it's a way for them to pass the buck and avoid taking direct responsibility. 

Given the CBO's long history of forecasting mistakes, perhaps we should discount the supposedly good news for Democrats that the CBO thinks the Senate Finance Committee's health care bill will have less of a budgetary impact than originally predicted.