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Tag Archives: economics

A new post on the environmental economics blog tries to link environment with economics. Like explained there, many environmentalists believe economics is somehow driven by concerns that are contrary to environmental goals.

The article argues that many current economists are very much concerned with environmental issues, even if they might have different approaches.

Of course economists don’t agree on everything, and there is always some economist hack at one of the rightwing “think tanks” who will put forth an outlandish idea—but by and large the most well-respected mainstream economists are squarely on the side of environmentalists.

Something I would like to add to the conversation, the origin of economics is actually founded in environmental concerns. Adam Smith was a professor of ethics, and the main argument of The Wealth of Nations was that free markets can maximize the productive use of resources. What is more environmental than that?

Over time, I have become more and more convinced that much of Keynes’ teaching has distracted the world from the true goals of economics. Keynes’ teachings tell us we should direct policy toward maximizing economic growth and employment.  As a primary goal, that distracts policy makers from the true goals of economics, the efficient use of resources for producing what we need and want.

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Today the business news is full of stories about new techie products coming out on the market. Google introduced a new phone Tuesday, Sony is coming out with some new laptops, ATT is offering five new smartphones, and cars are starting to be built with computers and monitors in the dashboard. And–oh yeah–several companies are coming out with 3-D televisions.

I read a couple of these stories and began thinking it was all a bit much, the market is saturated and little of this really represents a new technology for consumers.

Then I remembered I am an economist as well as a pessimist, and I realized how great all of this is. Saturated market? It is called competition. Little new technology? More competition. What to expect?

You know the model. New firms enter the market, typical firm’s market share decreases, prices go down, and profits decrease. As potential customers, you and I know the part we like best.

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This is a great article and a must-read for economics students. The title–Markets fail. That’s why we need markets–pretty much tells the story, but you need to be at least slightly familiar with market economics to understand.

 The article begins by describing the never ending macroeconomic debate–classical market theory, where the market can do no wrong–vs. interventionist theory, where government is needed to prevent market imbalances.

markets are unpredictable, prone to booms and busts, characterized by bouts of exuberance that are rational or irrational only in hindsight.But markets are also the only reliable mechanism for sorting out this messy process quickly. In spite of the booms and busts, markets drive genuine long-run innovation and wealth creation. 

When governments attempt to impose order on this chaotic and inherently risky process, they immediately run up against two serious dangers. 

The first is that they strangle new innovations before they can emerge. Thus proposals for a Consumer Financial Protection Agency, a systemic risk regulator, a public health insurance plan, a green jobs policy, or any attempt at top-down planning may do more harm than good.

The authors claim that both sides of the debate are wrong and that a new view is taking hold–market economics is good because it allows failure.

I would argue only that this is not new at all, but has always been a part of classical theory, at least since Carl Menger and the rest of the Austrian school.

I was intrigued by this, though it is a bit of a stretch to say this is really an economics story–Aussie scientists find coconut-carrying octopus.

Well–sure it is economics–how do we use resources to best advantage? What to do with discarded coconut shells?

Live in them of course.

This is obviously a learned behavior, so it is also interesting to consider how long the discarded coconut shells have been available. As many octopi are using them, they must have taught one another about how best to use the shells.

co2Another editorial on Cap and Trade. This little debate has been going on a long time, and is not likely to end soon. We should limit carbon emissions and let people pay for it, or just tax carbon?

If your neighbors were making a terrible racket, would you offer to pay them to stop?

Of course not.

Sure, they’ll stop today. But they’ll soon be clamoring for more payments.

One of the major features of the Waxman-Markey cap-and-trade bill – the ambitious climate change legislation recently passed by the House – offers just such payments. It pays polluting countries not to pollute. And, as with the noisy neighbor, this will just encourage a continuing racket.

The authors go on to argue that expecting cooperation from countries like China and India is unrealistic, and enforcing cap-and-trade will be impossible.  A tax would be more practical.

But will a tax not require cooperation? And do you really think the US is likely to pass a new tax on things like gasoline and heating oil? It will never happen, especially if other countries are slow to sign-up.

And I am still tired of Americans putting the onus of climate change on the developing world. Americans, per capita, are still, easily, the worst polluters anywhere.

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mankiwGreg Mankiw has published a new article about the slightly changed curriculum in his introductory economics courses. Here is the list–

  • the role of financial institutions
  • the effects of leverage
  • the limits of monetary policy
  • the challenge of forecasting

As mentioned, the role of financial institutions and monetary policy are already included in most introductory macro courses, but he argues here that they need more emphasis now because of the important role of financial institutions in bringing the current crisis.

I have always thought that most introductory courses suffered from a lack of  economic history and thought, including Marx, one of the most influencial economists of all. It is embarassing that a student might study economics with me for two years and–sometimes–never hear Marx mentioned. Contrary to many, I think Marx is becoming more and more relelvant as incomes and wealth continue to become more and more concentrated into the hands of a small percentage of the world’s population.

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quizFun little quiz here put out by the NYTimes. I have not finished yet (4 out of 4 so far) but it looks like all the questions are on macroeconomic policy. Apparantly the questions are all taken from old  advanced placement exams.

Please post your results!

familyFound a new economics blog with an entry today about the difference between causation and correlation. The author writes of an advertisement she saw from a food producer. They claimed that kids from families that eat dinner together get better grades in school. Of course there are lots of reasons some kids do better in school, and some of those reasons might also be correlated with eating dinner with the family.

This correlation-causation mistake happens commonly, like an advertisement I see regularly when checking my email. They say that kids who try alcohol before age 15 are three times more likely to become problem drinkers as adults. They want you to talk to your kids about drinking before this happens. Of course there are lots of reasons for problem drinking that might also be related to the likelihood of a kid drinking at a young age–not much supervision, over-active sense of adventure or curiosity, an unattractive personality.

What? You gonna pull your ten year old aside and tell em not to drink? Naaah. Better to have dinner with them.

08nudge_190The NY Times–curiously–has chosen to publish an article about behavioral economics. Titled When Humans Need a Nudge Toward Rationality, the article describes the work of an economist and a law professor, developing a field of study they call libertarian paternalism.

The story begins by describing a behavior experiment in The Netherlands where images of flies were placed inside urinals. Turns out that spillage was reduced cause guys like to aim at the flies.

So these guys want to promote their libertarian paternalism as a way to get people to behave better–“save more, eat better, weigh less, invest more sensibly, pay down debt, avoid hazardous mortgages, drive safely and wear bike helmets.”

They claim that libertarian paternalism is not the oxymoron it apppears to be, as people remain free to choose what they do. Their paternalism is only a nudge in the direction that is best for society.

The sour taste in my mouth comes from the idea that someone else decides what is best for me. It tastes a little sweeter when I remember that I can still choose to resist the nudge and do what I like.

If you find this interesting, there is a blog you can visit, here–nudges.wordpress.com