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Article Archive: Economics

Dropping Economics 101
04/24/22   Economics
"behavioral economics effectively disproves what was long the fundamental premise of economics. It reveals people are not rational profit-maximizing agents. Give up the underlying assumptions of Homo Economicus, and suddenly a large swath of economics appears to be riddled with fallacious thinking. Sometimes it leads to the correct decision, sometimes not, but its fundamental premise contains a deep flaw that practitioners ignore at their own financial peril."

3-factor wealth
10/16/21   Economics
"The cutoff to be in the top 1% in terms of wealth in this country is estimated to be around $11 million. Being in the top 1% only makes you comfortably rich?"

The wealthiest generation
09/05/21   Economics
"In this version, Gen X is now richer (30% richer!) than Boomers were at the same age (late 40s). Millennials don't yet have a year of overlap with Boomers, but they are tracking Gen X almost exactly. There is no reason they won't continue to track Gen X, and therefore exceed Boomers as well when they are in their late 40s"

Why we don't marry
04/25/21   Economics
"Former Clinton advisor William Galston sums up the matter this way: you need only do three things in this country to avoid poverty - finish high school, marry before having a child, and marry after the age of 20. Only 8 percent of the families who do this are poor; 79 percent of those who fail to do this are poor."

Defining inequality so it can't be fixed
03/28/21   Economics
"conventional income inequality numbers report the distribution of income before taxes and transfers. After taxes and transfers, income inequality is flat or decreasing, depending on your starting point."

Randomized control trials and the minimum wage
01/24/21   Economics
"There are four main results: '(1) the wages of hired workers increases, (2) at a sufficiently high minimum wage, the probability of hiring goes down, (3) hours-worked decreases at much lower levels of the minimum wage, and (4) the size of the reductions in hours-worked can be parsimoniously explained in part by the substantial substitution of higher productivity workers for lower productivity workers.'"

The downside of UBI
03/15/20   Economics
"UBI can be a hard sell because it is a koan of fairness, activating one's empathy and rage simultaneously. The income is meant to support people who desperately need it, but also to support wealthy hipsters who just don't feel like working. The one hand clapping begins to feel like a slap."

The boomer blockade
02/01/20   Economics
"This blockade is both a literal blockade, stopping people from reaching the senior-most levels of organizations and institutions, and a figurative blockade, holding people back from finding meaning from new narratives and myths of success in life and at work."

Baby boomers took their children's future
02/01/20   Economics
"The post-war baby boom of 1945-65 produced the biggest and richest generation in British history. David Willetts discusses how these boomers have attained this position at the expense of younger generations." [video]

Economic incentives
11/03/19   Economics
"This is unfortunate, because economists have somehow managed to hide in plain sight an enormously consequential finding from their research: Financial incentives are nowhere near as powerful as they are usually assumed to be."

Why the American shoe disappeared
06/21/19   Economics
"There's really very little commercial reason for why you would make footwear in the U.S. today." [audio]

The economy killed millennials
12/10/18   Economics
"When researchers compared the spending habits of Millennials with those of young people from past years, such as the Baby Boomers and Gen Xers, they concluded that 'Millennials do not appear to have preferences for consumption that differ significantly from those of earlier generations.' They also found that 'Millennials are less well off than members of earlier generations when they were young, with lower earnings, fewer assets, and less wealth.' Millennials aren't doing in the economy. It's the economy that's doing in Millennials."

Minimum wage backlash
07/09/17   Economics
"As the Maine House voted on a bill to reduce the minimum wage for tipped restaurant workers, Jason Buckwalter and a dozen fellow servers huddled in a back room listening to the vote call at the Bangor steakhouse where they work. They all hoped to hear one thing: that state legislators had voted to lower their wages. Some cried with relief, Buckwalter said, when the final vote ended at 110 to 37 - overwhelmingly in their favor."

Minimum wage hike hurt workers
07/02/17   Economics
"I know that so many people just desperately want to believe that the minimum wage is a free lunch. It's not. These job losses will only get worse as the minimum wage climbs higher, and this team is working on linking to demographic data to examine who the losers from this policy are. I fully expect that these losses are borne most heavily by low-income and minority households."

The sharing economy
06/26/17   Economics
"We found that 85% of side-gig workers make less than $500 a month. And of all the side-gig platforms we examined, Airbnb hosts earn the most by far."

The freemium business model
04/23/17   Economics
"Freemium describes a business model in which a business gives one product away for free or at a subsidized price and then either sells another profitable product to this user base or sells access to that user base to third parties"

A slippery idea
04/02/17   Economics
"Like many business ideas, short-termism fits the experience of some individual business people. But as a theory about how the economy works it is too nebulous to be much use."

What do economists know?
03/05/17   Economics
"I am arguing that the math and science of economic predictions and assessments are nothing like the math and science of space travel. Economics provides the illusion of science, the veneer of mathematical certainty."

Friedman's theory laid to rest
01/15/17   Economics
"Milton Friedman was wrong about the permanent income hypothesis. But unlike with the first two examples, where scientists quickly realized the mistake, economists haven't yet come to grips with the reality."

Investing in a restaurant
09/17/16   Economics
"Yet I've come to conclude that the restaurants New York needs are doomed, financially, to fail. That's because amateur capital backed by magical thinking and a desire for fun distorts the economics for everyone."

The new voodoo
08/21/16   Economics
"Old hydraulic Keynesianism from the 1960s was already a pretty implausible model. But what's happened since 2009 involves not just one, but at least five new types of voodoo"

Higher minimum wages
08/14/16   Economics
"As more cities raise minimum wage, the picture will clarify. But the early evidence from Seattle is that a higher minimum wage at the city level doesn't raise total earnings by much, because low-skilled workers end up with fewer hours on the job. "

Wholesale transfer pricing
07/10/16   Economics
"John Malone made himself rich by owning the cable systems and saying to new channels, 'I will be glad to give you distribution on our cable system as long as you issue us AB% of the equity in your company.' The wholesale transfer price of getting distribution on his cable systems was AB% of the equity. On the flip side, John Malone always made sure there were at least two suppliers of set-top boxes for his cable business so he was not on the ugly side of wholesale transfer pricing."

Destination unknown
07/30/15   Economics
"Fed up with pay increasing only at a snail's pace, politicians are resorting to the law instead, by increasing the minimum wages that businesses must pay. But this is taking them into uncharted territory."

The minimum-wage muddle
07/25/15   Economics
"Raising the minimum wage will produce winners among job holders from all backgrounds, but it will disproportionately punish those with the lowest skills, who are least likely to be able to justify higher employment costs."

What's wrong with finance
05/15/15   Economics
"Both financiers and economists still get the blame for the 2007-2009 financial crisis: the first group for causing it and the second for not predicting it. As it turns out, the two issues are connected. The economists failed to understand the importance of finance and financiers put too much faith in the models produced by economists."

A liberal heretic contradicts Piketty
03/28/15   Economics
"Despite Rose's pedigree and his meticulous, thoughtful studies pointing out that the supposed stasis in living standards for the poor and middle class doesn't hold up, a contrary narrative has taken root in the media and few dare to contradict it."

Why the high street is overdosing on caffeine
02/14/15   Economics
"He found that even a market full of independents will seem a little too crowded. This is because firms will keep showing up and looking for customers until there is not enough demand to cover their costs. The last entrepreneur to enter is the one that just breaks even, scraping together enough customers to pay for the cost of setting up the business. She is indifferent to whether she is in business or doing something else entirely. However, every other entrepreneur in the crowded market is wishing that she had stayed away."

01/03/15   Economics
"Suppose you just don't care about distribution and you favor price-rationing of scarce goods over alternative schemes full stop. Then you should still be troubled by Uber's surges, because Uber itself is a cartel."

An astonishing record of complete failure
06/07/14   Economics
"In the 2001 issue of the International Journal of Forecasting, an economist from the International Monetary Fund, Prakash Loungani, published a survey of the accuracy of economic forecasts throughout the 1990s. He reached two conclusions. The first was that forecasts are all much the same. There was little to choose between those produced by the IMF and the World Bank, and those from private sector forecasters. The second conclusion was that the predictive record of economists was terrible. Loungani wrote: 'The record of failure to predict recessions is virtually unblemished.'"

The law of demand is a bummer
01/12/14   Economics
"The debate over the minimum wage, which, thanks to Barack Obama's state-of-the-union address, we appear to be having again, is a debate over the question of whether raising the price of something - low-skilled labour, in this case - will reduce demand for that thing. That is to say, it is a debate over the relevance of the law of demand, an enormously robust generalisation about human behaviour confirmed and re-confirmed each day by billions of individual decisions."

Time to stop this pretence
10/20/13   Economics
"The Nobel prize for economics remains separate from the main prizes, and so it should, as the namesake was a scientist and economics is categorically not"

Beer and biodiversity
10/20/13   Economics
A fun little video, if perhaps a little simplistic.

The price of Coke
09/29/13   Economics
"Prices go up. Occasionally, prices go down. But for 70 years, the price of a bottle of Coca-Cola didn't change. From 1886 until the late 1950s, a bottle of Coke cost a nickel. On today's show, we find out why."

The disappearance of James Duesenberry
09/16/13   Economics
"This is puzzling because his theory of consumer behavior clearly outperforms the alternative theories that displaced it in the 1950's - a striking reversal of the usual pattern in which theories are displaced by alternatives that better explain the evidence. His disappearance from modern economics textbooks is an intriguing cautionary tale in the sociology of knowledge."

Munger on milk
09/05/13   Economics
"Mike Munger of Duke University talks with EconTalk host Russ Roberts about why milk is in the back of the grocery store. Michael Pollan and others argue that milk is in the back so that customers, who often buy milk, will be forced to walk through the entire story and be encouraged by the trek to buy other items. Munger and Roberts argue that competition encourages stores to serve customers and that alternative explanations explain where milk is found in the store."

Meet the student who shook Austerians
04/20/13   Economics
"Herndon became instantly famous in nerdy economics circles this week as the lead author of a recent paper, 'Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,' that took aim at a massively influential study by two Harvard professors named Carmen Reinhart and Kenneth Rogoff. Herndon found some hidden errors in Reinhart and Rogoff's data set, then calmly took the entire study out back and slaughtered it."

What if they're wrong?
04/20/13   Economics
"Our debates, however, are based on a simple assumption that the set of numbers we use to measure the economy are accurate, or at least close enough. But what if they aren't? What if we are making powerful assumptions about the economy based on statistics that are at best half-right?"

Saving economics from the economists
12/15/12   Economics
"Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate."

Deck the halls with macro follies
12/06/12   Economics
"Each year, our attention turns to the holidays... and to holiday consumer spending! We're told repeatedly that, because consumer spending is 70 percent of measured GDP, such spending is vital to economic growth and job creation. This must mean that savings, the opposite of consumption, is bad for growth. This view of macroeconomics was first popularly asserted by Thomas Malthus in 1820, nearly 200 years ago."

Bad policies
09/14/12   Economics
"It is common to fix the blame for this on the banking crisis. Economies typically take a long time to recover from 'balance-sheet' recessions, as businesses and households focus on paying down debt and rebuilding savings. But what if the problem of slow growth has deeper roots than that? What if slow growth caused the crisis?"

Unintended consequences
08/04/12   Economics
"President Clinton raised taxes in the 1990s and the economy grew. So does that mean it would grow today if we did the same thing?"

Six policies economists love
07/28/12   Economics
"Tuesday's show presented the common-sense, no-nonsense Planet Money economic plan - backed by economists of all stripes, but probably toxic to any candidate that might endorse it."

Muddled models
07/21/12   Economics
"Economists have regularly failed to predict recessions and were completely caught out by the recent financial crisis, as the Queen famously noticed. The shortfalls of the profession are old news. All the way back in 1994, Paul Ormerod wrote a book called The Death of Economics, lamenting the failure to forecast the Japanese recession or the collapse of the Exchange Rate Mechanism, from which Britain was turfed out in 1992. 'The ability of orthodox economics to understand the workings of the economy at the overall level is manifestly weak (some would say it was entirely non-existent)' Ormerod wrote."

The great gouge
06/30/12   Economics
"In Episode One of The Invisible Hand, we'll see gouging at work everywhere from a Canadian hockey arena, to a busy agricultural market in Mali. We'll even introduce you to a man who was arrested for trying to sell generators at twice their normal price after a storm that left thousands of people homeless. And then we'll show you how to see gouging the way economists like Mike Munger see gouging -- as a force that gets much needed goods where they need to go, when they need to get there fastest."

Making no cents
05/28/12   Economics
"Inflation killed the farthing just as it has killed the Canadian cent. Small coins are living on borrowed time once they become useless for buying individual items. A single penny could buy the first British postage stamp, the Penny Black, in 1840 and was still sufficient to buy a small ice cream for a short-trousered Buttonwood in the late 1960s. Nowadays you would struggle to find a humble ice lolly selling for less than a pound."

Negative stimulus, 1946
02/03/12   Economics
"It's fun to go back and see how really smart people understood things at the time. Maybe it should give us some humility -- so much policy debate seems based on the idea that we know everything so well. If we understood things as well as we now see Klein understood things, would we still want to spend trillions on our best guesses?"

Why the clean tech boom went bust
02/03/12   Economics
"In 2005, VC investment in clean tech measured in the hundreds of millions of dollars. The following year, it ballooned to $1.75 billion, according to the National Venture Capital Association. By 2008, the year after Doerr's speech, it had leaped to $4.1 billion. And the federal government followed. Through a mix of loans, subsidies, and tax breaks, it directed roughly $44.5 billion into the sector between late 2009 and late 2011. Avarice, altruism, and policy had aligned to fuel a spectacular boom. Anyone who has heard the name Solyndra knows how this all panned out. Due to a confluence of factors - including fluctuating silicon prices, newly cheap natural gas, the 2008 financial crisis, China's ascendant solar industry, and certain technological realities - the clean-tech bubble has burst, leaving us with a traditional energy infrastructure still overwhelmingly reliant on fossil fuels. The fallout has hit almost every niche in the clean-tech sector - wind, biofuels, electric cars, and fuel cells - but none more dramatically than solar."

This relatively inegalitarian isle
01/16/12   Economics
"Of course, it's important to put charts like this in perspective, which is why we should also consult Miles Corak, the University of Ottawa professor whose work has been used here by Krueger (and Krugman). Here's Corak's unabridged Great Gatsby Curve. ... A rather different picture, innit?"

The economist zone
01/12/12   Economics
"Screen shifts to a sharp man with a cigarette. He begins to speak. "Picture a world, where people only eat apples. A man consults alleged experts on government deficits, and is taken on a journey that ultimately shatters his mind - a journey that ends, in the Economist Zone.""

Economics has met the enemy it's economics
10/19/11   Economics
"What is today known as economics arose out of two larger intellectual traditions that have since been largely abandoned. One is political economy, which is based on the simple idea that economic outcomes are often determined largely by political factors (as well as vice versa). But when political-economy courses first started appearing in Canadian universities in the 1870s, it was still viewed as a small offshoot of a far more important topic: moral philosophy. In The Wealth of Nations (1776), Adam Smith famously argued that the pursuit of enlightened self-interest by individuals and companies could benefit society as a whole. His notion of the market's "invisible hand" laid the groundwork for much of modern neoclassical and neo-liberal, laissez-faire economics. But unlike today's free marketers, Smith didn't believe that the morality of the market was appropriate for society at large. Honesty, discipline, thrift and co-operation, not consumption and unbridled self-interest, were the keys to happiness and social cohesion. Smith's vision was a capitalist economy in a society governed by non-capitalist morality."

Chicago economics on trial
09/27/11   Economics
"By now, the Krugmanites are having aneurysms. Our stunted recovery, they insist, is due to government's failure to borrow and spend enough to soak up idle capacity as households and businesses 'deleverage.' In a Keynesian world, when government gooses demand with a burst of deficit spending, the stick figures are supposed to get busy. Businesses are supposed to hire more and invest more. Consumers are supposed to consume more. But what if the stick figures don't respond as the model prescribes? What if businesses react to what they see as a temporary and artificial burst in demand by working their existing workers and equipment harder - or by raising prices? What if businesses and consumers respond to a public-sector borrowing binge by becoming fearful about the financial stability of government itself? What if they run out and join the tea party - the tea party being a real-world manifestation of consumers and employers not behaving in the presence of stimulus the way the Keynesian model says they should?"

Opportunity cost
09/14/11   Economics
"And if you drive a typical car more than a mile out of your way for each penny you save on the per-gallon price, it doesn't matter how worthless your time is to you - the gas to get there and back costs more than you save."

08/11/11   Economics
"If you are not a critic of neoclassical economics, particularly after the 2008 crash, you aren't thinking. The models did not consider the the effects of a big buildup in debt across the economy. They were debt-neutral, which was a big mistake."

Keynes vs. Hayek Round Two
04/28/11   Economics
"In 'Fight of the Century', Keynes and Hayek weigh in on these central questions. Do we need more government spending or less? What's the evidence that government spending promotes prosperity in troubled times? Can war or natural disasters paradoxically be good for an economy in a slump? Should more spending come from the top down or from the bottom up? What are the ultimate sources of prosperity?"

Cowen's Great Stagnation
01/31/11   Economics
"Cowen's way of thinking is rather common, that growth emanates from some limited resource, and like 'peak oil' goes through a natural cycle of growth and decline. The Physiocrats in the eighteenth century believed that the wealth of nations was derived solely from the value of things from soil like minerals and agriculture, all the rest - advertising, management, finance - just parasitic. Such thinking influenced Malthus's idea that we are all doomed by a finite amount of land, which will ultimately constrain our population via starvation. Later the labor theory of value tried to make labor the source of all wealth, where capital was disembodied labor. This too is mistaken, and while no one promotes these theories anymore, their intuition lives on."

Have You Ever Tried to Sell a Diamond?
01/02/11   Economics
"The diamond invention is far more than a monopoly for fixing diamond prices it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever -- 'forever' in the sense that they should never be resold."

The High Cost of Free Parking
11/10/10   Economics
"Professor Shoup is the author of The High Cost of Free Parking, and points out that, 'just because the driver doesn't pay for parking doesn't mean the cost goes away.' In addition to making it harder to find a spot when you need one, 'free' parking exacerbates other problems, from pollution to traffic congestion. Using the power of market pricing, Shoup explains how to fix the parking mess in three steps."

Lies, damned lies and economists
08/29/10   Economics
"It's established by now that economics didn't help stop some of the more spectacular misadventures of the financial community but it's a bit less obvious that it was directly responsible for many of the mishaps. It's all tied up with the dirty fact that economists are basically a bunch of untrustworthy, deceitful bums who shouldn't be left alone with your child's piggybank, let alone the world's economy. The trouble is that economists have a world-view that sees us all as self-interested moneygrubbers without an ethical thought in our heads. Perhaps that's because that's a pretty good description of economists themselves: they act like their models are true, the dirty rotten scoundrels."

Physics envy can kill you
06/30/10   Economics
"Andrew Lo of MIT doing his riff on how physics envy can kill you - especially if you're in finance/economics"

Naive Keynesianism
06/16/10   Economics
"One of the most frequently cited statements in economics is John Maynard Keynes' observation that 'Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.' For decades after those words were written, and extending even to the present time, Keynes was that influential defunct economist."

Tyler Cowen on prizes
05/17/10   Economics
"Tyler Cowen is a professor of economics and director of the Mercatus Center at George Mason University. He writes for"

Hayek vs. Keynes Rap
01/26/10   Economics
"'Fear the Boom and Bust' a Hayek vs. Keynes Rap Anthem"

The economic 'experts'
01/03/10   Economics
"In much the same way, economics is a science which employs some of the world's most intelligent people and most powerful computers in order to prove the bleeding obvious. When I first started writing about the subject, one excited academic told me to look into behavioural economics, which he described as the most "exciting and radical" of all the fields of economic research. Its most edgy, controversial finding? That people occasionally behave irrationally, driven by emotion rather than reason. Well, duh."

An economist's invisible hand
11/29/09   Economics
"At the Heavenly Models home for deceased economists, an award is being presented to the resident whose work best explains financial crises, global warming, and other pressing issues of today. The favored candidates include John Maynard Keynes, the patron saint of stimulus programs; Hyman Minsky, an American disciple of Mr. Keynes who warned about the dangers of financial deregulation; and Milton Friedman, the late Chicago economist. (Mr. Friedman's free market principles are out of vogue, but Federal Reserve Chairman Ben Bernanke recently took his advice on how to prevent depressions by pumping money into the economy.) The winner's name, however, turns out to be much less familiar: Arthur Cecil Pigou"

An economics of magical thinking
09/23/09   Economics
"The unreasonableness of this standard of rationality helps to explain why macroeconomists of all camps and finance theorists find it hard to account for swings in market outcomes. Even more pernicious, despite these difficulties, their models supposedly provide a 'scientific' basis for judging the proper roles of the market and the state in a modern economy. But incoherent premises lead to absurd conclusions"

Macroeconomist says macroeconomics successful
09/18/09   Economics
"Macroeconomics is the triumph of hope over experience, and has been no more successful than sociology. I think it's great that some people are working on this, but let's not kid ourselves that there has been any progress. It is easy to think that merely because a lot of intelligent people have published peer reviewed articles, knowledge must be increasing. The bottom line is the data, and real time experience with macroeconomic models has been horrible as always. It is nice that some of the bad models of the past are now known to be wrong, but the set of wrong models is infinite, so that does not imply we are getting closer to the correct model merely by excluding more bad ones."

Krugman's critics go on the warpath
09/16/09   Economics
"If you are inclined to believe that government should steer clear of any intervention in the economy, or stand with partisans who lean to the right-wing side of political economy debates, then you will likely agree with Donald Luskin that John Cochrane's riposte to Paul Krugman's "How Did Economists Get It So Wrong?" is "devastating.""

Efficiency and beyond
09/05/09   Economics
"The efficient-markets hypothesis has underpinned many of the financial industry's models for years. After the crash, what remains of it?"

How did economists get it so wrong?
09/05/09   Economics
"To be fair, finance theorists didn't accept the efficient-market hypothesis merely because it was elegant, convenient and lucrative. They also produced a great deal of statistical evidence, which at first seemed strongly supportive. But this evidence was of an oddly limited form. Finance economists rarely asked the seemingly obvious (though not easily answered) question of whether asset prices made sense given real-world fundamentals like earnings. Instead, they asked only whether asset prices made sense given other asset prices. Larry Summers, now the top economic adviser in the Obama administration, once mocked finance professors with a parable about 'ketchup economists' who 'have shown that two-quart bottles of ketchup invariably sell for exactly twice as much as one-quart bottles of ketchup,' and conclude from this that the ketchup market is perfectly efficient."

Out of Keynes's shadow
02/15/09   Economics
"As parallels to the 1930s multiply, Fisher is relevant again. As it was then, the United States is now awash in debt. No matter that it is mostly 'inside' or 'internal' debt - owed by Americans to other Americans. As the underlying collateral declines in value and incomes shrink, the real burden of debt rises. Debts go bad, weakening banks, forcing asset sales and driving prices down further. Fisher showed how such a spiral could turn mere busts into depressions."

Macroeconomics is astrology, not science
01/30/09   Economics
"In the early 1980's, the Wall Street Journal asked liberal economist John Kenneth Galbraith and conservative economist Milton Friedman to predict the macroeconomic trends over the next two years. Both agreed that inflation would rise above 10%, and both accused the other of obtaining his prediction by reading chicken entrails. Both were wrong about inflation, but both were right about the chicken entrails."

Macroeconomics is complete bunkum
12/08/08   Economics
"I confess that the only Hayek book I made it through without my eyes glazing over was 'The Fatal Conceit.' It's a slim volume written later in life, apparently after Hayek discovered humbleness, an unusual discovery for an economist. His thesis is simple - 'I don't care how smart you are, you can't keep track of all this s**t.' Economists who believe they can centrally plan a national economy and optimize - what, some flaky set of poorly defined aggregates? - are deluded. Politicians who promote these delusions to arrogate power to themselves are knaves. And voters who buy this fantasy are dupes. Yet Hayek be damned, here we go again."

A scientific revolution for economics
11/12/08   Economics
"If empirical observation is incompatible with a model, the model must be trashed or amended, even if it is conceptually beautiful or mathematically convenient. So many accepted ideas have been proven wrong in the history of physics that physicists have grown to be critical and queasy about their own models. Unfortunately, such healthy scientific revolutions have not yet taken hold in economics, where ideas have solidified into dogmas"

Consumers as accurate as economists
08/27/08   Economics
"Thomas and Alan Grant of Baker University in Kansas analyzed surveys of U.S. and Australian consumers collected from 1978 through 2005. For the U.S. data they used the Michigan Survey, which involves monthly telephone interviews with 500 households. The U.S. respondents were asked several questions, including how much prices will go up or down in the next 12 months. On average, the consumers predicted inflation rates that were off by 1.1 percentage points. The researchers compared the results with those found with the Livingston Survey of professional economists, finding a similar error in predictions."

Do economists need brains?
08/05/08   Economics
"These new neuroeconomists saw that it might be possible to move economics away from its simplified model of rational, self-interested, utility-maximising decision-making. Instead of hypothesising about Homo economicus, they could base their research on what actually goes on inside the head of Homo sapiens. The dismal science had already been edging in that direction thanks to behavioural economics. Since the 1980s researchers in this branch of the discipline had used insights from psychology to develop more 'realistic' models of individual decision-making, in which people often did things that were not in their best interests. But neuroeconomics had the potential, some believed, to go further and to embed economics in the chemical processes taking place in the brain."

Mexicans and machines
07/13/08   Economics
"'No job is safe from the robot threat!' warns Carey. Of course, the warning is more than a little tongue-in-cheek. There.s no need to take a sledgehammer to a robot, because, although technology shakes up the labor market, it ends up giving us higher living standards as well as more and better job opportunities." [Warning: Video contains scenes of violence and humour.]

Unintended consequences
01/23/08   Economics
"One year from today, a new president moves into the White House. This president will be eager to carry out any number of plans . including, surely, plans to help the segments of society that most need help. Extending a helping hand, after all, is one of the great privileges and responsibilities of the presidency. But before charging ahead with such plans, the new president might do well to first ask him- or herself the following question: What do a deaf woman in Los Angeles, a first-century Jewish sandal maker and a red-cockaded woodpecker have in common?"

Gifts in the age of $2,000-a-pound chocolate
02/10/07   Economics
"If you are still seeking the perfect gift for Valentine.s Day, have you considered a box of Noka chocolates? Both you and the recipient may be in for a surprise. A 12-piece box costs $39 before tax and shipping. And for that you will get 0.9 ounce of chocolate. Not 0.9 ounce a piece, but 0.9 ounce in the entire black and silver box. Do the math and that comes to $693 a pound. Buy just four pieces in the Signature stainless steel box and you are paying more than $2,000 a pound, making the Noka chocolate more expensive than delicacies like caviar, saffron or black truffles."

Shifting sands
01/08/07   Economics
"There is little doubt that Americans' incomes are more variable than they were a generation ago, but the story is a nuanced one. Mr Hacker's statistics are controversial. Peter Gottschalk, of Boston College, and Robert Moffitt, of Johns Hopkins University, were the first economists to disentangle how much of the rise in income inequality was due to long-term changes in earnings and how much to temporary instability. Their most recent report suggests that temporary earnings volatility rose sharply in the 1980s, fell in the 1990s and has risen again in recent years."

Rethinking your investment risk
12/07/06   Economics
"The Poor Should Invest in Riskier Assets than the Rich. This statement runs counter to conventional financial planning wisdom. But it.s in full accord with conventional economics. Like Joe, the poor, broadly speaking, are in a better position than the rich to invest in risky assets. Although the poor obviously have a much lower living standard than do the rich, it.s much closer to the level effectively guaranteed by the government through its various welfare programs, including Food Stamps, Medicaid, and Workfare. Hence, the government provides the poor much better downside protection against a major percentage drop in their economic resources than it provides the rich. That the poor should hold more stocks than the rich is just one of several financial mindbenders that emerge from a proper view of investment risk."

The economics of trust
09/26/06   Economics
"Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you've persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you're going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust--now imagine trying to arrange a mortgage."

The mystery of capital deepens
08/24/06   Economics
"But the victory of the Buenos Aires squatters was only partial. Eight of the former landowners accepted the government's compensation in 1986, one did not relent until 1998, and the remaining four are still contesting it in Argentina's Dickensian courts. As a result, several hundred families now own their land, but their neighbours still squat uneasily on theirs. This is unfortunate for the squatters, but a rare opportunity for economists to test the power of property rights. Sebastian Galiani of San Andres University and Ernesto Schargrodsky of Torcuato di Tella University believe the case provides a natural experiment. The families lucky enough to win title can be compared with a ready-made control group: the otherwise identical families that did not. This makes it possible for the study to distinguish cause and effect; to isolate the impact of title from all the other confounding factors."

The 2003 Nobel Prize in economics
10/28/03   Economics
"Two economists who have developed statistical techniques to track economic trends and to measure investment risk Clive Granger and Robert Engle were this year awarded the Nobel Prize in economics. In this article I will be focusing on the contribution of Clive Granger to economics. According to the Nobel committee Granger's important contribution to economic science is his discovery of a phenomenon called cointegration. This discovery, so it is held, enables economists to accurately validate relationships among various economic data. So what is it all about?"

The poverty of poverty statistics
10/14/03   Economics
"Finally, the official poverty statistics take no account of the goods people own or the assets they have accumulated. Which means that a person who has accumulated a million dollars worth of goods and assets but whose income, for whatever reason, falls below the income threshold for the year will be classified as poor. An extreme case? Not so extreme. Researchers have discovered that almost one million people classified as poor own homes worth more than $150,000, while upwards of 200,000 people classified as poor own homes worth more than $300,000."

Manana economics
05/29/03   Economics
"'The principal forecast has been the maqana forecast,' said former Federal Reserve economist Lacy Hunt, now chief economist with Hoisington Investment Management in Austin, Tex. Maqana is the Spanish word for 'tomorrow,' which is when forecasters have consistently said the U.S. economy would get back to full strength."

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