Category: Economics

I believe this point has not received sufficient attention:

In a twist that leaves some experts shaking their heads, the fund needs
money from cash-rich developing countries, like China and India, to
help more developed but strapped countries, like those in Eastern
Europe.

One possibility is that the recent IMF loan program is about making governments better off, not about making people better off.  Can you imagine that?

From the latest issue of the JPE, Bronnenberg, Dhar and Dube write:

We document evidence of a persistent “early entry” advantage for brands
in 34 consumer packaged goods industries across the 50 largest U.S.
cities. Current market shares are higher in markets closest to a
brand’s historic city of origin than in those farthest. For six
industries, we know the order of entry among the top brands in each of
the markets. We find an early entry effect on a brand’s current market
share and perceived quality across U.S. cities. The magnitude of this
effect typically drives the rank order of market shares and perceived
quality levels across cities.

You'll find ungated versions here.  The upshot is this:

Across 49 current leading national CPG brands, dating back to the late 1800s and early 1900s, we find that the current share in markets close to the city of origin, is, on average, 12 share (i.e., percentage) points higher than the national average of 22 percent.

What's amazing is how long these effects — however they are motivated — last.  Miller Beer was introduced to Chicago in 1856 (a very early launch though technically not its first city) and it still has an advantage there, relative to other cities.  Heinz Ketchup originated in Pittsburgh in 1876 and it still has an market share advantage there, again relative to other cities.

What is the mechanism?  Is it that durable relationships with retailers persist for a very long time?  Do area consumers develop the brand habit and pass it down across the generations?  Or is the brand from a particular area better suited for people of that area in the first place, perhaps for reasons which are demographic or ethnic in nature and somewhat persistent through time?

Petairways:

Each time pets move anywhere, from the Pet Lounge to the pet limo or
from the pet limo to the plane, we track and record their progress,
which means you can monitor your pet’s journey every step of the way
online at Pet Airways Pet Tracker.
Our Pet Airways Promise is that your pet will never be left alone. A pet attendant will always be within a cat's meow.

The airline is for pets only and they are called "Pawsengers."  Here are some price comparisons.  Here is something akin to a frequent flyer club.  The crew aside, humans are not even allowed to fly in the cargo hold.  Here is their blog, which includes a clip from FoxNews.  I was convinced this was not real but the brilliant John dePalma, the original source of the reference, sends along this BBC story:

The airline has scheduled its first flight for cats and dogs for 14
July and will serve five US cities – New York, Washington DC, Chicago,
Denver and Los Angeles(…)The flights will be made in 19-seat turbo-prop planes operated by
Suburban Air Freight, which have their seats removed to make space for
the pet carriers.

If you don’t give a bank any more money, it doesn’t have any more money.

Here is much more, worth a read on the latest banking plan.  At the end of the post the author asks:

Is there another way to explain this even more simply?

I believe the answer is no.

Addendum: Paul Krugman says the same.

Greg Mankiw has a very good post (and column) on the idea of negative interest rates.  I have long found this a good conundrum to tease (these sad days I dare not use the word "torture") graduate students with.  Here is one explanatory passage:

If r is the real interest rate, then the relative price of consumption
tomorrow in terms of consumption today is 1/(1+r). Is there anything in
economic theory that requires this relative price to be less than one?
Unless consumption goods are costlessly storable, which they aren't, I
do not think so. Just as the price of apples can be more or less than
the price of pears, the price of consumption tomorrow can be more or
less than the price of consumption today. If people are eager to defer
consumption, then consumption tomorrow could well be more expensive
than consumption today–that is, the equilibrium real interest rate
could well be negative.

Of course there is more than one good in today's economy and no one holds the consumption basket per se.  I've been trying to think through the implications of a negative real rate, combined with zero or near-zero storage costs for some goods, and positive or very high storage costs for other goods.  What happens to relative prices and relative inventory holdings?  Does this situation serve as a tax on the strawberry industry?  If there is one good, with zero storage costs, and roughly flat marginal utility across the indicated range, can intertemporal arbitrage, using that good, force us back to a near-zero rate of return?  In what way do the falling MU curves for easy-to-store goods enforce limits on the effectiveness of monetary policy in this setting? 

These questions make me dizzy.

Prior to his leading the Fed, I viewed Bernanke as having been in the running for a future Nobel, although not being a necessary or hands-down winner.

Now, let's say that all of his unusual maneuvers at the Fed don't work.  I believe his chance for the Prize will be slim.  Correctly or not, he'll be remembered as the guy with the failed ideas.

Alternatively, say his methods do work and the economy recovers relatively quickly, with a minimum of additional pain for the banking sector.  Should his chance go up?  Will his chance for the Prize go up?  Should he then be a shoo-in for the Prize?  Could his success count as a remarkable and indeed unprecedented test of an economist's theories?

Just wondering.

David Leonhardt points to another example of partisanship bias, this one from the latest Gallup Poll:

The not-at-all-right-wing Lane Kenworthy writes:

Moderate or high levels of tax revenue can’t come solely from higher
rates or new taxes on the rich; the math simply doesn’t work. To
significantly increase spending on transfers and/or services, President
Obama and/or his successors will need to increase taxes on the middle
class. One way to do this would be via a federal consumption tax, such
as a value-added tax (VAT).

I would like to see a betting market in when this is first mentioned by the Obama administration.  I don't think it will be very soon, but it will be within eight years' time.

Uh-oh:

…it's also clear that part of the gun-buying rally is driven by
people like Mr. Chambers who are buying weapons the way others invest
in a hot stock. The buying is pumping up prices. Many popular models of
guns are back-ordered for a year or more. Some manufacturers are
operating plants 24 hours a day. According to the 2009 edition of the
Blue Book of Gun Values, the average price of European-made AK-47s —
the famous Soviet-era military weapon now made in several countries —
doubled from $350 last September to more than $700 by the end of 2008.

Bert Collins, an Atlanta commercial
real-estate manager, recently bought two AR-15 rifles for about $1,600
each. He's keeping one in its box, untouched, with the hope of selling
it at a profit should Congress re-enact the law, which expired in 2004.
"It's certainly a better investment than my 401(k) has performed," Mr.
Collins said.

Bubba Sanders, owner of Bullseye Supply LLC, in Brandon, Miss., said
he has "a number of doctor clients whose financial advisers have told
them to invest in ammunition. Beats the hell out of money markets and
CDs. You can double your investment in ammunition in a year."

I thank John de Palma and James Solier for the pointers.

Via HBS, a good introduction.

I thank George McQuistion for the pointer.

I don't think so.  I think the truth — hard for some people to digest — is simply that these smart Social Democrats, rightly or wrongly, don't much believe in massive fiscal stimulus.  They're used to the idea that their economies have big structural problems that government spending cannot eliminate.

If fiscal policy can work for a large country such as the United States, it should work for the Netherlands (or Portugal) as well, even if it would work with less potency.

The benefits from the first round of spending would be captured almost completely within the Netherlands.  If unemployed resources can be well targeted, and without messing up incentives too badly, (big "ifs" in my view), that provides an almost automatic case for extra Dutch government spending.

It is a good question whether the Dutch already have too much government spending.  I will say yes but I don't much hear this from fiscal policy advocates.  Maybe they think the current Dutch balance is "just right" but again that means at the margin fiscal policy, targeted at unemployed resources, won't wreck the overall balance.

What about the second round of expenditures from the fiscal policy?  Well, if a big chunk of those newly employed workers increase their spending on food, shelter, and local transportation, lots of the second round is captured in the Netherlands as well.  Even buying a T-shirt from China will likely benefit a Dutch retailer to some extent.

You will hear the common tale that "everyone not crazy thinks fiscal policy is a good idea, but some countries are too selfish, or too cowardly, to do it."

That story is an easy out, but the truth is that not everyone is so enamored of massive fiscal policy stimulus.  If they were, they would be doing it.  But they're not.

Hong Kong, by the way, is preparing a relatively aggressive stimulus package.

Here is a relevant blog post on Germany.

Masonomics looks at the human brain as an organ that is highly evolved
to engage in deception, including self-deception. It can reason without
necessarily being rational. The way I see it, Masonomics does not
necessarily agree that humans tend to choose the best ways to achieve
their objectives. Instead, we are limited by our capacity for
self-deception, among other shortcomings.

That is from Arnold Kling.

Here is an excellent blog post and Fed study.  There is too much content for my summary to dominate clicking on the link but the bottom line is this:

This analysis suggests mortgage modifications – without principal reduction – will have limited success.

It is one of the best economics blog posts this week.