I had thought that Hayek’s use of the markets concept helped to explain why Keynesian economics would ultimately fail. Each market participant would contribute his iota of information to determine prices, which would then reflect collective wisdom. Any tinkering by a “smart policy maker” would be undone, and thus this ended up as the kernel of the Lucas Critique.
But it seems Lucas became the foundation of later work, called RBC and then DSGE models, that came to be touted as “the best there is.” This is of course vainglorious and premature self-congratulation, what with the advent of the 2008 global financial crisis.
The explanation is perhaps that Lucas never really read Hayek. Very few mainstream economists did or do. But here’s an explanation by Paul de Grauwe. In short, de Grauwe considers DSGE/Lucas as “top down” models built on the short-circuitry of rational expectations (“If it doesn’t succeed, it must not have been rational; so it could not have happened”). But models running on Hayek’s ideas are “bottom up” models of incomplete information, which provides an alternative explanation of unemployment even as markets try to do their thing. It is better than Keynes because Keynes simply assumed wage and price rigidities (a failure of some kind of markets) and injected “animal spirits” to explain the Depression.
Bottom line: Lucas was a detour into not-quite-useful rationality. That is why macroeconomics is back to the drawing boards. Kind of like the Wise Guys having to stock up on home-made pasta and mattresses, waiting for a solution to their “territory” problems.
When to blink is an art. Do it too soon, and you’re “easy.” Do it too late, and you run the economy to the ground. Two editorials, by the Tribune and Malaya, predict the blinking will happen sooner or later. The Daily Inquirer opines that due obedience from industry players is “wishful thinking.”
What is this blinking all about? Retail petroleum. The Executive has ordered a price freeze. The industry claims they cannot sell profitably at the mandated price. It is apparently a matter of when the inventory runs out. Then, the story goes, no more traffic. No more pollution. We can ride bicycles. Not a bad sight for the Al Gore-Loren Legarda wannabees. The smart ones (and I don’t refer to the ones making PCOS machines for May 2010) think it is a poker/bluff game.
But for now what does the average Juan consumer do? Rationally, he fills up every tank he can find, and many have cars that just sit in the garage. Some, more equal than others, have Ford Expeditions, which can hold a lot of gas. So, Juan consumer will bring the day of inventory-run-out sooner than otherwise. The so-called poker game will then have to be played out, and not in the World Series in Las Vegas.
This is supposedly an Economics 101 piece of cake. The textbook answer is to ration the available supply (give it only to the “deserving”) and to demand that those with “excess” gas give it back. This is, interestingly, easier said than done. Not even Wowowee can corral the gas-challeged into tv contests that promise a heavenly gas-available-at-low-prices dream.
Here’s a modest suggestion. Declare independence from the Big Three. Nationalize them all since at some point, it will become an Economic Emergency. And let Manny (Pacquiao, of course) decide where the nationalized gas goes, and at what price. Boxing is so much easier, but hey, everybody believes in the Pacman magic. And thus and yet, all will live happily ever after.
Sometimes I just have to wonder about macroeconomics and macroeconomists, the latter being aplenty in Washington, DC where the IMF has its main office.
In effect, Anoop Singh is saying that the global recovery is not yet there. But it’s an Either Way I Win Story. If it’s not there, it’s the fault of all these officials who don’t believe in Keynesian economics. If it’s there, it’s because they followed IMF staff advice on the “zombie” state of many industrial-country banks. But doesn’t That take a long while? So it isn’t really a W but more like half a W, with a horizontal.
Claus Vistesen gives an example of the sober (or sobering) outlook on the Japanese economy. Even the IMF staff cannot disagree because they also claim that Asia will go nowhere until it can export its way out, and that applies as well to Japan (less so to China and India, of course).
Moral of the story: If the IMF staff is right, don’t bet your bottom investment dollar on Asian emerging markets. But seriously, where else would an investor go? T-bills? Sounds like (good old) Taleb advice! I’d say (with a little tongue in cheek) that the Buffett-PIMCO US dollar story is perhaps on its last legs.
The song was written in 1969 by Barrett Strong and Norman Whitfield, but released in 1971 by the Temptations. Totally apart from the bass, there is something about the failure of innocence that makes this song more than just a “dream” thing.
The Rolling Stones had their own version in 1977. The predictable thing is that this hits you more in the gut than in the heart. But the Stones are the Stones.
What is the rule when the prosecution has exculpatory evidence not available to the accused? What if the judge himself has this evidence but it is only from his personal knowledge?
What is the remedy at pre-trial? Trial? On appeal? After final conviction?
Any brightstarts with answers on the ready, please comment or send me email.
How does organized religion work? Why do some preachers make a lot, while others make a little? Can an economic model of religion explain why American football quarterbacks make a lot?
I try to answer these questions in this post.
In economics, we can see religion as a “comfort” good that is a public good. It is public because within a church, it is non-rival and nonexclusive. What this means is that the preacher can expect an honest congregation to donate what each member views as the value of the preacher’s services, i.e. his sermons, etc. And from the donations, the preacher can derive his livelihood.
The key factor here is honesty. If church members pay “honestly,” no one “free rides” by donating nothing, while allowing a few rich members to pay for the preacher’s services.
Suppose that we have a 100-member congregation, each valuing his religious “benefit” at $50. Honesty makes all members donate $5,000. Suppose that the preacher needs only $1,000. Organized religion then has a “profit” of $4,000.
Where will the profit go? It can go to expand the church, and as it expands, the profit may hit a plateau or even decline. Why? This is because the additional members will likely value the membership benefit at less than $50. The preacher may now ask for more for his services since he now has to preach to a larger congregation. So, there is a limit to the size of a church. The limit is high the more honest its members, and the less “greedy” are its church leaders. In an economics sense, we can explain the size of a church or sect on these lines.
What will make a church wither? If the members and its leaders all become “greedy” and try to avoid paying “proper” dues or there is corruption in the use of church funds, then the glue that holds a church together starts to unravel. The value of religion as a comfort good degrades in this case.
What does all this have to do with the pay of football quarterbacks? Well, a sport is pretty much like religion. Sports fans are members who pay through ticket sales and TV viewing that generates advertising revenues that pay in part for the sports teams. The greater the reach of this religion, the more a team can pay its players. The quarterback is like a preacher, but he can be greedy and demand a high pay. And he can get this.
... Chinese food, foo fighters (the band or UFOs, take your pick), or Winnie the bear. It stands for “Fooled Only Once.” The idea is that confusion is much better than self-delusion. I also track the blog debate on “policy” re the present global crisis in the page on the macro debates. - Orlando Roncesvalles
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