Not much has been covered on the Buddhist monk demonstrations for democracy in Myanmar. They took to the streets starting about a week ago. The military junta let them protest for a couple of days then started a major crack down.

Curfews have been instituted - anyone on the streets after dark are shot. If you need emergency medical treatment, you not only have your medical problem but you also risk disappearing if shot. Unlike the rights driven west, rights mean nothing in a thugacracy.

One of my friends is from Myanmar. The name will be omitted to protect him/her. However he/she has not been able to contact family members for a few days now. Internet access has been severely restricted; phone calls are monitored. My friend says there are far more murders than reported in the press - the military junta shoots people, then removes the bodies - no trace, no way for any international rights organization to document. Family members won't know the status of loved ones for years, perhaps, never.

He/she says he/she prays every morning, Buddhist prayers, for the family. I mentioned, we remember the family in our prayers.

Buddhists, Christians, Jews, even Hindus can find a way to pray for others without demanding submission to their respective belief system. Food for thought.

Labels: Freedom

I support and practice many types of socialist programs including income redistribution, welfare payments, disability support, free health care, and social saftey nets. But I only practice socialism IN MY OWN FAMILY; and socialism like this only works when you know the names of the people involved. In any situation when you personally can't name everybody involved, then the market is superior to socialism.

--Walter Williams, via Mark Perry.

I was listening last week to an interview Ed Morrissey did with Matt Bai, who had written about the progressive movement's funding by billionaires. Why, they wondered, do George Soros, Pierre Omidyar and other super-rich people support creating socialism when their riches were gained in the market?

My answer: Because they have the cell phone numbers of the political leaders. They're family.

Janet adds: Reason billionaires on the left support socialism include: 1 - because they are so wealthy, they think they are smarter and better than the rest of us and therefore, should tell us what to do; 2 - it gives them control over us - they are so wealthy taxes mean nothing to them so they push socialism and its related control and taxes on the middle class, thereby, destroying the middle class. The wisdom of crowds concept results in the betterment of all mankind - this idea threatens them. 3 -some get their kicks by creating chaos and instability (which they can with this much money); people react with fear. The billionaires sit back, chuckle and take control. Frankly, this attitude is not a positive development for the planet.

Labels: economics

This is cute, but I still prefer this. The latter has an RSS feed to which I have a real addiction.

I am taking some radio interviews this AM after release of today's Quarterly Business Report. The letter 'R' in the headline (you won't see it in the online piece, but they have "The R-Word" in big letters above the fold in the print copy -- I could not look at it during breakfast) is about half the front page. Every other quarter the paper has run this story on a Sunday, so it was a surprise to see it today, but I guess the news value of what we said was enough to move it up.

One thing to note: The survey period was right at the height of the subprime mortgage crisis, but the data we collect outside of the survey was taken before it. The survey is not used in the probability estimate.

The new report in full should be up here shortly; I don't have a final copy myself yet.

UPDATE: The number one comment I see (for example, here) is that a 40% chance of recession means a 60% chance of there not being a recession. Yes, that's quite true. But the history of economic growth since WW2 is that expansions last 57 months and recessions last ten months. A 40% chance that we're in recession six months from now is thus much more than what you would expect just by chance. That's enough of a signal to tell me something important. It's also why a signal of 20%, even though it's pretty unusual with the model we're using, doesn't really trip my trigger.

Also, reading this new note from the Dallas Fed says something similar to what we're saying about the local economy:

Two decades ago, keeping tabs on shifts in investment spending and consumer durables purchases was crucial for understanding swings in GDP growth. Tracking shifts in investment spending remains critical, but changes in household spending on nondurable goods are now more important than movements in consumer durables. Meanwhile, the fraction of jobs growth volatility attributable to firms in professional and business services has risen to the point where this sector has become the largest contributor to short-run swings in aggregate jobs growth.

Thus the fact that local manufacturing has held strong isn't as indicative of economic strength as it might have been twenty years ago.

Labels: economics, St. Cloud

In some ways, when a city or state lowers its excise tax rates it benefits from having taxes paid by those who live in other cities or states. The states losing tax base don't like this. In the EU, you get discussion of "tax harmonization", which is really a code for stopping tax competition. It happens in the States too. Ed Morrissey talks about Tennessee's attempt to stop the loss of its cigarette tax revenue by posting police on its borders looking for Tennesseans coming back from neighboring states with a few low-tax cartons.

My experience as a former New Hampshirite living near Massataxes, I mean, Massachusetts is that surveillance happens pretty often. Someone in Ed's comments mentions the battle over liquor taxes between the states, as NH sells spirits in state-run stores often placed strategically along its borders. But "Tax-Free NH" doesn't have a sales tax on clothing either, and the southern half of the state is full of malls with parking lots full of cars with Massachusetts plates. Ditto Bangor, Maine, with cars from visiting Canadians escaping the GST.

How big an export is it? One estimate I've seen suggests more than 10% of beer taxes paid in NH are paid by out-of-staters. I don't know what it is for the sales tax, but it's enough to get MA border businesses to lobby for tax-free weekends. If Tennessee really wanted to stop exporting its cigarette consumption over the border, it could do the same.

Labels: economics, taxes

When I worked in Ukraine it wasn't unusual for there to be problems with small change in retail transactions. Indeed, more than once I got a stick of gum for change in lieu of, say, 1000 karbovanets (would would have been $.006). I took the gum, never chewed it (I could only imagine what would be in my mouth), and never could pass it off as Krb 1000. I suspect I mostly threw them away. That's a loss.

Frank Stephenson today writes of a small currency problem in Guatemala that was due to government error. A friend of his in the country wrote:

Last year -nearing the Christmas season- the Banco de Guatemala (our central Bank) acknowledge to the embarrassment of it's authorities that it had run out of cash (due to bad planning, really). You can imagine that a large portion of Christmas sales in Guatemala are transacted in cash so the ineptitude of the central bank caused a mini-crisis specially in rural areas. The Banco de Guatemala did not acknowledge this but I know that they were purchasing Q20 bills for up to Q40 and Q50 (!!!). Somebody made a bundle out of this mess.

There was a period in Ukraine where the public phones needed coins that were worth maybe Krb 10 at a time where Krb 40,000 bought US $1. (Note: the karbovanets was Ukraine's temporary currency in the early 1990s, replaced by the hryvna in 1996.) The coins were worth far more for the metal than their exchange value, so they became scarce. But you needed them for calls, so babushkas would trade them at 15-20 times their face value. Some complained of this 'profiteering', so the government -- which owned the phone company still -- simply made public phones free. Result: babushki impoverished, and the phones soon neglected, broken and vandalized.

Tyler Cowen noted a few months ago that this phenomenon of small currency shortages is pretty common. Recommended therein is this book by Tom Sargent and Francois Velde, reviewed by Art Rolnick and Warren Weber at the Minneapolis Fed. But those stories apply mostly to token money (coins made of base metals worth much less than face value), not the paper currency Stephenson describes.

One thing I learned from gum money in Ukraine -- I used to try to buy beer on the street there (the local brand was Obolon', actually quite good in unpasteurized form if fresh), which came in both 0.33l and 0.5l bottles. I like the smaller bottles -- bring two home, one with dinner and one in the fridge for later, not too much for an evening. Alas, they are Krb 80,000 at the time and the seller didn't have change. (Gum and beer, not good.) The bigger ones? Miraculously, 100. Easier to buy those and just not finish the second ... though sometimes I did. Maybe more than sometimes...

Labels: economics, money, Ukraine

I have a couple of notes to pass along.

At various conferences over the years I have run into Kevin Grier, a fine economist and econometrics helper to many. He's currently at the University of Oklahoma, and has now taken up blogging with the revived Mungowitz End Kids Prefer Cheese. This is doubly good news, as you now get two great senses of humor combined with a taste for solid economic and political analysis ... and it means Munger is back! Added to my blogroll, it should be for you too.

Second, I had the pleasure of interviewing Tim Taylor, managing editor of the Journal of Economic Perspectives and someone interested in teaching principles at all educational levels, a few years ago. He's been working on a textbook recently that is sold through Freeload Press (I discussed them back in 2005). It's now ready for use. I was just noting with students this month that the cost of textbooks in my class, even for an electronic-only copy, is $60 -- much better than the $140 you might pay for a new print copy but still more than a tank of gas. Tim says you can buy an advert-free copy for $30, so the cost reduction is pretty good -- or you can look at a .pdf with some ads for free.

Labels: economics, higher education

Edward Hugh is wondering whether ECB President Trichet is even paying attention to what is going on with the euro.

So this is the point. We are soon going to be into declining rates at the ECB, and then what is going to happen to euro/dollar. I ask you? Are the markets ready for this?

Even ECB-adviser and hawk Joaquim Fels now has the current ECB rate as neutral, and of course, if the fundamentals are deteriorating, neutral quickly becomes “overtight”. No wonder Trichet is hard to find at the moment.

And yet at Eurozone Watch we see the EURIBOR rate has taken off. That may account for short-term euro/dollar appreciation as much or more than anything else. The ECB has no mandate for anything other than price stability, and how it defines that is its own decision.

As to Edward Hugh's comment, I point out Stephen Kirchner's comment that "fixed exchange rates wrecked havoc by transmitting economic shocks, including monetary and fiscal policy mistakes." If the US and Europe have had different reactions to the shock of the subprime mortgage meltdown, what would you prefer to adjust if not the exchange rate?

"Yes, King, but have they?" Damn good question to which I don't have a good answer. It's not as if the euro/dollar appreciation is anomalous from the US' point of view.

Labels: economics

One thing about deciding to be an academic as well as an economist is that you find out the university is populated with people nothing like you at all. I conclude this after reading the lead article in the Chronicle of Higher Education, (subscribers' link, temp link) this morning on the reaction to Columbia President Lee Bollinger's handling of the Ahmadinejad invitation by the school's own faculty.

But for many professors at Columbia, Monday's event also revived their impression that Mr. Bollinger had bungled earlier free-speech controversies on the campus and fallen short of his own billing as a staunch advocate of the First Amendment.

"Free speech is what he's been famous for throughout his career, although occasionally he hasn't been true to that part of himself," says Philip S. Kitcher, a professor of philosophy. "This time he was. This is the kind of guy we thought we were getting as president."

Still, Mr. Bollinger faces a host of questions in the wake of the speech by Iran's president, Mahmoud Ahmadinejad.

By using his introduction to castigate the Iranian leader before Mr. Ahmadinejad even had a chance to speak, some professors argue, Mr. Bollinger was not only rude but undermined his own ideals of free speech and academic freedom. And while his withering remarks may have made him look courageous, some academics believe that he misused his role as a university leader. Mr. Bollinger's own words had the effect of aligning Columbia with U.S. foreign policy against Iran, some faculty members believe. And as a result, the university president may ironically have devalued the views of those on his own campus who disagree with that policy.

"His were not intellectual statements; they were political statements," says Gil Anidjar, an associate professor in the department of Middle East and Asian languages and cultures. "He has enlisted the university in the rhetoric of war and brought the power and weight of an institution into the debate. Those of us who disagree are only individuals and don't have that power."

Pause on this sentence a minute:

Mr. Bollinger's own words had the effect of aligning Columbia with U.S. foreign policy against Iran, some faculty members believe.

Now let us read from Mr. Bollinger's introduction. Recall, as I said yesterday, the decision to bring Ahmadinejad to Columbia is for the students' education, not to somehow change Iran. Does it further the students' education to ask Ahmadinejad to answer questions about imprisoning scholars, funding terror, building nuclear weapons and fighting a proxy war in Iraq? I do not think he did it particularly well, but I am willing to think it could have been done well.

But the people in the academic sphere I work in do not even want to give him that chance.

Stanley Fish, a legal scholar who served as dean of the College of Liberal Arts and Sciences at the University of Illinois at Chicago, says Mr. Bollinger unwisely heightened the stakes for himself and his university. "By seizing the reins, he set this up as King Kong versus Godzilla," says Mr. Fish. "I was a little surprised to see him inserting himself into this event in an aggressive way."

Stephen Joel Trachtenberg, who served as president of George Washington University before stepping down in August, says Columbia doesn't need the kind of publicity that the Iranian president's speech drew. And he believes that Mr. Bollinger failed to justify the invitation by making use of Mr. Ahmadinejad's presence to push Iran to advance peace initiatives. "I don't think Columbia got value for the exposure," says Mr. Trachtenberg.

Unfortunately presidents worry too often about publicity and not enough about what their students are learning. It is intriguing that in its coverage, the Chronicle chose not to interview a single Columbia student.

Labels: higher education

Long-time friend of this blog Linda Seebach is blogging herself now, and in this post tells us why the claims that Minnesota is doing so well on standardized tests are missing the point.

Every two years, the NAEP tests a national sample of fourth- and eighth-graders in reading and mathematics (see http://nationsreportcard.gov/ for details). White and Asian students score significantly higher on this and similar tests, and so do more affluent students. The reasons are hotly debated, as are the potential solutions, but that is a different debate.

Results are reported as scaled scores on a single yardstick, so that, for instance, the average score for fourth grade reading is 220 and for eighth grade reading 261 (math, 239 and 280, respectively).

Scaled scores for black and Hispanic students are 25 to 30 points lower than for white students, depending on the test. Those are big differences, the equivalent of two to three grades — the visible sign of the achievement gap you hear so much about.

NAEP’s charts show states as green if they’re above average, yellow if they are not statistically different from average, and red if they are below average. Overall, Minnesota is refreshingly green on all four tests.

But look at black students separately, and Minnesota is dull yellow average on all four tests. Likewise, it is average for Hispanic students on all four tests. For white students, it is above average statistically on three of the four, but by only a few points. The state owes its high ranking primarily to the fact that it draws a larger proportion of its students from groups that on average score higher.

Income probably matters as well as family size. Linda correctly gets the idea of ceteris paribus; NAEP report cards, not so much.

Labels: education

At True North, the Policy Guy explains the importance of one of the fundamental lessons of economics:

What we have in single-payer systems … or at least any single-payer system that incorporates enough of the population to have market power … is an attempt to allocate resources without prices. When you don’t use prices, you end up—when government is the purchaser—using politics. And with that comes rationing, political favoritism, misplaced priorities (bridges to nowhere), and a host of other ills.

All scarce goods must be allocated somehow. If you won't use price to do so, then it's first-come-first-served, or equal shares, or some other rationing mechanism. Price allocates according to who is willing to sacrifice the most to get it, using a widely-accepted medium of exchange. If willingness to pay doesn't work for you, tell me please what does.

Labels: economics, health care

I think this post by Drew Emmer may have nailed it better than we thought.

When Larry Pogemiller took "buffer language" out of the disaster relief bill during the amazingly polite one day Special Legislative Session the only folks with a clue about what he was doing were a very few leaders in the House, Senate and Governor's office. Remember, nothing was allowed in or out of that $157 million emergency funding bill without the consent of Margaret Kelliher, Larry Pogemiller and Tim Pawlenty.

...With the gavel adjourning the Special Session still echoing in our ears our politically astute Governor took to the airwaves to voice his concern about the possibility that Uncle Sam may end up being tardy in the delivery of the $250 million Congress pledged to rebuild the bridge.

So if you are concerned about the feds timeliness with the bridge dough, why did you allow Larry to remove the language that would allow MNDOT to act as the funding buffer until the federal cash was indeed transferred?

The reason, I suspect is that the transportation bill in May empowers a special Legislative Advisory Committee to move forward second-year monies to the first year of the biennium (Sec. 3, Subd. 9) "for trunk highway design, construction, or inspection in order to take advantage of an unanticipated receipt of income to the trunk highway fund or to take advantage of federal advanced construction funding" as well as "for trunk highway maintenance in order to meet an emergency."

This has set of a political debate that now has gone public, with the governor's office issuing a press release asking the DFL leadership to "put politics aside and do the right thing by granting the spending authorization to deal with this emergency situation.” This afternoon, the battle escalated as the DFL went into hostage-taking mode:

Several Democratic legislators today asked Republican Gov. Tim Pawlenty to fire his transportation commissioner, Lt. Gov. Carol Molnau, for mismanaging her agency.

More importantly, the DFLers said, if Pawlenty doesn't dump Molnau, they will.

If she remains in office when the Legislature reconvenes Feb. 12, Senate Transportation Committee Chairman Steve Murphy, DFL-Red Wing, said he would move within three days to have the Senate reject Molnau's confirmation as head of the Minnesota Department of Transportation. "We have the votes to reject her confirmation," Murphy said at news conference below the rusting Lafayette Bridge near downtown St. Paul.

A negative Senate vote would remove Molnau from her MnDOT post, but she would continue as lieutenant governor.

"Gov. Pawlenty is not going to fire Lt. Gov. Molnau," the governor's spokesman, Brian McClung, said. "We've heard these kinds of calls from Senator Murphy multiple times in the past, and we are hopeful he'll be able to move beyond the personal attacks to work with us together to find a compromise, comprehensive transportation plan."

The question is, was there an agreement on the buffer money before the special session, and why wasn't it in the bill that passed? While you were passing the $53 million that was in the appropriation, why not get the authority at the same time? Was it ever in there? I have checked the Senate and House websites and see no evidence. I will be asking questions of people throughout the rest of this week about this, which may be the story that dominates state politics the rest of the year.

I'm a little nervous about McClung's last line about "compromise, comprehensive transportation plans;" down that road lay tax increases.

Labels: legislature, Minnesota, politics

Governor Pawlenty has a brand new program for rural economic development. Leo Pusateri at True North details what's in the Strategic Enterpreneurial Economic Development program, or SEED. Part of the initiative has the usual attempts at leveraging informational advantages governments have, so it creates trade shows and an Office of Entrepreneurship. That sort of thing may or may not help businesses, but at $2.1 million proposed it's small beer.

But the plan also creates a set of tax credits and micro-lending initiatives for rural businesses. Micro-lending is a fad in international development, even to the extent of creating a network of private loans from households to the developing world. But are we really to believe many entrepreneurs in Battle Lake, say, are being inhibited by not having a bank lend them $20k when they have a solid business plan? And should the government give a 25% tax credit to someone who invests money in an "angel" fund? These things are becoming a bit of a fad in economic development. The tax credits go to people with high net worth -- those are the angels -- and thus will be subjected to a good deal of demagoguery by the Left.

Likewise, SEED expands on JOBZ by adding grants for developing main streets and infrastructure in rural Minnesota. I've noted before that JOBZ is more about job- shifting than it is job creation. But even if the money was attractive, do we think the population drain in outstate Minnesota is going to be solved by an extra $70 million in loans and grants? That strikes me as unlikely to make much of a difference.

All this, of course, is an attempt to deal with the disappointment that both Republican and DFL leaders have had with the impact of JOBZ on outstate Minnesota counties. (Notice the targeting of SEED to rural MN.) In floor debate in the Senate last March,

[Senator Tom] Bakk said the eventual elimination of the Job Opportunity Building Zones (JOBZ) program is an admission of error on his part. Bakk was the Senate sponsor of the proposal four years ago. The program was intended to help economically depressed communities across Greater Minnesota, he said. Reports from the Dept. of Employment and Economic Development have indicated that economically depressed communities have not benefited, he said. Bakk said he has learned that the business tax climate has very little to do with a business’s decision about whether to expand or relocate in the state. The real obstacles to economic development are transportation, workforce availability, and other infrastructure matters, he said. (Link added.)

It's worth noting, by the way, that the Legislature is doing a review of JOBZ, with a report due in February. It will be very interesting to see how that review affects the chances of the Legislature's approval of SEED.

Labels: economics, Minnesota, Pawlenty

I confess to be a little troubled by the Columbia University invitation to speak extended to Iranian President Ahmadinejad. If you invite an outside speaker to campus it is because there is an educational value for your students provided by the speaker. Columbia could make such a decision, and if so it should stand by it. I waited to speak until now because I wanted to see if Columbia could find a way to show the educational value derived from the invitation. It did not.

The American Association of University Professors has a statement about outside speakers, and this morning its president Cary Nelson sent an email to the membership.

What happens if taxpaying citizens, state politicians, or important donors demand that the president cancel a planned speech? University presidents, who have many constituencies to please, may find this a difficult situation. Matters can become very complicated if different groups make contradictory demands. Satisfying one group may offend another. That difficulty can be avoided if a president does the right thing by defending academic freedom and the university’s unique role as a place for ideas to flourish and to be exchanged. A president is not responsible for defending a speaker who has been properly invited by an authorized student, faculty, or employee group. Authorizing these groups to invite outside speakers that are of interest to them is an important way to sustain a vibrant campus intellectual life. Such a practice can be supported by all campus constituencies.

This reasoning holds true even when virtually everyone disagrees with an invited speaker. Students might at one time have invited an American Nazi Party representative to speak. The invitation might have sought to give the campus direct experience of a position all considered abhorrent. Once again, we should not assume that invitations represent endorsements. We should also give some credit to our student audiences. They do not need to be protected from outlandish ideas. They do not believe everything they hear, and they are on campus to learn to think critically.

Revulsion at ideas or fear of them is understandable, but ideas are best answered with thought and conversation, not with censorship. That is nowhere more true than at a college or university.

What I found very disturbing was Columbia President Bollinger's introduction of Ahmadinejad. This was not thoughtful nor was it conversation. It was moralizing at its most crass; it spoke volumes about Bollinger's conviction of his own decision to invite Ahmadinejad and not a bit about the Iranian president. The braver thing to do would have been to let the Iranian president speak first and then respond, being prepared to counter whatever was said. Had Bollinger any faith in the quality of the education Columbia's students were getting, he could have relied on them to ask good tough questions, and to have a context for real conversation. Alas, there was no conversation and by the liveblog done by the Columbia Spectator, no real engagement. Perhaps he knew the students were not prepared.

Bollinger instead demeaned his own reputation. He stooped to Ahmadinejad's level. He displayed, as Hugh Hewitt said so well yesterday, "cluelessness combined with epic self-importance." He wrestled with a pig, and the dirt on his career will not wash off.

UPDATE: I read Bret Stephens over lunch. I think it arrogant of anyone to think that bringing Ahmadinejad or Hitler or anyone else to campus would be edifying for the tyrant. But that's not the university's goal. Its goal is to educate the student, for the student to look pure evil in the face and recognize the soft words behind which it hides. Chiding or admonishing Ahmadinejad, as Bollinger tried to do, only makes the university appear the fool.

Labels: higher education

This made page one of our newspaper:

People will lose weight for money, even a little money, suggests a study that offers another option for employers looking for ways to cut health care costs.

The research published in the September issue of the Journal of Occupational and Environmental Medicine found that cash incentives can be a success even when the payout is as little as $7 for dropping just a few pounds in three months.

After reading Tyler Cowen, I think perhaps the fact that it is only $7 is part of the reason for its success. You can reward too much. But then the article says those who had a higher payment lost more weight. So what else helps? I think it is peer pressure:

Plant worker Vonderahe Rivera said the financial incentives offered by her employer have helped her lose a total of 50 pounds and keep it off. Over the past five years, the O'Fallon, Mo.-based VSM Abrasives, which makes sandpaper, has been rewarding its 125 employees with cash for trimming their weight and an extra day off each year if they don't gain it back.

"The money is great and the day off is great," said the 51-year-old Rivera.

This year, she lost 25 pounds and got $125 when her employee team reached their weight-loss goal. She used the money for some new outdoor furniture. Being part of a group also keeps her motivated, Rivera said.

A local firm here in St. Cloud has a set of five things one can do for health -- do them, and your health insurance premium is reduced, more the more of the five you do. The firm isn't too big, though, and I wonder if the knowledge of who did what is a positive motivation.

Labels: economics, health care

The cost of delay is almost always larger than people think. Take for example Social Security. Andrew Samwick highlights a new report from the Treasury Department. In short, it says that if you wait to solve Social Security you get both the problem of baby boomer retirements being a larger share of the public and lower fertility rates leaving us fewer people to tax to pay Social Security benefits. The report puts a figure of $13.6 trillion -- about one year of GDP -- on the present value of the shortfall in Social Security over an infinite horizon. (You often hear a smaller number of about $5.1 trillion, but that only gets you to about 2080, and then you have to fix the problem again.

So what does it take to fix the problem? The report says if you were to not touch the current recipients of Social Security and only pay for the problem by increasing payroll taxes, you could take care of the permanent issue by a payroll tax rate increase of 3.5% (from the current 12.4% to 15.9%.) If instead you were to pay for it by just cutting benefits, the reduction today would be a little more than 20% of benefits. Obviously a combination could work as well. But if you wait until 2041, when the current $2 trillion surplus in Social Security would be exhausted, you would have to raise the payroll tax 5.8% or cut benefits 30%, or some combination of the two.

Of course, chastened by the Bush experience with the issue in 2005, don't expect to hear these solutions brought up in the elections next year. But those data do help us understand the cost of delay.

Labels: economics

I have posted some thoughts on these over at True North.

Labels: Minnesota, politics

I can't add to James Hamilton's explanation. I said it before, but the professor provides the evidence that the bump in liquidity really was short-term. The take-away:

This is not to insist that concerns about higher inflation are unfounded. But, if one wanted to motivate such concerns from a monetarist perspective, one could not point to money that has been printed so far. Instead, the story would have to be that, in order to achieve the path for the fed funds rate that the Fed is now likely to set for the following year, the Fed will eventually need to add more reserves that do end up as more cash in circulation. In this scenario, markets have been reacting to an anticipation of future money creation and not to something that has already happened.

Dani Rodrik has tried to determine if there's much of a relationship between economists who blog and those who are doing good, useful research in economics. The short answer is that the relationship is positive but only because the top ten economist-bloggers include three U. Chicago bloggers (Levitt, Posner and Becker), the very prolific Brad DeLong, and a passel of George Mason economists (is a blog required for tenure there?). Take those out, he says, and the relationship pretty much disappears.

Somehow this blog, #20 on Aaron Schiff's list, didn't make Rodrik's sample. I doubt I'd have changed the correlation, but for the sake of completeness, here's my Google Scholar page. I don't know what he used for the ranking of citations, but my guess is I am a little below the median of the group.

Labels: economics, higher education, SCSU

I was wandering through Minnesota blogs a few nights ago and stopped by Charlie Quimby's site to see a post titled "Free Market Censorship." I considered that an oxymoron (this is currently Littlest Scholar's favorite word -- a 13-year-old's life apparently gives many opportunities for its use) and said so in his comments. He has responded with a second post that contains a little derision for my view. Allow me to explain this to my readership a little better.

Charlie first complained that when he forwarded email that was "anti-war, pro-environment progressive" to a group of his friends, some did not receive them because "AOL subscribers and users of "free" email services such as Microsoft-Hotmail and Yahoo" were having that email filtered out by those providers. I suggested it was not for him to complain. Those services do not have a duty to him as a sender but have some duty to the recipient, since they are the ones who sign a contract with the service providers. Charlie checked out the AOL contract and thought AOL had a great deal of rights retained to deliver or not deliver mail.

So what? Subscribers have the right to not subscribe. They can go to other sites or buy their own ISP services. The filter on email to this domain is set by me, for example, and the cost of this site is less than the cost of an AOL subscription. People buy AOL, or use Hotmail and Yahoo, because they require less work and knowledge of the internet than buying your own domain. You're free to make that trade or not. And if you are a subscriber, you can choose as well to complain to AOL or Microsoft about their policies. This is an example of Hirschman's concepts of exit and voice to describe dysfunction in a relationship.

But as long as exit is possible, in what sense are you censored?

A little sidetrack: Yesterday in the St. Cloud Times, editorial page editor Randy Krebs announced a new policy on letters to the editor regarding candidates for political office. The new rule:

For submissions that cite an incumbent’s vote on specific legislation, the author must provide documentation from a reputable source that verifies the vote. That documentation can be a newspaper article, minutes from a meeting or even a link from a credible Web site that tracks such votes. (Examples include links to the appropriate files on The Library of Congress or the Minnesota Legislature’s Web sites.)

Who's Krebs to decide what's a "credible web site" or "reputable source"? Well, he's the person designated by the paper's owners to decide what's on the editorial page, that's who. When he sends back a letter and says "I don't think your source on this is reputable", you have no right to demand your letter be published. You may complain, and you may publish it on a blog, and you may denounce the policy. But you don't get to tell a private newspaper what is to be published on its pages. You can't, and because of the First Amendment neither can the government.

(Note: With this policy the Times can no longer really say it publishes all letters, and it has opened itself up to criticism of applying the standard unequally to conservative or liberal letters, to Republican and Democratic letters. That's their problem, though, and I think we can assume they've evaluated that problem versus the problem of unfounded claims in letters and the barrage of responding letters that ensue, and decided this was how to handle that problem. Again, they're a private entity, and that's their right.)

Many years ago I read an essay by Mark Skousen in which he highlighted a passage from Alfred North Whitehead's Adventures of Ideas. In one essay in that book Whitehead argues that persuasion, the respecting of a human's right to choose, is the most fundamental sign of the advancement of society. Using Skousen's excerpt:

The creation of the world -- said Plato -- is the victory of persuasion over force... Civilization is the maintenance of social order, by its own inherent persuasiveness as embodying the nobler alternative. The recourse to force, however unavoidable, is a disclosure of the failure of civilization, either in the general society or in a remnant of individuals...

Now the intercourse between individuals and between social groups takes one of these two forms: force or persuasion. Commerce is the great example of intercourse by way of persuasion. War, slavery, and governmental compulsion exemplify the reign of force.

Charlie's second post is little more than a diatribe against commerce, at least when one of the parties to commerce takes the form of a corporation. Yet the examples of force in his story are not found. You are not forced to accept Hotmail as your email service. You are not forced to take a job with a company that refuses to pay you for overtime. You may do so because you are ill-informed or ill-prepared to explore alternatives, but last time I looked your right was only the right to pursue happiness, not have it delivered to you with a bow on top.

The penultimate paragraph tries to attach to my view something I do not believe:

But I find it extremely comical that an economist can overlook how corporations enjoy the protections of government — particularly through lobbying, political back scratching and the courts.

Good heavens, no. I don't overlook it. I call it "rent-seeking" and I abhor it. Economists have long recognized its existence and the inefficiency of it. Where Charlie and I might disagree is how to cure it. He would argue that there are not enough government restrictions on economic activity and seek political solutions to put more on. I would argue instead that as long as government has the power to place these restrictions on economic activity businesses will seek to control it, so the only solution is a constitution that reduces government's power to write the restrictions in the first place. The original U.S. Constitution was closer to that ideal than the one that we have now with direct taxation; the pre-New Deal executive and legislative branches understood this better than the post-World War II ones, with the notable exception of Reagan (at least in the first term.) This blog is chock full of examples of rent-seeking, and I hold no brief for corporate power.

But a contract for email services is a poor choice for an example of government protection of corporate power because government does not restrict your choices for email service. Government is the source of all coercion; corporations can only bend it to their will if we first allow government to do it. The conservative or libertarian argument is to get government to stop using force, not to use it "in the name of the people." If you fail to understand why, look up the countries whose official names begin "People's Democratic Republic of..."

Labels: economics, libertarianism, politics

I have thought of running the series "Spot the Non Sequitur", but the double entendre would be too cruel. And besides, I think this one is an example of a red herring rather than a non sequitur. My readers can decide.

Pat Kessler runs a series of "Reality Checks" for WCCO television in the Twin Cities. The media seems to love this sort of thing -- look at the wonders it did for Eric Black's career. So occasionally I read these looking for, well, reality. Instead I find this.

"They attacked us and they will again. They won't stop in Iraq," the ad says.

This is a DISTORTION of the facts.

There is no link between the 9/11 in American [sic] and Saddam Hussein in Iraq.

The statement quoted in the ad by Freedom Watch is not a fact; it's a prediction that "they" -- who are terrorists and extremists, not identified as Iraqis, at least not in that ad -- will attack "us", and that this is more likely if we pull out of Iraq. That's not a distortion of fact; it's a hypothesis with which you may reasonably agree or disagree.

But even if you disagree with that hypothesis, support of your proof is not begun and ended with a statement that there's no link between the 9/11 attack and Saddam Hussein. The proposal to stay or go in Iraq has nothing to do with Saddam at this point given that he has achieved room temperature. It has to do with whether who we are fighting includes those who would attack here if we chose not to fight. Again, that's a debatable point; there are no settled facts, and Kessler's conflation of Saddam with that debatable point is an example of using the editorial voice of "Reality Checker" to assert one side of a debate as a settled fact.

Perhaps WCCO could run a segment called "Logic Check". And start with its own reporting.

Labels: Iraq, Media

The last time I paid attention to stock car racing, Cale Yarborough and Richard Petty were names and I'd never heard of the acronym NASCAR. New England wasn't a place you watched that kind of racing (there were drag races nearby, but no ovals.)

Now, of course, NASCAR has taken off to become the fourth sport of America -- taking out hockey as well as golf and tennis for attention in America. Unlike most sports industry models, as Ross and Szymanski point out, NASCAR is organized more like McDonalds: the participants or the owners of the vehicles or tracks do not control NASCAR; NASCAR is its own separate entity.

In The 200-MPH Billboard: The Inside Story of how Big Money Changed NASCAR, Mark Yost has written a description both of that transformation of NASCAR into a unique business model, and its ability to sell the sport to other businesses. The early chapters tell the story of the Bill France family and its building of the sport's economic model. While it seemed natural that these teams would be sponsored by the makers of automobiles or the parts inside them, it took the vision of France and a few others to see the possibility of using the cars themselves as a means to market other products.

First came Junior Johnson and RJ Reynolds. Still reeling from the decision in the late 1960s that cigarettes could no longer be advertised on television, RJR had an advertising budget with no place to spend it. At the same time, NASCAR was struggling to replace support from the automakers. Yost describes the decision as "the most momentous business decision in the history of NASCAR." Not only did the Winston Cup come into existence in 1971 and RJR funded a $150,000 purse for the Talladega 500 that same year, but RJR was able to convince other corporate entities to join in advertising. Each looked up into the grandstands, says one historian in Yost's book, and saw their customers. And the advertisers saw it in their own interest to help NASCAR create a more uniform feel for their racing venues and their cars. In short, the days of lugging your vehicle to the track and hoping you won enough money to afford gasoline for the drive home were over.

Yost details the expansion of the sponsorship base through the middle of the book. Much like baseball's expansion of advertising from beer and tobacco to credit cards and shaving products, NASCAR's success required them to grow from tobacco, beer and automotive products. By the mid-1980s such brands as Folgers, Tide and Crisco were being advertised by NASCAR vehicles and drivers. Such sponsorships reinforced the need for a uniform, well-regulated competition in NASCAR, which the industry's corporate structure permitted.

The latter half of the book focuses then focuses on case studies of this business model. I found the story of Texas Instruments' use of NASCAR to push its DLP technology for wide-screen television the most interesting of these. Not only did TI create demand from fans and viewers of NASCAR events on television -- the people most likely to buy HDTV -- but they also created events with Circuit City that could help get the latter to push their version of HD in a very crowded market. There are several such B2B stories in the book, which is an aspect of NASCAR sponsorship that has few parallels in the major team sports.

Yost concludes by looking at the challenges NASCAR faces and whether the sport has peaked in popularity and profitability. It's a fair question, though Yost speculates greatly in the last few pages in ways that lead one to think he sees growth still. As NASCAR has 70 Fortune 500 companies as sponsors, it would be hard to bet against it.

Cross-posted at The Sports Economist.

Labels: sports

As noted here on Saturday, two key public unions (AFSCME and SEIU) along with other assorted unions and anti-war groups used members' dues to stage a rally (?) on the steps of the MN Capitol in St. Paul. Since some union members do not support these causes, is this a fair use of their dues?

A second point is interesting. This particular anti-war assemblage spent weeks weeks planning, contacting members, etc. However, it would take a very large imagination to call this rally a success - max, 300 people. How many thousands of members comprise AFSCME and SEIU, not counting the other organizations behind this event?



On the other hand, a stalwart band of military and mission supporters are beginning to appear at various anti-war functions. The base group, Families United, founded by MN's own Merilee Carlson who lost her son, Shrek in Iraq, organized a quick response. Though the group was small, it made an impact.


The anti-war crowd is not used to seeing any opposition but now supporters of our troops are pulling together. These people realize we are in a fight for freedom and civilization.

Everyone wants peace but once peace=pacifism, freedom for all, including the anti-war crowd, is at risk of disappearing. As long as there are those who wish to destroy us and suppress others' beliefs, someone will have to take a stand. Right now, it's the US.

Labels: America, US Soldiers

Labor unions, religious bodies and non-profits will hold an anti-war rally at the MN State Capitol. Participating groups include: MN ACORN, MN AFL-CIO, Mpls. and St. Paul central labor councils, SEIU, AFSCME, Catholic Archdioces Office for Social Justice, the Methodist Social Ministry Team, Sierra Club, Wellstone Action, TakeAction MN, Progressive Majority and more.

Reads like a "Who's Who" in the protest business.

As with most Americans, I treasure our free speech privileges. As with most Americans I like Choosing how I earn my living and I like even more keeping my earnings. I like being able to have opinions that as a general rule do not prevent me from getting promoted.

Why can people be forced to pay dues to an organization that supports candidates and positions that are abhorred by the member? There are restrictions in the private sector but the public sector (AFSCME and SEIU) and non-profits are pretty free to do what they wish with their members' dues and contributions. Perhaps it is time for union members who oppose the use of their required dues to support causes with which they disagree to let their unions know. As for non-profits, people can stop donating.

Being forced to contribute seems grossly unfair and unAmerican.

I'm scared to give this quiz to my students, so I give it to you instead. I missed three of the sixty questions, including one of the questions on the NAEP test.

There is no prize for beating me, except that you may feel quite superior. I was honestly stumped on two of the three, the other a mental error I should not have made.

See you Monday. There's a show tomorrow, but I'm still so Italy'd out I have no idea what we'll do yet. I hear Michael's angling to dump me because he found better help.

P.S. When you go to church Sunday, say a prayer for Zimbabwe. It's getting worse...

Labels: economics, Final Word, NARN

...I have to disagree with Greg Mankiw that we have no explanation of why we have central banks. Central banks as public entities really began with the Bank of England. Why did it exist? To provide loans to the government engaged in colonial expansion and war. Why did the first two Banks of the United States exist? To provide loans to a government that was new and in a war with a bigger power.

Each government, early in its development, found it desirable to expand without resort to taxation. Often that's due to war, but not always.

What's more interesting is the evolution of central banks after they stop being useful for raising funds for government spending. What do they do then? Who are their supporters? The bankers? The bond markets?

There are lots of answers in Mankiw's comments that sniff around this answer. But we've had these answers for a long time.

Labels: economics, Federal Reserve

The WSJ blog has a note on a speech by Fed Vice Chairman Donald Kohn earlier today. He argues (along with a survey paper he discusses by David Laidler, which I would love to read if I found it) that the monetary policy has two unanswered questions: What's the best way to support the goal of price stability? And how do asset prices help you steer monetary policy?

That answer, he points out, is fundamentally different in the U.S. and Europe, and makes a very political argument for this:

A formal inflation target represents a national embrace of a goal, in which elected authorities recognize the primacy of price stability and publicly support--indeed, even require--the central bank's pursuit of that goal. To the extent that elected authorities channel the desires of the electorate, a central bank directed to adopt an inflation target is being given a strong signal as to the goal's importance to the public at large. This affirmation has often been reinforced by the granting of operational independence to the central bank to achieve that goal most effectively. An important effect of such public acceptance of price stability is that it erodes the standing of those who would direct central bank action toward other ends. In such an environment, workers, businesspeople, and investors can make plans with the expectation that nominal magnitudes will be predictable and so devote their attention to more productive matters.

For the European Central Bank, this framework was established by treaty. In most other instances, the adoption of an inflation target involved laws and mutual understandings, not constitutional changes. The early adopters of inflation targets were parliamentary democracies, which is not too surprising given that in such a system a single branch of government can enact laws and put them into effect. With regard to an inflation goal, the parliament can erect the formal apparatus and the finance minister can serve as the government's point of contact with the central bank.

The system in the United States is different in that two independent branches of government are responsible for economic policy making, making agreement on a single goal problematic. Moreover, those two branches have already spoken as to the appropriate aim of the nation's central bank: The Congress, in a law the President signed, has given the Federal Reserve a dual mandate that directs us to foster maximum employment and stable prices over time. This instruction is not an accident of history, in that, in the past, the Congress has shown no appetite to amend its legislation.

I am amused by that last line, as it sounds a good bit like the argument for the antitrust exemption in baseball. The problem with it is that the Fed's independence is quasi-constitutional, in that it likely could not be done without a long public debate and would require broad acceptance of the changes proposed. So arguing that everyone likes the dual mandate -- adopted in 1913 -- because Congress hasn't changed it suggests we have the same understanding of inflation now as then. We don't. But the line does require people to say things like Governor Warsh did this afternoon, that their mission is to watch the real economy. That's not what we teach in intermediate macro.

Not even Kohn, as he then argues that our there's no inherent difference in the dual versus single mandate:

Nor is this instruction unreasonable, in that the dual mandate has come to be interpreted as assigning us the responsibility for attaining price stability in the long run, which will bring with it maximum employment, and of being mindful of resource utilization in the succession of short runs that make up the long run. The dual mandate seems proper and fitting, given that economic costs are incurred both by having inflation stray from its long-run goal and by having output deviate from the economy's potential to produce; and it seems to produce results not too different in practice from those associated with central banks that are flexible inflation targeters.

You could not have made that argument even 25 years ago, yet it seems so facile now.

Sure, you can argue that in the long run price stability maximizes output, but at what point is your performance evaluated? And when you have the goals the Fed does, you are subject to complaints like knzn's,

We want a stable financial system (even though the system is constantly evolving); we want stable prices; we want stable interest rates; we want stable employment; we want this; we want that; … The macroeconomy is like a spoiled child demanding all sorts of subtle and incompatible things. Rather than trying to make the child (who, by the way, isn’t very good at making decisions, since he has to use the democratic process to do it) specify “I’m willing to accept X amount of interest rate variance in exchange for Y amount of inflation variance” and so on, isn’t it better just to appoint a wise and respected nanny to make the necessary compromises?

...to which the lack of a single goal makes life difficult for the Fed. And yet you when you have people who argue for price stability uber alles, you have no leg to stand on either.

When people asked me why the Fed went to 50 bp on Tuesday night, I said the Fed knows something we don't. As I said a while back, they had to have seen the CPI report that wasn't public until Wednesday morning. I don't think the Fed necessarily believes the economy is headed for a recession, given some of the data that's out there, but the good price report gave them reassurance that they would have some room to deal with the growth side of the mandate. William Polley says pretty much the same thing in the second point here. He also talks of what happened to the long bond as the announcement occurred (he was with students on a field trip to the Chicago Board of Trade at the time of the announcement):

From the gallery in the CBOT, we watched it happen as the 10 year numbers went red and you just wanted to have a moment of silence for the passing of low inflation expectations. You teach this stuff for years, saying "this is what can happen..." and then it does.

I have to admit that the market reaction troubled me a bit. They didn't get the message. Or they got the wrong message. Or worse...they got it just right.

I think that's the problem with the dual mandate; you are not sure if the weight the Fed places on inflation changed, or if their forecast is for core inflation to subside, or ... whether they got that right. I do not think it matters even if you were to have the Fed adopt inflation targeting, though it would help. As much of the world has moved to a sole price stability mandate as has moved to inflation targeting (Fed Governor Mishkin makes that point here), but that requires an act of Congress, one that may come before or after they get around to removing baseball's antitrust exemption.

Labels: economics

A phone call from Gary of Let Freedom Ring told me that he was on his way to the hospital with some recurring stomach issues. His blog will be silent only for a little while, we hope. I'm close to the hospital, so I'll try to see how he's doing later. Keep Gary in your prayers, please.

UPDATE (9pm): He's home and well enough to talk for about 45 minutes just now, but still will need some medical attention down the road.

Update by Janet - 10:30 AM. Gary posted an update at 3:00 AM this morning about people's reaction to the Moveon.org blast against General Patraeus. It's worth the read. You can read the short article here.

Labels: MOB, SCBA

Of all the things Greenspan said in the Daily Show interview, the one I liked the best was this:

The trouble is that we can’t figure that out. I’ve been in the forecasting business for 50 years. … I’m no better than I ever was, and nobody else is. Forecasting 50 years ago was as good or as bad as it is today. And the reason is that human nature hasn’t changed. We can’t improve ourselves.

Contrast that with a post this afternoon from Real Time Economics:

[NPR] Science correspondent Robert Krulwich explained: “What [Greenspan] would do, is he would keep his ear as low to the ground trying to figure out — what are people really up to? Men’s underpants was the one that really got to me. He once told me that if you think about all the garments in the household, the garment that is most private is the male underpant, because nobody sees it except people like in the locker room, and who cares? Your children need clothes. Your wife needs clothes that have to change. The children grow. You need clothes on the outside. But, the last purchase that you don’t have to make is underpants. … If you look at the sales of men’s underpants, it’s just pretty much a flat line, it hardly ever changes. But on those few occasions where it dips, that means that men are so pinched that they are deciding not to replace underpants. And he said that is almost always a sort of foreshadow of ‘here comes trouble.’ … It’s not that he was right or wrong: I just loved the way he would sneak around human behavior by looking at things like that.”

OK, I can hear you snickering "THAT won't work in Canada", but you have to question the thought. But I think it's also quite strange in this way: It assumes that you can tell the economy's future by looking at consumption trends, yet it's investment booms and busts that tend to be the most pronounced before business cycle peaks and troughs. Maybe underwear leads a little, but sales are normally considered a coincident indicator.

I just can't see how this works.

Labels: economics

This past Saturday, September 15, I flew to Washington, DC to join up with Families United. Their session began on Sunday evening but I decided to arrive early to check out the latest anti-war protest.

Well, it was a flop, an undeniable flop. First, max 3000 protesters. Second, I heard (cannot prove) that ANSWER was paying people $20 to carry a sign in the march. Third, as late as Friday, ANSWER was petitioning for protesters to march, participate in a pathetic "die in," and read the names of American's fallen heroes.

We walked along side the marchers on Pennsylvania Avenue. The usual anti-___ crowd marched: left-over 1960's hippies; the current version of copy cats; Palestinians; Iranians; and a plethora of various ad-hoc, anti ____ groups. Protesters cannot handle challenges and facts. They have their arguments but when countered, they cut and run. (Note the plastic water bottle in the protester's hands below.)


The walk was about a mile. When we arrived at the Capitol, the protesters were already leaving - they were too tired to stay for the rally. Once the "die-in" started, more left. Other than about 150 taunting the police, the few remaining were on the Capitol grounds playing simple games; one group, an upgraded version of "patty-cake" because they were "tired. They had driven from Ohio the night before and ," well, you know, they were tired. Excuse me - I drove the Ohio-DC route for years - max time? 6-8 hours. When asked "What about our guys in Iraq who are up 36 hours straight in 120 degree hear?" This inconvenient fact was ignored by the protester who was also an event organizer. I said, "You must be disappointed in this turn-out. There's no one here." He was not pleased but had no response.


The "die in" crew climbed a 3' wall at the base of the Capitol, "fell" into the arms of the Capitol police, were hand-cuffed and carted off to the local DC jail. I heard no reading of names. Many of the "die-in" participants appeared to think it was cool to be arrested. I'm sure they thought they would be released. However, if a person is arrested and has an address 50 miles outside of DC, he/she must remain in jail until bail could be posted on a weekday. Since they were arrested on a Saturday, they could not be released until Monday. One poor youth called his mom in New Jersey to bail him out; she immediately drove to DC only to discover that she had to wait until Monday to post bail. So, her little darling spent about 36 hours in the local jail along with all the usual weekend arrestees. I doubt it was a pleasant 36 hours.

The Capitol police should be commended for their professionalism and performance. They remained cool under a lot of taunting. They simply took the protesters one by one as they "died" and walked them through the process.

This demonstration, after much hype, simply had no traction, none, zero. Bush has nothing to worry about here - Congress, yes; protesters, no. For the entire parade route and at the Capitol, people turned out to show their support and appreciation for those who serve in our military forces.

Greg Mankiw points out a press release by Rep. James Saxton that called for a Fed Funds rate cut of 25 basis points and says it's the last thing we need. Mark Thoma says "we should be very careful about compromising the Fed's ability to act independently of the rest of government."

The Milan conference was about this very point. So permit me to share a couple of thoughts. First, unlike the ECB, which has price stability as its sole objective , the Federal Reserve still operates under a dual mandate for both price stability and to promote economic growth. It is a creation of Congress. As John Wood presented at the conference, in the confirmation hearings for the renomination of William McChesney Martin in 1956, Senator Paul Douglas said:

I have had typed out this little sentence which is a quotation from you: “The Federal Reserve Board is an agency of Congress.” I will furnish you with scotch tape and ask you to place it on your mirror where you can see it as you shave each morning.

The Federal Reserve has some quasi-Constitutional status as an independent agency, but it is not above Congressional review. The degree of Congressional discretion has been long debated, but its protector is not a law; it's the bond market. (That point, by the way, is implicit in Alan Greenspan's direct-to-classic interview with Jon Stewart Tuesday night.)

This takes me to the second thought then, which is how independent SHOULD a central bank be. That is, given economic policy is something governments will do -- should they do any? take that question somewhere else please, no time for it here -- what is the optimal amount of delegation the government should give to a committee of experts? To get at that question (though it might not have been her intent) there was a presentation at the conference by Katrin Ullrich of the Centre for European Economic Research which posed the question of whether you would want to delegate fiscal policy at all. The reaction of the workshop was quite interesting; basically, you can't delegate fiscal policy because "taxing and spending the receipts of those taxes is what legislatures do." The reason we delegate the job of price stability to the sages like a Greenspan or a Trichet or a Bernanke is not just because they are smarter, more conservative (in the sense of more inflation-averse, not a political statement), but because monetary policy doesn't create winners and losers. But of course, unexpected inflation does, through the debtor-creditor hypothesis that most of my generation of economists had to learn in grad school.

Certainly on balance, economists have decided that countries where central banks are insulated from political pressure and have clear goals for policy do better in providing price stability. That's not the point -- it's whether elected officials can ever say anything about monetary policy. Most of the time what they say is self-serving blather. But if the optimal degree of delegation was 'complete' we'd all have the gold standard or a currency board and be done with it. Some economists may feel that's the right answer, but it isn't the majority. Every once in awhile, central bankers should look in the bathroom mirror.

Labels: economics, Federal Reserve, money

The DFL is sounding off on the AFSCME strike at the University of Minnesota.

At a news conference held at AFSCME strike headquarters in Dinkytown, three state legislators urged a quick end to the strike by clerical, health care and technical workers that began Sept. 5. They are the second group of lawmakers in as many weeks to speak out about the dispute.

"I am incredibly disappointed with the administration's actions," said state Senator Patricia Torres Ray, DFL-62, adding that having a "world class university" means the administration needs to "treat our workers as world class workers."

State Rep. Frank Hornstein, DFL-60B, was equally direct.

"We don't want the leadership of this institution to squander the goodwill they now have . . . . We don't want the strike to last a day longer," he said. "I speak for many of my colleagues in demanding that the collective bargaining process resume and the university come back to the table."

In the video included in the post, Rep. Tom Rukavina says the money was put into the bill for paying AFSCME off and also to hold tuition down. When the bill passed, the tuition increases were supposed to be 4-5%.

This is not true. While the U of M System got 14.9% additional money for the biennium, the money was designated to go into investments in technology, to keep the University from hemorrhaging faculty being bid away from other institutions, and for the new darling of the planners (including the governor's office), STEM. If someone can explain to me how the money was supposed to do all those things and, at the same time, lavish money on AFSCME, which of course spends hundreds of thousands on DFL candidates.

I'd like to think Tommy and the minions would sing for our faculty contract too -- which is currently in negotiations -- but I don't think we pay enough tribute.

Honeybee colonies are critical to our food supply. For the past few years beekeepers and environmentalists have been concerned about the decline in the number of bee colonies. The cause was difficult to determine. Now, scientists have made some inroads. Turns out the decline appears to be caused by a virus according to studies reported in the Washington Post.

When faced with these problems, it is very important that we keep our scientific facts straight and identify real causes versus emotional ones.

For the sake of our farm industry, I do hope scientists will find either a cure for this virus or a way to protect additional hives from this problem.

There are times when we can lose perspective on infant deaths. Historically, many cultures had to deal with a high level of infant deaths. Today the numbers have plummeted, worldwide. It would be nice if the number were zero but we may not reach the level of perfection. In the meantime, it's nice to know significant progress is being made.

In 2006 worldwide deaths for children under age 5 were 72 per 1000 live births. This was a significant decline from 93/1000 in 1990 and 184/1000 in 1960. This is a 60% decline over this time period. Changes in nutrition, malaria prevention, and immunizations are making a difference.

In the US, the under 5 mortality rate is about 8/1000.

While I was traveling, Mark Brunswick has posted a story on the local government junkies saying they can't wait four months for their next fix.

When legislators will meet again in February, will they really pass a gas tax increase in an election year? Will the housing implosion by that time have dried up revenue that could have gone to property tax relief as the economy turns sour?

A property tax bill vetoed by Pawlenty would have given cities like Hibbing a 10.1 decrease in its tax levy. Without the tax bill it is facing a 9.9 percent increase. Minneapolis would have received over $13 million in new local government aid. St. Paul would have received more than $9 million.

Tom Kuntz, the mayor of Owatonna and President of the Coalition of Grater Minnesota Cities, said cities awaiting help for local government aid cannot wait. Local budgets are being finalized by the first of December and a special session is needed by mid-November, he said.

“If the economy turns sour they don’t have the dollars to work with, there’s no chance in heck of getting an increase in local government aid.”

Well that's the game right there, isn't it? The state government cannot, of course, run a deficit, so if they pass the spending bills right then and there, the state will have to make up the money with a tax increase in 2008. But that wouldn't be blamed as much on these local weasels officials. So get your fix while your dealer is still offering credit? Particularly when the governor has said in the past "we'll get you that LGA."

Governor Pawlenty, I suggest you go on a very long trip. Milan is beautiful; I have an osteria I can recommend that is cheap and pours a free negroni at the end of your meal. Come back in January, sir, have a great time. We'll keep an eye on things while you're gone.

UPDATE 9/20: Drew has some interesting speculation about a quiet move made by the DFL leadership during the special session that might increase pressure for a second special session.

Labels: legislature, Minnesota, Pawlenty

As you can tell from the previous posts, I really did enjoy myself in Milan and Como. It's odd to me that Milan is not seen as a travel destination by many, though certainly it's a comfortable place. One walk through the Galleria did this for me, though finding a little cafe on Verdi Street to have a collection of Hollywood trivia was really enlightening in this way. The owner seemed happy to be found by us. You do NOT get this in Eastern Europe.

But Douglas Muir mentions another favorite place that I literally stumbled into many years ago: the Billa Supermarket.

In addition to the usual supermarket stuff, it has cold shelves full of salads and sushi, an icebox full of smoothies, and a deli that makes sandwiches to order. All fresh and tasty, and less than half what it will cost at one of the overpriced eateries on the departure level or out by the gates.

It's been awhile since I've had to lay over out by the airport -- if you live in Minnesota, you usually fly through Amsterdam or Frankfurt, not Vienna -- but I have a real love affair with Austrian Airlines that began with the Billa Supermarket. I was going to Slovakia and Hungary in 1993, then circling back through Vienna and up to Prague later in the month. The bags coming over from Dulles got lost, so all I had was my backpack; I was going not to Bratislava but a small town about fifty km east of there, where there was an old castle that was the Slovak Academy of Sciences. I had finished detailing the bags to the airline and was trying to find where my compatriots were hiring cars to go to Slovakia, and I ran into this market. All the things I absolutely needed for the next two days were there, including those sandwiches. (Being vegetarian in a Slavic country is no fun, so I had them make three sandwiches to go.) Eighty euros later, I was ready. Amazingly, the bags arrived two days later; I was walking outside the castle and watched a slow red truck wind up the road, with Austrian Air markings on it.

Every time I get caught with a layover at the Vienna airport since then, I hit that supermarket for the same sandwich. And I've rewarded the nice van that brought my bags into the Slovak countryside with business for its airline as often as I can.

Labels: travel