An interesting article in the New York Times discusses recent research on the political leanings of professors in American colleges and universities. Not surprisingly, it notes that professors are more liberal than society as a whole. This is old news. The newer approach is the reasons given. Many liberals argue it is because conservatives are stupid and most professors are not stupid. Brad DeLong refers to the Republican Party as the Stupid Party on his blog.
Neil Gross and Ethan Fosse argue that professors are "politically typed" in a way similar to how nurses are "gender typed." The article states:
"Nearly half of the political lopsidedness in academia can be traced to four characteristics that liberals in general, and professors in particular, share: advanced degrees; a nonconservative religious theology (which includes liberal Protestants and Jews, and the nonreligious); an expressed tolerance for controversial ideas; and a disparity between education and income."
Liberals are more attracted to academia. Another argument is that once in place, it is difficult to change things because professors at a university decide who can be hired and tend to hire people like themselves. When I was at LSU in the late 1980s, a professor from the English Department wrote in the student newspaper that he thought it would not be possible for either a Republican or a Christian to become part of the faculty of the department there. (He noted that he was neither but thought the department should be open to people of other views.) It was not true of the Economics Department at LSU since there were a number of Christians and a number of Republicans in the department. (These were separate but overlapping sets.) It is also certainly not true about Christians in the English Department at Hope College since Hope is a Christian college. However, Republicans may be nonexistent there.
In some areas, professors can be very narrow minded. As the blogs of DeLong and Krugman show, liberal professors can also be mean, hateful, and intolerant.
Wednesday, January 20, 2010
Saturday, January 16, 2010
Charles Calomiris offers a spiritual response to the financial crisis
Thanks to my former colleague, Doug McMillin, for the reference to a talk Charles Calomiris gave in March of last year. (The paper can be found here.) He identifies four causal factors to the crisis--factors that have been mentioned in this blog before. He also discusses some ways out. Finally, he looks at examples of people making decisions is crises--including biblical figures Ruth and Job, and historical figures such as Alexander Hamilton, JP Morgan, and Andrew Mellon. All in all, an interesting paper.
Friday, January 1, 2010
Happy New Year
It is now 2010. Is that "twenty-ten" or "two thousand ten"? Who decides? Unlike France, there is not an official organization to keep the purity of the language. Instead, we rely on usage, although the media has a lot to do with what ends up being used. Another way of putting it is that the development of the English language follows an evolutionary process--a process that could be called "spontaneous order." France relies on a government-endorsed process. When I was in Germany on sabbatical, VW ran ads in German magazines that used an English term. (I don't remember the term, unfortunately). When the ads were run in French magazines, the German company could not use the English term in the ads.
We seem to be becoming more like France in our approach to the economy. Johnson Controls will soon be starting a new facility to manufacture batteries for hybrid autos. They are also getting subsidies from the government because the government thinks it knows the technology is promising and should be supported. This government-supported approach sometimes works and sometimes doesn't; although usually follows paths endorsed by politically-important constituencies of the party in power.
It is the increasing reliance of government leadership in the economy that makes me most nervous about the coming year and beyond. Hopefully, I will be wrong and a sustainable recovery will occur.
[I leave tomorrow for Atlanta and the American Economic Association meetings so probably will not post anything new until I return. Again--Happy New Year!]
We seem to be becoming more like France in our approach to the economy. Johnson Controls will soon be starting a new facility to manufacture batteries for hybrid autos. They are also getting subsidies from the government because the government thinks it knows the technology is promising and should be supported. This government-supported approach sometimes works and sometimes doesn't; although usually follows paths endorsed by politically-important constituencies of the party in power.
It is the increasing reliance of government leadership in the economy that makes me most nervous about the coming year and beyond. Hopefully, I will be wrong and a sustainable recovery will occur.
[I leave tomorrow for Atlanta and the American Economic Association meetings so probably will not post anything new until I return. Again--Happy New Year!]
Saturday, December 26, 2009
On Floyd Norris' Book Selections
In the business section of the New York Times on Christmas Day, Floyd Norris offered a short list of the best books in 2009. The list contains six books:
--Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World.
--Robert J. Barbera, The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future.
--Johan Cassidy, How Markets Fail: The Logic of Economic Calamities
--Justin Fox, The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street.
--Frank Portnoy, The Match King: Ivan Krueger, The Financial Genius Behind a Century of Wall Street Scandals.
--T.J. Stiles, The First Tycoon: The Epic Life of Cornelius Vanderbilt.
(Note that all six titles of colons and subtitles.)
I have not read the last two books and am not interested in them as far as the recent recession and financial crisis is concerned. Ahamed's book is fascinating, describing the relationahsips among the key central bankers in the years leading up to the Great Depression. I recently finished reading The Myth of the Rational Market and am ready to read How Markets Fail. The book by Fox focuses on the idea of efficient markets in finance. It is good in that it describes the theory relatively well, and presents some interesting anecdotes about the famous economists and finance professors who developed and tested the theories. But, Fox rejects efficient markets, and is much more favorable to behavioral finance. For all the labors he goes through, his bottom line solution is, "It leaves us with a need to find ways to temper speculative excess while acknowledging that we won't necessariyl be able to distinguish speculative excess from an entirely sustainable boom." (p. 319). Very helpful. With that we should be able to have a bright and riskless future.
In skimming through the introduction to the book, How Markets Fail, the topic is broader than the stock market, but looks at people like Hayek, Friedman, and others who advocated free marekts as the best way to organize economic activity. Cassidy also discusses behavior economics, but seeks to offer a broader critique that he calls reality-based economics. He criticizes the Fed for not trying to pop bubbles earlier.
This last point is interesting because it is a topic the members of the Open Market Committee had discussed. It is also a topic in Lords of Finance. Benjamin Strong, who was President of the New York Federal Reserve Bank until is death shortly before the stock market crash, believed there was a bubble but that the means that would be used to pop it could cause a big crash and a depression. After his death, the key decision makers in the Fed tried to pop the bubble, and we had a big crash and a severe recession. No one knows what a concerted effort to pop the housing or stock market bubbles in 2005 or 2006 would have brought about. Perhaps a less severe recession, and perhaps just as severe a recession only sooner.
I also have not read The Cost of Capitalism, but Norris describes it as an attempt to exlain the importance of Hyman Minsky and to demolish neoclassical economics. I have recently read Minsky's, Stabilizing an Unstable Economy (no subtitle). I found Minsky to be difficult to read--not because the ideas or writing was difficult but because I found so much of it to be nonsense. He described the period from 1946 to 1966 as one in which the U.S. had a stable economic and financial system, and that it has become more unstable since then. The reason for the increasing instability is financial innovation. In the end, he calls for a much larger role for government to keep the system more stable. I suspect that Minsky would have argued that he paid more attention to historical realities than traditional economists. I am not sure that is true though.
Many people around my age (baby boomers) recall the time Minsky said was stable in nostagic terms. The U.S. economy was strong and American firms dominated the world's economy. This was the time period when things were normal. But this is false; it was a time of abnormality. World War II left Europe and Japan in shambles. It took time for these economies to recover and rebuild. It took time before they could compete with American business. The world economy became more normal in the sixties.
There is another historical dimension glossed over by Minsky--the actions the government was taking. Lyndon Johnson won the presidency with a huge mandate and a Democratic Congress. He pushed for more government involvement in the economy through things like Medicare and the war on poverty. Meanwhile, we also had an actual war in Vietnam than picked up steam. The resulting pressure on prices led to the Fed mostly accommodating the fiscal policy, but sometimes trying to reduce inflation. The end result was often a stop-start monetary policy that saw inflation and unemployment increasing. The continued conflicts in the Middle East and the new-found power of OPEC led to large increases in oil prices. U.S. labor markets experienced a huge influx of young workers as baby-boomers entered in large numbers, and as women began seeking long-term careers rather than jobs until marriage and children. Minsky makes no reference to any of these changes in the U.S. that surely had repurcussions on the stability of the economy.
So, I must disagree about the greatness of several of the books selected by Norris. (I'll offer my own list in a later post). But I would like to finish the lengthy post with one other observation. The Federal Reserve was created in 1914 after the turmoil of the Panic of 1907. The Fed was supposed to make such panics a thing of the past. Yet, twenty-five years later we were in the worst depression the country ever experienced. Many economists blame the Fed for the severity and length of the depression. If people followed the pattern of many books today--the recession we just had shows the bankruptcy of economics and of markets. One could have concluded with better justification for the argument in 1930 that the Fed failed so miserably that it should have been disbanded.
--Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World.
--Robert J. Barbera, The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future.
--Johan Cassidy, How Markets Fail: The Logic of Economic Calamities
--Justin Fox, The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street.
--Frank Portnoy, The Match King: Ivan Krueger, The Financial Genius Behind a Century of Wall Street Scandals.
--T.J. Stiles, The First Tycoon: The Epic Life of Cornelius Vanderbilt.
(Note that all six titles of colons and subtitles.)
I have not read the last two books and am not interested in them as far as the recent recession and financial crisis is concerned. Ahamed's book is fascinating, describing the relationahsips among the key central bankers in the years leading up to the Great Depression. I recently finished reading The Myth of the Rational Market and am ready to read How Markets Fail. The book by Fox focuses on the idea of efficient markets in finance. It is good in that it describes the theory relatively well, and presents some interesting anecdotes about the famous economists and finance professors who developed and tested the theories. But, Fox rejects efficient markets, and is much more favorable to behavioral finance. For all the labors he goes through, his bottom line solution is, "It leaves us with a need to find ways to temper speculative excess while acknowledging that we won't necessariyl be able to distinguish speculative excess from an entirely sustainable boom." (p. 319). Very helpful. With that we should be able to have a bright and riskless future.
In skimming through the introduction to the book, How Markets Fail, the topic is broader than the stock market, but looks at people like Hayek, Friedman, and others who advocated free marekts as the best way to organize economic activity. Cassidy also discusses behavior economics, but seeks to offer a broader critique that he calls reality-based economics. He criticizes the Fed for not trying to pop bubbles earlier.
This last point is interesting because it is a topic the members of the Open Market Committee had discussed. It is also a topic in Lords of Finance. Benjamin Strong, who was President of the New York Federal Reserve Bank until is death shortly before the stock market crash, believed there was a bubble but that the means that would be used to pop it could cause a big crash and a depression. After his death, the key decision makers in the Fed tried to pop the bubble, and we had a big crash and a severe recession. No one knows what a concerted effort to pop the housing or stock market bubbles in 2005 or 2006 would have brought about. Perhaps a less severe recession, and perhaps just as severe a recession only sooner.
I also have not read The Cost of Capitalism, but Norris describes it as an attempt to exlain the importance of Hyman Minsky and to demolish neoclassical economics. I have recently read Minsky's, Stabilizing an Unstable Economy (no subtitle). I found Minsky to be difficult to read--not because the ideas or writing was difficult but because I found so much of it to be nonsense. He described the period from 1946 to 1966 as one in which the U.S. had a stable economic and financial system, and that it has become more unstable since then. The reason for the increasing instability is financial innovation. In the end, he calls for a much larger role for government to keep the system more stable. I suspect that Minsky would have argued that he paid more attention to historical realities than traditional economists. I am not sure that is true though.
Many people around my age (baby boomers) recall the time Minsky said was stable in nostagic terms. The U.S. economy was strong and American firms dominated the world's economy. This was the time period when things were normal. But this is false; it was a time of abnormality. World War II left Europe and Japan in shambles. It took time for these economies to recover and rebuild. It took time before they could compete with American business. The world economy became more normal in the sixties.
There is another historical dimension glossed over by Minsky--the actions the government was taking. Lyndon Johnson won the presidency with a huge mandate and a Democratic Congress. He pushed for more government involvement in the economy through things like Medicare and the war on poverty. Meanwhile, we also had an actual war in Vietnam than picked up steam. The resulting pressure on prices led to the Fed mostly accommodating the fiscal policy, but sometimes trying to reduce inflation. The end result was often a stop-start monetary policy that saw inflation and unemployment increasing. The continued conflicts in the Middle East and the new-found power of OPEC led to large increases in oil prices. U.S. labor markets experienced a huge influx of young workers as baby-boomers entered in large numbers, and as women began seeking long-term careers rather than jobs until marriage and children. Minsky makes no reference to any of these changes in the U.S. that surely had repurcussions on the stability of the economy.
So, I must disagree about the greatness of several of the books selected by Norris. (I'll offer my own list in a later post). But I would like to finish the lengthy post with one other observation. The Federal Reserve was created in 1914 after the turmoil of the Panic of 1907. The Fed was supposed to make such panics a thing of the past. Yet, twenty-five years later we were in the worst depression the country ever experienced. Many economists blame the Fed for the severity and length of the depression. If people followed the pattern of many books today--the recession we just had shows the bankruptcy of economics and of markets. One could have concluded with better justification for the argument in 1930 that the Fed failed so miserably that it should have been disbanded.
Tuesday, December 22, 2009
Bad News and More Bad News
The government announced that the GDP figures for the third quarter have been revised downward again. (See WSJ article on it here.) The original estimate that was released in mid-October was 3.5% annual growth rate. It was revised down to 2.8% in November and now revised again to 2.2%. That is a substantial change in the figures. One thing it shows is that we should be cautious in our declarations about the strength or lack of strength of the recovery based on preliminary figures. A country hungry for good news in October jumped on the robust estimate. It is still positive growth, but more in line with the concern felt by many that unemployment will take a long time to return to levels we observed earlier in the decade.
Yesterday's Wall Street Journal reported that the decade of the '00s has seen the worst performance by the U.S. stock market for any decade, even worse than the '30s.
Hopefully, there is no where to go but up.
Yesterday's Wall Street Journal reported that the decade of the '00s has seen the worst performance by the U.S. stock market for any decade, even worse than the '30s.
Hopefully, there is no where to go but up.
Tuesday, December 15, 2009
Quo Vadis?
Two articles in yesterday's Wall Street Journal relate to concerns I have raised in this blog before. The first article talks about the federal government through the Department of Energy becoming the largest "venture capitalist" in the country. A small automotive firm, Fisker Automotice, Inc., ran into financing difficulties with plans to build a plant in Finland. With the help of the U.S. government, and Vice-President Biden, the company received funds and set up the plant in Delaware. (Evidently, VP Biden still is a senator from Delaware.) According to the article, the DOE will lend or give out more than $40 billion to businesses that work in "clean" technology.
The second article describes how Edward Montgomery, the auto-communities recovery czar, is able to cut through red tape to help auto firms redevelop abandoned auto sites. In particular, he has been able to get the EPA to expedite and alter its brownfied site-assessment program. Perhaps it is a coincidence, but the auto industry, in which the federal govenrment now has ownership stakes in two of the leading auto makers, is the main beneficiary of the czar's activities.
We are moving from an economic system that relied on private firms and initiatives to one that is becoming more dependent on government. Of course, we did not have a "free-enterprise economy" before January 2009--there has always been a lot of government involvement in the economy. But there still seems to be a difference now. I suspect government officials argue much of it is due to the recession. The same thing happened during the Great Depression, and much of the government involvement persists to today. Are we in for another ratcheting up of government guidance (control?) of the economy?
The second article describes how Edward Montgomery, the auto-communities recovery czar, is able to cut through red tape to help auto firms redevelop abandoned auto sites. In particular, he has been able to get the EPA to expedite and alter its brownfied site-assessment program. Perhaps it is a coincidence, but the auto industry, in which the federal govenrment now has ownership stakes in two of the leading auto makers, is the main beneficiary of the czar's activities.
We are moving from an economic system that relied on private firms and initiatives to one that is becoming more dependent on government. Of course, we did not have a "free-enterprise economy" before January 2009--there has always been a lot of government involvement in the economy. But there still seems to be a difference now. I suspect government officials argue much of it is due to the recession. The same thing happened during the Great Depression, and much of the government involvement persists to today. Are we in for another ratcheting up of government guidance (control?) of the economy?
Sunday, December 13, 2009
Tax Cuts versus Government Spending
Greg Mankiw's column in today's business section of the New York Times compares economic research on the stimulative impact of tax cuts relative to government spending. He cites research papers that find a larger impact for tax cuts, including work done by the President's advisor, Christina Romer. I know space is limited in a column, but I wish Mankiw had emphasized more the difference between temporary changes and permanent changes. As anyone who has had any microeconomics knows (or at least learned at one time) all elasticities are greater the longer the time period.
The stimulus offered while George W. Bush was still president was a tax cut, but a temporary tax cut. The effect was that most people used the tax cut to pay down debt or increase savings. I think these are good things, but they do not stimulate the economy. Similarly, increased spending that is know to be temporary in nature will not have as much effect as an increase in spending that should last a long time. If a firm wants to take advantage of a temporary increase in spending, it will not make long-term investments as part of the process. If the firm believed the spending might be available for many years, it would respond in a different manner. One of the reasons tax cuts provide more stimulus when the cuts are expected to be permanent, or as permanent as anything can be that involves the government, then there is both a spending effect and an incentive effect. The latter is not in place for temporary tax cuts or rebates. Probably the worst think Keynes ever said was, "In the long run, we are all dead." But time passes and constant focus on the short run leads to ad hoc measures that lead to more measures later on.
The stimulus offered while George W. Bush was still president was a tax cut, but a temporary tax cut. The effect was that most people used the tax cut to pay down debt or increase savings. I think these are good things, but they do not stimulate the economy. Similarly, increased spending that is know to be temporary in nature will not have as much effect as an increase in spending that should last a long time. If a firm wants to take advantage of a temporary increase in spending, it will not make long-term investments as part of the process. If the firm believed the spending might be available for many years, it would respond in a different manner. One of the reasons tax cuts provide more stimulus when the cuts are expected to be permanent, or as permanent as anything can be that involves the government, then there is both a spending effect and an incentive effect. The latter is not in place for temporary tax cuts or rebates. Probably the worst think Keynes ever said was, "In the long run, we are all dead." But time passes and constant focus on the short run leads to ad hoc measures that lead to more measures later on.
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